Project Report on

“A study on construction of optimal portfolio using Sharpe’s index model with

special reference to the Sharekhan at Bengaluru”
BY
LOKESH
(1NT17MBA18)
Submitted to
VISVESVARAYA TECHNOLOGICAL UNIVERSITY,
BELAGAVI

In partial fulfilment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION
Under the guidance of

INTERNAL GUIDE EXTERNAL GUIDE

Prof. Jyothi MS. Bhavani
Department of Management Studies RT Nagar Bengaluru.
NMIT, Bengaluru

Department of Management Studies

NITTE MEENAKSHI INSTITUTE OF TECHNOLOGY
BENGALURU-560064
2017-2019
 EXECUTIVE SUMMARY

The security analysis and portfolio management has emerged as the most important aspect for
rational investment and decision making. Portfolio is a combination of securities such as stocks,
bonds and money market instruments. The process of blending together the broad assets classes so as
to obtain optimum return with minimum risk is called portfolio construction. A portfolio tries to
trade off the risk return preferences of an investor by not putting all eggs in single basket and thus
allows for sufficient diversification. The fundamental target of my undertaking is to locate the ideal
venture chance to put the cash in progressively ideal portfolio by choosing organization stocks in
BSE Index.
Venture are made to verify future and for satisfaction of goals. The venture procedure is to set the
speculation arrangement which includes deciding the financial specialist objective and the measure
of riches accessible for contributing. Portfolio is the last advance where speculator needs to think
about a few issue of selectivity, timing and broadening. In the last period of venture process the
portfolio development is updated and assessed. The development of an ideal portfolio is rearranged if
a solitary number estimates the allure of incorporating a stack in the ideal portfolio. Single Index
model give such a numbers. For this situation the attractive quality of any stock is controlled by
overabundance come back to beta, which would speak to the attractive quality of a stack’s
incorporation in a portfolio.
The study focuses on finding out an optimal portfolio using Sharpe's single index model. This article
is framed around constructing an optimal portfolio by balancing the positive and negative correlation
existing between the securities and in turn getting returns closer to the anticipated results. For this
study, the stocks from the iron and steel industry have been selected as this sector is of prime
importance for real growth of an economy.
 CHAPTER – 01

INDUSTRY PROFILE

Stock market is a market where trading of company stocks, other securities and derivatives takes
place. Stock exchanges are corporations or mutual organizations, which are specialized in trading
stocks and securities. All sorts of company stocks are enrolled in the stock exchanges.

Some of the stock markets in India are listed below: -

•Bangalore Stock Exchange

•Mumbai (Bombay) Stock Exchange

•Calcutta Stock Exchange

•Delhi Stock Exchange

•Madras Stock Exchange

•National Stock Exchange Mumbai (Bombay) stock exchange is India’s first stock exchange. It was
founded in 1875with total number of listed stocks being more than 6,000. In India there are total 22
stock exchanges operating across the country. The National Stock Exchange (NSE) is situated in
Mumbai The small and medium sized companies can list their stocks in Over The Counter Exchange
of India (OTCEI).The Securities and Exchange Board of India (SEBI) regulates the functioning of
capital market and protects the interests of the investors. It is situated in Mumbai.
History of stock market in India

The working of stock exchanges in India started in 1875. BSE is the oldest stock market in India.
The history of Indian stock trading starts with 318 persons taking membership in
NativeShare and Stock Brokers Association, which we now know by the name Bombay Stock Excha
nge or BSE in short. In 1965, BSE got permanent recognition from the Government of India.
National Stock Exchange comes second to BSE in terms of popularity. BSE and NSE represent
themselves as synonyms of Indian stock market. The history of Indian stock market is almost the
same as the history of BSE. There are 23 recognized stock exchanges in India Bombay Stock
Exchange ,National Stock Exchange, Ahmadabad Stock Exchange, Bangalore Stock Exchange,
Bhubaneswar Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange,Guwahati Stock
Exchange, Hyderabad Stock Exchange ,Jaipur Stock Exchange, Ludhiana Stock Exchange, Cochin
Stock Exchange, Coimbatore Stock Exchange, Madhya Pradesh Stock Exchange, Magadha Stock
Exchange, Madras Stock Exchange, Mangalore Stock Exchange, Meerut Stock Exchange.

Bombay stock exchange

Type Stock exchange

Location Dalal street Mumbai

Founded 9th July 1875

Key people Premchand Roychand (founder), shri

Sethuruam Ravi (chairman), Ashiskumar
Chauhan (MD and CEO)

Market capital 154.01 lakh crores

No of listings 5749

Website www.bseindia.com
BSE is Asia's first and most seasoned trade what's as of now famously alluded to as the distraught
cow illness, Bombay trade is built up in 1875 "The Native offers and stock merchants relationship"
over a hundred and forty past years. frantic dairy animals infection has facilitated the extension of
the Indian organization part by furnishing it with partner conservative capital raising stages professes
to be world's speediest trade, with a middle exchange speed of six microseconds, the distraught cow
ailment is that the world's no 1 trade as far as scope of recorded firms (more than 5500), it's reality's
fifth most dynamic regarding scope of exchanges took care of through it electronic framework. it's
eleventh biggest trade with a capitalization (2 trillion Gregorian logbook month 2017). frantic dairy
animals illness is first trade in India, related second inside the world to get an ISO 9001:2000
authentication and gets information security the executives framework, distraught bovine sickness
file SENSEX distraught cow ailment on-line corporate greed (BOLT). In 2005, distraught cow
sickness was given the remaining of an undeniable open Ltd. together with a notoriety for being
"Bombay trade Limited"

National Stock Exchange

Type Stock exchange

Location Mumbai, Maharashtra, India

Founded 1992

Key people Mr. Ashok Chawla(chairman), Vikram

Limaye (MD & CEO)

Market capital 1.41 trillion

No of listings 1696

Website www.nseindia.com

The national stock market of Republic of |Bharat Asian nation is one amongst the leading stock
exchanges in India. that was established in 1992 as 1st demutualized electronic exchange in country.
The NSE of Asian nation restricted was promoted by IDBI, ICICI, GIC, LIC, SBI, SHCIL and IL &
FS as joint stock company below corporations act 1956 on Nov twenty seven 1992. the govt of Asian
nation has granted recognition with result from Apr twenty six, 1993. NSE India is the largest stock
exchange. More than 60% of India’s total turnover took place through NSE terminals followed by
BSE 33.4%in BSE and Calcutta stock exchange 0.6%. NSE was first to offer screen based trading all
over India, NSE is world’s 12th largest in terms of market capitalization NSE’S flagship index the
NIFTY 50, a company seeking listing on NSE should have a minimum capital of 10 crores and
market capitalization of at least 25 crores is professionally managed, where management and
member brokers are different. Normally in other stock exchanges, brokers themselves manage the
stock exchange. NSE is specialized in 3 segments;
 capital market
 wholesale debt
 futures and options

COMPANY PROFILE

Founded 8 February 2000

Headquarters Mumbai, India

Country of origin India

Industry Financial services

Parent company BNP Paribas

Website www.sharekhan.com

Net worth 2200 crores

CEO Jaideep Arora

Share khan Ltd. (Established in the year of 1922) is founded in February 2000, by Mr.Shripal
Morakhia at Mumbai, India (Headquarters). The parent company of Share khan is BNP Paribas.
Operating in the Financial Industry as a retail broking industry and leveraged on the first wave of
digitalization, it introduced the electronic trading system when dematerialization (Demat) of
securities came into existence in the country. Now the Share khan has more than 4800 employees all
over the country and is present in over 575 cities through 150 branches, more than 2600 business
partners. Share khan has 1.6 Million clients and on an average, executes more than 4 lakh trades per
day in India.
The present CEO of the Share khan is Mr.Jaideep Arora.
Share khan is the India’s 3rd largest brokerage firm after the ICICI Direct and HDFC Securities in
the terms of customer’s base. Share khan is good in online trading in India. It offers broad range of
financial products and services to the clients like securities brokerage, loan against shares, ESOP
financing, etc. Share khan provides a user friendly online trading facility.
The share khan is started in 2000 and it is a hold by BNP Paribas since November 2016, Share khan
was the first brokers to offer online trading in India.

 Share khan by BNP Paribas

Share khan is currently a totally in hand subsidiary of BNP Paribas, it absolutely was rebranded as
share khan by BNP Paribas. BNP Paribas is leading bank in Europe with a world reach. it's a
presence in seventy five countries, with quite 189,000 staff. it's a presence in Bharat for over a
hundred and fifty years having established its 1st branch in Kolkata in 1860 with this unequalled
expertise of the Indian market, it's among the leading company banks within the country. Through its
branches in eight key cities – Bombay, Delhi, Kolkata, Chennai, Hyderabad, Bengaluru, Ahmedabad
and Pune. BNP Paribas offers subtle solutions in its three-crore business – company and institutional
banking, investment solutions and retail banking.
PROMOTERS AND MANAGEMENT TEAM
Share khan was based and promoted by metropolis based mostly bourgeois Shripal Morankhia in
2000 SSIK family with belongings of 51%and currently it's promoted by BNP Paribas. currently
share khan is absolutely owned subsidiary of BNP Paribas and is rebranded as share khan by BNP
Paribas. BNP Paribas owned share khan for Rs 2200 crores in Gregorian calendar month

 Share khan board Members

NAME TITLE

Jaideep Arora CEO and Whole – time Director

Shankar Vailaya Whole – time Director

Jimmy Mahtani Member of the board of Director

Marc Desaedeleer Member of the board of Director

Rahul Yadav Member of the board of Director

Sumeet Narang Member of the board of Director

Anil Nagu Member of the board of Director

Vikram Limaye Member of the board of Director

VISION, MISSION, QUALITY POLICY

Vision:
To be the best retail brokering brand in the retail business of stock marketing.

Mission:
To educate and empower the individual investor to make better investment decisions through the
quality advice and superior services.
Quality policy:
Excellence is all about the quality of work. We strive for delivery that is 100% error free and yet at
lightning speed. Excellence deals with the quality of work.

PRODUCTS AND SERVICES OF SHARE KHAN LTD:

Different types of products and services offered by Share Khan Ltd. Are: -

 Equities and Derivatives trading

 Depository services
 Online services
 Commodities trading
 Dial-n-trade
 Portfolio management
 Share shops
 Fundamental research
 Technical research

FINANCIAL PRODUCTS AT SHAREKHAN:

Share Khan Ltd offers following products to their clients through online-

1. CLASSIC ACCOUNT: -

This account helps the investors to provide information regarding before, during and after marketing
hours of trading activities to their clients easily. This account help the clients of the company to trade
through online and it comes with the daily trading services that helps clients to buy and sell
derivatives instruments in sharekhan.com in equities, F&O, commodities and currencies, investing in
IPO’s, mutual funds, ETFs and Bonds.

2. TRADE TIGER: -

It is an ultimate for online trading system in Share Khan Ltd with a unified screen for the trading
activities and it has advanced charting and automated alert system and it has advanced charting and
automated alert system and it is an desktop application software.

3. SHARE MOBILE: -

It is an online mobile trading activity. It is an application software provide by share khan ltd.
Clients can be used in mobile phones for buying and selling of stocks through mobile phones.
 4. SHAREKHAN MINI: -

It is a browser based site in the mobile phones for online trading activities to have this facility a
person should have an account in share khan ltd for carrying out trading and it also requires internet
facilities in their mobile phones.
5. SHARESHOP: -

It is carried out by visiting the clients to their respective branches to carry out the trading activities
by communicating to their stock brokers.
6. DAIL-N-TRADE: -

It refers to the trading activities which are carried out through the calls or phones by calling to their
respective branches for carrying out the trading activities.

SERVICES BY THE SHARE KHAN LTD:

1. TRADING OF EQUITIES
2. TRADING OF DERIVATIVES
3. SERVICES OF DEPOSITORY
4. FINANCE MARGIN
5. MUTUAL FUNDS
6. IPO’S (INITIAL PUBLIC OFFERING)
7. BORROWING AND LENDING OF STOCKS
8. ADVISELINE
9. RESEARCH IN EQUITY
10. PORTFOLIO MANAGEMENT SERVICES
11. SYSTAMATIC INVESTMENT PLAN
12. TOP PICKS
13. ADVISORY DESK

1. TRADING OF EQUITIES:
Share khan ltd provides trading services in equity stocks both in online as well as offline trading
services throughout the world for trading of stocks in the secondary market for their clients and also
share khan is also a member of NSE and BSE. It has many branches across the country for carrying
out the trading services.

2. TRADING OF DERIVATIVES:

The company also trade derivatives such as feature and options under the segment of BSE and NSE.
The trading activities carried out through online or clients can visit to their branches for trading
services.
 3. SERVICE OF DEPOSITORY:

The share khan ltd is participant of depository services of national services depository limited
(NSDL) and for central depository and services limited(CDSL). This helps to provide DE mat
account services to their clients where certification can be converted from physical form to the
electronics form.
4. FINANCE MARGIN:

In the present situation all the investors doesn’t have money to invest in securities so share khan will
provide a need of additional finance to their clients for daily purchasing of stocks at very less interest
rates to their daily trading clients. It provides loan for securities, financing of IPO, funding of ESOP,
funding of margin etc.
5. MUTUAL FUNDS:

Share khan helps their clients in investing in the mutual funds and it was house for distributions for
mutual funds.
6. IPO’S(INITIAL PUBLIC OFFERING):

Share khan also provides their clients of investing in the respective primary of IPO market through
online and offline services.

7. BORROWING AND LENDING OF STOCKS:

Clients can place in order for shares at share khan ltd for borrowing and lending of stocks through
online as well as offline.

8. ADVISELINE:

It is an advising solution by the share khan ltd to their clients through the phone calls about the stock
market or other portfolios.

9. RESEARCH IN EQUITY:

Share khan has rating highly research by using macroeconomic studies, company and the industry
equity research. They use research for analysis in depth based on technical and fundamental analysis,
ideas for the investment and for attending the calls for trading purpose.
 10. PORTFOLIO MANAGEMENT SERVICES:

Securities of share khan ltd were a manager for portfolios which is registered with SEBI for
managing of portfolio on the behalf of the clients with a discretionary and the nondiscretionary basis.
This provision of service for those who any not have time to maintain investment in stocks or by
providing services of the company with high specialized and trained team.
11. SYSTAMATIC INVESTMENT PLAN:
Share khan also provides SIP their clients for investment plans in stock and mutual funds which help
the clients to invest small amount of money periodically instead of single payment at a time.
12. TOP PICKS:
It is an application used by share khan for picking cherry stocks which means it is the way for
investors in choosing investment which has done well in other portfolios so that it will continue in
further. It is advised by experienced experts of the company.
13. ADVISORY DESK:

It is solution of advising to their clients regarding portfolio doctor, creator of wealth, portfolio of
power and picks of alpha etc. in the respective branches so that the clients can visit their branches for
getting a solutions of stocks.

EDUCATION SERVICES PROVIDED TO THEIR BY SHARE KHAN LTD: -

 FIRST STEP
It is a program which is provided to the clients for the first time who are holding their DE mat
account in the share khan ltd.

 ATC
It is online trading facilities by share khan ltd. It is traders and investors trading free of cost.

 LEARN TO TRADE
It is training facilities by share khan ltd to their clients and how to trade in the market how invest in
free of cost.

 SKTV
It is an app to watch live videos that connect the clients to their market experts.

AREA OF OPERATION:
Share khan ltd was established in the 2000 on February 8. It is an online trading process of stocks
marketing and stock investment. It is second largest stock broker portal. It is overall 1600 branches
in 575 cities in India. Share khan ltd has 1st independent and 3rd retail brokerage firm in India. It is
offered broking solutions to more than 1.4 million investors.

INFRASTRUCTURE FACILITIES:
Share khan ltd has well designed their all 1600 branches in 575 cities across India. Share khan had
spent huge expenditure in the infrastructure so that all investors standard price will come with the
creating connection with the possibility of investment by good environment and atmosphere with
good comfort.

OWNERSHIP PATTERN:
It was established by SSKI family which was the parent company of share khan in February 2000 by
Mr Shripal Morakia and Mr Shreyas Morakia. The authorised share capital was Rs. 900,000,000 and
the paid-up capital was Rs. 865,374,850. This family was owned 54.55% of the paid-up capital
before and remaining was holding before by CARLYE-15.76%, HSBC-18.34%, INTEL-11.35%.
But on November 2016 it was fully acquired by BNP PARIBAS for Rs. 2,200 Crores.

COMPETITORS OF SHARE KHAN LTD:

 HDFC SECURITIES LTD
 KOTAK SECURITIES LTD
 INDIA BULLS FINANCIAL SECURITIES LTD
 ANGEL STOCK BROKING LTD
 KARVY STOCK BROKING LTD
 GEOJIT FINANCIAL SERVICES LTD
 LKP SECURITIES LTD
 ADITYA TRADING SOLUTIONS LTD
 ANAND RATHI FINANCIAL SERVICES LTD
 DESTIMONEY FINANCIAL SERVICES LTD

Name of the TERMINALS SUB NUMBER OF NUMBER OF

STOCK BROKERS BRANCHES EMPLOYEES
BROKING
Angel broking 5760 250 400 280
ltd
Geojit 670 285 410 335
Kotak securities 4365 1050 6080 410
ltd
Anand rathi 380 220 300 290
financial
services ltd

ACHIEVEMENTS AND AWARDS OF SHAREKHAN LTD:

 In 2001 they had won the ‘FINANCIAL WEBSITE’ award.

 As per 2004 edition, Business today rated Share khan as top 20 in providing products and
services to their clients.
 It was awarded 4 times by the Euro Income and also by Asia Money as the ‘TOP
DOMESTIC BROKERING HOUSE’.
 It is the declared as one of the top 2 online trading services in India.
 It has considered largest number of brokers picked in India by CNBC AWAAZ in the year
2005.

FUTURE GROWTH AND PROSPECTS OF SHAREKHAN LTD:

 It has excellent service with centralized call centres with around more than 400000 retail
clients.
 It has skilled financial advisors with the 75 branches providing services for trading.
 It has planned to open 200 new branches across the country.
 Investigation is done to build a fundamental and technical analysis for a role to strong
advisors.

FINANCIAL STATEMENTS
Particulars March March March
2016 2017 2018
I. INCOME
 1) Operating income 150.58 145.94 163.43

II. Expenses

1) Material consumed 125.71 124.16 133.41

2) Manufacturing expenses 5.08 3.82 3.80

3) Personnel expenses 4.82 5.15 5.47

4) Administrative expenses 9.34 8.73 9.95

5) Cost of sales 144.94 141.85 152.63

6) Operating profit 5.63 4.09 10.81

7) Other recurring income 1.37 1.56 1.41

8) Adjusted PBDIT 7.01 5.64 12.22

9) Financial expenses 0.44 0.26 0.53

10) Depreciation 1.15 1.20 1.23

11) Adjusted PBT 5.42 4.18 10.46

12) Tax charges 1.51 1.71 3.53

13) Adjusted PAT 3.90 2.46 6.93

14) Non- recurring items -0.21 0.00 0.00

15) Reported net profit 3.69 2.46 6.93

16) Earnings before appropriation 8.77 9.14 14.66

17) Equity dividend 1.29 0.86 1.64

18) Retained earnings 7.22 8.10 12.59

 Chapter 2
MCKENSY’S 7S MODEL OF SHAREKHAN LIMITED:

The Mckensy’s 7s model is most often used as an organizational analysis tool to assess and monitor
changes in the internal situation of an organization. The model is based on the theory that, for an
organization to perform well, these seven elements need to be aligned and mutually reinforcing. So,
the model can be used to help identify what needs to be realigned to improve performance, or to
maintain alignment (and performance) during other types of change.

Whatever the type of change – restructuring, new processes, organizational mergers, new systems,
change of leadership, and so on – the model can be used to understand how organizational elements
are interrelated, and so ensure that the wider impact of changes made in one area is taken into
consideration.

McKensy 7s model involves seven interdependent factors which are categorized as “hard” or “soft”
elements:
Hard elements:
Strategy
Structure
Systems

Soft elements:
Shared values
Skills
Style
Staff

“Hard” elements are easier to identify and management can directly influence them: These are
strategy statements; organization charts and reporting lines; and formal processes and IT systems.

“Soft” elements, on the other hand, can be more difficult to describe, and are less tangible and more
influenced by culture.

1. STRATEGY:
 The strategy of share khan limited

 To maintain and build competitive advantage over the competition.

 To develop the organisations.
 To successfully compete in market.
 The strategy is help to achieve the organisation goals.
 Survey and inspection: The growth in technology and communications has impacted
every aspect of business in same forms.
 To information flow.

2. STRUCTURE:

Share khan limited structures as,

 It is the business divisions and units are organized.

 It is support to digital business.
 Integration of digital marketing with management, marketing, and IT staff.
Share khan organization chart:

Managing director

Head distribution Head commodity

Head equity

Administrativ General manager Regional manager

e

Branch manger Franchisees Commodity Dist. manager

manager

Assistant manager

operations

Financial Terminal Front office staff Back office staff

consultant operator

Casual employees
3. SYSTEMS:

Systems on share khan limited

 To development of specific processes, procedures system to support digital business.

 Managing customer information.
 Managing customer experience and service.
 Information sharing to the customer in stock exchange.
 Information on digital marketing sharing to customers.
 To focus for managers during organizational change.

4. STAFF:
Staff on share khan

 Share khan employees are study on stock broking.

 Employees are stock information sharing to the customers.
 Share khan employees are very friendly.
 More customer preference.
 Share khan limited is employees training and development.
 Employees is good work on achieving the goals.
 Promotion on employees based on work and performance.
 Staff is well motivated to customers.

5. STYLE:

 Share khan limited is achieving goals and the cultural style on behave managers.
 Relates to role of the digital marketing.
 Share khan is managed by top level managers.
 Share khan is adopted leadership on employees.

6. SKILLS:
 Skills on share khan limited,

 Its employees are well trained and developed.

 Its employee specific skill sets of the team members.
 It is used to advance technology.
 Share khan is selection to specific areas on open the branches.
 It is used to digital marketing, specific e-marketing media channels.
 Employees are more capabilities and competences

7. SHARED VALUES:

Share khan Shared values are,

 To guiding concepts of the digital business or e-commerce organization.

 To improving the perception of the importance and effectiveness of digital business
SWOT ANALYSIS OF SHARE KHAN LTD:

SWOT analysis is a study undertaken by an organization to identify its internal strengths and
weaknesses, as well as its external opportunities and threats. SWOT analysis is most commonly used
by business.

STRENGTHS-
 Share khan ltd is the first company in India to provide online trading services to the clients.
 It provides customer care facilities to their clients at free of cost.
 It has a very strong infrastructure of I T.
 It provides both kind of facility that is online and offline.
 It has a variety of financial products which is very innovative.
 It has more experience brokers who have knowledge about stock market.
 It has served more than 1.4 million clients from across 1600 branches in 575 cities in India.
 It has won the top brokerage house in India award by Asian Brokers Fund.
 Its parent company was SSKI group who has an more than 80 years of trust to the people.
 It is various innovative products and services.
 Expertise research team.
WEAKNESS
 It charges more brokerages.
 It is limited to urban areas only.
 It does not provide about the indices of world market.
 It should require good internet facility to carry out trading services.
 Less educational and awareness activities.
 Less tie-ups.
 Lack of promotions activities.

OPPORTUNITIES-
 It has registered stock exchange of Luxemburg so it can attract other stock exchanges.
 It provides financial services like insurance.
 It provides a chance of trading in the currencies, equities, commodities.
 It is growing at a high speed when compare to other competitors.
 Growing Domestic and International financial market.
 Building the clients standardization and relationship.
 Expanding the stock broking firm in different areas.

THREATS-
 Due to the Tax rates.
 Due to changes in the SEBI guidelines.
 Many of the local brokers will charges less brokerages compared to Share Khan Ltd.
 Competitors are the major threats of Share Khan.
 Rules and regulations of government.
 Advisory fee charges War amongst competitors.
 High competitors by major players in Indian Financial Services Industry.
 CHAPTER-03
CONCEPTUAL BACKGROUND AND LITERATURE REVIEW

Portfolio management includes selecting what benefits for incorporate into the portfolio, given the
objectives of the portfolio man of affairs and dynamic financial condition. choice comprehensive
deciding what assets is acquisition, what percentage units square measure purchases, once to induce
them, and what assets to strip. These selections dependable includes a sort of performance
measuring, most commonly expected gain on the portfolio, and therefore the hazard connected with
this various resource cluster is analysed.
Sharpe’s Index model proposes that the connection among each few securities be ready to in a
roundabout way to be calculated by scrutiny the opposite security to a frequent issue ‘Market
performance index’ it'll be shared among every and each one amongst the securities. it's reducing the
difficulty of huge input necessity beside difficult computation very important in Markowitz’s mean –
variance approach. wherever as Markowitz model needs n(n-1)/2 information inputs, the sharpe’s
Model needs solely (3n+2) information inputs, that's estimation of each security, estimates used for
accepted come back on market index and estimates of variances of come back. This forms spirit of
sharpe’s model have complete monetary analysts and research worker to treat because it higher to the
Markowitz model.

Assumptions of sharpe’s single Index model

1. The wishes of all investors ar homogeneous in nature.
2. A holding amount is employed as a locality of evaluating risk and come back for each security.
3. a flash of value of a security can't be dependent ahead the scenery of the opposite securities.
they're conjointly enthusiastic about the overall business and economic conditions.

Construction of optimal portfolio by using sharpe’s single index model

Usually, the overwhelming majority of the stocks value over some stretch of your time shift through
the market index. Fund managers perform selection of securities supported management ability and
security study that are prepared permitting a variety of parameters almost like the revenue business,
its profit fringe, DSP, EPS, ROI.
Securities are ranked on the basis of excess return of beta ratio.

 Calculation of variance of the index

∑(𝐑𝐦−𝐑𝐦)
𝛔𝟐 =
𝐍−𝟏

 Variance of the stock:

(∑𝐑𝐢−𝐑𝟏)
𝛔𝟐 =
𝐍−𝟏

 Systematic and unsystematic risk formula:

Systematic risk = 𝛃𝟐 𝛔𝟐
Unsystematic risk = 𝛔𝟐 𝐞𝐢 − 𝐬𝐲𝐬𝐭𝐞𝐦𝐚𝐭𝐢𝐜 𝐫𝐢𝐬𝐤

 A calculation of Ci to all the stocks on the basis of ranking order:

𝐑𝐢−𝐑𝐟
𝛔𝟐 𝐦∑ 𝛃𝐢
𝛃
𝐂𝐢 = 𝛃𝐢𝟐
𝟏+ 𝛔𝟐 𝐦∑ 𝟐
𝛔 𝐞𝐢

Where,
𝛔𝟐 𝐞𝐢=unsystematic risk
β=beta value of each stock
σm=market risk
Ri – Rf = excess return
  By calculation of Zi and Xi are to know how much amount to be invested in each stock:

𝛃𝐢 𝐑𝐢−𝐑𝐟
𝐙𝐢 = − 𝐜∗
𝛔𝟐 𝐞𝐢 𝛃𝐢

𝒁𝒊
Xi =
∑𝒛𝒊

Where,
Xi = Proportion of investment
𝛔𝟐 𝐞𝐢 = unsystematic risk
β = beta value of security
Ri – Rf = excess return
C* = cut off point

TOPIC CHOSEN FOR STUDY

“A study on construction of optimal portfolio using Sharpe’s index model with

special reference to the Sharekhan at Bengaluru”

NEED FOR THE STUDY

 To help the investor to get out of chaotic situations

 This help the investor to find out a portfolio that best suites its needs
 This study maximises the return and minimises the risk by constructing portfolio
 The study helps investor identify investment opportunities
LITERATURE REVIEW

1) Article: Journal of management research and Analysis.

Title: construction of best portfolio exploitation sharpe’s single Index model: AN empirical
study on slap-up fifty stocks.

Authors: Tanuj Nandan Nivedita srivastavaz

 About Research: The construction of best portfolio has clad to be more and more testing as
lately, as capitalist hope to a lot of returns and limit risk from their individual speculations. A
capitalist must correct data of security investigation and portfolio hypothesis for setting on
remedy venture decisions. within the year 1950, Harry Markowitz designed up a comprehensive
model that expressed that capitalist will diminish their hazard through examination within the gift
examining sharpe’s single Index Model is employed to make a perfect portfolio. The cause
behind selecting SIM over the Markowitz model is that it needs less knowledge sources and it's
easier to reason. it's named as single Index model because it utilizes simply a portfolio
development. Further, the extent of venture of every stock incorporated into the perfect portfolio.

2) Article: International journal of business and administration research review

Title: Construction of optimal equity portfolio using the Sharpe index model with reference to
banking and information technology sector in India from 2009 – 13.

Authors: Dr. K.V Ramanathan, K.N Jahnavi

About Research; Indian security market is AN exceptionally unstable and sensitive market
wherever portfolio development is passing very important to urge nice come back. that the
elementary focus of the study is to create a perfect worth portfolio with the help of sharpe index
model. during this examine media and amusement sector has been meditated for building the
perfect portfolio. Twenty organizations like PVR, Sun network, rule TV are chosen and over
abundance to beta proportion has been calculated and hierarchal the organizations visible of that
quantitative relation. The cut-off purpose was patterned visible of the foremost elevated esteem
and cut-off purpose have to be compelled to be place resources into each stock. This exploration
discoveries and recommendation would be helpful to investors for golf shot resources into
media and amusement division.
3) Article: International journal of advanced Research in management and social science.

Title: Optimal portfolio construction using sharpe single index model – A study of selected
stocks from BSE.

Authors: Dr. R. Nalini

About Research: To take a call on investment, we've some skills on security analysis and
portfolio development. a smart capitalist main goal is to induce a additional come on their
investment and reduces the chance of losses. The investment vary is dynamical levels of loss is
high, they principally target study on equity portfolio construction in mad cow disease. it's a
tough task to develop the portfolio to in addition as institutional investors. The study of sharpe
single index model is making data of the minds of the investors to construct a portfolio. The
investors of Indian folks conjointly get payback of sharpe’s single Index model (SIM) because
the figure of firms, within the exchange the trade can happen it'll be increasing year by year. fifty
organizations from the S&P mad cow disease Sensex index were chosen for the study. beside the
fifty samples solely four were taken for best portfolio mistreatment SIM.

4) Article: International journal of management, IT and Engineering.

Title: Optimal portfolio construction of selected stocks from NSE using sharpe’s Single Index
Model.

Authors: Dr. S. Poornima and Aruna. P. Ramesh

About Research: The study is interest on the optimum portfolio Construction by choosing
companies’ stocks from NSE victimisation sharpe’s Single Index Model. Construction of
portfolio may be a sophisticated job for the one investors at the side of institutional investors.
every capitalist needs to goal to obtaining a most come back at a coffee level of loses. The study
of sharpe methodology it'll facilitate to urge a technical talent concerning the analysis and
additionally produce a awareness of the investors mind. In favour of this fifty corporations
planned within the NSE had been elect. removed from the fifty corporations just some of the
businesses square measure enclosed within the optimum portfolio development. results of the
here learning and such mini stage studies permits investors towards for technical diversification
and yet contain further potency rate to the finance managers of rising economies the same as
Asian nation wherever the resources markets square measure silent within their simply starting
stage and numerous foreign institutional investors are drawn to invest within the foremost stock.
5) Article: Arabian Journal of business and management Review

Title: optimum portfolio construction: AN empirical study on elect mutual funds.

Authors: Suresh A S

About Research: the link between risk and come back may be a necessary half to investors. The
conduct of analysis to review the character of come back and loss, all investors prefer to invest
their quantity within the mixture funds with expectation of additional profit and fewer risk; it's
essential to form a portfolio to assist to achieve goals and objectives of the investors. each
investor’s main aim is to urge a additional profit on their assets with a smallest amount of loses.
Here some sorts of investors they're energetically do their own portfolio by analysis and
understanding wherever they modify and invest in future. In in our own way there square
measure some investors square measure fearful and that they take AN action solely it'll provides
a margin rate. The stocks square measure a lot of troublesome and sophisticated. the thought of
someone or organization is to assemble the investors, therefore maximize returns and minimizing
risk through eminent diversification.

6) Article: The great lakes Herald

Title: Sharpe’s single Index model and its application to construct best portfolio

Authors: Niranjan Mandal

About Research: a shot is created at now to urge associate degreed near inquisitive about the
thought unmoving in sharpe’s single index model to construct an best portfolio victimisation the
model. Taking mad cow disease SENSEX as market presentation index and allowing daily
indices beside among the daily fluctuation costs of securities for the stage of Apr 2001 to march
2011, the longer term method formulates a sole cut-off worth associate degreed selects
individual’s securities to make an best portfolio whose surplus come back to beta magnitude
relation and cut-off rate. Then, a part of investment in each chosen security is calculated on the
idea of beta worth, disorganised risk, excess come back to beta and cut-off rate of all of the
securities involved

7) Article: Indian journal of analysis in capital markets 4(4), 2017

Title: Construction of associate degree best portfolio victimisation Sharpe’s single Index model:
A study on bully Midcap a hundred and fifty scrips

Author: S Mahabub Basha, MS Ramaratnam

About Research: during this empirical study, we have a tendency to thought-about solely twenty
five scrips out of {150associate degreed fifty} for construction of an best portfolio. bully midcap
contains totally different sectors scrips. Risk are often unfold among the chosen scrips. Risk and
come back was studied for individual securities. Sharpe’s single index model was developed
 victimisation the surplus returns to beta magnitude relation, finish to a halt} rate that finally
junction rectifier to the event of associate degree best portfolio and determined the proportion of
fund investments in varied scrips. In general, investors take investment choices supported world
data and market potency and create portfolio decisions to get higher returns. This study can
essentially facilitate the investors to require the correct investment choices. this study known
associate degree best portfolio from the chosen twenty five corporations, that served to maximise
the returns for the investors.
8) Article: International journal of research and analytical review 2015
Title: Construction of optimal portfolio using sharpe index model and Camp for BSE top 15
securities.
Author: Chintan A shah
About research: Portfolio is that the combination of securities like stocks, bonds and securities
industry instruments. the method of mixing along the broad quality categories therefore on
acquire optimum come with minimum risk if known as portfolio construction. Diversification of
investments helps to unfold risk over several assets. Investment management, additionally noted
As portfolio management, could be a complicated method or activity that will be divided into
seven broad phases. Markowitz model has serious sensible limitations because of the pains
concerned in aggregation the expected returns, variance, variance, variance of every security to
each different security within the portfolio. Sharpe model has simplified this method by relating
the come in a very security to one market index. within the CAPM theory, the desired rate of
come of associate quality has a linear relationship with assets beta worth that's undiversifiable or
systematic risk. For the fulfilment of our analysis objectives that square measure to construct
associate best portfolio to judge the performance of BSE15 Rank the best portfolio made, and
compares the performance of BSE fifteen securities through sharpe model. Finally, the results are
drawn out on the premise of expected risk and come with the assistance of sharpe index model
and comparison between sharpe index model and CAPM model
STATEMENT OF PROBLEM
The securities market is highly volatile in nature, due to this most of investors face difficulty
while identifying investment opportunities, investors fail to predict when to buy and sell
securities and performance of industries. So this analysis is directed towards the use of technical
analysis tools which help investors when to buy and sell securities.

The problem that exist the investors has a problem of holding the securities and how much
amount to be invested. The Markowitz model permits AN capitalist to show up at AN optimum
portfolio, the only index model is useful in avoiding the difficulty of knowledge input and time
price thought.

OBJECTIVES OF STUDY

 To construct an optimal stock portfolio among the selected stocks.

 To present a review of past works relating to optimum portfolio construction and analysis.
 To build an optimum stock portfolio among selected stocks using Sharpe's Single Index model.
 To get the practical knowledge embedded in the sharp single index model.
 To construct optimal portfolio and analyse its risk and return for the investment made by the
investor
 To evaluate the performance of optimal portfolio

SCOPE OF THE STUDY

 The analysis has been done to construct an optimal portfolio for selected sectors
 Selection of companies are restricted based on Sensex index only
 This Analysis involves using of only technical analysis tools

RESEARCH METHODOLOGY

1) Research design: The research design adopted is analytical design

2) Data collection
 Secondary data
Secondary data is already published data it includes NSE(National stock exchange), money
control website, annual reports of the company and journals.

LIMITATION OF THE STUDY

 The study uses yearly price instead of monthly price
 To construct a portfolio only sharp single index model
 Only 3 years data has been taken for the study
 CHAPTER – 04
ANALYSIS AND INTERPRETATION

Portfolio construction based on sharpe single index model

Every capitalist faces the matter, of that stock to pick for his portfolio to urge many come back.
Beside the investors to require call what proportion quantity to take a position in every stock. easy
sharpe portfolio optimization model allows the capitalist to search out a portfolio that finest meets
the goals, objectives and risk acceptance of the capitalist. the method conjointly stress on portfolio
optimization, that is a very important a part of the portfolio choice technique. It helps to pick a
remainder of scrip’s that provides the most rate of come back for rock bottom risk that the capitalist
is willing to require.
Steps for finding the stocks to be included in the optimal portfolio are:

1. Realize the market value of the Sensex.

2. To calculate the beta, standard deviation variance and alpha values.
3. Calculate the return of the companies.
4. Realize the access return to beta ratio for each stock.
5. Rank them from highest to the lowest.
6. proceed to calculate Ci for all stocks.
7. The last step is to construct a optimal portfolio.
Calculation of market return and market variance
Table 4.1
The calculation of market return and market variance
BSE Sensex open value close value Rm Rm (𝑹𝒎 − 𝑹𝒎)𝟐
Jul-17 29737.73 29918.4 0.607545 0.610817 0.00001089
Aug-17 30021.49 31145.8 3.745017 0.610817 9.823211641
Sep -17 31117.09 30921.61 -0.62821 0.610817 1.535182562
Oct-17 31156.04 32514.94 4.361594 0.610817 14.0683288
Nov-17 32579.8 31730.49 -2.60686 0.610817 10.35344973
Dec-17 31769.34 31283.72 -1.52858 0.610817 4.577022522
Jan-18 31537.81 33213.13 5.3121 0.610817 22.1020617
Feb-18 33344.23 33149.35 -0.58445 0.610817 1.428660676
Mac-18 33247.66 34056.83 2.433765 0.610817 3.323140371
Apr-18 34059.99 35965.02 5.593161 0.610817 24.82374947
May-18 36048.99 34184.04 -5.17338 0.610817 33.45689518
Jun- 18 34141.22 32968.68 -3.43438 0.610817 16.36363698
Jul- 18 33030.87 35160.36 6.446969 0.610817 34.06067196
Aug-18 35328.91 35322.38 -0.01848 0.610817 0.396019051
Sep-18 35373.98 35423.48 0.139933 0.610817 0.221731399
Oct-18 35545.22 37606.58 5.799261 0.610817 26.91994878
Nov-18 37643.87 38645.07 2.659663 0.610817 4.197769037
Dec-18 38915.91 36227.14 -6.90918 0.610817 56.55034442
Jan-19 36274.25 34442.05 -5.05097 0.610817 32.05578567
Feb-19 34650.63 36194.3 4.454955 0.610817 14.77739755
Mar-19 36396.69 36068.33 -0.90217 0.610817 2.289129511
Apr-19 36161.8 36256.69 0.262404 0.610817 0.121391637
May-19 36311.74 35973.71 -0.93091 0.610817 2.376925379
Market 14.0488 315.8224649
TOTAL variance

4.1.1 Calculation of market variance

(𝐑𝐦−𝐑𝐦)𝟐
Market variance = ∑
𝟐𝟑

315.8224649
=
23

= 13.73141152.
 KOTAK MAHINDRA BANK Ltd
Table 4.2
The fundamental information of kotak Mahindra Bank 0
Date open value close value Ri(y) Rm(x) Ri*Rm Rm*Rm (𝑦 − 𝑦)2
Jul-17 880 901.6 2.4545 0.6075 1.4911 0.3690 0.7900
Aug-17 905 964.5 6.5745 3.7456 24.6254 14.0295 43.2240
Sep -17 963.55 955.45 -0.8406 -0.6282 0.5280 0.3946 0.7066
Oct-17 955.55 1019.75 6.7186 4.3615 29.3031 19.0226 45.1395
Nov-17 1023.85 975.95 -4.6784 -2.6068 12.1956 6.7954 21.8874
Dec-17 977 1001.9 2.5486 -1.5285 -3.8955 2.3363 6.4953
Jan-18 1001.9 1024.55 2.2607 5.3128 12.0106 28.2258 5.1107
Feb-18 1032.05 1000.2 -3.0861 -0.5847 1.8044 0.3418 9.5240
Mac-18 1005 1009.1 0.4079 2.4337 0.9927 5.9228 0.1663
Apr-18 1003 1109.75 10.6434 5.5931 59.5296 31.2827 113.2819
May-18 1107 1088.75 -1.6485 -5.1733 8.5281 26.7630 2.7175
Jun- 18 1088.05 1048.6 -3.6257 -3.4343 12.4517 11.7944 13.1457
Jul- 18 1045 1210.35 15.8229 6.4469 102.0086 41.5625 250.3641
Aug-18 1228.75 1337 8.8097 -0.0184 -0.1620 0.0003 52.4759
Sep-18 1320 1341.8 1.6515 0.1399 0.2310 0.0195 0.0073
Oct-18 1358.7 1309.35 -3.6321 5.7992 -21.0632 33.6307 27.0168
Nov-18 1312 1285.35 -2.0312 2.6596 -5.4021 7.0734 12.9375
Dec-18 1294.9 1143.5 -11.6928 -6.9091 80.7867 47.7356 175.7871
Jan-19 1095 1118 2.1004 -5.0509 -10.6089 25.5115 0.2859
Feb-19 1121.15 1232.35 9.9183 4.4549 44.1850 19.8461 69.7663
Mar-19 1248 1254.75 0.5408 -0.9021 -0.4878 0.8137 1.0503
Apr-19 1251.15 1253.25 0.1678 0.2624 0.0440 0.0688 1.9540
May-19 1258.25 1215.8 -3.3737 -0.9309 3.1405 0.8665 24.3974
TOTAL 36.0105 14.0499 505.9439 324.4076 878.2324
1.5656 0.6108 0.9564
4.2.1 Calculation of Beta, Variance, Standard Deviation and Alpha for Kotak Mahindra Bank
ltd.

𝐧∑𝐱𝐲− ∑𝐱∑𝐲
Beta(β) =
𝐧∑𝐱 𝟐 −(∑𝐱)𝟐
𝟐𝟑(𝟓𝟎𝟓.𝟗𝟒𝟑𝟗)−(𝟏𝟒.𝟎𝟒𝟗𝟗)(𝟑𝟔.𝟎𝟏𝟎𝟓)
=
𝟐𝟒(𝟑𝟐𝟒.𝟒𝟎𝟕𝟔)−(𝟏𝟒.𝟎𝟒𝟗𝟗)𝟐

= 1.4668

∑(𝐲−𝐲)𝟐
Variance (𝝈𝟐 ) =
𝟐𝟑
𝟖𝟕𝟖.𝟐𝟑𝟐𝟒
=
𝟐𝟑

= 38.1840

Std Deviation (𝝈) = √𝟑𝟖. 𝟏𝟖𝟒𝟎

= 6.1793

Alpha (∝) = y – βx
= (1.5656) – (1.4668*0.6108)
= 0.6697
4.3 Tata Investment Corporation
Table 4.3
The fundamental information of Tata investment corporation
DATE open close Ri(Y) Rm(x) Ri*Rm Rm*Rm (𝑦 − 𝑦)2
value value
Jul-17 637 671.65 5.4395 0.6075 3.3045 0.3690 16.4578
Aug-17 669 660.9 -1.2107 3.7456 -4.5350 14.0295 6.7262
Sep -17 654.15 736.9 12.65 -0.6282 -7.9467 0.3946 126.9514
Oct-17 744.95 889.35 19.38385 4.3615 84.5426 19.0226 324.0403
Nov-17 892 848.1 -4.92152 -2.6068 12.8294 6.7954 39.7436
Dec-17 846.1 850.25 0.490486 -1.5285 -0.7497 2.3363 0.7961
Jan-18 859.5 866 0.756254 5.3128 4.0178 28.2258 0.3924
Feb-18 857 896.3 4.585764 -0.5847 -2.6813 0.3418 10.2594
Mac-18 890.75 889.5 -0.14033 2.4337 -0.3415 5.9228 2.3197
Apr-18 895 848.2 -5.22905 5.5931 -29.2466 31.2827 43.7156
May-18 865 798.65 -7.67052 -5.1733 39.6819 26.7630 81.9613
Jun- 18 802.55 739.75 -7.82506 -3.4343 26.8736 11.7944 84.7834
Jul- 18 733.85 865.2 17.89875 6.4469 115.3915 41.5625 272.7789
Aug-18 871.05 808.2 -7.21543 -0.0184 0.1327 0.0003 73.9283
Sep-18 805 816.4 1.416149 0.1399 0.1981 0.0195 0.0011
Oct-18 818.95 807.2 -1.43476 5.7992 -8.3204 33.6307 7.9382
Nov-18 807 809.15 0.266419 2.6596 0.7085 7.0734 1.2461
Dec-18 807.85 726.65 -10.0514 -6.9091 69.4459 47.7356 130.7387
Jan-19 726.85 679.65 -6.49377 -5.0509 32.7994 25.5115 62.0393
Feb-19 673.2 849.15 26.13636 4.4549 116.4349 19.8461 612.7423
Mar-19 855 890.95 4.204678 -0.9021 -3.7930 0.8137 7.9633
Apr-19 899.95 852.7 -5.25029 0.2624 -1.37768 0.0688 43.9970
May-19 860 825.75 -3.98256 -0.9309 3.7073 0.8665 28.7863
TOTAL 31.80285 14.0499 451.0764 324.4077 1980.308
1.382732 0.610865
4.3.1 Calculation of Beta, Variance, Standard Deviation and Alpha for tata investment
corporation.

𝐧∑𝐱𝐲− ∑𝐱∑𝐲
Beta(β) =
𝐧∑𝐱 𝟐 −(∑𝐱)𝟐
𝟐𝟑(𝟒𝟓𝟏.𝟎𝟕𝟔𝟒)−(𝟏𝟒.𝟎𝟒𝟗𝟗)(𝟑𝟏.𝟖𝟎𝟐𝟖𝟓)
=
𝟐𝟒(𝟑𝟐𝟒.𝟒𝟎𝟕𝟔)−(𝟏𝟒.𝟎𝟒𝟗𝟗)𝟐

= 1.3667

∑(𝐲−𝐲)𝟐
Variance (𝝈𝟐 ) =
𝟐𝟑
𝟏𝟗𝟖𝟎.𝟑𝟎𝟖
=
𝟐𝟑

= 86.1003

Std Deviation (𝝈) = √𝟖𝟔. 𝟏𝟎𝟎𝟑

= 9.2790

Alpha (∝) = y – βx
= (1.3827) – (1.3667*0.6108)
= 0.5479
4.4 NIIT TECH
Table 4.4
The fundamental information of NIIT TECH
DATE Open value close value Ri(y) Rm(x) Ri*Rm Rm*Rm (𝑦 − 𝑦)2
Jul-17 430 456.95 6.2674 0.6075 3.8074 0.3690 0.4392
Aug-17 455 521.2 14.5494 3.7456 54.4964 14.0295 80.0093
Sep -17 520 577.1 10.9807 -0.6282 -6.8981 0.3946 28.9025
Oct-17 578 514.15 -11.0467 4.3615 -48.1802 19.0226 277.2681
Nov-17 519.35 497.9 -4.1301 -2.6068 10.7665 6.7954 94.7667
Dec-17 501 541.7 8.1237 -1.5285 -12.4172 2.3363 6.3458
Jan-18 544 677.85 24.6047 5.3128 130.7203 28.2258 361.0047
Feb-18 680 639 -6.0294 -0.5847 3.5253 0.3418 135.3515
Mac-18 639.1 646.3 1.1265 2.4337 2.7417 5.9228 20.0531
Apr-18 642 855.95 33.3255 5.5931 186.3931 31.2827 768.4477
May-18 855.95 834.55 -2.5001 -5.1733 12.9340 26.7630 65.6878
Jun- 18 838.1 864.25 3.1201 -3.4343 -10.7155 11.7944 6.1727
Jul- 18 860 1163.45 35.2848 6.4469 227.4781 41.5625 880.9159
Aug-18 1160 1117.85 -3.6336 -0.0184 0.0668 0.0003 85.3457
Sep-18 1119 1096.15 -2.0420 0.1399 -0.2856 0.0195 58.4713
Oct-18 1114 1229.15 10.3366 5.7992 59.9441 33.6307 22.3915
Nov-18 1239.95 1403.6 13.1981 2.6596 35.1017 7.0734 57.6605
Dec-18 1409.9 1092.7 -22.4980 -6.9091 155.4413 47.7356 789.7621
Jan-19 1085 1227.15 13.1013 -5.0509 -66.1738 25.5115 56.2009
Feb-19 1229.95 1091.5 -11.2565 4.4549 -50.1468 19.8461 284.3004
Mar-19 1130.95 1149.45 1.6357 -0.9021 -1.4756 0.8137 15.7518
Apr-19 1140 1311.1 15.0087 0.2624 3.9383 0.0688 88.4373
May-19 1301 1318.95 1.37970 -0.9309 -1.2843 0.8665 17.8501
TOTAL 128.9070 14.0499 689.778 324.4077 4201.537
5.6046 0.610865
4.4.1 Calculation of Beta, Variance, Standard Deviation and Alpha for NIIT Tech

𝐧∑𝐱𝐲− ∑𝐱∑𝐲
Beta(β) =
𝐧∑𝐱 𝟐 −(∑𝐱)𝟐
𝟐𝟑(𝟔𝟖𝟗.𝟕𝟕𝟖𝟏)−(𝟏𝟒.𝟎𝟒𝟗𝟗)(𝟏𝟐𝟖.𝟗𝟎𝟕𝟎)
=
𝟐𝟒(𝟑𝟐𝟒.𝟒𝟎𝟕𝟔)−(𝟏𝟒.𝟎𝟒𝟗𝟗)𝟐

= 1.9347

∑(𝐲−𝐲)𝟐
Variance (𝝈𝟐 ) =
𝟐𝟑
𝟒𝟐𝟎𝟏.𝟓𝟑𝟕
=
𝟐𝟑

= 182.6755

Std Deviation (𝝈) = √𝟏𝟖𝟐. 𝟔𝟕𝟓𝟓

= 13.51

Alpha (∝) = y – βx
= (5.6046) – (1.9347*0.6108)
= 4.422
4.5 BAJAJ FINSERV
Table 4.5
The fundamental information of Bajaj Finserv
DATE Open value close value Ri(y) Rm(x) Ri*Rm Rm*Rm (𝑦 − 𝑦)2
Jul-17 4090 4568.65 11.7029 0.6075 7.1095 0.3690 87.3480
Aug-17 4575 4191.3 -8.3868 3.7456 -31.4139 14.0295 115.4293
Sep -17 4190 4116 -1.7661 -0.6282 1.1094 0.3946 16.9993
Oct-17 4139.55 4999.7 20.7788 4.3615 90.6268 19.0226 339.3668
Nov-17 5001.3 5503.6 10.0433 -2.6068 -26.1811 6.7954 59.0818
Dec-17 5543.9 5146.55 -7.1673 -1.5285 10.9552 2.3363 90.7114
Jan-18 5200.1 5024.2 -3.3826 5.3128 -17.9712 28.2258 32.9423
Feb-18 5053.3 5223.55 3.3690 -0.5847 -1.9699 0.3418 1.0244
Mac-18 5220 5328.4 2.0766 2.4337 5.0538 5.9228 0.0785
Apr-18 5220 4810.8 -7.8390 5.5931 -43.8448 31.2827 103.9584
May-18 4800 5056.85 5.3510 -5.1733 -27.6825 26.7630 8.9647
Jun- 18 5057.55 5178.55 2.3924 -3.4343 -8.2164 11.7944 0.0012
Jul- 18 5100 5482.55 7.5009 6.4469 48.3580 41.5625 26.4613
Aug-18 5482 6048.45 10.3329 -0.0184 -0.1901 0.0003 63.6164
Sep-18 6050 5818.65 -3.8239 0.1399 -0.5349 0.0195 38.2033
Oct-18 5823 6985.9 19.9708 5.7992 115.8147 33.6307 310.2491
Nov-18 7000.1 6754.85 -3.5035 2.6596 -9.3179 7.0734 34.3447
Dec-18 6760 5988.65 -11.4105 -6.9091 78.8363 47.7356 189.5419
Jan-19 5989 5402.5 -9.7929 -5.0509 49.4632 25.5115 147.6194
Feb-19 5401.85 6007.3 11.2082 4.4549 49.9314 19.8461 78.3451
Mar-19 6020 6481.3 7.6627 -0.9021 -6.9126 0.8137 28.1522
Apr-19 6500 6093.15 -6.2592 0.2624 -1.6424 0.0688 74.2380
May-19 6149.95 6466.75 5.1512 -0.9309 -4.7953 0.8665 7.8083
TOTAL 54.2091 14.0499 276.5854 324.4077 1854.487
2.356917 0.610865
4.5.1 Calculation of Beta, Variance, Standard Deviation and Alpha for Bajaj finserv

𝐧∑𝐱𝐲− ∑𝐱∑𝐲
Beta(β) =
𝐧∑𝐱 𝟐 −(∑𝐱)𝟐
𝟐𝟑(𝟐𝟕𝟔.𝟓𝟖𝟓𝟒)−(𝟏𝟒.𝟎𝟒𝟗𝟗)(𝟓𝟒.𝟐𝟎𝟗𝟏)
=
𝟐𝟒(𝟑𝟐𝟒.𝟒𝟎𝟕𝟔)−(𝟏𝟒.𝟎𝟒𝟗𝟗)𝟐

= 0.7709

∑(𝐲−𝐲)𝟐
Variance (𝝈𝟐 ) =
𝟐𝟑
𝟏𝟖𝟓𝟒.𝟒𝟖𝟕
=
𝟐𝟑

= 80.6298

Std Deviation (𝝈) = √𝟖𝟎. 𝟔𝟐𝟗𝟖

= 8.9794

Alpha (∝) = y – βx
= (2.356917) – (0.7709*0.6108)
= 1.8860
4.6 TATA CONSULTANCY SERVICES
Table 4.6
The fundamental Information of Tata consultancy services
Date open value close Ri(y) Rm(x) Ri*Rm Rm*Rm y-y2
value
Jul-17 1217.5 1136.05 -6.6899 0.6075 -4.0641 0.3690 94.8018
Aug-17 1148.5 1272.18 10.7688 3.7456 40.3357 14.0295 59.6315
Sep -17 1265 1182.18 -6.5470 -0.6282 4.1128 0.3946 92.0394
Oct-17 1182 1427.03 20.7301 4.3615 90.4144 19.0226 312.7038
Nov-17 1247.03 1248.38 0.1082 -2.6068 -0.2822 6.7954 8.6343
Dec-17 1237.5 1218.5 -1.5353 -1.5285 2.3467 2.3363 20.9950
Jan-18 1217.5 1308.15 7.4455 5.3128 39.5569 28.2258 19.3503
Feb-18 1311 1317.13 0.4675 -0.5847 -0.2734 0.3418 6.6517
Mac-18 1318.5 1350.28 2.4103 2.4337 5.8659 5.9228 0.4049
Apr-18 1344.9 1555.88 15.6874 5.5931 87.7412 31.2827 159.7881
May-18 1560 1519.13 -2.6198 -5.1733 13.5533 26.7630 32.1098
Jun- 18 1520.5 1424.65 -6.3038 -3.4343 21.6493 11.7944 87.4324
Jul- 18 1422.5 1765.7 24.1265 6.4469 155.5414 41.5625 444.3602
Aug-18 1766.5 1744.8 -1.2284 -0.0184 0.0226 0.0003 18.2765
Sep-18 1758 1847.2 5.0739 0.1399 0.7098 0.0195 4.1097
Oct-18 1829.95 1941.25 6.0821 5.7992 35.2715 33.6307 9.2139
Nov-18 1951 2078.2 6.5197 2.6596 17.3398 7.0734 12.0620
Dec-18 2080.05 2184.5 5.0215 -6.9091 -34.6941 47.7356 3.8999
Jan-19 2186 1937.6 -11.3632 -5.0509 57.3944 25.5115 207.6454
Feb-19 1940.1 1970.6 1.5720 4.4549 7.0034 19.8461 2.1744
Mar-19 1980.1 1893.55 -4.3709 -0.9021 3.9430 0.8137 55.0219
Apr-19 1905 2014.6 5.7532 0.2624 1.5096 0.0688 7.3256
May-19 2005 1984.25 -1.0349 -0.9309 0.9634 0.8665 16.6594
TOTAL 70.0737 14.0499 545.962 324.4077 1675.293
3.04668435 0.610865
4.6.1 Calculation of Beta, Variance, Standard Deviation and Alpha for Tata consultancy
services

𝐧∑𝐱𝐲− ∑𝐱∑𝐲
Beta(β) =
𝐧∑𝐱 𝟐 −(∑𝐱)𝟐
𝟐𝟑(𝟓𝟒𝟓.𝟗𝟔𝟐)−(𝟏𝟒.𝟎𝟒𝟗𝟗)(𝟕𝟎.𝟎𝟕𝟑𝟕)
=
𝟐𝟒(𝟑𝟐𝟒.𝟒𝟎𝟕𝟔)−(𝟏𝟒.𝟎𝟒𝟗𝟗)𝟐

= 1.5931

∑(𝐲−𝐲)𝟐
Variance (𝝈𝟐 ) =
𝟐𝟑
𝟏𝟔𝟕𝟓.𝟐𝟗𝟑
=
𝟐𝟑

= 72.8388

Std Deviation (𝝈) = √𝟕𝟐. 𝟖𝟑𝟖𝟖

= 8.5345

Alpha (∝) = y – βx
= (3.0466) – (1.5931*0.6108)
= 2.0735
4.7 INFOSYS
Table 4.7
The fundamental information of Infosys
Date open value close value Ri(y) Rm(x) Ri*Rm Rm*Rm (𝑦 − 𝑦)2
Jul-17 513.55 459.7 -10.4858 0.6075 -6.3701 0.3690 142.9783
Aug-17 462.4 488.48 5.6401 3.7456 21.1257 14.0295 17.3773
Sep -17 484.5 467.83 -3.4406 -0.6282 2.1614 0.3946 24.1295
Oct-17 467.5 505.65 8.1604 4.3615 35.5917 19.0226 44.7415
Nov-17 503.5 457.65 -9.1062 -2.6068 23.7381 6.7954 111.8893
Dec-17 457.6 449.38 -1.7963 -1.5285 2.7456 2.3363 10.6788
Jan-18 454 460.83 1.5044 5.3128 7.9926 28.2258 0.0010
Feb-18 462 487.48 5.5151 -0.5847 -3.2241 0.3418 16.3509
Mac-18 488.75 519.65 6.3222 2.4337 15.3864 5.9228 23.5296
Apr-18 520 575.33 10.6403 5.5931 59.5127 31.2827 84.0681
May-18 575 587.13 2.1095 -5.1733 -10.9134 26.7630 0.4071
Jun- 18 586.73 567.2 -3.3286 -3.4343 11.4314 11.7944 23.0413
Jul- 18 567.75 599.7 5.6274 6.4469 36.2797 41.5625 17.2719
Aug-18 600 615.95 2.6583 -0.0184 -0.0489 0.0003 1.4085
Sep-18 615.95 653.38 6.0767 0.1399 0.8501 0.0195 21.2085
Oct-18 656.95 682.5 3.8891 5.7992 22.5541 33.6307 5.8451
Nov-18 682.93 720 5.4280 2.6596 14.4365 7.0734 15.6543
Dec-18 729 727.85 -0.1577 -6.9091 1.0899 47.7356 2.6545
Jan-19 735.1 686.25 -6.6453 -5.0509 33.5650 25.5115 65.8836
Feb-19 693.9 666.5 -3.9487 4.4549 -17.591 19.8461 29.3787
Mar-19 670.5 659.85 -1.5883 -0.9021 1.4328 0.8137 9.3629
Apr-19 661 749.6 13.4039 0.2624 3.5171 0.0688 142.3825
May-19 753.8 733.95 -2.63332 -0.9309 2.4513 0.8665 16.8497
TOTAL 33.84494 14.0499 257.7147 324.4077 827.0936
1.471519 0.610865
4.7.1 Calculation of Beta, Variance, Standard Deviation and Alpha for Infosys

𝐧∑𝐱𝐲− ∑𝐱∑𝐲
Beta(β) =
𝐧∑𝐱 𝟐 −(∑𝐱)𝟐
𝟐𝟑(𝟐𝟓𝟕.𝟕𝟏𝟒𝟕)−(𝟏𝟒.𝟎𝟒𝟗𝟗)(𝟑𝟑.𝟖𝟒𝟒𝟗)
=
𝟐𝟒(𝟑𝟐𝟒.𝟒𝟎𝟕𝟔)−(𝟏𝟒.𝟎𝟒𝟗𝟗)𝟐

= 0.7505

∑(𝐲−𝐲)𝟐
Variance (𝝈𝟐 ) =
𝟐𝟑
𝟖𝟐𝟕.𝟎𝟗𝟑𝟔
=
𝟐𝟑

= 35.9605

Std Deviation (𝝈) = √𝟑𝟓. 𝟗𝟔𝟎𝟓

= 5.9967

Alpha (∝) = y – βx
= (1.4715) – (0.7505*0.6108)
= 1.0131
4.8 THE BETA VALUES OF THE COMPANIES.
Table 4.8
STOCK BETA
Kotak Mahindra Bank 1.4668
Tata investment corporation 1.3667
NIIT Tech 1.9347
Bajaj Finserv 0.7709
TCS 1.5931
Infosys 0.7505

Graph 4.1
Beta value of the companies

INTERPRETATION
From the above table and graph, kotak Mahindra bank ltd has beta 1.4668 which indicates that if
market increases by 1 the kotak Mahindra bank also increases by 1 this shows that is perfect. NIIT
Tech Ltd has the highest Beta 1.9347 which indicates that if the market increases by 1 the NIIT Tech
ltd increases by 1.5. Infosys has the lowest beta value 0.7505 that indicates if the market increases by
1infosys decreases by 0.05 which is against the market.
4.9 TABLE SHOWING THE STANDARD DEVIATION OF THE COMPANIES
Table 4.9
STOCK SD
Kotak Mahindra bank 6.1793
Tata investment corporation 9.2790
NIIT Tech 13.5157
Bajaj finserv 0.7709
TCS 8.5345
Infosys 5.9967

Graph 4.2

standard deviation
16

14

12

10

0
Kotak Mahindra Tata investment NIIT Tech Bajaj finserv TCS Infosys
bank corporation

INTERPRETATION
From the above graph, Bajaj finserv has lowest risk 0.7709 and Infosys has low risk 5.9967
compared to other stocks therefore, investors who are risk averse can invest in these scrips, NIIT
Tech has higher risk 13.5157 and Tata investment corporation has high risk 9.2790 therefore,
investors are suggested not to invest in these scrips.
4.10 TABLE SHOWING THE VARAINCE VALUES OF THE COMPANY
Table 4.10
STOCK VARIANCE
Kotak Mahindra bank 38.140
Tata investment corporation 86.1003
NIIT Tech 182.6755
Bajaj finserv 80.6298
TCS 72.8388
Infosys 35.9605

Graph 4.3
Variance values of the companies

INTERPRETATION
From the above graph NIIT Tech and Tata investment corporation have the highest price variation.
Infosys has least price variation as compared to other stocks. Therefore, investors are suggested not
to invest in NIIT Tech and Tata investment corporation. Which yields low return.
4.11 TABLE SHOWING THE ALPHA VALUES OF THE COMPANIES
Table 4.11
STOCK ALPHA
Kotak Mahindra bank 0.6697
Tata investment corporation 0.5479
NIIT Tech 4.4228
Bajaj finserv 1.8860
TCS 2.0735
Infosys 1.0131

GRAPH 4.5
Alpha values of the companies

INTERPRETATION
In the above graph kotak Mahindra bank, Tata investment corporation and Infosys has less returns so
the investors are advised not to invest on such scrips
4.12 TABLE SHOWING THE RETURN OF THE COMPANIES
Table 4.12
Kotak Mahindra bank 36.0105
Tata investment corporation 31.8028
NIIT Tech 128.9070
Bajaj finserv 54.2091
TCS 70.0737
Infosys 33.8449

Graph 4.5
Return values of the companies

INTERPRETATION
In the above chart NIIT Tech shares are yielded highest return (128.9070) and tata investment
corporation shares yields less returns as compared to other stocks. Bajaj finserv and Tata consultancy
services holdings also give high returns 54.2091 and 70.0737 respectively and others give a
minimum rate return to investors.
 4.13 CALCULATIONS OF SYSTEMATIC AND UNSYSTEMATIC RISK
Table 4.19

COMPANY VARIANCE 𝜷𝟐 MARKET SYSTEMATIC UNSYSTEMATI

VARAINCE RISK C Risk
(𝝈𝒎)𝟐 (𝝈𝒎) (𝝈𝒆𝒊𝟐 )
kotak Mahindra 38.1440 2.1515 13.7314 29.54313786 8.596862
bank
Tata investment 86.1003 1.8679 13.7314 25.64845488 60.45185
corporation
NIIT Tech 182.6755 3.7431 13.7314 51.39751025 131.278
Bajaj Finserv 80.6298 0.5943 13.7314 8.160389903 72.46941
TCS 72.8388 2.538 13.7314 34.84984844 37.98895
Infosys 35.9605 0.5633 13.7314 7.734214483 28.22629

SYSTEMATIC RISK (σm) = 𝜷𝟐 * 𝝈𝒎𝟐

UNSYSTEMATIC RISK (𝛔𝐞𝐢𝟐 ) = (𝝈𝟐 − 𝝈𝒎)

4.14 EXCESS RETURN TO BETA ANALYSIS

It is a performance assortment that estimates the fascination of any stock to be incorporated inside
the ideal portfolio. the surplus come to beta extent connection technique the extra please a security
(overabundance of the peril free rate of return) per unit of efficient hazard or non-diversifiable
hazard.

𝑹𝒊−𝑹𝒇
Excess return to beta =
𝜷

Table 4.20
Excess return to Beta ratio and Ranking
company RETURN RF EXCESS BETA RI-RF/B RANK
RETURN
(Ri - Rf)
Kotak 36.0105 0.08 35.9305 1.4668 24.49584 5
Mahindra Bank
Tata Investment 31.8028 0.08 31.7228 1.3667 23.21124 6
corporation
NIIT Tech 128.907 0.08 128.827 1.9347 66.58758 2
Bajaj finserv 54.2091 0.08 54.1291 0.7709 70.21546 1
TCS 70.0737 0.08 69.9937 1.5931 43.93553 4
Infosys 33.8449 0.08 33.7649 0.7505 44.98987 3
 GRAPH 4.6

INTERPRETATION
In the above table the financial specialists are examining overabundance come back to Beta
proportion estimates the extra profit for security as indicated by per unit of orderly hazard and this
proportion gives a connection between potential hazard and rewards. Bajaj finserv ltd has the most
astounding overabundance come back to Beta (70.2154) with contrasted with different stocks and
they all have positive returns. Along these lines, in this graph all stocks are given the profits to their
speculators.
 4.15 C*(Cut off) Analysis
However, previous selecting the stocks it's essential to seek out out the cut-off rate C*. stocks that
have AN excess come to beta larger than C* got to be elite. Later than ranking the protection, within
the ulterior chart bring to a halt rate has been calculated, for the calculation of cut-off rate we have a
tendency to initial calculate the Ci as if solely the stratified security is enclosed within the portfolio.
Then we have a tendency to calculate Ci considers as if solely the primary and second stratified
security is integrated within the optimum portfolio, so on.
Table 4.15
Calculation of Ci and Finding out C*(cut-off point)
Ri-Rf*B UNSYST Ri-Rf- 1+var b2/unsys b2/unsys 4*2 3/7
b/unsys
Kotak 35.8931 8.5968 4.1751 39.144 0.250266 1.3328 52.1713 0.0800
Mahindra
bank
Tata 31.6934 60.45185 0.5242 87.1003 0.030898 0.1895 16.5088 0.0317
investment
corporation
NIIT Tech 128.752 131.278 0.9807 183.6755 0.028513 0.0872 16.0311 0.0611
Bajaj finserv 54.1474 72.46941 0.7471 81.6298 0.008201 0.1581 12.9062 0.0578
TCS 69.9462 37.98895 1.8412 73.8388 0.066808 0.3016 22.2707 0.0826
Infosys 33.7848 28.22629 1.1969 36.9605 0.019955 0.4059 15.0034 0.0797

Graph 4.7

CI VALUE
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
1 2 3 4 5 6
The most astounding Ci esteem is the cut-off point that is C*. the stocks positioned above C* have
high abundance comes back to beta than the cut-off Ci and all stocks positioned beneath C* have low
overabundance comes back to beta. Here, the cut-off rate is 19.861. subsequently the initial 3
securities are chosen. In the event that the quantity of stocks is bigger, there is no compelling reason
to figure Ci esteems for every one of the stocks in the wake of positioning has been done until the C*
esteem is found. In the wake of ascertaining for two mineral more stocks beneath it, the procedure
can be ended

4.16 PORTFOLIO CONSTRUCTION ANALYSIS

TABLE 4.16
Calculation of proportion of investment on stocks
Company Zi Xi %
TCS 27.14825 0.116686 11.6686
Kotak Mahindra bank 157.0719 0.675111 67.51113
Infosys 48.44058 0.208203 20.82027
TOTAL 232.6607 1 100

GRAPH 4.8

The % of investment to be made on the stocks

PERCENTAGE OF INVESTMENT

11.66860211

20.82026869

67.5111292

1 2 3
Interpretation
William sharpe’s derived a formula for finding out the proportion of amount to be invested on
selected stocks. Result guide that investors have to invest more amount on kotak Mahindra bank ltd
(67%) second priority given to Infosys.