A PROJECT REPORT

ON
"PORTFOLIO MANAGEMENT"
AT
KOTAK MAHINDRA SECURITIES
PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF THE DEGREE OF

BACHELOR OF COMMERCE (GENERAL)

Submitted by
SYED SULAIMAN AHMED
1062-20-401-230
SYED AHMED ASIM
1062-20-401-243
SYED HUSSAIN ALI
1062-20-401-635
SYED MUSTAFA ALI
1062-20-401-715

Under the Guidance of

Ms. RUQIA FATIMA
(ASSISTANT PROFESSOR)

DEPARTMENT OF BUSINESS ADMINISTRATION

ANWAR-UL- ULOOM DEGREE COLLEGE (AUTONOMOUS)
(AFFILIATED TO OSMANIA UNIVERSITY)
NEW MALLEPALLY, HYDERABAD
(2020-2023)
 ANWARUL ULOOM DEGREECOLLEGE
An Autonomous Muslim Minority Institution
(Affiliated to Osmania University)
# 11-3-918, New Mallepally, Hyderabad – 500 001., A.P., INDIA
Tel : 23340134, 30582660, 30582678, 30582666, 23342285 Fax: 23342750

Ref No………………………………. Date:……………………………..

CERTIFICATE

This is to certify that SYED SULAIMAN AHMED bearing Roll No: 1062-20-401-
230 , SYED AHMED ASIM bearing Roll No: 1062-20-401-243, SYED HUSSAIN
ALI bearing Roll No: 1062-20-401-635 & SYED MUSTAFA ALI bearing Roll
No: 1062-20-401-715 has successfully completed they project work entitled
“PORTFOLIO MANAGEMENT., and submitted in partial fulfillment of the
requirement for the award of the Degree of Bachelor of Commerce (General)
Administration by Osmania University, Hyderabad.

This is a bonafide work completed under my guidance and supervision.

Signature of Internal Guide Signature of H.O.D

Signature of Principal
 DECLARATION

We, SYED SULAIMAN AHMED bearing Roll No: 1062-20-401-230, SYED

AHMED ASIM bearing Roll No: 1062-20-401-243, SYED HUSSAIN ALI bearing
Roll No: 1062-20-401-635 & SYED MUSTAFA ALI bearing Roll No: 1062-20-
401-715 the undersigned, hereby declare that the project report entitled
"PORTFOLIO MANAGEMENT " carried out at KOTAK MAHINDRA
SECURITIES is our original work written and submitted by us in partial fulfillment
of the award of the degree of Bachelor of Commerce (General) from Anwar-Ul-
Uloom Degree College, (Autonomous). We are also declare that this project has not
been submitted earlier in any other university or institution.

Date:

SYED SULAIMAN AHMED

1062-20-401-230

SYED AHMED ASIM

1062-20-401-243

SYED HUSSAIN ALI

1062-20-401-635

SYED MUSTAFA ALI

1062-20-401-715
 ACKNOWLEDGEMENT
We would like to acknowledge, our sincere thanks to Mr. Mohammed Abdul
Razzak, Principal of "Anwar-UI-Uloom Degree College (Autonomous)" for the
extended helping hand for the development of our career.
We wish to express our sincere thanks to Dr. Mohammed Ahmed Mohiuddin
H.O.D and our express and sincere thanks to our Project Guide
Ms. RUQIA FATIMA for sharing her valuable dine in providing her valuable
Knowledge, guidance and excellent support for the successful completion of my
project.

We express our sincere thanks to Mr. PARTHA DAS of KOTAK MAHINDRA

SECURITIES for sharing his valuable time in providing his valuable suggestions,
information and excellent co-operation for the successful completion of my Project.

We would like to acknowledge, our sincere thanks to all faculty members of "Anwar-
UI-Uloom Degree College (Autonomous)" who have extended helping hand in
giving the information being part of the study. We would like to express our gratitude
for all the people, who extended unending support at all stages of the project.

SYED SULAIMAN AHMED

1062-20-401-230

SYED AHMED ASIM

1062-20-401-243

SYED HUSSAIN ALI

1062-20-401-635

SYED MUSTAFA ALI

1062-20-401-715
 ABSTRACT

Portfolio management can be defined and used in many a ways, because the basic
meaning of the word is “combination of the various things keeping intact”. So I
considered and evaluated this from the perspective of the investment part in the
securities segment.

From the investor point of view this portfolio followed by him is very important since
through this way one can manage the risk of investing in securities and thereby
managing to get good returns from the investment in diversified securities instead of
putting all the money into one basket. Now a day’s investors are very cautious in
choosing the right portfolio of securities to avoid the risks from the market forces and
economic forces. So this topic is chosen because in portfolio management one has to
follow certain steps in choosing the right portfolio in order to get good and effective
returns by managing all the risks.

Portfolios can be organized by developmental category, content area, or by topics or

themes. Portfolios have three main purposes. One is for assessment and evaluation,
assessing progress, achievement, developmental strengths, and areas for continued
work. Another purpose is for self-assessment and reflection, where students can chart
their progress and takeownership of their learning. Finally, portfolios can be used as a
means for reporting progress, in which progress and achievement can be shown to
parents.
 TABLE OF CONTENTS

CHAPTER NO DESCRIPTION PAGE NO

CHAPTER - I INTRODUCTION 1

CHAPTER - II REVIEW OF LITERATURE 25

CHAPTER - III RESEARCH METHODOLOGY 34

CHAPTER - IV THEORETICAL FRAME WORK 38

CHAPTER – V COMPANY PROFILE 41

CHAPTER - VI DATA ANALYSIS AND INTERPRETATION 47

CHAPTER - VII RESEARCH FINDINGS & SUGGESTIONS 54

CHAPTER -VIII SUGGESTIONS & RECOMMENDATIONS 57

BIBLIOGRAPHY 59
 CHAPTER I
INTRODUCTION

1
 INTRODUCTION
Portfolio analysis is the process of looking at every investment held within a portfolio
and evaluating how it affects the overall performance. Portfolio analysis seeks to determine
the variance of each security, the overall beta of the portfolio, the amount of diversification
and the asset allocation within the portfolio.

A portfolio is not a simple aggregation of a random group of securities. It is a

combination of carefully selected securities, combined in a specific way so as to reduce the
risk of investment to the minimum. An investor may attempt to evaluate the performance
of the portfolio as a whole without examining the performance of individual securities with in
the portfolio. This is evaluation from the portfolio view. Though evaluation may be attempted
at transactional level or security level, such evaluation would be incomplete, inadequate and
often misleading .Investment is an actively involving risk. Proper evaluation of the
investment activity must, therefore, consider return along with risk involved .But risk is the
best defined at the portfolio level and not at the security or transactional level. Hence, the best
perspective for evaluation is the portfolio view.

MEANING OF PORTFOLIO EVALUATION:

Portfolio evaluation refers to the evaluation of the performance of the portfolio. Its
essentially the process of comparing the return earned on a portfolio with the return earned on
one or more other portfolios or on benchmark portfolio. Portfolio evaluation essentially
comprises of two functions. Performance measurement and performance evaluation.
Performance measurement is an accounting function which measures the return earned on
a portfolio during the holding period or the investment period. Performance evaluation, on
the other hand, addresses such issues as whether the performance was superior or inferior,
whether the performance was due to skill or luck, etc. While evaluating the performance of a
portfolio, the return earned on the portfolio has to be evaluated in the context of the risk
associated with that portfolio. One approach would be to group portfolios into equivalent risk
classes and then compare returns of portfolios within each risk category. An alternative
approach would be to specifically adjust the return for the riskiness of the portfolio by
developing risk adjusted return measures and use these for evaluating portfolios among
different risk levels

2
MODERN PORTFOLIO APPROACH:

The traditional approach is a comprehensive financial plan for the individual needs
such as housing, life insurance and pension plans. But these types of financial planning
approaches are not done in the Markowitz approach. Markowitz gives more attention to the
process of selecting the portfolio. His planning can be applied more in the selection of
common stocks portfolio than the bond portfolio. The stocks are not selected on the basis of
need for income or appreciation. But the selection is based in the risk and return analysis
Return includes the market return and dividend. The investor needs return and it may be
either in the form of market return or dividend.
The investor is assumed to have the objective of maximizing the expected return and
minimizing the risk. Further, it is assumed that investors would take up risk in a situation
when adequately rewarded for it. This implies that individuals would prefer the portfolio of
highest expected return for a given level of risk.
In the modern approach the final step is asset allocation process that is to choose the
portfolio that meets the requirement of the investor. The following are that major steps
involved in this process.
SEBI GUIDELINES TO THE PORTFOLIO MANAGERS:

On 7th January 1993 the Securities Exchange Board of India issued regulations to the
Portfolio managers for the regulation of portfolio management services by merchant bankers.
They are as follows:

 Portfolio management services shall be in the nature of investment or consultancy

management for an agreed fee at client‘s risk.
 The portfolio manager shall not guarantee return directly or indirectly the fee should
not be depended upon or it should not be return sharing basis.
 Various terms of agreements, fees, disclosures of risk and repayment should be
mentioned.
 Client‘s funds should be kept separately in client wise account, which should be
subject to audit.
 Manager should report clients at intervals not exceeding 6 months.
 Portfolio manager should maintain high standard of integrity and not desire any
benefit directly or indirectly form client‘s funds.
 The client shall be entitled to inspect the documents.

3
  Portfolio manager shall not invest funds belonging to clients in badla financing, bills
discounting and lending operations.
 Client money can be invested in money and capital market instruments.
 Settlement on termination of contract as agreed in the contract.
 Client‘s funds should be kept in a separate bank account opened in scheduled
commercial bank.
 Purchase or Sale of securities shall be made at prevailing market price.

PORTFOLIO ANALYSIS:

Portfolios, which are combinations of securities may or may not take the aggregate
characteristics of their individual parts. Portfolio analysis considers the determination of
future risk and return in holding various blends of individual securities. An investor can some
times reduce portfolio risk by adding another security with greater individual risk than any
other security in the portfolio. This seemingly curious result occurs because risk depends
greatly on the covariance among returns of individual securities. An investor can reduce
expected risk and also can estimate the expected return and expected risk level of a given
portfolio of assets if he makes a proper diversification of portfolios.
There are tow main approaches for analysis of portfolio
1. Traditional approach.
2. Modern approach.

1) TRADITONAL APPROACH:
The traditional approach basically deals with two major decisions. Traditional
security analysis recognizes the key importance of risk and return to the investor. Most
traditional methods recognize return as some dividend receipt and price appreciation over a
forward period. But the return for individual securities is not always over the same common
holding period, nor are the rates of return necessarily time adjusted. An analysis may well
estimate future earnings and a P/E to derive future price. He will surely estimate the dividend.

In any case, given an estimate of return, the analyst is likely to think of and express
risk as the probable downside rice expectation (ether by itself or relative to upside
appreciation possibilities). Each security ends up with some rough measures of likely return
and potential downside risk for the future

4
 Portfolios or combinations of securities, are though of as helping to spread risk over
many securities. This is good. However, the interrelationship between securities may e
specified only broadly or nebulously. Auto stocks are, for examples, recognized as risk
interrelated with fire stocks: utility stocks display defensive price movement relative to the
market and cyclical stocks like steel; and so on. This is not to say that traditional portfolio
analysis is unsuccessful. It is to say that much of it might be more objectively specified in
explicit terms
They are:
A) Determining the objectives of the portfolio.
B) Selection of securities to be included in the portfolio

Normally this is carried out in four to six steps. Before formulating the objectives, the
constraints of the investor should be analyzed. With in the given framework of constraint,
objectives are formulated. Then based on the objectives securities are selected. After that the
risk and return of the securities should be studies. The investor has to assess the major risk
categories that he or she is trying to minimize. Compromise of risk and non-risk factors has
to be carried out. Finally relative portfolio weights are assigned to securities like bonds,
Stocks and debentures and the diversification is carried out.

PORTFOLIO MANAGEMENT PROCESS:

 Security analysis
 Portfolio analysis
 Selection of securities
 Portfolio revision
 Performance evaluation
SECURITY ANALYSIS:

Definition:
For making proper investment involving both risk and return, the investor has to make
a study of the alternative avenues of investment their risk and return characteristics and make
a proper projection or expectation of the risk and return of the alternative investments under
consideration. He has to tune the expectations to this preference of the risk and return for
making a proper investment choice. The process of analyzing the individual securities and the
market has a whole and estimating the risk and return expected from each of the investments
5
with a view to identifying undervalues securities for buying and overvalues securities for
selling is both an art and a science that is what called security analysis.

SECURITY:

The security has inclusive of share, scripts, stocks, bonds, debenture stock or any
other marketable securities of a like nature in or of any debentures of a company or body
corporate, the government and semi government body etc.

ANALYSIS OF SECURITIES:
Security analysis in both traditional sense and modern sense involves the projection of
future dividend or ensuring flows, forecast of the share price in the future and estimating the
intrinsic value of a security based on the forecast of earnings or dividend. Security analysis in
traditional sense is essentially on analysis of the fundamental value of shares and its forecast
for the future through the calculation of its intrinsic worth of the share.
Modern security analysis relies on the fundamental analysis of the security, leading to
its intrinsic worth and also rise-return analysis depending on the variability of the returns,
covariance, safety of funds and the projection of the future returns. If the security analysis
based on fundamental factors of the company, then the forecast of the share price has to take
into account inevitably the trends and the scenario in the economy, in the industry to which
the company belongs and finally the strengths and weaknesses of the company itself.

APPROACHES TO SECURITY ANALYSIS:-

 Fundamental Analysis
 Technical Analysis
 Efficient Market Hypothesis

FUNDAMENTAL ANALYSIS

The intrinsic value of an equity share depends on a multitude of factors. The earnings
of the company, the growth rate and the risk exposure of the company have a direct bearing
on the price of the share. These factors in turn rely on the host of other factors like economic
environment in which they function, the industry they belong to, and finally companies own
performance. The fundamental school of though appraised the intrinsic value of share
through

6
  Economic Analysis
 Industry Analysis
 Company Analysis

ECONOMIC ANALYSIS:

The level of economic activity has an investment in many ways. If the economy
grows rapidly, the industry can also be expected to show rapid growth and vice versa. When
the level of economic activity is low, stock prices are low, and when the economic activity is
high, stock prices are high reflecting the prosperous outlook for sales and profits of the firms.
The analysis of macro economic environment is essential to understand the behavior of the
stock prices. The commonly analyzed macro economic factors are a follows:
a) Dross domestic project
b) Savings and investments
c) Inflation
d) Interest rates
e) Budget
f) The tax structure
g) Balance of payments
h) Monsoon and agriculture
i) Infrastructure facilities
j) Demographic factors

INDUSTRY ANALYSIS

As referred earlier, performance of a company has been found to depend broadly up

to 50% on the external factors of the economy and industry. These externalities depend on the
availability of inputs, like proper labor, water, power and inter-relations between the
economy and industry and the company.
In this context a well-diversified company performs better than a single product
company, because while the demand for some products may be declining, that for others may
be increasing.
Similarly, the input prices and cost factors would vary from product line to product line,
leading to different margins and a diversified company is better bet for investor.

7
 The industry analysis should take into account the following factors among others as
influencing the performance of the company, whose shares are to be analyzed. They are
as followed:

a) Product line
b) Raw materials and inputs
c) Capacity installed and utilized
d) Industry characteristics
e) Demand and market
f) Government policy with regard to industry
g) Labour and other industrial problems
h) Management

COMPANY ANALYSIS:

Investor should know the company results properly before making the investment.
The selection of investment is depends on optimum results of the following factors.

1) MARKETING FORCES:

Manufacturing companies profit depends on marketing activities. If the marketing

activities are favorable then it can be concluded that the co. May have more profit in future
years.
Depends on the previous year results fluctuations in sales or growth in sales can be
identified. If the sales are increasing in trend investor any be satisfied.

2) ACCOUNTING PROFILES

Different accounting policies are used by organization for the valuation of inventories
and fixed assets.

A) INVENTORY POLICY:

Raw materials and their value at the end of the year is calculated by using FIFO,
LIFO or any other average methods. The particular method is must be suitable to access the
particular raw material.

8
B) FIXED ASSET POLCY: All the fixed assets are valued at the end of every year to know

the real value of the business.

NET VALUE OF FIXED ASSETS=VALUE OF ASSET AT THE

BEGINNING OF THE YEAR - DEPRECIATION
For income tax purpose written down value method is used as per this separate
schedule of assets are to be prepared.

3) PROFITABILITY SITUATION: It is a major factor for investor. Profitability of the

company must be better compare with industry. The efficiency of the profitability position or
operating activities can be identified by studying the following factors

A) Gross profit margin ratio: It should more than 30%. But, other operating expenses
should be less compare to operating incomes.

B) Operating & net profit ratio: Operating profit is the real income of the business it is
calculated before non operating expenses and incomes. It should be nearly 20%. The net
profit ratio must be more than 10%

4) RETURN ON CAPTIAL EMPLOYED: It measures the rate of return on capital

investment of the business. Capital employed includes shareholders funds, long-term loans,
and other accumulated funds of the company
ROCE = [OPERATING PROFIT / CAPITAL EMPLOYED] *100

A) Earning per share: it is calculated by the company at the end of the every financial year.
In case of more profit and less number of shares EPS will increase.
B) Return on equity: It is calculated on total equity funds (equity share capital, general
reserve and other accumulated profits)

5) DIVIDEND POLICY:

It is determined in the general body meeting of the company, for equity shares at the
end of every year. The dividend payout ratio is determined as per the dividend is paid.
Dividend policies are divided into two types.

9
 I) Stable dividend policy.
II) Unstable dividend policy.
When company reached to optimum level it may follow stable dividend policy
it indicates stable growth rate, no fluctuation are estimated. Unstable dividend policy
may used by developing firms. In such a case study growth market value of share is
not possible to identify.

6) CAPITAL STRUCTURE OF THE COMPANY:

Generally capital structure of the company consists of equity shares, preferences

shares, debentures and other long term funds. On the basis of long term financial sources cost
of capital is calculated.

7) OPERATING EFFICIECY:

It is determined on the basis of capital expenditure and operating activities of a

company. Increase capital expenditure indicates increase of operating efficiency. Expected
profits may be increased incoming years. The operating efficiency of a company directly
affects the earnings of a company. An expanding company that maintains high operating
efficiency with low break even point earns more than the company with high breakeven
point. Efficient use of fixed assets with raw materials, labour, and management would lead to
more income from sales.

8) OPERATING LEVERAGE:

The firm fixed costs is high in total cost, the firm is said to have a high degree of
operation leverage. High degree of operating leverage implies other factors being held
constant, a relatively small change in sales result in a large change in return on equity.

9) MANAGEMENT:

Good and capable management generates profits to the investors. The management of
the firm should efficiently plan, organize, actuate and control the activities of the company.
The good management depends of the qualities of the manager. Koontz and O‘Donnell
suggest the following as special traits of an able manager:
Ability to get along with people.
Leadership.
10
 Analytical competency.
Industry
Judgment.

10) FINANCIAL ANALYSIS:

The best source of financial information about a company is its own financial
statements. This is a primary source of information for evaluating the investment prospects in
the particular company‘s stock. The statement gives the historical and current information
about the company‘s information aids to analysis the present status of the company. The man
statements used in the analysis are.
1) Balance sheet
2) Profit and lose account

TECHNICAL ANALYSIS

Technical analysis involves identification of share price fluctuations on short period

basis. This analysis can be made by brokers, dealers. They are treated as technicians.
The following are the major factors in technical analysis:
1) Company results are not analysised. The changes in national and international level
about political and other factors.
2) The shares are exchanged immediately when there is a small change in price level of
shares.
3) Average results of the particular industry are identified and they are treated as basic
factors.
4) Brokers do not expect any dividend by holding the share. Dividend is not of return for
calculated of better return to the technicians.
5) The holding period is determined very less; it may range from hours to days. Generally
holding period may not be more than one moth. The technical analysis can be made in
this respect by identifying price fluctuations of the particular share.
6) No capital gains expected by transfer of the share so o need to pay any capital gain
takes, short run return about exchange in price of share is not treated as capital gain.
7) EPS declared by company at the end of financial year and dividend declared may be
treated as base figures for technical analysis.
8) Interim dividend if any declared by the company that will analysised to sell the shares.

11
 9) Stock exchange will announce the average result of securities traded on day-to-day
basis.
10) By conducting of the technical analysis technician anticipate high level of short run
profit.

Moving average:
The analysis of the moving average of the prices of scripts is another method in
technical analysis. Generally, 7 days, to days and 15 days moving averages are worked out in
respect of scripts studied and depicted on a graph along with similar moving averages of the
market index like BSE Sensitive Index. There will then be two graphs to be compared and
when the trends are similar the scrip and BSE market induces will show comparable averages
risks.

Oscillators:

Oscillators indicate the market momentum or scrip momentum. Oscillator shows the
shares price movement across a reference point from one extreme to another.

CHARTS:

Charts are the valuable and easiest tools in the technical analysis. The graphic
presentation of the data helps the investor to find out the trend of the price without any
difficulty. The charts also have the following uses.
 Spots the current trend for buying and selling.
 Indicates the probable future action of the market by projection.
 Shows the past historic movement.
 Indicates the important areas of support and resistance.

The charts do not lie but interpretation differs from analyst to analyst according to their
skills and experience.

Point and figure charts:

Technical analyst to predict the extent and direction of the price movement of a
particular stock or the stock market indices uses point and figure charts. This P.F charts are of
one-dimensional and there is no indication of time or volume. The price changes in relation to

12
previous prices are shown. The changes of price direction can be interpreted. The charts are
drawn in the ruled paper.
Bar charts:

The bar chart is the smallest and most commonly used tool of a technical analyst. The
build a bar a dot is entered to represent the highest price at which the stock is traded on that
day, week or month. Then another dot is entered to indicate the lowest price on the particular
date. A line is drawn to connect both the points a horizontal nub is drawn to mark the closing
price.
The two main components to be studied while construction of a portfolio is
1. Risk of a portfolio
2. Returns on a portfolio

RISK

Existence of volatility in the occurrence of an expected incident is called risk. Higher

the unpredictability greater is the degree of risk. The risk any or may not involve money. In
investment management, risk involving pecuniary matter has importance; the financial sense
of risk can be explained as the volatility of expected future incomes or outcomes. Risk may
give a positive or a negative result. If unimagined incident is a positive one, then people have
a pleasant surprise.
To be able to take negative risk with the same sprit is difficult but not impossible, if
proper risk management techniques are followed.
Risk is uncertainty of the income/capital appreciation or loss of the both. The two
major Types of risks are: Systematic or market related risks and unsystematic or company
related risks.
The systematic risks are the market problems raw materials availability, tax Policy or any
Government policy, inflation risk, interest rate risk and financial risk. The Unsystematic risks
are mismanagement, increasing inventory, wrong financial policy.

Types of risk

Risk consists of two components, the systematic risk and unsystematic risk. The
systematic risk is caused by factors external to the particular company and uncontrollable by
the company. The systematic risk affects the market as a whole. In the case of unsystematic
risk the factors are specific, unique and related to the particular industry or company.

13
SYSTEMATIC RISK:

The systematic risk affects the entire market. Often we read in the newspaper that the
Stock market is in the bear hug or in the bull grip. This indicates that the entire market in A
particular direction either downward or upward. The economic conditions, Political
Situations and the sociological changes affect the security market. The recession in the
economy affects the profit prospect of the industry and the stock market. The systematic, risk
is further divided into 3 types, they are as follows.

1) MARKET RISK:

Jack Clark Francis has defined market risk as that portion of total variability of return
caused by the alternating forces of bull and bear markets. The forces that affect the stock
market are tangible and intangible events are real events such as earthquake, war, and
political uncertainty and fall in the value of currency.

2) INTEREST RATE RISK:

Interest rate risk is the variation in the single period rates of return caused by the
Fluctuations in the market interest rate. Most commonly interest rate risk affects the price of
bonds, debentures and stocks. The fluctuations on the interest rates are caused by the Changes
in the government monetary policy and the changes that occur in the interest rate of the
treasury bills and the government bonds.

3) PURCHASING POWER RISK:

Variations in the returns are caused also by the loss of purchasing power of currency.
Inflation is the reason behind the loss of purchasing power. The level of Inflation proceeds
faster than the increase in capital value. Purchasing power risk is the probable loss in the
purchasing power of the returns to be received.

UNSYSTEMATIC RISK

As already mentioned, unsystematic risk is unique and peculiar to a firm or an

industry. Unsystematic risk stem from managerial inefficiency, ethnological change in the
production process, availability of raw material, changes in the consumer preference, and
labour problems. The nature and magnitude of the above-mentioned factors differ from
14
industry to industry, and company to company. They have to be analyzed separately for each
industry and firm.

1) BUSINESS RISK:

Business risk is that portion of the unsystematic risk caused by the operating
environment of the business. Business risk arises from the inability of a firm to maintain its
competitive edge and the growth and stability of the earnings. The variationinthe expected
operating income indicates the business risk. Business Risk can be divided into external
business risk and internal business risk.

a) Internal Business Risk:

Internal business risk is associated with the operational efficiency of the firm. The
following are the few,
1) Fluctuations in the sales
2) Research and Development
3) Personnel management
4) Fixed cost
5) Single product

b) External Risk:

External risk is the result of operating conditions imposed on the firm by

circumstances beyond its control. The external environment in which it operated exerts some
pressure on the firm.
1) Social and regulatory factors
2) Political risk
3) Business cycle

2) FINANCIAL RISK:

It refers to the variability of the income to the equity capital due to the capital.
Financial risk in a company is associated with the capital structure of the company. Capital
structure of the company consists of equity funds and borrowed funds.

15
3) CREDIT OR DEFAULT RISK:
Credit risk deals with the probability of meeting with a default. It is primarily the
probability that buyers will default. The chances that the borrower will not pay up can stem
from a variety of factors.

Risk on a Portfolio:

Risk on a portfolio is different from the risk on individual securities. This Risk is reflected in
the variability of the returns from zero to infinity. The expected return depends on the
probability of the returns and their weighted contribution to the risk of the portfolio. There
are two measures of risk in this context—one is the absolute deviation and the other standard
deviation.

Return of Portfolio:

Each security in a portfolio contributes returns in the proportion of its investment in

security. Thus, the portfolio expected return is the weighted average of the expected returns,
from each of the securities, with weights representing the proportionate share of the security
in the total investment. Why does an investor have so many securities in his portfolio? The
answer to this question lie in the investor‘s perception of risk attached to investment, his
objectives of income, safety, appreciation, liquidity and hedge against loss of value of money
etc.,
This pattern of investment in different asset categories security categories types of
instruments etc., would all be described under the caption of diversification which aims at the
reduction or even elimination of non-systematic or company related risks and achieve the
specific objectives of investors.
Portfolio management services help investor to make a wise choice between
alternative investments without any post training hassles. This service renders optimum
returns to the investors by a proper selection by continuous shifting of portfolio from one
scheme to other scheme or from one brand to the other brand within the same scheme.
Any portfolio manager must specify the maximum return, optimum returns and the
risk, capital appreciation, safety etc in their offer.
From the return angle securities can be classified into two
1. Fixed Income Securities:

 Debt – partly convertible and Non convertible debt with tradable warrants
 Preference Shares
16
  Government Securities and Bonds
 Other debt instruments.

2. Variable Income Securities:

 Equity Shares
 Money market Securities like T-bills, Commercial papers.
Portfolio manager have to decide upon the mix of securities on basis of contract with
the client and objective of the portfolio.
Portfolio managers in the Indian context, has been Brokers (big brokers) who on the
basis of their experience, market trend, insider trading, personal contact and speculations are
the ones who used to manage funds or portfolios.

Risk and return analysis:

The traditional approach to portfolio building has some basic assumptions. First, the
individual prefers larger to smaller returns from securities. To achieve this foal, the investor
has to take more risk. The ability to achieve higher returns is dependent upon his ability to
judge risk and his ability to take specific risks; the risks are namely interest rate risk,
purchasing power risk, financial risk and market risk. The investor analyses the varying
degrees of risk and constructs his portfolio. At first, he established the minimum income that
he must have to avoid hardship under most adverse economic condition and then he decides
risk of loss of income that can be tolerated. The investor makes a series of compromises on
risk and non-risk factors like taxation and marketability after he has assessed the major risk
categories, which he is trying to minimize

Alpha:
Alpha is the distance between the horizontal axis and line‘s intersection with y axis It
measures the unsystematic risk of the company. If alpha is a positive return, then that scrip
will have higher returns. If alpha=0 then the regression line goes through the origin and its
return simply depends on the Beta times the market returns.

Beta:
Beta describes the relationship between the stocks return and the Market index
returns. This can be positive and negative. It is the percentage change in the price of the stock
regressed (or related) to the percentage changes in the market index. If beta is I, a one-
17
percentage change in Market index will lead to one percentage change in price of the stock. If
Beta is 0, stock price is unrelated to the Market Index and if the market goes up by a +1%, the
stock price will fall by 1% Beta measures the systematic market related risk, which
cannot be eliminated by diversification. If the portfolio is efficient, Beta measures the
systematic risk effectively. On the other hand alpha and Epsilon measures the unsystematic
risk, which can be reduced by efficient diversification.

MEASUREMENT OF RISK:
The driving force of systematic and unsystematic risk causes the variation in returns
of securities. Efforts have to be made by researchers, expert‘s analysts, theorists and
academicians in the field of investment to develop methods for measuring risk in assessing
the returns on investments.

Total Risk:
The total risk of the investment comprises of diversifiable risk and non-diversifiable
risk, and this relation can be computed by summing up Diversifiable risk and Undiversifiable
risk.

Diversifiable Risk:
Any risk that can be diversified is referred to as diversifiable risk. This risk can be
totally eliminated through diversification of securities.
Diversification of securities means combining a large variety of assets into a
portfolio. The precise measure of risk of a single asset is its contribution to the market
portfolio of assets, which is its co-variance with market portfolio. This measure does not need
any additional cost in terms of money but requires a little prudence. It is un-diversifiable risk
of individual asset that is more difficult to tackle.

Traditional method of accounting & assigning risk premium method.

Assigning of the risk premium is one of the traditional methods of accounting. The
fundamental tenet in the financial management is to trade off between risk and return; the
return from holding equity securities is derived from the dividend stream and price changes.
On of the methods of quantifying risk and calculating expected rate of return would be to
express the required rate as
r=i+p+b+f+m+o
Where r = required rate of return
18
 i = real interest rate (risk free rate)
p = purchasing power risk allowance
b = business risk allowance
f = financial risk allowance
m = market risk allowance
o = allowances for other risk

CAPITAL ASSETS PRICING MODEL (CAPM)

Under CAPM model the changes in prices of capital assets in stock exchanges can be
measured by sung the relationship between security return and market return. So it is an
economic model describes how the securities are priced in the market place. By using CAPM
model the return of security can be calculated by comparing return of security with market
rate. The difference of return of security and market can be treated as highest return and the
risk premium of the investor is identified. It is the difference between return of security and
risk free rte of return.
[Risk premium = Return of security – Risk free rate of return]
So the CAPM attempts to measure the risk of a security in the portfolio sense.

Assumptions:
The CAPM model depends on the following assumptions, which are to be considered
while calculating rate of return.
 The investors are basically average risk assumers and diversification is needed to
reduce the risk factor.
 All investors want to maximize the return by assuming expected return of each
security.
 All investors assume increase of net wealth of the security.
 All investors can borrow or lend an unlimited amount of fund at risk free rate of
interest.
 There are no transaction costs and no taxes at the time of transfer of security.
 All investors have identical estimation of risk and return of all securities. All the
securities are divisible and tradable in capital market
 Systematic risk factor can be calculated and it is assumed perfectly by the investor.
 Capital market information must be available to all the investor.

19
Beta:

Beta describes the relationship between the stock return and the Market index returns.
This can be positive and negative. It is the percentage change is the price of he stock
regressed (or related) to the percentage changes in the market index If beta is 1, a one-
percentage change in Market index will lead to one percentage change in price of the stock. If
Beta is0, stock price is unrelated to the Market Index and if the market goes u by a +1%, the
stock price will fall by 1% Beta measures the systematic market related risk, which cannot be
eliminated by diversification. If the portfolio is efficient, Beta measures the systematic risk
effectively.

Evaluation process:

1. Risk is the variance of expected return of portfolio.

2. Two types of risk are assumed they are
a) Systematic risk
b) Unsystematic risk
3. Systematic risk is calculated by the investor by comparison of security return with
market return.
= Co – Variance of security and market
Variance of Market
Higher value of beta indicates higher systematic risk and vice versa. When numbers
of securities are holded by the investor, composite beta or portfolio can be calculated by the
use of weights of security and individual beta.
4) Risk free rate of return is identified on the basis of the market conditions.
The following 2 methods are used for calculation of return of security or portfolio.

Capital market Line:

Under CAPM model capital market line determined the relationship between risk and
return of efficient portfolio. When the risk rates of market and portfolio risk are given,
expected return of security or portfolio can be calculated by using the following formula.
ERP = T +p (Rpm– T)
M
ERP = Expected return of portfolio
T = risk free rate of return
20
 p = Portfolio of standard deviation
Rpm = Return of portfolio and market
M = Risk rate of the market.
Security Market Line:

Identifies the relationship of return on security and risk free rate of return. Beta is
used to identify the systematic risk of the premium. The following equation is used for
expected return.
ERP = T +(Rm– T)
Rm = Return of market
T = Risk free rate

LIMITATIONS OF CAPM:

In practical purpose CAPM can‘t be applied due to the following limitations.

1. The calculation of beta factor is not possible in certain situation due to more assets
are traded in the market.
2. The assumption of unlimited borrowings at risk free rate is not certain. For every
individual investor borrowing facilities are restricted.
3. The wealth of the share holder or investor is assessed by sing security return. But
it is not only the factor for calculation of wealth of the investor.
4. For every transfer of security transition cost is required on every return tax must
be paid.

TECHNIQUES OF PORTFOLIO MANAGEMENT

As of now the under noted techniques of Portfolio Management are in vogue in our
country:

1. Equity Portfolio:

Equity portfolio is influenced buy internal and external factors. Internal factors affect
inner working of the company. The company‘s growth plans are analyzed with respect to
Balance sheet and Profit & Loss Accounts of the company. External factors are changes
in Government Policies, Trade cycles, Political stability etc.

21
 2. Equity analysis:

Under this method future value of shares of a company is determined. It can be done
by ratios of earning per shares and price earning ratio.
EPS = Profit after tax
No. of Equity Shares

P/E Ratio = Market Price per Share

No. of equity Shares
One can estimate the trend of earning by analyzing EPS which reflects the trend of
earnings, quality of earning, dividend policy and quality of management. Further price
earnings ratio indicates the confidence of market about company‘s future.

SELECTION OF PORTFOLIO

Certain assumptions were made in the traditional approach for portfolio selection,
which are discussed below:
1. Investors prefer large to smaller returns from securities and take more risk.
2. Ability to achieve higher returns depends upon investors judgment of risk.
3. Spreading money among many securities can reduce risk.
An investor can select the best portfolio to meet his requirements from the efficient frontier,
by following the theory propounded by Markowitz. Selection process is based on the
satisfaction level that can be achieved from various investment avenues.

STAGES IN THE SELECTION PROCESS:

The process of selecting a portfolio is very crucial in the investment management and
involves four stages which are given below:
1. Determination of assets, which are eligible for constructing of a portfolio.
2. Computation of the expected Return for the eligible assets over a holding period.
3. Arriving at an acceptable balance between risk and return for constructing
optimum a portfolio i.e. selecting such a portfolio for which there is highest return
for each level of risk.

22
SELECTING THE BEST PORTFOLIO MIX

When an infinite number of portfolios are available, investor selects the best portfolio
by using the Markowitz Portfolio Theory. The investors base their selection on the Expected
return and Standard Deviation of the portfolio and decide the best portfolio mix taking the
magnitude of these parameters. The investors need not evaluate all the portfolios however he
can look at only the available portfolios, which lie on the Efficient Frontier.

The required features of the subset of portfolio are:

They should offer maximum Expected Return for varying levels of risk, and also offer
minimum risk for varying levels of Expected Returns.
If the above two conditions are satisfied then it is deemed as an efficient set, from this set
investors have to select the best setoff portfolios
Construction of efficient set of portfolios.

Considerable effort is required to construct a efficient set of portfolios.

Following parameters are essential for constructing the efficient set:
1. Expected returns for each security must be estimated.
2. Variance of each security must be calculated.

Optimum Portfolio:

Sharpe has identified the optimal portfolio through his single index model, according
to Sharpe; the beta ratio is the most important in portfolio selection.

The optimal portfolio is said to relate directly to the beta value. It is the excess return to the
beta ratio. The optimal portfolio is selected by finding out he cu-off rate [c]. The stock where
the excess return to the beta ratio is greater than cutoff rate should only be selected for
inclusion in the optimal portfolio. Sharp proposed that desirability of any stock is directly
referred to its excess returns to betas coefficient.
Ri – Rf

Where
Ri = Expected return on stock
Rf = Return on risk free asset

23
 = Expected change in the rate of return on stock 1 associated with 1% change in the
market runt

Following procedure is involved to select he stocks for the optimum portfolios.

1. Finding out the stocks of different risk – return ratios
2. Calculate excess return beta ratio for each stock and rank them from highest to
lowest
3. Finding out the cur-off rate for each security.
4. Selecting securities of high rank above the cur-off rate which is common to all
stocks
Thus, the optimum portfolio consists of all stocks for which (Ri – Rf) is grater than a
particular cut-off point[C*]. The selection number of stocks depends upon the unique cut-off
rate, where all stocks with higher rate (Ri – Rf) will be selected and stocks with lower rates
will be eliminated.

24
 CHAPTER II
REVIEW OF LITERATURE

25
 PORTFOLIO MANAGEMENT
INTRODUCTION:

In simple term Portfolio can be defined as combination of securities that have Return
and Risk characteristic of their own. Portfolio may or may not take on the aggregate
characteristics of their individual parts. Portfolio is the collection of financial or real assets
such as equity shares, debentures, bonds, treasury bills and property etc. Portfolio is a
combination of assets or it consists of collection of securities. These holdings are the result of
individual preferences, decisions of the holders regarding risk, return and a host of other
considerations.
Portfolio management concerns the construction & maintenance of a collection of
investment. It primarily involves reducing risks rather than increasing return. Return is
obviously important though the ultimate objective of portfolio manager has to get good return
to achieve a chosen level of return by immunizing the risk.

PORTFOLIO MANAGEMENT

Investing in securities such as shares, debentures bonds is profitable as well as

exciting. It indeed involves a great deal of risk. Very few investors invest in single security
their entire savings. But most of them invest in a group of securities such; group of securities
is called a Portfolio. Creation of portfolio helps to reduce risk without reducing returns.
As economic and financial environment keeps changing the risk-return characteristics
of individual securities and portfolio also change.
An investor invests in funds in a port folio expecting to get a good return with less
risk to bear.
Portfolio management comprises all the processes involved in the creation and
maintenance of an investment portfolio. It deals specifically with Security analysis, Portfolio
analysis, Portfolio selection, Portfolio revision and Portfolio evaluation.

OBJECTIVES OF PORTFOLIO MANAGEMENT

The objective of portfolio management is to invest in securities in such a way that:

a) Maximize one‘s Return and
b) Minimize risk
In order to achieve one‘s investment objectives, a good portfolio should have multiple
objectives and achieve a sound balance among them. Any one objective should not be given
undue importance at the cost of others.
26
 Some of the main objectives are given below:

 Safety of the Investment

Investment safety or minimization of risks is one of the important objectives of
portfolio management. There are many types of risks, which are associated with investment
in equity stocks, including super stocks. We should keep in mind that there is no such thing
as a Zero-Risk investment. Moreover, relatively Low-Risk investments give correspondingly
lower returns.

 Stable Current Returns:

Once investments safety is guaranteed, the portfolio should yield a steady current
income. The current returns should at least match the opportunity cost of the funds of the
investor. What we are referring is current income by way of interest or dividends, not
capital gains. The Portfolio should give a steady yield of income i.e.; interest or
dividends. The returns have to match the opposite cost of funds of interest.

 Marketability:

If there are too many unlisted or inactive shares in our portfolio, we will have to face
problems in enchasing them, and switching from one investment to another.

 Liquidity

The portfolio should ensure that there are enough funds available at short notice to
take care of the investor‘s liquidity requirements. It is desirable to keep a line of credit from a
bank fro use incase it become necessary to participate in Right Issues, or for any other
personal needs.

 Tax Planning

Since taxation is an important variable in total planning. A good portfolio should

enable its owner to enjoy a favorable tax shelter. The portfolio should be developed
considering not only income tax but capital gains tax, and gift tax, as well. What a good
portfolio aims at is tax planning, not tax evasion or tax avoidance.

27
PORTFOLIO MANAGEMENT FRAMEWORK

Investment management is also known as Portfolio Management, it is a complex

process or activity that may be divided into seven broad phases:-
 Specification of Investment Objectives and Constraints.
 Choice of Asset Mix.
 Formulation of Portfolio Strategy.
 Selection of Securities.
 Portfolio Execution.
 Portfolio Rebalancing.
 Performance Evaluation.

Specification of Investment Objectives and Constraints:-

The first step in the portfolio management process is to specify one‘s investment
objectives and constraints. The commonly stated investment goals are: -
1. Income: - To provide a steady stream of income through regular interest/dividend
payment.
2. Growth: - To increase the value of the principal amount through capital
appreciation.
3. Stability: - To protect the principal amount invested from the risk of Loss.

PORTFOLIO MANAGEMENT IN INDIA

In India, Port folio Management is still in its infancy. Barring a few Indian Banks, and
foreign banks and UTI, no other agency had professional Portfolio Management until 1987.

After the setting up of public sector Mutual Funds, since 1987, professional portfolio
management, backed by competent research staff became the order of the day. After the
success of Mutual Funds in portfolio management, a number of brokers and Investment
consultants some of whom are also professionally qualified have become Portfolio Managers.
They have managed the funds of clients on both discretionary and Non-discretionary basis. It
was found that many of them, including Mutual Funds have guaranteed a minimum return or
capital appreciation and adopted all kinds of incentives, which are now prohibited by SEBI.
They resorted to speculative over trading and insider trading, discounts, etc., to achieve their
targeted returns to the clients, which are also prohibited by SEBI.
28
 The recent CBI probe into the operations of many market dealers has revealed the
unscrupulous practices by banks, dealers and brokers in their Portfolio Operations. The SEBI
has the imposed stricter rules, which included their registration, a code of conduct and
minimum infrastructures, experience etc. It is no longer possible for my unemployed youth,
or retired person or self-styled consultant to engage in Portfolio Management without the
SEBI‘s license. The guidelines of SEBI are in the direction of making Portfolio Management
a responsible professional service to be rendered by experts in the field.

MEANS OF PORTFOLIO EVALUATION:

Evaluation of mutual fund is basically based on risk adjusted returns. One obvious
method of adjusting for risk is to look at the reward per unit of risk. We know that investment
in shares is risky. Risk free rate of interest is the return that an investor can earn on riskless
security, i.e. without bearing any risk. The return earned over and above the risk free return is
the risk premium per unit of risk. Thus, the reward per unit of risk for different portfolios or
mutual funds may be calculated and the funds may be ranked in descending order of the ratio.
A higher ratio indicates better performance. In order to determine the risk-adjusted returns of
investment portfolios, several eminent authors have worked since 1960s to develop
composite performance indices to evaluate a portfolio by comparing alternative portfolios
within a particular risk class. The most important and widely used measures of performance
are:

A) The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which
is a ratio of returns generated by the fund over and above risk free rate of return and the total
risk associated with it. According to Sharpe, it is the total risk of the fund that the investors
are concerned about. So, the model evaluates funds on the basis of reward per unit of total
risk. Symbolically, it can be written as: Sharpe Index

(Si) = (Ri - Rf)/Si

Where,
Si = standard deviation of the fund. While a high and positive Sharpe Ratio shows a
superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an
indication ofunfavorable performance.

29
B) The Treynor Measure

Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor‘s Index. This Index is a ratio of return generated by the fund over and aboverisk free
rate of return (generally taken to be the return on securities backed by thegovernment, as
there is no credit risk associated), during a given period and systematic risk associated with it
(beta). Symbolically, it can be represented as:Treynor's Index

(Ti) = (Ri - Rf)/Bi.

Where,
Rirepresents return on fund,
Rf is risk free rate of return and
Biis beta of the fund.All risk-averse investors would like to maximize this value.
While a high and positive Treynor's Index shows a superior risk-adjusted performance
of a fund, a low andnegative Treynor's Index is an indication of unfavorable
performance.

COMPARISON OF SHARPE AND TREYNOR

Sharpe and Treynor measures are similar in a way, since they both divide the
risk premium by a numerical risk measure. The total risk is appropriate when we are
evaluatingthe risk return relationship for well-diversified portfolios. On the other hand, the
systematicrisk is the relevant measure of risk when we are evaluating less than fully
diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is
equal tosystematic risk. Rankings based on total risk (Sharpe measure) and systematic risk
(Treynor measure) should be identical for a well-diversified portfolio, as the total risk is
reduced tosystematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor
measure,compared with another fund that is highly diversified, will rank lower on Sharpe
Measure.

C) Jenson Model

Jenson's model proposes another risk adjusted performance measure. This

measurewas developed by Michael Jenson and is sometimes referred to as the Differential
ReturnMethod. This measure involves evaluation of the returns that the fund has generated
vs. thereturns actually expected out of the fund given the level of its systematic risk. The
surplus between the two returns is called Alpha, which measures the performance of a fund
30
comparedwith the actual returns over the period. Required return of a fund at a given level of
risk (Bi)can be calculated as:
Ri = Rf + Bi (Rm - Rf)
Where,
Rmis average market return during the given period. After calculating it, alpha can be
obtained by subtracting required return from the actual return of the fund.Higher
alpha represents superior performance of the fund and vice versa. Limitationof this
model is that it considers only systematic risk not the entire risk associated with
thefund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge
of marketis primitive.

D) Fama Model

The Eugene Fama model is an extension of Jenson model. This model compares
the performance, measured in terms of returns, of a fund with the required return
commensurate with the total risk associated with it. The difference between these two is
taken as a measure of the performance of the fund and is called net selectivity. The net
selectivity represents the stock selection skill of the fund manager, as it is the excess return
over and above the return required to compensate for the total risk taken by the fund
manager. Higher value of which indicates that fund manager has earned returns well above
the return commensurate with the level of risk taken by him. Required return can be
calculated as:
Ri = Rf + Si/Sm*(Rm - Rf)
Where,
Sm is standard deviation of market returns. The net selectivity is then calculated by
subtracting this required return from the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure and
Jenson model use systematic risk based on the premise that the unsystematic risk is
diversifiable. These models are suitable for large investors like institutional investors with
high risk taking capacities as they do not face paucity of funds and can invest in a number
of options to dilute some risks. For them, a portfolio can be spread across a number of stocks
and sectors. However, Sharpe measure and Fama model that consider the entire
risk associated with fund are suitable for small investors, as the ordinary investor lacks the
necessary skill and resources to diversify.

31
 Moreover, the selection of the fund on the basis of superior stock selection ability of
the fund manager will also help in safeguarding the money invested to a great extent. The
investment in funds that have generated big returns at higher levels of risks leaves the money
all the more prone to risks of all kinds that may exceed the individual investors' risk appetite.
Above four methods available for performance evaluation; this study is based on two
methods. Namely Sharpe ratio and Treynor ratio. This is because now adays most of the
researchers use Sharpe and Traynor ratios for evaluation. The other two are irrelevant for the
time being.

This project deals with the different investment decisions made by different people
and focuses on element of risk in detail while investing in securities. It also explains how
portfolio hedges the risk in investment and giving optimum return to a given amount of risk.
It also gives an in depth analysis of portfolio creation, selection, revision and evaluation. The
report also shows different ways of analysis of securities, different theories of portfolio
management for effective and efficient portfolio construction. It also gives a brief analysis of
how to evaluate a portfolio.

SEBI NORMS:

SEBI has prohibited the Portfolio Manger to assume any risk on behalf of the client.
Portfolio Manager cannot also assure any fixed return to the client.

The investments made or advised by him are subject to risk, which the client has to
bear.
The investment consultancy and management has to be charged at rates, which are fixed at
the beginning and transparent as per the contract. No sharing of profits or discounts or cash
incentives to clients is permitted.

The Portfolio Manager is prohibited to do lending, badla financing and bills

discounting as per SEBI norms. He cannot put the client‘s funds in any investment, not
permitted by the contract, entered into with the client. Normally investment can be made in
capital market and money market instruments.

Client‘s money has to be kept in a separate account with the public sector bank and
cannot be mixed up with his own funds or investments. All the deals done for a client‘s

32
account are to be entered in his name and Contract Notes, Bills and etc., are all passed by his
name. A separate ledger account is maintained for all purchases/sales on client‘s behalf,
which should be done at the market price. Final settlement and termination of contract is as
per the contract.

During the period of contract, Portfolio Manager is only acting on a contractual basis
and on a fiduciary basis. No contract for less than a year is permitted by the SEBI.

33
 CHAPTER – III

RESEARCH METHODOLOGY

34
 OBJECTIVES OF THE STUDY

 To help the investors to decide the effective portfolio of securities.

 To identify the best portfolio of securities.

 To study the role and impact of securities in investment decisions.

 To select an optimal portfolio.

NEED FOR THE STUDY

1. To get the overall knowledge of securities and investment.

2. To know how the investment made in different securities minimizes the risk and

maximizes the returns.

3. To get the knowledge of different factors that affects the investment decision of

investors.

4. To know how different companies are managing their portfolio i.e. when and in which

sectors they are investing.

5. To know what is the need of appointing a Portfolio Manager and how does he meets

the needs of the various investors.

6. To get the knowledge about the role (played) and functions of portfolio manager.

7. To get the knowledge of investment decision and asset allocation.

35
 RESEARCH METHODOLOGY

The current research paper is a conceptual study in to green marketing. Therefore efforts have
been made to collect data purely form already existing research and published sources and is
secondary by nature.
RESEARCH METHODOLOGY USED IN PROJECT

HO. THERE IS NO DIFFERENCE BETWEEN OBSERVED AND EXPECTED

FREQUENCIES.

H1: THERE IS DIFFERENCE BETWEEN OBSERVATION AND EXPECTATION

PRIMARY DATA:
 Primary Data was collected from discussion with the KOTAK MAHINDRA
SECURITIES Corporate Managers and others staff.
 Data collected from Newspaper & Magazines.

 Data obtained from the internet.

 Data collected from brokers.

 Data obtained from company journals.

SECONDARY DATA:
 Secondary data is collected from the websites, journals and other sources of
information and views stated by different users at different point in time.
 A qualitative approach allows for an elastic process during which changes can be
made and incorporated into the research.

Company Address

Address: 8-2-672/5, Ground Floor, IIyas Mohammed Khan Estate, Road Number 1, Near
Kachari Bakery, Banjara Hills, Hyderabad, Telangana 500034
Proposed statistical Tools for the study

Descriptive statistics- mode , percentages, frequencies, bar graphs and pie charts

Mann-Whitney Test

Correlation Analysis

36
Chi-square

Ratio Analysis

TOOLS USED IN THE ANALYSIS

 Statistical tools

 Financial tools

Research gap

Period of study
4 years data Time gap 2016 completed study from 2016_2020

LIMITATIONS

 The data collected is basically confined to secondary sources, with very little amount

of primary data associated with the project.

 There is a constraint with regard to time allocated for the research study.

 The availability of information in the form of annual reports & price fluctuations of

the companies is a big constraint to the study.

37
 CHAPTER - IV
THEORETICAL FRAME WORK

38
 Since the 1980s the concepts of portfolio management have been adopted within the
context of understanding business markets. Academics on both sides of the Atlantic have
conceptualized and empirically tested a variety of customer and supplier portfolio models.
More recently the concept of an indirect portfolio of relationships and its management has
also been introduced. This paper reviews the role of relationship portfolios: customer,
supplier and indirect in the context of business-to-business markets.
We critically assess the most significant models, map their evolution and consider what the
future holds for relationship management. We then discuss the manner in which portfolios
and network can be integrated in order to provide a practical guide for marketing
management. In conclusion we recognize the importance of conceptualizing the network as a
set of portfolios (customer, supplier and indirect) and suggest that, in the context of business-
to-business marketing at the very least, portfolio analysis provides the key to successful
relationship management and important inputs to strategic management. Introduction The
origins of portfolio theory lie in financial investment (Markowitz, 1952 and Sharpe, 1963).
The concept has also been widely adopted in other spheres of management such as strategic
management and marketing, as a mechanism for aiding decisions about resource allocation.
No strategic management or marketing text appears to be complete without the inclusion of
the Boston Consulting Group (BCG) growth share matrix or the McKinsey model. When
used effectively, these models provide guidance for resource allocation and the BCG model,
despite its inherent weaknesses, is probably one of the most widely used management
decision aids. The concepts of portfolio management have also been adopted within the
context of understanding business markets.
Portfolios provide a mechanism for conceptualizing and managing the customer, supplier and
indirect sets of relationships which surround a firm. The growth of interest in 'relationship'
marketing has also put greater emphasis on the study of these relationship portfolios. This
paper is written very much from a business marketing perspective. Specifically, because in
this arena the role of relationship management is acknowledged to be critical to gaining
competitive advantage (Hakansson, 1982, Turnbull and Valla, 1986, Ford, 1990, 1997 and
Sheth and Sharma,1997). The paper reviews work on both sides of the Atlantic in this area. It
critically assesses the significant models, maps their evolution and considers what the future
holds for relationship portfolio management.
Relationship Portfolio Models The bulk of models that have been conceptualized are based in
either customer or supplier relationship modelling. However, Zolkiewski and Turnbull (1999)
also raised the importance of modelling the set of indirect relationships which surround a
firm. (Indirect relationships are those with actors who influence the operation of the
39
organization and can include Government (national and local), institutions such as
universities and lobby groups, for example.)
The models which have been developed include both two and three-dimensional axes along
with single, two and three-step analysis phases. They are listed in Table 1 below. The most
significant of these models are then reviewed in the following sections. Table 1 Summary of
Portfolio Models Year Customer Portfolio Models Supplier Portfolio Models Indirect
Portfolio Models 1982 Cunningham and Homse Cunningham
Portfolio Management is defined as the art and science of making decisions about the
investment mix and policy, matching investments to objectives, asset allocation for
individuals and institutions, and balancing risk against performance.
Portfolio management refers to managing an individual‘s investments in the form of bonds,
shares, cash, mutual funds etc so that he earns the maximum profits within the stipulated time
frame. It is the art of managing the money of an individual under the expert guidance of
portfolio managers.
It is the detailed SWOT analysis (strengths, weaknesses, opportunities, and threats) of an
investment avenue, which could be in the form of debt/equity, domestic/international, with
the goal of maximizing return at a given appetite for risk.
Types of Portfolio Management
There are majorly four types of portfolio management methods:
1. Discretionary portfolio management: In this form, the individual authorizes the
portfolio manager to take care of his financial needs on his behalf.

2. Non discretionary portfolio management: Here the portfolio manager can merely
advise the client what is good or bad, correct / incorrect for him, but the client
reserves the full right to take his own decisions.

3. Passive portfolio management: It is the form which involves only tracking the
index.

4. Active portfolio management: This includes a team of members who take active
decisions based on hard core research before investing the corpus into any investment
avenue. (e.g. close ended funds).

40
 CHAPTER V
COMPANY PROFILE

41
 COMPANY PROFILE

About our Share Broking Services

Kotak Securities was founded in 1994 as a subsidiary of Kotak Mahindra Bank and is proud
to be the nation‘s best broker* today.

Our numbers speak for ourselves:

17 Lakh customer accounts

Over 8 Lakh trades per day
Our national footprint is 1,539 branches, franchisees and satellite offices
We cater to customers from 393 cities across India
We are corporate members with the Bombay Stock Exchange(BSE) and the National Stock
Exchange(NSE). We are also a depository participant with National Securities Depository
Limited (NSDL) and Central Depository Services Limited (CDSL).

* Adjudged as the Best Broker by FinanceAsia Country Awards, 2020

* The above numbers are as on December 31, 2020.

Our Services

So what does investing with India‘s largest stock broking firm mean for you as a customer?
Well, all your stock broking needs get managed under one roof. No more running from pillar
to post, to keep track of your finances!

Stock Broking services

Trade in the Stock Market, invest in IPOs, Mutual Funds or Currency Derivatives using
whichever mode that suits you best. Online, offline or even on our stock trading app, we offer
stock trading at your fingertips.

Portfolio Management services

Not sure of what stocks to buy or sell? Unable to keep all your investments in one place?
Don‘t know how to make your money work for you? Our Portfolio Management Service with
expert advice is just the answer for your woes.

Dual benefit: Stock Brokers + Depository Participants

Kotak Securities is not just a stock broking firm. We are also participants with depositories

42
like the NSDL and the CSDL. That means you can now execute transactions using our stock
broking services and settle your trades using our depository services!

Research Expertise
Benefit from in-depth stock market analysis thanks to our dedicated research division. We
publish various sector-specific research, company-specific research, macroeconomic studies,
fundamental and technical analysis of stocks that you can avail before investing your hard-
earned money.

Updated Market Data

Apart from research that we offer, you benefit from the street smart tips, up-to-the-minute
market information and inside news that our extensive sales teams deliver on a daily basis.

International Reach
Your financial interests go beyond India? Don‘t worry, so do ours! Kotak Securities has a
well-entrenched presence in the Asia Pacific, European, Middle Eastern and American
markets. You can trust us with your money in any part of the globe.

We did it first

Helping you invest your money is a job we take very seriously. Which is why we pioneered
some of these services. Here‘s a quick look:

 Mobile stock trading app to keep track of your investments on the go

 Facility of Margin Finance for online stock trading

 Investing in IPOs and Mutual Funds over the phone

 SMS alerts before execution of depository transactions

 AutoInvest - A systematic investing plan in Equities and Mutual funds

 Provision of margin against securities automatically using shares in your demat

account

Awards and Recognition

 Best Broker by FinanceAsia Country Awards, 2020

 Gold at ACEF for Email marketing & successful use of technology

 Silver at ACEF for Data driven marketing & successful of technology

43
 Bronze at IAMAI, 2019 in the category ―Best Omni Channel Campaign Management
and Marketing automation‖

 Awarded ―Early adopter of Analytics‖ at Machine learning conference 2019 for using
Analytics extensively in client management

 Award for Highest AUM in ETF category awarded by Kotak AMC

 Best Brokerage India 2019 – by Triple A Asset Country Awards in the Best Advisors
South Asia Category

 Best Retail IPO Bidding Member, 2019 by NSE

 NSDL Star Performer Award in category ―Top Performer in New Accounts Opened –
(Non- Bank) – 1st Position 2015, 2016, 2018 and 2019

 Best Local Brokerage and Best Overall Country Research, 2016 by Asia Money
Brokers Poll

 Smart Order Routing has been awarded with Finnoviti 2015 by Banking Frontiers

 Adjudged as Best Broker India by FinanceAsia Country awards, 2015, 2014.

 Broker of the Year (India) - The Asian Banker's Financial Markets Business
Achievement Awards 2014

 Overall best Equity Broking House by BSE IPF - D&B Equity Broking Awards for
the year 2013

 Depository Participant of the year by BSE IPF - D&B Equity Broking Awards for the
year 2013

 Top Performer in New Accounts Opened (Non-Bank Category) - NSDL Star

Performers Award 2013

 Fastest growing Equity Broking House by BSE IPF - D&B Equity Broking Awards
for the year 2012

 The Best Equity House in India by FinanceAsia for the year 2012

 *Best Broker in India by FinanceAsia for 2012, 2010 & 2009

44
  UTI MF - CNBC TV18 Financial Advisor Awards - Best Performing Equity Broker
(National) for the year 2009

 Best Brokerage Firm in India by Asiamoney in 2009, 2008, 2007 & 2006

 Best Performing Equity Broker in India by CNBC Financial Advisor Awards for 2008

 Avaya Customer Responsiveness Awards for 2007 & 2006 in the Financial Services
Sector

 The Leading Equity House in India in Thomson Extel Surveys Awards for the year
2007

 Best Provider of Portfolio Management: Equities by Euromoney for 2007 & 2006

 Best Equities House In India by Euromoney Award for the year 2005

 Best Broker in India by FinanceAsia for the year 2005

 Best Equity House in India by Finance Asia for the year 2004

Here’s a list of some of our recent marketing awards:

 Bronze for Acquisition campaign in the category of Best Use of Data for New
Business & for PPC (HCGBB) in the search category awarded by Campaign India‘s
Digital Crest Awards, 2016

 Bronze for Best Single Radio Commercial in Insurance, Banking & Financial services
at Golden Mikes Awards 2016 by Exchange4media

 Gold for Effective Use of Market research, Bronze for Effectiveness in Radio and
Bronze for Innovation in Cupshup campaign awarded to Agar Magar Campaign at
Asia Pacific Customer Engagement Award 2015 - 16

 Silver award Best SEO for Website at DMAI 2015

 Best SEO for Website at India Digital Media Awards (IDMA) 2015

Here’s our recent research award:

 Favourite Analyst Awards at Research bytes IC Awards 2015 in Research House,

Financials, Materials and Multi Sector categories

Service
45
We recognize that there are many options online and offline to buy or sell stocks. While good
products and low prices can be offered by many, what sets apart a truly dedicated company is
the service they provide to their customers.

Like Kotak Securities.

We have been honoured with various awards that celebrate our exceptional focus on
customer service. These include the "Overall best Equity Broking Houseand and Depository
Participant of the year by BSE IPF - D&B Equity Broking Awards" for 2013, NSDL Star
Performers Award 2013 – Top Performer in New Accounts Opened (Non-Bank Category)
and "Best Broker in India Award, by FinanceAsia‖ for 2012, 2010 and 2009,"

46
 CHAPTER VI
DATA ANALYSIS AND
INTERPRETATION

47
 Portfolio A

C=
Un Excess Cumulative n
Cu
Beta Syste Return (Ri-Rf) mulative ( 2  2 m2t=1(Ri-Rf) 
Ri-Rf)
Securities Returns Values metic Over () 2
e 
2
2e 2e
e
R% Risk Ri – Rf 2e n
() 1+ m2t=12
2e (%) 
2e
Bharti 14.2 0.88 29 10.5 0.2822 0.2822 0.0286 0.0288 2.19
Airtel
ITC 10.1 0.99 18.65 5.2 0.2654 0.5476 0.1133 0.1420 2.26
Guj 10.5 1.03 35 4.5 0.1618 0.7094 0.0303 0.1723 2.606
Amb.com
ICICI 8.8 0.91 12.33 4.3 0.2878 0.9972 0.0801 0.2524 2.830
Bank
BHEL 9.4 1.06 30.5 4.24 0.1564 1.1536 0.0368 0.2892 2.964
HDFC 9.1 0.96 14.83 4.2 0.2590 1.4126 0.1908 0.4799 2.45
Bajaj 8.4 1.03 14 3.39 0.2575 1.6701 0.1326 0.6124 2.34
Auto
Acc 8.6 1.06 28 3.30 0.1325 1.8026 0.0401 0.6526 2.39
HindalCo 8.3 1.29 12 2.7 0.3762 2.1788 0.1664 0.8190 2.37

HDFC 6.6 0.82 32 2.39 0.0461 2.2249 0.0210 0.84 2.36

Bank
HLL 7.1 1.03 26 1.9 0.0792 2.3041 0.0408 0.8808 2.34
Dr. 6.1 0.69 20 1.5 0.0345 2.3386 0.0238 0.9046 2.32
Reddys

Note: -C* is the cut-off point to include the securities in to portfolio.

48
40
35
Series1
30 Series2
25 Series3
20 Series4
15 Series5
10 Series6
5 Series7
0 Series8
Airtel

Dr.
HLL
Bank
ITC

Reddys
Guj
Bharti

HindalCo.

HDFC
Amb.com

Bank

Bajaj
Auto
HDFC
ICICI

BHEL

Acc
Series9

INTERPRETATION:

 Construction of optimal portfolio starts with determines which securities are included

in the portfolio, for this the following steps necessary.

 Calculation of‘ excess return to beta ratio‘ for each securities under review and rank

from highest to lowest.

 The above table shows that the construction of optimal portfolio from BSE SENSEX

scripts.

 In the above table all the securities whose ‗excess return to beta ‗ratio are above the

cut-off rate are selected and all those whose ratios are below are rejected.

 For the portfolio-A selected scripts are 10 out of twelve whose ―excess return to beta‖

ratio are above the cutoff rate (2.36 C*) are included in the portfolio basket. HLL (1.9

< 2.34) Dr.Reddy‘s (1.5 < 2.32) securities excess return to beta ratios are less than the

cut-off so those are excluded from the portfolio.

49
 PORTFOLIO B

C=
n
Un Excess m2t=1(Ri-Rf)
Syste Cumulative 
Beta Return
(Ri-Rf) Cumulative
metic (Ri-Rf) 2 2
Return
Values Over ()
2e 2e
Securities Risk
Ri – Rf 2e 2e 2e n
R% () 2e (%) 1+ m2t=12

2e
Vodafone 14.2 0.88 29 10.5 0.2822 0.2822 0.0286 0.0286 2.19
Hindustan
Unilever 10.1 0.99 18.65 5.2 0.2654 0.5476 0.1133 0.1419 2.26
Limited
Ultratech 10.5 1.03 35 4.5 0.1618 0.7094 0.0303 0.1722 2.606
HSBC
8.8 0.91 12.33 4.3 0.2878 0.9972 0.0801 0.2523 2.830
Bank
L&T 9.4 1.06 30.5 4.24 0.1564 1.1536 0.0368 0.2891 2.964
AXIS
9.1 0.96 14.83 4.2 0.2590 1.4126 0.1908 0.479 2.45
Bank
Hero
8.4 1.03 14 3.39 0.2575 1.6701 0.1326 0.6125 2.34
motocorp
Kesoram 8.6 1.06 28 3.30 0.1325 1.8026 0.0401 0.6525 2.39
National
Aluminium
8.3 1.29 12 2.7 0.3762 2.1788 0.1664 0.8190 2.37
Company
Ltd.
Standard
Chartered 6.6 0.82 32 2.39 0.0461 2.2249 0.0210 0.84 2.36
Bank
Cupid Ltd. 7.1 1.03 26 1.9 0.0792 2.3041 0.0408 0.8808 2.34
Sunpharma 6.1 0.69 20 1.5 0.0345 2.3386 0.0238 0.9046 2.32

Note: -C* is the cut-off point to include the securities in to portfolio

50
 40
35
30 Series1
25 Series2
20
15 Series3
10 Series4
5 Series5
0
Series6
Series7
Series8
Series9

INTERPRETATION:

 The desirability of any securities to include in the portfolio is directly related to

excess return to beta ratio and cut-off rate.

 The above information shows that for securities of Satyam computers to NTPCRi –

Rf /  is less than C*. While securities 11&12 are less than C*. So all the ten

securities are included in the portfolio and ONGC& TATA consultancy services are

not added in the optimal portfolio.

 Here optimal portfolio consists of securities of 10 companies

51
 PORTFOLIO C:

C=
Un Excess Cumulative n
Cu
Securities Beta Syste Return (Ri-Rf) mulative ( 2  2 m2t=1(Ri-Rf) 
Ri-Rf) 2e
Returns Values metic Over () 2
e  2
e 2e
R% Risk Ri – Rf 2
e n
() 1+ m2t=12
2e (%) 
2e
Satyam 18 1.09 45 11 0.2906 0.2906 0.0264 0.0264 2.29
Com
Bharthi 14.3 0.88 29 10.5 0.2654 0.556 0.0286 0.055 3.587
Airtel

Reliance 10.3 0.95 19 8.4 0.2650 0.821 0.0525 0.1074 3.956

comm
SBI 10.62 1.12 20.5 7 0.3070 1.128 0.0711 0.1786 4.048
Reliance 8 0.66 22 5.6 0.0900 1.218 0.0200 0.2086 3.94
Ene
L&T 5.5 0.80 12 5.2 0.2333 1.4513 0.0544 0.263 3.9
Hero 4.8 1.00 15 4.54 0.2533 1.7046 0.6777 1.9407 1.637
Honda
Guj 8.5 1.42 12.76 4.5 0.3894 2.094 0.1580 1.0987 1.905
Amboja
Ranbaxy 6.8 0.82 32 4.4 0.0461 2.1401 0.1664 1.2651 1.567
ICICI 6 0.74 4.5 4.3 0.1644 2.3045 0.1217 1.3868 1.549
BHEL 6 0.69 20 4.24 0.0345 2.3390 0.0238 1.4106 1.5488
Infosys 6 0.89 5 4.2 0.178 2.517 0.15842 1.5690 1.508

52
50
45
Series1
40
35 Series2

30 Series3
25 Series4
20 Series5
15 Series6
10
Series7
5
Series8
0 Ene

Honda
L&T
Hero
Com

Reliance
Airtel
Bharthi

comm

Reliance

BHEL
Ranbaxy

Infosys
Satyam

SBI

ICICI
Guj
Series9

INTERPRETATION Amboja

 For the portfolio-C selected scripts are 12companies and portfolio basket consists of

all the selected scripts whose excess return to beta ratios are always greater than

cutoff rates.

 So the optimal portfolio consists of selected all 12 securities.

53
 CHAPTER VII
RESEARCH FINDINGS &
SUGGESTIONS

54
 FINDINGS

 The investor can recognize and analyze the risk and return of the shares by using this
analysis.

 The investor who bears high risk will be getting high returns.

 The investor who is having optimum portfolio will be taking optimum returns with
minimum risk.

 The investor should include all securities which are undervalued in their portfolio and
remove those securities that are over valued.

 The investor has to maintain a portfolio of diversified sector stocks rather than investing in
a single sector of different stocks.

 People who are investing in them mostly depend on the advice of their friends, relatives
and financial advisors.

 People generally invest their savings in fixed deposits, recurring deposits, and national
savings certificate and government securities as they are less risky and the returns are
guarantied.

 Every investor invests in basic necessities. They plan to invest in insurance (LIC, GIC)
and pension funds as these give guarantied returns and are less risky.

 Most of the investors feel that investing in stock/capital market is of high risk therefore
they don‘t invest in them.

55
 SUGGESTIONS
The findings of the study will have some implications. The study has a direct bearing on the
market for financial products such as shares, debentures, mutual funds, life insurance, post
office saving schemes, fixed deposits and also real estate and gold/silver. Therefore, it is of
special interest to policy makers and regulatory authorities concerned with financial market.
The regulatory bodies can safeguard the interest of the new investors on the basis of the
pattern of investing. The following suggestions may be worth considering in this respect:

1. It is suggested to the investors that instead of keeping long term investment time horizon,
their time horizon should depends on their objectives and type of Investment Avenue.

2. Instead of making wrong decisions regarding investment it is advisable that investors

should take help of financial planner.

3. Insurance is assurance and not investment so it is suggested to the investors instead of

buying high premium charging policies they should invest in pure protection plans as
premium is less and the surplus could be invested elsewhere and return can be earned.

4. From the observations it has been suggested that investors are doing their investments at the
last movements and many a time it was found that they are doing wrong investments. So
instead of last time rush investors must plan for their investments from the starting of the
financial year.

5. Now a days the return on various investments are based on market scenario, so it is
advisable to the investors that they should keep on upgrading themselves with new guidelines
and changes in terms and conditions. Not only the investment avenues were they have
invested but overall investment avenues they should be aware of so that they can make
necessary diversification for keeping their portfolio profitable.

6. It is suggested to the investors that irrespective of their awareness regarding Investment

Avenue they should select appropriate investment avenue which is suitable for them.

7. It is suggested to the investors that at-least the equity portion of their portfolio must be
reviewed regularly so that if stock is not performing then necessary diversification can be
made.

56
 CHAPTER -VIII

SUGGESTIONS &
RECOMMENDATIONS

57
 SUGGESTIONS & RECOMMENDATIONS

 When compared to other portfolios, portfolio-C gives him the maximum return with
twelve scripts.

 The diversification of funds in different company scripts is possible from the portfolio-C
when compared to others.

 Market risk is also less when compared to the other portfolio.

 If the portfolio manager is efficient and the investor is risk tolerant person and the
investment is a long term perspective then it is better to invest in the MID-Caps &
SMALL-Caps companies securities, where the growth of returns are higher than the
LARGE-Caps .

 If investor is not risk tolerant person & short-term perspective it‘s good to invest in large
caps companies‘ securities.

 I feel that this year small cap and mid cap companies will be performing well when
compared to large cap as we have observed last year.

58
BIBLIOGRAPHY

59
 BIBLIOGRAPHY

TEXT BOOKS

INVESTMENTS
By SHARPE & ALEXANDER

Security Analysis and Portfolio Management

By FISCHER & JORDAN

Investment Analysis and Portfolio Management.

By PRASANNA CHANDRA

WEBSITES
www.bseindia.com
www.nseindia.co
www.economictimes.com
www.moneycontrol.com
www.yahoofinance.com

60