A STUDY ON RISK AVERSION THROUGH PORTFOLIO CONSTRUCTION

INTRODUCTION

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INTRODUCTION
Investing in securities such as shares debentures and bonds is profitable as well as
exciting It is indeed rewarding. But involves a great deal of risk and calls for scientific
knowledge as well as artistic skill. In such investments, both rational as well as emotional
responses are involved. Investing in financial securities is now considered to be one of the best
avenues for investing one’s savings while it is acknowledged to be one of the most risky
avenues of investment.
It is rare to find investors investing their entire savings in a single security. Instead of
they tend to invest in group of securities. Such a group of securities is called portfolio. Creation
of portfolio helps to reduce risk without sacrificing returns. Portfolio management deals with the
analysis of individual securities as well as with the theory and practice of optimally combining
securities into portfolios. An investor who under stands the fundamental principles and analytical
aspects of portfolio management has better chance of success. An investor considering
investment in securities is faced with a problem of choosing from among a large number of
securities. His choice depends upon the risk return characteristics of individual securities. He
would attempt to choose the most desirable securities and like to allocate his funds over this
group of securities. Again he is faced with the problem of deciding which securities to hold and
how much invest in each. The investor faces an infinite number of possible portfolios or group of
securities. The risk and return nature of portfolio differ from those individual securities
combining from a portfolio. The investor tries to choose the optimal portfolio taking in to
consideration the risk return characteristics of all possible portfolios. As the economic and
financial environment keeps changing, the risk return characteristics of individual securities as
well as portfolios also change. This calls for periodic review and revision of investment
portfolios of investors.
An investor invests his funds in a portfolio expecting to get a good return consistent with
the risk that he has to bear. The return realized from the portfolio has to be measured and the
performance of the portfolio has to be evaluated.

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It is evident that rational investment activity involves creation of an investment portfolio.

Portfolio management comprises all the process involved in the creation and maintenance of an
investment portfolio. It deals specially with security analysis , portfolio analysis, portfolio
selection, portfolio revision and portfolio evaluation it also make use of analytical techniques of
analysis and conceptual theories regarding rational allocation of funds. Portfolio management is
a complex process which tries to make investment activity more rewarding and less risky.
A portfolio is a group of securities held together as investment. Investors invest their
funds in a portfolio of securities rather than in a single security because they are risk averse. By
constructing a portfolio, investors attempt to spread risk by not putting all their eggs in to one
basket. Thus diversification of one’s holdings is intended to reduce risk in investment.
Security analysis provides the investor with a set of worthwhile or desirable securities.
From this set of securities an indefinitely large number of portfolios can be constructed by
choosing different sets of securities and also by varying the portion of investment in each
security. Each individual security has its own risk-return characteristics which can be measured
and expressed quantitatively. Each individual security has its own risk-return characteristics
which can be measured and expressed quantitatively. Each portfolio constructed by combining
the individual securities has its own specific risk and return characteristics which are not just the
aggregate of the individual security characteristics. The return and risk of each portfolio has to be
calculated mathematically and expressed quantitatively.
Portfolio analysis phase of portfolio management consists of identifying the range of
possible portfolios that can be constituted from a given set of securities and calculating their
return and risk for further analysis.
Portfolio analysis provides the input for the next phase in portfolio management which is
portfolio selection. The goal of portfolio construction is to generate a portfolio that provides the
highest returns at a given level of risk. A portfolio having this characteristic is known as an
efficient portfolio. The inputs from portfolio analysis can be used to identify the set of efficient
portfolios. From this efficient set of portfolios, the optimal portfolio has to be selected for
investment.

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STATING THE PROBLEM

Risk arises where there is possibility of variation between expectations and realization
with regard to an investment. The risk in holding securities such as shares, debentures etc are of
two types. The first group comprises factors that are external to a company that affect large
number of securities simultaneously. Second group includes those factors which are internal to
companies and affect only those particular companies. The study basically aimed to avert those
risks by constructing a suitable portfolio.

OBJECTIVE OF THE STUDY

• To construct a portfolio with minimum risk.
• Ascertain the risk-return relationship.
• To ascertain the volatility of shares in the market.
• To identify the top companies in each sector.

IMPORTANCE OF THE STUDY

• It helps the researcher to construct a diversified portfolio.

• Provide an insight on return and risk analysis.
• The study helps to identify the growth potential of each sector.

SCOPE OF THE STUDY

The goal of portfolio construction is to generate a portfolio that provides the highest
returns at a given level of risk. In a highly volatile market it is very essential to follow an
efficient portfolio in order to avert the risk. The study mainly covers the volatility and risk return
characteristics of shares through various techniques. It has taken six sectors for the study, which
are having high growth potential.
PERIOD OF STUDY

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The study covers a period from 03-05-2010 to 12-06-2010

LIMITATIONS OF THE STUDY

• The company Geojit BNP Paribas Financial Services Ltd is highly centralized in nature
so it was very difficult to get strategic information from the organization.
• Research wing of the company is operating in the head office. So frequent contact with
them was not possible.
• Data were collected only on the basis of NSE trading.

RESEARCH METHODOLOGY

A research design is the arrangement of condition for collecting and analysis of data in a
manner that aim to combine relevance to the research purpose with economy in procedure. The
research design adopted for the study is descriptive in nature.

For the research top six industries have been taken.

1. Automotive Industry.
2. Banking Industry.
3. Information Technology industry.
4. Real Estate Industry
5. Telecom Industry.
6. Pharmaceuticals Industry.
Tools used for the study:-
1. Earning Per share (E.P.S.)

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This ratio helps in the assessment of the profitability of a firm from a standard point of
equity share holders. This measures the profit available to the equity share holders.
E.P.S= Net profit available to equity share holders ÷ Number of equity shares issued.
2. Price earning ratio ([Link])
The price earning ratio expresses the relationship between the market price of a share and the
E.P.S.
P.E. Ratio= Market price per equity share ÷ Earning per share
3. Beta value
Beta value measures the volatility of a share. The systematic risk of a security is measured by
this statistical tool.
Beta = N∑XY - ∑X.∑Y ÷ N∑X^2 - (∑X)^2

4. Alpha Value
Alpha measures, the unsystematic risk of the company. It indicates the extra return
earned by the stock over and above the market return. If alpha is positive, then scrip will have
higher return. If alpha is zero, then return depends on the market return.

Alpha = Stock return – ( Beta * Market return)

5. Sharpe index
The selection and evaluation of portfolio is on the basis of the Sharpe’s performance
index. Sharpe’s performance index gives us a single value to be used for the performance
ranking of various funds or portfolio. When compared to the other ratios for selection shapers
ratio is the only ratio giving importance to risk as well as return. The risk premium is the
difference between the portfolios average rate of return and the risk less rate of return. The
standard deviation of the portfolio indicates the risk. This index assigns the highest value to the
assets ie, portfolio, that have the best risk adjusted rate of return. The formula for calculating the
sharpes performance index is as follows.

Sharpe index = Portfolio return- Risk Free rate ÷ Standard deviation of population

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INDUSTRY PROFILE

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INDUSTRY PROFILE
A stock market or equity market is a private or public market for the trading of company stock
and derivatives of company stock at an agreed price; these are securities listed on a stock
exchange as well as those only traded privately.
The Amsterdam Stock exchange or Amsterdam Beurs is also said to have been the first stock
exchange to introduce continuous trade in the early 17th century. The size of the stock market is
estimated about $51 trillion. The world derivatives market has been estimated at about $480
trillion face or nominal value, 30 times the size of the U.S. economy, and 12 times the size of the
entire world economy. It must be noted though that the value of the derivatives market, because
it is stated in terms of notional values, and cannot be directly compared to a stock or fixed
income security, which traditionally refers to an actual value. Many such relatively illiquid
securities are valued as marked to model, rather than actual market price.
The stocks are listed and traded on stock exchanges which are entities a corporation or
mutual organization specialized in the business of bringing buyers and sellers of stocks and
securities together. The stock market in the United States includes the trading of all securities
listed on the NYSE, the NASDAQ, the Amex, as well as on the many regional exchanges,

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[Link] and Pink Sheets. Europian examples of stock exchanges include the London
stockexcange, the Deutsche Borse and the Paris Bourse, now part of Euronext.
The National Stock exchange of India Limited (NSE), is a Mumbai-Based stock exchange. It
is the largest stock exchange in India and the third largest in the world in terms of volume of
transactions. Though a number of other exchanges exist, NSE and the Bombay Stock Exchange
are the two most significant stock exchanges in India, and between them are irresponsible for the
vast majority of share transactions.
NSE is mutually- owned by a set of leading financial institutions, banks, insurance
companies and other financial intermediaries in India but its ownership and management operate
as separate entities. As of 2006, the NSE VSAT terminals, 2799 in total, cover more than 1500
cities across India. In October 2007, the equity market capitalization of the companies listed on
the NSE was US$ 1.46 trillion, making it the second largest stock exchange in South Asia. NSE
is the third largest Stock Exchange in the world in terms of the number of traders in equities. It is
the second fastest growing stock exchange in the world with a recorded growth of 16.6%.
The Bombay Stock Exchange Limited is the oldest stock exchange in Asia. It is also the
biggest stock exchange in the world in terms of listed companies with 4,800 listed companies as
of August 2007. It is located at Dalal Street, Mumbai, India. In October 2007, the equity market
capitalization of companies listed on the BSE was US$ 1.61 trillion, making it the largest stock
exchange in South Asia and the tenth largest in the world.
The Bombay Stock Exchange was established in 1875. Around 4,800 Indian companies list
on the stock exchange, and it has a significant trading volume. The BSE SENSEX (SENSitive
indEX) , also called the “BSE 30”, is a widely used market index in India and Asia. Though
many other exchange exist, BSE and the National Stock Exchange of India account for most of
the trading in shares in India.

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COMPANY PROFILE

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COMPANY PROFILE
It all started in the year 1987 when Mr. C.J. George and Mr. Ranajit Kanjilal founded
Geojit as a partnership firm. In 1993, [Link] Kanjilal retired from the firm and Geojit
became the proprietary concern of Mr. C .J. George. In 1994, it became a Public Limited
Company named Geojit Securities Ltd. The Kerala State Industrial Development Corporation
Ltd. (KSIDC), in 1995, became a co-promoter of Geojit by acquiring a 24 percent stake in the
company, the only instance in India of a government entity participating in the equity of a stock
broking company. The year 1995 also saw Geojit being listed on the leading regional stock
exchanges. Geojit listed at The Stock Exchange, Mumbai (BSE) in the year 2000. Company’s
wholly owned subsidiary, Geojit Commodities Limited, launched Online Futures Trading in
agri-commodities, precious metals and energy futures on multiple commodity exchanges in
2003. This was also the year when the company was renamed as Geojit Financial Services Ltd.
(GFSL). The Board consists of professional directors; including a Kerala Government nominee.
With effect from July 2005, the company is also listed at The National Stock Exchange (NSE).
Company is a charter member of the Financial Planning Standards Board of India and is one of
the largest Depository Participant(DP) brokers in the country.

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On 31st December 2007, the company closed its commodities business and surrendered
its membership in the various commodity exchanges held by Geojit Commodities Ltd. Global
banking major BNP Paribas took a stake in the year 2007 to become the single largest
shareholder. Consequently, Geojit Financial Services Limited has been renamed as Geojit BNP
Paribas Financial Services Ltd.

22 YEARS OF HISTORY IN INDIAN CAPITAL MARKET EVOLUTION OF THE

COMPANY

Geojit BNP Paribas has 22 years of in-depth broking experience in the Indian Capital
Market. More than 4.5 lakh clients and over Rs 5,400 crores (as of 31st Mar.’09) in Assets Under
Management reflect the trust reposed in our expertise.

Pioneer in Online Trading in Feb. 2000

In the year 2000, Geojit BNP Paribas pioneered the simple concept of providing
individuals with the facility to trade online. This revolution has given the company the first
mover advantage in online trading. As a creative innovator, Geojit BNP Paribas uses advanced
technology in online trading to meet client requirements such as customized online trading
platforms and many other services.

Strong Shareholders
Geojit BNP Paribas is backed by strong shareholders.
In 2007, global banking major BNP Paribas joined the company’s other major shareholders - Mr.
[Link], KSIDC (Kerala State Industrial Development Corporation) and [Link]
Jhunjhunwala – when it took a stake to become the single largest shareholder.

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Wide range of products

Geojit BNP Paribas offers a wide range of trading and investment products and solutions.
Certified financial advisors help clients to arrive at the right financial solution to meet their
individual needs.

The wide range on offer includes - Equities | Derivatives | Currency Futures | Custody Accounts |
Mutual Funds | Life Insurance & General Insurance | IPOs | Portfolio Management Services |
Property Services | Margin Funding | Loans against Shares

Attractive brokerage slabs

We provide value for money! To start with, we offer low online brokerage charges which
further decrease automatically, as and when, your volumes increase.
0.03 to 0.01 for intra-day trades
0.30 to 0.10 for delivery trades
Rs 75 to Rs 30 for F&O

Learn the craft

Can develop our trading skills by availing of the effective guidance by their research
department. they offer-
Daily mails delivered to our client’s mailbox on market conditions and recommendations
Technical analysis of BSE 200 Index scrips
Free monthly investment magazine
Services of professionally qualified executives at 500 offices across India.
Their strong research ideas have been instrumental in converting our clients into successful
traders.

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Multichannel service- Internet, Phone, Branch trading

Trade the way that you want to by selecting from multiple channel options- Internet,
Phone or Branch.

First mover advantage

Geojit BNP Paribas through its first mover advantage in different areas has been the first
to serve investors with its innovative offerings.
1st to launch internet trading in the year 2000.
1st to launch integrated internet trading system for cash and derivative segments in the year
2002.
1st Indian stock broking company to commence domestic retail broking operations in any
foreign country.
1st in the industry to have a global player offering its name thereby creating Geojit BNP Paribas.
1st to launch exclusive branches for women in 2005.

Their deep reach

They have a pan-India network of 500 offices with industry certified executives and a
dedicated Call Centre to provide you quality services.

Wide range of fund options

Geojit BNP Paribas gives you the option to choose from the 700 plus Mutual Fund
schemes offered by over 35 Asset Management companies such as SBI Mutual Fund, Reliance
Mutual Fund, Franklin Templeton India Mutual Fund, Tata Mutual Fund, Sundaram BNP
Paribas Mutual Fund, Fidelity Mutual Fund, and HDFC Mutual Fund.

A leading retail financial services player

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Geojit BNP Paribas today is a leading retail financial services company in India with a
growing presence in the Middle East. The company rides on its rich experience in the capital
market to offer its clients a wide portfolio of savings and investment solutions. The gamut of
value-added products and services offered ranges from equities and derivatives to Mutual Funds,
Life & General Insurance and third party Fixed Deposits. The needs of over 460 000 clients are
met via multichannel services - a countrywide network of 500 offices, phone service, dedicated
Customer Care centre and the Internet.

Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange
(NSE) and the Bombay Stock Exchange (BSE). In 2007, global banking major BNP Paribas
joined the company’s other major shareholders - Mr. [Link], KSIDC (Kerala State Industrial
Development Corporation) and [Link] Jhunjhunwala – when it took a stake to become the
single largest shareholder.

Strategic joint ventures and business partnerships in the Middle East has provided the
company access to the large Non-Resident Indian(NRI) population in the region. Now, as a part
of the BNP Paribas global network, Geojit BNP Paribas is well positioned to further expand its
reach to NRIs in 85 countries. Barjeel Geojit Securities is the joint venture with the Al Saud
group in the United Arab Emirates that is headquartered in Dubai with branches in Abu Dhabi,
Ras Al Khaimah, Sharjah and Muscat. Aloula Geojit Brokerage Company headquartered in
Riyadh is the other joint venture with the Al Johar group in Saudi Arabia. The company also has
a business partnership with the Bank of Bahrain and Kuwait, one of the largest retail banks in
Bahrain and Kuwait.

At the forefront of the many fruitful associations between Geojit BNP Paribas and BNP
Paribas is their joint venture, namely, BNP Paribas Securities India Private Limited. This JV was
created exclusively for domestic and foreign institutional clients. An industry first was achieved

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when Geojit BNP Paribas became the first broker in India to offer full Direct Market
Access(DMA) on NSE to the JV’s institutional clients.

A strong brand identity and extensive industry knowledge coupled with BNP Paribas’
international expertise gives Geojit BNP Paribas a competitive advantage.

Expanding range of online products and services

Geojit BNP Paribas has proven expertise in providing online services. In the year 2000,
the company was the first stock broker in the country to offer Internet Trading. This was
followed by integrating the first Bank Payment Gateway in the country for Internet Trading, and
many other industry firsts. Riding on this experience, and harnessing BNP Paribas Personal
Investors’ expertise as the leading online broker in Europe, is helping the company to rapidly
expand its business in this segment. Presently, clients can trade online in equities, derivatives,
currency futures, mutual funds and IPOs, and select from multiple bank payment gateways for
online transfer of funds. Strategic B2B agreements with Axis Bank and Federal Bank enables the
respective bank’s clients to open integrated 3-in-1 accounts to seamlessly trade via a
sophisticated Online Trading platform.

Further, deployment of BNP Paribas’ state-of-the-art globally accepted systems and

processes is already scaling up the sales of Mutual Funds and Insurance.

Wide range of products and services

Certified financial advisors help clients to arrive at the right financial solution to meet
their individual needs. The wide range of products and services on offer includes -

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Equities | Derivatives | Currency Futures | Custody Accounts | Mutual Funds | Life Insurance &
General Insurance | IPOs | Portfolio Management Services | Property Services | Margin Funding |
Loans against Shares

A growing footprint

With a presence in almost all the major states of India, the network of 500 offices across
300 cities and towns presently covers Andhra Pradesh, Bihar, Chattisgarh, Goa, Gujarat,
Haryana, Jammu & Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, New Delhi,
Orissa, Punjab, Rajasthan,Tamil Nadu & Pondicherry, Uttar Pradesh, Uttarakhand and West
Bengal.

About BNP Paribas

BNP Paribas ([Link]) is the Eurozone’s leading bank in terms of deposits,
and one of the 10 most important banks in the world in terms of net banking income, equity
capital and market value. Furthermore, it is one of the 6 strongest banks in the world according
to Standard & Poor's. With a presence in 85 countries and more than 205,000 employees,
165,200 of which in Europe, BNP Paribas is a global-scale European leader in financial services.
It holds key positions in its three activities: Retail banking, Investment Solutions and Corporate
& Investment Banking. The Group benefits from its four domestic markets: Belgium, France,
Italy and Luxembourg. BNP Paribas also has a significant presence in the United States and
strong positions in Asia and the emerging markets.

BNP Paribas has been operating in India since 1860 in a number of businesses such as
Investment Banking (CIB), Private banking (BNP Paribas Wealth Management), Life Insurance
(SBI Life) and Asset Management (Sundaram BNP Paribas), Infrastructure Funding (Srei BNP
Paribas), Retail Financing (Sundaram BNP Paribas Home Finance), Car Contract Hiring (Arval),

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Institutional Broking (BNP Paribas Securities India) and Securities Services (Sundaram BNP
Paribas Securities Services and BNP Paribas Sundaram Global Securities Operations).
Product innovation backed by a high level of domain specific knowledge and state-of-the-art
technology has helped Geojit BNP Paribas set many milestones including numerous industry
firsts.
1986
Membership in Cochin Stock Exchange (CSE).
1994

Becomes a Public Limited Company named Geojit Securities Ltd.

1995

Kerala State Industrial Development Corporation Ltd.(KSIDC) acquires 24 percent equity stake.
Membership in National Stock Exchange (NSE).
Public Issue
1996

Launch of Portfolio Management Services with SEBI registration.

1997

Depository Participant (DP) under National Securities Depository Limited.

1999

Membership in Bombay Stock Exchange (BSE).

2000

BSE Listing.
1st broking firm in India to offer online trading facility.

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Commences Derivative Trading with NSE.

Integrates the 1st Bank Payment Gateway in the country for Internet Trading.
2001

Becomes India's first DP to launch depository transactions through Internet.

Establishes Joint Venture in the UAE to serve NRI customers.
2002

1st in India to launch an integrated internet trading system for Cash & Derivatives segments.
2003

Geojit Commodities Limited, wholly owned subsidiary, launched Online Futures Trading in
agri-commodities, precious metals and in energy futures on multiple commodity exchanges.
National launch of online futures trading in Rubber, Pepper, Gold, Wheat and Rice.
Company renamed as Geojit Financial Services Ltd.
2004

National launch of online futures trading in Cardamom.

2005

NSE Listing.
Geojit Credits, a subsidiary, registers with RBI as a Non-Banking Financial Company (NBFC).
National launch of online futures trading in Coffee.
2006

Charter member of the Financial Planning Standards Board of India.

2007

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BNP Paribas takes a stake in the company’s equity, making it the single largest shareholder.
Establishes Joint Venture in Saudi Arabia to serve the Saudi national and the NRI.
2008

BNP Paribas Securities India (P) Ltd. – a Joint Venture with BNP Paribas S.A. for Institutional
Brokerage.
1st brokerage to offer full Direct Market Access execution in India for institutional clients.
2009

Launch of Property Services division.

Launch of online trading in Currency Derivatives.
Consequent to BNP Paribas becoming the largest stakeholder in Geojit Financial Services,
company is renamed as Geojit BNP Paribas Financial Services Ltd.

CODE OF CONDUCT FOR THE DIRECTORS AND SENIOR OFFICERS

As per Clause 49 of the Listing Agreement with the Stock Exchanges, it shall be obligatory for
the Board of Directors of all listed Companies to lay down a code of conduct for all Board
members and senior management of the Company in order to ensure good Corporate
Governance.

I. CORPORATE GOVERNANCE
Corporate governance is about commitment to values and about ethical business conduct.
It is about how an organization is managed. This includes its corporate and other structures, its
culture, its policies and the manner in which it deals with various stakeholders. Accordingly,
timely and accurate disclosure of information regarding the financial situation, performance,
ownership and governance of the company, is an important part of corporate governance. This
improves public understanding of the structure, activities and policies of the organization.

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Consequently, the organization is able to attract investors, and to enhance the trust and
confidence of the stakeholders.

They believe that sound corporate governance is critical to enhance and retain investor
trust. Accordingly, we always seek to attain our performance rules with integrity. The Board
extends its fiduciary responsibilities in the widest sense of the term. Our disclosures always seek
to attain the best practices in international corporate governance. They are also responsible to
enhance long term shareholder value and respect minority rights in all their business decisions.

II. INTRODUCTION OF CODE (Preamble)

This Code of Ethics for Directors and Senior Executives (the “Code”) helps to maintain
the standards of business conduct for Geojit BNP Paribas Financial Services Limited (the
“Company”) and ensures compliance with legal requirements particularly of Companies Act,
SEBI Regulations and the Listing Agreement with Stock Exchanges. The purpose of the Code is
to deter wrongdoing and promote ethical conduct. The matters covered in this Code are of utmost
importance to the Company, their shareholders and their business partners. Further, these are
essential so that they can conduct our business in accordance with our stated values.

The Code is applicable to the following persons, referred to as “Officers” :

Directors of the Company

Our Senior Management
Members of the Board of Subsidiary Company
Ethical business conduct is critical to our business. Accordingly, Officers are expected to
read and understand this Code, uphold these standards in day-to-day activities, and comply with
all applicable laws, rules and regulations, the Geojit BNP Paribas Code of Conduct, Service rules
and all applicable policies and procedures adopted by the Company that govern the conduct of its
employees.

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Because the principles described in this Code are general in nature, Officers should also
review the Company’s other applicable policies and procedures.

Officers should sign the acknowledgment form at the end of this Code and return the
form to the HR department indicating that they have received, read and understood, and agree to
comply with the Code. The signed acknowledgement form should be available with officers
concerned. Each year, as part of their annual review, Officers will be asked to sign an
acknowledgement indicating their continued understanding and adherence of the code.

III. HONEST AND ETHICAL CONDUCT

They expect all Officers to act in accordance with highest standards of personal and
professional integrity, honesty and ethical conduct, while working on the Company’s premises,
at offsite locations where the Company’s business is being conducted, at Company sponsored
business and social events, or any other place where Officers are representing the Company.

thye consider honest conduct to be conduct that is free from fraud or misrepresentation or
deception. They consider ethical conduct to be conduct conforming to the accepted professional
standards of conduct. Ethical conduct includes ethical handling of actual or apparent conflicts of
interest between personal and professional relationships. This is discussed in more detail in
Section IV below.

IV. CONFLICTS OF INTEREST

An Officer’s duty to the Company demands that he or she avoids and discloses actual and
apparent conflicts of interest. A conflict of interest exists where the interests or benefits of one
person or entity conflict with the interests or benefits of the Company. Examples include:
Employment/Outside employment:With regard to the employment with the Company,
Officers are expected to devote their full attention to the business interests of the Company.

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Officers are prohibited from engaging in any activity that interferes with their employment with
the Company. Our policies prohibit Officers from accepting simultaneous employment with
suppliers, customers, developers or competitors of the Company, or from taking part in any
activity that enhances or supports a competitor’s position. Additionally, Officers must disclose to
the Company’s Audit Committee, any interest that they have that may conflict with the business
of the Company.

Outside directorships: It is a conflict of interest to serve as a director of any company that

competes with the Company. Officers must first obtain approval from the Company’s audit
committee before accepting a directorship.

Business Interests: If an Officer is considering investing in any customer, supplier,

developer or competitor of the Company, he or she must first take care to ensure that these
investments do not compromise on their responsibilities to the Company. Our policy requires
that Officers first obtain approval from the Company’s Audit Committee before making such an
investment. Many factors should be considered in determining whether a conflict exists,
including the size and nature of the investments, the Officer’s ability to influence the Company’s
decisions, his or her access to confidential information of the Company or of the other company,
and nature of the relationship between the Company and the other company. At the time of
application for approval, full facts of the proposed investment shall be placed before the
Committee.

Related parties: As a general rule, Officers should avoid conducting Company’s business
with a relative, or have business in which a relative is associated in any significant role. A
relative means and includes spouse, children, parents, grandparents, grandchildren, aunts, uncles,

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nieces, nephews, cousins, step relationships, and in-laws. Subject to the rules and regulation, the
Company discourages the employment of relatives of Officers in key positions or assignments
within the same department. Further, the Company prohibits the employment of such individuals
in positions that have a financial dependence or influence (e.g. an auditing or control
relationship, or a supervisor/subordinate relationship). Every employee drawing a monthly salary
of Rs.10,000/- or more shall disclose whether he is a relative or not of any of our directors.

Payments or gifts from others: Under no circumstance the Officers shall accept any offer,
payment, promise to pay, or authorisation to pay any money, gift, or anything of value from
customers, vendors, consultants, etc., that is perceived as intended, directly or indirectly, to
influence any business decision, any act or failure to act, any commitment of fraud, or
opportunity for the commitment of any fraud. Inexpensive gifts, infrequent business meals,
celebratory events and entertainment, provided that they are not excessive or create an
appearance of impropriety, do not violate this policy. Questions regarding whether a particular
payment or gift violates this policy are to be directed to Finance Department. Gifts given by the
Company to suppliers or customers should be appropriate to the circumstances and should never
be of a kind that could create an appearance of impropriety. The nature and cost must always be
accurately recorded in the Company’s books and records.

Corporate opportunities: Officers may not exploit for their own personal gain,
opportunities that are discovered through the use of corporate property, information or position,
unless the opportunity is disclosed fully in writing to the Company’s Board of Directors and the
Board declines to pursue such opportunity.

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Interested Contracts: Except with the consent of the Board of Directors of the Company,
any of the Director or his relative or a firm in which a director or his relative is a partner, any
other partner in such a firm, or a private company of which the director is a member or director
shall enter into any contract with the Company for sale, purchase or supply of goods, materials or
services, or for underwriting the subscription of any shares in or debentures of the Company
except for purchase or sale of goods for market price or such contracts which either party
regularly trades or does business. For any clarification in this regard, the officers are requested to
contact to the Finance Department / Secretarial Department / Legal Department.

Whistle Blower Policy: Employees who came across any unethical or improper practice
(not necessarily a violation of law) shall be free to approach the Audit Committee without
necessarily informing their supervisors. All officers are requested to inform their subordinates
about their this right through an effective manner. For any clarification in this regard please
contact Finance Department / Secretarial Department / Legal Department.

Other Situations: It would be impractical to attempt to list all possible situations. If a

proposed transaction or situation raises any questions or doubts, please contact Finance
Department.
V. COMPLIANCE WITH GOVERNMENTAL LAWS, RULES AND REGULATIONS
Officers must comply with all applicable governmental laws, rules and regulations,
Officers must acquire appropriate knowledge of the legal requirements relating to their duties
sufficient to enable them to recognise potential dangers, and to know when to seek advice from
the Finance Department. Violations of applicable governmental laws, rules and regulations will
lead to penal action as specified in the respective statutes. In any doubt about the compliance
with laws rules/regulations /guidelines contact appropriate department of the Company.

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VI. VIOLATIONS OF THE CODE

Part of an Officer’s job, and of his or her ethical responsibility, is to help enforce this
Code. Officers should be alert against possible violations and report this to appropriate
department. Officers must co-operate in any internal or external investigations of possible
violations. Reprisal, threat, retribution or retaliation against any person who has, in good faith,
reported a violation or a suspected violation of law, this Code or other Company policies, or
against any person who is assisting in any investigation or process with respect to such a
violation, is prohibited.

The Company will take appropriate action against any Officer whose actions are found to
violate the Code or any other policy of the Company. Disciplinary actions may include
immediate termination of employment at the Company’s sole discretion. Where the Company
has suffered a loss, it may pursue its remedies against the individuals or entities responsible.
Where laws have been violated, the Company will cooperate fully with the appropriate
authorities.

VII. WAIVERS AND AMENDMENTS OF THE CODE

They are committed to continuously reviewing and updating our policies and procedures.
Therefore, this Code is subject to modification. Any amendment or waiver of any provision of
this Code must be approved in writing by the Company’s Board of Directors and promptly
disclosed on the Company’s website and in applicable regulatory filings pursuant to applicable
laws and regulations, together with details about the nature of amendment or waiver.
MANAGING DIRECTORS OF THE COMPANY
Mr. Satish Menon Director (Operations)
Mr. A. Balakrishnan Chief Technology Officer
Mr. K. Venkitesh National Head - Distribution
Mr. Stefan Groening Director (Planning and Control)
Mr. Jean-Christophe G Director (Marketing)

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Mr. Binoy .[Link] Chief Financial Officer

Mrs. Jaya Jacob Alexander Chief of Human Resources

Name Designation
Mr. A. P. Kurian Non - Executive & Independent Chairman
Mr. C. J. George Managing Director & Chief Promoter
Mr. Manoj Joshi Non - Executive & Independent Director
Mr. Mahesh Vyas Non - Executive & Independent Director
Mr. Rakesh Jhunjhunwala Non - Executive Director)
Mr. Ramanathan Bupathy Non - Executive & Independent Director
Mr. Punnoose George Non - Executive Director
Mr. Olivier Le Grand Non - Executive Director
Mr. Pierre Rousseau Non - Executive Director

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LITERATURE REVIEW

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PORTFOLIO MANAGEMENT
Individual securities have risk return characteristics of their own. The future return
expected from a security is variable and this variability of returns is termed risk. It is rare to find
investors investing their entire wealth in a single security. This is because most investors have an
aversion to risk. It is hoped that if money is invested in several securities simultaneously, the loss
in one will be compensated by the gain in others. Thus, holding more than one security at a time
is an attempt to spread and minimize risk by not putting all our eggs in one basket.

Most investors thus tend to invest in a group of securities rather than a single security.
Such a group of securities held together as an investment is what is known as a portfolio. The
process of creating such a portfolio is called diversification. It is an attempt to spread and
minimize the risk in investment. This is sought to be achieved by holding different types of
securities across different industry groups.
From a given set of securities, any number of portfolios can be constructed. A rational
investor attempts to find the most efficient of these portfolios. The efficiency of each portfolio
can be evaluated on in terms of the expected return and risk of the portfolio as such. Thus,
determining the expected return and risk of different portfolios is a primary step in portfolio
management. This step is designated as portfolio analysis.

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EXPECTED RETURN OF A PORTFOLIO

As a first step in portfolio analysis, an investor needs to specify the list of securities
eligible for selection or inclusion in the portfolio. Next he has to generate the risk-return
expectations for these securities. These are typically expressed as the expected rate of return
(mean) and the variance or standard deviation of the return.

The expected return of a portfolio of assets is simply the weighted average of the return of the
individual securities held in the portfolio. The weight applied to reach return is the fraction of the
portfolio invested in that security.

RISK OF A PORTFOLIO
The variable of return and standard deviation of return are alternative statistical measures
that are used for measuring risk in investment. These statistics measure the extent to which
returns are expected to vary around an average overtime. The calculation of variance of a
portfolio is a little more difficult than determining its expected return. The variance or standard
deviation of an individual security measures the risk ness of a security in absolute sense. For
calculating the risk of a portfolio of securities, the risk ness of each security within the context of
the overall portfolio has to be considered. This depends on their interactive risk, i.e. how the
returns of a security move with the returns of other securities in the portfolio and contribute to
the overall risk of the portfolio.

Covariance is the statistical measure that indicates the interactive risk of a security
relative to others in a portfolio of securities. In other words, the way security returns vary with
each other affects the overall risk of the portfolio.

REDUCTION OF PORTFOLIO RISK THROUGH DIVERSIFICATION

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The process of combining securities in a portfolio is known as diversification. The aim of

diversification is to reduce total risk without sacrificing portfolio return. In the example
considered above, diversification has helped to reduce risk. The portfolio standard deviation of
17-09 is lower than the standard deviation of either of the two securities taken separately, which
were 50 and 30 respectively.
To understand the mechanism and power of diversification, it is necessary to consider the impact
of covariance or correlation on portfolio risk more closely. We shall examine three cases: (a)
when security returns are perfectly positively correlated, (b) when security returns are perfectly
negatively correlated, and (c) when security returns are not correlated.

PORTFOLIOS WITH MORE THAN TWO SECURITIES.

So far we have considered a portfolio with only two securities. The benefits for
diversification increase as more and more securities with less than perfectly positively correlated
returns are included in the portfolio. As the number of securities added to a portfolio increases,
the standard deviation of the portfolio becomes smaller and smaller. Hence, an investor can
make the portfolio risk arbitrarily small by including a large number of securities with negative
or zero correlation in the portfolio.
But, in reality, no securities show negative or even zero correlation. Typically, securities
show some positive correlation that is above zero but less than the perfectly positive value (+ 1).
As a result, diversification (that is, adding securities to a portfolio) results in some reduction in
total portfolio risk but not in complete elimination of risk. Moreover, the effects of
diversification are exhausted fairly rapidly. That is, most of the reduction in portfolio standard
deviation occurs by the time the portfolio size increases to 25 or 30 securities. Adding securities
beyond this size bring about only marginal reduction in portfolio standard deviation.
Adding securities to a portfolio reduces risk because securities are not perfectly positively
correlated. But the effects of diversification are exhausted rapidly because the securities are still

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positively correlated to each other though not perfectly correlated. Had they been negatively
correlated, the portfolio risk would have continued to decline as portfolio size increased. Thus,
in practice, the benefits of diversification are limited.
The total risk of an individual security comprises two components; the market related risk
called systematic risk and the unique risk of that particulars security called unsystematic risk.
By combining securities into a portfolio the unsystematic risk specific to different securities is
cancelled out. Consequently, the risk of the portfolio as a whole is reduced as the size of the
portfolio increases. Ultimately when the size of the portfolio reaches a certain limit, it will
contain only the systematic risk of securities included in the portfolio. The systematic risk,
however, cannot be eliminated. Thus, a fairly large portfolio has only systematic risk and has
relatively little unsystematic risk. That is why there is no gain in adding securities to a portfolio
beyond a certain portfolio size.

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TOP FIVE COMPANIES IN EACH INDUSTRIES ON THE BASIS OF THE

E.P.S. AND P/E RATIO ARE THE FOLLOWING

I. AUTOMOTIVE
No. COMPANY NAME E.P.S. P.E/ RATIO
1 Hero Honda motors ltd 64.20 22.00
2 Maruthi Suzuki 42.20 25.10
3 Tata Motors 10.70 31.80
4 Mahindra & mahindra 30.80 22.60
5 Ashok Layland 1.50 21.20

II. BANKING

No. COMPANY NAME E.P.S. P.E/ RATIO

1 Axis bank ltd 48.90 16.70
2 H.D.F.C. 50.90 29.40
3 ICICI bank 32.30 23.40
4 Bank of Boroda 59.20 7.40
5 Union bank 33.20 7.00

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III. INFORMATION TECHNOLOGY

No. COMPANY NAME E.P.S. P.E/ RATIO

1 Infosys technologies ltd 97.60 18.70
2 Tata consultancy services ltd 22.50 17.60
3 Mphasis ltd 21.10 19.40
4 Wipro 20.30 18.90
5 Tech Mahindra ltd 81.00 9.10

IV. REAL ESTATE

No. COMPANY NAME E.P.S. P.E/ RATIO
1 H.D.I.L. 30.10 8.40
2 GMR Infrastructures ltd 14.90 13.70
3 Parsvnath developers 6.10 13.70
4 Unitech 3.60 22.90
5 DLF ltd 9.10 38.80

V. TELECOM

No. COMPANY NAME E.P.S. P.E/ RATIO

1 Bharti Airtel 40.80 19.80
2 Tata Teliservices (Maharashtra) ltd 0.00 0.00
3 Reliance([Link]) 9.50 32.90 34
4 Idea
Member Cellullar
sree 3.30and technology
narayana pillai institute of management 24.10
5 Tata Communications ltd 11.70 40.40
A STUDY ON RISK AVERSION THROUGH PORTFOLIO CONSTRUCTION

VI. PHARMACEUTICALS

No. COMPANY NAME E.P.S. P.E/ RATIO

1 Glenmark Pharmaceuticals ltd 11.42 20.31
2 Lupin ltd 50.10 16.80
3 Cipla ltd 9.90 26.40
4 Wockhardt ltd 3.77 37.69
5 Glaxo Smithline Pharma ltd 54.02 22.81

BETA VALUE AND MARKET CAPITALIZATION OF THE

30 COMPANIES IN SIX INDUSTRIES

TABLE SHOWING THE BETA VALUE & MARKET CAPITALIZATION

AUTOMOTIVE INDUSTRY

[Link] Company Name Beta Value Market Capitalization

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(Rs. Cr.)
1 Hero Honda Motors ltd 0.48 28215.61
2 Maruthi Suzuki India 0.69 30595.18
3 Tata Motors 1.16 17501.29
4 Mahindra & Mahindra 1.06 19447.70
5 Ashok Layland 0.82 4230.35

Interpretation
In this Automotive Industry Maruthi Suzuki India show less volatility and high market
capitalization when compared to the other companies in the same industry. So Maruthi Suzuki
India is selected for he portfolio construction.

CHART SHOWING BETA VALUE OF AUTO MOTIVE INDUSTRY

1.2

0.8

Beta value 0.6

Series
0.4 Series
0.2 Series

0
Herohonda Maruthi Tata Motors Mahindra & Ashok
motors ltd Suzuki India ltd Mahindra layland
ltd
Company Name

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CHART SHOWING MARKET CAPITALIZATION OF AUTO MOTIVE INDUSTRY

35000
30000
25000

Market 20000
Capitalization 15000 Series
10000 Series
Series
5000
0
Herohonda Maruthi Tata Motors Mahindra & Ashok
motors ltd Suzuki India ltd Mahindra layland
ltd
Company Name
TABLE SHOWING THE BETA VALUE & MARKET CAPITALIZATION
BANKING INDUSTRY

Sl. No. Company name Beta Value Market Capitalization

(Rs. Cr.)
1 Axis bank ltd 1.00 29444.56
2 HDFC bank ltd 1.00 63786.36
3 ICICI Bank ltd 1.60 83983.29
4 Bank Of Baroda 0.87 15984.69
5 Union Bank of India 0.79 11706.16

Interpretation

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In This banking industry HDFC bank shows the average volatility and high market capitalization
when compared to the other companies in the same industry. So HDFC bank is selected for the
port folio construction.

CHART SHOWING BETA VALUE OF BANKING INDUSTRY

1.6
1.4
1.2
1
Beta value 0.8
Series
0.6
Series
0.4
0.2
0
Axis bank HDFC bank ICICI bank Bank of Union bank
ltd ltd ltd Boroda of India
C0mpany name
CHART SHOWING MARKET CAPITALIZATION OF BANKING INDUSTRY

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90000
80000
70000
60000
Market 50000
capitalization 40000 Series2
30000 Series1
20000
10000
0
Axis bank HDFC bank ICICI bank Bank of Union bank
ltd ltd ltd Boroda of India
Company name

TABLES SHOWING THE BETA VALUE & MARKET CAPITALIZATION

INFORMATION TECHNOLOGY INDUSTRY
Sl. No. Company Name Beta Value Market Capitalization
(Rs. Cr.)
1 Infosys technologies ltd 0.70 104639.90
2 Tata Consultancy services ltd 0.90 77681.27
3 Mphasis ltd 0.67 8540.92
4 Wipro ltd 0.94 56227.40
5 Tech Mahindra ltd 0.92 9008.63

Interpretation

In this information technology industry Infosys technologies ltd shows the less volatility
and high market capitalization when compared to the other companies in the same industry. So
Infosys technologies ltd is selected for the portfolio construction.

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CHART SHOWING BETA VALUE OF INFORMATION TECHNOLOGY INDUSTRY

1
0.9
0.8
0.7
0.6
Beta value 0.5
0.4 Series3
0.3 Series2
0.2 Series1
0.1
0
Infosys Tata Mphasis ltd Wipro ltd Tech
technologies consultancy Mahindra ltd
ltd services ltd
Company name

CHART SHOWING MARKET CAPITALIZATION OF INFORMATION TECHNOLOGY

INDUSTRY

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120000

100000

80000

Beta value 60000 Series3

Series2
40000
Series1
20000

0
Infosys Tata Mphasis ltd Wipro ltd Tech
technologies consultancy Mahindra ltd
ltd services ltd
Company name

TABLE SHOWING THE BETA VALUES & MARKET CAPITALIZATION

REAL ESTATE INDUSTRY

Sl. No. Company Name Beta Value Market Capitalization

(Rs. Cr.)
1 H.D.I.L 1.84 6945.10
2 GMR Infrastructure ltd 1.25 25075.85
3 ParsvnathDevelopers 1.33 1547.79
4 Unitech 1.67 16836.05
5 DLF ltd 1.55 55252.35

Interpretation
In this real estate industry DLF ltd shows the average volatility and high market
capitalization when compared to the other companies in the same industry. So DLF ltd is
selected for the portfolio construction .

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CHART SHOWING BETA VALUE OF REAL ESTATE INDUSTRY

2
1.8
1.6
1.4
1.2
Beta value 1
0.8
Series2
0.6
Series1
0.4
0.2
0
H.D.I.L GMR Parsvnath Unitech DLF ltd
infrasture developers
ltd
Company name
CHART SHOWING MARKET CAPITALIZATION OF REAL ESTATE INDUSTRY

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60000

50000

40000
Market
30000
capitalization
20000 Series2
Series1
10000

0
H.D.I.L GMR Parsvnath Unitech DLF ltd
infrasture developers
ltd
Company name

TABLE SHOWING THE BETA VALUE & MARKET CAPITALIZATION

TELECOM INDUSTRY

[Link] Company Name Beta Value Market Capitalization

([Link].)
1 Bharti Airtel ltd 0.93 153678.50
2 Tata Teleservices (Maharashtra) ltd 1.25 7304.22
3 Reliance 1.49 64449.02
4 Idea Cellular 1.11 24645.72
5 Tata communications 1.05 13487.63

Interpretation

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In this telecom industry Bharti Airtel ltd shows the less volatility and high market
capitalization when compared to the other companies in the same industry. So Bharti Airtel is
selected for the portfolio construction.

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CHART SHOWING THE BETA VALUE OF TELECOM INDUSTRY

1.6
1.4
1.2
1
Beta value 0.8
Series3
0.6
Series2
0.4
Series1
0.2
0
Bharti Airtel ltd Tata teleservices Reliance Idea cellular ltd Tata
ltd communication communications
ltd ltd
Company name

CHART SHOWING MARKET CAPITALIZATION OF TELECOM INDUSTRY

160000
140000
120000
100000
market capitalization 80000
Series3
60000
Series2
40000
Series1
20000
0
Bharti Airtel ltd Tata teleservices Reliance Idea cellular ltd Tata
ltd communication communications
ltd ltd
Company name

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TABLE SHOWING THE BETA VALUE & MARKET CAPITALIZATION

PHARMACEUTICAL INSTUSTRIES

Sl. No. Company Name Beta Value Market Capitalization

([Link].)
1 Glenmark Pharmaceuticals ltd 0.77 5821.62
2 Lupin ltd 0.42 7012.87
3 Cipla ltd 0.50 20309.54
4 Wockhardt ltd 0.66 1558.43
5 Glaxo Smithline Pharma ltd 0.07 10435.89

Interpretation

In this pharmaceuticals industry Cipla ltd shows the average volatility and high market
capitalization when compared to the other companies in the same industry. So Cipla ltd is
selected for the portfolio construction.

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CHART SHOWING BETA VALUE OF PHARMACEUTICALS INDUSTRY

0.8
0.7
0.6
0.5
Beta value 0.4
Series3
0.3
0.2 Series2
0.1 Series1
0
Glenmark Lupin ltd Cipla ltd Wockhardt ltd Glaxo Smithline
Pharmaceuticals Pharma ltd
ltd
Company name

CHART SH0WING MARKET CAPITALIZATION OF PHARMACEUTICALS

INDUSTRY

25000

20000

15000
Market capitalization
Series3
10000
Series2
5000 Series1

0
Glenmark Lupin ltd Cipla ltd Wockhardt ltd Glaxo Smithline
Pharmaceuticals Pharma ltd
ltd
Company name

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TABLE SHOWING SECURITIES SELECTED FOR THE PORTFOLIO

CONSTRUCTION WITH ITS BETA VALUE AND MARKET
CAPITALIZATION RATE

Sl. No. Company Name Beta Market Capitalization

1 Maruthi Suzuki India ltd 0.69 30595.18
2 HDFC Bank ltd 1.00 63786.36
3 Infosys Technologies ltd 0.70 104639.90
4 DLF ltd 1.55 55252.35
5 Bharti Airtel ltd 0.93 153678.50
6 Cipla ltd 0.50 20309.54

Interpretation

Among those companies selected for the port folio construction DLF LTD shows the
high beta value and Cipla ltd shows the low beta value. On the basis of market capitalization
Bharti Airtel ranks first and Infosys Technologies ltd holds the second position. Most of the
companies selected for the portfolio are top companies in each industry.

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SECURITY ALPHA VALUE

Alpha measures, the unsystematic risk of the company. It indicates the extra return
earned by the stock over and above the market return. If alpha is positive, then scrip will have
higher return. If alpha is zero, then return depends on the market return.

Alpha = Stock return – ( Beta * Market return)

TABLE SHOWING SECURITIES SELECTED FOR THE PORTFOLIO

CONSTRUCTION WITH ITS ALPHA VALUE

Sl. No. Company Name alpha

1 Maruthi Suzuki India ltd -0.1235

2 HDFC bank ltd 0.8400
3 Infosys Technologies ltd -0.4350
4 DLF ltd 0.2672

5 Bharti Airtel ltd 0.9405

6 Cipla ltd 0.5450

Interpretation

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On the basis of the alpha value only two companies ie, Maruthi Suzuki India ltd and Infosys
Technologies ltd have the negative value. It shows that those two companies earning below the
market return but all other companies shows the positive alpha value that means those companies
have return higher than the market. Over all the major part of the portfolio securities have the
more return than the market return.

TABLE SHOWING THE SYSTEMATIC RISK AND UNSYSTEMATIC RISK OF

SELECTED COMPANIES FOR PORTFOLIO CONSTRUCTI8ON

[Link]. Company Name Beta ^2 Unsystematic Systematic Risk

Risk
1 Maruthi Suzuki India ltd 0.4761 6.4080 1.3150
2 HDFC bank ltd 1.0000 9.6008 2.7500
3 Infosys Technologies ltd 0.4900 5.4830 1.4113
4 DLF ltd 2.4025 12.5845 10.5300
5 Bharti airtel ltd 0.8649 5.2750 5.6400
6 Cipla ltd 0.2500 3.785 1.2850

Interpretation
From the above table it is clear that DLF ltd has the maximum systematic risk and
unsystematic risk. The minimum systematic risk and unsystematic risk is to Cipla ltd.

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PORTFOLIO CONSTRUCTION

Portfolio construction and selection is done by adopting the following format:

1. Five securities namely,Maruthi Suzuki India ltd,HDFC bank, Infosys technologies

ltd,DLF ltd,Bharti Airtel and Cipla ltd are grouped together to form a portfolio.
2. Constructed four different portfolio by changing the weight of each for the purpose of
fund allocation.
3. Apply the Sharp Index to each of the portfolio
4. Select that portfolio which has the highest Sharp

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THE PORTFOLIO CONSTRUCTION IS ON THE BASIS OF FOUR

CRITERIA

 By giving equal weight to each security in the portfolio

 By giving weight to each security based on P/E Ratio.
 By giving weight to each security based on E.P.S.
 By giving weight to each security on the basis of risk adjusted rate of return.

Portfolio 1 (By giving equal weight to each security in the portfolio)

TABLE SHOWING THE CALCULATI8ON OF PORTFOLIO BETA

Sl. No. Company Name Beta Weight Weight * Beta

1 Maruthi Suzuki India ltd 0.69 0.166 0.1145
2 HDFC bank ltd 1.00 0.166 0.166
3 Infosys technologies ltd 0.70 0.166 0.1162
4 DLF ltd 1.55 0.166 0.2573
5 Bharti Airtel 0.93 0.166 .0.1544
6 Cipla ltd 0.50 0.166 0.0830
Total 1 0.8914

TABLE SHOWING THE CALCULATION OF PORTFOLIO ALPHA

Sl. No. Company Name Alpha Weight Weight * Alpha

1 Maruthi Suzuki India ltd -0.1235 0.166 -0.2050
2 HDFC bank ltd 0.8400 0.166 0.1394
3 Infosys technologies ltd -0.4350 0.166 -0.0722 54
4 DLF ltd 0.2672 0.166 0.0443
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5 Bharti Airtel 0.9405 0.166 0.1561
6 Cipla ltd 0.5450 0.166 0.0905
Total 1 0.1531
A STUDY ON RISK AVERSION THROUGH PORTFOLIO CONSTRUCTION

TABLE SHOWING THE CALCULATION OF PORTFOLIO UNSYSTEMATIC

RISK
No Company Name Unsystematic Weight Weight^2*
Risk Unsystematic
Risk
1 Maruthi Suzuki India ltd 6.4080 0.166 0.1765
2 HDFC bank ltd 9.6008 0.166 0.2645
3 Infosys technologies ltd 5.4830 0.166 0.1507
4 DLF ltd 12.5845 0.166 0.3460
5 Bharti Airtel 5.2750 0.166 0.1450
6 Cipla ltd 3.7850 0.166 0.1040

MEASURING THE PORTFOLIO RISK AND RETURN

Portfolio return = Portfolio alpha + (portfolio beta * Market return)

= 0.1531+ (0.8914 * 31.5)
= 28.2322
Portfolio risk = Systematic risk + Unsystematic risk
= ( Beta ^2*Market Variance)+Unsystematic risk
= 0.7946*6.556+1.1875
= 6.3969

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PORTFOLIO 2 (BY GIVING WEIGHT TO EACH SECURITY BASED ON P/E

RATIO

TABLE SHOWING THE CALCULATION OF PORTFOLIO WEIGHT

No. Company name P/E ratio weight
1 Maruthi Suzuki India ltd 22.10 0.1424
2 HDFC bank ltd 29.40 0.1894
3 Infosys technologies ltd 18.70 0.1204
4 DLF ltd 38.80 0.2500
5 Bharti Airtel ltd 19.80 0.1275

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6 Cipla ltd 26.40 0.1701

Total 155.20 1

TABLE SHOWING THE CALCULATION OF PORTFOLIO BETA

No. Company name Beta Weight Weight* Beta

1 Maruthi Suzuki India 0.69 0.1424 0.0983
ltd
2 HDFC ltd 1.00 0.1894 0.1894
3 Infosys technologies 0.70 0.1204 0.0842
ltd
4 DLF ltd 1.55 0.2500 0.3875
5 Bharti Airtel 0.93 0.1275 0.1186
6 Cipla ltd 0.50 0.1701 0.0850
Total 0.9630

TABLE SHOWING THE CALCULATION OF PORTFOLIO ALPHA

No Company Name Alpha Weight Weight *
Alpha
1 Maruthio Suzuki India -0.1235 0.1424 -0.1758
ltd
2 HDFC bank ltd 0.8400 0.1894 0.1590
3 Infosys technologies ltd -0.4350 0.1204 -0.0523
4 DLF ltd 0.2672 0.2500 0.0668

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5 Bharti Airtel ltd 0.9405 0.1275 0.1199

6 Cipla ltd 0.5450 0.1701 0.0927
Total 1 0.2103

TABLE SHOWING THE CALCULATION OF PORTFOLIO UNSYSTEMATIC

RISK
No. Company Name Unsystematic weight Weight^2*Unsystematic
Risk risk
1 Maruthio Suzuki India ltd 6.4080 0.1424 0.1299
2 HDFC bank ltd 9.6008 0.1894 0.3444
3 Infosys technologies ltd 5.4830 0.1204 0.0794
4 DLF ltd 12.5845 0.2500 0.7865
5 Bharti Airtel ltd 5.2750 0.1275 0.0856
6 Cipla ltd 3.7850 0.1701 0.1095
Total 1 1.5353

MEASURING PORTFOLIO RISK AND RETURN

Portfolio return = Portfolio alpha+ (portfolio beta*Market return)

=0.2103+(0.9630*31.5)
=30.54

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Portfolio risk = Systematic risk + Unsystematic risk

= (beta^2*Market variance) + Unsystematicrisk
= 0.9273*6.556+1.5353
= 7.6151

Portfolio 3 ( By giving weight to each security based on E.P.S )

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TABLE SHOWING THE CALCULATION OF PORTFOLIO WEIGHT

No. Company Name E.P.S. Weight
1 Maruthi Suzuki India ltd 42.20 0.1684
2 HDFC bank ltd 50.90 0.2032
3 Infosys technologies ltd 97.60 0.3896
4 DLF ltd 9.10 0.0363
5 Bharti Airtel ltd 40.80 0.1628
6 Cipla ltd 9.90 0.0395
Total 250.50 1

TABLE SHOWING THE CALCULATION OF PORTFOLIO BETA

No. Company Name Beta Weight Weight*Beta
1 Maruthi Suzuki India ltd 0.69 0.1684 0.1161
2 HDFC bank ltd 1.00 0.2032 0.2032
3 Infosys technologies ltd 0.70 0.3896 0.2727
4 DLF ltd 1.55 0.0363 0.0563
5 Bharti Airtel ltd 0.93 0.1628 0.1514
6 Cipla ltd 0.50 0.0395 0.0198
Total 1 0.8195

TABLE SHOWING THE CALCULATION OF PORTFOLIO ALPHA

No. Company Name Alpha weight Weight*Alpha

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1 Maruthi Suzuki India ltd -0.1235 0.1684 -0.0208

2 HDFC bank ltd 0.8400 0.2032 0.1706
3 Infosys technologies ltd -0.4350 0.3896 -0.1695
4 DLF ltd 0.2672 0.0363 0.0097
5 Bharti Airtel ltd 0.9405 0.1628 0.1531
6 Cipla ltd 0.5450 0.0395 0.0215
Total 1 0.1646

TABLE SHOWING THE CALCULATION OF PORTFOLIO UNSYSTEMATIC

RISK

No. Company Name Unsystematic Weight Weight^2*Unsystematic

Risk Risk

1 Maruthi Suzuki India 6.4080 0.1684 0.1817

ltd
2 HDFC bank ltd 9.6008 0.2032 0.3964
3 Infosys technologies 5.4830 0.3896 0.8323
ltd
4 DLF ltd 12.5845 0.0363 0.0166
5 Bharti Airtel ltd 5.2750 0.1628 0.1398
6 Cipla ltd 3.7850 0.0395 0.0059
Total 1 1.5727

MEASURING PORTFOLIO RISK AND RETURN

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Portfolio return = Portfolio alpha+ (portfolio beta*Market return)

= 0.1646 + ( 0.8195*31.5)
= 25.98

Portfolio risk = Systematic risk + Unsystematic risk

= (beta^2*Market variance) + Unsystematicrisk

= (0.6716*6.556)+1.5727
= 5.9755

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Portfolio 4 (By giving weight to each security on the basis of risk adjusted rate of
return)
TABLE SHOWING THE CALCULATION OF PORTFOLIO WEIGHT
No. Company name Return S.D. Risk Ri – Rf Weight
(Ri) Free S.D.
Rate
(Rf)
1 Maruthi Suzuki -2.512 2.7788 6.75 -1.1995 1.286
India ltd
2 HDFC bank ltd 13.1620 3.5111 6.75 0.5201 -0.55
3 Infosys -14.73 2.6256 6.75 -3.1159 3.337
Technologies ltd
4 DLF ltd 28.67 4.8068 6.75 0.9485 -1.016
5 Bharti Airtel ltd -4.644 3.3034 6.75 -1.0441 1.1185
6 Cipla ltd 21.76 2.2529 6.75 2.9574 -3.1680
-0.9335 1

TABLE SHOWING THE CALCULATION OF PORTFOLIO BETA

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No. Company Name Beta Weight Weight*Beta

1 Maruthi Suzuki India ltd 0.69 1.286 0.887
2 HDFC bank ltd 1.00 -0.55 -0.55
3 Infosys Technologies ltd 0.70 3.337 2.3359
4 DLF ltd 1.55 -1.016 -1.5748
5 Bharti Airtel ltd 0.93 1.1185 1.0402
6 Cipla ltd 0.50 -3.1680 -1.584
Total 0.5543

TABLE SHOWING THE CALCULATION OF PORTFOLIO ALPHA

No. Company Name Alpha Weight Weight*Alpha
1 Maruthi Suzuki India ltd -0.1235 1.286 -0.1588
2 HDFC bank ltd 0.8400 -0.55 -0.462
3 Infosys Technologies ltd -0.4350 3.337 -1.4516
4 DLF ltd 0.2672 -1.016 -0.2715
5 Bharti Airtel ltd 0.9405 1.1185 1.0519
6 Cipla ltd 0.5450 -3.1680 -1.7266
Total -1.5670

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TABLE SHOWING THE CALCULATION OF PORTFOLIO UNSYSTEMATIC

RISK

No. Company Name Unsystematic Weight Weight^2*

Risk Unsystematic
risk
1 Maruthi Suzuki India ltd 6.4080 1.286 10.5975
2 HDFC bank ltd 9.6008 -0.55 -5.2804
3 Infosys Technologies ltd 5.4830 3.337 18.2968
4 DLF ltd 12.5845 -1.016 -12.9904
5 Bharti Airtel ltd 5.2750 1.1185 5.9000
6 Cipla ltd 3.7850 -3.1680 -11.9908
Total 4.5327

MEASURING PORTFOLIO RISK AND RETURN

Portfolio return = Portfolio alpha+ (portfolio beta*Market return)

= -1.5670+ (0.5543*31.5)
= 15.8935

Portfolio risk = Systematic risk + Unsystematic risk

= (beta^2*Market variance) + Unsystematicrisk
=(0.3072*6.556)+4.5327
=6.5467

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PORTFOLIO EVALUATION AND SELECTION

The selection and evaluation is on the basis of the Sharpe’s performance index. Sharpe’s
performance index gives us a single value to be used for the performance ranking of various
funds or portfolio. When compared to the other ratios for selection shapers ratio is the only ratio
giving importance to risk as well as return. The risk premium is the difference between the
portfolios average rate of return and the risk less rate of return. The standard deviation of the
portfolio indicates the risk . This index assigns the highest value to the assets ie, portfolio ,that
have the best risk adjusted rate of return . The formula for calculating the sharpes performance
index is as follows.

Sharpe index = Portfolio return- Risk Free rate ÷ Standard deviation of population

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TABLE SHOWING THE CALCULATION OF THE SHARPE’S

PERFORMANCE RATIO
Portfolio Return Risk Total S.D. Ri – Rf Rank
Free Risk S.D
Rate
1 28.23 6.75 6.3969 0.604 35.56 II
2 30.54 6.75 7.6151 0.604 39.39 I
3 25.98 6.75 5.9755 0.604 31.83 III
4 15.89 6.75 6.5467 0.604 15.13 IV

Interpretation

On the basis of Sharpe’s performance ratio portfolio-2 is selected as the best alternative among
the four portfolios this indicates that the performance of the second portfolio is superior as
compared with other portfolios. Therefore, the portfolio-2 is selected.

CHART SHOWING THE BEST PORTFOLIO USING SHARPE’S

PERFORMANCE INDEX

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45
40
35
30
Sharpe's 25
performance
20 Series2
ratio
15 Series1
10
5
0
1 2 3 4
Portfolios

FINDINGS

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1. Among those companies selected for the port folio construction DLF LTD shows the high
beta value and Cipla ltd shows the low beta value. On the basis of market capitalization Bharti
Airtel ranks first and Infosys Technologies ltd holds the second position. Most of the companies
selected for the portfolio are top companies in each industries.

2. On the basis of the alpha value only two companies ie, Maruthi Suzuki India ltd and Infosys
Technologies ltd have the negative value. It shows that those two companies earning below the
market return but all other companies shows the positive alpha value that means those companies
have return higher than the market. Over all the major part of the portfolio securities have the
more return than the market return.

3. DLF ltd has the maximum systematic risk and unsystematic risk. The minimum systematic
risk and unsystematic risk is to Cipla ltd.

4. We can reduce the risk by selecting a suitable portfolio, we can’t avid the risk fully.
5. A share having high beta value shows its high volatility. Similarly a share having low beta
value shows low volatility.

6. The trader can effectively use the strategy for return enhancement provided he has the correct
market information.
7. It has been found that all the strategies applied on historical data of the period of the study
were able to reduce the loss that rose from price risk substantially.

SUGGESTIONS

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1. An investor should always prefer a diversified portfolio, through this he can compensate the
loss incurred in one sector by the profit gained in from another sector.
2. If there are two portfolios with the same expected return, the investor would prefer the one
with the lower risk.
3. If there are two portfolios with the same risk, the investor would prefer the one with the higher
expected return.
4. An unscientific investment always ends in loss. So be aware of the market fluctuations and
respond accordingly.
5. Investor should also consider his risk free return like treasury bills etc.
6. Most of the investors are not aware of the trends in market. So the broking institutions should
come forward and give valuable advice to them regarding the matter of investment.

CONCLUSION

The objective of constructing a portfolio and revising it periodically is to earn maximum

returns with minimum risk. The portfolio can ensure a high return with a minimum risk. But the
investor has to constantly monitor the portfolio to ensure that it continues to be optimal. As the
economy and financial markets are dynamic, the changes take place almost daily. As time
passes, securities which were once attractive may cease to be so. New securities with promises of
high returns and low risk may emerge. The investor now has to revise the portfolio in the light of
the developments in the market. The portfolio developed through this research can ensure
maximum return with the present economic conditions.

BLIOGRAPHY

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Books
1. Kevin.S, Security Analysis & Portfolio Management, PHI Learning private Limited, New
Delhi, 2006
2. Gorden.E & Natarajan.K, Financial market & Services, Himalaya Publishing House, Mumbai,
2003
3. [Link] & [Link], Higher Accounting, Chand Publications, Trivandrum, 2003
4. Potti.L.R, Quantitative techniques, Yamuna Publications, Thiruvananthapuram, 2005
5. Potti. L.R, Research Methodology, Yamuna publications, Thiruvananthapuram, 2007

Websites
[Link]
[Link]

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