CHAPTER -I INTRODUCTION

INTRODUCTION TO FINANCE:
Finance is the study of funds and management. Its general areas are business finance, personal finance, and public finance. It also deals with the concepts of time, money, risk, and the interrelation between the given factors. It is basically focused on how the money is spent and budgeted. It is one of the most important aspects in handling business. Finance addresses the methods wherein business entities used their financial resources on a certain period of time. It is the application of a set of techniques used by organizations in managing their financial
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affairs. The income and expenditure are emphasized in finance and its differences can easily be indicated. Nowadays, loans have been packaged for resale. This means that the debt has been bought by an investor from the bank. These bonds are sold to investors by financial corporations who have exceeded beyond their expenditures. The investor can now collect all the interests and be sold again through a secondary market. Banks serve as facilitators to companies in the provision of credit and mutual funds. Investments are managed carefully under a financial risk management to control gambling chances of these financial assets. Financial instruments are also used to secure these assets on securities exchanges such as stock exchanges and bonds. A bank provokes the activities of both borrowers and lenders. Lenders pay deposits to banks on which it pays the interest rates. The central banks are the last resorts that handle the monetary funds. These banks affect the interest rates being charged such as an increase in the money supply will result to a decrease in the interest rates. Financial capital is a monetary resource allows businesses to purchase items that will create goods for production and other services. The budget is the documentation of the entire entrepreneurship. The outline includes the objectives of the business, the target sets, resulting costs, required investment, planned sales, growth, financing source, and financial results. It can be directed on long term or on a short term basis. The capital budget is mainly concerned with the proposed fixed asset requirements. The financing of the expenditure is also indicated in the capital budget. A detailed plan of all the sources and cash usage is emphasized in the cash budget. It has six main sections such as the beginning cash balance, cash collections, cash disbursements, cash excess, cash deficiencies, financing, the ending cash balance, and the management of current assets. A credit comes in various forms such as of open accounts, installment sales, credit cards, and supplier credits. The advantages of a credit trade are gaining loyalty and goodwill amongst costumers, drawing in more customers than cash trades, stimulates agricultural and industrial production, and increases rates. But there are also disadvantages to credit trades as well such as risks of bad debt, high administration expenses, necessitates more working capital, risks of bankruptcy declaration, and leading to purchasing nonessential items. An effective credit control may lead to increase in sales, increase in profits, reduces bad debts, builds customer loyalty, and increases company capitalization. The information on creditworthiness is acquired through credit agencies, bank references, credit agencies, chambers of commerce, and credit application forms. Taking legal actions is one part of the many duties of the credit department.
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A personal finance is related to how much money is needed by an individual. It is concerned on financial resources and its usage. Tax policies and family assets will certainly affect personal decisions. It will also identify the credit score of the lender and the actual financial standing. Planning for a secured financial future within the environments economic stability is one primary concern of the personal finance as well. There are various factors that affect decisions in handling personal finance which are financing durable goods, paying for education, monthly bills, secured loans, minimal debt obligations, and health insurance, and retirement plans. Meanwhile, a corporate finance holds a task in providing financial resources for certain organizations and balances risks and profitability. It is referred as SME finance for small enterprises. Managerial finance maximizes a companys wealth and it also values the stocks. Bonds are long-term funds created by ownership equity and long-term credits. Shortterm funding comes from a line of credit given by banks as a working capital. OBJECTIVES Describe the scale and breadth of international financial markets Identify the key participants in these financial markets Describe the different products and characteristics of the major financial markets
Explain the dynamic nature of changes in these areas.

INTRODUCTION TO RISK MANAGEMENT

Existence of volatility in the occurrence of an expected incident is called risk higher the unpredictability greater is the degree of risk. In investment management risk involving pecuniary matters has importance. Risk in investment can be minimized by building an optimal portfolio the real challenge in construction in an optimum portfolios selection of securities, the investor should make of security returns over the forth coming hold period. The portfolio has implications on range of investment decisions the selection is normally applied to financial investments. An individual portfolio is end result of investors cumulative investment decision and reflects. The attitudes and references of the investor towards risk & return. Investors seeking maximum expected return & minimum risk has two conflicting objectives that must be balanced against each other.
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The portfolio is not just a list of securities but it is a unique arrangement assets aimed at satisfying the needs of investors.

MEANING OF RISK
The chance that an investment's actual return will be different from the expected return, including the ultimate risk of losing all of one's original investment. Risk usually is measured by calculating the standard deviation of the historical returns or average returns of a specific investment. Risk is the possibility you'll lose money if an investment you make provides a disappointing return. All investments carry a certain level of risk, since investment return is not guaranteed. According to modern investment theory, the greater the risk you take in making an investment, the greater your return has the potential to be if the investment succeeds.

MEANING OF RISK MANAGEMENT Risk Management involves the identification and analysis of loss exposures to persons and entities. It also addresses the kinds of actions that may be taken to minimize the financial impact of those risks, such as risk avoidance, risk reduction and risk transfer. This topic should address types of risk (for example, "pure" risk vs. "financial" risk) and should differentiate between personal risk management techniques and commercial risk management techniques. In the latter respects, the topic can dovetail into many issues addressed in the Insurance topic. The process of identifying risks to an investment and, if possible, mitigating them. The first stage of risk management is determining the types and magnitudes of risk. For example, a risk manager might look at a bond and identify the possibility of default as a risk and evaluate the likelihood of that scenario. The second stage is taking steps to remedy risk, insofar as it is possible. In the above example, the risk manager might recommend buying other bonds to offset the risk of default on any single bond. Sometimes risk cannot be mitigated; in that case, risk managers evaluate how central the investment is to one's investment goals and risk tolerance. Generally speaking, investors seek the highest possible return at the lowest possible risk. Risk management helps them achieve this goal by showing how their investments may be affected and finding ways to alleviate the situation.
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The uncertainty associated with any investment. That is, risk is the possibility that the actual return on an investment will be different from its expected return. A vitally important concept in finance is the idea that an investment that carries a higher risk has the potential of a higher return. For example, a zero-risk investment, such as a U.S. Treasury security, has a low rate of return, while a stock in a start-up has the potential to make an investor very wealthy, but also the potential to lose one's entire investment. Certain types of risk are easier to quantify than others. To the extent that risk is quantifiable, it is generally calculated as the standard deviation on an investment's average return.

As investors, we would all like to beat the market handily, and we would all like to pick great investments on instinct. However, while intuition is undoubtedly a part of the process of investing, it is just part of the process. As investors, it is not surprising that we focus so much of our energy and efforts on investment philosophies and strategies, and so little on the investment process. It is far more interesting to read about how peter lynch picks stocks and what makes warren Buffett a valuable investor, than it is to talk about the steps involved in creating a portfolio or in executing trades. Though it does not get sufficient attention, understanding the investment process is critical for every investor for several reasons: The investment process outlines the steps in creating a portfolio, and emphasizes the sequence of actions involved from understanding the investors risk preferences to asset allocation and selection to performance evaluation. By emphasizing the sequence, it provides for an orderly way in which an investor can create his own portfolio or a portfolio for someone else. The investment process provides a structure that allows investors to see the source of investment strategies and philosophies. by so doing, it allows investors to take the hundreds of strategies that they see described in the common press and in investment newsletters and to trace them to their common roots. The investment process emphasizes the different components that are needed for an investment strategy to by successful, and by so doing explain why so many strategies that good on paper never work for those who use them.
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 The best way of describing this book is noting what it does not do. It does not emphasize individual investors or push an investment philosophy. It does not focus heavily on coming up with strategies that beat the market, though there is reference to some of them in the course of the book. Instead, it talks about the process of investing and how this process is the same no same what investment philosophy one might have. The book is built around the investment process. The process always starts with the investor and understanding his or her needs and preferences. For a portfolio manager, the investor is a client, and the first and often most significant part of the investment process is understanding the client needs, the clients tax status and most importantly, his or her risk preferences. The next part of process is the actual construction of the portfolio, which we divide into three sub-parts. The of these is the decision on how to allocate the portfolio across different asset classes defined broadly as equities, fixed income securities and real asses(such as real estate, commodities and other assets).the second component is the asset selection decision, where individual assets are picked within each asset class to make up the portfolio. In practical terms, this is the step where the stocks that make up the equity component, the bonds that make up the fixed income component and the real assets that make up the real asset component are picked. The final part of the process, and often the most painful one for professional money managers, is the performance evaluation. Investing is after all focused on one objective and one objective alone, which is to make the most money you can, given the risk constraints you operate under.

The first major section is on understanding client needs and preferences, where we look at not only how to think about risk in investing but also at how to measure an investors willingness to take risk. The second section looks at the asset allocation decision, while third section examines different approaches to selecting assets. The fourth section takes a brief look at the execution decision, and fifth section develops different approaches to evaluating performance.
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DEFINITIONS
Existence of volatility in the occurrence of an expected incident is called risk higher the unpredictability greater is the degree of risk. in investment management risk involving pecuniary matters has importance. The ISO 31000 (2009) /ISO Guide 73 definition of risk is the 'effect of uncertainty on objectives'. In this definition, uncertainties include events (which may or not happen) and uncertainties caused by a lack of information or ambiguity. This definition also includes both negative and positive impacts on objectives. Risk can be seen as relating to the Probability of uncertain future events. For example, according to Factor Analysis of Information Risk, risk is the probable frequency and probable magnitude of future loss. In computer science this definition is used by The Open Group. OHSAS (Occupational Health & Safety Advisory Services) defines risk as the product of the probability of a hazard resulting in an adverse event, times the severity of the event. In information security risk is defined as "the potential that a given threat will exploit vulnerabilities of an asset or group of assets and thereby cause harm to the organization", Financial risk is often defined as the unexpected variability or volatility of returns and thus includes both potential worse-than-expected as well as better-than-expected returns. References to negative risk below should be read as applying to positive impacts or opportunity (e.g., for "loss" read "loss or gain") unless the context precludes this interpretation.

OBJECTIVES
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 To identify & potential risk events. Help develop risk management strategies & risk management plans. Use established risk management methods, tools and techniques to assist. In the analysis and reporting of identified risk events. Find ways to identify & evaluate risks. Develop strategies & plans for lasting risk management. To analyze the risk and return of the companies. To measure actual return and expected returns with the help of standard deviation and beta. To study the volatility of companies in comparison with the market. To guide the investors of various investment opportunities. To find out the risk less companies to invest in using beta values.

SCOPE OF THE STUDY

In the national stock exchange (NSE)there are 1185 companies are listed so far out of this fifty companies are very important ,which form the S&P CNX Nifty index .From this fifty

companies fifteen companies have been selected were chosen five different sectors ,the companies chosen 1) BANKING SECTOR-SBI, ICICI BANK, HDFC BANK 2) PHARMACEUTICAL SECTOR-SUN PHARMA, [Link] LAB, RANBAXY 3) OIL&GAS SECTOR-ONGC, BPCL, RELIANCE 4) 22 INFOTECH WIPRO, INFOSYS, TCS
5) AUTOMOBILE

SECTORE

TATA

MOTORS,

MAHINDRA

&MAHINDRA,

MARUTI UDYOG LTD

The present project work has been undertaken to identify the opportunities available in the Indian stock markets assures the dangers to be faced by investors of Indian stock market. My project work is limited to only Indian stock market and in Indian stock markets i have selected 5 companies only. They are. 1) RELIANCE INFRASTRUCTURE 2) MAHINDRA & MAHINDRA CO 3) WIPRO 4) HERO HONDA 5) INFOSYS

RESEARCH METHODOLOGY
METHODOLOGY
The Present project work has been undertaken to study risk in investment arena and risk minimizing strategies in investment during the study the required data can be collected through two sources. A) Primary data B) secondary data
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A) PRIMARY DATA: - The information available for the first time is known as primary data in this project we dont have primary data collection. B) SECONDARY DATA: - Readily available data is known as secondary data this project has been undertaken with the help of secondary data collection from the following sources.
Company records Websites like([Link],[Link], [Link])

DATA ANALYSIS:-Data analysis will be done using services analysis where no. of days/ year has been taken off from this tables, graphs have been taken. The formula used for the project report is a follows. NEED OF STUDY:- India stock market is so volatile that investors if not carefully they can lose their entire investment. In this scenario one must observe the pros & cons of stock market and should behave in such a way that the investor can minimizing risk this will be possible only when we study the market in term of risk & return.

LIMITATIONS OF THE STUDY

The area of study is limited to few sectors of group a stock. The study is limited to data of the last three months only. Risk cannot be measured accurately as the market condition is always fluctuating and uncertain. The study is mainly based on secondary data and no field work is done because of time constraint. To analyze the risk and return only standard deviation and beta is used and no other statistical tools are used

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CHAPTER -II COMPANY PROFILE

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COMPANY PROFILE
Incorporated in 1993, Net worth Stock Broking Limited (NSBL) has been a listed company at Bombay Stock Exchange (BSE), Mumbai since 1995.A Member, at the National Stock Exchange of India (NSE) and Bombay Stock Exchange, Mumbai (BSE) on the Capital Market and Derivatives (Futures & Options) segment, NSBL has been traditionally servicing Institutional clients and in the recent past has forayed into retail broking, establishing branches across the country. Presence is being marked in the Middle East, Europe and the United States too, as part of our attempts to cater to global markets. We are a Depository participant at Central Depository Services India (CDSL) with plans to become one at National Securities Depository (NSDL) by the end of this quarter. We have our customers participating in the booming commodities markets with our membership at the Multi Commodity Exchange of India (MCX) and National Commodity & Derivatives Exchange (NCDEX), through Net worth [Link] Ltd. With its strong support and business units of research, distribution & advisory, NSBL aims to become a one-stop solution to the broking and investment needs of its clients, globally. Strong team of professionals experienced and qualified pool of human resources drawn from top financial service & broking houses form the backbone of our sizeable infrastructure. Highly technology oriented, the companys scalability of operations and the highest level of service standards has ensured rapid growth in the number of locations & the clients serviced in a very short span of time. Net worthians, as each one of our 400 plus and ever growing team members are addressed, is a dedicated team motivated to continuously progress by imbibing the best of global practices, Indian sing Such practices, and to constantly evolve a comprehensive suite of products &Services trying to meet every financial / investment need of the [Link] CM and Derivatives Segment SEBI Regn. 1NB230638639 & 1NF230638639

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BSE CM and Derivatives Segment SEBI Regn. 1NB010638634 & PMS SEBI Regn. 1NP000001371 CDSL DP SEBI Regn. IN-DP-CDSL251-2004

Commodities Trading: MCX -10585 and NCDEX -00011 (through Net worth [Link]) Hyderabad (Somajiguda) 401, Dega Towers, 4th Floor, Raj Bhavan Road, Somajiguda Hyderabad - 500 082 Andhra Pradesh. Phone Nos.: 040-55560708, 55562256, and 30994985 Mumbai (MF Division) 49, Au Chambers, 4th Floor, Tamarind Lane, Fort Mumbai - 400 001 Maharashtra. Phone Nos.: 022- 22650253

Mumbai (Registered Office)

5, Church gate House, 2nd Floor, 32/ 34 Veer Narirnan Road, Fort Mumbai - 400 001 Maharashtra. Phone No. 022-22850428

The Net worth connectivity with 107 branches and growing

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b r a

c h

Products and services portfolio 1 2 3 4 5 6 7 8 Retail and institutional broking Research for institutional and retail clients Distribution of financial products PMS Corporate finance Net trading Depository services Commodities Broking

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Rese arc h R ne Onl i & O ff li

fline broking in comm & of odi ine ti e l as value chain - i n s On ding off a ing et tr s N sitory a value chai po n De nag ment S e io M a che l me rtfo Po te orpora Finance C visory Se or A d rvi est ces nv I Company on ,S ts ec or to ing in E ep rok qu b i ne
omy on Ec r, D erivati e s & ty

Services

Infrastructure 1 A corporate office and 3 divisional offices in CBD of Mumbai which houses state-of-theart dealing room, research wing & management and back offices. 2 3 4 5 All of 107 branches and franchisees are fully wired and connected to hub at Corporate office at Mumbai. Add on branches also will be wired and connected to central hub Web enabled connectivity and software in place for net trading. 60 operative IDs for dealing room In house technology back up team to ensure un-interrupted connectivity.

1993: Net worth Started with 300 [Link]. of office space & 10 employees 2006: Spread over 42 cities (around 70,000 [Link] of office space) with over 107 branches & employee strength over 400.

Market & Research

Focusing on your needs
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Every investor has different needs, different preferences, and different viewpoints. Whether investor prefers to make own investment decisions or desire more in-depth assistance, company committed to providing the advice and research to help you succeed. Net worth providing following services to their customers, Daily Morning Notes Market Musing Company Reports Theme Based Reports Weekly Notes IPOs Sector Reports Stock Stance Pre-guarter/Updates Bullion Tracker F&O Tracker

QUALITY POLICY
To achieve and retain leadership, Net worth shall aim for complete customer satisfaction, by combining its human and technological resources, to provide superior quality financial services. In the process, Net worth will strive to exceed Customers expectations. As per the quality policy, Net worth will: 1. Build in house processes that will ensure transparent and harmonious relationships with its clients and investors to provide high quality of services. 2. Establish a partner relationship with in its investor service agents and vendors that will help in keeping up its commitments to the customers. 3. Provide high quality of work life for all its employees and equip them with adequate knowledge & skill so as to respond to customers needs.
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4. Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in business ethics. 5. Use state-of-the art information technology in developing new and innovative financial products and services to meet the changing needs of investors and clients. Strive to be a reliable source of value-added financial products and services and constantly guide the individuals and institutions in making a judicious choice of [Link] to keep all stakeholders (share holders, clients, investors, employees, suppliers and regulatory authorities) proud and satisfied.

Key Personnel:

Mr. S P Jain CMD Net worth Stock Broking Ltd. A qualified Chartered Accountant with over 15 years of experience in the capital markets. Mr. Deepak Mehta Head PMS Over 12 years of experience in the capital markets and has the prior work experience of serving on the Equity desk of Reliance. Mr. Viral Doshi Equity strategist A qualified Chartered Accountant with experience of over a decade in technical analysis with respect to equity markets. Mr. Vinesh Jain Asst. Fund Manager A qualified MBA graduate specializing in finance and over two years of experience in the capital markets. Research and the Back office.

Depository Services
Dematerialization is the process by which physical share certificates are converted into electronic form. While it is not yet compulsory that all the shares listed on the stock exchanges are dematerialized, there is a steady increase in the number of companies trading in the dematerialized shares. We offer Depository facilities to facilitate a seamless transaction platform as a part of our valueadded services for our clients. Net worth is a depository participant with the Central Depository Services (India) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) for trading and settlement of dematerialized shares. For any queries, please mail us at cdsl@[Link]

Equity

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Our experienced trading consultants and advanced trading tools will provide the support you need to achieve your long-term goals via the stock markets. We trade on the BSE, NSE and CN and our website has facilities such as live stock tickers, news updates, and more, to help our clients stay in the know. We also provide NRI specific services to meet the needs of our client who live abroad. The Indian Equity Market is also the other name for Indian share market or Indian stock market. The forces of the market depend on monsoons, global funding flowing into equities in the market and the performance of various companies. The Indian market of equities is transacted on the basis of two major stock indices, National Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE), the trading being carried on in a dematerialized form. The physical stocks are in liquid form and cannot be sold by the investors in any market. Two types of funds are there in the Indian Equity Market; Venture Capital Funds and Private Equity Funds.

The equity indexes are correlated beyond the boundaries of different countries with their exposure to common calamities like monsoon which would affect both India and Bangladesh or trade integration policies and close connection with the foreign investors. From 1995 onwards, both in terms of trade integration and FIIs India has made an advance. All these have established a close relationship between the stock market indexes of India stock market and those of other countries. The Stock derivatives adds up all futures and options on all individual stocks. This stock index derivatives was found to have gone up from 12 % of NSE derivatives turnover in 2002 to 35 % in 2004. the Indian Equity Market also comprise of the Debt Market, dominated by primary dealers, banks and wholesale investors. Indian Equity Market at present is a lucrative field for the investors and investing in Indian stocks are profitable for not only the long and medium-term investors, but also the position traders, short-term swing traders and also very short term intra-day traders. In terms of market capitalization, there are over 2500 companies in the BSE chart list with the Reliance Industries Limited at the top. The SENSEX today has rose from 1000 levels to 8000 levels providing a profitable business to all those who had been investing in the Indian Equity Market. There are about 22 stock exchanges in India which regulates the market trends of different stocks.
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Generally the bigger companies are listed with the NSE and the BSE, but there is the OTCEI or the Over the Counter Exchange of India, which lists the medium and small sized companies. There is the SEBI or the Securities and Exchange Board of India which supervises the functioning of the stock markets in India. Thus, the growing financial capital markets of India being encouraged by domestic and foreign investments is becoming a profitable business more with each day. If all the economic parameters are unchanged Indian Equity Market will be conducive for the growth of private equities and this will lead to an overall improvement in the Indian economy.

Commodity
Commodity can be defined as any kind of movable property other than actionable claims, money and securities. Futures trading has been organized in such goods or commodities as were permitted by the Central Government. Presently, all the agricultural products ( Cereals including wheat, rice pulses, Spices, plantation crops, Cash crops, sugarcane ,Oilseed crops and even Potato), mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognized under the FCRA. Indian markets have recently thrown open a new avenue for investors and traders to participate: COMMODITY DERIVATIVES. For those who want to diversify their portfolios beyond shares, bonds and real estate, commodities are the best option.

Currency Derivatives
The launch of currency derivatives in India, in May this year opened one more lucrative avenue for trading. The recommendations were made jointly by the SEBI and the [Link] derivatives can be described as contracts between the sellers and buyers, whose values are to be derived from the underlying assets i.e. the currency amounts. Currently, India is a USD 34 billion OTC (over-the-counter) market. Networth has taken membership with NSE, BSE, and USE & MCX-SX to offer trading in currency futures to its customers.

IPO
Initial public offering (IPO), also referred to simply as a "public offering", is the first sale of stock by a private company to the public. IPO is a way for a company to raise money from
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investors for its future projects and get listed to Stock Exchange. From an investor point of view, IPO gives a chance to buy stocks of a company, directly from the company at the price of their choice (In book build IPO''''s). Although an IPO offers more control over the price at which the investor is willing to buy the stock it is no less risky than buying a stock in the market. From a company prospective, the single most important use of an IPO is the provision of funds. IPO''''s provide capital for the companys future growth or for paying its previous borrowings and allows the companys stock to be traded publicly in the Stock Market.

IPO
Companies need fund to finance their new projects, upgrading of infrastructure, acquisition, future growth plans or to pay off previous borrowings. Borrowing the money from a financial institution compels the company to pay interest on those borrowings. On the other hand when a company issues an IPO or an Initial Public Offering, the company offers a fixed numbers of its shares to be held by the public and to be traded publicly. The investors in an IPO book their shares by offering the pay the company the issue price or the price of each share. The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a pool of investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company. Types of IPO Initial Public Offering can be made through the fixed price method, book building method or a combination of both.

Book Building Issue: In a book building issue during the period for which the bid is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria.

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CHAPTER-III THEORITICAL FRAMEWORK

INTRODUCTION TO FINANCIAL MARKETS

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Money may not (except metaphorically) make the world go round, but it certainly goes round the world. Recent years have seen the global growth of sophisticated financial markets. These markets, and the institutions associated with them, bring people together; agents (such as investors) with surplus cash looking to generate returns deliver it to those who would like it now (such as borrowers). There are many ways of achieving this This tutorial introduces the major financial markets. Who needs them? What products do they offer? Where are they? How do they operate? How are they changing? Broadly speaking, it examines the people involved (such as investors or borrowers), the products offered (such as bonds or shares) and where, either physically or virtually, markets for the products exist.

Types of Financial Market

Financial Market is the market where financial securities like stocks and bonds and commodities like valuable metals are exchanged at efficient market prices. Here, by efficient market prices we mean the unbiased price that reflects belief at collective speculation of all investors about the future prospect. The trading of stocks and bonds in the Financial Market can take place directly between buyers and sellers or by the medium of Stock Exchange. Financial Markets can be domestic or international.

Different Types of Financial Markets Capital Market

Capital Market consists of primary market and secondary market. In primary market newly issued stocks are exchanged and in secondary market buying and selling of already existing bonds and stocks take place. So, the Capital Market can be divided into Bond Market and Stock Market. Bond Market provides financing by bond issuance and bond trading. Stock Market provides financing by shares or stock issuance and by share trading. As a whole, Capital Market facilitates rising of capital.

Money Market
Money Market facilitates short term debt financing and capital.

Derivatives market
Derivatives Market risk. provides instruments which help in controlling financial
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 Foreign Exchange Market

Foreign Exchange Market facilitates the foreign exchange trading.

Insurance Market
Insurance Market helps in relocation of various risks.

Commodity Market
Commodity Market organizes trading of commodities. Contribution of Financial Markets
Financial Markets are essential for fund raising. Through Financial Market borrowers can find suitable lenders. Banks also help in the process of financing by working as intermediaries. They use the money, which is saved and deposited by a group of people; for giving loans to another group of people who need it. Generally, banks provide financing in the form of loans and mortgages. Except banks other intermediaries in the Financial Market can be Insurance Companies and Mutual Funds. But more complicated transactions of Financial Market take place in stock exchange. In stock exchange, a company can buy others' company's shares or can sell own shares to raise funds or they can buy their own shares existing in the market

What Is Financial Risk Management?

While exposure is the possibility of loss, although they are often used interchangeably. Risk arises as a result of exposure. Exposure to financial markets affects most organizations, either directly or indirectly. When an organization has financial market exposure, there is a possibility of loss but also an opportunity for gain or profit. Financial market exposure may provide strategic or competitive benefits. Risk is the likelihood of losses resulting from events such as changes in market prices. Events with a low probability of occurring, but that may result in a high loss, are particularly troublesome because they are often not anticipated. Put another way, risk is the probable variability of returns. Since it is not always possible or desirable to eliminate risk, understanding it is an important step in determining how to manage it.

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Financial risk management is a process to deal with the uncertainties resulting from financial markets. It involves assessing the financial risks facing an organization and developing management strategies consistent with internal priorities and policies. Addressing financial risks proactively may provide an organization with a competitive advantage. It also ensures that management, operational staff, stakeholders, and the board of directors are in agreement on key issues of risk. Managing financial risk necessitates making organizational decisions about risks that are acceptable versus those that are not. The passive strategy of taking no action is the acceptance of all risks by default. Organizations manage financial risk using a variety of strategies and products. It is important to understand how these products and strategies work to reduce risk within the context of the organizations risk tolerance and objectives. Strategies for risk management often involve derivatives. Derivatives are traded widely among financial institutions and on organized exchanges. The value of derivatives contracts, such as futures, forwards, options.

How Does Financial Risk Arise?

Financial risk arises through countless transactions of a financial nature, including sales and purchases, investments and loans, and various other business activities. It can arise as a result of legal transactions, new projects, mergers and acquisitions, debt financing, the energy component of costs, or through the activities of management, stakeholders, competitors, foreign governments, or weather. When financial prices change dramatically, it can increase costs, reduce revenues, or otherwise adversely impact the profitability of an organization. Financial fluctuations may make it more difficult to plan and budget, price goods and services, and allocate capital.

Risk Management and Stock Market

The inflation risk is an important consideration in long term investments where as the market risk is more relevant in the short term. It is the market risk that can be managed and controlled to a certain extent, inflation risk cannot be controlled.

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There are certain strategies that can be employed to mitigate the risk in a stock market. The strategies are as follows:
1. Follow the trend of the market: This is one of the proven methods to minimize risks in

a stock market. The problem is that, it is difficult to spot trends in the market and trends change very fast. A market trend may last a single day, a month or a year and again short term trends operate within long term trends.
2. Portfolio Diversification: Another useful risk management strategy in the stock market

is to diversify your risk by investing in a portfolio. In a portfolio you diversify your investment to several companies, sectors and asset classes. There is a probability that while the market value of a certain investment decreases that of the other may increase. Mutual Funds are yet another means to diversify the impact.
3. Stop Loss: Stop loss or trailing tool is yet another device to check that you dont lose

money should the stock go far a fall. In this strategy the investor has the option of making an exit if a certain stock falls below a certain specified limit. Self-discipline is yet another option employed by some investors to sell when the stock falls below a certain level or when there is a steep fall. Ask warren buffet, the greatest investor of all time, what is your advice to investors and he says dont lose money! But stock market connotes risk and fortunately there are enough strategies for a wise investor to safeguard his money and ensure gain. A careful and timely exercise of these options helps you see of the risk involved.

Essentials of Financial Risk Management

Potential Size of Loss Potential for Large Loss Potential for Small Loss Probability of Loss High Probability of Occurrence
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 Low Probability of Occurrence

There are three main sources of financial risk: 1. Financial risks arising from an organizations exposure to changes in market prices, such as interest rates, exchange rates, and commodity Prices 2. Financial risks arising from the actions of, and transactions with, other organizations such as vendors, customers, and counterparties In derivatives transactions 3. Financial risks resulting from internal actions or failures of the organization, particularly people, processes, and systems.

PRINCIPLES
Various organizations have laid down principles for risk management. There are risk management principles by International standardization Organization and by Project Management Body of Knowledge. The Project management body of knowledge (PMBOK) has laid down 12 principles. This article carries an amalgamation of both PMBOK and ISO principles. The various principles are:
1. Organizational Context: Every organization is affected to varying degrees by various

factors in its environment (Political, Social, Legal, and Technological, Societal etc). For example, an organization may be immune to change in import duty whereas a different organization operating in the same industry and environment may be at a severe risk. There are also marked differences in communication channels, internal culture and risk management procedures. The risk management should therefore be able to add value and be an integral part of the organizational process.
2. Involvement of Stakeholders: The risk management process should involve the

stakeholders at each and every step of decision making. They should remain aware of
26

even the smallest decision made. It is further in the interest of the organization to understand the role the stakeholders can play at each step.
3. Organizational Objectives: When dealing with a risk it is important to keep the

organizational objectives in mind. The risk management process should explicitly address the uncertainty. This calls for being systematic and structured and keeping the big picture in mind.
4. Reporting: In risk management communication is the key. The authenticity of the

information has to be ascertained. Decisions should be made on best available information and there should be transparency and visibility regarding the same.
5. Roles and Responsibilities: Risk Management has to be transparent and inclusive. It

should take into account the human factors and ensure that each one knows it roles at each stage of the risk management process.

6. Support Structure: Support structure underlines the importance of the risk management

team. The team members have to be dynamic, diligent and responsive to change. Each and every member should understand his intervention at each stage of the project management lifecycle.
7. Early Warning Indicators: Keep track of early signs of a risk translating into an active

problem. This is achieved through continual communication by one and all at each level. It is also important to enable and empower each to deal with the threat at his/her level.
8. Review Cycle: Keep evaluating inputs at each step of the risk management process -

Identify, assess, respond and review. The observations are markedly different in each cycle. Identify reasonable interventions and remove unnecessary ones.
9. Supportive Culture: Brainstorm and enable a culture of questioning, discussing. This

will motivate people to participate more.

10. Continual Improvement: Be capable of improving and enhancing your risk

management strategies and tactics. Use your learnings to access the way you look at and manage ongoing risk.

Predicting Change
27

Indicators that predict changes in economic activity in advance of a slowdown are extremely useful. The yield curve may be one such forecasting tool. Changes in consensus forecasts actual short-term interest rates, as well as the index of leading indicators, have been used as warning signs of a change in the direction of the economy. Some studies have found that, historically at least, a good predictor of changes in the economy one year to 18 months forward has been the shape of the yield curve. TIPS & TECHNIQUES Expectations theory suggests forward interest rates are representative of expected future interest rates. As a result, the shape of the yield curve and the term structure of rates are reflective of the markets aggregate expectations. Liquidity theory suggests that investors will choose long-term maturities if they are provided with additional yield that compensates them for lack of liquidity. As a result, liquidity theory supports that forward interest rates possess a liquidity premium and an interest rate expectation component. Preferred habitat hypothesis suggests that investors who usually prefer one maturity horizon over another can be convinced to change maturity horizons given an appropriate premium. This suggests that the shape of the yield curve depends on the Policies of market participants. Market segmentation theory suggests that different investors have different investment horizons that arise from the nature of their business or as a result of investment restrictions. These prevent them from dramatically changing maturity Dates to take advantage of temporary opportunities in interest rates. Companies that have a long investment time horizon will therefore be less interested in taking advantage of opportunities at the short end of the curve.

Factors that Affect Foreign Exchange Rates

Foreign exchange rates are determined by supply and demand for currencies. Supply and demand, in turn, are influenced by factors in the economy, foreign trade, and the activities of international investors. Capital flows, given their size and mobility, are of great importance in determining exchange rates. Factors that influence the level of interest rates also influence exchange rates among floating or market-determined currencies. Currencies are very

28

sensitive to changes or anticipated changes in interest rates and to sovereign risk factors. Some of the key drivers that affect exchange rates include: Interest rate differentials net of expected inflation Trading activity in other currencies International capital and trade flows International institutional investor sentiment Financial and political stability Monetary policy and the central bank Domestic debt levels (e.g., debt-to-GDP ratio) Economic fundamentals.

Key Drivers of Exchange Rates

When trade in goods and services with other countries were the major determinant of exchange-rate fluctuations, market participants monitored trade flow statistics closely for information about the currencys future direction. Today, capital flows are also very important and are monitored closely. When other risk issues are considered equal, those currencies with higher short-term real interest rates will be more attractive to international investors than lower interest rate currencies. Currencies that are more attractive to foreign investors are the beneficiaries of capital mobility. The freedom of capital that permits an organization to invest and divest internationally also permits capital to seek a safe, opportunistic return. Some currencies are particularly attractive during times of financial turmoil. Safe-haven currencies have, at various times, included the Swiss franc, the Canadian dollar, and the U.S. dollar. Foreign exchange forward markets are tightly linked to interest markets. In freely traded currencies, traders arbitrage between the forward currency markets and the interest rate markets, ensuring interest rate parity.

Theories of Exchange Rate Determination

Several theories have been advanced to explain how exchange rates are determined: Purchasing power parity, based in part on the law of one price, suggests that exchange rates are in equilibrium when the prices of goods and services (excluding mobility and other issues) in different countries are the same. If local prices increase more than prices in another country for the same product, the local currency would be expected to decline
29

in value vis--vis its foreign counterpart, presuming no change in the structural relationship between the countries. The balance of payments approach suggests that exchange rates result from trade and capital transactions that, in turn, affect the balance of payments. The equilibrium exchange rate is reached when both internal and external pressures are in equilibrium. The monetary approach suggests that exchange rates are determined by a balance between the supply of, and demand for, money. When the money supply in one country increases compared with its trading partners, prices should rise and the currency should depreciate. The asset approach suggests that currency holdings by foreign investors are chosen based on factors such as real interest rates, as compared with other countries.

Factors that Affect Commodity Prices

Physical commodity prices are influenced by supply and demand. Unlike financial assets, the value of commodities is also affected by attributes such as physical quality and location. Commodity supply is a function of production. Supply may be reduced if problems with production or delivery occur, such as crop failures or labor disputes. In some commodities, seasonal variations of supply and demand are usual and shortages are not uncommon. Demand for commodities may be affected if final consumers are able to obtain substitutes at a lower cost. There may also be major shifts in consumer taste over the long term if there is supply or cost issues. Commodity traders are sensitive to the inclination of certain commodity prices to vary according to the stage of the economic cycle. For example, base metals prices may rise late in the economic cycle as a result of increased economic demand and expansion. Prices of these commodities are monitored as a form of leading indicator. Commodity prices may be affected by a number of factors, including: Expected levels of inflation, particularly for precious metals Interest rates Exchange rates, depending on how prices are determined General economic conditions Costs of production and ability to deliver to buyers
30

 Availability of substitutes and shifts in taste and consumption patterns Weather, particularly for agricultural commodities and energy Political stability, particularly for energy and precious metals

RISK MANAGEMENT
Existence of volatility in the occurrence of an expected incident is called risk higher the unpredictability greater is the degree of risk. In investment management risk involving pecuniary matters has importance. Risk in investment can be minimized by building an optimal portfolio the real challenge in construction in an optimum portfolio is selection of securities, the investor should make of security returns over the forth coming hold period. The portfolio has implications on range of investment decisions the selection is normally applied to financial investments. An individual portfolio is end result of investors cumulative investment decision and reflects the attitudes and references of the investor towards risk & return. Investors seeking maximum expected return and minimum risk have two conflicting objectives that must be balanced against each other. The portfolio is not just a list of securities but it is a unique arrangement assets aimed at satisfying the needs of investor

RISK IN INVESTMENT ARENA

People have many motives, hopes and aspirations for investing in securities or assets. Power and prestige may be the goal in some cases whereas control of corporate empires may be others aim. But however, the common man belonging to higher middle class, while investing in securities, has a very modest hope or wish, to earn a reasonably high return on their money. In the process, they develop aversion to risk but at the same time would be hoping for the higher return with less or no risk. Risk and return are two sides of investment coin. risk is associated with the possibility not realizing returns or realizing less returns than are expected. Risk of an asset is the variance associated with its returns.
31

RISK VERSUS UNCERTAINITY

Risk: Combination of the likelihood of an occurrence of a hazardous event or exposure(s) and the severity of injury or ill health that can be caused by the event or exposure(s) In his seminal work Risk, Uncertainty, and Profit, Frank Knight (1921) established the distinction between risk and uncertainty. ... Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. The term "risk," as loosely used in everyday speech and in economic discussion, really covers two things which, functionally at least, in their causal relations to the phenomena of economic organization, are categorically different. ... The essential fact is that "risk" means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomenon depending on which of the two is really present and operating. ... It will appear that a measurable uncertainty, or "risk" proper, as we shall use the term, is so far different from an immeasurable one that it is not in effect an uncertainty at all. We ... accordingly restrict the term "uncertainty" to cases of the non-quantitative type. Thus, knighting uncertainty is immeasurable, not possible to calculate, while in the knight a sense risk is means. Another distinction between risk and uncertainty is proposed in How to Measure Anything: Finding the Value of Intangibles in Business and The Failure of Risk Management: Why It's Broken and How to Fix It by Doug Hubbard: Uncertainty: The lack of complete certainty, that is, the existence of more than one possibility. The "true" outcome/state/result/value is not known. Measurement of uncertainty: A set of probabilities assigned to a set of possibilities. Example: "There is a 60% chance this market will double in five years" Risk: A state of uncertainty where some of the possibilities involve a loss, catastrophe, or other undesirable outcome.

CAUSES OF RISK
32

Some factors which can be stated to cause risk in the investment arena are given below: Wrong method of investment, Wrong period of investment, Wrong quantity of investment, Interest rate risk, Nature of investment instruments, Nature of industry, Nature of business in which investment made in, National and international factors, Natural calamities etc.

TYPES OF RISKS
1. SYSTAMETIC RISK Systematic risk is encountered out if external and uncontrollable factors such as market sentiments, government policy, changing the state of economy, identification of thrust areas by the government changing the focus of an industry threat of war etc. it is influenced by various socio-economic and legal factors and impact of the risk would fall on all the securities in such a way that the prices of all stocks will move in same directions. 2. MARKET RISK Access gained by some investors to some price sensitive information spars the demand for the some types of securities when the supply of those securities limited at particular point of time. The price of those securities suddenly rises sometime some rumors are passed and the price suddenly fall. The market risk there arises out of changes in demand & supply pressures in the markets. Following the flow of news or expectations apart from this the subjective factors psychology & sentiment of the Individuals also causes some market fluctuations and uncontrollable risk.

3. INTEREST RATE RISK The cost of the borrowed funds in generally rely on interests rate the return on any investments depends upon the interest rate committed and fluctuations in the market rate of interest from time to time the market activity and investors perceptions or influenced by

33

changes in interest rates which in known depend on nature of investments stocks, bonds, loans etc. maturity of periods and credit worthy of issuer of securities. 4. UNSYSTAMETIC RISK Unsystematic risk is a companys specific risk and is controllable if proper measures are taken or it is unique to a particular firm or industry factors like labor strike, management policies, shortage of power in one sector labor unrest in a company .executive exodus in a firm recession preference etc. The type of risk can be further sub-divided int A) BUSINESS RISK This can be both internal as well as external. Internal risk is caused improper product mix non availability of raw material, uncompetitive to face stiff competition, unpreparedness to fast changes absence of strategic management etc. the external business risk is experienced due to changes in thrust areas announced by the government changes in tax policy, changes in business law internal market conditions, diplomatic relations between nations. B) FINANCIAL RISK These experienced due to improper method of financing adopted by the company. Large debt servicing problems are short term liquidity problems due to bad doubtful debts delay receivables and fall in current assets or rise in current liabilities. These problems could no doubts solved but they may lead to fluctuations in earning profits & dividends to shareholders. Sometime if the runs into losses or reduced profit these may lead to fall in returns to investors or negative returns. Proper financial planning and other financial adjustments can be used to correct this risk as such it is controllable. B) CREDIT RISK The credit risk deals with the probability of meeting with a default. It is primary the probability that a buyer will default. The chances the borrowers will not pay up can steam from variety of factors some could be endemic to the industry and other could be the company specific. They can be either of the segments corporate or retail. BUSINESS RISK FINANCIAL RISK CREDIT RISK

34

Proper management of credit risk reduces the chances of nonpayment of loan by borrowers and involves exploration by the company. Off ways & means of encouraging prompt repayment the concept of portfolio or a basket investment The banks define the degree of risk in some kind of rating scale one is Investment grade Speculative grade (1) Investment grade:- Are the positive one which includes the low risk return investment where the probability of default is low. (2) Speculative grade: - speculative grades are negative one which causes for the risk of default sharply generally the grades are AAA, AA, A & BBB, BB, B.

PORTFOLIO ANALYSIS
The portfolio analysis begins where the security analysis ends. Portfolio, which are combinations of securities may or may not take on 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 sometimes 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 co-variance among returns on individual securities and 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 portfolio.

PORTFOLIO AND PORTFOLIO RISK

35

The term portfolio can be divided as a collection of securities. It is a basket of investments or assets held by an individual. It is a set of assets of financial nature such as gold, silver, real estate, insurance policy, post office certificates, NSCs, NSS shares, debentures, bonds etc. In order to estimate the total risk of a portfolio of assets, several estimates are needed: The variance of each individual asset under consideration for inclusion in the portfolio and the co-variance and co-relation co-efficient of each asset with each of other assets. The predicted return on the portfolio is simply weighted average of the predicted returns on the securities, using the proportionate values as weights. The expected return for the portfolio is simply the weighted average of expected return on its securities, using the proportionate values as weights. The risk of a portfolio depends not only on the risk of its securities considered in isolation, but also on the extent to which they are affected similarly by underlying events. The deviation of each securitys return from its expected value is determined and the product of the two obtained. The variance is simply a weighted average of such products, using the probabilities of the events as weights.

MEASUREMENT OF RISK
Measurement of risk: A set of possibilities each with quantified probabilities and quantified losses. Example: "There is a 40% chance the proposed oil well will be dry with a loss of $12 million in exploratory drilling costs". In this sense, Hubbard uses the terms so that one may have uncertainty without risk but not risk without uncertainty. We can be uncertain about the winner of a contest, but unless we have some personal stake in it, we have no risk. If we bet money on the outcome of the contest, then we have a risk. In both cases there are more than one outcome. The measure of uncertainty refers only to the probabilities assigned to outcomes, while the measure of risk requires both probabilities for outcomes and losses quantified for outcomes.

TOTAL RISK
The total risk of an investment comprises the diversifiable risk non-diversifiable risk, and this relationship can be computed by summing up diversifiable risk and undiversifiable risk.

36

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 and involves combing 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, that its co-variance with the market portfolio. This measure does not need any additional cost in terms of money but it requires little prudence. It is the undiversifiable risk of individual assets that is more difficult to tackle.

TRADITIONAL METHOD OF ACCOUNTING ASSIGNING RISK PREMIUM METHOD

We have a method of traditional for accounting the risk. This method is called as assigning risk premium method. The fundamental tenant in the financial management is to trade of tenant between risk & return. The returns from holding equity securities are derived from dividend stream & price changes. One of the methods quantifying risk & calculating expected rate of return would be to express the required rate as comprising a risk less rate plus compensation for individual risk factors. Traditional risk:rrrrrrvgnjgkgdfknkxkslgn

R= I + p + b + f +m+o
R= required rate of return I= real interest rate (risk free interest) p= purchasing power risk allowance b= business risk allowance f= financial risk allowance m= market risk allowance o= allowance for the other risk.

37

MODERN METHODS OF QUALIFICATION OF RISK

Qualification of risk is ensure uniform interpretation and comparison of alternative investment opportunities. The pre-requisite for an objective evaluation and comparative analysis of various investment alternatives is a rational method for quantifying risk and return. After quantifying risk a careful analysis of pros and cons of investing in different securities should be made before a final decision is taken. Due to existence of uncertainty, reasonable estimate of returns is difficult to make. A good measure of uncertainty is one, which can gauge the extent of deviation of actual return from the predictive return. Probability distribution of returns is very helpful in identifying expected returns and risk. The spread of dispersion of the probability distribution can also be measured by degree of variation from the expected return. Deviation=outcome - expected return

Outcomes on the investment do not have equal probability occurrences; hence it requires weights for each difference by its probability.

Probability X (outcome expected return)

For the purpose of computing variance, deviations are to be squared before multiplying with probabilities.

Probability X (outcome expected return) ^2

STEPS FOR CALCULATION OF CO-EFFICIENT OF CORRELATION, VARIANCE AND STANDARD DEVIATION.

Multiply the annual returns of the both probability factor
38

(1) Add all the products this gives the expected rate of return(ERR) ERR = PF * AR PF= PROBABILITY FACTOR AR= ANNUAL RETURN (2) Take the deviations of AR from The ERR Deviations = AR - ERR (3) Multiply the deviation of both the companies with one another separately and then multiply the resultant figure with the PF (4) Add all such products by giving due consideration to the positive & negative sign the resultant figure is called by co-variance. Co-variance = [(deviation of x)(deviation of y)] (PF) Square each of the deviation and then multiply them with the PFs and add up the entire products repeat it for the both the companies separately. (5) Square each of the deviation and then multiply them with the PFs and add up all the products repeat it for the both the companies this variance of both the companies separately. Variance = PF * (deviation) ^2 (6) Find the squawroot of variance in order to get the standard deviation of the companies.

S.D = variance
39

(7) To the products standard deviation multiply the both companies standard deviation. Products S.D = (S.D OF X ) (S.D OF Y) (8) Divide the co-variance with the product of standard deviation as the coefficient of co-relation.

CC = CO-variance P.S.D

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CHAPTER-IV PRACTICAL FRAMEWORK

NIFTY
DATE OPEN CLOSE RETURN( r) AVERAG E 16-05-2011 17-05-2011 18-05-2011 19-05-2011 20-05-2011 23-05-2011 24-05-2011 25-05-2011 26-05-2011 27-05-2011 30-05-2011 5541.70 5496.10 5448.20 5448.15 5450.65 5456.70 5385.10 5389.10 5372.75 5413.70 5493.75 5499.00 5438.95 5420.60 5428.10 5486.35 5386.55 5394.85 5348.95 5412.35 5476.10 5473.10 -07765 -1.0507 -0.5091 -0.639 0.6207 -1.3023 0.1807 -0.7506 0.7316 1.1394 -0.3772 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.8255 0.0997 0.5581 0.4129 0.5717 1.3513 1.3023 0.7996 0.6826 1.0904 0.4262 0.6814 1.2093 0.3114 0.1704 0.3268 1.8260 1.6959 0.6393 0.4659 1.1889 0.1816 R-R ( R R)^2

41

31-05-2011 01-06-2011 02-06-2011 03-06-2011 06-06-2011 07-06-2011 08-06-2011 09-06-2011 10-06-2011 13-06-2011 14-06-2011 15-06-2011 16-06-2011 17-06-2011 20-06-2011 21-06-2011 22-06-2011 23-06-2011 24-06-2011 27-06-2011 28-06-2011 29-06-2011

5492.90 5561.05 5529.90 5565.70 5504.30 5509.15 5535.25 5523.55 5518.05 5469.85 5485.60 5494.45 5419.65 5412.50 5372.20 5280.80 5304.65 5269.10 5343.40 5441.20 5548.85 5566.50

5560.15 5592.00 5550.35 5516.75 5532.05 5556.15 5526.85 5521.05 5485.80 5482.80 5500.50 5447.50 5396.75 5366.40 5257.90 5275.85 5278.30 5320.00 5471.25 5526.60 5545.30 5600.45 0

1.2094 0.5534 0.3684 -0.8872 0.5016 0.8459 -0.1519 -0.0452 -0.5878 0.2361 0.2708 -0.8618 -0.4243 -0.8590 -2.1738 -0.0938 0.4992 0.9567 2.3367 1.5452 -0.0640 0.6062

0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490 0.0490

1.1604 0.5044 0.3194 .9362 0.4525 0.7969 0.2009 0.0942 0.6368 0.1871 0.2218 0.9108 0.4733 0.908 2.2228 0.1428 0.4502 0.9077 2.2877 1.4962 0.113 0.5572

1.3465 .2544 0.1020 0.8764 0.1870 0.6350 0.0403 0.0088 0.4055 0.0350 0.0491 0.8295 0.2248 0.8244 4.9408 0.0203 0.2026 0.8239 5.2335 2.2386 0.127 0.3104

30-06-2011

5614.50 28.58

5647.40

0.5825

0.0490

0.5335

0.2846

RETURN (R) = CLOSING PRICE OPENING PRICE 100 CLOSING PRICE 42

AVERAGE (R) = R = 1.6693 = 0.0490 N 34 COVARIANCE = 28.583 VARIANCE = 1 N-1 = 0.8661 = 0.9306 COVARIANCE ( R R)^ 21 28.583 34-1

THE RETURN GRAPH OF NIFTY

INTERPRETATION:- THE above table shows the risk & return of NIFTY. Where it
has 2.33% highest returns and -2.173% lowest returns with an average return of 4.9%.

RELIANCE INFRASTRUCTURE
DATE 16-05-2011 17-05-2011 18-05-2011 19-05-2011 20-05-2011 23-05-2011 24-05-2011 OPEN 607.50 602.70 588.70 565.00 559.00 565.00 549.00 CLOSE 598.75 585.05 560.95 552.90 569.05 548.20 536.75 RETURN (R) -1.4613 -3.0168 -4.9469 -2.1884 1.7661 -3.0645 -2.2822 43 AVERAGE -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 ( R-R) 0.7799 2.3354 4.2655 1.507 2.4475 2.3831 1.6008 (R-)^2 0.6082 5.4540 18.1944 2.2710 5.9902 5.6791 2.5625

25-05-2011 26-05-2011 27-05-2011 30-05-2011 31-05-2011 01-06-2011 02-06-2011 03-06-2011 06-06-2011 07-06-2011 08-06-2011 09-06-2011 10-06-2011 13-06-2011 14-06-2011 15-06-2011 16-06-2011 17-06-2011 20-06-2011 21-06-2011 22-06-2011 23-06-2011 24-06-2011 27-06-2011 29-06-2011 29-06-2011 30-06-2011 161.9748

540.00 535.05 540.00 562.95 557.10 569.10 571.50 575.00 555.55 560.00 554.40 560.00 555.05 541.60 545.00 559.70 557.80 575.10 571.90 550.20 537.90 524.90 535.95 529.15 526.00 526.10 539.20

530.60 536.15 558.90 555.65 569.05 579.55 552.35 557.15 551.10 557.95 556.70 552.50 544.40 542.70 555.85 563.90 574.50 580.80 544.95 531.20 528.45 534.05 530.60 522.15 522.40 535.70 535.05

-1.7715 .02051 3.3816 -1.3137 2.0999 1.8031 -3.4670 -3.2038 -0.8074 -0.3674 0.4131 -1.3574 1.9562 0.2026 1.9519 07448 2.9068 0.9814 -4.9454 -3.5768 -1.7882 1.7133 -1.0082 -1.3406 -0.6891 1.7920 -0.7756

-0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814 -0.6814

1.0901 .8865 4.063 0.6323 2.7804 2.4845 2.7856 2.5224 0.126 0.314 1.0945 0.676 2.6376 0.884 2.6333 1.4262 3.5882 1.6628 4.264 2.8954 1.1068 2.3947 0.3268 0.6592 0.0077 2.4734 0.0942

1.1883 0.7858 16.5079 0.3998 7.7306 6.1727 7.7595 6.3625 0.0158 0.0985 1.1979 0.4569 6.9569 0.7814 6.9342 2.0340 12.8751 2.7649 18.1816 8.3833 1.2250 5.7345 0.1067 0.4345 0.0006 6.1177 0.0088

RETURN (R) = CLOSING PRICE OPENING PRICE CLOSING PRICE AVERAGE R = R N -23.1676 = -0.6814 34 VARIANCE = 1 COVARIANCE ( R- R )^2 N -1 1 161.974 34-1 = 4.9083 S.D = 2.215

100

44

THE RETURN GRAPH OF RELIANCE INFRASTRUCTURE

INTERPRETATION:- the above table shows the risk & return of reliance infrastructure.
where it has 3.38% highest returns and -4.9469% lowest return with an average returns of -68.14%.this firm is having a risk of 2.215.

MAHINDRA & MAHINDRA CO.

DATE 16-05-2011 17-05-2011 18-05-2011 19-05-2011 OPEN 689.00 671.50 675.80 677.90 CLOSE 672.65 670.50 670.40 676.15 RETURN( r) -2.4306 -0.1491 -0.805 0.2588 AVERAGE 0.1886 0.1886 0.1886 0.1886 R-R 2.6192 0.3377 0.9936 0.4474 ( R R)^2 6.8602 0.1140 0.9872 0.2001

45

20-05-2011 23-05-2011 24-05-2011 25-05-2011 26-05-2011 27-05-2011 30-05-2011 31-05-2011 01-06-2011 02-06-2011 03-06-2011 06-06-2011 07-06-2011 08-06-2011 09-06-2011 10-06-2011 13-06-2011 14-06-2011 15-06-2011 16-06-2011 17-06-2011 20-06-2011 21-06-2011 22-06-2011 23-06-2011 24-06-2011 27-06-2011

682.00 680.50 682.20 692.00 682.55 681.25 707.00 667.00 673.00 669.00 663.00 663.00 655.00 655.90 660.20 665.30 663.40 665.10 668.20 650.60 653.30 647.00 638.60 639.20 644.75 657.00 669.40

690.85 686.85 687.15 681.15 684.85 704.90 663.05 672.10 675.85 661.50 669.05 657.60 664.25 664.30 665.45 662.20 664.20 671.65 664.85 657.10 644.10 633.25 634.45 648.70 653.45 673.80 693.30

1.2810 0.9245 0.7203 -1.528 0.3358 3.3550 -6.6284 0.7588 0.4216 -1.1337 0.9042 0.8211 1.3925 1.2644 0.7889 -0.4681 0.1204 0.9752 -0.5038 0.9891 -1.4283 -2.1713 -0.6541 1.4644 1.3313 2.4933 3.4472 46

0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886 0.1886

1.0924 0.7351 0.5317 1.7814 0.1472 3.1664 6.817 0.5702 0.233 1.3223 0.7156 0.6325 1.2039 1.0758 0.6003 0.6567 -0.0682 0.7866 0.6924 0.8005 1.6169 2.3599 0.8427 1.2758 1.1427 2.3047 3.2586

1.1933 0.5415 0.2827 3.1733 0.216 10.0260 46.4714 0.3251 0.542 1.7484 0.5120 0.4000 1.4493 1.1573 0.3603 04312 0.0046 0.6187 0.4794 0.6408 2.6143 5.5691 0.7101 1.6276 1.3057 5.3116 10.6184

29-06-2011 29-06-2011 30-06-2011

692.50 696.00 693.10 107.6651

694.25 691.45 701.90

0.2520 -0.6580 1.2537

0.1886 0.1886 0.1886

0.0634 0.8466 1.0651

0.0040 0.7167 1.1344

RETURN (R) = CLOSING PRICE OPENING PRICE 100 CLOSING PRICE AVERAGE (R) = R = 6.4127 = 0.1886 N 34 COVARIANCE = (R-R) = 107.6651 VARIANCE = 1 COVARIANCE (R R)^2 N-1 = 1 107.6651 3.2625 S.D = 1.8062

THE REURN GRAPH OF MAHINDRA & MAHINDRA CO.

INTERPRETATION:- the above table shows the risk & return of Mahindra & Mahindra
co. where it has 3.44% highest returns and -6.62% 18.86%.this firm is having a risk of 1.80% lowest return with an average returns of

47

WIPRO
DATE 16-05-2011 17-05-2011 18-05-2011 19-05-2011 20-05-2011 23-05-2011 24-05-2011 25-05-2011 26-05-2011 27-05-2011 30-05-2011 31-05-2011 01-06-2011 02-06-2011 03-06-2011 06-06-2011 07-06-2011 08-06-2011 09-06-2011 10-06-2011 13-06-2011 14-06-2011 15-06-2011 16-06-2011 17-06-2011 20-06-2011 21-06-2011 22-06-2011 23-06-2011 24-06-2011 27-06-2011 28-06-2011 29-06-2011 30-06-2011 49.2676 OPEN 444.70 437.20 438.00 448.60 446.80 440.00 438.55 442.00 437.10 433.10 441.55 440.40 445.10 445.00 439.00 442.00 442.50 441.80 440.50 437.80 434.45 435.50 437.00 422.65 413.60 410.00 402.60 402.60 402.25 409.60 422.45 421.10 418.70 422.45 CLOSE 439.95 437.50 446.15 442.80 447.35 440.35 439.90 435.60 434.90 442.05 441.80 446.40 448.30 442.95 443.10 445.05 440.60 441.20 438.80 437.45 435.45 436.85 424.40 416.05 408.85 402.30 402.40 403.80 409.90 424.20 422.65 419.10 420.55 417.60 RETURN -1.0796 0.0685 1.8267 -1.3098 0.1229 0.0794 0.3068 -1.4692 -0.5058 2.0246 0.0565 1.3440 0.7138 -04628 0.9252 0.6853 -0.4312 -0.1359 -0.3874 -0.0800 0.2296 0.3090 -2.9688 -1.5863 -1.1617 -1.9139 -0.0497 0.2971 1.8663 3.4417 0.0473 -0.4772 0.4399 -1.1613 AVERAGE -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 -0.0116 R- R1 1.068 0.0801 1.8377 1.2982 0.1345 0.091 0.3184 1.4576 0.4942 2.0362 0.0681 1.3556 0.7254 0.4512 0.9368 .6969 0.4196 0.1243 0.3758 0.0684 0.2412 0.3206 2.9572 1.5747 1.1501 1.9023 0.0381 0.3087 1.8779 3.4533 0.0589 0.4656 0.4515 1.1497 (R-R1)^2 1.1406 0.0064 3.3771 2.5730 0.0180 0.0082 0.1013 2.1245 0.2442 4.1461 0.0046 1.8376 0.5262 0.2035 0.8775 0.4856 0.1760 0.0154 0.1412 0.0046 0.0581 0.1027 8.7450 2.4796 1.3227 3.6187 0.0014 0.0952 1.1618 11.9252 0.0034 0.2167 0.2038 1.3218

RETURN (R) = CLOSING PRICE OPENING PRICE 100 CLOSING PRICE AVERAGE (R) = R = -0.396 = -0.0116 N 34

48

COVARIANCE = (R-R) = 49.2676 VARIANCE = 1 COVARIANCE (R R) ^2 N-1 1 49.2676 34-1 = 1.4929 S.D = 1.2218

THE RETURN GRAPH OF WIPRO

INTERPRETATION:- the above table shows the risk & return of wipro. where it has
3.44% highest returns and -2.96% is having a risk of 1.22% lowest return with an average returns of 1.16%. this firm

HERO HONDA
49

DATE

OPEN

CLOSE

RETURN( r)

AVERAGE

R-R

R)^2 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 4.1441 3.0871 1.6255 2.1838 0.9023 0.4749 0.6011 0.7401 3.0924 1.3591 0.5394 0.5644 0.5687 0.6528 0.9963 0.9186 02.3611 4.1013 1.9665 1.7358 0.7249 0.3445 0.2533 -0.287 -0.0874 17.1735 9.5301 2.6422 4.7689 0.8141 0.2255 0.3613 0.5477 9.5629 1.8471 0.2909 0.3185 0.3234 0.4261 0.9926 0.8438 5.5747 16.8206 3.8671 3.0130 0.5254 0.1186 0.0641 0.0823 0.0076

16-05-2011 17-05-2011 18-05-2011 19-05-2011 20-05-2011 23-05-2011 24-05-2011 25-05-2011 26-05-2011 27-05-2011 30-05-2011 31-05-2011 01-06-2011 02-06-2011 03-06-2011 06-06-2011 07-06-2011 08-06-2011 09-06-2011 10-06-2011 13-06-2011 14-06-2011 15-06-2011 16-06-2011 17-06-2011

1778.00 1851.00 1804.15 1825.25 1785.00 1790.00 1800.00 1812.00 1818.00 1867.90 1854.00 1849.90 1845.10 1851.25 1872.00 1869.95 1868.70 1829.00 1768.90 1747.25 1715.00 1735.00 1735.35 1739.00 1726.10

1862.85 1802.75 1841.65 1793.45 1808.75 1788.85 1818.40 1806.05 1884.00 1850.35 1836.55 1854.75 1863.35 1871.15 1861.10 1860.50 1832.95 1763.90 1741.80 1724.40 1734.70 1736.15 1746.95 1736.85 1731.70

4.5548 -2.6764 2.0362 -1.7731 1.3130 -0.0642 -1.0118 -0.3294 3.5031 -0.9884 0.9501 0.9751 0.9794 1.0635 -0.5856 -0.5079 -1.9504 -3.6906 -1.5558 -1.3251 1.1356 0.0662 0.6640 -0.1237 0.3233

50

20-06-2011 21-06-2011 22-06-2011 23-06-2011 24-06-2011 27-06-2011 29-06-2011 29-06-2011 30-06-2011

1726.55 1747.00 1763.00 1732.05 1768.00 1833.10 1850.05 1844.00 1847.00 109.5512

1740.25 1762.35 1747.95 1763.20 1864.75 1852.20 1846.95 1898.95 1877.20

0.7872 0.8709 -0.8610 1.7666 5.1883 1.0312 -0.1678 0.2677 1.6087

0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228 0.4228

0.3765 0.4602 1.2717 1.3559 4.7776 0.6205 0.5785 0.143 1.198

0.1417 0.2117 1.6172 1.8384 22.825 0.3850 0.3346 0.0204 1.4352

RETURN (R) = CLOSING PRICE OPENING PRICE 100 CLOSING PRICE AVERAGE (R) = R = 14.3776 = 0.4228 N 34 COVARIANCE = (R-R) = 109.5512 VARIANCE = 1 COVARIANCE (R R) ^2 N-1 1 109.5512 34-1 = 109.5512 S.D = 1.8220

THE RETURN GRAPH OF HERO HONDA

INTERPRETATION:- the above table shows the risk & return of hero honda. where it
has 5.18% highest returns and -2.67% firm is having a risk of 1.78%
51

lowest return with an average returns of 42.28%. this

INFOSYS
DATE OPEN CLOSE RETURN( r) 16-05-2011 17-05-2011 18-05-2011 19-05-2011 20-05-2011 23-05-2011 24-05-2011 25-05-2011 26-05-2011 27-05-2011 30-05-2011 31-05-2011 01-06-2011 02-06-2011 03-06-2011 06-06-2011 2876 2848.40 2850.00 2859.70 2845.00 2847.85 2833.00 2827.70 2794.00 2760.00 2806.10 2793.00 2794.00 2780.00 2811.00 2822.00 2850.40 2844.15 2842.50 2846.45 2849.85 2837.05 2844.50 2788.65 2776.55 2787.50 2780.60 2785.65 2811.55 2803.05 2816.20 2837.90 -0.8981 -0.1494 -0.2638 -0.2898 0.1701 -0.3806 0.4042 -1.4003 -0.6284 0.9865 -0.9170 -0.2638 0.6242 0.8223 0.1846 0.5602 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.9335 0.1848 0.2992 0.3252 0.1347 0.416 0.3688 1.4357 0.6638 0.9511 0.9524 0.2992 0.5888 0.7869 0.1492 0.5248 0.8714 0.0341 0.895 0.1057 0.0181 0.1730 0.1360 2.0612 0.4406 0.9045 0.9070 0.895 0.3466 0.6192 0.0222 0.2754 AVERAGE R-R ( R R)^2

52

07-06-2011 08-06-2011 09-06-2011 10-06-2011 13-06-2011 14-06-2011 15-06-2011 16-06-2011 17-06-2011 20-06-2011 21-06-2011 22-06-2011 23-06-2011 24-06-2011 27-06-2011 28-06-2011 29-06-2011 30-06-2011

2830.05 2889.00 2881.50 2868.50 2848.50 2877.80 2861.75 2829.00 2800.10 2768.30 2723.00 2753.00 2750.00 2791.00 2831.65 2870.05 2868.00 2886.05 31.1062

2892.55 2871.70 2861.50 2862.35 2877.60 2872.30 2835.60 2800.30 2769.65 2709.55 2727.15 2755.05 2779.10 2859.95 2871.05 2865.30 2881.75 2910.45

2.1607 -0.6029 -0.6989 -0.2148 1.0112 -0.0019 -0.9222 -1.0248 -1.0994 -2.1682 0.1521 0.0744 1.0471 2.4108 1.3723 -0.1657 0.4771 0.8383

0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354 0.0354

2.1253 0.6383 0.7343 0.2502 0.9758 0.0373 0.9576 1.0602 1.1348 2.2036 0.1167 0.039 1.0117 2.3754 1.3369 0.2011 0.4417 0.8029

4.5169 0.4074 0.5391 0.0626 0.9521 0.0013 0.9169 1.1240 1.2877 4.8558 0.0136 0.0015 1.0235 5.6425 1.7873 0.0404 0.1950 0.6446

RETURN (R) = CLOSING PRICE OPENING PRICE 100 CLOSING PRICE AVERAGE (R) = R = 1.2066 = 0.0354 N 34 COVARIANCE = 31.1062 VARIANCE = 1 COVARIANCE ( R R)^2 N-1 1 31.1062 34-1 = 0.9426 53

S.D = 0.9708

THE RETURN GRAPH OF INFOSYS

INTERPRETATION:- the above table shows the risk & return of infoysis. where it has
2.41% highest returns and -2.16% lowest return with an average returns of 3.54%. this firm is having a risk of 0.97%

RETURNS

STATEMENT SHOWING COMPARITIVE

54

COMPANIES
Reliance Infrastructure Ltd Mahindra & Mahindra Wipro Ltd Hero Honda Ltd Infosys ltd

AVERAGE RETURNS*100
-68.14

RISK
2.215

18.86 -1.16 42.28 3.54

1.8062 1.2218 1.783 0.9708

AVERAGE RETURNS CALUCULATIONS OF DIFFERENT COMPANIES COMPANIES AVERAGE RETURN *100 - 68.14
55

Reliance

infrastructure ltd Mahindra & Mahindra Wipro ltd Hero Honda ltd Infosys ltd

18.86

- 1.16 42.28 3.54

Risk calculations of different companies COMPANIES

Reliance Infrastructure Ltd Mahindra & Mahindra Wipro Ltd Hero Honda Ltd infosys

RISK
2.15 1.8062 1.2218 1.783 0.9708

56

COMPANYS
Reliance Infrastructure Ltd Mahindra & Mahindra Wipro Ltd Hero Honda Ltd infosys

AVERAGE RETURNS*10 0
-68.14 18.86 -1.16 42.28 3.54

RISK

2.215 1.8062 1.2218 1.783 0.9708

57

CHAPTER-V FINDINGS AND SUGGESTIONS

FINDINGS
The present work has been undertaken to study the risk return relationships of different securities. During the project study the following fact have been identified.

1. Reliance infrastructure is having an average return is 68.14 % and its risk is 2.215%. 2. Mahindra & Mahindra is having an average return is 18.86 % and its risk is 1.8062%.

3. Wipro is having an average return is -1.16 % and its risk is 1.2218%. 4. Hero Honda is having an average return is 42.28% and its risk is 1.78%.

58

5. Infosys is having an average return is 3.54 % and its risk is .9708%.

SUGGESTIONS
After doing data collection & analysis the present project can be used to suggest the investors regarding securities returns & risk. The present project work enables us to suggest the investors to invest in the securities as follow in rank wise.

1. Reliance infrastructure ltd average returns 68.14%. 2. Hero Honda ltd average returns 42.28%. 3. Mahindra & Mahindra ltd average returns 18.86%. 4. Infosys ltd average returns 3.54%. 5. Wipro ltd average returns -1.16%.

CONCLUSION
According to my conclusion the project has been done on risk in investment arena and risk minimizing strategies risk is more than return or return is more than risk sometimes, we
59

cannot predict the risk in future so to avoid risk , every investor should take measures to avoid risk, by this we can minimize the risk and maximize the returns.

CHAPTER-VI BIBLOGRAPHY

60

BIBLIOGRAPHY

MAGAZINES BUSINESS WORLD MINT ECONOMIC TIMES OF INDIA WEBSITES:

[Link] [Link] [Link] [Link] [Link] [Link] [Link] [Link]

61