Finance Report Prepared by Amit Talwar MonaneeBharadwaj SanjanaAgrawal AnkitAgarwal AnkitJhunjunwala

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Seat No -18 E.No: 11BSPHH010490 SanjanaAgrawal Company: DLF limited Section H.No: 11BSPHH010127 2 .No: 11BSPHH010092 MonaneeBharadwaj Company: The Leela Group Section H.No: 11BSPHH010719 AnkitAgarwal Company: Kingfisher Airlines Section H. Seat No -37 E. Seat No -06 E.List of Group Members with Details (Study Group – 90) Amit Talwar Company: Unitech Limited Section H.No: 11BSPHH010123 AnkitJhunjunwala Company: Jet Airways Section H. Seat No -23 E. Seat No -71 E.

......................................................................................................................... 15 Kingfisher Group ...................... 17 Conclusion .......... 11 Relative Valuation: .................................................................................. 7 Beta Estimation ......... 9 Leverage Ratio................................................................................................................................................................................................ 11 Inter Industry analysis ...................... 13 Unitech Group................................................................................................................................................................................................................................................................. 13 DLF group ............................... 16 Jet Airways ......................................................................................................................... 14 The Leela Group ........................................................... 6 Beta Estimation and CAPM .............................. 4 Risk and Return Analysis ................. 7 Capital Asset Pricing Model (CAPM) ............................................................................................................................................................................................................................ 11 Relative Valuation Analysis ...................................................................................................................................... 9 Earnings per share (EPS): ................................................................................................................................................................................... 18 3 ............................................................................................................................................................................................................................. 8 Earnings Per Share..................................................................................................................................................................................................................... 10 Weighted Average cost of Capital...........................................................................................................................................................Table of Contents Introduction ................................................. Leverage Ratio and WACC analysis ..................................................

the banking sector has resorted to increase in interest rates to limit borrowing and money supply in the economy. Indian economy could not completely shield itself from the impact of the global economic recession. The Indian economy showed initial signs of recovery in early 2009. with some changes in investor preference and banking sector reactions. Over the past two years the Indian economy has witnessed quite a few macro variations. global economy was declared in the state of recession.S. Initiated due to the U. so as to increase the money supply in the economy and ensure continuity of investment. companies were going bankcrupt due to lack of cash inflow and jobs security was non-existant. the interest rates were lowered till mid 2009. Lets look at some the changes witnessed by the Indian economy in the past couple of years. which has been due to easy availibility of funds.Introduction The year 2008 was a year of turmiol for the global financial markets. due to high level of inflation in the economy. As reflected from the chart below. Interest rates and inflation changes: Indian banking syterm has witnessed drastic variation in the interest rate patterns during the last two years. 4 . onwards Indian economy has been facing rising concers over increase in inflation. the banking systerm has completed revised its lending pattern by increasing interest rates. This move was primarily driven by the GOI policy of lowering interest rates especially for priority sector. Mid 2010. 1. The initial response of the Indian government (GOI) was to first restrict the impact of the global economic crisis on the Indian economy and then undertake recovery measures. During the last 6-8 months though. Stock prices were decling. primarily reasonsed as a sub prime crisis. With market showing an upward movement. and the Indian financial syterm also suffered in huge proportions. To restirct this price rise. and positive sentiments resulted in individual and institutions investors ploughing their money back into the financial sector. This was the period when investementactivity in the stock market and sectors like real estate witnessed some inflow of funds from the investors. investors were reluctant to invest. investor confidence started to build again. debt crisis. due to excessive spending.

An increasing price trend for both these commodities is a reflection of high demand for such metals in the Indian market. In light of the above mentioned macro-economic changes and trends witnessed in the Indian economy. the RBI has regularly varied its repo rates to control the flow of funds to commercial banks. Kingfisher Airlines and Jet Airways. Since 2006. This also has been used as a key policy instrument for controlling inflation. RBI has consistently increased its repo rates. Repo Rates in India 3. It can be observed that since Q1 2010. The report looks at understanding the risk and return aspects of each company. The trend of increase in gold and silver prices is reflected below. In the past two years. with emphasis on the beta of these securities in the market. From a company point of view the report covers aspects like cost of equity and weighted average cost of capital (WACC) for each of these sectors. which currently stands at 8%. 5 .r. Changes in prices of Gold and silver: There has been shift in the way an Indian investor thinks of gold and silver in India.t to intra and inter industry portfolio. and finally. Changes in Repo rates: Repo rates are rates at which the Reserve Bank of India (RBI) lends money to commercial banks in India to meet their short term fund requirement. from an industry point to look at an investor and his/her portfolio diversification strategy w. this report focuses on comparing five companies namely Unitech Limited. These commodities are ranked lower when it comes to risk associated in investment as compared to the financial markets.2. DLF limited. The growing preference for these commodities is reflected in an increasing buying activity for these metals in the commodity market. Indian buyers have consider gold and silver as investment commodities along with its traditional status of ornamental utility. The Leela Group.

Jet airways has yielded a high return while Kingfisher has yielded negative return. Unitech and DLF both belonging to the real estate sector have negative expected return. This shows that the real estate sectors as a whole is not performing well and has still not gained investor confidence in terms of drawing substantial investment to drive the share prices northwards.29% In the year mid FY 10 the market as a whole was on a recovery phase after a recession that hit the global markets in year 2008.94% 75. In 2009-10.81% Risk (SD) 3. Though. it also serves as a hedge for two reasons -1) it is giving positive return when major securities are in a downward trend. shows that this sector is not performing as per expectations in terms of increase in share prices and hence Jet has outperformed other securities in this sector making it a good choice for investment. A comparison of other securities such as from this sector. Real Estate and Hospitality and the firms under consideration are Unitech Limited.17% 3. This explains why most securities have negative expected return. and 2) it has the least risk (is deviation on its return).22% -30. Our analysis focuses at three major sectors namely Aviation.07% 3.Risk and Return Analysis This section discusses the risk and return aspects of the below listed 5 companies. due to debt crisis in United States the market is tending towards another phase of slowdown and security prices are falling due to speculation and investors losing confidence on their investment.DLF would be more preferable as it has lesser risk as compared to Unitech in the real estate spectrum.48% 37. The data used for these calculations is daily stock prices for these securities for a period ranging from 1st August 2009 to 31st July 2011. From the given set of companies we can also conclude that the impact of the global crisis on the real estate sector and aviation were quite high. Kingfisher and Jet airways belong to aviation sector. DLF.08% 2.689% -42. Risk and Return Inter Company Company Name Unitech DLF The Leela Kingfisher Jet Airways Expected Return (Ri) -67. the besides the financial sector. Kingfisher Airlines and Jet Airways. In recent time. If the investor is interested in the above securities as a part of a portfolio investment . The Leela. real estate was 6 .50% 2. The LeelaGroup has the best expected return and also the least risk on return therefore making it the best choice for any rational investor among the given set of securities.

it can be observed that Unitech.also among the sectors badly affected by the downturn. With companies cutting down on travel plans and individuals shifting to cheaper alternatives. Similarly.54 1. Unitech and DLF both belonging to the real estate sector. Property purchases had declined due to lack of funds. For an investor. who is a risk taker. reflecting an industry aggregate beta value for real estate. the share prices and return expectations for these companies will change by a greater proportion as compared to the growth in the market security. which in turn resulted in low buying of shares by the investors. have beta values quite close. hospitality and aviation sector. business activity in the aviation sector was low. But among all the economicl turmoil. corporate and retail leasing activity was low due to cancellation of expansion plans by corporates and retail brands hence leading to low profitability. It also reflects a consistent beta for the industry as a whole. there is a different preference for security based on beta values. as calculated from the company’s data for the last two years.07 1. With fluctuations in the market security. and is looking to maximise his/her return will prefer a security with a higher beta.69 DLF 1. which in turn resulted in poor performance of players like Kingfisher and Spice Jet. the return expectations for all the securities are bound to grow above the market average. with a positive growth in the market security. aviation was also affected during the same time period. This explains the expected change in return expectations of individual securities with 1% change in return of the market security.5 Beta Coefficient Leela Kingfisher Jet Airways 1. Jet airways still managed to witness growth in its share price over the last two years resulting in a positive expected return on the company’s shares. For different class of investors and for different market conditions. his security will grow at a higher proportion. Unitech 1. This is because as market security grows. The highest beta value for Unitechindicatesthe highest sensitivity of this security with the market as compared to the other companies in the real estate.15 βUnitech >βKF>βDLF>βJet>βLeela From the above table. A positive beta value as is the case represented in the table below signifies that. a real estate company has the highest beta values. Beta Estimation and CAPM Beta Estimation Beta value is the sensitivity of individual securities to market securities. Kingfisher ranks second among the above set of companies followed by DLF group. 7 .

based on beta values from the above set of securities.Jet Security Market Line . As among the above set of securities. the resultant impact on the investors’ security will be equal to or less than one.Unitech Security Market Line .59% Jet Airways 15. In such a market condition an investor.59% Ri (Jet) – 15.69 Beta of a Security Using the beta estimates. who is given a choice between the above set of securities will prefer Unitech as one of the options or Kingfisher as the second option. To arrive at the cost of equity of each of these firms.KF Cost of Equity Company Ke % Unitech 18. we first assume that all assumptions related to CAPM model hold true.33% Ri (Leela) – 14.This is because as market portfolio will decline. there are a lot of negative sentiments among the investors and mostly there is selling activity visible in the stock market. It has been assumed that an investor will invest in any of the companies for a long period of time close to day 10 years.83% DLF 17. we can work on the CAPM model to arrive at the return expectations for an investor or the Cost of Equity for each of above mentioned firms. To use the CAPM model. the investor is bound to gain higher than the growth of the market. Similarly.5 β =1.83% Ri (DLF) – 17.0907% 0 β=1 β=1.DLF Security Market Line . investors would prefer securities with lower beta values.78% Ri (KF) – 17.83% Ri (Unitech) – 18. When the stock market is on the rise and investors are bullish. then in that case there is a lot of buying happening in the security market due to the growth expectations of the investors. we have considered the Risk free rate of return to be similar to a 10 year G-sec bond issued by RBI to be matured in 2019. beta value for The Leela hotel is close to one. preferably with beta values close to or lower to 1.78% Kingfisher 17.Preference for a security based on beta values also changes with respect to changing market condition. Capital Asset Pricing Model (CAPM) Expected Return Capital Asset Pricing Model (CAPM) Security Market Line . 8 . This is because as beta for Unitech is the highest and asthe market is expected to grow. it will act as the most preferred security. when value of the market portfolio is declining. Market rate of return (Rm) is calculated on the bases of the market security.83% Rm – 14.33% Leela 14.Leela Rf – 8.39% Security Market Line . in a market situation.

but a CAPM analysis among sectors can give him a first-hand impression of the equity cost structure in each of the sectors discussed in our report namely. real estate.59%.87 -93.54 -18.67 -51.For an investor. Well his or her investment decision will be based on a number of factors.69 Kingfisher -55. Earnings Per Share. hospitality and aviation. real estate is one of the most expensive sectors in terms of equity cost in India. The Leela hotel has the lowest beta and cost of equity amongst the set of companies mentioned above.00 Year Mar ' 07 Unitech 11.49 Mar ' 07 -50. based on the market data for the last two year. Unitech has the highest cost of equity of 18.05 Mar ' 08 4.00 -200.43 6./share) -100.53 -70.10 3. Global recession.00 Unitech DLF Leela Jet Airways Kingfisher 9 .68 3. Leverage Ratio and WACC analysis Earnings per share (EPS): Earnings Per Share is a portion of the company’s profit allocated to each outstanding share of the common stock.95 9. return expectation in the hospitality sector in India also witnesses a lot of seasonality and the performance of the sector is based on a number of external factors. Calculated as: = NET INCOME – DIVIDEND ON PREFERRED STOCKS OUTSTANDING SHARES EPS (Rs. It can be inferred that companies in the real estate sector have a higher cost of equity capital as compared to the peer companies in other sectors.97 1. a company in the same league of operations has a cost of equity of 17. Earnings per share serves as an indicator of company’s profitability. Secondly.18 1.65 Leela 2. growing competition and seasonal demand are few factors which effect the performance of the hospitality sector in India and eventually leads a lower return expectation. Both domestic and foreign investors evaluating investment decisions based on the above CAPM figures can conclude that in terms of cost of equity.21 -18.11 4.36 2. in terms of setting up of operations.00 -150.24 -60. terror attach. amongst the set of securities chosen for our analysis.14 1.12 -18.04 -192.06 Jet Airways -25. CAPM figures act as a good guide for an investor who is looking into investment into the sectors.00 Mar ' 08 Mar ' 09 Mar ' 10 Mar ' 11 EPS (Rs.17 15. Even DLF group./share) 0.78%. the cost of equity is the translation of beta expectations in to return expectations. Given the past two years of data.64 Mar ' 09 Mar ' 10 Mar ' 11 4.01 DLF 2.

it can be observed that the EPS of DLF and The Leela rose in 2008 and 2009 from 2007 and then again came down in the subsequent years.00 12.98 1.00 Company Mar ' 07 Unitech 3. financial leveraging makes companies equally susceptible to greater decrease in earnings if profit drops.80 5. 10 . equity.28 12. There are several different ratio but the main factors looked at include debt. Jet Airways on the other hand increased leveraging and then decreased it in 2011.39 Jet Airways 2.38 Mar ' 08 3. The continuous negative EPS by Jet Airways and Kingfisher implies companies incurring losses(negative earnings) having an undefined P/E ratio.95 Mar ' 09 Mar ' 10 Mar ' 11 2. An increase in operating profit will result in a high earning.00 0.74 2. has been focusing on lowering its debt liability which has been one of the factors for its lower EPS. Besides as observed from Kingfisher’s balance sheet that the company has been increasing its long term debt and utilizing its cash inflow to maintain a negative reserves and surplus account by excessive drawings from that account.From the table.18 - 16.00 8.61 16.11 DLF 10.77 0. This signifies either lower margin comparatively or other diversification. assets and interest expense.00 Ratio 10.62 0. In case of Unitech we see that the company is moderately deleveraging from 2008 leading to a significant decrease in risk of defaulting and also looking at equity as a major source for project funding.00 14.00 6.79 0.49 3.69 0. Leverage Ratio Leverage Ratio is the ratio used to calculate the financial leverage of a company to get an idea of the company’s method of financing or to measure its ability to meet financial obligation.48 4.49 4. expansion and modification plans or other obligations increasing.37 Leela 1.00 4.88 Kingfisher 2.09 3.84 6. In case of DLF we see that there was drastic deleverage from 2007 to 2008 and then a consistency is maintained in the subsequent years. Unitech’s EPS is constantly falling. Leverage Ratio 18. Unitech since 2008.00 Mar ' 07 Mar ' 08 Mar ' 09 Mar ' 10 Mar ' 11 Unitech DLF Leela Jet Airways Kingfisher From the above table/chart we observe that The Leela is moderately increasing its leverage and thus increasing debt liability and interest pay-outson its operating profits. nevertheless. due to which a leverage ratio for this company cannot be determined. For kingfisher the leverage ratio of three years are not available due to negative return. The company has allocated some portion of its profits to repay debts and pay lower dividends to its shareholders.59 0.00 2.

e. Relative Valuation Analysis Relative Valuation:  In relative valuation.Leela. It might be possible that the company’s return is less than its Koi. the value of an asset is compared to the values assessed by the market for similar or comparable assets.70% 5. Weighted average cost of capital Unitech DLF Leela Kingfisher Jet Airways 13. equity holders and lenders can expect.62% 7. Seeing the above facts an investor would like to invest preferably on Jet Airways rather than Unitech but if Unitech is able to provide its investors with a higher return for increased risk than its still is a favourable option for investors. the company is shedding value which is an indication for the investors to put its money elsewhere.Weighted Average cost of Capital The Capital funding of the company is made up of two components: Debt & Equity. In other words it tells us much interest and dividend the company has to pay for every rupee it raises. Lenders and equity holders each expect a certain return on the funds or capital they have invested or provided. 11 .  To do relative valuation then. The cost of capital is the expected return to equity owners and debt holders. followed by DLF . so weighted average cost of capital or WACC tells us the return that stakeholders.32% WACCUnitech >WACCDLF>WACCKF>WACCLeela>WACCJet From. Kingfisher & Jet Airways.13% 8. Keeping other parameters equal the WACC of a firm also increases as Beta and return on equity increases. A higher cost signifies a higher risk for the company as well as for the investors because as a rational investor one would always like to invest in a company which is at a lower risk and a higher WACC says that a company is expected paying higherreturnon its funds. the investors’ point of view Ko is important because it tells the investors about the cost of capital of the company which can be used as a hurdle rate to assess the return on capital investment of the company.21% 9. From the company’s point of view Ko is important because it helps the company determine the economic feasibility of expansionary opportunities and mergers apart from indicating the necessary changes that needs to be incorporated in the overall capital structure of the Company.  We need to identify comparable assets and need to obtain market values for these assets. From the above table we can analyse that the cost of capital of Unitech is the highest.

and with rates so low.276 In the table we have two different values of the company assets based on two different valuation methods. 2. 3. The 12 .164. bonds simply can’t continue their past gains. Investors are finally putting money back into the stock funds. The reasons can be many.  Convert these market values into standardized values. They poured money in 2007. its true earning potential surface. This led to inflow of funds in the financial market and volume buying of some stock resulting in value appreciation and over valuation. the value of each equity share of different companies has been estimated to fall in this range.51 .52 32. and Jet Airways are overvalued. Bonds are the alternative to stocks. to judge whether the asset is under or over valued Company Name Unitech DLF The Leela Kingfisher Jet Airways Current Market Price (Rs. since the absolute prices cannot be compared. to list a few1.0 26.) 20. Taking into consideration the current market prices.6 38.56 .6 Relative Valuation (Rs. This process of standardizing creates price multiples. and are now back in. On a comparative basis in the current market. Compare the standardized value or multiple for the asset being analyzed to the standardized values for comparable asset.04 26.95 116.47-27.32 . As towards the end of 2009 the Indian economy started recovering experts unanimously predicted greater years ahead. DLF. The technical indicators on these securities do not justify the current prices and a rationale investor would prefer to sell the stock when the prices are high as the overvalued stocks might generate a lofty profit for a while but eventually when company’s fundamentals even out.72 275 . pulled it out in droves in 2008 and 2009 after the bottom fell out.9 290.43. it is observed that none of the companies’ share prices are undervalued whereas the share prices of Unitech. The lower limit and the upper limit is calculated based on earning and value multiples.3 199. controlling for any differences between the firms that might affect the multiple. the price of the share might reflect its true value.) 28.23.

The following section will focus on analysing an investor’s investment decision starting from a single security portfolio. But among all one of the most crucial factor is the return expectation of investor accompanied by the associated risk. If the investor feels this security to be very risky and poor on returns and want to diversify his portfolio the first option he has is to diversify intra industry. the choice of firm in a given sector.15% 2.16% 2. the expected return of Unitech works out to be -67.64% 0. Value of security fluctuates as the value of market portfolio changes.current share prices of The Leela and Jet Airways falls within the range indicating neither undervaluation nor overvaluation considering the comparison base is justifiable. The sector that he or she wants to invest in. to a two security portfolio.71% 2. It also summaries the intra industry comparison of portfolio diversification.654%.87% 2. Based on the last two years daily data of Unitech share prices.74% 2. as in how does an investor risk gets reduced when he or she diversifies the portfolio from single security real estate to intra real estate portfolio and then to portfolios inter industry.16% and also has reduced his risk expectations by 0. So to overcome the risk associated with security investments.22% Diff Industry Portfolio (Unitech and Spice) -7. 13 .654% Diff Industry Portfoli (Unitech and Oriental Hotel) -76.08% 0 Same Industry Portfolio (Unitech and Sobha) -24. Single Security Portfolio (Unitech) -67. Inter Industry analysis Unitech Group For an investor.64% 1.348% 0. The above table summarises the comparison of an investor’s portfolio mix. starting with Unitech. as investor sentiments changes. whether he or she wants to diversify the portfolio or opt for a single security investment. investment decision is based on a number of factors.351% 2.08%. By doing so he has improved his expected return to -24. Every investor wants to maximise return on investment along with minimising his risk. intra and inter industries. an investor seeks to diversify his/her portfolio into two or more securities within the same industry or inter industries.08% 3. So he can opt for Sobha Developers as another company.69% and risk is about 3.85% Parameter Expected Return (Ri) Risk (SD) (equal share) Risk (SD) (MVP) SD Reduction (Total) . This section presents an analysis of how an investor diversifies his/her investment into different portfolios.69% 3.

74%.56% Same Industry Portfolio (DLF and ANANTRAJ) -42.21% 2. Also it would have led to a 0. with moderate risk levels.163% 6.215% 2.50% 2. In our case the available choice for him is either hospitality sector or aviation sector.69% 2. choice of industry. This portfolio would have maximised his return expectations. he stands to gain a now his return expectation in close to – 7.10% 2. By opting for a portfolio comprising of real estate and hospitality firms. If an investor was given a choice to select a portfolio given in the table above a portfolio comprising of firms from the real estate sector and aviation sector could be a feasible option. consisting shares of Unitech and SpiceJet. Even though there is not much change in his return we can see that there is a reduction of risk upto 6.26% 0.Finally from the given set of securities. The primary objective of any investment is to gain return. As a rational investor one would always want to increase his return with minimum risk.580% Diff Industry Portfoli (DLF and ORIENTAL HOTEL) -64.42% but his returns marginally changes to 42. Single Security Portfolio (DLF) -42.15%. firm and portfolio is a crucial factor.93% Parameter Expected Return (Ri) Risk (SD) (equal share) Risk (SD) (MVP) SD Reduction (Total) In order to mitigate risk investors generally invest in different portfolios so that the negativity in one investment can be offset by positivity in another.26% 0.58%. which have witnessed a high decline in share prices in the last two years.24% 1. But if the investor diversifies into real estate and aviation. the investor has the option of diversifying his portfolio inter industry. So for an investor. From the table above we can see that when an investor invests in a single portfolio his return is -42.85% risk reduction as compared to a single portfolio investment.10% which is less than when it only invested in real estate industry but the combination of aviation 14 . Generally investors are risk averse but there can be other category of investors whom we classify as risk takers but with increase risk there is always a demand of higher compensation. we see that when the investor tries to increase its return by making some investment in hotel industry it was not a rational decision as the portfolio gives return of 64. Investors can further mitigate their risk by investing in different industries because factors affect differently different industries.32% Diff Industry Portfolio (DLF and SPICEJET) -5. that effects his risk and return expectations.54% 1.85%. the return expectations for the investor worsens as his expected return goes up to – 76. DLF group There are many factors which affects investors’ decision to invest in a security.48% 1.21% when he invests in two securities belonging to same industry. This is because the portfolio comprises of two securities.49% 2. This portfolio will also result in reduction of investment risk by 0.

Kingfisher which is continuously giving a negative return. It is quite an important factor as the length of the time directly affects the ability to reduce risk.22% 1. Single Security Portfolio (The Leela) 37.98% 0. But now if we observe considering the aviation industry i.89% 0.36% 1.10% 2.e.40% 28. Retirees who depend on their investment portfolio for regular income would prefer a consistent payout whereas a young investor would basically prefer return that tends towards growth. The table summarizes an inter-industry comparison showing how diversifying your portfolio over the industry can help recovering easily from a loss (negative earning) security of a company and its respective industry might be facing a downfall.. nature of industry.5% also there is a reduction in risk upto 0.1.00% 0. return needs and the investment time horizon.and real estate industry enhances its return upto -5. At times diversifying risk can affect investors negatively also which we saw when the investor chose wrong portfolio and invested in hotel and real estate. The time horizon starts when an investor puts in the money and ends when he is needed to take it out.60% 2.64% Parameter Expected Return (Ri) Risk (SD) (equal share) Risk (SD) (MVP) SD Reduction (Total) From the above table we can observe how risk and return of an investment changes as we diversify and select a portfolio of securities instead of investing in just one security. An aggressive investor does not hesitate to take a higher risk for higher returns. Based on past two years data we can observe that investment only in Leela is quite profitable compared to other portfolios taken into consideration.36% 0 Same Industry Diff Industry Diff Industry Portfolio (Leela Portfoli (Leela and Portfolio (Leela and Oriental) Sobha) and Spice Jet) -24.30% 1. Risk refers to the volatility of the portfolio’s value. a 15 .97% 1.93%. expected return risks and etc. Return needs refers to whether the investor needs to emphasize on growth or income. The Leela Group There are multiple things that an investor takes into consideration while taking an investment decision. whereas a risk averse is a conservative investor who tries to reduce it.30% 2. So from the above analysis we can conclude that investors need to decide on its investment decisions very rationally keeping in mind the economic factors.65% 3. The most vital factors that affect the decision making are: risk tolerance.08% 1. Even though the returns have been negative but this is because the recent economic factors have affected the real estate and other sectors badly.

36% 2. In the real market scenario an investor will have a multiple number of choices and thus after scrutinizing the various conditions can take a wise investment decision and thus maximizing its returns.82% 2. From the above observation if an investor decides to diversify he should consider the combination of The Leela and Sobha as it gives the maximum return and has the minimum risk.77% 0. Investment is a risky decision and we cannot assure our predictions to be correct every time.72% different industry different industry portfolio (3) portfolio (4) -5. Kingfisher Group Parameter Return Risk -sd (equal share) Risk -sd (mvp) Risk reduction (total) single security portfolio (1) kingfisher -30.87% 2. As the companies and industries considered are quite limited.78% 2.07% 0 same industry portfolio (2) 11. Therefore comparing kingfisher against other possibilities to reduce risk and maximize returns. The company in focus in this sub-section is kingfisher hence I shall assume that the investor is interested in kingfisher as a priority. the analysis could not give a fair picture of a good portfolio management. The returns of considered securities have been negative in most cases.21% kingfisher+spicejet kingfisher+sobha kingfisher+oriental Multiple portfolio analysis is the comparison of risk and return which an investor can expect by diversifying his investment into various securities.94% 3.07% 3.32% 0.diversification of investment in the hotel industry i. Intra industry is the diversification into securities within the same sector while inter sector is diversification into securities of different sectors. The Leela helped in recovering and earning a positive return.23% 2. there are chances of every company or the respective industry may descent.32% 2.68% -58.65% 1. Hence a rational investor should give more significance to risk mitigation than returns. 16 . From the minimum variance portfolio calculation we can further mitigate risks as it suggest the ideal weight to assign in a particular security.intra sector and inter sector. This can be of two types. so to be on a safer side diversifying can be a rational decision as due to various micro and macro-economic factors. The data taken for the analysis is of 1st August 2009 to 31st July 2011. which could have been reverse in an outperforming market.e.

The second portfolio combination (kingfisher + oriental) has a negative return of -58. Jet Airways Single portfolio Jet airways 75. Therefore in the present scenario portfolio 2 is the best option but for a longer term/different market scenario portfolio 3 is also a good option.94% and has a risk of 3. If the investor feels this security to be very risky and want to diversify his portfolio the first option he has is to diversify intra industry.Kingfisher has given a negative return/loss of -30. So he can opt for 17 .81% and risk is about 3. This section presents an analysis of how an investor diversifies his/her investment into different portfolios.30% 3. The investor can diversify either through intra-sector or inter-sector securities.77%.36% and risk of 2.81% 3. Intra sector – for this a combination of kingfisher and spicejet from aviation sector has been taken.07% which is the highest from amongst the available options.01% 2. starting with Jet Airways.30%.18% 2.78% Mixed Portfolio Jet Airways and DLF -37. Inter sector – for this there are two options available. the expected return of Jet Airways works out to be 75.18% 0.98% 1.30% 0 Same Industry portfolio Jet Airways and spice jet 64. Even then it not the safest option because it is not shielded from the sector specific risk.Single security portfolio. Based on the last two years daily data of Jet Airways share prices.87% 0. It also summaries the intra industry comparison of portfolio diversification.68% Mixed Portfolio Jet Airways and Indian Hotels -10. The first combination (kingfisher + sobha) has the least risk and minimum negative return of -5.23% and has a lower risk than the single security portfolio at 2.65% not making it a very viable option. as in how does an investor risk gets reduced when he or she diversifies the portfolio from single security Aviation to intra Aviation portfolio and then to a portfolio inter industry. Thus there is a dire need of diversification to minimize the risk and loss. This combination has provided the maximum return of 11.87% Parameter Expected Return (Ri) Risk (SD) (Equal share) Risk (SD) (MVP) Risk reduction (Total) The above table summarises the comparison of an investor’s portfolio mix.82% 2.78% (which can be acceptable when the market is down performing) making it one of the preferred portfolio options.38% 1.98% 0.61% 2. First the combination of kingfisher and sobha from the aviation and real estate sector respectively and second the combination of kingfisher and oriental from the aviation and hospitality sector respectively.

Spice jet as another company. From a company’s point of view the report summarises aspects of CAPM based cost of equity and weighted cost of capital analysis and some performance indicators in terms of leverage ratios and EPS.01 %. he is better off in terms of an inter industry portfolio. beta value of each security. But by doing so his expected return would come down to 64. the return expectations for the investor worsens as his expected return goes up to – 37. one which have witnessed a high decline in share prices in the last two years. Investment in the intra industry spice jet will reduce the risk and a rational investor one should go for intra – industry investment. the investor has the option of diversifying his portfolio inter industry. If an investor was given a choice to select a portfolio given in the table above a portfolio comprising of firms from the Aviation Industry would be feasible option.87%.61% but his risk expectation will be reduced by 0. This is because the portfolio comprises of two securities. In the present scenario we can see from the table that if an investor goes for the intra industry investment his/her expected return is positive and better than the investment in other sectors. Investment in the intra – industry would further reduce the risk by 0. Given the set of companies. that effects his risk and return expectations. as now his return expectation in close to – 10. The single investment gives the maximum expected return of 75. this report summarises crucial investment decision making aspects such as risk and return from a security. Finally from the given set of securities. This portfolio will also result in reduction of investment risk by 0. So for an investor. firm and portfolio is a crucial factor. Conclusion The above report summarises various aspects of financial decision making from an investors’ point of view.78%. 18 . Finally the report also compares market value of the five companies with respect to their relative valuation to arrive at range to determine.38 %. By opting for a portfolio comprising of real estate and aviation. choice of industry.78%. whether the securities are overvalued or undervalued. But if the investor diversifies into Aviation and Hospitality. In our case the available choice for him is either hospitality sector or Real Estate sector. portfolio diversification.81 % but is highly risky.

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