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Finance Report Prepared by Amit Talwar MonaneeBharadwaj SanjanaAgrawal AnkitAgarwal AnkitJhunjunwala

List of Group Members with Details (Study Group 90) Amit Talwar Company: Unitech Limited Section H, Seat No -06 E.No: 11BSPHH010092

MonaneeBharadwaj Company: The Leela Group Section H, Seat No -71 E.No: 11BSPHH010490

SanjanaAgrawal Company: DLF limited Section H, Seat No -37 E.No: 11BSPHH010719

AnkitAgarwal Company: Kingfisher Airlines Section H, Seat No -18 E.No: 11BSPHH010123

AnkitJhunjunwala Company: Jet Airways Section H, Seat No -23 E.No: 11BSPHH010127

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

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

2. 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. Since 2006, the RBI has regularly varied its repo rates to control the flow of funds to commercial banks. It can be observed that since Q1 2010, RBI has consistently increased its repo rates, which currently stands at 8%. This also has been used as a key policy instrument for controlling inflation. Repo Rates in India

3. Changes in prices of Gold and silver: There has been shift in the way an Indian investor thinks of gold and silver in India. In the past two years, Indian buyers have consider gold and silver as investment commodities along with its traditional status of ornamental utility. These commodities are ranked lower when it comes to risk associated in investment as compared to the financial markets. The growing preference for these commodities is reflected in an increasing buying activity for these metals in the commodity market. The trend of increase in gold and silver prices is reflected below. 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, this report focuses on comparing five companies namely Unitech Limited, DLF limited, The Leela Group, Kingfisher Airlines and Jet Airways. The report looks at understanding the risk and return aspects of each company, 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, and finally, from an industry point to look at an investor and his/her portfolio diversification strategy w.r.t to intra and inter industry portfolio.

Risk and Return Analysis


This section discusses the risk and return aspects of the below listed 5 companies. 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.
Risk and Return Inter Company Company Name Unitech DLF The Leela Kingfisher Jet Airways Expected Return (Ri) -67.689% -42.48% 37.22% -30.94% 75.81% Risk (SD) 3.08% 2.50% 2.17% 3.07% 3.29%

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. In recent time, 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. This explains why most securities have negative expected return. Our analysis focuses at three major sectors namely Aviation, Real Estate and Hospitality and the firms under consideration are Unitech Limited, DLF, The Leela, Kingfisher Airlines and Jet Airways. 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. Though,DLF would be more preferable as it has lesser risk as compared to Unitech in the real estate spectrum. Kingfisher and Jet airways belong to aviation sector. Jet airways has yielded a high return while Kingfisher has yielded negative return. A comparison of other securities such as from this sector, 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. 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. If the investor is interested in the above securities as a part of a portfolio investment , it also serves as a hedge for two reasons -1) it is giving positive return when major securities are in a downward trend, and 2) it has the least risk (is deviation on its return). 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. In 2009-10, the besides the financial sector, real estate was

also among the sectors badly affected by the downturn. Property purchases had declined due to lack of funds, corporate and retail leasing activity was low due to cancellation of expansion plans by corporates and retail brands hence leading to low profitability, which in turn resulted in low buying of shares by the investors. Similarly, aviation was also affected during the same time period. With companies cutting down on travel plans and individuals shifting to cheaper alternatives, business activity in the aviation sector was low, which in turn resulted in poor performance of players like Kingfisher and Spice Jet. But among all the economicl turmoil, Jet airways still managed to witness growth in its share price over the last two years resulting in a positive expected return on the companys shares.

Beta Estimation and CAPM


Beta Estimation
Beta value is the sensitivity of individual securities to market securities. This explains the expected change in return expectations of individual securities with 1% change in return of the market security. A positive beta value as is the case represented in the table below signifies that, with a positive growth in the market security, the return expectations for all the securities are bound to grow above the market average.

Unitech 1.69

DLF 1.5

Beta Coefficient Leela Kingfisher Jet Airways 1.07 1.54 1.15

Unitech >KF>DLF>Jet>Leela
From the above table, it can be observed that Unitech, a real estate company has the highest beta values, as calculated from the companys data for the last two years. The highest beta value for Unitechindicatesthe highest sensitivity of this security with the market as compared to the other companies in the real estate, hospitality and aviation sector. Kingfisher ranks second among the above set of companies followed by DLF group. With fluctuations in the market security, the share prices and return expectations for these companies will change by a greater proportion as compared to the growth in the market security. Unitech and DLF both belonging to the real estate sector, have beta values quite close, reflecting an industry aggregate beta value for real estate. It also reflects a consistent beta for the industry as a whole. For different class of investors and for different market conditions, there is a different preference for security based on beta values. For an investor, who is a risk taker, and is looking to maximise his/her return will prefer a security with a higher beta. This is because as market security grows, his security will grow at a higher proportion. 7

Preference for a security based on beta values also changes with respect to changing market condition. 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. In such a market condition an investor, 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. This is because as beta for Unitech is the highest and asthe market is expected to grow, the investor is bound to gain higher than the growth of the market. Similarly, in a market situation, when value of the market portfolio is declining, there are a lot of negative sentiments among the investors and mostly there is selling activity visible in the stock market, investors would prefer securities with lower beta values, preferably with beta values close to or lower to 1.This is because as market portfolio will decline, the resultant impact on the investors security will be equal to or less than one. As among the above set of securities, beta value for The Leela hotel is close to one, it will act as the most preferred security, based on beta values from the above set of securities.

Capital Asset Pricing Model (CAPM)


Expected Return

Capital Asset Pricing Model (CAPM)


Security Market Line - Unitech Security Market Line - KF

Cost of Equity Company Ke % Unitech 18.78% Kingfisher 17.83% DLF 17.59% Jet Airways 15.33% Leela 14.83%

Ri (Unitech) 18.78% Ri (KF) 17.83% Ri (DLF) 17.59% Ri (Jet) 15.33% Ri (Leela) 14.83% Rm 14.39%

Security Market Line - DLF Security Market Line - Jet Security Market Line - Leela

Rf 8.0907%

=1 =1.5 =1.69

Beta of a Security

Using the beta estimates, 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, we first assume that all assumptions related to CAPM model hold true. To arrive at the cost of equity of each of these firms, 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. 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. Market rate of return (Rm) is calculated on the bases of the market security.

For an investor, the cost of equity is the translation of beta expectations in to return expectations. Given the past two years of data, Unitech has the highest cost of equity of 18.78%, amongst the set of securities chosen for our analysis. Even DLF group, a company in the same league of operations has a cost of equity of 17.59%. 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. CAPM figures act as a good guide for an investor who is looking into investment into the sectors, in terms of setting up of operations. Well his or her investment decision will be based on a number of factors, 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, hospitality and aviation. Both domestic and foreign investors evaluating investment decisions based on the above CAPM figures can conclude that in terms of cost of equity, real estate is one of the most expensive sectors in terms of equity cost in India, based on the market data for the last two year. Secondly, 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. Global recession, terror attach, 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. The Leela hotel has the lowest beta and cost of equity amongst the set of companies mentioned above.

Earnings Per Share, Leverage Ratio and WACC analysis


Earnings per share (EPS):
Earnings Per Share is a portion of the companys profit allocated to each outstanding share of the common stock. Earnings per share serves as an indicator of companys profitability. Calculated as: = NET INCOME DIVIDEND ON PREFERRED STOCKS OUTSTANDING SHARES
EPS (Rs./share)
0.00

Year Mar ' 07 Unitech 11.01 DLF 2.65 Leela 2.06 Jet Airways -25.69 Kingfisher -55.05

Mar ' 08 4.17 15.10 3.87 -93.12 -18.64

Mar ' 09 Mar ' 10 Mar ' 11 4.36 2.14 1.95 9.11 4.43 6.68 3.97 1.18 1.04 -192.53 -70.21 -18.24 -60.67 -51.54 -18.49

Mar ' 07 -50.00

Mar ' 08

Mar ' 09

Mar ' 10

Mar ' 11

EPS (Rs./share)

-100.00

-150.00

-200.00 Unitech DLF Leela Jet Airways Kingfisher

From the table, 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. Unitechs EPS is constantly falling. This signifies either lower margin comparatively or other diversification, expansion and modification plans or other obligations increasing. Unitech since 2008, has been focusing on lowering its debt liability which has been one of the factors for its lower EPS. The company has allocated some portion of its profits to repay debts and pay lower dividends to its shareholders. The continuous negative EPS by Jet Airways and Kingfisher implies companies incurring losses(negative earnings) having an undefined P/E ratio.

Leverage Ratio
Leverage Ratio is the ratio used to calculate the financial leverage of a company to get an idea of the companys method of financing or to measure its ability to meet financial obligation. There are several different ratio but the main factors looked at include debt, equity, assets and interest expense.
Leverage Ratio
18.00

Company Mar ' 07 Unitech 3.11 DLF 10.37 Leela 1.39 Jet Airways 2.88 Kingfisher 2.38

Mar ' 08 3.79 0.74 2.84 6.49 4.95

Mar ' 09 Mar ' 10 Mar ' 11 2.69 0.62 0.59 0.77 0.98 1.09 3.49 3.48 4.28 12.61 16.80 5.18 -

16.00 14.00 12.00

Ratio

10.00 8.00
6.00 4.00 2.00 0.00 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. An increase in operating profit will result in a high earning, nevertheless, financial leveraging makes companies equally susceptible to greater decrease in earnings if profit drops. 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. 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. Jet Airways on the other hand increased leveraging and then decreased it in 2011. For kingfisher the leverage ratio of three years are not available due to negative return. Besides as observed from Kingfishers 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, due to which a leverage ratio for this company cannot be determined. 10

Weighted Average cost of Capital


The Capital funding of the company is made up of two components: Debt & Equity. Lenders and equity holders each expect a certain return on the funds or capital they have invested or provided. The cost of capital is the expected return to equity owners and debt holders, so weighted average cost of capital or WACC tells us the return that stakeholders, equity holders and lenders can expect. In other words it tells us much interest and dividend the company has to pay for every rupee it raises.

Weighted average cost of capital Unitech DLF Leela Kingfisher Jet Airways 13.21% 9.62% 7.13% 8.70% 5.32% WACCUnitech >WACCDLF>WACCKF>WACCLeela>WACCJet
From, 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. From the above table we can analyse that the cost of capital of Unitech is the highest, followed by DLF ,Leela, Kingfisher & Jet Airways. 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. It might be possible that the companys return is less than its Koi.e. the company is shedding value which is an indication for the investors to put its money elsewhere. 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. Keeping other parameters equal the WACC of a firm also increases as Beta and return on equity increases. From the companys 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.

Relative Valuation Analysis


Relative Valuation:
In relative valuation, the value of an asset is compared to the values assessed by the market for similar or comparable assets. To do relative valuation then, We need to identify comparable assets and need to obtain market values for these assets.

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Convert these market values into standardized values, since the absolute prices cannot be compared. This process of standardizing creates price multiples. Compare the standardized value or multiple for the asset being analyzed to the standardized values for comparable asset, controlling for any differences between the firms that might affect the multiple, to judge whether the asset is under or over valued

Company Name Unitech DLF The Leela Kingfisher Jet Airways

Current Market Price (Rs.) 28.3 199.6 38.0 26.9 290.6

Relative Valuation (Rs.) 20.56 - 23.95 116.51 - 164.52 32.32 - 43.04 26.47-27.72 275 - 276

In the table we have two different values of the company assets based on two different valuation methods. On a comparative basis in the current market, the value of each equity share of different companies has been estimated to fall in this range. The lower limit and the upper limit is calculated based on earning and value multiples. Taking into consideration the current market prices, it is observed that none of the companies share prices are undervalued whereas the share prices of Unitech, DLF, and Jet Airways are overvalued. The reasons can be many, to list a few1. Investors are finally putting money back into the stock funds. They poured money in 2007, pulled it out in droves in 2008 and 2009 after the bottom fell out, and are now back in. 2. Bonds are the alternative to stocks, and with rates so low, bonds simply cant continue their past gains. 3. As towards the end of 2009 the Indian economy started recovering experts unanimously predicted greater years ahead. This led to inflow of funds in the financial market and volume buying of some stock resulting in value appreciation and over valuation.

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 companys fundamentals even out, its true earning potential surface, the price of the share might reflect its true value. The
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current share prices of The Leela and Jet Airways falls within the range indicating neither undervaluation nor overvaluation considering the comparison base is justifiable.

Inter Industry analysis


Unitech Group
For an investor, investment decision is based on a number of factors. The sector that he or she wants to invest in, the choice of firm in a given sector, whether he or she wants to diversify the portfolio or opt for a single security investment. But among all one of the most crucial factor is the return expectation of investor accompanied by the associated risk. Every investor wants to maximise return on investment along with minimising his risk. Value of security fluctuates as the value of market portfolio changes, as investor sentiments changes. So to overcome the risk associated with security investments, an investor seeks to diversify his/her portfolio into two or more securities within the same industry or inter industries. The following section will focus on analysing an investors investment decision starting from a single security portfolio, to a two security portfolio, intra and inter industries.
Single Security Portfolio (Unitech) -67.69% 3.08% 3.08% 0 Same Industry Portfolio (Unitech and Sobha) -24.16% 2.351% 2.348% 0.654% Diff Industry Portfoli (Unitech and Oriental Hotel) -76.74% 2.87% 2.64% 1.22% Diff Industry Portfolio (Unitech and Spice) -7.15% 2.71% 2.64% 0.85%

Parameter Expected Return (Ri) Risk (SD) (equal share) Risk (SD) (MVP) SD Reduction (Total)

. The above table summarises the comparison of an investors portfolio mix, starting with Unitech. This section presents an analysis of how an investor diversifies his/her investment into different portfolios. It also summaries the intra industry comparison of portfolio diversification, 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. Based on the last two years daily data of Unitech share prices, the expected return of Unitech works out to be -67.69% and risk is about 3.08%. 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. So he can opt for Sobha Developers as another company. By doing so he has improved his expected return to -24.16% and also has reduced his risk expectations by 0.654%.

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Finally from the given set of securities, the investor has the option of diversifying his portfolio inter industry. In our case the available choice for him is either hospitality sector or aviation sector. By opting for a portfolio comprising of real estate and hospitality firms, the return expectations for the investor worsens as his expected return goes up to 76.74%. This is because the portfolio comprises of two securities, which have witnessed a high decline in share prices in the last two years. But if the investor diversifies into real estate and aviation, he stands to gain a now his return expectation in close to 7.15%. This portfolio will also result in reduction of investment risk by 0.85%. So for an investor, choice of industry, firm and portfolio is a crucial factor, that effects his risk and return expectations. 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. This portfolio would have maximised his return expectations, with moderate risk levels. Also it would have led to a 0.85% risk reduction as compared to a single portfolio investment.

DLF group
There are many factors which affects investors decision to invest in a security. 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. 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.
Single Security Portfolio (DLF) -42.48% 1.54% 1.26% 0.56% Same Industry Portfolio (DLF and ANANTRAJ) -42.21% 2.215% 2.163% 6.580% Diff Industry Portfoli (DLF and ORIENTAL HOTEL) -64.10% 2.69% 2.24% 1.32% Diff Industry Portfolio (DLF and SPICEJET) -5.50% 2.49% 2.26% 0.93%

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. From the table above we can see that when an investor invests in a single portfolio his return is -42.42% but his returns marginally changes to 42.21% when he invests in two securities belonging to same industry. Even though there is not much change in his return we can see that there is a reduction of risk upto 6.58%. Investors can further mitigate their risk by investing in different industries because factors affect differently different industries. 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 64.10% which is less than when it only invested in real estate industry but the combination of aviation 14

and real estate industry enhances its return upto -5.5% also there is a reduction in risk upto 0.93%. Even though the returns have been negative but this is because the recent economic factors have affected the real estate and other sectors badly. 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, nature of industry, expected return risks and etc. 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 Leela Group


There are multiple things that an investor takes into consideration while taking an investment decision. The most vital factors that affect the decision making are: risk tolerance, return needs and the investment time horizon. Risk refers to the volatility of the portfolios value. An aggressive investor does not hesitate to take a higher risk for higher returns, whereas a risk averse is a conservative investor who tries to reduce it. Return needs refers to whether the investor needs to emphasize on growth or income. 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 time horizon starts when an investor puts in the money and ends when he is needed to take it out. It is quite an important factor as the length of the time directly affects the ability to reduce risk.
Single Security Portfolio (The Leela) 37.22% 1.36% 1.36% 0 Same Industry Diff Industry Diff Industry Portfolio (Leela Portfoli (Leela and Portfolio (Leela and Oriental) Sobha) and Spice Jet) -24.30% 2.60% 2.00% 0.1.40% 28.30% 1.97% 1.89% 0.65% 3.10% 2.08% 1.98% 0..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. 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. Based on past two years data we can observe that investment only in Leela is quite profitable compared to other portfolios taken into consideration. But now if we observe considering the aviation industry i.e. Kingfisher which is continuously giving a negative return, a
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diversification of investment in the hotel industry i.e. The Leela helped in recovering and earning a positive return. Investment is a risky decision and we cannot assure our predictions to be correct every time, so to be on a safer side diversifying can be a rational decision as due to various micro and macro-economic factors, there are chances of every company or the respective industry may descent. From the minimum variance portfolio calculation we can further mitigate risks as it suggest the ideal weight to assign in a particular security. 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. As the companies and industries considered are quite limited, the analysis could not give a fair picture of a good portfolio management. 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.

Kingfisher Group

Parameter Return Risk -sd (equal share) Risk -sd (mvp) Risk reduction (total)

single security portfolio (1) kingfisher -30.94% 3.07% 3.07% 0

same industry portfolio (2) 11.23% 2.82% 2.77% 0.72%

different industry different industry portfolio (3) portfolio (4) -5.78% 2.32% 2.32% 0.68% -58.36% 2.87% 2.65% 1.21%

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. This can be of two types- intra sector and inter sector. Intra industry is the diversification into securities within the same sector while inter sector is diversification into securities of different sectors. The data taken for the analysis is of 1st August 2009 to 31st July 2011. The returns of considered securities have been negative in most cases, which could have been reverse in an outperforming market. Hence a rational investor should give more significance to risk mitigation than 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. Therefore comparing kingfisher against other possibilities to reduce risk and maximize returns. 16

Single security portfolio- Kingfisher has given a negative return/loss of -30.94% and has a risk of 3.07% which is the highest from amongst the available options. Thus there is a dire need of diversification to minimize the risk and loss. The investor can diversify either through intra-sector or inter-sector securities. Intra sector for this a combination of kingfisher and spicejet from aviation sector has been taken. This combination has provided the maximum return of 11.23% and has a lower risk than the single security portfolio at 2.77%. Even then it not the safest option because it is not shielded from the sector specific risk. Inter sector for this there are two options available. 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. The first combination (kingfisher + sobha) has the least risk and minimum negative return of -5.78% (which can be acceptable when the market is down performing) making it one of the preferred portfolio options. The second portfolio combination (kingfisher + oriental) has a negative return of -58.36% and risk of 2.65% not making it a very viable option. 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.

Jet Airways
Single portfolio Jet airways 75.81% 3.30% 3.30% 0 Same Industry portfolio Jet Airways and spice jet 64.61% 2.82% 2.87% 0.78% Mixed Portfolio Jet Airways and DLF -37.01% 2.18% 2.18% 0.68% Mixed Portfolio Jet Airways and Indian Hotels -10.38% 1.98% 1.98% 0.87%

Parameter Expected Return (Ri) Risk (SD) (Equal share) Risk (SD) (MVP) Risk reduction (Total)

The above table summarises the comparison of an investors portfolio mix, starting with Jet Airways. This section presents an analysis of how an investor diversifies his/her investment into different portfolios. It also summaries the intra industry comparison of portfolio diversification, 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. Based on the last two years daily data of Jet Airways share prices, the expected return of Jet Airways works out to be 75.81% and risk is about 3.30%. 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. So he can opt for 17

Spice jet as another company. But by doing so his expected return would come down to 64.61% but his risk expectation will be reduced by 0.78%. Finally from the given set of securities, the investor has the option of diversifying his portfolio inter industry. In our case the available choice for him is either hospitality sector or Real Estate sector. By opting for a portfolio comprising of real estate and aviation, the return expectations for the investor worsens as his expected return goes up to 37.01 %. This is because the portfolio comprises of two securities, one which have witnessed a high decline in share prices in the last two years. But if the investor diversifies into Aviation and Hospitality, he is better off in terms of an inter industry portfolio, as now his return expectation in close to 10.38 %. This portfolio will also result in reduction of investment risk by 0.87%. So for an investor, choice of industry, firm and portfolio is a crucial factor, that effects his risk and return expectations. 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. 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 0.78%. The single investment gives the maximum expected return of 75.81 % but is highly risky. Investment in the intra industry spice jet will reduce the risk and a rational investor one should go for intra industry investment.

Conclusion
The above report summarises various aspects of financial decision making from an investors point of view. Given the set of companies, this report summarises crucial investment decision making aspects such as risk and return from a security, portfolio diversification, beta value of each security. From a companys 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. Finally the report also compares market value of the five companies with respect to their relative valuation to arrive at range to determine, whether the securities are overvalued or undervalued.

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