CHAPTER- 1 INTRODUCTION

Introduction to Financial system: Financial system is that part of economy, which includes all the financial institutions and markets involved in –Moving savings from savers to borrowers; and Transferring, sharing & insuring risks. A nation consists of three economic units basically-Government, Industry and Household These units may perform various activities due to which they may be facing surplus or deficit budgetary situations. Industry: Industry sector may be able to generate funds from their activities and use them for various investment decisions like expansion, diversification, modernization, replacement etc. Government: Government needs fund for financing public expenditure involved is quite high, it generally is in deficit budgetary situation. Individuals: Individual/household sector requires funds for meeting basic necessities as well as for expenditure on luxury items. They however may have been surplus funds in the form of saving. Importance of financial system: Financial system acts as such a channel, which allows funds to move from people, who lack productive investment opportunities (i.e. savers) to those have such opportunities. By doing so the financial system contributes to higher production and efficiency in the economy. It also improves the well-being of consumers by allowing them to time their purchases better. Financial institutions and financial markets are the two Components of financial system. Both of these further consists of the organized and unorganized sector

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Financial institutions: 1. Regulatory and promotional institutionsThe two major regulatory and promotional institutions in India are• • Reserve Bank of India (RBI) and Securities Exchange Board of India (SEBI)

Both RBI &SEBI administer, legislate, supervise, mentor, control and discipline the entire financial system. The reigns of financial institutions lie in the hands of RBI, while the financial markets are monitored by SEBI. Both of these have several policies, procedure and guidelines, which are changed from time to time so as to set the financial system in the right direction in, order it to contribute towards healthy functioning of the economy. 2. Banking institutions: Banking institutions are the depositors and lenders of money and have been categorized on the basis of the function being performed by them. The basic categories are Commercial banks - Their function is to act as depositors of public savings and function with profit motive. They accept deposits and lend them to those in need for a charge called interest which is their profit. Cooperative banks- Cooperative banks are a part of cooperative institutions which are based principles of cooperation and mutual help. They accept deposits and lend short-term and long term credit at reasonable rate of interest. Developmental banks – they are set-up for the purpose of promoting certain sectors of the economy and cater to those only for e.g. NABARD (National Bank for Agriculture & Rural Development), set-up for providing agriculture credit and development of the rural sector of the economy. Non –banking finance companies-These are privately owned financial intermediaries, which are engaged in accepting and disbursing funds. They are categorized into various types depending on the fund based activities performed by them. The most common of them are

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1. Investment Companies- which provide loans for personal as well as commercial purpose and charge a higher rate of interest as compared to banks. Inspite of the interest rate charged being higher they are popular due to the hassle free procedure of providing loans on which no security is sought as compared to commercial banks which provide secured loans. They also provide higher interest on deposits accepted by them as compared to commercial banks. 2. Housing companies- housing companies provide loan for the purpose of house construction in lieu of a charge or interest for different time periods. This loan is a secured loan and involves hypothecation of the land or building against it. Housing companies in India include Housing and Urban Development Corporation (HUDCO), State Housing Finance Societies (SHFS), Housing Development and Finance Corporation (HDFC), other than these LIC, GIC, UTI also have entered into the area of housing finance. All these institutions are monitored and controlled by a committee set-up by RBI.

3. Lease Financing- A lease may be defined as a contractual arrangement in which lessor (one who owns the asset) provides the asset for the use to the lassee (who requires the asset) in return for a periodic payment (rentals) with or without further payment called premium. After the end of the lease period the equipment goes back to the lessor. So there is a separation of ownership and economic use of the asset. Major leasing companies in India are Infrastructure Leasing and Financial Services Ltd.(IL&FS),ICICI, Industrial Reconstruction Bank of India (IRBI), LIC, GIC,IFC,HDFC, some State Industrial Investment Corporations(SIICS).

4. Hire purchase companies – hire purchase is a system under which term loan is provided for purchase of goods or services and is then amortized in installments as laid down through a contract, under the contract the ownership of asset is transferred to the owner once the contract of loan is signed. Commercial banks, IDBI, ICICI, SFCs, NSIC etc. are involved in such financing.

5. Specialized financial institutions- they include EXIM bank providing loans for Export Import, NABARD- National Bank for Agriculture and Rural Development, Tourism & Finance Corporation of India. Technology Development and Information Company of India ltd.
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6. Investment institutions like Unit Trust of India providing portfolio management services, Life Insurance Corporation providing cover for risks other than life. 7. State level institutions- they include State Financial Corporation (SFCs), which provide credit within the state and State Industrial Development Corporation (SIDCs) providing state industrial credit.

Financial markets: 1. Capital market: These are market where securities of life greater than one year are traded. They can be further subdivided into a. Primary market – It is a market where securities are floated for the first time. It consists of New issue market, Euro issue market and Private placements b. Secondary market- It is a place where securities which have already been issued are traded. It is made – up of Securities exchange, STCI (Securities Trading Corporation of India) and OTCEI (Over – The –Counter Exchange of India) 2. Money market: these are the markets where securities having life of less than one year are traded. It is also divided into a. Primary market- It is made-up of new issues of instruments like T-Bills, Commercial Papers, Certificates of Deposits, Gift Edged Securities, Call money and reports etc. b. Secondary market-which includes Discount and Finance House of India. Major Stock Exchanges of India Bombay stock exchange Bombay stock exchange (BSE) was established in 1875. It was starts as “The Native Share & Stock Brokers Association” and over the years it has become the premier stock exchange of the country. It is first stock exchange to have obtained permanent recognition in 1956 from the government of India under the securities contracts (Regulation) Act1956. Departments of BSE Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the

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country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmers’ were held in more than 200 cities. The BSE On-line Trading (BOLT): BOLT facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 359 cities in India. BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exchangebased Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to trade on the BSE platform. Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis the price movements, volume positions and members' positions and real-time measurement of default risk, market reconstruction and generation of cross market alerts. BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programme National Stock Exchange NSE was set-up in November 1992. It was recognized as a stock exchange in April 1993. In June 1994 a Whole Debt Market (WDM) segment was started and in November 1994 the capital market (Equities) segment commenced its operation. The operations of the derivatives segment commenced from June 2000. NSE & Its Subsidiaries National Securities Clearing Corporation Ltd (NSCCL) NSCCL was established in August 1995 as a wholly owned subsidiary of NSE. The objective of NSCCL was to bring & sustain confidence in clearing & settlement of securities, to promote & maintain, short consistent settlement cycles; to provide country risk guarantee and to operate a tight risk containment system.

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NIFTY is computed using weighted average market average market capitalization method. services and solutions in the area of trading. web-based trading. treasury management. sep 1. It is a value weighted index with base period as 1978 w.the line products. asset-liability management. risk management. f. banking. broker front-end and back office.2003 the free float.NSE IT LTD NSEIT a 100% subsidiary of National Stock Exchange of India limited is the information technology arm of the largest stock exchange of the country. (IISL) IISL is a joint venture between NSE & CRISIL limited. Popular Indian indices NSE’s S &P CNX NIFTY S & P CNX NIFTY is comprised of 50 stocks and represents 23 sectors of the economy. e. 1995 and its value is 1000. Dot Ex was formed to provide a world-class internet trading platform which allows members of NSE to offer online trading facilities to their customers. clearing & settlement. National securities depository limited (NSDL) NSE along with Industrial Development Bank of India (IDBI) & Unit Trust of India (UTI) set-up the National Securities Depository Limited (NSDL). The base period is november3. Weighing. Dot Ex International Limited Dot Ex International Limited was set-up as a joint venture between L-flex Solutions Ltd. 6 . It has the major focus on providing top-of. India Index Services & Products Ltd. the first depository in India so as to solve the problems related to trading in physical securities. Ltd. insurance etc. & NSEIT. it was set-up in may 1998. government and promoter holdings as well as locked-in-shares are excluded for calculating market capitalization of the companies and it called Free Float Cap. to provide a variety of indices and index related services and products for the Indian capital market. BSE Sensex-Bombay stock exchange sensitive index BSE is comprised of 30 stocks and represents 12 sectors of the economy.

Broker operations 1. 7 . Jobbing business giving two way quotations and earning profit through margin between bid and offer rates. The broker must be having a minimum net-worth which varies from exchange to exchange.000 brokers in India. 3. New issue marketing.Depository participant (DP) A DP is one with whom an investor needs to open an account to deal in electronic form. DP is like a branch of the bank with which an investor can have an account. and a minimum experience of two years in this business. Arbitrage business. Total Depository Participants in India are 76. Must be a citizen of India. 5. etc. dishonesty. Qualification 1. cheating etc. underwriting. There are about 10. 4. of an age not less than 21 years and education of not less than graduates 2. 2. Client and institutional brokering business for earning brokerage.. While the depository can be compared to a bank. 4. 3. Not a defaulter on any other exchange. Brokers Brokers are registered members of the stock exchanges through whom investors transact. and not compounded with creditors or declared insolvent. Should not have been convicted of any offence involving fraud. Portfolio management of the client’s funds. Should not be doing any other business and not connected with any company or corporation as employee/director etc. 5.trading as between two or more stock exchange to take advantage of price differential as profit.

Thiruvangadhanathan. (MOSL) BSE trading has been held or registered here under the control of Motilal Oswal Securities Ltd. Focus on customer-first-attitude. It is one of the stock broking company. Sankarankovil. Selvam. C-Cap NSE trading network is one of the largest network in India and through this network serves over 35000 retail clients. IPO. there are 5. 8 . operating as a stock broker. BSE. Vallioor. Town. 2009. F&O.Coimbatore Capital is a financial services provider. (MOSL) was founded in 1987. mutual funds distributor. It had a network spread over 576 cities and towns comprising 1. IPO distributor and insurance agent. Mr. respect for professionalism. (MOSL) at Mumbai. MCX. dealer for NSE. Ambasamudram.667 registered customers Coimbatore capital ltd NSE trading has been held or registered under the constituent of Coimbatore capital ltd (1994). NCDEX. As at September 30th. It has 26 NSE trading terminals across Tamilnadu & Pondicherry. Kayal and N. Corporate managers: Motilal Oswal Securities Ltd. There are six branches in Palayamkottai.G. research-based value investing and implementation of cutting-edge technology has enabled us to blossom into an almost 2000 member team. The proprietor of this company is Mr. depository participant. 80. ethical and transparent business practices. It is also a dealer in the over the counter exchange of India Limited. Mutual Funds. Portfolio Management Services and Home Trading.O ‘A’ colony. C. Motilal Oswal Securities Ltd. dealer for BSE. A subsidiary of Coimbatore Capital is a member of inter connected stock exchange of India Limited. S. Services provided by the company is NSE. It is also a depository participant with National Securities Depository Limited. There are around 600 active investors.257 Business Locations operated by Business Partners.ABOUT THE COMPANY Nellai Capital Market Services Nellai Capital Market Service has been established in the year 1997.

labour strike. “Beta” is a measure of the risk. 9 . Portfolio: the portfolio is a collection of securities. where shares are correctly priced. The capital asset pricing model. The investor can create a portfolio from his or her own risk-preferred combination. Scarcities in raw material supply. Security Market Line: the SML defines the relationship between systematic risk (beta) and expected return for individual securities consisting of risk-free asset and market return. Different people have different motives for investing. For most investors their interest in investment is an expectation of some positive rate of return. which is undiversifiable market related risk. Capital Market Line: the CML defines the relationship between total risk and expected return for portfolios consisting of risk-free asset and the market return. in essence. But investors cannot overlook the fact that risk is inherent in any investment. every security will give a return commensurate with risk. The market risk is different from the risks of individual scrips comprising the market. But Security Market Line (SML) refers to the risk. These negative factors can make the share price fall sharply but can be avoided if well thought. Risk can be categorized into two types. Capital Market Line (CML) relates to the total risk of the market. A closer look at risk reveals that some are uncontrollable (systematic risk) and some are controllable (unsystematic risk).ABOUT THIS PROJECT There are many investment avenues available for investors today. investment in equity is considered to be more risky than investment in debentures & bonds. The risk that cannot be diversified away like interest rate risk and recession is known as systematic risk. An investment in the shares of certain other companies with sound management can help minimize this risk. Unsystematic risk is stock specific and can be diversified away. and management inefficiency are all problems specific to a company and are internal in nature. Risk varies with the nature of return commitment. Capital asset pricing model (CAPM) CAPM postulates that in a perfect market. Generally. predicts the relationship between the risk of an assets and its expected return.

5 per cent (provisional) during April-May 2008-09 against an increase of 5. has got a huge cement industry. It's also expected to rise to 262. Present Scenario of Core-Infrastructure Industries Cement India.2 Million Tonnes (MT). Estimation period: The estimation period is two years February 2008 to December 2009. Also. With the government of India giving boost to various infrastructure projects. housing facilities and road networks. being the second largest cement producer in the world after China with a total capacity of 151.16 MT in 2011. Steel India is currently the fifth largest steel-producing nation in the world with production of over 54 million tonnes (MT).61 MT in 2012. being derived from other sectors like automobiles. Being a core sector. The average return from different banks on two year term deposit has been taken as a risk free return.6 per cent during the same period of 2007-08. steel industry tracks the overall economic growth in the long term. oil & gas. 10 . Risk-free return: The return on a zero-beta portfolio is the best estimate of the risk-free rate. Finished (carbon) Steel production increased by 4. It is also predicted that the cement production in India would rise to 236. More growth in the Indian cement industry is expected in the coming years. the cement industry in India is currently growing at an enviable pace.Efficient portfolio: Portfolios which have returns that are perfectly positively correlated with the market portfolio are referred to as efficient portfolio. steel demand. Market index: In this project S&P CNX Nifty has been taken as a market index. consumer durables and infrastructure. cement and steel sector in Nellai capital market services for the period of 2008-09. The securities selected from repeatedly invested securities in power. its fortune is dependent on the growth of these user industries. The Indian steel sector enjoys advantages of domestic availability of raw materials and cheap labour.

Revenue losses due to power failure are growing at an alarming rate of 11.9% in last 5 years.1 per cent during the same period of 2007-08. Majority of the supplies are sourced from overseas (more than 75 per cent) and consequently it is the ninth largest importer of the crude oil.7 per cent during April-March 2008-09 against 9. having the oldest petroleum industry in the world is also the fifth largest energy consumer with oil and gas forming large portion of its requirements. Crude oil production saw a growth of 2. Power development is the key to the economic development. The rapidly growing economy is energy hungry and the deficit between demand and supply is growing. Electricity generation increased by 1. 11 .1 per cent during April-May 2008-09 against (–) 0.0 per cent during the same period in 2007-08. Oil & gas India.Electricity India is the 6th largest consumer of electricity in the world.

Investor holds efficient portfolios –higher expected returns involve higher risk. There are no taxes or transaction costs involved in buying and selling assets. Beginning price 12 .ASSUMPTIONS OF THIS PROJECT 1. 5. 4. The investors have two-period time horizon (2008 – 2009). 7. 3. 6. The investors are price-takers. which it is possible to buy or sell fractional shares of any asset or portfolio. There is no inflation or any change in interest rates. To make research more convenient rate of return has be calculated by below formula without consideration of dividends Ending price – Rate of return = Beginning price 2. All investments are infinitely divisible.

return relationship for an individual security/asset Identification of under and overvalued assets. 13 .2 OBJECTIVES • • • • To understand the risk-return relationship for market portfolio Assessing portfolio performance To understand the risk.CHAPTER.

If mean is taken as the measure of central tendency of 14 . which have already been collected by someone else and which have already been passed through the statistical process. Data source Secondary data collected from National Stock Exchange. Nature of data: Secondary data Secondary data: Data. Tools used for analysis Mean Standard deviation Variance Covariance Sharpe ratio Treynor ratio Mean: This is simply call as mean or arithmetic average.3 RESEARCH METHODOLOGY Research design: Analytical research Analytical research: The researcher has to use facts or information already available and analyze these to make a critical evaluation of the material.CHAPTER. Reserve Bank of India and Bombay stock exchange websites. ∑x Mean = n Standard deviation (SD): Standard Deviation is an indicator of the 'spread' of the data (dispersion of a distribution). It is found by summing all the observations and dividing the sum by number of observation.

∑ (Ri –Ri) (Rm-Rm) Cov (Ri.distribution. RP . ∑ (x . how often they move up or down. Variance: This is the mean of the squares of deviations of individual returns around their average value.R F Sharpe ratio = SD (RP) Treynor ratio: The Treynor measure of portfolio performance relates the excess return on a portfolio to the portfolio beta (systemic risk).x)² σ M= n-1 Covariance: Covariance is an absolute measure of the extent to which two sets of numbers move together over time.RF Treynor = βP Tools used for presentation: Tables Chart for CML: capital market line depicts the risk-return relationship for efficient portfolios.Rj) = n-1 Probability: Probability is basically the chance of happening or non-happening of an event. 2 15 . P (A) Probability = N Sharpe ratio: The Sharpe measure reflects the excess return earned on a portfolio per unit of its total risk (standard deviation) RP . that is. standard deviation tells us how much each value on an average is 'away' from the mean value (square-root of mean of squared deviations from the mean).

Company selection procedure for portfolios: From the alphabetically arranged 30 companies. oil & gas. 10 companies are randomly selected through lottery method.Charts for SML: security market line depicts the risk-return relationship for individual securities. 16 . Procedure for selection of companies: The 30 companies have been selected from repeatedly invested companies in power. Lottery method: In which individual units are picked from the whole group. steel and cement sectors in Nellai capital market services for the past two years.

RF) Beta 17 .CHAPTER -4 DATA ANALYSIS AND INTERPRETATION Capital asset pricing model (CAPM) Elements of the model: I) II) Capital market line (CML) Security market line(SML) To apply the CAPM estimates of the following factors those determine the CAPM line • • • Risk-free rate Market risk premium ( ERM.

25 7. The average return from different banks on two year term deposit has been taken as a risk free return.25 7.25 6.75 6.5 .25 6.5 6 5.25 6 4.75 6.5 7.25 7.RISK.1 Interest rate in different banks on 730 days Term deposits S. ∑x Mean = n Table 4.5 6 6 7 5. no 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Name of the Banks ABN Amro Allahabad Bank Andhra Bank AXIS Bank Bank of Baroda Bank of India Bank of Maharashtra Bank of Rajasthan Barclays Canara Bank Catholic Syrian Bank Central Bank of India Centurion Bank of Punjab Citi Bank Corporation Bank Dena Bank Deutsche Bank Development Credit Bank Ltd.75 5.FREE RATE OF RETURN The return on a zero-beta is the best estimate of the risk-free rate.1.75 6 6 6.5 6.25 5.5 4.75 6 6.5 6.25 5.5 6 6.25 6.5 6. Dhanalakshmi Bank Federal Bank HDFC Bank HSBC Bank ICICI Bank IDBI Bank Indian Bank Indian Overseas Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank Karnataka bank Karur Vysya Bank Kotak Oriental Bank of Commerce Punjab National Bank 18 Interest rate per annual 5.75 8 7.

5 7.5 7.35 36 37 38 39 40 41 42 43 44 45 46 47 48 South Indian Bank Standard Chartered Bank State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of India State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore Syndicate Bank UCO bank Union Bank of India Vijaya Bank YES Bank Mean Risk-free return = 6.25 5.75 5.5 Interpretation: From the above table it shows that without any risk (beta = 0) the investor can earn 0. Market Return: 19 . the equation for this line.75 7. is: E (Rj) = RF+ λ σj Where E (Rj)= expected return on portfolio j RF = risk-free rate λ σj = slope of the capital market line = standard deviation of portfolio j Given that the market portfolio has an expected return of E (R m) and standard deviation of σm.5 6.53% 7. called the capital market line (CML).53 % per month. the slope of the CML can be obtained as follows: E (Rm) – Rf λ = σm Market Value: From the daily S&P CNX NIFTY value Monthly average value calculated.free returns for one month = 0.385 Risk.25 6.5 6 7.75 6.5 5 6.5 7. Capital Market Line (CML) The relationship between risk and return is depicted by the straight line R f.

Ending value – Beginning value Return on S&P CNX NIFTY = Beginning value Estimation of Expected Market Return: The expected market return can be calculated by P (A) Probability = N Expected market return = Return x Probability Standard deviation: x 100 20 .

0.64 -8.043478 0.797619 2854.0.2225 2834.2 -7.49029 22.9 17.x)2 2009-Dec 5152.944206 3.043478 0.308696 -0.219684 0.043478 0.646836 1.5087 0.043478 0. this shows that the CML will move to negative direction.109524 4814.Jan 2008-Feb 2008-Mar 2008-Apr 2008-May 2008-Jun 2008-Jul 2008-Aug 2008-Sep 2008-Oct 2008-Nov 2008-Dec 2009-Jan 2009-Feb 2009-Mar 2009-Apr 2009-May 2009-Jun 2009-Jul 2009-Aug 2009-Sep 2009-Oct 2009-Nov Monthly S&P CNX NIFTY value 5756.043478 0.96219 6.81 4.8 12.36257 14.497222 4651.98577 561.15 -1.31 -2.352174 -0.043478 0.4 -1.162609 -0.00565) % Standard deviation for market return = 9.043478 0.2.25 5.0412 146.06087 -0.03043 -0.7016 125.6625 4463.00565 percent.03522 0.9625 4436.3.043478 0. the market expected rate of return for one month is -0.228261 0.833 Interpretation: The above table shows that.833.043478 -0.905 5028. Table 4.1 -11.8 -23.a Selected securities for individual portfolio-1 21 .07301 65. The market portfolio would give return less than risk-free rate.868182 Mean market return = (.328846 2802.865217 0.043478 0.0875 4994.043478 0.231304 0.525652 -0.3048 4.1 -4.8 -0.043478 0. at market portfolio total risk 9.685714 3210.5375 -9.604348 4417.48696 -0.74 -0.3625 2804.20588 Monthly Return on S&P CNX NIFTY % (x) Probability Return x probability ( x .07826 -0.62188 28.354348 5201.4221 136.02991 0.10739 0.1 calculation of standard deviation and expected return for the market portfolio Month 2008.043478 0.67412 50.773913 0.7578 4.174783 92.02 0.787222 2895.7 -11.0913 0.09 -2.00304 0.1075 4953.7 2.093478 -0.32 3.043478 0.788095 4124.646975 16.235 317.1.07 19.043478 0.3613 -0.043478 0.2087 -1.829412 3957.1 5.41913 -0.043478 0.33043 0.00565) E (RM) = (.097826 4571.82066 68.386364 4343.004141 396.043478 0.Table 4.043478 0.1175 4206.47 8.043478 0.043478 0.569048 4769.2725 3359.3134 57.386293 27.6 7.043478 0.043478 0.

3.67 4036. Mangalam Cement Ltd Jindal Steel & Power Ltd.05 Market return -9.1) Month Jan -08 Feb-08 Mar-08 Monthly value of portfolio 1 12296.1.63 -8.31 22 ( x1. RM) = n-1 ∑ (RM – RM) 2 σm 2 = n.64 -8.76 43.32459 . NCL Industries Limited Electro Steel Castings Ltd Jaiprakash Hydro-Power Limited Visa Steel Limited Cov (RA.1 Expected return E (R1) = RF + λσ1 Table 4. beta and expected return for individual portfolio-1 Calculation of monthly portfolio value (Annexure.RM)² 92.x1) 2 (RM-RM) -9.b Calculation of standard deviation.4363 54.209 Return % -67.18 -10. Ltd Power Finance Corporation Hindustan Petroleum Corporation Ltd.89 4057.178 3630.RM) 613.3 (R2-R2) (RM . RM) βi = σ2m ∑ (RA – RA) (RM-RM) Cov (RA.7369 68. no 1 2 3 4 5 6 7 8 9 10 Securities Chettinad Cement Corporation Ltd Bharat Petroleum Corporation.The securities for individual portfolio -1 randomly selected through lottery method Individual portfolio -1 S.63178 (RM .

4 -1.2.196 146.03056) % Interpretation: When compare with market portfoilo.1754 -98.0516 65.15 -1.19 -7.0.7986 79.47 8.3.87 Sep-09 3774.7302 282.4089 14.11 -4.6579 11.685 -23. the expected rate of return decreased to 0.41 4.168 May-09 3391.8978 177.81 4.6 7.2203 544.7821 468.408 317.32 3.1 5.7 1.33539 93.43781 42.8 -0.1 -4.3681 27.9911 344. Table 4.64 16.935 -11.22606 6.218 indicates that returns on portfolio-1 would change by 1.91 17.686 Apr-09 2872.069 18.786 73.9441 561. Ltd Gujarat State Petronet Limited Tata Steel Limited 23 .66 4.396 -6.26 5.79 -23.6081 50.0574 7.11015 Dec 09 2750.02 -2.9466 383.63211 103.6676 28.3274 -2.2268 -24.7509 -0.7721 125.2409 Standard deviation of portfolio -1 = 20.028) 27.142 19.8 4.74 -0.5521 22.503 -0.79 -0.43 Aug-09 4841.2 -7.7 2.01451 81.16 -1. This shows that there is a negative relationship exists between risk and return.06542 30.07 19.09 -2.02.955 10.992 8.33 3.83671 199.8 -23.0338 141.02 Expected return E (R1) = (.3.74865 72.968 -2.76841 69.03056 percent.11 -12.1 -11.2269 19.38 Oct-08 2099.18 -33.39 -1.46 8.0625 0.79 Mar-09 2430.543 6.48279 -10.173 8.69 -11.48 Beta for portfolio-1= 1.Apr-08 3692.32977 155.26343 700.72 May-08 3898.0676 Nov-09 2523.09101 176.11 -11.9 17.9896 -110.09 5.218 λ = (-0.59 7.4944 464.566 Jun-08 3436.8963 70.751 9.84 Jul-09 4406.85344 10.834 Jul-08 3205.398 -0.94 Nov-08 1933.25 5.9251 875.06 19.092 18.03 -12.986923 Mean return = .303 9.228 -22.1 -2.5242 24. total risk of Individual portfolio-1 increased to 20.253 5.7 -11.204 0.8801 52.929 Dec-08 2138.64 Jan-09 2229.73 Aug-08 3420.667 1.a Selected securities for individual portfolio-2 Individual portfolio -2 S. no 1 2 3 4 5 Securities Bil Power Limited Acc Ltd Bharat petroleum corporation.69 2.838 -29.05 Oct-09 2526.64538 626. The beta 1.025 4.932 3.712 Sep-08 2997.16 59.218 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).07 Jun-09 4064.22 57.8 12.16738 430.69278 50.321 -7.81 12.22 136.0036 396.75 -0.21 Feb-09 2447.

6 7 8 9 10 Oil & Natural Gas Corpn Ltd Jsw Steel Limited Msp Steel & Power Limited Visa Steel Limited Bhushan Steel Limited Cov (RA.1 Expected return E (R1) = RF + λσ1 24 . RM) = n-1 ∑ (RM – RM) 2 σ2m = n. RM) βi = σ2m ∑ (RA – RA) (RM-RM) Cov (RA.

024 428.69 -11.887.91 17.084.Table 4.559.06 19.129 31.624.56 Mar-08 4.8 4.25 2 (RM-RM) -9.57 24.14 122.446 Oct-09 5.39 -1.19 -7.0141 Apr-09 3.16 -1.250.874.11 -11.524 Oct-08 3.30 Nov-08 2.3681 27.3.67 47.34 -2.40 4.608 50.645 Jan-09 2.21 -10.301 76.109 Sep-08 4.023.48 -4.490.2 -7.69 2.1 5.348 15.75 6.69 0.8 12.61 9.a 25 .77 125.21 Mar-09 2. Table 4.03 (RM-RM)² 92.87 91.498 62. beta and expected return for individual portfolio-2 Monthly value of Return Month portfolio % 2 Jan -08 6.548.7 2.33 3.297.61 -8.77 -5.68 70.75 48.409 14.905.52 -12.163 -3.97 29.408829 Market return -9.168 25.99 680.552 22.56 0.55 Dec-09 5.44 7.30 Jun-09 4.944 561. the expected rate of return increased to 0.95 May-09 3.53 37.89 6.16 464.1 -11.22 57.98 336.46 7.66 4.014 3.06 -1.45 234.b Calculation of standard deviation.14 6.47 8.66 -7.349.11 -4.315 Jun-08 4.07 19.3.25 0.25 5.03 Dec-08 2.30 40.74 68.15.83 5.31 -2.22 -28.97 0.1898 percent.64 16.55 54.912 Jul-08 4.490.23 356.26 5.1 -2.83 Jul-09 4.94 824. total risk of Individual portfolio-2 increased to 12.36 154.2 146.86 3.15 indicates that returns on portfolio-2 would change by 1.90 15.x1) 168.1898 % Interpretation: When compare with market portfolio.479.93 0.20 0.063 0.90 81.93 32.98 5.15 -1.2.41 -19.81 12.26 39.41 4.09 -2.3.4 -1.75 -0.7 -11.15 Beta for individual portfolio -2 = 1.6 7.16 Feb-08 5.93 3.436.8 -23. This shows that individual portfolio-2 better performed than market.037. The beta 1.15 λ = (-0.RM) 124.65 Apr-08 4.16 -10.9 17.659.68227 ( x1.292 Feb-09 2.59 7.783.15 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).96 111.80 21.88 377.46 8.79 -23.028) Expected return E (R2) = 0.1 -4.052 65.64 -8.0036 396.345.77 Mean return = 0.32 3.21 136.23 0.8 -0.73 81.17 Aug-08 4.74 -0.67 28.342.18 145.41 317.09 5.10 19.00 Sep-09 5.41 4.429.63 -8.676 May-08 5.33 -12.957.57 2.43 212.72 19.02 (R2-R2) (RM.216.740.74 80.79 -0.666 1.3 -2.127 Aug-09 4.306 Nov-09 5.241 Standard deviation of individual portfolio-2 =12.81 4.

RM) = n-1 ∑ (RM – RM) 2 σ2m = n.1 Expected return E (R1) = RF + λσ1 26 . RM) βi = σ2m ∑ (RA – RA) (RM-RM) Cov (RA. Power Grid Corporation Of India Ltd Electro steel Castings Ltd NCL Industries Limited Chettinad Cement Corporation Ltd Cov (RA. no 1 2 3 4 5 6 7 8 9 10 Securities NTPC Limited Petronet Lng Limited Dalmia Cement (Bharat) Ltd Ambuja Cements Ltd Jk Cement Limited Jindal steel & power ltd.Selected securities for individual portfolio-3 Individual portfolio -3 S.

95 -11.413.92795 Standard deviation for individual portfolio-4 =21.3.b Calculation of standard deviation beta and expected return for individual portfolio-3 Month Jan -08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Monthly value of portfolio 3 12.14 551. This shows that there is a negative relationship exists between risk and return.09 19.765 -10.71 4.x1) 2 (RM-RM) -9.89 6.5521 22.70 79.42 2.6676 28.23 55.81 -11.781.47 8.06248) % Interpretation: When compare with market portfolio.Table 4.4 -1.26 5.6 7.69 2.28 189.8 -23.60 3.50 3.07 19.52 9. The beta 1.405 -3.46 8.51 Mean return = -3.849.896.075 9.63 42.3065 λ = (-0.174 925.19 1.04 3.125 6.028.60 147.84 3.16 Beta for individual portfolio-3= 1.81 12.927.64 -8.26 1.502.06 19.2041 0.15 -1.19 -7.2409 4040.57 3.25 5.14 2.4089 14.545 5.2161 57.0625 0.28 14.91 17.6656 1.2161 136.011.45 -34.687 194.1 -2.11 101.3065 indicates that returns on portfolio-2 would change by 1.74 -0.639 66.50 4.9 17.27 418.81 4.3.980.62 27.261.9321 3.32 3.75 9.157.79 -23.8 12.14 3.03 (RM-RM)² 92.8 4.50 Return % -67.96 2.3065 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).13 30.a 27 .07402 38.85 649.16 -1.17 -38.02 87.36 -0.253.178 Market return -9.09 474.21 662.74 48.35 7.4081 317.37 -24.124 -127.41 4.1 -11.56 2.11 -4.428 507.315.39 2.5 45.52 46.9441 561.09 5.342 -9.018 61.11 -11.7369 68.0516 65.09 21.59 7.02 (R2-R2) (RM .09 -2.14 311.97 3.563.180 720.331 -116. the expected rate of return decreased to 0.467 3.1 5.85 3. total risk of Individual portfolio-3 increased to 21.36 -26.47 -25.489.552 ( x1.146.41 50.79 -0.16.31 -2.77 91.64 16.3.1 -4.57 2.74 21.16 1.91 -7.RM) 612.364 72.63 -8.642.41 115.817 23.39 -1.06248 percent.199 8.836.67 1154.12 56.62 2. Table 4.70 88.939.60 3.3681 27.789.12 1.0036 396.96 -0.928.46 3.99 -14.028) Expected return E (R2) = RF + λσ2 = (-0.69 -11.71 2.1961 146.7721 125.7 -11.33 3.390 165.8 -0.4.6081 50.72 1.067 -16.3 -2.066.75 -0.20 1.2 -7.616.835.6561 4.7 2.

Selected securities for individual portfolio-4 Individual portfolio -4 S. Cov (RA. RM) βi = σ2m ∑ (RA – RA) (RM-RM) Cov (RA. RM) = n-1 ∑ (RM – RM) 2 σ2m = n.1 Expected return E (R1) = RF + λσ1 28 . no 1 2 3 4 5 6 7 8 9 10 Securities Madras Cements Ltd Hindustan Petroleum Corporation Ltd. India Cements Ltd Jaiprakash Hydro-Power Limited Chennai Petroleum Corporation Limited Steel Authority of India Ltd Bhushan Steel Limited Mangalam Cement Ltd Power Finance Corporation Jindal Steel & Power Ltd.

04876 percent.341 3.7 -11.09 -2.0036 396.17 7.0516 65.12 2.64 16.1 -4.51 59.46 50.44 42.13 6.25 5.23 110.19 146.9 541.9 17.92795 Standard deviation of individual portfolio -4 =20.94 2.46 8.1 -11.575.631.028) Expected return E (R2) = RF + λσ2 = (-0.4 39.2 -7.7 -25.772.600.505.11 922.95 2. The beta 1.67 -8.x1)2 2296.39 -1.374.45 2.13 -1.79 5.096 3082. total risk of Individual portfolio-4 increased to 20.09 5.22 136.31 -2.72 51.21 6.41 317.80 95.59 ( x1.02 4.60 -0.79 -23.378 552.44 -5.RM) 461.47 8.70 60.668 28.80 -0.04876) % Interpretation: When compare with market.03 (R2-R2) (RM.81 4.67 3.044.65 3.4 -1.15 -1.85 -11.32 3.829.84 26.66 4.607 indicates that returns on portfolio2 would change by 1.213.89 6.6656 1.59 96.310.24 Mean return = .18 -1.078 0.b Calculation of standard deviation beta and expected return for individual portfolio-4 Month Jan -08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Monthly value of portfolio 4 17.49 96.3.398 (RM-RM)² 92.772 125.608 50.359.944 561.302.63 -8.332.91 17.93 7.37 -0. the expected rate of return decreased to 0.513.21 -3.8 12.68 -59.6 5.18 3.79 -0.409 14.22 57.120.87 2.93 824.536 10.64 -8.47 13.32 4.Table 4.73 2.36 -4.158 338.13 3.38 Return % -51.72 4.39 3.11 -81.493.06 0.310.69 -11.07 19.67 Beta of individual portfolio-4 = 1.a 29 .1 5.83 4.186.75 -5.199 72.1 8.8 -23.82 -52.26 5.20 7.69 2.16 -1.8 -0.48 -13.46 2.69 Market return -9.41 4.48 -0.19 -7.58 60.60 6.46 -20.238.37 23.33 3.69 771.81 12.94 5.58 -2.364.64 20.60 2.11 -11.109 118.73 6.607 λ = (-0.59 7.11 -4.552.693.3.5.8 4.46 -19.45 5.74 -0.552 22.37 6.1 -2.24 26.6 7.3.67.29 28.736 68.13 1315.7 2.06 19.607 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).45 -6.405.432.89 0.9321 3.586 468.41 4.599 -11.4.75 -0. This shows that there is a negative relationship exists between risk and return.02 (RM-RM) -9. Table 4.62 37.2041 0.3681 27.06 347.45 24.88 14.3 -2.

no 1 2 3 4 5 6 7 8 9 10 Securities Chennai Petroleum Corporation Limited Ambuja Cements Ltd Jsw Steel Limited Gujarat State Petronet Limited Tata Steel Limited Power Grid Corporation Of India Ltd Steel Authority of India Ltd Jaiprakash Hydro-Power Limited Tata Steel Limited NCL Industries Limited Cov (RA. RM) = n-1 ∑ (RM – RM) 2 σ2m = n.Selected securities for individual portfolio-5 Individual portfolio -5 S.1 Expected return E (R1) = RF + λσ1 30 . RM) βi = σ2m ∑ (RA – RA) (RM-RM) Cov (RA.

47695 39.9739 463.09 -2.x1) 2 (RM-RM) -9.81 4.1 5.1 -11.261778 34.607 indicates that returns on portfolio-2 would change by 1.493146 135.47 8.70 2.945.3.4064 4.807 1362.5.Table 4.3.057 8. Table 4.653.123 8.17 37.790.85 2.69 2.a 31 .577 -2.62522 0.772 125.5284 350.32 3.07 19.0516 65.094 -9.8 -0.179 11.10672 66. total risk of Individual portfolio-5 increased to 17.11 -11.138.3 -2.1632 252.75 -0.19 -7.5565 16.940536 13.6.710.41 317.39 -1.717 6.1 -2.06 19.944 561.9925 0.1071 71.874.44 954.420.4 -1.41 4.66 4.136.269986 Standard deviation for individual portfolio-5 =17.309.080.26 5.02 (R2-R2) (RM .7 -1.1 -4.01415 ( x1.048 % Interpretation: When compare with market.89 6.79 -23.5 = 1.671.214 Beta for individual portfolio.97 2.5946 3.709.5169 167.028) Expected return E (R5) = 0.736 68.83 2.0036 396.46 3.06 0.134 -15.54 159.44 1.140.32 1.6 7.84 0.8 12.25 -2.24 1.18 26.78 -12.651.72 54.69 -11.22 136.24 36.23 2.652 12.31 -2.46 8.710 Market return -9.59 3.794.68 2.19337 107.15 -1.044 0.11 -4.7 677.64 -8.33 42.048 percent.22 -3.b Calculation of standard deviation beta and expected return for individual portfolio-5 Month Jan -08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Monthly value of portfolio 5 3.16 -1.92 3.59 2.67 1.206167 734.33 3.67 28.328 100.87232 76.30 29.3 3.96 399.64 λ = (-0.74 -0.607 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).07 1.21 Return % -5.2824 73.22 57.30 2.188.64 16.75 -6.7 -11.354.05 3.8 -23.7 2.253 42.3681 27.164.59 1595.3360 278.27 -18.528.79 -0.4044 233.85 985.96 3.66 7.7 2.83 1. The beta 1.91 17.41 14.RM) 58.57 48.608 50.44 1.440.63 -8.25 5.78 2. This portfolio better performed than market.214.78 -0.348.30 2.24 Mean return = 0.201 -0.09 5.83 362.2041 0.37287 25.59 7.9321 3.23556 144.62 -39.2 146.68 -19.2 -7.03 (RM-RM)² 92.22 3.81 12.12761 946.92265 11.9 17.050.95 -6.908 7.37 840.8 4.552 22. the expected rate of return increased to 0.

1 Expected return E (R1) = RF + λσ1 32 . India Cements Ltd Gail(India) Ltd Dalmia Cement (Bharat) Ltd NCL Industries Limited Ambuja Cements Ltd Chettinad Cement Corporation Ltd Bil Power Limited Cov (RA. RM) = n-1 ∑ (RM – RM) 2 σ2m = n. RM) βi = σ2m ∑ (RA – RA) (RM-RM) Cov (RA. no 1 2 3 4 5 6 7 8 9 10 Securities Madras Cements Ltd Mangalam Cement Ltd Jindal steel & power ltd.Selected securities for individual portfolio-6 Individual portfolio -6 S.

4491 536.044.042.33 3.89 6.9 17.49 λ = (-0.7 -11.63 -8.21 136.46 8.52 6.37 7.81 4.066 Market return -9.32 3.907 -0.Table 4.924 21.14 -1.37 2.64 16.3 -2.405.552.702369 64.36585 25.25202 226.8 -0.779.2041 0.RM) 455.6656 1.07032 percent.15 -1.8 -23.361.02 (RM-RM) -9.39 -1.25 5.59 7.11 -11.058 -25.2161 57.31 -2.9321 3.09 5.09 -2.48 7.943.6.89 -2.70 2.36503 22.18 1.67 6.204. the expected rate of return decreased to 0.44 Beta = 1.6401 11.008.66 2.x1)2 2233.3922 29.b Calculation of standard deviation beta and expected return for individual portfolio-6 Month Jan -08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Monthly value of portfolio 6 16.80 3.2157 425.013.47 8.91 17.24 Standard deviation of individual portfolio-6 =21.15 3.103.07639 -11.98 4.933.813.06 19.2 -7.8 4.03 (R2-R2) (RM .81 3.180 243.4301 208.8 12.84 1.26 5.40553 31.79 -0.608 50.66 4.712 9.682.82 -9.021.74 -0.214.426 73.8925 21.67 5.667 28.35 0.331 571.3681 27.3.936 386.69 2.003.823 -118.409 14.3525 -29.4457 13.6 7.79 -23.015.56445 81.87 6.35 2.1 -4.4642 1347.93 -1.444 203.539 754.88797 5.69 10.7816 332.82062 (RM-RM )² 92.16 -1.27 5.4 -1.1 -11.0752 36. The beta 1.95 -6.87 -8.59 2.19 -7.07032) % E (R6) = RF+λσ5 Interpretation: When compare with market.487.84 8.693 32.19 146.2611 3235.44 -11.884.22798 -26. 33 .12 18.063.81 12.346 21.37 18.49 2.78 997.438 -3.1 5.0036 396. This portfolio better performed than market.028) = (-0.32 3.736 68.936 56.51 17.0244 725.0516 65.1 -2.294.102 ( x1.4641 0.41 4.519 9.07 19.503902 1.9543 28.23 -37.06 0.15318 -104.41 317.944 561.9653 -0.7 2.75 Return % -52.11 -4.7911 82.64 -8.20528 -4.812.95231 37.88 -62.49 percent with 1 percent change in the returns on market portfolio (represented by S&P CNX NIFTY).30 2.070.67 6.907 8.03 39.49 indicates that returns on portfolio-2 would change by 1.75 -0.17 4.69 -11.41 1.775.772 125.552 22.49 -10. total risk of Individual portfolio-6 increased to 17.

409 -4.048 -0.39 -3.1.ASSESSING PORTFOLIO PERFORMANCE USING SHARPE RATIO AND TREYNOR RATIO Performance measure: For evaluating the performance of a portfolio it is necessary to consider both risk and return.4.44 Expected rate of return -0.02 12.04876 0.R F Sharpe ratio Treynor measure: RP .67 17.03056 0.15 21.47612 0.3065 1.93 0.07032 Beta 1 1.64 1.RF Treynor = βP Table 4.a Consolidated table s.06248 -0.15 1.00565 -0. no 1 2 3 4 5 6 7 Particulars Market portfolio Individual portfolio -1 Individual portfolio -2 Individual portfolio -3 Individual portfolio -4 Individual portfolio -5 Individual portfolio-6 Mean -0.218 1.833 20.49 = SD (RP) 34 . There are two techniques used to measure the portfolio performance Sharpe measure: RP .607 1.1898 -0.16 20.0056 -3.27 -5.214 21.56 Standard deviation 9.

00996 -0.23251 -0.15854 -4. But portfolio 2 & 5 are better performed the market. These individual portfolios are underperformed the market.Both the Sharpe Ratio and the Treynor index are greater for the market than for the individual portfolio1.2891 -0.28405 Treynor index -0.0151 -0.1.4.10522 -3.b Assessing portfolio performance S. Treynor index < 0).76579 -2. Particulars Market portfolio Individual portfolio -1 Individual portfolio -2 Individual portfolio -3 Individual portfolio -4 Individual portfolio -5 Individual portfolio-6 Sharpe Ratio -0.08725 35 .Table 4.20011 -0. 3.5356 -3. (Sharpe ratio < 0.05447 -0. no 1 2 3 4 5 6 7 Interpretation: Market portfolio: Poor relative performance exists in the market portfolio.21577 -0. 4 &6.77536 -0.

a Capital market line s.833 20.1898) & 5 (return=0.53 Exhibit 4.214 21. The efficient portfolios are the portfolio 2 (return =0.00565 -0.2.06248 -0.4.048 -0. no 1 2 3 4 5 6 7 8 Particulars Market portfolio Individual portfolio -1 Individual portfolio -2 Individual portfolio -3 Individual portfolio -4 Individual portfolio -5 Individual portfolio-6 Risk-free return Standard deviation 9.2.07032 0.67 17.1898 -0.048) because these two portfolios are nearer to the CML when compare to others.44 0 Expected rate of return -0.02 12.16 20.15 21.04876 0. 36 .a Capital Market Line (CML) Inference: There is a negative relationship between risk and return of the market portfolio.03056 0.4.Table 4.

called the security market line (SML).Rf x βi In words.Security Market Line (SML) The SML depicts the relationship between the expected rate of return and systematic risk for individual securities. 37 . the SML relationship says: Expected return on security i= risk-free return + market risk premium x Beta of security i Beta calculation: The beta calculated from the monthly average share price (Annexure III). is as follows: σim Βi = σ2m E (Ri)=Rf + E (Rm) . There is a linear relationship between their expected return and their covariance with the market portfolio. This relationship. because it deals with individual securities.

42 0.53 0.53 0.1 Estimation of expected rate of return for the securities of individual portfolio.502871 -0.0057 -0.Table 4.0057 -0.44 1.156833 -0.0057 -0.0057 -0.0057 -0.67 1.084345 0.1 Individual portfolio -1 RF RM s.53 0. This clearly shows that the negative relationship between risk & return.53 0. The Jaiprakash Hydro-Power Limited has high risk and less return. Ltd Power Finance Corporation Hindustan Petroleum Corporation Ltd.53 0.75 1.0057 0.299308 -0.0057 -0.387525 Interpretation: From the above table shows that Chettinad cement corporation ltd has low risk and high expected return when compared to other securities.482813 0.53 0.31 1. 38 .162076 -0.0057 Beta 0.5. no 1 2 3 4 5 6 7 8 9 10 Securities Chettinad Cement Corporation Ltd Bharat petroleum corporation.53 0.0057 -0. Ncl Industries Limited Electro steel Castings Ltd Jaiprakash Hydro-Power Limited Visa Steel Limited 0.32 1.53 -0.309794 0.85 0.387525 -0.09 0. Mangalam Cement Ltd Jindal steel & power ltd.97 1.0057 -0.75 Expected return % ER =RF + β (RM-RF) 0.345581 -0.53 0.53 0.

109646 -0. Jsw Steel Limited has high risk and less return.53 0.53 0.87 0. 39 .42 1.30888 -0.0057 -0.115803 -0.53 -0.53 0.53 0.42 Expected return% ER =RF + β (RM-RF) -0. Ltd Gujarat State Petronet Limited Tata Steel Limited Oil & Natural Gas Corporation Ltd Jsw Steel Limited Msp Steel & Power Limited Visa Steel Limited Bhushan Steel Limited 0.53 0.0057 -0.06 0.53 0.2 Estimation of expected rate of return for the securities of individual portfolio.0057 -0.147261 0.26 1.0057 -0.73 0.0057 0.214506 Interpretation: From the above table shows that Bharat petroleum corporation ltd has low risk and high expected return when compared to other securities.309794 -0.0057 Beta 1.0057 -0.0057 -0.79 2.6 1.53 0.2 Individual portfolio -2 RF RM s.025758 0.Table 4.53 0.0057 -0.450441 0.22 1.75 1.53 0. no 1 2 3 4 5 6 7 8 9 10 Securities Bil power Limited Acc Ltd Bharat petroleum corporation.654918 -0.0057 -0.387525 -0.5.

53 0.53 0.48 0.36131 -0.0057 -0.35 1. Power Grid corporation of India ltd Electro steel castings ltd Ncl industries limited Chettinad cement corporation ltd 0.09 Expected return% ER =RF + β (RM-RF) 0.0057 -0.78 1.121046 -0.482813 Interpretation: From the above table shows that Chettinad cement corporation ltd has low risk and high expected return when compared to other securities.0057 -0.0057 -0.5.345581 0.75 1.0057 -0.53 0.0057 -0. no 1 2 3 4 5 6 7 8 9 10 Securities NTPC limited Petronet Lng Limited Dalmia Cement (Bharat) Ltd Ambuja Cements Ltd Jk Cement Limited Jindal steel & power ltd.3 Estimation of expected rate of return for the securities of individual portfolio.Table 4.245964 0.288822 -0.156833 0.0057 Beta 0. The highest risk and lowest return present in Electro steel Castings Ltd has high risk and less return.53 0. 40 .7 1.46 1.0057 -0.59 1.0057 -0.67 0.31 0.53 0.220663 -0.0057 0.53 -0.53 0.3 Individual portfolio -3 RF RM s.53 0.177805 -0.53 0.53 0.387525 -0.

345581 Interpretation: From the above table shows that Chennai petroleum corporation ltd.53 0.32 0.0057 -0. 41 .97 0.0057 1.53 0.382282 0.482813 0.85 1. Steel Authority of India Bhushan Steel Limited Mangalam Cement Ltd Power Finance Corporation Jindal steel & power ltd.42 1.67 -0.53 0. no Securities RM Beta Expected return % ER =RF + β (RM-RF) 1 2 3 4 5 6 7 8 9 10 Madras Cements Ltd Hindustan Petroleum Corporation Ltd India Cements Ltd Jaiprakash hydro-power limited Chennai Petroleum Corporation Ltd.4 Estimation of expected rate of return for the securities of individual portfolio.0057 0. The high risk and low return present in Madras cement ltd.0057 -0.0057 -0.042401 -0.162076 0.0057 -0.53 -0.502871 0.53 0.53 0. has low risk and high expected return when compared to other securities.53 0.0057 -0.44 0.0057 -0.0057 -0.93 1.084345 -0. 0.0057 -0.74 0.53 0.299308 0.5.119 1.Table 4.4676083 -0.53 0.214506 -0.53 0.09 0.4 Individual portfolio -4 RF s.

Table 4.072945 0.0057 -0.53 0.53 0.482813 0.0057 -0. Here high risk and less return present in Jsw Steel Limited.53 0.97 1. 42 .0057 0.0057 -0.53 0.22 1. no 1 2 3 4 5 6 7 8 9 10 RF RM Securities Chennai Petroleum Corporation Limited Ambuja Cements Ltd Jsw Steel Limited Gujarat State Petronet Limited Tata Steel Limited Power Grid Corporation of India Ltd Steel Authority of India Jaiprakash Hydro-Power Limited Tata Steel Limited NCL Industries Limited 0.0057 -0.5.11 9 1.97 1.0057 -0.53 0.78 2.87 1.502871 -0.26 1.109646 -0.0057 -0.4676083 -0.0057 -0.5 Individual portfolio -5 s.53 0.0057 Beta 0.31 Expected return ER =RF + β (RM-RF) 0.654918 -0.09 0. has low risk and high expected return when compared to other securities.5 Estimation of expected rate of return for the securities of individual portfolio.502871 -0.53 0.15 0.53 0.450441 -0.156833 Interpretation: From the above table shows that Chennai petroleum corporation ltd.121046 -0.53 -0.0057 -0.53 0.

345581 0.32 1.121046 0.53 0.06 Expected return ER =RF + β (RM-RF) -0.162076 -0.53 0. India Cements Ltd Gail (India)Ltd Dalmia Cement (Bharat) Ltd NCL Industries Limited Ambuja Cements Ltd Chettinad Cement Corporation Ltd Bilpower Limited RF 0.53 0.53 0.482813 -0.78 0.021 -0.09 1.0057 -0.Table 4.0057 0.6 Estimation of expected rate of return for the securities of individual portfolio.382282 -0.0057 Beta 1.025758 Interpretation: From the above table shows that Chettinad cement corporation ltd has low risk and high expected return when compared to other securities.5.0057 -0.0057 -0.93 0.53 0.245964 -0.53 0.042401 0.74 1.0057 -0.53 0. 43 .31 0.53 0.48 1.0057 -0.0057 -0.95 1. Here the madras cements has high risk and less return.0057 -0.0057 -0.53 0.53 RM -0.6 Individual portfolio -6 s. no 1 2 3 4 5 6 7 8 9 10 Securities Madras Cements Ltd Mangalam Cement Ltd Jindal Steel & Power Ltd.67 0.156833 0.

6.1.121 0.246 0.3098 0.157 -0.42 1. no Securities 1 Bharat petroleum Corpn.147261 0.31 1 0 Expected return 0. Except NCL Industries. Table 4.042 -0.6.1.93 1. no 1 2 3 4 5 6 7 8 9 10 11 Securities Acc Ltd Ambuja Cements Ltd Chettinad Cement Corporation Ltd Dalmia Cement (Bharat) Ltd India Cements Ltd Jk Cement Limited Madras Cements Ltd Mangalam Cement Ltd Ncl Industries Limited Market portfolio Risk-Free Return Beta 0.a Security market line for cement sector S.74 1.09 1.48 0.73 0.483 -0.48 .Table 4.1. other securities are moving with SML.78 0.6. Ltd 2 Chennai Petroleum Corporation Limited 44 Beta 0.a Security Market Line (SML) for cement sector Inference: There is a negative relationship between risk and return for securities of cement sector.b Security market line for Oil & gas sector S.7 1.00565 0.382 -0.361 -0.32 1.52 Expected return 0.53 Exhibit 4.162 -1.

116 -0.22 0.1.00565 0.1.79 1.4. Except Chennai Petroleum Corporation.6.299 0.53 Exhibit 4.75 Expected return 0. Jsw Steel Limited MSP Steel & Power Limited Tata Steel Limited Visa Steel Limited 45 Beta 1.75 1. Table 4.44 0.95 1.1096 0. Oil & Natural Gas Corpn Ltd Petronet Lng Limited Market portfolio Risk-Free Return 0.26 1.c Security market line for Steel sector S.178 -0.389 -0. no 1 2 3 4 5 6 7 Securities Bhushan Steel Limited Electrosteel Castings Ltd Jindal Steel & Power ltd.6.39 .655 -0.b Security Market Line (SML) Oil & gas sector Inference: There is a negative relationship between risk and return for securities of oil & gas sector.346 -0.3089 -0. other securities are moving with SML.2145 -0.6 1.021 -0.42 1.45 -0.87 1.3 4 5 6 7 8 9 Gail (India) Limited Gujarat State Petronet Limited Hindustan Petroleum Corporation Ltd.35 1 0 0.67 2.

00565 0.8 9 10 Steel authority of india Market portfolio Risk-free return 0.d Security market line for Power sector 46 .6.503 0.468 -0.85 0. no 1 2 3 4 5 6 7 8 Securities Bilpower Limited Gujarat industries Power Co.084 0.6.1.00565 0.225 -0.221 -0.97 0.d Security market line for Power sector S. Ltd Jaiprakash Hydro-Power Limited NTPC Limited Power Finance Corporation Power Grid Corporation of India Ltd Market portfolio Risk-free return Beta 1.46 0.119 1 0 0.02576 -0.1.c Security market line for Steel sector Inference: There is a negative relationship between risk and return for securities of steel sector.53 Exhibit 4.06 1. Table 4.53 Exhibit 4.289 0.4.41 1.6. other securities are moving with SML. Except Bhushan Steel.59 1 0 Expected return -0.1.

All securities are moving with SML.Inference: There is a negative relationship between risk and return of the individual securities of power sector. 47 .

IDENTIFICATION OF UNDER.AND OVER –VALUED ASSETS The individual assets/ securities and portfolio are priced correctly. Under value assets: The security which has positive alpha is mispriced and undervalued asset. they lie exactly on the SML Alpha: The vertical distance between the fair return predicted by the SML and return actually expected by an investor is called the alpha (α). 48 . Fairly priced assets: The security which has zero alpha is fairly priced asset. Over value assets: The security which has negative alpha is mispriced and overvalued asset.

523 -3. Buy The investor can buy under priced securities like Jk Cement Limited.622 1.042 -0.382 -0.43 Expected return from SML 0.04 -3.46 -0.74 -0.018 0. Sell The investor can sell over priced securities like Chettinad Cement Corporation Ltd.162 -1.58 0.TABLE 4.147261 0.312739 -0.273 Decision from alpha fairly priced over priced over priced over priced over priced under priced over priced under priced fairly priced Interpretation: Hold NCL industries ltd & ACC ltd are fairly priced securities. so it can be hold. no 1 2 3 4 5 6 7 8 9 Securities Acc Ltd Ambuja Cements Ltd Chettinad Cement Corporation Ltd Dalmia Cement (Bharat) Ltd India Cements Ltd Jk Cement Limited Madras Cements Ltd Mangalam Cement Ltd NCL Industries Limited Actual return 0.66 -1.822 -0.483 -0.1 SECTOR WISE IDENTIFICATION OF UNDER-AND OVER-VALUED ASSETS Cement sector: S.861 -0.4 0. 49 .39 -2.181 -4. Dalmia Cement (Bharat) Ltd India Cements Ltd and Madras Cements Ltd.246 0.7.361 -0.157 alpha 0.121 0.144 -2. Mangalam Cement Ltd.82 -4.

3098 0.941 0.2 Sector wise identification of under-and over-valued assets Oil & gas sector S.84 -0.6196 0.1096 0. so it can be hold.384 0.299 0.24 0.Table 4. no 1 2 3 4 5 6 7 Securities Bharat Petroleum Corporation.48 0.169 1. Oil & Natural Gas Corporation Ltd.7.448 Decision from alpha under priced over priced fairly priced under priced under priced fairly priced fairly priced 50 . Ltd Chennai Petroleum Corporation Limited GAIL (India) Limited Gujarat State Petronet Limited Hindustan Petroleum Corporation Ltd.5302 -1.19 0. Gujarat State Petronet Limited. Hindustan Petroleum Corporation Ltd.71 0.5 0. Ltd .51 1.27 Expecte d return from SML 0. Oil & Natural Gas Corpn Ltd Petronet Lng Limited Interpretation: Hold Gail (India) Limited.021 -0. Petronet Lng Limited are fairly priced securities.178 alpha 1.19 1. Sell The investor can sell over priced securities like Chennai Petroleum Corporation Limited Actual return 1. Buy The investor can buy under priced securities like Bharat Petroleum Corporation.116 -0.

655 -0.09 0. Tata Steel Limited And Visa Steel Limited.389 -0.45 -0. Sell The investor can sell over priced securities like Jindal Steel & Power Ltd.69 Expected return from SML 0.39 0.89 0.3 Sector wise identification of under-and over-valued assets Steel sector S.201 -4.5 -0.344 3. Jsw Steel Limited.64 0. Msp Steel & Power Limited. so it can be hold.Table 4.7. Jsw Steel Limited Msp Steel & Power Limited Tata Steel Limited Visa Steel Limited Steel Authority of India Actual return 2.2145 -0.346 -0.9055 -0.12 -0. 51 .155 -0.65 0.26 0.468 alpha 1.69 2.222 Decision from alpha under priced fairly priced over priced under priced over priced under priced under priced fairly priced Interpretation: Hold Electro steel Castings Ltd and sail are fairly priced securities.5811 1.59 -4. no 1 2 3 4 5 6 7 8 Securities Bhushan Steel Limited Electro Steel Castings Ltd Jindal Steel & Power Ltd. Buy The investor can buy under priced securities like Bhushan Steel Limited.3089 -0.

05 -0. Ltd Jaiprakash Hydro-Power Limited NTPC Limited Power Finance Corporation Power Grid Corporation of India Ltd Actual return -0. ltd.4 Sector wise identification of under-and over-valued assets Power sector: S. 52 . Sell The investor can sell over priced securities like Bil power Limited. Jaiprakash Hydro-Power Limited and Power Finance Corporation.599 0.73 -0.Table 4.7.58 0.221 -0.289 -0.225 0.966 0. Buy The investor can buy under priced securities like Gujarat Industries Power co.76424 -0.79 0.31 1.801 Decision from alpha over priced under priced under priced over priced under priced over priced Interpretation: From the above table the investor can take two decisions.084 0.503 1.58 Expected return alpha from SML -0. NTPC Limited & Power Grid Corporation Of India Ltd.805 -0.02576 -0. no 1 2 3 4 5 6 Securities Bil Power Limited Gujarat Industries Power co.233 0.

But portfolio 2 & 5 better performed the market. Poor relative performance exists in the market portfolio. NCL Industries. there is a negative relationship exists between risk and return of market portfolio. There is no fairly priced security present in Power sector. Fairly priced securities in Oil & gas sector are GAIL. 2. 3. 13.CHAPTER -5 FINDINGS 1. Madras Cements. Jaiprakash Hydro Power. Msp steel. Over priced securities in Cement sector are Chettinad cement. Jk cements. 6. Petronet Lng ltd. (Sharpe ratio<0. These individual portfolios are underperformed the market. 8. Over priced securities in Power sector BIL power. From the security market line. India cements. Under priced securities in Steel sector are Bhushan steel. over priced securities in Oil & Gas sector are Chennai petroleum. 12. and Ambuja Cements. 3. Gujarat state Petronet. 4 &6. 11. Over priced securities in Steel sector are Jindal steel. Oil & Natural gas Corporation. Fairly priced securities in Cement sector are Acc. 53 . Visa steel. NTPC. 7. Steel Authority of India. Under priced securities in Power sector are Gujarat industries. Power Grid Corporation. Fairly priced securities in Steel sector are Electro Steel. Hindustan petroleum. Dalmia cements. Under priced securities in Cement sector are Mangalam cements. there is a negative relationship exists between risk and return of individual securities. From the capital market line. Treynor index< 0) both the Sharpe and Treynor index are greater for the market than for the individual portfolio 1. Tata steel. Power Finance Corporation. 5. Jsw steel. 10. The portfolio 2 & 5 are efficient portfolios. 4. 9. Under priced securities in Oil & Gas sector are Bharat petroleum.

market risk (beta) in Cement. Steel. the investors who need better return may choose the security which has below. The investors can earn positive rate of return by efficient portfolio management. oil &Gas and Power sectors. 54 .CHAPTER -6 CONCLUSION When seeing overall market condition the study tells that.

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