INTRODUCTION

Investment is the activity, which is made with the objective of earning some sort of positive
returns in the future. It is the commitment of the funds to earn future returns and it involves
sacrificing the present investment for the future return. Every person makes the investment so
that the funds he has increases as keeping cash with himself is not going to help as it will not
generate any returns and also with the passage of time the time value of the money will come
down. As the inflation will rise the purchasing power of the money will come down and this will
result that the investor who does not invest will become more poor as he will not have any funds
whose value have been increased. Thus every person whether he is a businessman or a common
man will make the investment with the objective of getting future returns.

TYPES OF INVESTMENT:There are basically three types of investments from which the investors can choose. The three
kinds of investment have their own risk and return profile and investor will decide to invest
taking into account his own risk appetite. The main types of investments are
Economic investments:
These investments refer to the net addition to the capital stock of the society. The capital stock
of the society refers to the investments made in plant, building, land and machinery which are
used for the further production of the goods. This type of investments are very important for the
development of the economy because if the investment are not made in the plant and machinery
the industrial production will come down and which will bring down the overall growth of the
economy.
Financial Investments:
This type of investments refers to the investments made in the marketable securities which are
of tradable nature. It includes the shares, debentures, bonds and units of the mutual funds and
any other securities which is covered under the ambit of the Securities Contract Regulations Act
definition of the word security. The investments made in the capital market instruments are of
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vital important for the country economic growth as the stock market index is called as the
barometer of the economy.
General Investments:
These investments refer to the investments made by the common investor in his own small assets
like the television, car, house, motor cycle. These types of investments are termed as the
household investments. Such types of investment are important for the domestic economy of the
country. When the demand in the domestic economy boost the over all productions and the
manufacturing in the industrial sectors also goes up and this causes rise in the employment
activity and thus boost up the GDP growth rate of the country. The organizations like the Central
Statistical Organization (CSO) regularly takes the study of the investments made in the
household sector which shows that the level of consumptions in the domestic markets.

CHARACTERISICS OF INVESTMENT
Certain features characterize all investments. The following are the main
characteristics features if investments
1. Return:
All investments are characterized by the expectation of a return. In fact, investments are made
with the primary objective of deriving a return. The return may be received in the form of yield
plus capital appreciation. The difference between the sale price & the purchase price is capital
appreciation. The dividend or interest received from the investment is the yield. Different types
of investments promise different rates of return. The return from an investment depends upon the
nature of investment, the maturity period & a host of other factors.

2. Risk:
Risk is inherent in any investment. The risk may relate to loss of capital, delay in repayment of
capital, nonpayment of interest, or variability of returns. While some investments like

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government securities & bank deposits are almost risk less, others are more risky. The risk of an
investment depends on the following factors.
The longer the maturity period, the longer is the risk.The lower the credit worthiness of the
borrower, the higher is the risk.
The risk varies with the nature of investment. Investments in ownership securities like equity
share carry higher risk compared to investments in debt instrument like debentures & bonds.
3. Safety:
The safety of an investment implies the certainty of return of capital without loss of money or
time. Safety is another features which an investors desire for his investments. Every investor
expects to get back his capital on maturity without loss & without delay.
4. Liquidity:
An investment, which is easily saleable, or marketable without loss of money & without loss of
time is said to possess liquidity. Some investments like company deposits, bank deposits, P.O.
deposits, NSC, NSS etc. are not marketable. Some investment instrument like preference shares
& debentures are marketable, but there are no buyers in many cases & hence their liquidity is
negligible. Equity shares of companies listed on stock exchanges are easily marketable through
the stock exchanges.
An investor generally prefers liquidity for his investment, safety of his funds, a good return with
minimum risk or minimization of risk & maximization of return.

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The portfolio is also built up out of the wealth or income of the investor over a period of time. An investor invests his funds in a portfolio expecting to get a good return consistent with the risk that he has to bear. He would attempt to choose the most desirable securities and like to allocate is funds over this group of securities. Portfolio management comprises all the processes involved in the creation and maintenance of an investment portfolio. An investor considering investments in securities is faced with the problem of choosing from among a large number of securities. His choice depends upon the risk and return characteristics of individual securities. separate from those of the components. The combination may have different features of risk & return. The portfolio analysis of the risk and return characteristics of individual securities in the portfolio and changes that may take place in combination with other securities due to interaction among themselves and impact of each one of them on others. The investor faces an infinite number of possible portfolios or groups of securities. The risk and return characteristics of portfolio differ from those of individual securities combining to form a portfolio. It is evident that rational investment activity involves creation of an investment portfolio. This calls for periodical review and revision of investment portfolios of investors.PORTFOLIO Meaning of portfolio. As the economy and the financial environment keep changing the risk return characteristics of individual securities as well as portfolios also change. The return realized from the portfolio has to be measured and the performance of the portfolio has to be evaluated. Thus. The investor tries to choose the optimal portfolio taking in to consideration the risk return characteristics of all possible portfolios. portfolio analysis. Again he is faced with the problem of deciding which securities to hold and how much to invest in each. It deals specifically with the security analysis. A combination of securities with different risk & return characteristics will constitute the portfolio of the investor. a portfolio is the combination of various assets and/or instruments of investments. with a view to suit his risk and return preference to that of the portfolio that he holds. 4 .

Portfolio Analysis A portfolio is a group of securities held together as investment. It is an attempt to spread the risk allover. Portfolio analysis phase of portfolio management consists of identifying the range of possible portfolios that can be 5 . the dividend payout ratio. Technical analysis concentrates on price movements and ignores the fundamentals of the shares.portfolio selection. market share. It means that the market prices will always be equal to the intrinsic value. quality of management etc. Phases of Portfolio Management Security Analysis (a) Fundamental analysis: This analysis concentrates on the fundamental factors affecting the company such as EPS (Earning per share) of the company. The return & risk of each portfolio has to be calculated mathematically and expressed quantitatively. competition faced by the company. Portfolio management is a complex process which tries to make investment activity more rewarding and less risky. This approach holds that market prices instantaneously and fully reflect all relevant available information. Current market price is compared with the future predicted price to determine the mispricing. portfolio revision and portfolio evaluation. Portfolio management makes use of analytical techniques of analysis and conceptual theories regarding rational allocation of funds. (b) Technical analysis: The past movement in the prices of shares is studied to identify trends and patterns and then tries to predict the future price movement. (c) Efficient market hypothesis: This is comparatively more recent approach.

As time passes securities which were once attractive may cease to be so. which is concerned with assessing the performance of the portfolio over a selected period of time in terms of return & risk. Whenever we calculate the mean returns of an investment we also need to calculate the variability in the returns. In other words we can say that risk refers to variability or dispersion. The evaluation provides the necessary feedback for better designing of portfolio the next time around. If any investment is said to invariable it means that it is totally risk free. Harry Markowitzh portfolio theory provides both the conceptual framework and the analytical tools for determining the optimal portfolio in a disciplined and objective way. New securities with anticipation of high returns and low risk may Portfolio Evaluation Portfolio evaluation is the process. Measurement of risk Risk refers to the possibility that the actual outcome of an investment will differ from the expected outcome. Portfolio Selection The goal of portfolio construction is to generate a portfolio that provides the highest returns at a given level of risk. 6 . As the economy and financial markets are highly volatile dynamic changes take place almost daily. Portfolio Revision The investor/portfolio manager has to constantly monitor the portfolio to ensure that it continues to be optimal.constituted from a given set of securities and calculating their risk for further analysis.

It reflects the systematic risk of the portfolio. However. Though past performance alone can not be indicative of future performance. but the funds record is an important indicator too. Therefore. with about 34 players and more than five hundred schemes. The beta of a portfolio is computed the way beta of an individual security is computed. the retail investor faces problems in selecting funds. it is. 7 . there is a need to correctly assess the past performance of different mutual funds. To calculate the beta of a portfolio. regress the rate of return of the portfolio on the rate of return of a market index. frankly. is one of the most preferred investment avenues in India. The slope of this regression line is the portfolio beta. with a plethora of schemes to choose from. Performance Measures Of Mutual Funds Mutual Fund industry today. The variance and the standard deviation of a historical return series is defined as follows: n Beta A measure of risk commonly advocated is beta. Factors such as investment strategy and management style are qualitative.Variance and Standard Deviation The most commonly used measures of risk in finance are variance or its square root the standard deviation. the only quantitative way to judge how good a fund is at present.

in a general. First. called unsystematic risk. which represents fluctuations in the NAV of the fund vis-à-visa market. In other words. which affect all the securities present in the market. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme. Beta is calculated by relating the returns on a mutual fund with the returns in the market. higher will be the risk associated with it. The more responsive the NAV of autual fund is to the changes in the market. higher will be its beta. there must be some performance indicator that will reveal the quality of stock selection of various AMCs. can be defined as variability or fluctuations in the returns generated by it. AMCs must be held accountable for their selection of stocks. called market risk or systematic risk and second. By using the risk return relationship. These fluctuations in the returns generated by a fund are resultant of two guiding forces. we try to assess the competitive strength of the mutual funds vis-à-vis one another in a better way. systematic risk can not. general market fluctuations. Systematic risk. is measured in terms of Beta. it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. The higher the fluctuations in the returns of a fund during a given period. The most important and widely used measures of performance are: The Treynor Measure The Sharpe Measure Jenson Model 8 .Worldwide. good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. In order to determine the risk-adjusted returns of investment portfolios. For mutual funds to grow. Risk associated with a fund. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. fluctuations due to specific securities present in the portfolio of the fund. While unsystematic risk can be diversified through investments in a number of instruments. on the other hand. several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class.

While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund. Symbolically. Symbolically. Rf is risk free rate of return and Bi is beta of the fund. it can be represented as: Treynor's Index (Ti) = (Ri . Si is standard deviation of the fund. as there is no credit risk associated). during a given period and systematic risk associated with it (beta). Ri represents return on fund. which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. a low and negative Sharpe Ratio is an indication of unfavorable performance.The Treynor Measure Developed by Jack Treynor. the model evaluates funds on the basis of reward per unit of total risk.All risk-averse investors would like to maximize this value. a low and negative Treynor's Index is an indication of unfavorable performance.Rf)/Si Where. The Sharpe Measure In this model. According to Sharpe. So. performance of a fund is evaluated on the basis of Sharpe Ratio. it is the total risk of the fund that the investors are concerned about. it can be written as: Sharpe Index (Si) = (Ri . 9 .Rf)/Bi. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government. Where. this performance measure evaluates funds on the basis of Treynor's Index.

Jenson Model Jenson's model proposes another risk adjusted performance measure. as his knowledge of market isprimitive. This measure was developed by Michael Jenson and is sometimes referred to as the Differential Return Method.Higher alpha represents superior performance of the fund and vice versa. Required return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (Rm . 10 .Rf) Where. The surplus between the two returns is called Alpha. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor can not mitigate unsystematic risk. Rm is average market return during the given period. After calculating it. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. which measures the performance of a fund compared with the actual returns over the period. alpha can be obtained by subtracting required return from the actual return of the fund.

The portfolio is also built up out of the wealth or income of the investor over period of a time. In the above discussion. which is inherent in invest. The art of investment is to see that the return is maximized with the minimum of the risk. Return and Risk go together and they have a trade off. if the risk is also higher. Combination of securities with different risk return characteristics will constitute the portfolio of the investor. it is a common knowledge that money or finance is scarce and that investors try to maximize their return. But.NEED FOR THE STUDY: In the finance field. the return is higher. with a view to suit his risk or return preferences to that of the portfolio analysis is thus an analysis of the risk return characteristics of the individual securities in the portfolio and changes that may take place in the combination with other securities due to interaction among themselves and impact of each one of them on others. we concentrated on the word “investment” and for making invest we need to make securities analysis. 11 .

 To provide basic idea of different stock market investment instruments to investor in portfolio management.  To provide investor knowledge about P\E. P\BV and Beta that would help them in selection of script and creation of portfolio.OBJECTIVES OF THE STUDY. 12 .  To help investor in learning about derivative instrument – future for the purpose of speculation and hedging.  To provide knowledge to investor about various type of risk associated with various investment instruments in portfolio.

selection. different theories of portfolio management for effective and efficient portfolio construction. It explains the element of RISK in detail while investing  It explains how portfolio hedges the risk in investment and gives optimum return. 13 . to a given amount of risk.  The report also shows different ways of analysis of securities. It also goes to the in depth of mechanics of portfolio creation.SCOPE OF THE STUDY:  The report deals with the different investment decisions made by different people. revision & evaluation.

websites and financial news paper.Secondary data are collected from various journals. Data collection: Primary data: . And the measures of hedging the portfolio with the use of derivative instrument future. Research design: Research design is exploratory as the basic objective is to identify the stocks and methods to create and protect portfolio. 14 .Primary data are collected by my regularly tracking the stock price of various scripts selected Secondary data: .RESEARCH METHODOLOGY: Research problem: To identified the Stock Market Investment Avenue and methods to help investor in selection of script to create portfolio.

15 .  Detailed study of the topic was not possible due to the limited size of the project. with very little amount of primary data associated with the project.  The time duration given to complete the report was not sufficient.  The report is basically is made between the horizon of two months and the situation of market is very dynamic so the conclusion or the return might not reflect the true picture.LIMITATIONS OF THE STUDY:  The data collected was basically confined to secondary sources.

The three kinds of investment have their own risk and return profile and investor will decide to invest taking into account his own risk appetite. TYPES OF INVESTMENT:There are basically three types of investments from which the investors can choose. Every person makes the investment so that the funds he has increases as keeping cash with himself is not going to help as it will not generate any returns and also with the passage of time the time value of the money will come down. Thus every person whether he is a businessman or a common man will make the investment with the objective of getting future returns. 16 . building. As the inflation will rise the purchasing power of the money will come down and this will result that the investor who does not invest will become more poor as he will not have any funds whose value have been increased. which is made with the objective of earning some sort of positive returns in the future.Theatrical Framework ANALYSIS OF INVESTMENT WHAT IS INVESTMENT? Investment is the activity. land and machinery which are used for the further production of the goods. The main types of investments are: - Economic investments:These investments refer to the net addition to the capital stock of the society. The capital stock of the society refers to the investments made in plant. It is the commitment of the funds to earn future returns and it involves sacrificing the present investment for the future return. This type of investments are very important for the development of the economy because if the investment are not made in the plant and machinery the industrial production will come down and which will bring down the overall growth of the economy.

house. the maturity period & a host of other factors. The organizations like the Central Statistical Organization (CSO) regularly takes the study of the investments made in the household sector which shows that the level of consumptions in the domestic markets. CHARACTERISICS OF INVESTMENT Certain features characterize all investments. In fact. car. bonds and units of the mutual funds and any other securities which is covered under the ambit of the Securities Contract Regulations Act definition of the word security. investments are made with the primary objective of deriving a return.Financial Investments:This type of investments refers to the investments made in the marketable securities which are of tradable nature. The return from an investment depends upon the nature of investment. It includes the shares. motor cycle. The following are the main characteristics features if investments: 1. General Investments:These investments refer to the investments made by the common investor in his own small assets like the television. Return: All investments are characterized by the expectation of a return. Such types of investment are important for the domestic economy of the country. The dividend or interest received from the investment is the yield. The return may be received in the form of yield plus capital appreciation. The investments made in the capital market instruments are of vital important for the country economic growth as the stock market index is called as the barometer of the economy. 17 . When the demand in the domestic economy boost the over all productions and the manufacturing in the industrial sectors also goes up and this causes rise in the employment activity and thus boost up the GDP growth rate of the country. These types of investments are termed as the household investments. debentures. The difference between the sale price & the purchase price is capital appreciation. Different types of investments promise different rates of return.

delay in repayment of capital. or marketable without loss of money & without loss of time is said to possess liquidity. investment is becomes necessary for everyone & it is important & useful in the following ways: 18 . Some investment instrument like preference shares & debentures are marketable. Safety is another features which an investors desire for his investments. are not marketable. While some investments like government securities & bank deposits are almost risk less. An investor generally prefers liquidity for his investment. or variability of returns. safety of his funds. nonpayment of interest. Investments in ownership securities like equity share carry higher risk compared to investments in debt instrument like debentures & bonds. others are more risky. Every investor expects to get back his capital on maturity without loss & without delay. Risk: Risk is inherent in any investment. NSC. P. but there are no buyers in many cases & hence their liquidity is negligible. IMPORTANCE: In the current situation. the longer is the risk. Safety: The safety of an investment implies the certainty of return of capital without loss of money or time. Some investments like company deposits. 4. 0 The longer the maturity period. deposits. which is easily saleable. NSS etc.O. Equity shares of companies listed on stock exchanges are easily marketable through the stock exchanges. a good return with minimum risk or minimization of risk & maximization of return. the higher is the risk. Liquidity: An investment. 3. 1 The lower the credit worthiness of the borrower. bank deposits. The risk of an investment depends on the following factors. 2 The risk varies with the nature of investment.2. The risk may relate to loss of capital.

the trend shows longer life expectancy. In the form investments. 19 . there are various forms of saving outlets in our country. The earning from employment should. which help in bringing down the tax level by offering deductions in personal income.1. 3. This may vary between risky & safe investment. 5 Post office cumulative deposit schemes etc. be calculated in such a manner that a portion should be put away as a savings. Savings by themselves do not increase wealth. 2 Life insurance. The investor has to include in his portfolio several kinds of investments stability of interest is as important as receiving high rate of interest. 4 Development bonds. Increasing rates of taxation: Taxation is one of the crucial factors in any country. 2. These aspects must be considered before actually investing. these must be invested in such a way that the principal & income will be adequate for a greater number of retirement years. in a person’s saving. 3 National saving certificates. For examples: 0 1 Unit linked insurance plan. they may also differ due different benefits schemes offered by the investments. Also. It varies between investment & another. Retirement planning: Investment decision has become significant as people retire between the ages of 55 & 60. which introduce an element of compulsion. Increase in working population. therefore. Rates of interest: - It is also an important aspect for sound investment plan. proper planning for life span & longevity have ensured the need for balanced investments.

6. In these years of rising prices. Apart from putting aside saving in savings 20 . the benefit derived from interest will be compensated by an increase in taxation. hotels. which gives him a high rate of return in form of interest to cover any decrease due to inflation. several problems are associated coupled with a falling standard of living. investment decisions have assumed importance.. erosion of the resource will have to be carefully considered in order to make the right choice of investments. Coupled with high rate of interest. he will have to find an outlet. and education. For example: The Indian administrative services. More avenues for investment have led to the ability & willingness of working people to save & invest their funds. Before funds are invested. which will ensure safety of principal. the interest earned through investment should not unduly increase his taxation burden otherwise. tourism.4. Public sector enterprises. He will also have to judge whether the interest or return will be continuous or there is a likelihood of irregularity. 5. After independence with the stage of development in the country a number of organization & services came into being. Beside high rate of interest & safety of principal an investor also has to always bear in mind the taxation angle. now a day’s inflation becomes a continuous problem. Investment channels: The growth & development of country leading to greater economic activity has led to the introduction of a vast array of investment outlays. Inflation: Since the last decade. Expansion in private corporate sector. The investor will try & search outlets. Banking recruitment services. Income: For increasing in employment opportunities in India. Establishing of financial institutions.

21 . investor have the choice of a variety of instruments. The question to reason out is which is the most suitable channel? Which media will give a balanced growth & stability of return? The investor in his choice of investment will give a balanced growth & stability of return? The investor in his choice of investment will have try & achieve a proper mix between high rates of return to reap the benefits of both. For example: 0 Fixed deposit in corporate sector 1 Unit trust schemes.banks where interest is low.

In India before the post liberalization era there were limited investments avenues available to the people in which they could invest. Today investment is no longer a process of trial and error and it has become a systematized process. The developed countries like the USA and the Japan provide variety of investments as compared to our country. 22 . Earlier the investments were made without any analysis as the complexity involved the investment process were not there and also there was no availability of variety of instruments. But today as the number of investment options have increased and with the variety of investments options available the investor has to take decision according to his own risk and return analysis. With the opening up of the economy the number of investments avenues have also increased and the quality of the investments have also improved due to the use of the professional activity of the players involved in this segment.INVESTMENTS AVENUES:There are various investments avenues provided by a country to its people depending upon the development of the country itself. which involves the use of the professional investment solution provider to play a greater role in the investment process.

They are as under: Investment Equity Fixed Income Deposits Mutual Fund Tax Sheltered Life Insurance Real Estate Precious Financial Derivatives 23 .An investor has a wide array of Investment Avenue.

Without any guaranteed income or security. bringing with them the potential for capital appreciation in return for the additional risk that the investor undertakes in comparison to debt instruments with guaranteed income. unpaid dividends for years of inadequate profits are paid in subsequent years. Classification in terms of Market Capitalisation Market capitalisation is equivalent to the current value of a company i. preference shares entitle the holder to dividends at fixed rates subject to availability of profits after tax. Mid-Cap companies and Small-Cap companies. current market price per share times the number of outstanding shares.e. Losses as well as profits are shared by the equity shareholders. equity shares are a risk investment.  Preference Shares Unlike equity shares. Preference shares do not entitle the holder to ownership privileges such as voting rights at meetings. and each share entitles the holder to ownership privileges such as dividends declared by the company and voting rights at meetings.EQUITY SHARES: - Types of Equity Instruments:  Ordinary Shares Ordinary shareholders are the owners of a company. There are Large Capitalisation companies. If preference shares are cumulative. Different schemes of a fund may define their fund objective 24 . Warrants are in the nature of options on stocks.  Equity Warrants These are long term rights that offer holders the right to purchase equity shares in a company at a fixed price (usually higher than the current market price) within a specified period.

as a preference for Large or Mid or Small-Cap companies' shares. and have higher dividend pay-outs. Classification in terms of Anticipated Earnings In terms of the anticipated earnings of the companies. The P/E analysis is sometimes supplemented with ratios such as Market Price to Book Value and Market Price to Cash Flow per share. These companies may command relatively lower P/E ratios. • Dividend Yield for a stock is the ratio of dividend paid per share to current market price. Young and/or fast growing companies usually have high P/E ratios. their share prices) tend to go up during upward economic cycles and vice versa. Based on companies' anticipated earnings and in the light of the investment management experience the world over. Their earnings (and therefore. Low P/E stocks usually have high dividend yields. What matters to fund managers is the potential dividend yields based on earnings prospects. and indicates what the investors are willing to pay for the company's earning potential. Established companies in mature industries may have lower P/E ratios. stocks are classified in the following groups:  Cyclical Stocks are shares of companies whose earnings are correlated with the state of the economy. Large Cap shares are more liquid and hence easily tradable. The stock markets generally have different indices available to track these different classes of shares. Mid or Small Cap shares may be thought of as having greater growth potential. just as an example.  Growth Stocks are shares of companies whose earnings are expected to increase at rates that exceed normal market levels. Cement or Aluminum producers fall into this category. In India. at least in the past. shares are generally classified on the basis of their market price in relation to one of the following measures: * Price/Earnings Ratio is the price of a share divided by the earnings per share. investors have indicated a preference for the high dividend paying shares. They tend to reinvest earnings and usually have high P/E ratios and 25 .

instruments issued with short-term maturities. there are securities that are discounted securities or zero-coupon bonds that do not pay regular interest at intervals but are bought at a discount to their face value. Fund managers try to identify such currently under-valued stocks that in their opinion can yield superior returns later.  Value Stocks are shares of companies in mature industries and are expected to yield low growth in earnings. Software or information technology company shares are an example of this type. Fund managers try to identify the sectors or companies that have a high growth potential.low dividend yields. have assets whose values have not been recognized by investors in general. typically under one year. A cement company with a lot of real estate and a company with good brand names are examples of potential value shares. A debt security is issued by a borrower and is often known by the issuer category. thus giving us Government Securities and Corporate Securities or FI bonds. are classified as Money Market Securities. However. These companies may. Thus. or be unsecured as is the case with Indian Financial Institution Bonds. while there are also securities that pay interest on a Floating Rate basis. Debt instruments may be secured by the assets of the borrowers as generally in case of Corporate Debentures. Most debt securities are interest-bearing. FIXED INCOME SECURITIES Many instruments give regular income. A large part of the interest-bearing securities are generally Fixed Income-paying. Review of the Indian Debt Market: The Wholesale Debt Market segment deals in fixed income securities and is fast gaining ground in an environment that has largely focused on equities. Debt instruments are also distinguished by their maturity profile. 26 . however. Instruments carrying longer than one-year maturities are generally called Debt Securities.

Zero Coupon Bonds. the market was purely an informal market with most of the trades directly negotiated and struck between various participants. Units of Mutual Funds and Securitized debt by banks. Large investors and a high average trade value characterize this segment. along with effective monitoring and surveillance to the market.The Wholesale Debt Market (WDM) segment of the Exchange commenced operations on June 30. 27 . Till recently. This provided the first formal screen-based trading facility This segment provides trading facilities for a variety of debt instruments including Government Securities. State Government loans. 1994. financial institutions. SLR and Non-SLR Bonds issued by Financial Institutions. Certificate of Deposits. Corporate Debentures. Treasury Bills and Bonds issued by Public Sector Undertakings/ Corporates/ Banks like Floating Rate Bonds. trusts and others. corporate bodies. Commercial Papers. The commencement of this segment by NSE has brought about transparency and efficiency to the debt market.

66 3.55 20032002 343.48 6.61 20022001 292.15 30.54 20062005 580.434.64 6.14 20092008 1.553.crores) Average Daily Value (Rs.461.598.215.778 1.481 167.469.78 3.52 6.783 2.096.804 42.181 1.987 304.Business Growth in WDM Segment: Year Market Number Capitalisation of (Rs.65 20052004 494.794 144.581.308 887.482.833.94 1.263.518 1.94 20082007 864.68 40.crores) Trades Net Traded Value (Rs.470 428.59 145.191 16.24 4.42 20012000 207.98 6.293.216.028.068.277.62 200102009 1.781.092 105.24 1.crores) 20112010 1.16 6.13 364.033 46.851 947.021 6.864 189.701.75 20042003 411.159 458.772 7.54 3.867. Bank CDs have a maturity period of 91 days to one year.37 20072006 756.31 7.277.034.22 3. while those issued by FIs have maturities between one and three years.51 1.734 124.47 Instruments in the Indian Debt Market:  Certificate of Deposit: Certificates of Deposit (CD) are issued by scheduled commercial banks excluding regional rural banks.991 11.crores) Average Trade Size (Rs. 28 .32 6.448 60.41 6.95 6. These are unsecured negotiable promissory notes.191.316.28 5.835 64.470 16.97 20001999 158.821 111.28 377.476.74 7.

 Corporate Debentures: The debentures are usually issued by manufacturing companies with physical assets. Maturity varies between 3 months and 1 year. The typical maturity of these bonds is 3 to 5 years. The RBI decides the cut-off coupon on the basis of bids received during auctions. banks. The FRBs issued by the Government of India are in the form of Stock Certificates or issued by credit to SGL accounts maintained by the RBI.  Government Securities: These are medium to long term interest-bearing obligations issued through the RBI by the Government of India and state governments. FRBs issued by financial institutions are generally unsecured while those from private corporate are secured. Trading in debentures is generally based on the current yield and market values are based on yield-tomaturity.  Treasury Bills: 29 . companies and other corporate bodies registered or incorporated in India. unsecured instrument issued by corporate bodies (public & private) to meet short-term working capital requirements. Commercial Paper: Commercial paper (CP) is a short term. in the form of certificates they are assigned a credit rating by rating agencies. as secured instruments. This instrument can be issued to individuals. There are issues where the rate is pre-specified and the investor only bids for the quantity. In most cases the coupon is paid semi-annually with bullet redemption features. The FRBs are pegged to different reference rates such as T-bills or bank deposit rates. CPs can be issued to NRIs on nonreportable and non-transferable basis.  Floating Rate Bonds (FRB): These are short to medium term interest bearing instruments issued by financial intermediaries and corporate. All publicly issued debentures are listed on exchanges.

T-bills are short-term obligations issued through the RBI by the Government of India at a discount.  Public Sector Undertakings (PSU) Bonds PSU Bonds are medium and long term obligations issued by public sector companies in which the government share holding is generally greater than 51%. There are three broad types of mutual fund schemes. MUTUAL FUND SCHEMES An investor can participant in various schemes floated by mutual fund instead of buying equity shares. PSU bonds in electronic form (demat) are eligible for repo transactions. These instruments have been issued both as regular income bonds and as discounted long-term instruments (deep discount bonds). In mutual funds invest in equity shares & fixed income securities.  Bank/FI Bonds Most of the institutional bonds are in the form of promissory notes transferable by endorsement and delivery. The RBI issues T-bills for different tenures: now 91 -days and 364-days. Some PSU bonds carry tax exemptions. PSU bonds are generally not guaranteed by the government and are in the form of promissory notes transferable by endorsement and delivery. These treasury bills are issued through an auction procedure. issued by the Financial Institutions such as the IDBI/ICICI/ IFCI or by commercial banks.  Growth schemes  Income schemes  Balanced schemes 30 . The minimum maturity is 5 years for taxable bonds and 7 years for tax-free bonds. These are negotiable certificates. The yield is determined on the basis of bids tendered and accepted.

The most important tax sheltered saving schemes in India is:  Employee provident fund scheme  Public provident fund schemes  National saving certificate LIFE INSURANCE In a broad sense. deposits are negotiable or transferable. In India. The important types of deposits in India are:  Bank deposits  Company deposits  Postal deposits. life insurance may be viewed as an investment. unlike fixed income securities. However. the important types of insurance polices are:  Endowment assurance policy  Money back policy 31 .DEPOSITS It is just like fixed income securities earn a fixed return. Insurance premiums represent the sacrifice & the assured sum the benefit.  TAX-SHELTERED SAVING SCHEMES It provides benefits to those who participate in them.

the more affluent investors are likely to be interested in the following types of real estate:  Agricultural land  Semi-urban land PRECIOUS OBJECTS PRECIOUS OBJECTS: It is highly valuable in monetary terms but generally they are small in size. It may be viewed as a side bet on the asset. In addition to a residential house. The important precious objects are:  Gold & silver  Precious stones  Art objects FINANCIAL DERIVATIVES FINANCIAL DERIVATIVES: A financial derivative is an instrument whose value is derived from the value of underlying asset. The most import financial derivatives from the point of view of investors are:  Options  Futures. 32 .REAL ESTATE For the bulk of the investors the most important asset in their portfolio is a residential house.

Meaning of Risk : Risk & uncertainty are an integrate part of an investment decision. However. ‘Uncertainty’ is generally defined to apply to situations where the probabilities cannot be estimated. risk & uncertainty are used interchangeably. 33 . Investors intuitively understand the concept of risk. But. It is this uncertainty associated with the returns from an investment that introduces risk into an investment.RISK – RETURN OF VARIOUS INVESTMENT AVENUES Every investment is characterized by return & risk. so is the future expected return. Technically ‘risk’ can be define as situation where the possible consequences of the decision that is to be taken are known. Risk arises where there is a possibility of variation between expectation and realization with regard to an investment. A person making an investment expects to get some return from the investment in the future. as future is uncertain.

The Treynor ratio relates excess return over the risk-free rate to the additional risk taken. per each unit of market risk assumed.TREYNOR RATIO:The Treynor ratio (sometimes called the reward-to-volatility ratio or Treynor measure). is a measurement of the returns earned in excess of that which could have been earned on an investmentthat has no diversifiable risk (e.g. risk free rate portfolio i's beta SHARPE RATIO:The Sharpe ratio or Sharpe index or Sharpe measure or reward-to-variability ratio is a measure of the excess return (or risk premium) per unit of risk in an investment asset or a trading strategy.. Systematic risk: - 34 . portfolio i's return. Treasury Bills or a completely diversified portfolio). systematic risk is used instead of total risk. named after William Types of risks 1. The higher the ratio. the better the performance of the portfolio under analysis. however.

sociological.Systematic risk is non diversifiable & is associated with the securities market as well as the economic. Example: During a boom period prices of all securities will rise & indicate that the economy is moving towards prosperity. RISKS SYSTAMATIC UNSYSTAMATIC  Market Risk Business Risk  Interest Rate Risk Financial Risk  Purchasing power Risk 35 . Market risk. political. The affect of these factors is to put pressure on all securities in such a way that the prices of all stocks will more in the same direction. interest rate risk & purchasing power risk are grouped under systematic risk. & legal considerations of prices of all securities in the economy.

(3) intermediate or within the cycle. Systematic Risk (A) Market risk: Market risk is referred to as stock variability due to changes in investor’s attitudes & expectations. The investor reaction towards tangible and intangible events is the chief cause affecting ‘market risk’. consumer preferences and management policies. in India purchasing power risk is associated with inflation and rising prices in the economy. The prices of all securities rise or fall depending on the change in interest rates. The longer the maturity period of a security the higher the yield on an investment & lower the fluctuations in prices. 2. Unsystematic Risk: The importance of unsystematic risk arises out of the uncertainty surrounding of particular firm or industry due to factors like labour strike. (2) cyclical (bull and bear markets). Unsystematic risks can owing to these considerations be said to complement the systematic risk forces. (C) Purchasing Power risk: Purchasing power risk is also known as inflation risk. (A) Business risk Every corporate organization has its own objectives and goals and aims at a particular gross profit & operating income & also accepts to provide a certain level of dividend income to its 36 .1. Therefore. and (4) short term. During the last two decades it has been seen that inflationary pressures have been continuously affecting the Indian economy. These may termed as (1) long term. These uncertainties directly affect the financing and operating enviourment of the firm. This risk arises out of change in the prices of goods & services and technically it covers both inflation and deflation periods. (B) Interest rate risk : There are four types of movements in prices of stocks in the markets.

If the capital structure of a company tends to make earning unstable. at the same time providing financial leverage for the common stock holders. If the operating income were as low as 10% or as high as 18% it would be said that the business risk is high. The variance in returns is the financial risk. As long as the earnings of the company are higher than the cost of borrowed funds. Debt financing provides a low cost source of funds to a company. How a company raises funds to finance its needs and growth will have an impact on its future earnings and consequently on the stability of earnings. business risk will be low if the operating income varies between 14% and 16%. the degree of variation from this operating level would measure business risk. a large amount of debt financing also increases the variability of the returns of the common stock holder & thus increases their risk. the company may fail financially.shareholders. Example:If operating income is expected to be 15% in a year. (B) Financial Risk: Financial risk in a company is associated with the method through which it plans its financial structure. Once it identifies its operating level of earnings. It is found that variation in returns for shareholders in levered firms (borrowed funds company) is higher than in unlevered firms. Unfortunately. the earning per share of common stock is increased. 37 . It also hopes to plough back some profits.

So it is difficult for them to chose option.Risk Return Of Various Investment Alternatives Management Decision Market Investment Interest Risk Risk H H L L H H L L M M L L M M L L M M L L L L L L L L L L L L L L L L L L L L H H L L L L L L L H H H H H H M-H H H Risk Required H H M M L L L L L O O O O O Growth stock Speculative common stock Blue chips Convertible referred stock Convertible debentures Corporate bonds Government bonds Short-term bonds Money market funds Life insurance Commercial banks Unit trusts Saving a/c Cash Purchasing Business Power Risk So. there are so many investment options & the different option have different benefits & limitations in the sense risk associated with it. which give maximum return at minimum risk. PORTFOLIO Meaning of portfolio:Portfolio 38 .

He would attempt to choose the most desirable securities and like to allocate is funds over this group of securities. His choice depends upon the risk and return characteristics of individual securities. portfolio revision and portfolio evaluation. This calls for periodical review and revision of investment portfolios of investors. As the economy and the financial environment keep changing the risk return characteristics of individual securities as well as portfolios also change. separate from those of the components. portfolio analysis. Portfolio management makes use of analytical techniques of analysis and conceptual theories regarding rational allocation of 39 . The investor faces an infinite number of possible portfolios or groups of securities. Portfolio management comprises all the processes involved in the creation and maintenance of an investment portfolio. a portfolio is the combination of various assets and/or instruments of investments. It deals specifically with the security analysis.A combination of securities with different risk & return characteristics will constitute the portfolio of the investor. It is evident that rational investment activity involves creation of an investment portfolio. The portfolio analysis of the risk and return characteristics of individual securities in the portfolio and changes that may take place in combination with other securities due to interaction among themselves and impact of each one of them on others. The portfolio is also built up out of the wealth or income of the investor over a period of time. The risk and return characteristics of portfolio differ from those of individual securities combining to form a portfolio. Again he is faced with the problem of deciding which securities to hold and how much to invest in each. with a view to suit his risk and return preference to that of the portfolio that he holds. An investor invests his funds in a portfolio expecting to get a good return consistent with the risk that he has to bear. The investor tries to choose the optimal portfolio taking in to consideration the risk return characteristics of all possible portfolios. Thus. An investor considering investments in securities is faced with the problem of choosing from among a large number of securities. The return realized from the portfolio has to be measured and the performance of the portfolio has to be evaluated. The combination may have different features of risk & return. portfolio selection.

funds. 40 . Portfolio management is a complex process which tries to make investment activity more rewarding and less risky.

This will help in adjusting the amount of risk.e. This can be more appropriately understood from the figure drawn below. and if the investor is taking the risk of M2. As one increases the other will also increase in same of different proportion and same if one decreases the other will also decrease. he is likely to get expected return of R1. From the above discussion we can conclude that the investors can be of the following three types: 41 .PORTFOLIO DESIGN Before designing a portfolio one will have to know the intention of the investor or the returns that the investor is expecting from his investment. he will be getting more returns i. So we can conclude that risk and returns are directly related with each other. This becomes an important point from the point of view of the portfolio designer because if the investor will be ready to take more risk at the same time he will also get more returns. R1 Expected Returns R2 Risk less Investment M1 M2 Risk From the above figure we can see that when the investor is ready to take risk of M 1. R2.

1. 2. Investors willing to take minimum risk and at the same time are also expecting minimum returns. 3. 42 . Investors willing to take moderate risk and at the same time are also expecting moderate returns. Investors willing to take maximum risk and at the same time are also expecting maximum returns.

not your fixed income. it's important to always have some equities in your portfolio (or equity funds) no matter what your age. 43 .PORTFOLIO – AGE RELATIONSHIP Your age will help you determine what a good mix is / portfolio is Age below 30 30 t0 40 40 to 50 50 to 60 above 60 Portfolio 80% in stocks or mutual funds 10% in cash 10% in fixed income 70% in stocks or mutual funds 10% in cash 20% in fixed income 60% in stocks or mutual funds 10% in cash 30% in fixed income 50% in stocks or mutual funds 10% in cash 40% in fixed income 40% in stocks or mutual funds 10% in cash 50% in fixed income These aren't hard and fast allocations. Your risk profile will give you more equities or more fixed income depending on your aggressive or conservative bias. However. this will be the portion of your investments that protects you from the damage. If inflation roars back. just guidelines to get you thinking about how your portfolio should look.

adding a piece at a time. the fixed income of your portfolio should be diversified. Sector Portfolio 1. each one a little different from the other but achieving a uniform whole once the portfolio is complete. They are as follow: 1.  The investment is made for higher return in short term. If you buy bonds and debentures directly or if you invest in FDs. lower fuel prices. Each position needs to be scrutinized as to how it fits into the stocks or bonds that already are in your portfolio. and how they might be affected by the same event such as higher interest rates. 44 .Also. then make sure you have at least five different maturities to spread out the interest rate risk. Random portfolio Random portfolio consists of the scripts that are randomly selected by the investor by its own knowledge and preference of the stocks. Here there is no analysis is done of the script.  Generally in India most of the portfolio are selected according to this random methods as no investor himself in that much analysis of the script. Put your portfolio together like a puzzle. Diversifying in equities and bonds means more than buying a number of positions. Features of random portfolio  There is no method used for selection of the script in the portfolio.  Selection is based on the individual criteria for the scripts. Types of portfolio for study: In portfolio Design. we are considering only two types of portfolio. etc. Random Portfolio 2. they are selected on the tips and buts received by the investors from the external sources.

 Risk regarding the portfolio increases as it is expose to sector specific ups and downs.  Tips are available every where for the investor to pouch.  Maximum exposure to the industry/sector.Advantages of random portfolio  Easier to keep a track on the market as not much time wasted in the analysis. So any news or event has the direct effect on the portfolio. Sector specific portfolio Sector specific portfolio includes securities of those companies which are in the same business. 45 . Disadvantages of random portfolio  There is every chance that you may select a script that has a very bad background in the market.  Such portfolios are not able to sustain when there is a crisis in the market.  There is a very high risk and return involve in such portfolio.  This portfolio seems to have perform better in short term as script are generally which are performing better at that time.  It is the experience of the individual that can fetch him good return. Sector portfolio has the securities of those companies that engage in same kind of business. Features of sector portfolio  Script form the same group of companies that are in to the similar type of business.  Not every time the tips pay off for you. You need to have strong reason to select that script. 2. Investors who have invested their money in these securities had earned very high return. e.g.  Useful investment tools for speculator and short-sellers. Sector portfolios are very useful when there is a particular sector which is doing very good and has a bright future a head. In late 1990’s sector that was providing the highest return was information technology.

Book value can be figured as assets minus liabilities. which is calculated by multiplying the outstanding shares by their current market price. Divide book value by the number of shares outstanding to get book value per share and compare the result to the current stock price to help determine if the company's stock is fairly valued.  It is easy to keep a watch on one sector rather than many. Most stocks trade above book value because investors believe that the company will grow and the 46 . or assets minus liabilities and intangible items such as goodwill. They may eat the profits from other scripts.  Limited exposure to other sectors keeps the portfolio safe from the performance of other sectors in the economy. but can provide an important measure of the relative value of a company over time. not current values. Book value is based on historical costs. or total share price value. Disadvantages of sector portfolio  It is a highly risky portfolio as risk associated with the sector directly affects the performance of the portfolio. There is always the possibly many scripts in the sector may not be giving that much good attractive return as others.  These types of portfolios are not suited for long-term investor as risk taken for the return can be too high. It is better suited for the sectors which have been providing good revenue in the near past. This is contrasted with its market capitalization.  It provides better short term return then other portfolios. either way. You can also compare a company's market value to its book value on a per-share basis. You can have a good command over the things happening. the figure that results is the company's net book value. Advantages of sector portfolio It is better suited to investors who are willing to take risk.

you have to look at earnings relative to the stock price and hence employ the P/E ratio. First. One can compare the P/E ratio of the company with that of the market giving a relative measure. In case of our sensex as we can see that it is currently trading at a P/B ratio of 4. one can obtain some idea of a reasonable price to pay for the stock by comparing its present P/E to its past levels of P/E ratio. One can learn what is a high and what is a low P/E for the individual company.41 this shows the average P/B ratio prevailing in the market. studies done and past market experience have proved that the higher the P/E. When book value per share is higher than the current share price. So any script trading below the P/B of 4. 4 of earnings per share (EPS). When a stock's P-E ratio is high. The P/E ratio takes the stock price and divides it by the last four quarters' worth of earnings.41 can said to be under valued if we keep the BSE SENSEX as bench mark. the better the stock. too. Such companies having low P/B ratio can be considered as value stock and one can thin about investing in those companies. But it would be advisable for an investor to also look at the sector leaders P/B ratio to know what is the common industry P/B and based on that he can decide about whether to invest in the company or not. As such there is no guarantee that low P/B would able to give better return but this stocks are considered to be undervalued so one can think that this companies are undervalued so chances of appreciation are very high in case of low P/B scrip. Big increase in earnings is an important factor for share value appreciation. it would have a P/E of 5. All this suggests that as an investor one has to attempt to purchase a stock close to what is judged as a reasonable P/E ratio based on the 47 . a company's stock may be undervalued and a bargain to investors. The P/E ratio as a guide to investment decisions Earnings per share alone mean absolutely nothing. 20 a share with Rs. In order to get a sense of how expensive or cheap a stock is. One can also use the average P/E ratio over time to help judge the reasonableness of the present levels of prices.value of its shares will. If AB ltd is currently trading at Rs. However. Stocks with low P-E's are typically considered a good value. the majority of investors consider it as pricey or overvalued.

But for an investor it is also advisable to look at the industry P/E as it is more important because just looking at the above position we can see that SBI is trading at a very low P/E of around 8 but if you see that in banking sector that to public sector banks the normal industry P/E is 8 all most all banks are trading around 8 or bellow the P/E of 8.comparisons made. Here there is no analysis is done of the script. so if any IT company having of P/E would considered to be a cheap option for the investor to invest in to.49 is available cheaply. So always it is advisable to look at what is the P/E of industry in which we want to invest to get the better idea. they are selected on the tips and buts received by the investors from the external sources. The new investor can know about the industry P/E or any other companies P/E in any financial magazine or from the internet also if he does not know how to calculate the P/E or is not having the data available with them. 48 . The formula for calculating the P/E ratio is P/E = Current Market Price RANDOM PORTFOLIO Earning Per Share Random portfolio consists of the scripts that are randomly selected by the investor by its own knowledge and preference of the stocks. because if we take the example of IT industry there almost you will find companies around P/E of 30. So the investor should also look at the industry average P/E. So if we just keep the benchmark P/E in mind then we can say that any stock which is trading bellow the P/E of 24.49. One must also realize that we must pay a higher price for a quality company with quality management and attractive earnings potential. In the case if we look at the benchmark of BSE sensex on 1 st of December it is trading at a P/E of 24.

they like to have high beta stocks in their portfolios because if they're right.5 i. If investors are bearish on the market. If there is an increase in the yield of the market. This means it has no predictive value for the future. you've got a way of knowing how your portfolio will 49 . the yield of the individual portfolio may also go up.9%.9/1. High beta shares do move higher than the market when the market rises and the yield of the fund declines more than the yield of the market when the market falls.6. in other words. but it does show that if the stock continues to have the same price patterns relative to the market in general as it has in the past.2% is considered very bullish.A beta for a stock is derived from historical data. then their stocks go up faster than the market in general. the yield of the portfolio goes up by 0. the beta is 0. Beta Factor “Beta” indicates the proportion of the yield of a portfolio to the yield of the entire market (as indicated by some index). When investors are bullish on the market. In the Indian context a beta of 1. One way to do that is to have a mix of stocks that have certain betas in your portfolio. they can then make sure that they have stocks with a beta of 1 or develop a portfolio that has stocks with betas greater than 1 and less than 1 so that they have the whole portfolio with an average beta of 1. beta indicates that for every 1 % increase in the market yield.6%. then they use the low beta or negative beta stocks because their portfolios will go down less than the market and their performance will be better than the general market.We are considering BETA factor to design our Random Portfolio. You can be indifferent to market swings if you know your stocks well. And if they want to be neutral. If the index goes up by 1. and their performance is better than the market.e 0.5% and the yield of your portfolio goes up by 0. Or you can put your portfolio into neutral or bias for the upside if you're bullish or a little for the downside if you're bearish.

you can create your own index fund since you'll move more or less in tandem with the market.perform in relation to the market. 50 . And with a portfolio with an average beta of 1.

Beta of scrips plays vital role in scrip selection in Portfolio management. When B>1 means that scrip is more volatile as compared to market suitable for aggressive investors. When B<1 then scrip is less volatile as compared to market and suitable for defensive investors. Portfolio can be created in many ways as sector wise. SO BASED ON THIS BETA NOW WE WILL PREPARE THREE PORTFOLIO TO MATCH THE RISK TAKING CAPACITY OF AN INVESTOR THAT IS PORTFOLIO AGGRESSIVE MODERATE 51 DEFENSIVE . Suitable for moderate investor. beta wise scrip portfolio.Interpretation of Beta When B = 1 means that the scrip has same volatility as compared to Index. diversified in various sector. investors.

In 1895. in 1865. Its history dates back to nearly 200 years ago. At the end of the American Civil War. they formally established in Bombay. there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850. a disastrous slump began (for example. the Stock Exchange at Bombay was consolidated. 52 . However. The number of brokers increased to about 200 to 250. The East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the close of the eighteenth century. The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60. Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus. the 'Share Mania' in India begun. the brokers who thrived out of Civil War in 1874. In 1887. In 1860-61 the Civil War American broke out and cotton supply from United States of Europe was stopped. the "Native Share and Stock Brokers' Association" (which is alternatively known as "The Stock Exchange ").INTRODUCTION INDUSTRY PROFILE Journey of Indian stock market Indian Stock Markets are one of the oldest in Asia. The earliest records of security dealings in India are meager and obscure. found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business. Though the trading list was broader in 1839. thus. 87). By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. at the end of the American Civil War.

of Stock Exchanges No. (4/2) (Lakh Rs.) 1946 1961 1971 1975 1980 1985 1991 1995 7 7 8 8 9 14 20 22 1125 1203 1599 1552 2265 4344 6229 8593 1506 2111 2838 3230 3697 6174 8967 11784 270 753 1812 2614 3973 9723 32041 59583 971 1292 2675 3273 6750 25302 110279 478121 24 63 113 168 175 224 514 693 86 107 167 211 298 582 1770 358 170 148 126 170 260 344 5564 53 803 .) (5/2) Appreciated value of Capital per Listed Cos. of Listed Cos.) Market Value of Capital per Listed Cos.) Market value of Capital of Listed Cos. (Lakh Rs. (Cr. Rs. No. No. 1 2 3 4 5 6 7 8 As on 31st December No. of Stock Issues of Listed Cos.) Capital per Listed Cos. Rs. Capital of Listed Cos. (Lakh Rs.Growth Pattern of the Indian Stock Market Sr. (Cr.

GoId bonds and other small saving instruments Our core strengths are our expertise in equity research and a wide retail distribution network. Indiainfoline Limited is one of the larger players in distribution of IPOs . Commodities. Investment Banking. comprising the Holding Company India Infoline Ltd (NSE: INDIAINFO. The Company has a full-fledged Research division involved in macro economic studies. Fixed deposits. It has also won the Best Equity House Award from Finance Asia .April 2004. We have an outstanding research division involved in macro – economic studies. BSE: 532636) and it’s Subsidary is one of the leading players in the Indian financial Services space. Indiainfoline Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) providing dual benefit services wherein the investors can use the brokerage services of the Company for executing the transactions and the depository services for settling them. IIFL offers advice and execution platform for the Entire range of financial services covering products ranging from Equities and derivatives. with analyst specializing in particular economic sectors and large cap stocks.com INDIA INFOLINE Limited The IIFL (India Infoline) group.it was ranked number One in 2003-04 as Book Running Lead Manager in public equity offerings by PRIME Database. Insurance. Wealth management.COMPANY PROFILE INDIAINFOLINELTD 5paisa. sectoral research and Company specific equity research combined with a strong and well networked sales force which helps deliver current and up-to-date market information and news. industry and company specific equity research. 54 . Loans. Asset management.

The Company has 113 branches servicing around 1.com where we offer Internet Broking services and also online IPO and Mutual Fund 55 . through our own offices and a large franchisee network. It’s has an Online presence through Kotakstreet.000 customers.00.

1665. Bajaj autoLtd.73.50 Three Months chart The bellow given chart shows the performance of the script in the bse for last three months. Company at glance Industry : -Auto 52 Week High: .10.58 EPS : . It shows the volatility of the stock for the months of November.00 52 Week Low : . December and January. 56 .00 P/E Ratio : .80 Volume : 59847 Face Value: .18.1.920.

Maruti suzuki Ltd.25545 10.2. Company at glance Industry: 52 Week High: 52 Week Low: P/E Ratio: EPS: Volume: Face Value: Auto 1599 1125 60. December and January. 57 .00 Three Months chart The bellow given chart shows the performance of the script in the bse for last three months.15 35.73 2. It shows the volatility of the stock for the months of November.

Industry: 52 Week High: 52 Week Low: P/E Ratio: EPS: Volume: Face Value: Auto 1084 491 86.60 8. December and January. 58 .56. It shows the volatility of the stock for the months of November.4 4.M&M Ltd.768 10 Three Months chart The bellow given chart shows the performance of the script in the bse for last three months.

TATAMOTARS Ltd.43 3. December and January. 59 .43 120. It shows the volatility of the stock for the months of November.789 10 Three Months chart: The bellow given chart shows the performance of the script in the bse for last three months. Industry: 52 Week High: 52 Week Low: P/E Ratio: EPS: Volume: Face Value: Auto 1381 670 9.45.

47 210.78 74.13 254.95 200.93 33.75 53.74 68.27 35.85 280.98 27.75 563.07 20.22 19.04 020.966 Tata motars Bajaj auto M&m 39.94 30.62 22.05 24.14 31.61 27.3 56.93 573.44 57.98 75.2 30.694 42.03 22.3 105.62 30.63 32.62 68.03 1124.19 850.8 352.RATIO ANALYSIS: PER SHARE RATIO Reported Cash EPS Ratio maruti Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Average 11.972 957.53 41.39 150.98 4000.85 30.56 Operatig Profit Per Share maruti Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Average Book Value per Share maruti Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Average 60 .55 181.908 Tata motars Bajaj auto M&m 31.04 30.66 194.26 231.23 24.11 150.682 Tata motars Bajaj auto M&m 13.93 41.31 165.18 65.01 826.788 36.99 726.96 36.63 62.54 30.42 96.44 33.96 30.26 39.67 825.4 20.11 31.83 750.75 93.44 176.86 41.17 151.088 552.86 985.41 20.038 232.29 54.36 203.17 20.49 63.51 341.71 1762.69 28.9 450.072 40.9 100.14 46.

54 92.602 Tatamotars Bajaj auto M&m 78.75 177.044 Tatamotars Bajaj auto M&m 138.64 138.03 12.96 62.64 164.25 40.07 280.12 892.99 16.18 101.9 1004.182 179.78 371.49 64.33 40.18 63.67 15.916 Free Reserve per Share Maruti Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Average 61 .22 80.298 142.52 200.74 50.93 400.41 167.63 149.01 70.506 91.52 277.53 200.15 277.64 160.49 115.58 62.75 153.38 40.32 200.33 43.54 159.32 160.Net Operating Income Per Share Maruti Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Average 35.91 898.97 213.824 178.68 314.12 88.75 57.76 765.87 97.01 16.01 183.02 140.88 129.31 353.15 227.

Reported Cash EPS Ratio Operatig Profit Per Share Book Value per Share 250 200 150 100 50 0 maruti Bajaj autoTata mtsM&m Company Average Return Average Rate Per Share Ratios Net Operating Income Per Share Free Reserve per Share Profitability Ratio Operatig Margin in % 50 40 30 20 10 0 Gross Profit margin in % bajaj Tata maruti M&m Net Profit Margin in % Company Return on long term fund in % 62 .

87 79663. Price as on particular date Company Maruti Tata motars Bajaj auto M&m 10-10-2010 1159 1050 1258 678 Total Return on investment = Total return – total investment = 1114000– 1000000 = 14000.81 290596 1805.00.9927 29.000 Rs.0596 100 . Total return on investment ( in %) = 14 % 63 10-1-2011 1310 1276 1387 310 7.98 1000000 Total Portfolio = 10.Portfolio in Telecom Sector Maruti Tata motars Bajaj auto M&m Average return Portfolio Wi 143.9814 39.26 399927 524.1 415.96631 22.04 229814 722.

one is company specific news and the other is economy specific news so any investor investing in the equity directly has to keep the close track of the economy as well as the company in which they invest to look out for any new development that take place  As in the theoretical way we have scene that the Beta shows the movement or change in the price of script vis-à-vis index. There task does not ends with the selection of script but they are also required to pay close attention to the various happening in the economy that have direct or indirect effect on stock market as we have learn that the price of the script is affected by two factor.  But it is advisable to use the direct equity investment only if the investors have adequate knowledge about selection of stocks. 64 .FINDING OF THE REPORT Findings of the report gives the fruit of the all the analysis done on the research of measuring and comparing performance of the portfolio with the market portfolio. Random portfolio After understanding the various concepts about what are the investments option and what are the risks associated with the various investment avenues. And a Beta >1 is more riskier and hence should give more return as compared to the script having Beta < 1. And also about how one can use Derivative to be specific Future for the purpose of Hedging and Speculation. as the person is taking more risk then he should get more return. But in our case we have scene that Moderate portfolio having Beta < 1 has given more return as compared to Aggressive Portfolio.

 So if one does not have enough knowledge. 65 . This analysis that has been carried out was only for a period of two month there are chances that in the long run aggressive portfolio would outperform the other portfolio.  And we have also scene the Derivative.Future how one can use it for the purpose of speculation and hedging. And the other very important aspect is the regular monitoring of the portfolio and reviewing is also an important aspect that one needs to pay close attention to. But hedging is only for the removal of unnecessary risk or exposure one should not go for hedging for earning excess return. expertise & analytical capabilities then one should avoid going for direct equity investment as the chances of loss increases. So we can easily say that the investment in equity market is subject to market risk and any one having long-term investment horizon should only enter into equity market.

Here in the study it is providing negative return. 66 .  Though random portfolio is having scripts with highest return and volatility.  Form the study it is also proven that even in short run sector portfolio is highly risky option for investment. here are the list of recommendations that comes out of the study.SUGGESTIONS AND RECOMMENDATION From the above given findings and the conclusions of the study done by me.  There is a requirement for frequent portfolio checking to maintain the higher return and to make use of high volatility. but for a long term prospect is becomes hard to fetch good return out of it as it is hard to take use of high volatility. That shows that investors who want to have safe return must think twice before selecting sector portfolio for a long term investment.

851.81% 0.05 0.6 1 ABB 423.77 6 BPCL 3.27 10 GAIL 8.83 0.011.750 0.79 5 BHEL 2.516.53 .000.86 0.460 0.100 1.784 0.736.44% 0.97 0.62 8 DABUR 573.000 1.360 2.91% 0.98 0.000 3.35 12 GRASIM 13 GUJAMBCEM 916.11% 0.21 1.21 9 DRREDDY 383.25 1.98 0.27 2.600.15 1.000 0.000.06 11 GLAXO 847.19 3 BAJAJAUTO 1.030.78 0.43 7 CIPLA 599.17 1.16 2.14 3.27 0.46% 1.456.Annexure NIFTY VALUES S.034.82 0.32 1.09 0.835.62 2 ACC 1.909.705.70% 0.816.35 2.000 67 1.302.13 1.010 4.985 0.71 0.83% 0.466 1.447.61% 1.740.170 0.84% 0.78% 0.69 0.75% 0.29 4 BHARTI 18.No Security Symbol Equity Weightage % Beta R2 Volatility % 1.19 3.933.749.77% 0.26 1.15% 0.7 0.7 0.593.

21 1.755.38 22 INFOSYSTCH 1.93 17 HEROHONDA 399.66% 0.110 0.78 23 IPCL 2.18 26 LT 273.19 1.79 0.000 0.24 2.963 1.896.14 0.34 0.39 2.97% 1.67 20 HINDPETRO 3.35 21 ICICIBANK 8.855.29 1.16 14 HCLTECH 644.372.209.84 0.24% 1.351.444.94 0.393.37% 1.24% 0.29 1.39 1.15 0.18 1.256.625.375.020 2.03 0.16 0.272 2.127.77% 0.340.77 19 HINDLEVER 2.77 27 MARUTI 28 M&M 1.220 0.74% 0.81 0.61% 0.494.23 2.17 1.16 0.07 24 ITC 3.16 3.8 16 HDFCBANK 3.86 0.29% 0.159.815 5.080 1.550.075.87 .41% 1.40% 1.47 25 JETAIRWAYS 863.16 0.95 0.59% 0.89 0.201.684.87 18 HINDALCO 1.82% 1.52% 0.793 3.482.300.798.360.157.812.020 68 1.768 1.37% 0.22 1.3 2.36 2.1.950 4.81 0.07 15 HDFC 2.300 2.75 0.243.000 1.860 3.

397.72 .23 0.12% 0.370.81 1.080.23 1.510 1.43 3.153.82 40 SCI 2.01 34 RANBAXY 1.01% 0.410 6.55 38 SATYAMCOM 646.000.79 0.27 0.13 1.25% 1.81 31 ONGC 14.87% 1.26 0.42% 0.280 1.443.304.8 29 MTNL 6.89% 1.048 1.44 32 ORIENTBANK 2.32 1.024.640 69 0.262.36% 0.300.30% 0.36 3.578.505.21 1.24 3.47 0.71% 0.03 37 SAIL 41.74% 1.823.63% 1.000 0.09 0.862.780 3.300 0.82 0.34 1.042.988.510 0.19 0.39 1.978.45 30 NATIONALUM 6.025.978.935.97% 1.04 0.2 36 RELIANCE 13.096.019.920 11.96 0.37 1.84% 1.31 35 REL 2.339.43 1.27 39 SBIN 5.27 0.2.48 1.03 0.000 0.965 1.22% 1.32 1.19 0.92 41 SUNPHARMA 927.151.44 42 TATACHEM 43 TATAPOWER 2.44 0.924.150 1.08 1.73 33 PNB 3.30% 1.026.06 0.005.000 0.259.450 1.

560 2.841.534.38 1.890 2.69% 1.505.41 1.68 44 TATATEA 562.728.850.05 0.42 0.65 0.809 5.86 50 ZEETELE 412.012 70 0.767.66% 0.922.24 2.72 1.31 49 WIPRO 2.51% 1.14% 1.71 47 TATASTEEL 48 VSNL 5.34 1.16% 1.16 .198 5.29 0.000.26 0.36% 0.73% 1.570 0.000 1.03 0.2.32 45 TATAMOTORS 3.114.15 46 TCS 480.23 1.5 2.78 0.198.478.

25 0.01 5 AUROPHARMA 266.306.NIFTY JUNIOR Security Symbol Equity S.000 314.98 8 BANKINDIA 4.294.81 0.850.15 1.12 0.34 2.17 Volatility % 2.000 3.86% 1.3 2.98 0.55 0.280 2.44 11 BIOCON 500.000.350.65 0.24 0. Weight age % Beta 1 ANDHRABANK 4.789.19 0.34% 1.47% 0.034.72 10 BHARATFORG 441.37% 71 0.55 2 APOLLOTYRE 383.4 0.39 3.75% 1.49 9 BEL 800.000 1.56% 1. No.000 2.08 1.000.88 3 ASHOKLEY 1.45 .26 2.56 0.13 2.000 1.200 1.179.63% 0.770 0.998.97 12 BONGAIREFN 13 CADILAHC 1.04 0.000 1.000.25 1.000.220 1.000 3.73% R2 1.08 2.018.002.59% 1.13 2.44 0.270 0.09 4 ASIANPAINT 962.01 0.94 0.67% 1.379.98% 0.42 6 AVENTIS 230.874.34 1.830 3.62 0.21% 0.71% 0.94 7 BANKBARODA 3.189.670.

18 1.000.54 21 CONCOR 649.31 1.100.37 0.31% 0.050 1.15 0.55 0.99% 0.15 1.33 15 CHENNPETRO 1.95 14 CANBK 4.47 .97% 1 0.500.000 0.76 0.49% 2.29% 1.386.000.913.620 0.15 2.41 0.08 0.236.27 4.429.473.432.400.82% 0.17 16 CMC 151.000 0.162.14 20 GESHIPPING 1.680.25% 72 0.000 1.000 5.17 2.800 0.83 0.92 26 INGERRAND 27 IOB 315.489.18 3.08 0.62 0.91 0.86 0.903.100 3.22 2.9 24 IDBI 7.448.91% 0.434.1 23 IBP 221.000 4.23 1.580 2.970 3.78 25 IFCI 6.4 0.05 1.36% 1.757.000 1.07 2.697.15 2.000 1.50% 0.30% 0.690 0.5 0.74 19 CUMMINSIND 396.000.53 22 I-FLEX 380.2 2.85 18 CORPBANK 1.79% 1.72 1.384.424.47% 1.03 17 COCHINREFN 1.3.83% 0.

2.58
28 JPASSOCIAT

1,855,970,840

3.36%

1.23

0.18
2.49

29 KOTAKBANK

3,092,166,250

2.89%

1

0.13
1.9

30 LICHSGFIN

849,326,000

0.69%

1.02

0.24
2.55

31 LUPIN

401,411,340

1.53%

0.75

0.13
2.67

32 MOSERBAER

1,115,129,440

1.00%

0.92

0.18
0.95

33 MPHASISBFL

1,606,343,030

1.14%

0.94

0.21
1.56

34 NICOLASPIR

418,035,212

2.02%

0.94

0.18
2.45

35 NIRMA

793,824,840

1.58%

0.81

0.16
2.03

36 PATNI

275,596,798

2.63%

0.97

0.24
2.42

37 PFIZER

298,414,400

1.23%

0.5

0.07
2.3

38 POLARIS

490,710,810

0.44%

1.44

0.25
1.5

39 PUNJABTRAC

607,557,000

0.58%

0.67

0.15
1.7

40 RAYMOND

613,808,530

1.09%

0.8

0.18
1.39

41 SIEMENS
42 STER

331,384,030
556,549,450

6.11%
6.02%
73

0.76
1.27

0.14
0.27

2.75

2.92
43 SYNDIBANK

5,219,682,820

1.99%

1.26

0.24
1.14

44 TTML

15,205,344,350

1.53%

1.19

0.27
1.61

45 TVSMOTOR

237,543,557

1.16%

1.1

0.21
1.78

46 UNIONBANK

4,601,179,000

2.29%

1.23

0.27

47 UTIBANK

2,786,241,460

3.72%

0.83

0.1

2.4
1.74
48 VIJAYABANK

4,335,178,000

1.01%

1.2

0.29
1.35

49 INGVYSYABK

905,644,160

0.55%

0.94

0.2
2.04

50 WOCKPHARMA

546,903,005

2.29%

74

1.02

0.24

Journey of Indian stock market
Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago.
The earliest records of security dealings in India are meager and obscure. The East India
Company was the dominant institution in those days and business in its loan securities used to be
transacted towards the close of the eighteenth century
By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in
Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers
recognized by banks and merchants during 1840 and 1850.
The 1850's witnessed a rapid development of commercial enterprise and brokerage business
attracted many men into the field and by 1860 the number of brokers increased into 60.
In 1860-61 the Civil War American broke out and cotton supply from United States of Europe
was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about
200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began
(for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87).
At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a
place in a street (now appropriately called as Dalal Street) where they would conveniently
assemble and transact business. In 1887, they formally established in Bombay, the "Native Share
and Stock Brokers' Association" (which is alternatively known as "The Stock Exchange "). In
1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899.
Thus, the Stock Exchange at Bombay was consolidated.

75

of Stock Issues of Listed Cos .) 6 971 1292 2675 3273 6750 25302 110279 24 63 113 168 175 224 514 Capital per Listed Cos. s. Capital of Listed Cos. No. (4/2) (Lakh Rs.) 478121 5 Market value of Capital of Listed Cos. (Cr. 1125 1203 1599 1552 2265 4344 6229 8593 1506 2111 2838 3230 3697 6174 8967 11784 270 753 1812 2614 3973 9723 32041 59583 3 4 No. As on 31st December 1946 1961 1971 1975 1980 1985 1991 1995 1 No. of Stock Exchanges 7 7 8 8 9 14 20 22 2 No.) 693 76 .Growth Pattern of the Indian Stock Market Sr. (Cr. of Listed Cos.Rs.

(Lakh Rs.) 582 86 107 167 211 298 358 170 148 126 170 77 260 1770 5564 344 803 .7 8 Market Value of Capital per Listed Cos.) (5/2) Appreciated value of Capital per Listed Cos. (Lakh Rs.

News Papers - Economic Times of India - Times of India 78 . Derivatives Module of NSE – ( NCFM ) 2.com 3. Bhalla Web – Bibliography 1.Bibliography Books 1. Securities analysis and Portfolio Management -B.nseindia. www.bseindia.kotaksecurities. www. www. Magazines - Business World 2.com 5.com Others 1. www.moneycontrol.com 6.icicidirect.K. www.derivativesindia.com 2.com 4. www.