A

PROJECT REPORT
ON
SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

MASTER OF BUSINESS ADMINISTRATION

BY,

PAYAL CHOUDHURY (16202178)

SUBHASHREE DAS (16202199)

SWATI SUCHARITA (16202204)

ANAMIKA PRASAD (1620212219)

UNDER THE GUIDANCE OF

Prof. Satya Sahoo

 INTRODUCTION

We have set up a passive investment fund called Gold Stone Funds which invests stocks traded in India
and the US. Analysis has been conducted using ten stocks of India and ten stocks of the US. The stocks
chosen which are traded in India are Dr Reddy, HDFC Bank, ONGC, TATA Steel, ITC, Reliance,
Britannia, Force motors, Indian Oil Corporation and Hindalco Corporation. The stocks chosen which are
traded in the US are Vertex Pharmaceuticals Incorporated, Netflix, Lam Research Corporation, IDEXX
Laboratories, National Beverage Corporation, CSX Corporation, Amazon, Apple, TTWO Entertainment,
and Microsoft.

Uncertainty cannot be dismissed so easily in the analysis of optimizing investor behavior. An investor
who knew future returns with certainty would invest in only one security, namely the one with the
highest future return. If several securities had the same, highest, future return then the investor would be
indifferent between any of these, or any combination of these. Markowitzs modern portfolio theory is
an approach to portfolio investing in which entire market and economy are analyzed. MPT takes into
account how each security in the portfolio of these 20 stocks interacts with each other, it targets to
minimize risk while optimizing returns. It is used to optimize the risk and return of a portfolio, if done
successfully; it results in abnormal returns with an acceptable level of risk.

The research question is that how to craft an efficient portfolio by optimizing risk and return, in
different scenarios?

This project shows the change in returns with respect to risk. According to Markowitzs modern
portfolio theory, volatility of portfolio can be limited by spreading out risk among different types of
investments. Putting together a basket of risky stocks, the overall risk of the portfolio would be less than
any one of the individual stocks in it. If a comparison is made between a portfolio with 20 stocks of
same industry and a portfolio with 20 stocks of different industries, the later is better diversified. The
reason being, it is more likely that the firms in the same industry will have poor performance at the same
time than for the firms in dissimilar industries.
 RESEARCH METHODOLOGY
Selection and justification of variables used

10 stocks of Indian companies are Dr Reddys Laboratories, HDFC Bank, ONGC, TATA Steel, ITC,
Reliance, Britannia, Force motors, Indian Oil Corporation and Hindalco Corporation.

10 stocks of American companies are Vertex Pharmaceuticals Incorporated, Netflix, Lam Research
Corporation, IDEXX Laboratories, National Beverage Corporation, CSX Corporation, Amazon, Apple,
TTWO Entertainment, and Microsoft.

CAGR FOR 9
YEARS
INDIAN COMPANIES
DR. ONG TATA HINDALC RELIANC FORCEMOT BRITINI
REDDY HDFC C STEEL O IOC ITC E OR A
- -
15.94 1.48 11.90 9.99
19.27% % % -5.48% 0.04% % % 0.06% 40.85% 30.39%

CAGR FOR 9 YEARS

U.S.
COMPANIES
AMAZO
VRTX NFLX LRCX IDXX FIZZ CSX N APPLE TTWO MSFT
50.32 12.95 17.71 24.27 12.44 22.64 14.04 7.90
13.68% % % % % % 29.99% % % %

Growth drivers of the companies

Dr. Reddy:

Currently they are spending (10-11)% of sale into R&D.Globally the focus has been towards affordable
drugs and generic market. Such shift in developed markets may provide huge opportunity for companies
like DRL who has dominant presence in generic space.

HDFC Bank:

Since there is a healthy growth in earnings, good management, highest NIMS, highest return ratios in
the sector and the lack of investment opportunities in the banking sector are driving investors to this
stock. In the last one year, HDFC Bank is up 4.13%.
ONGC:
Several factors are considered which will impact the company (ONGC) both in the short and in the long-
term perspective. After the rupee appreciation and decline in domestic natural gas prices there was a
drag on performance, but with 60% annual increase in international crude oil prices,oil production and
fall in operational expenses due to the fall in rig costs have helped ONGC in the fourth quarter. This
positive climate is expected to continue in the coming years as well. ONGC is also striving to meet the
governments plan of increased oil production in Indiaproduction is expected to grow by 4-5% in
2017-18.

Tata Steel:

Tata steel has a good market capitalization. It has decent Sales growth especially great sales growth in
the fourth quarter i.e March 2017. The investment has to be long time not for short term.Tata Tata steel
in order to maintain its leadership position, expanded aggressively its production capacity. Since Steel is
the basic foundation material for many construction activities, there is a Long term steel demand to be
intact. The Steel sector has grown by more than 20% CAGR in Sales and Net Profit over the last 6 years.

ITC:

ITC is the biggest cigarette maker in India. ITC has close to 80% market share. Since Cigarette demand
is inelastic in nature, 75% of ITCs revenue comes from cigarette sales and 25% from other businesses.
Other business verticals of ITC are FMCG , Hotels , Agri Business , Paperboards & Papers , Information
Technology and Packaging. ITC has one of the strongest managements in India with a long history of
paying dividends.

Britannia:

With an established brand name and strong distribution network in place,Britannia entered into cookies
& chocolate segment, with expertise of wafers and biscuits, which will help the company to gain market
share in the coming future.Over the last 5 years, the overall sales of Britannia has increased at healthy
15% CAGR. Subsequently, its earnings (EPS) increase by more than 24% CAGR.

Force Motor Ltd:

Force Motors is in bull trend from long term perspective. This stock has showed exponential rise from
350 to 4850 level in last 3 years. According to the past data impulsive long term trend on upside is
ongoing. In a bull market one should never catch the top whereas in bear market one should avoid
catching the low unless there is price confirmation. Following the trend is the ideal strategy; Force
Motors is following 10 months EMA (Exponential moving average) since 2014.

IOCL:

Since IOCLs competitive advantages are largest marketing Infrastructure, largest oil refining company
in India, largest network of product pipeline across the country, high level of geographical
diversification of manufacturing facilities across the entire country and huge distribution network,
investing in such a stock is both advantageous and has low risk associated with it.

HINDALCO:

Hindalco's stock has been performing well as it has a good growth in net sales and profits in the last 4
quarters as a result of price realization and high rise in India in domestic markets. The company's
profitability in the next two years is expected to increase significantly because of lower cost of operation,
higher volume and increase in margins. Investors can look for the stock for a long-term prospective.
Aluminum prices have gone from US$ 1800-1900 per tonne in June 2010 to US$ 2750 per tonne in
April 2011. Similarly, Copper prices have also gone up by more than 50%. Being one of the largest
integrated players in the field, Hindalco has benefited the most due to the rise in prices.

VERTEX PHARMACEUTICALS:

VRTX has the market of two cystic fibrosis (CF) drugs - Kalydeco and Orkambi andits broad portfolio
of next-generation CF correctors, if approved, could bring in multi-billion dollar sales for the company;
attracting investor attention.

CF market represents huge commercial potential with a rare, life-threatening disease estimated to affect
about 75,000 people in North America, Europe and Australia. The CF combination can strengthen its
position further in this market, that creates higher revenues.

Netflix:

NFLX is the leading internet television network, with 104 million subscribers across 190 countries, thus
growing at an impressive speed. Netflix, with standard subscription prices now at $9.99 a month is up
from $7.99 a few years ago. The company ended the first quarter of 2016 with a total of 81.5 million
members around the world, gaining 6.74 million new members during the quarter, thus gaining
attentions of the investors.

LAM RESEARCH CX:

The company's price trend reveals that the stock had an impressive run on the course year to date. Lam
Research returned 62.4%, which compared favorably with the industry's gain of 44.6%. Lam Research
has an impressive earnings surprise history. The company's estimated for fiscal 2017 earnings of $12.61
reflects annual growth of 26.39%. The stock has long-term expected earnings per share growth rate of
17.2% versus industry's growth rate of 15.8%.

IDEXX

IDEXX has been gaining investors confidence through consistent positive results. The stock has rallied
40.1% over the last year. Moreover, this leading manufacturer of products and services primarily for the
companion animal veterinary, livestock and poultry has a market cap of $13.83 billion. The companys
five-year historical growth rate is also favorable at 12.8% compared with 9.5% of the industry.
AMAZON

At the end of 2016, Amazon stock traded around $750 per share. In less than half a year, Amazons
stock price has now run up to $1,000 per share. Thats a 33% increase in a short period.

MICROSOFT

Microsoft has recently prioritized its intelligent cloud business, while laying-off workers and diverting
resources. This strategic shift, though risky, continues to bear fruit. The company is now the No. 2
player with 11% of the market share and they may be hitting their most important competitor where it
hurts. On Thursday, Amazon.com, Inc. stock shed 4% of its value on a soft earnings report.

FIZZ

National Beverage Corp (NASDAQ:FIZZ) has stunning numbers in its fiscal year 2017 third quarter.
Revenue jumped a robust 20% y/y to $195 million, and earnings per share rose to $0.52 per share. With
the momentum of LaCroix shifting National Beverage's average growth rate is even higher, I have
updated my forecast to incorporate a more robust near-term growth scenario.

CSX CORPORATION

CSX has its shares climb more than 50% since the beginning of 2013. It has faced many challenges in
recent years, with low commodity prices and the secular decline in coal proving particularly detrimental
to the railroad's prospects. 2016, however, turned out to be a surprisingly strong year, with CSX stock
soaring 39% as commodity prices bottomed out.

APPLE

Apples stock has skyrocketed in recent years thanks to revolutionary product (iPod, iPhone and iPad)
after revolutionary product. Apple has $160 billion in cash and investments that has been gathering dust
for quite a while. The aggregate number certainly is huge; more than the GDP of Vietnam currently. Out
of its cash and short-term investments alone, Apple could buy either twitter (TWTR) ($27.5 billion),
Tesla (TSLA) ($25 billion) or eBay (EBAY) and still have plenty left. Of course, AAPL can afford to
buy plenty of its shares its most recent program was for $14 billion in Apple stock. Between
dividends, buybacks and acquisitions, Apple has a lot of dry powder, and a lot of places to potentially
use it.
 REASEARCH MODEL

Markowitzs Modern Portfolio Theory (MPT) is a mathematical framework for gathering together a
portfolios asset in such a way that the expected return is maximized for a given level of risk, defined as
variance. An assets risk and return should be assessed by how it contributes to a portfolios overall risk
and return. Modern Portfolio Theory is used to construct the mean-variance efficient frontier. In this
approach the entire market and economy are analyzed. In this, it is taken into account the overall return
and risk of a portfolio which is comprised of certain securities, a line is plotted with all available
portfolio options and this line is known as the efficient frontier. When a portfolio approaches closer to
the efficient frontier, based on risk and return, the portfolio performs better with minimal amount of risk.
Investing in a portfolio that is on or lies close to the efficient frontier to optimize the risk and return is
important. Anything under the efficient frontier yields too much risk for the expected return.

Efficient frontier (Figure 1)

The expected return of the portfolio is on the y axis and the portfolio's standard deviation (or risk) on the
x axis. Each dot represents a portfolio. The dots closer to the efficient frontier line are expected to show
the best performance with minimal risk. The optimal portfolio aims to balance securities with lowest
degree for a given level of potential return.

When we consider a risk-seeking investor who uses efficient frontier to select investments, the investor
would select the securities that are on the right end of the efficient frontier which includes securities that
are expected to have a high degree of risk coupled with high returns. On the other hand, securities that
lie on the left end of the efficient frontier would be suitable for risk-averse investors.

For crafting an efficient portfolio, we take the average returns of the stocks and assign weights to the
stocks. Portfolio return is calculated using return and weights allocated to each stock in the portfolio.
The covariance of return over the period of 15 years is calculated, covariance is a statistical measure of
how one investment interacts in relation to another. If two investments moves up or down during the
same time periods, then they have a positive covariance. It is used to calculate the variance. Portfolio
variance is a measurement of how the aggregate actual returns of a set of securities making up a
portfolio fluctuate over time.

The standard deviation is nothing but the risk. A nave portfolio is first calculated by allocating equal
weights to the stocks in the portfolio, different cases are assessed to calculate the portfolios return with
respect to risk when the weights are changed. The weights are changed because it is the variable
component, since we cannot change the stocks in the portfolio. The objective is to minimize the risk
which can only be done by assigning right weight to specific stocks.
The Yellow dot on the graph is the Sharpe ratio, which is the measure for calculating risk adjusted return.
The average return earned in excess of the risk-free rate per unit of total risk. A tangent is created when
one imposes equilibrium, the line passing through the tangency portfolio has a specific name and it is
called the Capital Market Line. All efficient portfolios lie on the Capital Market Line.

Limitations

No short selling of is allowed

Same stocks are to be considered in the portfolio and only varying the weights of the assets is
allowed.
Mathematical calculations are done on expected values, based on past performance to measure the
correlations between risk and return.
 REASEACH ANALYSIS

Baseline

We construct the efficient frontier using all the data provided for the entire sample period that is 15
years of 20 stocks.

Port Port Sharpe

Return S.D. Ratio
1.70% 3.58% 47.501%
1.97% 3.70% 53.216%
2.24% 4.00% 56.075%
2.51% 4.50% 55.857%
2.59% 4.70% 55.054%
2.68% 5.00% 53.679%
2.82% 5.50% 51.321%
2.87% 5.70% 50.397%
2.94% 6.00% 49.057%
3.05% 6.50% 46.953%
Table 1: Varying Returns of Efficient portfolio for various risk levels
In this case, by varying the percentage of risk, we see that when the risk is increasing the returns are
increasing at the same time. Also, the weights of the assets in the portfolio are changing which shows
the amount the investor is willing to invest with respect to the risk associated with the individual asset.
There is a certain point where the Sharpe ratio is highest. Higher the value, the more excess return
investors can expect to receive for the extra volatility they are exposed to by holding a riskier asset. In
this case the SR max is 56.075% and then it starts to decrease after that.

We add a risk free in which, the investors as long as they have the same beliefs, they will all invest in
stocks, in combination with the risk-free asset. The risk-free asset is connected with the tangent
portfolio by the straight line therefore provides an investor with a good blend of risk-
controlled portfolios.
 Risk
= Risk
Min 3.7 = Risk=4 Risk= Risk Risk= Risk= Risk Risk=
Risk % 4% .50% 4.7% =5% 5.5% 5.7% =6% 6.5%
Port 1.70 1.97 2.24 2.68 2.94
Return % % % 2.51% 2.59% % 2.82% 2.87% % 3.05%
Port
Varianc 0.13 0.14 0.16 0.25 0.36
e % % % 0.20% 0.22% % 0.30% 0.32% % 0.42%
Port 3.58 3.70 4.00 5.00 6.00
S.D. % % % 4.50% 4.70% % 5.50% 5.70% % 6.50%
dr 8.35 5.89 3.18 0.00 0.00
reddy % % % 0.00% 0.00% % 0.00% 0.00% % 0.00%
hdfc 12.4 16.9 20.4 22.37 22.31 20.52 19.76 18.19 15.34
bank 5% 8% 8% 22.26% % % % % % %
3.45 2.05 0.00 0.00 0.00
Ongc
% % % 0.00% 0.00% % 0.00% 0.00% % 0.00%
tata 0.00 0.00 0.00 0.00 0.00
steel % % % 0.00% 0.00% % 0.00% 0.00% % 0.00%
hindalc 0.00 0.00 0.00 0.00 0.00
o.ns % % % 0.00% 0.00% % 0.00% 0.00% % 0.00%
0.00 0.00 0.50 0.09 0.00
ioc.ns
% % % 0.35% 0.35% % 0.00% 0.00% % 0.00%
8.98 9.06 9.07 0.93 0.00
Itc
% % % 5.58% 3.60% % 0.00% 0.00% % 0.00%
Relianc 0.00 0.00 0.00 0.69 2.16
e % % % 0.00% 0.00% % 1.52% 1.81% % 2.67%
FORCE 0.00 0.00 0.59 5.54 9.31 11.28
MOT % % % 3.33% 4.29% % 7.48% 8.18% % %
BRITA 13.2 15.7 17.1 15.88 14.95 12.78 11.94 10.27
NIA 9% 5% 5% 16.58% % % % % % 7.04%
5.03 4.91 4.73 3.15 1.36
VRTX
% % % 4.07% 3.66% % 2.27% 1.96% % 0.43%
0.00 1.85 4.02 11.87 15.18 16.44 18.32 21.29
NFLX
% % % 8.30% 9.88% % % % % %
0.00 0.00 0.00 0.00 0.00
LRCX
% % % 0.00% 0.00% % 0.00% 0.00% % 0.00%
11.9 12.3 12.0 6.60 0.00
IDXX
6% 0% 9% 9.88% 8.44% % 2.59% 0.96% % 0.00%
7.87 8.91 9.37 8.26 6.58
FIZZ
% % % 9.06% 8.72% % 7.59% 7.28% % 5.08%
8.45 6.59 4.07 0.00 0.00
CSX
% % % 0.00% 0.00% % 0.00% 0.00% % 0.00%
AMAZ 1.62 5.03 6.95 8.96 9.91
ON % % % 8.17% 8.53% % 9.54% 9.76% % 9.96%
 0.00 1.50 6.20 14.29 16.65 20.53 21.91 23.90 26.90
AAPL
% % % 12.41% % % % % % %
2.28 2.29 1.61 0.00 0.00
TTWO
% % % 0.00% 0.00% % 0.00% 0.00% % 0.00%
16.2 6.90 0.00 0.00 0.00
MSFT
7% % % 0.00% 0.00% % 0.00% 0.00% % 0.00%
100. 100. 100. 100.00 100.00 100.0 100.00 100.00 100.0 100.00
00% 00% 00% % % 0% % % 0% %

Table 2: Weights of different assets in Efficient portfolio for different levels of risk

How and why the weights of the various risky asset classes in efficient portfolios change with the
change in risk?

The weight of a portfolio is the percent of an investment portfolio that is held by a single asset. The
weight of a portfolio can tell investors how much of their portfolio performance is dependent on a
particular asset. Risk is directly proportional to return. If risk is high return is high. In this case, the
number of stocks that are to be included in the portfolio is limited to 20. We cannot change the stocks in
the portfolio, rather change the weights, by using solver we analyze the assets which would be the best
to invest in with particular amount of risk we are willing to take. Since, portfolio weight is the
percentage composition of a particular holding in a portfolio. As each individual stock has a weight in
the portfolio according to its risk and the average return, the investor knows at what time he/she should
invest or not invest, according to the share price of the asset. Weights can be calculated for industries,
sectors, geographies and asset classes according to the investment strategy desired. It is the only variable
component.

Figure 2.1: Efficient frontier of combination of stocks of US and India

The diversifiable risk of a portfolio depends on the risks of the individual assets, which is usually less
than the risk of a single asset because the returns of different assets are fluctuating at different times. To
deal with the fluctuations portfolio risk can be reduced by diversificationchoosing individual
investments that rise or fall at different times from the other investments in the portfolio. For most
portfolios, diversifiable risk declines quickly at first then more slowly, reaching a minimum with about
9-12 assets. However, how rapidly risk declines, depends on the covariance of the assets composing the
portfolio.

Scenario 1
In this scenario, there has been a subprime crisis in The US; our fund is not allowed to invest in the US
stocks and corporate bonds. This portfolio excludes all the US stocks

Port Port Sharpe

Return S.D. Ratio
1.922% 4.720% 40.711%
2.158% 5.000% 43.167%
2.275% 5.500% 41.357%
2.309% 6.000% 38.486%
2.333% 6.500% 35.896%
2.354% 7.000% 33.624%
Table 3: Varying Returns of Efficient portfolio for various risk levels
In this case, the Sharpe ratio is 43.16% . At this point it actually improves the risk-return characteristic
of the combined portfolio, and adds a diversification benefit. At 5% risk the stocks to be invested in are;
Dr Reddys laboratories, HDFC bank, Indian oil corporation, ITC and Britannia and the percentage to be
invested is 1.61%, 38.29% 4.02%, 12.155%, 43.91% respectively. The stocks chosen are of a variety of
industries rather than same industry. The portfolio return is 2.15%.

Min Risk Risk=5% Risk=5.5% Risk=6% Risk=6.5% Risk=7%

Port Return 1.922% 2.158% 2.275% 2.309% 2.333% 2.354%
Port Variance 0.223% 0.250% 0.303% 0.360% 0.423% 0.490%
Port S.D. 4.720% 5.000% 5.500% 6.000% 6.500% 7.000%
dr reddy 16.395% 1.618% 0.000% 0.000% 0.000% 0.000%
hdfc bank 24.884% 38.290% 41.937% 36.458% 32.601% 29.473%
ongc 6.137% 0.000% 0.000% 0.000% 0.000% 0.000%
tata steel 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
hindalco.ns 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
ioc.ns 0.000% 4.022% 5.439% 5.223% 4.968% 4.990%
itc 15.579% 12.155% 0.000% 0.000% 0.000% 0.000%
reliance 0.000% 0.000% 5.357% 11.892% 16.483% 20.280%
 FORCEMOT 0.000% 0.000% 2.720% 7.114% 10.173% 12.749%
BRITANIA 37.006% 43.916% 44.548% 39.314% 35.775% 32.509%
100.000% 100.000% 100.000% 100.000% 100.000% 100.000%

Table 4: Weights of different assets in efficient portfolio for different levels of risk

Figure 2.2: Efficient Frontier of stocks of India

Figure 2.3: Efficient Frontier of stocks of combined portfolio

While comparing, it is seen that when we are restricted to invest only in Indian Stocks while excluding
the US stocks, portfolio risk being 5% the return is 2.15% and the Sharpe ratio is 43.16%. On the other
hand when we refer to the second graph, in which the efficient frontier is constructed with combination
of US and Indian stocks, it is seen that at 4% risk the return is 2.24% which is better than the former,
and the Sharpe ratio is 56.075%. If we compare the Sharpe ratio of both the scenarios, Baseline scenario
has a better return as it has higher Sharpe ratio which indicates better portfolio returns relative to the risk
it has taken on. In this the combination of two countries stocks gives a higher expected return with the
lower level of risk.

In our opinion the regulation to not invest in US stocks is not plausible from a diversification point
of view.

Scenario 2

In this scenario, only US stocks are included to see if it is worth investing only in the US market.

At the point, where SR is max, that is at 45.37%. The risk taken by the investor is 5.5% and the return
generated from that portfolio is 2.49%. The stocks in which an investor must invest are Vertex pharma,
Netflix, Idexx, FIZZ, CSX, Amazon, and Apple.

Port Port Sharpe

Return S.D. Ratio
1.540% 4.508% 34.17%
2.194% 5.000% 43.87%
2.495% 5.500% 45.37%
2.711% 6.000% 45.18%
2.864% 6.500% 44.07%
2.990% 7.000% 42.72%
3.102% 7.500% 41.36%
Table 5: Varying Returns of Efficient portfolio for various risk levels

Min Risk=5.5 Risk=6 Risk=6.5 Risk=7 risk=7.5

Risk Risk=5% % % % % %
Port 1.540
Return % 2.194% 2.495% 2.711% 2.864% 2.990% 3.102%
Port 0.203
Variance % 0.250% 0.303% 0.360% 0.423% 0.490% 0.563%
4.508
Port S.D. % 5.000% 5.500% 6.000% 6.500% 7.000% 7.500%
VRTX 10% 10% 9% 8% 6% 5% 4%
NFLX 0% 6% 10% 14% 19% 23% 26%
LRCX 0% 0% 0% 0% 0% 0% 0%
IDXX 23% 25% 25% 21% 14% 8% 3%
FIZZ 11% 15% 16% 16% 15% 14% 13%
CSX 18% 12% 7% 0% 0% 0% 0%
AMAZO
N 4% 10% 12% 14% 14% 14% 14%
AAPL 0% 13% 20% 26% 32% 36% 40%
TTWO 3% 1% 0% 0% 0% 0% 0%
MSFT 30% 8% 0% 0% 0% 0% 0%
100% 100% 100% 100% 100% 100% 100%
Table 6: Weights of different assets in Efficient portfolio for different levels of risk

Figure 2.3: Efficient Frontier of stocks of US

Figure 2.4 Efficient Frontier of stocks of combined stocks

Comparing the two efficient frontiers, we see that the Sharpe ratio is 45.37% of scenario 2 and the SR of
Baseline is 56.03%. In 2nd scenario, the risk is 5.5% and the return is 2.49%. Whereas, in combination of
both the countries stocks the risk is 4% and the return is 2.24%. This results in portfolio
optimization with the same expected return with less risk than before.
 CONCLUSION

In the financial crisis of 2008 had broader effect on the economy and not just the home values. It shut
down the credit market and the stock market lost its value. The mortage crisis caused lack of confidence
in the economy and the system. The uncertainty has caused the investors to be doubtful while investing
in the market. But as of 2017, the market has recovered. Investors can optimize their portfolio and invest
wisely.

MPT proves to be highly advantageous and appreciated among investors, as it results in portfolio
optimization. We can conclude that one can achieve higher returns and reduce the portfolios level of
risk at the same time. Markowitz formulated a line at which a portfolio produces the ideal amount of
return for a given level of risk which is known as the efficient market frontier. The efficient market
frontier is curved. The reason is that there is a point of diminishing performance relative to risk. By
analyzing three scenarios we come to a conclusion that the diversifiable risk of a portfolio depends on
the risks of the individual assets, which is usually less than the risk of a single asset because the returns
of different assets are fluctuating at different times. It is important to choose the stocks in your portfolio
wisely. A combination of stocks of different industry will minimize the risk and the risk would be
diversified over the different stocks and it is very unlikely that all the industries will collapse or fluctuate
at the same time.

In our portfolio, we have taken a combination of large cap. The large cap companies are stable and are
growing at a sustainable rate, at the same time few companies have numerous growth drivers and are
expected growth rate is 12%.

It can be concluded that when a tangent is created when one imposes equilibrium, the line passing
through the tangency portfolio which is called the Capital Market Line. All efficient portfolios lie on the
Capital Market Line. The Sharpe ratio is the average return earned in excess of the risk-free rate per unit
of total risk. The higher the Sharpe ratio, the better a fund's returns have been relative to the risk it has
taken on.

In the three scenarios, the best portfolio for investment is the combination of Indian stocks and US
stocks, as the risk is diversified among stocks of different industries. Returns vary with respect to risk
taken, when we connect risk-free asset with the tangent portfolio, it provides an investor with a good
blend of risk-controlled portfolios.
 BIBILIOGRAPHY

Links referred to:

https://in.finance.yahoo.com/

www.equitymaster.com

www.investopedia.com

www.aaii.com

www.corporate.morningstar.com

www.financialexpress.com

www.economictimes.com