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Security Analysis and Portfolio Management

Risk and Return analysis for ITC Limited for the month of July 2010
using BSE 100 Index

About ITC Limited (BSE 500875)

ITC Limited is an Indian conglomerate with a turnover of US $ 6 billion and a market


capitalisation of over US $ 22 Billion. The company has its registered office in Kolkata.

The company is currently headed by Yogesh Chander Deveshwar. It employs over 26,000 people
at more than 60 locations across India and is listed on Forbes 2000. ITC Limited completes 100
years on 24th August, 2010.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging,
Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel,
Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an
outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards,
Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of
Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.

ITC's aspiration to be an exemplar in sustainability practices is manifest in its status as the only
company in the world of its size and diversity to be 'carbon positive', 'water positive' and 'solid
waste recycling positive.' In addition, ITC's businesses have created sustainable livelihoods for
more than 5 million people, a majority of whom represent the poorest in rural India.

Date Close BSE Scrip Index


Price 100 Return Return
ITC (Ri) (Rm)
Y X X2 XY
1-Jul-10 302.9 9356.43
2-Jul-10 302.65 9329.87 -0.00083 -0.00284 0.0000080582 0.0000023429
5-Jul-10 301.95 9323.76 -0.00231 -0.00065 0.0000004289 0.0000015147
6-Jul-10 302.75 9404.86 0.00265 0.00870 0.0000756588 0.0000230454
7-Jul-10 302 9329.9 -0.00248 -0.00797 0.0000635264 0.0000197449
8-Jul-10 303.05 9421.03 0.00348 0.00977 0.0000954045 0.0000339599
9-Jul-10 300.85 9508.54 -0.00726 0.00929 0.0000862817 -0.0000674323
12-Jul-10 299.85 9544.34 -0.00332 0.00377 0.0000141755 -0.0000125147
13-Jul-10 299.05 9593.24 -0.00267 0.00512 0.0000262498 -0.0000136694
14-Jul-10 298.35 9566.49 -0.00234 -0.00279 0.0000077753 0.0000065270
15-Jul-10 299.3 9552.15 0.00318 -0.00150 0.0000022469 -0.0000047730
16-Jul-10 298.35 9586.39 -0.00317 0.00358 0.0000128489 -0.0000113776
19-Jul-10 290.85 9578.12 -0.02514 -0.00086 0.0000007442 0.0000216863
20-Jul-10 291.45 9546.82 0.00206 -0.00327 0.0000106789 -0.0000067413
21-Jul-10 292.8 9600.24 0.00463 0.00560 0.0000313105 0.0000259188
22-Jul-10 297.6 9670.34 0.01639 0.00730 0.0000533178 0.0001197033
23-Jul-10 300.7 9668.74 0.01042 -0.00017 0.0000000274 -0.0000017235
26-Jul-10 302.3 9616.11 0.00532 -0.00544 0.0000296297 -0.0000289634
27-Jul-10 304.5 9645.4 0.00728 0.00305 0.0000092777 0.0000221669
28-Jul-10 307.2 9595.51 0.00887 -0.00517 0.0000267539 -0.0000458638
29-Jul-10 309.85 9617.92 0.00863 0.00234 0.0000054544 0.0000201464
30-Jul-10 308.75 9556.67 -0.00355 -0.00637 0.0000405555 0.0000226082
0.01983 0.021475 0.00059933 0.00012540
7
Totals
0.00094 0.001023
5
Average

Date Y2 (X-Xbar)^2 (Y-Ybar)^2


1-Jul-10
2-Jul-10 0.0000006812 0.0000149095 0.0000031328
5-Jul-10 0.0000053495 0.0000004289 0.0000053495
6-Jul-10 0.0000070196 0.0000756588 0.0000070196
7-Jul-10 0.0000061370 0.0000635264 0.0000061370
8-Jul-10 0.0000120883 0.0000954045 0.0000120883
9-Jul-10 0.0000527007 0.0000862817 0.0000527007
12-Jul-10 0.0000110484 0.0000232008 0.0000110484
13-Jul-10 0.0000071182 0.0000165767 0.0000071182
14-Jul-10 0.0000054791 0.0000077753 0.0000054791
15-Jul-10 0.0000101390 0.0000022469 0.0000101390
16-Jul-10 0.0000100747 0.0000128489 0.0000100747
19-Jul-10 0.0006319321 0.0000007442 0.0006319321
20-Jul-10 0.0000042556 0.0000106789 0.0000042556
21-Jul-10 0.0000214555 0.0000313105 0.0000214555
22-Jul-10 0.0002687450 0.0000533178 0.0002687450
23-Jul-10 0.0001085069 0.0000000428 0.0001085069
26-Jul-10 0.0000283122 0.0000291834 0.0000283122
27-Jul-10 0.0000529626 0.0000092777 0.0000529626
28-Jul-10 0.0000786236 0.0000267539 0.0000786236
29-Jul-10 0.0000744131 0.0000054544 0.0000744131
30-Jul-10 0.0000126032 0.0000405555 0.0000126032
Totals 0.001409646 0.000598368 0.001410167
0.0000288656 0.0000672427
Average
Interpretation:-

The average rate of return for the shares of ITC limited is 0.000945 i.e. 0.0945% which is
slightly less than the average return from BSE 100 indices which is 0.102%.

The risk is 0.8% in the ITC’s stock but it is 0.53% in the case of BSE100 indices. So it’s riskier
to invest in the stock of ITC limited than in the BSE 100 indices.

The value of β is 0.18206457 or 18.2%, it tells that if there is 1% increase or decrease in the
market so the stock of ITC limited will have 18.2% increase or decrease. β is a systematic risk it
represents sensitivity of the stock in accordance with the market.

α represents the unsystematic risk or unique risk. Here the value of α is 0.000758441 which tells
that 0.0758441% of the stock of ITC Limited would not be affected by the market factor. It is
the excess return of the fund relative to its benchmark index (BSE 100). So we can say that,
0.075% is the excess return and fund is outperformed its benchmark by 0.075%.

here we have r = 0.12 which represents that there is a positive correlation between the stock of
ITC Limited and BSE 100 indices, which further tells that it is advisable for the investor to
diversify his or her portfolio so as to improve the incremental return and risk ratio. A positive
correlation also tells that if one security moves either up and down the other security will also
move in the same direction.