Professional Documents
Culture Documents
2017-2019
Project Report
Submitted
To
India
2019
DECLARATION
I do here by give the undertaking that the present study is a bonafide work and I have not
submitted it for the award of any degree or diploma in any other college or university.
………………….
(Sreevani Kodimyala)
17M064
Date:
Place: Hyderabad
Attested by
………………….
Annexure
8 1. Company Profile 31
2. Literature Review 43
List of Tables
Table
Table Name Page No.
No.
1 List of Selected 20 Companies 11
2 Correlation Amongst the Selected Companies 18
FCFF, Growth Rate, WACC, DCF Analysis Value per share and Market
3 19
Price
4 Expected Portfolio Return, Risk and Beta in Minimum Risk Portfolio 20
Investments in Each Company of Minimum Risk Portfolio along with
5 21
Expected Return and Expected Risk
6 Actual Return, Risk and Beta of Each Company and Index 22
7 Actual Portfolio Return, Risk and Beta 23
8 Portfolio Evaluation Using Treynor‟s Measure 24
9 Portfolio Evaluation Using Sharpe‟s Ratio 25
10 Portfolio Evaluation Using Jensen Measure 26
ACKNOWLEDGEMENT
An endeavor of a long period can be successful only with the advice of many well-wishers. I take
this opportunity to express my deep gratitude and appreciation to all those who encouraged me to
successfully complete my project work.
I am indebted to Sri Douglas I. Peterson, CEO of S&P Global for providing the ambience and
the internship opportunity. My heartfelt thanks to the Company Guide Sri Prasanna Kumar
Nakka (Assistant Manager) and Sri Chedurupally Shiva Shankar Goud (Data Researcher II,
People Data) for their valuable guidance and suggestions throughout the project work.
It would not have been possible to do this project efficiently and timely if it was not for Sri
Hemanth Harsha Vardhan Thippani (Sr. Data Researcher I, People Data) who dealt with me
patiently throughout and clarified all my doubts.
My heartfelt thanks to the College Guide Sri Sadab Alam for his valuable guidance and
suggestions throughout the project work.
Finally, I would like to express my sincere thanks to my parents, Smt. Leelavathi and Sri
Satyavrath, family members, friends and all who have helped me to complete this project work
successfully.
MM/DD/YY
Sreevani Kodimyala Hyderabad
CERTIFICATE
EXECUTIVE SUMMARY
1
Portfolio management means selecting the right investment tools in the right proportion to
generate optimum returns from the investments made. A portfolio is built based on investor‟s
investment budget, and risk appetite keeping expected rate of return in mind. The objective of
this study is to make an attempt to prepare an optimal portfolio and to track and evaluate its
performance.
To proceed with the study, 20 companies were randomly selected from the companies listed on
the National Stock Exchange (NSE). The price data of the selected companies as well as for the
reference index, NIFTY50, were collected from the NSE website. Other relevant data were
collected from the respective company‟s website. A correlation matrix of these 20 companies
was created and finally using this matrix, 5 companies, namely Colgate, Oracle Financial
Services (OFSS), Gas Authority of India Limited (GAIL), Procter and Gamble Hygiene and
Health Care (PGHH) and Bharath Heavy Electricals Limited (BHEL), were selected for creating
actual portfolio.
DCF analysis based on constant growth model found Colgate and BHEL to be overpriced and
OFSS, GAIL, and PGHH to be underpriced. MS-Excel Solver was used to create the minimum
risk portfolio. Finally, portfolio was created as per the weightage suggested by Solver. This
portfolio was kept invested for the duration of the project work. At the end of the project period,
the portfolio was evaluated using Treynor‟s measure, Sharpe‟s ratio, and Jensen‟s measure and
compared against the index performance during the same period. The risk free rate for evaluation
was sourced from RBI and was taken to be 7%.
The portfolio gave an actual return of 9.44% with standard deviation of 1.71%. During the same
time, the index gave a return of 15.89% with a standard deviation of 9.08%.The portfolio has a
Treynor measure of 8% against the Index Treynor of 9%. The portfolio has a Sharpe ratio of 1.43
against the index Sharpe of 0.98. The portfolio has a Jensen alpha of 0.81%.
2
INTRODUCTION
3
S&P Global Market Intelligence is a subsidiary company of S&P Global Inc. The company was
formerly known as S&P Capital IQ, Inc. and changed its name to S&P Global Market
Intelligence Inc. in February 2016. Capital IQ, founded in 1999 by Neal Goldman, Steve Turner
and Randall Winn, sold its business to McGraw Hill in 2004 and became S&P capital IQ. It
operated as a relatively standalone subsidiary until April 1, 2011, when the company and its
various functions were fully merged with other parts of S&P to become part of McGraw-Hill
Financial.
S&P Global Market Intelligence platform provides financial and industry data, research, news,
and analytics to investment professionals, government agencies, corporations, and universities
worldwide. It collects, interprets, analyzes, and connects financial and industry data and turns it
into actionable intelligence to help clients make business and financial decisions. Mike Chinn is
President of S&P Global Market Intelligence. He is also the Executive Vice President, Data and
Technology Innovation for S&P Global. He oversees Engineering and Technology Innovation
Services and Data Operations across the Company.
LITERATURE REVIEW
Dr. R. Nalini (2014) stated that to make wise decisions in investment, there is a need for
knowledge on security analysis and portfolio management. A rational investor aims at attaining
maximum return with minimum risk. Constructing an optimal portfolio is a challenging task for
the individual as well as the institutional investors. This study is aimed at creating awareness in
the investors regarding the utility of Sharpe‟s Single Index Model in portfolio construction. The
study suggests the Indian investors to reap the benefits of Sharpe‟s Single Index Model (SIM) as
the number of companies traded in the stock exchanges is increasing year after year. Fifteen
companies from the S&P BSE Sensex index were selected for the study. Among the fifteen
sample companies, only four were selected for optimal portfolio using SIM. The results of this
study and such micro level studies have more utility value to the fund managers.
4
Security
Assets with some financial value are called securities. A security is a fungible, negotiable
financial instrument that holds some type of monetary value. It represents ownership position in
a publicly-traded corporation (via stock), a creditor relationship with a government body or a
corporation (represented by owning that entity‟s bond), or rights to ownership as represented by
an option.
The analysis of various tradable financial instruments is called security analysis. Security
analysis helps a financial expert or a security analyst to determine the value of assets in a
portfolio. Security analysis is a method which helps to calculate the value of various assets and
also find out the effect of various market fluctuations on the value of tradable financial
instruments.
Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and
cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and
closed funds. It can also consist of non-publically tradable securities, like real estate, art, and
private investments. Portfolios are directly by investors and/or managed by financial
professionals and money managers. Investors should construct an investment portfolio in
accordance with their risk tolerance and their investing objectives. Investors can also have
multiple portfolios for various purposes. It all depends on one‟s objectives as an investor. A
portfolio refers to a collection of investment tools such as stocks, shares, mutual funds, bonds,
and cash and so on depending on the investor‟s income, budget and convenient time frame.
5
Portfolio Management
Portfolio management is the art and science of making decisions about investment mix and
policy, matching investments to objectives, asset allocation for individuals and institutions, and
balancing risk against performance. Portfolio management is all about determining strengths,
weakness, opportunities and threats in the choice of debt vs. equity, domestic vs. international,
growth vs. safety, and much other trade-offs encountered in the attempt to maximize return at a
given appetite for risk. Portfolio management refers to the art of selecting the best investment
plans for an individual concerned which guarantees maximum returns with minimum risks
involved.
Portfolio management is generally done with the help of portfolio managers who after
understanding the client‟s requirements and his ability to undertake risks design a portfolio with
a mix of financial instruments with maximum returns for a secure future.
Also called "portfolio theory" or "portfolio management theory", MPT suggests that it is possible
to construct an "efficient frontier" of optimal portfolios, offering the maximum possible expected
return for a given level of risk. It suggests that it is not enough to look at the expected risk and
return of one particular stock. By investing in more than one stock, an investor can reap the
benefits of diversification, particularly a reduction in the riskiness of the portfolio. MPT
quantifies the benefits of diversification.
6
Markowitz explains that the biggest challenge for an investor is to find the perfect combination
of stocks (“risky assets”) in regards to expected return and variance of return; in other words an
efficient portfolio in terms of yield and risk.
7
OBJECTIVE
8
To create a portfolio and evaluate it using security analysis and portfolio management and
modern portfolio theory
9
METHODOLOGY
10
Data Type: Secondary.
Sources of Data:
(1) Stock prices and NIFTY50 prices were collected from the National Stock Exchange website:
www.nseindia.com
(2) The annual reports of the selected companies were downloaded from the respective company
websites.
Period of the Study: The period of study is three months i.e., 17th April, 2018 - 16thJuly, 2018.
The period of past data of one year which is used to build the portfolio model is from 17th April,
2017 to 16th April, 2018.
Sample Size: 20 randomly selected companies listed on NSE. List of names of the selected
companies:
11
Basic Formulae Used:
(1) DAILY STOCK RETURN = (Current day‟s price – Previous day‟s price) / Previous day‟s
price.
(2) MARKET (NIFTY) RETURN = (NIFTY close price of present day – NIFTY close price of
previous day)/ NIFTY close price of previous day.
(3) AVERAGE DAILY RETURN (ADR) has been calculated using the Excel function „AVG‟.
(4) YEARLY RETURN = ((1+ADR) n)-1 (where n= 250 trading days in a year)
(5) DAILY VARIANCE has been calculated using the Excel function „VAR‟.
(7) DAILY STANDARD DEVIATION has been calculated using the Excel function „STDEV‟.
(8) YEARLY STANDARD DEVIATION = Average Daily Standard Deviation * (250) ^0.5.
(9) STOCK BETA has been calculated using the Excel function „SLOPE‟.
(10) CORRELATION has been calculated using the Excel function „CORREL‟.
DCF ANALYSIS:
In this study, DCF analysis has been performed on the selected companies based on constant
growth model. The analysis needs:
There are two types of free cash flows, free cash flow to firm (available to all shareholders) and
free cash flow to equity (available only to equity shareholders). Free cash flow to firm has been
used in this study. In constant growth model (CGM), it is assumed that everything in the
financials grows at a constant rate. Free Cash Flow to Firm (FCFF) is calculated using the
formula,
(2) Time period: The time period for the analysis was assumed to be infinite.
12
(3) Discounting rate.
Weighted Average Cost of Capital (WACC) has been used to calculate the discounting rate in
DCF analysis based on FCFF. WACC can be calculated by using the formula,
Where,
Ke is the cost of equity calculated by the Capital Asset Pricing Model formula,
Ke= Rf+ β*(Rm – Rf) {Rf= risk free rate of return; Rm= market return; (Rm – Rf) = market risk
premium};
Kp= cost of preference share capital (the interest rate on the preference shares issued by the
company);
We, Wp, Wd are the weights of Equity, Preference share capital and Debt respectively.
In DCF analysis a company has been valued under CGM where the growth is assumed to be 3%
using the formula,
Value of the firm (Vf) = [FCFF0 *(1+Growth rate)] / [WACC – Growth rate]
The formula to calculate the value of equity from the value of the firm is
The result of the above formula is value of the equity capital of the firm. So, the value of the
single equity share of the company was calculated by using the following formula,
13
After performing all the above operations the result will fall under one of the three scenarios,
Portfolio Measures:
1) Beta of the portfolio can be calculated by using the formula,
It is the summation of the products of weight and individual beta of the securities.
It is the summation of products of weights and expected return of individual securities. It shows
the total expected return of the portfolio.
n n
2p xxi j ij
i j
i1 j 1
Treynor Measure
Sharpe Ratio
Jensen Measure
14
(1) Treynor Measure has been calculated as:
Where, portfolio expected return is return based on Capital Asset Pricing Model.
Jensen measure represents the average excess return of the portfolio above that predicted by
CAPM.
Higher is the measure, better is the portfolio performance.
Positive measure is aimed.
Also known as „alpha‟.
15
SOLVER
It is add on feature in Microsoft Office Excel. It is a what-if analysis tool that finds the optimal
value of a target cell by changing values in cells used to calculate the target cell. It is used to
create an optimal portfolio as per the requirements. For the purpose of the study, Solver was used
to create a minimum risk portfolio.
16
ANALYSIS & FINDINGS
17
SELECTION OF COMPANIES:
For the purpose of the study 20 companies i.e. ASIAN PAINTS, PGHH, RAYMOND, TATA
ST EEL, GAIL, BHEL, OFSS, PIDILITE, DABUR, HAVELLS, BHARTI AIRTEL, LUPIN,
L&T, ADANI PORTS, AMBUJA CEMENT, ICICI, COLGATE, EICHER MOTORS, BAJAJ
AUTO, IDBI were randomly selected from the companies listed in National Stock Exchange. On
the basis of correlation of each company with every other company the following companies
were selected for the construction of portfolio:
1. COLGATE
2. OFSS
3. GAIL
4. BHEL
5. PGHH
The correlation amongst the above listed companies as on 16th April 2018 is as follows
BHEL 1 0.00603
PGHH 1
The price data of the previous 1 year i.e. 17th April 2017 – 16th April 2018 was collected for the
calculation of correlation for all the companies. The above matrix shows the correlation of the
selected companies amongst themselves.
18
ANALYSIS OF THE COMPANIES:
DCF analysis was performed on these 5 companies to know the value per equity share and was
compared with the market price to analyse the value of the company‟s share. FCFF, WACC
along with the assumed growth is mentioned below.
Table 3: FCFF, Growth Rate, WACC, DCF Analysis Value per share and Market Price
Name of the
COLGATE OFSS GAIL BHEL PGHH
company
Growth rate 3% 3% 3% 3% 3%
Value per
401.15 8188.16 766.69 77.43 14798.33
share
Market
price per 1099 4114.05 325.65 88.15 9797.85
share
The FCFF was found to be highest in GAIL followed by BHEL, OFSS, PGHH and Colgate. The
highest WACC was found in BHEL followed by GAIL, Colgate, OFSS and PGHH.
On comparing the value per share as per DCF analysis and market price of the share as per NSE
as on 17th April 2018, every company falls into one of these categories
3) Value per share > Market price: OFSS, GAIL and PGHH.
19
According to DCF analysis, it was found that Colgate and BHEL are overpriced and OFSS,
GAIL and PGHH are underpriced. It is very rare to find a company which falls in the first
category mentioned above. DCF analysis suggests investing in the stocks which are underpriced.
CREATION OF PORTFOLIO:
A portfolio was created using the data of past 1 year i.e., 17th April 2017 – 16th April 2018 and
total investment being 25000. Initially a portfolio with equal investments of 20% in each of the 5
companies was created and then portfolio according to the requirements is created using „Solver‟
feature in MS-Excel.
Table 4: Expected Portfolio Return, Risk and Beta in Minimum Risk Portfolio.
The above table states that the expected return of the portfolio is 22.09%, expected risk of the
portfolio is 1.11% and expected beta of the portfolio is 0.32. One who can‟t handle much of risk
can opt for this portfolio. It is suggested for risk averse investors.
20
Table 5: Investments in Each Company of Minimum Risk Portfolio along with Expected Return
and Expected Risk.
Company
COLGATE OFSS BHEL PGHH GAIL Total
Name
Expected
Annual 11.50% 13.20% 117.63% 34.21% 756.71% -
Return
Expected
Annual 18.03% 20.62% 103.52% 15.52% 204.42% -
Risk
The above table shows that the total amount of investment is 25000. The table states the amounts
of investment in each company according to the minimum risk portfolio along with expected
annual return and risk of each company. It suggests investing maximum amount in PGHH which
is least risky followed by Colgate and OFSS also least amount in BHEL and GAIL which are
most risky in the portfolio.
21
TRACKING THE STOCKS:
The selected companies are tracked from 17th April to 16th July and stock prices are recorded for
the calculations of return, risk and beta.
Table 6: Actual Return, Risk and Beta of Each Company and Index.
The above table shows the return, risk and beta of the selected companies during April-July
which are calculated using price data of the companies. COLGATE, GAIL performed better than
the market. PGHH was almost at par with the market. OFSS and BHEL resulted in negative
returns which affects the portfolio as 23% of total investment is in OFSS.
22
ACTUAL PORTFOLIO
The portfolio was kept invested in the proportions suggested by solver for three months i.e., 17 th
April, 2018 to 16th July, 2018. The portfolio risk, portfolio return and portfolio beta during the
same period were as follows
The above table shows that the actual portfolio return was 9.44% while the actual risk was 1.71%
and the actual beta was 0.32. On comparing the expected values of the portfolio with the actual
portfolio values, it can be found that the actual portfolio is exposed to slightly higher risk than
expected and huge difference between the expected return of the portfolio of 22% and actual
portfolio return of 9%. The expected value of beta is similar as the actual portfolio beta.
On comparing the actual portfolio values against the Index, it has been found that the return and
the standard deviation of the market were much higher than the portfolio. Though the portfolio
was exposed to lesser risk it couldn‟t reach the market return.
23
EVALUATION OF THE PORTFOLIO
The portfolio was evaluated using Treynor measure, Sharpe ratio and Jenson measure of
portfolio evaluation. In order to evaluate the performance of the actual portfolio, it was compared
with the performance of the market of the same period. The results were as follows
Treynor’s Measure:
NIFTY (MARKET) 9%
ACTUAL MININMUM
8%
RISK PORTFOLIO
According to Treynor‟s measure, higher is the measure better is the portfolio performance. It
represents the portfolio's return per unit risk. The measure of the portfolio was 8% when the
measure of the market was 9%. There was a slight difference between the measures of the
market and the portfolio. The portfolio did not perform well against the market as it was lower
than the market.
24
Sharpe’s Ratio:
ACTUAL MININMUM
1.43
RISK PORTFOLIO
According to Sharpe‟s ratio, higher is the measure better is the portfolio performance. It shows
the risk premium earned over the risk free rate per unit of standard deviation. The industry
prefers Sharpe‟s ratio over the other measures of evaluation of portfolio. From the above table it
is evident that the ratio of the portfolio was 1.43, where as for the market it was 0.98. The ratio
of the portfolio was higher than the market. This indicates superior performance of the portfolio
over the market.
25
Jensen Measure:
ACTUAL MININMUM
0.81%
RISK PORTFOLIO
According to Jensen‟s measure, Higher is the measure better is the portfolio performance. Jensen
measure represents the average excess return of the portfolio above that predicted by CAPM.
The alpha of the portfolio is 0.81%. The portfolio could achieve a positive alpha which means it
performed better than expected. As the alpha of the portfolio is positive, it can be concluded that
according to Jensen‟s measure the portfolio performed well.
26
CONCLUSION
27
Portfolio management means selecting the right investment tools in the right proportion to
generate optimum returns from the investments made. A portfolio is built based on investor‟s
investment budget, and risk appetite keeping expected rate of return in mind. The objective of
this study is to make an attempt to prepare an optimal portfolio and to track and evaluate its
performance.
To proceed with the study, 20 companies were randomly selected from the companies listed on
the National Stock Exchange (NSE). The price data of the selected companies as well as for the
reference index, NIFTY50, were collected from the NSE website. Other relevant data were
collected from the respective company‟s website. A correlation matrix of these 20 companies
was created and finally using this matrix, 5 companies, namely Colgate, Oracle Financial
Services (OFSS), Gas Authority of India Limited (GAIL), Procter and Gamble Hygiene and
Health Care (PGHH) and Bharath Heavy Electricals Limited (BHEL), were selected for creating
actual portfolio.
DCF analysis based on constant growth model found Colgate and BHEL to be overpriced and
OFSS, GAIL, and PGHH to be underpriced. MS-Excel Solver was used to create the minimum
risk portfolio. Finally, portfolio was created as per the weightage suggested by Solver. This
portfolio was kept invested for the duration of the project work. At the end of the project period,
the portfolio was evaluated using Treynor‟s measure, Sharpe‟s ratio, and Jensen‟s measure and
compared against the index performance during the same period. The risk free rate for evaluation
was sourced from RBI and was taken to be 7%.
The portfolio gave an actual return of 9.44% with standard deviation of 1.71%. During the same
time, the index gave a return of 15.89% with a standard deviation of 9.08%.The portfolio has a
Treynor measure of 8% against the Index Treynor of 9%. The portfolio has a Sharpe ratio of 1.43
against the index Sharpe of 0.98. The portfolio has a Jensen alpha of 0.81%.
28
BIBLIOGRAPHY
29
Dr. R. Nalini (2014), “Optimal portfolio construction using Sharpe‟s single index model -
a study of selected stocks from BSE”, International journal of advanced research in
management and social sciences, vol. 3 |No. 12|. pg.: 72-93.
Anupam Mitra and Punneet Khanna (2014), A dynamic spreadsheet model for
determining the portfolio frontier for BSE30 stocks, Independent journal of management
& production v. 5, n. 1.
Ms. Nisha Malik and Chand Prakash Saini (2013), “Research paper on portfolio
management”, Shiv Shakti International Journal in Multi-disciplinary and Academic
Research (SSIJMAR) Vol. 2 No.5.
Albert, Robert J., Poon and Percy S (2011), the new prudent investor rule and the modern
portfolio theory: a new direction for fiduciaries, American business law journal
00027766, fall96, vol. 34, issue 1.
Resnik, Bruce L. (2010), did modern portfolio theory fail investors in the credit crisis?”
CPA journal, NYSSCPA publication, volume 80, Issue 10, New York.
Jayanth. M. Thakur (2000), "World of derivatives and related law", the financial express,
daily, vol. VI, no. 8, February 14tJ1, p.2.
Avijit Banerjee (1998), “A glimpse of portfolio management”, the management
accountant, monthly vol. 39, no.10, p.774.
Edwin J. Elton a, Martin J. Gruber (1997), Modern portfolio theory, 1950 to date journal
of banking& finance edition: - 21 / 1743-1759.
Nabhi Kumar Jain (1992), How to earn more from shares? , Nabhi publications, Delhi,
1992.
30
Annexure I
31
COMPANY PROFILE:
S&P GLOBAL
S&P Global Market Intelligence former known as (Capital IQ) was established in 1999 by Neal
Goldman, Steve Turner and Randall Winn. They sold the business to McGraw Hill in 2004 and
Randall Winn served as the CEO/Executive Managing Director of Capital IQ, Inc., operating the
business as a relatively standalone subsidiary until April 1, 2011. At that point, Winn left and the
company and its various functions were fully merged with other parts of S&P to become part
of McGraw-Hill Financial.
S&P Global Market Intelligence Inc. provides financial and industry data, research, news, and
analytics to investment professionals, government agencies, corporations, and universities
worldwide. It collects, interprets, analyzes, and connects financial and industry data and turns it
into actionable intelligence to help clients make business and financial decisions. The company
integrates news, market and sector-specific data, and analytics into tools that help its clients to
track performance, generate alpha, identify investment ideas, understand competitive and
industry dynamics, perform valuation, and assess credit risk. It delivers analytic measures,
company data, pricing and market data.
S&P Capital IQ plus SNL is S&P Global Market Intelligence. They had joined forces to provide
the best solution for sector-focused news, data, and analytics.
The predecessor companies of S&P Global have history dating to 1888, when James H. McGraw
purchased the American Journal of Railway Appliances. He continued to add further
publications, eventually establishing The McGraw Publishing Company in 1899. John A. Hill
had also produced several technical and trade publications and in 1902 formed his own business,
The Hill Publishing Company.
32
In 1909 both men, having known each other's interests, agreed upon an alliance and combined
the book departments of their publishing companies into The McGraw-Hill Book Company.
John Hill served as President, with James McGraw as Vice-President. In 1917, the remaining
parts of each business were merged into The McGraw-Hill Publishing Company. In 1986,
McGraw-Hill bought out competitor The Economy Company, then the United States' largest
publisher of educational material. The buyout made McGraw-Hill the largest educational
publisher in the United States.
The company has the wealth of information on more than 45,000 public companies and large
number of private firms. The information includes company profiles, incorporation records,
financial information, executive team summaries, past or future acquisition activity and
independent analyst reports. It also provides stock reports of leading public entities.
It disseminates information and analysis on more complex company structures such as mutual
funds. It gives its users a fund report that are profiles available mutual funds and compares
performance. Fund insights and fund strategies are also displayed on the web portal to help
investors stay up to date with the industry and potential new investment strategies.
The company gives its users the ability to gain broad market understanding through the use of its
market snapshot, industry surveys, sub-industry review, and general economic insights. All of
these features combine to create a robust learning platform that empowers financial professionals
to make sound decisions.
1917
The two publishing businesses come together to form the McGraw-Hill Publishing Company,
Inc.
33
1923
These ratings give investors essential information on the bond market, allowing them to make
the right decisions.
1941
Standard Statistics Co. and Poor‟s Publishing Co. merge to form Standard & Poor‟s.
With this merge, Standard & Poor‟s becomes one of the most essential players in the field of
financial information services.
1953
Founded in 1909, this daily market update provided vital information on the price movements
and developments in the oil marketplace.
1957
Used as a measure of the general level of stock prices, this essential index allows investors to
ground their decisions in research and data.
1958
This legendary ad set the bar for business publication advertising and reinforced the idea that
nothing is more essential than getting your name out there.
1966
With this acquisition, McGraw-Hill is able to bolster its offerings, bringing in the data and
analytics that make Standard & Poor‟s such a recognized name in the investment world.
34
1972
Still known as the McGraw-Hill Building to this day, the skyscraper was home to the company
until 2015.
2004
The acquisition of Capital IQ expands Standard & Poor‟s already extensive cache of proprietary
data and broadens the company‟s specialty set.
2005
As India‟s leading ratings, research and risk-advisory company, CRISIL increases the reach of
the company and provides an essential global piece of the puzzle.
2012
McGraw Hill Financial launches a joint venture to create S&P Dow Jones Indices.
This venture creates one of the most essential indices in the marketplace; delivering data relied
on millions of investors around the world.
2013
The McGraw-Hill Companies completes the sale of McGraw-Hill Education and is later renamed
McGraw Hill Financial.
With the sale, McGraw Hill is able to solidify its focus on the financial services industry.
2015
This acquisition increases the number of sectors McGraw Hill covers and adds another essential
source of intelligence.
35
2016
This rebranding unifies the company‟s offerings under one recognizable brand to provide
investors with the essential intelligence they need to make decisions with conviction.
Vision
To be the leading provider of transparent and independent benchmarks and ratings, analytics,
data and research in the global capital commodity and corporate markets
Mission
Promote sustainable growth in the global capital, commodity and corporate markets by providing
customers with essential intelligence and superior products.
Future goals:
One goal of their forecast is to help them lessen three major areas of risk: market risk, individual
security risk, and behaviour risk. And it is fairly good at helping them identify and control for
market risk and individual security risk. The quantitative approach involves known numbers, and
over time those numbers add to a semi-stable set of data that can help them decide if they are
being offered bargains or are being overcharged for their investments. They would obviously
prefer to buy low and sell high. Buying low at times can be difficult, though, and if there are no
bargains available, they would much rather wait for better opportunities.
Products:
36
Portfolio Analytics:
It helps the clients in investment process and also spends more time applying it with streamlined
portfolio analysis and reporting.
• ClariFI:
Company‟s alpha research and portfolio management platform provides powerful analytics and
global market data solutions that let investment managers and researchers easily access S&P
Global Market Intelligence's data libraries through a secure, hosted, or locally installed
environment.
• SNL Banker:
Banks today face growing demands from regulators, shareholders, customers and employees. To
stay competitive in a volatile market you need to quickly gain a complete view of a constantly
changing financial landscape.
• iPartners:
The iPartners platform offers U.S. insurance companies a simple, streamlined reporting solution,
providing timely data and insights to guide decision making.
• Net Advantage:
Net Advantage gives reference users the core intelligence they need for in-depth company and
industry research in the digital age, and is the go-to resource to evaluate performance, analyze
financials and gather market data.
37
• Knowledge Centre:
It provides sector-specific training seminars and executive conferences to move business forward.
Services:
S&P provides its consulting and intermediary services for families and their enterprises,
corporations, private equity companies, and personal investors concerning:
• Acquisitions and sales of companies
• Mergers and strategic alliances
• Corporate divestments
• Management buy-ins and buy-outs in general,
S&P‟s services are: Analysis of the company and the relevant markets, planning of the
transaction, identification and contacts to potential acquirers or vendors, as well as initiation and
carrying out of the negotiation until the completion of the transaction. As a matter of principle,
S&P acts on the basis of exclusive mandates for the best possible results of its clients. The
remuneration of its services normally consists of a retainer as well as an additional success fee
resulting from the enterprise value of the transaction
Competitors:
1. Thomson Reuters: It is one of the top competitors of S&P. It is a public company that was
founded in New York, in 2008. Thomson Reuters is in the publishing field. It has 38367 more
employees vs. S&P Global.
2. Bloomberg: It is perceived as one of S&P Global‟s biggest rivals. Bloomberg was founded in
1981 in New York. It operates in the Business Support Services Industry. Bloomberg generates
$8.7billion more revenue than S&P Global.
38
ACQUISITIONS:
39
Awards and Recognitions:
1. Best Research Provider for 2017:
S&P Global Market Intelligence won the “Best Research Provider” category at 2017 Inside
Market Data and Inside Reference Data Awards. We were recognized for our comprehensive,
sector and region specific investment research capabilities.
CEO Mike Chinn was named to the 2017 top Tech 50 by Institutional Investor for the second
consecutive year. Financial Technologists are selected based on their ability to apply advanced
technologies to accomplish transformational results, often on a global scale.
S&P Global Market Intelligence won the “Best Counterparty Data Provider” category at the
2016 Inside Market Data &Inside Reference Data Awards. We were recognized our robust
counterparty data and analytics capabilities which are part of our Risk Services Offerings.
S&P Global Market Intelligence received a 2016 Turnaround Product/Service of the year award
for its Leveraged Commentary Data (LCD) research at The M&A Advisor 11th Annual
Turnaround Awards. This marks our sixth award from The M&A Advisor since 2012 and the
first for LCD.
S&P Global Market Intelligence received the ICMG Enterprise & IT Architecture Excellence
Award for Best Software Architecture for its Virtual Database Platform initiative. The global
award honors architects and enterprises in the discipline of IT Architecture, whose work
demonstrate innovation and the ability to create ground-breaking software.
40
President Michael A. Chinn
QUALITY PROGRAM:
Its main goal apart from Vision and Mission is to ensure that they provide Quality Data to their
clients. That‟s why they had created a Quality Program. This is an initiative of SNL limited
which is carried forward after the acquisition.
41
If anyone find‟s a qualifying data omission or discrepancy in their corporate, market or financial
information, they want to be the first to know about it. They run over 1, 45,000 automated data
quality checks, and content which are reviewed multiple times before publishing. If something
seems off in their data, and if it is found as a mistake in their query then they will be awarded
$50 reward.
42
Annexure II
43
Literature Review
Dr. R. Nalini (2014) stated that to make wise decisions in investment, there is a need for
knowledge on security analysis and portfolio management. A rational investor aims at attaining
maximum return with minimum risk. Constructing an optimal portfolio is a challenging task for
the individual as well as the institutional investors. This study is aimed at creating awareness in
the investors regarding the utility of Sharpe‟s Single Index Model in portfolio construction. The
study suggests the Indian investors to reap the benefits of Sharpe‟s Single Index Model (SIM) as
the number of companies traded in the stock exchanges is increasing year after year. Fifteen
companies from the S&P BSE Sensex index were selected for the study. Among the fifteen
sample companies, only four were selected for optimal portfolio using SIM. The results of this
study and such micro level studies have more utility value to the fund managers.
Anupam Mitra and Punneet Khanna (2014) stated introductory investment courses revolve
around Harry Markowitz‟s modern portfolio theory and William Sharpe‟s Index for the
performance measurement of those portfolios. This paper presents a simplified perspective of
Markowitz‟s contributions to Modern Portfolio Theory. It is to see the effect of duration of
historical data on the risk and return of the portfolio and to see the applicability of risk-reward
logic. The empirical results also show that short selling may increase the risk of the portfolio
when the investor is instability preferred.
Ms. Nisha Malik and Chand Prakash Saini (2013) investigated on optimal portfolio construction
using Sharpe‟s single index model. The authors stated that investing in securities needs scientific
knowledge as well as analytical skills to deal with risk. It is risky to invest the entire savings in a
single security. Instead, it is suggested to invest in a group of securities. Such group of securities
is called portfolio. The study says that when a portfolio is created risk is reduced without
sacrificing returns. The study deals with portfolio management i.e., with the theory and practice
of optimum combining securities into portfolio. The authors concluded that an investor who
44
understands the principles and analytical aspects of portfolio management has a better chance of
success.
Albert, Robert J., Poon, Percy S (2011) arrive at the conclusion that in the 1990s, due to the
efforts of the influential American law institute and the national conference of commissioners on
Uniform State laws, a number of new investment strategies have been submitted for reforming
the prudent investor rule, including the very notable modern portfolio theory. By 1995, four large
states, New York, Illinois, Florida and Virginia had adopted statutes incorporating the theory and
other general investment philosophies contained in these model laws. The result of this new
direction, which is likely to be repeated in other states, will be positive for both fiduciaries and
beneficiaries. Income will, in all probability, increase without undue risk to the principal. In
addition, according to Richard V. Wellman, the drafting chairman of the Uniform Prudent
Investor Act, there may be a reduction of litigation when conflicting court rulings on what
constitutes a prudent investor's duties are eliminated.
Resnik, Bruce L (2010) discussed the possible failure of the Modern Portfolio Theory (MPT),
which quantified investment risk and diversified a portfolio by combining investments with
different historical performance characteristics, in the credit crisis in 2010. MPT investors
reportedly suffered losses in equities, fixed-income securities and hedge funds when the crisis
hit. It is stated that MPT failed to consider the real world risk of price and that it hindered tactical
or strategic investing and focusing on assets that will likely appreciate in the future.
Jayanth M Thakur (2000) disclosed the implications of derivatives. The use of derivatives can be
for safeguarding oneself against risks. It is widely recognized by all including the SEBI
committee on derivatives that a substantial degree of speculative activity in a market for
derivatives is necessary and without this, a good market in derivatives cannot function. He
revealed that the basic purpose of providing a system for trading in derivatives is to enable a
person to protect himself against the risk of fluctuations in the market prices. This is known as
hedging. But he argued that it might lead to the bankruptcy of the grantor of an option to buy as
45
he takes a huge risk since the price could go upward to an unlimited extent and still he would
have to deliver the shares. This is one of the important reasons that the derivatives are criticized.
He concluded the article by suggesting that the objective of the Regulator would be to provide
protection to all concerned.
Avijit Banerjee (1998) reviewed Fundamental Analysis and Technical Analysis to analyse the
worthiness of the individual securities needed to be acquired for portfolio construction. The
Fundamental Analysis aims to compare the Intrinsic Value (I.V) with the prevailing market price
(M.P) and to take decisions whether to buy, sell or hold the investments. The fundamentals of the
economy, industry and company determine the value of a security. If the I.V. is greater than the
M.P., the stock is under-priced and should be purchased. He observed that the Fundamental
Analysis could never forecast the M.P. of a stock at any particular point of time. Technical
Analysis removes this weakness. Technical Analysis detects the most appropriate time to buy or
sell the stock. It aims to avoid the pitfalls of wrong timing in the investment decisions. He also
stated that the modern portfolio literature suggests 'beta' value as the most acceptable measure of
risk of scrip. The securities having low beta value should be selected for constructing a portfolio
in order to minimize the risks.
Edwin J. Elton a, Martin J. Gruber (1997) have reviewed “Modern Portfolio Analysis” and have
outlined some important topics for further research. Issues discussed include the history and
future of portfolio theory, the key inputs necessary to perform portfolio optimization, specific
problems in applying portfolio theory to financial institutions, and the methods for evaluating
how well portfolios are managed. Emphasis is placed on both the history of major concepts and
where further research is needed in each of these areas.
Nabhi Kumar Jain (1992) specified certain tips for buying shares for holding and also for selling
shares. He advised the investors to buy shares of a growing company of a growing industry. Buy
shares by diversifying in a number of growth companies operating in a different but equally fast
growing sector of the economy. He suggested selling the shares the moment company has or
46
almost reached the peak of its growth. Also, sell the shares the moment you realise you have
made a mistake in the initial selection of the shares. The only option to decide when to buy and
sell high priced shares is to identify the individual merit or demerit of each of the shares in the
portfolio and arrive at a decision.
47