CIA 3

MBA341F: Security Analysis and Portfolio Management

A Report submitted in partial fulfilment of the requirements for the degree of

Master of Business Administration

By

MRIGANK MAULI

REGISTER NUMBER
2128265

Under the Guidance of

DR. NISHA SHANKAR

MBA PROGRAMME
SCHOOL OF BUSINESS AND MANAGEMENT
CHRIST (DEEMED TO BE UNIVERSITY), BANGALORE

MARCH 2022
 INTRODUCTION

OVERVIEW OF THE COMPANY

TITAN Company Ltd. (NSE)

The Titan Company Limited (Titan) began as a joint venture between the TATA Group and
the Tamil Nadu Industrial Development Corporation in 1984, with small but optimistic
moves (TIDCO). With the goal of creating a Titan watch for everyone, the company has
grown to become the world's fifth largest integrated watch manufacturer, and this is merely
the beginning of a successful narrative. Titan has expanded into underserved markets and
built lifestyle brands in a variety of product categories over the previous three decades. Titan
is well-known for revolutionising India's watch and jewellery sector, as well as for pioneering
experiential retail in the country's retail market.
 ITC Ltd. (NSE)

ITC is a diverse conglomerate having activities in Fast Moving Consumer Goods, Hotels,
Paperboards and Packaging, Agri Business, and Information Technology. It is one of India's
leading private sector corporations with a gross sales value of 74,979 crores and a net profit
of 13,032 crores, the company is considered one of India's most valuable corporate firms (as
on 31.03.2021). According to a study performed by Fortune India in collaboration with Hay
Group, ITC is India's most admired corporation. ITC is India's top FMCG marketer, the clear
market leader in the Indian Paperboard and Packaging business, a worldwide recognised
pioneer in farmer empowerment through its extensive Agri Business, and India's preeminent
hotel network, a forerunner in 'Responsible Luxury.' ITC Infotech, an ITC wholly-owned
company, is a specialist global digital solutions provider.
 Balrampur Chini Mills Ltd. (NSE)

Balrampur Chini Mills Limited, established in 1975, is one of India's leading sugar
producers. It was one of the country's first sugar firms to broaden its operations beyond sugar
to include distilleries and cogeneration. The Company's unique approach to manufacturing
has enabled it to effectively develop a wide range of co-products ranging from Molasses,
Alcohol, Ethanol, and Bagasse to Power Generation, thanks to its deep and extensive
sectorial understanding. Mr Vivek Saraogi is in management of the company's goals and
vision. He has served on the committees of FICCI and the Indian Chamber of Commerce in
Kolkata, and he is the former President of the Indian Sugar Mills Association. His leadership
helped the company reach new heights. Cane crusher capacity is 76,500 tonnes per day,
distillery capacity is 560 KL per day, and saleable co-generation capacity is 168.70
megawatts, according to the company.
 TATA Power Company Ltd. (NSE)

Tata Power, which was once a part of the Tata Electric Companies trio, is a technology
pioneer with numerous firsts to its name, contributing to the country's energy independence.
Tata Power, along with its subsidiaries and joint ventures, has a total generation capacity of
13,515 MW, with sustainable energy accounting for 34%. The company is one of the leading
private operators in each value chain area, including solar rooftop and value-added services.
Tata Power is a pioneer in the energy sector, having steered the industry in terms of
technology, process, and platform. Tata Power's latest business integrated solutions, focusing
on mobility and lifestyle, are positioned for multi-fold expansion, powering emerging
technologies for the "smart" customer. Tata Power, which was founded in 1915 and today has
almost a century of experience in technology leadership, project execution excellence, world-
class safety systems, customer care, and driving green initiatives, is dedicated to 'lighting up
lives' for future generations.
 Adani Green Energy Ltd. (NSE)

With a current project portfolio of 20,284 MW, Adani Green Energy Limited (AGEL) is one
of India's largest renewable energy enterprises. AGEL is part of the Adani Group's mission to
give India a better, cleaner, and more environmentally friendly future. The Company
develops, builds, owns, runs, and maintains utility-scale grid-connected solar and wind farm
projects, guided by the Group's philosophy of 'Growth with Goodness.' The electricity
generated is distributed to federal and state government agencies, as well as government
backed businesses.

AGEL has leveraged its strengths and grown its footprint throughout 12 Indian states thanks
to long-term Power Purchase Agreements (PPAs) with central and state government agencies.
In its undertakings, the company uses cutting-edge technology. AGEL is leading India's
renewable energy path with a portfolio of 54 active projects and 12 under construction.
 PORTFOLIO SELECTION RATIONALE REQUIREMENTS

Objective Of Investment ?

The basic investment objective an investor looks forward to can be Safety, Income, Capital
Growth. The first task of any successful individual investor is to find the correct balance
among these three worthy goals. Here the risk tolerance is considered to be zero with an
Aversion of 1.5. To make an optimum portfolio and maximise the returns 5 companies has
been picked up from different sectors where in two among them are sustainable. The
companies which have been selected for making a portfolio are :

TITAN Company Ltd.

ITC Ltd.

Balrampur Chini Mills Ltd.

TATA Power Company Ltd. (Sustainable)

Adani Green Energy Ltd. (Sustainable)

All these companies stocks are from NATIONAL STOCK EXCHANGE OF INDIA LTD.
Policy statement of investor defined in terms of target return and acceptable risk, and
objective of investment ?

A policy statement of an investor defines all the goals and expectation of an investors. When
an investor is planning to invest in the stock market they have to form up the policies which
would be a guiding factor throughout the investment process and also this needs to be altered
with a changing needs of an investor. Ex: If an investor is risk averse they cannot look upon
the higher returns as higher returns need higher risk. Therefore we can say that this policy
statement is also partially dependent on the behaviour of an investor. Here, the last 40 days
data is not sufficient to predict the stocks also the market is very volatile due to Russian –
Ukraine war situation. Therefore during these situation it is very hard for an investors to be
guided along with their policy statement.

Reason for selecting the industries for investment ?

There are 5 different stocks from varied industries and there is a particular reason to choose
those companies stocks.

TITAN (Fashion industry) - In India is emerging day by day and watch has been a major
fragment of this industry.

ITC (Conglomerate) - A conglomerate is a business conglomerate that consists of multiple

unconnected enterprises. A conglomerate is a firm in which one corporation owns a
controlling position in multiple other businesses that operate separately and independently.
The major reason of investing in conglomerate is diversity of business and investing risk as
they participate in many different markets.

Balrampur Chini Mills (Sugar Manufacturing Industry) - As we have seen in the past
recent quarters there was a rise in the demand of sugar products in domestic and international
market and rise in export of sugar have also increased. With rise in demand of ethanol power
fuel the product and by product of sugar industries have a major role in ethanol production
and demand of ethanol is rising in international market also, so the industry growth looks
very prominent in coming years.
TATA Power Company , Adani Green Energy (Sustainable) - Investing in stocks with a
high Environmental, Social, and Governance (ESG) rating and track record can be the most
sensible approach in the long run investment. ESG investments signify a trend toward
supporting businesses that incorporate long-term sustainability into their operations, while
also understanding the dangers of unintended consequences that could occur if an
organisation fails to consider ESG concerns.

Reason for selecting the stock from respective industries?

TITAN - Through several news analysis and major insights from the news I decided to
invest in the stocks of Titan.

Titan is expected to record a 30% revenue increase for the quarter, totalling Rs 9,500 crore.
Without the Rs 340 crore in bullion sales during the quarter, the rise would be 37%.

A 150 basis point increase in Ebitda margins to 13.2 percent is expected with a minor
improvement in the studded mix and operating leverage. A PAT of Rs 860 crore is projected.

Also every year there is a growth in the stocks of Titan due to jewellery demand driven by
festive and wedding related purchases in October and November.

ITC - The company is working to reduce its reliance on the cigarette industry. It effectively
invests the money earned by the tobacco industry in fast-growing industries such as FMCG,
agriculture, and hotels. Ten years ago, the tobacco business accounted for 80% of the
company's total revenue. Its contribution has dropped to 40% today. 90 percent of the
company's profits are still earned. When the company's FMCG business breaks even in a year
or two, this number will shift as well.

ITC has established enterprises that will pay off in the long run. Whether it's the FMCG
industry, agriculture, paperboard, or the hotel industry, all of them are industries where
present investments will generate properties that will provide long-term benefits to the
organisation.

It has risen to the top of most of the industries in which it operates. It is the country's leading
cigarette and paper manufacturer. It is one of the three major participants in the hotel
industry. It is rapidly gaining market share in high-clutter sectors like as cookies, salty
snacks, noodles, and personal care goods in FMCG.
In the last 20 years, ITC has generously rewarded its stockholders. The stock has increased in
value from one rupee at the end of 1991 to Rs 259 today. During this time, the corporation
has paid out nearly Rs 19,000 crore in dividends to its stockholders! Two bonus issues have
been announced by the company: a 1:2 bonus issue in 2005 and a 1:1 bonus issue in 2010.
Investing in a firm with this history is less risky than investing in a penny stock.

Balrampur Chini Mills - This year, Balrampur Chini Mills expects to ship 7.5 million
tonnes of sugar. Furthermore, with crude oil prices hovering around $100 per barrel, the firm
will benefit from increased ethanol mixing in fuel which might led to surge in the stock price.

BCML is one of India's largest sugar producers, having a crushing capacity of 76,500 tonnes
of cane per day spread across ten units. All of our ten sugar plants are located in Uttar
Pradesh's eastern and central regions.

In last 1 year BMCL showed a strong growth in returns of around 61.51% and according to
the investors it is expected to grow more in upcoming years.

TATA Power Company - All the stocks of Tata company are showing a strong growth
wherein Tata power is also holding a major chunk.

Tata Power's stock has also been on a run. Tata Power's shares has risen 70% in the last
month due to a surge in volumes and the stock market's bull run.

On October 18, 2021, Tata Power reached a 52-week high of 269.7. The company's stock
price has increased by 314 percent in the past one year.

Tata Power is the country's largest renewable energy company, with 2.6 GW of renewable
energy capacity spread across 11 states. Tata Power is the country's largest renewable energy
company, with 2.6 GW of renewable energy capacity spread across 11 states.

Tata Power Solar, a Tata Power subsidiary, recently received contracts to install 100
megawatts (MW) of distributed generation (DG) capacity on behalf of Maharashtra's state-
run energy efficiency services (EESL).

A Letter of Award (LoA) was also issued to the subsidiary for engineering, procurement, and
construction (EPC) work on numerous projects totalling $5.4 billion.
Tata Power Solar recently secured EPC orders worth $6.9 billion from NTPC to build solar
photovoltaic (PV) projects in June 2021.

Adani Green Energy - The already outperforming Adani Group equities have gotten a few
of billions more reasons to rally now that the conglomerate's firms have received $2 billion in
investments.

The International Holding Company PJSC (IHC) of Abu Dhabi will invest $2 billion in three
portfolio firms, including Adani Green Energy Ltd. (AGEL)

Adani Green Energy's EPS went from ₹0.23 to ₹2.35 in just one year.

Adani Green Energy's revenue grew by 46.62 billion in last one year.

The company's overall operational capacity increased 56 percent year on year to 5,410 MW
in Q4FY22. In the same quarter, its YoY energy sales increased by 84% to 2,971 million
units, compared to 1,614 million units in Q4 FY21.

With a market valuation of 4,41,826 crore (4.41 lakh crore), Adani greens is India's tenth
most valuable company.

Reason for selecting the weights for portfolio creation ?

There are 4 different portfolio where different weights have been assigned to the selected
stocks.

Portfolio A – Each stock is assigned equal weightage of 20% respectively.

Portfolio B – The weights assigned to the stocks in this particular portfolio are random to
acquire highest returns. Weights assigned to the stocks are respectively :

TITAN Company Ltd. – 25%

ITC Ltd. – 15%

Balrampur Chini Mills Ltd. – 32%

TATA Power Company Ltd. – 16%

Adani Green Energy Ltd. – 12%

Portfolio C – In this portfolio again the weights are reassigned to obtain higher returns.
Therefore the returns and risk in this portfolio has slightly increased. Weights assigned to the
stocks are respectively :

TITAN Company Ltd. – 22%

ITC Ltd. – 11%

Balrampur Chini Mills Ltd. – 19%

TATA Power Company Ltd. – 31%

Adani Green Energy Ltd. – 17%

Portfolio O - The analysis of the optimal allocation of the weightage for the stock is done
with the help of the solver in this portfolio, and the return that is achieved is higher than the
prior returns of the other portfolio. Weights assigned to the stocks are respectively :

TITAN Company Ltd. – 0%

ITC Ltd. – 17%
Balrampur Chini Mills Ltd. – 14%
TATA Power Company Ltd. – 0%
Adani Green Energy Ltd. – 16%

ANALYSIS

EQUAL AND RANDOM WEIGHTS

Portfolio Return - The highest return is obtained from portfolio O which is obtained through
solver and the least return acquired from portfolio B where the weights were assigned
randomly.
Portfolio Variance - Portfolio variance is a measure of a portfolio's return dispersion. It is
the total of a portfolio's real returns over a certain time period. The standard deviation of each
security in the portfolio, as well as the correlation between securities in the portfolio, are used
to determine portfolio variance. Portfolio O shows the least variance and highest variance is
obtained from Portfolio C.
Portfolio Risk - The portfolio O has the least risk and also the highest return but the portfolio
C shows the highest risk but not the highest return.
Risk free rate - The risk-free rate of return is the theoretical return on a risk-free investment.
Over a given period of time, the risk-free rate represents the interest an investor would
receive from an entirely risk-free investment.
Sharpe Ratio - The Sharpe ratio is a risk-adjusted return metric. It expresses how much extra
profit you get in exchange for the risk of keeping a riskier asset. Here the portfolio O has
highest Sharpe ratio and also the highest return. Portfolio B has the lowest Sharpe ratio and
lest returns too. Therefore we can say that Returns and Sharpe ratio are directly proportionate.
Beta of the Portfolio - According to the proportions of the investments in the portfolio, the
beta of a portfolio is the weighted total of the individual asset betas. It shows that how the
portfolio reacts to the market/ index movement. Here Portfolio C has highest beta of 0.944
which means that if market moves by 1 point then portfolio will go up by 0.944 points.
CAPITAL ALLOCATION AND UTILITY
After determining the optimal portfolio, we must determine what proportion of risky and risk-
free assets should be included in the optimal portfolio in order to gain the greatest utility from
the allocation of money and the returns earned on those funds. According to the calculations,
it is recommended to invest 100% of your funds in risky assets because they provide superior
returns than risk-free assets, and only then can you gain the most utility from your fund
allocation. Risk aversion is considered to be 1.5, which describes the investor's risk profile. A
risk aversion of 1.5 indicates that the investor is risk averse, as he seeks both high returns and
capital safety. So, given the above portfolio with the capital allocation, the utility obtained
using risk aversion is 0.005956.

PORTFOLIO EVALUATION

Sharpe Ratio - The Sharpe ratio is a risk-adjusted return metric. It expresses how much extra
profit you get in exchange for the risk of keeping a riskier asset. Here the portfolio O has
highest Sharpe ratio and also the highest return. Portfolio B has the lowest Sharpe ratio and
lest returns too. Therefore we can say that Returns and Sharpe ratio are directly proportionate.

Treynor Ratio - The Treynor ratio is a performance indicator that measures how much
excess return a portfolio achieved per unit of risk it took on. In this context, excess return
refers to the profit made over and beyond the profit made on a risk-free investment.
Systematic risk, as assessed by a portfolio's beta, is referred to in the Treynor ratio. Beta is a
metric that quantifies how responsive a portfolio's return is to changes in the general market's
return. Here we could see that portfolio O has highest Treynor ratio and also the highest
return. Here portfolio has least Treynor ration.

Jensen Ration - The Jensen ratio calculates how much of the portfolio's rate of return is due
to the manager's ability to provide above-average returns when market risk is taken into
account. The better the risk-adjusted returns, the higher the ratio. The portfolio O has highest
Jensen ratio which means that managers ability to predict is really good as this portfolio has
highest returns too. Also portfolio b has lowest Jensen ratio and also it has lowest return.

M-Squared (M²) - The M2 value of a portfolio that equals the market's return is zero,
whereas a portfolio that outperforms has a positive value. The M2 metric can be used to rank
portfolios and discover whether portfolios outperform the market on a risk-adjusted basis.
When compared to the other portfolios, Optimal Portfolio O has the greatest M Square
measure, indicating that the investor is effectively compensated for the level of risk incurred.
Portfolio C has the lowest M Square of the four portfolios, indicating that investors are not
sufficiently compensated for the amount of risk they are taking.

Interpretation Requirements

Does changing weights of stocks in portfolio impact portfolio return and risk ?

Yes, as we saw above with the various portfolios being built, changing the weightage in the
portfolio alters the risk and return for the portfolio. When the weights got changed in all
different portfolios the risk were also changing.

Degree of impact (compare risk and return of different portfolios) ?

It can be observed from the above calculations that when the weights are being changed the
returns and risk are also changing. Risk and Return are directly proportionate to each other as
we can see from above calculation that Portfolio O has highest return and risk wherein
Portfolio B has lowest risk and return.

Comment on the different degree of diversification present in these three different

portfolios ?
The portfolio has 5 different diversification where two stocks are sustainable and other are
from different industry. So the major reason behind the diversification is that return, ex: if a
portfolio has all the stocks of the same industry and that particular industry is not performing
well then the returns would be dragged down to least. So it is better for an investor to diverse
its portfolio to reduce the risk.

Ranking of the Portfolio

Portfolio O

Portfolio A

Portfolio C

Portfolio B

References

https://www.tatapower.com/
https://www.adanigreenenergy.com/
https://chini.com/
https://www.titan.co.in/
https://www.itcportal.com/
https://www.moneycontrol.com/
https://www1.nseindia.com/