Investment Analysis & Portfolio

Management
Portfolio Construction - Large Cap & Mid Cap
“Eternal Capital Fund”
Group 5
 “Rule No. 1 is never lose money. Rule No. 2 is never
forget Rule No. 1.”
❏ What Buffett is saying is that capital preservation should be the main priority for
any investor when deciding to place your money into the market.
❏ In other words, stay rational.

What is Portfolio?
❏ Portfolio is a combination of securities such as stocks bonds and money market
instruments.
❏ The process of blending together the broad classes so as to obtain return with
minimum risk is called portfolio construction
❏ diversification of investments helps to spread risk over many
assets and thus reduce unsystematic risk.
Approaches to Portfolio Construction
Traditional approach: investors needs in terms of Income and
capital appreciation are evaluated an appropriate securities are selected
to meet the needs of investor.
Markowitz efficient frontier approach: Portfolios are constructed to
maximise the expected return for a given level of risk as it views
portfolio construction in terms of expected return and the risk
associated.
 Markowitz Efficient Frontier Approach or
Modern Approach
❏ Harry Markowitz could forward this model in 1952.

❏ It assist in the selection of the most efficient by analysing various

possible portfolios of the given securities. By choosing the securities
that do not “move” exactly together the HM model shows investors
how to reduce their risk.
Steps followed in Company Selection
 Fundamental Analysis Criteria

1 Lorem ipsum dolor sit amet

Debt to Equity Ratio < 2
1
6 Revenue
Lorem ipsum
Growthdolor
5 years
sit >
nec at adipiscing amet nec at
7%adipiscing

2 Lorem ipsum
P/E ratio< dolor average
industry sit amet 2
7 Lorem ipsum
Revenue Growthdolor sit >
3 years
nec at adipiscing
or less than 35 amet nec10%
at adipiscing

3 Share holding Pattern

(promoter + institutions
8 Interest Coverage Ratio>4
holding > 65%)

4 Average Roe 5 years > 15%

9 Dividend yield >1%

undamental Analysi
5 Avg Roe 3 years >15%
10 Price to cash flow >5
 Portfolio suggestions with Constraints
We focused on constructing the portfolio with below restrictions:

Portfolio 1 - Portfolio with equal weights to all the stocks

Portfolio 2- Portfolio that maximizes the Sharpe Ratio without any
constraints.
Portfolio 3- Portfolio with risk less than market risk i.e. 19%
Portfolio 4- Minimum 1% weights to all the stocks.
Portfolio 1 -

❏ Rf = 5.88%
❏ Sharpe’s Ratio = 0.98
❏ M square = 10.9%
❏ Jensen’s Alpha = 29.35%
❏ Treynor’s Ratio = 0.39
❏ Weights allotted to all 46 of the stocks are equal in
this portfolio.
 Portfolio 2 -
Weights allotted to stocks are as below:
❏ ATGL - 0.9% ❏ Rf = 5.88%
❏ Persistent - 2.3% ❏ Sharpe’s Ratio = 1.21
❏ Pfizer - 8.7%
❏ Varun Beverages - 10.1% ❏ M square = 93.33%
❏ HAL - 13.1% ❏ Jensen’s Alpha = 22.42%
❏ HUL - 26.2%
❏ Pidilite - 10.01% ❏ Treynor’s Ratio = 0.395
❏ Relaxo - 12.1%
❏ Siemens - 0.9%
❏ Solarinds - 7.07%
❏ Syngen - 1.8%
❏ Torrent Pharma - 6.3%
Portfolio 3 -
Weights allotted to stocks are as below:
❏ HUL - 29.4% ❏ Rf = 5.88%
❏ HAL - 13.3% ❏ Sharpe’s Ratio = 0.91
❏ Relaxo - 12.04%
❏ M square = 83.74%
❏ ITC - 11.3%
❏ Pfizer - 9.01% ❏ Jensen’s Alpha = 0.12
❏ Torrent Pharma - 7.4% ❏ Treynor’s Ratio = 0.25
❏ Solarinds - 5.05%
❏ Dabur India - 3.9%
❏ Pidilite - 2.8%
❏ Syngen - 2.2%
❏ Oil India - 2.2%
Portfolio 4 -
Weights allotted to stocks are as below:
❏ Rf = 5.88%
❏ ATGL - 1.3%
❏ Varun Beverages - 9.9%
❏ Sharpe’s Ratio = 0.38
❏ HAL - 7.8% ❏ M square = 67.75%
❏ HUL - 21.8% ❏ Jensen’s Alpha = 25%
❏ Pidilite - 7.2% ❏ Treynor’s Ratio = 0.38
❏ Relaxo - 8.3%
❏ Torrent Pharma - 4.5%
❏ 1% is allotted to rest of the 39 stocks
Capital Market Line(CML)
Thank You