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SUMMER INTERNSHIP PROJECT REPORT

ON
SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
SUBMITTED TO
ASIA PACIFIC INSTITUTE OF MANAGEMENT, NEW DELHI

IN PARTIAL FULLFILMENT OF THE REQUIREMENTS FOR

THE AWARD OF
POST GRADUATE DIPLOMA IN MANAGEMENT

UNDER THE GUIDANCE OF

(Dr. Neha Mittal)

SUBMITTED BY:
Ashish Kumar
2k13a19
PGDM BATCH 2013-2015 General
ON 25 June

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CERTIFICATE
This is to certify that Mr/Ms Ashish Kumar Roll number / Student ID 2k13a19, a student of
PGDM in Asia Pacific Institute of Management, New Delhi, has carried out the Summer
Internship Project work presented in this report titled Security Analysis and Portfolio
Management for the award of Post Graduate Diploma in Management for the Academic
Batch 2013-15, under my guidance.

(Signature)
Dr. Neha Mittal
Date:

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DECLARATION
I, Ashish Kumar, hereby declare that the project work entitled Security Analysis and
Portfolio Management submitted towards partial fulfilment of requirements for the award of
Post Graduate Diploma in Management is my original work and the dissertation has not
formed the basis for award of any degree, associate ship, fellowship or any similar title to the
best of my knowledge.

Place:

(Signature of Student)

Date:

Ashish Kumar
2k13a19

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ACKNOWLEDGEMENT
It gives me great pleasure in presenting the project report that gives the details of my project
on Security Analysis and Portfolio Management carried out at SMC Global Securities, New
Delhi (Rajendra place), dated from 15 April2014 15 June 2014(2months).
There are many people throughout my project who have allowed to me to reach this point
where I look forward to going to work truly enjoy what I get to do professionally day in and
day out.
I would like to express my deepest appreciation to all those who provided me the possibility
to complete this report. A special gratitude I give to Mr Ajay Singh Manager of NRI
department whose contribution in stimulating suggestions and encouragement, helped me to
coordinate my project Furthermore I would also like to acknowledge with much appreciation
the crucial role of the staff of SMC Global Securities, who gave the permission to use all
required equipment and the necessary materials to complete the task.
Special thanks go to my mentor Professor Neha Mittal who help me to assemble the parts and
gave suggestion about the task.

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CONTENTS
Chapter
no.

TOPICS

Page
no.

NEED FOR SELECTING THE PROJECT

EXECUTIVE SUMMARY

PART -1

FUNDAMENTAL PART OF THE PROJECT REPORT

1

10
INTRODUCTION OF STOCK EXCHANGE

COMPANY PROFILE

17

SECURITY ANALYSIS

22

PORTFOLIO MANAGEMENT

36

RISK RETURN ANALYSIS

44

INVESTMENT ANALYSIS

48

ASSEST ALLOCATION

56

PART -2
PRACTICAL AND RESEARCH PART OF THE PROJECT
REPORT

63

STUDY OF INVESTOR BEHAVIOR ON INVESTMENT AVENUES AND

RISK LEVEL

64

FUNDAMENTAL STUDY OF STOCKS

71

TECHNICAL STUDY OF STOCKS

76

CONSTRUCTION OF PORTFOLIO

83

CONCLUSION

89

BIBLIOGRAPHY & APPENDIX

91

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NEED FOR SELECTING THE PROJECT

The investor today is looking at investing in securities, which would give him better
return that an ordinary saving bank account or fixed deposits though at a certain amount of
risk. Every person saves money by post ponying consumption because future is uncertain. So,
they have to search out for efficient opportunities. Due to fast changing development in
economic and industries scenario improving the performance of the organization is essential.
As a result undertaking an academic study on Security analysis and portfolio management
will be a welcome step. This study will be defiantly help full in achieving the organization
effectiveness.

To get the overall knowledge of securities and investment.

To know how the investment made in different securities minimizes the risk
and maximizes the returns.

To get the knowledge of different factor that affects the investment decision of
investors.

To know how different companies are managing their portfolio i.e. when and
in which sectors they are investing.

To know what is the need of appointing a portfolio Manager and how does he
meets the needs of the various investors.

To get the knowledge about the role (PLAYED) and functions of portfolio
manager.

To get the knowledge of investment decision and asset allocation.

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EXECUTIVE SUMMARY
The securities available to an investor for investment are numerous and of various type. The
shares of over 7000 companies are listed in the stock exchange of the country, traditionally;
the securities were classified into ownership securities such as equity share and preference
shares and creditor ship security such as debentures and Bonds. Recently a number of new
securities with innovative features are being issued by companies to raise funds for their
projects.
Security analysis is the initial phase of the portfolio management process. This step
consists of examining the risk-return characteristics of individual securities. A basic strategy
in securities investment is to buy under-priced securities and sell overpriced securities.
There are two alternative approaches to security analysis, namely, fundamental
analysis and technical analysis. They are based on different premises and follow different
techniques fundamental analysis, the order of the two approaches, concentrates on the
fundamental factors affecting the company such as the EPS of the company the dividend payout ratio, the competition faced by the company, the market share, quality of management etc.
According to this approach, the share price of a company is determined by these
fundamental factors. The fundamental analyst works out the true worth or intrinsic value of a
security based on its fundamentals: if the current market price is higher than the intrinsic
value, the share is set to be over priced and vice versa.
Fundamental analysis helps to identify fundamentally strong companies whose share
are worthy to be included in the investors portfolio.
The alternative approach to security analysis is technical analysis. The technical analyst
believes that share price movements are systematic and exhibit certain patterns. He therefore
studies past movements in the prices of shares to identify trends and patterns. He then tries to
predict the future piece movements. Technical analysis is an approach which concentrates on
price movements and ignores the fundamental of the shares.
A more recent approach to security analysis is the efficient market hypothesis
according to the school of thought; the financial market is efficient in pricing securities. The
efficient market hypothesis holds the market prices instantaneously and fully reflect all
relevant available information. It means the market prices of securities will always equal its
intrinsic value.
Efficient market hypothesis is a direct repudiation of both fundamental analysis and
technical analysis. An investor cannot consistently earn abnormal returns by undertaking
fundamental analysis or technical analysis. According to efficient market hypothesis it is
possible for an investor to earn normal returns by normally choosing securities of a given risk
level.

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Investing in equities requires time, knowledge and constant monitoring of the market.
For those who need an export to help to manage their investment, portfolio management
service (PMS) comes as an answer.
The business of portfolio management has never been an easy one. Jugging the limited
choices at hand with the twin requirements of adequate safety and sizeable return is a task
fraught with complexities.
Given the unpredictable nature of the market it requires solid experience and strong
research to make the right decision. In the end it boils down to make the right move in the
right direction at the right time..
The term portfolio management in common practice refers to selection of securities
and their continuous shifting in a way that the holder gets maximum returns at minimum
possible risk. Portfolio management services are merchant banking activities recognized by
SEBI and these activities can be rendered by SEBI authorized portfolio managers or
discretionary portfolio managers.
A portfolio manager by the virtue of his knowledge, background and experience helps
his client to make investment in profitable avenues. A portfolio manager has to comply with
the provisions of the SEBI (portfolio managers) rules and regulation 1993.
This project also includes the different services rendered by the portfolio manager. It
includes the functions to be performed by the portfolio manager.
What is the difference between the value of the time and money? In other words, learn
to separate time from money. When it comes to the important of time, how many of us
believe that time is money we all know that the work done by us is calculated by units of
time. Have you ever considered the difference between an employee who is working on an
hourly rate and the other who is working on salary basis? The only difference between them
is of the unit of time. No matter whether you get your pay by the hour, bi-weekly, or
annually; one thing common in all is that the amount is paid to you according to amount of
time you spend on working.
In other words, time is precious and holds much more important than money. That is
the reason the time is considered as an important factor in wealth creation. The project also
shows the factors that one considers for making an investment decision and briefs about the
information related to asset allocate

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Part -1
Fundamental Part of the Project
Report

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CHAPTER -1
INTRODUCTION OF STOCK EXCHANGE
HISTORY OF STOCK EXCHANGE
The only stock exchanges operating in the 19th century were those of Bombay set up in 1875
and Ahmedabad set up in 1894. These were Efficient Market Hypothesis organized as
voluntary non-profit-making association of brokers to regulate and protect their interests.
Before the control on securities trading became a central subject under the constitution in
1950, it was a state subject and the Bombay securities contracts (control) Act of 1925 used to
regulate trading in securities. Under this Act, the Bombay Stock Exchange was recognized in
1927 and Ahmedabad in 1937.
During the war boom, a number of stock exchanges were organized even in Bombay,
Ahmedabad and other centres, but they were not recognized. Soon after it became a central
subject, central legislation was proposed and a committee headed by A.D.Gorwala went into
the bill for securities regulation. On the basis of the committee's recommendations and public
discussion, the securities contracts (regulation) Act became law in 1956.

DEFINITION OF STOCK EXCHANGE:

"Stock exchange means anybody or individuals whether incorporated or not, constituted for
the purpose of assisting, regulating or controlling the business of buying, selling or dealing in
securities."
It is an association of member brokers for the purpose of self-regulation and protecting the
interests of its members. It can operate only, if it is recognized by the Government under the
securities contracts (regulation) Act, 1956. The recognition is granted under section 3 of the
Act by the central government, Ministry of Finance.

NATURE & FUNCTIONS OF STOCK EXCHANGE

There is an extraordinary amount of ignorance and of prejudice born out of ignorance with
regard to nature and functions of Stock Exchange. As economic development proceeds, the

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scope for acquisition and ownership of capital by private individuals also grow. Along with it,
the opportunity for Stock Exchange to render the service of stimulating private savings and
challenging such savings into productive investment exists on a vastly great scale. These are
services, which the Stock Exchange alone can render efficiently.
The Stock Exchanges in India have an important role to play in the building of a real
shareholders democracy. To protect the interest of the investing public, the authorities of the
Stock Exchanges have been increasingly subjecting not only its members to a high degree of
discipline, but also those who use its facilities-Joint Stock Companies and other bodies in
whose stocks and shares it deals.
The activities of the Stock Exchange are governed by a recognized code of conduct
apart from statutory regulations. Investors both actual and potential are provided, through the
daily Stock Exchange quotations. The job of the Stock Exchange and its members is to satisfy
the need of market for investments to bring the buyers and sellers of investments together,
and to make the 'Exchange' of Stock between them as simple and fair as possible.

NEED FOR A STOCK EXCHANGE

As the business and industry expanded and economy became more complex in nature, a need
for permanent finance arose. Entrepreneurs require money for long term needs, whereas
investors demand liquidity. The solution to this problem gave way for the origin of 'stock
exchange', which is a ready market for investment and liquidity.
As per the Securities Contract Act, 1956, "STOCK EXCHANGE" means anybody of
individuals whether incorporated or not constituted for the purpose of regulating or
controlling the business of buying, selling or dealing in securities".

BY-LAWS
Besides the above act, the securities contracts (regulation) rules were also made in 1957 to
regulate certain matters of trading on the stock exchanges. There are also by-laws of
exchanges, which are concerned with the following subjects. Opening / closing of the stock
exchanges, timing of trading, regulation of blank transfers, regulation of badla or carryover
business, control of the settlement and other activities of the stock exchange, fixation of
margins, fixation of market prices or making up prices, regulation of taravani business
(jobbing), etc., regulation of brokers trading, Brokerage charges, trading rules on the
exchange, arbitration and settlement of disputes, Settlement and clearing of the trading etc.

REGULATION OF STOCK EXCHANGE:

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The securities contracts (regulation) act is the basis for operations of the stock exchanges in
India. No exchange can operate legally without the government permission or recognition.
Stock exchanges are given monopoly in certain areas under section 19 of the above Act to
ensure that the control and regulation are facilitated. Recognition can be granted to a stock
exchange provided certain conditions are satisfied and the necessary information is supplied
to the government. Recognitions can also be withdrawn, if necessary. Where there are no
stock exchanges, the government can license some of the brokers to perform the functions of
a stock exchange in its absence.

SECURITIES CONTRACTS (REGULATION) ACT, 1956:

SC(R)A aims at preventing undesirable transactions in securities by regulating the business of
dealing therein by providing for certain other matters connected therewith. This is the
principal Act, which governs the trading of securities in India.
The term "securities" has been defined In the SC(R)A. As per Section 2(h), the
'Securities' include:

Shares, scripts, stocks, bonds, debentures, debenture stock or other marketable

securities of a like nature in or of any incorporated company or other body
corporate

Derivative

Units or any other instrument issued by any collective investment scheme to

the investors in such schemes.

Government securities

Such other instruments as may be declared by the Central Government to be

securities.

Rights or interests in securities.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

Securities and Exchange Board of India (SEBI) setup as an autonomous regulatory authority
by the Government of India in 1988 "to protect the interests of investors in securities and to
promote the development of, and to regulate the securities market and for matters connected
therewith or incidental thereto". It is empowered by two acts namely the SEBI Act, 1992 and
the securities contract (regulation) Act, 1956 to perform the function of protecting investor's
rights and regulating the capital markers.

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Securities and Exchange Board of India (SEBI) regulatory reach has been extended to
more areas and there is a considerable change in the capital market. SEBI's annual report for
1997-98 has stated that throughout its six-year existence as a statutory body, it has sought to
balance the twin objectives of investor protection and market development. It has formulated
new rules and crafted regulations to foster development. Monitoring and surveillance was put
in place in the Stock Exchanges in 1996-97 and strengthened in 1997-98.
SEBI was set up as an autonomous regulatory authority by the government of India in
1988 "to protect the interests of investors in securities and to promote the development of,
and to regulate the securities market and for matters connected therewith or incidental
thereto". It is empowered by two acts namely the SEBI Act, 1992 and the securities contract
(regulation) Act, 1956 to perform the function of protecting investor's rights and regulating
the capital markets.

OBJECTIVES OF SEBI
The promulgation of the SEBI ordinance in the parliament gave statutory status to, SEBI in
1992. According to the preamble of the SEBI, the three main objectives are:

To protect the interests of the investors in securities

To promote the development of securities market.

To regulate the securities market.

SALIENT FEATURES OF SEBI

The SEBI shall be a body corporate by the name having perpetual succession
and a common seal with power to acquire, hold and dispose of property, both
movable and immovable, and to contract, and shall, by the said name, sue or
by sued.

The Head Office of the Board shall be at Bombay. The Board may establish
offices at other places in India. In Bombay, the Board is situated at Mittal
Court, B- Wing, 224, Nariman Point, Bombay-400 021.

The chairman and the Members of the Board are appointed by the Central
Government.

The general superintendence, direction and management of the affairs of the

Board are in a Board of Members, which may exercise all powers and do all
acts and things which may be exercised or done by that Board.

The Government can prescribe terms of office and other conditions of service
of the Chairman and Members of the Board. The members can be removed
under section 6 of the SEBI Act under specified circumstances.

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It is primary duty of the Board to protect the interest of the investor in

securities and to promote the development of and to regulate the securities
market by such measures, as it thinks fit.

FUNCTIONS OF SEBI

Regulating the business in Stock Exchange and any other securities market.
Registering and regulating the working of Stock Brokers, Sub-Brokers, Share
Transfer Agents, Bankers to the issue, Trustees to trust deeds, Registrars to an
issue, Merchant Bankers, Underwriters,

Portfolio Managers, Investment Advisers and such other Intermediaries who

may be associated with securities market in any manner.

Registering and regulating the working of collective investment schemes

including Mutual Funds.

Promoting and regulating self-regulatory organizations.

Prohibiting fraudulent and unfair trade practices in the securities market.

Promoting investor's education and training of intermediaries in securities
market. Prohibiting Insiders Trading in securities.

Regulating substantial acquisition of shares and take-over of companies

Calling for information, understanding inspection, conducting enquiries and

audits of the Stock Exchanges, Intermediaries and Self-Regulatory
organizations in the securities market.

NATIONAL STOCK EXCHANGE

The NSE was incorporated in November 1992 with an equity capital of Rs.25crs. The
International Securities Consultancy (IS C) of Hong Kong helped in setting up NSE. ISC
prepared the detailed business plans and installation of hardware and software systems. The
promotions for NSE were Financial Institutions, Insurances Companies, Banks and SEBI
Capital Market Ltd., Infrastructure Leasing and Financial Services Ltd. and Stock Holding
Corporation Ltd.
It has been set up to strengthen the move towards professionalization of the capital
market as well as provide nationwide securities trading facilities to investors. NSE is not an
exchange in the traditional sense where brokers own and manage the exchange. A two tier
administrative setup involving a company board and a governing board of the exchange is
envisaged. NSE is a national market for shares of Public Sector Units Bonds, Debentures and
Government securities, since infrastructure and trading facilities are provided.

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NSE-NIFTY:
The NSE on April 22, 1996 launched a new equity Index. The NSE-50. The new Index which
replaces the existing NSE-100 Index is expected to serve as an appropriate Index for the new
segment of futures and options.

"Nifty" means National Index for Fifty Stocks.

The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an
aggregate market capitalization of around Rs.1,70,000 crs.All companies included in the
Index have a market capitalization in excess of Rs.500 crs each and should have traded for
85% of trading days at an impact cost of less than 1.5%. The base period for the index is the
close of prices on Nov3, 1995 which makes one year of completion of operation of NSE's
capital market segment. The base value of the Index has been set at 1000.

NSE-MIDCAP INDEX:
The NSE midcap Index or the Junior Nifty comprises 50 stocks that represents 21 board
Industry groups and will provide proper representation of the midcap segment of the Indian
capital Market. All stocks in the Index should have market capitalization of greater than
Rs.200 crore and should have traded 85% of the trading days at an impact cost of less 2.5%.
The base period for the index is Nov 4, 1996 which signifies two years for completion
of operations of the capital market segment of the operation. The base value of the Index has
been set at 1000. Average daily turnover of the present scenario 2,58,212 (Lakh) and number
of average daily trades 2,160 (Lakh).

PROFILE OF BOMBAY STOCK EXCHANGE

This Stock Exchange, Mumbai, popularly known as "BOMBAY STOCK EXCHANGE
(BSE)" was established in 1875 as ''The Native Share and Stock Brokers Association", as a
voluntary non-profit making association. It has evolved over the years into its present status
as the premiere Stock Exchange in the country. It may be noted that the Stock Exchange is
the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in
1878.
The exchange, while providing an efficient and transparent market for trading in
securities, upholds the interests of the investors and ensures redressal of their grievances,
whether against the companies or its own member brokers. It also strives to educate and
enlighten the investors by making available necessary informative inputs and conducting
investor education programmes.
A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public
representatives and an executive director is the apex body, which decides the policies and
regulates the affairs of the exchange. The Executive director as the chief executive officer is
responsible for the day to day administration of the exchange.

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BSE INDICES:
In order to enable the market participants, analysts etc., to track the various ups and downs in
the Indian stock market, the Exchange introduced in 1986 an equity stock index called BSESENSEX that subsequently became the barometer of the moments of the share prices in the
Indian stock market. It is a "Market capitalization-weighted" index of 30 component stocks
representing a sample of large, well established and leading companies. The base year of
SENSEX is 1978-79. The SENSEX is widely reported in both domestic and international
markets through print as well as electronic media.

SENSEX is calculated using a market capitalization weighted method. As per this

methodology, the level of the index reflects the total market value of all 30 component stocks
from different industries related to particular base period. The total market value of a
company is determined by multiplying the price of its stock by the number of shares
outstanding. Statisticians call an index of a set of combined variables (such as price and
number of shares) a composite Index. An Indexed number is used to represent the results of
this calculation in order to make the value easier to work with and track over a time. It is
much easier to graph a chart based on Indexed values than one based on actual values world
over majority of the well-known Indices are constructed using "Market capitalization
weighted method".

In practice, the daily calculation of SENSEX is done by dividing the aggregate market
value of the 30 companies in the Index by a number called the Index Divisor. The Divisor is
the only link to the original base period value of the SENSEX.

The Divisor keeps the Index comparable over a period of time and it is the reference
point for the entire Index maintenance adjustments. SENSEX is widely used to describe the
mood in the Indian Stock markets. Base year average is changed as per the formula:

Base year average is changed as per the formula

New base year average = Old base year average *(new market value/old market value)

At present, there are 24 stock exchanges recognized under the Securities Contract
(Regulation) Act, 1956. They are:

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STOCK EXCHANGES IN INDIA

SR.NO

NAME OF THE STOCK EXCHANGE

YEAR

Bombay Stock Exchange

1875

Hyderabad Stock Exchange

1943

Ahmedabad Share and Stock Brokers Association

1957

Calcutta Stock Exchange Association Limited

1957

Delhi Stock Exchange Association Limited.

1957

Madras Stock Exchange Association Limited.

1957

Indoor Stock Brokers Association.

1958

Bangalore Stock Exchange.

1963

Cochin Stock Exchange.

1978

10

Pune Stock Exchange Limited.

1982

11

U.P Stock Exchange Association Limited.

1982

12

Ludhiana Stock Exchange Association Limited.

1983

13

Jaipur Stock Exchange Limited.

1984

14

Gauhathi Stock Exchange Limited.

1984

15

Mangalore Stock Exchange Limited

1985

16

Maghad Stock Exchange Limited, Patna

1986

17

Bhuvaneshwar Stock Exchange Association Limited

1989

18

Over the Stock Exchange Limited.

1989

19

Saurasthra Kutch Stock Exchange Limited.

1990

20

Vadodara Stock Exchange Limited.

1991

21

Coimbatore Stock Exchange Limited.

1991

22

Meerut Stock Exchange Limited.

1991

23

National Stock Exchange Limited

1992

24

Integrated Stock Exchange.

1999

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CHAPTER-2
COMPANY PROFILE

SMC GLOBAL SECURITIES

The SMC was born in 1990 as SMC Global Securities Limited. Mr. Subhash chand aggrwal
and Mr. Mahesh chand gupta founded and promoted this company. Since then its been a
steady and confident journey to growth and success.
SMC Securities Ltd. is one of Indias largest brokerage and securities distribution
house in India. Over the years SMC Securities has been one of the leading investment
broking houses catering to the needs of both institutional and non-institutional investor
categories with presence all over the country through franchisees and co-ordinates. SMC
Securities Ltd. offers online and offline services based on well-researched expertise and
financial products to the non-institutional investors.
SMC Global Securities Limited is the word of Capital Markets where everything
newsworthy exists only in the present moment and where knowing the importance of timing,
sentiments and strategic forecasting makes the difference between profit and loss.
SMC Global Securities Limited is tie up with Punjab National Bank. Recently SMC has been
awarded with the best equity broking house derivative segment & fastest growing equity
broking house large firm (source BSE IPE and D&B equity broking award 2013, 2012 &
2011.
The Company has a full-fledged Research division involved in macroeconomic studies,
Sectorial research and company specific equity research combined with a strong and well
networked sales force which helps deliver current and up-to-date market information and
news.
SMC Securities Limited is also a depository participant with National Securities Depository
Limited (NSDL) and Central Depository Services Limited (CDSL) providing dual benefit
services where in the investors can use the brokerage services of the company for executing
the transactions and the depository services for settling them.
SMC Global Securities having its corporate office in New Delhi with regional offices
at Mumbai, Kolkata, Chennai, Ahmedabad, Jaipur, Hyderabad, Bangalore plus a growing
network of branches & 2500+ registered sub-brokers and authorized persons spread across
500+ cities and towns in India.
The company has a full fledged research division involved in Macro Economic studies,
Sectorial research and company and specific Equity Research combined with a strong and
well network sales forces which helps deliver current and up to date market information and
news.

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SMC GLOBAL SECURITIES RESEARCH CENTER

SMC Global Securities research center is a special research cell where some of Indias finest
financial analysts bring you intensive research reports on how the stock market is faring,
when is the right time to invest, when to execute your order and more. SMC provides both
types of research reports.

FUNDAMENTAL RESEARCH & TECHNICAL RESEARCH REPORTS

Depending on what kind of investor you are, SMC Global Securities Ltd. brings customer
from fundamental or basic research and technical research. As an investor with SMC Global
Securities, customers get access to these research reports exclusively. Customers get access to
the following reports.

Intraday calls

Special Reports

Mutual Fund weekly

Market Mornings

Daily Market Brief

Sectorial Reports

Derivatives Reports

Weekly Technical Analysis

AWARDS GRAB BY SMC GLOBAL SECURITIES:

4th largest Broking House of India in terms of trading terminals ( Source:

Dun and Bradstreet , 2008)

5th largest Sub-Broking Network in the Country ( source: Dun and

Bradstreet , 2007)

Ranked 2nd in all India IPO mobilization for 9 month period ended
December , 2008 ( source: Prime Data Ranking)

Awarded the Faster Growing Retail Distribution Network in Financial

Service ( source: Business Sphere, 2008)

Received Major Volume Driver awarded by BSF for 3 year consecutively

(2004-05 , 2005-06 &2006-07)

Nominated among the Top 3, in the CNBC optimix financial service

Award 2008 under National Level Retail Category

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Amongst the First Financial Firms in India to expand operations in the

lucrative gulf market , by acquiring license for Broking and Clearing
member with Dubai Gold and Commodities Exchange (DGCX)

PARTNERS

Established in 1918, Sanlam is one of the largest Financial Services groups

in South Africa.

Sanlam is managing over US $51 billion of client assets and operating in

over 30 countries.

The agreement between the parties has led to setting up of two new
businesses in India a wealth management company and an asset
management company.

The deal was possible through an acquisition into the SMC Group of
companies which will ultimately create a 5% equity stake for Sanlam
Investments in SMC.

Punjab National Bank is serving over 40 million customers through 4600+

offices & over 2600 ATMs largest among the Nationalized Banks.

SMC group has signed an agreement with PNB, to offer State of the art
online trading facilities into equities, derivatives, IPOs and Mutual funds
to PNB customers.

PRODUCTS OFFERED BY SMC GLOBAL SECURITIES LTD.

SMC offers wide range of Products and services:
1)

BROKING

Providing broking services to its clients to trade in various exchanges in the following
products:

Equities & Derivatives

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2)

Currency

Commodities

Clearing Services

Institutional Broking

Depository

Loans against Securities

DISTRIBUTION

Providing distribution services of the following products:

3)

IPOs (Initial Public Offer)

Mutual Funds

Company Issues

Public Fixed Deposit

Bonds

Acquisition & Services

RESEARCH

With the EIC (Economy, Industry, company) SMC provides timely research re-ports on the
following:

4)

Equity Reports (morning bell, daily, weekly funds reports.)

Commodity reports (morning bell, monthly, weekly trade report.)

Currency reports

IPOs, Mutual Funds report

Newsletter

Special reports (pre & post budget analysis, RBI policy)

ONLINE TRADING

SMC provide online platform for investor with this help investor can invest in Eq-uities,
Commodities, IPOs, Mutual Fund Schemes and Currency Futures anywhere anytime. . SMC
provide varies resources like live quotes, charts, research, advice and online assistance to help
you take informed decisions.

SWOT ANALYSIS OF SMC GLOBAL SECURITIES LTD.

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STRENGHTS:

Affordable price of services as compared to other broking houses.(Low

brokerage)

Effective after sales services system

Advisory desk operations provided by fuller ton

Well established brand equity

Freedom account with different facilities

Personalize alerts

Consolidated statements-a unique service offering

Strong national & international tie-ups

Strong national & international tie-ups

Reputed established brand name in the financial service sector.

Well managed workforce

WEAKNESSES:

Lack of Aggressive advertisements and sales promotion programmed.

The working of the sales force is traditional.

Miscommunication and ineffective co-ordination at various level of

hierarchy.

Less penetration in rural area

Less tie ups with banks so as customer prefer to trade with their banks
only, presently SMC has tie up with PNB only.

OPPORTUNITIES:

THREATS:

Growing capital market in India & other country

Political stability in India & other country

Better governance by SEBI

Decreasing interest rates in India, so people are motivated to earn more

returns through capital market.

Emerging rural markets

Rising earning capacities of people and their preference to invest in

shares or forex, commodities.

P a g e | 23

Demand & supply

Increasing competition in security market

Lost in faith in share market after big scams in the stock market

Natural calamities

Inability of customers to pay brokerage at the right time

High risk involved in the stock market.

Strong competition from national & international players.

More & more brokerage companies are coming in to the market due to
low investment in this sector.

Volatile global market

Tightening policies framed by RBI and SEBI.

COMPETITORS OF SMC:

SHAREKHAN

ICICI DIRECT

RELIANCE MONEY

UNICON

KARVY

INDIABULLS

RK GLOBAL SECURITIES

RELIGAR

P a g e | 24

CHAPTER - 3
SECURITY ANALYSIS
DEFINITION:
For making proper investment involving both risk and return, the investor has to make study
of the alternative avenues of the investment-their risk and return characteristics, and make a
proper projection or expectation of the risk and return of the alternative investments under
consideration. He has to tune the expectations to this preference of the risk and return for
making a proper investment choice. The process of analysing the individual securities and the
market as a whole and estimating the risk and return expected from each of the investments
with a view to identify undervalues securities for buying and overvalues securities for selling
is both an art and a science that is what called security analysis.
SECURITY:
The security has inclusive of shares, scripts, bonds, debenture stock or any other marketable
securities of like nature in or of any debentures of a company or body corporate, the
government and semi government body etc. In the strict sense of the word, a security is an
instrument of promissory note or a method of borrowing or lending or a source of
contributing to the funds need by a corporate body or non-corporate body, private security for
example is also a security as it is a promissory note of an individual or firm and gives rise to
claim on money. But such private securities of private companies or promissory notes of
individuals, partnership or firm to the intent that their marketability is poor or nil, are not part
of the capital market and do not constitute part of the security analysis.

ANALYSIS OF SECURITIES:
Security analysis in both traditional sense and modern sense involves the projection of future
dividend or ensuring flows, forecast of the share price in the future and estimating the
intrinsic value of a security based on the forecast of earnings or dividend. Security analysis in
traditional sense is essentially on analysis of the fundamental value of shares and its forecast
for the future through the calculation of its intrinsic worth of share.
Modern security analysis relies on the fundamental analysis of the security, leading to its
intrinsic worth and also rise-return analysis depending on the variability of the returns,

P a g e | 25

covariance, safety of funds and the projection of the future returns. If the security analysis
based on fundamental factors of the company, then the forecast of the share price has to take
into account inevitably the trends and the scenario in the economy, in the industry to which
the company belongs and finally the strengths and weaknesses of the company itself. Its
management, promoters backward, financial results, projection of expansion, term planning
etc.
APPROACHES TO SECURITY ANALYSIS:

Fundamental Analysis

Technical Analysis

Efficient Market Hypothesis

FUNDAMENTAL ANALYSIS
It's a logical and systematic approach to estimating the future dividends & share price as
these two constitutes the return from investing in shares. According to this approach, the
share price of a company is determined by the fundamental factors affecting the Economy/
Industry/ Company such as Earnings Per Share, DIP ratio, Competition, Market Share,
Quality of Management etc. it calculates the true worth of the share based on it's present and
future earning capacity and compares it with the current market price to identify the mispriced securities.
Fundamental analysis involves a three-step examination, which calls for:

Understanding of the macro-economic environment and developments.

Analysing the prospects of the 9ndustry to which the firm belongs

Assessing the projected performance of the company.

MACRO ECONOMIC ANALYSIS:

The macro-economy is the overall economic environment in which all firms operate. The key
variables commonly used to describe the state of the macro-economy are:
GROWTH RATE OF GROSS DOMESTIC PRODUCT (GDP)
The Gross Domestic Product is measure of the total production of final goods and services in
the economy during a specified period usually a year. The growth rate 0 GDP is the most
important indicator of the performance of the economy. The higher the growth rate of GDP,
other things being equal, the more favourable it is for the stock market.

P a g e | 26

INDUSTRIAL GROWTH RATE:

The stock market analysts focus more on the industrial sector. They look at the overall
industrial growth rate as well as the growth rates of different industries. The higher the
growth rate of the industrial sector, other things being equal, the more favourable it is for the
stock market.

AGRICULTURE AND MONSOONS:

Agriculture accounts for about a quarter of the Indian economy and has important linkages,
direct and indirect, with industry. Hence, the increase or decrease of agricultural production
has a significant bearing on industrial production and corporate performance. A spell of good
monsoons imparts dynamism to the industrial sector and buoyancy to the stock market.
Likewise, a streak of bad monsoons casts its shadow over the industrial sector and the stock
market.
SAVINGS AND INVESTMENTS:
The demand for corporate securities has an important bearing on stock price movements. So
investment analysts should know what the level of investment in the economy is and what
proportion of that investment is directed toward the capital market. The analysts should also
know what the savings are and how the same are allocated over various instruments like
equities, bonds, bank deposits, small savings schemes, and bullion. Other things being equal,
the higher the level of savings and investments and the greater the allocation of the same over
equities, the more favourable it is for the stock market.
GOVERNMENT BUDGET AND DEFICIT
Government plays an important role in most economies. The excess of government
expenditures over governmental revenues represents the deficit. While there are several
measures for deficit, the most popular measure is the fiscal deficit.
The fiscal deficit has to be financed with government borrowings, which is done in three
ways.

The government can borrow from the reserve bank of India.

The government can resort to borrowing in domestic capital market.

The government may borrow from abroad.

Investment analysts examine the government budget to assess how it is likely to impact on
the stock market.
PRICE LEVEL AND INFLATION

P a g e | 27

The price level measures the degree to which the nominal rate of growth in GDP is
attributable to the factor of inflation. The effect of inflation on the corporate sector tends to be
uneven. While certain industries may benefit, others tend to suffer. Industries that enjoy a
strong market for their products and which do not come under the purview of price control
may benefit. On the other hand, industries that have a weak market and which come under the
purview of price control tend to lose. On the whole, it appears that a mild level of inflation is
good for the stock market.

INTEREST RATE
Interest rates vary with maturity, default risk, inflation rate, produc6ivity of capital, special
features, and so on. A rise in interest rates depresses corporate profitability and also leads to
an increase in the discount rate applied by equity investors, both of which have an adverse
impact on stock prices. On the other hand, a fall in interest rates improves corporate
profitability and also leads to a decline in the discount rate applied by equity investors, both
of which have a favourable impact on stock prices.
BALANCE OF PAYMENTS, FOREX RESERVES, AND EXCHANGE RATES:
The balance of payments deficit depletes the forex reserves of the country and has an adverse
impact on the exchange rate; on the other hand a balance of payments surplus augments the
forex reserves of the country and has a favourable impact on the exchange rate.
INFRASTRUCTURAL FACILITIES AND ARRANGEMENTS:

Infrastructural facilities and arrangements significantly influence industrial

performance. More specifically, the following are important:

Adequate and regular supply of electric power at a reasonable tariff.

A well-developed transportation and communication system (railway

transportation, road network, inland waterways, port facilities, air links, and
telecommunications system).

An assured supply of basic industrial raw materials like steel, coal, petroleum
products, and cement.

Responsive financial support for fixed assets and working capital.

SENTIMENTS:
The sentiments of consumers and businessmen can have an important bearing on economic
performance. Higher consumer confidence leads to higher expenditure on biggticket items.
Higher business confidence gets translated into greater business investment that has a
stimulating effect on the economy. Thus, sentiments influence consumption and investment
decisions and have a bearing on the aggregate demand for goods and services.

P a g e | 28

INDUSTRY ANALYSIS
The objective of this analysis is to assess the prospects of various industrial groupings.
Admittedly, it is almost impossible to forecast exactly which industrial groupings will
appreciate the most. Yet careful analysis can suggest which industries have a brighter future
than others and which industries are plagued with problems that are likely to persist for a
while. Concerned with the basics of industry analysis, this section is divided into three parts:

Industry life cycle analysis

Study of the structure and characteristics of an industry

Profit potential of industries: Porter model.

INDUSTRY LIFE CYCLE ANALYSIS:

Many industries economists believe that the development of almost every industry may be
analysed in terms of a life cycle with four well-defined stages:
PIONEERING STAGE:
During this stage, the technology and or the product is relatively new. Lured by promising
prospects, many entrepreneurs enter the field. As a result, there is keen, and often chaotic,
competition. Only a few entrants may survive this stage.
RAPID GROWTH STAGE:
In this stage firms, which survive the intense competition of the pioneering stage, witness
significant expansion in their sales and profits.
MATURITY AND STABILISATION STAGE:
During the stage, when the industry is more or less fully developed, its growth rate is
comparable to that of the economy as a whole. With the satiation of demand, encroachment
of new products, and changes in consumer preferences, the industry eventually enters the
decline stage, relative to the economy as a whole. In this stage, which may continue
indefinitely, the industry may grow slightly during prosperous periods, stagnate during
normal periods, and decline during recessionary periods.
STUDY THE STRUCTURE & CHARACTERISTICS OF AN INDUSTRY:

P a g e | 29

Since each industry is unique, a systematic study of its specific features and characteristics
must be an integral part of the investment decision process. Industry analysis should focus on
the following:
1. STRUCTURE OF THE INDUSTRY AND NATURE OF COMPETITION
The number of firms in the industry and the market share of the top few (four to five) firms in
the industry.

II.

III.

IV.

Licensing policy of the government

Entry barriers, if any

Pricing policies of the firm

Degree of homogeneity or differentiation among products

Competition from foreign firms

Comparison of the products of the industry with substitutes in terms of quality,

price, appeal, and functional performance.

NATURE AND PROSPECT OF DEMAND

Major customer and their requirements

Key determinants of demand

Degree of cyclicality in demand

Expected rate of growth in the foreseeable future.

COST, EFFICIENCY, AND PROFITABILITY

Proportions of the key cost elements, viz. raw materials, labour, utilities, &
fuel

Productivity of labour

Turnover of inventory, receivables, and fixed assets

Control over prices of outputs and inputs

Behaviour of prices of inputs and outputs in response to inflationary pressures

Gross profit, operating profit, and net profit margins.

Return on assets, earning power, and return on equity.

TECHNOLOGY AND RESEARCH

P a g e | 30

Degree of technological stability

Important technological changes on the horizon and their implications

Research and development outlays as a percentage of industry sales

Proportion of sales growth attributable to new products.

PROFIT POTENTIAL AND INDUSTRIES: PORTER MODEL

Michael Porter has argued that the profit potential of an industry depends on the combined
strength of the following five basic competitive forces:

Threat of new entrants

Rivalry among the existing firms

Pressure from substitute products

Bargaining power of buyers

Bargaining power of sellers

COMPANY ANALYSIS
Company analysis is the final stage of the fundamental analysis, which is to be done to decide
the company in which the investor should invest. The Economy Analysis provides the
investor a broad outline of the prospects of growth in the economy. The Industry Analysis
helps the investor to select the industry in which the investment would be rewarding.
Company Analysis deals with estimation of the Risks and Returns associated with individual
shares.
The stock price has been found on depend on the intrinsic value of the company's
share to the extent of about 50% as per many research studies. Graharm and Dodd in their
book on ' security analysis' have defined the intrinsic value as "that value which is justified by
the fact of assets, earning and dividends". These facts are reflected in the earning potential if
the company. The analyst has to project the expected future earnings per share and discount
them to the present time, which gives the intrinsic value of share. Another method to use is
taking the expected earnings per share and multiplying it by the industry average price
earning multiple.
By this method, the analysts estimate the intrinsic value or fair value of share and
compare it with the market price to know whether the stock is overvalued or undervalued.
The investment decision is to buy undervalued stock and sell overvalued stock.

P a g e | 31

A. FINANCIAL ANALYSIS:
Share price depends partly on its intrinsic worth for which financial analysis for a company is
necessary to help the investor to decide whether to buy or not the shares of the company. The
soundness and intrinsic worth of a company is known only such analysis. An investor needs
to know the performance of the company, its intrinsic worth as indicated by some parameters
like book value, EPS, PIE multiple etc. and come to a conclusion whether the share is rightly
priced for purchase or not. This, in short is short importance of financial analysis of a
company to the investor.
Financial analysis is analysis of financial statement of a company to assess its
financial health and soundness of its management. "Financial statement analysis" involves a
study of the financial statement of the company to ascertain its prevailing state of affairs and
the reasons thereof. Such a study would enable the public and investors to ascertain whether
one company is more profitable than the other and also to state the cause and factors that are
probably responsible for this.
METHOD OR DEVICES OF FINANCIAL ANALYSIS
The term 'financial statement' as used in modern business refers to the balance sheet, or the
statement of financial position of the company at a point of time and income and expenditure
statement; or the profit and loss statement over a period.
Interpret the financial statement; it is necessary to analyse them with the object of formation
of opinion with respect to the financial condition of the company. The following methods of
analysis are generally used.

Comparative statement.

Trend analysis

Common-size statement

Found flow analysis

Cash flow analysis

Ratio analysis

The salient features of each of the above steps are discussed below.
1. COMPARATIVE STATEMENT:
The comparative financial statements are statements of the financial position at different
periods of time. Any statements prepared in a comparative from will be covered in
comparative statements. From practical point of view, generally, two financial statements
(balance sheet and income statement) are prepared in comparative from for financial analysis
purpose. Not only the comparison of the figures of two periods but also be relationship

P a g e | 32

between balance sheet and income statement enables on depth study of financial position and
operative results.
The comparative statement may show:

Absolute figures (Rupee amounts)

Changes in absolute figures i.e., increase or decrease in absolute figures.

Absolute data in terms of percentage.

Increase or decrease in terms of percentages.

2. TREND ANALYSIS:
The financial statement may be analysed by computing trends of series of information. This
method determines the direction upward or downwards and involves the computation of the
percentage relationship that each statement item bears to the same item in base year. The
information for a number of years is taken up and one year, generally the first year, is taken
as a base year. The figures of the base year are taken as 100 and trend ratios for other years
are calculated on the basis of base year.
These tend in the case of GPM or sales turnover are useful to indicate the extent of
improvement or deterioration over a period of time in the aspects considered. The trends in
dividends, EPS, asset growth, or sales growth are some examples of the trends used to study
the operational performance of the companies.
Procedure for calculating trends:

One year is taken as a base year generally; the first or the last is taken as base
year.

The figures of base year are taken as 100.

Trend percentages are calculated in relation to base year. If a figure in other

year is less than the figure in base year the trend percentage will be less
then100 and it will be more than the 100 it figure is more than the base year
figures. Each year's figure is divided by the base years figure.

3. COMMON-SIZE STATEMENT:
The common-size statements, balance sheet and income statement are shown in analytical
percentage. The figures are shown as percentages of total assets,~ total liabilities and total
sales. The total assets are taken as 100 and different assets are expressed as a percentage of
the total. Similarly, various liabilities are taken as a part of total liabilities. These statements
are also known as component percentage or 100 per cent statements because every individual
item is stated as a percentage of the total 100. The shortcomings in comparative statements

P a g e | 33

and trend percentages where changes in terms could not be compared with the totals have
been covered up. The analysis is able to assess the figures in relation to total values.
The common size statement may be prepared in the following way.

The total of assets or liabilities are taken as 100

The individual assets are expressed as a percentage of total assets, i.e., 100 and
different liabilities are calculated in relation to total liabilities. For example, if
total assets are RS.5 lakhs and inventory value is Rs.50,000, then it will be
10% of total assets.
(50,000 x 100) / (5,00,000)

4. FUND FLOW ANALYSIS:

The operation of business involves the conversion of cash in to non-cash assets, which are
recovered in to cash form. The statement showing sources and uses of funds of funds is
properly known as 'Funds Flow Statement'. The changes representing the 'sources of funds' in
the business may be issue of debentures, increase in net worth; addition to funds, reserves and
surplus, relation of earnings.
Changes showing the 'uses of funds' include:

Addition to assets - Fixed and Current

Addition to investments.

Decreasing in liabilities by paying off loans and creditors.

Decrease in net worth by incurring of loans, withdrawal of funds from

business
and payment of dividends.

5. CASH FLOW ANALYSIS:

Cash flow is used for only cash inflow and outflow. The cash flows are prepared from cash
budgets and operation of the company. In cash flows only cash and bank balance are involved
and hence it is a narrower term than the concept of funds flows. The cash flow statement
explains how the dividends are paid, how fixed assets are financed. The analysis had to know
the real cash flow position of company, its liquidity and solvency, which are reflected in the
cash flow position and the statements thereof.
6. RATIO ANALYSIS:
The ratio is one of the most powerful tools of financial analysis. It is the process of
establishing and interpreting various ratios (quantitative relationship between figures and
groups of figures). It is with the help of ratios that the financial statements can be analysed
more clearly and decisions made from such analysis. Ratio analysis will be meaningful to
establish relationship regarding financial performance, operational efficiency and profit

P a g e | 34

margins with respect to companies over a period of time and as between companies with in
the same industry group.
The ratios are conveniently classified as follows:
a)

b)

c)

Balance sheet ratios or position statement ratios.

Current ratio

Liquid ratio (Acid test ratio)

III)

Asset to equity ratio

Capital gearing ratio

Ratio of current asses to fixed assets etc.,

Debt to equity ratio

Profit & loss Ale ratios or revenue/income statement ratios:

Gross profit ratio

Operating ratio

Net profit ratio

Expense ratio

Operating profit ratio

Interest coverage

Composite ratios/ mixed or inter statement ratios:

Return on total resources

Return on equity

Turnover of fixed assets

Turnover of debtors

Return on shareholders funds

Return on total resources

TECHNICAL ANALYSIS

P a g e | 35

Technical analysis involves a study of market-generated data like prices and volumes to
determine the future direction of price movement. Technical analysis analyses internal market
data with the help of charts and graphs. Subscribing to the 'castles in the air' approach, they
view the investment game as an exercise in anticipating the behaviour of market participants.
They look at charts to understand what the market participants have been doing and believe
that this provides a basis for predicting future behaviour.
DEFINITION:
The technical approach to investing is essentially a reflection of the idea that prices move in
trends which are determined by the changing attitudes of investors toward a variety of
economic, monetary, political and psychological forces. The art of technical analysis- for it is
an art - is to identify trend changes at an early stage and to maintain an investment posture
until the weight of the evidence indicates that the trend has been reversed." -Martin J. Pring
CHARTING TECHNIQUES IN TECHNICAL ANALYSIS: Technical analysis uses a
variety of charting techniques. The most popular ones are:

The Dow theory,

Bar and line charts,

The point and figure chart,

The moving averages line and

The relative strength line.

THE DOW THEORY

The market is always considered as having three movements, all going at the same time. The
first is the narrow movement from day to day. The second is the short swing, running from
two weeks to a month or more; the third is the main movement, covering at least four years in
its duration."
- Charles H.DOW
The Dow Theory refers to three movements as:

Daily fluctuations that are random day-to-day wiggles;

Secondary movements or corrections that may last for a few weeks to some
months;

Primary trends representing bull and bear phases of the market.

BAR AND LINE CHARTS

The bar chart is one of the simplest and commonly used tools of technical analysis, depicts
the daily price range along with the closing price. It also shows the daily volume of
transactions. A line chart shows the line connecting successive closing prices.

P a g e | 36

POINT AND FIGURE CHART:

On a point and figure chart only significant price changes are recorded. It eliminates the time
scale and small changes and condenses the recording of price changes.
MOVING AVERAGE ANALYSIS:
A moving average is calculated by taking into account the most recent 'n' observations. To
identify trends technical analysis use moving averages analysis.
RELATIVE STRENGTH ANALYSIS:
The relative strength analysis is based on the assumption that the prices of some securities
rise rapidly during the bull phase but fall slowly during the bear phase in relation to the
market as a whole. Technical analysts measure relative strength in different ways. a simple
approach calculates rates of return and classifies securities that have superior historical
returns as having relative strength. More commonly, technical analysts look at certain ratios
to judge whether a security or, for that matter, an industry has relative strength.
TECHNICAL INDICATORS:
In addition to charts, which form the mainstay of technical analysis, technicians also use
certain indicators to gauge the overall market situation. They are:

Breadth indicators

Market sentiment indicators

BREADTH INDICATORS:
1. The Advance-Decline line: The advance decline line is also referred as the breadth of the
market. Its measurement involves two steps:

Calculate the number of net advances/ declines on a daily basis.

Obtain the breadth of the market by cumulating daily net advances/ declines.

2. New Highs and Lows: A supplementary measure to accompany breadth of the market is
the high-low differential or index. The theory is that an expanding number of stocks attaining
new highs and a dwindling number of new lows will generally accompany a raising market.
The reverse holds true for a declining market.
MARKET SENTIMENT INDICATORS:
1. Short-Interest Ratio: The short interest in a security is simply the number of shares that
have been sold short but yet bought back.
The short interest ratio is defined as follows:

P a g e | 37

Short interest ratio

Total number of shares sold short

Averagge daily trading volume

2. Put / call ratio: Another indicator monitored by contrary technical analysis is the put /
call ratio. Speculators buy calls when they are bullish and buy puts when they are bearish.
Since speculators are often wrong, some technical analysts consider the put / call ratio as a
useful indicator. The put / call ratio is defined as:
3. Mutual-fund liquidity: If mutual fund liquidity is low, it means that mutual funds are
bullish. So constrains argue that the market is at, or near, a peak and hence is likely to
decline. Thus, low mutual fund liquidity is considered as a bearish indicator. Conversely
when the mutual fund liquidity is high, it means that mutual funds are bearish. So constrains
believe that the market is at, or near, a bottom and hence is poised to rise. Thus, high mutual
fund liquidity is considered as a bullish indication.

RANDOM WALK THEORY:

Fundamental analysis tries to evaluate the intrinsic value of the securities by studying the
various fundamental factors about Economy, Industry and company and based on this
information, it categories the securities as wither undervalued or overhauled. Technical
analysis believes that the past behaviour of stock prices gives an indication of the future
behaviour and that the stock price movement is quite orderly and random. But, a new theory
known as Random Walk Theory, asserts that share price movements represent random walk
rather than an orderly movement.
According to this theory, any change in the stock pnces IS the result of information
about certain changes in the economy, industry and company. Each price change is
independent of other price changes as each change is caused by a new piece of information.
These changes in stock's prices reveals the fact that all the information on changes in the
economy, industry and company performance is fully reflected in the stock prices i.e., the
investors will have full knowledge about the securities. Thus, the Random Walk Theory is
based on the hypothesis that the Stock Markets are efficient. Hence, later it is known as
Efficient Market Hypothesis.
EFFICIENT MARKET HYPOTHESIS
This theory presupposes that the stock Markets are so competitive and efficient in
processing all the available information about the securities that there is "immediate price
adjustment" to the changes in the economy, industry and company. The Efficient Market
Hypothesis model is actually concerned with the speed with which information is
incorporated into the security prices.
The Efficient Market Hypothesis has three Sub-hypothesis:-

P a g e | 38

WEAKLY EFFICIENT: -This form of Efficient Market Hypothesis states that the current
prices already fully reflect all the information contained in the past price movements and any
new price change is the result of a new piece of information and is not related Independent of
historical data. This form is a direct repudiation of technical analysis.
SEMI-STRONGLY EFFICIENT:-This form of Efficient Market Hypothesis states that the
stock prices not only reflect all historical information but also reflect all publicly available
information about the company as soon as it is received. So, it repudiates the fundamental
analysis by implying that there is no time gap for the fundamental analyst in which he can
trade for superior gains, as there is an immediate price adjustment.
STRONGLY EFFICIENT:-This form of Efficient Market Hypothesis states that the market
-cannot be beaten by using both publicly available information as well as private or insider
information. But, even though the Efficient Market Hypothesis repudiates both Fundamental
and Technical analysis, the market is efficient precisely because of the organized and
systematic efforts of thousands of analysts undertaking Fundamental and Technical analysis.
Thus, the paradox of Efficient Market Hypothesis is that both the analysis is required to make
the market efficient and thereby validate the hypothesis.

Chapter-4
Portfolio Management

CONCEPT OF PORTFOLIO:
Portfolio is the collection of financial or real assets such as equity shares, debentures, bonds,
treasury bills and property etc. portfolio is a combination of assets or it consists of collection
of securities. These holdings are the result of individual preferences, decisions of the holders
regarding risk, return and a host of other considerations.
PORTFOLIO MANAGEMENT
An investor considering investment in securities is faced with the problem of choosing from
among a large number of securities. His choice depends upon the risk return characteristics of
individual securities. He would attempt to choose the most desirable securities and like to
allocate his funds over his group of securities. Again he is faced with the problem of deciding
which securities to hold and how much to invest in each.
The investor faces an infinite number of possible portfolio or group of securities. The
risk and return characteristics of portfolios differ from those of individual securities
combining to form a portfolio. The investor tries to choose the optimal portfolio taking into
consideration the risk-return characteristics of all possible portfolios. As the economic and
financial environment keeps the changing the risk return characteristics of individual

P a g e | 39

securities as well as portfolio also change. An investor invests his funds in a portfolio
expecting to get a good return with less risk to bear.
Portfolio management concerns the construction & maintenance of a collection of
investment. It is investment of funds in different securities in which the total risk of the
Portfolio is minimized while expecting maximum return from it. It primarily involves
reducing risk rather that increasing return. Return is obviously important though, and the
ultimate objective of portfolio manager is to achieve a chosen level of return by incurring the
least possible risk.
FEATURES AND OBJECTIVE OF PORTFOLIO MANAGEMENT
The objective of portfolio management is to invest in securities in such a way that one
maximizes one's return and minimizes risks in order to achieve one's investment objective.
I) Safety of the investment: the first important objective investment safety or minimization
of risks is of the important objective of portfolio management. There are many types of risks.
Which are associated with investment in equity s~ocks, including super stock. There is no
such thing called Zero-risk investment. Moreover relatively low - risk investment gives
corresponding lower returns.
2) Stable current returns: Once investment safety is guaranteed, the portfolio should yield a
steady current income. The current returns should at least match the opportunity cost of the
funds of the investor. What we are referring to here is current income by of interest or
dividends, not capital gains.
3) Appreciation in the value of capital: A good portfolio should appreciate in value in order
to protect the investor from erosion in purchasing power due to inflation. In other words, a
balance portfolio must consist if certain investment, which tends to appreciate in real value
after adjusting for inflation.
4) Marketability: A good portfolio consists of investment, which can be marketed without
difficulty. If there are too many unlisted or inactive share in your portfolio, you will face
problems in enchasing them, and switching from one investment to another. It is desirable to
invest in companies listed on major stock exchanges, which are actively traded.
5) Liquidity: The portfolio should ensure that there are enough funds available at the short
notice to take of the investor's liquidity requirements.
6) Tax Planning: Since taxation is an important variable in total planning, a good portfolio
should let its owner enjoy favourable tax shelter. The portfolio should be developed
considering income tax, but capital gains, gift tax too. What a good portfolio aims at is tax
planning, not tax evasion or tax avoidance.

Functions of Portfolio Manager: The main functions of portfolio manager are

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1. Advisory role: He advises new investments, review of existing ones, identification of

objectives, recommending high yield securities etc.
2. Market and Economic Surveys: There is essential for recommending high yielding
securities, they have to study the current physical properties, budget proposals, industrial
policies etc. Further portfolio manager should take into account the credit policy, industrial
growth, foreign exchange position, changes in corporate laws etc.
3. Financial Analysis: He should evaluate the financial statements of a company in order to
understand their net worth, future earnings, prospects and strengths.
4. Study of Stock Market: He should see the trends of at various stock exchanges and
analyse scripts, so that he is able to identify the right securities for investments.
5. Study of Industry: To know its future prospects, technological changes etc. required for
investment proposals he should also foresee the problems of the industry.
6. Decide the type of Portfolio: Keeping in the mind the objectives of a portfolio, the
portfolio manager have to decide whether the portfolio should comprise equity, preference
shares, debentures convertible, non-convertible or partly convertible, money market securities
etc. or a mix of more than one type.
A good portfolio manager should ensure that:

There is optimum mix of portfolios i.e. securities.

To strike a balance between the cost of funds and the average return on
investments

Balance is struck as between the fixed income portfolios and dividend bearing
securities

Portfolios of various industries are diversified. / To decide the type of

investment

Portfolios are reviewed periodically for better management and returns. / Any
right or bonus prospects in a company are taken into account

Better tax planning is there

Liquidity assets are maintained. / Transaction cost are minimized

PORTFOLIO MANAGEMENT PROCESS: Portfolio management IS a complex activity,

which may be broken down into the following steps:

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1. Specification of investment Objectives and Constraints:- The first step in the portfolio
management process is to specify one's investment objectives and constraints. The commonly
stated investment goals are:

Income

Growth

Stability

The constraints arising from liquidity, time horizon, tax and special circumstances must be
identified.
2. Choice of Asset mix: The most important decision in portfolio management is the asset
mix decision. Very broadly, this is concerned with the proportions of 'stocks' and 'bonds' in
the portfolio.
3. Formulation of Portfolio Strategy: Once a certain asset mix is chosen, an appropriate
portfolio strategy has to be hammered out. Two broad choices are available an active
portfolio strategy or a passive portfolio strategy. An active portfolio strategy strives to earn
superior risk adjusted returns by resorting to market timing, or sector rotation, or security
selection, or some combination of these. A passive portfolio strategy, on the other hand,
involves holding a broadly diversified portfolio and maintaining a pre-determined level of
risk exposure.
4. Selection of Securities: Generally, investors pursue an active stance with respect to
security selection. For stock selection, investors commonly go by fundamental analysis and /
or technical analysis. The factors that are considered in selecting bonds are yield to maturity,
credit rating, term to maturity, tax shelter and liquidity.
5. Portfolio Execution: This is the phase of portfolio management which is concerned with
implementing the portfolio plan by buying and / or selling specified securities in given
amounts.
6. Portfolio Revision: The value of a portfolio as well as its composition - the relative
proportions of stock and bond components - may change as stocks and bonds fluctuate. In
response to such changes, periodic rebalancing of the portfolio is required. This primarily
involves a shift from stocks to bonds or vice versa. In addition, it may call for sector rotation
as well as security switches.
7. Performance Evaluation: The performance of a portfolio should be evaluated
periodically. The key dimensions of portfolio performance evaluation are risk and return and
the key issue is whether the portfolio return is commensurate with its risk exposure.

PERSON INVOLVED IN PORTFOLIO MANAGEMENT

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1) INVESTOR: Are the people who are interested in investing their funds.
2) Portfolio Managers: Is a person who is in the wake of a contract agreement with a client,
advices or directs or undertaken on behalf of the client, the management or distribution or
management of the client as the case may be.
3) Discretionary Portfolio Manager: Means a manager who exercise under a contract to a
portfolio management exercise any degree of discretion as to the investment or management
of portfolio or securities or funds of clients as the case may be. The relationship between an
investor and portfolio manager is of a highly interactive nature.
The portfolio manager carries out all the transaction pertaining to the investor under the
power of attorney during the last decades, and increasing complexity was witnessed in the
capital market and its trading procedure in this context a key (uninformed investor formed)
investor himself in a tricky situation, to keep track of market movement, update his
knowledge, yet stay in the capital market and make money, therefore in looked forward to
resuming help from portfolio manager to do the job for him. The portfolio management seeks
to strike a balance between risks and return.
The generally rule in that greater risk more of the profits but S.E.B.I in its guidelines
prohibits portfolio to promise any return to investor.
Portfolio is manager is not a substitute to the inherent risks associated with equity investment.

WHO CAN BE A PORTFOLIO MANAGER?

Only those who are registered and pay the required licence fee are eligible to operate as
portfolio managers. An applicant for this purpose should have necessary infrastructure with
professionally qualified persons and with a minimum of two persons with experience in this
business and a minimum net worth or Rs. 50lakhs. The certificate once granted is valid for
three years. Fee payables for registration are Rs. 2.5 lakhs every two years and Rs. 1 lakhs
for the third year. From the fourth year onwards, renewal fee per annum are Rs. 75000. These
are subjected to change by the S.E.B.I.
The S.E.B.I has imposed a number of obligations and a code of conduct or them. The
portfolio manager should have a high standard of integrity, honesty and should not have been
convicted of any economic offence or moral turpitude. He should not resort to rigging up of
prices, insider trading or creating false markets, etc. their books of accounts are subject to
inspection to inspection and audit by S.E.B.I. The observance of the code of conduct and
guidelines given by the S.E.B.I are subject to inspection and penalties for violation are
imposed. The manager has to submit periodical returns and documents as may be required by
the SEBI from time to time.
A portfolio management in the Indian context has been Broker (Big brokers) who on the basis
of their experience, market trends, Insider trader, helps the limited knowledge persons. The

P a g e | 43

ones who use to manage the funds of portfolio, now being managed by the portfolio of
Merchant Banks, performances like MBAs CAs and many financial institutions have
entered the market in a big way to manage portfolio for their clients. According to SEBI rules
it is mandatory for portfolio manager to get them selfs registered. Registered merchant baker
can acts as portfolio manager. Investors must look forward for qualification and
performance and ability and research base of the portfolio managers.
NEED AND ROLE OF PORTFOLIO MANAGER:
With the development of Indian Securities market and with appreciation in market price of
equity share of profit making companies, investment in the securities of such companies has
become quite attractive. At the same time, the stock market becoming volatile on account of
various facts, a layman is puzzled as to know to make his investment without losing the same.
He has felt the need of an expert guidance in this respect. Similarly non-resident Indians are
eager to make their investment in Indian companies. They have also to comply with the
conditions specified by the RESERVE BANK OF INDIA under various scheme for
investment by the non-residents. The portfolio manager with his background and expertise
meets the needs of such investors by rendering service in helping them to invest their funds/s
profitably.
PORTFOLIO MANAGER OBLIGATION:
The portfolio manager has number of obligations towards his clients, some of them are:

He shall transact in securities within the limit placed by the client himself with
regard to dealing in securities under the provisions of Reserve Bank of India
Act, 1934.

He shall not derive any direct or indirect benefit out of the clients funds or
securities.

He shall not be pledge or give on loan securities held on behalf of his client to
a third person without obtaining a written permission from such clients.

While dealing with his clients funds, he shall not indulge in speculative
transactions.

He may hold the securities in the portfolio account in his own name on the
behalf of his clients only if the contract so provides. In such a case, his
records and his report to his clients should clearly indicate that such securities
are held by him on behalf of his client.

He shall deploy the money received from his client for an investment purpose
as soon as possible for that purpose.

He shall pay the money due and payable to a client forthwith.

P a g e | 44

He shall not place his interest above those of his clients.

He shall not disclose to any person or any confidential information about his
client, which has come to his knowledge.

HE SHALL ENDEAVOUR TO:

Ensure that the investors are provided with true and adequate information
without making any misguiding or exaggerated claims.

Ensure that the investors are made aware of the attendant risk before any
investment decision is made by them.

Render the best possible advice to his clients relating to his needs and the
investment and his own professional skills.

Ensure that all professional dealings are affected in a prompt, efficient and
cost effective manner.

COORDINATION WITH RELATING AUTHORITIES:

The portfolio manager shall designate a senior officer as compliance offer.
The senior officer:

Shall coordinate with regulating authorities regarding various matters.

Shall provide necessary guidance to and ensure compliance internally by the

portfolio manager of all Rules, Regarding guideline, Notification etc. issued
by SEBI, government of India and other regulation authorities.

Shall ensure that observations made/deficiencies pointed out by SEBI in the

functioning of the portfolio manager do not recur.

DEFAULTS AND PENALTIES:

The following aspects must keep in view:
Liabilities for action in case of default A portfolio manager is liable to penalties he:

Fails to comply with any conditions subject to which certificate of registration

has been granted.

Contravenes any of the provision of the SEBII act, its Rule and Regulations.

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SEBI GUIDELINES TO THE PORTFOLIO MANAGERS: On 7th January

1993 securities exchange board of India issued regulations to the portfolio managers for the
regulation of portfolio management services by merchant bankers. They are as follows:

Portfolio management services shall be in the nature of investment or

consultancy management for an agreed fee at client's risk

The portfolio manager shall not guarantee return directly or indirectly the fee
should not be depended upon or it should not be return sharing basis.

Various terms of agreements, fees, disclosures of risk and repayment should be

mentioned.

Client's funds should be kept separately in client wise account, which should
be subject to audit.

Manager should report clients at intervals not exceeding 6 months.

Portfolio manager should maintain high standard of integrity and not desire
any benefit directly or indirectly form client's funds.

The client shall be entitled to inspect the documents.

Portfolio manager should maintain high standard of integrity and not desire
any benefit directly or indirectly form client's funds.

The client shall be entitled to inspect the documents.

Portfolio manager shall not invest funds belonging to clients in badla

financing, bills discounting and lending operations.

Client money can be invested in money and capital market instruments.

Settlement on termination of contract as agreed in the contract.

Client's funds should be kept in a separate bank account opened in scheduled

commercial bank.

Purchase or Sale of securities shall be made at prevailing market price .

Portfolio managers with his client are fiduciary in nature. He shall act both as
an agent and trustee for the funds received.

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CHAPTER 5
RISK RETURN ANALYSIS
Risk on Portfolio:
The expected returns from individual securities carry some degree of risk. Risk on the
portfolio is different from the risk on individual securities. The risk is reflected in the
variability of the returns from zero to infinity. Risk of the individual assets or a portfolio is
measured by the variance of its return. The expected return depends on the probability of the

P a g e | 47

returns and their weighted contribution to the risk of the portfolio. These are two measures of
risk in this context one is the absolute deviation and other standard deviation
Most investors invest in a portfolio of assets, because as to spread risk by not putting all
eggs in one basket. Hence, what really matters to them is not the risk and return of stocks in
isolation, but the risk and return of the portfolio as a whole. Risk is mainly reduced by
diversification.
Following are the some of the types of risk:
1) Interest Rate Risk: This arises due to the variability in the interest rates from time to
time. A change in the interest rate establish an inverse relationship in the price of the security
i.e. price of the security tends to move inversely with change in rate of interest, long term
securities show greater variability in the price with respect to interest rate changes than short
term securities.
Interest rate risk vulnerability for securities is as under
TYPES

RISK EXTENT

Cash Equivalent

Less vulnerable to interest rate risk

Long Term Bonds

More vulnerable to interest rate risk

2) Purchasing power risk: it is also known as inflation risk also emanates from the very fact
the inflation affects the purchasing power adversely. Nominal return contains both the real
return component and an inflation premium in a transaction involving risk of the above type
to compensate for inflation over an investment holding period. Inflation rates vary over time
and investors are caught unaware when rate of inflation changes unexpectedly causing
erosion in the value of realized rate of return and expected return.
Purchasing power risk is more in inflationary conditions especially in respect of bonds
and fixed income securities. It is not desirable to invest in such securities during inflationary
periods. Purchasing power risk is however, less in flexible income securities like equity
shares or common stock where rise in dividend income off-sets increase in the rate of
inflation and provide advantage of capital gains.
3) Business Risk: Business risk emanates from sale and purchase of securities affected by
business cycles, technological changes etc. Business cycles affect all types of securities i.e.
there is cheerful movement in boom due to bullish trend in stock price whereas bearish trend
in depression brings down fall in the prices of all types of securities during depression due to
decline in their market price.
4) Financial Risk: It arises due to changes in the capital structure of the company. It is also
known as leveraged risk and expressed in terms of debt-equity ratio. Excess of risk vis--vis

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equity in the capital structure indicates that the company is highly geared. Although a
leveraged companys earnings per share are more but dependence on borrowings expose it is
risk of winding up for its inability to homer its commitments towards lender or creditors. The
risk is known as leveraged or financial risk of which investor should be aware and portfolio
managers should be very careful.
5) Systematic Risk or Market Related Risk: Systematic risks affected from the entire
market are (the problems, raw material availability, tax policy or government policy, inflation
risk, interest rate and financial risk). It is managed by the use of beta of different company
shares.
6) Unsystematic Risks: The unsystematic risks are mismanagement, increasing inventory,
wrong financial policy, defective marketing etc. this is diversifiable or avoidable because it is
possible to eliminate or diversify away this component or risk to a considerable extent by
investing in a large portfolio of securities. The unsystematic risk stems from inefficiency
magnitude of those factors different from one company to another.

RISK RETURN ANALYSIS:

All investment has some risk. Investment in shares of companies has its own risk or
uncertainty; these risks arise out of variability of yields and uncertainty of appreciation or
depreciation of share price, losses of liquidity etc.
The risk over time can be represented by the variance of the returns while the return over
time is capital appreciation plus pay-out, divided by the purchase price of the share.

Normally, the higher the risk that the investor takes, the higher is the return. There is
however, a risk less return on capital of about 12% which is the bank, rate charged by the
R.B.I or long term, yielded on government securities at around 13% to 14%. The risk less
return refers to lack of variability of return and non-uncertainty in the payment or capital. But
other risks such as loss of liquidity due to parting with money etc. may however remain, but
are rewarded by the total return on the capital.
Risk-return is subject to variation and the objectives of the portfolio manager are to
reduce that variability and thus reduce the risk by choosing an appropriate portfolio.

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Traditional approach advocates that one security holds the better; it is according to the
modern approach divarication should not be quantity that should be related to the quality of
scripts which leads to quality of portfolio.
Experience has shown that beyond the certain securities by adding more securities expensive.

RETURNS ON PORTFOLIO:
A Portfolio is a group of securities held together as investment. Investors invest their funds in
a portfolio of securities rather than in a single security because they are risk averse. By
constructing a portfolio, investors attempts to spread risk by not putting all their eggs into one
basket. Portfolio phase of portfolio management consists of identifying the range of possible
portfolios that can be constituted from a given set of securities and calculating their return
and risk for further analysis.
Individual securities in a portfolio are associated with certain amount of Risk & Returns.
Once a set of securities, that are to be invested in, are identified based on Risk-Return
characteristics, portfolio analysis is to be done as next step as the Risk & Return of the
portfolio is not a simple aggregation of Risk & Returns of individual securities but, somewhat
less or more than that. Portfolio analysis considers the determination of future Risk & Return
in holding various blends of individual securities so that right combinations giving higher
returns at lower risk, called Efficient Portfolios, can be identified so as to select an optimum
one out of these efficient portfolios can be selected in the next step.
Expected Return of a Portfolio: It is the weighted average of the expected returns of the
individual securities held in the portfolio. These weights are the proportions of total
investable funds in each security.
n

Rp x i R i
I 1

RP = Expected return of portfolio

N =

No. of Securities in Portfolio

X I = Proportion of Investment in Security i.

Ri = Expected Return on security i

Risk Measurement: The statistical tool often used to measure and used as a proxy for risk is
the standard deviation.
N

p (ri - E(r)) 2
i 1

Varian ce ( 2 ) p(ri - E(r)) 2

P a g e | 50

Here Variance ( 2 )

P =
ri

is the probability of security

N = Number of securities in portfolio

= Expected return on security i

CHAPTER -6
INVESTMENT ANALYSIS
MEANING OF INVESTMENT
Investment means employment of funds in a productive manner so as to create additional
income. The word investment means many things to many persons. Investment is financial
assets leads to further production and income. It is lending of funds income and commitment
of money for creation of assets, producing further income.
Investment also means purchasing of securities, financial instruments or claims on
future income. Investment is made out of income and savings credit or borrowings and out of
wealth. It is a reward for waiting for money.
THERE ARE TWO TYPE OF INVESTMENT:

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1) Economic Investment: The concept of economic investment means additions to the

capital stock of the society. The capital stock of society is the goods which are used in the
production of other goods. The term investment implies the formation of new and productive
capital in the form of new construction and producers durable instrument such as plant and
machinery, investment and human capital are also included in this concept. Thus, an
investment in economic terms means an increase in building, equipment, and inventory.
2) Financial Investment: This is an allocation of monetary resources to assets that are
expected to yield some gain or return over a given period of time. It is a general or extended
sense of the term. It means an exchange of financial claims such as shares and bonds, real
estate, etc. in their view; investment is a commitment of funds to derive future income in the
form of interest, dividends, rent premiums, pension benefits and the appreciation of the value
of their principal capital.
The economic and financial concepts of investment are related to each other because
investment is a part of the savings of individual which flow into the capital market either
directly or through institutions. Thus, investment decisions and financial decisions interact
with each other. Financial decisions are primarily concerned with the sources of money where
as investment decisions are traditionally concerned with uses or budgeting of money.
MEANING OF SECURITY
A security means a document that gives its owner a specific claim of ownership of a
particular financial asset. Financial market provides facilities for buying and selling of
financial claims and services. Thus, securities are the financial institutions which are bought
and sold in the financial market for investment.
The important financial instruments are share, debentures, bonds, etc. other financial
instruments are also known as Treasury bill, Mutual Fund Units, Fixed Deposits, Insurance
Policies, Post Office Saving like National Saving Certificates, Kisan Vikas Patras, Public
provident Funds etc. These securities are used by the investors for their investment. Some of
these securities are transferable while some of them are not transferable.
INVESTMENT AVENUES
The alternative investment for the investor are to be considered first so as to satisfy the above
objectives of investor. The following categories of investment are open to investors as
avenues for savings to flow in financial form:
(a) Investment in Bank Deposits Savings and Fixed Deposits: This is the most common
form of investment for an average Indian and nearly 40% of funds in financial savings are
used in these are least risky but the return in also low.
(b) Investment in P.O Deposits National Savings Certificate and other Postal Savings
Schemes: Many people in villages and some urban areas are investors in these schemes due
to lower risk of loss of money and greater security of funds. But returns are also lower than in
Stocks & Shares.

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(c) Insurance Schemes of LIC/GIC etc. and Provident and Pension Funds: About 2025% of financial savings of the household sector are put in these forms and P.F., Pension and
other forms of contractual savings.
(d)Investment in Mutual Fund Schemes or UTI Schemes as and when announced: These
are less risky than direct investment in stocks and shares as these enjoy the expert
management by the Portfolio Manager or Professional experts. They also have the advantage
of diversified Portfolio involving the reduction of risk and economies of scale reducing the
cost of investment.
(e)Investment in New Issues Market: A new entrant in the Stock Market should preferably
invest in New Issues of existing and well reputed companies either in equity or debentures.
Incidentally the instruments in which investment can be made in the new issues market are
1. Equity issues through prospectus or rights announced by existing shareholders.
2. Preference shares with a fixed dividend either convertible into equity or not.
3. Debentures of various categories convertible, fully convertible, partly convertible and
non- convertible debentures.
4. P.S.U. Bonds taxable or free-taxed with interest rates
(f) Investment in gold, silver, precious metals and antiques.
(g) Investment in real estates.
(h) Investment in gilt-edged securities and securities of Government and Semi-Government
organizations (e.g. Relief bonds, bonds of port trusts, treasury bills, etc.). The maturity period
is varying generally upto10 to20 years. Gilt-edged securities market constitutes the largest
segment of the Indian capital market. These are fully secured as they have government
backing. Tax benefits are available to these securities.

THE FOLLOWING FIGURE INDICATES ALTERNATIVE AVENUES

OF INVESTMENT

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NEW ISSUES MARKET INVESTMENT DECISION

Investors would prefer debentures if they are interested in a fixed income. They may
go for convertible debentures, if they want to have both fixed income and likely capital
appreciation in future. If they are risk taking and aim only at capital gains, then they may
invest in equity shares. Of the new issues those of well-established existing companies are
least risky while those of new companies floated by little known new entrepreneurs are most

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risky. In choosing the new issues for investment decision, the investor has to read a copy of
the prospectus and note the following:
1. Who are the promoters and their past record?
2. Products manufactured and demand for those products at home or abroad thecompetitors
and the share of each in the market.
3. Availability of inputs, raw materials and accessories and the dependence on imports.
4. Project location and its advantages.
5. Prospects through projected earnings, net profits and dividend paying capacity, waiting period
involved, etc.

If the new issues belong to a company promoted by well known Business Groups
like Tatas, Birlas etc. they are less risky. The company should belong to an industry which is
expanding and has good potential like drugs, chemicals; Telecom etc. the terms of offer
should be attractive like conversion or immediate prospects of dividend etc.
STOCK MARKET INVESTMENT DECISION
As far as the stock market is concerned, investment in shares is most risky as the likelihood
of fall or rise in prices is uncertain. But the returns may also be high commensurate with risk.
A host of imponderable factors operate in the stock market and a genuine investor has to do
the following things:
1. Study the Balance Sheet of the company and analyse the prospects of sales and profits.
2. Analyse the market price in terms of book value and profit earning capacity (or P/Ratio)
and use them to know whether the share is overvalued or undervalued.
3. Study the expansion plans or tax savings plans and analyse the companys financial
strength, bonus and dividend paying strength, through the mechanism of financial ratios.
4. Study whether the management is professional and good, whether other accounting
practices are dependable and consistent. The company becomes attractive to buy if the
financial ratios support the view that the fundamentals are strong and the shares are worth
buying.
5. Lastly, if the price of the share is undervalued on the basis of the projected earnings for the
coming half year or one year and its P/E Ratio is below the industry average, then it is worth
buying. The same is worth selling if in his judgement it is overhauled. For assessing the under
valuation and over valuation, the analyst and his analytical power count for this purpose.
GUIDELINES FOR INVESTORS IN THE STOCK MARKET
1. Never buy on rumours or market gossip.

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2. Buy only on the basis of fundamental analysis of the companies based on balance sheet
data analysis.
3. Buy a diversified list of companies and not put all the money in one or two companies. All
investments in the stock market are risky. The risk can be reduced by proper diversification of
the portfolio into 10 or 15 companies.
4. Study the sales, gross profit, net profit in relation to equity capital employed and attempt a
forecast for the coming half year or one year.
5. A declaration of bonus or low P/E ratio, along with strong fundamentals shows that the
company should be a good buy.
6. The investor should also watch for low priced shares which are about to turn around for
more profitability in future.
7. Investors should buy on declines and follow the principle of contrariness. This means that
if everyone is buying scrip, avoid that scrip but if scrip is deserted and your study has shown
that is has potential; for expanding earnings and profitability, then such scrips should be
purchased by the investor.
8. Avoid both fear and greed on the stock market. If investor is not afraid of the market, he
generally studies the market and buys at lows and sells at highs.
9. The investor should know how to analyse the security prices of companies and pick up the
undervalued shares. The valuation may be based on the net profits discounted to the present
by a proper discount rate or by the book value of share, estimated on the basis of net worth of
the company.
10. Timing of purchase and sale is also very important. If technical analysis and the use of
charts is not familiar to the investor he should follow the principle buy low and sell high.
He should see whether there is a bull market or bear market in a share by a study of the share
price over a period of 15 to 30 days. In a bull phase one can sell at one of the peaks and in a
bear phase one can buy at one of troughs. If the investor is greedy to wait on to see the
maximum peak, and then he may be disappointed if the price shows adown trend. Similarly, it
is difficult to foresee the lowest price for scrip for the buy. The investor has to use his
discretion.

THE INVESTORS SHOULD NOT DO THE FOLLOWING THINGS:

1) He should not put all his eggs in one basket which means that he should not put all his
funds in one or two companies.
2) Do not go by heresy or rumours to buy or sell a scrip as that might be a dupe.

P a g e | 56

3) Do not speculate involving the buying and selling in the same day or during the same
settlement period. A long term investor gains more than speculator.
4) Avoid taking undue risks or beyond the capacity of your net worth. That means if capital
base is Rs. 2 lakhs, put a stop loss order at Rs. 20,000/- (or 1/8th or 1/10th of the capital base).
5) Do not get panicky if the scrips in which you have invested go down in price. Once the
investment is made after a study of fundamentals, a temporary fall in its price should not
cause worry. What the investor needs is patience, which is possible if he is a long term
investor.
6) Do not be too greedy or ambitious. Put limits to your operations and buy and sell orders in
a price range and your minimum profit limit is 20%.
INVESTMENT STRATEGY
Portfolio management can be practiced by following either an active or passive strategy.
Active strategy is based on the assumption that it is possible to beat the market. This is done
by selecting assets that are viewed as under-priced or by changing the asset mix or proportion
of fixed income securities and shares. Active strategy is carried out as follows:
1) Aggressive Security Management: Aggressive purchasing and selling of securities to
achieve high yields from dividend interest and capital gains.
2) Speculation and Short Term Trading: The objective is to gain capital profits. The risk is
high and the composition of portfolio is flexible. Success of active strategy depends on
correct decisions as regard the timing of movement in the market as a whole, weight age of
various securities in the portfolio and individual share selection.
The passive strategy does not aim at outperforming the market. Unlike the active
strategy. On the other hand the stocks could be randomly selected on the assumption of a
perfectly efficient market. The objective is to include in the portfolio a large number of
securities so as to reduce risks specific to individual securities. The characteristics of positive
strategy are:

Long Term Investment Horizon

Little Portfolio Revisions

Thus it is basically a buy and hold strategy. The strategy can be implemented by
investing in securities so as to duplicate the portfolio of a market index which is called
indexing.
INVESTMENT AND SPECULATION
Speculation is an activity, quite contrary to its literal meaning, in which a person assumes
high risks, often without regard for the safety of his invested principal, to achieve large
capital gains. The time span in which the gain is sought to be made is usually very short.

P a g e | 57

The investor sacrifices some money today in anticipation of a financial return in

future. He indulges in a bit of speculation. There is an element of speculation involved in all
investment decisions. However it does not mean that all investments are speculative by
nature. Genuine investments are carefully thought out decisions. On the other hand,
speculative investments are not carefully thought out decisions. They are based on tips and
rumours.
An investment can be distinguished from speculation in three ways Risk, capital
gain and time period. Investment involves limited risk while speculation is considered as an
investment of funds with high risk. The purchase of a security for earning a stable return over
a period of time is an investment whereas the primary motive is to earn high profits through
price changes is termed as speculation. Thus, speculation involves buying a security at low
price and selling at a high price to make a capital gain.
The truth is that any investment is a speculation if the investor uses his judgement and
forecast the probable course of events in order to reap the returns on his investment.
ELEMENTS OF INVESTMENTS
(a) Return: Investors buy or sell financial instruments in order to earn return on

them. There turn on investment is the reward to the investors. The return
includes both current income and capital gains or losses, which arises by the
increase or decrease of the security price.
(b) Risk: Risk is the chance of loss due to variability of returns on an investment.

In case of every investment, there is a chance of loss. It may be loss of

interest, dividend or principal amount of investment. However, risk and return
are inseparable. Return is a precise statistical term and it is measurable. But
the risk is not precise statistical term. However, the risk can be quantified: The
investment process should be considered in terms of both risk and return.
(c) Time: Time is an important factor in investment. It offers several different

courses of action. Time period depends on the attitude of the investor who
follows a buy and hold policy. As time moves on, analysts believe that
conditions may change and investors may revaluate expected return and risk
for each investment.
FINANCIAL ANALYSIS:
An analysis of financial for the past few years would help the investment manager in
understanding the financial solvency and liquidity, the efficiency with which the funds are
used, the profitability, the operating efficiency and operating leverages of the company. For
this purpose certain fundamental ratios have to be calculated.

Quality of Management: This is an intangible factor. Yet it has a very

important bearing on the value of the shares. Every investment manager
knows that the shares of certain business houses command a higher premium

P a g e | 58

than those of similar companies managed by other business houses. This is

because of the quality of management, the confidence that the investors have
in a particular business house, its policy vis--vis its relationship with the
investors, dividend and financial performance record of other companies in the
same group, etc. This is perhaps the reason that an investment manager always
gives a close look to the management of the company whose shares he is to
invest. Quality of management has to be seen with reference to the experience,
skill and integrity of the persons at the helm of the affairs of the company. The
policy of the management regarding relationship with the shareholders is an
important factor since certain business houses believe in generous dividend
and bonus distributions while others are rather conservative.

Location and labour management relations: The locations of the companys

manufacturing facilities determine its economic viability which depends on
the availability of crucial inputs like power, skilled labour and raw materials
etc. Nearness to market is also a factor to be considered. In the past few years,
the investment manager has begun looking into the state of labour
management relations in the company under consideration and the area where
it is located.

CHAPTER - 7

P a g e | 59

ASSEST ALLOCATION
INTRODUCTION
The portfolio manager has to invest in these securities that form the optimal portfolio.
Once a portfolio is selected the next step is the selection of the specific assets to be included
in the portfolio. Assets in this respect means group of security or type of investment. While
selecting the assets the portfolio manager has to make asset allocation. It is the process of
dividing the funds among different asset class portfolios.
ASSET ALLOCATION
The different asset class definitions are widely debated, but four common divisions
are stocks, bonds, real-estate and commodities. The exercise of allocating funds among these
assets (and among individual securities within each asset class) is what investment
management firms are paid for.

Asset classes exhibit different market dynamics, and different interaction effects; thus,
the allocation of monies among asset classes will have a significant effect on the performance
of the fund. Some research suggests that allocation among asset classes has more predictive
power than the choice of individual holdings in determining portfolio return. Arguably, the
skill of a successful investment manager resides in constructing the asset allocation, and
separately the individual holdings, so as to outperform certain benchmarks (e.g., the peer
group of competing funds, bond and stock indices).In order to achieve long term success,
individual investors should concentrate on the allocation of their money among stocks, bonds
and cash. It means how much to invest in stocks? How much to invest in bonds? And how
much to keep in cash reserves? Thus, the asset allocation decision is the most important
determinant of investment performance. The basic long term objective of any investor should
be to maximize his real overall return on initial investment after investment. To achieve this
objective, the investor should look where the best bargains lie. Asset allocation means
different things to different people. The portfolio manager has to complete the following
stages before making asset allocation.

P a g e | 60

(a) SECURITY SELECTION: This means identifying groups of securities in each asset
class and decides the optimal portfolio. The following are the different asset classes:
(1)Equity shares-new issues

(2) Equity shares-old issues

(3)Preference Shares

(4) Debentures

(5)PSU bonds

(6)Government Securities

(7)Company Fixed Deposits

Portfolio management is handling the fund on behalf of the company or institution in
order to determine the suitable combination of different assets so that the total risk can be
reduced to the minimum while the return can be achieved to the maximum extent. This is a
tricky job which needs efficiency of high calibre. Therefore, the portfolio manager has to
keep in mind the following factors while making asset allocation and design an efficient
portfolio.
a) Liquidity or marketability

b) Safety of investment

c) Tax saving

d) Maximization of return

e) Minimization of return

f) Capital appreciation or gain

g) Funds requirements
(b) BASIS OF SELECTION OF EQUITY PORTFOLIO:
A portfolio is a collection of securities. It is essential that every security be viewed in a
portfolio context. It is logical that the expected return of a portfolio should depend on the
expected return of each of the security contained in it. Moreover, the amounts invested in
each security should also be important.
There are two approaches to the selection of equity portfolio. One is technical analysis
and the other is fundamental analysis. Technical analysis assumes that the price of a stock
depends on supply and demand in the capital market. All financial and market information of
given security is already reflected in the market price. Charts are drawn to identify price
movements of a given security over a period of time. These charts enable us to predict the
future movement of the security.
The fundamental analysis includes the study of ratio analysis, past and present track
record of the company, quality of management, government policies etc an efficient
portfolio manager can obviously give more weight to fundamental analysis than technical
analysis.
DIVERSIFICATION
Investing funds in a single security is advisable only if the securitys performance is
rewarding. To reduce risk of a portfolio investors resort to diversification. Diversification

P a g e | 61

means shifting form one security to another security. The maximum benefits of risk reduction
can be achieved by just having of 10 to 15 carefully selected securities.
Portfolio risk can be divided into two groups- divertible risk and non-divertible risk.
Divertible risk arises from companys specific factors. Hence, such risk can be diversified by
including stocks of other companies in the portfolio. Non-divertible risk arises from the
influence of economy wide factors which affect returns of all companies; investors cannot
avoid the risk arising from them. Often investors tend to buy or sell securities on casual tips,
prevailing mood in the market, sudden impulse, or to follow others. An investor should
investigate the following factors about the stock to be included in his portfolio:
(a) Earnings per share (b) Growth potential (c) Dividend and bonus records (d) Business,
financial and market risks (e) Behaviour of price-earnings ratio (f) High and low prices of the
stock (g) Trend of share prices over the few months or weeks.

We can observe from the above diagram that the strategy of an investor should be at A, B or
C respectively, depending upon his preferences and income requirements. If he takes some
risk at B or C, the risk can be reduced if it is concerned with a specific company risk, but the
market risk is outside his control. The risk can be reduced by a proper diversification of
scripts in the portfolio. There may be a combination of A, B and C positions in his portfolio
so that he can have a diversified risk-return pattern. This diversification can help to minimize
risk and maximum the returns.

PORTFOLIO SELECTION
Portfolio analysis provides the input for the next phase in portfolio management, which is
portfolio selection. The proper goal of portfolio construction is to get high returns at a given
level of risk. The inputs from portfolio analysis can be used to identify the set of efficient
portfolios. From this set of portfolios, the optimal portfolio has to be selected for investment.
A portfolio management has been characterized by

P a g e | 62

Tradition portfolio theory

Modern portfolio theory

TRADITION PORTFOLIO THEORY: This theory aims at the selection of such securities
that would fit in well with the asset preferences, needs and choices of investor. Thus, a retired
executive invest in fixed income securities for a regular and fixed return. A business
executive or a young aggressive investor on the other hand invests in new and growing
companies and in risky ventures.
MODERN PORTFOLIO THEORY: This theory suggests that the traditional approach to
portfolio analysis, selection and management may yield less than optimal result that a more
scientific approach is needed based on estimates of risk and return of the portfolio and
attitudes of the investor towards a risk return trade off steaming from the analysis of the
individual securities.
In this regard India after government policy of liberalization has unleashed foreign
market forces that have a direct impact on the capital markets. An individual investor can't
easily monitor these complex variables in the securities market because of lack of time,
information and know-how. That is why investors look in to alternative investment options
for example mutual funds. But in the recent times investor has lost faith in this type
investment and has turned towards portfolio investment.
With portfolio investment gaining popularity it has emphasized on having a proper portfolio
theory to meet the needs of the investor and operate in the capital market using through
scientific analysis and backed by dependable market investigations to minimize risk and
maximize returns. The scientific analysis of risk and return is modern portfolio theory and
Markowitz laid the foundation of this theory in 1951. He began with the simple observation
that since almost all investors invests in several securities rather that in just one, there must
be some benefit from investing in a portfolio of several securities.

MARKOWITZ THEORY
Harry M. Markowitz is credited with introducing new concept of risk measurement and their
application to the selection of portfolios. He started with the idea of risk aversion of investors
and their desire to maximize expected return with the least risk.
Markowitz has suggested a systematic search for optimal portfolio. According to him,
the portfolio manager has to make probabilistic estimates of the future performance of the
securities and analyse these estimates to determine an efficient set of portfolio. Then the
optimum set of portfolio can be selected in order to suit the needs of the investors Markowitz
used mathematical programming and statistical analysis in order to arrange for .the optimum
allocation of assets within portfolio. To reach this objective, Markowitz generated portfolios
within a reward-risk context. In other words, he considered the variance in the expected
returns from investments and their relationship to each other in constructing portfolios. In

P a g e | 63

essence, Markowitz's model is a theoretical framework for the analysis of risk return choices.
Decisions are based on the concept of efficient portfolios.
A portfolio is efficient when it is expected to yield the highest return for the level of
risk accepted or, alternatively, the smallest portfolio risk or a specified level of expected
return. To build an efficient portfolio an expected return level is chosen, and assets are
substituted until the portfolio combination with the smallest variance at the return level is
found. As this process is repeated for other expected returns, set of efficient portfolios is
generated.
ASSUMPTIONS:
The Markowitz model is based on several assumptions regarding investor behaviour:

Investors consider each investment alternative as being represented by a

probability distribution of expected returns over some holding period.

Investors maximise one period-expected utility and possess utility curve,

which demonstrates diminishing marginal utility of wealth.

Individuals estimate risk on the basis of the variability of expected returns.

Investors base decisions solely on expected return and variance (or standard
deviation) of returns only.

For a given risk level, investors prefer high returns to lower returns. Similarly,
for a given level of expected return, investor prefer less risk to more risk.

Under these assumptions, a single asset or portfolio of assets is considered to be "efficient" if

no other asset or portfolio of assets offers higher expected return with the same (or lower)
risk or lower risk with the same (or higher) expected return.
MARKOWITZ DIVERSIFICATION: Markowitz postulated that diversification should not
only aim at reducing the risk of a security by reducing its variability or standard deviation but
by reducing the covariance or interactive risk of two or more securities in a portfolio. As by
combination of different securities, it is theoretically possible to have a range of risk varying
from zero to infinity. Markowitz theory of portfolio diversification attached importance to
standard deviation to reduce it to zero, if possible.
CAPITAL ASSETS PRICING MODEL (CAPM)
The CAPM was developed in mid-1960, the model has generally been attributed to William
Sharpe, but John Linter and Jan Mossin made similar independent derivations. Consequently,
the model is often referred to as Sharpe-Linter-Mossin (SLM) Capital Asset Pricing Model.
The CAPM explains the relationship that should exist between securities expected returns and
their risks in terms of the means and standard deviations about security returns. Because of

P a g e | 64

this focus on the mean and standard deviation the CAPM is a direct extension of the portfolio
models developed by Markowitz and Sharpe.
Capital Market Theory is an extension of the portfolio theory of Markowitz. This is an
economic model describes how securities are priced in the market place. The portfolio theory
explains how rational investors should build efficient portfolio based on their risk return
preferences. Capital Asset Pricing Model (CAPM) incorporates a relationship, explaining
how assets should be priced in the capital market.
ASSUMPTIONS OF CAPITAL MARKET THEORY
The CAPM rests on eight assumptions. The first 5 assumptions are those that underlie the
efficient market hypothesis and thus underlie both modern portfolio theory (MPT) and the
CAPM. The last 3 assumptions are necessary to create the CAPM from MPT. The eight
assumptions are the following:

The Investor's objective is to maximise the utility of terminal wealth.

Investors make choices on the basis of risk and return.

Investors have homogeneous expectations of risk and return.

Investors have identical time horizon.

Information is freely and simultaneously available to investors.

There is a risk-free asset, and investors can borrow and lend unlimited amounts at the
risk-free rate.

There are no taxes, transaction costs, restrictions on short rates or other market
imperfections.

Total asset quantity is fixed, and all assets are marketable and divisible.

CAPM provides a conceptual framework for evaluating any investment decisions. It is used
to estimate the expected return of any portfolio with the following formula:
E(Rp) = Rf+Bp(E(Rm)-Rf)
Where,
E(Rp)

= Expected return of the portfolio

Rf

= Risk free rate of return

Bp

= Beta portfolio i.e. market security index

E(Rm)

= Expected return on market portfolio

[E(Rm)-Rf]

= Market risk premium

P a g e | 65

The above model of portfolio management can be used effectively to:

Estimate the required rate of return to investment on companys common

stock

Evaluate risky investment projects involving real Assets.

Explain why the use of borrowed fund increase the risk and increase the rate
of return

Reduce the risk of the firm by diversifying its project portfolio.

SHARPES THEORY

William Sharpe has suggested a simplified method of diversification of portfolio. He has

made the estimates of the expected return and variance of indexes which are related to
economic activity. Sharpes Theory assumes that securities returns are related to each other
only through common relationships with basic underlying factor i.e. market return index.
Individual securities return is determined solely by random factor and on its relationship to
this underlying factor with the following formula:

R1 = a1+B1 I+ e1
Where R1 refers to expected return on security

a1 = the intercept of a straight line or alpha coefficient

B1 = Slope of straight line or beta coefficient
I = Level of market return index

e1 = Error, i.e. residual risk of the company.

RULES TO BE FOLLOWED BEFORE INVESTMENT IN PORTFOLIOS:

1) Compile the financials of the companies in the immediate past 3 years such as turnover,
gross profit, net profit before tax, compare the profit earning of company with that of the
industry average nature of product manufacturing service render and it future demand, know
about the promoters and their back ground, dividend track record, bonus shares in the past 3
to 5 years, reflects companys commitment to share holder the relevant information can be
accessed from the RDC (Registrant of Companies) published financial results financed
quarter, journals and ledgers.
2) Watch out the high and low of the scripts for the 2 to 3 years and their timing cyclical
scripts have a tendency to repeat their performance, this hypothesis can be true of all other
financial.

P a g e | 66

3) The higher the trading volume higher is liquidity and still higher the chance of speculation,
it is futile to invest in such shares whos daily movements cannot be kept track, if you want to
reap rich return keep investment over a long horizon and it will offset the wild intraday
trading fluctuations, the minor movement of scripts may be ignored, we must remember that
share market moves in phase and the span of each phase is 6 month to 5 years.

Part -2
Practical and Research Part
of the Project Report

P a g e | 67

CHAPTER -1
STUDY OF INVESTOR BEHAVIOR ON
INVESTMENT AVENUES AND RISK LEVEL
ABSTRACT
This study is to analysis and determines the investment behaviour of investors and
investment preferences for the same. The kind of volatility we witnessed in the asset class
(Equity markets) in recent times is unprecedented. It is true with other asset classes like Gold,
Currencies, and Bonds as well. This leaves the investor baffled at times. If we get into further
details, it can be finding that the continuous volatility is affecting investor behaviour in a big
way. Therefore, one has to get into an investors mind and experience the upheavals going on
there. The purpose of the analysis is to determine the investment behaviour of investors and
investment preferences for the same. Investors perception will provide a way to accurately
measure how the investors think about the products and services provided by the company.

RESEARCH DESIGN
The research used in this study is Exploratory Research. Exploratory research provides
insights into and comprehension of an issue or situation. It should draw definitive conclusions
only with extreme caution. Exploratory research is a type of research conducted because a
problem has not been clearly defined. Exploratory research helps determine the best research
design, data collection method and selection of subjects. Given its fundamental nature,
exploratory research often concludes that a perceived problem does not actually exist.
SAMPLING DESIGN
A sampling frame is closely related to the population. A sample is a part of population, which
is selected for obtaining the necessary information. The sample size for this research was 100
investors.

P a g e | 68

COLLECTION OF DATA
Data collection has been done through Primary Data, which was done by personal Interviews
with the investors.
ANALYSIS OF DATA
Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with
the goal of highlighting useful information, suggesting conclusions, and supporting decision
making.

TABLE 1: DESCRIPTIVE STATISTICS

Parameter

No. of investors
Gender

Percentage

Male
Female
Total

76
24
100

76%
24%
100%

Age Group
Between 21-30
31-40
41-50
51-60
Above 60
Total

16
34
26
14
10
100

16%
34%
26%
14%
10%
100%

Qualification
Under Graduates
Graduates
Post Graduates
Others
Total

16
53
31
0
100

16%
53%
31%
0%
100%

Marital Status
Single
Married
Divorced
Widowed
Total

12
88
0
0
100

12%
88%
0%
0%
100%

Occupation
Student
Retired
Self-employed
un-employed
Total

4
13
79
4
100

4%
13%
79%
4%
100%

Annual Income
Below 4Lakh
Between 4.1-8.1L

7
48

7%
48%

P a g e | 69

8.1-12 L
Above 12.1 L
Total

26
19
100

26%
19%
100%

Experience in Investment
Below 2yrs
2yrs-5yrs
5yrs-10yrs
10yrs-15yrs
Above 15yrs
Total

9
25
31
21
14
100

9%
25%
31%
21%
14%
100%

Frequency
Daily
Monthly
Quarterly
Bi-Annually
Annually
Total

35
31
15
10
9
100

35%
31%
15%
10%
9%
100%

Investing Area
Equity and stock
Debt Market
mutual Funds
Insurance
Real Estate
Commodities
Bank Fixed Deposits
Post Office MIS
Total

33
5
10
11
7
5
14
15
100

33%
5%
10%
11%
7%
5%
14%
15%
100%

Sources of Investment
Savings
Inherited Amount
Margin Financing
Money Extracted from
Business
Personal Borrowing
Total

52
21
1
20

52%
21%
1.00%
20%

6
100

6%
100%

Objectives of the Investment

Short Term Profit Seeking
Steady Income(Dividends)
Long Term Profit Seeking
Others
Total

25
32
43
0
100

25%
32%
43%
0%
100%

Perception For the Losses

Incorrect Recommendation or
Advice from
broker/analyst/banker
Incorrect Recommendation or
Advice from family/friends

21

21%

13

13%

P a g e | 70

The market has, in general,

performed poorly
Committed errors
Sheer bad luck
Total

46

46%

13
7
100

13%
7%
100%

Perception For the Profits

Professional help
Friends advice and support
Bullish market
Own knowledge
Sheer good luck
Total

24
11
47
13
5
100

24%
11%
47%
13%
5%
100%

RELIABILITY ANALYSIS: Reliability Coefficients of investors behaviour towards

investment and its factors was found to be 0 .8723.
ASSESSMENT OF THE DEGREE OF ASSOCIATION OF FACTORS: In order to test
the association of Engagement and its factors a detailed set of statistical analysis was
conducted first being a confirmatory Pearson's Correlation as seen in below Table
TABLE 2: CORRELATIONS OF FACTORS TOWARDS INVESTORS BEHAVIOR

Ability of investor
decision
Investors optimism
Investors effort
Risk appetite

Investors
optimism
.403(**)

Investors effort

Risk appetite

.486(**)

.201(*)

.454(**)

.267(**)
.202(*)

Investor's
Behaviour
.732(**)
.809(**)
.606(**)
.533(**)

** Correlation is significant at the 0.01 level (2-tailed).

* Correlation is significant at the 0.05 level (2-tailed).
There is a range of correlation coefficients between the factors as described below:

The degree of relation between ability of investment decision and investors

behaviour is 0.486 which is moderate.

The degree of relation between investors optimism and investors behaviour

is 0.454 which is also moderate.

The degree of relation between investors effort and investors behaviour is

0.486 which comparatively moderate levels.

P a g e | 71

The degree of relation between risk appetite and investors behaviour is 0.267
which is comparatively lower.

FINDINGS

According to the data that have been collected among the recipients 76(76%)
were male and the rest 24(24%) were female, from this it can be seen that
investing is mostly a mans game although women are doing their investment
in some way or another but they are very less doing it through financial
instruments.

People like to invest in Stock market as compared to any other markets, even
if they face huge losses.

Most of the people whose survey was done mostly were retired persons or the
age group between 35-50; this suggests that youth of India is unaware about
investment opportunities.

According to the data that have been collected people give more preference to
savings and safety but at the same time they want higher interest at low risk in
shorter span.

According to the data that have been collected people are having less
knowledge of managing their income and assets.

Most of the investors possess higher education like graduation and above.

Most investors opt for two or more sources of information to make investment
decisions.

Most of the investors discuss with their family and friend before making an
investment decisions.

Percentage of income that they invest depend on their annual income, more
the income more percentage of income they invest.

The investors decisions are based on their own initiative.

Most of the investors are financial illiterates.

Increase in age decrease the risk tolerance level.

Women are attracted towards investing gold than any other investment avenue

After knowing the profile of investors and his risk level I easily manage, design and the
portfolio of investors. Asset allocation as part of investment strategy neither assures nor
guarantees better performance and cannot protect against loss in declining markets.

P a g e | 72

Aggressive Portfolio (Investor Profile Score: 45-50) Primarily equities or similar higher
risk investments, weighted toward aggressive growth, small company and international
investments. This portfolio Consider for investor if they

Have
high
expectations
for
investments

Can tolerate higher degrees

of fluctuation (sharp, shortterm volatility) in the value
of your investments

More experienced investor

and a risk taker

return
your

Desire returns that exceed

inflation

Moderately Aggressive Portfolio (Investor Profile Score: 39-44) 80 per cent equities or
similar higher risk investments focused on growth, while also offering income-oriented
investments. This portfolio consider for investor if they

Have moderately high

expectations for a return on
your investments

Can
tolerate
market
downturns and volatility for
the possibility of achieving
greater long-term gains

An experienced equity
investor

Desire potential returns that

moderately
outpace
inflation

Moderate Portfolio (Investor Profile Score: 33-38) An intermediate risk and return
portfolio that provides a blend of equities and income-oriented investments. This portfolio
consider for investor if they

Have
moderate
expectations
for
investments

return
your

Are willing and able to

accept a moderate level of
risk and return

Want some current income

return on your investments

Are primarily a growth

investor but want greater
diversification

P a g e | 73

Are concerned about inflation

Moderately Conservative Portfolio (Investor Profile Score: 27-32) 25 per cent invested
in stability of principal, 30 per cent in income-oriented investments and the remaining 45 per
cent in equities to provide growth potential. This portfolio consider for investor if they

Need more current income

from your investments

Are willing and able to

accept some risk/volatility

Are a cautious or first-time

investor

Want some potential hedge

against inflation

Conservative Portfolio (Investor Profile Score: 20-26) Only 20 per cent invested in
growth and growth and income investments, 40 per cent in income-oriented investments and
40 per cent in stability of principal. This portfolio consider for investor if they

Need income to supplement your cash flow

Are unwilling or unable to accept risk/volatility

Are a cautious investor

Are more concerned about current income than outpacing inflation

P a g e | 74

CHAPTER -2
FUNDAMENTAL STUDY OF STOCKS
April 2014 Performance of CNX Nifty

P a g e | 75

Month Gone By: - The Benchmark indices ended positive for the month of March 2014.
BSE Sensex jumped by 5.99%. Nifty rose by 6.81% for the month
Week
%Change
No.
Nifty Sensex
1.
+3.98 +3.97

Key Positive

Key Negative

Indias manufacturing sector expanded in

February at the strongest pace in 12 months,
driven largely by growth in new business
orders and an improved macroeconomic
situation.
Indias current account deficit (CAD)
narrowed sharply to USD 4.2 billion (0.9 per
cent of GDP) in Q3 of 2013-14 from
USD 31.9 billion (6.5 per cent of GDP) in
Q3 of 2012-13 primarily on account of a
decline in the trade deficit as merchandise
exports picked up and imports moderated,
particularly gold imports. This was also
lower than USD 5.2 billion (1.2 per cent of
GDP) in Q2 of 2013-14.

2.

3.

-0.34

-.50

-0.14

-0.25

India's annual consumer price inflation eased

more than expected to a 25-month low of 8.1
per cent in February, helped by moderating
food prices. Food prices for consumers rose
8.57 per cent last month from a year earlier,
slower than January's provisional 9.90 % rise
The wholesale price-based inflation eased
to a nine month low in February as food and
fuel prices moderated, raising expectations
that the RBI would leave interest rates
unchanged at its policy review in April. The
wholesale price index (WPI), long regarded
as India's main inflation measure, rose 4.68%
last month.
Retail inflation for farm workers and rural
labourers eased to 8.14% and 8.27%
respectively in February from 9.08% and
9.21% in January mainly due to decrease in
prices of food items. Point to point rate of
inflation based on the CPI-AL and CPI-RL
decreased from 9.08% and 9.21% in January,
2014 to 8.14% and 8.27% in February, 2014.
India's foreign exchange reserves continued
upward trend for the third straight week,
expanding by USD 1.838 billion to USD
297.28 billion in the week ended March 7 on
a rise in the currency assets.

The
country's
merchandise
exports declined once again after
a span of seven months. Exports
came down by 3.67% at $25.68
billion in February compared to
$26.66 billion in the same month
last year significantly weakening
chances of meeting the export
target of $325 billion in the
present fiscal.

Foreign direct investment (FDI)

into India grew only by a meagre
1.5% to $2.18 billion in January,
according to the data by the
Department of Industrial Policy
and Promotion. In January 2013,
the FDI was at $2.15 billion.
However, for the April-January
period,
foreign
investment
inflows dipped 2% to $18.74
billion from $19.1 billion during
the corresponding period of the
previous fiscal.

P a g e | 76

4.

+3.22

+2.90

India's foreign exchange reserves rose to

$298.64 billion from $297.29 billion in the
week earlier. Changes in foreign currency
assets, expressed in dollar terms, include the
effect of appreciation or depreciation of other
currencies held in its reserves.
Foreign institutional investors have net
bought more than Rs 7,500 crore worth of
shares during the week, and more than Rs
20,500 crore of equity in current month so
far, the highest inflow since May 2013.

India's external debt was at $426

billion - including the govt's debt
of $76.4 billion - at the end of
December.
Government
(Sovereign) external debt stood at
$76.4 billion, (17.9% of total
external debt) at end- December
2013 as against $81.7 billion
(20.2%) at end-March 2013. The
total external debt of $426 billion
showed an increase of $21.1
billion over the March-end level.

May 2014 Performance of CNX Nifty

Month Gone By: - The Benchmark indices ended mixed for the month of April 2014. BSE
Sensex rose by 0.14% while Nifty closed lower by 0.12% for the month.
Week
%Change
No
Nifty Sensex
1.
-0.15 -0.12

2.

Key Positive

Key Negative

Infrastructure sector output rose

4.5% year-on-year in February
2014, mainly driven by higher
electricity generation, oil refining
and steel production

Indian manufacturing activity grew at a

slower pace in March as weaker domestic
demand dragged on output growth, a
business survey showed on Tuesday, 1 April
2014.

+1.22

+1.21

India's foreign exchange reserves

rose to USD 309.44 billion as of
April 11 from USD 306.65 billion
in the week earlier. Changes in
foreign currency assets, expressed
in dollar terms, include the effect of
appreciation or depreciation of other
currencies held in its reserves.

Trade deficit widened in March on lower

exports, increasing pressure on the
country's current account balance. The trade
deficit stood at $10.51 billion in March, up
from $8.13 billion in February.

3.

+0.05

0.00

CPI inflation eased to 9.5% for the

year ended 31 March 2014 (FY
2014), from 10.2% for the year
ended 31 March
2013 (FY 2013).

India's index of industrial production (IIP)

dipped 1.9% in February 2014, snapping
0.8% growth recorded in the previous
month. The data was announced after
market hours on Friday, 11 April 2014.

4.

+0.05

+0.26

The India Meteorological Department

(IMD) has come out with its first stage
forecast for the 2014 southwest monsoon
season. As anticipated the met office has
confirmed what many forecasters across the

P a g e | 77

world have been saying of a less than

average rainfall due to El Nino weather
phenomenon.
5

-1.27

-1.19

India's foreign exchange reserves

rose to $309.91 billion as of April
25 from $309.41 billion in the week
earlier.

The Indian manufacturing sector, which is

hoping for a revival this financial year, has
failed to make much progress in the first
month with factory activity remaining
unchanged from the previous month.

JUNE 2014 Performance of CNX Nifty

Month Gone By: - The Benchmark indices ended positive for the month of May 2014. BSE
Sensex rose by 8.03% and Nifty closed higher by 7.97% for the month.
Week
%Change
No.
Nifty Sensex
1.
-0.98 -1.01

Key Positive

Key Negative

India's foreign exchange reserves rose to The market declined on profit

$309.91 billion as of April 25 from booking, triggered by the India
$309.41 billion in the week earlier.
Meteorological Department (IMD)
on 24 April 2014, announcing that
the country will likely get below
normal levels of monsoon rain this
year.

2.

+2.45

+2.63

Key benchmark indices rallied in the week

on speculation the Bharatiya Janata Party
(BJP) led National Democratic Alliance
(NDA) will be able to form government at
the centre after Lok Sabha elections.
Investors are hoping that a BJP-led
government will give a boost to India's
policy reforms, helping the economy
recover from a slowdown.

The Indian manufacturing sector,

which is hoping for a revival this
financial year, has failed to make
much progress in the first month
with factory activity remaining
unchanged from the previous
month.

3.

+5.02

+4.90

After two months of contraction,

merchandise exports rose at a five-month
high of 5.3 per cent in April to $25.6
billion, against $24.35 billion in the same
month last year. Imports, on the other hand,
were down were down 15 per cent to $35.7
billion in the month compared to $42.02
billion a year ago. This left trade deficit
lower by 42.9 per cent at $10.1 billion in
April against $17.7 billion a year before.

Activity in Indias services

industry contracted for a tenth
straight month in April, pushing
firms to put hiring plans on hold
for the first time since November.

P a g e | 78

RBI Governor Raghuram Rajan has

expressed optimism on India's growth rate
going beyond 5% mark soon. Rajan also
reiterated his view on growth rate being
inextricably linked with curbing inflation.
4.

+2.28

-1.86

+2.37

-1.93

Key benchmark indices edged higher on

growing investor confidence that new
Prime Minister Narendra Modi will take
steps to boost economic growth. The
market sentiment was also boosted by a
statement from global credit rating agency
Moody's Investor Service that BJP's
resounding election win is credit positive
for India as it boosts the prospect that a
stable government will address the
country's economic challenges.

Indias annual consumer price

inflation in April accelerated to a
three-month high of 8.59 per cent,
mainly driven by higher food
prices. Retail food prices in April
rose 9.66 per cent from a year
earlier, faster than a provisional
9.10 per cent rise in March.

Wholesale Price Index (WPI) based

inflation fell to two month low of 5.25% in
April from 5.7% in March, as all three
major components of the index - food, fuel
and manufactured goods - recorded
moderation in prices. In March, WPI
inflation was at a three-month high. It had
stood at 4.77% in April last year.

Indias industrial output contracted

by 0.5 per cent in March from a
negative 1.9 per cent in the
previous month due to a sharp drop
in manufacturing and mining
activity. The cumulative growth of
the industrial production for the
April-March
2013-14
period
declined by 0.1 per cent from a
growth of 1.1 per cent in the
corresponding period of last fiscal.
Manufacturing output, accounting
for over three-quarters of the Index
of Industrial Production, slid by
1.2 per cent in March.

India's foreign exchange (forex) reserves

rose by $1.97 billion to $313.83 billion for
the week ended May 9, led by a sharp jump
in overseas currency assets, Reserve Bank
of India (RBI) data showed. The reserves
gained $1.94 billion to $311.85 billion for
the week ended May 2.
Domestic ratings agency ICRA said GDP
growth in 2014-15 may touch 5.5% as pick
up in manufacturing and investment is
expected in the second half of the current
fiscal. A "muted" pickup in the sagging
manufacturing growth and investment
activity in the second half of the fiscal will
make it possible for the overall GDP
growth to move up

CHAPTER -3
TECHNICAL STUDY OF STOCKS

The Indian economy grew by 4.7%

in 2013-14 the second
successive year of sub-5% growth
data released on Friday showed.
This presents the Narendra Modiled government with the daunting
challenge of cooling prices and
pushing growth with the added
hurdle of a possibly deficient
monsoon.

P a g e | 79

B.S.E. SENSEX INDEX (04-03-2005 TO 01-04-2014) Weekly

CONTRACTING TRIANGLE

The Sensex made an intraday high at 22,592 on Wednesday 02nd April 2014,
and now for last so many days it is comfortably trading above 21,207 which
was the previous all-time high formed in January 2008. From there onwards it
formed a Contracting Triangle for 5 years which is marked on the chart
above. Now once this Contracting Triangle is over a massive thrust in the
upward direction is expected and it will be violent in the nature as it will take
place after the consolidation of 5 years.

For 2 technical reasons I feel the current upward move is not beginning of the
thrust out of the Contracting Triangle and they are as follows:- The
overlapping move which are taking place in last 149 trading sessions are
suggesting that Contracting Triangle is over but the dynamic thrust has yet
not started.

The other techniques apart from the Neo wave analysis are suggesting that one
more correction is expected which is given below.
B.S.E. SENSEX INDEX (20-05-2013 TO 01-04-2014) Daily

P a g e | 80

The upward rise which had taken place in last 149 trading sessions has been labelled as wave
x the construction of which is Diametric Formation.
Currently the Sensex is in last upward leg of this pattern which is leg G and is marked on
the chart above. The maximum length of wave G according to the theory will be the length
of wave A projected from the end of wave F which comes to 23,235 and that is the
maximum target we are expecting the wave G can achieve.
B.S.E. SENSEX INDEX (14-11-2011 TO 01-04-2014) Daily

As we have marked on the chart above the blue upward sloping trend line had acted as a
support. A similar concept is true on the upper side also and please remembers this trend line
is in effect for last 2 and half years, so it is a reliable trend line and slight breaching of the
long term trend line is according to the theory only. According to this theory the top will be in
the range of 22,600 to 22,700 as it is the current value of this dark thick red trend line drawn
on the chart above.

B.S.E. SENSEX INDEX (17-02-2014 TO 01-04-2014) Daily

P a g e | 81

In the month of March the Sensex opened at 21,079 and this was the low for the entire month.
In the next 5 trading sessions it went up to 22,024 and a Western Gap Up was formed
between 21,525 and 21,539. This gap was not filled in next 5 trading sessions which resulted
in yet another rally and took the Sensex up to 22,041.
The Sensex took resistance at 22,024/22041 and went in the downward direction for 4 trading
sessions but the previous gap which is marked on the chart remained unfilled and this was
followed but yet another up gap which was between 21,779 to 21,828 . This gap is also not
filled so far in last 5 trading sessions and finally the Sensex closed the month of March at
22,386.

S&P CNX NIFTY INDEX (23-09-2005 TO 02-05-2014) Weekly

CONTRACTING TRIANGLE IS OVER OR IT IS GEETTING CONVERTED INTO A

DIAMETRIC FORMATION

P a g e | 82

So far we are assuming that the Sensex as well as Nifty has completed the
Contracting Triangle which was going on for last 5 years and the upward
thrust had begun. However as so far this thrust was not very dynamic in nature
and overlapping moves were witnessed, we were labelling it as wave X
which was giving us the predictability. Keeping all the previous Neo wave
count intact we feel the whole structure remains the same i.e. the contracting
triangle. But if the Sensex crosses 23,300 levels and the Nifty crosses the level
of 6,950/7,000 decisively then the structure needs to be modified as under and
we are doing this exercise beforehand.

So far we were assuming that 6,956/7,000 was upward target for wave G and
as we are expressing the view for the entire month we must consider if this
level is breached on the upper side what should be the Neo wave count. In
order to answer this question we have come out with the following view.

We were assuming that the Sensex as well as Nifty are forming a Contracting
Triangle for last 5 years that is year 2008 to 2013 and now the upward thrust
out of the contracting triangle has begun. If the Nifty violently breaches
6,956/7000 level, we will assume that the thrust had already begun from the
end of wave E and if we take 75% of the largest leg of the triangle it comes
to 7,973 which will be the upward target for the Nifty.

DIAMETRIC FORMATION

P a g e | 83

So far we assuming that the entire structure which is going on for last 166 trading sessions is
a Diametric Formation and its last wave G is unfolding. The target of wave G is 6,956 as
described above.
In case the Nifty falls and stay below 6,600 for a couple of days, then we will have to assume
that the diametric formation is complete at 6,870 and a down ward move which will retrace
the entire rise from 5,933 has begun. In such an event the Nifty could go down and take
support at ~6,350.

S&P CNX NIFTY INDEX (25-03-2014 TO 02-05-2014) Weekly

The Nifty opened at 6,729 and on the same day it made an intraday low at
6,665. For the next 2 trading sessions it went up and formed an intraday high
at 6,777 but it could not be sustained as in next 2 trading sessions a new
intraday low was formed at 6,650 which was the bottom for the entire month
of April.

For next 10 trading sessions it went up forming Higher Bottom and Higher
Top formation and finally a new all-time high was formed on 25th April 2014
at 6,870. But this all-time high could not be sustained as for next 4 trading

P a g e | 84

sessions it came down forming Lower lows and Lower Highs on the daily
charts and finally the Nifty closed the month of April at 6,696.

B.S.E. SENSEX INDEX (01-04-2014 TO 02-06-2014) Daily

For the month of May 2014, the Sensex opened at 22,494 and for next 4 trading sessions it
was trading flat. It finally it made an intraday bottom at 22,277 which was the bottom for the
rest of the month and on 09th May 2014; it formed a large bull candle on the daily charts
from where the rally began.
From there onwards the Sensex went up for 5 trading sessions and finally on 16th May 2014
it formed an all-time high at 25,376 but it was short lived and the Sensex went into a major
profit booking which resulted into a contraction of the moves and for next 11 trading sessions
it is forming a Contracting Triangle on the daily charts. Finally the Sensex closed the month
of the May at 24,217.

P a g e | 85

As we had marked on the chart above, for the last 11 trading sessions the
Sensex as well as Nifty are forming a Contracting Triangle on the daily
charts.

After forming an all-time high at 25,373 the Sensex made an intraday low at
23,874 and from that point onwards all the waves which have taken place are
smaller in magnitude. Wave B is smaller than wave A, wave C is smaller
than wave B and wave D which is hardly one day affair is so far smaller
than wave C. So the contraction is taking place for last 11 trading sessions
and once this is over (after a downward trending wave E) a dynamic
breakout is expected. If our assumption is on the right track it will be on the
upper side as the wave A is in the downward direction, the break out takes
place in the opposite direction of wave A.

Only one level must be honoured, so that this assumption will hold true and
this level in case of the Sensex is 24,108. If this level is breached here onward
the contraction will get over and the downward journey will begin.

If our assumption is true then the first upward target will be 25,734 which is
the current all-time high and then 27,000 for the month of June 2014.

P a g e | 86

In case of the Nifty 7,206/7,216 are the levels which need to hold and they
should be used as a strict stop loss for existing long positions.

At this juncture we feel wave D of the CT is in progress and once it is over

wave E in the downward direction will start and which will be smaller than
wave D.

If my assumption is on the right track the Nifty can go up to 7,800 provided

the level of 7,200 should remain intact.

CHAPTER -4
CONSTRUCTION OF PORTFOLIO
CALCULATION OF RETURN ON THE BASIS OF CAPM MODEL
First, we go to finance.yahoo.com and download the adjusted prices for the last 14 months for
an individual stock and the CNX Nifty. Next, we go to the Reserve Bank of India Website
(Bank Database) at www.rbi.org. Then we Look for the 1-Month Treasury Constant Maturity
Rate and download this data. This will be me the proxy for the risk-free rate.

P a g e | 87

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P a g e | 91

After calculating Return on Individual stock on the basis of CAPM model we know return on
individual stock so on that basis we make an aggressive portfolio and define the weight of
each security of portfolio on the basis of Risk and Return level of Investor.

Aggressive Portfolio
On Monthly Basis

Stock Name
BFSI
ICICI Bank
SBI
Axis Bank
ENERGY
ONGC
Reliance Industries
NTPC

Stock
Return on
Weight (%)
Monthly
Basis
9.45%
27%
3.13%
7%
2.77%
7%
3.55%
13%
6.70%
15%
2.76%
10%
1.75%
3%
2.19%
2%

Expected
Return on
Portfolio
2.55%
0.22%
0.19%
0.46%
1.01%
0.28%
0.05%
0.04%

P a g e | 92

AUTO
2.89%
10%
Mahindera & Mahindra
1.05%
3%
Tata Moters
1.84%
7%
FMCG
2.42%
5%
Britannia Industries
1.38%
3%
Dabur
1.04%
2%
PHARMA
2.05%
10%
SUN Pharma
1.29%
5%
Lupin Ltd.
0.76%
5%
IT & MEDIA
1.80%
18%
TCS
0.21%
10%
INFOSYS
0.13%
5%
Zee Entertainment
1.46%
3%
METAL & REALTY
7.64%
15%
Tata Steel
1.86%
5%
Hiindalco
1.69%
5%
DLF Ltd.
4.09%
5%
Expected Return On Portfolio (On monthly Basis)

0.29%
0.03%
0.13%
0.12%
0.04%
0.02%
0.21%
0.06%
0.04%
0.32%
0.02%
0.01%
0.04%
1.15%
0.09%
0.08%
0.20%
5.64%

P a g e | 93

Aggressive Portfolio

ICICI Bank 7% DLF Ltd. 5% Hiindalco 5%

Tata Stell 5%
SBI 7%
Reliance
Industries
3%
Ltd. 5% 3%
Axis Bank 13%
Zee Lupin
Entertainment
SUN
Pharma
5%
NTPC 2%
INFOSYS 5%
ONGC 10%
Mahindera & Mahindra 3%
TCS 10%
Dabur 2%
Tata Moters 7% Britannia Industries 3%

Weight(%) of Different Industries

BFSI 27%

METAL & REALTY 15%

IT & MEDIA 18%

ENERGY 15%

PHARMA 10%

AUTO 10% FMCG 5%

P a g e | 94

CHAPTER 5
CONCLUSION
From the above discussion it is clear that portfolio functioning is based on market risk, so one
can get the help from the professional portfolio manager or the Merchant banker if required
before investment because applicability of practical knowledge through technical analysis can
help an investor to reduce risk. In other words Security prices are determined by money
manager and home managers, students and strikers, doctors and dog catchers, lawyers and
land scrapers, the wealthy and the wanting. This breadth of market participants guarantees an
element of unpredictability and excitement. If we were all totally logical and could separate
our emotions from our investment decisions then, the determination of price based on future
earnings would work magnificently. And since we would all have the same completely
logical expectations, price would only change when quarterly reports or relevant news was
released. I believe the future is only the past again, entered through another gate. If price are
based on investors expectations, then knowing what a security should sell for become less
important than knowing what other investors expect it to sell for. There are two times of a
mans life when he should not speculate; when he cant afford it and when he can Mark
Twin, 1897.A Casino make money on a roulette wheel, not by knowing what number will
come up next, but by slightly improving their odds with the addition of a 0 and 00. Yet
many investors buy securities without attempting to control the odds. If we believe that this
dealings is not a Gambling we have to start up it with intelligent way.
I can conclude from this project that portfolio management has become an important service
for the investors to identify the companies with growth potential. Portfolio managers can
provide the professional advice to the investors to make an intelligent and informed
investment.
Portfolio management role is still not identified in the recent time but due it expansion of
investors market and growing complexities of the investors the services of the portfolio
managers will be in great demand in the near future.
Today the individual investors do not show interest in taking professional help but surely with
the growing importance and awareness regarding portfolios managers people will definitely
prefer to take professional help.
If investor doesnt take service of portfolio manager he must remember some important
investing rules

Don't speculate unless it's full-time job

Beware of barbers, beauticians, waiters-of anyone -bringing gifts of inside

information or tips.

P a g e | 95

Before buying a security, its better to find out everything one can about the
company, its management and competitors, its earning and possibilities for
growth.

Don't try to buy at the bottom and sell at the top. This can't be done-except by
liars.

Learn how to take your losses and cleanly. Don't expect to be right all the
time. If you have made a mistake, cut your losses as quickly as possible

Don't buy too many different securities. Better have only a few investments
that can be watched.

Make a periodic reappraisal of all your investments to see whether changing

developments have altered prospects.

Study your tax position to known when you sell to greatest advantages.

Always keep a good part of your capital in a cash reserve. Never invest all
your funds.

Don't try to be jack-off-all-investments. Stick to field you known best.

Purchasing stocks you do not understand if you can't explain it to a ten year
old, just don't invest in it.

Over diversifying: This is the most oversold, overused, logic-defying concept

among stockbrokers and registered investment advisors.

Not recognizing difference between value and price: This goes along with the
failure to compute the intrinsic value of a stock, which are simply the
discounted future earnings of the business enterprise.

Failure to understand Market: Just because the market has put a price on a
business does not mean it is worth it. Only an individual can determine the
value of an investment and then determine if the market price is rational.

Too much focus on the market whether or not an individual investment has
merit and value has nothing to do with that the overall market is doing...

P a g e | 96

BIBLIOGRAPHY
REFERENCE BOOKS:
1. Security Analysis and Portfolio Management - Donald E. Fischer, Ronald J. Jordan
2. Investment and Portfolio Management (By Prasanna Chandra)

WEBLIOGRAPHY
SOURCES:
www.wikipedia.com
www.ichart.com
www.chartnexus.com
www.investopidia.com
www.yahoofinance.com
www.rbi.org
www.moneycontrol.com
www.economictimes.com

APPENDIX
QUESTIONNAIRE
FINANCIAL GOALS YOUR SCORE
Q1. Investments: I do not need a high level of current income from my investments. Im more
interested in their long-term growth potential.
5. STRONGLY AGREE

4.AGREE

3.DISAGREE

2.STRONGLY DISAGREE

Q2. Large expenses: I have set aside savings to cover large expenses like purchasing a home,
college tuition or a financial emergency.

P a g e | 97
5. STRONGLY AGREE

4.AGREE

3.DISAGREE

2.STRONGLY DISAGREE

Q3. Inflation: I am concerned about the effects of inflation on my investments.

5. STRONGLY AGREE

4.AGREE

3.DISAGREE

2.STRONGLY DISAGREE

RISK TOLERANCE
Q4. Volatility: I can tolerate sharp ups and downs in the short-term value of my investments in
return for potential long-term gains.
5. STRONGLY AGREE

4.AGREE

3.DISAGREE

2.STRONGLY DISAGREE

Q5. Risk vs. reward: Hypothetically, I prefer an investment that has a50 per cent chance of
losing five per cent and a 50 per cent chance of gaining 20 per cent in one year, rather than an
investment that will assure a 5 per cent return in one year.
5. STRONGLY AGREE

4.AGREE

3.DISAGREE

2.STRONGLY DISAGREE

Q6. Decline in value: I am comfortable holding on to an investment even though it drops

sharply in value.
5. STRONGLY AGREE

4.AGREE

3.DISAGREE

2.STRONGLY DISAGREE

Q7. Equity investing: I am willing to take the risks associated with stocks in order to earn a
potential return greater than the rate of inflation.
5. STRONGLY AGREE

4.AGREE

3.DISAGREE

2.STRONGLY DISAGREE

Q8. Knowledge of risk: I consider myself knowledgeable about the risks and potential
returns associated with investing in stocks and other types of securities.
5. STRONGLY AGREE

4.AGREE

3.DISAGREE

2.STRONGLY DISAGREE

TIME HORIZON
Q9. Your personal timeline: In how many years do you plan to utilize the results of your
investment strategy?
5. STRONGLY AGREE

4.AGREE

3.DISAGREE

2.STRONGLY DISAGREE

Q10. Long-term investing: I am comfortable with an investment that may take 10 years to
provide the returns I expect.
5. STRONGLY AGREE

4.AGREE

3.DISAGREE

If Total Score Is ..Investors May be An:

2.STRONGLY DISAGREE

P a g e | 98

1. 45-50 Aggressive Investor

3. 33-38 Moderate Investor
5. 20-26 Conservative Investor

2. 39-44 Moderately Aggressive Investor

4. 27-32 Moderately Conservative Investor