0701095 study of portfolio management by baban
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ACKNOWLEDGEMENT
Talent and capabilities are of course necessary but opportunities and good guidance
are two very important things without which no person can climb those infant ladders
towards progress
It is great pleasure for me to acknowledge the kind of help and guidance received to
me during my project work. I was fortunate enough to get support from a large number of
people to whom I shall always remain grateful.
I would like to express my sincere gratitude to Mr. Sandeep Kakade for giving me
this opportunity to undergo this lucrative project with Globe Capital Marked Ltd. and also
for their great guidance and advice on this project, without which I will not be able to
complete this project.
I am very thankful to my mentor Prof. Mr. Mahesh Halale for him inspiration and
for initiating diligent efforts and expert guidance in course of my study and completion of
the project and I am very thankful to my project guide for giving me timely and concrete
guidance for making this project successful.
I would like to thankful to staff members of Globe Capital Marked Ltd. For
helped me during the project report and providing me more and more valuable information
for my project report.
I would thank to God for their blessing and my Parents also for their valuable
suggestion and support in my project report.
I would also like to thank our friends and those who have helped us during this
project directly or indirectly.
Baban R. Mahanur
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TABLE OF CONTENTS
Chapter.
No
PARTICULARS Page. No
1. EXECUTIVE SUMMARY 4
2. COMPANY PROFILE 6
3. OBJECTIVE OF PROJECT 9
4. RESEARCH METHODOLOGY 10
5. THEORETICAL BACKGROUND 11
6. DATA ANALYSIS & INTERPRETATION 45
7. FINDINGS 87
8. CONCLUSIONS 88
9. LIMITATIONS 89
10. BIBLIOGRAPHY 90
11. ANNEXURE 91
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Chapter 1
EXECUTIVE SUMMARY
The Project on Portfolio Management was carried out for Globe Capital Market Ltd.
.Overview
In Today’s Competitive world, where banks and financial institutions provide
number of services which provides a customer with a wide spectrum of investment
opportunities. They in order to retain their customers provide them special services besides
traditional services.
The invention of new technology and services by banks and financial institutions
has given the consumers a wide range of investment avenues to invest in. One of the
special services brought out by banks and financial institutions is PORTFOLIO
MANAGEMENT SERVICES (PMS) which aims at providing an investor to invest a
combination of securities all together which enables him to earn maximum returns at
minimum level of risk & without any confusion.
I am inclined to this topic, as it has given me actual knowledge of this service along
with its working and how the portfolio manager manages the portfolio.
Moreover, it has guided me to understand this so called complex world of
investment and also increase my knowledge to such extent. I hope it will prove beneficial
to me in developing my further career.
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Research Objective
The main objective of this project is to review the real meaning of Portfolio
Management, its objectives, role, framework, responsibilities of portfolio manger
and the study of various other issues related to it.
Basically to understand the concept of portfolio management.
Scope Of Project
The scope of the study is confined to Globe capital Market Ltd. only.
It is depended on the information collected from various sources like Annual
Reports, Magazines, etc.
Primary & Secondary sources are used for the data collection.
Findings and Analysis
The collection of information is based on the secondary probe.
The information has been collected through various books, various journals,
magazines, articles, books, published documents have also been considered in the
project work.
An attempt has been made to simplify the process of the PORTFOLIO
MANAGEMENT by using the fundamental analysis.
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Chapter 2
COMPANY PROFILE
Objective
“To be a good financial service provider by arranging the financial services under one roof
at affordable price through cost effective delivery systems and achieve organic growth in
business by adding new lines of business”
Sole Proprietor: Mr Sandeep Kakade
Manager: Samrat Lad
Sandeep kakade & Associates started in the year 2005 when acquired franchisee of Angel
Broking Ltd. Earlier Mr Sandeep Kakade had started an investment consultancy in 1992.
Areas of Business
It is a sole proprietorship firm. It provides services in stock market (NSE,
BSE, NSEFO, Commodity & Academy of Share market). It also deals in Insurance
products. And now concentrates more on UNIT LINKED PLANS.
The Complete Investment Destination:
It provides comprehensive range of investment services. That’s advantage of
having all the services investor need under one roof.
Equity & Derivatives:
You can look for an easy and convenient way to invest in equity and take positions
in the futures and options market using their research and tools. To start trading in Equity,
all you need to do is open an online trading account. You can call them and they will have
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their representative meet you. You can get help opening the account and get guidance on
how to trade in Equity.
Commodity
You can enter the whole new world of commodity futures. Investors looking for a
fast-paced dynamic market with excellent liquidity can now trade in Commodity Futures
Market. The Commodity Exchange is a Public Market forum and anyone can play in these
vital Commodity Markets. Globe Capital Market Ltd. can certainly be your point of entry
to the Commodity Markets. It is a registered trading-cum-clearing member of NCDEX and
MCX.
Internet Trading:
Making the right trade at the right time! E-Broking service, which brings you
experience of online buying and selling of shares with just a click.
A detail resource like live quotes, charts, research and advice helps you take proper
decisions. Their robust risk management system and 128 bit encryption gives you a
complete security about money, shares, and transaction documents.
IPO
It offers bidding for all booked bills IPOs being floated through NSE network.
It also offers services to customer such as advises on the minimum lot to applied in case of
refer and details and data to be furnished into IPO form. It enables the investors to
subscribe qualitative IPOs.
Mutual Fund
Transact in a wide range of Mutual Funds. Mutual Funds are an attractive means of
saving taxes and diversifying your investment portfolio. So if you are looking to invest in
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mutual funds, Globe Capital Market Ltd. offers you a host of mutual fund choices under
one roof backed by in-depth information and research to help you invest smartly.
Cash Market Services:
Globe Capital Market Ltd. offer cash market trading services for the clients. It
provides perfect Intraday Calls and Investment Research reports.
Stock broking:
It offers complete range of pre-trade and post-trade services on the BSE and the
NSE. Whether an investor come into its conveniently environment, or issue instruction
over the phone, its highly trained team and sophisticated equipment ensure smooth
transactions and prompt services.
Trading Terminals:
It offers its sub-broker and approved/authorized user fully equipped trading
terminals, at the location of investors choice. It is fully functional terminal, with a variety
of helpful features like market watch, order entry, order confirmation, charts, and trading
calls, all available in resizable windows. And it can be operated through the keyboard
using F1 for buy, F2 for sell.
Other Investment Products:
To help investor balance their portfolio, it offers a completer range of other
investment products, like Life Insurance, SIP in mutual funds etc.
Commodity Exchange:
It provides trading facility on MCX & NCDEX, a commodity exchange and has
providing services in the field of commodity trades to its clients. It deals in gold silver, and
all other commodities.
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Chapter 3
OBJECTIVE OF PROJECT
Primarily understand the basic concept of Stock Market
To understand concept of Portfolio Management.
To understand the functions and responsibilities of Portfolio Management.
To understand the concept of company analysis.
1. Fundamental Analysis
2. Technical Analysis
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Chapter 4
RESEARCH METHODLOGY
Research methodology is a very organized and systematic medium through which a
particular case or problem solved.
It is analytical, descriptive and quantitative research where the comparison between the
different stocks is made on the basis of risk, volatility and return.
Research design –descriptive
Data sources- primary data and secondary data
Research approach – face to face interview, observation, individual depth
interview
Research instrument –questionnaire.
Data Collection:
Primary Data:
1) Use of a Questionnaire for carrying out a survey
2) Presentation given by the Advisors
3) Data explaining the working of the Portfolio Management
Secondary Data:
1) Books
2) Magazines
4) Internet
5) Booklet
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This project is about studying the portfolio management which is on the boom. The
introductory part containts the meaning of portfolio management, its evolution. The
project contains various graphs, tables and further explanations.
Chapter 5
THEORETICAL BACKGROUND
Stock Market
Understanding the stock market starts with a basic understanding stocks. A stock
represents partial ownership of a company – the smallest share possible. Company's issues
stocks to raise capital and investors who buy stock are actually buying a portion of the
company.
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STOCK MARKET
PRIMARY MARKET SECONDARY MARKET
EQUITY MARKET
OR
CASH MARKET
DERIVATIVE
MARKET
FUTURE OPTION
CALL PUT
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Where the buying and selling of stocks take place is known as STOCK MARKET.
Stock trading is done on stock market like the NSE (National Stock Exchange) or BSE
(Bombay Stock Exchange) This means that only companies listed on a public exchange
have shares that can be bought and sold on the open market. Of course, you could also buy
partial ownership in a smaller company that is not listed on a stock market but that is a very
different type of investment than buying stocks. Because stocks must be bought and sold
on a stock market, an individual investor needs a broker to make transactions for him.
Brokers take orders to buy or sell a certain stock. The order may include instructions to
trade at a certain price or simply what the market will bear. Once the broker receives the
order he attempts to execute it by finding a buyer or seller as the case may be. The buyer or
seller is also represented by a broker and each broker receives a commission on the sale.
Primary Securities Market
Most companies are usually stared privately by their promoter(s). However, the
promoter’s capital and the borrowings from the banks and the financial institutions may not
be sufficient for setting up or running the business over a long term. So companies invite
the public to contribute toward the equity and issue shares to individual investors. The way
to invite share capital from the public is through a ‘Public Issue’ simply stated, a public
issue is an offer to the public to subscribe to the share capital of a company. Once this is
done the company allots shares to the applicants as per the prescribe rules and regulation
laid down by SEBI.
Secondary Securities Market
Secondary market refers to a market where securities are traded after being initially
offered to the public in the primary market and/or listed on the Stock Exchange. Majority
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of the trading is done in the secondary market Secondary market comprises of equity
markets and the debt markets.
In the primary market, securities are offered to public for subscription for the
purpose of raising capital or fund. Secondary market is an equity trading venue in which
already existing/pre-issued securities are traded among investors. Secondary market could
be either auction or dealer market. While stock exchange is the part of an auction market,
Over-the-Counter (OTC) is a part of the dealer market.
Equity Market / Cash Market;
Capital Market is generally understood as the market for long term fund .However,
sometimes used in a very broad sense to include also the market for short term funds.
Capital market means the market for all the financial instruments, short term and long term,
as also commercial, industrial and govt paper.
Derivative Market
The term derivative indicates that it has no independent value, i.e its value is
entirely derived from the value of the underlying assets. The underlying asset can be
securities, commodities, bullion, currency, live stock or anything else. In other words ,
derivative means a forward, future, option or any other hybrid contract of pre determined
fixed duration, linked for the purpose of contract fulfilment to the value of a specified real
or financial asset or to an index of securities
Future
Future contract means a legally binding agreement to buy or sell the underlying
security on future date. Future contract are the organized/standardized contracts in terms of
quantity, quality (incase of commodities), delivery time and place for settlement on any
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date in future, the contract expires on a pre-specified date which is called the expiry date of
the contract. On expiry, future can be settled by delivery of the underlying asset or cash.
Options
An option on the other hand is the privilege sold by one party to another that offers
the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-
upon price during a certain period of time or on a specific date.
Call Option
A call option gives the holder (buyer/one who is long call), the right to buy
specified quantity of the underlying assets at the strike price on or before an expiration date.
The seller of the call option (one who is short call) however, has the obligation to sell the
underlying assets if the buyer of the call option decides to exercise his option to buy.
Put Option
A Put option gives the holder (buyer/one who is long put), the right to sell
specified quantity of the underlying assets at the strike price on or before an expiry date. The
seller of the put option (one who is short put) however, has the obligation to buy the
underlying assets at the strike price if the buyer of the put option decides to exercise his
option to sell.
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INTRODUCTION OF PORTFOLIO MANAGEMENT
“Portfolio” means the total holdings of securities belonging to any person.
Portfolio management is the management various financial assets which comprise
the portfolio. In a narrow spectrum, the term portfolio management can be applied to only
shares and debentures whereas the management of the total financial assets can be
attributed to the investment management.
Portfolio management is a decision - support system that is designed with a view to
meet the multi-aced needs of investors.
As per definition of SEBI Portfolio means “a collection of securities owned by an
investor”. It represents the total holdings of securities belonging to any person". It
comprises of different types of assets and securities. Portfolio management refers to the
management or administration of a portfolio of securities to protect and enhance the value
of the underlying investment. It is the management of various securities (shares, bonds etc)
and other assets (e.g. real estate), to meet specified investment goals for the benefit of the
investors. It helps to reduce risk without sacrificing returns. It involves a proper investment
decision with regards to what to buy and sell. It involves proper money management. It is
also known as Investment Management .Portfolio Management, called, as Portfolio
Management Services are the advisory services provided by corporate financial
intermediaries. It enables investors to promote and protect their investments that help them
to generate higher returns. It devotes sufficient time in reshuffling the investments on hand
in line with the changing dynamics.
It provides the skill and expertise to steer through these complexes, volatile and dynamic
times. It is a choice of selecting and revising spectrum of securities to it with the
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characteristics of an investor. It prevents holding of stocks of depreciating-value. It acts as
a financial intermediary and is subject to regulatory control of SEBI.
ROLE OF PORTFOLIO MANAGEMENT
In the beginning of the nineties India embarked on a programme of economic
liberalization and globalization. This reform process has made the Indian capital markets
active. The Indian stock markets are steadily moving towards capital efficiency, with rapid
computerization, increasing market transparency, better infrastructure, better customer
service, closer integration and higher volumes. Large institutional investors with their
diversified portfolios dominate the markets. A large number of mutual funds have been set
up in the country since 1987. With this development, investment securities have gained
considerable momentum. Along with the spread of securities investment among ordinary
investors, the acceptance of quantitative techniques by the investment community changed
the investment scenario in India. Professional portfolio management, backed by competent
research, began to be practiced by mutual funds, investment consultants and big brokers.
The Securities and Exchange Board of India, the stock market regulatory body in India, is
supervising the whole process with a view to making portfolio management a responsible
professional service to be rendered by experts in the field. With the advent of computers
the whole process of portfolio management has become quite easy. The computer can
absorb large volumes of data, perform the computations accurately and quickly give out
the results in a desired form. The trend towards liberalization and globalization of the
economy has promoted free flow capital across international borders. Portfolios now
include not only domestic securities but also foreign securities. Diversification has become
international.
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Another significant development in the field of portfolio management is the
introduction of derivatives securities such as options and futures. The trading in derivative
securities, their valuation, etc. has broadened the scope of portfolio management. Portfolio
management is a dynamic concept, having systematic approach that helps it to achieve
efficiency in investment.
Portfolio Management Role;
Origination
Above figure itself indicate the role of portfolio management. Portfolio management plays
very important role in respect of issuer and investor means companies and investors. After
research portfolio manager decide which security or which other product is good or
investible, accordingly he prepare strategies to invest. On the basis of the strategies he
structures a portfolio. According to research portfolio manager decide weightage for the
selected companies and distribute the share to that particular portfolio. It also involves
market clearing process i.e. taking delivery of share and making payment for those shares.
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Strategy
EquityEquity DerivativesDerivatives Other productsOther products
Portfolio Management ProcessPortfolio Management Process
DistributionDistribution
ProcessProcess
INVESTORINVESTORISSUERISSUERResearchResearch
ProcessProcess
Market Clearing ProcessMarket Clearing Process
Structuring ProcessStructuring Process
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SCOPE OF PORTFOLIO MANAGEMENT
Portfolio management is a continuous process. It is a dynamic activity. The following are
the basic operations of a portfolio management:
Monitoring the performance of portfolio by incorporating the latest market
conditions.
Identification of the investor’s objective, constraints and preferences.
Making an evaluation of portfolio income (comparison with targets and
achievements).
Making revision in the portfolio.
Implementation of strategies in tune with the investment objective.
ELEMENTS OF PORTFOLIO MANAGEMENT
Portfolio management is an on-going process involving the following basic tasks:
Identification of the investor’s objectives, constraints and preferences, which will
help formulate the investment policy.
Strategies are to be developed and implemented in tune with the investment policy
formulated. This will help the selection of asset classes and securities in each class
depending upon their risk-return attributes.
Review and monitoring of the performance of the portfolio by continuous overview
of the market conditions, companies performance and investor’s circumstances.
Finally, the evaluation of the portfolio for the results to compare with the targets
and needed adjustments have to be made in the portfolio to the emerging conditions
and to make up for any shortfalls in achievement vis-à-vis targets.
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The collection of data on the investor’s preferences, objectives, etc., is the foundation of
portfolio management. This gives an idea of channels of investment in terms of asset
classes to be selected and securities to be chosen based upon the liquidity requirements,
time horizon, taxes, asset preferences of investors, etc. these are the building blocks for
the construction of a portfolio. According to these objectives and constraints, the
investment policy can be formulated. The policy will lay down the weights to be given to
different asset classes of investment such as equity share, preference shares, debentures,
company deposits, etc., and the proportion of funds to be invested in each class and
selection of assets and securities in each class are made on this basis. The next stage is to
formulate the investment strategy for a time horizon for income and capital appreciation
and for a level of risk tolerance. The investment strategies developed by the portfolio
managers have to be correlated with their expectation of the capital market and the
individual sectors of industry. Then a particular combination of assets is chosen on the
basis of investment strategy and manager’s expectations of the market.
OBJECTIVE OF THE PORTFOLIO MANAGEMENT
The objective of portfolio management is to maximize the return and minimize the risk.
These objectives are categorized into:
1. Basic Objectives.
2.Subsidiary Objectives
Basic Objectives
The basic objectives of a portfolio management are further divided into two kinds viz., (a)
maximize yield (b) minimize risk. The aim of the portfolio management is to enhance the
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return for the level of risk to the portfolio owner. A desired return for a given risk level is
being started. The level of risk of a portfolio depends upon many factors. The investor, who
invests the savings in the financial asset, requires a regular return and capital appreciation.
Subsidiary Objectives
The subsidiary objectives of a portfolio management are expecting a reasonable income,
appreciation of capital at the time of disposal, safety of the investment and liquidity etc.
The objective of investor is to get a reasonable return on his investment without any risk.
Any investor desires regularity of income at a consistent rate. However, it may not always
be possible to get such income. Every investor has to dispose his holding after a stipulated
period of time for a capital appreciation. Capital appreciation of a financial asset is highly
influenced by a strong brand image, market leadership, guaranteed sales, financial strength,
and large pool of reverses, retained earnings and accumulated profits of the company. The
idea of growth stocks is the right issue in the right industry, bought at the right time. A
portfolio management desires the safety of the investment. The portfolio objective is to
take the precautionary measures about the safety of the principal even by diversification
process. The safety of the investment calls for careful review of economic and industry
trends. Liquidity of the investment is most important, which may not be neglected by any
investor/portfolio manager. An investment is to be liquid, it must have “termination and
marketable” facility at any time.
TYPES OF PORTFOLIO MANAGEMENT
1. The discretionary Portfolio Management
2. The non-discretionary Portfolio Management
The discretionary Portfolio Management
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In this type, the client parts with his money in favour of the manager, who is return,
handles all the paper work, makes all the decisions and give a good return on the
investment and charge fees. In the discretionary portfolio management to maximise the
yield, almost all portfolio managers park the funds in the money market securities such as
overnight market, 182 days treasury bills and 90 days commercial bills. Normally, the
return on each investment varies from 14 to 18 per cent, depending on the call money rates
prevailing at the time of investment
The non-discretionary Portfolio Management
The manager function as a counsellor, but the investor is free to accept or reject the
manager’s advice. The paper work is also undertaken by the manager for services charge
the manager concentrates on stock market – instrument with a portfolio tailor made to the
risk taking ability of the investor.
Approaches of Portfolio Management
Traditional Approach
Philosophy of holding assets till maturity (or default)
Relationships have been perceived by the extent of paper / risk that is held
by banks
Performance metrics have been driven by revenues & net income versus
economic capital and ROE
Emphasis on primary distribution with no markets / products for secondary
sales.
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BuyBuy HoldHold
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Modern Approach
Originate to distribute
Portfolio Management acts as buyer, seller and manager of risk
Support OR profit center?
– Support in a cross sell environment
– ‘Hold’ to be at least SVA neutral
Fundamental shift in viewing exposures from ‘Approved commitments’ to
‘Economic capital usage’
What is Hedging?
A hedge is an investment that is taken out specifically to reduce or cancel out the
risk in another investment. Hedging is a strategy designed to minimize exposure to an
unwanted business risk, particularly in inflationary economies, while still allowing the
business to profit from an investment activity. Typically, a hedger might invest in a
security that he believes is under-priced relative to its "fair value".
PORTFOLIO MANAGER
• Portfolio Manager is a professional who manages the portfolio of an investor with
the objective of profitability, growth and risk minimization.
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BuyBuy Sell, HedgeSell, Hedge
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• According to SEBI, Any person who pursuant to a contract or arrangement with a
client, advises or directs or undertakes on behalf of the client the management or
administration of a portfolio of securities or the funds of the client, as the case may
be is a portfolio manager.
• He is expected to manage the investor’s assets prudently and choose particular
investment avenues appropriate for particular times aiming at maximization of
profit. He tracks and monitors all your investments, cash flow and assets, through
live price updates.
• The manager has to balance the parameters which defines a good investment i.e.
security, liquidity and return. The goal is to obtain the highest return for the client
of the managed portfolio.
• There are two types of portfolio manager known as Discretionary Portfolio
Manager and Non Discretionary Portfolio Manager. Discretionary portfolio
manager is the one who individually and independently manages the funds of each
client in accordance with the needs of the client and non-discretionary portfolio
manager is the one who manages the funds in accordance with the directions of the
client.
GENERAL RESPONSIBILITIES OF A PORTFOLIO MANAGER
Following are some of the responsibilities of a Portfolio Manager:
•
The portfolio manager shall act in a fiduciary capacity with regard to the client's
funds.
• The portfolio manager shall transact the securities within the limitations placed by
the client.
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• The portfolio manager shall not derive any direct or indirect benefit out of the
client's funds or securities.
• The portfolio manager shall not borrow funds or securities on behalf of the client.
• The portfolio manager shall ensure proper and timely handling of complaints from
his clients and take appropriate action immediately
• The portfolio manager shall not lend securities held on behalf of clients to a third
person except as provided under these regulations.
CODE OF CONDUCT OF A PORTFOLIO MANAGER
Every portfolio manager in India as per the regulation 13 of SEBI shall follow the
following Code of Conduct:
• A portfolio manager shall maintain a high standard of integrity fairness.
• The client’s funds should be deployed as soon as he receives.
• A portfolio manager shall render all times high standards and unbiased service.
• A portfolio manager shall not make any statement that is likely to be harmful to the
integration of other portfolio manager.
• A portfolio manager shall not make any exaggerated statement.
• A portfolio manager shall not disclose to any client or press any confidential
information about his client, which has come to his knowledge.
• A portfolio manager shall always provide true and adequate information.
• A portfolio manager should render the best pose advice to the client.
SEBI’S GUIDLINE TO PORTFOLIO MANAGEMENT
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SEBI has issued detailed guidelines for portfolio management services. The guidelines
have been made to protect the interest of investors. The salient features of these guidelines
are:
• The nature of portfolio management service shall be investment consultant.
• The portfolio manager shall not guarantee any return to his client.
• Client’s funds will be kept in a separate bank account.
• The portfolio manager shall act as trustee of client’s funds.
• The portfolio manager can invest in money or capital market.
• Purchase and sale of securities will be at a prevailing market price.
POWER OF SEBI
The Securities and Exchange Board of India has the following powers to control and
manage the portfolio managers:
• The portfolio manager shall submit to SEBI such reports, returns and documents as
may be prescribed.
• SEBI may investigate the affairs of a portfolio manager such as inspection of books
of accounts, records, etc.,
• SEBI has full authority in the event of violation of any provision to suspend or
cancel the license.
• No exemptions will be given under any circumstances to portfolio manager.
TYPES OF RISK IN PORTFOLIO MANGEMENT
Each and every investor has to face risk while investing. What is Risk? Risk is the
uncertainty of income/capital appreciation or loss of both. Risk is classified into:
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Systematic risk or Market related risk and Unsystematic risk or Company related
risk.
Systematic risk
Systematic risk refers to that portion of variation in return caused by factors that
affect the price of all securities. It cannot be avoided. It relates to economic trends with
effect to the whole market. This is further divided into the following:
Market risk: A variation in price sparked off due to real, social political and economical
events is referred as market risk.
Interest rate risk: Uncertainties of future market values and the size of future incomes,
caused by fluctuations in the general level of interest is referred to as interest rate risk. Here
price of securities tend to move inversely with the change in rate of interest. Inflation risk :
Uncertainties in purchasing power is said to be inflation risk.
Unsystematic risk
Unsystematic risk refers to that portion of risk that is caused due to factors related to a firm
or industry. This is further divided into:
Business risk: Business risk arises due to changes in operating conditions caused by
conditions that thrust upon the firm which are beyond its control such as business cycles,
government controls, etc.
Internal risk: Internal risk is associated with the efficiency with which a firm conducts its
operations within the broader environment imposed upon it.
Financial risk : Financial risk is associated with the capital structure of a firm. A firm with
no debt financing has no financial risk. The extends depends upon the leverage of the firms
capital structure.
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PORTFOLIO MANAGEMENT FRAMWORK
Portfolio Management Process
1. SPECIFICATION OF INVESTMENT OBJECTIVES AND CONSTRAINTS
The first step in the portfolio management process is to specify the investment
policy that consists of investment objectives, constraints and preferences of
investor. The investment policy can be explained as follows:
OBJECTIVES
Return requirements: Return is the primary motive that drives investment. It is the
reward for undertaking the investment. The commonly stated investment goals are income,
growth and stability. Since income and growth represent two ways through which income
is generated and stability implies containment or elimination of risk. But investment
objectives may be more clearly expressed in terms of returns and risk. However, return and
risk go hand in hand. An investor would primarily be interested in a higher return (in the
form of income or capital appreciation) and lower level of risk. So he has to bear higher
level of risk in order to earn high return. How much risk he would be willing to bear to earn
a high return depends on his risk disposition. The investment objective should state the
investor the preference of return in relation to risk.
Specification of investment objectives can be done in following two ways:
• Maximize the expected rate of return, subject to the risk exposure being held within
a certain limit (the risk tolerance level).
• Minimize the risk exposure, with out sacrificing a certain expected rate of return
(the target rate of return).
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An investor should start by defining how much risk he can bear or how much he can afford
to lose, rather than specifying how much money he wants to make. The risk he wants to
bear depends on two factors:
A. Financial situation
B. Temperament
To assess financial situation one must take into consideration: position of the
wealth, major expenses, earning capacity, etc and a careful and realistic appraisal of the
assets, expenses and earnings forms a base to define the risk tolerance
After appraisal of the financial situation assess the temperamental tolerance of risk.
Risk tolerance level is set either by one’s financial situation or financial temperament
which ever is lower, so it is necessary to understand financial temperament objectively.
One must realize that risk tolerance cannot be defined too rigorously or precisely. For
practical purposes it is enough to define it as low, medium or high. This will serve as a
valuable guide in taking an investment decision. It will provide a useful perspective and
will prevent from being a victim of the waves and manias that tend to sweep the market
from time to time.
Risk tolerance: Risk refers to the possibility that the actual outcome of an investment will
differ from its expected outcome. More specifically, most of the investors are concerned
about the actual outcome being less than the expected outcome. The wider the range of
possible outcomes, the greater is the risk. It all depends on the investor, how much risk he
is able to bear. If he is willing to bear high risk, he is expected to get high return and if he is
willing to bear low risk, he will get low return.
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CONSTRAINTS AND PREFERENCES
Liquidity: Liquidity refers to the speed with which an asset can be sold, without suffering
any loss to its actual market price. For example, money market instruments are the most
liquid assets, whereas antiques are among the least liquid.
Investment horizon: the investment horizon is the time when the investment or part of it is
planned to liquidate to meet a specific need. For example, the investment horizon for ten
years to fund the child’s college education. The investment horizon has an important
bearing on the choice of assets.
Taxes: The post – tax return from an investment matters a lot. Tax considerations therefore
have an important bearing on investment decisions. So, it is very important to review the
tax shelters available and to incorporate the same in the investment decisions.
2. SELECTION OF ASSET MIX
Based on the objectives and constraints, selection of assets is done. Selection of assets
refers to the amount of portfolio to be invested in each of the following asset categories:
• Cash: The first major economic asset that an individual plan to invest in is his or
her own house. Their savings are likely to be in the form of bank deposits and
money market mutual fund schemes. Referred to broadly as ‘cash’, these
instruments have appeal, as they are safe and liquid.
• Bonds: Bonds or debentures represent long-term debt instruments. They are
generally of private sector companies, public sector bonds, gilt-edged securities,
RBI saving bonds, national saving certificates, Kisan Vikas Patras, bank deposits,
public provident fund, post office savings, etc.
• Real estate: The most important asset for individual investors is generally a
residential house. In addition to this, the more affluent investors are likely to be
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interested in other types of real estate, like commercial property, agricultural land,
semi-urban land, etc.
• Precious objects and others: Precious objects are items that are generally small in
size but highly valuable in monetary terms. It includes gold and silver, precious
stones, art objects, etc. Other assets includes like that of financial derivatives,
insurance, etc.
The fallacy of Time Diversification: The notion or the idea of time diversification is
fallacious. Even though the uncertainty about the average rate of return diminishes over a
longer period, it also compounds over a longer time period. Unfortunately, the latter effect
dominates. Hence the total return becomes more uncertain as the investment horizon
lengthens.
3. FORMULATION OF PORTFOLIO STRATEGY
After selection of asset mix, formulation of appropriate portfolio strategy is required. There
are two types of portfolio strategies, Active Portfolio Strategy and Passive Portfolio
Strategy.
• ACTIVE PORTFOLIO STRATEGY
Most investment professionals follow an active portfolio strategy and aggressive investors
who strive to earn superior returns after adjustment for risk. The four principal vectors of
an active strategy are:
1. Market Timing
2. Sector Rotation
3. Security Selection
4. Use of a specialized concept
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Market timing: This involves departing from the normal (or strategic or long run) asset
mix to reflect one’s assessment of the prospects of various assets in the near future.
Suppose an investor’s investible resources for financial assets are 100 and his normal (or
strategic) stock-bond mix is 50:50. In short and intermediate run however he may be
inclined to deviate from long-term asset mix. If he expects stocks to out perform bonds, on
a risk-adjusted basis, in the near future, he may perhaps step up the stock component of his
portfolio to say 60 to 70 percent. Such an action, of course, would raise the beta of his
portfolio. On the other hand, if he expects the bonds to outperform stocks, on a risk-
adjusted basis, in the near future, he may set up the bond component of his portfolio to 60
to 70 percent. This will naturally lower the beta of his portfolio. Market timing is based on
an explicit or implicit forecast of general market movements. The advocates of market
timing employ a variety of tools like business cycle analysis, advance-decline analysis,
moving average analysis, and econometric models. The forecast of the general market
movement derived with the help of one or more of these tools are tempered by the
subjective judgment of the investor. Often, of course, the investor may go largely by his
market sense.
Sector Rotation: The concept of sector rotation can be applied to stocks as well as bonds.
It is however, used more commonly with respect to stock component of portfolio where it
essentially involves shifting the weightings for various industrial sectors based on their
assessed outlook. For example if it is assumed that cement and pharmaceutical sectors
would do well compared to other sectors in the forthcoming period, one may overweight
these sectors, relative to their position in market portfolio. With respect to bonds, sector
rotation implies a shift in the composition of the bond portfolio in terms of quality, coupon
rate, term to maturity and so on. For example, if there is a rise in the interest rates, there
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may be shift in long term bonds to medium term or even short-term bonds. But we should
remember that a long-term bond is more sensitive to interest rate variation compared to a
short-term bond.
Security Selection: Security selection involves a search for under priced securities. If an
investor resort to active stock selection, he may employ fundamental and or technical
analysis to identify stocks that seems to promise superior returns and overweight the stock
component of his portfolio on them. Likewise, stocks that are perceived to be unattractive
will be under weighted relative to their position in the market portfolio. As far as bonds are
concerned, security selection calls for choosing bonds that offer the highest yield to
maturity at a given level of risk.
Use of a specialized Investment Concept:: A fourth possible approach to achieve superior
returns is to employ a specialized concept or philosophy, particularly with respect to
investment in stocks. As Charles D. Ellis words says, a possible way to enhance returns “is
to develop a profound and valid insight into the forces that drive a particular group of
companies or industries and systematically exploit that investment insight or concept.”
Some of the concepts of investment practitioners are as follows:
Growth stocks
Value stocks
Asset-rich stocks
Technology stocks
Cyclical stocks
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PASSIVE PORTFOLIO STRATEGY:
The passive strategy rests on the tenet that the capital market is fairly efficient with respect
to the available information. The passive strategy is implemented according to the
following two guidelines
• Create a well-diversified portfolio at a predetermined level of risk.
• Hold the portfolio relatively unchanged over time, unless it becomes inadequately
diversified or inconsistent with the investor’s risk-return preferences
4. SELECTION OF STOCKS
Three board approaches are employed for the selection of equity shares:
• Technical analysis
• Fundamental analysis
• Random selection
Technical analysis looks at price behaviour and volume data to determine whether the
share will move up or down or remain trend less.
Fundamental analysis focuses on fundamental factors like the earnings level, growth
prospects, and risk exposure to establish the intrinsic value of a share. The recommendation
to buy, hold, or sell is based on a comparison of the intrinsic value and the prevailing
market price.
Random selection approach is based on the premise that the market is efficient and
securities are properly priced.
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Models of Portfolio
To make the asset allocation process easier for clients, many investment companies create a
series of model portfolios, each comprising different proportions of asset classes. These
portfolios of different proportions satisfy a particular level of investor risk tolerance. In
general, these model portfolios range from conservative to very aggressive:
1. Conservative Portfolio
2. Moderately Conservative portfolio
3. Aggressive Portfolio
4. Moderately Aggressive Portfolio
5. Very Aggressive Portfolio
• Conservative Model
Conservative model portfolios generally allocate a large percent of the total portfolio to
lower-risk securities such as fixed-income and money market securities.
5% to 15% cash & equivqlent
15% to 20% Equities
70% to 75% fixed income
securities
Our main goal with a conservative portfolio is to protect the principal value of our
portfolio. As such, these models are often referred to as "capital preservation portfolios".
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Even if you are very conservative and prefer to avoid the stock market entirely, some
exposure can help offset inflation. You could invest the equity portion in high-quality blue
chip companies, or an index fund, since the goal is not to beat the market
• Moderately Conservative portfolio
A moderately conservative portfolio is ideal for those who wish to preserve a large portion
of the portfolio’s total value, but is willing to take on a higher amount of risk to get some
inflation protection.
5% to 10% Cash & Equivalent
35% to 40% Equity
55% to 60% Fixed Income
Securities
A common strategy within this risk level is called "current income". With this strategy, you
chose securities that pay a high level of dividends or coupon payments.
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• Aggressive Portfolio
Aggressive portfolios mainly consist of equities, so these portfolios' value tends to fluctuate
widely. If you have an aggressive portfolio, your main goal is to obtain long-term growth
of capital. As such the strategy of an aggressive portfolio is often called a "capital growth"
strategy.
5% to 10% Cash &
Equivalent
20% to 25% Fixed Income
Securities
65% to 70% Equities
To provide some diversification, investors with aggressive portfolios usually add some
fixed-income securities.
• Moderately Aggressive Portfolio
Moderately aggressive model portfolios are often referred to as "Balanced Portfolios" since
the asset composition is divided almost equally between fixed income securities and
equities in order to provide a balance of growth and income.
5% to 10% Cash & Equivalent
35% to 40% Fixed Incom e
55% to 60% Equity
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Since these moderately aggressive portfolios have a higher level of risk than those
conservative portfolios mentioned above, select this strategy only if you have a longer time
horizon (generally more than five years), and have a medium level of risk tolerance.
• Very Aggressive Portfolio
Very aggressive portfolios consist almost entirely of equities. As such, with a very
aggressive portfolio, your main goal is aggressive capital growth over a long time horizon.
10% Fixed Income
10% Cash & Equivalent
80% to 90% Equity
Since these portfolios carry a considerable amount of risk, the value of the portfolio will
vary widely in the short term.
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Phases of Portfolio Management
Security Analysis
Portfolio Analysis
Portfolio Selection
Portfolio Revision
Portfolio Evaluation
• Security Analysis
Professional investor will make more money & less loss than, who let their heart rule.
Their head eliminate all emotions for decision making. Be ruthless & calculating, you are
out to make money. Decision should be based on actual movement of share price measured
both in money & percentage term & nothing else. Greed must be avoided patience may be
a virtue, but impatience can frequently be profitable.
In Security Analysis anticipated growth, calculations are based on considered
FACTS & not on HOPE. Equity analysis is basically a combination of two independent
analyses, namely Fundamental analysis & Technical analysis. The subject of Security
analysis, i.e. the attempt to determine future share price movement & its reliability by
references to historical data is a vast one, covering many aspect from the calculating
various FINANCIAL RATIOS, plotting of CHARTS to extremely sophisticated
indicators.
A general investor can apply the principles by using the simplest of tools: pocket
calculator, pencil, ruler, chart paper & your cautious mind, watchful attention. It should be
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pointed out that, this equity analysis does not discuss how to buy & sell shares, but does
discuss a method which enables the investor to arrive at buying & selling decision.
Fundamental Analysis
The financial analysts always need yardsticks to evaluate the efficiency & performances of
any business unit at the time of investment. Fundamental analysis is useful in long term
investment decision. In Fundamental analysis company goodwill, its performances,
liquidity, leverage, turnover, profitability & financial health was checked & analysis with
the help of ratio analysis for the purpose of long term successful investment. It is important
criteria for selecting the company to invest. It also provides the base for decision-making in
investment. The one of the most frequently used yardstick to check & analyze profitability
& financial health is Ratio Analysis. For that matter a verity of ratios was consider. This
Fundamental analysis is helpful to general investor in many ways. It provides important &
vital information regarding the financial position of the company.
Ratio analysis involves the use of various methods for calculating & interpreting financial
ratios to assess the performances & status of the business unit. It is the tool of financial
analysis, which not only studies but also reflecting the numerical & quantitative
relationship between the important financial variables.
Fundamental analysis facilitates comparison between two companies. It reflects the
financial efficiency & financial position of a company. Fundamental analysis is fruitful in
preparing plans for the future. However, fundamental Analysis should not be considering
as the ultimate objective test but it may be carried further based on the outcome &
revelations about the cause of variations. Fundamental Analysis is helpful in forecasting
likely position of company in near future.
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Fundamental analysis is a very powerful analytical tool useful for measuring performance
of an organization. The ratio analysis concentrates on the inter-relationship among the
figures appearing in the financial and accounting statements. The ratio analysis helps the
investor to analyze the past performance of the firm and to make further future projection
regarding financial position. Ratio analysis allows interested parties like shareholders,
investors, creditors and government to make an evaluation of financial aspect of a firm s
performance.
Fundamental analysis i.e. Ratio analysis is process of comparison of one figure against
another, which makes a ratio, and appraisal of the ratios to make proper analysis about the
strength and weakness of the firms operation. Fundamental analysis is extremely helpful in
providing valuable insight into a company s financial picture. Ratios provide an easy way
to compare present performance of businesses. Ratios depicts the areas in which a
particular business competitively advantaged or disadvantaged through comparing ratios to
those of other businesses of the same size within the same industry.
Technical Analysis
Technical analysis refers to the study of market generated data like prices & volume to
determine the future direction of prices movements. Technical analysis mainly seeks to
predict the short term price travels. It is important criteria for selecting the company to
invest. It also provides the base for decision-making in investment. The one of the most
frequently used yardstick to check & analyze underlying price progress. For that matter a
verity of tools was consider. This Technical analysis is helpful to general investor in many
ways. It provides important & vital information regarding the current price position of the
company. Technical analysis involves the use of various methods for charting, calculating
& interpreting graph & chart to assess the performances & status of the price. It is the tool
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of financial analysis, which not only studies but also reflecting the numerical & graphical
relationship between the important financial factors.
The focus of technical analysis is mainly on the internal market data, i.e. prices & volume
data. It appeals mainly to short term traders. It is the oldest approach to equity investment
dating back to the late 19th century.
Basic premises of technical analysis:
1. Market prices are determined by the interaction of supply & demand forces.
2. Supply & demand are influenced by variety of supply & demand affiliated
factors both rational & irrational.
3. These include fundamental factors as well as psychological factors.
4. Barring minor deviations stock prices tend to move in fairly persistent trends.
5. Shifts in demand & supply bring about change in trends.
6. This shift s can be detected with the help of charts of manual & computerized action,
because of the persistence of trends & patterns analysis of past market data can be used to
predict future prices behaviours.
Drawbacks / limitations of technical analysis:
1 Technical analysis does not able to explain the rezones behind the employment or
selection of specific tool of Technical analysis.
2 The technical analysis failed to signal an uptrend or downtrend in time.
3 The technical analysis must be a self defeating proposition. As more & more people use,
employ it the value of such analysis trends to reduce.
Assumptions for Security Analysis
1. Works only in normal share-market conditions with great reliability, it also works
in abnormal share-market conditions, but with low reliability.
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2. Equity analysis is purely based on the INVESTMENT PHILOSOPHY, so the
investment object has vital importance associated to return along with risk.
3. Cash management gets the magnitude role, because the scenario of equity analysis
is revolving around the term money
4. Portfolio management, risk management was up to the investor s knowledge.
5. Capital market trend is always a friend, whether it is short run or long run.
6. You are buying stock & not companies, so don t be curious or panic to do Post-
mortem of company’s performances.
7. History repeats: investors & speculators react the same way to the same types of
events homogeneously
• Portfolio Analysis
A portfolio is a group of securities held together as investment. It is an attempt to spread
the risk allover. The return & risk of each portfolio has to be calculated mathematically and
expressed quantitatively. Portfolio analysis 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 risk for further analysis.
• Portfolio Selection
The goal of portfolio construction is to generate a portfolio that provides the highest returns
at a given level of risk. Harry Markowitzh portfolio theory provides both the conceptual
framework and the analytical tools for determining the optimal portfolio in a disciplined
and objective way.
• Portfolio Revision
In the entire process of portfolio management, portfolio revision is as important stage as
portfolio selection. Portfolio revision involves changing the existing mix of securities. This
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may be effected either by changing the securities currently included in the portfolio or by
altering the proportion of funds invested in the securities. New securities may be added to
the portfolio or some existing securities may be removed from the portfolio. Thus it leads
to purchase and sale of securities. The objective of portfolio revision is similar to the
objective of selection i.e. maximizing the return for a given level of risk or minimizing the
risk for a given level of return.
The need for portfolio revision has aroused due to changes in the financial markets since
creation of portfolio. It has aroused because of many factors like availability of additional
funds for investment, change in the risk attitude, change investment goals, the need to
liquidate a part of the portfolio to provide funds for some alternative uses. The portfolio
needs to be revised to accommodate the changes in the investor’s position .
Portfolio Revision basically involves two stages;
Portfolio Rebalancing: Portfolio Rebalancing involves reviewing and revising the
portfolio composition (i.e. the stock- bond mix). There are three basic policies with respect
to portfolio rebalancing: buy and hold policy, constant mix policy, and the portfolio
insurance policy. Under a buy and hold policy, the initial portfolio is left undisturbed. It is
essentially a ‘buy and hold’ policy. Irrespective of what happens to the relative values, no
rebalancing is done. For example, if the initial portfolio has a stock-bond mix of 50:50 and
after six months it happens to be say 70:50 because the stock component has appreciated
and the bond component has stagnated, than in such cases no changes are made. The
constant mix policy calls for maintaining the proportions of stocks and bonds in line with
their target value. For example, if the desired mix of stocks and bonds is say 50:50, the
constant mix calls for rebalancing the portfolio when relative value of its components
change, so that the target proportions are maintained.
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The portfolio insurance policy calls for increasing the exposure to stocks when the
portfolio appreciates in value and decreasing the exposure to stocks when the portfolio
depreciates in value. The basic idea is to ensure that the portfolio value does not fall below
a floor level.
Portfolio Upgrading: While portfolio rebalancing involves shifting from stocks to bonds
or vice versa, portfolio-upgrading calls for re-assessing the risk return characteristics of
various securities (stocks as well as bonds), selling over-priced securities, and buying
under-priced securities. It may also entail other changes the investor may consider
necessary to enhance the performance of the portfolio.
• Portfolio Evaluation
Portfolio evaluation is the last step in the process of portfolio management. It is the process
that is concerned with assessing the performance of the portfolio over a selected period of
time in terms of return and risk. Through portfolio evaluation the investor tries to find out
how well the portfolio has performed. The portfolio of securities held by an investor is the
result of his investment decisions. Portfolio evaluation is really a study of the impact of
such decisions. This involves quantitative measurement of actual return realized and the
risk born by the portfolio over the period of investment. It provides a mechanism for
identifying the weakness in the investment process and for improving these deficient areas.
The evaluation provides the necessary feedback for designing a better portfolio next time
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Chapter 6
DATA ANALYSIS & INTERPRETATION
Data analysis involve financial analysis, financial analysis could be processed in many
different ways, depending on what we want to achieve. Financial analysis can be used as
just a monitoring tool in the selection of stocks in the secondary market. Or it can be used
as a forecasting tool for future financial conditions and results. It may be used for
evaluation and diagnosis of managerial, operating or other problem areas. Furthermore,
financial analysis is a great and accurate base to rely which reduces the guessing and
uncertainty that presents in all decision making situations. Financial analysis does not
lesson the need for judgment but rather establishes a sound and systematic basis for its
rational application.
This is the first stage of the PORTFOLIO MANAGEMENT PROCESS. On the
basis of fundamental analysis select the company to invest in, and accordingly he decide
the weightage of that company in the portfolio. After having selected some good
performing companies and adds those companies in the portfolio. Since the share market is
volatile he makes changes in the portfolio or formulates strategies to earn more return. And
compare the portfolio’s returns with the market returns i.e. with NSE or BSE.
Following analysis shows that what portfolio manager has to do while managing
portfolio. Analysis also indicates how portfolio manager manage the portfolio.
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Fundamental Analysis of Companies
HDFC BANK LTD
Company history;
HDFC Bank, a private sector bank was incorporated in the year of 1994 by Housing
Development Finance Corporation Limited (HDFC), India's premier housing finance
company. HDFC was amongst the first to receive an 'in principle' approval from the
Reserve Bank of India (RBI) to set up a bank in the private sector. The Bank commenced
its operations as a Scheduled Commercial Bank in January 1995 with the help of RBI's
liberalisation. HDFC Bank deals with three key business segments -Wholesale Banking
Services, Retail Banking Services, and Treasury. In credit card industry alone, HDFC
grown more than 10 times within the 3 years from 2005 to 2007. The bank has over 10
million customers and 1605 ATMS. The Reserve Bank of India has allowed HDFC Bank
to start a non banking finance company. The NBFC, to be set up by HDFC Bank as a
wholly owned subsidiary and will undertake retail operations such as auto, personal loans
etc. On June 2nd of 2007 HDFC Bank has opened 19 branches in a day in Delhi and the
National Capital Region (NCR), outdoing its own record of 14 branches in a day 2005. As
part and apart from the regular banking activity. The number of branches accounted 684 in
316 towns and cities as of 2007 and the bank want to survive as ' a World Class Indian
Bank ', benchmarking against international standards and best practices in terms of product
offering, technology, service levels, risk management.
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Company Background;
Incorporation year 1994
Registered office HDFC Bank House Senapati Bapat Marg
Lower parel, Mumbai
Chairman Jagdish Capoor
Managing director Aditya Puri
Company Secretary Sanjay Dongre
Auditor Haribhakti & Co
Face Value 10.00
Market Lot 1
Registrar Datamatics Financial Services
PlotNo-A-16-17 Part B,Cross Lane MIDC,
Marol Andheri (East), Mumbai- 400 093
Market Capital 52,928.04 cr
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Key Financials
Net Profit;
YEAR 2008 2007 2006 2005 2004
Rs in crore 1590.18 1141.45 870.78 665.56 509.50
0
200400
600
800
1000
1200
1400
1600
2004 2005 2006 2007 2008
Net profit
Current Ratio;
YEAR 2008 2007 2006 2005
PERCENTAGE 10.43 6.75 6.46 7.78
0
2
4
6
8
10
12
2005 2006 2007 2008
Current Ratio
Debt-Equity Ratio;
YEAR 2008 2007 2006 2005
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Equity % 34.72 33.92 34.21 35.13
Debt % 65.28 66.08 65.79 64.87
0
20
40
60
80
100
2005 2006 2007 2008
Debt
Equity
Earning Per Share;
YEAR 2008 2007 2006 2005 2004
Rs 43.42 34.55 27.04 20.84 17.44
0
10
20
30
40
50
2004 2005 2006 2007 2008
EPS
Dividend History;
YEAR 2008 2007 2006 2005 2004
Rs in crore 301.27 223.57 172.23 140.07 100.05
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0
50
100
150
200
250
300
350
2004 2005 2006 2007 2008
Dividend
Interpretation;
According to data available, HDFC’s volume growth was nearly in line with expectations.
Though, we were expecting EBITDA margins to expand. Since 2004 company has made good
profit and its increasing year on year. Bank’s credibility is not in under utilization Management of
bank is utilizing its credibility proper result in management is well qualified. Company has been
maintaining enough liquidity to meet the current expenses; on the basis of earlier data we can
expect it can maintain the proper ratio. If you look at the Net Profit, EPS, Dividend History,
company has been doing well. In further year we can expect rise in net profit resulting in rise in
dividend and share price. We expect that performance is going to be good in future for long term
investment company is good.
TATA MOTORS LTD
Company History;
Tata Sons purchased the Tatanagar shops from the Government of India on 1st June 1945
for Rs. 25.39 lakhs with the aim of immediately manufacturing steam locomotive boilers.
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Later it planned to manufacture complete locomotives and other engineering products. Tata
Motors Ltd was incorporated in the year of 1945. In world charisma the Tata Motors Ltd
(Formerly known as Tata Engineering and Locomotive Company Ltd) is the fifth-largest
manufacturer of medium and heavy commercial vehicle and the second largest medium and
heavy bus manufacturer. The company producing light, medium and heavy commercial
vehicles and also manufacturing passenger cars, utility vehicles, excavators and machine
tools in manufacturing units located at Jamshedpur, Pune, Lucknow and Pant Nagar in
Uttarakhand. 1946 Tata Engineering was undertaken manufacture of 5000 'KC' broad
gauge open wagons for the Indian Railway. The Managing Agency Tata Sons was
transferred to Tata Industries on 1st July 1946. In the year 1948 the company made
collaboration with Marshal Sons (UK) and introduced Steam Road Roller and in 1950
Collaboration signed with M/s Krauss-Maffei, West Germany for manufacture of steam
locomotives. Collaboration with M/s Daimler-Benz AG, West Germany was made in the
year 1954 for the manufacture of medium commercial vehicles at Jamshedpur. In 1966 the
company acquired Investa Machine Tool for setting up of Machine Tools Division at Pune
and in the next year it was executed, vehicle manufacture facilities steadily built up at
Pune. As on 1977 the first commercial vehicle was successfully produced at Pune. In 1985
First hydraulic excavator produced under Hitachi collaboration. The First Light
Commercial Vehicle - TATA 407 was produced by complete indigenous design with
minimal import content in the year 1986 followed by next year Second model of
completely indigenously designed LCV-TATA 608 produced and LPT 2416 a multi-axled
vehicle introduced. In 1989 Third model of LCV - Tatamobile 206 produced Collaboration
with M/s Kloth-Senking Metalligessari, Gmbh, West Germany, for know-how of
manufacturing aluminum castings. Collaboration with Hitachi, Japan the First EX model
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hydraulic excavator produced in the year 1990. As on December 2007 Tata launched seven
medium and heavy trucks in Pune, the company plans to launch 30 new models in the
commercial vehicle segment. Joint venture between Fiat Group Automobiles SpA and Tata
Motors, has rolled out plans for expanding production capacity and backward integration in
Pune with an additional investment of Rs 2,341 crore comes under memorandum of
understanding in March 2008 and also Tata Motors has entered into a definitive agreement
with the Ford Motor Company for the purchase of Jaguar Land Rover, comprising brands,
plants and intellectual property rights. As on April 2008, the first test a small car namely
'Nanos' roll out from Uttarakhand plant. The trail production of Nano will start in June-July
from Singur, West Bengal after the equipment test and commercial production of the same
will start around October. Tata Motors is working on technology that will allow its diesel
generators to also use natural gas and in process of entering into a technology tie-up with
the New Energy & Industrial Technology Development Organisation (NEDO), a Japanese
Govt agency. To convert its generator to ' Dual-Fuel System'. The company concentrate on
various initiatives which focused on cost reduction, right sizing the organisation, volume /
market share gains, product quality and the launch of new products have enabled the
company a turnaround one in the globe.
Company Background;
Incorporation Year 1945
Registered Office Bombay House, 24 Homi Mody Street,
Mumbai,
Chairman Ratan N Tata
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Managing Director Ravi Kant
Company Secretary H K Sethna
Auditors Deloitte Haskins & Sells
Face Value 10.00
Market Lot 1
Registrar TSR Darashaw Ltd
6-10 Haji Moosa, Patrawala Ind.Estate DrEMoses
Rd Mahalaxm Mumbai- 400 011
Market Capital 21,181.03 cr
Key Financial
Net Profit;
YEAR 2008 2007 2006 2005 2004
Rs in crore 2028.92 1913.46 1528.88 1236.95 810.34
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0
500
1000
1500
2000
2500
2004 2005 2006 2007 2008
Net Profit
Current Ratio;
YEAR 2008 2007 2006 2005
PERCENTAGE 0.86 1.07 1.08 0.87
0
0.2
0.4
0.6
0.8
1
1.2
2005 2006 2007 2008
Current Ratio
Debt-Equity Ratio;
YEAR 2008 2007 2006 2005
Equity % 30 34 34 51
Debt % 70 56 56 49
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0
20
40
60
80
100
2005 2006 2007 2008
Debt
Equity
Earning Per Share;
YEAR 2008 2007 2006 2005 2004
Rs 50.52 47.10 37.59 32.44 21.93
0
10
20
30
40
50
60
2004 2005 2006 2007 2008
EPS
Dividend History;
YEAR 2008 2007 2006 2005 2004
Rs in crore 578.43 578.14 497.94 453.73 282.11
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0
100
200
300
400
500
600
2004 2005 2006 2007 2008
Dividend History
Interpretation;
On the basis of available financial data company’s past has been very good. Since last five
to six year company has been making good profit.As per data we can expect that company
will earn good EBITDA in next year. As far as debt-equity ratio concern company is
utilizing its credibility for expanding business, it also expanding year on year, we can see
that in form of net profit. Fundamentally company has been remaining so strong. Company
has enough liquidity to meet its current expenses. If you look at the four to five years
dividend and EPS history company has been giving good return and its increasing year on
year, on the basis of that record we can expect good return in future. On the basis of data
we are expecting 15% to 20% rise in net profit.
TATA STEEL LTD
Company History
Tata Steel is the world's 6th largest steel company. It is a Asia's 1st and as well as India's
largest integrated steel company in private sector with operations in 24 countries and
commercial presence in over 50 countries. The company's history is a century old, the
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origins and ascent of Tata Steel, which has culminated into the century long history of an
industrial empire, emerge from the illustrious efforts of India's original iron man and the
remarkable people who thereafter, have kept the fire burning. Tata Steel was founded by
Jamsetji Nusserwanji Tata in the year 1907 as Tata Iron and Steel Company (TISCO) and
later its renamed to Tata Steel Limited. It is an ISO-14001 and also SA 8000 certified
company. Tata Steel is a global player with a balanced presence in developed European and
fast growing Asian markets and with a strong position in the construction, automotive and
packaging markets. Tata Steel's first ingot of steel was rolled out in February 1912 and the
Greater Extension Scheme was launched in 1916 to raise capacity to 4, 50,000 tonnes for
diversify production. The period of one year between 1942 and 1943, was characterized by
the efforts of the Steel Company to produce a wide variety of special steels required for
defence purposes including armoured cars called 'Tatanagars. Tata Steel's took step
towards nation building was in 1943 with the construction of Howrah Bridge. The Two
Million Expansion plan was undertaken between the years of 1953-54. The Ferro
Manganese Plant commenced production at Joda in April 1967
It was ranked the 'World's Best Steel Maker', for the third time by World Steel
Dynamics in its annual listing in February, 2006. Tata Steel has been conferred the Prime
Minister of India's Trophy for the Best Integrated Steel Plant five times. On 2nd April '07,
Tata Steel acquired Corus Europe's second largest steel producer for consideration of US$
12 Billion, which made Tata Steel the sixth largest steel producer globally and the second-
most geographically diversified steel producer in the world. It also entered into an
agreement to acquire controlling equity stake in two rolling mills located in Haiphorg,
Vietnam. The fourth retail outlet, 'steel junction', at Behala was opened on February 2008
by the company. The company plans to expand its of Jamshedpur plant's crude steel
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making capacity from 5 million tonnes to 6.8 million tonnes with cost of Rs.4550 crores
and also the company plans to set up a 6 million tonne integrated steel project at
Kalinganagar in the state of Orissa under two phases of 3 million each.
Company Background
Incorporation Year 1907
Registered Office Bombay House, 24 Homi Mody Street,
Fort Mumbai,
Chairman Ratan N Tata
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Managing Director B Muthuraman
Company Secretary J C Bham
Auditors Deloitte Haskins & Sells
Face Value 10.00
Market Lot 1
Registrar TSR Darashaw Ltd
6-10 Haji Moosa, Patrawala Ind.Estate DrEMoses
Rd Mahalaxm Mumbai- 400 011
Market Capital 38,242.21 cr
Key Financials;
Net Profit
YEAR 2008 2007 2006 2005 2004
Rs in crore 4687.03 4222.15 3506.38 3474.16 1746.22
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0
1000
2000
3000
4000
5000
2004 2005 2006 2007 2008
et Profit
Current Ratio
YEAR 2008 2007 2006 2005
PERCENTAGE 2.86 1.26 0.71 0.65
0
0.5
1
1.5
2
2.5
3
2005 2006 2007 2008
Current Ratio
Debt-Equity Ratio
YEAR 2008 2007 2006 2005
Equity % 33 49 69 47
Debt % 67 51 31 53
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0
20
40
60
80
100
2005 2006 2007 2008
Debt
Equity
Earning per share
YEAR 2008 2007 2006 2005 2004
Rs 61.06 69.95 61.51 60.91 46.02
0
10
20
30
40
50
60
70
80
2004 2005 2006 2007 2008
EPS
Dividend History
YEAR 2008 2007 2006 2005 2004
Rs in crore 1168.93 943.91 719.51 719.51 368.98
61
%
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0
200
400
600
800
1000
1200
2004 2005 2006 2007 2008
Dividend History
Interpretation
As far as TATA STEEL concern. This company has been very good performer since
inception. If you look at the financial situation of the company it has also been very strong.
On the basis of four to five year financial details company has been performing very well.
As per the data available Company is making good profit since 2004. Company has enough
liquidity to meet its liability. Company is using its credibility properly. Company’s profit is
also increasing year on year. If you look at the dividend and EPS history company has been
giving good returns. On the basis of available data we can expect that company will earn
good profit in future. On the basis of performance we can expect that 15 to 20% rise in net
profit in the next year. Since the company is financially strong we can invest into the
company for long term.
RELIANCE INDUSTRIES LTD
Company History
In the year 1966 the RIL was founded by Shri Dhirubhai H.Ambani, it was started as a
small textile manufacturer unit. In May 8th, 1973 RIL was incorporated and conformed
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their name as RIL in the year 1985. Over the years, the company has transformed their
business from manufacturing of textiles products into a petrochemical major. RIL is the
largest private-sector enterprise in India in terms of revenues, profits, net worth, assets and
market capitalization. It's operations capture value addition at every stage, from the
production of crude oil and gas to polyester, polymer and chemical products, and finally to
the production of textiles. The company operates mainly in India but has business activities
and customers in more than 100 countries around the world. It has production facilities at
three major locations in India and a further four locations in Europe. It also has exploration
and production interests in India, Yemen and Oman. The company has set up a texturising /
twisting facilities in 1979, RIL has also set up plants for Polyester Staple Fiber (PSF) in
1986 and for Linear Alkyl Benzene (LAB) & Purified Terephthalic Acid (PTA) in 1988.
RIL has setup a petrochemical facility to produce HDPE and PVC at Hazira, Gujarat in
technical collaboration with DuPont and BF Goodich respectively. The Hazira
petrochemical plant was commissioned in 1991-92. In the year 1995-96, the company
entered the telecom industry through a joint venture with NYNEX, USA and promoted
Reliance Telecom Private Limited in India. Reliance became the first corporate in Asia to
issue bonds in the U.S at the year of 1996-97. The company commissioned an 80,000 tonne
bottle grade PET chip plant at Hazira manufacturing complex. During the year 2002-03
company has also amalgamated Indian Petrochemicals Corporations Limited (IPCL),
which leads to compete from a stronger base in the global market. Reliance discovered
natural gas in the very first exploration well it drilled in the deep-water exploration block
KG-D6 in the Krishna-Godavari basin off Andhra Pradesh. In 2004-05, RIL acquired the
polyester major, Trevira GmbH, headquartered in Frankfurt, Germany which has the
capacity of 130,000 tonnes per annum of polyester staple fibers, polyester filament yarns
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and polyester chips. As of 2007 across the globe, RIL is largest producer of polyester fiber
and yarn, 4th largest producer of Paraxylene (PX) and Purified Terephthalic Acid (PTA),
6th largest producer of Mono Ethylene Glycol (MEG) and 7th largest producer of
Polypropylene (PP). Gujarat State Petronet Ltd (GSPL) and Reliance Industries Ltd (RIL)
have signed a gas transportation agreement to transport 11 million standard cubic meters
per day (MSCMD) of natural gas from Bhadbhut in Bharuch to RIL's refinery and
petrochemical complex in Jamnagar. The company has signed a letter of intent with NOVA
Chemicals on May 2008, to form 51:49 a joint venture in the area of building and
construction. This proposed new joint venture between RIL and NOVA Chemicals would
be a technological partnership for deploying green building and construction technologies
to design, engineer, fabricate and build a range of high-efficiency structures for the Indian
sub-continent. Reliance Industries Ltd plans to investment Rs 17,000 crore in oil and gas
exploration over the next few years; The Company has already invested Rs 9,000 crore in
exploration so far. RIL is also considering surrendering seven exploration blocks awarded
to it by the Government.
Company Background
Incorporation Year 1966
Registered Office 3rd Floor Maker Chambers IV, 222
Nariman Point Mumbai-400021
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Chairman Mukesh D Ambani
Managing Director Mukesh D Ambani
Company Secretary Vinod M Ambani
Auditor Chaturvedi & shah/Rajendra & Co Face
Value 10.00
Market Lot 1
Registrar Karvy Computershare Pvt Ltd
Karvy House 46,Road No 4 Street, No1,
Banjara Hills, Hyderabad - 500034
Market Capital 2, 97,669.85 cr
Key Financial
Net profit
Year 2008 2007 2006 2005 2004
Rs in crore 19458.29 11943.40 9069.34 7571.68 5160.14
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0
5000
10000
15000
20000
25000
2004 2005 2006 2007 2008
Net Profit
Current Ratio
Year 2008 2007 2006 2005
Percentage 0.96 0.90 1.03 1.10
0
0.2
0.4
0.6
0.8
1
1.2
2005 2006 2007 2008
Current ratio
Debt-Equity Ratio
Year 2008 2007 2006 2005
Equity % 54 53 51 43Debt % 46 47 49 57
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0
20
40
60
80
100
2004 2005 2006 2007
Debt
Equity
Earning Per Share
Year 2008 2007 2006 2005 2004
Rs 131.97 84.28 63.70 53.30 36.31
0
20
40
60
80
100
120
140
2004 2005 2006 2007 2008
EPS
Dividend History
Year 2008 2007 2006 2005 2004
Rs in crore 1631.24 1440.44 1393.51 1045.13 733.10
67
%
Year
Year
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0
50
100
150
200
250
2004 2005 2006 2007 2008
Dividend History
Interpretation
Reliance Industry Ltd has been very good performer in respect of sales and other
investment. As far as financial data concern Company’s financial background has been
very strong. Company has been giving good return as per expectation. Company is
utilizing its credibility properly and expanding its business. If you look at the available
financial details of the company has been making good profit since 2004.In next year
company can earn 25 to 30% profit. Company’s dividend & EPS history have been good.
Company can give good return in future.
RELIANCE INFRASTRUCTURE LIMITED
Company History
Reliance Energy Limited (REL), with its corporate lineage going back to 1929. At the time
of incorporation REL was called as Bombay Suburban Electric Supply Limited (BSES).
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The company has been in the field of power distribution for nearly eight decades and with
its emphasis on continuous improvements. REL is a fully integrated utility engaged in the
generation, transmission and distribution of electricity. It ranks among India's top listed
private companies on all major financial parameters, including assets, sales, profits and
market capitalization. A key constituent of the Reliance - Anil Dhirubhai Ambani Group,
India's third largest business house. Reliance Energy has emerged as one of the leading
players in India in the Engineering, Procurement and Construction (EPC) segment of the
power sector. Reliance Energy company currently pursue several gas, coal, wind and
hydro-based power generation projects in Maharashtra, Uttar Pradesh, Arunachal Pradesh
and Uttaranchal with aggregate capacity of over 13,510 MW. Reliance Energy is also
active in the trading and transmission of power sector and has forayed as an equity investor
in to the infrastructure business, including in the prestigious Mumbai metro rail project and
various road projects of the National Highways Authority of India. REL has also entered
into the Internet service provider business in a big way by the name of powersurfer.net.
REL (BSES) has several group companies - ST-BSES Coal Washery (Joint Venture),
BSES Infrastructure Finance, Utility Powertech (Joint Venture), Ticapco, BSES Telecom,
BSES Kerala Power, BSES Andhra Power and three new companies of Orissa. The
company has a strategy of adding value by strategic alliances within the group
During the year 2002-2003, the company has successfully commissioned 210 MW Gas
Based Combined Cycle power plants for BSES Andhra Power and 24 MW Bagasse fired
Power Plant for Godavari Sugar Mills Ltd and 20 MW for Suryachakra Power Corporation
Ltd. In April 2003 Andhra Power Ltd and Reliance Salgocar Power Company Ltd were
amalgamated with the company. During the year 2003-2004, the Company was renamed to
Reliance Energy Ltd from its old name BSES. The company has targeted to complete all
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activities under the six sigma project, ISO 27001 and OHSAS certifications during 2007-
08, which will make Reliance Energy the first utility in the country to achieve these
certifications. These initiatives are aimed to cater the market and at further promoting
business excellence in all functional areas of the company. In 2008 company engaged in
several mega projects under implementation and under consideration in different functional
areas, in that the notable two big projects are engineering, procurement and construction
(EPC) contract from Damodar Valley Corporation (DVC) to set up the 2 x 600 MW coal
based power station at Raghunathpur in West Bengal worth of Rs 3,725 crore and Airport
Metro Express Line, Delhi project on BOOT basis for a concession period of 30 years
worth of Rs 2,500 crore.
Company Background
Incorporation Year 1929
Registered Office Reliance Energy Centre, Santa Cruz (East)
Mumbai, Maharashtra - 400055
Chairman Anil Ambani
Managing Director Anil Ambani
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0
200
400
600
800
1000
1200
2004 2005 2006 2007 2008
Net pr ofit
Current Ratio
Year 2008 2007 2006 2005
Percentage 2.57 2.99 2.64 2.23
0
10
20
30
40
2005 2006 2007 2008
Current ratio
Debt Equity Ratio
Year 2008 2007 2006 2005
Equity % 42 35 33 38
Debt % 58 65 67 62
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0%
20%
40%
60%
80%
100%
2005 2006 2007 2008
Debt
Equity
Earning Per Share
Year 2008 2007 2006 2005 2004
Rs 44.97 34.16 29.92 27.40 20.43
0
10
20
30
40
50
2004 2005 2006 2007 2008
EPS
Dividend History
Year 2008 2007 2006 2005 2004
Rs In Crore 147.73 81.72 105.98 87.36 70.49
73
%
Year
Rs
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0
20
4060
80
100
120
140
160
2004 2005 2006 2007 2008
Dividend history
Interpretation
Reliance Infrastructure Ltd net profit growth has been nearly in line with expectations. Though,
we were expecting EBITDA margins to expand, we were surprised by the extent of it. We are
revising our FY08E and FY09E forecast upwards to account for the better pricing scenario. We
are also building a case for slight margin expansion in FY08E over FY09E since we see a couple
of levers for REL. If you look at the dividend & EPS history company is giving good return.
Since the company is fundamentally strong it ca give good return in future.
Comparison of NIFTY’S return with above companies return
Nifty’s Chart
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Period Index Figure Return %
Jan 05 To July 05 2000 To 2250 12.50%
July 05 To Jan 06 2250 To 2750 22.22%
Jan 06 To July 06 2750 To 3300 20%
July 06 To Jan 07 3000 To 3900 30%
Jan 07 To July 07 3900 To 4400 12.82%
July 07 To Jan 08 4400 To 6000 36.36%
Jan 08 To July 08 6000 To 4000 -33.33%
Yearly Return Given By Nifty
Jan 05 to Jan 06 = 12.50% + 22.22% = 34.72%
Jan 06 to Jan 07 = 20% + 30% = 50 %
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Jan 07 to Jan 08 = 12.82% + 36.36% = 49.18%
3 years average return of Nifty is 44.63%
Tata Motors Ltd
Period Share Prices (in Rs) Return %Jan 05 To July 05 500 to 410 -18%
July 05 To Jan 06 410 to 630 34.92%
Jan 06 To July 06 630 to 755 19.84%
July 06 To Jan 07 755 to 930 23.17%
Jan 07 To July 07 930 to 690 -25.80%
July 07 To Jan 08 690 to 770 11.60%
Jan 08 To July 08 770 to 380 -50.64%
Yearly Return of Tata Motors Ltd.
Jan 05 to Jan 06 = -18% + 34.92% = 16.92%
Jan 06 to Jan 07 = 19.84% + 23.17% = 43.01%
Jan 07 to Jan 08 = -25.80% + 11.60% = -14.20%
3 years average return is 45.73%
Tata Steel Ltd
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Period Share Prices (in Rs) Return %Jan 05 To July 05 350 to 320 -8.50%
July 05 To Jan 06 320 to 340 6.25%
Jan 06 To July 06 340 to 490 44.11%
July 06 To Jan 07 490 to 420 -14.28%
Jan 07 To July 07 420 to 550 30.95%
July 07 To Jan 08 550 to 950 72.72%
Jan 08 To July 08 950 to 750 -21.05%
Yearly Return of Tata Steel Ltd.
Jan 05 to Jan 06 = -8.50% + 6.25% = -2.25%
Jan 06 to Jan 07 = 44.11% + -14.28% =29.83%
Jan 07 to Jan 08 = 30.95% + 72.72% =103.67%
3 years average return is 43.75%
HDFC Bank Ltd
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Period Shares Prices (in Rs) Return %Jan 05 To July 05 550 to 700 27.27%
July 05 To Jan 06 700 to 750 7.14%
Jan 06 To July 06 750 to 850 13.33%
July 06 To Jan 07 850 to 1050 23.50%
Jan 07 To July 07 1050 to 1150 9.52%
July 07 To Jan 08 1150 to 1700 52.17%
Jan 08 To July 08 1700 to 1050 -38.23%
Yearly Returns of HDFC Bank Ltd
Jan 05 to Jan 06 = 27.27% + 7.14% = 34.41%
Jan 06 to Jan 07 = 13.33% + 23.50% = 36.83%
Jan 07 to Jan 08 = 9.52% + 52.17% = 61.69%
3 years average return is 44.31%
Reliance Industry Ltd
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Period Share Prices (in Rs) Return %
Jan 05 To July 05 450 to 550 22.22%July 05 To Jan 06 550 to 750 36.36%
Jan 06 To July 06 750 to 1100 46.66%
July 06 To Jan 07 1100 to 1250 13.36%
Jan 07 To July 07 1250 to 1750 40%
July 07 To Jan 08 1750 to 3000 71.42%
Jan 08 To July 08 3000 to 2250 -25%
Yearly Returns of Reliance Industry Ltd.
Jan 05 to Jan 06 = 22.22% + 36.36% = 58.58%
Jan 06 to Jan 07 = 46.66% + 13.36% = 60.02%
Jan 07 to Jan 08 = 40% + 71.42% = 111.42%
3 years average return is 76.67%
Reliance Infrastructure Ltd
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Period Share Prices (in Rs) Return %
Jan 05 To July 05 550 to 600 10%July 05 To Jan 06 600 to 570 -3.33%
Jan 06 To July 06 570 to 470 -17.54%
July 06 To Jan 07 470 to 550 17.02%
Jan 07 To July 07 550 to 580 5.54%
July 07 To Jan 08 580 to 2550 339.65%
Jan 08 To July 08 2550 to 1000 -60.78%
Yearly returns of Reliance Infrastructure Ltd.
Jan 05 to Jan 06 = 10% -3.33% = 6.67%
Jan 06 to Jan 07 = -17.54% + 17.02% = 34.56%
Jan 07 to Jan 08 = 5.54% + 339.65% = 345.19%
3 years average return is 128.80%
As far as market return concern NIFTY has given average 44.63% return yearly
since 2005. If you look at the above all companies return, every company has given at least
44% return yearly for long- term investment, it is nearby the NIFTY’s return. There were
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so many up and downs in the share prices of the above companies over 3 years, still the
companies have given good return
On the basis of above fundamental analysis and market return analysis I have
prepared an investment portfolio. And accordingly weightage have been given to each
company.
MODEL OF PORTFOLIO
Company Weightage Sector
HDFC BANK LTD 15% Banking
TATA MOTORS LTD 15% Automobile
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TATA STEEL LTD 10% Steel
RELIANCE INDUSTRY LTD 20% Diversified
RELIANCE INFRASTRUCTURE
LTD
30% Infrastructure
CASH 10%
Portfolio’s Pie Chart
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15%
15%
10%
20%
30%
10%HDFC Bank Ltd
Tata Motors Ltd
Tata Steel Ltd
Reliance Ind
Reliance Infra
Cash
Weighted average return of the PORTFOLIO Year 2005-06
Company Portfolio Share %
(A)
Returns of
2005-06
(B)
Weighted Avg
returns
(A*B)HDFC BANK LTD 0.15 34.41% 5.16
TATA MOTORS LTD 0.15 16.92% 2.54
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TATA STEEL LTD 0.10 -2.25% -0.225RELIANCE
INDUSTRY LTD
0.20 58.58% 11.72
RELIANCE
INFRASTRUCTURE
LTD
0.30 6.67% 2.001
TOTAL 21.20%
NIFTY’S return in 2005-06 is 34.72%
Portfolio’s weighted average return in 2005-06 is 21.20%
In 2005-06 decision went wrong; portfolio could not beat the NIFTY. Tata steel ltd
performed negatively and reliance infrastructure could also not perform as per expectation
that’s why portfolio could not beat the NIFTY.
Weighted average return of the PORTFOLIO Year 2006-07
Company Portfolio Share %
(A)
Returns of
2006-07
(B)
Weighted Avg
returns
(A*B)HDFC BANK LTD 0.15 36.83% 5,52
TATA MOTORS LTD 0.15 43.01% 6.45TATA STEEL LTD 0.10 29.83% 2.98
RELIANCE
INDUSTRY LTD
0.20 60.02% 12
RELIANCE
INFRASTRUCTURE
0.30 34.56% 10.36
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LTD
TOTAL 37.31
NIFTY’S return in 2006-07 is 50%
Portfolio’s weighted average return in 2006-07 is 37.31%
In this year also portfolio could not beat the NIFTY, but if you compare the portfolio’s
return of 2006-07 with 2005-06, in 2006-07 portfolio has performed well than 2005-06
returns without changing any weightage.
Weighted average return of the PORTFOLIO Year 2007-08
Company Portfolio Share %
(A)
Returns of
2007-08
(B)
Weighted Avg
returns
(A*B)HDFC BANK LTD 0.15 61.69% 9.25
TATA MOTORS LTD 0.15 14.20% 2.13TATA STEEL LTD 0.10 103.67% 10.36
RELIANCE
INDUSTRY LTD
0.20 111.42% 22.28
RELIANCE
INFRASTRUCTURE
LTD
0.30 345.19% 103.55
TOTAL 147.57
NIFTY’S return in 2007-08 is 49.18%
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Portfolio’s weighted average return in 2007-08 is 147.57%
In 2007-08 portfolio performed exceptionally well compare to above two years. It could
beat NIFTY too in 2007-08.Without changing any weightage portfolio performed well.
Chapter 7
FINDINGS
In entire Study of Project following things have been observed,
While doing project I observed that for systematic and diversified investment
portfolio management services is required.
Portfolio manager must have and various types of skills like marketing skill,
analytical skill, etc.
Portfolio manager has to perform various functions like
Financial analysis of securities,
Selection of securities,
Revision of portfolio, etc.
Portfolio manager has to keep himself very update about the market conditions.
Making a fundamental analysis of a company is difficult task. Analyst has to
consider various aspects of company while making fundamental analysis.
Technical analysis mainly seeks to predict the short term price travels.
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Chapter 9
LIMITATIONS
Project could not cover all the aspect of the Portfolio Management.
It is difficult to carry out the whole process of fundamental analysis within two
months because of the vastness.
Project could cover Portfolio Management of equities only.
Inadequacy of data.
Fundamental analysis may offer excellent insights, but it can be extraordinarily time-
consuming.
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Chapter 1 0
BIBLIOGRAPHY
Books
Khan & Jain ( Financial Management)
TATA McGraw Hill, page no- 3.5, 6.1 to 6.25.
Dr. M A Kohok ( Advance Financial Management)
Everest Publishing House, page no- 257 to 291.
Security Analysis and Portfolio Management – Prasanna Chandra
Magazines
Dalal Street.
Website
Investsmartindia.com
Bygreekshares.com
Wikipedia
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Chapter-11
ANNEXURE
QUESTIONNAIRE
(1). NAME:
________________________________________________________________
(2). ADDRESS: _____________________________________________________________
_____________________________________________________________________
__
(3). CONTACT NO.
_________________________________________________________
(4). PROFESSION:
_________________________________________________________
(5). SEX: _______________ (6). AGE: ______
(7). EDUCATION: _____________________________
(8). Where do you invest your saving?
Bank Mutual Fund Post Office
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Insurance Real Assets Govt. Bonds
IPO Gold/Silver Stock Market
If Others, Please specify.____________________________________
(9). If you invest in stock market, where do you invest your savings?
Equity Derivatives Commodity
(9). How you reach at investment decision?
Self analysis Tips from Experts Tips from friends/relatives
Business channels Newspapers Other (Specify) _________
(10). Which factor plays a crucial role when you make a decision to invest in Stock
Market?
Risk Reduction Speculative Motive Leverage Benefit
Investment Arbitrage Benefit
(11). Duration of attachment with Stock Market?
Less than 1 year 1 to 5 year 5 to 10 year
More than 10 year
(12). Which type of companies you would like to invest?Large cap Mid cap Small cap
(13). Which type of trading you prefer to deal with?
Square up mode Arbitrage Intraday
Hedging Delivery based
(14). Which exchange you prefer to deal with?
NSE BSE
(15). How do you view yourself?
Trader Speculator
Short-term investor Long-term investor
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