CHAPTER-I

INTRODUCTION

1

The.Risk.Management.to.Business.Success:

Risk management is an important part of planning for businesses. The process of risk

management is designed to reduce or eliminate the risk of certain kinds of events

happening..or..having..an..impact..on..the..business.

Definition.of.Risk.Management:

Risk management is a process for identifying, assessing, and prioritizing risks of

different kinds. Once the risks are identified, the risk manager will create a plan to

minimize or eliminate the impact of negative events. A variety of strategies is

available, depending on the type of risk and the type of business. There are a number

of risk management standards, including those developed by the Project Management

Institute, the International Organization for Standardization (ISO), the National

Institute..of..Science..and..Technology,.and..actuarial..societies.

Types.of.Risk:

There are many different types of risk that risk management plans can mitigate.

Common risks include things like accidents in the workplace or fires, tornadoes,

earthquakes, and other natural disasters. It can also include legal risks like fraud,

theft, and sexual harassment lawsuits. Risks can also relate to business practices,

uncertainty in financial markets, failures in projects, credit risks, or the security and

storage..of..data..and..records.

2

Goals.of.Risk.Management:

the idea behind using risk management practices is to protect businesses from being

vulnerable. Many business risk management plans may focus on keeping the company

viable and reducing financial risks. However, risk management is also designed to protect

the employees, customers, and general public from negative events like fires or acts of

terrorism that may affect them. Risk management practices are also about preserving the

physical facilities, data, records, and physical assets a company owns or uses.

Process for Identifying and Managing Risk:

While a variety of different strategies can mitigate or eliminate risk, the process for

identifying and managing the risk is fairly standard and consists of five basic steps. First,

threats or risks are identified. Second, the vulnerability of key assets like information to

the identified threats is assessed. Next, the risk manager must determine the expected

consequences of specific threats to assets. The last two steps in the process are to figure

out ways to reduce risks and then prioritize the risk management procedures based on

their..importance.

Strategies.for.Managing.Risk:

There are as many different types of strategies for managing risk as there are types of

risks. These break down into four main categories. Risk can be managed by accepting the

consequences of a risk and budgeting for it. Another strategy is to transfer the risk to

another party by insuring against a particular, like fire or a slip-and-fall accident. Closing

down a particular high-risk area of a business can avoid risk. Finally, the manager can

reduce the risk’s negative effects, for instance, by installing sprinklers for fires or

instituting..a..back-up..plan..for..data.

3

Having a risk management plan is an important part of maintaining a successful and

responsible company. Every company should have one. It will help to protect people as

well as physical and financial assets.

NEED & IMPORTANCE OF STUDY:

Portfolio management or investment helps investors in effective and efficient

management of their investment to achieve this goal. The rapid growth of capital markets

in India has opened up new investment avenues for investors.

The stock markets have become attractive investment options for the common man. But

the need is to be able to effectively and efficiently manage investments in order to keep

maximum returns with minimum risk.

Hence this study on RISK MANAGEMENT” to examine the role process and merits of

effective investment management and decision.

SCOPE OF STUDY:

This study covers the Markowitz model. The study covers the calculation of correlations

between the different securities in order to find out at what percentage funds should be invested

among the companies in the portfolio. Also the study includes the calculation of individual

Standard Deviation of securities and ends at the calculation of weights of individual securities

involved in the portfolio. These percentages help in allocating the funds available for investment

based on risky portfolios.

4

OBJECTIVES:More points to be added

To study the investment decision process.

To analysis the risk return characteristics of sample scripts.

Ascertain Risk Management.

To construct an effective portfolio which offers the maximum return for minimum

risk

METHODOLOGY:

Primary source

Information gathered from interacting with employees in the organization. And the data

from the textbooks and other magazines.

Secondary source

Daily prices of scripts from news papers

SCOPE:

Duration Period 2 months

Sample size : 5 years

To ascertain risk, return and weights.

5

LIMITATION:More points to be added

Only two samples have been selected for constructing a

portfolio.

Share prices of scripts of 5 years period was taken.

6

CHAPTER-II

INDUSTRY PROFILE

&

COMPANY PROFILE

7

EVOLUTION:

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200

years ago. The earliest records of security dealings in India are meager and obscure. The

East India Company was the dominant institution in those days and business in its loan

securities used to be transacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took place

in Bombay. Though the trading list was broader in 1839, there were only half a dozen

brokers recognized by banks and merchants during 1840 and 1850.

The 1850's witnessed a rapid development of commercial enterprise and brokerage

business attracted many men into the field and by 1860 the number of brokers increased

into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of

Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers

increased to about 200 to 2 50. However, at the end of the American Civil War, in 1865,

a disastrous slump began (for example, Bank of Bombay Share which had touched Rs

2850 could only be sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,

found a place in a street (now appropriately called as Dallas Street) where they would

conveniently assemble and transact business. In 1887, they formally established in

Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively

known as “The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in

the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was

consolidated.

8

Other leading cities in stock market operations:

Ahmadabad gained importance next to Bombay with respect to cotton textile industry.

After 1880, many mills originated from Ahmadabad and rapidly forged ahead. As new

mills were floated, the need for a Stock Exchange at Ahmadabad was realized and in

1894 the brokers formed "The Ahmadabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to

Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta.

After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares,

which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom

between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta

Stock Exchange Association".

In the beginning of the twentieth century, the industrial revolution was on the way in

India with the Swedes Movement; and with the inauguration of the Tata Iron and Steel

Company Limited in 1907, an important stage in industrial advancement under Indian

enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies

generally enjoyed phenomenal prosperity, due to the First World War.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange

functioning in its midst, under the name and style of "The Madras Stock Exchange" with

100 members. However, when boom faded, the number of members stood reduced from

100 to 3, by 1923, and so it went out of existence.

In 1935, the stock market activity improved, especially in South India where there was a

rapid increase in the number of textile mills and many plantation companies were floated.

In 1937, a stock exchange was once again organized in Madras - Madras Stock Exchange

Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange

Limited).

9

Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with

the Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella Growth:

The Second World War broke out in 1939. It gave a sharp boom which was followed by a

slump. But, in 1943, the situation changed radically, when India was fully mobilized as a

supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities,

those dealing in them found in the stock market as the only outlet for their activities.

They were anxious to join the trade and their number was swelled by numerous others.

Many new associations were constituted for the purpose and Stock Exchanges in all parts

of the country were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited

(1940) and Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and

the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947,

amalgamated into the Delhi Stock Exchange Association Limited.

Post-independence Scenario:

Most of the exchanges suffered almost a total eclipse during depression. Lahore

Exchange was closed during partition of the country and later migrated to Delhi and

merged with Delhi Stock Exchange.

10

Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.

Most of the other exchanges languished till 1957 when they applied to the Central

Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only

Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well

established exchanges, were recognized under the Act. Some of the members of the other

Associations were required to be admitted by the recognized stock exchanges on a

concessional basis, but acting on the principle of unitary control, all these pseudo stock

exchanges were refused recognition by the Government of India and they thereupon

ceased to function.

Thus, during early sixties there were eight recognized stock exchanges in India

(mentioned above). The number virtually remained unchanged, for nearly two decades.

During eighties, however, many stock exchanges were established: Cochin Stock

Exchange (1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982),

and Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange Association

Limited (1983), Gauhati Stock Exchange Limited (1984), Karana Stock Exchange

Limited (at Mangalore, 1985), Magadha Stock Exchange Association (at Patna, 1986),

Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association

Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara

Stock Exchange Limited (at Baroda, 1990) and recently established exchanges -

Coimbatore and Meerut. Thus, at present, there are totally twenty one recognized stock

exchanges in India excluding the Over the Counter Exchange of India Limited (OTCEI)

and the National Stock Exchange of India Limited (NSEIL).

The Table given below portrays the overall growth pattern of Indian stock markets since

independence. It is quite evident from the Table that Indian stock markets have not only

grown just in number of exchanges, but also in number of listed companies and in capital

of listed companies. The remarkable growth after 1985 can be clearly seen from the

Table, and this was due to the favoring government policies towards security market

industry.

11

Trading Pattern of the Indian Stock Market:

Trading in Indian stock exchanges are limited to listed securities of public limited

companies. They are broadly divided into two categories, namely, specified securities

(forward list) and non-specified securities (cash list). Equity shares of dividend paying,

growth-oriented companies with a paid-up capital of at least Rs.50 million and a market

capitalization of at least Rs.100 million and having more than 20,000 shareholders are,

normally, put in the specified group and the balance in non-specified group.

Two types of transactions can be carried out on the Indian stock exchanges: (a) spot

delivery transactions "for delivery and payment within the time or on the date stipulated

when entering into the contract which shall not be more than 14 days following the date

of the contract" : and (b) forward transactions "delivery and payment can be extended by

further period of 14 days each so that the overall period does not exceed 90 days from the

date of the contract". The latter is permitted only in the case of specified shares. The

brokers who carry over the out standings, pay carry over charges (can tango or

backwardation) which are usually determined by the rates of interest prevailing.

A member broker in an Indian stock exchange can act as an agent, buy and sell securities

for his clients on a commission basis and also can act as a trader or dealer as a principal,

buy and sell securities on his own account and risk, in contrast with the practice

prevailing on New York and London Stock Exchanges, where a member can act as a

jobber or a broker only.

The nature of trading on Indian Stock Exchanges are that of age old conventional style of

face-to-face trading with bids and offers being made by open outcry. However, there is a

great amount of effort to modernize the Indian stock exchanges in the very recent times.

12

Over The Counter Exchange of India (OTCEI):

The traditional trading mechanism prevailed in the Indian stock markets gave way to

many functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly

long settlement periods and benami transactions, which affected the small investors to a

great extent. To provide improved services to investors, the country's first ring less, scrip

less, electronic stock exchange - OTCEI - was created in 1992 by country's premier

financial institutions - Unit Trust of India, Industrial Credit and Investment Corporation

of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance

Corporation of India, General Insurance Corporation and its subsidiaries and Can Bank

Financial Services.

Trading at OTCEI is done over the centers spread across the country. Securities traded on

the OTCEI are classified into:

Listed Securities - The shares and debentures of the companies listed on the OTC

can be bought or sold at any OTC counter all over the country and they should not

be listed anywhere else

Permitted Securities - Certain shares and debentures listed on other exchanges and

units of mutual funds are allowed to be traded

Initiated debentures - Any equity holding at least one lakh debentures of particular

scrip can offer them for trading on the OTC.

OTC has a unique feature of trading compared to other traditional exchanges. That is,

certificates of listed securities and initiated debentures are not traded at OTC. The

original certificate will be safely with the custodian. But, a counter receipt is generated

out at the counter which substitutes the share certificate and is used for all transactions.

In the case of permitted securities, the system is similar to a traditional stock exchange.

The difference is that the delivery and payment procedure will be completed within 14

days.

13

Compared to the traditional Exchanges, OTC Exchange network has the following

advantages:

OTCEI has widely dispersed trading mechanism across the country which

provides greater liquidity and lesser risk of intermediary charges.

Greater transparency and accuracy of prices is obtained due to the screen-based

scrip less trading.

Since the exact price of the transaction is shown on the computer screen, the

investor gets to know the exact price at which s/he is trading.

Faster settlement and transfer process compared to other exchanges.

In the case of an OTC issue (new issue), the allotment procedure is completed in a

month and trading commences after a month of the issue closure, whereas it takes

a longer period for the same with respect to other exchanges.

Thus, with the superior trading mechanism coupled with information transparency

investors are gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange (NSE):

With the liberalization of the Indian economy, it was found inevitable to lift the Indian

stock market trading system on par with the international standards. On the basis of the

recommendations of high powered Pertain Committee, the National Stock Exchange was

incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and

Investment Corporation of India, Industrial Finance Corporation of India, all Insurance

Corporations, selected commercial banks and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

14

Wholesale debt market operations are similar to money market operations - institutions

and corporate bodies enter into high value transactions in financial instruments such as

government securities, treasury bills, public sector unit bonds, commercial paper,

certificate of deposit, etc.

There are two kinds of players in NSE:

(a) Trading members and

(b) Participants.

Recognized members of NSE are called trading members who trade on behalf of

themselves and their clients. Participants include trading members and large players like

banks who take direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading mechanism

which adopts the principle of an order-driven market. Trading members can stay at their

offices and execute the trading, since they are linked through a communication network.

The prices at which the buyer and seller are willing to transact will appear on the screen.

When the prices match the transaction will be completed and a confirmation slip will be

printed at the office of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as follows:

NSE brings an integrated stock market trading network across the nation.

Investors can trade at the same price from anywhere in the country since inter-

market operations are streamlined coupled with the countrywide access to the

securities.

Delays in communication, late payments and the malpractice’s prevailing in the

traditional trading mechanism can be done away with greater operational

efficiency and informational transparency in the stock market operations, with the

support of total computerized network.

15

Unless stock markets provide professionalized service, small investors and foreign

investors will not be interested in capital market operations. And capital market being one

of the major sources of long-term finance for industrial projects, India cannot afford to

damage the capital market path. In this regard NSE gains vital importance in the Indian

capital market system.

Preamble:

Often, in the economic literature we find the terms ‘development’ and ‘growth’ are used

interchangeably. However, there is a difference. Economic growth refers to the sustained

increase in per capita or total income, while the term economic development implies

sustained structural change, including all the complex effects of economic growth. In

other words, growth is associated with free enterprise, where as development requires

some sort of control and regulation of the forces affecting development. Thus, economic

development is a process and growth is a phenomenon.

Economic planning is very critical for a nation, especially a developing country like India

to take the country in the path of economic development to attain economic growth.

Why Economic Planning for India?

One of the major objective of planning in India is to increase the rate of economic

development, implying that increasing the rate of capital formation by raising the levels

of income, saving and investment. However, increasing the rate of capital formation in

India is beset with a number of difficulties. People are poverty ridden. Their capacity to

save is extremely low due to low levels of income and high propensity to consume. There

for, the rate of investment is low which leads to capital deficiency and low productivity.

Low productivity means low income and the vicious circle continues. Thus, to break this

vicious economic circle, planning is inevitable for India.

16

The market mechanism works imperfectly in developing nations due to the ignorance and

unfamiliarity with it. Therefore, to improve and strengthen market mechanism planning is

very vital. In India, a large portion of the economy is non-monetized; the product, factors

of production, money and capital markets is not organized properly. Thus the prevailing

price mechanism fails to bring about adjustments between aggregate demand and supply

of goods and services. Thus, to improve the economy, market imperfections has to be

removed; available resources has to be mobilized and utilized efficiently; and structural

rigidities has to be overcome. These can be attained only through planning.

In India, capital is scarce; and unemployment and disguised unemployment is prevalent.

Thus, where capital was being scarce and labour being abundant, providing useful

employment opportunities to an increasing labour force is a difficult exercise. Only a

centralized planning model can solve this macro problem of India.

Further, in a country like India where agricultural dependence is very high, one cannot

ignore this segment in the process of economic development. Therefore, an economic

development model has to consider a balanced approach to link both agriculture and

industry and lead for a paralleled growth. Not to mention, both agriculture and industry

cannot develop without adequate infrastructural facilities which only the state can

provide and this is possible only through a well carved out planning strategy. The

government’s role in providing infrastructure is unavoidable due to the fact that the role

of private sector in infrastructural development of India is very minimal since these

infrastructure projects are considered as unprofitable by the private sector.

Further, India is a clear case of income disparity. Thus, it is the duty of the state to reduce

the prevailing income inequalities. This is possible only through planning.

Planning History of India:

The development of planning in India began prior to the first Five Year Plan of

independent India, long before independence even. The idea of central directions of

resources to overcome persistent poverty gradually, because one of the main policies

advocated by nationalists early in the century. The Congress Party worked out a program

17

for economic advancement during the 1920’s, and 1930’s and by the 1938 they formed a

National Planning Committee under the chairmanship of future Prime Minister Nehru.

The Committee had little time to do anything but prepare programs and reports before the

Second World War which put an end to it. But it was already more than an academic

exercise remote from administration. Provisional government had been elected in 1938,

and the Congress Party leaders held positions of responsibility. After the war, the Interim

government of the pre-independence years appointed an Advisory Planning Board. The

Board produced a number of somewhat disconnected Plans itself. But, more important in

the long run, it recommended the appointment of a Planning Commission.

The Planning Commission did not start work properly until 1950. During the first three

years of independent India, the state and economy scarcely had a stable structure at all,

while millions of refugees crossed the newly established borders of India and Pakistan,

and while ex-princely states (over 500 of them) were being merged into India or Pakistan.

The Planning Commission as it now exists was not set up until the new India had adopted

its Constitution in January 1950.

Objectives of Indian Planning:

The Planning Commission was set up the following Directive principles:

To make an assessment of the material, capital and human resources of the

country, including technical personnel, and investigate the possibilities of

augmenting such of these resources as are found to be deficient in relation to the

nation’s requirement.

To formulate a plan for the most effective and balanced use of the country’s

resources.

Having determined the priorities, to define the stages in which the plan should be

carried out, and propose the allocation of resources for the completion of each

stage.

18

To indicate the factors which are tending to retard economic development, and

determine the conditions which, in view of the current social and political

situation, should be established for the successful execution of the Plan.

To determine the nature of the machinery this will be necessary for securing the

successful implementation of each stage of Plan in all its aspects.

To appraise from time to time the progress achieved in the execution of each stage

of the Plan and recommend the adjustments of policy and measures that such

appraisals may show to be necessary.

To make such interim or auxiliary recommendations as appear to it to be

appropriate either for facilitating the discharge of the duties assigned to it or on a

consideration of the prevailing economic conditions, current policies, measures

and development programs; or on an examination of such specific problems as

may be referred to it for advice by Central or State Governments.

The long-term general objectives of Indian Planning are as follows:

Increasing National Income

Reducing inequalities in the distribution of income and wealth

Elimination of poverty

Providing additional employment; and

Alleviating bottlenecks in the areas of: agricultural production, manufacturing

capacity for producer’s goods and balance of payments.

Economic growth, as the primary objective has remained in focus in all Five Year Plans.

Approximately, economic growth has been targeted at a rate of five per cent per annum.

High priority to economic growth in Indian Plans looks very much justified in view of

long period of stagnation during the British rule

19

COMPANY PROFILE

ICICI Prudential Asset Management Company Ltd. is a joint venture between ICICI

Bank, India’s second largest commercial bank & a well-known and trusted name in the

financial services in India, & Prudential Plc, one of the United Kingdom’s largest players

in the financial services sectors.

In a span of over 18 years since inception and just over 13 years of the Joint Venture, the

company has forged a position of preeminence as one of the largest Asset Management

Company’s in the country, contributing significantly towards the growth of the Indian

mutual fund industry.

The company manages significant Mutual Fund Assets under Management (AUM), in

addition to our Portfolio Management Services (PMS) and International Advisory

Mandates for clients across international markets in asset classes like Debt, Equity and

Real Estate with primary focus on risk adjusted returns.

As an Asset Management Company, we have over 18 years of experience and are

currently managing a comprehensive range of schemes of more than 46 Mutual fund

schemes and a wide range of PMS Products for our investors spread across the country.

We service this investor base with our own branch network of around 168 branches and a

distribution reach of over 42,000 channel partners.

ICICI Bank is India's second-largest bank with total assets of Rs. 4,062.34 billion (US$

91 billion) at March 31, 2011 and profit after tax Rs. 51.51 billion (US$ 1,155 million)

for the year ended March 31, 2011. The Bank has a network of 2,556 branches and 7,440

ATMs in India, and has a presence in 19 countries, including India.

20

ICICI Bank offers a wide range of banking products and financial services to corporate

and retail customers through a variety of delivery channels and through its specialised

subsidiaries in the areas of investment banking, life and non-life insurance, venture

capital and asset management.

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches

in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai

International Finance Centre and representative offices in United Arab Emirates, China,

South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has

established branches in Belgium and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the

National Stock Exchange of India Limited and its American Depositary Receipts (ADRs)

are listed on the New York Stock Exchange (NYSE).

Corporate Profile

ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$

77 billion) as on December 31, 2009.

Board Members

Mr. K. V. Klamath, Chairman

Mr. Sridhar Iyengar

Mr. Homi R. Khusrokhan

Mr. Lakshmi N. Mittal

Mr. Narendra Murkumbi

Dr. Anup K. Pujari

Mr. Anupam Puri

Mr. M.S. Ramachandran

Mr. M.K. Sharma

Mr. V. Sridhar

Prof. Marti G. Subrahmanyam

Mr. V. Perm Watsa

21

Ms. Chanda D. Kootchar,

Managing Director & CEO

Mr. Sandeep Bakhshi,

Deputy Managing Director

Mr. N. S. Kennan,

Executive Director & CFO

Mr. K. Ramkumar,

Executive Director

Mr. Son joy Chatterjee,

Executive Director

Mr. K. V. Klamath is a mechanical engineer and did his management studies from the

Indian Institute of Management, Ahmadabad. He joined ICICI in 1971 and worked in the

areas of project finance, leasing, resources and corporate planning. In 1988, he joined the

Asian Development Bank and spent several years in south-east Asia before returning to

ICICI as its Managing Director & CEO in 1996. He became Managing Director & CEO

of ICICI Bank in 2002 following the merger of ICICI with ICICI Bank. Under his

leadership, the ICICI Group transformed itself into a diversified, technology-driven

financial services group that has leadership positions across banking, insurance and asset

management in India, and an international presence. He retired as Managing Director &

CEO in April 2009, and took up the position of non-executive Chairman of ICICI Bank

effective May 1, 2009. He was the President of the Confederation of Indian Industry (CII)

for 2008-09. He was awarded the Padma Bhushan by the President of India in May 2008.

He was conferred the Lifetime Achievement Awards at the Financial Express Best Bank

Awards 2008 and the NDTV Profit Business Leadership Awards 2008; was named

'Businessman of the Year' by Forbes Asia and The Economic Times' 'Business Leader of

the Year' in 2007; Business Standard's "Banker of the Year" and CNBC-TV18's

"Outstanding Business Leader of the Year" in 2006; Business India's "Businessman of

the Year" in 2005; and CNBC's "Asian Business Leader of the Year" in 2001. He has

been conferred with an honorary PhD by the Banaras Hindu University. He is a member

22

of the Board of the Institute of International Finance, a Director on the Board of Infosys

Technologies and a member of the Board of Governors of the Indian Institute of

Management, Ahmadabad.

Products:

Insurance Solutions for Individuals:

ICICI Prudential Life Insurance offers a range of innovative, customer-centric products

that meet the needs of customers at every life stage. Its products can be enhanced with up

to 4 riders, to create a customized solution for each policyholder.

Savings & Wealth Creation Solutions:

ICICI Pru Life Stage Wealth II is a unit linked insurance plan that offers multiple

choices to decide how your savings would be invested based on your risk appetite. UIN -

105L118V02

ICICI Pru Lifetime Premier is a comprehensive savings plan that offers you a choice of

portfolio strategies for your savings and at the same time secures you against

uncertainties of life. UIN - 105L112V02

ICICI Pru Pinnacle Super is a unit linked insurance plan that gives you the advantage

of varying exposure to equities with downside protection, so that your investments are

protected in financially volatile times. UIN - 105L121V03

ICICI Pru Elite Life is a unit linked insurance plan that offers you multiple choices on

how to invest your savings along with an insurance cover.UIN - 105L125V02

ICICI Pru Elite Wealth is a unit linked insurance plan that offers you the greatest value

for your hard earned savings. Also, you get rewarded with Loyalty Additions from the

sixth year onwards to maximize the return on your investments. UIN - 105L126V02

23

ICICI Pru assures Single Premium a conventional non-participating single premium

product that provides you Guaranteed Maturity Benefit and also offers a life cover to take

care of your loved ones in your absence.UIN - 105N123V01

ICICI Pru Guaranteed Savings Insurance Plan is a limited pay endowment product that

allows you to enjoy the benefits of a long term savings plan ensuring that you and your

family are free of any financial worries. UIN - 105N114V02

ICICI Pru Future Secure is a participating endowment life insurance plan that helps

you save for specific goals in the future, while providing protection for your family from

financial distress in case of your untimely demise. Thus the dual benefit of savings and

protection it helps you ensure a secure future for your loved ones. UIN - 105N117V01

ICICI Pru Whole Life provides you with a unique double advantage of savings and

protection that not only allows you to meet your goals but also seeks to ensure that your

dear ones will continue to live their lives in comfort without financial worries in case of

unforeseen eventuality. UIN - 105N116V01

ICICI Pru Save 'n' Protect are plan for those who want to accumulate funds on a

regular basis while enjoying insurance protection. UIN - 105N004V02

ICICI Pru Cashbook is a single policy that combines the triple benefit of protection,

savings & periodic liquidity. UIN - 105N005V02

Protection Solutions:

ICICI Pru care is a term insurance plan that you can buy online at your convenience at

their home in a simple manner. UIN - 105N122V01

ICICI Pru Pure Protect is a flexible and affordable term product, with which you can

ensure your life and provide total security for your family in case of an unfortunate event.

UIN - 105N084V01

24

ICICI Pru Lifeguard is a protection plan, which offers life cover at low cost. It is

available in 2 options –level term assurance with return of premium & single premium.

UIN - 105N006V02

Child Plans:

ICICI Pru Smart Kid Regular Premium is an endowment regular premium life

insurance plan which comes with a unique Payer Waiver Benefit (PWB). This benefit

ensures that in case of death of the parent, the company pays all future premiums on

behalf of the parent. This means that the child gets money at important stages of his/her

student life and education never suffers due to lack of funds.UIN No - 105N014V02

ICICI Pru Smart Kid Premier is a ULIP plan which ensures your child’s education

continues even if you are not around. In this Plan you need to invest premiums regularly

over a period of time and the returns that you get will depend on the performance of the

underlying fund performance. UIN - 105L120V01

Retirement Solutions:

ICICI Pru Immediate Annuity is a single premium annuity product that guarantees

income for life at the time of retirement. It offers the benefit of 5 payout options. UIN -

105N009V06

Health Solutions :

ICICI Pru Hospital Care II is a family floater plan covering your spouse and children.

This fixed benefit hospitalisation and surgical plan complements your existing coverage

by offering payouts over and above any health plan you have, thus availing best possible

medical treatment, without having to bother about the cost of the treatment or quality of

care. UIN - 105N108V01

ICICI Pru Crisis Cover is a product that will provide long-term coverage against 35

critical illnesses, total and permanent disability, and death. UIN - 105N072V01

25

ICICI Pru Health Saver is a whole of life comprehensive health insurance policy which

provides a hospitalisation cover for you and your family and reimburses all other medical

expenses not covered in the hospitalisation benefit by building a health fund for you and

your family. UIN - 105L087V01

Group Insurance Solutions:

ICICI Prudential also offers Group Insurance Solutions for companies seeking to enhance

benefits to their employees.

Group Gratuity Plan: ICICI Prudential Life's group gratuity plan helps employers fund

their statutory gratuity obligation in a scientific manner and also avail of tax benefits as

applicable to approved gratuity funds.

Group Leave encashment Plan: ICICI Prudential Life’s Group offers a market linked

and traditional leave encashment plan designed to aid the employer to build a fund to

meet their future leave encashment liability. The contributions made will be invested as

per the chosen investment plans and will be available for payment of the benefit when it

falls due. Additionally, the product also provides for term cover for all the employees

covered under the policy. UIN - 105L079V01

Group Term Insurance Plan: ICICI Prudential Life's flexible group term is a one-year

renewable life insurance policy that enables you to provide every member of your team

with an affordable life cover.

Group Term in lieu of EDLI Scheme: ICICI Prudential's Group Insurance Scheme in

lieu of EDLI has been certified by the Employee Provident Fund Organization (EPFO) as

a superior product that provides greater insurance benefits than the cover offered by

EPFO.

Credit Assure with Credit Assure, we offer an innovative and affordable term life

insurance plan that covers loans against the unfortunate event of death, with complete

26

convenience in application. The scheme is simple and hassle-free. In other words, peace

of mind guaranteed.

Flexible Rider Options:

ICICI Prudential Life offers flexible riders, which can be added to the basic policy at a

marginal cost, depending on the specific needs of the customer.

Accident & disability benefit: If death occurs as the result of an accident during the

term of the policy, the beneficiary receives an additional amount equal to the rider sum

assured under the policy. If an accident results in total and permanent disability, 10% of

rider sum assured will be paid each year, from the end of the 1st year after the disability

date for the remainder of the base policy term or 10 years, whichever is lesser.

Critical illness benefit: Critical Illness Benefit Rider provides protection against 9

critical illnesses to the policyholder when attached to the basic plan.

Income Benefit Rider: In case of death of the life assured during the term of the policy,

10% of the rider sum assured is paid annually to the beneficiary, on each policy

anniversary till maturity of the rider. Income Benefit rider is available with Smart Kid

Child Plans. Premiums paid under this rider are eligible for tax benefits under Section

80C.

Waiver of Premium Rider (WOP): On total and permanent disability due to an

accident, all future premiums for both the base policy and rider(s) will be waived till the

end of the term of the rider or death of the life assured, if earlier.

Waiver of Premium Rider on Critical Illness Rider: This rider waives all your future

premiums of your base policy on occurrence of specified 20 Critical Illnesses. This

ensures that your policy benefits continue as planned.

27

Awards:

ICICI Prudential Life Insurance has been pronounced winner in the 2nd

Excellence Awards and Recognition for Shared Services, 2012. We won the

award in the category - Shared Services in India - Insurance Domain. 

These awards have been instituted by All India Management Association (AIMA)

& Delhi Management Association (DMA), in collaboration with R-value

Consulting as knowledge partners, to honour, recognize & promote

transformative strategies for shared services.

Ms. Chanda Kocher, Managing Director & CEO was awarded the "CNBC Asia

India Business Leader of the Year Award". She also received the "CNBC Asia's

CSR Award 2011"

For the third year in a row ICICI Bank has won The Asset Triple A Country

Awards for Best Domestic Bank in India

ICICI Bank won the Most Admired Knowledge Enterprises (MAKE) India 2009

Award. ICICI Bank won the first place in "Maximizing Enterprise Intellectual

Capital" category, October 28, 2009

Ms Chanda Kocher, MD and CEO was awarded with the Indian Business Women

Leadership Award at NDTV Profit Business Leadership Awards, October 26,

2009.

ICICI Bank received two awards in CNBC Ahwaz Consumer Awards; one for the

most preferred auto loan and the other for most preferred credit Card, on

September 30, 2009

Ms. Chanda Kocher, Managing Director & CEO ranked in the top 20 of the

World's 100 Most Powerful Women list compiled by Forbes, August 2009

Financial Express at its FE India's Best Banks Awards, honoured Mr. K.V.

Kamath, Chairman with the Lifetime Achievement Award , July 25, 2009

ICICI Bank won Asset Triple a Investment Awards for the Best Derivative

House, India. In addition ICICI Bank were Highly commended , Local Currency

Structured product, India for 1.5 year ADR GDR linked Range Accrual Note.,

July 2009

28

ICICI bank won in three categories at World finance Banking awards on June 16,

2009

o Best NRI Services bank

o Excellence in Private Banking, APAC Region

o Excellence in Remittance Business, APAC Region

ICICI Bank Mobile Banking was adjudged "Best Bank Award for Initiatives in

Mobile Payments and Banking" by IDRBT, on May 18, 2009 in Hyderabad.

ICICI Bank's b2 branch free banking was adjudged "Best E-Banking Project

Implementation Award 2008" by The Asian Banker, on May 11, 2009 at the

China World Hotel in Beijing.

ICICI Bank bags the "Best bank in SME financing (Private Sector)" at the Dun &

Bradstreet Banking awards 2009.

ICICI Bank NRI services wins the "Excellence in Business Model Innovation

Award" in the eighth Asian Banker Excellence in Retail Financial Services

Awards Programme.

ICICI Bank's Rural Micro Banking and Agri-Business Group win WOW Event &

Experiential Marketing Award in two categories - "Rural Marketing programme

of the year" and "Small Budget on Ground Promotion of the Year". These awards

were given for Cattle Loan 'Kamdhenu Campaign' and "Talkies on the move

campaign' respectively.

ICICI Bank's Germany Branch has been certified by "Sifting Warren test". ICICI

Bank is ranked 2nd amongst 57 savings products across 19 banks

ICICI Bank Germany won the yearly banking test of the investor magazine

€euro in the "call money “category.

The ICICI Bank was awarded the runner's up position in Gartner Business

Intelligence and Excellence Award for Asia Pacific for its Business Intelligence

functions.

ICICI Bank's Organisational Excellence Group was recently awarded ISO

9001:2008 certification by TUV Nord. The scope of certification comprised

processes around consulting and capability building on methods of quality &

improvements.

29

ICICI Bank has been awarded the following titles under The Asset Triple A

Country Awards for 2009:

o Best Transaction Bank in India

o Best Trade Finance Bank in India

o Best Cash Management Bank in India

o Best Domestic Custodian in India

ICICI Bank has bagged the Best Cash Management Bank in India award for the

second year in a row. The other awards have been bagged for the third year in a

row.

ICICI Bank Canada received the prestigious Canadian Helen Keller Award at the

Canadian Helen Keller Centre's Fifth Annual Luncheon in Toronto. The award

was given to ICICI Bank its long-standing support to this unique training centre

for people who are deaf-blind.

ICICI Foundation for Inclusive Growth (ICICI Foundation) was founded by the ICICI

Group in early 2008 to give focus to its efforts to promote inclusive growth amongst low-

income Indian households.

We believe our fundamental challenge is to create a “just” society – one where everyone

has equal opportunity to develop and grow. Towards this end, ICICI Foundation is

committed to making India’s economic growth more inclusive, allowing every individual

to participate in and benefit from the growth process.

We hold a set of core beliefs and values that defines our pathway towards inclusive

growth and guides our five strategic partnerships.

Vision:

our vision is a world free of poverty in which every individual has the freedom and power

to create and sustain a just society in which to live.

30

Mission:

Our mission is to create and support strong independent organisations which work

towards empowering the poor to participate in and benefit from the Indian growth

process.

As a key partner in India's economic growth for more than five decades, the ICICI Group

endeavours to promote growth in all sectors of the nation’s economy. To give focus to its

efforts to promote inclusive growth amongst low-income Indian households, the ICICI

Group founded ICICI Foundation for Inclusive Growth in January 2010.

The foundations of ICICI Group’s approach towards human and social development were

established with the Social Initiatives Group (SIG), a non-profit resource group within

ICICI Bank, in 2000.

ICICI Foundation for Inclusive Growth (ICICI Foundation) has been set up as public

charitable trusts registered at Chennai vide registration of the Trust Deed with the Sub-

Registrar’s Office at Chennai on January 04, 2010.

The application for registration of the Foundation under section 12AA of the Income tax

Act, 1961 (“the Act”) was filed on February 7, 2008 and the application under section

80G of the Act was filed on February 14, 2008. Subsequently, ICICI Foundation was

registered as a “PUBLIC CHARITABLE TRUST” under Section 12AA of the Act with

effect from February 7, 2008. Further, ICICI Foundation received approval under Section

80G (5) (VI) of the Act on March 19, 2008. This approval is valid in respect of donation

received by ICICI Foundation from February 14, 2008 to March 31, 2009. Accordingly,

ICICI Bank and Group Companies will be eligible to get a deduction under section 80G

on donations made during this period.

ICICI Foundation has also obtained its Permanent Account Number (PAN) and Tax

deduction Account Number (TAN).

31

Funds Flow 2010-2011:

ICICI Foundation received Rs.617.80 million from the following sources as grants:

(January 4, 2008 to March 31, 2011) (spanning two financial years)

Source (January 4, 2008 – March 31, 2011)Amount

(Rs.millions)

ICICI Bank 500.00

ICICI Prudential Life Insurance 67.72

ICICI Lombard General Insurance 17.12

ICICI Securities 14.98

ICICI Securities PD 6.99

ICICI Home Finance 1.99

ICICI Venture 9.00

Total 617.80

ICICI Foundation also incurred total expenses of Rs.1.25 million during this period and

had a fund balance of Rs.61.55 million as on March 31, 2011.

Disbursements (January 4, 2008 to March 31, 2011)

Grant Beneficiaries (January 4, 2010 – March 31, 2011)Amount

(Rs.millions)

ICICI Foundation Programmes  

ICICI Centre for Child Health and Nutrition 150.00

IFMR Finance Foundation 200.00

32

Environmentally Sustainable Finance 20.00

CSO Partners 50.00

CARE (Policy Unit) 5.00

Strategy and Advisory Group 20.00

ICICI Group Corporate Social Responsibility Programmes  

Read to Lead 25.00

MITRA (ICICI Fellows Programme) 55.00

CARE (Disaster Management Unit) 5.00

Rang De 25.00

Total 555.00

Grant Beneficiaries for 2010-2011:

ICICI Foundation Programmers

ICICI Centre for Child Health and Nutrition (ICCHN)

The grant of Rs.150.00 million was provided to ICCHN by way of corpus support and for

pursuing various projects consistent with its mission.

IFMR Finance Foundation (IFF)

The grant of Rs.200.00 million was provided to IFMR Finance Foundation by way of

corpus support and for pursuing various projects consistent with its mission.

Environmentally Sustainable Finance (ESF)

The grant of Rs.20.00 million was provided to ESF for their collaboration work with

Rural Energy Network Enterprise (RENE) on sustainable energy and environment

projects benefiting remote rural end users. The proposed projects will promote

33

developing tools and driving innovation to scale rural energy access for remote rural

users.

CSO Partners:

the grant of Rs.50.00 million was provided to CSO Partners by way of corpus support

and for pursuing various projects consistent with its mission.

CARE (Policy Unit):

A grant of Rs.5.00 million was provided to CARE, an Indian NGO that is closely

affiliated with CARE (USA), to create a policy unit in Delhi. Learning from CARE’s

work in India and world-wide as well as from the work of ICICI Foundation and its

partners, the unit will serve as a platform to engage the government and policymakers in

an effort to bring about required policy changes in areas such as maternal and child

health.

Strategy and Advisory Group (SAG):

Charitable foundations in India and world-wide struggle to fully develop the strategy

formulation, knowledge management and impact assessment dimensions of their work. A

grant of Rs.20.00 million was provided to Strategy and Advisory Group (SAG), a team at

Centre for Development Finance that provides strategic advisory services to clients in the

development sector, to develop these functions and to offer their expertise to foundations

in general, including ICICI Foundation.

ICICI Group Corporate Social Responsibility Programmers:

Read to lead is an initiative of ICICI Bank to facilitate elementary education for

disadvantaged children in the age group of 6-13 years. An amount of Rs.25.00 million

has thus far been disbursed to 100,000 children through 30 NGOs. The balance amount of

Rs.75.00 million is planned to be disbursed during the period 2009-2010.

MITRA (ICICI Fellows Programme)

MITRA is an affiliate of CSO Partners that is focused on addressing the challenge of

human resources for civil society organisations (CSOs). In partnership with CSO Partners

and MITRA, ICICI Foundation proposes to launch an ICICI Fellows Programme. An

34

amount of Rs.55.00 million has been disbursed to MITRA for developing and launching

the programme over the period 2009-2010.

CARE (Disaster Management Unit)

a grant of Rs.5.00 million has been given to CARE in India to enable it to prepare for any

future disasters that may strike and respond immediately with the required relief efforts.

Rang De (Micro Enterprise Development)

Rang De, an affiliate of CSO Partners, has partnered with ICICI Venture to roll out funds

for micro enterprise development in rural and semi-urban locations. The amount of

Rs.25.00 million that has been disbursed to them will support micro enterprises to the

extent of Rs.15.00 million and the balance amount of Rs.10.00 million will go towards

meeting their expenses to build the platform.

35

CHAPTER-III

LITERATURE REVIEW

36

Review of literature is not up to the mark.

Changes are required. More related information

should to be included.

A security is a fungible, negotiable instrument representing financial value. Securities

are broadly categorized into debt securities (such as banknotes, bonds and debentures)

and equity securities, e.g., common stocks; and derivative contracts, such as forwards,

futures, options and swaps. The company or other entity issuing the security is called the

issuer. A country's regulatory structure determines what qualifies as a security. For

example, private investment pools may have some features of securities, but they may not

be registered or regulated as such if they meet various restrictions.

Securities may be represented by a certificate or, more typically, "non-certificated", that

is in electronic or "book entry" only form. Certificates may be bearer, meaning they

entitle the holder to rights under the security merely by holding the security, or

registered, meaning they entitle the holder to rights only if he or she appears on a security

register maintained by the issuer or an intermediary. They include shares of corporate

stock or mutual funds, bonds issued by corporations or governmental agencies, stock

options or other options, limited partnership units, and various other formal investment

instruments that are negotiable and fungible. Corporations or governmental agencies,

stock options or other options, limited partnership units, and various other formal

investment instruments those are negotiable and fungible

RISK RETURN ANALYSIS:

All investment has some risk. Investment in shares of companies has its own risk or

uncertainty; these risks arise out of variability of yields and uncertainty of appreciation or

depreciation of share prices, losses of liquidity etc

37

The risk over time can be represented by the variance of the returns. While the return

over time is capital appreciation plus payout, divided by the purchase price of the share.

Normally, the higher the risk that the investor takes, the higher is the return.

There is, however, a risk less return on capital of about 12% which is the bank, rate

charged by the R.B.I or long term, yielded on government securities at around 13% to

14%. This risk less return refers to lack of variability of return and no uncertainty in the

repayment or capital. But other risks such as loss of liquidity due to parting with money

etc., may however remain, but are rewarded by the total return on the capital. Risk-return

is subject to variation and the objectives of the portfolio manager are to reduce that

variability and thus reduce the risk by choosing an appropriate portfolio.

Traditional approach advocates that one security holds the better, it is according

to the modern approach diversification should not be quantity that should be related to the

quality of scripts which leads to quality of portfolio.

Experience has shown that beyond the certain securities by adding more securities

expensive.

38

RISK MANAGEMENT DEFINITIONS TO BE INCLUDED

Risk management is the identification, assessment, and prioritization of risks (defined in

ISO 31000 as the effect of uncertainty on objectives, whether positive or negative)

followed by coordinated and economical application of resources to minimize, monitor,

and control the probability and/or impact of unfortunate events or to maximize the

realization of opportunities. Risks can come from uncertainty in financial markets,

project failures (at any phase in design, development, production, or sustainment life-

cycles), legal liabilities, credit risk, accidents, natural causes and disasters as well as

deliberate attack from an adversary, or events of uncertain or unpredictable root-cause.

Several risk management standards have been developed including the Project

Management Institute, the National Institute of Science and Technology, actuarial

societies, and ISO standards. Methods, definitions and goals vary widely according to

whether the risk management method is in the context of project management, security,

engineering, industrial processes, financial portfolios, actuarial assessments, or public

health and safety.

The strategies to manage risk typically include transferring the risk to another party,

avoiding the risk, reducing the negative effect or probability of the risk, or even accepting

some or all of the potential or actual consequences of a particular risk.

Certain aspects of many of the risk management standards have come under criticism for

having no measurable improvement on risk, whether the confidence in estimates and

decisions seem to increase.

Introduction:

39

This section provides an introduction to the principles of risk management. The

vocabulary of risk management is defined in ISO Guide 73, "Risk management.

Vocabulary."

In ideal risk management, a prioritization process is followed whereby the risks with the

greatest loss (or impact) and the greatest probability of occurring are handled first, and

risks with lower probability of occurrence and lower loss are handled in descending

order. In practice the process of assessing overall risk can be difficult, and balancing

resources used to mitigate between risks with a high probability of occurrence but lower

loss versus a risk with high loss but lower probability of occurrence can often be

mishandled.

Intangible risk management identifies a new type of a risk that has a 100% probability of

occurring but is ignored by the organization due to a lack of identification ability. For

example, when deficient knowledge is applied to a situation, a knowledge risk

materializes. Relationship risk appears when ineffective collaboration occurs. Process-

engagement risk may be an issue when ineffective operational procedures are applied.

These risks directly reduce the productivity of knowledge workers, decrease cost

effectiveness, profitability, service, quality, reputation, brand value, and earnings quality.

Intangible risk management allows risk management to create immediate value from the

identification and reduction of risks that reduce productivity.

Risk management also faces difficulties in allocating resources. This is the idea of

opportunity cost. Resources spent on risk management could have been spent on more

profitable activities. Again, ideal risk management minimizes spending (or manpower or

other resources) and also minimizes the negative effects of risks.

Method:

For the most part, these methods consist of the following elements, performed, more or

less, in the following order.

1. identify, characterize, and assess threats

40

2. assess the vulnerability of critical assets to specific threats

3. determine the risk (i.e. the expected consequences of specific types of attacks on

specific assets)

4. identify ways to reduce those risks

5. prioritize risk reduction measures based on a strategy

Principles of risk management:

The International Organization for Standardization (ISO) identifies the following

principles of risk management:

Risk management should:

create value - resources expended to mitigate risk should generally exceed the

consequence of inaction, or (as in value engineering), the gain should exceed the

pain

be an integral part of organizational processes

be part of decision making

explicitly address uncertainty and assumptions

be systematic and structured

be based on the best available information

be tailor able

take into account human factors

be transparent and inclusive

be dynamic, iterative and responsive to change

be capable of continual improvement and enhancement

be continually or periodically re-assessed

Process:

41

According to the standard ISO 31000 "Risk management -- Principles and guidelines on

implementation," the process of risk management consists of several steps as follows:

Establishing the context:

Establishing the context involves:

1. Identification of risk in a selected domain of interest

2. Planning the remainder of the process.

3. Mapping out the following:

o the social scope of risk management

o the identity and objectives of stakeholders

o The basis upon which risks will be evaluated, constraints.

4. Defining a framework for the activity and an agenda for identification.

5. Developing an analysis of risks involved in the process.

6. Mitigation or Solution of risks using available technological, human and

organizational resources.

Identification:

After establishing the context, the next step in the process of managing risk is to identify

potential risks. Risks are about events that, when triggered, cause problems. Hence, risk

identification can start with the source of problems, or with the problem itself.

Source analysis Risk sources may be internal or external to the system that is the

target of risk management.

Examples of risk sources are: stakeholders of a project, employees of a company or the

weather over an airport.

Problem analysis Risks are related to identified threats. For example: the threat of

losing money, the threat of abuse of confidential information or the threat of

accidents and casualties. The threats may exist with various entities, most

42

important with shareholders, customers and legislative bodies such as the

government.

When either source or problem is known, the events that a source may trigger or the

events that can lead to a problem can be investigated. For example: stakeholders

withdrawing during a project may endanger funding of the project; confidential

information may be stolen by employees even within a closed network; lightning striking

an aircraft during takeoff may make all people on board immediate casualties.

The chosen method of identifying risks may depend on culture, industry practice and

compliance. The identification methods are formed by templates or the development of

templates for identifying source, problem or event. Common risk identification methods

are:

Objectives-based risk identification Organizations and project teams have

objectives. Any event that may endanger achieving an objective partly or

completely is identified as risk.

Scenario-based risk identification in scenario analysis different scenarios are

created. The scenarios may be the alternative ways to achieve an objective, or an

analysis of the interaction of forces in, for example, a market or battle. Any event

that triggers an undesired scenario alternative is identified as risk - see Futures

Studies for methodology used by Futurists.

Taxonomy-based risk identification the taxonomy in taxonomy-based risk

identification is a breakdown of possible risk sources. Based on the taxonomy and

knowledge of best practices, a questionnaire is compiled. The answers to the

questions reveal risks.

Common-risk checking in several industries, lists with known risks is available.

Each risk in the list can be checked for application to a particular situation.

Risk charting this method combines the above approaches by listing resources at

risk, threats to those resources, modifying factors which may increase or decrease

the risk and consequences it is wished to avoid. Creating a matrix under these

headings enables a variety of approaches. One can begin with resources and

43

consider the threats they are exposed to and the consequences of each.

Alternatively one can start with the threats and examine which resources they

would affect, or one can begin with the consequences and determine which

combination of threats and resources would be involved to bring them about.

Assessment:

Once risks have been identified, they must then be assessed as to their potential severity

of impact (generally a negative impact, such as damage or loss) and to the probability of

occurrence. These quantities can be either simple to measure, in the case of the value of a

lost building, or impossible to know for sure in the case of the probability of an unlikely

event occurring. Therefore, in the assessment process it is critical to make the best

educated decisions in order to properly prioritize the implementation of the risk

management plan.

Even a short-term positive improvement can have long-term negative impacts. Take the

"turnpike" example. A highway is widened to allow more traffic. More traffic capacity

leads to greater development in the areas surrounding the improved traffic capacity. Over

time, traffic thereby increases to fill available capacity. Turnpikes thereby need to be

expanded in a seemingly endless cycles. There are many other engineering examples

where expanded capacity (to do any function) is soon filled by increased demand. Since

expansion comes at a cost, the resulting growth could become unsustainable without

forecasting and management.

The fundamental difficulty in risk assessment is determining the rate of occurrence since

statistical information is not available on all kinds of past incidents. Furthermore,

evaluating the severity of the consequences (impact) is often quite difficult for intangible

assets. Asset valuation is another question that needs to be addressed. Thus, best educated

opinions and available statistics are the primary sources of information. Nevertheless,

44

risk assessment should produce such information for the management of the organization

that the primary risks are easy to understand and that the risk management decisions may

be prioritized. Thus, there have been several theories and attempts to quantify risks.

Numerous different risk formulae exist, but perhaps the most widely accepted formula for

risk quantification is:

Rate (or probability) of occurrence multiplied by the impact of the event equals

risk magnitude

Composite Risk Index:

The above formula can also be re-written in terms of a Composite Risk Index, as follows:

Composite Risk Index = Impact of Risk event x Probability of Occurrence

The impact of the risk event is commonly assessed on a scale of 1 to 5, where 1 and 5

represent the minimum and maximum possible impact of an occurrence of a risk (usually

in terms of financial losses). However, the 1 to 5 scale can be arbitrary and need not be

on a linear scale.

The probability of occurrence is likewise commonly assessed on a scale from 1 to 5,

where 1 represents a very low probability of the risk event actually occurring while 5

represents a very high probability of occurrence. This axis may be expressed in either

mathematical terms (event occurs once a year, once in ten years, once in 100 years etc.)

or may be expressed in "plain English" - event has occurred here very often; event has

been known to occur here; event has been known to occur in the industry etc.). Again, the

1 to 5 scale can be arbitrary or non-linear depending on decisions by subject-matter

experts.

The Composite Index thus can take values ranging (typically) from 1 through 25, and this

range is usually arbitrarily divided into three sub-ranges. The overall risk assessment is

45

then Low, Medium or high, depending on the sub-range containing the calculated value

of the Composite Index. For instance, the three sub-ranges could be defined as 1 to 8, 9 to

16 and 17 to 25.

Note that the probability of risk occurrence is difficult to estimate, since the past data on

frequencies are not readily available, as mentioned above. After all, probability does not

imply certainty.

Likewise, the impact of the risk is not easy to estimate since it is often difficult to

estimate the potential loss in the event of risk occurrence.

Further, both the above factors can change in magnitude depending on the adequacy of

risk avoidance and prevention measures taken and due to changes in the external business

environment. Hence it is absolutely necessary to periodically re-assess risks and

intensify/relax mitigation measures, or as necessary. Changes in procedures, technology,

schedules, budgets, market conditions, political environment, or other factors typically

require re-assessment of risks.

Risk Options:

Risk mitigation measures are usually formulated according to one or more of the

following major risk options, which are:

1. Design a new business process with adequate built-in risk control and

containment measures from the start.

2. Periodically re-assess risks that are accepted in ongoing processes as a normal

feature of business operations and modify mitigation measures.

3. Transfer risks to an external agency (e.g. an insurance company)

4. Avoid risks altogether (e.g. by closing down a particular high-risk business area)

Later research has shown that the financial benefits of risk management are less

dependent on the formula used but are more dependent on the frequency and how risk

assessment is performed.

46

In business it is imperative to be able to present the findings of risk assessments in

financial, market, or schedule terms. Robert Courtney Jr. (IBM, 1970) proposed a

formula for presenting risks in financial terms. The Courtney formula was accepted as the

official risk analysis method for the US governmental agencies. The formula proposes

calculation of ALE (annualized loss expectancy) and compares the expected loss value to

the security control implementation costs (cost-benefit analysis).

Potential risk treatments:

Once risks have been identified and assessed, all techniques to manage the risk fall into

one or more of these four major categories:

Avoidance (eliminate, withdraw from or not become involved)

Reduction (optimize - mitigate)

Sharing (transfer - outsource or insure)

Retention (accept and budget)

Ideal use of these strategies may not be possible. Some of them may involve trade-offs

that are not acceptable to the organization or person making the risk management

decisions. Another source, from the US Department of Defense (see link), Defense

Acquisition University, calls these categories ACAT, for Avoid, Control, Accept, or

Transfer. This use of the ACAT acronym is reminiscent of another ACAT (for

Acquisition Category) used in US Defense industry procurements, in which Risk

Management figures prominently in decision making and planning.

Risk avoidance:

This includes not performing an activity that could carry risk. An example would be not

buying a property or business in order to not take on the legal liability that comes with it.

Another would be not flying in order not to take the risk that the airplane were to be

hijacked. Avoidance may seem the answer to all risks, but avoiding risks also means

losing out on the potential gain that accepting (retaining) the risk may have allowed. Not

entering a business to avoid the risk of loss also avoids the possibility of earning profits.

47

Hazard Prevention:

Hazard prevention refers to the prevention of risks in an emergency. The first and most

effective stage of hazard prevention is the elimination of hazards. If this takes too long, is

too costly, or is otherwise impractical, the second stage is mitigation.

Risk reduction:

Risk reduction or "optimization" involves reducing the severity of the loss or the

likelihood of the loss from occurring. For example, sprinklers are designed to put out a

fire to reduce the risk of loss by fire. This method may cause a greater loss by water

damage and therefore may not be suitable. Hal on fire suppression systems may mitigate

that risk, but the cost may be prohibitive as a strategy.

Acknowledging that risks can be positive or negative, optimizing risks means finding a

balance between negative risk and the benefit of the operation or activity; and between

risk reduction and effort applied. By an offshore drilling contractor effectively applying

HSE Management in its organization, it can optimize risk to achieve levels of residual

risk that are tolerable.

Modern software development methodologies reduce risk by developing and delivering

software incrementally. Early methodologies suffered from the fact that they only

delivered software in the final phase of development; any problems encountered in earlier

phases meant costly rework and often jeopardized the whole project. By developing in

iterations, software projects can limit effort wasted to a single iteration.

48

Outsourcing could be an example of risk reduction if the outsourcer can demonstrate

higher capability at managing or reducing risks. For example, a company may outsource

only its software development, the manufacturing of hard goods, or customer support

needs to another company, while handling the business management itself. This way, the

company can concentrate more on business development without having to worry as

much about the manufacturing process, managing the development team, or finding a

physical location for a call center.

Risk sharing:

Briefly defined as "sharing with another party the burden of loss or the benefit of gain,

from a risk, and the measures to reduce a risk."

The term of 'risk transfer' is often used in place of risk sharing in the mistaken belief that

you can transfer a risk to a third party through insurance or outsourcing. In practice if the

insurance company or contractor go bankrupt or end up in court, the original risk is likely

to still revert to the first party. As such in the terminology of practitioners and scholars

alike, the purchase of an insurance contract is often described as a "transfer of risk."

However, technically speaking, the buyer of the contract generally retains legal

responsibility for the losses "transferred", meaning that insurance may be described more

accurately as a post-event compensatory mechanism. For example, a personal injuries

insurance policy does not transfer the risk of a car accident to the insurance company.

The risk still lays with the policy holder namely the person who has been in the accident.

The insurance policy simply provides that if an accident (the event) occurs involving the

policy holder then some compensation may be payable to the policy holder that is

commensurate to the suffering/damage.

Some ways of managing risk fall into multiple categories. Risk retention pools are

technically retaining the risk for the group, but spreading it over the whole group

involves transfer among individual members of the group. This is different from

traditional insurance, in that no premium is exchanged between members of the group up

front, but instead losses are assessed to all members of the group.

49

Risk retention:

Involves accepting the loss, or benefit of gain, from a risk when it occurs. True self

insurance falls in this category. Risk retention is a viable strategy for small risks where

the cost of insuring against the risk would be greater over time than the total losses

sustained. All risks that are not avoided or transferred are retained by default. This

includes risks that are so large or catastrophic that they either cannot be insured against or

the premiums would be infeasible. War is an example since most property and risks are

not insured against war, so the loss attributed by war is retained by the insured. Also any

amount of potential loss (risk) over the amount insured is retained risk. This may also be

acceptable if the chance of a very large loss is small or if the cost to insure for greater

coverage amounts is so great it would hinder the goals of the organization too much.

Create a Risk Management Plan:

Select appropriate controls or countermeasures to measure each risk. Risk mitigation

needs to be approved by the appropriate level of management. For instance, a risk

concerning the image of the organization should have top management decision behind it

whereas IT management would have the authority to decide on computer virus risks.

The risk management plan should propose applicable and effective security controls for

managing the risks. For example, an observed high risk of computer viruses could be

mitigated by acquiring and implementing antivirus software. A good risk management

plan should contain a schedule for control implementation and responsible persons for

those actions.

According to ISO/IEC 27001, the stage immediately after completion of the risk

assessment phase consists of preparing a Risk Treatment Plan, which should document

the decisions about how each of the identified risks should be handled. Mitigation of risks

often means selection of security controls, which should be documented in a Statement of

Applicability, which identifies which particular control objectives and controls from the

standard have been selected, and why.

50

Implementation:

Implementation follows all of the planned methods for mitigating the effect of the risks.

Purchase insurance policies for the risks that have been decided to be transferred to an

insurer, avoid all risks that can be avoided without sacrificing the entity's goals, reduce

others, and retain the rest.

Review and evaluation of the plan:

Initial risk management plans will never be perfect. Practice, experience, and actual loss

results will necessitate changes in the plan and contribute information to allow possible

different decisions to be made in dealing with the risks being faced.

Risk analysis results and management plans should be updated periodically. There are

two primary reasons for this:

1. to evaluate whether the previously selected security controls are still applicable

and effective, and

2. To evaluate the possible risk level changes in the business environment. For

example, information risks are a good example of rapidly changing business

environment.

Limitations:

If risks are improperly assessed and prioritized, time can be wasted in dealing with risk of

losses that are not likely to occur. Spending too much time assessing and managing

unlikely risks can divert resources that could be used more profitably. Unlikely events do

occur but if the risk is unlikely enough to occur it may be better to simply retain the risk

and deal with the result if the loss does in fact occur. Qualitative risk assessment is

subjective and lacks consistency. The primary justification for a formal risk assessment

process is legal and bureaucratic.

51

Prioritizing the risk management processes too highly could keep an organization from

ever completing a project or even getting started. This is especially true if other work is

suspended until the risk management process is considered complete.

It is also important to keep in mind the distinction between risk and uncertainty. Risk can

be measured by impacts x probability.

Areas of risk management:

As applied to corporate finance, risk management is the technique for measuring,

monitoring and controlling the financial or operational risk on a firm's balance sheet. See

value at risk.

The Basel II framework breaks risks into market risk (price risk), credit risk and

operational risk and also specifies methods for calculating capital requirements for each

of these components.

Enterprise risk management:

In enterprise risk management, a risk is defined as a possible event or circumstance that

can have negative influences on the enterprise in question. Its impact can be on the very

existence, the resources (human and capital), the products and services, or the customers

of the enterprise, as well as external impacts on society, markets, or the environment. In a

financial institution, enterprise risk management is normally thought of as the

combination of credit risk, interest rate risk or asset liability management, market risk,

and operational risk.

In the more general case, every probable risk can have a pre-formulated plan to deal with

its possible consequences (to ensure contingency if the risk becomes a liability).

52

From the information above and the average cost per employee over time, or cost accrual

ratio, a project manager can estimate:

The cost associated with the risk if it arises, estimated by multiplying employee

costs per unit time by the estimated time lost (cost impact, C where C = cost

accrual ratio * S).

the probable increase in time associated with a risk (schedule variance due to risk,

Rs where Rs = P * S):

o Sorting on this value puts the highest risks to the schedule first. This is

intended to cause the greatest risks to the project to be attempted first so

that risk is minimized as quickly as possible.

o These are slightly misleading as schedule variances with a large P and

small S and vice versa are not equivalent. (The risk of the RMS Titanic

sinking vs. the passengers' meals being served at slightly the wrong time).

the probable increase in cost associated with a risk (cost variance due to risk, Rc

where Rc = P*C = P*CAR*S = P*S*CAR)

o Sorting on this value puts the highest risks to the budget first.

o See concerns about schedule variance as this is a function of it, as

illustrated in the equation above.

Risk in a project or process can be due either to Special Cause Variation or Common

Cause Variation and requires appropriate treatment. That is to re-iterate the concern about

external cases not being equivalent in the list immediately above.

Risk management activities as applied to project management:

In project management, risk management includes the following activities:

Planning how risk will be managed in the particular project. Plans should include

risk management tasks, responsibilities, activities and budget.

Assigning a risk officer - a team member other than a project manager who is

responsible for foreseeing potential project problems. Typical characteristic of

risk officer is a healthy skepticism.

53

Maintaining live project risk database. Each risk should have the following

attributes: opening date, title, short description, probability and importance.

Optionally a risk may have an assigned person responsible for its resolution and a

date by which the risk must be resolved.

Creating anonymous risk reporting channel. Each team member should have the

possibility to report risks that he/she foresees in the project.

Preparing mitigation plans for risks that are chosen to be mitigated. The purpose

of the mitigation plan is to describe how this particular risk will be handled –

what, when, by who and how will it be done to avoid it or minimize consequences

if it becomes a liability.

Summarizing planned and faced risks, effectiveness of mitigation activities, and

effort spent for the risk management.

Risk management for mega projects:

Megaprojects (sometimes also called "major programs") are extremely large-scale

investment projects, typically costing more than US$1 billion per project. Megaprojects

include bridges, tunnels, highways, railways, airports, seaports, power plants, dams,

wastewater projects, coastal flood protection schemes, oil and natural gas extraction

projects, public buildings, information technology systems, aerospace projects, and

defense systems. Megaprojects have been shown to be particularly risky in terms of

finance, safety, and social and environmental impacts. Risk management is therefore

particularly pertinent for megaprojects and special methods and special education have

been developed for such risk management.

Risk management of Information Technology:

Information technology is increasingly pervasive in modern life in every sector.

IT risk is a risk related to information technology. This is a relatively new term due to an

increasing awareness that information security is simply one facet of a multitude of risks

that are relevant to IT and the real world processes it supports.

54

A number of methodologies have been developed to deal with this kind of risk.

ISACA's Risk IT framework ties IT risk to Enterprise risk management.

Risk management techniques in petroleum and natural gas:

For the offshore oil and gas industry, operational risk management is regulated by the

safety case regime in many countries. Hazard identification and risk assessment tools and

techniques are described in the international standard ISO 17776:2000, and organizations

such as the IADC (International Association of Drilling Contractors) publish guidelines

for HSE Case development which are based on the ISO standard. Further, diagrammatic

representations of hazardous events are often expected by governmental regulators as part

of risk management in safety case submissions; these are known as bow-tie diagrams.

The technique is also used by organizations and regulators in mining, aviation, health,

defense, industrial and finance.

Risk management and business continuity:

Risk management is simply a practice of systematically selecting cost effective

approaches for minimizing the effect of threat realization to the organization. All risks

can never be fully avoided or mitigated simply because of financial and practical

limitations. Therefore all organizations have to accept some level of residual risks.

Whereas risk management tends to be preemptive, business continuity planning (BCP)

was invented to deal with the consequences of realized residual risks. The necessity to

have BCP in place arises because even very unlikely events will occur if given enough

time. Risk management and BCP are often mistakenly seen as rivals or overlapping

practices. In fact these processes are so tightly tied together that such separation seems

artificial. For example, the risk management process creates important inputs for the BCP

55

(assets, impact assessments, cost estimates etc.). Risk management also proposes

applicable controls for the observed risks. Therefore, risk management covers several

areas that are vital for the BCP process. However, the BCP process goes beyond risk

management's preemptive approach and assumes that the disaster will happen at some

point.

Risk communication:

Risk communication is a complex cross-disciplinary academic field. Problems for risk

communicators involve how to reach the intended audience, to make the risk

comprehensible and relatable to other risks, how to pay appropriate respect to the

audience's values related to the risk, how to predict the audience's response to the

communication, etc. A main goal of risk communication is to improve collective and

individual decision making. Risk communication is somewhat related to crisis

communication.

Seven cardinal rules for the practice of risk communication:

Accept and involve the public/other consumers as legitimate partners (e.g.

stakeholders).

Plan carefully and evaluate your efforts with a focus on your strengths,

weaknesses, opportunities, and threats (SWOT).

Listen to the stakeholder’s specific concerns.

Be honest, frank, and open.

Coordinate and collaborate with other credible sources.

Meet the needs of the media.

Speak clearly and with compassion.

Financial risk management is the practice of creating economic value in a firm by using

financial instruments to manage exposure to risk, particularly credit risk and market risk.

Other types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation

56

risks, etc. Similar to general risk management, financial risk management requires

identifying its sources, measuring it, and plans to address them.

Financial risk management can be qualitative and quantitative. As a specialization of risk

management, financial risk management focuses on when and how to hedge using

financial instruments to manage costly exposures to risk.

In the banking sector worldwide, the Basel Accords are generally adopted by

internationally active banks for tracking, reporting and exposing operational, credit and

market risks.

When to use financial risk management:

Finance theory (i.e., financial economics) prescribes that a firm should take on a project

when it increases shareholder value. Finance theory also shows that firm managers

cannot create value for shareholders, also called its investors, by taking on projects that

shareholders could do for themselves at the same cost.

When applied to financial risk management, this implies that firm managers should not

hedge risks that investors can hedge for themselves at the same cost. This notion was

captured by the hedging irrelevance proposition: In a perfect market, the firm cannot

create value by hedging a risk when the price of bearing that risk within the firm is the

same as the price of bearing it outside of the firm. In practice, financial markets are not

likely to be perfect markets.

This suggests that firm managers likely have many opportunities to create value for

shareholders using financial risk management. The trick is to determine which risks are

cheaper for the firm to manage than the shareholders. A general rule of thumb, however,

is that market risks that result in unique risks for the firm are the best candidates for

financial risk management.

The concepts of financial risk management change dramatically in the international

realm. Multinational Corporations are faced with many different obstacles in overcoming

these challenges. There has been some research on the risks firms must consider when

operating in many countries, such as the three kinds of foreign exchange exposure for

57

various future time horizons: transactions exposure, accounting exposure, and economic

exposure.

Megaprojects (sometimes also called "major programs") have been shown to be

particularly risky in terms of finance. Financial risk management is therefore particularly

pertinent for megaprojects and special methods have been developed for such risk

management.

Implementation of study:

For implementing the study,8 security’s or scripts constituting the Sensex market

are selected of one month closing share movement price data from Economic Times and

financial express on Jan 2012.

In order to know how the risk of the stock or script, we use the formula, which is

given below:

------------

Standard deviation = √ variance

N _

Variance = (1/n-1) ∑(R-R) ^2

t =1

Where (R-R) ^2=square of difference between sample and mean.

n=number of sample observed.

After that, we need to compare the stocks or scripts of two companies with each other by

using the formula or correlation co-efficient as given below.

N _ _Co-variance (COVAB) = 1/n∑ (RA-RA) (RB-RB)

58

t =1

(COV AB)

Correlation-Coefficient (P AB) = ---------------------

(Std. A) (Std. B)

Where (RA-RA) (RB-RB) = Combined deviations of A&B

(Std. A) (Std B) =standard deviation of A&B

COVAB= covariance between A&B

n =number of observation

The next step would be the construction of the optimal portfolio on the basis of

what percentage of investment should be invested when two securities and stocks are

combined i.e. calculation of two assets portfolio weight by using minimum variance

equation which is given below.

FORMULA (Std. b) ^2 – pab (Std. a) (Std. b)

Xa =------------------- ----------------------------------

(Std. a) ^2 + (std. b) ^2 –2 pab (Std. a) (Std. b)

Where

Std. b= standard deviation of b

Std. a = standard deviation of a

Pab= correlation co-efficient between A&B

The next step is final step to calculate the portfolio risk (combined risk), that shows how

much is the risk is reduced by combining two stocks or scripts by using this formula:

___________________________________

σp= √ X1^2σ1^2+X2^2σ2^2+2(X1)(X2)(X12)σ1σ

Where

X1=proportion of investment in security 1.

X2=proportion of investment in security 2.

Σ 1= standard deviation of security 1.

Σ 2= standard deviation of security 2.

X12=correlation co-efficient between security 1&2.

Σ p=portfolio risk

59

CHAPTER-IV

DATA ANALYSES AND

INTERPRETATION

60

Analysis of which company is undertaken?

From where the data was collected.

CALCULATION OF AVERAGE RETURN OF COMPANIES:

_ Average Return (R) = (R)/N

(P0) = Opening price of the share (P1) = Closing price of the share D = DividendWIPRO:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002007-2008 1,233.45 1361.20 29 127.75 12.712008-2009 1,361.20 2,012 5 650.8 48.162009-2010 2012 1900.75 5 -111.25 -15.842010-2011 1900.75 1900.45 8 -0.3 1.382011-2012 1900.45 425.30 - -1475.15 -0.776 

TOTAL RETURN 45.634

Average Return = 45.63/5 = 9.12

DR REDDY’S LABORATORIES LTD:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*100

61

2007-2008 916.30 974.35 5 58.2 6.892008-2009 974.35 739.15 5 23.52 -23.632009-2010 739.15 1,421.40 5 682.25 92.982010-2011 1,421.40 1456.55 3.75 35.15 2.742011-2012 1456.55 591.25 .75 -865.3 -59.4

 TOTAL RETURN 19.58

Average Return = 19.58/5 = 3.916

ACC:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002007-2008 138.50 254.65 4 116.15 86.712008-2009 254.65 360.55 7 105.9 44.342009-2010 360.55 782.20 8 421.61 119.192010-2011 782.20 735.25 25 -46.95 -2.82011-2012 735.23 826.10 2 90.85 12.63

  TOTAL RETURN  258.07

Average Return = 258.07/5 =51.614

HERO AUTOMOBILES LIMITED:

Year (P0) (P1) D (P1-P0)D+(P1-P0)/

P0*1002007-2008 188.20 490.60 20 302.40 171.32008-2009 490.60 548.00 20 57.40 15.772009-2010 548.00 890.45 20 342.45 66.142010-2011 890.45 688.75 17 -20.17 -20.74

62

2011-2012 688.75 9.5 1.45 1.45 1.958 

TOTAL RETURN 234.428

Average Return = 234.428/5 = 46.885

DIAGRAMATIC PRESENTATION

RETURN

63

COMPANY RETURN

WIPRO 9.12DR.REDDY 3.916

ACC 51.614HERO 46.885

WIPRO DR.REDDY ACC HERO0

10

20

30

40

50

60

RETURN

RETURN

Interpretation is needed for all graphs and figures

CALCULATION OF STANDARD DEVIATION:

Standard Deviation = Variance __Variance = 1/n (R-R)2

WIPRO:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2007-2008 12.71 9.12 3.59 12.88812008-2009 48.16 9.12 39.04 1524.1222009-2010 -15.84 9.12 -24.96 623.00162010-2011 1.38 9.12 -7.74 59.90762011-2012 -0.776 9.12 -9.896 97.93082

  TOTAL 2317.85 _

Variance = 1/n (R-R)2 = 1/5 (2317.85) = 463.57

64

Standard Deviation = Variance = 463.57 =21.53 DR. REDDY’S:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2007-2008 6.89 46.88 2.98 8.88042008-2009 -23.63 46.88 -27.54 758.45162009-2010 92.98 46.88 89.07 7933.4652010-2011 2.74 46.88 -1.17 1.36892011-2012 -59.4 46.88 -63.31 4008.156

 TOTAL 12710.32

Variance = 1/n-1 (R-R)2 = 1/5 (12710.32) = 2542.06

Standard Deviation = Variance = 2542.06= 50.14

ACC:

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2007-2008 86.71 51.61 35.1 1232.012008-2009 44.34 51.61 -7.27 52.85292009-2010 119.19 51.61 67.58 4567.0562010-2011 -2.8 51.61 -54.41 2960.4482011-2012 12.63 51.61 -38.98 1519.44

  TOTAL 10331.81

Variance = 1/n-1 (R-R)2 = 1/5 (10331.81) = 2066.36

Standard Deviation = Variance = 2066.36 = 45.45 HERO:

65

YearReturn

(R)Avg.

Return (R) (R-R) (R-R)2

2007-2008 171.3 32.59 138.71 19,240.52008-2009 15.77 32.59 -16.82 284.12009-2010 66.14 32.59 33.57 1,126.2732010-2011 -20.74 32.59 -53.33 2,844.12011-2012 1.958 32.59 -31 -960.8  

TOTAL 29,592.4

Variance = 1/n-1 (R-R)2 = 1/5 (29,592.4) = 4,232.1

Standard Deviation = Variance = 4,232.1 = 70.23

DIAGRAMATIC PRESENTATION

COMPANY RISKWIPRO 22.86

DR.REDDY 46.66ACC 47.963

HERO 70.23

RISK

66

0

10

20

30

40

50

60

70

80

WIPRODR.REDDYACCHERO

CALCULATION OF CORRELATION: Covariance (COV ab) = 1/n (RA-RA)(RB-RB) Correlation Coefficient = COV ab/a*b

WIPRO WITH OTHER COMPANIES

ii) WIPRO (RA)&DR.REDDY (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2007-2008 8.11 6.22 50.442008-2009 43.56 -24.3 -1,058.52009-2010 -10.44 92.31 -963.72010-2011 -4.195 2.07 -8.692011-2012 -4.678 -60.07 281.01

  TOTAL -1,180.3

67

Covariance (COV ab) = 1/5 (-1,180.3) = -196.72 Correlation Coefficient = COV ab/a*b

a = 22.86; b = 46.66 = -196.72/(22.86)(46.66) = -0.184

iii. WIPRO (RA) & ACC (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2007-2008 -32.01 -50.7 1,622.912008-2009 8.11 44.67 362.32009-2010 43.56 2.32 101.182010-2011 -10.44 77.17 -805.72011-2012 -4.195 -44.82 188.02

  TOTAL 1,606.11

Covariance (COV ab) = 1/5(1,606.11) = 267.69Correlation Coefficient = COV ab/a*b

a = 22.86; b = 47.27 = 267.69/(22.86)(47.27) = .0247

v. WIPRO (RA) & HERO (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2007-2008 8.11 138.71 1,124.92008-2009 43.56 -16.82 -732.682009-2010 -10.44 33.57 -358.482010-2011 -2.42 -59.44 143.82011-2012 -4.68 -31 145.1

  TOTAL 2,697

Covariance (COV ab) = 1/6 (2,697) = 449.7

Correlation Coefficient = COV ab/a*ba = 22.86; b = 70.23

68

= 2,697/(22.86)(70.23) = 0.28

3. Correlation between DR REDDY & Other Companies:

i. DR REDDY(RA) &ACC(RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2007-2008 6.22 44.67 277.852008-2009 -24.31 2.32 -56.3992009-2010 92.31 77.17 7,123.562010-2011 2.07 -44.82 -92.782011-2012 -60.07 -29.37 1,764.26

  TOTAL 9,838.84

Covariance (COV ab) = 1/6 (9,838.84) =1,639.81

Correlation Coefficient = COV ab/a*ba = 46.66; b = 47.27= 1,639.81/(46.66)(47.27) = 0.743

iii. DR REDDY (RA) &HERO (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)2007-2008 6.22 138.71 862.722008-2009 -24.3 -16.82 408.732009-2010 92.31 33.57 3,098.852010-2011 2.07 -53.33 -110.3932011-2012 -60.07 -31 1,862.2

  TOTAL 7,284.66

Covariance (COV ab) = 1/6 (7,284.66) = 1,214.109Correlation Coefficient = COV ab/a*b

a = 46.66; b = 70.23= 1,214.109/(46.66)(70.23) = 0.370

69

4. Correlation With ACC & Other Companies

ACC(RA) & HERO (RB)

How the calculation is done

Covariance (COV ab) = 1/6 (15,682.15) = 2,613.7Correlation Coefficient = COV ab/a*b

a = 47.27; b =70.23=2,613.7/(47.27)(70.23) = 0.787

CALCULATION OF PORTFOLIO WEIGHTS:

FORMULA :

Wa = b [b-(nab*a)]

70

YEAR(RA-RA) (RB-

RB)(RA-RA) (RB-RB)

2007-2008 44.67 138.71 6,196.182008-2009 2032 -16.82 -39.0222009-2010 77.17 33.57 2,590.592010-2011 -44.82 -53.33 2,390.2512011-2012 -29.37 -31 910.5

 TOTAL 15,682.15

a2 + b2 - 2nab*a*b

Wb = 1 – Wa WEIGHTS OF WIPRO & OTHER COMPANIES:

i. WIPRO & DR. REDDY

a = 22.86b = 46.66Nab = -0.184

WA = 46.66 [46.66-(-0.184*)] 2 + 2 – 2(-0.184)**

WA = 2,373.42 3,092.2615

WA = 0.77Wb = 1 – Wa Wb = 1- 0.77 = 0.23

ii. WIPRO (a) & ACC (b)

a = 22.86b = 47.27Nab = 0.247

WA = 47.27 [- (0.25*)] 2 + 2 – 2(0.5)**

WA = 1,964.82 1,767.66

WA =1.11

Wb = 1 – Wa

Wb = 1- 1.11 = -0.11

iii. WIPRO(a) & HERO(b)

a = 22.86

71

b = 70.23Nab = 0.28

WA = 70.23 [70.23-(0.28*22.86)] 2 + 2 – 2(0.28)**

WA = 4,482.88 4,555.77

WA = 0.98

Wb = 1 – Wa

Wb = 1-0.98 = 0.02

WEIGHTS OF DRREDDY & OTHER COMPANIES:

DRREDDY (a) & ACC (b) a = 46.7b = 47.7Nab = 0.74

WA = 47.7 [47.7- (0.74*46.7)] 2 + 2 – 2(0.74)**

WA = 602.6 1,149.01

WA = 0.52Wb = 1 – Wa Wb = 1- 0.52 = 0.48

i. DRREDDY (a) & HERO(b)

a = 46.67b = 70.23

72

Nab = 0.37

WA = 70.23 [70.23-(0.37*46.67)] 2 + 2 – 2(0.37)**

WA = 3,722.2 2,506.9

WA = 1.48Wb = 1 – Wa Wb = 1-1.48 = -0.48

WEIGHTS OF ACC & OTHER COMPANIES

ACC (a) & HERO(b)

a = 47.3b = 70.23Nab = 0.79

WA = 70.23 [70.23- (0.79*47.3)] 2 + 2 – 2(0.79)**

WA = 2,308.5 1,921.43

WA = 1.20

Wb = 1 – Wa

Wb = 1- 1.20 = -0.20

CALCULATION OF PORTFOLIO RISK:

RP = (a*Wa)2 + (b*Wb)2 + 2*a*b*Wa*Wb*nab

73

CALCULATION OF PORTFOLIO RISK OF WIPRO & OTHER COMPANIES:

WIPRO (a) & DR.REDDY (b):

a = 22.86b = 46.66Wa = 0.78Wb = 0.23Nab = -0184

RP = (22.86*0.78.)2+(46.66*0.23) 2(22.86)(46.66)(0.78(0.23)(-0.184)

355.6 18.86%

WIPRO (a) &ACC (b):

a = 22.86b = 47.27Wa = 1.11Wb = -0.11Nab = 0.25

RP = (22.86*1.11) 2+(47.27*-0.11) 2+2(22.86)(47.27)(1.11)(-0.11)(0.25)

551.2 23.5%

WIPRO (a) & HERO (b):a = 22.86b = 70.23Wa= 0.98Wb=0.02Nab = 028

RP = (22.86*0.98)2(70.23*0.02)2+2(22.86)(70.23)(0.98)(0.02)(0.28)

525 = 22.85%

74

CALCULATION OF PORTFOLIO RISK OF DR REDDY & OTHER COMPANIES

DRREDDY (a) & ACC (b):

a = 46.7b = 47.3Wa=0.52Wb= 0.48Nab = 0.74

RP = (46.7*0.52)2+(47.3*0.48)2+2(46.7)**(0.48)*(0.74)

1,922.80 = 43.85%

DRREDDY (a) & HERO HONDA (b):

a = 46.67b = 70.23Wa = 1.48Wb= -0.48Nab = 0.37

RP = (46.67*1.48)2+(70.23*-0.48)2+2(46.67)**(-048)*(0.37)

234.89 = 15.33%

CALCULATION OF PORTFOLIO RISK OF ACC & OTHER COMPANIES

75

ACC (a) &HERO (b):a = 47.3b = 70.23Wa= 1.20Wb = -0.20Nab = 0.79

RP = (47.3*1.20)2+ (70.23*-0.20)2+2(47.3)**(-0.20)*(0.79)

1,764.84 = 42%

CALCULATION OF PORTFOLIO RETURN:

Rp= (RA*WA) + (RB*WB)

Where Rp = portfolio return RA= return of A WA= weight of A RB= return of B WB= weight of B

CALCULATION OF PORTFOLIO RETURN OF WIPRO & OTHER COMPANIES:

WIPRO (a) & DR.REDDY (b):

RA= 4.6 WA=0.77

RB=0.67 WB=0.23

Rp = (4.6*0.77) + (0.67*0.23)

76

Rp = (3.542 + 0.1541)Rp = 3.6961%

WIPRO (a) &ACC (b):

RA= 4.6 WA=1.11

RB= 42.02 WB=-0.11

Rp = (4.6*1.11) + (42.02*-0.11)Rp = (5.106+4.622)Rp = 0.484

WIPRO (a) & HERO (b):

RA= 4.6 WA=0.98

RB= 32.498 WB=0.02

Rp = (4.6*0.9) + (32.498*0.02)

Rp = (4.508 + 0.6499)

Rp = 5.16%

CALCULATION OF PORTFOLIO RETURN OF DR REDDY & OTHER COMPANIES

DRREDDY (a) & ACC (b): RA= 0.67 WA=0.52

RB=42.02 WB=0.48

Rp = (0.67*0.52) + (42.02*0.48)

Rp = (.3487+20.139)Rp = 20.5%

DRREDDY (a) & HERO (b):

RA= 0.67 WA=1.48

RB=32.498 WB=-0.48

Rp (0.67*1.48) + (32.498*-0.48)

Rp (0.9916-15.599)

77

Rp -14.60%

CALCULATION OF PORTFOLIO RETURN OF ACC & OTHER COMPANIES

ACC(a) &HERO (b): RA= 42.02 WA=1.20

RB=32.498 WB=-0.20

Rp = (42.02*1.20) + (32.498*-0.20)

Rp = (50.424-6.499)Rp = 43.92%

DISPLAY OF ALL CALCULATED VALUES

COMBINATION CORRELATION COVARIANCEPORTFOLIO RETURN

PORTFOLIO RISK

WIPRO & DR.REDDY -0.184 -196.72 3.7 18.9WIPRO & ACC 0.247 267.69 0.49 23.5WIPRO &HERO 0.28 449.7 5.0 22.9DR.REDDY & ACC .7434 1639.8 20.5 43.9DR.REDDY & BHEL 0.7969 3047.7 -21.7 22.9DR REDDY&HERO 0.705 1,124.1095 -14.6 15.3ACC&BHEL 0.917 3,558.65 21.07 63.8ACC & HERO 0.7873 2,613.7 43.9 42

78

I nterpretations The analytical part of the study for the 6 years period reveals the following

interpretations,

Wipro with acc:Portfolio weights for wipro and ACC are (1.11) and (-0.11) respectively. This indicates

that the investors who are interested to take more risk they can invest in this combination, and

also can get high returns.

Dr reddy & hero:In this combination as per the calculation & the study of portfolio weights of dr reddy and

hero are (1.48) and (-0.48) respectively. Here the standard deviation of Dr reddy &hero are

(46.66) and (70.23) respectively. Returns are (0.67) is for Dr reddy (32.43) is for hero. In this,

position invest in hero is high risk as well as high returns also up to (32.43) when compared to

DR reddy.

Dr reddy&acc:

The portfolio of weights of the both (0.52) is Dr reddy (.048) is for acc. The standard

deviation of Dr reddy is (46.66) and (47.27) for acc. The returns of DR reddy is (0.67) and

(42.02) is acc. According to this combination investor can invest acc; this is more risk as well as

more returns can get up to (42.02). If investor wants less risk he has to invest in acc.Dr reddy is

a low risk as well as low returns also.

Acc&hero:

According to this combination of the portfolio weights are (1.20) in acc and (-0.20) is

hero. The standard deviation of acc is less than hero 47.27>70.23. If the investor wants to take

low risk, acc is the better option. And the return point of view hero is providing more returns

79

that of acc. According to this combination if the investor wants to get returns then he has to take

the more risk. This is the good combination for investors for investing in the acc & hero. For

more profits. “Greater Portfolio Return with less Risk is always is an attractive combination” for

the Investors.

SUMMARY & CONCLUSIONSUMMARY:

The investors who are risk averse can invest their funds in the portfolio combination

of,ACC,HERO AND WIPRO proportion. The investors who are slightly risk averse are

suggested to invest in WIPRO, DR. REDDY, ACC as the combination is slightly low risk when

compared with other companies.

The analysis regarding the compaines ACC, HERO has howed a wise investment in

public and in private sector with an increasing trend where as corporate sector has recorded a

decreasing trends income which denotes an increasing trend throught out the study period.

80

CHAPTER-V

FINDINGS

SUGGESSIONS

CONCLUSIONS

BIBLIOGRAPHY

CONCLUSIONS:

More information should be provided

The analytical part of study for the 5 years reveals the following as for as:

As far as the average return of the company is concerned ACC, , HERO is high

with an average return of 48.41%. WIPRO, DR.REDDY is getting low returns.

HERO securities are performing at medium returns.

81

As far as the correlation is concerned the securities DR.REDDY are high

correlated with minimum portfolio risk. The investor who is risk averse will have

to invest in this combination which gives good return with low risk.

RECOMMENDATIONS:

Numbering to be given

As the average return of securities, ACC, HERO and are HIGH, it is suggested that investors who show interest in these securities taking risk into consideration.

As the risk of the securities ACC, HERO and BHEL are risky securities it suggested that the investors should be careful while investing in these securities.

The investors who require minimum return with low risk should invest in WIPRO & DR.REDDY.

It is recommended that the investors who require high risk with high return should invest in ITC and HERO.

The investors are benefited by investing in selected scripts of Industries.

BIBILOGRAPHY:

1. SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT-donald.E.Fisher, Ronald.J.Jordan

2. INVESTMENTS -William .F.Sharpe, gordon,J Alexander and

Jeffery.V.Baily

82

3. PORTFOLIOMANAGEMENT -Strong R.A

WEB REFERENCES:

http;//www.nseindia.com

http;//www.bseindia.comhttp;//www.economictimes.comhttp;//www.answers.comhttp://www.iciciprulife.com

83