portfolio risk calculation

A Report

Tata Consultancy Services(A Report)

Submitted To:

Dr. Brajesh Kumar

Submitted By:

Sukant Arora

JGU ID: 20100040

March 15, 2011

Sukant Arora JGU ID 20100040

TATA CONSULTANCY SERVICESTata Consultancy Services is a company of Tata Group whose Chairman is Mr. Ratan N Tata. But there are two more people who are the reason behind company’s growth and development who are company’s Managing Director & CEO Mr. N Chandrasekaran and Executive Director & CFO of the company Mr. S Mahalingam.

At TCS people know that their clients need to do more with less, respond quickly to the markets and get more strategic advantage from IT. TCS uniquely help its clients to tackle different business challenges. Be it I.T services, business solutions or outsourcing and they assure a level of certainty unmatched by other players in the field.

TCS has depth and breadth experience and expertise that one needs to achieve business goals and succeed amidst the fiercest competition. TCS serves many industries which include: Banking & Financial Services, Government, High Tech, Insurance, Manufacturing, Media & Information Services, Retail & Consumer Products, Telecom, Travel, and Transportation & Hospitality.

TCS stresses a lot on Innovation & Research Segmentation and that’s why they differentiate from the industry. They are pioneer in R&D and has an innovative environment that offers research based solutions in leading-edge technologies that will helps to meet one’s IT expectation and support business objectives.

In 2010 TCS has bagged a multi-year deal from British Government to administer National Employment Savings Trust (NEST) and many other major deals.

Financials: Company’s reported net profit is Rs.5618.51Cr which is more than 100% as in comparison with year’s 2006 reported net profit. Their current ratio is 1.49 and quick ratio is 1.48.

Its Debt Equity ratio is .01 and the Earning per share is 28.62.

Current Situation in Stock Market:

Price in BSE is Rs. 1084.00

Price in NSE is Rs. 1086.60

Beta of the stock is .76


YEAR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

ROR ROR ROR ROR ROR ROR ROR ROR ROR ROR ROR ROR200

5 -0.21% 0.26% 0.17% -1.13% 0.77% 0.09% -0.32% 0.48% 0.27% -0.27% 0.42% 0.53%200

6 -0.09% 0.10% 0.56% 0.22% -0.45% -0.05% -1.94% 0.30% 0.13% 0.32% 0.45% 0.11%200

7 0.24% -0.34% 0.20% 0.15% -0.32% -0.23% 0.15% -0.36% -0.01% -0.08% -0.10% 0.35%200

8 -0.85% 0.06% -0.39% 0.70% 0.64% -0.88% -0.06% -0.11% -0.88% -0.85% 0.31% -0.69%200

9 0.38% -0.28% 0.62% 0.90% 0.74% -1.79% 1.38% 0.03% 0.84% 0.08% 0.48% 0.42%201

0 -0.08% 0.18% 0.12% -0.28% -0.12% 0.06% 0.53% 0.03% 0.46% 0.63% 0.12% 0.37%

YEAR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Volatility

Volatility

Volatility

Volatility

Volatility

Volatility

Volatility

Volatility

Volatility

Volatility

Volatility

Volatility

2005 1.46% 1.23% 1.38% 3.05% 1.70% 1.39% 2.06% 1.55% 1.71% 1.73% 1.05% 1.57%

2006 1.27% 1.15% 1.77% 2.70% 2.44% 3.54% 11.56% 0.88% 1.70% 1.59% 1.25% 1.81%

2007 1.70% 1.76% 2.87% 1.92% 1.12% 0.88% 1.99% 1.93% 1.70% 2.06% 1.97% 2.31%

2008 3.39% 2.86% 3.30% 3.53% 2.83% 2.40% 3.67% 1.88% 3.77% 6.68% 4.24% 3.32%

2009 2.80% 2.28% 3.88% 2.75% 5.23% 11.00% 3.95% 2.30% 1.72% 2.08% 1.97% 1.00%201

0 2.27% 1.16% 1.26% 1.45% 2.07% 1.51% 1.90% 1.45% 1.65% 2.24% 1.63% 1.14%

Tata Consultancy Services


Jan Feb

Mar AprMay Jun Jul

AugSe

p OctNov

Dec

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

Rate Of Return 2005Volatility 2005

In 2005 the stock of TCS did fine, Net return in the year was positive but still there were many fluctuations in the share price and return of the share as we can see there is certain decline in the return of the stock in April but it recovered very fast in the month of May and also was very volatile. TCS opened its office in Portugal to increase its business in more than 33 countries. TCS gave dividend to its investors four times a year including 3 interim dividends and a final dividend. 350% on 3rd February, 500% on July 6th, 300% on August 18th, and again 300% on October 18th. Effect of this was not much on the stock prices, but when the company provided the last dividend in the year the stock price declined gradually.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%


In the year 2006 besides the normal return and volatility, there was a stock split on July 28th in the Ratio of 1:1 but the return on the given date was very negative and it was reduced by -51.13% And the net return of the stock after the year was also negative. TCS gave dividend to its investors only once in the year this time in the year of 2006 on January 18th and the dividend was interim and was 300% and this time it caused the stock price to increase by 31 rupees but again this return was around just 1.88% and the effect was not that significant.



-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%


Year 2007 was the year of High Risk and High Return and the stock was very volatile throughout the year. In the month of February the stock was very volatile due to the very High Volume of Trade. As same as the last year the net return of the stock was negative. TCS gave dividend to its investors four times a year including 3 interim dividends and a final dividend. 300% on 22nd January, 400% final dividend on June 15th, 300% on July 27th, and again 300% on October 22nd. The dividend per share was Rs. 3, 4, 3 and 3 respectively. Effect of this was not much on the stock prices, but when the company provided the last dividend in the year the stock price declined gradually



-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%


As we know the Year 2008 was the year of Global Financial Meltdown, this stock along with the stock market was a victim of the same. As in the starting of the year itself there was not much volatility but the stock prices fall down, but as the crisis was getting to the positive phase this stock again attracted more investors and again the trading volumes become high and the stock became more volatile in the later part of the year. . TCS gave dividend to its investors four times a year including 3 interim dividends and a final dividend. 300% on 23rd

January, 500% final dividend on June 18th, 300% on July 31th, and again 300% on October 29th. The dividend per share was Rs. 3, 5, 3 and 3 respectively. Effect of this was not much on the stock prices, but when the company provided the last dividend in the year the stock price declined gradually.



-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%


Though this year 2009 was the year of high volatility and the stock was volatile throughout the year but a Stock Split took place in the ratio of 1:1 on 16-Jun-09 which caused the negative returns by -50.73 though this year had a positive Net Annual Return. Besides the stock split in the year. TCS gave dividend to its investors four times a year including 3 interim dividends and a final dividend. 300% on 28th January, 500% final dividend on June 16th, 200% on July 27th, and again 200% on October 28th. The dividend per share was Rs. 3, 4, 2 and 2 respectively. This time TCS reduced their dividend percentage and also the dividend per share. Effect of this was not much on the stock prices, but when the company provided the last dividend in the year the stock price declined gradually.



-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%


The Year 2010 was a normal year in terms of the return of the stock but again throughout the year the stock was very volatile. But the returns were not as good as they should be when the stock is a volatile due to there was less trading volume as the markets were not responding well to the IT industry. But still its net annual return was Positive. . TCS gave dividend to its investors five times a year including 3 interim dividends a final dividend and a special dividend. 200% on 27th January, A Special Dividend of 1000% on 15th June, 400% final dividend on June 15th, 200% on July 29th, and again 200% on November 1st. The dividend per share was Rs. 2, 10, 4, 2 and 2 respectively. Besides the special dividend given by the company the effect of this was not much on the stock prices, but when the company provided the last dividend in the year the stock price declined gradually.


TATA CONSULTANCY SERVICES vs. TATA MOTORS

For the Year 2005

AVERAGE 0.000919177 0.000909983STANDARD DEVIATION 0.017593564 0.019945168

CORRELATION 0.285470279

WEIGHTS TCS WEIGHTS TATAMOTORS PRETURN PRISK

1 0 0.000919177 0.0003095330.9 0.1 0.000918257 0.0002727310.8 0.2 0.000917338 0.0002460690.7 0.3 0.000916419 0.0002295470.6 0.4 0.000915499 0.0002231650.5 0.5 0.00091458 0.0002269230.4 0.6 0.00091366 0.000240820.3 0.7 0.000912741 0.0002648580.2 0.8 0.000911822 0.0002990350.1 0.9 0.000910902 0.000343352

0 1 0.000909983 0.00039781

0.00020.000250.00030.000350.00040.000450.000905

0.00091

0.000915

0.00092

Portfolio Risk

Portfolio Risk

Portfolio Risk

Portfolio Return

This graph tells us that when there the portfolio is created it is beneficial for the investor as along with the risk it has greater returns.


For the Year 2006


1 0 -0.00129646 0.0024739950.9 0.1 -0.001029346 0.0020697070.8 0.2 -0.000762231 0.0017145750.7 0.3 -0.000495117 0.0014085990.6 0.4 -0.000228002 0.0011517780.5 0.5 3.91122E-05 0.0009441130.4 0.6 0.000306227 0.0007856030.3 0.7 0.000573341 0.0006762490.2 0.8 0.000840455 0.0006160510.1 0.9 0.00110757 0.000605008

0 1 0.001374684 0.000643121

0.05% 0.10% 0.15% 0.20% 0.25% 0.30%

-0.15%

-0.10%

-0.05%

0.00%

0.05%

0.10%

0.15%

0.20%

Portfolio Risk

Portfolio Risk

Portfolio Risk

Portfolio Return

When the more risk is there in the portfolio it generates negative returns.


WEIGHT TCS

WEIGHTS TATAMOTORS

PRETURN PRISK

0.587058055 0.412941945 0.09% 0.02%

AVERAGE -0.00129646 0.001374684STANDARD DEVIATION 0.049739272 0.025359826CORRELATION 0.261354787

For the Year 2007

AVERAGE -0.000594323 -0.000909001STANDARD DEVIATION 0.018813046 0.021333522CORRELATION 0.404905412

0.02% 0.04% 0.06%

-0.10%-0.09%-0.08%-0.07%-0.06%-0.05%-0.04%-0.03%-0.02%-0.01%0.00%

Portfolio Risk

Portfolio Risk

Portfolio Risk

Portfolio Return

It shows that it is not beneficial to invest in a portfolio as the return is always negative.

WEIGHT TCS WEIGHT PRETURN PRISK Efficien


WEIGHT TCS

WEIGHT TATAMOTORS PRETURN PRISK

0.12753507 0.872464926 0.10% 0.06%


1 0 -0.000594323 0.0003539310.9 0.1 -0.000625791 0.0003204870.8 0.2 -0.000657259 0.0002967230.7 0.3 -0.000688727 0.000282640.6 0.4 -0.000720194 0.0002782380.5 0.5 -0.000751662 0.0002835170.4 0.6 -0.00078313 0.0002984760.3 0.7 -0.000814598 0.0003231160.2 0.8 -0.000846066 0.0003574360.1 0.9 -0.000877534 0.000401437

0 1 -0.000909001 0.000455119

TATAMOTORS0.604526303 0.395473697 -0.07% 0.03%

t Portfolio

For the Year 2008

AVERAGE -0.003230481 -0.006376204STANDARD DEVIATION 0.036248176 0.040313501CORRELATION 0.452331562

0.10% 0.12% 0.14% 0.16% 0.18%

-0.70%-0.60%-0.50%-0.40%-0.30%-0.20%-0.10%0.00%

Portfolio Risk

Portfolio Risk

Portfolio Risk

Portfolio return



1 0 -0.003230481 0.001313930.9 0.1 -0.003545053 0.0011995130.8 0.2 -0.003859626 0.0011174390.7 0.3 -0.004174198 0.0010677070.6 0.4 -0.00448877 0.0010503180.5 0.5 -0.004803342 0.0010652710.4 0.6 -0.005117915 0.0011125670.3 0.7 -0.005432487 0.0011922060.2 0.8 -0.005747059 0.0013041880.1 0.9 -0.006061631 0.001448512

0 1 -0.006376204 0.001625178

It depicts the same as the return is negative with the risk of the portfolio and is not considered as a wise decision to invest.

Efficient Portfolio

For the Year 2009

AVERAGE 0.001702968 0.00634404STANDARD DEVIATION 0.053014525 0.041796854CORRELATION 0.178422879

0.10% 0.15% 0.20% 0.25% 0.30%0.00%0.10%0.20%0.30%0.40%0.50%0.60%0.70%

Portfolio Risk

Portfolio Risk

Portfolio Risk

Portfolio Return


WEIGHT TCSWEIGHT TATAMOTORS PRETURN PRISK

0.596234567 0.403765433 -0.45% 0.11%


1 0 0.001702968 0.002810540.9 0.1 0.002167075 0.0023651710.8 0.2 0.002631183 0.0019951390.7 0.3 0.00309529 0.0017004420.6 0.4 0.003559397 0.0014810820.5 0.5 0.004023504 0.0013370580.4 0.6 0.004487611 0.0012683690.3 0.7 0.004951719 0.0012750170.2 0.8 0.005415826 0.0013570010.1 0.9 0.005879933 0.001514321

0 1 0.00634404 0.001746977

In this along with the greater portfolio risk there is greater return but if somebody wants to invest then he has to check his proportion of the stocks in the portfolio as if the weights of one stock are increased it can cause loss also.

Efficient Portfolio

For the Year 2010

AVERAGE 0.001748061 0.00183021STANDARD DEVIATION 0.016524223 0.023401932CORRELATION 0.357969168

0.02% 0.03% 0.04% 0.05% 0.06%0.17%

0.18%

0.19%

Portfolio Risk

Portfolio Risk

Portfolio Risk

Portfolio Return

Its shows that this is a good portfolio to invest in as the return with the risk is high.


WEIGHT TCSWEIGHT TATAMOTORS PRETURN PRISK

0.358824215 0.641175785 0.47% 0.13%


1 0 0.001748061 0.000273050.9 0.1 0.001756276 0.0002515640.8 0.2 0.001764491 0.0002409540.7 0.3 0.001772706 0.0002412220.6 0.4 0.001780921 0.0002523670.5 0.5 0.001789136 0.0002743880.4 0.6 0.00179735 0.0003072870.3 0.7 0.001805565 0.0003510620.2 0.8 0.00181378 0.0004057150.1 0.9 0.001821995 0.000471244

0 1 0.00183021 0.00054765

Efficient Portfolio

PORTFOLIO RETURN WHEN THREE COMPANIES ARE CONSIDERED

WEIGHTS TCS WEIGHTS TATAMOTORS WEIGHTS TATA STEEL PRETURN PRISK1 0 0 0.000919177 0.000309533

0.7 0.2 0.1 0.000817808 0.0002207150.6 0.1 0.3 0.000619667 0.0002065070.5 0.3 0.2 0.000717359 0.0001977520.4 0.2 0.4 0.000519218 0.0001955970.3 0.5 0.2 0.00071552 0.0002159740.3 0.2 0.5 0.000419688 0.0002042060.3 0.4 0.3 0.000616909 0.000203844

0 0.2 0.8 0.000121098 0.0002809780.1 0.6 0.3 0.00061507 0.000252768

0 1 0 0.000909983 0.00039781


WEIGHT TCS

WEIGHT TATAMOTORS PRETURN PRISK

0.75246071 0.24753929 0.18% 0.02%

0.00015 0.0002 0.00025 0.0003 0.00035 0.0004 0.000450

0.0001

0.0002

0.0003

0.0004

0.0005

0.0006

0.0007

0.0008

0.0009

0.001

Portfolio Risk

Portfolio Risk

Beta Values

Year 2005

SUMMARY OUTPUT

Regression StatisticsMultiple R 0.597960418R Square 0.357556661Adjusted R Square 0.354966164Standard Error 0.014130095Observations 250

ANOVAdf

Regression 1Residual 248Total 249

CoefficientsIntercept -0.000191983X Variable 1 0.946364856

Year 2006


SUMMARY OUTPUT


ANOVAdf



Year 2007

SUMMARY OUTPUT


ANOVAdf



Year 2008

SUMMARY OUTPUT



ANOVAdf



Year 2009

SUMMARY OUTPUT


ANOVAdf



Year 2010

SUMMARY OUTPUT



ANOVAdf


CoefficientsIntercept 0.001228793X Variable 1 0.819226819

Industry Beta= .77


Year Beta Intercept

2005 0.946365 -0.00019

2006 1.031653 -0.00269

2007 0.705405 -0.00181

2008 0.861405 -0.00066

2009 0.817881 -0.00012

2010 0.819227 0.001266

2005 2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.2

-0.003

-0.0025

-0.002

-0.0015

-0.001

-0.0005

0

0.0005

0.001

0.0015

BetaIntercept

From the data, we observe that the company has almost has same value of Beta from linear regression technique and Normal computation using Covariance between return on company stock and the market return and, the variance in the market return.

This is because of the fact that the relationship between the changes in returns of the company with respect to changes in the market returns is a constant. Here the Beta value of the stock is different from year to year because here the market is driving the stock not vice versa. The beta of the stock was in sync of the industry and was going in the same direction of the industry and the other stocks of the company.


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