stock exchange main project

8/6/2019 Stock Exchange Main Project

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A study on effectiveness of hedging using Index Futures

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TABLE OF CONTENTS

CHAPTER NO TOPIC PG. NO

EXECUTIVE SUMMARY

CHAPTER 1 INTRODUCTION

OBJECTIVES

SCOPE OF THE STUDY

CHAPTER 2 INDUSTRY PROFILE

CAPITAL MARKET

MAJOR STOCK EXCHANGES IN INDIA

COMPANY PROFILE

CHAPTER 3 REVIEW OF LITERATURE

DERIVATIVES

RISK

HEDGING

CHAPTER 4 RESEARCH METHODOLOGY

DESIGN OF THE STUDY

PERIOD OF THE STUDY

SOURCE OF DATA

TOOLS USED

RESEARCH METHODOLOGY

LIMITATIONS OF THE STUDY

CHAPTER 5 ANALYSIS AND INTERPRETATION OF DATA

INERPRETATION

CHAPTER 6 FINDINGS AND SUGGESTION

CHAPTER 7 CONCLUSION

BIBILIOGRAPHY

ANNEXTURE


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LIST OF TABLES

SI. NO. Table Headings Pg. No

1 Details of Portfolio as on 01/05/2009

2 Beta values of scrip for the month of May

3 Analysis of portfolio without hedging for the monthof May

4 Daily movements of portfolio and profit/loss for themonth of May

5 Calculation of amount to be hedged on 04/05/09


7Calculation of amount to be hedged on 06/05/09

















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25 Daily movement of hedged portfolio and profit and

Loss26 Details of Portfolio as on 01/06/2009

27 Beta values of scrips for the month of June

28 Analysis of portfolio without hedging for the month ofJune

29 Summary of portfolio movement and profit / loss forthe month of June



















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51 Calculation of amount to be hedged on 30/06/0952 Movement of hedged portfolio and its profit/loss for

The month of June

LIST OF CHARTS

SI. NO. CHART HEADINGS

1Appreciation or depreciation of portfolio for the month of

May

2 Profit or loss for the portfolio during the month of may

3 Appreciation or depreciation of hedged portfolio for themonth of may

4 Profit or loss of hedged portfolio for the month of may

5 Movement of both unhedged and hedged portfolio for the

month of may

6 Appreciation or depreciation of portfolio for the month ofJune

7 Profit or loss from the portfolio for the month of june

8 Appreciation or depreciation of hedged portfolio for themonth of June

9Profit / loss from the hedged portfolio for the month of

june

10 Movement of hedged and unhedged portfolio for themonth of June


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EXECUTIVE SUMMARY

The financial derivatives are the emerging trend in capital market. These are

used to minimize the losses of investors portfolio. This project studies the

effectiveness of Hedging Using Index Futures. It deals with the construction of a

portfolio on the basis of risk-return evaluation and loss minimization using

hedging. The companies are selected from the top list of NSE based on price

earning ratio and beta value. The securities selected are Airtel, Cipla, Infosys,

Reliance industries, SBI and ONGC. Trading was done on these six securities in

both bullish and bearish market condition, and then the same securities were

hedged with index futures.

The data collected were tabulated and the values of portfolios on different days, the

profit or loss made by the portfolio and the amount to be hedged were calculated

manually. Finally, the net profit or loss arising out of both hedged as well as

unhedged positions for these two periods were calculated and comparison were

made. Through this study it is found out that in the month of May hedging was not

effective because of Bullish trend in the market and in the month of June it was

effective and it eliminated loss and made a small amount of profit too.

This study revealed that hedging with index futures proved to be an effective

instrument for minimizing the loss. Through the index futures, investor can reduce

the risk of the index movement. Thus hedging reduces the loss of portfolio and

sometimes it creates a profit or loss according to this study.


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CHAPTER 1INTRODUCTION


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In current scenario, investing in stock markets is a major challenge even for

seasoned professionals, investment become complicated and is both an art and a

science. Investing in various types of assets is an interesting activity that attracts

people from all walks of life irrespective of their occupation, economic status,

education and family background. When a person has more money than he requires

for current consumption, he would be coined as a potential investor. The investor

who is having extra cash could invest in securities or any other asset like real estate

or gold or could simply deposit on a bank account. In the finance field, its a

common knowledge that money or finance is scares and those investors try to

maximize their return. Return changes with the degree of risk chosen by the

investor. Return and risk go together and they have a trade off. The art of

investment is to see the return maximized with the minimum of risk, which is

inherent in investment.

The project entries A study on effectiveness of Hedging Using Index Futures,

deals with the construction of a portfolio on the basic of risk-returnevaluation and

loss minimization using hedging. The companies are selected from the top lists of

NSE based on p/e ratio and a beta value. Investing in individualsecurities involves

lot of risks. It is better to invest in-group of securities to reduce risk. Selecting the

group of securities is an important task. Investors are interested inmaximizing the

return with minimum risk. Here six securities have been selected forconstructing

the portfolio; these securities are representatives of different sector. Thesecurities

selected are Airtel, Cipla, Infosys, Reliance industries, SBI and ONGC.There exist

a considerable degree of difference in return and risk of varioussecurities.

Futures and options are now traded on many exchanges throughout the world. A

hedge is any act that reduces the price risk of an existing or anticipated position in

the cash market. A future contact involves an obligation to buy or sell an asset of


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certain time in the future for a certain price. Basically there are two types of

hedging with futures; long hedge and short hedge. There are two types of options:

calls and puts. A call option gives the holder the right to buy an asset by a certain

date for a certain price. A put option gives the holder to cell an asset by a certain

date for certain price. A optimal portfolio is a group of securities, which has the

maximum return and minimum risk. Futures and options trade on a wide range of

different underlining assets.

OBJECTIVES OF THE STUDY

SPECIFIC OBJECTIVES

To find out the effectiveness of hedging using index futures.GENERAL OBJECTIVES

To study about the impact of hedging in derivative market. To analyze the usefulness of hedging to reduce the risk.To study about the investment opportunities in index capital market.

The main focus of the study is to find out the effectiveness of index futures as a

hedging technique. As the share market is volatile i.e. Changes may happen at any

time, the risk and return are equally uncertain. The risk and uncertainty need to be

minimized

SCOPE OF THE STUDY

The derivatives especially the financial derivatives are now a days emerging

trend in financial market. The financial derivatives are used to minimize the losses

of investors. The risk taking investors can minimize their loss by using derivatives.


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The scope of the study is limited to the Indian stock market and Indian derivative

market. The recommendation in the study is only subject to the Indian capital

situations. The study covers both hedging and speculation. The main aim of the

study is to know whether the investor can minimize his losses and met maximum

return compare to other investment.


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CAPITAL MARKET

The capital market refers to all institutions and procedures that provide for

transactions such as long run financial instruments. Long term here means having

maturity period that extent beyond one year. In broad sense it encompasses term

loans and financial losses, corporate equities and bonds. The funds that comprise

the firms capital structure are raised in the capital market.

Capital market divided in to two:

Primary market

Secondary market

PRIMARY MARKET

Companies issue securities from time to time to raise the funds for modernization,

expansion and diversification programs. These securities are issued directly to the

investors through the mechanism called IPO which constituters primary market.

The primary market refers to the setup which helps the industry to raise funds by

issuing different types of securities.

SECONDARY MARKET

Secondary market refers to the system for the subsequent sales and purchase of

securities. The secondary market consists of that portion of capital market where

the previously issued securities are transacted. The secondary market is represented

by the stock exchanges in any capital market. The stock exchanges provided an

organized market place for the investors to trade in the securities


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MAJOR STOCK EXCHANGES IN INDIA

1. NATIONAL STOCK EXCHANGES (NSE)

National Stock Exchanges (NSE) of India commenced its operation India the

capital market on 3rd November 1994 India Mumbai. The recommendation of

Pherwani committee led to the beginning of NSE. The recognized members of

NSE are called trading members who trade on behalf of themselves and their

clients. Participants include trading member and large players like bank whop take

direct settlement responsibility.

2. OTC EXCHANGE OF INDIA (OTCEI)

The OTC e of India (OTCEI) has been setup to provide a cost effective and

convenient plat forms for raising finance from the capital market. OTCEI was

promoted by a consortium of financial institutions sated its operations in 1992. It is

a ring less, electronic, nation wider stock exchange committed to providing

entrepreneurs with a smooth economical vehicle for going public and investors

with a fair, sable and efficient market. Thus the OTCEI brings investors and

promoters closer together.

3. BOMBAY STOCK EXCHANGE (BSE)

The Bombay stock exchange, popularly known as BSE. It is oldest one in 1875

as The Native Share and sock Brokers Association of Person (AOP) and is

currently engaged in the process of converting itself into demutualised and

corporate entity. It has evolved over the years into its present status as the premier

Stock Exchange in the country to have obtained Permanent recognition in 1956

from the Govt. of India under the securities contracts (Regulation) Act, 1956.


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COMPANY PROFILE

COCHIN STOCK EXCHANGE (CSE)

Cochin Stock Exchange limited (CSE) is one of he premier sock exchanges in

India. Established in the year 1978, the exchange has undergone tremendous

transformation over the years. The Exchange had a humble beginning with just 5

companies listen in 1978-79, and had onl7 14 members. The trading operation on

the Exchange commenced in 1980, which were till then carried out through the

brokers located outside Kerala. Today, the Exchange has 240 listed companies and

508 members.

In 1989 the company went for computerization of its offices. In order to keep with

the pace with the changing scenario in the capital market CSE took various

initiatives including trading in dematerialized shares. CSE introduced the facility

of computerized trading called Cochin Online trading (COLT) on March 17,

1997. CSE is one of the promoters of the interconnected stock exchange of India

(ISE). The objective was to consolidate the small fragmented and less liquid

markets into a national level integrated liquid markets.

With the enforcement of efficient margin system and surveillance, CSE has

successfully prevented defaults. Introduction of fast track system made CSE thestock exchange with shortest settlement cycle in the country at that time. By the

dawn of the new century, the regional exchange faced the serious challenges from

the NSE &BSE. To face this challenge CSE promoted a 100% subsidiary called

the Cochin Sand Stock Brokers Ltd (CSBL) and started trading in the National

Stock Exchange (NSE) and Bombay Stock Exchange (BSE).CSBL is the first

subsidiary of a Sock Exchange to get membership in both NSE&BSE , and become

a participant in the Central Depository Service Ltd (CDSL). The CSE has been

playing a vital role in the economic development of the country and the state.


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Chapter. 3REVIEW OF LITERATURE


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DERIVATIVES

A derivative is, as the name suggests, a financial contract whose value is derived

from the value of another asset. The underlying asset can be securities,commodities, bullion, currency, live stock or anything else. In other word,

Derivative means a forward, future, option or any other hybrid contract of pre

determined fixed duration, linked for the purpose of contract fulfillment to the

value of a specified real or financial asset to an index of securities.

The basic concept of derivative is a simple ancient one, with evidence that the

Romans used them thousands of years ago, and that they have roots in Japan and

Netherlands dating back to the early sixteenth centaury (Market History). Acommon example is a farmer use forward contract, type of derivative, to sell wheat

before the harvest at a predetermined fixed price. The derivative in this case is used

to protect the farmer against an expected decrease of the price in wheat, thus

reducing g his exposure organization market risk (link organization market risk).

On the other hand, the buyer accepts the risk associated with the fixed price and

faces the poss8ibiliy of either financial gain or loss, depending on the difference

between the fixed price and the actual price at the time of harvest. Consequently,

one may think of derivatives as tool to buy and sell risk

DEFINITION OF DERVATIVES

It is a financial instrument whose characteristics and value depends upon the

characteristics and value of an underlines, typically a commodity, bond equity or

currency .Example of derivatives include futures and options. Advanced investors

sometimes purchase or sell derivates to manage the risk associated with the

underlying security, to protect against fluctuations in values, or to profit from

periods of inactivity or decline. These techniques can be quite complicated andquite risky..With securities Laws (Second Amendment) Act, 1999,


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Derivatives has been include in the definition of Securities. The term Derivative

has been defined in Securities Contracts (Regulations) Act, as:-

a. Security derived from a debt instrument, share loan whether secured orunsecured, risk instrument or contract for difference or any other from of

security.

b. Contract which derives its value from the prices, or index of prices, ofunderlying securities.

TYPES OF DERIVATIVE INSTRUMENTS

FUTURES

Future Contracts organized/standardized contracts, which are traded on the

exchanges. These contracts can be defined as a standardized, exchange traded

agreement specifying a quality and price of particular type of commodity

(Soybeans, gold, oil, etc.) to be purchased or sold at predetermined date in the

future. On contract date, delivery and physical possession take place unless

contract has been closed out. Futures are also available on various financial

products and indexes today.

Futures markets were design to solve the problem that exists in forward market. A

future contracts an agreement between two parties to buy or sell asset at certain

time in the future at a certain price but unlike forward contracts, futures contracts

are standardized and exchange traded. To facilitate liquidity in the futures

contracts, the exchange specifies certain standards features of the contracts. It is a

standardized contracts with standard underline instrument, a standard quantity and

quality of the underlying instrument that can be delivered, ( or which can be used

for references purpose in settlement 0 and a standard timing of such settlement,. A

futures contract may be offset prior to maturity by entering into an equal and

opposite transactions. More than 99% of futures transactions are offset this way.


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FORWARD

A forward contract is one to one bi- partite contract, to be performed in the future,

at the terms decided today. (E.g. forward currency market in India). Forward

contracts offer tremendous flexibility to the parties design the contract in terms ofthe price, quality (in case if commodities), delivery time and place but it suffers

from poor liquidity and default risk.

Forward contract different from a spot transaction, where payment of price and

delivery of commodity concurrently takes place immediately the transaction is

settled. In a forward contract the sale /purchase transaction of an asset is settled

including the price payable, not for delivery/ settlement at spot, but a specified

future date. India has strong dollar rupee forward market with contracts being

traded for one, two sixmonth expiration. This contract includes currencies,

stocks, swaps etc. Indian users of hedging services are also allowed to buy

derivatives involving other currencies on foreign markets.

SWAPS

A swap, another type of liner derivatives, is a contract that allows two parties to

exchange, or swap, payments for a period of time based on some notional principle

amount. Swaps are private agreement between two parties to exchange cash flowsin the futures according to the pre-arranged formulae. The notional principle

amount is not swapped, only the payment flows are exchange. i.e., Swaps are

exchange of stream payment over agreed period. They can be regarded as a

portfolio of forward contracts.

OPTIONS

Options are the standardized financial contracts that allows the buyer (holder) of

the options, i.e. the right at the cost of option premium, not the obligation, to by

(call options) or space sell (put options) a specified asset at a price on or before a

specified date through exchanges under stringent financial securities against

default.


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Options are instruments whereby the right is given by the option seller to option

buyer to buy or sell asset at a specific prince price on or before a specific date.

INDEX FUTURES

Index Futures are the futures contract where the underlying asset is the cash market

index. This of great help when one wants to take a position on market movements.

Suppose if investors feel that, the markets are bullish and the Sensex world

cross5000 points, instead of buying shares that constitute the Index he can buy the

market by taking a position on the Index Futures. Both the Bombay Stock

Exchange (BSE) and National Stock Exchange (NSE) have launched index futures

in June 2000.

ASSUMPTIONS OF FUTURES MARKET

1. No seasonal demand and supply in the underlying asset.

2. Storability of the underlying asset is not a problem

3. The underlying asst can be sold short

4. No transaction cost; No taxes

5. No margin requirements, and so the analysis relates to a forward contract, rather

than a futures contract.

RISK

Every investment is characterized by return and risk. Risk can be defined in terms

of variability of returns. Risk is the potential of for variability in returns. An

investment whose returns are fairly stable is considered to be a low risk

investment, where as an investment whose returns fluctuate significantly is

considered to be a high risk investment equity share whose returns are likely to

fluctuate widely are considered risky investment .


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ELEMENTS OF RISK

The total variability return of a security represents the total risk of that security.

Systematic risk and unsystematic risk are the two components of total risk.Thus,

Total risk = Systematic risk +Unsystematic risk.

SYSTEMATIC RISK

These are risk associated with the economic, political, sociological and other

macro level changes. They effects and entire market whole and cannot be

controlled or eliminated merely by diversifying ones portfolio. Systematic risk isfurther sub divided into interest rate risk, market risk, and purchasing power risk.

UNSYSTEMATIC RISK

These risks are unique to a firm or industry. Factors such as management

capability, consumer preferences, labour, etc. contribute to unsystematic risk .

Unsystematic risks are controllable by nature and can be considerably reduced by

sufficiently diversifying ones portfolio.

MEASURE OF BETA

Beta is a measure of systematic risk (it is itself is not a systematic risk). It measures

the sensitivity of a scrip/portfolio vies-a-vies index movement. Beta describes the

relationship between the stocks return and the index return. Beta of scrip is index

specific, i.e., Beta of the same scrip vis--vis sensex will be different from the beta

value vies-a-vies Nifty. Also beta is a time frame specific value, i.e. beta of scrip

vis--vis sensex taking last 6 months historical data into consideration , will bedifferent from the beta value that we get by taking the last one-year date into

consideration , keeping all the other parameters constant.


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1. Beta = +1.0

One percent change in market index return causes exactly one percent change in

the stock return hence they move in tandem.

2. Beta = +0.5.

One percent change in market index return caused 0.5% change. so the stock is less

volatile compared to the market .

3. Beta = +2.0

One percent change in market index return causes 2% change in the stock return,

so the stock is highly volatile and hence risky.

4. Negative beta

This value indicates that stock return moves in the opposite direction to the market

return. A negative beta will give positive return.

HEDGING

Hedging is the process of managing the risk of price changes in physical material

by offsetting that risk in the futures market. Hedging can vary in complexity from a

relatively simple activity, through to highly complex strategies, including the use

of oppositions. The ability to hedge means that industry can decide on the amount

of risk it is prepared to accept. It may wish to eliminate the risk entirely and can

generally stock do so quickly and easily. Managing price risk means achieving

greater control of either the cost of inputs, or revenues; and eliminating concerns

that a sharply adverse move in the price of material could turn on otherwise

flourishing and efficient business into a loss maker.


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DESIGN OF THE STUDY

y Two market conditions were selected i.e. bullish trend in the month of mayand bearish trend in the month of June

y Scrips were selected from different industry based on P/E ratio, beta valueand past track record.

y Beta values were taken from NSEs websitey A portfolio was constructed.y Portfolio was hedged with index futures and net profit/loss were found o

The study was basically empirical in nature. The aim was to test the effectiveness

of hedging strategy with respect to Nifty Index Futures. The study was conducted

by constructing a portfolio of six stocks from major industries. Trading was done

on these six securities in both bullish and bearish market condition, then same

securities were hedged with index futures to find out whether hedging is effective

or not in both market condition. Fresh investment is done in the beginning of each

period and a comparison study is done on these two separate periods.

PERIOD OF THE STUDY

The study was carried out for a two separate investment period

1. First period from 04-05-2009 to 29-05-2009(Bullish market condition)

2. Second period from 01.06.2009 to 30.06.2009.(Bearish market condition)

SOURCE OF DATA

Data used for study were historical or secondary in nature. They include:

y Data relating to securities published by NSE.y Data from various web sites.


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TOOLS USED

1. Portfolio analysis2. Beta value analysis

PORTFOLIO ANALYSIS

Number of securities to e taken = Value of Shares / Spot Price

Gain or loss from the portfolio = Portfolio at the end Initial portfolio.

BETA VALUE ANALYSIS

BETA VALUE

Beta= n xy+x y

n x2- x2

Where, n is the number of data points

X is the bench mark returns, and

Y is the investment returns.

Portfolio Beta = Value of Beta Amount / Value of Portfolio

Hedge Ratio = Portfolio Value * Portfolio Beta / Value of Index

HEDGE RATIO

Hedge ratio is referred to the number of futures contracts required to be sold or

bought provide maximum offset of risk of a given value of investment in shares orother goods. This depends on the following:

1. Value of a future contract

2. Value of the portfolio or socks to be hedged and

3. Sensitivity of the movement of the portfolio price to that of the index

(beta).


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It is calculated by using the following formula.

Hedge ratio = value of portfolio * beta value/ value index

The hedge ratio is closely related to the correlation between the asset (portfolio of

shares) to be hedged and underlying (index) from which the future is derived.

RESEARCH METHODOLOGY

For the effectiveness of study total investment period was divided into a bullish

period and a bearish period i.e. May and June respectively. A portfolio was created

at the beginning of each month. It was assumed that on the beginning of both

periods i.e. on 01-05-2009 and 01-06-2009 , the portfolio comprises of stocks of

six companies worth nearly Rs 3Lakh each, amounting to Rs. 18 lakh. After thecollection of relevant data for the above mentioned period, these data were

tabulated in meaningful manner. Calculation of the values of portfolios on different

days, the profit or loss made by the portfolio and the hedge amount were calculated

manually. Finally, the net profit or loss arising out of both hedged as well as

unhedged positions for these periods were calculated and comparison was

indicated graphically

LIMITATIONS OF THE STUDY

y The duration of the study was limited to period of two month so that the extensive and deep study could not be possible.

y The beta value for risk assessment is not precisely current as it changes fromtime to time.

y The study were limited to 6 companies of NSE.y Financial statement is the record of past events only. Past events can never

be 100% representative for future.

y The study was depended based on secondary data.


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Chapter 5

ANALYSIS AND

INTERPRETATION OF DATA


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ANALYSIS OF PORTFOLIO WITHOUT HEDGING

Suppose an investor makes an investment of Rs 18 lacks and makes his investment

in 6 different companies of different industries. He decided to invest 3 lacks of

investment in each industry. He brought the shares from the stock market at priceon 01/05/09 and 1/06/09. The quantity of shares that he buys is determined by the

following formulae

Quantity = Value of Share / Spot Price

The main aim of every investment is earn profit. The main problem before the

investor is that, will the portfolio earn expected return or the value of the portfolio

will appreciate or not? Stock markets are volatile, so that there is equal chance of

appreciation and depreciation. If the stock price increases, that will help the

investor to gain profit and vice versa. Hence the investor will try to reduce the risk.

One of the tool available to him is hedging in the future market. Investment is done

in two separate periods

Analysis for the month of may

The portfolio of R. 18 lacks which contains scrip of 6 different industries. So, on

the date (04.05.2009), the quantity of each companys share

Table 1: Details of Portfolio as on 01/05/2009

strip name spot price No of shares value of investment

Airtel 759.25 395 299903.8

CIPLA 238.55 1257 299857.4

Infosys 1628.2 185 301217

ONGC 891 337 300267

Reliance 1887.1 158 298161.8

SBI 1366.25 220 300575

Total investment =1799982


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The portfolio is assumed to be kept for a period of one month. .He can minimize

the risk and uncertainty by hedging in the market the beta value of portfolio for onemonth is given below.

Table no: 2 Beta values of scrips for the month of May

STRIP NAME BETA VALUE

Airtel 1.02

CIPLA 0.5

Infosys 0.7

ONGC 0.88

Reliance 1.23

SBI 1.11

(Beta values are taken from NSEs website)


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Table no: 3 Analysis of portfolio without hedging for the month of MayDate strip name spot price No of

shares

value of

investment

total value

of

investment

profit/loss

4-May-09 Airtel 759.25 395 299903.8

1799982 0

CIPLA 238.55 1257 299857.4

Infosys 1628.2 185 301217

ONGC 891 337 300267

Reliance 1887.1 158 298161.8

SBI 1366.25 220 300575

5-May-09 Airtel 750.75 395 296546.3

1778403 -21578.7

CIPLA 236.05 1257 296714.9

Infosys 1582.05 185 292679.3

ONGC 886.95 337 298902.2

Reliance 1883.65 158 297616.7

SBI 1345.2 220 295944

6-May-09

7-May-09

Airtel 757.5 395 299212.5

1763722 -36260

CIPLA 227.85 1257 286407.5

Infosys 1573.25 185 291051.3

ONGC 886.75 337 298834.8

Reliance 1881.5 158 297277

SBI 1322.45 220 290939

Airtel 782.55 395 309107.3

1790608 -9373.85

CIPLA 230.65 1257 289927.1

Infosys 1552.75 185 287258.8

ONGC 891.3 337 300368.1

Reliance 1915.55 158 302656.9

SBI 1369.5 220 301290

8-May-09 Airtel 768.35 395 303498.3

1758054 -41927.9

CIPLA 225.9 1257 283956.3

Infosys 1520.7 185 281329.5ONGC 883.15 337 297621.6

Reliance 1900.3 158 300247.4

SBI 1324.55 220 291401


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Date strip name spot price No ofshares

value ofinvestment

total valueofinvestment

profit/loss

18-May-09 Airtel 1003.2 395 396264

2086041 286059.2

CIPLA 251.9 1257 316638.3

Infosys 1800.1 185 333018.5

ONGC 947.2 337 319206.4

Reliance 2367.55 158 374072.9

SBI 1576.55 220 346841

19-May-09 Airtel 915.1 395 361464.5

2009174 209192.3

CIPLA 227.05 1257 285401.9

Infosys 1558.95 185 288405.8

ONGC 995.7 337 335550.9Reliance 2230.9 158 352482.2

SBI 1753.95 220 385869

20-May-09 Airtel 859.65 395 339561.8

1976695 176713.5

CIPLA 228.2 1257 286847.4

Infosys 1530.9 185 283216.5

ONGC 994.45 337 335129.7

Reliance 2152.45 158 340087.1

SBI 1781.15 220 391853

20-May-09 Airtel 859.65 395 339561.8

1976695 176713.5

CIPLA 228.2 1257 286847.4

Infosys 1530.9 185 283216.5

ONGC 994.45 337 335129.7

Reliance 2152.45 158 340087.1

SBI 1781.15 220 391853

22-May-09 Airtel 859.6 395 339542

1980323 180341.1

CIPLA 222.95 1257 280248.2

Infosys 1522.3 185 281625.5

ONGC 1046.05 337 352518.9

Reliance 2185.75 158 345348.5

SBI 1732 220 381040


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1799982, on the last day, ie.on30th June 2009 the portfolio is reached to Rs.

2099181. It is a gain of Rs.299199.

Table no: 4 Daily movements of portfolio and profit/loss for the month of May

Date Portfolio profit/loss4-May-09 1799982 05-May-09 1778403 -215786-May-09 1763722 -362607-May-09 1790608 -93738-May-09 1758054 -4192711-May-09 1718281 -81701

12-May-09 1778353 -2162913-May-09 1755323 -4465814-May-09 1741879 -5810315-May-09 1772062 -2791918-May-09 2086041 28605919-May-09 2009174 20919220-May-09 1976695 17671321-May-09 1960103 16012122-May-09 1980323 18034125-May-09 1957273 157290

26-May-09 1920983 12100127-May-09 1988927 18894428-May-09 2021688 22170629-May-09 2099181 299199

Above table gives a summary of daily movement of portfolio for the month of

May. At the end portfolio went up to Rs.2099181 and it registered a profit of Rs.

299199


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Chart no: 1 Gain or loss in portfolio amount in the month of May

Above graph shows the movement of portfolio for the month of may. During the

initial period portfolio was stable untill 18th May. From that date portfolio shown a

upward trend and end upwith a appreciated amount of Rs.2099181.

0

500000

1000000

1500000

2000000

2500000

4-may-09

6-may-09

8-may-09

10-may-09

12-may-09

14-may-09

16-may-09

18-may-09

20-may-09

22-may-09

24-may-09

26-may-09

28-may-09

__ portifolio

Appreciation/Depreciation


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Chart no: 2 profit /loss for the portfolio during the month of May

Above chart shows the profit/loss arises out of unhedged portfolio for a one month

period. During the initial stage it showed a downward trend but from 18th onwards

it showed a positive trend and end up with profit of Rs.299199.

-200000

-100000

0

100000

200000

300000

__ profit/loss

Profit/loss

4-may-09

6-may-09

8-may-09

10-may-09

12-may-09

14-may-09

16-may-09

18-may-09

20-may-09

22-may-09

24-may-09

26-may-09

28-may-09


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ANALYSIS OF PORTFOLIO WITH HEDGING

Table no: 5 Calculation of amount to be hedged on 04/05/09

strip name spot price No ofshares

value of

investmentBeta Beta

amountAirtel 759.25 395 299903.8 1.02 305901.8CIPLA 238.55 1257 299857.4 0.5 149928.7

Infosys 1628.2 185 301217 0.7 210851.9ONGC 891 337 300267 0.88 264235

Reliance 1887.1 158 298161.8 1.23 366739SBI 1366.25 220 300575 1.11 333638.3total 1799982 1631295

Portfolio Value = 1799982


= 1631295/1799982

= 0.906

Value of Index = 3654


= 1799982*0.906/3654

= 446

Permitted Lot Size = 50

No. Of Nifty Lot to be hedged= 446 /50

= 8.92 rounded to 9 lots

The amount to be hedged = 3654*9*50

= 1644300


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value of

investmentBeta Beta

amountAirtel 757.5 395 299212.5 1.02 305196.8CIPLA 227.85 1257 286407.5 0.5 143203.7Infosys 1573.25 185 291051.3 0.7 203735.9ONGC 886.75 337 298834.8 0.88 262974.6Reliance 1881.5 158 297277 1.23 365650.7SBI 1322.45 220 290939 1.11 322942.3total 1763722 1603704



= 1603704/1763722

= 0.909



= 1763722*0.909/3625

= 442





= 1631250


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strip name spot price No ofShares

value of

investmentBeta Beta

amount

Airtel 748.65 395 295716.8 1.02 301631.1

CIPLA 218.3 1257 274403.1 0.5 137201.6

Infosys 1517.65 185 280765.3 0.7 196535.7

ONGC 879.7 337 296458.9 0.88 260883.8

Reliance 1861.6 158 294132.8 1.23 361783.3

SBI 1258.2 220 276804 1.11 307252.4

total 1718281 1565288



= 1565288/1718281

= 0.910



= 1718281*0.910/3554

= 439





= 1599300


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value of

investmentBeta Beta

amount

Airtel 793.8 395 313551 1.02 319822

CIPLA 220.45 1257 277105.7 0.5 138552.8

Infosys 1598.45 185 295713.3 0.7 206999.3

ONGC 882.45 337 297385.7 0.88 261699.4

Reliance 1959.9 158 309664.2 1.23 380887

SBI 1295.15 220 284933 1.11 316275.6

total 1778353 1624236


Portfolio Bet = Value of Beta Amount / Value of Portfolio

= 1624236/1778353

= 0.913



= 1778353*0.913/3681

= 441





= 1656450


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value of

investmentBeta Beta

amount

Airtel 795.75 395 314321.3 1.02 320607.7

CIPLA 221.85 1257 278865.5 0.5 139432.7

Infosys 1573.95 185 291180.8 0.7 203826.5

ONGC 854.7 337 288033.9 0.88 253469.8

Reliance 1933 158 305414 1.23 375659.2

SBI 1261.4 220 277508 1.11 308033.9

total 1755323 1601030



= 1601030/1755323

= 0.912



= 1755323*0.912/3635

= 440





= 1635750


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value of

investmentBeta Beta

amount

Airtel 799.85 395 315940.8 1.02 322259.6

CIPLA 230.9 1257 290241.3 0.5 145120.7

Infosys 1592.8 185 294668 0.7 206267.6

ONGC 813.15 337 274031.6 0.88 241147.8

Reliance 1950.7 158 308210.6 1.23 379099

SBI 1313.5 220 288970 1.11 320756.7

total 1772062 1614651



= 1614651/1772062

= 0.911



= 1772062*0.911/3671

= 446


No. Of Nifty Lot to be hedged= 446/50

= 8.78rounded to 9 lots


= 1651950


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value of

investmentBeta Beta

amount

Airtel 1003.2 395 396264 1.02 404189.3

CIPLA 251.9 1257 316638.3 0.5 158319.2

Infosys 1800.1 185 333018.5 0.7 233113

ONGC 947.2 337 319206.4 0.88 280901.6

Reliance 2367.55 158 374072.9 1.23 460109.7

SBI 1576.55 220 346841 1.11 384993.5

total 2086041 1921626



= 1921626/2086041

= 0.921



= 2086041*0.921/4323

= 444





= 1945350


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value of

investmentBeta Beta

amount

Airtel 795.9 395 314380.5 1.02 320668.1

CIPLA 223.75 1257 281253.8 0.5 140626.9

Infosys 1579 185 292115 0.7 204480.5

ONGC 1129.35 337 380591 0.88 334920

Reliance 2220.55 158 350846.9 1.23 431541.7

SBI 1829.55 220 402501 1.11 446776.1

total 2021688 1879013



= 1879013/2021688

= 0.929



= 2021688*0.929/4337

= 433





= 1951650


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value of

investmentBeta Beta

amount

Airtel 820.9 395 324255.5 1.02 330740.6

CIPLA 222.8 1257 280059.6 0.5 140029.8

Infosys 1605.1 185 296943.5 0.7 207860.5

ONGC 1169.25 337 394037.3 0.88 346752.8

Reliance 2271.9 158 358960.2 1.23 441521

SBI 1868.85 220 411147 1.11 456373.2

total 2065403 1923278



= 1923278/2065403

= 0.931



= 2065403*0.931/4448

= 432





= 2001600


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Table no: 25 Daily movements of hedged portfolio and profit and loss

Date Hedged portfolio profit/losses

4-May-09 1644300 0

5-May-09 1647450 3150

6-May-09 1631250 -13050

7-May-09 1657350 13050

8-May-09 1629000 -15300

11-May-09 1599300 -45000

12-May-09 1656450 12150

13-May-09 1635750 -8550

14-May-09 1616850 -27450

15-May-09 1651950 7650

18-May-09 1945350 301050

19-May-09 1943100 298800

20-May-09 1921500 277200

21-May-09 1894500 250200

22-May-09 1907100 26280025-May-09 1906650 262350

26-May-09 1852200 207900

27-May-09 1924200 279900

28-May-09 1951650 307350

29-May-09 2001600 357300

Above table gives a summary of movement of hedged portfolio and its gain/loss

during the month of may. It started with an amount of Rs. 1644300 and end with a

loss of 357300. On the initial day investor sold the securities without its possession

through futures. Later its prices were gone up and he need to buy the securities at a

higher price than he agreed so he suffered a loss of Rs.357300


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Chart no: 3 Appreciation / depreciation of hedged portfolio for the month of

May

During the intial period portfolio was stable, but after 18th it shown a upward trend

and appreciated to Rs.2001600 on 29th may.

0

500000

1000000

1500000

2000000

2500000

4-may-09 11-may-09 18-may-09 25-may-09

__ hedged portifolio

HedgedPortifolio


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Chart no: 4 Profit / loss from hedged portfolio for the month of May

This chart shows the profit /loss part of the hedged portfolio and registered a loss

of Rs.357300

-200000

-100000

0

100000

200000

300000

--------profit/loss

4-may-09

6-may-09

8-may-09

10-may-09

12-may-09

14-may-09

16-may-09

18-may-09

20-may-09

22-may-09

24-may-09

26-may-09

28-may-09

400000

Profit/loss


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Chart no: 5 movement of both unhedged and hedged portfolio for the month

of May

The above chart shows that both hedged and unhedged portfolios are moving in a

same direction. This happens just because of the same market condition. Hedged

portfolio line will always lies behind the unhedged portfolio line because of the

uncertainty in the market until it reach the maturity date.

0

500000

1000000

1500000

2000000

2500000

--------unhedged portifolio ----------hedged portifolio

HedgedPortifolio

4-may-09

6-may-09

8-may-09

10-may-09

12-may-09

14-may-09

16-may-09

18-may-09

20-may-09

22-may-09

24-may-09

26-may-09

28-may-09


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EFFECT OF HEDGING

As on 04/05/2009 As on 29/05/2009

Portfolio Value = 1799982 Portfolio Value = 2099181

Hedged Amount = 1644300 Hedged Amount = 2001600

GAIN FROM THE PORTFOLIO

2099181- 1799982 = 299199

LOSS FROM HEDGING

1644300 2001600 = -357300

NET GAIN = Gain from the portfolio - loss from hedging

299199 357300 = -58101

INERPRETATION

On 4th May 2009, investor bought the portfolio with the aim of holding it for a

period of one month. He decided to hedge the portfolio for the whole time period.

The full time hedging reduces the loss and the risk. By looking the value of

appreciation / depreciation from 4th May 2009 to 29th May 2009, the value of the

portfolio got appreciated leads to a profit of Rs. 299199. And investor expects a

downward trend in the market and he decided to hedge the portfolio. Unfortunately

market showed upward trend from 18th may because of the election result. By

hedging the value of the portfolio for the same period leads him to a loss of Rs.

357300 . The point of analysis tells us that the investor expected a negative trend

and gone for hedging to minimize his losses but the market goes in the opposite

direction and that leads to loss of Rs.58101.

To avoid or minimize loss the investor should be wise enough to predict the

down word trends of share prices. But also; an investor may not wise always!


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There are many unforeseen and unexpected features may affect the sentiments of

the market.

Analysis for the month of June

The portfolio of R. 18 lacks which contains scrip of 6 different industries. So, on

the date (01.06.2009), the quantity of each companys share

Table 26: Details of Portfolio as on 01/06/2009

scrip name spot price No of shares value ofinvestment

Airtel 804.8 373 300190.4Cipla 219.05 1371 300317.6Infosys 1676.5 179 300093.5ONGC 1176.7 255 300058.5Reliance 2282.2 131 298968.2

SBI 1876.75 160 300280

Total investment =1799908

The portfolio is assumed to be kept for a period of one month. .He can minimize

the risk and uncertainty by hedging in the market the beta value of portfolio for one

month is given below.

Table no: 27 Beta values of scrips for the month of June

scrip name Beta

Airtel 1

Cipla 0.5

Infosys 0.69

ONGC 0.89

Reliance 1.23

SBI 1.09

(beta values are taken from NSEwebsite)


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ANALYSIS OF PORTFOLIO WITHOUT HEDGING

Table no: 28 Analysis of portfolio without hedging for the month of JuneDate strip name spot price No of shares value of

investment

total value of

investment

profit/loss

1-Jun-09 Airtel 804.8 373 300190.4

1799908 0

CIPLA 219.05 1371 300317.6

Infosys 1676.5 179 300093.5

ONGC 1176.7 255 300058.5

Reliance 2282.2 131 298968.2

SBI 1876.75 160 300280

2-Jun-09 Airtel 800.4 373 298549.2

1806737 6829.15

CIPLA 222.8 1371 305458.8

Infosys 1688.65 179 302268.4ONGC 1163.85 255 296781.8

Reliance 2279.2 131 298575.2

SBI 1906.9 160 305104

3-Jun-09 Airtel 798.45 373 297821.9

1803321 3412.9

CIPLA 232.55 1371 318826.1

Infosys 1641.5 179 293828.5

ONGC 1168.25 255 297903.8

Reliance 2245.9 131 294212.9SBI 1879.55 160 300728

4-Jun-09 Airtel 816.4 373 304517.2

1813369 13461.05

CIPLA 234.4 1371 321362.4

Infosys 1629.9 179 291752.1

ONGC 1169.35 255 298184.3

Reliance 2261.75 131 296289.3

SBI 1882.9 160 301264

5-Jun-09

Airtel826.75 373

308377.8

1815280 15371.4

CIPLA 233.95 1371 320745.5

Infosys 1698.9 179 304103.1

ONGC 1181.8 255 301359

Reliance 2212.75 131 289870.3

SBI 1817.65 160 290824


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Date strip name spot price No of shares value ofinvestment

total value of

investment

profit/loss

8-Jun-09 Airtel 813.85 373 303566.1

1774481 -25426.7

CIPLA 230.75 1371 316358.3

Infosys 1742.1 179 311835.9

ONGC 1113.55 255 283955.3

Reliance 2194 131 287414

SBI 1695.95 160 271352

9-Jun-09 Airtel 812.45 373 303043.9

1812488 12579.45

CIPLA 233.15 1371 319648.7

Infosys 1794.8 179 321269.2

ONGC 1132.15 255 288698.3Reliance 2272.15 131 297651.7

SBI 1763.6 160 282176

10-Jun-09 Airtel 834.6 373 311305.8

1846434 46526

CIPLA 239.95 1371 328971.5

Infosys 1808.8 179 323775.2

ONGC 1166.1 255 297355.5

Reliance 2320.2 131 303946.2

SBI 1756.75 160 281080

11-Jun-09 Airtel 854.4 373 318691.2

1819646 19737.65

CIPLA 240.05 1371 329108.6

Infosys 1750.95 179 313420.1

ONGC 1120.55 255 285740.3

Reliance 2303.25 131 301725.8

SBI 1693.5 160 270960

12-Jun-09 Airtel 828.15 373 308900

1820851 20942.75

CIPLA 251.05 1371 344189.6

Infosys 1728.45 179 309392.6

ONGC 1127.05 255 287397.8

Reliance 2362.1 131 309435.1

SBI 1634.6 160 261536


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CEC, PERUNADU


total value of

investment

profit/loss

15-Jun-09 Airtel 819.45 373 305654.9

1797585 -2323.2

CIPLA 255.15 1371 349810.7

Infosys 1715.1 179 307002.9

ONGC 1125.45 255 286989.8

Reliance 2178.8 131 285422.8

SBI 1641.9 160 262704

16-Jun-09 Airtel 809.5 373 301943.5

1810540 10632.05

CIPLA 260.75 1371 357488.3

Infosys 1724.65 179 308712.4

ONGC 1126.75 255 287321.3

Reliance 2143.35 131 280778.9

SBI 1714.35 160 274296

17-Jun-09 Airtel 802.95 373 299500.4

1764054 -35854

CIPLA 257.4 1371 352895.4

Infosys 1711.45 179 306349.6

ONGC 1061.2 255 270606

Reliance 2051.35 131 268726.9

SBI 1662.35 160 265976

18-Jun-09 Airtel 804.85 373 300209.1

1755951 -43956.7

CIPLA 256.8 1371 352072.8

Infosys 1725.75 179 308909.3

ONGC 1007.65 255 256950.8

Reliance 2025.05 131 265281.6

SBI 1703.3 160 272528

19-Jun-0 Airtel 807.2 373 301085.6

1782676 -17232.2

CIPLA 265.45 1371 363932

Infosys 1770.4 179 316901.6

ONGC 1009.35 255 257384.3

Reliance 2041.5 131 267436.5

SBI 1724.6 160 275936


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CEC, PERUNADU


total value

of

investment

profit/loss

22-Jun-09 Airtel 790.7 373 294931.1

1750244 -49664.6

CIPLA 261.6 1371 358653.6

Infosys 1766.4 179 316185.6

ONGC 993.85 255 253431.8

Reliance 1952.5 131 255777.5

SBI 1695.4 160 271264

23-Jun-09 Airtel 786.4 373 293327.2

1760688 -39220.2

CIPLA 259.3 1371 355500.3

Infosys 1747.35 179 312775.7

ONGC 1026.7 255 261808.5

Reliance 2015.3 131 264004.3

SBI 1707.95 160 273272

24-Jun-09 Airtel 798.3 373 297765.9

1780731 -19177.1

CIPLA 265.05 1371 363383.6

Infosys 1757.55 179 314601.5

ONGC 1050.95 255 267992.3

Reliance 2002.35 131 262307.9

SBI 1716.75 160 274680

25-Jun-09 Airtel 793.85 373 296106.1

1752507 -47401.6

CIPLA 257 1371 352347

Infosys 1759.1 179 314878.9

ONGC 1019.7 255 260023.5

Reliance 1958.1 131 256511.1

SBI 1704 160 272640

26-Jun-09 Airtel 810.1 373 302167.3

1799881 -26.7

CIPLA 261.55 1371 358585.1

Infosys 1827.1 179 327050.9

ONGC 1044.6 255 266373

Reliance 2029.2 131 265825.2

SBI 1749.25 160 279880


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CEC, PERUNADU


total value

of

investment

profit/loss

29-Jun-09 Airtel 807.25 373 301104.3 1808189 8281.2CIPLA 262.8 1371 360298.8

Infosys 1782.95 179 319148.1

ONGC 1065.95 255 271817.3

Reliance 2087 131 273397

SBI 1765.15 160 282424

30-Jun-09 Airtel 802.15 373 299202 1781013 -18894.9

CIPLA 253.35 1371 347342.9

Infosys 1776.5 179 317993.5

ONGC 1067.3 255 272161.5

Reliance 2023.4 131 265065.4

SBI 1745.3 160 279248

Table no 29: Summary of portfolio movement and profit / loss for the month of June

date portfolio Profit/loss

1-Jun-09 1799908 0

2-Jun-09 1806737 6829

3-Jun-09 1803321 3413

4-Jun-09 1813369 13461

5-Jun-09 1815280 15372

8-Jun-09 1714481 -85427

9-Jun-09 1812488 12580

10-Jun-09 1846434 4652611-Jun-09 1819646 19738

12-Jun-09 1820851 20943

15-Jun-09 1797585 -2323

16-Jun-09 1810540 10632

17-Jun-09 1764054 -35854

18-Jun-09 1755951 -43957

19-Jun-09 1782676 -17232


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22-Jun-09 1750244 -49664

23-Jun-09 1760688 -39220

24-Jun-09 1780731 -19177

25-Jun-09 1752507 -47401

26-Jun-09 1799881 -27

29-Jun-09 1808189 828130-Jun-09 1781013 -18895

On june 1st portfolio begins with Rs. 1799908 and end up with Rs. 1781013 and it

register a loss of Rs. -18895. Through out the month portfolio shown a mixed trend

and finally depreciated.

Chart no: 6 Appreciation / depreciation of portfolio amount for the month of

June

Portfolio amount started at Rs. 1799908 and ends with Rs. 1781013. So this graph

shows a mixed trend and end with a depreciated amount.

1650000

1700000

1750000

1800000

1850000

-------- portifolio

Appreciation/Depreciation

1-jun-09

3-jun-09

5-jun-09

7-jun-09

9-jun-09

11-jun-09

13-jun-09

15-jun-09

17-jun-09

19-jun-09

21-jun-09

23-jun-09

25-jun-09

27-jun-09

29-jun-09

1600000


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CEC, PERUNADU

Chart no: 7 profit or loss from the portfolio for the month of June

During this month market shown a mixed trend on30th June it end up with a loss

of Rs.-18895. This happened because of depreciation in the value of portfolio.

-40000

-20000

0

20000

40000

-------- profit/losses

Profit/losses

-60000

-80000

-100000

- - - - - - - - - -


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value of

investmentBeta Beta

amount

Airtel800.4 373 298549.2 1 298549.2

CIPLA 222.8 1371 305458.8 0.5 152729.4

Infosys 1688.65 179 302268.4 0.69 208565.2

ONGC 1163.85 255 296781.8 0.89 264135.8

Reliance 2279.2 131 298575.2 1.23 367247.5

SBI 1906.9 160 305104 1.09 332563.4

total 1806737 1623790



= 1623790/1806737

= 0.898

Value of Index = 4525.25


= 1806737*0.898/4525.25

= 358.53


No. Of Nifty Lot to be hedged= 358.53/50


The amount to be hedged = 4525.25*7*50

= 1583837.5


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value of

investmentBeta Beta

amount

Airtel816.4 373 304517.2 1 304517.2

CIPLA 234.4 1371 321362.4 0.5 160681.2

Infosys 1629.9 179 291752.1 0.69 201308.9

ONGC 1169.35 255 298184.3 0.89 265384

Reliance 2261.75 131 296289.3 1.23 364435.8

SBI 1882.9 160 301264 1.09 328377.8

total 1813369 1624705



= 1624705/1813369

= 0.895



= 1813369*0.895/4572.65

= 354.92





= 1600427


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value of

investmentBeta Beta

amount

Airtel826.75 373 308377.8 1 308377.8

CIPLA 233.95 1371 320745.5 0.5 160372.7

Infosys 1698.9 179 304103.1 0.69 209831.1

ONGC 1181.8 255 301359 0.89 268209.5

Reliance 2212.75 131 289870.3 1.23 356540.4

SBI 1817.65 160 290824 1.09 316998.2

total 1815280 1620330



= 1620330/1815280

= 0.893



= 1815280*0.893/4586.9

= 353.41





= 1605415


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value of

investmentBeta Beta

amount

Airtel834.6 373 311305.8 1 311305.8

CIPLA 239.95 1371 328971.5 0.5 164485.7

Infosys 1808.8 179 323775.2 0.69 223404.9

ONGC 1166.1 255 297355.5 0.89 264646.4

Reliance 2320.2 131 303946.2 1.23 373853.8

SBI 1756.75 160 281080 1.09 306377.2

total 1846434 1644074



= 1644074/1846434

= 0.890



= 1846434*0.890/4655.25

= 353.01





= 1629337


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value of

investmentBeta Beta

amount

Airtel828.15 373 308900 1 308900

CIPLA 251.05 1371 344189.6 0.5 172094.8

Infosys 1728.45 179 309392.6 0.69 213480.9

ONGC 1127.05 255 287397.8 0.89 255784

Reliance 2362.1 131 309435.1 1.23 380605.2

SBI 1634.6 160 261536 1.09 285074.2

total 1820851 1615939



= 1615939/1820851

= 0.887



= 1820851*0.887/4583.4

= 352.37





= 1604190


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value of

investmentBeta Beta

amount

Airtel819.45 373 305654.9 1 305654.9

CIPLA 255.15 1371 349810.7 0.5 174905.3

Infosys 1715.1 179 307002.9 0.69 211832

ONGC 1125.45 255 286989.8 0.89 255420.9

Reliance 2178.8 131 285422.8 1.23 351070

SBI 1641.9 160 262704 1.09 286347.4

total 1797585 1585230


Portfolio Beta= Value of Beta Amount / Value of Portfolio

= 1585230/1797585

= 0.881



= 1797585*0.881/4484

= 353.18





= 1569400


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value of

investmentBeta Beta

amount

Airtel 790.7 373 294931.1 1 294931.1CIPLA 261.6 1371 358653.6 0.5 179326.8

Infosys 1766.4 179 316185.6 0.69 218168.1

ONGC 993.85 255 253431.8 0.89 225554.3

Reliance 1952.5 131 255777.5 1.23 314606.3

SBI 1695.4 160 271264 1.09 295677.8

total 1750244 1528264



= 1528264/1750244

= 0.873



= 1750244*0.873/4235.25

= 360.77


No. Of Nifty Lot to be hedged= 360.77/50 = 7.21 rounded to 7 lots


= 1482337


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value of

investmentBeta Beta

amount

Airtel 786.4 373 293327.2 1 293327.2

CIPLA 259.3 1371 355500.3 0.5 177750.2

Infosys 1747.35 179 312775.7 0.69 215815.2

ONGC 1026.7 255 261808.5 0.89 233009.6

Reliance 2015.3 131 264004.3 1.23 324725.3

SBI 1707.95 160 273272 1.09 297866.5

total 1760688 1542494



= 1542494/1760688

= 0.876



= 1760688*0.876/4247

= 363.16




= 1486450


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value of

investmentBeta Beta

amount

Airtel 793.85 373 296106.1 1 296106.1

CIPLA 257 1371 352347 0.5 176173.5

Infosys 1759.1 179 314878.9 0.69 217266.4

ONGC 1019.7 255 260023.5 0.89 231420.9

Reliance 1958.1 131 256511.1 1.23 315508.7

SBI 1704 160 272640 1.09 297177.6

total 1752507 1533653



= 1533653/1752507

= 0.875



= 1752507*0.875/4241.85

= 361.5




= 1484647


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Table No.52 Movement of hedged portfolio and its profit/loss for the month of

June

Date hedged portfolio profit /loss

1-Jun-09 1585465 0

2-Jun-09 1583837 -1628

3-Jun-09 1585745 280

4-Jun-09 1600427 14962

5-Jun-09 1605415 19950

8-Jun-09 1550465 -35000

9-Jun-09 1592832 7367

10-Jun-09 1629337 43872

11-Jun-09 1623195 37730

12-Jun-09 1604190 18725

15-Jun-09 1596400 10935

16-Jun-09 1581230 -4235

17-Jun-09 1524652 -60813

18-Jun-09 1487990 -97475

19-Jun-09 1509760 -75705

22-Jun-09 1482337 -103128

23-Jun-09 1486450 -9901524-Jun-09 1502532 -82933

25-Jun-09 1484647 -100818

26-Jun-09 1531425 -54040

29-Jun-09 1536832 -48633

30-Jun-09 1501885 -83580

This table shows the daily movement of hedged portfolio and profit and loss from

hedging only.

It shows a loss of Rs.-83580. But investor made benefit out of that through buying

securities at lower price than he agreed to sell the same.


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Chart no:8 Appreciation or Depreciation of hedged portfolio for the month of

June

1450000

1500000

1550000

1600000

1650000

-------- hedged portifolio

Hedged portifolio

1400000

1-jun-09 8-jun-09 15-jun-09 22-jun-09 29-jun-09


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Chart no:9 profit / loss from the hedged portfolio for the month of June

-40000

-20000

0

20000

40000

-------- profit/losses

Profit/losses

-60000

-80000

-100000

- - - - - - - - - -


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Chart no: 10 movement of hedged and unhedged portfolio for the month of

june

The above chart shows both hedged and unhedged portfolios movements and they

are moving in a same pattern. This happens just because of the same market

condition. Hedged portfolio line will always lies behind the unhedged portfolio

line because of the uncertainty in the market until it reach the maturity date

0

500000

1000000

1500000

2000000

2500000

---------unhedged ------------- hedged portifolio

HedgedPortifolio

1-jun-09

3-jun-09

5-jun-09

7-jun-09

9-jun-09

11-jun-09

13-jun-09

15-jun-09

17-jun-09

19-jun-09

21-jun-09

23-jun-09

25-jun-09

27-jun-09

29-jun-09


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EFFECT OF HEDGING

As on 01/06/2009 As on 30/06/2009

Portfolio Value = 1799908 Portfolio Value = 1781013

Hedged Amount = 1585465 Hedged Amount = 1501885

LOSS FROM THE PORTFOLIO

1781013- 1799908 = -18895

GAIN FROM HEDGING

1585465- 1501885 = 83580

NET GAIN = Gain from hedging - loss from portfolio

83580 -18895= 64685

INERPRETATION

On 1ST JUNE 2009, investor bought a portfolio with the aim of holding it for a

period of one month. We have to hedge the portfolio for the whole time period.

The full time hedging reduces the loss and the risk. By looking the value of

appreciation / depreciation from 1ST JUNE 2009 to 30TH JUNE 2009, the value

of the portfolio got depreciated leading to a loss of Rs. 18895. By hedging the

value of the portfolio is seen to have appreciated and leads to a profit of Rs. 83580.

The point of analysis tells us that If the investor had gone for hedging on 1st JUNE

2009 using nifty future index, the investor could have earn a profit the of Rs.

64685. To avoid or minimize loss the investor should be wise enough to predict the

down word trends of share prices


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Chapter.6

FINDINGS AND SUGGESTION


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FINDINGS

Findings based on Bullish Market (MAY 2009)

Investor spend Rs.1799982 on the initial day of investment and on the lastday his investment went up to 2099181 and registered a profit of Rs.299199

While on hedging he suffered a loss of Rs.(-)357300, and end up with a netloss of Rs.(-)58101

Losses from hedging can be minimized with gain in actual portfolio Some particular incidents can influence the prices of the securities (e.g.

election results ) which may held during the period of study

Wrong interpretation about the market may cause loss to the investorsportfolio.

Index futures are better for hedging, since they are convenient and representthe true nature of the security market as a whole

Findings based on Bearish market (June 2009)

Initial investment in the month of June was Rs. 1799908 and on the last dayitend up in a loss of Rs.(-)18895

Through hedging investor earned a profit of Rs. 83580 and it helped him tocover his loss and he got a net profit of Rs.64685

Loss in portfolio can be minimized or removed with hedging. Hedging is comparatively safer to the investor mostly gives positive results. Hedging with same portfolio with equal amount of investment gives

different result during two different market condition


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RECOMMENDATIONS

On the basic of the analysis done and findings observed the following

recommendations were given to existing and prospective investors:-

1. If any one wants to hedge with portfolio, the portfolio must consist of scrips

from different sectors and here index futures are better for hedging, since they are

convenient and represent the true nature of the security market as a whole. The

advantage is that the risk within the portfolio can be minimized completely and the

portfolio will only be affected by the market risk.

2. Hedging is actually a tool to reduce the losses that may arise from the market

risk . Its primary objective is loss minimization, not profit maximization, some

times. it gives profit/loss also. The profit or loss from futures or shares will be

offset from the losses or gain of the shares and futures as the case may be. In this

case, however it was possible to come up with two different result one with profit

and another with loss. So it helps the investor to reduce risk in his portfolio

3. Investor should be able to comprehend market trend and fluctuations. Otherwise

the strategies adopted by him will cause loss.

4. Hedging technique is more suited to an investor who is having a portfolio and

the profit or loss caused to the portfolio can be offsets by profit or loss from

hedging


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Chapter.7CONCLUSION


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