portfolio management and risk anylises

7/31/2019 portfolio management and risk anylises

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Executive summary:-

Journey of Indian stock market;-

Indian Stock Markets are one of the oldest in Asia. It is

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 250.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 appropriatelycalled as Dalal 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. 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 isthe study on

PORTFOLIO MANAGEMENT &INVESTMENT DECISION so as to examine

the role, process and merits of effective investment management and decision.


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Growth pattern of Indian stock market:-

Sr.

no

As on 31st

December

1946 1961 1971 1975 1980 1985 1991 1995

1 No of stock

exchanges

7 7 8 8 9 14 20 22

2 No of list cos. 1125 1203 1599 1552 2265 4344 6229 8593

3 No of stocks

listed on cos

1506 2111 2838 3230 3697 6174 8967 11784

4 Capital of listed

cos(cr.rs)

270 753 1812 2614 3973 9723 32041 59583

5 Market value of

listed cos(cr.Rs)

971 1292 2675 3273 6750 2530

2

11027

9

478212

6 Capital per list

cos(4/2) laks rs

24 63 113 168 175 224 514 693

7 Market value of

capital per listed

cos(lakes.Rs)

5/2

86 107 167 211 298 582 1770 5564

8 Appreciated ofvalue of capital

Rs

358 170 148 126 170 260 344 803


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GENERAL TERMS OF PORTFOLIO:-

Portfolio management can be defined and used in many a ways,

because the basic meaning of the word is combination of the various thingskeeping intact. So I considered and evaluated this from the perspective of theinvestment part in the securities segment. From the investor point of view this

portfolio followed by him is very important since through this way one can manage

the risk of investing in securities and thereby managing to get good returns from

the investment in diversified securities instead of putting all the money into one

basket. Now a days investors are very cautious in choosing the right portfolio ofsecurities to avoid the risks from the market forces and economic forces. So this

topic is chosen because in portfolio management one has to follow certain steps inchoosing the right portfolio in order to get good and effective returns by managing

all the risks. This topic covers how a particular portfolio has to be chosen

concerning all the securities individual return and there by arriving at the overall

portfolio return. This also covers the various techniques of evaluation of the

portfolio with regard to all the uncertainties and gives an edge to select the right

one. The purpose of choosing this topic is to know how the portfolio management

has to be done in arriving at the effective one and at the same time make aware the

investor to choose the securities which they want to put in their portfolio. This alsogives an edge in arriving at the right portfolio in consideration to different

securities rather than one single security. The project is undertaken for the study of

my subject thoroughly while understanding the different case studies for the better

understanding of the investor and myself.


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RISK IN PORTFOLIO;-

Stock exchange Operations are peculiar in nature and most of the Investors feelinsecure in managing their investment on the stock market because it is difficult for

an individual to identify companies which have growth prospects for investment.

Further due to volatile nature of the markets, it requires constant reshuffling of

portfolios to capitalize on the growth opportunities Even after identifying the

growth oriented companies and their securities, the trading practices are also

complicated, making it a difficult task for investors to trade in all the exchange and

follow up on post trading formalities Investors choose to hold groups of securities

rather than single security that offer the greater expected returns. They believe thata combination of securities held together will give a beneficial result if they are

grouped in a manner to secure higher return after taking in to consideration the risk

element. That is why professional investment advice through portfolio

management service can help the investors to make an intelligent and informed

choice between alternative investments opportunities without the worry of post

trading hassles Investors choose to hold groups of securities rather than single

security that offer the greater expected returns. They believe that a combination of

securities held together will give a beneficial result if they are grouped in a manner

to secure higher return after taking in to consideration the risk element. That is why

professional investment advice through portfolio management service can help the

investors to make an intelligent and informed choice between alternative

investments opportunities without the worry of post trading hassles
http://www.indiastudychannel.com/projects/820-Project-On-Portfolio-Management.aspxhttp://www.indiastudychannel.com/projects/820-Project-On-Portfolio-Management.aspx


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INTRODUCTION:-

This project deals with the different investment decisions made bydifferent people and focuses on element of risk in detail while investing in

securities. It also explains show portfolio hedges the risk in investment and giving

optimum return to a given amount of risk. It also gives an in depth analysis of

portfolio creation, selection, revision and evaluation. The report also shows

different ways of analysis of securities, different theories of portfolio management

for effective and efficient portfolio construction. It also gives a brief analysis of

how to evaluate a portfolio.

NEED FOR THE STUDY:-

The purpose of the study is to know the fluctuations in the share price ofsample companies.

The purpose of the study is to help the unknown investors for investing insecurities.

To update the portfolio reviewed and adjusted from time to time in tune withmarket condition.

To analyze the risk and return on securities. To test portfolio strategies before taking decisions. To examination and evaluation of the various factors affecting the value of a

security.


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Analysis phase of portfolio management consists of identifying the

range of possible portfolios that can be constituted from a given set of securities

and calculating their return and risk for further analysis. Proper goal of portfolioconstruction is to generate a portfolio that provides the highest returns at a given

level of risk.

To construct the optimal portfolio, the investor has to constantly monitor the

portfolio to ensure that it continues to be optimal. Portfolio revision is as important

as portfolio analysis and selection.

OBJECTIVES OF THE STUDY:-

The objectives of Equities and investment /portfolio management can be

categorized as follows:

To observe the rate of fluctuations of selected companies.The amount of risk involved in the securities of the sample companies.To make comparative study of risk and return of the sample companies.To increase the values of portfolio consisting some security.To give the optimum returns to the investor.To give maximum return innless risk.

The data provided by the firm was been analyzes by using Markowitz model

determines an efficient asset of portfolio return.

In Equity market, risk is analyzed and trading decisions are taken on basis of

technical analysis. It is collecting share prices of selected companies for a period of

five years.Return-the potential return possible from an asset.

Risk-the variability in returns of the asset form the chances of its value going

down/up.

Liquidity-the ease with which an asset can be converted into cash.


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SCOPE OF THE STUDY

The study covers all the information related to the Equity fund and the Portfoliomanagement it also covers the investor risk in the investment in various securities.

Identification of the investors objectives, constraints and preferences. Strategies are to be developed and implemented in tune with investment

policy formulated.

To reduce the future risk in advance. To earn maximum profit in the securities. Review and monitoring of the performance of the portfolio. Finally the evaluation of the portfolio. Portfolio analysis considers the determination of future risk and return in

holding various blends of individual securities.

Portfolio expected return is a weighted average of the expected return of individual

securities but portfolio variance, in short contrast, can be something less than a

weighted average of security variances.

As a result an investor can sometimes reduce portfolio risk by adding security with

greater individual risk than any other security in the portfolio. This is because riskdepends greatly on the co-variance among return of individual securities.

Since portfolios expected return is a weighted average of the expected return of its

securities, the contribution of each security to the portfolios expected returnsdepends on its expected returns and its proportionate share of the initial portfoliosmarket value.


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METHODOLOGY

PRIMARY DATA:-

Primary data collected from news papers & magazines.

Data collected from brokers.Data obtained from company journals.

SECONDARY DATA:-Data collected from various books and sites.Data collected from internet.

LIMITATIONS OF THE STUDY;-

The data collected is basically confined to secondary sources, with very littleamount of primary data associated with the project.

There is a constraint with regard to time allocated for the research study. The availability of information in the form of annual reports & price

fluctuations of the companies is a big constraint to the study.

The data collected for a period of one year i.e., from October 2007 toSeptember 2007

In this study the statistical tools used are risk, return, average, variancecorrelation.


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GUIDELINES FOR INVESTORS IN THE STOCK MARKET:-

a) Never buy on rumors or market gossip.b) Buy only on the basis of fundamental analysis of the companies based on

balance sheet data analysis.

c) Buy a diversified list of companies and not put all the money in one or twocompanies. All investments in the stock market are risky. The risk can bereduced by proper diversification of the portfolio into 10 or 15 companies.

d) Study the sales, gross profit, net profit in relation to equity capital employedand attempts a forecast for the coming half year or one year.

e) A declaration of bonus or low P/E ratio, along with strong fundamentalsshows that the company should be a good buy.

f) The investor should also watch for low priced shares which are about to turnaround for more profitability in future.

g) Investors should buy on declines and follow the principle of contrariness.This means that if everyone is buying scrip, avoid that scrip but if a scrip isdeserted and your study has shown that is has potential; for expandingearnings and profitability, then such scrips should be purchased bythe investor.

h) Avoid both fear and greed on the stock market. If investor is not afraid of themarket, he generally studies the market and buys at lows and sells at highs.

i) The investor should know how to analyze the security prices of companiesand pick up the undervalued shares. The valuation may be based on the netprofits discounted to the present by a proper discount rate or by the bookvalue of share, estimated on the basis of net worth of the company.


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Timing of purchase and sale is also very important. If technical

analysis and the use of charts are not familiar to the investor he should follow the

principle buy low and sell high. He should see whether there is a bull market orbear market in a share by a study of the share price over a period of 15 to 30 days.

In a bull phase one can sell at one of the peaks and in a bear phase one can buy at

one of troughs. If the investor is greedy to wait on to see the maximum peak, and

then he may be disappointed if the price shows adown trend. Similarly, it is

difficult to foresee the lowest price for scrip for the buy. The investor has to use his

discretion.

The investors should not do the following things;-

He should not put all his eggs in one basket which means that he

should not put all h is funds in one or two companies.

Do not go by heresy or rumors to buy or sell scrip as that might be a dupe.

Do not speculate involving the buying and selling in the same day

or during the same settlement period. A long term investor gains morethan speculator.

Avoid taking undue risks or beyond the capacity of your net worth. Thatmeans if capital base is Rs. 2lakhs, put a stop loss order at Rs. 20,000/- (or

1/8th or 1/10th of the capital base).


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i. Long Term Investment Horizonii. Little Portfolio Revisions

Thus it is basically a buy and hold strategy. The strategy can be implemented by

investing in securities so as to duplicate the portfolio of a market index which is

called index.

Portfolio management:-

The art and science of making decisions about investment mix and policy,matching investments to objectives, asset allocation for individuals andinstitutions, and balancing risk against performance.

Portfolio management is all about strengths, weaknesses, opportunitiesand threats in the choice of debt vs. equity, domestic vs. international, growth vs.safety, and many other tradeoffs encountered in the attempt to maximize return at agiven appetite for risk.

A Portfolio is a collection of investments held by an institution or a private

individual. In building up an investment portfolio a financial institution willtypically conduct its own investment analysis, whilst a private individual may

make use of the services of a financial advisor or a financial institution which

offers portfolio management services. Holding a portfolio is part of an investment

and risk-limiting strategy called diversification. By owning several assets, certain

types of risk (in particular specific risk) can be reduced. The assets in the portfolio

could

Include stocks, bonds, options, warrants, gold certificates, real estate, futures

contracts, production facilities, or any other item that is expected to retain its value.


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Portfolio management involves deciding what assets to include in the portfolio,given the goals of the portfolio owner and changing economic conditions.Selection involves deciding what assets to purchase, how many to purchase, whento purchase them, and what assets to divest. These decisions always involve somesort of performance measurement, most typically expected return on the portfolio,and the

riskAssociated with this return (i.e. the standard deviation of the return).Typicallythe expected returns from portfolios, comprised of different asset bundles arecompared. The unique goals and circumstances of the investormust alsobeconsidered. Some investors are more risk averse than others. Mutual funds havedeveloped particular techniques to optimize their portfolio holdings. Thus,

portfolio management is all about strengths, weaknesses, opportunities and threatsin the choice of debt vs. equity, domestic vs. international, growth vs. safety andnumerous other trade-offs encountered in the attempt to maximize return at a givenappetite for risk.

Aspects of Portfolio Management:-

Basically portfolio management involves:-

A proper investment decision making of what to buy & sell Proper money management in terms of investment in a basket of assets

soaps to satisfy the asset preferences of investors.

Reduce the risk and increase returns.
http://en.wikipedia.org/wiki/Expected_returnhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Expected_return


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OBJECTIVES OF PORTFOLIO MANAGEMENT:

The basic objective of Portfolio Management is to maximize yield and minimizerisk. The other ancillary objectives are as per needs of investors, namely:

1. Regular income or stable return2. Appreciation of capital3. Marketability and liquidity4. Safety of investment5. Minimizing of tax liability.

NEED FOR PORTFOLIO MANAGEMENT:

The Portfolio Management deals with the process of selection securities from thenumber of opportunities available with different expected returns and carryingdifferent levels of risk and the selection of securities is made with a view toprovide the investors the maximum yield for a given level of risk or ensureminimum risk for a level of return. Portfolio Management is a processencompassing many activities of investment in assets and securities. It is adynamics and flexible concept and involves regular and systematic analysis,

judgment and actions. The objectives of this service are to help the unknown

investors with the expertise of professionals in investment Portfolio Management.It involves construction of a portfolio based upon the investors objectives,constrains, preferences for risk and return and liability. The portfolio is reviewedand adjusted from time to time with the market conditions. The evaluation ofportfolio is to be done in terms of targets set for risk and return. The changes in

portfolio are to be effected to meet the changing conditions. Portfolio Constructionrefers to the allocation of surplus funds in hand among a variety of financial assetsopen for investment. Portfolio theory concerns itself with the principles governingsuch allocation. The modern view of investment is oriented towards the assembly

of proper combinations held together will give beneficial result if they are groupedin a manner to secure higher return after taking into consideration the risk element.


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The modern theory is the view that by diversification, risk can bereduced. The investor can make diversification either by having a large number ofshares of companies in different regions, in different industries or those producingdifferent types of product lines. Modern theory believes in the perspectives of

combination of securities under constraints of risk and return.

ELEMENTS:-

Portfolio Management is an on-going process involving the following basictasks.

Identification of the investors objective, constrains and preferences whichhelp formulated the invest policy.

Strategies are to be developed and implemented in tune with invest policyformulated. This will help the selection of asset classes and securities in eachclass depending upon their risk-return attributes.

Review and monitoring of the performance of the portfolio by continuousoverview of the market conditions, companys performance and investorscircumstances.

Finally, the evaluation of portfolio for the results to compare with the targetsand needed adjustments have to be made in the portfolio to the emergingconditions and to make up for any shortfalls in achievements (targets).

Definition of portfolio management:-

In simple words portfolio management is all about strengths, weaknesses,

opportunities and threats in the choice of debt vs. equity, domestic vs.

international, growth vs. safety, and many other tradeoffs encountered in the

attempt to maximize return at a given appetite for risk


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The art of selecting the right investment policy for the individuals in terms ofminimum risk and maximum return is called as portfolio management.

Meaning of portfolio management;-

Portfolio management in common parlance refers to the selection of securities and

their continuous shifting in the portfolio to optimize returns to suit the objectives of

an investor. This however requires financial expertise in selecting the right mix of

securities in changing market conditions to get the best out of the stock market. In

India, as well as in a number of western countries, portfolio management service

has assumed the role of a specialized service now a days and a number of

professional merchant bankers compete aggressively to provide the best to high net

worth clients, who have little time to manage their investments. The idea is

catching on with the boom in the capital market and an increasing number ofpeople are inclined to make profits out of their hard-earned savings. Portfolio

management service is one of the merchant banking activities recognized by

Securities and Exchange Board of India (SEBI). The service can be rendered either

by merchant bankers or portfolio managers or discretionary portfolio manager as

define in clause (e) and (f)of Rule 2 of Securities and Exchange Board of

India(Portfolio Managers)Rules, 1993 and their functioning are guided by the

SEBI. According to the definitions as contained in the above clauses, a portfolio

manager means any person who is pursuant to contract or arrangement with aclient, advises or directs or undertakes on behalf of the client (whether as a

discretionary portfolio manager or otherwise) them management or administration

of a portfolio of securities or the funds of the client, as the case may be. A

merchant banker acting as a Portfolio Manager shall also be bound by the rules and

regulations as applicable to the portfolio manager. Realizing the importance of

portfolio management services, theSEBI has laid down certain guidelines for the

proper and professional conduct of portfolio management services. As

per guidelines only recognized merchant bankers registered with SEBI are

authorized to offer these services. 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.


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OBJECTIVES OF PORTFOLIO MANAGEMENT

The objective of portfolio management is to invest in securities in such a way that:

1) Maximize ones Return and2) Minimize Risk

In order to achieve ones investment objectives, a good portfolio should havemultiple objectives and achieve a sound balance among them. Any one objective

should not be given undue importance at the cost of others.

Some of the main objectives are given below.

Safety of the Investment:-

The first important objective of a portfolio is ensuring that the investment isabsolutely safe. Other considerations like Income, Growth, etc., only come into the

picture after the safety of investment is ensured.

Investment safety or minimization of risk is one of the important objectives of

portfolio management. These are many types risks, which are associated withinvestment in equity stocks, including super stocks. We should keep in mind that

there is no such thing as Zero-Risk investment. Moreover, relatively Low-Risk

investment gives correspondingly lower returns.

Stable current Returns:-

Once investment safety is guaranteed, the portfolio should yield a steady current

income. The current returns should at least much the opportunity cost of the funds

of the investor. What we are referring is current income by way of interest or

Dividends, not capital gains.


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Capital Appreciation;-

A good portfolio should appreciate in value in order to protect the investor from

any erosion in purchasing power due to inflation. In other words, a balanced

portfolio must be consisting of certain investments, which tend to appreciate in realvalue after adjusting for inflation.

Marketability:-

A good portfolio consists of investments, which can be marketed with out

difficulty. If there are too many unlisted or inactive shares in our portfolio, we will

have to face problems in enchasing them, and switching from one investment to

another. It is desirable to invest in companies listed on major stock exchanges,which are actively traded.

Liquidity:-

The portfolio should ensure that there are enough funds available at short notice to

take care of the investors liquidity requirements. It is desirable to keep a line ofcredit from a bank for use in case it became necessary to participate in right issues,

or for any other personal needs.

Tax planning:-

Since taxation is an important variable in total planning. A good portfolio should

enable its owner to enjoy a favorable tax shelter. The portfolio should be

developed considering not only income tax, and gift tax, as well. What a good

portfolio aims at is tax planning, not tax evasion or tax avoidance.


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PORTFOLIO MANAGEMENT FRAME WORK

Investment management is also known as portfolio management, it is complex

process or activity that may be divided in to seven broad phases:

Specification of investment objectives and constraintsChoice of Asset mixFormulation of Portfolio strategySelection of SecuritiesPortfolio ExecutionPortfolio RebalancingPerformance Evaluation

Specification of investment objectives and constraints:-

The first step in the portfolio management process is to specify ones investmentobjectives and constraints. The commonly stated investment goals are:

Income:- To provide a steady stream of income through regular interest or

dividend payment

Growth:- To increase the value of principal amount through the capital

appreciation

Stability:- To protect the principal amount invested from the risk of loss


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Portfolio management in India;-

In India portfolio management is still in its infancy. Barring a few Indian

banks and foreign banks and UTI no other agency had professional portfolio

management until 1987. After setting up of public sector mutual funds since

1987, professional portfolio management backed by competent research staff

became the order of the day. After the success of the mutual funds in portfolio

management, a number of brokers and investment consultants some of whom are

also professionally qualified have become portfolio managers. They have

managed the funds of clients on both discretionary and non-discretionary basis. It

was found that many of them, including mutual funds have guaranteed minimum

return or capital appreciation and adopted al kinds of incentives, which are now

prohibited by SEBI. They resorted to speculative over trading and inside thetrading, discounts etc. to achieve their targeted returns to the clients, which are

also prohibited by SEBI.

The recent CBI probe into the operations of many market dealers have

revealed the unscrupulous practices by banks, dealers and brokers in their

portfolio operations. T he SEBI has then imposed stricter rules which included

their registration, a code of conduct and minimum infrastructures, experiences

etc. it is no longer possible for any unemployed youth, or retired persons or self-

styled consultant to engage in portfolio management without the SEBI license.

The guide lines of SEBI are in the direction of making portfolio management is a

responsible professional service to be rendered by experts in the field.


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PORTFOLIO ANALYSIS:-

Portfolios, which are combinations of securities may or may not take the aggregate

characteristics of their individual parts. Portfolio analysis considers the

determination of future Risk and Return in holding various blends of individualsecurities. An investor can sometimes reduce portfolio risk by adding another

security with greater individual risk than any other security in the portfolio. This

seemingly curious result occurs because risk depends greatly on the covariance

among returns of individual securities. An investor can reduce expected risk and

also can estimate the expected return and expected risk level of a given portfolio of

assets if he makes a proper diversification of portfolios.

There are two main Approaches for Analysis of portfolio

Traditional ApproachModern Approach

TRADITIONAL APPROACH:-

The Traditional Approach basically deals with two major decisions. Traditional

security analysis recognizes the key importance of risk and return to the investor.

Most traditional methods recognized return as some dividend receipt and price

appreciation over a forward period. But the return for individual securities is not

always over the same common holding period, nor are the rates of return

necessarily time adjusted. An analysis may well estimate future earnings and P\E

Ratio to derive the future price. He will surely estimate the dividend. But he may

not discount the value to determine the acceptability of the return in relation to the

investors requirements.


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In any case, given an estimate of return, the analyst is likely to think of and express

as the probable down side price expectation (either by itself or relative to upside

appreciation possibilities). Each security ends up with some rough measure of

likely return and potential down side risk for the future.

Portfolios are combination of securities or thought of as helping to spread over

many securities. However, the interrelationship between securities may by specify

only broadly or nebulously. Auto stocks, for example, recognized as risk

interrelated with fire stocks. Utility stocks display defensive price movements

relative to the market and cyclical stocks like steel and so on.

It is not to say that traditional portfolio analysis is unsuccessful. It is to say that

much of it might be more objectively specified in explicit terms.

They are:

1) Determining the objectives of the portfolio2) Selection of securities to be included in the portfolio

MODERN APPROACH:-

The traditional approach is a comprehensive financial plan for the

individual. It takes into account the individual needs such as housing, life

insurance and pension plans. But these types of financial planning approaches are

not done in the MARKOWITZ approach. Markowitz gives more attention to theprocess of selecting the portfolio. His planning can be applied more in the selection

of common stocks portfolio than the bond portfolio. The stocks are not selected on

the basis of need for income or appreciation. But the selection is based on the risk

and return analysis. Return includes the market return and dividend. The investor

needs return and it may be either in the form of market return or dividend.


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The investor is assumed to have the objective of maximizing the expected return

and minimizing the risk. Further, it is assumed that the investor would take up risk

in a situation when adequately rewarded for it. This implies that individual would

prefer the portfolio of highest expected return for a given level of risk.

In modern approach the final step is asset allocation process that is to choose the

portfolio that meets the requirement of the investor. The risk taker that is who are

willing to accept higher probability of risk for getting the expected return would

choose high risk portfolio. Investor with lower tolerance for risk would choose

low-level risk portfolio. The risk neutral investor would choose the medium level

risk portfolio.

The following are the major steps involved in this process.

Portfolio Management Process:-

Security analysis

Portfolio analysis

Selection of securities

Portfolio revision

Performance evaluation

PORTFOLIO CONSTRUCTION

Diversification of investments helps to spread risk over many

assets. A diversification of securities gives the assurance of obtaining the

anticipated return on the portfolio. In a diversified portfolio, some securities may

not perform as expected, but others may exceed the expectation and making the

actual return of the portfolio reasonably close to the anticipated one. Keeping a

portfolio of single security may lead to a greater likelihood of the actual returnsomewhat different from that of the expected return; hence it is common practice

to diversify securities in the portfolio.


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The process of blending together the broad asset classes so as to obtain optimumreturn with minimum risk is called portfolio construction. Portfolio constructionrefers to the allocation of funds among a variety of financial assets open for

investments. Portfolio theory concerns itself with the principles governing such

allocation. The objective of the theory is to elaborate the principles in which the

risk can be minimized, subject to a desired level of return on the portfolio or

maximize the return, subject to the constraint of a tolerable level of risk.

Minimization of Risk:-

The company specific risks (unsystematic risks) can be reduced by diversifying

into a few companies belonging to various industry groups asset groups ordifferent types of instruments like equity shares, debentures, bonds etc. thus asset

classes are bank deposits, company deposits, gold, silver, land, real estate, equityshares etc,. Industry groups are tea, sugar, paper, cement, steel, electricity,

electronics, computer software etc, each of them have different risk-return

characteristics and investments are to be made based on individual risk

preferences. The second category of risk is managed by the use of BETA of

different company shares.

Approaches in Portfolio Construction:-

Commonly there are two approaches in the portfolio construction viz., Traditionalapproach and Markowitz efficient frontier approach. In the traditional approach,

investors needs in terms of income and capital appreciation or evaluated and

appropriate securities are selected to meet the needs of the investors. The common

practice in the traditional approach is to evaluate the entire financial plan of the

individual. In the modern approach, portfolios are constructed to maximize the

expected return for a given level of risk. It views portfolio construction in terns of

the expected return and the risk associated with obtaining the expected return.


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EFFICIENT PORTFOLIO:-

To construct an efficient portfolio we have to conceptualize various

combinations of investments in a basket and designate them as portfolio one to

N. Then the expected returns from these portfolios are to be worked out. Therisks on these portfolios are to be estimated by measuring the standard deviation of

different portfolio returns. To reduce the risk, investors have to diversify into a

number of securities whose risk-return profiles vary.

A single asset or a portfolio of assets is considered to be efficient if no otherasset offers higher expected return with the same risk or lower risk with the same

expected return. A portfolio is said to be efficient when it is expected to yield the

highest returns for the level of risk accepted or alternatively, the smallest portfolio

risk or a specified risk for a specified level of expected return. To build an efficient

portfolio, an expected return level is chosen, and assets are substituted until the

portfolio combination with the smallest variance at the return level is found. As

this process is repeated for other expected returns, a set of efficient portfolio is

generated.

Main Features of Efficient Set of Portfolio:-

Accordingly the main features of efficient set of portfolio are:

o The investor determines a set of efficient portfolios from a universe of nsecurities and an efficient set of portfolio is the subset of n security-universe.

o The investor selects the particular efficient portfolio that provides him withmost suitable combination of risk and return.

MODERN PORTFOLIO APPROACH


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MARKOWITZ MODEL:-

Harry M.Markowitz has credited and introduced the new concept of risk

measurement and their application to the selection of portfolios. He started with the

idea of risk aversion of investors and their desire to maximize expected return with

the least risk.

Markowitz model is a theoretical frame work for analysis of risk and return and

their relationships. He used statistical analysis for the measurement of risk and

mathematical programming for selection of assets in a portfolio in an efficient

manner. His frame work led to the concept of efficient portfolios, which are

expected to yield the highest return for given a level of risk or lowest risk for a

given level of return.

Risk and return two aspects of investment considered by investors. The expected

return may vary depending on the assumptions. Risk index is measured by the

variance or the distribution around the mean its range etc, and traditionally the

choice of securities depends on lower variability where as Markowitz emphasizes

on the need for maximization of returns through a combination of securities whose

total variability is lower.

The risk of each security is different from that of others and by proper combination

of securities, called diversification, one can from a portfolio where in that of the

others offsets the risk of one partly or fully. In other words, the variability of each

security and covariance for his or her returns reflected through their inter-

relationship should be taken I to account.

Thus, expected returns and the covariance of the returns of the securities with in

the portfolio are to be considered for the choice of a portfolio. A set of efficient

portfolios can be generated by using the above process of combining various

securities whose combined risk is lowest for a given level of return for the sameamount of investment, that the investor is capable of theory of Markowitz, as stated

above is based on the number of assumptions.


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ASSUMPTIONS OF MARKOWITZ THEORY:-

A.The analytical frame work of Markowitz model is based on the severalassumptions regarding the behavior of investor.

B.The investor invests his money for a particular length of time known asholding period.

C.At the end of holding period, he will sell the investments.D.Then he spends the proceeds on either for consumption purpose or for

investment purpose or some of both. The approach there fore holds good for

a single period holding.

E. The market efficient in the sense that, all investors are well informed of allthe facts about the stock market.

F. Since the portfolio is the collection of securities, a decision about an optimalportfolio is required to be made from a set of possible portfolios.

G.The security returns over the forth coming period are known, the investorcould therefore only estimate the expected return (ER). A typical investor

does not only look for highest expected return but also return to be as certain

as possible.

H.All investors are risk averse.I. Investors study how the security returns are co-related to each other and

combine the asset in an ideal way so that they give maximum returns with

the lowest risk.J. He would choose the best one based on the relative magnitude of these two

parameters.

K.The investors base their decisions on the Price-Earning ratio. Standarddeviation of the rate of return, which is been offered on the investment, from

the expected rate of return of an investment, is one of the important criteria

considered by the investors for choosing different securities.


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MARKOWITZ DIVERSIFICATION

Markowitz postulated that diversification should not only aim at reducing the risk

of a security by reducing its variability or standard deviation, but they reducing the

covariance or interactive risk of two or more securities in a portfolio.As by combination of different securities, it is theoretically possible to have a

range of risk varying from zero to infinity.

Markowitz theory of portfolio diversification attaches importance to standard

deviation, to reduce it to zero, if possible, covariance to have as much as possible

negative effect among the securities with in the portfolio and coefficient of

correlation to have -1(negative) so that the overall risk of the portfolio as whole is

nil or negligible. Then the securities have to be combined in manner that standard

deviation is zero.

Efficient frontier:-

As for Markowitz model minimum variance portfolio is used for

determination of proportion of investment in first security and second security. It

means the portfolio consists of two securities only. When different portfolios and

their expected return and standard deviation risk rates are given for determinationof best portfolio efficient frontier is used.

Efficient frontier is graphic representation on the basis of the optimum point, this is

to identify at the point of the portfolio may give better returns at lowest risk. At

that point the investor can choose portfolio. On the basis of this holding period of

portfolio can be determined.

On X axis risk rate of portfolio, and on the Y axis return on portfolios are to be

shown. Calculate return on portfolio and standard deviation of portfolio for variouscombinations of weights of two securities.


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Calculation of Expected Rate of Return (ERR):

Calculate the proportion of each securitys proportion in the total investment.

1. It gives the weights for each component of securities.2. Multiply the funds invested in each component with the weights.3. It gives the initial wealth or initial market value.

Equation:-

Rp + w1R1 + w2R2 + w3R3 +. + wnRn

Where,

Rp= expected Return on Portfolio

w1, w2, w3 = proportional weights invested

R1, R2, R3 = expected returns on securities

The rate of return on portfolios always weighted average of the securities in the

portfolio.

ESTIMATION OF PORTFOLIO RISK

A useful measure of risk should take in to accounts both the probability of various

possible bad outcomes and their associated magnitudes. Instead of measuring the

probability of a number of different possible outcomes an ideal measure of risk

would estimate the extent to which the actual outcome is likely to diverge from the

expected outcome.

Two measures are used for this purpose:

i. Average absolute deviation.ii. Standard deviation.


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In order to estimate the total risk of a portfolio of assets, several estimates are

needed.

The variance of each individual asset under the consideration for inclusion in the

portfolio and the covariance and correlation coefficient of each asset with each ofother assets.

The predicted return on the portfolio is simply a weighted average of the predicted

returns on the securities, using the proportionate values as weights.

The risk of the portfolio depends not only on the risk of its securities considered in

isolation, but also on the extent to which they are affected similarly by underlying

events.

The deviation of each securitys return from its expected value is determined andthe product of the two obtained.

The variance is weighted average of such products, using the probabilities of the

events as weights.

Effect of Combining Two Securities:-

It is believed that spreading the portfolio I two securities is less risky than

concentrating in only one security. If two stocks, which have negative correlation,

were chosen on a portfolio, risk could be completely reduced due to the gain in one

would offset the loss on the other. The effect of two securities, one more risky and

the other less risky, on one another can also be studied. Markowitz theory is also

applied I the case of multiple securities.


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CAPITAL ASSET PRICING MODEL:-

Under CAPM model the changes in prices of capital assets in stock exchanges can

be measured by using the relationship between security return and market return.

So it is an economic model describes how the securities are priced in the marketplace. By using CAPM model in return of security can be calculated by comparing

return of security with market rate. The difference of return of security and market

can be treated as highest return and the risk premium of the investor is identified. It

is the difference between return of security and risk free rate of return.

[Risk premium = Return of securityrisk free rate of return]

So the CAPM attempts to measures the risk of security in the portfolio sense.

Assumptions:-

The CAPM model depends on the following assumptions, which are to beconsidered while calculating rate of return.

The investors are basically average risk assumers and diversification isneeded to reduce the risk factors.

All investors want to maximize the returns by assuming expected return ofeach security.

All investors assume increase of net wealth of the security. All investors can borrow or lend an unlimited amount of fund at risk free

rate of interest.

There are no transaction costs and no taxes at the time of transfer ofsecurities.

All investors have identical estimation risk and return of all securities. All the securities are divisible and tradable in capital market. Systematic risk factor can be calculated and it is assumed perfectly by the

investor.

Capital market information must be available to all the investors.


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Beta:-

Beta describes the relationship between the stock return and the market index

returns. This can be positive or negative. It is the percentage change in the price of

the stock regressed (or related) to the percentage change in the market index. IfBeta is 1, one percentage change in the market index will lead to one percentage

change in price of stock. If Beta is 0, stock price is unrelated to the market index

and if the market goes up by +1%, the stock price will fall by 1% Beta measures

the systematic market related risk, which cannot eliminated by diversification. If

the portfolio is efficient, Beta measures the systematic risk effectively. On the

other hand Alpha and Epsilon measures the unsystematic risk, which can be

reduced by efficient diversification.

Evaluation Process:-

Risk is the variance of expected return of the portfolio.

Two types of risk are assumed, they are

i. Systematic Riskii. Unsystematic Risk

Systematic risk is calculated by the investor by comparison of security return with

market return.

= Co-variance of security and market

Variance of Market

Higher value of Beta indicates higher systematic risk and vice versa. When

numbers of securities are hold by the investors, composite Beta or portfolio can be

calculated by the use of weights of security and individual Beta.

Risk free rate of return is identified on the basis of the market conditions.

The following 2 methods are used for calculation of return of security or portfolio:-


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Capital Market Line:-

Under CAPM model, capital market line determined the relationship between risk

and return of efficient portfolio. When the risk rates of market and the portfolio

risk are given, expected return of security or portfolio can be calculated by using

the following formula.

ERP = T + p (RpmT)

M

Where,

ERP = Expected return of portfolio

T = Risk free rate of return

p = Portfolio of standard deviation

Rpm = Return of portfolio and market

M = Risk rate of the market

Security Market Line:-

It identifies the relationship between the return on security and risk free rate of

return. Beta is used to identify the risk of the premium. The following equation is

used for expected return.

ERP = T + (Rm T)

Where,

Rm = Return of Market

T = Risk free rate


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Limitations of CAPM:-

In practical purpose CAPM cant be applied due to the following limitations.

The calculation of Beta factor is not possible in certain situation due to moreassets are traded in the market.

The assumptions of unlimited borrowings at risk free rate are not certain. Forevery individual investor borrowing facilities are restricted.

The wealth the share holders or investor is assessed by using security return.But it is not only the factor for calculation of wealth of the investor.

SELECTION OF PORTFOLIO:-

Certain assumptions were made in the traditional approach for portfolioselection, which are discussed below;

Investors prefer large to smaller from securities and more risk. Ability to achieve higher returns depends up on investors judgment of risk. Spreading money among many securities can reduce risk. An investor can select the best portfolio to meet his requirements from the

efficient frontier, by following the theory propounded by Markowitz.

Selection process is based on the satisfaction level that can be achieved from

various investment avenues.

STAGES IN THE SELECTION PROCESS:-

The process of selecting a portfolio is very crucial in the investment management

and involves four stages which are given below:

Determination of assets, which are eligible for constructing of a portfolio.Computation of the expected return for the eligible assets over a holding

period.


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Sharpe has identified the optimal portfolio through his single index model,

according to Sharpe; the Beta ratio is the most important in the portfolio selection.

The optimal portfolio is said to relate directly to the Beta value. It is the excess

return to the Beta ratio. The optimal portfolio is selected by finding out the cut-offrate. The stock where the excess return to the Beta ratio is greater than cut-off rate

should only be selected for inclusion in the optimal portfolio. The construction of

optimal portfolio is simplified, if a single number measures the desirability of stock

is taken and accordingly Sharpe proposed that desirability of any stock is directly

referred to its excess returns to Beta coefficient.

= Ri Rf

Where,

Ri = Expected return on stock

Rf = Return on risk free asset

= Expected change in the rate of return on stock 1 associated with 1% change inthe market return.

Following procedure is involved to select the stocks for the optimum portfolios.

1. Finding out the stocks of different risk-return ratios2. Calculate excess return Beta ratio for each stock and rank them from highest

to lowest

3. Finding out the cut-off rate for each security4. Selecting securities of high rank above the cut-off rate which is common to

all stocks


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Thus, the optimum consists of all stocks for which (Ri Rf) is greater than aparticular cut-off point. The selection number of stocks depends upon the unique

cut-off rate, where, all stocks with higher rate (Ri Rf) will be selected and stockswith lower rates will be eliminated.

PORTFOLIO REVISION;-

Having constructed the optimal portfolio, the investor has to constantly monitor the

portfolio to ensure that it continues to be optimal. As the economy and financial

markets are dynamic, the changes take place almost daily. The investor now has to

revise his portfolio. The revision leads to purchase of new securities and sale of

some of the existing securities from the portfolio.

NEED FOR REVISION:-

Availability of Additional Funds for Investment Availability of New Investment Avenues Change in the Risk Tolerance Change in the Time Horizon Change in the Investment Goals Change in the Liquidity Needs Change in Taxes

Changes in asset risk attributes due to unexpected recession in the Economy.

Increase in inflation rates/ volatility in stock markets and changes in government

policy relating to some of the industries in which investment has been made.


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PORTFOLIO EVALUATION:-

Portfolio managers and investors who manage their own portfolios continuously

monitor and review the performance of the portfolio. The evaluation of each

portfolio, followed by revision and reconstruction are all steps in the portfoliomanagement.

Managers and analysts wish to know how they perform in their investment

strategies in term of the return per unit of the risk, both in abuse terms and relative

terms relative to overall market performance. They have to assess the extent to

which the objectives aimed at are being achieved say in terms of income, capital

appreciation, risk and returns etc.

In this context, evaluation has to take into account whether the portfolio secured

above average returns, average or below average, as compared to the market

return. The ability to diversify with a view to reduce and even eliminate all

unsystematic risk and expertise in managing the systematic risk related to the

market by the use of appropriate risk measures namely, Beta. Selection of proper

securities is thus the first requirement. Superior timing and superior stock selection

may result in above average return. Diversification in terms of Markowitz model or

Sharpes single index model will reduce the market related risk and maximize thereturn for a given level of risk. Market returns being related positively to risk,

evaluation has to take in to account:

I. Rate of returns or excess return over risk free rate.II. Level of risk both systematic and unsystematic and residual risks through

proper diversification.

It was in the context that later researches have tried to evolve a composite index to

measure risk based returns taking into account the different components of viz.,

and systematic, unsystematic and residual risk. The credit for evolving these

criteria goes to Sharpe, Treynor and Jensen.


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METHODS OF EVALUATION

Each portfolio is evaluated to know the better performance by using the any one of

the following three methods. Depends on information given method of application

is different.

Sharpe Index Model:-

It depends on total risk rate of the portfolio. Return of the security is compare with

the risk free rate of return, the excess return of security is treated as premium or

reward to the investor. The risk of the premium is calculated by comparing

portfolio risk rate. While calculating return on security any one of the previous

methods is used. If there is no premium Sharpe index shows negative value (-). In

such case the portfolio is not treated as efficient portfolio.

Sharpes ratio (sp) = rp rf/ p

Where,

Sp = Sharpe index performance model

Rp = Return of portfolio

Rf = Risk free rate of return

p = portfolio standard deviation

This method is also called Reward to Variability method. When more than oneportfolio is evaluated highest index is treated as first rank. That portfolio can be

treated as better portfolio compare to other portfolios. Ranks are prepared on the

basis of descending order.


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Treynors Index Model:

It is another method to measure the performance of a portfolio. Where systematic

risk rate is used compared to the unsystematic risk rate. Systematic risk rate is

measured by Beta. It is also known as Reward to Systematic Risk.Treynors Ratio (Tp) = rp rf/ p

Where,

Tp = Treynors performance model

Rp = Return of Portfolio

Rf = Risk free rate of return

p = portfolio standard deviation

If the Beta portfolio is not given market Beta is considered for calculation of the

performance index. Highest value of index portfolio is accepted.


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Jensens Index Model:

It is a different method compare to the previous methods. It is

depends on return of securities, which is calculated by using CAPM method. If the

rate of return is calculated or expected on securities is more than the CAPM returnthat excess return is considered as Jensens portfolio measure index. If the actualsecurity return is less than the expected return of CAPM. The difference is treated

as negative (-); the portfolio can be treated as inefficient portfolio.

Jp = rp[rf + p (rmrf)]

Where,

Jp = Jensens index performance model

Rp = Risk free rate of return

Rf= Return of portfolio

p = Portfolio standard deviation

rm = Return on market

STOCK SELECTION;-

Which stock to invest? This is the question faced by most of the investors. Stock

selection is depends up on the following,

Dividend: High dividend payouts are a reflection of a healthy company. Cash flows:Free cash flows can fuel growth in company earnings. Price to earnings: Price to earnings looks at the relationship between stock

price and a companys earnings.

Macro-economic factors: study the economy, sector and company beforeInvesting.

Technical analysis: study the past price movements of the stock.


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Company profile;-

Since 1995 Steel City Securities Limited is leading in retail

stock broking in Southern India. We are the pioneers and prime leaders in

introducing the Franchisee model to extend our business potential in urban andrural areas of Andhra Pradesh. We also have business operations in Tamil Nadu,

Karnataka and Orissa. In 1998 the company has achieved phenomenal growth in

all aspects. The workforce has been given top priority to meet and enhance our

endless support and services. In 2004 Steel City Commodities (P) Ltd. has become

the subsidiary of parent company to provide a business platform to trade in

Commodity market segment. The working nature of this company is with full of

dedication and trustworthy.

Steel City is having memberships in national level Exchanges of NSE, BSE, MCX,NCDEX and MCX-SX for both Stock and Commodity segments. We are

recognized as POP by PFRDA (Pension Fund Regulatory and Development

Authority, Govt. of India) to promote pension schemes for the well-being of

Indian citizens. We have high-end risk management tools for all market segments

to maintain a healthy business relationship with all our valuable investors and

clients. As of today the company is having very high-end reputation, goodwill and

confidence in the market. We have our own Software development team to develop

application and implement for the Back-office operations of all Segments ofdifferent Exchanges. Our strong base line of this business tempo is, we have high-

end management solutions for the business promotion and expansion. We have the

best track record of in-time clearing of funds and securities to our valuable

customers everywhere every time. Since six years we are ISO 9001:2008 certified

company to maintain the quality and services to the customer satisfaction. The

brand Steel City means confidence as strong as steel.


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Services;-

We are providing a trading platform of Capital Market,

Futures & Options, Commodities and Currency Derivatives.

Also a depository participant of NDSL and CDSL having our wending clients

more than 1.25lacs to serve more transparently.

Research and Advisory:-

They have very competitive analysts to focus on the

market trends of all Exchanges/Segments in both fundamental and technical. They

have very large scale of retail investors; they understand their portfolios,

investment plans and return of investments (ROI). Our Advisory team will keep

posting the analysis reports to the respective clients based on their requirements.

We also post regular news, reports and other important financial statements of

companies as required by the investors.

Future plans:-

They are planning to start our business operations in North and Western

parts of India to spread our brand and services. We also wanted to come out with

more financial products like Wealth Management and Merchant Banking Services.

We are in the outlook of strategic Investors to expand our business and to reach

successful goals. Our aim is to attract more retail business to gain substantial

growth in the upcoming years.


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System and Network Activities:-

Violations of the rights of any person or company protected

by copyright, trade secret, patent or other intellectual property, or similar laws or

regulations, including, but not limited to, the installation or distribution of "pirated"or other software products that are not appropriately licensed for use by SCSL.

photographs from magazines Exporting software, technical information, encryption

software or technology.

Enforcement:-

Any employee found to have violated this policy may be subject to disciplinary

action taken by the management.

Policy for Phones & Faxes;-

Computers with modems & having telephone

lines are a big security risk since they bypass the firewall. All downloaded

material, prior to being introduced into SCSL systems and networks, must have

been scanned by an approved anti-virus utility (e.g., Norton Anti-virus CorporateEdition) which has been kept current through regular updates.


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Password Policy;-

All system-level passwords (e.g., root, enable, NT admin,

application administration accounts, etc.) must be changed on at least a monthly

basis. All user-level and system-level passwords must conform to the guidelines

described below.

Contain both upper and lower case characters (e.g., a-z, A-Z) Have digits and punctuation characters as well as letters e.g., 0-

9,@#$%^&*()_+|~-=\`{}[]:";'?,./)

Are at least eight alphanumeric characters long. Are not words in any language, slang, dialect, jargon, etc. General Use and Ownership which provides a good exercising and goodjudgment, to creating guidelines for customer

Email and Communications Activities:-

Restrictions System and Network Activities Server Security Policy

Router Security Policy Monitoring Backup and Disaster Recovery Additional Note


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Privacy policy;-

Steelcitynettrade.com reserves the right to perform statistical analysis of

user behavior and characteristics in order to measure interest in use of the various

areas of the site and to inform advertisers of such information as well as the

number of users that have been exposed to or clicked on their advertising banners.

Steelcitynettrade.com will provide only aggregated data from these analyses to

third parties. Also, users should be aware that steelcitynettrade.com may

sometimes permit third parties to offer subscription and/or registration-based

services through its site. At the end of the day it is a user profiled one.

Administrative setup:-

Managing Director : Mr. G. Sree Rama Murthy

Director : Mr. G Satya Ram Prasad

Executive Director(S) : Mr. K. Satyanarayana

Mr. Ch. Murali Krishna

Director Operations : Mr. Satish Kumar Arya

Mr. M.H.Jagannadha Rao


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How to trade in steel city basic information

about the share market?

To start as E-Trading in any share brokerage companies you need

to open a trading Account and a Depository (or Demat shares) Account with their

own branches. All receipts and payments for buying and selling of shares and all

commissions and charges will be posted to your tradingAccount. Shares which you

buy and sell through the trading Account will be received in or delivered from your

Demat Account.

Trading account refers to the account of client maintained their books of accounts

Demat account refers to the account opened by you with Depository for holding

securities in electronic form.

E-Trading;-

E-Trading account refers to the National Securities Depository Limited

(NSDL) if you have any demat in any brokerage companies that will link to the e-

trading account for example (steel city securities ltd) by providing that account

details to concern brokerage in a lawful requirement

Applicable Rules and Regulations;-

transactions in your Account shall be subject to the constitution, rules,

regulations, customs and usage of the Exchange or market, and its clearing house,

if any, where the intermediately transactionsThere are two types of accounts in steel city securities they are;-

I. Delivery tradingII. Margin trading


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Eligibility of trade;-

You can open these Accounts if you are over 18 years and if you will operate this

on an individual basis. It is open for resident Indian only. Indian regulationsrequire us to maintain basic financial details about each client. You need to provide

us the details of your

Bank Account and Your signatures on the Account

All Resident Individuals need to provide us Income Tax returns details - IT

PAN/GIR number, and their details for proper identification

Commissions and fees:-

This Intra-day two types one is Intra-day trading and second one is Delivery

Based Trades

For Intra-day Trades :

0.1% on the buy side and 0.1% on the sell side. This is subject to a minimum

brokerage of 5 paisa per share. This means that if the share price you trade in is Rs

50/- or less, a minimum brokerage of 5 paisa per share will be charged.

For Delivery Based Trades:

0.5% or 10 paisa per share or Rs 20 per Scrip whichever is higher. Minimum

brokerage of 10 paisa per share will be applicable when the share price is Rs 20/-

or less. Minimum brokerage of Rs 20/- per scrip will be applicable when the total

traded value is Rs 4000/- or less.


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Depositary Account;-

Joint Accounts;- which contains two people can trade in single account

Nomination;- You can also nominate someone in your Demat Account

Order;-

All orders will be valid for the day until the normal market closes on closure of

the market the orders when order is in system it can catch the segment if it was

valid or still their

Order acceptance; Exchange may accept or reject the order, based upon its internal

rules and regulations

Modify / Cancel orders;-

You can see the status or your orders through the order tracker your orders in

internet or cheaques properly submitted to the concern broker

Purchase transaction

Net purchases made in any Scrip by you will be credited to your Demat Account.

Shares are available for credit as per the settlement schedule of the Exchanges,

after the full payment is made to the Clearing House of the Exchange

Sometimes purchase cannot be made due to various regions problem of technology

o r other at that time the credit will be repaid


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Sale Transaction

Orders can be accepted only against available shares in your Account, which are

good and deliverable to the Exchange. Any order inadvertently accepted without

available shares in the Account will be subject,

Buy in

Available shares means shares for which you are beneficially entitled to as per

Depository (NSDL) records in your DEMAT account plus securities purchased by

you in the settlement in which you intend to sell minus the shares sold by youpending settlement with the Exchange

Cheque receipt / payment

You can deposit amount in your Account by using Internet banking, or by personal

cheque or a demand draft. Credit will be available in your Account after the funds

are cleared / realized into the Account of SCSL.

Negative balance in your Account

There could be negative balance in your Account due to reasons like charges debit,

inadvertently processing buy orders without available balance etc. In such cases,

your payment via Internet banking, via personal cheque or demand draft payable to

Steel City Securities Limited must be promptly submitted /paid.


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Price Conditions

Limit Price/Order - An order that allows the price to be specified while enteringthe order into the system.

Stop Loss (SL) Price/Order - Order gets activated only when the market price of

the relevant security reaches or crosses a threshold price. Until then the order does

not enter the market

E.g. If for stop loss buy order, the trigger is 93.00, the limit price is 95.00 and the

market (last traded) price is 90.00, then this order is released into the system once

the market price reaches or exceeds 93.00. This order is added to the regular lot

book with time of triggering as the time stamp, as a limit order of 95.00.

Other aspect of principles is same in the above

Margin in form of securities:

We may accept approved securities, as per list prepared by NSE for this purpose,

towards initial margin to the extent of 50% initial margin. Securities deposited

towards margin must be delivered to us from client depository account and no third

party securities will be accepted by us. Shares will be valued after considering

haircut of 25% or more and valuation will be done on daily basis

Second line margin (Gross exposure margin), which is 3% of gross exposure value

for index futures contracts & 5% of gross exposure value for stock futures contract,

in line with SEBI guideline. (Pl. refer note below on computation of gross

exposure).


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Death

In the event of death or insolvency of the Constituent or of its otherwise becoming

incapable of receiving and/or paying for or delivering or transferring securities

which the Constituent has ordered to be bought or sold, Steel City Securities

Limited may close out the transaction of the Constituent and the Constituent or its

legal representative(s), heirs shall be liable for any losses, costs and be entitled to

any surplus which may result there from.

Foreign Jurisdiction

This service does not constitute an offer to sell or a solicitation of an offer to buy

any shares, securities or other instruments to any person in any jurisdiction where

it is unlawful to make such an offer or solicitation. This service is not intended to

be any form of an investment advertisement, investment advice or investment

information and has not been registered under any securities law of any foreign

jurisdiction and is only for the information of any person in any jurisdiction where

it may be lawful to offer such a service. Further, no information on the Web Site is

to be construed as a representation with respect to shares, securities or other

investments regarding the legality of an investment therein under the respective

applicable investment or similar laws or regulations of any person or entity

accessing the Web Site


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Data Analysis and Interpretation divided into two parts

They are part A and part B

Part A deals with construction of two (A&B) portfolios

Part B deals with analysis of investors responses

Part - A

Part A has two portfolios A & B

Portfolio A has the following companies.

1. State bank of India2. Icici bank3. Andhra bank4.

HDEF

5. Syndicate bankPortfolio B has the following companies

That is:

1. Canara bank

2. Vijaya bank

3. Ing visa bank

4. KVB (karur visa bank)

5. Bank of India (BOI)


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PORTFOLIO B

COMPANY NO. OF SHARES AVERAGE PRICE

CANARA BANK200 515

VIJAYA BANK100 74

INGVISA BANK300 331

KVB(KARUR VISABANK)

300 446

BANK OF INDIA100 360

TOTAL 1000

Inference:

From the above table average price is calculated by the total value of

opening price and closing price of company share values with divided by two.

The total number of share is 1000.


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TOTAL INVESTMENT OF PORTFOLIO A

Inference:

From the above table investment is calculated by the multiplication of

average price and number of shares of the companies. The total investment is

1162700

COMPANY

NO. OF

SHARES

AVG

PRICE

INVESTMENT

Year( 2010-11)

STATE BANK OFINDIA 300 2225 667500

ICICIBANK 200 919 183800

ANDHRA BANK 100 116 11600

H.D.F.C.BANK 200 1398 279600

SYNDICATE BANK 200 101 20200

TOTAL 1000 1162700


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TOTAL INVESTMENT OF PORTFOLIO B

Inference:

From the above table investment is calculated by the multiplication of

average price and number of shares of the companies. The total investment is

379500.

COMPANY

NO. OF

SHARES PRICE

INVESTMENT

Year( 2011)

CANARA BANK200 515 103000

VIJAYA BANK 100 74 7400

INGVISA BANK300 331 99300

KVB(KARURVISA BANK)

300 446 133800

BANK OF INDIA100 360 36000

TOTAL 1000 379500


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CALCULATION OF RETURN OF PORTFOLIO A

PORTFOLIO A

COMPANY INVESTMENT EXPECTED

RETURN %

RETURN

Year ( 2011)

STATE BANK OFINDIA 667500 10 66750

ICICIBANK 183800

7

26257

ANDHRA BANK 11600 5 2320

H.D.F.C.BANK 279600

8

34950

SYNDICATEBANK 20200 6 3366

TOTAL 1162700 133643

THE AVERAGE RETURN OF PORTFOLIO A =133643 1162700 = 0.1149%11

Inference:

From the above table return is calculated by the multiplication of

investment and expected return values of the companies. The total investment

is 1162700 andthe total return is 133643.


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CALCULATION OF RETURN OF THE PORTFOLIO A WITH

PROBABILITY

COMPANY EXPECTED

RETURN %

(1)

PROBABILITY

(2)

RETURN

(1X2)

STATE BANKOF INDIA 9 0.2 1.8

ICICIBANK 5 0.1 0.5

ANDHRA BANK 8 0.2 1.6

H.D.F.C.BANK 10 0.3 3

SYNDICATEBANK 7 0.2 1.4

TOTAL 8.3

EXPECTED RETURN ON PORTFOLIO A =8.2% (or) 8%

Inference:

From the above table return of the portfolio is calculated by themultiplication of expected return and probability values of the companies.

The total return of the portfolio is 8.2


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GRAPH

RETURN OF PORTFOLIO A

Inference:

From the above graph is shows the return of the portfolio A values.

1.8

0.5

1.6

3

1.4

0

0.5

1

1.5

2

2.5

3

3.5

STATE BANK OFINDIA

ICICIBANK ANDHRA BANK H.D.F.C.BANK SYNDICATE BANK

RETURN

RETURN

2011-2012


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CALCULATION OF RETURN OF PORTFOLIO B

PORTFOLIO B

COMPANY INVESTMENT EXPECTED

RETURN %

RETURN

Year ( 2011)

CANARA BANK103000 8 12875

VIJAYA BANK 7400 4 1850

KVB(KARURVISABANK)99300 7 14186

ING VISA BANK133800 10 13380

BANK OF INDIA36000 5 7200

TOTAL379500 49491

THE AVERAGE RETURN OF PORTFOLIO B =49491%379500=13(0.13%)

Inference:

From the above table return is calculated by the multiplication of

investment and expected return values of the companies. The total investment

is 379500 andthe total return is 49491


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CALCULATION OF RETURN OF THE PORTFOLIO B WITHPROBABILITY

COMPANY EXPECTED

RETURN %

PROBABILITY RETURN

Year ( 2011)

CANARA BANK 8 0.2 1.6

VIJAYA BANK 4 0.1 0.4

KVB(KARURVISA

BANK)

7 0.2 1.4

INGVISA BANK 10 0.3 3

BANK OF INDIA 5 0.1 0.5

TOTAL 6.9

EXPECTED RETURN ON PORTFOLIO B =6.9(7%)

Inference:

From the above table return of the portfolio is calculated by the

multiplication of expected return and probability values of the companies.

The total return of the portfolio is7%


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GRAPH

RETURN OF PORTFOLIO B

Inference:

From the above graph is shows the return of the portfolio B values.

1.6

0.4

1.4

3

0.5

0

0.5

1

1.5

2

2.5

3

3.5

CANARA BANK VIJAYA BANK KVB(KARURVISA

BANK)

INGVISA BANK BANK OF INDIA

RETURN

RETURN

2011-2012


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GRAPH

RETURN OF PORTFOLIOS

Inference:

From the above graph is shows the return of the portfolio A & B values.

7.4

7.5

7.6

7.7

7.8

7.9

8

A B

RETURN

RETURN

2011-2012

PORTFOLIO

8

7


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CALCULATION OF VARIANCE FOR PORTFOLIO A

COMPANY

P.B

(1)

EXPECTED

RETURN

% (2)

(ER-

ARP)

(3)

(ER-

ARP)2

(4)

VARIANCE

(1) x (4)

STATE BANKOF INDIA

0.2 9 1.2 2.4 0.48

ICICI BANK 0.1 5 -2.8 -5.6 0.56

ANDHRA

BANK

0.2 8 0.2 0.4 0.08

H.D.F.C.BANK 0.3 10 2.2 4.4 1.32

SYNDICATE

BANK

0.2 7 -0.8 -0.16 0.032

TOTAL 2.4

AVERAGE RETURN ON PORTFOLIO (ARP) =7.8

VARIANCE =2.427

STANDARD DEVIATION OF PORTFOLIO A=VARIANCE =2.4 1.33

P.B=PROBABILITY

E.R=EXPECTED RETURN

ARP=AVERAGE PORTFOLIO RETURN


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GRAPH

VARIANCE OF PORTFOLIO A

Inference:

From the above graph is shows the variance of the portfolio A values.

0.48 0.56

0.8

1.92

3.4

0

0.5

1

1.5

2

2.5

3

3.5

4


BANK)


VARIANCE

VARIANCE

2011-2012


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69

CALCULATION OF VARIANCE FOR PORTFOLIO B

COMPANY P.B

(1)

EXPECTED

RETURN%

(2)

(ER-

ARP)

(3)

(ER-

ARP)2

(4)

VARIANCE

(1) x (4)

CANARA BANK 0.2 8 1.2 2.4 0.48

VIJAYA BANK 0.1 4 -2.8 5.6 0.56

KVB(KARURVISABANK)

0.2 7 0.2 0.4 0.8

INGVISA BANK 0.3 10 3.2 6.4 1.92

BANK OF INDIA 0.1 5 -1.8 3.4 3.4

TOTAL 7.16

AVERAGE RETURN ON PORTFOLIO (ARP) =6.8

VARIANCE =7.16

STANDARD DEVIATION OF PORTFOLIO B=VARIANCE =7.16=1.92

P.B=PROBABILITY

E.R=EXPECTED RETURN

ARP=AVERAGE PORTFOLIO RETURN


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GRAPH

VARIANCE OF PORTFOLIO B

Inference:

From the above graph is shows the variance of the portfolio B values.

0.48 0.560.8

1.92

3.4

0

0.5

1

1.5

2

2.5

3

3.5

4


BANK)


VARIANCE

VARIANCE

2011-2012


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GRAPH

VARIANCE OF PORTFOLIOS

Inference:

From the above graph is shows the variance of the portfolio A & B values.

7.4

7.5

7.6

7.7

7.8

7.9

8

A B

AxisTitle

Axis Title

RETURN

2011-2012

PORTFOLIO

8

7


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CALCULATION OF STANDARD DEVIATION OF PORTFOLIO A

X X-A (X-A)2

91.2 1.44

5-2.8 7.84

80.2 0.04

102.2 4.84

7-0.8 0.64

TOTAL 14.8

STANDARD DEVIATION = = 14.8=3.84(or)4

GRAPH

Inference:

From the above graph is shows the standard deviation of the portfolio A

values.

STATE BANK

OF INDIA

ICICI BANK ANDHRA BANK H.D.F.C.BANK SYNDICATE

BANK

1.44

7.84

0.04

4.84

0.64

STANDERED DEVIATION

STANDERED DEVIATION

2011-2012


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CALCULATION OF STANDARD DEVIATION OF PORTFOLIO B

X X-A (X-A)2

8 1.2 1.44

4 -2.8 7.84

7 0.2 0.4

10 3.2 10.24

5 -1.8 3.24

TOTAL 23.16

STANDARD DEVIATION = 23.16=4.8(or)5

GRAPH

Inference:

From the above graph is shows the standard deviation of the portfolio

B values.

1.44

7.84

0.4

10.24

3.24

STANDERED DEVIATION

STANDERED DEVIATION

2011-2012


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PART-B

GENDER

NO. OF

RESPONDENTS

%

MALE 40 75

FEMALE 15 25

TOTAL 50 100

GRAPH

In

portfolio management and risk anylises

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