Risk Return Analysis in Equities--Mahindra Finance!!! Final

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ABSTRACT

The present project work RISK RETURN ANALYSIS IN EQUITIES with reference

to NSE Sensex companies is carried out At MAHINDRA finance.

The project consists:

S.NO. TOPIC Page #1 Deals with Introduction of Risk Return

Analysis in equities, Objectives and Need,

Scope & Importance.2 Deals with the Methodology and Limitations.3 Deals with the Organization profile and

Company profile.4 Deals with the Introduction & Briefing about

RISK RETURN ANALYSIS IN EQUITIES5 Deals with Data analysis & Interpretation6 Deals with Findings & Conclusions7 Deals with Suggestions and Bibliography.

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INTRODUCTION

The risk/return relationship is a fundamental concept in not only financial

analysis, but in every aspect of life. If decisions are to lead to benefit

maximization, it is necessary that individuals/institutions consider the

combined influence on expected (future) return or benefit as well as on

risk/cost. The requirement that expected return/benefit be commensurate

with risk/cost is known as the "risk/return trade-off" in finance.

This discusses the trade-off and, using conventional statistical tools, provides

a method for quantifying risk. Two categories of risk borne by the firm's

stockholders, business risk and financial risk, are discussed and

demonstrated, as is the concept of leverage. The session also examines risk

reduction via portfolio diversification and what requirements need to be met

for firms to experience the benefits of diversification. The Capital Asset

Pricing Model (CAPM) is used to demonstrate the risk/return trade-off by

relating the required return on the firm's investments to its beta (or market)

risk.

OBJECTIVES1. To calculate the risk return of a industries to estimate weather the

company is reliable for the investor to invest in the shares of the

company.

2. To analyze the various risks and returns patterns in shares.

3. To know the risk involved with invests in equities.

4. To observe the degree of volatility in equities market.

5. To understand the price fluctuations & the factors influencing the

fluctuations.

NEED, SCOPE & IMPORTANCE OF STUDY

Need of the study:

Investment decisions are influenced by various motives. Some people invest

in a business to acquire control and enjoy the prestige associated with it.

Some people invest in expensive yachts and famous villas to display their

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wealth. Most investors however are largely guided by the pecuniary motive of

earning a return on their investment.

Return is the primary motivating force that drives investment. It represents

the reward for undertaking investment. Since the game of investing is about

returns (after allowing for risk), measurement of realized (historical) returns is

necessary to access how well the investment manager has done. In addition,

historical returns are often used as an important input in estimating future

(prospective) returns.

Scope of the study:

The scope of the study is confined to only four sectors that are Information

technology, telecom, automobile and pharmacy.

Importance of the study:

ROE is important to every organization: for-profit, not-for-profit, educational

Institutions, government agencies, and more. There are variations in how

they define value, however, all organizations want value for the investments

they make. What makes ROE important is it provides leaders with an

important way of deciding in which programs to invest and which programs todelay or reject.

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REASEARCH METHODOLOGY

RESEARCH DESIGN

This project is based on exploratory research with both qualitative analysis as

well as quantitative analysis. The research methodology adopted is based on

secondary data. The various sources of secondary data include

Internet

Share prices of different NSE Sensex companies.

Information provide by mahindra finance

Magazine

LIMITATIONS OF THE STUDY

The present project work has been undertaken to provide information

regarding risk return on equities. The following are the limitations of the

study.

Any rational investor, before investing his or her investible wealth in

the stock, analysis the risk associated with the particular stock. The

actual return he receives from a stock may vary from his expected

return and the risk is expressed in terms of variability of return.

The study is based on the secondary data which is available from

various.

The study is limited to only four sectors.

The time taken to undertaken the project work is very short; hence

only four sectors were chosen for the study.

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affect the price of stocks (see stock valuation).

There is usually no compulsion to issue stock via the stock exchange itself,

nor must stock be subsequently traded on the exchange. Such trading is said

to be off exchange or over-the-counter. This is the usual way that bonds are

traded. Increasingly, stock exchanges are part of a global market for

securities.

History of stock exchanges:

In 12th century France the courratiers de change were concerned with

managing and regulating the debts of agricultural communities on behalf of

the banks. As these men also traded in debts, they could be called the first

brokers.

Some stories suggest that the origins of the term "bourse" come from

the Latin bursa meaning a bag because, in 13th century Bruges, the sign of a

purse (or perhaps three purses), hung on the front of the house where

merchants met.

However, it is more likely that in the late 13th century commodity

traders in Bruges gathered inside the house of a man called Van der Burse,

and in 1309 they institutionalized this until now informal meeting and becamethe "Bruges Bourse". The idea spread quickly around Flanders and

neighboring counties and "Bourses" soon opened in Ghent and Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in

government securities. In 1351, the Venetian Government outlawed

spreading rumors intended to lower the price of government funds. There

were people in Pisa, Verona, Genoa and Florence who also began trading in

government securities during the 14th century. This was only possible

because these were independent city states ruled by a council of Influential

citizens, not by a duke.

The Dutch later startedjoint stock companies, which let shareholders

invest in business ventures and get a share of their profits - or losses. In

1602, the Dutch East India Company issued the first shares on the

Amsterdam Stock Exchange. It was the first company to issue stocks and

bonds. In 1688, the trading of stocks began on a stock exchange in London.

Stock Exchange

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The role of stock exchanges:

Stock exchanges have multiple roles in the economy, this may include the

following:

Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capital for

expansion through selling shares to the investing public.

Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more

rational allocation of resources because funds, which could have beenconsumed, or kept in idle deposits with banks, are mobilized and redirected

to promote business activity with benefits for several economic sectors such

as agriculture, commerce and industry, resulting in a stronger economic

growth and higher productivity levels.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines,

increase distribution channels, hedge against volatility, increase its market

share, or acquire other necessary business assets. A takeover bid or a merger

agreement through the stock exchange is one of the simplest and most

common ways for a company to grow by acquisition or fusion.

Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth although casual and

professional stock investors through stock prices increases (that may result in

capital gains for the

Investor) and dividends get a chance to share in the wealth of profitable

businesses.

Corporate governance

By having a wide and varied scope of owners, companies generally tend to

improve on their management standards and efficiency in order to satisfy the

demands of these shareholders and the more stringent rules for publiccorporations imposed by public stock exchanges and the government.

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Consequently, it is alleged that public companies (companies that are owned

by shareholders who are members of the general public and trade shares on

public exchanges) tend to have better management records than privately

held companies (those companies where shares are not publicly traded, often

owned by the company founders and/or their families and heirs, or otherwise

by a small group of investors). However, some well-documented cases are

known where it is alleged that there has been considerable slippage in

corporate governance on the part of some public companies (pets.com

(2000), Enron corporation (2001), One.tel (2001), Sunbeam (2001), Webvan

(2001), Adelphia (2002), Mci world com (2002), or paramalat(2003), are

among the most widely scrutinized by the media).

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in

shares is open to both the large and small stock investors because a person

buys the number of shares they can afford. Therefore the Stock Exchange

provides the opportunity for small investors to own shares of the same

companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to

finance infrastructure projects such as sewage and water treatment works or

housing estates by selling another category of securities known as bonds.

These bonds can be raised through the Stock Exchange whereby members of

the public buy them, thus loaning money to the government. The issuance of

such municipal bonds can obviate the need to directly tax the citizens in

order to finance development, although by securing such bonds with the full

faith and credit of the government instead of with collateral, the result is that

the Government must tax the citizens or otherwise raise additional funds to

make any regular coupon payments and refund the principal when the bonds

mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on

market forces. Share prices tend to rise or remain stable when companies

and the economy in general show signs of stability and growth. An economic

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recession, depression, or financial crisis could eventually lead to a stock

market crash. Therefore the movement of share prices and in general of the

stock indexes can be an indicator of the general trend in the economy.

Major stock exchanges:

Twenty Largest Stock Exchanges by Market Capitalization as of July

12, 2007 (in trillions of US dollars)

NYSE Euro next

Tokyo Stock Exchange

NASDAQ

London Stock Exchange

Hong Kong Stock Exchange

Toronto Stock Exchange

Frankfurt Stock Exchange (Deutsche Brose)

Shanghai Stock Exchange

Madrid St ock Exchange (BME Spanish Exchanges)

Australian Securities Exchange

Swiss Exchange

Nordic Stock Exchange Group OMX (Copenhagen, Helsinki, Iceland,

Stockholm, Tallinn, Riga and Vilnius Stock Exchanges)

Milan Stock Exchange (Boras Italian)

Bombay Stock Exchange

Korea Exchange

Sao Paulo Stock Exchange Bovespa

National Stock Exchange of India

STOCK EXCHANGE & SHARES

The market or place, where securities, viz. shares are exchange /

traded or simply where buying and selling takes place, is called stock

exchange or stock market.

Presently, the stock market in India consists of twenty three regional stock

exchanges and two national exchanges, namely, the National StockExchange (NSE) And Over the Counter Exchange of India (OTC).

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The Bombay Stock Exchange (BSE) is the largest Stock Exchange, in

the country, where maximum transactions, in terms of money and shares

take place. The other major stock exchanges are Calcutta, Madras and Delhi

Stock Exchanges. Other one at Ahmedabad, Jaipur, Bangalore, Kanpur,

Rajkot, Hyderabad, Cochin, Pune, Bhubaneshwar, Guwahti, Indore,

Mangalore, Ludhiana, Patna, Saurashtra, Vadodara, Coimbatore, Meerut, and

Surat.

FUNCTIONING OF STOCK EXCHANGE:

LISTING:

Listing of shares, on a stock exchange, means, such shares can be bought

and sold, in stock exchange.

A Company, which intends to issue shares, through prospectus, shall have to

apply to one or more stock exchanges, for getting its shares listed.

The detailed and elaborate procedure of getting the shares listed on a stock

exchange is monitored by SEBI. The SEBI, issues guidelines and notifications,

from time to time, with regard to listing of securities.

Once the shares are listed, the are divided into two categories:

1. GROUP A SHARES

2. GROUP "B" SHARES

GROUP "A" SHARES: are referred to as Cleaned Securities or specified

shares". The facility for carrying forward a transaction from one accountperiod to another is available for these shares. Group "A" shares represent

companies, with huge amount of capital, and equally a large scope for

investment. These shares are frequently traded and command higher price

earning multiples.

GROUP "B" SHARES: are referred to as, none cleaned securities or non-

specified shares. For these groups facility of carrying forward is not available.

Whenever a share is moved from Group "B" to Group "An" its market price

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rises; likewise, when a share is shifted from Group "A" to Group "B", its

market price declines. There are some criteria and guide lines, laid down by

stock exchange, for shifting stocks from the non-specified list to the specified

list.

PRIMARY MARKET

Since 1991/92, the primary market has grown fast as a result of the removal

of investment restrictions in the overall economy and a repeal of the

restrictions imposed by the Capital Issues Control Act. In 1991/92, Rs62.15

billion was raised in the primary market. This figure rose to Rs276.21 billion in

1994/95. Since 1995/1996, however, smaller amounts have been raised due

to the overall downtrend in the market and tighter entry barriers introducedby SEBI for investor protection .SEBI has taken several measures to improve

the integrity of the secondary market. Legislative and regulatory changes

have facilitated the corporatization of stockbrokers. Capital adequacy norms

have been prescribed and are being enforced. A mark-to-market margin and

intraday trading limit have also been imposed. Further, the stock exchanges

have put in place circuit breakers, which are applied in times of excessive

volatility. The disclosure of short sales and long purchases is now required at

the end of the day to reduce price volatility and further enhance the integrity

of the secondary market.

The primary is that part of the capital markets that deals with the issuance of

new securities. Companies, governments or public sector institutions can

obtain funding through the sale of a new stock or bond issue. This is typically

done through a syndicate of securities dealers. The process of selling new

issues to investors is called underwriting. In the case of a new stock issue,

this sale is an initial public offering (IPO). Dealers earn a commission that is

built into the price of the security offering, though it can be found in the

prospectus.

FEATURES OF PRIMARY MARKET ARE:-

1. This is the market for new long term capital. The primary market is the

market where the securities are sold for the first time. Therefore it is also

called New Issue Market (NIM).

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2. In a primary issue, the securities are issued by the company directly to

investors.

3. The company receives the money and issue new security certificates to the

investors

4. Primary issues are used by companies for the purpose of setting up new

business or for expanding or modernizing the existing business.

5. The primary market performs the crucial function of facilitating capital

formation in the economy.

6. The new issue market does not include certain other sources of new long

term external finance, such as loans from financial institutions. Borrowers in

the new issue market may be raising capital for converting private capital into

public capital; this is known as going public.

Methods of issuing securities in the Primary Market

1. Initial Public Offer;

2. Rights Issue (For existing Companies); and

3. Preferential Issue

Secondary market:

The secondary market is the financial market for trading of securities

that have already been issued in an initial private or public offering. [1]Alternatively, secondary market can refer to the market for any kind of used

goods. The market that exists in a new security just after the new issue, is

often referred to as the aftermarket. Once a newly issued stock is listed on a

stock exchange, investors and speculators can easily trade on the exchange,

as market makers provide bids and offers in the new stock.

Function

In the secondary market, securities are sold by and transferred from

one investor or speculator to another. It is therefore important that the

secondary market be highly liquid (Originally, the only way to create this

liquidity was for investors and speculators to meet at a fixed place regularly.

This is how stock exchanges originated; see History of the Stock Exchange).

Secondary marketing is vital to an efficient and modern capital market.

Fundamentally, secondary markets mesh the investor's preference for

liquidity (i.e., the investor's desire not to tie up his or her money for a long

period of time, in case the investor needs it to deal with unforeseen

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circumstances) with the capital user's preference to be able to use the capital

for an extended period of time. For example, a traditional loan allows the

borrower to pay back the loan, with interest, over a certain period. For the

length of that period of time, the bulk of the lender's investment is

inaccessible to the lender, even in cases of emergencies. Likewise, in an

emergency, a partner in a traditional partnership is only able to access his or

her original investment if he or she finds another investor willing to buy out

his or her interest in the partnership. With a securitized loan or equity interest

(such as bonds) or tradable stocks, the investor can sell, relatively easily, his

or her interest in the investment, particularly if the loan or ownership equity

has been broken into relatively small parts. This selling and buying of small

parts of a larger loan or ownership interest in a venture is called secondary

market trading.

Under traditional lending and partnership arrangements, investors may

be less likely to put their money into long-term investments, and more likely

to charge a higher interest rate (or demand a greater share of the profits) if

they do. With secondary markets, however, investors know that they can

recoup some of their investment quickly, if their own circumstances change.

Private equity secondary marketIn finance, the private equity secondary market (also often called

private equity secondary or secondary) refers to the buying and selling of pre-

existing investor commitments to private equity and other alternative

investment funds. Sellers of private equity investments sell not only the

investments in the fund but also their remaining unfunded commitments to

the funds. By its nature, the private equity asset class is illiquid, intended to

be a long-term investment for buy-and-hold investors. For the vast majority of

private equity investments, there is no listed public market; however there is

a robust and maturing secondary market available for sellers of private equity

assets.

Driven by strong demand for private equity exposure, a significant amount of

capital has been committed to dedicated secondary market funds from

investors looking to increase and diversify their private equity exposure

Laws governing capital market

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The four main legislations governing the securities market are:

(a) The SEBI Act, 1992 which establishes SEBI to protect investors and

develop and

Regulate the Markets.

(b) The Companies Act, 1956, which sets out the code of conduct for the

corporate sector in relation to issue, allotment and transfer of securities, and

disclosures to be made in public issues.

(c) The Securities Contracts (Regulation) Act, 1956, read with the Securities

Contracts (Regulation) Rules, 1957 which provide for regulation of

transactions in securities through control over stock exchanges; and

(d) The Depositories Act, 1996 which provides for electronic maintenance

and transfer of ownership of demat securities.

Regulators

SEBI is the primary regulator of the Securities Market and the entities

operating therein. The SEBI Act and the Depositories Act are mostly

administered by SEBI. The rules under the securities laws are framed bygovernment and regulations by SEBI. All these are administered by SEBI. The

powers under the Companies Act relating to issue and transfer of securities

and non-payment of dividend are administered by SEBI in case of listed public

companies and public companies proposing to get their securities listed

Market Value

The current quoted price at which investors buy or sell a share of common

stock or a bond at a given time. Also known as "market price The market

capitalization plus the market value of debt. Sometimes referred to as "total

market value". In the context of securities, market value is often different

from book value because the market takes into account future growth

potential. Most investors who use fundamental analysis to pick stocks look at

a company's market value and then determine whether or not the market

value is adequate or if it's undervalued in comparison to its book value, net

assets or some other measure.

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Stock

A type of security that signifies ownership in a corporation and represents a

Claim on part of the corporations assets and earnings. There are two main

types of stock: common and preferred. Common stock usually entitles the

owner to vote at shareholders' meetings and to receive dividends. Preferred

stock generally does not have voting rights, but has a higher claim on assets

and earnings than the common shares. For example, owners of preferred

stock receive dividends before common shareholders and have priority in the

event that a company goes. Bankrupt and is liquidated. Also known as

"shares" or "equity".

A holder of stock (a shareholder) has a claim to a part of the corporation's

assets and earnings. In other words, a shareholder is an owner of a company.

Ownership is determined by the number of shares a person owns relative to

the number of outstanding shares. For example, if a company has 1,000

shares of stock outstanding and one person owns 100 shares, that person

would own and have. Claim to 10% of the companys assets Stocks are the

foundation of nearly every portfolio. Historically, they have outperformed

most other investments over the long run.

Shareholder

Any person, company, or other institution that

3 own at least 1 share in a company. A shareholder may also be referred to

as a stockholder.

Shareholders are the owners of a company. They have the potential to profit

if the company does well, but that comes with the potential to lose if the

company does poorly.

Share

A unit of ownership interest in a corporation or financial asset. While owning

shares in a business does not mean that the shareholder has direct control

over the business's day-to-day operations, being a shareholder does entitle

the possessor to an equal distribution in any profits, if any are declared in the

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form of dividends. The two main types of shares are common shares and

preferred shares.

In the past, shareholders received a physical paper stock certificate that

indicated that they owned "x" shares in a company. Today, brokerages have

electronic records that show ownership details. Owning a paperless

share makes conducting trades a simpler and more streamlined process,

which is a far cry from the days were stock certificates needed to be taken to

a. Brokerage before a trade could be conducted. While shares are often used

to refer to the stock of a corporation, shares can also represent ownership of

other classes of financial assets, such as mutual funds.

BSE INDICES:-

INDEX:

An Index is used to summarize the price movements of a

unique set of goods in the financial, commodity, forex or any

other market place. Financial indices are created to measure

price movements of stocks, bonds, T-bills and other type of

financial securities. More specifically, a stock index is createdto provide investors with the information regarding the average

share price in the stock market. Broad indices are expected to

capture the overall behavior of equity market and need to

represent the return obtained by typical portfolios in the

country

SENSEX:

SENSEX is India's first Index compiled in 1986. It is a basket of

30 constituent stocks representing a sample of large, liquid and

representative companies.

The base year of BSE-SENSEX is 1978-79 and the base value is

100. The index is widely reported in both domestic and

international markets through print as well as electronic media.

Due to its wide acceptance amongst the investors, SENSEX is

regarded to be the pulse of the Indian stock market. All leading

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business newspapers and the business channels report

SENSEX, as it is the language that all investors understand.

As the oldest index in the country, it provides the time series

data over a fairly long period of time (from 1979 onwards) to be

used for various research purposes. The Index Cell of the

exchange is responsible for the day-to-day maintenance of the

index within the broad index policy set by the Index

Committee. The Index Cell ensures that the SENSEX and all

other BSE indices maintain their benchmark properties by

striking a delicate balance between frequent replacements in

index and maintaining its historical continuity.

SENSEX is calculated using a market capitalization weighted

method. As per this methodology, the level of the index reflects

the total market value of all 30- component stocks from

different industries related to particular base period. The total

market value of a company is determined by multiplying the

price of the stock by the number of shares outstanding

Statisticians call the index of a set of combined variables (such

as price and No. of shares) a composite index. An indexed

number is used to represent the results of this calculation in

order to make the value easier to work with and track over a

time. It is much easier to graph a chart based on indexed

values than one used on actual values.

World over majority of the well known indices are constructed

using Market Capitalization Weighted Method.

In practice, the daily calculation of SENSEX is done by dividing

the aggregate market value of the 30 Companies in the index

by a number called the Index Divisor. The Divisor is the only

link to the original based period value of the SENSEX. The

Divisor keeps the Index comparable over a period of time and

the reference point for the entire index maintenance

adjustments. SENSEX is widely used to describe the mood in

the Indian Stock Markets.

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COMPANY PROFILE

Mahindra and Mahindra financial service limited:

History:

Mahindra finance was incorporated on January 01, 1991 with Mahindra and

Mahindra ltd, leading manufacturer of utility vehicles and tractors in the

country and kotak Mahindra finance limited.

Vision statement:

To be the number one rural finance company and continue to retain leader

ship position for Mahindra products.

Mahindra finance will provide products and services tailored to the needs of

m&m, its most favored customers. In case of demand supply mismatch of

funds, Mahindra finance will put all their resources to find a solution.

Mahindra finance may finance other products after catering to the needs of

m&m. however; this would always constitute a small portion of Mahindra

finances total business.

Mahindra finance will help m&m develop better products by providing first

hand information received from the target market.

Mahindra finance strengths:

The vision of Mahindra finance is validated by its strength, which are

Parentage of m&m ltd

RBI classification as hp company

Excellent reputation for prompt repayment

Wide rural network

Dealer shareholding and relationship of dealers with m&m ensure

dealer commitment

Well connected to m&m/dealer net work. Wide knowledge of rural

finance

Mahindra finance values:

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Good corporate citizenship

Professionalism

Customer first

Quality focus

Dignity of the individual

Horizon 2010:

Department of Mahindra finance:

To ensure smooth &effective functioning of organization, Mahindra finance

has been divided into various departments

Operations

Finance

Marketing

Legal

IT

HR

Administration

Each department has its own norms. Lets see the dos and dont of each

department

General

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Dos

Mark attendance on a daily basis

Take prior approval from your immediate supervisor for leave,

travel or any expenses.

Inform your supervisor immediately in case you come across any

case of misconduct relating to cash or assets

Trust and respect colleagues, customers, vendors and associates

Donts

Salary information should not be shared or compared

Dont indulge in misappropriation of cash or assets, this will

invite disciplinary action.

Do not use abusive language in public

Operations

Dos

Only Mahindra finance employees should deal with

customers/dealers for their payments and collections.

Collect &habituate customers to pay on or before due date

Documents must have duly stamped and signed agreement along

with pdcs and security chequeDont

No payment and/or collection should be carried out by any of

the dealers/brokers/DSAs/DMAs etc.

Finance

Dos

Customer center (internal as well as external): adhere and

observe compliance to company policies

Data accuracy and updating

Always meet/ beat the dead lis

Dont

Do not accept/rely on anything without proper documentation

and authorization thereby ensuring adult trail

Do not make any activity people oriented but try to make it

process oriented with help of systems Avoid duplication of work

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Marketing

Dos

Always keep your eyes open for any competitive marketing

activities like new media campaigns

Keep yourself updated with the latest happening in the

industry/function through continuous learning(like books etc)

Maintain strict confidentiality of the companys marketing plan

Always provide a structured and written brief to the advertising

agency for all kind of communication

Dont

Never tamper with the corporate identity of the organization(like

logos, symbols, font, colours etc)

Dont execute any activity (eg: promotional campaign, product

launch, etc.) with the involvement and inputs from the local

representatives of the field operations team

Legal

Dos

Be proactive rather than reactive

Keep the documents immaculate. Its better to prepare than

to repair

Dont

Dont ignore any correspondence, whether from the

customer, guarantor, their lawyers, insurance company,

statutory authorities or any court or forum

Repossessed vehicles are not to be used by any official

IT

Dos

Utilize it to the maximum of its potential and thereby reduce

unnecessary paperwork

Save power and reduce wastage of consumables

Dont

Dont use pirated software of any nature while working with

MMFSL. Mahindra finance maintains a strict policy against

piracy.

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As a member of IT department, you may have access to

sensitive company information contained in the system data

base. The company trusts you with this information. Dont

violate company trust by prying through this information or

disclosing the same

HR

Maintain confidentiality of all information

All employees of the organization are our internal customers.

Treat them with respect & provide necessary resources to

help them perform better.

Reserve criticism for private discussions whereas reward and

recognitation to be addressed in public

Dont make biased decisions-all employees should receive

equal respect and opportunity

Do not make commitments on behalf of management without

prior permission

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THEORETICAL BASE TO THE STUDY

INTRODUCTION

The risk/return relationship is a fundamental concept in not only financial

analysis, but in every aspect of life. If decisions are to lead to benefit

maximization, it is necessary that individuals/institutions consider the

combined influence on expected (future) return or benefit as well as on

risk/cost. The requirement that expected return/benefit be commensurate

with risk/cost is known as the "risk/return trade-off" in finance.

This session discusses the trade-off and, using conventional statistical tools,

provides a method for quantifying risk. Two categories of risk borne by the

firm's stockholders, business risk and financial risk, are discussed and

demonstrated, as is the concept of leverage. The session also examines risk

reduction via portfolio diversification and what requirements need to be met

for firms to experience the benefits of diversification. The Capital Asset

Pricing Model (CAPM) is used to demonstrate the risk/return trade-off by

relating the required return on the firm's investments to its beta (or market)

risk.Important Learning Terms

Risk

Systematic risk

Unsystematic risk

Return

Portfolio

Beta

Systematic Risk

Systematic Risk, as the name suggests is the risk inherent in the economic

system. Macro factors such as domestic as well as international policies,

employment rate, the rate and momentum of inflation and general level of

consumer confidence etc. are what constitute systematic risk. Generally,

investors cannot hedge or diversify against this risk as it affects all kinds of

asset classes and affects the entire economy as such.

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Unsystematic Risk

This is the risk inherent in a particular asset class. The best way to combat

this risk is by diversification. However, one must remember that the

diversification must be in the class of asset and not the asset itself. An

example of the above is evenly distributing your portfolio in bank deposits,

Reserve Bank of India (RBI) bonds, real estate and equities. That way if a

certain unsystematic risk affects let's say the real estate market (say the

prices crashes), then the presence of other classes of assets in your portfolio

saves you from a total washout. However, note that diversifying within the

same asset class (buying different equity shares) is not strictly combating

unsystematic risk.

Understanding Unsystematic Risk

The one thing that almost all investors would agree upon is the fact

that equity is definitely more risky than debt. Irrational exuberance with a

rising market has left many an investor losing their shirts and in some cases

even more sensitive garments.

However, does this mean that investing in debt instruments is entirely risk-

free? Unfortunately, the answer is in the negative though the volatility ismuch less. So first, let us examine what kind of risks do debt instruments

pose.

Interest Rate Risk

Interest rates and prices of fixed income instruments share an inverse

relationship. In other words, when the overall interest rates in the economy

rise, the prices of fixed income earning instruments fall and vice versa.

Interest rates in the economy may fluctuate due to several factors such as a

change in the RBI's monetary policy, Cash Reserve Ratio (CRR) requirements,

forex reserves, the level of the fiscal deficit and the consequent inflation

outlook etc. Extraneous factors such as energy price fluctuations, commodity

demand and supply and even capital flows may result in rates fluctuating.

Then there are the event-based factors that affect interest rates. For

example, the 11/9 episode in the United States of America and 13/12 in India.

If there is a war, interest rates will rise. However, typically such events are

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temporary in nature and in fact a good fund manager can actually take

advantage of such hiccups.

To illustrate how fluctuations in interest rates affect the returns, let us take

the example of mutual funds (MFs). Adjusting the portfolio to the market rate

of returns is called 'marking to market'.

We assume that the current Net Asset Value (NAV) of the MF is Rs. 10 and its

corpus is Rs. 1000 crores. This means that if the fund sells all the assets of

the scheme and distributes the money on equitable basis to all the unit

holders, they will receive Rs. 10 per unit. Now suppose, the interest rate falls

from 10% to 9%. Immediately, thereafter you wish to invest Rs. 1 lakh in the

scheme. Realise that the entire corpus of the fund stands invested at an

average return of 10%. If the fund sells the units to you at its current NAV of

Rs. 10, you will be allotted 10,000 units. This will benefit you immensely. You

will be a partner in sharing the benefit of the higher returns of 10%, though

the fund will be forced to invest your Rs. 1 lakh at the lower rate of 9%.

This is injustice to the existing investors. Therefore, something has got to be

done to protect their interest. Here comes the 'mark to market' concept. Thefund raises its NAV to Rs. 11.11. You will be allotted only 9,000 units and not

10,000. The returns on 9,000 units at 10% would be identical with the returns

on 10,000 units at 9%. In other words, the NAV rises when the interest falls.

Credit Risk

This is the risk of default. What if the company whose fixed deposit you

invested in goes bankrupt? There have already been several such cases.

Deposits with plantation companies and time-share resorts are more cases in

point. True, you have legal remedy...but everyone knows how much time our

courts take.

The only factor, which dilutes this risk somewhat, is the credit rating. Fixed

income earning instruments get rated for varying degrees of safety. Investing

in a highly rated instrument is safe but not sufficient. Firstly, the instrument

may be down graded; you have to be on the lookout for the same. Then there

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have been cases where the issuer has got rated by different agencies but

chooses to indicate only the higher ones.

Elimination of Risks

There is some good news though. Credit risk can be simply eliminated by

investing in sovereign securities --securities issued by the government. There

is simply no risk of default. Or so we hope, for retail investors, MFs offer gilt

schemes, where almost the entire corpus is invested in sovereign securities

thereby achieving the same result.

Interest rate risk discussed earlier is always prevalent. However, it comes into

play only when a transaction is undertaken during the pendancy of the fixed

income instrument. Ergo, it follows that if the investment is held till maturity,

there would be no interest rate risk.Investments such as Public Provdent Fund

(PPF), Relief Bonds etc. are normally held till maturity. These are examples

where both the risks inherent in debt instruments are at a bare minimum

Government Action Risk

This is a unique kind of risk, which has reared its ugly head in recent times. In

the previous paragraph, it is mentioned that the interest rate risk iseliminated by simply holding the instrument till maturity.

However, such principles of investment had not contended with unilateral

governmental action. For example, the rates of PPF over the past three years

have been consistently reduced by the authorities from 12% p.a. to 8% p.a.

To add insult to injury these rates are applicable on the entire corpus and not

on additional investment. Relief Bonds have come down to 8%. Rates on

other small saving instruments have also been slashed across the board.

Unfortunately, there is no escape from this risk --- that of our government

Measuring Risk

So far, we have acquainted ourselves with the kinds of risks inherent in

investment instruments. However, merely knowing this much may not be

enough to take an informed decision. The article began with the premise that

return is

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Risks In equity investment:

Although an equity investment is the most rewarding in terms of returnsgenerated, certain risks are essential to understand before venturing into the

world of equity. These can be described as follows:

a. Market/ Economy Risk:

The performance of any company depends on the growth of an

economy. An economy, which continues to prosper, ensures that

companies operating in it benefit from its growth. However, an equity

shareholder also runs the risk of any downturn in the economy

affecting the performance of his company. Economy related risks are

usually reflected in the factors such as GDP growth, inflation, balance

of payment positions, interest rates, credit growth etc. A slowdown in

the economy pinches almost all sectors, especially infrastructure,

services and manufacturing companies.

b. Industry Risk: All industries undergo some kind of cyclical growth.

Shareholders get rewarded most during the expansion stage. For

instance, the last few years have been very rewarding for investors in

real estate. However, once the industry reaches a maturity stage, the

rewards from investment are limited. Further, companies belonging to

industries where growth has retarded incur losses or declining gains.

Industry specific government regulations too impact returns from

investments made therein.

c. Management Risk: The management is the face of an enterprise. It is

the team which gives direction to the future course of action that a

company will take. Quality of management is hence paramount.

Management changes often have a serious impact on policy matters of

companies, thereby impacting the share price. A management which is

unable to meet the challenges posed by competition is likely to suffer

in performance.

d. Business Risk: Business risk is a function of the operating conditions

faced by a company and the variability that these conditions inject intooperating income and hence expected dividends. Business risk can be

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classified into two broad categories: external and internal. Internal

business risk is largely associated with the efficiency with which a

company conducts its operations within the broader environment

imposed upon it. External risk is the result of operating conditions

imposed upon the company by circumstances beyond its control.

e. Financial Risk: Financial risk is associated with the way in which a

company finances its activities. A company, borrowing money for

business, creates fixed payment obligations in form of interest that

must be sustained. Beyond a specified limit, the residual income left

for shareholders gets reduced, thereby affecting the returns on shares.

More importantly, it increases default risk, i.e, a heavily leveraged

company, is at a greater risk of not being able to meet its liabilities and

hence going bankrupt.

f. Exchange Rate Risk: Companies today earn sizeable revenues from

outside their parent country. Hence, any appreciation in the currency,

as was recently witnessed with technology companies, adversely

affects earnings, which results in falling or stagnant share prices.

g. Inflation Risk: Rising prices or inflation reduces purchasing power for

the common man resulting in a slowdown in the demand in the

economy. This has implications for all the sectors in the economy.Hence, in an inflationary environment, share prices of most companies

face a downturn as the expected fall in demand reduces their future

expected income.

h. Interest Rate Risk: Interest rate risk refers to the uncertainty of

future market values and size of future income, caused by fluctuations

in the general level of interest rates. Rising interest rates increase cost

of borrowing, which results in an increase in the prices of products and

a corresponding slowdown in demand. Hence, an interest rate hike

affects share prices of companies cutting across the board.

How to overcome risks:

Most risks associated with investments in shares can be reduced by

using the tool of diversification. Purchasing shares of different companies and

creating a diversified portfolio has proven to be one of the most reliable tools

of risk reduction.

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How to overcome risks:

Most risks associated with investments in shares can be reduced by using the

tool of diversification. Purchasing shares of different companies and creating

a diversified portfolio has proven to be one of the most reliable tools of risk

reduction.

The process of Diversification:

When you hold shares in a single company, you run the risk of a large

magnitude. As your portfolio expands to include shares of more companies,

the company specific risk reduces. The benefits of creating a well diversified

portfolio can be gauged from the fact that as you add more shares to your

portfolio, the weightage of each companys share gets reduced. Hence any

adverse event related to any one company would not expose you to immense

risk. The same logic can be extended to a sector or an industry. In fact,

diversifying across sectors and industries reaps the real benefits of

diversification. Sector specific risks get minimized when shares of other

sectors are added to the portfolio. This is because a recession or a downtrend

is not seen in all sectors together at the same time.

However all risks cannot be reduced:

Though it is possible to reduce risk, the process of equity investing itself

comes with certain inherent risks, which cannot be reduced by strategies

such as diversification. These risks are called systematic risk as they arise

from the system, such as interest rate

Risk and inflation risk. As these risks cannot be diversified, theoretically,

investors are reward for taking systematic risk for equity investment

.

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The Risk/Return Trade-off in Financial Analysis

It is widely accepted that the major determinant of the required return on theasset (or the rate to be applied to a stream of receipts to capitalize its value)

is its degree of risk. Risk refers to the probability that the return and therefore

the value of an asset or security may have alternative outcomes. Risk is the

uncertainty (today) surrounding the eventual outcome of an event which will

occur in the future.

Example: when tossing a coin, some one is not sure exactly what will be the

outcome. The outcome may be to have a Tail or the Head, so there is aconcept of risk. In a football match, three outcomes can be experienced: win,

lose or draw. In business, the same can happen regarding the expected

return on the investments in various sectors.

In Financial Analysis, the risk/return trade-off states that financial decisions

that subject stockholders to more risk must offer a higher expected return.

Risk a version is the tendency to try to avoid risky situations unless adequate

compensation is offered.

Example: The risk adverse individual faced with two events each having the

same expected outcome will choose t he outcome with the lower level of risk

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Measurement of risk & return

The expected benefits or returns to be received from an investment come in

the form of the cash flows the investment generates.

Categories of Risk and Leverage Faced by the Firm and by

Stockholders

This type of risk is magnified by the degree to which the firm relies on

fixed operating expenses in producing sales.

In many cases there is not much the firm can do about this type of risk;

some industries have more volatile sales and higher fixed operating

expense than others.

Operating leverage results when the firm has fixed operating expenses in its

cost structure.

These expenses do not disappear when sales drop, nor do they

increase when sales increase.

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Operating leverage tends to magnify any change in sales on Earnings

before Interest and Taxes (EBIT).

Stockholders are the ultimate bearers of the risk that results from

leverage and they are the residual recipients of higher EBIT should

sales increase.

B: Financial risk

This type of risk arises primarily because of the fixed interest payments firms

must make to their long-term creditors (debt capital).

This type of risk is reflected in volatile Net Income and Earnings per

Share.

Financial leverage

Results when the firm finances some portion of its assets with borrowed funds

Financial leverage means that changes in EBIT will magnify changes in

net income and Earnings Per Share

As a firm increases its degree of financial leverage, its expected return

(net income and Earnings Per Share) increases as does its risk

The financial manager has some discretion in determining the extent of

financial leverage.

RISK DIVERISIFICATION

Diversification occurs when different assets make up a portfolio.

The benefit of diversification is risk reduction; the extent of this benefit

depends upon how the returns of various assets behave over time.

The market rewards diversification. We can lower risk without sacrificing

expected return, and/or we can increase expected return without having to

assume more risk.

Diversifying among different kinds of assets is called asset allocation. E.g. A

telephone operator with many physical assets such as houses can diversify byacquiring financial assets which in turn earns return to the company.

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Compared to diversification within the different asset classes, the benefits

received are far greater through effective asset allocation e.g. diversifying

among different types of financial assets.

Example of diversification in Telecom industry is when a licensed mobile

operator who provides fixed line telephones services also operates the

community based telecenters, teleshops, card phones, etc.

Other ways to reduce risk include the use of the following strategies:

Mass advertising to reduce erratic sales and hence to increased profit

Entering into long-term sales or purchase contracts

Recapitalizing toward more equity and less debt so as to reduce the

burden of fixed financial expenses The use of temporary labour instead of permanent employees

RISK IN A PORTFOLIO

A portfolio is a collection of risky assets. If we view individual assets as one

big asset we have a portfolio.Because of risk reduction, the nature of risk is

fundamentally different when an asset is viewed as part of a portfolio instead

of being viewed in isolation.

Measuring the Expected Return and Standard Deviation of a Portfolio

The expected return on a portfolio is the weighted average of the returns of

individual assets, where each asset's weight is determined by its weight inthe portfolio.

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This equation gives the theoretically correct required rate of return on a

project based upon its systematic (or beta) risk.

The formula is applicable only in situations where all diversifiable risk has

been eliminated.

The risk-free rate (RFR) is a base rate reflecting the fact that the project

should at a minimum offer a return equal to what could be earned in the

Treasury bill market. Even risk less investments has a positive required rate

of return.

The market risk premium, (km - RFR), indicates the premium investors

require over the risk-free rate to invest in the general market index.

The required return on a project is positively related to the project's beta.

A very risky project (say a new expansion venture) will have a high beta

coefficient, whereas low risk projects (such as a replacement machine) will

have a lower beta.

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Knowing a project's beta (and thus its minimum required return) is important

for good financial management, because it indicates whether or not the

expected rate of return is above, equal to, or below the required rate of

return and whether or not stockholders are being properly compensated for

the non-diversifiable risk they bear due to the project.

Formulas:

CLOSING PRICE-OPENING PRICE

RETURNS ------------------------------------------------ x100

OPENING PRICE

(R-r) 2

Variance (2) = --------------

N

Standard Deviation () = () 2

NOTE: For all the calculations please refer to the excel files attached.

Date NiftyReturns(X) MARUTI

Returns(Y) XY X2

2-Apr-07 3633.6 -4.8795812 749.25 -8.65 42.20838 23.81031

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3-Apr-07 3690.65 1.56308048 756.45 0.96 1.500557 2.443221

4-Apr-07 3733.25 1.17894166 745.95 -1.39 -1.63873 1.389903

5-Apr-07 3752 0.44977511 755.9 1.33 0.598201 0.202298

9-Apr-07 3843.5 2.41413307 789.45 4.44 10.71875 5.828038

10-Apr-07 3848.15 0.10405421 786.15 -0.42 -0.0437 0.010827

11-Apr-07 3862.65 0.37158782 781.95 -0.53 -0.19694 0.138078

12-Apr-

07 3829.85 -0.8286184 758.95 -2.94 2.436138 0.68660813-Apr-

07 3917.35 2.27133291 771.95 1.71 3.883979 5.158953

16-Apr-07 4013.35 2.36832037 778 0.78 1.84729 5.608941

17-Apr-07 3984.95 -0.733609 762.1 -2.04 1.496562 0.538182

18-Apr-07 4011.6 0.55143373 764.25 0.28 0.154401 0.304079

19-Apr-07 3997.65 -0.021258 771.9 1 -0.02126 0.000452

20-Apr-07 4083.55 2.08236985 778.6 0.87 1.811662 4.336264

23-Apr-07 4085.1 0.03795717 766.9 -1.5 -0.05694 0.001441

24-Apr-07 4141.8 1.38797092 796 3.79 5.26041 1.926463

25-Apr-07 4167.3 0.79941948 791 -0.63 -0.50363 0.639072

26-Apr-07 4177.85 0.18704812 797.5 0.82 0.153379 0.034987

27-Apr-07 4083.5 -2.3553324 795.9 -0.2 0.471066 5.547591

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Calculation for - Value

X -17.4632398

Y 13.85

XY 1883.116562

X2 2686.697852

X.Y -241.87

(X)2 304.96

N 494

Numerator 930,501.45

Denominator 1,326,923.77

- Value 0.70

Average Risk & Return:

Returns 0.03

Risk 2.77

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Date Nifty Returns (X) INFOSYSReturns(Y) XY X2

2-Apr-07 3633.6

-

4.879581152 1922.95 -4.74 23.12921 23.81031

3-Apr-07 3690.65 1.563080479 1964.65 2.17 3.391885 2.443221

4-Apr-07 3733.25 1.178941663 1994.3 1.51 1.780202 1.389903

5-Apr-07 3752 0.449775112 1992.3 -0.1 -0.04498 0.202298

9-Apr-07 3843.5 2.41413307 2047.55 2.77 6.687149 5.828038

10-Apr-07 3848.15 0.104054212 1998.85 -2.38 -0.24765 0.010827

11-Apr-07 3862.65 0.371587823 1996.25 -0.13 -0.04831 0.138078

12-Apr-07 3829.85

-0.828618408 2045.85 2.48 -2.05497 0.686608

13-Apr-07 3917.35 2.271332907 2086.9 2.01 4.565379 5.158953

16-Apr-07 4013.35 2.368320367 2128.7 2 4.736641 5.608941

17-Apr-07 3984.95

-0.733609008 2082.75 -2.16 1.584595 0.538182

18-Apr-07 4011.6 0.551433728 2076.3 -0.31 -0.17094 0.304079

19-Apr-07 3997.65

-0.021257972 2039.9 -1.75 0.037201 0.000452

20-Apr-07 4083.55 2.082369852 2055.1 0.75 1.561777 4.336264

23-Apr-07 4085.1 0.03795717 2069.25 0.69 0.02619 0.001441

24-Apr-07 4141.8 1.387970919 2057.9 -0.55 -0.76338 1.926463

25-Apr-07 4167.3 0.799419484 2018.5 -1.91 -1.52689 0.639072

26-Apr-07 4177.85 0.187048117 2018.85 0.02 0.003741 0.034987

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X -17.4632398

Y -25.28

XY 1785.571568

X2 2686.697852

X.Y 441.47

(X)2 304.96

N 494



- Value 0.66


Returns -0.04

Risk 2.62

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Date NiftyReturns(X) CIPLA

Returns(Y) XY X2

2-Apr-07 3633.6 -4.8795812 225.6 -4.73 23.08042 23.81031

3-Apr-07 3690.65 1.56308048 224.15 -0.64 -1.00037 2.443221

4-Apr-07 3733.25 1.17894166 229.5 2.39 2.817671 1.389903

5-Apr-07 3752 0.44977511 232.55 1.33 0.598201 0.202298

9-Apr-07 3843.5 2.41413307 235.3 1.18 2.848677 5.828038

10-Apr-07 3848.15 0.10405421 234.7 -0.25 -0.02601 0.010827

11-Apr-07 3862.65 0.37158782 236.1 0.6 0.222953 0.138078

12-Apr-07 3829.85 -0.8286184 232.4 -1.57 1.300931 0.686608

13-Apr-07 3917.35 2.27133291 232.4 0 0 5.158953

16-Apr-07 4013.35 2.36832037 235.4 1.29 3.055133 5.608941

17-Apr-07 3984.95 -0.733609 229.55 -2.49 1.826686 0.538182

18-Apr-07 4011.6 0.55143373 233.4 1.68 0.926409 0.304079

19-Apr-07 3997.65 -0.021258 234.3 0.39 -0.00829 0.000452

20-Apr-07 4083.55 2.08236985 235.45 0.49 1.020361 4.336264

23-Apr-07 4085.1 0.03795717 234.15 -0.55 -0.02088 0.001441

24-Apr-07 4141.8 1.38797092 238.8 1.99 2.762062 1.926463

25-Apr-07 4167.3 0.79941948 252.45 5.72 4.572679 0.639072

26-Apr-07 4177.85 0.18704812 253.4 0.38 0.071078 0.034987

27-Apr-07 4083.5 -2.3553324 217.1 -14.33 33.75191 5.547591

30-Apr-07 4087.9 0.15435123 210.95 -2.83 -0.43681 0.023824

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X -17.4632398

Y 6.78

XY 1405.577015

X2 2686.697852

X.Y -118.40

(X)2 304.96

N 494



- Value 0.52


Returns 0.01

Risk 2.37

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Date Nifty Returns (X) IDEAReturns(Y) XY X2

2-Apr-07 3633.6 -4.8795812 91.05 -3.75 18.29843 23.81031

3-Apr-07 3690.65 1.56308048 91.85 0.88 1.375511 2.443221

4-Apr-07 3733.25 1.17894166 93.5 1.8 2.122095 1.389903

5-Apr-07 3752 0.44977511 94.85 1.44 0.647676 0.202298

9-Apr-07 3843.5 2.41413307 95.5 0.69 1.665752 5.828038

10-Apr-07 3848.15 0.10405421 95 -0.52 -0.05411 0.010827

11-Apr-07 3862.65 0.37158782 96.4 1.47 0.546234 0.138078

12-Apr-07 3829.85 -0.8286184 98.2 1.87 -1.54952 0.686608

13-Apr-07 3917.35 2.27133291 102.65 4.53 10.28914 5.158953

16-Apr-07 4013.35 2.36832037 104.7 2 4.736641 5.608941

17-Apr-07 3984.95 -0.733609 103.55 -1.1 0.80697 0.538182

18-Apr-07 4011.6 0.55143373 104.05 0.48 0.264688 0.304079

19-Apr-07 3997.65 -0.021258 103.95 -0.1 0.002126 0.000452

20-Apr-07 4083.55 2.08236985 114.3 9.96 20.7404 4.336264

23-Apr-07 4085.1 0.03795717 114.95 0.57 0.021636 0.001441

24-Apr-07 4141.8 1.38797092 114.6 -0.3 -0.41639 1.926463

25-Apr-07 4167.3 0.79941948 117.6 2.62 2.094479 0.639072

26-Apr-07 4177.85 0.18704812 116.25 -1.15 -0.21511 0.034987

27-Apr-07 4083.5 -2.3553324 112.5 -3.23 7.607724 5.547591

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X -17.4632398

Y -33.36

XY 2663.180545

X2 2686.697852

X.Y 582.57

(X)2 304.96

N 494

Numerator 1,315,028.62


- Value 0.99


Returns -0.07

Risk 3.49

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Date Nifty Returns (X) AIRTELReturns(Y) XY X2

2-Apr-07 3633.6-

4.879581152 738.55 -4.7 22.93403 23.81031

3-Apr-07 3690.65 1.563080479 728.95 -4.58 -7.15891 2.443221

4-Apr-07 3733.25 1.178941663 733.7 0.65 0.766312 1.389903

5-Apr-07 3752 0.449775112 747.5 1.88 0.845577 0.202298

9-Apr-07 3843.5 2.41413307 746.05 -0.19 -0.45869 5.828038

10-Apr-07 3848.15 0.104054212 761.05 2.01 0.209149 0.010827

11-Apr-07 3862.65 0.371587823 765.6 0.6 0.222953 0.138078

12-Apr-07 3829.85-

0.828618408 774.1 1.11 -0.91977 0.686608

13-Apr-07 3917.35 2.271332907 769 -0.66 -1.49908 5.158953

16-Apr-07 4013.35 2.368320367 781.55 1.63 3.860362 5.608941

17-Apr-07 3984.95 -0.733609008 782.9 6.01 -4.40899 0.538182

18-Apr-07 4011.6 0.551433728 802.4 2.67 1.472328 0.304079

19-Apr-07 3997.65-

0.021257972 813 3.84 -0.08163 0.000452

20-Apr-07 4083.55 2.082369852 829 1.97 4.102269 4.336264

23-Apr-07 4085.1 0.03795717 799.75 -0.33 -0.01253 0.001441

24-Apr-07 4141.8 1.387970919 814.75 1.88 2.609385 1.926463

25-Apr-07 4167.3 0.799419484 823 -0.72 -0.57558 0.639072

26-Apr-07 4177.85 0.187048117 818.4 0.45 0.084172 0.034987

27-Apr-07 4083.5-

2.355332377 845.65 3.33 -7.84326 5.547591

30-Apr-07 4087.9 0.154351235 850 3.28 0.506272 0.023824Finding of the study

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As far as risk factor is taken into consideration, Telecom is higher than

IT, followed by automobile and pharma.

In spite of risk associated with t it is telecom it is showing better

performance with maximum returns.

The security in pharma sector is associated with moderate risk. But it is

to note that the returns are also moderate.

It is to be noted that recession has affected market badly.

Suggestions and conclusions

Most investors are risk averse and attempt to maximize their wealth at

the minimum risk.

Risk can be reduced to a minimum but cannot be completely erased or

eliminated

If a person or investor is risk seeker, he will definitely choose or invest

in pharma.

If a person is risk aversor, he will option for investing in telecom and he

is satisfied with the minimal returns

Some investors prefer moderate risk. Such persons invest in scripts like

IT sector..

Investor in general would like to analyze the risk factors and a

thorough knowledge of risk helps him to plan his portfolio in such a

manner so as to minimize the risk associated with the investment.

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BIBLIOGRAPHY

Websites:

Www. bseindia.com

www.nseindia.com

Www. ICICIdirect.com

Www. moneycontrol.com

Www. capitalmarket.com

Www capitalline.com

Www. investopedia.com

Www. google.com

BOOKS:

a) Investment management

V.K.Bhalla

b) Investment management -

Preethi Singh

c) Security Analysis And Portfolio Management

V.A.Avadhanid) Marketing of Financial Services -

V.A.Avadhani

e) Indian Financial System

M.Y.Khan

Risk Return Analysis in Equities--Mahindra Finance!!! Final

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