CHAPTER 1: INTRODUCTION

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1.1 INTRODUCTION TO INVESTMENT

Investment may be defined as an activity that commits funds in any financial form in the
present with an expectation of receiving additional returns in the future. The expectations
bring with it a probability that the quantum of return may vary from a minimum to a
maximum. This possibility of variation in the actual return is known as investment risk. Thus,
every investment involves a return and risk.

Investment is an activity that is undertaken by those who have savings. Savings can be
defined as the excess of income over expenditure. An investor earns/expects to earn
additional monetary value from the mode of investment which could be in the form of
financial assets.

The three important characteristics of any financial asset are:

 Return- The potential return possible from an asset.

 Risk- The variability in returns of the asset from the chances of its value going
down/up.
 Liquidity- The ease with which an asset can be converted into cash.

Investors tend to look at these three characteristics while deciding on their preference pattern
of investments. Each financial asset will have a certain level of each of these characteristics.

1.1.1 Investment Avenues

There are many investment avenues for savers in India. Some of them are marketable and
liquid, while others are non-marketable. Some of them are highly risky while some others are
almost riskless.

Investment avenues can be broadly categorized under the following heads:

• Corporate securities  Equity shares.

• Preference shares.
• Debentures/Bonds.
• Derivatives.
• Others

Corporate Securities

Joint stock companies in the private sector issue corporate securities. These include equity
shares, preference shares, and debentures. Equity shares have variable dividends and hence
belong to the high-risk-high return category; preference shares and debentures have fixed
returns with lower risk.

The classification of corporate securities that can be chosen as investment avenues can be
depicted as shown below:

• Equity Shares

• Preference shares

• Bonds

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 • Warrants

• Derivative

Equity Shares

By investing in shares, investors buy the ownership right to the company. When the company
makes profits, shareholders receive their share of the profits in the form of dividends. In
addition, when a company performs well and the future expectation from the company is very
high, the price of the company’s shares goes up in the market. This allows shareholders to
sell shares at a profit, leading to capital gains. Investors can invest in shares either through
primary market offerings or in the secondary market. The primary market has shown
abnormal returns to investors who subscribed for the public issue and were allotted shares.

Stock Exchange

In a stock exchange, a person who wishes to sell his security is called a seller, and a person
who is willing to buy a particular stock is called the buyer. The rate of stock depends on the
simple law of demand and supply. If the demand for shares of company x is greater than its
supply, then the price of its security increases.

In Online Exchange the trading is done on a computer network. The sellers and buyers log on
to the network and propose their bids. The system is designed in such ways that at any given
instance, the buyers/sellers are bidding at the best prices.

An economist says when people earn a rupee; they do one of two things with it: they either
consume it or save it. A person consumes a rupee by spending it on something like a car,
clothing, or food. People also consume some of their money involuntarily because they must
pay taxes; a person saves a rupee by somehow putting it aside for consumption at a later time.

A distinction can be made between saving and investing. Saving involves putting money
away with little, if any, risk of saving the rupee. Putting money in a bank certificate of
deposit or a passbook account is saving. A saver knows the future return, and the account is
probably insured by the Federal Deposit Insurance Corporation (FDIC), a government agency
that protects depositors against bank failure. In the short run, saving involves few worries.
Investing also involves putting money away but in a risky endeavor. Buying shares of stock
in a NATIONAL STOCK EXCHANGE listed company is investing. If an investor chooses to
let a broker hold the shares and just send an account statement each month, his or her
investment is protected against theft, loss, or brokerage firm failure by the SECURITIES &
EXCHANGE BOARD OF INDIA but not against a decline in value. Depending on the
particular stock purchased and other holdings, an investor may have plenty to worry about.
Both saving and investing amount to consumption shifting through time. By not spending a
Rupee today, a person can spend more lately, assuming, of course, the person saved or
invested wisely.

“Investing is risky but saving is not.”

1.1.2 Investment Alternatives

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  Assets:

Assets are things that people own. The two kinds of assets are financial assets and real assets.
The distinction between these terms is easiest to see from an accounting viewpoint. A
financial asset carries a corresponding liability somewhere. If an investor buys shares of
stock, they are an asset to the investor but show up on the right side of the corporation’s
balance sheet. A financial asset, therefore, is on the left-hand side of the owner’s balance
sheet and the right-hand side of the issuer’s balance sheet. A real asset does not have a
corresponding liability associated with it, although one might be created to finance the real
asset.

Financial assets have a corresponding liability, but real assets do not.

 Securities:

A security is a legal document that shows an ownership interest. Securities have historically
been associated with financial assets such as stocks and bonds, but in recent years have also
been used with real assets. Securitization is the process of converting an asset or collection of
assets into a more marketable forum.

• Security Groupings: Securities are placed in one of three categories: equity securities,
fixed-income securities, or derivative assets.
• Equity Securities: The most important equity security is common stock. Stock
represents an ownership interest in a corporation. Equity securities may pay dividends
from the company’s earnings, although the company has no legal obligation to do so.
Most companies do pay dividends, and most companies try to increase these
dividends on a regular basis.
• Fixed Income Securities: A fixed income security usually provides a known cash flow
with no growth in the income stream. Bonds are the most important fixed income
securities. A bond is a legal obligation to repay a loan’s principal and interest but
carries no obligation to pay more than this. Interest is the cost of borrowing money.
Although accountants classify preferred stock as an equity security, the investment
characteristics of preferred stock are more like those of a fixed income security. Most
preferred stocks pay a fixed annual dividend that does not change overtime
consequently. An investment manager will usually lump preferred shares with bonds
rather than with common stocks. Conversely, a convertible bond is a debt security
paying a fixed interest rate. It has the added feature of being convertible into shares of
common stocks by the bond holders. If the terms of the conversion feature are not
particularly attractive at a given moment, the bonds behave like a bond and are
classified as fixed income securities. On the other hand, rising stock prices make the
bond act more like the underlying stock, in which case the bond might be classified as
an equity security. The point is that one cannot generalize and group all stock issues
as equity securities and all bonds as fixed income securities. Their investment
characteristics determine how they are treated.

For investment purposes, preferred stock is considered a fixed income security.

• Derivative Assets: Derivative assets have received a great deal of attention in the
1990s. A derivative asset is probably impossible to define universally. In general, the

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 value of such an asset derives from the value of some other asset or the relationship
between several other assets. Future and options contracts are the most familiar
derivative assets. These building blocks of risk management programs are used by all
large investment houses and commercial banks. The three broad categories of
securities are equities, fixed-income securities, and derivative assets.

A good way to begin understanding what portfolio management is (and is not) may be to
define the term portfolio. In a business context, we can look to the mutual fund industry to
explain the term's origins.

Morgan Stanley's Dictionary of Financial Terms offers the following explanation:

It says you have an investment portfolio if you own more than one security. You build the
portfolio by buying additional stocks, bonds, mutual funds, or other investments. Your goal is
to increase the portfolio's value by selecting investments that you believe will go up in price.

According to modern portfolio theory, you can reduce your investment risk by creating a
diversified portfolio that includes enough different types, or classes, of securities so that at
least some of them may produce strong returns in any economic climate.

Note that this explanation contains several important ideas:

A portfolio contains many investment vehicles.

Owning a portfolio involves making choices -- that is, deciding what additional stocks, bonds,
or other financial instruments to buy; when to buy; what and when to sell; and so forth.
Making such decisions is a form of management. The management of a portfolio is goal
driven. For an investment portfolio, the specific goal is to increase the value.

Managing a portfolio involves inherent risks.

Over time, other industry sectors have adapted and applied these ideas to other types of
"investments," including the following:

 Application portfolio management

This refers to the practice of managing an entire group or major subset of software
applications within a portfolio. Organizations regard these applications as investments
because they require development (or acquisition) costs and incur continuing maintenance
costs. Also, organizations must constantly make financial decisions about new and existing
software applications, including whether to invest in modifying them, whether to buy
additional applications and when to "sell" -- that is, retire – an obsolete software application.

 Product portfolio management

Businesses group major products that they develop and sell into (logical) portfolios,
organized by major line-of-business or business segment. Such portfolios require ongoing
management decisions about what new products to develop (to diversify investments and
investment risk) and what existing products to transform or retire (i.e., spin off or divest).
Project or initiative portfolio management, an initiative, in the simplest sense, is a body of
work with:

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• A specific (and limited) collection of needed results or work products.

• A group of people who are responsible for executing the initiative and use resources, such
as funding.

• A defined beginning and end.

Managers can group several initiatives into a portfolio that supports a business segment,
product, or product line. These efforts are goal-driven; that is, they support major goals
and/or components of the enterprise's business strategy. Managers must continually choose
among competing initiatives (i.e., manage the organization's investments), selecting those that
best support and enable diverse business goals (i.e., they diversify investment risk). They
must also manage their investments by providing continuing oversight and decision-making
about which initiatives to undertake, which to continue, and which to reject or discontinue.

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CHAPTER 2: LITERATURE REVIEW

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1.Jamadar Lal (1992) presents a profile of Indian investors and evaluates their investment
decisions. He tried to study their familiarity with, and comprehension of financial
information, and the extent to which this is put to use. The information that the companies
provide generally fails to meet the needs of a variety of individual investors and there is a
general impression that the company's Annual Report and other statements are not well
received by them.

2.Jack Clark Francis (1986) revealed the importance of the rate of return on investments and
reviewed the possibility of default and bankruptcy risk. He opined that in an uncertain world,
investors cannot predict exactly what rate of return an investment will yield. However, he
suggested that the investors can formulate a probability distribution of the possible rates of
return. New academic portfolio theory is an extension of traditional portfolio advice first
posited by Markowitz (Journal of Finance, 1952). The traditional advice suggests a “twofund
theorem” that allocates between risk-free bonds and a broad-based passively managed stock
fund. The most efficient portfolios, those on the mean-variance frontier, can be formed by
combining those two asset classes. Tailoring portfolios by adding style-based asset classes is
inefficient because each of these classes lies on or inside the frontier. Therefore, every
investor needs to hold only the two basic asset classes, with risk aversion determining the

proportions.

3. John H. Cochrane

Economic Perspectives, Federal Reserve Bank of Chicago, vol. 23, no. 3 (Third Quarter
1999):59–78

Investors today face numerous and often bewildering investment decisions. Investors used to
have straightforward choices to make, selecting among managed mutual funds, index funds,
and expensive trading in a personal account. Today, a wide variety of styles exist among
funds, active managers offer customized and complex strategies, and inexpensive online
trading is widely available. The author reviews these issues and addresses how they affect
asset allocation decisions, particularly in multifactor models. He also examines return
predictability and describes how the stock market acts as a large insurance market by
facilitating the transfer of risk among investors.

4.Lubos Pastor

Journal of Finance, vol. 55, no. 1 (February 2000):179–223

The author develops a portfolio-selection method using a Bayesian framework that

incorporates a prior degree of belief in an asset-pricing model. In the empirical analysis, the
author evaluates sample evidence on the home bias, value, and size effect from an asset
allocation perspective. The results provide a different perspective from that normally found in
the literature on the benefits of international diversification.

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5.Gustavo Grullon and Roni Michaely

Journal of Finance, vol. 57, no. 4 (August 2002):1649–84

Cash dividends and stock repurchases are two major forms of payout to stockholders. They
influence stock prices and returns and thus decisions for investing and trading in stocks. The
authors analyze the behaviour of U.S. corporations that paid dividends and repurchased
shares in the 1972–2000 period. They address the relative merits of dividends and
repurchases from the corporation’s point of view, the substitutability between the two forms
of payout, and the differences in their tax treatment from the investor’s perspective. Their
findings are of interest to corporate financial officers, equity analysts, and portfolio
managers.

6.Osthoff, Peer C. and Kempf, Alexander. (2007) “The Effect of Socially Responsible

Investing on Portfolio Performance”. In European Financial Management, Vol. 13,

No. 5, pp. 908-922.

Abstract:

More and more investors apply socially responsible screens when building their stock
portfolios. This raises the question of whether these investors can increase their performance
by incorporating such screens into their investment process. To answer this question, we
implement a simple trading strategy based on socially responsible ratings from the KLD
Research & Analytics: Buy stocks with high socially responsible ratings and sell stocks with
low socially responsible ratings. We find that this strategy leads to high abnormal returns of
up to 8.7% per year. The maximum abnormal returns are reached when investors employ the
best-in-class screening approach, use a combination of several socially responsible screens at
the same time, and restrict themselves to stocks with extremely socially responsible ratings.
The abnormal returns remain significant even after taking into account reasonable transaction
costs.

7. Hans Landstrom (1995) - In this article, the author describes the decision-
making criteria used by informal investors and analyzes the effects investment
strategies have on the propensity to accept or reject new investment proposals.
Methodology:- To identify the sample of informal investors in this study, a nominated
sampling technique was used, which means that finding one informal investor
typically leads to the identification of others, and a questionnaire was sent out to
informal investors.
The results show that the informal investors working with a specialization strategy
(within portfolio firms within approximately the same business area or development
phase) seem to receive fewer investment proposals and seem to have a higher
propensity to accept new investment proposals than do diversified investors. This can
show investors' perceived uncertainty in the evaluation process. It makes investors
invest and accept new proposals.

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8. Benjamin Tobias Peylo, in this article, a framework is proposed for a synthesis
of conventional and sustainable portfolio selection, it is based on the theories of
MCDM and was laid down conceptually and empirically using the DAX as the IOS
and benchmark.
Results show the general advantage of the use of the framework and other empirical
tests of the portfolio theory.

9. Lucy Jepchoge's room, his study on the analysis of factors influencing pension
fund manager investment decisions. The main objective is to identify investment
options available to pension fund managers, like challenges, decision-making
preferences investment portfolio, past performance, and legal framework were rated
as less important.
Method: - the questionnaire was administered through the drop-and-pick-later method.
data was analyzed using SPSS (statistical package for social sciences) and
summarized using descriptive statistics such as mean, standard deviation, frequencies,
and percentages.

10. Panos Louverdis and Harmen Oppewal, The Article says that the role of
channels and their management in the E-business era is becoming increasingly
important to customer-relationship management. traditional use of the applications
portfolio approach has been concerned with providing an appropriate basis for
investing decisions about its application for the firms this paper argues that there is a
gap between the established IS portfolio application theory and the requirements to
support management investment decisions about e-business applications therefore, the
paper proposes a channel benefits portfolio approach to inform managers channel
investment decisions.
Methodology:- as a first exploration into channel choice behavior, in-depth qualitative
interviews were conducted interviews with 10 university students. in the second stage
of the research, a questionnaire.
Results:- The CBP needs to be managed dynamically and updated at regular intervals
to ensure continuing alignment of the firm’s portfolio with their customer channel
portfolios to maximize customer relationship capital.

11. Serge Matulich, says that an investment decision model that uses objective
decision rules was tested to determine the validity of the decision rules for portfolio
selection and management. Using market information and applying its rules
consistently on samples of 400 stocks, the model selected and managed twenty-five
investment portfolios for three years each. The starting date for each portfolio was
different when risk return comparisons were made with market benchmarks consisting
of buy-hold portfolios the model consistently performed better than the market.

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12. A.Olaleye, B.TAluko, and C.A. Ajayi – The purpose of this paper is to
examine the factors that have influenced the use of implicit (naı ̈ve) techniques in
property portfolio diversification evaluation in the Nigerian property market. This is
necessitated by the need to look at the ways by which the property portfolio
diversification evaluation practice in the market could be made to improve and adjust
to ever-changing global trends.
Methodology: - The paper administered questionnaires, backed up with interviews, on
28 institutional property investors and 128 real estate practitioners in three
locations(commercial nerve centers) of the country, namely, Lagos, Abuja, and
PortHarcourt metropolitan areas. Data were analyzed using frequency distribution,
mean and standard deviation measures, relative importance index, and Pearson Chi-
Square test. Examining the factors that have influenced the use of implicit (native)
techniques in property portfolio diversification evaluation in Nigeria's property market
This is necessitated by the need to look at the ways by which the property portfolio
diversification evaluation practice in the market could be made to improve and adjust
to ever-changing global trends in this area.

13. Lambovska Maya, Marchen Angel this paper presents a new fuzzy approach
for the evaluation of investment portfolios, where the approach is viewed by the
authors as a sub-phase of the management process of these portfolios. The approaches
define the mutual and delayed effects among the significant variables of the
investment portfolio. The evaluation of the effects is described as fuzzy trapezoidal
number bers and they are aggregated by mathematical operations with incidence
matrices and fuzzy functions. “exertion”.
Methodology: - the proposed fuzzy approach for portfolio evaluation, tools for
portfolio evaluation, stages of portfolio evaluation.
Results: - the article covers only an example of a proposed fuzzy model for the
evaluation of investment portfolios, the approbation of the model with real data
suggests a separation. According to the authors its results can hardly be expressed in
this publication because of the imitated volume.

14. Hamel Pourfatoish says the portfolio analysis uses the upside–potential ratio
and applies portfolio assessment criteria in the stock portfolio of retirement fund
Investment Company of oil industry employees. This research is categorized in
descriptive research classification. On the other hand, the descriptive method has been
used to collect data in terms of the purposes mentioned in the applied type of research.
Methodology: - A descriptive method has been used to collect data in terms of the
purpose mentioned in the applied type of research. According to the point lied in the
fact that two fundamental risks and returns exist in the criteria of portfolio
management performance evaluation.
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The result of this research showed that a portfolio consisting of the stock at small,
medium, and big companies has better performance than the mean of the portfolio
based on the upside-potential ratio.

15. Abhay Kumar Singh's article talks about the evaluation of two different asset
selection methodologies and further examines these by forming optimal portfolios.
Methodology: - This paper deals with the problem of portfolio formation, broadly in
two steps: asset selection and asset allocation by using the two different approaches
for the first step and then well-known mean-variance portfolio optimization. In
addition, the resulting portfolios are compared using the Sharpe ratio.
Results: - it says the two different methodologies, a heuristic algorithm with OWA and
DEA to form an optimal portfolio of stocks from NSE of India, and compared the
portfolio thus formed from both the methods on a risk-return basis using the Sharpe
performance index, The optimal portfolio formed by using securities obtained from
both methods, show that the securities generated by DEA provide better return.

16. Dessislava A., Pachamanova, And Frank J. Fabozzi's article describes the
general structure of a system for Equity portfolio analytical tools used by asset
managers to identify opportunities, determine optimal allocations, assess portfolio
risk, and monitor performance. traditional quantitative equity modeling tools, such as
the factor model, have found new use alongside recent methodologies, such as smart–
beta investment strategies, text analytics, and advanced portfolio optimization
routines.

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 CHAPTER 3: RESEARCH METHODOLOGY

Aim: The main aim of this study is to understand portfolio management. Also to understand
the effect of investing in single security and investing in more than one security i.e.
diversification.

Objectives

 To calculate the return of various companies.

 To calculate the risk of various companies.
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  To calculate the portfolio, return & risk of different portfolios designed for the
combination of various companies.
 To evaluate the performance of various portfolios.
 To understand, analyze and select the best portfolio.
 To understand the effect of diversification of investment.

Scope of the study

This study covers the Markowitz model. The study covers the calculation of correlations
between the different securities to find out what percentage of funds should be invested
among the companies in the portfolio. Also, the study includes the calculation of individual
Standard Deviation of securities and ends at the calculation of weights of individual securities
involved in the portfolio. These percentages help in allocating the funds available for
investment based on risky portfolios.

Research Methodology

 Research type: - Empirical.

 Type of sampling: - Convenient sampling
 Sample size: - 5 companies from different sectors are selected from NSE CNX Nifty
 Sample universe: - Companies listed & traded in NSE.
 Data type: - Secondary data

 Research tools used: -

a. Arithmetic average or mean.

b. Return = Dividend + (Current price - Previous price) * 100

c. Standard deviation

d. Variance

e. Correlation - Karl Pearson’s method

f. Sharpe’s Index

g. Treynor’s Index

h. Jenson’s Index

Data collection methods

The entire data were collected from the secondary source. The Internet is the main source of
secondary sources of data collection. Magazines, Newspapers, and Journals were also used
for collecting data.

Analysis and Interpretations

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The analysis and interpretation have been made with the help of graphs and the percentage of
returns of securities. Microsoft Excel (Edge 360) , R Studio for Calculations & IBM SPSS
Statistics 20 are the software used for this purpose.

Limitations of the study

• The sample size is limited to 5 stocks from 5 different sectors.

• Markowitz's modern portfolio theory is used here to calculate the return & risk of the
portfolio.

• The portfolio created for the study is of 2 securities/stock combinations, to make the study
easier and understandable. Portfolios with 2 or more number of stock can give a wider
image of portfolio management.

• While constructing portfolios the stock are given equal weightage, return & risk will change
if weightage is different.

• The data was collected from the time horizon of one financial year starting from April 2023
to March 2024.

• The data has been collected from secondary sources only, the relevance of the information
may not be fully trustworthy.

PORTFOLIO MANAGEMENT

 What is portfolio management?

• A portfolio is a collection of assets.

• The asset may be physical or financial like Shares Bonds, Debentures, and Preference
Shares etc.

• The individual investor or a fund manager would not like to put all his money in the shares
of one company, for that would amount to great risk.

• The main objective is to maximize portfolio return and at the same time minimizing the
portfolio risk by diversification.

• Portfolio management is the management of various financial assets, which comprise the
portfolio.

• According to Securities and Exchange Board of India (Portfolio manager)

Rules,1993; ―portfolio means the total holding of securities belonging to any person.

• Designing portfolios to suit investor requirements often involves making several projections
regarding the future, based on the current information.

• When the actual situation is at variance from the projection’s portfolio composition needs
to be changed.

• One of the key inputs in portfolio building is the risk-bearing ability of the investor.

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• Portfolio management can be having institutional, for example, Unit Trust, Mutual Funds,
Pension Provident and Insurance Funds, Investment Companies, and non-investment
Companies.

• Institutional e.g. individual, Hindu undivided families, Non-investment companies, etc.

• The large institutional investors avail services of professionals.

• A professional, who manages other people’s or institution’s investment portfolio with the
object of profitability, growth, and risk minimization, is known as a portfolio manager.

• The portfolio manager performs the job of security analyst.

• In the case of medium and large-sized organizations, the job functions of portfolio manager
and security analyst are separate.

• Portfolios are built to suit the return expectations and the risk appetite of the investor.

 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 risk depends
greatly on the co-variance among returns of individual securities.

 Since a portfolio's expected return is a weighted average of the expected return of its
securities, the contribution of each security to the portfolio’s expected returns depends on its
expected returns and its proportionate share of the initial portfolio’s market value.

Risk

Risk is a concept that denotes a potential negative impact on an asset or some characteristic of
value that may arise from some present process or future event. In everyday usage, risk is
often used synonymously with the probability of a known loss. Risk is the uncertainty of the
income/capital appreciation or loss of both. The total risk of an individual security comprises
two components, the market-related risk called systematic risk also known as undiversifiable
risk, and the unique risk of that particular security called unsystematic risk or diversifiable
risk.

Types of risk

Unsystematic risk (company risk)

Table 1.2: Types of Risk
Systematic risk (market)

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 Interest rate risk Labour troubles

Market risk Liquidity problems

Inflation risk Raw materials risks

Demand Financial risks

Government policy Management problems

International factors

Phases of Portfolio Management

Five phases can be identified in this process:

1. Security Analysis

2. Portfolio analysis

3. Portfolio selection

4. Portfolio revision

5. Portfolio evaluation

 Security analysis

An examination and evaluation of the various factors affecting the value of a security.
Security Analysis stands for the proposition that a well-disciplined investor can determine a
rough value for a company from all of its financial statements, make purchases when the
market inevitably under-prices some of them, earn a satisfactory return, and never be in real
danger of permanent loss.

 Portfolio analysis

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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.

 Portfolio selection

The proper goal of portfolio construction is to generate a portfolio that provides the highest
returns at a given level of risk. A portfolio having this characteristic is known as an efficient
portfolio. The inputs from portfolio analysis can be used to identify the set of efficient
portfolios. From this set of efficient portfolios, the optimal portfolio has to be selected for
investment. Harry Markowitz portfolio theory provides both the conceptual framework and
analytical tools for determining the optimal portfolio in a disciplined and objective way.

 Portfolio revision

Having constructed 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.

 Portfolio evaluation

It is the process, which is concerned with assessing the performance of the portfolio over a
selected period of time in terms of returns and risk. This involves quantitative measurement
of actual return realized and the risk born by the portfolio over the period of investment. It
provides a feedback mechanism for improving the entire portfolio management process.

Models for Portfolio Management

Some of the financial models used in the process of Valuation, stock selection, and
management of portfolios include:

• Maximizing return, given an acceptable level of risk.

• Modern portfolio theory—a model proposed by Harry Markowitz among others.

• The single-index model of portfolio variance.

• Capital asset pricing model.

• Arbitrage pricing theory.

• The Jensen Index.

• The Treynor Index.

• The Sharpe Diagonal (or Index) model.

• Value at risk model

Markowitz: Portfolio Selection Model

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The basic portfolio model, developed by Harry Markowitz, derived the expected rate of
return for a portfolio of assets and an expected risk measure. Markowitz showed that the
variance of the rate of return was meaning full measure of risk under a reasonable set of
assumptions and derives the formulas for computing the variance of the portfolio. This
portfolio variance formulation indicated the importance of diversification for reducing risk
and showed how to properly diversify.

Parameters of Markowitz: The Mean-Variance Criterion

Based on his research, for building up an efficient set of portfolios, as laid down by
Markowitz, we need to investigate these important parameters.

i. Expected return.

ii. Variability of returns as measured by standard deviation from the mean.

iii. Covariance or variance of one asset return to other asset returns.

Assumptions of the Markowitz Model

• Investors consider each investment alternative as being represented by a probability

distribution of expected returns over some holding period.

• Investors maximize one period of expected utility and possess utility curves that
demonstrate the diminishing marginal utility of wealth.

• Individuals estimate risk based on the variability of expected returns.

• Investors base decisions solely on expected return and risk, i.e., their utility curves are a
function of expected return and variance (or standard deviation) of returns only.

• For a given risk level, investors prefer higher returns to lower returns. Similarly, for a given
level of expected return, investors prefer less risk to more risk.

 Expected risk calculation:

Portfolio risk = sqrt{(Wx^2*Sdx^2) + (Wy^2*Sdy^2) + (2*Wx*Wy) * (rxy *Sdx^2

*Sdy^2)}

Where,

Wx, Wy = proportion of total portfolio invested in security x & y respectively

Sdx, sdy = standard deviation of stock x & stock y respectively rxy =

correlation coefficient of x & y

 Expected Return of A Portfolio Calculation:

Portfolio return = [(Wx*rx) + (Wy*ry)]

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Where,

 Wx = proportion of total portfolio invested in security x  Wy =

proportion of total portfolio invested in security y
 rx = expected return to security x
 ry = expected return to security y

 Formulas Used In the Markowitz Model

Arithmetic return

Where,

 Vi is the initial investment value and  Vf is the final investment

value.

This return has the following characteristics:

 ROIArith = + 1.00 = + 100% when the final value is twice the initial value
 ROIArith > 0 when the investment is profitable
 ROIArith < 0 when the investment is at a loss
 ROIArith = − 1.00 = − 100% when investment can no longer be recovered

• Standard Deviation σ = Square root ((mean return -expected return) ^2/N)

Covariance

Here’s a breakdown of this formula:

Xi and Yi are the individual observations of variables X and Y.

Xˉ and Yˉ are the means of variables X and Y respectively.

N is the total number of observations.

The expression (Xi−Xˉ) represents the deviation of Xi from the mean of X, and (Yi−Yˉ)
represents the deviation of Yi from the mean of Y.

20
These deviations are multiplied together for each observation and then summed up. This sum
is then divided by the total number of observations.

The covariance measures how much two variables change together. If the covariance is
positive, it means that the variables tend to increase or decrease together. If it’s negative, it
means that as one variable increases, the other tends to decrease, and vice versa. If the
covariance is close to zero, it means that there is no linear relationship between the two
variables. However, a covariance of zero does not necessarily imply that the variables are
independent.

Beta (β):

The Beta coefficient, in terms of finance and investing, is a measure of a stock (or portfolio)’s
volatility to the rest of the market. Beta is calculated for individual companies using
regression analysis.

The beta coefficient is a key parameter in the capital asset pricing model (CAPM). It
measures the part of the asset's statistical variance that cannot be mitigated by the
diversification provided by the portfolio of many risky assets because it is correlated with the
return of the other assets that are in the portfolio.

For example, if every stock in the New York Stock Exchange were uncorrelated with every
other stock, then every stock would have a Beta of zero, and it would be possible to create a
nearly risk-free portfolio, simply by diversifying it sufficiently so that the variations in the
individual stocks' prices averaged out. Investments tend to be correlated, more so within an
industry, or when considering a single asset class (such as equities). This correlated risk,
measured by Beta, is what creates almost all of the risk in a diversified portfolio. The formula
for the Beta of an asset within a portfolio is

Where,

 ra measures the rate of return of the asset,

 rp measures the rate of return of the portfolio of which the asset is a part And 
Cov (ra, rp) is the covariance between the rates of return.

In the CAPM formulation, the portfolio is the market portfolio that contains all risky assets,
and so the rp terms in the formula are replaced by rm, the rate of return of the Market.

The beta movement should be distinguished from the actual returns of the stocks. For
example, a sector may be performing well and may have good prospects, but the fact that its
movement does not correlate well with the broader market index may decrease its beta. Beta
is a measure of risk and not to be confused with the attractiveness of the investment.

 The Security Market Line (SML)

21
The Security Market Line (SML) is the graphical representation of the Capital Asset

Pricing Model. It displays the expected rate of return for an overall market as a function of
systematic (non-diversifiable) risk (beta).

The x-axis represents the risk (beta), and the y-axis represents the expected return.

The market risk premium is determined from the slope of the SML.

The securities market line can be regarded as representing a single-factor model of the asset
price, where Beta is exposure to changes in the value of the Market. The equation of the SML
is thus:

Figure: Security Market Line (SML)

Implications for Investors from the Measurement of Portfolio Risk

If the investor is conservative and interested in low variability of portfolio returns from the
expected return (actual realizable return not from expected), he should:

Invest his funds in securities with low standard deviations, and

Ensure that the securities chosen for his portfolio have relatively low coefficients of
correlation with one another.
Theoretically, if it is possible, he should include some securities with negative coefficients of
correlation with other securities in the portfolio.

 Sharpe Single Index Model:

22
The single-index model (SIM) is a simple asset pricing model commonly used in the finance
industry to measure risk and return of a stock. Mathematically the SIM is expressed as:

Where:

 rit is return to stock i in period t

 rf is the risk-free rate (i.e. the interest rate on treasury bills)  rmt is the return to the
market portfolio in period t  αi is the stock's alpha or abnormal return.
 βi is the stock's beta or responsiveness to the market return.

Note that rit – rf is called the excess return on the stock, rmt − rf the excess return on the
market

εit is the residual (random) return, which is assumed normally distributed with mean zero and
standard deviation σi

These equations show that the stock return is influenced by the market (beta), and has a
firmspecific expected value (alpha) and firm-specific unexpected component (residual). Each
stock's performance is about the performance of a market index (such as the All Ordinaries).
Security analysts often use the SIM for such functions as computing stock betas, evaluating
stock selection skills, and conducting event studies.

Assumptions of the single-index model

To simplify analysis, the single-index model assumes that there is only 1 macroeconomic
factor that causes the systematic risk affecting all stock returns and this factor can be
represented by the rate of return on a market index, such as the

S&P 500. According to this model, the return of any stock can be decomposed into the
expected excess return of the individual stock due to firm-specific factors, commonly denoted
by its alpha coefficient (α), the return due to macroeconomic events that affect the market,
and the unexpected microeconomic events that affect only the firm.

The term βi(rm − rf) represents the movement of the market modified by the stock's beta,
while ei represents the unsystematic risk of the security due to firm-specific factors.
Macroeconomic events, such as changes in interest rates or the cost of labour, cause the
systematic risk that affects the returns of all stocks, and firm-specific events are the
unexpected microeconomic events that affect the returns of specific firms, such as the death
of key people or the lowering of the firm's credit rating, that would affect the firm but would
have a negligible effect on the economy. In a portfolio, the unsystematic risk due to
firmspecific factors can be reduced to zero by diversification.

The index model is based on the following:

23
• Most stocks have a positive covariance because they all respond similarly to
macroeconomic factors.

• However, some firms are more sensitive to these factors than others, and this firm-
specific variance is typically denoted by its beta (β), which measures its variance compared
to the market for one or more economic factors.

• Covariances among securities result from differing responses to macroeconomic

factors. Hence, the covariance of each stock can be found by multiplying their betas and the
market variance:

• Cov (Ri, Rk) = βiβkσ2. This last equation greatly reduces the computations required
to determine covariance because otherwise the covariance of the securities within a portfolio
must be calculated using historical returns, and the covariance of each possible pair of
securities in the portfolio must be calculated independently. With this equation, only the
betas of the individual securities and the market variance need to be estimated to calculate
covariance. Hence, the index model greatly reduces the number of calculations that would
otherwise have to be made to model a large portfolio of thousands of securities.

Portfolio Management Strategy

There are mainly two types of portfolio strategies available, these are:

1. Active Portfolio Strategy

2. Passive Portfolio Strategy

 Active Portfolio Strategy

In an active portfolio strategy, a manager uses financial and economic indicators along with
various other tools to forecast the market and achieve higher gains than a buy-and-hold
(passive) portfolio. Although not always the case, some active portfolio strategies will
include passive techniques such as dollar cost averaging.

Active management (also called active investing) refers to a portfolio management strategy
where the manager makes specific investments with the goal of outperforming an investment
benchmark index. Investors or mutual funds that do not aspire to create a return in excess of a
benchmark index will often invest in an index fund that replicates as closely as possible the
investment weighting and returns of that index; this is called passive management. Active
management is the opposite of passive management, because in passive management the
manager does not seek to outperform the benchmark index and reinvesting dividends.

Concept

Ideally, the active manager exploits market inefficiencies by purchasing securities (stocks
etc.) that are undervalued or by short selling securities that are overvalued. Either of these
methods may be used alone or in combination. Depending on the goals of the specific
investment portfolio, hedge fund or mutual fund, active management may also serve to create
less volatility (or risk) than the benchmark index. The reduction of risk may be instead of, or
in addition to, the goal of creating an investment return greater than the benchmark. Active
24
portfolio managers may use a variety of factors and strategies to construct their portfolio(s).
These include quantitative measures such as price/earnings ratio P/E ratios and PEG ratios,
sector investments that attempt to anticipate long-term macroeconomic trends (such as a
focus on energy or housing stocks), and purchasing stocks of companies that are temporarily
out-of-favor or selling at a discount to their intrinsic value. Some actively managed funds
also pursue strategies such as merger arbitrage, short positions, option writing, and asset
allocation.

Performance

The effectiveness of an actively managed investment portfolio obviously depends on the skill
of the manager and research staff. In reality, the majority of actively managed collective
investment schemes rarely outperform their index counterparts over an extended period of
time, assuming that they are benchmarked correctly. For example, the Standard & Poor's
Index Versus Active (SPIVA) quarterly scorecards demonstrate that only a minority of
actively managed mutual funds have gained better than the Standard & Poor's (S&P) index
benchmark. As the period for comparison increases, the percentage of actively managed
funds whose gains exceed the S&P benchmark declines further. Due to mutual fund fees
and/or expenses, it is possible that an active or passively managed mutual fund could
underperform compared to the benchmark index, even though the securities that comprise the
mutual fund are outperforming the benchmark. However, since many investors are not
satisfied with a benchmark return a demand for actively managed continues to exist. In
addition, many investors find active management an attractive investment strategy when
investing in market segments that are less likely to be profitable when considered as a whole.
These kinds of sectors might include a sector such as small-cap stocks.

Advantages of active management

The primary attraction of active management is that it allows the selection of a variety of
investments instead of investing in the market as a whole. Investors may have a variety of
motivations for following such a strategy: They may be sceptical of the efficient-market
hypothesis or believe that some market segments are less efficient in creating profits than
others. They may want to manage volatility by investing in less-risky, high-quality companies
rather than in the market, even at the cost of slightly lower returns. Conversely, some
investors may want to take on additional risk in exchange for the opportunity of obtaining
higher-than-market returns. Investments that are not highly correlated to the market are useful
as a portfolio diversifier and may reduce overall portfolio volatility. Some investors may wish
to follow a strategy that avoids or underweights certain industries compared to the market as
a whole and may find an actively managed fund more in line with their particular investment
goals. (For instance, an employee of a high-technology growth company who receives
company stock or stock options as a benefit might prefer not to have additional funds
invested in the same industry.)

Several of the actively managed mutual funds with strong long-term records invest in value
stocks. Passively managed funds that track broad market indices such as the S&P 500 have
money invested in all the securities in that index i.e. both growth and value stocks. The use of
managed funds in certain emerging markets has been recommended by Burton Malkiel, a
proponent of the efficient market theory who normally considers index funds to be superior to
active management in developed markets.

Disadvantages of active management:

25
The most obvious disadvantage of active management is that the fund manager may make
bad investment choices or follow an unsound theory in managing the portfolio. The fees
associated with active management are also higher than those associated with passive
management, even if frequent trading is not present. Those who are considering investing in
an actively managed mutual fund should evaluate the fund's prospectus carefully. Data from
recent decades demonstrates that the majority of actively managed large and mid-cap stock
funds in the United States fail to outperform their passive stock index counterparts.

Active fund management strategies that involve frequent trading generate higher transaction
costs which diminish the fund's return. In addition, the short-term capital gains resulting from
frequent trades often have an unfavourable income tax impact when such funds are held in a
taxable account.

When the asset base of an actively managed fund becomes too large, it begins to take on
index-like characteristics because it must invest in an increasingly diverse set of investments
instead of those limited to the fund manager's best ideas. Many mutual fund companies close
their funds before they reach this point, but there is potential for a conflict of interest between
mutual fund management and shareholders because closing the fund will result in a loss of
income (management fees) for the mutual fund company.

 Passive Portfolio Strategy

A strategy that involves minimal expectational input, and instead relies on diversification to
match the performance of some market index. A passive strategy assumes that the
marketplace will reflect all available information in the price paid for securities, and
therefore, does not attempt to find mispriced securities.

The Portfolio Manager

This is a new role for organizations that embrace a portfolio management approach.

A portfolio manager is responsible for continuing oversight of the contents within a portfolio.
If you have several portfolios within your portfolio structure, then you will likely need a
portfolio manager for each one. The exact range of responsibilities (and authority) will vary
from one organization to another, but the basics are as follows:

• One portfolio manager oversees one portfolio.

• The portfolio manager provides day-to-day oversight.

• The portfolio manager periodically reviews the performance of, and conformance to
expectations for, initiatives within the portfolio.

• The portfolio manager ensures that data is collected and analysed about each of the
initiatives in the portfolio.

• The portfolio manager enables periodic decision making about the future direction of
individual initiatives.

Portfolio Reviews and Decision-Making

26
As initiatives are executed, the organization should conduct periodic reviews of actual (versus
planned) performance and conformance to original expectations.

Typically, organization managers specify the frequency and contents of these periodic
reviews, and individual portfolio managers oversee their planning and execution. The reviews
should be multi-dimensional, including both tactical elements (e.g., adherence to plan,
budget, and resource allocation) and strategic elements (e.g., support for business strategy
goals and delivery of expected organizational benefits). A significant aspect of oversight is
setting multiple decision points for each initiative so that managers can periodically evaluate
data and decide whether to continue the work. These

"continue/change/discontinue" decisions should be driven by an understanding (developed

via the periodic reviews) of a given initiative's continuing value, expected benefits, and
strategic contribution, making these decisions at multiple points in the initiative's lifecycle
helps to ensure that managers will continually examine and assess changing internal and
external circumstances, needs and performance.

Governance

Implementing portfolio management practices in an organization is a transformation effort

that typically involves developing new capabilities to address new work efforts, defining (and
filling) new roles to identify portfolios (collections of work to be done), and delineating
boundaries among work efforts and collections.

Implementing portfolio management also requires creating a structure to provide planning,

continuing direction, and oversight and control for all portfolios and the initiatives they
encompass. That is where the notion of governance comes into play. The view of governance
is:

An abstract, collective term that defines and contains a framework for organization, exercise
of control and oversight, and decision-making authority, and within which actions and
activities are legitimately and properly executed; together with the definition of the functions,
the roles, and the responsibilities of those who exercise this oversight and decision-making.

• Portfolio management governance involves multiple dimensions, including:

• Defining and maintaining an enterprise business strategy.

• Defining and maintaining a portfolio structure containing all of the organization's initiatives
(programs, projects, etc.

• Reviewing and approving business cases that propose the creation of new initiatives.

• Providing oversight, control, and decision-making for all ongoing initiatives.

• Ownership of portfolios and their contents.

Each of these dimensions requires an owner -- either an individual or a collective -- to

develop and approve plans, continuously adjust direction, and exercise control through
periodic assessment and review of conformance to expectations.

27
A good governance structure decomposes both the types of work and the authority to plan
and oversee work. It defines individual and collective roles, and links them to an authority
scheme. Policies that are collectively developed and agreed upon provide a framework for the
exercise of governance. The complexities of governance structures extend well beyond the
scope of this article. Many organizations turn to experts for help in this area because it is so
critical to the success of any business transformation effort that encompasses portfolio
management. For now, suffice it to say that it is worth investing time and effort to create a
sound and flexible governance structure before you attempt to implement portfolio
management practices.

Portfolio management essentials

Every practical discipline is based on a collection of fundamental concepts that people have
identified and proven (and sometimes refined or discarded) through continuous application.
These concepts are useful until they become obsolete, supplanted by newer and more
effective ideas.

For example, in Roman times, engineers discovered that if the upstream supports of a bridge
were shaped to offer little resistance to the current of a stream or river, they would last
longer. They applied this principle all across the Roman Empire. Then, in the Middle Ages,
engineers discovered that such supports would last even longer if their downstream side was
also shaped to offer little resistance to the current. So that became the new standard for bridge
construction. Portfolio management, like bridge-building, is a discipline, and several authors
and practitioners have documented fundamental ideas about its exercise.

Objectives of Portfolio Management

The basic objective of Portfolio Management is to maximize yield and minimize risk. The
other objectives are as follows:

a) Stability of Income: An investor considers the stability of income from his

investment. He also considers the stability of the purchasing power of income.

b) Capital Growth: Capital appreciation has become an important investment principle.

Investors seek growth stocks that provide a very large capital appreciation by way of rights,
bonuses, and appreciation in the market price of a share.

c) Liquidity: An investment is a liquid asset. It can be converted into cash with the help
of a stock exchange. Investment should be liquid as well as marketable. The portfolio should
contain a planned proportion of high-grade and readily saleable investments.

d) Safety: safety means protection for investment against loss under reasonable
variations. To provide safety, a careful review of economic and industry trends is necessary.
In other words, errors in portfolios are unavoidable and it requires extensive diversification.

e) Tax Incentives: Investors try to minimize their tax liabilities from the investments.
The portfolio manager has to keep a list of such investment avenues along with the return risk
profile, tax implications, yields, and other returns.

There are three goals of portfolio management.

1. Maximize the value of the portfolio

28
2. Seek balance in the portfolio

3. Keep portfolio projects strategically aligned.

Functions of Portfolio Management

The basic purpose of portfolio management is to maximize yield and minimize risk. Every
investor is risk averse. To diversify the risk by investing in various securities following
functions are required to be performed.

The functions undertaken by the portfolio management are as follows:

1. To frame the investment strategy and select an investment mix to achieve the desired
investment objective.

2. To provide a balanced portfolio that not only can hedge against inflation but can also
optimize returns with the associated degree of risk.

3. To make timely buying and selling of securities.

4. To maximize the after-tax return by investing in various tax-saving investment

instruments.

 Steps in Portfolio Management

Figure 1.3: Steps in Portfolio Management

As guided by SEBI, the 6 steps for an ideal portfolio management should be.

1. Establish the client's investment objectives.

29
2. Measure a client's attitude to risk by completion of a risk profile questionnaire. Figure

1.4: Normal Curve Distribution of Investor’s Risk

Types OF Portfolio Management

Portfolio management can be broadly categorized into two main types: active portfolio
management and passive portfolio management. These types differ in their approach to
managing investments and their underlying philosophies.

 Active Portfolio Management:

Definition: Active portfolio management involves actively buying and selling securities in an
attempt to outperform a specific benchmark or index. Portfolio managers use market
research, economic analysis, and other tools to identify undervalued securities or market
trends that they believe will lead to superior returns.

Key Features:

Portfolio managers actively make investment decisions based on their analysis and market
insights.

The goal is to generate returns that exceed the benchmark or index.

Requires frequent trading and monitoring of the portfolio.

Typically involves higher costs due to transaction fees and management fees for actively
managed funds.

Examples: Actively managed mutual funds, hedge funds, and certain types of managed
accounts.

 Passive Portfolio Management:

Definition: Passive portfolio management, also known as passive investing, aims to replicate
the performance of a specific benchmark or index rather than trying to outperform it.

30
Portfolio managers do not actively select securities but instead invest in a diversified portfolio
that mirrors the composition of the benchmark or index.

Key Features:

Portfolio managers do not actively make investment decisions but rather maintain a portfolio
that closely tracks the benchmark or index.

The goal is to match the returns of the benchmark or index, rather than exceed them.

Typically involves lower costs compared to active management, as there is less trading and
lower management fees for passive funds.

Examples: Index funds and exchange-traded funds (ETFs) that track popular indices such as
the S&P 500, FTSE 100, or MSCI World Index.

In addition to active and passive portfolio management, there are also other specialized
approaches and strategies, such as:

 Strategic Asset Allocation:

It involves setting target allocations for various asset classes based on long-term investment
objectives and risk tolerance.

Portfolio managers periodically rebalance the portfolio to maintain the target asset allocation.

 Tactical Asset Allocation:

It involves making short-term adjustments to the portfolio based on market conditions or

economic outlook.

Portfolio managers may temporarily over- or underweight certain asset classes to capitalize
on short-term opportunities or mitigate risks.

 Dynamic Asset Allocation:

Combines elements of both strategic and tactical asset allocation.

Portfolio managers continuously adjust the portfolio based on changing market conditions
and economic factors.

Each type of portfolio management has its advantages and considerations, and investors may
choose a strategy based on their investment goals, risk tolerance, and preferences.

 PORTFOLIO MANAGER

Portfolio managers are well-trained professional experts. They give proper advice to the
investors or invest on behalf of the investor to fulfill the investor’s expectations.

Qualities of Portfolio Manager

31
• Sound general knowledge.

• Portfolio management is an existing and challenging job.

• He has to work in an extremely uncertain and conflicting environment.

• In the stock market every new piece of information affects the value of the securities of
different industries in a different way.

• He must be able to judge and predict the effects of the information he gets.

• He must have sharp memory, alertness, fast intuition, and self-confidence to arrive at
quick decisions.

• Analytical Ability

• He must have his own theory to arrive at the value of the security.

• An analysis of the security’s values, company, etc. is a continuous job of the portfolio
manager.

• A good analyst makes a good financial consultant.

• The analyst can know the strengths, weakness, opportunities of the economy, industry
and the company.

• Marketing skills

• He must be good salesman.

• He has to convince the clients about the particular security.

• He has to compete with the Stockbrokers in the stock market.

• In this Marketing skills help him a lot.

• Experience

• In the cyclical behaviour of the stock market history is often repeated, therefore the
experience of the different phases helps to make rational decisions.

• The experience of different types of securities, clients, market trends etc. makes a perfect
professional manager.

SEBI rules & regulations for portfolio managers: -

Rules for portfolio managers

 No person to act as a portfolio manager without a certificate.

32
• No person shall carry on any activity as a portfolio manager unless he holds a
certificate granted by the Board under this regulation.

• Provided that such person, who was engaged as portfolio manager prior to the coming
into force of the Act, may continue to carry on the activity as portfolio manager, if he has
made an application for such registration, till the disposal of such application.

• Provided further that nothing contained in this rule shall apply in case of merchant
banker holding a certificate granted by the Board of India Regulations, 1992 as category I or
category II merchant banker, as the case may be.

• Provided also that a merchant banker acting as a portfolio manager under the second
provision to this rule shall also be bound by the rules and regulations applicable to a portfolio
manager.

 Conditions for grant or renewal of a certificate to the portfolio manager

The board may grant or renew a certificate to the portfolio manager subject to the following
conditions namely:

• The portfolio manager in case of any change in its status and constitution shall obtain
prior permission from the board to carry on its activities.

• He shall pay the amount of fees for registration or renewal, as the case may be, in the
manner provided in the regulations.

• He shall make adequate steps for redressing of grievances of the clients within one
month of the date of receipt of the complaint and keep the board informed about the number,
nature, and other particulars of the complaints received.

• He shall abide by the rules and regulations made under the Act in respect of the
activities carried on by the portfolio manager.

 Period of validity of the certificate

The certificate of registration on its renewal, as the case may be, shall be valid for three years
from the date of its issue to the portfolio manager.

 Registration of Portfolio Managers

1. Application for grant of certificate

• An application by a portfolio manager for a grant of a certificate shall be made to the

board on Form A.

33
• Notwithstanding anything contained in sub-regulation (1), any application made by a
portfolio manager before coming into force of these regulations containing such particulars or
as near thereto as mentioned in form A shall be treated as an application made in pursuance
of sub-regulation and dealt with accordingly.

2. Application of confirmation to the requirements

• Subject to the provisions of sub-regulation (2) of regulation 3, any application, that is

not complete in all respects and does not conform to the instructions specified in the form,
shall be rejected:

• Provided that, before rejecting any such application, the applicant shall be given an
opportunity to remove within the time specified such objections as may be indicated by the
Board.

3. Furnishing of further information, clarification, and personal representation.

• The Board may require the applicant to furnish further information or clarification
regarding matters relevant to his activity as a portfolio manager for the purposes of disposal
of the application.

• The applicant or, its principal officer shall, if so required, appear before the Board for
personal representation.

4. Consideration of application

The Board shall take into account for considering the grant of certificate, all matters which
are relevant to the activities relating to the portfolio manager and in particular whether the
applicant complies with the following requirements namely:

• The applicant has the necessary infrastructure like adequate office space, equipment, and
manpower to effectively discharge his activities.

• The applicant has an employment minimum of two persons who have the experience to
conduct the business of portfolio manager.

• A person, directly or indirectly connected with the applicant has not been granted
registration by the Board in case the applicant is a body corporate.

• The applicant fulfills the capital adequacy requirements specified in the regulation.

• The applicant, his partner, director, or principal officer is not involved in any litigation
connected with the securities market which has an adverse bearing on the business of the
applicant.

• The applicant, his director, partner or principal officer has not at any time been convinced
of any offense involving moral turpitude or has been found guilty of any economic
offenses.

• The applicant has a professional qualification from an institution recognized by the

government in finance, law, and accountancy or business management.

34
SEBI guidelines for advertisement by portfolio managers

For the purpose of these guidelines, the expression advertisement means notices, brochures,
pamphlets, circulars, show cards, catalogues, holdings, placards, posters, insertions in
newspapers, pictures, films, radio/television programs, or through any electronic media.

• An advertisement shall be truthful, fair, and clear and shall not contain any statement,
promise or forecast that is untrue or misleading.

• An advertisement shall be considered to be misleading if it contains –

i. Statements made about the performance or activities of the Portfolio Manager in the
absence of necessary explanatory or qualifying statements, which may give an exaggerated
picture of the performance or activities of the Portfolio Manager, than what it really is.

ii. An inaccurate portrayal of the past performance or portrayal in a manner that implies
that past gains or income will be repeated in the future.

• The advertisement shall not be so designed in content and format or in print as to be

likely to be misunderstood, or likely to disguise the significance of any statement.
Advertisements shall not contain statements that directly or by implication or by omission
mislead the investor.

• The publicity literature should contain only information, the details of which are
contained in the Portfolio Managers scheme particulars.

• As the investors may not be sophisticated in legal or financial matters, care should be
taken that the advertisement is outlined in a clear, concise, and understandable manner.
Extensive use of technical or legal terminology or complex language and the inclusion of
excessive details that may detract the investors should be avoided.

• The advertisement shall not contain information, the accuracy of which is to any
extent dependent on assumptions.

• If however, in any advertisement the Portfolio Manager indicates any minimum rate
of return or yield to the prospective investors, resources to back such a guarantee shall also
be indicated.

• The advertisement shall not compare one Portfolio Manager with another, implicitly
or explicitly, unless the comparison is fair and all information relevant to the comparison is
included in the advertisement.

 Observance of the code of advertisement

• Every Portfolio Manager shall strictly observe the Code of Advertisement set out in
the paragraph I have given above. Any breach of the Code would be construed as a breach of
the
Code of conduct set out in Schedule III to the Securities and Exchange Board of India
(Portfolio Managers) Regulations, 1993

 Authority for issue of guidelines

35
• These guidelines have been issued in pursuance of sub-section (1) of Section 11 of the
Securities and Exchange Board of India Act, 1992 by way of measures for the protection of
the interests of investors in Securities and orderly development and growth of the securities
market.

36
 CHAPTER 4: ANALYSIS AND
INTERPRETATION

Table 1: Risk, S.D Calculation of NSE CNX Nifty.

FY 2024-25 P0 P1 Dividend R
Apr-24 17,500 17,800 1.71
May-24 17,800 18,100 1.69
Jun-24 18,100 18,400 1.66
Jul-24 18,400 18700 1.63
Aug-24 18,700 19000 1.60
Sep-24 19,000 19300 1.58
Oct-24 19300 19600 1.55
Nov-24 19600 19900 1.53

37
 Dec-24 19900 20200 1.51
Jan-25 20200 20500 1.49
Feb-25 20500 20800 1.46
Mar-25 20800 21100 1.44

Total 18.84

Average Return, R 1.57

Return, R = Dividend + (P1 - P0)/P0*100

FY24 (MoM) Return for NSE CNX Nifty = 2.165%

Graph 1: Showing the Sum of the Initial Value and Final Value of a Particular month in FY
(2023-24)

Table 1.1: Risk, S.D Calculation

FY 2023-24 R Average R (R-Avg R) (R- Avg R) ^2
Apr-23 4.06 2.165 1.895 3.591025
May-23 2.6 2.165 0.435 0.189225
Jun-23 3.53 2.165 1.365 1.863225
Jul-23 2.94 2.165 0.775 0.600625
Aug-23 -2.53 2.165 -4.695 22.043025

38
 Sep-23 2 2.165 -0.165 0.027225
Oct-23 -2.84 2.165 -5.005 25.050025
Nov-23 5.52 2.165 3.355 11.256025
Dec-23 7.94 2.165 5.775 33.350625
Jan-24 -0.03 2.165 -2.195 4.818025
Feb-24 1.18 2.165 -0.985 0.970225
Mar-24 1.61 2.165 -0.555 0.308025
Total 104.0673

variance 9.460664

Standard deviation 3.075819

Risk, S.D, σ = Square root (Σ(R - Avg R) ^2) / N-1

FY24 (MoM) Risk for NSE CNX Nifty = 3.075819

The NSE CNX Nifty had given a good return of 2.165% per month with an adjusted risk rate
of 3.075819 during the financial year 2024.

Return & Risk of Individual Stocks

1. HDFC Bank Limited:

39
  HDFC Bank Limited is an Indian banking and financial services company
headquartered in Mumbai, Maharashtra. Incorporated in 1994, it is one of the largest
banks in India as measured by assets.
 It is a significant player in the private-sector banking industry in India.
 The bank was promoted by the Housing Development Finance Corporation, a premier
housing finance company (set up in 1977) of India1.
 As of March 12, 2024, the last traded price of HDFC Bank was Rs 14591.
 HDFC Bank has officially initiated the process for the highly awaited initial public
offering (IPO) of its subsidiary, HDB Financial Services2.
 Mutual funds have continued their bullish stance on HDFC Bank Ltd, with a notable
increase in their holdings on February 3.
 HDFC Bank has secured RBI approval to increase its stake in six banks, including
Axis, ICICI, and Yes Bank

Return, R (Avg) Calculation

Table 2: Return, R (Avg) Calculation of HDFC Bank Limited

FY
P0 P1 Dividend R
2023-24
Apr-23 1607.55 1687.6 4.85
May-23 1688.7 1610.85 -4.55
Jun-23 1619.9 1701.4 5.62
Jul-23 1712.5 1651.2 -2.95
Aug-23 1654.45 1571.45 -4.83
Sep-23 1571 1526.3 -2.87
Oct-23 1527 1476.5 -3.26
Nov-23 1462.25 1558.8 5.57
Dec-23 1557.9 1709.25 9.65
Jan-24 1708.95 1462.45 -14.44
Feb-24 1465.05 1403.4 -4.04
Mar-24 1409.25 1457.75 3.87
Total -7.38

Average Return, R -0.615

Return, R = Dividend + (P1 - P0)/P0*100

FY24 (MoM) Return for HDFC Bank Limited = -0.615%

40
Graph 2: Showing the Sum of the Initial Value and Final Value of a Particular month in
FY(2023-24)

Table 2.1: Risk, S.D Calculation

FY 2023- (R-Avg (R- Avg
24 R Average R R) R)^2
Apr-23 4.85 -0.615 5.465 29.86623
May-23 -4.55 -0.615 -3.935 15.48423
Jun-23 5.62 -0.615 6.235 38.87523
Jul-23 -2.95 -0.615 -2.335 5.452225
Aug-23 -4.83 -0.615 -4.215 17.76623
Sep-23 -2.87 -0.615 -2.255 5.085025
Oct-23 -3.26 -0.615 -2.645 6.996025
Nov-23 5.57 -0.615 6.185 38.25423
Dec-23 9.65 -0.615 10.265 105.3702
Jan-24 -14.44 -0.615 -13.825 191.1306
Feb-24 -4.04 -0.615 -3.425 11.73063
Mar-24 3.87 -0.615 4.485 20.11523
Total 486.1261

variance 44.19328

Standard deviation 6.647803

Risk, S.D, σ = Square root (Σ(R - Avg R) ^2) / N-1

FY24 (MoM) Risk for HDFC Bank Limited = 6.647803

41
HDFC Bank Limited had given a loss of -0.615% per month with an adjusted risk rate of
6.647803 during the financial year 2024.

2. Lupin Limited

 Lupin Limited is a transnational pharmaceutical company based in Mumbai.

 It is a significant player in the global pharmaceutical industry.
 Lupin’s shares have seen a significant surge in 2023.
 Lupin’s subsidiary, Lupin Atlantis Holdings SA, Switzerland, has entered into an asset
purchase agreement with Sanofi, a French multinational pharmaceutical and
healthcare company, to acquire a portfolio of products in Europe and Canada.
 Lupin’s Japanese subsidiary Kyowa Pharmaceutical Industry Co Ltd has entered into
an agreement with Astellas Pharma Inc. for exclusive rights to distribute and promote
extended-release tablets of quetiapine fumarate in Japan.
 Lupin has received approval from the U.S. FDA for Minzoya (Levonorgestrel and
Ethinyl Estradiol Tablets, USP, and Ferrous Bisglycinate Tablets).
 Lupin has signed an exclusive licensing and distribution agreement with EffRx
Pharmaceuticals for the commercialization of BINOSTO® in Vietnam & Philippines.

Return, R (Avg) Calculation

Table 3: Return, R (Avg) Calculation of Lupin Limited

FY 2023-
P0 P1 Dividend R
24
Apr-23 649.15 709.5 9.42
May-23 708.95 804.5 13.39
Jun-23 806 902.75 12.21
Jul-23 901.1 985.45 9.16
Aug-23 984.8 1097.85 11.41
Sep-23 1095.95 1171.25 6.69
Oct-23 1171 1128.15 -3.68
Nov-23 1137.05 1280.9 13.54
Dec-23 1280.9 1322.95 3.28
Jan-24 1328 1502 13.53
Feb-24 1514 1621.05 7.93
Mar-24 1620.9 1603.5 -1.08

Total 95.8

Average Return, R 7.983333

42
Return, R = Dividend + (P1 - P0)/P0*100

FY24 (MoM) Return for Lupin Limited = 7.983333%

Graph 3: Showing the Sum of the Initial Value and Final Value of a Particular month in
FY(2023-24)

Risk, S.D Calculation

Table 3.1: Risk, S.D Calculation of Lupin Limited

FY 2023-24 R Average R (R-Avg R) (R- Avg R)^2
Apr-23 9.42 7.983333 1.436667 2.06401207
May-23 13.39 7.983333 5.406667 29.232048
Jun-23 12.21 7.983333 4.226667 17.8647139
Jul-23 9.16 7.983333 1.176667 1.38454523
Aug-23 11.41 7.983333 3.426667 11.7420467
Sep-23 6.69 7.983333 -1.29333 1.67271025
Oct-23 -3.68 7.983333 -11.6633 136.033337
Nov-23 13.54 7.983333 5.556667 30.8765481
Dec-23 3.28 7.983333 -4.70333 22.1213413
Jan-24 13.53 7.983333 5.546667 30.7655148
Feb-24 7.93 7.983333 -0.05333 0.00284441
Mar-24 -1.08 7.983333 -9.06333 82.1440051

Total 365.903667

43
 33.26397
variance

Standard deviation 5.767493

Risk, S.D, σ = Square root (Σ (R - Avg R) ^2) / N-1

FY24 (MoM) Risk for Lupin Limited = 5.767493

Lupin Limited had given an excellent return of 7.983333% with a comparatively low risk of
5.767493 during FY 24. The return includes a dividend of 3 per share.

3. Hindustan Unilever

Hindustan Unilever Limited (HUL) is an Indian consumer goods company based in Mumbai,
Maharashtra. It is owned by Anglo-Dutch Company Unilever which owns a controlling share
in HUL. HUL's products include foods, beverages, cleaning agents, personal care products,
and water purifiers.

As of the financial year 2021–22, HUL reported a turnover growth of 11% and underlying
volume growth at 3%, significantly ahead of the market. Its year-on-year market share gain
was the highest HUL has seen in a decade. The company announced its quarterly results
(ending 31 December 2022) on 19 January 2023, with turnover up 16%.

As of March 2024, the last traded price of HUL was 2398.8, with a market capitalization of
563678.69. The stock has experienced a negative return of -5.53% over the past 6 months.
Please note that the stock market is subject to fluctuations, and it's always a good idea to
check the latest updates before making any investment decisions.

Return, R (Avg) Calculation

Table 4: Return, R (Avg) Calculation of HUL

FY 2023-
P0 P1 Dividend R
24
Apr-23 2570 2457.3 -4.02
May-23 2471.8 2667.55 8.56
Jun-23 2667 2678.15 0.4
Jul-23 2687 2560.8 -4.38
Aug-23 2570 2505.05 -2.18
Sep-23 2505.05 2465.6 -1.57
Oct-23 2490 2484 0.75
Nov-23 2485 2545.55 2.48
Dec-23 2547.5 2663.95 4.65
Jan-24 2659.75 2479 -6.94

44
 Feb-24 2475.1 2415.3 -2.69
Mar-24 2414.2 2312.6 -4.13
Total -9.07

Average Return, R -0.75583

Return, R = Dividend + (P1 - P0)/P0*100

FY24 (MoM) Return for Lupin Limited = -0.75583%

Graph 4: Showing the Sum of the Initial Value and Final Value of a Particular month in
FY(2023-24)

HINDUSTAN UNILEVER LIMITED

2800

2600

2500

2400

2300

2200

2100
Aver
a ge Tot 01- 01- 01- 01- 01- 01- 01- 01- 01- 01- 01- 01-
Retu al 042023 052023 062023 072023 082023 092023 102023 112023 122023 012024 022024 032024
r n,R
Su 2570 2472 2667 2687 2570 2505 2490 2485 2548 2660 2475 2414
m
of
P0
Su 2457 2668 2678 2561 2505 2466 2484 2546 2664 2479 2415 2313
m
of
P1
2700

Table 4.1: Risk, S.D Calculation of HUL

FY 2023-24 R Average R (R-Avg R) (R- Avg R)^2
Apr-23 -4.02 -0.75583 -3.26417 10.6548058

45
 May-23 8.56 -0.75583 9.31583 86.7846886
Jun-23 0.4 -0.75583 1.15583 1.33594299
Jul-23 -4.38 -0.75583 -3.62417 13.1346082
Aug-23 -2.18 -0.75583 -1.42417 2.02826019
Sep-23 -1.57 -0.75583 -0.81417 0.66287279
Oct-23 0.75 -0.75583 1.50583 2.26752399
Nov-23 2.48 -0.75583 3.23583 10.4705958
Dec-23 4.65 -0.75583 5.40583 29.222998
Jan-24 -6.94 -0.75583 -6.18417 38.2439586
Feb-24 -2.69 -0.75583 -1.93417 3.74101359
Mar-24 -4.13 -0.75583 -3.37417 11.3850232
Total 209.932292

variance 19.08475

Standard deviation 4.368604

Risk, S.D, σ = Square root (Σ(R - Avg R) ^2) / N-1

FY24 (MoM) Risk for Hindustan Unilever Limited = 4.368604

The HUL has given a return of -0.75583% with a high risk of 4.368604 during FY15 (MoM).
Which includes a dividend of 13.50 per share.

4. Tata Consultancy Services

Tata Consultancy Services Limited (TCS), an Indian multinational information technology

(IT) services and consulting company, has its headquarters in Mumbai. As part of the Tata
Group, TCS operates across 150 locations in 46 countries. In September 2023, it was reported
that TCS had over 616,000 employees worldwide. TCS holds the distinction of being the
second-largest Indian company by market capitalization, as well as one of the most valuable
IT service brands globally and a prominent player in the Big Tech (India) landscape. Notably,
as of June 2023, TCS ranked as the world’s second-largest user of U.S. H-1B visas. In 2021,
it secured the seventh position on the Fortune India 500 list. Additionally, in September 2021,
TCS achieved a significant milestone by recording a market capitalization of US$200 billion,
making it the first Indian IT tech company to reach this valuation.

TCS’s journey began in 1968 when it was initially established as Tata Computer Systems by
a division of Tata Sons Limited. Over the years, TCS has played a pivotal role in various
technological advancements. Some notable milestones include delivering an electronic
depository and trading system called SECOM for a Swiss company, automating the
Johannesburg Stock Exchange, and establishing India’s first dedicated software research and
development centre, the Tata Research Development and Design Centre (TRDDC) in Pune.

46
TCS has consistently demonstrated innovation and adaptability, contributing significantly to
the global IT landscape.

In 2024, TCS will continue to be a powerhouse in the IT industry, driving innovation and
building on its legacy of belief and excellence.

Return, R (Avg) Calculation

Table 5: Return, R (Avg) Calculation of TCS

FY
P0 P1 Dividend R
2023-24
Apr-23 3224.95 3219.25 0.42
May-23 3235 3289.5 2.18
Jun-23 3314 3302.25 0.39
Jul-23 3314.3 3421.45 3.61
Aug-23 3415 3356.8 -1.89
Sep-23 3366 3528.6 5.12
Oct-23 3517.9 3353.21 -4.97
Nov-23 333.53 3471.52 3.53
Dec-23 3483.86 3775.9 8.77
Jan-24 3790 3804 0.74
Feb-24 3820 4095.1 7.65
Mar-24 4115 4152.5 1.4
Total 26.95

Average Return, R 2.245833

Return, R = Dividend + (P1 - P0)/P0*100

FY24 (MoM) Return for Tata Consultancy Services Limited = 2.245833%

Graph 5: Showing the Sum of the Initial Value and Final Value of a Particular month in
FY(2023-24)

47
Risk, S.D Calculation

Table 5.1: Risk, S.D Calculation of TCS

FY 2023-24 R Average R (R-Avg R) (R- Avg R)^2
Apr-23 0.42 2.245833 -1.82583 3.33366614
May-23 2.18 2.245833 -0.06583 0.00433398
Jun-23 0.39 2.245833 -1.85583 3.44411612
Jul-23 3.61 2.245833 1.364167 1.8609516
Aug-23 -1.89 2.245833 -4.13583 17.1051146
Sep-23 5.12 2.245833 2.874167 8.26083594
Oct-23 -4.97 2.245833 -7.21583 52.0682459
Nov-23 3.53 2.245833 1.284167 1.64908488
Dec-23 8.77 2.245833 6.524167 42.564755
Jan-24 0.74 2.245833 -1.50583 2.26753302
Feb-24 7.65 2.245833 5.404167 29.205021
Mar-24 1.4 2.245833 -0.84583 0.71543346
Total 162.479092

variance 12.74673

Standard deviation 3.5702

Risk, S.D, σ = Square root (Σ (R - Avg R) ^2) / N-1

FY24 (MoM) Risk for Tata Consultancy Services Limited = 3.5702

The TCS has an extremely high risk of 3.5702 with a return of 2.245833% during FY24
(MoM). And the return includes a total dividend of 70 per share.
48
5. TATA motors

Tata Motors Limited, formerly known as TELCO (short for Tata Engineering and
Locomotive Company), remains an Indian multinational automotive manufacturing
company with its headquarters in Mumbai, Maharashtra, India. As a subsidiary of the Tata
Group, Tata Motors continues to produce a diverse range of vehicles, including passenger
cars, trucks, vans, coaches, buses, construction equipment, and military vehicles. In the
ever-evolving automotive landscape, Tata Motors maintained, its position as the 17th-
largest motor vehicle manufacturing company globally, the fourthlargest truck
manufacturer, and the second-largest bus manufacturer by volume.

Return, R (Avg) Calculation

Table 6: Return, R (Avg) Calculation of Tata Motors

FY
P0 P1 Dividend R
2023-24
Apr-23 423 484.95 15.24
May-23 482.5 526.3 8.53
Jun-23 527.5 595.55 13.16
Jul-23 600 644.3 8.19
Aug-23 645 601 -6.72
Sep-23 604.2 630.2 4.86
Oct-23 632.6 628.65 -0.25
Nov-23 630 706.4 12.37
Dec-23 708 779.95 10.41
Jan-24 783.95 884.8 13.44
Feb-24 900 950.2 7.39
Mar-24 960 972.45 2.34
Total 88.96

Average Return, R 7.413333

Return, R = Dividend + (P1 - P0)/P0*100

FY24 (MoM) Return for Tata Motors Limited = 7.413333%

49
Graph 6: Showing the Sum of the Initial Value and Final Value of a Particular month in
FY(2023-24)

FY 2023-
24 R Average R (R-Avg R) (R- Avg R)^2
Apr-23 15.24 7.413333 7.826667 61.2567163
May-23 8.53 7.413333 1.116667 1.24694519
Jun-23 13.16 7.413333 5.746667 33.0241816
Jul-23 8.19 7.413333 0.776667 0.60321163
Aug-23 -6.72 7.413333 -14.1333 199.751102
Sep-23 4.86 7.413333 -2.55333 6.51950941
Oct-23 -0.25 7.413333 -7.66333 58.7266727
Nov-23 12.37 7.413333 4.956667 24.5685477
Dec-23 10.41 7.413333 2.996667 8.98001311
Jan-24 13.44 7.413333 6.026667 36.3207151
Feb-24 7.39 7.413333 -0.02333 0.00054443
Mar-24 2.34 7.413333 -5.07333 25.7387077
Total 456.736867

variance 21.3714

Standard deviation 4.6229

50
Risk, S.D, σ = Square root (Σ(R - Avg R) ^2) / N-1

FY24 (MoM) Risk for Tata Motors Limited = 4.6229

Tata Motors has given a low return of 7.413333% compared to others with a high risk of
4.6229. The return includes a dividend of 2 per share.

Beta, β of stocks with respect to NSE CNX Nifty,

Where, ra = return of

individual stock rp = return of

NSE CNX Nifty

Table: Beta of Stock

Stocks Covariance Nifty Variance Beta, β Result

HDFC 13.34 9.46 1.41015 Aggressive
LUPIN 3.22 9.46 0.34038 Conservative
HUL 4.62 9.46 0.48837 Conservative
TCS 7.55 9.46 0.7981 Conservative
TATA MOTORS 12.71 9.46 1.34355 Aggressive

When,
β > 1 = Aggressive
β = 1 = Moderate β
< 1 = Conservative

HDFC Bank and Tata Motors are beating the market return with a beta of 1.41015 & 1.34355
respectively. So, they are very aggressive.
While,
Lupin, HUL & TCS have got a low beta of 0.34038, 0.48837 & 0.7981 respectively. So, they
are conservative.

51
 Return, Risk, & Beta of Stocks

Return, Risk, & Beta of individual stock for FY24 (MoM) is as follows:
Table : Return, Risk, & Beta of individual stock for FY24 (MoM)

Stocks Return, R Risk, SD Beta, β

HDFC -0.615 6.64 1.41015
LUPIN 7.98 5.76 0.34038
HUL -0.75 4.36 0.48837
TCS 2.25 1.16 0.7981
TATA MOTORS 7.42 1.95 1.34355

Graph: Return, Risk & Beta of individual stocks FY24(MoM)

52
The Lupin & Tata Motors is the top performer in terms of return. But while comparing the
risk-adjusted return Lupin is the out-performer compared to rest 4 stocks. Lupin has given a
return of 7.98% with an adjustable risk of 5.76 and got a beta of 0.34038.

Return & Risk of Various Portfolios

Calculation of Portfolio Return:
Rp = (RA*WA) + (RB*WB)
Where,
 Rp = portfolio return
 RA= return of A WA= weight of A
 RB= return of B WB= weight of B Calculation
of Portfolio Risk:
Portfolio Risk = SQRT [((Wx^2*SdX^2) + (Wy^2*SdY^2) + (2*Wx*Wy*(rxy*Sdx*Sdy)))]
WHERE,
Wx, Wy = proportion of total portfolio invested in security X& Y respectively
sdx, sdy = standard deviation of stock X & stock Y respectively rxy =
correlation coefficient of x & y

 Portfolio 1:

Table 1: Return and Risk of Portfolio 1

Individual
Stocks Return Weightage Variance SD Correlation
Return
HDFC
-0.615 0.5 44.1932 6.647 -0.3075
Bank

-0.2408
Lupin 7.9833 0.5 33.2639 5.767 3.9916

Portfolio Return, R 3.6841

Portfolio Variance -8.4630

Portfolio Risk, SD 2.90i

Portfolio return, Rp = (-0.615*0.50) + (7.9833*0.50) =3.6841

53
Portfolio Risk = 2.90i

54
 

Portfolio 2

Table 2: Return and Risk of Portfolio 2

Individual
Stocks Return Weightage Variance SD Correlation
Return
HDFC
-0.615 0.5 44.19328 6.647803 -0.3075
Bank
0.3678
HUL -0.7558 0.5 19.08475 4.368604 -0.377915
Portfolio Return, R -0.685415

Portfolio Variance 9.793

Portfolio Risk, SD 3.129

Portfolio Return, Rp = (-0.615*0.5) + (-0.7558*0.5) =-0.685

Portfolio Risk = 3.129

 Portfolio 3

Table 3: Return and risk of portfolio 3

Individual
Stocks Return Weightage Variance SD Correlation
Return
HDFC Bank -0.615 0.5 44.19328 6.647803 -0.3075

0.281
TCS 2.245 0.5 12.746 1.158 1.1225

Portfolio Return, R 0.815

Portfolio Variance 6.582

Portfolio Risk, SD 2.565

Portfolio Return, Rp = (-0.615*0.5) + (2.245*0.5) = 0.815

Portfolio risk = 2.565

55
 

Portfolio 4

Table 4: Return and Risk of Portfolio 4

Individual
Stocks Return Weightage Variance SD Correlation
Return
HDFC Bank -0.615 0.5 44.1932 6.6478 -0.3075

0.24
Tata Motors 7.413 0.5 21.3714 4.6229 3.7065

Portfolio Return, R 3.399

Portfolio Variance 6.582

Portfolio Risk, SD 3.074

Portfolio Return, Rp = (-0.615*0.5) + (7.413*0.5) = 3.399

Portfolio risk = 3.074

 Portfolio 5

Table 5: Return and Risk of Portfolio 5

Individual
Stocks Return Weightage Variance SD Correlation
Return
Lupin 7.983 0.5 33.263 5.767 3.9915

0.049
HUL -0.755 0.5 19.084 4.368 -0.3775

Portfolio Return, R 3.614

Portfolio Variance 1.153

Portfolio Risk, SD 1.074

Portfolio Return, Rp = (7.983*0.5) + (-0.755*0.5) = 3.614

Portfolio Risk = 1.074

56
 

Portfolio 6 Table 6: Return and

Risk of Portfolio 6
Individual
Stocks Return Weightage Variance SD Correlation
Return

Lupin 7.983 0.5 33.263 5.767 3.9915

0.133
TCS 2.245 0.5 12.746 3.570 1.1225

Portfolio Return, R 5.114

Portfolio Variance 2.71

Portfolio Risk, SD 1.646

Portfolio Return, Rp = (7.983*0.5) + (2.245*0.5) = 5.114

Portfolio Risk = 1.646

 Portfolio 7

Table 7: Return And Risk of Portfolio 7

Individual
Stocks Return Weightage Variance SD Correlation
Return
Lupin 7.983 0.5 33.263 5.767 3.9915

0.439
Tata Motors 7.413 0.5 21.3714 4.622 3.7065

Portfolio Return, R 7.698

Portfolio Variance 14.966

Portfolio Risk, SD 3.868

Portfolio Return, Rp = (7.983*0.5) + (7.413*0.5) = 7.698

57
 

Portfolio Risk = 3.868

Portfolio 8

Table 8: Return And Risk of Portfolio 8

Individual
Stocks Return Weightage Variance SD Correlation
Return
HUL -0.755 0.5 19.084 4.368 -0.3775

0.173
TCS 2.245 0.5 12.746 3.57 1.1225

Portfolio Return, R 0.745

Portfolio Variance 2.673

Portfolio Risk, SD 1.635

Portfolio Return, Rp = (-0.755*0.5) + (2.245*0.5) = 0.745

Portfolio Risk = 1.635

 Portfolio 9

Table 9: Return and Risk of Portfolio 9

Individual
Stocks Return Weightage Variance SD Correlation Return

HUL -0.755 0.5 19.084 4.368 -0.3775

0.037
Tata Motors 7.413 0.5 21.371 4.622 3.7065

Portfolio Return, R 3.329

Portfolio Variance 0.956

58
 

Portfolio Risk, SD 0.977

Portfolio Return, Rp = (-0.755*0.5) + (7.413*0.5) = 3.329

Portfolio Risk = 0.977

Portfolio 10

Table10: Return and Risk of Portfolio 10

Individual
Stocks Return Weightage Variance SD Correlation
Return

TCS 2.245 0.5 12.746 3.57 1.1225

0.379
Tata Motors 7.413 0.5 21.371 4.622 3.7065

Portfolio Return, R 4.829

Portfolio Variance 8.62

Portfolio Risk, SD 2.936

Portfolio Return, Rp = (2.245*0.5) + (7.413*0.5) = 4.829

Portfolio Risk = 2.936

59


60
Beta, β of the portfolio with respect to NSE CNX Nifty

βp = (βx*Wx) + (βy*Wy)

Where,

 βp = Beta of portfolio

 βx & βy = Beta of stock 1 & stock 2 respectively

 Wx & Wy = Weightage of stock 1 & stock 2 respectively

Portfolio Stock Combination βx Wx βy Wy βp Result

1 HDFC&LUPIN 1.41 0.5 0.34 0.5 0.875 Conservative

2 HDFC&HUL 1.41 0.5 0.48 0.5 0.945 Conservative

3 HDFC&TCS 1.41 0.5 0.79 0.5 1.1 Aggressive

4 HDFC&TATA MOTORS 1.41 0.5 1.34 0.5 1.375 Aggressive

5 LUPIN & HUL 0.34 0.5 0.48 0.5 0.41 Conservative

6 LUPIN & TCS 0.34 0.5 0.79 0.5 0.565 Conservative

7 LUPIN & TATA MOTORS 0.34 0.5 1.34 0.5 0.84 Conservative

8 HUL & TCS 0.48 0.5 0.79 0.5 0.635 Conservative

9 HUL & TATA MOTORS 0.48 0.5 1.34 0.5 0.91 Conservative

10 TCS & TATA MOTORS 0.79 0.5 1.34 0.5 1.065 Aggressive

When,

Bp > 1 = Aggressive

Bp = 1 = Moderate

Bp < 1 = Conservative

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 Return, Risk, & Beta of Portfolios
Return, Risk, & Beta of various portfolios for FY24 (MoM) is as follows:

Table: Return, Risk, & Beta of Portfolios

Portfolio Stock Combination Return Risk Beta,

1 HDFC&LUPIN 3.6841 2.90i 0.875

2 HDFC&HUL -0.685 3.129 0.945

3 HDFC&TCS 0.815 2.565 1.1

4 HDFC&TATA MOTORS 3.399 3.074 1.375

5 LUPIN & HUL 3.614 1.074 0.41

6 LUPIN & TCS 5.114 1.646 0.565

7 LUPIN & TATA MOTORS 7.698 3.868 0.84

8 HUL & TCS 0.745 1.635 0.635

9 HUL & TATA MOTORS 3.329 0.977 0.91

10 TCS & TATA MOTORS 4.829 2.936 1.065

Graph: Return, Risk & Beta of Portfolios FY24 (MoM)

Return, Risk, & Beta Of Portfolios for FY24

8
7
6
5
4
3
2
1
0
-1
HDFC& HDFC& HDFC& HDFC& LUPIN LUPIN LUPIN HUL & HUL & TCS &
LUPIN HUL TCS TATA & HUL & TCS & TATA TCS TATA TATA
MOTOR MOTOR MOTOR MOTOR
S S S S
1 2 3 4 5 6 7 8 9 10
Return 3.6841 -0.685 0.815 3.399 3.614 5.114 7.698 0.745 3.329 4.829
Risk 0 3.129 2.565 3.074 1.074 1.646 3.868 1.635 0.977 2.936
Beta, β 0.875 0.945 1.1 1.375 0.41 0.565 0.84 0.635 0.91 1.065

Taking risk-adjusted return: HUL & TCS, Lupin & Tata Motors, & HDFC & Lupin are the
combinations that are out-performers respectively.

62
 Sharpe's Index - Sharpe's Performance Index
Sharpe’s Index, Sp = (Rp – T)/SD
Where,
 Rp = return of portfolio
 T = risk-free return
 SD = standard deviation
Here, risk-free return, T = 8.5% per annum i.e., 0.71 % per month

Table: Sharpe's Index - Sharpe's Performance Index

Portfolio Stock Combination Rp T SD Sp Rank
1 HDFC&LUPIN 3.6841 0.71 -2.901 -1.025 10

2 HDFC&HUL -0.685 0.71 3.129 -0.446 9

3 HDFC&TCS 0.815 0.71 2.565 0.041 7

4 HDFC&TATA MOTORS 3.399 0.71 3.074 0.875 6

5 LUPIN & HUL 3.614 0.71 1.074 2.704 1

6 LUPIN & TCS 5.114 0.71 1.646 2.676 3

7 LUPIN & TATA MOTORS 7.698 0.71 3.868 1.807 4

8 HUL & TCS 0.745 0.71 1.635 0.021 8

9 HUL & TATA MOTORS 3.329 0.71 0.977 2.681 2

10 TCS & TATA MOTORS 4.829 0.71 2.936 1.403 5

A portfolio with highest Sharpe’s Index, Sp is best compared to other portfolios. Which can
be ranked according to that.

Graph: Portfolio Ranks based on Sharpe’s Index.

Portfolio Ranks Based on Sharpe's Index

10
8
6
4
2
0
-2 Sp
HDFC HDFC HDFC HDFC LUPIN LUPIN LUPIN HUL & HUL & TCS &
&LUPI &HUL &TCS &TAT & HUL & TCS & TCS TATA TATA Rank
N A TATA MOTO MOTO
MOTO MOTO RS RS
RS RS
Sp -1.025 -0.446 0.041 0.875 2.704 2.676 1.807 0.021 2.681 1.403
Rank 10 9 7 6 1 3 4 8 2 5

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As per Sharpe’s Index: Lupin & HUL, HUL & Tata motors, Lupin & TCS, Lupin & TATA
motors and TCS & Tata Motors are the top 5 with ranks of 1, 2, 3, 4 & 5 respectively. Which
are also the top performers in giving return compared to other combinations.

Treynor's Index - Treynor's Reward-to-Variability Measure

Treynor’s Index, Tp = (Rp – T)/βp

Where,
 Rp = return of portfolio
 T = risk free return
 βp = Beta of portfolio
Here, risk free return, T (Bank FD rate) = 8.5% per annum i.e., 0.71 % per month
Table: Treynor's Index - Treynor's Reward-to-Variability Measure.
Portfolio Stock Combination Rp T βp Tp Rank
1 HDFC&LUPIN 3.6841 0.71 0.875 3.399 5
2 HDFC&HUL -0.685 0.71 0.945 -1.476 10
3 HDFC&TCS 0.815 0.71 1.1 0.095 8
4 HDFC&TATA MOTORS 3.399 0.71 1.375 1.956 7
5 LUPIN & HUL 3.614 0.71 0.41 7.083 3
6 LUPIN & TCS 5.114 0.71 0.565 7.795 2
7 LUPIN & TATA MOTORS 7.698 0.71 0.84 8.319 1
8 HUL & TCS 0.745 0.71 0.635 0.055 9
9 HUL & TATA MOTORS 3.329 0.71 0.91 2.878 6
10 TCS & TATA MOTORS 4.829 0.71 1.065 3.868 4
Graph: Portfolio Rank based on Treynor’s Index

Portfolio Rank Based on Treynor's Index

10.000
8.000
6.000
4.000
2.000
0.000
-2.000
HDFC HDFC HDFC HDFC LUPIN LUPIN LUPIN HUL & HUL & TCS &
&LUPI &HUL &TCS &TATA & HUL & TCS & TATA TCS TATA TATA
N MOTO MOTO MOTO MOTO
RS RS RS RS
Tp 3.399 -1.476 0.095 1.956 7.083 7.795 8.319 0.055 2.878 3.868
Rank 5 10 8 7 3 2 1 9 6 4

Tp Rank

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As per Treynor’s Index: Lupin & TATA Motors, Lupin & TCS, Lupin & HUL, TCS &
TATA Motors and HDFC & Lupin are the top 5 with ranks of 1, 2, 3, 4 & 5 respectively.
Jenson's Index - Reward to risk ratio

Jenson’s Index, ERP = T + βp * (ERM – T)

Where,
 ERM = return of market portfolio, (here mean return of NSE CNX NIFTY)
 ERM = 1.92%
 T = risk-free return
 βp = Beta of portfolio

Table: Jenson's Index - Reward to risk ratio

Portfolio Stock Combination Rp ERM T βp ERP(%) Result

1 HDFC&LUPIN 3.6841 1.92 0.71 0.875 1.91785 Efficient

2 HDFC&HUL -0.685 1.92 0.71 0.945 2.00255 Efficient
3 HDFC&TCS 0.815 1.92 0.71 1.1 2.1901 Efficient
4 HDFC&TATA MOTORS 3.399 1.92 0.71 1.375 2.52285 Efficient
5 LUPIN & HUL 3.614 1.92 0.71 0.41 1.3552 Efficient
6 LUPIN & TCS 5.114 1.92 0.71 0.565 1.54275 Efficient
7 LUPIN & TATA MOTORS 7.698 1.92 0.71 0.84 1.8755 Efficient
8 HUL & TCS 0.745 1.92 0.71 0.635 1.62745 Efficient

9 HUL & TATA MOTORS 3.329 1.92 0.71 0.91 1.9602 Efficient

10 TCS & TATA MOTORS 4.829 1.92 0.71 1.065 2.14775 Efficient

Portfolio with Rp > ERP = efficient,

Portfolio with Rp < ERP = inefficient.

Graph: Return and Expected Return (ERP) Of portfolios

65
According to Jenson’s Index: All the portfolios are efficient, which means each portfolio has
given an excellent return than the expected return from them.

CHAPTER 5: FINDINGS AND CONCLUSION

66
Findings: -
The study on portfolio management makes me understand and learn many things. The
findings of the study are:

 Among the individual stock calculation, Lupin is a better stock with a return of
7.893% and risk of 5.767, and a beta of 0.34. In terms of return, TATA Motors is also
better with a return of 7.413% a risk low of just 4.622, and a Beta of 1.34. So, TATA
Motors is a good option for investors to invest.

 TCS is also good in return, which is 2.24% with a risk of 3.57 and beta of 0.79.

 After calculation of the beta of stocks, we got that HDFC & TATA Motors are beating
the market, so they are Aggressive and Lupin, HUL & TCS are conservative.

 Portfolio 1: Return and risk of portfolio 1 (HDFC Bank& Lupin), Portfolio return is
3.68% and risk is 2.90i.

 Portfolio 2: Return and risk of portfolio 2 (HDFC Bank & HUL), Portfolio return is -
0.68% and Risk is 3.12.

 Portfolio 3: Return and risk of portfolio 3 (HDFC Bank & TCS), Portfolio return is
0.815% and Risk is 2.565.

 Portfolio 4: Return and risk of portfolio 4 (HDFC Bank & TATA Motors), Portfolio
return is 3.399% and Risk is 3.074.

 Portfolio 5: Return and risk of portfolio 5 (Lupin & HUL), Portfolio return is
3.614% and Risk is 1.074.

 Portfolio 6: Return and risk of portfolio 6 (Lupin & TCS), Portfolio return is
5.114% and Risk is 1.646.

67
 Portfolio 7: Return and risk of portfolio 7 (Lupin & TATA Motors), Portfolio return is
7.698% and Risk is 3.868.

 Portfolio 8: Return and risk of portfolio 8 (HUL & TCS), Portfolio return is
0.745% and Risk is 1.635.

 Portfolio 9: Return and risk of portfolio 9 (HUL & TATA Motors), Portfolio return is
3.329% and Risk is 0.977.

 Portfolio 10: Return and risk of portfolio 10(TCS & TATA Motors), Portfolio return is
4.829% and Risk is 2.936.

 On portfolio construction, an equal combination of Lupin & TCS has given a better
risk-adjusted return of 5.114% with a risk of only 1.646. The beta of Lupin & TCS is
0.565. The correlation and Covariance between Lupin & TCS

are 0.133 and 2.71 respectively.

 HDFC & Lupin, Lupin & HUL, and Lupin & TATA Motors are also good enough in
risk-adjusted return.
The return and risk of HDFC & Lupin are 3.68% and -2.90 respectively. The
beta of HDFC & Lupin is 0.875 with correlation and covariance of 0.2408 and
-8.4630 respectively.
The return and risk of Lupin & HUL are 3.614% and 1.074 respectively. The
beta of Lupin & HUL is 0.41 with correlation and covariance of 0.049 and
1.153 respectively.
The return and risk of Lupin & TATA Motors are 7.698% and 3.868
respectively. The beta of Lupin & TATA Motors is 0.84 with correlation and
covariance of 0.439 and 14.966 respectively.

 On evaluating portfolio performance, Lupin & HUL ranks 1st in Sharpe’s Index, and
Lupin & TATA Motors ranks 1st in Treynor’s Index, and this combination is efficient
in Jenson’s Index.

 Coming to Jenson’s Index all portfolios are efficient, they all beat the expected return.
Among them, the combination of Lupin & TCS performed well in beating estimation.
The expected return from Lupin & TCS is 1.542%, but the actual return is 5.114%.

 Finally, the noticing thing is that a portfolio with Lupin is well performed.

Suggestions:
 First, it's important to determine your investment goals. These can be segmented by
time horizon, with long-term goals like retirement layered onto more medium-term
goals like a down payment for a house or a child's college education.

68
  Second, evaluate your risk tolerance—from conservative to aggressive, or in between.
This includes your capacity to take on risk related to your age, time horizon, income,
and financial situation, and your willingness to take on risk.

 Next, you'll need to select a mix of assets that align with your goals and risk tolerance.
It is important to have a good degree of diversification, which involves selecting
assets from different asset classes, industries, and regions to spread risk without
sacrificing expected return. In general, a more aggressive risk tolerance will feature a
greater allocation to stocks, while a more conservative portfolio will hold relatively
more bonds and cash.

 Once you have selected your assets, monitoring and adjusting your portfolio
periodically is important. This involves rebalancing your portfolio to align with your
investment goals and risk tolerance.

 If your goals or circumstances change or evolve, you may have to return to step one
and begin the process again.

CONCLUSION:

Investment is important to achieve individual goals. Investment means we have money, then
we need to analyze how to invest the money and expect to get a return in the future. If the
investment is run early, then we will make a lot of profit if the investment runs well, if not we
will lose all of the investment needed to start from earlier. Apart from that, first thing first we
must set an investment plan to run well. From that, we can know what we will face in the
future, what risks need to be countered, how what economy is going, and many more.

As we also know, there are also specific places for investment to be done. It will involve the
capital market, Bursa Malaysia, equity market, debt market, and many more. So, we need to
know where we should invest our money whether to invest in a high-risk market or lower-risk
market to gain a return in the future. Usually, high returns will be associated with high risk.

In investment also, we need an analysis investment run as we want. There are two types of
analysis which are financial analysis and technical analysis. Financial analysis we usually
used to calculate return, loss, and profit. Technical analysis uses graphs, charts, and many
more because we need to determine whether the market will be bullish or bearish. So, the
analysis also can make us gain profit or loss if use it.

Lastly, everyone wants a good investment return. With that, we can achieve our goals of
buying a car, purchasing a house, going on vacation, and many more. So, we must make a
good investment to gain higher returns and at the same time minimize risk. In investing, we
must trust in ourselves because what we are doing will affect the profit and loss we get.

69
“Greater Portfolio Return with less Risk is always an attractive combination” for
Investors.

REFERENCES:

Websites

www.nseindia.com
www.bseindia.com
www.moneycontrol.com
www.indiainfoline.com/Markets/News
www.globalresearch.co.in
www.valueresearchonline.com
www.amfi.com www.sebi.gov.in
www.reuters.com
en.wikipedia.org/wiki/portfolio management
www.rbi.co www.businesstimes.com
www.economicstimes.com
www.stocktraderschat.com
www.economictimes.indiatimes.com/definition/portfolio management services
www.rediff.com/business www.forbes.com

Magazines, Articles & Journals

Markowitz, Harry M. (1952). "Portfolio Selection". Journal of Finance.

Security Analysis & Portfolio Management – Dhanesh Khatri
Financial Management – Prasanna Chandra
Financial Management, 10th Edition – I M Pandey
Article on “Equity Portfolio Management Mechanics” by Bryn Harman, CFA.
Markowitz, Harry M, “Portfolio Selection: Efficient Diversification of Investment”, New
York: John Wiley & Sons, 1959.

70
ANNEXURE:

Annexure Table 1: The Top 20 Portfolio Managing Companies of the World:

Portfolio Under
management
Rank Firm/Company Country
AUM(AUM)
US$ billions.

1 BlackRock United States 9,090

2 Vanguard Group United States 7,600
3 Fidelity Investments United States 4,240

4 State Street Global Advisors United States 3,600

5 Morgan Stanley United States 3,131

6 JPMorgan Chase United States 3,006
7 Goldman Sachs United States 2,672
8 Credit Agricole France 2,660
9 Allianz Germany 2,364
10 Capital Group United States 2,300
11 Amundi France 2,103
12 BNY Mellon United States 1,910
13 UBS Switzerland 1,830
14 PIMCO United States 1,800
15 Edward Jones Investments United States 1,700
16 Deutsche Bank Germany 1,492

71
17 Invesco United States 1,484

18 Legal & General United Kingdom 1,477

19 Bank of America United States 1,467

20 Franklin Templeton United States 1,421

72