A Study on Portfolio Construction

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Chapter-1

EXECUTIVE SUMMARY

INTRODUCTION TO THE INDUSTRY:

The project entitled “A Study on Portfolio Construction and Evaluation of Five

securities in NSE at Geojit Financial services Ltd” deals with the construction of

different portfolios on the basis of risk-return evaluation and loss minimization.

The companies are selected from the top list of NSE CNX NIFTY on a random

basis. The study gives a better understanding of security analysis and portfolio

construction and evaluation.

Company name: GEOJIT FINANCIAL SERVICES Ltd

SELECTED COMPANIES: ITC,HERO HONDA,TATA MOTORS,BPCL,WIPRO

Statement of the Problem:

The problem under study is to construct different portfolios considering the risk

return factors of the securities and the market as a whole and to evaluate then to find out

best out of them. The evaluation provides necessary feedback for better designing of

portfolio next around.

Title of the study:

“A Study on Portfolio Construction and Evaluation of Five Securities in NSE at Geojit

Financial Services Limited, Calicut”

Objective of the research:

To construct three portfolios with five major securities in different sectors by

using three different criteria.

To perform the risk return analysis of the securities constructed.

To evaluate the performance of the portfolios so constructed.

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Scope of the study:

The study is only to the Indian capital market situations. The methods and

techniques followed in the study are highly relevant and efficient. Therefore the study

can give a basic picture of portfolio construction and evaluation.

Research methodology:

Research design:

Firstly, the determinations of the following are done;

a. Return of securities

b. Risk of securitiesc. Beta value of securities

d. Alpha value of securities

e. Systematic risk and unsystematic risk (residual variance) of securities

Secondly,

a. By giving equal weight to each of security

b .By giving weight to each security based on Price-Earnings Ratio.

C .By giving weight to each security on the basis of random number.

Then the third step, evaluation of the portfolio is done to find out the best portfolio

1.Sharpe ratio

2.Treynor ratio

3.Jensen measure

DATA SOURCES AND COLLECTION

The movement of NSE Nifty index is the fundamental data for the study. The companies are

selected from the top list of NSE CNX NIFTY on a random basis.

PERIOD OF THE STUDY

The study was carried for a period of 45 days

TOOLS FOR ANALYSIS

The collected data has been analyzed using basic statistical tools like Ratios,Charts and Formulas.

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Chapter 2

GENERAL INTRODUCTION

An investor means people who invest their savings. Investment is an activity,

which is different from savings. Savings are generated when a person abstains from

present consumption for a future use. Savings kept as cash are burden and do not earn

anything. Hence the saver has to find a temporary repository for his saving until they

are required for the future. This results in investment. Today, investment has become a

household word and is very popular with people from all walks of like. It is because of

increase in working population, higher family incomes and consequent savings,

availability of large and attractive investment alternatives, increase in investment

related publicity and so on.

Due to the extreme volatility of today’s capital market conditions the investors

are facing much complexity in making decisions regarding their investment. They are

interested to achieve their investment goals without losing their money. Since the return

and risk are the major factors influencing the decisions of the investors, they are

seeking an effective trade-off between them. The art of investment focuses on an

optimal compromise between return and risk.

The project entitled “A study on Portfolio Construction and Evaluation of Five

securities in NSE at Geojit Financial services Ltd deals with the construction of different

portfolios on the basis of risk-return evaluation and loss minimization. The companies

are selected from the top list of NSE CNX NIFTY on a random basis. The study uses

various methods of creating portfolios like equal weights, random numbers and P/E

ratio. The study also analyses these portfolios by using different analysis tools like

SHARPE ratio etc.The study also generate the best portfolio and evaluating the return

of the securities.

The study gives a better understanding of security analysis and portfolio

construction and evaluation. The study also helps to become familiar with various tools,

methods and techniques which are used to reach at effective decisions in the capital

market.

3



INDUSTRY PROFILE

INDIAN CAPITAL MARKET

The capital market is a place where the suppliers and users of capital meet to

share one another’s views, and where a balance is sought to be achieved among diverse

market participants. Or in other words, Capital market is the place wherein funds are

raised for companies for meeting their long-term requirements. It is a mechanism which

co-ordinates the demand and supply forces of long-term capital. The capital market is

classified into primary market and secondary market. Primary market is one in whichlong term capital is raised by corporations directly from the public. The secondary

market refers to the stock market where the financial instruments or securities are

traded. Thus capital market is the market for:

Raising long term capital; through the issue of financial instruments or financial

assets;

Liquidating the issued or subscribed financial assets or financial instruments

like shares or debentures.

The primary market in which public issue of securities is made through

a prospectus is a retail market and there is no physical location. Offer for subscription

to securities is made to investing community. The secondary market or stock exchange

is a market for trading and settlement of securities that have already been issued. The

investors holding securities sell securities through registered brokers or sub-brokers of

the exchange. It may have a physical location like a stock exchange or a trading floor.

Since 1995, trading in securities is screen based and internet based trading has also

made an appearance in India.

The secondary market consists of 22 stock exchanges including NSE and BSE.

The secondary market provides a trading place for the securities already issued, to be

bought and sold. It also provides liquidity to the initial buyers in the primary market to

re offer the securities to any interested buyer at any price, if mutually accepted.

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An active secondary market actually promotes the growth of the primary market

and capital formation because investors in the primary market are assured of a

continuous market and they can liquidate their investments.

Development of Indian Capital Market:

The roots of a stock market in India began in the 1860s during the American

Civil War that led to a sudden surge in the demand for cotton from India resulting in

setting up of a number of joint stock companies that issued securities to raise finance.

This trend was akin to the rapid growth of securities markets in Europe and the North

America in the background of expansion of railroads and exploration of natural

resources and land development.

Historical records show that as early as 1864, there were about 1,000 brokers

with the stock markets functioning from three places in Mumbai; between 9 am to 7 pm

at the junction of Meadows Street and Rampart Row, from day break till 9 am and from

7 pm to early hours of next morning at Bazar gate.

Share prices rose sharply even at that time. A share of Colaba Land Company

during the boom period of the 1860s rose from Rs 10,000 at par to Rs 120,000 and that

of Back bay Shares went up from Rs 2,000 to Rs 54,000. Bombay, at that time, was a

major financial centre having housed 31 banks, 20 insurance companies and 62 joint

stock companies.

A new phase in the Indian stock markets began in the 1970s, with the

introduction of Foreign Exchange Regulation Act (FERA) that led to divestment of

foreign equity by the multinational companies, which created a surge in retail investing.

The early 1980s witnessed another surge in stock markets when major companies such

as Reliance accessed equity markets for resource mobilization that evinced huge

interest from retail investors.

A new set of economic and financial sector reforms that began in the early

1990s gave further impetus to the growth of the stock markets in India. As a part of the

reform process, it became imperative to strengthen the role of the capital markets that

could play an important role in efficient mobilization and allocation of financial

resources to the real economy. Towards this end, several measures were taken to

streamline the processes and systems including setting up an efficient market

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infrastructure to enable Indian finance to grow further and mature. The importance of

an efficient micro market infrastructure came into focus following the incidence of

market abuses in securities and banking markets in 1991 and 2001 that led to extensive

investigations by two respective Joint Parliamentary Committees.

The Securities and Exchange Board of India (SEBI), which was set up in 1988

as an administrative arrangement, was given statutory powers with the enactment of the

SEBI Act, 1992. The broad objectives of the SEBI include

To protect the interests of the investors in securities

To promote the development of securities markets and to regulate the securities

markets

The scope and functioning of the SEBI has greatly expanded with the rapid

growth of securities markets in India in the last fifteen years.

Faster and efficient securities settlement system is an important ingredient of a

successful stock market. To speed the securities settlement process, The Depositories

Act 1996 was passed that allowed for dematerialization (and re-materialization) of

securities in depositories and the transfer of securities through electronic book entry.

The National Securities Depository Limited (NSDL) set up by leading financial

institutions,

Trading Pattern of the Indian Stock Market

Trading in Indian stock exchanges are limited to listed securities of public

limited companies. They are broadly divided into two categories, namely, specified

securities (forward list) and non-specified securities (cash list). Equity shares of

dividend paying, growth-oriented companies with a paid-up capital of at least Rs.50

million and a market capitalization of at least Rs.100 million and having more than

20,000 shareholders are, normally, put in the specified group and the balance in non-

specified group.

Two ty pes of transactions can be carried out on the Indian stock exchanges: (a)

spot delivery transactions "for delivery and payment within the time or on the date

stipulated when entering into the contract which shall not be more than 14 days

following the date of the contract" : and (b) forward transactions "delivery and payment

can be extended by further period of 14 days each so that the overall period does not

6



exceed 90 days from the date of the contract". The latter is permitted only in the case of

specified shares. The brokers who carry over the out standings pay carry over charges

(cantango or backwardation) which are usually determined by the rates of interest

prevailing.

A member broker in an Indian stock exchange can act as an agent, buy and sell

securities for his clients on a commission basis and also can act as a trader or dealer as a

principal, buy and sell securities on his own account and risk, in contrast with the

practice prevailing on New York and London Stock Exchanges, where a member can

act as a jobber or a broker only.

National Stock Exchange (NSE)

There are two kinds of players in NSE:

(a) Trading members and

(b) Participants.

Recognized members of NSE are called trading members who trade on behalf

of themselves and their clients. Participants include trading members and large players

like banks who take direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading

mechanism which adopts the principle of an order-driven market. Trading members can

stay at their offices and execute the trading, since they are linked through a

communication network. The prices at which the buyer and seller are willing to transact

will appear on the screen. When the prices match the transaction will be completed and

a confirmation slip will be printed at the office of the trading member.

It is all about your money, being managed by the experts, while you continue with your

routine life. Isn't it simple and totally hassle free.

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What's more, you can keep track of your dividends / bonus / rights issues with

paperless tracking. So you always know how fast your investment is growing. It

basically means assigning the right job to the right person.

COMPANY PROFILE

GEOJIT FINANCIAL SERVICES LIMITETD, CALICUT, KERALA.

Geojit financial services limited is a one-stop financial services shop, most

respected for quality of its advice, personalized service and cutting-edge technology.

Geojit financial services Ltd is listed on both the leading stock exchanges in

India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange

(NSE). The Geojit financial services ltd is comprising the holding company, Geojit

financial services Ltd and its subsidiaries, straddles the entire financial services space

with offerings ranging from Equity research, Equities and derivatives trading,

Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance,

Fixed deposits, and other small savings instruments to loan products and Investment

banking. Geojit financial services ltd also owns and manages the websites,

www.Geojit.com.

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Geojit financial services ltd Ltd, being a listed entity, is regulated by SEBI

(Securities and Exchange Board of India). It undertakes equities research which is

acknowledged by none other than Forbes as 'Best of the Web' and '…a must read for

investors in Asia'

SAILENT FEATURES

Expert team of Research Analysts

Stock Picking done by the Investment Committee

Dedicated Relationship Manager

Technology and Service driven Back-Office

STATEMENT OF THE PROBLEM



best out of them. As the economy and financial markets are dynamic, changes take

place almost daily. Therefore the security which is attractive today will not be the one

9



which is favorable tomorrow. New securities with promises of high return with low risk

may emerge. Then the advisor cannot stick-on in his current portfolio, he will be forced

to revise the current portfolio in the light of the emerging conditions in the market.

Therefore, the portfolio management is an ongoing process in this volatile market. This

process starts with security analysis, proceeds to portfolio construction and continues

with portfolio revision and evaluation.

The evaluation provides necessary feedback for better designing of portfolio

next around. Superior performance will be achieved through continual refinement of

portfolio management skills. While investing in a single security, it may bring a higher

risk to the investor due to the extreme volatility of the market. So, a thinking investor

may construct an optimal portfolio to achieve his investment goals and diversify the

risk factor of the volatile market.

OBJECTIVES OF THE STUDY

The study entitled “A Study on Portfolio Construction and Evaluation of Five

Securities in NSE at Geojit Financial Services Limited, Calicut”

10



The study has the following objectives.

To construct three portfolios with five major securities in different sectors by

using three different criteria.

To perform the risk return analysis of the securities constructed.

To evaluate the performance of the portfolios so constructed.

SCOPE OF THE STUDY

Recently the number of investors in the capital market is increasing day-by-day.

Therefore a study related to the capital market activities has a high relevance. Sincealmost all of the investors are interested to diversify their risk by constructing suitable

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portfolios, the study “A Study on Portfolio Construction and Evaluation of Five

Securities in NSE at Geojit Financial Services Ltd” has a considerable relevance in

the current market scenario. Since time immemorial, human beings have tried to

manage risk faced in their day-to-day life. The study helps to understand how to

allocate the fund in the best way so that risk and return get balanced.

The study is only to the Indian capital market situations. The methods and

techniques followed in the study are highly relevant and efficient. Therefore the study

can give a basic picture of portfolio construction and evaluation.

METHODOLOGY

CONCEPTUAL FRAMEWORK

12

Portfolio Management

Security analysisP/E RatioPortfolio Evaluation Sharpe RatioTreynor RatioJensen Measure



RESEARCH DESIGN

This research is designed in such a way that to make the interpretation easily by anyone

who goes through this. The researcher here tried to make it very simple to understand

the research very clearly.

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Portfolio construction

Equal weight

Random Number

Portfolio selection



Firstly, the determinations of the following are done;

Return of securities

Risk of securities

Beta value of securities

Alpha value of securities

Systematic risk and unsystematic risk (residual variance) of securities

Secondly, after determining the above values the portfolio construction is done.

Portfolios were constructed according to;

By giving equal weight to each of security

By giving weight to each security based on Price-Earnings Ratio.

By giving weight to each security on the basis of random number.

After the portfolio construction the determination of portfolio risk and return is done.

Then the third step, evaluation of the portfolio is done to find out the best portfolio. For

that purpose the following measures or ratios were used;

Sharpe ratio

Treynor ratio

Jensen measure

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ANALYSIS PLAN

Researcher here uses a number of formulas to find out different values;

Microsoft Excel is used for computation purpose.

Beta of Security

βi = (n∑xy - ∑x∑y) / (n∑x2 – (∑x)2)

Where;

x = Market return

y = Stock return

n = No. of trading days in a year

Alpha of Security

αi = R i – (βi × R m)

Where;

R i = Return of the security

βi = Beta of the security

R m = Return of the market index

Systematic risk of security

Systematic risk = βi² × σm2


σm2 = Variance of the market index

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Residual variance of security

σ²ei = σ²i – (β²і × σ²m)

σ²i = Stock variance

Portfolio Alpha

α p = ∑ωi × αi

Where;

ωi = Weight of the security

αi = Alpha of the security

Portfolio Beta

β p = ∑ωi × βi

Where;



Portfolio Return

R p = α p + (β p × R m)

Where;

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α p = Alpha value of the portfolio

β p = Beta value of the portfolio


Portfolio Risk

σ p2 = β p

2σm2 + ∑ωi

2σei2

Where;


σm2 = Variance of the market index


σei2 = Residual variance

Sharpe Ratio

SR = (R p – R f ) / σ p

Where;

R p = Return of the portfolio

R f = Risk free rate of return

σ p = Standard deviation of the portfolio

Treynor Ratio

TR = (R p – R f ) / β p

Where;

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Jensen Measure

JM = R p – E (R p)

Where,

E (R p) = R f + β p (R m-R f )




DATA SOURCES AND COLLECTION

The movement of NSE Nifty index is the fundamental data for the study. The

companies are selected from the top list of NSE CNX NIFTY on a random basis. The

nature of data source is secondary. The information is mainly collected from websites.

References are made from Newspapers, Magazines and Journals.

PERIOD OF THE STUDY

The study was carried for a period of 45 days

TOOLS FOR ANALYSIS

The collected data has been analyzed using basic statistical tools like Ratios, Charts and

Formulas.

LIMITATIONS OF THE STUDY

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The study entitled ““A Study on Portfolio Construction and Evaluation of Five

Securities in NSE at Geojit Financial Services Limited, Calicut”.

Data considered only for past three year period.

Data collected is secondary in nature.

Only 5 securities are considered.

The duration of the study was limited to 45 days so that an extensive and deepstudy could not be possible.

Chapter- 3

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ANALYSIS AND INTERPRETATION

PORTFOLIO MANAGEMENT

Investing in securities such as shares, debentures and bonds are profitable as

well as exciting. It is needed rewarding, but involves a great deal of risk and calls for

scientific knowledge as well as artistic skill. In such investments, both rational as well

as emotional responses are involved. Investing in financial securities is now considered

to be one of the best avenues for investing one's savings while it is acknowledged to be

one of the most risky avenues of investment. It is rare to find investors investing their

entire savings in a single security. Instead, they tend to invest in a group of securities.

Such a group of securities are called portfolio management.

Creation of a portfolio helps to reduce risk without sacrificing returns. Portfolio

management deals with the analysis of individual securities as well as with the theory

and practice of optimally combining securities into portfolios. The risk and return

characteristics of a portfolio differ from those of individual securities combining toform a portfolio. The investor tries to choose the optimal portfolio taking into

consideration the risk-return characteristics of all possible portfolios.

PHASES IN PORTFOLIO MANAGEMENT

There are five phases in portfolio management

Security Analysis

Portfolio Analysis

Portfolio Selection

Portfolio Revision

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Portfolio Evaluation

PORTFOLIO ANALYSIS

A portfolio is a group of securities held together as investment. Investors invest

their funds in a portfolio of securities rather than in a single security because they are

risk-averse. By constructing a portfolio investors attempt to spread risk by not putting

all their eggs into one basket. Diversification of one's holdings is intended to reduce

risk in the investment.

By the security analysis process an investor can reach at asset of worth while or

desirable securities. From these set of securities an indefinitely large number of

portfolios can be constructed by choosing different set of securities and also by varying

the proportion of investment in each security. Each individual security has its own risk

return characteristics, which can be measured and expressed punitively. Each portfolio

constructed by combining the individual securities has its own specific risk return

characteristics, which have not just the aggregate of individual security’s

characteristics. The risk and return of each portfolio has to be calculated mathematically

and expressed quantitatively. Portfolio analysis phase of portfolio management consists

of identifying the range of portfolios that can be constituted from a given set of

securities and calculating their return and risk for further analysis.

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PORTFOLIO SELECTION

Portfolio analysis provides the input for the next phase of portfolio

management, which is portfolio selection. The proper goal of portfolio construction is

to generate a portfolio that provides highest return at a given level of risk. A portfolio

having these characteristics is known as efficient portfolio. Impute from portfolio

analysis can be used to identify the set of efficient portfolios. From these set of

portfolios, optimal portfolio has to be selected for investment.

PORTFOLIO REVISION

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

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

markets are dynamic, changes take almost daily. As time passes securities which were

ones attractive may seize to so. New securities, which promise high returns and low

risk, may emerge.

The investor has to revise his portfolio in the light of the developments in themarket. This leads to purchase of some new securities and sale of some of the existing

securities from the portfolio.

The mix of securities and their proportion in their portfolio changes as a result of

the revision. Whatever is the reason for portfolio revision it has to be done scientifically

and objectively so as to ensure the optimality of revised portfolio. Portfolio revision is

not a casual process to be casual out without much care. In fact, in the entire process of

portfolio management, portfolio revision is as important as portfolio analysis and

selection.

PORTFOLIO EVALUATION

The objective of constructing a portfolio and revising periodically is to earn a

maximum return with a minimum risk. Portfolio evaluation is a process, which isconcerned with assessing the performance of the portfolio. Alternative measures of

22



Performance evaluations have been developed for the use of investors and portfolio

managers. Portfolio evaluation is useful in yet another way. It provides mechanism for

identifying weakness in the investment process and for improving these deficient areas.

It provides the feedback mechanism for improving the entire portfolio management

process. It is an ongoing process. It starts with security analysis proceeds to portfolio

construction and continues with portfolio revision and evaluation. The evaluation

provides the necessary feedback for better designing of the next time around. Superior

performance is achieved through continual refinement of portfolio management skills.

Portfolio evaluation refers to the evaluation of the performance of portfolio. It is

the process of comparing the return earned on a portfolio with the return earned on one

or more portfolios or a benchmark portfolio..

RISK AND RETURN OF SECURITIES

Risk means possibility of loss or injury. Often the risk is interchangeably used

with uncertainty. In uncertainty, the possible events and probabilities of their

occurrence are not known. Before investing his or her invisible wealth in the stock, he

or she analyses the risk associated with the particular stock. The actual return he

receives from a stock may vary from his expected return and the risk is expressed in

terms of variability of return.

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Whereas return is the after effect of the risk. It is directly related with the risk

factor. The return is calculated upon the amount of risk suffered by the investor. The

return from the security includes both current income and capital gain caused by the

appreciation of the price. The income and capital gain are expressed as a percentage of

money invested in the beginning.

Return and risk has a direct relationship. When risk of a security is high the

return will also be in a high level and vice versa. While analyzing the securities an

investor will select such type of securities which are affordable to him in terms of risk

and return. He will select the point where there is a tradeoff between risk and return.

BETA of Security

The Beta value indicates the measure of systematic risk of the security. Beta

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

security may be positive, negative, or zero. “The beta of an asset is a measure of

variability of that asset relative to the variability of the market as a whole”. Beta is an

index of the systematic risk of an asset.

Where;

N = Number of Observations = 744

Y = Current Stock Price – Yesterday’s Stock Price × 100

Yesterday’s Stock Price

X = Current Market Index – Yesterday’s Market Index × 100

Yesterday’s Market Index

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ALPHA of Security

The alpha value indicates the extra return earned by the stock over and above

the market return. Alpha measures the unsystematic risk of a security.

Return of Stock = Alpha + (Beta × Market return per year)

R i = αi + (βi × R m)

So,

Alpha (αi) = R i - (βi × R m)

Where,

αi = Alpha of the security

R i = Return of the security


R m = Return of the market

RISK AND RETURN OF PORTFOLIO

When we consider risk and return of a portfolio it is some what related with the

risk and return of securities. Simply because, portfolio is a collection of securities. The

risk and return of a security will reflect in a portfolio directly. But the difference will

happen when we combine different securities having different risk and return into a

single portfolio. The risk of the securities is traded off with each other and it will reduce

the risk and increase the return. The process of reducing the risk of a portfolio by

varying the securities and their proportion is known as diversification of risk.

The risk and return of portfolios are calculated as follows;

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Portfolio Return

R p = α p + (β p × R m)

Where;

α p = Alpha value of the portfolio



Portfolio Risk

σ p2 = β p

2σm2 + ∑ωi

2σei2

Where;


σm2 = Variance of market index


σei2 = Residual variance of the security

POTRFOLIO EVALUATION

Evaluation is the appraisal of the performance. Portfolio evaluation refers to the

evaluation of the performance of the portfolio. It is the process of comparing the return

earned on a portfolio with the return earned on one or more other portfolios.

The different methods used for evaluation are;

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Sharpe Ratio

Treynor Ratio

Jensen Measure

Sharpe Ratio

The performance measured by William Sharpe is referred to as the Sharpe ratio

or the reward to variability ratio. It is the reward or risk premium to the variability of

return or risk as measured by the standard deviation of return. If the portfolios are not

well diversified then this ratio is an appropriate measure of portfolio evaluation.

Sharpe Ratio (SR) = R p – R f

σp

Where;

R p = Realized return on the portfolio


σ p = Standard deviation of portfolio return

Treynor Ratio

The performance measure developed by Jack Treynor is referred to as Treynor

ratio or reward to volatility ratio. It is the ratio of the reward or risk premium to

volatility of return as measured by the portfolio beta.

Treynor Ratio (TR) = R p – R f

βp

Where;

R p = Realized return on the portfolio


β p = Portfolio beta

Jensen Measure

Another type of risk adjusted performance measure has been developed by

Michael Jensen and is referred to as Jensen Measure ratio or Differential return. This

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ratio attempts to measure the differential between actual return earned on a portfolio

and the return expected from the portfolio given its level of risk.

Jensen Measure, αp = R p – E(R p)

Where;

α p = Differential return earned (Jensen ratio)

R p = Actual return earned on the portfolio

E(R p) = Expected return

Expected return of the portfolio can be calculated as follows.

E(Rp) = R f + βp (R m – R f )

Where;

E(R p) = Expected portfolio return

R f = Risk-free rate

R m = Return on market index

β p = Systematic risk of the portfolio

The alpha value in Jensen measure can be tested for its degree of significance

from a value of zero by statistical methods. This means, an analyst can determine

whether the differential return could have occurred by chance or whether it is

significantly different from zero in a statistical sense.

INTRODUCTION TO THE ANALYSIS

The analysis part involves various processes required to reach at the objectives

of the study. These processes are divided in to two parts namely analysis I and analysis

II and are arranged in a sequential order starts from security analysis and it ends with

evaluation and selection of best portfolio. The order of arrangement of activities is;

Analysis I

A. Determine Return of each security

B. Determine Risk of selected securities

C. Determine Beta value of each security

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D. Determine Alpha value of each security

E. Determine Unsystematic risk of each security

Analysis II

F. Construction of three portfolios.

By giving equal weight to each security in the portfolio

By giving weight based on price earnings ratio

By giving weight on the basis of Random numbers

G. Calculate the Return and risk of each portfolio.

H. Select the portfolio using Sharper ratio, Treynor ratio, Jenson measure and.

From these analysis processes various findings are derives and these are listed

in the conclusion part of the study.

SECURITY ANALYSIS

Rational investor makes his investment decision based on the risk and return of

a security. He would also be interested in identifying mix-priced securities so that he

conveys under priced security and sell overpriced securities. For this purpose he has to

determine the intrinsic value of security. Security analysis involves evaluation of the

risk and return of the security and determination of intrinsic value of securities.

RETURN AND RISK OF SECURITIES

The return of the security is measured by the arithmetic mean of its return. The

risk of security is measured by the variance or standard deviation of the return of the

security.

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The table given below shows the return and risk of all the selected securities.

Table No.1

RETURN AND RISK OF THE SECUTIRIES

SECURITY RETURN (%) RISK (%)

I T C 11.758 36.715

HERO HONDA 6.686 47.719

TATA MOTORS -41.799 47.954

BPCL 9.448 36.715

WIPRO -18.642 45.530

-50

-40

-30

-20

-10

0

10

20

30

40

50

RETURN(%) 11.758 6.686 -41.799 9.448 -18.642

RISK (%) 36.715 47.719 47.954 36.715 45.53

I T C HERO

HONDA

TATA

MOTORS BPCL WIPRO

INFERENCES:

IT C has the maximum return 11.758% and TATA MOTORS has the minimum return

-41.79.%.

TATA MOTORS has the maximum risk 47.954% and HERO HONDA has the

minimum risk 34.68%

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BETA (β)

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

return. This can be positive of negative. If Beta is one, one percent changes in the

market index return causes exactly one percent changes in the stock return. It indicates

that the stock moves in tandem with the market. If the portfolio is efficient, the Beta

measures the systematic risk effectively.

β = (n∑xy - ∑x∑y) / (n∑x2 – (∑x)2)

The table given below shows the beta values of all the selected securities.

Table No. 2

BETA VALUE OF SECURITIES

SECURITY BETA

I T C 0.670

HERO HONDA 0.416

TATA MOTORS 0.216

BPCL 0.615

WIPRO 0.175

Chart No. 2

31



The chart given below shows the Beta values of all the selected

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

BETA

BETA 0.67 0.416 0.216 0.615 0.175

I T C HERO HONDA TATAMOTORS

BPCL WIPRO

INFERENCE:

The BETA value indicated measure of systematic risk of a security. From the

above table it can be inferred that I T C( 0.67 )indicating that it has maximum

systematic risk. The Beta value is minimum for WIPRO (0.52) indicating that the

security is having the minimum systematic risk.

32



ALPHA VALUES OF SECURITIES (α)

Table No. 3

Chart No. 3

The chart given below shows the Alpha values of all the selected securities

SECURITY ALPHA

ITC 8.6841

HERO HONDA 4.7802

TATA MOTORS -42.7915

BPCL 6.6269

WIPRO -19.448

33



-50

-40

-30

-20

-10

0

10

ALPHA

ALPHA 8.6841 4.7802 -42.7915 6.6269 -19.448

ITC HERO

HONDA

TATA

MOTORSBPCL WIPRO

INFERENCE: ITC has the maximum alpha of 8.6841, indicating that it has the

maximum extra return. From the above table it is also inferred that TATA MOTORS has

the minimum Alpha value -42.80%

DECOMPOSITION OF TOTAL RISK OF SECURITIES

The total risk of security can be resolved in to two components; the systematic

or market risk, which cannot be diversified, and the unsystematic or specific risk, which

can be diversified by construction of the portfolio. An investor would be interested in

knowing these two risks of the security in order to plan his portfolio. For the purpose of

the analysis the systematic and unsystematic risk of the securities are measured by

using Sharpe’s single index model. According to Sharpe index model:

Systematic risk =βi

2σ

2m

Unsystematic risk = σ2

- βi

2σ

2m

SYSTEMATIC RISK

34



The imapct of economic, political and social changes is system wide and that

portion of total variablility in secutiry return caused by such system wide factors is

referred to as systematic risk.systematic risk is further subdivided in to interest rate risk,

market risk and purchasing power risk.

The table given below shows the systematic risk of all the selected securities.

SYSTEMATIC RISK OF THE SECUTIRIES

Table No. 4

Security βi βi² σm

Market

variance

(σ²m)

Systematic

risk

(βi².σ²m)

ITC 0.6702 0.44916804 35.77725 1280.0116 574.940309

HEROHONDA 0.4154 0.17255716 35.77725 1280.0116 220.875169

TATA MOTORS 0.2164 0.04682896 35.77725 1280.0116 59.9416128

BPCL 0.6152 0.37847104 35.77725 1280.0116 484.447328

WIPRO 0.1758 0.03090564 35.77725 1280.0116 39.5595782

TOTAL 1379.764

0

200

400

600

800

1000

1200

1400

Systematic risk (βi².σ²m)

Systematic risk (βi².σ²m) 574.94031 220.87517 59.941613 484.44733 39.559578 1379.764

ITC HEROHO

NDA

TATA

MOTORSBPCL WIPRO TOTAL

Chart no; 4

35



INFERENCES:

Systematic risk of non-diversifiable risk is the component of the total risk,

which cnanot be diversified. From the above table it is clear that I T C has the

maximum systmatic risk ie. 574.940 And WIPRO has the minimum systematic risk is.

39.559.

RESIDUAL VARIANCE

The return from a security may sometimes vary because of certain factors

affecting only the company issuing such security. When variability of returns occurs

because of such firm- specific factors, it is known as unsystematic risk. This risk is

unique or peculiar to a company or industry and affects it in addition to the systematic

risk affecting all securities.

The unsystematic risk affecting specific securities arises from two sources: (i)

the operating environment of the company, and (ii) the financing pattern adopted by the

company. These two types of unsystematic risk are referred to as business risk and

financial risk respectively.

The table below shows the unsystematic risk or the residual variance of all the

selected securities.

UNSYSTEMATI RISK OF THE SECURITY

Table No. 5

Security σі

Security

variance

(σ²і)

Systematic

risk

(βi².σ²m)

Unsystematic

risk

(σ²ei=σ²i-

β²іσ²m)

ITC 36.7146 1347.9619 574.94031 773.02154

HEROHONDA 47.7192 2277.122 220.87517 2056.2469

TATA MOTORS 47.955 2299.682 59.941613 2239.7404BPCL 36.7146 1347.9619 484.44733 863.51453

36



WIPRO 45.5302 2072.9991 39.559578 2033.4395

TOTAL 7965.9629

CHART NO: 5

0

500

1000

1500

2000

2500

Unsystematic risk (σ²ei=σ²i-β²іσ²m)

Unsystematic risk

(σ²ei=σ²i-β²іσ²m)

773.021544 2056.24688 2239.74041 863.514525 2033.43953

ITC HEROHON

DA

TATA

MOTORSBPCL WIPRO

INFERENCES:

The residual variance for TATA MOTORS is highest ie. 1939.08 % and the ITC is

having lowest ie. 905.31%.

COMPOSITION OF TOTAL RISK OF THE SECURITIES

Table No. 6

Security

Systematic risk

(βi².σ²m)

Unsystematic

risk

(σ²ei=σ²i-β²іσ²m)

TOTAL

RISK

ITC 574.9403 773.0215 1347.9618

HEROHONDA 220.8751 2056.2469 2277.122

TATA MOTORS 59.94161 2239.7404 2299.68201

BPCL 484.447 863.5145 1347.9615WIPRO 39.5595 2033.4395 2072.999

37



CHART NO:6

0

500

1000

1500

2000

2500

TOTAL RISK

TOTAL RISK 1347.9618 2277.122 2299.68201 1347.9615 2072.999

ITC HEROHOND

A

TATA

MOTORSBPCL WIPRO

INFERENCES:

From the above chart the total risk for HERO HONDAis high 2277.122 and the risk for BPCL is minimum of 1202.93 compared to others

PORTFOLIO ANALYSIS

Portfolio analysis phase of portfolio management consist of identifying the

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

their return and risk for further analysis. It is better to invest in a group of securities

rather than a single security. Such a group of securities held together as an investment is

known as a portfolio. A rational investor attempts to find out the most efficient

portfolio. The efficiency can be evaluated only in terms of the expected return and risk

of different portfolio

38



PORTFOLIO CONSTRUCTION

Portfolio construction refers to the allocation of the funds among the variety of

financial assets open for investment. The objective of the portfolio construction is

diversification of risk. In order to reduce the risk ideally a portfolio should be

constructed with assets having opposite characteristics of with negative correlation of

the return.

The five securities are bundled to form a portfolio. A Tangent portfolio and

three other different portfolios are constructed by flexing the weights they carry in order

to compare the performance. These portfolios are constructed by applying the following

three criteria.

CONSTRUCTION OF THREE PORTFOLIOS

In order to evaluate and select an optimal portfolio, three different portfolios areconstructed using different criteria. These three portfolios are then compared using

Sharpe ratio, Treynor ratio, Jensen Measure. The best portfolio is then selected on the

basis of ratios generated by these evaluation tools.The criteria used for the construction

of these portfolios are,

1. By giving equal weight to each of security

2. By giving weight to each security based on Price-Earnings Ratio.

3. By giving weight to each security on the basis of random number.

FIRST PORTFOLIO

BY GIVING EQUAL WEIGHT TO EACH STOCK

39



PORTFOLIO ALPHA

The table given below shows the alpha value of the first portfolio constructed by

giving equal weight to the all securities involved in the portfolio. In order to determine

the portfolio alpha all the security alphas are multiplied with the fixed weight i.e. 0.2

and then added.

Portfolio-A Alpha (αp)

Table No. 7

SECURITY αi WEIGHT (ωi) ωi.αp

ITC 8.6841 0.2 1.73682

HERO HONDA 4.7801 0.2 0.95602

TATA MOTORS -42.7915 0.2 -8.5583

BPCL 6.627 0.2 1.3254

WIPRO -19.4485 0.2 -3.8897Portfolio Albha 1 -8.42976

PORTFOLIO ALPHA (α p) = ∑ ωi αi

PORTFOLIO ALPHA = -8.42976

PORTFOLIO-A BETA

The table given below shows the Beta value of the first portfolio constructed by

giving equal weight to the all securities involved in the portfolio. In order to determine

the portfolio Beta all the security Betas are multiplied with the fixed weight i.e. 0.2 and

then added.

Table no: 8

SECURITY βi WEIGHT (ωi) ωi x βi

ITC 0.6702 0.2 0.13404HEROHONDA 0.4154 0.2 0.08308

40



TATA MOTORS 0.2164 0.2 0.04328

BPCL 0.6152 0.2 0.12304

WIPRO 0.1758 0.2 0.03516

PORTFOLIO BETA (βp) = ∑ωiβi

PORTFOLIO BETA = .4186

Table No. 9

SYSTEMATIC RISK OF PORTFOLIO-A

Table No. 9

PORTFOLIO β²p σ²mSYSTEMATIC

RISK

PORTFOLIO - A .17522 1280.0116 224.2836

The table given below shows the Unsystematic risk of Residual variance of the

first portfolio constructed by giving equal weight to the all securities involved in the

portfolio. In order to determine the portfolio Unsystematic risk all the security

Unsystematic risks are multiplied with the fixed weight i.e. 0.2 and then added.

PORTFOLIO-A RESIDUAL VARIANCE

Table No. 10

SECURITY WEIGHT ωi²

(σ²ei=σ²i-

β²іσ²m) ωi ²x σ²

ei

ITC 0.2 0.04 773.0215 30.9209

HERO HONDA 0.2 0.04 2056.2469 82.2499TATA MOTORS 0.2 0.04 2239.7404 89.5896

BPCL 0.2 0.04 863.5145 34.5406

WIPRO 0.2 0.04 2033.439 81.3376

Portfolio residual variance 318.638

PORTFOLIO RESIDUAL VARIANCE = ∑ωi².σ²ei

PORTFOLIO RESIDUAL VARIANCE = 318.638

41



MEASURING PORTFOLIO RETURN AND RISK

PORTFOLIO RETURN (R p)

Portfolio return = portfolio alpha + (portfolio beta * market return)

α p = -8.1429

β p = 0.4186

R m = 4.586

PORTFOLIO RETURN ( R p) = - 10.025

PORTFOLIO RISK (α²p)

β²p =.17522

σ²m =1280.0116

∑ ωi²σ²ei =318.638

PORTFOLIO RISK = 23.301

SECOND PORTFOLIO

GIVING WEIGHT TO EACH SECURITY BASED ON PRICE-EARNINGS

RATIO

42



Second portfolio is constructed by using Price Earnings ratio of the five

securities and then the portfolio Alpha, Portfolio Beta and weighted residual Variance

are calculated to arrive portfolio return and risk.

The table given below shows the weight assigned to each of the securities

involved in the proposed portfolio as per their P/E ratio. These weights are then used to

measure the Beta, Alpha and residual values of the portfolio. Here weights are arrived

by dividing the each individual P/E ratio value from the total value of the P/E ratios.

WEIGHT BASED ON P/E RATIO OF SECURITIES

Table No. 11

SECURITY P/E WEIGHT (ωi)

ITC 18.7 0.281118461

HERO HONDA 15.81 0.23767288

TATA MOTORS 7.43 0.111695731

BPCL 14.4 0.216476248

WIPRO 10.18 0.153036681

Total 66.52 1

Portfolio-B Alpha (αp)

The table given below shows the Alpha values of the portfolio constructed bygiving price earning values to the all securities involved in the portfolio

Table No. 12

SECURITY αi WEIGHT (ωi) ωi.αi

ITC 8.6841 0.2811846 2.441835185

HERO HONDA 4.7801 0.23767288 1.136100134

TATA MOTORS -42.7915 0.111694763 -4.779586451

BPCL 6.627 0.2164763 1.43458844

WIPRO -19.4485 0.15303668 -2.976333871

43



Portfolio Alpha 2 -2.743396563


PORTFOLIO ALPHA = -2.7434

PORTFOLIO B BETA

The table given below shows the Beta value of the second portfolio constructed

by giving P/E to the all securities involved in the portfolio.

PORTFOLIO-B BETA (βp)

Table No. 13

SECURITY βi P/E WEIGHT (ωi) ωi.βi

ITC 0.803415892 18.7 0.281118461 0.225855039

HERO HONDA 0.591513603 15.81 0.23767288 0.140586742

TATA MOTORS 0.669970017 7.43 0.111695731 0.074832791

BPCL 1.148726058 14.4 0.216476248 0.248671907

WIPRO 0.834912024 10.18 0.153036681 0.127772165

Total 66.52 1 0.817718643


PORTFOLIO 0f BETA B = .8177

SYSTEMATIC RISK OF PORTFOLIO-B

Table No. 14

PORTFOLIO β²p σ²m SYSTEMATIC RISK

PORTFOLIO - B 0.6686 1280.0116 855.858

SYSTEMATIC RISK = 855.858

44



PORTFOLIO-B RESIDUAL VARIANCE

Table No. 15

SECURITY WEIGHT (ωi) ωi² σ²ei ωi² x σ²ei

ITC 0.2811846 0.079064779 773.0215 61.11877427

HERO HONDA 0.23767288 0.056488398 2056.2469 116.154093

TATA MOTORS 0.111694763 0.01247572 2239.7404 27.94237429

BPCL 0.2164763 0.046861988 863.51453 40.46600794

WIPRO 0.15303668 0.023420225 2033.4395 47.62361148

Portfolio Residual variance of Portfolio 2 293.304861

PORTFOLIO RESIDUAL VARIANCE= 293.305




α p = -2.743

β p = 0.8177

R m = 4.586

PORTFOLIO RETURN R p = 1.0069


β² p = 0.6686

σ²m = 1280.0118∑ ωi²σ²ei = 293.31

PORTFOLIO RISK = 33.899 %

THIRD PORTFOLIO

BY GIVING WEIGHT TO EACH SECURITY ON THE BASIS OF RANDOM NUMBER

45



Third portfolio is constructed by using random number and then the portfolio

Alpha, Portfolio Beta and weighted residual Variance are calculated to arrive portfolio

return and risk.

The table given below shows the weight assigned to each of the securities

involved in the proposed portfolio as per random number. These weights are then used

to measure the Beta, Alpha and residual values of the portfolio.

WEIGHT BASED ON RANDOM NUMBER

Table No. 16

SECURITY

Random

Number(a) Total(b) Weight(c=a/b)

ITC 70 201 0.348258706

HERO HONDA 42 201 0.208955224

TATA MOTORS 11 201 0.054726368

BPCL 38 201 0.189054726

WIPRO 40 201 0.199004975

TOTAL 201 1

Portfolio-C Alpha (αp)

Table No. 17

SECURITY Weight(c=a/b) αi ωi.αi

ITC 0.3483 8.6841 3.02467203

HERO HONDA 0.20895 4.7801 0.998801895

TATA MOTORS 0.05472 -42.7915 -2.34155088BPCL 0.18905 6.627 1.25283435

46



WIPRO ..19900 -19.4485 -3.87034


PORTFOLIO ALPHA = .9356

PORTFOLIO-C BETA

The table given below shows the Beta value of the third portfolio constructed by

giving random number values to the all securities involved in the portfolio.

PORTFOLIO-C BETA (β p)

Table No. 18

SECURITY Weight(c=a/b) βi αi*β

ITC 0.3483 0.6702 0.23343066

HERO HONDA 0.20895 0.4154 0.08679783

TATA MOTORS 0.05472 0.2164 0.011841408

BPCL 0.18905 0.6152 0.11630356

WIPRO 0.199 0.1758 0.0349842

TOTAL 0.483357658


PORTFOLIO BETA = 0.483

SYSTEMATIC RISK OF PORTFOLIO-C

Table No. 19

PORTFOLIO β²p σ²m SYSTEMATIC RISK

PORTFOLIO - C 0.2333 1279.49 298.491

47



The table given below shows the Unsystematic risk of Residual variance of the

third portfolio constructed by giving random number values to the all securities

involved in the portfolio.

PORTFOLIO-C RESIDUAL VARIANCE

Table No. 20

SECURITY WEIGHT(ΩI) ωi² σ²ei ωi

² .σ²ei

ITC 0.3483 0.121313 773.0215 93.7774722

TATA MOTORS 0.20895 0.04366 2056.2469 89.7759504

WIPRO 0.05472 0.002994 2239.7404 6.7064063

HERO HONDA 0.18905 0.03574 863.51453 30.8619251BPCL 0.199 0.039601 2033.4395 80.5262376

TOTAL 301.647992

PORTFOLIO RESIDUAL VARIANCE = ∑ωi².σ²ei

PORTFOLIO RESIDUAL VARIANCE = 301.65




α p = 0.9356

β p = 0 .483

R m = 4.586

PORTFOLIO RETURN R p = 3.1506

48




β²p = 0.2333

σ²m = 1279.49

∑ ωi²σ²ei = 301.65

PORTFOLIO RISK = 24.499%

PORTFOLIO EVALUATION

Portfolio evaluation is the process to determine the performance of the portfolio.

The best measure for evaluation of portfolio is the SHARPE ratio and Treynor ratio.

The following three different evaluation processes are used.

1. SHARPE RATIO

2. TREYNOR RATIO

3. JENSEN MEASURE

After applying these three evaluation measures the best portfolio is selected.

SHARPE RATIO

SHARPE ratio is the ratio of excess return to risk. This measure is developed by

William Sharpe is referred to as the Sharpe ratio or reward to variability ratio. It is the

ratio the reward or risk premium to the variability of return or risk as measured by the

portfolio standard deviation.

Sharpe Ratio SR = (R p – R f ) / σ p

Where,



49



σ p = Standard deviation of the portfolio

The following table shows the SHARPE Ratio of each constructed portfolios

Table no:21

PORTFOLIOPortfolioRetur(Rρ) Risk Free (Rf)

Portfoliorisk(σρ)

Sharp's=(Rρ-RF/σρ)

A (EAQUALWEIGHT) 10.025 6.44 24.499 0.146332503

B (P/E) 1.0061 6.44 33.899 -0.160296764

C (RANDOM) 3.1506 6.44 23.301 -0.141169907

INFERENCES:

SHARPE Ratio is maximum for portfolio A (with Equal weight) ie. .14633 and

minimum for portfolio A (p/e) ie. -0.160.

TREYNOR RATIO

Treynor ratio is also the ratio of excess return to risk but here risk is defined as the

systematic risk of market risk on the assumption that the portfolio is well diversified.

Treynor Ratio

TR = (R p – R f ) / β p

Where;




TREYNOR RATIO

Table No. 22

PORTFOLIOPortfolioRetur(Rρ) Risk Free (Rf) market risk(βρ)

Treynor's Rρ-RF/βρ

A (EAQUALWEIGHT) 10.025 6.44 0.4186 -5.359615385

50



B (P/E) 1.0061 6.44 0.8177 -6.869649052

C (RANDOM) 3.1506 6.44 0.483 -10.18273333

INFERENCES;

Treynor ratio is minimum for portfolio C (Random ), and maximum for

portfolio A (with equal weight).

DIFFRENTIAL RETURN (JENSEN MEASURE)

This performance measure has been developed by Michael Jensen and is

referred to as Jensen Measure ratio or Differential return. This ratio attempts to measure

the differential between actual return earned on a portfolio and the return expected from

the portfolio given its level of risk.

Jensen Measure

JM = R p – E (R p)

Where,

E (R p) = R f + β p (R m-R f )




JENSEN MEASURE

Table No. 23

Portfolio Rρ Rf βρ Rm E(Rρ) Rp-E(Rp)

A (eaqual

weight) 10.025 6.44 0.4186 4.586 5.6639156 4.3610844

51



B( P/E) 1.0061 6.44 0.8177 4.586 4.9239842 -3.9178842

C (random) 3.1506 6.44 0.4586 4.586 5.5897556 -2.4391556

INFERENCES:

Jenson measure Portfolio B and C are negative and Portfolio A are positive. The

B and C portfolios indicating that portfolios bringing a lower return and portfolio A

has the highest value of 4.361.

FINDINGS

The study ““A Study on Portfolio Construction and Evaluation of Five Securities in NSE at

Geojit Financial Services Limited, Calicut”

The Study has pointed out many finding throughout the study. The highlights of

the study are briefed below:

SECURITY ANALYSIS

Risk & Return of Securities:

ITC has the maximum return (11.758)

TATA MOTORS has the minimum return (-41.799)

TATA MOTORS has the maximum risk (47.954)

ITC has the minimum risk( 36.715)

Alpha:

ITC has the maximum alpha 8.6841, an indicator of return for the security in

excess of the market return

WIPRO has the minimum Alpha value

52



Beta:

Seems to track the movements of the Stock market index showing that the

security is more sensitive to market movements.

Revealed a lower beta value. This indicates that this security is less sensitive to

market movements compared to other four.

ITC has maximum of beta value and minimum is wipro.

Systematic & Unsystematic Risk:

ITC has the maximum systematic risk 574.940, and TATA MOTORS has the

Maximum unsystematic risk 2299.68

PORTFOLIO CONSTRUCTION

Three portfolios are constructed with three different criteria and their risk andreturn has been evaluated.

Return & Risk of Portfolio:

The return is maximum for portfolio A (using Equal weight) and minimum for

portfolio B(P/E).

The risk is maximum for portfolio B (using P/E ratio) and minimum for

portfolio A (using equal weight).

PORTFOLIO EVALUATION AND SELECTION

The portfolios which are evaluated using Sharpe ratio, Treynor ratio and Jensen

measure have revealed the following findings.

Sharpe ratio is maximum for portfolio A (.14633), and minimum for portfolio B

(-0.160).

Treynor ratio is maximum for portfolio A and minimum for portfolio C

53



Jensen measure is maximum for portfolio B and C are negative portfolio A is

better

From the above evaluation process it is clear that portfolio A (constructed using

equal weight) is superior to all other portfolios. So portfolio a is the best option for the

investor to select.

SUGGESTIONS

The study reveals that different portfolio evaluation measures like Sharpe ratio,

Treynor ratio, Jensen measure, Net selectivity can be applied for scientific selection of

investment portfolios. So the investors are strongly recommended to use the different

portfolio construction techniques and performance measurement for structuring that

portfolio.

The sample companies share prices are decreasing in the recession period

market and the study revealed that, the price will increase in the future. So it is

suggested that the investors should invest as soon as possible to get more advantage in

price movement and don’t expect the price to come down in the near future.

It is suggested that all the potential investors should take necessary precautions

and read the offer document carefully before investing to avoid systematic and

unsystematic risks.

54



Chapter-4

CONCLUSION

The project entitled “A Study on Portfolio Construction and Evaluation of Five

securities in NSE at Geojit Financial services Ltd” deals with the construction of

different portfolios on the basis of risk-return evaluation and loss minimization.

The companies are selected from the top list of NSE CNX NIFTY on a random

basis. The study gives a better understanding of security analysis and portfolio

construction and evaluation.



best out of them.

From the above evaluation process it is clear that portfolio A (constructed using

equal weight) is superior to all other portfolios. So portfolio a is the best option for the

investor to select.

Detailed risk-return analysis should be done and scientific performance

measures like Sharpe ratio, Treynor ratio and Jensen Measure should be used. Study

55



revealed the use of portfolio construction and evaluation technique in the portfolio

selection process and diversification of risk.

The Market is volatile as is in the present scenario; Investors have to make care

full analysis before making any investment decision. For this purpose investors should

use analytical and scientific method for construction and selection of portfolio, in order

to diversify the portfolio risk.

BIBLIOGRAPHY

Books

Punithavathi Pandian- Security analysis and Portfolio management- Vikas Publishing

House.

Prasanna Chandra – Investment Analysis and Portfolio Management. TMH- 2

edition,2005

News Paper

Economic Times

Business line

Websites

www.google.com

www.moneycontrol.com

56



www.nseindia.com

www.Geojit.com

57

Documents

A Study on Portfolio Construction