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PROJECT REPORT
Submitted by
SRIDHAR K
Register No: 098001125050
In partial fulfillment for the award of the degree
of
MASTER OF BUSINESS ADMINISTRATION
DEPARTMENT OF MANAGEMENT
in
SRI RAMAKRISHNA INSTITUTE OF TECHNOLOGY
COIMBATORE - 641010
JUNE 2011
INVESTMENT PERFOMANCE
OF SELECTED STOCKS
TRADED IN NSE
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SRI RAMAKRISHNA INSTITUTE OF TECHNOLOGY
Coimbatore - 10
DEPARTMENT OF MANAGEMENT
PROJECT WORK
JUNE 2011
This is to certify that the project entitled
INVESTMENT PERFORMANCE OF SELECTED STOCKS
TRADED IN NSE
is the bonafide record of project work done by
SRIDHAR K
Register No: 98001125050
of Master of Business Administration during the year 2010-2011.
__________________
Mrs.D.Sangeetha
(Project guide)
____________________
Dr.R.Rajendran
(Head of the Department)
Submitted for the Project Viva-Voce examination held on _____________
_________________
Internal Examiner
___________________
External Examiner
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DECLARATION
I affirm that the project work titled INVESTMENT PERFORMANCE
OF SELECTED STOCKS TRADED IN NSE being submitted in partial
fulfillment for the award of MASTER OF BUSINESS ADMINISTRATION is
the original work carried out by me. It has not formed the part of any other project
work submitted for award of any degree or diploma, either in this or any other
University.
---------------------------------
SRIDHAR K
Register No: 098001125050
I certify that the declaration made above by the candidate is true.
Signature of the Guide
-------------------------------
Mrs.D.SANGEETHA
Assistant Professor
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ACKNOWLEDGEMENT
I would like to take this opportunity to express my sincere gratitude to all those
who have helped me throughout this final year project. It gives me immense pleasure to
acknowledge all those who have rendered encouragement and support for the successful
completion of this work.
I am highly indebted and grateful to Dr. R. JOSEPH XAVIER, Principal of Sri
Ramakrishna Institute of Technology , for his encouragement given to me in carrying out
the Institutional Training.
I wish to acknowledge my deep sense of gratitude to Dr.R.RAJENDRAN, Head
of the Department, Sri Ramakrishna Institute of Technology for giving this opportunity to
complete this project in a good atmosphere.
I express my heartfelt thanks to my respected guide Mrs.D.SANGEETHA,
Assistant Professor, for her constant encouragement and support during the entire project
work.
I also extend my sincere gratitude to Mr.P.BALAMUTHU, Branch Manager,NBSL, Karur , whose advice and guidance helped me in the successful completion of this
project.
Sincere gratitude and thanks to God ,my family and friends who has been my
guiding light and constant protector in all that we have done and making things possible
for me.
SRIDHAR.K
Register No: 098001125050
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CONTENT
CHAPTER PARTICULAR Pg.No
Abstract vii
List of tables viiiList of Charts x
1. Introduction
1.1 About the Study 1
1.2 About the Industry 7
1.3 About the Company 14
1.4 Review of Literature 17
2. Main Theme of the Project
2.1 Objective of the Study 19
2.2 Scope and Limitations 19
2.3 Methodology 20
3. Analysis & Interpretation 21
4. Findings, Recommendations and Conclusion
4.1 Findings 55
4.2 Recommendations 60
4.3 Conclusion 61
Appendix 62
Bibliography 64
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ABSTRACT
This project work was undertaken with a view to study and analyzes the
Investment performance of selected stock traded in National Stock Exchange with
reference to Northeast Broking Services Limited, Karur. The main objective of the study
is to identify the investable companies stocks for higher return than the guaranteed
market return during the months of March, April and May 2011. This study is used to
anticipate the Risk and Return for the stocks of selective companies with their market
price. The Risk and Return for the selected stock of the companies were calculated using
the Alpha, Beta, and Variance analysis.
The choice of the investment pattern of the investor were identified through the
Risk and Return value of the different sectors like Automobile, cement, Information
Technology, Pharmaceuticals and Power sectors that are listed in the National Stock Exchange.
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LIST OF TABLES
Table No Table Title Pg.No
3.1.1 Calculation of Beta for TVS Motors 22
3.1.2 Beta and Alpha Value of Automobile sector 25
3.1.3 Beta and Alpha Value of Cement Sector 26
3.1.4 Beta and Alpha Value of IT Sector 27
3.1.5 Beta and Alpha Value of Pharmaceutical Sector 28
3.1.6 Beta and Alpha Value of Power Sector 29
3.2.1 Expected Market Return of Automobile sector 31
3.2.2 Expected Market Return of Cement Sector 32
3.2.3 Expected Market Return of IT Sector 33
3.2.4 Expected Market Return of Pharmaceutical Sector 34
3.2.5 Expected Market Return of Power Sector 35
3.3.1 Variance of Automobile sector 37
3.3.2 Variance of Cement Sector 38
3.3.3 Variance of IT Sector 39
3.3.4 Variance of Pharmaceutical Sector 40
3.3.5 Variance of Power Sector 41
3.4.1 Systematic & Unsystematic Risk Value of Automobile sector 42
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3.4.2 Systematic & Unsystematic Risk Value of Cement Sector 43
3.4.3 Systematic & Unsystematic Risk Value of IT Sector 43
3.4.4 Systematic & Unsystematic Risk Value of Pharmaceutical Sector 44
3.4.5 Systematic & Unsystematic Risk Value of Power Sector 44
3.5.1 Risk and Return Values of Automobile sector 45
3.5.2 Risk and Return Values of Cement Sector 46
3.5.3 Risk and Return Values of IT Sector 47
3.5.4 Risk and Return Values of Pharmaceutical Sector 48
3.5.5 Risk and Return Values of Power Sector 49
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LIST OF CHARTS
Chart No Chart Title Pg.No
3.1.2 Beta and Alpha Value of Automobile sector 25
3.1.3 Beta and Alpha Value of Cement Sector 26
3.1.4 Beta and Alpha Value of IT Sector 27
3.1.5 Beta and Alpha Value of Pharmaceutical Sector 28
3.1.6 Beta and Alpha Value of Power Sector 29
3.2.1 Expected Market Return of Automobile sector 31
3.2.2 Expected Market Return of Cement Sector 32
3.2.3 Expected Market Return of IT Sector 33
3.2.4 Expected Market Return of Pharmaceutical Sector 34
3.2.5 Expected Market Return of Power Sector 35
3.3.1 Variance of Automobile sector 37
3.3.2 Variance of Cement Sector 38
3.3.3 Variance of IT Sector 39
3.3.4 Variance of Pharmaceutical Sector 40
3.3.5 Variance of Power Sector 41
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Chapter - 1
INTRODUCTION
1.1 ABOUT THE STUDY
1.1.1 INVESTMENT PERFORMANCE
The capital market plays a vital role in promoting economic growth through the
mobilization of long term savings and the savings get investment in the economy for
production purpose. India has a well developed capital market system, by far one of the
best in the developing world. The capital market in India is a well integrated structured
and its components include stock exchanges, development banks, investments trust and
unit trust, Insurance Corporation and provident fund organization. It caters to varied
needs for capital of agricultural, industrial and trading sector of economy.
In an economy all the savings neither nor invested in the stock market. Certain
portion of the money is invested as bank deposits. When people invest money directly in
the stock market they have to bear the risk involved. Investing in stock market may youmore return than the risk less return, but it also involves high risk. When money is
deposited in bank, the bank takes the responsibility of the risk involves.
Bank invested in comp0anies after detailed analysis and charge higher interest.
The bank gives guaranteed return to the investors. Since banks take the responsibility of
risk, it charges high interest rate to the companies and pays less interest to deposits.
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The present study shows the company scripts listed in NSE. They are classified as
five sectors:
1. Automobile Sector
2. Cement Sector
3. Information Technology Sector
4. Pharmaceutical Sector
5. Power Sector
Under each Sector five companies have been selected for the study. To evaluate
the performance of the fund, different tools like Beta, Alpha, and Variance are used.
Beta
The beta factor describes the movement in a stocks or a portfolios returns in
relation to that of the market return. For all practical purposes, the market returns are
measured by the returns on the index, since the index is a good reflector of the market.
The stocks with more than 1 beta value are considered to be risky.
Beta = +1.0
One percent changes in market index return causes exactly one percent change in
the stock return. It indicates that the stock moves in random with the market.
Beta = +0.5
One percent changes in market index return causes 0.5 percent changes in the
stock return. The stock is less volatile compared to the market.
Beta = + 2.0
One percent changes in market index return causes 2 percent changes in the stock
return. The stock is more volatile.
Negative beta value indicated that the stock return moves in the opposite direction.
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The formula for the Beta
N xy (x) (y)
Beta =
N x2 (x) 2
Where, x = market return, y = stock return, n = no. of days
Alpha
A positive value of alpha is healthy sign. Positive alpha values would yieldprofitable return. According, in a well diversified portfolio the average value of all stocks
turns out to be zero.
The formula for the alpha
A y (x )
here x arket return beta value y average value of stock return
1.1.2 THEORY OF INVESTMENT
Risk Analysis
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Risk in holding securities is generally associated with the possibility that realized
returns will be less than were expected. The source of such disappointed is the failure of
dividends and the securities price to materialize as expected.
Forces that contribute to variations in (Return Price) or (Dividend Constitute
elements of risk). Some influence are external to the firm that cannot be controlled and
affect large number of securities risk. Other influences are internal to the firm and are
controllable to a large degree. The force that is not controllable and affects the price of all
securities is called systematic risk.
Systematic Risk
Systematic risk refers to that portion of total variability in return caused by factors
affecting the prices of all securities risk. Their effect is to cause prices of all securities
risk. Their effect is to cause prices of nearly-individuals common stocks to move together
in the same manner.
Market Risk
Variability in return on most common stocks that are due to basic changes in
investor expectations is referred to as market risk. Market risk is caused by investor
reaction to tangible events. Expectations of lower corporate profits in general might cause
the larger body of common stocks to fall in price.
Intangible events are related to market psychology. Market risk is usually touched
off by a reaction of real events, but the emotional instability of investors acting
collectively leads to a snow balling over reaction.
Interest-Rate Risk
Interest-rate refers to the uncertainty of future market values and of the size of
future income, caused by fluctuations in the general level of interest rates. Suppose the
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Reserve Bank of India increases the interest rate, than it will send negative signal to stock
market.
Purchasing power Risk
Purchasing power risk is the uncertainty of the purchasing power of the amounts
to be received. In more every day terms, purchasing-power risk refers to the impact of
inflation or deflation on an investment.
Unsystematic Risk
Unsystematic risk is the proportion of total risk that is unique to a firm or industry.
Factors such as management capability, consumer preferences, and labour strikes causesystematic variability of returns in a firm. Unsystematic factors are largely independent
of factors affect one firm must be examined for each firm.
Financial Risk
Financial risk is associated with the way in which a company finaces its activities.
We usually gauge financial risk by looking at the capital structure of a firm. The presence
of borrowed money of debt in the capital structures creates fixed payments in the form of interest that must be sustained by the firm. With no debt financing has no financial risk.
Environmental Analysis
Environmental analysis is the first stage in the security analysis process. It centers
on tow important activities. 1) Estimating the long-run economic growth in the economy
and 2) Predicating the turning points in the business cycle. Returns on most securities
closely follow the performance of the general economy. Interest rate movements are tiedto the growth of the economy. High interest rates normally occur during boom periods,
and low interest rates are more often associated with low or negative rages of economic
growth.
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The level of market interest rates is a primary determinant of bond prices for any
given quality bond.
To analyze the growth factors for a specific common stock, investors need to go
beyond the general economic outlook and focus on industry and markets segments that
have growth rats differing form overall economy.
Investors often examine post growth rates for several of the more important
economic variables to arrive of reasonable expectations regarding future stock market
growth rates. An investigation of economic growth generally includes at a minimum of
the following three factors.
1. The expected changes in the current population and its age distribution.
2. The role of the government in fostering economic growth and
3. The behavior of corporations with regard to expenditures on plants, equipment,
and inventories.
Components of GNP
Investors interested in forecasting future economic growth need to look at major
components of GNP (Gross National Product). GNP figures show performance of an
economy. These are
1) Personal consumption expenditures.
2) Gross private domestic investment.
3) Government purchase of goods and services and
4) Net exports of goods and services.
Influences of GNP
Gross National Product is influenced in three basic ways. Two of these, fiscal and
monetary policies, involve government action or intervention in various reforms. The
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Investing in stock market may give more return than the risk less return but it also
involves high risk. In an economy all the savings are not invested in the stock market.
Certain portion of the money is invested as bank deposits when people invests money
directly in the stock market they have to bear the risk.
The major functions performed by a capital markets are:
Mobilization of financial resources on a nationwide scale.
Securing the foreign capital for rapid economic growth.
Effective allocation of the mobilized financial resources.
The stock market and other capital market allow investors to buy and sell stock
continuously. The stock prices provide instant feedback to corporate executives about
how investors judge their performance
Stock values reflect investor reaction to government policy as well. If the
government adopts policies that investors believe will hurt the economy and company
profits the market declines; if investors believe policies will help the economy the
market.
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1.2.2 STOCK MARKET SCENARIO DURING MARCH - MAY2011
This study includes automobiles, cement, information technology, power,
pharmaceuticals sectors as the prime sectors for analyzing the risk and return of the
companies listed in NSE.
Automobile sector
The Indian automotive industry has witnessed an unprecedented boom in recent
years, owing to the improvement in living standards of the middle class, and a significant
increase in their disposable incomes. The size of the Indian automotive industry is
estimated between US$ 120.09 billion and US$ 155.2 billion by 2016. The industry is
expected to touch the 10 million mark, to which the commercial vehicle segment will be
a major contributor. Industry experts project the Indian automobile sales growth at a
compounded annual growth rate (CAGR) of 10.5 per cent 14009million vehicles by
2011
The government spending on infrastructure in roads and airports and higher GDP
growth in the future will benefit the auto sector in general. In the 2-wheeler segment,
motorcycles are expected to witness a flurry of new model launches. Though the marketsize is expected to grow by 10% to 12%, competitive pressure could keep prices and
margins under control. TVS, Honda and Hero Honda are poised to benefit from higher
demand for un-geared scooters in the urban and rural markets.
With an estimated 40% of CVs plying on the roads 10 years old, demand for
HCVs is expected to grow by 7% to 8% over the long term. While the industry is going
through cyclical hiccups currently, we expect this factor to weaken in the future on
account of strong structural tailwinds. The privatization of select state transport
undertakings bodes well for the bus segment.
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Cement sector
India is the worlds second largest producer of cement The recent boom in
infrastructure and the housing market has only boosted the cement industry. Adding to
that an increasing global demand and a flurry of activity in infrastructure projects highways roads, bridges, ports and houses has sparked off a spate of mergers and
acquisitions in the sector.
The cement industry is likely to maintain its growth momentum and continue
growing at around 8% to 9% in the medium to long term. Government initiatives in the
infrastructure sector and the housing sector are likely to be the main growth drivers.
During the first half of FY11, a series of huge capacity expansions (through thebrown field or Greenfield route) against a corresponding poor off take in cement demand
due to subdued construction activity created excess supply, thus putting downward
pressure on realizations. This has been coupled with significant rises in input costs,
especially prices of coal and petroleum products. As a result, both the top line and
bottom-line have been badly hit. Though an excess supply scenario may prevail for some
time to come, the worst seems to be over following the good monsoon witnessed across
most parts of the country.
Good agricultural income will support demand for the commodity despite
slowdown in the real estate sector. The importance of the housing sector in cement
demand can be gauged from the fact that it consumes almost 60%-70% of the country's
cement. If this support wanes, it would impact the growth in consumption of cement,
leading to demand supply mismatch.
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Information technology sector
The Indian information technology sector has been instrumental in driving the
nations economy onto the rapid growth curve According to the Nasscom -Deloitte study,
the IT industrys contribution to the countrys GDP has increased to a share of 8 2 per
cent in 2010 as against 5.1 per cent in 2008.
Indias IT growth in the world is primarily dominated by IT software and services
such as custom Application Development and Maintenance (CADM), system Integration,
IT consulting, Application Management, Infrastructure Management services, software
testing, service-oriented architecture and web services.
The global IT services market is expected to grow by 4.2% in 2011 as companies
coming out of recession harness the need for IT to create competitive advantage. With the
government planning to invest Rs 400 billion on better technology enabled delivery
mechanisms the addressable market for technology and business outsourcing services in
India is expected to expand five-fold by 2020 to US$ 90-100 billion.
The integration of IT-BPO contracts is expected to become more common, as
clients look out for end-to-end service providers. Companies like Infosys, TCS, Wipro,Mahindra Satyam, HCL Technologies and Emphasis, all of which are also into BPO, will
benefit from this trend.
Billing rates will remain stressed in short term; companies are expected to
preserve their margins through effective cost containment. Lessons learnt during the
crisis can benefit in the long run. Rupee's volatility against the US dollar and other major
currencies is expected to remain a major concern for Indian IT companies.
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Pharmaceuticals sector
The Indian pharmaceutical sector is witnessing tremendous growth with the
contract research and clinical trials businesses taking wings, and the new patent regime
opening new avenues for players in the country. The pharmaceutical companies in India
have carved a place for themselves globally-consistently striving to innovate and make
healthcare affordable across all sections of society, with a focus on people who are most
deprived of it, causing the industry to grow faster and at the same time giving people
longer and healthier lives.
The Indian pharmaceutical industry ranks 4 th in terms of volume (with an 8 per
cent share in global sales) globally. In terms of value it ranks 13 th (with a share of 3 per cent in global sales) and
produces 20- 24 per cent of the worlds generic drugs (in terms of value)
The Indian pharmaceutical industry ranks 17 th with respect to exports value of
bulk actives and dosage.
The product patents regime heralds an era of innovation and research resulting in
the launch of new patented product launches. In the longer run, domestic companies
would face fresh competition from MNCs, as they would make aggressive new launches.
However, the latter would most likely be subject to price negotiation
Drugs having estimated sales of over US$ 108 billion are expected to go off patent
between CY09 and CY13. With the governments in the developed markets looking to cut
down healthcare costs by facilitating a speedy introduction of generic drugs into the
market, domestic pharmacy companies will stand to benefit. However, despite this huge
promise, intense competition and consequent price erosion would continue to remain a
cause for concern.
The life style segments such as cardiovascular, anti-diabetes and anti-depressants
will continue to be lucrative and fast growing owing to increased urbanization and
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change in lifestyles. Growth in domestic sales in the future will depend on the ability of
companies to align their product portfolio towards the chronic segment.
Contract manufacturing and research (CRAMS) is expected to gain momentum
going forward. India's competitive strengths in research services include English-
language competency, availability of low cost skilled doctors and scientists, large patient
population with diverse disease characteristics and adherence to international quality
standards. As for contract manufacturing, both global innovators and generic majors are
finding it profitable to outsource production. Although there has been a considerable
slowdown in this area, the scenario is expected to improve going forward as the pressure
to prune costs increases.
Power sector
The power sector has been in the forefront of lightning up the India growth story.
As the economy continues to surge ahead, electrification and electricity services have
been expanding concomitantly to support the growth rate.
Today, the Indian power system with its extensive regional grids-fast maturing into an integrated national grid and its millions of kilometers of transmission and
distribution lines crises-crossing the country, are truly symbolic of the successes of
Indias economic growth Indias electricity generation capacity has been increasing
continuously to meet the needs of the rapidly growing economic activity of the country.
Source wise, thermal power plants accounted for an overwhelming 64.6 per cent
of the total installed capacity. Within this group, coal, gas and oil based thermal power
plants accounted for 53.3 per cent, 10.5 per and 0.9 per cent, respectively.
Recognizing that electricity is one of the key drivers for rapid economic growth
and poverty alleviation, the industry has set itself the target of providing access to all
households over the next few years. As per government reports, about 44% of the
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households did not have access to electricity. Hence, meeting the target of providing
universal access is a daunting task requiring significant addition to generation capacity
and expansion of the transmission and distribution network.
Restoration of the financial health of SEBs and improvement in their operating
performance continue to remain a critical issue in the power sector.
On an overall basis, power distribution has been loss-making business in India.
But with the privatization coming in, the investment in transmission and distribution
networking is expected to improve
1.3 ABOUT THE COMPANY
1.3.1 NORTHEAST BROKING SERVICES LIMITED
Mission vision:
Our aim is to provide you with a reliable, secure, fast and most importantly cost
effective stock broking and demat services to enable you to gain better returns on your
investment. We wish to work together with you to maximize your assets and secure your
future.
Integrity: a company honoring commitment with highest ethical and business practices.
Team work: Attaining goals collectively and collaboratively.
Meritocracy: Performance gets differentiated, recognized and rewarded in a political
environment.
Passion & Attitude: High energy and self motivated with a Do It attitude amnd
entrepreneurial spirit. Excellence in Execution: Time bound results within the framework
of the companys value system
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Overview
Northeast Broking Services Ltd , founded in 1995, is one of the largest Investment
companies based in Andhra Pradesh, with 75 Professionals, 150 support staff and
extensive network in Andhra Pradesh, Gujarat, Karnataka, Kerala, Maharashtra,
Tamilnadu and rapidly entering into all over India.
Northeast is a premier broking, trading and clearing member of BSE CASH AND
F&O, NSE CASH, NSE CURRANCY SEGMENT AND F&O, and HSE and as well as
the two leading commodity exchanges in the country NCDEX and MCX. And it is also
registered as a Depository Participant (DP) with NSDL and CDSL.
With nearly 10 years in business, Northeast is known for its financial strength and
stability, superior customer service, and continued operation excellence.
Product and services
Northeast offers its clients most competitive brokerage with wide choice of products and
services
Stock Broking: Northeast offers trading in equities in NSE and BSE cash marketsegment. Northeast provides offline facilities like excellent trading atmosphere,
individual terminal and instant execution and confirmation.
Derivatives Broking : Northeast provides facility to trade in futures and options in NSE
F&O and BSE F&O market. Our efficient risk management takes adequate care and
precaution in monitoring the margin positions of the clients.
Commodities Broking : You can buy and sell commodities in both the leading MCX andNCDEX commodity exchanges through our subsidiary Northeast commodities private
limited.
Mutual Funds : Northeast offers a wealth of mutual fund choices along with the
competitive advice to help you invest wisely.
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Depository Services : Northeast as a Depository participant of NSDL and CDSL offers
effective demat services at all times, with economic fee structure for Individuals, traders
and sub brokers.
IPOs : Northeast enables you to invest prudently in the prospective and lucrative public
issues. Our research team would guide you to choose appropriate IPO that suit your
objective.
Internet Trading : A new value added product from Northeast designed for Traders and
Investors enabling to operate from any location, by using the state of art of internet
trading by logging on to www.northeastltd.com.
Research and Advisory Service: Northeast has well qualified and experienced research
team, who would constantly keep informing the Investors with wise investment
decisions. The information would be provided free of cost to our clients, who can access
the information using the user name and password that is given to them
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1.4 Review of literature
Giewosz. G (1996) describes the use of accounting and other information in the
share investment decision process of an institutional investor. The focus is on qualitative
data, as revealed in the report as in the directors speech.
Rather than on qualitative data. He has concluded that the significance of
qualitative data as an information source to serving in a confirmatory role. Furthermore,
rather than a source of information the annual report also acts as a stimulus for
identifying specific questions.
Warner J.B and Wruchk K.H (1998) re-iterate the influence of management
change on stock prices. The scrutiny of management reputation should consider whether
the management is strong, growth oriented, professional, the nature of its goal and
principles and so on the past behavior pattern of management actions are a food clue to
assess these qualities of the management. Each company would have faced adverse
situations at one time or the other. A strong, professional team would have faced the
adversity better. The market position of the company should be analyzed in terms of the
product or service that it gives or provides to the community The companys goals and
values will be revealed through an analysis of the image the these products and service
carry to the customer. Good customer reputation automatically implies that the company
is doing also.
Malkiel and Cragg (1998) studied the effect of historical growth of earnings
dividend payout ratio and the stocks rate of return relative to the market in determining
P/E earnings growth was found to have a positive effect on the P/E the closer a stocks
return followed that of the market; the more negative the P/E effect. The dividend payout
effect was not clear in some years, the higher the payout the higher the P/E, but this was
not true for all years.
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Bernard V and Stober T (1991) have reported empirical evidence on the use of
these statements in predicting stock market returns. These performance indicators are also
linked to the shares through ratio analysis to evaluate performance for investment
purposes. The important measures are earnings per share, dividend per share, yield pmshare, piece earnings multiples and so on. Earnings per share are the net profit divided by
the total number of shares. Dividing the dividend distributed by the total number of
shares. The actual earnings per share paid to the investor are arrived at through this ratio.
Yield on shares (Yield) is dividend per share divided by market price per share. This is a
measure of return on shares in terms of capital appreciation. Price earrings ratio(P/E) is
defined as the closing market price of the share divided by the reported earnings per share
for the latest period. Low P/E s is typically associated with low earnings growth andcyclical businesses, and high P/E ratio is associated with the high earnings growth and
non cyclical businesses.
White beck and kisor (2001) studied a number of stocks over the same time span.
They speculated the difference in P/E ratios between stocks could be explained by (1)
projected earnings growth, (2) expected dividend payout and (3) the variation in the rate
of earnings growth, or growth risk. They applied their statistical technique to a cross
section of 135 stocks to explain difference in individual P/E ratios. They concluded that
P/E is an increasing function of growth and payout and inversely related to the variation
in the growth rate.
Bower and Bower (2002) used the same approach for a different time period with
another sample of firms. They used earnings growth and payout as variables but dividend
risk into subcomponents including marketability of the stock, its price variability and its
conformity with the market.
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Chapter 2
MAIN THEME OF THE PROJECT
2.1 Objective of the study
2.1.1 Primary objective
To identify investable companies stocks for higher returns than the guaranteed
market return.
2.1.2 Secondary objective
To assess the risk associated in the selected stocks for investment.
2.2 Scope of the study
The present study shows the company scripts listed in NSE. They are classified as
five sectors, under each sector five companies have been selected for the study. The study
may be an effective tool for selecting the best companies for the investors to invest their
funds for higher and safe returns.
2.2.1 Need of the study
To guide the investors in selecting the high return companies for their investment To know the performance of selected companies. To got knowledge about the practical functioning of the stock market.
2.2.2 Limitations of the study
The present performance of the funds studied may not be sustained in future.
The figure taken from the financial statement for analysis is historical in nature.
The study is confined to a short period of three months for five sectors. This would
not give the exact performance of the securities
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2.3 Methodology
Research Purpose
The research purpose revealed that this study was descriptive in nature. The study
aimed in assessing the market return of selected stocks of companies listed among the
automobiles, cement, information technology, power, pharmaceutical sectors.
Research design
The researcher has undertaken a descriptive type of research. In this design the
researcher has no control over the variables. The researcher can only report what has
happened earlier or what exists
Data collection
The collection of data is based on primary and secondary method. The primary
data has been collected through discussions with the officials of the share trading
institutions. Sample size is twenty five company form five sectors.
Period of Study
The daily NSE scripts price for the period of 18 th march 2011 to 18 th May 2011
has been used.
Sampling method
Non probability convenience sampling method is adopted.
Tools for analysis
Beta
Alpha
Variance
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Chapter - 3
ANALYSIS AND INTERPRETATION
Methodology of calculating risk:
Share price movements of selected companies, traded in national stock exchange
during the year 18 th March 2011 to 18 th May 2011 were taken for calculating risk and
return. Total of five sectors, a total of twenty five companies were selected for the study.
The five sectors are automobile, cement, information technology, pharmaceuticals and
power sector. Share price movements for Three months trading were taken for eachcompany.
3.1 Calculation of Alpha and Beta
First, the value of beta is calculated for every company by applying the formula
N xy (x) (y)
Beta =
N x2 (x) 2
Where, x = market return, y = stock return, N = no. of days
Let us take the example of the company TVS Motors
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Table 3.1.1 Calculation of Beta for TVS Motors
Date NSEIndex SharePrice MarketReturn(X) StockReturn(Y) XY X2
17-Mar-11 5446.65 58.5
18-Mar-11 5373.7 57.35 -1.33936 -1.96581 2.632921 1.793872844
21-Mar-11 5364.75 56.5 -0.16655 -1.48213 0.246851 0.027739539
22-Mar-11 5413.85 55.65 0.915234 -1.50442 -1.3769 0.837652728
23-Mar-11 5480.25 55.75 1.226484 0.179695 0.220392 1.504262819
24-Mar-11 5522.4 57.55 0.769125 3.2287 2.483275 0.591554029
25-Mar-11 5654.25 58 2.387549 0.781929 1.866893 5.700389711
28-Mar-11 5687.25 59.95 0.583632 3.362069 1.96221 0.340626056
29-Mar-11 5736.35 58.55 0.863335 -2.33528 -2.01613 0.74534672130-Mar-11 5787.65 59.05 0.894297 0.853971 0.763704 0.799766938
31-Mar-11 5833.75 59.85 0.796524 1.354784 1.079118 0.634449897
1-Apr-11 5826.05 61.8 -0.13199 3.258145 -0.43004 0.017421511
............ ............ ............ ............ ............ ............ ............
27-Apr-11 5833.9 60.2 -0.58789 -1.3923 0.818526 0.345619926
28-Apr-11 5785.45 59.75 -0.83049 -0.74751 0.620799 0.68971489
29-Apr-11 5749.5 56.35 -0.62139 -5.69038 3.535923 0.386121069
2-May-11 5701.3 56.5 -0.83833 0.266193 -0.22316 0.702803507
3-May-11 5565.25 55.4 -2.3863 -1.9469 4.64589 5.694417486
4-May-11 5537.15 53.3 -0.50492 -3.79061 1.913953 0.2549431125-May-11 5459.85 51.45 -1.39603 -3.47092 4.84549 1.948885887
6-May-11 5551.45 55.05 1.677702 6.997085 11.73902 2.814683224
9-May-11 5551.1 54.2 -0.0063 -1.54405 0.009735 0.00003974
10-May-11 5541.25 53.4 -0.17744 -1.47601 0.261907 0.031485773
11-May-11 5565.05 53.8 0.429506 0.749064 0.321727 0.184475385
12-May-11 5486.15 52.8 -1.41778 -1.85874 2.635273 2.010091676
13-May-11 5544.75 54.1 1.068144 2.462121 2.629901 1.14093230
16-May-11 5499 54.2 -0.825104 0.184884 -0.15251 0.68079798
17-May-11 5438.95 53.8 -1.09201 -0.738007 0.805916 1.19250054
18-May-11 5420.6 52.35 -0.337381 -0.738007 0.909299 0.11382614
sum -0.237349 -9.860585 57.91949 48.48161Average -0.005789 -0.240502079
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Sum of Market Return(X) and Stock Return(Y) is calculated. The value of X is
calculated by applying the formula.
Current day index Previous day indexX = X 100
Previous day index
5373.7 - 5446.65
= X 100 = 1.33936
5446.65
The value of Y is calculated by applying the formula
Current day Price Previous day Price
Y = X 100
Previous day Price
57.35 - 58.5
= X 100 = 1.96581
58.5
In this example we have got the value of X = 1.33936 and Y = 1.96581, for the
period of 18 th March 2011 to 18 th May, 2011 same formula is applied to calculate the
value of X and Y.
Then we have to calculate the sum of XY and X 2. Let us take the example of TVS
Motors.
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The calculated values are
x -0.237349 y 9.860585 xy 57.91949 x2 = 48.48161, N = 41
By substituting these values in the formula of Beta we get the value of
41 (57.91949) (0.237349X 9.860585)
Beta = = 1.193525688
41 (48.48161) (0.237349) 2
Beta describes the relationship between the stocks return and the market return. In
the above example, Beta indicated that one percent change in NSE index return would
cause 1.1935 percent changes in the TVS Stock return.
Then the value of Alpha is calculated by applying the formula.
A y (x )Where x Average of arket return beta value y Average value of tock return
The calculated value is
x 0.005789 y 0.240502079 1.193525688
By substituting we get the alpha value for TVS Motors
= ( 0.240502079) (1.193525688X 0.005789)
= 0.2335972
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Table 3.1.2 Beta and Alpha Value of Automobile Sector
Name of the Company Beta Alpha
TVS Motors 1.194 -0.234
TATA Motors 1.530 0.051
Hero Honda 0.659 0.523
M&M 1.359 0.081
Ashok Leyland 1.130 -0.293
Chart 3.1.2 Beta and Alpha Value of Automobile Sector
-0.5
0
0.5
1
1.5
2
TVS Motors TATA Motors Hero Honda M&M Ashok leyland
Chart Title
Beta
Alpha
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Table 3.1.5 Beta and Alpha Value of Pharmaceutical Sector
Name of the company Beta Alpha
Biocon 0.564 0.121CIPLA 0.695 0.072
JB Chemicals 0.712 0.359
Orchid 1.204 0.075
Ranbaxy 0.749 0.193
Chart 3.1.5 Beta and Alpha Value of Pharmaceutical Sector
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Biocon CIPLA JB Chemicals Orchid Ranbaxy
Beta
Alpha
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Table 3.1.6 Beta and Alpha Value of Power Sector
Name of the company Beta Alpha
CESC 0.792 -0.299
Neyvelli lignite 0.801 0.054
NTPC 0.836 -0.048
Rpower 1.056 -0.275
Tata power 0.529 0.057
Chart 3.1.6 Beta and Alpha Value of Power Sector
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
CESC Neyveli lignite NTPC Rpower Tata power
Chart Title
Beta
Alpha
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3.2 Calculation of Expected Market Return
After calculating the value of Alpha and Beta, expected market return for every
company is calculated. The formula is
Ex ected M rket Return (R) + (x)
Where, x is risk less return.
Here the value of x is taken as 6.25., since State Bank of India gives 6.25%
interest for 180days fixed deposit.
By substituting we get,
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Table 3.2.1 Expected Market Return of Automobile Sector
Name of the companyExpected Market Return
TVS Motors 7.225
TATA Motors 9.612
Hero Honda 4.644
M&M 8.575
Ashok Leyland 6.774
Chart 3.2.1 Expected Market Return of Automobile Sector
TVS Motors TATA Motors Hero Honda M&M Ashok Leyland
7.225
9.612
4.644
8.575
6.774
Expected Market Return
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Table 3.2.2 Expected Market Return of Cement Sector
Name of the company Expected Market Return
ACC 4.773
Ramco 2.254
Ambuja 7.495
Dalmia 2.645
India cement 5.878
Chart 3.2.2 Expected Market Return of Cement Sector
ACC Ramco Ambuja Dalmia India cement
4.773
2.254
7.495
2.645
5.878
Expected Market Return
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Table 3.2.4 Expected Market Return of Pharmaceutical Sector
Name of the company Expected Market Return
Biocon 3.643
CIPLA 4.421JB Chemicals 4.808
Orchid 7.601
Ranbaxy 4.88
Chart 3.2.4 Expected Market Return of Pharmaceutical Sector
Biocon CIPLA JB Chemicals Orchid Ranbaxy
3.643
4.4214.808
7.601
4.88
Expected Market Return
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Table 3.2.5 Expected Market Return of Power Sector
Name of the company Expected Market Return
CESC 4.653
Neyvelli lignite 5.062
NTPC 5.181
Rpower 6.329
Tata power 3.367
Chart 3.2.5 Expected Market Return of Power Sector
CESC Neyvelli
lignite
NTPC Rpower Tata power
4.6535.062 5.181
6.329
3.367
Expected Market Return
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3.3 Variance
Variance measures the dispersion of a return distribution. It is the sum of the
squares of a returns deviation from the mean divided by n. The value will always
be>=0, with larger values corresponding to data that is more spread out.
Market index
(x-x ) 2
N
here x arket return x Avg of arket return N No of days
Stock
(y-y ) 2
N
here y tock return y = Avg of Stock return, N = No. of days
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Table 3.3.1 Variance of Automobile Sector
Name of the company Variance of stock return variance of Market return
TVS Motors 6.047 1.182
TATA Motors 4.441 1.182
Hero Honda 6.812 1.182
M&M 4.271 1.182
Ashok Leyland 3.888 1.182
Chart 3.3.1 Variance of Automobile Sector
6.047
4.441
6.812
4.2713.888
1.182 1.182 1.182 1.182 1.182
TVS Motors TATA Motors Hero Honda M&M Ashok Leyland
Variance of stock return variance of Market return
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Table 3.3.3 Variance of IT Sector
Name of the company Variance of stock return variance of Market return
HCL Infosys 2.011 1.182HCL Tech 4.643 1.182
Infosys Tech 3.963 1.182
TCS 3.32 1.182
Tech Mahindra 3.665 1.182
Chart 3.3.3 Variance of IT Sector
2.011
4.643
3.963
3.32
3.665
1.182 1.182 1.182 1.182 1.182
HCL Infosys HCL Tech Infosys Tech TCS Tech Mahindra
Variance of stock return variance of Market return
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Table 3.3.4 Variance of Pharmaceutical Sector
Name of the company Variance of stock return variance of Market return
Biocon 2.419 1.182
CIPLA 2.228 1.182
JB Chemicals 7.935 1.182
Orchid 5.067 1.182
Ranbaxy 5.707 1.182
Chart 3.3.4 Variance of Pharmaceutical Sector
2.419 2.228
7.935
5.067
5.707
1.182 1.182 1.182 1.182 1.182
Biocon CIPLA JB Chemicals Orchid Ranbaxy
Variance of stock return variance of Market return
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Table 3.3.5 Variance of Power Sector
Name of the company Variance of stock return variance of Market return
CESC 2.428 1.182
Neyvelli lignite 3.292 1.182
NTPC 2.43 1.182
Rpower 3.24 1.182
Tata power 2.023 1.182
Chart 3.3.5 Variance of Power Sector
2.428
3.292
2.43
3.24
2.023
1.182 1.182 1.182 1.182 1.182
CESC Neyvelli lignite NTPC Rpower Tata power
Variance of stock return variance of Market return
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3.4 Calculation of Systematic risk and Unsystematic risk
After calculating the variance has to calculate systematic risk and unsystematic
risk. The formula for systematic risk is as follows:
System tic risk 2 * Variance of Market index
For example TVS Motors
= (1.194) 2 * 1.182 =1.684
Unsystematic risk = Total risk Systematic risk
= 6.048 - 1.684
= 4.363
Table 3.4.1 Systematic & Unsystematic Risk value of Automobile Sector
Name of the
company
Uncontrollable (%)Systematic Risk
Controllable (%)Unsystematic Risk
Total Risk
Value (%) Value (%) Value (%)
TVS Motors 1.684 28 4.363 72 6.047 100
TATA Motors 2.767 62 1.673 38 4.440 100
Hero Honda 0.514 7.5 6.298 92.5 6.812 100
M&M 2.184 51 2.088 49 4.272 100
Ashok Leyland 1.512 39 2.376 61 3.888 100
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Table 3.4.2 Systematic & Unsystematic Risk value of Cement Sector
Name of the
company
Uncontrollable (%)
Systematic Risk
Controllable (%)
Unsystematic Risk Total Risk
Value (%) Value (%) Value (%)
ACC 0.707 31 1.555 69 2.262 100
Ramco 0.171 4 4.218 96 4.389 100
Ambuja 1.662 26 4.754 74 6.416 100
Dalmia 0.251 8 2.755 92 3.006 100
India cement 1.121 33 2.307 67 3.428 100
Table 3.4.3 Systematic & Unsystematic Risk value of IT Sector
Name of the
company
Uncontrollable (%)
Systematic Risk
Controllable (%)
Unsystematic Risk
Total Risk
Value (%) Value (%) Value (%)
HCL Infosys 0.568 28 1.443 72 2.011 100
HCL Tech 1.533 33 3.110 67 4.643 100
Infosys Tech 1.543 39 2.420 61 3.963 100
TCS 1.825 55 1.495 45 3.320 100
Tech Mahindra 0.642 18 3.023 82 3.665 100
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3.5 Interpretation
Table 3.5.1 Risk and Return Values of the Automobile Sector
Table 3.5.2 Risk and Return Values of the Cement Sector
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Table 3.5.3 Risk and Return Values of the IT Sector
Table 3.5.4 Risk and Return Values of the Pharmaceutical Sector
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Table 3.5.5 Risk and Return Values of the Power Sector
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Interpretation of Automobile Sector
This section describes the risk and return analysis made for the stocks in the
automobile sector. The calculation of risk and return for the company TVS Motors
presented as a sample in appendix.
Inference were made based on the ranks secured for the market return,
uncontrollable risk, Alpha and overall rank secured by the stock based on the above three
rank.
Rank 1:
Hero Honda secured the Return of 4.121% with Uncontrollable risk of 7.5%, andAlpha of 0.523 which suits both Low Return and Low risk takers.
Rank 2:
M&M secured the Return of 8.494% with Uncontrollable risk of 51% and Alpha
of 0.081 which suits both High Return and Moderate risk takers.
Rank 3:
Tata Motors secured the Return of 9.562% with Uncontrollable risk of 62% and
Alpha of 0.051, which suits both Higher Return and High risk takers.
Rank 4:
TVS Motors secured the Return of 7.459% with Uncontrollable risk of 28% and
Alpha of -0.234, which suits both Moderate Return and High risk takers.
Rank 5:
Ashok Leyland secured the Return of 7.068% with Uncontrollable risk of 39% and
Alpha of -0.293, which suits both Moderate Return and High risk takers.
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Interpretation of Cement Sector
This section describes the risk and return analysis made for the stocks in the
cement sector. Inference were made based on the ranks secured for the market return,
uncontrollable risk, Alpha and overall rank secured by the stock based on the above three
rank.
Rank 1:
Ambuja cements secured the Return of 7.495% with Uncontrollable risk of 26%
and Alpha of 0.085, which suits both Higher Return and Moderate risk takers.
Rank 2:
Ramco cements secured the Return of 2.254% with Uncontrollable risk of 4% and
Alpha of -0.124, which suits both Low Return and Low risk takers.
Rank 3:
ACC cements secured the Return of 4.773% with Uncontrollable risk of 31% and
Alpha of -0.061, which suits both Moderate Return and Moderate risk takers.
Rank 3:
India cements secured the Return of 5.878% with Uncontrollable risk of 33% and
Alpha of -0.206, which suits both Moderate Return and Moderate risk takers.
Rank 5:
Dalmia cements secured the Return of 2.645% with Uncontrollable risk of 8% and
Alpha of -0.234, which suits both Low Return and Low risk takers.
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Interpretation of IT Sector
This section describes the risk and return analysis made for the stocks in the IT
sector. Inference were made based on the ranks secured for the market return,
uncontrollable risk, Alpha and overall rank secured by the stock based on the above three
rank.
Rank 1:
HCL Tech secured the Return of 7.379% with Uncontrollable risk of 33% and
Alpha of 0.264, which suits both Higher Return and Moderate risk takers.
Rank 2:
TCS secured the Return of 7.912% with Uncontrollable risk of 55% and Alpha of
0.147, which suits both Higher Return and High risk takers.
Rank 3:
HCL Infosys secured the Return of 4.417% with Uncontrollable risk of 28% and
Alpha of 0.083, which suits both Low Return and Low risk takers.
Rank 4:
Infosys Tech secured the Return of 7.052% with Uncontrollable risk of 39% and
Alpha of -0.087, which suits both Higher Return and High risk takers.
Rank 5:
Tech Mahindra secured the Return of 4.356% with Uncontrollable risk of 18% and
Alpha of -0.250, which suits both Low Return and Low risk takers.
Interpretation of Pharmaceutical Sector
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This section describes the risk and return analysis made for the stocks in the
Pharmaceutical sector. Inference were made based on the ranks secured for the market
return, uncontrollable risk, Alpha and overall rank secured by the stock based on the
above three rank.
Rank 1:
JB Chemicals secured the Return of 4.808% with Uncontrollable risk of 7.5% and
Alpha of 0.359, which suits both Moderate Return and Low risk takers.
Rank 2:
Ranbaxy secured the Return of 4.880% with Uncontrollable risk of 12% andAlpha of 0.193, which suits both Moderate Return and Low risk takers.
Rank 3:
Orchid secured the Return of 7.601% with Uncontrollable risk of 34% and Alpha
of 0.075, which suits both Higher Return and High risk takers.
Rank 4:
Biocon secured the Return of 3.643% with Uncontrollable risk of 15.5% and
Alpha of 0.121, which suits both Low Return and Low risk takers.
Rank 5:
CIPLA secured the Return of 4.421% with Uncontrollable risk of 26% and Alpha
of 0.072, which suits both Moderate Return and High risk takers.
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Chapter 4
Findings, Recommendations and Conclusion
4.1 Findings
This study focused in identifying the risk and return of the stocks of the companies
in the Automobile, Cement, Information Technology, Pharmaceutical and Power sectors.
Automobile Sector
High Return and High Risk
Tata Motors secured the Return of 9.562% with Uncontrollable risk of 62%
and Alpha of 0.051, which suits both Higher Return and High risk takers.
High Return and Moderate Risk
M&M secured the Return of 8.494% with Uncontrollable risk of 51% and
Alpha of 0.081 which suits both High Return and Moderate risk takers.
Moderate Return and High Risk
TVS Motors secured the Return of 7.459% with Uncontrollable risk of 28%
and Alpha of -0.234, which suits both Moderate Return and High risk takers.
Ashok Leyland secured the Return of 7.068% with Uncontrollable risk of 39%
and Alpha of -0.293, which suits both Moderate Return and High risk takers.
Low Return and Low Risk
Hero Honda secured the Return of 4.121% with Uncontrollable risk of 7.5%,
and Alpha of 0.523 which suits both Low Return and Low risk takers.
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Cement Sector
High Return and Moderate Risk
Ambuja cements secured the Return of 7.495% with Uncontrollable risk of
26% and Alpha of 0.085, which suits both Higher Return and Moderate risk
takers.
Low Return and Low Risk
Ramco cements secured the Return of 2.254% with Uncontrollable risk of 4%
and Alpha of -0.124, which suits both Low Return and Low risk takers.
Dalmia cements secured the Return of 2.645% with Uncontrollable risk of 8%and Alpha of -0.234, which suits both Low Return and Low risk takers.
Moderate Return and Moderate Risk
ACC cements secured the Return of 4.773% with Uncontrollable risk of 31%
and Alpha of -0.061, which suits both Moderate Return and Moderate risk
takers.
India cements secured the Return of 5.878% with Uncontrollable risk of 33%and Alpha of -0.206, which suits both Moderate Return and Moderate risk
takers.
Information Technology Sector
High Return and Moderate Risk
HCL Tech secured the Return of 7.379% with Uncontrollable risk of 33% and
Alpha of 0.264, which suits both Higher Return and Moderate risk takers.
High Return and High Risk
TCS secured the Return of 7.912% with Uncontrollable risk of 55% and Alpha
of 0.147, which suits both Higher Return and High risk takers.
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Infosys Tech secured the Return of 7.052% with Uncontrollable risk of 39%
and Alpha of -0.087, which suits both Higher Return and High risk takers.
Low Return and Low Risk
HCL Infosys secured the Return of 4.417% with Uncontrollable risk of 28%
and Alpha of 0.083, which suits both Low Return and Low risk takers.
Tech Mahindra secured the Return of 4.356% with Uncontrollable risk of 18%
and Alpha of -0.250, which suits both Low Return and Low risk takers.
Pharmaceutical Sector
Moderate Return and Low Risk
JB Chemicals secured the Return of 4.808% with Uncontrollable risk of 7.5%
and Alpha of 0.359, which suits both Moderate Return and Low risk takers.
Ranbaxy secured the Return of 4.880% with Uncontrollable risk of 12% and
Alpha of 0.193, which suits both Moderate Return and Low risk takers.
High Return and High Risk
Orchid secured the Return of 7.601% with Uncontrollable risk of 34% and
Alpha of 0.075, which suits both Higher Return and High risk takers.
Moderate Return and High Risk
CIPLA secured the Return of 4.421% with Uncontrollable risk of 26% and
Alpha of 0.072, which suits both Moderate Return and High risk takers.
Low Return and Low Risk
Biocon secured the Return of 3.643% with Uncontrollable risk of 15.5% and
Alpha of 0.121, which suits both Low Return and Low risk takers.
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Power Sector
Low Return and Low Risk
Tata Power secured the Return of 3.367% with Uncontrollable risk of 16% and
Alpha of 0.057, which suits both Low Return and Low risk takers.
High Return and High Risk
Neyvelli Lignite secured the Return of 5.062% with Uncontrollable risk of
33% and Alpha of 0.054, which suits both High Return and High risk takers.
NTPC secured the Return of 5.181% with Uncontrollable risk of 34% and
Alpha of -0.048, which suits both High Return and High risk takers. Reliance Power secured the Return of 6.329% with Uncontrollable risk of 41%
and Alpha of -0.275, which suits both High Return and High risk takers.
Moderate Return and Moderate Risk
CESC secured the Return of 4.653% with Uncontrollable risk of 31% and
Alpha of -0.299, which suits both Moderate Return and High risk takers.
4.2 Recommendations
This analysis would facilitate investor make their choice of company among the
above sector to invest based on their perception of the risk and return of the stocks.
Among the 25 companies the most profitable company is Tata Motors which
earns the Return of 9.562% but it involves high risk. So investors who arewilling to take more risk can go for Tata Motors and get the maximum return.
The moderate risk takers can opt to M&M, Ambuja cements and HCL Tech
which yields High returns more than the risk taken by the Investors.
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The Low risk takers can go for Tata Power, Biocon, JB Chemicals and HCL
Infosys because these companies returns are higher when compared to the risk
taken.
Investors who like to have higher returns when compared to the risk taken cango for Pharmaceutical Sectors where all the companies have positive Alpha.
The high risk takers can opt to Automobile sector where the risk is high and as
well as the returns are also high.
Investors can opt to the companies where the Alpha value is positive like Tata
Motors, Hero Honda, M&M, Ambuja Cements, HCL Infosys, HCL Tech, TCS
and Neyvelli lignite where whatever the risk taken by them will have high
returns than the risk taken. The safest companies are Hero Honda, JB Chemicals, Ranbaxy, Biocon and
Tata Power because these companies are low risky when compared to other
companies.
4.3 Conclusion
From this study, the researcher has identified the risk and return for the stocks of
Automobiles, Cement, Information Technology, Pharmaceutical and Power Sectors listed
in National Stock Exchange (NSE).
The stock market during the period of study was not highly fluctuating and overall
there was a bearish trend. The NSE index on March 18 th 2011 was 5446.65 and on the
end of May 18 th were 5420.60.
The study would help the future investors to make their choice of stock for
investment based on the expected Market Return and Risk taking ability.
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Appendix
AnnexureData for TVS Motors - EQ from 18-03-2011 to 18-05-2011
Series Date Avg Index Avg Price Market Return(X) StockReturn(Y) XY X2
EQ 17-Mar-11 5446.65 58.5EQ 18-Mar-11 5373.7 57.35 -1.339355384 -1.965811966 2.63292084 1.793872844EQ 21-Mar-11 5364.75 56.5 -0.16655191 -1.482127289 0.246851131 0.027739539EQ 22-Mar-11 5413.85 55.65 0.915233701 -1.504424779 -1.376900259 0.837652728EQ 23-Mar-11 5480.25 55.75 1.226483925 0.179694519 0.220392439 1.504262819EQ 24-Mar-11 5522.4 57.55 0.769125496 3.228699552 2.483275144 0.591554029EQ 25-Mar-11 5654.25 58 2.387548892 0.781928758 1.866893139 5.700389711EQ 28-Mar-11 5687.25 59.95 0.583631781 3.362068966 1.9622103 0.340626056EQ 29-Mar-11 5736.35 58.55 0.863334652 -2.335279399 -2.016127628 0.745346721EQ 30-Mar-11 5787.65 59.05 0.894296896 0.853970965 0.763703583 0.799766938EQ 31-Mar-11 5833.75 59.85 0.796523632 1.354784081 1.079117537 0.634449897EQ 1-Apr-11 5826.05 61.8 -0.131990572 3.258145363 -0.430044471 0.017421511
EQ 4-Apr-11 5908.45 62.1 1.41433733 0.485436893 0.686571519 2.000350082EQ 5-Apr-11 5910.05 61.65 0.02707986 -0.724637681 -0.019623087 0.000733319EQ 6-Apr-11 5891.75 60.6 -0.30964205 -1.703163017 0.527370889 0.095878199EQ 7-Apr-11 5885.7 60 -0.102685959 -0.99009901 0.101669267 0.010544406EQ 8-Apr-11 5842 59 -0.74247753 -1.666666667 1.23746255 0.551272883EQ 11-Apr-11 5785.7 57.3 -0.963711058 -2.881355932 2.776794573 0.928739003EQ 13-Apr-11 5911.5 58.8 2.174326356 2.617801047 5.691953812 4.727695104EQ 15-Apr-11 5824.55 59.95 -1.470861879 1.955782313 -2.876685648 2.163434668EQ 18-Apr-11 5729.1 58.2 -1.638753208 -2.919099249 4.783683261 2.685512078EQ 19-Apr-11 5740.75 59.1 0.203347821 1.546391753 0.314455393 0.041350336EQ 20-Apr-11 5851.65 60.05 1.931803336 1.607445008 3.105267629 3.731864128EQ 21-Apr-11 5884.7 59.1 0.564797963 -1.582014988 -0.893518842 0.318996739EQ 25-Apr-11 5874.5 58.4 -0.173330841 -1.184433164 0.205298796 0.03004358EQ 26-Apr-11 5868.4 61.05 -0.103838625 4.537671233 -0.47118554 0.01078246EQ 27-Apr-11 5833.9 60.2 -0.587894486 -1.392301392 0.818526311 0.345619926EQ 28-Apr-11 5785.45 59.75 -0.830490752 -0.747508306 0.620798735 0.68971489EQ 29-Apr-11 5749.5 56.35 -0.621386409 -5.690376569 3.535922662 0.386121069EQ 2-May-11 5701.3 56.5 -0.838333768 0.266193434 -0.223158944 0.702803507EQ 3-May-11 5565.25 55.4 -2.386297862 -1.946902655 4.645889643 5.694417486EQ 4-May-11 5537.15 53.3 -0.504918916 -3.790613718 1.913952572 0.254943112EQ 5-May-11 5459.85 51.45 -1.396025031 -3.470919325 4.845490257 1.948885887EQ 6-May-11 5551.45 55.05 1.677701768 6.997084548 11.73902112 2.814683224EQ 9-May-11 5551.1 54.2 -0.006304659 -1.544050863 0.009734714 0.00003974EQ 10-May-11 5541.25 53.4 -0.177442309 -1.47601476 0.261907467 0.031485773EQ 11-May-11 5565.05 53.8 0.429505978 0.74906367 0.321727324 0.184475385
EQ 12-May-11 5486.15 52.8 -1.417777019 -1.858736059 2.63527327 2.010091676EQ 13-May-11 5544.75 54.1 1.068144327 2.462121212 2.629900805 1.140932303EQ 16-May-11 5499 54.2 -0.825104829 0.184842884 -0.152514756 0.680797979EQ 17-May-11 5438.95 53.8 -1.09201673 -0.73800738 0.805916406 1.192500539EQ 18-May-11 5420.6 52.35 -0.337381296 -2.695167286 0.909299032 0.113826139
Sum -0.237349368 -9.860585255 57.91949125 48.48161245
AVG -0.005789008 -0.24050207
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Automobile Sector
TVS Motors
41 (57.91949) (0.237349X 9.860585)
=
41 (48.48161) (0.237349) 2
= 1.193
= ( 0.240502079) (1.193525688X 0.005789)
= 0.234
Expected Market Return + (x) = 0.234 + 1.193(6.25)
= 7.225
Variance
Market Index Stock
(x-x )2
(y-y )2
N N
Market Index = 1.182 Stock = 6.047
Systematic risk 2 * Variance of Market index
= (1.194) 2 * 1.182
=1.684
Unsystematic risk = Total risk Systematic risk
= 6.048 - 1.684
= 4.363
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BIBLIOGRAPHY
1. Bhalla V.K (1999), Financial Management, Eighth edition, Vikas Publishing House
Private Limited, New Delhi, India.
2. Stanley B.B and Geoffrey A.H, Foundation of Financial Management, Sixth edition,
Irwin, New York.
3. Pandy I.M (1999) Financial Management, Eighth edition Vikas Publishing House
Private Limited, New Delhi, India.
4.
Jack C.F (1996), Investment Analysis and Management, Fifth edition, Mc Graw Hill,inc., New York.
5. Business Line News Papers, March, April, May of 2011.
6. Websites
www.moneycontrol.com
www.equitymaster.com
www.nseindia.com
www.northeastltd.com