A REPORT ON

VIRTUAL INVESTMENT GAME

SUBMITTED BY
Anish Dhakal
Pratima Giri
Prajwal Dahal
Prayatna Dhakal
Senchephungma Hukpa Chongbang

SUBMITTED TO
Dr. Bharat Singh Thapa

SCHOOL OF MANAGEMENT, TRIBHUVAN UNIVERSITY

KRITIPUR
October, 2021
INTRODUCTION

This report has been prepared as an assignment to be submitted to Mr. Bharat Singh Thapa,
regarding virtual portfolio management game. The fictitious amount of Nrs. 20 Lakhs has been
invested in various assets using actual data for the period of three weeks beginning from 25 th
August, 2021 (9th Bhadra), and ending on 14th September (29th Bhadra). The amount has been
virtually invested and traded with stocks listed on NEPSE on the basis of their real time prices,
and the performance of the portfolio has been evaluated at the end of the simulation period. The
arrangement of trading weeks is shown below:

Week 1: 25th August to 31st August

Week 2: 1st September to 7th September

Week 3: 8th September to 14th September

The main aim of our group was to maximize the capital gains of the portfolio at the end of the
three weeks bringing various theories learnt in the class into practice.

PROPOSED CLIENT DETAILS

For the simulation, we have imagined a client with moderate risk taking ability. We addressed
this attribute by dividing the total fund for long-term investment, and short-term trading
purposes.

Some characteristics of the imagined client will be as follows:

Risk Profile- Moderately Risk Averse

Investment Goal- Realized Gain of at least 5% in three weeks.

DISCUSSION OF THEORIES

For the creation of the effective investment portfolio we have considered Efficient Market
Hypothesis, Markowitz Theory, CAPM and Active and Passive Approach.
Efficient Market Hypothesis

The combined effect of (1) information coming in a random, independent, unpredictable fashion
and (2) numerous competing investors adjusting stock prices rapidly to reflect this new
information means that prices should be independent and random. This scenario implies that
informational efficient markets require some minimum amount of trading and that more trading
by numerous competing investors should cause a faster price adjustment, making the market
more efficient. The testing of Weak Form Hypothesis through run test and correlation test helps
to determine the randomness of the assets’ in the portfolio.

Markowitz Theory

Markowitz theory of portfolio diversification attaches importance to standard deviation, to

reduce it to zero, if possible, covariance to have as much as possible negative interactive effect
among the securities within the portfolio and coefficient of correlation to have – 1 (negative) so
that the overall risk of the portfolio as a whole is nil or negligible. Expected return, variability of
returns as measured by standard deviation from the mean and covariance or variance of one asset
return to other asset returns are taken into consideration under Markowitz theory for the
construction of an efficient investment portfolio.

CAPM (Capital Asset Pricing Model)

Market risk, or systematic risk, affects a large number of asset classes, whereas specific risk, or
unsystematic risk, only affects an industry or particular company. CAPM helps to measure the
investment risk and estimate what return on investment an investor should expect. It also helps to
analyze the level of risk present in a stock. Markowitz theory states that the unsystematic risk
can be removed or minimized by diversifying the stocks. But the diversification of the stocks of
a portfolio still doesn't solve or eliminate the systematic risk. Therefore, systematic risk is what
affects the investors when calculating the return. The new risk measure is called the beta
coefficient and it calculates the level of security’s systematic risk compared to that of the market
portfolio. The systematic risk principle states that the expected return on the assets depends only
on that asset’s systematic risk. The beta coefficient determines the assets’’ responsiveness/
vulnerability to the market return.
Active and Passive Portfolio Management

An actively managed investment fund has an individual portfolio manager, co-managers, or a

team of managers all making investment decisions for the fund. The success of the fund depends
on in-depth research, market forecasting, and the expertise of the management team. Portfolio
managers engaged in active investing follow market trends, shifts in the economy, changes to the
political landscape, and any other factors that may affect specific companies. 

Passive portfolio management is also referred to as index fund management. The portfolio is

designed to parallel the returns of a particular market index or benchmark as closely as
possible. For example, each stock listed on an index is weighted. The purpose of passive
portfolio management is to generate a return that is the same as the chosen index. Because this
investment strategy is not proactive, the management fees assessed on passive portfolios or funds
are often far lower than active management strategies.

Application of these theories for the investment decisions for portfolio management, this has led
us to select the following securities for the construction of efficient portfolio.

GROUP STRATEGY

Since the major objective of our investment was to make a significant return with considerably
low risk, our strategy was to divide the total fund between long-term investment and short-term
trading. 60% of the initial fund, i.e. Rs 12 lakhs for holding less risky assets. The less risky
investment was made on the very first day of the simulation. In order to minimize the portfolio
risks, we purchased stocks of companies belonging to different and unrelated, but still less risky
sectors. We have chosen the Banking, Life-Insurance, Micro-Finance and manufacturing sectors
for long term holding. The remaining fund of Rs 8 lakhs was used for weekly trading on risky
sectors, whenever good market opportunity arises.

Our investment strategy was different for long-term and short-term holdings.

Long-Term Holdings:
Fundamental analysis was our main strategy for long-term investment. First of all we screened
the companies on the basis of their performance on metrics like EPS, Reserves, Paid-up Capital,
etc. The screening was made separately for the various sectors. Industrial averages of the metrics
were also calculated. Stock screening tools provided by Mero lagani and NEPSE Alpha were
used for the purpose. Using fundamental screening based on 3rd Quarter reports of fiscal year
2077/78, we listed the top companies in each sector, and chose stocks for initial holding, by
comparing their metrics with the industrial averages. Our strategy was to hold those stocks up to
the end of the simulation, and not sell them unless their performance plummets down drastically.
The fund will be divided on the following proportion:

Commercial Banks: 40% of 12 lakhs (Rs. 480000)

Life Insurance Companies: 20% of 12 lakhs (Rs 240000)

Micro Finance Companies: 20% of 12 lakhs (Rs 240000)

Non- Life Insurance Companies: 20% of 12 lakhs (Rs 240000)

Short-Term/Weekly Trades:

The remaining fund of Rs 8 lakhs was used for short-term or weekly trades. In order to make the
weekly trades, we used technical analysis, combined with company analysis. First, we conducted
runs on various risky stocks, and identified patterns in their historical prices. Technical analysis
was conducted only on the stocks which showed patterns. Though we did not use fundamental
screening, we still carried fundamental analysis on the basis of the market news and already
available information of the companies. Our main goal was to run with the market trend, but still
minimize risk at some level by avoiding junk assets. We used the trading chart provided by
NEPSE Alpha for technical analysis. We focused on the following technical strategies:

 Buy or sell signals (Bullish Crossover or divergence) shown by the MACD indicator with
strong volume indication.
 RSI showing a strong trend of price movement.
 Converging or diverging Bollinger Bands.
 The signals given by at least one indicator (MACD, RSI or Bollinger Bands) will be
enough to make the trades.
FUNDAMENTAL ANALYSIS FOR LONG TERM HOLDING:

In order to pick the long-term trades, we made fundamental screening on each less risky sector,
whose results are discussed below:

Commercial Banks:

Commercial Banks are safest among the companies for investing purpose. For long-term
holding, commercial banks with good dividend yielding capacity should be considered. The top
five commercial banks based on EPS of third quarter performance of FY 2077/78 are listed
below along with their other fundamentals:

Company EPS Paid-Up Reserve Price P/E

(As on Ratio
24th
August)
1 NABIL 36.39 1,34,80,159 1,75,26,830 1477 40.59
2 NICA 34.64 1,15,64,005.366 86,67,872.39 951 27.45
3 SANIMA 25.56 96,81,519.08 47,15,380.2 530 20.74
4 SBL 25.11 1,09,62,299.2 89,77,222.71 558 22.22
5 PRVU 24.79 1,13,47,057 59,98,131 463 18.68
Industrial 20.1 11720473.11 7828853.85
Average

Based on the fundamental analysis of the banking sector, two banks (NICA and SBL) were
approved for the investment with sound EPS, Paid-Up capital, Reserve holdings and P/E Ratio.
Initially we were targeting to pick only one of the two stocks. But, due to similar dividend
history, and financial performance, we decided to select both of the banks, and invest equally on
them.
Life-Insurance Companies:

Life Insurance Companies are considered for investing purpose in Nepalese Stock Market. For
long-term holding, Life Insurance Companies with good dividend yielding capacity should be
considered. The top five Life Insurance Companies based on EPS of third quarter performance of
FY 2077/78 are listed below along with their other fundamentals:

Company EPS Paid-Up Reserve Price (As on P/E

24th August) Ratio
1 SLICL 17.15 2262895 808591 999 58.25
2 NLICL 12.68 3390889.2 811723.55 1249 98.50
3 PLIC 12.6 2417057 625299 1009 80.08
4 ALICL 12.07 2010760.727 730421.618 1460 120.96
5 NLIC 9.37 7199970.66 1123436.31 1929 205.87
Industrial 9.83 2661196.14 648816.75
Average

Based on the fundamentals, SLICL was picked for the investment purpose as it has good EPS
and low P/E ratio. Its Paid-up Capital, Reserve are also above the industrial average.

Micro Finance Institutions:

Microfinance Institutions are favored sector to invest. Attractive dividend and right share
offering have been the reason why microfinance companies are invested for long run. The top
Microfinance Institutions based on EPS of third quarter performance of FY 2077/78 are listed
below along with their other fundamentals:

Company EPS Average Reserve Price (As on P/E

Dividend (3 yrs) 24th August) Ratio

1 JBLB 183.1 - 1183910.63 4296 23.46

 2 NMFBS 103.98 49% 383769 3401.6 32.71
3 MLBSL 85.66 - 191839.12 4929.10 57.54
4 GILB 85.26 26.87% 278189.9 2580 30.26
5 FOWAD 77.07 40.53% 1053699 3050 39.57
Industrial 45.29 448357.07 433916.8
Average

Based on the fundamental analysis, FOWAD was picked for the investment. Other top
companies, despite their better EPS, had poor dividend history; some of them were very new
companies with high prices. NMFBS was a good choice, but its reserves were quite low. Thus,
we decided to choose FOWAD for the investment.

Non-Life Insurance:

Non-Life Insurance Companies are considered for investing purpose in Nepalese Stock Market.
For long-term holding, Non-Life Insurance Companies with good dividend yielding capacity
should be considered. The top five Life Insurance Companies based on EPS of third quarter
performance of FY 2077/78 are listed below along with their other fundamentals:

Company EPS Paid-Up Capital Reserve Price P/E

(As on Ratio
24th
August)
1 RBCL 135.02 2,66,639 3103353 20202 149.62
2 SIC 38.02 10,01,223 483449 1532 40.29
3 PIC 35.94 10,74,560 333932 1351 37.59
4 NIL 35.51 13,17,432 682317 1593 44.86
5 SICL 27.55 17,58,524 617671.01 2030 73.68
Industrial 26.25 1078845.36 476081.39
Average
Based
on the fundamental comparison, SICL was picked for the investment. Companies like RBCL
which had very high EPS, had very low paid up capital and reserves in comparison to the
industrial average. Thus, we decided to choose SICL.
Weekly Portfolio Status

Week 1

Opening Balance: Rs 20, 00,000

Date Buy Sell

S.N Symbol Units Price Total Charges Net Cost Units Rate Total Charges Net Balance
Income

8/25 NICA 240 957 230589 909 229680 - - - - - 1769411

8/25 SBL 445 556 248397 978 247419 - - - - - 1521014

8/25 SLICL 243 981 239325 944 238381 - - - - - 1281689

8/25 FOWAD 80 2988 239985 945 239040 - - - - - 1041704

8/25 SICL 120 1995 240346 947 239399 - - - - - 801358

8/26 GMFIL 620 645 401465 1565 399900 - - - - - 399893

8/26 AHPC 657 606 399700 1556 398144 - - - - - 193

On the very first day of the first week (25th August), we invested in the low risk securities that we
picked through fundamental analysis. It included 5 stocks (NICA, SBL, SLICL, FOWAD and
GMFIL). On 26th August, we saw buying signals in the technical charts of GMFIL and AHPC.
The MACD line of both the stocks had just pulled back showing a possibility of price rise. On
the same time, RSI was also rising which shows a strong movement of price. At the end of the
week, our status was as follows:

Closing Balance of Fund: 193

Realized Gain: 0

Unrealized Gain (As of August 31): -2587.14 (-0.13%)

Week 2

Opening Balance of Fund: Rs. 193

Date Buy Sell

S.N Symbol Units Price Total Charges Net Cost Units Rate Total Charges Net Balance
Income

9/1 AHPC - - - - - 657 670 440190 4630 435560 435753

9/1 GMFIL - - - - - 620 700 434000 4011 429989 865742

9/2 CGH 567 1520 864924 3085 861209 - - - - - 1448

On the first day of the second week (1st September), we decided to sell the stocks of both AHPC
and GMFIL as per the signals of the technical chart. There was a slight fall in MACD line, along
with huge fall in RSI line. Our status at the end of the second week is shown below:

Closing Balance of Fund: Rs. 1448

Realized Gain: Rs 64934.57

Unrealized Gain (As on September 7): -76511.52 (-3.83%)

Holdings (As on September 7):

NICA: 240 units

SBL: 445 units
SLICL: 243 units
FOWAD: 80 units
SICL: 120 units
CGH: 567 units
Week -3

Date Buy Sell

S.N Symbol Units Price Total Charges Net Cost Units Rate Total Charges Net Balance
Income

9/14 CGH - - - - - 567 1530 867510 3105 864405 865853

Opening Balance of Fund: 1448

The whole market was showing bearing movement on the third week. Thus, we find no good
trade to buy in this week. We had only one short-term stock in hand at the time (CGH). To avoid
high risk, we made a stop-loss and profit-book analysis using the Fibonacci Retracement lines.
As per this Fibonacci Retracement lines, the support of 0.23 had been broken, and at the same
time MACD also hinted on selling the stock. So, we made a profit book by selling at 1530.

Our status at the end of the third week is shown below:

Closing Balance of Fund: Rs 865853

Realized Gain: Rs 519

Unrealized Gain (As on September 14): -92971.46 (-8.19%)

Holdings (As on September 14):

NICA: 240 units

SBL: 445 units

SLICL: 243 units

FOWAD: 80 units

SICL: 120 units

ANALYSIS OF PORTFOLIO:

Asset Position

S.N Particulars Details

1 Ending Cash Balance Rs. 865853
2 Portfolio Worth at the End (As on 14th Rs. 1107628
Sept)
Total Asset Position Rs. 1973481

Total Realized Gains: Rs. 65453.57 (5.77%)

Unrealized Gains: -92971.46 (-8.19%)

Total Gains: -27517 (-2.43%)

 Comparing the performance of the portfolio with the market (NEPSE), the market saw
the decrease of 6.29% (from 3126.02 to 2929.29) during the simulation period, while the
portfolio fell only by 2.43% (considering both realized and unrealized gains). This shows
that the portfolio is performing better in comparison to the market.
 The short-term or trading target of at least 5% has been met, as the total realized gains of
the portfolio is 5.77%.
 Despite the fact that the portfolio has an unrealized loss of 8.19%, the client is still not in
a bad position because all the short-term stocks have been sold, and all the holdings are
less risky stocks which have good potential in the long-run.
 The client has an ending cash position of Rs. 865853, which can be reinvested as soon as
the market shows bullish sign in the coming weeks.
 The ending holdings are diversified in various less risky sectors with great prospect in the
long run. Many of those companies have a good dividend history and EPS above their
industry averages.
CONCLUSION:

The main goal of the investment was to make a realized gain of at least 5% and unrealized gain
of at least 10%

Considering the moderate risk preference of the client, the portfolio was split into investment and
trading with a ratio of 3:2. The investment was further diversified into various less risky sectors
including commercial banks, micro finance, life and non-life insurance sectors. The scripts
selected for the investment purpose were among the industry leaders, and had good dividend
history along with strong fundamental metrics due to which they were appropriate to hold in the
long term.

For the trading purpose, technical analysis was conducted after identifying a pattern through runs
test. Based on the technical analysis, three scripts were traded during the simulation period and
realized a gain of Rs. 65453.57 (5.77%). Thus, the client’s short-term goal was met. The
performance of the portfolio was considerably good, given the falling of the market in the recent
period by a huge margin and the actual loss of the portfolio is only 2.43%.

Summing up the three weeks investment game, it was evident that the theories learnt in the
classes actually have practical implications. The stocks traded through the use of technical
analysis backed by runs test, actually performed better. Diversification of assets with the use of
fundamental analysis helps to minimize the portfolio risk. Nepalese stock market is not weak-
form efficient. Therefore, gains can be made through short-term trading of risky and volatile
scripts.
 APPENDIX

RUNS TEST

To make the short-term trades, the strategy was to use technical analysis. However, the initial
step was to be sure whether technical analysis works for the stocks or not. So, runs test was
conducted using the 100 days price history. The null and alternative hypothesis are as follows:

Null Hypothesis (H0): There is no certain pattern on historical data

Alternative Hypothesis (H1): There is certain pattern on historical data

NEPSE

Descriptive Statistics
N Mean Std. Deviation Minimum Maximum
nepse 100 2906.2257 152.17205 2615.40 3198.60

Runs Test
nepse
Test Valuea 2879.99
Cases < Test Value 50
Cases >= Test Value 50
Total Cases 100
Number of Runs 13
Z -7.639
Asymp. Sig. (2-tailed) .000
a. Median

At 5% level of significance, the null hypothesis is rejected being 0.0<0.05. It means, the
historical data of NEPSE shows a pattern. This helps to test the Weak-Form Efficiency of the
market. Weak form efficiency states that future securities' prices are random and not influenced
by past events. However, the 100 days price history shows a pattern. Thus, we conclude that the
market is not weak form efficient.
AHPC (Arun Valley Hydropower Development Co. Ltd.)

Descriptive Statistics
N Mean Std. Deviation Minimum Maximum
price 100 515.6470 123.92466 299.00 775.00

Runs Test
price
a
Test Value 515.6470
Cases < Test Value 54
Cases >= Test Value 46
Total Cases 100
Number of Runs 6
Z -9.040
Asymp. Sig. (2-tailed) .000
a. Mean

At 5% level of significance, we reject the null hypothesis being 0.00<0.05. Thus, we know that
there is a pattern on historical prices of AHPC, and technical analysis can be applicable for
analysis of the stock.

GMFIL (Guheshowori Merchant Bank & Finance Co. Ltd.)

Descriptive Statistics
N Mean Std. Deviation Minimum Maximum
price 100 497.2380 129.50936 235.00 745.00

Runs Test
price
a
Test Value 497.2380
Cases < Test Value 40
Cases >= Test Value 60
Total Cases 100
Number of Runs 8
Z -8.589
Asymp. Sig. (2-tailed) .000
a. Mean

At 5% level of significance, we reject the null hypothesis being 0.00<0.05. Thus, we know that
there is a pattern on historical prices of AHPC, and technical analysis can be applicable for
analysis of the stock.

CGH (Chandragiri Hills Ltd.)

Descriptive Statistics
N Mean Std. Deviation Minimum Maximum
price 100 1727.5590 365.58969 665.00 2625.00

Runs Test
price
Test Valuea 1727.5590
Cases < Test Value 48
Cases >= Test Value 52
Total Cases 100
Number of Runs 7
Z -8.843
Asymp. Sig. (2-tailed) .000
a. Mean

At 5% level of significance, we reject the null hypothesis being 0.00<0.05. Thus, we know that
there is a pattern on historical prices of AHPC, and technical analysis can be applicable for
analysis of the stock.
Evidence of Technical Analysis:

On 26th August, since the MACD line has pulled back instead of falling down and at the same
time rise in RSI shows sign of upward movement of price, buy decision is made.

On 1st September, the MACD line is moving downwards. There is strong fall in RSI. Thus, sell
decision is made.
On 26th August, since the MACD line has pulled back instead of falling down and at the same
time rise in RSI shows sign of upward movement of price, buy decision is made.

On 1st September, the MACD line is moving downwards. There is strong fall in RSI. Thus, sell
decision is made.
The MACD line has crossed the signal line from below along with positive volume. Thus, buy
decision is made.
The Fibonacci Retracement support of 0.236 has been broken. Since the whole market is falling
down at the same time, sell decision is made.

Dividend History

NIC Asia and Siddharth Bank Ltd.

NICA  SBL 
Fiscal Year  Cash Div  Bonus  Cash Div  Bonus 
076-077  1.00%  19.00%  3.00%  12.00% 
075-076  11.05%  10.00%  15.26%  10.00% 
074-075  0.53%  10.00%  8.16%  5.00% 
073-074  1.05%  20.00%    14.00% 
072-073  1.37%  26.00%    39.00% 
Average  3%  17%  5.28%  16% 
Total  20%  21.28% 

National Microfinance Laghubitta Bittiya Sanstha Ltd

Fiscal Year Cash Div Bonus Right

076-077 6.00% 21.00%

075-076 5.00% 75.00% 2:1

074-075 15.00% 25.00%

Global IME Laghubitta Bittiya Sanstha Ltd

Fiscal Year Cash Div Bonus Right

076-077 1.45% 27.47%

075-076 0.92% 35.00%

074-075 0.79% 15.00% 1:1

Forward Microfinance Laghubitta Bittiya Sanstha Ltd.

Fiscal Year Cash Div Bonus Right

076-077 6.58% 25.00%

075-076 12.50% 32.50%

074-075 20.00% 25.00%

Minute of Meeting

Meeting 1: Profiling the risk of the client

Date: 24th August, 2021

Time: 1:00 p.m. to 2:30 p.m.

Place: Virtual

Participants: All members

Purpose fulfilled:

1. Profiling the client’s profile by analyzing risk tolerance ability.

2. Understanding client’s investment goals.
Action:

1. Selecting group strategy for portfolio management of the client.

2. Division of budget for investment and trading
3. Background study of companies

Meeting 2: Setting criteria and investment goals

Date: 1st September, 2021

Time: 11:00 a.m. to 12:30 p.m.

Place: Virtual

Participants: All members

Purpose fulfilled:

1. Finalizing selection criteria.

2. Decided to make division of 40% of the amount of investment to buy bank’s stocks and
20% each in life, non-life insurance and microfinance sectors.

Meeting 3: Analysis

Date: 5th September, 2021

Time: 3:30 p.m. to 5:00 p.m.

Place: Virtual

Participants: All members

Action:

1. Fundamental screening of the companies and technical analysis

2. Portfolio Construction

Meeting 5: Evaluation of Portfolio

Date: 11th September, 2021

Time: 11:30 a.m. to 1:15 p.m.

Place: Virtual

Participants: All members

Purpose fulfilled:

1. Identification of realized and unrealized gain of the portfolio.

2. Analysis of Performance and the association with theories studied in the class.