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Kunthinath C M Portfolio Project Final
Kunthinath C M Portfolio Project Final
I. EXECUTIVE SUMMERY
The Karvy group was formed in 1983 at Hyderabad, India. Karvy ranks
among the top player in almost all the fields it operates. Karvy Computershare Limited is
India’s largest Registrar and Transfer Agent with a client base of nearly 500 blue chip
corporate, managing over 2 crore accounts. Karvy Stock Brokers Limited, member of
National Stock Exchange of India and the Bombay Stock Exchange, ranks among the top
5 stock brokers in India. With over 6, 00,000 active accounts, it ranks among the top 5
Depositary Participant in India, registered with NSDL and CDSL.
I have undertaken the project at Karvy Stock Broking Ltd. at Bijapur city.
This project mainly deals with providing advisory services to investors. In this report I
have taken 5 clients portfolio out of 8 provided by the company. The selection is based on
total amount invested in entire portfolio and their location, and finally the manager of the
Bijapur branch agreed to carry my research work on this client’s portfolio. And as per the
instruction of the manager clients details are not disclosed in this project because of safety
of clients.
All together 5 clients are invested total Rs. 6,71,90,040.79 in 66 companies
in to different sector. Here I have analyzed all 66 companies first as part of my research
work. Firstly, I have calculated monthly returns, beta, alpha, variance, standard deviation,
co-efficient correlation, co-efficient determination and total risk for each scrip’s. Then I
moved to market return, market S.D and market variance. After that I applied the various
portfolio theories like Sharpe Index, Treynor Index, Jensen performance index and
CAPM model to decide which client has the best portfolio.
So among 5 clients, client no 3 and 4 very good because of they have well
diversified portfolios along with volatility(risk) factor of 14.23 and 8.09 respectively but
portfolio rate of return is higher as compared to other clients & market return. And client
no 5 is worst performing for given level of risk criteria standard deviation of 12.97, he has
negative rate of return -2.22% & he has invested in only few company, so it is not good
because that is more risky one. So clients are advised that they need to diversify their
portfolio to reduce risk level.
While investing investors should consider the market scenario also their
earnings depends on the market favorable conditions. If market expected to move up in
future, that time investor should aggressive. They can choose scrip’s which has higher
beta, high standard deviation and high co-efficient determination; otherwise they can go
for defensive scrip’s.
TITLE OF PROJECT
OBJECTIVE OF STUDY:
This study is undertaken at the KARVY Stock Broking Ltd, at Bijapur
city. And it has following objectives.
Main objectives:
To study the advisory services and help to provide suggestions regarding
construction of optimal portfolio to the investors.
To know how best investors are getting returns by investing in various securities.
Sub-objectives:
To characterize the equity share by calculating average return and standard
deviation (S.D) of the return for each of the shares.
To characterize the NSE Nifty Index by calculating average return and standard
deviation of the returns.
To establish correlation coefficient (r), co-efficient determination (r 2), beta (β),
alpha (α), variance (Var) for each of the shares.
To arrive at systematic risk, unsystematic risk and total risk associated with each
of the share.
To arrive at the best portfolio management theories are used.
Research Methodology:
Methodology:
Both the primary data and secondary data’s are used in the report.
Primary Data
• Interaction with the Branch Manager and staff of KARVY STOCK BROKING,
BIJAPUR branch.
• Direct interaction with clients of the KARVY.
Secondary Data
No debentures, mutual fund and government bonds are included in the portfolio
analysis.
INTRODUCTION
OBJECTIVE OF STUDY:
To know how best investors are getting returns by investing in various securities.
Sub-objectives:
To characterize the NSE Nifty Index by calculating average return and standard
deviation of the returns.
To arrive at systematic risk, unsystematic risk and total risk associated with each
of the share.
TITLE OF PROJECT
Research Methodology:
Methodology:
Both the primary data and secondary data’s are used in the report.
Primary Data
• Interaction with the Branch Manager and staff of KARVY STOCK BROKING,
BIJAPUR branch.
• Direct interaction with clients of the KARVY.
Secondary Data
METHODOLOGY:
Systematic risk, unsystematic risk and total risk are associated with each share are
in the portfolio of the client.
To rank the portfolio various portfolio management theories are used i.e. Sharpe
Index Model, Treynors Index Model, CAPM Model and Jensen’s Performance
Model are used.
Companies listed with stock exchanges with in the last 6 months are not
considered.
ANALYTICAL TECHNIQUE:
Monthly closing shares price and Monthly closing NSE Nifty Index value is
considered for the 24 months (2 years) from 31st JAN 2005 to 31st JAN 2007 as a
time period.
The study and analysis of portfolio is limited to specific 5 clients of karvy stock
broking in bijapur.
The study is restricted to only 2 years Monthly closing price of stocks & NSE
Nifty Index from 30/04/2007 to 31/03/2009.
Though the company provided 8 portfolios list of the different clients with
different places and different amount. Out of 8 portfolios only 5 are selected on
the basis of amount invested and number of share held in the portfolio.
Even though the company also provided the details of the clients like name and
address and other information but safety purpose these details are not disclosed.
No debentures, mutual fund and government bonds are included in the portfolio
analysis.
All the calculation is made restricted to 2 years monthly closing price of the shares
and NSE Nifty Index.
CUT OF DATE:
Cut of date is 31st/April/2007 for all the company share price and market index prices.
Introduction:
“The securities market is the market for equity, debt and derivatives”. The
securities market has essentially three categories i.e. the issuer of securities, the investors
in the securities and intermediaries. The issuers are the borrowers or deficit savers, who
issue securities to raise funds. The investors, who are surplus savers, deploy their saving
by subscribing to these securities. The intermediaries ware the agents who match the
needs of users and suppliers of funds for a commission. These intermediaries pack and
unpack securities to help both issuers and investors to achieve their respective goals.
There are a large variety and number of intermediaries providing various services in the
Indian securities market. This process of mobilization of resources is carries out under the
supervision and overview of regulators. The regulators develop fair market practices and
regulate the conduct of issuers of securities and the intermediaries. They are also in
charge of protecting the interest of the investors. The regulator ensures a high service
standard from the intermediaries and supply of quality securities and non manipulated
demand for them in the market.
Securities Market
Government
Securities
Market Futures Market
Money Market
The capital market services as a reliable guide to the performance and financial
position of companies, and there by promoters efficiency. It values firms
accurately and ties up manager compensation to stock value and thereby provides
incentives to managers to maximize firm value. It thus helps to align the interests
of the managers and thereby spurs efficient resources allocation and growth.
A near continuous valuation of companies as reflected in share prices, and the
implied possibility of mergers and takeovers are conducive to financial discipline,
and more efficient allocation of capital.
Stock market promoters’ growth through the creation of liquidity. Many profitable
investments require long term capital, but investors are often reluctant to
relinquish control over their savings for long periods. Equity market makes
investment less risky, more profitable, and more attractive by making it more
liquid. By facilitating long term and more profitable investment, liquid stock
market improves the allocation of capital and enhances growth. Through these
effects, stock market liquidity can lead to more saving and investment also.
Historically, many investors had been made much before they became
innovations. Inventions became innovations and ignited industrial revolution
when liquid financial market made it possible to develop projects that require
large capital injections for long periods. The industrial revolution had wait the
financial revolution took place.
Since high return projects tends to be comparatively risky, stock markets that
facilitates risk diversification through international integration can encourage a
shift to higher return projects and thereby help to promote growth.
Large active and liquid stock markets induce investors to research and monitor
firm, and the resulting improved information improves resource allocation and
accelerates growth.
The market for long term securities like bonds, equity stocks, and
preferred stocks are divided in to primary market and secondary market. The primary
market deals with the new issues of securities. Outstanding securities are traded in the
secondary market, which is commonly known as stock market or stock exchange. In the
secondary market, the investors can sell and buy securities. Stock markets predominantly
deal in the equity shares. Debt instruments like bonds and debentures are also traded in
the stock market. Well regulated and active stock market promotes capital formation.
Growth of the primary market depends on the secondary market. The health of the
economy reflected by the growth of the stock market.
The origin of the stock exchange in India can be traced back to the later
half of the 19th century. After the American civil war (1860-61) due to the share mania of
the public, the number of brokers dealing in shares increased. The brokers organized an
informal association in Mumbai named “The native stock and share brokers association”
in 1975. At presently in India there 23 stock exchanges are there and situated in various
part of the country. All the stock exchanges in India are controlled by SEBI.
NSE has played a catalytic role in reforming the Indian securities market
in terms of microstructure, market practices and trading volumes. The market today uses
state-of-art information technology to provide an efficient and transparent trading,
clearing and settlement mechanism, and has witnessed several innovations in products &
services viz. demutualization of stock exchange governance, screen based trading,
compression of settlement cycles, dematerialization and electronic transfer of securities,
securities lending and borrowing, professionalization of trading members, fine-tuned risk
management systems, emergence of clearing corporations to assume counterparty risks,
market of debt and derivative instruments and intensive use of information technology.
The National Stock Exchange of India Limited has genesis in the report of
the High Powered Study Group on Establishment of New Stock Exchanges, which
recommended promotion of a National Stock Exchange by financial institutions (FIs) to
provide access to investors from all across the country on an equal footing. Based on the
recommendations, NSE was promoted by leading Financial Institutions at the behest of
the Government of India and was incorporated in November 1992 as a tax-paying
company unlike other stock exchanges in the country.
NSE Logo
Promoters
Outdated settlement systems that are inadequate to cater to the growing volume,
leading to delay.
To ensure equal access to investors all over the country through appropriate
communication network
Advantages of NSE:
• Wider accessibility:
The NSE ensure wider accessibility through satellite linked trading
facility. Computer terminals and links with VSAT help the the traders to contact
their counterparts in other parts of the country quickly. The quick trading system
ensures better pricing.
Expansion:
After establishing its operation in Mumbai, the NSE had expanded
its operation to other cities. NSE has installed 2580 VSATS in 317 cities across
the country. A break up of VSATs across 317 cities is given below.
Quality:
Apart from the consolidation of the market at national level, the
transaction cost along with the bad deliveries has declined. Dematerialization of
shares has helped in the reduction of the bad deliveries. The effective functioning
of National Securities Clearing Corporation Limited is another reason for it.
More liquidity:
With its on line systems and quick trading facilities, the NSE has
introduced some liquidity into the capital market. In the last quarter of 1997, the
NSE was more liquid for the 835 scrips that accounted for 97 per cent of the total
trading volume. In number of trades, an indicator of the presence of the retail
investor, the NSE was ahead of the BSE.
Less brokerage:
Transparency in NSE allows the breaking up of the costs into
brokerage fees, market impact costs and clearing and settlement. The brokerage
fee at the BSE terminals outside Mumbai is 0.5 percent of the value transacted. On
the NSE, it is around 0.1 percent of the value transacted.
About KARVY
The Karvy group was formed in 1983 at Hyderabad, India. Karvy ranks
among the top player in almost all the fields it operates. Karvy Computer share Limited is
India’s largest Registrar and Transfer Agent with a client base of nearly 500 blue chips
corporate, managing over 2 core accounts. Karvy Stock Brokers Limited, member of
National Stock Exchange of India and the Bombay Stock Exchange, ranks among the top
5 stock brokers in India. With over 6, 00,000 active accounts, it ranks among the top 5
Depositary Participant in India, registered with NSDL and CDSL. Karvy COM trade,
Member of NCDEX and MCX ranks among the top 3 commodity brokers in the country.
Karvy Insurance Brokers is registered as a Broker with IRDA and ranks among the top 5
insurance agent in the country. Registered with AMFI as a corporate Agent, Karvy is also
among the top Mutual Fund mobilize with over Rs. 5,000 cores under management.
Karvy Realty Services, which started in 2006, has quickly established itself as a broker
who adds value, in the realty sector. Karvy Global offers niche off shoring services to
clients in the US.
Karvy has 575 offices over 375 locations across India and overseas at
Dubai and New York. Over 9,000 highly qualified people staff Karvy.
The birth of Karvy was on a modest scale in 1979. It began with the vision
and enterprise of a small group of practicing Chartered Accountants who founded the
flagship company …Karvy Consultants Limited. Karvy started with consulting and
financial accounting automation, and carved inroads into the field of registry and share
accounting by 1985. Since then, Karvy have utilized its experience and superlative
expertise to go from
Over the last 20 years Karvy has traveled the success route, towards
building a reputation as an integrated financial services provider, offering a wide
spectrum of services. And Karvy have made this journey by taking the route of quality
service, path breaking innovations in service, versatility in service and finally…totality in
service. Karvy’s highly qualified manpower, cutting-edge technology, comprehensive
infrastructure and total customer-focus has secured for Karvy the position of an emerging
financial services giant enjoying the confidence and support of an enviable clientele
across diverse fields in the financial world.
Vision of Karvy:
To achieve & sustain market leadership, Karvy shall aim for complete
customer satisfaction, by combining its human and technological resources, to provide
world class quality services. In the process Karvy shall strive to meet and exceed
customer's satisfaction and set industry standards.
Member - National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), and the
Hyderabad Stock Exchange (HSE). Karvy Stock Broking Limited, one of the
cornerstones of the Karvy edifice, flows freely towards attaining diverse goals of the
customer through varied services.
1. Controlled and low cost service culture: Karvy is there to serve its client at the
minimum possible cost. it controls cost by its various cost- cutting techniques and
minimization of avoidable costs.
2. Large volume processing capability: being the largest financial service provider
in the country, it has the unique distinction of operating its activities on a large
scale which benefits all the parties cordially.
3. Adherence to strict time schedule: Karvy knows that time is money and tries it
best to finish the task within the stipulated time schedule.
4. Expertise in coordinating multi-location responses: Karvy has got a wide
network and hence one can find its branches at most of the places in India. Thus it
enjoys its presence everywhere and coordinates among itself in solving the queries
and in responding to any situation.
The Finpolis, which analyzes the latest stock market trends and takes a
close look at the various investment options, and products available in the market, while a
weekly report, called Karvy Bazaar Baatein, gives more information on the immediate
trends in the stock market. To empower the investor further Karvy have made serious
efforts to ensure that its research calls are disseminated systematically to all our stock
broking clients through various delivery channels like email, chat, SMS, phone calls etc.
Depository Participants
The paradigm shift from pure selling to knowledge based selling drives the
business today. With wide portfolio offerings, company occupies all segments in the retail
financial services industry.
Advisory Services
Merchant Banking
At Karvy Insurance Broking Pvt. Ltd., it provide both life and non-life
insurance products to retail individuals, high net-worth clients and corporate. With the
opening up of the insurance sector and with a large number of private players in the
business, Karvy is in a position to provide tailor made policies for different segments of
customers. With Indian markets seeing a sea change, both in terms of investment pattern
and attitude of investors, insurance is no more seen as only a tax saving product but also
as an investment product. By setting up a separate entity, Karvy would be positioned to
provide the best of the products available in this business to its customers. Karvy’s wide
national network, spanning the length and breadth of India, further supports these
advantages. Further, personalized service is provided here by a dedicated team committed
in giving hassle-free service to the clients.
Karvy have traversed wide spaces to tie up with the world’s largest
transfer agent, the leading Australian company, Computershare Limited. The company
that services more than 75 million shareholders across 7000 corporate clients and makes
its presence felt in over 12 countries across 5 continents has entered into a 50-50 joint
venture with Karvy. Excellence has to be the order of the day when two companies with
such similar ideologies of growth, vision and competence, get together.
Issue Registry
Achievements
Milestones
Registered Office
"KARVY HOUSE"
46, Avenue 4, Street No.1,
Banjara Hills,
Hyderabad - 500 034,
Andhra Pradesh, India.
Tel : +91-40-23312454
Fax : +91-40-23311968
Email: mailmanager@karvy.com
Middle East - Representative Office
INTRODUCTION TO PORTFOLIO
In the light of the portfolio theory two principles of finance should be kept
in mind Time value of money and safety of money:
A rupee today is worth more than a rupee of tomorrow or a year hence and
as parting with money involves the loss of the present constructions it has to be rewarded
by return commensurate with time of waiting. Secondly, a safe rupee is preferred to an
unsafe at any point of time. Due to risk aversion of investors, they feel risk is
inconvenient and has to be rewarded by a return. The larger the risk taken, the higher
should be the return.
A portfolio theory is based on two assumptions, other thing remain the same.
1. Investors prefer higher rates of return to a lower rate of return.
2. Investors are averse i.e., not willing to take risk
The 1950s saw a bid of knowledge being developed which measures the
expected rate of return and risk allocated with combining assets. This study came to be
known as portfolio theory.
These are as follows:
1. Harry M.Markowitz – Mode Portfolio Theory
2. William Sharpe – Sharpe Index
3. Treynor –Treynor Index
4. Jensen – Performance Index
2. Beta
Beta is a measure of the systematic risk of a security that cannot be
avoided through diversification. Beta is a relative measure of risk-the risk of an individual
stock relative to the market portfolio of all stocks. If the security's returns move more
(less) than the market's returns as the latter changes, the security's returns have more
(less) volatility (fluctuations in price) than those of the market. It is important to note that
beta measures a security's volatility, or fluctuations in price, relative to a benchmark, the
market portfolio of all stocks.
A fund with a beta very close to 1 means the fund's performance closely
matches the index or benchmark. A beta greater than 1 indicates greater volatility than the
overall market, and a beta less than 1 indicates less volatility than the benchmark.
Investors expecting the market to be bullish may choose funds exhibiting high
betas, which increase investors' chances of beating the market. If an investor expects the
market to be bearish in the near future, the funds that have betas less than 1 are a good
choice because they would be expected to decline less in value than the index.
3. Alpha
Up to this point, we have learned how to examine figures that measure risk
posed by volatility, but how do we measure the extra return rewarded to you for taking on
risk posed by factors other than market volatility? Enter alpha, which measures how much
if any of this extra risk helped the fund outperform its corresponding benchmark. Using
beta, alpha's computation compares the fund's performance to that of the benchmark's
risk-adjusted returns and establishes if the fund's returns outperformed the market's, given
the same amount of risk.
Alpha = y - β(x)
Where.
4. Variance
The most commonly used measures of the risk in finance are variances or
its square root of standard deviation. A measure of the dispersion of a set of data points
around their mean value. It is a mathematical expectation of the average squared
deviations from the mean.
VARIANCE
= ( Return - E ( R )) 2
n
E ( R) = Average of Security Return
n = Number of days or observations
5. Standard Deviation.
A fund that has a consistent four-year return of 3%, for example, would
have a mean, or average, of 3%. The standard deviation for this fund would then be zero
because the fund's return in any given year does not differ from its four-year mean of 3%.
On the other hand, a fund that in each of the last four years returned -5%, 17%, 2% and
30% will have a mean return of 11%. The fund will also exhibit a high standard deviation
because each year the return of the fund differs from the mean return. This fund is
therefore more risky because it fluctuates widely between negative and positive returns
within a short period.
To determine how well a fund is maximizing the return received for its
volatility, you can compare the fund to another with a similar investment strategy and
similar returns. The fund with the lower standard deviation would be more optimal
because it is maximizing the return received for the amount of risk acquired. Consider the
following graph:
EXAMPLE:
With the S&P 500 Fund B, the investor would be acquiring a larger amount of
volatility risk than necessary to achieve the same returns as Fund A. Fund A would
provide the investor with the optimal risk/return relationship. Remember that the larger
the standard deviation, the more uncertain the outcome.
6. Correlation Co-efficient ( r )
Where,
n = Number of days or observations
x = Index Return
y = Security Return
7. Coefficient Determination
Co-eff of Determination = r 2
8. Systematic risk
Virtually all securities have some systematic risk, whether bonds or stocks,
because systematic risk directly encompasses interest rate, market, and inflation risks.
The investor cannot escape this part of the risk because no matter how well he or she
diversifies, the risk of the overall market cannot be avoided. If the stock market declines
sharply, most stocks will be adversely affected; if it rises strongly, as in the last 2 years,
most stocks will appreciate in value. These movements occur regardless of what any
single investor does. Clearly, market risk is critical to all investors.
9. Unsystematic Risk
Research Methodology:
Methodology:
Both the primary data and secondary data’s are used in the report.
Primary Data
• Interaction with the Branch Manager and staff of KARVY STOCK BROKING,
BIJAPUR branch.
• Direct interaction with clients of the KARVY.
Secondary Data
METHODOLOGY:
Systematic risk, unsystematic risk and total risk are associated with each share are
in the portfolio of the client.
To rank the portfolio various portfolio management theories are used i.e. Sharpe
Index Model, Treynors Index Model, CAPM Model and Jensen’s Performance
Model are used.
Companies listed with stock exchanges with in the last 6 months are not
considered.
ANALYTICAL TECHNIQUE:
CLIENT NO: 01
Continued….
Security β Α S.D σ Security Corr. Co-eff Syst. UnSys Total
Return Beta Alpha Variance Co-eff(r) Detr Risk t Risk
(r)2 Risk
-0.90975 0.256 -0.883 6.559 43.022 0.414 0.171 7.366 35.656 36.48442
3.354011 1.689 3.533 23.86 569.54 0.75 0.563 320.7 248.89 249.3248
4
-1.38653 -0.12 -1.399 14.78 218.5 -0.09 0.007 1.613 216.89 217.8783
0.985156 0.439 1.031 9.372 87.826 0.496 0.246 21.65 66.179 66.93236
8
-0.71042 1.114 -0.592 13.07 170.77 0.904 0.816 139.4 31.338 31.52146
1.295139 1.151 1.417 16.14 260.55 0.756 0.571 148.8 111.72 112.1458
4
14.80915 1.709 14.99 72.7 5285.6 0.249 0.062 328.3 4957.3 4958.25
1
0.492405 1.333 0.634 18.56 344.44 0.762 0.58 199.9 144.55 144.9699
0.954834 1.873 1.153 25.08 629.24 0.792 0.627 394.6 234.61 234.9846
8
-3.39067 1.656 -3.215 22.31 497.56 0.787 0.62 308.4 189.16 189.5391
-0.69252 0.422 -0.648 11 121.08 0.407 0.166 20.06 101.01 101.8489
0.179152 1.567 0.345 23.03 530.33 0.721 0.52 276 254.34 254.8221
6
-1.90901 0.865 -1.817 13.91 193.36 0.66 0.435 84.11 109.26 109.8214
5.696046 2.271 5.937 29.44 866.97 0.818 0.669 579.9 287.09 287.4258
3
3.816534 1.791 4.006 25.58 654.31 0.742 0.551 360.6 293.73 294.1786
8
-1.9762 1.541 -1.812 19.69 387.57 0.83 0.689 267.1 120.5 120.8083
0.655795 1.026 0.764 13.16 173.24 0.826 0.683 118.3 54.919 55.23648
8
2.105185 1.137 2.226 15.92 253.51 0.758 0.574 145.5 108.04 108.4668
-1.4309 0.853 -1.34 17.93 321.44 0.504 0.254 81.78 239.66 240.4011
-1.87488 0.998 -1.769 16.68 278.38 0.893 0.797 221.8 56.572 56.77504
7.713633 1.008 7.820 32.29 1042.9 0.788 0.621 648 394.85 395.226
7
-2.90963 1.479 -2.753 24.86 618.18 0.631 0.398 245.8 372.37 372.9692
3.482612 1.73 3.666 21.54 464.09 0.851 0.725 336.4 127.64 127.9166
4
1.749718 1.099 1.866 15.19 230.59 0.767 0.589 135.7 94.857 95.26863
4
-1.101 1.539 -0.938 27.56 759.63 0.592 0.35 266.2 493.43 494.0786
-6.65183 1.528 -6.49 23.63 558.14 0.687 0.473 263.8 294.34 294.8692
-4.09528 2.399 -3.84 30.36 921.76 0.838 0.702 647 274.77 275.0715
-0.02046 0.914 0.076 14.15 200.16 0.685 0.469 93.92 106.23 106.7643
6
49.73008 3.306 50.08 206.9 42823 0.169 0.029 1229 41594 41595.02
1
2.096977 0.861 2.188 17.69 312.98 0.516 0.266 83.3 229.68 230.4164
4
-3.48293 2.261 -3.243 32.16 1034 0.746 0.556 574.7 459.23 459.6728
-1.38189 0.921 -1.284 15.71 246.7 0.622 0.387 95.4 151.3 151.9149
ANALYSIS:
Client no-1, in his portfolio he has 19,587 quantity of share worth of Rs:
46,8500/- in to different sector, he has well diversified portfolio consisting of more than
30 companies. In his portfolio if you consider return factor as criteria 27% of shares has
good return status. Total market return is in negative (-0.106%) per month & 53% of
securities are giving negative, but in this portfolio 7 securities are giving more than 3 %
return and 2 are near to it. And beta also good for these company they move along with
market movements. Tata Steel Limited & LIT has highest beta and also they has good
alpha with R2. So in the future, if market gives better return these also gives more than the
market return because R2 is good for company. At the same time if you consider risk
factor, S.D, variance ,Total Risk is very much high in case of Tata Steel Limited, it has
highest S.D of 206.9, total risk 41595.02 and variance 42823 followed by SESAGOA &
UNITECH LTD, so these are considered as more risky share in the portfolio. And one
most important thing is in this fund distribution out of 34 company security 47%
companies are outperformed the market.
CLIENT NO: 02
Continued…
ANALYSIS:
In this portfolio he invested in above 21,992 equity share amount of Rs 47
lacks. Altogether he has invested in 20 companies with various sectors, so it has well
diversified portfolio. Out of 20 companies 10 companies are giving negative returns &
remaining are giving positive returns this is very good sign for the investor. And Beta for
the almost all companies are more than one remaining are near to market movements.
CLIENT NO: 03
Continued….
Continued….
ANALYSIS:
Client no-3, in his portfolio he has 274305 quantity of share worth more
than Rs. 5 Crores in to different sector, he has well diversified portfolio consisting of
more than 30 companies. In his portfolio if you consider return factor as criteria most all
shares has good return status. Total market return is negative (-0.106%) per month, but in
this portfolio 4 securities are giving more than 3 % return and 4 are near to 2% return.
Tata Steel Limited & Reliance Natural Resources Ltd are giving higher return (49.73% &
7.71%) to him compare to others. Godrej India Ltd, IFCI Ltd, Larsen & Toubro Ltd &
Reliance Capital Ltd has high beta and also they has good alpha with R 2, so in the future,
if market gives better return these also gives more than the market return because R2 is
good for company. At the same time if you consider risk factor, S.D, variance, Total Risk
is very much high in case of Tata Steel Limited, Reliance Natural Resources, Ltd Godrej
India Ltd, IFCI Ltd & Reliance Capital Ltd, so these are considered as more risky share in
the portfolio. Tata Steel Limited has highest S.D of 206.94, total risk 42823.2 and
variance 42823.2. And one most important thing is in this portfolio Unitech Ltd has good
beta along with Alpha & R but return is very low. One more important thing is in out of
34 company security 50% companies are outperformed the market.
CLIENT NO: 04
Continued….
ANALYSIS:
CLIENT NO: 05
Continued….
ANALYSIS:
230.41 respectively. One most import thing is the overall return of portfolio (i.e. -2.22) is
less than market return (-0.11), so this client not diversified his amount in to all sectors.
2) MARKET ANALYSIS
-2.5495186 2586.342
2
ΣX ΣX
N 24
MEAN( X ) -0.1062
Remember, one can only measure return in relation to the risk taken.
Investing is always a two-dimensional process based on return and risk. These two factors
are opposite sides of the same coin, and both must be evaluated if intelligent decisions are
to be made. Therefore, if we know nothing about the risk of and investment, there is little
we can say about its performance. Given the risk that all investors face, it is totally
inadequate to consider only the returns from various investment alternatives. Although all
investors prefer higher returns, they are also risk averse. To evaluate portfolio
performance properly, we must determine whether the returns are large enough given the
risk involved. If we are to assess performance carefully, we must evaluate performance
on a risk-adjusted basis.
William Sharpe has tried to simplify the process of data inputs, data
tabulation and reaching a solution, has developed a simplified variant of the Markowitz
model that reduces substantially its data and computational requirements.
The single index model is based on the assumption that stocks vary
together because of the common movement in the stock market and there are no effects
beyond the market that accounts the stocks co movement. The expected return, standard
deviation and co-variance of the single index model represent the joint movement of the
securities.
Where,
Rp = Portfolio Return
Rf = Risk Free Return
σp = Portfolio Standard Deviation
EVALUATION: Sharpe index is a measure of risk premium related to the total risk. The
index assigns the highest values to assets that have best risk adjusted average rate of
return. According to this model which gives highest value is the best performing portfolio
where,
Rp = Portfolio Return
Rf = Risk Free Return
βp = Portfolio Beta
EVALUATION:
Like the Treynor measure, the Jensen measure or Jensen’s alpha is based
on the capital asset pricing model. It reflects the difference between the returns actually
earned on portfolio and the return the portfolio was supposed to earn, given its beta as per
the capital assets pricing model
Where,
α = Alpha
Rf = Risk Free Return
β = Beta
Rm = Market Return
Rf = Risk Free Return
The return of the portfolio varies in the same proportion of beta difference
between the market return and risk less rate of interest. Beta is assumed to reflect the
systematic risk. The funds portfolio beta would be equal to one if it takes a portfolio of all
market securities. The beta would be greater than one if the funds portfolio consists of
securities that are riskier that a portfolio of all market securities.
EVALUATION:
Jensen index compares the actual return of the portfolio with the calculated
or predicted return. Better performance of the fund depends on the predictive ability of
the managerial personnel of the fund. Fund or portfolio which gives or earns more return
is selected and that is considered as best performing portfolio.
CAPM = Rf + β (R m ˉ R f )
Where,
Rf = Risk Free Return
β = Beta
Rm = Market Return
It states that a stocks (or portfolio's) excess expected return depends on its
beta and not its volatility. Stated another way, excess return depends upon systematic risk
and not on total risk.
We call CAPM a "capital asset pricing model" because, given a beta and
an expected return for an asset, investors will bid its current price up or down, and
adjusting that expected return so that it satisfies formula. Accordingly, the CAPM
predicts the equilibrium price of an asset. This works because the model assumes that all
investors agree on the beta and expected return of any asset. In practice, this assumption
is unreasonable, so the CAPM is largely of theoretical value.
BASIC ASSUMPTIONS:
4) EVALUATION OF PORTFOLIOS
NUMBER
S. NAME QUANTITY TOTAL PORTFOLIO
NO OFTHE IN AMOUN IN
CLIENT PORTFOLIO PORTFOLIO Return Beta Alpha Variance S.D
CLIENT
1 NO - 01 19587 4685677.63 -1.191 1.656 -1.02 42.42 6.51
CLIENT
2 NO - 02 21992 4696502.98 -1.252 1.544 -1.09 171.39 13.09
CLIENT
3 NO - 03 274305 51561704.15 1.506 1.612 1.68 202.50 14.23
CLIENT
4 NO - 04 11568 1564167.23 0.816 1.261 0.95 65.40 8.08
CLIENT
5 NO – 05 26096 4681988.8 -2.215 1.489 -2.05 168.33 12.97
MARKET PERFORMANCE
MARKET VARIENCE OF
BETA RETURN MARKET S.D OF MARKET
1 -0.10623 112.4379 10.604
ANALYSIS:
This is the aggregate table for all 5 clients’ portfolio performance along
with their portfolio return, portfolio beta, portfolio alpha, portfolio variance and portfolio
standard deviation. So here am try to analyze all 5 clients performance comparing their
portfolio performance each other. And also these compared with overall market
performance.
From the above table we can conclude that CLIENT NO- 03 earning
highest return 1.506 % per month compared other and as well as market return -0.106%,
with moderate level of risk(S.D= 14.23). In case of risk and volatility CLIENT NO- 03
has highest level of risk and volatility because S.D and Variance is highest in this case
14.23 and 202.50 respectively, but in the same it gives better return than others, and it has
highest beta along with alpha, so if market gives good response it will definitely brings
handful return to this client. But here CLIENT NO-05 is worst performer because he has
high risk but return is less than other & compare to market.
If you take consideration of variance & SD client no-01 & 04 are good,
because of their SD & Variance is lower than the market.
And the same if you consider CLIENT NO-3 and 4. CLIENT 3 is taken to
consider, because his portfolio return is high with higher risk along with high beta &
alpha, if market return increases then return of the client also increase. If you take in to
account of all clients CLIENT NO – 3 and 4 has well performing portfolio than others.
ANALYSIS:
1) SHARPE INDEX :
CLIENT NO-03 ranks top among the total 5 clients because of the higher
return with high volatility in return. Client no-4 ranks second in the list, because of the
low volatility in portfolio. Client no-5 ranks to last because of very low return and high
risk compare to his return and Client 1 & 2 ranks 4 & 3 respectively.
2) TREYNORS INDEX :
According to this theory alpha takes very important role in ranking the
portfolios, higher the alpha is first chance to rank top. In this also Client no-03 has
takes 1st place, and again client no-04 is had 2nd rank. And client 1, 2 & 5 ranks 3rd, 4th
& 5th because of negative alpha & return.
4) CAPM:
VI. FINDINGS
About company:
Through my study, I have found that most of the clients are satisfied with
KARVY services & they prefer KARVY because of its prominent parameters like
safety, client relationship & goodwill.
KARVY’s DEMAT service is safest & finest system which allows investors to get
prompt services. It was also found that DEMAT process at KARVY is transparent
which does not leave any kind of errors to the investors.
Since last 1 year market is too volatile, so investor has a fear to invest their money
in share market.
In India Mutual Fund industry is performing very well, so investors are interested
more in mutual fund because of diversified risk & safety purpose.
Most of the investors are not rational; they like to get advisory services.
The present global crisis impacts on the equity market which will continue to
bearish or high volatile mood.
If we consider IPO then its current performance is not good, so investors do not
prefer current IPOs. Leaders in IPO’s of Portfolio companies (more than 15
portfolio companies have already achieved stock market listing).
About project:
In my analysis work client no 3 and 4 found good, because their return is higher
than the market return.
In my analysis client no-01 & 04 SD & variance is low compare to market SD &
Variance (10.60 & 112.44), so their risk is low. And client 2, 3 & 5 their risk is
very high comparing to market SD & Variance.
In my analysis Beta & Alpha are high for the all client, if market return increases
their return also increase.
It reveals client 5, 1 & 2 have the very low return than market return (-0.11%).
Finding out beta, alpha, S.D and systematic risk for each security and portfolio is
a very complicated process.
Clients can’t believe theories like Sharpe Treynor and CAPM, because they do not
aware about the theories and all.
Client no-05 & 02 have invested their amount in a few sectors only, so their
portfolio diversification is not good & very risky for them.
VII. SUGGESTIONS
Most of investors are not rational investor, so they should invest their money by
analyzing the market condition.
Since last 1 year market is too volatile, so investor has a fearing for invest their
money in share market, in this condition investors must go long term investment
by taking of positive way.
Client no-05 & 02 have invested their amount in a few sectors only & their
portfolio diversification is not good & very risky for them. So they should modify
their portfolio by considering more companies.
Client 2, 3 & 5 their risk is very high comparing to market SD & Variance, So
they should reduce their risk with the help of investing some amount in mutual
fund also.
Karvy should reduce the transaction charges like purchasing and selling
commissions, which can encourage the investors.
The company should advise the customers, How to reduce their risk with the help
of portfolio investment.
VIII. CONCLUSION
IX. BIBLIOGRAPHY
BOOKS
WEBSITE
• http://www.nse.com
• http://www.moneypore.com
• http://www.icicdirect.com
• http://www.moneycontrol.com
• http://www.bseindia.com
• http://www.thefinapolis.com
• http://www.Karvy.com