ICFAI BUSINESS SCHOOL

Academic Year – 2021-23

REPORT
on
Hedging an Equity Portfolio using Futures
Financial Derivatives & Risk Management
Semester – III

Submitted by: Section F

Sl.no NAME ENROLMENT NO.

1
Arijit Chatterjee 21BSPHH01C0202

2 Milan Meher 21BSPHH01C0677

3 Priyanka Rani 21BSPHH01C0891

4 Sai Sanidhya 21BSPHH01C1026

5 Srijeeta Mukherjee 21BSPHH01C1283

TABLE OF CONTENTS
SL.NO NAME PG.NO

1
Franklin India Blue-chip 3

2 Nippon India Large Cap 4

3 Tata Large Cap Fund 5

4 PGIM India Large Cap Fund 6

5 Essel Large Cap Equity Fund 7

2
 1. Franklin India Blue-chip

1.1. OBJECTIVE
To provide the investor with the opportunity of long-term capital appreciation by investing in a
diversified portfolio of equity and equity related securities following a contrarian investment strategy.

1.2. BASIC INFORMATION

Inception Date 05 July 1999

Fund Manager Mr. Dinesh Balachandran & Mr. Mohit Jain
Benchmark S&P BSE 500 TRI
Top Ten Holdings: HDFC Bank Ltd. (4.17%)
ICICI Bank Limited (4.00%)
Tube Investments of India Ltd. (3.00%)
State Bank of India (2.59%)
GAIL (India) Ltd. (2.40%)
HCL Technologies Ltd. (2.23%)
ITC Ltd. (2.14%)
NHPC Ltd. (2.02%)
Reliance Industries Ltd. (1.95%)
Axis Bank Ltd. (1.89%)
Industry Allocation: Financial Services (17.50%)
Sovereign (8.50%)
Automobile And Auto Components (8.43%)
Capital Goods (6.10%)
IT (5.44%)
Oil, Gas & Consumable Fuels (4.94%)
Power (4.62%)
Healthcare (4.37%)
Fast Moving Consumer Goods (3.61%)
Chemicals (3.57%)

1.3. INTERPRETATION
Based on the analysis, hedging of Mutual fund scheme “Franklin India Blue-chip (Growth)” is
benefitting us because the standard deviation of hedged portfolio (120992514) is less than standard
deviation of unhedged portfolio (696890844). The main objective of hedging is it reduces the uncertainty
of risk. Thus, by using hedging we are able to fulfil both the objectives as the value of hedged portfolio is
more than the value of hedged portfolio.

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 2. Nippon India Large Cap Direct Growth
2.1. FUND FACT SHEET
Fund Size ₹ 4531.55 Cr

Fund House Nippon India Large Cap Direct Growth

Fund Manager Ravi Gopalakrishnan, Ashish Aggarwal

Inception Date Jan 2013 (Direct)

Benchmark Nifty Large Mid Cap 250 TRI

Equity Holding 94.84%

Number of Stocks 72

NAV (On 30th June 2022) ₹ 52.3541

AUM (On 30th June 2022) ₹ 4532 Cr

INFORMATION RETRIEVED

Covariance (Portfolio, Index) 0.0114%

Variance (Index) 0.0120%

Hedging Commencement Date 1st July 2022

AUM (On 30th June 2022) 45320000000 LOT Size 50

Number of units bought 865643760.5 Beta 0.96

Benchmark Index Nifty 50 Number of Contracts 55017

2.2. INTERPRETATION:
1. Value of Unhedged portfolio and Hedged Portfolio Differs. By Hedging the value of the portfolio
increased during the period from 45320000000 on 30th June 2022 to 46144852692 on 28th July
2022 as we took a short position on Nifty 50 Futures.
2. Value of Unhedged Portfolio increased from 45320000000 on 30th June 2022 to 49378051385 on
28th July 2022 as we took a long position in underlying Portfolio.
3. Although the value of portfolio is less by hedging the portfolio when compared to unhedged
portfolio but the risk on hedged portfolio ranging between 45517450131 - 46430987747 is very
less of 0.32% as compared to unhedged portfolio ranging between 45414528299 to 49378051385
of 0.71%.

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 3. Tata Large Cap Fund

3.1. FACT SHEET

 Fund manager(s) – Priya Ranjan, Gopal Agrawal

 Launch date – 02-Jan-2013
 Expense ratio – 1.24% as declared on 31-Jul-2022 (category average is 0.95%)
 Benchmark - Nifty 50

TOP 5 Stock Holdings in the Portfolio:

 
Value % of Total
Stock Name Sector (Mn) Holdings Quantity
Value
Stock Name Sector (Mn)
ICICI Bank Ltd. Banks 2998.7 4.56% 36.63L
HDFC Bank Ltd.
Banks 2602.8 3.96% 18.15L
Infosys Ltd. Computers- software 2360.6 3.59% 15.23L
Reliance Industries Refineries/Marketing 2291.4 3.48% 9.13L
State Bank of India Banks 2224.4 3.38% 42.10L

3.2. INTERPRETATION:

 The Beta calculation of the Fund to the Index came to 0.99 which means that if the market goes up
by 1% the stock will also go up by the same around 1% which means both are highly correlated in
the positive side.
 Value of Unhedged portfolio and Hedged Portfolio Differs. By Hedging the value of the portfolio
increased during the period from 58170200000 on 30th June 2022 to 59172128583.72 on 28th
July 2022 as we took a short position on Nifty 50 Futures.
 The hedged portfolio and unhedged portfolio’s returns are calculated to get the standard deviation
to know the risk of both hedged and unhedged portfolio and it came out to be, 0.071% and 0.445%
respectively. So, the unhedged portfolio has lower Standard Deviation.

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 4. PGIM India Large Cap Fund

4.1. FUND FACT SHEET

Fund Size ₹ 1779.66 Cr

Fund House PGIM India Large Cap Fund

Fund Manager Mrs. Roshi Jain

Inception Date Jan 2013 (Direct)

Benchmark BSE 500 TRI

Equity Holding 92.49%

Number of Stocks 31

NAV (On 30th June 2022) ₹ 121.294

AUM (On 30th June 2022) ₹ 11394.39 Cr

INFORMATION RETRIEVED

Covariance (Portfolio, Index) 0.01041%

Variance (Index) 0.01197%

Hedging Commencement Date 1st July 2022

AUM (On 30th June 2022) 1,13,94,39,000 LOT Size 50

Number of units bought 93,94,026.09 Beta 0.86936

Benchmark Index Nifty 50 Number of Contracts 1255.39 =1256

4.2. INTERPRETATION:
1. Value of Unhedged portfolio and Hedged Portfolio Differs as we took a short position on Nifty 50
Futures. By Hedging
- value of the portfolio on 30th June 2022 = 1139439000
- value of the portfolio on 28th July 2022 = 1301710669
2. Change in value of portfolio since we took a long position in underlying Portfolio.
- Value of Unhedged Portfolio on 30th June 2022 =139439000.
- Value of Unhedged Portfolio on 28th July 2022= 1229593468
3. Although the value of portfolio is more by hedging the portfolio when compared to unhedged
portfolio but the standard deviation for hedged portfolio is 0.012636188 while Standard deviation
for unhedged portfolio is 0.006623135. Hence by hedging, the risk of our portfolio is increasing as
compared to the hedged portfolio for the time period of 1 month.
Thus, this type of portfolio expects one to invest for five years or more, to expect gains that
comfortably beat the inflation rate as well as returns from fixed income options.
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 5. Essel Large Cap Equity Fund

5.1. FACT SHEET

 Fund manager(s) – Ankur Arora
 Launch date – 19-May-2005
 Expense ratio – 2.5% as declared on 31-Jul-2022 (category average is 1.95%)
 Benchmark - Nifty 50

TOP Holdings in the Portfolio:

 
% Of total
Stock name sector value (Mn) holdings Quantity
Radico Khaitan Ltd Brew/distilleries 112.9 3.88% 1.20L
KEI Industries Ltd Cables - electricals 111.4 3.83% 90.00 k
j.b Chemicals and Parma Ltd. Pharmaceuticals 106.2 3.65%` 60.00k
APL Apollo Tubes Ltd Steel Products 105.1 3.61% 1.10 L
Consumer
92.5
Dixon Technologies Ltd electronics 3.18% 25.00k
Chemicals-
87.7
Navin Fluorine International Inorganic 3.01% 20.00k

5.2. INTERPRETATION:

 The Beta calculation of the Fund to the Index came to 0.93 which means that if the market goes up
by 1% the stock will also go up by .93% which means both are highly correlated in the positive
side.
 The hedged portfolio and unhedged portfolio’s returns are calculated to get the standard deviation
to know the risk of both hedged and unhedged portfolio and it came out to be, 0.667% and
0.625%. So, the unhedged portfolio has lower Standard Deviation.
Though the difference isn’t much when compared to hedged portfolio, but since they are dealing with a
huge money even saving a small deviation means crores. So, here the hedge proved to be effective for the
fund.