A Case Study on Port Folio Management MBA Project

A STUDY ON PORTFOLIO MANAGEMENT AT MOTILAL OSWAL FINANCIAL SERVICES LTD SUBMITTED
PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE MASTER OF BUSINESS ADMINISTRATION TO

DECLARATION
I here by declare that th ! "r#$ect re"#rt t tled %A STUD& ON PORTFOLIO MANAGEMENT at MOTILAL OSWAL FINACIAL SER'ICES (INDIA) LIMITED* S+b, tted by ,e t# the de"art,e-t #. Ma!ter! #. B+! -e!! Ad, - !trat #-/ 000 ! a b#-a. de 1#r2 +-derta2e- by ,e a-d t ! -#t !+b, tted t# a-y #ther +- 3er! ty #r I-!t t+t #- .#r the a1ard #. a-y de4ree d "l#,a 5 cert . cate #r "+bl !hed a-y t ,e be.#re6 Date 7 Place7 (! 4-at+re)

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ACKNOWLEDGEMENT
The "er.ect 1ay t# d#c+,e-t th ! "r#$ect 1#+ld be t# !tart 1 th ac2-#1led4 -4 all th#!e "e#"le 1h# d rectly #r -d rectly e-c#+ra4ed/ !+""#rted ,e 1 th the r 3al+e added -"+t! 1 th#+t the, th ! "r#$ect 1#+ld -#t ha3e bee- th ! better6 T# !tart 1 th I 1#+ld l 2e t# tha-2 0000 #. MOTILAL OSWAL FINANCIAL SER'ICES (INDIA) LIMTED at 000 .#r 4 3 -4 ,e a- #""#rt+- ty t# d# ,y "r#$ect 1#r26 I 1#+ld l 2e t# 4 3e !"ec al ac2-#1led4e,e-t t# 0000 .#r h ! c#-! !te-t !+""#rt a-d ,#t 3at #-6 My ! -cere tha-2! t# ,y .ac+lty 000 ! r/ A!!#c ate "r#.e!!#r - . -a-ce/ .#r h ! tech- cal e9"ert !e/ ad3 ce a-d e9celle-t 4+ da-ce6 He -#t #-ly 4a3e ,y "r#$ect !cr+"+l#+! read -4/ b+t added ,a-y e9a,"le! a-d dea! t# ,"r#3e t6 I 1#+ld l 2e t# e9"re!! ,y a""rec at #- t#1ard! ,y .r e-d! .#r the r e-c#+ra4e,e-t a-d !+""#rt thr#+4h#+t th ! "r#$ect6 F -ally I 1#+ld l 2e t# #1e ,y ! -cere a""rec at #- t# all the E,"l#yee! #. the #r4a- :at #- 1h# "r#3 ded a .r e-dly e-3 r#-,e-t a-d !+""#rted thr#+4h #+t ,y "r#$ect6

00000

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ABSTRACT
P#rt.#l # ,a-a4e,e-t ca- be de. -ed a-d +!ed - ,a-y a 1ay!/ beca+!e the ba! c ,ea- -4 #. the 1#rd ! %c#,b -at #- #. the 3ar #+! th -4! 2ee" -4 -tact*6 S# I c#-! dered a-d e3al+ated th ! .r#, the "er!"ect 3e #. the -3e!t,e-t "art - the !ec+r t e! !e4,e-t6 Fr#, the -3e!t#r "# -t #. 3 e1 th ! "#rt.#l # .#ll#1ed by h , ! 3ery ,"#rta-t ! -ce thr#+4h th ! 1ay #-e ca- ,a-a4e the r !2 #. -3e!t -4 - !ec+r t e! a-d thereby ,a-a4 -4 t# 4et 4##d ret+r-! .r#, the -3e!t,e-t - d 3er! . ed !ec+r t e! -!tead #. "+tt -4 all the ,#-ey -t# #-e ba!2et6 N#1 a day<! -3e!t#r! are 3ery ca+t #+! - ch##! -4 the r 4ht "#rt.#l # #. !ec+r t e! t# a3# d the r !2! .r#, the ,ar2et .#rce! a-d ec#-#, c .#rce!6 S# th ! t#" c ! ch#!e- beca+!e - "#rt.#l # ,a-a4e,e-t #-e ha! t# .#ll#1 certa - !te"! - ch##! -4 the r 4ht "#rt.#l # - #rder t# 4et 4##d a-d e..ect 3e ret+r-! by ,a-a4 -4 all the r !2!6 Th ! t#" c c#3er! h#1 a "art c+lar "#rt.#l # ha! t# be ch#!e- c#-cer- -4 all the !ec+r t e! -d 3 d+al ret+r- a-d there by arr 3 -4 at the #3erall "#rt.#l # ret+r-6 Th ! al!# c#3er! the 3ar #+! tech- =+e! #. e3al+at #- #. the "#rt.#l # 1 th re4ard t# all the +-certa -t e! a-d 4 3e! a- ed4e t# !elect the r 4ht #-e6 The "+r"#!e #. ch##! -4 th ! t#" c ! t# 2-#1 h#1 the "#rt.#l # ,a-a4e,e-t ha! t# be d#-e - arr 3 -4 at the e..ect 3e #-e a-d at the !a,e t ,e ,a2e a1are the -3e!t#r t# ch##!e the !ec+r t e! 1h ch they 1a-t t# "+t - the r "#rt.#l #6 Th ! al!# 4 3e! a- ed4e - arr 3 -4 at the r 4ht "#rt.#l # - c#-! derat #- t# d ..ere-t !ec+r t e! rather tha- #-e ! -4le !ec+r ty6 The "r#$ect ! +-derta2e- .#r the !t+dy #. ,y !+b$ect th#r#+4hly 1h le +-der!ta-d -4 the d ..ere-t ca!e !t+d e! .#r the better +-der!ta-d -4 #. the -3e!t#r a-d ,y!el.6

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TABLE OF CONTENTS CHPTER-1 8686 INTRODUCTION
1.2. OBJECTIVE OF THE STUDY 1.3. METHODOLOGY 1.4. LIMITATIONS OF THE STUDY

CHPTER-2
2. LITERATURE REVIEW 3. COMPANY PROFILE 3.1 MOTILAL OSWAL SECURITIES PVT.LTD 4. INDUSTRY PROFILE

CHPTER-3
5. PORTFOLIO MANAGEMENT . THEORITICAL ANALYSIS

CHPTER-4
!. FINDINGS ". CONCLUSION #. SUGGESTIONS 1$. GLOSSORY 11. BIBLIOGRAPHY

CHPTER-5
12. LIST OF TABLES% 12.1 PORTFOLIO-A 12.2PORTFOLIO-B 12.3PORTFOLIO-C ?

INTRODUCTION
Th ! "r#$ect deal! 1 th the d ..ere-t -3e!t,e-t dec ! #-! ,ade by d ..ere-t "e#"le a-d .#c+!e! #- ele,e-t #. r !2 - deta l 1h le -3e!t -4 - !ec+r t e!6 It al!# e9"la -! h#1 "#rt.#l # hed4e! the r !2 - -3e!t,e-t a-d 4 3 -4 #"t ,+, ret+r- t# a 4 3ea,#+-t #. r !26 It al!# 4 3e! a- - de"th a-aly! ! #. "#rt.#l # creat #-/ !elect #-/ re3 ! #- a-d e3al+at #-6 The re"#rt al!# !h#1! d ..ere-t 1ay! #. a-aly! ! #. !ec+r t e!/ d ..ere-t the#r e! #. "#rt.#l # ,a-a4e,e-t .#r e..ect 3e a-d e.. c e-t "#rt.#l # c#-!tr+ct #-6 It al!# 4 3e! a br e. a-aly! ! #. h#1 t# e3al+ate a "#rt.#l #6

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OBJECTIVES OF THE STUDY ? T# ,a2e a- - deta led !t+dy #- the #3erall c#-ce"t! #. the "#rt.#l # ,a-a4e,e-t ? T# . -d #+t the 3ar #+! .act#r! that a- -3e!t#r !h#+ld ta2e -t# c#-! derat #t# ,a2e "r#"er -3e!t,e-t dec ! #-! ? T# d# a- - deta led a-aly! ! #. the r !2 a-d ret+r- character !t c! #. !t#c2! related t# d ..ere-t -d+!tr e! a-d d ..ere-t c#,"a- e! ? T# hel" the -3e!t#r! t# dec de the e..ect 3e "#rt.#l # #. !ec+r t e! ? T# de-t .y the be!t "#rt.#l # #. !ec+r t e!

A

METHODOLOGY PRIMAR& DATA7 ? Pr ,ary data c#llected .r#, -e1! "a"er! B ,a4a: -e!6 ? Data c#llected .r#, br#2er!6 ? Data #bta -ed .r#, c#,"a-y $#+r-al!6 SECONDAR& DATA7 ? Data c#llected .r#, 3ar #+! b##2! a-d ! te!6 ? Data c#llected .r#, -ter-et6 LIMITATIONS OF THE STUDY ? The data c#llected ! ba! cally c#-. -ed t# !ec#-dary !#+rce!/ 1 th 3ery l ttle a,#+-t #. "r ,ary data a!!#c ated 1 th the "r#$ect6 ? There ! a c#-!tra -t 1 th re4ard t# t ,e all#cated .#r the re!earch !t+dy6 ? The a3a lab l ty #. -.#r,at #- - the .#r, #. a--+al re"#rt! B "r ce .l+ct+at #-! #. the c#,"a- e! ! a b 4 c#-!tra -t t# the !t+dy6 ? The data c#llected .#r a "er #d #. #-e year 6e6/ .r#, Oct#ber ;CCD t# Se"te,ber ;CCD ? I- th ! !t+dy the !tat !t cal t##l! +!ed are r !2/ ret+r-/ a3era4e/ c#rrelat #-6 3ar a-ce/

D

PORTFOLIO MANAGEMENT
A &'()*'+,' ! a c#llect #- #. -3e!t,e-t! held by a- -!t t+t #- #r a "r 3ate -d 3 d+al6 I- b+ ld -4 +" a- -3e!t,e-t "#rt.#l # a . -a-c al -!t t+t #- 1 ll ty" cally c#-d+ct t! #1- -3e!t,e-t a-aly! !/ 1h l!t a "r 3ate -d 3 d+al ,ay ,a2e +!e #. the !er3 ce! #. a . -a-c al ad3 !#r #r a . -a-c al -!t t+t #- 1h ch #..er! "#rt.#l # ,a-a4e,e-t !er3 ce!6 H#ld -4 a "#rt.#l # ! "art #. a- -3e!t,e-t a-d r !2E l , t -4 !trate4y called d 3er! . cat #-6 By #1- -4 !e3eral a!!et!/ certa - ty"e! #. r !2 ( - "art c+lar !"ec . c r !2) ca- be red+ced6 The a!!et! - the "#rt.#l # c#+ld -cl+de !t#c2!/ b#-d!/ #"t #-!/ 1arra-t!/ 4#ld cert . cate!/ real e!tate/ .+t+re! c#-tract!/ "r#d+ct #- .ac l t e!/ #r a-y #ther te, that ! e9"ected t# reta - t! 3al+e6 P#rt.#l # ,a-a4e,e-t -3#l3e! dec d -4 1hat a!!et! t# -cl+de - the "#rt.#l #/ 4 3e- the 4#al! #. the "#rt.#l # #1-er a-d cha-4 -4 ec#-#, c c#-d t #-!6 Select #-3#l3e! dec d -4 1hat a!!et! t# "+rcha!e/ h#1 ,a-y t# "+rcha!e/ 1he- t# "+rcha!e the,/ a-d 1hat a!!et! t# d 3e!t6 The!e dec ! #-! al1ay! -3#l3e !#,e !#rt #. "er.#r,a-ce ,ea!+re,e-t/ ,#!t ty" cally expected return #- the "#rt.#l #/ a-d the risk a!!#c ated 1 th th ! ret+r- ( 6e6 the standard deviation #. the ret+r-)6 Ty" cally the e9"ected ret+r-! .r#, "#rt.#l #!/ c#,"r !ed #. d ..ere-t a!!et b+-dle! are c#,"ared6 The +- =+e 4#al! a-d c rc+,!ta-ce! #. the -3e!t#r ,+!t al!# be c#-! dered6 S#,e -3e!t#r! are ,#re r !2 a3er!e tha- #ther!6 M+t+al .+-d! ha3e de3el#"ed "art c+lar tech- =+e! t# #"t , :e the r "#rt.#l # h#ld -4!6 Th+!/ "#rt.#l # ,a-a4e,e-t ! all ab#+t !tre-4th!/ 1ea2-e!!e!/ #""#rt+- t e! a-d threat! - the ch# ce #. debt 3!6 e=+ ty/ d#,e!t c 3!6 -ter-at #-al/ 4r#1th 3!6 !a.ety a-d -+,er#+! #ther tradeE#..! e-c#+-tered - the atte,"t t# ,a9 , :e ret+r- at a 4 3e- a""et te .#r r !26
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A-&./)- '* P'()*'+,' M0102.3.1)% Ba! cally "#rt.#l # ,a-a4e,e-t -3#l3e! ? A "r#"er -3e!t,e-t dec ! #- ,a2 -4 #. 1hat t# b+y B !ell ? Pr#"er ,#-ey ,a-a4e,e-t - ter,! #. -3e!t,e-t - a ba!2et #. a!!et! !# a! t# !at !.y the a!!et "re.ere-ce! #. -3e!t#r!6 ? Red+ce the r !2 a-d -crea!e ret+r-!6 OBJECTIVES OF PORTFOLIO MANAGEMENT% The ba! c #b$ect 3e #. P#rt.#l # Ma-a4e,e-t ! t# ,a9 , :e y eld a-d , - , :e r !26 The #ther a-c llary #b$ect 3e! are a! "er -eed! #. -3e!t#r!/ -a,ely7 ? Re4+lar -c#,e #r !table ret+r? A""rec at #- #. ca" tal ? Mar2etab l ty a-d l =+ d ty ? Sa.ety #. -3e!t,e-t ? M - , : -4 #. ta9 l ab l ty6 NEED FOR PORTFOLIO MANAGEMENT% The P#rt.#l # Ma-a4e,e-t deal! 1 th the "r#ce!! #. !elect #- !ec+r t e! .r#, the -+,ber #. #""#rt+- t e! a3a lable 1 th d ..ere-t e9"ected ret+r-! a-d carry -4 d ..ere-t le3el! #. r !2 a-d the !elect #- #. !ec+r t e! ! ,ade 1 th a 3 e1 t# "r#3 de the -3e!t#r! the ,a9 ,+, y eld .#r a 4 3e- le3el #. r !2 #r e-!+re , - ,+, r !2 .#r a le3el #. ret+r-6 P#rt.#l # Ma-a4e,e-t ! a "r#ce!! e-c#,"a!! -4 ,a-y act 3 t e! #. -3e!t,e-t a!!et! a-d !ec+r t e!6 It ! a dy-a, c! a-d .le9 ble c#-ce"t a-d -3#l3e! re4+lar a-d !y!te,at c a-aly! !/ $+d4,e-t a-d act #-!6 The #b$ect 3e! #. th ! !er3 ce are t# hel" the +-2-#1- -3e!t#r! 1 th the e9"ert !e #. "r#.e!! #-al! - -3e!t,e-t P#rt.#l # Ma-a4e,e-t6 It -3#l3e! c#-!tr+ct #- #. a "#rt.#l # ba!ed +"#- the -3e!t#r<! #b$ect 3e!/ c#-!tra -!/ "re.ere-ce! .#r r !2 a-d ret+r- a-d l ab l ty6 The "#rt.#l # ! re3 e1ed a-d ad$+!ted .r#, t ,e t# t ,e 1 th the ,ar2et c#-d t #-!6 The e3al+at #G

#. "#rt.#l # ! t# be d#-e - ter,! #. tar4et! !et .#r r !2 a-d ret+r-6 The cha-4e! "#rt.#l # are t# be e..ected t# ,eet the cha-4 -4 c#-d t #-!6 P#rt.#l # C#-!tr+ct #- re.er! t# the all#cat #- #. !+r"l+! .+-d! - ha-d a,#-4 a 3ar ety #. . -a-c al a!!et! #"e- .#r -3e!t,e-t6 P#rt.#l # the#ry c#-cer-! t!el. 1 th the "r -c "le! 4#3er- -4 !+ch all#cat #-6 The ,#der- 3 e1 #. -3e!t,e-t ! #r e-ted t#1ard! the a!!e,bly #. "r#"er c#,b -at #-! held t#4ether 1 ll 4 3e be-e. c al re!+lt . they are 4r#+"ed - a ,a--er t# !ec+re h 4her ret+r- a.ter ta2 -4 -t# c#-! derat #- the r !2 ele,e-t6 The ,#der- the#ry ! the 3 e1 that by d 3er! . cat #-/ r !2 ca- be red+ced6 The -3e!t#r ca- ,a2e d 3er! . cat #- e ther by ha3 -4 a lar4e -+,ber #. !hare! #. c#,"a- e! - d ..ere-t re4 #-!/ - d ..ere-t -d+!tr e! #r th#!e "r#d+c -4 d ..ere-t ty"e! #. "r#d+ct l -e!6 M#der- the#ry bel e3e! - the "er!"ect 3e! #. c#,b -at #- #. !ec+r t e! +-der c#-!tra -t! #. r !2 a-d ret+r-6 ELEMENTS% P#rt.#l # Ma-a4e,e-t ! a- #-E4# -4 "r#ce!! -3#l3 -4 the .#ll#1 -4 ba! c ta!2!6 ? Ide-t . cat #- #. the -3e!t#r! #b$ect 3e/ c#-!tra -! a-d "re.ere-ce! 1h ch hel" .#r,+lated the -3e!t "#l cy6 ? Strate4 e! are t# be de3el#"ed a-d ,"le,e-ted - t+-e 1 th -3e!t "#l cy .#r,+lated6 Th ! 1 ll hel" the !elect #- #. a!!et cla!!e! a-d !ec+r t e! - each cla!! de"e-d -4 +"#- the r r !2Eret+r- attr b+te!6 ? Re3 e1 a-d ,#- t#r -4 #. the "er.#r,a-ce #. the "#rt.#l # by c#-t -+#+! #3er3 e1 #. the ,ar2et c#-d t #-!/ c#,"a-y<! "er.#r,a-ce a-d -3e!t#r<! c rc+,!ta-ce!6

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? F -ally/ the e3al+at #- #. "#rt.#l # .#r the re!+lt! t# c#,"are 1 th the tar4et! a-d -eeded ad$+!t,e-t! ha3e t# be ,ade - the "#rt.#l # t# the e,er4 -4 c#-d t #-! a-d t# ,a2e +" .#r a-y !h#rt.all! - ach e3e,e-t! (tar4et!)6 S/4.30),/ 5,02(03 '* -)02.- ,1 &'()*'+,' 30102.3.1)%

S"ec . cat #- a-d =+a-t . cat #- #. -3e!t#r #b$ect 3e!/ c#-!tra -t!/ a-d "re.ere-ce!

M#- t#r -4 -3e!t#r related -"+t .act#r!

P#rt.#l # "#l c e! a-d !trate4 e!

Ca" tal ,ar2et e9"ectat #-!

P#rt.#l # c#-!tr+ct #a-d re3 ! #- a!!et all#cat #-/ "#rt.#l # #"t , :at #-/ !ec+r ty !elect #-/ ,"le,e-tat #- a-d e9ec+t #-

Atta -,e-t #. -3e!t#r #b$ect 3e! Per.#r,a-ce ,ea!+re,e-t

Rele3a-t ec#-#, c/ !#c al/ "#l t cal !ect#r a-d !ec+r ty c#-! derat #-!

M#- t#r -4 ec#-#, c a-d ,ar2et -"+t .act#r!

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P('/.-- '* &'()*'+,' 30102.3.1)% The Portfolio Program a-d Asset Management Program b#th .#ll#1 a d !c "l -ed "r#ce!! t# e!tabl !h a-d ,#- t#r a- #"t ,al -3e!t,e-t , 96 Th ! ! 9E!ta4e "r#ce!! hel"! e-!+re that the -3e!t,e-t! ,atch -3e!t#r<! +- =+e -eed!/ b#th -#1 a-d - the .+t+re6

1.

IDENTIFY GOALS AND OBJECTIVES:

Whe- 1 ll y#+ -eed the ,#-ey .r#, y#+r -3e!t,e-t!H What are y#+ !a3 -4 y#+r ,#-ey .#rH W th the a!! !ta-ce #. . -a-c al ad3 !#r/ the Investment Profile Questionnaire 1 ll 4+ de thr#+4h a !er e! #. =+e!t #-! t# hel" de-t .y the 4#al! a-d #b$ect 3e! .#r the -3e!t,e-t!6 2. DETERMINE OPTIMAL INVESTMENT MI6% O-ce the Investment Profile Questionnaire ! c#,"leted/ -3e!t#r<! #"t ,al -3e!t,e-t , 9 #r a!!et all#cat #- 1 ll be deter, -ed6 A- a!!et all#cat #re"re!e-t! the , 9 #. -3e!t,e-t! (ca!h/ . 9ed -c#,e a-d e=+ t e!) that ,atch -d 3 d+al r !2 a-d ret+r- -eed!6

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Th ! !te" re"re!e-t! #-e #. the ,#!t ,"#rta-t dec ! #-! - y#+r "#rt.#l # c#-!tr+ct #-/ a! a!!et all#cat #- ha! bee- .#+-d t# be the ,a$#r deter, -a-t #. l#-4Eter, "#rt.#l # "er.#r,a-ce6 3. CREATE A CUSTOMI7ED INVESTMENT POLICY STATEMENT Whe- the #"t ,al -3e!t,e-t , 9 ! deter, -ed/ the -e9t !te" ! t# .#r,al :e #+r 4#al! a-d #b$ect 3e! - #rder t# +t l :e the, a! a be-ch,ar2 t# ,#- t#r "r#4re!! a-d .+t+re +"date!6 4. SELECT INVESTMENTS The c+!t#, :ed "#rt.#l # ! created +! -4 a- all#cat #- #. !elect IFM F+-d!6 Each IFM F+-d ! de! 4-ed t# !at !.y the re=+ re,e-t! #. a !"ec . c a!!et cla!!/ a-d ! !elected - the -ece!!ary "r#"#rt #- t# ,atch the #"t ,al -3e!t,e-t , 96 5 MONITOR PROGRESS B+ ld -4 a- #"t ,al -3e!t,e-t , 9 ! #-ly "art #. the "r#ce!!6 It ! e=+ally ,"#rta-t t# ,a -ta - the #"t ,al , 9 1he- 3ary -4 ,ar2et c#-d t #-! ca+!e -3e!t,e-t , 9 t# dr .t a1ay .r#, t! tar4et6 T# e-!+re that , 9 #. a!!et cla!!e! !tay! - l -e 1 th -3e!t#r<! +- =+e -eed!/ the "#rt.#l # 1 ll be ,#- t#red a-d rebala-ced bac2 t# the #"t ,al -3e!t,e-t , 9 . REASSESS NEEDS AND GOALS J+!t a! ,ar2et! !h .t/ !# d# the 4#al! a-d #b$ect 3e! #. -3e!t#r!6 W th the .le9 b l ty #. the Portfolio Program a-d Asset Management Program/ 1he- the -3e!t#r<! -eed! #r #ther l .e c rc+,!ta-ce! cha-4e/ the "#rt.#l # ha! the .le9 b l ty t# acc#,,#date !+ch cha-4e!6 RISK% R !2 re.er! t# the "r#bab l ty that the ret+r- a-d there.#re the 3al+e #. a- a!!et #r !ec+r ty ,ay ha3e alter-at 3e #+tc#,e!6 R !2 ! the +-certa -ty (t#day) !+rr#+-d -4 the e3e-t+al #+tc#,e #. a- e3e-t 1h ch 1 ll #cc+r - the .+t+re6 R !2 ! +-certa -ty #. the -c#,e5ca" tal a""rec at #- #r l#!! #. b#th6 All -3e!t,e-t! are r !2y6 The

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h 4her the r !2 ta2e-/ the h 4her ! the ret+r-6 B+t "r#"er ,a-a4e,e-t #. r !2 -3#l3e! the r 4ht ch# ce #. -3e!t,e-t! 1h#!e r !2! are c#,"e-!at #-6 RETURN% Ret+r-Ey eld #r ret+r- d ..er! .r#, the -at+re #. -!tr+,e-t!/ ,at+r ty "er #d a-d the cred t#r #r debt#r -at+re #. the -!tr+,e-t a-d a h#!t #. #ther .act#r!6 The ,#!t ,"#rta-t .act#r -.l+e-c -4 ret+r- ! r !2 ret+r- ! ,ea!+red by ta2 -4 the "r ce -c#,e "l+! the "r ce cha-4e6 PORTFOLIO RISK% R !2 #- "#rt.#l # ! d ..ere-t .r#, the r !2 #- -d 3 d+al !ec+r t e!6 Th ! r !2 ! re.lected by - the 3ar ab l ty #. the ret+r-! .r#, :er# t# -. - ty6 The e9"ected ret+r- de"e-d! #- "r#bab l ty #. the ret+r-! a-d the r 1e 4hted c#-tr b+t #- t# the r !2 #. the "#rt.#l #6 RETURN ON PORTFOLIO% Each !ec+r ty - a "#rt.#l # c#-tr b+te! ret+r-! - the "r#"#rt #- #. t! -3e!t,e-t !ec+r ty6 Th+! the "#rt.#l # #. e9"ected ret+r-!/ .r#, each #. the !ec+r t e! 1 th 1e 4ht! re"re!e-t -4 the "r#"#rt #-ate !hare #. !ec+r ty - the t#tal -3e!t,e-t!6 RISJ K RETURN RELATIONSHIP7 The r !25ret+r- relat #-!h " ! a .+-da,e-tal c#-ce"t - -#t #-ly . -a-c al a-aly! !/ b+t - e3ery a!"ect #. l .e6 I. dec ! #-! are t# lead t# be-e. t ,a9 , :at #-/ t ! -ece!!ary that -d 3 d+al!5 -!t t+t #-! c#-! der the c#,b -ed -.l+e-ce #- e9"ected (.+t+re) ret+r- #r be-e. t a! 1ell a! #- r !25c#!t6 The re=+ re,e-t that e9"ected ret+r-5be-e. t be c#,,e-!+rate 1 th r !25c#!t ! 2-#1- a! the Lr !25ret+r- tradeE#..L - . -a-ce6 All -3e!t,e-t! ha3e !#,e r !2!6 A- -3e!t,e-t - !hare! #. c#,"a- e! ha! t! #1- r !2! #r +-certa -ty6 The!e r !2! ar !e #+t #. 3ar ab l ty #. ret+r-! #r y eld! a-d +-certa -ty #. a""rec at #- #r de"rec at #- #. !hare "r ce!/ l#!! #. l =+ d ty etc6 a-d the #3ert ,e ca- be re"re!e-ted by the 3ar a-ce #. the ret+r-!6 N#r,ally/ h 4her the r !2 that the -3e!t#r! ta2e/ the h 4her ! the ret+r-6 GRAPHICAL REPRESENTATION
8?

OF RISK AND RETURN ANALYSIS

6 6

8@

LITERATURE REVIEW
P#rt.#l # the#ry 1a! -tr#d+ced by Harry Mar2#1 t: (8G@ 1 th h ! "a"er #%"#rt.#l # !elect #-*6 Be.#re th ! 1#r2/ -3e!t#r! .#c+!ed #- a!!e!! -4 the r !2! a-d be-e. t! #. -d 3 d+al !ec+r t e!6 I-3e!t,e-t a-aly! ! de-t . ed !ec+r t e! that #..ered the ,#!t "r#, ! -4 #""#rt+- t e! .#r 4a - 1 th the lea!t a,#+-t #. r !2 a-d thec#-!tr+cted a "#rt.#l # .r#, the!e !ec+r t e!6 Th ! a""r#ach re!+lted - a !et #. !ec+r t e! that -3#l3ed/ .#r e9a,"le/ the "har,ace+t cal -d+!try #r the a+t#,#t 3e -d+!try6 Mar2#1 t: -!tead !+44e!ted that -3e!t#r! .#c+! #- !elect -4 "#rt.#l #! ba!ed #- the r #3er all r !2E re1ard character !t c!/ rather tha- #-ly c#," l -4 "#rt.#l #! .r#, !ec+r t e! that had attract 3e r !2Ere1ard character !t c!6 Mar2#1 t: -#ted that . ! -4le "er #d ret+r-! .#r 3ar #+! !ec+r t e! 1ere treated a! ra-d#, 3ar able! they c#+ld be a!! 4-ed e9"ected 3al+e!/ !ta-dard de3 at #-! a-d c#rrelat #-!6 Th ! led t# the ab l ty t# calc+late the e9"ected ret+r- a-d 3#lat l ty #. a-y "#rt.#l # c#-!tr+cted 1 th the!e !ec+r t e!6 He c#--ected l -ear "r#4ra,, -4 a-d -3e!t,e-t!/ -#t -4 that the de! red #+t "+t ! a h 4her ret+r-/ 1h le the c#!t t# be , - , :ed ! the 3#lat l ty #. the ret+r-6 T# c#-!tr+ct th ! ,#del/ the e9"ected ret+r- #. each "#te-t al c#,"#-e-t #. the "#rt.#l # 1a! re=+ red/ al#-4 1 th deter, -at #- #. the e9"ected 3#lat l ty #. each c#,"#-e-t! ret+r-/ a-d the e9"ected c#rrelat #- #. each c#,"#-e-t 1 th e3ery #ther c#,"#-e-t6 T# Deter, -e the!e ret+r-!M Mar2#1 t: !+44e!ted the +!e #. the #b!er3ed 3al+e! .#r the "a!t "er #d6 Mar2#1 t:<!,#del de-t . ed the 3ar #+! c#,"#-e-t! that 1 ll y eld the be!t tradeE#..! bet1ee- ret+r- a-d 3#lat l ty .#r the "#rt.#l #6 certa - "#rt.#l #! 1#+ld #"t ,ally bala-ce r !2 a-d re1ard/ 1h ch ,ar2#1 t: called a- %e.. c e-t .r#-t er* #. "#rt.#l #!6 The -3e!t#r tha- !h#+ld !elect a "#rt.#l # that l e! #- the %e.. c e-t .r#-t er*/ a! each "#rt.#l # 1#+ld #..er the ,a9 ,+, "#!! ble e9"ected ret+r- .#r a 4 3e- le3el #. r !26 Th ! ,#del la d the .#+-dat #- .#r the de3el#",e-t #. the "#rt.#l # the#ry/ alth#+4h Mar2#1 t: ac2-#1led4ed that a-t c "at -4 the .+t+re c#+ld be a! ,+ch a- art a! O. !c e-ce T#b - (8G@F) e9"a-ded #- Mar2#1 t: 1#r2 a-d added a r !2E.ree a!!et t# the a-aly! ! - #rder t# le3era4e #r deEle3era4e/ a! a""r#"r ate "#rt.#l #! #- the %e.. c e-t .r#-t er* lead -4 t# the !+"er e.. c e-t "#rt.#l # a-d ca" tal ,ar2et l -e6 W th le3era4e/ "#rt.#l #! #- the ca" tal ,ar2et l -e c#+ld #+t"er.#r, "#rt.#l #! #the e.. c e-t .r#-t er6 Shar"e (8GA?) the- "re"ared a ca" tal a!!et "r c -4 ,#del that -#ted that all the -3e!t#r! !h#+ld h#ld the ,ar2et "#rt.#l #/ 1hether le3era4ed #r deE le3era4ed/ 1 th "#! t #-! #- the r !2E.ree a!!et!6
8A

H#1e3er e3e- earl er Ber-#+ll (8D>F)/ - a- art cle ab#+t the !t6"eter!b+r4 "arad#9/ !tated that r !2 a3er!e -3e!t#r! !h#+ld d 3er! .y6 Ber-#+ll e9"la -ed that 4##d! that are e9"#!ed t# !#,e !,all da-4er !h#+ld be d 3 ded -t# !e3eral "#rt #-! rather tha- 4r#+" -4 the, all t#4ether a! a ! -4le +- t6 Mar2#1 t: (8GGG) later -#ted that the Ber-#+ll <! 1#r2 1a! !+"er!eded by that #. W ll a, Sha2e!"eare - the ,ercha-t #. 'e- ce/ Act 8/ !ce-e -#8/ - 1h ch A-t#- # !a d7 % NNN6 I tha-2 ,y .#rt+-e .#r t My 3e-t+re! are -#t - #-e b#tt#, tr+!ted N#r t# #-e "laceM -#r ! ,y 1h#le e!tate U"#- the .#rt+-e #. th ! "re!e-t yearNN* Mar2#1 t: at th ! t ,e "# -ted th#+4h that 1h le d 3er! . cat #- 1#+ld red+ce r !2/ t !t ll c#+ld -#t el , -ate r !26 He !tated that a- -3e!t#r !h#+ld ,a9 , :e the e9"ected "#rt.#l # ret+r-/ 1h le , - , : -4 e9"ected 3ar a-ce ret+r-6 O-e !t#c2 , 4ht "r#3 de l#-4Eter, 4r#1th 1h le a-#ther , 4ht 4e-erate !h#rt ter, d 3 de-d!6 S#,e !t#c2! !h#+ld be "art #. the "#rt.#l # - #rder t# -!+late t .r#, 1 de ,ar2et .l+ct+at #-!6 Mar2#1 t:<! a""r#ach ! 2-#1 c#,,#- a,#-4 -!t t+t #-al "#rt.#l # ,a-a4er! t# !tr+ct+re the r "#rt.#l #! a-d ,ea!+re the r "er.#r,a-ce a-d ! +!ed t# ,a-a4e the "#rt.#l #! #. #rd -ary -3e!t#r!6 It! e9te-! #- ha! led t# -crea! -4ly re. -ed the#r e! #. the e..ect! #. r !2! #- 3al+at #-6 The ,athe,at c! #. "#rt.#l # the#ry are +!ed e9te-! 3ely - . -a-c al r !2 ,a-a4e,e-t a! . -a-c al "#rt.#l # ,a-a4er! c#-ce-trate the r e..#rt! #- ach e3 -4 the ,#!t #"t ,al tradeE#..! bet1ee- r !2 a-d ret+r-/ ta2 -4 -t# acc#+-t the d ..ere-t le3el! #. r !2 t#lera-ce #. d ..ere-t -3e!t#r!6 The "#rt.#l # ,#del there.#re !tr 3e! t# #bta - the ,a9 ,+, ret+r- 1 th , - ,+, r !26 P#rt.#l # ,a-a4er! th+! e!t ,ate e9"ected ret+r-!/ !ta-dard de3 at #-! a-d c#rrelat #-!6 The ,ea- ! the e9"ected ret+r-! #. the each "#te-t al "r#$ect a-d the 3ar a-ce #r the !ta-dard de3 at #- ,ea!+re! the r !2 a!!#c ated 1 th the "#rt.#l #6 I- 8GGC/ Mar2#1 t: al#-4 1 th Mert#- , ller/ W ll a, Shar"e !hared a -#ble "r :e .#r the r 1#r2 #- a the#ry #. "#rt.#l # !elect #-6 P#rt.#l # the#ry "r#3 de! a c#-te9t t# hel" +-der!ta-d the -teract #-! #. !y!te,at c r !2 a-d re1ard6 It ha! hel"ed the Shar"e h#1 -!t t+t #-al "#rt.#l #! are ,a-a4ed a-d .#!tered the +!e #. "a!! 3e -3e!t,e-t ,a-a4e,e-t tech- =+e!6

COMPANY PROFILE
8D

M#t lal O!1al F -a-c al Ser3 ce! ! a 1ell d 3er! . ed . -a-c al !er3 ce! 4r#+" ha3 -4 b+! -e!!e! - !ec+r t e!/ c#,,#d t e!/ -3e!t,e-t ba-2 -4 a-d 3e-t+re ca" tal6 W th 8>CC b+! -e!! l#cat #-! a-d ,#re tha- >/F@/CCC c+!t#,er! - #3er ?;@ c t e!/ M#t lal O!1al ! 1ell !+ ted t# ha-dle all y#+r 1ealth creat #- a-d 1ealth ,a-a4e,e-t -eed!6 The c#,"a-y ha! - the la!t year "laced G6?FO 1 th t1# lead -4 "r 3ate e=+ ty -3e!t#r! E Ne1 'er-#- Pr 3ate E=+ ty L , ted a-d Be!!e,er 'e-t+re Part-er! at "#!t ,#-ey c#,"a-y 3al+at #- #. R!6 8>?@ c#rer6 (R!6 8>6?@ b ll #-)6 M#t lal O!1al F -a-c al Ser3 ce! Ltd6/ c#-! !t! #. .#+r c#,"a- e!6 M#t lal O!1al I-3e!t,e-t Ad3 !#r! P3t6 Ltd6 ! #+r I-3e!t,e-t Ba-2 -4 ar, 1 th c#llect 3e e9"er e-ce #. #3er 8CC year! - -3e!t,e-t ba-2 -45c#r"#rate ba-2 -4 a-d ad3 !#ry !er3 ce! M#t lal O!1al C#,,#d t e! Br#2er (P) Ltd6 ha! bee- "r#3 d -4 c#,,#d ty trad -4 .ac l t e! a-d related "r#d+ct! a-d !er3 ce! ! -ce ;CC?6 M#t lal O!1al 'e-t+re Ca" tal Ad3 !#r! Pr 3ate L , ted ha! la+-ched the I-d a B+! -e!! E9celle-ce F+-d (IBEF)/ a USP8CC ,- I-d a .#c+!ed Pr 3ate E=+ ty F+-d6 M#t lal O!1al Sec+r t e! Ltd6 (M#!t) ! a lead -4 re!earch a-d ad3 !#ry ba!ed !t#c2 br#2 -4 h#+!e #. I-d a/ 1 th a d#, -a-t "#! t #- - b#th -!t t+t #-al e=+ t e! a-d 1ealth ,a-a4e,e-t6 O+r !er3 ce! -cl+de e=+ t e!/ der 3at 3e!/ eEbr#2 -4/ "#rt.#l # ,a-a4e,e-t/ ,+t+al .+-d!/ c#,,#d t e!/ IPO<! a-d de"#! t#ry !er3 ce!6 I- March ;CCA/ AI Re!earch/ a . r, that a-aly!e! the acc+racy #. a br#2er<! re!earch call/ declared M#t lal O!1al Sec+r t e! the be!t re!earch h#+!e .#r I-d a!t#c2!6 Re!earch ! the !#l d .#+-dat #- #- 1h ch M#t lal O!1al Sec+r t e! ad3 ce ! ba!ed6 Al,#!t 8CO #. re3e-+e ! -3e!ted #- e=+ ty re!earch a-d 1e h re a-d tra - the be!t re!#+rce! t# bec#,e ad3 !#r!6 At "re!e-t 1e ha3e ;? e=+ ty a-aly!t! re!earch -4 #3er ;A !ect#r!6 Fr#, a .+-da,e-tal/ tech- cal a-d der 3at 3e! re!earch "er!"ect 3eM
8F

M#t lal O!1alQ! re!earch re"#rt! ha3e rece 3ed 1 de c#3era4e - the ,ed a (#3er a 8CCC ,e-t #-! la!t year)6 M#t lal O!1al Sec+r t e! ha! 1 t-e!!ed ra" d #r4a- c 4r#1th d+e t# .a3#rable ,ar2et c#-d t #-! a! 1ell a! e..#rt! "+t - by the c#,"a-y t!el.6 F&C@ a-d F&CA !a1 the c#,"a-y 4r#1 -#r4a- cally thr#+4h ac=+ ! t #- #. three ! 4- . ca-t re4 #-al br#2 -4 . r,! .r#, Jar-ata2a/ Jerala a-d UP6 O3er a "er #d #. t ,e ,a-y ,#re re4 #-al br#2 -4 . r,! ,ay be ac=+ red t# 4a - !#l d .##t -4 - 3ar #+! re4 #-! #. I-d a6 The c#,"a-y ha! al!# e!tabl !hed a ba!e - the UAE t# addre!! the -eed! #. the #3er!ea! a+d e-ce6 M#t lal O!1al Sec+r t e! L , ted (MOSt) ha! e!tabl !hed t!el. a! the M#!t I-de"e-de-t Re!earch E L#cal Br#2era4e (A! a M#-ey Br#2er!< P#ll ;CCA)6 It! I-!t t+t #-al E=+ t e! D 3 ! #- c#,b -e! the e..#rt! #. #+r Re!earch a-d Sale! B Trad -4 de"art,e-t! t# be!t !er3e cl e-t!Q -eed!6 It bel e3e! t ! t! +-.l -ch -4 c#,, t,e-t t# "r#3 d -4 !+"er #r cl e-t !er3 ce that ,a2e! +! !ta-d #+t6 They ha3e a ded cated re!earch tea,/ 1h ch ! e-4a4ed - a-aly: -4 the I-d aec#-#,y a-d c#r"#rate !ect#r! t# de-t .y e=+ ty -3e!t,e-t dea!6 They !ta+-chly "ract ce the 3al+eE -3e!t -4 "h l#!#"hy a-d ad3 !e -3e!t#r! t# ta2e a l#-4Eter, 3 e1 #. e=+ ty -3e!t,e-t!6 C#-! !te-t del 3ery #. h 4h =+al ty ad3 ce #- -d 3 d+al !t#c2!/ !ect#r tre-d! a-d -3e!t,e-t !trate4y ha! e!tabl !hed +! a! a rel able re!earch +- t a,#-4!t lead -4 I-d a- a! 1ell a! -ter-at #-al -3e!t#r!6 O+r !ale! B trad -4 tea,/ c#,"r ! -4 t#" e=+ ty "r#.e!! #-al!/ tra-!late! the re!earch . -d -4! -t# act #-able ad3 ce .#r cl e-t!/ ba!ed #- the r !"ec . c -eed!6 Each #. #+r !ale! "er!#--el ha! ! 4- . ca-t e9"er e-ce - e=+ ty re!earch6 S#"h !t cated c#,"+ter :ed t##l! are +!ed t# +-der!ta-d cl e-t -3e!t,e-t "r#. le a-d #b$ect 3e!/ 1h ch e-!+re! "r#act 3e a-d t ,ely !er3 ce6

C'3&018 C'(. P9(&'-.%
8G

T# be a 1ell re!"ected a-d "re.erred 4l#bal . -a-c al !er3 ce! #r4a- :at #- e-abl -4 1ealth creat #- .#r all #+r c+!t#,er!6

V0+9.-%
I1).2(,)8% A c#,"a-y h#-#r -4 c#,, t,e-t 1 th h 4he!t eth cal a-d b+! -e!! "ract ce!6 T.03 W'% Atta - -4 4#al! c#llect 3ely a-d c#llab#rat 3ely6 M.(,)'/(0/8% Per.#r,a-ce 4et! d ..ere-t ated/ rec#4- :ed a-d re1arded - aa"#l t cal e-3 r#-,e-t6 P0--,'1 ; A)),)95.% H 4h e-er4y a-d !el. ,#t 3ated 1 th a %D# It* att t+de a-d e-tre"re-e+r al !" r t6 E</.++.1/. ,1 E<./9),'1% T ,e b#+-d re!+lt! 1 th - the .ra,e1#r2 #. the c#,"a-y<! 3al+e !y!te,6 MANAGEMENT TEAM% M(.M'),+0+ O-=0+
Mr. Raamdeo Agrawal Mr. Navin Agarwal Mr. Ashutosh Maheshwari Mr. Vishal uls!an

/40,(301 015 30102,12 5,(./)'(
Non-Executive Director Non-Executive Director CEO - MOIA CEO - MOVC

INDUSTRY PROFILE
HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY% The ,+t+al .+-d -d+!try - I-d a !tarted - 8GA> 1 th the .#r,at #- #. U- t Tr+!t #. I-d a/ at the - t at 3e #. the G#3er-,e-t #. I-d a a-d Re!er3e Ba-2 the6 The h !t#ry #. ,+t+al .+-d! - I-d a ca- be br#adly d 3 ded -t# .#+r d !t -ct "ha!e!
;C

F,(-) P40-. > 1# 4-"! U- t Tr+!t #. I-d a (UTI) 1a! e!tabl !hed #- 8GA> by a- Act #. Parl a,e-t6 It 1a! !et +" by the Re!er3e Ba-2 #. I-d a a-d .+-ct #-ed +-der the Re4+lat#ry a-d ad, - !trat 3e c#-tr#l #. the Re!er3e Ba-2 #. I-d a6 I- 8GDF UTI 1a! deEl -2ed .r#, the RBI a-d the I-d+!tr al De3el#",e-t Ba-2 #. I-d a (IDBI) t##2 #3er the re4+lat#ry a-d ad, - !trat 3e c#-tr#l - "lace #. RBI6 The . r!t !che,e la+-ched by UTI 1a! U- t Sche,e 8GA?6 At the e-d #. 8GFF UTI had R!6A/DCC cr#re! #. a!!et! +-der ,a-a4e,e-t6 S./'15 P40-. > 1#"!-1##3 ?E1)(8 '* P9@+,/ S./)'( F915-A 8GFD ,ar2ed the e-try #. -#-E UTI/ "+bl c !ect#r ,+t+al .+-d! !et +" by "+bl c !ect#r ba-2! a-d L .e I-!+ra-ce C#r"#rat #- #. I-d a (LIC) a-d Ge-eral I-!+ra-ce C#r"#rat #- #. I-d a (GIC)6 SBI M+t+al F+-d 1a! the . r!t -#-E UTI M+t+al F+-d e!tabl !hed - J+-e 8GFD .#ll#1ed by Ca-ba-2 M+t+al F+-d (Dec FD)/ P+-$ab Nat #-al Ba-2 M+t+al F+-d (A+4 FG)/ I-d a- Ba-2 M+t+al F+-d (N#3 FG)/ Ba-2 #. I-d a (J+- GC)/ Ba-2 #. Bar#da M+t+al F+-d (Oct G6 LIC e!tabl !hed t! ,+t+al .+-d - J+-e 8GFG 1h le GIC had !et +" t! ,+t+al .+-d - Dece,ber 8GGC6 At the e-d #. 8GG>/ the ,+t+al .+-d -d+!try had a!!et! +-der ,a-a4e,e-t #. R!6?D/CC? cr#re!6 T4,(5 P40-. > 1##3-2$$3 ?E1)(8 '* P(,B0). S./)'( F915-A W th the e-try #. "r 3ate !ect#r .+-d! - 8GG>/ a -e1 era !tarted - the I-d a- ,+t+al .+-d -d+!try/ 4 3 -4 the I-d a- -3e!t#r! a 1 der ch# ce #. .+-d .a, l e!6 Al!#/ 8GG> 1a! the year - 1h ch the . r!t M+t+al F+-d Re4+lat #-! ca,e -t# be -4/ +-der 1h ch all ,+t+al .+-d!/ e9ce"t UTI 1ere t# be re4 !tered a-d 4#3er-ed6 The er!t1h le J#thar P #-eer (-#1 ,er4ed 1 th Fra-2l - Te,"let#-) 1a! the . r!t "r 3ate !ect#r ,+t+al .+-d re4 !tered - J+ly 8GG>6

;8

The 8GG> SEBI (M+t+al F+-d) Re4+lat #-! 1ere !+b!t t+ted by a ,#re c#,"rehe-! 3e a-d re3 !ed M+t+al F+-d Re4+lat #-! - 8GGA6 The -d+!try -#1 .+-ct #-! +-der the SEBI (M+t+al F+-d) Re4+lat #-! 8GGA6 The -+,ber #. ,+t+al .+-d h#+!e! 1e-t #- -crea! -4/ 1 th ,a-y .#re 4- ,+t+al .+-d! !ett -4 +" .+-d! - I-d a a-d al!# the -d+!try ha! 1 t-e!!ed !e3eral ,er4er! a-d ac=+ ! t #-!6 A! at the e-d #. Ja-+ary ;CC>/ there 1ere >> ,+t+al .+-d! 1 th t#tal a!!et! #. R!6 8/;8/FC@ cr#re!6 The U- t Tr+!t #. I-d a 1 th R!6??/@?8 cr#re! #. a!!et! +-der ,a-a4e,e-t 1a! 1ay ahead #. #ther ,+t+al .+-d!6 F'9()4 P40-. > -,1/. F.@(90(8 2$$3 I- Febr+ary ;CC>/ .#ll#1 -4 the re"eal #. the U- t Tr+!t #. I-d a Act 8GA> UTI 1a! b .+rcated -t# t1# !e"arate e-t t e!6 O-e ! the S"ec . ed U-derta2 -4 #. the U- t Tr+!t #. I-d a 1 th a!!et! +-der ,a-a4e,e-t #. R!6;G/F>@ cr#re! a! at the e-d #. Ja-+ary ;CC>/ re"re!e-t -4 br#adly/ the a!!et! #. US A? !che,e/ a!!+red ret+r- a-d certa - #ther !che,e!6 The S"ec . ed U-derta2 -4 #. U- t Tr+!t #. I-d a/ .+-ct #- -4 +-der a- ad, - !trat#r a-d +-der the r+le! .ra,ed by G#3er-,e-t #. I-d a a-d d#e! -#t c#,e +-der the "+r3 e1 #. the M+t+al F+-d Re4+lat #-!6 The !ec#-d ! the UTI M+t+al F+-d Ltd/ !"#-!#red by SBI/ PNB/ BOB a-d LIC6 It ! re4 !tered 1 th SEBI a-d .+-ct #-! +-der the M+t+al F+-d Re4+lat #-!6 W th the b .+rcat #- #. the er!t1h le UTI 1h ch had - March ;CCC ,#re tha- R!6DA/CCC cr#re! #. a!!et! +-der ,a-a4e,e-t a-d 1 th the !ett -4 +" #. a UTI M+t+al F+-d/ c#-.#r, -4 t# the SEBI M+t+al F+-d Re4+lat #-!/ a-d 1 th rece-t ,er4er! ta2 -4 "lace a,#-4 d ..ere-t "r 3ate !ect#r .+-d!/ the ,+t+al .+-d -d+!try ha! e-tered t! c+rre-t "ha!e #. c#-!#l dat #- a-d 4r#1th6 A! at the e-d #. Se"te,ber/ ;CC?/ there 1ere ;G .+-d!/ 1h ch ,a-a4e a!!et! #. R!68@>8CF cr#re! +-der ?;8 !che,e!6 The 4ra"h -d cate! the 4r#1th #. a!!et! #3er the year!6 GROWTH IN ASSETS UNDER MANAGEMENT
;;

Er!t1h le UTI 1a! b .+rcated -t# UTI M+t+al F+-d a-d the S"ec . ed U-derta2 -4 #. the U- t Tr+!t #. I-d a e..ect 3e .r#, Febr+ary ;CC>6 The A!!et! +-der ,a-a4e,e-t #. the S"ec . ed U-derta2 -4 #. the U- t Tr+!t #. I-d a ha! there.#re bee- e9cl+ded .r#, the t#tal a!!et! #. the -d+!try a! a 1h#le .r#, Febr+ary ;CC> #-1ard!6

ASSET UNDER MANAGEMENT:
Assets Under Management (AUM) as at the end of Apr-2006 (Rs in Lakhs) M t a! " nd Name AUM E$%! d&ng " nd 'f " nds () A*N AMR' M t a! " nd 2) *en%hmar1 M t a! " nd ,) *&r!a S n 2&fe M t a! " nd /) *'* M t a! " nd 0) 3an4an1 M t a! " nd 6) D*S 3ho!a M t a! " nd -) De ts%he M t a! " nd 2++60,)-+ -+(+.),+ (-,+.6/)(0 22(20)+ ,,2-,+)+0 2(/6/()00 /20-0-)(/ " nd 'f " nds (2((()-6 0 2260)6( 0 0 0 0 ,0/0.,)00 ,06-..).( A#erage AUM "or The Month E$%! d&ng " nd 'f " nds 2./(0-).2 (2(0+)(0 0 0 0 0 0 0 " nd 'f " nds

;>

+) DS5 Merr&!! 26n%h M t a! " nd .) Es%orts M t a! " nd (0) "&de!&t6 M t a! " nd (() "ran1!&n Temp!eton M t a! " nd (2) 7D"3 M t a! " nd (,) 7S*3 M t a! " nd (/) 8NG 96s6a M t a! " nd (0) :M "&nan%&a! M t a! " nd (6) ;ota1 Mah&ndra M t a! " nd (-) 283 M t a! " nd (+) Morgan Stan!e6 M t a! " nd (.) 5R8N385A2 M t a! " nd 20) 5r dent&a! 83838 M t a! " nd 2() < ant m M t a! " nd 22) Re!&an%e M t a! " nd 2,) Sahara M t a! " nd 2/) S*8 M t a! " nd 26) S ndaram M t a! " nd 2-) Tata M t a! " nd 2+) Ta r s M t a! " nd 2.) UT8 M t a! " nd Tota!

(,20((6)-. (6+00)/ ,6.2,.)+ (.6,.(().2 220,+66)-0 (00-+-(),( 26+,0,)++ 2-+/26)6, (0.+/-().. 6(,,+0)/0 2...-+)0+./06/),2 2-00,/0)/+ ,0(-)26/20(0)62 20/2()(2 (/000.6)-,6,(//).. (0602,()2260.6)2,0(0++6)0. 20-/..-+)06

0 0 /-0/)++ ,+.00)0. 0 0 0 0 +2/2.)06 0 0 0 /-0+)6. 0 0 0 0 0 0 0 0 (/--20)+2 2/0,,)60 ,00..-0)2(20+0//6)6. ,066/)2( (,+/2+.)+/ ,/.6.6)+/ 2.002-)(/ (06..0()6, ,-200.)22 (++.,(2).. 22(2+06).+6(,,),

0 0 06-,),+.+0)/6 0 0 0 0 +2-(.),( 0 0 0 0 0 0 0 0 0 0 0 0 (,./+6)62

T4.'(.),/0+ A10+8-,- '* )4. -)958
The #b$ect 3e #. "#rt.#l # ,a-a4e,e-t ! t# -3e!t - !ec+r t e! - !+ch a 1ay that7 • Ma9 , :e #-e<! !"l tter a-d • M - , :e the r !2 I- #rder t# ach e3e #-e! -3e!t,e-t #b$ect 3e!/ a 4##d "#rt.#l # !h#+ld ha3e ,+lt "le #b$ect 3e! a-d ach e3e a !#+-d bala-ce a,#-4 the,6 A-y #-e #b$ect 3e !h#+ld -#t be 4 3e- +-d+e ,"#rta-ce at the c#!t #. #ther!6 S#,e #. the ,a - #b$ect 3e! are 4 3e- bel#17 • Sa.ety #. the -3e!t,e-t

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I-3e!t,e-t !a.ety #r , - , :at #- #. r !2! ! #-e #. the ,"#rta-t #b$ect 3e! #. "#rt.#l # ,a-a4e,e-t6 There are ,a-y ty"e! #. r !2!/ 1h ch are a!!#c ated 1 th -3e!t,e-t - e=+ ty !t#c2!/ -cl+d -4 !+""er !t#c2!6 We !h#+ld 2ee" - , -d that there ! -# !+ch th -4 a! a :er#Er !2 -3e!t,e-t6 M#re#3er/ relat 3ely l#1Er !2 -3e!t,e-t! 4 3e c#rre!"#-d -4ly l#1er ret+r-!6 S)0@+. C9((.1) R.)9(1-% O-e! -3e!t,e-t! !a.ety ! 4+ara-teed/ the "#rt.#l # !h#+ld y eld a !t+dy c+rre-t -c#,e6 The c+rre-t ret+r-! !h#+ld at lea!t ,atch the #""#rt+- ty c#!t #. the .+-d! #. the -tere!t #r d 3 de-d!/ -#t ca" tal 4a -!6 The "#rt.#l # !h#+ld 4 3e a !teady y eld #. -c#,e 6e6 -tere!t #r d 3 de-d! the ret+r-! ha3e t# ,atch the #""#! te c#!t #. .+-d! #. -tere!t6

M0.)0@,+,)8%
I. there are t## ,a-y +-l !ted #r -act 3e !hare! - #+r "#rt.#l #/ 1e 1 ll ha3e t# .ace "r#ble,! - e-ca! -4 the,/ a-d !1 tch -4 .r#, #-e -3e!t,e-t t# a-#ther6

L,C9,5,)8%
The "#rt.#l # !h#+ld e-!+re that there are e-#+4h .+-d! a3a lable at !h#rt -#t ce t# ta2e care #. the -3e!t#r<! l =+ d ty re=+ re,e-t!6 It ! de! rable t# 2ee" a l -e #. cred t .r#, a ba-2 .#r +!e - ca!e t bec#,e! -ece!!ary t# "art c "ate - r 4ht !!+e!/ #r .#r a-y #ther "er!#-al -eed!6

T0< &+011,12%
S -ce ta9at #- ! a- ,"#rta-t 3ar able - t#tal "la-- -46 A 4##d "#rt.#l # !h#+ld e-able t! #1-er t# e-$#y a .a3#rable ta9 !helter6 The "#rt.#l # !h#+ld be de3el#"ed c#-! der -4 -#t #-ly -c#,e ta9 b+t ca" tal 4a -! ta9/ a-d 4 .t ta9/ a! 1ell6 What a 4##d "#rt.#l # a ,! at ! ta9 "la-- -4/ -#t ta9 e3a! #- #r ta9 a3# da-ce6
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P'()*'+,' M0102.3.1) F(03.='%
I-3e!t,e-t ,a-a4e,e-t ! al!# 2-#1- a! "#rt.#l # ,a-a4e,e-t/ t ! a c#,"le9 "r#ce!! #r act 3 ty that ,ay be d 3 ded -t# !e3e- br#ad "ha!e!7E • S"ec . cat #- #. I-3e!t,e-t Ob$ect 3e! a-d C#-!tra -!6 • Ch# ce #. A!!et M 9 • F#r,+lat #- #. "#rt.#l # !trate4y6 • Select #- O. Sec+r t e! • P#rt.#l # E9ec+t #• P#rt.#l # Rebala-c -4 • Per.#r,a-ce E3al+at #S&./,*,/0),'1 '* I1B.-)3.1) O@D./),B.- 015 C'1-)(0,1)-%The . r!t !te" - the "#rt.#l # ,a-a4e,e-t "r#ce!! ! t# !"ec .y #-e<! -3e!t,e-t #b$ect 3e! a-d c#-!tra -t!6 The c#,,#-ly !tated -3e!t,e-t 4#al! are7E • I-c#,e7 E t# "r#3 de a !teady !trea, #. -c#,e thr#+4h re4+lar -tere!t5 d 3 de-d "ay,e-t6 • Gr#1th7 E t# -crea!e the 3al+e #. the "r -c "al a,#+-t thr#+4h ca" tal a""rec at #-6 • Stab l ty7 E t# "r#tect the "r -c "al a,#+-t -3e!ted .r#, the r !2 #. l#!!6

P'()*'+,' 30102.3.1) ,1 I15,0
I- I-d a/ "#rt.#l # ,a-a4e,e-t ! !t ll - t! -.a-cy6 Barr -4 a .e1 I-d a- ba-2!/ a-d .#re 4- ba-2! a-d UTI/ -# #ther a4e-cy had "r#.e!! #-al "#rt.#l # ,a-a4e,e-t +-t l 8GFD6 A.ter the !ett -4 +" #. "+bl c !ect#r ,+t+al .+-d!/ ! -ce 8GFD/ "r#.e!! #-al "#rt.#l # ,a-a4e,e-t/ bac2ed by c#,"ete-t re!earch !ta.. beca,e the #rder #. the day6 A.ter the !+cce!! #. ,+t+al .+-d! - "#rt.#l #
;A

,a-a4e,e-t/ a -+,ber #. br#2er! a-d -3e!t,e-t c#-!+lta-t!/ !#,e #. 1h#, are al!# "r#.e!! #-ally =+al . ed ha3e bec#,e "#rt.#l # ,a-a4er!6 They ha3e ,a-a4ed the .+-d! #. cl e-t! #- b#th d !cret #-ary a-d N#-E d !cret #-ary ba! !6 It 1a! .#+-d that ,a-y #. the,/ I-cl+d -4 ,+t+al .+-d! ha3e 4+ara-teed a , - ,+, ret+r- #r ca" tal a""rec at #- a-d ad#"ted all 2 -d! #. -ce-t 3e!/ 1h ch are -#1 "r#h b ted by SEBI6 They re!#rted t# !"ec+lat 3e #3er trad -4 a-d -! der trad -4/ d !c#+-t!/ etc6/ t# ach e3e the r tar4eted ret+r-! t# the cl e-t!/ 1h ch are al!# "r#h b ted by SEBI6 The rece-t CBI "r#be -t# the #"erat #-! #. ,a-y ,ar2et dealer! ha! re3ealed the +-!cr+"+l#+! "ract ce! by ba-2!/ dealer! a-d br#2er! - the r "#rt.#l # #"erat #-!6 The SEBI ha! ,"#!ed !tr cter r+le!/ 1h ch -cl+ded the r re4 !trat #-/ a c#de #. c#-d+ct a-d , - ,+, -.ra!tr+ct+re!/ e9"er e-ce etc6 t ! -# l#-4er "#!! ble .#r +-e,"l#yed y#+th/ #r ret red "er!#- #r !el.E !tyled c#-!+lta-t t# e-4a4e - "#rt.#l # ,a-a4e,e-t 1 th#+t SEBI<! l ce-!e6 The 4+ del -e! #. SEBI are - the d rect #- #. ,a2 -4 "#rt.#l # ,a-a4e,e-t a re!"#-! ble "r#.e!! #-al !er3 ce t# be re-dered by e9"ert! - the . eld6

SEBI N'(3SEBI ha! "r#h b ted the "#rt.#l # ,a-a4er t# a!!+,e a-y r !2 #- behal. #. the cl e-t6 P#rt.#l # ,a-a4er ca--#t al!# a!!+re a-y . 9ed ret+r- t# the cl e-t6 The -3e!t,e-t! ,ade #r ad3 !ed by h , are !+b$ect t# r !26 Wh ch ! the cl e-t ha! t# bear6 The -3e!t,e-t c#-!+lta-cy a-d ,a-a4e,e-t ha! t# be char4ed at rate!/ 1h ch are . 9ed at the be4 -- -4 a-d tra-!"are-t a! "er the c#-tract6 N# !har -4 #. "r#. t! #r d !c#+-t! #r ca!h -ce-t 3e! t# cl e-t! ! "er, tted6

;D

The "#rt.#l # ,a-a4er ! "r#h b ted t# d# le-d -4/ badla . -a-c -4 a-d b ll! d !c#+-t -4 a! "er SEBI -#r,!6 He ca--#t "+t the cl e-t<! .+-d! - a-y -3e!t,e-t ca- be ,ade - ca" tal ,ar2et a-d ,#-ey ,ar2et -!tr+,e-t!6 Cl e-t<! ,#-ey ha! t# be 2e"t - a !e"arate acc#+-t 1 th the "+bl c !ect#r ba-2 a-d ca--#t be , 9ed +" 1 th h ! #1- .+-d! #r -3e!t,e-t!6 All the deal! d#-e .#r a cl e-t<! acc#+-t are t# be e-tered - h ! -a,e a-d c#-tract -#te!/ b ll! a-d etc6/ are all "a!!ed by h ! -a,e6 A !e"arate led4er acc#+-t ! ,a -ta -ed .#r all "+rcha!e!5!ale! #- cl e-t<! behal./ 1h ch !h#+ld be d#-e at the ,ar2et "r ce6 F -al !ettle,e-t a-d ter, -at #- #. c#-tract/ "#rt.#l # ,a-a4er ! #-ly act -4 #- a c#-tract+al ba! ! a-d #- a . d+c ary ba! !6 N# c#-tract .#r le!! tha- a year ! "er, tted by the SEBI6

SEBI G9,5.+,1.- *'( )4. &'()*'+,' 30102.(-% O- Dth Ja-+ary 8GG> the !ec+r t e! e9cha-4e b#ard #. I-d a !!+ed re4+lat #-! t# the "#rt.#l # ,a-a4er! .#r the re4+lat #- #. "#rt.#l # ,a-a4e,e-t !er3 ce! by ,ercha-t ba-2er!6 They are a! .#ll#1!7 • P#rt.#l # ,a-a4e,e-t !er3 ce! !hall be - the -at+re #. -3e!t,e-t b##r c#-!+lta-cy ,a-a4e,e-t .#r a- a4reed .ree at cl e-t<! r !26 • The "#rt.#l # ,a-a4er !hall -#t 4+ara-tee ret+r- d rectly #r -d rectly the .ee !h#+ld -#t be de"e-ded +"#- #r t -#t be a ret+r- !har -4 ba! !6 • 'ar #+! ter,! #. a4ree,e-t!/ .ee!/ d !cl#!+re! #. r !2 a-d re"ay,e-t !h#+ld be ,e-t #-ed6 • Cl e-t<! .+-d! !h#+ld be 2e"t !e"arately - cl e-t 1 !e acc#+-t/ 1h ch !h#+ld be !+b$ect t# a+d t6 • Ma-a4er !h#+ld re"#rt cl e-t! at -ter3al! -#t e9ceed -4 A ,#-th!6
;F

• P#rt.#l # ,a-a4er !h#+ld ,a -ta - h 4h !ta-dard #. -te4r ty a-d -#t de! re a-y be-e. t d rectly #r -d rectly .r#, cl e-t<! .+-d!6 • The cl e-t !hall be e-t tled t# -!"ect the d#c+,e-t!6 • P#rt.#l # ,a-a4er !hall -#t -3e!t - .+-d! bel#-4 -4 t# cl e-t! badly . -a-c -4/ b ll! d !c#+-t -4 a-d le-d -4 #"erat #-!6 • Cl e-t ,#-ey ca- be -!tr+,e-t!6 • Settle,e-t #- ter, -at #- #. c#-tract !h#+ld be a! a4reed - the c#-tract6 • Cl e-t<! .+-d !h#+ld be 2e"t - a !e"arate ba-2 acc#+-t #"e-ed !ched+led c#,,erc al ba-26 • P+rcha!e #r !ale #. !ec+r t e! !hall be ,ade at "re3a l -4 ,ar2et "r ce6 The .#ll#1 -4 are that ,a$#r !te"! -3#l3ed - th ! "r#ce!!6 -3e!ted - ,#-ey a-d ca" tal ,ar2et

PORTFOLIO MANAGEMENT PROCESS% • Sec+r ty a-aly! ! • P#rt.#l # a-aly! ! • Select #- #. !ec+r t e! • P#rt.#l # re3 ! #• Per.#r,a-ce e3al+at #-

;G

SECURITY ANALYSIS
De. - t #-7 F#r ,a2 -4 "r#"er -3e!t,e-t -3#l3 -4 b#th r !2 a-d ret+r-/ the -3e!t#r ha! t# ,a2e a !t+dy #. the alter-at 3e a3e-+e! #. -3e!t,e-t the r r !2 a-d ret+rcharacter !t c! a-d ,a2e a "r#"er "r#$ect #- #r e9"ectat #- #. the r !2 a-d ret+r- #. the alter-at 3e -3e!t,e-t! +-der c#-! derat #-6 He ha! t# t+-e the e9"ectat #-! t# th ! "re.ere-ce #. the r !2 a-d ret+r- .#r ,a2 -4 a "r#"er -3e!t,e-t ch# ce6 The "r#ce!! #. a-aly: -4 the -d 3 d+al !ec+r t e! a-d the ,ar2et a! a 1h#le a-d e!t ,at -4 the r !2 a-d ret+r- e9"ected .r#, each #. the -3e!t,e-t! 1 th a 3 e1 t# de-t .y -4 +-der3al+ed !ec+r t e! .#r b+y -4 a-d #3er3al+ed !ec+r t e! .#r !ell -4 ! b#th a- art a-d a !c e-ce that ! 1hat called !ec+r ty a-aly! !6 S./9(,)8% The !ec+r ty ha! -cl+! 3e #. !hare/ !cr "t!/ !t#c2!/ b#-d!/ debe-t+re !t#c2 #r a-y #ther ,ar2etable !ec+r t e! #. a l 2e -at+re - #r #. a-y debe-t+re! #. a c#,"a-y #r b#dy c#r"#rate/ the 4#3er-,e-t a-d !e, 4#3er-,e-t b#dy etc6 A10+8-,- '* -./9(,),.-7
>C

Sec+r ty a-aly! ! - b#th trad t #-al !e-!e a-d ,#der- !e-!e -3#l3e! the "r#$ect #- #. .+t+re d 3 de-d #r e-!+r -4 the -tr -! c 3al+e #. a !ec+r ty ba!ed #the .#reca!t #. ear- -4! #r d 3 de-d6 Sec+r ty a-aly! ! - trad t #-al !e-!e ! e!!e-t ally #- a-aly! ! #. the .+-da,e-tal 3al+e #. !hare! a-d t! .#reca!t .#r the .+t+re thr#+4h the calc+lat #- #. t! -tr -! c 1#rth #. the !hare6 M#der- !ec+r ty a-aly! ! rel e! #- the .+-da,e-tal a-aly! ! #. the !ec+r ty/ lead -4 t# t! -tr -! c 1#rth a-d al!# r !eEret+r- a-aly! ! de"e-d -4 #- the 3ar ab l ty #. the ret+r-!/ c#3ar a-ce/ !a.ety #. .+-d! a-d the "r#$ect #- #. the .+t+re ret+r-!6 I. the !ec+r ty a-aly! ! ba!ed #- .+-da,e-tal .act#r! #. the c#,"a-y/ thethe .#reca!t #. the !hare "r ce ha! t# ta2e -t# acc#+-t -e3 tably the tre-d! a-d the !ce-ar # - the ec#-#,y/ - the -d+!try t# 1h ch the c#,"a-y bel#-4! a-d . -ally the !tre-4th! a-d 1ea2-e!!e! #. the c#,"a-y t!el.6 A&&('0/4.- )' S./9(,)8 A10+8-,-%• F+-da,e-tal a-aly! ! • Tech- cal a-aly! ! • E.. c e-t ,ar2et hy"#the! !

FUNDAMENTAL ANALYSIS%
The -tr -! c 3al+e #. a- e=+ ty !hare de"e-d! #- a ,+lt t+de #. .act#r!6 The ear- -4! #. the c#,"a-y/ the 4r#1th rate a-d the r !2 e9"#!+re #. the c#,"a-y ha3e a d rect bear -4 #- the "r ce #. the !hare6 The!e .act#r! -ter- rely #- the h#!t #. #ther .act#r! l 2e ec#-#, c e-3 r#-,e-t - 1h ch they .+-ct #-/ the -d+!try they bel#-4 t#/ a-d . -ally c#,"a-y<! #1- "er.#r,a-ce6 The .+-da,e-tal !ch##l #. th#+4h a""r !ed the -tr -! c 3al+e #. !hare thr#+4h ? Ec#-#, c a-aly! ! ? I-d+!try a-aly! ! ? C#,"a-y a-aly! ! E/'1'3,/ 010+8-,-%
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The le3el #. ec#-#, c act 3 ty ha! a- -3e!t,e-t - ,a-y 1ay!6 I. the ec#-#,y 4r#1! ra" dly/ the -d+!try ca- al!# e9"ect t# !h#1 ra" d 4r#1th a-d 3 ce 3er!a6 Whe- the le3el #. ec#-#, c act 3 ty ! l#1/ !t#c2 "r ce! are l#1 / a-d 1hethe ec#-#, c act 3 ty ! h 4h/ !t#c2 "r ce! are h 4h re.lect -4 the "r#!"er#+! #+tl##2 .#r !ale! a-d "r#. t! #. the . r,!6 The a-aly! ! #. ,acr# ec#-#, c e-3 r#-,e-t ! e!!e-t al t# +-der!ta-d the beha3 #r #. the !t#c2 "r ce!6 The c#,,#-ly a-aly:ed ,acr# ec#-#, c .act#r! are a! .#ll#1!7 • Gr#!! D#,e!t c "r#d+ct(GDP) • Sa3 -4! a-d -3e!t,e-t! • Rate #. -.lat #• Rate! #. -tere!t • B+d4et • The ta9 !tr+ct+re • Bala-ce #. "ay,e-t! • M#-!##- a-d a4r c+lt+re • I-.ra!tr+ct+re .ac l t e! • De,#4ra"h c .act#r! I159-)(8 010+8-,-% A! re.erred earl er/ "er.#r,a-ce #. a c#,"a-y ha! bee- .#+-d t# de"e-d br#adly +" t# @CO #- the e9ter-al .act#r! #. the ec#-#,y a-d -d+!try6 The!e e9ter-al t e! de"e-d #- the a3a lab l ty #. -"+t!/ l 2e "r#"er lab#r/ 1ater/ "#1er a-d -terErelat #-! bet1ee- the ec#-#,y a-d -d+!try a-d the c#,"a-y6 I- th ! c#-te9t a 1ellEd 3er! . ed c#,"a-y "er.#r,! better tha- a ! -4le "r#d+ct c#,"a-y/ beca+!e 1h le the de,a-d .#r !#,e "r#d+ct! ,ay be decl - -4/ that .#r #ther! ,ay be -crea! -46 S , larly/ the -"+t "r ce! a-d c#!t .act#r! 1#+ld 3ary

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.r#, "r#d+ct l -e t# "r#d+ct l -e/ lead -4 t# d ..ere-t ,ar4 -! a-d a d 3er! . ed c#,"a-y ! better bet .#r the -3e!t#r6 The -d+!try a-aly! ! !h#+ld ta2e -t# acc#+-t the .#ll#1 -4 .act#r! a,#-4 #ther! a! -.l+e-c -4 the "er.#r,a-ce #. the c#,"a-y/ 1h#!e !hare! are t# be a-aly:ed6 They are a! .#ll#1ed7 • Pr#d+ct l -e • Ra1 ,ater al! a-d -"+t! • Ca"ac ty -!talled a-d +t l :ed • I-d+!try character !t c! • De,a-d a-d ,ar2et • G#3er-,e-t "#l cy 1 th re4ard t# -d+!try • Lab#r a-d #ther -d+!tr al "r#ble,! • Ma-a4e,e-t C'3&018 010+8-,-% I-3e!t#r! !h#+ld 2-#1 the c#,"a-y re!+lt! "r#"erly be.#re ,a2 -4 the -3e!t,e-t6 The !elect #- #. -3e!t,e-t ! de"e-d! #- #"t ,+, re!+lt! #. the .#ll#1 -4 .act#r!6 1A M0.),12 *'(/.-% Ma-+.act+r -4 c#,"a- e! "r#. t de"e-d! #- ,ar2et -4 act 3 t e!6 I. the ,ar2et -4 act 3 t e! are .a3#rable tha- t ca- be c#-cl+ded that the c#,"a-y ,ay ha3e ,#re "r#. t - .+t+re year! De"e-d -4 +"#- the "re3 #+! year re!+lt! .l+ct+at #-! - !ale! #r 4r#1th - !ale! ca- be de-t . ed6 I. the !ale! are -crea! -4 - tre-d -3e!t#r ,ay be !at !. ed6 2. A//'91),12 P('*,+.-% D ..ere-t acc#+-t -4 "#l c e! are +!ed by #r4a- :at #- .#r the 3al+at #- #. -3e-t#r e! a-d . 9ed a!!et! A) I-3e-t#ry "#l cy7
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Ra1 ,ater al! a-d the r 3al+e at the e-d #. the year ! calc+lated by +! -4 FIFO/ LIFO/ #r a-y #ther a3era4e ,eth#d!6 The "art c+lar ,eth#d ! ,+!t be !+ table t# acce!! the "art c+lar ra1 ,ater al!6 B) F 9ed A!!et P#l cy7 All the . 9ed a!!et! are 3al+ed at the e-d #. e3ery year t# 2-#1 the real 3al+ #. the b+! -e!!6

Net value of the fixed assets = Value of the asset at the beginning of the year – Depreciation F#r -c#,e ta9 "+r"#!e 1r tte- d#1- 3al+e ,eth#d ! +!ed a! "er th ! !e"arate !ched+le #. a!!et! are t# be "re"ared6 3. P('*,)0@,+,)8 -,)90),'1% It ! a ,a$#r .act#r .#r the -3e!t#r6 Pr#. tab l ty #. the c#,"a-y ,+!t be better c#,"are 1 th the -d+!try6 The e.. c e-cy #. the "r#. tab l ty "#! t #- #r #"erat -4 act 3 t e! ca- be de-t . ed by !t+dy -4 the .#ll#1 -4 .act#r! A) Gr#!! "r#. t ,ar4 - rat #7 It !h#+ld be ,#re tha- >CO6 B+t/ #ther #"erat -4 e9"e-!e! !h#+ld be le!! c#,"are t# #"erat -4 -c#,e!6 Sale! K c#!t #. 4##d! !#ld GPMR R SSSSSSSSSSSSSSSSSSSSSSSSSS Sale! B) O"erat -4 B -et "r#. t rat #7 O"erat -4 "r#. t ! the real -c#,e #. the b+! -e!! t ! calc+lated be.#re -##"erat -4 e9"e-!e! a-d -c#,e!6 It !h#+ld be -early ;CO6 The -et "r#. t rat # ,+!t be ,#re tha- 8CO6
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Pr#. t a.ter ta9 NPR R SSSSSSSSSSSSSSSSSSSSSSS Sale!

4. R.)9(1- '1 /0&,)0+ .3&+'8.5% It ,ea!+re! the rate #. ret+r- #- ca" tal -3e!t,e-t #. the b+! -e!!6 Ca" tal e,"l#yed -cl+de! !hareh#lder .+-d!/ l#-4Eter, l#a-!/ a-d #ther acc+,+lated .+-d! #. the c#,"a-y6 O"erat -4 "r#. t ROCE R SSSSSSSSSSSSSSSSSSSSSSSS Ca" tal e,"l#yed A) Ear- -4 "er !hare7 It ! calc+lated by the c#,"a-y at the e-d #. the e3ery . -a-c al year6 I-ca!e #. ,#re "r#. t a-d le!! -+,ber #. !hare! EPS 1 ll -crea!e6 Pr#. t a.ter ta9 EPS R SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS N+,ber #. e=+ ty !hare! #+t!ta-d -4 B) Ret+r- #- e=+ ty7 It ! calc+lated #- t#tal e=+ ty .+-d! (e=+ ty !hare ca" tal/ 4e-eral re!er3e a-d #ther acc+,+lated "r#. t!) Pr#. t a.ter ta9e! ROE R 5. D,B,5.15 &'+,/8% SSSSSSSSSSSSSSSSSSSSSSSSS Net 1#rth

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It ! deter, -ed - the 4e-eral b#dy ,eet -4 #. the c#,"a-y/ .#r e=+ ty !hare! at the e-d #. the year6 The d 3 de-d "ay#+t rat # ! deter, -ed a! "er the d 3 de-d ! "a d6 D 3 de-d "#l c e! are d 3 ded -t# t1# ty"e!6 a) Stable d 3 de-d "#l cy6 b) U-!table d 3 de-d "#l cy6 Whe- c#,"a-y reached t# #"t ,+, le3el t ,ay .#ll#1 !table d 3 de-d "#l cy t -d cate! !table 4r#1th rate/ -# .l+ct+at #- are e!t ,ated6 U-!table d 3 de-d "#l cy ,ay +!ed by de3el#" -4 . r,!6 I- !+ch a ca!e !t+dy 4r#1th ,ar2et 3al+e #. !hare ! -#t "#!! ble t# de-t .y6 . C0&,)0+ -)(9/)9(. '* )4. /'3&018% Ge-erally ca" tal !tr+ct+re #. the c#,"a-y c#-! !t! #. e=+ ty !hare!/ "re.ere-ce !hare!/ debe-t+re! a-d #ther l#-4 ter, .+-d!6 O- the ba! ! #. l#-4 ter, . -a-c al !#+rce! c#!t #. ca" tal ! calc+lated6 !. O&.(0),12 .**,/,.1/8% It ! deter, -ed #- the ba! ! #. ca" tal e9"e-d t+re a-d #"erat -4 act 3 t e! #. a c#,"a-y6 I-crea!ed ca" tal e9"e-d t+re -d cate! -crea!e #. #"erat -4 e.. c e-cy6 E9"ected "r#. t! ,ay be -crea!ed -c#, -4 year!6 The #"erat -4 e.. c e-cy #. a c#,"a-y d rectly a..ect! the ear- -4! #. a c#,"a-y a- e9"a-d -4 c#,"a-y that ,a -ta -! h 4h #"erat -4 e.. c e-cy 1 th l#1 brea2 e3e- "# -t6 E.. c e-t +!e #. . 9ed a!!et! 1 th ra1 ,ater al!/ lab#r/ a-d ,a-a4e,e-t 1#+ld lead t# ,#re -c#,e .r#, !ale!6 ". O&.(0),12 +.B.(02.% The . r,! . 9ed c#!t ! h 4h - t#tal c#!t/ the . r, ! !a d t# ha3e a h 4h de4ree #. #"erat -4 le3era4e6 H 4h de4ree #. #"erat -4 le3era4e ,"l e! #ther .act#r! be -4 held c#-!ta-t/ a relat 3ely !,all cha-4e - !ale! re!+lt - a lar4e cha-4e - ret+r- #e=+ ty6 #. M0102.3.1)%

>A

G##d a-d ca"able ,a-a4e,e-t 4e-erate! "r#. t! t# the -3e!t#r!6 The ,a-a4e,e-t #. the . r, !h#+ld e.. c e-cy "la-/ #r4a- :e!/ act+ate a-d c#-tr#l the act 3 t e! #. the c#,"a-y6 The 4##d ,a-a4e,e-t de"e-d! #. the =+al t e! #. the ,a-a4er6 J-##t: a-d O< D#--ell !+44e!t the .#ll#1 -4 a! !"ec al tra t! #. a- able ,a-a4er6 • Ab l ty t# 4et al#-4 1 th "e#"le • Leader!h " • A-alyt cal c#,"ete-cy • I-d+!try • J+d4,e-t6 1$.F,101/,0+ 010+8-,-% The be!t !#+rce #. . -a-c al -.#r,at #- ab#+t a c#,"a-y ! t! #1- . -a-c al !tate,e-t!6 Th ! ! a "r ,ary !#+rce #. -.#r,at #- .#r e3al+at -4 the -3e!t,e-t "r#!"ect! - the "art c+lar c#,"a-y<! !t#c26 The !tate,e-t 4 3e! the h !t#r cal a-d c+rre-t -.#r,at #- ab#+t the c#,"a-y<! -.#r,at #- a d! t# a-aly! ! the "re!e-t !tat+! #. the c#,"a-y6 The ,a - !tate,e-t! +!ed - the a-aly! ! are7 a6 Bala-ce !heet b6 Pr#. t a-d l#!! acc#+-t B0+01/. S4..)% The bala-ce !heet !h#1! all the c#,"a-y<! !#+rce! #. .+-d! (l ab l t e! a-d !t#c2 h#lder! e=+ ty) a-d +!e! #. .+-d! at a 4 3e- "# -t #. t ,e6 The bala-ce !heet "r#3 de! a- acc#+-t #. the ca" tal !tr+ct+re #. the c#,"a-y6 The -et 1#rth a-d the #+t!ta-d -4 l#-4Eter, debt are 2-#1- .r#, the bala-ce !heet6 The +!e #. debt create! . -a-c al le3era4e be-e. c al #r detr ,e-tal t# the !hare h#lder! de"e-d -4 #the ! :e a-d !tab l ty #. ear- -4!6 It ! better .#r the -3e!t#r t# a3# d acc#,"a-y 1 th e9ce!! 3e debt c#,"#-e-t! - t! ca" tal !tr+ct+re6 P('*,) 015 +'-- 0//'91)%
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I- c#,e !tate,e-t! re"#rt! the .l#1 #. .+-d! .r#, b+! -e!! #"erat #-! that ta2e "lace - bet1ee- t1# "# -t! #. t ,e6 It l !t! d#1- the te,! #. -c#,e a-d e9"e-d t+re6 The d ..ere-ce bet1ee- the -c#,e a-d e9"e-d t+re re"re!e-t! "r#. t #r l#!! .#r the "er #d6 It ! al!# called -c#,e a-d e9"e-d t+re !tate,e-t6 L,3,)0),'1- '* *,101/,0+ -)0).3.1)-% • The . -a-c al !tate,e-t! c#-ta - h !t#r cal -.#r,at #-6 Th ! -.#r,at #- ! +!e.+l/ b+t a- -3e!t#r !h#+ld be c#-cer-ed ,#re ab#+t the "re!e-t a-d .+t+re6 • F -a-c al !tate,e-t! are "re"ared #- the ba! ! #. certa - acc#+-t -4 c#-ce"t! a-d c#-3e-t #-!6 A- -3e!t#r !h#+ld 2-#1 the,6 • The !tate,e-t! c#-ta - #-ly -.#r,at #- that ca- be ,ea!+red - ,#-etary +- t!6 F#r e9a,"le/ the l#!! -c+rred by a . r, d+e t# .l##d #r . re ! -cl+ded beca+!e t ca- be e9"re!!ed - ,#-etary ter,!6 11A A10+8-,- '* *,101/,0+ -)0).3.1)-7 The a-aly! ! #. . -a-c al !tate,e-t! re3eal! the -at+re #. relat #-!h " bet1ee-c#,e a-d e9"e-d t+re/ a-d the !#+rce! a-d a""l cat #- #. .+-d!6 ,A C'3&0(0),B. *,101/,0+ -)0).3.1)% I- the c#,"arat 3e !tate,e-t bala-ce !heet . 4+re! are "r#3 ded .#r ,#re tha#-e year6 The c#,"arat 3e . -a-c al !tate,e-t "r#3 de! t ,e "er!"ect 3e t# the bala-ce !heet . 4+re!6 The a--+al data are c#,"ared 1 th ! , lar data #. "re3 #+! year!/ e ther - ab!#l+te ter,!6 ) T(.15 010+8-,- % Here "erce-ta4e! are calc+lated 1 th a ba!e year th ! 1#+ld "r#3 de -! 4ht -t# the 4r#1th #r decl -e #. the !ale #r "r#. t #3er the year!6 S#,et ,e !ale! ,ay be -crea! -4 c#-t -+#+!ly/ a-d the -3e-t#r e! ,ay al!# be r ! -46 Th ! 1#+ld -d cate the l#!! #. ,ar2et !hare . the "art c+lar c#,"a-y<! "r#d+ct6 ,,,A F915 *+'= 010+8-,-% The bala-ce !heet 4 3e! the !tat c " ct+re #. the c#,"a-y<! "#! t #- #- a "art c+lar date6 It d#e! -#t re3eal the cha-4e! that ha3e #cc+rred - the . -a-c al
>F

"#! t #- #. the +- t #3er a "er #d #. t ,e6 Th ! a-aly! ! 4 3e! the -.#r,at #re4ard -4 • H#1 are the "r#. t! +t l :edH • What are the 3ar #+! . -a-c al !#+rce! #. d 3 de-dH • What are the 3ar #+! !#+rce! #. . -a-ce .#r ca" tal e9"e-d t+reH • What are 3ar #+! S#+rce! #. . -a-ce .#r the re"ay,e-t #. the debtH

• The de!t -y #. the !ale! "r#ceed! #. . 9ed a!!et! a-d • H#1 e.. c e-tly the . r, ! +t l : -4 the "r#ceed! #. the !hare #r debe-t+re !!+e #r . 9ed de"#! t! ra !ed .r#, the "+bl cH ,BA C0-4 *+'= -)0).3.1)% The -3e!t#r ! -tere!ted - 2-#1 -4 the ca!h -.l#1 a-d #+t .l#1 #. the e-ter"r !e6 The ca!h .l#1 !tate,e-t ! "re"ared 1 th the hel" #. bala-ce !heet/ -c#,e !tate,e-t a-d !#,e add t #-al -.#r,at #-6 It ca- be e ther "re"ared 3ert cal .#r, #r h#r :#-tal .#r,6 Ca!h .l#1! related t# #"erat #-! a-d #ther tra-!act #-! are calc+lated6 The !tate,e-t !h#1! the ca+!e! #. cha-4e! - ca!h bala-ce bet1ee- the t1# bala-ce !heet date!6 W th the hel" #. the!e !tate,e-t! the -3e!t#r! ca- re3 e1 the ca!h ,#3e,e-t! #3er a- #"erat -4 cycle6 8;6 R0),' 010+8-,-% Rat # ! relat #-!h " bet1ee- t1# . 4+re! e9"re!!ed ,athe,at cally6 F -a-c al rat # "r#3 de! -+,er cal relat #-!h " bet1ee- t1# rele3a-t . -a-c al data6 F -a-c al rat #! are calc+lated .r#, the bala-ce !heet a-d "r#. t a-d l#!! acc#+-t6 The relat #-!h " ca- be e ther e9"re!!ed a! a "erce-t #r a! a =+#t e-t6 Cla!! . cat #- #. . -a-c al rat #! ! a! .#ll#1!7 I6 L =+ d ty rat #!6 L =+ d ty rat # ,ea!+re the ab l ty #. the . r, t# ,eet t! c+rre-t #bl 4at #-! l =+ d ty rat #! by e!tabl !h -4 a relat #-!h " bet1ee- ca!h a-d #ther c+rre-t a!!et! t# c+rre-t #bl 4at #-!/ "r#3 de =+ c2 ,ea!+re #. l =+ d ty6 A . r, !h#+ld e-!+re that t d#e! -#t !+..er .r#, lac2 #. l =+ d ty /a-d al!# that t d#e! -#t ha3e e9ce!! l =+ d ty the
>G

.a l+re #. a c#,"a-y t# ,eet t! #bl 4at #-! d+e t# lac2 #. !+.. c e-t l =+ d ty/ 1 ll re!+lt - a "##r cred t1#rth -e!!/ l#!! #. cred t#r<! c#-. de-ce/ #r e3e- - le4al ta-4le! re!+lt -4 - the cl#!+re #. the c#,"a-y6 A 3ery h 4h de4ree #. l =+ d ty ! al!# bad6 C+rre-t a!!et! o C+rre-t rat # R SSSSSSSSSSSSSSSSSSSSSSSSS C+rre-t l ab l t e! C+rre-t a!!et! E -3e-t#r e! o I+ c2 rat # R SSSSSSSSSSSSSSSSSSSSSSSSSSS C+rre-t l ab l t e! Ca!h T ,ar2etable !ec+r t e! o Ca!h rat # R SSSSSSSSSSSSSSSSSSSSSSSSSSSS C+rre-t l ab l t e! Net 1#r2 -4 ca" tal o Net 1#r2 -4 ca" tal rat # R SSSSSSSSSSSSSSSSSSSSSSSSSSSS Net a!!et! II6 Le3era4e rat #!7 The!e rat #! are +!ed t# $+d4e the l#-4Eter, . -a-c al "#! t #- #. the . r,/ t# ,ea!+re the . -a-c al r !2 a-d the . r,<! ab l ty #. +! -4 debt t# !hare h#lder!< ad3a-ta4e6 Le3era4e rat #! ,ay be calc+lated .r#, the bala-ce !heet te,! t# deter, -e the "r#"#rt #- #. the debt - t#tal . -a-c -46 Ma-y 3ar at #-! #. the!e rat #! e9 !t6 B+t all the!e rat #! -d cate the !a,e th -4 EEEE the e9te-t t# 1h ch the . r, ha! rel ed #debt - . -a-c -4 a!!et!6 Le3era4e rat #! are al!# c#,"+ted .r#, the "r#. t a-d l#!!
?C

te,! by deter, - -4 the e9te-t t# 1h ch #"erat -4 "r#. t! are !+.. c e-t t# c#3er the . 9ed char4e!6 T#tal debt o T#tal debt rat # R SSSSSSSSSSSSSSSSSSS Ca" tal e,"l#yed Ca" tal e,"l#yed R T#tal debt T Net 1#rth T#tal debt o Debt e=+ ty rat # R SSSSSSSSSSSSSSSSSSS Net 1#rth Ca" tal e,"l#yed o Ca" tal e,"l#yed t# -et 1#rth rat # R SSSSSSSSSSSSSSSSSSSSS Net 1#rth (OR) Net a!!et! R SSSSSSSSSSSSSSSSSSSSS Net 1#rth III6 Act 3 ty rat #!7 The!e rat #! are e,"l#yed t# e3al+ate the e.. c e-cy 1 th 1h ch the . r, ,a-a4e! a-d +t l :e! t! a!!et!6 The!e rat #! are al!# called )9(1 'B.( (0),'beca+!e they -d cate the !"eed 1 th 1h ch a!!et! are be -4 c#-3erted #r t+r-ed
?8

#3er -t# !ale!6 The!e rat #!/ th+!/ -3#l3e a relat #-!h " bet1ee- a!!et! a-d !ale!6 A "r#"er bala-ce bet1ee- !ale! a-d a!!et! 4e-erally re.lect! that a!!et! are ,a-a4ed 1ell6 Se3eral act 3 ty rat #! ca- be calc+lated t# $+d4e the e..ect 3e-e!! #. a!!et +t l :at #-6 C#!t #. 4##d! !#ld o I-3e-t#ry t+r- #3er rat # R SSSSSSSSSSSSSSSSSSS A3era4e -3e-t#ry Cred t !ale! o Debt#r! t+r- #3er rat # R SSSSSSSSSSSSSSSSSSS A3era4e debt#r! >AC o C#llect #- "er #d R SSSSSSSSSSSSSSSSSSSSSS Debt#r! t+r- #3er rat # Sale! o A!!et t+r- #3er rat # R SSSSSSSSSSSSSSSSSSSS Net a!!et! Sale! o W#r2 -4 ca" tal t+r- #3er rat # R SSSSSSSSSSSSSSSSSSSSSS Net c+rre-t a!!et!

I'6 Pr#. tab l ty rat #7 The!e rat #! relate the . r,! "r#. t t# the .act#r! that 4e-erate! the "r#. t!6 The!e rat #! are calc+lated t# ,ea!+re the #"erat -4 e.. c e-cy #. the c#,"a-y6 Ge-erally/ t1# ,a$#r ty"e! #. "r#. tab l ty rat #! are calc+lated6 a) Pr#. tab l ty - relat #- t# !ale!6
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b) Pr#. tab l ty - relat #- t# -3e!t,e-t6 Pr#. t a.ter ta9 o Net "r#. t ,ar -e rat # R SSSSSSSSSSSSSSSSSSSSSS Sale! EBIT (8 E T) o Reta l #- -3e!t,e-t R SSSSSSSSSSSSSSSSSSSS T#tal a!!et! Pr#. t a.ter ta9e! o Ret+r- #- e=+ ty R SSSSSSSSSSSSSSSSSSSSSSS Net 1#rth '6 'al+at #- rat #7 The !hare h#lder! are -tere!ted - a!!e!! -4 the 3al+e #. !hare!6 The 3al+e #. the !hare de"e-d! #- the "er.#r,a-ce #. the . r, a-d the ,ar2et .act#r!6 The "er.#r,a-ce #. the . r, - t+r- de"e-d! #- the h#!t #. .act#r!6 He-ce/ the 3al+at #- rat #! "r#3 de a c#,"rehe-! 3e ,ea!+re #. the "er.#r,a-ce #. the . r, t!el.6 I- the !+b!e=+e-t !ect #- !#,e #. the 3al+at #- rat #! are dealt deta l6 B##2 3al+e "er !hare7 Th ! rat # -d cate! the !hare #. e=+ ty !hare h#lder! a.ter the c#,"a-y ha! "a d all t! l ab l t e!/ cred t#r!/ debe-t+re! a-d "re.ere-ce !hareh#lder!6 Pr ce ear- -4 rat #7

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Th ! rat # ! 1 dely +!ed by the !ec+r ty a-aly!t! t# 3al+e the . r,<! "er.#r,a-ce a! e9"ected by -3e!t#r!6 It -d cate! -3e!t#r!< $+d4,e-t ab#+t the . r,<! "er.#r,a-ce6 It re.lect! -3e!t#r!< e9"ectat #-! ab#+t the . r,<! ear- -4!6 I-d+!tr e! d ..er - the r 4r#1th "r#!"ect!M acc#rd -4ly the P 5 E rat #! .#r -d+!tr e! 3ary 1 dely6 Mar2et 3al+e "er !hare o P5E rat # R SSSSSSSSSSSSSSSSSSSSSS Ear- -4! "er !hare Pr#. t a.ter ta9 o Ear- -4 "er !hare R SSSSSSSSSSSSSSSSSSSSSS N+,ber #. e=+ ty !hare! o Mar2et 3al+e K T# K b##2 3al+e rat # R Mar2et 3al+e Per ShareSS B##2 3al+e "er !hare

o D 3 de-d K "ay #+t rat #

R D 3 de-d! "er !hare Ear- -4! "er !hare

TECHNICAL ANALYSIS
Tech- cal a-aly! ! -3#l3e! de-t . cat #- #. !hare "r ce .l+ct+at #-! #- !h#rt "er #d ba! !6 Th ! a-aly! ! ca- be ,ade by br#2er!/ dealer!6 They are treated a! tech- c a-!6 The .#ll#1 -4 are the ,a$#r .act#r! - tech- cal a-aly! !7 • C#,"a-y re!+lt! are -#t a-aly:ed6 The cha-4e! - -at #-al a-d -ter-at #-al le3el ab+t "#l t cal a-d #ther .act#r!6
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• • • •

The !hare! are e9cha-4ed ,,ed ately 1he- there ! a !,all cha-4e - the "r ce le3el #. !hare!6 A3era4e re!+lt! #. the "art c+lar -d+!try are de-t . ed a-d they are treated a! ba! c .act#r!6 Br#2er! d# -#t e9"ect a-y d 3 de-d by h#ld -4 the !hare6 D 3 de-d ! -#t ret+r- .#r calc+lated #. better ret+r- t# the tech- c a-!6 The h#ld -4 "er #d ! deter, -ed 3ery le!!6 It ,ay ra-4e .r#, h#+r! t# day!6 Ge-erally h#ld -4 "er #d ,ay -#t be ,#re tha- #-e ,#-th6 The tech- cal a-aly! ! ca- be ,ade - th ! re!"ect by de-t .y -4 "r ce .l+ct+at #-! #. the "art c+lar !hare6

•

N# ca" tal 4a -! e9"ected by tra-!.er #. the !hare !# -eeded t# "ay a-y ca" tal 4a - ta2e!/ !h#rt r+- ret+r- ab#+t e9cha-4e - "r ce #. !hare ! -#t treated a! ca" tal 4a -6

• • • • M'B,12 0B.(02.%

ESP declared by c#,"a-y at the e-d #. . -a-c al year a-d d 3 de-d declared ,ay be treated a! ba!e . 4+re! .#r tech- cal a-aly! !6 I-ter , d 3 de-d . a-y declared by the c#,"a-y that 1 ll be a-aly:ed t# !ell the !hare!6 St#c2 e9cha-4e 1 ll a--#+-ce the a3era4e re!+lt #. !ec+r t e! traded #- day K t# K day ba! !6 By c#-d+ct -4 #. the tech- cal a-aly! ! tech- c a- a-t c "ate h 4h le3el #. !h#rt r+- "r#. t6 The a-aly! ! #. the ,#3 -4 a3era4e #. the "r ce! #. !cr "t! ! a-#ther ,eth#d - tech- cal a-aly! !6 Ge-erally/ D day!/ t# day! a-d 8@day! ,#3 -4 a3era4e! are 1#r2ed #+t - re!"ect #. !cr "t! !t+d ed a-d de" cted #- a 4ra"h al#-4 1 th ! , lar ,#3 -4 a3era4e! #. the ,ar2et -de9 l 2e BSE Se-! t 3e I-de96 There 1 ll the- be t1# 4ra"h! t# be c#,"ared a-d 1he- the trade! are ! , lar the !cr " a-d BSE ,ar2et -d+ce! 1 ll !h#1 c#,"arable a3era4e! r !2!6
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O!c llat#r! -d cate the ,ar2et ,#,e-t+, !cr " ,#,e-t+,6 O!c llat#r !h#1! the !hare! "r ce ,#3e,e-t acr#!! a re.ere-ce "# -t .r#, #-e e9tre,e t# a-#ther6 C40()-7 Chart! are the 3al+able a-d ea! e!t t##l! - the tech- cal a-aly! !6 The 4ra"h c "re!e-tat #- #. the data hel"! the -3e!t#r t# . -d #+t the tre-d #. the "r ce 1 th#+t a-y d .. c+lty6 The chart! al!# ha3e the .#ll#1 -4 +!e!6 • • "r#$ect #-6 • • Sh#1! the "a!t h !t#r c ,#3e,e-t6 I-d cate! the ,"#rta-t area! #. !+""#rt a-d re! !ta-ce6 S"#t! the c+rre-t tre-d .#r b+y -4 a-d !ell -46 I-d cate! the "r#bable .+t+re act #- #. the ,ar2et by

The chart! d# -#t l e b+t -ter"retat #- d ..er! .r#, a-aly!t t# a-aly!t acc#rd -4 t# the r !2 ll! a-d e9"er e-ce6 P# -t a-d . 4+re chart!7 Tech- cal a-aly!t t# "red ct the e9te-t a-d d rect #- #. the "r ce ,#3e,e-t #. a "art c+lar !t#c2 #r the !t#c2 ,ar2et -d ce! +!e! "# -t a-d . 4+re chart!6 Th ! P6F chart! are #. #-eEd ,e-! #-al a-d there ! -# -d cat #- #. t ,e #r 3#l+,e6 The "r ce cha-4e! - relat #- t# "re3 #+! "r ce! are dra1- - r+le! "a"er6 B0( /40()-% The bar chart ! the !,alle!t a-d ,#!t c#,,#-ly +!ed t##l #. a tech- cal a-aly!t6 The b+ ld a bar a d#t ! e-tered t# re"re!e-t the h 4he!t "r ce at 1h ch the !t#c2 ! traded #- that day/ 1ee2 #r ,#-th6 The- a-#ther d#t ! e-tered t# -d cate the l#1e!t "r ce #- the "art c+lar date6 A l -e ! dra1- t# c#--ect b#th the "# -t! a h#r :#-tal -+b ! dra1- t# ,a2e the cl#! -4 "r ce6

RISK AND RETURN ANALYSIS
The t1# ,a - c#,"#-e-t! t# be !t+d ed 1h le c#-!tr+ct #- #. a "#rt.#l # !
?A

86 R !2 #. a "#rt.#l # ;6 Ret+r-! #- a "#rt.#l # RISK% E9 !te-ce #. 3#lat l ty - the #cc+rre-ce #. a- e9"ected -c de-t ! called r !26 H 4her the +-"red ctab l ty 4reater ! the de4ree #. r !26 The r !2 a-y #r ,ay -#t -3#l3e ,#-ey6 I- -3e!t,e-t ,a-a4e,e-t/ r !2 -3#l3 -4 "ec+- ary ,atter ha! ,"#rta-ceM the . -a-c al !e-!e #. r !2 ca- be e9"la -ed a! the 3#lat l ty #. e9"ected .+t+re -c#,e! #r #+tc#,e!6 R !2 ,ay 4 3e a "#! t 3e #r a -e4at 3e re!+lt6 I. +- ,a4 -ed -c de-t ! a "#! t 3e #-e/ the- "e#"le ha3e a "lea!a-t !+r"r !e6 T# be able t# ta2e -e4at 3e r !2 1 th the !a,e !" r t ! d .. c+lt b+t -#t ,"#!! ble/ . "r#"er r !2 ,a-a4e,e-t tech- =+e! are .#ll#1ed6 R !2 ! +-certa -ty #. the -c#,e5 ca" tal a""rec at #- #r l#!! #. the b#th6 The t1# ,a$#r ty"e! #. r !2! are7 • Sy!te,at c #r ,ar2et related r !26 • U-!y!te,at c #r c#,"a-y related r !26 The !y!te,at c r !2! are the ,ar2et "r#ble,! #. ra1 ,ater al a3a lab l ty/ ta9 "#l cy #r a-y 4#3er-,e-t "#l cy/ -.lat #- r !2/ -tere!t rate r !2 a-d . -a-c al r !26 The +-!y!te,at c r !2! are , !,a-a4e,e-t -crea! -4 -3e-t#ry/ 1r#-4 . -a-c al "#l c e!6 The !y!te,at c r !2 ! ca+!ed by .act#r! e9ter-al t# the "art c+lar c#,"a-y a-d +-c#-tr#llable6 The !y!te,at c r !2 a..ect! the ,ar2et a! a 1h#le6 I- a ca!e #. +-!y!te,at c r !2 the .act#r! are !"ec . c/ +- =+e a-d related t# the "art c+lar -d+!try #r c#,"a-y6 T8&.- '* R,-:% S.30),/ (,-:% The !y!te,at c r !2 a..ect! the e-t re ,ar2et #.te- 1e read - the -e1! "a"er that the !t#c2 ,ar2et ! - the bear h+4 #r - the b+ll 4r "6 Th ! -d cate! that the e-t re ,ar2et ! ,#3 -4 - a "art c+lar d rect #- e ther d#1-1ard #r +"1ard6 The ec#-#, c c#-d t #-!/ "#l t cal ! t+at #-! a-d the !#c #l#4 cal cha-4e! a..ect the
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!ec+r ty ,ar2et6 The rece!! #- - the ec#-#,y a..ect! the "r#. t "r#!"ect! #. the -d+!try a-d the !t#c2 ,ar2et6 The !y!te,at c r !2 ! .+rther d 3 ded -t# three ty"e! they are a! .#ll#1!7 a) M0.) (,-:7 Jac2 Clar2 Fra-c ! ha! de. -ed ,ar2et r !2 a! that "#rt #- #. t#tal 3ar ab l ty #. ret+r- ca+!ed by the alter-at 3e .#rce! #. b+ll a-d bear ,ar2et!6 The .#rce! that a..ect the !t#c2 ,ar2et are ta-4 ble a-d -ta-4 ble e3e-t! are real e3e-t! !+ch a! earth=+a2e/ 1ar/ a-d "#l t cal +-certa -ty ad .all - the 3al+e l. c+rre-cy6 @A I1).(.-) (0). (,-:% I-tere!t rate r !2 ! the 3ar at #- - the ! -4le "er #d rate! #. ret+r- ca+!ed by the .l+ct+at #-! - the ,ar2et -tere!t rate6 M#!t c#,,#-ly -tere!t rate r !2 a..ect! the "r ce #. b#-d!/ debe-t+re! a-d !t#c2!6 The .l+ct+at #-! #- the -tere!t rate! are ca+!ed by the cha-4e! - the 4#3er-,e-t "#l cy a-d the cha-4e! that #cc+r - the -tere!t rate #. the trea!+ry b ll! a-d 4#3er-,e-t b#-d!. /A P9(/40-,12 &'=.( (,-:% 'ar at #-! - the ret+r-! are ca+!ed al!# by the l#!! #. "+rcha! -4 "#1er #. c+rre-cy6 I-.lat #- ! a rea!#- beh -d the l#!! #. "+rcha! -4 "#1er6 The le3el #. -.lat #- "r#ceed! .a!ter tha- the -crea!e - ca" tal 3al+e6 P+rcha! -4 "#1er r !2 ! the "r#bable l#!! - the "+rcha! -4 "#1er #. the ret+r-! t# be rece 3ed6 U1-.30),/ (,-:% A! already ,e-t #-ed/ +-!y!te,at c r !2 ! +- =+e a-d "ec+l ar t# a . r, #r a- -d+!try6 U-!y!te,at c r !2 !te, .r#, ,a-a4er al -e.. c e-cy/ eth-#l#4 cal cha-4e - the "r#d+ct #- "r#ce!!/ a3a lab l ty #. ra1 ,ater al/ cha-4e! - the c#-!+,er "re.ere-ce/ a-d lab#r "r#ble,!6 The -at+re a-d the ,a4- t+de #. the ab#3e K ,e-t #-ed .act#r! d ..er .r#, -d+!try t# -d+!try/ a-d c#,"a-y t# c#,"a-y6 They ha3e t# be a-aly:ed !e"arately .#r each -d+!try a-d . r,6
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0A B9-,1.-- (,-:% B+! -e!! r !2 ! that "#! t #- #. the +-!y!te,at c r !2 ca+!ed by the #"erat -4 e-3 r#-,e-t #. the b+! -e!!6 B+! -e!! r !2 ar !e! .r#, the -ab l ty #. a . r, t# ,a -ta - t! c#,"et t 3e ed4e a-d the 4r#1th a-d !tab l ty #. the ear- -4!6 The 3ar at #- - the e9"ected #"erat -4 -c#,e -d cate! the b+! -e!! r !26 B+! -e!! r !2 ca- be d 3 ded -t#7 • E9ter-al b+! -e!! r !2 • I-ter-al b+! -e!! r !2 ) I-ter-al b+! -e!! r !27 Th ! r !2 ! a!!#c ated 1 th the #"t #-al e.. c e-cy #. the . r,6 The .#ll#1 -4 are the .e17 • Fl+ct+at #-! - the !ale! • Re!earch a-d de3el#",e-t • Per!#-al de3el#",e-t • F 9ed c#!t • S -4le "r#d+ct ) E9ter-al r !27 Th ! r !2 ! the re!+lt #. the #"erat -4 c#-d t #-! ,"#!ed #- the . r, by c rc+,!ta-ce! bey#-d t! c#-tr#l6 The e9ter-al e-3 r#-,e-t - 1h ch t #"erated e9ert! !#,e "re!!+re #- the . r,6 • S#c al a-d re4+lar ty .act#r! • P#l t cal r !2 • B+! -e!! cycle b) F,101/,0+ (,-:7 Th ! r !2 relate! t# the ,eth#d #. . -a-c -4/ ad#"ted by the c#,"a-y/ h 4h le3era4e le-d -4 t# lar4er debt !er3 c -4 "r#ble,! #r !h#rt ter, l =+ d ty "r#ble,! d+e t# bad debt!/ delayed rece 3able! a-d .all - c+rre-t a!!et! #r r !e
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- c+rre-t l ab l t e!6 The!e "r#ble,! c#+ld -# d#+bt be !#l3ed/ b+t they ,ay lead t# .l+ct+at #-! - the ear- -4!/ "r#. t! a-d d 3 de-d! t# !hareh#lder!6 S#,e t ,e!/ . the c#,"a-y r+-! -t# l#!!e! #r red+ced "r#. t!/ the!e ,ay lead t# .all - ret+r-! t# -3e!t#r! #r -e4at 3e ret+r-!6 Pr#"er . -a-c al "la-- -4 a-d #ther . -a-c al ad$+!t,e-t! ca- be +!ed t# c#rrect th ! r !2 a-d a! !+ch t ! c#-tr#llable6 /A C(.5,) '( 5.*09+) (,-:% The b#rr#1er #r !!+er #. !ec+r t e! ,ay bec#,e -!#l3e-t #r ,ay de.a+lt/ #r delay the "ay,e-t! d+e/ !+ch a! -tere!t -!tall,e-t! #r "r -c "le re"ay,e-t!6 The b#rr#1er<! cred t rat -4 , 4ht ha3e .alle- !+dde-ly a-d he beca,e de.a+lt "r#-e a-d - t! e9tre,e .r#, t ,ay lead t# -!#l3e-cy #r ba-2r+"tc e!6 I- !+ch ca!e!/ the -3e!t#r ,ay 4et -# ret+r- #r -e4at 3e ret+r-!6 A- -3e!t,e-t - a healthy c#,"a-y<! !hare , 4ht t+r- #+t t# be a 1a!te "a"er/ . 1 th - a !h#rt !"a-/ by the del berate , !ta2e! #. ,a-a4e,e-t #r act! #. G#d/ the c#,"a-y beca,e ! c2 a-d t! !hare "r ce t+,bled bel#1 t! .ace "r ce6 RISK ON A PORTFOLIO% R !2 #- a "#rt.#l # ! d ..ere-t .r#, the r !2 #- -d 3 d+al !ec+r t e!6 Th ! r !2 ! related - the 3ar ab l ty #. the ret+r-! .r#, :er# t# -. - ty6 The e9"ected ret+r- de"e-d! #- the "r#bab l ty #. the ret+r-! a-d the r 1e 4hted c#-tr b+t #- t# the r !2 #. the "#rt.#l #6 There are t1# ,ea!+re! #. the r !2 th ! c#-te9tEEE #-e ! the ab!#l+te de3 at #- a-d the #ther !ta-dard de3 at #-6 RETURN OF PORTFOLIO% Each !ec+r ty - a "#rt.#l # c#-tr b+te! ret+r-! - the "r#"#rt #- #. t! -3e!t,e-t - !ec+r ty6 Th+!/ the "#rt.#l # e9"ected ret+r- ! the 1e 4hted a3era4e #. the e9"ected ret+r-!/ .r#, each #. the !ec+r t e!/ 1 th 1e 4ht! re"re!e-t -4 the "r#"#rt #-ate !hare #. the !ec+r ty - the t#tal I-3e!t,e-t6 Why a- -3e!t#r d#e! ha3e !# ,a-y !ec+r t e! - h ! "#rt.#l #H The a-!1er t#
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th ! =+e!t #- l e - the -3e!t#r<! "erce"t #- #. r !2 attached t# the -3e!t,e-t/ h ! #b$ect 3e! #. -c#,e/ !a.ety/ a""rec at #-/ l =+ d ty a-d hed4e a4a -!t the l#!! #. 3al+e #. ,#-ey etc6/ Th ! "atter- #. -3e!t,e-t - d ..ere-t a!!et cate4#r e! !ec+r ty cate4#r e! ty"e! #. -!tr+,e-t etc6 1#+ld all be de!cr bed +-der the ca"t #- #. d 3er! . cat #- 1h ch a ,! at the red+ct #- #r e3e- el , -at #- #. +-!y!te,at c #r c#,"a-y related r !2! a-d ach e3e the !"ec . c #b$ect 3e! #. the -3e!t#r!6 P#rt.#l # ,a-a4e,e-t !er3 ce hel"! -3e!t#r t# ,a2e a 1 !e ch# ce a,#-4 alter-at 3e -3e!t,e-t! 1 th#+t a-y "#!t tra - -4 ha!!le!6 Th ! !er3 ce re-der! #"t ,+, ret+r-! t# the -3e!t#r! by a "r#"er !elect #- by c#-t -+#+! !h .t -4 #. "#rt.#l # .r#, #-e !che,e t# #ther !che,e #r .r#, #-e bra-d t# the #ther bra-d 1 th - the !a,e !che,e6 A-y "#rt.#l # ,a-a4er ,+!t !"ec .y the ,a9 ,+, ret+r-/ #"t ,+, ret+r-! a-d r !2/ ca" tal a""rec at #-/ !a.ety etc - the r #..er6 Fr#, the ret+r- a-4le !ec+r t e! ca- be cla!! . ed -t# t1# ty"e!7 • F 9ed -c#,e !ec+r t e! • 'ar able -c#,e !ec+r t e!6 F,<.5 ,1/'3. -./9(,),.-% ? 1arra-t6 ? ? ? Pre.ere-ce !hare! G#3er-,e-t !ec+r t e! a-d B#-d! Other debt -!tr+,e-t!6 Debt K "artly c#-3ert ble a-d N#- c#-3ert ble debt 1 th tradable

V0(,0@+. ,1/'3. -./9(,),.-% ? E=+ ty !hare! ? M#-ey ,ar2et !ec+r t e! l 2e trea!+ry b ll!/ c#,,erc al "a"er! etc6 P#rt.#l # ,a-a4er ha3e t# dec de +"#- the , 9 #. !ec+r t e! #- ba! ! #. c#-tract 1 th the cl e-t a-d #b$ect 3e #. the "#rt.#l #6 P#rt.#l # ,a-a4er! - the I-d a- c#-te9t/
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ha! bee- br#2er! (b 4 br#2er!) 1h# #- the ba! ! #. the r e9"er e-ce/ ,ar2et tre-d/ -! der trad -4 "er!#-al c#-tact a-d !"ec+lat #-! are the #-e 1h# +!ed t# ,a-a4e .+-d! #r "#rt.#l #!6 RISK AND RETURN ANALYSIS IN PORTFOLIO MANAGEMENT The trad t #-al a""r#ach t# "#rt.#l # b+ ld -4 ha! !#,e ba! c a!!+,"t #-!6 F r!t/ the -d 3 d+al "re.er! lar4er t# !,aller ret+r-! .r#, !ec+r t e!6 T# ach e3e th ! .#al/ the -3e!t#r ha! t# ta2e ,#re r !26 The ab l ty t# ach e3e h 4her ret+r-! ! de"e-de-t +"#h ! ab l ty t# $+d4e r !2 a-d h ! ab l ty t# ta2e !"ec . c r !2!6 The r !2! are -a,ely -tere!t rate r !2/ "+rcha! -4 "#1er r !2/ . -a-c al r !2 a-d ,ar2et -4 r !26 The -3e!t#r a-aly! ! the 3ary -4 de4ree! #. r !2 a-d c#-!tr+ct! h ! "#rt.#l #6 At . r!t/ he e!tabl !hed the , - ,+, -c#,e that he ,+!t ha3e t# a3# d hard!h " +-der ,#!t ad3er!e ec#-#, c c#-d t #- a-d the- he dec de! r !2 #. l#!! #. -c#,e that ca- be t#lerated6 The -3e!t#r ,a2e! a !er e! #. c#,"r#, !e! #- r !2 a-d -#-E r !2 .act#r! l 2e ta9at #- a-d ,ar2etab l ty a.ter he ha! a!!e!!ed the ,a$#r r !2 cate4#r e!/ 1h ch he ! try -4 , - , :e6 Al"ha7 Al"ha ! the d ..ere-ce bet1ee- the h#r :#-tal a9 ! a-d l -e<! -teract #- 1 th y a9 !6 It ,ea!+re! the +-!y!te,at c r !2 #. the c#,"a-y6 I. al"ha ! a "#! t 3e ret+r-/ the- that !cr " 1 ll ha3e h 4her ret+r-!6 I. al"ha R C the- the re4re!! #- l -e 4#e! thr#+4h the #r 4 - a-d t! ret+r- ! ,"ly de"e-d! #- beta t ,e! the ,ar2et ret+r-!6 Beta7 Beta de!cr be! the relat #-!h " bet1ee- the !t#c2! ret+r- a-d the ,ar2et -de9 ret+r-!6 Th ! ca- be "#! t 3e a-d -e4at 3e6 It ! the "erce-ta4e cha-4e - the "r ce #. the !t#c2 re4re!!ed #r related t# the "erce-ta4e cha-4e - the ,ar2et -de96 I. beta ! 8/ a #-eE "erce-ta4e cha-4e - ,ar2et -de9 1 ll lead t# #-e "erce-ta4e cha-4e - "r ce #. the !t#c26 I. beta ! C/ !t#c2 "r ce ! +-related t# the ,ar2et -de9 a-d . the ,ar2et 4#e! +" by aT8O/ the !t#c2 "r ce 1 ll .all by 8O @.)0 3.0-9(.- )4. -.30),/ 30.) (.+0).5 (,-:E 1h ch ca--#t be el , -ated by d 3er! . cat #-6 I. the "#rt.#l # ! e.. c e-t/
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beta ,ea!+re! the !y!te,at c r !2 e..ect 3ely6 O- the #ther ha-d al"ha ,ea!+re! the +-!y!te,at c r !2/ 1h ch ca- be red+ced by e.. c e-t d 3er! . cat #-6 MEASREMENT OF RISK% The dr 3 -4 .#rce #. !y!te,at c a-d +-!y!te,at c r !2 ca+!e! the 3ar at #- - ret+r-! #. !ec+r t e!6 E..#rt! ha3e t# be ,ade by re!earcher!/ e9"ert<! a-aly!t!/ the#r !t! a-d acade, c a-! - the . eld #. -3e!t,e-t t# de3el#" ,eth#d! .#r ,ea!+r -4 r !2 a!!e!! -4 the ret+r-! #- -3e!t,e-t!6

T')0+ (,-:% The t#tal r !2 #. the -3e!t,e-t c#,"r !e! #. d 3er! . able r !2 a-d -#- d 3er! . able r !2/ a-d th ! relat #- ca- be c#,"+ted by !+,, -4 +" d 3er! . able r !2 a-d -#-E d 3er! . able r !26 D,B.(-,*,0@+. (,-:% A-y r !2 that ca- be d 3er! . ed ! re.erred t# a! d 3er! . able r !26 Th ! r !2 ca- be t#tally el , -ated thr#+4h d 3er! . cat #- #. !ec+r t e!6 D 3er! . cat #- #. !ec+r t e! ,ea-! c#,b - -4 a lar4e 3ar ety #. a!!et! -t# a "#rt.#l #6 The "rec !e ,ea!+re #. r !2 #. a ! -4le a!!et ! t! c#-tr b+t #- t# the ,ar2et "#rt.#l # #. a!!et!/ 1h ch ! t! c#E 3ar a-ce 1 th ,ar2et "#rt.#l #6 Th ! ,ea!+re d#e! -#t -eed a-y add t #-al c#!t - ter,! #. ,#-ey b+t re=+ re! a l ttle "r+de-ce6 It ! +-E d 3er! . able r !2 #. -d 3 d+al a!!et that ! ,#re d .. c+lt t# tac2le6 T(05,),'10+ 3.)4'5 '* C901),*8,12 (,-:% A!! 4- -4 #. the r !2 "re, +, ! #-e #. the trad t #-al ,eth#d!6 The .+-da,e-tal te-et - the . -a-c al ,a-a4e,e-t ! t# trade #.. bet1ee- r !2 a-d ret+r-6 The ret+r- .r#, h#ld -4 e=+ ty !ec+r t e! ! der 3ed .r#, the d 3 de-d !tea, a-d "r ce cha-4e!6 O-e #. the ,eth#d! #. =+a-t .y -4 r !2 a-d calc+lat -4 e9"ected rate #. ret+r- 1#+ld be t# e9"re!! the re=+ red rate a! ( F , G & G @ G * G 3 G'
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W4.(. ( F Re=+ red Rate O. Ret+r, R Real I-tere!t Rate (R !2 Free Rate) & R P+rcha! -4 P#1er R !2 All#1a-ce @ F B+! -e!! R !2 All#1a-ce * F F -a-c al R !2 All#1a-ce 3 F Mar2et R !2 All#1a-ce ' F all#1a-ce! .#r #ther r !2 M'5.(1 3.)4'5 '* C901),*8,12 (,-:% I+a-t . cat #- #. r !2 ! -ece!!ary t# e-!+re +- .#r, -ter"retat #- a-d c#,"ar !##. alter-at 3e -3e!t,e-t #""#rt+- t e!6 The "reEre=+ ! te .#r a- #b$ect 3e e3al+at #a-d c#,"arat 3e a-aly! ! #. 3ar #+! -3e!t,e-t alter-at 3e! ! a rat #-al ,eth#d .#r =+a-t .y -4 r !2 a-d ret+r-6 Pr#bab l ty d !tr b+t #- #. ret+r-! ! 3ery hel".+l - de-t .y -4 e9"ected ret+r-! a-d r !26 The !"read #. d !"er! #- #. the "r#bab l ty d !tr b+t #- ca- al!# be ,ea!+red by de4ree #. 3ar at #- .r#, the e9"ected ret+r-6 DEVIATION F OUTCOME > E6PECTED RETURN O+tc#,e! #- the -3e!t,e-t! d# -#t ha3e e=+al "r#bab l ty #cc+rre-ce he-ce t re=+ re! 1e 4ht! .#r each d ..ere-ce by t! "r#bab l ty6 PROBABILITY 6 ?OUTCOME > E6PECTED RETURNA F#r the "+r"#!e #. c#,"+t -4 3ar a-ce/ de3 at #-! are t# be !=+ared be.#re ,+lt "ly -4 1 th "r#bab l t e!6 PROBABILITY 6 ?OUTCOME > E6PECTED RETURNSAH2

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PORTFOLIO ANALYSIS
P#rt.#l #! 1h ch are the c#,b -at #-! #. !ec+r t e! ,ay #r ,ay -#t ta2e the a44re4ate character !t c! #. the r -d 3 d+al "art!6 P#rt.#l # a-aly! ! c#-! der! the deter, -at #- #. .+t+re r !2 a-d ret+r- - h#ld -4 3ar #+! ble-d! #. -d 3 d+al !ec+r t e!6 A- -3e!t#r ca- !#,e t ,e! red+ce "#rt.#l # r !2 by add -4 a-#ther !ec+r ty 1 th 4reater -d 3 d+al r !2 tha- a-y #ther !ec+r ty - the "#rt.#l #6 Th ! !ee, -4ly c+r #+! re!+lt #cc+r! beca+!e r !2 de"e-d! 4reatly #- the c#3ar a-ce a,#-4 ret+r-! #. -d 3 d+al !ec+r t e!6 A- -3e!t#r ca- red+ce e9"ected r !2 le3el #. a 4 3e- "#rt.#l # #. a!!et! . he ,a2e! a "r#"er d 3er! . cat #- #. "#rt.#l #!6 There are t1# ,a - a""r#ache! .#r a-aly! ! #. "#rt.#l # • Trad t #-al a""r#ach6 • M#der- a""r#ach6 TRADITIONAL PORTFOLIO APPROACH% The trad t #-al a""r#ach ba! cally deal! 1 th t1# ,a$#r dec ! #-!6 Trad t #-al !ec+r ty a-aly! ! rec#4- :e! the 2ey ,"#rta-ce #. r !2 a-d ret+r- t# the -3e!t#r6 M#!t trad t #-al ,eth#d! rec#4- :e ret+r- a! !#,e d 3 de-d rece "t a-d "r ce a""rec at #- #3er a .#r1ard "er #d6 B+t the ret+r.#r -d 3 d+al !ec+r t e! ! -#t al1ay! #3er the !a,e c#,,#- h#ld -4 "er #d/ -#r are the rate! #. ret+r- -ece!!ar ly t ,e ad$+!ted6 A- a-aly! !
@@

,ay 1ell e!t ,ate .+t+re ear- -4! a-d a He 1 ll !+rely e!t ,ate the d 3 de-d6

P5E rat # t# der 3e .+t+re "r ce6

I- a-y ca!e/ 4 3e- a- e!t ,ate #. ret+r-/ the a-aly!t ! l 2ely t# th -2 #. a-d e9"re!! r !2 a! the "r#bable d#1-! :e r ce e9"ectat #- ( e ther by t!el. #r relat 3e t# +"! de a""rec at #- "#!! b l t e!)6each !ec+r ty e-d! +" 1 th !#,e r#+4h ,ea!+re! #. l 2ely ret+r- a-d "#te-t al d#1-! de r !2 .#r the .+t+re6 P#rt.#l #! #r c#,b -at #-! #. !ec+r t e! are th#+4h #. a! hel" -4 t# !"read r !2 #3er ,a-y !ec+r t e! ,ay !"ec .y #-ly br#adly #r -eb+l#+!ly6 A+t# !t#c2! are/ .#r e9a,"le!/ rec#4- :ed a! r !2 -terrelated 1 th . re !t#c2!/ +t l ty !t#c2! d !"lay de.e-! 3e "r ce ,#3e,e-t relat 3e t# the ,ar2et a-d cycl cal !t#c2! l 2e !teel/ a-d !# #-6 Th ! ! -#t t# !ay that trad t #-al "#rt.#l # a-aly! ! ! +-!+cce!!.+l6 It ! t# !ay that ,+ch #. t , 4ht be ,#re #b$ect 3ely !"ec . ed - e9"l c t ter,!6 They are7 • Deter, - -4 the #b$ect 3e! #. the "#rt.#l # • Select #- #. !ec+r t e! t# be -cl+ded - the "#rt.#l #6 N#r,ally th ! ! carr ed #+t - .#+r t# ! 9 !te"!6 Be.#re .#r,+lat -4 the #b$ect 3e!/ the c#-!tra -t! #. the -3e!t#r !h#+ld be a-aly:ed6 W th - the 4 3e.ra,e 1#r2 #. c#-!tra -t!/ #b$ect 3e! are .#r,+lated6 The- ba!ed #- the #b$ect 3e! !ec+r t e! are !elected6 A.ter that r !2 a-d ret+r- #. the !ec+r t e! !h#+ld be !t+d ed6 The -3e!t#r ha! t# a!!e!! the ,a$#r r !2 cate4#r e! that he #r !he ! try -4 t# , - , :e6 C#,"r#, !e #. r !2 a-d -#-Er !2 .act#r! ha! t# be carr ed #+t6 F -ally relat 3e "#rt.#l # 1e 4ht! are a!! 4-ed t# !ec+r t e! l 2e b#-d!/ !t#c2! a-d debe-t+re! a-d the d 3er! . cat #- ! carr ed #+t6 MODERN PORTFOLIO APPROACH% The trad t #-al a""r#ach ! a c#,"rehe-! 3e . -a-c al "la- .#r the -d 3 d+al -eed! !+ch a! h#+! -4/ l .e -!+ra-ce a-d "e-! #- "la-!6 B+t the!e ty"e! #. . -a-c al
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"la-- -4 a""r#ache! are -#t d#-e - the Mar2#1 t: a""r#ach6 Mar2#1 t: 4 3e! ,#re atte-t #- t# the "r#ce!! #. !elect -4 the "#rt.#l #6 H ! "la-- -4 ca- be a""l ed ,#re - the !elect #- #. c#,,#- !t#c2! "#rt.#l # tha- the b#-d "#rt.#l #6 The !t#c2! are -#t !elected #- the ba! ! #. -eed .#r -c#,e #r ca" tal a""rec at #-6 B+t the !elect #! ba!ed #- the r !2 a-d ret+r- a-aly! !/ ret+r- -cl+de! ,ar2et ret+r- a-d d 3 de-d6 The -3e!t#r -eed! ret+r- a-d t ,ay be e ther - the .#r, #. ,ar2et ret+r- #r d 3 de-d6 The -3e!t#r ! a!!+,ed t# ha3e the #b$ect 3e! #. ,a9 , : -4 the e9"ected ret+ra-d , - , : -4 the r !26 F+rther/ t ! a!!+,ed that -3e!t#r! 1#+ld ta2e +" r !2 - a ! t+at #- 1he- ade=+ately re1arded .#r t6 Th ! ,"l e! that -d 3 d+al! 1#+ld "re.er the "#rt.#l # #. h 4he!t e9"ected ret+r- .#r a 4 3e- le3el #. r !26 I- the ,#dera""r#ach the . -al !te" ! a!!et all#cat #- "r#ce!! that ! t# ch##!e the "#rt.#l # that ,eet! the re=+ re,e-t #. the -3e!t#r6

PORTFLIO CONSTRUCTION
P#rt.#l # ! c#,b -at #- #. !ec+r t e! !+ch a! !t#c2!/ b#-d! a-d ,#-ey ,ar2et -!tr+,e-t!6 The "r#ce!! #. ble-d -4 t#4ether the br#ad a!!et! cla!!e! !# a! t# #bta #"t ,+, ret+r- 1 th , - ,+, r !2 ! called "#rt.#l # c#-!tr+ct #-6 M,1,3,I0),'1 '* (,-:-% The c#,"a-y !"ec . c r !2! (+-!y!te,at c r !2!) ca- be red+ced by d 3er! .y -4 -t# a .e1 c#,"a- e! bel#-4 -4 t# 3ar #+! -d+!try 4r#+"!/ a!!et 4r#+" #r d ..ere-t ty"e! #. -!tr+,e-t! l 2e e=+ ty !hare!/ b#-d!/ debe-t+re! etc6 th+!/ a!!et cla!!e! are ba-2 de"#! t!/ c#,"a-y de"#! t!/ 4#ld/ ! l3er/ la-d/ real e!tate/ e=+ ty !hare! etc6 -d+!try 4r#+" l 2e tea/ !+4ar "a"er/ ce,e-t/ !teel/ electr c ty etc6 Each #. the, ha! d ..ere-t r !2 K ret+r- character !t c! a-d -3e!t,e-t! are t# be ,ade/ ba!ed #-d 3 d+al<! r !2 "re.ere-ce6 The !ec#-d cate4#ry #. r !2 (!y!te,at c r !2) ! ,a-a4ed by the +!e #. beta #. d ..ere-t c#,"a-y !hare!6 A&&('0/4.- ,1 &'()*'+,' /'1-)(9/),'17

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C#,,#-ly there are t1# a""r#ache! - the c#-!tr+ct #- #. the "#rt.#l # #. !ec+r t e! • • 3 :6/ Trad t #-al a""r#ach Mar2#1 t: e.. c e-t .r#-t er a""r#ach6

I- the trad t #-al a""r#ach/ -3e!t#r! -eed! - ter,! #. -c#,e a-d ca" tal a""rec at #- are e3al+ated a-d the- a""r#"r ate !ec+r t e! are !elected t#/ ,eet the -eed! #. -3e!t#r!6 The c#,,#- "ract ce - the trad t #-al a""r#ach ! t# e3al+ate the e-t re . -a-c al "la- #. the -d 3 d+al!6 I- the ,#der- a""r#ach/ "#rt.#l #! are c#-!tr+cted t# ,a9 , :e the e9"ected ret+r- .#r a 4 3e- le3el #. r !26 It 3 e1 "#rt.#l # c#-!tr+ct #- - ter,! #. the e9"ected ret+r- a-d the r !2 a!!#c ated 1 th #bta - -4 the e9"ected ret+r-6 E**,/,.1) &'()*'+,'% T# c#-!tr+ct a- e.. c e-t "#rt.#l #/ 1e ha3e t# c#-ce"t+al :e 3ar #+! c#,b -at #-! #. -3e!t,e-t! - a ba!2et a-d de! 4-ate the, a! "#rt.#l # #-e t# UN<6 The- the e9"ected ret+r-! .r#, the!e "#rt.#l #! are t# be 1#r2ed #+t a-d the"#rt.#l #! are t# be e!t ,ated by ,ea!+r -4 the !ta-dard de3 at #- #. d ..ere-t "#rt.#l # ret+r-!6 T# red+ce the r !2/ -3e!t#r! ha3e t# d 3er! .y -t# a -+,ber #. !ec+r t e! 1h#!e r !2 K ret+r- "r#. le! 3ary6 A ! -4le a!!et #r a "#rt.#l # #. a!!et! ! c#-! dered t# be %e.. c e-t* . -# #ther a!!et #..er! h 4her e9"ected ret+r- 1 th the !a,e r !2 #r l#1er r !2 1 th the !a,e e9"ected ret+r-6 A "#rt.#l # ! !a d t# be e.. c e-t 1he- t ! e9"ected t# y eld the h 4he!t ret+r-! .#r the le3el #. r !2 acce"ted #r/ alter-at 3ely/ the !,alle!t "#rt.#l # r !2 #r a !"ec . ed le3el #. e9"ected ret+r-6 M0,1 *.0)9(.- '* .**,/,.1) -.) '* &'() *'+,'% • !ec+r ty +- 3er!e6 The -3e!t#r deter, -e! a !et #. e.. c e-t "#rt.#l #! .r#, a +- 3er!e #. U-< !ec+r t e! a-d a- e.. c e-t !et #. "#rt.#l # ! the !+b!et #. U-<

@F

•

The -3e!t#r !elect! the "art c+lar e.. c e-t that "r#3 de! h , 1 th ,#!t !+ table c#,b -at #- #. r !2 a-d ret+r-6

MODERN PORTFOLIO APPROACH% MARKOWIT7 MODEL Harry M6Mar2#1 t: ha! cred ted a-d -tr#d+ced the -e1 c#-ce"t #. r !2 ,ea!+re,e-t a-d the r a""l cat #- t# the !elect #- #. "#rt.#l #!6 He !tarted 1 th the dea #. -3e!t#r! a-d the r de! re t# ,a9 , :e e9"ected ret+r- 1 th the lea!t r !26 Mar2#1 t: ,#del ! a the#ret cal .ra,e 1#r2 .#r a-aly! ! #. r !2 a-d ret+ra-d the r relat #-!h "!6 He +!ed !tat !t cal a-aly! ! .#r the ,ea!+re,e-t #. r !2 a-d ,athe,at cal "r#4ra,, -4 .#r !elect #- #. a!!et! - a "#rt.#l # - a- e.. c e-t ,a--er6 H ! .ra,e1#r2 lead t# the c#-ce"t #. e.. c e-t "#rt.#l #!/ 1h ch are e9"ected t# y eld the h 4he!t ret+r- .#r/ 4 3e- a le3el #. r !2 #r l#1e!t r !2 .#r a 4 3e- le3el #. ret+r-6 R !2 a-d ret+r- t1# a!"ect! #. -3e!t,e-t c#-! dered by -3e!t#r!6 The e9"ected ret+r- ,ay 3ery de"e-d -4 #- the a!!+,"t #-!6 R !2 -de9 ! ,ea!+red by the 3ar a-ce #r the d !tr b+t #- ar#+-d the ,ea- t! ra-4e etc/ a-d trad t #-ally the ch# ce #. !ec+r t e! de"e-d! #- l#1er 3ar ab l ty 1here a! Mar2#1 t: e,"ha! :e! #the -eed .#r ,a9 , :at #- #. ret+r-! thr#+4h a c#,b -at #- #. !ec+r t e! 1h#!e t#tal 3ar ab l ty ! l#1er6 The r !2 #. each !ec+r ty ! d ..ere-t .r#, that #. #ther a-d by "r#"er c#,b -at #- #. !ec+r t e!/ called d 3er! . cat #-/ #-e ca- .#r, a "#rt.#l # 1here that #. the #ther #..!et! the r !2 #. #-e "artly #r .+lly6 I- #ther 1#rd!/ the 3ar ab l ty #. each !ec+r ty a-d c#3ar a-ce .#r h ! #r her ret+r-! re.lected thr#+4h the r -terErelat #-!h " !h#+ld be ta2e- -t# acc#+-t6

@G

Th+!/ e9"ected ret+r-! a-d the c#3ar a-ce #. the ret+r-! #. the !ec+r t e! 1 th - the "#rt.#l # are t# be c#-! dered .#r the ch# ce #. a "#rt.#l #6 A !et #. e.. c e-t "#rt.#l #! ca- be 4e-erated by +! -4 the ab#3e "r#ce!! #. c#,b - -4 3ar #+! !ec+r t e! 1h#!e c#,b -ed r !2 ! l#1e!t .#r a 4 3e- le3el #. ret+r- .#r the !a,e a,#+-t #. -3e!t,e-t/ that the -3e!t#r ! ca"able #. the the#ry #. Mar2#1 t:/ a! !tated ab#3e ! ba!ed #- the -+,ber #. a!!+,"t #-!6 ASSUMPTIONS OF MARKOWIT7 THEORY% The a-alyt cal .ra,e 1#r2 #. Mar2#1 t: ,#del a!!+,"t #-! re4ard -4 the beha3 #r #. -3e!t#r7 • The -3e!t#r -3e!t! h ! ,#-ey .#r a "art c+lar le-4th #. t ,e 2-#1- a! h#ld -4 "er #d6 • At the e-d #. h#ld -4 "er #d/ he 1 ll !ell the -3e!t,e-t!6 ! ba!ed #- !e3eral

• The- he !"e-d! the "r#ceed! #- e ther .#r c#-!+,"t #- "+r"#!e #r .#r re -3e!t,e-t "+r"#!e #r !+, #. b#th6 The a""r#ach there.#re h#ld! 4##d .#r a ! -4le "er #d h#ld -46 • The ,ar2et e.. c e-t - the !e-!e that/ all -3e!t#r! are 1ell -.#r,ed #. all the .act! ab#+t the !t#c2 ,ar2et6 • S -ce the "#rt.#l # ! the c#llect #- #. !ec+r t e!/ a dec ! #- ab#+t a#"t ,al "#rt.#l # ! re=+ red t# be ,ade .r#, a !et #. "#!! ble "#rt.#l #6 • The !ec+r ty ret+r-! #3er the .#rth c#, -4 "er #d are +-2-#1-/ the -3e!t#r c#+ld there.#re #-ly e!t ,ate the E9"ected ret+r-(ER)6 • All -3e!t#r! are r !2 a3er!e6 • I-3e!t#r! !t+dy h#1 the !ec+r ty ret+r-! are c#Erelated t# each #ther a-d c#,b -e the a!!et! - a- deal 1ay !# that they 4 3e ,a9 ,+, ret+r-! 1 th the l#1e!t r !26 • He 1#+ld ch##!e the be!t #-e ba!ed #- the relat 3e ,a4- t+de #. the!e t1# "ara,eter!6
AC

• The -3e!t#r! ba!e the r dec ! #-! #- the "r ceEear- -4 rat #6 Sta-dard de3 at #- #. the rate #. ret+r-/ 1h ch ! bee- #..ered #- the -3e!t,e-t/ ! #-e #. the ,"#rta-t cr ter a c#-! dered by the -3e!t#r! .#r ch##! -4 d ..ere-t !ec+r t e!6 MARKOWIT7 DIVERSIFICATION% Mar2#1 t: "#!t+lated that d 3er! . cat #- !h#+ld -#t #-ly a , at red+c -4 the r !2 #. a !ec+r ty by red+c -4 t! 3ar ab l ty #. !ta-dard de3 at #-/ b+t by red+c -4 the c#E3ar a-ce #r -teract 3e r !2 #. t1# #r ,#re !ec+r t e! - a "#rt.#l #6 By c#,b - -4 the d ..ere-t !ec+r t e! t ! the#ret cally "#!! ble t# ha3e a ra-4e #. r !2 3ary -4 .r#, :er# t# -. - ty6 Mar2#1 t: the#ry #. "#rt.#l # d 3er! . cat #- attache! ,"#rta-ce t# !ta-dard de3 at #-/ t# red+ce t t# :er#/ . "#!! ble/ c#3ar a-ce t# ha3e a! ,+ch a! "#!! ble -e4at 3e -teract 3e e..ect a,#-4 the !ec+r t e! 1 th - the "#rt.#l # a-d c#e.. c e-t #. c#rrelat #- t# ha3e E8 (-e4at 3e) !# that the #3er all r !2 #. "#rt.#l # a! 1h#le ! - l #r -e4l 4 ble tha- the !ec+r t e! ha3e t# be c#,b -ed - the ,a--er that !ta-dard de3 at #- ! :er#6 E**,/,.1) *('1),.(% A! .#r Mar2#1 t: ,#del , - ,+, 3ar a-ce "#rt.#l # ! +!ed .#r deter, -at #- #. "r#"#rt #- #. -3e!t,e-t - . r!t !ec+r ty a-d !ec#-d !ec+r ty6 It ,ea-! a "#rt.#l # c#-! !t! #. t1# !ec+r t e! #-ly6 Whe- d ..ere-t "#rt.#l #! a-d the r e9"ected ret+ra-d !ta-dard de3 at #- r !2 rate! are 4 3e- .#r deter, -at #- #. be!t "#rt.#l #/ e.. c e-t .r#-t er ! +!ed6 E.. c e-t .r#-t er ! 4ra"h cal re"re!e-tat #- #- the ba!e #. the #"t ,+, "# -t th ! ! t# de-t .y the "#rt.#l # 1h ch ,ay 4 3e better ret+r-! at l#1 r !26 At that "# -t the -3e!t#r ca- ch##!e "#rt.#l #6 O- the ba! ! #. the!e h#ld -4 "er #d #. "#rt.#l # cabe deter, -ed6 O- %0* a9 ! r !2 rate #. "#rt.#l # (!6d #. ")/ a-d #- %y* a9 ! ret+r- #- "#rt.#l #! are t# be !h#1-6 Calc+late ret+r- #- "#rt.#l # a-d !ta-dard de3 at #- #. "#rt.#l # .#r

A8

3ar #+! c#,b -at #-! #. 1e 4ht! #. t1# !ec+r t e!6 'ar #+! ret+r-! are !h#1- - the 4ra"h cal a-d de-t .y the #"t ,+, "# -t6 C0+/9+0),'1 '* .<&./).5 (0). '* (.)9(1 ?ERRA% • Calc+late the "r#"#rt #- #. each !ec+r ty<! "r#"#rt #- - the t#tal -3e!t,e-t6 • It 4 3e! the 1e 4ht .#r each c#,"#-e-t #. !ec+r t e!6 • M+lt "ly the .+-d! -3e!ted - the each c#,"#-e-t 1 th the 1e 4ht!6 • It 4 3e! the - t al 1ealth #r - t al ,ar2et 3al+e!6 EC90),'1% R& F =1R1G=2R2G=3R3GJJJJ..G=1R1 Where R" R E9"ected ret+r- #- "#rt.#l # 18/ 1;/ 1>/ 1?N R "r#"#rt #-al 1e 4ht -3e!ted R8/ R;/ R>/ R?N R e9"ected ret+r-! #- !ec+r t e! The rate #. ret+r- #- "#rt.#l # ! al1ay! 1e 4hted a3era4e #. the !ec+r t e! - the "#rt.#l #6 ESTIMATION OF PORTFOLIO RISK7 A +!e.+l ,ea!+re #. r !2 !h#+ld ta2e -t# acc#+-t b#th the "r#bab l ty #. 3ar #+! "#!! ble bad #+tc#,e! a-d the r a!!#c ated ,a4- t+de!6 I-!tead #. ,ea!+r -4 the "r#bab l ty #. a -+,ber #. d ..ere-t "#!! ble #+tc#,e! a-d deal ,ea!+re #. r !2 1#+ld e!t ,ate the e9te-t t# 1h ch the act+al #+tc#,e ! l 2ely t# d 3er4e .r#, the e9"ected #+tc#,e6 T1# ,ea!+re! are +!ed .#r th ! "+r"#!e7 • A3era4e ab!#l+te de3 at #• Sta-dard de3 at #I- #rder t# e!t ,ate the t#tal r !2 #. a "#rt.#l # #. a!!et!/ !e3eral e!t ,at #-! are -eeded7 a) The "red cted ret+r- #- the "#rt.#l # ! ! ,"ly a 1e 4hted a3era4e #. the "red cted ret+r-! #- the !ec+r t e!/ +! -4 the "r#"#rt #-ate 3al+e! a! 1e 4ht!6

A;

b) The r !2 #. the "#rt.#l # de"e-d! -#t #-ly #- the r !2 #. t! !ec+r t e! c#-! dered !#lat #-/ b+t al!# #- the e9te-t t# 1h ch they are a..ected ! , larly by +-derly -4 e3e-t! c) The de3 at #- #. each !ec+r t e! ret+r- .r#, t! e9"ected 3al+e ! deter, -ed a-d the "r#d+ct #. the t1# #bta -ed6 d) The 3ar a-ce - a 1e 4hted a3era4e #. !+ch "r#d+ct!/ +! -4 the "r#bab l t e! #. the e3e-t! a! 1e 4ht6 E**./) '* /'3@,1,12 )=' -./9(,),.-% It ! bel e3ed that !"read -4 the "#rt.#l # - t1# !ec+r t e! ! le!! r !2y thac#-ce-trat -4 - #-ly #-e !ec+r ty6 I. t1# !t#c2!/ 1h ch ha3e -e4at 3e c#rrelat #-/ 1ere ch#!e- #- a "#rt.#l # r !2 c#+ld be c#,"letely red+ced d+e t# the 4a - - the 1h#le #..!et the l#!! #- the #ther6 The e..ect #. t1# !ec+r t e!/ #-e ,#re r !2y a-d #ther le!! r !2y/ #- #-e a-#ther ca- al!# be !t+d ed6 Mar2#1 t: the#ry ! al!# a""l cable - the ca!e #. ,+lt "le !ec+r t e!6 C'(1.( &'()*'+,'-% A -+,ber #. "#rt.#l #! #- the e.. c e-t .r#-t er are c#r-er "#rt.#l #!/ t ,ay be e ther -e1 !ec+r ty #r !ec+r ty #r !ec+r t e! dr#""ed .r#, "re3 #+! e.. c e-t "#rt.#l #!6 By !1a"" -4 #-e !ec+r ty 1 th #ther the "#rt.#l # e9"ected ret+r- c#+ld be -crea!ed 1 th -# cha-4e - t! r !26 D'3,101/. &(,1/,&+.% It ha! bee- de3el#"ed t# +-der!ta-d r !2 ret+r- trade #.. c#-ce"t+ally6 It !tate! that e.. c e-t .r#-t er al1ay! a!!+,e! that -3e!t#r! "re.er ret+r- a-d d !l 2e r !26 CRITICISM ON MARKOWIT7 THEORY% The Mar2#1 t: ,#del ! c#-.r#-ted 1 th !e3eral cr t c !,! #- b#th the#ret cal a-d "ract cal "# -t #. 3 e16 • 'ery ted #+! I a-d - 3ar ably re=+ red a c#,"+ter t# e..ect -+,er#+! calc+lat #-!6 • A-#ther cr t c !, related t# th ! the#ry ! rat #-al -3e!t#r ca- a3ert r !26

A>

• M#!t #. the 1#r2! !t ,+lated by Mar2#1 t: +!e! !h#rt ter, 3#lat l ty t# deter, -e 1hether the e9"ected rate #. ret+r- .r#, a !ec+r ty !h#+ld be a!! 4-ed h 4h #r a l#1 e9"ected 3ar a-ce/ b+t . a- -3e!t#r ha! l , ted l =+ d ty c#-!tra -t!/ a-d ! tr+ly a l#-4 ter, h#lder/ a-d the- "r ce 3#lat l ty "er !hare d#e! -#t really "#!e a r !26 Rather - th ! ca!e/ the =+e!t #- c#-cer- ! #-e +lt ,ate "r ce real :at #- a-d -#t -ter , 3#lat l ty6 • A-#ther a""are-t h -dra-ce ! that "ract c -4 -3e!t,e-t ,a-a4er! .#+-d t d .. c+lt t# +-der !ta-d the c#-ce"t+al ,athe,at c! • I-3#l3ed - calc+lat -4 the 3ar #+! ,ea!+re #. r !2 a-d ret+r-6 There 1a! a 4e-eral cr t c !, that a- acade, c a""r#ach t# "#rt.#l # ,a-a4e,e-t ! e!!e-t ally +-!#+-d6 • Sec+r ty a-aly!t! are -#t c#,.#rtable - calc+lat -4 c#3ar a-ce a,#-4 !ec+r t e! 1h le a!!e!! -4 the "#!! ble ra-4e! #. err#r - the r e9"ectat #-!6

A?

CAPITAL ASSETS PRICING MODEL ?CAPMA% U-der CAPM ,#del the cha-4e! - "r ce! #. ca" tal a!!et! - !t#c2 e9cha-4e! ca- be ,ea!+red by +! -4 the relat #-!h " bet1ee- !ec+r ty ret+r- a-d the ,ar2et ret+r-6 S# t ! a- ec#-#, c ,#del de!cr be! h#1 the !ec+r t e! are "r ced - the ,ar2et "lace6 By +! -4 CAPM ,#del the ret+r- #. !ec+r ty ca- be calc+lated by c#,"ar -4 ret+r- #. !ec+r ty 1 th ,ar2et "lace6 The d ..ere-ce #. ret+r-! #. !ec+r ty a-d ,ar2et ca- be treated a! h 4he!t ret+r- a-d the r !2 "re, +, #. the -3e!t#r ! de-t . ed6 It ! the d ..ere-ce bet1ee- the ret+r- #. !ec+r ty a-d r !2 .ree rate #. ret+rR,-: &(.3,93 F R.)9(1 '1 -./9(,)8 > R,-: *(.. (0). '* (.)9(1 S# the CAPM atte,"t! t# ,ea!+re the r !2 #. a !ec+r ty - the "#rt.#l # !e-!e6 A--93&),'1-% The CAPM ,#del de"e-d! #- the .#ll#1 -4 a!!+,"t #-!/ 1h ch are t# be c#-! dered 1h le calc+lat -4 rate #. ret+r-6 • • • • • • • • -3e!t#r!6
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The

-3e!t#r! are ba! cally a3era4e r !2 a!!+,er! a-d

d 3er! . cat #- ! -eeded t# red+ce the r !2 .act#r6 All -3e!t#r! 1a-t t# ,a9 , :e the ret+r- by a!!+, -4 e9"ected ret+r- #. each !ec+r ty6 All -3e!t#r! a!!+,e -crea!e #. -et 1ealth #. the !ec+r ty6 All -3e!t#r! ca- b#rr#1 #r le-d a- +-l , ted a,#+-t #. .+-d at r !2 .ree rate #. -tere!t6 There are -# tra-!act #- c#!t! a-d -# ta9e! at the t ,e #. tra-!.er #. !ec+r ty6 All -3e!t#r! ha3e de-t cal e!t ,at #- #. r !2 a-d ret+r- #. all !ec+r t e!6 All the !ec+r t e! are d 3 ! ble a-d tradable - ca" tal ,ar2et6 Sy!te,at c r !2 .act#r ca- be calc+lated a-d t ! a!!+,ed "er.ectly by the -3e!t#r6 Ca" tal ,ar2et -.#r,at #- ,+!t be a3a lable t# all the

B.)0% Beta de!cr bed the relat #-!h " bet1ee- the !t#c2 ret+r- a-d the ,ar2et -de9 ret+r-!6 Th ! ca- be "#! t 3e a-d -e4at 3e6 It ! the "erce-ta4e cha-4e ! the "r ce #. h ! !t#c2 re4re!!ed (#r related) t# the "erce-ta4e cha-4e! - ,ar2et -de96 . beta ! 8/ a #-eE "erce-ta4e cha-4e! - ,ar2et -de9 1 ll lead t# #-e "erce-ta4e cha-4e "r ce #. the !t#c26 I. beta ! C/ !t#c2 "r ce ! +- related t# the ,ar2et -de9 . the ,ar2et 4#e! +" by a T8O/ the !t#c2 "r ce 1 ll .all by 8O beta ,ea!+re! the !y!te,at c ,ar2et related r !2 / 1h ch ca--#t be el , -ated by d 3er! . cat #-6 I. the "#rt.#l # ! e.. c e-t/ Beta ,ea!+re! the !y!te,at c r !2 e..ect 3ely6 E3al+at #- "r#ce!!7 86 R !2 ! the 3ar a-ce #. e9"ected ret+r- #. "#rt.#l #6 ;6 t1# ty"e! #. r !2 are a!!+,ed they are o !y!te,at c r !2 o +-!y!te,at c r !2 >6 Sy!te,at c r !2 ! calc+lated by the -3e!t#r by c#,"ar !#- #. !ec+r ty ret+rW th ,ar2et ret+r-6 C#E3ar a-ce #. !ec+r ty a-d ,ar2et VR SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS 'ar a-ce #. ,ar2et H 4her 3al+e #. beta -d cate! h 4her !y!te,at c r !2 a-d 3 ce 3er!a6 Whe- -+,ber #. !ec+r t e! ! h#ld by a- -3e!t#r/ c#,"#! te beta #r "#rt.#l # ca- be calc+lated by the +!e #. 1e 4ht! #. !ec+r ty a-d -d 3 d+al beta6 ?6 R !2 .ree rate #. ret+r- ! de-t . ed #- the ba! ! #. the ,ar2et c#-d t #-!6 The .#ll#1 -4 t1# ,eth#d! are +!ed .#r calc+lat #- #. ret+r- #. !ec+r ty #r "#rt.#l #6

C0&,)0+ 30.) +,1.%
AA

U-der CAPM ,#del Ca" tal ,ar2et l -e deter, -ed the relat #-!h " bet1ee- r !2 a-d ret+r- #. e.. c e-t "#rt.#l #6 Whe- the r !2 rate! #. ,ar2et a-d "#rt.#l # r !2 are 4 3e-/ e9"ected ret+r- #- !ec+r ty #r "#rt.#l # ca- be calc+lated by +! -4 the .#ll#1 -4 .#r,+la6 ERP R T T W" (R", K T) WM ERP R E9"ected ret+r- #. "#rt.#l # T R r !2 .ree rate #. ret+rW" R "#rt.#l # #. !ta-dard de3 at #R", R ret+r- #. "#rt.#l # a-d ,ar2et WM R r !2 rate #. the ,ar2et6 S./9(,)8 30.) +,1.% Ide-t . e! the relat #-!h " #. ret+r- #- !ec+r ty a-d r !2 .ree rate #. ret+r-6 Beta ! +!ed t# de-t .y the !y!te,at c r !2 #. the "re, +,6 The .#ll#1 -4 e=+at #- ! +!ed .#r e9"ected ret+r-6 ERP R T T V (R, K T) R, R Ret+r- O. Mar2et T R R !2 Free Rate L,3,)0),'1- '* CAPM% I- "ract cal "+r"#!e CAPM ca-<t be a""l ed d+e t# the .#ll#1 -4 l , tat #-!6 • • • -3e!t#r6 The calc+lat #- #. beta .act#r ! -#t "#!! ble - certa The a!!+,"t #- #. +-l , ted b#rr#1 -4! at r !2 .ree rate ! ! t+at #-! d+e t# ,#re a!!et! are traded - the ,ar2et6

-#t certa -6 F#r e3ery -d 3 d+al -3e!t#r b#rr#1 -4 .ac l t e! are re!tr cted6 The 1ealth #. the !hareh#lder #r -3e!t#r ! a!!e!!ed by +! -4 !ec+r ty ret+r-6 B+t t ! -#t #-ly the .act#r .#r calc+lat #- #. 1ealth #. the

AD

•

F#r e3ery tra-!.er #. !ec+r ty tra-! t #- c#!t ! re=+ red #-

e3ery ret+r- ta9 ,+!t be "a d6

TECHNIKUES OF PORTFOLIO MANAGEMENT
A! #. -#1 the +-der -#ted tech- =+e! #. "#rt.#l # ,a-a4e,e-t are - 3#4+e - #+r c#+-try6 1. EC9,)8 &'()*'+,'% E=+ ty "#rt.#l # ! -.l+e-ced by -ter-al a-d e9ter-al .act#r!6 I-ter-al .act#r! a..ect --er 1#r2 -4 #. the c#,"a-y6 The c#,"a-y<! 4r#1th "la-! are a-aly:ed 1 th re!"ect t# bala-ce !heet a-d "r#. t B l#!! acc#+-t! #. the c#,"a-y6 E9ter-al .act#r! are cha-4e! - 4#3er-,e-t "#l c e!/ trade cycle!/ "#l t cal !tab l ty etc6 2. EC9,)8 010+8-,-% U-der th ! ,eth#d .+t+re 3al+e #. !hare! #. a c#,"a-y ! deter, -ed6 It ca- be d#-e by rat #! #. ear- -4! "er !hare! a-d "r ce ear- -4 rat #6 EPS R "r#. t a.ter ta9SSSS N+,ber #. e=+ ty !hare! P5E rat # R Mar2et "r ce "er !hare EPS O-e ca- e!t ,ate the tre-d #. ear- -4! by a-aly: -4 EPS 1h ch re.lect! the tre-d #. ear- -4!/ =+al ty #. ear- -4!/ d 3 de-d "#l cy a-d =+al ty #. ,a-a4e,e-t6 F+rther "r ce ear- -4! rat # -d cate! the c#-. de-ce #. ,ar2et ab#+t c#,"a-y<! .+t+re6

SELECTION OF PORTFOLIO
AF

Certa - a!!+,"t #-! 1ere ,ade - the trad t #-al a""r#ach .#r "#rt.#l # !elect #-/ 1h ch are d !c+!!ed bel#17 • ta2e ,#re r !26 • $+d4,e-t #. r !26 • S"read -4 ,#-ey a,#-4 ,a-y !ec+r t e! ca- red+ce r !26 Ab l ty t# ach e3e h 4her ret+r-! de"e-d! +"#- -3e!t#r<! I-3e!t#r! "re.er lar4e t# !,aller ret+r-! .r#, !ec+r t e! a-d

A- -3e!t#r ca- !elect the be!t "#rt.#l # t# ,eet h ! re=+ re,e-t! .r#, the e.. c e-t .r#-t er/ by .#ll#1 -4 the the#ry "r#"#+-ded by Mar2#1 t:6 Select #- "r#ce!! ! ba!ed #- the !at !.act #- le3el that ca- be ach e3ed .r#, 3ar #+! -3e!t,e-t a3e-+e!6 Sta4e! - the !elect #- "r#ce!!7 The "r#ce!! #. !elect -4 a "#rt.#l # ! 3ery cr+c al - the -3e!t,e-t ,a-a4e,e-t a-d -3#l3e! .#+r !ta4e! 1h ch are 4 3e- bel#17 • #. a "#rt.#l #6 • • C#,"+tat #- #. the e9"ected ret+r- .#r the el 4 ble a!!et! #3er a h#ld -4 "er #d6 Arr 3 -4 at a- acce"table bala-ce bet1ee- r !2 a-d ret+r- .#r c#-!tr+ct -4 #"t ,+, a "#rt.#l # 6e6 !elect -4 !+ch a "#rt.#l # .#r 1h ch there ! h 4he!t ret+r- .#r each le3el #. r !26 Select -4 the be!t "#rt.#l # , 97 Whe- a- -. - te -+,ber #. "#rt.#l #! are a3a lable/ -3e!t#r !elect! the be!t "#rt.#l # by +! -4 the Mar2#1 t: "#rt.#l # the#ry6 The -3e!t#r! ba!e the r !elect ##- the e9"ected ret+r- a-d !ta-dard de3 at #- #. the "#rt.#l # a-d dec de the be!t "#rt.#l # , 9 ta2 -4 the ,a4- t+de #. the!e "ara,eter!6 The -3e!t#r! -eed -#t Deter, -at #- #. a!!et!/ 1h ch are el 4 ble .#r c#-!tr+ct -4

AG

E3al+ate all the "#rt.#l #! h#1e3er he ca- l##2 at #-ly the a3a lable "#rt.#l #!/ 1h ch l e #- the e.. c e-t .r#-t er6 The re=+ red .eat+re! #. the !+b!et #. "#rt.#l # are7 They !h#+ld #..er ,a9 ,+, e9"ected ret+r- .#r 3ary -4 le3el! #. r !2/ a-d al!# #..er , - ,+, r !2 .#r 3ary -4 le3el! #. e9"ected ret+r-!6 I. the ab#3e t1# c#-d t #-! are !at !. ed the- t ! dee,ed a! a- e.. c e-t !et/ .r#, th ! !et -3e!t#r! ha3e t# !elect the be!t !et #.. "#rt.#l #!6 C#-!tr+ct #- #. e.. c e-t !et #. "#rt.#l #!7 C#-! derable e..#rt ! re=+ red t# c#-!tr+ct a- e.. c e-t !et #. "#rt.#l #!6 F#ll#1 -4 "ara,eter! are e!!e-t al .#r c#-!tr+ct -4 the e.. c e-t !et7 • • O"t ,+, "#rt.#l #7 Shar"e ha! de-t . ed the #"t ,al "#rt.#l # thr#+4h h ! ! -4le -de9 ,#del/ acc#rd -4 t# Shar"e/ the beta rat # ! ,#!t ,"#rta-t - "#rt.#l # !elect #-6 The #"t ,al "#rt.#l # ! !a d t# relate d rectly t# the beta 3al+e6 It ! the e9ce!! ret+r- t# the beta rat #6 The #"t ,al "#rt.#l # ! !elected by . -d -4 #+t the c+tE #.. rate XcY6 The !t#c2 1here the e9ce!! ret+r- t# the beta rat # ! 4reater tha- c+tE#.. rate !h#+ld #-ly be !elected .#r -cl+! #- - the #"t ,al "#rt.#l #6 Sha"e "r#"#!ed that de! rab l ty #. a-y !t#c2 ! d rectly re.erred t# t! e9ce!! ret+r-! t# beta! c#e.. c e-t6 R ER. V E9"ected ret+r-! .#r each !ec+r ty ,+!t be e!t ,ated6 'ar a-ce #. each !ec+r ty ,+!t be calc+lated6

Where

R R e9"ected ret+r- #- !t#c2 R. R r !2 .ree rate #. ret+r- #- a!!et

DC

V R e9"ected cha-4e - the rate #. ret+r- #- !t#c2 8 a!!#c ated 1 th 8O cha-4e - the ,ar2et ret+rF#ll#1 -4 "r#ced+re are -3#l3ed t# !elect the !t#c2! .#r the #"t ,+, "#rt.#l #!6 • • • • F -d -4 #+t the !t#c2! #. d ..ere-t r !2!E ret+r- rat #! Calc+late e9ce!! ret+r- beta rat # .#r each !t#c2 a-d ra-2 the, .r#, the h 4he!t t# l#1e!t F -d -4 #+t the c+t #.. rate .#r each !ec+r ty Select -4 !ec+r t e! #. h 4h ra-2 ab#3e the c+t #.. rate 1h ch ! c#,,#- t# all !t#c2! Th+!/ the #"t ,+, "#rt.#l # c#-! !t! #. all !t#c2! .#r 1h ch (R ER.) ! 4reater tha- a "art c+lar c+t #.. "# -t (cZ)6 The !elect #- #. the -+,ber #. !t#c2! de"e-d! +"#- the +- =+e c+tE#.. rate/ 1here all !t#c2! 1 th h 4her rate (R ER.) 1 ll be !elected a-d !t#c2! 1 th l#1er rate! 1 ll be el , -ated6

PORTFOLIO REVISION
Ha3 -4 c#-!tr+cted the #"t ,al "#rt.#l #/ the -3e!t#r ha! t# c#-!ta-tly ,#- t#r the "#rt.#l # t# e-!+re that t c#-t -+e! t# be #"t ,al6 A! the ec#-#,y a-d . -a-c al ,ar2et! are dy-a, c/ the cha-4e! ta2e "lace al,#!t da ly6 The -3e!t#r -#1 ha! t# re3 !e h ! "#rt.#l #6 The re3 ! #- lead! t# "+rcha!e #. -e1 !ec+r t e! a-d !ale #. !#,e #. the e9 !t -4 !ec+r t e! .r#, the "#rt.#l #6 Need .#r re3 ! #-7 • • • • • • A3a lab l ty #. add t #-al .+-d! .#r -3e!t,e-t A3a lab l ty #. -e1 -3e!t,e-t a3e-+e! Cha-4e - the r !2 t#lera-ce Cha-4e - the t ,e h#r :#Cha-4e - the -3e!t,e-t 4#al! Cha-4e - the l =+ d ty -eed!
D8

•

Cha-4e - the ta9e!

PORTFOLIO EVALUATION
P#rt.#l # ,a-a4er! a-d -3e!t#r! 1h# ,a-a4e the r #1- "#rt.#l #! c#-t -+#+!ly ,#- t#r a-d re3 e1 the "er.#r,a-ce #. the "#rt.#l #6 The e3al+at #- #. each "#rt.#l #/ .#ll#1ed by re3 ! #- a-d rec#-!tr+ct #- are all !te"! - the "#rt.#l # ,a-a4e,e-t6 The ab l ty t# d 3er! .y 1 th a 3 e1 t# red+ce a-d e3e- el , -ate all +-!y!te,at c r !2 a-d e9"ert !e - ,a-a4 -4 the !y!te,at c r !2 related t# the ,ar2et by +!e #. a""r#"r ate r !2 ,ea!+re!/ -a,ely/ beta!6 Select #- #. "r#"er !ec+r t e! ! th+! the . r!t re=+ re,e-t6 M.)4'5- '* .B0+90),'1% ? S40(&. ,15.< 3'5.+% It de"e-d! #- t#tal r !2 rate #. the "#rt.#l #6 Ret+r- #. the !ec+r ty c#,"are 1 th r !2 .ree rate #. ret+r-/ the e9ce!! ret+r- #. !ec+r ty ! treated a! "re, +, #r re1ard t# the -3e!t#r6 The r !2 #. the "re, +, ! calc+lated by c#,"ar -4 "#rt.#l # r !2 rate6 Wh le calc+lat -4 ret+r- #- !ec+r ty a-y #-e #. the "re3 #+! ,eth#d! ! +!ed6 I. there ! -# "re, +, Shar"e -de9 !h#1! -e4at 3e 3al+e (E)6 I- !+ch a ca!e "#rt.#l # ! -#t treated a! e.. c e-t "#rt.#l #6 S40(&.L- (0),' ?S&A F (& > (* 5 M& Where/ S" R Shar"e -de9 "er.#r,a-ce ,#del r" R ret+r- #. "#rt.#l # r. R r !2 .ree rate #. ret+rW" R "#rt.#l # !ta-dard de3 at #Th ! ,eth#d ! al!# called %re1ard t# 3ar ab l ty* ,eth#d6 Whe- ,#re tha- #-e "#rt.#l # ! e3al+ated h 4he!t -de9 ! treated a! . r!t ra-26 That "#rt.#l # ca- be
D;

treated a! better "#rt.#l # c#,"ared t# #ther "#rt.#l #!6 Ra-2! are "re"ared #- the ba! ! #. de!ce-d -4 #rder6 ? T(.81'(- ,15.< 3'5.+% It ! a-#ther ,eth#d t# ,ea!+re the "#rt.#l # "er.#r,a-ce6 Where !y!te,at c r !2 rate ! +!ed t# c#,"are the +-!y!te,at c r !2 rate6 Sy!te,at c r !2 rate ! ,ea!+red by beta6 It ! al!# called %re1ard t# !y!te,at c r !2 %6 Trey-#r! rat # (T") R r" K r. 5 W" Where/ T" R trey-#r! "#rt.#l # "er.#r,a-ce ,#del r"R ret+r- #. "#rt.#l # r.R r !2 .ree rate #. ret+rW"R "#rt.#l # !ta-dard de3 at #-6 I. the beta "#rt.#l # ! -#t 4 3e- ,ar2et beta ! c#-! dered .#r calc+lat #- #. the "er.#r,a-ce -de96 H 4he!t 3al+e #. the -de9 "#rt.#l # ! acce"ted6 ? J01-.1L- ,15.< 3'5.+% It ! d ..ere-t ,eth#d c#,"ared t# the "re3 #+! ,eth#d!6 It de"e-d! #- ret+r- #. !ec+r ty 1h ch ! calc+lated by +! -4 CAPM6 The act+al !ec+r ty ret+r-! ! le!! tha- the e9"ected ret+r- #. CAPM the d ..ere-ce ! treated a! -e4at 3e (E) thethe "#rt.#l # ! treated a! -e.. c e-t "#rt.#l #6 J&F(&-N(*G M& ?(3-(*AO Where/ J" R Ja-!e-<! -de9 "er.#r,a-ce ,#del r"R ret+r- #. "#rt.#l # r.R r !2 .ree rate #. ret+rW"R "#rt.#l # !ta-dard de3 at #r,R ret+r- #- ,ar2et

D>

Th ! ,eth#d ! al!# called %re1ard t# 3ar ab l ty %,eth#d6 Whe- ,#re tha- #-e "#rt.#l # ! e3al+ated h 4he!t -de9 ! treated a! better "#rt.#l # c#,"ared t# #ther "#rt.#l #!6 Ra-2! are "re"ared #- the ba! ! #. de!ce-d -4 #rder6

METHODOLOGY
A(,)43.),/ 0B.(02. '( 3.017 The ar th,et c a3era4e ,ea!+re! the ce-tral te-de-cy6 The "+r"#!e #. c#,"+t -4 a- a3era4e 3al+e .#r a !et #. #b!er3at #-! ! t# #bta - a ! -4le 3al+e/ 1h ch ! re"re!e-tat 3e #. all the te,!6 The ,a - #b$ect 3e #. a3era4 -4 ! t# arr 3e at a ! -4le 3al+e 1h ch ! a re"re!e-tat 3e #. the character !t c! #. the e-t re ,a!! #.
D?

data a-d ar th,et c a3era4e #r ,ea- #. a !er e!(+!+ally de-#ted by 9) ! the 3al+e #bta -ed by d 3 d -4 the !+, #. the 3al+e! #. 3ar #+! te,! - a !er e! (! 4,a 9) d 3 ded by the -+,ber #. te,! (N) c#-!t t+t -4 the !er e!6 Th+!/ . 08/0;NNNNN660- are the 4 3e- N #b!er3at #-!6 The0R 08T0;TNNN60N RETURN C+rre-t "r ceE"re3 #+! "r ce Z8CC Pre3 #+! "r ce STANDARD DEVIATION% The c#-ce"t #. !ta-dard de3 at #- 1a! . r!t !+44e!ted by Jarl "ear!#- 8GF>6 t ,ay be de. -ed a! the "#! t 3e !=+are r##t #. the ar th,et c ,ea- #. the !=+are! #. de3 at #-! #. the 4 3e- #b!er3at #-! .r#, the r ar th,et c ,ea-6I- !h#rt S6D ,ay be de. -ed a! %R##t Mea- S=+are De3 at #- .r#, Mea-* It ! by .ar the ,#!t ,"#rta-t a-d 1 dely +!ed ,ea!+re #. !t+dy -4 d !"er! #-!6 F#r a !et #. N #b!er3at #-! 08/0;NN660- 1 th ,ea- 0/ De3 at #-! .r#, Mea-7 (08E0)/(0;E0)/N6(0-E0) Mea-E!=+are de3 at #-! .r#, Mea-7 R 85N (08E0);T(0;E0);TNNN6T(0-E0); R85N ! 4,a(0E0); R##tE,ea-E!=+are de3 at #- .r#, ,ea-/ 6e6 VARIANCE% The !=+are #. !ta-dard de3 at #- ! 2-#1- a! 'ar a-ce6 'ar a-ce ! the !=+are r##t #. the !ta-dard de3 at #-7 'ar a-ce R (S6D) ; Where/ (S6D) ! !ta-dard de3 at #D@

CORRELATION C#rrelat #- ! a !tat !t cal tech- =+e/ 1h ch ,ea!+re! a-d a-aly!e! the de4ree #r e9te-t t# 1h ch t1# #r ,#re 3ar able! .l+ct+ate 1 th re.ere-ce t# #-e a-#ther6 C#rrelat #- th+! de-#te! the -terEde"e-de-ce a,#-4!t 3ar able!6 The de4ree! are e9"re!!ed by a c#e.. c e-t/ 1h ch ra-4e! bet1ee- K8 a-d T86 The d rect #- #. cha-4e ! -d cated by (T) #r (E) ! 4-!6 The .#r,er re.er! t# a !y,"athet c ,#3e,e-t - a !a,e d rect #- a-d the later - the #""#! te d rect #-6 Jarl Pear!#-<! ,eth#d #. calc+lat -4 c#e.. c e-t (r) ! ba!ed #- c#3ar a-ce #. the c#-cer-ed 3ar able!6 It 1a! de3 !ed by Jarl Pear!#- a 4reat Br t !h B #,etr c a-6 Th ! ,ea!+re 2-#1- a! Pear!#- a- c#rrelat #- c#e.. c e-t bet1ee- t1# 3ar able! (!er e!) 0 a-d & +!+ally de-#ted by Ur< ! a -+,er cal ,ea!+re #. l -ear relat #-!h " a-d ! de. -ed a! the rat # #. the c#3ar a-ce bet1ee- 0 a-d & (1r ttea! C#3(0/&) t# the "r#d+ct #. !ta-dard de3 at #- #. 0 a-d & Sy,b#l cally r R C#3 (0/&) SD #. 0/& R [ 9y5N SD #. 0/& Where 9 R0E0/ yR&E& [9y R !+, #. the "r#d+ct #. de3 at #-! - 0 a-d & !er e! calc+lated 1 th re.ere-ce t# the r ar th,et c ,ea-!6 0 R !ta-dard de3 at #- #. the !er e! 06 & R !ta-dard de3 at #- #. the !er e! &6 N R [0&

DA

DATA ANALYSIS
P'()*'+,' > A%
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INTERPRETATION%
• C#-!tr+ct #- #. #"t ,al "#rt.#l # !tart! 1 th deter, - -4 1h ch !ec+r t e! are -cl+ded - the "#rt.#l #/ .#r th ! the .#ll#1 -4 !te"! are -ece!!ary6 • Calc+lat #- #. e9ce!! ret+r-! t# beta rat # .#r each !ec+r ty +-der re3 e1 a-d ra-2 .r#, h 4he!t t# l#1e!t6 • The ab#3e table !h#1! that the c#-!tr+ct #- #. #"t ,al "#rt.#l # .r#, BSE SENCE0 !cr "t!6 • I- the ab#3e table all the !ec+r t e! 1h#!e e9ce!! ret+r-! t# beta rat # are ab#3e the c+tE#.. rate are !elected a-d all th#!e rat #! 1h ch are bel#1 are re$ected6 • F#r the "#rt.#l # A !elected !cr "t! are 8C #+t #. 8; 1h#!e e9ce!! ret+r- t# beta rat # are ab#3e c+t #.. rate (;6>A) are -cl+ded - the "#rt.#l # ba!2et6

DF

HLL (86G\;6>?) Dr6 Reddy<! (86@\;6> !ec+r t e! e9ce!! ret+r- t# beta rat #! are le!! tha- the c+tE#.. !# th#!e !ec+r t e! are e9tr+ded .r#, the "#rt.#l #!6

P'()*'+,' > B%
!ec+r t e! Ret+r-! RO Beta 3al+ e! XVY W]e(O) USy!te ,at c r !2 E9ce!! Ret+r#3er ( V ) R ER.5 V ( R ER. ) V5 W]e C+,+lat 3e ( R ER. ) V5 W]e V]5 W] e C+,+lat 3e V]5 W] e ^CR W,]_ ^ tR8 ( R ER. ) V5W]e 8TW,]_^tR8V]5W]e

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INTERPRETATION%
• The de! rab l ty<! #. a-y !ec+r ty t# -cl+de - the "#rt.#l # ! d rectly related t# e9ce!! ret+r- t# beta rat # a-d c+tE#.. rate6 • The ab#3e -.#r,at #- !h#1! that .#r !ec+r t e! #. !atya, c#,"+ter! t# NTPC R ER.5V ! le!! tha- c+tE#.. rate (;6>A)6 Wh le !ec+r t e! 88 B8; are le!! tha- c+tE#.. rate !# .r#, !atya, c#,"+ter! t# NTPC all the 8C !ec+r t e! are -cl+ded - the "#rt.#l # a-d ONGC B TCS are -#t added - the #"t ,al "#rt.#l #6 • Here #"t ,al "#rt.#l # c#-! !t! #. !ec+r t e! #. 8C c#,"a- e!6

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INTERPRETATION%
• F#r the "#rt.#l # C !elected !cr "t! are 8; c#,"a- e! a-d "#rt.#l # ba!2et c#-! !t! #. all the !elected !cr "t! 1h#!e e9ce!! ret+r-! t# beta rat #! are al1ay! 4reater tha- c+tE#.. rate!6 • S# the #"t ,al "#rt.#l # c#-! !t! #. !elected all 8; !ec+r t e!6

F;

FINDINGS
? The -3e!t#r ca- rec#4- :e a-d a-aly:e the r !2 a-d ret+r- #. the !hare! by +! -4 th ! The -3e!t#r 1h# bear! h 4h r !2 1 ll be 4ett -4 h 4h ret+r-!6 The -3e!t#r 1h# ! ha3 -4 #"t ,+, "#rt.#l # 1 ll be ta2 -4 #"t ,+, ret+r-! The -3e!t#r !h#+ld -cl+de all !ec+r t e! 1h ch are +-der 3al+ed - the r The -3e!t#r ha! t# ,a -ta - the "#rt.#l # #. d 3er! . ed !ect#r! !t#c2! rather Pe#"le 1h# are -3e!t -4 - "#rt.#l #! ,#!tly de"e-d #- the ad3 ce #. the r Pe#"le 4e-erally -3e!t the r !a3 -4! - . 9ed de"#! t!/ rec+rr -4 de"#! t!/ a-d

a-aly! !6 ? ?

1 th , - ,+, r !26 ? "#rt.#l # a-d re,#3e th#!e !ec+r t e! that are #3er 3al+ed6 ? tha- -3e!t -4 - a ! -4le !ect#r #. d ..ere-t !t#c2!6 ? .r e-d!/ relat 3e!/ . -a-c al ad3 !er!6 ? -at #-al !a3 -4! cert . cate! a-d 4#3er-,e-t !ec+r t e! a! they are le!! r !2y a-d the ret+r-! are 4+ara-t ed6 ? M#!t #. the -3e!t#r -3e!t! - ba! c -ece!! t e!6 They "la- t# -3e!t -!+ra-ce (LIC/ GIC) a-d "e-! #- .+-d a! the!e 4 3e 4+ara-t ed ret+r-! a-d are le!! r !2y6 ? M#!t #. the -3e!t#r! .eel that -3 t -4 - !t#c25ca" tal ,ar2et ! #. h 4h r !2 there .#re they d#-<t -3e!t - the,6

SSS F>

CONCLUSIONS
? Whe- c#,"ared t# #ther "#rt.#l #!/ "#rt.#l # C 4 3e! the ,a9 ,+, ret+r1 th 8; !cr "t!6 ? The d 3er! . cat #- #. .+-d! - d ..ere-t c#,"a-y !cr "t! ! "#!! ble .r#, the "#rt.#l # C c#,"ared t# #ther!6 ? Mar2et r !2 ! al!# le!! 1he- c#,"ared 1 th #ther "#rt.#l #!6 ? I. the "#rt.#l # ,a-a4e,e-t ! e.. c e-t a-d -3e!t#r ! r !2 t#lera-t "er!#- a-d -3e!t,e-t ! the l#-4 ter, "er!"ect 3e tha- t ! better t# -3e!t - the MIDK Ca"! a-d SMALLECa"! c#,"a- e! !ec+r t e!/ 1here the 4r#1th #. the ret+r-! are h 4her tha- the LARGEECa"!6 ? I. -3e!t#r ! r !2 t#lera-t "er!#- a-d !h#rt ter, "er!"ect 3e t ! 4##d t# -3e!t - the LARGEECa"! c#,"a- e! !ec+r t e!6 ? I .eel that th ! year !,all ca" a-d , d ca" c#,"a- e! 1 ll be "er.#r, -4 1ell 1he- c#,"ared t# the lar4eEca" a! 1e ha3e #b!er3ed la!t year6

F?

SUGGESTIONS
? Select the -3e!t,e-t! #- the ba! ! #. ec#-#, c 4r#+-d!6 ? B+y !t#c2 1 th a d !"ar ty a-d d !cre"a-cy bet1ee- the ! t+at #- #. the . r, E a-d the e9"ectat #-! a-d a""ra !al #. the "+bl c6 ? B+y !t#c2! - c#,"a- e! 1 th "#te-t al .#r !+r"r !e!6 ? Ta2e ad3a-ta4e #. 3#lat l ty be.#re reach -4 a -e1 e=+ l br +,6 ? L !te- t# r+,#r! a-d t "!/ chec2 .#r y#+r!el.6 ? D#-<t "+t tr+!t - #-ly #-e -3e!t,e-t6 It ! l 2e %"+tt -4 all the e44! - #-e ba!2et %6 Th ! 1 ll hel" le!!#- the r !2 - the l#-4 ter,6 ? The -3e!t#r ,+!t !elect the r 4ht ad3 !#ry b#dy 1h ch ! ha! !#+-d 2-#1led4e ab#+t the "r#d+ct 1h ch they are #..er -46 ? Pr#.e!! #-al :ed ad3 !#ry ! the ,#!t ,"#rta-t .eat+re t# the -3e!t#r!6 Pr#.e!! #-al :ed re!earch/ a-aly! ! 1h ch 1 ll be hel".+l .#r red+c -4 a-y 2 -d #. r !2 t# #3erc#,e6

GLOSSARY
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1. CORRELATION7 It ! the !tat !t cal t##l 1 th the hel" #. 1h ch the relat #-!h "! bet1ee- t1# #r ,#re tha- t1# 3ar able! . t e9 !t!/ ! !t+d ed6 C#rrelat #- ! aa-aly! ! #. c#E3ar at #- bet1ee- t1# #r ,#re 3ar able!6 A-aly! ! -3#l3e! 3ar #+! ,eth#d! a-d tech- =+e! 1h ch are hel".+l - !t+dy -4 a-d ,ea!+r -4 the e9te-t #. the relat #-!h " bet1ee- t1# #r ,#re 3ar able!6 It ! #. !e3e- ty"e!7 ? D rect C#rrelat #? I-3er!e C#rrelat #? L -ear C#rrelat #? N#-EL -ear C#rrelat #? S ,"le C#rrelat #? M+lt "le C#rrelat #? Part al C#rrelat #? S"+r #+! C#rrelat #- #r P!e+d# C#rrelat #2. COEFFICIENT OF CORRELATION?(A% The ,ea!+re #. The c#e.. c e-t #. c#rrelat #- ta2e! 3al+e bet1ee- E8 a-d T8 6e6 E8\r\T86 3. COEFFICIENT OF DETERMINATION ?(2A% Th ! 4 3e! the "erce-ta4e 3ar at #- - the de"e-de-t 3ar able that ! acc#+-ted by the -de"e-de-t 3ar able 6e6 t 4 3e! the rat # #. e9"la -ed 3ar a-ce t# the t#tal 3ar a-ce6 4. COEFFICIENT OF NON DETERMINATION ?1-(2A% Th ! 4 3e! the E9te-t t# 1h ch a 3ar able ! de"e-dable6 5. KARL PEARSONLS COEFFICIENT OF CORRELATION 7 a6 F#r Act+al Mea!+, 9Zy RR SSSSSSSSSSSSSSSSSSSSSSSS S=rt (!+, 9ZZ Z !=rt (!+, yZZ 9 R 0EA34 (A348 R A3era4e #. . r!t !er e!)
FA

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y R &EA34 (A34; R A3era4e #. !ec#-d !er e!) b6 F#r A!!+,ed MeaRR +R 0EA8 3R &EA; NZS+, +Z3 K S+, + Z S+, 3 (S=rt ((N Z S+, +; K +ZZ) Z (!=rt ((N Z S+, 3; K 3ZZ) (A8 R A!!+,ed ,ea- .#r 0ESer e!) (A; R A!!+,ed ,ea- .#r &ESer e!)

. RETURN7 It re.er! t# the be-e. t! .r#, a- -3e!t,e-t6 It ! c#-! dered a! "erce-ta4e6 It ! #. .#+r ty"e!7 ? S -4le Per #d Ret+r? M+lt Per #d Ret+r? E9EPer #d Ret+r? E9EA-te Ret+r!. RISK7 It re.er! t# the 3ar ab l ty - ret+r-! .r#, a !ec+r ty6 The ,#!t c#,,#,ea!+re #. r !2 #. a !ec+r ty ! the !ta-dard de3 at #- a-d 3ar a-ce #. ret+r-!6 • Sta-dard de3 at #- #. ret+r-! ,ea!+re! the e9te-t #. de3 at #- #. ret+r-! .r#, the A3era4e 3al+e #. ret+r-!6 • 'ar a-ce ! re.erred a! the !=+are #. !ta-dard de3 at #-6 R !2 ! #. t1# ty"e!7 ? Sy!te,at c r !2 ? U-!y!te,at c r !2 ". SENSE67 Se-!e9 ! !e-! t 3e -de96 A- -de9 ! a -+,ber +!ed t# re"re!e-t the cha-4e! - a !et #. 3al+e! bet1ee- a ba!e a-d a-#ther t ,e "er #d6 OBJECTIVES OF SENSE67 86 T# ,ea!+re ,ar2et ,#3e,e-t!6 ;6 Be-ch,ar2 .#r .+-d! "er.#r,a-ce6 FORMS OF SENSE6%
FD

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BIBLIOGRAPHY

B'':FF

Sec+r ty A-aly! ! B P#rt.#l # Ma-a4e,e-t E F !her! B J#rd#-/ Sec+r ty A-aly! ! B P#rt.#l # Ma-a4e,e-t K '6A6A3adhaF -a-c al Ma-a4e,e-t K M6&6 JhaF -a-c al Ma-a4e,e-t K Pra!a--a Cha-dra N.=- P0&.(B+! -e!! L -e T ,e! #. I-d a I-d a T#day M020I,1.Wee2 B+! -e!! Da ly

W.@-,).-%
===)amf&&nd&a)%om ===)se4&)%om ===)goog!e)%om ===)mot&!a!os=a!)%om

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