Description
ABSTRACT : Portfolio management can be defined and used in many a ways, because the basic meaning of the word is “combination of the various things keeping intact”. So I considered and evaluated this from the perspective of the investment part in the securities segment.
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#$ect re"#rt ttled %A STUD& ON PORTFOLIO
MANAGEMENT at MOTILAL OSWAL FINACIAL SER'ICES (INDIA)
LIMITED* S+b,tted by ,e t# the de"art,e-t #. Ma!ter! #. B+!-e!!
Ad,-!trat#-/ 000 ! a b#-a.de 1#r2 +-derta2e- by ,e a-d t ! -#t !+b,tted
t# a-y #ther +-3er!ty #r I-!tt+t#- .#r the a1ard #. a-y de4ree d"l#,a 5 cert.cate
#r "+bl!hed a-y t,e be.#re6
Date 7
Place7 (!4-at+re)
8
ACKNOWLEDGEMENT
The "er.ect 1ay t# d#c+,e-t th! "r#$ect 1#+ld be t# !tart 1th ac2-#1led4-4 all
th#!e "e#"le 1h# drectly #r -drectly e-c#+ra4ed/ !+""#rted ,e 1th ther 3al+e
added -"+t! 1th#+t the, th! "r#$ect 1#+ld -#t ha3e bee- th! better6
T# !tart 1th I 1#+ld l2e t# tha-2 0000 #. MOTILAL OSWAL FINANCIAL
SER'ICES (INDIA) LIMTED at 000 .#r 43-4 ,e a- #""#rt+-ty t# d# ,y
"r#$ect 1#r26
I 1#+ld l2e t# 43e !"ecal ac2-#1led4e,e-t t# 0000 .#r h! c#-!!te-t !+""#rt
a-d ,#t3at#-6
My !-cere tha-2! t# ,y .ac+lty 000 !r/ A!!#cate "r#.e!!#r - .-a-ce/ .#r h!
tech-cal e9"ert!e/ ad3ce a-d e9celle-t 4+da-ce6 He -#t #-ly 4a3e ,y "r#$ect
!cr+"+l#+! read-4/ b+t added ,a-y e9a,"le! a-d dea! t# ,"r#3e t6
I 1#+ld l2e t# e9"re!! ,y a""recat#- t#1ard! ,y .re-d! .#r ther e-c#+ra4e,e-t
a-d !+""#rt thr#+4h#+t th! "r#$ect6
F-ally I 1#+ld l2e t# #1e ,y !-cere a""recat#- t# all the E,"l#yee! #. the
#r4a-:at#- 1h# "r#3ded a .re-dly e-3r#-,e-t a-d !+""#rted thr#+4h #+t ,y
"r#$ect6
00000
;
ABSTRACT
P#rt.#l# ,a-a4e,e-t ca- be de.-ed a-d +!ed - ,a-y a 1ay!/ beca+!e the ba!c ,ea--4 #. the
1#rd ! %c#,b-at#- #. the 3ar#+! th-4! 2ee"-4 -tact*6 S# I c#-!dered a-d e3al+ated th!
.r#, the "er!"ect3e #. the -3e!t,e-t "art - the !ec+rte! !e4,e-t6
Fr#, the -3e!t#r "#-t #. 3e1 th! "#rt.#l# .#ll#1ed by h, ! 3ery ,"#rta-t !-ce thr#+4h th!
1ay #-e ca- ,a-a4e the r!2 #. -3e!t-4 - !ec+rte! a-d thereby ,a-a4-4 t# 4et 4##d ret+r-!
.r#, the -3e!t,e-t - d3er!.ed !ec+rte! -!tead #. "+tt-4 all the ,#-ey -t# #-e ba!2et6 N#1
a day
TABLE OF CONTENTS
CHPTER-1
8686 INTRODUCTION
1.2. OBJECTIVE OF THE STUDY
1.3. METHODOLOGY
1.4. LIMITATIONS OF THE STUDY
CHPTER-2
2. LITERATURE REVIEW
3. COMPANY PROFILE
3.1 MOTILAL OSWAL SECURITIES PVT.LTD
4. INDUSTRY PROFILE
CHPTER-3
5. PORTFOLIO MANAGEMENT
. THEORITICAL ANALYSIS
CHPTER-4
!. FINDINGS
". CONCLUSION
#. SUGGESTIONS
1$. GLOSSORY
11. BIBLIOGRAPHY
CHPTER-5
12. LIST OF TABLES%
12.1 PORTFOLIO-A
12.2PORTFOLIO-B
12.3PORTFOLIO-C
?
INTRODUCTION
Th! "r#$ect deal! 1th 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 - detal 1hle -3e!t-4 - !ec+rte!6 It al!# e9"la-!
h#1 "#rt.#l# hed4e! the r!2 - -3e!t,e-t a-d 43-4 #"t,+, ret+r- t# a 43e-
a,#+-t #. r!26 It al!# 43e! 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+rte!/ d..ere-t the#re! #. "#rt.#l# ,a-a4e,e-t .#r e..ect3e a-d e..ce-t
"#rt.#l# c#-!tr+ct#-6 It al!# 43e! a bre. a-aly!! #. h#1 t# e3al+ate a "#rt.#l#6
@
OBJECTIVES OF THE STUDY
? T# ,a2e a- - detaled !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- - detaled a-aly!! #. the r!2 a-d ret+r- character!tc! #. !t#c2!
related t# d..ere-t -d+!tre! a-d d..ere-t c#,"a-e!
? T# hel" the -3e!t#r! t# decde the e..ect3e "#rt.#l# #. !ec+rte!
? T# de-t.y the be!t "#rt.#l# #. !ec+rte!
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 $#+r-al!6
SECONDAR& DATA7
? Data c#llected .r#, 3ar#+! b##2! a-d !te!6
? Data c#llected .r#, -ter-et6
LIMITATIONS OF THE STUDY
? The data c#llected ! ba!cally c#-.-ed t# !ec#-dary !#+rce!/ 1th 3ery lttle
a,#+-t #. "r,ary data a!!#cated 1th the "r#$ect6
? There ! a c#-!tra-t 1th re4ard t# t,e all#cated .#r the re!earch !t+dy6
? The a3alablty #. -.#r,at#- - the .#r, #. a--+al re"#rt! B "rce
.l+ct+at#-! #. the c#,"a-e! ! a b4 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!tcal t##l! +!ed are r!2/ ret+r-/ a3era4e/ 3ara-ce/
c#rrelat#-6
D
PORTFOLIO MANAGEMENT
A &'()*'+,' ! a c#llect#- #. -3e!t,e-t! held by a- -!tt+t#- #r a "r3ate
-d3d+al6 I- b+ld-4 +" a- -3e!t,e-t "#rt.#l# a .-a-cal -!tt+t#- 1ll
ty"cally c#-d+ct t! #1- -3e!t,e-t a-aly!!/ 1hl!t a "r3ate -d3d+al ,ay ,a2e
+!e #. the !er3ce! #. a .-a-cal ad3!#r #r a .-a-cal -!tt+t#- 1hch #..er!
"#rt.#l# ,a-a4e,e-t !er3ce!6 H#ld-4 a "#rt.#l# ! "art #. a- -3e!t,e-t a-d r!2E
l,t-4 !trate4y called d3er!.cat#-6 By #1--4 !e3eral a!!et!/ certa- ty"e! #.
r!2 (- "artc+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#- .aclte!/ #r a-y #ther te, that ! e9"ected t# reta- t! 3al+e6
P#rt.#l# ,a-a4e,e-t -3#l3e! decd-4 1hat a!!et! t# -cl+de - the "#rt.#l#/
43e- the 4#al! #. the "#rt.#l# #1-er a-d cha-4-4 ec#-#,c c#-dt#-!6 Select#-
-3#l3e! decd-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# d3e!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!!#cated 1th 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 crc+,!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 "artc+lar
tech-=+e! t# #"t,:e ther "#rt.#l# h#ld-4!6
Th+!/ "#rt.#l# ,a-a4e,e-t ! all ab#+t !tre-4th!/ 1ea2-e!!e!/ #""#rt+-te! a-d
threat! - the ch#ce #. debt 3!6 e=+ty/ d#,e!tc 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 43e- a""ette .#r r!26
A-&./)- '* P'()*'+,' M0102.3.1)%
F
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$ect3e #. P#rt.#l# Ma-a4e,e-t ! t# ,a9,:e yeld a-d ,-,:e
r!26 The #ther a-cllary #b$ect3e! are a! "er -eed! #. -3e!t#r!/ -a,ely7
? Re4+lar -c#,e #r !table ret+r-
? A""recat#- #. ca"tal
? Mar2etablty a-d l=+dty
? Sa.ety #. -3e!t,e-t
? M-,:-4 #. ta9 lablty6
NEED FOR PORTFOLIO MANAGEMENT%
The P#rt.#l# Ma-a4e,e-t deal! 1th the "r#ce!! #. !elect#- !ec+rte! .r#, the
-+,ber #. #""#rt+-te! a3alable 1th d..ere-t e9"ected ret+r-! a-d carry-4
d..ere-t le3el! #. r!2 a-d the !elect#- #. !ec+rte! ! ,ade 1th a 3e1 t# "r#3de
the -3e!t#r! the ,a9,+, yeld .#r a 43e- 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 act3te! #. -3e!t,e-t -
a!!et! a-d !ec+rte!6 It ! a dy-a,c! a-d .le9ble c#-ce"t a-d -3#l3e! re4+lar a-d
!y!te,atc a-aly!!/ $+d4,e-t a-d act#-!6 The #b$ect3e! #. th! !er3ce are t# hel"
the +-2-#1- -3e!t#r! 1th 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#rCC b+!-e!! l#cat#-! a-d ,#re tha- >/F@/CCC c+!t#,er! - #3er ?;@ cte!/
M#tlal 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 1th t1# lead-4 "r3ate e=+ty
-3e!t#r! E Ne1 'er-#- Pr3ate 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?@ bll#-)6
M#tlal O!1al F-a-cal Ser3ce! Ltd6/ c#-!!t! #. .#+r c#,"a-e!6
M#tlal O!1al I-3e!t,e-t Ad3!#r! P3t6 Ltd6 ! #+r I-3e!t,e-t Ba-2-4 ar, 1th
c#llect3e e9"ere-ce #. #3er 8CC year! - -3e!t,e-t ba-2-45c#r"#rate ba-2-4 a-d
ad3!#ry !er3ce!
M#tlal O!1al C#,,#dte! Br#2er (P) Ltd6 ha! bee- "r#3d-4 c#,,#dty trad-4
.aclte! a-d related "r#d+ct! a-d !er3ce! !-ce ;CC?6
M#tlal O!1al 'e-t+re Ca"tal Ad3!#r! Pr3ate L,ted ha! la+-ched the I-da
B+!-e!! E9celle-ce F+-d (IBEF)/ a USP8CC ,- I-da .#c+!ed Pr3ate E=+ty F+-d6
M#tlal O!1al Sec+rte! Ltd6 (M#!t) ! a lead-4 re!earch a-d ad3!#ry ba!ed !t#c2
br#2-4 h#+!e #. I-da/ 1th a d#,-a-t "#!t#- - b#th -!tt+t#-al e=+te! a-d
1ealth ,a-a4e,e-t6 O+r !er3ce! -cl+de e=+te!/ der3at3e!/ eEbr#2-4/ "#rt.#l#
,a-a4e,e-t/ ,+t+al .+-d!/ c#,,#dte!/ IPO 1#4-"!
U-t Tr+!t #. I-da (UTI) 1a! e!tabl!hed #- 8GA> by a- Act #. Parla,e-t6 It 1a!
!et +" by the Re!er3e Ba-2 #. I-da a-d .+-ct#-ed +-der the Re4+lat#ry a-d
ad,-!trat3e c#-tr#l #. the Re!er3e Ba-2 #. I-da6 I- 8GDF UTI 1a! deEl-2ed
.r#, the RBI a-d the I-d+!tral De3el#",e-t Ba-2 #. I-da (IDBI) t##2 #3er the
re4+lat#ry a-d ad,-!trat3e 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/ "+blc !ect#r ,+t+al .+-d! !et +" by "+blc
!ect#r ba-2! a-d L.e I-!+ra-ce C#r"#rat#- #. I-da (LIC) a-d Ge-eral I-!+ra-ce
C#r"#rat#- #. I-da (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-da- Ba-2 M+t+al F+-d (N#3 FG)/ Ba-2 #.
I-da (J+- GC)/ Ba-2 #. Bar#da M+t+al F+-d (Oct G
6 LIC e!tabl!hed t! ,+t+al
.+-d - J+-e 8GFG 1hle 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$$3 ?E1)(8 '* P(,B0). S./)'( F915-A
Wth the e-try #. "r3ate !ect#r .+-d! - 8GG>/ a -e1 era !tarted - the I-da- ,+t+al
.+-d -d+!try/ 43-4 the I-da- -3e!t#r! a 1der ch#ce #. .+-d .a,le!6 Al!#/ 8GG>
1a! the year - 1hch the .r!t M+t+al F+-d Re4+lat#-! ca,e -t# be-4/ +-der
1hch all ,+t+al .+-d!/ e9ce"t UTI 1ere t# be re4!tered a-d 4#3er-ed6 The
er!t1hle J#thar P#-eer (-#1 ,er4ed 1th Fra-2l- Te,"let#-) 1a! the .r!t
"r3ate !ect#r ,+t+al .+-d re4!tered - J+ly 8GG>6
;8
The 8GG> SEBI (M+t+al F+-d) Re4+lat#-! 1ere !+b!tt+ted by a ,#re
c#,"rehe-!3e a-d re3!ed M+t+al F+-d Re4+lat#-! - 8GGA6 The -d+!try -#1
.+-ct#-! +-der the SEBI (M+t+al F+-d) Re4+lat#-! 8GGA6
The -+,ber #. ,+t+al .+-d h#+!e! 1e-t #- -crea!-4/ 1th ,a-y .#re4- ,+t+al
.+-d! !ett-4 +" .+-d! - I-da a-d al!# the -d+!try ha! 1t-e!!ed !e3eral ,er4er!
a-d ac=+!t#-!6 A! at the e-d #. Ja-+ary ;CC>/ there 1ere >> ,+t+al .+-d! 1th
t#tal a!!et! #. R!6 8/;8/FC@ cr#re!6 The U-t Tr+!t #. I-da 1th R!6??/@?8 cr#re! #.
a!!et! +-der ,a-a4e,e-t 1a! 1ay ahead #. #ther ,+t+al .+-d!6
F'9()4 P40-. > -,1/. F.@(90(8 2$$3
I- Febr+ary ;CC>/ .#ll#1-4 the re"eal #. the U-t Tr+!t #. I-da Act 8GA> UTI 1a!
b.+rcated -t# t1# !e"arate e-tte!6 O-e ! the S"ec.ed U-derta2-4 #. the U-t
Tr+!t #. I-da 1th 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-da/ .+-ct#--4
+-der a- ad,-!trat#r a-d +-der the r+le! .ra,ed by G#3er-,e-t #. I-da a-d d#e!
-#t c#,e +-der the "+r3e1 #. 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 1th SEBI a-d .+-ct#-! +-der the M+t+al F+-d Re4+lat#-!6 Wth the
b.+rcat#- #. the er!t1hle UTI 1hch had - March ;CCC ,#re tha- R!6DA/CCC
cr#re! #. a!!et! +-der ,a-a4e,e-t a-d 1th 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 1th rece-t ,er4er! ta2-4
"lace a,#-4 d..ere-t "r3ate !ect#r .+-d!/ the ,+t+al .+-d -d+!try ha! e-tered t!
c+rre-t "ha!e #. c#-!#ldat#- a-d 4r#1th6 A! at the e-d #. Se"te,ber/ ;CC?/ there
1ere ;G .+-d!/ 1hch ,a-a4e a!!et! #. R!68@>8CF cr#re! +-der ?;8 !che,e!6
The 4ra"h -dcate! the 4r#1th #. a!!et! #3er the year!6
GROWTH IN ASSETS UNDER MANAGEMENT
;;
Er!t1hle 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-da e..ect3e .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-da 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)
Mta! "nd Name AUM A#erage AUM "or The Month
E$%!d&ng "nd
'f "nds
"nd 'f
"nds
E$%!d&ng "nd
'f "nds
"nd 'f "nds
() A*N AMR' Mta! "nd 2++60,)-+ (2((()-6 2./(0-).2 (2(0+)(0
2) *en%hmar1 Mta! "nd -+(+.),+ 0 0
,) *&r!a Sn 2&fe Mta! "nd (-,+.6/)(0 2260)6( 0
/) *'* Mta! "nd 22(20)+ 0 0
0) 3an4an1 Mta! "nd ,,2-,+)+0 0 ,0/0.,)0- 0
6) D*S 3ho!a Mta! "nd 2(/6/()00 0 0 0
-) Dets%he Mta! "nd /20-0-)(/ 0 ,06-..).( 0
;>
+) DS5 Merr&!! 26n%h Mta! "nd (,20((6)-. 0 0
.) Es%orts Mta! "nd (6+00)/ 0 0
(0) "&de!&t6 Mta! "nd ,6.2,.)+ /-0/)++ ,-200.)22 06-,)-
(() "ran1!&n Temp!eton Mta! "nd (.6,.(().2 ,+.00)0. (++.,(2).. ,+.+0)/6
(2) 7D"3 Mta! "nd 220,+66)-0 0 22(2+06)- 0
(,) 7S*3 Mta! "nd (00-+-(),( 0 .+6(,,), 0
(/) 8NG 96s6a Mta! "nd 26+,0,)++ 0 0
(0) :M "&nan%&a! Mta! "nd 2-+/26)6, 0 0
(6) ;ota1 Mah&ndra Mta! "nd (0.+/-().. +2/2.)06 (06..0()6, +2-(.),(
(-) 283 Mta! "nd 6(,,+0)/0 0 0
(+) Morgan Stan!e6 Mta! "nd 2...-+)0- 0 2.002-)(/ 0
(.) 5R8N385A2 Mta! "nd +./06/),2 0 0
20) 5rdent&a! 83838 Mta! "nd 2-00,/0)/+ /-0+)6. 0
2() ;
.r#, "r#d+ct l-e t# "r#d+ct l-e/ lead-4 t# d..ere-t ,ar4-! a-d a d3er!.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 ,ateral! a-d -"+t!
• Ca"acty -!talled a-d +tl:ed
• I-d+!try character!tc!
• De,a-d a-d ,ar2et
• G#3er-,e-t "#lcy 1th re4ard t# -d+!try
• Lab#r a-d #ther -d+!tral "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 act3te!6 I. the
,ar2et-4 act3te! 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 "#lce! are +!ed by #r4a-:at#- .#r the 3al+at#- #.
-3e-t#re! a-d .9ed a!!et!
A) I-3e-t#ry "#lcy7
>>
Ra1 ,ateral! a-d ther 3al+e at the e-d #. the year ! calc+lated by +!-4
FIFO/ LIFO/ #r a-y #ther a3era4e ,eth#d!6 The "artc+lar ,eth#d ! ,+!t be
!+table t# acce!! the "artc+lar ra1 ,ateral!6
B) F9ed A!!et P#lcy7
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 1rtte- 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#.tablty #. the c#,"a-y ,+!t be better
c#,"are 1th the -d+!try6 The e..ce-cy #. the "r#.tablty "#!t#- #r
#"erat-4 act3te! 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
>?
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-cal year6 I-ca!e
#. ,#re "r#.t a-d le!! -+,ber #. !hare! EPS 1ll -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 SSSSSSSSSSSSSSSSSSSSSSSSS
Net 1#rth
5. D,B,5.15 &'+,/8%
>@
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 d3de-d "ay#+t rat# ! deter,-ed a! "er the d3de-d
! "ad6 D3de-d "#lce! are d3ded -t# t1# ty"e!6
a) Stable d3de-d "#lcy6
b) U-!table d3de-d "#lcy6
Whe- c#,"a-y reached t# #"t,+, le3el t ,ay .#ll#1 !table d3de-d
"#lcy t -dcate! !table 4r#1th rate/ -# .l+ct+at#- are e!t,ated6
U-!table d3de-d "#lcy ,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-cal
!#+rce! c#!t #. ca"tal ! calc+lated6
!. O&.(0),12 .**,/,.1/8%
It ! deter,-ed #- the ba!! #. ca"tal e9"e-dt+re a-d #"erat-4 act3te! #. a
c#,"a-y6 I-crea!ed ca"tal e9"e-dt+re -dcate! -crea!e #. #"erat-4 e..ce-cy6
E9"ected "r#.t! ,ay be -crea!ed -c#,-4 year!6 The #"erat-4 e..ce-cy #. a
c#,"a-y drectly a..ect! the ear--4! #. a c#,"a-y a- e9"a-d-4 c#,"a-y that
,a-ta-! h4h #"erat-4 e..ce-cy 1th l#1 brea2 e3e- "#-t6 E..ce-t +!e #.
.9ed a!!et! 1th ra1 ,ateral!/ 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 ! h4h - t#tal c#!t/ the .r, ! !ad t# ha3e a h4h de4ree
#. #"erat-4 le3era4e6 H4h de4ree #. #"erat-4 le3era4e ,"le! #ther .act#r! be-4
held c#-!ta-t/ a relat3ely !,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..ce-cy "la-/ #r4a-:e!/ act+ate a-d c#-tr#l the
act3te! #. the c#,"a-y6 The 4##d ,a-a4e,e-t de"e-d! #. the =+alte! #. the
,a-a4er6 J-##t: a-d O< D#--ell !+44e!t the .#ll#1-4 a! !"ecal trat! #. a- able
,a-a4er6
• Ablty t# 4et al#-4 1th "e#"le
• Leader!h"
• A-alytcal c#,"ete-cy
• I-d+!try
• J+d4,e-t6
1$.F,101/,0+ 010+8-,-%
The be!t !#+rce #. .-a-cal -.#r,at#- ab#+t a c#,"a-y ! t! #1- .-a-cal
!tate,e-t!6 Th! ! a "r,ary !#+rce #. -.#r,at#- .#r e3al+at-4 the -3e!t,e-t
"r#!"ect! - the "artc+lar c#,"a-yF
"#!t#- #. the +-t #3er a "er#d #. t,e6 Th! a-aly!! 43e! the -.#r,at#-
re4ard-4
• H#1 are the "r#.t! +tl:edH
• What are the 3ar#+! .-a-cal !#+rce! #. d3de-dH
• What are the 3ar#+! !#+rce! #. .-a-ce .#r ca"tal e9"e-dt+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..ce-tly the .r, ! +tl:-4 the "r#ceed! #. the !hare #r debe-t+re
!!+e #r .9ed de"#!t! ra!ed .r#, the "+blcH
,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 1th the hel" #. bala-ce !heet/
-c#,e !tate,e-t a-d !#,e addt#-al -.#r,at#-6 It ca- be ether "re"ared -
3ertcal .#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 Wth the hel" #. the!e !tate,e-t! the
-3e!t#r! ca- re3e1 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,atcally6 F-a-cal
rat# "r#3de! -+,ercal relat#-!h" bet1ee- t1# rele3a-t .-a-cal data6 F-a-cal
rat#! are calc+lated .r#, the bala-ce !heet a-d "r#.t a-d l#!! acc#+-t6 The
relat#-!h" ca- be ether e9"re!!ed a! a "erce-t #r a! a =+#te-t6 Cla!!.cat#- #.
.-a-cal rat#! ! a! .#ll#1!7
I6 L=+dty rat#!6
L=+dty rat# ,ea!+re the ablty #. the .r, t# ,eet t! c+rre-t #bl4at#-!
l=+dty rat#! by e!tabl!h-4 a relat#-!h" bet1ee- ca!h a-d #ther c+rre-t a!!et! t#
c+rre-t #bl4at#-!/ "r#3de =+c2 ,ea!+re #. l=+dty6 A .r, !h#+ld e-!+re that t
d#e! -#t !+..er .r#, lac2 #. l=+dty /a-d al!# that t d#e! -#t ha3e e9ce!! l=+dty the
>G
.al+re #. a c#,"a-y t# ,eet t! #bl4at#-! d+e t# lac2 #. !+..ce-t l=+dty/ 1ll re!+lt
- a "##r credt1#rth-e!!/ l#!! #. credt#r E6PECTED RETURNSAH2
@?
PORTFOLIO ANALYSIS
P#rt.#l#! 1hch are the c#,b-at#-! #. !ec+rte! ,ay #r ,ay -#t
ta2e the a44re4ate character!tc! #. ther -d3d+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! #. -d3d+al !ec+rte!6 A- -3e!t#r ca- !#,e t,e! red+ce "#rt.#l#
r!2 by add-4 a-#ther !ec+rty 1th 4reater -d3d+al r!2 tha- a-y #ther
!ec+rty - the "#rt.#l#6 Th! !ee,-4ly c+r#+! re!+lt #cc+r! beca+!e r!2
de"e-d! 4reatly #- the c#3ara-ce a,#-4 ret+r-! #. -d3d+al !ec+rte!6
A- -3e!t#r ca- red+ce e9"ected r!2 le3el #. a 43e- "#rt.#l# #. a!!et! .
he ,a2e! a "r#"er d3er!.cat#- #. "#rt.#l#!6
There are t1# ,a- a""r#ache! .#r a-aly!! #. "#rt.#l#
• Tradt#-al a""r#ach6
• M#der- a""r#ach6
TRADITIONAL PORTFOLIO APPROACH%
The tradt#-al a""r#ach ba!cally deal! 1th t1# ,a$#r dec!#-!6
Tradt#-al !ec+rty a-aly!! rec#4-:e! the 2ey ,"#rta-ce #. r!2 a-d
ret+r- t# the -3e!t#r6 M#!t tradt#-al ,eth#d! rec#4-:e ret+r- a! !#,e
d3de-d rece"t a-d "rce a""recat#- #3er a .#r1ard "er#d6 B+t the ret+r-
.#r -d3d+al !ec+rte! ! -#t al1ay! #3er the !a,e c#,,#- h#ld-4
"er#d/ -#r are the rate! #. ret+r- -ece!!arly t,e ad$+!ted6 A- a-aly!! ,ay
@@
1ell e!t,ate .+t+re ear--4! a-d a P5E rat# t# der3e .+t+re "rce6 He 1ll
!+rely e!t,ate the d3de-d6
I- a-y ca!e/ 43e- a- e!t,ate #. ret+r-/ the a-aly!t ! l2ely t# th-2
#. a-d e9"re!! r!2 a! the "r#bable d#1-!:e rce e9"ectat#- ( ether by
t!el. #r relat3e t# +"!de a""recat#- "#!!blte!)6each !ec+rty e-d! +"
1th !#,e r#+4h ,ea!+re! #. l2ely ret+r- a-d "#te-tal d#1-!de r!2 .#r
the .+t+re6
P#rt.#l#! #r c#,b-at#-! #. !ec+rte! are th#+4h #. a! hel"-4 t#
!"read r!2 #3er ,a-y !ec+rte! ,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 1th .re
!t#c2!/ +tlty !t#c2! d!"lay de.e-!3e "rce ,#3e,e-t relat3e t# the
,ar2et a-d cyclcal !t#c2! l2e !teel/ a-d !# #-6 Th! ! -#t t# !ay that
tradt#-al "#rt.#l# a-aly!! ! +-!+cce!!.+l6 It ! t# !ay that ,+ch #. t
,4ht be ,#re #b$ect3ely !"ec.ed - e9"lct ter,!6
They are7
• Deter,--4 the #b$ect3e! #. the "#rt.#l#
• Select#- #. !ec+rte! t# be -cl+ded - the "#rt.#l#6
N#r,ally th! ! carred #+t - .#+r t# !9 !te"!6 Be.#re .#r,+lat-4 the
#b$ect3e!/ the c#-!tra-t! #. the -3e!t#r !h#+ld be a-aly:ed6 Wth - the 43e-
.ra,e 1#r2 #. c#-!tra-t!/ #b$ect3e! are .#r,+lated6 The- ba!ed #- the #b$ect3e!
!ec+rte! are !elected6 A.ter that r!2 a-d ret+r- #. the !ec+rte! !h#+ld be !t+ded6
The -3e!t#r ha! t# a!!e!! the ,a$#r r!2 cate4#re! that he #r !he ! try-4 t#
,-,:e6 C#,"r#,!e #. r!2 a-d -#-Er!2 .act#r! ha! t# be carred #+t6 F-ally
relat3e "#rt.#l# 1e4ht! are a!!4-ed t# !ec+rte! l2e b#-d!/ !t#c2! a-d debe-t+re!
a-d the d3er!.cat#- ! carred #+t6
MODERN PORTFOLIO APPROACH%
The tradt#-al a""r#ach ! a c#,"rehe-!3e .-a-cal "la- .#r the -d3d+al
-eed! !+ch a! h#+!-4/ l.e -!+ra-ce a-d "e-!#- "la-!6 B+t the!e ty"e! #. .-a-cal
@A
"la---4 a""r#ache! are -#t d#-e - the Mar2#1t: a""r#ach6 Mar2#1t: 43e! ,#re
atte-t#- t# the "r#ce!! #. !elect-4 the "#rt.#l#6 H! "la---4 ca- be a""led ,#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""recat#-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 d3de-d6
The -3e!t#r -eed! ret+r- a-d t ,ay be ether - the .#r, #. ,ar2et ret+r- #r
d3de-d6
The -3e!t#r ! a!!+,ed t# ha3e the #b$ect3e! #. ,a9,:-4 the e9"ected ret+r-
a-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! ,"le! that -d3d+al! 1#+ld "re.er
the "#rt.#l# #. h4he!t e9"ected ret+r- .#r a 43e- le3el #. r!26 I- the ,#der-
a""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+rte! !+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- 1th ,-,+, r!2 ! called "#rt.#l# c#-!tr+ct#-6
M,1,3,I0),'1 '* (,-:-%
The c#,"a-y !"ec.c r!2! (+-!y!te,atc r!2!) ca- be red+ced by d3er!.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! l2e 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#+" l2e tea/ !+4ar "a"er/ ce,e-t/ !teel/ electrcty etc6 Each #. the, ha!
d..ere-t r!2 K ret+r- character!tc! a-d -3e!t,e-t! are t# be ,ade/ ba!ed #-
-d3d+al R,-: *(.. (0). '* (.)9(1
S# the CAPM atte,"t! t# ,ea!+re the r!2 #. a !ec+rty - the "#rt.#l# !e-!e6
A--93&),'1-%
The CAPM ,#del de"e-d! #- the .#ll#1-4 a!!+,"t#-!/ 1hch are t# be
c#-!dered 1hle calc+lat-4 rate #. ret+r-6
• The -3e!t#r! are ba!cally a3era4e r!2 a!!+,er! a-d
d3er!.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+rty6
• All -3e!t#r! a!!+,e -crea!e #. -et 1ealth #. the !ec+rty6
• 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+rty6
• All -3e!t#r! ha3e de-tcal e!t,at#- #. r!2 a-d ret+r- #. all
!ec+rte!6 All the !ec+rte! are d3!ble a-d tradable - ca"tal ,ar2et6
• Sy!te,atc 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 a3alable t# all the
-3e!t#r!6
A@
B.)0%
Beta de!crbed the relat#-!h" bet1ee- the !t#c2 ret+r- a-d the ,ar2et -de9
ret+r-!6 Th! ca- be "#!t3e a-d -e4at3e6 It ! the "erce-ta4e cha-4e ! the "rce #.
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 1ll lead t# #-e "erce-ta4e cha-4e -
"rce #. the !t#c26 I. beta ! C/ !t#c2 "rce ! +- related t# the ,ar2et -de9 . the
,ar2et 4#e! +" by a T8O/ the !t#c2 "rce 1ll .all by 8O beta ,ea!+re! the
!y!te,atc ,ar2et related r!2 / 1hch ca--#t be el,-ated by d3er!.cat#-6 I. the
"#rt.#l# ! e..ce-t/ Beta ,ea!+re! the !y!te,atc r!2 e..ect3ely6
E3al+at#- "r#ce!!7
86 R!2 ! the 3ara-ce #. e9"ected ret+r- #. "#rt.#l#6
;6 t1# ty"e! #. r!2 are a!!+,ed they are
o !y!te,atc r!2
o +-!y!te,atc r!2
>6 Sy!te,atc r!2 ! calc+lated by the -3e!t#r by c#,"ar!#- #. !ec+rty ret+r-
Wth ,ar2et ret+r-6
C#E3ara-ce #. !ec+rty a-d ,ar2et
V R SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
'ara-ce #. ,ar2et
H4her 3al+e #. beta -dcate! h4her !y!te,atc r!2 a-d 3ce 3er!a6 Whe- -+,ber
#. !ec+rte! ! h#ld by a- -3e!t#r/ c#,"#!te beta #r "#rt.#l# ca- be calc+lated by
the +!e #. 1e4ht! #. !ec+rty a-d -d3d+al beta6
?6 R!2 .ree rate #. ret+r- ! de-t.ed #- the ba!! #. the ,ar2et c#-dt#-!6
The .#ll#1-4 t1# ,eth#d! are +!ed .#r calc+lat#- #. ret+r- #. !ec+rty #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..ce-t "#rt.#l#6 Whe- the r!2 rate! #. ,ar2et a-d "#rt.#l# r!2 are
43e-/ e9"ected ret+r- #- !ec+rty #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+r-
W" R "#rt.#l# #. !ta-dard de3at#-
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+rty a-d r!2 .ree rate #. ret+r-6 Beta !
+!ed t# de-t.y the !y!te,atc 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- "ractcal "+r"#!e CAPM ca-
Th! ,eth#d ! al!# called %re1ard t# 3arablty %,eth#d6 Whe- ,#re tha- #-e
"#rt.#l# ! e3al+ated h4he!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 arth,etc 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/
1hch ! re"re!e-tat3e #. all the te,!6 The ,a- #b$ect3e #. a3era4-4 ! t# arr3e
at a !-4le 3al+e 1hch ! a re"re!e-tat3e #. the character!tc! #. the e-tre ,a!! #.
D?
data a-d arth,etc a3era4e #r ,ea- #. a !ere!(+!+ally de-#ted by 9) ! the 3al+e
#bta-ed by d3d-4 the !+, #. the 3al+e! #. 3ar#+! te,! - a !ere! (!4,a 9)
d3ded by the -+,ber #. te,! (N) c#-!tt+t-4 the !ere!6
Th+!/ . 08/0;NNNNN660- are the 43e- N #b!er3at#-!6 The-
0R 08T0;TNNN60-
N
RETURN
C+rre-t "rceE"re3#+! "rce Z8CC
Pre3#+! "rce
STANDARD DEVIATION%
The c#-ce"t #. !ta-dard de3at#- 1a! .r!t !+44e!ted by Jarl "ear!#-
- 8GF>6t ,ay be de.-ed a! the "#!t3e !=+are r##t #. the arth,etc ,ea- #. the
!=+are! #. de3at#-! #. the 43e- #b!er3at#-! .r#, ther arth,etc ,ea-6I- !h#rt
S6D ,ay be de.-ed a! %R##t Mea- S=+are De3at#- .r#, Mea-*
It ! by .ar the ,#!t ,"#rta-t a-d 1dely +!ed ,ea!+re #. !t+dy-4
d!"er!#-!6
F#r a !et #. N #b!er3at#-! 08/0;NN660- 1th ,ea- 0/
De3at#-! .r#, Mea-7 (08E0)/(0;E0)/N6(0-E0)
Mea-E!=+are de3at#-! .r#, Mea-7
R 85N (08E0);T(0;E0);TNNN6T(0-E0);
R85N !4,a(0E0);
R##tE,ea-E!=+are de3at#- .r#, ,ea-/6e6
VARIANCE%
The !=+are #. !ta-dard de3at#- ! 2-#1- a! 'ara-ce6
'ara-ce ! the !=+are r##t #. the !ta-dard de3at#-7
'ara-ce R (S6D) ;
Where/ (S6D) ! !ta-dard de3at#-
D@
CORRELATION
C#rrelat#- ! a !tat!tcal tech-=+e/ 1hch ,ea!+re! a-d a-aly!e! the de4ree
#r e9te-t t# 1hch t1# #r ,#re 3arable! .l+ct+ate 1th re.ere-ce t# #-e a-#ther6
C#rrelat#- th+! de-#te! the -terEde"e-de-ce a,#-4!t 3arable!6 The de4ree! are
e9"re!!ed by a c#e..ce-t/ 1hch ra-4e! bet1ee- K8 a-d T86 The drect#- #. cha-4e
! -dcated by (T) #r (E) !4-!6 The .#r,er re.er! t# a !y,"athetc ,#3e,e-t - a
!a,e drect#- a-d the later - the #""#!te drect#-6
Jarl Pear!#-A) are -cl+ded - the "#rt.#l# ba!2et6
HLL (86G\;6>?) Dr6 Reddy !ec+rte! e9ce!! ret+r- t# beta rat#!
are le!! tha- the c+tE#.. !# th#!e !ec+rte! are e9tr+ded .r#, the "#rt.#l#!6
DF
P'()*'+,' > B %
!ec+rt
e!
Ret+r-!
RO
Beta
3al+
e!
XVY
U-
Sy!te
,atc
r!2
W]e(O)
E9ce!!
Ret+r-
#3er ( V )
RER.5 V
( RER. ) V5
W]e
C+,+lat3e
( RER. ) V5
W]e
V]5
W] e
C+,+lat3e
V]5 W] e
^CR W,]_ ^ tR8
( RER. ) V5W]e
8TW,]_^tR8V]5W]e
Bhart
Artel
8?6; C6FF ;G 8C6@ C6;F;; C6;F;; C6C;FA C6C;FF ;68G
NTPC 8C68 C6GG 8F6A@ @6; C6;A@? C6@?DA C688>> C68?;C ;6;A
G+$rat
A,b
8C6@ 86C> >@ ?6@ C68A8F C6DCG? C6C>C> C68D;> ;6ACA
ICICI
Ba-2
F6F C6G8 8;6>> ?6> C6;FDF C6GGD; C6CFC8 C6;@;? ;6F>C
BHEL G6? 86CA >C6@ ?6;? C68@A? 868@>A C6C>AF C6;FG; ;6GA?
HDFC G68 C6GA 8?6F> ?6; C6;@GC 86?8;A C68GCF C6?DGG ;6?@
Ba$a$
A+t#
F6? 86C> 8? >6>G C6;@D@ 86ADC8 C68>;A C6A8;? ;6>?
Acc F6A 86CA ;F >6>C C68>;@ 86FC;A C6C?C8 C6A@;A ;6>G
DG
H-da
lc#
F6> 86;G 8; ;6D C6>DA; ;68DFF C68AA? C6F8GC ;6>D
Hd.c
ba-2
A6A C6F; >; ;6>G C6C?A8 ;6;;?G C6C;8C C6F? ;6>A CZ
HLL D68 86C> ;A 86G C6CDG; ;6>C?8 C6C?CF C6FFCF ;6>?
Dr6
reddy!
A68 C6AG ;C 86@ C6C>?@ ;6>>FA C6C;>F C6GC?A ;6>;
INTERPRETATION%
The de!rabltyA)6 Whle !ec+rte! 88 B8; are le!!
tha- c+tE#.. rate !# .r#, !atya, c#,"+ter! t# NTPC all the 8C !ec+rte! 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+rte! #. 8C c#,"a-e!6
FC
P'()*'+,' > C%
!ec+rt
e!
Ret+r-!
RO
Beta
3al+
e!
XVY
U-
Sy!te
,atc
r!2
W]e(O)
E9ce!!
Ret+r-
#3er ( V )
RER.5 V
( RER. ) V5
W]e
C+,+lat3e
( RER. ) V5
W]e
V]5
W] e
C+,+lat3e
V]5 W] e
^CR W,]_ ^ tR8
( RER. ) V5W]e
8TW,]_^tR8V]5W]e
Satya,
C c#,"
8F 86CG ?@ 88 C6;GCA C6;GCA C6C;A? C6C;A? ;6;G
Bhart
artel
?6> C6FF ;G 8C6@ C6;A@? C6@@A C6C;FA C6C@@ >6@FD
Rela
-ce
c#,,
8C6> C6G@ 8G F6? C6;A@C C6F;8 C6C@;@
C68CD?
>6G@A
SBI 8C6A; 868; ;C6@ D C6>CDC 868;F C6CD88 C68DFA ?6C?F
Rela
-ce
E-er
F C6AA ;; @6A C6CGCC 86;8F C6C;CC C6;CFA >6G?
LBT @6@ C6FC 8; @6; C6;>>> 86?@8> C6C@?? C6;A> >6G
Her#
h#-da
?6F 86CC 8@ ?6@? C6;@>> 86DC?A C6ADDD6 86G?CD 86A>D
4+$rat
a,b+$
a
F6@ 86?; 8;6DA ?6@ C6>FG? ;6CG? C68@FC 86CGFD 86GC@
Ra-ba
9y A6F C6F; >; ?6? C6C?A8 ;68?C8 C68AA? 86;A@8 86@AD
ICICI
ba-2
A C6D? ?6@ ?6> C68A?? ;6>C?@ C68;8D 86>FAF 86@AD
BHEL A C6AG ;C ?6;? C6C>?@ ;6>>GC C6C;>F 86?8CA 86@?FF
F8
I-.#!y
!
A C6FG @ ?6; C68DF ;6@8D C68@F?
;
86@AGC 86@CF
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+rte!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!
a-aly!!6
? The -3e!t#r 1h# bear! h4h r!2 1ll be 4ett-4 h4h ret+r-!6
? The -3e!t#r 1h# ! ha3-4 #"t,+, "#rt.#l# 1ll be ta2-4 #"t,+, ret+r-!
1th ,-,+, r!26
? The -3e!t#r !h#+ld -cl+de all !ec+rte! 1hch are +-der 3al+ed - ther
"#rt.#l# a-d re,#3e th#!e !ec+rte! that are #3er 3al+ed6
? The -3e!t#r ha! t# ,a-ta- the "#rt.#l# #. d3er!.ed !ect#r! !t#c2! rather
tha- -3e!t-4 - a !-4le !ect#r #. d..ere-t !t#c2!6
? Pe#"le 1h# are -3e!t-4 - "#rt.#l#! ,#!tly de"e-d #- the ad3ce #. ther
.re-d!/ relat3e!/ .-a-cal ad3!er!6
? Pe#"le 4e-erally -3e!t ther !a3-4! - .9ed de"#!t!/ rec+rr-4 de"#!t!/ a-d
-at#-al !a3-4! cert.cate! a-d 4#3er-,e-t !ec+rte! a! they are le!! r!2y a-d the
ret+r-! are 4+ara-ted6
? M#!t #. the -3e!t#r -3e!t! - ba!c -ece!!te!6 They "la- t# -3e!t -
-!+ra-ce (LIC/ GIC) a-d "e-!#- .+-d a! the!e 43e 4+ara-ted ret+r-! a-d are le!!
r!2y6
? M#!t #. the -3e!t#r! .eel that -3t-4 - !t#c25ca"tal ,ar2et ! #. h4h r!2
there .#re they d#-
? Whe- c#,"ared t# #ther "#rt.#l#!/ "#rt.#l# C 43e! the ,a9,+, ret+r-
1th 8; !cr"t!6
? The d3er!.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 1th #ther "#rt.#l#!6
? I. the "#rt.#l# ,a-a4e,e-t ! e..ce-t a-d -3e!t#r ! r!2 t#lera-t "er!#- a-d
-3e!t,e-t ! the l#-4 ter, "er!"ect3e tha- t ! better t# -3e!t - the MIDK
Ca"! a-d SMALLECa"! c#,"a-e! !ec+rte!/ 1here the 4r#1th #. the ret+r-!
are h4her tha- the LARGEECa"!6
? I. -3e!t#r ! r!2 t#lera-t "er!#- a-d !h#rt ter, "er!"ect3e t ! 4##d t# -3e!t
- the LARGEECa"! c#,"a-e! !ec+rte!6
? I .eel that th! year !,all ca" a-d ,d ca" c#,"a-e! 1ll be "er.#r,-4 1ell
1he- c#,"ared t# the lar4eEca" a! 1e ha3e #b!er3ed la!t year6
SUGGESTIONS
F?
? Select the -3e!t,e-t! #- the ba!! #. ec#-#,c 4r#+-d!6
? B+y !t#c2 1th a d!"arty a-d d!cre"a-cy bet1ee- the !t+at#- #. the .r, E
a-d the e9"ectat#-! a-d a""ra!al #. the "+blc6
? B+y !t#c2! - c#,"a-e! 1th "#te-tal .#r !+r"r!e!6
? Ta2e ad3a-ta4e #. 3#latlty be.#re reach-4 a -e1 e=+lbr+,6
? L!te- t# r+,#r! a-d t"!/ chec2 .#r y#+r!el.6
? D#-
ABSTRACT : Portfolio management can be defined and used in many a ways, because the basic meaning of the word is “combination of the various things keeping intact”. So I considered and evaluated this from the perspective of the investment part in the securities segment.
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#$ect re"#rt ttled %A STUD& ON PORTFOLIO
MANAGEMENT at MOTILAL OSWAL FINACIAL SER'ICES (INDIA)
LIMITED* S+b,tted by ,e t# the de"art,e-t #. Ma!ter! #. B+!-e!!
Ad,-!trat#-/ 000 ! a b#-a.de 1#r2 +-derta2e- by ,e a-d t ! -#t !+b,tted
t# a-y #ther +-3er!ty #r I-!tt+t#- .#r the a1ard #. a-y de4ree d"l#,a 5 cert.cate
#r "+bl!hed a-y t,e be.#re6
Date 7
Place7 (!4-at+re)
8
ACKNOWLEDGEMENT
The "er.ect 1ay t# d#c+,e-t th! "r#$ect 1#+ld be t# !tart 1th ac2-#1led4-4 all
th#!e "e#"le 1h# drectly #r -drectly e-c#+ra4ed/ !+""#rted ,e 1th ther 3al+e
added -"+t! 1th#+t the, th! "r#$ect 1#+ld -#t ha3e bee- th! better6
T# !tart 1th I 1#+ld l2e t# tha-2 0000 #. MOTILAL OSWAL FINANCIAL
SER'ICES (INDIA) LIMTED at 000 .#r 43-4 ,e a- #""#rt+-ty t# d# ,y
"r#$ect 1#r26
I 1#+ld l2e t# 43e !"ecal ac2-#1led4e,e-t t# 0000 .#r h! c#-!!te-t !+""#rt
a-d ,#t3at#-6
My !-cere tha-2! t# ,y .ac+lty 000 !r/ A!!#cate "r#.e!!#r - .-a-ce/ .#r h!
tech-cal e9"ert!e/ ad3ce a-d e9celle-t 4+da-ce6 He -#t #-ly 4a3e ,y "r#$ect
!cr+"+l#+! read-4/ b+t added ,a-y e9a,"le! a-d dea! t# ,"r#3e t6
I 1#+ld l2e t# e9"re!! ,y a""recat#- t#1ard! ,y .re-d! .#r ther e-c#+ra4e,e-t
a-d !+""#rt thr#+4h#+t th! "r#$ect6
F-ally I 1#+ld l2e t# #1e ,y !-cere a""recat#- t# all the E,"l#yee! #. the
#r4a-:at#- 1h# "r#3ded a .re-dly e-3r#-,e-t a-d !+""#rted thr#+4h #+t ,y
"r#$ect6
00000
;
ABSTRACT
P#rt.#l# ,a-a4e,e-t ca- be de.-ed a-d +!ed - ,a-y a 1ay!/ beca+!e the ba!c ,ea--4 #. the
1#rd ! %c#,b-at#- #. the 3ar#+! th-4! 2ee"-4 -tact*6 S# I c#-!dered a-d e3al+ated th!
.r#, the "er!"ect3e #. the -3e!t,e-t "art - the !ec+rte! !e4,e-t6
Fr#, the -3e!t#r "#-t #. 3e1 th! "#rt.#l# .#ll#1ed by h, ! 3ery ,"#rta-t !-ce thr#+4h th!
1ay #-e ca- ,a-a4e the r!2 #. -3e!t-4 - !ec+rte! a-d thereby ,a-a4-4 t# 4et 4##d ret+r-!
.r#, the -3e!t,e-t - d3er!.ed !ec+rte! -!tead #. "+tt-4 all the ,#-ey -t# #-e ba!2et6 N#1
a day
TABLE OF CONTENTS
CHPTER-1
8686 INTRODUCTION
1.2. OBJECTIVE OF THE STUDY
1.3. METHODOLOGY
1.4. LIMITATIONS OF THE STUDY
CHPTER-2
2. LITERATURE REVIEW
3. COMPANY PROFILE
3.1 MOTILAL OSWAL SECURITIES PVT.LTD
4. INDUSTRY PROFILE
CHPTER-3
5. PORTFOLIO MANAGEMENT
. THEORITICAL ANALYSIS
CHPTER-4
!. FINDINGS
". CONCLUSION
#. SUGGESTIONS
1$. GLOSSORY
11. BIBLIOGRAPHY
CHPTER-5
12. LIST OF TABLES%
12.1 PORTFOLIO-A
12.2PORTFOLIO-B
12.3PORTFOLIO-C
?
INTRODUCTION
Th! "r#$ect deal! 1th 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 - detal 1hle -3e!t-4 - !ec+rte!6 It al!# e9"la-!
h#1 "#rt.#l# hed4e! the r!2 - -3e!t,e-t a-d 43-4 #"t,+, ret+r- t# a 43e-
a,#+-t #. r!26 It al!# 43e! 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+rte!/ d..ere-t the#re! #. "#rt.#l# ,a-a4e,e-t .#r e..ect3e a-d e..ce-t
"#rt.#l# c#-!tr+ct#-6 It al!# 43e! a bre. a-aly!! #. h#1 t# e3al+ate a "#rt.#l#6
@
OBJECTIVES OF THE STUDY
? T# ,a2e a- - detaled !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- - detaled a-aly!! #. the r!2 a-d ret+r- character!tc! #. !t#c2!
related t# d..ere-t -d+!tre! a-d d..ere-t c#,"a-e!
? T# hel" the -3e!t#r! t# decde the e..ect3e "#rt.#l# #. !ec+rte!
? T# de-t.y the be!t "#rt.#l# #. !ec+rte!
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 $#+r-al!6
SECONDAR& DATA7
? Data c#llected .r#, 3ar#+! b##2! a-d !te!6
? Data c#llected .r#, -ter-et6
LIMITATIONS OF THE STUDY
? The data c#llected ! ba!cally c#-.-ed t# !ec#-dary !#+rce!/ 1th 3ery lttle
a,#+-t #. "r,ary data a!!#cated 1th the "r#$ect6
? There ! a c#-!tra-t 1th re4ard t# t,e all#cated .#r the re!earch !t+dy6
? The a3alablty #. -.#r,at#- - the .#r, #. a--+al re"#rt! B "rce
.l+ct+at#-! #. the c#,"a-e! ! a b4 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!tcal t##l! +!ed are r!2/ ret+r-/ a3era4e/ 3ara-ce/
c#rrelat#-6
D
PORTFOLIO MANAGEMENT
A &'()*'+,' ! a c#llect#- #. -3e!t,e-t! held by a- -!tt+t#- #r a "r3ate
-d3d+al6 I- b+ld-4 +" a- -3e!t,e-t "#rt.#l# a .-a-cal -!tt+t#- 1ll
ty"cally c#-d+ct t! #1- -3e!t,e-t a-aly!!/ 1hl!t a "r3ate -d3d+al ,ay ,a2e
+!e #. the !er3ce! #. a .-a-cal ad3!#r #r a .-a-cal -!tt+t#- 1hch #..er!
"#rt.#l# ,a-a4e,e-t !er3ce!6 H#ld-4 a "#rt.#l# ! "art #. a- -3e!t,e-t a-d r!2E
l,t-4 !trate4y called d3er!.cat#-6 By #1--4 !e3eral a!!et!/ certa- ty"e! #.
r!2 (- "artc+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#- .aclte!/ #r a-y #ther te, that ! e9"ected t# reta- t! 3al+e6
P#rt.#l# ,a-a4e,e-t -3#l3e! decd-4 1hat a!!et! t# -cl+de - the "#rt.#l#/
43e- the 4#al! #. the "#rt.#l# #1-er a-d cha-4-4 ec#-#,c c#-dt#-!6 Select#-
-3#l3e! decd-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# d3e!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!!#cated 1th 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 crc+,!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 "artc+lar
tech-=+e! t# #"t,:e ther "#rt.#l# h#ld-4!6
Th+!/ "#rt.#l# ,a-a4e,e-t ! all ab#+t !tre-4th!/ 1ea2-e!!e!/ #""#rt+-te! a-d
threat! - the ch#ce #. debt 3!6 e=+ty/ d#,e!tc 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 43e- a""ette .#r r!26
A-&./)- '* P'()*'+,' M0102.3.1)%
F
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$ect3e #. P#rt.#l# Ma-a4e,e-t ! t# ,a9,:e yeld a-d ,-,:e
r!26 The #ther a-cllary #b$ect3e! are a! "er -eed! #. -3e!t#r!/ -a,ely7
? Re4+lar -c#,e #r !table ret+r-
? A""recat#- #. ca"tal
? Mar2etablty a-d l=+dty
? Sa.ety #. -3e!t,e-t
? M-,:-4 #. ta9 lablty6
NEED FOR PORTFOLIO MANAGEMENT%
The P#rt.#l# Ma-a4e,e-t deal! 1th the "r#ce!! #. !elect#- !ec+rte! .r#, the
-+,ber #. #""#rt+-te! a3alable 1th d..ere-t e9"ected ret+r-! a-d carry-4
d..ere-t le3el! #. r!2 a-d the !elect#- #. !ec+rte! ! ,ade 1th a 3e1 t# "r#3de
the -3e!t#r! the ,a9,+, yeld .#r a 43e- 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 act3te! #. -3e!t,e-t -
a!!et! a-d !ec+rte!6 It ! a dy-a,c! a-d .le9ble c#-ce"t a-d -3#l3e! re4+lar a-d
!y!te,atc a-aly!!/ $+d4,e-t a-d act#-!6 The #b$ect3e! #. th! !er3ce are t# hel"
the +-2-#1- -3e!t#r! 1th 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#rCC b+!-e!! l#cat#-! a-d ,#re tha- >/F@/CCC c+!t#,er! - #3er ?;@ cte!/
M#tlal 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 1th t1# lead-4 "r3ate e=+ty
-3e!t#r! E Ne1 'er-#- Pr3ate 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?@ bll#-)6
M#tlal O!1al F-a-cal Ser3ce! Ltd6/ c#-!!t! #. .#+r c#,"a-e!6
M#tlal O!1al I-3e!t,e-t Ad3!#r! P3t6 Ltd6 ! #+r I-3e!t,e-t Ba-2-4 ar, 1th
c#llect3e e9"ere-ce #. #3er 8CC year! - -3e!t,e-t ba-2-45c#r"#rate ba-2-4 a-d
ad3!#ry !er3ce!
M#tlal O!1al C#,,#dte! Br#2er (P) Ltd6 ha! bee- "r#3d-4 c#,,#dty trad-4
.aclte! a-d related "r#d+ct! a-d !er3ce! !-ce ;CC?6
M#tlal O!1al 'e-t+re Ca"tal Ad3!#r! Pr3ate L,ted ha! la+-ched the I-da
B+!-e!! E9celle-ce F+-d (IBEF)/ a USP8CC ,- I-da .#c+!ed Pr3ate E=+ty F+-d6
M#tlal O!1al Sec+rte! Ltd6 (M#!t) ! a lead-4 re!earch a-d ad3!#ry ba!ed !t#c2
br#2-4 h#+!e #. I-da/ 1th a d#,-a-t "#!t#- - b#th -!tt+t#-al e=+te! a-d
1ealth ,a-a4e,e-t6 O+r !er3ce! -cl+de e=+te!/ der3at3e!/ eEbr#2-4/ "#rt.#l#
,a-a4e,e-t/ ,+t+al .+-d!/ c#,,#dte!/ IPO 1#4-"!
U-t Tr+!t #. I-da (UTI) 1a! e!tabl!hed #- 8GA> by a- Act #. Parla,e-t6 It 1a!
!et +" by the Re!er3e Ba-2 #. I-da a-d .+-ct#-ed +-der the Re4+lat#ry a-d
ad,-!trat3e c#-tr#l #. the Re!er3e Ba-2 #. I-da6 I- 8GDF UTI 1a! deEl-2ed
.r#, the RBI a-d the I-d+!tral De3el#",e-t Ba-2 #. I-da (IDBI) t##2 #3er the
re4+lat#ry a-d ad,-!trat3e 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/ "+blc !ect#r ,+t+al .+-d! !et +" by "+blc
!ect#r ba-2! a-d L.e I-!+ra-ce C#r"#rat#- #. I-da (LIC) a-d Ge-eral I-!+ra-ce
C#r"#rat#- #. I-da (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-da- Ba-2 M+t+al F+-d (N#3 FG)/ Ba-2 #.
I-da (J+- GC)/ Ba-2 #. Bar#da M+t+al F+-d (Oct G
6 LIC e!tabl!hed t! ,+t+al.+-d - J+-e 8GFG 1hle 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$$3 ?E1)(8 '* P(,B0). S./)'( F915-A
Wth the e-try #. "r3ate !ect#r .+-d! - 8GG>/ a -e1 era !tarted - the I-da- ,+t+al
.+-d -d+!try/ 43-4 the I-da- -3e!t#r! a 1der ch#ce #. .+-d .a,le!6 Al!#/ 8GG>
1a! the year - 1hch the .r!t M+t+al F+-d Re4+lat#-! ca,e -t# be-4/ +-der
1hch all ,+t+al .+-d!/ e9ce"t UTI 1ere t# be re4!tered a-d 4#3er-ed6 The
er!t1hle J#thar P#-eer (-#1 ,er4ed 1th Fra-2l- Te,"let#-) 1a! the .r!t
"r3ate !ect#r ,+t+al .+-d re4!tered - J+ly 8GG>6
;8
The 8GG> SEBI (M+t+al F+-d) Re4+lat#-! 1ere !+b!tt+ted by a ,#re
c#,"rehe-!3e a-d re3!ed M+t+al F+-d Re4+lat#-! - 8GGA6 The -d+!try -#1
.+-ct#-! +-der the SEBI (M+t+al F+-d) Re4+lat#-! 8GGA6
The -+,ber #. ,+t+al .+-d h#+!e! 1e-t #- -crea!-4/ 1th ,a-y .#re4- ,+t+al
.+-d! !ett-4 +" .+-d! - I-da a-d al!# the -d+!try ha! 1t-e!!ed !e3eral ,er4er!
a-d ac=+!t#-!6 A! at the e-d #. Ja-+ary ;CC>/ there 1ere >> ,+t+al .+-d! 1th
t#tal a!!et! #. R!6 8/;8/FC@ cr#re!6 The U-t Tr+!t #. I-da 1th R!6??/@?8 cr#re! #.
a!!et! +-der ,a-a4e,e-t 1a! 1ay ahead #. #ther ,+t+al .+-d!6
F'9()4 P40-. > -,1/. F.@(90(8 2$$3
I- Febr+ary ;CC>/ .#ll#1-4 the re"eal #. the U-t Tr+!t #. I-da Act 8GA> UTI 1a!
b.+rcated -t# t1# !e"arate e-tte!6 O-e ! the S"ec.ed U-derta2-4 #. the U-t
Tr+!t #. I-da 1th 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-da/ .+-ct#--4
+-der a- ad,-!trat#r a-d +-der the r+le! .ra,ed by G#3er-,e-t #. I-da a-d d#e!
-#t c#,e +-der the "+r3e1 #. 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 1th SEBI a-d .+-ct#-! +-der the M+t+al F+-d Re4+lat#-!6 Wth the
b.+rcat#- #. the er!t1hle UTI 1hch had - March ;CCC ,#re tha- R!6DA/CCC
cr#re! #. a!!et! +-der ,a-a4e,e-t a-d 1th 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 1th rece-t ,er4er! ta2-4
"lace a,#-4 d..ere-t "r3ate !ect#r .+-d!/ the ,+t+al .+-d -d+!try ha! e-tered t!
c+rre-t "ha!e #. c#-!#ldat#- a-d 4r#1th6 A! at the e-d #. Se"te,ber/ ;CC?/ there
1ere ;G .+-d!/ 1hch ,a-a4e a!!et! #. R!68@>8CF cr#re! +-der ?;8 !che,e!6
The 4ra"h -dcate! the 4r#1th #. a!!et! #3er the year!6
GROWTH IN ASSETS UNDER MANAGEMENT
;;
Er!t1hle 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-da e..ect3e .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-da 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)
Mta! "nd Name AUM A#erage AUM "or The Month
E$%!d&ng "nd
'f "nds
"nd 'f
"nds
E$%!d&ng "nd
'f "nds
"nd 'f "nds
() A*N AMR' Mta! "nd 2++60,)-+ (2((()-6 2./(0-).2 (2(0+)(0
2) *en%hmar1 Mta! "nd -+(+.),+ 0 0
,) *&r!a Sn 2&fe Mta! "nd (-,+.6/)(0 2260)6( 0
/) *'* Mta! "nd 22(20)+ 0 0
0) 3an4an1 Mta! "nd ,,2-,+)+0 0 ,0/0.,)0- 0
6) D*S 3ho!a Mta! "nd 2(/6/()00 0 0 0
-) Dets%he Mta! "nd /20-0-)(/ 0 ,06-..).( 0
;>
+) DS5 Merr&!! 26n%h Mta! "nd (,20((6)-. 0 0
.) Es%orts Mta! "nd (6+00)/ 0 0
(0) "&de!&t6 Mta! "nd ,6.2,.)+ /-0/)++ ,-200.)22 06-,)-
(() "ran1!&n Temp!eton Mta! "nd (.6,.(().2 ,+.00)0. (++.,(2).. ,+.+0)/6
(2) 7D"3 Mta! "nd 220,+66)-0 0 22(2+06)- 0
(,) 7S*3 Mta! "nd (00-+-(),( 0 .+6(,,), 0
(/) 8NG 96s6a Mta! "nd 26+,0,)++ 0 0
(0) :M "&nan%&a! Mta! "nd 2-+/26)6, 0 0
(6) ;ota1 Mah&ndra Mta! "nd (0.+/-().. +2/2.)06 (06..0()6, +2-(.),(
(-) 283 Mta! "nd 6(,,+0)/0 0 0
(+) Morgan Stan!e6 Mta! "nd 2...-+)0- 0 2.002-)(/ 0
(.) 5R8N385A2 Mta! "nd +./06/),2 0 0
20) 5rdent&a! 83838 Mta! "nd 2-00,/0)/+ /-0+)6. 0
2() ;
.r#, "r#d+ct l-e t# "r#d+ct l-e/ lead-4 t# d..ere-t ,ar4-! a-d a d3er!.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 ,ateral! a-d -"+t!
• Ca"acty -!talled a-d +tl:ed
• I-d+!try character!tc!
• De,a-d a-d ,ar2et
• G#3er-,e-t "#lcy 1th re4ard t# -d+!try
• Lab#r a-d #ther -d+!tral "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 act3te!6 I. the
,ar2et-4 act3te! 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 "#lce! are +!ed by #r4a-:at#- .#r the 3al+at#- #.
-3e-t#re! a-d .9ed a!!et!
A) I-3e-t#ry "#lcy7
>>
Ra1 ,ateral! a-d ther 3al+e at the e-d #. the year ! calc+lated by +!-4
FIFO/ LIFO/ #r a-y #ther a3era4e ,eth#d!6 The "artc+lar ,eth#d ! ,+!t be
!+table t# acce!! the "artc+lar ra1 ,ateral!6
B) F9ed A!!et P#lcy7
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 1rtte- 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#.tablty #. the c#,"a-y ,+!t be better
c#,"are 1th the -d+!try6 The e..ce-cy #. the "r#.tablty "#!t#- #r
#"erat-4 act3te! 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
>?
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-cal year6 I-ca!e
#. ,#re "r#.t a-d le!! -+,ber #. !hare! EPS 1ll -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 SSSSSSSSSSSSSSSSSSSSSSSSS
Net 1#rth
5. D,B,5.15 &'+,/8%
>@
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 d3de-d "ay#+t rat# ! deter,-ed a! "er the d3de-d
! "ad6 D3de-d "#lce! are d3ded -t# t1# ty"e!6
a) Stable d3de-d "#lcy6
b) U-!table d3de-d "#lcy6
Whe- c#,"a-y reached t# #"t,+, le3el t ,ay .#ll#1 !table d3de-d
"#lcy t -dcate! !table 4r#1th rate/ -# .l+ct+at#- are e!t,ated6
U-!table d3de-d "#lcy ,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-cal
!#+rce! c#!t #. ca"tal ! calc+lated6
!. O&.(0),12 .**,/,.1/8%
It ! deter,-ed #- the ba!! #. ca"tal e9"e-dt+re a-d #"erat-4 act3te! #. a
c#,"a-y6 I-crea!ed ca"tal e9"e-dt+re -dcate! -crea!e #. #"erat-4 e..ce-cy6
E9"ected "r#.t! ,ay be -crea!ed -c#,-4 year!6 The #"erat-4 e..ce-cy #. a
c#,"a-y drectly a..ect! the ear--4! #. a c#,"a-y a- e9"a-d-4 c#,"a-y that
,a-ta-! h4h #"erat-4 e..ce-cy 1th l#1 brea2 e3e- "#-t6 E..ce-t +!e #.
.9ed a!!et! 1th ra1 ,ateral!/ 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 ! h4h - t#tal c#!t/ the .r, ! !ad t# ha3e a h4h de4ree
#. #"erat-4 le3era4e6 H4h de4ree #. #"erat-4 le3era4e ,"le! #ther .act#r! be-4
held c#-!ta-t/ a relat3ely !,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..ce-cy "la-/ #r4a-:e!/ act+ate a-d c#-tr#l the
act3te! #. the c#,"a-y6 The 4##d ,a-a4e,e-t de"e-d! #. the =+alte! #. the
,a-a4er6 J-##t: a-d O< D#--ell !+44e!t the .#ll#1-4 a! !"ecal trat! #. a- able
,a-a4er6
• Ablty t# 4et al#-4 1th "e#"le
• Leader!h"
• A-alytcal c#,"ete-cy
• I-d+!try
• J+d4,e-t6
1$.F,101/,0+ 010+8-,-%
The be!t !#+rce #. .-a-cal -.#r,at#- ab#+t a c#,"a-y ! t! #1- .-a-cal
!tate,e-t!6 Th! ! a "r,ary !#+rce #. -.#r,at#- .#r e3al+at-4 the -3e!t,e-t
"r#!"ect! - the "artc+lar c#,"a-yF
"#!t#- #. the +-t #3er a "er#d #. t,e6 Th! a-aly!! 43e! the -.#r,at#-
re4ard-4
• H#1 are the "r#.t! +tl:edH
• What are the 3ar#+! .-a-cal !#+rce! #. d3de-dH
• What are the 3ar#+! !#+rce! #. .-a-ce .#r ca"tal e9"e-dt+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..ce-tly the .r, ! +tl:-4 the "r#ceed! #. the !hare #r debe-t+re
!!+e #r .9ed de"#!t! ra!ed .r#, the "+blcH
,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 1th the hel" #. bala-ce !heet/
-c#,e !tate,e-t a-d !#,e addt#-al -.#r,at#-6 It ca- be ether "re"ared -
3ertcal .#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 Wth the hel" #. the!e !tate,e-t! the
-3e!t#r! ca- re3e1 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,atcally6 F-a-cal
rat# "r#3de! -+,ercal relat#-!h" bet1ee- t1# rele3a-t .-a-cal data6 F-a-cal
rat#! are calc+lated .r#, the bala-ce !heet a-d "r#.t a-d l#!! acc#+-t6 The
relat#-!h" ca- be ether e9"re!!ed a! a "erce-t #r a! a =+#te-t6 Cla!!.cat#- #.
.-a-cal rat#! ! a! .#ll#1!7
I6 L=+dty rat#!6
L=+dty rat# ,ea!+re the ablty #. the .r, t# ,eet t! c+rre-t #bl4at#-!
l=+dty rat#! by e!tabl!h-4 a relat#-!h" bet1ee- ca!h a-d #ther c+rre-t a!!et! t#
c+rre-t #bl4at#-!/ "r#3de =+c2 ,ea!+re #. l=+dty6 A .r, !h#+ld e-!+re that t
d#e! -#t !+..er .r#, lac2 #. l=+dty /a-d al!# that t d#e! -#t ha3e e9ce!! l=+dty the
>G
.al+re #. a c#,"a-y t# ,eet t! #bl4at#-! d+e t# lac2 #. !+..ce-t l=+dty/ 1ll re!+lt
- a "##r credt1#rth-e!!/ l#!! #. credt#r E6PECTED RETURNSAH2
@?
PORTFOLIO ANALYSIS
P#rt.#l#! 1hch are the c#,b-at#-! #. !ec+rte! ,ay #r ,ay -#t
ta2e the a44re4ate character!tc! #. ther -d3d+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! #. -d3d+al !ec+rte!6 A- -3e!t#r ca- !#,e t,e! red+ce "#rt.#l#
r!2 by add-4 a-#ther !ec+rty 1th 4reater -d3d+al r!2 tha- a-y #ther
!ec+rty - the "#rt.#l#6 Th! !ee,-4ly c+r#+! re!+lt #cc+r! beca+!e r!2
de"e-d! 4reatly #- the c#3ara-ce a,#-4 ret+r-! #. -d3d+al !ec+rte!6
A- -3e!t#r ca- red+ce e9"ected r!2 le3el #. a 43e- "#rt.#l# #. a!!et! .
he ,a2e! a "r#"er d3er!.cat#- #. "#rt.#l#!6
There are t1# ,a- a""r#ache! .#r a-aly!! #. "#rt.#l#
• Tradt#-al a""r#ach6
• M#der- a""r#ach6
TRADITIONAL PORTFOLIO APPROACH%
The tradt#-al a""r#ach ba!cally deal! 1th t1# ,a$#r dec!#-!6
Tradt#-al !ec+rty a-aly!! rec#4-:e! the 2ey ,"#rta-ce #. r!2 a-d
ret+r- t# the -3e!t#r6 M#!t tradt#-al ,eth#d! rec#4-:e ret+r- a! !#,e
d3de-d rece"t a-d "rce a""recat#- #3er a .#r1ard "er#d6 B+t the ret+r-
.#r -d3d+al !ec+rte! ! -#t al1ay! #3er the !a,e c#,,#- h#ld-4
"er#d/ -#r are the rate! #. ret+r- -ece!!arly t,e ad$+!ted6 A- a-aly!! ,ay
@@
1ell e!t,ate .+t+re ear--4! a-d a P5E rat# t# der3e .+t+re "rce6 He 1ll
!+rely e!t,ate the d3de-d6
I- a-y ca!e/ 43e- a- e!t,ate #. ret+r-/ the a-aly!t ! l2ely t# th-2
#. a-d e9"re!! r!2 a! the "r#bable d#1-!:e rce e9"ectat#- ( ether by
t!el. #r relat3e t# +"!de a""recat#- "#!!blte!)6each !ec+rty e-d! +"
1th !#,e r#+4h ,ea!+re! #. l2ely ret+r- a-d "#te-tal d#1-!de r!2 .#r
the .+t+re6
P#rt.#l#! #r c#,b-at#-! #. !ec+rte! are th#+4h #. a! hel"-4 t#
!"read r!2 #3er ,a-y !ec+rte! ,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 1th .re
!t#c2!/ +tlty !t#c2! d!"lay de.e-!3e "rce ,#3e,e-t relat3e t# the
,ar2et a-d cyclcal !t#c2! l2e !teel/ a-d !# #-6 Th! ! -#t t# !ay that
tradt#-al "#rt.#l# a-aly!! ! +-!+cce!!.+l6 It ! t# !ay that ,+ch #. t
,4ht be ,#re #b$ect3ely !"ec.ed - e9"lct ter,!6
They are7
• Deter,--4 the #b$ect3e! #. the "#rt.#l#
• Select#- #. !ec+rte! t# be -cl+ded - the "#rt.#l#6
N#r,ally th! ! carred #+t - .#+r t# !9 !te"!6 Be.#re .#r,+lat-4 the
#b$ect3e!/ the c#-!tra-t! #. the -3e!t#r !h#+ld be a-aly:ed6 Wth - the 43e-
.ra,e 1#r2 #. c#-!tra-t!/ #b$ect3e! are .#r,+lated6 The- ba!ed #- the #b$ect3e!
!ec+rte! are !elected6 A.ter that r!2 a-d ret+r- #. the !ec+rte! !h#+ld be !t+ded6
The -3e!t#r ha! t# a!!e!! the ,a$#r r!2 cate4#re! that he #r !he ! try-4 t#
,-,:e6 C#,"r#,!e #. r!2 a-d -#-Er!2 .act#r! ha! t# be carred #+t6 F-ally
relat3e "#rt.#l# 1e4ht! are a!!4-ed t# !ec+rte! l2e b#-d!/ !t#c2! a-d debe-t+re!
a-d the d3er!.cat#- ! carred #+t6
MODERN PORTFOLIO APPROACH%
The tradt#-al a""r#ach ! a c#,"rehe-!3e .-a-cal "la- .#r the -d3d+al
-eed! !+ch a! h#+!-4/ l.e -!+ra-ce a-d "e-!#- "la-!6 B+t the!e ty"e! #. .-a-cal
@A
"la---4 a""r#ache! are -#t d#-e - the Mar2#1t: a""r#ach6 Mar2#1t: 43e! ,#re
atte-t#- t# the "r#ce!! #. !elect-4 the "#rt.#l#6 H! "la---4 ca- be a""led ,#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""recat#-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 d3de-d6
The -3e!t#r -eed! ret+r- a-d t ,ay be ether - the .#r, #. ,ar2et ret+r- #r
d3de-d6
The -3e!t#r ! a!!+,ed t# ha3e the #b$ect3e! #. ,a9,:-4 the e9"ected ret+r-
a-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! ,"le! that -d3d+al! 1#+ld "re.er
the "#rt.#l# #. h4he!t e9"ected ret+r- .#r a 43e- le3el #. r!26 I- the ,#der-
a""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+rte! !+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- 1th ,-,+, r!2 ! called "#rt.#l# c#-!tr+ct#-6
M,1,3,I0),'1 '* (,-:-%
The c#,"a-y !"ec.c r!2! (+-!y!te,atc r!2!) ca- be red+ced by d3er!.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! l2e 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#+" l2e tea/ !+4ar "a"er/ ce,e-t/ !teel/ electrcty etc6 Each #. the, ha!
d..ere-t r!2 K ret+r- character!tc! a-d -3e!t,e-t! are t# be ,ade/ ba!ed #-
-d3d+al R,-: *(.. (0). '* (.)9(1
S# the CAPM atte,"t! t# ,ea!+re the r!2 #. a !ec+rty - the "#rt.#l# !e-!e6
A--93&),'1-%
The CAPM ,#del de"e-d! #- the .#ll#1-4 a!!+,"t#-!/ 1hch are t# be
c#-!dered 1hle calc+lat-4 rate #. ret+r-6
• The -3e!t#r! are ba!cally a3era4e r!2 a!!+,er! a-d
d3er!.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+rty6
• All -3e!t#r! a!!+,e -crea!e #. -et 1ealth #. the !ec+rty6
• 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+rty6
• All -3e!t#r! ha3e de-tcal e!t,at#- #. r!2 a-d ret+r- #. all
!ec+rte!6 All the !ec+rte! are d3!ble a-d tradable - ca"tal ,ar2et6
• Sy!te,atc 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 a3alable t# all the
-3e!t#r!6
A@
B.)0%
Beta de!crbed the relat#-!h" bet1ee- the !t#c2 ret+r- a-d the ,ar2et -de9
ret+r-!6 Th! ca- be "#!t3e a-d -e4at3e6 It ! the "erce-ta4e cha-4e ! the "rce #.
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 1ll lead t# #-e "erce-ta4e cha-4e -
"rce #. the !t#c26 I. beta ! C/ !t#c2 "rce ! +- related t# the ,ar2et -de9 . the
,ar2et 4#e! +" by a T8O/ the !t#c2 "rce 1ll .all by 8O beta ,ea!+re! the
!y!te,atc ,ar2et related r!2 / 1hch ca--#t be el,-ated by d3er!.cat#-6 I. the
"#rt.#l# ! e..ce-t/ Beta ,ea!+re! the !y!te,atc r!2 e..ect3ely6
E3al+at#- "r#ce!!7
86 R!2 ! the 3ara-ce #. e9"ected ret+r- #. "#rt.#l#6
;6 t1# ty"e! #. r!2 are a!!+,ed they are
o !y!te,atc r!2
o +-!y!te,atc r!2
>6 Sy!te,atc r!2 ! calc+lated by the -3e!t#r by c#,"ar!#- #. !ec+rty ret+r-
Wth ,ar2et ret+r-6
C#E3ara-ce #. !ec+rty a-d ,ar2et
V R SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
'ara-ce #. ,ar2et
H4her 3al+e #. beta -dcate! h4her !y!te,atc r!2 a-d 3ce 3er!a6 Whe- -+,ber
#. !ec+rte! ! h#ld by a- -3e!t#r/ c#,"#!te beta #r "#rt.#l# ca- be calc+lated by
the +!e #. 1e4ht! #. !ec+rty a-d -d3d+al beta6
?6 R!2 .ree rate #. ret+r- ! de-t.ed #- the ba!! #. the ,ar2et c#-dt#-!6
The .#ll#1-4 t1# ,eth#d! are +!ed .#r calc+lat#- #. ret+r- #. !ec+rty #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..ce-t "#rt.#l#6 Whe- the r!2 rate! #. ,ar2et a-d "#rt.#l# r!2 are
43e-/ e9"ected ret+r- #- !ec+rty #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+r-
W" R "#rt.#l# #. !ta-dard de3at#-
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+rty a-d r!2 .ree rate #. ret+r-6 Beta !
+!ed t# de-t.y the !y!te,atc 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- "ractcal "+r"#!e CAPM ca-
Th! ,eth#d ! al!# called %re1ard t# 3arablty %,eth#d6 Whe- ,#re tha- #-e
"#rt.#l# ! e3al+ated h4he!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 arth,etc 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/
1hch ! re"re!e-tat3e #. all the te,!6 The ,a- #b$ect3e #. a3era4-4 ! t# arr3e
at a !-4le 3al+e 1hch ! a re"re!e-tat3e #. the character!tc! #. the e-tre ,a!! #.
D?
data a-d arth,etc a3era4e #r ,ea- #. a !ere!(+!+ally de-#ted by 9) ! the 3al+e
#bta-ed by d3d-4 the !+, #. the 3al+e! #. 3ar#+! te,! - a !ere! (!4,a 9)
d3ded by the -+,ber #. te,! (N) c#-!tt+t-4 the !ere!6
Th+!/ . 08/0;NNNNN660- are the 43e- N #b!er3at#-!6 The-
0R 08T0;TNNN60-
N
RETURN
C+rre-t "rceE"re3#+! "rce Z8CC
Pre3#+! "rce
STANDARD DEVIATION%
The c#-ce"t #. !ta-dard de3at#- 1a! .r!t !+44e!ted by Jarl "ear!#-
- 8GF>6t ,ay be de.-ed a! the "#!t3e !=+are r##t #. the arth,etc ,ea- #. the
!=+are! #. de3at#-! #. the 43e- #b!er3at#-! .r#, ther arth,etc ,ea-6I- !h#rt
S6D ,ay be de.-ed a! %R##t Mea- S=+are De3at#- .r#, Mea-*
It ! by .ar the ,#!t ,"#rta-t a-d 1dely +!ed ,ea!+re #. !t+dy-4
d!"er!#-!6
F#r a !et #. N #b!er3at#-! 08/0;NN660- 1th ,ea- 0/
De3at#-! .r#, Mea-7 (08E0)/(0;E0)/N6(0-E0)
Mea-E!=+are de3at#-! .r#, Mea-7
R 85N (08E0);T(0;E0);TNNN6T(0-E0);
R85N !4,a(0E0);
R##tE,ea-E!=+are de3at#- .r#, ,ea-/6e6
VARIANCE%
The !=+are #. !ta-dard de3at#- ! 2-#1- a! 'ara-ce6
'ara-ce ! the !=+are r##t #. the !ta-dard de3at#-7
'ara-ce R (S6D) ;
Where/ (S6D) ! !ta-dard de3at#-
D@
CORRELATION
C#rrelat#- ! a !tat!tcal tech-=+e/ 1hch ,ea!+re! a-d a-aly!e! the de4ree
#r e9te-t t# 1hch t1# #r ,#re 3arable! .l+ct+ate 1th re.ere-ce t# #-e a-#ther6
C#rrelat#- th+! de-#te! the -terEde"e-de-ce a,#-4!t 3arable!6 The de4ree! are
e9"re!!ed by a c#e..ce-t/ 1hch ra-4e! bet1ee- K8 a-d T86 The drect#- #. cha-4e
! -dcated by (T) #r (E) !4-!6 The .#r,er re.er! t# a !y,"athetc ,#3e,e-t - a
!a,e drect#- a-d the later - the #""#!te drect#-6
Jarl Pear!#-A) are -cl+ded - the "#rt.#l# ba!2et6
HLL (86G\;6>?) Dr6 Reddy
!ec+rte! e9ce!! ret+r- t# beta rat#!are le!! tha- the c+tE#.. !# th#!e !ec+rte! are e9tr+ded .r#, the "#rt.#l#!6
DF
P'()*'+,' > B %
!ec+rt
e!
Ret+r-!
RO
Beta
3al+
e!
XVY
U-
Sy!te
,atc
r!2
W]e(O)
E9ce!!
Ret+r-
#3er ( V )
RER.5 V
( RER. ) V5
W]e
C+,+lat3e
( RER. ) V5
W]e
V]5
W] e
C+,+lat3e
V]5 W] e
^CR W,]_ ^ tR8
( RER. ) V5W]e
8TW,]_^tR8V]5W]e
Bhart
Artel
8?6; C6FF ;G 8C6@ C6;F;; C6;F;; C6C;FA C6C;FF ;68G
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G+$rat
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ICICI
Ba-2
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HDFC G68 C6GA 8?6F> ?6; C6;@GC 86?8;A C68GCF C6?DGG ;6?@
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INTERPRETATION%
The de!rabltyA)6 Whle !ec+rte! 88 B8; are le!!
tha- c+tE#.. rate !# .r#, !atya, c#,"+ter! t# NTPC all the 8C !ec+rte! are
-cl+ded - the "#rt.#l# a-d ONGC B TCS are -#t added - the #"t,al
"#rt.#l#6
Here #"t,al "#rt.#l# c#-!!t! #. !ec+rte! #. 8C c#,"a-e!6
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P'()*'+,' > C%
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Ret+r-!
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artel
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4+$rat
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ICICI
ba-2
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BHEL A C6AG ;C ?6;? C6C>?@ ;6>>GC C6C;>F 86?8CA 86@?FF
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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+rte!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!
a-aly!!6
? The -3e!t#r 1h# bear! h4h r!2 1ll be 4ett-4 h4h ret+r-!6
? The -3e!t#r 1h# ! ha3-4 #"t,+, "#rt.#l# 1ll be ta2-4 #"t,+, ret+r-!
1th ,-,+, r!26
? The -3e!t#r !h#+ld -cl+de all !ec+rte! 1hch are +-der 3al+ed - ther
"#rt.#l# a-d re,#3e th#!e !ec+rte! that are #3er 3al+ed6
? The -3e!t#r ha! t# ,a-ta- the "#rt.#l# #. d3er!.ed !ect#r! !t#c2! rather
tha- -3e!t-4 - a !-4le !ect#r #. d..ere-t !t#c2!6
? Pe#"le 1h# are -3e!t-4 - "#rt.#l#! ,#!tly de"e-d #- the ad3ce #. ther
.re-d!/ relat3e!/ .-a-cal ad3!er!6
? Pe#"le 4e-erally -3e!t ther !a3-4! - .9ed de"#!t!/ rec+rr-4 de"#!t!/ a-d
-at#-al !a3-4! cert.cate! a-d 4#3er-,e-t !ec+rte! a! they are le!! r!2y a-d the
ret+r-! are 4+ara-ted6
? M#!t #. the -3e!t#r -3e!t! - ba!c -ece!!te!6 They "la- t# -3e!t -
-!+ra-ce (LIC/ GIC) a-d "e-!#- .+-d a! the!e 43e 4+ara-ted ret+r-! a-d are le!!
r!2y6
? M#!t #. the -3e!t#r! .eel that -3t-4 - !t#c25ca"tal ,ar2et ! #. h4h r!2
there .#re they d#-
? Whe- c#,"ared t# #ther "#rt.#l#!/ "#rt.#l# C 43e! the ,a9,+, ret+r-
1th 8; !cr"t!6
? The d3er!.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 1th #ther "#rt.#l#!6
? I. the "#rt.#l# ,a-a4e,e-t ! e..ce-t a-d -3e!t#r ! r!2 t#lera-t "er!#- a-d
-3e!t,e-t ! the l#-4 ter, "er!"ect3e tha- t ! better t# -3e!t - the MIDK
Ca"! a-d SMALLECa"! c#,"a-e! !ec+rte!/ 1here the 4r#1th #. the ret+r-!
are h4her tha- the LARGEECa"!6
? I. -3e!t#r ! r!2 t#lera-t "er!#- a-d !h#rt ter, "er!"ect3e t ! 4##d t# -3e!t
- the LARGEECa"! c#,"a-e! !ec+rte!6
? I .eel that th! year !,all ca" a-d ,d ca" c#,"a-e! 1ll be "er.#r,-4 1ell
1he- c#,"ared t# the lar4eEca" a! 1e ha3e #b!er3ed la!t year6
SUGGESTIONS
F?
? Select the -3e!t,e-t! #- the ba!! #. ec#-#,c 4r#+-d!6
? B+y !t#c2 1th a d!"arty a-d d!cre"a-cy bet1ee- the !t+at#- #. the .r, E
a-d the e9"ectat#-! a-d a""ra!al #. the "+blc6
? B+y !t#c2! - c#,"a-e! 1th "#te-tal .#r !+r"r!e!6
? Ta2e ad3a-ta4e #. 3#latlty be.#re reach-4 a -e1 e=+lbr+,6
? L!te- t# r+,#r! a-d t"!/ chec2 .#r y#+r!el.6
? D#-