Pms Report

INDUSTRY PROFILE Journey of Indian stock market Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The earliest records of security dealings in India are meager and obscure. The East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the close of the eighteenth century. By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850. The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87). At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business. In 1887, they formally estab lished in Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively known as "The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it was

B.R.C.M. College of Business Administration, Surat

Sr. No. As on 31st December 194 6 196 1 197 1 197 5 198 0

1995 1 No. of Stock Exchanges 7

Growth Pattern of the Indian Stock Market 7 8 8 9 14 20 22


2 No. of Listed Cos. 112 5 120 3 159 2 9 155 226 5 4344 6229 8593 3 No. of Stock Issues of Listed Cos. 150 6 211 1 283 8 323 0 369 7 6174 8967 11784 4 Capital of Listed Cos. (Cr. Rs.) 270 753 181 2 261 4 397 3 9723 32041 59583 5 Market value of Capital of Listed Cos. (Cr. Rs.) 971 129 2 267 5 327 3 675 0

25302 11027 9 478121

6 Capital per Listed Cos. (4/2) (Lakh Rs.) 24 63 113 168 175 224 514 693 7 Market Value of Capital per Listed Cos. (Lakh Rs.) (5/2) 86

211 298 582 1770 COMPANY PROFILE 5564 8 Appreciate d value of Capital per Listed Cos. (Lakh Rs.) 358 ffd8ffe000104a46494600010201007300730000ffe20c584943435f5 170 0524f46494c4500010100000c484c696e6f021000006d6e747252474 148 126 22058595a2007ce00020009000600310000616373704d534654000 170 0000049454320735247420000000000000000000000000000f6d600 260 0100000000d32d4850202000000000000000000000000000000000 344 000000000000000000000000000000000000000000000000000000 803

000000001163707274000001500000003364657363000001840000 006c77747074000001f000000014626b70740000020400000014725 8595a00000218000000146758595a0000022c000000146258595a0 000024000000014646d6e640000025400000070646d6464000002c 400000088767565640000034c0000008676696577000003d400000 0246c756d69000003f8000000146d6561730000040c000000247465 6368000004300000000c725452430000043c0000080c67545243000 0043c0000080c625452430000043c0000080c746578740000000043 6f70797269676874202863292031393938204865776c6574742d506 1636b61726420436f6d70616e790000646573630000000000000012 735247422049454336313936362d322e3100000000000000000000 0012735247422049454336313936362d322e310000000000000000 00000000000000000000000000000000000000 Kotak Securities Limited

Kotak Securities Ltd., a subsidiary of Kotak Mahindra Bank Limited, is one of India’s largest private brokerage and distribution house, set up in 1994, by Mr. Uday Kotak; it has equity participation from Goldman Sachs L. I. P. (25%).

Kotak Securities is a corporate member of both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Its operations include stock broking, distribution of various Investment products – including private and secondary placement of debt and equity, mutual funds, fixed deposits and the like. Currently Kotak Securities is one of the largest broking houses in India with offices in more than fifteen cities. In India as well as a presence in US, Europe and the Middle East (through our associate companies Kotak Mahindra U.K. Limited and Kotak Mahindra International Limited, Kotak Mahindra Inc).

Our core strengths are our expertise in equity research and a wide retail distribution network. We have an outstanding research division involved in

macro – economic studies, industry and company specific equity research, with analyst specializing in particular economic sectors and large cap stocks.

In August 2000, Kotak Securities launched Kotakstreet.com, its e – broking service for retail investors on the net and currently has over 20,000 registered users.


Kotak Securities Limited is one of the larger players in distribution of IPOs -it was ranked number One in 2003-04 as Book Running Lead Manager in public equity offerings by PRIME Database. It has also won the Best Equity House Award from Finance Asia -April 2004.

The Company has a full-fledged Research division involved in macro economic studies, sectoral research and Company specific equity research combined with a strong and well networked sales force which helps deliver current and up-to-date market information and news.

Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) providing dual benefit services wherein the investors can use the brokerage services of the Company for executing the transactions and the depository services for settling them.

The Company has 113 branches servicing around 1,00,000 customers, through our own offices and a large franchisee network. It’s has an Online presence through Kotakstreet.com where we offer Internet Broking services and also online IPO and Mutual Fund Investments.

Kotak Securities Limited manages assets over Rs. 1700 crores through it’s Portfolio Management Services (PMS) servicing high net worth clients with a large investible surplus through its preferred client services in the mass affluent and wealth management segments.


OBJECTIVE OF THE STUDY

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To provide basic idea of different stock market investment instruments to investor.

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To provide knowledge to investor about various type of risk associated with various investment instruments.

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To provide investor knowledge about P\E, P\BV and Beta that would help them in selection of script and creation of portfolio.

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To help investor in learning about derivative instrument – future for the purpose of speculation and hedging .


METHODOLOGY OF THE PROJECT

Research problem: To identified the Stock Market Investment Avenue and methods to help investor in selection of script to create portfolio. And the measures of hedging the portfolio with the use of derivative instrument future.

Research design: Research design is exploratory as the basic objective is to identified the stocks and methods to create and protect portfolio.

Data collection:

Primary data : -Primary data are collected by my regularly tracking the stock price of various script selected

Secondary data :-Secondary data are collected from various journals , websites and financial news paper.


LIMITATIONS OF THE PROJECT

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The time duration given to complete the report was not sufficient.

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The report is basically is made between the horizon of two months and the situation of market is very dynamic so the conclusion or the return might not reflect the true picture.


ANALYSIS OF INVESTMENT

WHAT IS INVESTMENT? Investment is the activity, which is made with the objective of earning some sort of positive returns in the future. It is the commitment of the funds to earn future returns and it involves sacrificing the present investment for the future return. Every person makes the investment so that the funds he has increases as keeping cash with himself is not going to help as it will not generate any returns and also with the passage of time the time value of the money will come down. As the inflation will rise the purchasing power of the money will come down and this will result that the investor who does not invest will become more poor as he will not have any funds whose value have been increased. Thus every person whether he is a businessman or a common man will make the investment with the objective of getting future returns.

TYPES OF INVESTMENT: There are basically three types of investments from which the investors can choose. The three kinds of investment have their own risk and return profile and investor will decide to invest taking into account his own risk appetite. The main types of investments are:


Economic investments:

These investments refer to the net addition to the capital stock of the society. The capital stock of the society refers to the investments made in plant, building, land and machinery which are used for the further production of the goods. This type of investments are very important for the development of the economy because if the investment are not made in the plant and machinery the industrial production will come down and which will bring down the overall growth of the economy.

Financial Investments: This type of investments refers to the investments made in the marketable securities which are of tradable nature. It includes the shares, debentures, bonds and units of the mutual funds and any other securities which is covered under the ambit of the Securities Contract Regulations Act definition of the word security. The investments made in the capital market instruments are of vital important for the country economic growth as the stock market index is called as the barometer of the economy.

General Investments: These investments refer to the investments made by the common investor in his own small assets like the television, car, house, motor cycle. These types of investments are termed as the household investments. Such types of investment are important for the domestic economy of the country. When the demand in the domestic economy boost the over all productions and the manufacturing in the industrial sectors also goes up and this causes rise in the employment activity and thus boost up the GDP growth

B.R.C.M. College of Business Administration, Surat B.R.C.M. College of Business Administration, Surat

CHARACTERISICS OF INVESTMENT

Certain features characterize all investments. The following are the main characteristics features if investments:

1.Return: All investments are characterized by the expectation of a return. In fact, investments are made with the primary objective of deriving a return. The return may be received in the form of yield plus capital appreciation. The difference between the sale price & the purchase price is capital appreciation. The dividend or interest received from the investment is the yield. Different types of investments promise different rates of return. The return from an investment depends upon the nature of investment, the maturity period & a host of other factors.

2.Risk: Risk is inherent in any investment. The risk may relate to loss of capital, delay in repayment of capital, nonpayment of interest, or variability of returns. While some investments like government securities & bank deposits are almost risk less, others are more risky. The risk of an investment depends on the following factors.

The risk varies with the nature of investment. Investments in ownership securities like equity share carry higher risk compared to investments in 0 debt instrument like debentures & bonds. The longer the maturity period, the longer is the risk. 1 The lower the credit worthiness of t he borrower, the higher is

the risk.


3. Safety: The safet y of an investment implies the certa inty of return of capital without loss of money or time. Safety is another features which an investors desire for his investments. Every investor expects to get back his capital on maturity without loss & without delay.

4. Liquidity: An investment, which is easily saleable, or marketable without loss of money & without loss of time is said to possess liquidity. Some investments like company deposits, bank deposits, P.O. deposits, NSC, NSS etc. are not marketable. Some investment instrument like preference shares & debentures are marketable, but there are no buyers in many cases & hence their liquidity is negligible. Equity shares of companies listed on stock exchanges are easily marketable through the stock exchanges.

An investor generally prefers liquidity for his investment, safety of his funds, a good return with minimum risk or minimization of risk & maximization of return.


IMPORTANCE

In the current situation, investment is becomes necessary for everyone & it is important & useful in the following ways:

1. Retirement planning: Investment decision has become significant as people retire between the ages of 55 & 60. Also, the trend shows longer life expectancy. The earning from employment should, therefore, be calculated in such a manner that a portion should be put away as a savings. Savings by themselves do not increase wealth; these must be invested in such a way that the principal & income will be adequate for a greater number of retirement years. Increase in working population, proper planning for life span & longevity have ensured the need for balanced investments.

2. Increasing rates of taxation: Taxation is one of the crucial factors in any country, which introduce an element of compulsion, in a person’s saving. In the form investments, there are various forms of saving outlets in our country, which help in bringing down the tax level by offering deductions in personal income. For examples:


0 Unit linked insurance plan, 1 Life insurance, 2 National saving certificates, 3 Development bonds, 4 Post office cumulative deposit schemes etc.

3. Rates of interest: It is also an important aspect for sound investment plan. It varies between investment & another. This may vary between risky & safe investment, they may also differ due different benefits schemes offered by the investments. These aspects must be considered before actually investing. The investor has to include in his portfolio several kinds of investments stability of interest is as important as receiving high rate of interest.

4. Inflation: Since the last decade, now a day’s inflation becomes a continuous problem. In these years of rising prices, several problems are associated coupled with a falling standard of living. Before funds are invested, erosion of the resource will have to be carefully considered in order to make the right choice of investments. The inves tor will try & search outlets, which gives him a high rate of return in form of interest to cover any decrease due to inflation. He will also have to judge whether the interest or return will be continuous or there is a likelihood of irregularity. Coupled with high rate of interest, he will have to find an outlet, which will ensure safety of principal. Beside high rate of interest & safety of principal an investor also has to always bear in mind the taxation angle, the interest earned through investment should not unduly increase his taxation burden otherwise; the benefit derived from interest will be compensated by an increase in taxation.


5. Income: For increasing in employment opportunities in India., investment decisions have assumed importance. After independence with the stage of development in the country a number of organization & services came into being.

For example: The Indian administrative services, Banking recruitment services, Expansion in private corporate sector, Public sector enterprises, Establishing of financial institutions, tourism, hotels, and education.

More avenues for investment have led to the ability & willingness of working people to save & invest their funds.

6. Investment channels: The growth & development of country leading to greater economic activity has led to the introduction of a vast array of investment outlays. Apart from putting aside saving in savings banks where interest is low, investor have the choice of a variety of instruments. The question to reason out is which is the most suitable channel? Which media will give a balanced growth & stability of return? The investor in his choice of investment will give a balanced growth & stability of return? The investor in his choice of investment will have try & achieve a proper mix between high rates of return to reap the benefits of both.

For example: 0 Fixed deposit in corporate sector 1 Unit trust schemes.


INVESTMENTS AVENUES: There are various investments avenues provided by a country to its people depending upon the development of the country itself. The developed countries like the USA and the Japan provide variety of investments as compared to our country. In India before the post liberalization era there were limited investments avenues available to the people in which they could invest. With the opening up of the economy the number of investments avenues have also increased and the quality of the investments have also improved due to the use of the professional activity of the players involved in this segment. Today investment is no longer a process of trial and error and it has become a systematized process, which involves the use of the professional investment solution provider to play a greater role in the investment process.

Earlier the investments were made without any analysis as the complexity involved the investment process were not there and also there was no availability of variety of instruments. But today as the number of investment options have increased and with the variety of investments options available the investor has to take decision according to his own risk and return analysis.

An investor has a wide array of Investment Avenue. They are as under:


Financial Derivatives

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EQUITY SHARES:

Types of Equity Instruments: 

Ordinary Shares

Ordinary shareholders are the owners of a company, and each share entitles the holder to ownership privileges such as dividends declared by the company and voting rights at meetings. Losses as well as profits are shared by the equity shareholders. Without any guaranteed income or security, equity shares are a risk investment, bringing with them the potential for capital appreciation in return for the additional risk that the investor undertakes in comparison to debt instruments with guaranteed income.

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Preference Shares

Unlike equity shares, preference shares entitle the holder to dividends at fixed rates subject to availability of profits after tax. If preference shares are cumulative, unpaid dividends for years of inadequate profits are paid in subsequent years. Preference shares do not entitle the holder to ownership privileges such as voting rights at meetings.

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Equity Warrants

These are long term rights that offer holders the right to purchase equity shares in a company at a fixed price (usually higher than the current market price) within a specified period. Warrants are in the nature of options on stocks.


Classification in terms of Market Capitalisation Market capitalisation is equivalent to the current value of a company i.e. current market price per share times the number of outstanding shares. There are Large Capitalisation companies, Mid-Cap companies and Small-Cap companies. Different schemes of a fund may define their fund objective as a preference for Large or Mid or Small-Cap companies' shares. Large Cap shares are more liquid and hence easily tradable. Mid or Small Cap shares may be thought of as having greater growth potential. The stock markets generally have different indices available to track these different classes of shares.

Classification in terms of Anticipated Earnings In terms of the anticipated earnings of the companies, shares are generally classified on the basis of their market price in relation to one of the following measures: *

Price/Earnings Ratio is the price of a share divided by the earnings per share, and indicates what the investors are willing to pay for the company's earning potential. Young and/or fast growing companies usually have high P/E ratios. Established companies in mature industries may have lower P/E ratios. The P/E analysis is sometimes supplemented with ratios such as Market Price to Book Value and Market Price to Cash Flow per share.

•

Dividend Yield for a stock is the ratio of dividend paid per share to current market price. Low P/E stocks usually have high dividend yields. In India, at least in the past, investors have indicated a preference for the high dividend paying shares. What matters to fund managers is the potential dividend yields based on earnings prospects.


Based on companies' anticipated earnings and in the light of the investment management experience the world over, stocks are classified in the following groups: • Cyclical Stocks are shares of companies whose earnings are correlated with the state of the economy. Their earnings (and therefore, their share prices) tend to go up during upward economic cycles and vice versa. Cement or Aluminium producers fall into this category, just as an example. These companies may command relatively lower P/E ratios, and have higher dividend payouts. Growth Stocks are shares of companies whose earnings are expected to increase at rates that exceed normal market levels. They tend to reinvest earnings and usually have high P/E ratios and low dividend yields. Software or information technology company shares are an example of this type. Fund managers try to identify the sectors or companies that have a high growth potential. Value Stocks are shares of companies in mature industries and are expected to yield low growth in earnings. These companies may, however, have assets whose values have not been recognised by investors in general. Fund managers try to identify such currently undervalued stocks thatwith in their yield superior returns later. A brand cement company a lotopinion of real can estate and a company with good names are examples of potential value shares. B.R.C.M. College of Business Administration, Surat

FIXED INCOME SECURITIES Many instruments give regular income. Debt instruments may be secured by the assets of the borrowers as generally in case of Corporate Debentures, or be unsecured as is the case with Indian Financial Institution Bonds. A debt security is issued by a borrower and is often known by the issuer category, thus giving us Government Securities and Corporate Securities or FI bonds. Debt instruments are also distinguished by their maturity profile. Thus, instruments issued with short-term maturities, typically under one year, are classified as Money Market Securities. Instruments carrying longer than one-year maturities are generally called Debt Securities. Most debt securities are interest-bearing. However, there are securities that are discounted securities or zero-coupon bonds that do not pay regular interest at intervals but are bought at a discount to their face value. A large part of the interest-bearing securities are generally Fixed Income-paying, while there are also securities that pay interest on a Floating Rate basis.

A Review of the Indian Debt Market The Wholesale Debt Market segment deals in fixed income securities and is fast gaining ground in an environment that has largely focused on equities. The Wholesale Debt Market (WDM) segment of the Exchange commenced operations on June 30, 1994. This provided the first formal screen-based trading facility for the debt market in the country.


Year Market Capitalisation(Rs.crores) Number of Trades Net Traded Value (Rs.crores) AverageDaily Value(Rs.crores) AverageTrade Size (Rs.crores) 2005?2006 1,553,448 60,159 458,434.94 1 833.74

2004?2005 1,461,734 124,308 887,293.66 This segment provides trading facilities for a variety 3,028.31 of debt instruments 7.14 including Government Securities, Treasury Bills and Bonds issued by 2003?2004 1,215,864 Public Sector Undertakings/ Corporates/ Banks like Floating Rate Bonds, 189,518 Zero Coupon Bonds, Commercial Papers, 1,316,096.24 Certificate of Deposits, 4,476.52 Corporate Debentures, State Government loans, SLR and Non-SLR 6.94 2002?2003 Bonds issued by Financial Institutions, Units of Mutual Funds and 864,481 Securitized debt by banks, financial institutions, corporate bodies, trusts 167,778 1,068,701.54 3,598.32 6.37 Large investors and a2001?2002 high average trade value characterize this segment. 756,794 Till recently, the market was purely an informal market with most of the 144,851 trades directly negotiated and struck between various participants. The 947,191.22 3,277.48 commencement of this segment by NSE has brought about transparency 6.54 and efficiency to th e2000?2001 debt marke t, along with effective monitoring and 580,835 surveillance to the market. 64,470 428,581.51 1,482.98 6.65 1999?2000 and others.

494,033 46,987 304,216.24 1,034.75 6.47

1998?1999 411,470 16,092 105,469.13 364.95 6.55

1997?1998 343,191 16,821 111,263.28 377.16

1996?1997

6.61 292,772 7,804 42,277.59 145.28 5.42

1995?1996 207,783 2,991 11,867.68 B.R.C.M. College of Business Administration, Surat 40.78 3.97 1994?1995 158,181 1,021 6,781.15

6.64

Instruments in the Indian Debt Market Deposit


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Certificate of

Certificates of Deposit (CD) are issued by scheduled commercial banks excluding regional rural banks. These are unsecured negotiable promissory notes. Bank CDs have a maturity period of 91 days to one year, while those issued by FIs have maturities between one and three years.

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Commercial Paper

Commercial paper (CP) is a short term, unsecured instrument issued by corporate bodies (public & private) to meet short-term working capital requirements. Maturity varies between 3 months and 1 year. This instrument can be issued to individuals, banks, companies and other corporate bodies registered or incorporated in India. CPs can be issued to NRIs on non-repatriable and nontransferable basis.

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Corporate Debentures

The debentures are usually issued by manufacturing companies with physical assets, as secured instruments, in the form of certificates They are assigned a credit rating by rating agencies. Trading in debentures is generally based on the current yield and market values are based on yield-to-maturity. All publicly issued debentures are listed on exchanges.


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Floating Rate Bonds (FRB)

These are short to medium term interest bearing instruments issued by financial intermediaries and corporates. The typical maturity of these bonds is 3 to 5 years. FRBs issued by financial institutions are generally unsecured while those from private corporates are secured. The FRBs are pegged to different reference rates such as T-bills or bank deposit rates. The FRBs issued by the Government of India are in the form of Stock Certificates or issued by credit to SGL accounts maintained by the RBI.

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Government Securities

These are medium to long term interest-bearing obligations issued through the RBI by the Government of India and state governments. The RBI decides the cut-o ff coupon on the basis of bids received during auctions. There are issues where the rate is pre-specified and the investor only bids for the quantity. In most cases the coupon is paid semi-annually with bullet redemption features.

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Treasury Bills

T-bills are short-term obligations issued through the RBI by the Government of India at a discount. The RBI issues T-bills for different tenures: now 91 -days and 364-days. These treasury bills are issued through an auction procedure. The yield is determined on the basis of bids tendered and accepted.

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Bank/FI Bonds

Most of the institutional bonds are in the form of promissory notes transferable by endorsement and delivery. These are negotiable certificates, issued by the Financial Institutions such as the IDBI/ICICI/ IFCI or by commercial banks. These instruments have


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Public Sector Undertakings (PSU) Bonds

PSU Bonds are medium and long term obligations issued by public sector companies in which the government share holding is generally greater than 51%. Some PSU bonds carry tax exemptions. The minimum maturity is 5 years for taxable bonds and 7 years for tax-free bonds. PSU bonds are generally not guaranteed by the government and are in the form of promissory notes transferable by endorsement and delivery. PSU bonds in electronic form (demat) are eligible for repo transactions.

An investor can participant in various schemes floated by mutual fund instead of buying equity shares. In mutual funds invest in equity shares & ffd8ffe000104a4649460001020100c800c80000ffe20c584943435f50524f4649 4c4500010100000c484c696e6f021000006d6e74725247422058595a2007ce0 0020009000600310000616373704d5346540000000049454320735247420000 000000000000000000000000f6d6000100000000d32d4850202000000000000 000000000000000000000000000000000000000000000000000000000000000 000000000000000000001163707274000001500000003364657363000001840 000006c77747074000001f000000014626b707400000204000000147258595a 00000218000000146758595a0000022c000000146258595a000002400000001 4646d6e640000025400000070646d6464000002c40000008876756564000003 4c0000008676696577000003d4000000246c756d69000003f8000000146d656 1730000040c0000002474656368000004300000000c725452430000043c0000 080c675452430000043c0000080c625452430000043c0000080c74657874000 00000436f70797269676874202863292031393938204865776c6574742d5061 636b61726420436f6d70616e790000646573630000000000000012735247422 049454336313936362d322e3100000000000000000000001273524742204945 4336313936362d322e310000000000000000000000000000000000000000000 00000000000MUTUAL FUND SCHEMES fixed income securities. There are three broad types of mutual fund schemes. 

Growth schemes

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Income schemes

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Balanced schemes


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It is just like fixed income securities earn a fixed return. However, unlike fixed income securities, deposits are negotiable or transferable. The important types of deposits in India are: 

Bank deposits

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Company deposits

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It provides benefits to those who participate in them. The most important tax sheltered saving schemes in India is: fund scheme

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Public provident fund schemes

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Employee provident

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National saving

certificate

LIFE INSURANCE In a broad sense, life insurance may be viewed as an investment. Insurance premiums represent the sacrifice & the assured sum the benefit. In India, the important types of insurance polices are:

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Endowment assurance policy

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Money back policy

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Whole life policy

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Premium back term assurance policy



For the bilk of the investors the most important asset in their portfolio is a residential house. In addition to a residential house, the more affluent investors are likely to be interested in the following types of real estate: 

Agricultural land

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Semi-urban land

PRECIOUS OBJECTS It is highly valuable in monetary terms but generally they are small in size. The important precious objects are: stones

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Gold & silver

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Precious

Art objects

FINANCIAL DERIVATIVES

A financial derivative is an instrument whose value is derived from the value of underlying asset. It may be viewed as a side bet on the asset. The most import financial derivatives from the point of view of investors are: 

Options



Futures.


RISK – RETURN OF VARIOUS INVESTMENT AVENUES Every investment is characterized by return & risk. Investors intuitively understand the concept of risk. A person making an investment expects to get some return from the investment in the future. But, as future is uncertain, so is the future expected return. It is this uncertainty associated with the returns from an investment that introduces risk into an investment. Risk arises where there is a possibility of variation between expectation and realization with regard to an investment.

Meaning of Risk Risk & uncertainty are an integrate part of an investment decision. Technically ‘risk’ can be define as situation where the possible consequences of the decision that is to be taken are known. ‘Uncertainty’ is generally defined to apply to situations where the probabilities cannot be estimated. However, risk & uncertainty are used interchangeably.


Types of risks

1. Systematic risk: Systematic risk is non diversifiable & is associated with the securities market as well as the economic, sociological, political, & legal considerations of prices of all securities in the economy. The affect of these factors is to put pressure on all securities in such a way that the prices of all stocks will more in the same direction.

Example: During a boom period prices of all securities will rise & indicate that the economy is moving towards prosperity. Market risk, interest rate risk & purchasing power risk are grouped under systematic risk.

RISKS

SYSTAMATIC UNSYSTAMATIC 

Risk

Market Risk Business Risk





Interest Rate Risk Financial

Purchasing power Risk


1. Systematic Risk

(A) Market risk

Market risk is referred to as stock variability due to changes in investor’s attitudes & expectations. The investor reaction towards tangible and intangible events is the chief cause affecting ‘market risk’.

(B) Interest rate risk

There are four types of movements in prices of stocks in the markets. These may termed as (1) long term, (2) cyclical (bull and bear markets), (3) intermediate or within the cycle, and (4) short term. The prices of all securities rise or fall depending on the change in interest rates. The longer the maturity period of a security the higher the yield on an investment & lower the fluctuations in prices.

(C) Purchasing Power risk

Purchasing power risk is also known as inflation risk. This risk arises out of change in the prices of goods & services and technically it covers both inflation and deflation periods. During the last two decades it has been seen that inflationary pressures have been continuously affecting the Indian economy. Therefore, in India purchasing power risk is associated with inflation and rising prices in the economy.


2. Unsystematic Risk:

The importance of unsystematic risk arises out of the uncertainty surrounding of particular firm or industry due to factors like labour strike, consumer preferences and management policies. These uncertainties directly affect the financing and operating enviourment of the firm. Unsystematic risks can owing to these considerations be said to complement the systematic risk forces. (A) Business risk

Every corporate organization has its own objectives and goals and aims at a particular gross profit & operating income & also accepts to provide a certain level of dividend income to its shareholders. It also hopes to plough back some profits. Once it identifies its operating level of earnings, the degree of variation from this operating level would measure business risk.

Example: If operating income is expected to be 15% in a year, business risk will be low if the operating income varies between 14% and 16%. If the operating income were as low as 10% or as high as 18% it would be said that the business risk is high.

(B) Financial Risk:

Financial risk in a company is associated with the method through which it plans its financial structure. If the capital structure of a company tends to make earning unstable, the company may fail financially. How a company raises funds to finance its needs and growth will have an impact on its future earnings and consequently on the stability of earnings. Debt financing provides a low cost source of funds to a company, at the same time providing financial


leverage for the common stock holders. As long as the earnings of the company are higher than the cost of borrowed funds, the earning per share of common stock is increased. Unfortunately, a large amount of debt financing also increases the variability of the returns of the common stock holder & thus increases their risk. It is found that variation in returns for shareholders in levered firms (borrowed funds company) is higher than in unlevered firms. The variance in returns is the financial risk.

Managem ent Decision Required Investment Market Risk Business Risk Interest Risk Purchasing Power Risk H Growth stock B.R.C.M. College of Business Administration, Surat H H L L H Speculative common stock H H

M Blue chips M M Risk Return Of Various Investment Alternatives L L M Convertible referred stock M & the different option have So, there are so many investment options M different benefits & limitations in the sense L risk associated with it. So it is difficult for them to chose option, which Lgive maximum return at minimum L risk. Convertible debentures M

Meaning of portfolio:

M PORTFOLIO L

L L Corporate bonds L L H B.R.C.M. College of Business Administration, Surat H L Government bonds L L H H L Short-term bonds L L L H L Money market funds L L L H O Life insurance L L L H O Commercial banks L L L H O Unit trusts L L L M-H O Saving a/c L L

O Cash

Portfolio

L L L H

A combination of securities with different risk & return characteristics will constitute the portfolio of the investor. Thus, a portfolio is the combination of various assets and/or instruments of investments. The combination may have different features of risk & return, separate from those of the components. The portfolio is also built up out of the wealth or income of the investor over a period of time, with a view to suit his risk and return preference to that of the portfolio that he holds. The portfolio analysis of the risk and return characteristics of individual securities in the portfolio and changes that may take place in combination with other securities due to interaction among themselves and impact of each one of them on others.

An investor considering investments in securities is faced with the problem of choosing from among a large number of securities. His choice depends upon the risk and return characteristics of individual securities. He would attempt to choose the most desirable securities and like to allocate is funds over this group of securities. Again he is faced with the problem of deciding which securities to hold and how much to invest in each. The investor faces an infinite number of possible portfolios or groups of securities. The risk and return characteristics of portfolio differ from those of individual securities combining to form a portfolio. The investor tries to choose the optimal portfolio taking in to consideration the risk return characteristics of all possible portfolios.

As the economy and the financial environment keep changing the risk return characteristics of individual securities as well as portfolios also change. This calls for periodical review and revision of investment portfolios of investors. An investor invests his funds in a portfolio expecting to get a good return consistent with the risk


It is evident that rational investment activity involves creation of an investment portfolio. Portfolio management comprises all the processes involved in the creation and maintenance of an investment portfolio. It deals specifically with the security analysis, portfolio analysis, portfolio selection, portfolio revision and portfolio evaluation. Portfolio management makes use of analytical techniques of analysis and conceptual theories regarding rational allocation of funds. Portfolio management is a complex process which tries to make investment activity more rewarding and less risky.



Before designing a portfolio one will have to know the intention of the investor or the returns that the investor is expecting from his investment. This will help in adjusting the amount of risk. This becomes an important point from the point of view of the portfolio designer because if the investor will be ready to take more risk at the same time he will also get ffd8ffe000104a4649460001020100c800c80000ffe20c584943435f50524f4 6494c4500010100000c484c696e6f021000006d6e74725247422058595a2 007ce00020009000600310000616373704d534654000000004945432073 5247420000000000000000000000000000f6d6000100000000d32d485020 20000000000000000000000000000000000000000000000000000000000 00000000000000000000000000000000000001163707274000001500000 003364657363000001840000006c77747074000001f000000014626b7074 00000204000000147258595a00000218000000146758595a0000022c000 000146258595a0000024000000014646d6e640000025400000070646d64 64000002c400000088767565640000034c0000008676696577000003d40 00000246c756d69000003f8000000146d6561730000040c0000002474656 368000004300000000c725452430000043c0000080c675452430000043c0 000080c625452430000043c0000080c7465787400000000436f707972696 76874202863292031393938204865776c6574742d5061636b6172642043 6f6d70616e79000064657363000000000000001273524742204945433631 3936362d322e31000000000000000000000012735247422049454336313 936362d322e310000000000000000000000000000000000000000000000 00000000 more returns. This can be more appropriately understood from the figure drawn below.

From the above figure we can see that when the investor is ready to take risk of M 1, he is likely to get expected return of R 1, and if the investor is taking the risk of M2, he will be getting more returns i.e. R 2. So we can conclude that risk and returns are directly related with each other. As one increases the other will also increase in same of different proportion and same if one decreases the other will also decrease.


1Investors willing to take minimum risk and at the same time are also expecting minimum returns. 2Investors willing to take moderate risk and at the same time are also expecting moderate returns. 3Investors willing to take maximum risk and at the same time are also expecting maximum returns. B.R.C.M. College of Business Administration, Surat

PORTFOLIO – AGE RELATIONSHIP

Your age will help you determine what a good mix is / portfolio is

These aren't hard and fast allocations, just guidelines to get you thinking about how your portfolio should look. Your risk profile will give you more equities or more fixed income depending on your aggressive or Age conservative Portfoliobias. However, it's important to always have some equities in below 30 your portfolio (or equity funds) no matter what your age. If inflation roars 80% in stocks or mutual funds 10% in cash 10% in fixed income 30 t0 back, this40 will be the portion of your investments that protects you from the 70% in stocks or mutual funds 10% in cash 20% in fixed income damage, not 40 to 50 your fixed income. 60% in stocks or mutual funds 10% in cash 30% in fixed income 50 the to 60 Also, fixed income of your portfolio should be diversified. If you buy 50% in stocks or mutual funds 10% in cash 40% in fixed income bonds and debentures directly or if you invest in FDs, then make sure you above 60 40% in stocks or mutual fundsto10% in cash 50% in fixed have at least five different maturities spread out the interest rate income risk.


Diversifying in equities and bonds means more than buying a number of positions. Each position needs to be scrutinized as to how it fits into the stocks or bonds that already are in your portfolio, and how they might be affected by the same event such as higher intere st rates, lower fuel prices, etc. Put your portfolio together like a puzzle, adding a piece at a time, each one a little different from the other but achieving a uniform whole once the portfolio is complete.

Types of portfolio for study: In portfolio Design, we are considering only two types of portfolio. They are as follow: 1Random Portfolio 2Sector Portfolio

1. Random portfolio Random portfolio consists of the scripts that are randomly selected by the investor by its own knowledge and preference of the stocks. Here there is no analysis is done of the script, they are selected on the tips and buts received by the investors from the external sources.

Features of random portfolio There is no method used for selection of the script in the portfolio. Selection is based on the individual criteria for the scripts. • The investment is made for higher return in short term.


Generally in India most of the portfolio are selected according to this random methods as no investor himself in that much analysis of the script.

Advantages of random portfolio Easier to keep a track on the market as not much time wasted in the analysis. This portfolio seems to have perform better in short term as script are generally which are performing better at that time. Tips are available every where for the investor to pouch. It is the experience of the individual that can fetch him good return.

Disadvantages of random portfolio There is every chance that you may select a script that has a very bad background in the market. Not every time the tips pay off for you. You need to have strong reason to select that script. Such portfolios are not able to sustain when there is a crisis in the market. There is a very high risk and return involve in such portfolio. B.R.C.M. College of Business Administration, Surat

2. Sector specific portfolio Sector specific portfolio includes securities of those companies which are in the same business. Sector portfolios are very useful when there is a particular sector which is doing very good and has a bright future a head. Sector portfolio has the securities of those companies that engage in same kind of business. e.g. In late 1990’s secto r that was provi ding the highe st return was information technology. Investors who have invested their money in these securities had earned very high return.

Features of sector portfolio Script form the same group of companies that are in to the similar type of business. Maximum exposure to the industry/sector. So any news or event has the direct effect on the portfolio. Risk regarding the portfolio increases as it is expose to sector specific ups and downs. Useful investment tools for speculator and short-sellers. It is better suited for the sectors which have been providing good revenue in the near past.

Advantages of sector portfolio It is better suited to investors who are willing to take risk. It provides better short term return then other portfolios. It is easy to keep a watch on one sector rather than many. You can have a good command over the things happening. Limited exposure to other sectors keeps the portfolio safe from the performance of other sectors in the economy. B.R.C.M. College of Business Administration, Surat

Disadvantages of sector portfolio It is a highly risky portfolio as risk associated with the sector directly affects the performance of the portfolio. These types of portfolios are not suited for long-term investor as risk taken for the return can be too high. There is always the possibly many scripts in the sector may not be giving that much good attractive return as others. They may eat the profits from other scripts.


Book value is based on historical costs, not current values, but can provide an important measure of the relative value of a company over time. Book value can be figured as assets minus liabilities, or assets minus liabilities and intangible items such as goodwill; either way, the figure that results is the company's net book value. This is contrasted with its market capitalization, or total share price value, which is calculated by multiplying the outstanding shares by their current market price. You can also compare a company's market value to its book value on a per-share basis. Divide book value by the number of shares outstanding to get book value per share and compare the result to the current stock price to help determine if the company's stock is fairly valued. Most stocks trade above book value because investors believe that the company will grow and the value of its shares will, too. When book value per share is higher than the current share price, a company's stock may be undervalued and a bargain to investors. In case of our sensex as we can see that it is currently trading at a P/B ratio of 4.41 this shows the average P/B ratio prevailing in the market. So any script trading below the P/B of 4.41 can said to be under valued if we keep the BSE SENSEX as bench mark. But it would be advisable for an investor to also look at the sector leaders P/B ratio to know what is the common industry P/B and based on that he can decide about whether to invest in the company or not. As such there is no guarantee that low P/B would able to give better return but this stocks are considered to be undervalued so one can think that this companies are undervalued so chances of appreciation are very high in case of low P/B scrip. Such companies having low P/B ratio can be considered as value stock and one can thin about investing in those companies.


The P/E ratio as a guide to investment decisions Earnings per share alone mean absolutely nothing. In order to get a sense of how expensive or cheap a stock is, you have to look at earnings relative to the stock price and hence employ the P/E ratio. The P/E ratio takes the stock price and divides it by the last four quarters' worth of earnings. If AB ltd is currently trading at Rs. 20 a share with Rs. 4 of earnings per share (EPS), it would have a P/E of 5. Big increase in earnings is an important factor for share value appreciation. When a stock's P-E ratio is high, the majority of investors consider it as pricey or overvalued. Stocks with low P-E's are typically considered a good value. However, studies done and past market experience have proved that the higher the P/E, the better the stock.

First, one can obtain some idea of a reasonable price to pay for the stock by comparing its present P/E to its past levels of P/E ratio. One can learn what is a high and what is a low P/E for the individual company. One can compare the P/E ratio of the company with that of the market giving a relative measure. One can also use the average P/E ratio over time to help judge the reasonableness of the present levels of prices. All this suggests that as an investor one has to attempt to purchase a stock close to what is judged as a reasonable P/E ratio based on the comparisons made. One must also realize that we must pay a higher price for a quality company with quality management and attractive earnings potential.

In the case if we look at the benchmark of BSE sensex on 1 st of December it is trading at a P/E of 24.49. So if we just keep the benchmark P/E in mind then we can say that any stock which is trading bellow the P/E of 24.49 is available cheaply. But for an investor it is also advisable to look at the industry P/E as it is more important because just looking at the above position we can see


that SBI is trading at a very low P/E of around 8 but if you see that in banking sector that to public sector banks the normal industry P/E is 8 all most all banks are trading around 8 or bellow the P/E of 8.

So always it is advisable to look at what is the P/E of industry in which we want to invest to get the better idea, because if we take the example of IT industry there almost you will find companies around P/E of 30. so if any IT company having of P/E would considered to be a cheap option for the investor to invest in to. So the investor should also look at the industry average P/E. The new investor can know about the industry P/E or any other companies P/E in any financial magazine or from the internet also if he does not know how to calculate the P/E or is not having the data available with them.

The formula for calculating the P/E ratio is

P/E = Current Market Price Earning Per S hare


RANDOM PORTFOLIO Random portfolio consists of the scripts that are randomly selected by the investor by its own knowledge and preference of the stocks. Here there is no analysis is done of the script, they are selected on the tips and buts received by the investors from the external sources. We are considering BETA factor to design our Random Portfolio.

Beta Factor “Beta” indicates the proportion of the yield of a portfolio to the yield of the entire market (as indicated by some index). If there is an increase in the yield of the market, the yield of the individual portfolio may also go up. If the index goes up by 1.5% and the yield of your portfolio goes up by 0.9%, the beta is 0.9/1.5 i.e 0.6. in other words, beta indicates that for every 1 % increase in the market yield, the yield of the portfolio goes up by 0.6%. High beta shares do move higher than the market when the market rises and the yield of the fund declines more than the yield of the market when the market falls. In the Indian context a beta of 1.2% is considered very bullish. You can be indifferent to market swings if you know your stocks well. Or you can put your portfolio into neutral or bias for the upside if you're bullish or a little for the downside if you're bearish. One way to do that is to have a mix of stocks that have certain betas in your portfolio. When investors are bullish on the market, they like to have high beta stocks in their portfolios because if they're right, then their stocks go up faster than the market in general, and their performance is better than the market. If investors are bearish on the market, then they use the low beta or negative beta stocks because their portfolios will go down less than the market and their performance will be better than the general market. And if they want to be neutral, they can then make sure that they have stocks with a


beta of 1 or develop a portfolio that has stocks with betas greate r than 1 and less than 1 so that they have the whole portfolio with an average beta of 1. A beta for a stock is derived from historical data. This means it has no predictive value for the future, but it does show that if the stock continues to have the same price patterns relative to the market in general as it has in the past, you've got a way of knowing how your portfolio will perform in relation to the market. And with a portfolio with an average beta of 1, you can create your own index fund since you'll move more or less in tandem with the market.


SO BASED ON THIS BETA NOW WE WILL PREPARE THREE PORTFOLIO TO MATCH THE RISK TAKING CAPACITY OF AN INVESTOR

THAT IS PORTFOLIO

AGGRESSIVE MODERATE DEFENSIVE ffd8ffe000104a4649 460001020100c800c8 0000ffe20c584943435 f50524f46494c450001 0100000c484c696e6f0 21000006d6e7472524 7422058595a2007ce0


002000900060031000 0616373704d5346540 000000049454320735 247420000000000000 000000000000000f6d 6000100000000d32d4 850202000000000000 000000000000000000 000000000000000000 000000000000000000 000000000000000000 000000000001163707 274000001500000003 364657363000001840 000006c77747074000 001f000000014626b7 074000002040000001 47258595a000002180 00000146758595a000 0022c0000001462585 95a000002400000001 4646d6e64000002540 0000070646d6464000 002c40000008876756 5640000034c0000008 676696577000003d40 00000246c756d69000 003f8000000146d656 1730000040c0000002 474656368000004300 000000c72545243000 0043c0000080c67545 2430000043c0000080 c625452430000043c0 000080c74657874000 00000436f707972696 768742028632920313 93938204865776c657 4742d5061636b61726 420436f6d70616e790 000646573630000000 000000012735247422 049454336313936362 d322e3100000000000 000000000001273524 742204945433631393 SR NO. 6362d322e310000000 SCRIPT 000000000000000000 BETA 000000000000000000

ffd8ffe000104a 4649460001020 100c800c80000 ffe20c58494343 5f50524f46494c 4500010100000 c484c696e6f02 1000006d6e747 2524742205859 5a2007ce00020 0090006003100 00616373704d5 3465400000000 4945432073524 7420000000000 0000000000000 00000f6d60001 00000000d32d4 8502020000000 0000000000000 0000000000000 0000000000000 0000000000000 0000000000000 0000000000000 0000000000116 3707274000001 5000000033646 5736300000184 0000006c77747 074000001f000 000014626b707 4000002040000 00147258595a0 0000218000000 146758595a000 0022c00000014 6258595a00000 2400000001464 6d6e640000025 400000070646d 6464000002c40 0000088767565 640000034c000 0008676696577 000003d400000

0246c756d6900 0003f80000001 46d6561730000 040c000000247 4656368000004 300000000c725 452430000043c 0000080c67545 2430000043c00 00080c6254524 30000043c0000 080c746578740 0000000436f70 7972696768742 0286329203139 3938204865776 PRICE ON 2-01-2006 00000000000 c6574742d5061

ACC 0.72 530.45 9.68 DEFENSIVE PORTFOLIO 2 CIPLA 0.78 440.00 10.48 3 = 10,00,000 Rs. Total Portfolio Investment DR REDDY 0.69 963.00 9.27 Total Portfolio Beta = Wi * BETA =6.97 4 +8.18+6.40+7.76+7.76 GRASIM +8.82+6.40+8.60+9.04+5.00 = 74.93 ~ 75

0.76 1375.3 10.22 5 HDFC BANK 0.76 713.45 10.22 6 ITC 0.81 140.10 10.89 7 RANBUXY B.R.C.M. College of Business Administration, Surat 0.69 444.35 9.27 8 HERO HONDA 0.8 846.10 10.75 9 HDFC 0.82 1191.3 11.02 10 GLAXO 0.61 1111.6 8.20

SR NO. SCRIPT BETA 2-01-2006 31-01?06 RETURN IN % 1 ACC 0.72 530.45 574.20 8.25 2 CIPLA 0.78

442.25 0.51 3 DR SRREDDY NO. 0.69 SCRIPT 963.00 BETASCRIPTS 1ST MONTH RETURN ON INDIVIDUAL 1121.25 2-01-06 16.43 28-02-06 4 IN % RETURN 2NDGRASIM MONTH 1 ACC 0.76 1375.30 0.72 1454.25 530.45 B.R.C.M. College of Business Administration, Surat 5.74 626.30 5 18.07 HDFC BANK 2 CIPLA0.76 713.45 0.78 762.45 440.00 6.87 552.15 6 25.49 ITC 3 0.81 DR REDDY 140.10 0.69 154.80 963.00 10.49 1306.10 7 35.63 RANBUXY 4 0.69 GRASIM 444.35 0.76 399.40 1375.30 -10.12 1742.60 8 26.71 HERO 5 HONDA HDFC0.80 BANK 846.10 0.76 857.20 713.45 1.31 737.15 9 3.32 HDFC 6 ITC 0.82 1191.30 0.81 1339.70 140.10 12.46 172.45 10 23.09 GLAXO 7 0.61 RANBUXY 1111.60 1282.80 0.69 444.35 15.40 429.50 -3.34 8 HERO HONDA 0.80 846.10 889.30 5.11 9 HDFC 0.82 1191.30 1365.65 14.64 10

. 1111.60 1315.55 18.35

RETURN IN DEFENSIVE PORT FOLIO

TOTAL PORTFOLIO INVESTMENT = 10,00,000 VALUE OF PORTFOLIO AS ON 28-02-2006 = 1166628.41

TOTAL RETURN ON PORTFOLIO = 1166628.41 -1000000 =

166628.41

TOTAL RETURN IN % TERM = 16.66 %


SR NO. SCRIPT BETA

1 BHARTI 0.99 340.05 MODRATE PORTFOLIO 10.73 2 GUJARAT AMBUJA 0.86 79.30 Total Portfolio Investment = 10,00,000/- Rs. 9.32 3 BAJAJ AUTO 0.85 Total Portfolio Beta = Wi * BETA 450.05= 10.62 + 9.21 4 8.01+7.83+8.39+10.83+ 8.01+8.58+8.78+10.83+10.83 = HLL 92.72 ~ 93 0.88 195.10 9.53 5 HINDALCO 1.00 146.20 10.83 6 LT 0.86 B.R.C.M. College of Business Administration, Surat 1825.65 9.32 7 MTNL

0.89 142.15 9.64 8

ZEE 0.90 157.90 9.75 9 BHEL 1.00 1389.90 10.83 10 PNB 1.00 SR NO. 472.00 SCRIPT 10.83 BETA 2-01-2006 31-01?06 RETURN IN % 1 BHARTI 0.99 340.05 357.25 5.06% 2 GUJARAT AMBUJA 0.86 79.30

11.66% 3 BAJAJ AUTO SR NO. 0.85 SCRIPT 450.05 BETA RETURN ON INDIVIDUAL SCRIPTS 1ST MONTH 513.25 2-01?2006 14.04% 28-02?06 4 ND RETURN HLL IN % 2 MONTH 1 0.88 BHARTI 195.10 0.99 195.25 340.05 0.08% 361.05 5 B.R.C.M. College of Business Administration, Surat 6.18% HINDALCO 2 1.00 GUJARAT 146.20 AMBUJA 0.86 164.80 79.30 12.72% 88.30 6 11.35% LT 3 0.86 BAJAJ AUTO 1825.65 0.85 2172.10 450.05 18.98% 550.10 7 22.23% MTNL 4 0.89 HLL 142.15 0.88 141.70 195.10 -0.32% 243.70 8 24.91% ZEE 5 0.90 HINDALCO 157.90 1.00 164.70 146.20 4.31% 153.35 9 4.89% BHEL 6 1.00 LT 1389.90 0.86 1795.60 1825.65 29.19% 2396.95 10 31.29% PNB 7 1.00 MTNL 472.00 0.89 465.35 142.15 -1.41% 142.65 0.35% 8 ZEE 0.90 157.90 196.60 24.51% 9 BHEL 1.00 1389.90 2027.00 45.84% 10 PNB

472.00 442.10 -6.33% RETURN IN MODRATE PORT FOLIO

TOTAL PORTFOLIO INVESTMENT = 10,00,000/- Rs.. VALUE OF PORTFOLIO AS ON 28-02-2006 = 1162912.70/- Rs.

TOTAL RETURN ON PORTFOLIO = 1162912.70 Rs. -1000000 Rs. = 162912.70 Rs.



SR NO. SCRIPT BETA PRICE ON 2-01-2006

ICICI BANK LTD 1.09 597.00 9.64 AGGRESSIVE PORTFOLIO 2 INFOSYS 1.07 2979.35 9.46 Total Portfolio Investment = 10,00,000/-Rs. 3 ONGC 1.02 1191.65 Total Portfolio Beta = Wi * BETA 9.02=10.50+10.12+9.20+9.75+13.38+ 4 10.50+10.89+12.52+11.29+15.64 = 113.80 ~ 114 RELIANCE 1.05 441.05 9.28 5 SATYAM 1.23 731.55 10.88 6 SBIN 1.09 904.90 9.64 B.R.C.M. College of Business Administration, Surat 7 TATA POWER 1.11 434.20 9.81 8 TATA MOTER 1.19 639.55 10.52 9 TATA STEEL 1.13 379.00 9.99 10 WIPRO 1.33 461.70 11.76

SR NO. SCRIPT BETA 2-01-2006 31-01?06 RETURN IN % 1 ICICI BANK LTD 1.09 597.00 609.25 2.05 2 INFOSYS

. 2880.30 -3.32 3 ONGC SR NO. ST 1.02 RETURN ON INDIVIDUAL SCRIPT SCRIPTS 1 MONTH 1191.65 BETA 1237.30 2-01-2006 3.83 28-02?06 4 RETURN IN % 2NDRELIANCE MONTH 1 1.05 ICICI BANK LTD 441.05 1.09 480.15 597.00 8.87 615.25 B.R.C.M. College of Business Administration, Surat 5 SATYAM 3.06 2 1.23 INFOSYS 731.55 1.07 746.75 2979.35 2.08 2828.95 6 -5.05 SBIN 3 1.09 ONGC 904.90 1.02 886.35 1191.65 -2.05 1136.40 7 -4.64 TATA POWER 4 1.11 RELIANCE 434.20 1.05 471.80 441.05 8.66 500.55 8 13.49 TATA MOTER 5 1.19 SATYAM 639.55 1.23 708.45 731.55 10.77 769.65 9 5.21 TATA STEEL 6 1.13 SBIN 379.00 1.09 404.45 904.90 6.72 877.50 10 -3.03 WIPRO 7 1.33 TATA POWER 461.70 1.11 529.70 434.20 14.73 511.20 17.73 8 TATA MOTER 1.19 639.55 816.20 27.62 9 TATA STEEL 1.13 379.00 431.00 13.72

1.33 461.70 520.45 12.72

RETURN IN AGGRESSIVE PORT FOLIO

TOTAL PORTFOLIO INVESTMENT = 10,00,000/-Rs. VALUE OF PORTFOLIO AS ON 28-02-2006 =10,84,397.28/- Rs.

TOTAL RETURN ON PORTFOLIO = 1084397.28 Rs -1000000Rs = 84397.28 Rs.



Interpretation of Random Portfolio As in the theoretical way we have scene that the Beta shows the movement or change in the price of script vis-à-vis index. And a Beta >1 is more riskier and hence should give more return as compared to the script having Beta < 1. as the person is taking more risk then he should get more return. But in our case we have scene that Moderate portfolio having Beta < 1 has given more return as compared to Aggressive Portfolio.

So we can easily say that the investment in equity market is subject to market risk and any one having long-term investment horizon should only enter into equity market. This analysis that has been carried out was only for a period of two month there are chances that in the long run aggressive portfolio would outperform the other portfolio B.R.C.M. College of Business Administration, Surat

DERIVATIVES Derivatives is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex or commodity or any other asset. For example, wheat farmer may wish to sell their harvest at a future date to eliminate the risk of a change in prices by the date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the ‘underlying”.

In the Indian context the Securities Contracts (Regulation) Act. 1956 (SC(R)A) defines “derivative” to include – 1A security derived from a debts instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security. 2A contract, which derives its value from the prices, or index of price, of underlying securities. The derivatives are securities under the (SC(R)A) and hence the trading of derivatives is governed by the regulatory framework under the (SC(R)A).


TYPES OF DERIVATIVES

The most commonly used types of derivatives are as follows: Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at today’s pre-agreed price. o

Futures: A future contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Future contracts are special types of forward contract in the sense that the former are standardized exchange-traded contracts.

o

Options: Options are of two types – call and put. Calls give the buyer the right but not the obligation to buy a gives quantity of the underlying asset, at a given price on or before a given future date. Plus give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. o


INTRODUCTION TO FUTURE Future markets were designed to solve the problems that exist in forward markets. A future contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. But unlike forward contracts, the future contracts are standardized and exchange traded. To facilitate liquidity in the future contracts, the exchange specifies certain standard features of the contract. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or which can be used for reference purpose in settlement) and a standard time of such settlement. A future contract may be offset prior to maturity by entering into an equal and opposite transaction. More than 99% of future transactions ate offset this way.

The standardized items in a future contract are: Quantity of the underlying. Quality of the underlying. The date and the month of delivery. The units of price quotation and minimum price change. Location of settlement. FEATURES OF A FUTURE CONTRACT Future contracts are organized / standardized contracts, which are traded on the exchanges. These contracts, being standardized and traded on the exchanges are very liquid in nature. In futures market, clearing corporation/ house provides the settlement guarantee. B.R.C.M. College of Business Administration, Surat

ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 000104 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 6494600 6494600 6494600 6494600 6494600 6494600 6494600 6494600 6494600 6494600 a46494 6494600 6494600 6494600 6494600 6494600 6494600 0102010 0102010 0102010 0102010 0102010 0102010 0102010 0102010 0102010 0102010 600010 0102010 0102010 0102010 0102010 0102010 0102010 0c800c8 0c800c8 0c800c8 0c800c8 0c800c8 0c800c80 0c800c8 0c800c8 0c800c8 0c800c80 20100c 0c800c8 0c800c8 0c800c8 0c800c8 0c800c8 0c800c8 are Future contracts often 0000ffe2 0000ffe2 0000ffe2 0000ffe2 0000ffe2 000ffe20c 0000ffe2 0000ffe2 0000ffe2 000ffe20 800c80 0000ffe2 0000ffe2 0000ffe2 0000ffe2 0000ffe2 0000ffe2 confused with 0c58494 0c58494 0c58494 0c58494 0c58494 5849434 0c58494 0c58494 0c58494 c584943 000ffe2 0c58494 0c58494 0c58494 0c58494 0c58494 0c58494 future 3435f50 3435f505 3435f50 3435f505 3435f505 35f50524 3435f50 3435f50 3435f505 435f5052 0c5849 3435f505 3435f505 3435f50 3435f505 3435f505 3435f50 confusion is contracts. 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College of Business Administration, 000000d 00d32d4 000000d 00d32d4 00d32d4 2d48502 000000d 000000d 00d32d4 0d32d48 000000 00d32d4 00d32d4 000000d 00d32d4 00d32d4 000000d Surat Mechanism Operational 32d4850 8502020 32d4850 8502020 8502020 0200000 32d4850 32d4850 8502020 5020200 000000 8502020 8502020 32d4850 8502020 8502020 32d4850 Not traded on exchange 2020000 0000000 2020000 0000000 0000000 0000000 2020000 2020000 0000000 0000000 000000 0000000 0000000 2020000 0000000 0000000 2020000 Traded on exchange 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0f6d600 0000000 0000000 0000000 0000000 0000000 0000000 Contract Specifications 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 010000 0000000 0000000 0000000 0000000 0000000 0000000 Differs from trade0000000 to trade. 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000d3 0000000 0000000 0000000 0000000 0000000 0000000 Contracts are standardized contracts. 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 2d4850 0000000 0000000 0000000 0000000 0000000 0000000 Counterparty Risk0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 202000 0000000 0000000 0000000 0000000 0000000 0000000 Exists 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 0000000 0000000 0000000 Exists, but assumed by Clearing Corporation/ house. 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 0000000 0000000 0000000 Liquidation Profile0000000 Poor Liquidity as contracts 0000000 0000000 0000000 0000000 0000000 0000000 are 0000000 0000000 tailor 0000000 0000000 000000 0000000 maid 0000000 0000000 0000000 contracts. 0000000 0000000 Very high Liquidity0000000 as0000000 contracts are standardized contracts. 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 0000000 0000000 0000000 Price Discovery 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 0000000 0000000 0000000 Poor; as markets are fragmented. 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 0000000 0000000 0000000 uncertainty. futures are

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7258595 95a0000 7258595 95a0000 95a0000 0002180 7258595 7258595 95a0000 5a00000 840000 95a0000 95a0000 7258595 95a0000 95a0000 7258595

Spot Price: The price at which an asset trades in the spot market.

Future Price: The price at which the future contracts trades in the market.

Contract Cycle: The period over which a contract trades. The index futures contracts on the NSE have one-month, two-months and threemonths expiry cycle, which expire on the last Thursday of the month. Thus a January expiration contract would expire on the last Thursday of January and a February expiration contract would cease trading on the last Thursday of February. On the Friday following the last Thursday, a new contract having a three-month expiry would be introduced for trading.

Expiry Date: It is the date specified in the future contract. This is the last day on which the contract will be traded, at the end of which it will cease to exist.

Contract Size: The amount of asset that has to be delivered under one contract. For instance, the contract size on NSE’s futures market is 200 Nifties.

Basis: Basis is usually defined as the spot price minus the future price. There will be a different basis for each delivery month for each contract. In a normal market, basis will be negative. This reflects that futures prices normally exceed spot prices. Cost of Carry: The relationship between futures prices and spot prices can be summarized in terms of what is known as B.R.C.M. College of Business Administration, Surat

the cost of carry. This measures the storage cost plus the interest that is paid to finance the asset less the income earned on the asset. Initial Margin: The amount that must be deposited in the margin account at the time a futures contract is first entered into is known as initial margin.

Marking-to-Market: In the future market, at the end of each trading day, the margin account is adjusted to reflect the investor’s gain or loss depending upon the futures closing price. This is called marking-tomarket. Maintenance Margin: This is somewhat lower than the initial margin. This is set to ensure that the balance in the margin account never becomes negative. If the balance in the margin account falls below the maintenance margin, investor receives a margin call and is expected to top up the margin account to the initial level before trading commences on the next day. B.R.C.M. College of Business Administration, Surat

At a

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000000 000000d 000000d 000000d 00d32d4 000000d 00d32d4 00d32d4 2d48502 00d32d4 000000d 000000d 000000000 000000d 00000000 000000d 00d32d4 000000d 00d32d4 00d32d4 000000d 2d48502 00d32d4 00d32d4 00000000 00d32d4 000000d 000000d 000000 00d32d4 00d32d4 2d48502 646d6464000 002c40000008 000000 32d4850 32d4850 32d4850 8502020 32d4850 8502020 8502020 0200000 8502020 32d4850 32d4850 000000000 32d4850 00000000 32d4850 8502020 32d4850 8502020 8502020 32d4850 0200000 8502020 8502020 00000000 8502020 32d4850 32d4850 000000 8502020 8502020 0200000 87675656400 000000 2020000 2020000 2020000 0000000 2020000 0000000 0000000 0000000 0000000 2020000 2020000 000000000 2020000 00000000 2020000 0000000 2020000 0000000 0000000 2020000 0000000 0000000 0000000 00000000 0000000 2020000 2020000 000000 0000000 0000000 0000000 00034c000000 0f6d600 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000000 0000000 00000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 00000000 0000000 0000000 0000000 0f6d600 0000000 0000000 0000000 86766965770 00003d40000 010000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000000 0000000 00000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 00000000 0000000 0000000 0000000 010000 0000000 0000000 0000000 00246c756d69 0000d3 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 001163707 0000000 00000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 00000000 0000000 0000000 0000000 0000d3 0000000 0000000 0000000 000003f80000 00146d656173 2d4850 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 274000001 0000000 00000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 00000000 0000000 0000000 0000000 2d4850 0000000 0000000 0000000 0000040c0000 202000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 500000003 0000000 00000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 00000000 0000000 0000000 0000000 202000 0000000 0000000 0000000 00247465636 000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 364657363 0000000 00000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 00000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 80000043000 00000c725452 000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000001840 0000000 00000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 00000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 430000043c00 000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000006c77 0000000 11637072 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 11637072 0000000 0000000 0000000 000000 0000000 0000000 0000000 00080c675452 430000043c00 000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 747074000 0000000 74000001 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 74000001 0000000 0000000 0000000 000000 0000000 0000000 0000000 00080c625452 000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 001f00000 0000000 50000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 50000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 430000043c00 00080c746578 000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0014626b7 0000000 33646573 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 33646573 0000000 0000000 0000000 000000 0000000 0000000 0000000 74000000004 36f707972696 000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000001 0000000 0000000 0000000 074000002 0000000 63000001 0000000 0000000 0000000 0000000 0000000 0000000 0000001 0000000 0000000 63000001 0000000 0000000 0000000 000000 0000000 0000000 0000001 000000 0000000 0000000 0000000 0001163 0000000 0001163 0001163 1637072 0001163 0000000 0000000 040000001 0000000 84000000 0000000 0001163 0000000 0001163 0001163 0000000 1637072 0001163 0001163 84000000 0001163 0000000 0000000 000000 0001163 0001163 1637072 76874202863 292031393938 000000 1163707 1163707 1163707 7072740 1163707 7072740 7072740 7400000 7072740 1163707 1163707 47258595a 1163707 6c777470 1163707 7072740 1163707 7072740 7072740 1163707 7400000 7072740 7072740 6c777470 7072740 1163707 1163707 000000 7072740 7072740 7400000 204865776c65 000000 2740000 2740000 2740000 0000150 2740000 0000150 0000150 1500000 0000150 2740000 2740000 000002180 2740000 74000001 2740000 0000150 2740000 0000150 0000150 2740000 1500000 0000150 0000150 74000001 0000150 2740000 2740000 000000 0000150 0000150 1500000 74742d506163 6b6172642043 000000 0150000 0150000 0150000 0000003 0150000 0000003 0000003 0033646 0000003 0150000 0150000 000001467 0150000 f0000000 0150000 0000003 0150000 0000003 0000003 0150000 0033646 0000003 0000003 f0000000 0000003 0150000 0150000 000000 0000003 0000003 0033646 6f6d70616e79 000000 0003364 0003364 0003364 3646573 0003364 3646573 3646573 5736300 3646573 0003364 0003364 58595a000 0003364 14626b70 0003364 3646573 0003364 3646573 3646573 0003364 5736300 3646573 3646573 14626b70 3646573 0003364 0003364 000000 3646573 3646573 5736300 00006465736 000000 6573630 6573630 6573630 6300000 6573630 6300000 6300000 0001840 6300000 6573630 6573630 0022c0000 6573630 74000002 6573630 6300000 6573630 6300000 6300000 6573630 0001840 6300000 6300000 74000002 6300000 6573630 6573630 000000 6300000 6300000 0001840 30000000000 000012735247 000000 0000184 0000184 0000184 1840000 0000184 1840000 1840000 000006c7 1840000 0000184 0000184 001462585 0000184 04000000 0000184 1840000 0000184 1840000 1840000 0000184 000006c7 1840000 1840000 04000000 1840000 0000184 0000184 000000 1840000 1840000 000006c7 42204945433 000000 0000006 0000006 0000006 006c777 0000006 006c777 006c777 7747074 006c777 0000006 0000006 95a000002 0000006 14725859 0000006 006c777 0000006 006c777 006c777 0000006 7747074 006c777 006c777 14725859 006c777 0000006 0000006 000000 006c777 006c777 7747074 6313936362d3 22e310000000 001163 c777470 c777470 c777470 4707400 c777470 4707400 4707400 000001f0 4707400 c777470 c777470 400000001 c777470 5a000002 c777470 4707400 c777470 4707400 4707400 c777470 000001f0 4707400 4707400 5a000002 4707400 c777470 c777470 001163 4707400 4707400 000001f0 00000000000 707274 7400000 7400000 7400000 0001f000 7400000 0001f000 0001f000 0000001 0001f000 7400000 7400000 4646d6e64 7400000 18000000 7400000 0001f000 7400000 0001f000 0001f000 7400000 0000001 0001f000 0001f000 18000000 0001f000 7400000 7400000 707274 0001f000 0001f000 0000001 000012735247 42204945433 000001 1f00000 1f00000 1f00000 0000146 1f00000 0000146 0000146 4626b70 0000146 1f00000 1f00000 000002540 1f00000 14675859 1f00000 0000146 1f00000 0000146 0000146 1f00000 4626b70 0000146 0000146 14675859 0000146 1f00000 1f00000 000001 0000146 0000146 4626b70 6313936362d3 500000 0014626 0014626 0014626 26b7074 0014626 26b7074 26b7074 7400000 26b7074 0014626 0014626 000007064 0014626 5a000002 0014626 26b7074 0014626 26b7074 26b7074 0014626 7400000 26b7074 26b7074 5a000002 26b7074 0014626 0014626 500000 26b7074 26b7074 7400000 22e310000000 003364 b707400 b707400 b707400 0000020 b707400 0000020 0000020 2040000 0000020 b707400 b707400 6d6464000 b707400 2c000000 b707400 0000020 b707400 0000020 0000020 b707400 2040000 0000020 0000020 2c000000 0000020 b707400 b707400 003364 0000020 0000020 2040000 00000000000 00000000000 657363 0002040 0002040 0002040 4000000 0002040 4000000 4000000 0014725 4000000 0002040 0002040 002c40000 0002040 14625859 0002040 4000000 0002040 4000000 4000000 0002040 0014725 4000000 4000000 14625859 4000000 0002040 0002040 657363 4000000 4000000 0014725 00000000000 000001 0000014 0000014 0000014 1472585 0000014 1472585 1472585 8595a00 1472585 0000014 0000014 008876756 0000014 5a000002 0000014 1472585 0000014 1472585 1472585 0000014 8595a00 1472585 1472585 5a000002 1472585 0000014 0000014 000001 1472585 1472585 8595a00 00000000000 000840000 7258595 7258595 7258595 95a0000 7258595 95a0000 95a0000 0002180 95a0000 7258595 7258595 564000003 7258595 40000000 7258595 95a0000 7258595 95a0000 95a0000 7258595 0002180 95a0000 95a0000 40000000 95a0000 7258595 7258595 840000 95a0000 95a0000 0002180

practical level, the option buyer faces an interesting situation. He pays for the option in full at the time it is purchased. After this, he only has an upside. There is no possibility of the options position generating any further losses to him (other than the funds already paid for option). This is different from futures, which is free to enter into, but can generate very large losses. This characteristic makes options attractive to many occasional market participants, who cannot put in the time to closely monitor their future options. Buying put option means that you are buying insurance. To buy a put option on Nifty is to buy insurance which reimburses the full extent to which Nifty drops below the strike price of the put option. This is attractive to many people, and to mutual funds creating “guaranteed return products”. The Nifty index fund industry will find it very useful to make a bundle of a Nifty index fund and a Nifty put option to create a new kind of a Nifty index fund, which gives the investor protection against extreme drops in Nifty.

Selling put option is selling insurance, so anyone who feels like earning revenues by selling insurance can set himself up to do so on the index option market.

More generally, option offer “nonlinear payoffs” whereas futures only have “linear payoffs”. By combining futures and options, a wide variety of innovative and useful payoff structures can be created.


ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe0 ffd8ffe ffd8ffe0 ffd8ffe0 ffd8ffe0 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 00104a4 000104 00104a4 00104a4 00104a4 6494600 6494600 6494600 6494600 6494600 6494600 6494600 6494600 6494600 6494600 a46494 6494600 6494600 6494600 0102010 0102010 0102010 0102010 0102010 0102010 0102010 0102010 0102010 0102010 600010 0102010 0102010 0102010 0c800c8 0c800c8 0c800c8 0c800c8 0c800c8 0c800c8 0c800c8 0c800c8 0c800c8 0c800c8 20100c 0c800c8 0c800c8 0c800c8 PAYOFF FOR DERIVATIVES 0000ffe2 0000ffe2 0000ffe2 0000ffe2 0000ffe2 0000ffe2 0000ffe2 0000ffe2 0000ffe2 0000ffe2 800c80 0000ffe2 0000ffe2 0000ffe2 CONTRACT 0c58494 0c58494 0c58494 0c58494 0c58494 0c58494 0c58494 0c58494 0c58494 0c58494 000ffe2 0c58494 0c58494 0c58494 3435f505 3435f50 3435f50 3435f50 3435f505 3435f505 3435f50 3435f50 3435f50 3435f505 0c5849 3435f50 3435f50 3435f50 24f46494 524f464 524f464 524f464 24f46494 24f46494 524f464 524f464 524f464 24f46494 43435f5 524f464 524f464 524f464 Payoff is likely profit/loss that would accrue c450001 94c4500 94c4500 94c4500 c450001 c450001 94c4500 94c4500 94c4500 c450001 0524f46 94c4500 94c4500 94c4500 0100000 0101000 0101000 0101000 0100000 0100000 0101000 0101000 0101000 0100000 494c45 0101000 0101000 0101000to a market participant with change in the c484c69 00c484c 00c484c 00c484c c484c69 c484c69 00c484c 00c484c 00c484c c484c69 000101 00c484c 00c484c 00c484c price of the underlying asset. This is 6e6f0210 696e6f0 696e6f0 696e6f0 6e6f0210 6e6f0210 696e6f0 696e6f0 696e6f0 6e6f0210 00000c 696e6f0 696e6f0 696e6f0 00006d6 2100000 2100000 2100000 00006d6 00006d6 2100000 2100000 2100000 00006d6 484c69 2100000 2100000 2100000generally depicted in the form of payoff e747252 6d6e747 6d6e747 6d6e747 e747252 e747252 6d6e747 6d6e747 6d6e747 e747252 6e6f021 6d6e747 6d6e747 6d6e747diagrams, which show the price of the 4742205 8595a20 2524742 2524742 2524742 4742205 4742205 2524742 2524742 2524742 4742205 000006 2524742 2524742 2524742underlying asset on the X-axis and the 2058595 2058595 2058595 8595a20 8595a20 2058595 2058595 2058595 8595a20 d6e747 2058595 2058595 2058595 07ce000 a2007ce a2007ce a2007ce 07ce000 07ce000 a2007ce a2007ce a2007ce 07ce000 252474 a2007ce a2007ce a2007ce profit/losses on the Y-axis. 2000900 0002000 0002000 0002000 2000900 2000900 0002000 0002000 0002000 2000900 220585 0002000 0002000 0002000 0600310 9000600 9000600 9000600 0600310 0600310 9000600 9000600 9000600 0600310 95a200 9000600 9000600 9000600 0006163 3100006 3100006 3100006 0006163 0006163 3100006 3100006 3100006 0006163 7ce000 3100006 3100006 3100006 73704d5 1637370 1637370 1637370 73704d5 73704d5 1637370 1637370 1637370 73704d5 200090 1637370 1637370 1637370 3465400 Future contracts have linear payoffs. It 4d53465 4d53465 4d53465 3465400 3465400 4d53465 4d53465 4d53465 3465400 006003 4d53465 4d53465 4d53465 0000004 9454320 4000000 4000000 4000000 0000004 0000004 4000000 4000000 4000000 0000004 100006 4000000 4000000 4000000means that the losses as well as profits for 7352474 0049454 0049454 0049454 9454320 9454320 0049454 0049454 0049454 9454320 163737 0049454 0049454 0049454 the buyer and the seller of a future contract 2000000 3207352 3207352 3207352 7352474 7352474 3207352 3207352 3207352 7352474 04d534 3207352 3207352 3207352 0000000 4742000 4742000 4742000 2000000 2000000 4742000 4742000 4742000 2000000 654000 4742000 4742000 4742000are unlimited. These linear payoffs are 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000004 0000000 0000000 0000000 fascinating as they can be combined with 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 945432 0000000 0000000 0000000 0f6d6000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 073524 0000000 0000000 0000000options and the underlying to generate 1000000 0000f6d 0000f6d 0000f6d 0f6d6000 0f6d6000 0000f6d 0000f6d 0000f6d 0f6d6000 742000 0000f6d 0000f6d 0000f6d 00d32d4 6000100 6000100 6000100 1000000 1000000 6000100 6000100 6000100 1000000 000000 6000100 6000100 6000100various complex payoffs. 8502020 000000d 000000d 000000d 00d32d4 00d32d4 000000d 000000d 000000d 00d32d4 000000 000000d 000000d 000000d 0000000 32d4850 32d4850 32d4850 8502020 8502020 32d4850 32d4850 32d4850 8502020 000000 32d4850 32d4850 32d4850 0000000 2020000 2020000 2020000 0000000 0000000 2020000 2020000 2020000 0000000 000000 2020000 2020000 2020000• Payoff for buyer for futures: 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0f6d600 0000000 0000000 0000000Long Futures 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 010000 0000000 0000000 0000000The payoff for a person who buys a futures 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000d3 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 2d4850 0000000 0000000 0000000contract is similar to the payoff for a person 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 202000 0000000 0000000 0000000who holds an asset. He has a potentially 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000unlimited upside as well as a potentially 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000unlimited downside. Take the case of a 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000speculator who buys a two-month Nifty 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000index futures contract when the Nifty stands 0001163 7072740 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 0000000 000000 0000000 0000000 0000000 0000000 0000000 0000000 0001163 0001163 0000000 0000000 0000000 0001163 000000 0000000 0000000 0000000at 1220. The underlying asset in this case is 0000150 0000003 1163707 1163707 1163707 7072740 7072740 1163707 1163707 1163707 7072740 000000 1163707 1163707 1163707the Nifty portfolio. When the index moves 3646573 2740000 2740000 2740000 0000150 0000150 2740000 2740000 2740000 0000150 000000 2740000 2740000 2740000 6300000 0150000 0150000 0150000 0000003 0000003 0150000 0150000 0150000 0000003 000000 0150000 0150000 0150000down it starts making losses. 1840000 0003364 0003364 0003364 3646573 3646573 0003364 0003364 0003364 3646573 000000 0003364 0003364 0003364 006c777 6573630 6573630 6573630 6300000 6300000 6573630 6573630 6573630 6300000 000000 6573630 6573630 6573630 4707400 0000184 0000184 0000184 1840000 1840000 0000184 0000184 0000184 1840000 000000 0000184 0000184 0000184 0001f000 0000006 0000006 0000006 006c777 006c777 0000006 0000006 0000006 006c777 000000 0000006 0000006 0000006 0000146 c777470 c777470 c777470 4707400 4707400 c777470 c777470 c777470 4707400 001163 c777470 c777470 c777470 26b7074 7400000 7400000 7400000 0001f000 0001f000 7400000 7400000 7400000 0001f000 707274 7400000 7400000 7400000 0000020 1f00000 1f00000 1f00000 0000146 0000146 1f00000 1f00000 1f00000 0000146 000001 1f00000 1f00000 1f00000 4000000 0014626 0014626 0014626 26b7074 26b7074 0014626 0014626 0014626 26b7074 500000 0014626 0014626 0014626 1472585 b707400 b707400 b707400 0000020 0000020 b707400 b707400 b707400 0000020 003364 b707400 b707400 b707400 95a0000 0002040 0002040 0002040 4000000 4000000 0002040 0002040 0002040 4000000 657363 0002040 0002040 0002040 0218000 0000014 0000014 0000014 1472585 1472585 0000014 0000014 0000014 1472585 000001 0000014 0000014 0000014 0001467 7258595 7258595 7258595 95a0000 95a0000 7258595 7258595 7258595 95a0000 840000 7258595 7258595 7258595

Loss


ffd8ffe000104a4649460001020100c800c80000ffe20c584 943435f50524f46494c4500010100000c484c696e6f021000 006d6e74725247422058595a2007ce00020009000600310 000616373704d5346540000000049454320735247420000 000000000000000000000000f6d6000100000000d32d4850 20200000000000000000000000000000000000000000000 00000000000000000000000000000000000000000000000 00001163707274000001500000003364657363000001840 000006c77747074000001f000000014626b7074000002040 00000147258595a00000218000000146758595a0000022c 000000146258595a0000024000000014646d6e640000025 400000070646d6464000002c40000008876756564000003 4c0000008676696577000003d4000000246c756d6900000 3f8000000146d6561730000040c000000247465636800000 4300000000c725452430000043c0000080c675452430000 043c0000080c625452430000043c0000080c74657874000 00000436f707972696768742028632920313939382048657 76c6574742d5061636b61726420436f6d70616e790000646 57363000000000000001273524742204945433631393636 2d322e31000000000000000000000012735247422049454 336313936362d322e310000000000000000000000000000 00000000000000000000000000

•

ffd8ffe00 0104a464 94600010 20100c80 Payoff for0c80000ff seller of futures: Short futures e20c58494 3435f5052 4f46494c4 The 50001010 payoff for a person who sells a futures contracts 0000c484csimilar to the payoff for a person who shorts an is 696e6f021 000006d6 asset. He has a potentially unlimited upside as

well e7472524 as a potentially unlimited downside. Take the 74220585 case 95a2007ceof a speculator who sells a two-month Nifty 00020009 00060031 index futures contract when the Nifty stands at 00006163 1220. The underlying asset in this case is the 73704d53 Nifty portfolio. When the index moves down, the short 46540000 00004945 future position starts making profits, and when 43207352 the 47420000 index moves up, it starts making losses. 00000000 00000000 00000000f 6d600010 0000000d 32d48502 02000000 ffd8ffe000104a4649460001020100c800c80000ffe2 00000000 Profit 0c584943435f50524f46494c4500010100000c484c6 00000000 96e6f021000006d6e74725247422058595a2007ce0 00000000 0020009000600310000616373704d5346540000000 00000000 049454320735247420000000000000000000000000 00000000 000f6d6000100000000d32d4850202000000000000 00000000 000000000000000000000000000000000000000000 00000000 1220 000000000000000000000000000000000000000001 00000000 163707274000001500000003364657363000001840 00000000 000006c77747074000001f000000014626b7074000 00000000 00204000000147258595a000002180000001467585 00000000 95a0000022c000000146258595a000002400000001 01163707 Nifty 4646d6e640000025400000070646d6464000002c40 27400000 0000088767565640000034c0000008676696577000 15000000 003d4000000246c756d69000003f8000000146d656 03364657 1730000040c0000002474656368000004300000000 Loss 36300000 c725452430000043c0000080c675452430000043c0 18400000 000080c625452430000043c0000080c74657874000 06c77747 00000436f707972696768742028632920313939382 07400000 04865776c6574742d5061636b61726420436f6d706 1f0000000 16e790000646573630000000000000012735247422 14626b70 049454336313936362d322e3100000000000000000 74000002 0000012735247422049454336313936362d322e310 04000000 000000000000000000000000000000000000000000 14725859 00000000000 5a000002 18000000 B.R.C.M. College of 14675859 Business Administration, Surat 5a000002 2c000000 14625859 5a000002 40000000 14646d6e 64000002 54000000

USING INDEX FUTURES There is always risk involved when we trade in a stock market. The risk cannot be eradicated fully but can be minimized up to some extent. Following are the types of risks that can be minimized through futures: Basic objective of introduction of futures is to manage the price risk. Index futures are used to manage the systemic risk, vested

in the investment in securities. Basically there are eight basic modes of trading on the index futures market;

Hedging

H1 Long stock, short Nifty futures H2 Short stock, long nifty futures H3 Have portfolio, short Nifty futures H4 Have funds, long Nifty futures

Hedge Terminology:

Long hedge- When you hedge by going long in futures market. Short hedge -When you hedge by going short in futures market. • Cross hedge -When a futures contract is not available on an asset, you hedge your position in cash market on this asset by going long or short on the futures for another asset whose prices are closely associated with that of your underlying.


Hedge Contract Month-Maturity month of the contract through which hedge is accomplished. Hedge Ratio -Number of future contracts required to hedge the position.

Speculation Speculation is all about taking position in the futures market without having the underlying. Speculators operate in the market with motive to make money. They take:

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Naked positions - Position in any future contract.

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Spread positions -Opposite positions in two future contracts. This is a conservative speculative strategy. Speculators bring liquidity to the system, provide insurance to the hedgers and facilitate the price discovery in the market. 

S1 Bullish index, long Nifty futures

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S2 Bearish index, short Nifty futures


HEDGING

H1: long stock, short Nifty futures A person who feels that the stocks will be intrinsically under evaluated or the profits and the quality of the company will make it more worth as compared to the market will always like to take a long position on the cash market. While doing so he will have to face the following kinds of risks: 1His understanding can be wrong, and the company is really not worth more than the market prices. 2The entire market moves against him and generate losses even though the underlying idea was correct. The second outcome happens all time. A person may buy Reliance at Rs.190 thinking hat it would announce good results and the stock price would rise. A few days later, Nifty drops, so he makes losses, even if his understanding of Reliance was correct.

There is a peculiar problem here. Every buy position on a stock is simultaneously a buy position on Nifty. This is because a, LONG RELIANCE position generally gains if Nifty rises and generally losses if Nifty drops. In this sense, a LONG RELIANCE position is not a focused play on the valuation of Reliance. It carries a LONG NIFTY position along with it, as incidental baggage. The stock picker may be thinking that he wants to be LONG RELIANCE but a long position on Reliance effectively forces him to be LONG RELIANCE + LONG NIFTY.


If we think that WIPRO is under evaluated, the position LONG WIPRO is not purely about WIPRO; it is also partly about Nifty. Every trader who has a LONG WIPRO position is forced to be an index speculator, even though he may not have no interest in the index.

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Those who are bullish about the index should just buy Nifty futures; the need not trade individual stocks.

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Those

who are bullish about WIPRO do wrong by carrying along a long position on Nifty as well.

There is a simple way out. Every time we adopt a long position on a stock, we should sell some amount of Nifty futures. This will help in offsetting the hidden Nifty exposure that is every long-stock position. Once this is done, we will have a position which will be purely about the performance of the stock. The position LONG WIPRO + SHORT NIFTY is a pure play on the value of WIPRO, without any risk from fluctuation of the market index. When this will be done the stock picker has “hedg ed away” his index exposure. The basic point of this hedging strategy is that the stockpicker proceeds with his core skill, i.e. picking stocks, at the cost of lower risk.

NOTE: hedging does not remove losses. The best that can be achieved by using hedging is the removal of unwanted exposure, i.e. unnecessary risk. The hedged position will make less profit than the un-hedged position, half the time. One should not enter into a hedging strategy hoping profit for sure; all that can come out of hedging is reduced risk.


H2: Short stock, long Nifty futures If a person feels that the stock is over evaluated or the profits and the quality of the company made it worth a lot less as compared to what the market thinks, he can take a short position on the cash market. This will give rise to two types of risks: 1His understanding can be wrong, and the company is really worth more than the market price. 2The entire market moves against him and generates losses even though the underlying idea was correct. The second outcome happens all time. A person may sell Reliance at Rs.190 thinking that Reliance would announce poor result and the stock price would fall. And if after few days if the Nifty rises, he will incur loss, even if the intrinsic understanding of Reliance was correct.

There is a peculiar problem here. Every sell position on a stock is simultaneously a sell position on Nifty. This is because a SHORT RELIANCE position generally gains if Nifty falls and generally loses if Nifty rises. In this sense, a SHORT RELIANCE position is not a focused play on the valuation of Reliance. It carries a SHORT NIFTY position along with it, as incidental baggage. The stockpicker may be thinking he wants to be SHORT RELIANCE, but a short position on Reliance on the market effectively forces him to be SHORT RELIANCE + SHORT NIFTY.


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Those who are bearish about the index should just sell Nifty futures; the need not trade individual stocks.

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Those who are bearish about WIPRO do wrong by carrying along a short position on Nifty as well.

There is a simple way out. Every time we adopt a short position on a stock, we should buy some amount of Nifty futures. This will help in offsetting the hidden Nifty exposure that is every short-stock position. Once this is done, we will have a position, which will be purely about the performance of the stock. The position SHORT WIPRO + LONG NIFTY is a pure play on the value of WIPRO, without any risk from fluctuation of the market index. When this will be done the stockpicker has “hedged away” his index exposure. The basic point of this hedging strategy is that the stockpicker proceeds with his core skill, i.e. picking stocks, at the cost of lower risk.


H3: Have Portfolio, short Nifty futures Some of us might have experienced the feeling of owing an equity portfolio, and then one day, we become uncomfortable about the overall stock market. Sometimes we have a view that the stock prices will fall in the near future. At other times, we may see that the market is in for a few days or weeks of massive volatility, and we do not have an appetite for this kind of volatility. The best example of this volatility is the union budget. Market positions become volatile for one week before and two weeks after the budget. Many investors want to eradicate this three weeks volatility.

This becomes a peculiar problem if we are thinking of selling the shares in the near future, for example, in order to finance a purchase a house. This planning can go wrong if by the time we sell shares, Nifty has dropped sharply. There are two main alternatives, when one faces this type of problem:

1Sell shares immediately. This sentiment generates “panic selling” which is rarely optimal for the investor. 2Do nothing, i.e. suffer the pain of volatility. This leads to political pressure for government to “do something” when stock prices fall. Here in this case, with the index futures market, a third and a remarkable alternative becomes available:

3. Remove your exposure to index fluctuations temporarily using index futures. This will allow rapid response to market conditions, without “panic selling” of shares. It will allow an investor to be in control of his risk, instead of doing nothing and suffering the risk.


The idea here is that every portfolio contains a hidden index exposure. This statement is true for all portfolios, whether a portfolio is composed of index stock or not. In the case of portfolios, most of the portfolio risk is accounted for by index fluctuations. Hence a position LONG PORTFOLIO + SHORT NIFTY can often become one-tenth as risky as the LONG PORTFOLIO position.

Is suppose we have a portfolio of Rs.1 billion, which is having a beta of 1.25. Then a complete hedge is obtained by selling Rs.1.25 million of Nifty futures.


H4: Have funds, buy Nifty futures

A person may be in a situation where he is having funds, which needed to be invested in equity, or he may be expecting to get funds in future to be invested in equity. The following can be the occurrences in the above conditions:

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A closed-end fund, which just finished its initial public offering, has cash, which is not yet invested. If a person is planning to sell some of his shares. The land deal is slow and will take time to complete. It takes several weeks from the date that it becomes sure that the funds will come to the date that the funds are actually are in hands.

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An open-ended fund has just sold fresh units and has received funds.

To get oneself invested in equity sounds quite easy but it involves the following problems: 1A person may need time to research stocks, and carefully pick stocks that are expected to do well. This process of research takes time. For that time the investor is partly invested in cash and partly invested in stocks. During this time, he is exposed to the risk of missing out if the overall market index goes up. 2A person may have made up his mind on what portfolio he seeks to buy, but going to the market and placing the market order would generate large ‘impact cost’. The execution would be improved substantially if he could instead place a limit orders and gradually accumulate the portfolio at B.R.C.M. College of Business Administration, Surat

favorable prices. This takes time, and during this time, he is exposed to the risk of missing out if the Nifty goes up. 3. In some cases, such as land sale above, the person may not simply have cash to immediately buy the shares, hence he is forces to wait even if he feels that Nifty is unusually cheap. He is exposed to the risk of missing out if Nifty rises.

The three alternatives that are avail able with an investor are as follows: 

The investor would obtain the desired equity exposure by buying index futures, immediately. A person who expects to obtain Rs.5 million by selling land would immediately enter into a position LONG NIFTY worth Rs.5 million. Similarly a closeend fund, which has just finished its initial public offering and has cash, which is not yet invested, can immediately enter into a LONG NIFTY to the extent it wants to be invested into equity. The index futures market is likely to be more liquid than individual stocks so it is possible to take extremely large position at a low impact cost.

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Later, the investor / close-end fund can gradually acquire stocks. As and when shares are obtained, one would scale down the LONG NIFTY position correspondingly. No matter how slowly the stocks are purchased, this strategy would fully capture a rise in Nifty, so there is no risk of missing out on a broad rise in the stock marke t while this process is taking place. Hence, this strategy allows the investor to take more care and spend more time in choosing stocks and placing aggressive limit orders.


SPECULATION

S1: Bullish index, long Nifty futures We may sometimes think that the market index is going to rise and we can make profits by adopting a position on the index. After a good budget, or good corporate results, or the onset of the stable government, many people may feel that the index would go up. Now a days people have the following two strategies to get benefit from an upward movement in the index: 1Buy selected liquid securities, which move with the index, and sell them at a later date. 2Buy the entire index portfolio and then sell it at a later date. The first alternative is widely used. A lot of the trading volume on the liquid stock is based on using these liquid stocks as an index proxy. However, these positions run the risk of making losses owing to company. The second alternative is cumbersome and expensive in terms of the transaction cost involved in it.

Taking a position on the index is effortless using the index futures market. By using the index futures an investor can “buy “ or “sell” the entire index by trading on one singe security. Once a person is LONG NIFTY using the futures market, he gains if the index rises and losses if the index falls.


S2: Bearish index, short Nifty futures

We may sometimes think that the market is going to fall and we can make profit by adopting a position on the index. After a bad budget, or bad corporate results, or the onset of a coalition government, many people feel that the index would go down. So to get the benefit from the downward movement in the index we are having the following two choices: 1Sell selected liquid securities, which move with the index, and buy them at a later date. 2Sell the entire index portfolio and then buy it at a later date. The first alternative is widely used. A lot of the trading volume on liquid stock is based on using these positions run the risk of making losses owing to company. The second alternative is hard to implement. This strategy is cumbersome and also expensive in terms of the transaction cost involved.

Taking a position on the index is effortless using the index futures market. By using the index futures an investor can “buy “ or “sell” the entire index by trading on one singe security. Once a person is SHORT NIFTY using the futures market, he gains if the index falls and losses if the index rises.

Now after learning about the futures what we can do is that as we are having our three portfolios we would see how we could hedge our position using the futures contract. As we know that Hedging


does not always make money. The best way that can be achieved using hedging is the removal of unwanted exposure, i.e. unnecessary risk. The hedged position will make less profit than the unhedged position. One should not enter into a hedging strategy hoping to make excess profits for sure; all that can come out of hedging is reduced risk. So one should go for hedging only if the movement of market makes him uncomfortable.

Here we are having a portfolio of script so to hedge our position we would have to know what is the portfolio BETA The Portfolio BETA = Wi * Beta

Where, Wi = the weightage of scrip in the portfolio % Change in Scrip Return

Beta = % Change in Market Return

The BETA of a scrip can be easily found out from the website of National Stock Exchange and also from the website of Bombay stock exchange

Here for the purpose of hedging we will have to short nifty futures as we are having the portfolio and the future contracts may not be available for all the scrip. But as we have seen earlier that all scrip have hidden exposure to nifty. So we will short the nifty future contract for the purpose of hedging our portfolio. The current nifty lot size is 200. Now for the purpose of hedging the portfolio we will have to decide about the number of lots of Nifty that the investor will have to sell in order to hedge his position. To find out that figure we will have to do the following calculations:


DEFENSIVE PORTFOLIO Amount of Nifty to be short = Investment * Portfolio Beta The current Nifty level = 1000000 * 0.75 2813.7 = 266.55

As the nifty that are required to be short comes out to be 266.55 but as we know that the nifty is available in the lot size of 300 so this will give our portfolio a partial hedge as we are unable to short the exact nifty figure that we have calculated. During this two month the nifty has moved to 3064.4 this shows that nifty has increased by 250.70 in % terms nifty has gone up by 8.91 %

Now as we have short position of one nifty contract we would require to pay the buyer of contract 250.70*300 =75,210Rs.

If we take in to account the profit that we now earn is 1,66,628 – 75210= 91418/- Rs.

So we can easily see that the hedging as reduced our profit we were earning 1,66,628 with hedging it has reduced to 75210. talking in % terms we can say that we were earning 16.66% but due to hedging the profit comes down to 9.14%


PROFIT ( Rs. ) PROFIT ( % ) WITHOUT HEDGING 1,66,628 16.66 % WITH HEDGING 91,418 9.14 %

MODERATE PORTFOLIO

Amount of Nifty to be short = Investment * Portfolio Beta The current Nifty level = 162612.70* 0.93 2813.7 = 53.74

~ 54

As the nifty that are required to be short comes out to be 54 but as we know that the nifty is available in the lot size of 100 so this will give our portfolio a partial hedge as we are unable to short the exact nifty figure that we have calculated. During 2 month the nifty has moved to 3064.4 this shows that nifty has increased by 250.70 in % terms nifty has gone up by 8.91 %

Now as we have short position of one nifty contract we would require to pay the buyer of contract 250.70*100 =25,070 Rs.

If we take in to account the profit that we now earn Is 1,40,350– 25,070= 1,15,280Rs.

So we can easily see that the hedging as reduced our profit we were earning 1,40,350 Rs. with hedging it has reduced to 25070. talking in % terms we can say that we were earning 16.29% but due to hedging the profit comes down to 11.53%


PROFIT ( Rs. ) PROFIT ( % ) WITHOUT HEDGING 1,40,350 16.29 % WITH HEDGING 1,15,280 11.53 %

AGGRESSIVE PORTFOLIO Amount of Nifty to be short = Investment * Portfolio Beta The current Nifty level = 10,00,000 *1.14 2813.7 = 405.16

As the nifty that are required to be short comes out to be 405.16 but as we know that the nifty is available in the lot size of 400 so this will give our portfolio a partial hedge as we are unable to short the exact nifty figure that we have calculated. During this two month the nifty has moved to 3064.4 this shows that nifty has increased by 250.70 in % terms nifty has gone up by 8.91 % Now as we have short position of one nifty contract we would require to pay the buyer of contract 250.70*400 =1,00,280Rs.

If we take in to account the profit that we now earn is 84,397 – 1,00,280 = ( 15,883) Rs.

So we can easily see that the hedging as reduced our profit we were earning 84,397with hedging it has reduced to (15,883). talking in % terms we can say that we were earning 8.44% but due to hedging the profit comes down to ( 1.58 )%


PROFIT ( Rs. ) PROFIT ( % ) WITHOUT HEDGING 84,397 8.44 % WITH HEDGING ( 15,883) (1.58 ) %

SECTOR PORTFOLIO Sector specific portfolio includes securities of those companies which are in the same business. Sector portfolios are very useful when there is a particular sector which is doing very good and has a bright future a head. Sector portfolio has the securities of those companies that engage in same kind of business.

e.g. In late 1990’s sector that was providing the highest return was information technology. Investors who have invested their money in these securities had earned very high return.

We are considering Telecom Sector as our Sector Portfolio.


Industry analysis Telecom sector

Objectives and targets of t he New Telecom Policy 1999 The objectives of the NTP 1999 are as under: Service Provider Access to telecommunications is of utmost importance for achievement of Area of Operation t 1 BSNL All economic India goals.(Except he country's social and Availability of affordable and Delhi & Mumbai) effective communications for the citizens is at the core of the vision and 2 MTNL goal of the telecom policy. Delhi & Mumbai Strive to provide a balance between the provision of universal service to 3 Bharti Telesonic Ltd Tamil Nadu, all uncovered areas, including the rural areas, and Delhi, the provision of highAP, MP, Haryana, level services capable of meeting the needs of the country's economy; Kerala, Gujarat, Encourage development of telecommunication Chennai, facilities Karnataka, in remote, hilly and tribal areas of the country; Mumbai, UP(E), Punjab, Maharashtra, Create a modern and efficient telecommunications infrastructure taking West and of IT, media, telecom and consumer into account the Bengal convergence including electronics and thereby propel India into becoming an Uttaranchal, IT superpower; Convert PCO's, wherever justified, into Public Teleinfo centres having Kolkata multimedia capability like ISDN services, remote database access, 4 Tata Teleservices government and community information systems etc. • Transform in a time bound manner, the telecommunications sector to a greater competitive environment providing (Maharashtra) Ltdin both urban and rural areas equal opportunities and level playing field forMaharastra, all players; Mumbai 5 Tata Teleservices Ltd AP, TN, Chennai, Delhi, Bihar, Orissa, Karnataka, Gujarat, Haryana, Himachal Rajasthan, Punjab, B.R.C.M. CollegeMadhya of Business Administration, Pradesh,Surat U.P. (E), Pradesh, Kerala, Uttaranchal, West Bengal U.P (W) including

and Kolkata 6 HFCL Infotel Ltd Strengthen research and development efforts in the country and provide Punjab an impetus to build world-class manufacturing capabilities. 7 Shyam Ltdin spectrum management. Achieve efficiency andTelelink transparency Rajasthan Protect defence and security interests of theGujarat, country. Haryana, HP, 8 Reliance Infocomm.Ltd. AP, Bihar, Delhi, MP, Maharashtra, B.R.C.M. College of Business Administration, Surat Karnataka, Kerala, Punjab, Rajasthan, Tamil Mumbai, Orissa, UP(E), West Bengal, Nadu, Chennai, Kolkata

The Mobile (GSM and CDMA) Industry has reached the 65.07 million subscribers mark (GSM 50.86 million & CDMA 14.21 million) for the quarter ending 30th September 2005.

Addition in Subscribers Base

The subscriber’s base stood at 65.07 million as against 57.37 million for the quarter ending 30.9.2005. Around 7.70 million subscribers were added in this quarter.

Growth Rate

The growth rate for this quarter is 13.42% (13.16% in GSM and 14.37% in CDMA) as against 9.86% (9.44% in GSM and 12.43% in CDMA) for the quarter ending June 2005. M/s Bharti remains the largest mobile operator followed by M/s Reliance and M/s BSNL.

Company wise Market Share:

Bharti a) The Subscriber Base of different14.07 Mobile operators is given in Table 2.1. 21.62 The top five Mobile operators on the basis GSMof market share are as under: Reliance Cellular Group Subscribers Market Share 12.99 Technology Used 19.96 GSM & B.R.C.M. College of Business Administration, Surat CDMA

BSNL 12.38 19.03 GSM & CDMA

Hutchison 9.71 14.92 GSM IDEA 5.94 9.13 GSM

M/s Bharti, M/s Reliance and BSNL/MTNL has licenses to offer mobile services in all 23 service area. The largest mobile operator, M/s Bharti is offering services in all the 23 service areas. M/s Reliance is presently offering services in all service areas except J&K circle. BSNL is also offering services in all its 21 circles (Except Delhi & Mumbai). M/s Tata Teleservices is offering services in all its licensed 20 service areas. M/s Tata Teleservices does not have license to offer access services in J&K, Assam & North East. Market share of all company

Subscriber Base B.R.C.M. College of Business Administration, Surat

Bharat Sanchar Nigam Ltd. 37% Mahanagar Telephone Nigam Ltd. 20% Sify Ltd. 14% Videsh Sanchar Nigam Ltd. 8% Reliance Communications Infrastructure Ltd. 5% Data Infosys others 4% Bharti Televentures Ltd.(Bharti Infotel) 3%

Company analysis Telecom sector

1. Bharti Tele-Ventures Ltd. Company at glance

Three Months chart The bellow given chart shows the performance of the script in the bse for

Telecommunications last three months. Industry: It shows the- volatility of the stock for the months of 52 Week High: - 377.00 November, December and January. 52 Week Low: - 195.80 Volume: - 59847 Face Value: - 10.00 B.R.C.M. College Business Administration, Surat P/E Ratio: - of57.24 EPS: - 6.29

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For the year Mar-02 Mar-03 FINANCIALMar-04 PERFORMANCE Mar-05 Operating Income 62.97 B.R.C.M. College of Business Administration, Surat 71.35 62.98 8,142.44 Net Profit 62.97 0.22 0.37 1,210.67 Net Worth 4,816.27 4,819.75 4,823.55 4,134.07 No. of Shares (in crore) 185.34 185.34 185.34 185.34 Adjusted EPS (Rs) 0 0 0 6.29 Book value per Share (Rs) 25.99 26.01 26.03 24.12 Dvdnd per Share (Rs) 0 0 0 0 Net Profit Margin (%) 0.19 0.58 0.58 14.83 Current Ratio 74.86 668.08 233.91 0.51 Lt Debt Equity 0 0 0.1 0.98

2. Tata Telecom Ltd. Company at glance

Industry: Telecom 52 Week High: Three Months chart 531.00 Low: of the script in the bse for The bellow given chart shows 52 the Week performance 289.00 last three months. It shows the volatility P/E Ratio: of the stock for the months of 30.15 November, December and January. EPS: 13.73 Volume: B.R.C.M. College of Business Administration, Surat 878 Face Value: 10.00

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For the year 02-Mar 03-Mar 04-Mar 05-Mar Operating Income 228.2 285.5 394.5 323.8 Net Profit 15.68 18.56 32.67 24.92 Net Worth

85.06 110.5 128.1 No. of Shares (in crore) FINANCIAL PERFOMANCE 1.42 1.42 1.42 1.42 B.R.C.M. College of Business Administration, Surat Adjusted EPS (Rs) 12.13 13.06 23.29 13.73 Book value per Share (Rs) 65.44 75.66 93.55 105.9 Dvdnd per 2 2.5 4.5 4.5 Share(Rs)

Net Profit Margin (%) 6.06 5.78 8.24 7.65 Current Ratio 1.97 1.88 1.76 1.55 Lt Debt Equity 0.04 0.03 0.02 0.01

Sanchar Nigam Ltd. 3. VideshIndustry:

Telecom 52 Week High: 444.60 52 Week Low: Three Months chart 161.00 P/E Ratio: The bellow given chart shows the performance of the script in the bse for 31.18 last three months. It shows the volatility of the stock for the months of EPS: 12.21 November, December and January. Volume: 2365926 Face Value: 10.00 B.R.C.M. College of Business Administration, Surat

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For the year 02-Mar 03-Mar 04-Mar 05-Mar Operating Income 6,508.09 4,538.55

, . Net Profit 1,407.42 780.07 377.66 FIANCIAL 756.37 PERFOMANCE Net Worth 4,834.54 5,341.32 B.R.C.M. College of Business Administration, Surat 4,961.00 5,522.06 No. of Shares (in crore) 28.5 28.5 28.5 28.5 Adjusted EPS (Rs) 46.05 29.62 13.12 12.21 Book value per Share (Rs) 176.98 194.75 181.3 200.98 Dvdnd per Share(Rs) 87.5 8.5 4.5 6 Net Profit Margin (%) 20.08 16.12 11.24 22.19 Current Ratio 2.45 2.67 1.59 1.84 Lt Debt Equity 0 0 0 0

4. Mahanagar Telephone Nigam Ltd. Industry: Telecom 52 Week High: 154.50 52 Week Low: Three Months chart 108.00 Ratio: The bellow given chart shows P/E the performance of the script in the bse for 10.79 last three months. It shows the volatility of the stock for the months of EPS: 12.86 November, December and January. Volume: 76690 Face Value: 10.00 B.R.C.M. College of Business Administration, Surat

ffd8ffe000104a46494600010201003f003f0000ffe20c584943435f50524f46494c450001 0100000c484c696e6f021000006d6e74725247422058595a2007ce0002000900060031 0000616373704d53465400000000494543207352474200000000000000000000000000 00f6d6000100000000d32d485020200000000000000000000000000000000000000000 0000000000000000000000000000000000000000000000000000001163707274000001 500000003364657363000001840000006c77747074000001f000000014626b70740000 0204000000147258595a00000218000000146758595a0000022c000000146258595a00 00024000000014646d6e640000025400000070646d6464000002c40000008876756564 0000034c0000008676696577000003d4000000246c756d69000003f8000000146d6561 730000040c0000002474656368000004300000000c725452430000043c0000080c6754 52430000043c0000080c625452430000043c0000080c7465787400000000436f7079726 9676874202863292031393938204865776c6574742d5061636b61726420436f6d70616 e790000646573630000000000000012735247422049454336313936362d322e3100000 0000000000000000012735247422049454336313936362d322e3100000000000000000 0000000000000000000000000000000000000

For the year 02-Mar 03-Mar 04-Mar 05-Mar Operating Income 6,145.07 5,807.26

5,593.25 Net Profit 1,300.68 877.16 1,234.60 PERFOMANCE FIANCIAL 948.43 Net Worth 7,795.60 B.R.C.M. College of Business Administration, Surat 8,250.63 8,947.49 9,492.66 No. of Shares (in crore) 63 63 63 63 Adjusted EPS (Rs) 20.3 14.05 18.24 12.86 Book value per Share (Rs) 141.9 150.75 163.93 173.71 Dvdnd per Share(Rs) 4.5 4.5 4.5 4.5 Net Profit Margin (%) 20.56 14.61 18.79 16.1 Current Ratio 1.67 1.27 1.29 1.29 Lt Debt Equity 0.29 0 0 0

VSNL MTNL Mar-01 0.4 13.49 RATIO ANLYSIS PER SHARE RATIO 63.05 36.93 Mar-02 Reported Cash EPS Ratio 0.04 14.75 Bharti Tele 53.96 Tata tele 33.61 VSNL Mar-03 Operatig Profit Per Share MTNL 0.04 16.63 Mar-01 32.53 2.96 27.69 -1.62 Mar-04 Book Value 68.78 per Share 0.03 41.26 31.22 19.29 Mar-02 28.23 Surat B.R.C.M. College of Business Administration, 0.07 Mar-05 4.44 12.9 57.63 24.27 Bharti39.11 Tele 35.11 Tata tele 24.39 Mar-03 VSNL 0.2 MTNL 13.41 2.93 100.36 41.42 Mar-01 203.94 31.14 152.67 150.85 39.26 Average Mar-04 231.18 2.682 0.14 132.51 20.072 46.74 40.788 18.62 Mar-02 30.17 31.62 25.99 65.44 Mar-05 176.98 16.17 141.9 30.98 27.85 Mar-03 22.31 26.01 75.66 194.75 19.54 150.75 83.47 214.3 Mar-04 165.44 26.03 Average 93.55 181.3 3.908 163.93 16.694 42.86 Mar-05 33.088 24.13 Bharti Tele 105.95 Tata tele 200.98 VSNL 173.71 MTNL Mar-01 254.83 5.25 379.86 138.64 985.19

Average. Mar-02 50.966 0.33 75.972 160.32 197.038 Net Operating Income Per Share 160.32 Bharti Tele 152.56 97.54 Tata tele VSNL Mar-03 MTNL Free Reserve 0.38 per Share 200.52 Mar-01 200.52 142.67 92.18 28.97 Per Share Ratio Average Rate 250 200 150 100 50 0

Bharti Tata tele VSNL MTNL Tele

213.88 Share Company Mar-04 107.18 Book Repo 0.33 Value rted Cash per Mar-02 277.15 Sha EPS 277.15 Net Ratio 15.99 Opera Oper 101.12 39.54 ting atig Incom Profit 159.63 Per Per Mar-05 113.74 43.93 227.49 Mar-03 115.9 16.01 88.78 49.75

177.41 120.96 50.22 1004.12 Mar-04 892.53 16.03 471.49 67.64 Average 164.07 132.02 10.044 200.824 Mar-05 178.506 12.31 94.298 80.01 183.76 140.68 ffd8ffe000104a4649460001020100c800c800 00ffe20c584943435f50524f46494c450001010 0000c484c696e6f021000006d6e7472524742 203.01 2058595a2007ce00020009000600310000616 265.91 373704d534654000000004945432073524742 0000000000000000000000000000f6d600010 898.75 0000000d32d48502020000000000000000000 614.58 0000000000000000000000000000000000000 0000000000000000000000000000000000000 Average 0011637072740000015000000033646573630 00001840000006c77747074000001f0000000 14626b707400000204000000147258595a000 40.602 00218000000146758595a0000022c00000014 53.182 6258595a0000024000000014646d6e6400000 179.75 25400000070646d6464000002c40000008876 7565640000034c0000008676696577000003d 122.916 4000000246c756d69000003f8000000146d65 61730000040c0000002474656368000004300 000000c725452430000043c0000080c675452 430000043c0000080c625452430000043c000 0080c7465787400000000436f707972696768 74202863292031393938204865776c6574742 d5061636b61726420436f6d70616e79000064 6573630000000000000012735247422049454 336313936362d322e31000000000000000000 000012735247422049454336313936362d322 e310000000000000000000000000000000000 Bharti Tele 00000000000000000000

Tata tele VSNL MTNL

Mar-01 56.48

Share Free Reserve per Share B.R.C.M. College of Business Administration, Surat

26.86 44.19 Mar-02 23.45 2.76 Profitability Ratio Operatig Margin Bharti Tele in % 25.23 Tata tele 40.09 VSNL MTNL

Gross Profit margin in % Mar-03 54.13 Mar-01 1.46 50.29 26.01 -3.88 Net Profit Margin in % 33.78 25.27 31.61 Mar-04

43.21 B.R.C.M. College ofMar-02 Business Administration, Surat 16.86 18.33 16.77 0.75 Bharti31.27 Tele 23.23 Tata tele 26.8 VSNL Mar-05 MTNL 36.81 Mar-03 13.61 49.08 Mar-01 24.03 -0.32 0.66 25.13 22.77 5.87 18.85 21.8 25.8 214.08 Mar-04 33.53 37.06 Mar-02 118.9 13.88 0.19 174.46 11.33 6.06 Average 22.73 16.12 20.56 42.816 Mar-05 6.706 24.29 Mar-03 23.78 10.33 0.3 34.892 16.64 5.78 14.62 16.12 14.61 179.05 Mar-04 20.76 0.58 99.24 8.24 114.61 11.24 Average 18.79 35.81 Mar-05 4.152 14.83 19.848 7.65 22.922 22.19 16.1

16.56 Bharti 33.6 Tele 87.47 Tata tele 95.86 VSNL Average MTNL 3.312 Mar-01 6.72 1.83 17.494 26.1

18.49 Mar-02 0.18 32.25fund in % Return on long term 23.99 15.81 Mar-03 B.R.C.M. College of Business Administration, Surat 0.65

30.63 30.63 13.57 Mar-04 0.42 41.63 10.71 15.95 Mar-05 20.41 22.96 11.43 ffd8ffe000104a4649460001020100c800c80000ffe2 10.16 0c584943435f50524f46494c4500010100000c484c6 96e6f021000006d6e74725247422058595a2007ce0 0020009000600310000616373704d534654000000 23.49 00494543207352474200000000000000000000000 153.57 00000f6d6000100000000d32d48502020000000000 110.97 00000000000000000000000000000000000000000 73.98 00000000000000000000000000000000000000000 Average 00011637072740000015000000033646573630000 01840000006c77747074000001f000000014626b70 4.698 7400000204000000147258595a000002180000001 30.714 46758595a0000022c000000146258595a000002400 22.194 0000014646d6e640000025400000070646d646400 14.796 0002c400000088767565640000034c000000867669

6577000003d4000000246c756d69000003f8000000 146d6561730000040c000000247465636800000430 0000000c725452430000043c0000080c6754524300 00043c0000080c625452430000043c0000080c7465 787400000000436f70797269676874202863292031 393938204865776c6574742d5061636b6172642043 6f6d70616e79000064657363000000000000001273 5247422049454336313936362d322e31000000000 00000000000001273524742204945433631393636 2d322e31000000000000000000000000000000000 000000000000000000000

Average return Portfolio Wi Bharti Tele Portfolio in Telecom Sector 143.87 79663.1 7.96631 Tata Tele 415.04 Total Portfolio = 229814 10,00,000 Rs. 22.9814 VSNL 722.26 399927 39.9927date Price as on particular MTNL

524.81 290596 29.0596

Total Return on investment = Total return – total investment 1805.98 Company 1000000 = 963730.3 – 1000000 = -36269.702-01-06 100 28-02-06 Bharti Tele 340.05 361.05 Total return on investment ( in %) = TTML 27.8 24.75 VSNL 381.15 364.95 MTNL 142.15 142.65 B.R.C.M. College of Business Administration, Surat

Bharti Tele 6.175562417 TTML -10.97122302 VSNL -4.250295159 MTNL 0.351741119

-3.62 %

Interpretation of Sector Portfolio As we can see that sector specific portfolio has perform negatively during the period of the report. That is due to the fact that there is a systematic risk involve with the portfolio as lack of diversification. If we look at the performance of the Sensex during this period than we will find that Sensex has perform better than the sector portfolio. It is mainly doe to diversification of risk as Sensex has the 30 script from different sectors, so any ups and downs in a sector’s performance will not effect the overall Sensex that badly that in the case of sector portfolio. We can see in the plotted graph that all the four script in the sector portfolio are following a same kind of trend in the given one month of the study. It is due to the fact that they all belong to the same sector and they all face same systematic risk as other in the sector. So the performance of the scripts rightly indicates the need of diversification to remove the systematic risk from the portfolio. As its gets highly risky investment, such portfolio are very rarely been used by individual in the general scenario. B.R.C.M. College of Business Administration, Surat

FINDING OF THE REPORT Findings of the report gives the fruit of the all the analysis done on the research of measuring and comparing performance of the portfolio with the market portfolio.

Random portfolio

After understanding the various concepts about what are the investments option and what are the risks associated with the various investment avenues. And also about how one can use Derivative to be specific Future for the purpose of Hedging and Speculation.

But it is advisable to use the direct equity investment only if the investors have adequate knowledge about selection of stocks. There task does not ends with the selection of script but they are also required to pay close attention to the various happening in the economy that have direct or indirect effect on stock market as we have learn that the price of the script is affected by two factor, one is company specific news and the other is economy specific newsof sothe anyeconomy investor as investing thecompany equity directly has to keep the close track well asin the in which they invest to look out for any new development that take place

As in the theoretical way we have scene that the Beta shows the movement or change in the price of script vis-à-vis index. And a Beta >1 is more riskier and hence should give more return as compared to the script having Beta < 1. as the person is taking more risk then he should get more return. B.R.C.M. College of Business Administration, Surat

But in our case we have scene that Moderate portfolio having Beta < 1 has given more return as compared to Aggressive Portfolio. So we can easily say that the investment in equity market is subject to market risk and any one having long-term investment horizon should only enter into equity market. This analysis that has been carried out was only for a period of two month there are chances that in the long run aggressive portfolio would outperform the other portfolio.

And we have also scene the Derivative-Future how one can use it for the purpose of speculation and hedging. But hedging is only for the removal of unnecessary risk or exposure one should not go for hedging for earning excess return.

So if one does not have enough knowledge, expertise & analytical capabilities then one should avoid going for direct equity investment as the chances of loss increases. And the other very important aspect is the regular monitoring of the portfolio and reviewing is also an important aspect that one needs to pay close attention to. B.R.C.M. College of Business Administration, Surat

Sector portfolio Sector portfolio has given negative return in the month of the study as there is systemic risk as very high in the sector portfolio because of non diversification. This portfolio has given -3.62% returns on the one month performance so it is advisable for the investor not to go for such a high risky investment options. All the individual scripts and the portfolio showing very steady chart, there is very little movement in the performance chart. There is a very high Beta of majority of the scripts in the portfolio edging more than 2 in most of the script. Only one script having a Beta under 1 but it is too low to give a good return on the investment. Because of that the overall portfolio Beta is also sizing more than 2. In the sector portfolio the volatility of the majority of script is under 10. That’s shows less risk with the portfolio and also less fluctuation means less chance of return. B.R.C.M. College of Business Administration, Surat

RECOMMENDATION

From the above given findings and the conclusions of the study done by me, here are the list of recommendations that comes out of the study. Form the study it is also proven that even in short run sector portfolio is highly risky option for investment. Here in the study it is providing negative return. That shows that investors who want to have safe return must think twice before selecting sector portfolio for a long term investment.

Though random portfolio is having scripts with highest return and volatility, but for a long term prospect is becomes hard to fetch good return out of it as it is hard to take use of high volatility.

There is a requirement for frequent portfolio checking to maintain the higher return and to make use of high volatility. B.R.C.M. College of Business Administration, Surat

Bibliography Books 1Derivatives Module of NSE – ( NCFM ) 2Securities analysis and Portfolio Management -B.K. Bhalla

Web – Bibliography 1.www.kotaksecurities.com 2.www.nseindia.com 3.www.bseindia.com 4.www.derivativesindia.com 5.www.moneycontrol.com 6.www.icicidirect.com

Others 1Magazines -Business World 2News Papers -Economic Times of India -Times of India B.R.C.M. College of Business Administration, Surat

05/03?(12) Equity Share05/03?(12) Capital 04/03?(12) 04/03?(12) 630.00 03/03?(12) 05/03 03/03?(12) 630.00 02/03?(12) 04/03 630.00 01/03(12) 03/03 02/03?(12) 630.00 02/03 01/03(12) 630.00 CAPITAL 01/03 & LIABILITIES Reserves & Surplus

CAPITAL & 3 CAPITAL10,313.8 & LIABILITIES LIABILITIES 9,697.63 Owners' Fund 8,866.97 8,309.64 Equity Share Capital 7,718.15 Owners' Fund 285.00 Owners' Fund Other Liabilities & Provisions 285.00 5 11,797.7 285.00 5 Equity11,083.6 Share Capital 285.00 Equity Share Capital 10,087.9 1 1,853.37 285.00 14.23 8,024.41 1,853.37 Reserves & Surplus 5,658.39 14.23 1,853.37 5,443.05 14.23 Total 4,882.18 14.23 8 22,741.5 1,853.37 5,265.42 14.23 8 21,411.2 106.24 4,758.98 Reserves & Surplus 221.38 Money Share Application 6,303.74 2,675.38 184.63 2.72 Other Liabilities 2,971.49 & Provisions133.64

, . . 2,970.90 1,708.24 1,515.69 ASSETS 0.00 2,062.85 Other Liabilities & Provisions of Qouted Investment 46.31 3,480.52 216.00 Reserves & Surplus Total 167.34 Annexure Cash & Balances with RBI 2,675.38 7,706.92 113.68 2,517.40 2,971.49 7,143.83 91.48 2,553.07 2,971.12 7,258.66 77.04 1,815.39 Balance Sheet of 7,106.83 BHARTI TELE VENTURE Total 2,444.65 2,970.90 10,069.26 366.75 2,482.83 1,515.69 300.48 Investments Other Liabilities & Provisions ASSETS B.R.C.M. College of Business Administration, Surat 221.38 397.47 4,570.79 184.63 380.69 15.77 with RBI Cashsheet & Balances Balance of TATA TELE 133.64 371.01 5.00 1,409.12 102.68 1,046.71 ASSETS 40.61 0.00 Fixed Assets 2,358.59 41.82 Balance sheet of VSNL 2,534.94 Total 4,840.07 Cash & Balances with RBI 9,102.26 Investments B.R.C.M. College of Business Administration, Surat 101.57 4,840.63 1,200.58 87.17 4,829.49 2,089.14 32.42 Balance sheet of MTNL 655.87 19.39 Gross Block 4,864.88 366.29 21.65 14,252.2 1,710.06 110.65 5 Investments 13,562.9 3 of Business Administration, Surat B.R.C.M. College of Business Administration, Surat B.R.C.M. College 9.09 12,665.2 ASSETS Fixed Assets1 0.09 11,732.2 2 0.09 10,680.95 Gross Block 0.05 Less: Cash Accumulated Depreciation & Balances with RBI 3,182.68 0.11 7,783.62 384.14 Fixed Assets 2,348.54 7,352.65 0.13 3,290.23 2,835.29 7,148.03 0.34 6,420.43 2,658.79 5,653.07 22.52 Depreciation Less: Accumulated Net Block 13.30 835.65 6,468.63 Investments 590.81 Gross Block 6,210.28 931.90 1,015.19 66.93 5,517.17 1,762.67 862.12 65.62 5,311.80 1,467.79 742.99 61.53 5,027.89 Net Block 57.87 Capital Work?in-progress 1,899.67 2,347.03 57.21 651.51 794.47 1,757.73 Less: Accumulated Depreciation 508.25 Fixed Assets 2,275.03 41.90 918.74 1,973.17 36.04 797.81 1,915.80 28.33 Capital Work?in-progress 815.50 27.80 Other Assets 513.17 216.63 25.82 815.50S.No 14,312.0 5 Security Symbol 114.23 25.03 Equity 12,777.9 S.6No. 298.39 05/03?(12) Gross Block 29.58 Security Symbol 13,370.7 7% Weightage 497.19 04/03?(12) 13,240.63 33.20 Beta Equity 11,044.15 Other Assets 03/03?(12) 31.84 Weightage % written off R2 30.06 Miscellaneous3,646.14 Expenses not 02/03?(12) Beta 30.62 Volatility % 31.39 0.00 3,143.31 R2 01/03(12) 1 Capital Work?in-progress 0.00 Volatility % ABB 4,567.52 CAPITAL & LIABILITIES 28.02 0.72 0.00 1 423,816,750 5,044.12 24.73 0.12 ANDHRABANK 0.000.75% 7,545.63 Owners' Fund Less: Revaluation Reserve 4,850,000,000 0.12 0.71 Miscellaneous Expenses not written 0.72 off 2.13 0.15 1.73% 0.00 Total 0.00 0.00 1.17 1.6 0.00 25,258.9 8 47 0.00 0.25 0.00 Other Assets 23,964.3 42 UTIBANK 2.04 ACC0.00 333.91 21,400.2 7 2 2,786,241,460 1,851,909,460 0.00 0.00 294.88 22,027.7 13.72% APOLLOTYRE 0.81% 0.72 0.00 0.83 213.41 383,379,770 0.78 Total 19,370.37 Net Block

, ,53.52 . . . . 48 8,2 0.13 not 17.29 3 written off Miscellaneous Expenses 4,853.10 VIJAYABANK 9,971.24 1.55 BAJAJAUTO 13.79 50 0.00 3,965.93 4,335,178,000 10,216.9 1 3 1,011,835,100 ZEETELE 0.00 3,922.25 1.01% ASHOKLEY 1.84% 14,909.34 412,505,012 10.51 0.00 1.2 15.47 1,189,294,200 0.82 0.51% Contingent liabilities NIFTY VALUES 7.40 0.29 0.00 1.86% Book Value of2,280.87 Unqouted Investment 0.21 1.05 1.74 Net0.72 Block 1.24 9.09 0.162.19 2,422.66 0.3 2.86 9,762.86 4 49 Total 0.09 INGVYSYABK 1,829.85 2.88 14.56 B.R.C.M. College ofBHARTI Business 470.32 Administration, Surat 0.09 905,644,160 1,810.53 4 18,933,749,010 16.83 411.84 0.054.77% 0.55% ASIANPAINT 366.60 279.33 0.00 NIFTY JUNIOR 962,789,280 0.980.94Investment Book Value of Unqouted 17.51 230.06 2.63% Market Value 1,200.58 of Qouted Investment 0.25 0.2 1.35 17.33 227.74 0.4 1.29 0.00 2,032.91 50 Capital Work?in-progress 0.08 5 Contingent liabilities 0.00 599.59 WOCKPHARMA 2.09 BHEL 994.46 18.46 0.00 546,903,005 366.29 5 2,447,600,000 0.10 9.64 0.00 2.29% AUROPHARMA 110.65 B.R.C.M. College of Business Administration, Surat3.08 B.R.C.M.3.46% College of Business Administration, Surat 266,350,000 0.12 1.091.02 Market Value of0.00 Qouted Investment 3.28 1.21% 0.320.24 0.00 0.00 2.04 15.47 0.94 1.79 99.77 4.36 0.13 Investment Book Value of Unqouted 6 68.24 2.01 Other Assets BPCL 9.09 97.35 6 3,000,000,000 2,348.99 0.09 0.00 0.91% AVENTIS 3,688.36 0.09 230,306,220 0.69 3,341.31 0.05 0.14 1.71% 0.00 0.65 1.77 Market Value of3,040.22 Qouted 0.15 Investment 7 2.42 893.90 0.00 CIPLA 599,740,466 Miscellaneous Expenses not7written off 0.00 BANKBARODA 58.35 0.00 1.15% 3,670,000,000 0.83 1.30 0.00 0.17 3.34% 4.74 0.12 1.55 0.39

3.43 8

DABUR 1.94 7.99 8 573,302,784 0.00 BANKINDIA 0.44% 4,874,002,000 0.98 0.19 2.67% 1.81 1.62 0.34 9 DRREDDY 3.98 383,034,9859 BEL 0.70% 800,000,000 0.7 0.13 3.59% 1.01 3.21 0.26 10 2.49 GAIL 10 8,456,516,000 BHARATFORG 1.61% 441,018,830 1.05 3.75% 0.35 1.19 1.27 0.34 11 2.72 GLAXO 11 847,030,170 BIOCON 0.78% 500,000,000 0.7 0.16 1.98% 0.56 2.06 0.12 12 1.44 GRASIM 12 916,736,360 BONGAIREFN 1.11% 1,998,179,000 0.86 0.27 0.56% 0.98 2.35 0.25 13 GUJAMBCEM0.97 13 2,705,593,000 CADILAHC 0.83%

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