MBA DEPARTMENT 1

DECLARATION

I here by declare that the project entitled

“PORTFOLIO MANAGEMENT AND INVESTMENT DECISION”

Submitted for partial fulfillment for the award of

Degree of

MASTER OF BUSSINESS ADMINISTRATION is entirely original and

Has not

Been

Submitted earlier by any one for any Degree or Diploma.

DATE:
PLACE:
MBA DEPARTMENT 2

OBJECTIVES AND METHODOLOGY

AIM OF THE STUDY:

The study focuses its attention on the functioning of stock markets and

Construction of the equity portfolio

OBJECTIVES:
 To study the investment decision process.

 To analysis the risk return characteristics of sample scripts.

 Ascertain portfolio weights.

 To construct an effective portfolio which offers the maximum

return for minimum risk

METHODOLOGY
 Visiting Kotak securities at Banjara hills, Secunderabad and collecting information

 Discussions were conducted with the personnel of Kotak securities

MBA DEPARTMENT 3

SOURCES OF INFORMATION
The study uses extensively both primary and secondary data

PRIMARY DATA:

Information was collected through this source comprises of discussions with the personnel
of Fortis securities

SECONDARY DATA:

The secondary data includes information obtained from various sources that includes
newspaper articles, business magazines and web

LIMITATIONS
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1. The project work is mainly based on the above mentioned sources of information

2. The study was made in purview of the guidelines of SEBI, NATIONAL STOCK
EXCHANGE OF INDIA and KOTAK SECURITIES as applicable to that period only.
MBA DEPARTMENT 5
MBA DEPARTMENT 6
INTRODUCTION

INTRODUCTION , IMPORTANCE & NEED OF STUDY

Portfolio management or investment helps investors in effective

and efficient management of their investment to achieve this goal

.
The rapid growth of capital markets in India has opened up new
investment avenues for investors.

The stock markets have become attractive investment options for

the common man.

But the need is to be able to effectively and efficiently manage

investments in order to keep maximum returns with minimum risk.

Hence this study on PORTFOLIO MANAGEMENT & INVESTMENT

DECISION” to examine the role process and merits of effective investment
management and decision.

PORTFOLIO MANAGEMENT

PORTFOLIO:

A portfolio is a collection of securities since it is really desirable to invest

the entire funds of an individual or an institution or a single security, it is essential that
every security be viewed in a portfolio context. Thus it seems logical that the expected
return of the portfolio. Portfolio analysis considers the determine of future risk and return
in holding various blends of individual securities

Portfolio expected return is a weighted average of the expected return of the

individual securities but portfolio variance, in short contrast, can be something reduced
portfolio risk is because risk depends greatly on the co-variance among returns of
individual securities. Portfolios, which are combination of securities, may or may not take
on the aggregate characteristics of their individual parts.

Since portfolios expected return is a weighted average of the expected return of its
securities, the contribution of each security the portfolio’s expected returns depends on its
expected returns and its proportionate share of the initial portfolio’s market value. It
follows that an investor who simply wants the greatest possible expected return should
hold one security; the one which is considered to have a greatest expected return. Very
few investors do this, and very few investment advisors would counsel such and extreme
policy instead, investors should diversify, meaning that their portfolio should include more
than one security.
MBA DEPARTMENT 7

OBJECTIVES OF PORTFOLIOMANAGEMENT:

The main objective of investment portfolio management is to maximize

the returns from the investment and to minimize the risk involved in investment.
Moreover, risk in price or inflation erodes the value of money and hence investment must
provide a protection against inflation.

Secondary objectives:

The following are the other ancillary objectives:

• Regular return.
• Stable income.
• Appreciation of capital.
• More liquidity.
• Safety of investment.
• Tax benefits.

Portfolio management services helps investors to make a wise choice

between alternative investments with pit any post trading hassle’s this service renders
optimum returns to the investors by proper selection of continuous change of one plan to
another plane with in the same scheme, any portfolio management must specify the
objectives like maximum return’s, and risk capital appreciation, safety etc in their offer.

Return From the angle of securities can be fixed income securities such as:

(a) Debentures –partly convertibles and non-convertibles debentures debt with tradable
Warrants.
(b) Preference shares
(c) Government securities and bonds
(d) Other debt instruments

(2) Variable income securities

(a) Equity shares
(b) Money market securities like treasury bills commercial papers etc.

Portfolio managers has to decide up on the mix of securities on the basis of

contract with the client and objectives of portfolio

NEED FOR PORTFOLIO MANAGEMENT:

Portfolio management is a process encompassing many activities of investment in

assets and securities. It is a dynamic and flexible concept and involves regular and
systematic analysis, judgment and action. The objective of this service is to help the
unknown and investors with the expertise of professionals in investment portfolio
management. It involves construction of a portfolio based upon the investor’s objectives,
constraints, preferences for risk and returns and tax liability. The portfolio is reviewed and
adjusted from time to time in tune with the market conditions. The evaluation of portfolio
MBA DEPARTMENT 8
is to be done in terms of targets set for risk and returns. The changes in the portfolio
are to be effected to meet the changing condition.

Portfolio construction refers to the allocation of surplus funds in hand among a

variety of financial assets open for investment. Portfolio theory concerns itself with
the principles governing such allocation. The modern view of investment is oriented
more go towards the assembly of proper combination of individual securities to form
investment portfolio.

A combination of securities held together will give a beneficial result if they

grouped in a manner to secure higher returns after taking into consideration the risk
elements.

The modern theory is the view that by diversification risk can be reduced.
Diversification can be made by the investor either by having a large number of shares of
companies in different regions, in different industries or those producing different types of
product lines. Modern theory believes in the perspective of combination of securities under
constraints of risk and returns

PORTFOLIO MANAGEMENT PROCESS:

Investment management is a complex activity which may be broken down into the
following steps:

1) Specification of investment objectives and constraints:

The typical objectives sought by investors are current income, capital

appreciation, and safety of principle. The relative importance of these objectives should
be specified further the constraints arising from liquidity, time horizon, tax and special
circumstances must be identified.

2) choice of the asset mix :

The most important decision in portfolio management is the asset mix decision very
broadly; this is concerned with the proportions of ‘stocks’ (equity shares and units/shares
of equity-oriented mutual funds) and ‘bonds’ in the portfolio.

The appropriate ‘stock-bond’ mix depends mainly on the risk tolerance and
investment horizon of the investor.

ELEMENTS OF PORTFOLIO MANAGEMENT:

MBA DEPARTMENT 9

Portfolio management is on-going process involving the following basic tasks:

 Identification of the investor’s objectives, constraints and preferences.

 Strategies are to be developed and implemented in tune with investment policy
formulated.
 Review and monitoring of the performance of the portfolio.
 Finally the evaluation of the portfolio
Risk:
Risk is uncertainty of the income /capital appreciation or loss or both. All investments
are risky. The higher the risk taken, the higher is the return. But proper management of
risk involves the right choice of investments whose risks are compensating. The total risks
of two companies may be different and even lower than the risk of a group of two
companies if their companies are offset by each other.

The two major types of risks are:

 Systematic or market related risk.

 Unsystematic or company related risks.

Systematic risks affected from the entire market are (the problems, raw material
availability, tax policy or government policy, inflation risk, interest risk and financial risk). It
is managed by the use of Beta of different company shares.

The unsystematic risks are mismanagement, increasing inventory, wrong financial

policy, defective marketing etc. this is diversifiable or avoidable because it is possible to
eliminate or diversify away this component of risk to a considerable extent by investing in
a large portfolio of securities. The unsystematic risk stems from inefficiency magnitude of
those factors different form one company to another.

RETURNS ON PORTFOLIO:

Each security in a portfolio contributes return in the proportion of its

investments in security. Thus the portfolio expected return is the weighted average of the
expected return, from each of the securities, with weights representing the proportions
share of the security in the total investment. Why does an investor have so many
securities in his portfolio? If the security ABC gives the maximum return why not he invests
in that security all his funds and thus maximize return? The answer to this questions lie in
the investor’s perception of risk attached to investments, his objectives of income, safety,
appreciation, liquidity and hedge against loss of value of money etc. this pattern of
investment in different asset categories, types of investment, etc., would all be described
under the caption of diversification, which aims at the reduction or even elimination of
non-systematic risks and achieve the specific objectives of investors

RISK ON PORTFOLIO :

The expected returns from individual securities carry some degree of risk. Risk on
the portfolio is different from the risk on individual securities. The risk is reflected in the
variability of the returns from zero to infinity. Risk of the individual assets or a portfolio is
measured by the variance of its return. The expected return depends on the probability of
the returns and their weighted contribution to the risk of the portfolio. These are two
measures of risk in this context one is the absolute deviation and other standard deviation.

Most investors invest in a portfolio of assets, because as to spread risk by not

putting all eggs in one basket. Hence, what really matters to them is not the risk and
MBA DEPARTMENT 10
return of stocks in isolation, but the risk and return of the portfolio as a whole. Risk is
mainly reduced by Diversification.

RISK RETURN ANALYSIS:

All investment has some risk. Investment in shares of companies has its own risk or
uncertainty; these risks arise out of variability of yields and uncertainty of appreciation or
depreciation of share prices, losses of liquidity etc

The risk over time can be represented by the variance of the returns. While the return over
time is capital appreciation plus payout, divided by the purchase price of the share.

Normally, the higher the risk that the investor takes, the higher is the
return. There is, how ever, a risk less return on capital of about 12% which is the bank,
rate charged by the R.B.I or long term, yielded on government securities at around 13% to
14%. This risk less return refers to lack of variability of return and no uncertainty in the
repayment or capital. But other risks such as loss of liquidity due to parting with money
etc., may however remain, but are rewarded by the total return on the capital. Risk-return
is subject to variation and the objectives of the portfolio manager are to reduce that
variability and thus reduce the risky by choosing an appropriate portfolio.

Traditional approach advocates that one security holds the better, it is according
to the modern approach diversification should not be quantity that should be related to the
quality of scripts which leads to quality of portfolio.

Experience has shown that beyond the certain securities by adding more securities
expensive.

Simple diversification reduces:

An asset’s total risk can be divided into systematic plus unsystematic risk, as shown below:

Systematic risk (undiversifiable risk) + unsystematic risk (diversified risk)

=Total risk =Var (r).

Unsystematic risk is that portion of the risk that is unique to the firm (for example, risk due
to strikes and management errors.) Unsystematic risk can be reduced to zero by simple
diversification.

Simple diversification is the random selection of securities that are to be added to a

portfolio. As the number of randomly selected securities added to a portfolio is increased,
the level of unsystematic risk approaches zero. However market related systematic risk
cannot be reduced by simple diversification. This risk is common to all securities.
MBA DEPARTMENT 11

Persons involved in portfolio management:

Investor:
Are the people who are interested in investing their funds

Portfolio managers:

Is a person who is in the wake of a contract agreement with a client, advices or

directs or undertakes on behalf of the clients, the management or distribution or
management of the funds of the client as the case may be.

Discretionary portfolio manager:

Means a manager who exercise under a contract relating to a portfolio

management exercise any degree of discretion as to the investment or management of
portfolio or securities or funds of clients as the case may be
.
The relation ship between an investor and portfolio manager is of a highly
interactive nature

The portfolio manager carries out all the transactions pertaining to the investor
under the power of attorney during the last two decades, and increasing complexity was
witnessed in the capital market and its trading procedures in this context a key
(uninformed) investor formed ) investor found him self in a tricky situation , to keep track
of market movement ,update his knowledge, yet stay in the capital market and make
money , there fore in looked forward to resuming help from portfolio manager to do the job
for him .

The portfolio management seeks to strike a balance between risk’s and return.

The generally rule in that greater risk more of the profits but S.E.B.I. in its
guidelines prohibits portfolio managers to promise any return to investor.
Portfolio management is not a substitute to the inherent risk’s associated with equity
investment

Who can be a portfolio manager?

Only those who are registered and pay the required license fee are eligible to
operate as portfolio managers. An applicant for this purpose should have necessary
infrastructure with professionally qualified persons and with a minimum of two persons
with experience in this business and a minimum net worth of Rs. 50lakh’s. The certificate
once granted is valid for three years. Fees payable for registration are Rs 2.5lakh’s every
for two years and Rs.1lakh’s for the third year. From the fourth year onwards, renewal fees
per annum are Rs 75000. These are subjected to change by the S.E.B.I.

The S.E.B.I. has imposed a number of obligations and a code of conduct on them.
The portfolio manager should have a high standard of integrity, honesty and should not
have been convicted of any economic offence or moral turpitude. He should not resort to
MBA DEPARTMENT 12
rigging up of prices, insider trading or creating false markets, etc. their books of
accounts are subject to inspection to inspection and audit by S.E.B.I... The observance of
the code of conduct and guidelines given by the S.E.B.I. are subject to inspection and
penalties for violation are imposed. The manager has to submit periodical returns and
documents as may be required by the SEBI from time-to- time.

.Functions of portfolio managers:

the main function of portfolio managers are :

• Advisory role: advice new investments, review the existing ones, identification
of objectives, recommending high yield securities etc.

• Conducting market and economic service: this is essential for recommending

good yielding securities they have to study the current fiscal policy, budget
proposal; individual policies etc further portfolio manager should take in to
account the credit policy, industrial growth, foreign exchange possible change in
corporate law’s etc.

• Financial analysis: he should evaluate the financial statement of company in

order to understand, their net worth future earnings, prospectus and strength.

• Study of stock market : he should observe the trends at various stock

exchange and analysis scripts so that he is able to identify the right securities for
investment

• Study of industry: he should study the industry to know its future prospects,
technical changes etc, required for investment proposal he should also see the
problem’s of the industry.

• Decide the type of port folio: keeping in mind the objectives of portfolio a
portfolio manager has to decide weather the portfolio should comprise equity
preference shares, debentures, convertibles, non-convertibles or partly
convertibles, money market, securities etc or a mix of more than one type of
proper mix ensures higher safety, yield and liquidity coupled with balanced risk
techniques of portfolio management.

A portfolio manager in the Indian context has been Brokers (Big

brokers) who on the basis of their experience, market trends, Insider trader, helps the
limited knowledge persons.

The one’s who use to manage the funds of portfolio, now being managed
by the portfolio of Merchant Bank’s, professional’s like MBA’s CA’s And many financial
institution’s have entered the market in a big way to manage portfolio for their clients.

According to S.E.B.I. rules it is mandatory for portfolio managers to get

them self’s registered.

Registered merchant bankers can act’s as portfolio manager’s

Investor’s must look forward, for qualification and performance and ability and research
base of the portfolio manager’s.
 MBA DEPARTMENT 13

Technique’s of portfolio management:

As of now the under noted technique of portfolio management: are in vogue in our
country
1. equity portfolio: is influenced by internal and external factors the internal factors
effect the inner working of the company’s growth plan’s are analyzed with
referenced to Balance sheet, profit & loss a/c (account) of the company.
Among the external factor are changes in the government policies, Trade cycle’s,
Political stability etc.
2. equity stock analysis: under this method the probable future value of a share of
a company is determined it can be done by ratio’s of earning per share of the
company and price earning ratio

EPS == PROFIT AFTER TAX

NO: OF EQUITY SHARES

PRICE EARNING RATIO= MARKET PRICE

E.P.S (earning’s per share)

One can estimate trend of earning by EPS, which reflects trends of earning quality of
company, dividend policy, and quality of management.
Price earning ratio indicate a confidence of market about the company future, a high rating
is preferable.
.
The following points must be considered by portfolio managers while analyzing
the securities.

1. Nature of the industry and its product: long term trends of industries,
competition with in, and out side the industry, Technical changes, labour relations,
sensitivity, to Trade cycle.
2. Industrial analysis of prospective earnings, cash flows, working capital,
dividends, etc.

3. Ratio analysis: Ratio such as debt equity ratio’s current ratio’s net worth,
profit earning ratio, return on investment, are worked out to decide the portfolio.

The wise principle of portfolio management suggests that “Buy when the market is
low or BEARISH, and sell when the market is rising or BULLISH”.

Stock market operation can be analyzed by:

a) Fundamental approach :- based on intrinsic value of share’s
b) Technical approach:-based on Dowjone’s theory, Random walk theory, etc.

Prices are based upon demand and supply of the market.

i. Traditional approach assumes that

ii. Objectives are maximization of wealth and minimization of risk.
iii. Diversification reduces risk and volatility.
iv. Variable returns, high illiquidity; etc.

Capital Assets pricing approach (CAPM) it pay’s more weight age, to risk or portfolio
diversification of portfolio.

Diversification of portfolio reduces risk but it should be based on certain

assessment such as:
MBA DEPARTMENT 14

Trend analysis of past share prices.

Valuation of intrinsic value of company (trend-marker moves are known for their

Uncertainties they are compared to be high, and low prompts of wave market trends
are constituted by these waves it is a pattern of movement based on past).

The following rules must be studied while cautious portfolio manager before decide to
invest their funds in portfolio’s.

1. Compile the financials of the companies in the immediate past 3 years such as turn
over, gross profit, net profit before tax, compare the profit earning of company with
that of the industry average nature of product manufacture service render and it
future demand ,know about the promoters and their back ground, dividend track
record, bonus shares in the past 3 to 5 years ,reflects company’s commitment to share
holders the relevant information can be accessed from the RDC(registrant of
companies)published financial results financed quarters, journals and ledgers.

2. Watch out the high’s and lows of the scripts for the past 2 to 3 years and their
timing cyclical scripts have a tendency to repeat their performance ,this hypothesis
can be true of all other financial ,

3. The higher the trading volume higher is liquidity and still higher the chance of
speculation, it is futile to invest in such shares who’s daily movements cannot be kept
track, if you want to reap rich returns keep investment over along horizon and it will
offset the wild intra day trading fluctuation’s, the minor movement of scripts may be
ignored, we must remember that share market moves in phases and the span of each
phase is 6 months to 5 years.

a. Long term of the market should be the guiding factor to enable you to invest
and quit. The market is now bullish and the trend is likely to continue for some
more time.

b. UN tradable shares must find a last place in portfolio apart from return; even
capital invested is eroded with no way of exit with no way of exit with inside.

How at all one should avoid such scripts in future?

(1) Never invest on the basis of an insider trader tip in a company which is not sound
(insider trader is person who gives tip for trading in securities based on prices sensitive up
price sensitive un published information relating to such security).

(2) Never invest in the so called promoter quota of lesser known company

(3) Never invest in a company about which you do not have appropriate knowledge.

(4) Never at all invest in a company which doesn’t have a stringent financial record your
portfolio should not a stagnate

(4) Shuffle the portfolio and replace the slow moving sector with active ones , investors
were shatter when the technology , media, software , stops have taken a down slight.

(5) Never fall to the magic of the scripts don’t confine to the blue chip company‘s, look out
for other portfolio that ensure regular dividends.

(6) In the same way never react to sudden raise or fall in stock market index such
fluctuation is movementary minor correction’s in stock market held in consolidation of
market their by reading out a weak player often taste on wait for the dust and dim to settle
to make your move” .
 MBA DEPARTMENT 15

PORT FOLIO MANAGEMENT AND DIVERSIFICATOIN:

Combinations of securities that have high risk and return features make up a
portfolio.

Portfolio’s may or may not take on the aggregate characteristics of individual

part, portfolio analysis takes various components of risk and return for each industry and
consider the effort of combined security.

Portfolio selection involves choosing the best portfolio to suit the risk return
preferences of portfolio investor management of portfolio is a dynamic activity of
evaluating and revising the portfolio in terms of portfolios objectives

It is widely accepted that returns from individual scripts carry certain rate of risk
.portfolio held in spreading the risk in many security then the risk is reduced. The basic
principle is that of a port folio holds several assets or securities
It may include in cash also, even if one goes bad the other will provide protection from the
loss even cash is subject to inflation the diversification can be either vertical or horizontal
the vertical diversification portfolio can have script of different company’s with in the same
industry.

In horizontal diversification one can have different scripts chosen from different industries.

CEMENT INDUSTRY .TEXTILE INDUSTRY

ACC CEMENT RELILANCE INDUSTRIES

JK CEMENT GARDEN SILK MILLS
ULTRA TECH NECP TEXTILE
BIRLA CEM BOMBAY DEYING
VISHNU CEM GRASIM INDUSTRIES
PRIYA CEM BORODA RAYON
RAM CO CEM CHESLIND TEXTILE

Horizontal Diversification

TISCO MANUFACTURING
ACC
GARDEN TEXTILE
INFOSYS (SOFTWARE)
BSES LTD (POWER)
ULTRA TECH (CONSTRUCTION)

Diversification should be either be too much nor too less

It should be an adequate diversification looking in to the size of portfolio.

Traditional approach advocates the more security one holds in a portfolio , the better it is
according to modern approach diversification should not be quantified but should be related to
the quality of scripts which leads to the quality and portfolio subsequently experience can show
that beyond a certain number of securities adding more securities become expensive.

Investment in a fixed return securities in the current market scenario which is passing
through a an uncertain phase investors are facing the problem of lack of liquidity combined with
minimum returns the important point to both is that the equity market and debt market moves
in opposite direction .where the stock market is booming, equities perform better where as in
depressed market the assured returns related securities market out perform equities.

It is cyclic and is evident in more global market keeping this in mind an investor can shift
from fixed income securities to equities and vise versa along with the changing market
scenario , if the investment are wisely planned they , fetch good returns even when the market
 MBA DEPARTMENT 16
is depressed most , important the investor must adopt the time bound strategy in
differing state of market to achieve the optimum result when the aim is short term returns it
would be wise for the investor to invest in equities when the market is in boom & it could be
reviewed if the same is done.

Maximum of returns can be achieved by following a composite pattern of investment by

having, suitable investment allocation strategy among the available resources.

 Never invest in a single securities your investment can be allocated in the

following areas:

1. Equities:-primary and secondary market.

2. Mutual Funds
3. Bank deposits
4. Fixed deposits & bonds and the tax saving schemes

 The different areas of fixed income are as:-

Fixed deposits in company

Bonds
Mutual funds schemes

with an investment strategy to invest in debt investment in fixed deposit can be made for the
simple reason that assured fixed income of a high of 14-17% per annum can be expected
which is much safer then investing a highly volatile stock market, even in comparison to banks
deposit which gives a maximum return of 12% per annum, fixed deposit s in high profile
esteemed will performing companies definitely gives a higher returns.

Additional facilities offered by most of the schemes

Instant loan facility

Advances payment of interest in the form of postdated warrants
Premature with drawl facility
Pre personal accident insurance

Fixed deposit does provide a Varity of schemes to suit the financial links of investor
a few of the schemes are:

 Monthly income deposits where the interest is paid every month.

 Quarterly income deposit where the interest is paid once in a quarter
 Cumulative deposit where interest is accumulated and paid at the time of maturity.
 Recurring deposit similar to recurring deposit of banks
 Cash certificates schemes

An investor can look for the CRISIL, CARE, ICRA, ratings for fixed deposits.

BETA:

The concept of Beta as a measure of systematic risk is useful in portfolio management.

The beta measures the movement of one script in relation to the market trend*. Thus BETA
can be positive or negative depending on whether the individual scrip moves in the same
direction as the market or in the opposite direction and the extent of variance of one scrip
vis-à-vis the market is being measured by BETA. The BETA is negative if the share price
moves contrary to the general trend and positive if it moves in the same direction. The
scrip’s with higher BETA of more than one are called aggressive, and those with a low BETA
of less than one are called defensive.

It is therefore it is necessary, to calculate Betas for all scrip’s and choose those with
high Beta for a portfolio of high returns.

EFFICIENT FRONTIER

To construct an efficient portfolio, we have to conceptualize. Various

combinations of investments in a basket and designate them as portfolio 1 and n. the
MBA DEPARTMENT 17
expected returns from these portfolios are be worked out. The risk on these
portfolios is to be estimated by measuring the standard deviation of different portfolio
returns. In order to understand more easily we will see in Morkowitz graphical selection of
portfolio:

If there are “n” assets available in the capital market, we can constitute two assets
portfolio, three asset portfolio, four asset portfolio, and ….”n” asset portfolio. For each
portfolio there are “n” possible proportions of investments. Together they result in an almost
infinite number of portfolios. The risk and return and be seen in graph below:

Findings : The markowirtz graphic selection of portfolio is set to be not an efficient one
because if an investor is ready to take risk at std deviation X. he can vote the last portfolio Y
.from the risk std deviation Z and Rx point of view it is not an efficient portfolio.

“X is a denominated portfolio.
“Y” and “Z” is a dominant portfolio.

When the outer points of an efficient portfolio are jointed a shell is formed or
a broken egg is formed. the shape depends upon degree of correlation among securities,
therefore the shell is called attainable set, feasible set, it is so called because all the
available investment opportunities in the market like either on the border or with in the
border.

CONCEPT OF EFFICIENT PORTFOLIO:

Assume that X is selected it is in –efficient portfolio because

1. If he is prepare to take a risk of STD deviation for the same risk “Y”. gives in the higher
rate of Ry . Therefore “Y” is a dominant portfolio and “X” is a dominated portfolio.

2.if a investor is satisfied with the return of Rx , the same return can be earn by choosing
portfolio “Z” which has a similar risk of std deviation x (As against larger risk std
deviation x)

The dominants principle states that among all the investment opportunities
available with a given return, the investment with the least risk is the most desirable one or
among the investment in a given risk class, the one with the highest return with the most
desirable one. Risk principle is also called Efficient set theorem.
In the light of this segment A, B is the relevant portion of the feasible set it is called the
Markowitz efficient frontier. It is so called because all efficient portfolios lie on this frontier.
MBA DEPARTMENT 18
An efficient portfolio is one, that gives the highest return for given
return or a minimum risk for a given return, these efficient portfolios are also refer as means
variance efficient portfolios. The shape of the efficient frontier is given by Delta RP /Delta
STD deviation p.

MODIFICATION TO THE EFFICIENT FRONTIER:

Two modifications to the efficient frontier must be discussed: what happens when short
selling is added, and what happens when leveraged portfolios are added?

A. Short selling: the ability to short sell has two effects on the efficient frontier. The
frontier probably shifts up and to the left and it continuous to the right. The ability to short sell
securities created a new set of possible investments. A security sold short produces a positive
return when a security has a large decrease in price and a negative return when its price
increases. Its potential improves the efficient frontier.

Because the ability to short sell doubles the number of possible investments. Since investors
are free not short sell, the introduction of the ability to short sell cannot make investors
worse off. If it never pays to short sell, the worst that can happen is that the efficient frontier
is unchanged. With out short sales, all investors can do is not to hold securities that they
believe do poorly.

With short sales, an opportunity is created that is expected to have almost the
opposite characteristics of the investment when purchased. With short sales it is possible, in
a sense to disinvest in poor investments and hence gain poorly. If it ever pays to short sell
any security, the efficient frontier is shifted up and to the left. This is an example of the old
economic adage that a decision maker can not be worse o by being given additional choices
and the decision maker may well be better off. In addition short sales allow the investor to
decrease or eliminate market risk in a large well diversified portfolio, unique risk is
eliminated and only market risk remains. Short sales allow the reduction of market risk to
very low levels. Thus the additional of short positions operates as a hedging mechanism,
reducing the market exposure of a portfolio.

The extension of the efficient frontier to the right arises from the tendency of a very
large amount of short selling to increase the risk and return on the portfolio. This increase in
risk is easy to understand. Short sales can involve unlimited loss. The lesson to be learned
from this is that short sales can increase the possible level of return for any level of risk.
Short sales can be abused and positions taken that are too extreme. However short selling
per sec is not bad. Like any other investment strategy, it can be used prudently or
imprudently.

B.LEVERAGED PORTFOLIO:

Markowitz model, which recognized the existence of both systematic and

unsystematic risk, did not allow for borrowing and lending opportunities. The investor is
assumed to have a certain amount of initial wealth to invest for a given holding period. Off
all the periods that are available, the optimal one is shown to correspond to the point where
one of the investor’s indifference curves in tangent to the efficient set.

At the end of the holding period, the investor’s initial wealth

will have either increased or decreased, depending on the portfolio’s
rate of return. Again in the markowitz ‘s approach , it is assumed that
the assets being considered for investment are individually risky, that
is each one of the N risky assets has an uncertain return over the
investor’s holding period. Since none of the asset has a perfectly
negitive correlation with any other asset, all the portfolios also have
uncertain returns over the investor is not allowed to use borrowed
money. A long with his or her initial wealth, to purchase a portfolio of
MBA DEPARTMENT 19

assets. This means that the investor is not allowed to use

financial leverage.
To expand the Markowitz approach investor can consider risk free assets and financial
leverage by first investing in not only risky assets but also in risk free assets, and second by
borrowing money at a given rate of interest.

1. RISK FREE ASSET:

Investment in risk free asset is often referred to as risk free lending. Since this approach
involves investing for a single holding period, it means that the return of the risk free asset is
certain. That is, if the investor purchases this asset at the beginning of the holding period,
then the investor knows exactly what the value of the asset will be at the end of the holding
project. Since there is no uncertainty about the terminal value of the risk free asset, the
standard deviation of the risk free assets, by definition, zero. In turn, this means that the
covariance between the rate of return on the risk free asset and the rate of return on any
risky asset is zero.

2. INVESTMENT IN BOTH THE RISK FREE ASSETS AND A RISKY ASSTS:

The efficient frontier would be altered substantially if a risk frees securities is included
among available investment opportunities. While a risk free security does not exist in the strict
sense of the word, there are securities, which promise return with relative certainty. They are
characterized by an absence of default risk and return rate; full payment of principle is assured
with out serious prospect of capital loss arising from changes in the level of interest rates. A
risk free security of this type includes cash, short-term treasury bills, and time deposits in
banks or savings and loan association; cash would be dominated by the other positive return
investments.

Given the opportunity to either borrow or lend at the risk free rate, an investor proceed
to identify the optimal portfolio by plotting his or her indifference curves on graph and nothing
where once of them is tangent to the indifference efficient set.

For example portfolio, has an expected return of 11% and a standard deviation of 12.5%.
However, portfolio is not efficient, since portfolio B has the same expected return but a
standard deviation of only 8%. Portfolio but not efficient, l since portfolio f has a still higher
return with the same degree of risk as e and h. Portfolio A is a single equity portfolio that has
the highest return and risk; in no way can investor improve on its return-to-risk ratio. If
investor moves to the right on the curve, return decreases and risk decreased. Hence investor
moves to the left and down. The only way the investor can obtain a higher return on the
efficient frontier is to accept a higher return on the efficient frontier is to accept a higher
amount of risk.

Where investors operate on the capital market line depends on their attitudes towards
risk and return. Investors must determine their own preference for risk and return by way of a
difference cure. In theory, the investor will invest the combination of securities found at the
point where the highest indifference curve just touches the capital market line. Investors might
have higher return and lower risk goals, but they can obtain those combinations only on the
capital market line, and will invest at some point that gives the combination of returns and risk
that allows them to maximize net worth and make a satisfactory investment

. To be realistic, assume that the investor’s borrowing rate is above the lending
rate. Combination of lending or borrowing with a portfolio of risky assets lies along a straight
lines, with lending and borrowing the efficient frontier. Noticed that for all investors, expect for
those whose risk-return trade-offs causes they to hold portfolios, the ability to lend and borrow
improve their opportunities. The ability to lend is hardly controversial. The borrowing part may
be more controversial. Borrowing and buying a less risky portfolio can give higher returns and
less risk and buying a more risky portfolio.
MBA DEPARTMENT 20
Higher expected return at the same risk level by borrowing. Of
course, borrowing like short sales, almost any financial mechanism can be abused. It can be
used to take extreme and imprudent risk position. On the other hand, it can be used to
enhance performance. Rejecting borrowing entirely would throw out positive opportunities. For
example, consider an investor wishing to have a high portfolio with greater expected returns
than offered by portfolio B. this investor would have the same expected return and less risk by
buying port folio B and borrowing than by buying portfolio, which does not involve borrowing.

Returning to the concept of the efficient frontier, it is necessary to deal further

into the subject of prudent investment. In an efficient frontier, an investor should never hold a
security or portfolio that lie below that frontier. Because all single securities expect the risk
less asset lie below the frontier, there is almost never a situation where a single security is
efficient. All efficient portfolios are will diversified.

CAPITAL ASSET PRICING MODEL(CAPM)

The relevant risk for an individual asset is a systematic risk (or market –market risk) because
non market risk can be eliminated by diversification, the relationship between an asset’s
return and its systematic risk can be expressed by the CAPM, which is also called the security
market (SML). The equation for the CAPM is as follows:

E(ri)=R+[E(rm)-R]bi

Where E (ri) is the expected return for an asset,

R is the risk-free rate (usually assumed to be a short-term T-bill rate)
E (rm)equals the expectecmarket return (usually assumed to be the S&P500)
Bi denotes for the asset’s beta.

The CAPM is an equilibrium model for measuring the risk-return tradeoff for all asset s
including both inefficient and efficient portfolios. A graph of the CAPM is given below:

Figure representing : RISK EXPOSURE OF PORTFOLIO

FINDINGS:

Depicts two assets, U and O that are not in equilibrium on the CAPM. Asset U is undervalued
and therefore , avary desirable asset to own. U”s price will rise in the market as more investors
purchase it. However as U’s price goes up,its return falls. When U’s return falls to the return
consistent with the beta on the SML, equilibrium is attained. With O,just the opposite takes
place.investor will attempt to sell O,since it is overvalued and therefore, put down pressure on
O’s price. When the return on asset O increases to the rate that is coinsistent with the beta risk
level given by the SML, equilibrium will be achieved and down ward price pressure will cease.
Assumptions underlying CAPM
MBA DEPARTMENT 21

The Capital Asset Pricing Model {CAPM} is an equilibrium model. The derivation
of the model is based on several assumptions about investors and the market, whichwe
present below for completeness. Investors are assumed to take in to account only two
parameters of return distribution, namely the mean and the varience , in making a choice of
portfolio . in other words, it is assumed that a secutity can be completely represented in terms
of its expected return and varience and those investors behave as if a security were a
commodity with two attributes,namely , expected return which is a desirable attribute and
varience, which is an undesirable attribute. Investors are supposed to be risk averse and for
every additional unit of risk they take, they demand compensation in terms of expected
returns.

Again the capital market is assumed to be efficient. An efficient market implies

that all new information which could possibly affect the share price becomes available to all
the investors quickly and more or less simultaneously. Thus in an efficient market no single
investor has an edge over another it terms of the information possessed by him since all
investor are supposedly well informed and rational,meaning that all of them process the
available information more or less alilke. And finally in an efficient market, all investors are
price takers, i.e., no investor are so big as to affect the price of security significantly by virtue
of his trading in that security

The Capital Asset Pricing Model also assumes that the difference between lending
and borrowing rates are negligibly small for investors. Also, the investors are assumed to make
a single period investment decisions. The cost of transactions and information are assumed to
be negligibly small. The model also ignores the existence of taxes, which may influence the
investor’s behavior.

The fact that some of the above assumptions are some what restrictive has
attracted considerable criticism of the model. This however need not distract us from main
thrust of the model. The Capital Asset Pricing Model merely implies that in a reasonably well-
functioning market where a large number of knowledgeable financial analysts operate, all
securities will yield returns consistence with their risk, since if this were not is, the
knowledgeable analysts will be able to take advantage of the opportunities for
disproportionate returns and there by reduce such opportunities.

Hence, according to CAPM, in an efficient market, returns disproportionate to risk are

difficult to come by. assumptions concerning the investor behavior, market efficiency, lending
and borrowing rates, etc., are to be taken not in their literal sense, but rather as approximate
conditions. Factors such as taxes, transaction cost, etc, can be easily incorporated in to the
model for greater rigor.

The security market line (SML) express the basic theme of the CAPM i.e.., expected
return of a security increases linearly with risk, as measured by Beta. It can be drawn as
follows.
MBA DEPARTMENT 22

The SML is upward sloping straight line with an intercept at the risk free return securities
and passes through the market portfolio. The upward slope of the line indicates that greater
expected return accompany higher level of Beta. In equilibrium, each security or portfolio lies
on the SML.

In the above figure that the return expected from portfolio or investment is a
Combination of risk free return plus risk premium. An investor will come forward to take risk
only if the return on investment also includes risk premium.
The CAPM has shown the risk and return relationship of a portfolio in the following formula.

E (Ri) =Rr +ßi-(Rm-Rr)

Where

E (Ri) = expected rate of return on any individual security (or portfolio of security)

Rr =Risk free rate of return

Rm =expected rate of return on the market portfolio.

ßi =market sensitivity index of individual security (or portfolio of securities)

STOCK EXCHANGES

Capital markets in India have considerable depth. There are 22 stock exchanges in India.
Ahmedabad, Delhi, Calcutta, Madras and Bangalore are major ones amongst the other
stock exchanges. These stock exchanges are served by 3,000 brokers and 20,000 sub-
brokers. A number of providers for merchant banking services exist.

The market capitalization of the Bombay Stock Exchange (BSE) alone was around Rs.5
trillion in December 1994.This makes it one of the largest emerging stock markets in the
world. A number of other cities also have stock markets.

There are two other exchanges in Bombay :-

• National Stock Exchange (NSE)
• Over The Counter Exchange of India (OTCEI)

The regulatory agency which oversees the functioning of stock markets is the Securities
and Exchange Board of India (SEBI), which is also located in Bombay.

India has one of the most active primary markets in the world, with roughly 130 public
issues taking place each month.

The National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and OTCEI have
already introduced screen-based trading. All other exchanges (except Guwahati, Magadh
and Bhubaneshwar) are to introduce full computerisation and screen-based trading by 30
June 1996. This will bring about greater transparency for investors, reduce spreads, allow
for more effective monitoring of prices and volumes and speed up settlement.
MBA DEPARTMENT 23

NATIONAL STOCK EXCHANGE OF INDIA (NSE)

The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges, which recommended
promotion of a National Stock Exchange by financial institutions (FIs) to provide access to
investors from all across the country on an equal footing. Based on the recommendations,
NSE was promoted by leading Financial Institutions at the behest of the Government of
India and was incorporated in November 1992 as a tax-paying company unlike other stock
exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act,
1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM)
segment in June 1994. The Capital Market (Equities) segment commenced operations in
November 1994 and operations in Derivatives segment commenced in June 2000

Currently, 200 large companies are traded on the NSE; that list is expected to gradually
expand as the exchange stabilizes. The NSE is a computerized market for debt and equity
instruments.

The NSE, located in Bombay, was set up in 1993 to encourage stock exchange reform
through system modernization and competition. NSE's reach has been extended to 21
cities, of which 6 cities do not have their own stock exchanges. NSE plans to cover 40 cities
by end-1996. The NSE has a very modern implementation of trading using contemporary
technology in computers and communication. It is an electronic screen based system
where members have equal opportunity and access for trading irrespective of their
location, since they are connected by a satellite network.
The number of members trading on the exchange has increased from the 227 at
commencement to 600 members as of November 1995. NSE, thus, helps to integrate the
national market and provides a modern system with a complete audit trail of all
transactions. In a further effort to improve the settlement system and minimize the risks
associated therein, NSE has set up a subsidiary - National Securities Clearing Corporation
(NSCC). On par with clearing corporations the world over, NSCC will shortly guarantee
settlement of trades executed and settled through it. The instruments traded are treasury
bills, government security, and bonds issued by public sector companies.

The government of India issues around Rs.70 billion of debt instruments per year. The
market is still nascent; but, trading volumes are steadily rising. Average daily turnover in
stocks have increased from Rs.70 million in November 1994 to Rs.990 million during July
1995.
MBA DEPARTMENT 24

OBJECTIVES:

1) To establish a nation wide trading facility for

equities, debt instruments and hybrids.
2) To ensure equal access to investors all over the country through
appropriate communication network.
3) To provide a fair, efficient and transparent securities market to investors
using an electronic communication network.
4) To enable shorter settlement cycle and book entry settlement system.
5) To meet current international standards of securities market.

PROMOTERS:
Industrial Development Bank of India (IDBI)
Industrial Credit and Investment Corporation of India (ICICI)
Industrial Financing Corporation of India (IFCI)
Life Insurance Corporation of India (LIC)
State Bank of India (SBI)
General Insurance Corporation (GIC)
Bank of Baroda
Canara Bank
Corporation Bank
Indian Bank
Oriental Bank of Commerce
Union Bank of India
Punjab National Bank
MBA DEPARTMENT 25
Infrastructure Leasing and Financial Services
Stock Holding Corporation of India
SBI capital market
MBA DEPARTMENT 26

NSE-NIFTY

The national Stock Exchange on April 22, 1996 launched a new Equity Index. The NSE-50.
The new Index which replaces the existing NSE-100 Index is expected to serve as an
appropriate Index for the new segment of futures and options.
“Nifty” means National Index for Fifty Stock.
The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an
aggregate market capitalization of around Rs.170000crores. All companies included in the
index have a market capitalization in excess of Rs.500crores each and should have traded
for 85% of trading days at an impact cost of less than 1.5%.
The base period for the index is the close of prices on Nov 3,1995 which makes one year of
completion of operation of NSE’s capital market segment. The base value of the Index has
been set at 1000.
MBA DEPARTMENT 27

BOMBAY STOCK EXCHANGE

The Stock Exchange, Mumbai, Popularly as “Bombay Stock

Exchange” (BSE) was established in 1875 as The
Native Share and Stock Brokers Association”, as
a voluntary non-profit making association. It has
evolved over the year into its present status as
the premier Stock Exchange in the country. It
may be noted that the Bombay Stock Exchange
is the oldest one in Asia, even older than the
Tokyo Stock Exchange, which was founded in
1878.

The Bombay Stock Exchange, while providing an efficient and transparent

market for the trading in securities, upholds the interests of the investors and ensures
redressal of their grievances, whether against the companies or its own member-brokers.
It also strives to educate and enlighten the investors by making available necessary
informative inputs and conducting investor education programs.

A Government Board comprising of 9 elected Directors (one third of them retire

every year by rotation), Two SEBI Nominees, Seven Public representatives and an
Executive Director is the Apex Body, which decides the policies and regulates the affairs of
the Bombay Stock Exchange. The executive Director as the Chief Executive Officer is
responsible for the day-to-day administration of the Bombay Stock exchange.

SECURITIES TRADED:

The securities traded in the BSE are classified in to three groups namely
specified shares of ‘A’ group and non-specified securities. The latter is sub-divided into ‘B1’
and ‘B’ groups. ‘A’ group contains the companies with large outstanding shares, good track
record and large volumes of business in the secondary market. Settlements of all the
shares are carried out through the Clearing House.

Number of Market Annual Average Daily

Year Listed Capitalization Turnover Turnover
Companies (In Crores) (In Crores) (Rs. In Billion)
1994-95 4702 7355 677 1.8
1995-96 5602 5365 501 2.2
1996-97 5832 4639 1243 5.2
MBA DEPARTMENT 28

1997-98 5853 5630 2706

8.5
2000-03 6000 5479 2449 11.5

In order to enable the market participants, analysts etc., to track the various ups and
downs in the Indian Stock Market, the Exchange has introduced in 1986 an equity stock
index called BSE-SENSEX that subsequently became the barometer of the moments of the
share prices in the Indian Stock Market. It is a “Market Capitalization-Weighted” index of
30 components. The base year of SENSEX is 1978-79. The SENSEX is widely reported in
both domestic and international markets through print as well as electronic media.

SENSEX is calculated using a market capitalization weighted method. As per this

methodology, the level of the index reflects the total market value of all 30component
stocks from different industries related to particular base period. The total market value of
a company is determined by multiplying the price of its stock by the number of shares
outstanding. Statisticians call an index of a set of combined variables (such as price and
number of shares) a composite index. An indexed number is used to represent the results
of this calculation in order to make the value easier to work with and track over a time. It is
much easier to graph a chart based on indexed values than one based on actual values.

In practice, the daily calculation of SENSEX is done by dividing the aggregate market of the
30 Companies in the Index by a number called the Index Divisor. The Divisor is the only
link to the original based period value of the SENSEX. The divisor keeps the index
comparable over a period of time and if the reference point for the entire Index
maintenance adjustments. SENSEX is widely used to describe the mood in the Indian Stock
Markets.

Base year average is changed as per the formula:

New Base Year Average =

Old Base Year Average * (New Market Value/Old Market Value)

RECENT DEVELOPMENTS IN INDIAN STOCK MARKET

Many steps have been taken in recent years to reform the Stock Market such as:

 Regulation of Intermediaries.
 Changes in the Management Structure.
 Insistence on Quality Securities.
 Prohibition of Insider Trading.
 Transparency of Accounting Processes.
MBA DEPARTMENT 29

 Strict supervision of Stock Market Operations.

 Prevention of Price Rigging.
 Encouragement of Market Making.
 Discouragement of Price Manipulations.
 Introduction of Electronic Trading.
 Introducing of Depository System.
 Derivates Trading.
 International Listing.

STOCK EXCHANGES IN INDIA

S.NO NAME OF THE STOCK EXCHANGE YEAR

1 Bombay Stock Exchange. 1875
2 Hyderabad Stock Exchange. 1943
3 Ahmedabad Share & Stock Brokers Association. 1957
4 Calcutta Stock Exchange Association Limited 1957
5 Delhi Stock Exchange Association Limited 1957
6 Madras Stock Exchange Association Limited 1957
7 Indoor Stock Brokers Association. 1958
8 Ban galore Stock Exchange. 1963
9 Cochin Stock Exchange. 1978
10 Pune Stock Exchange Limited 1982
11 U.P Stock Exchange Association Limited 1982
12 Ludhiana Stock Exchange Association Limited 1983
13 Jaipur Stock Exchange Limited 1984
14 Gauhati Stock Exchange Limited 1984
15 Mangalore Stock Exchange Limited. 1985
16 Maghad Stock Exchange Limited, Patna. 1986
17 Bhuvaneshwar Stock Exchange Limited 1989
18 Over the Counter Exchange of India, Bombay 1989
19 Saurasthra Kutch Stock Exchange Limited 1990
20 Vadodara Stock Exchange Limited 1991
21 Coimbatore Stock Exchange Limited 1991
22 Meerut Stock Exchange Limited 1991
23 National Stock Exchange Limited 1992
24 Integrated Stock Exchange 1999
STOCK EXCHANGES IN WORLD
S.NO COUNTRY INDEX
1. Russia Moscow Times
2. Argentina Mer Val
3. Thailand SET
4. Pakistan Karachi 100
5. Indonesia Jak Comp
6. US NASDAQ
7. Czech Republic PX50
8. Mexico IPC
9. Brazil Bovespa
10. Japan Nikkei 225
11. Malaysia KISE Comp
12. China Shanghai Comp
13. Singapore Straits Times
14. South Korea Seoul Comp
15. Spain Madrid General
16. US S & P 500
17. India SENSEX
18. US Dow Jones
MBA DEPARTMENT 30
19. Germany Dax
20. Hong Kong Hang Seng
21. Canada S & P TSX Composite
22. India NIFTY
23. UK FTSE 100
24. Australia All Ordinaries
25. France CAC 40
MBA DEPARTMENT 31

Portfolio Management Services

Fortis Securities Limited

A RANBAXY Promoter Group Company
MBA DEPARTMENT 32

Fortis securities
Fortis was founded in 1996 by late
Dr. Parvinder Singh (CMD – Ranbaxy Laboratories Limited) with the vision to
provide integrated financial care driven by the relationship of trust and confidence.

Fortis aims to be India’s first truly multinational company to provide financial services
across the globe.

Fortis has an extensive network of over 110 branches and 275 business associates
through its regional, zonal and branch offices served by 1200 employees.

About company

Fortis is promoted, controlled and managed by the promoters of Ranbaxy. It was founded
with the vision of providing integrated financial driven by relationship of trust. To realize its
vision, both, fund –based and non-fund based financial services are provided to its clients.

The growing staff financial institutions with whom Fortis is empanelled, as approved
broker, is a reflection of the high levels of services maintained .Besides servicing
institutional clients, Fortis also pioneered the concept of partnership to reach multiple
locations in order to effectively service its large base of individual clients . They greatly
benefit by its strong research capability , which encompasses fundamentals as wells
technicals.
MBA DEPARTMENT 33

SERVICES
Core

 Equity & Derivative trading

 Commodity Trading

 Depository services

Facilitation

 Private client management .

 NRI Desk Management .

 Margin financing.

Advisory

 Research & Technical Analysis .

 Portfolio Management Services.

 Mutual fund Investments.

 International Advisory-Equity& Commodity Trading.

MBA DEPARTMENT 34

Objective of PMS at FORTIS

The returns from the debt asset class have fallen significantly in last few years. The
availability of alternate investment avenues has also been shrinking. In such a scenario,
one doesn’t have a choice except to look at equity for investing some part of his
investment so that the overall yield on the total investment can be increased.

Though, equity carries a risk and howsoever much one may desire, the risk can’t be
eliminated. However the risk can certainly be managed (or controlled) with professional
expertise. This professional expertise developed over the long years of operations in
financial markets is being offered by Fortis. Fortis PMS is a dedicated service aimed at
managing the portfolios of the investors who feel the need of professional approach to
optimize the returns from their investments.

Besides its long experience of operating in financial markets. Fortis offers many other
advantages to its investors. Continuing with its tradition of innovations. Fortis has
introduced some new features in its PMS as well. These include giving the advantage of its
being a Depository participant to the investor by not charging him for any custodial
charges. Additionally, Fortis would be using other brokers to buy and sell stocks in its PMS
despite having its own broking service so as to avoid conflict of interest, not to mention the
fact that it has set itself stuff return targets before charging fee to investors.

Investors philosophy at Fortis is driven by following fundamental principals.

 Optimal returns
 Focus on risk control
 Effort towards absolute returns
 Stock specific research based approach
 Willing to under perform in Rising market,But aiming to outperform in falling
market.
 MBA DEPARTMENT 35

Advantage PMS

 Customised Portfolio

 Transparency

 Benefit from tactical cash management

 High level of client interaction

 Cost efficient

 Hassle free operation

 Diversification across or within the asset class

 SEBI regulated
MBA DEPARTMENT 36

Mutual Fund Vs PMS

Mutual Fund
PMS
Mass Customized
Personalized
Product
product product
services in the
No personalized form of access to
Services fund manager and
service available
dedicated
Entry/Exit Norelationship
entry / Exit
Costs
loads Option manger
loads
of fixed /
Fee structure Fixed performance based fees

Portfolio As per risk/reward appetite

No
Profiling of the investor
Sector / Stock
Yes No
limits
Updates Monthly Daily
Cross
Yes No
subsidization
Transparency No Yes
 MBA DEPARTMENT 37

Investment Philosophy

 Stock specific selection procedure based on fundamental

research for making sound investment decisions.

 Focus on minimizing investment risk by following rigorous

valuation disciplines.

 Effort is to enhance absolute returns for investors.

 Belief in serving investors by a disciplined investment

approach – which combines an understanding of the goals
and objectives of the investor with a fine tuned strategy
backed by research.

Investment Process
Identificati
on

Exit Valuation

Revision Validation

Acquisitio
n
 MBA DEPARTMENT 38

Investment Process

 Reviewing publicly available historical information.

 Management meetings to get a better understanding of industry

trends, structure and peculiarities related to the industry.

 Preparing forecasted earnings model based on assumptions.

 Review meeting with the company management to validate the

assumptions.

 Accessing the competitive advantage the company enjoys vis-à-vis

buyers, suppliers, substitutes, barriers to entry.

 Evaluate management capabilities and corporate governance

standards.

 Using multiple valuation process for valuing the company which

includes relative valuations (P/E,PEG, P/BV etc.), determining intrinsic
value based on DCF and sum of parts valuation.

 Arranging periodic review meeting with the management to

revalidate the underlying assumptions.

 We follow strict selling discipline both in booking profits as well as

cutting losses in case the underlying premise of buying into a
particular stock has changed.
 MBA DEPARTMENT 39

Our Competitive Edge

 Investment team consisting of fund managers and headed

by CIO which ensures collective decision making.

 More than 35 years of cumulative work experience in

capital markets.

 Institutional research team comprising of 12 professionals

having an experience ranging from 2-10 years.

 Benefit from a network of empanelled brokers and analysts

from a wide spectrum of broking outfits.

 Capabilities to identify emerging businesses at a nascent

stage backed by primary research.
MBA DEPARTMENT 40

Product Offerings

Panther

Tortise

Elephant
 MBA DEPARTMENT 41

PANTHER
 Objective
Aims to achieve higher returns by taking aggressive positions
across sectors and market capitalization

 Strategy
Investment strategy would be to invest across the sectors with a
view to take advantage of various market conditions. Efforts
would be made to find out stocks which have triggers to
become multi-baggers in the market backed by a turn-around,
or new product introduction, idea marketing, unveiling of
valuation and recognition of stock in the market.

 Suitability
High risk high return

 Investment Horizon
1-2 years

 Portfolio Turnover
High
 MBA DEPARTMENT 42

TORTISE

 Objective
Aims to achieve gradual growth in the portfolio value
over a period of time by way of careful and judicious
investment in fundamentally strong and attractive valued
shares.

 Strategy
Investment strategy would be to invest across the
sectors with a view to take advantage of lower valuation of
the companies with high growth potential and consistent
track record over a longer period of time.

 Suitability
Medium Risk Medium Return

 Investment Horizon
2 to 3 years
 MBA DEPARTMENT 43

ELEPHANT

 Objective
Aims to generate steady return over a longer period by investing in
securities selected only from BSE 100 index.

 Strategy
Investment strategy would be to invest in the companies which form part of
BSE 100 Index as these companies have steady performance and reduces
the liquidity risk in the market.

 Suitability
Low Risk Low Return

 Investment Horizon
3 to 4 years

 Portfolio Turnover
Low

Performance – Tortoise
22
NAV
20

18

16

14 BSE

12

10
Oct-04

Jun-05

Jul-05
Aug-05

Oct-05
Nov-04
Nov-04

Apr-05

Jul-05

Nov-05
Nov-05
Sep-04
Sep-04

Jan-05
Jan-05

Sep-05
Sep-05
Dec-04

Feb-05
Mar-05
Mar-05

May-05
May-05

BSE 500 NAV

Since
6 Months 1 Year
Inception
39.8 69.6 118.0
# Absolute Returns as on 15th
December, 2005
 MBA DEPARTMENT 44

Performance - Panther

24

22 NAV

20
18

16
14 BS E 500

12

10
Nov-04
Oct-04

Oct-05
Oct-05

Nov-05
Dec-04
Dec-04

Jan-05
Feb-05

Jun-05

Jul-05
Jul-05

Aug-05
Sep-04
Sep-04

May-05

Sep-05
Apr-05

May-05
Mar-05
Mar-05

BSE 500 NAV

Since
6 Months 1 Year
Inception
30.4 71.0 129.6

# Absolute Returns as on 15th December 2005

# Inception as on 7th September, 2004
 MBA DEPARTMENT 45

Investment Details

 Minimum Investment Amount:

- Resident Investors – Rs. 25 Lacs
- Non Resident Investors – Rs. 50 Lacs

 Mode of Inflow:
Inflow can be in the form of cash and/or securities

Portfolio Disclosure

 Access thru Web:

- Clients can see the portfolio details on web 24*365
Valuation Report Holdings Statement
Transaction Report Gain/Loss Report
Corporate Action

 Monthly Report:
Containing all the details about the portfolio and a monthly news letter on
Markets.

 Annual Audited Balance Sheet

MBA DEPARTMENT 46

Valuation Report
MBA DEPARTMENT 47
\

Holding Statement
MBA DEPARTMENT 48

Transaction Report
MBA DEPARTMENT 49

Gain/loss Report

Corporate Action