CHAPTER-I

INTRODUCTION
 RISK-RETURN ANALYSIS
MEANING:
Risk-Return Analysis opens the door to a groundbreaking four-book series giving readers a
privileged look at the personal reflections and current strategies of a luminary in finance. This
first volume is Markowitz's response to what he calls the "Great Confusion" that spread when
investors lost faith in the diversification benefits of MPT during the financial crisis of 2008. It
demonstrates why MPT never became ineffective during the crisis, and how you can continue
to reap the rewards of managed diversification into the future. Economists and financial
advisors will benefit from the potent balance of theory and hard data on mean-variance
analysis aimed at improving decision-making skills.

Relationship between risk and return

Investors are risk averse; i.e., given the same expected return, they will choose the investment
for which that return is more certain. Therefore, investors demand a higher expected return
for riskier assets. Note that a higher expected return does not guarantee a higher realized
return. Because by definition returns on risky assets are uncertain, an investment may not
earn its expected return.
Although the charts in Figure 1 show historical (realized) returns rather than expected
(future) returns, they are useful to demonstrate the relationship between risk and return. Note
that the mean (average) annual return increases as the dispersion of returns increases.

A portfolio is a collection of assets. The assets may be physical or financial like

Shares, Bonds, Debentures, Preference Shares, etc. The individual investor or a fund manager
would not like to put all his money in the shares of one company that would amount to great
risk. He would therefore, follow the age old maxim that one should not put all the eggs into
one basket. By doing so, he can achieve objective to maximize portfolio return and at the
same time minimizing the portfolio risk by diversification.
  Portfolio management is the management of various financial assets which comprise
the portfolio.

 Portfolio management is a decision – support system that is designed with a view to

meet the multi-faced needs of investors.
 According to Securities and Exchange Board of India Portfolio Manager is defined as:
“Portfolio means the total holdings of securities belonging to any person”.
FUNCTIONS OF RISK-RETURN:
 To frame the investment strategy and select an investment mix to achieve the desired
investment objectives

 To provide a balanced portfolio which not only can hedge against the inflation but can
also optimize returns with the associated degree of risk

 To make timely buying and selling of securities

 To maximize the after-tax return by investing in various tax saving investment

instruments.

STRUCTURE / PROCESS OF TYPICAL PORTFOLIO MANAGEMENT

In the small firm, the portfolio manager performs the job of security analyst.
In the case of medium and large sized organizations, job function of portfolio manager and
security analyst are separate.
 RESEARCH PORTFOLIO OPERATIONS
(e.g. Security (e.g. buying and
MANAGERS
Analysis) selling of Securities)

CLIENTS

CHARACTERISTICS OF PORTFOLIO(Risk-Return):

Individuals will benefit immensely by taking portfolio management services for the
following reasons:

 Whatever may be the status of the capital market, over the long period capital markets
have given an excellent return when compared to other forms of investment. The
return from bank deposits, units, etc., is much less than from the stock market.

 The Indian Stock Markets are very complicated. Though there are thousands of
companies that are listed only a few hundred which have the necessary liquidity. Even
among these, only some have the growth prospects which are conducive for
investment. It is impossible for any individual wishing to invest and sit down and
analyze all these intricacies of the market unless he does nothing else.

 Even if an investor is able to understand the intricacies of the market and separate
chaff from the grain the trading practices in India are so complicated that it is really a
difficult task for an investor to trade in all the major exchanges of India, look after his
deliveries and payments
NEED & IMPORTANCE OF STUDY:

A risk-Return analysis has emerged as a separate academic discipline in India.

Portfolio theory that deals with the rational investment decision-making process has now
become an integral part of financial literature.

Investing in securities such as shares, debentures & bonds is profitable well as

exciting. It is indeed rewarding but involves a great deal of risk & need artistic skill.
Investing in financial securities is now considered to be one of the most risky avenues of
investment. It is rare to find investors investing their entire savings in a single security.
Instead, they tend to invest in a group of securities. Such group of securities is called as
PORTFOLIO. Creation of portfolio helps to reduce risk without sacrificing returns.
Portfolio management deals with the analysis of individual securities as well as with the
theory & practice of optimally combining securities into portfolios.
The modern theory is of the view that by diversification, risk can be reduced. The
investor can make diversification 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 combinations of securities under constraints of
risk and return.

SCOPE OF STUDY:
• The analysis is focused on 3 it companies
• The study is merely for academic purpose
• Study restricted to a smaller sample size because of lack of time and resources
• The recommendations made may not be a perfect prediction of the future as technical
analysis is not an absolutely accurate practice
• The all portfolio consists of risky assets there no risk-free assets.
• Risky assets consist of equity shares and whereas risk-free assets consist of investments in
the saving bank account, deposits, treasury bills, bonds equity etc.
OBJECTIVES OF THE STUDY:

 To study the investment pattern and its related risks & returns In The INDIABULLS
SECURITIES LTD.

 To find out optimal portfolio of The INDIABULLS SECURITIES LTD , which gave
optimal return at a minimize risk to the investor in .

 To see whether the portfolio risk is less than individual risk on whose basis the
portfolios are constituted

 To see whether the selected portfolios is yielding a satisfactory and constant return to
the investor

 To understand, analyze and select the best portfolio

STEPS IN PORTFOLIO MANAGEMENT:

 Specification and qualification of investor objectives, constraints, and preferences in

the form of an investment policy statement.

 Determination and qualification of capital market expectations for the economy,

market sectors, industries and individual securities.

 Allocation of assets and determination of appropriate portfolio strategies for each

asset class and selection of individual securities.

 Performance measurement and evaluation to ensure attainment of investor objectives.

 Monitoring portfolio factors and responding to changes in investor objectives,

constrains and / or capital market expectations.
  Rebalancing the portfolio when necessary by repeating the asset allocation, portfolio
strategy and security selection.

METHODOLOGY AND FRAMEWORK

DATA COLLECTION METHODS
The data collection methods include both the primary and secondary collection
methods.
Primary collection methods:
This method includes the data collection from the personal discussion with the authorized
clerks and members of the INDIABULLS financial services.
Secondary collection methods:
The secondary collection methods includes the lectures of the superintend of the department
of market operations and so on., also the data collected from the news, magazines and
different books issues of this study Superintend

LIMITATIONS OF THE STUDY

1. Construction of Portfolio is restricted to two companies based on Markowitz

model.

2. Very few and randomly selected scripts / companies are analyzed from BSE

listings.

3. Data collection was strictly confined to secondary source. No primary data is

associated with the project.

4. Detailed study of the topic was not possible due to limited size of the project.

5. There was a constraint with regard to time allocation for the research study i.e. for

a period of two months.

 CHAPTER-II
INDUSTRY PROFILE
&
COMPANY PROFILE
Evolution

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 established 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 inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.

Other leading cities in stock market operations

Ahmadabad gained importance next to Bombay with respect to cotton textile industry. After
1880, many mills originated from Ahmadabad and rapidly forged ahead. As new mills were
floated, the need for a Stock Exchange at Ahmadabad was realized and in 1894 the brokers
formed "The Ahmadabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to
Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta.
After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which
was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between
1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange
Association".

In the beginning of the twentieth century, the industrial revolution was on the way in India
with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company
Limited in 1907, an important stage in industrial advanSECURITIESunder Indian enterprise
was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally
enjoyed phenomenal prosperity, due to the First World War.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange
functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100
members. However, when boom faded, the number of members stood reduced from 100 to 3,
by 1923, and so it went out of existence.

In 1935, the stock market activity improved, especially in South India where there was a
rapid increase in the number of textile mills and many plantation companies were floated. In
1937, a stock exchange was once again organized in Madras - Madras Stock Exchange
Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange
Limited).

Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the
Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 1939. It gave a sharp boom which was followed by a
slump. But, in 1943, the situation changed radically, when India was fully mobilized as a
supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities, those
dealing in them found in the stock market as the only outlet for their activities. They were
anxious to join the trade and their number was swelled by numerous others. Many new
associations were constituted for the purpose and Stock Exchanges in all parts of the country
were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940)
and Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the
Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947,
amalgamated into the Delhi Stock Exchnage Association Limited.

Post-independence Scenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange
was closed during partition of the country and later migrated to Delhi and merged with Delhi
Stock Exchange.

Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.

Most of the other exchanges languished till 1957 when they applied to the Central
Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only
Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well established
exchanges, were recognized under the Act. Some of the members of the other Associations
were required to be admitted by the recognized stock exchanges on a concessional basis, but
acting on the principle of unitary control, all these pseudo stock exchanges were refused
recognition by the Government of India and they thereupon ceased to function.

Thus, during early sixties there were eight recognized stock exchanges in India (mentioned
above). The number virtually remained unchanged, for nearly two decades. During eighties,
however, many stock exchanges were established: Cochin Stock Exchange (1980), Uttar
Pradesh Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange
Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock
Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh
Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989),
Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange
Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently
established exchanges - Coimbatore and Meerut. Thus, at present, there are totally twenty one
recognized stock exchanges in India excluding the Over The Counter Exchange of India
Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).

The Table given below portrays the overall growth pattern of Indian stock markets since
independence. It is quite evident from the Table that Indian stock markets have not only
grown just in number of exchanges, but also in number of listed companies and in capital of
listed companies. The remarkable growth after 1985 can be clearly seen from the Table, and
this was due to the favouring government policies towards security market industry.

Trading Pattern of the Indian Stock Market

Trading in Indian stock exchanges are limited to listed securities of public limited companies.
They are broadly divided into two categories, namely, specified securities (forward list) and
non-specified securities (cash list). Equity shares of dividend paying, growth-oriented
companies with a paid-up capital of atleast Rs.50 million and a market capitalization of
atleast Rs.100 million and having more than 20,000 shareholders are, normally, put in the
specified group and the balance in non-specified group.

Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery
transactions "for delivery and payment within the time or on the date stipulated when
entering into the contract which shall not be more than 14 days following the date of the
contract" : and (b) forward transactions "delivery and payment can be extended by further
period of 14 days each so that the overall period does not exceed 90 days from the date of the
contract". The latter is permitted only in the case of specified shares. The brokers who carry
over the outstandings pay carry over charges (cantango or backwardation) which are usually
determined by the rates of interest prevailing.

A member broker in an Indian stock exchange can act as an agent, buy and sell securities for
his clients on a commission basis and also can act as a trader or dealer as a principal, buy and
sell securities on his own account and risk, in contrast with the practice prevailing on New
York and London Stock Exchanges, where a member can act as a jobber or a broker only.

The nature of trading on Indian Stock Exchanges are that of age old conventional style of
face-to-face trading with bids and offers being made by open outcry. However, there is a
great amount of effort to modernize the Indian stock exchanges in the very recent times.
Over The Counter Exchange of India (OTCEI)

The traditional trading mechanism prevailed in the Indian stock markets gave way to many
functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly long
settlement periods and benami transactions, which affected the small investors to a great
extent. To provide improved services to investors, the country's first ringless, scripless,
electronic stock exchange - OTCEI - was created in 1992 by country's premier financial
institutions - Unit Trust of India, Industrial Credit and Investment Corporation of India,
Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporation
of India, General Insurance Corporation and its subsidiaries and CanBank Financial Services.

Trading at OTCEI is done over the centres spread across the country. Securities traded on the
OTCEI are classified into:

 Listed Securities - The shares and debentures of the companies listed on the OTC can
be bought or sold at any OTC counter all over the country and they should not be
listed anywhere else

 Permitted Securities - Certain shares and debentures listed on other exchanges and
units of mutual funds are allowed to be traded

 Initiated debentures - Any equity holding atleast one lakh debentures of a particular
scrip can offer them for trading on the OTC.

OTC has a unique feature of trading compared to other traditional exchanges. That is,
certificates of listed securities and initiated debentures are not traded at OTC. The original
certificate will be safely with the custodian. But, a counter receipt is generated out at the
counter which substitutes the share certificate and is used for all transactions.

In the case of permitted securities, the system is similar to a traditional stock exchange. The
difference is that the delivery and payment procedure will be completed within 14 days.

Compared to the traditional Exchanges, OTC Exchange network has the following
advantages:
  OTCEI has widely dispersed trading mechanism across the country which provides
greater liquidity and lesser risk of intermediary charges.

 Greater transparency and accuracy of prices is obtained due to the screen-based

scripless trading.

 Since the exact price of the transaction is shown on the computer screen, the investor
gets to know the exact price at which s/he is trading.

 Faster settlement and transfer process compared to other exchanges.

 In the case of an OTC issue (new issue), the allotment procedure is completed in a
month and trading commences after a month of the issue closure, whereas it takes a
longer period for the same with respect to other exchanges.

Thus, with the superior trading mechanism coupled with information transparency investors
are gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock
market trading system on par with the international standards. On the basis of the
recommendations of high powered Pherwani Committee, the National Stock Exchange was
incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and
Investment Corporation of India, Industrial Finance Corporation of India, all Insurance
Corporations, selected commercial banks and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations - institutions and
corporate bodies enter into high value transactions in financial instruments such as
government securities, treasury bills, public sector unit bonds, commercial paper, certificate
of deposit, etc.
There are two kinds of players in NSE:

(a) trading members and

(b) participants.

Recognized members of NSE are called trading members who trade on behalf of themselves
and their clients. Participants include trading members and large players like banks who take
direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading mechanism which
adopts the principle of an order-driven market. Trading members can stay at their offices and
execute the trading, since they are linked through a communication network. The prices at
which the buyer and seller are willing to transact will appear on the screen. When the prices
match the transaction will be completed and a confirmation slip will be printed at the office
of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as follows:

 NSE brings an integrated stock market trading network across the nation.

 Investors can trade at the same price from anywhere in the country since inter-market
operations are streamlined coupled with the countrywide access to the securities.

 Delays in communication, late payments and the malpractice’s prevailing in the

traditional trading mechanism can be done away with greater operational efficiency
and informational transparency in the stock market operations, with the support of
total computerized network.

Unless stock markets provide professionalized service, small investors and foreign investors
will not be interested in capital market operations. And capital market being one of the major
source of long-term finance for industrial projects, India cannot afford to damage the capital
market path. In this regard NSE gains vital importance in the Indian capital market system.
Preamble

Often, in the economic literature we find the terms ‘development’ and ‘growth’ are used
interchangeably. However, there is a difference. Economic growth refers to the sustained
increase in per capita or total income, while the term economic development implies
sustained structural change, including all the complex effects of economic growth. In other
words, growth is associated with free enterprise, where as development requires some sort of
control and regulation of the forces affecting development. Thus, economic development is a
process and growth is a phenomenon.

Economic planning is very critical for a nation, especially a developing country like India to
take the country in the path of economic development to attain economic growth.

Why Economic Planning for India?

One of the major objective of planning in India is to increase the rate of economic
development, implying that increasing the rate of capital formation by raising the levels of
income, saving and investment. However, increasing the rate of capital formation in India is
beset with a number of difficulties. People are poverty ridden. Their capacity to save is
extremely low due to low levels of income and high propensity to consume. Therefor, the rate
of investment is low which leads to capital deficiency and low productivity. Low productivity
means low income and the vicious circle continues. Thus, to break this vicious economic
circle, planning is inevitable for India.

The market mechanism works imperfectly in developing nations due to the ignorance and
unfamiliarity with it. Therefore, to improve and strengthen market mechanism planning is
very vital. In India, a large portion of the economy is non-monitised; the product, factors of
production, money and capital markets is not organized properly. Thus the prevailing price
mechanism fails to bring about adjustments between aggregate demand and supply of goods
and services. Thus, to improve the economy, market imperfections has to be removed;
available resources has to be mobilized and utilized efficiently; and structural rigidities has to
be overcome. These can be attained only through planning.

In India, capital is scarce; and unemployment and disguised unemployment is prevalent.

Thus, where capital was being scarce and labour being abundant, providing useful
employment opportunities to an increasing labour force is a difficult exercise. Only a
centralized planning model can solve this macro problem of India.

Further, in a country like India where agricultural dependence is very high, one cannot ignore
this segment in the process of economic development. Therefore, an economic development
model has to consider a balanced approach to link both agriculture and industry and lead for a
paralleled growth. Not to mention, both agriculture and industry cannot develop without
adequate infrastructural facilities which only the state can provide and this is possible only
through a well carved out planning strategy. The government’s role in providing
infrastructure is unavoidable due to the fact that the role of private sector in infrastructural
development of India is very minimal since these infrastructure projects are considered as
unprofitable by the private sector.

Further, India is a clear case of income disparity. Thus, it is the duty of the state to reduce the
prevailing income inequalities. This is possible only through planning.

Planning History of India

The development of planning in India began prior to the first Five Year Plan of independent
India, long before independence even. The idea of central directions of resources to overcome
persistent poverty gradually, because one of the main policies advocated by nationalists early
in the century. The Congress Party worked out a program for economic
advanSECURITIESduring the 1920’s, and 1930’s and by the 1938 they formed a National
Planning Committee under the chairmanship of future Prime Minister Nehru. The Committee
had little time to do anything but prepare programs and reports before the Second World War
which put an end to it. But it was already more than an academic exercise remote from
administration. Provisional government had been elected in 1938, and the Congress Party
leaders held positions of responsibility. After the war, the Interim government of the pre-
independence years appointed an Advisory Planning Board. The Board produced a number of
somewhat disconnected Plans itself. But, more important in the long run, it recommended the
appointment of a Planning Commission.

The Planning Commission did not start work properly until 1950. During the first three years
of independent India, the state and economy scarcely had a stable structure at all, while
millions of refugees crossed the newly established borders of India and Pakistan, and while
ex-princely states (over 500 of them) were being merged into India or Pakistan. The Planning
Commission as it now exists, was not set up until the new India had adopted its Constitution
in January 1950.

Objectives of Indian Planning

The Planning Commission was set up the following Directive principles :

 To make an assessment of the material, capital and human resources of the country,
including technical personnel, and investigate the possibilities of augmenting such of
these resources as are found to be deficient in relation to the nation’s requirement.

 To formulate a plan for the most effective and balanced use of the country’s
resources.

 Having determined the priorities, to define the stages in which the plan should be
carried out, and propose the allocation of resources for the completion of each stage.

 To indicate the factors which are tending to retard economic development, and
determine the conditions which, in view of the current social and political situation,
should be established for the successful execution of the Plan.

 To determine the nature of the machinery this will be necessary for securing the
successful implementation of each stage of Plan in all its aspects.

 To appraise from time to time the progress achieved in the execution of each stage of
the Plan and recommend the adjustments of policy and measures that such appraisals
may show to be necessary.

 To make such interim or auxiliary recommendations as appear to it to be appropriate

either for facilitating the discharge of the duties assigned to it or on a consideration of
the prevailing economic conditions, current policies, measures and development
programs; or on an examination of such specific problems as may be referred to it for
advice by Central or State Governments.
The long-term general objectives of Indian Planning are as follows:

 Increasing National Income

 Reducing inequalities in the distribution of income and wealth

 Elimination of poverty

 Providing additional employment; and

 Alleviating bottlenecks in the areas of : agricultural production, manufacturing

capacity for producer’s goods and balance of payments.

Economic growth, as the primary objective has remained in focus in all Five Year Plans.
Approximately, economic growth has been targeted at a rate of five per cent per annum. High
priority to economic growth in Indian Plans looks very much justified in view of long period
of stagnation during the British rule
Introduction to Indiabulls

Indiabulls is India’s leading Financial and Real Estate Company with a wide
presence throughout India. They ensure convenience and reliability in all their products and
services. Indiabulls has over 640 branches all over India. The customers of Indiabulls are
more than 4,50,000 which covers from a wide range of financial services and products from
securities, derivatives trading, depositary services, research & advisory services, consumer
secured & unsecured credit, loan against shares and mortgage & housing finance. The
company employs around 4000 Relationship managers who help the clients to satisfy their
customized financial goals. Indiabulls entered the Real Estate business in the year 2005 with
its group of companies. Large scale projects worth several hundred million dollars are
evaluated by them.
Indiabulls Financial Services Ltd is listed on the National Stock Exchange (NSE), Bombay
Stock Exchange (BSE) and Luxembourg Stock Exchange. The market capitalization of
Indiabulls is around USD 2500 million (29thDecember, 2006). Consolidated net worth of the
group is around USD 700 million. Indiabulls and its group companies have attracted USD
500 million of equity capital in Foreign Direct Investment (FDI) since March 2000. Some of
the large shareholders of Indiabulls are the largest financial institutions of the world such as
Fidelity Funds, Goldman Sachs, Merrill Lynch, Morgan Stanley and Farallon Capital.

In middle of 1999, when e-commerce was just about starting in India, Sameer Gehlaut and
his close IIT Delhi friend Rajiv Rattan got together and bought a defunct securities company
with a NSE membership and started offering brokerage services . A Few months later, their
friend Saurabh Mittal also joined them. By December 1999, the company embarked on its
journey to build one of the first online platforms in India for offering internet brokerage
services. In January 2000, the 3 founders incorporated Indiabulls Financial Services and
made it as the flagship company.

In mid 2000, Indiabulls Financial Services received venture capital funding from Mr L.N.
Mittal & Mr Harish Fabiani. In late 2000, Indiabulls Securities, a subsidiary of Indiabulls
Financial Services started offering online brokerage services and simultaneously opened
physical offices across India. By 2003, Indiabulls securities had established a strong pan
India presence and client base through its offices and on the internet.
In September 2004, Indiabulls Financial Services went public with an IPO at Rs 19 a share.
In late 2004, Indiabulls Financial Services started its financing business with consumer loans.
In March 2005, Indiabulls Properties Private Ltd, a subsidiary of Indiabulls Financial
Services, participated in government auction of Jupiter Mills, a defunct 11 acre textile mill
owned by NTC in Lower Parel, Mumbai. Indiabulls Properties private Ltd won the mill in
auction and that purchase started Indiabulls real estate business. A few months later,
Indiabulls Real Estate company pvt ltd bought Elphinstone mill in Lower Parel, another
textile mill auctioned by NTC.

With real estate business gaining size, Indiabulls Financial Services demerged the real estate
business under Indiabulls Real Estate and each shareholder of Indiabulls Financial Services
received additional share of Indiabulls Real Estate through the demerger. Subsequently,
Indiabulls Financial Services also demerged Indiabulls Securities and each shareholder of
Indiabulls Financial Services also received a share of Indiabulls Securities.

In year 2007, Indiabulls Real Estate incorporated a 100% subsidiary, Indiabulls Power, to
build power plants and started work on building Nashik & Amrawati thermal power plants.
Indiabulls Power went public in September 2009.

Today, Indiabulls Group has a networth of Rs 16,796 Crore & has a strong presence in
important sectors like financial services, power & real estate through independently listed
companies and Indiabulls Group continues its journey of building businesses with strong cash
flows.

MANAGEMENT TEAM

Indiabulls Group

 Mr Rajiv Rattan - Vice Chairman

 Mr Saurabh Mittal - Vice Chairman
 Mr Gagan Banga - Group Spokesperson
 Mr Ashok Kacker - Group President
 Mr Saket Bahuguna - Group CLO
 Mr Ashok Sharma - Group CFO
 Mr Ajit Mittal - Group Director
  Mr Gurbans Singh - Group Director
 Mr Tejinderpal Singh Miglani - Group CIO

Indiabulls Financial Services Limited

 Mr Gagan Banga - CEO

 Mr Ashwini Kumar Hooda - DMD

Indiabulls Real Estate Limited

 Mr Vipul Bansal - CEO

 Mr Narendra Gehlaut - Joint MD

Indiabulls Power Limited

 Mr Ranjit Gupta - CEO

 Mr Murali Subramanian - COO

Indiabulls Securities Limited

 Mr Divyesh Shah - CEO

 Mr Vijay Babbar – DMD

India bulls supports Money life Foundation in Empowering

Investors

“Moneylife Foundation” in collaboration with Indiabulls, recently organized an ‘Investor,

Empower Yourself’ seminar, which was held at the lush Town & Country Club at New
Gurgaon, in the National Capital Region (NCR), on Saturday, 7th May 2011. This was the
first occasion for Moneylife Foundation to venture into other territories outside Maharashtra.
Indiabulls played a major role in helping this event happen successfully.

The event witnessed over 300 attendees not only from Gurgaon but also from other parts of
National Capital Region (NCR), Delhi, Allahabad, Ludhiana, Chandigarh & other cities from
northern region of India. The venue was fully packed with eager & curious investors.
“Moneylife Foundation” expressed its gratitude towards helpful team of Indiabulls led by Mr.
Gagan Banga, CEO - Indiabulls Financial Services Ltd, for making this event such a huge
success.

The event started with introductory remarks & guidance by Mr. Gagan Banga, CEO -
Indiabulls Financial Services Ltd. Mr. Veeresh Malik, Consulting Editor, Moneylife, Delhi
gave a brief introduction about Moneylife Foundation.Then audience was guided by Sucheta
Dalal, Trustee - Moneylife Foundation and Managing Editor- Moneylife, on How to be Safe
with your money & Debashis Basu, Trustee - Moneylife Foundation and Editor- Moneylife
about How to be smart with your investments. Mr. Sachin Choudhary, Director & Business
Head - Indiabulls Housing Finance Ltd, talked about Do's and Don’ts of Housing Mortgages.
Ms. Sucheta Dalal also explained the importance & procedure of Wills & Nominations.

This event helped people in understanding how to become an aware and empowered investor.
The attendees included both finically literate & new investors. They posted number of
intelligent questions which were adequately answered by all the speakers. Empowering
today’s investors by creating awareness and guiding them in taking wise decisions when it
comes to money or investments was the main objective of ‘Investor, Empower Yourself’
seminar. During the Panel Discussion with the panel members Sucheta Dalal, Debashis Basu
& Sachin Choudhary, quite a few interesting & informative issues regarding Investments
were discussed. Mr. Monu Ratra, National Sales Manager - Indiabulls housing Finance Ltd
gave Vote of Thanks.

This event received many request and suggestions from audience about continuing with such
events all over India so that citizens of India will be more empowered investors & ultimately
nation will benefit from it. There were some requests from audience to telecast further events
live on television & internet so that those who are unable to attend the event will also get the
guidance. The knowledge shared about the investments during the event was well appreciated
by all.

Moneylife Foundation has been instrumental in promoting financial literacy & pro-customer
advocacy in India. Moneylife Foundation has been organizing such events at the Moneylife
Knowledge Centre in Mumbai, and also in various cities across Maharashtra. The Foundation
has completed 15 months of spreading financial literacy & has hosted around 49 speakers and
61 events. Currently, more than 5,000 people are members of the Foundation.

After the seminar, Indiabulls received feedbacks from some attendees congratulating
Indiabulls’ team about the success of seminar. Many of the attendees mentioned that they are
looking forward to such seminars in future.

Indiabulls has been participating in such Corporate Social Activities with many other socially
aware groups and trusts & Indiabulls is committed to continue in doing so in future.

THE HUB

The Hub at One Indiabulls Centre at Lower Parel is an intelligently designed business centre
in Mumbai

In the past few years serviced office industry has been maturing in India and today is a
mainstream occupancy option for businesses of all sizes. Whether a start-up, SME or a multi-
national, companies are now opting for viable alternative to leasing or the outright purchase
of commercial workspace.

Thus managed business centers have emerged as an innovative solution to these workspace
requirements. The Hub at One Indiabulls Centre at Lower Parel is one such intelligently
designed business centre in Mumbai that offers 25,000sqft of fully equipped, serviced
workspace not only suitable for large corporations but also for small businesses and lean team
set ups due to the option of small customized spaces.

The real advantage of The Hub is not just that it is more cost effective but also it offers best
possible working environment by offering conveniences such as advanced security, pantry
and maintenance services including IT and utility bills for electricity, water & HVAC.

What’s more, those moving into The Hub serviced offices enjoy the added benefit of cutting
edge IT and telecom infrastructure, reception and secretarial support, hi-tech meeting rooms
and video conferencing suites as well as business lounge, food courts and state of the art
fitness centre.
Not to forget among various factors that can affect a business and its success and growth, is
the address or the location of the office especially those of newly established enterprises. The
Hub within a world class contemporary business complex located between Nariman Point
and Bandra Kurla Complex and in close proximity to Bandra Worli Sea Link is undeniably in
the finest commercial location in Mumbai’s upcoming central business district- Lower Parel.

Undeniably, The Hub is a new age business centre that provides a very attractive proposition
to businesses of all sizes to help their own business grow and prosper.

Indiabulls CSR Initiative - Drug Access Program for cancer patients in partnership
with Novartis

As part of our deep commitment to social causes, Indiabulls has taken up this noble project
named “Novartis Oncology Access” in partnership with Novartis (manufacturer of drugs) &
Max foundation (NGO). We as the financial partner are helping them assess actual income of
patient & family & based on assessed income; recommend the drugs donation slab as per
approved guidelines & SOP.

Novartis are the developers & makers of Glivec (Imatinib) - a medication for the treatment
of Ph+ chronic myeloid leukemia (CML) in chronic phase, accelerated phase and blast crisis
for both pediatric and adult patients. This drug is also indicated for adult patients with
adjuvant, unresectable and/or metastatic c-kit / cd-117 gastrointestinal stromal tumors
(GIST). Tasigna (nilotinib) a drug recently launched by Novartis is used as medication for the
treatment of Ph+ chronic myeloid leukemia (CML) in chronic phase, accelerated phase and
blast crisis for only adult patients.

NOA program:

The NOA program is a drug access program for to help patients who have been prescribed
Glivec and Tasigna but cannot afford to pay for the entire treatment cost. This program is run
by Novartis along with its partner Physicians- enrolls patient under this program after
diagnosis, The MAX Foundation- independent NGO – Assist patient throughout the
program in completing formalities & procurement of medicines, Indiabulls Financial
Services - independent body for financial evaluation of patient, collection & safekeeping the
submitted documents with confidentiality and C&F outlets – Independent pharmacist,
dispenses drugs to patients & manage drug inventory.

Indiabulls Financial Services: As a NOA partner we are performing task of the local credit
evaluation agency which works as an independent and unbiased body for the financial
analysis and assessment of the patient and family members’ earning capacity to afford
medical expenses on critical disease. The analysis bases on income levels assessment by way
of financial evaluation ,field verification, living standard, personal discussion with patient/
care taker & guidelines as per standard operating procedure (SOP) which is prepared by
Novartis based on the WHO guidelines for drug donation programs using Business for Social
Responsibility’s (BSR) cost of living index, a well-established international guide often used
as eligibility criteria for determining access to drug assistance programs. Based on the family
composite Income a suitable donation decision is given.

Contractibility

Indiabulls has designated a dedicated Help-Line Number: 022 30491720 that will receive
patient calls during office hours (9:00 a.m. to 6.00 p.m.) so it may handle in-bound calls in
response only to queries regarding the submission of requirements for the NOA. For any
medical or clinical queries, Indiabulls Financial Services refer patients to their treating
physician.

Businesses

Indiabulls Group is one of the country's leading business houses with business interests in
Power, Financial Services, Real Estate and Infrastructure . Indiabulls Group companies are
listed in Indian and overseas financial markets. The Net worth of the Group is Rs 16,796
Crore and the total planned capital expenditure of the Group by 2013-14 is Rs 35,000 Crore.

Indiabulls Power is currently developing Thermal Power Projects with an aggregate

capacity of 5400 MW. The first unit is expected to go on stream in May 2012. The net worth
of Indiabulls Power is Rs 3,917 Crore. The company has a total capital expenditure of Rs
27,500 Crore. The company has been assigned 'BBB' rating.

Indiabulls Financial Services is one of India’s leading non-banking finance companies

providing Home Loans, Commercial Vehicle Loans and Secured SME Loans. The company
has a net worth of Rs 4,680 crore with an asset book of over Rs 18,500 Crore. The company
has disbursed loans over Rs 45,000 Crore to over 3,00,000 customers till date. Amongst its
financial services and banking peers, Indiabulls Financial Services ranks amongst the top few
companies both in terms of net worth and capital adequacy. Indiabulls Financial Services has
been assigned ‘AA+’ rating and has presence in over 90 cities and towns with a total branch
network of 140 branches.

Indiabulls Real Estate is among India's top Real Estate companies with development
projects spread across residential complexes, integrated townships, commercial office
complexes, hotels, malls, Special Economic Zones (SEZs) and infrastructure development.
Indiabulls Real Estate partnered with Farallon Capital Management LLC of USA to bring the
first FDI into real estate in the country. The company has a networth of Rs 7,953 Crore and
has purchased prime land, mostly in the metros and other Tier 1 cities worth Rs 4,000 Crore
in government auctions alone. Indiabulls Real Estate is currently developing 57 million sqft
into premium quality, high-end commercial, residential and retail spaces. The company has
been assigned 'A+' rating.

Indiabulls Securities is one of India's leading capital markets companies providing securities
broking and advisory services. Indiabulls Securities also provides depository services, equity
research services and IPO distribution to its clients and offers commodities trading through a
separate company. These services are provided both through on-line and off-line distribution
channels. Indiabulls Securities is a pioneer of on-line securities trading in India. Indiabulls
Securities’ in-house trading platform is one of the fastest and most efficient trading platforms
in the country. Indiabulls Securities has been assigned the highest rating BQ-1 by CRISIL.

Indiabulls foundation

India has witnessed an economic transformation over the past two decades, translating into
higher incomes, better educational opportunities, improved infrastructure, a dynamic private
sector, and leadership in the global community. We have much to be proud of.
But we also recognize that we have a long way to go. Over 700 million people live under $2 a
day. Learning levels in schools remain abysmally low, most of our rural population do not
have access to basic health care, regular electricity, clean water, and sanitation. India has
some of the world’s worst statistics on basic development indicators such as malnutrition,
infant mortality, and gender discrimination.

As a society, we are at the confluence of accelerated economic progress and extreme

deprivation, all in the same country, at the same time.

As corporate citizens, we at Indiabulls are conscious of the opportunities and the

responsibility that this confluence presents.

Investments to increase income levels of our poorest people will expand business
opportunities manifold. Investments to improve education, health and skills training will
improve the efficiency of the economy. Protecting our environment will actually lower our
costs of doing business. Providing our youth with gainful employment and a chance to
improve their lives will ensure societal and political stability- setting a strong foundation for
economic sustainability. All of these investments will help create an inclusive society,
ensuring a sustainable return to our shareholders.

The Indiabulls Group is keen to help in building an inclusive and prosperous society and we
are beginning our efforts in this direction through Indiabulls Foundation.

One of the first initiatives of the Foundation is to support the development of rural districts.
Our aim is to support development across multiple domains in a district based approach.
Some of the areas where we want to help are in economic development and skills training,
access to drinking water, school education, public health, agriculture and support to the local
government.

Commercial Vehicle Loans

Indiabulls Commercial Vehicle Loans offers commercial auto loans to a variety of business
owners. We are a preferred financer with first time buyers as well as fleet operators providing
commercial vehicle loans with simple documentation and quick results.
 The Commercial Vehicle Finance provided by us helps the small and medium
operators to acquire vehicles with minimum hassle and documentation.We provide
customized financing options to suit your needs.Our strength lies in the quick completion of
transactions, long association with transporters and the intimate knowledge of the market and
its nuances.Our finance schemes are easy to understand with no hidden costs.

We assure you a quick, transparent and hassle-free deal.

1. Product Offering

 Finance for new commercial vehicles

 Finance for used vehicles
 Tractor Loans

2. Proposed Finance

 Tyre Funding
 Accidental Funding
 Engine Funding
 Take over loans
 Top up loan on existing loan with us

3. Features of Loan Offering

 Loan for up to 15 years old vehicles.

 The best loan offering in the market – up to 95% for used vehicles & 100% for new
commercial vehicle chassis
 Max tenure of upto 48 months for used vehicles 60 months for new commercial
vehicle chassis
 Max tenure of upto 48 months for used vehicles 60 months for new commercial
vehicle chassis
 Customized loan to suit your needs
 Door Step Services
 Easy Documentation
 Quick & Hassle free services
 Attractive Rate of Interest
 No intermediary or Direct Marketing Agent for loan processing
 Organization Structure- Board of Directors:

Senior Vice President

Regional Manager

Branch Manager
Senior Sales Manager

Support System Sales Function

RM/SRM
Back Office Local Compliance
Executive Officer

ARM

Dealer
 Trading Products of Indiabulls Securities

Indiabulls Securities
Trading Products

Cash Account Intraday Account Margin Trading

Indiabulls Securities provide three products for trading. They are

 Cash Account
 Intraday Account
 Margin Trading (Mantra)

Cash Account: It provides the client to buy 4 times of cash balance in his trading account.
Intraday Product: It provides the client to buy 8 times of his cash balance in the trading
account.
Mantra Account: Also called as margin trading, is a special account to buy on leverage for
a longer duration
Indiabulls Financial Services Ltd

Indiabulls Financial Services Ltd. was incorporated in the year 2005.The Auditors of
Indiabulls Financial Services Ltd. are Deloitte, Haskins & Sells. The main activity of this
company is in relation to securities and stock brokerage. It was also responsible for setting up
one of India’s first trading platforms.

The subsidiaries of Indiabulls Financial Services Ltd. include:

 Indiabulls Capital Services Ltd.
 Indiabulls Commodities Pvt. Ltd.
 Indiabulls Credit Services Ltd.
 Indiabulls Finance Co. Pvt. Ltd
 Indiabulls Housing Finance Ltd.
 Indiabulls Insurance Advisors Pvt. Ltd.
 Indiabulls Resources Ltd.
 Indiabulls Securities Ltd.

Projects Pipeline
Projects Launched in Q1 FY 13
1. BLU, Worli, Mumbai – 7‐Star luxury residential complex spread over 10 acres in South
Mumbai with breathtaking sea views
2. IB Golf City, Savroli, MMR – Premium residential township with 18‐hole golf course
spread over 350 acres of greens1 IB City Sonepat Haryana 150 Acres of integrated township
with plotted development commercialY 13
1. City, Sonepat, – development, and group housing
2. IB Enigma II, Sec 104, Gurgaon – Super premium residential complex with Villa’s and
high rise towers spread over 34 acres
3. IB Imperial, Sec 106, Gurgaon – 54 Acres of Integrated township with high end residential
apartments, villa’s, luxury retail and commercial
4. IB Commercial Centre, Sec 109, Gurgaon – Over 5 acres of commercial development on
the Dwarka Expressway
5. IB Greens, Chennai – Premium residential township with high rise towers near the IT
corridor spreadover 32 acres
6. IB Mint, Sec 104, Gurgaon – Iconic Commercial tower on the Dwarka Expressway
7. IB Greens, Indore ‐ 15 Acres of Integrated township with high end residential apartments,
retail andcommercial in the heart of the city
8. IB Mega Mall, Agra & Kanpur – Destination mall/multiplex in the heart of the city

The Bankers of Indiabulls Financial Services Ltd. are as follows:

 ABN-Amro Bank
 Andhra Bank
 Bank of Maharashtra
 Bank of Rajasthan Ltd.
 Canara Bank
 Citibank
 Corporation Bank
 Dena Bank
 HDFC Bank Ltd
 HSBC Ltd.
 ICICI Bank Ltd.
 IDBI Ltd
 Industrial Bank Ltd.
 ING Vysya Bank Ltd
 Karnataka Bank
 Punjab National Bank
 State Bank Of India
 Syndicate Bank
 Union Bank Of India
 UTI Bank Ltd.
 Yes Bank Ltd.
 CHAPTER-III

REVIEW OF LITERATURE
 REVIEW OF LITERATURE

The term stock exchange is the concept for the mechanism that the trading of company
stocks. Trading at both the exchanges takes place through an open electronic limit order
book, in which order matching is done by the trading computer. There are no market makers
or specialists and the entire process is order- driven, which means that market orders placed
by investors are automatically matched with the best limit orders. As a result, buyers and
sellers remain anonymous. The advantage of an order driven market is that it brings more
transparency, by displaying all buy and sell orders in the trading system.

All orders in the trading system need to be placed through brokers, many of which provide
online trading facility to retail customers. Institutional investors can also take advantage of
the direct market access (DMA) option, in which they use trading terminals provided by
brokers for placing orders directly into the stock market trading system.

PHILIPPE GERGOOIRE (2001) conducted a study on “Predictive Power of Technical

Analysis: The moving average rules on European” According to him simple forms of
technical analysis possessed significant forecast power on various market indexes. He shows
that these results can be replicated on formally selected European indexes, which almost
completely eliminates any influences from data – snooping. Implications of these results in
terms of market efficiency are also discussed

DG PRAVEEN AND NIHAR RANAJN PANDA (2002)

had conducted a study on “Beat the market with hammer “, Japanese candlestick analysis
is one of most popular and oldest forms of technical analysis. Candlestick charting studies
the records of the market movements in the past to identify the future patterns. It identifies
exuberant buying and panic selling, enabling the trader to pocket a great deal of profits
from the stock market. Compared to traditional bar charts, many traders consider
candlestick charts more visually appearing and easier to interpret. Each candlestick
provides an easy to decipher picture of price action. Immediately a trader can see and
compare the relationship between the open and close as well as the high and low.
STEPHEN SAULT (2006) had conducted a study on fundamental and technical analysis
literatures invest considerable effort in assessing their respective ability to explain share
prices, they invariably do so without reference to each other. In this context, we propose an
equity valuation model integrating both fundamental and technical analysis and, in doing so,
recognize their potential as complements rather than as substitutes. Testing confirms the
complementary nature of fundamental and technical analysis by showing that, while each
performs well in isolation, models integrating both have superior explanatory power. While
our findings relate to the valuation of shares, they also have implications for other valuation
exercises.

CHEOL-HO PARK AND SCOTT H. IRWIN

(2004) The purpose of this report is to review the evidence on the profitability of
technical analysis. To achieve this purpose, the report comprehensively reviews survey,
theoretical and empirical studies regarding technical trading strategies. We begin by over
viewing survey studies that have directly investigated market participants’ experience and
views on technical analysis. Foreign exchange markets, and that about 30% to 40% of
practitioners appear to believe that technical analysis is an important factor in determining
price movement at shorter time horizons up to 6 months.
The principle that potential return rises with an increase in risk. Low levels of uncertainty
(low-risk) are associated with low potential returns, whereas high levels of uncertainty (high-
risk) are associated with high potential returns. According to the risk-return tradeoff, invested
money can render higher profits only if it is subject to the possibility of being lost.
Investors are risk averse; i.e., given the same expected return, they will choose the investment
for which that return is more certain. Therefore, investors demand a higher expected return for
riskier assets. Note that a higher expected return does not guarantee a higher realized return.
Because by definition returns on risky assets are uncertain, an investment may not earn its
expected return.
Although it show historical (realized) returns rather than expected (future) returns, they are
useful to demonstrate the relationship between risk and return. Note that the mean (average)
annual return increases as the dispersion of returns increases.
If inflation is considered, even money market securities have some risk. They may not achieve
the expected real (inflation-adjusted) return. Unexpected inflation may reduce the real return
below the expected return of the money market investment. Uncertainty in real returns can be
eliminated by investing in inflation-indexed securities, such as Treasury Inflation Protected
Securities (TIPS) and Series I Savings Bonds (I Bonds). In return for this reduction of
uncertainty, investors must accept lower expected returns. Even inflation-linked securities
have risks; e.g., TIPS have interest-rate risk, re-investment risk, and liquidity risk. No
investment is truly risk-free.

The objective of the Risk / Return Analysis is to give investors a concise summary of historic
asset class performance over investment periods of varying length. THE COVER
IMAGE The image on the front cover of the handout is intended to show what each of the
bars over-page represents. The line graph shows the performance of shares over each of the
721 twelve-month periods which may be observed using month-end data between 1 January
2008 and 31 December 2015. The bar to the right is a summary of the same performance data
used to draw the line graph. The bar highlights the best and worst twelve-month preiods; the
range within which 90% of returns fell; the percentage of returns which were positive; the
point of the median return; and the point of the most recent return. THE PERFORMANCE
HISTORY OF THE ASSET CLASSES The main bar graph shows the range of returns
 observed for the following four asset classes:
 International Shares
 Australian Shares
 Bonds
 Cash
Investment periods of 1-year, 3-years, 5-years, 10-years and 20-years are graphed. WHERE
INVESTORS ACHIEVED THE GREATEST GROWTH The area column graphs at the
bottom of the inside spread summarise how frequently each asset class outperformed the
others over investment periods ranging from one year to twenty-five years. The first of these
graphs compares Australian shares, bonds and cash since 1950. The second includes
international shares, but relies on data since 1970 only. Both the main bar graph, and the area
column graphs highlight the historical tendency for equity investments to outperform fixed
interest and cash over longer investment periods.

TYPES OF PORTFOLIO MANAGEMENT:

DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE
(DPMS):

In this type of service, the client parts with his money in favor of the manager, who in
return, handles all the paper work, makes all the decisions and gives a good return on the
investment and charges fees. In the Discretionary Portfolio Management Service, to
maximize the yield, almost all portfolio managers park the funds in the money market
securities such as overnight market, 18 days treasury bills and 90 days commercial bills.
Normally, the return of such investment varies from 14 to 18 percent, depending on the call
money rates prevailing at the time of investment.
2. NON-DISCRETIONARY PORTFOLIO MANAGEMENT
SERVICE (NDPMS):

The manager functions as a counselor, but the investor is free to accept or reject the
manager‘s advice; the paper work is also undertaken by manager for a service charge. The
manager concentrates on stock market instruments with a portfolio tailor-made to the risk
taking ability of the investor.

IMPORTANCE OF PORTFOLIO MANAGEMENT:

 Emergence of institutional investing on behalf of individuals. A number of financial
institutions, mutual funds and other agencies are undertaking the task of investing money
of small investors, on their behalf.

 Growth in the number and size of ingestible funds – a large part of household savings is
being directed towards financial assets.

 Increased market volatility – risk and return parameters of financial assets are
continuously changing because of frequent changes in government‘s industrial and fiscal
policies, economic uncertainty and instability.

 Greater use of computers for processing mass of data.

 Professionalization of the field and increasing use of analytical methods (e.g. quantitative
techniques) in the investment decision – making

 Larger direct and indirect costs of errors or shortfalls in meeting portfolio objectives –
increased competition and greater scrutiny by investors.
 CRITERIA FOR PORTFOLIO DECISIONS:

 In portfolio management emphasis is put on identifying the collective importance of

all investor’s holdings. The emphasis shifts from individual assets selection to a more
balanced emphasis on diversification and risk-return interrelationships of individual
assets within the portfolio. Individual securities are important only to the extent they
affect the aggregate portfolio. In short, all decisions should focus on the impact which
the decision will have on the aggregate portfolio of all the assets held.

 Portfolio strategy should be molded to the unique needs and characteristics of the
portfolio‘s owner.
 Diversification across securities will reduce a portfolio‘s risk. If the risk and return
are lower than the desired level, leverages (borrowing) can be used to achieve the
desired level.
 Larger portfolio returns come only with larger portfolio risk. The most important
decision to make is the amount of risk which is acceptable.
 The risk associated with a security type depends on when the investment will be
liquidated. Risk is reduced by selecting securities with a payoff close to when the
portfolio is to be liquidated.
 Competition for abnormal returns is extensive, so one has to be careful in evaluating
the risk and return from securities. Imbalances do not last long and one has to act fast
to profit from exceptional opportunities.

QUALITIES OF PORTFOLIO MANAGER:

1. SOUND GENERAL KNOWLEDGE: Portfolio management is an exciting and challenging

job. He has to work in an extremely uncertain and confliction environment. In the stock
market every new piece of information affects the value of the securities of different
industries in a different way. He must be able to judge and predict the effects of the
information he gets. He must have sharp memory, alertness, fast intuition and self-
confidence to arrive at quick decisions.
2. ANALYTICAL ABILITY: He must have his own theory to arrive at the instrinsic value of the
security. An analysis of the security‘s values, company, etc. is s continuous job of the portfolio
manager. A good analyst makes a good financial consultant. The analyst can know the strengths,
weaknesses, opportunities of the economy, industry and the company.

3. MARKETING SKILLS: He must be good salesman. He has to convince the clients about the
particular security. He has to compete with the stock brokers in the stock market. In this context, the
marketing skills help him a lot.

4. EXPERIENCE: In the cyclical behavior of the stock market history is often repeated, therefore
the experience of the different phases helps to make rational decisions. The experience of the
different types of securities, clients, market trends, etc., makes a perfect professional manager.

PORTFOLIO BUILDING:
Portfolio decisions for an individual investor are influenced by a wide variety of factors.
Individuals differ greatly in their circumstances and therefore, a financial programme well suited to
one individual may be inappropriate for another. Ideally, an individual‘s portfolio should be tailor-
made to fit one‘s individual needs.
Investor‘s Characteristics:
An analysis of an individual‘s investment situation requires a study of personal characteristics
such as age, health conditions, personal habits, family responsibilities, business or professional
situation, and tax status, all of which affect the investor‘s willingness to assume risk.

Stage in the Life Cycle:

One of the most important factors affecting the individual‘s investment objective is his stage
in the life cycle. A young person may put greater emphasis on growth and lesser emphasis on
liquidity. He can afford to wait for realization of capital gains as his time horizon is large.

Family responsibilities:
The investor‘s marital status and his responsibilities towards other members of the family can
have a large impact on his investment needs and goals.
Investor‘s experience:
The success of portfolio depends upon the investor‘s knowledge and experience in financial
matters. If an investor has an aptitude for financial affairs, he may wish to be more aggressive in his
investments.
Attitude towards Risk:
 A person‘s psychological make-up and financial position dictate his ability to assume the risk.
Different kinds of securities have different kinds of risks. The higher the risk, the greater the
opportunity for higher gain or loss.

Liquidity Needs:
Liquidity needs vary considerably among individual investors. Investors with regular income
from other sources may not worry much about instantaneous liquidity, but individuals who depend
heavily upon investment for meeting their general or specific needs, must plan portfolio to match
their liquidity needs. Liquidity can be obtained in two ways:

1. By allocating an appropriate percentage of the portfolio to bank deposits, and

2. By requiring that bonds and equities purchased be highly marketable.

Tax considerations:
Since different individuals, depending upon their incomes, are subjected to different marginal
rates of taxes, tax considerations become most important factor in individual‘s portfolio strategy.
There are differing tax treatments for investment in various kinds of assets.

Time Horizon:
In investment planning, time horizon becomes an important consideration. It is highly variable
from individual to individual. Individuals in their young age have long time horizon for planning,
they can smooth out and absorb the ups and downs of risky combination. Individuals who are old
have smaller time horizon, they generally tend to avoid volatile portfolios.
Individual‘s Financial Objectives:
In the initial stages, the primary objective of an individual could be to accumulate wealth via
regular monthly savings and have an investment programmed to achieve long term capital gains.

Safety of Principal:
The protection of the rupee value of the investment is of prime importance to most investors.
The original investment can be recovered only if the security can be readily sold in the market
without much loss of value.