12-11-2012, 12:19 PM
CONSTRUCTION OF EQUITY PORTFOLIO WITH REFERENCE TO BSE SENSEX USING SHARPE SINGLE INDEX MODEL
CONSTRUCTION OF EQUITY.pptx (Size: 522.04 KB / Downloads: 81)
Introduction
A portfolio is combination of securities held together as an investment.
A portfolio allows for sufficient diversification.
Markowitz was the first who laid foundation for “Modern portfolio theory.
The work done by Markowitz was extended by William Sharpe.
This simplification is achieved through single index model.
This study focuses on finding out an optimal portfolio using single index model.
Objectives of study
To study the relative market performance of 28 companies belonging to BSE SENSEX listed in Bombay Stock Exchange, India.
To construct an optimal portfolio and analyze the risk and return.
To identify stocks and proportion of stocks to be included in portfolio.
To guide investors to find out the company that gives the maximum return with minimum risk.
To study the volatility of companies in comparison with the market
Methodology
Data
The data taken for this study is Secondary in nature and it is collected from various websites like Bombay Stock Exchange (BSE), Reserve Bank of India (RBI), etc.
Study Period
This study is conducted during 31st July 2007 to July 31st 2012.
Sample size
The sample size of the study is limited to 28 stocks out of 30 stocks from BSE SENSEX.
Tools used for data analysis
Beta Coefficient
Risk-free rate of return ( Rf )
Excess Return-Beta Ratio
Cut off Rate
Industry profile
Indian brokerage industry is growing but not at great pace. It recorded 12% growth in revenue (16 broking companies as per ICRA) and operating expenses increased by 35%.
Trading volume in the same period grown by 46%
BSE and NSE are the two primary exchanges in India with PE of 21.1 and 22.1.
In FY11, nearly Rs 67000 cr mobilized through 81 equity issues (58 public issue of equity + 10 rights issue)
According to RBI, net financial savings of the household sector moderated in FY11 to 9.7% of GDP at current market prices
Nationwide network of trading through 4,563 corporate brokers as on Mar 31, 2011
65% of trading from Mumbai and Delhi only.
Average daily turnover of market was 1.32 lakh crs.
CONCLUSIONS
The portfolio is constructed with the 4 stocks that meet the criteria to be included in the portfolio according to the Sharpe Single Index Model.
The portfolio is constructed to earn maximum returns at minimum level of risk.
The proportion of investments in each of the securities in the portfolio is also determined.
Thus the portfolio construction table would help an investor in investment decisions.
By observing the stock prices over a period of years reveals that most of the stock prices move in line with the market index.
This is because of some of the underlying factors that have impact on both the market index and the stock prices.