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EXECUTIVE SUMMARY
This project report on “Portfolio Management of CNX Midcap Companies based on understanding portfolio management, which is taking place in the stock market.
A portfolio is an appropriate mix of or collection of investments held by an institution or a private individual. It is a collection of securities, since it is rarely desirable to invest the entire funds of an individual or an institution in a single security. Portfolio analysis considers the determination of future risk and return in holding various blends of individual securities. Portfolio expected return is a weighted average of the expected return of Individual securities but portfolio variance, in short contrast, can be something less than a weighted average of security variances.
As a result an investor can sometimes reduce portfolio risk by adding security with greater individual risk than any other security in the portfolio. This is because risk depends greatly on the co-variance among return of individual securities. Since portfolios expected return is a weighted average of the expected return of its securities, the contribution of each security to the portfolio’s expected returns depends on its expected returns and its proportionate share of the initial portfolio’s market value.
PHASES OF PORTFOLIO MANAGEMENT
Five phases can be identified in this process:
Security analysis
Portfolio analysis
Portfolio selection
Portfolio revision
Portfolio evaluation
SECURITY ANALYSIS
It is an examination and evaluation of the various factors affecting the value of a security. Security Analysis stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements, make purchases when the market inevitably under-prices some of them, earn a satisfactory return, and never be in real danger of permanent loss.
PORTFOLIO ANALYSIS
Analysis phase of portfolio management consists of identifying the range of possible portfolios that can be constituted from a given set of securities and calculating their return and risk for further analysis.
PORTFOLIO SELECTION
The proper goal of portfolio construction is to generate a portfolio that provides the highest returns at a given level of risk. A portfolio having this characteristic is known as an efficient portfolio. The inputs from portfolio analysis can be used to identify the set of efficient portfolios. From this set of efficient portfolios, the optimal portfolio has to be selected for investment. Harry Markowitz portfolio theory provides both the conceptual framework and analytical tools for determining the optimal portfolio in a disciplined and objective way.
PORTFOLIO REVISION
Having constructed the optimal portfolio, the investor has to constantly monitor the portfolio to ensure that it continues to be optimal. Portfolio revision is as important as portfolio analysis and selection.
PORTFOLIO EVALUATION
It is the process, which is concerned with assessing the performance of the portfolio over a selected period of time in terms of returns and risk. This involves quantitative measurement of actual return realized and the risk born by the portfolio over the period of investment. It provides a feedback mechanism for improving the entire portfolio management process.
Under project title firstly I find out 10 securities, which has made technical break out in CNX Midcap Index. Company selection is based on return and beta of that security also. On the basis of Sharpe Model of optimum portfolio, only 6 companies remained in my portfolio out of 9 companies. I found out the risk and return trade-off, beta, systematic and unsystematic risk, correlation between security and market and between two securities also, and covariance of security and market also. After which, the selected companies under portfolio, I found out the portfolio return and risk on the basis of Markowitz and Sharpe Single Index Model. I might add here that the project highlights the important points as to in which Midcap companies, an investor should invest in order to get a profitable return, which can be seen from the targeted price of fundamental and technical analysis
INDUSTRY PROFILE:
1.1 INTRODUCTION ABOUT THE INDUSTRY
India is one of the fastest growing economies in the world with a rapidly expanding financial services sector. After adjustments for purchasing power parity, India’s economy is the fourth largest in the world in terms of Gross Domestic Product (“GDP”). An efficient securities market provides the necessary channel for flow of resources from the providers of capital to the users of capital for economic development. The overall growth of the economy and economic activity are also important factors, which determine availability
of resources. Mobilization of savings from surplus savers to deficit savers is most efficiently carried out by the securities market through a range of complex products called “securities”.
Background of Indian Financial Sector
The Bombay Stock Exchange (BSE) is known as the oldest exchange in Asia. It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai’s Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as ‘The Native Share & Stock Brokers Association’. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act.
The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to measure overall performance of the exchange. In 2000 the BSE used this index to open its derivatives market, trading Sensex futures contracts. The development of Sensex options along with equity derivatives followed in 2001 and 2002, expanding the BSE’s trading platform.Historically an open-cry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system in 1995. It took the exchange only fifty days to make this transition.Capital market reforms in India and the launch of the Securities and Exchange Board of India (SEBI) accelerated the integration of the second Indian stock exchange called the National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest stock exchange in India
Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world.In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25 different economy sectors. The Indices are owned and managed by India Index Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard & Poor’s.In 1998, the National Stock Exchange of India launched its web-site and was the first exchange in India that started trading stock on the Internet in 2000.