CHAPTER-II

LITERATURE REVIEW
 Review of Literature:

According to a study by Brownbridge (1998), most of the bank failures were caused by fixed assets
management. Arrears affecting more than half the loan portfolios were typical of the failed banks.
Many of the bad debts were attributable to moral hazard: the adverse incentives on bank owners to
adopt imprudent lending strategies, in particular insider lending and lending at high interest rates to
borrowers in the most risky segments of the credit markets.

Bloem and Gorter (2001) suggested that a more or less predictable level of fixed assets management,
though it may vary slightly from year to year, is caused by an inevitable number of ‘wrong economic
decisions by individuals and plain bad luck (inclement weather, unexpected price changes for certain
products, etc.). Under such circumstances, the holders of loans can make an allowance for a normal
share of non-performance in the form of bad loan provisions, or they may spread the risk by taking
out insurance. Enterprises may well be able to pass a large portion of these costs to customers in the
form of higher prices. For instance, the interest margin applied by financial institutions will include a
premium for the risk of nonperformance on granted loans.

At this time, banks’ fixed assets management increase, profits decline and substantial losses to capital
may become apparent. Eventually, the economy reaches a trough and turns towards a new
expansionary phase, as a result the risk of future losses reaches a low point, even though banks may
still appear relatively unhealthy at this stage in the cycle.

According to Gorter and Bloem (2002) fixed assets management are mainly caused by an inevitable
number of wrong economic decisions by individuals and plain bad luck (inclement weather,
unexpected price changes for certain products, etc.). Under such circumstances, the holders of loans
can make an allowance for a normal share of nonperformance in the form of bad loan provisions, or
they may spread the risk by taking out insurance.

Petya Koeva (2003), his study on the Performance of Indian Banks. During Financial Liberalization
states that new empirical evidence on the impact of financial liberalization on the performance of
Indian commercial banks. The analysis focuses on examining the behavior and determinants of bank
intermediation costs and profitability during the liberalization period. The empirical results suggest
that ownership type has a significant effect on some performance indicators and that the observed
increase in competition during financial liberalization has been associated with lower intermediation
costs and profitability of the Indian banks.
Das and Ghosh (2003) empirically examined fixed assets management of India’s public sector banks
in terms of various indicators such as asset size, credit growth and macroeconomic condition, and
operating efficiency indicators. Sergio (1996) in a study of fixed assets management in Italy found
evidence that, an increase in the riskiness of loan assets is rooted in a bank’s lending policy adducing
to relatively unselective and inadequate assessment of sectoral prospects.

Vradi et.al (2006), his study on´ Measurement of efficiency of bank in India concluded that in
modern world performance of banking is more important to stable the economy .in order to see the
efficiency of Indian banks we have see the fore indicators i.e. profitability, productivity, assets,
quality and financial management for all banks includes public sector, private sector banks in India for
the period 2000 and 1999 to 2002-2003. For measuring efficiency of banks we have adopted
development envelopment analysis and found that public sectors banks are more efficient then other
banks in India

Brijesh K. Saho et.al (2007), this paper attempts to examine, the performance trends of the Indian
commercial banks for the period: 1997-98 - 2004-05. Our broad empirical findings are indicative in
many ways. First, the increasing average annual trends in technical efficiency for all ownership
groups indicate an affirmative gesture about the effect of the reform process on the performance of the
Indian banking sector. Second, the higher cost efficiency accrual of private banks over nationalized
banks indicate that nationalized banks, though old, do not reflect their learning experience in their cost
minimizing behavior due to X-inefficiency factors arising from government ownership. This finding
also highlights the possible stronger disciplining role played by the capital market indicating a strong
link between market for corporate control and efficiency of private enterprise assumed by property
right hypothesis. And, finally, concerning the scale elasticity behavior, the technology and market-
based results differ significantly supporting the empirical distinction between returns to scale and
economies of scale, often used interchangeably in the literature.

Roma Mitra et.al (2008), A stable and efficient banking sector is an essential precondition to
increase the economic level of a country. This paper tries to model and evaluate the efficiency of 50
Indian banks. The Inefficiency can be analyzed and quantified for every evaluated unit. The aim of
this paper is to estimate and compare efficiency of the banking sector in India. The analysis is
supposed to verify or reject the hypothesis whether the banking sector fulfils its intermediation
function sufficiently to compete with the global players. The results are insightful to the financial
policy planner as it identifies priority areas for different banks, which can improve the performance.
This paper evaluates the performance of Banking Sectors in India.
B.Satish Kumar (2008), in his article on an evaluation of the financial performance of Indian private
sector banks wrote Private sector banks play an important role in development of Indian economy.
After liberalization the banking industry underwent major changes. The economic reforms totally
have changed the banking sector. RBI permitted new banks to be started in the private sector as per
the recommendation of Narashiman committee. The Indian banking industry was dominated by public
sector banks. But now the situations have changed new generation banks with used of technology and
professional management has gained a reasonable position in the banking industry.

M. Karunakar et.al (2008), Study the important aspect of norms and guidelines for making the
whole sector vibrant and competitive. The problem of losses and lower profitability of fixed assets
management (NPA) and liability mismatch in Banks and financial sector depend on how various risks
are managed in their business. Besides capital to risk Weightage assets ratio of public sector banks,
management of credit risk and measures to control the menace of NPAs are also discussed. The
lasting solution to the problem of NPAs can be achieved only with proper credit assessment and risk
management mechanism. It is better to avoid NPAs at the market stage of credit consolidation by
putting in place of rigorous and appropriate credit appraisal mechanisms.

Nelson M. Waweru et.al (2009), Study that many financial institutions that collapsed in Kenya since
1986 failed due to non performing loans, this study investigated the causes of fixed assets
management, the actions that bank managers have taken to mitigate that problem and the level of
success of such actions. Using a sample of 30 managers selected from the ten largest banks the study
found that national economic downturn was perceived as the most important external factor. Customer
failure to disclose vital information during the loan application process was considered to be the main
customer specific factor. The study further found that Lack of an aggressive debt collection policy
was perceived as the main bank specific factor, contributing to the non performing debt problem in
Kenya.

Kevin Greenidge et.al (2010), study the evaluation of fixed assets management is of great
importance given its association with bank failure and financial crises, and it should therefore be of
interest to developing countries. The purpose of this paper is to build a multivariate model,
incorporating macroeconomic and bank-specific variables, to forecast fixed assets management in the
banking sector of Barbados. On an aggregate level, our model outperforms a simple random walk
model on all forecast horizons, while for individual banks; these forecasts tend to be more accurate for
longer prediction periods only.
 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.

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.

 Provides user interfaces that allow for the extraction of data based on user defined parameters.
 Provides a comprehensive set of tools to perform portfolio and risk evaluation against
parameters set within the risk framework.
  Provides a set of tools to optimise portfolio value and risk position by:
 Considering various legs of different contracts to create an optimal trading strategy.
 The calculation of residual purchase requirements.
 Performs analysis that provides the relevant information to create hedge and trade plans.
 Performs analysis on current and potential trades.
 Evaluates the best mix of contracts on offer from counterparties to minimise the overall
purchase cost and maximize profits.
 Creates and maintains trading and hedge strategies by:
 Allocating trades to contracts and books.
 Maintaining trades against contracts and books.
 Reviewing trades against existing trading strategy.
 Maintains an audit trail of decisions taken and query resolution.
 Produces accurate and timely reports

Project Portfolio Management Software

The Business Need.

Project Professionals need a Project Management solution that enables them to complete their projects
faster, with higher quality and within a logical, easy-to-follow roadmap.

Executives need a system that identifies the projects with the highest ROI potential, provides broad,
deep and timely reporting, and enables scalability.

The Power of Templates:

Standards, Consistency, Repeatability.

Your company and your industry have unique ways of managing processes, procedures and projects at
the highest level. Best Practice Templates, linked training, productivity tools, and guidelines provide a
framework for your optimal performance.

SigmaFlow’s Project Portfolio Management Solution is the only solution that uses flexible templates
with an integrated project management, document library and metric management system to drive
your workflow.

Best practice templates are the most efficient way to develop and maintain standards, consistency and
repeatability. With these Templates, new employees can become more self-sufficient and deliver a
higher quality work product - they know what to do next, with easy access to reference materials and
guidelines. The template roadmap provides structure and enables the interchange of resources mid-
process or project.

Once a project has been completed and designated as successful, the Template framework can be used
again, even by inexperienced employees, with the same benefits at a fraction of the original
implementation cost.

Reap the Benefit of Best Practices.

Whether you are a manufacturer or service organization, you can import selected best practices,
standards, and compliance requirements into SigmaFlow’s system to ensure that your projects and
processes perform at the highest possible level. Once you create your workflow template in
SigmaFlow, you’ll have a step-by-step methodology to guide you through the process with all your
training, documents, tools and deliverables at your fingertips.

The SigmaFlow Difference

SigmaFlow’s unique architecture includes operational level process productivity tools and project
management tools, as well as a strategic level web-based repository for portfolio analysis and
reporting. This means you are always working in the system of record, where the process and project
work actually take place. This leads to a fully integrated information flow, from the lowest level tool
to the highest level scorecard. Optionally, SigmaFlow’s operational level tools can be integrated with
your existing Project Management system.

SigmaFlow’s system gives executives timely project status visibility without burdening practitioners
with redundant data entry into a web-based project tracking system. This provides executives the
ability to manage by exception and derive deeper and more meaningful business insights. The system
ensures relevance of information by automatically populating status detail whenever a SigmaFlow
desktop project file is saved into the system. It also reduces the risk of re-work and errors caused by
having multiple “unofficial” versions of project documents. As a result, your practitioners will be
more self-sufficient and productive.

By bridging desktop tools with an enterprise system, SigmaFlow’s solution is fully scaleable. A small,
growing company can start with a single license and expand into a web system when ready. In
addition, SigmaFlow offers integration with Microsoft Project for easy import and export of project
files.
Easy, Efficient & Effective.

SigmaFlow’s Project Portfolio Management System is designed to derive the greatest benefit with the
most efficient use of your time:

 Create any template as easily as drawing a process map. The system is infinitely flexible to
match your unique needs.
 Easily integrate Project Management Metrics, Document Library and Performance Metrics
with the template, giving you a one-stop shop for your critical project resources.
 Work where you are most efficient, online or offline.
 Improve your project consistency: Know what to do next, when to use tools, and how to use
tools throughout your project or process.
 Replicate your best practices. Easily convert your recent best practice project into a template
for tomorrow’s use

Portfolio Management

To sustain long-term growth, companies manage a number of products and candidates at different
stages of maturity. However, different product profiles and the therapeutic areas they serve have
disparate commercial opportunities.

Our portfolio prioritization, pipeline analysis, category franchise strategy, and technology licensing
assessments provide a systematic means of optimizing development programs and product
opportunities. We outline and quantify the areas of greatest opportunity for your organization and
recommend actionable strategies that establish or expand your position in target markets.

Key portfolio management questions that we address:

 Which technologies and product candidates have the greatest potential commercial value?
 How can we broaden and deepen our therapy penetration?
 What actions can we take to maximize return on investment for individual candidates and
discoveries?
 Which proprietary rights do we buy, co-market, license, or sell?
 How do we balance short and long term product needs to maximize therapeutic franchise
value?

We detail the value of discoveries in clinical phases, candidates in the pipeline, and products on the
market. These individual and therapeutic category evaluations enable executives to make strategic
investment, licensing and prioritization decisions to realize their portfolio's full potential.
  Portfolio Management
You can now receive the same portfolio management services as many institutional investors-
whether it is a separately managed account or a mutual fund wrap portfolio.

Some benefits of managed portfolios include:

Providing access to top-tier investment management professionals
Tailored portfolios to meet specific investment needs
Ownership of individual securities
Ease of pre-designed mutual fund portfolios

Every investor is unique, and investment advisory services provide you with professional investment
advice and a personalized investment strategy. Whether you're seeking a tailored, professionally
managed portfolio, or the convenience and simplicity of a diversified mutual fund wrap program, your
investment choice should focus on meeting your financial goals. During this process, you should
consider current and future growth objectives, income needs, time horizon and risk tolerance. These
considerations form the blueprint for developing a portfolio management strategy. The process
involves, but is not limited to, the following important stages.

 Set investment objectives

 Develop an asset allocation strategy
 Evaluate/Select investment vehicle
 Portfolio review -- Ongoing portfolio monitoring
Portfolio Management Maturity

Summarizes five levels of project portfolio management maturity .each level represents the adoption
of an increasingly comprehensive and effective subset of related solutions discussed in the previous
parts of this 6-part paper for addressing the reasons that organizations choose the wrong projects.
Understanding organizational maturity with regard to project portfolio management is useful. It
facilitates identifying performance gaps, indicates reasonable performance targets, and suggests an
achievable path for improvement.

The fact that five maturity levels have been identified is not meant to suggest that all organizations
ought to strive for top-level performance. Each organization needs to determine what level of
performance is reasonable at the current time based on business needs, resources available for
engineering change, and organizational ability to accept change. Experience shows that achieving
high levels of performance typically takes several years. It is difficult to leap-frog several steps at
once. Making progress is what counts.
Five levels of project portfolio management.

The detailed definitions of the levels, provided below, are not precise. Real organizations will tend to
be more advanced with regard to some characteristics and less advanced relative to others. For most
organizations, though, it is easy to pick one of the levels as characterizing the current maturity of
project portfolio management performance.

Level 1: Foundation

Level 1 organizes work into discrete projects and tracks costs at the project level.

 Project decisions are made project-by-project without adherence to formal project selection
criteria.
 The portfolio concept may be recognized, but portfolio data are not centrally managed and/or
not regularly refreshed.
 Roles and responsibilities have not been defined or are generic, and no value-creation
framework has been established.
 Only rarely are business case analyses conducted for projects, and the quality is often poor.
 Project proposals reference business benefits generally, but estimates are nearly always
qualitative rather than quantitative.
 There is little or no formal balancing between the supply and demand for project resources,
and there is little if any coordination of resources across projects, which often results in
resource conflicts.
 Over-commitment of resources is common.
 There may be a growing recognition that risks need to be managed, but there is little real
management of risk.

Level 1 organizations are not yet benefiting from project portfolio management, but they are
motivated to address the relevant problems and have the minimum foundation in place to begin
building project portfolio management capability. At this level, organizations should focus on
establishing consistent, repeatable processes for project scheduling, resource assignment, time
tracking, and general project oversight and support.

Level 2: Basics

Level 2 replaces project-by-project decision making with the goal of identifying the best collection of
projects to be conducted within the resources available. At a minimum this requires aggregating
project data into a central database, assigning responsibilities for project portfolio management, and
force-ranking projects.

 Redundant projects are identified and eliminated or merged.

 Business cases are conducted for larger projects, although quality may be inconsistent.
 Individual departments may be establishing structures to oversee and coordinate their
projects.
 There is some degree of options analysis (i.e., different versions of the project will be
considered).
 Project selection criteria are explicitly defined, but the link to value creation is sketchy.
 Planning is mostly activity scheduling with limited performance forecasting.
 There are attempts to quantify some non-financial benefits, but estimates are mostly
"guestimates" generated without the aid of standard techniques.
 Overlap and double counting of benefits between projects is common.
 Ongoing projects are still rarely terminated based on poor performance.
 The PPM tools being used may have good data display and management capabilities, but
project prioritization algorithms may be simplistic and the results potentially misleading to
decision makers.
 Portfolio data has an established refresh cycle or is regularly accessed and updated. Resource
requirements at the portfolio level are recognized but not systematically managed.
 Knowledge sharing is local and ad hoc.
 Risk analysis may be conducted early in projects but is not maintained as a continual
management process. Uncertainties in project schedule, cost and benefits are not quantified.
 Schedule and cost overruns are still common, and the risks of project failure remain large.

Level 2 organizations are beginning to implement project portfolio management, but most of the
opportunity has not yet been realized. The focus should be on formalizing the framework for
evaluating and prioritizing projects and on implementing tools and processes for supporting project
budgeting, risk and issues tracking, requirements tracking, and resource management.

Level 3: Value Management

Level 3, the most difficult step for most organizations, requires metrics, models, and tools for
quantifying the value to be derived from projects. Although project interdependencies and portfolio
risks may not be fully and rigorously addressed, analysis allows projects to be ranked based on "bang-
for-the-buck," often producing a good approximation of the value-maximizing project portfolio.
  The principles of portfolio management are widely understood and accepted.
 The project portfolio has a well-defined perimeter, with clear demarcation and understanding
of what it contains and does not contain.
 Portfolio management processes are centrally defined and well documented, as are roles and
responsibility for governance and delivery.
 Portfolio management can demonstrate that its role in scrutinizing projects has resulted in
some initiatives being stopped or reshaped to increase portfolio value.
 Executives are engaged, provide tradeoff weights for the value model, and provide active and
informed support.
 Plans are developed to a consistent standard and are outcome- or value-based.
 Effective estimation techniques are being used within planning and a range of project
alternatives are routinely considered.
 Data quality assurance processes are in place and independent reviews are conducted.
 There is a common, consistent practice for project approval and monitoring.
 Project dependencies are identified, tracked, and managed.
 Decisions are made with the aid of a tool based on a defensible logic for computing project
value that generates the efficient frontier.
 Portfolio data are kept up-to-date and audit trails are maintained.
 Costs, expenditures and forecasts are monitored at the portfolio level in accordance with
established guidelines and procedures.
 Interfaces with financial and other related functions within the organization have been
defined.
 A process is in place for validating the realization of project benefits.
 There is a defined risk analysis and management process, with efforts appropriate to risk
significance, although some sources of risk are not quantified in terms of probability and
consequence.

Level 3 organizations demonstrate a commitment to proactive, standardized project and project

portfolio management. They are achieving significant return from their investment, although more
value is available.

Level 4: Optimization

Level 4 is characterized by mature processes, superior analytics, and quantitatively managed behavior.

 Tools for optimizing the project portfolio correctly and fully account for project risks and
interdependencies.
  The business processes of value creation have been modeled and measurement data is
collected to validate and refine the model.
 The model is the basis for the logic for estimating project value, prioritizing projects, making
project funding and resource allocation decisions, and optimizing the project portfolio.
 The organization's tolerance for risk is known, and used to guide decisions that determine the
balance of risk and benefit across the portfolio.
 There is clear accountability and ownership of risks.
 External risks are monitored and evaluated as part of the investment management process and
common risks across the whole portfolio (which may not be visible to individual projects) are
quantified and in support of portfolio optimization.
 Senior executives are committed, engaged, and proactively seek out innovative ways to
increase value.
 There is likely to be an established training program to develop the skills and knowledge of
individuals so that they can more readily perform their designated roles.
 An extensive range of communications channels and techniques are used for collaboration
and stakeholder management.
 High-level reports on key aspects of portfolio are regularly delivered to executives and the
information is used to inform strategic decision making.
 There is trend reporting on progress, actual and projected cost, value, and level of risk.
 Assessments of stakeholder confidence are collected and used for process improvement.
 Portfolio data is current and extensively referenced for better decision making.

Level 4 organizations are using quantitative analysis and measurements to obtain efficient predictable
and controllable project and project portfolio management. They are obtaining the bulk of the value
available from practicing project portfolio management.

Level 5: Core Competency

Level 5 occurs when the organization has made project portfolio management a core competency,
uses best-practice analytic tools, and has put processes in place for continuous learning and
improvement.

 Portfolio management processes are proven and project decisions, including project funding
levels and timing, are routinely made based the value maximization value.
 Processes are continually refined to take into account increasing knowledge, changing
business needs, and external factors.
  Portfolio management drives the planning, development, and allocation of projects to
optimize the efficient use of resources in achieving the strategic objectives of the
organization.
 High levels of competence are embedded in all portfolio management roles, and portfolio
management skills are seen as important for career advancement.
 Portfolio gate reviews are used to proactively assess and manage portfolio value and risk.
 Portfolio management informs future capacity demands, capability requirements are
recognized, and resource levels are strategically managed.
 Information is highly valued, and the organization's ability to mitigate external risks and grasp
opportunities is enhanced by identifying innovative ways to acquire and better share
knowledge.
 Benefits management processes are embedded across the organization, with benefits
realization explicitly aligned with the value measurement framework.
 The portfolio is actively managed to ensure the long term sustainability of the enterprise.
 Stakeholder engagement is embedded in the organization's culture, and stakeholder
management processes have been optimized.
 Risk management underpins decision-making throughout the organization.
 Quantitatively measurable goals for process improvement have been established and
performance against them tracked.
 The relationship between the portfolio and strategic planning is understood and managed.
 Resource allocations to and from projects are intimately aligned so as the maximize value
creation.

Level 5 organizations are obtaining maximum possible value from project portfolio management. By
fully institutionalizing project portfolio management into their culture they free people to become
more creative and innovative in achieving business success.

Building Project Portfolio Management Maturity

Experience shows that building project portfolio management maturity takes time. As suggested by,
significant short-term performance gains can be achieved, but making step changes requires
understanding current weaknesses and the commitment of effort and resources.
 Step changes can be made, but achieving high levels of maturity typically takes years

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.

Assurance of Income:

`Different investors have different current income needs. If an individual is dependent of its investment
income for current consumption then income received now in the form of dividend and interest payments
become primary objective.

All investment decisions revolve around the trade-off between risk and return. All rational investors
want a substantial return from their investment. An ability to understand, measure and properly manage
investment risk is fundamental to any intelligent investor or a speculator. Frequently, the risk associated with
security investment is ignored and only the rewards are emphasized. An investor who does not fully
appreciate the risks in security investments will find it difficult to obtain continuing positive results.
 RISK AND EXPECTED RETURN:

There is a positive relationship between the amount of risk and the amount of expected return i.e., the
greater the risk, the larger the expected return and larger the chances of substantial loss. One of the most
difficult problems for an investor is to estimate the highest level of risk he is able to assume.

 Risk is measured along the horizontal axis and increases from the left to right.
 Expected rate of return is measured on the vertical axis and rises from bottom to top.
 The line from 0 to R (f) is called the rate of return or risk less investments commonly associated with
the yield on government securities.
 The diagonal line form R (f) to E(r) illustrates the concept of expected rate of return increasing as
level of risk increases.
TYPES OF RISKS:

Risk consists of two components. They are

1. Systematic Risk
2. Un-systematic Risk

1. Systematic Risk:

Systematic risk is caused by factors external to the particular company and uncontrollable by the
company. The systematic risk affects the market as a whole. Factors affect the systematic risk are

 economic conditions

 political conditions

 sociological changes

The systematic risk is unavoidable. Systematic risk is further sub-divided into three types. They are

a) Market Risk

b) Interest Rate Risk

c) Purchasing Power Risk

a). Market Risk

One would notice that when the stock market surges up, most stocks post higher price. On the other
hand, when the market falls sharply, most common stocks will drop. It is not uncommon to find stock prices
 falling from time to time while a company‘s earnings are rising and vice-versa. The price of stock may
fluctuate widely within a short time even though earnings remain unchanged or relatively stable.

b). Interest Rate Risk:

Interest rate risk is the risk of loss of principal brought about the changes in the interest rate paid on
new securities currently being issued.

c). Purchasing Power Risk:

The typical investor seeks an investment which will give him current income and / or capital
appreciation in addition to his original investment.

2. Un-systematic Risk:

Un-systematic risk is unique and peculiar to a firm or an industry. The nature and mode of raising finance
and paying back the loans, involve the risk element. Financial leverage of the companies that is debt-equity
portion of the companies differs from each other. All these factors affect the un-systematic risk and contribute
a portion in the total variability of the return.

Managerial inefficiently

 Technological change in the production process

 Availability of raw materials
 Changes in the consumer preference
 Labor problems

The nature and magnitude of the above mentioned factors differ from industry to industry and
company to company. They have to be analyzed separately for each industry and firm. Un-systematic risk can
be broadly classified into:

a) Business Risk
b) Financial Risk

a. Business Risk:
Business risk is that portion of the unsystematic risk caused by the operating environment of the business.
Business risk arises from the inability of a firm to maintain its competitive edge and growth or stability of the
earnings. The volatility in stock prices due to factors intrinsic to the company itself is known as Business risk.
 Business risk is concerned with the difference between revenue and earnings before interest and tax. Business
risk can be divided into.

i). Internal Business Risk

Internal business risk is associated with the operational efficiency of the firm. The operational
efficiency differs from company to company. The efficiency of operation is reflected on the company‘s
achievement of its pre-set goals and the fulfillment of the promises to its investors

. ii).External Business Risk

External business risk is the result of operating conditions imposed on the firm by circumstances
beyond its control. The external environments in which it operates exert some pressure on the firm. The
external factors are social and regulatory factors, monetary and fiscal policies of the government, business
cycle and the general economic environment within which a firm or an industry operates.

b. Financial Risk:
It refers to the variability of the income to the equity capital due to the debt capital. Financial risk in a
company is associated with the capital structure of the company. Capital structure of the company consists of
equity funds and borrowed funds.

PORTFOLIO ANALYSIS:

Various groups of securities when held together behave in a different manner and give interest
payments and dividends also, which are different to the analysis of individual securities. A combination of
securities held together will give a beneficial result if they are grouped in a manner to secure higher return
after taking into consideration the risk element.

There are two approaches in construction of the portfolio of securities. They are

 Traditional approach
 Modern approach
TRADITIONAL APPROACH:

Traditional approach was based on the fact that risk could be measured on each individual security
through the process of finding out the standard deviation and that security should be chosen where the
deviation was the lowest. Traditional approach believes that the market is inefficient and the fundamental
analyst can take advantage of the situation. Traditional approach is a comprehensive financial plan for the
individual. It takes into account the individual need such as housing, life insurance and pension plans.
Traditional approach basically deals with two major decisions. They are
a) Determining the objectives of the portfolio

b) Selection of securities to be included in the portfolio

MODERN APPROACH:

Modern approach theory was brought out by Markowitz and Sharpe. It is the combination of securities
to get the most efficient portfolio. Combination of securities can be made in many ways. Markowitz
developed the theory of diversification through scientific reasoning and method. Modern portfolio theory
believes in the maximization of return through a combination of securities. The modern approach discusses
the relationship between different securities and then draws inter-relationships of risks between them.
Markowitz gives more attention to the process of selecting the portfolio. It does not deal with the individual
needs.

MARKOWITZ MODEL:

Markowitz model is a theoretical framework for analysis of risk and return and their relationships. He
used statistical analysis for the measurement of risk and mathematical programming for selection of assets in a
portfolio in an efficient manner. Markowitz apporach determines for the investor the efficient set of portfolio
through three important variables i.e.

 Return
 Standard deviation
 Co-efficient of correlation

Markowitz model is also called as an “Full Covariance Model“. Through this model the investor can
find out the efficient set of portfolio by finding out the trade off between risk and return, between the limits of
zero and infinity. According to this theory, the effects of one security purchase over the effects of the other
security purchase are taken into consideration and then the results are evaluated. Most people agree that
holding two stocks is less risky than holding one stock. For example, holding stocks from textile, banking and
electronic companies is better than investing all the money on the textile company‘s stock.

Markowitz had given up the single stock portfolio and introduced diversification. The single stock
portfolio would be preferable if the investor is perfectly certain that his expectation of highest return would
turn out to be real. In the world of uncertainty, most of the risk adverse investors would like to join
Markowitz rather than keeping a single stock, because diversification reduces the risk.
ASSUMPTIONS:

 All investors would like to earn the maximum rate of return that they can achieve from their
investments.
 All investors have the same expected single period investment horizon.
 All investors before making any investments have a common goal. This is the avoidance of risk
because Investors are risk-averse.
 Investors base their investment decisions on the expected return and standard deviation of returns
from a possible investment.
 Perfect markets are assumed (e.g. no taxes and no transition costs)
 The investor assumes that greater or larger the return that he achieves on his investments, the higher
the risk factor surrounds him. On the contrary when risks are low the return can also be expected to
be low.
 The investor can reduce his risk if he adds investments to his portfolio.
 An investor should be able to get higher return for each level of risk “by determining the efficient set
of securities“.
 An individual seller or buyer cannot affect the price of a stock. This assumption is the basic
assumption of the perfectly competitive market.
 Investors make their decisions only on the basis of the expected returns, standard deviation and
covariance’s of all pairs of securities.
 Investors are assumed to have homogenous expectations during the decision-making period
 The investor can lend or borrow any amount of funds at the risk less rate of interest. The risk less rate
of interest is the rate of interest offered for the treasury bills or Government securities.
 Investors are risk-averse, so when given a choice between two otherwise identical portfolios, they will
choose the one with the lower standard deviation.
 Individual assets are infinitely divisible, meaning that an investor can buy a fraction of a share if he or
she so desires.
 There is a risk free rate at which an investor may either lend (i.e. invest) money or borrow money.

 There is no transaction cost i.e. no cost involved in buying and selling of stocks.
 There is no personal income tax. Hence, the investor is indifferent to the form of return either capital
gain or dividend.
THE EFFECT OF COMBINING TWO SECURITIES:

It is believed that holding two securities is less risky than by having only one investment in a person‘s
portfolio. When two stocks are taken on a portfolio and if they have negative correlation then risk can be
completely reduced because the gain on one can offset the loss on the other. This can be shown with the help
of following example:

INTER- ACTIVE RISK THROUGH COVARIANCE:

Covariance of the securities will help in finding out the inter-active risk. When the covariance will be
positive then the rates of return of securities move together either upwards or downwards. Alternatively it can
also be said that the inter-active risk is positive. Secondly, covariance will be zero on two investments if the
rates of return are independent.

Holding two securities may reduce the portfolio risk too. The portfolio risk can be calculated with the
help of the following formula:

CAPITAL ASSET PRICING MODEL (CAPM):

Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic structure of Capital
Asset Pricing Model. It is a model of linear general equilibrium return. In the CAPM theory, the required rate
return of an asset is having a linear relationship with asset‘s beta value i.e. un-diversifiable or systematic risk
(i.e. market related risk) because non market risk can be eliminated by diversification and systematic risk
measured by beta. Therefore, the relationship between an assets return and its systematic risk can be expressed
by the CAPM, which is also called the Security Market Line.

R = Rf Xf+ Rm(1- Xf)

Rp = Portfolio return

Xf =The proportion of funds invested in risk free assets

1- Xf = The proportion of funds invested in risky assets

Rf = Risk free rate of return

Rm = Return on risky assets

Formula can be used to calculate the expected returns for different situations, like mixing risk less
assets with risky assets, investing only in the risky asset and mixing the borrowing with risky assets.

THE CONCEPT:

According to CAPM, all investors hold only the market portfolio and risk less securities. The market
portfolio is a portfolio comprised of all stocks in the market. Each asset is held in proportion to its market
value to the total value of all risky assets.
 For example, if wipro Industry share represents 15% of all risky assets, then the market portfolio of
the individual investor contains 15% of wipro Industry shares. At this stage, the investor has the ability to
borrow or lend any amount of money at the risk less rate of interest.

E.g.: assume that borrowing and lending rate to be 12.5% and the return from the risky assets to be
20%. There is a trade off between the expected return and risk. If an investor invests in risk free assets and
risky assets, his risk may be less than what he invests in the risky asset alone. But if he borrows to invest in
risky assets, his risk would increase more than he invests his own money in the risky assets. When he
borrows to invest, we call it financial leverage. If he invests 50% in risk free assets and 50% in risky assets,
his expected return of the portfolio would be

Rp= Rf Xf+ Rm(1- Xf)

= (12.5 x 0.5) + 20 (1-0.5)

= 6.25 + 10

= 16.25%

f there is a zero investment in risk free asset and 100% in risky asset, the return is

Rp= Rf Xf+ Rm(1- Xf)

= 0 + 20%

= 20%

if -0.5 in risk free asset and 1.5 in risky asset, the return is

Rp= Rf Xf+ Rm(1- Xf)

= (12.5 x -0.5) + 20 (1.5)

= -6.25+ 30

= 23.75%
 CHAPTER-III

INDUSTRY PROFILE

&

COMPANY PROFILE
A bank is a financial institution that accepts deposits and channels those deposits into lending
activities. Banks primarily provide financial services to customers while enriching investors.
Government restrictions on financial activities by banks vary over time and location. Banks are
important players in financial markets and offer services such as investment funds and loans. In some
countries such as Germany, banks have historically owned major stakes in industrial corporations
while in other countries such as the United States banks are prohibited from owning non-financial
companies. In Japan, banks are usually the nexus of a cross-share holding entity known as the
keiretsu. In France, bancassurance is prevalent, as most banks offer insurance services (and now real
estate services) to their clients.

Introduction

India’s banking sector is constantly growing. Since the turn of the century, there has been a noticeable
upsurge in transactions through ATMs, and also internet and mobile banking.

Following the passing of the Banking Laws (Amendment) Bill by the Indian Parliament in 2016, the
landscape of the banking industry began to change. The bill allows the Reserve Bank of India (RBI) to
make final guidelines on issuing new licenses, which could lead to a bigger number of banks in the
country. Some banks have already received licences from the government, and the RBI's new norms
will provide incentives to banks to spot bad loans and take requisite action to keep rogue borrowers in
check.

Over the next decade, the banking sector is projected to create up to two million new jobs, driven by
the efforts of the RBI and the Government of India to integrate financial services into rural areas.
Also, the traditional way of operations will slowly give way to modern technology.

Market size

Total banking assets in India touched US$ 1.8 trillion in FY17 and are anticipated to cross US$ 28.5
trillion in FY25.

Bank deposits have grown at a compound annual growth rate (CAGR) of 21.2 per cent over FY06–17.
Total deposits in FY17 were US$ 1,274.3 billion.

Total banking sector credit is anticipated to grow at a CAGR of 18.1 per cent (in terms of INR) to
reach US$ 2.4 trillion by 2017.

In FY17, private sector lenders witnessed discernable growth in credit cards and personal loan
businesses. ICICI Bank witnessed 171.6 per cent growth in personal loan disbursement in FY17, as
per a report by Emkay Global Financial Services. Axis Bank's personal loan business also rose 49.8
per cent and its credit card business expanded by 31.1 per cent.

Investments

Bengaluru-based software services exporter Mphasis Ltd has bagged a five-year contract from Punjab
National Bank (PNB) to set up the bank’s contact centres in Mangalore and Noida (UP). Mphasis will
provide support for all banking products and services, including deposits operations, lending services,
banking processes, internet banking, and account and card-related services. The company will also
offer services in multiple languages.

Microfinance companies have committed to setting up at least 30 million bank accounts within a year
through tie-ups with banks, as part of the Indian government’s financial inclusion plan. The
commitment was made at a meeting of representatives of 25 large microfinance companies and banks
and government representatives, which included financial services secretary Mr GS Sandhu.

Export-Import Bank of India (Exim Bank) will increase its focus on supporting project exports from
India to South Asia, Africa and Latin America, as per Mr Yaduvendra Mathur, Chairman and MD,
Exim Bank. The bank has moved up the value chain by supporting project exports so that India earns
foreign exchange. In 2016–17, Exim Bank lent support to 85 project export contracts worth Rs 24,255
crore (US$ 3.96 billion) secured by 47 companies in 23 countries.

Government Initiatives

The RBI has given banks greater flexibility to refinance current long-gestation project loans worth Rs
1,000 crore (US$ 173.42 million) and more, and has allowed partial buyout of such loans by other
financial institutions as standard practice. The earlier stipulation was that buyers should purchase at
least 50 per cent of the loan from the existing banks. Now, they get as low as 25 per cent of the loan
value and the loan will still be treated as ‘standard’.

The RBI has also relaxed norms for mortgage guarantee companies (MGC) enabling these firms to
use contingency reserves to cover for the losses suffered by the mortgage guarantee holders, without
the approval of the apex bank. However, such a measure can only be initiated if there is no single
option left to recoup the losses.

SBI is planning to launch a contact-less or tap-and-go card facility to make payments in India.
Contact-less payment is a technology that has been adopted in several countries, including Australia,
Canada and the UK, where customers can simply tap or wave their card over a reader at a point-of-
sale terminal, which reads the card and allows transactions.
SBI and its five associate banks also plan to empower account holders at the bottom of the social
pyramid with a customer call facility. The proposed facility will help customers get an update on
available balance, last five transactions and cheque book request on their mobile phones.

Road Ahead

India is yet to tap into the potential of mobile banking and digital financial services. Forty-seven per
cent of the populace have bank accounts, of which half lie dormant due to reliance on cash
transactions, as per a report. Still, the industry holds a lot of promise.

India's banking sector could become the fifth largest banking sector in the world by 2020 and the third
largest by 2025. These days, Indian banks are turning their focus to servicing clients and enhancing
their technology infrastructure, which can help improve customer experience as well as give banks a
competitive edge.

Exchange Rate Used: INR 1 = US$ 0.0173 as on October 28, 2017

The level of government regulation of the banking industry varies widely, with countries such as
Iceland, having relatively light regulation of the banking sector, and countries such as China having a
wide variety of regulations but no systematic process that can be followed typical of a communist
system.

The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which
has been operating continuously since 1772.

History

Origin of the word

The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by
Jewish Florentine bankers, who used to make their transactions above a desk covered by a green
tablecloth. However, there are traces of banking activity even in ancient times, which indicates that
the word 'bank' might not necessarily come from the word 'banco'.

In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set
up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu,
from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did
not so much invest money as merely convert the foreign currency into the only legal tender in
Rome—that of the Imperial Mint.
The earliest evidence of money-changing activity is depicted on a silver drachm coin from ancient
Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350–325 BC, presented in the British
Museum in London. The coin shows a banker's table (trapeza) laden with coins, a pun on the name of
the city.

In fact, even today in Modern Greek the word Trapeza (Τράπεζα) means both a table and a bank.

Traditional banking activities

Banks act as payment agents by conducting checking or current accounts for customers, paying
cheques drawn by customers on the bank, and collecting cheques deposited to customers' current
accounts. Banks also enable customer payments via other payment methods such as telegraphic
transfer, EFTPOS, and ATM.

Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits,
and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to
customers on current accounts, by making installment loans, and by investing in marketable debt
securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered indispensable by most
businesses, individuals and governments. Non-banks that provide payment services such as remittance
companies are not normally considered an adequate substitute for having a bank account.

Banks borrow most funds from households and non-financial businesses, and lend most funds to
households and non-financial businesses, but non-bank lenders provide a significant and in many
cases adequate substitute for bank loans, and money market funds, cash management trusts and other
non-bank financial institutions in many cases provide an adequate substitute to banks for lending
savings to.

Entry regulation

Currently in most jurisdictions commercial banks are regulated by government entities and require a
special bank licence to operate.

Usually the definition of the business of banking for the purposes of regulation is extended to include
acceptance of deposits, even if they are not repayable to the customer's order—although money
lending, by itself, is generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. a
government-owned (central) bank. Central banks also typically have a monopoly on the business of
issuing banknotes. However, in some countries this is not the case. In the UK, for example, the
Financial Services Authority licences banks, and some commercial banks (such as the Bank of
Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK
government's central bank.

Accounting for bank accounts

Bank statements are accounting records produced by banks under the various accounting standards of
the world. Under GAAP and IFRS there are two kinds of accounts: debit and credit. Credit accounts
are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses. This means you credit a
credit account to increase its balance, and you debit a debit account to decrease its balance.

This also means you debit your savings account every time you deposit money into it (and the account
is normally in deficit), while you credit your credit card account every time you spend money from it
(and the account is normally in credit).

However, if you read your bank statement, it will say the opposite—that you credit your account when
you deposit money, and you debit it when you withdraw funds. If you have cash in your account, you
have a positive (or credit) balance; if you are overdrawn, you have a negative (or deficit) balance.

The reason for this is that the bank, and not you, has produced the bank statement. Your savings might
be your assets, but the bank's liability, so they are credit accounts (which should have a positive
balance). Conversely, your loans are your liabilities but the bank's assets, so they are debit accounts
(which should also have a positive balance).

Where bank transactions, balances, credits and debits are discussed below, they are done so from the
viewpoint of the account holder—which is traditionally what most people are used to seeing.

Economic functions

1. issue of money, in the form of banknotes and current accounts subject to cheque or payment
at the customer's order. These claims on banks can act as money because they are negotiable
and/or repayable on demand, and hence valued at par. They are effectively transferable by
mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or
cash.
2. netting and settlement of payments – banks act as both collection and paying agents for
customers, participating in interbank clearing and settlement systems to collect, present, be
 presented with, and pay payment instruments. This enables banks to economise on reserves
held for settlement of payments, since inward and outward payments offset each other. It also
enables the offsetting of payment flows between geographical areas, reducing the cost of
settlement between them.
3. credit intermediation – banks borrow and lend back-to-back on their own account as middle
men.
4. credit quality improvement – banks lend money to ordinary commercial and personal
borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes
from diversification of the bank's assets and capital which provides a buffer to absorb losses
without defaulting on its obligations. However, banknotes and deposits are generally
unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it
needs to continue to operate, this puts the note holders and depositors in an economically
subordinated position.
5. maturity transformation – banks borrow more on demand debt and short term debt, but
provide more long term loans. In other words, they borrow short and lend long. With a
stronger credit quality than most other borrowers, banks can do this by aggregating issues
(e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and
redemptions of banknotes), maintaining reserves of cash, investing in marketable securities
that can be readily converted to cash if needed, and raising replacement funding as needed
from various sources (e.g. wholesale cash markets and securities markets).

Law of banking

Banking law is based on a contractual analysis of the relationship between the bank (defined above)
and the customer—defined as any entity for which the bank agrees to conduct an account.

The law implies rights and obligations into this relationship as follows:

1. The bank account balance is the financial position between the bank and the customer: when
the account is in credit, the bank owes the balance to the customer; when the account is
overdrawn, the customer owes the balance to the bank.
2. The bank agrees to pay the customer's cheques up to the amount standing to the credit of the
customer's account, plus any agreed overdraft limit.
3. The bank may not pay from the customer's account without a mandate from the customer, e.g.
a cheque drawn by the customer.
4. The bank agrees to promptly collect the cheques deposited to the customer's account as the
customer's agent, and to credit the proceeds to the customer's account.
 5. The bank has a right to combine the customer's accounts, since each account is just an aspect
of the same credit relationship.
6. The bank has a lien on cheques deposited to the customer's account, to the extent that the
customer is indebted to the bank.
7. The bank must not disclose details of transactions through the customer's account—unless the
customer consents, there is a public duty to disclose, the bank's interests require it, or the law
demands it.
8. The bank must not close a customer's account without reasonable notice, since cheques are
outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the customer and the
bank. The statutes and regulations in force within a particular jurisdiction may also modify the above
terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship.

Some types of financial institution, such as building societies and credit unions, may be partly or
wholly exempt from bank licence requirements, and therefore regulated under separate rules.

The requirements for the issue of a bank licence vary between jurisdictions but typically include:

1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior
officers
4. Approval of the bank's business plan as being sufficiently prudent and plausible.

Types of banks

Banks' activities can be divided into retail banking, dealing directly with individuals and small
businesses; business banking, providing services to mid-market business; corporate banking, directed
at large business entities; private banking, providing wealth management services to high net worth
individuals and families; and investment banking, relating to activities on the financial markets. Most
banks are profit-making, private enterprises. However, some are owned by government, or are non-
profit organizations.

Central banks are normally government-owned and charged with quasi-regulatory responsibilities,
such as supervising commercial banks, or controlling the cash interest rate. They generally provide
liquidity to the banking system and act as the lender of last resort in event of a crisis.
Types of retail banks

 Commercial bank: the term used for a normal bank to distinguish it from an investment bank.
After the Great Depression, the U.S. Congress required that banks only engage in banking
activities, whereas investment banks were limited to capital market activities. Since the two
no longer have to be under separate ownership, some use the term "commercial bank" to refer
to a bank or a division of a bank that mostly deals with deposits and loans from corporations
or large businesses.
 Community Banks: locally operated financial institutions that empower employees to make
local decisions to serve their customers and the partners.
 Community development banks: regulated banks that provide financial services and credit to
under-served markets or populations.
 Postal savings banks: savings banks associated with national postal systems.
 Private banks: banks that manage the assets of high net worth individuals.
 Offshore banks: banks located in jurisdictions with low taxation and regulation. Many
offshore banks are essentially private banks.
 Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th
century. Their original objective was to provide easily accessible savings products to all strata
of the population. In some countries, savings banks were created on public initiative; in
others, socially committed individuals created foundations to put in place the necessary
infrastructure. Nowadays, European savings banks have kept their focus on retail banking:
payments, savings products, credits and insurances for individuals or small and medium-sized
enterprises. Apart from this retail focus, they also differ from commercial banks by their
broadly decentralised distribution network, providing local and regional outreach—and by
their socially responsible approach to business and society.
 Building societies and Landesbanks: institutions that conduct retail banking.
 Ethical banks: banks that prioritize the transparency of all operations and make only what
they consider to be socially-responsible investments.
 Islamic banks: Banks that transact according to Islamic principles.
Types of investment banks

 Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their
own accounts, make markets, and advise corporations on capital market activities such as
mergers and acquisitions.
 Merchant banks were traditionally banks which engaged in trade finance. The modern
definition, however, refers to banks which provide capital to firms in the form of shares rather
than loans. Unlike venture capital firms, they tend not to invest in new companies.

Both combined

 Universal banks, more commonly known as financial services companies, engage in several
of these activities. These big banks are very diversified groups that, among other services,
also distribute insurance— hence the term bancassurance, a portmanteau word combining
"banque or bank" and "assurance", signifying that both banking and insurance are provided by
the same corporate entity.

Other types of banks

 Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around
several well-established principles based on Islamic canons. All banking activities must avoid
interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees
on the financing facilities that it extends to customers.
 COMPANY PROFILE
Kotak Mahindra Bank is the fourth largest Indian private sector bank by market capitalization,
headquartered in Mumbai, Maharashtra.

Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a steady and
confident journey leading to growth and success. The milestones of the group growth story are listed
below year wise.

2014-2017  Ahmedabad Derivatives and Commodities Exchange, a Kotak anchored

enterprise, became operational as a national commodity exchange.

 Kotak Mahindra Bank Ltd. opened a representative office in Dubai

2013
 Entered Ahmedabad Commodity Exchange as anchor investor.

 Launched a Pension Fund under the New Pension System.

2009

 Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company
2006
and Kotak Securities.

 Kotak Group realigned joint venture in Ford Credit; their stake in Kotak Mahindra
2005
Prime was bought out (formerly known as Kotak Mahindra Primus Ltd) and Kotak
group’s stake in Ford credit Kotak Mahindra was sold.
 Launched a real estate fund.

 Launched India Growth Fund, a private equity fund.

2004

 Kotak Mahindra Finance Ltd. converted into a commercial bank - the first Indian
2003
company to do so.
  Matrix sold to Friday Corporation.
2001
 Launched Insurance Services.
 Kotak Securities Ltd. was incorporated

 Kotak Mahindra tied up with Old Mutual plc. for the Life Insurance business.
2000
 Kotak Securities launched its on-line broking site.
 Commencement of private equity activity through setting up of Kotak Mahindra
Venture Capital Fund.

 Entered the mutual fund market with the launch of Kotak Mahindra Asset
Management Company.
1998

 The Auto Finance Business is hived off into a separate company - Kotak Mahindra
1996
Prime Limited (formerly known as Kotak Mahindra Primus Limited). Kotak
Mahindra takes a significant stake in Ford Credit Kotak
 Mahindra Limited, for financing Ford vehicles. The launch of Matrix Information
Services Limited marks the Group's entry into information distribution.

 Brokerage and Distribution businesses incorporated into a separate company -

1995
Securities. Investment banking division incorporated into a separate company -
Kotak Mahindra Capital Company

 Entered the Funds Syndication sector

1992

 The Investment Banking Division was started. Took over FICOM, one of India's
1991
largest financial retail marketing networks

 The Auto Finance division was started

1990
 Kotak Mahindra Finance Ltd entered the Lease and Hire Purchase market
1987
  Kotak Mahindra Finance Ltd started the activity of Bill Discounting
1986

Our Businesses

Multiple businesses. One brand.

Kotak Mahindra is one of India's leading banking and financial services groups, offering a wide range
of financial services that encompass every sphere of life.

Kotak Mahindra Bank Ltd

 Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The
bank offers personal finance solutions of every kind from savings accounts to credit cards,
distribution of mutual funds to life insurance products. Kotak Mahindra Bank offers
transaction banking, operates lending verticals, manages IPOs and provides working capital
loans. Kotak has one of the largest and most respected Wealth Management teams in India,
providing the widest range of solutions to high net worth individuals, entrepreneurs, business
families and employed professionals.

For more information, please visit the Kotak Mahindra Bank website
www.kotak.com/bank/personal-banking/

Kotak Mahindra Old Mutual Life Insurance Ltd

 Kotak Mahindra Old Mutual Life Insurance Ltd is a 74:26 joint venture
between Kotak Mahindra Bank Ltd., its affiliates and Old Mutual plc. A Company that
combines its international strengths and local advantages to offer its customers a wide range
of innovative life insurance products, helping them take important financial decisions at every
stage in life and stay financially independent. The company covers over 3 million lives and is
one of the fastest growing insurance companies in India. www.kotaklifeinsurance.com
Kotak Securities Ltd

 Kotak Securities is one of the largest broking houses in India with a wide
geographical reach. Kotak Securities operations include stock broking and distribution of
various financial products including private and secondary placement of debt, equity and
mutual funds.

Kotak Securities operate in five main areas of business:

o Stock Broking (retail and institutional)

o Depository Services
o Portfolio Management Services
o Distribution of Mutual Funds
o Distribution of Kotak Mahindra Old Mutual Life Insurance Ltd products

For more information, please visit the Kotak Securities website www.kotaksecurities.com

Kotak Mahindra Capital Company (KMCC)

 Kotak Investment Banking (KMCC) is a full-service investment bank in

India offering a wide suite of capital market and advisory solutions to leading domestic and
multinational corporations, banks, financial institutions and government companies.

Our services encompass Equity & Debt Capital Markets, M&A Advisory, Private Equity
Advisory, Restructuring and Recapitalization services, Structured Finance services and
Infrastructure Advisory & Fund Mobilization.

For more information, please visit the Kotak Investment Banking website www.kmcc.co.in

Kotak Mahindra Prime Ltd (KMPL)

 Kotak Mahindra Prime Ltd is among India's largest dedicated passenger

vehicle finance companies. KMPL offers loans for the entire range of passenger cars, multi-
utility vehicles and pre-owned cars. Also on offer are inventory funding and infrastructure
 funding to car dealers with strategic arrangements via various car manufacturers in India as
their preferred financier.

For more information, please visit the KMPL website http://carloan.kotak.com

Kotak International Business

 Kotak International Business specialises in providing a range of services

to overseas customers seeking to invest in India. For institutions and high net worth
individuals outside India, Kotak International Business offers asset management through a
range of offshore funds with specific advisory and discretionary investment management
services.

For more information, please visit the Kotak Mahindra International Business website
www.investindia.kotak.com

Kotak Mahindra Asset Management Company Ltd (KMAMC)

 Kotak Mahindra Asset Management Company offers a complete bouquet

of asset management products and services that are designed to suit the diverse risk return
profiles of each and every type of investor. KMAMC and Kotak Mahindra Bank are the
sponsors of Kotak Mahindra Pension Fund Ltd, which has been appointed as one of six fund
managers to manage pension funds under the New Pension Scheme (NPS).

For more information, please visit the KMAMC website

www.kotakmutual.com/kmw/main.htm

Kotak Private Equity Group (KPEG)

 Kotak Private Equity Group helps nurture emerging businesses and mid-
size enterprises to evolve into tomorrow's industry leaders. With a proven track record of
helping build companies, KPEG also offers expertise with a combination of equity capital,
strategic support and value added services. What differentiates KPEG is not merely funding
 companies, but also having a close involvement in their growth as board members, advisors,
strategists and fund-raisers.

For more information, please visit the KPEG website www.privateequityfund.kotak.com

Kotak Realty Fund

 Kotak Realty Fund deals with equity investments covering sectors such as
hotels, IT parks, residential townships, shopping centres, industrial real estate, health care,
retail, education and property management. The investment focus here is on development
projects and enterprise level investments, both in real estate intensive businesses.

For more information, please visit the Kotak Realty Fund website www.realtyfund.kotak.com

Senior Management-2017-16

Mr. Uday S. Kotak

Executive Vice Chairman and Managing Director

Mr. Uday Kotak, is the Executive Vice-Chairman and Managing Director of the Bank, and its
principal founder and promoter. Mr. Kotak is an alumnus of Jamnalal Bajaj Institute of Management
Studies.

In 1985, when he was still in his early twenties, Mr Kotak thought of setting up a bank when private
Indian banks were not even seen in the game. First Kotak Capital Management Finance Ltd (which
later became Kotak Mahindra Finance Ltd), and then with Kotak Mahindra Finance Ltd, Kotak
became the first non-banking finance company in India's corporate history to be converted into a
bank. Over the years, Kotak Mahindra Group grew into several areas like stock broking and
investment banking to car finance, life insurance and mutual funds.

Among the many awards to Mr Kotak's credit are the CNBC TV18 Innovator of the Year Award in
2006 and the Ernst & Young Entrepreneur of the Year Award in 2003. He was featured as one of the
Global Leaders for Tomorrow at the World Economic Forum's annual meet at Davos in 1996. He was
also featured among the Top Financial Leaders for the 21st Century by Euromoney magazine. He was
named as CNBC TV18 India Business Leader of the Year 2009 and as the most valued CEO by
businessworld in 2014.
Mr. C Jayaram

Joint Managing Director

Mr. C. Jayaram, is a Joint Managing Director of the Bank and is currently in charge of the Wealth
Management Business of the Kotak Group. An alumnus of IIM Kolkata, he has been with the Kotak
Group since 1990 and member of the Kotak board in October 1999. He also oversees the international
subsidiaries and the alternate asset management business of the group. He is the Director of the
Financial Planning Standards Board, India. He has varied experience of over 25 years in many areas
of finance and business, has built numerous businesses for the Group and was CEO of Kotak
Securities Ltd. An avid player and follower of tennis, he also has a keen interest in psephology.

Mr. Dipak Gupta

Joint Managing Director

An electronics engineer and an alumnus of IIM Ahmedabad, Mr. Gupta has been with the Kotak
Group since 1992 and joined the board in October 1999.

He heads commercial banking, retail asset businesses and looks after group HR function. Early on, he
headed the finance function and was instrumental in the joint venture between Kotak Mahindra and
Ford Credit International. He was the first CEO of the resulting entity, Kotak Mahindra Primus Ltd.

Awards

Recent achievements

At Kotak Mahindra Group we take a client-centric view and constantly innovate to provide you with
the best of services and infrastructure. We have regularly received accolades that stand testimony to
our success in this endeavour. Some of our recent achievements are:

 Won ‘Gold Award for Best Innovation – World’s first socially powered bank account’ and
‘Gold Award for Best App developed – World’s first banking application using Twitter’
awards at the Indian Digital Media Awards 2017 for Kotak Jifi
  Recognised as Highest Fundraising Company in Corporate Challenge category in Standard
Chartered Mumbai Marathon 2017
 Kotak Mahindra Bank was ranked 292nd among India's most trusted brands according to the
Brand Trust Report 2016, a study conducted by Trust Research Advisory. In the Brand Trust
Report 2017, Kotak Mahindra Bank was ranked 861st among India's most trusted brands and
subsequently, according to the Brand Trust Report 2017, Kotak Mahindra Bank was ranked
157th among India's most trusted brands.
 Adjudged Best Bank among Emerging Banks at Outlook Money Awards 2017

Banking

 Euromoney
Best Private Banking Services (India), 2017.
 ICAI Award
Excellence in Financial Reporting under Category 1 - Banking Sector for the year ending 31st
March, 2016
 Asiamoney
Best Local Cash Management Bank 2016
 IDG India
Kotak won the CIO 140 'The Agile 140' award 2015
 IDRBT
Banking Technology Excellence Awards Best Bank Award in IT Framework and Governance
Among Other Banks' - 2014
Banking Technology Award for IT Governance and Value Delivery, 2009
 IR Global Rankings
Best Corporate Governance Practices - Ranked among the top 5 companies in Asia Pacific,
2013
 FinanceAsia
Best Private Bank in India, for Wealth Management business, 2013
 Kotak Royal Signature Credit Card
Was chosen "Product of the Year" in a survey conducted by Nielsen in 2013
 IBA Banking Technology Awards
Best Customer Relationship Achievement - Winner 2009 & 2013
Best overall winner, 2008
Best IT Team of the Year, 4 years in a row from 2006 to 2013
Best IT Security Policies & Practices, 2008
  Euromoney
Best Private Banking Services (overall), 2013
 Emerson Uptime Champion Awards
Technology Senate Emerson Uptime Championship Award in the BFSI category, 2009

Miscellaneous

 Best Local Trade Bank in India

The UK based Trade & Forfaiting Review awarded Kotak Mahindra Bank Ltd. the Bronze
Award in the category of Best Local Trade Bank in India at the TFR Awards 2015.
 LACP Vision Awards 2014 for Annual Report 2014-15
Platinum Award - Best among Banking Category, APAC
Gold Award - Most Creative Report, APAC
Ranked No. 21 among Top 50 Reports, APAC
Ranked No. 87 among the World's Top 140 Annual Reports
 Businessworld
'Most Valuable CEO' overall, 2014 awarded to Mr. Uday Kotak, Executive Vice Chairman &
Managing Director
 CNBCTV 18
'Best Performing CFO in the Banking/Financial Services sector by CNBCTV 18 CFO Awards
2014 awarded to Mr. Jaimin Bhatt
 GIREM
GIREM awarded Kotak Realty Funds Group, the "Investor of the Year" Award for 2013
 IBA Banking Technology Awards
Best Use of Business Intelligence - up, 2009
Best Enterprise Risk Management - Runner up, 2009
 The Great Places to Work Institute, India
Best Workplaces in India, 2009
 Hewitt
14th Best Employer in India, 2008, 2009 & 2013
 Financial Insights Innovation Award
Best Innovation in Enterprise Security Management in the Asia Pacific Region, 2013
 Frost & Sullivan
Best Passenger Vehicle Finance Company in India, 2006
  CNBC TV 18
Indian Business Leader of the Year, 2009 awarded to Uday Kotak, Executive Vice Chairman
& Managing Director

Banking information

The Bank publishes the standalone and consolidated results on a quarterly basis. The standalone
results is subjected to "Limited Review" by the auditors of the Bank. The same are also reviewed by
the Audit Committee before submission to the Board. Along with the quarterly results, an earnings
update is also prepared and posted on the website of the Bank. Every quarter, the Executive Vice-
Chairman and Managing Director and the Executive Director(s) participate on a call with the analysts
/ shareholders, the transcripts of which are posted on the website of the Bank. The Bank also has
dedicated personnel to respond to queries from investors.

Financial Calendar:For each calendar quarter, the financial results are reviewed and taken on record
by the Board during the last week of the month subsequent to the quarter ending. The audited annual
accounts as at 31st March are approved by the Board, after a review thereof by the Audit Committee.
The Annual General Meeting to consider such annual accounts is held in the second quarter of the
financial year.

Stock Exchanges on which listed:

Sr.No Name & Address of Stock Exchange Market Scrip Code

The Bombay Stock Exchange Limited

Phiroze Jeejeebhoy Towers
1 500247
Dalal Street, Fort,
Mumbai 400 023

National Stock Exchange of India Limited

Exchange Plaza, 5th Floor,
2 KOTAKBANK
Bandra-Kurla Complex,
Bandra, Mumbai 400 051

3 Luxembourg Stock Exchange BP 175, L-2015 Luxembourg

Trading of shares to be in compulsorily dematerialized form:The equity shares of the Bank have
been activated for dematerialisation with the National Securities Depository Limited and with the
Central Depository Services (India) Limited vide ISIN INE237A01428.

Share Transfer System: Applications for transfers, transmission and transposition are received by
the Bank at its Registered Office or at the office(s) of its Registrars & Share Transfer Agents. As the
shares of the Bank are in dematerialised form, the transfers are duly processed by NSDL/CDSL in
electronic form through the respective depository participants. Shares which are in physical form are
processed by the Registrars & Share Transfer Agents, Karvy Computershare Private Limited, on a
regular basis and the certificates despatched directly to the investors.

Investor Helpdesk:Share transfers, dividend payments and all other investor related activities are
attended to and processed at the office of our Registrars & Share Transfer Agents. For lodgement of
Transfer Deeds and any other documents or for any grievances/complaints, kindly contact Karvy
Computershare Private Limited, contact details of which are provided elsewhere in the Report.

For the convenience of the investors, transfers and complaints from the investors are accepted at the
Registered Office between 9:30 a.m. to 5:30 p.m. from Monday to Friday except on bank holidays:

Corporate Responsibility

Community investment and development

Kotak Mahindra views Corporate Social Responsibility as an investment in society and in its own
future. Kotak uses the power of its human and financial capital to help in transforming communities
into vibrant, desirable places for people to live. The group leverages its core competencies in three
areas:

 Sustainability
An integral part of all Kotak Mahindra Group activities is to be consistently responsible to
shareholders, clients, employees, society and the environment.
 Economic Development
By helping people achieve their financial goals, Kotak strengthens the fabric of communities
and helps them overcome unemployment and poverty to help them shape their future.
 Doing My Bit
A growing number of employees are committed to civic leadership and responsibility with the
support and encouragement of the Kotak Group. A number of employees have been involved
in strengthening communities through voluntary work, payroll giving and management inputs.
For any CSR related queries, please contact:

Group CSR
Kotak Mahindra Bank Ltd
Tel. Board +91 22 6720 6720
Email: cr@kotak.com
 CHAPTER-IV

DATA ANALYSES AND INTERPRETATION

MARUTI SUZIKI:

Year (P0) (P1) D (P1-P0) D+(P1-P0)/ P0*100

2013-14 924 992 4.5 68 11.86

2014-15 992 520 5 -472 -42.58

2015-16 520 1560 3.5 1,040 203.50

2016-17 1560 1421 6 -139 -2.91

2017-18 1421 935 7.5 -486 -26.70

AVERAGE RETURN 28.63

ACC CEMENTS:

D+(P1-P0)/
Year (P0) (P1) D (P1-P0) P0*100

2013-14 1074 1028 20 -46 15.72

2014-15 1028 478 20 -550 -33.50

2015-16 478 872 23 394 105.43

2016-17 872 1076 30.5 204 53.89

2017-18 1076 1136 11 60 16.58

AVERAGE RETURN 31.62

KOTAK BANK:

D+(P1-P0)/
Year (P0) (P1) D (P1-P0) P0*100

2013-14 899 1231 10 332 46.93

2014-15 1231 448 11 -783 -52.61

2015-16 448 876 11 428 106.54

2016-17 876 1145 12 269 42.71

2017-18 1145 684 14 -461 -26.26

AVERAGE RETURN 23.46

RELIANCE:

D+(P1-P0)/
Year (P0) (P1) D (P1-P0) P0*100

2013-14 638 1424 11 786 134.20

2014-15 1424 615 13 -809 -43.81

2015-16 615 1089 13 474 90.07

2016-17 1089 1058 7 -31 4.15

2017-18 1058 692 8 -366 -26.59

AVERAGE RETURN 31.60

Comparative Returns on Selected Scrips:

Rate of Return (%)

60.00
50.00
Returns
40.00
31.62 31.60
28.63
30.00 23.46
20.00
10.00
0.00
Maruti ACC ICICI Reliance
Companies

Scrip Rate of Return (%)

Maruti 28.63

ACC 31.62

KOTAK 23.46

Reliance 31.60

CALCULATION OF STANDARD DEVIATION:

Standard Deviation = Variance

__

Variance = 1/n (R-R)2

MARUTI:

Year Return (R) Avg. Return (R) (R-R) (R-R)2

2013-14 11.86 28.63 -16.77 281.37

2014-15 -42.58 28.63 -71.21 5071.44

2015-16 203.50 28.63 174.87 30578.32

2016-17 -2.91 28.63 -31.54 995.00

2017-18 -26.70 28.63 -55.33 3061.93

TOTAL 39988.07

__

Variance = 1/n (R-R)2 = 1/5 (39988.07) = 7997.613162

Standard Deviation = Variance

= 7997.613162

= 89.43
ACC CEMENTS:

Year Return (R) Avg. Return (R) (R-R) (R-R)2

2013-14 15.72 31.62 -15.91 252.99

2014-15 -33.50 31.62 -65.12 4241.19

2015-16 105.43 31.62 73.80 5447.07

2016-17 53.89 31.62 22.27 496.04

2017-18 16.58 31.62 -15.05 226.39

TOTAL 10663.68

__

Variance = 1/n (R-R)2 = 1/5 (10663.68) = 2132.73

Standard Deviation = Variance = 2132.73

= 46.18

KOTAK BANK:

Year Return (R) Avg. Return (R) (R-R) (R-R)2

2013-14 46.93 23.46 23.47 550.79

2014-15 -52.61 23.46 -76.07 5786.30

2015-16 106.54 23.46 83.07 6901.42

2016-17 42.71 23.46 19.25 370.44

2017-18 -26.26 23.46 -49.72 2472.37

TOTAL 16081.33
 __

Variance = 1/n (R-R)2 = 1/5 (16081.33) = 3216.26

Standard Deviation = Variance = 3216.26 = 56.712

RELIANCE:

Year Return (R) Avg. Return (R) (R-R) (R-R)2

2013-14 134.20 31.60 102.59 10525.48

2014-15 -43.81 31.60 -75.42 5687.50

2015-16 90.07 31.60 58.47 3418.68

2016-17 4.15 31.60 -27.45 753.52

2017-18 -26.59 31.60 -58.20 3386.93

TOTAL 23772.11

__

Variance = 1/n.(R-R)2 = 1/5 (23772.11) = 4754.42

Standard Deviation = Variance = 4754.42 = 68.95

DIAGRAMATIC PRESENTATION OF COMPANIES RISK

Scrip Risk

100.00 94.13
89.43

80.00 68.95
56.71
Risk (%)

60.00
46.18
Risk
40.00

20.00

0.00
Maruti ACC ICICI Reliance TCS
Companies

Scrip Risk (%)

Maruti 89.43

ACC 46.18

ICICI 56.71

Reliance 68.95

CALCULATION OF CORRELATION:

Covariance (COV ab) = 1/n (RA-RA)(RB-RB)

Correlation Coefficient = COV ab/ a* b

MARUTI WITH OTHER COMPANIES

MARUTI (RA) & ACC (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)

2014 -16.77 -15.91 266.8016

2015 -71.21 -65.12 4637.777

2016 174.87 73.80 12905.9

2017 -31.54 22.27 -702.541

2018 -55.33 -15.05 832.5818

17940.52

Covariance (COV ab) = 1/5 (17940.52) = 3588.1

Correlation Coefficient = COV ab/ a* b

a = 89.43 ; b = 46.18

= 3588/(89.43)(46.18) = 0.868
MARUTI (RA) & KOTAK (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)

2014 -16.77 23.47 -393.672

2015 -71.21 -76.07 5417.093

2016 174.87 83.07 14527.01

2017 -31.54 19.25 -607.117

2018 -55.33 -49.72 2751.403

21694.71

Covariance (COV ab) = 1/5 (21695) = 4339

Correlation Coefficient = COV ab/ a* b

a = 89.43; b = 56.71

= 4339/ (89.43) (56.71) = 0.855

MARUTI (RA) & RELIANCE (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)

2014 -16.77 102.59 -1720.92

2015 -71.21 -75.42 5370.647

2016 174.87 58.47 10224.35

2017 -31.54 -27.45 865.886

2018 -55.33 -58.20 3220.33

17960.29

Covariance (COV ab) = 1/5 (17960) = 3592

Correlation Coefficient = COV ab/ a* b

a = 89.43; b = 68.95

= 3592/ (89.43) (68.95) = 0.582

ACC WITH OTHER COMPANIES

ACC (RA) & KOTAK (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)

2014 -15.91 23.47 -373.288

2015 -65.12 -76.07 4953.869

2016 73.80 83.07 6131.276

2017 22.27 19.25 428.6658

2018 -15.05 -49.72 748.1454

11888.67

Covariance (COV ab) = 1/5 (11889) = 2378

Correlation Coefficient = COV ab/ a* b

a = 46.18; b = 56.71

= 2378/ (46.18) (56.71) = 0.908

ACC (RA) & RELIANCE (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)

2014 -15.91 102.59 -1631.81

2015 -65.12 -75.42 4911.394

2016 73.80 58.47 4315.295

2017 22.27 -27.45 -611.375

2018 -15.05 -58.20 875.6534

7859.158

Covariance (COV ab) = 1/5 (7859) = 1571

Correlation Coefficient = COV ab/ a* b

a = 46.18; b = 68.95

= 1608 / (46.18)(68.95) = 0.505

KOTAKWITH OTHER COMPANIES

KOTAK (RA) & RELIANCE (RB)

YEAR (RA-RA) (RB-RB) (RA-RA) (RB-RB)

2014 23.47 102.59 2407.774

2015 -76.07 -75.42 5736.688

2016 83.07 58.47 4857.337

2017 19.25 -27.45 -528.333

2018 -49.72 -58.20 2893.74

15367.21

Covariance (COV ab) = 1/5 (15367) = 3073

Correlation Coefficient = COV ab/ a* b

a = 56.71; b = 68.95

= 3073/ (56.71)(68.95) = 0.785

CALCULATION OF PORTFOLIO WEIGHTS

Wa = b [ b-(nab* a)]

a2 + b2 - 2nab* a* b

Wb = 1 – Wa
WEIGHTS OF MARUTI & OTHER COMPANIES:

MARUTI & ACC

a = 89.43

b = 46.18

nab = 0.868

Wa = 46.18 [46.18-(0.868*89.43)]

89.43 2
+ 46.18 2
– 2(0.868)* 89.43 * 46.18

Wa = -1452.14

2960.850

Wa = -0.49

Wb = 1 – Wa

Wb = 1- (-0.49) = 1.49

MARUTI (a) & KOTAK (b)

a = 89.43

b = 56.71

nab = 0.855

Wa = 56.71 [56.71- (0.855*89.43)]

89.43 2
+ 56.71 2
– 2(0.855)* 89.43 * 56.71

Wa = -1120.17

2541.35

Wa = -0.44

Wb = 1 – Wa

Wb = 1- (-0.19) = 1.44
 MARUTI (a) & RELIANCE (b)

a = 89.43

b = 68.95

nab = 0.582

Wa = 68.95 [68.95 - (0.582*89.43)]

89.43 2
+ 68.95 2
– 2(0.582)* 89.43 * 68.95

Wa = 1165.37

5574.37

Wa = 0.21

Wb = 1 – Wa

Wb = 1-0.21 =0.79

CALCULATION OF WEIGHTS OF ACC & OTHER COMPANIES:

ACC (a) & KOTAK (b)

a = 46.18

b = 56.71

nab = 0.908

Wa = 56.71 [56.71-(0.908*46.18)]

46.18 2
+ 56.71 2
– 2(0.908)* 46.18 * 56.71

Wa = 838.09

592.75

Wa = 1.413

Wb = 1 – Wa

= 1- 1.413 = -0.413
ACC (a) & RELIANCE (b)

a = 46.18

b = 68.95

nab = 0.505

Wa = 68.95 [68.95 - (0.505*46.18)]

46.18 2
+ 68.95 2
– 2(0.505)* 46.18 * 68.95

Wa = 3146.12

3670.74

Wa =0.85

Wb = 1 – Wa = 1- 0.85 = 0.15

WEIGHTS OF KOTAK& OTHER COMPANIES:

KOTAK (a) & RELIANCE (b)

a = 56.71

b = 68.95

nab = 0.785

Wa = 68.95 [68.95-(0.785*56.71)]

56.71 2
+ 68.95 2
– 2(0.785)* 56.71 * 68.95

Wa = 1684.63

1831.184

Wa = 0.919

Wb = 1 – Wa = 1- 0.919 = 0.08
CALCULATION OF PORTFOLIO RISK:

RP = ( a*Wa)2 + ( b*Wb)2 + 2* a* b*Wa*Wb*nab

MARUTI & OTHER COMPANIES:

MARUTI (a) & ACC (b):

a = 89.43

b = 46.18

Wa = -0.49

Wb = 1.49

nab = 0.868

RP = (89.43*-0.49)2+ ( ) 2+2 *(46.18)*(-0.49)*(1.49)*(0.868)

1420.394 = 37.68%

MARUTI (a) & KOTAK (b):

a = 89.43

b = 56.71

Wa = -0.44

Wb = 1.44

nab = 0.855

RP = (89.43*-0.44)2+(56.71*1.44)2+2(89.43) * *(1.44)*(0.855)
 2722.28 = 52.17%

MARUTI (a) & RELIANCE (b):

a = 89.43

b = 68.95

Wa = 0.21

Wb = 0.79

nab = 0.582

RP = (89.43*0.21)2+(68.95*0.79)2+2(89.43) * *(0.79)*(0.582)

4510.475 = 67.16%

ACC & OTHER COMPANIES

ACC (a) & KOTAK (b):

a = 46.18

b = 56.71

Wa = 1.413

Wb = -0.413

nab = 0.908

RP = (46.18*1.413)2+(56.71*-0.413)2+2(46.18) *(-0.413)*(0.908)

2031.047= 45.067%
ACC (a) & RELIANCE (b):

a = 46.18

b = 68.95

Wa= 0.85

Wb= 0.15

nab = 0.505

RP = (46.18*0.85)2+(68.95*0.15)2+2(46.18 * *(0.15)*(0.505)

2057.80 = 45.362%

KOTAK& OTHER COMPANIES

KOTAK (a) & RELIANCE (b):

a = 56.71

b = 68.95

Wa = 0.919

Wb = 0.081

nab = 0.785

RP = (56.71*0.919)2+(68.95*0.081)2+2(56.71) * *(0.081)*(0.785)

3204.3 = 56.60%
CALCULATION OF PORTFOLIO RETURNS

Rp=(RA*WA) + (RB*WB)

Where Rp = portfolio return

RA= return of A WA= weight of A

RB= return of B WB= weight of B

CALCULATION OF PORTFOLIO RETURN OF MARUTI & OTHER COMPANIES:

MARUTI (A) & ACC (B):

RA= 28.63 WA=--0.49

RB=31.62 WB=1.49

Rp = (28.63*-0.49) + (31.62*1.49)

Rp = (-14.03 + 47.11)

Rp = 33.08%

MARUTI (A) & KOTAK (B):

RA= 28.63 WA=-0.44

RB=23.46 WB=1.44

Rp = (28.63*0.-0.44) + (23.46*1.44)

Rp = (-12.59 + 33.78)

Rp = 21.2%
MARUTI (A) & RELIANCE (B):

RA= 28.63 WA=0.21

RB= 31.60 WB=0.79

Rp = (28.63*0.21) + (31.60*0.79)

Rp = (6.0123+24.96)

Rp = 30.97%

CALCULATION OF PORTFOLIO RETURN OF ACC & OTHER COMPANIES

ACC (A) & KOTAK(B):

RA= 31.62 WA=1.413

RB= 23.46 WB= -0.413

Rp = (31.62*1.413) + (23.46*-0.413)

Rp = 44.67 - 9.68

Rp = 35%

ACC (A) & RELIANCE (B):

RA= 31.62 WA=0.85

RB= 31.60 WB=0.15

Rp = (31.62*0.85) + (31.60*0.15)

Rp = (26.877+4.74)

Rp = 31.617%
CALCULATION OF PORTFOLIO RETURN OF KOTAK& OTHER COMPANIES

KOTAK(A) & RELIANCE (B):

RA= 23.46 WA=0.919

RB=31.60 WB=0.081

Rp = (23.46*0.919) + (31.60*0.081)

Rp = (21.55+2.55)

Rp = 24.10%

PORTFOLIO RETURNS & RISKS

OF THE SELECTED STOCKS

Scrip A Scrip B Portfolio Return Portfolio Risk

Maruti ACC 33.08% 37.68%

Maruti ICICI 21.2% 52.17%

Maruti Reliance 30.97% 67.16%

ACC ICICI 35% 45.06%

ACC Reliance 31.61% 45.36%

ICICI Reliance 24.10% 56.60%

 CHAPTER-V
 FINDINGS
 SUGGESTIONS
 CONCLUSION
 BIBLIOGRAPHY
 FINDINGS

Investors would be able to achieve when the returns of shares and debentures Resultant would
be known as diversified portfolio. Thus portfolio construction would address itself to three major via,
selectivity, timing and diversification. In case of portfolio management, negatively correlated assets
are most profitable. A rational investor would constantly examine his chosen portfolio both for
average return and risk.

 Individual returns on the selected stocks including Maruti, ACC, ICICI, Reliance are 28.63%,
31.62%, 23.46%, 31.60% respectively.

 Individual risks on the selected stocks including Maruti, ACC, ICICI, Reliance are 89.43%,
46.18%, 56.71%, 68.95% respectively.

 Correlation between all the companies is positive which means all the combinations of
portfolios are at good position to gain in future.
 Portfolios Returns of followed by ACC & ICICI (35%) and Maruti & ACC (33.08%) stood
on the top while Portfolio Retuns of Maruti & ICICI (21.2%) and ICICI & Reliance (24.10)
stood at the bottom.
 Portfolios Risk of Maruti (89. 3%) followed by Reliance & Maruti (67%) and Reliance are
very high while Portfolio Risks of ACC & TCS (22.61%) , Maruti & ACC (37.68%) stood at
the bottom.
 SUGGESTIONS

 All the stocks under consideration have given positive return which indicates the positive
performance of the stock market, specially the SENSEX stocks. has been the outstanding
performer with a return of nearly 55%. This indicates that Investors can be assured of good
returns in the long run by investing in blue chip companies. Rest of the stocks has given
average returns ranging from 24% to 32%.
 Comparing the individual risks, Maruti are risky securities compared to the other securities
like Reliance, ACC and ICICI and it suggested that the investors should be careful while
investing in these securities.
 The investors who require minimum return with low risk can invest in ICICI and ACC.
 It is recommended that the investors who require high risk with high return should invest in
ACC.
 All the investors who invest in the securities are ultimately benefited by investing in selected
scripts of Industries.
 Investors are advised to invest in Portfolios of Reliance & ACC (37.43%) followed by ACC
& ICICI (35%) and Maruti & ACC (33.08%) which have given the maximum returns.
Low Risk investors are advised to keep away from Maruti (risk of 89. 3%) and prefer the
Portfolios of ACC (22.61%) , Maruti (37.68%) which have the least risk.

Some general rules to follow while investing in securities include:

 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).
 Never invest in the so called promoter quota of lesser known company.
 Never invest in a company about which you do not have appropriate knowledge.
 Never at all invest in a company which doesn’t have a stringer financial record your
portfolio should not stagnate.
 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.
 Never fall to magic of the scripts don’t confine to the blue chip company’s look out
for other portfolio that ensure regular dividends.
In the same way never react to sudden raise or fall in stock market index such fluctuations in
movement 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”.
 CONCLUSION

Portfolio management is a process of encompassing many activities of investment assets and

securities. It is a dynamic and flexible concept and involves regular and systematic analysis,
judgment, and action. 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 main objective of the Portfolio management is to help the investors to make wise choice
between alternate investments without a post trading shares. Any portfolio management must specify
the objectives like Maximum returns, Optimum Returns, Capital appreciation, Safety etc., in the same
prospectus.

This service renders optimum returns to the investors by proper selection and continuous
shifting of portfolio from one scheme to another scheme of from one plan to another plan within the
same scheme.

“Greater Portfolio Return with less Risk is always is an attractive combination” for the
Investors.
 BIBLIOGRAPHY

Books referred:

 Investment Analysis and Portfolio Management, written by M.Ranganathan, R.Madhumathi

published by Dorling Kindersley (India) Pvt.Ltd., 3rd Edititon.

 Investment Analysis and Portfolio Management, written by Prasanna Chandra Published by

Tata Mc.Graw-Hill, 3rd Edition.

 Security Analysis and Portfolio Management, written by V.A.Avadhani, Published by

Himayala Publishing house Pvt.Ltd.9th Revised Editon.

 Security Analysis and Portfolio Management, Published by McGraw-Hill, Written by

Punithavathi Pandian, 8th Edition.

Web-site:

 www.nseindia.com,http://www.answers.com/topics/national_stock_exchange_of_india.
 www.bseindia.com,http;//www.answers.com/topics/bombay _stock_exchange_of_india.
 www.money control.com/nifty/nse
 www.moneycontrol.com/sensex/bse
 www.iifl.com