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ACTIVE PORTFOLIOMANAGEMENT
AND PORTFOLIOCONSTRUCTION–
IMPLEMENTING ANINVESTMENT
STRATEGY
Deals with the constructionand maintenance
of a collectionof investments.
Management
A properly constructed portfolio achi...
Formulate an investment strategy based
on the investment policy statement
Portfolio managers must understand
investor prof...
Identify the profile
of
Investor Profile
SalesRsCr.Var(%)OP(RsCr)Var(%)PBDTRsCr.Var(%)NP(Rs)Var(%)SalesRs.CrVar(%)OP(RsCr)Var(%)PBDTRsCr.Var(%)NP(Rs)Var(%
AxisBank...
31-Mar 16-Jun
471.26 10 811.1 200 132.1 1990/764 1460 1772 13.4
250.47 10 44.4 6.1 78/38 61 71 11.7
746.57 10 1584.3 300 1...
It is base on the premisesthat future stock pricecan be
predictedbystudying the historicalprice movements.
The investors w...
ICICI BANK
Beta and Alpha of Different stocks
Stock Name Beta Alpha
BFSI
ICICI Bank 2.62 -0.021
SBI 2.23 -0.02
Axis Bank 3.08 -0.023
...
Expected Return of stocks on the
basis of CAPM Model
Return = Risk FreeRate (Beta*(MarketReturn – Risk Free
Rate
BFSI 9.45...
Analysis of stocks on thebasis
of Sharpe single Index pricing
Model
Regression Statistics
Multiple R 0.9621547
R Square 0....
Fund Allocation on the basis of
Sharpe Portfolio Optimization
ModelAverage
Monthly
RETURN
Standaard
Deviation
Sharp
Ratio
...
CNXNifty ICICI SBI Axis ONGC
Relian
ce
NTPC TCS
INFO
SYS
Tata
Steel
Hinda
lco
DLF
Ltd.
Lupin
Ltd.
CNXNifty
0.001879021 0.0...
Equal
Wt.
Max Ret
Min St
Dev
Max SR
Constraining Variables None atσ<= at µ = None
Value of Constraint N/A 4.33% 3.44%
CNX ...
1.Never buy on rumours or market gossip.
2.Before buying a security,it’s better to find out
everything one canabout the co...
7. Do not put allfunds in one or two
companies.
8. Avoid taking undue risks or beyond the
capacity of yournet worth.
9.Don...
So its time to
rethink
Its time to reassess
Its time to rebuild
It’s time to be an investor again
Active portfolio Management and Construction - With an investment Strategy.....
Active portfolio Management and Construction - With an investment Strategy.....
Active portfolio Management and Construction - With an investment Strategy.....
Active portfolio Management and Construction - With an investment Strategy.....
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Active portfolio Management and Construction - With an investment Strategy.....

  1. 1. ACTIVE PORTFOLIOMANAGEMENT AND PORTFOLIOCONSTRUCTION– IMPLEMENTING ANINVESTMENT STRATEGY
  2. 2. Deals with the constructionand maintenance of a collectionof investments. Management A properly constructed portfolio achieves a given level of expected return withthe least possible risk Portfolio managers have a duty to create the best possible collection of investments for each customer’s unique needs and circumstances
  3. 3. Formulate an investment strategy based on the investment policy statement Portfolio managers must understand investor profile & the basic elements of capital market theory Portfolio Construction
  4. 4. Identify the profile of Investor Profile
  5. 5. SalesRsCr.Var(%)OP(RsCr)Var(%)PBDTRsCr.Var(%)NP(Rs)Var(%)SalesRs.CrVar(%)OP(RsCr)Var(%)PBDTRsCr.Var(%)NP(Rs)Var(% AxisBank 10178.63 12 7542 14 2742.48 24 1842.3 18 38046.38 132 4921.4 10 6231.9 20 6226.6 20 ICICI Bank 341.34 19 246.97 20 39.21 15 39.08 15 1266.92 23 911.63 24 151.76 46 151.76 46 SBI Bank 42443.27 17 27692 19 4736.7 32 3040.7 -81 54903.72 141 3242.5 151 16174 14 10891 -23 M&M 10837.89 5 906.57 -29 920.76 -30 844.09 3 39963.36 -1 4721.2 0 5179.9 4 3712.9 15 TataMoters 8438.88 -23 -638.6 PL -812.9 -999 -751.9 -135 33906.97 -24 -911.2 PL 1584.4 -33 874.38 28 HindalcoInds. 8359.85 21 844.41 31 841.11 17 644.13 34 27573.06 6 2491.9 14 2904.7 24 1745.4 26 TataSteel 12041.92 13 4108.8 24 3697.08 11 2069.3 23 41271.24 81 2816.9 181 1784 19 6505.8 22 DLF 432.53 -47 184.57 -65 425.32 46 412.69 110 2385.94 11 1230.7 -11 1003.8 40 910.58 119 RelianceIndustries 95193 13 8331 6 9568 2 5631 13 90117 83 877 -3 4316 1 20174 2 NTPC 20938.08 27 4542.6 -5 4573.9 -10 3093.5 0 71602.63 9 17765 4 18047 -2 10975 -4 ONGC 20880.93 -2 9185.9 53 10557.7 46 4889 44 83155.88 0 36647 37 43360 35 22095 5 SUNPharma.Inds. 752.58 2 144.16 112 245.16 96 162.96 176 2658.08 9 416.75 -19 517.21 -28 300.84 -39 Lupin 2421.46 53 818.47 228 811.53 228 571.17 330 8777.18 23 2912.3 53 3306.7 75 2324.2 83 TCS 16893.91 34 5565 56 6246.38 56 4628.5 54 64672.93 34 21534 51 24460 48 18346 44 Infosys 11366 22 3394 29 4196 28 2883 25 44341 21 12533 14 15103 14 10194 13 QuarterEndedMarch2014Company Name TTMENDEDMarch2014
  6. 6. 31-Mar 16-Jun 471.26 10 811.1 200 132.1 1990/764 1460 1772 13.4 250.47 10 44.4 6.1 78/38 61 71 11.7 746.57 10 1584.3 300 145.9 2834/1453 1918 2579 17.7 307.94 5 272.7 280 60.3 1269/742 981 1201 19.9 643.72 2 59.5 100 2.7 464/263 398 431 158.7 206.46 1 180.6 100 8.5 174/83 142 161 19 971.21 10 629.6 100 67 579/195 394 525 7.8 356.32 2 93.4 100 5.1 243/120 177 210 41.1 3232.72 10 609.7 95 62.4 1143/765 930 1065 17.1 8245.46 10 104.1 58 13.3 169/111 120 153 11.5 4277.74 5 158.8 190 25.8 472/234 319 427 16.5 207.12 1 39.1 0 1.5 653/469 573 644 443.4 89.69 2 155.6 300 51.8 1022/742 936 972 18.8 195.87 1 224.93 200 93.7 2384/1382 2128 2269 24.2 287.12 5 733 1260 177.5 3874/2343 3279 3242 18.3 52 Week High /Low Price P/E Ratio Equity Rs. Cr 03 EPS Rs. FV Rs B.V Rs Div(%)
  7. 7. It is base on the premisesthat future stock pricecan be predictedbystudying the historicalprice movements. The investors who requiredshort term benefits go for technicalnot fundamental who is for longerprospect. The differencechartsused in technicalanalysisare as follows: Technical Analysis Line chart Barchart Point & Figure Chart Japanese Candle stick Chart
  8. 8. ICICI BANK
  9. 9. Beta and Alpha of Different stocks Stock Name Beta Alpha BFSI ICICI Bank 2.62 -0.021 SBI 2.23 -0.02 Axis Bank 3.08 -0.023 ENERGY ONGC 2.23 -0.02 Reliance Industries 1.12 0.008 NTPC 1.61 -0.018 AUTO Mahindera & Mahindra 0.375 0.019 Tata Moters 1.23 0.017 FMCG Britannia Industries 0.73 0.024 Dabur 0.36 0.011 PHARMA SUN Pharma 0.63 -0.034 Lupin Ltd. 0.58 0.024 IT & MEDIA TCS -0.538 0.045 INFOSYS -0.627 0.038 Zee Entertainment 0.818 5E-04 METAL & REALTY Tata Steel 1.25 0.026 Hiindalco 1.07 0.024 DLF Ltd. 3.67 -0.048 Motors
  10. 10. Expected Return of stocks on the basis of CAPM Model Return = Risk FreeRate (Beta*(MarketReturn – Risk Free Rate BFSI 9.45% ICICI Bank 3.13% SBI 2.77% Axis Bank 3.55% ENERGY 6.70% ONGC 2.76% Reliance Industries 1.75% NTPC 2.19% AUTO 2.89% Mahindera & Mahindra 1.05% Tata Moters 1.84% FMCG 2.42% Britannia Industries 1.38% Dabur 1.04% PHARMA 2.05% SUN Pharma 1.29% Lupin Ltd. 0.76% IT & MEDIA 1.80% TCS 0.21% INFOSYS 0.13% Zee Entertainment 1.46% METAL & REALTY 7.64% Tata Steel 1.86% Hiindalco 1.69% DLF Ltd. 4.09%
  11. 11. Analysis of stocks on thebasis of Sharpe single Index pricing Model Regression Statistics Multiple R 0.9621547 R Square 0.9257417 Adjusted R Square 0.918991 Standard Error 0.0358496 Observations 13 ANOVA Systematic RiskUnsystematic Risk df SS MS F Significance F 0.11643448 0.00108747 Regression 1 0.176240839 0.1762 137.131675 1.49483E-07 Residual 11 0.014137137 0.0013 Total 12 0.190377976 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept -0.009029 0.010156187 -0.889 0.3930305 -0.03138244 0.0133248 -0.03138244 0.013324795 X Variable 1 2.6241173 0.224085806 11.71 1.4948E-07 2.130907727 3.11732679 2.13090773 3.117326794 SUMMARY OUTPUT of ICICI BANK Variable 1sqrt of monthly variznce of stock Residual / noof observations
  12. 12. Fund Allocation on the basis of Sharpe Portfolio Optimization ModelAverage Monthly RETURN Standaard Deviation Sharp Ratio AMR/SD CNX Nifty 1.52% 4.33% 0.35 ICICI BANK 1.52% 11.64% 0.13 SBI 0.89% 11.71% 0.08 Axis Bank 1.59% 15.12% 0.11 ONGC 0.89% 11.71% 0.08 Reliance Industries 2.31% 7.08% 0.33 NTPC 0.15% 11.19% 0.01 TCS 3.34% 7.05% 0.47 INFOSYS 2.43% 7.48% 0.32 Tata Steel 0.35% 14.27% 0.02 Hindalco 3.44% 10.79% 0.32 DLF Ltd. -0.71% 19.05% -0.04 Lupin Ltd. 2.21% 6.62% 0.33 Individual Assets
  13. 13. CNXNifty ICICI SBI Axis ONGC Relian ce NTPC TCS INFO SYS Tata Steel Hinda lco DLF Ltd. Lupin Ltd. CNXNifty 0.001879021 0.004833 0.00414 0.005868 0.00414 0.00205 0.002796 -0.001 -0.00124 0.002401 0.00191 0.006501 0.000155 ICICI BANK 0.004833236 0.013542 0.011587 0.016342 0.011587 0.00514 0.00683 -0.00367 -0.00447 0.008747 0.0062 0.016751 -0.00044 SBI 0.004139867 0.011587 0.013715 0.014496 0.013715 0.005439 0.008931 -0.00534 -0.00661 0.009384 0.0076 0.017666 -0.00184 Axis Bank 0.005868068 0.016342 0.014496 0.022857 0.014496 0.005112 0.008703 -0.00591 -0.0063 0.00899 0.00569 0.02094 0.000981 ONGC 0.004139867 0.011587 0.013715 0.014496 0.013715 0.005439 0.008931 -0.00534 -0.00661 0.009384 0.0076 0.017666 -0.00184 Reliance Industries 0.002050216 0.00514 0.005439 0.005112 0.005439 0.005011 0.003768 -0.00036 -0.00183 0.00365 0.00395 0.009133 -0.00085 NTPC 0.002796207 0.00683 0.008931 0.008703 0.008931 0.003768 0.012529 -0.00377 -0.00426 0.008141 0.00704 0.015025 -0.00358 TCS -0.001004467 -0.00367 -0.00534 -0.00591 -0.00534 -0.00036 -0.00377 0.004977 0.0044 -0.00302 -0.00341 -0.00616 0.001456 INFOSYS -0.001235549 -0.00447 -0.00661 -0.0063 -0.00661 -0.00183 -0.00426 0.0044 0.005599 -0.00472 -0.00563 -0.00678 0.002211 TataSteel 0.002401376 0.008747 0.009384 0.00899 0.009384 0.00365 0.008141 -0.00302 -0.00472 0.020372 0.01111 0.015737 -0.00584 Hindalco 0.001906528 0.006199 0.007598 0.005685 0.007598 0.003949 0.007037 -0.00341 -0.00563 0.011107 0.01165 0.011519 -0.00471 DLF Ltd. 0.006500627 0.016751 0.017666 0.02094 0.017666 0.009133 0.015025 -0.00616 -0.00678 0.015737 0.01152 0.036275 -0.00405 LupinLtd. 0.000155159 -0.00044 -0.00184 0.000981 -0.00184 -0.00085 -0.00358 0.001456 0.002211 -0.00584 -0.00471 -0.00405 0.004383 CO- VARIANCE OFASSETS
  14. 14. Equal Wt. Max Ret Min St Dev Max SR Constraining Variables None atσ<= at µ = None Value of Constraint N/A 4.33% 3.44% CNX Nifty 7.69% -953.53% 75.37% 10.00% ICICI BANK 7.69% -232.27% -111.16% 10.00% SBI 7.69% 220.84% 26.62% 5.00% Axis Bank 7.69% 494.10% 81.95% 10.00% ONGC 7.69% 218.58% 26.62% 0.00% Reliance Industries 7.69% -9.70% 13.51% 1.00% NTPC 7.69% -97.43% -29.09% 1.00% TCS 7.69% 58.18% -16.11% 30.00% INFOSYS 7.69% 772.79% 109.14% 15.00% Tata Steel 7.69% -210.28% -16.10% 0.00% Hindalco 7.69% 325.53% 41.51% 7.69% DLF Ltd. 7.69% -81.48% -24.04% 5.00% Lupin Ltd. 7.69% -405.33% -78.21% 5.31% Σw 100.00% 100.00% 100.00% 100.00% µ 1.53% 16.17% 3.44% 2.25% σ 6.71% 4.33% 1.02% 3.94% µ/σ 22.88% 372.96% 337.96% 56.98% Portfolio weights Portfolios
  15. 15. 1.Never buy on rumours or market gossip. 2.Before buying a security,it’s better to find out everything one canabout the company, its management andcompetitors, its earningand possibilities for growth. 3. Find out the reversal, support & resistance of stock Recommendation’s 4. Avoid both fear and greed on the stock market. 5. Pick upthe undervalued shares 6. Timingof purchase and sale is also very important. “buy lowand
  16. 16. 7. Do not put allfunds in one or two companies. 8. Avoid taking undue risks or beyond the capacity of yournet worth. 9.Don't buytoo many different securities. Better have only a fewinvestments that can be watched. 10. Study your tax position to known when you sellto greatest advantages. 11. Always keep a good part of your capital in a cash reserve. Never invest all your funds. 12. Don't speculate unless it's full-
  17. 17. So its time to rethink Its time to reassess Its time to rebuild It’s time to be an investor again

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