Introduction

Introduction

A financial market is a market where buyers and sellers participants in the trade of assets such as
equities, bonds, currencies and derivatives. The main objective of a financial market is to provide
a system by which funds are transfers and allocated to their most productive opportunity.

The term market is sometimes used for what are more strictly exchanges, administrations that
facilitate the trade in financial securities. This may be a physical location (NYSE, BSE, LSE, and
JSE) or an electronic system (NASDAQ). Much trading of sharesoccurs on a trade still,
corporate activity (merger, spinoff) are external a tradealthough any two organizations or an
individual for reason unknown may consensus to pitch stock from the one to the next without
utilizing a trade.

Types of financial market

 Capital market
 Money market
 Derivatives market
 Commodity market
 Future markets
 Spot market
 Foreign exchange market

Capital market

Capital market is a trade in medium and long term capitals. Capital market is an institutional
arrangement for borrowing medium and long term and which provides facilities for marketing
and trading of securities. The market where securities are traded known as securities market. The
capital market consists of two different markets they are primary and secondary market.
Primary market

 It is also known as fresh issue market

 Primary market is the market for fresh long term equity capital.
 The primary market is the market wherever the securities are traded for first time.
 The company accepts the money and issues fresh securities to the investors.

Secondary market

 It is also known as aftermarket

 A market which transactions in securities that have been previously issued by companies
are known as the secondary market.
 The secondary market is that market in which the purchasing and selling of the
beforehand issued securities is done.
 The secondary market is investors can liquidate their cash through selling option to other
investors.

History of Stock Market

Stock market is a place of business where intangible financial assets are purchase and
sale. It is place where financial instruments are traded among investors.

Stock exchange is connotation, organization or body of individuals, whether incorporated

or not, organised for the resolution of supporting, regulating and controlling business in
purchasing, selling and trade in securities. Trading of securities in India started in the nineteenth
century after the approval of the association’s exhibition in 1850. The first stock exchange to be
set up was the Bombay stock exchange. After this various other exchanges were set up like
Ahmadabad (1894), Calcutta (1908) and Madras (1937). The two main stock exchanges of India
are The Bombay stock exchange (BSE) and The National stock Exchange (NSE). NSE and BSE
combined hold up to 80% of the accounted trading in India. The main sorted out stock trade in
India began in 1875 at Bombay and it is expressed to be the most established in Asia. In 1894 the
Ahmadabad Stock Trade was established to encourage dealings in the shares of material
factories. The Calcutta stock trade began in 1908 to give a market to shares of ranches and jute
factories. At that point the madras stock trade commenced in 1920. At current there are 24 stock
trades in the nation 21 of them being provincial ones with designated ranges. Two others set up
in the change time viz., the National Stock Trade (NSE) and Above the Counter Trade of India
(OICEI), have order to have nation savvy trading.

The Stock Trades are being managed by their administering sheets and official
representatives. Strategies identifying with their direction and control are set around the Service
of Fund. Government additionally set up securities exchange board of India (SEBI) in April 1988
for organized advancement and control of securities industry and stock trades.

Gross domestic profit contribution

The stock market Gross Domestic Profit contribution is 5.7% in theyear 2015.

Major Players of the stock market in India

 Bombay stock exchange (BSE)

  National stock exchange (NSE)

Company Profile

Company name Doha brokerage and financial services

Office address #159/k20,1st floor N.S Road k R Mohalla
Above south café Mysore - 570024
Established on 19 April 1995
Industry Category Finance
Type of company Private limited

DBFS Securities LTD is an associate of, Doha Bank, Qatar, one of India’s leading and fastest
increasing private sector financial services companies, with interests in Asset Management and
Mutual Funds, and others activities in financial services.

DBFS Securities Ltd offers a single window platform for the financial transactions. Offering an
investment avenue for a wide ranging of asset classes like Equity, Equity & Commodity
Derivatives, Mutual Funds, IPO Undertaking, and offshore Investments. Their endeavour is to
alteration the way India manages in financial markets and avails financial facilities. One of their
key features is that the most cost effective, convenient and secure way to transact in a wide range
of financial products and services. DBFS Securities Ltd is concentrating the low level of trade
penetration in Indiantrade financial market. Retail participation in equities in India is amongst
the lowest in the world, with less than 3 % of domestic sector financial savings invested in
equity/ equity-related assets.

The organization has formally initially operations in April 1992 as one of first corporate
businesses in India, the Doha Brokerage and Financial Services Ltd, is the lead organization of
the DBFS gathering. Doha Brokerage and Financial Services Ltd are focused on creating utmost
incentive for its clients, consistently by drawing on our aggregate aptitude, asset and worldwide
presentation.

To serve our clients better, the company has gone beyond the traditional brokerage business and
offers an extensive variety of administrations, which incorporate aggregate riches administration
and venture arrangements. With arrangement nearness, which trade off more than 260 branches
crosswise over real urban areas, and additionally in Dubai in the Middle East, DBFS is
constantly closer to its clients.
Promoters

Key executives of Doha brokerage financial services.

Table 1.1
Name Title
Dr.R. seetharaman Group of CEO

Prince George Managing director

Binny C. thomos, Executive manager
Paul thomos Excutive director
Suresh yezhuvath Director
Ganesh ramakrishnan Nominee director
C. K. Krishnan Nominee director
J. Kurian nellanickal Director
Jose. T. Pampackal Director

Promotors

Dr. R. seetharaman, chairman (group CEO – DOHA Bank)

Paul Thomas, Executive

SH. Abdul Rehaman bin mohammad bin jabor al thani, managing director.
Vision and Mission

Vision

We want to remain as the main, trusted total cash related administrations supplier, wherever they
work, by keeping up predominant innovative and administrations standard, and by maintaing
trust and straightforwardness as their centre qualities.

Mission

We are committed to make and develop wealth for corporate and retail clients, by conveying
front line financial related arrangements which suit their particular needs.

Product and Services

DBFS is a non – banking finance company. Its services include:

 Stock and Derivatives

 Commodity derivatives
 Mutual funds
 Portfolio management
 Offshore investment
 Currently derivatives
 Depository services
 Portfolio management services
 Advice based trading

Areas of Operation

 Corporate office-Kochi
 Regional office- Kochi, Coimbatore, Bangalore, Vijayawada
 Institutional trading office- thane (west) Maharashtra
 Overseas office-Qatar, Dubai
 Kushalnagar, Karnataka
 Coimbatore, tamilnadu
Infrastructure Facilities

 Doha stock broking financial services has wide network base and a customer’s
spread across all over the country.
 Each facility has a state of the art office space with desks and personal computers for
each of the employees to work in an efficient manner.
 Apart from this they also have access to high speed internet and quick dial facility in
order to reach to their clients in an effective and efficient manner.
 They provide tea coffee facilities.

Competitors information

 Angel Brokerage

Angel broking is an Indian stock broking firm established in 1987 and is based in Mumbai, India.
The company member of the BSE & NSE national commodity and exchange of India ltd.
The company offers E-broking, Portfolio management, mutual funds, private client group,
commodities broking, investment advisory, wealth management IPO and depository services.

 Sharekhan

Sharekhan is the biggestindividualretail brokerage in the country & the third largest in terms of
customer base after ICICI & HDFC securities. Sharekhan was founded by Mumbai based
entrepreneur Shripal Morakhia in 2000. It offers a broad range of financial products and services
including securities brokerage mutual funds distribution, loan against shares, ESOP financing,
IPO financing and wealth management.
  Religare enterprises limited

A Religare enterprise limited is the holding company for one of India’sleading diversified
financial facilities groups headquarter in New Delhi India. It proposals an integrated suite of financial
facilities through its underlying subsidiaries &working entities include loan to small & medium
enterprises affordable. Housing finance REL registered on the Bombay stock exchange & National stock
exchange in India.

 HDFC Securities limited

HDFC Securities limited is financial servicesintermediate& a subordinate of HDFC bank, a

private sector bank in India. It is one of the leading stock broking companies in India & has finished 18
years process. An HDFC security was founded in the year 2000 & is headquarter in Mumbai.

Along with offerings stock broking services HDFC securities is also a supplier of financial
products.

 Anand Rathi

Anand rathi is a leading growth focused full services investment bank. Anand Rathi was established in
1994 by Mr. Anand Rathi. Today has a pan india attendance through headquarters in dubai and Bangkok.

Anand rathi a extensiveness of financial and suggested services containing wealth management
investment banking, corporate advisors, brokerage and sharing of equities, commodities, mutual funds
and insurance, structured products all of which are supported by powerful research teams.
SWOT Analysis

Strength

 Digital business
 Expert guidance
 Efficient and skilled man power
 Huge customer base

Weakness

 Legislation on outsourcing
 Pricing pressures & Foreign currency rate fluctuations
 limited services for small depositors
 employee retention

Opportunity

 Innovative business models

 Corporate governance
 Alliance& partnerships
 Developing economy & entry of fresh young depositors

Threats

 Uncertain economic environment

 Operations risks
 New participants &Competition
 New product presents & price fight from competitors

Future Growth

DBFS is continuously keen in stretching its viewpoints to investigate into more up to

date regions of administrations and arrangements. Since, in a quick paced world client
desires and requirements are developing, at an equivalent pace. To go up against the testing
 needs, DBFS is revealing a large group of new items and administrations. The organization
is equipping to augment its essence both in India and foreign, with the help of its key
accomplice.

Financial Statement

Balance Sheet as on March 31st 2017 –

Particulars 31st March 2017 31st March 2016

(Rs Cr) ( Rs Cr)
1. Liabilities :
Share capital 83.7 83.7
Reserve and surplus 2,797.6 2,322.9
Net worth 2,881.3 2,406.6
Minority Interest -

Loan 91.8 56.9

Capital employed 2,973.1 2,463.4
Gross Block 1,471.8 1,261.0
Less; Depreciation 669.0 592.6
Net Block 802.8 668.4
Capital work-in-progress 35.4 35.4
Investment 0.8 0.8
Current Assets 2,582.6 2,197.6
Current investment 611.7 571.7
Debtors 777.2 738.1
Cash and bank balances 851.2 587.0
Loans and Advances 142.5 113.7
Other current assets 200.0 187.1
Current Liabilities & Provisions 881.5 726.4
Net Current Asset 1,701.1 1,471.1
Deferred tax assets (net) 44.9 44.9
Total 3854.6 3,189.9

Theoretical Background of the Study

Portfolio Management

Putting resources into money related securities today is considered as one of the best
areas today. It is recognized as an extremely risky area of venture. Rarely do you see individuals
putting resources into just a solitary security. Yet, it is ideal to put resources into a gathering of
securities. This gathering of securities is called as a portfolio.

The procedure which manages the act of ideally joining securities and with the investigation of
individual securities is known as portfolio management. With a specific end goal to make
progress a financial advisor must have great knowledge of the major standards of portfolio
management.

Portfolio Management Theories

Markowitz Portfolio Theory

This model was produced by Harry Markowitz. This model incorporates expected return
additionally incorporates the level of risk for a specific return. Individual's venture behaviour
view of Markowitz, the following has been stated.

 For a similar measure of return a financial investor will pick the same or lower measure
of risk.
 Variance and standard deviation is utilized for computing risk rate on venture.
 A financial manager can two fold his profits over time.
 Investors get most of their utility.
 Adepositor’s utility bend depends on risk and return. So venture choices are made on risk
 and return.

The Efficient Frontier

Markowitz’s effort with individual investor conduct is imperative for people as well as
when building an ideal portfolio.

The risk of a portfolio considers the risk of every speculation and its arrival, with correlation
value of other stocks in its portfolio. A portfolio is said to be proficient, when it provides the
financial depositor a higher expected come back with a similar measure of risk when compared
with different speculators. The effective frontier is just a plot of those proficient portfolios as
demonstrated as follows. Despite the fact that each of the frontiers represents every of the
proficient portfolios with respect to risk and return, they may not be suitable for each financial
trader. The risk profile of a financial trader is outlined with indifference curve.

Sharpe Single Index Model

Taking after Markowitz's idea of file for producing covariance terms, in 1963 William .F.
Sharpe built up a simplified single index model (SIM) for portfolio construction. This helped us
to understand the value of the index and the return on security of each stock.

Sharpe additionally broadened the Markowitz's model in 1964 when he presented the investment
assets pricing model (CAPM) to take care of the issue of assurance of right, arbitrage – free,
reasonable or balance cost of a benefit (security).

In 1965 and 1966, John Lintner and Mossin derivativerelated theories independently. In 1990,
William .F. Sharpe won the Nobel prize with Markowitz and Miller for their involvement in the
field of investment finance in economics. Sharpe’s single index model is very helpful in
scrutinising how and why securities are involved in an optimum portfolio, also respective
weights, designed on the basis of severalsignificant variables under consideration.

Contrasted with Markowitz's model, Sharpe’s single index model is a considerable measure more
straightforward and less demanding to get it. The Markowitz's model requests for a considerable
measure of data. It ends up plainly unviable to deal with an expansive arrangement of covariance
terms of an extensive arrangement of securities in a portfolio.
Sharpe took the possibility that Markowitz recommended, which is having a list to which
securities can be utilized for covariance era. Sharpe's single index model mirrors that arrival on
security is capacity of return of the market record.

The single record model for 'N" securities requires just (3n+2) information inputs which are
Alpha, Beta leftover difference (unsystematic risk) for each security and amount of estimated
return of market index and variance of return of the market index. Different research done in the
past recommends that this model has performed well.

i). Evaluation the return on stock.

The formula to be used

Ri = (Pt – Po) × 100 Po

Pt = current year price Po = previous year price.

ii). Next step, excess return to beta ratio for each security

Excess return to beta ratio = (Ri - Rf) βi

Where, Ri= the expected return of stock is Rf = risk free rate of return β i = systematic
risk of the stock.

iii). as a following step, prepare all the securities in climbing order and then compute the

‘Cut off rate’ ‘Ci by using the following equation:

Where, σ 2 m = variance of the market index σ 2 ei = variance of stock crusade that is not
related with the crusade of market index which is stocks’ unsystematic risk.
The fact will be designated as cut off point after which cumulative value of Ci start decreasing.
Those securities which have worth of Ci extra or equivalent to cut off point will be designated in
optimum portfolio.

Then the proportion for each designated security will be found by using the following, while the
first looks indicates the weights on every security, the second displays the comparative
investment in cash security to be done.

Assumptions of SIM

 Investors have a homogenous nature in the return expectation on share.

 For the calculation of risk and return a time period is followed for every security.

 Business and economic conditions play a major role in the ups and downs of stock price.
It is not dependent on other securities.

 The return of each share is co – related to the indices from where it is generated. But
these returns are most likely to be other security’s market proxy. ‘Ei’ has a finite variance
and expected value of zero (0). There is somehow no relation with error term ‘Ei’ and
market portfolio (RM).

Advantages of SIM

 The application and usage of this model is simple and easy to use.
 Share return value and index value are estimated.
 The inputs for Markowitz’s model are generated from SIM:
 Return expectation of each share.
 Variance return for each share.
 Co variance of a pair of security’s
 The benefit of this model is, It needs (3n+2) estimates for given ‘n’ security’s. however
 the Markowitz’s model uses n(n-1)/2 term for estimation.
 It also helps in the decision of which stock’s to take and which to leave while creating a
optimum portfolio.

Limitations:

 The model does not take into consideration uncertainty of market as time goes on.
Emphasis is mores on a single point in time.
 There are industry related aspects that are responsible for the moment of shares in a
uniform manner. But somehow the model assumes that stock prices move parallel to the
market movement.

Portfolio Construction

Depositing capitals into a group of properties that collaborate to create a speculation for
financial depositors, is portfolio construction.

With a specific end goal to fabricate a portfolio we should see how different sorts of speculations
function, and joining them to accomplish individual targets. The variables like risk in the
speculation and expected existence of the venture are the key focuses.

When assembling a portfolio there are two imperative conditions

 The first is resource sharing, which is concerned with in what way a venture feast
crosswise over many sectors, sorts and areas.
 The second is select of resources, which is in the hands of managers and assets to speak
to each of the picked resource classes and parts that they have a place with.

Both of these considerations are crucial, reviews have reliably demonstrated that in the medium
to long haul, resource allotment more often than not has a significantlybetterresult on the
changeability of a portfolio's entrance.

To assistance in selection of an appropriate resource distribution, we have accompanied a risk

Profiler that recognizes your state of mind to chance and along these lines better distinguish a
mix of speculations to assemble a portfolio that is most appropriate for your level of risk and
return.

With such an endless amount of speculation assets to look over, distribution over the full scope
of different classes and world markets, it is anything but difficult to be lost while picking which
ventures to make and which to give up. It is significantly extra hard to choice the correct mix of
venture to conceivably meet your speculation intentions to have an ideal portfolio.

Hence it is imperative to choose the securities that are best matched with an individual’s risk and
expectation rate and also to keep in mind the time period of the investment. If these conditions
are fulfilled then the construction of an optimal portfolio will be a simple and smooth process.
The portfolio managers play a major role in understanding the demands of individuals and
organizations. Their job is to study the market and analyze securities that match the criteria set
by their investors.

The 4 stages to making a portfolio

 Create your risk profile – measure your level of risk for any given venture.
 Capitals Allotment – Deciding the right mix of securities –this is the greatest essential
and important piece of the portfolio construction.
 Tune and regulate your portfolio – Put resources into/or survey your current portfolio to
fill in with the benefit spreading that is most appropriate to you, in this manner lessening
your risk and expanding your profits.
 Review your portfolio frequently – Once you have developed your portfolio, it is essential to
keep on reviewing your benefit distribution all the time. Speculators neglecting to do this may
discover they end up plainly overweight in a specific resource class, conceivably increasing the
general danger of their portfolio.
Literature review

1. Niranjan mandal

Sharpes single index model and it implication to construct optimal portfolio- an

empirical study.(Volume 7, issue 1).

He has taking 21 securities listed in BSE Sensex between April 2001 till March 2011. He
chooses those securities to construct an optimal portfolio whose excess return to beta ratio is
more than the cut off rate. Then percentage investment in each of the designated securities is
calculated on the basis of beta value, unsystematic risk, and excess return to beta ratio and cut off
rate of each of the securities apprehensive.

2. M. Sathyapriya

Optimal portfolio construction using sharpes single index model with reference
toinfrastructure sector and pharmaceutical sector. (Volume 6, issue 8, august 2016).

The study illustrates an analysis of four years asset value, from 2008 to 2012, of companies
picked from infrastructure & Pharmaceutical sector. The study aims at evaluating the portfolio
performance, thereby bringing out the optimal combination of assets to be invested in 2 sectors.
It is done basically by ranking the chosenresources based on excess return to beta ratio and then
finding out the cut-off point, thereby the optimal combination of the asset.

3.Kapil Sen and CA Disha Fattawat

Sharpes single index model and its application portfolio construction – an empirical study
(Volume 6, number 6, pp 511-516).

He has to take 30 stocks of BSE Sensex from the duration January 2010 to December 2013 on
monthly returnbasis. The mainintentions of the analysis are to get an insight into the idea
embelled in Sharpe’s single index model, to construct an optimal portfolio using the Sharpe’s
single index model.
4. Dr.K.V.Ramanathan and K.N.Jahnavi

Construction of optimal equity portfolio using the single index model with reference to
banking and information technology sector in india from 2009-2013

(Volume 2, issue 3, January-march, 2014. Page 122).

The the main concentration of this study is to construct an optimal equity portfolio with the help
of Sharpe’s single index model. In this study, media and entertainment sector has been taken
into reflection for constructing the optimal portfolio. And choose 20 companies and excess to
beta ratio has been calculated and ranked the companies based on that ratio. This research results
and recommendations would be helpful to depositors for financing in media and entertainment
sector.

5. S.Subashree and Dr.M.Bhoopal

Construction of optimal portfolio using single index model- a study with reference
tobanking and automobile sector. (volume 1, November 2017).

The mainintention of this research is to construct an optimal portfolio using Sharpe’s single
index model. For this determination monthly closing prices of 5 companies from auto mobile
sector listed in the BSE were designated. Share prices for the duration of October 2016 to
September 2017.

6. Thangjam Ravichandra

Optimal portfolio construction with nifty stocks.(Volume 1, number 4, pages no 75-81,

2014).

In this paper endeavours to construct an ideal portfolio by utilizing Sharpe’s single index model.
For this reason, NSE NIFTY and all the 50 stocks where are a part of it have been utilized as
business record for planning portfolio. The daily information for all the stocks and list for the
duration of April 2008 to December 2013 has been collected.

7. Dr. Sathya swaroop debasish

Optimal portfolio construction in stock market- an empirical study or selected stocks in

manufacturing sector in india. (Volume 2, no 2, December 2012).

In this study, 14 designated stocks from the several manufacturing sectors like automobiles,
cements, paints, textiles, and oil & refineries sectorhave been taking into reflection and these
stocks are component of the NSE Nifty index. The day-to-day data for all the stocks for the
duration of January 2013 to November 2012 have been reflected.

8. Dr.S.Poornima and Aruna.P.Ramesh

Optimal portfolio construction of selected stocks from NSE using sharpes single index
model (Volume 7, issue 12, December 2017).

In this research effortfocuses on the optimal portfolio construction of designated stocks from
NSE using Sharpe’s single index model. For this resolution fifty companies listed in the NSE had
been designated. Out of the fifty companies only eleven companies were involved in the optimal
portfolio construction. The outcome of the research Indian economics where the capital markets
are still in their increasing stages and many foreign institutional depositors are also involved to
invest in the top stock.

9. Pratibha jenifer Andrade

Construction of optimal portfolio of equity using sharpes single index model- a casestudy of
IT sector.(Volume 1, number 2, October-December’ 2012).

The main focuses of this study is to improving an optimal portfolio of equity of IT sector,
through Sharpe’s single index model. For the study, six top performing IT companies operated in
BSE were taken and the optimal portfolio was built with 5 companies.

10. Rampilla Mahesh and Mekala Tulasinah

How can an individual construct optimal portfolio with reference to sharpes singe index
model. (Volume 2, issue 12, December 2014).

InThis research is main aim at constructing awareness in the minds of depositors regarding the
utility of Sharpe’s single index model in the portfolio construction. And this research aims to
findings out how an individual construct optimal portfolio by using to Sharpe’s single index
model.

11. Saurabh singh, M.M. Anjum Parwej and Meenal Sharma

Constructing optimal equity portfolio of large cap companies using sharpes single index
model.(volume 32,2017).

In this study, top 10 stocks of Nifty have been designated on the basis of their market
capitalization. The monthly data for all the stocks for the duration of April 2010 to December
2016 have been reflected. The research find out that four company stocks constituent the
optimal portfolio.

12. Saugat Das and Ankit Agarwal

Optimal portfolio of pharmaceutical companies – a study on CNX pharma index.(Volume

4, issue 3, June 2014, page no 1-4).
This research effort on the CNX PHARMA index which contains of 10 pharmaceutical stocks
and improves an approach to build an optimal portfolio using the Sharpe’s single index model.
The model using the regression analysis the effect of market on the return of individual stocks.

13. Prof.Suresh Kumar S, Dr Joseph James V, and Dr Shehnaz S R

The single index model- an exotric choice of investors in imbroglio – an empirical studyof
banking sector in india. (Volume 7, issue 5, July- august 2016, page no 210-222).

These people study in the banking sector to identify and explain the simple linear regression
aspects of returns of security in relation to a market index to which the security belongs. The
security returns of two banks in India, there are HDFC and Bank of India are linearly regressed
against NSE Nifty Bank Index to arrive at the systematic and unsystematic risk and their
volatility to changes in index movements.

14. Swarnalatha, murulikrishna and chethan raju

Portfolio selection through single index model- with special reference to trust inesecurities.
(Volume 8, issue 6, June 2017).

In this research they operate selected the companies from different sectors like FMCG, cement
sector, telecommunication sector. The researchreveals that the telecommunication industry has
high returns at a given risk. Cement industry stocks are advisable for the conservative’s
depositors who are not in situation to take risk.

15.Prof. Guntur Anjana Raju, Ms. Mrunali Jambotkar

Optimal portfolio construction in stock market securities from indian blue chips stock.
(Volume 2, issues 1, January 2018).

In this study taken a sample of twenty blue chip NSE and BSE listed stocks has been considered.
The daily closing share prices of the stocks January 2007 to October 2007 for the study. The
analysis concluded that the first ranked nine blue chip stocks are preferable in the construction of
an optimal portfolio and thereby to spread the availability of funds. The analytical findings will
be the significant outcome to all the participants of financial markets.

16. Ms Namratha H. Deshmukh & Dr. Prasad V. Joshi

(Volume 1, issue 01)

TheSharpe’s portfolio construction model is then applied on the designated stocks with good
fundamentals. A sample of 26 stocks is taken and the Sharpe’s model is applied to select the
stocks buying opportunities. The research taken a duration of six years for the study.

17. Lakshmi kanta Giri and Dr.Gayadhar Parthi

(Volume 5, issue 2, February 2017).

Inthis research select 50 stocks from nifty index but only 5 stocks were included in the optimum
portfolio. The daily closing stock prices were considered for the period of one year from January
1st 2015 to December 31st 2015.

18. Dr.R.Nalini

Optimal portfolio construction using sharpes single index model- a study on selectedstocks
from NSE. (Volume 3, number 12, December 2014).

Thisresearch is chosen fifteen companies from BSE sensex India were chosen for the study.
Among the 15 companies, only 4 companies were designated for optimum portfolio using
Sharpe’s single index model.

19. Apurva Chauhan

(Volume 3, issue 10, October 2014).

In this research select top 10 companies of CNX nifty based on their weights for the duration of
August 2014, out of the 10 stocks only 4 stocks chosen for optimum portfolio using Sharpe’s
single index model.

20. Kumar Arun and Manujunath

In this research chosen 50 companies in S&P CNX Nifty only 6 securities were designated for
the build an optimal portfolio. The proportion of investment to be complete selected securities
has been computed using Sharpe’s single index model. That research outcome is that stock prices
and market index move in the same way.

Research methodology

Statement of the problem

A financial experts considering interest in securities is faced with the issue of browsing among a
substantial number of securities and how to designate those assets over a gathering of securities.
The obstacle that exist is that the financial specialists has an issue of choosing which securities to
hold and the amount to put resources into every one of them however Markowitz show
empowers a speculators to land at an ideal portfolio the single record demonstrate is useful in
evading the trouble of information info and time cost thought. In this manner the present
investigation is entitle ideal portfolio development utilizing Sharpe's single list demonstrate an
examination chose stocks from BSE Sensex 30 stocks.

Need for the study

 All financial experts are facing some difficulties while selecting securities from a
grouping of portfolio. Most of them would not know which of the security are performing
well in the market and what security are poor in returns.
 In the optimal portfolio includes various models like single index, Markowitz model,
CAPM method. But Sharpe’s single index model it is better to be calculated.
 Additionally with the help of these study financiers can build a portfolio that gives
returns at a given level of risk.
Objective of the study

 To gain practical exposure to trading in security.

 To gain theoretical knowledge about construction to optimal portfolio.
 To evaluate performance of optimal portfolio constructed using single index model based
on risk return.
 To analyse portfolio comparison with the benchmark index.

Scope of the study:

The scope study is to get the optimal portfolio construction using Sharpe’s single index
model about the management education system in india.
Scope of this study is to construct the optimal portfolio in BSE senses 30 stocks to decrease
its risk and maximise the profits. Based on the past performance, risk and return of those top
companies should be analysed and top companies should be designated for construction
portfolio.

Research Methodology

 Research design: exploratory and descriptive method

 Sources of data: secondary method, historical data, BSE Sensex index
 Sample size: selected based on the all 30 securities from BSE Sensex
 Sample frame:All30 securities include BSE Sensex index
 Tools and techniques: Sharpe’s single index model
 Sample unit: BSE 30 Sensex

Hypothesis

Sharpe’s single index model helps to develop a optimal portfolio construction.

 H0: Portfolio construction using Sharpe’s single index model would not be optimal.
 H1: Portfolio construction using single index model would be optimal.
 Limitations
 Since the past three years performance will not perform in future they different
situations are affected.
 One year day to day daily data has been only considered for the construction of
optimal portfolio.
 The research has been selected the stocks from BSE Sensex in 30 stocks.

Data analysis and interpretation

Optimal portfolio construction using Sharpe’s single index model

Data analysis and interpretation of the data start from here. Under the table below shows the 30
companies from BSE Sensex for the study.

List of BSE 30 Sensex

Sl no Companies name
1 Adani ports and special economic zone ltd
2 Asian paints ltd
3 Axis bank ltd
4 Bajaj auto ltd
5 Bharthi airtel ltd
6 Coal india
7 Dr reddys laboratories ltd
8 HDFC bank ltd
9 Hero motor corp ltd
10 Hindustan uniliver ltd
11 Housing development finance corporation ltd
12 ICICI bank ltd
13 Indusin bank ltd
14 Infosys ltd
15 ITC
16 Kotak Mahindra bank ltd
17 Larsen and toubro ltd
18 Mahindra & Mahindra ltd
19 Maruthi Suzuki india ltd
20 NTPC Ltd
21 Oil & natural gas corporation ltd
22 Reliance industries ltd
23 Sun pharmaceutical industries ltd
 24 Tata consultancy services ltd
25 Tata motors DVR ordinary
26 Tata motors ltd
27 Tata steel ltd
28 Wipro
29 Gail india
30 Yes bank ltd

The steps finding out the stocks to be included in the optimal portfolio are given below

Step 1: find out the excess returns beta ratio. It is calculated as Ri-Rf. It means returns of
security, Rf means risk free rate & Bi means systematic risk prevailing in the market is 6.31.

Ranking the securities based on the Excess Return to Beta Ratio

Security Returns Excess Beta Unsystematic Excess Rank

name return risk return to
(Ri-Rf) beta
Adani ports 0.013458 -6.2965 1.58 1.423233 -3.9851 16
and special
economic zone
ltd
Asian paints -1.08646 -7.3964 1.01 1.079474 -7.3231 19
ltd
Axis bank ltd 1.188354 -5.1216 1.54 1.90409 -3.3257 12

Bajaj auto ltd 2.966059 -3.3439 0.696 3.535461 -4.8044 17

Bharthi airtel -11.0339 -17.3439 1.07 3.9222 -16.2092 21

ltd
Coal india 6.483944 0.1739 0.536 1.973598 0.3244 15

Dr reddys 31.63203 25.3220 1.14 1.888013 22.2122 9

laboratories ltd
HDFC bank -26.9072 -33.2172 0.864 0.346992 -38.4458 27
ltd
Hero motor -8.374 -14.684 0.807 1.135103 -18.1957 22
corp ltd
Hindustan -35.9421 -42.2521 0.693 0.792813 -60.9698 30
uniliver ltd
Housing -15.5106 -21.8206 0.884 1.290361 -24.6839 23
development
finance
corporation ltd
ICICI bank ltd 7.074778 0.7647 1.70 2.040518 0.4498 14

Indusin bank -22.9733 -29.2833 0.507 0.822239 -57.7579 29

ltd

Infosys ltd -2.35656 -8.6665 0.314 0.560424 -27.6003 25

ITC 12.67367 6.3636 0.680 1.498994 9.3582 11

Kotak -16.5763 -22.8863 0.854 1.031114 -26.7989 24

Mahindra bank
ltd

Larsen and 34.41037 28.1003 0.95 3.265083 29.5792 7

toubro ltd
Mahindra & 91.563 85.253 0.802 6.923272 106.300 3
Mahindra ltd
Maruthi -36.1637 -42.4737 0.928 1.238613 -45.7690 28
Suzuki india
ltd
NTPC Ltd -1.36747 -7.67747 0.257 1.326994 29.8731 6

Oil & natural 6.785702 0.4757 0.941 1.240334 0.5055 13

gas
corporation ltd
Reliance 94.0405 87.7305 1.16 5.204082 75.6297 4
industries ltd
Sun 38.61128 32.3012 0.679 2.151922 47.5717 5
pharmaceutical
industries ltd
Tata -14.5235 -20.8335 0.669 1.350891 -31.1412 26
consultancy
services ltd
Tata motors 46.41084 40.1008 1.63 1.993628 24.6017 8
DVR ordinary
Tata motors 39.78157 33.4715 1.77 2.172402 18.9104 10
ltd
Tata steel ltd -11.9678 -18.2778 1.64 2.667236 -11.145 20

Wipro 93.00072 86.6907 0.587 6.599512522 147.684 2

Gail india 1.188354 -5.1217 0.930 1.593566 -5.5072 18

Yes bank ltd 403.4504 397.14 1.66 25.40404 239.240 1

Step 2: proceeds to calculate Ci for all the stocks using the formula.

Calculation of Ci

Security Ri – Rank Ri CF B2/EI2 CF CI

name Rf/B _Rf*B/EI
Yes bank ltd 239.240 1 25.9550 25.9550 1.7540 1.7540 8.1910

Wipro 147.684 2 7.7107 33.6657 0.9450 2.699 8.2428

Mahindra & 106.300 3 9.8751 43.5408 0.1370 2.836 10.2419

Mahindra ltd
Reliance 75.6297 4 19.555 63.095 1.2455 4.0815 11.4786
industries ltd
Sun 47.5717 5 10.1577 73.2535 0.2919 4.3734 12.6548
pharmaceutical
industries ltd
NTPC Ltd 29.8731 6 -1.4869 71.7666 0.1455 4.5189 12.0940

Larsen and 29.5792 7 8.1761 79.9427 0.6883 5.2072 12.0715

toubro ltd
Tata motors 24.6017 8 32.796 112.7387 2.1516 7.3588 6.1997
DVR ordinary
Dr reddys 22.2122 9 15.289 128.0277 0.5736 7.9324 13.6962
laboratories ltd
Tata motors 18.9104 10 27.2714 155.299 0.6057 8.5391 15.6006
ltd CI *
ITC 9.3582 11 2.9865 158.2856 0.6055 9.1446 14.988

Axis bank ltd -7.3231 12 -4.1424 154.1432 1.0944 10.239 13.227

 Oil & natural 0.5055 13 0.3609 154.5041 0.3125 10.5515 12.911
gas
corporation ltd
ICICI bank ltd 0.4498 14 0.6370 155.1411 0.1757 10.7272 12.7765

Coal india 0.3244 15 0.04723 155.188 0.3192 11.0464 12.4532

Adani ports -3.9851 16 -6.9902 148.1981 0.7073 11.7537 11.2536

and special
economic zone
ltd
Bajaj auto ltd -4.8044 17 -0.6583 147.5398 0.2764 12.0301 10.97

Gail india -5.5072 18 -2.9891 144.5507 0.0929 12.123 10.677

Asian paints -7.3231 19 -6.9208 137.6299 0.6952 12.8182 9.669

ltd
Tata steel ltd -11.145 20 -11.238 126.3919 0.049 12.8672 8.899

Bharthi airtel -16.2092 21 -4.731 121.660 0.7138 13.581 8.1127

ltd
Hero motor -18.1957 22 -10.4395 111.221 0.2585 13.8395 7.2909
corp ltd
Housing -24.6839 23 14.949 126.170 0.2140 14.0535 8.1570
development
finance
corporation ltd
Kotak -26.7989 24 -18.9553 107.21 0.3312 14.3847 6.785
Mahindra bank
ltd

Infosys ltd -27.6003 25 -4.8559 102.3592 1.3327 15.7174 5.9745

Tata -31.1412 26 -10.3180 92.0412 1.4421 17.1595 4.9551

consultancy
services ltd
HDFC bank -38.4458 27 -82.7317 9.3095 1.0083 18.1678 0.4753
ltd
Maruthi -45.7690 28 -31.8226 -22.5130 0.0522 18.22 -1.5717
Suzuki india
ltd
Indusin bank -57.7579 29 -18.0572 -40.5702 0.5417 18.7617 -2.0106
ltd
Hindustan -60.9698 30 -36.933 -77.5032 0.1084 18.8701 -3.8206
 uniliver ltd

‘*’ Cut off point is 15.6006

Step 3: Selection of securities for investment. If (Ri-Rf)/Bi is higher than cut off rate, then the
security will be chosen for investment.

Step 4: Calculating Proportion to be Invested: Selected stocks are added and their weights
calculated. The proportion invested in every security can be estimatedas: ƩXio = Zi/ Zj Where:
Zi= Bi/SD2ei(Ri-Rf/Bi- C*).

Calculation of weights

Sl no Company Beta2/EI2 Ri- C* Zi Xi Weights

names Rf/Beta in %
1 Yes bank ltd 1.7540 239.240 15.6006 14.6158 0.1799 17.99
2 Wipro 0.9450 147.684 15.6006 11.7422 0.1445 14.45
3 Mahindra & 0.1370 106.300 15.6006 10.5029 0.1293 12.93
Mahindra ltd
4 Reliance 1.2455 75.6297 15.6006 13.3804 0.1647 16.47
industries ltd
5 Sun 0.2919 47.5717 15.6006 10.0868 0.1241 12.41
pharmaceutical
industries ltd
6 NTPC Ltd 0.1455 29.8731 15.6006 2.7631 0.0340 3.4

7 Larsen and 0.6883 29.5792 15.6006 4.0663 0.0500 5

toubro ltd
8 Tata motors 2.1516 24.6017 15.6006 7.3673 0.0907 9.07
DVR ordinary
9 Dr reddys 0.5736 22.2122 15.6006 3.9920 0.0491 4.91
laboratories ltd
10 Tata motors 0.6057 18.9104 15.6006 2.7038 0.0332 3.32
ltd
81.2206 100%
Interpretation

20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Findings, suggestions and conclusion
Findings
 The Yes bank ltd is the highest return of 403.4504 and NTPC ltd has the lowest return of -
1.641. The investors want to earn a minimum returns without considering the risk aspects
then investment can be on these which yield high returns. Even though the returns are high
the risk involved in the stock return should be considered while taking investment decisions.
 The risk can be reduced if the portfolio diversified is to achieve a given level of expected
return while bearing the least possible risk.
 The return from TaTa motors has the highest beta value of 1.77. This means that it is highly
volatile. ICICI (1.70), yes Bank (1.66), TaTa Steel (1.64), Tata motors DVR (1.63), and have
the beta values greater than 1 which means they are also volatile. But they are less volatile
compare to TaTa motors
 The excess return to beta ratio measure the addition return on a security per unit. Systematic
risk. The yes bank ltd stock return has the highest excess return to beta ratio 239.240 and that
of axis bank Bank ltd is the lowest at -3.325.
 The Yes bank ltd stock return has the highest unsystematic risk is 25.0404. & that of the
company has the least risk of HDFC Bank ltd is 0.3469. It is the unique risk affecting the
firm due to certain factors, affecting only the company issuing such security, it is the
avoidable risk.
 The ten securities ranking from 1 and 10 based on Ci value were identified along with the
proportion of investment to be made. The proportion of the investment to be made is Yes
bank ltd 17.99%, Wipro ltd 14.45%, Mahindra & Mahindra ltd 12.93% Reliance industries
ltd 16.47%sun pharmaceutical industries ltd 12.41, NTPC ltd 3.4 Larsen and tourbro ltd 5%,
TaTa motors DVR ltd ordinary ltd 9.07%, Dr reddys laboratories ltd 4.91%, TaTa motors ltd
3.32%, This implies that the majority of funds may be invested on the Yes Bank company
stocks.
Suggestion
Yes bank has high proportion to get portfolio and it is around 0.1799 along these lines, financial
specialists can put more in Yes Bank ltd to get greatest come back with most extreme hazards.
Following that next decision will be Reliance industries ltd where investors can be advised to
invest about 0.1647 out of their investment.

The sum total of what organisation have been esteem short of what one, which implies risks, to
similarly low so enhancement of portfolio may assist the financial specialists with eliminating
the controllable risks.

Conclusion
Developing ideal portfolio is a testing undertaking for the person and also the institution
investors, this paper made an endeavour to build an ideal portfolio utilizing Sharpe’s single index
model. Among 30 test organisation just 10 stocks were chosen for ideal portfolio. The stock to be
specific Yes bank ltd and reliance industries.

According to the consultants based on Sharpes single index model, investors are adviced to
invest their investment in Yes bank ltd 17.99%, Wipro ltd 14.45%, Mahindra & Mahindra ltd
12.93% Reliance industries ltd 16.47%sun pharmaceutical industries ltd 12.41, NTPC ltd 3.4
Larsen and tourbro ltd 5%, TaTa motors DVR ltd ordinary ltd 9.07%, Dr reddys laboratories ltd
4.91%, TaTa motors ltd 3.32%. This implies that the majority of funds may be invested on the
yes bank company stocks.
Bibliography:

 www.google.com
 www.wikipedia.com
 www.indianstockmarket.com
 www.bseindia.com
 www.googleweblight.com
 www.slideshare.com
 www.dbfsindia.com
 www.scribd.com