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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks

CHAPTER- I INTRODUCTION
1.1 General Introduction Definition: In simple terms, a stock is a share in the ownership of a company. A stock represents a claim on the company's assets and earnings. As we acquire more stocks, our ownership stake in the company becomes greater. Sometimes different words like shares, equity, stocks etc. are used. All these words mean the same thing. Types of stock Stock typically takes the form of shares of either common stock or preferred stock. As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders. Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Shares of such stock are called "convertible preferred shares" (or "convertible preference shares" in the UK) New equity issues may have specific legal clauses attached that differentiate them from previous issues of the issuer. Some shares of common stock may be issued without the typical voting rights, for instance, or some shares may have special rights unique to them and issued only to certain parties. Often, new issues that have not been registered with a securities governing body may be restricted from resale for certain periods of time. Preferred stock may be hybrid by having the qualities of bonds of fixed returns and common stock voting rights. They also have preference in the payment of dividends over common stock and also have been given preference at the time of liquidation over common stock. They have other features of accumulation in dividend. Stock derivatives A stock derivative is any financial instrument which has a value that is dependent on the price of the underlying stock. Futures and options are the main types of derivatives on stocks. The

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks underlying security may be a stock index or an individual firm's stock, e.g. single-stock futures. Stock futures are contracts where the buyer is long, i.e., takes on the obligation to buy on the contract maturity date, and the seller is short, i.e., takes on the obligation to sell. Stock index futures are generally not delivered in the usual manner, but by cash settlement. A stock option is a class of option. Specifically, a call option is the right (not obligation) to buy stock in the future at a fixed price and a put option is the right (not obligation) to sell stock in the future at a fixed price. Thus, the value of a stock option changes in reaction to the underlying stock of which it is a derivative. The most popular method of valuing stock options is the Black Scholars model. Apart from call options granted to employees, most stock options are transferable. History During Roman times, the empire contracted out many of its services to private groups called publican. Shares in publican were called "social" (for large cooperatives) and "particulae" which were analogous to today's Over-The-Counter shares of small companies. Though the records available for this time are incomplete, Edward Chancellor states in his book Devil Take the Hindmost that there is some evidence that a speculation in these shares became increasingly widespread and that perhaps the first ever speculative bubble in "stocks" occurred. The first company to issue shares of stock after the Middle Ages was the Dutch East India Company in 1606. The innovation of joint ownership made a great deal of Europe's economic growth possible following the Middle Ages. The technique of pooling capital to finance the building of ships, for example, made the Netherlands a maritime superpower. Before adoption of the joint-stock corporation, an expensive venture such as the building of a merchant ship could be undertaken only by governments or by very wealthy individuals or families. Economic historians find the Dutch stock market of the 1600s particularly interesting: there is clear documentation of the use of stock futures, stock options, short selling, the use of credit to purchase shares, a speculative bubble that crashed in 1695, and a change in fashion that unfolded and reverted in time with the market (in this case it was headdresses instead of hemlines). Dr. Edward Stringham also noted that the uses of practices such as short selling continued to occur during this time despite the government passing laws against it. This is KRISTU JAYANTI COLLEGE Page 2

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks unusual because it shows individual parties fulfilling contracts that were not legally enforceable and where the parties involved could incur a loss. Stringham argues that this shows that contracts can be created and enforced without state sanction or, in this case, in spite of laws to the contrary. A shareholder (or stockholder) is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. Both private and public traded companies have shareholders. Companies listed at the stock market are expected to strive to enhance shareholder value. Shareholders are granted special privileges depending on the class of stock, including the right to vote on matters such as elections to the board of directors, the right to share in distributions of the company's income, the right to purchase new shares issued by the company, and the right to a company's assets during a liquidation of the company. However, shareholder's rights to a company's assets are subordinate to the rights of the company's creditors. Shareholders are considered by some to be a partial subset of stakeholders, which may include anyone who has a direct or indirect equity interest in the business entity or someone with even a non-pecuniary interest in a non-profit organization. Thus it might be common to call volunteer contributors to an association stakeholder, even though they are not shareholders. Although directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders, the shareholders themselves normally do not have such duties towards each other. However, in a few unusual cases, some courts have been willing to imply such a duty between shareholders. For example, in California, USA, majority shareholders of closely held corporations have a duty to not destroy the value of the shares held by minority shareholders. The largest shareholders (in terms of percentages of companies owned) are often mutual funds, and, especially, passively managed exchange-traded funds.

Application KRISTU JAYANTI COLLEGE Page 3

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks The owners of a company may want additional capital to invest in new projects within the company. They may also simply wish to reduce their holding, freeing up capital for their own private use. By selling shares they can sell part or all of the company to many part-owners. The purchase of one share entitles the owner of that share to literally share in the ownership of the company, a fraction of the decision-making power, and potentially a fraction of the profits, which the company may issue as dividends. In the common case of a publicly traded corporation, where there may be thousands of shareholders, it is impractical to have all of them making the daily decisions required to run a company. Thus, the shareholders will use their shares as votes in the election of members of the board of directors of the company. In a typical case, each share constitutes one vote. Corporations may, however, issue different classes of shares, which may have different voting rights. Owning the majority of the shares allows other shareholders to be out-voted - effective control rests with the majority shareholder (or shareholders acting in concert). In this way the original owners of the company often still have control of the company. Shareholder rights Although ownership of 50% of shares does result in 50% ownership of a company, it does not give the shareholder the right to use a company's building, equipment, materials, or other property. This is because the company is considered a legal person, thus it owns all its assets itself. This is important in areas such as insurance, which must be in the name of the company and not the main shareholder. Means of financing Financing a company through the sale of stock in a company is known as equity financing. Alternatively, debt financing (for example issuing bonds) can be done to avoid giving up shares of ownership of the company. Unofficial financing known as trade financing usually provides the major part of a company's working capital (day-to-day operational needs).

Trading KRISTU JAYANTI COLLEGE Page 4

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks The shares of a company may in general be transferred from shareholders to other parties by sale or other mechanisms, unless prohibited. Most jurisdictions have established laws and regulations governing such transfers, particularly if the issuer is a publicly-traded entity. The desire of stockholders to trade their shares has led to the establishment of stock exchanges. A stock exchange is an organization that provides a marketplace for trading shares and other derivatives and financial products. Today, investors are usually represented by stock brokers who buy and sell shares of a wide range of companies on the exchanges. A company may list its shares on an exchange by meeting and maintaining the listing requirements of a particular stock exchange. In the United States, through the inter-market quotation system, stocks listed on one exchange can also be traded on other participating exchanges, including the Electronic Communication Networks (ECNs), such as Archipelago or Instinet. Many large non-U.S companies choose to list on a U.S. exchange as well as an exchange in their home country in order to broaden their investor base. These companies must maintain a block of shares at a bank in the US, typically a certain percentage of their capital. On this basis, the holding bank establishes American Depositary Shares and issues an American Depository Receipt (ADR) for each share a trader acquires. Likewise, many large U.S. companies list their shares at foreign exchanges to raise capital abroad. Small companies that do not qualify and cannot meet the listing requirements of the major exchanges may be traded over the counter (OTC) by an off-exchange mechanism in which trading occurs directly between parties. The major OTC markets in the United States are the electronic quotation systems OTC Bulletin Board (OTCBB) and the Pink OTC Markets (Pink Sheets) where individual retail investors are also represented by a brokerage firm and the quotation service's requirements for a company to be listed are minimal. Shares of companies in bankruptcy proceeding are usually listed by these quotation services after the stock is delisted from an exchange. Buying There are various methods of buying and financing stocks. The most common means is through a stock broker. Whether they are a full service or discount broker, they arrange the KRISTU JAYANTI COLLEGE Page 5

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks transfer of stock from a seller to a buyer. Most trades are actually done through brokers listed with a stock exchange. There are many different stock brokers from which to choose, such as full service brokers or discount brokers. The full service brokers usually charge more per trade, but give investment advice or more personal service; the discount brokers offer little or no investment advice but charge less for trades. Another type of broker would be a bank or credit union that may have a deal set up with either a full service or discount broker. There are other ways of buying stock besides through a broker. One way is directly from the company itself. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations departments. However, the initial share of stock in the company will have to be obtained through a regular stock broker. Another way to buy stock in companies is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering in which the stock is purchased directly from the company, usually without the aid of brokers. When it comes to financing a purchase of stocks there are two ways: purchasing stock with money that is currently in the buyer's ownership, or by buying stock on margin. Buying stock on margin means buying stock with money borrowed against the stocks in the same account. These stocks, or collateral, guarantee that the buyer can repay the loan; otherwise, the stockbroker has the right to sell the stock (collateral) to repay the borrowed money. He can sell if the share price drops below the margin requirement, at least 50% of the value of the stocks in the account. Buying on margin works the same way as borrowing money to buy a car or a house, using the car or house as collateral. Moreover, borrowing is not free; the broker usually charges 8-10% interest.

Selling

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Selling stock is procedurally similar to buying stock. Generally, the investor wants to buy low and sell high, if not in that order (short selling); although a number of reasons may induce an investor to sell at a loss, e.g., to avoid further loss. As with buying a stock, there is a transaction fee for the broker's efforts in arranging the transfer of stock from a seller to a buyer. This fee can be high or low depending on which type of brokerage, full service or discount, handles the transaction. After the transaction has been made, the seller is then entitled to all of the money. An important part of selling is keeping track of the earnings. Importantly, on selling the stock, in jurisdictions that have them, capital gains taxes will have to be paid on the additional proceeds, if any, that are in excess of the cost basis. Stock price fluctuations The price of a stock fluctuates fundamentally due to the theory of supply and demand. Like all commodities in the market, the price of a stock is sensitive to demand. However, there are many factors that influence the demand for a particular stock. The field of fundamental analysis and technical analysis attempt to understand market conditions that lead to price changes, or even predict future price levels. A recent study shows that customer satisfaction, as measured by the American Customer Satisfaction Index (ACSI), is significantly correlated to the market value of a stock. Stock price may be influenced by analyst's business forecast for the company and outlooks for the company's general market segment. Share price determination At any given moment, equitys price is strictly a result of supply and demand. The supply is the number of shares offered for sale at any one moment. The demand is the number of shares investors wish to buy at exactly that same time. The price of the stock moves in order to achieve and maintain equilibrium.

When prospective buyers outnumber sellers, the price rises. Eventually, sellers attracted to the high selling price enter the market and/or buyers leave, achieving equilibrium KRISTU JAYANTI COLLEGE Page 7

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks between buyers and sellers. When sellers outnumber buyers, the price falls. Eventually buyers enter and/or sellers leave, again achieving equilibrium. Thus, the value of a share of a company at any given moment is determined by all investors voting with their money. If more investors want a stock and are willing to pay more, the price will go up. If more investors are selling a stock and there aren't enough buyers, the price will go down.

So what does ownership of a company give to a shareholders? Holding a company's stock means many owners (shareholders) of a company and, as such, has a claim to everything the company owns. This means that technically shareholders own a tiny little piece of all the furniture, every trademark, and every contract of the company. As an owner, investors are entitled to respective share of the company's earnings as well. These earnings will be given to the shareholders. These earnings are called dividends and are given to the shareholders from time to time. A stock is represented by a "stock certificate". This is a piece of paper that is proof of shareholders ownership. However, now-a-days they could also have a demat account. This means that there will be no stock certificates. Everything will be done though the computer electronically. Selling and buying stocks can be done just by a few clicks. Profits are sometimes paid out in the form of dividends as mentioned earlier. The more shares the shareholders own, the larger the portion of the profits they get. Shareholders claim on assets is only relevant if a company goes bankrupt. In case of liquidation, they will receive what's left after all the creditors have been paid. Another extremely important feature of stock is "limited liability", which means that, as an owner of a stock, shareholders are "not personally liable" if the company is not able to pay its debts.

Why does a company issue stocks? KRISTU JAYANTI COLLEGE Page 8

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Why would the founders share the profits with thousands of people when they could keep profits to themselves? The reason is that at some point every company needs to "raise money". To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock. A company can borrow by taking a loan from a bank or by issuing bonds. Both methods come under "debt financing". On the other hand, issuing stock is called equity financing. Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO). What makes stock prices go "up" and "down"? Stock prices change every day because of market forces. By this we mean that stock prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up! Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. (Basics of economics!) Understanding supply and demand is easy. What is difficult to understand is what makes people like a particular stock and dislike another stock. To figure out the likes and dislikes of people, we have to figure out what news is positive for a company and what news is negative and how any news about a company will be interpreted by the people. The most important factor that affects the value of a company is its earnings. Earnings are the profit a company makes, and in the long run no company can survive without them. It makes sense when you think about it. If a company never makes money, it isn't going to stay in business. Public companies are required to report their earnings four times a year (once each quarter). If a company's results are better than expected, the price jumps up. If a company's results disappoint and are worse than expected, then the price will fall. Stock Picking - Which stocks to buy?

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Having understood all the basics of the stock market and the risk involved, now we go into stock picking and how to pick the right stock. Before picking the right stock we need to do some analysis of the particular company. There are two major types of analysis: 1. 2. Fundamental Analysis Technical Analysis Fundamental analysis is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price. On the other hand, technical analysis is the study of prices and volume, for forecasting of future stock price or financial price movements. Fundamental analysis looks at the actual company and tries to figure out what the company price is going to be like in the future. On the other hand technical analysis look at the stocks chart, peoples buying behaviour etc. to try and figure out what the stock price is going to be like in the future.

1.2 Evolution of Equity market in India Bombay stock exchange is the oldest stock exchange in Asia with a rich heritage. Popularly known as BSE it was established as The Native Share & Stock Brokers Association in 1875. It is the first stock exchange in the country to obtain permanent, recognition in 1956 from the Government of India under the security contracts (regulation) Act 1956. The exchange plays pivotal & prominent role in the development of Indian capital market which is widely recognized & its index. SENSEX is tracked worldwide. Earlier an Association Of Person (A.O.P) the exchange is now a demutualised & corporative entity incorporated under the provision of the Companies Act 1956, pursuant to the BSE (corporation & demutualization) scheme, 2005 notified by the Security Exchange Board of India (SEBI). The exchange is professionally managed under the overall direction of the board of director. The Board comprises of eminent professionals, representative of trading members & KRISTU JAYANTI COLLEGE Page 10

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks the managing director of exchange. The board is inclusive & is designed to benefit from the participation of members intermediaries. The exchange has national wide reach with a presence in 417 cities & towns of India. During the year of 2004-2005 the trading volumes on the exchange showed robust growth. The surveillance & clearing & settlement functions of the exchange are ISO 9001:2000 certified. NSE started trading in equity segment (Capital Market Segment) on November 3, 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted. Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs. 17 crores during the 1994-95 to Rs. 4328 crores during the 200304. During the year 2004-05 NSE reported turnover of Rs.1099, 535 crores in equity segment accounting for 68.60% of the total Indian securities markets. Both BSE & NSE has reported a turnover of more than 1600897.314 crores.

The main advantages of equity shares are listed below: 1) Potential for profit: - The potential for profit is greater in equity shares then in any other investment security. Current dividend yield may be low but potential of capital gain is great. The total yield or yield to maturity may be substantial over a period of time. 2) Limited liability: - Incorporate form of organization. Its owners have, generally limited. Equity share is usually fully paid. Shareholders may lose their investment but no more. They are not further liable for any failure on the part of the corporation to meet its obligation. 3) Hedge against inflation: - The equity share is a good hedge against inflation thought it does not fully compensate for the declining purchasing power as it is subject to the money rate risk. 4) Free transferability: - The owners of shares have the right to transfer his interest to someone else. The buyer should ensure that the issuing corporation transfer the ownership on its books so that dividend. Voting rights & other privilege will accrue to the new owner. 5) Share in growth: - The major advantage of investment in equity shares is its ability to increase in value by sharing in growth of company profits over the long run. KRISTU JAYANTI COLLEGE Page 11

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks 6) Tax advantage: - Equity shares also offer tax advantage to the investor. The larger yield on equity shares result from an increase in principal or capital gain, which are taxed at lower rate than other incomes in most of the countries. How can one acquire equity shares? The investor can acquire equity share either by the following two ways, 1. 2. Primary market Secondary market

You may subscribe to issues made by corporate in the primary market. In the primary market, resources are mobilized by the corporate through fresh public issues (IPOs) or through private placements. Alternately, you may purchase shares from the secondary market. To buy and sell securities you should approach a SEBI registered trading member (broker) of a recognized stock exchange. 1. Primary market: The primary market provides the channel for sale of new securities. Primary Market provides opportunity to issuers of securities; Government as well as Corporate, to raise resources to meet their requirements of investment and/or discharge some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market. 2. Secondary market: Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. 1.3 Risk "Risk" is the investor's four-letter word. Everybody is risk-averse. Risk can be defined as the chance that the expected or prospective advantage, gain, profit or return may not materialize; that the actual outcome of investment may be less than the expected outcome. KRISTU JAYANTI COLLEGE Page 12

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Risk is composed of demand that brings in variation in return of income. The main force contributing to risk is price. The variance and standard deviations of return serve as the alternative statistical measures of the risk of the security in absolute sense. Similarly covariance measures the risk of the security relative to the other securities in a portfolio. Sources of risk The various sources from which a risk can arise are: 1. Interest rate risk: Variability in securitys return due to changes in the level of interest rates. The price of a security moves inversely to the changes in interest rates. Hence if there is a rise in the interest rate, the price of the security will fall. 2. Market rate risk: Variability in the securitys return due to fluctuations in the securities market. This risk arises as a result of factors that affect the entire economy, e.g recession, war etc. 3. Inflation risk: The reduction in the purchasing power of money due to rise in inflation is referred to as inflation risk. Inflation risk directly affects the interest rate risk as the interest rates increase with rise in inflation. 4. Business risk: It is the risk of doing business in a particular industry or environment. This risk is unique in nature and arises as a result of uncertainties associated with a company or an industry. 5. Financial risk: It is the risk arising due to the use of debt financing (i.e. financial average). It can also be defined as the variability in the return on equity and earnings per share of the firm due to increase in financial leverage. 6. Liquidity risk: It is the risk associated with the secondary market in which the security is traded. Securities like treasury bills which can be sold without a significant price concession are considered to be more liquid.

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks The degree of uncertainty involved can be analyzed using the measures of dispersion. The various measures of dispersion are: 1. Range: It can be computed as the difference between the highest possible return and the lowest possible return. It is not a popular measure of risk as it is based on two extreme values which can (may) misrepresent the actual risk involved. 2. Standard deviation: Standard deviation is an absolute measure of deviation. Its very useful in comparing the risks involved in different projects that have similar outlays. It is defined as the square root of the mean deviations where the deviation is the difference between an outcome and the expected mean value of all outcomes. Further, each deviation is assigned a weight equal to its probability of occurrence. The greater the standard deviation of a probability distribution, the greater is the dispersion or the variability of the outcomes around the expected (mean) value. Graphically, a distribution having a wider normal distribution indicates greater risk. The total risk in the case of an individual security can be divided into two parts: 1. Diversifiable risk or unsystematic risk: It affects a single asset or only a small group of assets. Since these risks are specific to individual companies or assets, they are sometimes referred to as unique or asset-specific risks. This risk arises from the uncertainties which are unique to individual securities and which are diversifiable if a large number of securities are combined to form well-diversified portfolios. Examples of unsystematic risks: Workers declare strike in a company. The R&D expert of a company leaves. The company is not able to obtain adequate quantity of raw material from the supplier. 2. Non-Diversifiable or systematic risk: It influences a large number of assets, each to a greater or lesser extent. This risk arises on account of economy-wide uncertainties and the tendency of the securities to move together with changes in the market. It is also referred to as market risk. This part of the risk cannot be reduced through diversification. Thus investors are exposed to market risk even when they hold well-diversified portfolios of securities. Examples of Systematic risk: KRISTU JAYANTI COLLEGE Page 14

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks The Reserve Bank of India introduces a restrictive credit policy. The corporate tax is increased.

1.4 Risk Seeking Risk seekers will take choices that involve greater potential loss and/or a higher probability of a loss, and at the evaluation stage, risk seekers tend to take information at face value (Mullen & Roth, 1991). Risk seekers typically underestimate risk in the sense that they tend to overestimate gains and underestimate losses. At the earliest stage of problem recognition, risk seekers perceive risks as being lower than risk averters. Risk seekers focus more on the opportunities for gain or the potential for gain (Tiegen & Brun, 1997), or they may so behave on account of personality dispositions. Lopes (1987), for example, have suggested a typology based on gain-dominated behaviour versus habitual loss-focused behaviour, distinguishing between risk seeking potential-mindedness on the one hand, versus risk averse security-mindedness on the other. Apart from managerial behaviours, situational characteristics also determine risk-related decision making. March and Shapira (1992) have suggested that people become more aspiration-oriented when they focus on positive goal attainment, otherwise their perceptions and behaviours may be more survival-oriented focusing on losses when their resources are threatened by depletion. 1.5 Risk Aversion Risk averters are more attentive to monitor or track the consequences of their decisions compared to risk seekers, and as a consequence, risk averters tend to demand more information on probabilities, adopting worst-case scenarios (Mullen & Roth, 1991). Risk averters typically overestimate risk in that they tend to overestimate losses and underestimate gains. At the earliest stage of problem recognition, risk averters perceive risks as being higher than risk seekers. Moreover, risk averters focus more on the likelihood of loss or the potential for loss on account of personality dispositions (Tiegen & Brun, 1997), or may have a habitual disposition for loss-focused behaviors that result in risk averse security-mindedness (Lopes, 1987), or may be risk averse and survival-oriented due to resources threatened by depletion (March & Shapira, 1992). 1.6 Return

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks A major purpose of investment is to set a return or income on the funds investment. On a bond an investor expects to receive interest. On a stock, dividends may be anticipated. The investor may expect capital gains from some investments and rental income from house property. Return is the amount or rate of produce, proceeds, gain, fruit and profit which accrues to an economic agent from an undertaking or enterprise or investment. It is a reward for and a motivating force behind investment, the objective of which is usually to maximize return. Return on a typical investment has to components; the basic one which is the periodic cash or income receipts, either inters toe dividend; and the other which is the appreciation or depreciation in the price of value of the asset, called the capital gain or the capital loss. The capital gain is the difference between the purchase price of the asset and the price at which it can be or is sold. The income component is usually but not necessarily received in cash viz., stock dividend. The total return on an investment thus can be defines as income plus/minus appreciation/depreciation. Types of return: 1. 2. 3. Expected return Rate of return Holding period return

1) Expected return: The expected rate of return is the weighted average of all possible return multiplied by their respective probabilities. Expected return is the estimation of the value of an investment, including the change in price and any payments or dividends, calculated from a probability distribution curve of all possible rates of return. In general, if an asset is risky, the expected return will be the risk-free rate of return plus a certain risk premium, also called expected value. The average of a probability distribution of possible returns, calculated by using the following formula: Expected Return E(R) = (R P) Page 16

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Where, R= return & P= probability

2) Rate of return: In finance, Rate of Return (ROR) or return on investment (ROI) is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is also known as rate of profit, rate of return or return. ROI is the return on a past or current investment, or the estimated return on a future investment. ROI is usually given as a percent rather than decimal value... However, ROI is most often stated as an annual or annualized rate of return, and it is most often stated for a calendar or fiscal year Rate of return for the given period is calculated by using the formula:

Annual income + (Ending price Beginning price) Rate of return = ----------------------------------------------------------------Beginning price 100

3) Holding period return: Holding period yield (HYP) measures the total return an investment during a given or designing time period in which the asset is held by the investor. It is to be noted that HYP does not mean that the security is actually sold and the gain or loss is actually realized by the investor. The concept of HYP is applicable whether one is measuring the realized return or estimated the future return. Risk and Return play an important role in making any investment decision. One basic premise regarding risk and returns is that investors like returns and dislike risk. People invest in riskier assets if they expect to receive more than average returns. This study aims at analysing the opportunities that are available for investors as far as returns are concerned and KRISTU JAYANTI COLLEGE Page 17

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks the involvement of risk thereof while investing in equity of firms belonging to different sectors of the Indian economy.

1.7 The Relationship between Risk and Return Generally the higher the risk of the asset class, the higher the potential returns over the long term. High growth assets High growth assets tend to achieve a higher return over the long term, but have a higher level of risk in the short term. High growth assets such as shares can achieve double digit returns in one year but have the ability to dive to single digit or even negative returns in another year. If you have a long investment timeframe, then you may like to consider investing in high growth assets to maximise the potential growth of your investment. Low growth assets Sometimes called defensive or conservative assets, they generally earn lower returns over the long term; however they have a correspondingly lower level of risk. The possibility of a negative return is minimised as low growth assets generally produce consistently low but stable returns. If you only have a short investment timeframe then you may like to consider protecting your investment with the security of conservative assets in your portfolio. Now in today's day this is a very good question. Economists of the old school will tell you that when one invests if you want to get the most out of your return in the shortest possible time the best thing to do is to invest in a high risk investment like bonds. Now current history will show that sometimes you can be risking in "air" because your return in truth and in fact is dependent on production not interest rates because they rise and fall in a minute. Even if a central bank or Reserve like the one in the US keeps interest rates low the banks have their own interest rates which might be based on how much they guess they can get based on a guess as to how much money some people will bank in time enough for the bank to make enough money before some people hopefully less will come to the bank to withdraw money expecting an interest which should be less than the bank will earn from KRISTU JAYANTI COLLEGE Page 18

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks lending money but could be more if the bank has to be reducing interest to attract more money from people who want higher interest. Get the point this is a money Chance which is exacerbated when money is printed and printed because there is no real production going on so people are grabbing for 'air". It's important to understand a few investment basics before you start to invest. Three major things to be aware of are:

the different types of investments and how they perform the relationship between risk and return Why diversification is essential for a sound investment strategy

All investments provide a certain level of return and are subject to a certain level of risk. Basically this means that as well as making money on your investment there's also a chance you could either lose money or not make as much as you expected. As a general rule, the larger the potential investment return, the higher the investment risk, and the longer you need to remain invested to reduce that risk. This chart shows the various types of investments and where they sit on the risk and return spectrum. Cash provides lower returns and has lower risk of loss, while overseas shares provide higher returns but they also carry a higher risk of loss.

Figure 1.1 Risk and Return Meter

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How to manage investment risk The amount of risk involved with an investment can be managed by matching it appropriately with the length of time you have available to invest and your tolerance toward fluctuations in returns. For example, if you are saving for a house deposit and have only 12 months to go before you reach your goal, you would probably be unwilling to risk losing any of that money it would make sense to avoid investing it in growth investments and consider income investments instead. If, however, you're investing your superannuation and you're not retiring for 15 years, you could ride out any short term losses in growth markets in order to achieve potentially higher returns over time. All investments involve some level of risk. Even if you choose the least risky investment, cash could still run the risk of inflation eroding the value of your capital, which means your money will buy less as time goes by, or falling interest rates which will reduce the level of your return. It's tempting, for retirees in particular, to use defensive investments exclusively when you're worried about maintaining the security of your capital over a long period. However, unless you include a proportion of growth investments with those defensive investments, you could

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks likely find that you're appreciably worse off five or ten years down the track, struggling to make your income stretch as far as it once did. As you can see, the amount of time you have available to invest makes a significant impact on your true level of investment risk. Apart from considering your investment timeframe, another effective way to manage investment risk is to consider spreading your money across various types of investments rather than relying on just one type of investment to meet your goals. This is called diversification and it is a strategy that is commonly used to reduce risk. When selecting your investments, along with considering your investment timeframe it's also important to reflect on your own personal tolerance level for investment risk. You need to make sure you'll feel comfortable with the amount of risk you're taking and the potential consequences of your investment decisions. Some people can remain relaxed while their account balance fluctuates wildly, while others are nervous if their account shows even the tiniest drop in value. If you're going to be awake at night worrying about your investments, no matter what returns you earn they're not likely to be worth the personal cost. There are many factors which affect your level of tolerance for investment risk:

Your reasons for investing Your performance expectations How long you intend to invest (timeframe) Your knowledge of investment markets and past experiences How you feel about sudden increases and decreases in the value of your investments

Seek advice on the investments that will suit you Whether you're an expert or novice investor, good advice is important. Commonwealth Financial Planners specialize in helping you make the right investment decisions. A Commonwealth Financial Planner will explain the risks of various investments and help you determine your tolerance for risk. They will then work with you to develop an appropriate financial plan designed to achieve your personal financial goals. KRISTU JAYANTI COLLEGE Page 21

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks We should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment. Investment products are subject to investment risk including the loss of income and capital invested. 1.8 Risk and Expected Return The last half of the twentieth century was a golden era for US equity investors. From 1950 through 1999 the S&P 500 Index produced annualized returns of 13.6% per annum, or a real rate of 9.2% per annum. Even more impressive are the returns of the last quarter of that century. From 1975 through 1999 the S&P 500 Index produced an annualized return of 17.2%, and a real rate of return of 11.8%. That is the good news. The bad news is that for todays investors the result of those great returns is that today future expected returns are now much lower. Unfortunately, most investors dont understand the math of investing. They mistakenly simply extrapolate past returns into the future. This is illogical as is demonstrated by the following example. From 1926 through 1974 (the bottom of the worst bear market in post-war history) the S&P 500 returned 8.5% per annum. An investor simply extrapolating into the future would project future returns of 8.5% per annum. By 1999 the returns since 1926 had increased to 11.3% per annum. An investor simply extrapolating returns would now project returns of 11.3%. But prices paid for the same assets were much higher now. P/E ratios had risen to more than double their historic averages. And dividend yields had fallen to a small fraction of their historical levels. How can one logically expect higher returns when paying much higher prices for the same assets? It is not logical. Todays higher prices reflect a lower perception of risk and lower future returns, not higher future returns. Making this mistake of simply extrapolating past return can lead to very poor decisions about the need to save. Lets explore the nature or risk and reward and how the price you pay impacts returns.

Every investor has a basic understanding of the nature of risk and reward. The relationship is positively correlated-in order to attract investors to take more risk they must be expects higher returns. The key word is expected. If the higher expected returns were guaranteed, there would be no risk. The risk is that the higher returns may not be achieved. For example, risky companies do default on debt and they do go bankrupt, wiping out equity holders. The greater the perceived risk, the higher the expected return must be. The higher expected return is KRISTU JAYANTI COLLEGE Page 22

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks reflected in a lower valuation of the asset. Conversely, the lower the perceived risk, the lower the expected return must be, as investors willingly pay more to achieve lower risk. There is only one way to achieve spectacularly high returns like those achieved by US investors in the latter half of the last century-you must start out with the price of assets at very distressed levels, and end up with them at very elevated levels. This is exactly what happened. Lets go to the videotape to see how the world looked in 1950. As we entered the second half of the last century, what kind of investment climate did investors perceive? The US had just experienced two world wars and a great depression. The Korean conflict was brewing and communism was a great threat. Europe and Japan were in ruins. Not exactly a world safe for democracy, let alone equity investing. Those investors courageous enough to invest in equities would have been rewarded over the previous 21 years, from 1929 through 1949, with an annualized rate of return of just 3.8%, or a real rate of just 2.2% per annum. Not exactly rates of return that would excite todays investors. Clearly the world was a very risky place, and prices reflected that risk. The world turned out to be a far less risky a place than it was perceived at the time (remember we dont have clear crystal balls). Capitalism and democracy won out. Russia collapsed. The SEC dramatically improved the regulatory environment, making investing safer. And, the economy grew with only one major interruption, the oil induced recession of 1973 and 1974. The change in perception of risk led to investors requiring a much lower risk premium to entice them to invest in equities. This reduction in the size of the risk premium demanded provided a very large one-time capital gain to investors. The offset is that the now lower perception of risk translates into much higher prices and, of course, much lower expected returns going forward. It cannot be any other way. The following analogy should help clarify this issue. A bond investor purchases for $100 a bond of a risky company paying $12 in interest (yield is 12%). The next day the company is acquired by another company with a much better credit rating (lower risk). The rate on the new companys bonds is just 6%. The market price of our investors bond will rise to $200, reflecting the lower risk of the acquiring company. This provides a one-time capital gain. However, the ongoing return is now 6%, not 12%. This is analogous to what happened to US stock prices. The world was perceived to be very risky. Prices were very low (expected returns were very high). KRISTU JAYANTI COLLEGE Page 23

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks The world turned out to be less risky than perceived at the time and investors began to lower the premium they demanded to accept the risk of equity investing. Prices rose, providing the dramatic returns investors experienced. However, those spectacular returns are not repeatable, unless the perception of risk where to once again fall by similar amounts, something that is virtually impossible as we shall see. The high prices we now have reflect a low perception of risk, and thus low expected returns. Of course, the world could turn out to be far more risky than currently perceived. The result would be the reverse of the experience of the last 50 years-we would experience a collapse of prices and then expected returns would once again be higher. Lets turn to the math of investing. Estimating stock returns over the long term is really not that difficult (over the short term it is impossible, market timing is a losers game). The reason is that over the long term earnings ultimately determine stock prices, and corporate earnings tend to be a relatively stable percent of GNP (corporate earnings are unlikely to grow faster than GNP in the long term, or they would crowd out other components of the GNP like welfare, defense, government, wages, etc). If we assume that the GNP will grow at a rate of about 3% per annum (about the very long-term historical average) we can estimate equity returns by simply adding to that rate the dividend yield provided by stocks. Today that rate is about 1.5%. Add 3% to that and we get an expected real rate of return to stocks of about 4.5%. If we add to that rate the expected rate of inflation (observable by subtracting the yield on TIPS from the bond yield) we get a nominal rate of return of about 6%. Note that the real estimated return of 4.5% is less than one-half the real rate earned from 1950 through 1999, and less than 40% of the real rate earned from 1975 through 1999. Investors simply extrapolating returns are highly likely to be disappointed. Investors depending upon those high rates in order to retire, are highly likely to find themselves working a lot longer or living a much lower than desired lifestyle. Those forecasting higher returns must be assuming either a further drop in the risk premium (highly unlikely as we shall shortly see) or faster earnings growth. Can the economy grow faster than 3%, generating faster earnings growth? Sure, anything is possible. But the historical evidence suggests that 3% is a very good estimate. And, even if it were to grow much faster, say 4%, it would only add 1% to returns. And, it would not be prudent for

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks investors making retirement plans to count on faster than historical growth occurring (they might end up broke). There is another important caveat to our forecast of an expected real return of 4.5%. It is dependent on an important assumption. That assumption is that the risk premium demanded by investors remains unchanged. Given that we have currently have a virtually riskless instrument, called TIPS, yielding in excess of 3%, it seems highly unlikely that the equity risk premium, currently estimated at about 4.5%, could fall. After all, why would any rational person take the risk of equities without a compensating risk premium, which currently appears to be only about 1%? It seems that with this low a premium, current equity prices reflect almost a perfect world, with little perception of risk (despite the events of September 11, 2001). On the other hand, it seems quite possible that investors could once again demand a higher risk premium (the world could turn out to be more risky). If this were to occur we would see a one-time drop in equity prices, and then once again higher expected returns, reflecting that now greater perception of risk. Returning to our bond example, it would be as if a highly rated company paying 6% on its bonds where to be acquired by a poorly rated company that had to pay 12% on its bonds. A $100 dollar bond paying $6 in interest would immediately drop in price to $50 (one-time capital loss), but the expected future return would now be 12%. Bear markets, restore equity premiums, bull markets deteriorate them. We believe that it is extremely important for investors to have a working knowledge of financial history (or rely on an advisor that does). The reason is that there is nothing new, only the history you dont know. Knowledge of financial history enables an investor to avoid the clarion call of this time its different. The low forecasted returns to equities are not unusual. Todays valuations are very similar to those that prevailed in the in 1968 when the nifty-fifty and technology bubble broke. The very high prices implied very low future returns. And, that is exactly what occurred. For the period 1968 through 1984 large growth stocks returned 5.8% per annum, 1.1% below the rate of inflation, and 3.1% below the rate of return on riskless, government insured, bank CDs. The risk premium was restored to equity markets, allowing for the spectacular returns of the last quarter of the century, when the S&P 500 Index fell 14.7% in 1973 and a further

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks 26.5% in 1974. The now lower prices meant higher future expected returns. Those that do not know their history are doomed to repeat it. It is important to understand that all of the above analysis is done at the broad market level. The small cap premium and the value premium are still alive and well. Those investors gaining exposure to those asset classes have higher expected returns than indicated above. In addition, those asset classes never experienced quite the bubble that did the large cap asset class, thus their risk premiums never eroded to quite the same levels. Thus we would expect that going forward the small and value premiums would be at least as large as they have been historically (unless of course the risk shows up, remember there are no guarantees). To summarize:

Spectacular returns require that prices start at very distressed levels, a time when most people are afraid to invest in equities. Only bold and disciplined investors benefit.

Very high prices must reflect both a very low perception of risk and low expected returns.

There is a rational limit to how low equity premiums can fall (the benchmark riskless rate on TIPS). This does not mean, however, that prices cannot rise above that level temporary. In other words, greed and irrationality sometimes take over markets-it is called a bubble.

Current prices reflect very low expected future returns. Prudent investors build into their plans these low expected returns in order to have the greatest chance of achieving their financial goals (or they adjust their goals accordingly).

Investors should be prepared to adjust their investment/spending decisions on an ongoing basis as capital market returns impact their portfolios. A bull market leading to high returns can lower the need to take risk. Investors benefiting from that bull market should consider lowering their equity allocation accordingly (especially since expected future returns are now lower). Investors now expecting lower future returns may need to either increase their savings, or lower their financial goals accordingly. Ignoring market valuations is not prudent investing.

Bear markets restore risk premiums. Page 26

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Young investors should root for a bear market so that future returns will be higher. Older investors should be very conservative in their equity allocations given the likelihood of low expected returns. If your need to take risk is low, taking it when risk premiums are low is certainly not prudent investing.

1.10 Statistical Tools used for Calculation of Volatility

Beta () Beta measures the non diversifiable risk. Beta shows how the price of a security responds to market forces. In effect, the more responsive the price of security is to changes in the market, the higher will be its beta. Beta is calculated by relating the returns on security with the return for the market. It can positive or negative. Beta for each stock calculated using daily opening and closing share price of each company corresponding daily Bombay Stock Exchange Sensex. First, rate of returns of companies and Bombay Stock Exchange Sensex are calculated. The calculations as follows:

Rate of return =

share price in the closing share price at the opening ------------------------------------------------------------------------- *100 Share price in the opening

Computation of Beta: =NXY-(X) (Y) --------------------------------KRISTU JAYANTI COLLEGE Page 27

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks N (X) - (X)

Standard Deviation (S.D) This is the most commonly used measure of risk in fianc. Its square also is widely used to find out the risk associated with a security.

Standard Deviation=

(X-X1)/N

Coefficient of Correlation Coefficient of Correlation is a statistical technique, which measures the degree or extent to which two or, more variables fluctuate with reference to one another. Correlation analysis helps in determining the degree of relationship between two variables but correlation does not always imply cause and effect relationship.

The Coefficient of Correlation is essentially the covariance taken not as an absolute value but relative to the standard deviations of the individual securities. It indicates, in effect, how much x and y vary together as a proportion of their combined individual variations, measured by SD of x multiplied by SD of y.

r=

N [{(NY)-(Y)}{NX- (X)}

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CHAPTER- II RESEARCH DESIGN


2.1 Title of the Study Title of the Study is, A Comparative Analysis on Risk and Return of Top 10 Companies Stocks.

2.2 Statement of the Problem In the current economic scenario interest rates are falling and fluctuation in the share market has put investors in confusion. One finds it difficult to take decision on investment. This is primarily, because investments are risky in nature and investors have to consider various factors before investing in investment avenues. Therefore the study aims to compare stocks of Top 10 companies from different sectors like Technology, Automobiles, Banking, Pharmaceuticals, Oil Sectors & etc in the form of their risk, return & liquidity and also creating awareness about Stocks among the investors to invest in the particular sector.

2.3 Objectives of the Study The Objective of the Study are as follows: 1. 2. To compare Top ten Companies in respect to their risk & return. To analyze the performance of Stocks on Top ten companies with respect to their Fundamentals. 3. 4. To find the Volatility of Shares using Beta. To find out the relationship between risk and return of Top ten companies Stocks.

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2.4 Scope of the Study The project primarily deals with comparative study on risk and return of top ten companies stocks. The study is limited to compare equity shares in respect of their risk, return and liquidity. The study will covers Top ten companies stocks in India for comparison among the respective companies. Other companies performance indicators are not considered.

2.5 Methodology The whole study can be termed as Comparative study. It is also a desk research hence there is no field work and collection of primary data for this research. The study is based on comparing Stocks among top ten Companies (TCS, Maruti, SBI, Sun Pharma, ONGC & etc.) in respect to their risk, return, beta and standard deviation. However, with the objective and scope of the study in mind, it is decided to study on return series of selected stocks. Monthly closing prices of the selected scripts are to be collected from historical data. In order to avoid bias, at least three years monthly data is decided to be necessary. The reference period is from 1st Jan, 2007 to 31st Dec, 2009. Basically whole data analysis has been performed using spreadsheet in Excel by using different statistical functions inbuilt in Excel. Statistical functions of Beta, Standard Deviation, Correlation Coefficient and other similar techniques will be used for data analysis.

2.6 Limitations of the Study The most important limitation of this study is that it considers only Sensex companies listed in Bombay Stock Exchange. The BSE Sensex consists of 30 scripts. So it does not truly reflect as a whole. Hence there is a limitation that the true returns from the market are not reflected indices.

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks 2.7 Chapter Scheme Chapter 1: Introduction This chapter introduces to the risk-return analysis of Top ten companies stocks from different sectors which is been included in BSE Sensex. It covers Stocks, Evolution of Equity Market in India, Risk, Risk Aversion, Risk Seeking, Return and Relationship between Risk and Return. Chapter 2: Research Design This chapter covers the introduction to the Title of the study, Statement of the problem, Objective of the study, Scope of the study, Methodology, Limitation of the study and Chapter scheme. It gives an overview of the plan of the statement. Chapter 3: Profile This chapter gives the introduction to the industry profile of different sectors listed in the BSE Sensex and company profile of different companies listed in BSE Sensex. Chapter 4: Analysis and Interpretation This chapter covers the analysis and interpretation of the data collected through secondary data and the issues raised by the objective of the study Chapter 5: Findings, Conclusion and Suggestion/Recommendation This chapter provides the results of the study conducted. It also covers the conclusions and the recommendations provided by the researcher to the company.

CHAPTER III
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PROFILES
3.1 Industry Profile This part of the chapter covers the profile of the different sectors which are listed in BSE Sensex. 3.1.1 Information Technology in India The information technology (IT) industry has become of the most robust industries in the world. IT, more than any other industry or economic facet, has an increased productivity, particularly in the developed world, and therefore is a key driver of global economic growth. Economies of scale and insatiable demand from both consumers and enterprises characterize this rapidly growing sector. The Information Technology Association of America (ITAA) explains 'information technology' as encompassing all possible aspects of information systems based on computers. Both software development and the hardware involved in the IT industry include everything from computer systems, to the design, implementation, study and development of IT and management systems. Owing to its easy accessibility and the wide range of IT products available, the demand for IT services has increased substantially over the years. The IT sector has emerged as a major global source of both growth and employment.

Features of the IT Industry at a Glance 1. Economies of scale for the information technology industry are high. The marginal cost of each unit of additional software or hardware is insignificant compared to the value addition that results from it. 2. Unlike other common industries, the IT industry is knowledge-based.
3. Efficient utilization of skilled labor forces in the IT sector can help an economy

achieve a rapid pace of economic growth.

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks 4. The IT industry helps many other sectors in the growth process of the economy including the services and manufacturing sectors.

The role of the IT Industry The IT industry can serve as a medium of e-governance, as it assures easy accessibility to information. The use of information technology in the service sector improves operational efficiency and adds to transparency. It also serves as a medium of skill formation.

MAJOR STEPS TAKEN FOR PROMTION OF IT INDUSTRY A wide variety of services come under the domain of the information technology industry. Some of these services are as follows: 1. Systems architecture 2. Database design and development

3. Networking 4. Application development 5. Testing 6. Documentation 7. Maintenance and hosting 8. Operational support 9. Security services

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3.1.2 Indian Banking Sector Industry profile helps to gain an insight into the evolution of the industry and competitive dynamics prevalent in the market. It discusses the significant developments in the industry and analyzes the key trends and issues. The profile provides inputs in strategic business planning of industry professionals. This profile is of immense help to management consultants, analysts, market research organizations and corporate advisors. The objective and scope of various sections of our industry profile has been discussed below. Industry Snapshot This section gives a holistic overview of the industry. It starts with defining the market and goes on to give historical and current market size figures. It also clearly illustrates the major segments of the market which would be discussed later on in the report. Industry Analysis It involves a comprehensive analysis of the industry and its market segments. This section discusses the key developments that have taken place in the industry. It also identifies and analyzes the driving factors and challenges of the industry. A description of the regulatory structure tells us about the major regulatory bodies, laws and government policies. Country Analysis This section presents the key facts & figures of the country. It also discusses the political environment and the macroeconomic indicators. It analyzes government stability and economic growth of the country. Competitor Assessment This section compares the major competitors in the industry. The Competitors At-a-Glance is aimed at giving an overview of the competitive landscape in the industry. Industry Outlook

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks This section presents the outlook of the industry. The analyst opinion and projections help us in evaluating the future of the industry. It gives an insight into the investment opportunities present in the sector. 3.1.3 Automobile Industry in India Automobile Industry in India has witnessed a tremendous growth in recent years and is all set to carry on the momentum in the foreseeable future. Indian automobile industry has come a long way since the first car ran on the streets of Bombay in 1898. Today, automobile sector in India is one of the key sectors of the economy in terms of the employment. Directly and indirectly it employs more than 10 million people and if we add the number of people employed in the auto-component and auto ancillary industry then the number goes even higher. The automobile industry comprises of heavy vehicles (trucks, buses, tempos, tractors); passenger cars; and two-wheelers. Heavy vehicles section is dominated by Tata-Telco, Ashok Leyland, Eicher Motors, Mahindra and Mahindra, and Bajaj. The major car manufacturers in India are Hindustan Motors, Maruti Udyog, Fiat India Private Ltd., Ford India Ltd., General Motors India Pvt. Ltd., Honda Siel Cars India Ltd., Hyundai Motors India Ltd., and Skoda India Private Ltd., Toyota Motors, Tata Motors etc. The dominant players in the two-wheeler sector are Hero Honda, Bajaj, TVS, Honda Motorcycle & Scooter India (Pvt.) Ltd., and Yamaha etc. In the initial years after independence Indian automobile industry was plagued by unfavourable government policies. All it had to offer in the passenger car segment was a 1940s Morris model called the Ambassador and a 1960s Suzuki-derived model called the Maruti 800. The automobile sector in India underwent a metamorphosis as a result of the liberalization policies initiated in the 1991. Measures such as relaxation of the foreign exchange and equity regulations, reduction of tariffs on imports, and refining the banking policies played a vital role in turning around the Indian automobile industry.

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Until the mid 1990s, the Indian auto sector consisted of just a handful of local companies. However, after the sector opened to foreign direct investment in 1996, global majors moved in.

Automobile industry in India also received an unintended boost from stringent government auto emission regulations over the past few years. This ensured that vehicles produced in India conformed to the standards of the developed world. Indian automobile industry has matured in last few years and offers differentiated products for different segments of the society. It is currently making inroads into the rural middle class market after its inroads into the urban markets and rural rich. In the recent years Indian automobile sector has witnessed a slew of investments. India is on every major global automobile player's radar. Indian automobile industry is also fast becoming an outsourcing hub for automobile companies worldwide, as indicated by the zooming automobile exports from the country. Today, Hyundai, Honda, Toyota, GM, Ford and Mitsubishi have set up their manufacturing bases in India. Due to rapid economic growth and higher disposable income it is believed that the success story of the Indian automobile industry is not going to end soon. Some of the major characteristics of Indian automobile sector are: Second largest two-wheeler market in the world. Fourth largest commercial vehicle market in the world. 11th largest passenger car market in the world Expected to become the world's third largest automobile market by 2030, behind only

China and the US.

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3.1.4 Oil & Natural Gas Industry in India The Role of Oil and Natural Gas Industry in India GDP is very significant as it is one of the biggest contributors to both the Central and State treasuries. India is the 6th largest consumer of petroleum. By the year 2010, India is expected to rank 4th in terms of consumption of energy. The contribution of the Indian Oil and Natural Gas Industry is nearly US$ 13.58 billion. All of the oil refineries in India, apart from two are operated by the states. The total refinery output in the period 2005-06 was 130.11 million tonnes. The growth rate of the refinery output was increased by 2.1 % in the year 2005-06. The crude oil output at the end of 2006-07 was 33.98 million tonnes. The growth rate of the crude oil output was increased by 5.6% in the year 2006-07. The production of natural gas in the year 2006-07 was 31.55 billion cubic meters. Indian petroleum demand depends highly on import of oil and natural gas. Around 70% of the demands are fed by the imports of oil and natural gas. The security pertaining to energy has become one of the primary concerns of the Central Government. Presently India is trying to grab a share of the oil and gas fields from Central Asia to Myanmar and Africa The area of interest for the Indian Oil and Natural Gas Industry is to search for petroleum in both offshore and onshore blocks. The cost effective refining in India is attracting the attention of several international players. India is one of the most important markets for petroleum products and crude oil. The crude oil from Middle East is easily transported to India by means of the sea routes Role of Oil and Natural Gas Industry in India GDP-Investments Abroad. India is one of the largest investors in oil fields located abroad Most of the Government owned oil companies have share in the oil and gas fields in different places of the world such as Sudan, Egypt, Libya, Ivory Coast, Vietnam, Myanmar, Russia, Iraq, Qatar, and Australia India has 20 % share in Sakhalin-I oil project in Russia

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks The Oil and Natural Gas Corporation (ONGC) has entered into an agreement with ENI to acquire 20-25 % share of the Congo oil block

3.1.5 Pharmaceuticals Industry in India Pharmaceutical is a knowledge based, technology intensive industry that is uniquely placed to develop and commercialise the outcomes of Australias long term investment in medical research. The Australian pharmaceuticals industry comprises bio-medical research, biotechnology firms, originator and generic medicines companies and service related segments including wholesaling and distribution. The industry employed over 40,000 people (one third in manufacturing) and turned over close to $21 billion in 2008-09. It spent just over $860 million on research and development in 2006-07 and exported $4.03 billion in the 2008-09 financial years. There are over 150 separate firms listed as suppliers to the Pharmaceuticals Benefits Scheme (PBS). The Australian market for pharmaceuticals is small in the context of global demand. While the PBS allows for universal access to prescription products, the size of the population means that sales are small. Australia's population represents 0.4 per cent of the world yet consumes around one per cent of total global pharmaceuticals sales. This means that in 2009 Australia was the 14th largest pharmaceuticals market by sales, while being ranked 36th, in 2009 on population. The expenditure on the PBS by Government has more than doubled over the last 8 years, from $3.2 billion in 1999-2000 to $7 billion (excluding patient contributions) in 2007-08. In 2007-08, the largest firm by PBS sales was Pfizer. Its sales represent 14.2 per cent of the value of total sales made to the PBS. The top 10 suppliers contributed almost 65 per cent of the value of total sales made to the PBS. Alphapharm is the largest firm by number of prescriptions on the PBS (accounting for 15.1 per cent of all prescriptions dispensed under the PBS).

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks The top 10 firms by the number of prescriptions account for a total of around 70 per cent of total prescriptions written. These data suggest that the Australian market is serviced by a variety of suppliers which is consistent with the global industry structure. Industry R&D activity Developing a new drug is expensive. Current estimates of the full cost of bringing a new chemical or biological entity to market are around US$1.3 billion. Longer development and approval times, larger and more complex clinical trials, increased expenditures on new technologies, and shifts in product portfolios towards riskier, more expensive therapeutic categories have contributed to a real increase in the development costs. Pharmaceuticals R&D expenditure is rising. Over the past two decades, the percentage of sales allocated to R&D has increased from 11.9 per cent in 1980 to an estimated 18 per cent in 2006 (for American owned firms). The number of products in development and the number of firms doing R&D are both rising; however R&D productivity continues to fall. The industry spent around $860 million on R&D in Australia in 2006-2007. With 0.4 per cent of the worlds population, Australia produces three per cent of global medical research and has a proud history of six Nobel laureates in medicine: Howard Florey (1945: development of penicillin) Frank Burnet (1960: research on organ transplantation) John Eccles (1963: research on the transmission of nerve impulses) Peter Doherty (1996: discoveries concerning the specificity of the cell mediated

immune defence) Barry Marshall and J. Robin Warren (2005: discovery of the bacterium Helicobacter

pylori and its role in gastritis and peptic ulcer disease). This is in large part due to the importance the Government places on investing in Australian scientific research. This commitment has recently been enhanced through the Government's introduction of a Research and Development Tax Credit in the 2009-2010 Budget.

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks A feature of the Australian innovation system is the relatively high proportion of government expenditure on R&D. In the health and medical area, this funding is allocated through a variety of R&D providers and there is considerable interaction between these entities.

3.1.6 Telecommunications Industry Profile Telecommunications includes voice, video, and Internet communications services. Employment will grow because technological advances will expand the range of services offered. With rapid technological changes in telecommunications, those with up-to-date technical skills will have the best job opportunities. Average earnings in telecommunications greatly exceed average earnings throughout private industry. Whereas wire line telephone communication was once the primary service of the industry, wireless communication services, Internet service, and cable and satellite program distribution make up an increasing share of the industry. Overview The largest sector of the telecommunications industry continues to be made up of wired telecommunications carriers. Establishments in this sector mainly provide telecommunications services via wires and cables that connect customers premises to central offices maintained by telecommunications companies. The central offices contain switching equipment that routes content to its final destination or to another switching centre that determines the most efficient route for the content to take. These companies also maintain the cable network that connects different regions of the country as well as foreign countries, and forms the backbone of the industry. While voice used to be the main type of data transmitted over the wires, wired telecommunications service now includes the transmission of all types of graphic, video, and electronic data mainly over the Internet. These new services are made possible through the use of digital technologies that provide much more efficient use of the telecommunications networks. One major technology breaks KRISTU JAYANTI COLLEGE Page 41

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks digital signals into packets during transmission. Networks of computerized switching equipment route the packets. Packets may take separate paths to their destination and may share the paths with packets from other users. At the destination, the packets are reassembled, and the transmission is completed. Because packet switching considers alternate routes, and allows multiple transmissions to share the same route, it results in a more efficient use of telecommunications capacity as packets are routed along less congested routes. The transmission of voice signals requires relatively small amounts of capacity on telecommunications networks. By contrast, the transmission of data, video, and graphics requires much higher capacity. This transmission capacity is referred to as bandwidth. As the demand increases for high-capacity transmissionsespecially with the rising volume of Internet datatelecommunications companies have been expanding and upgrading their networks to increase the amount of available bandwidth. Cable and other program distribution is another sector of the telecommunications industry. Establishments in this sector provide television and other services on a subscription or fee basis. These establishments do not include cable networks. Distributors of pay television services transmit programming through two basic types of systems. Cable systems transmit programs over fiber optic and coaxial cables. Direct broadcasting satellite (DBS) operators constitute a growing segment of the pay television industry. DBS operators transmit programming from orbiting satellites to customers receivers, known as minidishes. Establishments in the cable and other program distribution industry generate revenue through subscriptions, providing Internet access, providing phone service, and advertising sales. They also charge fees for pay-per-view or video-on-demand programs. Wireless telecommunications carriers, many of which are subsidiaries of the wired carriers, transmit voice, graphics, data, and Internet access through the transmission of signals over networks of radio towers. The signal is transmitted through an antenna into the wireline network. Increasing numbers of consumers are choosing to replace their home landline phones with wireless phones. Other wireless services include beeper and paging services. Resellers of telecommunications services are another sector of the telecommunications industry. These resellers lease transmission facilities, such as telephone lines or space on a KRISTU JAYANTI COLLEGE Page 42

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks satellite, from existing telecommunications networks, and then resell the service to other customers. Other sectors in the industry include message communications services such as e-mail and facsimile services, satellite telecommunications, and operators of other communication services ranging from radar stations to radio networks used by taxicab companies.

3.1.7 FMCG Industry in India FMCG industry provides a wide range of consumables and accordingly the amount of money circulated against FMCG products is also very high. The competition among FMCG manufacturers is also growing and as a result of this, investment in FMCG industry is also increasing, specifically in India, where FMCG industry is regarded as the fourth largest sector with total market size of US$13.1 billion. FMCG Sector in India is estimated to grow 60% by 2010. FMCG industry is regarded as the largest sector in New Zealand which accounts for 5% of Gross Domestic Product (GDP).
Common FMCG products

Some common FMCG product categories include food and dairy products, glassware, paper products, pharmaceuticals, consumer electronics, packaged food products, plastic goods, printing and stationery, household products, photography, drinks etc. and some of the examples of FMCG products are coffee, tea, dry cells, greeting cards, gifts, detergents, tobacco and cigarettes, watches, soaps etc.
Market potentiality of FMCG industry

Some of the merits of FMCG industry, which made this industry as a potential one are low operational cost, strong distribution networks, presence of renowned FMCG companies. Population growth is another factor which is responsible behind the success of this industry.
Leading FMCG companies

Some of the well known FMCG companies are Sara Lee, Nestl, Reckitt Benckiser, Unilever, Procter & Gamble, Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi and Mars etc.
Job opportunities in FMCG industry

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks FMCG industry creates a wide range of job opportunities. This industry is a stable, diverse, challenging and high profile industry providing a wide range of job categories like sales, supply chain, finance, marketing, operations, purchasing, human resources, product development, and general management.

3.1.8 Heavy Electrical Industry in India Heavy Electrical Industry covers power generation, transmission, and distribution and utilization equipments. These include turbo generators, boilers, various types of turbines, transformers, switchgears and other allied items. Majority of the products manufactured by heavy electrical industry in the country, which includes items like transformers, switchgears etc. are used by all sectors of the Indian economy. Some major areas where these are used are the multi core projects for power generation including nuclear power stations, petrochemical complexes, chemical plants, integrated steel plants, non-ferrous metal units, etc. India is the only other developing country besides China, which produces a full range of electric power generation and transmission equipment. In fact, the history and growth of (Bharat Heavy Electricals Ltd.), a public sector enterprise under in the country, symbolizes the overall growth pattern of heavy electrical industry in the country. BHEL has the unique distinction of being one of the very few companies in the world, manufacturing all major power generating equipment under one roof. The industry has been upgrading the existing technology and is now capable of taking up turnkey contracts also for export markets. The industry has been delicensed. Foreign collaborations are allowed with 100 percent FDI. The country is planning to add 150,000 MW power generation capacities in the next 10 years. This will generate substantial demand for heavy electrical equipments. The heavy electrical industry is capable of manufacturing transmission and distribution equipment upto 400 KV AC and high voltage DC. The industry has taken up the work of upgradation and transmission to the next higher voltage system of 765 KV and have upgraded their manufacturing facilities to supply 765 KV class transformers, reactors, CTS, CVT, bushing and insulators, etc. KRISTU JAYANTI COLLEGE Page 44

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks The investments in R & D by the electrical industry are amongst the largest in the corporate sector in India. Large electrical equipment used in steel plants, petrochemical complexes and other such heavy industries are also being manufactured in the country. The domestic heavy electrical equipment manufacturers are making use of the developments of the global market with respect to product designs and upgrading of manufacturing and testing facilities.The heavy electrical industry has established its reference in the global arena also.These encompass thermal, hydro and gas based power plants, substation projects, rehabilitation projects, besides a wide variety of products like transformers, photo voltaic equipments, insulators, switchgears, motors, etc. Turbines and Generator Sets The capacity established for manufacture of various kinds of turbines such as steam & hydro turbines including Industrial turbines is more than 7000 MW per annum in the country. Apart from BHEL, the public sector unit that has the largest installed capacity; there are units in the private sector also manufacturing steam & hydro turbines for power generation and industrial use. The manufacturing range of BHEL includes steam turbines upto 660 MW unit rating and the facilities are available for 1000 MW unit size. They have the capability to manufacture gas turbines upto 260 MW (ISO) rating and gas turbine based Co-generation and Combined Cycle Systems for the industry and utility applications. Custom built conventional hydro turbines of Kaplan, Francis and Pelton types with matching generators are also available indigenously. AC Generators manufactured in India are on par with international AC Generators and consistently deliver high quality power with high performance. Domestic manufacturers are capable of manufacturing AC Generator right from 0.5 KVA to 25,000 KVA and above with specified voltage rating.The imports and exports of turbines and generators during 2005-06 were Rs. 2420 crore and Rs. 565 crore respectively. Transformers The domestic transformer industry is well established with capability to provide state of- theart equipments. The industry has the capacity to manufacture whole range of power and distribution transformers including the REC rating of 25, 53,100 KVA and also the extra High voltage range of 400 kV, 600 MVA. Special types of transformers required for furnaces, rectifiers electric tract etc. and series and shunt reactors as well as HVDC transmission upto

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks 500 kV are also being manufactured in the country. The imports and exports of transformers during 2005-06 were Rs.1800 crores and Rs.1640 crores respectively. Shunting Locomotives Shunting Locomotives for localized/ internal transport facilities are used in railways, steel, plants, thermal power plants, etc. BHELs Jhansi unit among others is manufacturing such locomotives. The installed capacity is adequate to meet the domestic demand. 3.1.9 Indian power sector Introduction The power sector has registered significant progress since the process of planned development of the economy began in 1950. Hydro -power and coal based thermal power have been the main sources of generating electricity. Nuclear power development is at slower pace, which was introduced, in late sixties. The concept of operating power systems on a regional basis crossing the political boundaries of states was introduced in the early sixties. In spite of the overall development that has taken place, the power supply industry has been under constant pressure to bridge the gap between supply and demand. Growth of Indian power sector Power development is the key to the economic development. The power Sector has been receiving adequate priority ever since the process of planned development began in 1950. The Power Sector has been getting 18-20% of the total Public Sector outlay in initial plan periods. Remarkable growth and progress have led to extensive use of electricity in all the sectors of economy in the successive five years plans. Over the years (since 1950) the installed capacity of Power Plants (Utilities) has increased to 89090 MW (31.3.98) from meagre 1713 MW in 1950, registering a 52d fold increase in 48 years. Similarly, the electricity generation increased from about 5.1 billion units to 420 Billion units 82 fold increases. The per capita consumption of electricity in the country also increased from 15 kWh in 1950 to about 338 kWh in 1997-98, which is about 23 times. In the field of Rural Electrification and pump set energisation, country has made a tremendous progress. About 85% of the villages have been electrified except far-flung areas in North Eastern states, where it is difficult to extend the grid supply. Structure of power supply industry KRISTU JAYANTI COLLEGE Page 46

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks In December 1950 about 63% of the installed capacity in the Utilities was in the private sector and about 37% was in the public sector. The Industrial Policy Resolution of 1956 envisaged the generation, transmission and distribution of power almost exclusively in the public sector. As a result of this Resolution and facilitated by the Electricity (Supply) Act, 1948, the electricity industry developed rapidly in the State Sector. In the Constitution of India "Electricity" is a subject that falls within the concurrent jurisdiction of the Centre and the States. The Electricity (Supply) Act, 1948, provides an elaborate institutional frame work and financing norms of the performance of the electricity industry in the country. The Act envisaged creation of State Electricity Boards (SEBs) for planning and implementing the power development programmes in their respective States. The Act also provided for creation of central generation companies for setting up and operating generating facilities in the Central Sector. The Central Electricity Authority constituted under the Act is responsible for power planning at the national level. In addition the Electricity (Supply) Act also allowed from the beginning the private licensees to distribute and/or generate electricity in the specified areas designated by the concerned State Government/SEB. During the post independence period, the various States played a predominant role in the power development. Most of the States have established State Electricity Boards. In some of these States separate corporations have also been established to install and operate generation facilities. In the rest of the smaller States and UTs the power systems are managed and operated by the respective electricity departments. In a few States private licencees are also operating in certain urban areas. From, the Fifth Plan onwards i.e. 1974-79, the Government of India got itself involved in a big way in the generation and bulk transmission of power to supplement the efforts at the State level and took upon itself the responsibility of setting up large power projects to develop the coal and hydroelectric resources in the country as a supplementary effort in meeting the countrys power requirements. The National thermal Power Corporation (NTPC) and National Hydro-electric Power Corporation (NHPC) were set up for these purposes in 1975. NorthEastern Electric Power Corporation (NEEPCO) was set up in 1976 to implement the regional power projects in the North-East. Subsequently two more power generation corporations were set up in 1988 viz. Tehri Hydro Development Corporation (THDC) and Nathpa Jhakri Power Corporation (NJPC). To construct, operate and maintain the inter-State and interregional KRISTU JAYANTI COLLEGE Page 47

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks transmission systems the National Power Transmission Corporation (NPTC) was set up in 1989. The corporation was renamed as POWER GRID in 1992.

3.1.10 Cement Industry in India Cement Industry in India is on a roll at the moment. Driven by a booming real estate sector, global demand and increased activity in infrastructure development such as state and national highways, the cement industry has witnessed tremendous growth. Production capacity has gone up and top cement companies of the world are vying to enter the Indian market, thereby sparking off a spate of mergers and acquisitions. Indian cement industry is currently ranked second in the world. The origins of Indian cement industry can be traced back to 1914 when the first unit was setup at Porbandar with a capacity of 1000 tonnes. Today cement industry comprises of 125 large cement plants and more than 300 mini cement plants. The Cement Corporation of India, which is a Central Public Sector Undertaking, has 10 units. There are 10 large cement plants owned by various State Governments. Cement industry in India has also made tremendous strides in technological up gradation and assimilation of latest technology. Presently, 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology. The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materials substantially. Indian cement industry has also acquired technical capability to produce different types of cement like Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc. Some of the major clusters of cement industry in India are: Satna (Madhya Pradesh), Chandrapur (Maharashtra), Gulbarga (Karnataka), Yerranguntla (Andhra Pradesh), Nalgonda (Andhra Pradesh), Bilaspur (Chattisgarh), and Chandoria (Rajasthan).

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Cement industry in India is currently going through a consolidation phase. Some examples of consolidation in the Indian cement industry are: Gujarat Ambuja taking a stake of 14 per cent in ACC, and taking over DLF Cements and Modi Cement; ACC taking over IDCOL; India Cement taking over Raasi Cement and Sri Vishnu Cement; and Grasim's acquisition of the cement business of L&T, Indian Rayon's cement division, and Sri Digvijay Cements. Foreign cement companies are also picking up stakes in large Indian cement companies. Swiss cement major Holcim has picked up 14.8 per cent of the promoters' stake in Gujarat Ambuja Cements (GACL). Holcim's acquisition has led to the emergence of two major groups in the Indian cement industry, the Holcim-ACC-Gujarat Ambuja Cements combine and the Aditya Birla group through Grasim Industries and Ultratech Cement. Lafarge, the French cement major has acquired the cement plants of Raymond and Tisco. Italy based Italcementi has acquired a stake in the K.K. Birla promoted Zuari Industries' cement plant in Andhra Pradesh, and German cement company Heidelberg Cement has entered into an equal joint-venture agreement with S P Lohia Group controlled Indo-Rama Cement. Issues concerning Cement Industry High Transportation Cost is affecting the competitiveness of the cement industry.

Freight accounts for 17% of the production cost. Road is the preferred mode for transportation for distances less than 250km. However, industry is heavily dependent on roads for longer distances too as the railway infrastructure is not adequate. Cement industry is highly capital intensive industry and nearly 55-60% of the inputs

are controlled by the government. There is regional imbalance in the distribution of cement industry. Limestone

availability in pockets has led to uneven capacity additions. Coal availability and quality is also affecting the production.

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks

3.2 Company Profile This part of the chapter covers the profile of the companies which are listed in BSE Sensex. 3.2.1 TCS Tata Consultancy Services (TCS) is a software services and consulting company head quartered in Mumbai, India. TCS is the largest provider of information technology and business process outsourcing services in India. The company is listed on the National Stock Exchange and Bombay Stock Exchange in India. TCS is a subsidiary of one of the Indias largest and oldest conglomerates, the Tata Group, which has interests in areas such as energy, telecommunications, financial services, manufacturing, chemicals, engineering, materials, government and healthcare. Tata Consultancy Services was established in the year 1968 and is a pioneer in the Indian IT industry. Despite unfavourable government regulations like the Licence Raj the company succeeded in establishing the Indian IT Industry. It began as the "Tata Computer Centre", a division of the Tata Group whose main business was to provide computer services to other group companies. F C Kohli was the first general manager. JRD Tata was the first chairman, followed by Nani Palkhivala. One of TCS' first assignments was to provide punch card services to a sister concern, Tata Steel (then TISCO). It later bagged the country's first software project, the Inter-Branch Reconciliation System (IBRS) for the Central Bank of India. It also provided bureau services to Unit Trust of India, thus becoming one of the first companies to offer BPO services.

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks TCS has development centres and/or regional offices in the following Indian cities: Ahmedabad, Bangalore, Bhubaneswar, Chennai, Coimbatore, Delhi, Gandhinagar, Goa, Gurgaon, Guwahati, Hyderabad, Jaipur, Jamshedpur, Kochi, Kolkata, Lucknow, Mumbai, Noida, Pune, and Thiruvananthapuram. TCS is considered one of the largest private sector employers in India with core strength in excess of 160,000 individuals. TCS has one of the lowest attrition rates in the Indian IT industry.

3.2.2 State Bank of India (SBI) State Bank of India (SBI) is the largest bank in India. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. The Government of India nationalised the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the Government took over the stake held by the Reserve Bank of India. SBI provides a range of banking products through its vast network in India and overseas, including products aimed at NRIs. The State Bank Group, with over 16,000 branches, has the largest branch network in India. With an asset base of $250 billion and $195 billion in deposits, it is a regional banking behemoth. It has a market share among Indian commercial banks of about 20% in deposits and advances, and SBI accounts for almost one-fifth of the nations loans. SBI has tried to reduce over-staffing by computerizing operations and Golden handshake schemes that led to a flight of its best and brightest managers. These managers took the retirement allowances and then went on to become senior managers in new private sector banks. The State bank of India is the 29th most reputed company in the world according to Forbes. State Bank of India is one of the Big Four Banks of India with ICICI Bank, Axis Bank and HDFC Bank. State Bank of India has often acted as guarantor to the Indian Government, most notably during Chandra Shekhar's tenure as Prime Minister of India. With 11,448 branches and a KRISTU JAYANTI COLLEGE Page 51

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks further 6500+ associate bank branches, the SBI has extensive coverage. State Bank of India has electronically networked all of its branches under Core Banking System (CBS). The bank has one of the largest ATM networks in the region, with more than 9000 ATMs across India. The State Bank of India has had steady growth over its history, though it was marred by the Harshad Mehta scam in 1992. In recent years, the bank has sought to expand its overseas operations by buying foreign banks. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating and various other rankings.

3.2.3 Maruti Suzuki Maruti Suzuki India Limited is a publicly listed automaker in India. It is the largest automobile manufacturer in South Asia. Suzuki Motor Corporation of Japan holds a majority stake in the company. It was the first company in India to mass-produce and sell more than a million cars. It is largely credited for having brought in an automobile revolution to India. It is the market leader in India and on 17 September 2007, Maruti Udyog Limited was renamed Maruti Suzuki India Limited. The company's headquarters are located in Delhi. Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the car segment, both in terms of volume of vehicles sold and revenue earned. Until recently, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan. The Indian government held an initial public offering of 25% of the company in June 2003. As of 10 May 2007, Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog. Maruti Udyog Limited (MUL) was established in February 1981, though the actual production commenced in 1983 with the Maruti 800, based on the Suzuki Alto kei car which at the time was the only modern car available in India, its' only competitors- the Hindustan Ambassador and Premier Padmini were both around 25 years out of date at that point. Through 2004, Maruti Suzuki has produced over 5 Million vehicles. Maruti Suzuki are sold in India and various several other countries, depending upon export orders. Models similar to Maruti Suzuki (but not manufactured by Maruti Udyog) are sold by Suzuki Motor Corporation and manufactured in Pakistan and other South Asian countries. The company annually exports more than 50,000 cars and has an extremely large domestic market in India selling over 730,000 cars annually. Maruti 800, till 2004, was the India's KRISTU JAYANTI COLLEGE Page 52

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks largest selling compact car ever since it was launched in 1983. More than a million units of this car have been sold worldwide so far. Currently, Maruti Suzuki Alto tops the sales charts and Maruti Suzuki Swift is the largest selling in A2 segment. Due to the large number of Maruti 800s sold in the Indian market, the term "Maruti" is commonly used to refer to this compact car model. Till recently the term "Maruti", in popular Indian culture, in India Hindu's lord Hanuman is known as "maruti", was associated to the Maruti 800 model. 3.2.4 ONGC ONGC (Oil and Natural Gas Corporation Limited) is India's leading oil & gas exploration company. ONGC has produced more than 600 million metric tonnes of crude oil and supplied more than 200 billion cubic metres of gas since its inception. Today, ONGC is India's highest profit making corporate. It has a share of 77% in India's crude oil production and 81% in India's natural gas production. It is the highest profit making corporation in India. It was set up as a commission on 14 August 1956. Indian government holds 74.14% equity stake in this company. ONGC is one of Asia's largest and most active companies involved in exploration and production of oil. It is involved in exploring for and exploiting hydrocarbons in 26 sedimentary basins of India. It produces about 30% of India's crude oil requirement. It owns and operates more than 11,000 kilometres of pipelines in India. The origins of ONGC can be traced to the Industrial Policy Statement of 1948, which called for the development of petroleum industry in India. Until 1955, private oil companies such as Assam Oil Company at Digboi, Oil India Ltd (a 50% joint venture between Government of India and Burmah Oil Company) at Naharkatiya and Moran in Assam, and Indo-Stanvac Petroleum project (a joint venture between Government of India and Standard Vacuum Oil Company of USA) at West Bengal, were engaged in exploration work. The vast sedimentary tract in other parts of India and adjoining offshore were largely unexplored. In 1955, Government of India decided to develop the oil and natural gas resources in the various regions of the country as part of the Public Sector development. To achieve this objective an Oil and Natural Gas Directorate was set up in1955, as a subordinate office under the then Ministry of Natural Resources and Scientific Research.

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Since its foundation stone was laid, ONGC is transforming Indias view towards Oil and Natural Gas by emulating the countrys limited upstream capabilities into a large viable playing field. ONGC, since 1959, has made its presence noted in most parts of India and in overseas territories. ONGC found new resources in Assam and also established the new oil province in Cambay basin (Gujarat). In 1970 with the discovery of Bombay High (now known as Mumbai High), ONGC went offshore. With this discovery and subsequent discovery of huge oil fields in the Western offshore, a total of 5 billion tonnes of hydrocarbon present in the country was discovered. 3.2.5 Sun Pharma Sun Pharmaceutical (or Sun Pharmaceutical Industries Limited) is an international pharmaceutical company based in Mumbai, India. It makes many generic and brand name drugs that are distributed in the United States, Europe, and Asia and worldwide. Sun manufactures both pharmaceuticals and active pharmaceutical ingredients (API), in essence, ingredients to be used in finished pharmaceutical products. Its products are in several therapeutic areas, including psychiatry, neurology, cardiology, diabetology, gastroenterology, respiratory, and orthopedics. Established in 1983, Sun Pharma was a start-up company with five products. Since 1996, Sun has grown largely through a combination of internal growth, and acquisition of other pharmaceutical companies. For example, it bought US-based Caraco Pharm Labs, and ICN Hungary. A planned acquisition of Israeli Taro Pharmaceuticals initiated in March 2007 was terminated by the Taro board in May 2008. This was subsequently followed by an unsolicited tender offer in June 2008, the outcome of which remains to be determined. As of 2008, it has grown to become an international speciality pharma company with more than 8000 employees, 19 manufacturing locations worldwide, two research centers, and a presence in 30 countries. It is one of the leading Indian-based pharma companies in India. Mergers and acquisitions: Acquisitions formed a major part of the company's growth, starting with the purchase of Knoll Pharma's bulk actives manufacturing business based in Ahmednagar in 1996. It was upgraded for approvals from regulated markets, with substantial capacity addition over the years. In that KRISTU JAYANTI COLLEGE Page 54

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks year, Sun also took a step to break into the important U.S. healthcare market, with its purchase of stake in Detroit-based Caraco Pharmaceutical Laboratories, which specialized in the manufacture of generic dosage form medications and gave Sun its first production plant approved by the U.S. Food and Drug Administration (USFDA). Also in 1996, Sun purchased a shareholding in Gujarat Lyka Organics, which brought Sun a USFDA-approved manufacturing facility.

3.2.6 Bharti Airtel Ltd Bharti Airtel is one of India's leading private sector providers of telecommunications services based on an aggregate of 66,689,943 customers as on April 30, 2008, consisting of 64,370,434 GSM mobile and 2,319,509 Bharti Telemedia subscribers. Bharti Airtel formerly known as Bharti Tele-Ventures LTD (BTVL) is the largest cellular service provider in India, with more than 124 million subscriptions as of February 2010. With this, Bharti is now the world's third-largest, single-country mobile operator and sixth-largest integrated telecom operator. It also offers fixed line services and broadband services. It offers its TELECOM services under the Airtel brand and is headed by Sunil Bharti Mittal. The company also provides telephone services and broadband Internet access (DSL) in top 95 cities in India. It also acts as a carrier for national and international long distance communication services. The company has a submarine cable landing station at Chennai, which connects the submarine cable connecting Chennai and Singapore. It is known for being the first mobile phone company in the world to outsource everything except marketing and sales. Its network operations are provided by Ericsson, business support by IBM and transmission towers by another company. Ericsson agreed for the first time, to be paid by the minute for installation and maintenance of their equipment rather than being paid up front. This enables the company to provide pan-India phone call rates of Rs. 1/minute (U$0.02/minute).

The businesses at Bharti Airtel have been structured into three individual strategic business units (SBUs) - mobile services, telemedia services (ATS) & enterprise services. The mobile services group provides GSM mobile services across India in 23 telecom circles, while the ATS business group provides broadband & telephone

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks services in 94 cities. The enterprise services group has two sub-units - carriers (long distance services) and services to corporate. All these services are provided under the Airtel brand.

Company shares are listed on The Stock Exchange, Mumbai (BSE) and The National Stock Exchange of India Limited (NSE).

3.2.7 ITC ITC Limited which stands for Indian Tobacco Company Limited (Formerly Imperial Tobacco Company of India Limited) is an Indian conglomerate with a turnover of US $ 4.75 billion. It ranks third in pre-tax profit among India's private sector corporations. The company has its registered office in Kolkata. The company is currently headed by Yogesh Chander Deveshwar. It employs over 20,000 people at more than 60 locations across India and is listed on Forbes 2000. The Training Centre of the company is in Munger, Bihar. ITC is also known as "Chatkal" (especially in Munger). Rural initiatives: ITC's Agri-Business is India's second largest exporter of agricultural products. ITC is one of the India's biggest foreign exchange earners (US $ 2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. The company places computers with Internet access in rural farming villages; the e-Choupals serve as both a social gathering place for exchange of information (choupal means gathering place in Hindi) and an e-commerce hub. What began as an effort to re-engineer the procurement process for soy, tobacco, wheat, shrimp, and other cropping systems in rural India has also created a highly profitable distribution and product design channel for the companyan e-commerce platform that is also a low-cost fulfillment system focused on the KRISTU JAYANTI COLLEGE Page 56

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks needs of rural India. The e-Choupal system has also catalyzed rural transformation that is helping to alleviate rural isolation, create more transparency for farmers, and improve their productivity and incomes.

3.2.8 L&T Larsen & Toubro (L&T) is an $8.5 billion, technology, engineering, construction and manufacturing company. L&T has an international presence, with a global spread of offices, factories and offices located around the country, further supplemented by a comprehensive marketing and distribution network. The company was founded in Mumbai in 1938 by two Danish engineers, Henning HolckLarsen and Soren Kristian Toubro. L&T became a private limited company in 1946. It then became a public limited company in 1950. Engineering and construction projects: L&Ts engineering and construction track record consists of implementation of turnkey projects in major core and infrastructure sectors of the Indian industry. And it is the biggest company as in enc business in India. L&T has formed a joint venture with SapuraCrest Petroleum Berhad, Malaysia for providing services to offshore construction industry worldwide. The joint venture will own and operate the LTS 3000, a Heavy Lift cum Pipelay Vessel. L&T Power: L&T has set up an organisation focused on opportunities in coal-based, gas-based and nuclear power projects. This business provides turnkey solutions for setting up utility power plants, co-generation and captive power plants on EPC basis. It also provides power plant engineering services through L&T Sargent & Lundy a joint venture of L&T and Sargent & Lundy, U.S.A. L&T has formed two joint ventures with Mitsubishi Heavy Industries, Japan to manufacture supercritical boilers and steam turbine generators. In 2008-09, significant KRISTU JAYANTI COLLEGE Page 57

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks progress was made in setting up manufacturing facilities for supercritical boilers and turbines at Hazira.L&T has also signed a technical collaboration with Clyde Bergemann for Electrostatic Precipitators,a crucial BOP Item in coal based thermal power plants. L&T is acknowledged as one of the top five fabrication companies in the world.

3.2.9 Tata Power Started as the Tata Hydroelectric Power Supply Company in 1911, it is an amalgamation of two entities: Tata Hydroelectric Power Supply Company and Andhra Valley Power Supply Company (1916). Today Tata Power Company Limited is Indias largest private sector electricity generating company with an installed generation capacity of over 2670 MW. The Company is a pioneer in the Indian power sector. Tata Power has a presence in thermal, hydro, solar and wind areas of power generation, transmission and retail. The founders of Tata Power pioneered the generation of electricity in India with the commissioning of Indias first large hydro-electric project in 1915 in Bhivpuri and Khopoli, Karjat. Operations: The thermal power stations of the company are located at Trombay in Mumbai, Jojobera in Jharkhand and Belgaum in Karnataka. The hydro stations are located in the Western Ghats of Maharashtra and the wind farm in Ahmednagar. The Company has been a front-runner in introducing state-of-the-art power technologies. Tata installed Indias first 500 MW units at Trombay, the first 150 MW pumped storage units at Bhira, and a flue gas desulphurization plant for pollution control at Trombay. At 2.4% the Company's transmission & distribution losses are among the lowest in the country. Tata Power has served Mumbais consumers for over nine decades. Outside Mumbai, the company now has generation capacities in the States of Jharkhand and Karnataka and a Distribution Company in Delhi. The Distribution joint venture with the Government of Delhi called the North Delhi Power Limited (NDPL), has met with considerable success. This joint venture serves over 800,000 consumers (in a population of 4.5 million) spread over in an area of 510 km and has a peak load of 1050 MW. KRISTU JAYANTI COLLEGE Page 58

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks NDPL has achieved some success in cutting down the losses from 51% to 28% in span of five years. International Operations: The Company has also executed several overseas projects in the Middle East, Africa and South East Asia. Of particular interest are the Jebel Ali G station (4 x 100 MW + desalination plant) in Dubai, Al-Khobar II (5 x 150 MW + desalination plant) and Jeddah III (4 x 64 MW + desalination plant) in Saudi Arabia, Shuwaikh (5 x 50 MW) in Kuwait, EHV substations in UAE and Algeria, and power plant operation and maintenance contracts in Iran and Saudi Arabia. 3.2.10 ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC's operations are spread throughout the country with 14 modern cement factories, more than 30 Ready mix concrete plants, 20 sales offices, and several zonal offices. It has a workforce of about 10,000 persons and a countrywide distribution network of over 9,000 dealers. ACC's research and development facility has a unique track record of innovative research, product development and specialized consultancy services. Since its inception in 1936, the company has been trendsetter and important benchmark for the cement industry in respect of its production, marketing and personnel management processes. Its commitment to environment-friendliness, its high ethical standards in business dealings and its on-going efforts incommunity welfare programmes have won it acclaim as a responsible corporate citizen. ACC has made significant contributions to the nation building process by way of quality products, services and sharing its expertise. ACC Limited is Indias foremost cement manufacturer with a countrywide network of factories and marketing offices. Established in 1936, ACC has been a pioneer and trend-setter in cement and concrete technology. Among the first companies in India to include commitment to environment protection as a corporate objective, ACC has won accolades for environment friendly measures taken at its plants and mines, and has also been felicitated for its acts of good corporate citizenship.

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Today we define Corporate Social Responsibility as the way a company balances its economic, social and environmental objectives while addressing stakeholder expectations and enhancing shareholder value. But ACC has undertaken social volunteering practices almost from its inception, long before the term corporate social responsibility was coined. The companys earliest initiatives in community development date back to the 1940's in a village on the outskirts of Mumbai while the first formal Village Welfare Scheme was launched in 1952. The community living around many of our factories comprises the weakest sections of rural and tribal India with no access to basic amenities.

CHAPTER IV ANALYSIS AND INTERPRETATION


4.1 Introduction This part shows that the analysis and interprets the data collected to find out the stock return, market stock return and its relationship and the risk analysed with it. Stock Return(y) = (Close-Open)/Open*100

Sensex Return(x) = (Close-Open)/Open*100

Beta = NXY- (X) (Y) NX - (X)

Covariance of XY= (X-X1) (Y-Y1) N-1

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Standard Deviation: SD(x) = (X-X1) N-1 SD(y) = (Y-Y1) N-1

Co-efficient of Correlation: R= N [{(NY)-(Y)}{NX- (X)}]

4.2.1 Risk & Return relationship of TCS The relationship between risk and return of TCS for the past 3 years is studied in this as a part of the chapter. Table 4.1 Stock and Market Return of TCS

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks DATE Stock Return Y Jan 2007 Feb2007 Mar2007 Apr2007 May 2007 Jun 2007 July 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May2008 Jun 2008 Jul 2008 2.29 -8.58 2.6 3.49 -5.21 -5.79 0.56 -6.98 -1.33 -2.08 -4.79 6.73 -17.82 -0.87 -6.73 12.82 10.67 -16.46 -3.06 Sensex Return X 1.90 -8.39 0.45 8.27 3.97 0.28 5.89 -0.17 12.27 14.29 -3.81 3.78 -13.45 -1.36 -9.19 9.61 -6.51 -18.86 6.49

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks

DATE

Stock Return Y

Sensex Return X 3.56 -10.77 -24.74 -10.93 5.29 -5.50 -5.04 10.79 17.01 25.69 -2.01 8.12 -0.18 9.14 -7.50 6.87 3.05 28.31

Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb2009 Mar2009 Apr2009 May 2009 Jun 2009 July 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 SUM
Sources: Secondary data

-1.99 -18.18 -19.78 -0.35 -15.98 5.56 -5.21 13.68 23.34 16.63 -42.69 38.53 0 15.98 1 9.95 7.72 -12.33

Table 4.2 KRISTU JAYANTI COLLEGE Page 64

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Risk- Return relationship of TCS Stock Return Market Return Beta() Standard Deviation(S.D) Variance(V) Coefficient of Correlation(r) -12.33 28.31 0.8 14.12 199.37 0.88

Sources: Secondary data

The above table shows that, the Company is less volatile & less risky as the beta value is less than 1.i.e. =0.8 The Co-efficient of Correlation of the sector is showing positive correlation. It means that when market return increases, the return from this sector also increases. Since the value of S.D & Variance is comparatively high, it indicates that this sector is comparatively high risky. Hence the company will yield good return. Figure 4.1 Stock & Market Return of TCS

4.2.2 Risk &

Return relationship of SBI The relationship between risk and return of SBI for the past 3 years is studied in this as a part of the chapter. Table 4.3 KRISTU JAYANTI COLLEGE Page 65

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Stock and Market Return of SBI

DATE DATE Jan 2007 Aug 2008 Feb2007 Sep 2008 Mar2007 Oct 2008 Apr2007 Nov 2008 May 2007 Dec 2008 Jun 2007 Jan 2007 July 2009 Feb2009 Aug 2007 Mar2009 Sep 2007 Apr2009 Oct 2007 Nov 2009 May 2007 Dec 2009 Jun 2007 Jan 2009 July 2008 Feb 2009 Aug 2008 Mar 2008 Sep 2009 Apr 2008 Oct 2009 May2008 Nov 2009 Jun 2008 Dec 2009 Jul 2008 SUM
Sources: Secondary data

Stock Return Stock Return Y Y -8.74 0.54 -8.85 6.52 -4.44 -25.03 15.29 -5.90 20.21 17.65 11.74 -10.98 6.05 -9.99 -0.65 5.59 20.82 18.33 4.24 9.54 43.77 1.75 -7.09 -9.18 4.38 -3.49 -4.49 -23.46 24.75 10.26 0.49 -19.64 2.19 -23.35 0.73 26.32 85.88

Sensex Return Sensex Return X X 1.90 3.56 -8.39 -10.77 0.45 -24.74 8.27 -10.93 3.97 5.29 0.28 -5.50 5.89 -5.04 -0.17 10.79 12.27 17.01 14.29 -3.81 25.69 3.78 -2.01 -13.45 8.12 -1.36 -0.18 -9.19 9.14 9.61 -7.50 -6.51 6.87 -18.86 3.05 6.49 28.31

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Table 4.4 Risk- Return relationship of SBI Stock Return Market Return Beta() Standard Deviation(S.D) Variance(V) Coefficient of Correlation(r) 85.88 28.31 1.19 15.25 232.56 1.01

Sources: Secondary data

The above table shows that, the Company is high volatile & high risky as the beta value is greater than 1.i.e. =1.19 The Co-efficient of Correlation of the sector is perfect positive correlation. It means that when market return increases, the return from this sector also increases. Since the value of S.D & Variance is high, it indicates that this sector is high risky. Hence the company will yield high return. Figure 4.2 Stock & Market Return of SBI

4.2.3 Risk & Return of Maruti Suzuki The relationship between risk and return of Maruti Suzuki for the past 3 years is studied in this as a part of the chapter. KRISTU JAYANTI COLLEGE Page 67

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Table 4.5 Stock and Market Return of Maruti Suzuki DATE Stock Return Y Jan 2007 Feb2007 Mar2007 Apr2007 May 2007 Jun 2007
Sources: Secondary data

Sensex Return X 1.90 -8.39 0.45 8.27 3.97 0.28 Sensex Return 5.89 -0.17 X 12.27 3.56 14.29 -10.77 -3.81 -24.74 3.78 -10.93 -13.45 5.29 -1.36 -5.50 -9.19 -5.04 9.61 10.79 -6.51 17.01 -18.86 25.69 6.49 -2.01 8.12 -0.18 9.14 -7.50 6.87 3.05 28.31 Page 68

0.48 -10.52 -2.53 0.38 1.32 -9.76 Stock Return 12.88 3.97 Y 14.23 18.19 19.28 7.03 -7.78 -19.25 -4.09 -7.61 -15.55 -2.60 2.87 8.76 -3.54 19.93 -10.5 16.73 1.93 5.25 -19.20 23.68 -5.72 2.94 32.07 0.82 17.33 -16.98 10.75 -1.02 83.91

DATE July 2007

Aug 2007 Sep 2007 Aug 2008 Oct 2007 Sep 2008 Nov 2007 Oct 2008 Dec 2007 Nov 2008 Jan 2008 Dec 2008 Feb 2008 Jan 2009 Mar 2008 Feb2009 Apr 2008 Mar2009 May2008 Apr2009 Jun 2008 May 2009 Jul 2008 Jun 2009 July 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 KRISTU JAYANTI COLLEGE Dec 2009 SUM

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks

Table 4.6 Risk- Return relationship of Maruti Suzuki Stock Return Market Return Beta() Standard Deviation(S.D) Variance(V) Coefficient of Correlation(r) 83.91 28.31 0.79 12.27 150.55 1.52

Sources: Secondary data

The above table shows that, the Company is less volatile & less risky as the beta value is less than 1.i.e. =0.79 The Co-efficient of Correlation of the sector is positive correlation. Since the value of S.D & Variance is less, it indicates that this sector is less risky. Hence the company will yield low return.

Figure 4.3 Stock & Market Return of Maruti Suzuki

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4.2.4 Risk & Return of ONGC The relationship between risk and return of ONGC for the past 3 years is studied in this as a part of the chapter. Table 4.7 Stock and Market Return of ONGC DATE Jan 2007 Feb2007 Mar2007 Apr2007 May 2007 Jun 2007 July 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 KRISTU JAYANTI COLLEGE Stock Return Y 2.89 -12.9 10.46 5.06 -0.58 -1.83 0.44 -5.76 11.38 28.65 -7.08 5.23 -20.85 0.33 -2.64 Sensex Return X 1.9 -8.39 0.45 8.27 3.97 0.28 5.89 -0.17 12.27 14.29 -3.81 3.78 -13.45 -1.36 -9.19 Page 70

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Apr 2008 May2008 Jun 2008 DATE Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb2009 Mar2009 Apr2009 May 2009 Jun 2009 July 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 SUM
Sources: Secondary data

3.55 -17.29 -6.57 Stock Return Y 22.06 3.36 0.54 -35.72 -1.17 -4.62 -2.48 4.72 13.99 11 34.23 -10.33 9.14 1.32 -1.96 -3.59 5.63 -2.27 36.34

9.61 -6.51 -18.86 Sensex Return X 6.49 3.56 -10.77 -24.74 -10.93 5.29 -5.5 -5.04 10.79 17.01 25.69 -2.01 8.12 -0.18 9.14 -7.5 6.87 3.05 28.31

Table 4.8 Risk- Return relationship of ONGC Stock Return Market Return Beta() Standard Deviation(S.D) Variance(V) Coefficient of Correlation(r) 36.34 28.31 1.02 12.39 153.51 1.78

Sources: Secondary data

The above table shows that, the Company is high volatile & high risky as the beta value is greater than 1.i.e. =1.02 The Co-efficient of Correlation of the sector is showing positive correlation. It means that when market return increases, the return from this sector also KRISTU JAYANTI COLLEGE Page 71

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks increases. Since the value of S.D & Variance is comparatively high, it indicates that this sector is high risky. Hence the company will yield high return.

Figure 4.4 Stock & Market Return of ONGC

4.2.5 Risk & Return of Sun Pharma The relationship between risk and return of Sun Pharma for the past 3 years is studied in this as a part of the chapter. Table 4.9 Stock and Market Return of Sun Pharma DATE Jan 2007 Feb2007 Mar2007 Apr2007 KRISTU JAYANTI COLLEGE Stock Return Y 4.91 -10.19 14.83 -1.88 Sensex Return X 1.9 -8.39 0.45 8.27 Page 72

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks May 2007 Jun 2007 July 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May2008 Jun 2008 DATE Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb2009 Mar2009 Apr2009 May 2009 Jun 2009 July 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 SUM
Sources: Secondary data

9.06 -8.38 -9.2 3.35 5.42 7.98 4.36 8.81 -8.31 8.99 0.58 17.78 -4.26 -3.09 Stock Return Y -0.36 4.24 2.65 -24.48 -3.93 3.08 -0.46 -6.72 9.11 15.16 -5.81 -11.23 7.28 -0.97 17.54 -0.71 7.34 4.71 57.2

3.97 0.28 5.89 -0.17 12.27 14.29 -3.81 3.78 -13.45 -1.36 -9.19 9.61 -6.51 -18.86 Sensex Return X 6.49 3.56 -10.77 -24.74 -10.93 5.29 -5.5 -5.04 10.79 17.01 25.69 -2.01 8.12 -0.18 9.14 -7.5 6.87 3.05 28.31

Table 4.10 Risk- Return relationship of Sun Pharma Stock Return Market Return KRISTU JAYANTI COLLEGE 57.2 28.31 Page 73

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Beta() Standard Deviation(S.D) Variance(V) Coefficient of Correlation(r) 0.48 9.08 82.45 -2.13

Sources: Secondary data

The above table shows that, the Company is less volatile & less risky as the beta value is less than 1.i.e. =0.48 The Co-efficient of Correlation of the sector is showing negative correlation. Since the value of S.D & Variance is less, it indicates that this sector is less risky. Hence the company will yield low return.

Figure 4.5 Stock & Market Return of Sun Pharma

4.2.6 Risk & Return of Bharti Airtel The relationship between risk and return of Bharti Airtel for the past 3 years is studied in this as a part of the chapter. Table 4.11 KRISTU JAYANTI COLLEGE Page 74

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Stock and Market Return of Bharti Airtel DATE Jan 2007 Feb2007 Mar2007 Apr2007 May 2007 Jun 2007 July 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May2008 Jun 2008 DATE Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb2009 Mar2009 Apr2009 May 2009 Jun 2009 July 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 SUM
Sources: Secondary data

Stock Return Y 11.42 0.45 5.85 11.53 2.76 -1.54 8.19 -2.02 6.71 5.4 -7.89 4.69 -14.41 -5.11 -1.54 8.02 -4.11 -18.73 Stock Return Y 10.68 6.14 -5.42 -17.53 -0.58 5.94 -11.93 1.54 0.13 19.73 7.85 -12.91 -48.7 3.45 -2.44 -32.84 5.16 8.87 -53.19

Sensex Return X 1.9 -8.39 0.45 8.27 3.97 0.28 5.89 -0.17 12.27 14.29 -3.81 3.78 -13.45 -1.36 -9.19 9.61 -6.51 -18.86 Sensex Return X 6.49 3.56 -10.77 -24.74 -10.93 5.29 -5.5 -5.04 10.79 17.01 25.69 -2.01 8.12 -0.18 9.14 -7.5 6.87 3.05 28.31

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Table 4.12 Risk- Return relationship of Bharti Airtel Stock Return Market Return Beta() Standard Deviation(S.D) Variance(V) Coefficient of Correlation(r) -53.19 28.31 0.61 13.16 173.18 0.95

Sources: Secondary data

The above table shows that, the Company is less volatile & less risky as the beta value is less than 1.i.e. =0.61. The Co-efficient of Correlation of the sector is positive correlation. Since the value of S.D & Variance is comparatively high, it indicates that this sector is comparatively high risky. Hence the company may yield good return.

Figure 4.6 Stock & Market Return of Bharti Airtel

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks 4.2.7 Risk & Return of ITC The relationship between risk and return of ITC for the past 3 years is studied in this as a part of the chapter. Table 4.13 Stock and Market Return of ITC DATE Jan 2007 Feb2007 Mar2007 Apr2007 May 2007 Jun 2007 July 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May2008 Jun 2008 DATE Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb2009 Mar2009 Apr2009 May 2009 Jun 2009 July 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 KRISTU JAYANTI COLLEGE Stock Return Y -2.36 -1.8 -13.06 8.11 1.61 -5.96 10.34 10.17 11 -5.56 4.72 10.68 -7.92 1.23 4.01 6.05 -2.83 -13.82 Stock Return Y 0.59 1.67 -0.13 -18.23 8.44 -1.41 4.17 2.21 0.71 2.16 -3.39 1.84 30.57 -7.93 -0.85 9.51 1.09 Sensex Return X 1.9 -8.39 0.45 8.27 3.97 0.28 5.89 -0.17 12.27 14.29 -3.81 3.78 -13.45 -1.36 -9.19 9.61 -6.51 -18.86 Sensex Return X 6.49 3.56 -10.77 -24.74 -10.93 5.29 -5.5 -5.04 10.79 17.01 25.69 -2.01 8.12 -0.18 9.14 -7.5 6.87 Page 77

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Dec 2009 SUM
Sources: Secondary data

-3.15 42.48

3.05 28.31

Table 4.14 Risk- Return relationship of ITC Stock Return Market Return Beta() Standard Deviation(S.D) Variance(V) Coefficient of Correlation(r) 42.48 28.31 0.28 8.69 75.52 -1.00

Sources: Secondary data

The above table shows that, the Company is less volatile & less risky as the beta value is less than 1.i.e. =0.28 The Co-efficient of Correlation of the sector is perfect negative correlation. It means that when market return decreases, the return from this sector also decreases. Since the value of S.D & Variance is less, it indicates that this sector is less risky. Hence the company will yield low return.

Figure 4.7 Stock & Market Return of ITC

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4.2.8 Risk & Return of L&T The relationship between risk and return of L&T for the past 3 years is studied in this as a part of the chapter. Table 4.15 Stock and Market Return of L&T DATE Jan 2007 Feb2007 Mar2007 Apr2007 May 2007 Jun 2007 July 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 KRISTU JAYANTI COLLEGE Stock Return Y 13.38 -7.03 8.08 6.09 16.88 8.72 19.02 2.06 6.14 54.35 -3.97 -0.17 -12.18 -4.78 -13.57 -1.53 Sensex Return X 1.9 -8.39 0.45 8.27 3.97 0.28 5.89 -0.17 12.27 14.29 -3.81 3.78 -13.45 -1.36 -9.19 9.61 Page 79

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks May2008 Jun 2008 DATE Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb2009 Mar2009 Apr2009 May 2009 Jun 2009 July 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 SUM
Sources: Secondary data

-1.64 -27.39 Stock Return Y 18.36 0.77 -5.31 -35.46 -12.94 6.08 -11.31 -12.15 12.29 29.35 57.05 10.44 -4.52 3.23 6.59 -6.55 3.03 3.79 125.2

-6.51 -18.86 Sensex Return X 6.49 3.56 -10.77 -24.74 -10.93 5.29 -5.5 -5.04 10.79 17.01 25.69 -2.01 8.12 -0.18 9.14 -7.5 6.87 3.05 28.31

Table 4.16 Risk- Return relationship of L&T Stock Return Market Return Beta() Standard Deviation(S.D) Variance(V) Coefficient of Correlation(r) 125.2 28.31 1.49 18.02 324.72 0.66

Sources: Secondary data

The above table shows that, the Company is high volatile & high risky as the beta value is greater than 1.i.e. =1.49 The Co-efficient of Correlation of the sector is perfect positive correlation. It means that when market return increases, the return from this sector also increases. Since the value of S.D & Variance is very high, it indicates that this sector is highly risky. Hence the company will yield high return. KRISTU JAYANTI COLLEGE Page 80

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks

Figure 4.8 Stock & Market Return of L&T

4.2.9 Risk & Return of Tata Power The relationship between risk and return of Tata Power for the past 3 years is studied in this as a part of the chapter. Table 4.17 Stock and Market Return of Tata Power DATE Jan 2007 Feb2007 Mar2007 Apr2007 May 2007 Jun 2007 July 2007 KRISTU JAYANTI COLLEGE Stock Return Y 8.42 -11.56 -7.54 16.15 -3.13 14.69 8.11 Sensex Return X 1.9 -8.39 0.45 8.27 3.97 0.28 5.89 Page 81

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May2008 Jun 2008 DATE Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb2009 Mar2009 Apr2009 May 2009 Jun 2009 July 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 SUM
Sources: Secondary data

-6.85 23.6 41.37 -4.69 25.18 -12.98 8.95 -14.89 16.82 -6.44 -22.55 Stock Return Y 10.58 -8.61 -13.71 -25.04 -4.41 11.38 1.39 -3.78 7.03 14.9 18.42 4.99 13.03 -0.85 0.79 2.38 0.44 2.07 103.66

-0.17 12.27 14.29 -3.81 3.78 -13.45 -1.36 -9.19 9.61 -6.51 -18.86 Sensex Return X 6.49 3.56 -10.77 -24.74 -10.93 5.29 -5.5 -5.04 10.79 17.01 25.69 -2.01 8.12 -0.18 9.14 -7.5 6.87 3.05 28.31

Table 4.18 Risk- Return relationship of Tata Power Stock Return Market Return Beta() Standard Deviation(S.D) Variance(V) KRISTU JAYANTI COLLEGE 103.66 28.31 1.08 14.22 202.21 Page 82

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Coefficient of Correlation(r) 1.25

Sources: Secondary data

The above table shows that, the Company is high volatile & high risky as the beta value is greater than 1.i.e. =1.08 The Co-efficient of Correlation of the sector is positive correlation. It means that when market return increases, the return from this sector also increases. Since the value of S.D & Variance is high, it indicates that this sector is high risky. Hence the company will yield high return.

Figure 4.9 Stock & Market Return of Tata Power

4.2.10 Risk & Return of ACC The relationship between risk and return of ACC for the past 3 years is studied in this as a part of the chapter. Table 4.19 KRISTU JAYANTI COLLEGE Page 83

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks Stock and Market Return of ACC DATE Stock Return Y Jan 2007 Feb2007 Mar2007 Apr2007 May 2007 Jun 2007 July 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May2008 Jun 2008 DATE Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008 Jan 2009 Feb2009 Mar2009 Apr2009 May 2009 Jun 2009 July 2009 Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 SUM
Sources: Secondary data

Sensex Return X 1.9 -8.39 0.45 8.27 3.97 0.28 5.89 -0.17 12.27 14.29 -3.81 3.78 -13.45 -1.36 -9.19 9.61 -6.51 -18.86 Sensex Return X 6.49 3.56 -10.77 -24.74 -10.93 5.29 -5.5 -5.04 10.79 17.01 25.69 -2.01 8.12 -0.18 9.14 -7.5 6.87 3.05 28.31

-7.16 -12.18 -18.28 15.54 1.74 8.58 12.76 1.71 11.46 -12.39 0.13 -6.69 -24.38 1.78 5.64 -9.14 -13.64 -21.07 Stock Return Y 10.87 -2.99 9.22 -19.77 -18.75 13.92 5.18 6.12 9.21 11.62 16.86 -3.74 15.96 -8.41 1.02 -8.70 7.65 9.40 -10.92

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Table 4.20 Risk- Return relationship of ACC Stock Return Market Return Beta() Standard Deviation(S.D) Variance(V) Coefficient of Correlation(r) -10.92 28.31 0.72 11.92 142.08 1.95

Sources: Secondary data

The above table shows that, the stock return is least which means less volatile & less risky as the beta value is less than 1.i.e =0.72. The Co-efficient of Correlation of the sector is positive correlation. Since the value of S.D & Variance is low, it indicates that this sector is less risky. Hence the company may yield less return.

Figure 4.10 Stock & Market Return of ACC

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4.21 Summary of the Companies

Company TCS SBI Maruti Suzuki ONGC Sun Pharma Bharti Airtel ITC

Beta() % 0.8 1.19 0.79 1.02 0.48 0.61 0.28

Standard Deviation(S.D)% 14.12 15.25 12.27 12.39 9.08 13.16 8.69

Variance(V) % 199.37 232.56 150.55 153.51 82.45 173.18 75.52

Coefficient of correlation(r) 0.88 1.01 1.52 1.78 -2.13 0.95 -1.00 Page 86

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks L&T Tata Power ACC 1.49 1.08 0.72 18.02 14.22 11.92 324.72 202.21 142.08 0.66 1.25 1.95

Figure 4.11 Companies and Beta

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Figure 4.12 Companies and Standard Deviation (S.D)

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Figure 4.13 Companies and Variance

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Figure 4.14 Companies and Coefficient of Correlation

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CHAPTER IV FINDINGS, CONCULSION& SUGGESTIONS

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks 5.1 FINDINGS-SECTORS
1. Standard deviation as a tool has been considered for the measurement of total sectorial

risk.

The results show that the risk of Banking, Heavy Electricals, Power and

Technology sectors is largest. The Pharmaceutical, Housing related, FMCG and Automobile sectors are having the least risk.

2. The computed values of beta show that Pharmaceutical, Housing related, FMCG and Automobile sectors are the most defensive (least risky) sectors whereas Banking, Heavy Electricals, Power and Technology sectors are the most aggressive (most risky) sectors.

3. That is , Banking, Heavy Electricals, Power and Technology sectors have the

maximum market risk of running a business whereas Pharmaceutical, Housing related, FMCG and Automobile sectors have the least risk.

4. The market risk of other sectors, namely Banking, Technology, Automobile, Oil &Gas, Power and Housing related is close to one. This indicates that these sectors are comparatively safe.

5. The results show that the risk of Heavy Electricals and Banking sectors are the largest, it means that they are the most aggressive sectors.

6. The Pharmaceuticals and FMCG are having the least risk. It means that they are the most defensive sector.

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A Comparative Analysis on Risk & Return of Top Ten Companies Stocks 5.2 FINDINGS- COMPANIES 1. The Beta value is 0.8, S.D is 14.12, Variance is 199.37 and the Coefficient of Correlation is 0.88. Hence the company is performing moderately in the market.

2.

The Beta value is 1.19, S.D is 15.25, Variance is 232.56 and the Coefficient of Correlation is 1.01. Hence the company is performing effectively in the market.

3. The Beta value is 0.79, S.D is 12.27, Variance is 150.55 and the Coefficient of Correlation is 1.52. Hence the company is performing well in the market.

4.

The Beta value is 1.02, S.D is 12.39, Variance is 153.51 and the Coefficient of Correlation is 1.78. Hence the company is performing efficiently in the market.

5.

The Beta value is 0.48, S.D is 9.08, Variance is 82.45 and the Coefficient of Correlation is -2.13. Hence the company is performing poor in the market.

6.

The Beta value is 0.61, S.D is 13.16, Variance is 173.18 and the Coefficient of Correlation is 0.95. Hence the company is performing well in the market.

7.

The Beta value is 0.28, S.D is 8.69, Variance is 75.52 and the Coefficient of Correlation is -1.00. Hence the company is performing poor in the market.

8.

The Beta value is 1.49, S.D is 18.02, Variance is 324.72 and the Coefficient of Correlation is 0.66. Hence the company is performing very effectively in the market.

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9. The Beta value is 1.08, S.D is 14.22, Variance is 202.21 and the Coefficient of

Correlation is 1.25. Hence the company is performing effectively in the market.

10. The Beta value is 0.72, S.D is 11.92, Variance is 142.08 and the Coefficient of

Correlation is 1.95. Hence the company is performing moderately in the market.

11. Due to the highest value among the selected 10 companies, the systematic risk of L&T was the highest during the study period. Hence it indicates that the returns from L&T are higher than the market.

12. Also L&T has got the highest value of standard deviation and variance. This indicates

that L&T is highly volatile.

13. ITC is having the least value. This indicates that ITC has the lowest systematic risk among the stocks during the study period.

14. Also ITC has got the least value of standard deviation and variance. This indicates

that ITC is less volatile.

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5.3 CONCULSION

As a whole the stock market is sometime highly volatile.

Cyclical sectors like

Banking, Heavy Electricals, Power and Technology sectors are having high risk. The non cyclical sectors like Pharmaceutical, Housing related, FMCG and Automobile sectors are having low risk.

The cyclical sectors are those sectors which generally move with the performance of the entire economy and the products of which are highly price elastic and income. The cyclical sectors tend to move with the performance of the entire economy and hence are considered riskier than non-cyclical sectors.

The values calculated for different sectors show that except FMCG, Health care, Housing related and Automobiles, six other sectors were very aggressive. Also the values of the securities show that six out of ten companies selected were aggressive and remaining four securities were defensive. KRISTU JAYANTI COLLEGE Page 95

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks

The stocks may not be a safe but for a risk averse investor and for a risk taker the reward may he heavy in the short run, than in the long run.

I hope this dissertation will help the investors as a guide record in future and help them to make appropriate investment decisions.

5.4 SUGGESTIONS 1. If an investor has a desire for bearing risk, then he can go for the companies with higher values. He can invest on the shares of SBI, L& T, Tata Power, and ONGC where the values of are the highest.

2. If an investor does not have an enthusiasm for bearing risk, then he can go for the companies with values less than one. He can invest on the shares of Sun Pharma, TCS, Maruti Suzuki, Bharti Airtel, ITC and ACC where the values of are the least.

3. If an investor wants to invest for long term, then he should go for companies with lower values of beta and standard deviation. Hence he can invest on the shares of KRISTU JAYANTI COLLEGE Page 96

A Comparative Analysis on Risk & Return of Top Ten Companies Stocks TCS, Sun Pharma, ACC and ITC where the values of beta and standard deviation are the least.

4. If an investor wants to invest for short term, then he should go for companies with higher values of and standard deviation. Hence he can invest on the shares of SBI, L& T, Tata Power, and ONGC where the values of and standard deviation are the highest.

5. For new investors who wish to invest in the capital market, it is better to invest for long term as the Sensex is experiencing the huge fluctuations. Also the market is highly volatile.

6. The investor who desire to bear risk and wants to yield high return, they can invest in L&T as the Beta, S.D, Variance and correlation is high. Hence he can yield High return

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