A Study on Construction of Optimal Portfolio Using Single Index Model at Anandrathi Shares and Stock Brokers Limited, Bangalore.

Abstract

This study was made with the intension of constructing an efficient optimal equity portfolio using the effective and very more popular utility of Sharpe’s Single Index Model. In order to get more knowledge about the Indian securities market the Internship was done in one of the stock broking agency called ANANDRATHI SHARES AND STOCK BROKERS LIMITED. As an Investor and the fund managers know Indian Securities market is high volatile, risky and highly sensitive. The portfolio construction with the help of Single Index model became necessity to minimize the risk and to maximize the return on investment. This study is targeted to create awareness in the minds of investors. Here the study is for 50 companies listed in NSE where risk and return is determined and based on the cut off point the selected 10 companies portfolio construction is determined. The selection of securities is made based on the return and excess return to beta ratio. Excess return to beta ratio is identified by comparing the excess return in to the particular stock’s beta. Standard deviation is the process where it is used to measure the variability of the securities and the relationship of the mean variable of the securities for the selected stock. Cut-off rate helps the author to select securities in a scientific way. Here all the securities selected whose excess return to beta ratio is more than the cut-off rate. Cut-off rate helped to identify the securities and the investment proportion to be made on those securities. Findings and suggestions will give more clarity of this study and it will help the fund managers and the professional investors to make wise decision on their investment. Hope this study and constructed portfolio will help the investors, fund managers and other institutional investors to make appropriate investment.