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Optimal Portfolio Construction in Banking and Pharmaceuticals sectors in India: An Empirical study

Year 2015
Volume/Issue/Review Month Vol. - VIII | Issue II | July - December
Title Optimal Portfolio Construction in Banking and Pharmaceuticals sectors in India: An Empirical study
Authors Rama Krishna Mishra , Prof. (Dr.) Shayma Charan Acharya
Broad area Optimal Portfolio Construction in Banking and Pharmaceuticals sectors in India: An Empirical study
Abstract
The main focus of this research is to construct an optimal portfolio in Indian stock market with the help of the Sharpe
single index model. Portfolio construction is an important process of the investors for investment in the equity market.
A good combination of portfolio will give maximum return for a particular level of risk. In this research, 13 selected
stocks from the two sectors like 7 from Banking and 6 from Pharmaceuticals have been taken into consideration and
these stocks are constituent of the NSE Nifty index. The proposed method formulates a unique cut off point (Cut off
rate of return) and selects stocks having excess of their expected return over risk free rate of return surpassing this
cut-off point. Percentage of investment in each of selected stocks is then decided on the basis of respective weights
assigned to each stock depending on respective beta value, stock movement variance, unsystematic risk, return on
stock and risk free return vis-a-vis the cut off rate of return. The study finds that five company stocks i.e three from
pharma (Glaxo, Sunpharma, Dr.Reddy) and two from banking sectors(Axis Bank and Bank of Baroda) constitute the
optimum portfolio with ideal proportion of investment of 0.60% ,50.14%,22.31%,11.28% and 15.67% respectively. This
research findings and suggestions would be helpful to investors.
Description As the number of financial assets is ever increasing in today’s market, investors are exposed to great opportunities for improving their portfolio performance. The fact that these securities have different risk return characteristics enables investors t
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