This was a project in our FIN101: Introduction to Finance course with Prof. Ajit Mishra. We calculated the risk and return on 5 stocks listed on the BSE SENSEX and analysed them.

1. Aashay Verma
Aditya Mohan
Pallavi Agrawal
FIN 101-01: Introduction to Finance
Prof. Ajit Mishra
30th April, 2018
Project - Portfolio Return and Risk Analysis
The BSE SENSEX, also called the S&P Bombay Stock Exchange Sensitive Index or the BSE 30, is a
31-stock free-float market-weighted stock market index. The base value of Sensex is 100 and the base
year is 1978-79. Most companies on the BSE SENSEX are ‘Blue-chip’ companies, meaning that their
stock prices are very high since the companies have a lower risk associated with them.
Measures Used to Select Companies:
P/E Ratio
P/E Ratio = Price per Share / Earnings Per Share
It tells us how much investors are willing to pay per rupee earning. It is important to look at the industry
P/E as well while analysing the stock. A company with P/E below the industry might be undervalued
while one that is 10x the industry P/E might be overvalued as a basic rule.
Dividend Yield
Dividend Yield = Dividend per Share / Price per Share
Different people choose their stocks dependent on dividends per share. Some favor high dividends while
others don’t.
Companies Selected:
1. Dilip BuildCon
Dilip Buildcon is a company that is slowly establishing itself in the infrastructure sector in India. The
company is involved in construction of roads, highways, irrigation, urban development and mining. It has
been performing quite well in the recent past. The company’s P/E ratio is 25.78, lower than the industry’s
P/E ratio of 41.57, so we believe there is an undervaluation of the stock currently. This implies that there
is a prospect of high growth: the company has been signing contracts for several thousand crores for road
construction across the country. Most recently, it ​entered into a partnership with NHAI for Rs 2,991.70
crore projects in Karnataka. Further, and perhaps the most important is the sector itself; Public
Infrastructure as a sector has prospects for with urbanisation and transportation facilities taking the front
seat. Its P/E ratio is 26.57 against an industry average of 39.40. Its Dividend Yield is 0.09%
2. Tata Consultancy Services
Tata Consultancy Services (TCS) is an Indian IT Consulting company. Over six decades old, the company
recently entered the elite club of companies worldwide having a market capitalization over a $100 Billion.
In the results of Q4 of FY18, its profits were better than expected. It has recently signed a deal with

2. Bonnier AB, a Swedish media group with operations in 14 countries. It will help the media conglomerate
“consolidate and rationalize computing and telephony infrastructure”. Within a couple of days of this
announcement, the Ministry of Railways, Government of India, announced that it has brought TCS on to
“work on safety operations”. There are huge investments expected in the railways over the next few years,
and the ministry wanted to ensure paramount safety and reliability in increasing the frequency of trains,
and hence decided to partner with TCS. The stock has a P/E ratio of 26.18 against an industry average of
22.63. Its Dividend Yield is 1.36%
3. Reliance Industries Limited
Reliance Industries Limited is an Indian conglomerate which deals in a multitude of industries, including
energy, petrochemical, textiles, natural resources, retail, and telecommunication. On 27th April, the
company announced its earnings for Q4 of FY18, which had grown 17.26% year-on-year to Rs. 9,435
crore, its highest quarterly profit. A lot of the conglomerate’s recent success is attributed to its newest
product, Reliance Jio Infocomm Limited (Jio), a mobile network operator. Jio has been contributing to
Reliance’s profit: its Q4 profit was Rs. 510 crores. Other than Jio, Reliance’s petrochemical division
contributed to its performance. It has gained higher volumes on account of the ramping-up of the recently
commissioned “Refinery Off-Gas Cracker” (ROGC) in Jamnagar, which is also the world’s largest, and
other petrochemical expansion projects. The stock has a P/E ratio of 19.09 against an industry average of
23.51. Its Dividend Yield is 1.10%
4. Hindustan Unilever Limited
Hindustan Unilever Limited is an Indian consumer goods company. It is a subsidiary of Unilever, a
British-Dutch company. For Q4 FY18, it is expected to have a Profit after Tax (PAT) of Rs. 1279.5 crore,
up 8.2% YoY. The company’s flagship tea brand, Brooke Bond, recently replaced Tata Global Beverages
as the market leader worldwide, with a market share of 21.2% (against 21% for the latter). In mid-April
2018, HUL became the fifth most-valued companies in India with a market capitalization of Rs. 3.06
trillion (approx. $46 Billion), a spot previously held by HDFC. The stock has a P/E ratio of 62.96 against
the industry average of 67.51. Its Dividend Yield is 1.15%
5. Hero MotoCorp
Hero MotoCorp is an Indian motorcycle and scooter manufacturer and is the world’s largest 2-wheeler
maker. In March 2018, the company reported its best-ever monthly sales of 7.3 lakh units, and therefore
also crossed sales of 75 lakh units for the FY18, also the first to do so globally. With a market share of
over 50%, its goal is to reach 1 crore sales per year by 2020. For Q4 FY18, the company’s PAT is
expected to grow 31.5% to Rs. 940 crore. It has recently launched three new commuter bikes to cement its
position in the segment, and is going to launch three more in the premium segment in FY19. The stock
has a P/E ratio of 21.53 against the industry average of 24.73. Its Dividend Yield is 2.29%
Analysis
We calculated the beta-coefficients for each stock. Taking Y, the dependent variable, as returns to the
specific stock, and X, the independent variable, as market returns (SENSEX), we ran a regression and
found the beta-coefficients for each stock.

3. The beta for TCS is 0.5371. This means that on average, keeping everything else constant, TCS’ stock is
46% less volatile than the market, or with an increase in market returns by 1 percentage point, there is an
increase in the returns of TCS by 0.53 percentage points. Since this is positive and is less than 1, the stock
returns will change in the same direction that the market returns are changing, but at a slower rate. Hence,
even when the market crashes, the stock would not crash by the same extent, but lesser. Similarly, for
Dilip Buildcon, the beta is 1.34. This means that on average, keeping everything else constant, Dilip
Buildcon is 34% more volatile than the market, or with an increase in market returns by one percentage
point, there is an increase in the returns of Dilip Buildcon by 1.34 percentage points. Since this is both
positive and greater than 1, the stock returns are said to change in the same direction the market returns
are changing in, but in contrast to those of the TCS stock, they are changing at a faster rate. Hence, any
fluctuation in the market returns means that the stock returns are impacted to a greater extent than the
market.
Apart from this, we also calculated the daily average risk using the standard deviation of the daily returns
of the stock. This figure was 0.0109 for Hindustan Unilever Limited. In contrast, for Reliance Industries
Limited, it was 0.028. This tells us that the daily returns of Reliance Industries varies to a greater degree
than do those of Hindustan Unilever. The lesser the variance of a stock is, the safer it is, or more risk-free
it can be said to be.
Similarly, we calculated the average daily returns per stock in the past to predict a possible trend for the
future. For Hero MotoCorp, for instance, the average daily return was 0.00059, or 0.059%.
Using the above data, beta-values, and averages, we assigned weights to each stock. We tried to minimise
the volatility of the portfolio by including in it stocks with different volatilities. Dilip BuildCon, being one
of the riskiest stocks on the portfolio yet with the highest annual returns was given a weight of 0.26
(higher than 25%). In contrast, Reliance Industries, with a low annual return rate but a high risk, was
given a weight of 0.12. TCS, one of the safest stocks with moderate annual returns, was given a weight of
0.16. Lastly, Hindustan Unilever and Hero MotoCorp, both safe yet growing stocks, were given weights
of 0.23 each.
Based on the assignment of weights, we calculated the overall beta to be 0.909, which means that the
portfolio is 9.1% less volatile than the market. If we assume that the CAPM model holds, we find that the
daily expected returns of the portfolio is 0.056%, where we have taken beta of the portfolio using beta of
individual stocks and their assigned weights, and the market rate of return as the average annual return
rate of SENSEX.
Using averages,we find that the daily risk of the portfolio is 0.01040. The average daily returns to the
portfolio is 0.00154 or 0.154%. For the ease of the paper, we calculated this into average annual returns
by using the formula ((1+r)^250 - 1)*100, given that there are 250 working days of a stock market on
average. This gives us an average annual returns of 47.05%. In contrast, the daily risk of the market (as
measured by the volatility in the index) is 0.006737, and the average annual returns for SENSEX is
16.1419%.

4. It is important here to understand why this expected return is different from that of the average we had
previously calculated. We did not assume risk averseness in the averaged model and merely used historic
data to calculate daily returns and risk. However, CAPM assumes maximising economic utility,
rationality and risk averseness, which was not assumed in the daily average model.
In conclusion, our portfolio is approximately 9% less volatile than the market. Its returns are primarily
arising from investing in the highly volatile stock - Dilip BuildCon. To mitigate the risk from the stock in
the portfolio, we have assigned weights to stocks that are significantly less risky such as TCS.
Analysis Tables
Table A: P/E Ratio and Dividend Yield
Table B: Beta, Risk & Return, Weights
Table C: Market vs. Portfolio Risk & Return

5. Table D: Beta using CAPM, Expected Annual Return
Table E: E(Rp) calculated using CAPM
Table F: Variance-Covariance Matrix
Table G: Risk

6. Regression Tables
Table A: Dilip BuildCon
Table B: Hero MotoCorp
Table C: Hindustan Unilever Limited (HUL)

7. Table D: Reliance Industries Limited
Table E: Tata Consultancy Services