- The document describes the portfolio construction and management approach of Greenback Capital Advisors Private Limited fund. - The fund aims to achieve high returns over the long run while minimizing risk through a combination of large-cap stocks (risky assets) and government bonds (riskless asset). - Currently, the risky asset portfolio consists of 10 large-cap stocks from different sectors assigned weights based on their historical performance. The riskless asset is a government bond. - An example investor profile is provided along with the fund's performance over 2 years, showing inflation-adjusted returns of 10.53%, meeting the investor's goals.

1. Portfolio Construction and
Management
Investment Management Project
Himanshu Gupta – 12P138 Ishpreet Singh – 12P139
Karan Jaidka – 12P141 Shivendra – 12P169
Vikas Jain – 12P178
Investment Management (IM) – B – Group 7
PGPM 2012-2014

2. Portfolio Construction and Management
IM Section B – Group 7 – Project Report Page 1
Name of our Investment Management Fund
Greenback Capital Advisors Private Limited (Greenback Capital)
About the Fund
Greenback Capital Advisors Private Limited (Greenback Capital) was established in July, 2005 to
address the growing need of the different types of investors in the Indian capital markets. We
manage our investors’ capital with three fundamental ethos: expertise, accountability and
transparency.
Greenback Capital’s portfolio managers (belonging to IM-B Group 7, PGPM 2012-14, MDI
Gurgaon) have a lot of experience in the capital markets and this expertise has been developed
over multiple business cycles. While past performance is no guarantee of future success, the
funds managed by us have generally outperformed or, during times of recession, performed at
par with the markets. Accountability to us means a deep commitment to do what is right for
our investors. We also believe that transparency leads to trust which will create a long lasting
fiduciary relationship between us and our investors. We proactively invest in securities to
further propagate the three ethos.
Greenback Capital aims to achieve a high absolute rate of return over a business cycle while
minimizing risk of capital loss. We practice the established investment principles espoused by
the likes of Graham, and Warren Buffett.

3. Portfolio Construction and Management
IM Section B – Group 7 – Project Report Page 2
Investment Strategy followed at Greenback Capital
The primary focus is to invest in undervalued companies from the large-cap universe primarily
of the publicly traded Indian securities. The potential for aggressive expansion in large-cap
companies is small, but these stocks are relatively more stable. They are much more likely to
pay dividends and possess greater free cash flows. Historically, large-cap companies are known
to ride the storm and are relatively more stable when the market is undergoing a sustained
bear run. They are also more suited for long term investing, and since most of our investors stay
invested in our fund for many years, it aligns with our strategy of focusing on large-cap stocks.
These companies have businesses in multiple geographical locations and hence, diversify the
risk associated with domestic problems. Also, the fundamentals and business models of large-
cap companies are believed to be better for investments in the long run.
Apart from investing in securities, we also invest in riskless assets, which we keep changing
from time to time. This riskless asset, combined with the risky asset portfolio, makes up our
complete portfolio. The weights assigned to the risky assets are fixed at a given point of time.
These weights are assigned in such a way that we offer the maximum return at the minimum
possible variance at that level of return, i.e. the highest possible Sharpe Ratio in our portfolio at
a given point of time. Our investors are not given an option of changing the composition and/or
weights of our risky assets. This composition is evaluated from time to time by our competent
asset managers and the best possible combination at that point of time is determined and
frozen. After this step is complete, different weights are assigned to the riskless asset and the
combined risky assets and are offered to our investors based on their requirements risk
appetite, expected returns, etc.

4. Portfolio Construction and Management
IM Section B – Group 7 – Project Report Page 3
Current Composition of the Portfolio
The current offerings of Greenback Capital include a combination of risky assets (equity) and
riskless asset (bonds issued by Government of India enterprises) as described below:-
Risky Assets
10 Large-cap stocks (blue-chip companies) listed on the S&P BSE Sensex make-up Greenback
Capital’s risky asset portfolio. These stocks have been selected from various sectors and they
have historically been good performers in their respective businesses and in the stock market.
Their fundamentals remain strong and our asset managers expect them to continue offering
good levels of returns in future as well. The securities have been chosen from different sectors
in order to mitigate the industry-specific risks which a particular industry may face from time to
time. Details of the stocks comprising our risky-asset portfolio are:-
Company Name Sector
Rationale for including in the
portfolio
Mahindra and Mahindra Ltd. Auto and Auto Ancillaries
Market leadership in SUV
segment, Fastest growing in
Vehicle industry
ITC Ltd. FMCG and Retail
Strong presence in rural market
(Fast growing)
Godrej Consumer Products
Ltd.
FMCG and Retail
Revitalizing company with Focus
on global market
HCL Technologies Information Technology
Core strengths in engineering and
R&D services and infrastructure
management
Reliance Industries Limited Oil and Gas
Continuity of positive results
from Cauvery basin adding to
long term profitability of the
company
Axis Bank
Banking and Financial
Services
Best Bank (CNBC-TV18),
Profitability
Dr. Reddy’s Laboratories
Pharmaceuticals and
Healthcare
Focus on new markets,
Developing new products
through partnership route
Container Corporation of
India Limited
Logistics and Transportation
Market share of more than 75%

5. Portfolio Construction and Management
IM Section B – Group 7 – Project Report Page 4
ACC Limited Metals and Cement
Super brand status, nationwide
presence
Coal India Limited Metals and Cement
Largest coal producer in world,
Majority owned by Govt.
Riskless Asset
In order to mitigate the overall market and systematic risk and to cater to the varying risk
appetites of our investors, we have currently included the tax-free secured bond issued by
Rural Electrification Corporation Limited (a Government of India enterprise). Some important
details of the bond are as follows:-
Issue Size ` 1,000 crore with an option to retain oversubscription up to the shelf limit
of ` 4,500 crore
Instrument Tax Free Secured Redeemable Non-Convertible Bonds of face value of ` 1,000
each in the nature of Debentures having tax benefits under the Section
10(15)(iv)(h) of the Income Tax Act, 1961
Credit
Rating
‘CRISIL AAA/Stable’ by CRISIL, ‘CARE AAA’ by CARE, ‘IND AAA’ by IRRPL &
‘*ICRA+ AAA’ by ICRA
Face Value ` 1,000/- per bond
Minimum
Subscription
Minimum Subscription - 5 Bonds (` 5,000) across both the series
Coupon Rate 7.22% p.a for Category I, II and III Applicants
Weights assigned to Stocks in the Risky Portfolio
As mentioned above, the weights assigned to individual stocks were determined by our asset
managers based on historical data. The current weights assigned are as follows:-
ACC Axis Bank Coal India CONCOR Dr. Reddy's GCPL
0.0934 0.0000 0.0000 0.0000 0.1438 0.0000
HCL Tech. ITC M&M RIL Mean Variance Standard
Deviation
Sharpe
Ratio
0.0797 0.6667 0.0162 0.0000 0.0520 0.0019 0.0443 1.1713

6. Portfolio Construction and Management
IM Section B – Group 7 – Project Report Page 5
Investor Profile
Client Name– Mr. Ajay Chauhan
Age – 36 years
Place of Residence – Mumbai
Investment Start Date – 1st
July, 2011
The client’s family consists of four members – his wife who is working as an event manager in a
company and two children of ages 5 and 7. The client works as a project manager in Microsoft.
His annual compensation is INR 32 Lakhs.
Financial Goals
The client has planned to have a family trip to Europe once his children attain an age of around
10 years. He has some savings whose value he does not want to erode in the meantime. So, he
was looking out for a good investment opportunity which could give him good returns over and
above market risk. His aim is to have at least annual inflation adjusted, after-tax cash flow of
around INR 14-15 lakh
Investment Objective
To get at least 10% inflation adjusted returns on a highly diversified portfolio so that the risk
can be minimized. He wants to invest money both in risk-free assets and risky assets since his
risk appetite does not allow him to have full exposure to equity market. The client wants to
invest 20% of his portfolio in risk free assets.
Volatility Tolerance
The client’s financial position is quite sound. He also has a good knowledge about securities and
he understands the risks associated with them. Due to his financial capacity and future
prospects, he is quite tolerant towards interim fluctuations in portfolio market value and rates
of returns.

7. Portfolio Construction and Management
IM Section B – Group 7 – Project Report Page 6
Investment Time Horizon
Investment horizon is 5 years. Afterwards, it would depend on the client if he wants to continue
or not. The client does not have short term need for liquidity.
Portfolio Performance in 2 Years (1st July, 2013 – 16th August, 2013)
The point at which the Sharpe Ratio is maximum is mentioned in the graph above. By investing
20% of the total investment in riskless assets, our investor has slid slightly lower along the
Capital Allocation Line (CAL) to the point mentioned in the graph. He has effectively lowered his
risk, but at the same time, his expected return has also reduced from 5.2% quarterly to 4.521%
quarterly.

8. Portfolio Construction and Management
IM Section B – Group 7 – Project Report Page 7
Expected Quarterly Returns Standard
Deviation
Weight of risk-less asset 0.2 0.01805 0.0
Weight of risky asset 0.8 0.05200 0.044
Total Return 0.04521 0.0352
Expected quarterly return of
portfolio
4.521 (in %
terms)
Total Standard Deviation of
portfolio
0.03520
Hence, by investing 20% of the total invested amount in the riskless REC Bond and 80% in the
risky equity portfolio our investor’s portfolio has provided him with 4.521% quarterly returns
and with a risk of 0.0352. He expects the same return-risk relationship in future as well.
In the 2 years (approximately 8 quarters) which the investor has remained invested, he has
unrealized gains of INR 4,24,388 (without inflation) (assuming the gains are re-invested). If we
take inflation into account, the gain reduces to INR 2,21,827 (CPI in 2011 = 6.4% and CPI in 2012
= 11.17%).
Effective Annual Rate (EAR) for quarterly returns of 4.521% = 19.347%
Year CPI (in %) EAR – CPI (in %) Investment at the end of period
2011 6.4 12.947 1129470
2012 11.17 8.177 1221827
Total inflation adjusted value of portfolio at the end of two years = INR 12,21,827
Total inflation adjusted return at the end of two years = 10.53%
Conclusion
When the client viewed his portfolio over the past 2 years and observed that he is getting
returns of 10.53% after adjusting for inflation, he was quite happy with the performance and
decided to remain invested.