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Liberalisation & globalisation of Indian economy has exposed CORPORATES to cut throat competition from within & outside India. The complex & dynamic nature has caught many corporates unaware. The new business environment requires pro-activeness on the part of management vision to shape the future, and quick response to the forces of competition. These fast changing business environments has affected the FINANCIALS of many companies and thus the reduction in MARKET – PRICE & erosion in SHAREHOLDER’S value to unbelievable level.

In the current scenario, when the stock markets are depressed and, except for few elite group of scrips ( I.T. / F.M.C.G. / PHARMA & OTHER M.N.C.’S ), the prices of most scrips have depreciated substantially, restructuring of one’s portfolio has become very critical.

What is Portfolio Management

Although, one may feel that portfolio management is a common sense application, but it is more of an art or a skill. Simply managing his/ her portfolio by holding on to those stocks which, at current MARKET- PRICE, offer high value and sell of all other scrips which do not, is not a professional approach.

How to manage Portfolio

Thus, with the above background, and with a perspective of managing portfolio, we have a few comments to be made:

  1. Streamlining the existing portfolio.
  2. Identifying the companies.
  3. Managing the portfolio.
Streamlining the existing companies:

If one looks at streamlining in the right perspective, it is very simple. Otherwise, it is the most difficult part of portfolio management activity as it involves taking very hard decisions i.e. selling of those stock which, at C.M.P ( current market price ) doesn’t offer value investment & also the future does not seem promising. Once this is done, then comes the 2 ND PART i.e. identifying the companies.

Identifying the companies:

This is one of the most crucial part of a portfolio management activity. At times , one may observe a typical phenomenon where the MARKET- PRICE of two companies having similar fundamentals ( i.e. similar E.P.S. , R.O.E. , P/E , BOOK VALUE , etc.) move in opposite direction. This is generally because there are various other important aspects attached to a company which, as such may not be apparent on the face of it, but have a telling effect on the share price of a company. For e.g. market perception for the management of a company, shareholder friendliness, preferences of major investors (F.I.I.’s/ I.F.I’s ) promoters stake increase, liquidity in the market, chances of merger or an acquisition buy –back potentials, etc. hence, a PORTFOLIO-MANAGER has to take critical judgment based on these various aspects also apart from looking at the fundamental & technical aspects of a company.

Managing the Portfolio:

Actually, this is the part of a P.M. activity which requires a little bit of skill. PORTFOLIO- MANAGER activity can be said to be successfull if one is able to outperform the MARKET, i.e. returns generated from the portfolio should be better than the performance of the over all market. To achieve this, there are several pre-requisites that one has to look into.

  1. NO. of scrips one should ideally have in his /her portfolio & weightage given to each scrip:

Ideally, one should not have more than 16 stocks in his/her portfolio with features like:

A ) Not more than 25%  of  the funds invested in one single company.
B ) Not more than 40% of the funds invested in any group of Corporate house.

The break up of stock should ideally be like:
I) Low growth-Low Risk (L.G.L.R.) 40% fundamentally strong BLUE-CHIP CO ‘s growth at 10-15% A Year.
II) Medium Growth-Medium Risk (M.G.M.R.) 40% fundamentally strong CO ‘S Growth at 25-30% a year B-group share.
III) High GROUTH High risk ( H.G.H.R.) 20% UP coming CO’s growth  at 50% A Year.

2. No. of industries one should concentrate on & the weightage given to each industry:

Ideally , one should not look at more than 4 industries at a time for the first & second categories of scrips i. e. LGLR & MGMR and not more than 3 industries for HGHR category- weightage on each industry should be restricted to a maximum of 35%.

3. Margin of profit one is looking for:

Expected margin of profit depends upon the  category of scrip one has invested in i. e.
A) LGLR        –        15-20% a year.
B) MGMR        –       25-30% a year.
C) HGMR        –       80-100% a year.

4. Buying & Selling strategy:

Buying Strategy:
One should always have a buy range sorted out for each scrip one is planning to invest i.e. once a stock has been identified as a good buy , one has to clearly define a buy range for the stock & should make purchases in that buy range only in a phased manner.

For eg. If the buy range is defined at 100-160, one should buy 40% of the stock at Rs 160-/- & other 20% each at Rs. 140-/- , Rs. 120-/- & Rs. 100-/-.

Selling strategy:
Likewise , one has to define selling range based upon profit margin & one has to sell in a phased manner.

4. Periodical monitoring of the portfolio:

This is the most important part of a portfolio management activity. One should keep track of all the scrip one has invested in & if a particular stock seems to have turned weak or is having a bleak future ahead one has to sell the stock, even at loss & switch over to a stock which has a better future without taking into consideration the Cost- price.

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