A study of optimal portfolio construction with Nifty stocks by using Sharpe's single index model

This study attempts to construct an optimal portfolio by using Sharpe's Single index model. For this purpose NSE-NIFTY and all the 50 stocks have been used as market index for preparing portfolio. The daily data for all the stocks and index for the period of April 2006 to December 2011 have been considered. 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 optimal portfolio consists of four stocks selected out of 50 short listed scripts, giving the return of 0.116%.