Construction of equity portfolio of large caps companies of selected sectors in India with reference to the Sharpe Index Model

Security analysing and selection of portfolios and managing them in the right manner helps in improving the investor's awareness about the trends and changes that exist in the market and helps the investors as a very attractive avenue for investment. In these investments, generally both rationale and emotional responses are involved. So, investing in financial securities is considered to be one of the attractive areas for investing and saving while it is also acknowledged to be one of the most risky areas for investment. Creation of an optimum portfolio helps to reduce risk, without sacrificing returns. Portfolio management deals with the analysis of individual securities as well as with the theory and practice of optimally combining securities into good portfolios. An investor who understands the fundamental principles and analytical aspects of portfolio management has a better chance of earning higher returns. In this research 18 stocks from three different large caps sectors are taken for study. The risk and return of all the stocks are studied individually. Based on the study top five stocks are selected for forming optimum portfolio. The final step in the process is to determine the number of shares of each stock to be purchased. This method helps us to carefully select the stocks and also the proportion of investment to be made in each stock, thereby yielding higher returns.