1Assistant Professor, Shri Ramdeobaba College of Engineering and Management, Nagpur, Maharashtra, India
2Associate Professor, Shri Ramdeobaba College of Engineering and Management, Nagpur, Maharashtra, India
3Assistant Professor, Shri Ramdeobaba College of Engineering and Management, Nagpur, Maharashtra, India
Online Published on 19 October, 2022.
Every investor wants to outperform the market. Technical models require financial and mathematical expertise to construct a portfolio for the same. However, a majority of investors are not financial experts. The objective of this study is to construct and compare portfolios based on: (a) a technical model which relies on mean-variance profile of stocks and (b) nontechnical models which can be adopted by people with little financial literacy.
Sharpe's Single Index Optimization Model is considered to construct the complex mathematics based equity portfolio. The second portfolio comprises of top company, based on market cap, of each of the sectors from Nifty 50 and the third one includes stocks commonly preferred by large cap mutual funds. All the portfolios are then compared with the index Nifty 50.
Although the portfolios constructed using non-technical models could not outperform the one constructed using Sharpe ’s model, they comprehensively beat the market. The second portfolio almost matches the returns generated by Sharpe ’s model.
The study provides simple techniques to construct a portfolio that reasonably matches the technical models.
Portfolio Construction, Markowitz Optimization model, Sharpe's Single Index model, Nifty 50, Equity Returns, Diversification, Mutual Funds
