Stock exchange is an organized market for purchaseand sale of listed securities.

Various services for stock brokers and tradersin terms of trading of stocks, bonds and other securities are provided by thestock exchanges. These exchanges also provide other facilities for the issueand redemption of securities and other financial instruments. It also providescapital events including the payment of income and dividends. Any investorwould analyse the risk associated with the avenue of their concern before investinghis investible part of the wealth. The actual return which he receives from astock may vary from his expected return and depends on the risk he is ready tobear.

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The risk is measured in terms of variability of return. There are severalfactors that cause risk. They are either common to all stocks or specific to aparticular stock. Every investor would prefer to analyze the risk factors whichwould help him to plan his portfolio, so that he can minimize his risk andmaximize his return by diversifying into right avenues. The risk and returnrelationship is a concept applicable in real life situations as well as interms of financial analysis. The amount of risk assumed should be proportionateto the expected returns.

Managing risk is very important aspect for aninvestor. The Indian pharmaceuticals market is the third largest in terms ofvolume and thirteenth largest in terms of value, as per a report by EquityMaster. Branded drugs dominate the pharmaceuticals market, constituting nearly70 to 80 per cent of the market. India is the largest provider of generic drugsglobally with the Indian generics accounting for 20 per cent of global exportsin terms of volume. Before 1990’s the main area of investment were bank deposits,gold, property and such other forms of tangible assets but for the past fewyears we had been  witnessing a lot of investmentopportunities coming up in the form of primary and secondary market since the globalizationwhich had its inception during 90’s foreign  capital flowing to India .new multinationalentered the market and a lot of investment opportunities were  opened to the people who kept their saving inbank and other kind of fixed assets. The topic analysis of risk and return inthe pharmaceutical sector and had been selected because a lot of investors aremaking investment in the shares of different companies. The investors have tobe aware of the risk involved in making the investment so the investors have tocalculate the variance and the beta value to know the present condition of theCompany to know whether there is any risk in investing in the particular companyand does the company offer good returns.

The companies which I have been selected forresearch having different growth strategies and difference in revenue, profitabilityand market capitalization .Currently according to the 2017 report thedrugs and pharmaceuticals sector attracted cumulative FDI inflows worth US$14.71 billion between April 2000 and March 2017, according to data released bythe Department of Industrial Policy and Promotion (DIPP).TheIndian pharmaceutical is one of the fast growing sector not only in India butalso the whole world There are 74 U.S. FDA-approved manufacturing facilities inIndia, more than in any other country outside the U.S, and in 2008, almost 25%of all Abbreviated New Drug Applications (ANDA) to the FDA are expected to befiled by Indian companies. Since Growths in other fields notwithstanding,generics are still a large part of the picture.

London research company Global Insightestimates that India’s share of the global generics market will have risen from4% to 35% in 2006, over 20,000 registered drug manufacturers in India sold $15billion worth of formulations and bulk drugs. 85% of these formulations weresold in India while over 60% of the bulk drugs were exported, mostly to theUnited States and Russia. Most of the players in the market are small-to-mediumenterprises; 250 of the largest companies control 70% of the Indian market.Thanks to the 1970 Patent Act, multinationals represent only 35% of the market,down from 70% thirty years ago.

A company ,which has a high intrinsic worth,is not necessarily the best stock to buy .it may have no growth prospects orit may be overpriced .similarly a company that performs well during any oneyear may not be the best to buy on the contrary ,a company which has been badlyfor some time might have turn the corner and it may be the best to buy ,as itsshares may be under prices and it has good prospects of growth hence ananalysis of risk or return guides an investor in proper profitable investment.Return is the primary motivating force that drives investment it represents thereward for undertaking investment .since the game of investing is about returns,measurement of realized return is necessary to assess how well the investmentmanager has done.

In addition historical return is often used as an importantinput on estimating future return.THE COMPONENT OF RETURNThe return of an investment consist of twocomponentCurrent return the component that often comesto mind when one is thinking about return is the periodic cash flow such as dividendor interest generated by the investment .current return is measured as theperiodic income in relation to the beginning price of the investment.Capital return    the second component of return is reflectedin the price change called the capital return .it is simply the priceappreciation (or depreciation) divided by the beginning price of the assets.

Thus total return =current return + capitalreturnRISKRisk refers to the possibility that theactual outcome of an investment will differ from its expected outcome .morespecifically, most investors are concerned about the actual outcome being less thanthe expected outcome .the wider the range of possible outcomes the greater therisk.DIFFERENT TYPE OF RISKForces that contribute to variance in return-priceor dividend-constitute the element of risk .some influence are external to theorganization can not be controlled other influence are internal to the organizationthat are controllable to a large extent .in an investment decision thosefactors which is uncontrollable is called systematic risk .

on the other handthose factors are controllable and internal to the organization are calledunsystematic risk these are the two broad categories of riskSYSTEMATIC RISK.This is the most familiar of all risks. Alsoreferred to as volatility, market risk is the the day-to-day fluctuations in astock’s price.

Market risk applies mainly to stocks and options. As a whole,stocks tend to perform well during a bull market and poorly during a bearmarket – volatility is not so much a cause but an effect of certain market forces.Volatility is a measure of risk because it refers to the behaviour, or”temperament”, of your investment rather than the reason for this behaviour.Because market movement is the reason why people can make money from stocks,volatility is essential for returns, and the more unstable the investment themore chance there is that it will experience a dramatic change in eitherdirection.

Market risk is caused by investors reactionto the tangible as well as intangible events expectation of lower corporateprofile in general may cause the larger body of common stocks to fall in price.investors are expressing their judgment that too much is being paid forearning in the light of anticipated events .the basis for the reaction is a setof real, tangible, events political, social or economic.INTEREST RATE RISK –The changes in the interest rate have abearing on the welfare of investors. As the interest rate goes up, the marketprices of existing fixed income securities fall and vice versa.

This happensbecause the buyer of a fixed income security would not buy it at par value orface value if its fixed interest rate is lower than the prevailing interestrate on similar security.INFLATION RISK (PURCHASING POWER RISK)The loss of purchasing power due to theeffects of inflation.  When inflation ispresent, the currency loses its value due to the rising price level in the economy.

  The higher the inflation rate, the faster themoney loses its value.LIQUIDITY RISKThe uncertainty associated with the abilityto sell an asset on short notice without loss of value.A highly liquid asset can be sold for fairvalue on short notice.

  This is becausethere are many interested buyers and sellers in the market.  An illiquid asset is hard to sell becausethere there few interested buyers.  Thistype of risk is important in some project investment decisions but is discussedextensively in Investment courses.FOREIGN EXCHANGE RISKSUncertainty that is associated with potentialchanges in the foreign exchange value of a currency.There are two major types: translation riskand transaction risks.TRANSLATION RISKSUncertainty associated with the translationof foreign currency denominated accounting statements into the homecurrency.

  This risk is extensivelydiscussed in Multinational Financial Management courses.TRANSACTIONS RISKSUncertainty associated with the home currencyvalues of transactions that may be affected by changes in foreign currencyvalues. This risk is extensively discussed in the Multinational FinancialManagement courses.

UNSYSTEMATIC RISKUnsystematic risk are those risk which isfirm specific or peculiar to a firm or industry the different type ofunsystematic risk are discussing below.BUSINESS RISKThe uncertainty associated with a businessfirm’s operating environment and reflected in the variability of earningsbefore interest and taxes (EBIT).  Sincethis earnings measure has not had financing expenses removed, it reflects therisk associated with business operations rather than methods of debtfinancing.  This risk is often discussed inGeneral Business Management courses.Business risk can be divided into two boardcategories: external and internal .Internal business risk is largely associatedwith the efficiency with which a firm conduct its operation within the borderoperating environment imposed upon it .

each firm has its on internal risk, andthe degree to which it is successful in coping with them is reflected inoperating efficiency. FINANCIAL RISKThe uncertainty brought about by the choiceof a firm’s financing methods and reflected in the variability of earningsbefore taxes (EBT), a measure of earnings that has been adjusted for and isinfluenced by the cost of debt financing. This risk is often discussed within the context of the Capital Structuretopics.By Engaging in debt financing the firmchanges the characteristics of the earning stream available to the common stockholders, specifically ,the reliance in debt financing ,called financialleverage ,has at least three important effect on common stock holders.1)increase the variability of their return 2)effect their expectationconcerning to the return 3)increase  therisk of being ruined .INVESTMENTInvestment is the employment of the fund withaim of achieving additional growth in value .

an investment is a sacrifice ofcurrent money or other resources for future benefits .it is the allocation ofmonetary resources to assets that are expected to yield gain or positive returnover a given periods of time .it involves the commitment of resources whichhave saved or put away from current consumption in the hope that some benefitswill acure in future.The three key aspects of any investment aretime capital gain and risk the sacrifice takes place now and is certain .

thebenefits are expected in the future and tend to be uncertain.Risk: investment is considered to involvelimited risk and is confined to those avenues where the principle is safe. Noinvestments are completely risk freeCapital gain: If purchase of securities ispreceded by proper investigation and analysis and review to receive a stablereturn over a period of time it is termed as investment.Time: A longer time, fund allocation istermed as investment.

The investor constantly evaluates the work of a security.There has to be a constant review of securities to find out whether it is a suitableinvestment. The investment is an attempt to carefully plan, evaluate andallocate funds in various investments which offer safety of principal, moderateand continuous return and long term commitment.INVESTMENT DECISIONIn stock market parlance investment decisionrefers to making a decision regarding the buy and sell orders. As we knoweconomic analysis or factors play in any investment decision which is made formaking a gain and better returns. Economic analysis and forecasting company performanceand of returns is necessary for making investment.

Any investment is risky and such investmentdecision is difficult to make. It is based on availability of money andinformation on economy industry and company, share prices are ruled byexpectation of the market and the market sentiments.As we know these decisions are influenced byavailability of money and flow of information.What to buy and sell also depends on the fairvalue of shares and the extent of over valuation and under valuation. Formaking such a decision the common investors have to depend more up on a studyof fundamental rather than technical, although technical are also importantPRIMARY AND SECONDARY CAPITAL MARKETPrimary market is the market for issue of newsecurities .it therefore essentially consists of the companies issuingsecurities, he public subscribing to these securities, he regulatory agencies likeSEBI and the government, merchant bankers and bank who underwrite the issuesand help in collecting subscription money from the public.Secondary Market refers to a market wheresecurities are traded after being initially offered to the public in theprimary market and/or listed on the Stock Exchange. Majority of the trading isdone in the secondary market.

Secondary market comprises of equity markets andthe debt markets.For the general investor, the secondarymarket provides an efficient platform for trading of his securities. For themanagement of the company, Secondary equity markets serve as a monitoring andcontrol conduit—by facilitating value-enhancing control activities, enabling implementationof incentive-based management contracts, and aggregating information (via pricediscovery) that guides management decisions.STOCK MARKETStock market is place where the stocks orshares are purchased and sold .stock exchange is an organized market wheresecurities are traded .

these securities are issued by the government, semi-government,public sector undertakings and companies for borrowing funds and raisingresources. securities are defined as any monetary claims and includes stock,shares, debentures,bonds etc .if these securities are marketable as in thecase of government stocks; they are transferable by endorsement and are likemoveable property .they are tradable on the stock exchange .Exchanges are located all over the world withthe most famous one being the New York stock exchange. The NYSE annually tradedalmost 14 trillion dollars worth of capital .thousands of stocks are  listed on this exchange.

when you buy a stockyou will need to learn which exchanges list it other than locating quote in thenews paper with online trading and the automation of order system ,there isvery little reason to determine where the stock trades from the customersviewpoint.There are 22 stock exchanges in India, thefirst being the Bombay Stock Exchange (BSE), which began formal trading in1875, making it one of the oldest in Asia. Over the last few years, there hasbeen a rapid change in the Indian securities market, especially in thesecondary market.Advanced technology and online-basedtransactions have modernized the stock exchanges. In terms of the number ofcompanies listed and total market capitalization, the Indian equity market isconsidered large relative to the country’s stage of economic development.

Thenumber of listed companies increased from 5,968 in March 1990 to about 20,000by May 2006 and market capitalization has grown almost 11 times during the sameperiod. The debt market, however, is almost non existentBOMBAY STOCK EXCHANGE LIMITED (BSE)Bombay Stock Exchange Limited is the oldeststock exchange in Asia with a rich heritage. Popularly known as”BSE”, it was established as “The Native Share & StockBrokers Association” in 1875. It is the first stock exchange in thecountry to obtain permanent recognition in 1956 from the Government of Indiaunder the Securities Contracts (Regulation) Act, 1956.The Exchange’s pivotaland pre-eminent role in the development of the Indian capital market is widelyrecognized and its index, SENSEX, is tracked worldwide.

Earlier anAssociation of Persons (AOP), the Exchange isnow a demutualised and corporatised entity incorporated under the provisions ofthe Companies Act, 1956, pursuant to the BSE (Corporatisation andDemutualization) Scheme, 2005 notified by the Securities and Exchange Board ofIndia (SEBI).With demutualization, the trading rights and ownership rights havebeen de-linked effectively addressing concerns regarding perceived and realconflicts of interest. The Exchange is professionally managed under the overalldirection of the Board of Directors. The Board comprises eminent professionals,representatives of Trading Members and the Managing Director of the Exchange.The Board is inclusive and is designed to benefit from the participation ofmarket intermediaries. In terms of organization structure, the Board formulateslarger policy issues and exercises over-all control.

The committees constitutedby the Board are broad-based. The day-to-day operations of the Exchange are managedby the Managing Director and a management team of professionals.The Exchange has a nation-wide reach with apresence in 417 cities and towns of India. The systems and processes of theExchange are designed to safeguard market integrity and enhance transparency inoperations.

During the year 2004-2005, the trading volumes on the Exchangeshowed robust growth. The Exchange provides an efficient and transparent marketfor trading in equity, debt instruments and derivatives. The BSE’s On LineTrading System (BOLT) is a proprietary system of the Exchange and is BS7799-2-2002 certified. The surveillance and clearing & settlement functionsof the Exchange are ISO 9001:2000 certified. THE NATIONAL STOCK EXCHANGE OF INDIA LIMITED(NSE)The National Stock Exchange of India Limitedhas genesis in the report of the High Powered Study Group on Establishment ofNew Stock Exchanges, which recommended promotion of a National Stock Exchangeby financial institutions (FIs) to provide access to investors from all acrossthe country on an equal footing. Based on the recommendations, NSE was promotedby leading Financial Institutions at the behest of the Government of India andwas incorporated in November 1992 as a tax-paying company unlike other stockexchanges in the country.On its recognition as a stock exchange underthe Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commencedoperations in the Wholesale Debt Market (WDM) segment in June 1994. The CapitalMarket (Equities) segment commenced operations in November 1994 and operationsin Derivatives segment commenced in June 2000It is the largest stock exchange in India andthe third largest in the world in terms of volume of transactions.

NSE ismutually-owned by a set of leading financial institutions, banks, insurancecompanies and other financial intermediaries in India but its ownership andmanagement operate as separate entities. As of 2006, the NSE VSAT terminals,2799 in total, cover more than 1500 cities across India. In March 2006, the NSEhad a total market capitalization of 4,380,774 crore INR making it the second-largeststock market in South Asia in terms of market-capitalization.S CNX NIFTYS CNX Nifty is a well diversified 50stock index accounting for 22 sectors of the economy. It is used for a varietyof purposes such as benchmarking fund portfolios, index based derivatives andindex funds S CNX Nifty is owned and managed by India Index Services andProducts Ltd. (IISL), which is a joint venture between NSE and CRISIL.

IISL isIndia’s first specialized company focused upon the index as a core product. IISLhave a consulting and licensing agreement with Standard & Poor’s (S),who are world leaders in index services.The average total traded value for the lastsix months of all Nifty stocks is approximately 45.24% of the traded value ofall stocks on the NSE .Nifty stocks represent about 57.92% of the total marketcapitalization as on April 10, 2007. Impact cost of the S CNX Nifty for aportfolio size of Rs.5 million is 0.

08% S.P CNX Nifty is professionally maintainedand is ideal for derivatives trading.