Factors influences investment decision and portfolio construction (DSE Perspective) and a study on IDLC Investments Limited

Abstract

Portfolio management is a concept of maximizing return with risk management generally by diversifying investment options. Construction a portfolio is selecting different equities, debts, and other financial instruments in a single investment basket and providing different weights in different investment option. To construct this portfolio report on efficient frontier and portfolio, a Top Down approach has been used. For that, firstly the economic condition and then the capital market analysis have been conducted. Next, the assumptions on picking the 10 different stocks of different companies belonging to distinct industries have been explained. Historical prices were collected from Dhaka Stock Exchange (DSE). For attaining the most credible solution, data for 5 years or 61 months have been in use from December 2011 to December 2016 addition to that the excel file has been prepared with the following inputs: Price, Face Value, Cash Dividend %, Cash Dividend BDT, Stock Dividend %, Right Share Ratio %, Right Share Offer Price BDT, Share Split information, and Risk free Rate. The use of variance, covariance matrix and Solver applications took place to determine the different conditions prevailing in three separate scenarios of different combinations of short sale. The three scenarios are -1. Tangent Portfolio = Maximum sharp Ratio. 2. Maximum Forecasted Return. 3. Minimum Risk. The whole report is a fundamental analysis of asset valuation. The different 10 stocks have been picked from diversified asset classes in order to reduce or minimize unsystematic risk. The suggestions for optimum weights have been estimated and calculated by running Solver under three different scenarios. All calculations are supported by relevant comments and interpretations.