Optimal Portfolio Construction Using Modern Portfolio Theory and Sharpe’s Single Index Model: Evidence from NSE Listed Companies
DOI:
https://doi.org/10.64137/31079423/IJEBMR-V2I1P106Keywords:
Modern Portfolio Theory, NSE, Risk-Return Analysis, Beta, Sharpe Ratio, Optimal Portfolio, DiversificationAbstract
This study focuses on the construction of an optimal portfolio using Modern Portfolio Theory (MPT) with reference to the top 20 market capitalization companies listed on the National Stock Exchange (NSE). The analysis is based on secondary data collected from the Bloomberg database for the period January 2021 to December 2025. Key financial metrics such as mean return, standard deviation, and beta were computed to evaluate the risk-return profile of selected stocks. The findings reveal that Bajaj Finance (20.3%) and SBI (19.2%) offer higher returns but are associated with higher risk, whereas Nestle and HUL demonstrate lower volatility with stable returns. The Excess Return to Beta Ratio indicates that Reliance (10.00), HDFC Bank (9.39), and Bajaj Finance (9.23) provide superior risk-adjusted performance. A cutoff rate (Ci) of approximately 0.0110 was determined using Sharpe’s Single Index Model, and only stocks exceeding this threshold were included in the optimal portfolio. The final portfolio comprises diversified stocks such as Reliance, HDFC Bank, TCS, Infosys, and Bajaj Finance. The study concludes that a systematic and quantitative approach enhances portfolio efficiency by optimizing the trade-off between risk and return.
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