The ultimate aim of any modern corporate is growth with profit maximization. Growth is the first and foremost characteristic of nature and its products which include modern societies with all their industrial, agricultural and service sectors and above all the research organizations to cater to the needs of primary, secondary and tertiary sectors. Governed by the laws of the universe and nature, societies, markets and above all human life are in the constant churn of development in the realm of creativity and innovativeness.

The research paper attempts to analyze ex ante performance of the portfolios constructed using Markowitz’s Mean-Variance Model in the Indian Security Market. Weekly data on market prices of shares and the BSE Sensex was collected for a period of seven years ranging from April 1995 to March 2002. Fifty-four portfolios were constructed with three samples of securities, six holding periods and three levels of expected return. Constructed portfolios were evaluated using well-established risk-adjusted performance measures of Sharpe, Treynor, Jenson and Fama, during one year immediately following their formation. The results of the study indicated that in case of 53.70% of the portfolios, the performance is superior than the market. But the performance of portfolios is not significantly different from market proxy i.e., Sensex even at 10% level of significance.

Until Dr. Harry M Markowitz infused a high degree of sophistication into portfolio construction by developing a mean-variance model for the selection of portfolios, portfolio managers used rules of thumb and intuitive judgment. Harry M Markowitz and William F Sharpe were amongst the recipients of 1990 Nobel Prize for their seminal contribution in Financial Economics. The path-breaking mean variance portfolio theory of Markowitz published in 1952 (and his subsequent contribution in the line) together with the Capital Asset Pricing Model of Sharpe brought about revolutionary changes in analyzing investor’s attitude towards risk and deriving equilibrium price of capital assets. According to Markowitz, investors are primarily concerned with two properties of asset: Risk and return and by diversification of portfolio it is possible to trade-off between them. The essence of his theory is that risk of an individual asset hardly matters to an investor. What really counts is the contribution it makes to the investor’s total risk. By turning his principle into a useful technique for selecting the right portfolio from a range of different assets, he developed ‘Mean-Variance Analysis’. The thrust has been on balancing safety, liquidity and return depending on the taste of different investors.

Markowitz analyzed various possible portfolios of a given number of securities and helped in the selection of best or most efficient portfolio. Markowitz model shows as to how an investor can reduce the risk, that is, the standard deviation of the portfolio returns by choosing those securities, which do not move exactly together.