Portfolio Optimization Using Markowitz Efficient Frontier, Capital Market Line, and Security Market Line: An Empirical Study of Selected Indian Assets
Abstract: This paper employs Markowitz's Modern Portfolio Theory (1952) to analyse and simulate ten Indian financial assets over 738 consecutive trading days from January 2023 to December 2025. Twenty unique portfolios are modelled using three analytical frameworks: Markowitz Efficient Frontiers for optimal risk-return combinations; the Capital Market Line (CML) to locate the tangency portfolio using the Sharpe ratio; and the Security Market Line (SML) under the Capital Asset Pricing Model (CAPM) to price individual assets by systematic risk. Among the 20 portfolios (P1?P20), Portfolio 18 (P18) is identified as the tangency portfolio (Daily Sharpe = 0.0562; Ann. Return = 16.82%; Ann. Vol = 11.01%), achieving over 40% lower volatility than the weighted-average of individual assets while outperforming the NIFTY 50 benchmark. Gold ETF (Sharpe = 1.635; Return = 30.22%) and Bharti Airtel (Sharpe = 1.356; Return = 34.64%) make the highest individual contributions to portfolio efficiency. SML analysis identifies Airtel (α = +22.95%), Gold ETF (α = +22.94%), and L&T (α = +12.14%) as significantly undervalued, while TCS (α = ?10.01%), Infosys (α = ?7.00%), and ITC (α = ?5.68%) are overvalued relative to CAPM. Markowitz diversification theory is validated, and single-factor CAPM is found insufficient for India's structurally evolving equity markets.
Keywords: Modern Portfolio Theory, Efficient Frontier, Capital Market Line (CML), Security Market Line (SML), CAPM, Sharpe Ratio, Diversification, Indian Equity Market
How to Cite?: Supreetha, "Portfolio Optimization Using Markowitz Efficient Frontier, Capital Market Line, and Security Market Line: An Empirical Study of Selected Indian Assets", Volume 15 Issue 5, May 2026, International Journal of Science and Research (IJSR), Pages: 1211-1221, https://www.ijsr.net/getabstract.php?paperid=SR26519165122, DOI: https://dx.doi.org/10.21275/SR26519165122