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I have an assignment which manages some custom entities of dynamics365 sales application. Is it possible to create a separate web application which resides in dynamics365 sales portal?

The web portal will have 5 to 6 menus and various forms with edit update delete, paging, sorting, searching. All the operations will be done in custom entities of the dynamics365.

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Too broad. Possible.

  1. for web application - Need to do custom development using metadata messages in SDK. Can host it separately.

https://msdn.microsoft.com/en-us/library/gg509014.aspx

  1. Inside crm portal - this is not a typical requirement inside portal solution, so am doubtful. But still Asp.net page template is not available like adx in 365 yet.

https://readyxrmblog.wordpress.com/2017/03/14/liquid-markup-in-dynamics-365-portals-part-1-hello-world/

Other possibilities:

If we want to go with custom code inside webform: similar discussion

My wild guess - May be you can go with navigation link for your web app from portal.