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8/11/2019 Money Manager September 14 Monthly_Issue
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8/11/2019 Money Manager September 14 Monthly_Issue
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Saving for retirement usually is top
prio rity for o ur custom ers e specially
a s they ad vance tow a rds retirem ent.
It is though not the first priority
amongst young investors. Many
surveys ha ve revea led that investo rs
tend to po stpon e their pla ns for early
retirem ent a s they prog ress nea rer to
the retireme nt a g e, clea rly indica ting
that in general we are not as
prepa red for retireme nt as w e think.
Last few years have been tough
specifically with respect to high
infla tion rates . This ha s m a de us
co nscious o f the effect of infla tion on
real growth of our assets . Some
expense s like m ed ica l expense s a nd
educa tion ha ve grow n at even fa sterrate than the reported consumer
price inflation. The other risk in
retirem ent pla nning is that w e ne ed
to pla n for long er retired y ea rs w ith increa se in q ua lity o f hea lth services
a nd overa ll lon g evity.
I feel tha t one o f the b ig g es t im ped im ents to a retireme nt pla n is inertia .
Ess entia lly, during the retired period , w e d epend on o ur fina ncial a ss ets
for income and therefore, our approach towards retirement planning
should be very s tructured . The first step to put a structure to a
retirem ent pla n is es tim a ting how m uch inco m e w e w ould ne ed for our
daily expenses. While expenses will typically go down for a retiree,
me dica l expenses a re so mething o ne has to b e concerned a bo ut.
It is a g oo d idea to have a sepa rate co rpus for med ica l expenses ba sed
on current fitnes s, fa mily h isto ry, co verag e, if any, throug h the c urrent
em ploye r, etc. A listing of current expense s m inus the expens es w hichw ill be no n-existen t a fter retireme nt (e.g . children e xpens es ) is a g ood
w a y o f es tim a ting . Typica lly, this w ill be 60-70 perce nt o f the c urrent
expen se s. The o ther varia bles in the ca lcula tion s a re the expe cted
longevity and inflation. With these, one can estimate the amount of
Anup BagchiM D & CEO
ICICI Securit ies Ltd.
8/11/2019 Money Manager September 14 Monthly_Issue
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co rpus req uired a t the tim e o f retireme nt. This then s ho uld b e the b a se
of estimating how much we should invest every month to have that
co rpus a t the tim e o f retireme nt.
Retirement planning is typically construed as planning at the start ofretireme nt. This is a m isc on cep tion. Retireme nt pla nning nee ds to s tart
a t the b eg inning o f one's c a reer. The ea rlier w e s tart the mo re tim e w e
have on our side to take risk with our investments and make higher
returns . A long -term retireme nt pla n needs to s trike a ba la nce b etw een
ca pital g row th, risk m a na g em ent, protection, a nd tax pla nning.
Investments for retirement corpus should have a healthy portion of
eq uity investm ents a s e q uity provide s w ith grow th to the co rpus. The
proportion of equity in a portfolio depends on the time horizon andinves tme nts into d eb t helps in m a na g ing risk in retireme nt po rtfolio if
the tim e ho rizon is s ho rt o r one d oes n't have a risk a ppetite.
Protecting the pla n a g a inst untim ely d ea th of the ea rning m em ber is a
must and hence an adequate insurance is a key to a successful
retireme nt pla n. This s ho uld a lso be fo llow ed by es tate planning
through a simple will. A will in place ensures that the assets are
d istributed w ithout m uch effort to the heirs.Last, but not the least, we need to resist the temptation to withdraw
funds from a retirement corpus, unless in an absolutely emergency.
One needs to a lso ma ke s ure that the insura nce premiums a re a lw ay s
pa id o n time a nd the s ys tema tic inves tment pla ns (S IPs ) a re renew ed
w ithout fail so that o ur retirem ent g oa ls a re n ot jeo pa rdized.
Planning fo r retireme nt oug ht to b e the to p fina ncia l g oa l. The rea so n is
simple. The respons ibility to ensure w e ha ve a regula r inco m e is no one
else 's b ut ours. The s ervices o f a pe rsona l fina ncial pla nner ca n ha nd -
hold you through the process of retirement planning. With our vast
experience in financial markets we offer retirement planning and will
drafting services. Do talk to your ICICIdirect relationship manager to
help yo u w ith yo ur pla n.
Our me ss a g e rema ins the s a me - 'Keep investing a nd s tay invested for
y o ur lif e go a ls . ' Throug h t h is m a g a z ine a nd our w eb s i te
www.icicidirect .com we want to make an earnest at tempt to partnerwith you in setting and achieving your financial goals. Give us an
opportunity to serve you, walk into any of your Neighbourhood
Fina ncial S upersto re and talk to us .
ICICIdirect M oney Manager September 2014
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The prese nt is a lw a ys far clea rer tha n the future. Retirem ent w ill
alw a ys seem distant and hazy espe cia lly to the yo ung. And y et
w hen it com es to pla nning fo r retirem ent, how m uch ever dista nt
retirement may appear, the right time to start is now. Startingea rly no t only helps yo u rea p the benefits of com po unding o ver a
lo ng er perio d , but it also keeps y o u in a better pos itio n to m a ke
suitab le a djustme nts to y o ur pla n in a cha ng ing sce na rio .
The m o re y ea rs a w a y fro m retirem ent yo u are, the m o re yo u w ill
benefit from it. In this issue o f ICICId irect Money Ma na g er, w e
help yo u understand the im po rtance o f sa ving a nd inves ting ea rly
for retirement, and the steps that you may take to reach your
retirem ent g o a l w ith rela tive ea se .
I w o uld a lso like to d raw yo ur a ttentio n to o ur fea ture a rticle o n
Rea l Esta te Investm ent Trusts (REITs). REITs a re propo sed to be
intro duce d in India , w hich w ill help es tab lish a new a ss et cla ssa nd ena ble investors to tap the tw in be nefits of yield and g row th.
The e d itio n a lso fea tures a n interview w ith S w a ti Kulka rni,
Executive Vice Pres ident &Fund Mana g er, UTI Mutua l Fund , w ho
has a positive view on healthcare, banking, cement, industrial
m a nufac turing, autom ob iles, and co nsumer go od s secto rs ove r
the next 3-5 ye a rs.
We also offer comprehensive information and analysis on
pensio n pla ns , in o ur Mutual Fund Ana lys is se ctio n, to help y o u
better plan your retirement. So read on, stay updated
a n d i n v o l v e d . D o w r i t e i n w i t h y o u r f e e d b a c k a t
m oney ma nag er@ icicisecurit ies.co m a nd s hare yo ur thoughts.
Editor &Pub lisher : Abh isha ke Math ur, CFA
Coordina ting Editor : Yog ita Kha tri
Editoria l Board : Sam eer Chavan , CWM , Panka j Pandey
CMEd ito ria l Te am : Aze em Ahm a d, Nithy a kum a r VP CFP , Nitin Kunte , S a chin J a in,
Sheetal Ashar
ICICIdirect M oney Manager September 2014
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M D Desk....................................................................................................1
Editorial.....................................................................................................2
Contents.................................................................................................... 3
News.........................................................................................................4
M arkets Round-up & Outlook ........................................................................5
Gett ing Technical w ith Dharmesh Shah.........................................................8
Derivatives Strategy by Ami t Gupta............................................................ 10
Stock Ideas: Bajaj Elect ricals and Page Industries....................................... 15Flavour of the M onth:Retirem ent Planning The fa ce o f retirem ent ischa ng ing. Here w e help yo u understand w hy s a ving for retirem ent is
im portant and the route yo u ma y ta ke to rea ch yo ur retirement g oa ls
w ith rela tive ea se........................................... ....................................... 22
Feature Art icle:Ind ia n Rea l Esta te Investm ent Trusts (REITs ) A g oodtim e to s ta rt........................................................................................... 31
Tte--tte:'Market va lua tions look inte res ting for 3-5 yea r term' Aninterview w ith S w a ti Kulka rni, EVP a nd Fund Man a g er Eq uities , UTI
Mutual Fund ...........................................................................................35
Ask Our Planner:S w itching yo ur m utual funds inves tme nts Yourperso na l fina nce q ueries ans w ered ..................................................39
M utual Fund Analysis:Categ ory Pens ion P la ns Currently, there a re tw oMF pens ion pla ns a va ila ble in the m a rket. Here w e a na lys e them to
help you plan your retirement..............................................................43
Equity M odel Portfolio...............................................................................49
M utual Funds Model Portfolio.................................................................... 54
Quiz Time.................................................................................................56
Monthly Trends.........................................................................................57
Premium Educat ion Programmes Schedule..................................................60
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Portable PF account number to be launched on October 16
Retiremen t fund m a na g er EPFO's a mb itious project to provide po rta ble universa l
PF account numbers (UAN) to its subscribers will be launched on October 16.
Bes ides , the g ove rnme nt w ill la unch unified w eb po rtal LIN (La bour Identifica tio nNumber) for simplifying business regulations and bringing in transparency and
accountability in labour inspections by various agencies and bodies under the
a dm inistrative co ntrol of La bour Ministry. Prim e Ministe r Na rend ra Mo d i is likely to
la unch b o th LIN w eb po rta l a nd UAN on Octob er 16 as pe r the P la n cha lked out b y
the La bo ur Ministry.
Courtesy: Business Standard
September 2014ICICIdirect M oney Manager
With an a im to a ttra ct grea ter foreig n and do m es tic inves tme nts into real es tate,
S eb i ha s s a id it w ill so on notify norm s for creation a nd listing of b usines s trusts
for this key se ctor. Tw o se pa rate co m m ittees ha ve b een se t-up for the s pecific
g uide lines on the iss ue. The S ecurities a nd Exchan g e Bo a rd of India's b oa rd ha d
a pproved the reg ula tions on Real Esta te Inves tme nt Trusts la st m onth a fter
receiving public co m m ents.
Courtesy: The Economic Times
SEBI to soon noti fy norms for Real Estate Investment Trusts
The Res erve B a nk o f Ind ia (RBI) nee d s to further increa se po licy rates to b ring
d o w n infla tio n on a sus ta ined b a sis, the Interna tion a l Mone ta ry Fund (IMF) sa id.
In a note released ahead of the G20 meeting of finance ministers and central
ba nk g ove rnors a t Cairns in Australia , IMF sa id India ne ed s to ta ke m ore s teps to
reduc e s tubb o rnly high infla tio n a nd the large fisc a l de ficit. The RBI is s che duled
to a nnounce its bi-m onthly m one tary po licy o n S eptem be r 30.
Courtesy: The Times of India
RBI needs to raise policy rates to bring dow n inflation: IM F
Foreign institutional investors, or FIIs, have stepped up investments in long-
term g ove rnm ent b ond s w ith ma turities extend ing up to 28-30 yea rs, ma rking a
shift from their pra ctice of b etting m a inly on Indian s ove reig n d eb t instruments
m a turing w ithin five y ea rs an d s ig na lling resto ratio n of g lo ba l faith in the Ind ia neco no m y. FIIs h a ve a lread y e xha uste d nea rly 65% o f the $5-b illio n inve stm ent
limit for long-term investors such as foreign central banks, pension funds,
so vereig n w ea lth funds, endo w me nt funds a nd insurance funds, da ta from the
Na tio na l S ec urities Depo sitory (NS DL) sh ow s.
Courtesy: The Economic Times
Foreign instit utional investors step up investments in long-termgovernment bonds re-instating faith in economy
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Upbeat macro, falling crude prices likely to keep momentum intact
Ind ia n m a rkets rema ined vo la tile
at the beginning of the month
following the uncertainty in theglobal markets amid default
co nce rns in Arg entina a nd rising
g eo -po litica l tens io ns in Ukraine
a n d Ir a q . Th e m id -m o n t h ,
however, witnessed a strong
rally in the m a rkets tha t a ide d the
markets to close at all-timehig hs . The ra lly w a s led b y
supportive news flows from all
fronts , a repo rt fro m Ind ia 's Met
(Meteorologica l ) depar tment
revising monsoon estimates to
10% below average (earl ier
40%), Ind ia 's five-m o nth low
w ho les a le price ind ex (WP I)d a t a , t h e P r i m e M i n i s t e r
a n n o u n c i n g a s c h e m e f o r
fina nc ia l inc lus ion. Also , repo rts
suggested a renewed top spot
for India in a Global Survey of
C o n s u m e r C o n f i d e n c e t h a t
boos t ed s en t i men t s on t h edomestic front while reduced
tensions in the Middle East and
Ukra ine eased geo-pol i t i ca l
concerns and upbeat US data
pro vide d supportive c ues o n the
international front. In the last
w e e k , t h e m a r k e t s t u r n e d
slightly jittery initially after theSupreme Court cracked down
o n c o a l b l o c k a l l o c a t i o n
im pa cting m etals, ca pital g o od s
a n d p o w e r in d i c e s . Th e
s e n t i m e n t w a s , h o w e v e r ,
r e j u v e n a t e d f o l l o w i n g a n
i m p r o v e d g r o s s d o m e s t i cproduc t (GDP) da t a o f the
co untry for Q2CY14 a nd po s itive
news f lows from the US and
Europe (financial stimulus by
European Central Bank (ECB)).
The m a rkets , thereb y, rec o rded
fres h hig hs a g a in in the la st w eeka nd reco rde d a pos itive clos e for
the m o nth. The rupee rem a ined
flat during the month closing at
60.5, los ing 0.1%.
The s t ron g ra lly in Ind ia n
markets was a ided by upbeat
data points reported during themonth. India's GDP for Q2CY14
came in at 5.7% (highest since
Q1CY13) as against 4.7% in
Q 2 C Y 1 3 . T h e I n d i a n a u t o
industry posted growth of 15%
for J uly to 19,08,650 units led by
17% g row th in tw o w heelers and
4 % g r o w t h i n p a s s e n g e rvehicles . The Rese rve Ba nk o f
Ind ia (RBI) in its m o neta ry po licy
kept the repo and cash reserve
ratio (CRR) rates unchanged at
8% and 4%, respectively, and
cut the statutory liquidity ratio
(SLR) requirement further by 50ba s is po ints (bps ) to 22%. The
cut in S LR is expec ted to relea se
~ 40,000 c ro re fun d s fo r
increm en ta l cred it. The RBI a lso
`
M ARKETS ROUND-UP
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reduced the held to maturity
(HTM) limit from 24.5% to 24%.
India's Manufacturing PMI for
J uly ros e to 53 vs . 51.5 in J unebut S ervices a nd Co m pos ite PMI
for J uly w ere ma rg ina lly low er at
52.2 and 53 vs. 54.4 and 53.8 in
J une, resp ec t ive ly. In f la t io n
numbers for July were mixed
w ith co ns um er price ind ex (CPI)
co m ing in hig her a t 7.96% led by
s o a r i n g v e g e t a b l e p r i c e swhereas WPI eased to 5.19%
follow ing a hig h ba se a nd d rop
in fuel inflation on flat global
crud e p r ice s . The ra lly in
markets paid no heed to the
declining index of industrial
prod uction (IIP) da ta for J uneand widening trade deficit data
for J uly. IIP for J une d ec lined to
3.4% fro m 5% in Ma y im pa cted
largely by slower output in the
consumer goods sector. India's
trade deficit widened to $12.23
billion against $11.76 billion in
J une led la rg ely b y hig her oilim po rts , w hich increa sed 12.8%
in J uly to $14.35 billio n.
G l o b a l m a r k e t s b e g a n t h e
mo nth on a w eak note as upbeat
economic data from the US
(expansion in service sector
act ivi ty , rebound in factoryorders, narrowing trade deficit)
g a ve s om e jitters to investo rs o n
the likelihood of an earlier-than
expected increase in interest
rates by the Fed. Disappointing
da ta from Italy a nd a sha rper fa ll
i n G e r m a n m a n u f a c t u r i n g
orders s upply a lso a dd ed to thepessimism. However, markets
g a ined streng th in the la tter ha lf
of the month on waning geo-
political worries as Russia and
Ukraine fo r the first tim e a g reed
to a discussion to resolve the
o ng o ing situation in Ukra ine, o n
po sitive d a ta prints from the US(consumer confidence index at
seven years high, improving
job s a nd ho using da ta, minutes
of the Fed's meeting indicating
on l y g r a d u a l w i t h d r a w a l o f
stim ulus) a nd ECB's sta tem ent to
cont inue quant i ta t ive eas inguntil some tangible recovery in
the eurozone eco nom ies. In the
end, the US ma rkets ga ined ~ 3-
5% whereas European markets
g a ined ~ 1-3%. Asia n ma rkets
shed their ini t ial gains and
closed m o des tly low er (0.3-1%)
following weak data releasesfrom China .
D u r i n g t h e m o n t h , c r u d e
(Nymex) maintained a weak
sta nce lo sing 2.3% a nd clo sed a t
$96/ba rre l.
Global marketsBoth US and Europea n m a rketstra de d w ith a po sitive b ia s. The
D o w J o n e s , S &P 500 a n d
M ARKETS ROUND-UP
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Nasdaq gained about 3.2%,
3.8% and 4.8%, respectively.
European markets also posted
m ode st g a ins w ith the FTS E,German Dax and French CAC
gaining 1.3%, 0.7% and 3.2%,
respectively. Asian markets, on
the other hand , rem a ined w ea k
with Nikkei and Hang Seng
l o s i n g 1 . 3 % a n d 0 . 1 % ,
respectively, while Shanghai
S S EC posted a ma rg inal g a in of0.7%.
Domestic markets
B o t h f o r e i g n i n s t i t u t i o n a l
investors (FIIs) and domestic
insti tutional investors (DIIs)
pumped money into the Indianm a rkets rem a ining net b uyers o f
~ 7,467 cro re and ~ 2,336
crore, respec tive ly.
The Nifty a nd S ense x g a ined 3%
a nd 2.9%, respectively. The BS E
A u t o a n d B S E H e a l t h c a r e
Indices were the major gainersin the month posting gains of
11.6% and 8.2%, respectively.
BS E Oil, BS E IT, BS E FMCG, BS E
Ba nkex and B S E PS U w ere other
g a i n e r s d u r i n g t h e m o n t h
po sting 4%, 3.5%, 3.2%, 3% a nd
1.1% gains, respectively. BSE
Realty, BSE Metal and BSE
Pow er how ev er lo st 8.7%, 6.2%
a nd 4.2%, respectively. The BS E
Midcap and Small Cap indices
g rew 1.8% a nd 2.8% during the
` `
month.
Outlook: Sentiments upbeat afterdigesting geo-political concerns
Brent crude fell below $100 a
barrel for the first time in 14
mon t h s a mi d mi xed g l oba l
g r o w t h i n d i c a t o r s , w a n i n g
g e o p o l i t i c a l c o n c e r n s a n d
exces s supply. This ha s co m e a s
a shot in the arm for the Indian
economy and one need not
elaborate on how this will be
beneficial , going ahead. On the
economy front , we had some
m ixed s ets o f prints but the m o st
important gauge was that GDP
growth was the highest since
Q1CY13. G loba lly, the m ixed se tof US macro data continued to
flash mixed signals regarding
Fed's next course of action.
However, the surprise move
from the ECB was by way of a
red uctio n in benc hm a rk interest
ra tes a nd o ffering of so me mo re
stimuli for the struggling Euro
zone region. Apprehensions
r e g a r d i n g U k r a i n e a n d t h e
Mid dle Eas t seem to ha ve fizzled
out. Most markets across the
g lobe con t inue to h i t new
pinna cles on the b a ck o f liq uid ity
gush and waning geopoliticalconcerns and a re in no mo od to
consol idate . We expect the
momentum to continue in India
a s w ell.
M ARKETS ROUND-UP
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Domestic equity benchmarks
shrugg ed o ff the initia l round o f
profit bookings at the start ofAugust 2014 and surged to
record highs buoyed by a cool
off in crude oil prices to a 14-
m o n t h l o w a m i d r e c e d i n g
g e o p o l i t i c a l t e n s i o n s a n d
streng th in the rupee a g a inst the
US do lla r. The S ens ex reg istered
a reso lute brea kout pas t the tw om o n t h c o n s o l i d a t i o n r a n g e
(26,300 to 24,878), thereby
c o n c l u d i n g a s e c o n d a r y
corrective phase and signalling
r es u mp t i on o f t h e p r i ma r y
uptrend.
We expect b enc hm a rks to entera sustainab le uptrend a nd hea d
t o w a r d s 2 8 , 3 0 0 /8 , 4 5 0
(S en sex/Nifty) in the co m ing
m onths. The la rg er deg ree trend
remains positive and the index
continues to m arch northw ards
in a rising peaks and troughs
manner. We expect the base of
the marke t to sh i f t h igher
to w a rds 25,750/7,700 leve ls .
Any c oo l-o ff tow a rds this reg io n
s h o u l d b e u s e d a s a n
oppo rtunity to g o lo ng.We believe the sectoral churn
wil l add more legs to this
uptrend and keep the index in
go od stead o ver a med ium term
horizon. Sectoral heavyweight,
the banking index registered a
fres h brea kout after three m onth
c o n s o l i d a t i o n w h i l e m o s t
c y c l i c a l s h a v e c o o l e d o f f
c o n s i d e r a b l y o v e r t h e l a s t
m o n t h , w h i c h h a s c r e a t e d
further headroom for pullbacks
f r o m h e r e o n . I n e x t e n d i n g
markets, we deploy Fibonacci
extensions to derive the nextlo g ica l price o b jec tive . The
1 3 8 . 2 % e x t e n s i o n o f t h e
preceding rally that measured
a r o u n d 3 , 0 0 0 p o i n t s f r o m
inception point of current rally
p o s t e l e c t i o n r e s u l t
consolidation low of 24,163
p r o j e c t s u p s i d e p o t e n t i a l
tow a rds 28,300/8,450 over the
com ing mo nths.
The ind ex ha s res o lved
higher af ter forming a
s t e a d y b a s e a r o u n d t h e
24,900/7,440reg ion d uring the
last two month's consolidation.Fo llow ing the bullish b rea kout
past the said consolidation, we
expect the ba se o f the ma rket to
shift hig her tow a rds 25,750/7,
Piercing new highs; Sensex aiming at 28,300
TECHNICAL OUTLOOK
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TECHNICAL OUTLOOK
ICICIdirect M oney Manager September 2014
BSE Sensex Weekly Candlestick Chart
S ource: Bloo mb erg, ICICIdirect.com Resea rch
The view s express ed in the article a re perso na l view s o f the author a nd d o no t neces sa rily
represe nt the v iew s o f ICICI S ecurities .
700lev els . The b ullishg a p a rea
formed on August 12, 2014
around 25,645 also coincides
with the 61.8% retracement ofthe current up move (25,750)
making this a key intermediate
suppo rt fo r the ind ex.
Key distinguishing factors that
sig na l a shift o f trend from
side w a ys to po sitive is the fa ster
retra cem ent o f the la st risingse g m ent a nd a ctive pa rticipa tio n
fro m broa de r ma rkets. The ind ex
o v e r h a u l e d i t s 1 0 - s e s s i o n
decl ine (26,300 to 25,232)
in justfive tra d ing ses s io n-
sindicating a strong comeback
by b ulls. Out performa nce o f the
b r o a d e r m a r k e t s w h i l ebe nchm a rks venture into new
t e r r i t o r y h i g h l i g h t s t h e
preva i l ing buoyancy in the
market and augurs well for the
susta ina b ility o f the
uptrend . Theb a nking ind ex,
w h i c h c o m m a n d s h i g h e s t
weightage on the benchmarkhas also risen from a three-
month slumber and supports
further upsid es .
Double Bottom @ 24879
22939
22277
19963
25375
2976 pts
3098
pt s
13 w eek EM A
The 138.2% extension of preceding
rally projects upside tow ards 28300The index concluded a tw o month consolidation and resolvedhigher to indicate res umption of the upward momentum. Webelieve the index is set to extend the current up m ove to the t uneof 138.2% extension of t he preceding rally, projecting upsidestow ards 28300 levels over the coming months
24163
Weekly RSI holding its support reading of 60 -65 during correctivephase highlights the underlying strength in the trend
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10ICICIdirect M oney Manager September 2014
DERIVATIVES STRATEGY
Since the election verdict, the
Nifty has been making higherlows and every decline has
been greeted with long build-
u p i n t h e i n d e x f u t u r e s
seg m ent. In the current m o nth,
the Nifty bo ttom ed o ut a t 7550,
post which it added close to
30% OI and as a follow up
m a de recen t hig hs o f 7965.
During the August expiry
week, we have seen smooth
rollover of long positions. As
the Nifty took out 7800 on
August 19, the roll spread
bo ttom ed out at 30 points and
co nsta ntly m o ved hig her to 38
po ints . This m ea ns lo ng Nifty
futures are getting rolled into
the S eptem ber se ries . This
suggests the bullish bias is
likely to co ntinue.
In the options segment, the
initia l build-up is sug g es ting a
rang e o f 7800-8200.Looking at the Call options
segment, there is visibility
beyond 8000 as well, as 8200
Ca ll ha s h ig h OI. This s ug g es ts,
if the elusive 8000 level is ta ken
o ut, the Nifty w o uld be w ell a ndtruly o n co urse for 8200 in
September.
September Put options are
evenly spread out but the
highest OI concentration is at
the 7800 Put. Coincidentally,the VWAP for the current s eries
is a lso pla ce d nea r 7760 levels.
Since the Nifty bottomed out
near 6000 in February 2014, it
has held monthly VWAP price
on a clos ing ba sis.Nifty Bo lling er is sho w ing
signs of expansion and even
w ith the Nifty c lo cking o ve r 6%
gains on the trot, the index is
a b s o rb ing the a d v e r s e n e w s
flo w s. Henc e, the dec lines inthe ind ex s ho uld be utilise d to
go long.
On upsides target of 8000/8200 likely to be tested
w hile 7760-7800 is major support zone
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11ICICIdirect M oney Manager September 2014
DERIVATIVES STRATEGY
Nif ty Options build-up
September series
0
0.5
1
1.5
2
2.5
7100
7200
7300
7400
7500
7600
7700
7800
7900
8000
8100
8200
8300
OIinM
illionS
hares
Cal l OI Pu t OI
Nifty + 2 Sigma Bollingerband : in expansion
5000
5500
6000
6500
7000
7500
8000
23-Aug-1
3
23-
Sep-1
3
23-Oct-13
23-Nov-1
3
23-
Dec-
13
23-Jan-1
4
23-Feb-1
4
23-M
ar-14
23-Apr-14
23-M
ay-
14
23-Jun-1
4
23-Jul-14
23-
Aug-1
4
Nifty Spot M ean + 2 Sigma 20 D EM A M ean+ 2 Sigma
Broad based buying observed in
recent Ni fty up move After bo ttom ing o ut on Aug us t
8 a t 7550 , the Nifty sa w a sha rp
reversa l o f fortunes a s it m a de
yet a no ther reco rd hig h o f
7965 (gains of close to 6%). In
this m o ve, the e ntire s pectrumo f stocks fro m the sm a ll ca p to
la rge ca p a nd fro m IT to
ba nking ha ve pa rticipa ted
Initial leadership was seen in
auto, which later shifted to
banking as the Nifty took out
7800. To w a rds settlem ent, IT
and pharma s tock saw b uy ing .
In Aug ust, the CNX midca p a nd
small cap space witnessed
g a ins o f o ver 2%
How ever, th is buy ing a p p e a rs
to be ma inly d o m es tic a s FII
only bought US $600 m ill io n
for the m o nth . FIIs b o ug ht
protec t ion for the a l ready
aggress ive buy ing o f over
US$13 billion in 2014. Geo-
poli t ical r isk continued to
remain elevated during them o n t h w h i l e t h e s t r o n g
economic da t a in the US
increas ed the chances of a ra te
hike there
The NS E a dva nce de cline ra tio
w ill be keenly tra cked . Th eratio rem a ined po sitive for
m o st o f the Aug ust se ries . A
continuance of this trend is
likely to infuse fresh upsides i n
the broader markets,
especia l ly the midcap and
sm a ll ca p space
Sectoral return in August Series
-10 -5 0 5 10 15
Bse Health Care
Bse Auto
BSE IT
Nifty
BSE Pow er
Bse Metal
Bse Realty
% monthly return
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12ICICIdirect M oney Manager
DERIVATIVES STRATEGY
September 2014
Bank Nift y takes out elect ionverdict high of 15740; likely to hittargets of 16000/16500
A f t e r t h r e e m o n t h s , t h e
banking index took out the
election day high of 15740.
This up m o ve d uring this
series w as on the back o f l o n g
build-up, w here the OI d u r in g
the series nea rly d o u b le d to
95250 co ntra cts
Looking a t the September
series options build-up,
highest Call bases are still
pla ced a t 16000/16500, w h i c h
a re targ et levels for th e ind e x
in the S eptem be r series . Onthe lo w er side , hig hes t Put
ba se is a t 15000
In price ratio terms, the Bank
Nifty/Nifty is currently a t 1 . 9 9 .
The ra t io has seen a t re n d l in e
break o ut a t 1.97 a nd is ho ld ing
a bo ve this level. Eventua lly,the ra tio is likely to h ea d hig her
tow ards 2.2
With major asse t c lasses ,
namely crude and gold in a
declining trend on the back of
inherent streng th in the d o lla r,
the current account deficit islikely to come down further.
This w ill be a g o o d trig g er for
the ba nking se cto r, in
particular. The positive
sentiment could get a further
push if the CPI read ing due o n
September 12, 2014 comes inlower.
Private sector banks, which
contribute over 70% to the
index, are showing an
accumulation pattern. If
ad verse new s flow s sof ten o ut ,
t h i s p a t t e r n i s l i k e l y t ocontinue.
Bank Nifty options build up suggeststarget of 16000/16500
OI Build up for August Series
0
0. 1
0. 2
0. 3
0. 4
0. 5
0. 6
14500
14700
14900
15100
15300
15500
15700
15900
16100
16300
16500
OIinMill
ions
Call OI Put OI
India VIX : Likely to be subdued
below 16 levels in near term
Since the election verdict inMay 2014, the volatility index
has been in a declining trend
and ha s been m aking new low s
eve ry m o nth. We believe Ind ia
VIX is likely to move in the
rang e o f 12-16.
With volatility near multiyearlo w s, s o m e pullba ck in it is n o t
ruled out during the series.
However, i f this up move
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13ICICIdirect M oney Manager
DERIVATIVES STRATEGY
September 2014
happens in India VIX, it is
unlikely to deter the Niftys
upward trajectory and should
be used as a buyingopportunity to create short
vo la tility po sitio ns .
On a positional basis, the 100
week moving average is at
18.2. This level is likely to be
tested only in the event of anes ca la tio n o f geo po litica l risk.
Ano ther area that co uld trig g er
volatility is strength in the
dollar. With the dollar index
a lrea dy at a one -yea r hig h, any
further streng thening co uld hit
emerging currencies with ade preca ting bia s. If a currency
de preca tio n s tarts in Ems, then
this may have an impact on
equities negatively, pushing
the fea r ga ug e hig her. The
European Central Bank
meeting on September 4, andtheir stance on stimulus could
a lso push vo la tility h ig her.
India VIX likely to remain in 12 to 16range
FII cash flow s remain muted in
August but they bought index
options to hedge cash positions
FIIs cash buying remained tepidduring the month as they boughtonly US$ 600 million, which isalmost 65% lower than the lastthree months average of US$1.7billion.
This low cash buying is also
supported by seasonality, whichsuggests August remains a slackmonth since 2009 for FII cashinflows.
In the current month, buying wasseen on part of domesticparticipants wherein DIIs after a
gap of five months bought in thecash segment. Their total buyingwas close to US$300 million.
The bond market also remaineddry for a major part of the month.Barring record buying by FranklinTempleton of US$2.62 billion in a
single session, the figure for therest of the month is insignificant.Higher CPI reading dampenedhopes of long bond playprospects.
The net inflow (FII equity inflow +FII debt inflow) of close to US$3
billion was 33% lower than lastmonths inflow of US$4.5 billion
During the month, the dollarindex was a key area of strength
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14ICICIdirect M oney Manager
DERIVATIVES STRATEGY
September 2014
as it moved up close to 2% to aone-year high of 82.7. Euro fell to11 month low of 1.32 and JPY to
seven month high of 104.5.However, the rupee has shownsurprising resilience till now as itcontinues to trade near 60.However, if the dollar strengthcontinues further, it will be difficultfor the rupee to continue to defydepreciation
FIIs cash act ivity in (In `crore)
-10000
-5000
0
5000
10000
15000
20000
25000
30000
Aug
-1
3
Sep
-1
3
Oc
t-1
3
Nov
-1
3
Dec
-1
3
Jan
-1
4
Fe
b-1
4
M
ar-1
4
Apr-1
4
M
ay
-1
4
Jun
-1
4
Ju
l-1
4
Aug
-1
4
INRisCr
FIIs debt activity (In `crore)
-25000
-20000
-15000
-10000
-5000
0
5000
10000
15000
20000
Aug-1
3
Sep-1
3
Oc
t-13
Nov-1
3
Dec-1
3
Jan-1
4
Fe
b-1
4
M
ar-
14
Apr-
14
M
ay-1
4
Jun-1
4
Ju
l-14
Aug-1
4
INR
inC
r
FIIs hold key to substantial up move
in N ift y: Since 2009, September has
seen largest inflow s
Foreig n ins titutiona l inve s tors
have b een the big g est so urce o f
liquidity and have represented
the largest appetite for Indian
eq uity m a rkets . Even thoug h FII
f lows have remained tepid
during August, flows are likely
to pick up in S epte mber.Historically, since 2009, one of
the smallest inflows is seen in
Augus t, w hich rem a ined true in
August 2014 as well. However,
September records the largest
inflows, which may happen to
be true this ye a r.
Since 2009, their run rate was
US$14 billion per year. In the
current year, they have already
boug ht close to US $13 b illion.
FI I buying p icks up f rom
September onwards. Averagem o n t h ly i n f lo w s d u r in g
Se p te mb e r D e ce mb e r w e re
see n a t US $1.85 billion, w hich is
45% higher than the monthly
average of US$1.27 billion for
the w hole yea r
Average monthly net FII inflow ssince 2009
576 9
17
2011
915
1153
358
1615
286
2662
2107
1214
1409
0
500
1000
1500
2000
2500
3000
Jan Feb M ar Apr M ay J un J ul Aug Sep Oct Nov Dec
AverageU
S$million
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15
STOCK IDEAS
Bajaj Elect ricals: Strong brand play!
Company Background
Established in 1938, Bajaj
Electrica ls Ltd . (BEL) w a s firs t
incorporated as Radio Lamp
Wo r ks Lt d . It w a s la t e r
renamed Bajaj Electricals in
1960. BEL operates mainly in
t h r e e b u s i n e s s s e g m e n t s ,namely, lighting &luminaries,
consumer durables (CD) and
eng ineering & project (E&P).
The co m pany follow s a n a sse t
lig ht m o de l stra teg y w herein it
largely outsources (revenue
f r o m o u t s o u r c e d p r o d u c t
c o n t rib u t e s ~ 95% in t h e
topline) the manufacturing of
its kitchen a nd ho m e a pplia nce
products and lightings. Under
i t s k i t c h e n a n d h o m e
appliances, BEL offers a wider a n g e o f b r o w n g o o d s
including water heaters, mixer
grinder, food processors etc.
The Bajaj lighting &luminaries
unit markets a wide range of
light sources and domesticlum ina ries . The E&P seg m ent
(co ntributes ~ 20% to topline)
includes three sub segments
viz. special projects,
transmission line tower and
hig h m as ts .
Consumption story to remain intact
Dominant play in appliances
s e g m e n t , B E L i s a w e l l
established national brand in
t h e kit c h e n & d o m e s t icappliances (KDA) and lighting
s e g m e n t s . Th e s e t w o
seg me nts contribute ~ 70% to
the to pline a nd reco rde d s a les
CAGR (compounded annual
g ro w th ra te) o f ~ 18.3% inFY09-14. BEL has successfully
levera g ed its brand to create a
huge retail network of 45,000
for appliances, 86,000 for fans
and over 4,00,000 for lighting
a cros s Ind ia . In o rder to use its
expertise in different product
lines, BEL has entered into
va rio us jo int ve ntures (J Vs) in
the appliances and lighting
s e g m e n t s . A m o n g m a j o r
b r a n d s , M o r p h y R i c h a r d s
(leading brand in the UK) is awell-accepted brand in India
m a rketed by Ba ja j. The J V w a s
started in 2003 mainly to tap
Investment Rationale
ICICIdirect M oney Manager September 2014
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16
the market for premium
produc t s . Revenues o f
Morphy's prod ucts reco rde d a
CAGR of 28.2% in FY09-14
fro m 55 crore to 190 cro re.
BEL outsources its lighting
products domestically while
luminaries are sourced from
do m es tic a nd interna tio na l
vendors. With a strong dealernetwork, we believe the CD &
lighting segment will witness
sa les CAG R of ~ 17% and
~ 10%, respectively, in FY14-
16E, supported by an un-
penetrated rural market, rapid
urbanisation and a growing
m idd le cla ss .
Recovery in engineering & project
(E&P) segment
BEL entered lighting project
se rvice s in 1960 w ith a n a im o f
diversifying the business from
a l i g h t i n g a n d c o n s u m e r
durable player to a strong
contender in the engineering
a nd pro ject s eg m ents. The
business unit is divided into
three segments, namely highm a s t s , t r a n s m i s s i o n l i n e
to w e rs (TLT) a nd s pe c ia l
pro jects . The E&P seg m ent
` `
revenue increased four fold
fro m 178 cro re in FY05 to
1150 cro re in FY14 w hile the
seg m ent co ntributes ~ 29% to
the FY14 to pline . The seg m en t
recorded revenue CAGR of
~ 1 6 . 2 % i n F Y 0 9 -1 4 . A
slowdown in the industrial
b u s i n e s s a n d s t r e t c h e d
working capital cycle resultedin a decline in EBIT m a rgin
from 12.6% in FY09 to -18.1%
in FY13 and -9% in Fy14.
How ever, BEL's o rder bo o k size
has more than doubled in
FY14. Company has recently
won major orders (all higher
margin orders) from various
states electricity boards and
Power Grid Corporat ion of
India. With the completion
period of 24 months, major
pa rt of revenues w o uld flo w inFY17E. However, continuous
order inf low improved the
visibility of revenue booking
fro m the E&P seg m ent.
Pan-India presence through strong
dealer netw orkB E L , o n e o f t h e o l d e s t
consumer durable companies
in the co untry, ha s a pa n-Ind ia
` `
STOCK IDEAS
ICICIdirect M oney Manager September 2014
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17
STOCK IDEAS
ICICIdirect M oney Manager September 2014
presence through a s trong
dea ler and reta il ne tw o rk. The
c o m p a n y h a s 2 , 200+
distributors and 5,000+
dealers across India. Further,
Bajaj's lighting solutions are
a va ila b le in o ver 3,50,000 reta il
s t o r e s w h i l e f a n s a n d
appliances are available at
over 88,000 and 45,000 retailsto res a cross India . In o rde r to
leverag e its s tro ng brand , BEL
ha s ta ken a n initia tive to reach
d i r e c t l y t o t h e c o n s u m e r
through opening retail chain
'Bajaj World' (pure franchise
model) for appliances and
lighting products. Currently,
the co m pa ny ha s 75 exclusive
Bajaj World stores. It also has
plans to expand its presence
globa l ly through f ranchise
agreements. It has recentlyopened stores in Nepal and
plans to o pen stores in G hana ,
Nigeria, Sri Lanka and South
Africa.
Consumer business to drive rat ing
Bajaj Electricals, despite beinga do m ina nt pla y in the lig hting
a n d c o n s u m e r d u r a b l e
se g m ent (co ntributes ~ 70% o f
topline) with a strong dealer
network, has paid the price for
po o r exe cutio n in the E&P
b u s i n e s s . P o o r E B I TD A
margins with rising working
capital requirement (due to a
d e la y in e xe cution o f E&P
projects) resulted in sharp
multiple contractions. At the
current price, the stock istra d ing a t a PE m ultiple o f 17.4x
FY15E a nd 10x FY16E ea rning s .
On a n EV/EBITDA ba s is, it is
tra ding a t ~ 9.9x and 7x for
FY15E a nd FY16E, respe ct ive ly.
With the expected turnaround
in th e E&P bus ine ss from FY15E
onwards and dominance in
lig hting & co nsumer dura ble
b u s i n e s s , w e e x p e c t t h e
c o m p a n y t o g e n e r a t e o f
EBITDA o f 315 cro re in FY15E
a nd 430 crore in FY16E. Webelieve the stock is trading at
a t t r a c t i v e m u l t i p l e s
considering the turnaround in
the E&P se g m ent. We ha ve
valued the consumer durable,
lig hting &E&P bus ine ss a t 12x,6x and 6x FY16E EBITDA,
res pec tively, to a rrive a t a targ et
price o f 416 w ith a BUY
recommendation.
`
`
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8/11/2019 Money Manager September 14 Monthly_Issue
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18
Key risks include:Rising co m petition from d om es tic an d internationa l pla ye rs entering the Indianma rkets co uld po se a threa t. In ad dition, the co mpa ny's import content co ntributes ~ 13% to the
topline, w hich includes 40% of Mo rphy Richa rds, 20% of a pplia nces , 10% ea ch o f lig hting a nd
fans. Rupee depreciation over a n extended duration could put press ure o n m argins in the nea r
term. Further, a slow do w n in the po w er trans mission a nd d istribution industry a nd s low er rate
of project exec ution ha s hit the com pa ny's s eg m ent reve nue. This led to stretched w orking
ca pital req uireme nt and fina lly hit ma rgin.
(EBITDA:Earnings before interest, ta xes, d epreciation, a nd am ortization; EV: Enterprise value; EPS:Earnings per share; P/E:Price-to-earnings; P/BV:Price/bo ok va lue; RoNW:Return on net w orth; RoCE:Return on Ca pital Employed ; Mcap:Market ca pitalization; M F:Mutual Funds ; FII:Fo reign Institutiona lInvestors)
STOCK IDEAS
Key Financials
Valuations Summary
Stock Data
ICICIdirect M oney Manager September 2014
Net sa les ( cro re) 3,381 4,048 4,695 5,512
EBITDA ( cro re) 101.2 81.8 314.5 429.9
Net pro fit ( crore) 51.2 (5.3) 168.3 285
EP S ( ) 3.1 (0.5) 16.9 28.6
`
`
`
`
P/E (x) 90.9 - 16.6 9.8
Ta rg et P/E (x) 135.2 - 24.7 14.6
EV /EB ITDA (x) 28.7 37.7 9.5 6.7
P/BV (x) 3.8 3.9 3.3 2.5
Ro NW (%) 7 (0.7) 19.7 25.7
RoCE (%) 9.8 5.4 24.8 29.2
Mca p/sa les (x) 0.8 0.7 0.6 0.5
Pa rticula rs Fig ures
Ma rket ca pita liza tion ( cro re) 2,793.2
To ta l debt (FY14) ( cro re) 344.3
Ca sh a nd inves tm ents (FY14) ( crore) 121.8
Enterprise va lue (FY14) ( cro re) 3,015.7
52-w eek Hig h/Low ( ) 382 /150
Eq uity ca pita l ( cro re) 20
Fa ce va lue ( ) 2
MF Hold ing (%) 3.9
FII Ho ld ing (%) 16.3
`
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19
Page Industries: Galloping ahead!
Company Background
Investment Rationale
Pag e In d us t r i e s (Pag e ) ,prom oted by the G enom a l
b r o t h e r s i n 1 9 9 5 , i s t h e
exclusive licens ee o f J oc key
International Inc (US) for the
m a nufa cture a nd d istribution of
the J ockey brand innerw ear
/leis ure w ea r fo r me n a ndwomen in India, Sri Lanka,
Bangladesh, Nepal and UAE.
Th e prom ote rs h a v e b e e n
a s s o c i a t e d w i t h J o c k e y
International Inc. for over 50
years (since 1959) as their sole
lice nsee in the Philippines . Pa g ehas 10 factories with a total
ma nufa cturing ca pacity of ~ 16
crore pieces . Pa g e's distributo rs
cater to over 23,000 retail
ou t l e t s spre ad ac ross f i v e
formats - chain stores (large
format stores), multi brandoutlets (MBOs), hosiery stores,
m u l t i p u r p o s e s t o r e s a n d
exclusive J ockey b ra nd outlets
(EBOs).
Favourable demographics, low
penetration to boost grow thThe India n innerw ea r seg m ent
va lued a t $4 billion is expe cted
to grow at 12% compounded
a nnua l g row th ra te (CAG R) over
the next decade. Page hasconsistently grown well above
the indus try a verag e. We e xpect
the same to continue as India's
per capita spend on innerwear
is ~ 90% low er than that of
Tha ila nd a nd China . The ma rket
has been growing faster thanthe overall clothing market,
d riven by prem iumisa tion. With
discretionary consumer spend
in India continuing to grow,
these trends should persist,
a ided by rising urba nisa tion a nd
g row th in co nsumer incom es.Healthy revenue grow th to continue
and margins to be maintained
Pag e's revenues ha ve g row n a t
a CAGR of 36.4% during Fy10
14. We e xpect the g row th ra te to
slow down to 27.6% during
FY14-17E ow ing to a la rge r ba seeffect. We e xpect b o th vo lumes
a s w ell a s rea lisa tion to a id this
growth. Considering that the
p e n e t r a t io n o f b r a n d e d
innerw ea r is s ig nifica ntly low in
India and that Indians spend
sig nifica ntly low er o n innerw ea rcompared to their Asian peers,
w e d o n o t a n t i c i p a t e a n y
roadblocks in the company's
g r o w t h p l a n s . C o n t i n u o u s
STOCK IDEAS
ICICIdirect M oney Manager September 2014
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20
ca pa city a dd ition a nd entry into
ne w er m a rkets is l ikely to
further aid growth. Page is
cushioned from rising inputcosts as it takes price hikes to
the tune of 5-10% per annum,
which enables it to maintain
o pera t ing m a rgins . The
company is confident of
maintaining its operating
m a rgin a round 20%. Tho ug ht h e o p e r a t i n g m a r g i n h a s
increased to 21.4% in Fy14
(owing to removal of excise
duty), w e e xpect it to s tabilise a t
21% by FY17E.
Capacit y addition to continue
P a g e h a s c o n t i n u o u s l yexpa nde d ca pa cities in line w ith
the growing demand for its
products. Page's capacity has
increa se d from 2.2 crore pieces
in FY07 to 16.3 crore pieces in
FY14. We e xpect the sa me to g o
up to 28.2 crore pieces byFY17E. As the company is
absent in a highly capital-
intensive segment, Page has
been comfortably able to fund
the same through in terna l
a ccruals. We expec t the s a me to
continue, going forward. Withthe current rate of capacity
addition, the company is only
able to cater to the Indian
markets despite holding
licenses for Sri Lanka,
Ba ng la de sh, Nepa l a nd UAE a s
w ell. In a sc ena rio w hen India n
dem a nd s tarts to fla tten o ut, thecompan y can acce ss th e se
m a r k e t s f o r g r o w t h
opportunities.
Consistent grow th w ith healthy
fundamentals; recommend BUY
W e b e l i e v e c h a n g i n g
demographics will continue towork in favour of consumption
oriented companies like Page
Ind ustries . The c om pa ny w ill be
a beneficiary of the shift from
u n b r a n d e d t o b r a n d e d
products . Apart f rom local
demand, Page has l icenses toca ter to c ountries like Nepa l, S ri
Lanka, Bangladesh and UAE.
M a n y c o n s u m e r o r i e n t e d
companies that have delivered
co nsistent grow th are tra ding a t
premium multiples. Similarly,
we believe Page should alsoc o m m a n d a p r e m i u m
considering its strong
fundamentals and consistent
dividend payouts. Page has
been able to grow consistently
while many of its peers are
s trug g ling to g row . We, thereb y,r e c o m m e n d B U Y o n P a g e
Indus tries w ith a targ et price of
8,660 (based on 30x FY17E
EPS o f 288.7).
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STOCK IDEAS
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Key risks inc lude:Rising co m petition from internation a l pla ye rs en teringthe Indian m a rkets co uld po se a threa t. Also , if sa les g row th slow s d ow n
faster-than-expected , the co mpa ny w ould ha ve to reso rt to d eb t to fund
w orking ca pital a s w ell a s pa y d ivide nds a t the current ra te.
(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS:Earnings per share; P/E:Price -to -ea rning s; RoNW:Return on Net-Worth; RoCE:Returnon Capital Employ ed; M F:Mutua l Fund s; FII:Foreign Ins titutiona l Inves to rs).
Key Financials
Valuations Summary
Stock Data
STOCK IDEAS
ICICIdirect M oney Manager September 2014
Net sa les ( crore) 1,187.6 1,511.6 1,923.8 2,458
EBITDA ( crore) 251.2 310.9 400.3 512.7
Net pro fit ( c ro re) 153.8 193.1 250.8 322
EPS ( ) 137.9 173.2 224.9 288.7
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P/E (x) 53.3 42.5 32.7 25.5Ta rg et P/E (x) 62.8 50 38.5 30
Divid end y ield (%) 0.7 0.8 1.2 1.5
Price/S a les (x) 6.99 5.49 4.31 3.37
Ro NW (%) 53.2 52.3 53 53.1
Ro CE (%) 52.5 58.4 59.7 60.1
Ma rket ca pita liza tio n ( crore) 8,203.7
Tota l debt (FY14) ( crore) 163.2
Ca sh a nd inves tm ents (FY14) ( crore) 3.5
Enterprise va lue (EV) ( cro re) 8,363.4
52-w eek Hig h/Lo w ( ) 8,205 /3,850
Eq uity ca pita l ( cro re) 11.2
Fa ce va lue ( ) 10
MF ho ld ing (%) 14.9
FII ho ld ing (%) 20
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FLAVOUR OF THE M ONTH
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A guide to secure your ret irement
The face o f retirement is cha ng ing . To da y, m o st o f us c a n't co unt
on what our previous generations could, for their retirement
needs . Assured pension, g uaranteed returns from g ove rnme ntschemes, support from a joint family, and periods of relatively
low inflation -- are almost things of the past. Our retirement is
going to be very different from that of our parents or
grandparents. We would need to fend for ourselves for our
retirem ent needs . Here w e help yo u understand w hy s a ving for
retirem ent is im po rtant a nd the ro ute yo u ma y ta ke to rea ch yo ur
retirem ent g o a ls w ith rela tive ea se.
The changing landscape
Pensions are nearly ext inct :In the
p a s t , l a r g e e m p l o y e r s
w o r l d w i d e p r o v i d e d t h e i r
e m p l o y e e s w i t h d e f i n e d
benefit (DB) plans. Put simply,
c o m p a n i e s p r o m i s e d
employees a certain monthly
benefit at retirem ent. Tho se
benefits are almost a dream
no w. The increa sing b urden o f
p e n s i o n l i a b i l i t i e s o n
governments and the private
s e c t o r a c r o s s t h e w o r l d ,
including Ind ia , ha s fo rced the
s h i f t t o w a r d s d e f i n e d
contribution (DC) plans. For
example, Japan and Canada ,
both historically had only DB,are now showing s igns of a
shift tow a rds DC, ac cording to
a
In
ca se o f DC pla ns , the lia b ility is
clea r; w hereas in DB pla ns, thelia b ilities a re uncertain.
repo rt 'G lo ba l Pens io ns Ass et
S tud y 2014' by To w ers Wa tso n,
a global consultancy firm.
S ource: Tow ers Wats on, G lob al Pensions Asset S tudy 2014
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FLAVOUR OF THE M ONTH
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The g rad ua l sh ift from DB to
DC plans suggests that we
ourselves would need to take
the charge of our retirement.Th o u g h s o m e o f us a re
covered under employees '
provident fund (EPF) account,
the overall coverage remains
low. Adding civil servants and
the voluntary and mandatory
participants of the EmployersProvident Funds Organization
(EPFO) schemes (of which not
a ll a re active pa rticipa nts), on ly
1 7 2 1 % o f t h e I n d i a n
w o rkforce is currently co vered
b y a f o r m a l p e n s i o n
arrangement,
The a vera g e
Indian now lives for up to
almost 65 years, compared
w ith 48 yea rs in 1970. The life
expectancy is expected to
further rise in the coming
ye a rs. It is e xpec ted to rea ch 72for m a les a nd 76 for fema les b y
2025, according to a planning
co m m iss io n repo rt.
ac co rding to the
A s i a n D e v e l o p m e n t B a n k
(ADB).We are living longer:
S ource: Planning Com mission report - Demo graph ic s cena rio, 2025
Rising life expectancy means
w e w ould need to save enough
today for 25-30 years of our
retired life.
The Indianpo pula tio n is a g eing . India ha s
around 100 million elderly (60
yea rs o f a g e) a t present a nd the
n u m b e r is e x p e c t e d t o
Dem o g ra phic shift:
i n c r e a s e t o 3 2 3 m i l l i o n ,
constituting 20% of the total
po pula tio n, by 2050, ac co rd ing
to .
This m ea ns w e w ill ha ve a
lo ng er spa n in retirem ent, a nd
therefore, must accumulate a
bigger corpus for our sunset
years .
the United Nations report
Projected life expectancy
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FLAVOUR OF THE M ONTH
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Cost of living rising: About 60years ago, an average middle
cla ss person ea rning 600 a
m o nth, could w ell suppo rt his
fam ily. To da y, it ta kes a bo ut
30,000. Likew ise, there w ill be a
`
`
continuous price rise over along period. If you plan to
maintain your current lifestyle
even after you retire, you
would need to build in an
infla tio n-protec ted po rtfolio .
If your monthly expenses today are 30,000`
10 53,725
15 71,897
20 96,214
25 128,756
30 172,305
35 230,583
Years to retirement Ac tual amount required c onsidering inflat ion(Rs.)
Note: Inflation ta ken a t 6%
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FLAVOUR OF THE M ONTH
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Healthcare costs sharply rising:
The g o o d pa rt is, d es pite a ll the
challenges listed above, we
can achieve our goals with
rela tive ea se . The key is: S ta rt
w here yo u are. S tart now.
The early bird catches the w orm
Healthcare costs are on the
rise, and they are significantly
outpacing consumer inflation
averages. In India, medical
infla tio n ha s bee n running into
do uble d ig its -- a t the ra te o f 18
20% every y ea r. As hea lthca re
expens es g o up in retirem ent,
i t i s i m p o r t a n t t o b u i l dsufficient retirement corpus to
take ca re o f o ur need s.
Saving for ret irement may
seem very dis tant when you
a re yo ung. But the so oner you
start saving and investing for
your ret irement , the more
se cure yo ur future w ill be.
Starting early has significant
long-term benefits, thanks to
the magic of compounding.
Calculations show that if a
person aged 30 years, startsinvesting 3,000 a m o nth, a t
the rate of return at 12% p.a.,
h e w o u l d b e a b l e t o
`
a cc um ula te 51,06,620 by the
age of 55. If he starts 5 years
la ter , even with a grea ter
inves tme nt a m o unt o f 5,000 amonth, he will be able to
a cc um ula te o nly 45,99,287.
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Age of s tarting
investm ent 30 yea rs 35 yea rs
Retirement a g e 55 yea rs 55 yea rs
Monthly
investm ent Rs . 3,000 Rs. 5,000
Ra te o f return 12% p.a . 12% p.a .
Corpus
a cc um ula te d Rs . 51,06,620 Rs . 45,99,287
Scenario 1 Scenario 2
Also , w hen y o u sta rt ea rly, yo ur e q u i r e l e s s e r i n v e s t m e n t
amount to build retirement
corpus. Let's understand this
with an example. Suppose, a
perso n need s a corpus of 1
crore in his retirement kitty atthe a g e o f 60. If he pla ns a t the
a g e o f 25, co nside ring returns
o f 8%, he ha s to sa ve 58,033
per ye a r. If he s tarts pla nning a t
the ag e o f 35 he has to sa ve
1,36,788 every year. And if hestarts planning late at the age
o f 45 he ha s to sa ve 3,68,295
to rea ch his g o a l o f 1 crore.
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FLAVOUR OF THE M ONTH
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AgeAmount to be invested every year to accumulat e 1 crore`
At 8% p.a . return At 10% p.a . return At 12% p.a . return
25 `58,033 `36,897 `23,166
35 `1,36,788 `1,01,681 `75,000
45 `3,68,295 `3,14,738 `2,68,242
Since younger investors have
a long er tim e to a bs orb m a rket
setbacks, it is usually prudent
for them to invest a larger
portion of their portfolio in
e q u i t y . H i s t o r i c a l l y ,
i n v e s t m e n t s i n e q u i t y
haveprovided better returns
t h a n o t h e r a s s e t c l a s s e s .
S i n c e i n c e p t io n , S e n s e x
hasdelivered a compoundedannual growth rate (CAGR)
return o f 17%, w hich is hig her
t h a n a n y o t h e r a s s e t
c l a s s . Inves tment in equ i t y
alsohelps build-in an inflation-
protected and tax-ef f ic ient
po rtfo lio in the long run.
For a retirement corpus, one
should take maximum equity
expos ure a t an ea rly a g e. One
can gradually reduce it as he
approaches ret irement . But
suppose, if one has startedpla nning for retirem ent a t a la te
a g e then to sa tisfy his g oa l he
has to take equity exposure
accordingly, irrespective of his
a g e .
How much is enoug h to lead aco m fortab le retired life? Well, it
d e p e n d s o n a n u m b e r o f
f a c t o r s . Th e s e in c l u d e :
y o u r e x p e c t e d l i f e s t y l e i n
retirement, hea lth histo ry, ho w
much risk you are willing to
take in your portfolio, the
amount you have saved and
invested s o far, and ho w m uch
tim e y o u ha ve until retirement.
- First, determine the age at
which you wish to retire. (e.g.
Current age 30; Retirement
a g e 55). To da y, a lo t o f us
w a n t t o r e t i r e e a r l y . B u t
remember, retiring early willreq uire m o re m o ney.
- Ne x t , lis t y o u r c u rre n t
e x p e n s e s a n d p o s t
A bit of number c runching
Here's the simple method to
find out the retirement corpus
required.
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FLAVOUR OF THE M ONTH
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retirem ent expense s in to da y's
co st. Fo r exa m ple, if yo u a re
a family of 4 with annual
househo ld expenses of 3lakh, your post-ret irement
expenses for a family of 2
m em be rs co uld be 2 la kh in
t o d a y ' s c o s t . I t i s a l s o
i m p o r t a n t t o f a c t o r in
increases in certain expensessuch as medical and traveling
expenses. (e.g. let's say your
current mo nthly expe nse s a re
30,000 per m o nth).
- Factor in the inflation rate
( e . g . 6 % p . a . ) a n d t h e n
c a l c u l a t e t h e m o n t h l y
expenses that you will need
after retirement. (e.g. 128,756
per m o nth).
- Ass um e a ra te o f return to be
g e n e r a t e d f r o m y o u r
retirement c o rpus, i.e. a nnuityra te. (e.g . 8% p.a .).
- Now , arrive a t the rea l rate o f
return from your retirement
corpus post-retirement, after
neg a ting the e ffec t of infla tio n.
(Eg: [(1+ 8%)/(1+ 6%)] 1 =1.89%)
- D i v i d e t h e m o n t h l y
e x p e n s e s r e q u i r e d p o s t
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retirement by the real rate of
r e t u r n t o a r r i v e a t y o u r
r e t i r e m e n t c o r p u s . ( E g :
128,756 /[1.89%/12] = Rs. 8.17crore.)
This w ill be the to ta l co rpus
required. You also need to
f a c t o r i n t h e i n v e s t m e n t s
i n c l u d i n g p r o v i d e n t f u n d ,
w hich you have a lread y m ad e,to arrive at the net corpus
required.
This w a s f a ir ly a s im ple
calculation. But getting the
precise fig ure ne ed s a lo o k into
various aspects that you may
h a v e n o t t h o u g h t o f . A
professional financial planner
will help you look into all the
aspec t s and min imize the
complexity.
Once yo u have d eterm ined the
retirem ent corpus need ed , yo u
nee d to sta rt pla nning for it.
I f you are a parent, you may
find yourself asking how to
save enough for retirement
w hen s a ving for your child ren's
ed uca tio n g o a ls. Tho ug h yo urch ild ren's ne ed s ta ke prio rity, it
is important to make it a
balancing act. Remember, one
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FLAVOUR OF THE M ONTH
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c a n b o r r o w f o r c h i l d 's
e d u c a t io n , b u t n o t f o r
retirem ent. The key is to build a
separate kitty for each short-term and long-term financial
goal .
Th e r e a r e v a r io u s t o o ls
a v a i l a b l e f o r b u i l d i n g
retirement corpus. One of the
best tools is Public Provident
Fund (PPF) account. One can
open P PF a cco unt and de pos it
a m a xim um o f 1.50 la kh
every ye a r. The current interes t
rate is 8.7%. A PPF a cco unt ha sa m a turity o f 15 ye a rs a nd it ca n
be renewed for 5 years each
time.
For equity investments, one
ca n g o for eq uity mutual funds ,
na tio na l pens io n system (NPS )
o r pens io n pla ns.
are an ideal
o p t i o n f o r a c c u m u l a t i n g
retirement corpus, as equities
tend to o utperform m os t a sse t
cla sse s in the long run. The
best way to start is to invest
t h r o u g h a s y s t e m a t i c
investment plan (SIP). SIPs
s m o o t h e n o u t p r i c e
Building a retirement kitty
Equity mutual funds
`
fluctuations over a period of
tim e. Yo u ca n sta rt a n S IP w ith
a n a mo unt a s sm a ll a s 500 a
month.
, launched by the Pension
F u n d R e g u l a t o r y &
D e v e l o p m e n t A u t h o r i t y
( P F R D A ) , i s a d e f i n e d -
contribution product, where
your contributions grow andaccumulate over the years.
NPS begins with a mandatory
Ti e r I a c c o u n t ( n o n -
withdrawable) , which helps
you save regularly to build
yo ur retirem en t co rpus . A Tier
II account is like a voluntary
s a v i n g s f a c i l i t y ( w i t h a
w ithdraw a l o ptio n).
Th e m i n i m u m a n n u a l
co ntributio n for Tier I a cc o unt
is 6,000 ( 500 a m o nth). Fo r
Tier II a cc o unt, the m inimum
co ntributio n is 250, a nd o ne
needs to have a minimum
ba la nce o f 2000 a t the end o f
fina nc ia l yea r. There is no
upper cap o n the co ntributio ns
for bo th the a cco unts.Any c itizen o f Ind ia , w hether
reside nt or nonreside nt, w ho is
in the age bracket of 18-60
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NPS
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FLAVOUR OF THE M ONTH
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this 4% makes a substantial
difference. At the t ime of
matur i ty o f these pens ion
plans, you can withdraw one-third the a m o unt as lump -sum
and the balance has to be
utilized to buy a nnuity.
Another choice is pension
p l a n s o f m u t u a l f u n d s .
Curren tly, there a re tw o MFpension plans available in the
market (please refer Mutual
F u n d A n a l y s i s f o r m o r e
details).
Beside the regular investmentavenues, there may be other
resources that can be tapped
t o g e n e r a t e i n c o m e a f t e r
retirem ent. This w ill m a inly be
a n outcom e o f the investments
that you m ake a long your w ay
to fulfill your financial goals.
Some of the income sources
are:
This ca n b e use ful
to generate s teady returns
against your earlier property
investment . I f you have a
se co nd h o use a nd if it is rented
out, then it is a g oo d so urce o f
inco m e d uring yo ur retired life.
Living w ell in retirement
House rentals:
years, can subscribe NPS. It
o f f e r s t h r e e i n v e s t m e n t
options to cho os e from : Eq uity
(E) in which a maximum of5 0 % c a n b e i n v e s t e d ,
Corpora te bonds or f ixed-
income securities other than
g overnment securit ies and
G o vernm ent s ecurities (G ).
N P S h a s t h e l o w e s t c o s ts t r u c t u r e a m o n g o t h e r
products in the m a rket. The
fund ma nag ement charge is up
to 0.25%. Further, it has a
provision for mandatory 40%
annuitization, which ensures
reg ula r pensio n in o ld yea rs.
are offered by
insurance companies as well
a s m utual funds in Ind ia . Pla ns
o f f e r e d b y i n s u r a n c e
companies include traditional
as well as unit linked pension
plans (ULPPs). One can go in
fo r these pe nsio n pla ns a s per
their risk appetite. Normally,
traditional pension plans give
returns o f 8%, w herea s returns
o f ULPPs a re m a rket-linked a ndone can expect around 12%
returns for the equity option
o v e r a y e a r . O n e s h o u l d
rem em be r tha t in the lo ng run
Pension plans
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FLAVOUR OF THE M ONTH
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Pleas e s end y our feedba ck to m oneym ana ger@ icicisecurities.com
Reverse mortgage: A reverse
mortgage provides income
that people can tap into for
their retirement. It is a type ofm o r t g a g e i n w h i c h a
h o m e o w n e r c a n b o r r o w
m oney a g a inst the va lue of his
or her hom e. No repa ym ent of
the mortgage (principal or
interest) is required until theborrower passes away or the
ho m e is s o ld . The trans a ctio n
is structured so that the loan
amount will not exceed the
va lue o f the ho m e o ver the life
of the loan. A senior citizen
w ho holds a house or property,but lacks a regular source of
i n c o m e c a n m o r t g a g e h i s
p r o p e r t y w i t h a b a n k o r
h o u s i n g f i n a n c e c o m p a n y
(HFC) and the bank or HFC
pays the person a regularpay m ent. The a dva ntag e is
t h a t t h e p e r s o n w h o h a s
m o rtga g ed his property in this
manner can continue staying
in the house for his life and at
the same time receiving the
m u c h n e e d e d r e g u l a rpayments. So, effectively the
property now pays for the
owner.
Life after
retirement also provides you
with an opportunity to turn
your passions and hobbies,
such as teaching , wr i t ing ,
gardening, music, arts, etc.
into a payable scheme. You
m a y a lso choo se to s et-up your
o w n b u s i n e s s , w i t h t h eexperience fro m a lo ng ca reer.
Factors such as increasing life
s p a n s , r i s i n g i n f l a t io n ,
preferenc e for nuclea r fam ilies ,
absence of pension systems,
etc. nece ss itate ea rly investing
for retirem ent. The ea rlier yo u
start the greater you can save
to create a nest egg for old a ge .
The re a re va rio us fina nc ia l
products that will help youreach your retirement goals
with relative ease. If you have
concerns , ge t p ro fess iona l
help s o that yo u ca n lo o k a t all
the a spec t s o f re t i rement
planning, thus leading to an
i n d e p e n d e n t , s t a b l e a n d
se rene life a fter retirem ent.
A second career:
Summing up
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FEATURE ARTICLE
Indian REITs A good t ime t o start
Rea l Esta te Inve stm ent Trusts
(REITs) a re inve stm ent vehiclesthat invest in a pool of real
estate, or income generating
prop ert ies . The und erlying
income generating asset can
be office, retail, hospitality,
i n d u s t r i a l , r e s i d e n t i a l o rlogistics property. In India,
h o w e v e r, c u r r e n t R E I T
d efinitio n d o es no t a llo w REITs
to invest in the residential
market.
Intro duc tio n o f REITs in Ind ia
w ill help es tab lish a new a ss et
class that enables investors to
tap the twin benefits of yield
a nd g row th, improve property
m a r k e t t r a n s p a r e n c y ,
smoothen volat i le property
cycles, and potentially lower
t h e c o s t o f c a p i t a l f o r
developers.
We expect the lis ting o f REITs
to start in approximately 6-9
m o nths (po st Bud g et 2015), a s
so me bo ttlenecks rem a in to be
a ddress ed . S ince REITs ha ve
q u a s i d e b t - e q u i t y
characteristics, macro factors( b o n d y i e l d c o m p r e s s i o n ,
f a v o u r a b l e c o m m e r c i a l
property dynamics) appear
w ell a lig ned for REIT m a rkets
to grow and d evelop.
REITs pro vide a va riety o f
b e n e f i t s t o s t a k e h o l d e r s .
Investors stand to gain fromportfolio diversification, while
o v e r a l l p h y s i c a l p r o p e r t y
m a rkets be nefit fro m im pro ved
liq uid ity, lo w er co s t of ca pita l,
improved transparency and
higher quality real estate (due
to bet ter asset management
a nd po sitio ning ). Reduc tio n in
information asymmetry leads
t o l e s s v o l a t i l e p r o p e r t y
markets, and aids in pricediscovery leading to a more
efficien t rea l es ta te m a rket.
Introduction of REITs a potential
game changer for real estate:
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FEATURE ARTICLE
ICICIdirect M oney Manager September 2014
b o n d , w i t h a g r o w t h
component built-in through
price a pprec ia tio n. Further, rea l
es ta te 's his tor ica l inf la t ion
h e d g e c h a r a c t e r i s t i c s ,
p rov ides inves tors w i th a
sta ble underlying a ss et cla ss .
Liquidity benefits and low er cost of
capital: REITs a re m a nd a ted to
provide recurring dividends,
a nd m o s t REIT leg is la tio ns
globally also put a cap on
gearing (debt-to-asset) ratios,
w h i c h r e d u c e s t h e r i s k
perceptio n as so cia ted w ith the
a s s e t c l a s s . F u r t h e r , t a x
c o n c e s s i o n s e n s u r e t h a t
dividend payouts are healthy
Portfolio diversification:Fo r sm a ll
inves tors and ins t i tu t ions ,
REITs pro vide a n o ppo rtunity
t o i n v e s t i n l a r g e - s c a l e
commercial real estate, which
would have otherwise been
only possible for high net-
w o rth ind ividua ls (HNIs) a nd
w ea lthy ind ividua ls.
REITs e na b le inv es to rs to
achieve better returns with
lo w er vo la tility prim a rily d ue to
their q ua si deb t-eq uity na ture.
A co m pulso ry d ivide nd pa yo ut(typica lly > 80% g lo ba lly a nd
> 90% in Ind ia ) m a kes the
underlying asset similar to a
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FEATURE ARTICLE
ICICIdirect M oney Manager September 2014
REIT roadmap Regulations largely
in line w ith regional markets;
expect more clarity to emerge:
We benc hm a rked current d ra ft
SEBI regu la t ions to o ther
reg io na l m a rkets a nd find that
the regulator has provided a
good starting point despite
limitations over its jurisdiction
( t a x , f o r i n s t a n c e ) . O u r
interactions with stakeholders
(developers , lega l and tax
experts) indicate that current
REIT reg ula tio ns do no t o ffer
significant advantages versus
l i s t i n g i t s e q u i t y . A k e y
deterrent currently rem a ins the
high upfront costs for the
principal sponsor (developer).
Final REIT regulations from
S EBI a re anticipa ted to provide
m o re c la rity o n ce rtain cla uses
regard ing t rus tees , re la ted
party transactions, f inancial
sponsor (PE) REIT listings, etc.
Stakeholders are also hopeful
o f sim plifica tio n o f tax no rms in
Bud g et 2015, pos t w hich a ctive
REIT lis ting s a re a nticipa ted .
and less impa cted b y chang es
in Central tax la w s.
REITs e nha nc e liq uidity w ithinthe real estate sector, and the
s t a b l e u n d e r l y i n g i n c o m e
p r o s p e c t t e n d s t o a t t r a c t
foreig n c a pita l.
Improved transparency and lessvolatile property cycles: REITs
improve transparency in the
real estate markets as
informat ion is periodica l ly
disclosed on average rents,
o c c u p a n c y l e v e l s , t e n a n tprofile, rene w a l profile, e tc.
Ava ila b ility o f such informa tio n
r e d u c e s i n f o r m a t i o n
asymmetry, which is typically
se en in rea l es tate m a rkets a nd
is a key rea so n for vo la tility.
G r e a t e r a v a i l a b i l i t y o f
in forma t ion a l so he lps
smoothen out the property
c y c l e , s i n c e t h e v a r i o u s
sta keho lders in the m a rket a re
be tter inform ed ena bling them
t o m a k e p r u d e n t c a p i t a l
co mm itments, etc.
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FEATURE ARTICLE
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M acro factors appear w ell aligned:REITs ha ve q ua s i deb t-eq uitycharacteristics, due to whichthey b eco m e a pla y o n yields ,and property fundamenta ls(rent reversion, occupancy,etc).
We believe pea king o ut o f lo ngterm bond yields (likely tosof ten going forward) , andi m p r o v i n g p r o p e r t yfundamentals in the of f icese cto r (es pec ia lly in the S o uth,
w h e r e o c c u p a n c i e s a r eimproving) will be conduciveto REIT m a rkets in Ind ia .
Further, debt on developers'balance sheets continues toremain high, and cash-flowg ene ra tio n from the res identia l
s e c t o r h a s b e e n s l u g g i s hm a king REITs a n a ttrac tive exitopt ion to acce lera te cash-flo w s . Key pla ys o n Ind ia REITlis t ing s a re D LF, P res t ig eEstates, Oberoi Realty and
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M arket valuations look interesting for 3-5 year term'
The market valuations are looking reasonable, considering the FY15
earnings estimate, but they look interesting for 3-5 year term, says Sw ati
Kulkarni, Executive Vice President (EVP) and Fund M anager Equit ies, UTI
M utual Fund, in an interview w ith ICICIdirect M oney Manager. She has a
positive view on healthcare, banking, cement, industrial manufacturing,
automobiles, and consumer goods sectors, over the next 3-5 years.
Excerpts:
the Indian equity market. BSESensex FY 15 B loomberg
consensus price-to-earnings
(P/E) m ultiple e xpa nd ed fro m
14 to about 17 times. We
believe that the investors will
n o w t a k e c l u e s f r o m t h e
earnings growth which wouldg uide the next up-m o ve.
W hat are the possible negativesthat could upset the momentum?
There is a n e xpec ta tio n tha t
the Indian government willnow focus to revitalize the
in v e s t m e n t s id e o f t h e
eco no m y. There a re ea rly s ig ns
o f s t u c k p r o j e c t s g e t t i n g
clearances. A mismatch of
market expectation about the
ind us tria l pick up vs. the a ctua l
on ground evidences of the
sa m e ca n be a risk in the sho rt
term. Also , g lo ba l liq uid ity ha s
remained supportive for 'Risk
Q:
A:
ICICIdirect M oney Manager September 2014
Tte--tte
Sw ati Kulkarni,
Executive Vice President (EVP) &
Fund M anager Equities,
UTI M utual Fund
Q:
A:
Over the past few w eeks, themarkets have touched new highs.Can w e expect the momentum tocontinue?
The g lo ba l liq uid ity, ea rly
s i g n s o f I n d i a n e c o n o m ybottoming out and decisive
general election results have
been instrumental in re-rating
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On' tra des res ulting into strong
inflo w s into em erging m a rkets
inc lud ing Ind ia . Any reversa l in
that can upset the marketstemporarily.
A re the marke ts l ook ingovervalued right now ?
I w o uld s a y they a re lo o king
reasonable considering theFY15 earnings estimate, but
they look interesting for 3-5
yea r term .
What are your expectations interms of earnings grow th for Fy15?
The ea rning s g ro w th fo r
FY15 is expected to be 12%
14%. How ever, it is expec ted
that as the economy picks up
the o perating leverag e b enefits
c a n e x p a n d t h e c u r r e n t
operating m a rg ins a nd support
higher earnings growth from
FY16 o nw a rds.
Which sectors are likely to dow ell over the next 3-5 years?
We ha ve a po sitive view o n
healthcare, banking, cement,i n d u s t r i a l m a n u f a c t u r i n g ,
automobiles, and consumer
g oo ds ove r that period a s India
Q:
A:
Q:
A:
Q:
A:
h a s a h u g e d e m o g r a p h i c
a d v a n t a g e p r o v i d i n g
sustainab le do m estic dem a nd.
The expe cted foc us o n a ndim prove m ent in infra structure,
urbanization over the next 3-5
ye a r perio d a lso a ug urs w ell fo r
these sectors.
How are you looking at the entire
public sector undertakings (PSU)space? Do you see value here?
PS U space appears to have
va lue, pro vide d they a re a ble to
participate in the anticipated
economic recovery without
a ny hindranc es . We ha ve to b ecognizant about the valuation
discount in these names, part
of which may remain if the
intermittent supply in s o m e o f
the names from the
g ove rnme nt co ntinues.
What do the recent macroeconomic data suggest about oureconomy?
The current d o m es tic m a cro
encapsulates: 1) a cyclical
upturn and revival in growth
sentiment. 2) Steady externalb a l a n c e s g i v e n t h e
manageable current account
deficit (CAD) a nd rob us t ca pita l
Q:
A:
Q:
A:
ICICIdirect M oney Manager September 2014
Tte--tte
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inflo w s. 3) Fisc a l co ns o lida tio n
on its defined trajectory. 4)
Elevated headl ine inf la t ion
levels, albeit structural factorssuch as high-wage inflation
and sharp spike in minimum
support prices (MSP) on the
downtrend. 5) A steady and
fairly-valued Indian rupee.
Th e s e m e a s u r a b l e
macroeconomic adjustmentsa ug ur w ell a nd s et the pla tfo rm
for bottoming out of growth
cycle.
Va rio us incipien t s ig ns o f
reco very a re im m inent in fa ster
pro ject clea ra nces , stro ng co re
industries performance (viz.c o a l , e l e c t r i c i t y , c e m e n t ) ,
recovery in mining activity,
s trong capita l goods growth,
pick up in industrial
performance, spike in
m a n u f a c t u r in g P M I