Monthly Issue_ Money Manager

8/9/2019 Monthly Issue_ Money Manager

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95 J anua ry 2015


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The World Bank in its recent

repo rt has pred icted tha t Ind iais set to become the fastest-

g row ing econo my in the w orld

by 2017. We continue to

w i t n e s s r i s e i n i n v e s t o r

c o n f i d e n c e a n d i m p r o v e d

macro-economic indicators .Over the medium-term, the

growth is expected to rise

steadily to 7 per cent as

reform s b eg in to y ield res ults.

G row th impa cts in ma ny w ay s .There is a rea l increa se in

income as per-capita income

goes up. Government is able

Anup BagchiM D & CEO

ICICI Securit ies Ltd.

to co llect m o re taxes a nd therefo re their spe nding g o es up.

There is a n im provem ent in infra s tructure a nd o verall w ell

being . The o ther im pa ct is o n the inves tors w ho invest intothe g row th of the eco nom y thro ugh stock m a rkets. S tock

m a rkets o r eq uity m a rkets reflect the w ea lth ge nerated b y

companies and directly grows with the growth in the

eco no m y. Inves tors in eq uity enjo y the b ene fits o f g ro w th of

businesses they invest into and the overall growth of the

ec o no m y. Therefore inves ting into the sto ck m a rkets ca ng ive a m ultiplier effec t to o ne's w ea lth in s uch tim es .

How do these cha nge s impa ct you? As yo u sta rt the new

year, it is a good idea to sit with your family and have a


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1ICICIdirect M oney Manager January 2015

disc uss io n o n y o ur life g o a ls. Thes e g o a ls sho uld tra nsla te

into where you should be investing. Long-term goals, like

retirem ent, can be co vered throug h investme nts thro ugh a

la rg er inves tme nt into e q uity a nd a sm a ller inves tme nt into

other assets like fixed deposits or gold. Your medium to

short-term goals should be covered through a more

co nse rva tive a llo ca tio n into e q uity. As yo u g o thro ug h the

proc ess of ha ving a clea r investme nt pla n, you ca n g et to

really understand how much you should be investing in

different asset classes. It is also a good idea to find the

surplus a ss ets y o u ha ve, a fter co vering yo ur key life g o a ls.

Given the expected growth in the markets, you could

choose to invest these surplus assets based on your risk

a ppetite, w ith a la rg er po rtio n into eq uity.

Ha ving a n unde rsta nd ing o f your overa ll expo sure to eq uity,

in a structured way, can give you a good indication how

markets could impact growth in your personal wealth.

Given that the value of equity fluctuates, knowing your

expo sure into eq uity w ill a lso g ive a g o o d ind ica tio n o n the

risk yo u ca rry.

As w e m ove a hea d to a new yea r, I w ish that the yea r bring s

you closer to your life goals and dreams. Our message

remains the same - 'Keep investing and stay invested for

yo ur life go a ls'. Throug h this m a g a zine a nd o ur w eb site

www.icicidirect.com w e w a nt to m a ke a n earnest at tem pt to

partner with you in setting and achieving your financial

goals. Do walk into any of your Neighbourhood Financial

S upersto re a nd ta lk to us.


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2

The y ea r g o ne b y s a w a definite reviva l in investo r se ntim ent. As

w e enter the New Yea r, there is g ro w ing o ptim ism tha t this co uld

be a n a ttra ctive y ea r, espe cia lly for fina ncia l a ss ets .

The e q uity m a rket se em s to ha ve s hifted into a hig her grow thtrajectory, the debt market is waiting for a boost from further

so ftening o f interest ra tes , and a further rate cut w ill bo o st o ther

se cto rs like rea l es tate .

With ea ch as set cla ss facing its ow n ups and d ow ns, how sho uld

you position your investment portfolio for the year 2015? Our

cove r story loo ks into ea ch a sse t cla ss a nd the factors that a re

likely to im pa ct them , a lo ng w ith the b est inves tme nt a dvice fo r

the yea r a hea d from so m e o f the lea ding fund m a nag ers in the

industry.

Further, in o rde r to g ive yo u a 'b ig picture' o f ma rkets in pa rticula r,

we bring to you the fundamental, technical and derivatives

m a rket o utlo o k 2015, fro m o ur interna l tea m o f res ea rch expe rts.

Our research team also presents the performance review of

different categories of mutual funds, along with the outlook for

nea r future.

I w o uld a lso like to draw yo ur a ttentio n to o ur G uest Column b y

Ro hit S a lho tra , MD &CEO, ICICI Ho m e Fina nce Com pa ny, w ho

pro vide s us w ith the key de velo pm ents o f rea l esta te se ctor in the

ye a r 2014 a nd the outlo o k fo r 2015. S o rea d o n, stay upda ted a nd

involved. Do write in with your feedback at moneymanager@icicise curities.co m a nd sha re y o ur thoug hts.

Tea m ICICIdirect Mo ney Mana g er w ishe s yo u a ha ppy a nd

pros perous New Yea r.

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 January 2015

Your ma g a zine is no w also a vailab le o n w w w.ma gzter.com , a

dig ital new ssta nd.


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3

M D Desk...................................................................................................1

Editorial.....................................................................................................2

Contents....................................................................................................3

News........................................................................................................4

Fundamental Market Outlook 2015By Pa nka j Pand ey, Hea d - Rese a rch, ICICId irect....................................5

Technical Outlook 2015Dha rmesh S ha h, Head - Tec hnica l Rese a rch, ICICId irect sha res hisview s on m a rkets, c urrency, go ld a nd Brent crude for 2015..............11

Derivatives M arket Outlook 2015By Am it G upta , Hea d - Deriva tives, ICICIdirect...................................28

Top Stock Ideas for 2015.......................................................................... 33

Flavour of t he M onth: Investment Outlook 2015Here w e bring to yo u several fund m ana g ers' view s o n how they see2015 pa nning out fo r m a jo r a ss et cla ss es a nd their a dvice fo r retailinvestors. Read on................................................................................53

Guest Column: Real Estate Outlook 2015By Rohit Sa lho tra, MD &CEO, ICICI Hom e Fina nce Co m pa ny Ltd ......65

M utual Funds Review 2014 and Preview 2015.............................................69

M utual Fund Top PicksHere w e present o ur rese a rch tea m 's to p m utua l fundrecom mend ations , ac ros s eq uity a nd deb t categ ories… ... . .. .. .. .. .. .. .. .74

Ask Our PlannerYour perso na l fina nce q ueries a nsw ered… .........................................76

Updated Equity Model Portfolio..................................................................80

Quiz Time.................................................................................................85

Year ly Trends...........................................................................................86

Premium Educat ion Programmes Schedule.................................................90



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4ICICIdirect M oney Manager

Equity savings scheme could be tw eaked to make it more att ract ive

The g ove rnment's Rajiv G a ndhi Eq uity S a vings S chem e (RGESS ), a iming to draw retail

investo rs into the eq uity ma rket throug h tax exem ptions , could be c ha ng ed in the com ing

Bud g et for 2015-16. Acco rding to s o urces, the g o vernm ent m ig ht reduce the lock-in for

the sche me from the existing three y ea rs to o ne ye ar, to d raw investo rs. Currently, thesc hem e o ffers a fixed loc k-in for the first ye a r and flexible lock-in for the ne xt tw o ye a rs.

Add ition a lly, the plan is to increa se the b ene fits fo r not o nly first-tim e investo rs but tho se

alrea dy do ing s o in eq uity, if they put mo ney in the schem e.

Courtesy: Business Standard

After four yea rs of introd ucing ba se rate a s the b enchm a rk lending rate, Reserve Ba nk of

India (RBI) has shown for the first time that it is thinking of making it more flexible in

ca lcula ting it. In a mo ve to offer operationa l freed om to b a nks, RBI sa id b a nks ca n do it

either on the ba sis o f average cos t of funds o r on ma rginal cost o f funds o r any reaso nab leme thod provided it is c ons istent a nd ma de a vailab le for supe rviso ry review /scrutiny a s

and w hen req uired.

Courtesy: The Economic Times

Banks to get f reedom in fix ing base rate: RBI

Real esta te inves tme nt trusts (REITs), notified la st y ea r, ha ve s o fa r fo und few ta kers d ue to

ta xa tio n-rela ted iss ues . To a dd ress this, th e Cen tral Boa rd o f Direct Ta xes (CBDT) w a nts

this ma rket instrum ent to be m a de exe m pt from Minimum Alterna te Ta x (MAT). “ The idea

be hind g ranting a 'pa ss -throug h' sta tus to REITs w a s no t to levy MAT o n tho se . It is atechnica l issue w e a re w orking to reso lve,” sa id a so urce. REITs a re a security instrume nt

that s ell on bo urses like a sto ck and invests in real estate - properties or mo rtg a ge s.

Courtesy: Business Standard

Real estate investment trusts may get taxation relief

Encouraged by softening inflation, the Reserve Bank of India (RBI) decided to cut the

benc hm ark interest rate b y 0.25 per cent to 7.75 per cent w ith a view to b oo st g row th. The

decision to reduce repo rate com es a fortnight a head of the scheduled d ate o f monetary

policy a nnounce me nt o n Februa ry 3. The RBI has bee n keeping the ben chm a rk interestrate a t eleva ted level at 8 per cent s ince J a nuary 2014.

Court esy: The Hindu

RBI cuts repo rates by 25 basis points

January 2015

The S ecurities a nd Excha ng e Bo a rd of India (S EBI) ha s prop o se d d raft norm s for initia l

pub lic o ffering s (IPOs ) in e lectro nic fo rm a nd fas t trac k follow -on pub lic offering s (FPOs )

a nd rig hts issue s in an effo rt to m inim ize the listing timeline, b oo st reta il pa rticipation a nd

ma ke it ea sier for co mpa nies to raise mo ney. To ena ble electronic-IPOs, S ebi propos ed

allowing investors to submit applications to a registered stock broker, depositorypa rticipant (DP) or reg istra r a nd trans fer a g ent (RTA) a nd se lf-certified sy nd ica te b a nk

(SCSB). Depositories can access the stock exchange platform and, in turn, provide the

sa me to their DPs or RTAs, S ebi propos ed. Investo rs, how ever, w ill continue to ha ve the

option of sub mitting a pplica tions suppo rted by blocked am ount (AS BA) to S CS B o r stock

broker.

Courtesy: Livemint

Sebi floats discussion papers on e-IPOs, fast-tracking FPOs


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FUNDAM ENTALM ARKET OUTLOOK 2015

Grow th nourishment to resurrect economic recovery

E q u i t y m a r ke t s , h a v i n gappreciated 29% this year,

have b een running ahea d of aneconomic recovery, which isexpected to follow with a lag.The g o vernmen t has a lrea dyinitiated several confidence-building measures and takenkey decisions like allowingforeign direct investment (FDI)

in s everal secto rs, railw a y fa rehike, online environment &fo res t clea ra nce, e tc. Ho w ever,a n e c o n o m i c r e c o v e r y i sexpected only at a gradualpa ce . After tra d ing a ro und 14xo n e y e a r f o r w a r d E P S

(ea rning s pe r sha re) for mo st o fthe la st five y ea rs, the S ens ex isnow trading at 14.6x one yearforw a rd EPS (FY16E).

We have already witnessed abo ttom ing out of the eco nom icgrowth cycle, which coupled

with a reduction in crude andother commodity prices hasa ided lo w er infla tio n. This ha sa lso led to ho pes o f a ra te cut inthe first ha lf of ne xt ye a r. Ind ia

is entering a new phase ofeconomic growth that would

be characterised by a multi-ye a r bull run. In this b a ckdrop ,we expect four major themesto play out, which will last forthe forese ea ble future.

Consumption grow th: With arevival in macroeconomic &

per capita income growth,l i festyle-based consumptions e c t o r s w o u l d b e d i r e c tb e n e f i c i a r i e s . W h i l econsumption expenditure hasalways been the driver ofIndian economic growth, thepac e a nd s ize o f co nsumptionspe nds is expected to m ultiplymani fo ld . With f avourabledemographics and the largestworking age population, Indiais set to have largest middleclass by 2050, contributing32% of global middle class

spending. On the one hand,w ith m o re peo ple cross ing thep o v e r t y l i n e , o v e r a l lconsumption is expected toincrease while on the other,

January 2015

Pankaj Pandey,Head-Research,ICICIdirect


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32% of world's middle class spending will be in India by 2050

0%1 0%

2 0%

3 0%

4 0%

5 0%

6 0%7 0%

8 0%

9 0%100%

2 0 0 0

2 0 0

3

2 0 0 6

2 0 0

9

2 0 1 2

2 0 1

5

2 0 1 8

2 0 2

1

2 0 2 4

2 0 2

7

2 0 3

0

2 0 3 3

2 0 3

6

2 0 3 9

2 0 4

2

2 0 4 5

2 0 4

8

China India Other Asia Japan United States EU Others


w i t h r i s i n g i n c o m e l e v e l ,s e v e r a l h o u s e h o l d s w o u l dmove up the va lue cha in

resulting in premiumisation.C o n s u m p t i o n s p e n d i n g i sexpected to cross $3.2 trillionby 2025, 3x o f US $991 billio n in2010. Consumption driven

January 2015


sectors like branded apparel,communica t ion , hea l thcare ,housing, consumer durables,

fast-moving consumer goods(FMCG) a nd a utom o bile w o ulds t a n d o u t a n d e x h i b i ta ccelera ted g row th in yea rs tocome.

Low er cost of capital: Secondly,w i t h a n i m p r o v e m e n t i n

m e d i u m -t e r m e c o n o m i c

outlook that would warrant

h i g h e r f o r e i g n i n f l o w s i n

so vereig n and corporate deb t,co st of ca pital w o uld g ra dua lly

come down. In addition, a

s tructura l shift in re ta il infla tio n

by almost 400 basis points

(bps) from double digit to

e x p e c t e d s u s t a i n a b l e 6 %

l e v e l s i s a m a r k e di m p r o v e m e n t l e a d i n g t o

positive real interest rates,

w hich m a y prom pt the Reserve

Bank of India (RBI) to cut

interes t rates by 75-100 bps in

the next calendar year. Both

t h e s e m e a s u r e s w o u l d

facilitate capital investments,

w hich w ould d rive grow th a nd

enha nce pro fita b ility. This, int u r n , w o u l d b e r e f l e c t e d

thro ug h e xpan sio n in va luatio n

m u l t i p l e s . O u r a n a l y s i s

sug g es ts that se ctors like a uto

a n c i l l a r i e s , c a p i t a l g o o d s ,

cement , ceramic products ,

lo g istics ; pa cka g ing a nd pla sticp r o d u c t s w o u l d b e k e y

beneficiaries of lower cost of

capita l and may witness a

m ultiple expa nsion.


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-0.5% -1.0% -1.5% -2.0%

Agro Chemical 12.6 12.3 11.9 11.6 11.2 20.1 21.6

Alcoholic Beverages 13.3 13.1 13.0 12.8 12.6 5.1 -12.2

Auto Ancillaries 12.5 12.2 12.0 11.7 11.5 15.3 14.3

Automobile 12.5 12.2 11.9 11.7 11.4 19.7 17.8Cables 12.7 12.5 12.3 12.2 12.0 8.6 6.3

Capital Goods Electrical Eq 12.8 12.5 12.1 11.8 11.5 17.9 8.7

Capital Goods-Non Elec. 13.2 13.0 12.7 12.5 12.3 14.7 12.8

Cement 12.6 12.3 11.9 11.6 11.2 15.0 11.8

Ceramic Products & Tiles 12.5 12.2 11.9 11.7 11.4 15.0 13.2

Chemicals 12.4 12.0 11.7 11.4 11.1 20.7 15.7

Construction 13.6 13.4 13.3 13.2 13.1 6.5 4.6

Consumer Durables 12.2 11.8 11.4 11.0 10.6 29.4 25.3

Crude Oil & Natural Gas 12.3 11.9 11.5 11.2 10.8 22.8 17.1

Gems and Jewellery 12.0 11.8 11.6 11.4 11.2 15.1 12.2

Diversified 13.4 13.2 13.0 12.9 12.7 6.2 7.4

Edible Oil 12.9 12.7 12.5 12.2 12.0 10.8 12.0

Entertainment 12.3 11.9 11.5 11.1 10.8 19.1 19.2

Fertilizers 13.0 12.8 12.5 12.3 12.1 12.8 7.6

FMCG 12.2 11.8 11.4 11.1 10.7 40.1 42.3Gas Distribution 12.4 12.0 11.7 11.4 11.1 19.1 16.1

Glass & Glass Products 12.9 12.8 12.7 12.6 12.6 4.7 5.6

Healthcare 12.0 11.7 11.3 11.0 10.7 10.4 8.1

Hotels & Restaurants 12.9 12.6 12.3 12.1 11.8 4.1 1.3

Infrastructure Developers 13.6 13.5 13.4 13.2 13.1 6.7 6.6

Output based on interest rate sensitivity with cost of capital

FY14

WACC

WACC in diff scenario ROCE (4

yr avg)

ROCE

(FY14)

-0.5% -1.0% -1.5% -2.0%

IT - Hardware 12.0 11.7 11.4 11.1 10.8 14.8 14.3

IT - Software 12.0 11.5 11.1 10.6 10.1 31.0 34.5

Logistics 12.1 11.6 11.2 10.7 10.2 19.2 17.2

Media 12.3 11.9 11.6 11.2 10.9 20.5 22.1

Mining & Mineral products 12.7 12.4 12.0 11.7 11.4 35.8 21.0

Non Ferrous Metals 12.8 12.5 12.2 11.9 11.7 12.1 9.5Packaging 12.4 12.2 11.9 11.6 11.3 14.8 8.8

Paints/Varnish 12.1 11.7 11.2 10.8 10.3 35.1 33.4

Paper 12.6 12.4 12.2 12.0 11.9 6.9 6.3

Pharmaceuticals 12.0 11.7 11.3 11.0 10.6 19.7 21.3

Plantation 12.4 12.0 11.7 11.4 11.1 19.7 14.9

Plastic products 12.5 12.2 11.9 11.7 11.4 12.6 11.7

Power 13.3 13.1 12.9 12.7 12.5 8.3 7.7

Realty 13.2 12.9 12.6 12.3 12.0 7.5 6.7

Refineries 12.5 12.3 12.1 11.8 11.6 9.5 9.7

Retail 12.6 12.4 12.2 12.0 11.8 9.8 7.4

Ship Building 13.5 13.4 13.2 13.1 13.0 8.0 5.3

Shipping 13.1 12.9 12.7 12.5 12.2 7.4 8.4

Steel 13.2 13.1 12.9 12.7 12.5 9.3 6.9

Sugar 13.6 13.5 13.4 13.3 13.2 6.1 -1.3

Telecomm-Service 13.2 13.0 12.7 12.5 12.3 7.0 8.3

Textiles 13.4 13.3 13.2 13.0 12.9 10.3 11.7

Tobacco Products 12.0 11.5 11.0 10.5 10.0 46.1 46.7

Trading 12.7 12.6 12.5 12.4 12.2 7.3 7.4

Tyres 12.4 12.2 11.9 11.6 11.3 17.9 22.7

Output based on interest rate sensitivity with cost of capital

ROCE (4

yr avg)

ROCE

(FY14)

WACC in diff scenarioFY14

WACC

Sof ten ing commod i t y p r i ces : Thirdly, g lo b a l co m m o d ity

p r ic e s h a v e c o r r e c t e d

significantly led by a demand-

supply mismatch as global

supply continued to increase

w hile d em a nd from the la rg est

c o n s u m e r , C h i n a , t a p e r e d

d o w n . G o i n g a h e a d , a

c o m m o d i t y s l o w d o w n i s

expected to sustain led by

excess supply in the medium-

term and a sh i f t t owards

renewable energy sources in

the long run. In the backdrop,

sectors like aviation, paints,

textiles, auto ancillaries (tyre

a n d b a t t e r y ) , lo g i s t i c s ,

teleco m , lubrica nts a nd m ining

co uld b e m a jo r bene ficia ries .


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Commodities 2002 2014 Peak % decline from peak

Crude ($/barrel) 27 59 144 (58.9)

Iron 15 67 205 (67.3)

Coal NA 62 195 (68.2)

Copper 1550 6409 9879 (35.1)

Commodity prices have crashed from their peaks ($/tonne)

Favourable regulatory f ramew ork: Finally, the new government

has been effective in breaking

t h e p o l i c y d e a d l o c k w i t h

s e v e r a l d e c i s i o n s o n k e y

policies like increase in FDI

limit in insurance, defence &

ra ilw a y, ea sing o f enviro nm ent

&forest clea ra nce pro cess , etc.

a lready b eing taken. Moreo ver,

there has been considerablepro g res s in o ther key reforms

like implementation of goods

a nd se rvice s ta x (G S T) a nd

i n n o v a t i v e m e a s u r e s l i k e

“ Make in Ind ia” , “ Dig ita l Ind ia”

a nd “ S m a rt c it ies ” . These

m e a s u r e s w i l l i m p r o v e

business sentiments; provide

po licy s tab ility a nd a n im petus

t o a r e v i v a l i n c a p i t a l

expenditure (capex) cycle.

Stalled projects worth Rs. 25

la kh cro re co uld be kick sta rted

bene f i t ing severa l sec tors

ra n g in g f ro m o il & g a s ,d e f e n c e , b a n k s , r a i l w a y s ,

m e t a l & m in in g , te le c o m ,

c o n s t r u c t i o n a n d

infrastructure.

+

FDI in defenc e,

construction, railwa ys a nd

insurance

Investment trust:

Real estate investment

trust, Infrastructure

Long -term bond s for

infrastructure projects, new

restructuring/refinancing

norms for infrastructure

projects

Auction o f coa l mines

to provide predictable

&stable business

environment

Reforms New investments

100 smart c itiesMake in India

Rail infras tructure pro jects like

suburban corridor projects,

dedicated freight lines,

pass enger terminals, bullet

trains, Industrial corridors etc.

Ease of doing businessà GDP Grow th?

M ake in India Digital India

Digital India

Smart Cities

Make in India aims to increase the share of

ma nufacturing in GDP from 16-25% by 2022 andw ill create 100 million a dditiona l job s

The ado ption of key technolog ies across sec torsspurred b y the Digital India initiative co uld help

bo os t India's GDP by $550 billion to $ 1-trillion b y2025

A committee on investment req uirements in urbani n f r a s t r uc t ur e e s t i m a t e s t o t a l i n v e s t m e n t

requirement potential could exceed 7 lakh croreover 20 years

`


11/95



Sensex and Nift y target: Fa cto ringi n t h e f a l l i n i n f l a t i o n ,comfortable current account

d e f i c i t ( C A D ) , i m p r o v e dsentiments and pick-up ing ro ss do m es tic prod uct (G DP)g row th, w e expect the S ensexE P S t o g r o w a t a C A G R(compounded annual growthra te) o f 17% o ver FY14-17E. Adec l ine in cos t o f equ i t y

c o u p le d w i t h a d o v is henvironm ent w ill further fuelpo rtfolio flo w s fo r Ind ia ine q u i t i e s a s w e l l a s d e b tins trum ents . The S ens ex istrading at 14.6x one yearfo rw a rd P/E m ultiple (FY16E),in line w ith his torica l m ea n.

H o w e v e r g i v e n t h er e s u r r e c t i o n o f c o r p o r a t eearnings cycle, we believethere exists a case for a re-rating of the Indian markets.We assign a price-to-earnings(P/E) m ultiple o f 15x o n FY17EEPS to arrive at a fair value of

32,500 by end CY15, implyinga n up s id e o f 18.5%. Thecorresponding Ni f ty t a rge tw o uld be 9,750.

Sensex EPS - FY17E 2167

Target Multiple 15x

Sensex / Nifty Target 32500 / 9750

Strategy 2015 - Sensex & Nifty Target

Risks: Tho ug h the m a rketsseem to have shifted into ahigher growth trajectory, wehighlight certain pitfalls that

m a y inhib it ind ex expa nsion.

- Brent crude oil has fallensharply by 47% year-to-date

(YTD), a nd is tra d ing below thefiscal break-even price formost oil exporting countries.We ha ve a lrea dy w itness ed theim pa ct o f cras h in crude priceso n Russ ia n eco no m y. With thefall in crude prices, sovereigncredit default swaps (CDS) of

many oil exporting countrieshas increased several times,highlighting the global riskperceptio n. A g lo ba l co ntag io ncould put investors in risk-offmode, impacting global f lowsin e m erging m a rkets.

- While Ind ia w o uld ind irectlybenefit from divergence offoreign institutional investor(FII) flo w s from such co untriesin fa vo ur o f India a nd m a y no tbe directly a dv ersely im pa ctedw ith cras h in crude prices, o urexports could be hampered.

38% of our exports are tocom mo dity-ba sed econo mies,w hich can face s low er g row tha s e c o n o m i c v a r i a b l e sdeteriorate due to falling oilrevenues.

- Risks w ill a lso em a na te fro mthe complexity of rate cycles

pa nning o ut in va rio us pa rts o fglobe. For instance, stronggrowth prospects for the USe c o n o m y w i l l l e a d t ocommencement of rate hike


12/95



cycle in mid 2015 whereasEuropean Central Bank (ECB)h a s t o b e m o r e

accommodative to s tave of ad e f l a t i o n a r y t r e n d i n t h eEurozone while India is all setto s ee the ea sing of rate cy cles.Th e im p lic a t io n s c a n b ehumo ng ous a nd perplexing a sinterest rate dec isio ns w ill ha vea m ea ning ful im pa ct o n Ind ia n

rupee vis-à-vis other globalc u r r e n c y a n d h e n c e o nG DP/co rpora te profita b ility in2015.

- Fina lly, w ith fo rma tio n o fgovernment wi th a s t rongm a nda te and refo rm isto utlo o k,the inves tor expec tat io ns

have built up over the period.While, the government hasshown clear intent and hasi n i t i a t e d s e v e r a l r e f o r m s ,things are yet to start movingo n the g round leve l. There is ah u g e r i s k o f t h e c u r r e n tgovernment falling short of

m e e t i n g e n o r m o u sexpectations.

Sect or Outlook

- S ince w e expect the eco nom yand corporate profitability tomake a meaningful comebackt h e r e b y m a k i n g c y c l i c a l

se ctors the big g est b eneficia ryas pick up in utilisation rates,p o s i t iv e o p e r a t i n g a n dfina ncia l leve rag e w ill lea d to arecovery in profitability and

improve the quality of thebalance sheet. Hence we arepo sitive o n s ec tors like ba nking

(pick-up in lo a ns , lo w er inte res tto c ushio n net interes t m a rg ins(NIMs), lower bond yields toa i d p r o v i s i o n i n g a n d n o nperforming assets (NPA) cyclepeaking), cement (increase incapacity utilisation and lowerinput c o sts to a id profitab ility),

ca pita l g o o ds (revival in ca pexcycle to lead to better ordersa nd execution), autos & autoa ncilla ries (lo w er ra tes to bo o stpent up demand and lowercommodity to help marginrecovery).

- We a re neutra l o n d efensives

like IT (demand intact, richvaluat ion) , pharmaceut ica ls(rich va lua tio n, tepid d o m es ticg row th), oil & g a s (ea rning sdependent on deregulation,l imi ted volume growth) &m e d i a ( e a r n i n g s v i s i b i l i t yinta ct, rich va lua tio n).

- We remain negat ive onsectors like Real estate (Highinventory and huge debt pileup and regulatory hurdles tow eig h o ver po sitives like lo w erinterest rates and pick-up ind e m a n d ) , M e t a l s ( L o w e r

rea l i s a t ions and leveragedbalance sheets) and shipping(Highly dependent on globalt r a d e a n d d e m a n d f o rcommodities).


13/95

ICICIdirect M oney Manager

TECHNICAL OUTLOOK 2015

Riding the bull w ith zeal to zenith

January 2015

In d i a n e q u i t ie s g a v e a

thunderous applause to the

strong verdict in the generalelec tio ns in Ma y 2014. The

markets have rediscovered

their animal spirits that is very

w e l l r e f l e c t e d i n t h e

p e r f o r m a n c e o f d o m e s t i c

equities, which are up 31%

year-to-date (YTD) and 15%post election results, thereby

a llo w ing Ind ia to to p the g lo ba l

eq uity cha rts.

As w e enter the seco nd y ea r of

changed regime, we believe

the markets will continue to

give a thumbs-up to the pro-r e f o r m s g o v e r n m e n t a n d

continue to rise in a similar

fashion as displayed over the

pas t six mo nths.

The s tro ng reso lutio n pa st the

seven year bullish Ascending

Tria ng le pa ttern ha s m a jo rb u l l i s h i m p l i c a t i o n s a n d

s u p p o r t s u p s i d e s t o w a r d s

35000/10500 (S e ns e x/Nifty )

l e v e l s f o r t h e c u r r e n t

n o r t h w a r d m o v e o v e r t h e

co m ing y ea r.

We do not foresee any major

shift in the current directional

positive bias. However, any

s izab le cor rec t ion towards

25000/7400 (S e n s e x /Nifty )

sho uld b e used as a n attra ctive

increm enta l o ppo rtunity to buyfor the lo ng term

Theme: Cyclicals to be the flavourof 2015

O u r b o t t o m u p a p p r o a c h

ba sed on technica l param eters

a p p l i e d a c r o s s t h e e n t i r euniverse of NS E cash seg m ent

sug g es ts cyc lica ls w ill be a t the

forefront of the rally in 2015.

The m idc a p spa ce ha s a lo t of

headroom to do the catch-up

exercise and will outperform

t h e b e n c h m a r ks , g o i n g

forward.

Top sectors: Auto , a uto a nc illa ry,c a p i t a l g o o d s , P S U s a n d

cement .

Our preferred picks: Bhel (BHEL),BEL (BHAELE), Alstom India

(AB B ALS ), Exid e (EXIIND),F e d e r a l M o g u l G o e t z e

(GOEIND), Asahi India Glass

(ASAIND), Ramco Cement

( M A D C E M ) , G I C H o u s i n g

11


14/95

2008

21206

2010

21108

2013

21483

Seven year consolidation post2008 peak took the p ictor ialshape of a bul lish A scending

Triangle pattern


BSE Sensex – M onthly Candlestick Chart

S ource: Bloo m berg, ICICIdirect.com Rese a rch

January 2015

The b reakout pa st the s even y ea r

c o n s o l id a t io n p a t t e r n h a ssignalled a structural shift in the

market from sideways to bullish.

The co nvincing brea ko ut pa st the

12

se ven ye a r bullish Asc end ing Tria ng le

pattern has major implication ofu p s i d e t o w a r d s 3 5 0 0 0 i n t h e

forthcoming yea rs for the S ensex



15/95


M ult i-fold ral ly fol low ed by

m u l t i - y e a r c o n s o l i d a t i o n ,

perfect recipe for bull market

Historically, the multi-year bull

runs a re fo llo w ed by m ulti-ye a r

co nso lida tio n a s m a rkets enter

a reconciliation phase. As the

co nso lida tio n m a tures w ith the

passage of t ime and price

correction, the market willpierce new highs above the

previous bull cycle peak to

s igna l con t inuance o f the

se cula r uptrend .

In the context of our markets,

there is also one historicalprece dence o f a m ulti-fold rally

f o l l o w e d b y a m u l t i - y e a r

c o n s o l i d a t i o n , w h i c h a d d s

credenc e to the current se cula r

bull market setup. Between

1989 and 1992, the Sensex

w itnesse d a n 11-fold rally fro m

390 to 4546. This w a s follo w ed

by a 11 year consolidation

phas e a s the index g yrated in a

rang e fro m 1992 to 2003. The

breakout from this elongated

consolidation paved way forthe m ulti-fold ra lly fro m 2003 to

2007.

The S ensex w itness ed a seven

fold rally between 2003 and

2007 (2900 to 21206) and,

t h e r e a f t e r , e n t e r e d a

consolidat ion phase last ingse ven y ea rs fro m 2008 to ea rly

2014. The reso lutio n pa s t the

2008 bull cy cle pe a k, the refore,

has the underpinnings of a

burg eo ning bull m a rket, w hich

can lead to unfolding of multi

fold gains over the coming

years .

The cha rac teris tics o f ma rket

interna ls during the pa st s even

year consolidation and post

the b rea ko ut pas t the previo us

bull-cycle peak defines the

changing dynamics o f the

market. Between 2008 and

2014, the index re-tested the

2008 hig h o n tw o o cca sio ns in

2010 and 2013. How ever, bo th

these a ttem pts lac ked broa derm a rket pa rticipa tio n. The firm

resolution past the 2008 peak

in 2014 has the backing of

stro ng pa rticipa tio n o f broa de r

markets that represents the

l a r g e r s e c t i o n o f m a r k e t

pa rticipa nts, w hich a ug urs w ellf o r t h e l o n g e v i t y o f t h e

uptrend.

13



16/95


BSE Sensex – Quarterly Candlestick Chart

1992

2003

2008

11 Fold rallybetw een 1989-1992

7 year consolidation2008 to 2014

7 Fold rally betw een2003 to 2008

11 year consolidation1992 to 2003

14



17/95



BSE Sensex M onthly Bar Chart

2008 high21206

2010 high21108

2013 high21483

Seven year consolidationsince 2008 to 2014occur red i n Ascendi ng

Triangle pat tern

Minimum measuring implication of the pattern i .e.w idth of the base of Triangle (13061 points) added tothe breakout point of 21206 projects upside potential

tow ards 34500 levelsfor the current rally

Headroom for current bull run toextend to 35000/10500

Th e b r e a ko u t f ro m t h eAs ce nd ing Tria ng le pa ttern

comprising entire seven year

consolidation since 2008 till

early 2014 has major bullish

implications as it signals the

end of elongated correction

phase and start of a new

u p t r e n d . Th e m i n i m u m

measuring implication of the

price pattern i.e. the width of

the triangle’s base (21206 –

7697= 13509) a dd ed to the

b r e a k o u t p o i n t o f 2 1 2 0 6

projec ts a n upside po tentia l up

to 35000 /10500 (S ensex/Nifty )

for the current ra lly o ver 2015.

The entire up m o ve s ince 2012

h a s o c c u r r e d i n a r i s i n g

channel originating from 2009lows as highlighted in the

adjoining yearly chart. Over

the pas t th ree yea rs , the

indexhas respected the upper

and lower bands of this long

term cha nnel. The pa st tw o

year’s lows are resting uponthe lo w er ba nd o f this cha nnel

while 2014 high is also placed

at the upper band of this

cha nne l. The uppe r ba nd o f

this cha nne l for 2015 is pla ce d

at 35000 levels, making this a

likely ta rget.


18/95


BSE Sensex Yearly Candlest ick Chart

Upper band of Rising

Channel for 2015 @ 35000

16



19/95


Conversely, 25000/7400 is strongbase; act bravely if it materialises

Long term investors should

note that secular bull markets

also go through phases of

sec ond a ry co rrections , w hich is

a healthy phenomeno n to w ork

off the excesses developed

during rallies. Even during the

secular bull run from 2003 to

2008 the index was subject toi n t e r m e d i a t e c o r r e c t i o n s

ranging from 13% to 30%.

However, these counter trend

corrections did not alter the

overall bullish fabric of the

market. We have identified a

crucial support zone wheredemand will outstrip supply to

help investors ride the uptrend

and also provide a fresh entry

oppo rtunity for thos e w ho ha ve

m issed the e a rlier rally.

Th e lo n g t e r m t r e n d lin e

co nnec ting ye a rly low s o f 2003

and 2009 acted as a cushion

during 2013 and 2014 as therespect ive yearly lows rest

upon the s a me. The va lue o f this

trendline for 2015 is at 22300

/7000, w hich w ill rem a in a m a jo r

base for the index. We believe

any corrective decline towards

25000 /7400 sho uld be us ed a s

a long term buy ing oppo rtunity.

P la ce m ent o f 52 w eek EMA, the

b ase fo rme d pos t e l e c t i on

results and 38.2% retracement

o f 2013-14 ra lly a ll co inc id ing

a r o u n d a t 2 5 0 0 0 /7 4 0 0 ,

reiterates our view point that

any decl ines towards theselevels s hould b e b oug ht into.

BSE Sensex Yearly Candlestick Chart

Long term trendline2015 value @ 22300

17



20/95


BSE Sensex Weekly Bar Chart

Ø52 w eek EM A ~ 25000ØPost Election result base

formation ~ 25000Ø38.2% retracement of 2013 -14

rally ~ 25000

Long term Support @ 25000

18



21/95


Broader markets: Brace up forrelatively strong performance

The b ro a der ma rkets a re at the

c u s p , l e d b y a m a j o r

turna ro und in the BS E m idc a p

inde x, as it has steered pa st its

2008 high (10245) w hile the

smal l cap index has a lso

strengthened above its 2010

high (11366). A lo o k ba ck a t the

behaviour of the benchmarkSensex a f t e r i t s b reakout

above 2008 highs provides a

s t r o n g r o a d m a p f o r t h e

b r o a d e r m a r ke t s , g o in g

fo rw a rd. The S ens ex entered a

s t r o n g b u l l t r e n d a f t e r

conquer ing i t s 2008 h igh

(21206) in April 2014 and has

already rallied 35% above its2008 pea k. We b elieve the B S E

m idca p ind ex is a ll se t to follo w

suit with the benchmarks and

enter a strong uptrend as we

head into 2015. A similar

magnitude of rally replicated

on the BSE midcap index(minimum implication) would

projec t upsides tow a rds 14000

over the m edium term .

BSE Sensex and BSE M id-cap index comparative Chart

Midcap index

2008 2010 2013

The Sensex got catapult ed into a higher orbit after confirming a resolute breakoutpast its 2008 -10 highs during early 2014 and has already rallied 35% above its2008 peak. The Midcap Index is follow ing in the footsteps of the benchmark and

has just r isen above its 2008 peak signaling a major trend reversal. A similarmagnitude of up move in the midcap index is on the cards moving into 2015

BSE Sensex

19



22/95


Bank Ni f ty : Commander tozenith

The B a nk Nifty em erg ed o ut o f

its four year consolidation by

steering past the yearly highs

o f 2010 a nd 2013 tow a rds m id

2014. The s trong reso lutio n

p a s t t h e f o u r y e a r

c o n s o l i d a t i o n b a n d a b o v e

13300 ha s fla g g ed o ff a s tro ng

bull run, w hich w ill co ntinue top r o p e l t h e s e c t o r a l

heavyweight Bank Nifty in the

fo rthcom ing y ea r a s w ell.

We expect the Bank Nifty to

co ntinue its northw a rd jo urney

in 2015 and travel towards

24000 levels. The current rally

off 2013 low of 8349 to recent

all time high of 18929 has

a l r e a d y s u r p a s s e d t h e

magnitude of 2009-2010 rally

w hich m ea sured a ro und 10000

po ints. The fa ste r pa ce a nd

larger magnitude of currentmove as compared to the

preceding rally clearly signals

an extending m a rket w hich ha s

s i g n i f i c a n t s t e a m l e f t t o

continue its rally in similar

fas hio n. The next lo g ica l price

objec t ive in an extendingmarkets is derived by plotting

the Fibonacci price extension.

The 161.8% Fibonacci price

extension of 2009-2010 rally

(3290 to 13320) m ea sured fro m

2013 lo w o f 8349 pro jec ts the

next destination for current

rally to w a rds 24000 levels ov erthe com ing yea r.

Fro m a structura l po int o f view ,

the lo ng term price cha rt o f the

Bank Nifty exhibits a strong

und erlying trend . Pos t the 2008

market wide deluge, the Bank

Nifty was one of the firstheavyweight index to surpass

its 2008 peak (10806) in 2010

itself.

After a three fold rally during

2009-10 the ind ex w ent into

h i b e r n a t i o n m o d e a n d

c o n s o l i d a t e d b e t w e e n t h ebro a d rang e o f 13300 and 7800

o v e r t h e n e x t f o u r y e a r s

between 2010 and mid-2014.

Price wise, the index retraced

its 2009-10 rally by just 50%

while t ime wise correction

extended to 200% of thepreced ing rally. Elo ng a ted tim e

co rrec tio n w ith lim ited price

decline highlights the inherent

streng th in the trend . The ind ex

f o r m e d a d o u b l e b o t t o m

p r e c i s e l y n e a r t h e 5 0 %

retracement of 2009-10 rally(8000) a nd reg istered a strong

breakout in 2014 to signal the

end of the four year basing

pa ttern a nd co ntinuanc e o f the

20



23/95


la rge r uptrend .

The m a jo r suppo rt ba se for the

index is placed around 15000

being the confluence of the38.2% retracement of the

2013-14 ra lly a nd inte rmed ia te

ba se formed during six mo nth

consol ida t ion during June-

Octo ber 2014.

CNX Bank Nift y M onthly Bar Chart

200810806

2009

3290

201013320

3 Fold rally betw een2009-2010

Double Bottom near50% retracement of

2009-2010 rall y

201313348

161.8% Fibonacci ext ension

@ 24000

Support zone38.2% @ 14900

The current rally from 2013 low of 8349 to recentall time high of 18929 is already larger than the2009-2010 rally signaling extending market. We

expect the Bank Nifty to continue its northw ard journey in 20 15 and head t ow ards 2400 0 lev els

8349

21



24/95


U S D o l l a r I n d e x ( 8 9 . 2 ) :

Greenback w akes up from seven

year slumber

The y ea r 2014 draw s to a n end

a fter w itness ing hug e currency

m o v e s t r i g g e r e d b y t h e

forward guidance of the US

Fed era l Res erve a bo ut interest

rates . As a result, ma jo r g lo ba l

currencies like euro and Yen

hard landed while the US

Do lla r Ind ex rose fro m a m ulti-

ye a r slum ber.

Sharp advance of f May lows

(79.90) steered the US Dollar

Index past 2012-13 highs of84.75 to fresh five year highs

trig g ering a bull trend . The

s h a r p r a l l y i s p r i m a r i l y

contributed by weakness in

e u r o a n d Ye n , w h i c hcontributes around 83% of

weightage in the US dollar

ind ex. In the proc es s, the ind ex

reso lved pas t a mul t i yea r

consolidation.

While in the m ed ium -term, the

i n d e x a p p e a r s t o h a v e

s t r e t c h e d t o o v e r b o u g h t

territory, the price structure

points towards a further rally

g o ing into 2015. The 50%

retracement of the 2002-08

decline (120-71) and value of

the declining trend line drawn

off 1985 and 2002 peaks

projec ts ups ide ta rg et o f 96 fo r

the US dollar index over the

next y ea r.

The m o nthly MACD indica to r,

which has emerged above i ts

signal line provides insight

about the strong underlying

m o m entum in the US do lla r.

22



25/95


US Dollar Monthly Bar Chart

79.90

71

84.75

50% retracement of 2002-2008 decline @ 96

March 2009

89.62

23



26/95


Gold Spot ($1197): Bear cycleextended

The po sitive ec o no m ic da ta

out of the US a nd pros pects of

higher US interest rates from

next yea r pushed the do lla r to a

four-ye a r hig h a g a ins t the e uro ,

keeping the precious metal’s

complex close to multi-year

lows a s inves tors showed

be tter risk a ppetite a nd sta ye d

aw ay from the tra dit iona l sa fe-

haven co mm od ity.

Among the precious metal

complex, the sharp decline in

prices of gold since mid-2014

led ye llo w m eta l price s to fresh

four ye a r lo w s. The vio la tio n o f

yea rly lo w s o f 2013 ($1180)

signals a shift of trend from

s i d e w a y s t o n e g a t i v e a n d

o p e n s u p f u r t h e r l o w e r

avenues for prices towards

$1000 levels over a medium

term ho rizon.

After the sha rp d ec line during

2013, bullion prices remained

i n c o n s o l i d a t io n m o d e

thro ug ho ut 2014 a nd o sc illa ted

in the broad range of $1180

1 3 9 0 . T h e f l o o r o f t h i s

consolidation rested upon the

yea rly lo w o f 2013 at $1180.

D e s p i t e s e v e r a l a t t e m p t s

during the first half of 2014,g o ld prices failed to rise a bo ve

$1400 suggesting consistent

ove rhea d press ure.

We believe the breach of the

2013 lo w sig na ls res umptio n o ft h e p r e c e d i n g d o w n t r e n d .

Following the breakdown, we

expect g o ld prices to rem a in in

a downward trajectory and

head towards $1000 over a

m ed ium -term ho rizon.

Monthly declining MACD has

settled in a negative zone and

c o n t i n u e s t o t r e n d l o w e r

s u g g e s t i n g u n d e r l y i n g

negative momentum in pricesf r o m a m e d i u m - t e r m

perspective.

24



27/95


Gold Yearly Bar Chart

Gold M onthly Bar Chart

13-month EM A

Gold prices breached 2013 low to signal resumption ofthe preceding dow ntrend. W e expect bullion to correcttow ard $1000 in t he coming y ear

Breach of long term rising trendline during

2013 s ignaled a major t rend reversal.Bull ion prices reacted low er after testing

the breakdow n area in 2014 s ignalingcontinuation of dow ntrend

25



28/95


B r e n t C r u d e ( $ 5 9 . 6 ) :Consolidation to pan out after2014 debacle

G lo ba l com m od ity prices ha ve

been on a slippery path since

J une 2014. The sa fe ha ven

dem a nd for the US do lla r a m id

an uncertain global economic

environment propel led the

Do lla r Ind ex to a five -ye a r hig h.

As a result, do lla r deno m ina ted

co mm od ities have rem ained in

the line of fire. Factors like US

independence in the energy

sector and slowing growth in

China a nd Europe ad de d to thesupply g lut in c rude o il price s.

After trading in a minuscule

range of`

100-120 for 14quarters, crude prices broke

loose as they breached the

lower band of the four year

trading range. Resultant panic

selling led prices to lowest

levels since 2009 triggering

m a jo r bea r cycle fo r bla ck g o ld

s ince the 2008 cris is .

After the s tupendo us fa ll in thepast couple of months prices

are expected to stabilise near

the $52-55 zone , w hich is a

combination of key rising long

term trend line (b lue) a nd 80%

retracement of the 2009-10

ra lly (36-128).

However, given a weak long

term price structure for Brent

crude, upside s rem ain ca pped

t o $ 7 5 b e i n g t h e 3 8 . 2 %

r e t r a c e m e n t o f t h e 2 0 1 4

decline.

26



29/95

147

36

128

Breach of four year low s t riggeredpanic sell off in Crude prices

80% retracementand long termtrendl ine at $ 54


Brent Crude Quarterly Bar

Chart

27


The views expressed in the article are personal view s of the author and do not necessarily represent the view sof ICICI Securit ies.


30/95


DERIVATIVES STRATEGY 2015

Nifty likely to hit 9500 in 2015; key support placed at 7600

Amit Gupta

Head - Derivat ives Research,ICICI Securit ies

Nifty: M ean + 3.5 sigma level is at

9500, w hich is expected target of2015:

As per our a nalysis, mea n+ 3.5

sig m a levels ha ve b een helpful

in predicting the positional

ta rge t o f the Nifty.

In the cyclical up move seen

between 2003 and 2007, the

Nifty on multiple occasions

s a w a s u r g e , w h i c h g o t

arres ted near mea n + 3.5

sigm a leve ls. Thes e leve ls a recurrently plac ed a t 9500, w hich

rema ins the ta rge t for 2015.

January 2015

Once the Nifty gives breakoutabove M ean+ 2 sigma levels, itbecomes a positional support forthe index, w hich is currently placedat 7600:

On the lo w er side, key suppo rt

is placed near 7600, which is

the me an+ 2 sig ma level for theNifty. Po st the electio n verd ict,

t h e N i f t y w e n t i n t o

co nso lida tio n b efore ta king o ut

7600 convincingly. On any

m a jo r decline, this leve l w o uld

a g ain a ct as m ajor support for

the ind ex.This leve l is likely to be tes ted

o nly in the eve nt of a ny m a jo r

g l o b a l e v e n t l i k e U S

Fedincreasing interest rates,

euro a rea co ncerns, etc.

In b etw ee n, a 400-450 po intco rrectio n in the m a rket w o uld

be a strong buying oppo rtunity

for pos itio na l investm ents .

28


31/95


S i n c e O c t o b e r 2 0 1 3 , N i f t yintermediate declines have beenarrested w ithin 5-7%

Since September 2013, whenthe Nifty started moving from

5120, intermediate declines

have been arrested within 5-

7% o n m ultiple o cca sio ns .

One should note that most of

these declines were on the

back of globally driven news

flows.

In 2015 a s w ell, interm ed ia te

dec l ines a re l ike ly to be

t r i g g e r e d b y s o m e g e o -

po litica l risks .

We expect a similar pattern ofi n t e r m e d i a t e f a l l s g e t t i n g

a rres ted in 2015 and it is likely

to continue till the target of

9500 is no t ac hieved .

In the table below, we have

shown how the Ni f ty has

w itnes se d d ec lines o f 5-7%since the c urrent rally em erged

in 2013.

St art date End dat e No of days Points Decline % Decline

19-Sep-13 1-Oct-13 12 442 7.19%

3-Nov-13 13-Nov-13 10 371 5.84%

2-Jan-14 4-Feb-14 33 425 6.68%

25-Apr-14 8-M ay-14 13 231 3.37%

16-M ay-14 30-M ay-14 8 445 5.88%

8-Jul-14 14-Jul-14 7 387 4.95%

25-Jul-14 8-Aug-14 15 301 3.84%

8-Sep-14 16-Oct -14 38 451 5.51%

Nifty de clines since S eptemb er 2013

Nif ty going S&P w ay: Since 2012,S&P declines have also beenarrested w ithin 6-9%

The US S &P500 ha s b ee n in a nuptrend since 2012. During this

t i m e , d e c l i n e s h a v e b e e n

a r r e s t e d w i t h i n 6 -9 %.

However, these declines, as

the evidence suggests, have

a l w a y s b e e n a b u y i n g

o ppo rtunity, as ea ch tim e po stthis d ec line, S &P m a d e a

reco rd hig h.

In the table below, we have

hig hlig hted the m a jo r dec lines

since 2012. As visible, these

decline were intermittent and

sho rt lived a nd w ere follow edbuy s trong buying ac tion.

Start date End date No of days Points Decline % Decline

14-Sep-12 16-Nov-12 63 131 8.90%

22-M ay-13 24-Jun-13 33 127 7.52%

2-Aug-13 28-Aug-13 26 82 4.81%

19-Sep-13 9-Oct-13 20 83 4.82%

15-Jan-14 5-Feb-14 21 113 6.10%

4-Apr-14 11-Apr-14 7 83 4.37%

24-Jul-14 7-Aug-14 14 87 4.35%

19-Sep-14 15-Oct-14 26 199 9.84%

S &P500 major de clines since S eptem ber 2012

Nifty PCR-OI of 0.90 still not

show ing sign that market is

overbought

Des pite this exube ra nce in theNifty, s ce pticism is s till pres en t

in the system and indicators

like Put Call Ratio (PCR) Open



32/95


Interest (OI) are still trading at

sub -1.0 leve ls . In b ull m a rkets ,

this indicator has even traded

a t 1.5/1.8 leve ls . The lo w

r e a d i n g o f t h i s i n d i c a t o r

s u g g e s t s p a r t i c i p a n t s a r e

sceptical to write Put options

and have been more active in

w riting Ca ll o ptio ns .

Lo o king a t the Nifty P CR OI, thecurrent rea d ing o f 0.90 is eve n

lo w er tha n the PCR OI a verag e

see n s ince 2011 of 1.1. This ha s

happened despite the Nifty

trad ing a t life-tim e highs . This

leaves scope for further Put

writing, which bodes well for

“Buy at declines” strategy for

Nifty.

In the current up leg since

October end, volatili ty has

rem a ined sub d ued . This is

g iv ing an oppor tun i t y f o r

further Put writing. However,

prevailing scepticism due to

secular up move in Nifty has

m a de Put w riters very nervous.

This has kept the Nifty PCR-OI

consistently at lower levelssince the election verdict in

May.

0.60

0.80

1.00

1.20

1.40

1.60

1.80

3 - J a n - 1

1

3 - M a r - 1 1

3 - M a y - 1

1

3 - J u l - 1 1

3 - S e p - 1

1

3 - N o v - 1

1

3 - J a n - 1

2

3 - M a r - 1 2

3 - M a y - 1

2

3 - J u l - 1 2

3 - S e p - 1

2

3 - N o v - 1

2

3 - J a n - 1

3

3 - M a r - 1 3

3 - M a y - 1

3

3 - J u l - 1 3

3 - S e p - 1

3

3 - N o v - 1

3

3 - J a n - 1

4

3 - M a r - 1 4

3 - M a y - 1

4

3 - J u l - 1 4

3 - S e p - 1

4

3 - N o v - 1

4

P C R O I

4,5004,8005,1005,400

5,7006,0006,3006,6006,9007,2007,5007,8008,1008,4008,700

N i f t y S p o t

PCR O I N i f t y Spot

India VIX likely to remain below 20levels af ter w i tnessing sharpcorrection post election outcome

India Volatility Index (VIX) hadseen a sha rp up move tow ards

40 levels in Ma y 2014 a hea d o f

the election verdict. However,

post the event, the volatility

cooled off sharply. In the last

couple of months, India VIX

has been t rad ing subdued

belo w 20 leve ls.

Going ahead, in 2015, we

believe the Volatility Index is

likely to stay subdued for a

major part of 2015. However,

events like Union Budget in

February and the US Fedincreas ing ra tes co uld push the

I n d i a V I X h i g h e r . S u c h

escalation should be used as

an opportunity to create short

vola t i l i t y s t ra teg ies as we

believe the equity markets

could continue to display a

g r a d u a l u p w a r d b i a s w i t h

lower volatility in the coming

year.



33/95


S&P Volatility Index: Also in long

term consolidation after sharp

correc tion seen in early 2012

Af t e r w i t n e s s i n g s h a r p

declines in early 2012, US VIX

has failed to w itness a ny m ajor

reco very in the la st three ye a rs

and has been consolidating at

lower leve l s . In te rmedia te

upsides seen in these years

have translated into 6-9%

co rrec tio n in the S &P Ind ex

w hile VIX fa iled to m o ve a bo vethe levels s een in 2012.



34/95


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 .

FII Debt flow s in 2014

-15000

-10000

-5000

0

5000

10000

15000

20000

J a n - 1

4

F e b - 1

4

M

a r - 1 4

A p r - 1 4

M

a y - 1

4

J u n - 1

4

J u l - 1 4

A u g - 1

4

S e p - 1

4

O c t - 1 4

N o v - 1

4

R s .

c r .

Debt inflows of over US$24

billio n w ere the key s tab ilis ing

factor for the currency andb o n d m a r ke t s . Th i s i s

es pecia lly w hen it is co m pa red

w it h o v e r U S $1 1 b illio n

outflow in the last financial

year.

In the current fina nc ia l ye a r, a st h e F I I l i m i t f o r b o n d

i n v e s t m e n t i n c r e a s e d t o

US$25 billion, buying in the

de bt seg m ent picked up.

Co o ling o ff infla tio n a nd falling

c rude & comm odity pricesalong with policy initiatives

taken by the new government

helped to bo o st inves tments in

the d eb t seg m ent further.

Record FII inf low s in equity is keypillar of strength for Nif ty

FIIs Equity flows in 2014

-5000

0

5000

10000

15000

20000

25000

30000

J a n

- 1 4

F e

b - 1

4

M

a r -

1 4

A p r -

1 4

M

a y

- 1 4

J u n

- 1 4

J u

l - 1 4

A u g

- 1 4

S e p

- 1 4

O c

t - 1 4

N o v

- 1 4

R s .

c r .

In the eq uity se g m ent, fo reig n

institutional investors (FIIs)bo ug ht a reco rd US $16 billio n

during the ye a r so fa r. Pos t the

election verdict, FIIs greeted

the new government policy

initia tives w ith strong buying o f

o ver US $9 b illio n.

The curren t inflo w in the Ind iaequity segment is the largest

inf low seen in the Asian,

Middle East and emerging

Euro pea n m a rkets . This ha s

helped the Nifty to register a

strong up move of over 35%,

making India one of the besteq uity m a rkets.

Current ye a r FII inflo w s o f over

US$16 billion are more than

the last year inflow of US$14

billion.

FII inflow s in debt segment equallyremarkable as their debt buyingw as over US$24 billion



35/95

33

STOCK IDEAS 2015


Credit Analysis & Research Ltd (CARE)Target Price: Rs. 2,175 (53% upside)

CARE, the second la rges t

rating a g ency b y m arket sha re,

is a pure play on the rating

business w ith ~ 99% ( 230

crore) o f its FY14 co re reve nue

genera ted f rom the ra t ing

se g m ent . The hig hlig ht o f

CARE's business is its best-inclass EBITDA (ea rning s b efo re

interest, taxes, depreciation,

and amortization) margin of

60%+ a nd PAT (pro fit a fter tax)

m a rg in of 50%+ . The b usines s

model is asset light in nature

w i t h n o t m u c h c a p i t a lexpend iture o r ca pex ( 10-15

crore) w hile it ge nera tes s tro ng

operating cash flow. Post its

listing, the dividend payout

ratio has improved from 30%

(FY12) to 63% (FY14). We

expect this to g row to ~ 73%by FY17E. Considering the

improving economic outlook

w ith the expected upturn in the

investment cycle, peaking of

interest rates and gradual &

structural development of the

bo nd m arket w e ha ve factored

i n 1 8 % P A T C A G R

(compounded annual growth

rate) in FY14-17E to Rs. 210

`

`

crore vs. 12% CAGR seen in

FY11-14.

In 1993, CARE w a s the third

credit rating agency (CRA) to

b e i n c o r p o r a t e d i n I n d i a .

However, it gained significant

ground to become second

largest CRA by revenue postFY09. It clocked 50% revenue

CAGR in FY08-11 vs. 30% by

peers. CARE is strong in bank

loa n ra t ing (BLR) & bo nd

m a rket w hile it do es n o t have a

significant presence in small

and medium-sized enterprises(SME) space as of now. We

e x p e c t i t t o m a i n t a i n i t s

r e v e n u e m a r k e t s h a r e o f

~ 28%, going a head.

CARE's strong margins can be

a ttributed to : i) rela tive ly lo w ere m p l o y e e c o s t i i ) h i g h

propo rtio n o f la rg e ticket b a nk

loa ns & bo nds (hig h ma rg in

business) and iii) offices being

la rg ely ow ned sa ving o n lea se

cost . Go ing ahea d, ma rg ins a re

expe cted to dec line fro m 64%in FY14 to 62% by FY17E

ow ing to a rising focus on the

low ma rg in S ME business a nd

mainly due to expected rise in


36/95


staff co sts.

CARE has em erg ed as a strong

player in the rating business

w i t h s t r o n g m a r g i n s a n d

improving market share with

bes t b rand reca ll a fter CRIS IL. It

is trading at a discount to the

c o n s o l i d a t e d b u s i n e s s o f

CRIS IL & ICRA. If w e just

consider CRISIL's core rating

busines s , CARE, tra d ing a t 20x

FY17E EPS (earnings per

sha re), is a t a steep d isco unt to

CRIS IL's ~ 60x m ultiple. The

c o m p a n y h a s s t r o n g R o E(return on equity) of 27% for

FY14 and potential to further

enhance it to 46% by FY17E.

We value CARE at 30x FY17E

EP S (~ 50% d i s c o u n t t o

CRISIL's core rating business

m ultiple) a nd a rrive a t a targ et

price o f 2,175.`Key Financials

Valuations Summary

(EBITDA: Earning s before interest, ta xes, d eprecia tion, a nd a m ortization;PAT: Profit after ta x; EPS: Ea rning s per sha re; P/E: Price -to-ea rning s; EV:

Enterprise va lue; P/BV: Price -to -book/va lue ; RoNW: Return on net w orth;RoCE: Return on Ca pital Em ploy ed )

FY14 FY15 FY16E FY17E

Net sa les ( crore) 230 275 331 380

EBITDA ( cro re) 147 173 207 237

PAT ( crore) 129 161 188 210

EPS ( ) 44.4 55.6 64.7 72.5

`

`

`

`

P/E (x) 32.2 25.7 22.1 19.7

Ta rg et P/E (x) 49 39.1 33.6 30

EV /EBITDA (x) 24.9 21.5 17.9 15.5

P/BV (x) 8.6 11 9.8 9.1

RoNW (%) 26.6 42.8 44.3 46.2

RoCE (%) 29.7 45 48.1 51.2

FY14 FY15 FY16E FY17E

STOCK IDEAS 2015


37/95


Castrol India Ltd.Target Price: Rs. 611 (22% upside)

Ca stro l Ind ia , a 71% subsidia ryo f British Petro leum P lc., is o ne

of the leading players in the

domestic lubricants business.

The co m pa ny o perates three

manufacturing plants in India

a nd ha s the la rg es t distributio n

network of 380 distributors,

servicing over 1,05,000 retail

sites . The m a in focus o f Cas tro l

is on the lucrative automotive

lubricant segment where it

commands a market share of

~ 22% in va lue term s. The

co mpa ny de rives ~ 90% of its

revenues from the automotive

s e g m e n t a n d ~ 1 0 % i n

industria l segment . Castrol

repo rted revenues o f 3,179.6

crore a nd PAT o f 508.6 crorein Cy13.

Cas tro l's v o lume ha d rem a ined

subdued over the past few

yea rs d ue to the s low do w n in

the Ind ia n ec o no m y. The

prospects of the lubricant

indus try a re hig hly d epend ent

on growth in the automotive

sector. We expect the

`

`

a utom ob ile se ctor to pos t salesg row th a t 13.2% CAG R o ver

FY14-17E to 314 lakh units in

FY17E. Hence, Castrol's total

vo lume is expe cted to increas e

at 3.8% CAGR over CY13-16E

from 196.8 millio n litre in Cy13

to 220 m illio n litre in CY16E o n

the ba ck o f an im pro vem ent in

a u t o s a l e s a n d i n d u s t r i a l

growth.

Ca stro l is the price m a ker in the

automotive lubricant industry.With the s ha rp de cline in c rude

oil prices over the past few

months, raw materials costs

(ba se o il price s) for Ca s tro l a re

e x p e c t e d t o c o m e d o w n ,

aiding the improvement inmargins . We expect gross

m a rg ins to increas e by 29.1

per litre over CY13-16E from

70.7 pe r litre in CY13 to 99.8

per litre in CY6E. S ubse q uently,

w e e xpect EBITDA to increa se

from 34.9 pe r litre in CY13 to

60.4 per litre in CY16E.

C a s t r o l 's s t r o n g b r a n d

`

`

`

` `

STOCK IDEAS 2015


38/95


p o s i t i o n i n g a n d s u p e r i o r

distribution network allows it

to command higher pricing

power and premium for its

pro ducts o ver its co m petitors.

The c o m pa ny's fo cus o n the

perso na l m o bility se g m ent w ill

remain the key driver for the

a utom o tive lubrica nt bus iness

a n d c r e a t e v a l u e f o r

shareholders, going forward.

W e e x p e c t r e v e n u e s a n d

profits to grow at a CAGR of

7.1% a nd 20.5% o ve r Cy13 16E

to 3,910.9 cro re a nd 889.1

crore, respectively. We value

Ca stro l Ind ia a t 34x CY16E EPS

of Rs. 18 to arrive at a target

price o f 611 in 12-18 m o nths .

` `

`

Key Financials

Valuations Summary

(EBITDA: Earning s before interest, ta xes, d eprecia tion, a nd a m ortization;PAT: Profit after ta x; EPS: Ea rning s per sha re; P/E: Price -to-ea rning s; EV: Enterprise va lue; P/BV: Price -to -book/va lue ; RoNW: Return on net w orth;RoCE: Return on Ca pital Em ploy ed )

Net sa les ( cro re) 3,179.6 3,405 3,641 3,910.9

EBITDA ( crore) 687.6 714.9 1,207.1 1,328.6

PAT ( cro re) 508.6 480.1 812 889.1

EPS ( ) 10.3 9.7 16.4 18

CY13 CY14E CY15E CY16E

`

`

`

`

P/E (x) 48.6 51.5 30.5 27.8

Ta rg et P/E (x) 59.4 62.9 37.2 34

EV /EBITDA (x) 35.1 34 19.9 17.9

P/BV (x) 32.9 42.7 35.5 30.7

Ro NW (%) 67.7 82.9 116.5 110.5

Ro CE (%) 87.4 117.6 168.2 160.2

CY13 CY14E CY15E CY16E

STOCK IDEAS 2015


39/95


Container Corporat ion of India Ltd.

Target Price: Rs. 1,670 (26% upside)

Conta iner Corpo ratio n o f Ind ia

Ltd . (Co nCo r) is w ell po ise d to

benefit from an improving

eco nom ic sce nario ow ing to its

pa n-India pres ence a nd s tro ng

co m petitive intens ity by virtue

o f i n f r a s t r u c t u r e a n dscalability. It is planning to

garner higher volumes and

provide value added services

a nd is, thus , investing in setting

up private freight terminals

(PFT) a nd m ulti m o da l lo g is ticp a r k s ( M M L P ) a c r o s s 1 5

locations in India. Currently,

the P FTs a t Kha tuw a s a nd

Na g ulpa lly a re o peratio na l a nd

a re expe cted to sca le up in the

near term. Further, ConCorplans to acquire land in the

central and eastern regions of

the co untry, in c lo se proxim ity

t o t h e d e d i c a t e d f r e i g h t

corridor (DFC), to scale up its

PFT bus iness .

O v e r F Y 1 0 - 1 3 , C o n C o r ' s

v o l u m e g r o w t h r e m a i n e d

slugg ish a nd g rew a t a CAG R of

2.2%. How ever, FY14 ha s see n

a reviva l in ca rg o vo lume s w ith

10.9% year-on-year (YoY)

g r o w t h . G o i n g a h e a d , w e

expect total cargo volumes to

grow at a CAG R of ~ 11% over

FY14-17E on account of theimproving economic scenario

a n d C o n C o r ' s s t r a t e g y o f

provid ing be t ter ra tes for

v o l u m e c o m m i t m e n t s b y

clients.

ConCor is the market leader

w ith a d om inant m arket sha re

(79%) among container train

o pera to rs (CTOs) w hile o ther

CTOs a re s till m inisc ule in s ize.

ConCor has an unmatched

infra structure a nd existing pa n-

India presence tha t would

enable it to capture higher

volume g row th in a n im proved

economic scenar io . I t has

made strategic investments in

build ing infra structure clo se to

the proposed DFC with the

intention of capturing higher

STOCK IDEAS 2015


40/95


volume share over the longer

t e r m . F u r t h e r , w i t h

implementation of goods and

se rvice tax (G S T) im m inent w e

expec t both expor t- import

(exim) and domestic cargo to

g r o w c o n s i d e r a b l y .

Consequent ly , we envisage

earnings per share (EPS) will

register a CAGR of 16% over

FY14-17E to Rs. 76 w ith re turn

on equi ty improving f rom

13.8% in FY14 to 15.8% in

F Y 1 7 E . C o n s i d e r i n g t h e

e x p e c t e d a c c e l e r a t i o n i n

earning growth, improvement

in return ratios and debt free

sta tus w e a ss ig n a P/E multiple

of 22x FY17E EPS to arrive a

ta rget price o f 1,670.`

Key Financials

Valuations Summary

Net sa les ( cro re) 5,109 5,460 6,478 7,912

EBITDA ( cro re) 1,078 1,269 1,555 1,998

Net pro fit ( crore) 950 904 1,133 1,479

EPS ( ) 48.7 46.3 58.1 75.9

FY14 FY15E FY16E FY17E

`

`

`

`

(EBITDA: Ea rn ings b e f o re in t e res t , t ax es , deprec i a t ion , andamortization; EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise va lue; P/BV: Price-to -book/va lue ; RoNW: Return on net w orth;RoCE: Return on Ca pital Em ployed)

P/E (x) 26.8 28.2 22.5 17.2

Ta rg et P/E (x) 34.3 36 28.7 22EV /EBITDA (x) 21.2 17.7 14.2 10.5

P /BV (x) 3.7 3.4 3.1 2.7

RONW (%) 13.8 12 13.6 15.8

ROCE (%) 12.8 11.3 13.2 16

FY14 FY15E FY16E FY17E

STOCK IDEAS 2015


41/95


Gujarat Pipavav Port Ltd.

Target Price: Rs. 221 (16% upside)

Guja ra t P ipavav Por t L td .(GPPL) with a capacity of

8,50,000 TEUs (tw enty-fo o t

e q u i v a l e n t u n i t s ) , a n d

strategically located on the

western coast of India with

proxim ity to ind us tria l clustersprovides scope for significant

growth. Besides containers,

the port is well equipped to

handle bulk cargoes including

fertiliser and agri-products.

Further, G PP L pla ns to expa ndits c o ntainer ha ndling ca pa city

to 1.35 millio n TEUs a s the po rt

conta iner volumes ha ve g row n

a t a CAG R o f ~ 12% o ver CY10-

13. In terms of infrastructure,

the port is well connected viaroa d a nd rail bes ide s ho using a

container freight station to

ma nag e its throug hput.

Port revenues g rew a t a CAG R

o f ~ 22% o ver CY10-13 aided

by ~ 12% g row th in container

volume whereas bulk volume

g r o w t h r e m a i n e d m o s t l y

flattish. As nearly 70% of ther e v e n u e i s d e r i v e d f r o m

container, GPPL's growth was

h i g h l y s k e w e d t o w a r d s a

pa rticula r se g m ent. In o rder to

diversify the ca rg o b a se , G PP L

e n t e re d in t o v a rio u sarrangements with tank farms

owners and providing Ro-Ro

(Roll-o n/roll-o ff) fa cility fo r a uto

l o g i s t i c s h a n d l e r s . G o i n g

ahead, as GPPL is present in

pro xim ity to a uto hubs co upledwith ac t ing as a ga teway to

n o r t h e r n h i n t e r l a n d a u t o

m a nufac turers, it is w ell po ise d

to gain through new business

addition.

With the a dd itio n o f a co uple o f

n e w b u s i n e s s l i n e s a n d

improved revenue visibility,

GPPL is expected to post

reve nue CAG R o f nea rly 20% in

CY11-15 w he rea s EBITDA

CAG R is e xpected a t ~ 27% in

the same period. As nearly

70% o f G PPL's co s t is fixed , the

STOCK IDEAS 2015


42/95


new business is expected to

further improve the operating

leverage, thereby aiding the

E B I T D A m a r g i n . F u r t h e r ,

G PP L's deb t-free structure a nd

e x t e r n a l c o m m e r c i a l

borrowing (ECB) funding for

new ca pex is expected to b ring

down the interest cost . A

diversified cargo portfolio and

p r e s e n c e i n h i g h g r o w t h

segments like tank farms and

a u t o e x p o r t p r o v i d e

confidence on the earnings

g r o w t h o f G P P L .

Consequently, we revise our

estimates upwards and arrive

at a discounted cash f low

(DCF)-based target price of

221.

`

Key Financials

Valuations Summary

(EBITDA: Ea rn ings b e f o re in t e res t , t ax es , deprec i a t ion , andamortization; EPS: Earnings per share; P/E: Price-to-earnings; EV:

Enterprise va lue; P/BV: Price-to -book/va lue ; RoNW: Return on net w orth;RoCE: Return on Ca pital Em ployed)

Net sa les ( cro re) 416 518 676 831

EBITDA ( cro re) 182 257 381 475

Net pro fit ( crore) 74 192 321 427

EPS ( ) 1.5 4 6.6 8.8

CY12 CY13 CY14E CY15E

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P/E (x) 122.9 47.4 28.3 21.3

Ta rg et P/E (x) 144.8 55.8 33.4 25.1EV/EBITDA (x) 51.3 36 23.5 18.1

P /BV (x) 7.5 6.5 5.3 4.2

RONW (%) 6.1 13.7 18.6 19.8

ROCE (%) 8.2 9.5 17.9 17.4


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Heidelberg Cement India Ltd.Target Price: Rs. 105 (28% upside)

Heide lbe rg Cem ent is a pla ye rin the central region that

co ntributes o ver ~ 94% o f its

tota l revenues . The c o m pa ny

h a s r e c e n t l y d o u b l e d i t s

cement capacity to 6 million

to nn es (MT) from 3 MT in Cy 13

a t a tota l ca pex o f 1,570 crore.

With a reviva l in dem a nd a lo ng

w i t h s t a b i l i s a t i o n o f n e w

ca pa city, w e expe ct its m a rg in

to reach over 15% by CY16Ew ith ca pa city utilisa tio n o f ove r

85% during the s a m e pe rio d .

After scaling up capacity, the

company i s now focus ing

tow a rds co st red uction. It hasi n s t a l l e d a c o n v e y o r b e l t

b e t w e e n i t s l i m e s t o n e

reserves and clinker units,

w hich a re 20 km a w a y (a t 200

crore) to trans po rt lim es tone to

its c linkerisa tio n unit, w hich is

currently b eing tra nspo rted b y

trucks. This w o uld he lp the

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company in achieving costs a vin g s o f a b o ut ~ 45-

50/to nne. Furthe r, to red uce its

power costs , the company is

currently setting up a 13 MW

waste hea t recovery p lant

(ca pex o f 150 crore), w hich

w ill be co m m iss io ned by ea rly

2016E. Cons idering the benefit

of co nveyo r belt , eco nom ies of

sca le coup led w i th be t t e r

u t i l i s a t io n s , w e e x p e c toperating margins to improve

to 14.8% in CY15E and 15.4%

in CY16E from 6.3% in Cy13.

A h e a l t h y o p e r a t i n g

env i ronment coup led w i ths t r o n g p r o m o t e r b a c k - u p

(Heidelberg AG: world's third

la rg est cem ent prod ucer) a lla y

o ur co ncerns w ith reg a rd to its

deb t se rvicing a b ility. The deb t

to -eq uity (D/E) ra tio currently

sta nd s a t 1.2x.

Given the scope for margin

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STOCK IDEAS 2015


44/95


expansion along with better

demand-supply mat r ix , we

expect the co m pany to repo rt a

ne t pro fit o f 104.4 cro re in

C Y 1 6 E . W e e x p e c t

EBITDA/to nne o f Rs . 662/to nne

in CY16E from Rs. 260/to nne in

CY13. On an EV/to nne b a s is ,

t h e s t o c k i s t r a d i n g a t

$86/to nne (o n ca pa city o f 5.4

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MT), w hich lea ves s co pe fo r

f u r t h e r u p s i d e o n c e i t s

opera t ing mat r ix improves

f u l l y . H e n c e , w e r e m a i n

positive on the stock with a

ta rget p rice o f Rs . 105/sha re

(i.e. valuing at 9.5x CY16E

EV/EB ITDA, $100/to nne o n

ca pa city o f 5.4 MT).

Key Financials

Valuations Summary

(EBITDA: Ea rn ings b e f o re in t e res t , t ax es , deprec i a t ion , and

amortization; PAT: Profit after tax; EPS: Ea rning s per sha re; P/E: Price -to -earnings; EV: Enterprise va lue; P/BV: Price-to -book/va lue; RoNW: Returnon net w orth; RoCE: Return on Ca pita l Em ploy ed )

Net sa les ( crore) 1,364.8 1,638 1,896.6 2,166.5

EBITDA ( crore) 86.4 234.5 281.2 332.6

PAT ( cro re) -40.7 65.5 70.8 104.4

EPS ( ) -1.8 2.9 3.1 4.6


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P/E (x) NA 28.4 26.3 17.8

Ta rg et P/E (x) NA 36.3 33.6 22.8

EV /EBITDA (x) 35.9 11.7 9.8 8

P/BV (x) 2.2 2.2 2 1.8

Ro NW (%) -4.9 7.6 7.6 10.2

Ro CE (%) -0.5 6.2 8.2 10.2


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Infosys Ltd.Target Price: Rs. 2,400 (23% upside)

In f o s y s a n n o u n c e d t h eselec tio n o f Dr Visha l S ikka , the

former SAP executive board

member, as its new Chief

E x e c u t i v e O f f i c e r a n d

Managing Director (CEO &

MD), effective August 1, 2014,

fo r a pe rio d o f five y ea rs. Und ert h e n e w C E O , I n f o s y s i s

undergoing another strategic

transformation and is broadly

emphasising on two themes:

1) Renew ing the co re b usines s

and 2) Innovating into newbusiness. Acknowledging that

t h i s t r a n s f o r m a t i o n i s

demanding and could stretch,

the management is confident

o f executio n a nd b elieves such

a company could sustain 15-

18% revenue growth and 25-28% EBIT (earnings before

interes t a nd tax) m a rg ins.

Th e n e w m a n a g e m e n t

empha sised m as sive emb race

o f des ig n thinking – new – in

renewing exist ing of ferings

such as consulting services,

product engineering &Finacle

and committing considerable

i n v e s t m e n t s i n t h i s a r e a .Curren tly, ~ 8,300 entry leve l

and 160+ senior employ ees

have been trained on design

thinking while more could

follow. Interestingly, 70% of

US-based consul tants have

b e e n t r a i n e d o n d e s i g nthinking w hile 1,000 peo ple

have been trained on artificial

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