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www.emkaywealth.com
Volume 19JUNE 2020
For Private Circulation Only.
Resumption & ResurgenceUnlock 1.0
Prologue
Quite Briefly
Global challenges remain unchallenged yet
India Macro
India: Equity markets buoyant on lockdown reversal
India: Fixed Income
Gold continues to price in risk premium
The "greenback" holds its sway as currency markets stay more or less calm
Brent
Enhanced Efficiency Model: En Ef Model
Recommended Equity schemes
Recommended Debt schemes
Emkay L.E.A.D PMS
PMS products update
Emkay Capital Builder PMS
Estate & Succession Planning
HUF & Transfer of Assets
Notes
Model Portfolio
Disclaimer
03
05
06
09
13
16
18
20
21
22
23
26
29
31
32
33
34
38
39
40
NAVIGATOR | VOLUME 1902
Prologue
CEO
SPE
AK
In the aftermath of the pandemic and the consequent lockdown, there was an inestimable amount of panic and distress, which has been felt around the world. To a large extent, relief came in the form of quantitative easing and liquidity enhancement measures, from the governments and central banks. While these measures take time to show their effects, there is a general feeling that the economies may not sink deeper than where they are at present. It is an accepted reality that the world will have to grapple with negative growth in the coming two to three quarters and some green shoots may emerge thereafter. The financial markets too, after the initial fall, recovered close to a third of their lost ground, and the bears currently display some sort of fatigue. The probability of a severe fall in the markets is substantially reduced going by the recent trends. This stability is required in the first place for the markets to register a positive upward move that is sustainable. But it is anybody’s guess that we are somewhere near the bottom in terms of the index levels.
Apart from the time when we will be able to conquer the pandemic, and the final success in finding a medical remedy for the same, there are several events that may cause some amount of disturbance to the emerging calm. The standoff between China and the US especially in the matter of Hong Kong, and its consequences for trade and commerce, and the face-off between India and China at the border, are events that may, in some form or the other, influence the progress that we make in the economic revival that we are looking forward to. Medical experts have also warned of potential second wave of infections. The UN has highlighted in the recent days the disastrous effect that the locust infestation may have on global agricultural output. I have highlighted these events to drive home the fact that there are likely things that may cause turbulence during the voyage.
The principles that govern our basic approach to invest-ments do not undergo any changes in the light of all these developments. We live in a low interest rate scenario supported by high liquidity, and it should give us comfort as far as fixed income investments are con-cerned. With the likelihood of higher NPA levels and defaults, we need to be careful while approaching credit risk. It is better to go with high credit rating and quality portfolios. This choice is very important as we will not
BHAVESH SANGHVI
know which way the wind is blowing in a generally fluid credit market conditions. It should also be borne in mind that the liquidity glut that we see in the money market may wane due to the heavy government borrowing programme. Therefore, while tactical positions taken in long bonds may be fruitful for very short spells of time, strategic allocations should be more at the short to medium segment on the curve.
With a view to accommodating the probability of any fall in markets, and the time taken for revival in economic growth, and with the objective of building up the portfo-lio over a period time, we have recommended phased investments in equities over the next two to three quar-ters. This prescription of going with a systematic invest-ment plan remains intact, with a greater preference for large caps followed by midcaps. It is also a good idea to look at some exposure to gold, either through gold funds or sovereign gold bonds. As far as equity goes, one should be betting on good quality portfolios only, and this requires constant affirmation. Businesses which have strong balance sheets, and leadership in their respective sectors, have amply demonstrated as to how they would be able to weather many a storm in the recent past. I strongly suggest well-managed portfolios both from the mutual funds and PMS space. I am delighted to mention that the two strategies that we run in the PMS space, the Emkay LEAD and the Emkay’s 12, have consistently outperformed their benchmarks, and have also held quite well during the last market crash.
Hope you are all keeping fit and fine, in good health.
Cheers!! Bhavesh SanghviCEO, Emkay Wealth
NAVIGATOR | VOLUME 1903
In the aftermath of the pandemic and the consequent lockdown, there was an inestimable amount of panic and distress, which has been felt around the world. To a large extent, relief came in the form of quantitative easing and liquidity enhancement measures, from the governments and central banks. While these measures take time to show their effects, there is a general feeling that the economies may not sink deeper than where they are at present. It is an accepted reality that the world will have to grapple with negative growth in the coming two to three quarters and some green shoots may emerge thereafter. The financial markets too, after the initial fall, recovered close to a third of their lost ground, and the bears currently display some sort of fatigue. The probability of a severe fall in the markets is substantially reduced going by the recent trends. This stability is required in the first place for the markets to register a positive upward move that is sustainable. But it is anybody’s guess that we are somewhere near the bottom in terms of the index levels.
Apart from the time when we will be able to conquer the pandemic, and the final success in finding a medical remedy for the same, there are several events that may cause some amount of disturbance to the emerging calm. The standoff between China and the US especially in the matter of Hong Kong, and its consequences for trade and commerce, and the face-off between India and China at the border, are events that may, in some form or the other, influence the progress that we make in the economic revival that we are looking forward to. Medical experts have also warned of potential second wave of infections. The UN has highlighted in the recent days the disastrous effect that the locust infestation may have on global agricultural output. I have highlighted these events to drive home the fact that there are likely things that may cause turbulence during the voyage.
The principles that govern our basic approach to invest-ments do not undergo any changes in the light of all these developments. We live in a low interest rate scenario supported by high liquidity, and it should give us comfort as far as fixed income investments are con-cerned. With the likelihood of higher NPA levels and defaults, we need to be careful while approaching credit risk. It is better to go with high credit rating and quality portfolios. This choice is very important as we will not
Prologue know which way the wind is blowing in a generally fluid credit market conditions. It should also be borne in mind that the liquidity glut that we see in the money market may wane due to the heavy government borrowing programme. Therefore, while tactical positions taken in long bonds may be fruitful for very short spells of time, strategic allocations should be more at the short to medium segment on the curve.
With a view to accommodating the probability of any fall in markets, and the time taken for revival in economic growth, and with the objective of building up the portfo-lio over a period time, we have recommended phased investments in equities over the next two to three quar-ters. This prescription of going with a systematic invest-ment plan remains intact, with a greater preference for large caps followed by midcaps. It is also a good idea to look at some exposure to gold, either through gold funds or sovereign gold bonds. As far as equity goes, one should be betting on good quality portfolios only, and this requires constant affirmation. Businesses which have strong balance sheets, and leadership in their respective sectors, have amply demonstrated as to how they would be able to weather many a storm in the recent past. I strongly suggest well-managed portfolios both from the mutual funds and PMS space. I am delighted to mention that the two strategies that we run in the PMS space, the Emkay LEAD and the Emkay’s 12, have consistently outperformed their benchmarks, and have also held quite well during the last market crash.
Hope you are all keeping fit and fine, in good health.
Cheers!! Bhavesh SanghviCEO, Emkay Wealth
NAVIGATOR | VOLUME 1904
Quite BrieflyWe have the latest GDP numbers now. Sluggishness in economic growth was a feature of the Q2 and Q3 of 2020, and it was accentuated in Q4. So, the number was more or less expected to indicate decline from the 4.00% and 4.50% levels; GDP growth has been reported at 3.10%. This number fully reflects the sluggish growth which the economy has been going through over the last six to eight quarters. What is more important is the extent to which Q1FY21 GDP growth may contract from the current levels reflecting the lockdown and the resulting demand destruction.
The overall liquidity conditions in the interbank market, and the level of interest rates continue to support equity markets. The last policy announcement by the RBI brought down the base rates further. But what needs to be achieved is effective transmission of these measures to the last borrower, and the channelization of credit to desired sectors which are in need of credit and liquidity.
One of the positive factors for the economy and the markets was the announcement of stimulus package worth ₹20 Lakh Cr. This includes the liquidity and credit enhancement measures already initiated by the RBI. While this package of fiscal, liquidity and credit guarantee measures and direct transfer initiatives are a strong support for the economy for its longer-term revival, most of the measures are supply-side measures. The demand side measures are few in number or indirect in nature. Generally, demand side measures are faster in their impact on the economy and they have multiplier effect on economic activity.
There are a number of concerns like the fiscal slippages on account of the enhanced borrowing program of the central and state governments. Other concerns centre around the weak local currency, and the likelihood of revision of country rating in the light of the overall economic con-ditions and the fiscal situation. Post the permitted moratorium, there may be NPAs with the banking system and the non-bank finance companies, and this is cited as a dampener by many analysts. The outcomes in most of these concerns would depend on how fast the pandemic is contained, and how systematically we come back to normalcy leaving behind the constraints of the lockdown.
The dichotomy in the response of the short and mid-sector as against the long end continues to be a feature of the markets. Fixed income investments should be in high credit quality papers or strategies. Preferred segment on the yield curve is short to medium term. The risks pertaining to demand-supply mismatch due to increased central and state government borrowing, coupled with the inherent volatility of high duration strategies, make the short to medium term duration investments better, on a risk-adjusted basis. Investments into banking and PSU debt funds, corporate debt funds and short-term income funds offer potential for better risk-adjusted returns. The equity markets display some amount of stability and the probability of corrective downward movements cannot be ruled out. But deeper corrections may not happen unless there is significant deterioration in the overall macro-economic scenario. It is an evolving situation, and much would depend on the impact of the fiscal and monetary measures. However, the principle of phased investments may be followed, in well-managed funds and portfolios which have quality stocks.
Dr. K. Joseph ThomasHead Research, Emkay Wealth
NAVIGATOR | VOLUME 1905
Global challenges remain unchallenged as yet.
The challenges which the global economy has been facing since the outbreak of the pandemic con-tinues to be unchanged and unresolved to a large extent. The pandemic itself has spread to new regions and has spread havoc in the US, and has affected India too, a major contributor to global growth. That it is yet to be contained and that there is no remedy that has been discovered so far is a matter of concern and this may continue to infuse uncertainties into the global system for some more days to come. Only a firm indication of a journey out of this is likely to bring in lasting stability in econ-omies and markets. In addition to this, the UN in its latest communication, has warned about the impact of the attack of swarms of locusts on agriculture and farm output which may lead to rise in farm produce prices if the destruction is going to be widespread. The two fundamental economic challenges at hand are combatting the almost certain contraction in economic growth, and the urgent need to explore the ways and means to arrest a severe deflation.
CHALLENGES REMAIN MORE OR LESS THE SAME
The sagging US consumer sentiment shows a small uptick after a fall in two months - March and April. Analysts believe that this may be due to the benefits that households have received from the Federal Government allowing them to spend more, discounts offered by a large number of consumer product firms to promote their products, and also the availability of funds at lower interest rates. While the uptick is quite insignificant as an indicator for longer term trend, the key question is whether this small rise could be sustained against the large figure of 38 million who have filed for unemployment benefits. Most Americans consider health and their personal finances as their primary concern, because those surveyed feel that the way out of the current crisis could be tortuous and longer than expected. The GDP growth, for the current quarter and for the next, by all calculations is expected to display a severe contraction which is much worse than any in the recent history.
SMALL UPTICK IN US CONSUMER SENTIMENT
The unemployment rate spiked to 14.70% and there were widespread job losses in some of the labour-intensive sectors like hospitality (hotels and restaurants), transport, education, and healthcare services. Almost half of all the job losses are concentrated in these sectors. The conditions referred to as one of the worst in the post-second world war time. The relaxation in the lockdown norms over the coming two months should see most of the key businesses re-open, and large number of those who were laid off may be called back. This is expected to bring down the unemployment levels to some-where close to 9 or 10%. The automobile industry alone accounts for job losses of close to 400,000 and the reopening of the economy is likely to bring almost all of them back to work. But the global economic contraction, assessed to be around 3 to 4%, and the likely contraction of growth in the US may not allow the economy to effectively give employment back to all those retrenched in the imme-diate term.
US LABOUR MARKET IN DOLDRUMS
NAVIGATOR | VOLUME 1906
Global challenges remain unchallenged as yet.
The issues with China which seemed to be abating have come back again in the reckoning in a big way. With the closure of the first phase of the agreement with China, things seemed to have reached a final stage. But a spate of issues including the riot-like spread of the pandemic in the US, allegations of lack of transparency in the way China handled the outbreak, the Chinese activity in the South China Sea with occasional skirmishes with the US navy, the modification in the status of Hong Kong, in disre-gard for the original deed, acquiring greater control of the city state through domestic legislation, etc. have led to the current conflict between the US and China, and it is not going to be an easy ride for both parties as the disputes and disagreements touch the inherent differences in the very basic prin-ciples that govern the two societies. The preferred treatment enjoyed by Hong Kong in several mat-ters has also been ended by the US. This may be the precursor to a prolonged period of conflict between the two large economies both in the political and economic arena.
CHINA IS BACK AGAIN AT THE CENTRE
16
14
12
10
8
6
4
2
0
Jan
-10
Jun
-10
Nov
-10
Ap
r-11
Sep
-11
Feb
-12
Jul-1
2D
ec-1
2M
ay-1
3O
ct-1
3M
ar-1
4A
ug
-14
Jan
-15
Jun
-15
Nov
-15
Ap
r-16
Sep
-16
Feb
-17
Jul-1
7D
ec-1
7M
ay-1
8O
ct-1
8M
ar-1
9A
ug
-19
Jan
-20
US Unemployment Rate (%)
Jan
-07
Jul-
07
Jan
-08
Jul-
08
Jan
-09
Jul-
09
Jan
-10
Jul-1
0Ja
n-1
1Ju
l-11
Jan
-12
Jul-1
2Ja
n-1
3Ju
l-13
Jan
-14
Jul-1
4Ja
n-1
5Ju
l-15
Jan
-16
Jul-1
6Ja
n-1
7Ju
l-17
Jan
-18
Jul-1
8Ja
n-1
9Ju
l-19
Jan
-20
8000000
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
US Jobless Claims
NAVIGATOR | VOLUME 1907
The Chinese economy contracted by 6.80% in Q1 of 2020, compared to a growth of 6% in Q4 of 2019. The decline is deeper than forecasts. This fall reflects the impact of the pandemic on the economy. This is the first steep fall in growth after China started publishing statistics in 1992. The decline in industry was to the tune of 9.60%, and agriculture and services sector fell by 3.20% and 5.20% respec-tively. The inherent ability of the Chinese economy to bounce back remains strong. Inflation was slightly lower at 3.30% in April, lower from 4.30% in March. Strangely, even food prices came down during this period. Exports from China showed an impressive up-move, it rose by 3.50% Y-O-Y in April, against expectations of a median fall of about 12% in the wake of the pandemic. Exports of medicines, masks, medical equipment, etc. rose including to countries like Australia, South Korea, and Japan. April industrial output also rose with all segments registering an uptick. The numbers seem to suggest a fast reviving economy after the pandemic.
CHINA LEAVES BEHIND THE PANDEMIC EFFECTS
Germany's economy contracted by 2.20% in Q1 of 2020. This is the steepest decline since 2009 and the second decline since the unification of Germany. Consumption of households declined by 3.20%. Infla-tion has slowed down, and it is expected to drop drastically due to drop in energy costs and slowing food inflation, and consumer sentiment indicates a moderate rise. In France, the economic growth declined by 5.30% in Q1 of 2020. This is the most severe contraction in GDP since 1968. The shrinkage in GDP started from late 2019 and it has now been accelerated by the pandemic and the shutdown. UK GDP declined by 1.60% in Q1 of 2020. The fall is the result of the economic distress caused by the pandemic and the general shutdown. A further drop is expected in Q2. Consumption spending also slowed down. The whole of 2019 witnessed a recessionary contraction in Italy with a mild pick up in the last quarter of 2019. But the small gains were totally undone by the severe jolt received by Italy due to the pandemic that ravaged the northern part of Italy and the consequent lockdown and disruption in economic and business activity. GDP in Italy contracted by 5.40% in Q1 2020. Like in the rest of Europe a deeper contraction is expected in Q2 of 2020.
EUROPE HAS MILES TO GO
Global challenges remain unchallenged as yet.
NAVIGATOR | VOLUME 1908
India Macro
The GDP growth for Q4FY20 was reported at 3.1% as compared to a growth of 5.7% during the year ago period. The official numbers were higher than street expectations. The sequential slowdown witnessed in growth numbers during FY20 was expected to have even worse impact on Q4 numbers. The full year FY20 GDP growth has been reported at 4.2% as compared to 6.1% for the previous finan-cial year.
The GVA (GDP adjusted for taxes) was reported at 3% for Q4FY20 and the full year growth is pegged at 3.9%. The GDP press release noted that the data flow has been impacted by the lockdown and the government has also extended the timeline for submitting the financial returns. This may lead to revision of both quarterly as well annual growth numbers.
The current set of reported data indicates that Agriculture and Mining have been the key industries to support the overall growth. Agriculture and allied activities were expected to be one of the least impacted by the slowdown. Public Administration, Defence and Other Services was another segment that continued to report healthy growth rates. In an environment of weak private consumption and capital expenditure, government spending was required to do the heavy lifting.
While the current set of economic growth data can potentially be revised downwards, the full impact of the lockdown will be reflected in the Q1FY21 numbers. The lead indicators are signalling a severe slowdown in the economy and have even led to sharp downward revisions in full year GDP estimates for FY21. The current estimates of market participants have pegged the GDP growth for FY21 between 0% to more than 5% contraction. Given the grim outlook on economic growth, Moody’s has even downgraded India’s sovereign rating from Baa2 to Baa3 with a negative outlook, one notch above junk. The weakness in growth, stress on fiscal position and low effectiveness of policy reforms were the key reasons cited by the rating agency for the rating downgrade.
GDP
The National Statistics Office (NSO) in its CPI press release, provided index numbers for select sub-groups whereas headline inflation numbers were not declared owing to the nationwide lock-down hindering the process of data collection. The data collection activities have been suspended
CPI
% Change Over Previous Year
2018-19 2019-20Industry
1. Agriculture, Forestry & Fishing
2. Mining & Quarrying
3. Manufacturing
4. Electricity, Gas, Water Supply & other Utility Services
5. Construction
6. Trade, Hotels, Transport, Communication
and Services related to Broadcasting
7. Financial, Real Estate & Professional Services
8. Public Administration, Defence and Other Services
GVA at Basic Prices
2.4
-5.8
5.7
8.2
6.1
7.7
6.8
9.4
6
4
3.1
0.03
4.1
1.3
3.6
4.6
10
3.9
NAVIGATOR | VOLUME 1909
India Macro
The numbers coming out of the latest CPI press release hold little value in terms of its impact on the policy decisions. In the wake of COVID-19 led economic disruptions, addressing growth concerns would find precedence in monetary as well as fiscal policy decisions as is also visible from the recent actions.
We had discussed in the previous issue that food basket remains the only component that can potentially see some upside. The over stocking by households and supply disruptions owing to the lockdown situation could have been the possible reasons pushing-up the prices of food articles. Thus, we believe, it is one of the critical aspects which policy makers need to keep an eye on. The runaway inflation in food articles can have second round effects on inflationary expecta-tions. To keep a lid on inflationary expectations, it would be critical to ensure smooth functioning of supply side logistics.
VIEW
The IIP growth witnessed a sharp contraction of 16.7% for the month of March 2020, as compared to growth of 4.6% in the preceding month and 2.7% recorded during the year ago period. While street estimates expected a contraction in IIP growth, the actual numbers were worse than expectations. The coronavirus pandemic affected the production facilities, but the growth num-
IIP
10.49%
Jan
-14
Ap
r -1
4Ju
l -14
Oct
-14
Jan
-15
Ap
r -1
5Ju
l -15
Oct
-15
Jan
-16
Ap
r -1
6Ju
l -16
Oct
-16
Jan
-17
Ap
r -1
7Ju
l -17
Oct
-17
Jan
-18
Ap
r -1
8Ju
l -18
Oct
-18
Jan
-19
Jan
-20
Ap
r -1
9Ju
l -19
Oct
-19
Consumer Food Price Index16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00%
-4.00%
with effect from 19th Mar ’20. The inflation data for only such commodities or services sub-groups was declared for which adequate trade data was available. The headline CPI based inflation for Mar ’20 was revised downwards from 5.91%, declared earlier, to 5.84%.
The groups or sub-groups of CPI for which data compilation have been possible are Food & Beverages, Housing and Health (within Miscellaneous group). The CFP inflation for the month of Apr ’20 was reported at 10.49% as compared to 8.76% in the preceding month. Within the food basket, majority of the components saw the pace of inflation quickening during the lockdown period. The inflation for the Housing segment was reported at 3.94% for the month of Apr ’20 as compared to 3.69% during the preceding month.
Given the paucity of data, the core inflation numbers could not be calculated as well.
NAVIGATOR | VOLUME 1910
The IIP growth was expected to contract for the month of March, but the complete impact of the nationwide lockdown will be reflected in the index numbers for the month of April as was indicat-ed by the PMI numbers. The unprecedented situation of the global pandemic and the resultant lockdown will have its impact on the production numbers; going ahead the focus would be on the road to normalisation, which may be a long drawn one. A smooth recovery would be depend-ent on the policy responses (both fiscal and monetary) that addresses both the spectrums of the economy, supply as well as demand. Both the segments of the economy may require sops to ensure limited impact and a gradual recovery. The IIP numbers may remain subdued over the medium term as demand is only expected to recover gradually. As has been the case over the recent past, the government may have to do the heavy lifting in terms of expenditure to support the economy.
The immediate impact of the IIP numbers may be seen in the downward revision of GDP growth numbers of FY21, which may in turn negatively impact the earnings expectations of corporates.
VIEW
bers have come as a surprise, as the month of March represented only a minor part of the lockdown period. Owing to the nationwide lockdown, the data flow from producing units was impacted, the Quick Estimates are likely to undergo revisions. The IIP growth for FY20 was reported at -0.7%.
The growth for the manufacturing sector, representing more than 77% of IIP, was reported at -20.6% for the month of March as compared to 3.1% in the preceding month, and 3.1% during the year ago period. All of the 23 industry groups forming part of the manufacturing sector reported negative growth rates for the month of March. The growth rates of the other two sectors, Mining and Electric-ity, remained lacklustre as well. The Mining sector activity remained non-existent as the growth rate was reported at 0% for Mar ’20. The Electricity sector growth rate was reported at -6.8%. The growth rate for Mining, Manufacturing and Electricity sector for FY20 was reported at 1.7%, -1.3% and 1.1% respectively.
A similar trend was seen in use-based classification as well. The growth rate for all the segments of the use-based classification was reported in negative territory. The performance was weakest in Capital Goods and Consumer Goods categories. For the entire year of FY20, use-based classifica-tions was negative in case of Capital Goods, Infrastructure/Construction Goods and Consumer Dura-bles, whereas expansion was reported for Primary Goods, Intermediate Goods and Consumer Non-durables.
India Macro
-20.0-15.0-10.0-5.00.05.0
10.0
Ap
r -1
73.
22.
90.
31.0
4.8
4.1
1.88.
57.
37.
56.
95.
34
.53.
8 7.0
6.5
4.8
4.6 8.
40.
2 2.5
1.6 0.2 2.
73.
2 4.5
1.34
.91.4
4.6 6.6 2.
10.
4 2.1 4.6
-16.
7
Jun
-17
Au
g -1
7
Oct
-17
Dec
-17
Feb
-18
Ap
r -1
8
Jun
-18
Au
g -1
8
Oct
-18
Dec
-18
Feb
-19
Ap
r -1
9
Jun
-19
Au
g -1
9
Oct
-19
Dec
-19
Feb
-20
INDEX OF INDUSTRIAL PRODUCTION
NAVIGATOR | VOLUME 1911
The manufacturing activity remained in a contractionary zone as indicated by the PMI numbers for the month of May. The manufacturing PMI for the month of May came in at 30.8 as compared to 27.4 in the preceding month. A reading above 50 indicates expansion. The new orders with contractors continued to contract resulting into a weaker output. The orders from international markets too continued to contract; the PMI press release noted that the global measures to con-trol the spread of COVID-19 has stifled the exports.
In the wake of severe slowdown in new orders, the manufactures further reduced the worker numbers. The cut in head count was the most severe in the history of the PMI’s survey. In line with the reduced worker requirement there was also a marked reduction in input buying. The input cost continued to ease for the manufacturers, but their ability to take benefit of the same remains restricted given the deceleration in demand.
PMI
The situation for the manufacturing community remains grim, as they face the unprecedented challenge of surviving the lockdown. The policy measures might help them temporarily, but the real issue is of demand revival. The timeline of the longevity of the pandemic and the resultant lockdown are the factors dictating the current economic situation. The uncertainty surrounding the extent of the pandemic may keep the manufacturing activity subdued for an extended period of time.
The measures announced till date are mostly addressing the concerns of the supply side. In order to shorten the economic pain period and ensure a relatively swift revival once the lockdown is lifted, the policy measures may have to shift their focus towards generating demand. A negative output gap provides the opportunity to address the demand side, without being overly con-cerned about inflationary risks. The second critical factor is the opening-up of export markets. An enhanced focus on export promotion may also help the manufacturers better utilise the spare capacity.
VIEW
NAVIGATOR | VOLUME 1912
India: Equity markets buoyant on lockdown reversal
The sluggishness in economic growth was a feature of the Q2 and Q3 numbers, and it was accentuat-ed in Q4. So, the number was more or less expected to indicate decline from the 4.00% and 4.50% levels; the GDP growth has been reported at 3.10%. This number fully reflects the sluggish growth which the economy has been going through over the last six to eight quarters. What is more impor-tant is the extent to which Q1FY21 GDP growth may contract from the current levels reflecting the lockdown and the resulting demand destruction. The first assessment point towards a marginally positive number for Q1. This is more or less affirmed by the core sector numbers which were released a few days back. The core sector output contracted 38% indicating the likely dent in growth over the coming months. For the markets to move up in a sustainable fashion, the economy should stabilise first and then start moving up.
GDP AND CORE SECTOR GROWTH NUMBERS
The overall liquidity conditions in the interbank market, and the level of interest rates continue to support equity markets. The last policy announcement by the RBI brought down the base rates further. But what needs to be achieved is effective transmission of these measures to the last borrow-er, and the channelization of credit to desired sectors which are in need of credit and liquidity. This will be very important for the economic recovery to happen, in the absence of which, the entire spectrum of measures which the RBI pro-actively took ahead of time may prove to be of no use.
LIQUIDITY IS GOOD BUT TRANSMISSION AND CHANNELIZATION ARE IMPORTANT
NIFTY BANK - TRI
NIFTY REALTY - TRI
Nifty Financial Services - TRI
NIFTY MEDIA - TRI
NIFTY METAL - TRI
NIFTY SERV SECTOR - TRI
NIFTY AUTO - TRI
NIFTY 50 - TRI
NIFTY ENERGY - TRI
NIFTY INFRA - TRI
NIFTY IT - TRI
NIFTY MNC - TRI
NIFTY CONSUMPTION - TRI
NIFTY FMCG - TRI
NIFTY PHARMA - TRI
-39.99
-39.53
-34.53
-34.06
-32.37
-27.74
-23.85
-20.93
-16.65
-11.85
-9.66
-8.97
-6.64
-2.59
-22.05
-50.00 -40.00 -30.00 -20.00 -10.00 0.00 10.00 20.00 30.00
YTD Performance
NAVIGATOR | VOLUME 1913
India: Equity markets buoyant on lockdown reversal
One of the positive factors for the economy and the markets was the announcement of stimulus package worth ₹20 Lakh Cr. This includes the liquidity and credit enhancement measures already initiated by the RBI. The notable fiscal stimuli from the government is an enhanced allocation to MNREGA, ₹3 Lakh Cr credit guarantee for MSMEs for easy loans, FDI in defence to the tune of 74%, support of ₹50,000 Cr for MFs, emergency working capital support for farmers, credit card for farmers, relaxation in TDS by 25% and also reduced contribution to EPF by individuals and companies in addi-tion to the extension of moratorium on repayment of loans. While this package of fiscal, liquidity and credit guarantee measures and direct transfer initiatives are a strong support for the economy for its longer-term revival, most of the measures are supply-side measures. The demand side measures are few in number or indirect in nature. Generally, demand side measures are faster in their impact on the economy and they have multiplier effect on economic activity. In the case of supply side measures, they have a slower but certain impact and they are considered better in non-emergency situations or as a non-interventionist approach.
FISCAL & MONETARY STIMULI PREPARE THE GROUND FOR RECOVERY
One of the encouraging features today is the sporadic investments that is coming from FIIs which could be an indication that their interest in the markets is probably reviving gradually. Only an unin-terrupted participation from them may be able to bring the exuberance back into the markets. This time around, the quantitative easing in the US which is expected to be to the order of US$4 trillion, may be monitored more closely for the end use of the funds in the light of the experience last time. The funds were not properly utilized the last time and there was diversion of funds into undesirable areas. This has been discussed more in public nowadays. This may also prevent the kind of inflows that were seen into riskier assets like last time around.
SPORADIC INVESTMENTS FROM FIIS
There are many concerns expressed by economists and analysts alike. These are about the likely fiscal slippages on account of the enhanced borrowing program of the central and state governments in an extraordinary year like this when the nation faces a health emergency and a consequent economic and financial emergency. Therefore, fiscal slippages are bound to happen, especially in the light of the low tax and non-tax revenue realisations. But the path to normalization beyond this time is what is actually important in the long run. Other concerns centre around the weak local currency and the likelihood of revision of country rating in the light of the overall economic conditions and the fiscal situation. Post the permitted moratorium, there may be some rise in the NPAs with the banking system and the non-bank finance companies, and this is cited as a dampener by many analysts. The outcomes in most of these concerns would depend on how fast we contain the pandemic, and how systematically we come back to normalcy leaving behind the constraints of the lockdown.
A FEW CONCERNS PLAGUE THE ECONOMY
NAVIGATOR | VOLUME 1914
The markets display some amount of stability, and the probability of the markets moving to much lower levels does not exist at this juncture, though corrective downward movements cannot be ruled out. But deeper corrections may not happen unless there is significant deterioration in the overall macro-economic conditions. It is an evolving situation and would also depend on the emerging impact of the fiscal and monetary measures. However, the principle of phased investments may be followed, in well-managed funds and portfolios which have quality stocks.
INVESTMENT PREFERENCES
India: Equity markets buoyant on lockdown reversal
Broader Markets
Nifty 50 - TRI
31-D
ec-2
019
07-
Jan
-20
20
14-J
an-2
020
21-J
an-2
020
28-J
an-2
020
04
-Feb
-20
20
11-F
eb-2
020
18-F
eb-2
020
25-F
eb-2
020
03-M
ar-2
020
10-M
ar-2
020
17-M
ar-2
020
24-M
ar-2
020
31-M
ar-2
020
07-
Ap
r-20
20
14-A
pr-
2020
21-A
pr-
2020
28-A
pr-
2020
05-
May
-20
20
12-M
ay-2
020
19-M
ay-2
020
26-M
ay-2
020
120
100
80
60
40
20
0
Nifty Midcap 100 Nifty Smallcap 100 - TRI
NAVIGATOR | VOLUME 1915
The RBI in its Monetary Policy Committee meeting reduced the repo rate by further 40bps to 4%. Accordingly, the MSF and reverse repo rate stand reduced to 4.25% and 3.35% respectively. This was an off-cycle MPC meet and was scheduled in the wake of incoming macroeconomic data. The MPC voted unanimously to reduce the policy rates, while the quantum of the rate cut was decided with a 5-1 majority. The key guiding factor for the policy decision was the emerging outlook for both domes-tic as well as the global economy.
As per the RBI’s assessment, going by the Q1 2020 GDP numbers for few of the economies, the global economy is headed towards a recession. The GDP growth (for both DEs and EMEs) have been in the range of 2.9% to -14.2%, with majority of them reporting contraction. The global services and purchasing managers PMI too indicated towards a severe slowdown in economic activity. On the domestic front as well the MPC’s outlook remains grim. The central bank estimates the domestic economy to contract for FY21. It is expected that growth may remain depressed during H1FY21 and gradually recover from H2FY21 onwards. The combined effect of monetary and fiscal measures should support the economic revival. The RBI has refrained from assigning any numbers to the growth expectations as the extent of slowdown and the recovery are both contingent on the containment of the pandemic.
On the inflation front, the outlook is uncertain owing to the difficulties in collating data. The current assessment is mostly based on the pressure seen on food prices. The upside risks to inflation are expected to only emanate from food articles and that too is seen subsiding going ahead. The uptick witnessed in the latest Consumer Food Price Index is owing to supply shocks resulting from the lock-down situation. As the lockdown is eased and transportation improves, the prices of essentials may correct from the current levels. The RBI expects headline inflation to remain sticky during H1FY21 and maintain an easing trend in H2FY21.
The current prognosis of the situation by the central bank indicates that the policy rates may remain lower for longer. The governor’s statement mentions that the macroeconomic impact of the pandem-ic is severe than earlier anticipated and the MPC stands committed to maintaining an accommoda-tive stance as long as it is necessary to revive growth. Unprecedented times call for unprecedented responses; the supply as well as demand conditions have deteriorated, and it would require a strong policy support to ensure businesses survive the slump. The inflationary risks remain at the margins, but the policy response may not entirely depend on food inflation. The RBI may even choose to ignore price risks temporarily to ensure growth engine stays on track.
India: Fixed Income
NAVIGATOR | VOLUME 1916
India: Fixed Income
The confluence of multiple factors such as seasonal corporate liquidity requirements, FII selling, risk averseness due to increased perception of credit risk impacted the debt market sentiments over the recent past and led to sharp spike in yields. The intensity of the risk perception was reflected in the redemption pressures faced by the mutual fund industry; it even led to closure of a few credit oriented mutual fund schemes. Since then, the RBI has moved swiftly and decisively to calm the nerves and provide liquidity to the embattled market participants.
In conjunction with the rate cuts, the RBI announced several other measures such as LTRO, TLTRO (1 & 2), refinance facilities for NABARD/SIDBI/NHB, reduction in CRR, special liquidity facility for mutual funds and OMO purchases that served the dual purpose of providing much needed liquidity and lowering market rates. The RBI Governor highlighted in his statement, post the latest policy decision, that the liquidity premia in debt markets has eased considerably and even the transmission through bank lending rates has improved. The MCLR rate has eased by 90bps from Feb ’19 till May ’20 and the WALR has eased by 114bps over the same period.
The RBI’s focus on improving transmission and ensuring swift revival of growth, that is expected to experience contraction over the near term, may lead to further monetary actions by the RBI. The central bank will have to deploy all weapons in its arsenal; the rate cuts will continue to be accompanied with other measures that help in keeping rate volatility under check and fast track-ing the benefits of monetary actions to the economy.
Thus, we believe the fixed income space continues to offer lucrative opportunities for investors to earn stable income and possible mark-to-market gains. The investment advice would continue to be in favour of high credit quality paper or strategies. The investors should refrain from taking opportunistic calls to invest in credit-based strategies. Apart from an actual credit event (default or downgrade), a change in risk perception may negatively impact the credit spreads. The preferred segment on the yield curve is short to medium term. The risks pertaining to demand-supply mismatch due to increased central and state government borrowing, coupled with the inherent volatility of high duration strategies make short to medium term duration investments better risk-adjusted options.
FY15 FY16 FY17 FY18 FY19 FY20
2.5
2
1.5
1
0.5
0
2.25
0.99
1.95
1.09
0.8
0.15
Upgrade/Downgrade Ratio
NAVIGATOR | VOLUME 1917
Gold continues to price in risk premium.
These funds are the primary route through which investors can allocate the investible surplus in gold asset class. The underlying asset of these funds is Gold ETF. The key feature of gold savings funds is that investors do not require any demat account to invest in these funds. The transactions can be executed in a manner identical to other mutual fund schemes. The onus of providing liquidity to the investors too falls on the fund house, thereby providing easy exit to the investors at the time of redemption.
GOLD FUNDS
Gold prices remained above the US$1700 levels and the prices seem to be well supported at higher levels. The risk premium which gold commands is the result of the uncertainties in the global economy resulting from the rapid spread of the pandemic, and the failure to contain it as well as the delay in discovery of a remedy for it in the form of vaccines. Along with currency majors, gold also is considered a safe haven in times of uncertainty and excessive volatility in financial markets. The cut in interest rates by central banks and the easy money policy followed by them have added sheen to gold prices especial-ly in the last two months. There are also reports of fall in gold imports as well as a drastic fall in retail demand for gold. This may be due to the lockdown and the consequent fall in mobility, and this may be revived in the coming months once the restrictions on movements are lifted.
It may also be noted that the US-China trade and tariff war gave a push to gold prices during the course of the last one year though it subsided after the first trade pact between them in December 2019. The situation has changed drastically with the fresh sanctions imposed on China by the US in the wake of the new legislation concerning Hong Kong. This is in addition to the friction prevailing in the South China Sea and the charges that China was not transparent on the coronavirus outbreak for a long time which resulted in the same reaching other countries.
Uncertainty premium will continue to support prices, and the demand from central banks and institu-tional investors is likely to rise and will keep the demand robust during the course of this year, apart from the inflows into ETFs. Investment portfolios should have a 5% allocation to gold irrespective of the current economic conditions alone.
Technically, the resistance levels to watch are 1730, 1780 and 1800, and the crucial support levels are 1540, 1430 and 1358.
Details of the alternative modes for investments into gold like Gold Funds, Gold ETFs, and Sovereign Gold Bonds is given in the following paragraphs.
Scheme Name
HDFC Gold Fund(G)
Kotak Gold Fund(G)
MCX GOLD SPOT
Nippon India Gold Savings Fund(G)
BenchMark
AUM(Rs in Cr.)
478
387
921
CAGRAbsolute
10.07
9.71
9.69
3Months
23.05
23.34
22.56
6Months
15.80
16.78
15.36
3Years
10.16
10.47
9.94
5Years
1Year
19.40
18.91
19.58
-3.22
-3.44
-2.08
-3.26
1Months
0.00 8.22 12.45 8.826.73
9Months
44.79
47.14
44.98
27.87
NAVIGATOR | VOLUME 1918
Returns as on 31st May 2020.
SGBs are Government of India securities, with the issuance handled by RBI and provides one more option in lieu of investing in physical gold. The tenor of these bonds is 8 years with exit option after the 5th year. The investment and maturity value reflect the prevailing price of gold at that point of time. The upcoming issuances of SGBs are as follows:
SOVEREIGN GOLD BONDS
The second option available to investors is to directly buy Exchange Traded Funds (ETFs). Investors need to have a demat account to invest in ETFs as the nomenclature suggests the units of these funds are traded on the exchange and investors need to execute their transactions (buy/sell) on the bourses.
GOLD ETFS
Gold continues to price in risk premium.
Scheme Name
HDFC Gold ETF
Kotak Gold ETF
MCX GOLD SPOT
Nippon India ETF Gold BeES
BenchMark
AUM(Rs in Cr.)
1093
1830
3650
CAGRAbsolute
10.84
10.76
10.63
3Months
24.31
24.32
23.98
6Months
16.45
16.29
16.20
3Years
10.59
10.53
10.57
5Years
1Year
17.29
17.73
17.61
-3.22
0.61
0.59
0.57
1Months
0.00 8.22 12.45 8.826.73
9Months
46.67
47.45
47.01
27.87
S. No. Tranche
1
2
3
4
2020-21 Series III
2020-21 Series IV
2020-21 Series V
2020-21 Series VI
Date of Subscription
June 08-12, 2020
July 06-10, 2020
August 03-07, 2020
Aug.31-Sept.04, 2020
Date of Issuance
June 16, 2020
July 14, 2020
August 11, 2020
September 08, 2020
NAVIGATOR | VOLUME 1919
Returns as on 31st May 2020.
The “greenback” holds its sway as currency markets stay more or less calm.
Currency Levels
Sept-19Currency Dec-19 Jan-20
107.76US$/JPY
Feb-20 Apr-20
109.50 109.90 111.50 107.50
7.10US$/Yuan 6.99 6.90 7.03 7.07
1.2470GBP/US$ 1.3035 1.3040 1.2950 1.2510
1.0999Euro/US$ 1.1135 1.1070 1.0815 1.088
Apr-20
107.20
7.149
1.234
1.109
There are fresh worries for the currency markets originating from the renewed stand-off between the US and China. The new position is the result of the perceived lack of transparency on the part of China in the context of the outbreak of the pandemic, the legislation to tighten the controls over Hong Kong, and the repeated skirmishes in the South China Sea. The situation is expected to escalate in the coming weeks with rhetoric on both sides flaring up in intensity in the recent past. While it is still not clear whether there will be any trade restrictions against China, even the slightest indication of such a move could cause disruption in the markets, which may even get transmitted to some of the regional economies. The US dollar continues to hold its sway, and the Euro too seems to be well supported with probable movement into Euro denominated assets by global investors. The containment of the pan-demic in Europe has also come as a relief for the European financial markets.
For India, the trade data for the last month shows a further fall in both exports and imports, and the fall is to the tune of 60%. This fall is due mainly on account of the standstill in the global economy with no movements post the lockdown. The likelihood of the same picking up is high but over the next three months, as the travel restrictions and trade starts afresh. Since both exports and imports are down, the facts are neutral to the domestic currency. While the FII investments continue to be nega-tive, there have been some inflows on account of the negotiated deals by a prominent corporate entity for its technology platform. The forex reserves have gone up by US$10 billion during the course of the last month indicating that the central bank probably picked up some dollars from the local market. The dollar-rupee exchange rate continues to be around 76 with movements within a narrow range for most part of the trading in the last three to four weeks. The broad range for the Rupee may be 75.30 to 76.10 in the immediate term. The fact that emerging market assets are considered to be high risk, and given the current state of uncertainties, it is less likely that there may be substantial inflows in the near term. Therefore, the currencies also may be more or less stable to lower.
NAVIGATOR | VOLUME 1920
BrentBrent recovered quite a bit of its lost ground as it powered back to the US$35 level and is set to move up further. In our last update on oil, the two factors that were mentioned as potential factors that could revive oil prices were, (i) the lifting of the business and travel shutdown, and (ii) the curtailing of output progressively by OPEC+. Both these factors are gradually coming to the fore and that is aiding the rise in oil prices. But the moot question asked is whether this would help some of the companies to come out of bankruptcy and persistent financial difficulties. Also, whether this will help some of the shale companies. Saudi Arabia and UAE are likely to cut supply more than what was agreed earlier, and it is expected that suppliers like Russia would also join in restraining output as the very economics of oil is not working in anyone’s favour, and therefore, the need to take more emphatic steps in that direction. Even with the perils of lower economic growth embracing a larger part of the global econo-my, the signs of a faster than expected growth revival, on account of the quantitative easing and fiscal stimuli, is likely to support oil prices as economic activity gathers pace and normalcy returns. The target, earlier indicated as a potential price range of US$35-US$40 per barrel, remains intact, and the probability of this range being overshot cannot be ruled out. The demand of oil from China is expected to be strong as demand to the extent of almost 90% of the pre-march levels has been already attained. This may fuel another uptick in prices. There is a lot of noise from Russian oil companies asking for support and tax benefits in the light of the financial difficulties. Most of these peripheral develop-ments may also contribute to the market remaining well-bid in the near term.
Brent Crude140
120
100
80
60
40
20
0
May
/10
Oct
/10
Mar
/11
Au
g/1
1Ja
n/1
2Ju
n/1
2N
ov/1
2A
pr/
13Se
p/1
3Fe
b/1
4Ju
l/14
Dec
/14
May
/15
Oct
/15
Mar
/16
Au
g/1
6Ja
n/1
7Ju
n/1
7N
ov/1
7A
pr/
18Se
p/1
8Fe
b/1
9Ju
l/19
Dec
/19
NAVIGATOR | VOLUME 1921
Enhanced Efficiency Model: En Ef ModelEstate and succession planning is the process of anticipating and arranging for the disposal of estate during and after one's lifetime. In absence of a succession plan, the assets of the deceased would be distributed as per the applicable religious laws amongst the legal heirs.
FUND SELECTION PROCESS
ALPHA GAMMA OMEGABETA
Scanningfunds for
compliancewith
hygienefactors
Fundsevaluatedon returnbased andrisk based
factors
Compre--hensive
ranking ofFunds
Final FundList andModel
Portfolio
EQUITY SCHEMES SELECTION PROCESS
HYGIENE FACTORS | MINIMUM SCHEME AUM | MINIMUM TRACK RECORD | RANKING PARAMETERS
SCHEMERETURNS
PORTFOLIOANALYTICS
SCHEMERISK
QUALITATIVEFACTORS
RECOMMENDED SCHEMES
Point to PointAbsolute / CAGR
Returns
Average RollingReturns
Downside Risk
Net Selectivity
Treynor Ratio
Information Ratio
Sector Concentration
Stock Concentration
AMC Lineage/Pedigree
AMC Equity strategy
AMC Size
OutperformanceRatio
Fund ManagementExperience
Fund ManagementStrength
Portfolio Composition(Sector / Company)
DEBT SCHEMES SELECTION PROCESS
HYGIENE FACTORS | MINIMUM SCHEME AUM | MINIMUM TRACK RECORD | RANKING PARAMETERS
SCHEMERETURNS
PORTFOLIOANALYTICS
SCHEMERISK
QUALITATIVEFACTORS
RECOMMENDED SCHEMES
Point to PointAbsolute / CAGR
Returns
Average RollingReturns
AMC Lineage/Pedigree
AMC Debt strategy
AMC Size
Fund ManagementExperience
Fund ManagementStrength
Credit Quality
Average Maturity /Modified Duration
YTM
Scheme Size
Sharpe Ratio
Semi StandardDeviation
NAVIGATOR | VOLUME 1922
Recommended Equity Funds
Returns as on 31st May 2020.
ELSS Category Fund Manager AUM(Rs in Cr.)
19632941
930 -0.89-0.39-1.69
-2.31-2.32
-15.00-13.98
-19.93-19.46
-12.31-11.72
-19.17-17.86
-7.25-5.64
-0.930.29
3.624.11
10403184
Axis Long Term Equity Fund
Canara Rob Equity Tax Saver Fund
ICICI Pru LT Equity Fund (Tax Saving)
Invesco India Tax Plan
Kotak Tax Saver Fund
BenchmarkNIFTY 500 - TRI
S&P BSE 200 - TRI
-1.25-0.55
-16.31-16.83-15.40
-15.75-14.28
-15.71-18.08-19.63
-15.31-11.33
-7.31-9.11
-10.32
-6.17-2.78
-12.81-16.95-15.14
-9.54-11.18
-5.08-3.53-3.36
-2.55-0.27
1.60-0.822.26
4.713.58
4.673.99
-
5565 3.12 -13.78 -19.23 -10.64 -18.93 -5.90 -0.45 3.13
5.905.06
CAGR Returns (%)Absolute Returns (%)
Jinesh Gopani
Cheenu Gupta
Harish Bihani
Dhimant Kothari
Harsha Upadhyaya
Mirae Asset Tax Saver Fund Neelesh Surana
1Month
3Months
6Months
2Years
3Years
5Years
1Year
9Months
Large & Mid CapSchemes
Fund Manager AUM(Rs in Cr.)
484622828839245510131429
-0.76-0.91-1.37-0.460.59-0.65
-2.32-2.13
-2.01 -14.96 -18.95 -10.63 -17.63 -7.58 -0.69 4.17
-14.26-16.36
-19.86-19.52
-12.25-11.39
-18.60-19.14
-6.13-8.54
-0.10-1.47
3.784.27
-17.31-16.85-15.33-20.57-21.91-15.48
-14.25-18.60-17.41-20.19-23.61-18.09
-4.22-10.07-7.57-11.60-13.47-9.75
-14.22-13.96-12.78-18.86-19.54-14.09
-6.56-5.59-1.98-7.44-7.77-3.80
-0.181.732.06-1.41-0.63-0.05
6.874.579.823.004.543.47
Miyush Gandhi
Taher Badshah
Neelesh Surana
Saurabh Pant
S. Krishnakumar
Canara Rob Emerg Equities Fund
Invesco India Growth Opp Fund
Mirae Asset Emerging Bluechip
SBI Large & Mid cap Fund
Sundaram Large & Mid Cap Fund
Tata Large & Mid Cap Fund
BenchmarkNIFTY200 -TRINifty Large Midcap 250 Index-TRI
S&PBSE 250 Large Mid Cap65:35 Index -TRI
CAGR Returns (%)Absolute Returns (%)
Chandraprakash Padiyar
1Month
3Months
6Months
2 3Years
5Years
1Year
9Months Years
NAVIGATOR | VOLUME 19
Large Cap Category Fund Manager AUM(Rs in Cr.)
CAGR Returns (%)Absolute Returns (%)
Axis Bluechip Fund
BNP Paribas Large Cap Fund
Canara Rob Bluechip Equity Fund
ICICI Pru Bluechip Fund
Mirae Asset Large Cap Fund
BenchmarkNIFTY 100 - TRI
NIFTY 50 - TRI
S&P BSE 200 - TRI
12717748418
2182115347
-2.030.29-0.172.37-0.95
-14.49-12.08-11.72-12.67-15.39
-14.33-14.79-11.78-18.35-20.60
-6.39-6.74-1.66
-10.54-12.27
-8.08-9.26-6.63-16.58-17.65
1.03-0.421.29
-5.44-4.09
7.001.854.530.310.73
6.963.776.074.105.69
-2.39-2.74-2.32
-13.44-14.14-13.98
-19.54-20.18-19.46
-11.96-12.55-11.72
-17.78-18.57-17.86
-4.89-4.33-5.64
0.821.230.29
4.183.934.11
1Month
3Months
6Months
2 3Years
5Years
1Year
9Months Years
Shreyash Devalkar
Karthikraj Lakshmanan
Shridatta Bhandwaldar
Anish Tawakley
Gaurav Misra
23
Recommended Equity Funds
Value Fund/Contra Schemes
Fund Manager AUM(Rs in Cr.)
34094274726
24633763
Amit Ganatra
Taher Badshah
Shibani Kurian
Meenakshi Dawar
Vetri Subramaniam
HDFC Capital Builder Value Fund
Invesco India Contra Fund
Kotak India EQ Contra Fund
Nippon India Value Fund
UTI Value Opp Fund
BenchmarkNIFTY 100 - TRI
NIFTY 500 - TRI
S&P BSE 200 - TRI
0.551.660.270.241.92
-16.91-13.90-16.99-18.04-14.98
-22.89-14.74-19.99-21.36-16.78
-16.23-6.31
-12.65-13.47-7.24
-26.74-14.08-18.01-22.57-13.92
-13.10-5.80-6.15-10.41-5.46
-4.362.201.25
-2.750.23
1.936.164.082.081.64
-2.39-2.31-2.32
-13.44-15.00-13.98
-19.54-19.93-19.46
-11.96-12.31-11.72
-17.78-19.17-17.86
-4.89-7.25-5.64
0.82-0.930.29
4.183.624.11
CAGR Returns (%)Absolute Returns (%)
1Month
3Months
6Months
2 3Years
5Years
1Year
9Months Years
Mid Cap category Fund Manager AUM(Rs in Cr.)
5098648874759125701
Shreyash Devalkar
Vinit Sambre
Pranav Gokhale
Pankaj Tibrewal
Manish Gunwani
Axis Midcap Fund
DSP Midcap Fund
Invesco India Midcap Fund
Kotak Emerging Equity Fund
Nippon India Growth Fund
BenchmarkNifty Midcap 100 - TRI
S&P BSE Mid-Cap - TRI
-0.561.071.08-0.56-0.46
-13.03-14.49-16.56-20.70-22.27
-10.73-11.00-11.34-18.75-19.78
0.94-0.90-1.60-8.21-11.49
-2.80-7.58-9.71-16.14-19.63
0.81-5.30-4.62-9.48-9.48
8.19-0.231.16
-2.75-2.55
6.617.224.814.792.40
-1.70-1.34
-20.73-18.62
-22.58-21.04
-22.58-11.42
-25.18-20.49
-15.35-13.01
-7.89-5.79
1.283.23
CAGR Returns (%)Absolute Returns (%)
1Month
3Months
6Months
2 3Years
5Years
1Year
9Months Years
NAVIGATOR | VOLUME 19
MultiCap Category Fund Manager AUM(Rs in Cr.)
CAGR Returns (%)Absolute Returns (%)
Canara Rob Equity Diver Fund
DSP Equity Fund
HDFC Equity Fund
Kotak Standard Multicap Fund
UTI Equity Fund
BenchmarkNIFTY 200 - TRI
NIFTY 500 - TRI
S&P BSE 500 - TRI
18973151
18214260499193
-0.47-1.05-1.430.810.04
-13.61-18.78-17.72-15.87-16.60
-12.11-16.72-25.74-19.48-15.05
-2.89-7.46-19.20-11.07-4.47
-10.42-11.95
-28.00-18.15-10.59
-0.69-3.73-9.63-4.43-3.45
3.801.01
-4.15-0.223.07
5.095.271.315.514.37
-2.32-2.31-2.32
-14.26-15.00-14.74
-19.86-19.93-19.77
-12.25-12.31-12.14
-18.60-19.17-18.88
-6.13-7.25-7.14
-0.10-0.93-0.76
3.783.623.75
1Month
3Months
6Months
2 3Years
5Years
1Year
9Months Years
Shridatta Bhandwaldar
Atul Bhole
Prashant Jain
Harsha Upadhyaya
Ajay Tyagi
24 Returns as on 31st May 2020.
Recommended Equity Funds
Focused Fund Fund Manager1
Month
AUM(Rs in Cr.) 3
Months6
Months2 3
Years5
Years
9493786
7968933
-1.96-1.26-1.290.27
-17.95-18.21-18.37-14.54
-18.00-15.60-17.11-17.25
-8.29-4.85-5.98-9.17
-11.69-9.31-13.19-13.64
-4.652.00-3.56-2.48
3.754.425.382.29
6.896.417.294.87
Jinesh Gopani
Mayur Patel
R. Srinivasan
Rahul Baijal
Axis Focused 25 Fund
IIFL Focused Equity Fund
SBI Focused Equity Fund
Sundaram Select Focus Fund
NIFTY 50 - TRI
S&P BSE 500 - TRI
-2.74-2.32
-14.14-14.74
-20.18-19.77
-12.55-12.14
-18.57-18.88
-4.33-7.14
1.23-0.76
3.933.75
CAGR Returns (%)Absolute Returns (%)
1Year
9Months Years
Aggressive Hybrid Fund Fund Manager
1Month
AUM(Rs in Cr.) 3
Months6
Months2 3
Years5
Years
2912176963314
291061549
-0.133.49-0.44-0.590.13
-9.18-9.56-9.71-13.12-12.78
-7.53-14.73-13.63-13.59-13.81
0.28-7.06-6.43-5.73-6.19
-4.59-13.30-10.44-8.98-9.74
1.85-3.31-0.20-0.47-1.36
4.290.262.714.242.32
6.505.02
-5.625.09
Shridatta Bhandwaldar
Sankaran Naren
Neelesh Surana
R. Srinivasan
Rahul Baijal
Canara Rob Equity Hybrid Fund
ICICI Pru Equity & Debt Fund
Mirae Asset Hybrid Equity Fund
SBI Equity Hybrid Fund
Sundaram Equity Hybrid Fund
BenchmarkCRISIL Hybrid 35+65 - Aggressive Index -9.89 -27.95 -19.72 -4.77 -6.69 1.06 3.81 6.36
CAGR Returns (%)Absolute Returns (%)
1Year
9Months Years
NAVIGATOR | VOLUME 19
Small Cap Category Fund Manager AUM(Rs in Cr.)
2169982131869953280
Anupam Tiwari
Sankaran Naren
Pankaj Tibrewal
Samir Rachh
R. Srinivasan
Axis Small Cap Fund
ICICI Pru Small cap Fund
Kotak Small Cap Fund
Nippon India Small Cap Fund
SBI Small Cap Fund
BenchmarkNifty Smallcap 100 - TRI
Nifty Smallcap 250 - TRI
S&P BSE Small-Cap - TRI
-2.51-1.54-1.96-1.36-2.23
-23.93-29.49-25.01-21.46-19.72
-17.17-27.16-21.08-20.37-17.95
-9.56-20.78-11.86-12.13-8.98
-10.22-29.44-21.53-25.53-16.10
-2.94-17.79-15.07-16.91-11.39
2.64-9.99-7.31-5.451.32
6.22-2.871.924.878.07
-1.83-2.12-1.87
-29.18-26.40-20.23
-30.78-26.31-19.22
-25.87-20.27-12.33
-37.97-33.64-25.68
-27.63-24.09-19.66
-16.54-14.79-9.40
-5.20-2.890.25
CAGR Returns (%)Absolute Returns (%)
1Month
3Months
6Months
2 3Years
5Years
1Year
9Months Years
25 Returns as on 31st May 2020.
Recommended Debt Funds
334182586045457260331348924454
4.584.314.584.344.264.07
4.56 5.48 5.48 5.54 6.02
5.314.975.255.235.004.94
5.685.805.805.756.025.51
5.435.515.455.435.575.28
5.905.875.835.895.875.75
4.934.634.834.764.594.73
43.8040.0046.8847.0044.0040.77
Aditya Birla SL Liquid Fund
Axis Liquid Fund
ICICI Pru Liquid Fund
Nippon India Liquid Fund
Tata Liquid Fund
UTI Liquid Cash Plan
Kaustubh Gupta
Devang Shah
Rahul Goswami
Anju Chhajer
Amit Somani
Amandeep Chopra
Liquid Schemes Fund Manager
Annualised Return (%)
BenchmarkCrisil Liquid Fund Index
AverageMaturityin Days1
Month2
Weeks
AUM(Rs in Cr.) 3
Months Months6 1
Year YTM
12268716747098925
15.2214.2612.2910.33
4.56 5.48 5.48 5.54 6.02
21.00 20.81 10.73 10.29 10.47
15.6514.0311.9111.57
7.748.778.687.92
7.067.127.156.85
7.857.477.647.53
6.666.655.575.96
270.10168.00163.00186.15
Aditya Birla SL Savings Fund
HDFC Ultra Short Term Fund
IDFC Ultra Short Term Fund
SBI Magnum Ultra Short Duration Fund
Kaustubh Gupta
Anil Bamboli
Harshal Joshi
Rajeev Radhakrishnan
Ultra Short Term Schemes Fund Manager
Annualised Return (%)
BenchmarkCrisil Liquid Fund Index
Crisil Short Term Bond Fund Index
AverageMaturityin Days1
Month2
Weeks
AUM(Rs in Cr.) 3
Months Months6 1
Year YTM
NAVIGATOR | VOLUME 19
46251733940451493
15.7922.8110.9719.18
4.56 5.48 5.48 5.54 6.02
21.00 20.81 10.73 10.29 10.47
16.0920.5013.1018.56
8.528.018.199.09
7.377.487.177.60
8.318.448.018.43
6.267.235.726.01
376.00415.70434.00348.00
Devang Shah
Rahul Goswami
Anurag Mittal
Low Duration Schemes Fund Manager
Annualised Return (%)
BenchmarkCrisil Liquid Fund Index
Crisil Short Term Bond Fund Index
AverageMaturityin Days1
Month2
Weeks
AUM(Rs in Cr.) 3
Months Months6 1
Year YTM
Axis Treasury Advantage Fund
ICICI Pru Savings Fund
IDFC Low Duration Fund
Invesco India Treasury Advantage Fund
SBI Magnum Low Duration Fund Rajeev Radhakrishnan 9019 13.65 14.84 8.78 7.25 8.08 6.45 357.70
Krishna Cheemalapati
26 Returns as on 31st May 2020.
Recommended Debt Funds
1370913956552845174783
24.8729.0333.3526.9028.87
10.7320.81 10.29 10.47 8.17 8.38
11.2613.2310.0613.6210.98
9.0810.719.7710.7110.08
10.4511.6711.1211.7511.00
8.949.018.578.648.58
8.608.468.668.728.39
6.446.607.136.486.67
2.202.933.683.253.95
Axis Banking & PSU Debt Fund
IDFC Banking & PSU Debt Fund
Kotak Banking and PSU Debt Fund
Nippon India Banking & PSU Debt Fund
SBI Banking and PSU Fund
Aditya Pagaria
Anurag Mittal
Deepak Agrawal
Prashant Pimple
Rajeev Radhakrishnan
Banking & PSU Schemes Fund Manager
Annualised Return (%) CAGR Return (%)
Benchmark
Crisil Short Term Bond Fund Index
AverageMaturityin Years3
Months1
Month
AUM(Rs in Cr.) 6
Months Year1 3
Years5
Years YTM
176481451811860140844032
24.7227.0426.0530.0319.52
10.7320.81 10.29 10.47 8.17 8.38
13.6112.5211.7912.939.23
11.1110.9010.0810.898.21
10.8011.1010.369.749.30
8.558.638.157.818.26
8.758.828.44
-8.38
6.896.917.136.816.7
4.453.783.373.741.49
Aditya Birla SL Corp Bond Fund
HDFC Corp Bond Fund
ICICI Pru Corp Bond Fund
IDFC Corp Bond Fund
Kotak Corporate Bond Fund
Maneesh Dangi
Anupam Joshi
Anuj Tagra
Anurag Mittal
Deepak Agrawal
Corporate BondSchemes Fund Manager
Annualised Return (%) CAGR Return (%)
BenchmarkCrisil Short Term Bond Fund Index
AverageMaturityin Years3
Months1
Month
AUM(Rs in Cr.) 6
Months Year1 3
Years5
Years YTM
55601100011459992812716
23.6527.6225.2720.5022.12
10.7320.81 10.29 10.47 8.17 8.38
10.819.6711.529.9411.41
9.469.539.379.059.59
10.2810.4710.149.9210.43
7.998.308.037.747.81
8.168.388.057.998.10
7.047.816.736.926.69
2.903.362.282.733.41
Axis Short Term Fund
HDFC Short Term Debt Fund
IDFC Bond Fund - Short Term Plan
Kotak Bond Short Term Fund
SBI Short Term Debt Fund
Devang Shah
Anil Bamboli
Suyash Choudhary
Deepak Agrawal
Rajeev Radhakrishnan
Short Term Schemes Fund Manager
Annualised Return (%) CAGR Return (%)
BenchmarkCrisil Short Term Bond Fund Index
AverageMaturityin Years3
Months1
Month
AUM(Rs in Cr.) 6
Months Year1 3
Years5
Years YTM
351103685812502433
26.2231.0128.8422.9530.04
16.9721.11 14.61 13.61 9.56 9.72
22.2522.4821.5918.4220.90
16.5418.3418.6715.9117.75
15.5417.0617.0115.3416.97
9.269.719.849.759.19
10.039.669.8810.239.92
6.616.376.486.196.33
11.5810.159.639.4712.42
Aditya Birla SL G-Sec Fund
DSP G-Sec Fund
IDFC G-Sec-Invest
Nippon India Gilt Securities Fund
SBI Magnum Gilt Fund
Pranay Sinha
Vikram Chopra
Suyash Choudhary
Hardik Shah
Dinesh Ahuja
Gilt Schemes Fund Manager
Annualised Return (%) CAGR Return (%)
BenchmarkI-BEX (I-Sec Sovereign Bond Index)
AverageMaturityin Years3
Months1
Month
AUM(Rs in Cr.) 6
Months Year1 3
Years5
Years YTM
NAVIGATOR | VOLUME 1927 Returns as on 31st May 2020.
Recommended Debt Funds
Returns as on 31st May 2020.
3254663
3076350
12043
11.9711.1911.3911.6512.35
2.281.81 4.11 4.45 5.04 5.54
6.427.347.836.346.82
6.467.127.176.376.61
6.286.806.766.276.33
6.416.726.706.326.37
6.366.576.566.126.43
6.166.376.356.026.32
6.20-
6.436.156.37
Aditya Birla SL Arbitrage FundBNP Paribas Arbitrage FundEdelweiss Arbitrage FundInvesco India Arbitrage FundKotak Equity Arbitrage Fund
Lovelish SolankiKarthikraj LakshmananBhavesh JainPranav GokhaleHiten Shah
Arbitrage Schemes Fund Manager
Annualised Return (%) CAGR Return (%)
BenchmarkNifty 50 Arbitrage Index
3Months
1Month
AUM(Rs in Cr.) 6
Months9
Months Year1 2
Years3
Years5
Years
28101808766874254
2.992.702.752.84
5.483.00
4.562.89
5.483.13
5.544.00
6.024.72
3.132.872.922.99
3.183.023.083.19
3.983.843.923.97
4.664.554.624.65
3.893.663.533.60
4.003.003.651.00
Axis Overnight FundHDFC Overnight FundKotak Overnight FundUTI Overnight Fund
Aditya PagariaAnil BamboliDeepak AgrawalAmandeep Sing Chopra
Overnight Schemes Fund Manager
Annualised Return (%)
BenchmarkCrisil Liquid Fund IndexNifty 1D Rate Index
AverageMaturityin Days3
Months1
Month2
Week
AUM(Rs in Cr.) 6
Months Year1
YTM
82226575765641364370
15.8115.519.0811.4013.04
5.484.56 5.48 5.54 6.02
15.2415.729.7312.2013.25
9.7510.217.788.598.51
7.957.906.677.187.08
8.098.147.407.707.57
6.166.095.445.725.97
251.85289.00135.05168.00190.53
Aditya Birla SL Money Manager Fund
HDFC Money Market Fund
Kotak Money Market Fund
Nippon India Money Market Fund
UTI Money Market Fund
Kaustubh Gupta
Anil Bamboli
Deepak Agrawal
Anju Chhajer
Amandeep Chopra
Money Market Schemes Fund Manager
Annualised Return (%)
BenchmarkCrisil Liquid Fund Index
20.8121.00 10.73 10.29 10.47Crisil Short Term Bond Fund Index
AverageMaturityin Days3
Months1
Month2
Week
AUM(Rs in Cr.) 6
Months Year1
YTM
NAVIGATOR | VOLUME 1928
Emkay L.E.A.D PMS
Focus on riskadjusted
returns
Steady performanceover medium
term
Low portfolio turnover
Portfolio of 15 structural growth cos
No use of leverage orHigh debt cos
Lower portfolio volatility & high liquidity
FEATURESOF A L.E.A.D.PORTFOLIO
L.E.A.D. PMS – CORE INVESTMENT FRAMEWORK
LEADERSHIP• Market-share Leadership• Profit-share Leadership (Apple vs Rest of the manufacturers)• Cost Leadership (Export Oriented sectors like IT, Textiles, Chemicals)• Growth Leadership (Companies with best growth in the sector like Private banks vsPSUBanks)• Product Leadership
MOAT / NICHE IN THE BUSINESS• How different is the company• Edge, Entry-barrier, Competition, Pricing-power• Bargaining power of the indust
STRONG CREDENTIALS• Track record of past decisions• Comments v/s Delivery• Future-vision• Avoid aggressive accounting policies• Management background
DEPENDABLE• Identifying Price-Value gap with focus on margin of safety• Comparative valuations• Market-cap vs Opportunity size
STRONG EARNINGSVISIBILITY & QUALITY• How big the sector can be (3x, 4x....)• Revenue/PAT/ Cash-flow growth• RoE, RoCE analysis• High operating/Free cash-flow generation
NAVIGATOR | VOLUME 1929
EMKAY L.E.A.D PMS
FOCUS ON CAPITAL PRESERVATION
L.E.A.D. PMS – PERFORMANCE & PORTFOLIO TOP 5 HOLDINGS
RISK MANAGEMENT• >15% price movement in a month triggers review of the stock• Focus on Liquidity risk• No use of leverage• Monthly portfolio review
EARNINGS GROWTH AND QUALITY FILTERS• ROCE > COE• Earnings growth > GDP growth
FOCUS ON LARGE AND MID CAP COMPANIES• >50% exposure in companies with Mcap >USD 3bn• Nil exposure in small cap companies (Top 250 cos as per Mcap)• Companies with minimum turnover of INR 500cr
Strong Riskmanagement strategy with
focus onCapital
PreservationDIVERSIFICATION ACROSSINDUSTRIES AND COMPANIES• < 30%* exposure in one sector• <10%* exposure in one stock• Maximum investment in 15 stocks• <20%* exposure in turn arounds or special situation stocks *At the time of initiation
Top 5 Holdings
Total
Holding (%)Company
9.239.199.108.927.88
44.32
Avenue Supermarts Ltd.Pidilite Industries Ltd.Berger Paints Ltd.Aarti Industires Ltd.Whirlpool India Ltd.
Performance in %
Returns as on 31st May 2020. *Inception Date 1st November 2018
1Month
3Months
6Months
L.E.A.D
Nifty 200
9Months
SinceInception*
-3.70
-2.40
-17.00
-14.60
-14.80
-20.20
-5.00
-12.8
1Year
-8.60
-19.70
5.80
-6.30
NAVIGATOR | VOLUME 1930
PMS Products Update
Investment strategy:
IIFL MULTICAP PMS
Investment Strategy
Identify businesses with competitive advantage that are significant sized (min Rs. 100cr of PBT) but not a large part of the opportunity. Enables growth from both market share gains and growth of the opportunity size and can sustain for multiple years.
The quality of the business should be good to be able to fund strong growth through internal cash generation.
The management should have the drive and have skin in the game to deliver compounded growth, period after period (uncompromised corporate governance is a must).
It seeks to identify such businesses at reasonable discount to value and stay invested for a length of time and make money as EPS compounds.
ASK INDIAN ENTREPRENEUR PORTFOLIO
Identify large and growing business opportunities.
Performance in %
3 Month 1 Year1 Month 2 YearCAGR
IEP
BSE 500
Nifty
6 Month 3 YearCAGR
5 YearCAGR
SinceInception
CAGR*
**Inception Date 1st April 2013. Return as on 31st May. 2020
-4.90
-2.40
-2.80
-21.00
-15.10
-14.50
-19.20
-20.30
-20.50
-15.10
-20.00
-19.60
-6.70
-8.30
-5.50
1.80
-2.00
-0.10
5.40
2.40
2.60
15.20
6.20
6.50
NAVIGATOR | VOLUME 19
The investment strategy is to invest in companies and sectors that are available at significant discount to their intrinsic value and provide earnings visibility.The strategy takes a concentrated position in stocks and sectors and endeavours to strategically change allocation between sectors depending on changes in the business cycle.The investment decisions are taken based on SCDV framework that has 4 quadrants to it, namely:
Cyclical growth (PAT>15%, ROE <15%): Companies/Sectors that show high growth but are affected by market cycles and hence need to be timed for entry and exit.Secular (PAT>15%, ROE >15%): High growth companies/sectors which show consistent growth across market cycles.Defensive (PAT<15%, ROE >15%): Companies/sectors that show consistent stable growth across market cycles.Value Trap (PAT<15%, ROE <15%): Companies/sectors that are at attractive valuation but do not show commensurate growth.
3 Month 1 Year1 Month 2 YearCAGR
IIFL Multicap PMS
S&P BSE 200 TRI
6 Month 3 YearCAGR
5 YearCAGR
SinceInception
CAGR*
**Inception Date 1st April 2013. Return as on 31st May. 2020
-3.45
-2.32
-22.12
-13.98
-19.18
-19.46
-13.89
-17.86
0.85
-5.64
4.66
0.29
11.77
4.11
12.49
4.43
31
Emkay Capital Builder PMSEmkay Capital Builder PMS Strategy
Fund Management TeamSachin Shah - Fund Manager
Emkay Investment Managers Ltd is a SEBI registered PMS service provider with overallPMStrack record of over 10 years.
Emkay Capital Builder allows complete flexibility in selection of stocks across market capitalization.
Capital preservation and appreciation over-time through an “absolute returns” approach.
Investing in sectors and companies expect-ed to benefit from the fast-paced growth of the Indian economy and having a competi-tive advantage with a significant size that will benefit both from market share gains and growth of the opportunity size.
Mr. Shah is Chatered FinancialAnalyst and has 18 years of experience in the Portfolio Manage-ment space with Emkay. He has provided valuable inputs in the establishment of a well-documented investment process E-QUAL Risk (Emkay Proprietary Model) - a key factor behind our splendid performance.
Our unique proprietary process seeks to differentiate business on basis of manage-ment capability, integrity and skin in the game to deliver growth over-time.
Strategy consistently seeks to identify suchbusiness where intrinsic value of the busi-ness is good and the price is reasonable.
Focused portfolio with no over-diversifiction.
Capital Builder Benchmark - Nifty 500.
Returns as on 31st May 2020. *Inception Date 1st April 2013
Performance in %
FY 14 FY 15 FY 16 FY 17
24.10
17.70
6.40
52.7
33.6
20.2
-3.8
-7.5
3.1
25.1
23.9
1.2
10.3
11.5
-1.2
0.9
8.4
-7.5
10.96
11.80
-1.16
-31.7
-27.6
-4.1
9.85
8.23
1.62
Emkay PMS(Model Client)
NIFTY 500
Outperformance
Benchmark
SinceInception
CAGR*FY 18 FY 19 FY 20 FY 20 YTD
ABSOLUTERETURNFOCUS
Top 10 Stock Holding
Holding (%)Company
15.1511.387.177.156.696.265.434.734.073.8371.86
Divi's Laboratories Limited
ICICI Bank Ltd.
Sun Pharmaceutical Ltd.
HDFC Bank Ltd
Nesco Ltd
Reliance Industries Ltd.
Sundram Fasteners Ltd.
Eicher Motors Ltd
Bharti Airtel Ltd
Mahindra Holidays & Resorts India Ltd
Total
Avoid capital loss over client's
investment horizon
of 2-3 years
STRICTPURCHASE
PRICEDISCIPLINEGet client into a "positive cycle" at the time of investing to
ensure achievementof "Absolute
Returns”
NO MODEL
PORTFOLIOPatience not
just afterinvesting but even before
investing
Emkay PMS Guiding principles
NAVIGATOR | VOLUME 1932
Estate & Succession Planning
Estate & Succession Planning
Estate and succession planning is the process of anticipating and arranging for the disposal of estate during and after one's lifetime. In absence of a succession plan, the assets of the deceased would be distributed as per the applicable religious laws amongst the legal heirs.
1. DraftingWill:Will is a legal document that comes in play on the demise of the testator. It carries the wishes of an individual regarding distribution of his/her estate.
2. Gifts during lifetime:Gift is transfer of movable or immovable property, made voluntarily, during one's lifetime and without consideration, by the donor and accepted by donee. If the gift is received from any blood relative, it will not be taxable.
4. Charitable Trust :CharitableTrust is setup for philanthropy aspirations for the benefit of public at large. It enjoys income tax benefit on the income of the trust and tax benefit to the donors on the donation made by them.
5. Family Business Succession:Family business succession is the process of transitioning the management and the ownership of the business to next generation of family members. The family component plays a crucial role here and needs to be effectively integrated in the transition process.
6. Obtaining Probate/Succession Certificate:Probate establishes the validity of a Will in Court. In absence of a Will, a succession certificate is required to be obtained from the Court for transferring the assets of a deceased.
3. Formation of Private Trust:A Trust is a relationship whereby property is transferred by one party(Settlor) to be held and managed by another party(Trustees) for the benefit of third party (Beneficiaries), governed by the Indian Trust Act, 1882. Some of the advantages of a PrivateTrust are:• Multi-generation succession and provision for wishes beyond lifetime of Settlor• Trust can be structured to control the timing and amount of distributions• Provide for dependent relatives and to provide for ongoing financial management• Protection of assets from outside claims and from disputes within the family• To hold the shares of company for business continuity & for delinking ownership from management• Avoids probate• Privacy protection• Inheritance tax planning and avoid forced heirship rules for NRIs
Who needs Estate Planning?∙ Joint Family
∙ Businessmen
∙ Multiple marriages
∙ NRI family members
∙ Inheritance tax planning
∙ Nuclear Family
∙ Professionals
∙ Asset Protection needs
∙ Family with special children
∙ Family with no legal heir
For any queries or assistance kindly contact us at [email protected]
NAVIGATOR | VOLUME 1933
HUF and Transfer of AssetsHindu Undivided Family (HUF), as the name suggests, is a joint or undivided family which is seen as a separate entity from that of the individual members in the HUF. Hindu, Jain, Buddhist and Sikh families can form HUFs. HUF is a family which consists of all persons lineally descended from a common ancestor and it also includes the wives and daughters of the male descendant. It consists of the Karta, who is typically the eldest person or head of the family, while others are coparceners and members of HUF. The Karta manages the day-to-day affairs of the HUF. Children are coparceners of their father’s HUF. Once a daughter gets married, she becomes a member of her husband’s HUF, while continuing to be a coparcener of her father’s HUF.
HUF usually has assets which come from a gift, a will, ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF.
Under section 2(31) of the Income-tax Act, 1961, an HUF is considered a ‘person’ and therefore, is treated as a separate entity for the purpose of tax assessment. Often families that own ancestral properties and businesses obtain a separate Permanent Account Number (PAN) in the name of the HUF. This is done so that the income earned from the assets and businesses owned by the HUF are assessed separately, which also brings down the family’s tax liability. HUF is taxed on the same slab rates that are applicable to an individual income tax assessee.
A person becomes coparcener by birth and acquires interest in the HUF property. An adopted child also becomes coparcener of the HUF. The share of a coparcener may increase or decrease depending upon the number of births and deaths in the family. Upon marriage, a wife becomes a member of her husband’s HUF. It is also to be noted that members are different from coparceners and members cannot demand partition in the HUF property but have a share in the HUF property as and when the partition takes place. For example, if a family consists of father as Karta, his wife and three children i.e. two son and one daughter. In this case, the father and his three children are coparceners and the wife of Karta is a member of the HUF.
COPARCENER AND MEMBER OF HUF
HUF is purely a creation of law and cannot be created by an act of parties (except in case of adoption and marriage). Family is a group of people and a single person, male or female, does not constitute a family. Hence, a single person cannot create HUF. As soon as a person gets married, HUF gets created automatically. But to be recorded by tax authorities, it needs to have an income-generating asset, which can come as a gift from a relative or through a will or through ancestral property. Once it has such an asset, the HUF needs to be registered with a name and other formalities such as acquiring a Permanent Account Number (PAN), opening a bank account, etc. must be completed.
CREATION OF HUF
Section 6 of the Hindu Succession Act, 1956, which deals with coparcener’s right in the HUF property, was amended in 2005 w.e.f. September 9, 2005. With this amendment, daughters have been put at par with sons, as far as coparcenary rights in HUF property are concerned.Prior to the Hindu Succession (Amendment) Act 2005, only male members descended from a common ancestor such as sons, grandsons and great grandsons could be coparceners in HUF property
LEGAL RIGHTS OF DAUGHTERS IN HUF PROPERTY
NAVIGATOR | VOLUME 1934
Coparceners or members of the HUF are treated as relative of the HUF, the gift of their individual property to the HUF will not be taxable under Section 56(2) at the time of receipt of the gift. From an income tax perspective, capital gain is triggered only when there is a taxable transfer. Here, gift by any member or coparcener of HUF is a non-taxable transfer to the HUF and it will not trigger capital gains tax. But gifts received from non-members shall become fully taxable if the aggregate of all gifts received by the HUF during the year exceeds ₹50,000/-. However, gifts up to ₹50,000 in a year received by HUF from non-members are fully exempt under Section 56(2).
It is also to be noted that a gift given by HUF to its coparcener or member with the consent of all the other members of HUF, is not taxable under section 56(2) of IT Act 1961 as held in DCIT vs. Ateev V. Gala (ITAT Mumbai).
In case of gifts through cheque or movable assets, no registration is required to be done but in case of gifts of immovable property such gift needs to be registered and adequate stamp duty is also required to be paid. Stamp duty on gift deed varies from state to state.
GIFT RECEIVED BY HUF THROUGH ITS MEMBERS OR COPARCENERS
It is to be noted that HUF property can be given through a will. If a coparcener wants to bequeath his undivided share in HUF property in favour of other members or coparceners, then he can do so by executing his Will and bequeathing his share.
HUF PROPERTY INHERITED THROUGH A WILL
PARTITION OF HUF ASSETS
and have an interest by birth in coparcenary or HUF property and daughters did not have a right to HUF property. Daughters, being a member of HUF, could only ask for maintenance from joint Hindu family and they ceased to be a member of HUF after their marriage. However, now, by virtue of the Hindu Succession (Amendment) Act 2005, daughters are also coparceners, in the same manner as sons. However, for a daughter to be a coparcener, both she and her father should have been alive on 9 September 2005 as per the judgement of the Supreme Court in Prakash & Ors. vs. Phulavati & Ors. In case the father passed away prior to this date, regardless of the daughter being alive on this date, the daughter will not get the benefit of this amendment and will, therefore, have no rights over the property. In such a case, the ancestral property would devolve only upon the male coparceners of the Hindu Undivided Family (HUF).
HUF and Transfer of Assets
To transfer immovable assets through partition, one needs to prepare a partition deed. On partition between father and children, the father and children get an equal share ‘per stirpes’. Per stirpes means that each branch of the family will receive an equal share of the property. Grandchildren also become coparcener on birth and have a right to the property where grandchildren get a share in their respective parent’s share. For example, if a family consists of five members such as husband and wife having three children. The HUF property would be divided into five shares, the husband and the wife each taking one share and the remaining three shares devolving upon each child equally. Hence, each person will receive 1/5th share in the property. If a child has demised then the share of the pre-de-ceased child, as they would have got had they been alive at the time of partition, shall be allotted to
NAVIGATOR | VOLUME 1935
HUF and Transfer of Assets
the surviving children of such pre-deceased child.
As we know, all the coparceners have a right in the assets of the HUF, so the Karta cannot disentitle any coparcener of his right. In case the coparcener demands partition of the HUF’s assets, the Karta must give the coparcener his share from the assets of the HUF. Though, as per the Hindu Law, part distribution of some of the assets of the HUF, which is called as partial partition of the HUF, either in respect of certain and not all assets or in respect of some of the members is fully valid. However, in view of provisions of S.171(9) of Income-tax Act, 1961, partial partitions will not be recognised for tax purposes. The income tax laws require that partition of HUF should be full.
An instrument of partition, of immovable property, of the value of ₹100 or upward requires registration. As held by the Supreme Court in Ramnagina vs. Harihar, a partition of immovable properties between coparceners or co-owners can be made orally, and is not required to be in writing; but, if there is an instrument effecting partition of immovable properties, it requires registration. Partition deed attracts stamp duty and must be registered. Stamp duty on partition deed varies from state to state.
Family settlements/arrangements are also effective for the distribution of ancestral property. The object of the family settlement should be broadly to settle existing or future disputes regarding prop-erty, amongst the members of the family. The family arrangement must be bonafide, honest, volun-tary and it should not be induced by fraud, coercion, or undue influence. In, Partap Singh & Anr. vs. Sant Palani Pillai vs. Sengamalathachi & Ors., the Supreme court has held that a minor cannot disturb a family settlement made in good faith unless he or she makes out a case in fraud.
The Supreme Court has clearly laid down in Roshan Singh vs. Zail Singh, that, if the family arrange-ment is of such nature, where one person transfers his right in the property to the other and the other person derives title of property through such an arrangement, then the family arrangement is required to be registered and duly stamped.
FAMILY ARRANGEMENT/SETTLEMENT
Release deed is a legal document/instrument where a legal heir gives up or releases his legal rights in an inherited property in favour of other legal heirs such as his mother, son, daughter, brother, sister, etc.
The term release refers to the abandoning and surrender of the rights, title, and interest, by one co-owner of property in favour of other co-owners. Hence, if a legal heir chooses to give up rights in the inheritance, he or she will have to execute a ‘deed of release' in favor of other heirs, stating that they are giving up their claim in the said property and in such a case, the children of this person will also not be able to stake claim over the property in future. The Bombay High Court in the case of Raivathari Madhupati Singhania vs. Madhupati Vijaypath Singhania, dismissed the plea filed by grandchildren of Mr. Vijaypath Singhania. The grandchildren have challenged a 1998 settlement agreement through which Mr. Madhupati and his family had relinquished their share in the property. The grandchildren have alleged that the settlement agreement ignored their rights as minors, but High Court dismissed all the claims of grandchildren and refused them a share in the property which
RELEASE DEED
NAVIGATOR | VOLUME 1936
HUF and Transfer of Assets
HUF is an ever-increasing entity as members keep getting added or reduced. In such a scenario, managing the family and its finances might get quite complex. Though creating and registering an HUF is fairly easy, complications may arise later. At the root of many problems is poor understanding of the laws that govern HUFs. HUF laws are not codified and are read along with the Hindu Succession Act and the Income-tax Act. We have also interpreted the law through various judicial pronounce-ments which makes it quite easy to understand HUF laws and its implication. Hence, we can conclude by saying that each member has an equal right to the property owned by HUF which implies that the share of the existing members keeps diluting with new additions or increases on demise of any member. While all goes well till there are no disagreements among members, matters might go out of hand in case any discontent arises.
CONCLUSION
was relinquished by their father.
A deed of release is required to be duly stamped and registered. Stamp duty varies from state to state.
NAVIGATOR | VOLUME 1937
Notes
NAVIGATOR | VOLUME 1938
ModelPortfolio
Conservative Aggressive
Liquid FundsFixed depositsBonds/Tax FreesUST/Low Duration/ArbitrageFMPs/Interval Funds
30% 30% 10% 10% 15% 0%
Emkay Wealth Emkay Wealth Emkay Wealth Emkay Wealth Emkay Wealth Emkay WealthGUARD CONSERVE STEADY BUILD GROW MULTIPLY
Investor SuitabilityI . Debt - Short Term
II . Debt-Long Term
III. Equity
Short Term FundsIncome FundsCredit Risk FundsGilt Funds
Equity FundsDirect EquityPMSPrivate EquityIV. Alternate AssetsGold ETF/FundsReal Estate Products/REITSStructured ProductsI+II+III+IV 100% 100% 100% 100% 100% 100%
0% 0% 0% 0% 5% 20%
0% 10% 40% 60% 70% 80%
70% 60% 50% 30% 10% 0%
Guard - This is the most conservative of the model portfolios. The primary objective of this portfolio is preservation of capital. From a near to medium term perspective the portfolio construction aims at reducing the probability of losses, thereby there is no equity allocation in this portfolio.
Grow - The portfolio is suitable for aggressive investors with primary investment objective of capital growth. The major part of the portfolio is maintained in equity asset class. To provide stability to returns and to manage liquidity requirements effectively, a portion of the portfolio is maintained in debt asset class.
Multiply - The portfolio is suitable for aggressive inves-tors in the “Accumulation Phase”. With minimal liquidity requirements, the entire portfolio is allocated in high return generating assets. In order to reduce the risks associated with asset class concentration, Alternate Assets are introduced in the portfolio, so as to reduce the overall risk without compromising on the return generating potential.
Conserve - The primary objective continues to be capital preservation, but with marginally enhanced return generating potential. With an endeavour to earn better returns as compared to a pure debt portfolio, equity asset class allocation is introduced.
Steady - This portfolio is suitable for moderately aggres-sive investors, aiming to earn higher returns on their investments but at the same time do not intend to expose entire portfolio to the volatility of asset classes with high return generating potential. The allocation to equity asset class goes up, whilst the tilt remains in favour of debt.
Build - The allocation to equity asset class is further enhanced as the primary investment objective moves towards capital growth rather than preservation of capital over the near term. As the equity allocation goes
up, so does the investment horizon. A healthy exposure to debt asset class is also maintained to reduce the overall volatility of returns.
NAVIGATOR | VOLUME 1939
Published by Mr. Amit Rawal - Research Division Emkay Wealth Management.For content related queries contact at [email protected]
The information published is as per the data provided by various Mutual Funds, PMS Portfolio Man-agers, ProductManufacturers and segregated, consolidated and presented (statistically) by and on behalf of Emkay Wealth Management (EWM) which is involved in distribution of third party financial products. Though sufficient care has been taken to provide the correct data, EWM does not guaran-tee the accuracy of the data provided herein. As a potential investor, you are advised to check the updated data and other Terms & Conditions on the manufacturer’s website before making any investments. This report is disseminated for the information of authorized recipients only and is not to be relied upon or taken as substitution for the exercise of due diligence and judgment by any recipient. This report does not provide individually tailored investment advice; investor should seek independent financial advice with respect to the merits and risks involved in any of the matters con-cerning investment in the schemes / products mentioned in the report. Any person investing on the basis of the data published in Navigator will be doing so at their own risk and are advised to consult their certified financial planner before taking any investment decision. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Disclaimer
NAVIGATOR | VOLUME 1940
LEADERSHIP PROFILE
An alumni of Columbia Business School and NMIMS, Bhavesh brings in nearly three decades of experience, of which, the last 16 years are with the Financial Services industry. Throughout his career, he has been known for building, leading and motivating teams to excel in highly demanding and dynamic business environments. At Emkay he puts to good use his entrepreneurial drive combined with business-manage-ment skills to drive gains in revenue, market share and profit performance.
Bhavesh Sanghvi, CEO
A Masters in Economics and a Ph.D in Management, Dr. Thomas brings to the table a rich experience spanning three decades. His views on the economy, markets, portfolios and financial products are highly appreciated and pursued. He is a visiting faculty at numerous management and professional institutes and has also presented research papers at national and international conferences.
Joseph Thomas, Head of Research
An alumni of Columbia Business School, a Masters in Management from JBIMS and an Engineer from VJTI, Mumbai, Ashish brings in over 25 years of experience in financial services and investment management. He has been a fund manager for various funds, ranging from private equity, fixed income and hybrid to Equity.As a CIO and Head of PMS and Offshore Funds in his previous stints, he has lead teams and built assets across products. He brings in a rich experience and product knowledge to the team and his process oriented approach and Institutional background are an asset to our Institutional and high net-worth clients.
Ashish Ranawade, Head of Products
Apost graduate in Finance from Pune University, Parag holds over 21 years of experience in the financial services industry. He is renowned in the industry for his astute leadership skills and has been extremely successful in building teams during his earlier stints. At Emkay he will be driving the entire sales function of the division and setting out quality standards for various operational areas, implementing quality systems and procedures to facilitate a high quality customer experience.
Parag Morey, Head of Sales
With a Masters in Finance & Marketing and several leadership programs from IIM-A & ISB Hyderabad, Ashish comes with over a decade of experience in the Wealth Management space. His core competencies include strategy and alliances, negotiations and relationship management, business development, customer relationship management and customer engagement.
Ashish Todi, Head of Strategy & New Initiatives
A lawyer and a Company Secretary, Namita comes with a decade of experience in succession planning. She provides specialized and personal advice to families, business houses and high net worth individuals having wealth across various asset classes, geographies and complex business structures, keeping in mind the religious laws applicable in India, the succession laws for each class of assets and cross border succession laws.
Namita Agarwal, AVP Succession Planning
Amanagement graduate from Mumbai University, Raj comes with over a decade of experience in the Indian equity market. As an equity strategist he is an expert at managing equity advisory (PMS/ ND-PMS/ Direct Equities) for wealth clients. In his past assignments he has also worked as a senior equity analyst tracking multiple sectors and managing event based trading strategies. He is part of the Investment Managers team.
Raj Gala, Sr. Portfolio Manager
NAVIGATOR | VOLUME 1941
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