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1
Investment Advisory Group
Presentation
June 2016
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2
Aggressive Moderate Conservative
Direct Equity /Equity Funds 65% 50% 35%
Debt Funds 20% 40% 55%
Alternative Investments 10% 5% 5%
Gold 5% 5% 5%
Recommended Asset Allocation & Equity Funds Strategy
With the revival in infrastructure creation activities, reduction in Rural stress, removal of supply-side bottlenecks and decline in interest rates, the Urban Demand seems to be picking up and the Rural economy could get a boost if the monsoons are normal, pushing the corporate earnings higher in the next 2-5 quarters.
Over the last 12 months the markets have delivered muted returns as the consensus earnings estimates were toned down significantly. Though the medium to long term outlook for India continues to be robust. We expect the economic growth to see pickup in FY17 on the back of improved government capex, turnaround in the Rural demand and rising Urban consumption.
We expect strong returns from equities over the next 2-3 years, given the reasonable valuations and expected turnaround in the earnings; hence recommend an overweight stance on equities for investors across risk profile. Higher incremental growth rates of Indian economy compared to its emerging market peers and larger developed economies would continue to help liquidity flows into India.
While the markets have seen strong performance recently on the back of improving earnings and predictions of above normal monsoons, we think that the valuations in the market continue to remain reasonable. This continues to provide good opportunity to invest with a higher focus on Large cap stocks with selective allocations to Midcap and Small cap stocks.
From a Equity Mutual Fund perspective, investors should look at Large cap, Flexi cap and Balanced Funds for fresh investments. The investment strategy should be 75% lump sum and rest should be staggered over the next 2-3 months.
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3
Equity Market Strategy
With global commodity prices stabilising, the global risk appetite continued to see strong revival.
While most of the developed economies are pursuing loose monetary policy, the US Fed seems to be on course for another rate hike in the
near term..
This reflects the confidence of the US Fed that US economic growth is likely to be on a stronger footing in the future
No bad news from China also has been construed as good news for global equity and commodity markets, with the new 5 year policy in
China clearly suggesting lower growth rate but higher per capital income targets.
The Indian markets after a brief consolidation have again started to rise higher on the back of improved Q4FY16 earnings performance.
India continues to be amongst the fastest growing economies in the world amidst weakness all around, which has again attracted the
attention of the global asset allocators and FII flows have rebounded sharply.
Sound macro environment and the focus of the government to drive reforms and execution is likely to hold the markets in good stead.
With improving Urban demand scenario, the government is focussing towards reducing the Rural stress and pushing infrastructure creation.
With good monsoons the Rural economy would get additional boost.
Initial signs of revival in capex cycle seems to be taking roots, driven primarily by the Govt, while Private capex cycle still looks to be some
time away.
We believe that, with the revival in infrastructure creation activities, reduction in Rural stress, removal of supply-side bottlenecks and decline
in interest rates, the Urban demand could pickup and the Rural economy could get a boost, pushing the corporate earnings higher in the
next 2-5 quarters.
While we are not expecting any major interest rate cuts by the RBI in the medium term, the overall interest rates in the economy is likely to
come off due to improved liquidity and transmission of earlier Policy rate cuts by the banks
We expect the FII flows to be robust in CY16 as Indian economy could continue to outperform its emerging market peers. The key themes
in CY16 is expected to be Urbanisation, Government spending and Rural and Urban Consumption.
While the markets have seen strong performance recently on the back of improving earnings and predictions of above normal monsoons,
we think that the valuations in the market continue to remain reasonable. This continues to provide good opportunity to invest with a higher
focus on Large cap stocks with selective allocations to Midcap and Small cap stocks.
We recommend that equity investment strategy should be at 75% lumpsum and rest staggered over the next 2-3 months; as we
think that the markets are trading at reasonable valuations.
We recommend investment into RIL, ONGC, SBI, L&T, Bharti Airtel, Birla Corporation, Tata Motors, M&M, Exide, Supreme Inds, TCS, Infosys, GSFC, ENIL, NTPC, Atul, Voltas and UPL from a 2-3 year perspective.
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4
Debt Mutual Fund Strategy
Investment into Medium Term funds with an investment horizon of over 15
months can be considered by moderate and conservative investors.
Short Term Funds can be considered with an investment horizon of 12 months.
Income/Duration funds can be considered by aggressive investors for a horizon
of 24 months and above; though preference currently should be given to
dynamically managed funds.
Investors looking to invest into higher accrual portfolio can consider investing
into HDFC Corporate Debt Opportunities Fund and HDFC Short Term Plan.
Investors looking to invest with a horizon of 1 to 3 months can consider Liquid
funds, while Ultra-Short term funds and Arbitrage funds can be considered for a
horizon of 3 months and above.
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5
Research Presentation – Contents
US rate hike – can lead to near term volatility, however indicate pick up in economic growth
Other developed economies continue to muddle through
No major negative surprises from China, announcements of cut in capacities resulted in reversal of commodity prices
While global commodity prices gather momentum, they are still long away from the previous peak
Turnaround in commodities lead to rally in global risk assets as FIIs flows in emerging markets revives ……. Indian markets also benefited
Earning showing signs of revival albeit…… on lower base and improved macro data
Government‘s reform agenda remained intact for past two years
Key drivers for the market going forward…….
Q4FY16 GDP growth was better than expectations….momentum expected to continue in the FY17
Over a longer term, Indian equity markets have climbed many walls of worries and delivered strong returns
Low FII inflows have historically been followed up with strong market performance and higher FII flows in India… trend expected to continue..
Markets are consolidating in a range, valuations reasonable
Key risks
Equity Market Round Up – May 2016
Equity Market – Outlook and Stocks
Fixed Income
June 2016…a month with Critical Trigger Points
G-sec yields remain in a range…marked by domestic & global triggers
Liquidity conditions continued to be tight…advance tax payments may exert pressure
Short term rates were volatile…marked by tight liquidity
G-sec yield curve shifts marginally lower…
Corporate bond yield curve…medium term of the corporate yield curve still looks attractive
Net G-sec supply was higher in May….RBI‘s liquidity management is likely to be critical in June
Government to borrow ~59% of gross borrowings in H1FY17…borrowings concentrated in the 10-15 year segment
CPI inflation rose due to high food inflation…better monsoon may help in moderation
Trade balance and Forex reserves at comfortable levels… strong support to domestic currency
US FOMC Meet & UK‘s EU Referendum in June 2016…likely to increase volatility in Indian bond markets
FPIs turn net sellers in May 2016…expect flows to be volatile in the near term
Key Risks
Fixed Income Outlook
Investment Strategy
Equity Mutual Funds
Recommended Equity Mutual Funds
Fixed Income Options
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6
US rate hike – can lead to near term volatility, however indicate pick up
in economic growth
US economic data has been positive on consistent
basis.
US retail sales rose 1.3% in April 2016, the largest gain
since March 2015, led by increase in purchases of
automobiles and a range of other goods, suggesting the
economy was regaining momentum after growth almost
stalled in Q1CY16.
U.S. consumer prices recorded their biggest increase in
more than three years in April 2016, pointing to a
steady inflation build-up in the economy.
With steady improvement in the economic data, the
probability of interest rate hike by US Federal Reserve
in the next FOMC meeting has increased.
The interest rate hike in US is likely to result in short-
term volatility in the emerging equity markets and
commodities etc.
It is also likely to result in appreciation in USD against
rest of the many global currencies.
While there could be volatility in the near term, from
the longer term perspective the rate hike would be
an indication of pick up in the economic growth.
Source: US Federal Reserve
Source: U.S. Bureau of Labor Statistics
Month-wise percentage change in CPI for All Urban Consumers
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7
Other developed economies continue to muddle through
Eurozone:
The European Commission downgraded its forecasts for
Eurozone inflation for 2016 and 2017 — despite some of the
most aggressive monetary policies in the Eurozone‘s history
— blaming low oil prices and global economic weakness.
The flash Eurozone PMI Composite Output Index indicated
that business activity slid to 52.9 in
May 2016 from 53.0 in April 2016, however there was some
positive trend in the services activities.
On the positive side, March 2016 unemployment data was
slightly better than expected with a decline to 10.2% from an
upwardly-revised 10.4% the previous month.
The Brexit (Britain Exit) looks to be a risk in the near
term for Eurozone.
Japan
Japan‘s economy grew at an annualised rate of 1.7% YoY
in the first quarter of 2016, beating expectations of a 0.3 per
cent rise.
However, concerns of rising Yen and the weakness of
Inflation remains key monitorable.
The government has already announced $7bn
supplementary budget to help reconstruction after a recent
earthquake on the southern island of Kyushu but it is also
planning a further stimulus of several trillion Yen.
The Bank of Japan holds off fresh stimulus and pushed back
its timeline for hitting a 2.0% inflation target to take more
time to assess the impact of negative interest rates.
However, Japan's prime minister said that he will delay a
consumption tax hike that threatened the fragile economy.
Source: Financial Times
Source: Financial Times
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No major negative surprises from China, announcements of cut in
capacities resulted in reversal of commodity prices
After reporting consistent rounds of currency
depreciation, steps to stabilize the capital markets
and weak economic data, there has been no major
negative surprise from China.
As China is in the transition phase of moving from
manufacturing and exports to services & domestic
consumption led economy, several industries have
been witnessing slowdown due to higher exposure to
the country.
With the steep fall in the commodity prices, energy
and metal companies had sharply cut spending,
leading to the greatest drop in capital expenditures.
China has pledged to cut 100 mn to 150 mn tonnes
of crude steel production and 500 mn tonnes of coal
production in the next three to five years as it tries to
tackle price-sapping capacity gluts in the sectors.
The cut in coal capacity has resulted in China‘s
benchmark coal prices climbing to the highest since
September 2015.
The stimulus packages (Quantitative Easing)
announced by several global central banks have
also led to (partially) recent spike in the
commodity prices.
Source: Bloomberg
Coal Prices have stabilized
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Source: World Bank
While global commodity prices gather momentum, they are still long
away from the previous peak
Most of the global Industrial commodities have gathered
upward momentum, after touching multiyear low prices.
As per World Bank, in April 2016, energy prices
increased by 8%, and the prices of non-energy
commodities rose by 2.3%. Food & Beverages prices
picked up by 2.9% and 1.9%, respectively.
Crude prices have rallied sharply from its bottom. The
crude has moved up from a low of ~US$26 per barrel
(bbl) to ~US$49/bbl, up by 84%, on improved sentiment
and reports reduction in supply.
Given the recent rebound in oil prices and expected
supply tightening in the H2CY16, the World Bank raised
the crude oil price forecast for 2016 to US$41/bbl, up
from US$37/bbl in the January 2016 assessment.
In its latest monthly report, the International Energy
Agency predicted OPEC’s crude production would
rise to average 33.15 mn barrel/day in the second
half of 2016, a gain of 600,000 barrel/day from the
first quarter and 1.1 mn barrel/day higher than
OPEC’s average crude output last year.
Going forward, potential supply discipline by OPEC
countries and global demand scenario will be
crucial factors that would drive movement of oil
prices.
Source: Bloomberg
Trend of Brent Crude Oil Prices
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10
Turnaround in commodities lead to rally in global risk assets as FIIs
flows in emerging markets revives ……. Indian markets also benefited
FIIs flow in the emerging markets continues in May 2016
Source: Bloomberg
The FIIs flows in majority of the emerging markets remained negative
during Jan‘16 and Feb‘16 (partially) due to deepening concerns of lower
commodity prices and expectations of tight monetary policy by the US
Federal Reserve.
However, Mar‘16 saw sharp FIIs inflows which continued in the month of
May‘16 as well across the emerging markets on the back of turnaround in
the commodity prices.
Strong FII flows led to rally in global risk assets in particularly equity
markets.
India, being part of the emerging markets, received stronger FIIs flows
and reported positive flows for CY16 post outflow in the first two months
of CY16.
Indian equity markets reacted positively to FIIs flows and outperformed
other major emerging markets during Mar‘16-May‘16 period.
15.9
11.0 10.6
9.18.5
6.9
3.5 3.2
1.50.5
Ind
ia
Ph
ilip
pin
es
Vie
tnam
Sou
thA
fric
a
Ch
ina
Th
aila
nd
Sou
th K
ore
a
Ru
ssia
Ta
iwa
n
Ind
on
esi
a
Equity market performance in Mar-May'16 (%)
Source: Bloomberg
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
-250.0
-200.0
-150.0
-100.0
-50.0
0.0
50.0
100.0
150.0
200.0
250.0
Ap
r-1
5
Ma
y-1
5
Ju
n-1
5
Ju
l-1
5
Au
g-1
5
Sep-1
5
Oct-
15
No
v-1
5
De
c-1
5
Ja
n-1
6
Fe
b-1
6
Ma
r-1
6
Ap
r-1
6
Ma
y-1
6
Trend in FIIs flows and Nifty 50 returns
Net FII (Rs. In bn) Nifty 50 Monthly return % (RHS)
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Earning showing signs of revival albeit…… on lower base
Source: Capitaline
An analysis of 437 out of S&P BSE 500 companies which reported half yearly numbers ending March 2016 shows mixed results.
However, the numbers excluding for companies from Financials and Oil and Gas sector indicates an early sign of revival in corporate earnings.
While the commodity and commodity-related companies faced the maximum brunt of falling commodity prices both on top line and bottom line
front, financial companies also impacted due to this along with the asset quality review by the RBI.
The aggregate sales of these (354) companies (ex Financials and Oil & Gas) grew by 10.1% YoY in H2FY16 owing to improvement in urban
demand and commodity prices bouncing from historical low levels (still far away from their peak levels). Lower input cost has led to expansion in
EBITDA margin which along with lower base resulted in sharp uptick in bottom line which grew by 30.5% YoY.
Going forward, FY17 is poised for improved earnings, driven by pick up in the government spending, improvement in the general
demand scenario and a low base effect.
Note: Growth is calculated based on the total of Sales/EBITDA/PAT of individual companies
H1FY16 H2FY16 H1FY16 H2FY16 H1FY16 H2FY16
Agro Chemicals 8.0 5.7 -2.4 -1.1 -0.7 1.7
Auto & Auto Anc 2.1 22.9 -9.5 19.2 -20.9 33.3
Cables -1.0 2.2 9.0 54.6 -0.6 59.8
Capital Goods -8.7 -10.1 -15.1 -1194.4 214.7 -145.2
Castings, Forgings & Fastners 7.9 -4.3 10.8 -6.0 9.6 -4.1
Cement & Products 4.0 5.4 5.5 16.3 -10.9 36.0
Chemicals 11.6 12.5 16.2 42.9 24.0 17.3
Construction -9.8 -11.0 -47.2 -45.5 157.4 360.1
Consumer Durables 9.7 8.5 25.5 28.4 24.1 13.5
Diamond, Gems and Jewellery 141.3 179.9 11.8 2.2 13.2 13.1
Diversified 0.2 13.5 -5.4 218.2 -4.9 39.1
Dry cells 5.6 1.2 -0.8 -4.9 5.1 0.8
Entertainment & Media 17.8 11.4 22.3 25.9 58.7 38.3
Finance 9.0 5.5 6.2 -17.6 -0.3 -86.7
FMCG 5.1 7.0 11.6 23.7 15.8 30.5
Glass & Glass Products 3.3 8.7 35.1 17.8 110.0 48.7
Hotels & Restaurants 9.7 10.2 37.0 114.8 -177.4 -164.0
Infrastructure Developers & Operators 10.6 17.5 11.3 15.8 -6.4 4.9
IT 13.1 15.1 10.7 21.7 8.3 21.3
Logistics 7.7 6.8 165.3 211.7 367.5 1622.7
Metal & Mining -10.2 -12.5 -46.9 -32.4 -30.8 -5.4
Miscellaneous -0.8 -10.2 9.8 -70.9 7.5 18.9
Oil & Natural Gas -22.4 -18.8 25.3 -10.3 16.2 -19.6
Packaging -3.3 -3.3 37.9 31.6 64.0 39.7
Paper 15.6 2.3 27.1 11.3 117.3 54.6
Pharmaceuticals 14.2 13.9 33.2 24.4 8.7 8.8
Plastic products 8.1 -13.0 11.6 41.7 56.2 141.1
Power 10.3 9.7 22.2 30.7 30.8 5.7
Realty 6.7 13.6 1.1 23.9 -11.3 -24.9
Refractories 116.3 61.9 300.3 105.6 -236.2 175.3
Shipping -1.6 -4.1 28.0 -10.4 68.3 -24.3
Sugar -3.4 11.1 -59.7 340.7 67.5 -185.2
Telecomm 4.9 5.9 11.3 9.5 29.3 0.2
Textiles 5.3 -6.1 18.0 15.4 14.9 47.1
Trading -19.9 -32.1 -80.2 -82.2 -9.9 -55.4
Total of 437 Companies (Cos) -2.4 1.9 4.8 -5.0 3.9 -17.7
Total of 367 Cos (ex Financial) -5.0 0.9 3.3 10.2 5.5 17.0
Total of 354 Cos (ex Fin and O&G) 5.2 10.1 -1.3 15.2 2.5 30.5
Sectors (% YoY Growth)Net Sales EBITDA PAT
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12
India’s fundamental strength is continues to improve:
India's has managed to retain its position as the world's fastest growing
economy as its real gross domestic product (GDP) grew by 7.6% in FY16.
Twin deficit remains under check: The twin deficits – Fiscal Deficit as
percentage of GDP (at 3.92% for FY16 and 3.5% for FY17E) and Current Account
Deficit as percentage of GDP (projected at 1.4% of GDP in FY16E) are well within
the comfort zone.
Lower trade deficits: Being a net importing country, India has benefitted
significantly with fall in the international commodity prices. The trade deficit is at
multi year low at $4.8 bn in April 2016.
Subsidy on petroleum products has come down by nearly 29% in FY16, marking a
saving of Rs.542.23 bn YoY on the back of low crude prices and market reforms.
Lower inflationary scenario: The inflation continues to remain benign with both,
CPI and WPI closer to its historic lows. The latest CPI came in at 5.4% YoY in April
2016 and WPI was at 0.3% YoY for April 2016.
Pick up in manufacturing: Index of Industrial Production (IIP) was 2.4% in FY16
and Eight Core industries registered a growth of 6.4% in Mar‘16 and 8.5% in Apr‘16
Interest rates have declined with further scope for the banks to transmit rate
cuts by RBI: The focus is shifted to ensure the transmission of rate cuts through
the Bank (via the Marginal cost lending rate mechanism) which would lead to
actual reduction in the interest rates in the economy.
Credible reform process by the government: The government remains focused
in its reform process which is likely to revive the investment cycle in the economy.
Forex reserves are at all time high: India‘s forex reserves stood at all time high at
~$361 bn at the end of 20 May 2016
Foreign direct investment equity in India increased sharply by ~37% YoY for the
17-month period—ended Feb 2016—after the launch of the Make in India initiative.
We think that India’s structural drivers are intact which well differentiates vis-
a-vis other emerging countries and are likely to support the economic growth
in medium to long term.
Source: finmin.nic.in
Source: Bloomberg
….. On the back of improved macro data
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
FY11 FY12 FY13 FY14 FY15 FY16E
Figu
ers
in %
Twin deficit under control
Current Account Deficit (% of GDP) Fiscal Deficit (% of GDP)
5.6
6.67.2
7.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
FY13 FY14 FY15 FY16
% Growth in India GDP
Source: MOSPI
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13
… and on the Government’s reform agenda which remained intact for
past two years The early signs of improvement in corporate earnings are also visible due to the government’s strong focus on reform agenda over
the past two years especially when the global economy has been struggling to stand against slower growth. The government of
India focused on strengthening the economy with various reform announcements targeting to improve both social and physical
infrastructure in order to set structural drivers for long term sustainable economic growth. Among all, following were the key
reforms and announcements:
Make in India: with emphasis on Defence & Electronics manufacturing: Orders worth of Rs 2 trillion has been placed in last one year
Large infrastructure projects: Dedicated Freight corridors, River Linking project, Metros, the Smart Cities Mission, Atal Mission for
Rejuvenation and Urban Transformation (AMRUT) and Housing for All
Digital India: To spend over $15bn over 5 years – e-governance services across spectrum, in addition to complete Urban digitization &
connecting 2.5 lac villages. The govt announced 22 new initiatives and broadening the scope of existing ones under the Digital India
programme include projects in the areas of Digital Infrastructure, Digital Empowerment, on-demand government services and promotion
of industry, to make more services accessible to the masses.
Agriculture reforms: Restructuring Food Corporation of India, Agriculture Produce Marketing Corporation reforms, Soil Health Cards,
Farmer insurance, proposal for National Irrigation scheme, Easing supply side bottle necks
Swach Bharat: Over the next 5years, the government plans to invest nearly Rs 2 trillion to construct over 10 crore toilets across India.
A total of 318.3 mn toilets were built between April 2014 and January 2015 under this campaign, which is 25.4% of the target for FY15.
Direct-Benefit-Transfer: To bring all social sector schemes under-fold ~800 mn Aadhar cards were issued so far. LPG transfer is
already underway. The govt. said that ~Rs.365 bn have been saved by eliminating bogus beneficiaries and leakages through DBT
scheme.
Ease of doing business: Establishing NITI, single window clearances, online approval systems, e-tenders – leading to substantial
reduction in bureaucracy. To help bring in more foreign capital and increase job creation opportunities in the country, the govt
announced reforms in Foreign Direct Investment (FDI) across 15 sectors:
Indradhanush: PSU Banks revival plan
Gold Monetization: Aimed to attract tonnes of the precious metal from India households into the banking system.
UDAY (Ujwal DISCOM Assurance Yojana): For financial turnaround of Power Distribution Companies- to benefit entire power chain.
‘Rurban Mission’ for developing 300 villages as Urban growth centres.
Key bills like Insolvency and Bankruptcy Code Bill 2016, Real Estate (Regulation and Development) Bill, Aadhaar (Targeted
Delivery of Financial and Other Subsidies, Benefits and Services) Bill, 2016 and Mines and Minerals (Development and
Regulation) (Amendment) Bill, 2016 getting cleared.
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14
The central government has approved a plan for constructing 1,000 km of expressways under the National Highways Development
Project (NHDP) phase-VI at a cost of Rs 167 bn on design, build, finance, operate and transfer (DBFOT) basis (4 May)
As per oil minister Dharmendra Pradhan, payment of cooking gas subsidy directly into the bank account of consumers has helped the
government to save Rs 210 bn in the last two financial years by eliminating duplicate connections and diversions (4 May)
Dedicated Freight Corridor Corporation, Indian Railways' arm implementing the ambitious freight corridor project, will award contracts
worth Rs 140 bn in FY17 in a bid to quickly wrap up work and meet the 2019 deadline for commissioning the Rs 820 bn project (4 May)
Union cabinet liberalized the way coal is supplied to central, state and independent power producers so that the fuel can be used
optimally to generate electricity at the lowest cost possible (5 May)
As per Piyush Goyal, Investments in renewable energy projects have been to the tune of Rs 860 bn in the last three years, with most
of it coming from the private sector (5 May)
The Centre has allowed 100% foreign direct investment in asset reconstruction companies under the automatic route (10 May)
The Lok Sabha and Rajya Sabha passed the Insolvency and Bankruptcy Code Bill 2016, which is seen as a ―transformational‖
legislation that will help improve India‘s ranking in the World Bank‘s ‗Ease of Doing Business‘ index. (12 May)
Union Cabinet was apprised of a General Framework Agreement on Renewable Energy Cooperation between India and UAE (12 May)
Cabinet approved National Intellectual Property Rights Policy that will lay future roadmap for intellectual property in India (13 May)
India, Iran and Afghanistan have signed a tripartite agreement to turn the Iranian port of Chabahar into a transit hub bypassing
Pakistan (24 May)
As per environment minister Prakash Javadekar, more than 2,000 environmental approvals have been granted in the past two years
which would unlock an investment of Rs 10 trillion and create a million jobs (24 May)
Union Cabinet has given its approval for National Capital Goods Policy with a objective of increasing production of capital goods from
Rs.2.3 trillion in FY15 to Rs.7.5 trillion in 2025 and raising direct and indirect employment from the current 8.4 mn to 30 mn. (25 May)
Union Cabinet granted ex-post facto approval to the MOU between India and Japan for promoting sustainable, stable and low-carbon
thermal power development in India. (25 May)
Cabinet granted ex-post facto approval to Amendment to Institutes of Technology Act, 1961 for incorporation of six new IITs (25 May)
Union Cabinet also approved Rs.107.36 bn worth of investments by the railways to expand its network (26 May)
Government strongly augmented its reform announcements which indicates that the government is well focused on reviving the
investment climate, improving ease of doing business in the economy and thereby pushing economic growth. Going forward,
passing of the Goods and Services Tax bill is likely to be the key drivers for the markets.
……reform announcements and execution continued (for the month of
May 2016)……. However, passage of GST is still awaited
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15
Key drivers for the market going forward…….
……..1) Improving Urban consumption
The consumer sentiments in the Urban India continue to witness signs of
rising demand.
As per Directorate General of Civil Aviation (DGCA) data, India‘s domestic
passenger traffic has shown strong double digit growth in recent past.
India‘s domestic passenger traffic growth continues to grow at rate higher
than 20% YoY for seventh straight month with 20.8% YoY growth in Apr‘16
As per RBI, the value of mobile banking transactions jumped 46% to Rs.490
bn in December 2015 from the previous month.
As per RBI data, Housing loans during Apr‘16 grew by
19.8% YoY as compared to 15.7% YoY growth in same period last year.
As per data from market tracker Gfk, sales of air conditioners and
refrigerators rose the highest in five years in March, signalling the return of
discretionary spending.
As per Nielsen, the Consumer Confidence Index score for India increased
three index points in the first quarter to a score of 134, the highest for the
country since 2007
A strong business sentiment and pick-up in corporate travel have led to
strong 30% growth in hotel hiring in the past six months, after 5 year long
period of lull.
Overall fuel consumption in India rose to an eight-year high in FY16 with
Petrol consumption witnessed a growth of about 15%, a 17-year-high.
According to industry estimates, demand for hotel rooms in India grew by
20% during the second half of 2015, the highest in five years.
With implementation of programmes hike in Minimum Support Prices (MSP),
One Rank, One Pension (OROP), 7th Pay Commission and Direct Benefit
Transfer, India’s consumption in general is likely to see major push, resulting
acceleration in the GDP growth.
Source: DGCA
Source: Livemint
Source: RBI
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Jan-
14
Mar
-14
May
-14
Jun-
14
Jul-1
4
Sep-
14
Oct-1
4
Dec-
14
Jan-
15
Mar
-15
Apr-1
5
Jun-
15
Jul-1
5
Sep-
15
Oct-1
5
Dec-
15
Jan-
16
Mar
-16
Apr-1
6
Domestic Airline Passenger Growth (YoY %)
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
Apr-0
8
Oct-0
8
Apr-0
9
Oct-0
9
Apr-1
0
Oct-1
0
Apr-1
1
Oct-1
1
Apr-1
2
Oct-1
2
Apr-1
3
Oct-1
3
Apr-1
4
Oct-1
4
Apr-1
5
Oct-1
5
Apr-1
6
% Growth in Personal and Housing loan (YoY)
Personal Loans Housing (Including Priority Sector Housing)
______________________________________________________________________
16
2) Revival in rural consumption
India‘s agricultural production affected consecutively for last two years,
largely on the back of strong El Niño effect.
The 2015 El Niño has been the strongest since 1997, depressing
production over the past year
The impact of poor monsoon was clearly visible on the sales volume
growth for tractor companies and Fast Moving Consumer Durable
(FMCG) companies.
As per industry experts, the overall tractor sales dipped by ~13% in
FY15, industry is likely to see a further decline of about 10% in FY16.
In the FMCG sector, majority of the companies having major exposure to
rural has witness a downward trend in their volume growth.
However, there are expectations that the current weather phenomenon
will swiftly transform into a La Nina — which tends to bring rainfall in
Southeast Asia and Australia.
As per the Australian Bureau of Meteorology, a model on the past 26
El Nino events since 1900 suggests that around 50% have been followed
by a neutral year, and 40% have been followed by La Nina.
As per India Meteorological Department (IMD), the monsoon seasonal
rainfall in 2016 is likely to be 106% of the Long Period Average (LPA)
with a model error of ± 5%.
Skymet raised India's monsoon forecast to 109% of the long period
average from 105% on the back of a waning El Nino. The revised
forecast has an error margin of +/- 4%.
Good monsoon rain in India along with the steady hike in MSPs is likely
to help in improving farm incomes and pick up in Rural economy.
Upsurge in the rural consumption trajectory hinges upon the
favourable monsoon as it is likely to push the sales of discretionary
and non discretionary products and services in Rural areas. In
addition, it could ease the government’s burden of spending on
welfare schemes to drive the growth and improve standard of living
in Rural areas.
Source: Company Data
Source: IMD
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Apr
-13
May
-13
Jun-
13Ju
l-13
Aug
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14Fe
b-14
Mar
-14
May
-14
Jun-
14Ju
l-14
Aug
-14
Sep-
14O
ct-1
4N
ov-1
4Ja
n-15
Feb-
15M
ar-1
5A
pr-1
5M
ay-1
5Ju
n-15
Jul-1
5Se
p-15
Oct
-15
Nov
-15
Dec
-15
Jan-
16Fe
b-16
Apr
-16
(%)
Barometer of Rural India (tractor sales) depicting the real stress in Rural India
Escorts M&MSource: Bloomberg
0.0
5.0
10.0
15.0
20.0
25.0
Q1FY
11
Q2FY
11
Q3FY
11
Q4FY
11
Q1FY
12
Q2FY
12
Q3FY
12
Q4FY
12
Q1FY
13
Q2FY
13
Q3FY
13
Q4FY
13
Q1FY
14
Q2FY
14
Q3FY
14
Q4FY
14
Q1FY
15
Q2FY
15
Q3FY
15
Q4FY
15
Q1FY
16
Q2FY
16
Q3FY
16
Q4FY
16
(%)
FMCG feeling the pinch of rural distress (YoY Volume Growth)
Hindustan Unil (~50%) Marico Group (~25%) Dabur (~35%)
______________________________________________________________________
17
3) Pickup in the capex cycle… initiated by the government ……. likely to
be followed by Private sector
The Government‘s plan capital expenditure in FY16 rose by
~35% YoY (revised estimate) as compared to FY15 actuals.
The Indian Railways spent Rs.940 bn on capital expenditure
in FY16, up by 64.91% YoY from the previous year‘s Rs.570
bn. For FY17, the railways has planned a capex of Rs.1.25
trillion.
Road ministry awarded 10,098 km of road projects in FY16
and about 6,000 km stretch was constructed.
The government is targeting to award 25,000 km of road
projects in FY17 and expects to construct 15,000 km of
highways.
According to media reports, hiring activity in the construction
equipment manufacturing industry is picking up after a
three-year slowdown which impacted the industry's
performance.
As per ICRA, retail credit of NBFCs is expected to grow 16-
18% in FY16 on the back of rising demand in the new
commercial vehicle segment and also given the general
pick-up in business environment.
The capex cycle in India witnessing an initial signs of
uptick as the government is leading from the front with
strong increase in its spending spree.
While there has been no clear signs of private sector
capex, the corporates are likely to follow the
government in increasing the spending with expected
turnaround in earnings.
.
Source: Union Budget Document, cga.nic.in
1,050
1,422
-
200
400
600
800
1,000
1,200
1,400
1,600
Actuals 14-15 Budget Est 15-16
(Rs
in B
n)
Increase in Planned Capital Expenditure
______________________________________________________________________
18
Trend in GDP growth
Q4FY16 GDP growth was better than expectations….momentum
expected to continue in the FY17
India‘s Gross Domestic Product (GDP) for Q4FY16 was better
than the consensus expectations.
India‘s GDP for Q4FY16 grew at 7.9% YoY against 7.5% YoY
in Q4FY15 and 7.2% YoY in Q3FY16.
For full year FY16, India‘s GDP growth stands at 7.6% YoY
compared to 7.3% YoY in FY15.
The growth in gross value added (GVA), comprising
agriculture, industry and services, increased 7.2% YoY in
FY16 from 7.1% in FY15.
The higher growth in GDP was largely on the back of better
performance by manufacturing, agriculture and financial
services.
Manufacturing growth was 9.3% YoY in Q4FY16 from 5.5%
YoY in Q4FY15, financial services grew 9.1% YoY in Q4FY16
compared to 10.6% YoY in Q4FY15.
However, on the negative side, Gross fixed capital formation
(GFCF) contracted 1.9% YoY in Q4FY16. It had risen as high
as 7.1 and 9.7% YoY in Q1FY16 and Q2FY16, respectively.
The eight core sector industries grew by 8.5% YoY in April
2016, with refinery products and electricity registering double-
digit growth.
While the GDP growth was better than expectations, the
momentum is likely to continue with higher government
expenditure, lower interest rates, improving urban
consumption and favourable base effect.
Source: MOSPI
______________________________________________________________________
19
Over a longer term, Indian equity markets have climbed many walls of
worries and delivered strong returns
Source: Capitaline, Note: Nifty50 Return, *CY2016 is up to May
Over the past 12 years, actual returns were higher than
intra year decline in Nifty50.
Over the last 12 calendar years, Nifty50 has given
positive return in 9 years.
This indicates that corrections should be taken as an
opportunity to invest.
Also, the above chart shows, equity markets have
generally been able to deliver steady returns over the
long term, irrespective of the magnitude of any near
term event.
Source: Reliance AMC
S&P BSE Sensex
-9 -9
-10
-63
-14 -10
-27
-1
-14 -6 -9
-14
36 40
55
-52
76
18
-25
27
6
30
-4
3
-80
-60
-40
-20
0
20
40
60
80
100
CY20
05
CY20
06
CY20
07
CY20
08
CY20
09
CY20
10
CY20
11
CY20
12
CY20
13
CY20
14
CY20
15
CY20
16*
Intra year Decline in the year (%) Actual Return (%)
______________________________________________________________________
36
305390
472365
715
-530
834
1333
-27
12841131
971
189
-1000
-500
0
500
1000
1500
CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15
Yearly trend in FPI/FII Net Investments (Rs in bn)
20
Low FII inflows have historically been followed up with strong market
performance and higher FII flows in India… trend expected to continue..
Source: Bloomberg, NSDL
The historical performance of S&P BSE Sensex over the last 15 years indicates strong returns were seen post the year(s) of
correction.
It can also be observed that in the past the longer the period of correction, faster the recovery process has happened and
returns were also stronger during the period of recovery.
Negative/low FII inflows have generally been followed up by higher flows in the subsequent years (as seen in last 13 years
data)
FII flows are expected to come back in India in 2016 due to strong macro economic factors, upbeat multilateral agencies that
expects India GDP to outperform and the government’s focus on reform announcement to drive the economic growth higher.
64
-21 -18
4
73
13
42 47 47
-52
81
17
-25
26
9
30
-5
CY
19
99
CY
20
00
CY
20
01
CY
20
02
CY
20
03
CY
20
04
CY
20
05
CY
20
06
CY
20
07
CY
20
08
CY
20
09
CY
20
10
CY
20
11
CY
20
12
CY
20
13
CY
20
14
CY
20
15
Historical returns on S&P BSE Sensex (%)
Low/Negative FII flow
Low/Negative FII flow
Low/Negative FII flow
Low/Negative FII flow
______________________________________________________________________
21
Markets are consolidating in a range, valuations reasonable
The markets are expected to consolidate after
witnessing sharp rally in the last three consecutive
months.
At current level, the market is trading at reasonable
valuation. S&P BSE Sensex is trading at 19.0x FY16E
consensus EPS of Rs.1400 and 16.2x FY17E consensus
EPS of Rs.1650 and 14.0x FY18E consensus EPS of
Rs.1900. (S&P BSE Sensex price as on 31.05.2016).
Any major volatility in the equity markets should be
used by investors as an opportunity to adding into their
exposure in line with their risk profile with a 2-3 years
investment horizon. Source: Bloomberg
Source: Bloomberg
S&P BSE Sensex Consensus EPS (Rs.)
______________________________________________________________________
22
……Valuation gap between Large Cap and Midcap Indices remain high
Source: Bloomberg, Reliance AMC
______________________________________________________________________
23
Brexit (Britain Exit from European Union) would be the key monitorable for global
markets.
Decline in commodity prices could put pressure on the global financial markets
Delay or lower than normal monsoons may impact the market sentiments
negatively.
Any major geopolitical issues may lead to volatility in the markets.
A faster pace of interest rate hikes in US may lead to tightening of global liquidity
and volatility in the equity markets.
China remains a key monitorable as it is expected to remain in transition and
sharp decline in Chinese economic growth can have impact on global commodity
exporting economies.
Sharp slowdown in global growth which may lead to disinflationary pressure on
some of the large developed economies.
Key Risks
______________________________________________________________________
24
Equity Market Round Up – May 2016
Indices 31 May 2016 29 Apr 2016 Chg %
S&P BSE Sensex 26,668 25,578 4.1
S&P BSE Mid Cap 11,366 11,011 2.9
S&P BSE Small Cap 11,142 11,017 1.1
S&P BSE 100 8,277 7,960 3.8
S&P BSE 500 10,762 10,406 3.4
FIIs data
(Rs. Bn)
Gross
Purchases Gross Sales Net
CY16 4,271 4,117 154
CY15 11,655 11,467 188
CY14 10,227 9,256 970
CY13 7,968 6,837 1,131
Source: BSE, SEBI (as on 31 May 2016)
During the month of May 2016, the S&P BSE Sensex traded
strong and ended on a positive note, up by 4.1% MoM.
The S&P BSE Midcap index and the S&P BSE Smallcap
index also closed on a positive note with a gain of 2.9% MoM
and 1.1% MoM, respectively.
Among the sectoral indices, the S&P BSE Capital Goods
index and S&P BSE Bankex index were the top performers,
gaining by 9.6% MoM and 5.2% MoM, respectively. The top
two underperformers were the S&P BSE Healthcare index
and the S&P BSE Oil & Gas index which fell by 2.2% MoM
and 0.4% MoM, respectively.
During the month of May 2016, both FIIs and DIIs were net
buyer to the tune of ~Rs.25.4 bn and ~Rs.63.3 bn,
respectively.
Source: Bloomberg
12500
15000
17500
20000
22500
25000
27500
30000
Apr
-13
Sep
-13
Feb
-14
Jun-
14
Nov
-14
Mar
-15
Aug
-15
Jan-
16
May
-16S
&P
BS
E S
ense
x Le
vels
BSE Sensex Price Earning (PE) 1 year forward
16x
18x
14x
12x
______________________________________________________________________
25
Equity Market – Outlook
US economy continues to report steady economic data with consistent improvement in the job and housing markets. Hence, the probability of interest rate hike
by US Federal Reserve in the next FOMC meeting has increased, which may lead to volatility in the near term.
The other developed economies like Eurozone and Japan continue to face growth issues, while witnessing improvement in the select economic areas.
While there has been no major negative surprise by China, the commodity prices have reversed due to by announcements of reduction in capacities, as China
transits from manufacturing to services led economy.
Globally, Most of the global Industrial commodities have gathered upward momentum, after touching multiyear low prices. However, prices still remain far
below from their peak levels.
The up move in the commodity prices has led to strong FIIs flows in the emerging markets. India, being part of the emerging markets, also received stronger
FIIs flows and reported positive flows for CY16 post outflow in the first two months of CY16.
An analysis of 437 out of S&P BSE 500 companies which reported half yearly numbers ending March 2016 shows mixed results. However, the numbers
excluding for companies from Financials and Oil and Gas sector indicates an early sign of revival in corporate earnings. Markets have cheered the
improvement in the earnings..
India‘s key structural macro drivers like strong GDP growth, twin deficits under control, favourable commodity cycle, benign inflation, government‘s focus in its
reform process and forex reserves being at all-time high, well differentiates India vis-a-vis other emerging countries which are likely to support the economic
growth.
The government of India continued it‘s focused on strengthening the economy with various reform announcements targeting to improve both social and
physical infrastructure in order to set structural drivers for long term sustainable economic growth.
The Urban consumption continues to show traction with the various data points like aviation passenger traffic growth, growth in the value of mobile banking
transactions, growth in housing loan, improvement in the consumer confidence index, pick-up in the fuel consumption etc indicating strong growth momentum
in consumption. However, revival in rural consumption hinges upon the favourable monsoon.
The capex cycle in India has witnessed signs of uptick with Government‘s plan capital expenditure in the FY16 rose by ~35% YoY as compared to the same
period last year, however there has been no clear signs of private sector capex.
India‘s Gross Domestic Product (GDP) for Q4FY16 was better than the consensus expectations. India‘s GDP for Q4FY16 grew at 7.9% YoY against 7.5%
YoY in Q4FY15 and 7.2% YoY in Q3FY16.
We maintain our target for S&P BSE Sensex for March 2017 at 32300 at 17x FY18E S&P BSE Sensex EPS of Rs.1900.
We think that the current consolidation in the in the equity markets presents the investors with good opportunity to further invest in equities with a higher focus
on Large cap stocks, with a selective approach towards Midcap and Small cap names given the high valuation differentials.
We recommend that equity investment strategy should be at 75% lumpsum and rest staggered over the next 2-3 months; as we think that the
markets are trading at reasonable valuations.
We recommend investment into RIL, ONGC, SBI, L&T, Bharti Airtel, Birla Corporation, Tata Motors, M&M, Exide, Supreme Inds, TCS, Infosys,
GSFC, ENIL, NTPC, Atul, Voltas and UPL from a 2-3 year perspective.
______________________________________________________________________
26
Recommended Stocks Reliance Industries: RIL continues to be on track to improve the profitability with GRM in FY16 at a seven year high. While there has been some delay
in the commissioning of new capacities in the core business, once commissioned, the company is expected to reverse trend of stagnant earnings
witnessed in the past few years. As per management, all projects will be commissioned by H2FY17; complete benefits will be fully visible in FY18. The
large investment in telecom venture and muted outlook in the both US shale and domestic gas remains a key monitorable. We recommend a BUY on the
stock with a revised price target of Rs.1,386 at 12x (3 year average multiple) FY18E EPS of Rs.115.5.
M&M: M&M continues to be a leader in the domestic Tractor and UV industry with 42.7% and 38.6% market share, respectively. While the domestic
tractor industry saw a minor growth in Q3FY16, management believes full recovery is likely in FY17 based on lower base effect and expectations of good
monsoon. With series of launches during the year, M&M has filled the gap in its product portfolio in UV segment and is now focusing on boosting the
volumes to drive the growth. We believe M&M has geared up itself to take on the competition and to grab the opportunity arising from expected recovery
in auto industry with series of new launches done in FY16. We remain positive on the stock on the back of new product launches which is likely to drive
revenue growth for the company and based on good return ratios of over 20%. We continue to recommend a Buy on the stock with the target price of
Rs.1535 at 16x FY17E EPS of Rs.74.4 adding Rs.344 as value of subsidiaries at 30% holding company discount.
Tata Motors: We are positive on the stock on the back of well diversified global presence, expected new launches in both domestic and JLR business,
recovery in domestic CV industry, long term structural drivers and on good return ratios of over 20%. We recommend a BUY on the stock with target
price of Rs.569 based on the SOTP valuation (JLR (Rs.512/share) + Standalone business (Rs.47/Share) + other subsidiaries (Rs.30/Share) - net
automotive debt (Rs.20/Share)).
Bharti Airtel: We think that Bharti with its strong brand positioning and superior network coverage and large customer base would benefit from this in
the medium to longer term. Though, we think that it may impact the margins of the company in the near term. We have revised the earnings for the
company for FY17 (lowered margins) and also rolled over our earnings estimates to FY18. We recommend a BUY rating on the stock with revised price
target of Rs.431 at 20x FY18E EPS of Rs.19.6, adding Rs.51 per share of the value of its telecom tower JV.
Larsen & Toubro: L&T is India's largest Engineering & Construction Company. Apart from core construction activity, L&T has made significant presence
into a diverse range of products and services through its subsidiaries and manufacturing JVs in power Boiler Turbine & Generator (BTG), forging and
shipbuilding. The management continues to be optimistic about the potential opening up of the defense sector which could be a big opportunity for L&T
as it is ready with capacity and expertise to grab such opportunities. Overall, investment cycle in private sector is expected to recover in about 6-9
months which is likely to drive the order inflow for the company. We continue to recommend a Buy on the stock with a target price of Rs.1983 (20x
FY17E standalone EPS of Rs.71.2 + Subsidiary value of Rs.560/share).
Atul: Atul Ltd, with its diversified product and customer profile is well positioned to reap the benefits of recovery in the domestic and global economies.
Government‘s initiatives like Make in India for manufacturing and discouraging imports augurs well for Atul Ltd. Further, management‘s focus on
expanding capacities of high margin segments are likely improve the earnings and return ratios. The company has reported healthy return ratios with
RoE and RoCE of 23.2% and 26.1% for FY15. Balance Sheet continuous to be robust with Debt/Equity ratio of 0.3x in FY15. We continue to recommend
Buy on stock with price target of Rs.2250 which is 16xFY18E (Peg ratio of 0.6) EPS of Rs.140.7.
UPL: UPL is a leading global generic player in the Agrochemical Industry and ranks among the top-10 post patent agrochemical manufacturers in the
world. The quarterly performance of the company has been way ahead of expectations. We think that the strategy of the company to 1) Consolidate
across the geographies, 2) Introducing new products in the key markets, 3) Focus on the branded products, has played well for the company. We
recommend Hold on the stock with a revised price target of Rs.647 which is 15x (maintaining earlier multiple) FY18E EPS of Rs.43.2.
______________________________________________________________________
27
Recommended Stocks Birla Corporation: We think that with the acquisition of Reliance Infrastructure Cement, economic growth picking up, the focus of the government on
ramping up the physical infrastructure and its strong presence in the high growth markets, we believe that the earnings of the company is likely to trend up
sharply. At the CMP, the stock is trading at an enterprise value (EV) of ~USD 74/ton. (Current Market cap Rs.32.01 bn, expected Net Debt Rs.43 bn), for a
cement capacity of 15.5 mn ton expected in FY17). We think that the stock commands premium to this valuation due to increase in capacity and thereby
expected pick up in the valuations, improved profitability and strong cash flow generation capability. We thus recommend a BUY on the stock with a price
target of Rs.767 at USD 100/ton of EV.
Exide Industries: Exide continued to report strong improvement in its margin profile with the help of its cost cutting initiatives and lower commodity prices.
Indian Automobile sector is showing early signs of revival given the strong growth in commercial vehicle and passenger vehicle sales in recent past that
bodes well for a recovery in Exide‘s OEM sales. Further, strong market share in Solar, Backup Power, Manufacturing and Project sector may drive the
volume growth over the long term. We think that the management would be able to continue to shore up its margins on the back of lower raw material cost
and its cost cutting initiatives. We have reduced our sales and earnings estimate for FY17 due to subdued growth in FY16 and rolled over our earnings
estimate to FY18. We maintain our BUY rating on the stock with the revised target price of Rs.200 at 20x (10% discount to 5 year average) FY18E EPS of
Rs.9.2 and adding Rs.15 per share for the stake in Insurance business.
TCS: TCS after reporting few quarters of earnings which were weaker than market expectations has delivered strong topline growth for the quarter. While
the management commentary suggested that the company is likely to chart renewed growth path, we think that margins could get impacted in the medium
term due to investments into digital business. However, this business has strong growth prospects and can yield strong returns over the longer term. The
management continues to remain positive on the overall growth trajectory of the company, given strong deal pipeline and healthy client spending due to
adoption of new technologies in the Digital, Analytics, Artificial Intelligence and Mobility Space. We continue to maintain our positive stance on the
company from a medium term perspective. The company continues to deliver strong return ratios and high payout. We continue to recommend a Hold on
the stock with a price target of Rs 2935 at 18x (10% discount to previous multiple due to weaker margin expectations) FY18E EPS of Rs 154.9 and adding
Rs 148 worth cash per share.
State Bank of India: We recommend a Buy on the stock with the target of Rs 336 based on PBV multiple of 1.7x on FY17E adjusted book value of
Rs 170.1 and adding Rs 46.8 per share for value of other subsidiaries.
GSFC: GSFC is India‘s largest producer of the chemical Caprolactam and also has a leading position in the complex fertiliser. Over the years, the
company has continued to have a debt free balance sheet. Company‘s Nylon-6 expansion and Fully Drawn Yarn Project (FDY) are on schedule and
expected to get commissioned by Q4FY16. Management expects incremental revenue of Rs.1 bn in FY17 and scaling upto Rs.2.5 bn in the subsequent
years. The pressure on the Chemical segment is likely to be eased post commission of the Nylon capacity, resulting in margin uptick. We continue to
recommend Buy on the stock with a target price of Rs.142 which is 10xFY17E EPS (maintained earlier multiple) of Rs.14.2.
ENIL: We think that Radio Sector in India is primed for steady growth on the back of expanding market opportunity due to newer stations being launched in
new cities. Advertisers continue to see the positive impact of targeted marketing which can be done through FM radio. We believe that post the Phase-III
FM auctions, this growth rate would only trend higher. Post that the company is expected to deliver strong performance led by higher stations and more
reach. We opine that Radio Mirchi as a brand of ENIL stands above its competition and is poised to strong growth over the medium to long term. We
continue to like the company for its potential growth, strong balance sheet and steady return ratios (FY16 ROE: 14%, ROCE: 14.5%). We have revised our
earnings estimates for FY17 and FY18 and recommend a Hold on the stock with a revised price target of Rs 815 at 30x (15% premium to 2 year average
multiple of 26x owing to the large growth potential post Phase-III auctions) on FY18E EPS of Rs 27.2.
______________________________________________________________________
28
Recommended Stocks NTPC: NTPC is the largest power generating company in India with an installed capacity of ~45.5 GW (16% of India‘s total installed capacity) at the end of
Q3FY16. The company reiterated its long-term plans to add 128 GW by FY32. The company also has aggressive plans for solar power where in it plans to
add 10 GW by FY22. We think that the company is likely to benefit from the improved coal availability situation which is likely to support its existing and
incremental capacity. With strong pipeline of capacity addition, growth visibility for the company remains promising. We remain long term positive and
continue to recommend a Buy on the stock with target price of Rs.240 which is 2x FY17E (maintaining earlier multiple) book value of Rs.120/share.
Voltas: Voltas is one of India‘s leading engineering solution providers. The business portfolio of the company comprises of providing Heating, Ventilating
and Air conditioning & EMP solutions. On the UCP segment, the company continues to remain market leader with the focus on margin expansion through
better product quality & improved revenue mix and warmer summer. On the EMP, the margins are expected to see improvement as slow moving orders
move out of the backlog and newer projects with better profitability (threshold margins of >5%) come into execution. On the Engineering Product segment,
the company expects orders to pick up with increase in demand for mining equipment. The company continues to have strong balance sheet and cash flow
generation capability. We have rolled over our earnings estimates to FY18E and recommend Buy on the stock with a revised price target of Rs.401 which is
25x (maintaining earlier multiple) FY18E EPS of Rs.16.1..
ONGC: While there are concerns in the near term due to fall in the crude oil prices, however ONGC‘s large size in the oil & gas space, strong balance sheet
(net cash), steady cash flows and consistent dividend payment track record gives us the comfort. Any clarity on the oil cess relief and uptick in the crude oil
prices could be the trigger for the company in the near to medium term. However, with significant fall in the crude oil prices and expected downward revision
in the gas prices, we have revised the earnings downward and recommend Buy on the stock with revised price target of Rs.303 which is 11xFY17E
(maintaining earlier multiple) EPS of Rs.27.5.
Infosys: Infosys continues to deliver strong earnings quarter after quarter, confirming the conviction of the management of moving back to industry leading
growth rates. The guidance of the management suggests that this is achievable in FY17 as well. The strategic growth outlook for Year 2020 also suggests
that the management is working towards a plan to maintain the business momentum. The company now needs to ramp up its utilization rates and have
deeper penetration of automation to drive margins going forward. Also, the new management has its sight set on more non-linear business model and
acquisitions which could sustainably drive revenues and earnings in the longer term. We believe that IT businesses would continue to deliver steady
earnings growth as they adapt to the changing paradigm in the industry and keeps innovating new business delivery models and processes. We have rolled
over our earnings estimate to FY18 and continue to recommend a Hold on the stock with a price target of Rs 1392 at 16x (previous multiple maintained)
FY18E EPS of Rs 77.6 added with Rs 151 of cash per share.
Supreme Industries: Going forward, the management guided for EBITDA margin to be within the range of 14-14.5% for FY17on the back of increase in
share of value added products and stabilization of raw material price at lower levels. Further, low per capita consumption of plastic in the country and
expected boost in composite LPG Cylinder demand provides huge revenue growth opportunity for the company. We remain positive on the strong product
mix, consistent earnings growth and generating healthy ROE of over 25%. We recommend a Hold on the stock with the revised target price of Rs.986 based
on revised PE multiple of 24x (past 3 year average multiple) FY18E EPS of Rs.40.0 adding Rs.25 for stake in Supreme Petrochem.
Rating Expected to
Buy Appreciate more than 10% over a 12 to 15 month period
Hold Appreciate below 10% over a 12 to 15 month period
Under Review Rating under review
Exit Exited out of the Model Portfolio
Rating Interpretation
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29
Fixed Income
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30
June 2016… …a month with Critical Trigger Points
Month of June is marked by events both domestic as well as global, which may lead to increase in
volatility in bond markets.
Monsoon Progression - Most of the weather forecast agencies have predicted La Nina phenomena this
year and have also predicted normal to above normal monsoons. However the actual progress of the
monsoon from time to time will give direction to bond yields.
RBI’s Second Bi-Monthly Monetary Policy for FY17 – Although the expectations are that the RBI is likely
to maintain a status quo, RBI‘s future stance and guidance on inflationary expectations, liquidity
management and guidance on interest rates will be keenly monitored by the market participants.
US FOMC Meeting – After the release of minutes of the US Fed‘s April 2016 meeting, the market
expectations of an interest rate hike in the US in the near term have increased. The uncertainty on the same
is expected to impart volatility to the bond markets.
Brexit – UK‘s referendum vote on UK‘s exit from EU in June 2016 may lead to increase in volatility in the
Indian capital markets.
Advance Tax Payments – June 2016 will have advance tax payments by corporates, which might put
pressure on system liquidity and in turn on the shorter end of the yield curve. Tight liquidity may also prevent
longer end yields from declining meaningfully
Lower Net Supply of G-secs – After a month of high supply in May 2016, June 2016 is a month of lower
net supply of G-secs (Centre+States). Lower supply of G-secs is positive for longer end yields, shorter end
yields as well as system liquidity.
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31
G-sec yields remain in a range… …marked by domestic & global triggers
Domestic bond markets traded in a narrow range in May 2016. The 10-year benchmark G-sec i.e. 7.59%, 2026 G-sec yield ended the month
at 7.47% levels, up 3bps higher and reversing the decline in the previous month.
Continuous supply of central and state G-secs, higher retail inflation compared to previous month and global cues exerted pressure on the
yield of the 10 year benchmark G-sec.
Indian G-sec yields increased further after the US Fed released its April 2016 meeting minutes. The minutes raised the market participants‘
expectations for the US Federal funds rate hike sooner than later, which resulted in increased volatility in bonds.
The Indian 10 year benchmark G-sec (7.59%, 2026 bond) yield went up as high as 7.50% in intraday trade on 20th May 2016.
However, OMOs conducted by the RBI limited the yield movement. The RBI conducted OMOs to the tune of Rs. 400 bn in May 2016.
Source: Bloomberg
Source: Bloomberg
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32
Liquidity conditions continued to be tight… …advance tax payments may exert pressure
The liquidity deficit in May 2016 remained almost at similar levels as in April 2016, despite RBI‘s efforts to pump in durable liquidity in the
banking system. The average liquidity deficit in May 2016 was around Rs. 998 bn as against Rs. 1.05 trillion in April 2016.
Systemic liquidity came under further pressure due to continuous built-up of government‘s cash balances with the RBI, during May 2016.
Higher currency in circulation continued to put pressure on the liquidity conditions. Currency in circulation grew by almost 15% YoY as on 27th
May 2016. It grew by around 11% YoY during the same period in the previous year.
Continuous supply of G-secs also added to pressure on systemic liquid. Net borrowings by central and state governments were higher in May
2016 compared to April 2016.
To support the systemic liquidity, RBI conducted open market operations (OMOs) to the tune of Rs. 400 bn in May 2016.
Tracking the tight liquidity conditions, the overnight call money rates as on May-end inched up 25 bps to close at 6.25% from its April-end
closing levels. It hovered in the range of 6%-6.85% in the month of May.
Going forward advance tax payments by the corporates may add to the pressure on systemic liquidity.
Source: RBI
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33
Short term rates were volatile… …marked by tight liquidity
After declining in the month of April 2016, the shorter end of the yield curve turned volatile May 2016.
Short term rates rose during the first half of May 2016; however towards the month end, the short term rates declined as the RBI did frequent
OMO purchases.
The rise in the short term rates was mainly on account of tight liquidity conditions.
The 3 months CD yield rose to a level of 7.40% intermittently during the month, and closed at 7.18% as against 7.38% in the previous month.
The 6 months CD yield also rose to 7.40% and closed the month 7.35% as against 7.37% as of the previous month. 1 Year CD rates however
remained almost flat for most part of the month.
Though there is relatively lower net supply of G-secs in June 2016, continuous supply of G-secs along with advance tax payments is expected
to put pressure on short term rates.
However RBI is likely to continue to supply durable liquidity in line with its stance, which may limit the any sharp rise in the short term rates.
Source: IDFC MF
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34
G-sec yield curve shifts marginally lower…
Barring the 10 year benchmark G-sec yield, the yield curve continued to shift downwards in May 2016, though the shift was only marginal.
Any large downward shift was prevented on account of large supply of government securities. An uptick in the inflation and rising
expectations of a US interest rate hike, also capped a decline in the yields.
June 2016 has lower net G-sec supply, which might lead to decline in yields across the curve and thus the steepening might continue in
June 2016 as well.
However the outcome of various global and domestic events (as discussed in Key Triggers slide), may determine the direction of the
yields.
Source: Bloomberg
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35
Corporate bond yield curve… …medium term of the corporate yield curve still looks attractive
Though the corporate bond yield curve also remained steep in May 2016, the mid to long end of the curve remained firm.
The spread between the 10 year and 1 year AAA rated corporate bond continued to widen in May 2016 to 48 bps from 32 bps in April 2016, 27
bps in March 2016 and 23 bps in February 2016.
The spread between the 3 years and the 5 years corporate bond yields also widened to 25 bps from 19 bps in the previous month.
The shorter end is not expected to decline significantly given that the shorter end has already moved down from its peak levels.
The longer end of the yield curve may also remain firm on account of higher supply, global uncertainties, pickup in growth and benign inflation
outlook.
Thus the medium term segment of the yield curve has become attractive from risk reward perspective.
Source: IDFC MF
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36
Net G-sec supply was higher in May…. …RBI’s liquidity management is likely to be critical in June
The RBI conducted auctions of central and state government securities to the tune of Rs. 600 bn and Rs. 185 bn respectively in May 2016.
Maturities of central government securities in May 2016 were around Rs. 60 bn. Thus, the total net supply of G-secs in May 2016 was
significantly higher compared to April 2016, at Rs. 725 bn.
The state government securities auction of Rs. 185 bn was lower than the indicative borrowings of Rs. 200 bn in May 2016. This was the second
straight month, in which the supply of state government securities was lower than the indicative calendar of issuances.
In June 2016, central and state government‘s combined gross market borrowing is expected to be around Rs. 635 bn, lowest monthly combined
gross borrowings in Q1FY17. Further, maturities of central government securities are expected to be around Rs. 60 bn in June 2016.
The net supply of G-secs is expected to be higher in July and September 2016. Historically, higher supply of G-secs in the first half of the
financial year has kept the G-sec yields volatile.
Thus, higher net supply in July and September 2016 is likely to exert pressure on the yields at the longer end of the yield curve.
The RBI‘s stance of infusing liquidity through OMOs is likely to bring down the net supply of G-secs.
Source: Reserve Bank of India Source: Bloomberg
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37
Government to borrow ~59% of gross borrowings in H1FY17… …borrowings concentrated in the 10-15 year segment
The gross borrowings for FY17 were budgeted at Rs. 6 trillion and the net borrowings were budgeted at around Rs. 4.26 trillion in the Union
Budget for FY17.
The indicative gross borrowings for H1FY17 came in at Rs. 3.55 trillion or 59% of the total gross borrowings.
As per the indicative calendar for issuance of central government securities, the concentration of issuance of G-sec is higher in maturities of
10-14 years.
The combined borrowings of state as well as central government have been rising over the last 5-years consecutively.
In FY16, while the gross borrowings of central government were lower than that of the previous year, the combined market borrowing of centre
and state was higher than the previous year‘s borrowing because of the increase in state government borrowings.
Implementation of 7th Pay Commission recommendations in states and interest payment on UDAY bonds may impact the state government
deficits, which may result in rise in market borrowings by the state governments.
Generally, state government securities are issued with maturities in the range of 10-15 years. Thus, the combined supply of G-secs in 10-15
years space is likely to be higher.
Source: Reserve Bank of India Source: Reserve Bank of India
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38
CPI inflation rose due to high food inflation… ...better monsoon may help in moderation
Consumer Price Index (CPI) based inflation for April 2016 came in at 5.39%
YoY compared to 4.83% YoY in March 2016. Surge in retail inflation in April
2016 was primarily on back of rise in food inflation.
Food inflation for April 2016 rose to 6.32% YoY as against 5.21% in March
2016.
Among Food inflation components, inflation of Meat & Fish, Milk &
Products, Fruits, Vegetables, Pulses and Sugar witnessed significant uptick
in April 2016 on a month-on-month basis.
Non-food inflation remained sticky in April 2016. Among non-food inflation,
Transportation & communication prices witnessed significant surge in
prices on a month-on-month basis.
Transport and Communication inflation grew by 1.73% YoY in April 2016
compared to 0.91% YoY in March 2016.
The WPI headline inflation came in at 0.34% YoY in April 2016 compared to
(-)0.85% YoY in March 2016. Headline WPI inflation has remained negative
since November 2014.
Primary Articles inflation rose by 2.3% YoY in April 2016, while
manufactured inflation rose by 0.7% YoY in April 2016. Fuel & Power
inflation continued to remain negative at (-)4.8% YoY.
Metals and crude oil prices have risen in the last few months. If the rise in
prices continue then, it may impact the inflation. However, weak global
demand may limit any significant rise in commodity prices.
In CY2016, monsoon is expected to be normal to above normal. Better
monsoon is likely to lower the food and vegetable prices, which is likely to
bring down the headline CPI inflation.
Source: MOSPI
Source: www.eaindustry.nic.in
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39
Merchandise exports and imports declined by 6.7% YoY and 23.1% YoY respectively in US dollar terms in April 2016.
Engineering Goods‘ exports and Petroleum Products‘ exports, in April 2016, declined by around 18.9% YoY and 28.2% YoY respectively on back
of low global demand.
During April 2016, oil imports and non-oil imports declined by 24.0% YoY and 22.8% YoY respectively. Amid non-oil imports, Gold and Silver
imports fell sharply by 60.5% YoY and 31.4% YoY in April 2016 primarily due to jeweler's strike during the month.
Overall the merchandise trade balance halved in April 2016 at USD (-) 4.8 bn compared to USD (-)11 bn in April 2015.
CAD narrowed sharply to USD 22.0 bn (1.4% of GDP) during Apr-Dec 2015 from USD 26.1 bn (1.7 % of GDP) during the same period of the
previous year.
India‘s external debt stood at USD 480 bn at end-December 2015, increasing by around 1% over the level at March-end 2015. However, on a
QoQ basis, total external debt at December-end 2015 declined by US$ 1.2 bn.
Foreign exchange reserves stood at around USD 361 bn as on 20th May 2016 as compared to around USD 363 bn at April-end 2016.
Healthy foreign exchange reserves and better external trade balance provides for strong support to the domestic currency.
Source: RBI
Trade balance and Forex reserves at comfortable levels… …strong support to domestic currency
Source: Bloomberg Source: Bloomberg
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40
US FOMC Meet & UK’s EU Referendum in June 2016… …likely to increase volatility in Indian bond markets
In May 2016 the US Federal Reserve released the minutes of FOMC April 2016 meeting, which revived market expectations for a rate hike by
the Fed in its June or July 2016 meeting.
The consensus estimates on Bloomberg have assigned 34% probability of a rate hike in June 2016 meeting, while the consensus have
assigned 54% probability of a rate hike in July 2016 meeting.
The US Treasury yields moved up across maturities post the release of the meeting minutes, with the short term rates moving up by 15 – 20
bps.
Another major event in June 2016 is the UK‘s EU Referendum vote on the decision to exit European Union on 23 June, 2016.
As of 31 May 2016, the latest polls on Bloomberg estimate an even outcome on the referendum.
The rate hike in the US and UK‘s EU referendum is expected to increase volatility in bond markets in the near future.
Source: Bloomberg
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41
FPIs turn net sellers in May 2016… …expect flows to be volatile in the near term
Foreign Portfolio Investors (FPIs) turned net sellers in bond markets in May 2016, after being net buyers in April 2016.
The FPIs were net sellers to the tune of almost Rs. 44 bn in May 2016 compared to net buyers of Rs. 64 bn in April 2016.
Government‘s commitment to fiscal consolidation, RBI‘s actions on policy rates and push for improving liquidity, along with lower net supply of
G-secs in FY17 have likely boosted the sentiments of foreign investors for Indian bonds.
The increase in FPI limits for investments in G-secs, effective 4th April 2016, also helped in attracting demand by foreign investors.
However, FPIs turned net sellers in Indian bonds in May 2016 ahead of global events like US FOMC meeting and UK‘s EU referendum vote
as scheduled in June 2016.
Going forward, while the demand for Indian G-secs by foreign investors is likely to continue as Indian G-sec yields are attractive compared to
the sovereign yields of developed markets, global events like US Fed meeting and UK‘s referendum may make the foreign institutional flows
volatile.
Source: NSDL
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42
Key Risks
Sub-normal Monsoon - However, it is anticipated that India will likely to witness normal to above
normal monsoon.
US Fed hiking interest rates aggressively – While the probability of rate hikes by the US Fed in
the near future has gone up, the Fed has indicated earlier that the process of rate hikes is likely to
be gradual and based on economic data points.
Brexit – UK‘s referendum vote on UK‘s exit from EU in June 2016 may lead to increase in
volatility in the Indian capital markets.
Rise in crude and other commodity prices - However, in a weak global demand environment
rise in crude prices and other commodity prices may be gradual.
Devaluation in EM currencies - Since India is one of the major emerging markets, Indian
currency may get impacted due to volatilities in emerging market currencies. However, in the
recent past, Indian currency has been resilient and outperformed other EM currencies on back of
favourable macro economic conditions like lower CAD, continuation of fiscal prudence, and robust
foreign exchange reserves.
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43
Headline CPI inflation rose after 3 straight months of decline, primarily due to sharp rise in food inflation. Normal to above normal monsoons, as anticipated, in
the current year is likely to be beneficial for the inflationary expectations.
However, impact from seventh central pay commission implementation and sharp rise in commodity prices, in the recent past, might exert pressure on the
headline inflation. The RBI expects CPI inflation to remain around 5% in FY17 without factoring the impact from implementation of seventh central pay
commission.
Trade and Current Account balance are at comfortable levels. Foreign exchange reserves are well above standard norms for reserve adequacy. These factors
are likely to provide stability to the domestic currency during volatile times.
Net supplies of G-secs are likely to be higher in the coming months, especially in July and September 2016. This may exert pressure on the longer end of the
yield curve as well as the systemic liquidity.
The FII flows are likely to be volatile in June 2016 ahead of key global events viz., the US FOMC meeting and UK‘s EU referendum, which may add further
pressure on Indian bond yields.
Liquidity conditions have improved from the March levels, but continue to remain tight around the Rs. 1 trillion levels. Going forward, advance tax outflows and
G-sec supplies may exert further pressure on the systemic liquidity. In such scenario, markets are likely to expect OMOs from the RBI to support the liquidity
conditions inline with its liquidity management stance.
The latest cut-off of 364 day T-Bills came in at 6.96% and latest CPI headline inflation came in at 5.39%. The real interest rate, as defined by the RBI as the
spread between 364 day T-Bills and CPI inflation, is around RBI‘s target range of 1.5% - 2%. Further if GDP growth continues to remain strong, the RBI may
have limited room to cut rates significantly. Also a stronger GDP growth rate, may lead to higher inflationary expectations.
Thus the possibility of large cut in interest rates by RBI going forward may be lower.
Thus, the higher net supply of G-secs and limited room for rate-cut by the RBI, may cap the bond prices of long-dated securities.
Further, after the shift in liquidity management framework and with improving liquidity conditions in April & May compared to March 2016, the shorter-end of the
yield curve came down sharply.
The 5-10 year segment of the yield curve is relatively flattish. Thus, currently the risk-reward favors the medium term segment of the yield curve viz., 3 – 5 years.
Investment into Medium Term funds with an investment horizon of over 15 months can be considered by moderate and conservative investors.
Short Term Funds can be considered with an investment horizon of 12 months.
Income/Duration funds can be considered by aggressive investors for a horizon of 24 months and above; though preference currently should be
given to dynamically managed funds.
Investors looking to invest into higher accrual portfolio can consider investing into HDFC Corporate Debt Opportunities Fund and HDFC Short Term
Plan.
Investors looking to invest with a horizon of 1 to 3 months can consider Liquid funds, while Ultra-Short term funds and Arbitrage funds can be
considered for a horizon of 3 months and above.
Fixed Income Outlook
______________________________________________________________________ Investment Strategy
We recommend investors to rebalance/realign the portfolios according to the recommended asset allocation
On Equity Funds:
We expect strong returns from equities over the next 2-3 years, given the reasonable valuations and turnaround in the earnings seen in Q4FY16; hence recommend an overweight stance on equities for investors across risk profile. Higher incremental growth rates of Indian economy compared to its emerging market peers and larger developed economies would continue to help liquidity flows into India.
While the markets have seen strong performance recently on the back of improving earnings and predictions of above normal monsoons, we think that the valuations in the market continue to remain reasonable. This continues to provide good opportunity to invest with a higher focus on Large cap stocks with selective allocations to Midcap and Small cap stocks.
From a Equity Mutual Fund perspective, investors should look at Large cap, Flexi cap and Balanced Funds for fresh investments. The investment strategy should be 75% lump sum and rest should be staggered over the next 2-3 months.
On Fixed Income:
Investment into Medium Term funds with an investment horizon of over 15 months can be considered by moderate and conservative investors.
Short Term Funds can be considered with an investment horizon of 12 months.
Income/Duration funds can be considered by aggressive investors for a horizon of 24 months and above; though preference currently should be given to dynamically managed funds.
Investors looking to invest into higher accrual portfolio can consider investing into HDFC Corporate Debt Opportunities Fund and HDFC Short Term Plan.
Investors looking to invest with a horizon of 1 to 3 months can consider Liquid funds, while Ultra-Short term funds and Arbitrage funds can be considered for a horizon of 3 months and above.
44
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45
Equity Mutual Funds
Large Funds
1. Kotak Select Focus Fund - An actively managed fund investing across select sectors
2. BNP Paribas Equity Fund - An aggressive large cap fund investing into large cap with some exposure to mid cap stocks
3. Franklin India Prima Plus Fund - A conservative large cap fund with some allocation to small / mid cap stocks
4. SBI BlueChip Fund - A conservative fund predominantly investing into large cap stocks
5. Birla SL Frontline Equity Fund - A conservative large cap fund which invests across sectors in line with BSE 200 Index
Flexi Cap Funds
1. Franklin India High Growth Companies Fund - Fund investing into companies with high growth rate or above average potential
2. Birla Sun Life Advantage Fund - The fund is a flexi cap fund with exposure to select 3-4 sectors which are expected to grow faster during economic revival
3. DSP BlackRock Opportunities Fund - An actively managed fund invests aggressively across sectors and stocks
4. ICICI Prudential Value Discovery Fund - Invests in companies which are available at attractive valuations
5. SBI Magnum Multi Cap Fund - A conservative fund invests across markets capitalization and sectors
Balanced Funds
1. L&T India Prudence Fund - An aggressive balanced fund
2. HDFC Prudence Fund - An aggressive balanced fund
3. Franklin India Balanced Fund - A conservative balanced fund
Mid Cap oriented Funds
1. SBI Magnum Mid cap Fund - An actively managed mid cap fund
2. Reliance Small Cap Fund - An actively managed small cap fund
Emerging Funds
1. HDFC Equity Fund - An aggressive large cap oriented fund, takes high exposure to sectors which are expected to benefit from economic recovery
______________________________________________________________________
46
Top Sectoral Allocation of Large Cap Funds Compared to Nifty and Sectoral Benchmark Indices Performance
Portfolio as on 29th April 2016. Returns (%) as on 31st May 2016. Returns are Absolute for < = 1year and Compounded Annualized for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Over the last 3 months, the Indian equity markets have delivered positive returns. The benchmark index S&P BSE Sensex was up by 15.94%, whereas,
the S&P BSE Realty index and S&P BSE Capital Goods (CG) index moved up sharply by 35.20% and 28.70% respectively during the same period.
Equity Benchmark – over the last 1 year, S&P BSE Sensex index has delivered negative return of 4.14%. The decline in the market was largely due to
the mixed data flows from domestic & global markets, concerns over global growth outlook, volatility in crude oil prices & FII flows and weak corporate
earnings growth.
Over the last 1 year, IT, FMCG, Auto and Oil & Gas sector indices have outperformed the S&P BSE Sensex index, whereas the Banking, Realty, Health
Care, Capital Goods and Metal sector indices have underperformed the S&P BSE Sensex. Amongst the sector indices (mentioned in above table), S&P
BSE Matal index was the major loser, declined by 18.13% during the period.
Most of the large cap equity funds continue to have Banks & Finance, IT, Auto and Oil & Gas sector stocks as top sectoral exposure.
All the funds (mentioned above) are underweight on IT sector as compared to Nifty 50 index. However, all the above funds are overweight on Pharma
sector except the funds like Kotak Select Focus fund and BNP Paribas Equity fund as compared to Nifty 50 index.
Sectoral Indices Performance
Indices 3 Mths 6 Mths 1 Yr 2 Yrs 3 Yrs 5 Yrs
S&P BSE IT 13.16 5.72 6.05 16.96 24.02 14.05
S&P BSE HC 0.25 -6.46 -9.71 21.51 19.87 18.96
S&P BSE FMCG 13.08 1.68 2.50 8.24 5.90 15.81
S&P BSE Bankex 27.17 0.98 -6.46 8.89 12.13 9.89
S&P BSE CG 28.70 -0.84 -13.80 -0.86 15.41 2.01
S&P BSE AUTO 19.58 -0.23 -0.83 14.24 19.22 16.19
S&P BSE METAL 17.62 11.69 -18.13 -19.53 -2.21 -12.39
S&P BSE Oil & Gas 13.49 -0.07 -3.30 -7.31 2.50 -0.57
S&P BSE Realty 35.20 5.74 -7.52 -13.35 -5.51 -8.18
S&P BSE Sensex 15.94 2.00 -4.14 4.92 10.50 7.58
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47
Top 10 Stocks Allocation (%) of Large Cap Funds Compared to Nifty
Portfolio as on 29th April 2016. Source: Nifty Index - www.nseindia.com
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Amongst the above funds, BNP Paribas Equity fund has highest allocation to top Banking stocks. It can be seen that amongst the top stocks
allocation, the funds are holding higher allocation to Banking and IT sectors‘ stocks. SBI Bluechip fund is overweight on Sun Pharmaceuticals
Industries Ltd while, all the other funds (mentioned above) are underweight on Sun Pharmaceuticals Industries Ltd as compared to Nifty 50
index.
BNP Paribas Equity fund has higher allocation of 8.67% to HDFC Bank Ltd as compared to Nifty 50 index whereas, all the other funds
(mentioned above) are underweight on HDFC Bank Ltd as compared to Nifty 50 index. SBI Bluechip fund and Birla SL Frontline Equity fund are
well diversified funds across top ten Nifty 50 index stocks.
All the above funds are underweight on Infosys Ltd, ITC Ltd, HDFC Ltd, Reliance Industries Ltd, ICICI Bank Ltd, TCS Ltd, Larsen & Toubro Ltd
and Tata Motors Ltd as compared to Nifty 50 index.
Stocks
Kotak
Select
Focus Fund
BNP
Paribas
Equity Fund
Franklin
India Prima
Plus
SBI
Bluechip
Fund
Birla Sun
Life
Frontline
Equity Fund
Weightage
in Nifty
Infosys Ltd. 5.19 4.85 4.36 5.74 6.09 8.42
HDFC Bank Ltd. 6.11 8.67 7.66 6.65 7.19 7.79
ITC Ltd. 1.18 0.00 0.92 0.67 3.61 6.38
Housing Development Finance Corporation Ltd. 0.36 0.00 1.03 1.58 1.92 6.00
Reliance Industries Ltd. 4.89 0.00 0.00 5.17 4.01 5.67
ICICI Bank Ltd. 2.21 4.02 4.12 0.51 3.05 4.81
Tata Consultancy Services Ltd. 0.00 0.00 0.99 2.59 1.16 4.71
Larsen & Toubro Ltd. 2.72 0.00 2.66 2.40 2.77 3.59
Sun Pharmaceuticals Industries Ltd. 1.85 2.49 1.37 4.39 2.81 3.07
Tata Motors Ltd. 1.93 1.49 2.35 1.28 2.01 2.76
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48
Recommended Equity MF’s: Asset Allocation & Market Capitalization
Portfolio as on 29th April 2016.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Flexi cap funds continue to remain fully invested into equities except funds like Franklin India High Growth Companies
fund and ICICI Prudential Value Discovery fund which have relatively higher exposure to debt & cash. These funds have
exposure of around 9% and 10% respectively into debt & cash equivalent as of April 2016.
During the Month of April 2016, some of the funds have marginally reduced the exposure to equity stocks while,
increased the exposure to debt & cash as compared with March 2016 portfolio. SBI Magnum Multi Cap fund has around
7% exposure to small cap stocks, whereas, Franklin India High Growth Companies fund has marginal exposure of
around 1% to small cap stocks.
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49
Tax Planning - ELSS Funds
Returns (%) as on 31st May 2016. Returns are Absolute for < = 1yr and CAGR for > 1 Yr
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd,
refer http://www.icraonline.com/legal/standard-disclaimer.html)
Name of Scheme 1 yr 3 yr 5 Yrs Axis Long Term Equity Fund 0.18 26.30 19.91
Birla Sun Life Tax Relief 96 2.07 24.06 15.05
Franklin India Taxshield 1.47 22.32 15.56
Reliance Tax Saver (ELSS) Fund -6.89 24.23 16.24
Invesco India Tax Plan 0.45 21.89 15.28
Tata India Tax Savings Fund (Div) 4.03 21.89 14.84
DSP BlackRock Tax Saver Fund 3.99 21.44 14.67
BNP Paribas Long Term Equity Fund -2.44 21.34 15.94
ICICI Prudential Long Term Equity Fund -0.59 21.41 13.71
IDFC Tax Advantage (ELSS) Fund -5.91 20.43 14.33
SBI Magnum Tax Gain Scheme 93 -3.70 18.77 13.44
Kotak Taxsaver -3.08 17.36 10.73
Nifty 50 -3.22 10.87 7.97
Objective Long-term Capital Appreciation & Tax Planning
Risk Medium to High
Investment Portfolio Equity & Equity Related instruments – Generally Large & Midcap stocks
Investment horizon Long Term ( Lock in period of 3 years) Tax Deduction- Sec 80 C * Investment up to Rs.1.50 Lakh Exempt from Tax
Tax Implications * Dividend-Tax Free Long Term Capital Gains – Tax Free
Particulars PPF** NSC** ELSS
Lock-in period - Years 15 5 3
Minimum Investment (Rs) 500 100 500
Max Investment for Tax Benefit (Rs) 1,50,000
Risk Low Risk Low Risk Medium to High
Returns 8.10% ^ 8.10% $ ^ 11% - 20% #
Interest Income / Dividend Tax Free Taxable Tax Free
#Returns (%) are historical for last 5 years (CAGR) as on 31st May 2016. $8.10%
compounded six monthly but payable at maturity. Moreover, past returns cannot be taken
as an indicator of future performance. ^Source: http://indiapost.gov.in, Rates incorporates
compounding wherever applicable. *As per current income tax rates individual falling in
highest tax bracket. Note:** Rates for PPF and NSC are applicable from 1st April 2016.
Comparison of ELSS V/S other tax savings instrument
As per Sec 80C of the Income Tax Act, qualifying investments up to a
maximum of Rs 1.50 Lakh are deductible from total income of the
individual.
Investment of Rs 1.50 Lakh in the qualifying investments, can save tax
upto Rs 46,350* as per the current income tax slab & rate for FY –2016
– 2017.
There are fixed income options available under section 80 C, but they
may not be able to provide returns commensurate to beat the inflation.
ELSS helps in tax planning as well as provides scope to benefit from
the long term growth potential of equities.
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50
Risk – Return Matrix of Large Cap & Flexi Cap Oriented Equity Funds
ICICI Prudential Value Discovery fund and
Franklin India High Growth Companies fund
are the best funds in terms of risk to return
matrix in the flexi Cap category.
Kotak Select Focus fund and SBI Bluechip
fund from large cap category have been able
to balance the risk return reward over the last
3 year period.
In terms of corpus size, ICICI Prudential
Value Discovery fund is the largest Flexi cap
recommended fund with the corpus of around
Rs. 11,904 Crs. (As on April 2016 ).
Bubble chart displays the positioning of the
schemes on risk (standard deviation) and
return parameters. The size of the bubble
indicates the corpus of the schemes. Funds
closer to X-Axis and away from Y-axis have
better risk adjusted returns. Data – Rolling
Returns.(3 Years, 3 Months) – As on 31st May
2016.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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Performance of Mid Cap Oriented Funds
The Mid Cap oriented recommended funds have outperformed not only the Mid Cap Index but also the broader indices like
Nifty 500 index and Nifty 50 index over the last 1 year and 2 – 5 years period .
Over the last 3 years, the recommended mid cap oriented funds have outperformed the Nifty Free Float Midcap 100 index. The
recommended funds rose by an average of close to 34% against the Nifty Free Float Midcap 100 index which delivered close
to 19% returns. Fund managers managing mid cap funds have been able to generate higher alpha through stock selection.
Currently, the mid cap stocks are trading at relatively higher valuations and are expected to remain volatile over the near term,
however, the mid cap stocks are expected to perform better over the longer period.
Returns (%) as on 31st May 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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52
Performance of Infrastructure Oriented Funds
The Central Government has raised hopes for the recovery in economy and investment cycle with help of higher spending and various reforms.
The Government‘s plan capital expenditure in FY16 rose by ~35% YoY (revised estimate) as compared to FY15 (actuals).
As per Road Transport and Highways Minister Nitin Gadkari, road construction in India has accelerated to an all-time high pace of
20 kilometres per day. The government has set a target to award projects worth Rs 3 trillion between May 2016 and May 2017. The Indian
Railway is also firming up a plan for infrastructure development with an ambitious target of pumping in more than Rs 8 trillion over the next four
years.
UDAY (Ujwal DISCOM Assurance Yojana) for financial turnaround of Power Distribution Companies - to benefit the entire power chain. The
government has also planned 100% village electrification by 1st May, 2018.
Government has committed Rs.4 trillion to states under AMRUT, Smart City Mission and for construction of 20 mn houses for urban poor under
Prime Minister‘s Awas Yojana (Urban).
Average returns of the recommended Infrastructure funds have significantly outperformed not only the Nifty 50 index but also the Nifty
Infrastructure index over the last two and three years period and expected to perform better over the long term investment horizon.
Returns (%) as on 31st May 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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Invest in Balanced Funds for diversification
Balanced funds are hybrid funds. The primary investment is into equities which broadly remains in range of 65% to 75%, while the balance is invested into
debt securities.
During the bull run, the funds might under perform the pure equity diversified funds as these funds tend to have some exposure into debt instruments. The
funds maintain a balance between equity and debt investment and there by help in reducing the overall risk of the portfolio as compared to equity funds.
In general, the equity investment strategy can be an active management strategy across market capitalization. The Debt investment strategy can be across
fixed income securities including G-secs. Certain funds dynamically manage the equity and debt exposure. The debt portfolio helps the funds during the fall in
equity market and reduces the overall beta of the portfolio. Also, the bond portfolio is expected to generate capital gains in a falling interest rate scenario.
The recommended balance funds have significantly outperformed Nifty 50 index and Crisil Balanced Fund index over the last 1, 3 and 5 years. The
recommended balanced funds on an average have delivered about 19% returns over the past 3 years, whereas Nifty 50 index and Crisil Balanced fund index
have delivered average returns close to 11% and 10% respectively during the same period.
Balanced funds are subject to equity taxation. The short term capital gains tax on investments up to 12 months are taxed at 15% (excluding cess and
surcharge) and there is nil tax on investments held for more than a year. Dividends declared by equity oriented balanced funds are tax free.
Scheme Name (YTM)
%*
Average*
Maturity
(years)
Modified*
Duration
(years)
1 Y % 3 Y % 5 Y %
L&T India Prudence Fund 7.89 6.39 4.41 2.33 20.22 14.45
SBI Magnum Balanced Fund 8.26 6.81 4.40 2.57 19.23 14.65
Tata Balanced Fund - Reg 7.48 5.47 3.62 -0.75 19.71 15.42
ICICI Prudential Balanced 8.18 8.57 4.63 0.60 18.24 14.91
HDFC Prudence Fund 8.28 15.75 7.23 0.05 17.30 11.88
HDFC Balanced Fund 7.72 13.67 7.08 3.14 21.28 14.42
Franklin India Balanced Fund 7.79 12.92 7.15 3.00 18.71 14.00
ICICI PruBal Advantage Fund 6.87 4.72 2.83 4.17 15.85 13.86
Birla Sun Life Balanced 95 8.05 17.98 7.67 4.04 18.90 13.52
Reliance RSF - Balanced 8.35 2.45 1.94 4.24 18.69 13.52
CRISIL Balanced Fund -
Aggressive Index -- -- -- 1.15 10.11 8.65
*Portfolio data are as on 29th April 2016. Returns (%) as on 31st May 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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54
Arbitrage Funds: Introduction and Advantages
Buying the securities in one market and selling the same in another market simultaneously to take advantage of
a temporary price differential is called arbitrage.
E.g. Assume stock price of ABC Ltd is at Rs.190/‐ in the cash
market. This stock is also traded in the derivatives segment,
where its future price is Rs.197/‐ In such a case, one can
make a risk‐free profit by selling a futures contract of ABC Ltd
at Rs.197/‐ and simultaneously buy an equivalent number of
shares in the equity market at Rs190/-.
On settlement day, it wouldn‘t matter which direction the stock
price has taken in the interim. Because on the expiry day
(settlement date) the price of equity shares and their futures
tend to converge.
As seen in the above graph, the cash market price converges with the futures price at the end of the month.
Note: The above simulation is for illustration purposes only and should not be constructed as a promise or minimum returns or safeguard of capital.
Source: HDFC Mutual Fund
Advantages:
Generate income through arbitrage opportunities arising out
of pricing mismatch in a security between different markets
or as a result of special situations.
Completely hedged positions, neutralizes market risk
(volatility) and targets absolute returns irrespective of market
conditions.
Enhance portfolio returns using different trading strategies
within derivatives segment.
Balance of safety, returns and liquidity
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55
Equity Savings Fund - Positioned Between MIP & Balance Fund
Key Advantages of Equity Savings Fund:
Introduction:
The Equity Savings funds endeavors to provide moderate volatility and regular income through investment into arbitrage
opportunities and fixed income securities. At the same time, to provide a higher growth potential as compared to an arbitrage
fund or a debt fund, the fund also invests some exposure into equity stocks. Thus, the equity exposure including equity
arbitrage allocation would be more than 65%, hence equity taxation would be applicable.
However, with higher equity allocation, the volatility of these funds are higher as compared to MIP or pure debt
funds.
Tactical Equity Allocation: Potential capital
appreciation through tactical allocation in Equity
Market
Aims at Regular Income: Regular income through
investments in Fixed Income and Arbitrage
Opportunities
Tax Advantage: The Equity Savings fund are
applicable for equity taxation even with moderate
participation in pure equity.
Diversification: The Equity Savings fund have well
diversified portfolio by investing in different asset
classes like Equities, Equity Arbitrage Opportunities,
and Fixed income.
Equity Savings Fund
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56
Recommended Equity Mutual Funds – Performance
Theme Scheme Name 1M 3M 6M 1Y 2Y 3Y
Large Cap, Aggressive Kotak Select Focus Fund - Reg - Growth 3.42 16.81 1.91 1.82 17.46 21.67
Large Cap, Aggressive BNP Paribas Equity Fund - Growth 1.47 15.86 1.30 -2.40 15.02 18.99
Large Cap, Aggressive DSP BlackRock Focus 25 Fund - Growth 1.66 16.80 0.76 -2.73 16.61 19.05
Large Cap, Conservative Franklin India Prima Plus - Growth 2.72 16.73 3.45 1.98 19.70 22.65
Large Cap, Conservative SBI Bluechip Fund - Growth 4.19 17.40 5.33 5.06 19.15 20.97
Large Cap, Conservative Birla Sun Life Frontline Equity Fund - Reg - Growth 3.74 17.28 3.93 0.92 12.68 18.36
Flexi Cap, Aggressive Franklin India High Growth Companies Fund - Growth 2.63 19.06 -2.22 -2.92 21.95 26.61
Flexi Cap, Aggressive DSP BlackRock Opportunities Fund - Reg - Growth 3.18 20.31 1.95 3.64 16.40 19.93
Flexi Cap, Conservative ICICI Prudential Value Discovery Fund - Growth 1.68 16.91 -0.92 -1.07 17.48 28.06
Flexi Cap, Conservative SBI Magnum Multi Cap Fund - Growth 3.41 19.00 4.07 5.62 21.22 22.95
Flexi Cap, Conservative ICICI Prudential Multicap Fund - Growth 1.47 15.32 -0.53 0.19 13.93 19.65
Flexi Cap, Conservative HDFC Capital Builder Fund - Growth 2.49 19.47 -0.34 1.11 13.47 20.67
Mid Cap, Aggressive SBI Magnum Midcap Fund - Growth 3.81 20.76 5.44 7.73 28.64 34.62
Mid Cap, Aggressive Reliance Small Cap Fund - Growth 1.55 18.28 -5.29 7.38 25.44 40.00
Mid Cap, Aggressive Franklin India Prima Fund - Growth 3.54 18.70 4.20 4.79 24.11 29.77
Mid Cap, Aggressive HDFC Mid-Cap Opportunities Fund - Growth 2.72 18.15 1.68 2.13 20.43 28.84
Infra Sector, Aggressive L&T Infrastructure Fund - Reg - Growth 1.51 19.09 -3.96 -4.89 8.36 21.27
Aggressive Balanced Fund Tata Balanced Fund - Reg - Growth 2.24 12.58 1.13 -0.75 16.46 19.71
Aggressive Balanced Fund HDFC Prudence Fund - Growth 2.73 15.12 2.76 3.14 15.09 21.28
Conservative Balanced Fund Franklin India Balanced Fund - Growth 1.93 12.47 3.53 3.00 18.04 18.71
Active Balanced Fund ICICI Prudential Balanced Advantage Fund - Reg - Growth 2.15 12.86 1.75 4.17 11.92 15.85
Nifty 50 3.83 16.79 2.83 -3.22 6.22 10.87
Nifty Free Float Midcap 100 0.71 15.00 0.33 0.84 14.45 19.32
S&P BSE 200 3.53 16.83 2.30 -2.53 7.99 12.62
Nifty Infrastructure 4.23 21.77 -0.64 -14.39 -6.67 5.55
CRISIL Balanced Fund - Aggressive Index 2.75 11.97 3.60 1.15 7.99 10.11
Returns (%) as on 31st May 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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57
Fixed Income Options
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58
Performance of some recommended Short Term Funds
Scheme Name
AAA or
Equivalent
(%)
Avg.
Maturity
(Yrs)
Portfolio
YTM (%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years
Birla Sun Life Treasury Optimizer Plan - Reg -
Growth 91.00 5.09 8.07 3.52 4.92 9.06 10.09
ICICI Prudential STP - Growth 85.19 3.56 8.10 3.27 4.57 8.59 9.34
HDFC Short Term Plan - Growth 27.51 1.81 9.67 2.82 4.55 9.42 9.93
HDFC Short Term Opportunities Fund - Growth 85.49 1.60 8.06 2.62 4.08 8.49 9.08
Reliance Short Term Fund - Growth 85.86 2.96 8.09 2.74 4.16 8.24 9.11
Crisil Short Term Bond Fund Index -- -- -- 2.61 4.26 8.56 9.19
Crisil Composite Bond Fund Index -- -- -- 3.34 4.58 8.88 10.53
Returns (%) as on 31st May 2016. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio data are as on 29th April 2016
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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59
Performance of some recommended Income Funds
Scheme Name
AAA or
Equivalent
(%)
Avg.
Maturity
(Yrs)
Portfolio
YTM (%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years
Birla Sun Life Dynamic Bond Fund - Ret - Growth 91.95 20.93 7.79 4.86 4.79 8.46 10.80
ICICI Prudential LTP - Growth 100.00 11.36 7.68 5.41 5.28 8.39 11.22
ICICI Prudential Income Opportunities Fund - Growth 100.00 6.14 8.15 3.67 3.83 8.15 10.43
UTI Dynamic Bond Fund - Reg - Growth 97.39 8.48 7.92 2.97 3.72 7.18 9.46
IDFC SSIF - MTP - Reg - Growth 97.69 2.60 7.93 2.73 3.97 7.80 8.80
Crisil Short Term Bond Fund Index -- -- -- 2.61 4.26 8.56 9.19
Crisil Composite Bond Fund Index -- -- -- 3.34 4.58 8.88 10.53
Returns (%) as on 31st May 2016. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio data are as on 29th April 2016
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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Performance of some recommended MIPs
Scheme Names
AAA or
Equivalent
(%)
Avg.
Maturity
(Yrs)
Debt
Allocation
(%)
Equity
Allocation
(%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years
Kotak Monthly Income Plan - Reg
- Growth 80.80 7.65 80.80 19.20 7.69 4.57 7.14 10.54
UTI - MIS - Advantage Fund -
Growth 66.56 4.57 74.94 25.06 6.15 4.29 6.46 11.09
Birla Sun Life MIP II - Wealth 25 -
Reg - Growth 66.60 17.15 70.50 29.50 9.07 4.27 5.03 13.07
Birla Sun Life MIP II - Savings 5 -
Reg - Growth 80.43 13.99 90.11 9.89 5.38 4.64 7.57 10.83
UTI Monthly Income Scheme -
Growth 69.97 4.65 85.20 14.80 5.23 3.87 5.81 9.06
Crisil MIP Blended Index -- -- -- -- 5.30 4.41 7.16 10.03
Returns (%) as on 31st May 2016. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio data are as on 29th April 2016
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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61
Disclaimer:
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This note has been prepared exclusively for the benefit and internal use of the recipient and does not carry any right of reproduction or disclosure. Neither this note nor any
of its contents maybe used for any other purpose without the prior written consent of HDFC Bank Ltd, Investment Advisory Group. In preparing this note, we have relied
upon and assumed, without any independent verification, accuracy and completeness of all information available in public domain or from sources considered reliable.
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change. Computations adopted in this note are indicative and are based on current market prices and general market sentiment. No representation or warranty is given by
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business, financial, legal, taxation, or other matters and they are advised to consult their own business, financial, legal, taxation and other experts / advisors concerning the
company regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this note and should understand that
statements regarding future prospects may not be realized. It may be noted that investments in equity and equity-related securities involve a degree of risk and investors
should not invest any funds unless they can afford to take the risk of losing their investment. Investors are advised to undertake necessary due diligence before making an
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