Alpha edge - September 2016

www.citadelle.in

Questions

Insight

Analysis

Action

“This time is different…?”

India Strategy | September 2016

September 2016 3

This time is different…? India Strategy | September, 2016

Foreword

Another month with markets in a quandary over valuations of Indian markets seem to end. The

month saw Equity markets continuing their uptrend with Nifty ending 1.7 percent higher for the

month. FII’s pumped in almost $1.6 billion in the Indian markets for the month thanks to the

freely available cash across the world.

The world is struggling with reviving the growth and at the same time getting addicted to the

steroid called credit while eagerly awaiting for what is called as the helicopter money. The worrying fact is that all of this has

failed to produce the desired results and could lead into a liquidity trap, even as broad based markets are touching new highs

and shrugging the bad news. Now with Fed stating that they are closer to resuming the hikes again, it could lead to a

rationalizing of the overpriced markets around the world and we may see ‘flight to safety’ back in the game.

Despite the Modi euphoria two years back, the economic growth that we have witnessed can be best described as chugging

along. This, despite several initiatives taken by the government. Although macro-economic factors are in a better shape as

compared to 2-3 years back, the growth witnessed has been much slower than what was anticipated. The economy has been

a witness to what we would call a two-speed recovery: Where consumption has done well, but investment has not. Public

expenditure alone can only do so much to revive the economy. However, for the recovery to become more sustainable, the

growth balance needs to shift more in favour of investment, mostly private investments.

Indian markets have been far from immune to the massive flows of liquidity coming from FII’s, thanks to the unconventional

policies worldwide. Nifty is now within kissing distance of its all-time high as we come close to the end of a stretched earnings

season. Nifty companies’ earnings (45 companies that have declared results) have fallen by 3 percent with a revenue

growth of 4 percent. Markets entered the June quarter earnings season with higher earnings expectations, as the March

results indicated hopes of recovery. However that doesn’t seem to be the case. We have seen Nifty touching new recent highs

alongside downward revision in earnings estimate. This tells us that gap is widening between the prices and the fundamentals.

There still are few positives to look forward to viz. effect of good monsoons resulting in higher rural demand, further increase

in urban demand thanks to seventh pay commission and passing of the GST bill in the upper house and expectations of

reduction in interest rates. The Indian market has largely discounted all the positive benefits well before the actual events

(GST implementation and lower inflation leading to interest rate cuts). The current estimates of earnings growth is around 17

percent, which could only mean that we may see further earnings downgrade as markets come to terms with the reality.

In our opinion, the gap between reality (earnings) and perception (valuations) is eye popping, where the only game in town is

to follow liquidity. SIPs are anecdotally pumping in around 4000 crs every month, mostly going into mid-cap funds. No wonder

the Mid & Small cap index is above 35 PE and going strong. FIIs continue to pump in billions by the month. Justifying the

moolah as world is staring at negative yields abroad with no low growth, whereas India is still yielding 7% while growing at

7.10%. Never mind the flattish EPS growth which Buffet always side will determine the prices eventually. We have no

arguments with the market inching up relentlessly, just old fashioned worry enough, to step aside soon. We don’t think that it

will be different this time.. because it never is !

Warm Regards,

A V Srikanth

September 2016 4

Alpha Edge | “This time is different…?”

Asset Class performance

Asset Class returns for August 2016

Source: Bloomberg

The foreign flows have continued their spree in equity markets in spite of High valuations and subdued earnings season. Riding on the back of this liquidity, Equity markets have gained 1.7% last month.

Gold has been lagging behind as the month has seen some risk on trades globally and lost 0.49% in the month of August.

FII Flows for Calendar Year 2016

Source: ACEMF

FII’s seems to be undeterred of the high valuations and have continued their buying spree in the month of August with another Rs 9,017 Crs foreign money flowing

into the markets. MF’s continued to be net buyers for a consecutive month.

Flows in Rs cr August 2016

July 2016

Mutual Funds (MFs)

2,717 (33.50)

Foreign Institutional Investors (FIIs)

9,785 11,130

Sector Returns for August 2016

Source: Bloomberg

Metals, Bankex & Oil have been outperformers for

August 2016. Realty, IT and Teck have been the laggards

during the same period.

1.71%1.88%

0.56%

-0.49%-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

Equity 10 yrTreasuries

Cash Gold

Asset Class Returns For August 2016

Equity 10 yr Treasuries Cash Gold

47 3771

-53

83133

-3

128 113 97

18 41

-6

4

9

12

5

46

42

35

-51

160

46

-7

-100

-50

0

50

100

150

200

250

300

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

FII F

low

s (i

n `

00

0 C

rs)

Equity Debt

-4.0

-3.5

-3.3

-1.7

-0.8

0.6

1.1

1.1

1.4

2.8

4.3

4.4

4.4

4.5

4.5

5.7

-14.0 0.0 14.0

S&P BSE Realty Index

S&P BSE IT

S&P BSE TECk Index

S&P BSE Capital Goods

S&P BSE Health Care

S&P BSE Consumer Durables

S&P BSE Power Index

S&P BSE FMCG

S&P BSE SENSEX

S&P BSE Small-Cap

S&P BSE AUTO Index

S&P BSE Mid-Cap

S&P BSE PSU

S&P BSE OIL & GAS Index

S&P BSE BANKEX

S&P BSE METAL Index

Sector Returns for August 2016(%)

September 2016 5


-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

Oct

-12

Feb

-13

Jun

-13

Oct

-13

Feb

-14

Jun

-14

Oct

-14

Feb

-15

Jun

-15

Oct

-15

Feb

-16

Jun

-16

US Inflation

Global Economy

Fed sees stronger case for rate hike – Attempt to

realign market’s expectation?

The Fed raised rates by 25 bps, from zero, in

December last year but has remained on hold since

then due to various concerns relating to disruptions

in global markets, inconsistent jobs report and a

potential fallout from Britain’s exit from the EU. In

recent times Fed has lost credibility with regards to

its statements on its rate hike timings and

comments on US economy which led the markets to

price a far lesser number of rate hikes as compared

to what was implied in Fed’s statements.

In its recent meeting, the Fed mentioned that the

case for a rate hike has grown stronger. Yellen

mentioned that a lot of new jobs were being

created (Even though the latest number was

disappointing) and economic growth would

continue at a moderate pace. US economy has been

showing slow improvements, although the growth

rate of second quarter GDP was revised down

slightly, from an annual rate of 1.2% to 1.1%.

Consumer spending - which makes up more than

two-thirds of US economic activity - was revised up

from 4.2% to 4.4%. The progress of inflation

towards its goal of 2 percent has been slow too.

In the recent past when it comes to a hike in

interest rates, the Fed has been hostage to market’s

expectations and has rarely hiked rates without Fed

fund futures reflecting a roughly 70% chance of an

increase. Whereas, Fed futures rate currently are

reflecting a 33 percent chances of a hike in

September followed by 36 percent in November

and 44 percent in December. The recent statements

from Fed seem to be an attempt to realign market’s

expectations with that of Fed. If not September,

Fed’s attempt could be to warm the markets for a

December hike.

US GDP moderating

Japanese inflation slows down

Japan's consumer prices dropped for the fifth

consecutive month in July, adding to pressure on

the government to expand its already massive

stimulus programme. The consumer price index,

which excludes volatile food prices, fell by 0.5%

compared with a year earlier. Japan has been trying

to raise inflation for years to stimulate spending and

boost the economy. The disappointing data comes

on the heels of weaker-than-expected economic

growth released earlier this month and despite an

aggressive spending policy by the government. Last

month Prime Minister Shinzo Abe had announced

the latest stimulus effort, a massive new package

worth 28 trillion yen.

Last month we had assumed that the BoJ would

refrain from further rate cuts and although that has

proven correct with the central bank disappointing

expectations of easing in July, there may be further

actions from BoJ given the dismal inflation number.

3.14

-1.2

45

2.3 22.6

2

0.9 0.8 1.2

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

US GDP

September 2016 6


The forthcoming review of monetary policy is

expected to deliver more easing when the BoJ

meets on 20–21 September. Although efficacy of

the same would be questionable as the BoJ is

already close to full tilt with monetary policy, but

markets would see this as another step on the long

march toward helicopter money. These

expectations have resulted in JPY weakening again.

We believe that Japan’s last 41 months of

Abenomics prove that Japanese deflation is more

about demographics and structural rigidities than

the money supply and the same could be solved by

reducing regulations, loosening labor markets and

imported foreign talent

Global economy – Outlook

Recently the global growth forecast has been

revised downwards again by various entities.

Disappointing growth in the developed markets

(DM) is driving the downgrades. By way of contrast

there are signs of revival in the EM with the

purchasing managers’ index picking up in June and

July following a period in the doldrums

Global recovery has been sluggish despite the lower

rates and the liquidity floating in the world. As we

have discussed in our earlier notes that there are

limits to what monetary policy can and should do.

The burden must also fall on fiscal and other policies

to do their part to help create conditions conducive

to economic stability. Central bankers should stop

pushing rates down. Governments should create a

fiscal stimulus focused on boosting demand.

Indian Economy

IIP numbers better..but quality a concern

Showing further recovery, IIP for June came in at 2.1

per cent as against the backdrop of a 1.1 per cent

growth in May this year, and 4.2 per cent rise in the

corresponding month of the previous year. Among

the three major sub-indices of the IIP, electricity

expanded the fastest by 8.3 per cent, followed by 4.7

per cent for mining, while the manufacturing index,

that has the maximum weight of over 75 per cent,

grew at a relatively lower pace of 0.9 per cent.

While the IIP reported an uptick for a second

consecutive month, capital goods output, a

barometer of investment and demand contracted for

the eighth month in a row questioning the quality of

growth. Manufacturing output increased to 0.9 per

cent year-on-year in June 2016, from 0.6 per cent in

the previous month.

Key factor that is needed right now for a sustained IIP

growth is investment recovery. Even though the

government has stepped up on public expenditures

and taken several initiatives to revive the private

investment and along with it the manufacturing

growth, all this does not seem to ignite the growth.

Government expenditure can only play a limited role

in reviving the economy the burden needs to be

taken by private investment too as it constitutes

major part of the economy. Private sector is currently

saddled with higher debt and lower capacity

utilization which means significant growth in private

investment is still sometime away.

0.2

0

0.3 0.30.2

0

0.3

-0.1

-0.3-0.4 -0.4 -0.4

Japan Inflation

9095

100105110115120125

USD JPY

September 2016 7


India’s Q1 GDP growth slows and fiscal deficit

reaches at 73.3% of budget estimates

India’s Q1 GDP recorded a significant slowdown,

growing 7.1% year-on-year compared to 7.9% in the

first quarter. Growth of 7.6% was the general

expectation. The government’s another preferred

measure, Gross Value Added - GVA - (GDP plus taxes

and less subsidies) slowed by less, slipping to 7.3%

from 7.4%. Also, India's fiscal deficit during April-July

was 3.93 trillion rupees ($58.69 billion), or 73.7

percent of the budgeted target for the fiscal year

ending in March 2017, leaving room for fiscal

slippage as Govt may decide to spend more and

counter the lack of Pvt Sector investment later on.

The deficit was 69.3 percent during the same period

a year ago and what followed was a tepid second half

of Govt expenditure.

Uninspiring higher frequency data is now matching

the headline story told by GDP. Gross fixed capital

formation declined by 3.1 percent from a year earlier

in the June quarter which is not encouraging. Since

taking office in 2014, Modi has taken a raft of

measures to attract foreign investors and revive

listless domestic investment. But those initiatives

have not yet succeeded in convincing cautious

companies to commit to fresh capital spending.

Growth during the June quarter was driven by

government spending. Private spending which rose

6.7 percent YoY in the latest quarter, was slower than

the 6.9 percent expansion in the same period a year

ago. The slowdown in private spending is more than

offset a 19 percent annual surge in public spending,

but may not continue as most of Govt spend seems

front loaded. Going forward, private consumption

may continue to grow, however, higher inflation and

bottoming out of commodity prices may put

limitation to this growth. Industrial growth needs fall

in place. Rural consumption that has been lagging, is

set to change with the good monsoon this year

We do expect further growth in consumption in over

a quarter or two once the effect of rural monsoons

and 7th pay commission percolates. Another

important development, even though it may not

impact the economy in the short term, is the passing

of the GST bill which would benefit the economy over

medium to long term, which should generate

improved business sentiment and investment

-5.0

0.0

5.0

10.0

15.0

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

IIP

IIP 6m moving average

-10

-5

0

5

10

15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Manufacturing activity

5 4.6

7 7.56.4 6.7 6.7

8.47.1 7.5 7.5 7.6 7.2

7.97.1

Dec

-12

Mar

-13

Jun

-13

Sep

-13

Dec

-13

Mar

-14

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

India GDP

-30-20-10

0102030

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Capital Goods

September 2016 8


Gold and oil imports drive down trade deficit

India's trade deficit narrowed to $7.75 billion in July

2016, helped by a 19.03 per cent fall in monthly

imports. This was primarily facilitated by a near

halving of gold imports to $1.08 billion and a 28 per

cent fall in the value of oil imports to $6.82 billion –

the two major high-value items in the country's

import basket. Exports of the country stood at

$21.70 billion in July 2016, down 6.84 per cent.

Equity

For the month, Nifty closed at a new recent

monthly closing high, gaining 1.71% vs 4.23%

previous month thanks to the free money floating

around the world. CNX midcap had another stellar

month ending up by 4.05% vs 6.92% for the

previous month resulting in widening of midcap

premium over large caps taking it to historic highs.

Small cap index took a breather with gains of 1.41%

as against 4.7% gains for the previous month.

India VIX makes new 2016 low

The India VIX, which measures the implied volatility

of Nifty 50 options has made a new 52 week low.

Such low volatility in the markets are generally

followed by periods of increase in volatility, the

correlation of volatility index and equity prices is

mostly negative. The last time when VIX levels were

at these levels was in December 2014, couple of

months before the markets peaked out.

Nifty midcap premium soars to historic highs

Small and midcap stocks have managed to

outperform its larger peers by a wide margin in the

last 1 year. Where Nifty in the last 1 year has

delivered 10.22 percent returns whereas Midcap

index and small cap index have delivered a stellar

17.7 percent and 19.4 percent. However, earnings

of midcaps have disappointed as compared to large

caps. This has NOT made everyone wary of the fact

that the party could end soon, given the valuation

premium of midcaps over large caps is increasing

without growth in earnings.

In terms of valuations the premium of midcap index

to nifty is amongst the highest in recent times. After

a scorching performance, the Nifty Midcap 100 now

trades at a P/E of 32x compared to 22x for the Nifty.

The valuations in the midcap segment of the market

have reached the levels seen in early 2008.

Even though the midcap segment is expected to

give higher growth from a medium to long term

horizon when compared to large caps, however,

current valuations are overdoing the hopes of

recovery in midcaps. Valuations would need to

rationalize a lot either through price correction or

earnings growth for midcaps to deliver medium

term value. The strong liquidity flows that has

seeped in has created froth as people are running

out of options of investing in good companies in this

space.

-25

0

25

50

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Exports Imports Trade Balance

0

5

10

15

20

25

30

35

40

India VIX

September 2016 9


Earnings update

As the earnings season has stretched on for the

June quarter, markets seems to be divided over

whether to give more weightage to the hope story

or trailing performance. Markets are divided over

whether there will come a big correction or

whether markets would take a breather for a long

haul. As far as the current quarter’s earnings are

concerned the results have been mixed bag and the

quality of earnings is quite under whelming which

makes us question the sustenance of the growth.

With current quarter’s earnings ending up lower it

would only mean we would need much higher

growth numbers to achieve the current expected

FY17 growth number which is currently at around

17%. Else, we may see further downgrades as

people come to terms that the picture isn’t as ‘rosy’

as it was hoped it would be. Same as in 2015.

As far as Nifty is concerned around 45 companies

have declared results with aggregate profits falling 3

percent. Earnings for same companies in March

quarter were higher at 3.45 percent compared to

the results that have been declared so far. 26 out of

30 companies of Sensex have declared the results

and the picture there too is not better with profits

falling 6.65 percent while it was positive 8.6 percent

for last quarter.

Banks have been the worst performers with a de

growth of 63%, still marred by NPA issues. IT

companies have grown around 10% vs 31% for the

previous quarter. Healthcare PAT grew by 15

percent, FMCG grew 19 percent

March numbers offered some ray of hope of an

economic recovery in sight, however the June

numbers are now taming those hopes. The reasons

behind March numbers were lower input costs

helping companies with better margins and hence

better profits. However with global commodity

prices now bottoming out and crude almost

doubling in last 4 months the leverage of lower cost

is not high as it was for the last year.

Earnings Outlook

As far as the outlook is concerned it is important to

note that the trend of higher margins triggered by

the fall in commodity prices is almost over. Earnings

growth now has to percolate from higher volume

growth. We will see volume growth divergence in

companies focused on domestic demand and

companies focused on global demand. There still

would be sluggishness in global growth and hence

volumes of companies dependent on global factors

would continue to be weak. As far as domestic

consumption is concerned we will see continued

improvements in the same. Factors that would

contribute to further increase in domestic demand

are normal monsoons after two drought years

which would lead to higher rural demand. 7th pay

commission salary hikes and arrears would start

coming in the hands of consumers which would

result in higher discretionary spend and higher

urban demand. The sectors that would do well as a

result of the same would be Consumer discretionary

– specially two wheelers, Private banks, NBFC’s,

cement and paint companies etc.

With respect to valuations Nifty standalone PE is

now above 24 levels and with a lack of growth this

quarter every price increase has resulted in increase

in valuations. Markets have priced all the good news

like good monsoon, seventh pay commission lead

consumption growth, GST bill getting passed etc.

and have kept the bad news like Brexit, lack of

growth in earnings etc. at bay. Considering the

growth numbers and the premium that is being

assigned to the Indian markets, things are not

adding up correctly. We did see the long awaited

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

Midcap to largecap premium

Midcap Premium average

September 2016 10


GST policy finally passed in the upper house,

heralding another era of new reform. It also shows

that the reform potential for India still is not quite

over and we think that is still quite good news for

India. Overall, it does still show that there is

progress on the ease of doing business in India

which should be a fairly positive bet in the medium

to long term. Yes, we will surely see growth sooner

or later however, over pricing for growth currently

could lead to under paying for future high growth.

Paying a premium for lower growth?

Debt

India Consumer Inflation inches up

Consumer prices rose at a faster-than-expected

pace to 6.07 percent last month from a year ago, up

from June's 5.77 percent annual gain. General

expectation of retail inflation was to come in at 5.90

percent. It was the fourth straight month where the

reading came in above RBI’s target rate of 5% by

March 2017. Retail food prices surged 8.35 percent

year-on-year last month, much faster than a 7.79

percent annual increase in June. However the

expectations are that in the coming months the

food inflation number should moderate thanks to

normal monsoons after two years of drought. The

same is evident in fall in wholesale prices of pulses

and vegetables. While some respite was seen in fuel

and services, the rise in food inflation persisted. The

gap between urban (5.4%) and rural (6.7%) inflation

widened further.

Wholesale price inflation rose to 3.6 per cent in July,

a 23-month high, driven mainly by inflation in the

food category, which rose to double digits for the

first time since December 2013. The wholesale price

index nearly doubled its growth rate in July as

compared to the 1.62 per cent its saw in June,

making it even more difficult for the Reserve Bank

of India to cut interest rates anytime soon. Food

inflation came in at a blistering 11.8 per cent, the

highest it has been in 31 months, up from the 8.2

per cent seen in June.

A good monsoon may help in curbing the rural

inflation however it may be offset by increase in

urban inflation thanks to seventh pay commission.

What’s more is that the government may be forced

to relax its deficit targets given the burden of

seventh pay commission and the fact that 5 months

in to the financial year and we have already reached

73.3 percent of target deficit. A loose fiscal stance

could lead to a rise in inflation expectation. Hence,

it will be important to see how the government

manages the deficit target.

Government appoints new central banker

The Indian government’s decision to appoint the

current deputy governor at the Reserve Bank of

India to become the country’s next central banker

has come in as a relief to many, for certain obvious

reasons. The decision comes after lot of drama that

has happened with worries about continuity of

Rajan’s fight against inflation and pro-saver policies.

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

0

5

10

15

20

25

30

Mar

-02

Ap

r-0

3

May

-04

Jun

-05

Jul-

06

Au

g-0

7

Sep

-08

Oct

-09

No

v-1

0

Dec

-11

Jan

-13

Feb

-14

Mar

-15

Ap

r-1

6

1 year Sensex EPS growth vs PE

Sensex PE (LHS) 1 year TTM EPS growth (RHS)

-10

-5

0

5

10

Au

g-1

4

Oct

-14

Dec

-14

Feb

-15

Ap

r-1

5

Jun

-15

Au

g-1

5

Oct

-15

Dec

-15

Feb

-16

Ap

r-1

6

Jun

-16

CPI and WPI

CPI WPI

September 2016 11


The more important reasons for relief would be that

appointment of choosing Mr.Patel suggests that the

government supports or at least is content to

continue with Rajan’s policies at the RBI, some of

which Patel himself helped to develop and

implement. Patel led the team that worked out how

to implement inflation targeting in India which was

later adopted by the government. There were

hopes and expectations built in to the yields, that

the successor that the government would appoint,

would be an inflation dove and hence faster interest

rate cuts would be the way forward. However, now

with Urjit Patel’s appointment all the hopes of

faster rate cuts could be abandoned as Patel himself

produced the target of four percent consumer price

inflation -- CPI currently tops 6 percent.

Outlook

Raghu Ram Rajan left the benchmark repurchase

rate unchanged at a five-year low of 6.50 percent at

his last monetary policy review. The monetary policy

stance remains accommodative, he said, while

flagging upside risks to inflation.

For the past few months we have seen a strong rally

in the yields thanks to expectations of a new central

banker who would be dovish, strong flows into fixed

income markets and expectations of a normal

monsoons pushing food inflation down. Most of the

decline in Indian yields came on the back of the rally

in developed-market bonds post the Brexit. Where

the expectations were that there would be more

loose monetary policy across the world. However,

Brexit jitters were blown over and the market is

coming to terms that monetary-policy easing is near

limits which could limit the flows in search of yields.

And with inflation proving a bit sticky and the new

RBI governor focused on continuing to break the

back of inflation, cut in interest rates would be at

much slower pace than expected. RBI’s target of

1.5%-2% of real return would prove to be difficult

given inflation stays elevated between 5%-6%.

Hence for several reasons as mentioned above RBI’s

focus would continue to be on improving systemic

liquidity and on transmission of rates.

6

7

8

9

10

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Repo vs Gsec

Gsec yield Repo Rate

September 2016 12


Citadelle Growth Opportunities Portfolio

Company Name 3 yr Avg ROE PAT 3yr CAGR Dividend Yield(%)

Star Rating

Ahluwalia Contracts (India) Ltd. 1.04 133.11 0.00

AIA Engineering Ltd. 19.71 33.44 0.64

Ajanta Pharma Ltd. 41.05 58.81 0.49

Aurobindo Pharma Ltd. 27.95 236.96 0.37

Avanti Feeds Ltd. 41.93 60.69 1.79

Bajaj Corp Ltd. 33.50 12.86 2.50

Bajaj Finance Ltd. 20.11 30.20 0.44

Bajaj Finserv Ltd. 27.26 8.42 0.13

Bosch Ltd. 17.71 6.01 0.33

Cadila Healthcare Ltd. 27.33 20.28 0.69

Caplin Point Laboratories Ltd. 49.84 72.28 0.54

CCL Products (India) Ltd. 21.00 37.34 0.84

Cholamandalam Investment & Finance Company Ltd. 17.88 37.96 0.60

DB Corp Ltd. 25.60 16.06 2.09

Gillette India Ltd. 14.84 27.78 0.33

Gujarat Pipavav Port Ltd. 15.43 89.17 0.00

Gulf Oil Lubricants India Ltd. 24.48 356.17 1.08

Himachal Futuristic Communications Ltd. 88.88 179.95 0.00

Honeywell Automation India Ltd. 12.70 2.15 0.15

JM Financial Ltd. 11.29 43.00 2.81

Kitex Garments Ltd. 36.80 53.67 0.23

KRBL Ltd. 23.73 63.85 1.02

Lupin Ltd. 30.37 40.13 0.37

Marksans Pharma Ltd. 39.39 117.64 0.19

Navneet Education Ltd. 26.35 18.83 2.22

Procter & Gamble Hygiene & Health Care Ltd. 30.49 24.03 0.45

Skipper Ltd. 19.20 107.95 0.85

Sonata Software Ltd. 15.69 204.12 3.93

Tata Elxsi Ltd. 28.13 38.09 0.95

Vinati Organics Ltd. 31.48 28.29 0.67

Note: Post changes in portfolio from 8th Jan ’16, portfolio construct has become more diversified, hence we have changed the benchmark to Nifty 500 from Nifty 50.

90%

10%

Citadelle Growth Opportunities Portfolio Current Asset Allocation

Equity Cash

91.80

82.6380859095

100105110115120

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Citadelle Growth Opportunities Portfolio Performance

Citadelle Growth Opportunities Portfolio NAV Benchmark*

122.04

106.17

80859095

100105110115120125

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-1

5Ja

n-1

6Fe

b-1

6M

ar-1

6A

pr-

16

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Citadelle Growth Opportunities Portfolio Performance

Citadelle Growth Opportunities Portfolio NAV Benchmark*

September 2016 13


Model Portfolio: Conservative

Conservative Market Cap wise (%)

Asset Class Sub-Asset Class Mutual Fund Schemes

Strategic

Tactical

Large cap Mid &

Small cap

Others

Equity - - PMS - - Large Cap - - ICICI Pru Focused BlueChip Eq Fund - - 82.4 9.4 8.2

Birla SL Frontline Equity Fund

- - 88.9 3.0 8.1

Mid & Small Cap - - BNP Paribas Mid Cap Fund - - 28.2 66.7 5.1

Edelweiss Emerging Leaders Fund - - 15.8 77.8 6.4

Mirae Asset Emerging BlueChip - - 30.3 65.7 4.0

Multi Cap - - MOSt Focused Multicap 35 Fund - - 87.8 12.1 0.0

Birla SL Pure Value Fund - - 17.4 76.0 6.6

Franklin India High Growth Cos Fund - - 57.3 24.9 17.8

Thematic / Sectoral Funds - - Equity Hybrid Funds - - Average

Maturity Years

Mod

Duration Years

YTM

(%)

Debt 90.0% 90.0% Short Term 30.0% 30.0% Axis Short Term Fund 10.0% 10.0% 2.0 1.6 7.9

Franklin India ST Income Plan 10.0% 10.0% 2.0 1.7 11.1

HDFC STP 10.0% 10.0% 1.8 1.5 9.6

Dynamic Bond Funds 30.0% 30.0% IDFC Dynamic Bond Fund 10.0% 10.0% 6.5 4.9 7.5

SBI Dynamic Bond 10.0% 10.0% 11.6 7.3 7.4

UTI Dynamic Bond Fund 10.0% 10.0% 11.4 5.8 8.1

Income Funds 30.0% 30.0% DHFL Pramerica Premier Bond Fund 10.0% 10.0% 3.6 2.7 8.2

HDFC Income Fund 10.0% 10.0% 16.7 8.3 7.9

UTI Bond Fund 10.0% 10.0% 11.4 5.8 8.1

Gilt - - Debt Hybrid Funds - -

Cash 5.0% 5.0% Ultra Short Term - - ICICIC Pru Ultra Short Term Fund 5.0% 5.0%

Gold 5.0% 5.0% Gold 5.0% 5.0% Total 100.0% 100.0%

0.0%

90.0%

5.0%5.0%

Strategic Portfolio

Equity Debt Cash Gold

0.0%

90.0%

5.0%5.0%

Tactical Portfolio


9095

100105110115120

Dec

-14

Feb

-15

Ap

r-1

5

Jun

-15

Au

g-1

5

Oct

-15

Dec

-15

Feb

-16

Ap

r-1

6

Jun

-16

Au

g-1

6

Conservative UCI Index

September 2016 14


Model Portfolio: Moderately Conservative

Mod Conservative Market Cap wise (%)


Strategic

Tactical

Large cap Mid &

Small cap

Others

Equity 25.0% 25.0% PMS - - Large Cap 25.0% 25.0% ICICI Pru Focused BlueChip Eq Fund 12.5% 12.5% 82.4 9.4 8.2


12.5% 12.5% 88.9 3.0 8.1

Mid & Small Cap - - BNP Paribas Mid Cap Fund - - 28.2 66.7 5.1


Mirae Asset Emerging BlueChip - - 30.3 65.7 4.0





Maturity Years

Mod

Duration Years

YTM

(%)



HDFC STP 10.0% 10.0% 1.8 1.5 9.6


SBI Dynamic Bond 10.0% 10.0% 11.6 7.3 7.4


Income Funds 5.0% 5.0% DHFL Pramerica Premier Bond Fund - - 3.6 2.7 8.2

HDFC Income Fund - - 16.7 8.3 7.9

UTI Bond Fund 5.0% 5.0% 11.4 5.8 8.1

Gilt - - Debt Hybrid Funds - -

Cash 5.0% 5.0% Ultra Short Term - - ICICIC Pru Ultra Short Term Fund 5.0% 5.0%

Gold 5.0% 5.0% Gold 5.0% 5.0% Total 100.0% 100.0%

80

100

120

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-1

5Ja

n-1

6Fe

b-1

6M

ar-1

6A

pr-

16

Mod Conservative

25.0%

65.0%

5.0%5.0%

Strategic Portfolio


25.0%

65.0%

5.0%5.0%

Tactical Portfolio


9095

100105110115120

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Mod Conservative UCI Index

September 2016 15


Model Portfolio: Balanced

Balanced Market Cap wise (%)


Strategic

Tactical

Large cap Mid & Small cap

Others



15.0% 15.0% 88.9 3.0 8.1

Mid & Small Cap 15.0% 10.0% BNP Paribas Mid Cap Fund 7.5% 5.0% 28.2 66.7 5.1


Mirae Asset Emerging BlueChip 7.5% 5.0% 30.3 65.7 4.0





Maturity Years

Mod Duration Years

YTM (%)



HDFC STP 10.0% 10.0% 1.8 1.5 9.6


SBI Dynamic Bond - - 11.6 7.3 7.4


Income Funds - - DHFL Pramerica Premier Bond Fund - - 3.6 2.7 8.2


UTI Bond Fund - - 11.4 5.8 8.1

Gilt - - Debt Hybrid Funds - - DSPBR Dynamic Asset Allocation Fund - - - - -

Cash - 5.0% Ultra Short Term - 5.0% ICICIC Pru Ultra Short Term Fund - 5.0%

Gold 10.0% 10.0% Gold 100.0% 100.0%

45.0%

45.0%

0.0%

10.0%

Strategic Portfolio


40.0%

45.0%

5.0%10.0%

Tactical Portfolio


859095

100105110115120

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Balanced UCI Index

September 2016 16


Model Portfolio: Moderately Aggressive

Mod Aggressive Market Cap wise (%)


Strategic

Tactical


Others



15.0% 15.0% 88.9 3.0 8.1


Edelweiss Emerging Leaders Fund 10.0% 6.0% 15.8 77.8 6.4


Multi Cap 10.0% 10.0% MOSt Focused Multicap 35 Fund 10.0% 10.0% 87.8 12.1 0.0




Maturity Years

Mod Duration Years

YTM (%)



HDFC STP - - 1.8 1.5 9.6

Dynamic Bond Funds - - IDFC Dynamic Bond Fund - - 6.5 4.9 7.5


UTI Dynamic Bond Fund - - 11.4 5.8 8.1



UTI Bond Fund - - 11.4 5.8 8.1


Cash - 12.0%

Ultra Short Term - 12.0% ICICIC Pru Ultra Short Term Fund - 12.0%

Gold 10.0% 10.0%

Gold 10.0% 10.0% Total 100.0% 100.0%

70.0%

20.0%

0.0%10.0%

Strategic Portfolio


70.0%

25.0%

0.0%5.0%

Tactical Portfolio


70.0%

20.0%

0.0%10.0%

Tactical Portfolio


58.0%20.0%

12.0%

10.0%

Tactical Portfolio


80.0

90.0

100.0

110.0

120.0

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Mod Aggressive UCI Index

September 2016 17


Model Portfolio: Aggressive

Aggressive Market Cap wise (%)


Strategic

Tactical


Others



15.0% 15.0% 88.9 3.0 8.1


Edelweiss Emerging Leaders Fund 10.0% 6.6% 15.8 77.8 6.4


Multi Cap 30.0% 30.0% MOSt Focused Multicap 35 Fund 10.0% 10.0% 87.8 12.1 0.0

Birla SL Pure Value Fund 10.0% 10.0% 17.4 76.0 6.6

Franklin India High Growth Cos Fund 10.0% 10.0% 57.3 24.9 17.8


Maturity Years

Mod

Duration Years

YTM

(%)

Debt - - Short Term - - Axis Short Term Fund - - 2.0 1.6 7.9

Franklin India ST Income Plan - - 2.0 1.7 11.1

HDFC STP - - 1.8 1.5 9.6

Dynamic Bond Funds - - IDFC Dynamic Bond Fund - - 6.5 4.9 7.5


UTI Dynamic Bond Fund - - 11.4 5.8 8.1



UTI Bond Fund - - 11.4 5.8 8.1


Cash - 10.0% Ultra Short Term - 10.0% ICICIC Pru Ultra Short Term Fund - 10.0%

Gold 10.0% 10.0% Gold 10.0% 10.0% Total 100.0% 100.0%

90.0%

0.0%0.0%10.0%

Strategic Portfolio


80.0%

0.0%

10.0%10.0%

Tactical Portfolio


80

90

100

110

120

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Aggressive Nifty

September 2016 18


Thank you for your time!

Safe harbor statement!

This document has been prepared by Citadelle Asset Advisors Private Limited (CAAPL). CAAPL, its holding company and associate companies offer full range of, integrated investment banking, portfolio management and brokerage services, through own and or partnerships.

Our research analysts and sales persons provide important input into our investment advisory activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. CAAPL or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (is) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your information.

This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject CAAPL and affiliates/ group companies to any registration or licensing requirements within such jurisdiction.

The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. CAAPL reserves the right to make modifications and alterations to this statement as may be required from time to time. However, CAAPL is under no obligation to update or keep the information current. Nevertheless, CAAPL is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither CAAPL nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a guide to future performance.

The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. CAAPL generally prohibits its analysts, persons reporting to analysts and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies

and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in

this report. Any dispute arising out of the document shall be subject to the exclusive jurisdiction of the Courts in Mumbai, India

Economy & Finance

Alpha edge - September 2016