ICICI January 19 Issue · Shilpa Kumar MD & CEO ICICI Securities Ltd. A successful investment is a...

Shilpa KumarMD & CEO

ICICI Securities Ltd.

A successful investment is a result

of detailed homework and keen

attention. To achieve this success

there are certain things one needs

to consider no matter how big or

small the amount to be invested is.

Sometimes, a seasoned investor

may overlook some of the essential

factors while investing (in spite of

years of experience) and on the

other hand, an amateur might make

the best investment decisions in the

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

c i r c u m s t a n c e s . T h e k e y t o

investment is to remember factors

that affect one's investment and

apply a strategy that justifies all

these factors. In essence always

keeping the basics in mind.

Factors like investor's age, tenure of the investment, risk tolerance,

market volatility, national and international markets, liquidity, ability to

outpace inflation, asset allocation and similar components are largely

responsible for investor's portfolio performance. Each one of this

impacts the investment at certain level and plays a crucial role in

determining its success.

With cost of living increasing at a rapid pace it is necessary to make your

money work for you at the same speed. The sooner you start investing

the longer and larger you benefit from it. Investing at an early age

maximizes the investment amount by compounding returns over long

period of time. If you have given considerable time to your investment,

the value is bound to appreciate when returns are averaged out

overcoming market highs and lows. The duration for which you stay

invested is an essential factor that decides outcome of your investment.

ICICIdirect Money Manager January 20191

Secondly, the purpose of investing may not be exact same for two

individual investors and same goes for their risk appetite. What seems

like an aggressive investment avenue to you might be low-risk option

for someone else. The reason why risk component is of great

significance is that risk and returns are directly proportional to each

other. It is important to choose investment that best suits one's risk

profile and neither overdoing nor underdoing it.

Another important point to remember here is asset allocation. Whether

you pick equity/stock, debt, real estate or gold or combination of these it

makes considerable impact on your investment returns. Sticking to only

one particular asset because it performs well in recent past is not a good

strategy. Putting money across diversified assets has proven

remarkably lucrative in recent times. While deciding upon an asset, it is

advised to monitor long-term consistency of its performance rather

than getting lured by recent output.

Let's also not forget investments in equity, mutual funds, commodities,

gold etc. are directly affected by market conditions. Movements of

foreign stock market are partially or equally responsible for fluctuations

in Indian market trends. A wise investor should always take both

national and international market scenarios in account while taking the

final investment leap.

Ease of liquidity is another important element to remember which is

very often overlooked by many investors. Ideally, an investor should

always check upon these factors whenever investing, irrespective of the

size, time or nature of the portfolio. The ultimate secret of a successful

investment lies within the strategy outline behind it. Once that is figured

out well, your portfolio will always remain healthy.

Our message remains the same -'Keep investing and stay invested for

your l i fe goals. ' Through this magazine and our website

www.icicidirect.com we want to make an earnest attempt to partner

with you in setting and achieving your financial goals. Give us an

opportunity to serve you, walk into any of your Neighborhood Financial

Super

Your magazine is now also available on www.magzter.com, a digital newsstand.


Editor & Publisher : Abhishake Mathur, CFA

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Research Team

2

Understanding the underlying characteristics of any investment, before

investing, is critical. It is more than checking rate of returns and

following current financial trends. An investment first needs to reflect

the core need that it fulfils. As an example a strategy of investing only

into equity because it has had a good recent run may lead to some rude

shocks. Similarly investing only in fixed deposits for long term goals

may lead to potential shortfalls.

There are various things which collectively affect the result of an

investment and it is necessary to remember them whenever starting an

investment. Our cover story highlights some of these important points

to follow while making an investments. Questions like where to invest,

for how long and through which medium? Are extremely crucial when it

comes to investing to achieve your financial goals. We have listed down

such things to be remembered while investing.

Having seen the volatile market 2018, we are curious to know where we

are heading for this year in 2019. In talks with our experts Mr. Jinesh

Gopani of Axis Mutual Fund, Mr. Anoop Bhaskar of IDFC AMC, Mr.

Gautum Sinha Roy of Motilal Oswal AMC and Mr. Manish Gunwani of

Reliance Nippon Asset Management Ltd giving some of their insights

on the market and economic changes.

We are also providing descriptive analysis of latest top mutual funds

recommended by our research team. Through this month's edition we

attempt to improve user's investment experience by talking about

elements that influence investment decision making process and also

the future scenario.


MD Desk .......................................................................................................... 1

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

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

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

Stock ideas: Jyothy Labs and Aditya Birla Fashion & Retail Limited................. 5

Flavour of the Month: A little attention is all it takes to help your

investments grow

We are concerned about staying physically fit and prepare strict diet to

remain fit. Likewise, we should have a financial plan to keep our financial

budget healthy. For years we miss out on checking our investments

performance whether it's meeting our set goals or not. Having a perfect

balance between savings, expenditure and investments plays an essential

role in your asset allocation. Read more to be watchful of and analyze ways

for better investments to create a strong financial portfolio……............ 15

Tête-à-tête

An interview held with market experts i.e. Mr. Jinesh Gopani of Axis Mutual

Fund, Mr. Anoop Bhaskar of IDFC AMC, Mr. Gautum Sinha Roy of Motilal

Oswal AMC and Mr. Manish Gunwani of Reliance Nippon Asset Management

Ltd. have given their insights on the current market scenario 2019.............. 28

Ask Our Planner

Our financial expert answers your personal finance queries ….................... 43

Mutual Fund Analysis

Which are the top performing mutual funds in current market scenario?

Check these top banking funds recommended by our research team..... 49

This month on iCommunity

Take a look at the latest activities on our unique information platform-

iCommunity (for January 2019)..................................................................... 59

Equity Model Portfolio ....................................................................................... 60

Quiz Time.......................................................................................................... 64

Prime Numbers................................................................................................. 65


Income Tax exemption limit may go up to Rs 5 lakh per year in interim budget

With middle-class apathy on the rise, Finance Minister Arun Jaitley may double the

income tax exemption threshold for the salaried from the present Rs 2.5 lakh to Rs 5 lakh

while also reinstating tax-free status for medical expenses and transport allowance,

providing some relief to the section already under strain since demonetisation. The

problem that may manifest itself is that the Union Budget will precede the unveiling of

the Direct Tax Code Report on February 28. Tinkering with the tax rates before the

release of the report will make it contentious.

Courtesy: Hindustan Times

Bandhan Bank set to acquire Gruh Finance in share swap deal

Bandhan Bank Ltd is set to acquire mortgage lender Gruh Finance Ltd via a share swap, a

move aimed at cutting the bank's promoter holding and expanding its housing finance

portfolio, two people with direct knowledge of the development said. Shareholders of

Gruh Finance, which is 57.83% owned by Housing Development Finance Corp. (HDFC)

Ltd, will receive three shares of Bandhan Bank for every five shares held in the home

financier, the people said. The swap is based on the six-month weighted average price

of the shares of the two companies, they said, requesting anonymity.

Courtesy: Live Mint

Your income tax return will soon be processed in one day; Infosys to develop

integrated e-filing system

The government on 16th January said IT major Infosys will develop the next-generation

income tax filing system for Rs 4,241.97 crore which will cut down the processing time

for returns to one day from 63 days and expedite refunds. The Cabinet, chaired by Prime

Minister Narendra Modi, gave its "approval to expenditure sanction of Rs 4,241.97 crore

for Integrated E-filing and Centralised Processing Centre 2.0 Project of the Income Tax

Department", Union minister Piyush Goyal said. Goyal said the project is expected to be

completed in 18 months and will be launched after three months of testing. The Cabinet

also sanctioned a consolidated cost of Rs 1,482.44 crore for the existing CPC-ITR 1.0

project up to 2018-19. Goyal also informed that tax refunds worth Rs 1.83 lakh crore

have been issued so far in the current fiscal.

Courtesy: The Economic Times

LIC completes acquisition of 51% stake in IDBI Bank

IDBI Bank on 21st January said insurance behemoth LIC has completed acquisition of 51

per cent controlling stake in the bank, making it the lender's majority shareholder. "The

deal, conceptualised in June 2018, is envisaged as a win-win situation for both IDBI Bank

and LIC with an opportunity to create enormous value for shareholders, customers &

employees of both entities through mutual synergies," IDBI Bank said in a BSE filing IDBI

Bank has about 1.5 crore retail customers and about 18,000 employees. Over 800

branches of IDBI Bank can be used as touch points for selling LIC policies, the public

sector lender said.

Courtesy: The Economic Times

STOCK IDEAS


Aditya Birla Fashion & Retail (ABFRL) – Established supremacy in branded fashion…

Company Background

ABFRL combines Madura's

portfolio of leading power

brands (Al len Sol ly, Van

Heusen, Louis Philippe and

P e t e r E n g l a n d ) w i t h

Pantaloons' forte of largest

value fashion retailer. The

c o m p a n y h a s r o b u s t

distribution network having,

2 2 8 8 b r a n d s t o r e s a n d

available across 4153 multi

branded outlets, along with

~300 Pantaloons stores.

Madura contributes ~60% of

revenues, while Pantaloons

derives 40%. The company

also has presence in fast

fashion through 'Forever 21' &

'People' brands which are

undergoing rationalisation

exercise to improve their

profitability. The company has

aggressive expansion plan for

its innerwear segment which is

scaling up rapidly.

Investment Rationale

Pantaloons: Dual lever of

healthy revenue growth &

margin improvement

The management has affirmed

its guidance to add ~ 50

Pantaloons stores (added 66

stores in FY18) each year.

Currently the store count is at

3 0 0 . T h e m a n a g e m e n t

believes there is immense

opportunity, especially in non-

metro cities, to scale up to 800-

1000 Pantaloons stores on a

p a n I n d i a b a s i s . P o s t

acquisition of Pantaloons in

FY13, ABFRL has restructured

its business model from a

departmental store to an

apparel value fashion player.

Also, it has improved price

v a l u e p r o p o s i t i o n w i t h

increase in share of private

label brands from 48% in FY14

to 62% in H1FY19. These

efforts have yielded enhanced

profitability for Pantaloons.

EBITDA margins doubled from

4% in FY15 to 8% in H1FY19.

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

management highl ighted

there is enough scope of

margin expansion through

improvement in gross margins

(from current 46%), store

rationalisation and better

negotiations for rentals.


STOCK IDEAS

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Lifestyle brands: Revival in

revenue growth to sustain

Rationalisation and closure of

unprofitable stores, calibrated

discounting approach and shift

from two to four season cycles

resulted in turnaround for

Lifestyle brands (Allen Solly,

Van Heusen, Louis Philippe

and Peter England) which

registered strong retail LTL of

9.2% in FY18 (FY17: -5%,

FY16: 0%, FY15: 0%). On a

high base, the management is

confident of sustaining its

g r o w t h m o m e n t u m b y

achieving early double digit

LTL sales growth in FY19E. The

management expects to add

~220 stores on a net basis

(90% franchisee model) in

FY19E. ABFRL has recently

rolled out a pilot venture

called, 'Peter England Red'

stores, mainly capturing the

lower price point categories.

The management believes

there is immense scope of

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

especially in Tier I/II/III cities.

Revenues from e-commerce

channel are witnessing strong

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

growing ~60% YoY.

Other businesses: Focus on

building scale in Innerwear

business

A B F R L ' s f o r a y i n t o t h e

innerwear bus iness has

witnessed significant traction

in a short t ime span by

capitalising on the strong

brand recall of Van Heusen.

Currently, it has ~10,000 point

of sales and expects to reach

13,000 by end of FY19. ABFRL

has recently broadened its

product portfolio by launching

women 's innerwear and

athleisure products, which is

expected to further provide

impetus to revenue growth.

With market share gains being

the priority, the management

a n t i c i p a t e s c o n t i n u e d

investments over the medium

term.

Enhanced profitability

expected to lead to higher

RoCE!

A B F R L ' s k e y b u s i n e s s

segments - lifestyle brands and

Pantaloons - have witnessed

enhancement in revenue

g r o w t h t r a j e c t o r y w i t h

upgradation in margin profile

over the last two years. Focus

on profitable growth through


STOCK IDEAS

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cost optimization, constant

improvement in product

portfolio and increased share

of private labels would enable

the company to de l i ve r

superior return ratios, going

forward (expect RoCE to

improve from 8.5% in FY18 to

15.7% in FY21E). We roll over

our estimates to FY21E and

expect revenue and EBITDA to

grow at a CAGR of 14% and

23%, respectively, in FY18-

21E. Furthermore, with healthy

free cash flow generation, we

expect interest coverage and

debt/equity ratio to improve

from 1.3x and 1.7x in FY18 to

3.1x and 0.8x, respectively, in

FY21E. We revise our target

price to 250, valuing the stock `

at FY21E 2.0x EV/sales.

Key Financials

` crore FY18 FY19E FY20E FY21E

Net Sales 7,172.1 8,208.4 9,333.1 10,592.4

EBITDA 500.3 623.7 759.0 927.0

PAT 117.8 165.9 261.0 386.6

EPS (`) 1.5 2.2 3.4 5.0

Valuations Summary

FY18 FY19E FY20E FY21E

EV/Sales 2.4 2.1 1.9 1.6

Target EV/Sales 2.9 2.6 2.2 2.0

EV / EBITDA 34.9 27.9 22.8 18.4

P/BV 14.3 12.4 10.3 8.2

RoNW (%) 10.8 13.2 17.2 20.3

RoCE (%) 8.5 11.4 13.5 15.7

Stock Data

Particular Amount

Market Capitalization (` Crore) 15,665.0

Total Debt (FY18) (` Crore) 1,861.5

Cash and Investments (FY18) (` Crore) 72.6

EV (` Crore) 17,453.9

52 week H/L 1.6

Equity capital (` Crore) 771.7

Face value (`) 10.0


STOCK IDEAS

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Key risks include:

Escalation in rental expenses

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

c o m p o n e n t m a i n l y i n t h e

organised retail industry. A steep

rise in rentals for quality retail real

estate with strategic locations

attracting high footfalls can

adversely affect overall viability,

forcing retailers to tweak their

business plans and go slow.

Rental as a cost comprises ~15%

of overall consolidated revenues

of ABFRL.

Increasing competitive intensity

from other western brands and e-

commerce players

An aggress ive compet i t ive

scenario may lead ABFRL to

reduce its selling prices across

products impact ing overal l

revenues. Moreover, e-commerce

companies resorting to deep

discounting practices may cause

pricing pressure in the price

sensitive Indian market.

ANALYST CERTIFICATION

We /I, Mayur Matani, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in

this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is,

or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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subject to change without notice.


STOCK IDEAS

9

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STOCK IDEAS

10

Jyothy Laboratories Ltd. – Focus on ayurvedic space to drive growth!!!

Company Background

Jyothy Laboratories (JLL)

diversified from a single brand

(Ujala) into a multi-product

c o m p a n y w i t h M a x o

(mosquito repellent) & Exo

(dishwash). Post-acquisition

of Henkel India in FY12, JLL

got access to brands like

Henko, Mr White, Chek, Pril,

Margo, Neem and Fa along

with a larger geographical

presence (North, East India).

JLL carved out six power

brands (Ujala, Henko, Maxo,

Pril, Exo, Margo). It has been

focusing on the same to drive

innovation and growth post

acquis i t ion . I t s p lanned

expansion in the ayurveda

segment is expected to

enhance its revenue from

personal care segment in the

foreseeable future. JLL has

successfully been able to

diversify Margo from its

erstwhile traditional south

market to pan India. Currently,

F a b r i c c a r e s e g m e n t

consisting of Ujala & Henko

brands, accounts for around

40% of its revenues, followed

by Dishwash (30%) with Exo

and Pril brands, Household

Insecticides (15%) with Maxo

franchise and Personal care

segment (15%) with Margo

brand. Fabric care & Personal

care segments derive higher

operating margins at 20%

e a c h , f o l l o w e d b y

Dishwashing (13% margin)

and HI (~5% margin).

Investment RationaleStriving to achieve operational

efficiencies & improve distribution

network

J L L h a s e x p a n d e d i t s distribution network with its to ta l number o f out le ts growing 7x from 0.4 million outlets in FY14 to 2.8 million outlets in FY18. JLL is planning to strengthen its modern trade channels in addition to fine-t u n i n g o f p r o d u c t s i n accordance to the customer n e e d s a n d t h u s h a s segregated its distribution strategy to address rural and urban markets separately. JLL maintained its efforts to take


STOCK IDEAS

11

its successful regional brands to national level. With a strong presence in South India, JLL has now set its focus to expand its reach in the rural markets. Off late, JLL's non-south business has grown at a rapid pace as compared to its south business. The company has managed to increase its contribution from non-south market to 59% from 56% in FY14. We believe that the company's growing brand value, product portfolio and effective strategies will help it to maintain future growth.

Launch of mosquito repellent in incense sticks

JLL launched 100% natural

and chemicals free incense

stick - Maxo Agarbathi in

Q2FY19. Mosquito repellent

incense stick category has

posted 101% revenue CAGR in

last three years with a size of

`385 crores (YTD Cy18). The

market currently consists of

hundreds of local brands of

w h i c h m a n y a r e i l l e g a l

/unorganized and use harmful

pesticides. With high growth

and huge popularity being

witnessed in this segment, we

believe JLL has made a right

m o v e t o c a p t u r e t h e

opportunity by foraying into

this category.

Flagship brands to witness

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

reiterate BUY

Flagship brands contribute

~87% of FY18 sales, growing

at 11% CAGR in the last five

years. JLL has directed its

focus primarily to power

brands in a bid to improve

visibility and aid brand recall.

JLL is investing in advertising

and promotional activities to

market these power brands

and maintain its growth rate in

coming years. It has been able

to reduce its debt over the

years thereby resulting in net

profit CAGR of 28.5%. With its

brand building and effective

distribution strategies in place,

we estimate margins for

FY19E, FY20E, FY21E at

1 6 . 1 % , 1 6 . 3 % , 1 7 . 1 %

respectively. We estimate

revenue CAGR of 10.5% for

FY18-21E. We maintain our

BUY recommendation on the

stock with a revised target

price of 240/share. ̀


STOCK IDEAS

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Key Financials

Valuations Summary

Stock Data

Key risks include:

Fa i l u r e t o s u c c e s s f u l l y

integrate planned acquisitions

JLL is planning to grow its

revenues via inorganic route

and looking at acquisitions to

the tune of 1,000 crore in the `

next 3-4 years. Failure to

successfully integrate the

planned acquisitions with its

core operations would pose a

significant risk to its growth

estimates.

Increase in raw material prices

Prices of crude oil derivatives

like Benzene, Naptha, Palm and

Palm Karnel have been on a

rise recently, which may have a

direct impact on the products

falling under detergent and

` Crore FY18 FY19E FY20E FY21E

Revenue 1,685 1,877 2,075 2,294

EBITDA 277 304 338 393

Net Profit 161 187 208 243

Adjusted EPS (`) 4.4 5.1 5.7 6.7

(x) FY18 FY19E FY20E FY21E

P/E 45.1 38.7 34.9 29.8

Target P/E 54.3 46.6 42.0 35.9

EV / EBITDA 24.5 22.5 20.0 17.1

Mcap/Sales(x) 4.3 3.9 3.5 3.2

RoNW (%) 23.5 25.3 27.6 29.5

RoCE (%) 35.1 34.2 37.2 39.7

Particular

Market Capitalization (` Crore) 7,271.8

Total Debt (` Crore) 0.0

Cash and Investments (` Crore) 231.1

EV (` Crore) 7,040.6

52 week H/L (`) 249 / 169

Equity capital ` 36.4 crore

Face value (`) ` 1


STOCK IDEAS

13

dish washing category of the

c o m p a n y. C r u d e l i n k e d

products form about 35% of

m a t e r i a l c o s t s f o r t h e

company. Though JLL has

taken average price hike of 5%

in detergents, it believes crude

oil led inflationary pressure in

raw materials alongwith rupee

depreciation is likely to exert

cost pressures going forward.

Competit ion f rom other

players

Heightened Competition from

larger and better entrenched

FMCG players such as HUL,

P&G in its core categories -

Fabric care and Dishwash

categories (70% of company's

revenue), can affect the JLL's

financials to a greater extent.

ANALYST CERTIFICATION

We /I, Sanjay Manyal, MBA (Finance) and Kapil Jagasia, CFA, MBA (Finance), Research Analysts, authors and the names subscribed to this report,

hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also

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STOCK IDEAS

14

November

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FLAVOUR OF THE MONTH


A little attention is all it takes to help your investments grow

It's always a good time to jog back to the basics once in a while

to keep the focus as far as investing is concerned. In our cover

story this month we look at some of the basics of investing like

understanding asset classes, understanding risk and return and

how one should approach investing. This is a relevant read

anytime or any stage of your investment cycle….

Understanding Asset Classes

Investing is not just about how

much you invest, but more

importantly, where you invest.

And that's where the asset

classes come in. It is absolutely

important that you know what

you are investing in. You need

to have a clear understanding

of asset classes.

W h e n s i m i l a r t y p e s o f investments are grouped together, they form an asset class. Investments within asset c l a s s e s h a v e s i m i l a r characteristics and market behaviour. They usually face the same tax rates and are subject to similar laws. The risk-return trade-off is also similar for investments within each asset class. You need to have the right combination of asset classes, to optimally

reduce risk and get maximum returns.

There are six main asset classes. Here's a look:

Equity (stock or share)

Companies require a lot of funds for growth, expansion, and regular operations. The funds can be gathered in two ways: taking a loan from a financial institution or selling a portion of the company by issuing shares. The shares are issued to the public, people who wish to invest their money. When you buy some of these shares, you hold a certain stake in this company. The stake is equivalent to the amount of shares you buy. This is also called equity.

With these shares, you can share in the profit earned by



the company. You also become liable for any loss that it may incur. The more stocks of a company you buy, the more your share in that company increases. To get the maximum benefit from your investment in equity, you should invest for the long term.

Risk-return trade-off: Equity is a high-risk, high-return asset class. But investors can expect more returns from this asset class than from any other.

Effect of inflation: Equities are a smart way to mitigate your inflation risk. To earn returns t h a t s a f e g u a r d a g a i n s t inflation, you must invest in equity. Over the long term, the rate of return offered by equity exceeds the rate of inflation. It helps you build wealth for the future.

Earning profit:

·Capital appreciation: when

the price of the stocks you purchased increases

·Dividend: payments made

p e r i o d i c a l l y w h e n t h e company earns a profit

·Return on investment: the

total amount received from

capital appreciation and dividends

·Equ i t y veh ic l es : Stock

exchange, mutual funds, unit-linked insurance plans, and p e n s i o n s c h e m e s a r e common vehicles for holding equity.

Debt

In debt investments, investors l o a n t h e i r m o n e y t o organisations, banks, or the government. In return, these entities promise to pay a specific interest rate in addition to the invested amount after a specified duration. Your funds are in safe hands and you know the expected returns from this investment. You will get the promised returns at the end of the period regardless of how the markets or the entity performs.

Opt for this asset class to meet your short-term financial goals. The assured returns can help you meet your goals, as you are not exposed to any risk.

Risk-return trade-off: This is a low-risk, low-return asset class. Debt investments give



you a fixed rate of interest on your principle amount, but this is lower than the equity rate of return. You do not get to cash i n o n a g o o d m a r k e t performance. However, the security offered protects you against the losses you may incur in equity investments.

Effect of inflation: The inflation rate may eat into the returns e x p e c t e d f r o m d e b t investments. This can happen if the rate of inflation exceeds the interest rate offered by the debt instrument. Thus, it affects your purchasing power.

Earning profit: Investors earn a profit in the form of interest on the principle amount invested.

Debt vehicles: Fixed deposits, public provident fund, national savings cert i f icates, and g o v e r n m e n t b o n d s a r e common debt vehicles.

If you are a conservative investor and want to take on a minimal risk, debt is a suitable asset class.

Cash

Cash is the most liquid asset class. You can access cash as

and when you need the money. But the basic purpose of cash differs from that of other asset c lasses because i t g ives negligible or no returns. It is used to carry out transactions, he ld as a precaut ionary measure, or used to invest in other asset classes.

Risk-return trade-off: Cash is a

low-risk, low-return asset

class. It is even called a no-risk,

no-return class. You do not

invest the funds anywhere. It

does not bear capital risk or

default risk. Some vehicles in

this asset class offer a very low

rate of return.

Effect of inflation: Although

there is no or negligible risk in

investing cash, it faces a high

inflation risk. If you keep cash

with you, it will not earn any

interest. Your savings account

will pay you interest in the

range of four to five per cent. If

the inflation rate is higher than

this, your real return will be

negative. In other words, the

real worth of your cash will be

lower.

Earning profit: Cash offers zero profit as an asset class. You



may earn some small returns from the interest on some cash vehicles.

C a s h v e h i c l e s : S a v i n g s accounts, short-term fixed deposits, and liquid funds are common cash vehicles.

As an investor, you must try to keep your cash balance as low as possible based on your need and requirements.

Real Estate

Rea l es ta te can inc lude residential and commercial buildings, or even vacant land. Investors buy real estate from builders or current owners. Other asset classes hold only monetary value for an investor. In contrast, owning real estate i n v o l v e s e m o t i o n a l satisfaction. It is also seen as a status symbol in society. The amount of funds required for owning this asset class is the highest amongst all classes.

Risk-return trade-off: Owning a property involves high risk and high return. Considering the amount of funds involved, a decline in the real estate sector can lead to huge losses.

This could affect your portfolio. If the market is doing well, however, you could earn good returns. But liquidating this asset is a lengthy and time-consuming process. Usually, a house that you buy for living in i s not cons idered as an investment.

Effect of inflation: I f the

property is bought on loan, the

interest rates can fluctuate due

to inflation. This will affect your

total outgo.

Earning profit: Profit is earned

by selling the property. You

could also earn regular rent by

leasing the property.

Real estate vehicles: You can

invest in real estate by buying

p roper ty ( res iden t i a l o r

commercial), land, or shares in

real estate companies.

Gold

Gold is another asset class that

has an emotional aspect for

investors. It is a good option for

diversifying your portfolio, as it

is less volatile.

Risk-return trade-off: The risk and return are both low. One



can buy gold in different forms. Historical data shows that gold has g iven good re tu rns specifically during time of uncertainty. So it is a good option for diversification but not necessarily for growth.

Effect of inflation: Gold as an i n v e s t m e n t p r o v i d e s protection during inflation. The price either remains stable or increases over a certa in period.

Earning profit: Profit is earned i n t h e f o r m o f a p r i c e difference.

Gold vehicles: Gold can be bought in the form of jewellery, coins, bars, bonds, exchange traded funds, and so on.

Alternative assets

A newly introduced asset class that is gaining popularity in India is alternative assets. Old currency, stamps, paintings, and antiques are some of the instruments that come under alternative assets. Other forms of investments, like hedge funds and venture capital, also belong to this class. Products in this class are less liquid than

other classes. That is because these products take time to gain value. Hence, they are good long-term investments.

Asset allocation

There is a reason why there are

so many different assets

available. Each asset has its

host of benefits and risks. This

is why it is important that every

investor diversi f ies their

portfolio and invests across

multiple assets. This is called

asset allocation – distributing

your investments among

various asset classes—i.e.

equity, debt, cash, real estate,

and gold. Creating a mix of

d i f f e r e n t a s s e t c l a s s e s

d e t e r m i n e s h o w y o u r

investment portfol io wi l l

perform. Every asset class has

its own features. Good asset

allocation helps investors get

m a x i m u m r e t u r n s b y

m i n i m i s i n g t h e r i s k s

associated with each class.

After creating a portfolio using asset allocation, you must m o n i t o r t h e o v e r a l l performance of this portfolio. Check i f you are gett ing positive returns and if this



allocation will help you to meet your investment goals.

THE BOTTOMLINE

The best portfolio includes each of these asset classes. However, the weight given to each class may vary from investor to investor. Each of us should diversify our portfolios to protect our investments against various risks.

Understanding Risk v/s Returns

Investments always come with their own share of risks – losing the invested money in part or as a whole. In contrast, the risk with savings is lower. In this case, the risk is either that your savings can be stolen or that it may not be enough in future because of inflation.

But what if we told you that the risk is also related to how much profits you earn from your investments? Yes, there is an inherent connection between the two.

This is why experts ask you to do two things before investing – understand how much you can afford to lose (risk appetite)

and how much return you need (expected return). A combined analysis of the risk involved versus the returns expected can help you to make better investment decisions.

Risk-return trade-off

In general, the risk involved in an investment is directly proportional to the returns expected from it. A low-risk investment is likely to give you low returns and a high-risk investment has the potential to yield high returns. This is because risk is not always negative; it simply denotes volatility in value. So if a risky asset, say a company's stock, has the potential to fall 15%, then it also has the capability to rise 15%.

To guard your investments against market uncertainties, you may prefer low-r isk investments. But these are not likely to give you lucrative returns. This is why it is important to not be scared of risk. Once you understand that every investment is exposed to risk, you can concentrate on the return potential and not just the inherent riskiness.



As per the risk-return trade-off,

an investor always wants to

s t r i ke the r igh t ba lance

between the lowest risks and

the highest expected returns.

Though the expected returns

are not in any investor 's

control, they can be managed

by calculating the risks and

investing accordingly.

Factors affecting risk and return

To find out how much risk you

can take to earn maximum

profits, you must understand

the factors associated with the

trade-off. Let us look at some of

factors to keep in mind:

I. Risk appetite: This is the

level of uncerta inty that

investors are willing to tolerate

to earn a profi t on their

investment. Investors must

calculate their risk appetite

realistically to understand how

much change in the value of

their investments they can

bear.

ii. Age: Young investors can begin conservatively in their learning phase and take on more risks in subsequent years. Taking risks early on

gives them a chance to offset any losses as they move ahead.

iii. Responsibilities: Your responsibilities—and thus, expenses—increase with your age. Middle-aged investors have added responsibilities. Such investors have lower capability to take risks. If you are one such investor, you should diversify your portfolio by investing in both high-risk and low-r isk investment vehicles. As you approach retirement age, investors can play it safe by focusing more o n l o w - r i s k , l o w - r e t u r n investments.

iv. Replace lost funds: When you are young or have lower responsibilities, you have the potential to earn back any losses you may have incurred in the market. You could also bring in other sources of income to fill up the gaps formed due to losses. This t ranslates to h igher r isk appetite.

v. Period of investment: The duration for which you invest your funds can determine the risk involved. For example, investing in company shares is



preferred to be a long-term investment. This way, you can get good returns and also reduce the risk involved. This is because stocks may face ups and downs in the short term, but over the long term it is usually expected to perform well if the company remains to be profitable.

Singular risk versus portfolio risk

If you invest in a single vehicle, such as only shares or only real estate, you face high risk. That is because non-performance of the investment may lead to a complete loss. Hence, you n e e d t o d i v e r s i f y y o u r investments.

D e v e l o p a p o r t f o l i o b y investing varying amounts in different vehicles to safeguard against uncertainties linked to a specific vehicle. Though the risk involved in individual investments may be high, a well-designed portfolio can protect you by balancing the loss from one investment with higher profit from another.

Types of risk

As an inves tor, you are

exposed to various kinds of

risks. These come in handy

when evaluating different

investment vehicles, the risks

associated, and how it affects

your returns.

Let us have a look at the types

of risks:

· Market risk: This occurs

when the marke t i s no t

performing well and that

brings down stock prices

across board.

· Legal risk: Modifications in

laws and the legal framework

may affect your investments.

For example, tax-related laws

can affect your investment

income while some other rule

may affect the profitability of a

company whose shares you

hold.

· Inflation risk: When the

expected rate of return on your

investment is lower than the

inflation rate, the net worth of

your investment reduces in

comparison with the rise in

prices.

· Interest rate risk: A change in interest rates affects the value of your investment. For



example, a rise in interest rates usually leads to fall in bond prices.

· Foreign exchange risk: The value of investments can change with fluctuations in the exchange rate of the foreign currency against the domestic currency. This is because companies earn or import in foreign currency. Plus, foreign investors play in the Indian markets.

· Default risk: This is usually applicable to fixed-income instruments like bonds, which pay a regular interest and repay your entire principle investment at the end of a time period. When the bond fails to make payments, it is called to have 'defaulted'.

· Capital risk: This is the risk that you lose all or part of the principle money you invested in. It is usually applicable to fixed-income instruments.

THE BOTTOM-LINE

To e x c e l i n t h e a r t o f investments, all investors must understand the concepts of risk and return. The level of risk

appetite varies for every investor. Thus, it has an impact on the level of returns as well. To reach your short-term and long-term financial goals, an appropriate balance between risks and returns is required.

How to approach investing

Before you start investing

already, hold yourself: The first

step of any financial plan is

creating goals. Have you

created yours yet?

Imagine driving a car without

having a clear route map to

reach your destination. You

could drive forever and still not

reach anywhere. Investing

without a goal-based approach

is just like that—actually, it is

worse. You could end up facing

financial distress, despite

working hard to save money

and invest it.

Financial goals

A financial goal is a future expense for which you build a c o r p u s . I t c o u l d b e anything—your retirement, your child's wedding, buying a new home, or even a dream fore ign tour! You would



n o r m a l l y h a v e m u l t i p l e financial goals at any given point. You should have a separate investment strategy to achieve each of them. An international study suggests that you have a 50% greater probability of reaching your goals using a goal-based approach than the traditional approach.

Traditional approach

This approach suggests that all

investors have similar goals. It

also believes that you should

form a single portfolio to

achieve your goals. This is

because i t assumes that

market volatility is the greatest

risk you face while pursuing

your goals. The extent to which

you are willing to take this risk

to earn higher returns is your

'risk tolerance'. The traditional

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

managing your risk tolerance

and re turn expecta t ions

s h o u l d b e t h e f o c u s o f

inves t ing. However, the

overemphasis of the traditional

approach on managing risks

and returns can make you lose

sight of your goals. You may be

unable to track your progress

along each specific goal and, in

the end, not achieve any of

them.

G o a l - b a s e d i n v e s t i n g

approach

This approach recognises that investors have different and unique investment goals. You must construct a separate portfolio to achieve each of them. Achieving your financial goals should be the main aim of investment. Mitigating m a r k e t r i s k s , t h o u g h i m p o r t a n t , s h o u l d b e a secondary goal. The goal-b a s e d a p p r o a c h g i v e s precedence to your ' r isk capaci ty ' over your ' r isk tolerance'. In other words, it focuses on how much risk you s h o u l d t a k e , g i v e n t h e importance and proximity of your goal. How 'willing' you are to take more risk to earn an extra buck is not important under this approach. Goal-based investing is a more precise and detailed way of inves t ing. I t focuses on match ing your f inanc ia l resources with your financial goals and liabilities.



Greater investing discipline

M a i n t a i n i n g i n v e s t m e n t discipline is the most difficult part. We are always tempted to s p e n d m o n e y o n l e s s important things. This does not leave us with enough money to invest for our long-term goals. The goal-based approach provides a direction to our investments. It tells us exactly what we are trying to achieve and how much we should invest to do it. A clear goal prevents us from wasting money and helps maintain our investment discipline.

Source of motivation

With each increment to your portfolio, you see yourself getting closer to your goal. This is a source of tremendous motivation that sharpens your commitment towards the goal. You can resist the temptation of diverting money towards discretionary items and reach your goal faster.

Better risk management

When your goal is far away, you can afford to invest in risky assets to genera te h igh

returns. If something goes wrong, you always have time to make up. As your goal comes close, you should resist risky investments and hold on to what you have earned. When you follow the goal-based approach, you have a clear goal and a timeline. You know exactly how much risk you can take at a given point. Without a goal, you may be lured into making risky bets to earn higher returns. This may result in big losses.

Tracking your progress

A portfolio review is a critical part of investing. Following a goal-based approach tells you how far your goal is and how much progress you have made. I f you are behind schedule, you can readjust your strategy to ensure that you meet the goal. If you are doing better than expected, you can reduce your portfolio risk and glide towards your goal.

A good starting point

Think about it: When you plan

a travel, do you randomly book

a flight ticket you like? No, you



first select the destination.

This, then, helps you make

other decisions – how many

days, budget, which time of the

year, what to wear, e tc .

Similarly, the goal becomes

your starting point. You cannot

just invest money in anything

that chooses you're fancy.

Rather, when you have a goal

in mind, say accumulating a

retirement corpus of Rs 5

crore, you can then make a

slew of decisions – how much

should you invest per month,

where to invest, what is the

return you expect, how much

risk can you take, etc.

Here's how you can use each assets:

INFOGRAPHICGoal setting - Different investments for different needs

Asset class

Utility

Equity · High risk-high return investments are best suited for long -term goals.

Mutual funds

·

You have several options to select from based on your goal.

·

Should constitute a high percentage of your portfolio at all times, but selection of funds can be periodically realigned to your goal.

Retirement plans

·

Require disciplined investment till retirement and give regular pension or lump-sum on retirement.

·

Lump-sum plans are better if you are confident that you can invest the lump sum in a way that will give you higher regular income than the fixed pension plan.

Bonds

·

These are safe investments, but offer low returns.

·

Best suited for short-term goals, or when long-term goals are close by, provided you have earned a high proportion of your target amount.

· Also well-suited to immediate regular income goals, as they pay regular dividends.

ULIPs

· Combine the benefits of equity and insurance, but offer mediocre returns and low insurance cover, despite very high premium.

· It is better to build a separate equity portfolio for long term goals and buy term insurance.



The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities

THE BOTTOM-LINE

An investment without a goal

is like an angry bull without

direction – it can head off

anywhere, leaving behind

destruction in its wake. It may

seem like a tedious job to sit

down and write down all your

priorities and goals, but that's

how you can ensure you meet

your aspirations. It's easier

than it seems.


Tête-à-tête

Experts views on the current market scenario 2019

The year 2018 had seen many ups and downs in the market, there is

definitely a concern for what we will head this year 2019. We will want to

know the performance of the sectors as well as the changes that will

come up in the upcoming budget and the Q3 earnings that will impact

our investment decisions. In an interview to ICICIdirect Money

Manager, market experts i.e. Mr. Jinesh Gopani of Axis Mutual Fund, Mr.

Anoop Bhaskar of IDFC AMC, Mr. Gautum Sinha Roy of Motilal Oswal

AMC and Mr. Manish Gunwani of Reliance Nippon Asset Management

Ltd. have given their views on the market conditions and current

economic scenario.

Mr. Jinesh Gopani,

Head - Equity,

Axis Mutual Fund

Q. What is your view about the

Indian and global markets this year

2019?

A. We believe that 2019 is

going to be a year for bottom

up stock picking in various

p o c k e t s l i k e e x p o r t e r s

benefitting from a weaker

currency, the consumption

story especially small ticket

consumption and private

sector banks benefitting from

the issues with NBFCs and

HFCs to name a few. Elections

have h i s to r i ca l l y l ed to

c o n s u m p t i o n j u m p s o n

account of populism and rural

focus. Having sa id that ,

historically elections doesn't

seem to have significant long

term bearing on the stock

market.

Mid-sized companies create

more wealth compared to

large companies over longer

period of time due to its high

growth profile and valuation

discovery. 2019, is going to be

a year for selective bottom up

stock picking especially in mid


Tête-à-tête

and small cap segment where

the fundamentals are strong,

r a w m a t e r i a l c o s t s a r e

favorable, pick-up in demand

resulting in operating margin

expansion & better profitability.

Q. What risk should an investor be

watchful of in the current Indian

market scenario?

A. The Indian market is likely

to sway to global market

sen t iment g iven a w ide

ranging set of concerns from

the health of the US economy

to policy uncertainty across

Europe. Closer home, earnings

is likely to set the trend for the

markets over the next few

months. We also see India's

fiscal position as a likely drag

given pre-election spending

and concerns over the revenue

gap from taxes and proposed

divestment targets.

Q. What is your opinion on the

Q3FY19 earning season?

A. Q3FY19 earnings is likely to

be positive given demand

buoyancy on account of the

festival months and a falling

crude basket aiding corporate

margins. Favorable base

effects for the same quarter

last year also is likely to have a

bearing on corporate results.

While IT is likely to report a

subdued quarter owing to

seasonality, commentary on

global traction and yearly

guidance is likely to set the

tone for the year ahead.

Domestic consumption and

manufacturing is likely to show

upbeat numbers on account of

i m p r o v i n g o p e r a t i o n a l

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

capacity utilization. Auto and

a n c i l l a r i e s m a y s h o w a

subdued set of numbers owing

to slower festive demands and

cost pressures.

Q. What is your expectations from

the upcoming budget? How is it

going to impact the market in the

short term?

A. The upcoming budget is

likely to remain a non-event

given the proximity to national

elections. Big bang reforms are

unlikely to be announced. The

m a r k e t w i l l b e k e e n t o

understand the fiscal math and

the way forward for GST given

the collections have been

below expectations.


Tête-à-tête

Q. What advice do you give to our investors in terms of their overall portfolio and asset allocation?

A. One of the biggest lessons investing in equity markets is not about always making money but limiting losses. The idea is to generate consistent returns and take advantage of the power of compounding. Whi le doing so, keeping emotions away and not getting trapped in the greed and fear cycle will be rewarded. Equity is an ideal asset class to create wealth over a long term due to its inherent nature. However, we expect elevated levels on volatility for the market. While w e r e m a i n c a u t i o u s l y optimistic and prefer large caps over mid-caps, we suggest investors to invest t h r o u g h s y s t e m a t i c investment plan (SIP).

Lump sum investors looking to invest in funds equity funds, should consider large cap strategies with staggered investments over next 12 months. Investors who have a long term investment horizon may also consider dynamic equity funds where the equity

a l l o c a t i o n i s m a n a g e d dynamically based on an under ly ing fac tor based disciplined and rational model.

Mr. Anoop Bhaskar,Head – Equities,

IDFC Asset Management Co. Ltd



2019?

A. Global markets are facing a headwind of “QT” Quantitative tightening, the reverse of QE (quantitative easing). The US Fed has already commenced the shrinkage of its balance sheet, down roughly $ 400 bln and est imated to reduce further by $50 bln per month. Tightening in Europe could be announced by the ECB in the

nd2 half of Cy 19. On the other hand , recen t downward revisions to forecasts for a d v a n c e d e c o n o m i e s ,


Tête-à-tête

particularly for the Euro-zone, mean that global growth may fall in 2020 to its slowest pace since the financial crisis. The drop in industrial production in many countries in November could be a pointer in this direction. Most forecasts for the US economy show a peaking of the economic cycle. The slowdown in economic activity along with nervous f i n a n c i a l m a r k e t s m a y moderate the US Fed's action on interest rate hikes in CY 19 to 2 as compared to 4 earlier. Japan, though continues to maintain a loose monetary policy. China, given the slowdown can hardly afford to t i g h t e n t o o q u i c k l y. A n o u t c o m e o f l o w e r t h a n expected rate hikes in CY 19 may result in a more moderate movement of US Dollar against global currencies, especially emerging markets, in CY 19 as compared to CY 18. Global stock markets, though, may continue to be volatile given the opposing forces of lower growth and potentially looser monetary policy.

On the domestic front, politics

will hold the centre stage at

stleast in the 1 half of 2019, and

should reduce in relevance in n dthe 2 half. Historically,

election years have given

positive returns whenever the

largest party in any coalition

has over 180 seats and we

have a modicum of a stable

government . A lso , most

macros like Crude Oil prices,

domestic interest rates and

Inflation are now in favour after

deteriorating for most of the

previous year. After a strong

outperformance of large and

mega caps as compared to

small and mid-cap stocks in CY

18, we believe there may be a

reversal in CY 19, especially

after the elections.

Q. What risk should an investor be

watchful of in the current Indian

market scenario?

A. Global factors and domestic

elections continue to be the

biggest headwind for the

Indian markets in the short

term. Though we have seen a

reversal in global flows in the

last 2-3 months with increasing

inflows into Emerging markets,

India may not be a beneficiary

of the same. In CY 17, despite


Tête-à-tête

the downturn in broader

markets in India, the headline

markets – SENSEX and NIFTY

w e r e a m o n g t h e b e s t

performing markets in the

w o r l d . A s a r e s u l t , t h e

valuations for these headline

indices are at a significant

premium to other emerging

markets which may result in

tepid FII (foreign institutional

investor) inflows in FY 19.

On the domestic front, higher

sops in run up to the election

can be detrimental to the fiscal

ba lance. Fisca l s l ippage

remains a key concern among

investors given the lower-than-

expected GST collections and

higher spending in the form of

farm loan waivers and other

sops in the run up to the

General elections in May-19.

But a higher fiscal deficit may

not be as bad for equity

markets as generally viewed as

it will also boost consumption

and earnings in the near term.

The biggest risk remains from

a 'khichadi' government being

formed in the center which can

r e a l l y d a m p e n i n v e s t o r

sentiment.

Q. Which are some of the sectors

to look out for?

A. In the current markets there are 4 sectors have attractive v a l u a t i o n s – M e t a l s , Infrastructure, Oil PSUs and Corporate Banks. Each of these sectors is cheap on account of various issues – the resolution o f w h i c h w o u l d d r i v e performance of these stocks. Metals have corrected on account of global growth concerns; Infrastructure on concerns of slowdown in government ordering in an election year; Oil – uncertainty of subsidy that they would have to absorb due to volatile oil prices. Among Corporate Banks, private Corporate Banks have seen a fair recovery in stock prices, with stock prices now dependent on incremental growth. PSU banks are the pocket in C o r p o r a t e B a n k s w h e r e valuations are cheap and concerns around the impact of agri-distress and the expected farm loan waivers persist. Rest of market is more or less fairly priced – near term earnings to be driver of stock prices with limited rerating potential. Also, even within sectors returns of


Tête-à-tête

headline NIFTY stocks returns may be flatter, with more opportunities in the broader markets.

Q. What is your opinion on the Q3FY19 earning season?

A. Ex Oi l PSUs, earnings growth is expected to be robust led by Financials. Financial earnings would be boosted by a higher treasury income on account of lower interest rates and reduction in loan loss prov is ions for Corporate Banks. Oil PSUs would have optically lower e a r n i n g s o n a c c o u n t o f inventory losses. Consumer oriented stocks are expected to post optically good numbers are the full festive season (Diwali + Dusshera) fell in Q3 this year as compared to part Q2 and Q3 in the previous year. Despite this benefit, auto numbers have been weak in Q3. Exporters, viz, IT and Pharma, should report decent growth on stronger demand and weak base, respectively. Numbers for Construction and Capital Goods would be keenly watched as focus shifts to execution from ordering as elections near.

Q. What is your expectations from the upcoming budget? How is it going to impact the market in the short term?

A. The budget to be presented ston 1 Feb is actually an interim

budget. The final budget will be p r e s e n t e d b y t h e n e w government once it is formed. The key thing to watch out for in the budget would be the announcement of sops in terms of farm loan waivers or a direct farmer support scheme. Though such sops coupled with the shortage in GST collections would be negative for fiscal deficit, it can boost consumption in the short term w h i c h i s b e n e f i c i a l f o r corporate earnings. Investors shouldn't be too concerned about the 'announcements' as the new government which comes into power may or may not implement all of these.


A. Equity valuations, though not cheap, have moderated from the peak of Jan-18 and are now reasonable, especially in the mid & small cap space.


Tête-à-tête

Rather than look at Large, Mid and Small cap asset allocation, investors should look at investing in funds with a higher cyclical component. CY 18 was a year that clearly belonged to Stable sectors and CY 19 could potentially see a reversal of this trade.

Mr. Gautam Sinha Roy,Fund Manager & Associate Director,

Motilal Oswal AMC

Q. What is your view about the Indian and global markets this year 2019?

A. 2019 has begun with encouraging data points for India - Brent correcting sharply (~30%) to $60/ barrel, a benign inflation print (CPI below 4% for a few c o n s e c u t i v e m o n t h s , Consequently, setting the pace directionally for a

loosening monetary policy, and better comfort on CAD and Fiscal deficit. After the correction in expensive p a r t s o f t h e m a r k e t , valuations are a lot more r e a s o n a b l e t o o , t h e dispersion of valuations across sectors and market caps is more benign too. Only consumer stocks look expens ive . So we a re entering the year on a firmer footing. Growth is still not as healthy as one would want it to be. So, as a growth investor, one has to be selective.

T h a t s a i d , t h e r e i s

impending uncerta inty

re lated to the General

elections scheduled for May

2019 which will result in

s o m e c o n t i n u e d h i g h

volat i l i ty in the equity

markets.

G loba l ly, concerns on slowdown are taking center-stage with impact of trade-wars on China, weakness in t h e U S e c o n o m y a n d probability of a no-deal


Tête-à-tête

Brexit. This will be the key factor to watch out for.

Q. What risk should an investor be watchful of in the current Indian market scenario?

A. As mentioned above, there will be volatility related to the upcoming General e l e c t i o n s . A l t h o u g h historically, there is no e v i d e n c e o r t r e n d o f sustained material weakness in equity markets because of elections, however, likely formation of an unstable government will be viewed as a risk by the markets. Watch out for high volatility leading up to the election results!

In addition, one needs to be watchful of any rise in concerns on liquidity/asset quality of NBFCs. Continued tightness in liquidity may have a negative impact on overall growth.

Q. Which are some of the sectors to look out for?

A. We prefer select plays in Infra, corporate banks that

will be beneficiaries from r o b u s t p u b l i c s e c t o r spending/revival in private sector capex, and bottoming out of corporate asset quality cycle, respectively. W e c o n t i n u e t o l i k e companies with long-term growth prospects, strong balance sheet and returns on capital employed where recent correction presents opportunity to add. We also continue to like IT, although we will be watchful of the supply side issues as well as the demand situation in the US.


A. We expect a mixed bag on results - Autos are e x p e c t e d t o r e p o r t a particularly weak quarter given tepid volume growth in the last quarter. Corporate banks on the other hand should post strong numbers o n s i g n i f i c a n t Y o Y improvement in asse t quality. Lagged effect of


Tête-à-tête

higher commodity prices should continue to impact margins for the consumer pack.

Q. What is your expectations

from the upcoming budget? How

is it going to impact the market in

the short term?

A. We e x p e c t a r u r a l

oriented and affirmative

budget in 2019 given the

backdrop of e lect ions.

Potential fiscal support to the

agricultural sector to address

low farm income could keep

rural consumption strong in

t h e n e a r - t e r m . T h e

distressed sections could

find special support, which

could in turn be fiscally

stimulative.

Q. What advice do you give to

our investors in terms of their

overall portfolio and asset

allocation?

A. While valuations have

moderated, markets may

r e m a i n v o l a t i l e g i v e n

concerns on domestic and

global macro as well as

uncertainty leading up to the

elections. The important

thing is to remain invested in

quality stocks which will

de l iver s t rong enough

earnings growth to ride out

the ongoing vola t i l i ty.

Investors can also look to

use the volatility to their

advantage by using a buy

the dips approach.

Mr. Manish Gunwani,CIO Equity Investments,

Reliance Nippon Asset Management Ltd.



2019?

A. After an unnaturally long

period of stability in 2016-2017,

volatility both from a domestic


Tête-à-tête

and global perspective made a

comeback in 2018 second half.

Going forward we expect

domestic volatility to remain

higher in 2019 at least in first

h a l f g i v e n t h e G e n e r a l

Elections. We believe as the

noise over these events die

down, market focus will shift to

fundamental factors l ike

improving Corporate Earnings,

Lower Interest rates & inflation,

signs of capex revival etc. Post

the recent correction market

valuations are looking far more

reasonable versus last year.

Further for most of last year we

witnessed extremely narrow

markets with returns being

c o n c e n t r a t e d s e l e c t

benchmark heavyweights

which is expected to reverse as

market becomes more broad

based. We expect corporate

earnings can potent ia l ly

deliver mid-teen returns over

the next 3 – 4 years and this will

be an important trigger for the

domestic markets.

The key development to watch out from a Global perspective is the growth trajectory of US E c o n o m y a n d F e d e r a l Reserve's reaction to it. As this

will play out through US bond yields & US Dollar strength, which impacts Global Liquidity. The markets want to see major Central Banks going slow in terms of Monetary stimulus withdrawal. Many emerging markets are expected to ease if US Fed slows its pace of tightening. As long as there is no policy errors either on the Monetary Policy or on trade we are likely to see a steady recovery in markets especially in Emerging markets

Q. What risk should an investor be watchful of in the current Indian market scenario?

A. From a global perspective, we should watch out for any unpredictable rise in global volatility due to policy issues like trade wars escalation etc. In case of the domestic space any sharp rise in oil prices can be a concern. Overall from a domestic perspective the risk/reward scenario appears to favourable over the medium to long run.

Q. Which are some of the sectors to look out for?

A. D o m e s t i c g r o w t h d e p e n d e n t s e c t o r s l i k e


Tête-à-tête

C o r p o r a t e L e n d e r s , Engineering companies and select rural demand driven b u s i n e s s e s a r e w e l l positioned. On the export front, IT and Pharma can benef i t f rom rebound in growth and improvement in sector conditions. Secular growth entities like retail lenders continue to benefit from increase, demand for retail credit and market share gains.


A. Quarterly results for the S e p t e m b e r q u a r t e r e n d continued to reflect steady improvement wi th more sectors participating in the growth. We believe that after m a n y y e a r s , c o r p o r a t e earnings is likely to surpass nominal GDP growth in FY19. Our estimate is that many sectors which have witnessed challenging last 3-4 years like Corporate Banks, Healthcare etc. have bottomed out from an earning perspective. The sales growth in first half of FY 19 was also very encouraging. We believe this earning revival

trend is likely to sustain and will be healthy from a medium term perspective.

Q. What is your expectations from the upcoming budget? How is it going to impact the market in the short term?

A. The general expectation is that the budget could include some sops for the rural and middle class as it is close to election. We believe that the budget impact could be limited by:

• Space for fiscal stimulus being constrained given the high fiscal deficit

• Measures by government could take time to hit the ground and the focus will be on elections which will be 3-4 months away maybe more than the budget

• The central government accounts from a structural perspective have a high ratio of spending towards committed expenses like salaries, pension etc. so the f l e x i b i l i t y t o b o o s t discretionary expenditure is limited.


Tête-à-tête


A. Our outlook for equities remain optimistic over the medium term and believe equities can be among one of the better asset classes during this period. However the volatility is also expected to remain higher making a case for optimal diversification amongst various asset classes in line with one's investment goals, risk appetite & time horizon. For conservative

equity investors we believe there is merit in considering hybrid products like Balanced Advantage funds which can dynamically change the equity allocation. In the diversified space along with Large Cap s t ra teg ies investors can consider Multi Cap & Mid Cap space , g iven the recent correction in the non-large caps. Also thematically we believe Value style appears well placed and Value oriented funds can be looked at by long term investors.

Disclaimer from Axis Mutual Fund:

This document represents the views of Axis Asset Management

Co. Ltd. and must not be taken as the basis for an investment

decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee

Limited nor Axis Asset Management Company Limited, its

Directors or associates shall be liable for any damages including

lost revenue or lost profits that may arise from the use of the

information contained herein. No representation or warranty is

made as to the accuracy, completeness or fairness of the

information and opinions contained herein. The material is

prepared for general communication and should not be treated as

research report. The data used in this material is obtained by Axis

AMC from the sources which it considers reliable. While utmost

care has been exercised while preparing this document, Axis AMC

does not warrant the completeness or accuracy of the information

and disclaims all liabilities, losses and damages arising out of the

use of this information. Investors are requested to consult their


Tête-à-tête

financial, tax and other advisors before taking any investment

decision(s). The AMC reserves the right to make modifications and

alterations to this statement as may be required from time to time.

Axis Mutual Fund has been established as a Trust under the Indian

Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to

Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment

Manager: Axis Asset Management Co. Ltd. (the AMC) Risk

Factors: Axis Bank Limited is not liable or responsible for any loss

or shortfall resulting from the operation of the scheme.

The information set out above is included for general information

purposes only and does not constitute legal or tax advice. In view

of the individual nature of the tax consequences, each investor is

advised to consult his or her own tax consultant with respect to

specific tax implications arising out of their participation in the

Scheme. Income Tax benefits to the mutual fund & to the unit

holder is in accordance with the prevailing tax laws as certified by

the mutual funds consultant. Any action taken by you on the basis

of the information contained herein is your responsibility alone.

Axis Mutual Fund will not be liable in any manner for the

consequences of such action taken by you. The information

contained herein is not intended as an offer or solicitation for the

purchase and sales of any schemes of Axis Mutual Fund.

Mutual Fund Investments are subject to market risks, read all scheme

related documents carefully.

Disclaimer from IDFC Asset Management Company:

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ

ALL SCHEME RELATED DOCUMENTS CAREFULLY.

The Disclosures of opinions/in house views/strategy incorporated

herein is provided solely to enhance the transparency about the

investment strategy / theme of the Scheme and should not be


Tête-à-tête

treated as endorsement of the views / opinions or as an

investment advice. This document should not be construed as a

research report or a recommendation to buy or sell any security.

This document has been prepared on the basis of information,

which is already available in publicly accessible media or

developed through analysis of IDFC Mutual Fund. The

information/ views / opinions provided is for informative purpose

only and may have ceased to be current by the time it may reach

the recipient, which should be taken into account before

interpreting this document. The recipient should note and

understand that the information provided above may not contain

all the material aspects relevant for making an investment decision

and the stocks may or may not continue to form part of the

scheme's portfolio in future. The decision of the Investment

Manager may not always be profitable; as such decisions are

based on the prevailing market conditions and the understanding

of the Investment Manager. Actual market movements may vary

from the anticipated trends. This information is subject to change

without any prior notice. The Company reserves the right to make

modifications and alterations to this statement as may be required

from time to time. Neither IDFC Mutual Fund / IDFC AMC Trustee

Co. Ltd. / IDFC Asset Management Co. Ltd nor IDFC, its Directors or

representatives shall be liable for any damages whether direct or

indirect, incidental, punitive special or consequential including

lost revenue or lost profits that may arise from or in connection

with the use of the information.

Disclaimer from Reliance Nippon Asset Management Ltd:

The presence of any information, reviews, product information,

tutorials, discussions, advertisements or any other content does

not constitute endorsement. We attempt to help and present

information, opinions, discussion reports and other material in an

orderly fashion but do not validate or authenticate the contents

mentioned therein. When making important decisions about any

of the issues dealt herein you should always check out material


Tête-à-tête

from several sources and then make an educated decision. The

information is provided as-is. We do our best to make sure the

content works as it should but we accept no responsibility should

it not do so. Basically everything here has been provided to assist

you but if it doesn't work, damages something or causes you

untold hours of grief we accept no responsibility.

ASK OUR PLANNER


Could loan be an opportunity to avail a tax benefit?

Q. I am a 32 year old salaried

person. I have taken a house loan

with my wife as a co-borrower

(50%). Currently, both of us come

under same tax bracket. Are we

eligible for any tax benefit? Also,

what will be the tax implication if

one of us falls in higher tax bracket

in next year?

- Yash Yadav

A. To avail the income tax benefits on a Joint Home Loan, the co-borrower of the loan should also be a co-owner of the property. You cannot avail income tax benefits if you are only a co-borrower and not co-owner. Assuming both are co-owners as well, you and your spouse are eligible for income tax benefits under section 80C (Principal portion of EMI; Stamp Duty in the first year) and under sect ion 24(b) ( Interest port ion of EMI) individually in equal share. Both of you can separately c l a i m a m a x i m u m t a x deduction of Rs. 1.50 lakh per annum under Section 80C and Rs. 2 lakh per annum for i n te r es t paym ent under

Section 24(b). However, the total tax benefit by all joint owners cannot exceed the total principal repayment and interest payment during the year.

Since both of you are in the same tax bracket and have an equal share in home loan, both will enjoy same amount of tax deduction. This will not change even if anyone moves into a higher tax bracket, as the ownership ratio is pre-defined to be 50% (i f not stated otherwise).

Q. I am 23 and work in a software firm in Delhi. I stay with my parents. My company provides House Rent Allowance (HRA) of 13,500 p.m. as a part of my salary. But since I don't live in a rented accommodation, I end up paying tax on the full amount. Is there any way I can save tax on my HRA?

- Priyanka Arora

A. You can save tax on the

HRA part of your salary by

paying rent to your parents,

assuming the house is owned

by any (or both) of them, but

ASK OUR PLANNER


you should not be an owner or

co-owner of the property. Rent

should be paid to both owners

if the house is jointly owned.

You must enter into a rental

agreement with your parents

and also prepare rent receipts.

You should prefer to pay rent

via banking channels instead

of cash, to support your HRA

claim. It is also mandatory to

provide PAN of the 'landlord' in

case rent exceeds Rs. 1 lakh

p.a. , when declar ing the

exemption to your employer,

or at the time of tax filling. The

actual deduction available is

the least of the following

amount:

a. Actual HRA received

b. 50% of Salary (as you

reside in Delhi, a metro city)

c. Actual rent paid (less) 10%

of Salary

Here 'Salary' means Basic

Salary & Dearness Allowance

(if it forms part of retirement

benefits)

One important thing to keep in

mind is that the rent paid to

your parents shall be taxable

for them. They will need to

include this income under the

head “Income from House

Property” while filling their tax

return. They can deduct any

property taxes paid, and avail

an additional flat 30% standard

deduction from this rental

income.

Q. I have a life-stage pension policy taken in 2009 with no sum assured for 10 years. It will mature on 2024. Every year I am paying a premium of 25,000/-. I am 45 years and I want to surrender the policy now. My question is that can I surrender or I should have to wait for maturity.

- Imtiyaz Wanti

A. Your po l icy would be eligible for surrender now. However, please note that if you surrender the policy, you would receive the entire maturity value, subject to surrender charges, if any. The entire surrender proceeds would be added to your income and taxed as per your income slab, if you have claimed deduction for the premiums paid. If not, the gains (i.e. surrender proceeds less the premiums paid) would be added to your income and taxed as per your income slab.

ASK OUR PLANNER


If you wait till maturity, then on

maturity, you can withdraw up rdto 1/3 of the maturity value as

lump sum, which is exempt

from tax. And, the remaining

amount would be converted

into annuity, from which you

would start receiving regular

annuity, which would be taxed

as per your income slab.

If you do not need the money

right now, it's better to stay

invested till maturity.

Q. I am a Senior Citizen. Please

suggest me some good Senior

Citizen Saving Schemes (SCSS) for

tax saving purpose!

- Bharat Kumar Mathur.

A. For senior citizens to save tax on investments, Senior Citizen Saving Scheme (SCSS) of fered by Post Of f ice / Nationalized banks is a good option. You can also look at 5-year Bank FDs, once interest rates move up. If you have funds over and above your needs, you can also look at Equity Linked Saving Scheme (ELSS) opt ion; however, please note that this scheme invests into stocks and is categorized as high risk.

Hence, please opt for this scheme only i f your r isk appetite is high.

Q. I have a car loan of Rs. 10 lakh taken in December 2013 from bank. Outstanding loan amount for which is Rs.5.25 lakh. I also have a personal loan from the same bank with due amount of Rs. 4 lakh. I am expecting a big payment in couple of months and confused about which loan to clear off. Should I part-pay my car loan or opt for pre closure of personal loan? Both have similar pre-payment charges. What is advisable?

- Natasha Agrawal

A. In th is scenar io , i t i s suggested that you pay off the loan balance which carries higher rate of interest. A personal loan usually charges a higher interest rate as it is unsecured, compared to a loan backed with collateral i.e. car loan where the asset (car) is hypothecated to the lender and lender has the right to seize your asset if you do not pay your dues on time. Such recourse is not possible in case of a personal loan. Hence, you should attempt to pre-close your personal loan (assuming

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it is the one with higher rate of interest) and gradually pay off your car loan subsequently.

Q. My mother is currently in her

45+ and is a conservative investor.

She prefers and relies only on bank

fixed deposits. She is ready to

invest in a little aggressive product

that fetches higher returns than FD.

She holds 3 FDs worth 10 lakhs

which is matur ing th is and

following year. Could you suggest

where can we invest considering

her age and saving on taxes?

- Kavya Singh

A. We be l i eve tha t your

investment decisions must be

guided by your financial needs

and responsibilities. Apart

from the individual 's risk

prof i le, end object ive of

investing and investment time

horizon are other important

factors that decides the ideal

investment allocation and

investment avenue. With the

available information, she can

re-invest the FD maturity

proceeds into growth plans of

'Short Duration' & 'Medium

Duration' category of debt

o r i e n t e d m u t u a l f u n d s .

However, these instruments

would also a similar return as a

FD. You could also look at

Monthly Income Plans offered

by mutual funds, which take

around 10-15% exposure into

equity, to yield a slightly higher

return compared to a FD.

Unlike FDs where the accrued interest income is subject to TDS and is taxable, capital gains (difference between sale value & purchase value) from debt oriented mutual funds & MIPs are only taxable when you actually withdraw your ent i re investment. Gains realized upon withdrawing before 3 years of purchase is referred to as short term capital gains (STCG) and any gains realized post the 3 year holding period is referred as long term capital gains (LTCG). While STCG is added to your income and taxed as per tax slab, LTCG is taxed at the rate of 20% after indexation. Indexation is a method of factoring rise in inflation during the holding p e r i o d a n d i n f l a t e s t h e purchase price accordingly, and you end up paying less tax compared to a bank FD. The s u g g e s t e d m u t u a l f u n d

ASK OUR PLANNER


schemes are open-ended i.e. t h e r e a r e n o t i m e w i s e restrictions and offer high liquidity.

Other details such as present post-tax income and cash flow analysis are required to provide optimal investment recom-- mendations. A customized and comprehensive financial plan will take into consideration your needs, identify your f i n a n c i a l g o a l s a n d responsibilities, assess your present & future cash flow and provide investment strategies accordingly. To know more about this, you may write to us

at [email protected].

Q. When I tax file my returns, I am k n o w n t o t h e a d v a n t a g e (deductions) on the sale of the property? Likewise do we get similar benefits on a purchase of the property? Enlighten me more on this.

- Vaibhav Awasthi

A. Individuals are eligible for

certain tax benefits when

purchasing or constructing a

house property, primarily

through a home loan. These

benefits are covered under

section 80C and section 24(b)

which are explained below:

a. Section 80C – Stamp duty,

registration charges and other

expenses which are directly

related to the transfer or

construction of the property

are allowed as a deduction

from the total taxable income,

in the year of incurring these

charges. Additionally, the

principal part of the home loan

EMI paid is allowed as tax

deduction. The maximum

deduction allowed under this

sect ion is capped at Rs.

150,000. However, the said

property must not be sold

within 5 years from the date of

possess ion , o r e l se the

deductions claimed in the

previous years will be added

back to your income in the year

of sale.

b. Section 24(b) – The entire interest part of the home loan EMI paid ( loan taken for purchase or construction of a new property) is allowed as deduction under the head 'Income from House Property', and the resulting loss, if any, could be set off against other

ASK OUR PLANNER


heads of income in the same year. This loss is restricted to Rs. 2 lakh p.a. (For self-occupied house, as there will b e n o i n c o m e f r o m t h e property, the entire interest upto Rs. 2 lakh p.a. would be considered as the loss from house property). Loss from house property of more than Rs. 2 lakh p.a. can be carried f o r w a r d f o r t h e n e x t 8 a s s e s s m e n t y e a r s , b u t available for set off only against Income from the same head. Interest part of the home loan payment, where loan is taken from family or friends, is also allowed for deduction under the specified limits, by

furnishing interest certificate.

In case you opt for a joint home

loan, both the applicants can

claim entire deductions under

s e c t i o n 8 0 C & 2 4 ( b )

individually, based on their

share of ownership in the

home. An important criterion is

that the co-borrowers must

also be co-owners in the

property. Entire interest paid

during the construction period

(prior period interest) is also

available for deduction in 5

equal installments from the

financial year in which the

construction is completed,

subject to the overall limit of

Rs.2 lakh under Section 24(b).

Do you also have similar queries to ask our experts? Write to us at: [email protected].

MUTUAL FUND ANALYSIS


Investing in Banking funds

The year 2018 has been a roller

coaster experience for equity

investors. After starting on a

volatile note in the first three

months, markets ral l ied

s h a r p l y t i l l A u g u s t .

September and October

witnessed a sharp correction

on the back of a global sell-off

amid trade war concerns, a

sharp rise in crude oil prices

and a depreciating currency.

The benchmark headline

indices returned marginal

gains while midcaps and

s m a l l c a p s w e r e d o w n

significantly during the year

as investors booked profit.

Amid the volatility, defensive

sectors like pharma and IT

have prevented the downside

and, thus, done well. On the

other hand, the financial

sector has come off from the

t u r b u l e n c e i n p r e v i o u s

months precipitated by the

NBFC crisis. The banking

sector being a barometer of

the economy is expected to

play a leading role in aiding

the progress of var ious

reforms centred around

financial inclusion and push

towards a digital economy.

Recently, the market has

clearly differentiated to favour

corporate banks, NBFCs with

strong parentage and robust

b u s i n e s s m o d e l a n d

b e n e f i c i a r i e s o f N C LT

resolutions. In our opinion,

the banking sector is poised to

b e n e f i t f r o m m u l t i p l e

tailwinds in the form of revival

in credit growth, softness in

bond yields and clarity over

the PCA framework. We

believe the banking sector

may outperform and lead the

next market rally. Investors

may invest in banking funds

as part of their thematic

allocation with an investment

horizon of more than two to

three years.

The economy has seen a

gradual pick-up in credit led by

the retail and services sector.

The services segment has

grown healthily at ~23-27%

from June 2018. The retail loan

segment is growing at a steady

pace of ~16-17% YoY as of

October 2018. Post multiple



headwinds, a healthy revival

has been witnessed in credit

growth in Tamil Nadu (13%)

and Kerala (12%). We expect

the improving credit scenario

and demand shift from NBFCs

to banks to push up FY19

banking sector credit growth to

15-16% vs. ~13% earlier.

The Ind ian deb t marke t

witnessed a turnaround in

recent months due to a sharp

fall in global crude oil prices,

continuous under-shooting of

C P I r e a d i n g f r o m R B I ' s

projected path and OMOs

leading to G-sec yield falling by

~80 bps to 7.22% from 8.02%.

The fall in yields is a huge

positive for banks, especially

public sector ones.

Continuous efforts on part of

the government to move PSU

b a n k s o u t o f t h e P C A

f r a m e w o r k a l o n g w i t h

declining MTM losses on G-

sec augurs well for PSU banks.

Post the change of guard at

RBI, anticipated relaxation in

PCA norm is seen boosting

lending by PSU banks. Capital

infusion of ~| 83000 crore

remains positive as it could

lead to early exit of few banks

under PCA framework.

However, concerns remain

around possible deterioration

of credit culture due to domino

effect of expectations of more

farm loan waivers. Previously,

GNPA for agriculture sector

increased drastically from

4.8% in March 2013 to ~7% in

March 2018 on the back of

similar loan waivers and

consecutive drought years.

Within the banking space, we

prefer businesses with robust

operating model, strong and

stable franchise, both on asset

as well liability side and strong

management. Being thematic

in nature, allocation to banking

funds should not exceed 5-

10% of an investor's overall

equity portfolio. Our preferred

funds in th is sector are

Reliance Banking Fund and

ICICI Pru Banking & Financial

Services Fund.



Fund Objective:

The pr imary inves tment

objective of the Scheme is to

seek to generate continuous

returns by actively investing in

equity and equity related

securities of companies in the

Banking Sector and companies

engaged in allied activities

related to Banking Sector.

NAV as on December 31, 2018 ( )` 264.9Inception DateFund Manager Vinay SharmaMinimum Investment ( )` Lumpsum 5000

SIP 500Expense Ratio (%) 2.09Exit Load 1% on or before 1Y, Nil after 1YBenchmark NIFTY BANK - TRILast declared Quarterly AAUM( cr)` 2764

Key Information

May 26, 2003

Product Label:This product is suitable for investors who are seeking:• Long term capital growth• Investment in equity and equity

related securities of companies i n b a n k i n g s e c t o r a n d companies engaged in allied activities related to banking sector

Investors understand that their principal will be at high risk

Performance:The fund is among the oldest funds in the banking sector space and i ts long term performance since inception remains robust, however its performance over the last few years is not among the best in the category. As of December 31, it has generated CAGR of 16.6% and 19.7% over three years and five years vs. 17.9% a n d 1 9 . 9 % r e t u r n s b y benchmark, respectively.

Performance vs. Benchmark (CAGR Returns %)

-1.2

16

.6

19

.7

23

.4

6.8

17

.9

19

.9

21.5

6

-10

0

10

20

30

1 Year 3 Year 5 Year SinceInception

Fund Benchmark

Reliance Banking Fund



Portfolio:The portfolio comprises 24 stocks. Currently, the portfolio is tilted towards large caps (~64%) while midcap and small cap stocks make up the rest. The fund has significant exposure to large private corporate centr ic banks,

indicating a play on capex cycle revival. However, the fund also has stocks catering to the retail segment. The fund has handpicked public sector banks (non PCA) with relatively better capital adequacy poised to benefit from revival in credit cycle.

%

14.3

11.4

10.9

5.3

5.2

5.0

4.5

4.3

4.0

3.3

Top 10 Holdings

ICICI Bank Ltd.

HDFC Bank Ltd.

State Bank Of India

Bajaj Finserv Ltd.

The Federal Bank Ltd.

RBL Bank Ltd.

PNB Housing Finance Ltd.

Bank Of Baroda

Bharat Financial Inclusion Ltd.

Asset Type

Domestic Equities

Domestic Equities

Domestic Equities

Domestic Equities

Domestic Equities

Domestic Equities

Domestic Equities

Domestic Equities

Domestic Equities

Tri-Party Repo (TREPS) Cash & Cash Equivalents and Net Assets

%39.9

18.3

17.7

5.3

4.0

2.4

2.4

1.8

0.8

Top 10 Sectors Asset TypeBank - Private Domestic Equities

Bank - Public

Insurance Domestic Equities

Finance - Others Domestic Equities

Finance - Asset Management Domestic Equities

Domestic Equities

Finance - NBFC Domestic Equities

Finance - Investment Domestic Equities

Finance - Housing Domestic Equities

Ratings Domestic Equities

%Whats In

%

0.5

0.5

Whats out

IndusInd Bank Ltd.

DCB Bank Ltd.



Our View:

The fund's strong performance

since inception and a long

history are comforting factors

even though performance in

r e c e n t t i m e s h a s b e e n

mediocre. With a good mix of

stocks that are a play on

corporate lending and private

lending, we feel that investors

can consider the fund from a

three-year perspective.

You can view performance of other schemes being managed

by the fund manager of this scheme on the following link:

https://www.reliancemutual.com/InvestorServices/Factsheets

Documents/Fundamentals-January-2019.pdf

Data as on December 31, 2018; Portfolio details as on November-2018Source: ACE MF, ICICI Direct Research



ICICI Pru Banking & Financial Services Fund

Fund Objective:To generate long-term capital appreciation to unitholders from a portfolio that is invested predominantly in equity and equity related securities of c o m p a n i e s e n g a g e d i n banking and financial services. However, there can be no assurance that the investment objective of the Scheme will be realized.

NAV as on December 31, 2018 ( )` 60.9Inception DateFund Manager Roshan ChutkeyMinimum Investment ( )` Lumpsum 5000

SIP 100Expense Ratio (%) 2.08Exit Load 1% on or before 15D, NIL after 15DBenchmark Nifty Financial Services - TRILast declared Quarterly AAUM( cr)` 2595

Key Information

August 22, 2008

Product Label:This product is suitable for investors who are seeking

• Long term capital appreciation

• Investment predominantly in equity

and equity related securities in the Healthcare Services sector

Investors understand that their principal will be at high risk

Performance:

The fund has consistently been

among the top performing funds

in the sector over shorter as well

as longer timeframes. It has

delivered 20.5% CAGR and 22.3%

CAGR returns, respectively, for

three and five-year time frames vs

19% CAGR and 20.7% CAGR

performance of the benchmark

over these time frames (as of

December 31).

Performance vs. Benchmark (CAGR Returns %)

-0.4

20.5

22.3

19

11.3 1

9 20.7

17.0

7

-505

10152025

1 Year 3 Year 5 Year SinceInception

Fund Benchmark



Portfolio

The fund 's port fo l io has

exposure to a diverse mix of

businesses within the banking

and financial services space –

banks (private as well public),

NBFCs as well as insurance. Its

focus on corporate facing

private banks is accentuated

by recent additions to the

portfolio. Currently, there are

31 stocks in the portfolio,

making it less concentrated

than some other funds and

with a larger tail than most

peers. The fund has lesser

exposure to its top picks than

some other peers. The fund

has ~60% of its portfolio

invested into large cap stocks

with the rest invested in

midcaps and small caps.

%

13.8

8.5

8.5

5.1

4.8

3.9

3.4

3.3

2.8

2.7

Top 10 Holdings Asset Type

ICICI Bank Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

State Bank Of India Domestic Equities

Housing Development Finance Corporation Ltd.

Muthoot Finance Ltd. Domestic Equities

Karur Vysya Bank Ltd. Domestic Equities

The Federal Bank Ltd. Domestic Equities

Domestic Equities

Bajaj Finserv Ltd. Domestic Equities

Bank Of Baroda Domestic Equities

Mahindra & Mahindra Financial Services Ltd. Domestic Equities

%38.4

20.7

14.6

7.9

7.9

4.9

1.9

0.9

0.7

Top 10 Sectors Asset TypeBank - Private Domestic Equities

Finance - NBFC

Finance - Investment Domestic Equities

Finance - Others Domestic Equities

Finance Term Lending Domestic Equities

Domestic Equities

Bank - Public Domestic Equities

Insurance Domestic Equities

Finance - Housing Domestic Equities

Finance - Stock Broking Domestic Equities

%

2

Whats In

Axis Bank Ltd.

%Whats out



Our View:The portfolio is well constructed in terms of diversification. Investors

can consider the fund from a three-year perspective.

You can view performance of other schemes being managed

by the fund manager of this scheme on the following link:

https://www.icicipruamc.com/docs/default-source/default-

document-library/fund-factsheet-for-december270002ff

41026ea9a3af27f6b75e8fc7.pdf?sfvrsn=0

Data as on December 31, 2018; Portfolio details as on November-2018 Source: ACE MF, ICICI Direct Research



Performance of other schemes managed by these fund managers:

-1.12 17.19 20.017.24 18.67 20.34

-14.35 8.62 20.28-3.26 12.43 14.64

Performance of other schemes managed by the fund manager - Vinay Sharma

Reliance Focused Equity Fund(G)S&P BSE 500 - TRI

Fund Name 1 Year 3 Years 5 Years

Top 3 Performing Schemes Reliance Banking Fund(G)NIFTY BANK - TRI

Note : The schemes may or may not have been managed by the same Fund

Manager since its inception

Note : The concerned Fund Manager manages 2 other schemes of the

concerned Mutual Fund

8.63 7.56 8.077.61 7.25 7.827.95 7.37 7.90

-- -- --7.74 7.42 7.976.69 7.48 8.30

-- -- ---- -- ---- -- --

-1.87 11.31 12.94

-- -- ---1.87 11.31 12.94

Bottom 3 Performing SchemesReliance Nivesh Lakshya Fund(G)

Reliance Inv-Qrtly-II(G)Crisil Liquid Fund IndexReliance Money Market Fund(G)CRISIL Money Market IndexReliance Inv-Annual-I(G)Crisil Short Term Bond Fund Index

Performance of other schemes managed by the fund manager - Kinjal Desai


Top 3 Performing Schemes

S&P BSE 200

Crisil Long Term Debt IndexReliance Capital Builder Fund-IV-D(G)S&P BSE 200

Reliance India Opp Fund-Sr-A(G)

Note : The schemes may or may not have been managed by the same Fund

Manager since its inception



1. Reliance Banking Fund



-0.08 21.15 22.8111.67 19.80 21.06

-- -- ---3.81 11.10 13.90

Performance of other schemes managed by the fund manager - Roshan Chutkey

ICICI Pru Bharat Consumption Fund-5-(G)

NIFTY CONSUMPTION


Top 3 Performing Schemes ICICI Pru Banking & Fin Serv Fund(G)Nifty Financial Services - TRI

2. ICICI Pru Banking & Financial Services Fund

Note : The schemes may or may not have been managed by the

same Fund Manager since its inception

Note : The concerned Fund Manager manages 2 other schemes of

the concerned Mutual Fund

18.06 10.95 11.8126.85 10.72 10.786.12 6.17 6.904.44 -- --5.76 13.42 15.3614.75 16.29 14.00

-- -- ---3.81 11.10 13.90

-- -- ---3.81 11.10 13.90

-- -- --2.12 11.24 11.54

Bottom 3 Performing SchemesICICI Pru Bharat Consumption Fund-2-(G)

ICICI Pru Technology Fund(G)S&P BSE Information Technology - TRIICICI Pru Equity-Arbitrage Fund(G)Nifty 50 Arbitrage IndexICICI Pru FMCG Fund(G)NIFTY FMCG - TRI

Performance of other schemes managed by the fund manager - Priyanka Khandelwal


Top 3 Performing Schemes

NIFTY 50

NIFTY CONSUMPTIONICICI Pru Bharat Consumption Fund-3-(G)NIFTY CONSUMPTION

ICICI Pru CPO Fund-XIV-A-1275D(G)

Note : The schemes may or may not have been managed by the same

Fund Manager since its inception



Data as on December 31, 2018; Portfolio details as on November-2018 Source: ACE MF, ICICI Direct Research


This month on iCommunity

59

Together, we are remarkable.

We have posted key h i g h l i g h t s o f l a t e s t announcement from the Finance Minister's budget speech made in the p a r l i a m e n t o n iCommunity from our r e s e a r c h d e s k o n February 01, 2019. Stay up - to - da te w i th the developments and share your thoughts with fellow 9 0 0 0 0 t r a d e r s a n d investors.

Visit iCommunity: http://community.icicidirect.com/service_forum

Q&A Session with Tax expert from H&R Block – January 21, 2019

Ø I am a senior citizen and I receive pension. Do I have to deduct the standard deduction while entering my pension amount in tax return?

Ø I wish to buy a commercial property, I already own a residential property in my name. I wish to take the property on bank loan. Will I get interest rebate on tax, on my new investment?

Ø I have some mutual funds holdings since over a year and I have opted for regular dividends. With regard to tax liability would it be better to opt for systematic withdrawal option?

What is iCommunity?

iCommunity is ICICIdirect's interactive platform where one can answer and get

answered as well. With extensive range of forums, events & discussions. iCommunity

serves as an opportunity to learn more about financial world. Join now to get most out

of this forum. You can register yourself in 3 simple steps.

Q & A Forum:> What is futures and options in trading world?> What's the process to apply for Buyback?> I have 20 shares of XXXX stock. Should I hold or sell?

Find support for your Financial journey online. Quick reply, in-depth expertise,

and everything in between: The ICICIdirect community has it all. The

ICICIdirect community will unlock your curiosity and unleash the expert in you.

From market updates to Research advice, there are lots of ways to take your

skills to the next level.

EQUITY MODEL PORTFOLIO


Our indicative large-cap equity model portfolio is delivering an impressive return (inclusive of dividends) of 139.31% till date (as on December 31, 2018) since its inception (June 21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex) return of 106.59% during the same period, an outperformance of 32.72. This validates our thesis of selecting companies with sound business fundamentals that forms the core theme of our portfolio. We have revised stocks in our midcap portfolio. It continues to outperform, delivering 237.88% (inclusive of dividends) till date (as on December 31, 2018) vis-à-vis the benchmark index (CNX Midcap) return of 132.21%, an outperformance of 105.67. Our consistent outperformance demonstrates our superior stock picking ability as markets aligned to our view of favourable risk reward, good franchisee vs. reward-at-any-risk businesses.

We have always suggested the SIP mode of investment and still find a lot of merit in it as the preferred mode of deployment given the market conditions and volatility associated since the inception of the portfolio. We highlight that the SIP return of our portfolio has consistently outperformed the indices.

Following the same pace and opportunities in the market, our latest portfolio (large caps) remains overweight on BFSI sector – HDFC Bank (10%), HDFC Limited (9%), Axis Bank (6%) Bajaj Finance (6%) and SBI (6%). Affirming our view on consumption demand, Dabur (5%) and Marico (4%) continue to be part of our large cap portfolio.

We remain positive on auto, IT and pharma. We remain overweight to neutral on pure play defensives (IT, FMCG) as secular earnings coupled with sector rotation could lead to consolidation in near term valuations and offer stock specific opportunities.

We continue to remain underweight on metals and oil & gas with our only pick being Gail Ltd., which has a better risk reward opportunity. Among individual names, we recommend TCS in the IT space, HDFC and HDFC Bank in the BFSI space and ITC in consumer space.



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

Maruti Suzuki 6.0 4.2

EICHER Motors 4.0 2.8

Mahindra & Mahindra (M&M) 4.0 2.8

HDFC Bank 10.0 7.0

Axis Bank 6.0 4.2

HDFC Limited 9.0 6.3

Bajaj Finance 6.0 4.2

SBI 6.0 4.2

Larsen & Toubro 6.0 4.2

UltraTech Cement 4.0 2.8

Dabur 5.0 3.5

Marico 4.0 2.8

ITC 6.0 4.2

Nestle India 4.0 2.8

TCS 6.0 4.2

Hindustan Zinc 6.0 4.2

Divis Laboratories 3.0 2.1

GAIL Ltd. 5.0 3.5

Largecap share in diversified 100.0 70.0



Bharat Forge 6.0 1.8

Exide Industries 6.0 1.8

Bajaj Finserve 8.0 2.4

Indian Bank 6.0 1.8

AIA Engineering 6.0 1.8

Kalpataru Power transmission 6.0 1.8

Ramco Cement 6.0 1.8

Kansai Nerolac 6.0 1.8

Pidilite Industries 6.0 1.8

Tata Chemicals 6.0 1.8

Bata India 6.0 1.8

Graphite India 6.0 1.8

Firstsource Solutions 6.0 1.8

Container Corporation of India 6.0 1.8

Syngene International 8.0 2.4

Arvind 6.0 1.8

Total 100.0 30.0

Midcap share in diversified 30

TOTAL 100 0 100.0

ICICI Securities has received an Investment Banking mandate from Mahindra & Mahindra.



Performance so far since inception*

139.3103439

237.8815283

167.6046483

106.5948382

132.2081566111.9254914

0

100

200

300

Large Cap Midcap Diversified

%

Portfolio Benchmark

*Returns (in %) as on December 31, 2018

Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination of BSE Sensex and CNX Midcap

Value of Rs 1,00,000 invested via SIP at end of every month

9100000

9100000

9100000

13846615.4

5

21082660.4

8

15076857.0

7

11533430.4

2

12836941.4

4

12480316.8

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

Largecap Midcap Divesified

|

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: June 30, 2011; *Value as on December 31, 2018

QUIZ TIME


Below are a few investments schemes with their respective features in it. The

blocks represents the abbreviation for each scheme. Could you guess the

schemes given below?

1. It is currently offering fixed 8% returns for this 4th quarter, with lock in period of 5

years/ 10 years

2. Stays for a lock in period of 15 years, withdrawal is allowed after 7th F.Y. from the

year of account opening.

3. An additional benefit of Rs. 50,000 under section 80CCD (1B) is availed in this tax

saving scheme

4. An investment using the compounding effect and represents the advantage of

rupee cost average

5. An effective retirement plan, eligible for 60 years and above that offers 8.7 %

returns for this 4th quarter

6. Another tax saving scheme that is in a combination of insurance and investment

having lock in period of 3 years

7. An account that can only be opened up to the age of 10 and only eligible to a girl

child

8. A tax saving scheme, eligible under section 80C with a diversified equity

investments in large, mid and small caps and a lock in period of 3 years

Note: You may send in your answers at: [email protected]. The answers

will be published in our next edition. The names of the earliest all correct entries will be

published too. So jog your grey cells and be quick to send in your entries.

Correct answers for the December 2018 Wordsearch are:

A D A S S E S S M E N T D

S E K A U K Y N A X T Q T

S D B T T J L I T A X U A

Q U A R T E R A Q T A A X

E C O Z X T J G X E T R S

W T L I S B A L S M O S L

A I G O V D M A F O E R A

L O C K A E J T X C U O B

S N Y T X D R I A N V I S

X S J E X E M P T I O N S

A H Y U O L V A A O L C U

T G E G R A H C R U S R P

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

65

31-Dec-18 30-Nov-18 Change (%)

CNX Nifty 10863.0 10877.0 -0.1%

CNX Midcap 17875.5 17503.6 2.1%

S&P BSE Sensex 36068.3 36194.3 -0.3%

S&P BSE 100 11161.0 11119.2 0.4%

S&P BSE 200 4653.7 4626.5 0.6%

S&P BSE 500 14540.4 14429.0 0.8%


Dow Jones 23,327.5 25,538.5 -8.7%

S&P 500 2,506.9 2,760.2 -9.2%

Nasdaq 6,635.3 7,330.5 -9.5%

FTSE 6,728.1 6,980.2 -3.6%

DAX 10,559.0 11,257.2 -6.2%

CAC 40 4,730.7 5,003.9 -5.5%

Nikkei 20,014.8 22,351.1 -10.5%

Hang Seng 25,845.7 26,506.8 -2.5%

Shanghai Composite 2,493.9 2,588.2 -3.6%

Taiwan Weighted 9,727.4 9,888.0 -1.6%

Straits Times 3,068.8 3,117.6 -1.6%


S&P BSE Auto 20,833.7 20,900.2 -0.3%

S&P BSE Bankex 30,376.7 29,949.0 1.4%

S&P BSE FMCG 18,821.0 18,639.4 1.0%

S&P BSE Healthcare 13,923.4 14,332.7 -2.9%

S&P BSE Metals 11839.59 11831.86 0.1%

S&P BSE Oil & Gas 13,748.6 13,246.2 3.8%

S&P BSE Power 1,999.2 1,911.3 4.6%

S&P BSE Realty 1,797.8 1,791.7 0.3%

S&P BSE Teck 7,066.1 7,170.2 -1.5%

PRIME NUMBERS


Debt Markets

Volatility Index (VIX)

66

31-Dec-18 30-Nov-18

VIX 18.66 19.16

Government Securities Yield (in %) Dec-18 Nov-18 Change (bps)

10 year 7.37 7.61 -24

5 year 7.19 7.47 -28

3 year 7.22 7.32 -10

1 year 6.91 7.10 -19

Corporate Bond Yields (in %) Dec-18 Nov-18 Change (bps)

AAA 10 year 8.67 8.77 -10

AAA 5 year 8.44 8.64 -20

AAA 3 year 8.40 8.60 -20

AAA 1 year 8.26 8.41 -15

AA 10 year 9.22 9.23 -1

AA 5 year 9.04 9.25 -21

AA 3 year 9.07 9.19 -13

AA 1 year 8.88 9.00 -12

Commercial Paper (in %) Dec-18 Nov-18 Change (bps)

12 Months 8.70 8.80 -10

6 Months 8.35 8.10 25

3 Months 7.10 7.83 -73

1 Month 0

Note : Data not available on Bloomberg for 1 month CP post 3/28/18

T-Bills Yields (in %) Dec-18 Nov-18 Change (bps)

91D TB 0

182D TB 0

364D TB 0

Note : Data not available on Bloomberg for 3,6 and 12 month Tbill post 3/28/18

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

67

Countries 31-Dec-18 30-Nov-18 Change in bps

US 2.684 2.988 (30)

UK 1.277 1.364 (9)

Japan 0.003 0.092 (9)

Spain 1.416 1.500 (8)

Germany 0.242 0.313 (7)

France 0.710 0.683 3

Italy 2.742 3.213 (47)

Brazil 9.235 9.894 (66)

China 3.310 3.380 (7)

India 7.369 7.607 (24)

MF Investment Dec-18 Nov-18 Fy18

Equity 2919 5236 141769

Debt 65235 51392 370716

FII Investment Dec-18 Nov-18 Fy18

Equity 2300 6223 22272

Debt 5805 6467 120387

Items Weights(%) Oct-18 Nov-18 Dec-18

Food&bev. 45.86 -0.14 -1.69 -1.49

Pan,tob& intox. 2.38 6.13 6.14 5.77

Cloth & Foot 6.53 3.55 3.53 3.52

Housing 10.07 6.55 5.99 5.32

Fuel & light 6.84 8.55 7.39 4.54

Misc. 28.31 6.73 6.15 6.45

CPI 100 3.31 2.33 2.19

Weights Oct-18 Nov-18 Dec-18WPI 100.0 5.28 4.64 3.80 Primary Articles 22.6 1.79 0.88 2.30 Fuel & Power 13.2 18.44 16.28 8.38 Manufactured Goods 64.2 4.49 4.21 3.60

*WPI numbers are based on new series with 2011-12 as the base year’

PRIME NUMBERS

Commodities


Mutual Funds: Category Average Returns

Equity Funds Returns (in %)

Debt Funds Returns (in %)

Index of industrial production (IIP) Sector-wise growth rate (%)

Currencies and Commodities

Currencies

68

Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research

Categories 30-Nov-18 Oct-18 Sep-18 Weight(%)Mining 2.3 14.1 2.7 14.4Manufacturing -5.0 1.6 0.8 77.6Electricity -11.3 1.9 -2.6 8.0Overall -5.1 3.0 0.6 100.0

*IIP numbers are based on new series with 2011-12 as the base year’

31-Dec-18 30-Nov-18 Change (%) StatusUSDINR 69.8 69.6 0.3% DepreciatedEURINR 80.0 79.2 1.0% DepreciatedGBPINR 89.1 88.7 0.4% DepreciatedAUDINR 49.3 50.8 -3.0% AppreciatedCHFINR 71.0 69.8 1.7% DepreciatedJPYINR 0.6 0.6 3.6% DepreciatedCNYINR 10.1 10.0 1.5% Depreciated

31-Dec-18 30-Nov-18 Change (%)Crude ($/barrel) 53.2 58.4 -9.0%Gold ($/ounce) 1,282.5 1,222.5 4.9%

Multicap Midcap Large Cap Small cap ELSS6 months 0.19 -1.85 0.44 -5.88 -1.111 year -6.34 -12.27 -1.11 -19.22 -8.253 year 9.81 8.93 9.67 8.47 10.365 year 15.37 18.85 13.31 20.21 15.65

Returns as on December 31, 2018

Debt Funds Returns (in %) Liquid Debt ST Ultra ST Debt LT

6 months 6.49 7.24 5.37 12.89

1 year 6.89 5.94 5.99 6.40

3 year 6.94 7.04 6.95 8.62

Returns as on December 31, 2018

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