ICICI March 18 Issuecontent.icicidirect.com/MoneyManagerMagazine/March_2018.pdf · continuous...
Transcript of ICICI March 18 Issuecontent.icicidirect.com/MoneyManagerMagazine/March_2018.pdf · continuous...
Shilpa KumarMD & CEO
ICICI Securities Ltd.
“ D e t e r m i n a n t s o f Po r t f o l i o
Performance,” a landmark paper
published in 1986, by Gary P.
Brinson, L. Randolph Hood, and
Gilbert L. Beebower concluded that
asset allocation is the primary
determinant of a portfolio's return
variability, with security selection
and market-timing playing minor
roles. While this study has been
revisited several times for and
against it, there is no doubt that
asset allocation is the cornerstone
of any investment strategy.
There are broadly two approaches
to look at asset allocation strategy -
risk profile based and goal based.
In the risk-oriented approach,
investor's age, level and growth of
his income, number of dependents, his liabilities a n d y e a r s t o
retirement are considered to shape his asset allocation strategy. For
example, investors below the age of thirty have considerable time to
ride out market risks. Thus, a stock-oriented portfolio seems most
suitable at this stage. At the same time for those above sixty, assets
offering capital protection like fixed-income or debt instruments pay off
better. In other words, in this strategy equity-debt proportion is likely to
change along with changes in age and income.
Our risk profile is nothing but our level of risk tolerance, i.e. our
willingness and ability to withstand market volatility. Based on this level,
investors are categorized as conservative, moderate and aggressive.
The basic premise is that our risk tolerance is likely to lower with
increasing age. But it's not a standard rule. An investor approaching
retirement may prefer equity-oriented portfolio to attain capital growth
during later years. Similarly, a conservative investor can gradually move
towards moderate and then aggressive portfolio as his tolerance level
increases over time.
Risk based approach is simple and can be used as a quick decision
making tool. However, if there are goals which are critical and short-
term and the risk profile is aggressive, adopting an aggressive portfolio
might not be a good idea. In such instances, other factors like
investment's time horizon and objective play a significant role. Goal
based asset allocation approach is more prudent.
Goal based approach involves choosing asset allocation based on
tenure and criticality of goals. This way, every goal would have different
asset allocation and offer bottom-up approach towards financial
objectives. Long-term goals like child's future or retirement can be
reached easily with stock centric asset allocation. Whereas for short-
term goals, the investor requires less volatile assets to attain his aim.
The only shortcoming is, this approach does not take investor's risk
tolerance into consideration.
Ideally, our portfolio mix should focus on equity to keep up with inflation
and debt allocation should give some amount of stability. The perfect
balance is where the returns and risks are both optimized. So, one can
follow risk-profile based asset allocation while taking quick decision on
investing; however, if one plans and invests considering specific
objectives in mind, goal-based asset allocation is more appropriate.
Last, but not the least, to gain in the long run, you need to adopt a
systematic approach towards investing. In a disciplined investment
style, you should regularly invest some amount, be it big or small, on a
continuous basis. The markets may turn volatile in the short term and
you may have an urge to exit the markets. For investors who prefer to
avoid hassle of 'timing the market', equity SIP is a great way to invest. It
is a well-established fact that in the long run, the equity markets deliver
much better returns than most other asset classes.
Our message remains the same – “Keep investing and stay invested for
your l ife 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 Neighbourhood
Financial Superstore and talk to us.
ICICIdirect Money Manager March 20181
There are several factors that affect the performance of one's investment
portfolio. Investor's risk profile, horizon, economic factors - both Indian &
global markets, are a few to name. However, there's one underlying
component that plays a significant role in deciding success of our portfolio-
asset allocation strategy.Studies on portfolio performance have shown that
the asset allocation strategy contributes to over 90 per cent of variation in the
performance (the other major components being stock selection and market
timing).
Asset allocation is not difficult to understand. Just as we would include
different nutrients via different foods for a healthy diet, asset allocation is
nothing but spreading your investments across different asset classes -
mostly based on your risk profile - to make your portfolio work better for your
and thus stay healthy.
The March edition of ICICIdirect Money Manager focuses on this aspect of
investing. It's important to consider the investment objectives and first decide
on the asset allocation strategy. Only then should you take the next step of
purchasing a product. Our cover story seeks to open yourvistas to other
investment opportunities that exist in the marketand can help broaden your
investment horizon.
The edition also features an interview with Mr. Manish Gunwani, CIO – Equity
Investments, Reliance Nippon Life Asset Management Limited (RNAM)
&Ashwin Patni, Head Products & Fund Manager, Axis Asset Management
Company Limited, who share their views on markets and strategies to follow
in the current scenario. They expect gradual yet steady economic recovery in
the coming fiscal.
Equity as an asset class is likely to deliver durable and strong growth over the
medium to long term. Under this background, our research team
recommends three top-performing equity linked savings schemes (ELSS) to
be part of your mutual fund portfolio.The equity model portfolio and stock
picks of the month continue to give good performance. So stay updated, and
keep reading to s tay f inanc ia l ly hea l thy. Do wr i te to us a t
[email protected] and share your thoughts.
Your magazine is now also available on www.magzter.com, a digital newsstand.
ICICIdirect Money Manager March 2018
Editor & Publisher : Abhishake Mathur, CFA
Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey
CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Research Team
Coordinating Editor : Namrata Lonkar
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ICICIdirect Money Manager March 20183
MD Desk ..................................................................................................1
Editorial ....................................................................................................2
Contents ...................................................................................................3
News .......................................................................................................4
Stock ideas: KSB Pumps & Music Broadcast .........................................5
Flavour of the Month: Choosing the right asset allocation strategy Combination of multiple asset classes is a tried-and-tested technique to optimize growth of our investments. In other words, the idea of asset allocation is to diversify your investments to meet investor's requirements for income, growth and liquidity. With the right asset allocation, you can look to improve risk-adjusted returns. Here's how…....................................................................................................16
Tête-à-tête: Fund managers' advise to equity and fixed-income investors In talk with Manish Gunwani, CIO - Equity Investments, Reliance Nippon Life Asset Management Limited (RNAM) & Ashwin Patni, Head Products & Fund Manager, Axis Asset Management Company Limited ..................................................................................................28
Ask Our PlannerOur financial expert answers How tax deduction under government-backed schemes works? And your other personal finance queries...34
Mutual Fund Analysis Which are the top performing mutual funds in current market scenario? Check these top three funds recommended by our research team........................................................................................37
This month on iCommunityTake a look at the latest activities on our unique information platform- iCommunity (for March2018)................................................................47
Equity Model Portfolio .............................................................................. 48
Quiz Time ................................................................................................52
Prime Numbers ........................................................................................53
Traders counting on the Reserve Bank of India to keep buying dollars may have to think again. The central bank bought $36 billion of foreign exchange in the 12 months to January, seeking to stem the rupee's appreciation. That's likely to change given India's widening current-account deficit and slowing capital inflows, with Rabobank saying the RBI may instead look to use some of its $420 billion of reserves to plug the dollar spending gap.
At a time when domestic money market liquidity has tightened, selling dollars could see short-term rates advance and push up the entire yield curve. That will put the nation's economic recovery and the government's new borrowing plan at risk.
Courtesy: Economic Times
Forex reserves set to fall as capital inflows plunge
Delhi Economic Survey: City's per capita income almost three times of national average
The Delhi government pegged the size of the Gross State Domestic Product (GSDP) at Rs 6.86 lakh crore for 2017-18, which is at a growth rate of 11.22 per cent over the last fiscal. Ahead of the Delhi budget, the latest economic survey of the national capital was tabled in the Assembly, which has estimated that the city's per capita income was almost three times of the national average, both at current and constat prices. “The advance estimate of the GSDP of Delhi at current prices during 2017-18 is likely to attain a level of Rs 6,86,017 crore, which is at a growth of 11.22 per cent over 2016-17,” according to the the Economic Survey of Delhi 2017-18.
Courtesy: Financial Express
ICICIdirect Money Manager March 2018
Demonetised ₹ 500 and ₹ 1,000 notes, which have been counted and processed for genuineness, are shredded and briquetted before being disposed off through a tendering process, the RBI has said.
The central bank had earlier estimated the value of old ₹ 500 and ₹ 1,000 notes received, as on June 30, 2017, at ₹15.28 trillion.At least 59 sophisticated Currency Verification and Processing (CVPS) machines are in operation in various branches of RBI across the country to process demonetised notes for their arithmetical accuracy and genuineness.
Courtesy: The Hindu
Demonetised notes are being shredded, briquetted: RBI
Market may be heading for a bear phase; short-term trend clearly negative
The rupee has lost ground since pre-Budget, against three major hard currencies (yen, dollar and euro). The European Central Bank and the Bank of Japan maintained status quo in recent policy meetings. The short-term trend is clearly negative. The next bounce, on short-covering is likely to come along soon. But, the zone at 10,275-10,300 is now likely to provide stiff resistance. A quick rebound beyond 10,300 could lead to another phase of range trading. The signals out of the bond marketremain negative with G-Sec yields rising despite better inflation data in February. The Reserve Bank of India is expected to maintain status quo in its April 5 meeting.
Courtesy: Business Standard
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STOCK IDEAS
ICICIdirect Money Manager March 2018
KSB Pumps – Quality Twin (Agri + Industrial) Play in pumps segment
Company Background
KSB Pumps, promoted by KSB A G ( G e r m a n y ) , w a s established in 1960 and set up a pump manufacturing facility at Pimpri, Pune (Maharashtra). The company has been at the f o r e f r o n t o f i m p o r t i n g technology from its parent for delivering cutting edge, high q u a l i t y p r o d u c t s i n t h e domestic market. Globally, KSB AG is one of the largest pump manufacturers with sales in excess of €2.2 billion (~US$2.8 billion) out of the total pump market, which is pegged at US$47 billion as of 2014. In India, KSB supplies pumps and valves to all major industries viz. power, waste water treatment, irrigation (agriculture), chemicals, etc. KSB's products are used for pumping, transportation and flow control of fluids, which include clean or contaminated wa te r, exp los i ve f l u ids , corrosive and viscous fluids, slurries and f luid/solid mixtures. In India, the company has a wide distribution network that
includes four zonal offices, 15 branch off ices, over 800 author ised dealers , four s e r v i c e s t a t i o n s , 1 1 0 authorised service centres and 22 warehouses.
Investment Rationale
Union Budget 2018-19: Focus on income insurance benefits KSB
Union Budget 2018-19 was pro-farmer in nature & well aligned to double farm income by 2022. Apart from the increase in allocation towards risk mitigation (crop insurance) and eff ic iency ( irr igat ion including micro irrigation) schemes, i t lays specia l emphasis on augmenting farm income through remunerative farm gate prices thereby targeting “income insurance”. Emphasis has been put on fixing MSP prices at a mark-up o f 5 0 % a b o v e c o s t o f production while at the same time bringing more crops under the MSP net. On the risk mitigation front, in its flagship insurance scheme i.e. PMFBY, allocation has been increased to 13,000 crore. On the `efficiency front, in the irrigation
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space, total allocation under PMKSY is being increased to `9,429 crore, up 28% YoY. I n s t i t u t i o n a l c r e d i t f o r agriculture sector has been modestly raised to 11 lakh `crore, up 10% YoY. KSB is one o f t h e l e a d i n g p u m p manufacturers with quality product profile of energy efficient pumps & strong brand recall. Hence, it will be a key beneficiary of increasing i r r i g a t i o n p e n e t r a t i o n domestically.
Incremental capacity in place; levers to grow; credible MNC; retain BUY
I n C Y 1 7 , K S B r e a l i s e d consolidated sales of 946 `crore, up 16% YoY with sales at the pumps segment at 788 `(up 15% YoY) while the valves segment posted sales of 158 `crore (up 19% YoY). Double d i g i t t o p l i n e g r o w t h i s comforting and is re-emerging a f t e r f i v e y e a r s . W i t h technology support from its parent i.e. KSB AG, KSB is best p l a c e d t o c a p t u r e t h e envisaged opportunity in the domestic refining segment (change in fuel efficiency), revival of domestic capex
cycle and increasing thrust on i r r i g a t i o n p r o j e c t s ( l i f t irrigation). The company's recent order win from NPCIL ( `413 crore) supports our view and KSB's ability to play an important role in the nuclear power industry, going forward. On the balance sheet front, KSB has a debt free balance sheet with surplus cash of ~ `100 crore as of CY17. However, KSB did witness an elongation of working capital cycle with increase in debtor days by ~ 30 days (CY17). We believe this will normalise in CY18-19E. KSB has also in the recent past (December 2017) commenced commercial production at its manufacturing facility in Satara w h e r e i t i n t e n d s t o manufacture high margin super critical pumps. Factoring i n t h e p o s i t i v e s , o n a consolidated basis, we model sales, PAT CAGR of 12.7%, 23.2%, respectively, in CY17-19E. We build in a 230 bps improvement in EB ITDA margins in the aforesaid period. We value KSB at 35x P/E on CY19E EPS of 30.9 `with a target price of 1080 and `a BUY rating on the stock.
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Stock Data
Key Financials
Valuations Summary
` Crore CY16 CY17 CY18E CY19E
Net Sales 817.6 944.3 1080.0 1200.4
EBITDA 99.1 107.5 136.7 164.4
Net Profit 65.3 70.9 83.6 107.6
EPS (`) 18.8 20.4 24.0 30.9
CY16 CY17 CY18E CY19E
P/E 42.6 39.3 33.3 25.9
Target P/E 57.6 53.1 44.9 35.0
EV/EBITDA 26.1 25.1 19.4 15.6
P/BV 4.3 3.9 3.6 3.3
RoNW (%) 10.1 10.0 10.9 12.7
RoCE (%) 10.6 10.6 12.9 14.6
Market Capitalization ` 2785 crore
Total Debt (Cy17) ` 12.6 crore
Cash and Investments (Cy17) ` 97 crore
EV ` 2701 crore
52 week H/L 936 / 600
Equity capital ` 34.8 crore
Face value ` 10
MF Holding (%) 15.7
FII Holding (%) 3.5
ICICIdirect Money Manager March 2018
STOCK IDEAS
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Key risks include:
Volatility in raw materials prices,
especially steel price
Iron derivative products like pig
iron, iron castings, stampings,
metal scrap, etc. form the major
raw material costs for pumps &
valves with the management
guiding that ~35% of the sales
value is composed of i ron
products (35%of sales equivalent
to ~80% of raw material costs;
raw material as a percentage of
s a l e s a t ~ 4 5 % ) . We h a v e
modelled steel price to be a
complete pass through for the
company. However, any inability
of the company to pass through
the increase in steel costs will dent
EBITDA margins and will have a
consequent negative impact on
our target price calculation.
Royalty
By virtue of technology transfer
and support from the parent
group i.e. KSB AG, KSB pays a
royalty fee amounting to ~2% of
i t s s a l e s . T h e c o m p a n y ' s
management has guided for a
royalty payment of 2-5% (of sales
value) depending upon the
product to its parent company.
The total royalty outgo consists of
d i r e c t r o y a l t y p a y m e n t s ,
professional fee and technical fee.
Therefore, any increases in the
royalty outgo (as a percentage of
sales), going forward, will have an
adverse impact on the company's
profitability with a direct impact
on our target price calculations.
ICICIdirect Money Manager March 2018
STOCK IDEAS
ANALYST CERTIFICATION We /I, Chirag Shah PGDBM; Shashank Kanodia CFA MBA (Capital Markets), 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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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.
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ICICIdirect Money Manager March 2018
STOCK IDEAS
Music Broadcast- Growth driven by prudent investments…
Company Background
Music Broadcast (MBL) is the first private FM broadcaster in I n d i a . T h e c o m p a n y commenced operations of its first radio station in Bangalore in 2001 where it is still a leader in terms of market share, as per l a t e s t R a d i o A u d i e n c e Measurement (RAM) data. The B a n g a l o r e l a u n c h w a s fo l lowed by launches in Lucknow, Mumbai and Delhi. From four cities in 2003, today the company has 39 stations in as many cities in India with a pan-India presence. Out of 39 cities, licenses in 28 cities were won in Phase I & II while 11 stations were acquired in Phase III auctions. MBL has a presence in 12 out of the top 15 cities in India by population. It also has a presence in internet radio space with radiocity.in having 43 radio stations.
In terms of advertisement volume split across sectors, government and real estate form approximately one-fourth of total advertisement volumes for the company. The government contributes 16%
while the share of real estate is 10%. It is followed by retail, BFSI and e-commerce with 8%, 7% and 6%, respectively. Total ad volumes grew at 15% CAGR in 2014-16 from 48.1 million (mn) seconds to 63.7 mn seconds in top 14 cities. The company has 5.2 crore listeners in 23 cities as per ANZ Research.
Investment Rationale
L e a d e r s h i p a m i d h i g h competitive intensity
We note there is no publicly a v a i l a b l e i n d e p e n d e n t research of listenership data for radio in India. We highlight that MBL has claimed to be in a leadership position across markets as far as listenership is concerned. The company has 52.5 mn listeners as per ANZ report (conducted across 23 Indian markets) followed by Radio Mirchi (ENIL), Big FM (Zee Media) with listenership base of 42.1 mn, 27.1 mn, respectively. It is also in a leadership position in key metro cities of Mumbai, Delhi a n d B a n g a l o r e w i t h
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listenership base of 8.4, 9.2 and 4.7 mn, respectively
It has also enjoyed a leadership position compared to peers in terms of advertising volumes. According to the company, advertising volume for the company grew at industry leading 12.1% CAGR in FY11-17 to 74.9 mn seconds in FY17. Advertising volumes in FY17 were a notch below market leader ENIL (75.4 mn seconds of advertising volume in FY17).
Prudent bidding in Phase III auctions; major capex over
MBL has acquired 11 stations viz. Kanpur, Patna, Madurai, Nasik, Kolhapur, Udaipur, A j m e r , K o t a , B i k a n e r , Jamshedpur and Patiala in batch I of auctions. It paid | 63 crore for acquisition of these stations. In the same auction, ENIL paid | 339 crore for 17 stations against reserve price of | 155 crore while HT Media paid | 340 crore for 10 stations against reserve price of | 112 crore. We observe that MBL has been prudent in terms of a c q u i s i t i o n s s i n c e f i n a l successful price to reserve price ratio was ~2x for MBL compared to 3.6x for Digital
Radio Broadcasting, 2.2x for ENIL. At the same time, MBL has stayed away from Phase III, Batch II auctions, while other players were aggressive.
Balanced approach in pricing, volume augur well for MBL
MBL fo l lows a ba lanced approach in volume and pricing wherein they increase prices whenever there is scope for the same else growth is driven by volumes. They also strategically do not follow a multi-frequency approach since they believe second f r e q u e n c i e s e s s e n t i a l l y cannibalize existing ones, r a t h e r t h a n a d d i n g incrementally. Moreover, the RoCE after steep bidding seems a difficult proposition, e s p e c i a l l y f o r s e c o n d frequencies. As far as new stations are concerned, the management feels the price increase kicks in only when the utilization of the station hits 60%. We believe this strategy augurs well for MBL, which has shown industry leading growth in revenues and EBITDA in the last four years compared to its peers.
Fundamentals remain intact;
ICICIdirect Money Manager March 2018
STOCK IDEAS
12
maintain BUY!
Music Broadcast is one of the quasi plays on the expanding reach of radio driven by new stations in Phase III. The c o m p a n y h a s e x h i b i t e d industry leading topline and EBITDA CAGR of 17.3% and 28.6%, respectively, over FY12-17, which reflects its e f f i c i e n c y i n a h i g h l y competitive industry. Going ahead, we expect 13.9% CAGR in topline in FY17-20 driven by growth from new stations on c a p a c i t y u t i l i z a t i o n improvement as well as steady
growth from legacy stations on y ie ld improvement . The improved profitability of new s t a t i o n s c o u p l e d w i t h operating leverage derived from handsome growth of legacy stations is likely to result in 17% CAGR in EBITDA over FY17 -20E , w i th marg ins expanding to 36.5% in FY20 vs 33.6% in FY17. We assign a target price of | 450/share, b a s e d o n t r i a n g u l a t e d approach (DCF, P /E and EV/EBITDA), with implied of P/E and EV/EBITDA multiple of 30x and 15x on FY20E.
ICICIdirect Money Manager March 2018
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Valuations Summary
Key Financials
` Crore FY17 FY18 FY19E FY20E
Net Sales 271 298 347 401
EBITDA 91 95 121 146
Net Profit 37 48 71 90
EPS (`) 8.1 8.4 12.4 15.8
FY17 FY18E FY19E FY20E
P/E 46.2 44.1 30.0 23.5
Target P/E 55.9 53.3 36.3 28.4
EV / EBITDA 21.7 20.6 15.7 12.6
P/BV 3.1 3.8 3.5 3.2
RoNW 6.7 8.6 11.8 13.8
RoCE 11.3 14.8 18.5 21.5
Stock Data
Market Capitalization (` Crore) 2122.3
Debt (` Crore FY17) 149.8
Cash & Liquid Investments( ` Crore FY17) 294.6
EV (` Crore) 1977.4
52 week H/L 458 / 332
Equity capital 57.1
Face value 10.0
ICICIdirect Money Manager March 2018
STOCK IDEAS
Key risks include:
Risk of digital adoption remains
Sharper adoption of music
streaming apps remains a risk
for rad io as a whole as
advertisement pie shift could
be seen. Considering the
higher reach of TV and digital
compared to radio, (albeit they
charge a premium compared
t o r a d i o ) , t h e r e l i e s a
continuous risk of losing
advertising share to these two
media
R e c e n t s u c c e s s o f s e c o n d
frequency may be detrimental to
MBL
We believe the success of the
second frequency of its peers
could potentially create a
threat for MBL in terms of loss
in advertiser's mindshare. This
could, subsequently, result in a
loss of market share impacting
its financials.
Increase in content cost may take
away benef i ts o f operat ing
leverage
The primary content for radio
stations is sound recordings
that they broadcast. A majority
of these sound recordings are
licensed by third parties. The
c o m p a n y p a y s
royalties/license fees to these
third parties for the right to
b r o a d c a s t t h e m . A n y
alternation or termination of
such contracts could affect
c o n t e n t s o u r c i n g a n d
s u b s e q u e n t l y r e s u l t o f
operations. In additions to this,
there is the risk of the same
content being available to
competitors, which could
impact financials.
14
ICICIdirect Money Manager March 2018
STOCK IDEAS
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15
FLAVOUR OF THE MONTH
Choosing the right asset allocationstrategy
ICICIdirect Money Manager March 2018
Our portfolio asset allocation is like a balanced meal. Eating variety of food ensures we receive wide range of nutrients which help our body to function at its optimal capacity. Similarly, a well-balanced portfolio ensures our financial fitness. Combination of multiple asset classes is a tried-and-tested technique to optimize growth of our investments. In other words, the idea of asset allocation is to diversify your investments to meet investor's requirements for income, growth and liquidity. With the right asset allocation, you can look to improve risk-adjusted returns. Here's how…
16
What is asset allocation?
Asset allocation is the process
by wh ich i nves to rs can
distribute their investment
capital between various asset
classes within their portfolio.
The goal is to create a well-
diversified portfolio. That is,
one which effectively reduces
the overall portfolio risk while
maintaining the expected level
of returns. It implies dividing
money among asset classes
that respond differently to the
same market forces, at the
same time.
Asset allocation, in simplest
terms, is deciding how to
distribute your investment
capital among various types of
asset classes, such as equity,
debt, cash, gold, real estate,
etc.
A s s e t a l l o c a t i o n V S
diversification
Most people confuse asset
allocation with diversification.
Diversification means having a
wide variety of investments
within a portfolio, but that
doesn't necessarily have to
involve different asset classes.
Whereas asset allocation is the
process of building a portfolio
of different asset classes with
varying levels of correlation.
Correlationis a measure of the
extent to which one asset class
behaves in tandem wi th
another. Correlations between
pairs of asset classes range
from -1 to +1. A correlation of
positive one (+1) means that
two assets will move together
in lockstep or in same direction
(as one rises, the other also
rises). A correlation of negative
one (-1) means that two assets
will move in exact opposite
directions (as one rises, the
FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 201817
other falls). A correlation of
zero (0) means that two assets
w i l l m o v e c o m p l e t e l y
independently from each other
(uncorrelated to each other).
The idea is to choose assets
that are negatively correlated
to each other or are less
correlated. This will help
ensure, that if any time, one
asset does not do well, the
other will help provide some
solace to the portfolio.
Besides diversification across
asset class, it is recommended
that you diversify within asset
classes as well. Within stocks,
you should diversify across
industries and companies.
W i t h i n f i x e d i n c o m e
investments, you should
diversify across different
tenure. Taking diversification a
step further, the option of
d i v e r s i f y i n g a c r o s s
geographies is also open for
Indian investors. You can buy
stocks in overseas markets and
also invest in other assets like
debt or real estate.
Introduction to asset classes
Equity
Big companies need a lot of
capital for growth and regular
operations. The funds can be
gathered by either taking a loan
from a financial institution or
se l l i ng a por t ion o f the
company by issuing shares.
The shares are issued to the
public 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.
A shareholder has share in the
profit earned by the company
and he is also liable for any loss
that the company 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.
Equity is a capital- appreciating
asset that carries high-risk. But
investors can expect more
returns from this asset class
than from any other.To earn
returns that safeguard against
inflation, one must invest in
equity. Over the long term, the
rate of return offered by equity
exceeds the rate of inflation.
FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 201818
A p a r t f r o m c a p i t a l
appreciation, stocks offer
benefit of dividend (payments
made periodically when the
company earns a profit). Stock
exchange, mutual funds, unit-
linked insurance plans, and
pension schemes are 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
organizations, 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.
Debt is a suitable asset class for
a conservative investor who
wants to take on a minimal risk.
D e b t i n v e s t m e n t s a r e
preferable to meet short-term
financial goals.
They have lower risk than
equity and lower expected
returns too. Debt investments
give you a fixed rate of interest
on your principle amount, but
this is lower than the equity
rate of return. However, the
security offered protects you
against the losses you may
incur in equity investments.
Debt instruments do carry
some risks. This could be
credit risk, default risk or
interest rate risk or all of them.
For example a GOI bond issued
by the Government has
virtually no risk but since they
are issued for a long term, they
carry interest risk (if interest
rate increases, their market
value depreciate).
The inflation rate may eat into
the returns expected from debt
investments. This can happen
if the rate of inflation exceeds
the interest rate offered by the
debt instrument. Thus, it
affects your purchasing power.
F i x e d d e p o s i t s , p u b l i c
provident fund, nat ional
savings cert i f icates, and
government bonds are some
of the common debt vehicles.
Real Estate
This asset class offers some of
FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 201819
t h e v e r y b e s t f e a t u r e s ,
including a stream of rental
income, potential for capital
appreciation, ability to hedge
inflation and diversification.
The returns in real estate
depend on the location of the
property and demand/supply
situation in the city or area.
Therefore, assigning a value to
the property based on average
values may not be correct.
However, direct investment in
property has specific risks.
First, as investment in this
asset class can be large
(expensive), it can destabilize
your portfolio. Liquidity is
another risk. A panic sell can
drastically bring down the
returns. And this can get
amplified if the markets are
down or the property markets
are low. The there is also the
r i s k o f o v e r l e v e r a g i n g
associated with this asset.
If the property is bought on
loan, the interest rates can
fluctuate due to inflation. This
will affect your total outgo.
Profit is earned by selling the
property. You could also earn
regular rent by leasing the
property. One can invest in real
estate by buying property
(residential or commercial),
land, or shares in real estate
companies.
Gold
Gold acts as a hedge against
inflation. It holds its own value in
the event of polit ical
uncertainties and its traditionally
negative correlation with other
asset classes such as stocks,
fixed income securities and
commodities.
Gold protects your portfolio
from volatility because the
factors, both at the
macroeconomic and micro-
economic fronts that affect the
returns from most asset classes
do not significantly influence
the price of gold. So it is a good
option for diversification but
not necessarily for growth.
Gold can be bought in the form
of jewelry, coins, bars, bonds
and gold ETFs (exchange
traded funds).
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
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ICICIdirect Money Manager March 201820
classes because i t gives
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. Since 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.
Al though 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.
Cash offers zero profit as an
asset class. You may earn
some small returns from the
i n t e r e s t o n s o m e c a s h
vehicles, such as savings
accounts, short-term fixed
deposits, and liquid funds. As
an investor, you must try to
keep your cash balance as low
as possible based on your
need and requirements.
Alternative assets
O l d c u r r e n c y, s t a m p s ,
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.
Alternative assets often are
highly dependent on novel
i n v e s t i n g s t r a t e g i e s o r
individual skill in selecting
specif ic investments. For
example, hedge funds exist to
pursue investing strategies
t h a t o f t e n r e l y o n t h e
manager's judgment and that
may be difficult or impossible
for a mutua l fund; wi th
collectiblessuch as art or
antiques,the value of your
investmentdepends on the
properties of a specific work.
As a result, even if you are very
k n o w l e d g e a b l e a b o u t a
specific asset class you might
do well to seek expertadvice
FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 201821
and guidance whenselecting
alternative assets forinclusion
in your portfolio.
Asset classes can further be
sub-categorized based on
specific asset class features.
For example, based on the
existence of credit risk bonds
can be categorized as those
w i t h o u t c r e d i t r i s k
(Government securities) and
those that have credit risk
(Corporate bonds). Or on the
basis of residual tenor, bonds
can be categorized as short-
term (with less than one year to
maturity) or long-term bonds
(with more than one year to
maturity). Similarly, equity
shares can be categorized
based on the industry they
b e l o n g t o , m a r k e t
capitalization (large, mid and
small) and others.
ASSET ALLOCATION (Based on goal tenure and risk profile)
Goal Tenure / Risk
Profile
Conservative Moderate Aggressive
1 to 3 years Equity – 5%
Debt –
95%
Equity – 15%
Debt –
85%
Equity – 30%
Debt –
70%
4 to 6 years Equity – 15%
Debt – 85%
Equity – 30%
Debt – 70%
Equity – 50%
Debt – 50%
7 to 10 years
Equity –
30%
Debt – 70%
Equity –
50%
Debt – 50%
Equity –
70%
Debt – 30%
> 10 years
Equity –
40%
Debt – 60%
Equity –
60%
Debt – 40%
Equity –
80%
Debt – 20%
The above table provides you only a general indication of the asset allocation,
based on risk profile & goal tenure; however, it's advisable to get a customized
asset allocation plan based on your goals.
Factors shaping asset allocation
Risk tolerance
Risk tolerance is your ability
and willingness to lose some
o r a l l o f y o u r o r i g i n a l
investment in exchange for
greater potential returns. The
way you perceive risk depends
on a lot of factors. You should
FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 201822
analyze your risk taking ability
before taking the plunge to
make an investment. An
aggressive investor, or one
with a high-risk tolerance, is
more likely to take greater risk
in order to get better potential
r e tu rns . A conserva t i ve
investor, or one with a low-risk
tolerance, tends to favor
investments that will preserve
the original investment capital.
Every individual has different
risk profile depending on
his/her risk taking ability. If we
consider the three major risk
profiles, namely aggressive,
moderate and conservative,
there will be a different asset
mix in them. Here 's the
overview:
Please note: The above chart is for illustration purpose only.
Life stage
The different life stages –
single, married, married with
children, pre-retirement and
post-retirement – are the
phases of every person's life.
Depending upon which stage
you are at, you should make
your investments to achieve
your life goals based on your
needs. If you are young and
single, you can afford to be an
aggressive investor. If you are
middle-aged and married, it is
better to take on only moderate
risk. If you are retired, it is
prudent to stay away from risk
as the income sources have
depleted.
Investment horizon/ financial goals
It is the expected number of
months, years or decades you
will be investing to achieve a
particular financial goal. For a
long-term goal an investor may
feel more comfortable taking
on a riskier, or more volatile
investment because time is not
FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 201823
at a premium, and he or she
can wait out slow economic
cycles and the inevitable ups
and downs of our markets. By
contrast, an investor saving up
for a child's college education
in three years will be wary of
taking risks because the parent
has a shorter time horizon.
Asset allocation techniques
Strategic asset allocation
It is a method of choosing an
initial asset allocation based on
investor's objectives, time
horizon and risk profile. This is
a proportional combination of
assets based on expected
rates of return for each asset
class. For example, if equities
have historically returned 12%
a year and debt have returned
7% a year, a mix of 50% equity
and 50% debt would be
expected to return 8.5%-9%
per year.
A revision of the proportions
can also occur based on
changes to the investor's
situation. For example, an
investor may decide to have
80% in equity and 20% in debt
when the plan to save for
retirement was begun in the
early earning years. As the
investor nears retirement the
desire would be to change the
ratio in favour of debt over
equity.
On the downside, there is no
change in the allocations to
assets based on market
movements and therefore
there is no active call about
which asset class is likely to
out-perform or under-perform.
Portfolios built through this
method can under-perform
during bull runs in certain
a s s e t s , w h e n i t w o u l d
systematically take out of a
winning asset class and invest
the proceeds into a losing
asset class to maintain a fixed
ratio between the two asset
classes.
Over the long run, a strategic or
or ig ina l asset a l locat ion
s t r a t e g y m a y r e q u i r e
rebalancing to meet with long
term objectives. In that case,
tac t i ca l asse t a l loca t ion
strategy, a view-based plan,
plays an important role.
Tactical asset allocation
This is moderately active
strategy that seeks to enhance
FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 201824
portfolio performance by re-
balancing it to the original
asset mix, in response to the
changing patterns of return
and risk of various asset
classes. It ensures active
portfolio management. As the
name suggest, this method
tactical ly shifts focus on
powerful asset classes and
r e d u c e e x p o s u r e t o
overvalued assets based on
the market view in order to
outperform the asset class
indices.
Rebalancing of the portfolio
can be done at three levels.
The investors may themselves
take a call on the market
p e r f o r m a n c e a n d m a k e
changes in the portfolio. The
role of the advisor would be
l imi ted to execut ing the
changes. In a more involved
advisory mode, the advisors
may express their views on the
market and recommend over-
weighting asset classes which
they expect to perform well;
under-weighting where they
expect under performance;
and neutral-weighting where
they expect no significant
change in performance. At the
th i rd l eve l , the p roduc t
provider, such as a mutual fund
may make the tactical shifts in
the portfolio without recourse
to the investor or advisor.
Asset classes with their key characteristicsASSET CLASSES
Parameter Equity Debt Cash Gold Real Estate Alternate
Assets
Representative
investments
Shares,
equity
mutual
funds
Bonds,
debt
mutual
funds
Savings
account,
Money
market
funds
Physical
gold, Gold
ETFs, e-gold,
gold mutual
funds
Physical
property, real
estate mutual
funds, REITs,
realty stocks
Art, Antiques
and
Collectibles
Risk High
Low
Low
Medium
Medium
High
Return High
Low
Low
Medium to
High (but
cyclical)
Medium to
High (but
cyclical)
High (but
Indian market
is volatile and
still needs to
mature)
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ICICIdirect Money Manager March 201825
Inflation
protection
High Low Very low High High High
Liquidity High
(except
for ELSS
funds)
High
(except
for bonds
locked in
for
minimum
period)
High Medium to
High
Low Low
Income Yes, in
case of
dividend
paying
stocks
and
funds
Yes
Yes
Yes, in case
of dividend
paying gold
funds
Yes, if you
rent out your
property or
land
No
Capital
appreciation
Yes (but
cyclical)
Yes (in
some
debt
instrume
nts)
No Yes (but
cyclical)
Yes (but
cyclical)
Yes (but
cyclical)
Reviewing asset allocation
Asset allocation is not static. It
changes with time, as the age
of the investor increases and
risk profile changes. Also,
whenever there is a change in
the portfolio mix due to the
returns generated by the
various asset classes, there is a
requirement for re-balancing
the portfolio to bring it back to
the initial allocation. If not
rebalanced, the portfolio might
take a hit on the returns
generated over a period of
time. In simple terms, re-
balancing helps adhere to
one's risk-return tolerance
level. It's a good idea to re-
balance your portfolio at least
o n c e a y e a r o r o n a n y
important life event.
Bottom line
When allocating your portfolio
between various investments,
you should effectively and
eff ic ient ly diversi fy your
port fol io. For successful
diversification, you need to
spread your assets so that the
same factors do not affect all
the investments in the same
FLAVOUR OF THE MONTH
ICICIdirect Money Manager March 201826
way. It is always wiser to make
changes in your portfolio
under the guidance of a
financial expert. The ideal
situation will be when one
asset class is negatively
impacted by a systemic risk,
another asset class benefits
from that same factor. This
provides protection to your
portfolio.
CASE STUDY
Ashok, aged 34, and Priya, aged 33, have one child Diya,
aged 3 years. They want to plan for the below goals:
1) Abroad vacation costing Rs.6 lakh (in today's value) in 2
years.
2) Buying a car worth Rs.10 lakh (in today's value) in 5 years.
3) Diya's higher education – Rs.10 lakh (in today's value) in
15 years.
4) Diya's post graduation – Rs.15 lakh (in today's value) in 19
years.
5) Diya's marriage – Rs.20 lakh (in today's value) in 22 years.
They have accumulated below financial assets till date & do
not have any liabilities.
Equity – Rs.10 lakh; Equity Mutual Funds – Rs.12 lakh;
Debt/Liquid Mutual Funds – Rs.8 lakh; Bank Fixed Deposits –
Rs.8 lakh; NCDs – Rs.10 lakh. Ashok & Priya want to know if
their current asset allocation is fine or they need to make any
changes.
Current Asset Allocation:
Asset Class Amount Percentage (%)
Equity 22 lakh
46%
Debt 26 lakh 54%
Total 48 lakh 100%
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ICICIdirect Money Manager March 201827
Suggestion:
Before suggesting an appropriate asset allocation for Ashok
& Priya, we need to understand the criticality & the tenure of
their goals, as the asset allocation would be based on these
two factors.
GoalPresent
Value
Years to
Goal
Tenure
classification
Criticality of Goal
*
Abroad Vacation 6 lakh
2
Short-Term
Discretionary
Buying Car 10 lakh
5
Medium-Term
Important
Diya’s Graduation 10 lakh 15 Long-Term Critical
Diya’s Post Graduation
15 lakh
18
Long-Term
Important
Diya’s Marriage 20 lakh 22 Long-Term Important
*Critical Goals - Goals which cannot be postponed and little /
no deviation is acceptable in the expected corpus;
Important Goals - Willing to take some risk in fulfillment &
some deviation in the expected corpus is acceptable;
Discretionary Goals - Lifestyle Goals that can be postponed /
modified based on the performance of the portfolio.
Suggested Asset Allocation:
Based on the criticality & tenure of the goals of Ashok & Priya,
their existing financial assets are suggested to be allocated
as below:Asset Class Amount Percentage (%)
Equity 31.54 lakh 66%
Debt 16.46 lakh 34%
Total 48 lakh 100%
The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities
Tête-à-tête
ICICIdirect Money Manager March 2018
Fund managers on current economic scenario, rupee changes and state elections
28
Ashwin PatniHead Products & Fund Manager,
Axis Asset Management Company Limited
Manish Gunwani
1. How do you think FY19 will be
different from last fiscal? What is
the landscape for Indian markets
looking like?
Manish Gunwani- We believe
that Indian economy is on the
c u s p o f s t r o n g c y c l i c a l
recovery. We are optimistic
that growth in lot of segments
of Indian economy will pick up
due to:
· Significant pick up in global
growth.
· Government making growth
a priority now as seen in
PSU bank recap, GST rate
exemptions etc.
Next 15 months likely to see
hefty election related spending
due to both state and general
elections.
Low base of capita l and
c o n s u m e r d i s c r e t i o n a r y
related sectors due to slow
down over last 4-5 years.
Domestic macroeconomic
data over the last couple of
months is also suggesting that
t h e e c o n o m y i s f i n a l l y
shrugging off the drags from
demonetization and GST.
Corporate earnings which is an
important tr igger for the
market is displaying signs of
recovery. We expect to see a
d o u b l e - d i g i t g r o w t h i n
earnings for FY18 and FY19.
Overall the growth recovery is
e x p e c t e d t o b e l e d b y
consumption while capex
growth is likely to recover
more gradually.
Ashwin Patni- While the markets
were just recovering from the
demon shock, last fiscal year
brought quite a few events like
Implementation of GST, rollout
of the Bankruptcy bill and
initiation of resolution process,
etc. that disrupted markets in
the short run. These events,
on top of poor monsoons,
tight control on MSP increases
and weakness in the real
estate & infrastructure sector,
CIO - Equity Investments, Reliance Nippon Life Asset
Management Limited (RNAM)
ICICIdirect Money Manager March 201829
Tête-à-tête
added discomfort in the rural
sector and unorganized part of
t h e e c o n o m y . G S T
implementation will require
lots of continuing work in 2018
in order for it to stabilize and
start contributing – both in
terms of higher tax revenues
as well as ease of business for
corporates. These economic
disruptions that impacted
corporate earnings are already
m o v i n g t o w a r d s
normalization. We see coming
q u a r t e r s w i t h u p t i c k i n
e a r n i n g s a n d i m p r o v e d
economic environment. The
government on its part has
pivoted towards boosting the
rural economy and boosting
housing and infrastructure
spending in order to tackle the
u n d e r l y i n g c h a l l e n g e s .
Therefore 2018 will be about
moving from disruptions into
reflating the economy as the
government readies itself for
the 2019 elections.
2. Crude and other commodity
prices have been plunging. How do
you see this affecting our economy
in general and corporate India in
particular?
Manish Gunwani-Commodities &
crude oil notwithstanding the
near-term correction, had
witnessed a strong run over
the last 1 year and the outlook
continues to be optimistic
given the weakening US Dollar.
From a Corporate Indian point
of view few large segments like
Metals, Oil & Gas are direct
beneficiaries of a rally in
commodities while few sectors
like Auto, Capital Goods etc.
may be impacted by rising
import costs. Hence, we
believe the impact of
reasonable commodity price
movement, on Corporate India
is largely neutral.
Ashwin Patni- As the global
economic sentiments are
recovering, especially in the
US and China, commodities,
after years of volatility, have
rallied globally. India being the
net importer of oil ad metals,
this rise in commodity prices
might stretch our government
finances and put pressure on
corporate profits. However, we
continue to believe that Indian
markets have plethora of
opportunities for a long term
investor as India enters a
period of growth revival on
ICICIdirect Money Manager March 201830
Tête-à-tête
account of a favorable macro
backdrop and continued pro-
r e f o r m a c t i o n s b y t h e
government.
3. Where do you see index level in
next twelve months?
Manish Gunwani-In equities, it is
difficult to get the short term
right – in general we think on a
three-year basis double digit
returns are likely as earnings
are expected to compound at a
faster rate and usually markets
follow the earnings.
Ashwin Patni- Indian equity
markets saw correction in the
recent past which was based
on global factors stemming
largely from the US debt
market which saw significant
decline in bond prices. The
continued upward trajectory of
bond yields is likely to have a
negative impact on global as
wel l as domest ic equi ty
markets. Having said that, we
believe that the economy has
bottomed and that we should
see a significant pick up in
earnings momentum going
forward. While valuations are
on the higher side, earnings
growth should help support
markets from a medium to
long term perspective.
4. What industry sectors are you
favoring currently and why?
Manish Gunwani-In the backdrop
of improving global growth
a n d e x p e c t e d d o m e s t i c
recovery we believe themes
which were impacted due to
challenging macros previously
can mean revert. Sectors
which we are positive include:
Large banks where credit cost
is high today due to corporate
lending as we see the asset
quality stress improving over
next 1-2 years.
Industrials in segments which
are likely to see quick recovery
if economy revives.
Pharma where we th ink
earnings are likely to bottom
out in FY18.
A s h w i n Pa t n i - I n l igh t o f
budgetary announcements
a n d c l e a r f o c u s o n
i m p r o v e m e n t i n r u r a l
livelihood, we believe that rural
theme and consumpt ion
sector offer investing value at
this point in time. There is clear
rising trend in rural wage
growth and this will have direct
impact on rural consumption
ICICIdirect Money Manager March 201831
Tête-à-tête
and improvement in aggregate
demand. Hence, we believe
that the sectors with rural
linkages can benefit in the
coming cycle. This segment
include rural housing, infra,
finance and any other sector
that may have an edge over its
competitors due to rural
involvement. Consumption
sector continues to remain
at t ract ive i f part ic ipated
through quality companies
with free cash flows, sound
management and credible
fundamentals.
5. Where do you see interest rates
heading towards? Where should a
long-term fixed income investor
invest currently?
Manish Gunwani- In the latest
policy, the RBI kept the key
policy rate unchanged at 6%
and maintained the neutral
stance of monetary policy. The
central bank expects average
inflation to be around 5% in
FY19. RBI is also focusing on
growth at the same time and
hence the focus on growth
p l u s s t a b l e i n f l a t i o n a r y
t r a j e c t o r y w i t h i n R B I ' s
projection can keep the rate
action on hold for some time.
However, in case the CPI
inflation shoots up above RBI's
trajectory, the RBI may raise
the policy rates by 25-50 bps
during Fy19
We expect Liquidity trades to
dominate Macro trades in the
short term and hence curve to
bull steepen thus carry to be
the biggest driver of returns.
For the long term investors
with moderate risk appetite we
believe accrual based funds
are ideal. These funds have
potential to benefit from high
c a r r y ; C r e d i t s p r e a d
compression due to balance
sheet improvements & Credit
migrat ion and rol l down
benefits on steeper yield curve.
Ashwin Patni- RBI has a very
f l e x i b l e i n f l a t i o n t a r g e t
mandate i.e. 4% + 2%. In light
of this, the inflation remaining
in upper half of the band can
risk RBI pre-emptively raising
rates to cool the economy.
However, various risks like
rising oil prices, delayed fiscal
c o n s o l i d a t i o n p r o c e s s ,
increase in MSPs & increase in
import duties in the budget are
already priced in by the market
now. These concerns may
ICICIdirect Money Manager March 201832
Tête-à-tête
keep RBI reasonable hawkish
going forward.
We expect long bond yields to
be range bound. We dont see
much value in longer front of
the curve given the underlying
duration risk that is involved.
Money market yields have
risen. We believe that 1-5 year
segment offers reasonable
opportunities. Improvement in
corporate profits acts as a
posit ive factor for credit
e n v i r o n m e n t ( n o n - A A A
space).
Investors with a medium term
holding horizon should look to
short and medium term funds,
while those with a short-term
h o l d i n g p e r i o d s h o u l d
consider liquid and ultra-short
funds.
6. How should one go about
investing in equity markets in the
current scenario?
Manish Gunwani- We believe
tha t regu la r d i sc ip l i ned
investments can lead to long
term wealth creation, hence
i n v e s t o r s c a n c o n s i d e r
investing systematically either
through SIPs or SWPs. In case
some investors are under
allocated to equities they can
consider a combination of
Lump Sum with Systematic
investments in line with their
asset allocation plan. Also
w i th in the equ i ty space
investors should have an
optimal mix of Large Cap and
Mid & Small caps in line with
their risk profile & investment
goals.
Ashwin Patni- It is quite evident
from the history of Indian
equity markets that the market
is always trapped in between
various market impacting
events which can either be
positive or negative for the
market indices. Markets have
always reacted to events in the
short term and reverted back to
their fundamental valuations.
Recently, domestic equity
markets have seen correction
which we believe is more
global than fundamental in
nature and was mostly driven
by concerns on rising interest
rates. We believe that equity
investors should look through
the noise and target long term
investments. We continue to
believe that Indian economy
has the advantage of a solid
ICICIdirect Money Manager March 201833
Tête-à-tête
macro foundation, which
combined with structural
reforms is l ikely to push
growth higher in the medium
term. We suggest staggered
investments for investors who
are looking to invest through
lumpsum or inves tment
through system investment
plan (SIP) that works optimal
over long term period.
Disclaimer1:
The views expressed herein constitute only the opinions and do not constitute any
guidelines or recommendation on any course of action to be followed by the viewer.
This information is meant for general viewing purposes only and is not meant to serve
as a professional guide for the viewers. Certain factual and statistical (both historical and
projected) industry and market data and other information was obtained by RNAM from
independent, third-party sources that it deems to be reliable, some of which have been
cited in the video. However, RNAM has not independently verified any of such data or
other information, or the reasonableness of the assumptions upon which such data and
other information was based, and there can be no assurance as to the accuracy of such
data and other information. Further, many of the statements and assertions contained in
this video reflect the belief of RNAM which belief may be based in whole or in part on
such data and other information.
Disclaimer2:
This document represents the views of Axis Asset Management Co. Ltd. and must not
be taken as the basis for an investment decision.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.The AMC
reserves the right to make modifications and alterations to this statement as may be
required from time to time.
ASK OUR PLANNER
ICICIdirect Money Manager March 2018
Continue investing or make fresh investments in equity asset class for long-term goals
34
Q. Please explain the recent
changes introduced in Union
Budget over long term capital gains
tax . Shou ld I re look a t my
investment portfolio?
- Bani Shrivastava
A. It has been proposed in the
Union Budget 2018 to tax long-
term capital gains earned from
equity asset class, beyond Rs.1
lakh in a financial year, at 10%.
This is with effect from April 1,
2018. However, any gains
accrued till January 31, 2018
would be exempt. Also, any
g a i n s i n c u r r e d d u r i n g
redemption of investments till
March 31, 2018 is exempt from
tax.
Hence, unless your investment
value is more than January 31,
2018, you would not save any
t a x b y r e d e e m i n g t h e
investments before March 31,
2018. Given the current market
conditions, there would be
only very less number of
stocks with such opportunity.
With this change, should you
shift your investments to other
c l a s s e s ? E v e n a f t e r
considering the proposed
taxation on long term capital
gains, equity as an asset class
would perform better than
other asset classes over the
longer term. Hence, for long-
term goals, you can continue
to remain invested or make
fresh investments in equity
asset class.
Q. I wish to know what the tax
implications are if units allotted to
me out of yearly premium that are
withdrawn partially or surrendered
fully after the lock-in period of 3
years. The policy was started in
June 2006. If the sum received is
taxable, can the premium amount
be deducted from the proceeds
received and add the net amount to
other income at the time of filing IT
returns?
- Antonio Diniz
A. If you are surrendering or
partially withdrawing now
from this policy (assuming it's
an unit-linked non-pension
policy), then such proceeds
would be exempt from tax, as it
has completed 5 years.
ASK OUR PLANNER
ICICIdirect Money Manager March 2018
Q. I have a Unit linked Lifetime
pension policy taken from ICICI
Prudential Life Insurance. The
policy was taken in February, 2003.
I read that the maturity proceeds of
such policies taken before 31st
March 2003 are tax free. Is it
correct?
- Anand Chitale
A. The information you are
referring to is for unit linked &
other life insurance policies
(non-pension policies). For
such policies taken upto March
3 1 , 2 0 0 3 , t h e m a t u r i t y
proceeds would be exempt
f r o m t a x w i t h o u t a n y
conditions. For such policies
taken from April 1, 2003 till
March 31, 2012, the maturity
proceeds would be exempt
from tax only if premium paid
is upto 20% of the sum assured
in all the policy years. For such
policies taken from April 1,
2012, the maturity proceeds
would be exempt from tax only
if premium paid is upto 10% of
the sum assured in all the
policy years.
For unit-linked pension policies
a n d t r a d i t i o n a l p e n s i o n
policies though, the above
clauses are not applicable. On
35
maturity of pension policies,
you can receive a maximum of rd
1/3 as lumpsum, which is
exempt from tax. The balance rd2/3 would be converted into
annuity and received as per the
frequency opted by you –
either monthly, quarterly or
yearly. Such pension would be
added to your income in the
years of receipt and taxed as
per your income slab.
Q. I work for a private sector
company in Pune. Following yet
again decline in the interest rates of
government backed scheme
(provident fund), is it wise to
continue investing in such options?
Your advice to salaried class?
- Manish Jha
A. For your long-term goals /
retirement, some portion of your
investments would be allocated to
debt asset class. EPF is one of the
best options in that category, which
offers better tax-efficient return
than most of the other fixed
income options. You can also
c o n s i d e r i n c r e a s i n g t h e
investments into the same through
Voluntary Provident Fund (VPF), if
your current contribution is not
sufficient to meet the required
ASK OUR PLANNER
ICICIdirect Money Manager March 201836
what is the tax implication? Or the
surrender value is exempt from
tax?
- Ranganayaki Rajagopalan
A. As per the Section 80CCC(2)
of Income Tax Act, if any
amount available in a pension
policy, in respect of which
deduction has been allowed,
together with interest or
bonus, is received on account
of surrender, then such amount
is added to your income and
taxed as per your income slab.
Interpreting the same would
mean that the portion of
surrender value on which
deduction has been claimed on
the premiums only would have
to be added entirely to your
income. For the balance
portion, only the gains (i.e.
d i f fe rence between tha t
portion of surrender value on
which deduction has not been
claimed on the premiums less
premiums paid on which
deduct ion has not been
claimed) would have to be
added to your income. Please
consult your tax advisor for
appropriateness.
Do you also have similar queries to ask our experts? Write to us at: [email protected].
debt allocation in your portfolio.
Q. I have been investing in a Super
pension policy since 10 years. It
has matured in this year. Kindly
advise whether it is taxable fully or
partially? Is it ok if I reinvest the
maturity money to save taxes?
Please advise.
- Vijaykumar P R
A. On maturity of a pension
policy, you can receive a rdmaximum of 1/3 as lumpsum,
which is exempt from tax. The r d
b a l a n c e 2 / 3 w o u l d b e
converted into annuity and
received as per the frequency
opted by you – either monthly,
quarterly or yearly. Such
pension would be added to
your income in the years of
receipt and taxed as per your
income slab.
Q. I purchased a pension policy
[Plan-Flexi growth] in July 2009.
Paid Rs.40000/- per year for 3
years. After completion of 8th year I
s u r r e n d e r e d t h i s p o l i c y i n
December 2017 & rece ived
surrender proceeds.The surrender
value is Rs.2,75,151; Total Premium
paid Rs.1,20,000; in this scenario,
MUTUAL FUND ANALYSIS
Investing in ELSS funds
ICICIdirect Money Manager March 2018
Equity linked savings schemes (ELSS) are diversified equity mutual fund schemes that are eligible for tax benefits under Section 80C of the Income Tax Act. It is the only fully equity investment option available under Section 80C. ELSS gives aggressive investors an ideal option to utilise tax benefit to invest in equity oriented funds. Effectively, ELSS are multicap mutual funds with similar return profile. The lock-in period of three years is lowest among other investment options available under Section 80C of the Income Tax Act.
Advantages of ELSS
§ Investment in ELSS is eligible for
tax benefits under section 80C.
Maximum tax savings up to |
46,350 on an investment of | 1.5
lakh in a financial year
§ ELSS invests in equity stocks,
which has greater potential for
long term capital appreciation.
Professional, experienced fund
managers another positive.
§ The lock-in period of three years
curtails panic selling in case of
interim volati l i ty in equity
markets. Hence, investments
reap the benefit of long term
investing in equities
§ Systematic mode of investment
(regular monthly investment)
available
ELSS category nature
ELSS funds are the only fully
equity-based investment option
under Section 80C. As such, the
performance potential of ELSS
funds is superior compared to
alternatives like National Pension
S y s t e m ( N P S ) , E m p l o y e e s
Provident Fund (EPF)/Voluntary
Provident Fund (VPF), Public
Provident Fund (PPF) and tax
saving fixed deposits (FDs). ELSS
funds have displayed consistent
performance.
H is tor ica l ly, the ELSS fund
performance has not deviated
directionally from the performance
of other equity fund categories.
This is because ELSS funds have
tended to invest across market
caps – large, mid and small, thus
keeping performance in line with
the general performance of the
wider equity markets, as a whole.
This lack of market cap bias
enables comparison of ELSS fund
performance with that of multi-cap
funds (also known as diversified
equity funds). In recent times, ELSS
funds have delivered returns in line
with multicap funds.
Under th is background, we
recommend the following funds:
L&T Tax Advantage Fund, Franklin
India Taxshield Fund and Reliance
Tax Saver Fund
37
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2018
L&T Tax Advantage Fund
Fund Objective:To generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities.
Key Information:
Product Label:
Investors understand that their principal will be at moderately high risk
This product is suitable for investors who are seeking:• Long term capital growth• Investment predominantly in equity and equity related securities
Performance:The fund has been among the top two quartiles performance wise over the last one, three and five year periods (as of February 28). It has managed to outperform the category and the benchmark across these time frames. The margin of outperformance over its benchmark has increased in recent times. It has generated CAGR of 13.9% and 20.4% in the last three years and five years vs. 7.7% and 14.7% r e t u r n s b y b e n c h m a r k , respectively (as of February 28, 2018)
Portfolio:Financial and consumption s t o c k s h a v e l e d t o o u t performance of the scheme recently. Additionally, the fund
manager has demonstrated good stock picking ability in the commodities space as well as some turnaround opportunities by identifying gainers quite early
Fund Benchmark
Performance vs. Benchmark
38
NAV as on February 28, 2018 (`) 56.1
Inception Date February 27, 2006
Fund Manager Soumendra Nath Lahiri
Minimum Investment (`)
Lumpsum 500
SIP 500
Expense Ratio (%) 2.06
Exit Load Nil
Benchmark S&P BSE 200
Last declared Quarterly AAUM(` cr) 3033
25.7
13.9 2
0.4
15.419
7.7
14.7
11.2
0
10
20
30
1 Year 3 Year 5 Year Since Inception
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2018
on. The scheme is significantly overweight consumption stocks w h e n c o m p a r e d t o i t s benchmark although exposure has reduced recently in favour of financials. The fund has recently added names from the newly listed insurance players. There are more than 60 stocks in the portfolio with the weightage to
no stock being much above 4%. This reduces concentration risk at the portfolio level. However, the top four picks in terms of sectors contribute ~66% of the portfolio. The fund is slightly tilted towards large cap stocks but still holds significant amount of midcap stocks.
39
Our View:Investors with a slightly higher
risk appetite can consider the fund from a three-five year perspective.
You can view performance of other schemes being managed by the fund manager of this scheme on the following link:
https://www.ltfs.com/content/dam/lnt-financial-services/lnt-mutual-fund/downloads/factsheets/2017-18/LT%20Factsheet%20November% 202017.pdf
Data as on February 28, 2018; Portfolio details as on January 2018Source: ACE MF, ICICI Direct Research
%
4.4
4.2
4.2
3.3
3.2
3.2
3.0
2.8
2.4
2.4
Top 10 Holdings Asset Type
Housing Development Finance Corporation Ltd. Domestic Equities
Graphite India Ltd. Domestic Equities
HDFC Bank Ltd. Domestic Equities
ICICI Bank Ltd.
ITC Ltd. Domestic Equities
Future Lifestyle Fashions Ltd. Domestic Equities
Kotak Mahindra Bank Ltd. Domestic Equities
Domestic Equities
Larsen & Toubro Ltd. Domestic Equities
Cash & Cash Equivalent Cash & Cash Equivalents and Net Assets
Axis Bank Ltd. Domestic Equities
%16.6
5.5
4.9
4.9
4.4
4.4
4.2
3.3
3.2
2.8
Top 10 Sectors Asset TypeBank - Private Domestic Equities
Engineering - Construction
Cement & Construction Materials Domestic Equities
Electrodes & Welding Equipment Domestic Equities
IT - Software Domestic Equities
Domestic Equities
Insurance Domestic Equities
Pharmaceuticals & Drugs Domestic Equities
Finance - Housing Domestic Equities
Retailing Domestic Equities
Cigarettes/Tobacco Domestic Equities
%
0.5
0.6
0.9Emami Paper Mills Ltd.
Whats In
Ipca Laboratories Ltd.
Idea Cellular Ltd.
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2018
DSPBR Taxsaver Fund
Fund Objective:The pr imary inves tment objective of the Scheme is to seek to generate medium to long-term capital appreciation from a diversified portfolio that is substantially constituted of equity and equity related securities of corporates, and to enable investors avail of a deduction from total income, as permitted under the Income Tax Act, 1961 from time to time.
Key Information:
This product is suitable for investors who are seeking*:
• Long-term capital growth with a three-year lock-in
• Investment in equity and equity- related securities to form a diversified portfolio.
Product Label:
Performance:The fund has outperformed its benchmark over most periods. However, the performance has suffered over the last year. It has beaten the benchmark Nifty 500 Index by ~3.9% CAGR (three years) and ~5.4% CAGR (f ive years) (as of February 28 , 2018) . The performance over the last year or so has suffered due to lower exposure to midcap stocks than i ts benchmark. The midcap space has enjoyed substantial rerating during this time, which has hurt funds that are tilted towards large caps.
Fund Benchmark
Performance vs. Benchmark
Investors under-stand that their principal will be at moderately high risk
40
NAV as on February 28, 2018 (`) 46.2
Inception Date January 18, 2007
Fund Manager Rohit Singhania
Minimum Investment (`)
Lumpsum 500
SIP 500
Expense Ratio (%) 2.50
Exit Load Nil
Benchmark NIFTY 500
Last declared Quarterly AAUM(` cr) 3983
17.4
12.5
21
14.72
0.1
8.6
15.6
9.4
0
5
10
15
20
25
1 Year 3 Year 5 Year Since Inception
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 201841
Portfolio:The portfolio has significant exposure to the financial sector, followed by materials a n d d i s c r e t i o n a r y consumption. In terms of portfolio construction, the fund has a significant large cap bias, with ~70% of the portfolio invested in such stocks with midcap stocks making up the rest. The proportion of large cap stocks in the portfolio has reduced slightly over the last month or so. Relatively higher
exposure to large caps has contributed to the recent underperformance to some ex ten t , espec ia l l y when compared to peers which are more multicap in nature. Currently there are ~70 stocks in the portfolio with individual weights to stocks not crossing 4% (except the top few picks). This indicates a focus on risk m a n a g e m e n t . T h e f u n d currently has ~2.5% cash in the portfolio.
%
6.7
4.6
4.3
4.0
3.3
3.1
2.5
2.5
2.4
2.2
Top 10 Holdings Asset Type
HDFC Bank Ltd. Domestic Equities
ICICI Bank Ltd. Domestic Equities
Tata Steel Ltd.
Maruti Suzuki India Ltd. Domestic Equities
ITC Ltd. Domestic Equities
Hindustan Petroleum Corporation Ltd. Domestic Equities
Domestic Equities
State Bank Of India Domestic Equities
Larsen & Toubro Ltd. Domestic Equities
GAIL (India) Ltd. Domestic Equities
Vedanta Ltd. Domestic Equities
%16.0
7.4
6.9
6.3
4.6
4.3
4.2
3.8
3.2
3.1
Top 10 Sectors Asset Type
Finance - NBFC Domestic Equities
Refineries Domestic Equities
Engineering - Construction Domestic Equities
Steel & Iron Products Domestic Equities
Automobiles - Passenger Cars Domestic Equities
Bank - Private Domestic Equities
Bank - Public Domestic Equities
Pharmaceuticals & Drugs Domestic Equities
Insurance Domestic Equities
Industrial Gases & Fuels Domestic Equities
%
0.7
1.2
0.4KEC International Ltd.
Whats In
LIC Housing Finance Ltd.
Welspun India Ltd.
%
0.4
0.81.7
Whats out
Procter & Gamble Hygiene & Health Care Ltd.
Eicher Motors Ltd.Sun Pharmaceutical Industries Ltd.
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 201842
Our View:Putt ing as ide the recent u n d e r p e r f o r m a n c e , t h e scheme has a good long term track record on its side. Due to
its positioning as a large cap tilted fund, it is suitable for slightly more conservative investors.
Data as on February 28, 2018; Portfolio details as on January 2018Source: ACE MF, ICICI Direct Research
You can view performance of other schemes being managed by the fund manager of this scheme on the following link:
https://dspblackrock.com/investor-centre/download
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2018
Reliance Tax Saver Fund
Fund Objective:To generate long-term capital appreciation from a portfolio that is invested predominantly in e q u i t y a n d e q u i t y r e l a t e d instruments.
Key Information:
Product Label:
This product is suitable for investors who are seeking*:
• Long term capital growth
* Investment in equity and equity related securities.
Performance:The fund has consistently outperformed the category and its benchmark over the last year, three years and five years. It has been a top quartile performer in the last one-year period and five-year period and a second quartile performer in the last three -year per iod (as of February 28). The one year, three years and five-year performance (as of February 28) is 19.9%, 8.3% CAGR and 23.3% CAGR, respectively, compared to BSE Sensex' 18.2%, 6.5% CAGR and 13.7% CAGR, respectively, (as of February 28).
Performance vs. Benchmark
Fund Benchmark
Investors under-stand that their principal will be at moderately high risk
PortfolioThe fund demonstrates a bias towards high growth and scalable businesses, which has helped it deliver well during the
good run for equity markets beginning from mid-2013. The portfolio earlier was multicap in nature with an almost equal split between large cap and
43
NAV as on February 28, 2018 (`) 63.5
Inception Date September 21, 2005
Fund Manager Ashwani Kumar
Minimum Investment (`)
Lumpsum 500
SIP 500
Expense Ratio (%) 1.98
Exit Load Nil
Benchmark S&P BSE 100
Last declared Quarterly AAUM(` cr) 10811
19.9
8.3
23.3
1618.2
6.5
13.7
12.1
0
5
10
15
20
25
1 Year 3 Year 5 Year Since Inception
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2018
midcap stocks. However, recently it added some more large cap stocks giving it a slightly greater large cap tilt. W h e n c o m p a r e d t o i t s benchmark, the scheme is underweight on financials and significantly overweight on automobiles. It has exited
some financial stocks over the last month. While some of the top stock picks have fairly healthy allocations, at the overall portfolio level the scheme seeks to mitigate concentration risk with a fairly large number of holdings (60+ currently).
44
%
8.3
6.7
4.7
4.6
4.5
4.1
3.7
3.2
2.9
2.9
Top 10 Holdings Asset Type
State Bank Of India Domestic Equities
TVS Motor Company Ltd. Domestic Equities
Tata Motors Ltd.
Infosys Ltd. Domestic Equities
Honeywell Automation India Ltd. Domestic Equities
Ambuja Cements Ltd. Domestic Equities
Domestic Equities
Tata Steel Ltd. Domestic Equities
ICICI Bank Ltd. Domestic Equities
ABB India Ltd. Domestic Equities
Bharat Forge Ltd. Domestic Equities
%14.8
9.1
6.7
5.5
4.7
4.6
4.6
3.7
3.6
3.3
Top 10 Sectors Asset Type
Automobile Two & Three Wheelers Domestic Equities
Auto Ancillary Domestic Equities
Automobiles-Trucks/Lcv Domestic Equities
Steel & Iron Products Domestic Equities
Bank - Private Domestic Equities
Bank - Public Domestic Equities
Electric Equipment Domestic Equities
IT - Software Domestic Equities
Forgings Domestic Equities
Cement & Construction Materials Domestic Equities
%
1.8
1.4
0Yes Bank Ltd.
Whats In
Bharat Heavy Electricals Ltd.
The Indian Hotels Company Ltd.
%
0.7
1.30.1
Whats out
ACC Ltd.
HCL Technologies Ltd.Union Bank Of India
Our View:The fund is sl ightly on the aggressive side with significant midcap holdings. However, the
portfolio is well constructed in terms of sector-level and stock-level diversification.
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/FactsheetsDocuments/Fundamentals-December-2017.pdf
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2018
Performance of other schemes managed by these fund managers: 1. L&T Tax Advantage Fund
45
Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 8 other schemes of the concerned Mutual Fund
39.09 24.42 --18.98 6.70 14.1131.29 17.19 24.9816.73 2.86 9.7228.18 18.74 29.7719.44 15.49 22.19
17.97 8.58 18.0218.98 6.70 14.1115.12 10.33 18.8218.98 6.70 14.117.72 3.61 14.90
18.98 6.70 14.11
Fund Name 1 Year 3 Years 5 Years
Top 3 Performing Schemes L&T Emerging Businesses Fund-Reg(G)S&P BSE Sensex - TRI
Bottom 3 Performing SchemesL&T Equity Fund-Reg(G)
Performance of other schemes managed by the fund manager - Soumendra Nath Lahiri
L&T Infrastructure Fund-Reg(G)NIFTY INFRA - TRIL&T Midcap Fund-Reg(G)Nifty Free Float Midcap 100 - TRI
S&P BSE Sensex - TRI
S&P BSE Sensex - TRIL&T India Prudence Fund-Reg(G)S&P BSE Sensex - TRIL&T Dynamic Equity Fund-Reg(G)
2. DSPBR TaxSaver Fund
Note: The schemes may or may not have been managed by the same Fund Manager since its inceptionNote: The concerned Fund Manager manages 4 other schemes of the concerned Mutual Fund
22.77 10.79 18.6718.47 6.86 14.2221.28 25.26 24.6318.47 6.86 14.2217.94 13.60 20.6420.48 9.70 16.77
16.41 12.35 20.8720.48 9.70 16.77
DSPBR Natural Res & New Energy Fund-Reg(G)NIFTY 50 - TRIDSPBR Opportunities Fund-Reg(G)NIFTY 500 - TRI
Fund Name 1 Year 3 Years 5 Years
Top 3 Performing Schemes DSPBR India T.I.G.E.R Fund-Reg(G)NIFTY 50 - TRI
Bottom 3 Performing SchemesDSPBR Tax Saver Fund-Reg(G)NIFTY 500 - TRI
Performance of other schemes managed by the fund manager - Rohit Singhania
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager March 2018
Data as on February 28,2018 ;Portfolio details as on Jan-2018Source: ACE MF, ICICI Direct Research
46
3. Reliance Tax Saver Fund
Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 4 other schemes of the concerned Mutual Fund
20.87 9.29 18.6318.98 6.70 14.1119.04 7.29 18.4318.98 6.70 14.1118.47 8.09 22.9618.98 6.70 14.11
-- -- --17.79 7.54 14.55
Reliance Vision Fund(G)S&P BSE Sensex - TRIReliance Tax Saver (ELSS) Fund(G)S&P BSE Sensex - TRI
Fund Name 1 Year 3 Years 5 Years
Top 3 Performing Schemes Reliance Top 200 Fund(G)S&P BSE Sensex - TRI
Bottom 3 Performing SchemesReliance Capital Builder Fund-IV-B(G)S&P BSE 200
Performance of other schemes managed by the fund manager - Ashwani Kumar
ICICIdirect Money Manager March 2018
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.
This month on iCommunity
Discussion
Q & A Forum
Q& A Session with Investment Advisory and Services Head :Mr
Abhishake Mathur - March 12,2018
Below mentioned questions were asked during the event -
a) Is it good to buy a house taking a loan at 8.30% or invest the money in equity ?
b) If I want a monthly income of 1 lakh/ month after 20yrs what is the corpus required to be accumulated?
c) Give me a list of equities for 10 years instrument which has potential to give 20 percent annualized returns.
47
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager March 2018
Our indicative large-cap equity model portfolio has continued to deliver an impressive return (inclusive of dividends) of 118% till date (as on February28, 2018) since its inception (June 21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex) return of 99.56% during the same period, an outperformance of 18.44. This validates our thesis of selecting companies with sound business fundamentals that forms the core theme of our portfolio. Our midcap portfolio of 16 stocks continues to outperform well, delivering 334.85% (inclusive of dividends) till date (as on February 06, 2018) vis-à-vis the benchmark index (CNX Midcap) return of 155.45%, outperformance of 179.4%. 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 portfolio (large caps) remain overweight on BFSI sector – HDFC Bank (10%), HDFC (9%), Axis Bank (6%) Bajaj Finance (6%) and SBI (6%). Affirming our view on consumption demand, Dabur (5%) and Asian Paints (5%) continue to be part of our large cap portfolio. However, there's an addition of metal sector- Hindustan Zinc (6%) in the revised 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.
Among individual names, we continue to recommend TCS in the IT space. A revival in the capex cycle coupled with lower interest rate scenario would benefit the BFSI and construction space (UltraTech, L&T, SBI, Asian Paints).
48
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager March 2018
Name of the company
Largecap Stocks
Model Portfolio
Largecap(%)
Midcap(%)
Diversified(%)
49
Auto 16.0 11.2
Tata Motor DVR 4.0 2.8
Maruti 5.0 3.5
EICHER Motors 3.0 2.1
Mahindra & Mahindra (M&M) 4.0 2.8
BFSI 37.0 25.9
HDFC Bank 10.0 7.0
Axis Bank 6.0 4.2
HDFC 9.0 6.3
Bajaj Finance 6.0 4.2
SBI 6.0 4.2
Capital Goods 4.0 2.8
L & T 4.0 2.8
Cement 4.0 2.8
UltraTech Cement 4.0 2.8
FMCG/Consumer 18.0 12.6
Dabur 5.0 3.5
Marico 4.0 2.8
Asian Paints 5.0 3.5
Nestle 4.0 2.8
IT 6.0 4.2
TCS 6.0 4.2
Media 4.0 2.8
Zee Entertainment 4.0 2.8
Metals 6.0 4.2
Hindustan Zinc 6.0 4.2
Oil and Gas 5.0 3.5
GAIL Ltd. 5.0 3.5
Largecap share in diversified 100.0 70.0
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager March 2018
ICICI Securities has received a mandate from Indian Bank'.ICICI Securities has received an Investment Banking mandate from Mahindra & Mahindra and BHARAT HEAVY ELECTRICALS LTD
50
Auto 6.0 1.8
Bharat Forge 6.0 1.8
BFSI 20.0 6.0
Bajaj Finserve 8.0 2.4
J&K Bank 6.0 1.8
Indian Bank 6.0 1.8
Capital Goods 6.0 1.8
Bharat Electronics 6.0 1.8
Cement 6.0 1.8
Ramco Cement 6.0 1.8
Consumer 36.0 10.8
Symphony 6.0 1.8
Supreme Ind 6.0 1.8
Kansai Nerolac 6.0 1.8
Pidilite 6.0 1.8
Tata Chemicals 6.0 1.8
Bata 6.0 1.8
Metals 6.0 1.8
Graphite India 6.0 1.8
Infrastructure 8.0 2.4
NBCC 8.0 2.4
Logistics 6.0 1.8
Container Corporation of India 6.0 1.8
Textile 6.0 1.8
Arvind 6.0 1.8
Total 100.0 30.0
Midcap share in diversified 30
TOTAL 100 0 100.0
Performance* so far since inception
*Returns (in %) as on Feb 28, 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 1,00,000 invested via SIP at the end of every month `
Portfolio Benchmark
Investment Value of Investment in Portfolio Value if invested in Benchmark
Start date of SIP: June 30, 2011; *Value as on Feb 28, 2018
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager March 201851
118.0033591
334.857383
165.9802166
99.56351395
155.4530043113.8761164
0255075
100125150175200225250275300325350375
Large Cap Midcap Diversified
%
8200000
8200000
8200000
11788216.5
13365584.2
7
10962764.2
4
12686401.5
3
12093506.0
1
3500000
4500000
5500000
6500000
7500000
8500000
Largecap Midcap Divesified
|
QUIZ TIME
1. A correlation of -40% tells us that historically ______ of the time, the two assets were moving in opposite directions.
2. Unit-linked insurance plans is one of the common vehicles for holding equity. True/False
3. In ______________ method, advisor reduces exposure to overvalued assets based on the market view in order to outperform the asset class indices.
4. An investor saving up for a child's education in 10 years should not invest in low risk assets. True/False
5. ___________ is a good option (/asset) for diversification but not necessarily for growth.
Note: All the answers are in the stories that have appeared in this edition of ICICIdirect Money Manager. 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 February2018 quiz are:
1. In a non-discretionary irrevocable trust, the settlor lets the trustees take decisions regarding asset distribution. False
2. After obtaining probate, it is the duty of the executor to carry out the distribution of the property in accordance with the provisions of the will.
3. If the nominee of an asset and beneficiary mentioned in the will are same, the process of estate distribution takes lesser time.
4. If there is no will containing a guardianship designation, then a judge will need to make the designation based on what he or she decides is in the best interests of your child.True
5. Legatee/beneficiary is the person who is named in a will to receive a portion of the deceased person's estate.
ICICIdirect Money Manager March 201852
PRIME NUMBERS
Equity Markets
ICICIdirect Money Manager March 2018
Domestic Equity Indices
Global Equity Indices
Sectoral Indices
53
28-Feb-18 31-Jan-18 Change (%)
CNX Nifty 11028.0 -100.0%
CNX Midcap 19665.0 20785.0 -5.4%
S&P BSE Sensex 34184.0 35965.0 -5.0%
S&P BSE 100 10865.0 11419.0 -4.9%
S&P BSE 200 4592.0 4812.0 -4.6%
S&P BSE 500 14670.0 15347.0 -4.4%
28-Feb-18 31-Jan-18 Change (%)
Dow Jones 25,029.2 26,149.4 -4.3%
S&P 500 2,713.8 2,823.8 -3.9%
Nasdaq 7,273.0 7,411.5 -1.9%
FTSE 7,231.9 7,533.6 -4.0%
DAX 12,435.9 13,189.5 -5.7%
CAC 40 5,320.5 5,481.9 -2.9%
Nikkei 22,068.2 23,098.3 -4.5%
Hang Seng 30,844.7 32,887.3 -6.2%
Shanghai Composite 3,259.4 3,480.8 -6.4%
Taiwan Weighted 10,815.5 11,103.8 -2.6%
Straits Times 3,517.9 3,534.0 -0.5%
28-Feb-18 31-Jan-18 Change (%)
S&P BSE Auto 24,832.4 25,945.3 -4.3%
S&P BSE Bankex 28,313.9 30,986.0 -8.6%
S&P BSE FMCG 10,506.4 10,711.0 -1.9%
S&P BSE Healthcare 14,113.0 14,559.4 -3.1%
S&P BSE Metals 15173.8 15427.4 -1.6%
S&P BSE Oil & Gas 15,505.8 16,368.2 -5.3%
S&P BSE Power 2,223.1 2,319.0 -4.1%
S&P BSE Realty 2,468.3 2,609.1 -5.4%
S&P BSE Teck 6,742.5 6,831.0 -1.3%
PRIME NUMBERS
ICICIdirect Money Manager March 2018
Debt Markets
Government Securities (G-Sec) Yields (in %) Feb-18 Jan-18 Change (bps)
Corporate Bond Yields (in %) Feb-18 Jan-18 Change (bps)
Commercial Paper (CP) Rates (in %) Feb-18 Jan-18 Change (bps)
Treasury Bill (T-Bills) Yields (in %) Feb-18 Jan-18 Change (bps)
Volatility Index (VIX)
28-Feb-18 31-Jan-18 Change (%)
VIX 13.80 15.93 0%
54
10 year 7.72 7.43 29
5 year 7.55 7.40 15
3 year 7.20 7.08 12
1 year 6.68 6.67 1
AAA 10 year 8.31 8.19 12
AAA 5 year 7.98 7.82 16
AAA 3 year 7.81 7.60 21
AAA 1 year 7.80 7.54 26
AA 10 year 8.78 8.61 17
AA 5 year 8.49 8.35 14
AA 3 year 8.34 8.14 20
AA 1 year 8.21 7.91 30
12 Months 8.16 7.98 18
6 Months 8.01 7.89 12
3 Months 7.91 7.76 15
1 Month 6.88 6.95 -7
91D TB 6.28 6.40 -12
182D TB 6.48 6.46 2
364D TB 6.63 6.55 8
PRIME NUMBERS
10-year benchmark yields (%) across countries
ICICIdirect Money Manager March 2018
Macro-economic Indicators
Consumer price index (CPI)
Wholesale price index (WPI)Month
*WPI numbers are based on new series with 2011-12 as the base year'
55
Countries 28-Feb-18 31-Jan-18 Change in bps
US 2.861 2.705 16
UK 1.501 1.510 (1)
Japan 0.053 0.085 (3)
Spain 1.531 1.422 11
Germany 0.656 0.697 (4)
France 0.916 0.966 (5)
Italy 1.974 2.029 (5)
Brazil 9.610 9.720 (11)
China 3.845 3.922 (8)
India 7.726 7.430 30
MF Investment Feb-18 Jan-18 YTD
Equity 13261 9083 129593
Debt 26547 22240 325626
FII Investment Feb-18 Jan-18 YTD
Equity -12491 12983 9156
Debt -2771 9355 125604
Items Weights(%) Dec-17 Jan-18 Feb-18
Food&bev. 45.86 4.85 4.58 3.38
Pan,tob& intox. 2.38 7.76 7.58 7.34
Cloth & Foot 6.53 4.95 4.94 5.00
Housing 10.07 8.25 8.33 8.28
Fuel & light 6.84 7.90 7.73 6.80
Misc. 28.31 3.79 3.78 3.85
CPI 100 5.21 5.07 4.44
Weights Dec-17 Jan-18 Feb-18WPI 100.0 3.58 2.84 2.48Primary Articles 22.6 3.86 2.37 0.79Fuel & Power 13.2 8.03 4.08 3.81Manufactured Goods 64.2 2.79 2.78 3.04
PRIME NUMBERS
Commodities
Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research
ICICIdirect Money Manager March 2018
Mutual Funds: Category Average Returns
Equity Funds Returns (in %)Tenure Diversified Funds Mid-cap &
Small-cap Funds
Large-capFunds
ELSS (Tax-
savingfunds)
Returns as on February 28, 2018
Debt Funds Returns (in %)
Returns as on February 28, 2018
Tenure Liquid Funds
Index of industrial production (IIP) Sector-wise growth rate (%)
Currencies and CommoditiesCurrencies
*IIP numbers are based on new series with 2011-12 as the base year'
Debt ST Ultra ST Debt LT
56
Categories 31-Dec-17 30-Nov-17 30-Oct-17 Weight(%)Mining 7.5 6.4 6.8 14.4Manufacturing 2.7 3.3 -1.3 77.6Electricity 2.7 -6.5 -0.5 8.0Overall 3.3 2.8 -0.3 100.0
28-Feb-18 31-Jan-18 Change (%) StatusUSDINR 65.2 63.6 2.5% DepreciatedEURINR 79.7 79.2 0.6% DepreciatedGBPINR 90.4 89.9 0.6% DepreciatedAUDINR 50.9 51.5 -1.3% AppreciatedCHFINR 69.1 68.2 1.4% DepreciatedJPYINR 0.6 0.6 4.1% DepreciatedCNYINR 10.3 10.1 1.8% Depreciated
28-Feb-18 31-Jan-18 Change (%)Crude ($/barrel) 64.5 68.8 -6.3%Gold ($/ounce) 1,318.4 1,345.2 -2.0%
6 months 6.70 10.45 4.44 6.491 year 20.08 25.16 17.70 20.063 year 10.46 15.04 7.68 10.215 year 19.07 26.73 15.86 18.74
6 months 6.12 3.12 4.99 -1.17
1 year 6.32 5.77 6.29 4.12
3 year 7.05 7.47 7.51 6.57
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