Investment Advisory Group Presentation May 2016Presentation May 2016 _____ 2 Aggressive Moderate...
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______________________________________________________________________ 1 Investment Advisory Group Presentation May 2016
Transcript of Investment Advisory Group Presentation May 2016Presentation May 2016 _____ 2 Aggressive Moderate...
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Investment Advisory Group
Presentation
May 2016
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Aggressive Moderate Conservative
Direct Equity /Equity Funds 65% 50% 35%
Debt Funds 20% 40% 55%
Alternative Investments 10% 5% 5%
Gold 5% 5% 5%
Recommended Asset Allocation & Equity Funds Strategy
With the revival in infrastructure creation activities, reduction in Rural stress, removal of supply-side bottlenecks and decline in interest rates, the Urban Demand seems to be picking up and the Rural economy could get a boost, pushing the corporate earnings higher in the next 2-5 quarters.
Over the last 12 months the Large cap indices delivered negative returns as the consensus earnings estimates were toned down significantly. Though, in the near term growth outlook seems to have been tempered down, the medium to long term outlook for India continues to be robust. We expect the economic growth to see pickup in FY17 on the back of improved government capex, turnaround in the Rural demand and rising Urban consumption.
We expect strong returns from equities over the next 2-3 years, given the reasonable valuations and expected turnaround in the earnings; hence recommend an overweight stance on equities for investors across risk profile. Higher incremental growth rates of Indian economy compared to its emerging market peers and larger developed economies would continue to help liquidity flows into India.
Volatility in the equity markets has presented the investors with good opportunity to further invest with a higher focus on Large cap stocks with selective allocations to Midcap and Small cap stocks.
From a Equity Mutual Fund perspective, investors should look at Large cap, Flexi cap and Balanced Funds for fresh investments. The investment strategy should be 75% lump sum and rest should be staggered over the next 2-3 months.
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Equity Market Strategy
With global commodity prices stabilising, the global risk appetite continued to see strong revival.
Most of the developed economies continue to maintain loose monetary policies with US Fed also pausing on its rate hike cycle.
This is being done to get the global growth back on track….. Gradually.
No bad news from China also has been construed as good news for global equity and commodity markets, with the new 5 year policy in
China clearly suggesting lower growth rate but higher per capital income targets.
Indian markets are expected to consolidate post sharp rally in March and April, as Q4FY16 earnings continue.
India continues to be amongst the fastest growing economies in the world amidst weakness all around, which has again attracted the
attention of the global asset allocators and FII flows have rebounded sharply.
Another aspect of the fund flows in India has been the strong revival of the FDI inflows, which suggest strong global traction of the Make in
India program of the government.
Sound macro environment and the focus of the government to drive reforms and execution is likely to hold the markets in good stead.
With improving Urban demand scenario, the government is focussing towards reducing the Rural stress and pushing infrastructure creation.
With good monsoons the Rural economy would get additional boost.
Initial signs of revival in capex cycle seems to be taking roots, driven primarily by the Govt, while Private capex cycle still looks to be some
time away.
We believe that, with the revival in infrastructure creation activities, reduction in Rural stress, removal of supply-side bottlenecks and decline
in interest rates, the Urban demand could pickup and the Rural economy could get a boost, pushing the corporate earnings higher in the
next 2-5 quarters.
While the RBI has cut interest rates again by 25 bps, we think that further rate cuts would hinge upon the inflation trajectory (including
impact of 7th pay commission) going forward. Though, the overall interest rates in the economy is likely to come off due to improved liquidity
and transmission of earlier rate cuts by the banks
We expect the FII flows to be robust in CY16 as Indian economy could continue to outperform its emerging market peers. The key themes
in CY16 is expected to be Urbanisation, Government spending and Rural and Urban Consumption.
We think that the current consolidation in the equity markets presents the investors with good opportunity to further invest in equities with a
higher focus on Large cap stocks, with a selective approach towards Midcap and Small cap names given the high valuation differentials.
We recommend that equity investment strategy should be at 75% lumpsum and rest staggered over the next 2-3 months; as we
think that the markets are trading at reasonable valuations.
We recommend investment into RIL, ONGC, SBI, L&T, Bharti Airtel, Grasim, Tata Motors, M&M, Exide, Supreme Inds, TCS, Infosys, GSFC, ENIL, NTPC, Atul, Voltas and UPL from a 2-3 year perspective.
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Debt Mutual Fund Strategy
Investment into Medium Term Funds with an investment horizon of over 15
months can be considered by Moderate and Conservative investors.
Short Term Funds can be considered with an investment horizon of 12 months.
Income/Duration Funds can be considered by aggressive investors for a
horizon of 24 months and above; though preference currently should be given
to dynamically managed funds.
Investors looking to invest into higher accrual portfolio can consider investing
into HDFC Corporate Debt Opportunities Fund and HDFC Short Term Plan.
Investors looking to invest with a horizon of 1 to 3 months can consider Liquid
Funds, while Ultra-Short Term Funds can be considered for a horizon of 3
months and above.
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Research Presentation – Contents
Global commodity prices consolidating in a range, while crude rallied from the bottom
…..led by announcements of reduction in capacities in China, as it transforms from manufacturing to services led economy
While US data remains steady…..rate hikes expected to be gradual
Other developed economies continue to muddle through
Turnaround in commodities lead to rally in global risk assets as FIIs flows in emerging markets revives ……. Indian markets also benefited
As India’s structural strength continues to improve…..
Government’s focus on reform agenda remained intact
World acknowledging Make in India concept with India surpassing China in FDI flows in 2015
While Urban consumption continue to see strength….
……revival in Rural consumption hinges on monsoon…..
Marginal sign of uptick in the capex cycle
Over a longer term, India equity markets have climbed many walls of worries and delivered strong returns
Over the last 18 months, earning estimates for FY17 & FY18 have been downgraded, leading to revision of target
……despite the recent correction in the markets, the Valuation gap between Large Cap and Midcap Indices remain high
Markets are consolidating in a range, valuations reasonable
Key risks
Equity Market Round Up – April 2016
Equity Market – Outlook and Stocks
Fixed Income
G-sec yield movement…
Yield curve steepens on improvement in liquidity…further steepening expected if RBI supplies more liquidity
Corporate bond yield curve… medium term of the corporate yield curve still looks attractive
Government to borrow ~59% of gross borrowings in H1FY17…borrowings concentrated in the 10-15 year segment
April had lower net G-sec supply….net supply to rise in the coming months
CPI inflation moderates for 3rd consecutive month…better monsoon may help in further moderation
Liquidity conditions improved in April…short term rates declined on easy liquidity
Trade balance and Forex reserves at comfortable levels…strong support to domestic currency
FPIs net buyers in April… appetite for Indian bonds likely to be strong
Key Risks
Fixed Income Outlook
Investment Strategy
Equity Mutual Funds
Recommended Equity Mutual Funds
Fixed Income Options
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Source: World Bank
Global commodity prices consolidating in a range, while crude rallied
from the bottom
Most of the global Industrial commodities have started
to consolidate in a range after touching multiyear low
prices.
Crude prices have rallied sharply from its bottom. The
crude has moved up from a low of ~US$26 per barrel
(bbl) to ~US$46/bbl, up by 78%, on improved sentiment
and reports reduction in supply.
Given the recent rebound in oil prices and expected
supply tightening in the H2CY16, the World Bank raised
the crude oil price forecast for 2016 to US$41/bbl, up
from US$37/bbl in the January 2016 assessment.
A proposal by key OPEC and Non OPEC producers to
freeze production at January levels failed to materialize
at the Doha meeting on April 17.
While crude oil prices have recovered from their
recent low levels, they are still significantly below
their 2014 peak.
Going forward, potential supply discipline by OPEC
countries and global demand scenario will be
crucial factors that would drive movement of oil
prices.
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…..led by announcements of reduction in capacities in China, as it
transforms from manufacturing to services led economy
The global demand for commodities has been muted
as China is in the transition phase of moving from
manufacturing and exports to services & domestic
consumption led economy.
With the China’s economy growing at its slowest
pace since 1990, several industries, including mining,
car makers, luxury goods, semi-conductor makers
have been witnessing slowdown due to higher
exposure to the country.
Following the steep fall in the commodity prices,
energy and metal companies had sharply cut
spending, leading to the greatest drop in capital
expenditures.
According to media reports, China is targeting to cut
in crude steel production capacity by as much as 150
mn tons and ―large scale" reductions in coal output
as part of supply-side measures aimed at curbing
overcapacity and excess labor in industries.
The stimulus packages (Quantitative Easing)
announced by several global central banks have
also led to (partially) recent spike in the
commodity prices.
Source: U.S. Energy Information Administration
US crude oil production:
Source: Bloomberg
Companies with the decrease in capex
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While US data remains steady…..rate hikes expected to be gradual
Source: US Commerce Department
The US economy continues to report steady economic
data with consistent improvement in the job and housing
markets.
Unemployment rate in the USA came in at 5% in March
2016, much lower than the average rate of 5.3% during
CY15.
While initial claims for unemployment benefits increased
9,000 to a seasonally adjusted 257,000 for the week
ended April 23, the underlying trend remained consistent
with tightening lab or market conditions.
According to the National Association of Realtors, its
pending home sales index, based on contracts signed last
month, rose 1.4% to 110.5, the highest level since May
2015.
The strength in the US economy raised the probability of
next round of interest rate hike by Federal Reserve.
However, in the latest FOMC meeting, the Federal
Reserve left interest rates unchanged, but kept the door
open to a hike in the next FOMC meeting.
Federal Reserve also mentioned that the Committee
continues to closely monitor inflation indicators and global
economic and financial developments.
In the near term, the probability of rate hike in the US
looks low due to CPI at much lower level as
compared to Federal Reserve’s target of 2% and due
to fragile global economic situation.
Source: National Association of Realtors, USA
US pending home sales picked up sharply in March
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Other developed economies continue to muddle through
Eurozone:
The inflation data continues to be weak with CPI for
April 2016 came in at -0.2% YoY against 0% YoY in
March 2016.
The manufacturing and service sectors kept
expanding moderately in April 2016, but failed to pick
up momentum, suggesting the region remains stuck
in a slow growth cycle.
On the positive side, March 2016 unemployment
data was slightly better than expected with a decline
to 10.2% from an upwardly-revised 10.4% the
previous month.
Japan
The Markit/Nikkei Japan Manufacturing Purchasing
Managers Index (PMI) fell to a seasonally adjusted
48.0 in April 2016 from a final 49.1 in March 2016.
The Bank of Japan, in its recent meeting, kept its
asset purchase target at ¥80 trillion ($718 bn) a year,
a measure aimed at putting more money into
circulation to stimulate growth and inflation.
Consumer prices in Japan, including energy prices,
fell 0.3% YoY in March 2016 from a year earlier.
Source: Media reports
Source: Financial Times
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Turnaround in commodities lead to rally in global risk assets as FIIs
flows in emerging markets revives ……. Indian markets also benefited
FIIs flow in the emerging markets continues in April 2016
Source: Bloomberg
The FIIs flows in majority of the emerging markets remained negative
during Jan’16 and Feb’16 (partially) due to deepening concerns of lower
commodity prices and expectations of tight monetary policy by the US
Federal Reserve.
However, Mar’16 saw sharp FIIs inflows which continued in the month of
Apr’16 as well across the emerging markets on the back of turnaround in
the commodity prices and dovish stance by US Federal Reserve in the
monetary policy.
Strong FII flows led to rally in global risk assets in particularly equity
markets.
India, being part of the emerging markets, received stronger FIIs flows
and reported positive flows for CY16 post outflow in the first two months
of CY16.
Indian equity markets reacted positively to FIIs flows and outperformed
other major emerging markets during Mar’16-Apr’16 period.
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Trend in FIIs flows and Nifty 50 returns
Net FII (Rs. In bn) Nifty 50 Monthly return % (RHS)
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Equity market performance in Mar-Apr'16 (%)
Source: Bloomberg
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India’s fundamental strength is continues to improve:
As per the CSO, India’s GDP growth at constant market prices is projected to
increase to 7.6% in FY16 from 7.2% in FY15, making it amongst the fastest
growing large economies in the world.
Twin deficit remains under check: The twin deficits – Fiscal Deficit as
percentage of GDP (at 3.9% for FY16E and 3.5% for FY17E) and Current Account
Deficit as percentage of GDP (projected at 1.4% of GDP in FY16E) are well within
the comfort zone.
Lower trade deficits: Being a net importing country, India has benefitted
significantly with fall in the international commodity prices. The trade deficit is at
multi year low at $5 bn in March 2016.
Subsidy on petroleum products has come down by nearly 29% in FY16, marking a
saving of Rs.542.23 bn YoY on the back of low crude prices and market reforms.
Lower inflationary scenario: The inflation continues to remain benign with both,
CPI and WPI closer to its historic lows. The latest CPI came in at 4.83% YoY in
March 2016 and WPI was negative at 0.85% YoY for March 2016.
Pick up in manufacturing: Index of Industrial Production (IIP) was 2.0% in Feb
2016 and Eight Core industries registered a growth of 6.4% in March 2016
Interest rates have enough scope to fall: With inflation at closer to historic lows
and budget deficit under control, the interest rates in the economy have ample
scope to glide down.
Credible reform process by the government: The government remains focused
in its reform process which is likely to revive the investment cycle in the economy.
Forex reserves are at all time high: India’s forex reserves stood at all time high at
~$360 bn at the end of 15 April 2016
Foreign direct investment equity in India increased sharply by ~37% YoY for the
17-month period—ended Feb 2016—after the launch of the Make in India initiative.
We think that India’s structural drivers are intact which well differentiates vis-
a-vis other emerging countries and are likely to support the economic growth
in medium to long term.
Source: finmin.nic.in
Source: MOSPI
Source: Bloomberg
As India’s structural strength continues to improve…..
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Twin deficit under control
Current Account Deficit (% of GDP) Fiscal Deficit (% of GDP)
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Q3FY16 vs Q3FY15 GDP growth (YoY) comparison
Q3FY15 Q3FY16
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Government’s focus on reform agenda remained intact
While the global economy has been struggling to stand against slower growth, the government of India focused on strengthening
the economy with various reform announcements targeting to improve both social and physical infrastructure in order to set
structural drivers for long term sustainable economic growth. Among all, following were the key reforms and announcements:
Make in India: with emphasis on Defence & Electronics manufacturing: Orders worth of Rs 2 trillion has been placed in last one year
Large infrastructure projects: Dedicated Freight corridors, River Linking project, Metros, the Smart Cities Mission, Atal Mission for
Rejuvenation and Urban Transformation (AMRUT) and Housing for All
Digital India: To spend over $15bn over 5 years – e-governance services across spectrum, in addition to complete Urban digitization &
connecting 2.5 lac villages. The govt announced 22 new initiatives and broadening the scope of existing ones under the Digital India
programme include projects in the areas of Digital Infrastructure, Digital Empowerment, on-demand government services and promotion
of industry, to make more services accessible to the masses.
Agriculture reforms: Restructuring Food Corporation of India, Agriculture Produce Marketing Corporation reforms, Soil Health Cards,
Farmer insurance, proposal for National Irrigation scheme, Easing supply side bottle necks
Swatch Bharat: Over the next 5years, the government plans to invest nearly Rs 2 trillion to construct over 10 crore toilets across India.
A total of 318.3 mn toilets were built between April 2014 and January 2015 under this campaign, which is 25.4% of the target for 2014-
15.
Direct-Benefit-Transfer: To bring all social sector schemes under-fold ~800 mn Aadhar cards were issued so far. LPG transfer is
already underway.
Ease of doing business: Establishing NITI, single window clearances, online approval systems, e-tenders – leading to substantial
reduction in bureaucracy. To help bring in more foreign capital and increase job creation opportunities in the country, the govt
announced reforms in Foreign Direct Investment (FDI) across 15 sectors:
Indradhanush: PSU Banks revival plan
Gold Monetization: Aimed to attract tonnes of the precious metal from India households into the banking system.
UDAY (Ujwal DISCOM Assurance Yojana): For financial turnaround of Power Distribution Companies- to benefit the entire power
chain.
‘Rurban Mission’ for developing 300 villages as Urban growth centres.
Key bills like Real Estate (Regulation and Development) Bill, Aadhaar (Targeted Delivery of Financial and Other Subsidies,
Benefits and Services) Bill, 2016 and Mines and Minerals (Development and Regulation) (Amendment) Bill, 2016 getting cleared
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As per Road Transport and Highways Minister Nitin Gadkari, road construction in India has accelerated to an all-time high pace of
20 kilometres per day. The govt has set a target to award projects worth Rs 3 trillion between May 2016 and May 2017 (6 Apr)
Union cabinet decided to allow telecom companies to use spectrum allocated to them without auction to offer new services to
consumers at a provisional price recommended by the telecom regulator. (7 Apr)
Cabinet allowed state-run refiners to evolve their own policies to source crude oil instead of time-consuming tendering process based on
government rules set 37 years ago and modified once in 2001. (7 Apr)
Cabinet enhanced the scope of a framework agreement between Export-Import Bank of India and a consortium of Iranian banks led
by the Central Bank of Iran for export of goods and services from India to Rs.30 bn from Rs.9 bn. (7 Apr)
Cabinet also ratified a plan to implement the One Rank One Pension (OROP) scheme for defence personnel. Till 31 March 2016, 1.591
mn pensioners have been given the first instalment of OROP, amounting to Rs.28.61 bn. (7 Apr)
Indian Railway is firming up a plan for infrastructure development with an ambitious target of pumping in more than Rs 8 trillion over
the next four years. (10 Apr)
India and Maldives signed six critical agreements related to cooperation in taxation and defence during the visit of Maldivian President
Abdulla Yameen Abdul Gayoom. (11 Apr)
Cabinet cleared the Rs.36.79 bn National Hydrology Project (NHP) that aims to collect hydro-metrological data across India and use it
for efficient water management in the country. (18 Apr)
Centre had already released Rs.73.29 bn for the Mahatma Gandhi National Rural Employment Guarantee Scheme for FY17 (20 Apr)
Indian Railway have finished FY16 with a record high capex of Rs 940 bn, an increase of Rs 370 bn over FY15. (21 Apr)
As per the petroleum ministry, as many as 10 mn households have surrendered their cooking gas subsidy, leading to savings of
~Rs 51.78 bn for the government on the petroleum subsidy bill. (22 Apr)
Beneficiaries getting subsidies through Direct Benefits Transfer (DBT) into their bank accounts have crossed the 30-crore mark and
the government has now fixed a 2017-end target to transfer all subsidies through an Aadhaar-enabled DBT. (25 Apr)
As per New & Renewable Energy Minister Piyush Goyal, an investment of Rs 908.42 bn was made in the renewable energy sector in
the country during three FY16 (25 Apr)
The minimum wage for contract workers has been increased to Rs 10,000 per month, Union Minister Bandaru Dattatreya (25 Apr)
As per Union Minister Nitin Gadkari, the government is expecting investments worth Rs 25 trillion over the next three years in the
roads, railway and shipping infrastructure that includes setting up of 27 industrial clusters at ports at around Rs 8 trillion. (29 Apr)
Government strongly augmented its reform announcements which indicates that the government is well focused on reviving the
investment climate, improving ease of doing business in the economy and thereby pushing economic growth. Going forward,
passing of the Bankruptcy Law and the Goods and Services Tax bill are likely to be the key drivers for the markets.
……reform announcements and execution continued (for the month of
April 2016)……. However, passage of GST is still awaited
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World acknowledging Make in India concept with India surpassing China
in FDI flows in 2015
Source: DIPP.nic.in
India launched Make in India initiative, aiming at promoting India as
an important investment destination and a global hub for
manufacturing design and innovation, to invite both domestic and
foreign investors to invest in India.
There is an improvement in business environment with the initiatives
taken to improve Ease of Doing Business under the Make in India
programme.
This has resulted in the UNCTAD World Investment Report 2015, in
its analysis of the global trends in Foreign Direct Investment (FDI)
inflows, ranking India as the third top destination for investments for
2015-2017.
The world has acknowledged the Make in India programme as FDI
Equity in India increased sharply by ~37% YoY for the 12-month
period—ended December last year—after the launch of the Make in
India initiative.
India has replaced China as top destination for FDI by attracting $63
bn worth FDI projects in 2015.
In 2015, India was for the first time the leading country in the world for
FDI, overtaking the US (which had $59.6 bn of greenfield FDI) and
China ($56.6 bn)
FDI in agriculture sector increased to Rs.5.53 bn during the first
eleven months of FY16
As per Shaktikanta Das, India plans to further liberalise rules for
overseas investors and bring more sector under Automatic approval.
FDI is considered to be a long term and stable foreign capital which is
invested by foreign countries/investors in a country for long term
asset creation.
The strong FDI inflows in China was a key contributor to supernormal
GDP growth registered by China over the past several years.
The sharp growth in FDI inflows in India is also expected to result in
sustainable and higher GDP growth in the medium to long term.
* UNCTAD = The United Nations Conference on Trade and Development
Source: IMF, Media reports
Source: IMF, Media reports
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While Urban consumption continue to see strength….
The consumer sentiments in the Urban India continue to witness signs of
rising demand.
As per Directorate General of Civil Aviation (DGCA) data, India’s
domestic passenger traffic has shown strong double digit growth in recent
past.
India’s domestic passenger traffic growth in Mar’16 stood at 25% YoY
(v/s 24% in Feb’16, 23% in Jan’16 and 22% in FY16).
As per RBI, the value of mobile banking transactions jumped 46% to
Rs.490 bn in December 2015 from the previous month.
As per RBI data, Housing loans during Apr’15-Mar’16 grew by
19.4% YoY as compared to 15.5% YoY growth in same period last year.
India was one of the fastest-growing retail e-commerce markets in the
world in 2015, growing 129.5% year over year to $14.0 bn in 2015 from
$6.10 bn in 2014, according to research firm eMarketer Inc. That
represented only 1.7% of India’s $818.33 bn retail market, according to
eMarketer data.
As per ICRA, retail credit of NBFCs is expected to grow 16-18% in FY16
on the back of rising demand in the new commercial vehicle segment and
also given the general pick-up in business environment.
A strong business sentiment and pick-up in corporate travel have led to
strong 30% growth in hotel hiring in the past six months, after 5 year long
period of lull.
Overall fuel consumption in India rose to an eight-year high in FY16 with
Petrol consumption witnessed a growth of about 15%, a 17-year-high.
According to industry estimates, demand for hotel rooms in India grew by
20% during the second half of 2015, the highest in five years.
With implementation of programmes hike in Minimum Support Prices
(MSP), One Rank, One Pension (OROP), 7th Pay Commission and Direct
Benefit Transfer, India’s consumption in general is likely to see major
push, resulting acceleration in the GDP growth.
Source: DGCA
Source: Livemint
Source: RBI
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……revival in Rural consumption hinges on monsoon…..
India’s agricultural production affected consecutively for last two years,
largely on the back of strong El Niño effect.
The 2015 El Niño has been the strongest since 1997, depressing
production over the past year
The impact of poor monsoon was clearly visible on the sales volume
growth for tractor companies and Fast Moving Consumer Durable
(FMCG) companies.
As per industry experts, the overall tractor sales dipped by ~13% in
FY15, industry is likely to see a further decline of about 10% in FY16.
In the FMCG sector, majority of the companies having major exposure
to rural has witness a downward trend in their volume growth.
However, there are expectations that the current weather phenomenon
will swiftly transform into a La Nina — which tends to bring rainfall in
Southeast Asia and Australia.
As per the Australian Bureau of Meteorology, a model on the past 26
El Nino events since 1900 suggests that around 50% have been
followed by a neutral year, and 40% have been followed by La Nina.
As per India Meteorological Department (IMD), the monsoon seasonal
rainfall in 2016 is likely to be 106% of the Long Period Average (LPA)
with a model error of ± 5%.
As per Skymet, there is 35% chance of above normal seasonal rainfall
that is between 105 to 110% of LPA, while there are 30% chance of
normal (between 96 to 104% of LPA) in 2016.
Good monsoon rain in India along with the steady hike in MSPs is likely
to help in improving farm incomes and pick up in Rural economy.
Upsurge in the rural consumption trajectory hinges upon the
favourable monsoon as it is likely to push the sales of
discretionary and non discretionary products and services in
Rural areas. In addition, it could ease the government’s burden of
spending on welfare schemes to drive the growth and improve
standard of living in Rural areas.
Source: Company Data
Source: IMD
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-15
Dec
-15
Jan-
16Fe
b-16
Apr
-16
(%)
Barometer of Rural India (tractor sales) depicting the real stress in Rural India
Escorts M&MSource: Bloomberg
0.0
5.0
10.0
15.0
20.0
25.0
Q1FY
11
Q2FY
11
Q3FY
11
Q4FY
11
Q1FY
12
Q2FY
12
Q3FY
12
Q4FY
12
Q1FY
13
Q2FY
13
Q3FY
13
Q4FY
13
Q1FY
14
Q2FY
14
Q3FY
14
Q4FY
14
Q1FY
15
Q2FY
15
Q3FY
15
Q4FY
15
Q1FY
16
Q2FY
16
Q3FY
16
(%)
FMCG feeling the pinch of rural distress
Hindustan Unil (~50%) Marico Group (~25%) Dabur (~35%)
______________________________________________________________________
17
Marginal sign of uptick in the capex cycle
The capex cycle in India has witnessed marginal signs
of uptick with Government’s plan capital expenditure in
the April-Feb 2016 period rose by ~53% YoY as
compared to the same period last year.
The Indian Railways spent Rs.940 bn on capital
expenditure in FY16, up by 64.91% YoY from the
previous year’s Rs.570 bn. For FY17, the railways has
planned a capex of Rs.1.25 trillion.
Road ministry awarded 10,098 km of road projects in
FY16 and about 6,000 km stretch was constructed.
The government is targeting to award 25,000 km of
road projects in FY17 and expects to construct 15,000
km of highways.
According to media reports, hiring activity in the
construction equipment manufacturing industry is
picking up after a three-year slowdown which impacted
the industry's performance.
While India’s merchandise imports during March 2016
dipped by 21.6% YoY to US$ 27.79 bn, the import of
transport equipment (up by 34.8% YoY), electronic
goods (up by 19% YoY) shot up.
The capex cycle seeing marginal signs of uptick
due to government spending, however there has
been no clear signs of private sector capex.
.
______________________________________________________________________
0
5000
10000
15000
20000
25000
30000
35000
July 1999,Kargil War
Mar 2000Tech-bubble
Dec 2007Historic high
of 20,000
Sep 2008Lehman Bros
collapse
Eurozone Crisis
FedTapering
GreeceDefault
China Concern
US Fed Hike
18
Over a longer term, Indian equity markets have climbed many walls of
worries and delivered strong returns
Source: Capitaline, Note: Nifty50 Return, *CY2016 is up to April
Over the past 12 years, actual returns were higher than
intra year decline in Nifty50.
Over the last 12 calendar years, Nifty50 has given
positive return in 8 years.
This indicates that corrections should be taken as an
opportunity to invest.
Also, the above chart shows, equity markets have
generally been able to deliver steady returns over the
long term, irrespective of the magnitude of any near
term event.
Source: Reliance AMC
S&P BSE Sensex
-9 -9
-10
-63
-14 -10
-27
-1
-14 -6 -9
-14
36 40
55
-52
76
18
-25
27
6
30
-4 -1
-80
-60
-40
-20
0
20
40
60
80
100
CY20
05
CY20
06
CY20
07
CY20
08
CY20
09
CY20
10
CY20
11
CY20
12
CY20
13
CY20
14
CY20
15
CY20
16*
Intra year Decline in the year (%) Actual Return (%)
______________________________________________________________________
36
305390
472365
715
-530
834
1333
-27
12841131
971
189
-1000
-500
0
500
1000
1500
CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15
Yearly trend in FPI/FII Net Investments (Rs in bn)
19
Low FII inflows have historically been followed up with strong market
performance and higher FII flows in India… trend expected to continue..
Source: Bloomberg, NSDL
The historical performance of S&P BSE Sensex over the last 15 years indicates strong returns were seen post the year(s) of
correction.
It can also be observed that in the past the longer the period of correction, faster the recovery process has happened and
returns were also stronger during the period of recovery.
Negative/low FII inflows have generally been followed up by higher flows in the subsequent years (as seen in last 13 years
data)
FII flows are expected to come back in India in 2016 due to strong macro economic factors, upbeat multilateral agencies that
expects India GDP to outperform and the government’s focus on reform announcement to drive the economic growth higher.
64
-21 -18
4
73
13
42 47 47
-52
81
17
-25
26
9
30
-5
CY
19
99
CY
20
00
CY
20
01
CY
20
02
CY
20
03
CY
20
04
CY
20
05
CY
20
06
CY
20
07
CY
20
08
CY
20
09
CY
20
10
CY
20
11
CY
20
12
CY
20
13
CY
20
14
CY
20
15
Historical returns on S&P BSE Sensex (%)
Low/Negative FII flow
Low/Negative FII flow
Low/Negative FII flow
Low/Negative FII flow
______________________________________________________________________
20
Over the last 18 months, earning estimates for FY17 & FY18 have been
downgraded, leading to revision of target
The corporate earnings have been tepid over the last couple
of years, due to weak rural economy, sluggish export growth,
lower capacity utilization, high leverage and falling
commodity prices globally.
This impacted the pricing power for corporates and also
creating issues of NPA for the banking system.
Leading to multiple rounds of consensus earnings
downgrade for S&P BSE Sensex companies.
We had projected our target of 40800 for S&P BSE Sensex,
based expected EPS of at Rs.2400 for FY18 which now has
been downgraded to Rs.1900 (Bloomberg Consensus).
Therefore with the earnings getting downgraded consistently
over the past 12 months, we have decided to revise our S&P
BSE Sensex target expectations for March 2017.
The revised target for S&P BSE Sensex for March 2017
has been downgraded from 40800 to 32300 at 17x FY18E
S&P BSE Sensex EPS of Rs.1900.
The revised target can have both upside and downside risks.
The downside risk can be there to our target if the valuation
multiples de rate (as we have taken bull market average PE
of 17x) or if there are further earnings downgrades.
However a good and strong monsoon, improved rural
demand, positive impact of government investments in the
economy, improvement in global growth prospects and
strong FII inflows could pose upside risks to our target
expectations.
Downgrade in Consensus earnings for S&P BSE Sensex
Source: Bloomberg
Source: RBI
______________________________________________________________________
21
Markets are consolidating in a range, valuations reasonable
The markets are expected to consolidate after
witnessing sharp rally in the month of March and April
2016.
At current level, the market is trading at reasonable
valuation. S&P BSE Sensex is trading at 18.3x FY16E
consensus EPS of Rs.1400 and 15.5x FY17E consensus
EPS of Rs.1650 and 13.9x FY18E consensus EPS of
Rs.1900. (S&P BSE Sensex price as on 29.04.2016).
Any major volatility in the equity markets should be
used by investors as an opportunity to adding into their
exposure in line with their risk profile with a 2-3 years
investment horizon. Source: Bloomberg
Source: Bloomberg
S&P BSE Sensex Consensus EPS (Rs.)
14
6.5
52
.1
95
.3
54
.5
83
.6
74
.5
71
.3
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Dec-07 Dec-08 Dec-10 Dec-11 Dec-14 Dec-15 Apr-16
Mkt Cap to India GDP (curr prices)
______________________________________________________________________
22
……despite the recent correction in the markets, the Valuation gap
between Large Cap and Midcap Indices remain high
Source: Bloomberg, Reliance AMC
18.0 18.1
22.5
8.4
16.116.7
11.8
16.6
14.4
25.0
26.3
19.120.8
22.1
11.4
24.1
20.4
14.8
16.7 16.719.4 19.8
5.0
10.0
15.0
20.0
25.0
30.0
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
Trailing P/E S&P BSE Midcap Trailing P/E S&P BSE Sensex
Apr-16
26.6
19.6
______________________________________________________________________
23
Brexit (Britain Exit from European Union) would be the key monitorable for global
markets.
Decline in commodity prices could put pressure on the global financial markets
Delay or lower than normal monsoons may impact the market sentiments
negatively.
Any major geopolitical issues may lead to volatility in the markets.
A faster pace of interest rate hikes in US may lead to tightening of global liquidity
and volatility in the equity markets.
China remains a key monitorable as it is expected to remain in transition and
sharp decline in Chinese economic growth can have impact on global commodity
exporting economies.
Sharp slowdown in global growth which may lead to disinflationary pressure on
some of the large developed economies.
Key Risks
______________________________________________________________________
24
Equity Market Round Up – April 2016
Indices 29 Apr 2016 31 Mar 2016 Chg %
S&P BSE Sensex 25,606 25,342 1.0
S&P BSE Mid Cap 11,043 10,619 4.0
S&P BSE Small Cap 11,021 10,542 4.5
S&P BSE 100 7,974 7,835 1.8
S&P BSE 500 10,406 10,185 2.2
FIIs data
(Rs. Bn)
Gross
Purchases Gross Sales Net
CY16 3,395 3,265 129
CY15 11,655 11,467 188
CY14 10,227 9,256 970
CY13 7,968 6,837 1,131
Source: BSE, SEBI (as on 29 April 2016)
During the month of April 2016, the S&P BSE Sensex was
volatile and ended on a positive note, up by 1.0% MoM.
The S&P BSE Midcap index and the S&P BSE Smallcap
index also closed on a positive note with a gain of 4.0% MoM
and 4.5% MoM, respectively.
Among the sectoral indices, the S&P BSE Realty index and
S&P BSE Metal index were the top performers, gaining by
10.4% MoM and 5.5% MoM, respectively. The top two
underperformers were the S&P BSE IT index fell by 0.5%
MoM and the S&P BSE FMCG index which rose marginally
by 0.1% MoM.
During the month of April 2016, FIIs were net buyer to the
tune of Rs.84 bn while DIIs were net seller to the tune of
Rs.2.7 bn.
Source: Bloomberg
12500
15000
17500
20000
22500
25000
27500
30000
Mar
-13
Aug
-13
Jan-
14
May
-14
Oct
-14
Feb
-15
Jul-1
5
Dec
-15
Apr
-16
S&
P B
SE
Sen
sex
Leve
ls
BSE Sensex Price Earning (PE) 1 year forward
16x
18x
14x
12x
______________________________________________________________________
25
Equity Market – Outlook Globally, most of the commodities have started to consolidate in a range after touching multiyear low prices. However, crude prices have rallied sharply from
its bottom.
The consolidation in the commodity prices and spike in the crude oil prices has been led by announcements of reduction in capacities, as China transits from
manufacturing to services led economy.
The US economy continues to report steady economic data with consistent improvement in the job and housing markets. However, probability of rate hike in
the US looks low due to CPI at much lower level from Federal Reserve’s target of 2% and fragile global situation.
The other developed economies like Eurozone and Japan continue to face growth issues, while witnessing improvement in the select economic areas.
The up move in the commodity prices has led to strong FIIs flows in the emerging markets. India, being part of the emerging markets, also received stronger
FIIs flows and reported positive flows for CY16 post outflow in the first two months of CY16.
India’s key structural macro drivers like strong GDP growth, twin deficits under control, favourable commodity cycle, benign inflation, high scope to reduce the
interest rate, government’s focus in its reform process and forex reserves being at all-time high, well differentiates India vis-a-vis other emerging countries
which are likely to support the economic growth.
The government of India continued it’s focused on strengthening the economy with various reform announcements targeting to improve both social and
physical infrastructure in order to set structural drivers for long term sustainable economic growth.
The world has acknowledged the Make in India programme as FDI equity in India increased sharply by ~37% YoY for the 12-month period—ended December
last year—after the launch of the Make in India initiative. As per media reports, India has replaced China as top destination for FDI by attracting $63 bn worth
FDI projects in 2015.
The Urban consumption continues to show traction with the various data points like aviation passenger traffic growth, growth in the value of mobile banking
transactions, growth in housing loan, etc indicating strong growth momentum in consumption. However, revival in rural consumption hinges upon the
favourable monsoon.
The capex cycle in India has witnessed marginal signs of uptick with Government’s plan capital expenditure in the April-Feb 2016 period rose by ~53% YoY as
compared to the same period last year, however there has been no clear signs of private sector capex.
The corporate earnings have been tepid over the last couple of years, led to multiple rounds of consensus earnings downgrade for S&P BSE Sensex
companies. Therefore with the earnings getting downgraded consistently over the past 12 months, we have decided to revise our S&P BSE Sensex target
expectations for March 2017.
The revised target for S&P BSE Sensex for March 2017 has been downgraded from 40800 to 32300 at 17x FY18E S&P BSE Sensex EPS of Rs.1900.
We think that the current consolidation in the equity markets presents the investors with good opportunity to further invest in equities with a higher focus on
Large cap stocks, with a selective approach towards Midcap and Small cap names given the high valuation differentials.
We recommend that equity investment strategy should be at 75% lumpsum and rest staggered over the next 2-3 months; as we think that the
markets are trading at reasonable valuations.
We recommend investment into RIL, ONGC, SBI, L&T, Bharti Airtel, Grasim, Tata Motors, M&M, Exide, Supreme Inds, TCS, Infosys, GSFC, ENIL,
NTPC, Atul, Voltas and UPL from a 2-3 year perspective.
______________________________________________________________________
26
Recommended Stocks Reliance Industries: RIL continues to be on track to improve the profitability with GRM in FY16 at a seven year high. As per management, all projects
will be commissioned by H2FY17; complete benefits will be fully visible in FY18. The large investment in telecom venture and muted outlook in the both
US shale and domestic gas remains a key monitorable. We have rolled over our estimates to FY18 and recommend a BUY on the stock with a revised
price target of Rs.1,386 at 12x (3 year average multiple) FY18E EPS of Rs.115.5.
M&M: M&M continues to be a leader in the domestic Tractor and UV industry with 42.7% and 38.6% market share, respectively. While domestic tractor
industry saw a minor growth in Q3FY16, the management believes full recovery is likely in FY17 based on lower base effect and expectations of good
monsoon. With series of launches during the year, M&M has filled the gap in its product portfolio in UV segment and is now focusing on boosting the
volumes to drive the growth. We believe M&M has geared up itself to take on the competition and to grab the opportunity arising from expected
recovery in auto industry with series of new launches done in FY16. We remain positive on the stock on the back of new product launches which is
likely to drive revenue growth for M&M and based on good return ratios of over 20%. We continue to recommend a BUY on the stock with the target
price of Rs.1535 at 16x (maintaining earlier multiple) FY17E EPS of Rs.74.4 adding Rs.344 as value of subsidiaries at 30% holding company discount.
Tata Motors: We are positive on the stock on the back of well diversified global presence, expected new launches in both domestic and JLR business,
recovery in domestic CV industry, long term structural drivers and on good return ratios of over 20%. We recommend a BUY on the stock with target
price of Rs.569 based on the SOTP valuation (JLR (Rs.512/share) + Standalone business (Rs.47/Share) + other subsidiaries (Rs.30/Share) - net
automotive debt (Rs.20/Share)).
Bharti Airtel: We think that Bharti with its strong brand positioning and superior network coverage and large customer base would benefit from this in
the medium to longer term. Though, we think that it may impact the margins of the company in the near term. We have revised the earnings for the
company for FY17 (lowered margins) and also rolled over our earnings estimates to FY18. We recommend a BUY rating on the stock with revised price
target of Rs.431 at 20x FY18E EPS of Rs.19.6, adding Rs.51 per share of the value of its telecom tower JV.
Larsen & Toubro: L&T is India's largest Engineering & Construction Company. Apart from core construction activity, L&T has made significant
presence into a diverse range of products and services through its subsidiaries and manufacturing JVs in power Boiler Turbine & Generator (BTG),
forging and shipbuilding. The management continues to be optimistic about the potential opening up of the defense sector which could be a big
opportunity for L&T as it is ready with capacity and expertise to grab such opportunities. Overall, investment cycle in private sector is expected to
recover in about 6-9 months which is likely to drive the order inflow for the company. We continue to recommend a BUY on the stock with a target price
of Rs.1983 (20x FY17E standalone EPS of Rs.71.2 + Subsidiary value of Rs.560/share).
Voltas: While the current environment in the international market remains weak, Voltas continues to focus on profitable order intake to enhance
margins (5% threshold). On the UCP, the company continues to remain market leader with the focus on margin expansion through better product
quality & improved revenue mix. The company has expanded the capacity and distribution network for Air coolers which is expected to new revenue
driver for the company. On the Engineering Product segment, the company expects orders to pick up with increase in demand for mining equipments.
The company continues to have strong balance sheet and cash flow generation capability. We recommend Buy on the stock with a price target of
Rs.366 which is 25x (maintaining earlier multiple) FY17E EPS of Rs.14.6.
UPL: UPL is a leading global generic player in the Agrochemical Industry and ranks among the top-10 post patent agrochemical manufacturers in the
world. The quarterly performance of the company has been way ahead of expectations. We think that the strategy of the company to 1) Consolidate
across the geographies, 2) Introducing new products in the key markets, 3) Focus on the branded products, has played well for the company. We
recommend BUY on the stock with a revised price target of Rs.647 which is 15x (maintaining earlier multiple) FY18E EPS of Rs.43.2.
______________________________________________________________________
27
Recommended Stocks Infosys: Infosys continues to deliver strong earnings quarter after quarter, confirming the conviction of the management of moving back to industry leading
growth rates. The guidance of the management suggests that this is achievable in FY17 as well. The strategic growth outlook for Year 2020 also suggests
that the management is working towards a plan to maintain the business momentum. We believe that IT businesses would continue to deliver steady
earnings growth as they adapt to the changing paradigm in the industry and keeps innovating new business delivery models and processes. We have
rolled over our earnings estimate to FY18 and continue to recommend a BUY on the stock with a price target of Rs 1392 at 16x (previous multiple
maintained) FY18E EPS of Rs 77.6 added with Rs 151 of cash per share.
ONGC: While there are concerns in the near term due to fall in the crude oil prices, however ONGC’s large size in the oil & gas space, strong balance
sheet (net cash), steady cash flows and consistent dividend payment track record gives us the comfort. Any clarity on the oil cess relief and uptick in the
crude oil prices could be the trigger for the company in the near to medium term. However, with significant fall in the crude oil prices and expected
downward revision in the gas prices, we have revised the earnings downward and recommend BUY on the stock with revised price target of Rs.303 which
is 11xFY17E (maintaining earlier multiple) EPS of Rs.27.5.
TCS: TCS after reporting few quarters of earnings which were weaker than market expectations has delivered strong topline growth for the quarter. While
the management commentary suggested that the company is likely to chart renewed growth path, we think that margins could get impacted in the medium
term due to investments into digital business. However, this business has strong growth prospects and can yield strong returns over the longer term. The
management continues to remain positive on the overall growth trajectory of the company, given strong deal pipeline and healthy client spending due to
adoption of new technologies in the Digital, Analytics, Artificial Intelligence and Mobility Space. We continue to maintain our positive stance on the
company from a medium term perspective. We continue to recommend a BUY on the stock with a price target of Rs 2935 at 18x (10% discount to previous
multiple due to weaker margin expectations) FY18E EPS of Rs 154.9 and adding Rs 148 worth cash per share.
NTPC: NTPC Ltd is the largest power generating company in India with an installed capacity of ~45.5 GW (16% of India’s total installed capacity) at the
end of Q3FY16. The company reiterated its long-term plans to add 128 GW by FY32. The company also has aggressive plans for solar power where in it
plans to add 10 GW by FY22. We think that the company is likely to benefit from the improved coal availability situation which is likely to support its
existing and incremental capacity. With strong pipeline of capacity addition, growth visibility for the company remains promising. We remain long term
positive and continue to recommend a BUY on the stock with target price of Rs.240 which is 2x FY17E book value of Rs.120/share.
Exide Industries: Exide continued to report strong improvement in its margin profile with the help of its cost cutting initiative and lower commodity prices.
However, subdued volume growth has impacted the revenue performance of the company. Indian Automobile sector is showing early signs of revival given
the strong growth in commercial vehicle and passenger vehicle sales in recent past months that bodes well for a recovery in Exide’s OEM sales. Further,
strong market share in Solar, Backup Power, Manufacturing and Project sector may drive the volume growth over the long term. We think that the
management would be able to continue to shore up its margins on the back of lower raw material cost and its cost cutting initiatives. We maintain our BUY
rating on the stock with the revised target price of Rs.200 at 20x (10% discount to 5 year average) FY18E EPS of Rs.9.2 and adding Rs.15 per share for
the stake in Insurance business.
Atul: Atul Ltd, with its diversified product and customer profile is well positioned to reap the benefits of recovery in the domestic and global economies.
Government’s initiatives like Make in India for manufacturing and discouraging imports augurs well for Atul Ltd. Further, management’s focus on expanding
capacities of high margin segments are likely improve the earnings and return ratios. The company has reported healthy return ratios with RoE and RoCE
of 20.0% and 21.1% for FY16. The Balance Sheet continuous to be robust with Debt/Equity ratio of 0.2x in FY16. We continue to recommend BUY on the
stock with price target of Rs.2250 which is 16xFY18E (Peg ratio of 0.6) EPS of Rs.140.7.
______________________________________________________________________
28
Recommended Stocks State Bank of India: We recommend a BUY on the stock with the target of Rs 336 based on PBV multiple of 1.7x on FY17E adjusted book value of
Rs 170.1 and adding Rs 46.8 per share for value of other subsidiaries.
GSFC: GSFC is India’s largest producer of the chemical Caprolactam and also has a leading position in the complex fertiliser. Over the years, the
company has continued to have a debt free balance sheet. Company’s Nylon-6 expansion and Fully Drawn Yarn Project (FDY) are on schedule and
expected to get commissioned by Q4FY16. Management expects incremental revenue of Rs.1 bn in FY17 and scaling upto Rs.2.5 bn in the subsequent
years. The pressure on the Chemical segment is likely to be eased post commission of the Nylon capacity, resulting in margin uptick. We continue to
recommend BUY on the stock with a target price of Rs.142 which is 10xFY17E EPS (maintained earlier multiple) of Rs.14.2.
Supreme Industries: The management guided for EBITDA margin to be within the range of 14-14.5% for FY17on the back of increase in share of value
added products and stabilization of raw material price at lower levels. Further, low per capita consumption of plastic in the country and expected boost in
composite LPG Cylinder demand provides huge revenue growth opportunity for the company. We remain positive on the strong product mix, consistent
earnings growth and generating healthy ROE of over 25%. We recommend a BUY on the stock with the revised target price of Rs.986 based on revised
PE multiple of 24x (past 3 year average multiple) FY18E EPS of Rs.40.0 adding Rs.25 for stake in Supreme Petrochem.
ENIL: ENIL continued on the path of steady earnings growth driven by high utilization and improved realizations. We think that Radio Sector in India is now
starting to get investor attention on the back of steady growth and improving profitability. Many advertisers are now beginning to see the positive impact of
targeted marketing which can be done through FM radio. We believe that in an economic upswing the sector is likely to do better than its current growth.
We continue to like the company for the potential growth, strong balance sheet and improving return ratios (FY15 ROE-16.9%, ROCE: 21.4%). We
continue to recommend a HOLD on the stock and maintain the price target of Rs 744 at 29x (30% premium to 3 year average multiple of 22x owing to the
large growth potential post Phase-III auctions) on FY17E EPS of Rs 25.7.
Grasim Industries: Grasim is a global leader in VSF with an aggregate installed capacity of 498,225 tonne per annum. The company is also the largest
producer of Sodium Sulphate, a by-product of VSF manufacture, widely used in the paper and pulp, detergent, glass and textile industries. While there are
no immediate plans to augment the capacity, the focus would be on increasing premium product mix, expanding domestic reach, increasing capex in
organic and inorganic route at the right time and improving cost efficiencies. This is likely to further push up the margins. We think that VSF continues to
hold favorable position in comparison to other fibers due to preference for comfort fabric which will lead to increase in demand for high quality cellulosic
fibre. We continue to recommend HOLD on the stock with SOTP price target of Rs.4546 which is summation of 7xFY17E (maintaining earlier multiple)
EPS of Rs.66 for VSF business and 63% company’s stake in UltraTech Cement valued at Rs.3072/share (after providing for 30% holding company
discount).
Rating Expected to
Buy Appreciate more than 10% over a 12 to 15 month period
Hold Appreciate below 10% over a 12 to 15 month period
Under Review Rating under review
Exit Exited out of the Model Portfolio
Rating Interpretation
______________________________________________________________________
29
Fixed Income
______________________________________________________________________
30
G-sec yield movement…
Domestic bond markets traded in a narrow range in April 2016. The 10-year benchmark 7.59% 2016 government security closed at 7.44%
levels on April-end, around 3 bps lower than March-end levels.
After a positive Union Budget announcements, RBI’s first monetary policy measures viz. cut in repo rates by 25bps to 6.50%, narrowing the
policy rate corridor and shift in policy stance to move from liquidity deficit to neutral mode gradually over a period of time, boosted market
sentiments
RBI’s Open Market Operations (OMO) purchases also supported the gains in G-sec markets. The RBI conducted two OMO purchases of
government securities of Rs. 150 bn each in April 2016.
However, lack of any fresh triggers and continuous supply of central and state government securities limited the rise in bond prices.
The RBI conducted auctions of central government securities to the tune of Rs. 600 bn and state government securities to the tune of Rs. 141
bn in April 2016.
The 10 year benchmark yield traded in the range of 7.42% to 7.48% levels.
Source: Bloomberg
______________________________________________________________________
31
Yield curve steepens on improvement in liquidity… …further steepening expected if RBI supplies more liquidity
Source: Bloomberg and Reuters
The entire G-sec yield curve has shifted downwards from levels a year ago, on account of monetary easing by the RBI, positive union budget and a
shift in RBI’s liquidity stance.
The yields across the curve have declined by almost 10-45 bps over the past one year. The 3 months T-bills yield has declined by more than 100
bps, 5 years G-sec declined by about 35 bps, while the 10 year G-sec declined by about 40 bops.
The yield curve has steepened by the end of April 2016, from being flat a year ago. Seasonal improvement in liquidity as well as narrowing of policy
rate corridor led the overnight rates to move closer to the policy Repo rate, which in turn led to the steepening of the yield curve.
The spread between the 1 year and the 10 year benchmark G-sec during the same period last year was around minus 2 bps, which is currently 34
bps.
In its first bi monthly monetary policy review, the RBI stated to infuse durable liquidity in order to shift it from deficit to neutral mode. RBI had earlier
indicated that it may do OMOs or Forex operations to infuse durable liquidity.
Thus a gradual shift of system liquidity to neutral mode might lead to further steepening of the yield curve.
______________________________________________________________________
32
Corporate bond yield curve… …medium term of the corporate yield curve still looks attractive
The steepening of the corporate bond yield curve continued in the month of April 2016, which started towards the end of March 2016,
In the month of April yields across the curve declined in the range of 10-30 bps.
The spread between the 10 year and 1 year AAA rated corporate bond widened to 32 bps in April 2016 from 27 bps in March 2016 and 23 bps in
February 2016.
The spread between the 3 years and the 5 years corporate bond yields are back to February end levels at around 15-20 bps, while contracting to 2
bps in March 2016.
Given the steepening of the yield curve the medium term section of the curve has become attractive from risk reward perspective.
Source: IDFC MF
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33
Government to borrow ~59% of gross borrowings in H1FY17… …borrowings concentrated in the 10-15 year segment
The gross borrowings for FY17 were budgeted at Rs. 6 trillion and the net borrowings were budgeted at around Rs. 4.26 trillion in the Union
Budget for FY17.
The indicative gross borrowings for H1FY17 came in at Rs. 3.55 trillion or 59% of the total gross borrowings.
As per the indicative calendar for issuance of central government securities, the concentration of issuance of G-sec is higher in maturities of
10-14 years.
The combined borrowings of state as well as central government have been rising over the last 5-years consecutively.
In FY16, while the gross borrowings of central government were lower than that of the previous year, the combined market borrowing of centre
and state was higher than the previous year’s borrowing because of the increase in state government borrowings.
Implementation of 7th Pay Commission recommendations in states and interest payment on UDAY bonds may impact the state government
deficits, which may result in rise in market borrowings by the state governments.
Generally, state government securities are issued with maturities in the range of 10-15 years. Thus, the combined supply of G-secs in 10-15
years space is likely to be higher.
Source: Reserve Bank of India Source: Reserve Bank of India
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34
April had lower net G-sec supply…. …net supply to rise in the coming months
The RBI conducted auctions of central and state government securities to the tune of Rs. 600 bn and Rs. 141 bn respectively in April
2016.
Maturities of central government securities in April 2016 were around Rs. 436 bn, which limited the net supply of central government
securities to around Rs. 164 bn, the lowest in H1FY17.
The state government securities auction of Rs. 141 bn was lower than the indicative borrowings of Rs. 190 bn in April 2016.
In May 2016 central and state government’s combined gross market borrowing is expected to be around Rs. 800 bn. Further, maturities
of central government securities are expected to be around Rs. 60 bn in May 2016.
The net supply of G-secs is expected to rise significantly in May, July and September 2016 compared to April 2016. Historically, higher
supply of G-secs in the first half of the financial year has kept the G-sec yields volatile.
Thus, higher net supply in May, July and September 2016 is likely to exert significant pressure on the yields at the longer end of the yield
curve. Further, higher net supply may also exert pressure on systemic liquidity, which may impact the yields of short term instruments.
Source: Reserve Bank of India Source: Bloomberg
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35
CPI inflation moderates for 3rd consecutive month… ...better monsoon may help in further moderation
Consumer Price Index (CPI) based inflation came in lower in March 2016
compared to February 2016. CPI inflation for March 2016 came in at 4.83%
YoY compared to 5.26% YoY in February 2016.
The CPI headline inflation decline was due to lower food inflation, fuel &
light inflation, and services inflation.
Food inflation declined to 5.2% YoY in March 2016 from 5.3% YoY in
February 2016 mainly on account of decline in inflation of milk & products,
oils & fats, fruits, vegetables, and pulses & products. However, Meat &
Fish and Egg products witnessed rise in prices in March 2016 compared to
the previous month
Fuel & Light inflation stood at 3.4% YoY in March 2016 compared to 4.6%
in February 2016.
While there was a decline in services inflation, it remained sticky. Housing
inflation also remained at higher levels in the past 12 months.
The WPI headline inflation came in at -0.85% in March 2016 compared to
-0.91% in February 2016. Headline WPI inflation has remained negative
since November 2014.
While Manufactured Products inflation continues to be negative, it improved
in March 2016 compared to February 2016. Manufactured Products
inflation stood at -0.1% YoY in March 2016 compared to -0.6% YoY in
February 2016.
Metals and crude oil prices have risen up in the last few months. If the rise
in prices continue then, it may impact the inflation. However, weak global
demand may limit any significant rise in commodity prices.
In CY2016, monsoon is expected to be normal to above normal. Better
monsoon is likely to lower the food and vegetable prices, which is likely to
bring down the headline CPI inflation.
Source: MOSPI
Source: www.eaindustry.nic.in
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36
Liquidity conditions improved in April… …short term rates declined on easy liquidity
Liquidity conditions improved significantly in April 2016, in line with expectations, on account of government spending, lower demand for
funds, and infusion of liquidity by the RBI.
Daily liquidity as measured by the net liquidity adjustment facility (net LAF) by RBI, halved in April 2016 to around Rs.1 trillion on an average
from an average of around Rs.2 trillion in March 2016.
Decline in credit growth rate to 10.4% YoY as of 15 April 2016 from 11.4% YoY average between January and March 2016, as against steady
deposit growth has lowered the demand for funds supporting the systemic liquidity.
In line with the monetary policy statement, the RBI conducted open market operations (OMOs) purchase of G-secs of around Rs. 300 bn to
boost systemic liquidity.
Continuous rise in currency with the public remains a matter of concern. Currency with the public, as released by the RBI, has grown by
almost 16% YoY as of 15th April 2016 compared to almost 11% YoY in the previous year during the same period.
Tracking the improved systemic liquidity, the short-term rates declined. The overnight call money rates fell sharply from 12% as on March-end
to around 6.65% on 29 April 2016.
Going forward, higher net supply of central and state government securities and sticky levels of currency in the hands of public may likely
exert pressure on the liquidity. However, infusion of liquidity by the RBI may limit the liquidity deficit in the system.
Source: IDFC MF Source: RBI
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37
Merchandise exports and imports declined by 5.5% and 21.6% (in USD terms) respectively in March 2016 over March 2015.
Imports of oil in March 2016 fell by around 35% over March 2015, whereas non-oil imports fell by 17.9% YoY in March 2016.
During 2015-16, merchandise exports and imports declined by 15.9% and 15.3% (in USD terms) respectively vis-à-vis 2014-15.
The deficit in external trade balance stood at USD 5.07 bn in March 2016 compared to USD 11.40 bn in March 2015.
CAD narrowed sharply to USD 22.0 bn (1.4% of GDP) during Apr-Dec 2015 from USD 26.1 bn (1.7 % of GDP) during the same period of the
previous year.
India’s external debt stood at USD 480 bn at end-December 2015, increasing by around 1% over the level at end-March 2015. However, on a
QoQ basis, total external debt at end-December 2015 declined by US$ 1.2 bn.
The external debt-GDP ratio was around 24% at end-March 2015.
Foreign exchange reserves stood at around USD 362 bn as on 15th April 2016 as compared to around USD 360 bn at end-March 2016.
Healthy foreign exchange reserves and better external trade balance provides for strong support to the domestic currency.
Source: Bloomberg
Trade balance and Forex reserves at comfortable levels… …strong support to domestic currency
Source: Bloomberg & News Source: Bloomberg
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38
FPIs net buyers in April… …appetite for Indian bonds likely to be strong
Foreign Portfolio Investors (FPIs) or foreign investors turned net buyers in bond markets in April 2016, after consecutive two months of net
selling.
The FPIs were net buyers to the tune of almost Rs. 64 bn in April 2016 compared to net sales of Rs. 15 bn in March 2016.
Government’s commitment to fiscal consolidation, RBI’s actions on policy rates and push for improving liquidity, along with lower net supply of
G-secs in FY17 may have boosted the sentiments of foreign investors for Indian bonds.
The increase in FPI limits for investments in G-secs, effective 4th April 2016, also helped in attracting demand by foreign investors.
Federal Reserve Chair Janet Yellen’s cautious stance to increase fed funds rates on concerns of weak global economies and markets also
supported the sentiments of foreign investors for higher yielding assets.
Going forward, the demand for Indian G-secs by foreign investors is likely to continue as Indian G-secs yields remaining attractive and as RBI
increases FPI limits for investments in G-secs.
Source: NSDL
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39
Key Risks
Sub-normal Monsoon. However, it is anticipated that India will likely to witness normal to above
normal monsoon.
US Fed hiking interest rates aggressively. However, citing the risks posed by the weak global
markets on US economic growth, the US Federal Reserve Chair Janet Yellen has made dovish
remarks to proceed cautiously. This has raised the expectations of gradual interest rate hikes by the
US Fed than what was expected earlier.
Rise in crude and other commodity prices. However, in a weak global demand environment rise in
crude prices and other commodity prices may be gradual.
Devaluation in EM currencies. Since India is one of the major emerging markets, Indian currency
may get impacted due to volatilities in emerging market currencies. However, in the recent past,
Indian currency has been resilient and outperformed other EM currencies on back of favourable
macro economic conditions like lower CAD, continuation of fiscal prudence, and robust foreign
exchange reserves.
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40
Headline CPI inflation came in lower for the 3rd straight month in March 2016. Normal monsoon, as anticipated, in the current year is likely to be
beneficial for the inflationary expectations.
However, impact from seventh central pay commission implementation and rise in commodity prices, in the recent past, need to be monitored. The RBI
expects CPI inflation to remain around 5% in FY17 without factoring the impact from implementation of seventh central pay commission.
Trade and Current Account balance are at comfortable levels. Foreign exchange reserves are well above standard norms for reserve adequacy. These
factors are likely to provide stability to the domestic currency during volatile times.
Net supply of central government securities in April 2016 has been the lowest in H1FY17, as per the indicative issuance calendar. Even issuances of
state government securities in April 2016 were lower than the indicative issuance calendar.
Going forward, the net supply of central and state government securities are expected to rise, especially in May, July and September 2016. This may
exert pressure on the longer end of the yield curve.
Higher net supply of government securities may also put pressure on the systemic liquidity., which may impact the short term rates. However, if RBI
continues to conduct OMOs then, this is likely to improve the liquidity conditions further.
Marginal cost of funds based lending rate (MCLR) and linking of interest rates of small savings schemes to markets are likely to be positive for bond
markets.
Going forward, the longer-end of the yield curve is expected to be volatile on back of higher net supply of G-secs as well as progress of monsoons. Any
tightening in liquidity is likely to exert pressure on the extreme shorter end of the yield curve.
Given the steepening of the yield curve the medium term section of the curve has become attractive from risk reward perspective.
Investment into Medium Term funds with an investment horizon of over 15 months can be considered by moderate and conservative
investors.
Short Term Funds can be considered with an investment horizon of 12 months.
Income/Duration funds can be considered by aggressive investors for a horizon of 24 months and above; though preference currently should
be given to dynamically managed funds.
Investors looking to invest into higher accrual portfolio can consider investing into HDFC Corporate Debt Opportunities Fund and HDFC
Short Term Plan.
Investors looking to invest with a horizon of 1 to 3 months can consider liquid funds, while ultra-short term funds can be considered for a
horizon of 3 months and above.
Fixed Income Outlook
______________________________________________________________________ Investment Strategy
We recommend investors to rebalance/realign the portfolios according to the recommended asset allocation
On Equity Funds:
We expect strong returns from equities over the next 2-3 years, given the reasonable valuations and expected turnaround in the earnings; hence recommend an overweight stance on equities for investors across risk profile. Higher incremental growth rates of Indian economy compared to its emerging market peers and larger developed economies would continue to help liquidity flows into India.
Volatility in the equity markets has presented the investors with good opportunity to further invest with a higher focus on Large cap stocks with selective allocations to Midcap and Small cap stocks.
From a Equity Mutual Fund perspective, investors should look at Large cap, Flexi cap and Balanced Funds for fresh investments. The investment strategy should be 75% lump sum and rest should be staggered over the next 2-3 months.
On Fixed Income:
Investment into Medium Term Funds with an investment horizon of over 15 months can be considered by moderate and conservative investors.
Short Term Funds can be considered with an investment horizon of 12 months.
Income/Duration funds can be considered by aggressive investors for a horizon of 24 months and above; though preference currently should be given to dynamically managed funds.
Investors looking to invest into higher accrual portfolio can consider investing into HDFC Corporate Debt Opportunities Fund and HDFC Short Term Plan.
Investors looking to invest with a horizon of 1 to 3 months can consider liquid funds, while ultra-short term funds can be considered for a horizon of 3 months and above.
41
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42
Equity Mutual Funds
Large Funds
1. SBI Blue Chip - A conservative fund predominantly investing into large cap stocks
2. Franklin India Prima Plus - A conservative large cap fund with some allocation to small / mid cap stocks
3. Kotak Select Focus Fund - An actively managed fund investing across select sectors
4. Birla SL Frontline Equity Fund - A conservative large cap fund which invests across sectors in line with BSE 200 Index
5. BNP Paribas Equity Fund - An aggressive large cap fund investing into large cap with some exposure to mid cap stocks
Flexi Cap Funds
1. ICICI Prudential Value Discovery Fund – Invests in companies which are available at attractive valuations
2. DSP BlackRock Opportunities Fund - An actively managed fund invests aggressively across sectors and stocks
3. SBI Magnum Multi Cap Fund – A conservative fund invests across markets capitalization and sectors
4. Birla Sun Life Advantage Fund-The fund is a flexi cap fund with exposure to select 3-4 sectors which are expected to grow faster during economic revival
5. Franklin India High Growth Companies Fund - Fund investing into companies with high growth rate or above average potential
Balanced Funds
1. L&T India Prudence Fund - A aggressive balanced fund
2. Tata Balanced Fund - An aggressive balanced fund
3. HDFC Prudence Fund - A conservative balanced fund
Mid Cap oriented Funds
1. SBI Magnum Mid cap Fund - An actively managed mid cap fund
2. Reliance Small Cap Fund - An actively managed small cap fund
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43
Top Sectoral Allocation of Large Cap Funds Compared to Nifty and Sectoral Benchmark Indices Performance
Portfolio as on 31st March 2016. Returns (%) as on 29th April 2016. Returns are absolute for < = 1year and Compounded Annualized for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Over the last 3 months, the Indian equity markets have delivered positive returns. The benchmark index S&P BSE Sensex was up by 2.96%,
whereas, the S&P BSE Metal index and S&P BSE Realty index moved up sharply by 15.45% and 12.22% respectively during the same period.
Equity Benchmark – over the last 1 year, S&P BSE Sensex index has delivered negative return of 5.93%. The decline in the market was largely
due to the mixed data flows from domestic & global markets, concerns over global growth outlook, volatility in crude oil prices & FII flows and
weak corporate earnings growth.
Over the last 1 year, IT, Oil & Gas, FMCG, Auto and Health Care sector indices have outperformed the S&P BSE Sensex index, whereas the
Banking, Realty, Metal, and Capital Goods sector indices have underperformed the S&P BSE Sensex. Amongst the sector indices (mentioned
in above table), S&P BSE CG (Capital Goods) index was the major loser, declined by 20.31% during the period.
Most of the large cap equity funds continue to have Banks & Finance, IT and Auto and Oil & Gas sector stocks as top sectoral exposure.
All the funds (mentioned above) are underweight on IT sector as compared to Nifty 50 index. However, all the above funds are overweight on
Pharma sector except the funds like Kotak Select Focus fund and BNP Paribas Equity fund as compared to Nifty 50 index.
Sectoral Indices Performance
Indices 3 Mths 6 Mths 1 Yr 2 Yrs 3 Yrs 5 Yrs
S&P BSE IT 1.48 0.05 7.93 13.61 25.91 13.00
S&P BSE HC -4.43 -13.43 -3.54 20.14 21.81 20.09
S&P BSE FMCG 3.48 -4.21 -0.03 6.76 7.14 15.42
S&P BSE Bankex 8.58 -2.45 -8.89 13.73 9.86 7.88
S&P BSE CG 6.75 -14.01 -20.31 3.31 10.57 0.25
S&P BSE AUTO 8.35 0.45 -0.32 17.71 19.18 14.06
S&P BSE METAL 15.45 7.90 -20.04 -11.20 -2.43 -13.23
S&P BSE Oil & Gas 1.06 3.10 2.03 -0.99 2.30 -1.34
S&P BSE Realty 12.22 -2.46 -12.39 -4.09 -10.95 -9.04
S&P BSE Sensex 2.96 -4.59 -5.93 6.75 9.71 5.99
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44
Top 10 Stocks Allocation (%) of Large Cap Funds Compared to Nifty
Portfolio as on 31st March 2016. Source: Nifty Index - www.nseindia.com
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Amongst the above funds, BNP Paribas Equity fund has highest allocation to top Banking stocks. It can be seen that amongst the top stocks
allocation, the funds are holding higher allocation to Banking and IT sectors’ stocks. SBI Bluechip fund and DSP BlackRock Focus 25 Fund are
overweight on Sun Pharmaceuticals Industries Ltd while, all the other funds (mentioned above) are underweight on Sun Pharmaceuticals
Industries Ltd as compared to Nifty 50 index.
BNP Paribas Equity fund and DSP BlackRock Focus 25 fund have higher allocation of 8.78% and 8.70% respectively to HDFC Bank Ltd as
compared to Nifty 50 index whereas, all the other funds (mentioned above) are underweight on HDFC Bank Ltd as compared to Nifty 50 index.
SBI Bluechip fund and Birla SL Frontline Equity fund are well diversified funds across top ten Nifty 50 index stocks.
Except DSP BlackRock Focus 25 fund, all the above mentioned funds are underweight on Tata Motors Ltd as compared to Nifty 50 index. All
the above funds are underweight on Infosys Ltd, ITC Ltd, HDFC Ltd, Reliance Industries Ltd, ICICI Bank Ltd, TCS Ltd and Larsen & Toubro Ltd
as compared to Nifty 50 index.
Stocks
Kotak
Select
Focus Fund
BNP
Paribas
Equity Fund
DSP
BlackRock
Focus 25
Fund
SBI
Bluechip
Fund
Birla Sun
Life
Frontline
Equity Fund
Weightage
in Nifty
Infosys Ltd. 5.49 6.28 6.79 5.05 6.11 8.78
HDFC Bank Ltd. 5.97 8.78 8.70 6.17 6.38 7.61
ITC Ltd. 1.24 0.00 0.00 0.74 3.83 6.66
Housing Development Finance Corporation Ltd. 0.39 0.00 0.00 0.89 1.42 6.30
Reliance Industries Ltd. 4.95 0.00 4.75 5.63 3.77 6.23
ICICI Bank Ltd. 2.31 4.07 0.00 0.55 3.19 4.96
Tata Consultancy Services Ltd. 0.00 1.06 0.00 2.82 1.61 4.84
Larsen & Toubro Ltd. 2.77 0.00 0.00 2.55 2.81 3.60
Sun Pharmaceuticals Industries Ltd. 1.96 2.69 4.81 4.55 2.71 3.20
Tata Motors Ltd. 1.91 1.15 4.98 1.17 2.00 2.70
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45
Recommended Equity MF’s: Asset Allocation & Market Capitalization
Portfolio as on 31st March 2016.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Flexi cap funds continue to remain fully invested into equities except funds like Franklin India High Growth Companies
fund and ICICI Prudential Value Discovery fund which have relatively higher cash exposure. These funds have exposure
of around 9% and 8% respectively into debt & cash equivalent as of March 2016.
During the Month of March 2016, some of the funds have marginally reduced the exposure to equity stocks while,
increased the exposure to debt & cash as compared with February 2016 portfolio. SBI Magnum Multi Cap fund has
around 8% exposure to small cap stocks, whereas, Franklin India High Growth Companies fund has marginal exposure
of around 1% to small cap stocks.
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46
Tax Planning - ELSS Funds
Returns (%) as on 29th April 2016. Returns are absolute for < = 1yr and CAGR for > 1 Yr
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd,
refer http://www.icraonline.com/legal/standard-disclaimer.html)
Name of Scheme 1 yr 3 yr 5 Yrs
Axis Long Term Equity Fund -0.68 26.26 18.86
Birla Sun Life Tax Relief 96 1.65 23.69 13.88
Franklin India Taxshield 2.60 21.89 14.72
Tata India Tax Savings Fund (Div) 4.96 21.41 13.59
Reliance Tax Saver (ELSS) Fund -6.72 24.05 15.25
Religare Invesco Tax Plan -0.03 21.31 14.18
DSP BlackRock Tax Saver Fund 2.84 20.83 13.36
BNP Paribas Long Term Equity Fund 1.40 21.15 15.64
IDFC Tax Advantage (ELSS) Fund -5.08 19.83 13.21
ICICI Prudential Long Term Equity Fund -0.05 20.83 12.88
Kotak Taxsaver -2.97 15.99 9.49
SBI Magnum Tax Gain Scheme 93 -2.17 18.27 12.03
Nifty 50 -4.72 9.95 6.42
Objective Long-term Capital Appreciation & Tax Planning
Risk Medium to High
Investment Portfolio Equity & Equity Related instruments – Generally Large & Midcap stocks
Investment horizon Long Term ( Lock in period of 3 years) Tax Deduction- Sec 80 C * Investment up to Rs.1.50 Lakh Exempt from Tax
Tax Implications * Dividend-Tax Free Long Term Capital Gains – Tax Free
Particulars PPF** NSC** ELSS
Lock-in period - Years 15 5 3
Minimum Investment (Rs) 500 100 500
Max Investment for Tax Benefit (Rs) 1,50,000
Risk Low Risk Low Risk Medium to High
Returns 8.10% ^ 8.10% $ ^ 9% - 19% #
Interest Income / Dividend Tax Free Taxable Tax Free
#Returns (%) are historical for last 5 years (CAGR) as on 29th April 2016. $8.10%
compounded six monthly but payable at maturity. Moreover, 'past returns cannot be taken
as an indicator of future performance. ^Source: http://indiapost.gov.in, Rates incorporates
compounding wherever applicable. *As per current income tax rates individual falling in
highest tax bracket. Note:** Rates for PPF and NSC are applicable from 1st April 2016.
Comparison of ELSS V/S other tax savings instrument
As per Sec 80C of the Income Tax Act, qualifying investments up to a
maximum of Rs 1.50 Lakh are deductible from total income of the
individual.
Investment of Rs 1.50 Lakh in the qualifying investments, can save tax
upto Rs 46,350* as per the current income tax slab & rate for FY –2016
– 2017.
There are fixed income options available under section 80 C, but they
may not be able to provide returns commensurate to beat the inflation.
ELSS helps in tax planning as well as provides scope to benefit from
the long term growth potential of equities.
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47
Risk – Return Matrix of Large Cap & Flexi Cap Oriented Equity Funds
ICICI Prudential Value Discovery fund and
Franklin India High Growth Companies fund
are the best funds in terms of risk to return
matrix in the flexi Cap category.
Kotak Select Focus fund and SBI Bluechip
fund from large cap category have been able
to balance the risk return reward over the last
3 year period.
In terms of corpus size, ICICI Prudential
Value Discovery fund is the largest Flexi cap
recommended fund with the corpus of around
Rs. 11,224 Cr. (As on March 2016 ).
Bubble chart displays the positioning of the
schemes on risk (standard deviation) and
return parameters. The size of the bubble
indicates the corpus of the schemes. Funds
closer to X-Axis and away from Y-axis have
better risk adjusted returns. Data – Rolling
Returns.(3 Years, 3 Months) – As on 29th April
2016.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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48
Performance of Mid Cap Oriented Funds
The Mid Cap oriented funds have outperformed not only the Mid Cap Index but also the broader indices like Nifty 500 index
and Nifty 50 index over the last 1 year and 2 – 5 years period .
Over the last 3 years, the recommended mid cap oriented funds have outperformed the Nifty Free Float Midcap 100 index. The
recommended funds rose by an average of close to 33% against the Nifty Free Float Midcap 100 index which delivered close
to 19% returns. Fund managers managing mid cap funds have been able to generate higher alpha through stock selection.
Currently, the mid cap stocks are trading at relatively higher valuations and are expected to remain volatile over the near term,
however, the mid cap stocks are expected to perform better over the longer period.
Returns (%) as on 29th April 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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49
Performance of Infrastructure Oriented Funds
The Central Government has raised hopes for the recovery in economy and investment cycle with help of higher spending and various reforms.
Government’s plan capital expenditure in the Apr'15-Feb’16 period rose by 53.25% YoY as compared to the same period last year.
As per Road Transport and Highways Minister Nitin Gadkari, road construction in India has accelerated to an all-time high pace of
20 kilometres per day. The government has set a target to award projects worth Rs 3 trillion between May 2016 and May 2017. The Indian
Railway is also firming up a plan for infrastructure development with an ambitious target of pumping in more than Rs 8 trillion over the next four
years.
UDAY (Ujwal DISCOM Assurance Yojana) for financial turnaround of Power Distribution Companies - to benefit the entire power chain. The
government has also planned 100% village electrification by 1st May, 2018.
Government has committed Rs.4 trillion to states under AMRUT, Smart City Mission and for construction of 20 mn houses for urban poor under
Prime Minister’s Awas Yojana (Urban).
Average returns of the recommended Infrastructure funds have significantly outperformed not only the Nifty 50 index but also the Nifty
Infrastructure index over the last two and three years period and expected to perform better over the long term investment horizon.
Returns (%) as on 29th April 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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50
Invest in Balanced Funds for diversification
Balanced funds are hybrid funds. The primary investment is into equities which broadly remains in range of 65% to 75%, while the balance is invested into
debt securities.
During the bull run, the funds might under perform the pure equity diversified funds as these funds tend to have some exposure into debt instruments. The
funds maintain a balance between equity and debt investment and there by help in reducing the overall risk of the portfolio as compared to equity funds.
In general, the equity investment strategy can be an active management strategy across market capitalization. The Debt investment strategy can be across
fixed income securities including G-secs. Certain funds dynamically manage the equity and debt exposure. The debt portfolio helps the funds during the fall in
equity market and reduces the overall beta of the portfolio. Also, the bond portfolio is expected to generate capital gains in a falling interest rate scenario.
The recommended balance funds have significantly outperformed Nifty 50 and Crisil Balanced Fund index over the last 1, 3 and 5 years. The recommended
balanced funds on an average have delivered about 19% returns over the past 3 years, whereas both Nifty 50 & Crisil Balanced fund indices have delivered
average returns close to 10% during the same period.
Balanced funds are subject to equity taxation. The short term capital gains tax on investments up to 12 months are taxed at 15% (excluding cess and
surcharge) and there is nil tax on investments held for more than a year. Dividends declared by balanced funds are tax free.
Scheme Name (YTM)
%*
Average*
Maturity
(years)
Modified*
Duration
(years)
1 Y % 3 Y % 5 Y %
L&T India Prudence Fund 8.49 7.67 4.83 2.41 20.46 13.45
SBI Magnum Balanced Fund 8.44 4.91 3.41 2.20 19.64 13.64
Tata Balanced Fund - Reg 8.28 5.41 3.60 0.28 19.87 14.63
ICICI Prudential Balanced 8.21 9.29 4.91 2.21 18.28 14.44
Reliance RSF - Balanced 8.78 2.36 1.86 2.70 17.49 12.34
HDFC Balanced Fund 8.10 12.47 6.42 2.03 20.67 13.93
Franklin India Balanced Fund 8.08 14.26 7.86 4.10 19.04 13.35
ICICI Prudential Bal. Adv. Fund 8.15 7.23 4.38 4.37 15.32 13.31
Birla Sun Life Balanced 95 8.13 17.38 7.64 3.05 17.85 12.35
HDFC Prudence Fund 8.47 16.93 7.78 -2.18 16.71 10.91
CRISIL Balanced Fund -
Aggressive Index -- -- -- 0.15 9.78 7.60
*Portfolio data are as on 31st March 2016. Returns (%) as on 29th April 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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Equity Savings Fund - Positioned Between MIP & Balance Fund
Key Advantages of Equity Savings Fund:
Introduction:
The Equity Savings funds endeavors to provide moderate volatility and regular income through investment into arbitrage
opportunities and fixed income securities. At the same time, to provide a higher growth potential as compared to an arbitrage
fund or a debt fund, the fund also invests some exposure into equity stocks. Thus, the equity exposure including equity
arbitrage allocation would be more than 65%, hence equity taxation would be applicable.
However, with higher equity allocation, the volatility of these funds are higher as compared to MIP or pure debt
funds.
Tactical Equity Allocation: Potential capital
appreciation through tactical allocation in Equity
Market
Aims at Regular Income: Regular income through
investments in Fixed Income and Arbitrage
Opportunities
Tax Advantage: The Equity Savings fund are
applicable for equity taxation even with moderate
participation in pure equity.
Diversification: The Equity Savings fund have well
diversified portfolio by investing in different asset
classes like Equities, Equity Arbitrage Opportunities,
and Fixed income.
Equity Savings Fund
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Recommended Equity Mutual Funds – Performance
Theme Scheme Name 1 Month 3 Months 6 Months 1 Year 2 Years 3 Years
Large Cap, Aggressive Kotak Select Focus Fund - Reg - Growth 4.19 4.50 -2.48 1.82 21.73 21.05
Large Cap, Aggressive BNP Paribas Equity Fund - Growth 5.96 6.73 -0.93 0.18 20.85 18.62
Large Cap, Aggressive DSP BlackRock Focus 25 Fund - Growth 5.76 6.83 -2.34 0.76 21.22 18.48
Large Cap, Conservative Franklin India Prima Plus - Growth 4.36 6.30 -0.21 3.07 23.34 22.08
Large Cap, Conservative SBI Bluechip Fund - Growth 4.09 3.94 0.60 3.11 21.52 19.50
Large Cap, Conservative Birla Sun Life Frontline Equity Fund - Reg - Growth 4.14 4.62 -1.25 -0.17 16.38 17.02
Flexi Cap, Aggressive ICICI Prudential Value Discovery Fund - Growth 5.36 5.68 -1.33 -0.09 24.99 26.81
Flexi Cap, Aggressive DSP BlackRock Opportunities Fund - Reg - Growth 4.72 5.19 0.42 3.23 20.23 19.38
Flexi Cap, Conservative SBI Magnum Multi Cap Fund - Growth 4.02 4.46 1.10 4.45 24.91 22.24
Flexi Cap, Conservative Franklin India High Growth Companies Fund - Growth 5.11 6.86 -2.99 -3.42 26.55 26.29
Flexi Cap, Conservative HDFC Capital Builder Fund - Growth 4.25 4.33 -1.63 0.42 17.03 20.09
Flexi Cap, Conservative ICICI Prudential Multicap Fund - Growth 5.46 5.60 -3.35 1.36 19.03 19.37
Mid Cap, Aggressive SBI Magnum Midcap Fund - Growth 7.93 5.13 2.82 9.57 32.81 34.41
Mid Cap, Aggressive Reliance Small Cap Fund - Growth 6.53 0.36 -4.25 7.85 35.14 38.68
Mid Cap, Aggressive Franklin India Prima Fund - Growth 6.17 5.89 1.32 4.73 29.40 29.46
Mid Cap, Aggressive HDFC Mid-Cap Opportunities Fund - Growth 5.03 4.52 -1.01 3.14 25.40 28.34
Infra Sector, Aggressive L&T Infrastructure Fund - Growth 4.91 2.50 -3.12 -3.47 19.43 19.56
Aggressive Balanced Fund Tata Balanced Fund - Reg - Growth 3.07 2.27 -1.69 0.28 20.99 19.87
Conservative Balanced Fund HDFC Prudence Fund - Growth 2.67 4.37 -2.52 -1.73 15.42 16.68
Conservative Balanced Fund Franklin India Balanced Fund - Growth 3.30 4.92 0.79 4.10 20.87 19.04
Active Balanced Fund ICICI Prudential Balanced Advantage Fund - Reg - Growth 3.76 3.40 -0.38 4.37 13.87 15.32
Nifty 50 3.33 3.78 -3.23 -4.72 8.11 9.95
Nifty Free Float Midcap 100 6.40 5.82 -0.51 4.33 21.73 19.08
S&P BSE 200 4.00 4.09 -2.92 -3.45 10.85 11.80
Nifty Infrastructure 5.63 8.82 -8.43 -16.93 -0.70 2.72
CRISIL Balanced Fund - Aggressive Index 2.63 3.60 -0.57 0.15 9.52 9.78
Returns (%) as on 29th April 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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Fixed Income Options
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54
Performance of some recommended Income Funds
Scheme Name
AAA or
Equivalent
Exp
Avg.
Maturity
(Yrs)
Portfolio
Yield (%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years
ICICI Prudential LTP - Growth 100.00% 15.18 7.94 5.10 4.05 7.88 12.50
UTI Bond Fund - Growth 98.51% 5.98 8.11 2.21 2.14 6.11 10.40
IDFC SSIF - Invt Plan - Reg - Growth 100.00% 3.73 7.70 1.99 2.29 5.73 10.21
ICICI Prudential Income Opportunities Fund - Growth 100.00% 6.28 8.26 2.89 3.47 8.18 11.31
UTI Dynamic Bond Fund - Reg - Growth 97.27% 5.17 7.98 2.43 2.80 7.32 10.28
IDFC SSIF - MTP - Reg - Growth 97.60% 2.37 8.08 2.18 3.59 7.79 9.17
Crisil Short Term Bond Fund Index -- -- -- 2.48 4.08 8.61 9.42
Crisil Composite Bond Fund Index -- -- -- 2.99 4.11 8.86 11.38
Returns (%) as on 29th April 2016. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio data are as on 31st March 2016
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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Performance of some recommended Short Term Funds
Scheme Name
AAA or
Equivalent
Exp
Avg.
Maturity
(Yrs)
Portfolio
Yield (%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years
ICICI Prudential STP - Growth 85.23% 4.67 8.29 2.71 4.00 8.65 9.86
DSP BlackRock Banking & PSU Debt Fund - Reg -
Growth 100.00% 3.30 7.95 2.34 3.87 8.42 9.46
Birla Sun Life Treasury Optimizer Plan - Reg -
Growth 87.98% 5.62 8.33 3.06 4.48 9.03 10.57
Birla Sun Life Short Term Fund - Reg - Growth 93.54% 2.38 8.06 2.45 4.28 8.94 9.85
HDFC Short Term Opportunities Fund - Growth 83.51% 1.64 8.27 2.38 3.91 8.51 9.39
L&T Short Term Opportunities Fund - Growth 100.00% 2.51 7.96 2.02 3.43 8.05 9.03
Crisil Short Term Bond Fund Index -- -- -- 2.48 4.08 8.61 9.42
Crisil Composite Bond Fund Index -- -- -- 2.99 4.11 8.86 11.38
Returns (%) as on 29th April 2016. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio data are as on 31st March 2016
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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Performance of some recommended MIPs
Scheme Names AAA or
Equivalent
Avg.
Maturity
(Yrs)
Debt
Allocation
(%)
Equity
Allocation
(%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years
UTI - MIS - Advantage Fund -
Growth 66.37% 4.87 74.88 25.13 2.79 2.37 6.38 12.55
IDFC Monthly Income Plan - Reg
- Growth 73.93% 3.38 76.58 23.42 1.80 1.49 4.78 11.35
Reliance MIP - Growth 44.52% 10.13 79.95 20.05 2.85 1.50 4.28 12.46
Birla Sun Life MIP II - Savings 5 -
Reg - Growth 80.25% 13.77 90.02 9.98 3.83 3.78 8.10 12.07
UTI Monthly Income Scheme -
Growth 69.86% 5.07 85.28 14.72 2.69 2.24 5.47 10.00
Crisil MIP Blended Index -- -- -- -- 3.17 3.06 6.89 11.04
Returns (%) as on 29th April 2016. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio data are as on 31st March 2016
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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57
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