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Mutual FundReview

October 20 2009 | Mutual Fund October 20 2009 | Mutual Fund October 20 2009 | Mutual Fund

Mutual Fund Review April 20, 2018

ICICI Securities Ltd. | Retail MF Research

Note: Whenever, returns for the scheme are shown in the report, they are for the growth option of the scheme.

Mutual Fund Review

Equity Markets .................................................................................................... 2

Debt Markets ....................................................................................................... 3

MF industry synopsis .......................................................................................... 4

MF Category Analysis ......................................................................................... 5

Equity funds..................................................................................................... 5

Equity diversified funds ...................................................................................... 6

Equity infrastructure funds ................................................................................. 7

Equity banking funds .......................................................................................... 7

Equity FMCG Funds ............................................................................................ 8

Equity Pharma funds ........................................................................................... 8

Equity Technology Funds .................................................................................... 8

Exchange Traded Funds (ETF) ......................................................................... 9

Balanced funds ............................................................................................. 10

Monthly Income Plans (MIP) ........................................................................ 11

Arbitrage Funds ............................................................................................. 11

Debt funds ..................................................................................................... 12

Liquid Funds 13

Income funds and Gilt funds ............................................................................. 14

Gold: Outlook anchored to Fed movement ....................................................... 15

Model Portfolios ................................................................................................ 16

Equity funds model portfolio ......................................................................... 16

Debt funds model portfolio ............................................................................ 17

Top Picks ........................................................................................................... 18

April 20, 2018


Page 2

Equity Markets

Update

Indian equity markets have been extremely volatile since the start of

2018. After making new highs in January 2018, markets corrected

sharply by around 10% in February and March. However, the market

again rebounded sharply in April making good for most losses

Structurally, markets are witnessing a healthy consolidation with buying

demand emerging at lower levels. With the Q4 earnings season set to

start, the focus will now shift to stock specific action amid ongoing

consolidation in the broader range of 10000-10500. Any correction from

current levels to the 10000-10100 region should be used as an

incremental buying opportunity

Over the last couple of quarters, various lead indicators have been

pointing towards fundamentals gaining traction. This is expected to

translate to a strong earnings trajectory from FY19E onwards. The same

is reiterated by the growth rate (FY18) of core sectors like auto (14.5%

YoY), cement (up 5.7% YoY), steel (~6% YoY) and power (5.2% YoY),

amid the impact of GST from Q1FY18. In turn, this is all pointing

towards a sharp up-tick in ensuing economic activity. Similarly,

tendering activity across key infrastructure segments like roads (up

23%), railways (up 13.1%), real estate (96.1%) and irrigation (55% YoY)

have started resulting in strong ordering trends. In our view, this has

gradually kick started the capex cycle. This, in turn, is expected to have

a multiplier effect on growth of core sectors and GDP growth

Inflows into domestic mutual funds continue to remain strong with

inflows through SIP amount during March 2018 crossing | 7100 crore. A

sustained increase in SIP inflows is a structural positive in terms of

flows into equity markets

Outlook

The earnings trend of the banking sector, marred by higher

provisioning, has kept the earnings trajectory volatile and unfathomable

in the short-term. However, current developments in NCLT resolutions

have been quite encouraging as a good number of cases have seen

substantial interest from potential suitors for the assets of these

companies. This may lead to lower-than-expected haircuts and a

resultant reversal of provisions. The recent bond yield correction and

spreading of bond portfolio losses over the next four quarters will

provide some cushion to banking sector earnings. In our view, we may

revert to a normalised earnings trajectory for banks in H2FY19. This, in

turn, will help earnings register CAGR of 21% in FY18E-21E

In the past, Sensex earnings have looked suppressed mainly due to

higher provisioning by banks, which impacted their profitability. Thus,

over the last two years, Sensex earnings (ex-banking) have been up

9.6% YoY, nearly ~2x that of Sensex earnings (including banks - that

account for ~40% of weights and is dragging overall profitability)

Going forward, we expect the index to enter a base formation phase as

the price wise correction is approaching maturity. Therefore, we believe

any sharp correction is a good opportunity for investors with a long

term horizon to start building a portfolio of quality stocks to ride the

next phase of the larger uptrend

Nifty 50: Markets recover after dip

7500

8000

8500

9000

9500

10000

10500

11000

11500

12000

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Apr-18

Source: Bloomberg, ICICIdirect.com Research

Secular bounce back across indices …

3.8

3.7

3.6

3.6

3.5

3.2

-2

0

2

4

6

BS

E 2

00

Sensex

BS

E 1

00

BS

E 5

00

BS

E M

idcap

BS

E S

mall cap

Source: Bloomberg

One month returns till April 17, 2018

Real estate and Oil & Gas in the red …

5 5

4

3

3

2

2

-1

-2

-4

-2

0

2

4

6

FM

CG

Auto

CG

Bankin

g IT

Healthcare

Metals

Real Estate

Oil n G

as

Source: Bloomberg

One month returns till April 17, 2018

Research Analyst

Sachin Jain

[email protected]

Jaimin Desai

[email protected]

ICICI Securities Ltd. | Retail MF Research Page 3

Debt Markets

Update

The fixed income market has been extremely volatile over six months

with yields under pressure on concerns arising from rising inflation, fear

of fiscal slippage, rising global crude oil prices and higher global bond

yields. A lower H1FY19 borrowing calendar and lower-than-expected

hawkishness by the RBI in its monetary policy meeting led to some

relief. However, the rally was short-lived as higher state government

borrowing, further oil price rise dampened sentiments again

The 10-year benchmark G-Sec yield, after having declined around 50

bps from 7.62% to 7.15%, again rose back to around 7.5% levels

The government has announced a reduction in the gross borrowing

programme announced in the Budget for | 6,06,000 crore by a | 50,000

crore by reducing the intended buyback by | 25,000 crore and relying

on small savings for an additional | 25,000 crore. Further, the

government announced it would borrow only 52% in the first half

against 60-65% that it normally borrows. Also, supply in the 10-14 years

bucket has been cut to less than 30% of the auction. Instead, the

longest end has been slightly increased whereas a new bucket for one

to four years has been created for around 8% of the auction

In its monetary policy meeting, while the RBI maintained status quo, the

lowering of inflation forecast cheered market participants with

expectation of rate hike in the near term being rules out. Inflation

projection to 4.4-4.7% in H1FY19 and 4.4% in H2FY19, which is just

slightly above its medium term target of 4%. The RBI seems to be

focusing on durable inflation target by looking through impact of one-

off events such as HRA and GST implementation. If realised, the lower

inflation trajectory would allow the RBI to maintain a less hawkish

stance. This would, in turn, comfort the markets

However, RBI cited upside risks to inflation noting factors like revised

formula for MSP, impact of HRA revision by state governments, further

deviation from revised fiscal consolidation path & volatile crude prices

Outlook

We do not expect a reversal in the interest rate cycle, going ahead. We

expect RBI to keep repo rates unchanged at 6%, at least in near term

A higher supply of government securities, particularly from state

governments, along with a further rise in crude oil prices, is a cause for

concern in the near term. However, expectation of normal monsoon

and lower global bond yields may provide support

Historically, 10-year G-Sec yield spread over repo ranges between 50

bps and 150 bps for most of the period. We believe the current spread

of 250 bps will narrow down once negative sentiments fades. Corporate

bond spreads are also likely to be at historic low levels as investors

search for higher accrual in a stable interest rate environment

Corporate bond yields over the last six months have been far more

stable than G-Sec yield. The yield curve, after the recent fall, has

become flattish making the shorter end of the yield more attractive both

in the G-Sec as well as corporate bond segment. Short-term debt funds

remain better placed due to lower volatility and higher bond spread

Short-term accrual debt funds with mix of AAA/AA/A rated papers and

low expense ratio continue to offer a better investment option

G-sec yields dip slightly back towards 7.50%

6.0

6.4

6.8

7.2

7.6

8.0

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Yie

ld (%

)

Source: Bloomberg

G-sec yield curve: Yields dip for longer maturities

6.50

7.16

7.40

7.44

6.63

7.21

7.53 7.66

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

7.6

7.8

1 2 3 4

Yie

ld (%

)

Series1 Series2


AAA corporate bond yield curve flattens for longer

durations

7.647.78

7.83

8.06

7.78

7.97

8.088.40

6.4

6.8

7.2

7.6

8.0

8.4

8.8

1yr 3yr 5yr 10 yr

Yie

ld (%

)

13-Apr-18 13-Mar-18



Page 4

MF industry synopsis

MF industry AUM declined marginally by ~3.8% in March 2018 to

~| 21.3 lakh crore. Total ~37% was held by income funds, ~46% by

equity and equity-oriented funds and ~16% by money market funds

According to Amfi data, systematic investment plans (SIPs) inflows for

March were at a record high of ~| 7100 crore, up from ~| 6400 crore in

the previous month. SIP inflows average ~| 5600 crore per month in

FY18 against ~| 3600 crore per month in FY17, a rise of ~52%. The

number of SIP folios has increased from 1.35 crore in March 2017 to

2.11 crore in March 2018

In 2017, the MF industry recorded net inflow of | 2.44 lakh crore, of

which | 2.42 lakh crore came into equity and equity-oriented funds

Till March 2018, inflows into equity and equity oriented flows in FY18

were averaging ~| 21000 crore per month, more than double that in

FY17. March saw a net inflow of ~| 16000 crore in such funds

Exhibit 1: Monthly inflows into equity-oriented funds average ~| 21500

crore in FY18

1000000

1200000

1400000

1600000

1800000

2000000

2200000

2400000

Mar-

17

Apr-

17

May-1

7

Jun-1

7

Jul-17

Aug-1

7

Sep-1

7

Oct-

17

Nov-1

7

Dec-1

7

Jan-1

8

Feb-1

8

Mar-

18

Total AUM

Source: AMFI

Exhibit 2: AUM of Top 10 AMCs

293,078

292,225

230,414

228,212

206,973

138,756

116,111

100,309

82,395

66,996

50000

100000

150000

200000

250000

300000

350000

400000

ICICI

HD

FC

Aditya

Birla

Reliance

SB

I

UTI

Kotak

Franklin

DS

PB

R

Axis

AUM

Source: ACE MF

Exhibit 3: SBI has highest proportion of equity AUM as percentage of its

AUM

51%

48%

45%

44%

43%

40%

39%

36%

34%

33%

0%

20%

40%

60%

80%

SB

I

Fra

nklin

DS

PB

R

Axis

HD

FC

UTI

ICIC

I

Reliance

Kota

k

Adit

ya B

irla

Equity % Debt% Others%

Source: ACE MF. Data as of March 2018

Exhibit 4: Equity funds witness significant inflows in FY18…

-2000

4000

10000

16000

22000

28000

34000

40000

46000

52000

58000

64000

EQ

UIT

Y

BA

LA

NCED

OTH

ER

ETFs

ELS

S - E

QU

ITY

GO

LD

ETFs

GIL

T

Source: ACE MF. Data as on January 2018


Page 5

MF Category Analysis

Equity funds

Technology funds remained the best performing category of sector

funds. This category along with FMCG, infrastructure as well as

banking funds continued to outperform pharma funds by wide

margins. IT funds have staged a comeback over the last six months

but pharma funds dragged once again, returning -5.4% on a one-

year basis

In terms of market cap-based funds, midcap funds continued their

dominance over large cap funds. Overall, midcap funds were

among best performing equity fund categories on a one-year basis

Structural industrywide problems continue to plague pharma funds.

Pharma stocks are under pressure due to erosion of pricing power

in the US, which is one of the largest markets for most Indian

companies. The growth trajectory for US-focused companies has

shifted lower, resulting in lower valuation multiples than those

commanded previously

Exhibit 5: IT funds continue to outperform other categories on one year basis while pharma funds

continue to be under pressure (returns as on April 17, 2018)

S

36.0

25.9

17.3

14.4

13.9

13.5

9.4

-5.4

8.1

14.0

14.4

10.7

8.5 10.9

9.9

-3.1

19.9

17.7

27.6

19.5

16.1

19.0

13.7

14.0

-10

-5

0

5

10

15

20

25

30

35

40

Technology FMCG Mid cap Multi cap Large Cap Infrastructure Banking Pharma

Returns (%

)

1 year 3 Year 5 year

Source: Crisil, ICICIdirect.com Research ; Returns over one year are compounded annualised returns

Exhibit 6: Strong inflows continue into equity, ELSS schemes

0

4000

8000

12000

16000

20000

24000

28000

32000

36000

40000

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Net Inflo

w ( | C

r )

Equity + ELSS + ETF

Source: Amfi, ICICIdirect.com Research

Exhibit 7: Robust inflow in equity funds push up AUM

350000

400000

450000

500000

550000

600000

650000

700000

750000

800000

Mar-

17

Apr-

17

May-1

7

Jun-1

7

Jul-17

Aug-1

7

Sep-1

7

Oct-

17

Nov-1

7

Dec-1

7

Jan-1

8

Feb-1

8

Mar-

18

| lakh C

rore

Equity +ELSS



Equity diversified funds

Equity diversified funds witnessed robust growth in the last three

years, with AUM within each sub-category rising substantially. In

the last three years in FY14-17, AUM of large cap funds rose 114%,

multi cap funds AUM rose 91% while midcap funds AUM rose

135%

Over this period, while all three sub-categories delivered a strong

performance (Exhibit 8), midcap funds have done exceedingly well

and outperformed. This is reflected in the trend of broader indices

outperforming bellwether indices over this time frame. However,

large cap funds have reversed that trend at during the past few

months

Multicap funds are relatively more market cap agnostic and hold

positions in a wider range of companies than pure large cap funds

or pure midcap/small cap funds. Multicap funds generally hold

around 50-60% of their portfolio in large cap stocks and 30-40% in

midcap stocks. They have benefited by capturing a part of the

midcap rally during this period and, thus, outperformed pure large

cap funds

In the present market scenario, bottom up stock picking across the

market segment is more important than allocation to a particular

segment or sub sector. Multicap funds offer fund managers

flexibility to allocate funds across all market segments and are,

therefore, relatively better placed

Exhibit 8: Blistering AUM growth across all equity diversified fund sub-categories from 2014

35878

40268

66085

75637

103155

141430

64189

69009 1

19829

127071

173056 228617

18988

21377

53340

59369

92584

125541

0

30000

60000

90000

120000

150000

180000

210000

240000

270000

300000

Mar 13

Mar 14

Mar 15

Mar 16

Mar 17

Mar 18

|crs

Large Caps Multi Caps Mid Caps

Source: ACE MF

Recommended funds

Large cap

Aditya Birla Sunlife Frontline Equity

ICICI Prudential Focused Bluechip Equity

SBI Bluechip Fund

Multi cap

L&T India Value Fund

Kotak Select Focus Fund

Motilal Oswal MOSt Focused Multicap 35 Fund

Midcap

HDFC Mid-Cap Opportunities Fund

Franklin India Smaller Companies Fund

L&T Emerging Businesses Fund

(Refer to www.icicidirect.com for details of the fund)

View

Short term: Positive

Long-term: Positive

http://content.icicidirect.com/newsiteContent/Research/MutualFunds.asp


Equity infrastructure funds

Rollout of e-way bill from April, 2018 and revival in affordable housing

segment bodes well for the building material sector for a revival in the

demand environment in FY19E. GST rollout coupled with e-way bill

implementation would enable faster movement from unorganised to

organised players as the latter would now come under the tax ambit

Q4FY18E has been a strong quarter with regard to order wins for capital

goods EPC space. Awarding has happened across all key segments like

roads, power T&D, railways, irrigation and hydrocarbons. There were

few orders in power generation equipment segment

Cement demand has been witnessing a gradual improvement mainly

led by increased government spending in infrastructure activities. This

is supported by the fact that project tendering has increased 29.5% YoY

to | 2.2 lakh crore in January-February 2018 vs. 8.6% YoY last year.

Within overall project tendering, road tendering has seen a strong pick-

up, growing at 62% YoY to 1.4 lakh crore in January-February 2018.

Further, better sand availability in Uttar Pradesh, Bihar and Tamil Nadu,

pick-up in infra projects in Maharashtra, Andhra Pradesh & Telangana

and improved demand in low cost housing are expected to be key

catalysts for cement demand

Infrastructure funds focusing on specific companies capitalising on

growth potential in the sector are offering a good investment option to

investors. Aggressive investors may consider investing in the

recommended infrastructure funds as a part of their thematic allocation

Preferred Picks

L&T Infrastructure Fund Refer www.icicidirect.com

for details of the fund Reliance Diversified Power Sector Fund

Equity banking funds

Q4FY18 has been an eventful quarter for the banking sector, which saw

it being inflicted with further NPA pain and higher provisioning cost.

These events include ~| 14500 crore letter of undertaking (LoU) fraud

relating to the gems & jewellery sector, new NPA framework introduced

by RBI (discarding past restructuring formats) and a large telecom

account (~| 25000 crore exposure of Indian banks) slipping into NPA

owing to failure of its SDR before quarter end. Further, absence of any

resolution in large NCLT cases referred earlier (especially in steel

accounts) has also escalated provisioning pressure in Q4FY18

However, in the long term, we remain optimistic on the banking sector

keeping in mind the anticipated pick-up in credit offtake. Steady

margins and peaking out of the NPA cycle are expected to further aid

profitability. From a long term point of view, the PSU bank

recapitalisation programme is a structural positive. The continued

government push on financial inclusion, enhanced awareness and

increased usage of digital or electronic payments will be positives for

the banking industry from an operating cost perspective

Preferred Picks

ICICI Prudential Banking & Financial Services Refer

www.icicidirect.com for

details of the fund

Reliance Banking Fund

UTI Banking Sector Fund

View

Short-term: Positive

Long-term: Positive

View

Short-term: Neutral

Long-term: Positive




Equity FMCG Funds

The FMCG space saw various headwinds in 9MFY18 such as absence of

price hike due to GST implementation difficulties, which disrupted trade

channels, particularly the wholesale channel. FMCG companies are

expected to witness muted sales growth as a result of having passed on

GST rate cuts. However, a demand revival is expected to be driven by

normalcy in trade channels & demand recovery in rural regions

considering expected normal monsoon in 2018

We maintain our positive outlook on the FMCG sector backed by the

rural consumption revival led by largely normal monsoons and the

government’s focus on increasing farm incomes. We also expect GST

implementation to eventually provide a big boost to FMCG companies,

particularly those present in personal care and household categories

Equity Pharma funds

For Q4FY18 results, select US focused companies are expected to

post subdued performance due to adverse currency movement,

lack of meaningful launches and pricing pressure on base business.

Domestic companies are expected to be on track post GST

implementation. Strong growth in branded market (India, Russia,

Latin America, etc) is likely to mitigate the US base business decline

We have a neutral view on the sector. The US front continues to

face intense competition owing to client consolidation and faster

approval of products. Revenues, margins and profitability could

remain subdued in the near to medium term leading to a cautious

undercurrent for the sector

Preferred Picks

Reliance Pharma Fund Refer to

www.icicidirect.com

for details of the fund

SBI Pharma Fund

UTI-Pharma & Healthcare

Equity Technology Funds

In Q4FY18, IT companies are expected to report mild dollar revenue

growth QoQ supported by cross currency tailwinds. Dollar revenue

growth is expected to be healthier for midcap companies against

tier I companies due to a better deal pipeline and increasing

contribution from the digital space. FY19 management guidance for

these companies would be a key monitorable

We maintain our neutral stance on the sector as the industry faces

challenges related to US immigration rules and growing

protectionism around the world. The industry would continue to

witness pricing pressure in its traditional business, which is

currently unable to offset newer revenue streams from digital areas

that enjoys higher margins

Preferred Picks

ICICI Prudential Technology Fund Refer to

www.icicidirect.com

for details of the fund

Preferred Picks

ICICI Prudential FMCG Fund Referwww.icicidirect.com

for details of the fund SBI FMCG Fund

View

Short-term: Neutral

Long-term: Neutral

View

Short-term: Neutral

Long-term: Neutral

View


Long-term: Positive





Exchange Traded Funds (ETF)

In India, three kinds of ETFs are available: Equity index ETFs, liquid

ETFs and gold ETFs. An equity index ETF tracks a particular equity

index such as the BSE Sensex, NSE Nifty, Nifty Junior, etc

An equity index ETF scores higher than index funds on several grounds.

The expense of investing in ETFs is relatively less by 0.50-0.75% in

comparison to an index fund. The expense ratio for equity ETFs is in the

range of 0.05-0.25% while for index funds the expense ratio varies in

the range of 0.50-1.25%. However, brokerage (which varies) is

applicable on ETFs while there are no entry loads now on index funds.

Tracking error, which explains extent of deviation of returns from the

underlying index, is usually low in ETFs as it tracks the equity index on

a real time basis whereas it is done only once in a day for index funds.

ETFs also provide liquidity as they are traded on stock exchanges and

investors may subscribe or redeem them even on an intra-day basis.

This is unavailable in index funds, which are subscribed/redeemed only

on a closing NAV basis.

In August 2015, the Labour Ministry decided to invest 5% of

Employees’ Provident Fund Organisation’s (EPFO) incremental corpus

in ETFs. The investment in equities is split between the Nifty ETF (75%)

and Sensex ETFs 25%. EPFO chose two ETF schemes of SBI Mutual

Fund — SBI ETF Nifty and SBI Sensex ETF

In 2016, EPFO hiked the limit from 5% to 10% of its incremental corpus

of investment in equities, which was further increased to 15% of its

incremental corpus in May 2017. This is a positive move since

retirement savings, which are long term in nature, will be invested in

equities that have the potential to generate higher returns. So far, EPFO

has invested a total of ~| 22,000 crore in exchange traded funds as of

April 2017. Over 400 ETFs are traded globally. ETFs are transparent and

cost efficient. The decision on which ETF to buy should be largely

governed by the decision on getting exposure to that asset class

Exhibit 9: ETFs record inflows in February after two months of outflows

456 5841365 1753 1513

1968 1675

12447

-1604-2234

953

5082

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Net Inflo

w ( | C

r )


Exhibit 10: ETF AUMs remain strong

44436

45899

47584

48359

52823

53734

55166

60107

70041

70353

72879

69848

72888

0

10000

20000

30000

40000

50000

60000

70000

80000

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

| C

rore

Other ETFs


Traded volumes should be the major criterion that is used

while deciding on investment in ETFs. Higher volumes

ensure lower spread and better pricing to investors...

Tracking error, though it should be considered, is not the

deciding factor as variation among funds is not huge...

..traded volume should be the major criteria to be

considered while deciding on investment in ETFs.

Higher volumes ensure lower spread and better

pricing to investors...

..tracking error though should be considered but is

not the deciding factors as variation among funds

is not huge...


Balanced funds

The balanced funds category continued to receive significant flows,

with average net monthly inflow in 2017 of ~ | 7000 crore

AUM of balanced funds witnessed a stellar increase during this

period, more than doubling to | 172151 crore in March 2018 from

| 84763 crore in the year ago period

Over the last two or three years, the balanced space has emerged

as one of the fastest growing equity categories and offers an ideal

gateway for first time retail equity investors. In FY17, balanced

funds AUM growth outpaced all other categories bar non-gold ETFs

Balanced funds are hybrid funds. More than 65% of the overall

portfolio is invested in equities. Hence, as per provisions of the

Income Tax Act, 1961, any capital gains over a year are taxed at

10%. Also, dividends declared by funds are taxed at 10%

In case one separately invests 35% of one’s investible corpus in a

debt fund, the same will be subject to higher taxation. However, if

the whole corpus is invested in balanced funds, 100% shall have

lower taxation applicable as mentioned above. Thus, balanced

funds offer the benefit of equity taxation on debt component

After a sharp rally in equity markets, the funds can be a preferred

investment avenue as the debt proportion serves to protect on

intermediate relief rallies or the downturn while providing minimum

65% participation on further upsides

Exhibit 11: Inflows into balanced funds rebound from February dip

7,1367,6637,458

7,864

8,783

8,141

5,897

7,614

9,756

7,665

5,026

6,754

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Net Inflo

w ( | C

r )


Exhibit 12: YoY 104% growth in AUM of balanced funds 84763

93530

102156

109513

121243

128320

134868

147460

155105

167385

176087

174468

172151

13000

33000

53000

73000

93000

113000

133000

153000

173000

193000

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

| C

rore

Balanced


Preferred Picks

ICICI Prudential Balanced Fund

HDFC Balanced Fund

Birla Sun Life Balanced 95 Fund

DSP Blackrock Balanced Fund

L&T India Prudence Fund


Investors with a limited investible surplus and a lower risk

appetite but with a willingness to invest in equities can

look to invest in these funds

View


Long-term: Positive



Monthly Income Plans (MIP)

An MIP offers investors the option to invest in debt with some

participation in equity, ~10-25% of the portfolio. They are suitable

for investors who seek higher returns from a debt portfolio and are

comfortable taking nominal risk. The debt corpus of the portfolio

provides regular income while the equity portion of the fund

provides alpha. However, returns can also get eroded by a fall in

equities

MIPs can be classified into aggressive MIP and conservative MIP

based on its equity allocation. Risk averse investors should invest in

MIPs with lower equity allocation to avoid capital erosion

The change in taxation announced in the Union Budget 2014, shall

be applicable to MIP funds (refer debt funds section for details)

Preferred Picks

Aditya Birla Sun Life MIP II - Wealth 25 Plan

ICICI Prudential MIP 25

SBI Magnum MIP Fund

SBI Magnum MIP Floater Fund

(Refer www.icicidirect.com for details of the fund)

Arbitrage Funds

Arbitrage funds seek to exploit market inefficiencies that get

manifested as mispricing in the cash (stock) and derivative markets

Availability of arbitrage positions depends very much on the market

scenario. A directional movement in the broader index attracts

speculators in the market while cost of funding makes futures

positions biased

Arbitrage funds are classified as equity funds as they invest into

equity share and equity derivative instruments. Since these are

classified as equity funds for taxation, dividends declared by the

funds are taxed at 10%. Capital gains tax will be applicable at 10% if

they are sold after a year

These funds can be looked upon as an alternative to liquid funds.

However, for these funds, returns totally depend on arbitrage

opportunities available at a particular point of time and investors

should consider reviewing the same before investing. Returns of

arbitrage funds are non-linear and, therefore, unsuitable for

investors who want consistent return across time period

Arbitrage funds should be used as a liquid investment and should

not be a major part of the investor’s portfolio. A range bound

market does not give ample room to create arbitrage positions

Preferred Picks

ICICI Prudential Equity - Arbitrage Fund – Regular

IDFC Arbitrage Fund - (Regular)

Kotak Equity Arbitrage Fund

SBI Arbitrage Opportunities Fund


View

Short-term: Neutral

Long-term: Positive

View

Short-term: Neutral

Long-term: Neutral

MIP should be a preferred debt investment for funds that

need to be parked for over two years




Debt funds

Exhibit 13: Category average returns

5.9 6

.6

7.5

6.4

6.4 7.0

4.7

6.3

7.6

1.7

4.8

7.1

-0.8

3.4

7.2

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

6 months 1 year 3year

%Income Ultra Short Term Liquid Income Short Term Income Long Term Gilt

Source: Crisil, ICICIdirect.com Research

Note : Returns as on April 17, 2018; All returns are compounded annualised

Exhibit 14: G-sec yield curve

6.50

7.16

7.40

7.44

6.63

7.21

7.53 7.66

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

7.6

7.8

1 2 3 4

Yie

ld (%

)

Series1 Series2


Exhibit 15: Corporate bond curve

7.647.78

7.83

8.06

7.78

7.97

8.088.40

6.4

6.8

7.2

7.6

8.0

8.4

8.8

1yr 3yr 5yr 10 yr

Yie

ld (%

)13-Apr-18 13-Mar-18


Benchmark 10 year G-Sec has witnessed yields

coming off its highs in March

Interest rates flattened sharply for longer durations across

G-Sec and corporate bond categories


Liquid Funds

Yields on money market instruments viz. less than one year CDs

and CPs in which liquid fund predominantly invest, have spiked

over the last three months in the face of reducing liquidity

In an uncertain environment, liquid funds remain well placed to park

money with low volatility

For less than a year, individuals in the higher tax bracket should opt

for dividend option as the dividend distribution tax @ 28.325% is

marginally lower. Also, though the tax arbitrage has reduced, they

still earn better pre-tax returns over bank savings (3-4%) and

current accounts (0-3%)

Changes in taxation rules announced in Union Budget 2014 are also

applicable to liquid funds, as post tax returns in less than a three-

year period get reduced for individuals in the higher tax bracket

(30% tax slab)

Exhibit 16: Call rates below repo rate

5.6

5.8

6

6.2

6.4

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Apr-18

%

Call rate


Exhibit 17: Short term CP/CD yields

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Apr-18

%

3M CD 3M CP


Exhibit 18: Flows into liquid funds remain volatile on institutional activity

99,403

-64,692

-12,739

-19,511

21,352

4,833

-13,261

77,408

-127,597

96,552

1,223

-54,979

-300,000

-260,000

-220,000

-180,000

-140,000

-100,000

-60,000

-20,000

20,000

60,000

100,000

140,000

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Net Inflo

w ( | C

r )


Exhibit 19: AUM remains healthy

399775

415087

428212

450533

467418

468022

484802

468668

469675

496696

520020

543541

568770

300000

400000

500000

600000

700000

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

| la

kh C

rore

Money Market


Preferred Picks

HDFC Cash Management Fund - Savings Plan

SBI Magnum InstaCash

Reliance Liquid Fund - Treasury Plan


View

Neutral



Income funds and Gilt funds

March and April were highly volatile months for bond markets. The

10 year yield was under pressure owing to demand-supply

mismatch and fears of fiscal slippage. Bond markets were hit by

weak sentiments owing to a confluence of these factors. However

positive newsflow in the form of lower and a backended central

government borrowing calendar, spreading out of borrowing

maturity buckets and a dovish RBI policy combined to alleviate

pressure on yields. The 7.17% 2028 10 year bond yield softened to

as low as 7.13% in early April. Subsequently, news of heavy first

half borrowings by state governments and rising crude oil prices

pushed yields back up towards 7.50% by mid April. Headline CPI for

March at 4.28% was subdued on the back of softer food inflation.

Earlier, the April MPC policy revised its inflation projection revised

downwards to 4.4-4.7% in H1FY19 and 4.4% in H2FY19

Short-term funds or short-term funds with some dynamic allocation

to G-sec should be preferred over pure G-Sec funds or long-term

duration funds. Short-term debt funds remain a stable performing

category, especially in the current volatile environment. Credit

funds with reasonable credit quality should be preferred over an

aggressive credit fund

Exhibit 20: Income funds inflows

34,6

47

5,1

24

-20,6

85

60,0

84

8,3

90

-50,0

90

40,8

45

9,3

74

-60,1

51

-9,8

71

-9,7

99

-13,7

19

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

Apr-

17

May-1

7

Jun-1

7

Jul-17

Aug-1

7

Sep-1

7

Oct-

17

Nov-1

7

Dec-1

7

Jan-1

8

Feb-1

8

Mar-

18

Net In

flow

s

(| .

Cr)


Exhibit 21: AUM remains stable on consistent inflows

794679

743783

780797

792734

778266

845484

858188

809965

855478

867736

808252

801405

791494

400000

500000

600000

700000

800000

900000

Mar-

17

Apr-17

May-17

Jun-17

Jul-17

Aug-1

7

Sep-1

7

Oct-

17

Nov-17

Dec-17

Jan-1

8

Feb-18

Mar-

18

| C

rore

Income


Recommended funds

Allocation to pure G-Sec or duration funds should be

avoided given their historical outperformance and G-sec

yield trading at the lower end of its historical range. Crisil

10-year Gilt index has delivered 38% return in the last

three years. It is likely the return will be significantly

decline, going forward

Ultra Short Term Funds

Birla Sun Life Savings Fund

ICICI Prudential Flexible income

Short Term Funds

Birla Sunlife short term fund

HDFC Short Term Fund

ICICI Pru Short Term Plan

Short Term Funds – Credit opportunities

Axis Regular Savings Fund

Aditya Birla Sunlife Medium Term Plan

L&T Short Term Fund

Long term/Dynamic

Birla Sunlife income plus

ICICI Prudential Dynamic Bond Fund

IDFC Dynamic Bond Fund

Gilt

ICICI Pru LT Gilt Fund – PF Option

Aditya Birla Sun Life Gilt Plus – PF Plan


View

Ultra-short term Income: Neutral

Short-term Income : Positive

Long-term Income: Neutral

Short-term Gilt : Neutral

Long –term Gilt : Neutral



Gold: Outlook anchored to Fed movement

Gold prices continued to trade in a narrow range during March

despite capital market volatility in the wake of news flows

surrounding trade sanctions by the US and China

Global prices continued to trade above US$1300 per ounce while

Indian prices are trading above | 31000 per 10 grams. Gold prices,

however, started 2018 on a good note with gains extending in

January

While trade war fears could have led to much larger gains in gold

prices, the indication of higher rate hikes by the US Federal Reserve

is keeping prices under check. The Fed, after raising rates thrice in

2017 and once in 2018 is pretty much on course for two more rate

hikes in this year

While the key inflation measure remains below the targeted mark of

2%, it has firmed up from earlier levels. As a result, US bond yields

hardened appreciably in recent months

US bond yields remained elevated in February ending the month at

2.7%. Rising US bond yields are sentimentally negative for gold as

it represents a higher opportunity cost of holding the metal, which

bears no interest

Weakness in the US dollar continues to provide support to gold

prices as the metal is denominated in that currency

Gold has historically been looked at as a relatively risk-free asset. Its

price movement both in India and globally, is impacted by any

actual or perceived risk build-up on economic, political or natural

fronts

Exhibit 22: Global prices in March and April

1100

1200

1300

1400

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Apr-18

Price ($/ounce)


Exhibit 23: Indian prices in March and April

26000

28000

30000

32000

Apr-

17

May-1

7

Jun-1

7

Jul-17

Aug-1

7

Sep-1

7

Oct-

17

Nov-1

7

Dec-1

7

Jan-1

8

Feb-1

8

Mar-

18

Apr-

18

Price (|/10…



Model Portfolios

Equity funds model portfolio

Investors who are wary of investing directly into equities can still get

returns almost as good as equity markets through the mutual fund route.

We have designed three mutual fund model portfolios, namely,

conservative, moderate and aggressive mutual fund portfolios. These

portfolios have been designed keeping in mind various key parameters like

investment horizon, investment objective, scheme ratings, and fund

management.

Exhibit 24: Equity model portfolio

Particulars Aggressive Moderate Conservative

Review Interval Monthly Monthly Quarterly

Risk Return High Risk- High

Return

Medium Risk -

Medium Return

Low Risk - Low

Return

Funds Allocation % Allocation

L&T India Value 20 - -

Aditya Birla Sunlife Frontline Equity - 20 20

Franklin India Smaller Companies Fund 20 20 -

SBI Bluechip Fund - - 20

Kotak Select Focus Fund 20 20 -

HDFC Midcap Opportunities Fund 20 20 -

Franklin India High Growth Companies Fund 20 - -

Motilal Oswal MOSt Focused Multicap 35 Fund - 20 20

ICICI Prudential Focused Bluechip Fund - - 20

Reliance Top 200 Fund - - 20

Total 100 100 100

Source: ICICIdirect.com Research

Exhibit 25: Model portfolio performance since inception

18.5%

16.7%

15.7%

12.7%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

Aggressive Moderate Conservative BSE 100

%

Aggressive Moderate Conservative BSE 100

Source: Crisil Fund Analyser, ICICIdirect.com Research; CAGR performance as on 31 Mar 2018


Debt funds model portfolio

We have designed three different mutual fund model portfolios for different

investment duration viz. less than six months, six months to one year and

above one year. These portfolios have been designed keeping in mind

various key parameters like investment horizon, interest rate scenarios,

credit quality of the portfolio and fund management, etc.

Exhibit 26: Debt funds model portfolio

Particulars

0 – 6 months 6months - 1 Year Above 1 Year

Objective Liquidity

Liquidity with

moderate return Above FD

Review Interval Monthly Monthly Quarterly

Risk Return

Very Low Risk -

Nominal Return

Medium Risk -

Medium Return

Low Risk - High

Return

Funds Allocation

Ultra Short term Funds

Aditya Birla SL Savings Fund 20

ICICI Pru Flexible Income Plan 20

Short Term Debt Funds

Axis Regular Savings Fund 20 20

Aditya Birla Sunlife Short Term Fund 20 20

Aditya Birla Sunlife Short Term Opportunites Fund 20 20

HDFC Short Term Opportunities Fund 20 20

ICICI Prudential Regular Savings 20

IDFC SSI Short Term 20

HDFC Corporate Debt opportunities fund 20

L&T Short Term Income Fund 20 20

Total 100 100 100

Time Horizon

% Allocation

Source: ICICIdirect.com Research

Exhibit 32: Model portfolio performance since inception

8.4% 8.5% 8.9%

7.8%8.1%

8.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0-6 Months 6Months - 1Year Above 1yr

%

Portfolio Index

Source: Crisil Fund Analyser, ICICIdirect.com Research; CAGR performance as on 31 Mar 2018

*Index: 0-6 month’s portfolio – Crisil Liquid Fund Index; 6 months-1 year – Blended Index with 50% weight to Crisil

Liquid Index, 50% weight to Crisil Short Term Index; Above 1 year: Crisil Short Term Index


Top Picks

Exhibit 33: Category wise top picks

Largecaps Aditya Birla Sun life Frontline Equity Fund

ICICI Pru Focused Bluechip Fund

Kotak Select Focus Fund

SBI Bluechip Fund

Midcaps HDFC Midcap Opportunities Fund

Franklin India Smaller Companies Fund

L&T Emerging Businesses Fund

Reliance Small Cap Fund

Multicaps DSP Blackrock Opportunities Fund

Franklin India High Growth Companies Fund

L&T India Value Fund

Motilal Oswal MOSt Focussed Multicap 35 Fund

ELSS Aditya Birla Tax Relief 96 Fund

DSP Blackrock Tax Saver Fund

L&T Tax Advantage Fund

Reliance Tax Saver Fund

Balanced HDFC Balanced Fund

ICICI Pru Balanced Fund

Aditya Birla Sun Life Balanced 95 Fund

DSP Blackrock Balanced Fund

L&T India Prudence Fund

Liquid HDFC Cash Mgmnt Saving Plan

ICICI Pru Liquid Plan

Reliance Liquid Treasury Plan

Ultra Short term Aditya Birla Sunlife Savings Fund

ICICI Pru Flexible Income Plan

UTI Treasury Advantage Fund-Inst

Short term Aditya Birla SL Short term Fund

HDFC Medium Term opportunities Fund

Kotak Banking and PSU Debt Fund

Credit Opportunities Axis Regular Savings Fund

Aditya Birla Sun Life Medium Term Plan

L&T Short Term Income Fund

Income Funds ICICI Pru Income Fund

Aditya Birla SL Income Plus - Regular Plan

IDFC Dynamic Bond Fund

MIP Aggressive Aditya Birla SL MIP II - Wealth 25 plan

ICICI Pru MIP 25

Equity Funds & Equity-oriented Funds

Debt Funds & Debt-oriented Funds




Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st

Floor, Akruti Trade Centre,

Road No. 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]

Disclaimer

ANALYST CERTIFICATION

We, Sachin Jain, CA, and Jaimin Desai, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect

our views about the subject issuer(s) or Funds. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) AMFI Regn. No.: ARN-0845. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number – INH000000990.Registered office of I-

Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate,Mumbai - 400020, India. ICICI Securities is a full-service, integrated investment banking and is, inter alia, engaged in the

business of stock broking and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries

engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, distribution of financial products etc. (“associates”), the details in

respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading distributors of Mutual Funds and participate in distribution of Mutual Fund Schemes of almost all AMCs in India.

The selection of the Mutual Funds for the purpose of including in the indicative portfolio does not in any way constitute any recommendation by ICICI Securities Limited (hereinafter referred to as ICICI

Securities) with respect to the prospects or performance of these Mutual Funds. The investor has the discretion to buy all or any of the Mutual Fund units forming part of any of the indicative portfolios

on icicidirect.com. Before placing an order to buy the funds forming part of the indicative portfolio, the investor has the discretion to deselect any of the units, which he does not wish to buy. Nothing in

the indicative portfolio constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to the investor's specific circumstances.

The details included in the indicative portfolio are based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its

accuracy or completeness guaranteed. The funds included in the indicative portfolio may not be suitable for all investors, who must make their own investment decisions, based on their own

investment objectives, financial positions and needs.

This may not be taken in substitution for the exercise of independent judgement by any investor. The investor should independently evaluate the investment risks. ICICI Securities and affiliates accept

no liabilities for any loss or damage of any kind arising out of the use of this indicative portfolio.

Past performance is not necessarily a guide to future performance. Actual results may differ materially from those set forth in projections. ICICI Securities may be holding all or any of the units included

in the indicative portfolio from time to time as part of our treasury management. ICICI Securities Limited is not providing the service of Portfolio Management Services (Discretionary or Non

Discretionary) to its clients.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

Kindly note that such research recommended funds in indicative portfolio are not based on individual risk profile of each customer unless a customer has opted for a paid Investment Advisory Service

offered by I-Sec.

Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

The information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any

other person or to the media or reproduced in any form, without prior written consent of ICICI Securities Limited. The contents of this mail are solely for informational purpose and may not be used or

considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. While due care has been taken in

preparing this mail, I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any inaccurate, delayed or incomplete information nor for any actions taken in reliance

thereon. This mail/report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where

such distribution, publication, availability or use would be contrary to law, regulation or which would subject I-Sec and affiliates to any registration or licensing requirement within such jurisdiction.

ICICI Securities and/or its associates receive compensation/ commission for distribution of Mutual Funds from various Asset Management Companies (AMCs). ICICI Securities host the details of the

commission rates earned by ICICI Securities from Mutual Fund houses on our website www.icicidirect.com. Hence, ICICI Securities or its associates may have received compensation from AMCs

whose funds are mentioned in the report during the period preceding twelve months from the date of this report for distribution of Mutual Funds or for providing marketing advertising support to these

AMCs. ICICI Securities also provides stock broking services to institutional clients including AMCs. Hence, ICICI Securities may have received brokerage for security transactions done by any of the

above AMCs during the period preceding twelve months from the date of this report.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive

any compensation or other benefits from the AMCs whose funds are mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities

nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Sachin Jain, CA, and Jaimin Desai, CA, Research Analysts of this report have not received any compensation from the Mutual Funds house whose funds are mentioned in the report

in the preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or is associates may be holding all or any of the units included in the indicative portfolio from time to time as part of our treasury management. Hence, ICICI Securities or its associates

may own 1% or more of the units of the Mutual Funds mentioned in the report as of the last day of the month preceding the publication of the research report.

Research Analysts or their relatives of this report do not own 1% or more of the units of the Mutual Funds mentioned in the report as of the last day of the month preceding the publication of the

research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies/ AMCs including the AMCs

whose funds are mentioned in this report or may have invested in the funds mentioned in this report .

ICICI Securities also distributes Mutual Fund Schemes of ICICI Prudential Asset Management Company which is an ICICI Group Company, scheme details of which might also be appearing in the report

above. However, the transactions are executed at Client's sole discretion and Clients make their own investment decisions, based on their own investment objectives, financial positions and needs..

It is confirmed that Sachin Jain, Research Analysts do not serve as an officer, director or employee of the AMCs whose funds mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies/funds mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such

distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction.

The funds described herein may or may not be eligible for subscription in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to

inform themselves of and to observe such restriction.

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