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Shilpa KumarMD & CEO

ICICI Securities Ltd.

Exchange Traded Funds have

been of great interest in the

recent years. They provide a low

cost and rule based investment

opportunity in the markets. In

simple terms, ETFs are mutual

funds that trade on a stock

exchange. While ETFs share a

few similar traits with mutual

funds; it is their resemblance to

stocks that has gained traction

among investors. They represent

a basket of securities that tracks

indices such as Sensex or Nifty,

much like index mutual funds.

E T F s e x p e r i e n c e p r i c e

fluctuation throughout the day.

This flexibility of trading proves

beneficial to exit and enter at a

defined price. In addition ETFs are rule based which ensures that

the strategy of investment is well known in advance. Most ETFS

track an index and do not aim at beating the index.

Our ETF industry has come a long way since its foundation in 2001.

This is propelled by the success of Gold and CPSE ETFs amongst

retail investors and channeling of part of employee provident

funds into markets by the EPFO. As per a Bloomberg report in

2017, India was world's second-fastest growing exchange traded

funds (ETF) market, behind only Japan.

The ETF industry is still at a nascent stage in our country. This is

partially due to lack of knowledge about the product. Globally,

specifically in the US, the interest in ETFs has grown many times,

given its success in returns, innovations and availability of diverse

underlying assets. In order to attain similar market outcome in

India, we need a large number of participation by Indian investors

and more importantly, awareness about ETFs. An understanding

how ETFs differ from their conventional counterparts and their

role in our portfolio is important.

ETFs are more cost-effective than traditional mutual funds given

that they are managed passively. Tracking error is another gain for

ETFs over conventional index funds. Tracking error is the

difference between returns of the fund (ETF or index) and the

returns generated by target index.

Then there are advantages of getting listed on stock exchange.

Since ETFs are traded like stocks investors enjoy benefits of short

selling and buying on margin. Plus, ETFs make a potential tool for

gaining instant exposure to the security markets through cash

equitization. In some cases, investing in ETFs can be wiser than

single stock investments. This is because ETF spreads its risk

across different assets instead of focusing on specific firm's stock.

This can help mitigate losses occurred during downtrend of the

market

Exchange-traded funds are very powerful instruments to diversify

ones investing strategies. A combination of active and passive

management can effectively harness the result by using each

strategy to minimize risks caused by the other. ETFS are also

suited for new to markets customers especially through a

Systematic Equity Plan.

ETFs are indeed one of the key innovations in the financial markets

that is creating lot of interest and value for investors.

Our message remains the same – “Keep investing and stay

invested for your life goals.” Through this magazine and our

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

to partner with you in setting and achieving your financial goals.

Give us an opportunity to serve you, walk into any of your

Neighbourhood Financial Superstore and talk to us.

ICICIdirect Money Manager April 20181

Investing in exchange-traded funds (ETFs) is becoming an important investing instrument because of their simplicity and effectiveness. ETFs try to mimic the performance of indices. These indices can be a simple market-cap index (likeNifty o r Sensex) or a factor index. Because indices are rule based, investing in ETFs are cost effective and transparent with respect to the investment strategy. ETFs can be purchased on exchange on real time price that changes depending on the demand and supply in the market. So though behave like Mutual Funds, they trade like a share.

Exchange Traded Funds can play a very important role in your core portfolio. Since they are broad based and do not chase an active investment strategy, they usually capture the returns of the market. In India, the ETFs are gaining traction and a deeper knowledge about them is likely to bring in more clarity on where they fit in an investment strategy. Our April edition of the magazine is an extended account of ETF guide. We explain the structure and mechanism of exchange traded funds, types of ETFs and draw their comparison with actively managed investments.

This edition also covers an interview with S Naren, ED & Chief Investment Officer, ICICI Prudential AMC and Gauri Sekaria, ETF fund manager, DSP Black Rock. They believe that passive space has grown to a significant size over the last few years and that proposed CPSE Debt ETF and new products like Smart Beta ETFs &Commodity ETF are expected to garner notable subscriptions. Their take on ETF market in India is definitely worth a read.

In the fund recommendation section, our observation is that the infrastructure segment remains well placed to offer a better investment opportunity. Various segments like roads, railways, ports, oil & gas, defense and housing have beenkey thrust areas of the government. On this background, ICICI direct research team recommends Aditya Birla SL Infrastructure Fund, L&T Infrastructure Fund and Reliance Diversified Power Sector Fund to be part of you're the maticallocation.

I would also like to draw your attention to our revised Equity Model Portfolio and Prime Numbers - with inclusion of more data points and indicators - to let you have a comprehensive overview. So read on, stay updated and involved. Do w r i t e i n w i t h y o u r f e e d b a c k a n d s h a r e y o u r t h o u g h t s [email protected].

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


Editor & Publisher : Abhishake Mathur, CFA

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

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

Coordinating Editor : Namrata Lonkar

2


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

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

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

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

Stock ideas:Phillips Carbon Black &TeamLease Services.......................5

Flavour of the Month: All you need to know about exchange-traded funds

(ETFs)

In spite of being one of the fastest growing ETF markets in the world,

a lot of us are unaware about the concept & functioning of ETF.Thus,

our cover story of this month is a handbook of exchange-traded

funds. We try to explain creation of ETF, its types, characteristics,

advantages, disadvantages and more................................................14

Tête-à-tête: ETF landscape in India & their performance in near future

In talk with Sankaran Naren, ED & CIO, ICICI Prudential AMC & Gauri Sekaria,

ETF fund manager, DSP Black Rock......................................................... ...27

Ask Our Planner

Our financial expert answers how insurance policies are evaluated

for taxation? And your other personal finance queries..................... 33

Mutual Fund Analysis

Which are the top performing mutual funds in current market

scenario? Check these top infrastructure funds recommended by our

research team...................................................................................... 37

This month on iCommunity

Take a look at the latest activities on our unique information

platform- iCommunity (for April2018).................................................47

Equity Model Portfolio .............................................................................48

Quiz Time ...............................................................................................52

Prime Numbers .......................................................................................53

Players in the gems and jewellery sector have complained that, of late, banks are not giving them loans, which is hindering their expansion plans. However, bankers told dna that while there was no blanket guideline on the part of the banking regulator or bank managements, individual banks may be limiting their exposure to the sector after the recent PNB scam.Dinesh Navadia, regional chairman of Gems and Jewellery Export Promotion Council (GJEPC ) said that loan applications were getting rejected even though SMEs were offering collaterals.Navadia said he had written a letter to local MP CR Patil about the crisis. According to him, the government should act in the matter as the sector creates many jobs.

Courtesy: DNA

Banks not lending to players in gems and jewellery sector: GJEPC

Bitcoins worth Rs 20 crore stolen from exchange in India's biggest crypto theft

Nearly 438 bitcoins worth over Rs 20 crore were stolen from a top exchange firm in India in what is being billed as the biggest cryptocurrency theft in the country so far. Coinsecure, the Delhi-based cryptocurrency exchange, has filed an FIR with the cyber cell accusing its CSO, Amitabh Saxena, of siphoning off the money from the firm's wallet, ET's Nilesh Christopher reported. The exchange has urged the government to seize Saxena's passport, fearing that he may leave the country. The company tried to trace the hackers, but found that all the data logs of the affected wallets had been erased, leaving no trails about where the bitcoins were transferred. The website of the company has since then remained shut.

Courtesy: Economic Times


Coal shortage is still affecting the efficacy or capacity utilisation (Plant Load Factor) of independent power projects in the country. This may lead to a spike in spot prices of electricity on exchanges this summer, according to experts.According to the latest Central Electricity Authority (CEA) data, the Plant Load Factor (PLF) of the independent power projects (IPPs) was 52.54% in February 2018 compared to 59.54% a year ago.However, as per data, the PLF of central sector projects rose to 76.59% in February from 72.93%.

Courtesy: The Hindu

Coal shortage at power plants may push up spot prices in summer

LTCG impact: Equity MF inflow down 59% to Rs 66.57-billion in March

Equity mutual funds witnessed a net inflow of Rs 66.57 billion in March, a plunge of 59 per cent from the preceding month, due to volatile stock markets along with profit-booking by investors to avoid payment of LTCG tax.Finance Minister ArunJaitley, in his budget speech, had announced LTCG tax of 10 per cent on equity gains beginning February 1, 2018 - on gains exceeding Rs 100,000.Later, the government clarified that the proposed LTCG tax on equity holdings will apply on profits made from sale of shares on or after April 1, 2018.

Courtesy: Business Standard

4

STOCK IDEAS


Phillips Carbon Black – Sustainable profitability lies ahead

Company Background

Phillips Carbon Black (PCBL) is

an RP Sanjiv Goenka group

cpmpany (CESC promoter

g r o u p ) . T h e c o m p a n y

manufactures carbon black

domes t i ca l l y. PCBL was

incorpora ted in 1960 in

collaboration with Phillips

Petroleum Company, US. In

1988, PCBL entered into a

technical collaboration with

C o l u m b i a n C h e m i c a l s

Company, US. PCBL's first

plant for manufacturing carbon

black was set up in Durgapur

(West Bengal) with an installed

capacity of 14 KT, which

commenced production in

1962. As of FY16, PCB has four

p l a n t s a c r o s s I n d i a

manufacturing carbon black

with associated waster heat

r e c o v e r y p o w e r p l a n t s ;

Durgapur, West Bengal (147

KT, 30 MW); Mundra, Gujarat

(140 KT, 30 MW); Palej, Gujarat

(95 KT, 12 MW); Kochi, Kerala

(90 KT, 10 MW). Producing

power from waste gases

makes PCBL a carbon neutral

company.

Investment Rationale

Carbon black; robust product

demand domest ica l ly ; PCBL

industry leader

Carbon black is used as a

r e i n f o r c e m e n t m a t e r i a l

providing tensile strength to

tyres. It is a critical component

for manufacturing tyres and

forms ~23% by volume of the

tyre weight and ~10% by value

of tyre costs. In India, total

capacity for manufacturing

carbon black as of FY17 was at

1 million tonne (MT) with

consumption at ~0.8 MT. PCBL

with a capacity of 411 KT is the

largest player domestically

with market share of ~40%.

Demand prospects for carbon

black are also robust amid

healthy demand growth in

automobile and, consequently,

tyre industry space and supply

constraints from China (largest

player globally). Domestic

sales volume in FY17 was at

294 KT vs. 243 KT in FY16, up

21% YoY. Going forward, PCBL

being the largest player is

indeed a proxy play on the

robust domestic automobile

5


STOCK IDEAS

industry.

Volume led growth coupled by

value added offerings to drive

earnings in FY18-20E

PCBL, is currently executing a

de-bottlenecking exercise,

which coupled with brownfield

expansion will augment its

capacity by ~80,000 tonne

(411,000 tonne currently), with

l i ke ly commiss ion ing in

FY18E-19E. This will ensure

volume led growth to sustain

at PCBL. We expect PCBL to

report sales volume of ~440

KT in FY19E and ~ 460 KT in

FY20E, implying a volume

CAGR of 6.0% in FY18E-20E.

This coupled with increasing

share of special ty grade

carbon black & operational

efficiencies on account of

better sweating of assets will

result in ~100 bps expansion

in EBITDA margins. We expect

P C B L t o r e p o r t E B I T DA

margins of 16.7% in FY20E vs.

1 5 . 7 % i n F Y 1 8 E .

Corresponding EBITDA/tonne

is expected at | 11325/tonne in

FY20E vs. | 10627/tonne in

FY18E. Consequently, we

e x p e c t P C B L t o s t a g e

impressive 17.5% PAT growth

in FY18-20E, with a base

revision in the current fiscal of

FY18E. We expect PCBL to

report PAT of | 241 crore in

FY18E vs. | 73 crore in FY17.

G o i n g f o r w a r d , PAT i s

expected at | 291 crore in

FY19E and | 335 crore in

FY20E.

Improving return ratios, financial

matrix; deserves better valuation,

maintain BUY

PCBL has promptly de-risked its business model from the fluctuations of commodity price viz. crude with the company incorporating full variable cost pass through in contracts with all its key customers. This protects the company from fluctuating profitability as witnessed in the past and adds strength/moat to its business profile. On the balance sheet front, PCBL has reduced its debt in FY17 to the tune of ~| 350 crore with consequent debt: equity at 0.7x. PCBL has successfully turned around its operations & is now clocking healthy ~16% EBITDA margin with core return ratios (RoE, RoCE) in excess of 25% (FY18E-20E), thereby traversing into a

6


STOCK IDEAS

7

Stock Data

Key Financials

Valuations Summary

` crore FY17 FY18E FY19E FY20E

Net Sales 1927.1 2723.5 2983.4 3127.1

EBITDA 260.2 428.8 487.3 522.0

EBITDA (%) 13.5 15.7 16.3 16.7

Net Profit 72.8 241.5 290.7 334.9

EPS 21.1 70.1 84.4 97.2

FY17 FY18E FY19E FY20E

P/E 51.9 15.6 13.0 11.3

Target P/E 80.5 24.3 20.1 17.5

EV / EBITDA 16.7 10.0 8.7 7.6

P/BV 3.7 3.0 2.5 2.1

RoNW 13.8 31.3 28.7 26.1

RoCE 16.5 26.3 26.6 24.9

ROIC 16.1 27.1 25.6 26.7

Market Capitalization 3773.4

Total Debt (FY17) 677.0

Cash and Cash Equivalent (FY17) 115.6

Enterprise Value 4334.8

52 week H/L (|) 1595 / 355

Equity Capital 34.5

Face Value | 10

MF Holding (%) 3.2

FII Holding (%) 14.1

different orbit altogether vs. perception of a commodity play in the past. Furthermore, the current tightness in the carbon black market and pos i t ive commentary by industry players augur well for

P C B L . A l l t h e s e f a c t o r s c u m u l a t i v e l y c a l l f o r a valuation upgrade, thereby allowing us to value PCBL at | 1700 i.e. 17.5x P/E (1x PEG) on FY20E EPS of | 97.2. We assign a BUY recommendation on the stock.


STOCK IDEAS

8

Key risks include:

Carbon black price; crude linked; inherent volatility

The realisation of carbon black largely tracks crude prices as it utilises CBFS as its key raw mater ia l , which is a crude derivative. Therefore, realisations are subject to a lot of volatility given volatile crude prices. As an industry practice, in terms of carbon black pricing, companies operate with a quarterly price lag i.e. average of daily crude price during the current quarter (April-June) is used to determine/fix the carbon b lack pr ice for the subsequent quar te r ( Ju ly-September), which makes them susceptible to pricing risk unless one has the capacity to hold the inventory for the entire quarter. Since PCBL operates with around 45 days of inventory, it is also susceptible to pricing risk and has limited ability to hedge the same. Therefore, sharp swings in crude price may result in volati le realisations and consequent volatile profitability for industry

participants including PCBL, going forward.

High forex exposure; hedging costs

PCBL primarily imports its CBFS requi rements wi th imports constituting a healthy 79% of its entire raw material needs (| 1057 crore in FY17). PCBL also exports carbon black to other countries with the share of exports to gross sales at ~21% (| 347 crore in FY17). This indeed makes PCBL a net importer and is susceptible to forex risk (US$). The company gains from rupee appreciation and is worse off from depreciation. All short-term borrowings are also dollar denominated (| 487 crore). Hence, even this is susceptible to forex r i sk . PCBL spends a considerable amount as hedging costs (| 27 crore in FY17) and still i n c u r s t r a n s l a t i o n a l f o r e x losses/gains due to adverse currency movement. Going forward, therefore, any adverse movement in currency beyond hedged limits may impact its profitability.


STOCK IDEAS

ANALYST CERTIFICATION We /I, Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets), Research Analysts, authors and the names subscribed to this report, hereby

certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part

of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. 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, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

This report is 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. This report and information herein is solely for informational purpose and shall 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. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.

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 companies 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 Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets), Research Analysts of this report have not received any compensation from the companies 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 its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company 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 including the subject company/companies mentioned in this report.

It is confirmed that Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets). Research Analysts do not serve as an officer, director or employee of the companies 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 mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity 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 securities

described herein may or may not be eligible for sale 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.

report and information herein is solely for informational purpose and shall 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. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to

change without notice.




ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report.

It is confirmed that Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.


9


STOCK IDEAS

TeamLease Services – A structural growth story!!!

Company Background

TeamLease (TLS), established

in 2002, is one of India's leading

providers of human resource

services in the organised

segment with ~6% market

share in the f ragmented

general staffing business. It

was co-Founded by Manish

Sabharwal (Chairman) and

Ashok Kumar Nedurumalli (MD

& CEO). In line with its strategy

to expand its addressable

market to areas of staffing and

improve its EBITDA margins,

T L S h a s f o r a y e d i n t o

specialised staffing such as IT

and telecom through the

inorganic route. Company's

topline has grown at a healthy

CAGR 26.9% to | 3042 crore in

FY12-17. Growth was driven

b y t h e g e n e r a l s t a f f i n g

business, which grew at 26.7%

CAGR to | 2945 crore during

the same period. Going ahead,

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

temporary staffing in India in

conjunction with TLS' core

expertise in general staffing

and primary focus in India

would provide an immense

opportunity for sustainable

growth.

Investment Rationale

Leadership position in general

staffing industry…

TLS is India's leading staffing

company in the organised

space with an overall market

share of ~6%. In terms of

associate count, it is also the

largest staffing company in

India. With its core expertise in

general staffing and focus on

India, the company is ready to

grab the opportunity in the

least penetrated temporary

staffing market in India (0.5% in

2015 vs. global average of

1.7%). We believe penetration

in the temporary staffing

market should rise through

favourable industry dynamics

like formalisation of economy,

G S T & o t h e r r e g u l a t o r y

reforms. Hence, we expect

general staffing revenues to

grow at 20.9% CAGR to | 4,917

crore in FY18E-20E.

Expanding into specialised staffing

through prudent acquisitions…

T L S h a s e x p a n d e d i t s

10


STOCK IDEAS

11

addressable market to high

margin specialized staffing

such as IT and telecom (four

out of six targets in the last two

years) through the inorganic

route in a prudent manner (4-

6x EV/EBITDA on an LTM

basis). These acquisitions

should increase specialised

revenue contribution from

~2% in FY17 to ~7% in FY20E

r e s u l t i n g i n a 7 0 b p s

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

EBITDA margin to 2.5% in

FY18-20E.

Niche play on staffing business;

BUY…

With its leadership position in

general staffing, we believe

TLS is set to reap the benefits

through structural changes in

i n d u s t r y d y n a m i c s .

Consequently, we expect TLS'

adjusted earnings to grow

robustly at 35.7% during

FY18E-20E. Considering the

robust growth trajectory and

strong return ratio (RoIC –

28.6% in FY19E), we have a

BUY recommendation on TLS

with a DCF based target price

of | 2660/share (implied PE

multiple of 29.9x).

Valuations Summary

Key Financials

` Crore FY17 FY18E FY19E FY20E

Net Sales 3042 3612 4417 5382

EBITDA 44 65 102 135

Net Profit 66 73 112 152

EPS (`) 38.8 42.5 65.4 89.1

FY17 FY18E FY19E FY20E

P/E 57.2 52.2 34.0 24.9

Target P/E 68.6 62.5 40.7 29.9

EV/EBITDA 82.4 56.2 34.8 25.6

P/BV 10.0 8.4 6.7 5.4

RoNW (%) 17.4 16.0 19.8 21.7

RoCE (%) 15.4 15.4 18.9 20.7


STOCK IDEAS

12

Stock Data

Market Capitalization (` Crore) 3,796.0

Total Debt (` Crore) 23.4

Cash and Investments (` Crore) 169.6

EV (` Crore) 3,649.8

52 week H/L 2537 / 1021

Equity capital 17.1

Face value 10.0

DII Holding (%) 14.7

FII Holding (%) 24.6

Key risks include:

Insourcing of associates by clients…

TLS enjoys huge benefits under

section 80JJAA of the Income Tax

Act on account of net employee

addition. Going ahead, clients

may either directly look at client

insourcing to avail the benefits

themselves or may ask for

benefits to be passed through

p r i c i n g . A s o f n o w , t h e

management has indicated that it

has not seen such k ind of

scenario. If it happens in future, it

may impact TLS' profitability.

Also, with advancements in

technology and drive towards

a u t o m a t i o n c o u l d i m p a c t

company's business.

Higher compet i t ion and lower

margins…

The Indian staffing market is

c u r r e n t l y d o m i n a t e d b y

unorganised players, which

account for ~70% market share.

With a highly fragmented industry,

pr ice competit ion becomes

intense, making it difficult for

organised players to see an up-

tick in pricing. Moreover, TLS

operates on wafer thin margins on

account of a higher proportion of

general staffing business, which is

a l o w e r m a r g i n o n e . A n y

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

competition by organised players

cou ld potent ia l ly l imi t the

company's ability to maintain

p ro f i t ab i l i t y. However, we

highlight that structural reforms

like GST and other reforms should

help the company sail through the

competitive field and benefit from

a consolidation in the industry.


STOCK IDEAS

ANALYST CERTIFICATION We /I, Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts, authors and the names subscribed to this report,

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

also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in

this report.

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ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

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instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.




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 companies 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 Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.


ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company 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 including the subject company/companies mentioned in this report.

It is confirmed that Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

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We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity 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 securities described herein may or may not be eligible for sale 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.

13

FLAVOUR OF THE MONTH

All you need to know about exchange-traded funds (ETFs)


ETFs have gained wide acceptance as a financial instrument worldwide. However, in India, not many investors know about this passively managed investment vehicle. In spite of being one of the fastest growing ETF markets in the world, a lot of us areunaware about the concept & functioning of ETF. Considering the fact that our ETF market has seen twofold growth in three years, we can say there's a lot of potential for progress. As of now there are more than 60 ETFs in India. And with the government's initiatives to encourage ETF investments, the need to understand ETF has become more essential than ever. Thus, our cover story of this month is a handbook of exchange-traded funds.We try to explain creation of ETF, its types, characteristics, advantages, disadvantages and more. Read on to find out all about it…

14

The concept of ETF (exchange -

traded funds)

In the simplest terms, ETFsare

index mutual funds that trade

on a stock exchange.It's a

basket of securi t ies that

essentially tracks indices. They

are traded like regular stocks,

which means they can be

bought and sold anytime

during trading hours, hence

going through price fluctuation

throughout day. ETFs were

introduced in Indian equity

market more than a decade

ago

What does tracking an index mean?

An index is a pool of selected

stocks represented in a single

base figure. It is a meter

measuring changes in prices

a n d p e r f o r m a n c e . F o r

example, BSE Sensex is an

index that consist 30 stocks. In

other words, BSE Sensex

represents a segment of

market (30 companies in India).

Similarly, an index consisting

IT stocks represents selective

IT companies and hence the

sector. An index is used as a

benchmark, something to

compare market movement

against. So when underlying

stocks are doing well, the value

of index also rises and vice

versa.

Index invest ing or index

tracking is an investment

approach to match the market

returns. This is a passive

investment strategy wherein

investor's goal is to obtain

market returns instead of



beating it. An alternative

approach to this is active

investing, where the investor

has to attentively select the

stocks and follow up in order to

outperform the market results.

Here, the investor's goal is to

make more than average

returns, which requires more

efforts, consistent research

and knowledge about the

market.

ETFs create portfolio that

represent certain indices. This

way an investor can avail

returns in tandem with the

market or segment of the

market.

Active &passive investing

An investment strategy that

aims at giving better returns

than market is considered as

a c t i v e i n v e s t m e n t . ( Fo r

example, trading of individual

stocks) On the other hand,

when objective is to merely

m a t c h t h e m a r k e t

performance, it is known as

passive investing.Here, aim is

to produce returns in line with

the benchmark. (For example,

ETF or index funds)

Source: Income research

ETFs are one of the most

s u c c e s s f u l i n v e s t m e n t

vehicles that are managed

passively. They provide a

flexible and low-cost way to

generate market-a l igned

returns. They were introduced

in India in early 2000 and are

h e n c e l e s s p o p u l a r a s

compared to conventional

investment products. So, let's

first understand how they are

created and what are their

salient features.



The Creation/Redemption

Mechanism of ETF

The prospective ETF company

first takes approval from the

regulator (SEBI) to create an

ETF. Then they approach an

authorized participant who has

greater purchasing power. An

authorized participant (AP) can

be a financial institution,

market maker or any specialist

in the field. The AP acquires

securit ies from the open

market to create ETF units. For

e x a m p l e , w h e n a n E T F

company wants to create a

fund to track Nifty 100 index,

the AP purchases all securities

under Nifty 100 index in same

proportion as the index and

hand i t over to the ETF

company. The company then

offers a block of ETF shares to

the AP, known as creation unit.

These shares are traded on the

open market like stocks.

AP ' s job i s to a rb i t rage

d i f ferences between the

underlying securities that are

being tracked and the price of

ETF shares. This is done by

purchasing more underlying

assets form the market to

convert into ETF shares when

price of the ETF rises above

underlying NAV. This may

happen due to increased

demand. Similarly, when ETF is

traded at a discount price, AP

purchases the same ETF and

redeem for the underlying

holdings. Hence, APs provide

liquidity to the fund and sustain

their price in line with value of

t h e s e c u r i t i e s u n d e r

corresponding indices.

T h e b i g g e s t b e n e f i t o f

c r e a t i o n / r e d e m p t i o n

mechanism is that it is low cost

process as compared to

traditional mutual funds. In

traditional fund schemes more

than one entity is involved in

the process of purchase and

sell of securities, which means

extra commissions, fees and

distribution charges. In case of

ETF, authorizing participants

carry most of the work and

even bear trading costs or

additional fees. This brings

down the ultimate expenses of

fund management.



Secondary

Market

(Stock

Exchange)

Secondary

Market

(Stock

Exchange)

Authorized

participant

(AP)

Exchange-

traded fund

(ETF)

Authorized

participant

(AP)

Exchange-

traded fund

(ETF)

Redemption process

Creation process

AP buys creation

basket

AP sells ETF shares in

the secondary market

AP delivers creation

basket

AP receives new ETF

shares

AP buys ETF shares in

the open market

AP sells securities in

the secondary market

AP delivers ETF shares

to the fund house

AP receives portfolio of

underlying securities

NAV (net asset value)

The NAV of a fund is sum of its

underlying assets (shares,

bonds, commodities, cash or

any other securities) less any

liabil it ies, divided by the

number of outstanding shares.

This is calculated regularly at

the end of the day. The NAVof

an exchange-traded fund

keeps changing in real time as

it is traded on exchange. When

the market closes, final trading

price is locked down as NAV

for that particular ETF, until it's

opened for trading again.

Transparency

For any investor, the more

transparent a product, the

easier it becomes to make a

choice of buying it or rejecting

it. Transparency adds up to

worthiness of the product.One

of the distinguishing features

of ETFs is that they provide

m o r e t r a n s p a r e n c y a s

compared to conventional

mutual funds. Mutual fund

manager discloses details of

portfolio once in every quarter.

In the interval between two

reports the investor is not

updated with alterations done

in the scheme or new risks

adopted by fund managers.

The NAV of an open-ended

mutual fund is disclosed at the

end of the day. In case of an

ETF, investors are able to see



even the slightest fluctuation in

the NAV throughout the day.

Moreover, investors have an

easy access to ETF portfolio as

details of fund's holdings are

displayed online. This data is

updated on a daily basis.

The future growth of global ETFs: Market analysis and forecasts 2017 to 2020

(Net assets in US$ trillions)

Source: Morningstar Direct

Risks associated with ETFs

Market risk

Since ETFs represent their

underlying securities, their

performance is bound to go up

and down in accordance with

these market securities. Surely

the investor can mitigate risk

by spreading his money across

wide range of holdings, he

cannot altogether avoid it. A

smart way to tackle market risk

is by adopting balanced asset

allocation strategy.

Liquidity risk

Not all ETFs have a high trading

volume or large holding base.

For an ETF with low trading

volume or average asset base,

liquidity risk raises major

concern. In such a scenario,

closing a position (redeeming)

b e c o m e s d i f f i c u l t .

Consequently, the investor

may sell his ETF for a lower

price and incur loss.

Tracking error risk

Tracking error is the difference

between the returns generated

by an ETF and that of its

corresponding index. This

difference may occur and differ

depending upon the speed of

the stock exchange and trading

volume. Although ETF should

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

generated by underly ing



index, there is likely to be a

s l ight r isk of d is t inct ion

between the two.

Also, two ETFs tracking the

same index can give different

returns at the same time. They,

thus, have different tracking

errors.This happens mainly

due to changes in expense

ratio or management style of

the fund company.

ETFs in India

AUM and number of ETFs in India (as on March 31, 2017)

Source: SEBI Annual Report 2016-17

According to a SEBI research report, the AUM of exchange traded funds (ETFs) in 2016-17

increased remarkably by 122.8 per cent,

ETF vs Single stock investment

Stocks and ETFs share more

similarities than differences.

It's almost a tie between the

two when it comes to ease of

transaction, lower fees, short

selling, margin rules& liquidity.

H o w e v e r, i n v e s t i n g i n

individual stocks is likely to

bear more risk than ETFs, as

ETF Individual stocks

Traded throughout the day?

Yes

Yes

Bought on margin?

Yes

Yes

Short selling/ options available? Yes Yes Tax-free long-term capital gains? Yes Yes Level of diversification

High

Low (unless invested in

multiple stocks)



l a t t e r h a v e d i v e r s i f i e d

exposure across different

companies. Since that is not

the case with selective stock

strategy, ETFs have a slight

edge over stocks.

Also, a person has to invest

more time and effort while

purchasing stocks. In this type

of active trading, the investor

h a s t o f o l l o w m a r k e t

movements closely. ETFs are

by default structured to track

the market performance (not

beat it), thus saving investors

fromtedious research and

follow-up.

ETFsvs individual stocks

ETF vs mutual fund

ETFs are commonly known as

mutual funds traded on stock

exchange. Nevertheless, there

are significant differences

between the two. A key

difference being, style of

investing. Mutual funds are

generally appreciated for their

active management strategy.

ETFs, on the other hand are

passively managed. But they

offer more flexibility when it

comes to trading by facilitating

intraday investment option.

ETFs can also be bought on

margin and sold short. It may

not seem a rightful option for a

long-term investment, but

speculators and active traders

can certainly add diversity to

their portfolio with the help of

exchange traded funds.

Since ETFs are managed

passively their expense ratio is

relatively lower than traditional

mutual funds. While most

m u t u a l f u n d s t y p i c a l l y

chargetotal expense ratio

(TER)anywhere between 1-3

%, the same for ETF is marked

below 1%. TER includes costs

of managing and operating the

fund, and is charged to the



o v e r a l l h o l d i n g s o f t h e

scheme. A mutual fund's NAV

is drawn after deducting this

amount. Actively managed

mutual funds extract operating

fees from investors because

fund managers o f these

schemes consistently work

towards providing market-

beating returns.

B u t r e m e m b e r , l o w e r

management cost cannot

a lone make a par t i cu la r

product viable. One should

take financial circumstances

into account as well. In order to

ach ieve f inanc ia l goa ls ,

investors need a combination

o f a c t i v e a n d p a s s i v e

instruments.

ETF vs Mutual funds

ETF Mutual funds

NAV Fluctuates in real time

Finalized at the end of the day

Transparency Portfolio details published daily

Portfolio holdings disclosed

monthly/ quarterly

Expense ratio Lower Higher (due to active

management of the fund)

Withdrawal charges

None

Exit load as per scheme’s terms

Intraday trading Available Not available

ETF vs index funds

These are the two most popular instruments of passive investing. Structured in similar ways, both ETFs and index f u n d h a v e p o t e n t i a l t o outperform actively-managed mutual funds in the long run. Neither poses a management risk, i.e. the risk of incurring loss due to fund manager's stock selection choices.

A point of difference occurs over NAV of the funds. Here, an advantage ETFs have over index funds is that they (ETFs) can be traded throughout the

day at real time NAV.The NAV of an index fund is calculated just like traditional mutual funds- at the end of the trading day. However, an investor must have a demat account to be able sell or purchase and ETF, which is not the case with regular index mutual fund.

Expense ratio of an index fund is usually lower than traditional mutual funds, but slightly higher than ETFs. But one must fac tor in brokerage and securities transaction tax (STT) charged on ETF before making the final choice.



ETF vs Index funds

ETF Index funds

Price movement throughout the day Yes No

Expense cost Lower

Slightly higher than ETFs

Require demat account to operate

Yes

NO

Intraday trading Available

Not available

Provides diversification while minimizing risk Yes Yes Can place stock orders (short selling/

options/ margin )

Yes No

Tracking error Depends on the speed

of exchange and

trading volume

Depends on the fund

management company

Types of ETF

Index ETF

Index Exchange Traded Funds are the oldest and most common of the ETF product offerings.

Index ETFs acquire securities in amounts that proportionately reflect the securities of an

existing index in a given market. By investing in them an investor can get the benefit of broad

diversification that replicates the performance of the underlying index.

Gold ETF

Gold ETFs provide investors the route of participation in the bullion market without the

necessity of taking physical delivery of gold. The units of these ETFs can be bought or sold at

the stock exchange where it is listed on a real-time basis. Investing in physical gold requires

large amounts of money, whereas Gold ETFs allow investments in small denominations

through Systematic Investment Plans (SIPs).

Prices of gold ETFs move hand on hand with that of physical gold. When the price of gold

moves up, the value of ETFs appreciates and vice versa.

Bank ETF

Bank ETFs invests in stocks of banks listed on the index that it follows. Bank exchange traded

funds are extremely volatile and maintain a high liquidity.

Banks are the epicenter of all the financial activities, be it the forex market, credit market or

others. Due to its high volatility and liquidity, bank ETFs can be easily traded on margins.

Smaller or big traders can easily track the price movements and go short or long depending

on the favorable situations.

Liquid ETF

Liquid ETFs try to enhance returns and minimize price risk by investing in a basket of call

money, short-term government securities and money market instruments of short maturities

while maintaining safety and liquidity.

International ETF

AN international ETF is an ETF that invests in foreign based securities. They are invested

passively around an underlying index, but the index may vary substantially from one fund

manager to another. Some funds, especially those with a wide global footprint can provide

strong diversification by investing in hundreds of companies.



Things to consider before buying an

ETF

A f i n a n c i a l d e c i s i o n a s

impor tant as mak ing an

investmentshould be taken

after considerable thought and

research. Now that you know

what an ETF is and how it

functions here are some things

you should keep in mind

beforeinvesting in it.

· I n v e s t m e n t o b j e c t i v e a n d

term

The purpose of an investment

is the most basic and important

aspect to factor in. Why are

you opting for ETFs? Are you

targeting a particular sector or

industry? Are you trying to

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

volatility? It is easier to pick the

right ETF when you have firm &

c l e a r o b j e c t i v e b e h i n d

investing.

Same goes for investment

horizon. Some ETFs produce

above average returns in the

long haul while some are

suitable for short run only.

Determining the investment

period is thus equally crucial.

· Cost

Although cost effectiveness is

one of the advantages ETFs

over mutual funds, all ETFs are

not uniformly charged. Two

ETFs may track same index but

differ in management fees.

H o w e v e r m a r g i n a l t h e

difference, it's better to take

everything from trading fees to

operating commission into

consideration.

· Liquidity

Liquidity of an ETF depends on

three elements – trading

volume, fund's composition

and financial environment.

Trading volume refers to the

number of times a particular

security is traded during given

trading period. The more the

trading volume, the better

c h a n c e s o f s e l l i n g o r

redeeming your funds. In this

case , t rad ing vo lume of

u n d e r l y i n g s e c u r i t i e s

(individual) as well as of the

entire ETF basket affect fund's

liquidity.

Composition of ETF means the

structure or basis on which an

ETF is built. Asset class, market

capitalization, sector are a few

categories of ETF composition.

For example, an ETF focusing



on equity asset has more

liquidity than a real estate ETF.

Similarly, ETFs that invest in

large-cap companies are more

liquid than their peer funds.

This is because large-cap

companies are more popular

among investors, and their

stocks experience higher

demand than mid or small cap

stocks.

As for financial environment,

companies in developed

nations are likely to give safer

returns than companies in an

emerging economy. ETF

investing in these secure

environment are apt for a

person with moderate or

conservative risk appetite.A

side benefit is thatETFs that

track broad market indices are

less volatile thanthosefocusing

on a particular sector.

All in all, ETFs investing in

broad market indices, large

cap companies& liquid assets

ensure easy liquidity. And this

level of l iquidity impacts

profitability of the ETF.

· Benchmark

When choosing an ETF, first

decide on the market, market

segment, or industry sector

you wish to track, then decide

on the appropriate index for

that market . Each index

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

construction methodology,

resulting in wide variations in

turnover and other portfolio

characteristics. Benchmarks

tracking the same market

segment can deliver very

different results.

· Management Team

Index funds are not created

equal. Effective, eff icient

portfolio management skills

can make a difference, often

offsetting marginal differences

in costs between two indexed

p r o d u c t s . R e v i e w t h e

experience and track record of

the fund managers.

Bottom line

All things considered, ETF

canmake an essential portfolio

component for all types of

retail investors. India has seen

more than 100% growth in the

ETF market over the last three

years and it is likely to flourish

in coming years. You can buy

and sell Gold, Index, Banking

or International ETFs online



through your ICICI direct

account.If you do not have an

account with ICICIdirect, help

us open your account and

experience the world of online

investing.

How to invest in ETF through ICICIdirect

Step 1: Login to ICICIdirect Step 2: Click on Trade & invest tab on the upper red ribbon

Step 3.1: If you have not finalized which ETF you want to trade. Go to Equity>ETF list. Select the fund you want to invest in from the list of ETFs available on the portal.

Step 3.2: If you already know which ETF you want to invest in, select Cash Buy option on the gray ribbon directly. Write the name of the ETF scheme in the field of Stock correctly.



Step 4: Fill in all the details carefully and click on Buy Now. Verify your order once and then click on Proceed. Your ETF transaction order is successfully placed.

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

Tête-à-tête


Market experts talk about ETF landscape in India & their performance in near future

27

S Naren, ED & Chief Investment Officer,

ICICI Prudential AMC

Gauri Sekaria, ETF fund manager,

DSP BlackRock

Q1 - What is your outlook on Indian

and global markets?

S Naren - Indian markets have

turned volatile after a steep

rally seen over the last two

years. However, valuations still

continue to remain expensive

i n m i d a n d s m a l l c a p

segments , whi le cer ta in

pockets in large-caps are

reasonably valued. Globally,

we are experiencing a rising

interest rate scenario in the US

and even the lowering of the

interest rates across Japan and

Europe is expected to take a

break. As such, over the next

12-18 months, both the Indian

and global markets are likely to

be volatile.

Gauri Sekaria – Indian equities

rallied sharply in 2017 - up

~33% in USD terms or ~28%

in INR terms. The obvious

question has been on high

v a l u a t i o n s a n d i t s

sustainability. We think this run

up has been a part of the

broader EM rally and that India

is not an outlier. Markets are

c e r t a i n l y a t a h i g h b u t

valuations are not. An earnings

catch-up could certainly help

sustain these valuations. We

expect corporate earnings to

see a broad based recovery in

FY19 and FY20. Along with the

positive base effect, a mix of

global cyclicals (metals), autos,

oil marketing companies and

banks may be the key drivers

for this. Also, the first quarter of

2018 has seen the large-cap

index correct ~10% from the

January peak, while some

small and mid-caps have

corrected as much as 15-25%

or more - driven by a multitude

of global and domestic factors.

After hitting a low of 5.7% in Q1

FY18, GDP growth recovered

to 6.5% in Q2 FY18 (revised

upward from 6.3%), and to

7 . 2 % i n Q 3 F Y 1 8 . W i t h

demonetization behind us,

implementation of the 7th pay


Tête-à-tête

commission along with the

higher government spending

on the rural segment could

help support demand. This

should benefit consumer

facing companies like staples,

consumer durables and other

under-penetrated sub sectors

which will also benefit from

initiatives on “Housing for All”

and “Power for All”.

While the broad outlook for

India may remain positive, we

believe there are certain risks

which investors must consider.

These include a shortfall in the

yearly GST collection which

could negatively impact the

fiscal deficit, rising oil prices

which could lead to higher

current account deficit, rising

inflation (higher oil and food

price base effect) and geo-

politics (trade-wars, a global

slowdown or reversal of the

synchronous growth revival

etc.).

Below are four key themes that

we believe could drive growth

in 2018 and beyond:

o Increase in per-capita GDP

b o o s t i n g t h e I n d i a

consumption story – and a

consequent shift from

unorganized to organized

sectors.

o Penetration of financial

s e r v i c e s ( r e t a i l a n d

corporate credit, insurance,

asset managers).

o The next investment cycle

led by govt. capex on Oil &

Gas , Defense , Roads ,

Railways, Urban Infra.

o Export opportunities in

segments vaca ted by

China, such as textiles and

specialty chemicals.

C o n s e q u e n t l y , w e a r e

attempting to reflect these

themes within our portfolios.

2017 was a very healthy year

for equity markets across the

board. In 2018, we believe

market returns are more likely

to be l inked to earnings

growth, given that valuations

are already above average. As

seen over the last year, bottom-

up stock picking has created

cons iderab le a lpha , and

investors therefore may need

to identify the right

combination of stocks and

sectors that can outperform

the broader market.


Tête-à-tête

Q2 - Where do you see the markets

heading by March 2019?

S Naren -Increasing fears of

trade war between global

economic powerhouses ,

events in the run-up to the

2019 elections, rise in crude oil

pr ices and l imited f iscal

flexibility are all factors which

are likely to weigh in on the

Indian market sentiment. In the

meantime, earnings growth is

likely to pick up over the next

15 months, which may lend

some support to a possible

uptick in market.

Gauri Sekaria – We cannot

predict market levels over the

short term. However, as

elaborated above, we are

optimistic on the markets,

expecting that they will be

s u p p o r t e d b y h e a l t h y

corporate earnings growth. We

strongly believe that markets

are a reflection of the economy

and the long term.

Q3 - Do you see the ETF landscape

changing in India?

S Naren - We are witnessing an

encouraging change in the ETF

landscape in India. Both the

Government ( through i ts

disinvestment programme)

and regulator have been

promoting ETFs as they offer

low-cost investing experience

to the investors. Thus far, ICICI

Prudential managed BHARAT

22 ETF had met with a great

d e m a n d f r o m t h e r e t a i l

investors. SEBI has also been

evaluating Commodity ETFs

and Government is evaluating

CPSE Debt ETF (same is

announced in budget).

Q4 - Why is the active fund sector in

India so big compared to the ETF

segment?

S Naren - Active fund sector is as

old and synonymous as the

Indian mutual fund industry.

The key reason for large

participation in active fund is

due to the fact that Indian fund

m a n a g e r s h a v e b e e n

c o n s i s t e n t l y g e n e r a t i n g

benchmark beating returns.

With the distribution network

in place, market ing, and

awareness programs, the

active funds category has seen

a lot more penetration in India.

On the other hand, ETF, as a

concept is relatively new and

very few AMC's are active in


Tête-à-tête

this segment.

Gauri Sekaria – Active fund

management sector has a

much longer history and has a

natural appeal due to its

potential to outperform the

benchmark.

While the debate on whether

Active managers have the

po ten t i a l to ou tper fo rm

Passive will continue from a

global context, what Indian

investors really need is a blend

of both. There is a need for

adopting both styles through a

“Core & Satellite” approach to

portfolio management in order

t o m i t i g a t e t h e r i s k o f

underperformance.

Investors may expect better

risk adjusted returns by having

a core portfolio of passive

funds that grow in line with the

broader market ensuring index

returns and a satellite portfolio

that attempts to generate

alpha. When we launched our

first passive fund, we clearly

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

"Complementary" and not a

“Competing” strategy, to access

L a r g e C a p e q u i t i e s i n a n

investor's portfolio.

Q5 - How do you see the Indian ETF

market growing?

S Naren - The household

savings invested in ETFs

(excluding Gold ETFs) has

increased manifold owing to

institutional participation and

ICICI Prudential managed

BHARAT 22 ETF, which saw

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

institutional participation. We

believe the proposed CPSE

Debt ETF and new products

like Smart Beta ETFs (ICICI

Prudential Nifty Low Volatility

30 ETF), Commodity ETF are

expected to garner notable

subscriptions. With increased

inves to r awareness , we

believe over the decade ETF

can see sizeable investor

interest.

Gauri Sekaria -The passive space

has grown to a significant size

over the last few years .

Government's disinvestment

program through the ETF route

has given a huge fillip to this

area, highlighting the use of

ETFs as a vehicle to offload a

basket of securities in the

secondary market without

having a negative impact on


Tête-à-tête

the underlying stock prices.

The phenomenal participation

that these funds have received

has definitely created a buzz

around passive investing in

India. This has had an overall

positive impact in terms of

enhanced awareness about

passive investments.

Not only has it found favour

from institutions such as the

EPFO, Exempt PFs, Insurance

Companies, etc we are also

seeing participation from retail

segment as we l l . Go ing

forward we expect ETFs and

index funds to be used

increasingly by clients as part

of their overall asset allocation

strategy.

Q 6 - H o w d o y o u s e e t h e

performance of ETFs vis a vis

previous year? How has been the

performance of ETFs launched a

year ago and beyond period (up to 5

years)?

S Naren - ETFs as a product

track an underlying index such

as Nifty50, a commodity like

Gold etc., or a basket of stocks

like in case of ICICI Prudential

managed BHARAT 22 ETF. As

such, the performance of the

b e n c h m a r k i n d e x g e t s

replicated through the ETF

per formance, sub ject to

tracking error. Within the MF

universe, the growth in ETF

p o r t i o n h a s b e e n v e r y

encouraging thus far.

Q7 - Who should invest in ETFs?

What are the tax advantages and

disadvantages?

S Naren - ETFs are suitable for

those investors who wish

passively take exposure to

Indian equities. Since the

portfolio aims at investing in

same proportion of stocks/

c o m m o d i t i e s a s t h e i r

representative indices, the

portfolio turnover and related

c o s t s a r e m u c h l e s s e r,

compared to active funds.

One can invest in ETFs directly

through their demat accounts

by buying through stock

exchanges. Alternatively, one

can also take an exposure of

ETFs by investing in Fund of

Funds (FOFs) mirroring such

ETFs. ICICI Prudential has also

filed for a FOF offering with

SEBI to emulate Bharat 22

Index and will be investing in


Tête-à-tête

uni ts of ICICI Prudent ia l

managed BHARAT 22 ETF.

The tax rules for an ETF are

same as that of any mutual

fund scheme. Accordingly, any

equity ETF will be subject to tax

provisions governing an equity

oriented scheme.

Gauri Sekaria – Any investor

looking to access the markets

at a reasonably low cost can

consider investing in ETFs and

Index Funds as part of his or

her overall asset allocation.

Depending on the underlying

benchmark, both ETFs and

Index Funds will have the usual

equity or debt taxation – there

is no special tax advantage

available at this point of time.

Q8 - What strategy would you

suggest for retail investors in the

current economic scenario?

S Naren -We have beenadvising

investing to fol low asset

allocation, which is the key to

long term wealth creation.

Therefore, we have been

advising investors to opt for

balanced advantage category

of schemes, where in the

invested sum is spread across

debt and equity, based on

relative market valuations. For

those looking to invest into

pure equities can consider

large-cap funds. When it

comes to debt investment,

investors are recommended to

invest in ultra-short-term,

short-term funds, credit risk

fund and dynamic bond funds.

Gauri Sekaria -ETFs and index

funds that give access to a

well-diversified basket of

stocks with a reasonable fee

can be used by clients with a

core satellite approach in order

to overcome the challenge of

timing the markets. The DSP

Black Rock Equal Nifty 50 Fund

g i v es ac c es s to a we l l -

diversified basket of NIFTY 50

stocks. The Fund has an equal

exposure to all the 50 stocks

that comprise the NIFTY 50

Index. The equal weighting

strategy protects the downside

to a certain extent and gives an

early participation in recovery

during sudden changes in the

market cycle. Exposure to such

strategies may be taken as part

of a client's overall asset

allocation in order to improve a

client's risk adjusted returns.

ASK OUR PLANNER


Q. I am getting Rs 13, 80,000 from

ICICI prudential life stage pension.

This is a maturity amount, not the

surrendering amount. Please

suggest potential tax-saving

instruments to reinvest this

corpus? Can I use it to buy a

residential property? What will be

the TDS deducted? Is it 2% or 30%?

- Dr Koneti Nookaraju

A. On maturity of a pension

policy, you would be able to rd

withdraw a maximum of 1/3

of the maturi ty value as

lumpsum, which would be

exempt from tax. The balance rd2/3 would be converted into

annuity and you would start

receiving pension, which

would be added to your

income every year and taxed

as per your income slab every

year. The only way to reduce

the tax outgo in the years in

which you receive pension is

by way of invest ing the

pension or part of it again in

any instruments which provide

deduction under Section 80C

of the Income Tax Act.

As the lumpsum amount of

rd1/3 is exempt from tax, the

question of TDS does not arise.

Q. I had a ULIP plan of single

premium Rs.100,000 . Policy

started in the year Financial year

2009-2010 and surrendered in the

year 2016-2017. On surrender I

r e c e i v e d R s . 1 6 1 , 0 7 7 a f t e r

deducting TDS (Rs 1628) by

insurance company. The surrender

value is reflecting in my form 26

AS; is it taxable as per section

10(10D) of income tax act?

- Abhay Goyal

A. If the insurance company

has deducted tax at source,

then it means that as per

section 10(10D) of the Income

Ta x A c t , t h e s u r r e n d e r

proceeds of your policy are

taxable. This would be the

case, as the sum assured in

your policy could be less than 5

times of the premium amount.

Hence, you would be liable to

pay tax on the same.

Q. I have doubt regarding TDS

deductions on the amount received

after surrendering of the policy

before the maturity date.Please tell

me the rate and under which

Managing taxes in your personal finance

ASK OUR PLANNER


section of the IT Act does it fall

under?

- Nikhil Jayan

A. Tax is being deducted at

s o u r c e f r o m n o t o n l y

surrender proceeds, but also

the maturity amount of the life

insurance policies for the past

few years. TDS is applicable @

1% of the maturity/surrender

proceeds under Sect ion

194DA of the Income Tax Act,

in cases where they are taxable

in the hands of the policy

holder.

As per Section 10 (10D) of the

Income Tax Act, life insurance

policies taken upto March 31,

2003, the maturity / surrender

proceeds would be exempt

from tax. For policies taken

from April 1, 2003 till March 31,



from tax only if premium paid

is upto 20% of the sum

assured in all the policy years.

For policies taken from April 1,



from tax only if premium paid

is upto 10% of the sum

assured in all the policy years.

34

Q. I had purchased a Lifetime gold

policy in Feb 2008 with yearly

premium of Rs.20000 for 10 years

duration. The sum assured was

Rs.100000. I have received the

maturity payout in the month of Mar

18. Can you please advise me what

would be my tax liability for the

said transaction to help me include

it in this year's tax return?

- Aafreen Shaikh

A. If the sum assured was not

reduced during the entire

p o l i c y d u r a t i o n o r n o

additional premium was paid

during any of the years without

increasing the sum assured to

the same proportion, then the

maturity amount would be

exempt from tax, as the

premium paid every year is

20% of the sum assured.

However, you will have to

declare this income in your

income tax return and show it

under 'Details of Exempt

Income' section.

I f a n y s u c h i n s t a n c e s

m e n t i o n e d a b o v e h a v e

occurred, then the maturity

amount would be taxable and

accordingly the insurance

c o m p a n y w o u l d h a v e

deducted tax @1% from the

ASK OUR PLANNER


maturity amount and you

would have to pay tax on the

maturity proceeds as per your

income slab.

Q. I had paid 4 installments of Rs

3 0 0 0 0 / - f o r t h e y e a r s

2008,09,10,11 and maturity was

due on 17 Mar 2018. At my age (

74+), I thought annuity won't be

beneficial to me and opted for

redemption on 12 Mar 2018 .Pl let

me know the Tax implications . Is

LTCG available on the benefits

( T o t a l p a i d v a l u e l e s s

Premiums paid)

- D K DINKER

A. If you surrender a pension

policy before the maturity

date, then the entire surrender

value shall be added as your

income and taxed in the year of

receipt, as per your income

slab, if you have claimed

deduction for the premiums

paid under Section 80CCC.

However, the Income Tax Act

does not explicitly say how it is

taxed if you haven't claimed

deduction for the premiums

paid. If we look at it logically,

during surrender of pension

policies, where deduction

under Section 80CCC(1) has

not been claimed for the

premiums paid, tax would

have to be payable on the Gain

/ Difference between the

surrender value and the

premiums paid; and if the

surrender value is less than the

premiums paid, there's no gain

and no tax would have to be

payable.

Q. I have been contributing to a

pension pol icy (without any

insurance component). I want to

surrender it. I have been told that

there are two options:

I) purchase any other plan with

insurance coverage from same

insurer - no tax

ii) get the entire proceeds as

surrender value - entire money

received is taxable I have not

claimed any tax deduction

benefit under section 80 C from

this.

My question is

a) whether (i) and (ii) above are

correct

b) if I surrender it, will the entire

money I get it taxable, including

the premium I paid

c) whether out of the surrender

amount (b) above, only the gains

ASK OUR PLANNER


A. Yes, insuring the structure of

your house properties is highly

desirable. I f your house

properties are on rent, then

you need not insure the

contents of the house; but

insuring the structure against

natural & man-made risks is a

must. As you would have

invested a huge amount into

these properties, it's prudent to

g e t t h e m i n s u r e d . T h e

premium you would be paying

for the same would be much

lower.

from the policy will be taxable.

- Pavnesh Sharma

A . Surrender ing pension

policies before maturity would

attract tax; this will not change

because you purchase any

other policy from the same

insurer. For the remaining

queries, please refer the

answer to the above question.

Q. I s p u r c h a s i n g a p r o p e r t y

insurance a prudent choice? As of

2018, I own two properties- one in

Mumbai and another in Karnataka.

Both are residential apartments

and on rental. Should I insure

either, both or none?

- ManjirBhanu

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

MUTUAL FUND ANALYSIS

Investing in infrastructure funds


After making highs in January 2018,

equity markets have been under

pressure. We believe the recent

correction is an opportunity to

enhance allocation to equity markets

as improving fundamentals, in terms

of GDP and earnings growth,

domestic liquidity and reforms

continue. It has been observed that

investing during market volatility

tends to be rewarding.

Within equities, the infrastructure

segment remains well placed to

o f f e r a b e t t e r i n v e s t m e n t

opportunity. Various segments

like roads, railways, ports, oil &

gas, defence and housing have

been key thrust areas of the

government. Policy measures to

create a favourable environment

for private investment along with

the government's own huge

expenditure on the infrastructure

segment have started to result in

order inflows and execution on

the ground.

Tendering activity in infra and

capex segments is a lead indicator

of a pickup in economic activity.

Tendering is followed by actual

awarding of contracts, which later

leads to ground level execution.

Large scale tendering for mega

infra projects is beneficial for larger,

stronger companies that are more

typically found in the organised

space. While tendering activity was

dominated by the government,

participation of private players in

tendering activity was very limited

in the last three to four years due to

high leverage and an elevated

interest rate scenario along with

uncertainty over policy framework.

However, we believe private

investment could see an uptick in

investment possibly, going

forward, as there are early signs of

corporate balance sheet repairs.

Overall, we believe execution

activity would be boosted over the

next few months as tendering

activity, which has already picked

up (and is highest since 2012), will

ultimately translate into action.

Furthermore, opening up of various

financing options like InvITs, REITs

along with Budget focus on

promoting the bond market for

lower rated companies will make

the bus iness env i ronment

conducive to private investment in

infrastructure.

In its Budget announcements, the

government has underlined its

c o m m i t m e n t t o p r o v i d e a

continued thrust to the infra

space. Budgetary allocation to

roads, highways and transport

was increased 16.3% YoY while

37



that to urban development was

increased 11.2% YoY. Railways

received a bumper push, with

budgetary allocation increasing

32 .7% YoY. Consequent l y,

a l l o c a t i o n t o w a r d s k e y

development related schemes

was increased 14.1% YoY.

Over the past few years, the

government has been working on

providing the much needed

groundwork that can see the

infrastructure sector take-off in

coming years. The removal of

sectoral bottlenecks like land

acquis i t ion , env i ronmenta l

approvals, allocation of mining

resources along with measures

for ease of doing business may

lead to timely completion of

in f ras t ructure pro jects . As

infrastructure projects involve

high capital expenditure, a sharp

f a l l i n i n t e r e s t r a t e s h a s

s ign i f i can t l y added to the

profitability of the sector.

Infrastructure funds focusing on

specific companies capitalising on

growth potential in the sector are

offering good investment options

to investors. Aggressive investors

may consider investing in the

recommended infrastructure

funds as a part of their thematic

allocation.

We recommend the following

f u n d s : A d i t y a B i r l a S L

I n f r a s t r u c t u r e F u n d , L & T

Infrastructure Fund and Reliance

Diversified Power Sector Fund.

Investors should avoid allocating

more than 10% of their equity

mutual fund corpus in any sector

or thematic fund.

Aditya Birla Sun Life Infrastructure Fund

Fund Objective:An open-end growth scheme with the objective of providing for medium to long-term c a p i t a l a p p r e c i a t i o n b y investing predominantly in a diversified portfolio of equity and equity related securities of c o m p a n i e s t h a t a r e participating in the growth and development of Infrastructure in India.

NAV as on March 28, 2018 (`) 35.3

Inception Date March 17, 2006

Fund Manager Vineet Maloo

Minimum Investment (`)

Lumpsum 1000

SIP 1000

Expense Ratio (%) 2.68

Exit Load 1% on or before 1Y, Nil after 1Y

Benchmark NIFTY 50 - TRI

Last declared Quarterly AAUM(` cr) 704

Key Information:

Product Label:

Investors understand that their principal will be at high risk



This product is suitable for investors who are seeking:• Long term capital growth • Investments in equity and equity related securities of companies that are participating in the growth and development of infrastructure in India

Performance:The fund has consistently outperformed the benchmark and has been among the top two quartiles over the three and five-year time frame (as of March 31). It has generated CAGR of 10% and 20.1% in the

last three years and five years vs. 7.4% and 13.6% returns by benchmark, respectively (as of March 31, 2018). However, this comparison is not strictly comparable because the fund has chosen Nifty 50 as its benchmark. Looking at the scheme's performance vis-à-vis the category average would be more appropriate. Here, the fund has marginally under-performed its peers in recent times but has outperformed over a five-year timeframe.

Fund Benchmark

Performance vs. Benchmark

12

10

20.1

1111.8

7.4

13.6

11

0

5

10

15

20

25

1 Year 3 Year 5 Year Since Inception

Portfolio:The fund has traditionally invested heavily in financials and industrials with these two sectors regularly constituting ~50-55% of the portfolio. However, over the last two to three years it has consistently cut exposure to these sectors while increasing allocation to mater ia l s . The por t fo l io

displays a significant midcap bias with the portfolio seeing allocation of ~40% in large caps and ~60% in midcap and small cap stocks. At the stock level, the fund tries to mitigate this risk by diversifying heavily. It currently holds 66 stocks with the top 10 bets making up around a third of the portfolio.



%

4.9

4.3

4.2

3.9

3.9

3.2

3.2

2.7

2.6

2.5

Top 10 Holdings Asset Type

Domestic Equities

Carborundum Universal Ltd. Domestic Equities

PNC Infratech Ltd. Domestic Equities

Indraprastha Gas Ltd. Domestic Equities

Honeywell Automation India Ltd. Domestic Equities

Clearing Corporation Of India Ltd. Cash & Cash Equivalents and Net Assets

Vedanta Ltd. Domestic Equities

Bharat Electronics Ltd.

KEC International Ltd. Domestic Equities

Housing Development Finance Corporation Ltd. Domestic Equities

Hindustan Petroleum Corporation Ltd. Domestic Equities

%14.7

6.1

5.5

5.0

4.9

4.5

4.1

3.9

3.9

3.7

Top 10 Sectors Asset TypeEngineering - Construction Domestic Equities

Metal - Non Ferrous Domestic Equities

Refineries Domestic Equities

Bank - Private Domestic Equities

Consumer Durables - Electronics Domestic Equities

Abrasives Domestic Equities

Cement & Construction Materials Domestic Equities

Industrial Gases & Fuels Domestic Equities

Finance - NBFC Domestic Equities

Engineering - Industrial Equipments Domestic Equities

%

0.2

0.4

1.3NMDC Ltd.

Whats In

LIC Housing Finance Ltd.

Tata Steel Ltd.

%

1.1

0.81.2

Whats out

Century Textiles & Industries Ltd.

JSW Steel Ltd.Bank Of Baroda

Our View:T h e f u n d h a s w o r k e d o n diversifying its portfolio by m o v i n g a w a y f r o m h i g h l y c o n c e n t r a t e d p o s i t i o n s i n financials and industrials. Having

reduced exposure to sectors such as consumer discretionary and financials the fund is now truer to t h e i n f r a s t r u c t u r e t h e m e . Investors can consider this fund from a three-year perspective.

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

You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://mutualfund.adityabirlacapital.com/-/media/bsl/files/resources/ factsheets/2018/empower-march-2018-rev-1.pdf



Fund Objective:The scheme seeks to generate c a p i t a l a p p r e c i a t i o n b y investing predominantly in equity and equity related instruments of companies in the infrastructure sector.

Key Information:

This product is suitable for investors who are seeking*:

• Long term capital appreciation

• Investment predominantly in equity and equity-related instruments of companies in the infrastructure sector

Product Label:

Performance:The fund has been a top quartile performer over the last one year, three year and five-year time frames (as on March 31, 2018), indicating its relative outperformance over its peers. It has also comfortably and cons i s ten t l y bea ten the benchmark Nifty Infra by ~13% (one year), ~15% CAGR (three years) and ~16% CAGR (five years) (as of March 31, 2018).

Fund Benchmark


41

L&T Infrastructure Fund

NAV as on March 28, 2018 (`) 17.1

Inception Date September 27, 2007

Fund Manager Soumendra Nath Lahiri


Lumpsum 5000

SIP 500


Exit Load 1% on or before 1Y, Nil after 1Y

Benchmark NIFTY INFRA


Investors under-stand that their principal will be at moderately high risk

21

16.2 24.6

5.37.5

0.8

8.5

-2.8-10

0

10

20

30


Portfolio:The portfolio has undergone a significant change in character over the years. Till 2012, the holdings were dominated by

financial, energy and industrial stocks. However, post 2012 it started shedding financial stocks in favour of materials sector and post 2015, the



%

7.2

4.9

4.0

3.5

3.3

3.1

3.0

3.0

3.0

2.9


Domestic Equities

Graphite India Ltd. Domestic Equities

Bharat Electronics Ltd. Domestic Equities

Lakshmi Machine Works Ltd. Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

Cash & Cash Equivalent Cash & Cash Equivalents and Net Assets

Bharti Airtel Ltd. Domestic Equities

The Ramco Cements Ltd.

Hindustan Zinc Ltd. Domestic Equities

Engineers India Ltd. Domestic Equities

Vedanta Ltd. Domestic Equities

%10.6

10.3

8.7

7.8

6.1

5.9

5.4

5.2

4.5

4.0

Top 10 Sectors Asset TypeCement & Construction Materials Domestic Equities

Engineering - Construction Domestic Equities

Engineering - Industrial Equipments Domestic Equities

Telecommunication - Service Provider Domestic Equities

Construction - Real Estate Domestic Equities

Logistics Domestic Equities

Steel & Iron Products Domestic Equities

Metal - Non Ferrous Domestic Equities

Electrodes & Welding Equipment Domestic Equities

Diversified Domestic Equities

Data as on February 28, 2018; Portfolio details as on January 2018Source: ACE MF, ICICI Direct Research

%

2.2

2.1

Whats In

Grasim Industries Ltd.

HEG Ltd.

Our View:The fund is on the aggressive side with higher allocation to midcaps than large caps. However, the portfolio is well constructed in

terms of diversification. Investors looking for a true-blue infra fund can consider L&T Infrastructure Fund.

holdings in financial stocks has been cut, to a large extent. As a result, now the fund truly resembles an infrastructure f u n d w i t h t h e p o r t f o l i o predominantly comprising appropriate constituent sectors,

viz. industrials, materials, energy and telecom. Currently, there are ~55 stocks in the fund with the top 10 holdings making up close to 36% of the portfolio. The fund also has ~5% of the portfolio in cash currently.

You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://partners.lntmf.com/ltfsdocs/downloads/E-Factsheet/LnTMF-Efactsheet-March-2018.html



Reliance Diversified Power Sector Fund

Fund Objective:The pr imary inves tment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity and equity related securities of companies in the power sector.

Key Information:

Product Label:

This product is suitable for investors who are seeking*:

• Long term capital growth

* Investment in equity and equity related securities of companies in power sector

Performance:The fund has outperformed its benchmark BSE Power Index strongly over the years. The one year, three years and five-year performance (as of March 31) is 12.9%, 13.5% CAGR and 18% CAGR, respectively compared to BSE Power Index' -3.5%, 0% CAGR and 5.2% CAGR. When compared to its category peers, the performance has picked up over the last three years but over five years' time frame it has underperformed.


Fund Benchmark

NAV as on March 28, 2018 (`) 110.5

Inception Date May 8, 2004

Fund Manager Sanjay Doshi


Lumpsum 5000

SIP 100


Exit Load 1% on or Before 1Y, Nil After 1Y

Benchmark S&P BSE Power Index


43

I n v e s t o r s u n d e r-s t a n d t h a t t h e i r principal will be at moderately high risk

12.9

13.5 18 18.9

-6.5

0

5.2

0

-10

0

10

20

30




PortfolioI n d u s t r i a l s a n d u t i l i t i e s consistently make up ~75-80% of the scheme portfolio. The scheme has taken outsized positions on these sectors over the years. In recent times, exposure to materials has also increased. It is now the third largest holding in terms of

sectors. The fund likes to take large bets on its top holdings, with the top five stocks all individually constituting 5% or more of the portfolio and the top 10 stocks constituting ~52% of the portfolio. Overall, the fund currently has 36 stocks in the portfolio and has a pronounced midcap tilt.

44

Our View:The fund is more suited to savvy, e x p e r i e n c e d & a g g r e s s i v e investors due to factors like

significant midcap bias of ~75% and heavily concentrated calls in terms of stocks as well as sectors.

%

8.3

7.1

5.5

5.4

5.1

4.6

4.4

4.2

3.6

3.6NTPC Ltd. Domestic Equities

KSB Pumps Ltd. Domestic Equities

Kirloskar Pneumatic Company Ltd. Domestic Equities

PTC India Ltd. Domestic Equities

GE Power India Ltd. Domestic Equities

Jindal Stainless (Hisar) Ltd. Domestic Equities


KEC International Ltd. Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

Apar Industries Ltd. Domestic Equities

Torrent Power Ltd. Domestic Equities

%26.5

22.8

15.7

10.2

5.4

3.6

3.4

3.2

2.9

1.9

Diesel Engines Domestic Equities

Transmission Towers / Equipments Domestic Equities

Bank - Private Domestic Equities

Domestic Equities

Steel & Iron Products Domestic Equities

Compressors / Pumps Domestic Equities

Cable Domestic Equities

Engineering - Construction Domestic Equities

Power Generation/Distribution Domestic Equities

Top 10 Sectors Asset Type

Electric Equipment Domestic Equities

Engineering - Industrial Equipments

%

0.6

Whats out

Jindal Stainless Ltd.

You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://www.reliancemutual.com/InvestorServices/FactsheetsDocuments/Fundamentals-March-2018.pdf



Performance of other schemes managed by these fund managers: 1. Aditya Birla Sun Life Infrastructure Fund

45

Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 10 other schemes of the concerned Mutual Fund

2. L&T Infrastructure Fund


13.96 10.37 20.5012.97 7.16 13.7913.23 2.84 8.0312.42 7.41 13.9710.36 7.99 13.5712.42 7.41 13.97

4.71 -- --6.63 8.52 9.874.45 -- --6.63 8.52 9.874.29 5.52 --6.63 8.52 9.87

Performance of other schemes managed by the fund manager - Vineet Maloo

Aditya Birla SL Intl. Equity Fund-A(G)NIFTY 50 - TRIAditya Birla SL Intl. Equity Fund-B(G)NIFTY 50 - TRI

Fund Name 1 Year 3 Years 5 Years

Top 3 Performing Schemes Aditya Birla SL Infrastructure Fund(G)S&P BSE Sensex - TRI

CRISIL Hybrid 85+15 - Conservative Index

Bottom 3 Performing SchemesAditya Birla SL CPO Fund-Sr 30CRISIL Hybrid 85+15 - Conservative IndexAditya Birla SL CPO Fund-Sr 29CRISIL Hybrid 85+15 - Conservative IndexAditya Birla SL CPO Fund-Sr 22

29.85 22.87 --13.68 7.04 13.4323.15 16.14 24.5410.66 2.28 9.7520.39 17.31 29.6511.51 15.09 21.96

13.34 8.14 17.8113.68 7.04 13.4311.62 10.22 18.7113.68 7.04 13.436.49 3.88 14.98

13.68 7.04 13.43

Performance of other schemes managed by the fund manager - Soumendra Nath Lahiri

L&T Infrastructure Fund-Reg(G)NIFTY INFRA - TRIL&T Midcap Fund-Reg(G)Nifty Midcap 100 - TRI


Top 3 Performing Schemes L&T Emerging Businesses Fund-Reg(G)S&P BSE Sensex - TRI

S&P BSE Sensex - TRI

Bottom 3 Performing SchemesL&T Equity Fund-Reg(G)S&P BSE Sensex - TRIL&T India Prudence Fund-Reg(G)S&P BSE Sensex - TRIL&T Dynamic Equity Fund-Reg(G)



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

46

3. Reliance Diversified Power Sector Fund


15.34 13.79 17.7313.68 7.04 13.43


Top 3 Performing Schemes Reliance Diver Power Sector Fund(G)S&P BSE Sensex - TRI

Performance of other schemes managed by the fund manager - Sanjay Doshi


What is iCommunity?iCommunity is ICICIdirect's interactive platform where one can answer and get answered as well. With extensive range of forums, events & discussions iCommunity serves as an opportunity to learn more about financial world.

This month on iCommunity

Discussion

Is gold a good investment bet for 2018?The year 2018, after having started on a positive note with benchmark

headlines indices making new highs in January, witnessed a sharp

correction post the Union Budget in February. Does it still make gold a good

investment bet for 2018?

Q & A Forum

Q& A Session with Technical Analysis Head : Mr. Dharmesh

Shah

Below mentioned questions were asked during the event -

a) Lupin has bounced back sharply in past one week.

Wanted to know whether lupin can be bought for

one week and what would the target.

b) I am holding 100 shares of Sun Pharma @671/- and

50 shares of Wockhardt @885/-. Please advise to

hold or to sell from medium term view?

c) Give me a list of equities for 10 years instrument which has potential to

give 20 percent annualized returns.

47

Quiz Time

EQUITY MODEL PORTFOLIO


Our indicative large-cap equity model portfolio is delivering an

impressive return (inclusive of dividends) of 114.98% till date (as on

March28, 2018) since its inception (June 21, 2011) vis-à-vis the

benchmark index (S&P BSE Sensex) return of 92.35% during the

same period, an outperformance of 22.63. This validates our thesis

of selecting companies with sound business fundamentals that

forms the core theme of our portfolio. We have revised stocks in our

midcap portfolio. It continues to outperform, delivering 363.39%

(inclusive of dividends) till date (as on March28, 2018) vis-à-vis the

benchmark index (CNX Midcap) return of 143.65%, outperformance

of 219.74. Our consistent outperformance demonstrates our

superior stock picking ability as markets aligned to our view of

favourable risk reward, good franchisee vs. reward-at-any-risk

businesses.

We have always suggested the SIP mode of investment and still find

a lot of merit in it as the preferred mode of deployment given the

market conditions and volatility associated since the inception of the

portfolio. We highlight that the SIP return of our portfolio has

consistently outperformed the indices.

Following the same pace and opportunities in the market, ourlatest

portfolio (large caps) remains overweight on BFSI sector – HDFC

Bank (10%), HDFC (9%), Axis Bank (6%) Bajaj Finance (6%) and SBI

(6%). ITC is the latest addition to the large-cap portfolio, given6%

weightage. Affirming our view on consumption demand, Dabur

(5%) and Marico (4%) continue to be part of our large cap portfolio.

We remain positive on auto, IT and pharma. However, please note

that the weightage for Tata Motor DVR, Maruti and EICHER Motor is

revised. We remain overweight to neutral on pure play defensives

(IT, FMCG) as secular earnings coupled with sector rotation could

lead to consolidation in near term valuations and offer stock specific

opportunities.

We continue to remain underweight on metals and oil & gas with our

only pick being Gail Ltd., which has a better risk reward opportunity.

Among individual names, we recommend TCS in the IT space, HDFC

and HDFC Bank in the BFSI space, ITC in consumer space and NBCC

in the infra space.

48



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

49

Auto 17.0 11.9

Tata Motor DVR 3.0 2.1

Maruti 6.0 4.2

EICHER Motors 4.0 2.8

Mahindra & Mahindra (M&M) 4.0 2.8

BFSI 37.0 25.9

HDFC Bank 10.0 7.0

Axis Bank 6.0 4.2

HDFC 9.0 6.3

Bajaj Finance 6.0 4.2

SBI 6.0 4.2

Capital Goods 6.0 4.2

L & T 6.0 4.2

Cement 4.0 2.8

UltraTech Cement 4.0 2.8

FMCG/Consumer 19.0 13.3

Dabur 5.0 3.5

Marico 4.0 2.8

ITC 6.0 4.2

Nestle 4.0 2.8

IT 6.0 4.2

TCS 6.0 4.2

Metals 6.0 4.2

Hindustan Zinc 6.0 4.2

Oil and Gas 5.0 3.5

GAIL Ltd. 5.0 3.5

Largecap share in diversified 100.0 70.0



ICICI Securities has received a mandate from Indian Bank'.ICICI Securities has received an Investment Banking mandate from Mahindra & Mahindra and BHARAT HEAVY ELECTRICALS LTD

50

Auto 6.0 1.8

Bharat Forge 6.0 1.8

BFSI 20.0 6.0

Bajaj Finserve 8.0 2.4

J&K Bank 6.0 1.8

Indian Bank 6.0 1.8

Capital Goods 12.0 3.6

Bharat Electronics 6.0 1.8

Kalpataru Power transmission 6.0 1.8

Cement 6.0 1.8

Ramco Cement 6.0 1.8

Consumer 30.0 9.0

Symphony 6.0 1.8

Kansai Nerolac 6.0 1.8

Pidilite 6.0 1.8

Tata Chemicals 6.0 1.8

Bata 6.0 1.8

Metals 6.0 1.8

Graphite India 6.0 1.8

Infrastructure 8.0 2.4

NBCC 8.0 2.4

Logistics 6.0 1.8

Container Corporation of India 6.0 1.8

Textile 6.0 1.8

Arvind 6.0 1.8

Total 100.0 30.0

Midcap share in diversified 30

TOTAL 100 0 100.0

Performance* so far since inception

*Returns (in %) as on Mar 28, 2018

Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

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

Portfolio Benchmark

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: June 30, 2011; *Value as on Mar 28, 2018



114.9862437

363.3913963

166.0403241

92.35246011143.6591085

105.9415367

0255075

100125150175200225250275300325350375400

Large Cap Midcap Diversified

%

8300000

8300000

8300000

11732148.7

9

14204005.1

8

10474922.5

2

11514772.7

4

11740546.5

8

3500000

4500000

5500000

6500000

7500000

8500000

Largecap Midcap Divesified

QUIZ TIME

1. Each index provider may not have its own construction

methodology, resulting in wide variations in turnover and

other portfolio characteristics. True/False

2. Expense ratio of an index fund is usually ________ than

traditional mutual funds, but slightly __________ than ETFs.

3. When underlying stocks are doing well, the value of

corresponding index ______.

4. The authorized participant acquires securities from the

___________ to create ETF units.

5. In an ETF, the details of fund's holdings under management

are disclosed on a _________ basis.

Note: All the answers are in the stories that have appeared in

this edition of ICICIdirect Money Manager. You may send in

your answers at: [email protected]. The

answers will be published in our next edition. The names of

the earliest all correct entries will be published too. So jog

your grey cells and be quick to send in your entries.

Correct answers for the March2018 quiz are:

1. A correlation of -40% tells us that historically 40% of the

time, the two assets were moving in opposite directions.

2. Unit-linked insurance plans is one of the common vehicles

for holding equity. True

3. In Tactical asset allocation method, advisor reduces

exposure to overvalued assets based on the market view

in order to outperform the asset class indices.

4. An investor saving up for a child's education in 10 years

should not invest in low risk assets. True

5. Gold is a good option (/asset) for diversification but not

necessarily for growth.


PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

53

28-Mar-18 28-Feb-18 Change (%)

CNX Nifty 10114.0 10493.0 -3.6%

CNX Midcap 18757.0 19665.0 -4.6%

S&P BSE Sensex 32968.7 34184.0 -3.6%

S&P BSE 100 10502.6 10865.0 -3.3%

S&P BSE 200 4432.6 4592.0 -3.5%

S&P BSE 500 14125.5 14670.0 -3.7%


Dow Jones 24,103.1 25,029.2 -3.7%

S&P 500 2,640.9 2,713.8 -2.7%

Nasdaq 7,063.4 7,273.0 -2.9%

FTSE 7,056.6 7,231.9 -2.4%

DAX 12,096.7 12,435.9 -2.7%

CAC 40 5,167.3 5,320.5 -2.9%

Nikkei 21,159.1 22,068.2 -4.1%

Hang Seng 30,093.4 30,844.7 -2.4%

Shanghai Composite 3,160.5 3,259.4 -3.0%

Taiwan Weighted 10,845.9 10,815.5 0.3%

Straits Times 3,428.0 3,517.9 -2.6%


S&P BSE Auto 24,057.3 24,832.4 -3.1%

S&P BSE Bankex 27,197.9 28,313.9 -3.9%

S&P BSE FMCG 10,290.1 10,506.4 -2.1%

S&P BSE Healthcare 13,157.6 14,113.0 -6.8%

S&P BSE Metals 13322.03 15173.8 -12.2%

S&P BSE Oil & Gas 14,614.4 15,505.8 -5.7%

S&P BSE Power 2,125.8 2,223.1 -4.4%

S&P BSE Realty 2,229.9 2,468.3 -9.7%

S&P BSE Teck 6,513.3 6,742.5 -3.4%

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Mar-18 Feb-18 Change (bps)

Corporate Bond Yields (in %) Mar-18 Feb-18 Change (bps)

Commercial Paper (CP) Rates (in %) Mar-18 Feb-18 Change (bps)

Treasury Bill (T-Bills) Yields (in %) Mar-18 Feb-18 Change (bps)

Volatility Index (VIX)


VIX 15.76 13.80 0%

54

10 year 7.40 7.72 -32

5 year 7.40 7.55 -16

3 year 7.09 7.20 -11

1 year 6.45 6.68 -23

AAA 10 year 8.18 8.31 -13

AAA 5 year 7.89 7.98 -9

AAA 3 year 7.72 7.81 -9

AAA 1 year 7.62 7.80 -18

AA 10 year 8.64 8.78 -14

AA 5 year 8.48 8.49 -1

AA 3 year 8.25 8.34 -9

AA 1 year 8.06 8.21 -15

12 Months 7.88 8.16 -29

6 Months 7.67 8.01 -34

3 Months 7.44 7.91 -47

1 Month 7.74 6.88 86

91D TB 6.11 6.28 -17

182D TB 6.33 6.48 -15

364D TB 6.42 6.63 -21

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

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

55

Countries 30-Mar-18 28-Feb-18 Change in bps

US 2.739 2.861 (12)

UK 1.350 1.501 (15)

Japan 0.043 0.053 (1)

Spain 1.164 1.531 (37)

Germany 0.497 0.656 (16)

France 0.718 0.916 (20)

Italy 1.782 1.974 (19)

Brazil 9.492 9.610 (12)

China 3.751 3.845 (9)

India 7.396 7.726 (33)

MF Investment Mar-18 Feb-18 Fy18

Equity 9255 13261 141769

Debt 37977 26547 370716

FII Investment Mar-18 Feb-18 Fy18

Equity 13114 -12491 22272

Debt -5216 -2771 120388

Items Weights(%) Jan-18 Feb-18 Mar-18

Food&bev. 45.86 4.58 3.38 3.01

Pan,tob& intox. 2.38 7.58 7.34 7.79

Cloth & Foot 6.53 4.94 5.00 4.91

Housing 10.07 8.33 8.28 8.31

Fuel & light 6.84 7.73 6.80 5.73

Misc. 28.31 3.78 3.85 4.16

CPI 100 5.07 4.44 4.28

Weights Jan-18 Feb-18 Mar-18WPI 100.0 2.84 2.48 2.47Primary Articles 22.6 2.37 0.79 0.24Fuel & Power 13.2 4.08 3.81 4.70Manufactured Goods 64.2 2.78 3.04 3.03

PRIME NUMBERS

Commodities

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


Mutual Funds: Category Average Returns

Equity Funds Returns (in %)Tenure Diversified Funds Mid-cap &

Small-cap Funds

Large-capFunds

ELSS (Tax-

savingfunds)

Returns as on March 28, 2018

Debt Funds Returns (in %)

Returns as on March 28, 2018

Tenure Liquid Funds

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

Currencies and CommoditiesCurrencies

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

Debt ST Ultra ST Debt LT

56

6 months 6.12 3.12 4.99 -1.17

1 year 6.32 5.77 6.29 4.12

3 year 7.05 7.47 7.51 6.57

Categories Feb-18 Jan-18 Dec-17 Weight(%)Mining -0.3 0.1 1.2 14.4Manufacturing 8.7 8.7 8.4 77.6Electricity 4.5 7.6 4.4 8.0Overall 7.1 7.5 7.1 100.0

28-Mar-18 28-Feb-18 Change (%) StatusUSDINR 65.2 65.2 0.0% DepreciatedEURINR 80.2 79.7 0.7% DepreciatedGBPINR 91.7 90.4 1.4% DepreciatedAUDINR 49.9 50.9 -1.9% AppreciatedCHFINR 68.1 69.1 -1.5% AppreciatedJPYINR 0.6 0.6 0.2% DepreciatedCNYINR 10.3 10.3 0.5% Depreciated

30-Mar-18 28-Feb-18 Change (%)Crude ($/barrel) 69.1 64.5 7.2%Gold ($/ounce) 1,325.0 1,318.4 0.5%

6 months 3.90 6.30 2.71 3.801 year 12.90 17.40 11.10 13.353 year 10.45 14.40 7.96 10.125 year 18.60 26.24 15.37 18.45

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