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Shilpa KumarMD & CEO
ICICI Securities Ltd.
Financial prudence suggests that it is always good to get an annual check done of our financial stability to ensure that we are on track to achieve our goals. But there is also another aspect to check our financial viability that is often ignored or s o m e t h i n g w e a r e n o t completely aware about - our Credit Score.
Not all our goals or financial requirements can be met just th rough our sav ings or investments. For quite a few of our high value goals like buying a house, for example, we would require to take a loan. This is where a good credit score helps. It would decide if we would be lent adequate money to finance our key goals.
The decision of approving or rejecting a loan application is primarily based on our credit score. Banks or other financial institutions prefer the applicants with clean credit history which is reflected in the credit score.
Credit score is usually a three digit number and ranges from 300 to 900. Anything above 700 is considered as a good credit score. The more you score in this report, the more confidence the bank has in you and as your credibility increases the more amount of loan you are likely to get approved.
The most important factor that shapes your credit score is the past payments. Record of delayed payments may reflect negatively on your credit worthiness. The types of loan you have
1ICICIdirect Money Manager April 2017
taken, whether they are secured or unsecured, is also taken into account while counting your score. Home loan and auto loan work favorably on the report. A larger exposure to unsecured debts like credit card loan or personal loan shows that you are already committed to high interest rate debt obligations.
Excessive use of credit card and outstanding rolled over credit balance impacts your credit report. Another way the bank gauges your credit health is by studying your recent loans. Seeking excessive credit over short period can lower your credit score. To control this, check your credit card balance frequently and make sure it doesn't cross a particular limit.
In some western countries living condition of the borrower is also considered as one of the criteria to decide his credit reliance. Homeowner is considered as more reliable applicant than the tenant. In some cases, even geo-demographic data, such as number of houses in neighborhood is taken into account.
I would like to highlight that maintaining credit performance after getting a loan is as important as building it before applying for the loan. Penalties on missing out an EMI can be unhealthy for your credit score.
It doesn't take a lot to establish and maintain a strong credit history after all. Pay your bills on time, try not to miss a scheduled payment, stay below the credit exhausting limit and opt for secured credit cards. In addition, it helps to regularly review your scores.
At icicidirect.com, you can get access to your Credit Information report at the click of a button. You can also subscribe for our Loan Portfolio Services. The service can help you monitor your loan outstanding and credit scores every month.
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. Do walk into any of your Neighborhood Financial Superstore and talk to us.
2
The success of personal finance management depends on how well we balance our assets and liabilities. While it is important to work towards increasing assets, our liabilities require just as much attention. In fact, overlooking loan or other debt obligations can sometimes put your assets, built over a period of time, in trouble.
In order to manage them, we need to understand different types of liabilities, their significance and necessity. While taking a loan, the purpose becomes as important. A loan for a depreciating asset or for discretionary spending like holidays, buying an expensive watch or dress is not always a good idea, until you have a plan to repay it well in time. In a way it is a good idea to match the tenure of the loan with the tenure of the utility for which you have taken a loan for. Loans utilized to achieve financial goals like property purchase, business establishment or higher studies produce beneficial output in long-term. We believe a borrower should be able to interpret this distinction between good debt and bad debt. Of course over leveraging (not having enough income to pay) even for a good-case loan is not a good idea.
Other factors like rate of interest, loan term, tax regulations, pre-closure or loan transfer terms, lender's reputation and ability to repay loan also need to be taken into account before applying for a loan. Our cover story is highlighting all such basics in detail. The purpose of this edition is to enlighten our readers about important aspects of loan.
Another essential element - credit worthiness needs careful attention. In talk with Mr. Hrushikesh Mehta - Vice President & Head - Direct to Consumer Interactive, CIBIL, we provide an insight into how credit history of an individual shapes his loan application. He explains the concept of credit score and its importance. His message for the borrowers is 'always pay your dues on time and ensure that you are being prudent and not using too much credit.’
The April edition of Money Manager also offers comprehensive review of mutual funds recommended by our research team. The top two stock picks of the month are also selected by some of our finest research analysts. So stay updated, manage taxes and keep reading to stay financially fit. Do write us back at moneymanage [email protected] any queries or feedback.
Your magazine is now also available on www.magzter.com, a digital newsstand.
ICICIdirect Money Manager April 2017
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
3ICICIdirect Money Manager April 2017
MD Desk.........................................................................................1
Editorial...........................................................................................2
Contents..........................................................................................3
News..............................................................................................4
Stock ideas: Rallis India & Deccan cement....................................5
Flavour of the Month
The seamless loan process is making us more dependent and
in some cases careless. If you are taking a loan to fulfil a
financial goal you must know what factors to check and
get the best deal possible. There are number of things to be
considered and questions to be answered before you sign the
dotted line. Questions like…......................................................14
Tête-à-tête: CIBIL expert on credit score
Hrushikesh Mehta - Vice President & Head - Direct to
Consumer Interactive, CIBIL, explains the concept of credit
score and its importance............................................................21
Ask Our Planner
Our financial expert answers your personal finance queries...25
Mutual Fund Analysis
Which are the top performing mutual funds in current market
scenario? Check these top three funds recommended by our
research team.............................................................................28
Quiz Time.......................................................................................36
Prime Numbers..............................................................................3 7
4
EPFO weighs exit policy to maximise returns on investments
Retirement fund body EPFO has decided to bring out an exit policy to liquidate its investments in government securities, ETFs and state loans to maximise returns for its members. The Central Board of Trustees (CBT) had decided to provide 8.65 per cent interest on EPF deposits for 2016-17 in December last year. But the finance ministry had not approved the same and asked the EPFO to reduce it by up to 50 basis points to avoid any deficit.
Courtesy: The Economic Times
Edelweiss Global Asset and Wealth Management has raised $350 million for the final close of its second credit-focused fund, Edelweiss Special Opportunities Fund (ESOF) II, said a senior executive of the firm.The fund achieved a first close of $205 million in June 2015.Edelweiss's second credit fund comes at a time when a host of other firms in the alternative investment space are in the market to raise credit-focused funds. These include the likes of Reliance AIF Asset Management Co. Ltd, Avendus Capital and private equity firms Kohlberg Kravis Roberts & Co. Lp and Baring Private Equity Asia.
Courtesy: Livemint
Edelweiss raises $350 million for credit-focused fund
Infosys to hire more locals in USIT major Infosys plans to focus more on local hiring in the US and is also looking at setting up development and training centres in the country as part of its efforts to tide over visa-related issues.Infosys has been in favour of a healthy mix of local and global personnel even though hiring locals in overseas markets often pushes up operational costs for IT outsourcing firms.With the US mulling over various measures to make visa norms stricter under the Donald Trump administration, Indian IT firms have been contemplating tweaking their business models and accommodating more locals.
Courtesy: Asian Age
ICICIdirect Money Manager April 2017
Mobile phone users, especially those who travel within India, would be greeted with a lower bill for April as India's major telcos — Bharti Airtel, Vodafone India, Idea Cellular and Aircel —-have taken giant steps towards abolishing roaming in their attempt to match Reliance JioInfocomm's offers. Starting April 1, Bharti Airtel, Vodafone India, Idea Cellular and Aircel have already abolished incoming charges while roaming.
Courtesy: The Economic Times
Get ready for lower phone bills as telcos do away with roaming charges
5
STOCK IDEAS
ICICIdirect Money Manager April 2017
Deccan Cement– Well poised to ride uptick in demand!!!
Company Background
Investment Rationale
Strong up-tick in demand expected
in company's key markets…
Deccan Cements (DCL) was
promoted and incorporated as
a public limited company in
1979 by MB Raju, who is also
its current executive chairman.
DCL has an installed capacity
of 2.3 MT. The company's plant
is located in Nalgonda
(Telangana). It is largely a retail
focused cement player and
sells cement under the brand
name Deccan Cement in
A P / Te l a n g a n a ( 4 8 . 0 % ) ,
Karnataka (16.0%), Tamil Nadu
( 1 7 . 0 % ) a n d Ke r a l a &
Maharashtra (17.0%). The
cement plant is self-sufficient
in power. Focus on high
realisation markets and captive
power plants have enabled
DCL to register healthy
margins. With the demand
revival in the south, improving
pricing scenario and operating
leverage benefit, we expect
sales and EBITDA to grow at a
CAGR of 9.9% and 19.2%,
respectively in FY17E-19E.
Post bifurcation of AP, the
southern region has witnessed
a healthy improvement in
demand (up 4% in FY16 and
14% in 9MFY17) mainly led
byhigher government spend
from AP and Telangana
(substantiated by 3x increase
in ordering activities in Fy16).
Going forward, we expect
cement demand in the AP &
Telangana region to further
improve main ly led by
infrastructure projects like
Polavaram project ( 36,000
crore project) i rr igat ion
pro jects and Te langana
housing scheme (2,70,000
2BHK houses). Further, the
Andhra Pradesh government
has proposed to invest
32,000 crore to develop its new
capital Amaravathi. We believe
all cement companies within
the vicinity of AP & Telangana
will be a direct beneficiary of
the increased demand (CAGR
of 8.0% over the next two or
three years).
New capacity expansion in the
southern region during Fy13
`
`
Slow pace of capacity addition in
southern region to boost utilisation!
6ICICIdirect Money Manager April 2017
STOCK IDEAS
16 slowed down to 7 MT vs.
about 37 MT in the preceding
three years. Going forward, we
expect capacity expansion to
further slow down to ~6 MT in
FY17E-19E. Hence, supply
p r e s s u r e f r o m n e w
p layers /capac i ty should
remain low. Further, with
improvement in demand led
by infra projects and individual
house builders we expect
demand (~25 MT) to outpace
supply (~6 MT) positively
impacting utilisation levels. We
expect utilisation to improve
from 62% in FY17E to 70% in
FY19E thereby positively
impacting margins led by
operating leverage benefits.
DCL enjoys better pricing in its
key markets for its products
compared to its other smaller
comparable peers. As a result
of healthy pricing and better
cost management (lower
employee cost led by higher
contracted employee and
lower power cost), DCL has
been able to maintain healthy
profitability over the years. In
Higher realisation in company's key
markets and cost efficiency enable
Deccan to post better margins
the worst year of FY14, in the
southern region where most
comparable players reported
insignificant EBITDA margins
(close to zero), Deccan was
able to not only maintain its
margins but also expand its
margins from 13.0% in FY13 to
15.0% in FY14 mainly due to
healthy realisation. Going
forward, as demand improves,
we expect the company to
register 19.2% CAGR in
EBITDA in FY17E-19E mainly
led by healthy realisation and
operating leverage benefit.
With the recovery in south
region coupled with capacity
expansion, we expect sales
and EBITDA to grow at a CAGR
o f 9 . 9 % a n d 1 9 . 2 % ,
respectively, in FY17E-19E.
DCL is currently trading at an
EV/EBITDA of 6x in FY18E and
5x in FY19E. With anticipated
improvement in financial
p e r f o r m a n c e , w e h a v e
ass igned an EV/EBITDA
multiple of 6-6.3x in FY19E,
arriving at a target price of
1,400-1,450/share.
Improving macros, attractive
valuations
`
7ICICIdirect Money Manager April 2017
STOCK IDEAS
Stock Data
Key Financials
Valuations Summary
Net Sales 579.1 575.7 633.0 694.9
EBITDA 114.6 102.5 127.9 145.7
Net Profit 45.6 51.9 70.0 82.5
EPS (`/share) 65.1 74.1 100.0 117.9
` crore FY16 FY17E FY18E FY19E
P/E 17.4 15.3 11.3 9.6
Target P/E 22.3 19.6 14.5 12.3
EV / EBITDA 7.6 8.0 5.9 4.7
P/BV 2.8 2.4 2.0 1.7
RoNW 16.4 15.4 17.5 17.4
RoCE 24.5 20.0 24.2 24.0
FY16 FY17E FY18E FY19E
Market Capitalization 792.4
Total Debt (FY16) 106.1
Cash and Cash Equivalent (FY16) 27.5
Enterprise Value 871.0
52 week H/L 1220 / 653
Equity Capital 7.0
Face Value (`) 10.0
DII Holding (%) 10.0
FII Holding (%) 1.1
Key risks include:
Weak production discipline
While the south market, as a whole, appears fragmented, the fragmentation is more in AP/Telangana, where a large number of producers and sellers are present. However, the leveraged position of most sellers in AP/Telangana has led to supply discipline in the region. This production discipline has led to a sharp rise in price. Going forward, cement prices are expected to be driven by production discipline. As a result, weak production discipline would adversely impact south based cement players.
Conservative approach in expansion/cost pressure
DCL has not expanded its capacity since FY10. While this has worked in its favour, we believe that with the pick-up in demand, a conservative approach in expansion may lead to loss of market share for the company. Further, the company's cost of production has increased at a CAGR of 8.6% over FY11-16 mainly led by higher power and freight cost. While DCL has been able to offset the same with 8.8% CAGR in realisation, any inability to pass on the higher cost (led by weak pricing discipline) may adversely impact the company's financials.
8ICICIdirect Money Manager April 2017
STOCK IDEAS
ANALYST CERTIFICATION We /I, Rashesh Shah, CA, and Devang Bhatt, PGDBM 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
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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
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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
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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.
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ICICI Securities or its associates might have received any compensation for products or services other than investment banking or
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ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the
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Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service
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Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial
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document may come are required to inform themselves of and to observe such restriction.
9ICICIdirect Money Manager April 2017
STOCK IDEAS
Rallis India– On firm footing; quality play!!!
Company Background
Rallis India (Rallis) is a major agri input player domestically with a presence across the agri value chain viz. seeds & agro-chemicals (crop protection). In the agro-chemical space, the company has ~7% market share domestically while in the seeds segment through its subsidiary i.e. Metahelix, it commands a market share of ~ 3 % U n d e r t h e c r o p p r o t e c t i o n s e g m e n t , i t manufactures and markets insecticides, herbicides & f u n g i c i d e s . W i t h manufacturing facilities spread across four geographic locations domestically, the company has a capacity of 10,000 tonne of technical grade pesticides and ~30,000 tonne/litres of formulations per annum. Rallis has a strong distribution network with ~2300 dealers and 40,000 retailers, thereby covering ~80% of Indian districts. The company has got transformed from only an insecticide player to a total agro service solution provider. The transformation began in FY11 when it acquired
a majority stake in a seed manufacturing company i.e. Metahelix Life Sciences. In FY13, it acquired a majority stake in an organic manure & s o i l c o n d i t i o n e r s manufacturing company Zero Waste Agro Organics. Rallis also has an institutional and contract manufacturing arm.
The Indian Meteorological Department (IMD) in its first forecast for the upcoming monsoon season 2017 has pegged the monsoon rainfall at 96% of LPA and expects it to be normal in nature. IMD also expects monsoons to be spatially well distributed across the country. IMD has assigned a probability of 38% for normal monsoons. Normal monsoons bode well for the domestic agriculture sector and should result in healthy f a r m p r o d u c t i o n a n d consequent increase in farm income. It is positive for all agri
Investment Rationale
Normal monsoon forecasts for 2017 and increase in cotton acreages a double boost for Rallis…
10ICICIdirect Money Manager April 2017
STOCK IDEAS
input companies including Rallis India. Furthermore, majority of agro-chemicals domestically find application in cotton crop, which witnessed a decline in acreages to the tune of ~12% in FY17 primarily tracking low profitability in FY15-16 and occurrence of increasing pests. However, given remunerative cotton crop prices currently and low pest occurrence in FY17, we expect cotton acreages to witness strong double digit growth in FY18E, driving growth in earnings on both the Metahelix (cotton seeds) as wel l as domest ic agro-chemical front.
U n i o n B u d g e t 2 0 1 7 - 1 8 delivered on its expectations with a clear focus on achieving its vision to double farm i n c o m e b y 2 0 2 2 . D u e emphasis was given to both productivity and better farm realisations. Total allocation towards agriculture & farmer welfare was increased 16% YoY to 41,855 crore in FY18E. Notably, a sizable increase in allocation to the insurance
Farmer centric Budget 2017-18; focused to double farm income by 2022
`
scheme PMFBY to 9000 crore (up 64% YoY) and irrigation scheme (PMKSY) to 7377 crore (up 28% YoY) in FY18E was encouraging. Moreover, the government increased allocation towards subsidy under farm mechanisation to 525 crore in FY18E (vs. 358 crore in FY17E). Furthermore, agricultural credit in 2017-18 was fixed at record levels of 10 lakh crore (up 11% YoY). T h i s w i l l b o o s t f a r m productivity & consequent f a r m i n c o m e t h e r e b y benef i t ing al l agr i - input companies, including Rallis India.
Rallis is a portfolio stock with a p r e s e n c e a c r o s s t h e agricultural value chain and good brand recall. It is a debt free company with net cash of ~ 150 crore as of FY17E. The company will generate ~ 200 crore as free cash flow per year in FY17-19E. Rallis also has robust return ratios with average FY16-19E RoCE & RoIC at 22% & 34%, respectively. We expect sales, on a consolidated basis, to grow at 9.8% CAGR in
`
`
``
`
``
Portfolio stock; healthy balance sheet & return ratios, recommend BUY!
11ICICIdirect Money Manager April 2017
STOCK IDEAS
Stock Data
Key Financials
Valuations Summary
FY17-19E with PAT growing at a CAGR of 17.1% in FY17-19E, f a c t o r i n g i n 1 5 0 b p s improvement in EBITDA margins. We value Rallis at 300 i.e. 25x P/E on FY19E EPS
`
of 12.0. We have a BUY rating on the stock with a target price of 300. Rallis is indeed a stock worth holding in one's portfolio with a long term investment horizon.
`
`
Net Sales 1,611.6 1,665.1 1,845.9 2,006.7
EBITDA 230.1 266.2 313.2 350.6
Normalized PAT 143.0 170.3 197.0 233.4
Normalized EPS (`/share) 7.4 8.8 10.1 12.0
` crore FY16 FY17E FY18E FY19E
FY16 FY17E FY18E FY19E
P/E 34.0 28.9 24.7 20.8
Target P/E 40.8 20.3 29.6 25.0
EV / EBITDA 21.4 17.7 14.8 12.8
P/BV 5.4 4.4 4.0 3.5
RoNW (%) 15.9 15.1 16.0 17.0
RoCE (%) 20.1 19.9 22.8 23.6
Market Capitalization 4,862.5
Total Debt (FY17E) 39.7
Cash and Cash Equivalent (FY17E) 187.4
Enterprise Value 4,714.8
52 week H/L 265 / 180
Equity Capital 19.5
Face Value (|) 1.0
DII Holding (%) 12.2
FII Holding (%) 5.7
12ICICIdirect Money Manager April 2017
STOCK IDEAS
Key risks include:
Weather conditions/ Inadequate Monsoons
Rallis' product profile is highly weather dependent, the control of which is beyond the company's ambit. Any adverse weather conditions including inadequate or excess rainfall can likely result in loss of revenues for the company. The company's core business i.e. a g r o c h e m i c a l ( c r o p protection) is also dependent on weather & soil conditions which result in growth of pests & weeds. Any anomaly in the a b o v e m i g h t a l t e r t h e occurrence of pests & weeds which can result in loss of revenues for the company. Though the initial forecast (IMD at 96% of LPA) point towards normal monsoon activity in 2017 however any deviation on the negative side and its uneven distribution can adversely affect the implied profitability at Rallis.
Failure to develop new products
Though Rallis enjoys a good brand recall but failure to develop any new products according to the market needs can adversely affect the company's financials. The c o m p a n y ' s i n t e r n a l benchmarks i.e. Innovation Turnover Index has moved to a lower trajectory (Innovation index at 15, 10, and 11 in Fy14 16 vis-à-vis 30, 30, 31 in Fy08 10) depicting decreasing share o f r e v e n u e s f r o m n e w products. Though there might we some blockbuster product by the company which had been launched more than 4 years ago and hence not accounted under this index, but still any reduction in launches of new products can h a m p e r t h e g r o w t h i n company's revenues going forward.
13ICICIdirect Money Manager April 2017
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.
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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 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.
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Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
14
FLAVOUR OF THE MONTH
Some basics before taking out a loan
ICICIdirect Money Manager April 2017
The seamless loan process is making us more dependent and in some cases careless. If you are taking a loan to fulfil a financial goal you must know what factors to check and get the best deal possible. You should know if the loan is beneficial or can be a burden on your personal finance. There are number of things to be considered and questions to be answered before you sign the dotted line. Questions like:
Do you really need it?The most fundamental yet neglected question you should ask is 'Do I really need the loan?' Because the amount that we repay is not only the borrowed amount (principal) but also the fees charged by l e n d e r f o r u s i n g h i s money(interest). So it doesn't make sense to take a loan just because it is accessible or
because there are tax-benefits associated with it. Give all v i a b l e o p t i o n s s e r i o u s consideration before deciding to borrow from the bank.
Is it a good loan or a bad loan?Yes. Depending on the purpose of the loan, we can categorize loans into two types – good loans & bad loans. Any loan that helps the borrower build an appreciative asset over a period of time (like buying a house)is considered good loan. And a loan taken to fulfill luxurious needs or to acquire assets that do not increase in value (foreign vacation) is grouped as bad debt. Below is the summary of different loans based on its utility.
1. Home loanThis is a good debt under most circumstances. With soaring real estate market, value of
Taking a loan for a new house or car or television set has become easier than it was a few years ago. Today, there's a loan for every possible requirement andwith rapid developments in technology, banks and Non-banking Financial Companies (NBFCs) are reaching to even the remotest consumer in India. But while access to money has become simpler, guidelines for borrower remain unchanged. That is, what should you consider before taking a loan.
15
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2017
residential properties are most likely to grow over years. Besides, house is the most reliable asset when it comes to financial security. Home loan for second house is also a productive move as it can generate income in the form of rent , provided that the borrower is capable to repay two debts at a time. What more, you can avail tax benefits under section 80 and 24 of Income Tax Act on both principal and interest amount of the home loan.
2. Education loanSpending on one's education helps to build firm human asset and thereby product ive outcome. The asset o f knowledge and skills that will stay with an individual forever and eventually help him enhance his career. Borrowing money to support higher s t u d i e s m a y n o t g i v e immediate tangible results, but it carries long-term advantage of making us financially independent.
3. Business loanLoan taken out for developing the business, acquiring funds, expanding work space , m a r k e t i n g c a m p a i g n s ,
e x t e n d i n g w o r k f o r c e , managing work capital or for any purpose that promotes growth of your business is a good loan.
4. Personal loanThese are easy-to-get but high interest rate loans which are used to bridge the gap between financial needs and one's inability to pay for them now. Unless there is an inevitable emergency and no other source of f inance available, personal loans should be avoided. Taking a personal loan for medical crisis or house renovation is justified up to certain extent but using it for funding a foreign vacation, pre-closure of another loan, paying credit card bills, helping friend or fulfi l l ing other luxurious indulgences is simply a bad idea.
5. Auto loanEveryone dreams of owning a house and a car at some point of his life. A house, as mentioned above, is an appreciative asset. But a car or any other vehicle starts depreciating in value the moment it's driven out of the showroom.Moreover, with proper financial planning, it is
16
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2017
possible to purchase a vehicle in cash. So why get a loan and pay interest for the asset that is not even making any money for you.
6. Credit cardAnother type that comes at very high interest rates are loans on credit card. They are considered as bad debt and leave an unhealthy trace on your credit report if failed to repay on time. Credit card balances are also a form of loan and a bad one indeed. Penalties for delayed bill payments can get as bad as 40% interest per annum. Hence, steer clear of them.
7. Loan against assetTaking a loan against gold, securities, insurance and fixed deposits can be treated as good or bad depending on purpose of the loan. Borrowing money against these is a better option than liquidating entire investment.
8. Consumer durable loanThis type of loan is consumed for purchasing household or lifestyle products like laptop, washing machine, television sets, modern furniture, mobile phones etc. Although such loans come at 0% interest rate
there are two drawbacks linked here – a. processing fee is c h a r g e d b . p r o d u c t s purchased are depreciative. So in any case it's better to not apply for them.
Once you have decided to take a loan, next important thing is to pick the correct lender and select the best suitable offer. Having a solid purpose alone is not enough to apply for loan. There are other important things to be considered which shape your loan requirement. Such as:
• Financial status-quoYour current financial status depicts your ability to repay the loan. Although the bank checks your credit worthiness before making you an offer, you should a lso know your limitations. Remember, the EMIs should not make it difficult to make the ends meet. Take a loan that is easy to repay because living beyond means only adds up to the financial stress. If you are already paying dearly towards housing and car loan, it may not be wise to apply for second auto loan. Use online EMI calculator to know your loan eligibility. Give all the correct details in order to
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2017
get the most suitable loan amount for your profile.Even a difference of few hundreds can
affect your loan amount considerably. Check out following examples:
Case 1:
Case 2:
Case 3:
Source: ICICI Bank (home loan EMI calculator)
• Loan termA loan term is the period of loan agreement, and borrower is bound to repay the debt before or at the end of this term. If you can afford bigger EMI adjust it with shorter loan term. For instance, monthly EMI of Rs. 25,000 for 25 years or Rs. 30,000 for 20 years,
which one will you choose? The latter one is bettersince there's no sense in carrying the debt obligation for extra five years.Also, while finalizing the agreement ask your lending institution about pre-closure clause and penalties of such action.
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2017
• Interest rateCompare in teres t ra tes charged by different banks.
Take help of online portals to figure it out. Even a difference of 0.25% is significant.
The thumb rule is - 'do not jump
on the first opportunity you
come across.' Weigh all the
loan offers and take your time
before making your mind.
• Tax benefitsGood debts like home loanand
education loan are eligible for
tax benefits in our country. For
the home loan of ready-to-
move in property, repayment
of principal amount (up to Rs.
1, 50,000) & interest (up to Rs.
2, 00,000) is eligible for tax
deduction u/s 80C & 24
respectively. Other charges
l i k e s t a m p d u t y c o s t ,
registration fees, processing
fees & home loan insurance
premium are also tax-efficient.
If it's your first housing loan,
you can avail additional tax
break of Rs. 50,000 under
section 80EE.
Those taking education loan
for higher studies can claim tax
deduction over entire interest
repayment. However, this
deduction can only be claimed
within 8 years from the date of
first interest payment or until
entire interest amount is
repaid, whichever is earlier.
• Pre-closure and other charges
Paying outstanding amount
before the loan term ends
seems like financial relief but
there can be penalties tied to
this provision. Your bank may
charge you on pre-closure
(paying loan balance in full) or
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2017
prepayment (paying partial
amount) of the loan to
compensate for its loss of
interest rate. There are fees on
balance fund transfer, if you are
shifting from current bank to
another bank that offers lower
interest rate. If the penalty
levied by your current lender is
huge and you are shifting loan
for marginal interest rate,
there's no sense in applying for
transfer. Read the terms and
conditions in your loan
agreement ca re fu l l y to
understand all such charges.
When is it OK to take loan?So if taking loan is such a
complicated business, why
take it in the first place? Why
not just save money to attain
our goals? Right? No. Because
saving big amount is a time
consuming process and there
are certain circumstances
when taking loan is inevitable.
Some goals require immediate
attention. So borrowing
money to overcome these
difficulties is, in fact, the most
appropriate way to handle the
situation.
Medica l emergenc ies , for
instance, are one of such
unannounced difficulties.
Although health insurance
efficiently safeguards medical
crisis, a large number of people
are still oblivious to insurance
benefits. In the absence of
adequate health insurance
cover, taking loan is not only a
permitted option but also
necessity.
Also, credit worthiness and loan
are mutually responsible
factors of our personal finance.
The ability to repay loan on
t ime se ts the f inanc ia l
character of a person. So
taking loan (and repaying it on
schedule) is one way to build
and improve your credit score.
This is viable only if your
routine expenses are not
suffering due to this new debt.
If you qualify for special loan
schemes that are available at
lower interest rate repaying it is
a lot easier. For example, the
government has introduced
several schemes like Shree
Shakti Package, MahilaUdyam
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2017
Nidhi Scheme. Pradhan Mantri
Mudra Yojana etc. to fund
aspiring business women.
W o m e n a l s o e n j o y
concessional rate of interest
over housing loans. Many
banks offer special doctor loan
schemes to cater to the
financial needs of the doctors.
Therefore, look around all your
options before signing on the
dotted line.
Lastly, if interest rate is lower than
returns on investment it is wiser
to take a loan instead of
liquidating asset to overcome
financial crunch. Wouldn't it be
smarter to take a loan at 12%
interest rate than to give up on
an investment that generates
20% annual returns?
Bottom lineIt is important to understand
the repercussions of failing to
repay debt. The loan is taken
out to fulfill urgent necessities
that cannot be accomplished
due to cash unavailability. A
foreign vacation or desire to
buy second vehicle are
luxurious indulgences and not
necessities. Debt is a liability
that shouldn't outweigh your
financial balance.
One smart way to manage
personal finance is to make
i n v e s t m e n t s t h a t g i v e
rewarding returns in both
short-term and long-term
periods. Start an emergency
fund by investing small
amount every month to tackle
unforeseen events in life.
S e l e c t a S y s t e m a t i c
Investment Plan (SIP) in equity
mutual fund that is fast-to-
grow and easy-to-liquidate.
P r i o r i t i z e h i g h - y i e l d
investments, do a detailed
research before taking big
decisions (such as loan).
Nothing can fail a well-
composed financial planning.
The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities
21
Tête-à-tête
ICICIdirect Money Manager April 2017
'CIBIL Score provides testimony of your financial discipline to lenders'
Q.
A.
Can you briefly explain the
concept of credit score to our
readers?
A credit score is a 3 digit
numeric summary of one's
credit report. A credit report is
one's credit payment history
across loan types and credit
institutions over a period of
time. A credit report does not
contain details of your savings,
investments or fixed deposits.
The score is derived by using
the details found in the
"Accounts" and "Enquiries"
sections on your credit report
and ranges from 300 to 900
points. The score provides a
lender with an indication of
your "probability of default"
based on your credit history.
The closer the individual's
Score is to 900; the more
favorably the loan application
will be viewed by a lender.
A CIBIL Score and Report
provides testimony of your
financial discipline to lenders
when you are applying for a
loan or credit card. A CIBIL
Score and healthy credit report
i nd i ca tes tha t you a re
managing your loans and
credit accounts well and are
Given the importance of CIBIL Score and Report, monitoring it should be treated as
a credit health management exercise, and not only something you do when you
need a loan. Therefore individuals should monitor their CIBIL Score & Report
through the year, says Hrushikesh Mehta – Vice President &Head - Direct to
Consumer Interactive, CIBIL. It has been observed that 79% of all loans are
provided to consumers with a CIBIL Score of 750 or more, he adds. Excerpts:
Hrushikesh Mehta,
Vice President &Head
Direct to Consumer Interactive, CIBIL
22ICICIdirect Money Manager April 2017
Tête-à-tête
financially savvy.
How is the credit score
calculated?
The score is calculated
based on the following factors:
• Past Performance: Individ
uals past performance on
their debt obligations is the
most important criterion
and contributes approxi
mately 30% weightage to
the score.
• Credit Type & Duration: Type
of loan availed whether
secured or unsecured loan,
and the duration of credit
h i s t o r y e s t a b l i s h e d
contributes an additional
25% to the score.
• Credit Exposure: The total
amount of credit exposure
contributes another 25%
• Other factors: Other factors
such as credit utilization,
recent credit behavior
contribute the remaining
20% to the score.
What steps should be taken to
ensure good credit discipline and
how does that help establish good
Q.
A.
Q.
credit history?
Here are steps that you can
take to improve and maintain
their CIBIL Score and report:
• Pay your loan EMIs and credit
dues on time: Ensure you pay
the EMIs on your loans and
your credit card bills by the
due day every month. Your
payment history has a
significant impact on your
C IB IL Score . Regu la r
payments of EMIs and credit
card bills will help you build
a high credit score and a
healthy credit report.
• Keep a control on your credit
card limits: While increased
spending on your credit
cards may not necessarily
negatively affect your CIBIL
Score, an increase in the
current balance on the card
over time is an indication of
an increased repayment
burden and may negatively
impact your score. It's
always prudent to not use
too much credit.
• Limit credit exposure: The total
size of your debt reflects on
your credit report and has an
A.
23ICICIdirect Money Manager April 2017
impact on your CIBIL Score.
Having many loans or credit
cards increases the total
amount of debt you owe and
increases your credi t
exposure. High credit
exposure may impact your
CIBIL Score. If you have
many loans running ensure
that you close some of them
so that your total credit
exposure is reduced, before
you apply for new loans.
• Maintain a healthy mix of credit:
A higher concentration of
home loans or auto loans
(commonly known as
Secured Loans) is likely to
be more favorable for your
CIBIL Score than a large
number of unsecured loans.
Although unsecured loans
offer easy access to finance,
it's also by far the most
expensive form of credit.
More the number o f
unsecured loans with high
utilization, larger are the
payments resulting from its
high rate of interest
• Monitor your co-signed, joint
accounts monthly as these
also form a part of your
credit history and impact
your CIBIL Score.
• Monitor the loan accounts
for which you have stood as
a 'guarantor'. It is important to
understand that by pledging
as a guarantor on the loan,
y o u a r e a l s o l e g a l l y
responsible towards the
timely repayment of the
loan. In case of defaults and
de l inquenc ies by the
principal borrower, the CIBIL
Score of the guarantor will
a l s o g e t n e g a t i v e l y
impacted. Hence, i t ' s
i m p e r a t i v e t h a t t h e
guarantor on the loan
should ensure that the
borrower pays the EMIs
regularly on the due date,
month on month.
• Review your CIBIL Score and
credit history regularly in
order to track your financial
standing and be “loan
ready” always.
In a nutshell, always pay your
dues on time and ensure that
you are being prudent and not
using too much credit.
Tête-à-tête
24ICICIdirect Money Manager April 2017
Tête-à-tête
Given the importance of your
CIBIL Score and Report,
monitoring it should be treated
as a credit health management
exerc ise , and not on ly
something you do when you
need a loan. Therefore
individuals should monitor
their CIBIL Score & Report
through the year.
How financial institutions weigh
credit worthiness of a borrower
based on three-digit number?
It has been observed that
when financial institutions
appraise credit the CIBIL
Score is considered and hence
does plays an important role in
the approval of your loan or
credi t card appl icat ion.
However, the final sanction/
rejection of a credit facility is
the decision of the concerned
financial institution. There are
o t h e r f a c t o r s t h a t t h e
concerned financial institution
may consider and these may
include:
• Other loans reported on
your credit report – this
gives lenders an indication
of your existing debt and
Q.
A.
any missed payments that
you may have
• Your current income – the
amount of income you have
a v a i l a b l e t o s u p p o r t
a d d i t i o n a l m o n t h l y
payments is important to
the loan approval. A rule of
thumb is that you are
unlikely to get existing credit
if your total EMIs exceed
50% of your monthly salary.
• KYC documentation – the
lender will require adequate
identity and address proof.
For purchase of property like
a home or a car the
a p p r o p r i a t e t i t l e
documentation will be
required before the loan is
disbursed.
What is the ideal credit score for
opting for loan?
While each bank will have its
own credit score cut-off
b a s e d o n t h e c r e d i t
sanctioning policies, it has
been observed that 79% of
all loans are provided to
consumers with a CIBIL
Score of 750 or more.
Q.
A.
25
ASK OUR PLANNER
ICICIdirect Money Manager April 2017
Financial planning for stable investment portfolio
Q.
A.
Q.
M y t o t a l i n c o m e i s approximately Rs. 11.5 lakh. My NPS deductions amount to total of Rs. 1.40 lakh. I also have home loan for which 60000 is principal amount. Can I claim benefit of savings to 2 lakh by splitting my NPS amount to include it in additional 50000 to make it 2 lakh?
- Puneet Sharma Yes, you can. The amount
contributed to NPS can be claimed only once – you can claim the same under either Section 80C or Section 80CCD(1b) or split and claim under both, provided it does not cross the limits specified under these sections.
I have got a new job and started to earn from February 2017. My monthly salary, after all deductions is around Rs. 23,000, with no major monthly expenses. I am planning to go for an MBA in the year 2019/2020. I want to build a corpus to fund a part of my MBA university fees. Currently, i'm invested in HDFC Mid Cap Opportunities Fund and Mirae Asset Emerging BlueChip Fund with an SIP of Rs. 1,000 in each of them. Should I invest in other modes of investment
too, or is this two funds sufficient?- Samarth Kumar
The funds opted by you are e q u i t y - o r i e n t e d a n d specifically invest into mid-cap companies. These funds carry higher risk and are more suitable for a longer time horizon i.e. 10 years or more. Since you are planning for your post graduation in another 2 years, it's better to invest into short-term debt mutual funds or growth option of monthly income plans, if you want to have a little exposure into equity.
Also, you will have to increase the monthly investment amount, depending on the fee required to be paid. For eg., if your fee is Rs.3 lakh, then the monthly investment required would be around Rs.11,500.
I have been salaried for ten years in a PSU and holding a PPF account also. I had already crossed 80c limit of tax savings. Besides that I have an endowment fund investing 54k annually.I have just started SIPs in equity funds and currently have 8 lacs in Fixed Deposits. Want to invest it in Debt
A.
Q.
26
ASK OUR PLANNER
ICICIdirect Money Manager April 2017
funds and switch systematically to equity funds. But there are a lot of debt funds in market. I am confused which to go for. My objective is long term wealth creation and I want this 8 lacs to be parked in debt funds and switch the extra units earned over time to equity funds. Please suggest me the different debt funds with portion of amount to invest or else a better investment plan for wealth creation.- D Mohapatra
You can consider ultra-short term mutual funds / short term funds with lesser average duration. Please refer our Research recommendations in ICICIdirect.com > Research > M u t u a l F u n d s > Recommended Funds > Investment Horizon 1 month – 12 months, to know the name of the funds in which you can invest this lumpsum amount and start a Systematic Transfer Plan (STP) to equity funds.
You can also refer the list of E q u i t y f u n d s u n d e r Recommended Funds in the above link to know the name of the equity funds in which you can t rans fer the funds systematically every month from the debt funds.
A.
Q.
A.
I have a pension plan since 22-Mar-2007 and going to expire on 22-Mar-2017, and I am depositing 20,000 annually towards its premium. By now I have deposited 2,00,000 in last 10 years and the entire corpus is amounting 3,50,000 now. I have nottaken any 80C deductions against this policy as it was not required.
I know that since it is a pension plan, the annuity will be taxable. All of the life insurance advisers from the insurance company told me the following: If I transfer this corpus into another existing/new ULIP plan (non- pension) of the same insurance company through TOF (transfer of fund) facility, after the maturity of this new ULIP, the whole maturity amount will be non-taxable under section 10(10(D). However my chartered accountant is suggesting me that it will be taxable. Please clarify.
- Manish Gupta Irrespective of whether you
have claimed any deduction for the premiums paid to the pension policy under Section
rd80C, only 1/3 of the maturity proceeds of the pension policy can be received as lumpsum, which is exempt from tax, and
rdfrom the balance 2/3 , you will get annuity, which is taxable.
27
ASK OUR PLANNER
ICICIdirect Money Manager April 2017
Do you also have similar queries to ask our experts? Write to us at: [email protected].
rdThe 2/3 maturity amount has to be converted to annuity immedia te ly or can be deferred, but cannot be utilized or transferred to a new policy.
rdThe 1/3 maturity amount can be withdrawn or utilized in any manner like buying a new policy; however, that amount is already exempt from tax.
I took aICICIPru LIFETIME SUPER PENSION policy in 2007 and paying a premium of Rs 3500 every month. I want to know the taxes and charges that will be levied if I want to withdraw as lump sum at maturity.
- Surya Challa Since it's a pension policy,
you will be able to withdraw rd
only 1/3 of the maturity proceeds as lumpsum, which will be exempt from tax. The
rdbalance 2/3 amount will be utilized to purchase an annuity, which will be added to your income and taxed as per your income slab in the years of receipt. Generally, there will not be any charges levied at ma tu r i t y ; however, i t ' s suggested to check your policy document for the same.
Q.
A.
Q.
A.
I'm a 45 year old housewife. I have total 6 fixed deposits ranging from Rs. 75,000 to Rs.3,00,000. I w a n t e d t o k n o w t h e t a x implications/TDS associated with fixed deposit. Please explain.
- Reema Shah If the source of funds for
fixed deposits is your own, then the interest will have to be shown as your income and taxed as per your income during the year.
The bank shall deduct TDS, if the interest income exceeds Rs.10,000 in a financial year. However, if you do not have any other income, you can submit Form 15G to the bank every financial year declaring that your income, including the interest income, is less than the taxable limit. Based on your declaration through Form 15G, the bank shall not deduct any TDS.
However, if the source of funds for fixed deposits is your husband's income, the interest earned on these fixed deposits will be added to his income and taxed as per his income slab.
MUTUAL FUND ANALYSIS
28
Arbitrage Funds
ICICIdirect Money Manager April 2017
Arbitrage funds are equity funds that exploit market inefficiencies that manifest in the form of price differences between securities in the cash (equity) segment and the derivatives segment. This is done by relatively low risk transactions of purchasing shares in the cash segment and selling corresponding futures in the derivatives segment. Inefficiencies in the market lead to pricing differences of an underlying stock between the cash and derivatives market. Arbitrage funds specialize in identifying these opportunities and exploiting them in order to generate returns.
Since these funds invest more than 65% of the corpus in equity or equity related instruments, they are taxed as equity oriented funds and consequently dividends are tax free for the investor and there is no capital gains incidence after one year.
Investors can look at arbitrage funds as alternatives to liquid funds. This is because arbitrage funds are a lower risk product and are safe and carry little risk. The fund managers reduce the risk of equities by hedging against the derivatives. However, investors should note that performance of these funds would depend on the extent of arbitrage opportunities available in the market.
IDFC Arbitrage Fund
Fund Objective:
The investment objective of
the Scheme is to generate
capital appreciation and
income by predominantly
i n v e s t i n g i n a r b i t r a g e
opportunity in the cash and the
derivative segments of the
equity markets and the
arbitrage opportunity available
within the derivative segments
and by investing the balance in
debt and money market
instruments.
Key Information:NAV as on March 31, 2017 ( ) 20.7
Inception Date December 21, 2006
Fund Manager Yogik Pitti, Arpit Kapoor
Minimum Investment (`)
Lumpsum 5000
Expense Ratio (%) 0.92
Last declared YTM
Exit Load 0.25% on or before 1M
Benchmark Crisil Liquid Fund Index
Modified Duration
`
Product Label:
This product is suitable for investors who are seeking:
• To generate low volatility
Investing in Arbitrage Fund
29
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2017
returns over short to medium term
• Investments predominantly in arbitrage opportunities in the cash and derivative segments of the equity markets and the a r b i t r a g e o p p o r t u n i t i e s available within the derivative segment and by investing the balance in debt and money market instruments market and in unhedged equity
Performance:The performance of this category follows arbitrage
opportunities available in the market. Fund has delivered 6.24% return over 1 year period and annualised 7.96% in the last 3 years. The fund's performance is not strictly comparable to its benchmark (Crisil Liquid) as recently liquid funds have benefited from high short term rates, while market conditions dictate arbitrage scope. Overall the fund remains among the better performers in the category.
6.2
4
7.0
7
7.3
5
7.1
1
7.6
2
-
2.00
4.00
6.00
8.00
10.00
1 Year 3 Year 5 Year Since Inception
8.0
4
7.9
6
8.3
6
Fund Benchmark
Performance vs. Benchmark
Portfolio:IDFC Arbitrage fund invests in arbitrage opportunities in the cash and the derivative segments of the equity markets. It aims to capture the spread between the cash and f u t u r e s m a r k e t b y simultaneously executing buy in the cash market and sell in the futures market. The balance is invested in debt and
money market instruments. The fund typically follows a strategy of taking market neutral (equally offsetting) positions in the equity market making it a low risk product irrespective of movements in equity market.
The fund has close to 70% holdings in cash and cash
Our View:
30
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2017
equivalents and ~15% in deposits which are placed as margin. Within equities, the fund is not as focused towards a particular market cap as some of its peers and takes exposure to mid cap stocks as well as large cap stocks.
IDFC Equity Arbitrage Fund is a consistent performer in its peer group. Investors looking for a relatively safe option in the equity space with liquid fund – like returns can look at this fund as an option.
%
70.11
8.3
6.68
4.03
3.24
2.91
2.84
2.61
2.32
2.28
Power Finance Corpn. Ltd. SR-139 C BD 08.17% (18-Aug-18) Corporate Debt
Maruti Suzuki India Ltd. Domestic Equities
Indiabulls Housing Finance Ltd. Domestic Equities
Bharat Financial Inclusion Ltd. Domestic Equities
Bharat Petroleum Corporation Ltd. Domestic Equities
Aurobindo Pharma Ltd. Domestic Equities
Cairn India Ltd. Domestic Equities
Top 10 Holdings Asset Type
Net Current Asset Cash & Cash Equivalents
HDFC Bank Ltd. Deposits (Placed as Margin)
IndusInd Bank Ltd. Deposits (Placed as Margin)
%
0
0.1
0
Whats In
Power Finance Corporation Ltd.
Tech Mahindra Ltd.
NMDC Ltd.
%
0
0
0
Whats Out
Kaveri Seed Company Ltd.
Kaveri Seed Company Ltd.
Mahindra & Mahindra Financial Services Ltd.
Data as on March 20, 2017; Portfolio details as on Feb -2017Source: ACE MF, ICICIdirect Research, AMC factsheet
You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://www.idfcmf.com/Downloads.aspx
31
MUTUAL FUND ANALYSIS
ICICI Pru Equity Arbitrage Fund
Fund Objective:To generate low volatility returns by using arbitrage and other derivative strategies in e q u i t y m a r k e t s a n d investments in short-term debt portfolio.
ICICIdirect Money Manager April 2017
Key Information:Performance:The fund has delivered 6.5% return over 1 year and 8.4% annualised return over 3 years. The performance of the fund has not been compared to the benchmark (Nifty 50 Arbitrage Index) as the benchmark has been in existence for less than a year.
Although the performance has slipped slightly within the last year, over a horizon of 1-3 years and beyond the fund is among the top performers in its category.
Product Label:
This product is suitable for investors who are seeking*:
• Short term income generation solution
• An equity fund that aims for low volatility returns by using arbitrage and other derivative strategies in equity markets.
NAV as on March 31, 2017 (|) 21.8
Inception Date December 30, 2006
Fund Manager Kayzad Eghlim,Manish Banthia
Minimum Investment (|)
Lumpsum 5000
Expense Ratio (%) 0.89
Last declared YTM
Exit Load 0.25% on or before1M, Nil after 1M
Benchmark Nifty 50 Arbitrage Index
Modified Duration
Fund Benchmark
Performance vs. Benchmark
6.5
1
7.2
7
-
2.00
4.00
6.00
8.00
10.00
1 Year 3 Year 5 Year Since Inception
8.3
9
7.8
7
Portfolio:
The fund aims to have a controlled exposure to equity
with a view to have reasonable returns. The fund primarily focuses on large cap stocks and
32
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2017
%
8.7
4.59
3.17
3.08
3.01
2.8
2.78
2.73
2.71
2.56
HDFC Bank Ltd. Deposits (Placed as Margin)
CBLO Cash & Cash Equivalents
Maruti Suzuki India Ltd. Domestic Equities
Top 10 Holdings Asset Type
Housing Development Finance Corporation Ltd. -175D (30-Aug-17) Commercial Paper
ITC Ltd. Domestic Equities
Tata Capital Financial Services Ltd. SR-L OPT I 9.55% (01-Sep-17) Corporate Debt
Kotak Mahindra Bank Ltd. Deposits (Placed as Margin)
Axis Bank Ltd. Domestic Equities
ICICI Bank Ltd. Domestic Equities
Housing Development Finance Corporation Ltd. -364D (13-Oct-17) Commercial Paper
%
0.1
0.2
0.1
Idea Cellular Ltd.
DLF Ltd.
Tech Mahindra Ltd.
Whats In
%
0
0.1
0.1
Whats Out
Jet Airways (India) Ltd.
Ultratech Cement Ltd.
HCL Technologies Ltd.
You can view performance of other schemes being managed by the fund manager of this scheme on the following link:
http://www.icicipruamc.com/docs/default-source/default-document-library/fund-factsheet-for-mar270000ff41026ea9a3af27f6b7597bc2. pdf?sfvrsn=0
Data as on February 14, 2017; Portfolio details as on January -2017Source: ACE MF, ICICI Direct Research
selective participation in the initial public offerings.
The fund concentrates on generating reasonable returns w i t h l o w v o l a t i l i t y b y predominantly using equity derivative strategies. The Fund Manager may employ a combination of the following cash arbitrage and equity arbitrage strategies.
The fund has the flexibility of increasing its exposure to 35% in debt securities.
Among its equity portfolio the
Our View:
f u n d l o o k s p r i m a r i l y a t established names in the large cap space. It also takes exposure to corporate bonds, unlike some of the peer group offerings. Its level of commercial paper holding is higher compared to other arbitrage funds, also featuring ~0.7% G-Sec holding.
ICICI Pru Equity Arbitrage Fund has a proven long term track record. In the prevai l ing conditions where markets are not range bound investors looking at arbitrage category can consider this fund.
33
MUTUAL FUND ANALYSIS
Kotak Equity Arbitrage Fund
Fund Objective:T o g e n e r a t e c a p i t a l appreciation and income by predominantly investing in arbitrage opportunities in the cash and derivatives segment of the equity market, and by investing the balance in debt a n d m o n e y m a r k e t instruments
ICICIdirect Money Manager April 2017
Key Information:
Product Label:
This product is suitable for investors who are seeking*:
• I n c o m e f r o m a r b i t r a g e opportunities in the equity market
* Inves tment i n a rb i t r age opportunities in the cash & derivatives segment of the equity market.
Performance:The fund has delivered 6.3% return over 1 year and 8.14% annualised return over 3 years. The performance of the fund has not been compared to the benchmark (Nifty 50 Arbitrage Index) as the benchmark has been in existence for less than a year.
Although the performance has slipped slightly within the last year, over a horizon of 1-3 years and beyond the fund is among the top performers in its category.
NAV as on March 31, 2017 ( ) 23.4
Inception Date September 29, 2005
Fund Manager Deepak Gupta
Minimum Investment (`)
Lumpsum 5000
Expense Ratio (%) 1.10
Last declared YTM
Exit Load 0.25% on or before30D, Nil after 30D
Benchmark Nifty 50 Arbitrage Index
Modified Duration
`
Performance vs. Benchmark
Fund Benchmark
6.3
1
7.3
2
-
2.00
4.00
6.00
8.00
10.00
1 Year 3 Year 5 Year Since Inception
8.1
4
7.6
7
34
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2017
Portfolio:Kotak Equity Arbitrage Fund looks to capture the spread or a rb i t r age oppor tun i t i es be tween the cash and derivative segments.
The fund also holds ~9.4% in high rated corporate debt while the majority of the portfolio is held in equities and cash equivalents.
%
70.5
5.34
4.15
4.11
3.26
3.25
3.01
2.84
2.44
2.07
Mahindra & Mahindra Financial Services Ltd. SR-CX2015 (23-Oct-17) Corporate Debt
Maruti Suzuki India Ltd. Domestic Equities
Housing Development Finance Corporation Ltd. SR-Q-006 7.67% (23-Nov-17) Corporate Debt
Kotak Mahindra Prime Ltd. SR-I (28-Jul-17) Corporate Debt
Reliance Industries Ltd. Domestic Equities
Top 10 Holdings Asset Type
Axis Bank Ltd. Deposits (Placed as Margin)
HDFC Bank Ltd. Deposits (Placed as Margin)
Net Current Asset Cash & Cash Equivalents
Kotak Floater-ST(G)-Direct Plan Domestic Mutual Funds Units
IndusInd Bank Ltd. Deposits (Placed as Margin)
%
0.1
0.1
0
Whats In
Biocon Ltd.
Canara Bank
Indian Oil Corporation Ltd.
%
0
0.4
0
Ultratech Cement Ltd.
HCL Technologies Ltd.
Havells India Ltd.
Whats Out
Our View:
Kotak Equity Arbitrage Fund is one of the few funds in the category to hold Mutual Fund units. Its major equity holdings are primarily in the large cap space, however there is p r e s e n c e o f m i d c a p companies as well.
The fund is a solid option for investors due to its long term track record of consistent performance.
You can view performance of other schemes being managed by the fund manager of this scheme on the following link:
http://assetmanagement.kotak.com/fact-sheet
35
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2017
Performance of other schemes managed by the fund manager Yogik Pitti
16.56 11.11 11.87IDFC Sensex ETF -- -- --
S&P BSE Sensex 14.96 9.78 11.44
IDFC Arbitrage Plus Fund - Reg(G) 6.50
CAGR Returns %Fund Name
1 year 3 year 5 year
6.83 7.36Crisil Liquid Fund Index 7.11 8.04 8.36
IDFC Nifty ETF -- -- --
NIFTY 50
Performance details of other schemes managed by the concerned fund managers: 1. IDFC Arbitrage Fund
2. ICICI Pru Equity Arbitrage Fund
ICICI Pru Nifty Next 50 Index Fund(G)
NIFTY 100
ICICI Pru Nifty iWIN ETF
NIFTY 50
ICICI Pru Sensex iWIN ETF
S&P BSE SENSEX
ICICI Pru Blended B (G)
Crisil Liquid Fund Index
Performance of other schemes managed by the fund manager - Kayzad Eghlim
1 year 3 year 5 year
13.73
18.55 11.01 11.60
23.07 19.15
8.04
ICICI Pru Nifty 100 iWIN ETF 21.59
NIFTY NEXT 50 33.92
13.12 10.30 9.34
7.11
ICICI Pru Blended A (G) 6.27 7.44
Crisil Liquid Fund Index 7.11 8.04
8.36
18.08 11.08 12.54
16.88 9.77 11.21
8.36
8.65
34.70 23.00 19.05
20.87
19.96
12.78
12.25
12.72
Fund NameCAGR Returns %
Top 3 Performing Schemes :
Bottom 3 Performing Schemes :
Note : The schemes may or may not have been managed by the same Fund Manager since its inception
Note: Kayzad Eghlim manages 11 other schemes of the concerned Mutual Fund
ICICI Pru Balanced Advantage Fund (G)
I-Sec Li-Bex
ICICI Pru Long Term Plan
Crisil Composite Bond Fund Index
ICICI Pru Income Opportunities Fund (G)
Crisil Composite Bond Fund Index
ICICI Pru Regular Gold Savings Fund (G)
Performance of other schemes managed by the fund manager - Manish Banthia
Fund NameCAGR Returns %
1 year 3 year 5 year
17.94 14.70 15.48Crisil Balanced Fund - Aggressive index 16.10 11.36 11.12ICICI Pru Gilt Invest - PF (G) 13.76 13.27 10.36
-- -- --
1.61 -1.03 -0.51
-0.28 -0.08 0.30
13.58 13.24 11.88
11.09 11.26 9.45
10.21 10.91 9.84
Top 3 Performing schemes :
Bottom 3 performing schemes :
Gold-India
ICICI Pru Gold iWIN ETF -2.51 0.17 -0.69
Gold-India -0.28 -0.08 0.30
11.09 11.26 9.45
-
Note : The schemes may or may not have been managed by the same Fund Manager since its inception
Note : Manish Banthia manages 8 other schemes of the concerned Mutual Fund
Performance of other schemes managed by the fund manager
Kotak World Gold Fund(G) 9.69 12.52 -22.71
FTSE Gold Mines -- -- --
Kotak Equity Savings Fund(G) 11.10 3.09 --
Nifty 50 Arbitrage Index, Nifty 50 -- -- --
Kotak Global Emerging Market Fund (G) 19.94 -7.66 28.04
MSCI Emerging Market Index -- -- --
Bottom 3 performing schemes :
Kotak Banking ETF 33.77
NIFTY PSU BANK 44.00
CAGR Returns %
Kotak Tax Saver Scheme(G) 29.78 23.28 16.68
Nifty 500 23.91 15.22 13.61
Fund Name1 year 3 year 5 year
Kotak PSU Bank ETF 44.42
NIFTY BANK 32.85 18.93 15.9745
9.30 2.23
8.79 0.82
Top 3 performing schemes :
Note : The schemes may or may not have been managed by the same Fund Manager since its inception
Note: Deepak Gupta manages 12 other schemes of the concerned Mutual Fund
3. Kotak Equity Arbitrage Fund
QUIZ TIME
1. Loan taken out for purchase of the second house should be treated as bad debt. True or False
2. ______________ & _______________ carry highest interest rate among all types of loan.
3. Special loans are offered for doctors at concessional rates. True or False
4. Value of household appliances ___________ over time.
5. A personal loan taken out to clear credit card balance is good loan. True or False
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 March 2017 quiz are:
1. Interest paid towards home loan up to Rs. 2 lakh is eligible for tax deduction under section __________.
A. 24
2. Donations made towards prescribed causes and institutions are eligible for tax deductions. True or False
A. True
3. Person with severe disability is liable to claim __________deduction u/s80U.
A. Rs. 1.25 lakh
4. If the cost of health insurance of a parent is split between two children, only one child can claim tax benefit. True or False
A. False
5. 40% of the maturity proceeds generated from ________ are exempt from tax.
A. NPS (National Pension System)
Congratulations to the following winner for providing correct answers at the earliest
Uma Rengaswamy, B S R Murthy, Amit K Singh
36ICICIdirect Money Manager April 2017
37
PRIME NUMBERS
Equity Markets
ICICIdirect Money Manager April 2017
Domestic Equity Indices
Global Equity Indices
Sectoral Indices
31-Mar-17 28-Feb-17 Change (%)
CNX Nifty 9173.8 8880.0 3.3%
CNX Midcap 17197.2 16480.0 4.4%
S&P BSE Sensex 29620.5 28743.3 3.1%
S&P BSE 100 9494.4 9190.7 3.3%
S&P BSE 200 3991.9 3858.8 3.4%
S&P BSE 500 12631.9 12177.0 3.7%
31-Mar-17 28-Feb-17 Change (%)
Dow Jones 20,663.2 20,812.2 -0.7%
S&P 500 2,362.7 2,363.6 0.0%
Nasdaq 5,911.7 5,825.4 1.5%
FTSE 7,322.9 7,263.4 0.8%
DAX 12,312.9 11,834.4 4.0%
CAC 40 5,122.5 4,858.6 5.4%
Nikkei 18,909.3 19,119.0 -1.1%
Hang Seng 24,111.6 23,740.7 1.6%
Shanghai Composite 3,222.5 3,241.7 -0.6%
Taiwan Weighted 9,811.5 9,750.5 0.6%
Straits Times 3,175.1 3,096.6 2.5%
31-Mar-17 28-Feb-17 Change (%)
S&P BSE Auto 22,012.7 21,486.1 2.5%
S&P BSE Bankex 24,420.8 23,482.4 4.0%
S&P BSE FMCG 9,270.3 8,800.0 5.3%
S&P BSE Healthcare 15,312.4 15,385.0 -0.5%
S&P BSE Metals 11,804.5 11,893.1 -0.7%
S&P BSE Oil & Gas 13,563.6 13,534.5 0.2%
S&P BSE Power 2,274.4 2,195.8 3.6%
S&P BSE Realty 1,600.0 1,495.1 7.0%
S&P BSE Teck 5,771.5 5,765.4 0.1%
38
PRIME NUMBERS
ICICIdirect Money Manager April 2017
Debt Markets
Government Securities (G-Sec) Yields (in %) Mar-17 Change (bps)Feb-17
Corporate Bond Yields (in %) Change (bps)Mar-17 Feb-17
Commercial Paper (CP) Rates (in %) Change (bps)Mar-17 Feb-17
Treasury Bill (T-Bills) Yields (in %) Change (bps)Mar-17 Feb-17
Volatility Index (VIX)
31-Mar-17
VIX 12.42 13.79 0%
28-Feb-17 Change (%)
10 year 6.67 6.87 -20
5 year 6.75 6.80 -5
3 year 6.56 6.58 -1
1 year 6.26 6.34 -8
AAA 10 year 8.07 8.02 5
AAA 5 year 7.73 7.63 10
AAA 3 year 7.45 7.32 13
AAA 1 year 7.15 6.99 16
AA 10 year 8.35 8.32 4
AA 5 year 8.08 8.06 2
AA 3 year 7.93 7.79 14
AA 1 year 7.52 7.48 3
12 Months 7.24 7.34 -10
6 Months 6.96 7.06 -10
3 Months 6.61 6.84 -23
1 Month 6.50 6.58 -8
91D TB 5.78 6.10 -33
182D TB 5.87 6.16 -28
364D TB 6.10 6.21 -11
39
PRIME NUMBERS
10-year benchmark yields (%) across countries
ICICIdirect Money Manager April 2017
Macro-economic Indicators
Consumer price index (CPI)
Wholesale price index (WPI)Month
Countries 31-Mar-17 28-Feb-17 Change in bps
US 2.39 2.39 (0)
UK 1.14 1.15 (1)
Japan 0.07 0.06 1
Spain 1.65 1.66 (0)
Germany 0.33 0.21 12
France 0.97 0.89 8
Italy 2.32 2.08 24
Brazil 10.06 10.24 (17)
China 3.29 3.33 (4)
India 6.68 6.87 (19)
MF Investment Mar-17 Feb-17 YTD
Equity 2368 1855 53603
Debt 40085 38627 321476
FII Investment Mar-17 Feb-17 YTD
Equity 33782 10485 55104
Debt 26094 5980 -9633
Items Weights(%) Jan-17 Feb-17 Mar-17
Food&bev. 45.86 1.37 2.39 2.46
Pan,tob& intox. 2.38 6.36 6.25 6.23
Cloth & Foot 6.53 4.71 4.38 4.60
Housing 10.07 5.02 4.90 4.96
Fuel & light 6.84 3.34 3.90 5.64
Misc. 28.31 4.98 4.79 4.78
CPI 100 3.17 3.65 3.81
Weights Mar-16 Feb-17 Mar-17WPI 100.0 -0.45 6.55 5.70Primary Articles 20.1 2.97 5.00 4.63Fuel & Power 14.9 -8.30 21.02 18.16Manufactured Goods 65.0 0.13 3.66 2.99
40
PRIME NUMBERS
Commodities
Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research
ICICIdirect Money Manager April 2017
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 31, 2017
Debt Funds Returns (in %)
Returns as on March 31, 2017
Tenure Liquid Funds Short-termincome funds
Ultra short-term funds
Long-termincome funds
Gilt funds
Index of industrial production (IIP) Sector-wise growth rate (%)
Currencies and CommoditiesCurrencies
Categories 28-Feb-17 31-Jan-17 16-Dec-16 Weight(%)Mining 3.3 5.3 5.5 14.2Manufacturing -2.0 2.9 -1.7 75.5Electricity 0.3 3.9 6.3 10.3
31-Mar-17 28-Feb-17 Change (%) StatusUSDINR 64.85 66.83 3.0% AppreciatedEURINR 69.30 70.42 1.6% AppreciatedGBPINR 80.92 82.42 1.8% AppreciatedAUDINR 49.57 51.14 3.1% AppreciatedCHFINR 64.83 66.16 2.0% AppreciatedJPYINR 0.5801 0.5872 1.2% AppreciatedCNYINR 9.416 9.711 3.0% Appreciated
31-Mar-17 28-Feb-17 Change (%)Crude ($/barrel) 52.8 55.6 -5.0%Gold ($/ounce) 1,249.4 1,248.3 0.1%
6 months 7.54 8.84 6.24 7.191 year 26.27 33.03 21.75 25.213 year 20.36 30.04 15.76 19.265 year 17.08 24.41 14.58 16.84
6 months 6.08 6.81 6.71 5.96 6.55
1 year 6.75 9.00 7.91 10.23 11.80
3 year 7.77 8.95 8.34 10.04 11.17
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