ICICI Jan 17 Issue Final For CTP - ICICI Directcontent.icicidirect.com/MoneyManagerMagazine/January_2017.pdfCompany Ltd, provides us with real estate outlook for 2017. His expert comments

49

Shilpa KumarMD & CEO

ICICI Securities Ltd.

The year 2016 was an eventful year which witnessed significant global events such as Brexi t , U.S. Presidential elections and a hawkish shift in the Fed's interest rate stance. For India, the year ended with an equally landmark event in the form of demonetization, the impact of which will undoubtedly last for some time.

2017 promises to be an equally interesting year with a significant line-up of several elections globally (Germany, France, Netherlands, Iran etc.) as well as in some of the key Indian states of UP, Punjab, Gujarat, Himachal Pradesh, Manipur Goa, and Uttarakhand.

The global market also awaits the implications of Trump policies in key areas such as fiscal stimulus, tax cuts , t rade agreements and infrastructure spending. Global trade and capital flows may witness a major shift, if the policy is more inward looking. Trade barriers, if implemented, could also quell the labour arbitrage which the EM's currently enjoy because of trade agreements and weaker currency. A more inward looking US plan with a fiscal stimulus and tax cut could propel growth in the US economy and also push the Dollar higher.

Against this backdrop, India continues to be one of the few economies with relatively strong macro-economic fundamentals, a reform oriented government, lower inflation/interest rate regime and a favourable demography supporting sustainable growth.

However, the key question is: Will demonetization have significant impact?

The private consumption leg of the economy will get impacted by demonetization in FY17E. The impact, however, could be short-lived for a few months with a pullback expected towards the end of FY17E. The GDP growth rate in FY18E, therefore, is likely to witness a recovery with remonetisation of adequate currency in the system and subsequent pick-up

1ICICIdirect Money Manager January 2017

in private consumption and household capex. Consequently, GDP growth in FY18E is expected at 7.6% vs. an expected growth of 6.4% in FY17E. Moreover, the government's resolve to implement structural reforms in the fundamental areas like tax, inflation, infrastructure as well as budget announcements could provide significant impetus to the Indian economy.

The expectations of a further repo rate cut from RBI has increased post demonetization due to its impact on growth and inflation dynamics. Therefore, RBI may cut repo rates in 2017 if the inflation trajectory remains benign.

The adverse effect on physical assets like real estate and gold has already encouraged investors' tilt towards financial assets like equity and bonds. However, as interest rate regime stays benign, the returns from debt instruments are likely to be lower.

From a yield perspective, Indian equities are quoting at attractive yields of 7 percent vis-à-vis 6.5 per cent that of government bonds, and hence looking relatively more attractive.

Among the sectors, Banking will be a key beneficiary of demonetization on the back of falling yields (high treasury gains) and strong accruals in CASA (lower cost of funds). Government's focus on Job creation coupled with falling interest rate regime would drive the government spending on infrastructure sector, which would benefit the Infrastructure and Capital Goods companies. Similarly, Auto, with lesser cash element involved and FMCG, with non-discretionary nature, would be the other set of preferred sector. On the other hand, Real Estate (large cash components), Cement (with real estate being the key demand driver) and Metals are sectors which may not see substantial pick up at this stage.

Global risks are likely to prevail and be a significant trigger of volatility in financial markets. The US is likely to be an attractive asset class for inflows in 2017. Strong dollar has been negative for emerging market investments and a continued strengthening of the dollar continues to strengthen, may see drying of FII flows into emerging markets.

To sum up, the Indian market, despite these challenges and uncertainty in the near term, continues to remain an attractive long term investment destination with relatively stable and stronger growth prospects.

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.

2

As we start the investment journey for 2017, itis a good time to listen to what the experts have to say about the outlook for the year based on previous performance of different asset classes, global economic changes and other important financial events.

Investment strategies take cue from the economic indicators, trends and activities. It therefore becomes important to know them well. Our cover story this month is a compiled piece of experts' view on economic outlook 2017. Fund managers from renowned Asset Management Companies share their views on market growth, inflation, expectations from different asset classes and investment plans to follow.

Pankaj Pandey, Head of Research, ICICIdirect, gives us a fundamental insight into the Indian market for 2017. While Amit Gupta, Assistant Vice President, Research, ICICIdirect, shares his quant yearly outlook.

In the aftermath of demonetization experts are positive about India's economic growth. Given the low interest rate scenario, most experts continue to support equity as a preferred asset class to build long-term wealth creation portfolio. All in all, this month's 'Flavour of the month' is a financial review of upcoming months by veterans.

In our guest column, RohitSalhotra MD & CEO, ICICI Home Finance Company Ltd, provides us with real estate outlook for 2017. His expert comments on where the sector is heading in the near future is worth a read, especially taking into account the recent focus the real estate sector has been in due to demonetization.

So read on, stay tuned and updated. Write your feedback to [email protected] and share your thoughts with us. Team ICICIdirect Money Manager wishes you a happy and prosperous 2017.

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

ICICIdirect Money Manager January 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


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

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

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

Stock ideas: Linc Pens & Plastics, Shree Pushkar Chemicals........4

Flavour of the Month

As we step into a new fiscal,investment experts share their

viewpoints and expectations from 2017. Their advices are

rather enlightening and helpful for retail investors while

gauging investment choices in the year ahead........................ 14

Guest Column

Mr. Rohit Salhotra, MD & CEO, ICICI Home Finance Company

thinks recent financial developments may create far reaching

consequences for real estate industry in coming years, but expects

stable absorption over the period of time. Find out about his views on

real estate market in detail in our special segment of this month......32

Ask Our Planner

Our financial planner answers personal finance queries to help

you build a substantial portfolio more easily............................ 36

Mutual Fund Analysis

It's time to remain constructive in balanced funds and maintain

stability in the portfolio. Check these top three funds

recommended by our research team........................................39

Equity Model Portfolio.....................................................................52

Quiz Time.......................................................................................56

Prime Numbers...............................................................................57

4

STOCK IDEAS


Linc Pen & Plastics – Prominent player, Branded play...

Company BackgroundLinc Pen & Plastics (Linc) is a leading writing instrument c o m p a n y e n g a g e d i n manufacturing and distribution of pens (ball point & gel), refills and pencils. Linc is also the sole distribution agent of Mitsubishi Pencils (Japan) in India and markets their popular brand Uniball. Linc was established in 1994 with a product basket of over 200 products. It has been a key innovator with regular up-gradation of its product profile to suit its customer needs. In 2000, it launched gel pen “Hi-S c h o o l ” f o r 1 0 / u n i t (prevailing price for gel pens was 15-20/unit). In 2003, it e n t e r e d t h e g l o b a l marketthrough private label supplies to Wal-Mart. In 2012, Linc entered into a capital alliance with Mitsubishi Pencil Company (Japan) wherein Mitsubishi picked up a 13.5% stake in Linc. It has an installed capacity to manufacture 76 crore pens annually and is running at ~90% plus capacity utilization levels as of Fy16. S e n s i n g t h e c a p a c i t y constraints, it is executing a

`

`

Greenfield expansion in Gujarat with a capex spend of ~ 26 crore and capacity of 15 crore pens which will ensure healthy Sales & PAT growth over FY16-19E

The total domestic writing instrument industry size is pegged at ~ 3300 crore, which is growing at a CAGR of ~6% in FY10-16. In India, pens constitute ~80% of the total writing instrument industry with pens less than 15/unit MRP constituting ~80% of the market size. In terms of end users, students form the majority i.e. ~55% of total industry end users. Major players in the domestic market include Cello with a market share of ~20%, Reynolds (13%), Luxor (~10%) and Linc (~ 10%). Linc is a prominent brand domestically with a s t rong b rand p resence particularly in the east, North-East states of West Bengal & Bihar and northern states of Uttar Pradesh (UP), Delhi &

`

`

`

Investment Rationale

Linc - prominent brand, market leader domestically, poised for gains


STOCK IDEAS

Rajasthan. Thus, with rising literacy rates (74% as of 2011, vs. 18% in 1951), high proportion of school-going population (~40%) and pen being an integral tool in the learning process, the domestic writing instrument industry is on a strong footing. It is expected to grow at a CAGR of 6-8% in FY16-19E, boding well for Linc, going forward.

S e n s i n g t h e c a p a c i t y constraints, Linc is setting up a greenfield project in Gujarat. The said plant will have a capacity of 15 crore pens annually and is intended to clock ~12% EBITDA margins. The peak turnover from the facility will be ~ 60 crore with intended RoCE of ~20% on a total capex spend of ~ 26 crore. Linc's management has also renewed its focus on moving up the value chain by offering greater value added higher MRP product. In Fy08, the mass & premium segment shares in the total sales mix w a s a t 8 8 % & 1 2 % , respectively. However, the same in FY15 was at 67% &

Impressive expansion; new product launches; increasing exports, to aid growth!

`

`

33%, respectively. Currently, Linc realises ~30% of its sales from exports ( 97 crore) wherein they market their products in ~50 countries w o r l d w i d e . L i n c i s aggressively targeting the exports markets with overall aim of increasing the share of export sales from ~30% currently to ~50% in the next few years. This is given the increasing penetration of writing instruments in the developing world (including Africa) and need for cost effective quality pens in the developed world, including Europe.

Linc is a prominent brand domestically with ~2500 distributors and product availability at 1 lakh retail outlets. It is indeed a branded play available at inexpensive valuations of ~1x MCap/sales vs. past transactions wherein its competitors domestically were valued at ~2.4-4.0x MCap/Sales. It has a lean balance sheet with debt: equity (FY17E) at 0.4x and is expected to decline in FY18E-19E. Its

`

Branded play; healthy B/S; robust return ratios, warrant re-rating, recommend BUY!


STOCK IDEAS

Stock Data

Key Financials

Valuations Summary

working capital requirements are also controlled with net working capital days at ~90 days. Linc also realises healthy return ratios with FY16 RoE & R o C E a t 1 8 % & 1 6 % , respectively. Going forward, with demand drivers in place a n d i n c r e a s i n g premiumisation, we expect sales to grow at a CAGR of

9.5% in FY16-19E to 452 crore in FY19E. PAT in the aforesaid period is expected to grow at a CAGR of 13.5% in FY16-19E to 27 crore in FY19E ( 18 crore in FY16). We have valued Linc at 315, i.e. 1.0x MCap/sales on FY19E sales of 452 crore and assign a BUY rating on the stock.

`

``

`

`

Crore FY16 FY17E FY18E FY19E `

Net Sales 337.3 366.8 420.5 443.2

EBITDA 31.4 36.9 45.2 49.6

Adj. PAT 18.3 19.0 22.3 26.7

Adj. EPS (`) 12.3 12.9 15.1 18.1

(x) FY16 FY17E FY18E FY19E

P/E 21.9 21.0 17.9 14.9

Target P/E 25.5 24.5 20.8 17.4

EV / EBITDA 13.7 12.0 9.5 8.3

P/BV 3.9 3.5 3.1 2.7

RoNW (%) 18.1 16.6 17.1 17.9

RoCE (%) 15.8 14.2 18.1 22.0

Market Capitalization 399.0

Total Debt 17.8

Cash 1.7

EV 415.4

52 week H/L (`) 300 / 167

Equity capital 14.8

Face value ` 10

FII Holding (%) 0.1

DII Holding (%) 1.9


STOCK IDEAS

Key risks include:

Limited volume growthIn the current digital age, the writing instrument industry is witnessing limited volume growth as the same is stagnant in developed countries while seeing a marginal up-tick in the developing world. As per industry estimates, total industry CAGR (value) in CY09-13 is pegged at 4.1% with developed regions like North America & Europe witnessing ~2% CAGR while developing countr ies l ike India are witnessing upward of 6% CAGR in CY09-13. Going forward, therefore, as far as the global outlook for the writing i n s t r u m e n t i n d u s t r y i s concerned it is going to be a purely pricing led growth in developed markets like US & Europe and pricing + volume led growth in developing

markets like India and Africa. Therefore, due to rising digitalisation, the scope for volume led growth for Linc is limited, going forward.

Linc has been a keen innovator with new product launches across the years to match the changing consumer demand and taste. It incurs high advertisement and brand promotion costs in these new product launches. Total brand bu i ld ing & promot iona l expense incurred FY16 was | 11.5 crore (~3% of net sales). Hence, with a strong pipeline of five to six new product launches in CY17E, there is a risk of failure of these new products. It will lead to redundant brand promotion e x p e n s e s , w h i c h i s irrecoverable in nature.

Failure of new product launches


STOCK IDEAS

ANALYST CERTIFICATIONWe /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 Sebi registered Research Analyst having registration no. INH000000990. 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 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.


STOCK IDEAS

Shree Pushkar Chemicals – Integrated textile solution play...

Company BackgroundShree Pushkar Chemicals & Fert i l i zers (SPCL) is an integrated manufacturer of dye intermediates and dyestuff which is primarily used as a colouring agent in the textile industry. SPCL is a zero effluent discharge company thereby utilising process wastes to manufacture other essential products like fertilisers and cattle feed. SPCL is a two decade old firm started by first generation entrepreneur Punit Makharia. In dye intermediates (~70% of sales in FY16), SPCL manufactures mainly vinyl Sulphone & H-acid among thers. In fertilisers segment (~20% of sales in FY16), it has a marketing tie-up with DCM Shriram group. Acid complex & cattle feed constitute the remaining 9% of sales as of FY16. SPCL also has its own brand “Dharti Ratna” in the soil conditioner space. SPCL is forward integrating itself t h e r e b y v e n t u r i n g i n t o manufacturing of dyestuff with phase 1 (3000 tonne) already commissioned and running & phase 2 (3000 tonne) due to

commission by FY17E. This will ensure a robust Sales & PAT growth going forward over FY17-19E.

As per industry estimates, the total dye intermediate and dyestuff market size is pegged at ~600,000 tonne per annum (TPA) and ~565,000 TPA, respectively. The global dyestuff industry is largely saturated and growing at a CAGR of 2-3% annually. China is the industry leader with a market share o f ~80% followed by India with a market share in excess of 15%. However, the industry is witnessing a paradigm change with a shift in production in favour of India vs. China amid i n c r e a s i n g s t r i n g e n t environmental regulations and mandatory requirements to set up effluent treatment plants in China. Furthermore, rising labour & power costs and declining export incentives have eroded the low cost competitiveness of Chinese

Investment Rationale

Diminishing competitiveness in China - boon for “Make in India”


STOCK IDEAS

manufacturers. This brightens the prospects of Indian manufacturers including SPCL as global customers turn to India as a strategic alternative to diversify their procurement base.

SPCL has forward integrated into the dyestuff space with a 3 0 0 0 t o n n e f a c i l i t y commissioned in January 2016 at a capex of ~| 42 crore funded through i ts IPO proceeds. It is an integrated fac i l i ty, which inc ludes associated dye intermediates capacities viz. vinyl sulphone (1000 tonne) and H-Acid (750 tonne). SPCL is further augmenting this facility by additional dyestuff capacity of 3000 tonne (capex ~| 5 crore) w h i c h i s d u e f o r commissioning by end of FY17E. The company is confident of ending FY17E with ~80% capacity utilisation levels from the first phase of dyestuff plant (3000 TPA). It expects the entire capacity (6000 TPA) to be absorbed in FY17E-19E. At the prevailing product realisation, dyestuff facility has a revenue potential

Capacity commissioning on track; volume led growth to follow

of ~| 160 crore with associated EBITDA margins at ~16-17%. At peak utilisation, the project is expected to deliver a RoCE in excess of 35%. We expect SPCL to clock sales of ~| 158 crore in the dyestuff division in FY19E vs. ~| 36 crore in FY17E thereby resulting in its share in total sales to climb to ~33% in FY19E vs. ~11% in FY17E.

SPCL has a lean balance sheet with net cash of | 24 crore (FY16). With limited capex in FY17E-19E and robust cash flow from operations (Fy16 19E average CFO at ~| 40 crore), we expect its debt free status to continue. I t a lso has a controlled working capital cycle with net working capital days at ~60 days. By virtue of r e a l i s i n g h e a l t h y 15%+EBITDA margins, ~2.5x asset turnover, it also has healthy return ratios with FY17E-19E average RoCE & RoIC at ~27% & ~34%, respectively. We believe that despite the commodity nature of its products, SPCL is well poised to see robust growth in FY16-19E due to environment c l a m p d o w n i n C h i n a ,

Inexpensive valuations; balance sheet strength to grow


STOCK IDEAS

c o m m i s s i o n i n g o f n e w capacity & market share gains domestically. Going forward, we expect sales to grow at 24.1% CAGR in FY16-19E to | 476 crore in FY19E (| 249 crore in FY16). PAT in the aforesaid period is expected to grow at a

CAGR of 33.3% to | 53 crore in FY19E (| 22 crore in FY16). We value SPCL at | 230, i.e. 14.0x PE (0.5x PEG) on FY18E & FY19E average EPS of | 16.5 and assign a BUY rating on the stock.

Key Financials

Valuations Summary

Stock Data

(` crore)

Net Sales 248.7 325.8 434.2 475.7

EBITDA 32.4 55.8 75.0 83.1

Net Profit 22.3 33.8 46.7 52.8

EPS (`/share) 7.4 11.2 15.4 17.5

` crore FY16 FY17E FY18E FY19E

P/E 25.7 17.0 12.3 10.9

Target P/E 31.2 20.6 14.9 13.2

EV / EBITDA 17.0 10.0 7.2 6.1

P/BV 3.5 3.0 2.5 2.1

RoNW 13.7 17.7 20.2 19.2

RoCE 16.7 25.0 28.7 27.8

FY16 FY17E FY18E FY19E

Market Capitalization 574.0

Total Debt (FY16) 17.7

Cash and Cash Equivalent (FY16) 41.7

Enterprise Value 550.0

52 week H/L 196 / 90

Equity Capital 30.2

Face Value ` 10

MF Holding (%) 13.0

FII Holding (%) 0.5


STOCK IDEAS

Key risks include:

Inherent high volatility of end product prices … The rea l i sa t ion o f dye intermediates closely tracks crude prices as it utilises naphthalene and aniline oil as its key raw materials, which are c r u d e & c o k i n g c o a l d e r i v a t i v e s . T h e r e f o r e , realisations are subject to a lot of volatility given volatile crude prices, more so amid frequent plant shutdowns in China, which disrupt global demand and supply scenario. On the other hand, dyestuff prices are based on monthly or quarterly pricing contracts. Hence, volatile dye intermediates pricing tends to challenge the profitability of this segment.

SPCL being a backward integrated company can partly absorb the volat i l i ty in realisations. However, it is still subject to price volatility and associated risks.

SPCL recently entered into litigation with Huntsman Chemicals with both parties claiming and counter claiming misconduct against each other. The matter is sub judice with both parties combating each other's arguments in courts in India. We consider this the prime risk associated with SPCL. The same has not been classified as contingent liability in SPCL's books.

Litigation; uncertain contingent liability …


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 Sebi registered Research Analyst having registration no. INH000000990. 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 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.

14

FLAVOUR OF THE MONTH

Economic outlook of 2017


Fundamental Outlook 2017Sensex has remained flat, over the last three years (CY14-16) with paltry CAGR returns of -1.2%. This was mainly on the back of stagnant earnings growth of Sensex companies

(EPS CAGR of 0.4% in Cy14 16). While FY17 was poised to be a year of recovery, demonetization event acted as a bump in the recovery process. As a result, we have d o w n g r a d e d e a r n i n g s expectations and expect FY17E EPS to grow 5% YoY. However we expect 3-4 months for economic activity to settle down and hit a bottom. Hence, we expect Sensex earnings for FY18E to grow at a robust pace of 26.7% YoY.

Within the index i.e. Sensex, we expect consumer oriented sectors like auto, FMCG and consumer d isc re t ionary sectors (forming ~25% weight in the index) to face an earnings downgrade on account of the demonetization event. On the other hand, sectors like capital goods, IT,

If last year was full of important events like the GST bill, demonetization, US

election, Brexit among others, their aftermaths are going to leave an impact in

2017. What else is awaiting for investors in this fiscal? How likely will GDP

growth reach up to 7%? Which asset class should rule retail investor's portfolio?

Is it time to revamp the allocation? Which sectors will or will not thrive? Which

global risks might affect Indian economy the most? What is the ideal investment

approach for this year? Experts across the field have something to say about all

these questions. Read on to know more…….

Pankaj Pandey

Head, Research,

ICICIdirect

“We expect Sensex earnings for FY18E to grow at a robust pace of 26.7% YoY”

15



Pharma, power, oil & gas and metal will witness a minuscule impact from demonetization, which cumulatively have a weight of ~43% in the overall index . On the pos i t ive side,banking, which forms ~31% of the index, will witness earnings upgrades. Hence, on a net basis, ~74% of the index will be least impacted in terms of negative earnings i m p a c t f r o m t h e demonetization drive in FY17E.

Going ahead, volatility in the earnings of midcap companies will be higher compared to that of larger companies owing to demonetization. This is owing to the fact that ~37% of the midcap index (B2C) will feel the d i r e c t i m p a c t o f demonetization compared to the large cap index where B2C facing segments carry weight of ~25% in the index. In FY18E, we expect large caps to deliver strong 26.7% YoY growth in earnings vs. 7.4% Yo Y e a r n i n g s g r o w t h estimated for NSE midcap index. Accordingly, we prefer a diversified approach in terms of allocation towards large cap and midcap space.

From a valuation perspective, the Sensex is quoting at

inexpensive valuations of 14.8x on FY18E EPS. Even from a yield perspective, Indian equities are quoting at attractive yields of 7% vis-à-vis 6.5% that of government bonds, which caps the downside for markets. Also, record inflows in MFs over the past few months will act as a strong cushion against FII outflows further providing a floor to the markets during the adverse period.

Hence, we assign a 16.5x on FY18E EPS to arrive at a fair va lue o f 30200 as our CY17/FY18E target for the Sensex and 9150 levels for Nifty.

Amit Gupta,

Assistant Vice President,

Research, ICICIdirect

16



Technical Outlook 2017Nifty likely to give 15% return

within one year from current

levels…In the major corrections of

2008 and 2011 when Nifty

r e c o v e r e d f r o m

Mean–2*Sigma levels, it

witnessed significant pull

backs and tested Mean-

2*Sigma levels only after 3-4

years . S ince N i f t y has

recovered from these levels in

2016 only. We expect it to

remain above Mean-2*Sigma

for another 2-3 years. Hence

the current declines are good

buying opportunity.

Despite surprising outcome

from the events like Brexit, US

election and Demonetization,

volatility failed to spike up and

it remain below 25%. We

believe that intermediate

corrections should get over

without any major surge in

volatility.

NSE arm IISL periodically

rebalances Nifty in line with

their pre specified criteria.

Currently, Financial Services

and Technology space holds

the highest weight in Nifty with

cumulative weightage of 45%

in the index.

As per the NSE guideline, a

maximum of 10% of the index

size (number of stocks in the

index) may be changed in a

calendar year. Hence in the

c a l e n d a r y e a r 2 0 1 7 , a

maximum of 5 stocks can be

replaced from the pool of 50.

The first Nifty rebalancing of

2017 is expected to be effective

from April 01, 2017. Hence first

announcement regarding the

same is likely to be made in the

second or third week of

February with a six week

n o t i c e . T h e s e c o n d

rebalancing is expected in

S e p t e m b e r 2 0 1 7 . T h e

expected inclusion of IOC in

Nifty would increase the

weightage of performing Oil &

Gas space. Also United

Phosphorus (UPL) would be

the only Agrochemical stock

tobe included in Nifty.

“We expect INR to trade broadly within 66-71 range in 2017”

17



Sector wise weights of Nifty

No. Stocks Sectors CMP Free Float MCAP ( Crore)`

1 Idea Telecom 76 9680

2 Bhel Industrial Manufacturing 126 11687

Stocks likely to be excluded from Nifty in 2017

No. Stocks Sectors CMP Free Float MCAP ( Crore)`

1 Indian Oil Corporation Energy 302 30857

2 UPL Ltd Agrochemcial 665 25384

Stocks likely to be included in Nifty in 2017

Stock Picks for 2017 - Based on Mean Reversion

Sectors Stocks Initiation Range Target Stoploss

Automobile M&M 1170-1190 1428 1064

Textiles Arvind 325-340 434 283

Oil & Gas GAIL 410-425 527 356

Banking Bank of Baroda 152-159 207 128

Telecom Bharti Airtel 314-327 413 272

Power NTPC 160-165 215 136

Expected INR range for 2017: 66-71• Rupee has remained one of

the best performer against US$

amongst Emerging market

currencies over last 3-years.

• W h i l e t h e o t h e r E M

currencies continue to witness

sharp depreciation trend,

Rupee has remained broadly

insulated against US$ from

mid-2014 as Fed started

ending its multi –year QE

program.

• Rupee could weaken further

as FOMC is on the path of

r a i s ing r a tes g radua l l y

18



(currently two rate hikes are

expected in 2017) which is

likely to keep Dollar strong.

•We expect INR to trade

broadly within 66-71 range in

2017. INR has strong support

at Mean+0.5*Sigma level of

65.7 and resistance at Mean

+3* Sigma level of 71.

Gold: Highest Put base is at 1100

strike for December 2017 series

• Precious metal turned

positive for 2016 after 3

continuous years of decline.

However, it was one of the

lowest yielding asset class of

2016 as it gained just over 10%

during the year. Gold was

primarily marred by dollar

s t rength and cont inued

accommodative policies of

global central banks.

• Gold showed some sign of

recovery in the mid-year and

moved towards $1350 levels.

However, sharp upside in the

Dollar amid US rate hike

expectations pulled the Gold

below $1200 levels. The net

long positions in Gold have

declined substantially in the

second half of the year.

However, the net longs are still

high compared to last 3 years

w h i c h s u g g e s t l i m i t e d

downsides for the precious

metal. We believe that precious

metal may consolidate above

$1100 with positive bias and

decline towards these levels

should be considered as good

buying opportunity.

• In the options space as well,

the highest Put base for

December 2017 is at $1100

strike which makes it important

support. On the higher side, we

expect a bounce towards

$1250-1300 to be possible in

2017.

Portfolio allocation in Derivatives

Products

• It is recommended to spread

out the trading corpus in a

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

b e t w e e n t h e v a r i o u s

derivatives research products

• Please avoid allocating the

entire trading corpus to a

single stock or a single product

segment

19



Jinesh Gopani,

Head- Equities,

Axis Asset Management Co. Ltd.

“The stage is getting set for a good longer term outcome.”

R. Sivakumar,

Head – Fixed Income,

Axis Asset Management Co. Ltd.

“Investor should look to invest in short to medium term funds as a core portfolio allocation.”

EquitiesThe broad Nifty 50 Index gave a return of 3.7 percent in Calendar Year 2016. The Nifty Fee f loat Midcap Index outperformed the Nifty 50 during this period giving a return of 7.4 percent. The Nifty 50 Index was down nearly 4.2 percent since the November 8, as the markets worried over the disruptive effect of the demonetization. The Nifty Freefloat Midcap 100 Index fell by 6.8 percent over this period.

Outlook for 2017The markets may be volatile in the short term, given that many events are on the horizon. However looking beyond that, we are positive that we are in the midst of a structural shift in how India does business with demonetization and GST. Medium term growth outlook remains strong and our job is to find companies which are best placed to take advantage of the opportunities that are being thrown up by these upheavals.

We expect growth to improve steadily over the next few quarters. Over the medium term earnings should start

20



reflecting the improvement in the growth environment and has the potential to run ahead of nominal economic growth as the cycle strengthens. Equity market valuations arebroadly reasonable. We remain bullish on equities from a medium to long term perspective.

While demonetization is causing some pain in the short term, it is a significant long term positive for the economy. This is one of a series of moves aimed at cutting down tax evasion and cutting down the informal part of the economy. This will be further aided by other reforms such as GST. Further this move is also accelerating the move away from cash to digital payment systems and accelerating financial inclusion.

The Nifty index is now conso l ida ted in qua l i ty companies and valuations at 16x based on consensus estimates are reasonable. Long term growth outlook is intact though near term outlook is hazy due to specific events. Consensus estimates at about 15 percent YoY which

are achievable if growth is back on track sooner than later, as currency comes back in hands of people especially in rural areas. The focus on tax inclusion will benefit listed organized players in long term. The stage is getting set for a good longer term outcome.

O v e r a l l w e l i k e A u t o A n c i l l a r i e s , C a p i t a l G o o d s / I n f r a s t r u c t u r e , Consumption and Media sectors and would avoid sectors like auto, commodity, energy, IT, Telecom & Utilities. Of course, the companies and bus inesses need to be i d e n t i f i e d o n p u r e fundamentals based approach i.e. bottom-up basis.

Fo r e i g n i n v e s t o r s s o l d significantly in equity markets in India in December even though flow over the last few months have been quite robust. However Domestic Institutional Investors made up for some of these negative flows during the month of December.

Advice for retail investorsThere are always uncertainties in the market and the market is always volatile in the short

21



term. Hence retail investors should always use SIPs to invest into equities. However the key risk today is not from investing but from staying out of the market. We believe that the changes ongoing in the Indian economy should lead to significant wealth creation opportunities for investors over the next 5 to 10 years.

Investors are suggested to have their asset allocation plan based on one's risk appetite and future goals in life.

Debt marketAs on December 2016, the 10 year g-sec had fallen by 124 basis points since the start of 2016. The bond market has been especially quite volatile since 8th November and is now trading at about 28 basis p o i n t s b e l o w t h e p r e -demonetization level. Indian bond performance has been at variance with the rest of the world where yields have risen sharply during the same period. The reason for yields to drop has been the positive shock to the bond market from the expected impact of demonetization.

Outlook for 2017We expect demonization to have three broad impacts. On the fiscal front the government should see better tax revenues both as a result of one-time s c h e m e s a n d b e t t e r compliance in the coming years. On the monetary front, this move has resulted in a substantial improvement in banking system liquidity that should keep the system easy for several years. Banks have begun cutting deposit rates in view of the surge in liquidity and are likely to maintain lower deposit and lending rates going forward. On a more structural basis a reduction in the pace of currency in circulation should result in a systematic improvement in core banking liquidity. Lastly there is the potential downside risk to near term growth due to the fall in economic activity due to the withdrawal of currency. All three impacts are broadly positive for bond markets and we expect yields to remain low for an extended period of t ime. This is especially true about short-term securities which are the

22



most affected by the improved system liquidity.

Lower inflation prints and weaker near term economic outlook could lead to 25-50 bps of rate cuts in the coming months.

Any economic slowdown would be very positive for long bonds. We have also seen credit spreads broadly widen in the wake of downgrades earlier in the year and more recently post demonetization. If the economic impact is relatively limited, the higher credit spreads could be an interesting opportunity in the coming months. Lastly the demonetization has led to a big increase in the deposit base of banks and has led to a large increase in system liquidity. This will lead to better transmission of RBI cuts into the markets and poses an opportunity for short-term bonds.

Advice for retail investorsInvestor should look to invest in short to medium term funds as a core portfolio allocation. In the near term the possibility of rate cuts and macro weakness also provides opportunities in

long duration assets. Investors who wish to participate in long bonds should also look at dynamic bond funds.

Global economy and markets The global context has seen strength in the US Dollar while emerging market currencies including the Indian Rupee has weakened, while commodity prices have risen.

The global backdrop was also hurting sentiment in equities as EMs saw a big sell-off post US election results. Looking beyond the next few months, US fiscal policy could turn much more expansionary. Combination of election outcome and Fed rate hike in December has led to a big bond selloff impacting global markets and emerging market currencies.

We believe that RBI's cut in rates going forward is likely to keep a lid on rates. However, we do not see a large down move to market yields in a context of rising global commodit ies, rates and w e a k e r c u r r e n c y. A n y economic slowdown would be very positive for long bonds.

23



“Indian Equity markets are attractively priced from a medium term time frame.”

2016 was an event filled year both domestically and globally. Despite these events and the higher volatility accompanying theme global equities (barring a few markets) ended on a positive note.

After 3 consecutive quarters of improvement, the earnings expectation is muted for the last quarter (Oct -Dec) given the demonetization exercise and its impact on growth since November 8th. Markets will look for guidance from companies in the conference calls over the next 2 months

and other high frequency data for current growth outlook and p a c e o f r e c o v e r y o r improvement visible in 4Q Fy17.

Outlook for 2017T h e A n n u a l C e n t r a l g o v e r n m e n t b u d g e t i n F e b r u a r y 2 0 1 7 , t h e implementation of GST and Elections in 5 states including Uttar Pradesh are critical events in the first quarter o f 2 0 1 7 . A m o n g t h e international factors the first few months of the new President in Office in the US, will determine the direction on lot of international issues. Implementation of GST will also be an important policy factor which investors are looking forward to in the near term.

We cont inue to remain optimistic on a domestic recovery suppor ted by positive macros like lower interest rates, low inflation etc. along with policy reforms and stable currency which are important variables for growth recovery. Markets have corrected meaningfully in the last few months taking away the premium valuations over

Sunil Singhania ,

CIO - Equity Investments at

Reliance Mutual Fund

24



long term averages and are now in moderate valuations zone. With many factors now showing improvement year over year and with low base allowing for earnings to rise mid-teens for the next 12-24 months, Indian Equity markets are attractively priced from a medium term time frame.

R a t e S e n s i t i v e a n d Consumption (Discretionary spends) themes are likely to benefit from the falling interest rates, lower inflation and higher disposable incomes. Key areas which are poised for a reasonable recovery include:• Urbanization – Lifestyle

changes• Rural revival post good

monsoons• Corporate Lenders • Organized Sector: Various

consumer categories like Home furnishing, Food, Healthcare etc.

Mr. Sanjay Chawla,Chief Investment Officer,

Baroda Pioneer Mutual Fund

Mr. AlokSahoo,Head Fixed Income,


Mr. Dipak Acharya,Equity,


Equity MarketOutlook for 2017We see 2017 as a year of challenges and opportunities. There are multiple variables which are likely to impact market direction in 1HF2017 – (1) Demonetization impact vs medium term benefits (2) State elections- UP election (3) Budget (4) GST (5) crude price. The government 's wel l -intentioned demonetization is likely to create business disruption in the near term. However, we believe that significant pain is unlikely to last beyond two quarters. Economic growth- which has dropped to 7.2% in 1HFY17 from 7.6% in FY16 – is expected to fall further. Globally Trump's policy and the hike in Fed rate will be major factors to impact markets.

We b e l i e v e t h a t t h e s e challenges will offer good opportunities to the long term investors. On positive side, inflation has declined, interest rates are now down to the lowest levels in near 7 years, and the Balance of Payments appears to be in good shape with lower current account

25



deficit. We expect earnings growth to pick up in FY18 after three weak years. Though Global economic environment c o n t i n u e t o r e m a i n unsupportive, global growth is coming back slowly which is very positive for emerging market in the long run.

Current valuations are not demanding. Market is looking for positive trigger in terms of - Earning improvement and Pick up in Investment cycle from private investment. However, a tough 1HCY17 calendar of events and uncertainty around oil prices makes us believe that slow, selective buying in stocks w h e r e r i s k r e w a r d i s favourable is the best tactic in near-term.

Considering all the recent developments and making a few assumptions around key events such as the impact of d e m o n e t i z a t i o n , G S T (2HFY18), budget (pro-rural, existing fiscal constraints), higher oil/commodity prices, earning estimates have been lowered in the range of 3-6% /6-8% for FY17 and Fy18. Overall, the deepest cuts have been in building materials,

cement and real estate, while oil & gas and agriculture. The roll out of the Goods and Services Tax remains by far the biggest determinant for corporate earnings in Fy18.

Advice for retail investorsTo build wealth in the long run. We continue to be constructive on Equities from a long-term perspective despite near term factors not been so favorable.

Debt MarketIn 2016, we have witnessed strong performance of the debt market. The yield curve has moved down by 125-175bps across the curve. Therefore, the long duration products have performed very well. However, there were few downgrades in the credit space which have impacted the credit funds. The performance of short term and ultra-short term product was also good as the short-term rates moved down.

Interest rate outlook 2017In 2017, we are expecting the yield curve to move down marginally. We do not expect a sharp rally across the curve. The interest rate is likely to trade in a narrow range. At best, RBI may deliver one rate

26



cut in CY 17 due to lower growth.

Key risks/ eventsIn CY 2017, the key risk to the bond market is hike in US interest rate. I f the US economy does well and FED hikes the rate faster than anticipated, it may cause disruption in the emerging markets including India. Budget is one of the key event to watch out for as the fiscal policy will have bearing on the monetary policy. Risk may arise out of sharp increase in global crude and commodity prices. Demonetization will have impact on the growth and inflation. Therefore, effects of demonetization will have bearing on the monetary policy formulation impacting the interest rate.

Advice for retail investorIn the debt space a retail investor should invest as per his risk appetite and time horizon of investment. As we are not expecting a sharp rally in the interest rate, so investment in high yield accrual product is advisable. Having said that, the investor should have the credit risk

appetite and choose the high yield accrual product carefully as we have seen some credit d o w n g r a d e s r e c e n t l y . Investors having short-term time horizon can look to invest in ultra-short term and short term products.

Mr. Harsha Upadhyaya,

Chief Investment Officer – Equity,

Kotak Mahindra AMC Ltd.

“Current weakness in equity markets could provide a favorable opportunity to investors.”

2016: The year of ups and downsAs we look back at the year gone by, the events of 2016 have been of great importance both from a domestic as well as a global market standpoint. While the year started on a

27



negative note (on back of global worries), by Feb 2016, we saw gradual recovery on b a c k o f a n i m p r o v i n g e c o n o m i c o u t l o o k , implementation of 7th Central Pa y C o m m i s s i o n ( C P C ) recommendations, better rural economic outlook on back of good rainfall in most parts of India and improving liquidity scenario resulting in lower cost of funds. After a very eventful 2016, it is that time of the year when we crystal gaze into 2017.

Equity MarketWe believe that the currency crunch due to demonetization will ease as we enter 2017, paving the way for steady resumption in consumption spending. The Indian equity markets have seen some correction since Nov '16 due to uncertainty created on account of demonetization along with a global risk off trade impacting emerging markets as a whole. While we may have to live with near term volatility, we expect that the domestic economic growth is likely to resume its upward trend post the near term challenges thrown up by

demonetization which in turn might lead to improvement in corporate earnings cycle in 2017.

The inflow into domestic funds are likely to remain undeterred g iven low exposure o f domestic household savings in equity funds. We believe that the current weakness in equity markets could provide a favorable opportunity to investors to further their exposure towards Indian equities from a long term perspective. Markets are c u r r e n t l y t r a d i n g a t 1 8 . 7 x F Y 1 7 E E P S a n d 1 5 . 3 x F Y 1 8 E E P S ( N i f t y valuations, free float basis).

GDP growthThe demonetization drive of the Government is likely to impact real GDP growth in H2FY17 as compared to H1FY17. In this regard, we are cutting our real GDP growth estimate (on Gross Value Added basis) to 6.5% for FY17E implying growth at 5.6% YoY in H2FY17E. We do however expect that the hit to be temporary in nature and that growth in FY18 would bounce back to ~7%.

28



Monetary policy: Room for RBI to cut policy rates by a further 25-50bps in Cy172HFY17 will continue to see i n f l a t i o n d e c e l e r a t i n g somewhat he lped by a favorable base effect and seasonal weakness in food prices, even as core inflation stays stable and sticky. With this backdrop we see the scope for RBI to cut rates by another 25-50bps in CY17 even while the timing of these rate cuts would be contingent upon the global environment as markets factor in Fed's policy moves and domestic growth scenario. Lending and deposit rates would be on downward trajectory with banks passing on the policy rate cuts. In this regard the State Bank of India announced a 90 bps cut in the MCLR rate (marginal cost lending rate) which is the incremental lending rate for banks.

Union Budget FY18: Direct Tax proposals at the fore; Need to stick to the fiscal deficit target through innovative financing

The next key event to watch out for will be the Union Budget to be announced on

February 1, 2017. With the implementation of the Goods and Services Tax (GST) expected in FY18, it is likely the budget would focus on direct taxes and steps to spur economic growth. These would likely be concentrated on the rural and infrastructure development.

Maintaining fiscal discipline w h i l e t r y i n g t o b o o s t c o n s u m p t i o n a n d infrastructure spend would be a tough task. In this respect, the Government has announced that IDS-II (Income Disclosure Scheme) will run till March 31 2017 which could help provide the Government some of the revenues required to meet the expenditure needs. Besides, a 30% income tax, it will impose a penalty of 10% and a cess of 10% under the new ly-introduced taxation and investment regime for Pradhan Mantr iGar ibKalyanYojana (PM's Plan for Welfare of the Poor). 25% of black money-turned-deposits will also have to be parked in a RBI-notified non-interest bearing deposit account for 4 years to fund this scheme.

29



S Naren,

Executive Director and CIO,

ICICI Prudential Mutual Fund

Investors could invest in pure equity funds in a staggered manner up to March 2017.

Equity Markets Outlook 2017For a good structural bull

market to play out, we have

observed that the three

production factors - land,

labour and capital - should

b o t t o m o u t . P o s t

demonetization, we believe

that land prices are likely to

come down, interest rates

have already fallen and labour

costs have reduced over the

last three to four years. This

means we are currently in a

situation where all the three

factors are on a downward

trajectory, which is a positive.

Now what is required is the

leveraging cycle to play out

for equities to rally and this is

likely to happen over the next

two years.

Hence, we believe there is a

case for being moderately

overweight on equities for

investors with a two year

view.

Infrastructure and telecom

are the themes that are likely

to play out over the next two

years. In the years ahead, it is

l i k e l y t h a t i n v e s t m e n t

preference may move from

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

sectors to infrastructure

sectors.

Key risksThe key risk to our view is the

sudden rise in crude price, the

other risk could be the faster

than expected rate hike by

Federal Reserve (Fed).

30



Advice for retail investorWe believe that the valuations

have turned reasonably

attractive. Investors could

invest in pure equity funds in

a staggered manner up to

March 2017.

Usua l ly, La rgecap and

Multicap funds are preferred

over pure Midcap funds..

Dynamic Asset Allocation

Fund rema ins a good

i n v e s t i n g a v e n u e f o r

conservative equity investing.

Debt MarketOutlook 2017We believe that monetary

policy has turned more

accommodative under the

n e w M o n e t a r y Po l i c y

Committee (MPC). With

continued soft inflation, a

modest recovery in growth,

real private capex and a

healthy Balance of Payment

(BoP) position, we expect the

MPC to stay dovish as they

may have room to cut rates.

We believe that with macros

remaining supportive, RBI has

room to cut rates in 2017.

However, most part of the

fixed income rally is already

played out and returns can be

moderate from hereon.

Advice for retail investorN e w i n v e s t m e n t s a r e

recommended to invest in

dynamic duration, short

duration and accrual funds.

We recommend investors to

systematically book profits

from Income and gilt fund and

switch to short duration

funds.

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

31



Statutory Details:Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall r e s u l t i n g f r o m t h e o p e r a t i o n o f t h e s c h e m e . This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Axis Asset Management Company Limited

Disclaimer:The information herein below is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsors, the Investment Manager, the Trustee or any of their directors, employees, affiliates or representatives ('entities & their affiliates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material, shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

Reliance Mutual Fund

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

The information contained herein is solely for private circulation for reading/understanding of registered Advisors/ Distributors and should not be circulated to investors/prospective investors.

ICICI Prudential Asset Management Company Limited (the AMC) takes no responsibility of updating any data/information in this material from time to time. The AMC (including its affiliates), ICICI Prudential Mutual Fund (the Fund), ICICI Prudential Trust Limited (the Trust) and any of its officers, directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. Nothing contained in this document shall be construed to be an investment advise or an assurance of the benefits of investing in the any of the Schemes of the Fund. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

ICICI Prudential Mutual Funds

32

GUEST COLUMN


Real Estate Outlook 2017: Year of Change

2016 in review:The year 2016 was an eventful

year for India's real estate

sector. While the domestic

economy benefited from lower

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

inf lat ion, muted pr ivate

investments and slowing

m a n u f a c t u r i n g g r o w t h

restrained the pace of growth.

The first half of 2016 witnessed

steady sales across the top

residential markets in India. A

time correction in prices and a

s u p p o r t i v e r e g u l a t o r y

environment worked towards

r e v i v i n g t h e c o n s u m e r

sentiment.

Demonetization effect on real

estate sectorIn the month of November'16,

the Indian economy witnessed

the sudden withdrawal of legal

tender of high-value currency

notes. The immediate impact

continues to be felt across

many sectors in the form of a

drop in growth rates and

consumption patterns. With

respect to the real estate

sector, the impact is expected

to vary across the primary and

secondary segments in the

near-term, bringing sales to

anear standstill in many micro

markets. As per media reports,

the immediate impact of

demonetization has been

It is expected that more developers will be focusing their offerings in the moderate income end-user segment of the market, says Mr. RohitSalhotra, MD & CEO, ICICI Home Finance Company Ltd. There is likely to be further curtailment of overall supply in the markets, in the short term, thus keeping pricing in control, he adds. Excerpts:

Mr. Rohit Salhotra,

MD & CEO,

ICICI Home Finance Company Ltd.

33

GUEST COLUMN


quantified as fall in housing

sales by 44% in the top eight

cities. This has also resulted in

a Rs. 22,600 crore revenue loss

to the builders and Rs. 1,200

crore notional loss of stamp

duty to the government

according to a Knight Frank

report.

The figure below shows the Q-

o-Q residential absorption

trend and available supply (as

on September 30, 2016) for the

top 7 cities in India for CY2016:

*Source: PropEquity

What is expected in 2017?Office absorption remained

stable in 2016, a trend which is

likely to continue in 2017.

Positive economic growth

coupled with increasing

business confidence index due

to government's proactive

policy initiatives will be few

factors influencing demand for

office space in 2017.

Industry sectors such as IT/

ITeS and banking/ financial

services are likely to remain the

dominant demand drivers for

office space in the country with

manufacturing, e-Commerce,

and pharmaceuticals being the

other active sectors that are

likely to generate demand for

corporate real estate space.

Hyderabad and Chennai

proved to be the imminent

commercial hubs as these

cities registered a significant

fall (4% and 3% respectively) in

vacancy rates till Q3 CY2016 in

comparison to the beginning

34

GUEST COLUMN


*Source: PropEquity

The policy reforms for the real

estate sector as mentioned

previously along with the

amendments in Real Estate

Investment Trusts (REITs)

regulations and Goods and

Services Tax (GST) Bill have

the potential to change the way

real estate sector works in

India. The push by the

incumbent government to

digitize land records, change in

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

construction industry and

setting up of a committee to

look into the strategic sale of

government assets that

i n c l u d e l a n d a n d

manufacturing units are

expected to have far-reaching

consequences for the industry

in the coming years.

Major takeaways Large deposi ts in bank

a c c o u n t s d u e t o

demonetization will lead to a

better regime in the long-term

for the residential markets due

to a downward movement of

the interest rates. Apart from

boosting banking system

liquidity, curbing the parallel

economy and a systematic

lowering of the share of cash in

economic activity are likely to

lower inflationary pressures in

the coming quarters because

of demonetization.

of the year.

The figure below shows the Q

o-Q commercial absorption

rate and vacancy rate (as on th30 September, 2016) for the

top 7 cities in India for CY2016:

35

GUEST COLUMN


In 2017, it is also expected that

more developers will be

focusing their offerings in the

moderate income end-user

segment of the market with the

government's push towards

“Housing for all” through the

honourable Prime Minister's

l a t e s t a n n o u n c e m e n t ,

whereby loans of up to Rs.9

lakh and Rs.12 lakh will now

get interest subvention of 4%

and 3%, respectively, against

initial scheme providing loans

of up to ?6 lakh at subsidised

rate of 6.5% under the Pradhan

MantriAwasYojana. With RERA nd getting implemented in the 2

quarter of 2017, there is likely

to be further curtailment of

overall supply in the markets,

in the short term, thus keeping

pricing in control.

A large young population base,

thriving IT/ ITeS and E

commerce sectors along with a

mindset shift of an average

Indian entrepreneur towards a

higher risk-appetite will fuel the

technology-startup boom in

India. This demographic

dividend is expected to

metamorphose the office real

estate industry with co-

working spaces and hot-

desking taking shape in India to

f u l f i l l t h e n e e d s o f

entrepreneurs and freelancers

of working in a cost-effective

environment. The Technology

industry-driven markets will

continue to attract major tech-

giants such as Facebook,

Apple, Amazon, Intuit etc. with

long-term investment plans.

36

ASK OUR PLANNER


Managing personal finance and monthly investments

Q.

A:

I am 24 years old and spend about Rs 10,000 per month, inclusive of all my expenses. What would be the best fixed-income investment instruments to balance my portfolio? Around 65 per cent of my investments are equity oriented. Please suggest an investment strategy for moderate risk.

- Neha Manish

Your asset allocation should be always based on your goals, rather than your risk appetite. If you do not have any short-term or medium-term goals, then you can invest more into equity asset class. Also, some portion of your allocation will be debt asset class by default, if you are employed and contributing into Employees' Provident Fund.

On the other hand, if you have any short-term / medium-term goals, then you can invest a g o o d p o r t i o n o f s u c h requirement into debt asset class. The debt funds which you have to invest have to be based on the duration of the goal. For example, if you have goals around 2 years, then you can consider investing into

short-term debt funds which have an average maturity period of around that tenure. If you have a goal around 3-5 years, then you can consider investing into income / dynamic bond funds for the debt portion of the allocation.

I am 28 year old male working for an IT company. My monthly in-hand income is Rs. 48,000. How much money should be saved for retirement goal every month? What is the ideal percentage dedicated to retirement fund out of one's salary? Also, should this investment be debt oriented or equity oriented? I am a moderate risk investor.

- Vihanga Khanna

For ascertaining how much you need to invest for your retirement, you should ideally make a detailed & customized financial plan. This will help you in getting the proper figure, rather than going by any specific percentage of your income. However, you also have quick calculators online which can help you give an a p p r o x i m a t e a m o u n t . Assuming you would be retiring by the age of 55 years and would need an amount of

Q.

A:

37

ASK OUR PLANNER


Rs.30,000 p.m. (in today's value) post-retirement for another 20 years, you will need to invest around Rs.19,000 p.m. which can yield an average return of 12% p.a.

The allocation of investments should be based on the duration & criticality of the goal, rather than your risk appetite. Since retirement is more than 20 years away, you can look at investing around 70-80% into equity asset class.

What are arbitrage funds? How do they work? I have invested lump sum of Rs.38,000 in Edelweiss arbitrage funds and I intend to invest similar amount every month in top-performing arbitrage fund. Is it a good idea? Or should I start SIP in this fund?

- Mahi S.

Arbitrage fund is a type of mutual fund that leverages the price differential in the cash and derivatives market to generate returns. These funds generally buy shares of a specific company in cash segment and sell the futures of t h e s a m e c o m p a n y i n derivatives segment. The returns are dependent on the volatility of the asset. These funds work well in a volatile market.

Q.

A:

The returns from arbitrage funds are generally similar to that of short-term debt funds; however, the taxation of these funds are similar to that of equity funds, since they maintain an average exposure of more than 65% into equity. S i n c e t h e G o v e r n m e n t increased the long-term capital gains period for non-equity funds from 12 months to 36 month some time back, these arbitrage funds have become popular, as they follow equity fund taxation and provide returns similar to that of debt funds.

Your investments should always be based on your goals. You may look at including arbitrage funds as a part of your debt allocation, while investing for your goals. The amount of investment has to be based on the value of your goals.

I have two mutual fund investments maturing in July 2017. The total invested amount by end of this period would be collectively Rs. 24,000. How should this lump sum be further utilized? Please suggest.

- Rohit Sapkal

There is nothing called maturity in a mutual fund,

Q.

A:

38

ASK OUR PLANNER


unless you would have invested into a close-ended fund. But since you have mentioned that the investment has been done over a period, we assume that you have invested into an open-ended mutual fund. This means that your SIP period would be getting over and you would not be making further investment into the funds.

Utilization of the funds is completely upon the individual and you may use it for any p u r p o s e i n c l u d i n g r e -investment. If you don't have any specific requirement of funds, we suggest you to stay invested and look to re-start your SIP. However, before doing that , you should e v a l u a t e y o u r f u n d ' s performance against i ts benchmark and peers, to decide whether to continue with the same fund or switch to a new fund. If you decide to switch to a new fund, it's better to start a SIP into a new fund and retain the accumulation in the existing fund for another year (if it's an equity fund). You may move the accumulation to the new fund after a year, to

avoid paying tax on capital gains.

I am a state government employee, working since 2006 & contributing towards pension scheme. My total deductible amount under various section 80c, 80cc, 80ccd (1) etc. are 1.50 Lac. Section 80ccd (1) [10% salary + DA] amount are Rs. 56,000/-. So I want to know how much tax can I claim?

- Narpat Singh Inda

Employee's contribution (maximum 10% of basic salary + DA) into NPS can be claimed under Section 80CCD(1), which is included in the overall limit of Rs.1.5 lakh (Section 80C, 80CCC & 80CCD(1) put together). Any contribution towards NPS which has not been claimed under this overall limit of Rs.1.5 lakh, can be claimed under Section 80CCD(1b) upto a limit of Rs.50,000. Hence, if you are already claiming deduction of Rs.1.50 lakh through other options under Section 80C, then you can claim Rs.50,000 out of your NPS contribution as deduction under Section 80CCD(1b).

Q.

A:

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

MUTUAL FUND ANALYSIS

39

Investing in Large cap funds


• The year 2016 was marked by several unexpected outcomes like the surprise verdicts of Brexit referendum, US Presidential elections, a sharp recovery in global commodities and a hawkish US Federal reserve in its latest meeting.

• Also going forward, we believe volatility will remain high in the near term in the run up to the Union Budget, state elections, progress of GST and start of the Q3 earnings season. This provides long term investors a good opportunity to enter the market and stagger their investment in the next three to six months.

• In this scenario, it is prudent for investors to be invested in companies which are large in size, have longest established business model and an encouraging financial performance record. Hence, large cap funds which have a portfolio of large bluechip companies which are index heavyweight and fund which proven track record should be a part of investors core equity portfolio.

• Investors can look to invest in the following large cap funds: Birla Sunlife Frontline Equity Fund, SBI Bluechip Fund & ICICI Prudential Top 100 Fund.

Investing in Large cap equity funds

Fund Objective:An open-end growth scheme with the objective of long term growth of capital, through a por t fo l io wi th a ta rget allocation of 100% equity by aiming at being as diversified across various industries and or sectors as its chosen benchmark index, BSE 200.

Key Information:

NAV as on January 18, 2017 ( ) 176.6

Inception Date August 30, 2002

Fund Manager Mahesh Patil

Minimum Investment (`)

Lumpsum 1000

SIP 1000

Expense Ratio (%) 2.13

Exit Load 1% on or before1Y, Nil after 1Y

Benchmark S&P BSE 200

Last declared Quarterly AAUM( `cr) 13973

`

Product Label:

This product is suitable for investors who are seeking:

• long-term capital growth

• investments in equity and equi ty re lated secur i t ies

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

diversified across various industries in line with the benchmark index, S&P BSE 200

40



Fund Manager: Mahesh PatilMr. Mahesh Patil

Performance:

is managing the fund since 2005. Prior to joining Birla Sun Life AMC he has worked with reputed financial services firms. Mr. Patil is B.E (Electrical), MMS in F inance and Cha r te red Financial Accountant from ICFAI Hyderabad.

Fund's performance in the past has been significantly superior leading to better than industry AUM growth. The fund has not only participated well in the

bull markets but also contained downside in bear markets. The fund has beaten both its benchmark and the category average in last five years. The fund has delivered 18% compounded annual ised return in the 5 year period compared with 12.8% CAGR delivered by its benchmark. For the period of 3 years, the fund has generated 18% compounded annual ized return as compared to the benchmark which delivered only 13% returns.

2016 2015 2014 2013 2012

170.6 158.8 157.0 108.5 99.3

7.4 1.1 44.7 9.3 36.1

4.0 -1.5 35.5 4.4 31.0

13973 10490 7886 3756 3020

Benchmark (%)

Net Assets ( Cr)`

Return (%)

Calendar Year-wise Performance

NAV as on Dec 31 ( )`

1.7

19.4

18.1

18

0.9

17.5

13.4

12.8

0

5

10

15

20

25

6 Month 1 Year 3 Year 5 Year

Retu

rn%

Fund Benchmark

Performance vs. Benchmark

Birla SL Frontline Eq Fund

Benchmark 3.95 -1.48 35.47

31-Dec-15 31-Dec-14

7.43 1.10 44.72

Last Three Years Performance

Fund Name31-Dec-15 31-Dec-14 31-Dec-13

31-Dec-16

41



Portfolio:

Our View:

The fund has consistently invested 75-80 per cent of its portfolio in large-cap stocks and the rest 20-25 per cent in midcaps. It has usually been overweight in large-caps compared to its peers. The fund attempts to target the same sector weights in its portfolio, as is found in its benchmark - BSE 200. The fund rarely selects stocks outside the index.

The portfolio is well diversified with top 10 stocks contributing

35% of the portfolio. The fund manager intends to invest in the leaders of the sectors. The fund manager takes active cash call if he is not convinced by the fundamentals of the market. The fund provides a portfolio, which is diversified across sectors. A diversified portfolio with investments into frontline stocks within the sector and managed by an experienced fund manager makes Birla Sunlife Frontline Equity fund suitable for core portfolio holding.

%

6.4

4.7

4.5

3.7

3.6

3.3

3.3

2.9

2.8

2.6

Infosys Ltd. Domestic Equities

Clearing Corporation Of India Ltd. Cash & Cash Equivalents

Kotak Mahindra Bank Ltd. Domestic Equities

Tata Motors Ltd. Domestic Equities

Birla SL FRF-Short Term Plan(G)-Direct Plan Domestic Mutual Funds Units

Maruti Suzuki India Ltd. Domestic Equities

Top 10 Holdings Asset Type

ITC Ltd. Domestic Equities

ICICI Bank Ltd. Domestic Equities

Reliance Industries Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

%

18.7

9.5

8.1

6.3

4.8

4.4

3.7

3.3

3.1

3.1

Automobiles-Trucks/Lcv Domestic Equities

Power Generation/Distribution Domestic Equities

Finance - Housing Domestic Equities

Domestic Equities

Finance - NBFC Domestic Equities

Automobiles - Passenger Cars Domestic Equities

Cigarettes/Tobacco Domestic Equities

Bank - Private Domestic Equities

IT - Software Domestic Equities

Top 10 Sectors Asset Type

Pharmaceuticals & Drugs Domestic Equities

Refineries

42



14.280.950.060.960.00

Sharpe ratioR SquaredAlpha (%)

Risk ParametersStandard Deviation (%)Beta

80.010.60.7Small

Market Capitalisation (%)

LargeMid

SIP Performance (Value if invested 5000 per month (in'000))`

Total Investment Fund Value Benchmark Value

60 1

80 300

600

63.2 207.5 434.4

1248.

4

63 1

98.1 388.6

974.

7

0

200

400

600

800

1000

1200

1400

1Yr 3Yrs 5Yrs 10Yrs

%

0.2

Whats In

L&T Finance Holdings Ltd.

80.0

37.7

24.0

--

5.3

Fund P/E Ratio

Benchmark P/E Ratio

Fund P/BV Ratio

Portfolio Attributes

Total Stocks

Top 10 Holdings (%)

91.30.08.6Cash

Asset Allocation

Equity

Debt

43



Data as on January 18, 2017; Portfolio details as on December, 2016Source: ACE MF, ICICIdirect Research

Apr-21-2014 12

Dec-02-2013 10

Nov-02-2015 35

Apr-27-2015 17.5

Nov-07-2014 12

Dividend History

Date Dividend (%)Oct-26-2016 27.7

Performance of all the schemes managed by the fund manager

31 -Dec-15 31 -Dec-14 31 -Dec-13

31 -Dec-16 31 -Dec-15 31 -Dec-14

Fund Name

Birla SL Emerging Leaders Fund-4-Reg(G) 12.45 0.77 –

S&P BSE Mid-Cap 7.97 7.43 –


S&P BSE Mid-Cap 7.97 7.43 –

Birla SL Pure Value Fund(G) 8.99 4.15 99.00

S&P BSE 200 3.95 -1.48 35.47

Birla SL Frontline Equity Fund(G) 7.43 1.10 44.72

S&P BSE 200 3.95 -1.48 35.47

Birla SL Top 100 Fund(G) 6.69 -0.05 48.91

NIFTY 50 3.01 -4.06 31.39

Birla SL Infrastructure Fund(G) 1.60 -1.43 67.61

NIFTY 50 3.01 -4.06 31.39


S&P BSE Mid-Cap 7.97 7.43 --

44


SBI Blue chip Fund

Fund Objective:The objective of the scheme would be to provide investors with opportunities for long-term growth in capital through an active management of investments in a diversified basket of equity stocks of companies whose market capitalization is atleast equal to or more than the least market capitalised stock of BSE 100 Index.


Key Information:

This product is suitable for investors who are seeking*:

• long-term capital appreciation

Fund Managers: Sohini AndaniMs Sohini Andani

Performance:

is fund manager at SBI Mutual Fund and managing the fund since 2010. She is a B.Com (H) and C.A. Prior to joining SBI Mutual Fund she has worked with ING Investment Management Pvt. Ltd., ASK Raymond James & Associates Pvt. Ltd., LKP Shares & securities Ltd., Advani Share Broker Pvt. Ltd., CRISIL, and K R Choksey Shares & Securities Pvt. Ltd.

This fund put up a middle of the road performance in the first four years of its existence with returns from 2007 to 2010 just about keeping pace with the benchmark and lagging the category. But with the fund altering both its investment strategy and stock selection process from 2011, the

NAV as on January 18, 2017 ( ) 30.9

Inception Date January 20, 2006

Fund Manager Sohini Andani


Lumpsum 5000

SIP 1000


Exit Load 1% on or before1Y, Nil after 1Y

Benchmark S&P BSE 100

Last declared QuarterlyAAUM(` cr) 10104

`

Product Label:

•companies whose market capitalization is atleast equal to or more than the least market capitalized stock of S&P BSE 100 index to provide long term capital growth opportunities

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

investments in equity shares of

45



improvement in performance has been dramatic. The fund has convincingly beaten both benchmark and category in the

last three years. Its 3-year CAGR return stands at 20% outperforming the headline benchmark (11.6% return)..

Portfolio:The fund is predominantly a large cap fund with the flexibility to invest upto 20% of its assets in midcap stocks. The fund also restricts risk by monitoring tracking error. The fund can take upto 8% additional weight in a sector against its benchmark and upto 4% on a stock. These constraints impose both sector and stock discipline on the fund which helps to reduce

risk. In practice, the fund has maintained about 65-70% exposure to large-cap stocks and rest in mid caps in the last one year. The minimum market capitalisation for any mid-cap stock in this fund is pegged to the last stock of BSE 100 index.

SBI Bluechip fund has become one of the most consistent performing funds in the recent years. It is a growth-style fund, which focuses on companies

Our View:

2016 2015 2014 2013 2012

29.8 28.5 26.3 17.8 16.6

4.8 8.0 47.9 7.6 38.2

3.6 -3.3 32.3 5.9 30.0

10104 3624 1371 753 747

Benchmark (%)

Net Assets ( Cr)`

Return (%)



Fund Benchmark


0.6

16.9

20.1

19.5

0.1

16.6

11.6

11.9

0

5

10

15

20

25


Retu

rn%

SBI Blue Chip Fund

Benchmark 3.57 -3.25 32.28

31-Dec-15 31-Dec-14

4.83 7.99 47.86



31-Dec-16

46



with efficient capital allocation. Fund manager follows a bottom-up approach in picking stocks. The fund runs a fairly diversif ied portfol io not limiting to large cap. It has a

sizeable mid-cap allocation. Flexible investment option with consistency in fund's performance makes it an idealportfolio fund.

%

14.5

6.5

3.3

3.2

3.2

3.0

3.0

3.0

3.0

3.0

Domestic Equities

Sun Pharmaceutical Industries Ltd. Domestic Equities


UPL Ltd. Domestic Equities

HCL Technologies Ltd. Domestic Equities

Bharat Electronics Ltd. Domestic Equities


Reliance Industries Ltd. Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

Mahindra & Mahindra Ltd. Domestic Equities

CBLO Cash & Cash Equivalents

HDFC Bank Ltd.

%11.5

8.9

7.7

7.4

4.8

4.7

4.0

3.7

3.6

3.3

Engineering - Construction Domestic Equities

Engineering - Industrial Equipments Domestic Equities

Cement & Construction Materials Domestic Equities

Domestic Equities

Finance - NBFC Domestic Equities

Automobiles - Passenger Cars Domestic Equities

Pesticides & Agrochemicals Domestic Equities





Refineries

13.780.950.050.960.00



67.213.60.5Small

Market Capitalisation (%)

LargeMid


31 -Dec-15 31 -Dec-14 31 -Dec-13

31 -Dec-16 31 -Dec-15 31 -Dec-14

Fund Name

SBI Banking & Financial Services Fund-Reg(G) 17.02 -- –

NIFTY FINANCE 4.93 -- –

SBI Magnum MidCap Fund-Reg(G) 4.98 14.92 71.94

SBI BlueChip Fund-Reg(G) 4.83 7.99 47.86

S&P BSE 100 3.57 -3.25 32.28

47





60 1

80 300

600

62.3 211.

2 449.3

1219.9

62.7 194.

2

377

943.

4

0

200

400

600

800

1000

1200

1400

1Yr 3Yrs 5Yrs 10Yrs

53.045.625.1

--4.5

Fund P/E RatioBenchmark P/E RatioFund P/BV Ratio

Portfolio AttributesTotal StocksTop 10 Holdings (%)

81.4

1.5

17.1Cash

Asset Allocation

Equity

Debt

Nov-30-2007 20

Jul-17-2015 25Mar-21-2014 18Nov-04-2010 15

Dividend HistoryDate Dividend (%)Sep-23-2016 10


48


ICICI Prudential Top 100 Fund

Fund Objective:To generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related securities.


Key Information:

Product Label:

This product is suitable for investors who are seeking*:

• long-term wealth creation

• an equity fund that aims to provide long term capital appreciation by predominantly investing in equity and equity related securities

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

Fund Managers: Sankaran Naren & Mittul KalawadiaSankaran Naren

Mittul Kalawadia

Performance:

is a B.Tech from I I T C h e n n a i a n d M B A (Finance)from IIM Kolkata. Prior to joining ICICI Prudential AMC he has worked with Refco Sify Securities India Pvt. Ltd., HDFC Securities Ltd. and Yoha Securities.

is a B.Com. from Mithibai College, M.Com. from University of Mumbai and CA. from ICAI. He has been a s s o c i a t e d w i t h I C I C I Prudential since 2012.

In three- and five-year time frames, the fund has beaten its benchmark returns by a huge margin of 5-6% points. The fund has generated 16% CAGR in past 5 year vs 11.2% returns by benchmark. The fund has m a n a g e d t o b e a t t h e benchmark in last 8 out of 10 calendar years. An investment of Rs 5,000 per month via Systematic Investment Plan in this fund over past 5 years, totalling Rs 3 lakh would have grown to Rs 4.31 lakh by

thJanuary 18 , 2017 at 15% a n n u a l i s e d r e t u r n s . I n comparison, a similar amount invested in the benchmark would have returned Rs 3.68 lakh at 8.6%.

NAV as on January 18, 2017 ( ) 269.4

Inception Date July 9, 1998

Fund Manager Sankaran Naren &Mittul Kalawadia


Lumpsum 5000SIP 1000


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

Benchmark NIFTY 50

Last declared Quarterly AAUM(` cr) 1530

`

49



Portfolio:The fund is a well diversified, large cap oriented player with low volatility and decent returns. The fund, having 65-75% allocation to large-cap stocks, 20-30% to mid caps and a tiny small-cap allocation of sub-5%, is managed in a bottom-up style. The fund follows a blend of growth and value styles. It focuses on the historic record as well as the future ability of the companies to generate wealth in a competitive environment. The top holdings of the fund i n c l u d e P o w e r g r i d

Corporation, Bharti Airtel, HDFC Bank & Tata Chemicals.

The performance has been steady in bull and bear phases, giving the fund the ability to c o n t a i n t h e d o w n s i d e extremely well during the bear phases. The fund is well diversified, comprising a portfolio of time-tested blue chip stocks representing the core of the market. It is by and large resilient and not swung around by market fads and trends and can be a part of an investor's core equity portfolio.

Our View:

2016 2015 2014 2013 2012

258.2 234.2 235.7 170.4 153.0

10.3 -0.6 38.3 11.4 32.8

3.0 -4.1 31.4 6.8 27.7

1530 1362 1455 437 422

Benchmark (%)

Net Assets ( Cr)`

Return (%)




Fund Benchmark

7.4

25

16.9

16.4

-1.1

14.5

10.3

11.2

-10

0

10

20

30


Retu

rn%

ICICI Pru Top 100 Fund

Benchmark 3.01 -4.06 31.39

31-Dec-15 31-Dec-14

10.27 -0.64 38.29



31-Dec-16

50



%

8.2

7.9

5.6

5.3

4.3

4.1

4.0

4.0

4.0

3.8The Great Eastern Shipping Company Ltd. Domestic Equities

Tata Chemicals Ltd. Domestic Equities

Coal India Ltd. Domestic Equities

Tech Mahindra Ltd. Domestic Equities

CBLO Cash & Cash Equivalents

ICICI Bank Ltd. Domestic Equities



Power Grid Corporation Of India Ltd. Domestic Equities

Bharti Airtel Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

%

12.3

11.0

9.4

9.3

7.9

5.3

4.3

3.8

3.3

3.0



Shipping Domestic Equities

Consumer Food Domestic Equities

Automobiles-Trucks/Lcv Domestic Equities

Domestic Equities

Telecommunication - Service Provider Domestic Equities

Fertilizers Domestic Equities

Mining & Minerals Domestic Equities



Power Generation/Distribution

13.450.870.090.844.12



76.914.24.6Small

Market Capitalisation (%)LargeMid



60 1

80 300

600

65.9 212.

2 431.

4

1189.

5

62 1

90.

8

368.

2

921.8

0

200

400

600

800

1000

1200

1400

1Yr 3Yrs 5Yrs 10Yrs

51



%Whats out0.2CESC Ltd.3.3Reliance Industries Ltd.1.9Axis Bank Ltd.

38.0

51.3

21.0

--

4.1

Fund P/E Ratio

Benchmark P/E Ratio

Fund P/BV Ratio

Portfolio AttributesTotal Stocks

Top 10 Holdings (%)

95.7

0.0

4.3Cash

Asset Allocation

Equity

Debt

Apr-30-2012 10

Mar-29-2011 40

Apr-27-2015 18.1

Apr-21-2014 15

Apr-22-2013 15

Dividend HistoryDate Dividend (%)

May-02-2016 13.5


31 -Dec-15 31 -Dec-14 31 -Dec-13

31 -Dec-16 31 -Dec-15 31 -Dec-14

Fund Name

ICICI Pru Balanced Fund(G) 13.66 2.10 45.56CRISIL Balanced Fund - Aggressive Index 6.66 0.48 25.34ICICI Pru Value Fund-3(D) 12.63 -0.42 –S&P BSE 500 3.78 -0.82 –ICICI Pru Dynamic Plan(G) 12.50 -1.41 37.05NIFTY 50 3.01 -4.06 31.39ICICI Pru Equity Income Fund(G) 11.42 3.99 –NIFTY 50 3.01 -4.06 –ICICI Pru Top 100 Fund(G) 10.27 -0.64 38.29NIFTY 50 3.01 -4.06 31.39ICICI Pru Infrastructure Fund(G) 1.99 -3.36 56.19NIFTY INFRA -2.05 -8.91 22.71ICICI Pru Value Fund-6(G) 4.74 -- –S&P BSE 500 3.78 -- –ICICI Pru Indo Asia Equity Fund(G) 5.99 0.45 50.64NIFTY 50 3.01 -4.06 31.39ICICI Pru Value Fund-2(D) 8.80 0.35 69.05S&P BSE 500 3.78 -0.82 36.96ICICI Pru Value Fund-1(D) 8.85 2.50 61.54S&P BSE 500 3.78 -0.82 36.96


52

EQUITY MODEL PORTFOLIO


Name of the company

Largecap Portfolio

Weightage(%)

Auto 15.0

Tata Motor DVR 4.0

Bosch 3.0

Maruti 5.0

EICHER Motors 3.0

BFSI 32.0

HDFC Bank 8.0

Axis Bank 4.0

HDFC 8.0

Bajaj Finance 6.0

SBI 6.0

Capital Goods 4.0

L & T 4.0

Cement 4.0

UltraTech Cement 4.0

FMCG/Consumer 18.0

Dabur 5.0

Marico 4.0

Asian Paints 5.0

Nestle 4.0

IT 14.0

Infosys 8.0

TCS 6.0

Media 4.0

Zee Entertainment 4.0

Pharma 9.0

Lupin 6.0

Aurobindo Pharma 3.0

Total 100.0

53



Name of the company

Diversified Portfolio

Weightage(%)

Auto 12Tata Motor DVR 3Bosch 2Maruti 4Eicher Motors 2Bharat Forge 2Consumer Discretionary 16Symphony 2Supreme Ind 2Kansai Nerolac 2Pidilite 2Asian Paints 4Arvind 2Interglobe Aviation 2Rallis 2BFSI 24HDFC Bank 6Axis Bank 3SBI 4HDFC 6Bajaj Finance 4Bajaj Finserve 2Power, Infrastructure & Cement 13L & T 3UltraTech Cement 3Ramco Cement 2NBCC 2Bharat Electronics 2Container Corporation of India 2FMCG 9Nestle 3Marico 3Dabur 4Pharma 12Lupin 4Aurobindo Pharma 2Natco Pharma 2Torrent Pharma 2Biocon 2IT 10Infosys 6TCS 4Media 3Zee Entertainment 3Total 100.0

54



Name of the company

Midcap Model Portfolio

Weightage(%)

Aviation 6.0

Interglobe Aviation 6.0

Auto 6.0

Bharat Forge 6.0

BFSI 6.0

Bajaj Finserve 6.0

Capital Goods 6.0

Bharat Electronics 6.0

Cement 6.0

Ramco Cement 6.0

Consumer 30.0

Symphony 6.0

Supreme Ind 6.0

Kansai Nerolac 6.0

Pidilite 6.0

Rallis 6.0

Infrastructure 8.0

NBCC 8.0

Logistics 6.0

Container Corporation of India 6.0

Pharma 20.0

Natco Pharma 6.0

Torrent Pharma 6.0

Biocon 8.0

Textile 6.0

Arvind 6.0

Total 100.0

55

Performance* so far Since inception

*Returns (in %) as on

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

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

Nov 19, 2016

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: , 2011; *Value as on June 30 Nov 19, 2016



93.99965293

171.3112215

107.4863931

55.09791974

98.01508174

66.70962387

0255075

100125150175200

%

6700000

6700000

6700000

8183506.3

46

12555207.8

1

9002165.6

75

6308712.8

87

4601481.5

98

7719436.3

3500000

4500000

5500000

6500000

7500000

8500000

Largecap Midcap Divesified

|

QUIZ TIME

1. NSE arm ___________ periodically rebalances Nifty in line with

their pre specified criteria.

2. We expect INR to trade broadly within ___________range in 2017.

3. Experts expect growth to improve steadily over the next few

quarters.True or false

4. Any economic slowdown would be very positive for

___________bonds.

5. In 2017 , the y ie ld curve i s expected to move

down______________.

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 December 2016 quiz are:

1. Union budget 2016-17 announced ___________% exemption for

start-ups up to 3 years.

A: 100

2. The home loan borrowers can see positive impact of repo cut by

either reduction in monthly installments (EMIs) or

___________________.

A: Loan tenure

3. Increased liquidity and lack of credit pick up in market has forced

bank to increase interest rates on FDs.True or false

A: False

4. 500 and 1000 notes constituted over ______________ of total

circulation when demonetization was announced.

A: 85%

5. India is currently the third largest source of FDI for Britain.True or

False

A: False

Congratulations to the following winners for providing correct answers!

BSR Murthy


57

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

30-Dec-16 30-Nov-16 Change (%)

CNX Nifty 8185.8 8225.0 -0.5%

CNX Midcap 14351.5 14907.0 -3.7%

S&P BSE Sensex 26626.5 26658.8 -0.1%

S&P BSE 100 8386.7 8479.7 -1.1%

S&P BSE 200 3511.1 3558.2 -1.3%

S&P BSE 500 11036.4 11195.0 -1.4%


Dow Jones 19,762.6 19,123.6 3.3%

S&P 500 2,238.8 2,198.8 1.8%

Nasdaq 5,383.1 5,323.7 1.1%

FTSE 7,142.8 6,783.8 5.3%

DAX 11,481.1 10,640.3 7.9%

CAC 40 4,862.3 4,578.3 6.2%

Nikkei 19,114.4 18,308.5 4.4%

Hang Seng 22,000.6 22,789.8 -3.5%

Shanghai Composite 3,103.6 3,250.0 -4.5%

Taiwan Weighted 9,253.0 9,240.7 0.1%

Straits Times 2,885.8 2,905.2 -0.7%


S&P BSE Auto 20,257.4 20,144.6 0.6%

S&P BSE Bankex 20,748.7 21,316.0 -2.7%

S&P BSE FMCG 8,131 8,071 0.7%

S&P BSE Healthcare 14,727.6 15,734.3 -6.4%

S&P BSE Metals 10,109.3 10,666.3 -5.2%

S&P BSE Oil & Gas 12,151.6 11,964.3 1.6%

S&P BSE Power 1,987.6 2,028.7 -2.0%

S&P BSE Realty 1,263.9 1,281.8 -1.4%

S&P BSE Teck 5,498.5 5,525.0 -0.5%

58

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Dec-16 Nov-16 Change (bps)

Corporate Bond Yields (in %) Dec-16 Nov-16 Change (bps)

Commercial Paper (CP) Rates (in %) Dec-16 Nov-16 Change (bps)

Treasury Bill (T-Bills) Yields (in %) Dec-16 Nov-16 Change (bps)

Volatility Index (VIX)

30-Dec-16 30- -16

VIX 15.47 16.85 0%

Nov Change (%)

10 year 6.51 6.25 27

5 year 6.57 6.24 33

3 year 6.38 6.03 35

1 year 6.41 6.07 34

AAA 10 year 7.73 7.34 39

AAA 5 year 7.40 7.29 11

AAA 3 year 7.26 7.11 15

AAA 1 year 7.09 6.80 28

AA 10 year 8.12 7.72 40

AA 5 year 7.93 7.68 24

AA 3 year 7.83 7.51 31

AA 1 year 7.63 7.28 34

12 Months 7.34 7.06 28

6 Months 7.05 6.79 26

3 Months 6.71 6.46 24

1 Month 6.63 6.41 21

91D TB 6.20 5.95 24

182D TB 6.28 6.00 27

364D TB 6.33 6.05 28

59

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

Countries 30-Dec-16 30-Nov-16 Change in bps

US 2.44 2.38 6

UK 1.24 1.42 (18)

Japan 0.06 0.02 4

Spain 1.38 1.55 (17)

Germany 0.20 0.27 (7)

France 0.68 0.75 (7)

Italy 1.81 1.99 (17)

Brazil 11.40 11.83 (43)

China 3.06 3.39 (33)

India 6.51 6.25 27

MF Investment Dec-16 Nov-16 YTD

Equity 6423 13610 44618

Debt 24479 11307 326477

FII Investment Dec-16 Nov-16 YTD

Equity -8495 -17737 18783

Debt -18907 -19603 -44297

Items Weights(%) Oct-16 Nov-16 Dec-16

Food&bev. 45.86 3.71 2.56 1.98

Pan,tob& intox. 2.38 7.01 6.21 6.47

Cloth & Foot 6.53 5.24 4.98 4.88

Housing 10.07 5.15 5.04 4.98

Fuel & light 6.84 2.81 2.80 3.77

Misc. 28.31 4.58 4.83 4.73

CPI 100 4.20 3.63 3.41

Weights Dec-15 Nov-16 Dec-16

WPI 100.0 -1.06 3.15 3.39

Primary Articles 20.1 4.58 1.25 0.27

Fuel & Power 14.9 -9.15 7.07 8.65

Manufactured Goods 65.0 -1.49 3.20 3.67

60

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 December 30, 2016

Debt Funds Returns (in %)

Returns as on December 30, 2016

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 16-Nov-16 16-Oct-16 16-Sep-16 Weight(%)Mining 3.9 -1.1 -3.1 14.2Manufacturing 5.5 -2.4 0.9 75.5Electricity 8.9 1.1 2.4 10.3

30-Dec-16 30-Nov-16 Change (%) StatusUSDINR 67.92 68.39 0.7% AppreciatedEURINR 71.52 72.55 1.4% AppreciatedGBPINR 83.82 85.07 1.5% AppreciatedAUDINR 48.95 51.00 4.0% AppreciatedCHFINR 66.67 67.46 1.2% AppreciatedJPYINR 0.581 0.60 3.9% AppreciatedCNYINR 9.787 9.93 1.4% Appreciated

30-Dec-16 30-Nov-16 Change (%)Crude ($/barrel) 55.4 49.9 11.1%Gold ($/ounce) 1,152.3 1,173.3 -1.8%

6 months 1.26 1.35 -0.01 1.171 year 3.99 4.30 3.15 3.803 year 17.38 26.17 12.88 16.155 year 17.35 24.92 14.50 16.83

6 months 6.63 10.25 8.36 13.89 16.96

1 year 7.30 9.65 8.54 11.82 14.54

3 year 8.05 9.26 8.61 10.75 12.12

Printed by jasmine Art Printers Pvt. Ltd., A-737/3, TTC Ind. Area, MIDC, Navi Mumbai - 400 710.

Documents

ICICI Jan 17 Issue Final For CTP - ICICI Directcontent.icicidirect.com/MoneyManagerMagazine/January_2017.pdfCompany Ltd, provides us with real estate outlook for 2017. His expert comments