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Shilpa KumarMD & CEO
ICICI Securities Ltd.
The Q4FY17 earnings season had more positive surprises, than otherwise, on the back of robust double digit growth witnessed at the topline level on both year over year (YoY) as well as quarter on quarter (QoQ) basis. Earnings at the PAT level were skewed at the index levels due to its constituents. Most consumer segments recovered from the demonetisation blues but are gearing up for the transition phase associated wi th implementat ion of key government reform i.e. Goods and Services Tax (GST).
At the topline level, growth was robust (I-direct coverage sales up 17.4% YoY) largely tracking the upbeat demand scenario and rebound in key commodity prices like crude and metals. Rural demand was robust on account of record food grain production in FY17 (272 million tonne (MT), up 8.1% YoY) amid normal monsoon 2016 (97% of LPA), expectations of normal to positive monsoon 2017 (98% of LPA) and farm loan waiver being promised in certain agrarian key states. On the urban side, rising income levels coupled with payout associated with implementation of the Seventh Pay Commission aided demand.
In the sector-wise rundown, in Q4FY17, the overall auto sector posted muted volume growth of 0.1% YoY. However, outperformance was witnessed in the PV (up 11.4% YoY) and tractor (up 12.5% YoY) space. auto sector outperformed amid others. Oil & gas and metal space also displayed remarkable performance as a result of favourable domestic support. Strong gross refining margins were reported by oil marketing companies. Gradual recovery can be expected in FY18E if consumer sentiments continue to remain positive. In the oil & gas space, oil marketing companies (OMCs) reported robust GRMs, largely supported by inventory gains. In the metals space, companies reported robust sales volume and realization growth largely tracking a rebound in prices amid steady domestic demand. In the banking sector, despite low credit growth, healthy performance was
1ICICIdirect Money Manager June 2017
observed in this quarter.
On the negative side, muted performance was witnessed in the IT, pharma & telecom space. In the IT space, margin pressure was witnessed on account of rupee appreciation while in the pharma space, profitability was muted mainly due to steeper than expected price erosion in the US base business and residual impact of demonetization in domestic formulations. The telecom sector continues to be under the pricing pressure post the new entrant resorting to a price war by way of rockbottom data prices and free voice in order to garner subscriber market share.
On the Sensex earnings side, FY14-17 has largely been flat with Sensex earnings reported at ~Rs 1400.This was primarily on the back of a global meltdown in commodity prices, delay in execution pick-up in the domestic infrastructure space and recognition of non performing assets (NPAs) by banks. Going forward, with a positive undercurrent in the economy driven by ongoing reforms (including GST), stable commodity prices and forecast of normal monsoon 2017 we expect Sensex earnings tostage strong double digit recovery (18.6% CAGR) over Fy17 19E.
We now value Sensex at 34500 for CY17, FY18 end i.e. 17.5x P/E on FY19E EPS of Rs 1972, offering a healthy potential upside of ~8% in the aforesaid period. The corresponding levels for Nifty will be 10420. Despite breath taking performance in equities, economic performance continues to remain sub-par. India's gross domestic product grew 6.1 %YoY in fourth quarter, pulling down GDP growth rate to 7.1 % (for 2016-17) on top ofrevised growth figure of 8 % for FY16.On the brighter side though, normal monsoon may reviveagricultural output, which may impact affirmatively for GDP growth, inflation control and rate cuts. Moreover, with accelerated policy actions by the government equity markets would continue to trade with a positive bias and we may witness further re-rating in the benchmark indices, while economic recovery will follow with a lag.
We advise investors should continue to increase exposure towards equities to create a balanced portfolio in the long run. While SIPs are traditionally used to invest in mutual funds for those of you who prefer the direct route to equity investments you can also start SIPs in stocks as well.
Our message remains the same - 'Keep investing and stay invested for your life goals'. Through this magazine and our website www.icicidirect.com we want to make an earnest attempt to partner with you in setting and achieving your financial goals. Do walk into any of your Neighborhood Financial Superstore and talk to us.
2
Steady market performance in Q4FY17 followed by new heights of equity markets has established a substantial investment ground for retail investors in India. Consumer demand has revived which was a prevailing concern after demonetization. As sales of Indian companies soared competently (including double digit growth of Sensex companies' sale), earnings in FY17-19E are expected to recover at stable pace.
The fourth quarter earnings seasons has neared its end and trends in the performance of companies and sectors have begun to emerge. These quarterly reviews would give you a bird's eye view of the financial situation of various sectors in our economy. ICICIdirect research has dissected the numbers and come out with estimates for the ongoing financial year, which I am sure you will find very useful.
We also feature a panel interview with three experts - Mr.Harsha Upadhyaya, Chief Investment Officer – Equity, Kotak Mahindra Asset Management Co. Ltd.;Mr. Ajay Tyagi, Senior Fund Manager (Equity) and Executive Vice President, UTI AMC& Mr. Ihab Dalwai, Investment Analyst, ICICI Prudential AMC. Their views on equity market under existing circumstances are quite positive and insightful for our reader-investors
The edition also offers comprehensive information and analysis on large-cap and mid-cap equity funds- the best way for retail investors to build a strong equity portfolio. We welcome your comments and queries on personal finance or any other money-r e l a t e d m a t t e r … . p l e a s e w r i t e t o u s a t [email protected]
Read on, stay updated.
Your magazine is now also available on www.magzter.com, a digital newsstand.
ICICIdirect Money Manager June 2017
Editor & Publisher : Abhishake Mathur, CFA
Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey
CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Research Team
Coordinating Editor : Namrata Lonkar
3ICICIdirect Money Manager June 2017
MD Desk......................................................................................... 1
Editorial...........................................................................................2
Contents..........................................................................................3
Stock ideas: Hindustan Zinc and Bharat Electronics.....................4
Flavour of the Month: Double digit topline growth encouraging… Q4 resultsThe Q4 earnings seasons has drawn to a close and thrown up figures and trends that could potentially point to how various sectors could perform in the future. While we take a detailed look at the way different sectors have performed as we go along, here some of the top takeaways …................................13
Fund managers discuss market, economy and sectorsIn talk with Harsha Upadhyaya of Kotak Mahindra Asset Management Co. Ltd, Ajay Tyagi of UTI AMC & Ihab Dalwai of ICICI Prudential Mutual Fund, we discuss investment today's choices in scenario.................................................................... 28
Ask Our PlannerOur financial expert answers your personal finance queries...35
Mutual Fund AnalysisWhich are the top performing mutual funds in current market scenario? Check these top three funds recommended by our research team.............................................................................38
This month on iCommunityCheck out the latest activities on our unique information platform- iCommunity (for June 2017)......................................48
Equity Model Portfolio.................................................................... 49
Quiz Time.......................................................................................52
Prime Numbers.............................................................................. 53
4
STOCK IDEAS
ICICIdirect Money Manager June 2017
Hindustan Zinc – Zinc metal deficit to augur well for prices…
Company Background
Investment Rationale
Huge reserve base; provides strong earnings visibility…
Hindustan Zinc is a leading manufacturer of zinc in India with an installed capacity of 823,000 tonne. On the lead front, the company is the only lead metal manufacturer domestically with an installed capacity of 185,000 tonne. Post meeting domestic metal demand, the company exports its metal produce. On the silverfront, the company has an installed capacity of 5,00,000 kg.
Hindustan Zinc (HZL) is the leading miner & manufacturer of zinc and lead in India. Zinc metal is primarily used in galvanizing steel, which is further used in the automobile & consumer goods industry while lead is primarily used in manufacturing automobile batteries. The company has a huge reserve base, which provides strong earnings visibility. In FY17, net addition of 14.5 MT was made to reserve and resource (R&R),
adding further to HZL's R&R. Total R&R at March 31, 2017was 404.4 MT containing 36.09 MT of zinc-lead metal and 1032 million ounce (Moz) of silver. Overall mine life continues to be 25+ years.
HZL's smelting assets are in the lowest quartile on the global cost curve. The low cost advantage can be attributed to its fully integrated nature of operations involving mines, s m e l t e r a n d c a p t i v e powerplants. Furthermore, HZL's smelters are logistically well placed in Rajasthan, near its mines, which results in low transportation and shifting costs.
In April 2017, the ILZSG forecast for CY17 suggests the deficit in refined zinc metal market is likely to increase to ~226 KT compared to a deficit of 196 KT in CY16. For Cy17, ILZSG has forecast zinc metal production at 14076 KT while
Low cost advantage aids in sustaining superior operating margins…
Zinc metal deficit augur well for prices…
5ICICIdirect Money Manager June 2017
STOCK IDEAS
zinc metal usage is forecast at 14302 KT. The refined zinc market has been in deficit in three out of the last five years (CY13, CY14 and CY16). In the past, zinc deficit has augured well for global zinc prices.
HZL's integrated business model ensures steady cash flows, which reiterates our pos i t ive s tance on the company. Among all major base metals, zinc is the best placed backed by healthy
Stable business model, robust balance sheet; remain positive!
fundamentals. We expect the topline and EBITDA to clock a CAGR of 14% and 16%, respectively, in FY17-19E. The stock is currently trading at an attractive valuation of 5.1x FY19E EV/EBITDA. We value the s tock a t 7x FY19E EV/EBITDA. We have BUY recommendation on the stock with a target price of |300. HZL has strong balance sheet, healthy cash flow, lower CoP, net cash status and healthy dividend yield, which augurs well for the company.
Key Financials
Valuations Summary
crore FY16 FY17 P FY18E FY19E `
Net Sales 14,226.4 17,273.0 21,083.6 22,580.5
EBITDA 6,640.6 9,738.4 12,220.5 13,195.5
PAT 8,166.6 8,315.6 10,104.2 10,760.0
EPS (`/share) 19.3 19.7 23.9 25.5
P/E 12.1 11.9 9.8 9.2
Target P/E 15.5 15.2 12.5 11.8
EV / EBITDA 9.6 7.7 6.0 4.9
P/BV 2.6 3.2 2.6 2.2
RoNW (%) 21.8 27.0 27.0 24.3
RoCE (%) 21.6 26.9 33.2 30.3
FY16 FY17 P FY18E FY19E
6ICICIdirect Money Manager June 2017
STOCK IDEAS
Stock Data
Key risks include:
Demand slowdown leading to oversupply
Any unexpected slowdown in demand f rom end-user industries could lead to an increase in zinc surplus in the market creating a situation of oversupply. This would put pressure on prices and hurt the
earnings of the company negatively.
The earnings of the company are largely dependent on the global zinc and lead prices. A steep fall in LME prices of zinc, lead can potentially hurt the earnings of the company.
Steep fall in LME prices
Market Capitalization ( crore) 101,400.0
Total Debt (FY17P) (`crore) 7,908.0
Cash and Investments (FY17P) (`crore) 23,972.0
EV (` crore) 85,336.0
52 week H/L (`) 333 / 161
Equity capital (` crore) 845.1
Face value (`) ` 2
DII Holding (%) 30.7
FII Holding (%) 2.6
`
7ICICIdirect Money Manager June 2017
STOCK IDEAS
ANALYST CERTIFICATIONWe /I, Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), Research Analysts, authors and the names subscribed to this report,
hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We
also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock
brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration
Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its
various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund
management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in
India. We and our associates might have investment banking and other business relationship with a significant percentage of companies
covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their
relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report
and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way,
transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written
consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securitiesis 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 Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), 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 Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), 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.
8ICICIdirect Money Manager June 2017
STOCK IDEAS
Bharat Electronics – Best play on defence!!!
Company Background
Investment Rationale
Continued strong execution,
healthy order inflows and strong
moat
Bharat Electronics (BEL) was
established in Bangalore,
India, by the Government of
India under the Ministry of
Defence (MoD) in 1954 to meet
the specialised electronic
needs of the Indian defence
services. Over the years, it has
grown into a multi-product,
multi-technology, multi-unit
company servicing the needs
of customers in diverse fields
i n I n d i a a n d a b r o a d .
Considered the bellwether of
the defence electronics sector,
it is renowned for its strong
execution capabilities and
professional management.
BEL is a major supplier of
products and turnkey systems
to the Indian defence forces.
Over the years, the company
has also diversified into
manufacturing many civilian
products.
BEL continued to report strong
execution primarily on account
of higher booking of orders like
hand held thermal imagers
with laser range finder, Akash
weapon system (Army), 3D
tactical control radar, weapon
locating radar, etc. Order
inflows for Q4FY17 were at ~|
10,080 crore, taking total
inflows for FY17 to | 16,300
crore. This has taken the BEL
order backlog to an all-time
high of | 40,000 crore as on
April 1, 2017. With strong
execution in coming quarters,
this will help BEL deliver a
s u p e r i o r t o p l i n e a n d
bottomline growth in Fy17 19E.
BEL has strong competency in
the area of defence electronics.
Historically, a large part of
defence capital spends (45
60%) has been in this segment.
High-end technologies in the
electronics segment, long
gestation periods, heavy
capital requirements, and
secrecy related to defence
projects act as key entry
9ICICIdirect Money Manager June 2017
STOCK IDEAS
barriers in this segment. This
gives companies like BEL a
competitive advantage over
any upcoming local and
foreign competition. With a
planned capex of ~| 1000
crore in FY17-19E, BEL is well
placed to capitalise on the
emerging defence sector.
BEL is an R&D -focused
company. It spends ~9% of
sales on developing new
products. New products have
historically helped BEL achieve
up to 25% of its turnover. The
management has guided that
R&D spend may rise to 12% of
sales in coming few years.
This, we believe will enable the
company to ind igen ise
n u m b e r o f i m p o r t e d
technologies. Exports for BEL
came in at ~| 425 crore for
FY17E (~5.1% of turnover).
W i th the government ' s
increasing focus on exports,
BEL has set-up a dedicated
business unit and marketing
group to become key supply
chain partner of global defence
R&D, exports, healthy balance
sheet to help sustain momentum
contractors. This is likely to
increase exports contribution
to 10% of the topline by FY20E.
BEL also has a strong balance
sheet with near nil debt and
cash balance of | 3790 crore
(even after the buyback of ~|
2100 crore). We believe with a
strong focus on capital
allocation, BEL is well placed to
deliver superior return on its
deployed capital.
Continuous order inflows and
BEL's track record in execution
give us reasonable confidence
about the continued stable
performance of the company.
Accordingly, we expect BEL to
deliver sales and PAT CAGR of
17.3% and 5.8%, respectively,
in FY17-19E. We re-rate the
company due to improved
visibility (order book to bill ~5x
in FY17 from ~3x in FY15). We
value the company at 26x P/E
on FY19E EPS of | 7.8 to arrive
at a target price of | 204 per
share.
Recommend BUY on accelerated
order inflows, strong revenue
visibility
10ICICIdirect Money Manager June 2017
STOCK IDEAS
Stock Data
Key Financials
Valuations Summary
Revenue 7,295 8,612 10,848 11,856
EBITDA 1,461 1,762 1,964 2,100
EBITDA (%) 20.0 20.5 18.1 17.7
Net Profit 1,358 1,548 1,634 1,732
EPS (`) 5.7 6.9 7.3 7.8
` Crore FY16 FY17 FY18E FY19E
(x) FY16 FY17 FY18E FY19E
P/E 30.1 24.5 23.2 21.9
Target P/E 36.1 29.4 27.9 26.3
EV / EBITDA 21.0 18.3 16.0 14.6
P/BV 4.7 5.0 4.4 3.9
RoNW (%) 16 20.5 19.0 17.8
RoCE (%) 22.0 27.7 26.2 24.5
Market Capitalization 37971.7 Crore
Total Debt (Fy17) ` 250 Crore
Cash and Investments (Fy17) ` 5965.7 crore
EV (Fy17) ` 32256 Crore
52 week H/L (`) 1624 / 1009
Equity capital ` 223.4 Crore
Face value ` 1
DII Holding (%) 12.1
FII Holding (%) 6.6
`
11ICICIdirect Money Manager June 2017
STOCK IDEAS
Key risks include:
Delay/lumpiness in ordering of defence contracts
The de fence marke t i s monopolistic in nature with the Government of India being the sole buyer of equipment. This puts all large and small suppliers at a disadvantage. Further, defence procurement procedures are complex, tedious and time-consuming. Large orders move at an extraordinarily slow pace. This leads to a high degree of lumpiness in the order book. A delay in approvals, changing requirements of armed forces, delay by consortium partners
and inadequate or delayed fund disbursements are some key risks that the company faces
The government has shown increased intent in involving private players in the defence procurement process and to develop an active private sector supply in the armed forces. Competition is also likely to gain significant momentum with private players tying up with foreign players. This, we believe can emerge as a th rea t to established players like BEL.
Increased competit ion from private/foreign players
12ICICIdirect Money Manager June 2017
STOCK IDEAS
ANALYST CERTIFICATION We /I, Chirag Shah PGDBM; Sagar Gandhi MBA (Finance), Research Analysts, authors and the names subscribed to this report, hereby
certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also
certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this
report.
Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock
brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration
Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its
various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund
management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in
India. We and our associates might have investment banking and other business relationship with a significant percentage of companies
covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their
relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report
and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way,
transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior
written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is
under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent
ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such
suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be
acting in an advisory capacity to this company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has
been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall
not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI
Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal,
accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The
securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment
decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in
substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks.
The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI
Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not
necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated
before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking
statements are not predictions and may be subject to change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have
been mandated by the subject company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period
preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate
finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or
merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report.
ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the
report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and
their relatives have any material conflict of interest at the time of publication of this report.
It is confirmed that Chirag Shah PGDBM; Sagar Gandhi MBA (Finance), 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; Sagar Gandhi MBA (Finance), 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.
13
FLAVOUR OF THE MONTH
Double digit topline growth encouraging…
ICICIdirect Money Manager June 2017
The Q4 earnings seasons has drawn to a close and thrown up figures and trends that could potentially point to how various sectors could perform in the future. While we take a detailed look at the way d i f f e r e n t s e c t o r s haveperformed as we go along, here some of the top takeaways the results have thrown up.
Ø Sensex companies (ex-banks) reported a steady performance in Q4FY17 thereby allaying fears of c o n s u m e r d e m a n d slowdown post demon- e t i z a t i o n . G i v e n t h e abatement of commodity price decline and stable outlook, we now include the performance of oil & gas and m e t a l s s e c t o r w h i l e depict ing the Sensex earnings performance. In Q4FY17, sales of Sensex companies rose in double digits i.e. 11.7% YoY to
486,775 crore.
EBITDA in Q4FY17, remained largely flat YoY at Rs. 93,777 crore. Corresponding EBITDAmargins came in at 19.3%, down 210 bps YoY.
Ø In the sector-wise rundown, auto sector outperformed amid others. Oil & gas and metal space also displayed remarkable performance as a result of favourable domestic support. Strong gross refining margins were reported by oil marketingcompanies.
Ø Stable gains by privatebanks, in spite of stressaccretion over rise in GNPA, balanced PSU banks' subpar earnings resulting into healthy performance by overall banking sector. However, IT and pharma saw an unconventional
Ø Earnings before interest, tax, depreciat ion and amortization -
On the earnings side, FY14-17 has largely been flat with Sensex earnings reported at ~Rs. 1400. Going forward, however, with a positive undercurrent in the economy driven by reforms undertaken by the central government amid stable commodity prices and expectations of normal monsoon we expect earnings to stage double digit recovery in FY17-19E. We pencil in an earnings CAGR of 18.6% in FY17-19E
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decline following rupee a p p r e c i a t i o n a n d demonetization episode respectively. Infrastructure sector witnessed assorted
outcomes across country reacting to variable demand in north (negative), south (positive), west (positive) and east (positive) region.
Sensex Aggregate* in Q4FY17
*Data based on 25 companies (excluding banks, NBFCs)
Quarterly Sensex EPS
Source: Bloomberg, Reuters, ICICIdirect.com Research @ for calculation of EPS we have considered standalone profit for Bajaj Auto, Cipla, Gail, HDFC, HDFC Bank, Hero MotoCorp, Hindustan Unilever, ITC, L&T, M & M, Maruti Suzuki, NTPC, ONGC and Reliance Industries while for the rest of the companies, consolidated profit has been considered
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Sensex aggregate quarterly revenue, operating profit & net profit trend
Source: Capitaline, ICICIdirect.com Research #Data is based on 25 companies (excluding banks, NBFCs)
Industry wise revenue & profit movement
Industry wise aggregate revenue (Sensex companies) ( Rs.crore)
Source: Capitaline, ICICIdirect.com Research
Industry wise revenue contribution (%)
Source: Capitaline, ICICIdirect.com Research
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Ø On the revenue front, the oil & gas and metals space were clear outperformers largely tracking a rebound in key commodity prices. In the oil & gas space, oil marketingcompanies (OMCs) reported robust gross re f in ing margins (GRMs), largely supported by inventory gains. The gas utilitiess e c t o r c o n t i n u e d t o r e p o r t s t a b l e g r o w t hbenefit ing from lower domestic gas prices. In the metals space, companies reported robust sales volume and realization growth largely tracking arebound in prices amid steady domestic demand.
Ø On the bottom-line front, the capital goods and power sectors continued their outperformance. Some muted profitability was seen in an otherwise robust IT & pharma space. In the IT space, there was a decline of ~ 3 0 - 5 0 b p s Q o Q i n operating margins of Tier-1 companies main ly on a c c o u n t o f r u p e e a p p r e c i a t i o n . I n t h e pharma space, profitability was muted mainly due to
steeper than-expected price erosion in the US base business and residual impact of demonetization in domestic formulations.
Ø Demonetization had a carry forward effect on the overall auto space, resulting in volumes remaining flattish in Q4FY17. The overall c o m m e r c i a l v e h i c l e segment remained muted with volumes up 3.7% YoY as M&HCV (Medium and Heavy Commercial Vehicle) & LCV (light commercial vehicle) volumes grew 5.2% Y o Y & 2 . 4 % Y o Y , respectively.
Ø Among our coverage OEM universe, ALL's results were above our estimates on all parameters. MSIL(Maruti Suzuki India L imited) reported a good set of results, with revenue & profitability up 20.3% YoY & 15.8% YoY, respectively. TML (Tata Motors Limited) reported a strong set of Q4FY17 results with EBITDA margin of JLR at 14.5%, vs. our estimate of 11%. This
Sector specific takeaways from Q4
Auto & auto ancillary
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can mainly be attributed to higher operating leverage and lower other expenses. HMCL's (Hero MotoCorp Limited) profitability was supported by higher other income & lower tax outgo during the quarter. Eicher Motors' (EML) revenue & profitability were below our est imates but EBITDA margins were in line with our estimates
Ø Tyre companies continued to report healthy volume driven revenue growth & benef i ted f rom lower Chinese imports during the quarter. However, higher NR prices impacted its margins & profitability for the quarter
Ø We believe the negative impact of demonetization has started to fade away, with volume showing early signs of a recovery in FY18E. The demand revival is primarily supported by p o s i t i v e c o n s u m e r sentiments and higher stock filling (by OEMs) at the dealer level to normalize inventory.
Ø Expectations of normal monsoons will have a positive impact on rural areas thereby boosting auto demand (especially 2-W & tractor). We also believe GST will have a neutral to positive impact on the overall auto & ancillary space.
Auto RM Index
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Banking
Ø In Q4FY17, despite low creditgrowth of sub 5% YoY, NII growth at 13.5% YoY appears healthy. This was largely due to demonetization led CASA & low base in Q4FY16, led by RBI's asset quality review
Ø Though private banks witnessed stress with 9% QoQ rise in GNPA to Rs. 90,203 crore, increase in absolute terms was lower than previous two quarters. Stress accretion was higher for large corporate focused private banks.
Ø Incremental NPA accretion and ageing of stressed assets kept credit cost elevated at Rs.19,722 crore (highest in last three quarters)
Ø High credit cost kept sector earnings muted at Rs. 6,545 crore in Q4FY17. PSU banks went back to negative earnings after posting two quarters of profits. Private banks continued to report steady gains of Rs. 10,259 crore, led by healthy credit traction & controlled asset quality
Financial summary of PSU banks
Source: Capitaline, ICICIdirect.com Research
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Financial summary of Private banks
Source: Capitaline, ICICIdirect.com Research
Capital goods Ø On an overall basis, the
revenue and PAT growth of capital goods companiesunder coverage grew 6%and 6.4% YoY, respectively. Interest costs were also down 3%, which further aided profitability growth.
Ø In individual performance, L&T reported a reasonable Q4FY17 as revenues grew 11.6% YoY backed by strong execution of export backlog. Even order wins were above estimate while strict control on working capital led to robust cash flows to the tune of Rs. 12,000 crore.
Ø Product companies like Timken, NRB and Grindwell Norton reported a weakQ4FY17 performance as these companies witnessed muted top-line growth of 4 .2%, 9 .5% and 1%, respectively, for the quarter. EBITDA margins also came in lower on account of weak operational performance, higher employee expenses and higher other expenses.
Ø Desp i te a dec l ine in utilization, volumes for Q4FY17 increased 4.7% YoY mainly led by capacity expansion. Region wise, cement demand in the north
Cement
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remained subdued mainly due to the slowdown in UP & Pu n j a b a n d s u b d u e d d e m a n d i n h o u s i n g segment. However, cement demand in east and south remained healthy mainly d u e t o i n c r e a s e d government spending in i n f r a s t r u c t u r e s p a c e . Further, better pricing scenario in the north & west kept realization healthy, up 3.9% YoY
Ø E B I T DA / t o n n e i n o u r coverage universe declined 9.5% YoY mainly due to a rise in power and freight cost. Among our coverage u n i v e r s e , M a n g a l a m Cement, Ambuja and JK Lakshmi Cement reported 27.2%, 16.5% and 20.9% Y o Y d e c l i n e i n EBITDA/tonne, respectively. Overall despite healthy r e v e n u e g r o w t h , profitability was lower led by increase in operating cost.
Cement volumes & capacity utilization trends
Source: Company, ICICIdirect.com Research
Consumer discretionaryØ Post demonetization, the I-
d i r e c t c o n s u m e r discretionary (CD) universe recorded sales growth of 9% YoY (12.5% QoQ) in Q4 led by strong recovery in
sales volume, which was up by 16% YoY. This was largely on account of recovery in demand of consumer electricals/staple products (mainly cooling products and paints) while a
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change in product mix led to lower realization growth.
Ø G o i n g f o r w a r d , t h e consumer durable segment will get a boost from higher disposable income and increase in rural spending by government. We also believe organized players would benefit from the implementation of GST in terms of gaining market share due to a shift in d e m a n d f r o m t h e u n o r g a n i z e d t o t h e organized category.
Ø Net sales for our FMCG universe grew 5.1% in Q4FY17 post the dismal performance in Q3FY17 due to demonetization. Though the wholesale channel is not back in full force and rural demand is recovering slowly, companies like Nestlé, HUL, ITC, Jyothy Laboratories, Dabur and Marico reported domestic volume growth.
Ø R a w m a t e r i a l p r i c e s c o n t i n u e d t o r e m a i n elevated during Q4FY17 and increased 12.5% YoY,
FMCG
u p ~ 2 5 5 b p s a s a percentage of net sales. However, companies tried to lower their impact through cuts in variable employee cost & lower advertisement expense. Total employee cost for the quarter declined 2.5% YoY w h i l e a d v e r t i s e m e n t expense declined 1.1%, thus, keeping EBITDA margin flat YoY.
Ø Tier-I IT companies reported dollar revenue growth of 2% QoQ in Q4FY17 vs. a sequential decline of 0.1% i n Q 3 F Y 1 7 . C o n s t a n t currency (CC) revenues grew an average of 1.6% Q o Q v s . 1 . 3 % i n a seasonally weak Q3FY17 .
Ø I n t e r m s o f d e m a n d environment, most Indian IT c o m p a n i e s s o u n d e d optimistic on the BFSI (Banking, Financial services and Insurance) segmentwhile sounding cautious regarding spend in retail vertical citing structural issues. In term of guidance for FY18E, Infosys gave
Information Technology
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guidance for 6.5-8.5% CC revenues growth; HCL Techguided for 10.5-12.5% revenue growth in CC terms mainly on the back of acquisitions integration. W i p r o i s s u e d m u t e d revenue growth guidance (- 2-0% in CC terms) for Q1FY18E owing to ongoing restructuring in the Middle East & India business and delay in client decision making in communication vertical. However, it is anticipating a recovery in growth from Q2FY18E onwards
Ø Going forward, Infosys lowered its EBIT margin guidance to 23-25% (earlier 24-26%) for FY18E taking i n t o a c c o u n t r u p e e appreciation and ramp up of onsite development centres to mitigate any US visa concerns. While other Tier-1 IT companies maintained their margin guidance. On the bottom-line front, Tier-I IT companies reported an average sequential growth of 0.9% QoQ.
Building material, infrastructure
and real estate
Building materialsØ Our bui lding mater ia l
c o v e r a g e u n i v e r s e companies reported a good set of results with both tiles & p l y w o o d s e g m e n t performing better than our expectation leaving behind t h e i m p a c t o f demonetization. Building materials revenues grew 7.1% YoY to Rs. 2214.2 crore largely led by volume growth across product segments.
Ø H o w e v e r, w i t h G S T expected to kick in soon, v a r i o u s c o m p a n y managements have said that due to transitional issues towards GST and de stocking happening at the dealer level, H1FY18 could be impacted. However, over t h e l o n g t e r m , G S T implementation will help organized players to expand their pie by gaining market share from unorganized players
Ø I n Q4FY17 , our t i l es universe posted strong v o l u m e g r o w t h w i t h
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improvement in demand scenario. However, EBITDA margins contracted ona c c o u n t o f h i g h e r advertisement spends and hike in fuel costs. Hence, the bottom-line of our tiles universe remained flat at 0.9% YoY to Rs. 95.7 crore despite strong topline growth.
Ø The plywood segment reported a mixed set of results in Q4FY17.
Infrastructure
Ø Our construction universe r e p o r t e d a w e a k performance on account of muted execution during the quarter. Overall, with strong o r d e r i n f l o w s a n d anticipated improvement in working capital cycle and d e b t r e d u c t i o n , t h e execution is expected to pick up in FY18 for our construction universe
Ø T h e R o a d s M i n i s t r y awarded, constructed a record 16000 km, 8144 km, respect ively, in Fy17. Though i t missed i ts a m b i t i o u s a w a r d i n g , construction target of
25000, 15000 km for FY17E, r e s p e c t i v e l y, i t h a s maintained the same target for FY18E. Even if the ministry comes close to the target, it would result in robust order inflows for our construct ion coverage universe.
Real estate
Ø The real estate sector, which was already facing high inventory and muted demand scenario was f u r t h e r h i t b y d e m o n e t i z a t i o n . Regardless, our real estate coverage companies have s t a r t e d r e c o v e r i n g . However, new launches over the next few quarters may be limited given the transition towards The Real Estate (Regulation and Development) Act, 2016 (RERA).However, over the long term, with RERA i m p l e m e n t a t i o n , a consolidation in the industry is expected that would ultimately benefit organized players like Sobha & Oberoi Realty.
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Real estate sales volume trend
Source: Company, ICICIdirect.com Research
MediaØ The performance across
media companies in the quarter indicates early signs o f a r e c o v e r y f r o m demonetization heat. The companies remain bullish on the ad revenue outlook ahead owing to triggers such as good monsoons, Seventh Pay Commission, GST implementation etc, that are in the offing.
Ø Though UP elections aided overall ad revenues in the sector during the quarter, some growth was offset by the presence of model code o f c o n d u c t o n
D A V P ( D i r e c t o r a t e o f Advertising and Visual Publicity)spends and a c o n s e q u e n t l o s s o f government advertising.
Ø The topline for the metals & m in ing sec to r dur ing Q4FY17 continued to benefit from the strong volumes and healthy up-tick in prices of both ferrous and non ferrous metals. The topline during Q4FY17 came in at Rs. 129715 core, up 27.0% YoY. Aggregate EBITDA for t h e s e c t o r i m p r o v e d significantly registering
Metals
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growth of 86.6% YoY to Rs. 26735 crore. Subsequent EBITDA margins were at20.6%, up 659 bps YoY
Ø Tata Steel reported a stellar performance for Q4FY17. Both Indian operations & E u r o p e a n o p e r a t i o n s r e p o r t e d s t r o n g performance.
Ø Coal India reported subdued Q4FY17 numbers wherein the increased cost incidence on account of h igher employee cost, contractual expense, provisions and other expenses impacted EBITDA.
Ø On the back of strength witnessed in zinc prices and strong volumes, Hindustan Zinc reported a robust Q4FY17 performance. The company reported a net operating income of Rs. 6260.2 crore (up 99.9% YoY and 25.7% QoQ).
Ø During Q4FY17, the oil & gas sector reported a decent set of revenue numbers with average crude oil prices increasing 9% QoQ. The PSU oil & gas sector in Q4FY17 witnessed several
Oil & gas
one-offs like increased employee costs (Third pay c o m m i s s i o n r e c o m m e n d a t i o n s +gratuity provisions) and other exceptional expenses, which led the overal l profitability to come below our estimates
Ø R e s u l t s o f u p s t r e a m companies were largely in line with our estimates on the oil & gas production and revenues front. Freedom f r o m s u b s i d y b u r d e n continued to benefit the upstream sector.
Ø On the Oi l market ing companies' (OMCs) front, GRMs were higher than expectations, supported by i n v e n t o r y g a i n s . T h e marketing sales volumes came marginally below our estimates. The profitability of OMCs increased 38% YoY but was down ~6% QoQ & came below our estimates on account of increased employee costs.
Ø The Q4 numbers turned out to be a huge miss vis-à-vis I direct estimates mainly due steeper-than-expected price
Pharmaceuticals
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eros ion the US base business and residual impact of demonetization in the domestic formulations. In the US, almost all players reported acute pricing pressure in base business.
Ø In the backdrop of acute price erosion, a slowdown in product launches and regulatory issues in the US base business, growth in the US was the lowest in last many quarters. Domestic growth was impacted by continued demonetization impact and inventory ad jus tment . However, Ajanta, Biocon, Lupin and Sun Pharma have reported decent growth in domestic formulations.
Ø In terms of capacity addition NTPC did manage to meet e x p e c t a t i o n s a s i t commercialized capacity to the tune of 1840 MW while it e x p e c t s t o a d d a n d commercialize capacity to the tune of 5400 MW and 4500 MW, respectively. Power Grid continued with its strong capitalization trends as it added assets to
Power
the tune of Rs. 31000 crore. Going ahead, it has guided for asset addition of Rs. 31000-35000 crore in FY18E
Ø O n t h e f i n a n c i a l p e r f o r m a n c e , N T P C (National Thermal Power Corporation)reported an in line set of numbers as generation growth at 2.3% was ahead of estimates. Power Grid reported lower than-expected double digit growth as most of the capitalization in Q4FY17 was back ended and one-off gratuity provision
Ø S h o p p e r S t o p ' s departmental store reported a negative like to like sales (LTL) sales growth of 1.1% (negative LTL for the first time since FY12HyperCity reported decent LTL sales growth of 5.8%.
Ø Among specialty retailers, Titan Q4FY17 reported robust revenue growth led by strong performance in the jewellery segment, up 55% YoY to Rs. 2862 crore albeit on a favourable base. Q4FY16 was a challenging quarter for jewellers owing
Retail
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to nationwide strike by the jewellers in March 2016 and mandatory PAN card rule for jewellery transaction above Rs. 2 lakh impacting the walk-ins for January and February sales. The watches segment w i tnessed a gradual recovery in Q4FY17 post demonetization blues.
Ø Bata repor ted decent revenue growth of 8.7% YoY t o R s . 5 9 1 . 4 c r o r e , marg ina l ly be low our estimate of Rs. 615.9 crore. Q4FY17 witnessed the commencement of a new range in men & ladies' contemporary collection along with new range targeted towards youth.
Ø Q4FY17 was a challenging quarter for the textile sector on the profitability front
Textiles
owing to increase in domestic cotton prices and appreciation of the rupee.
Ø T h e t e l e c o m s e c t o r continues to be under the pricing pressure post the new entrant resorted to price war by rock-bottom data prices and free voice in order to garner subscriber market share. Both the voice & data tariffs hence posted a steep decline of 14.8% & 30.2% to 25.8 paisa & 11.8 paisa respectively across our coverage universe.
Ø The net subscriber addition for the industry during Q4FY17 was stable with Airtel & Idea posting a 2.9% & 2.3% QoQ growth to 273.6 a n d 1 8 9 . 5 m i l l i o n subscribers respectively.
Telecom
The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities
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Fund managers discuss market, economy and sectors
ICICIdirect Money Manager conducts a panel interview with Harsha Upadhyaya of Kotak Mahindra Asset Management Co. Ltd, Ajay Tyagiof UTI AMC & Ihab Dalwai of ICICI Prudential AMC. Excerpt:
Mr. Harsha Upadhyaya,Chief Investment Officer – Equity,Kotak Mahindra Asset Management Co. Ltd.
Ihab Dalwai, Investment Analyst,ICICI Prudential AMC
Ajay Tyagi, Senior Fund Manager (Equity),Executive Vice President - UTI AMC
move up. At an aggregate level this makes the equity markets move up and make new highs. So for a high growth economy like ours, markets will continue to make new highs in the coming years and decades just like they have in the past many years and decades. Of course every now and then good or bad sentiments in the markets try to pull the markets away from their equilibrium or fair value position against the u n d e r l y i n g e c o n o m y. Presently we are in a situation where the sentiment has been positive and therefore markets have seen a strong rally but not to the extent that they are highly overvalued. I would
Q. Equity markets have touched new highs. Your advice to the investors who have already invested in equity market?
Harsha Upadhyaya- While the valuations have moved up in the recent past, it is still not an outrightly expensive market. We advise investors to remain invested and maintain their asset allocation prudently.
Ajay Tyagi-If it is to keep the sentiments out of the equation for a second, then equity markets are reflection of the underlying growth in any economy. As business grow and generate more profits, they become more valuable and hence their share prices
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saytha t perhaps equ i ty markets are still within their fair value band although at the upper end of the band. So investors should not get edgy and should continue to stay invested.
Ihab Dalwai- We continue to believe investors should remain over-weight in equities, as reasonable growth is expected from equity markets over the next two-to-three years.
What are the major risks for the Indian equity markets currently?
Harsha Upadhyaya- The liquidity gush in to equity market has been quite strong. If the pace of expected earnings recovery lags that of the money flow, then the overvaluation could spread to more sectors and stocks, and hence, could be a risk.
Ajay Tyagi- The biggest risk for the Indian markets are global geo-political events. I guess most domestic factors are favourable right now whether it is a normal monsoon, inflation, GST implementation etc. However over the past few quarters, global equity markets
Q.
have been very positive about the Trump administration reviving growth in the US (and therefore having positive impact on global growth) by spending on infrastructure, cut t ing taxes , reduc ing regulatory burden on the financial system etc. However not much has moved on any of these promises and this can lead to disappointment at some point in time. This in turn can lead to sell off in equity markets around the globe including India. However if at this happens, to our mind it should be short lived at least from the Indian equity markets point of view and we should again get back on track reflecting our underlying economic growth.
Ihab Dalwai- The uncertainties of Global events cannot be ruled out, we believe that the equity market may be volatile in the short term.
How has the Q4FY17 earnings season panned out in your opinion? Have you tweaked the earnings estimates for Fy18?
Harsha Upadhyaya- The Q4FY17 earnings were broadly in line
Q.
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with expectations – with dom-estic businesses reporting better profitability as comp-ared to global/ export oriented businesses. We have not made any significant change to our expectations of earnings growth of mid-teens in Fy18.
Ajay Tyagi- The big disapp-ointment in the Q4 earnings was from the Pharma sector. The extent of pricing pressure in the US led to lower than expectations sales as well as profits from the US markets. The positive surprise came from oil & gas sector where most companies continued to show inventory valuation gains boosting their profits. The big take away from the earnings was that companies across the sectors felt that demone -tization related slowdown is behind them and they do not see this denting demand for Fy18.
We are not changing our FY 18 estimates as yet. Would be following the progress on GST as well as the monsoons before we tweak them.
Ihab Dalwai- The earnings came
out better as expected and we
have a positive view for earnings for FY 18 and FY 19.
Will GST implementation have significant impact on equity market?
Harsha Upadhyaya -The overall tax rates under GST regime are broadly similar to existing tax structure, with minor changes in some select categories. Therefore, fundamentally speaking, transition to GST regime should not impact demand in the economy. However, there could be short term impact on businesses to adjust to newer way of taxation, which is likely to get normalized soon. Hence, we do not expect any significant impact on equity market solely due to GST implementation.
Ajay Tyagi- Fundamentally speaking only those events have an impact on the markets which have not been thought through and come out as a sudden surprise one way or the other. We are all aware that GST is going to lead to short term disruptions in the markets place and many corporates have already been pointing towards how the imple-
Q.
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mentation of GST shall lead to inventory destocking by wholesalers and distributors before July 1, 2018 and hence impact sales in Q1 FY18. However the end consumer demand does not get impacted by GST and therefore if the wholesalers and distributors destock in Q1, they will have to restock in Q2 and Q3 to come back to their normal level of inventories. So to that extent it should have a limited impact on companies beyond the immediate quarters.
However from a structural perspective GST is extremely beneficial to the companies in t h e o r g a n i z e d s e c t o r ( c o m p a n i e s l i s t e d o n exchanges) as their supply chain efficiency improves and they are better placed to now take on the unorganized players who would find it difficult to evade taxes.
Ihab Dalwai- The legislative steps taken by government to implement GST (Goods and Services Tax) within the second half of the calendar year 2017, there is likelihood that macro numbers could
i m p r o v e f u r t h e r. T h e implementation of GST could benefit organized businesses
Which sectors you are bullish and bearish on and why?
Harsha Upadhyaya - The key overweight sectors in the portfolio are – Cement, Capital G o o d s a n d A u t o . Government's continued focus on affordable housing and infrastructure creation should aid demand in Cement and Capital Goods. We expect improvement in both urban and rural discretionary spend aiding automobile sector growth. The underweight sectors are – IT and Pharma. Apart from already weak fundamentals, these sectors are prone to possible adverse change in US policies. Telecom sector continues to see headwinds, wherein we have no exposure.
Ajay Tyagi- Domestic driven sectors should continue to do well in the near term. So p r i v a t e s e c t o r b a n k s , c o n s u m e r s t a p l e s a n d consumer d isc re t ionary inc lud ing au tos shou ld continue to do well. In
Q.
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particular if the monsoon turns out to be good both in terms of s p a t i a l a n d t e m p o r a l distribution, the above sectors should get a good rub of the green. GST is also going to be a strong medium term driver for many businesses in the above the sectors.
The fund is also positive on the pharma sector despite the near term challenges that it has faced. The pharma sector last year suffered in all its key markets- US generics, India Business and also exports to emerging markets. In the US generics business growth has been impacted on account of pricing led competit ion, channel consolidation and also lack of launches due to manufacturing plants being under FDA observations. We feel that there should be a gradual improvement in these factors over the next few quarters. On the Indian formulations side, there were pressures on account of ban on fixed dosage combinations as well as demonetization related disruption. The overall demand outlook in India continues to remain strong on
account of poor penetration of healthcare although there could be some GST related disruptions in the near term. Finally, on the emerging markets front, the long term demand outlook remains strong although currency related problems in many of the countries has led to weaker rupee sales of companies. This should certainly be improving in the present year. On an overall basis, Pharma remains a highly scalable business opportunity with strong Returns on Capital Employed (RoCEs) and cash flows and the fund can continue to remain b u l l i s h o n t h i s s e c t o r notwithstanding the near term challenges. The fund is bearish on global cyclicals and commodities like the Metals, Oil & gas and Energy. These are sectors with very little pricing power, weak balance sheets, poor RoCEs and hence limited ability to generate economic value.
Ihab Dalwai- For tactical allocation, investors could c o n s i d e r e x p o s u r e i n Infrastructure Sector. With the r e c e n t c o r r e c t i o n
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this small set of high quality (high RoCE companies) we like to look for long term secular growth so that economic value can compound year after year.
So to paraphrase, the strategy of the fund is to identify businesses that generates strong RoCEs which leads to s t r o n g f r e e c a s h f l o w generation which in turn can be reinvested back into the business for future growth. Such business are typically not too many in any economy and therefore when we identify such businesses we invest in them for the long term and try and be patient with them.
Consequently the stocks that we prefer are the ones that have secular growth outlook and the ones that we avoid are those that have cyclical earnings profile.
Ihab Dalwai- Some of the factors for stock selection:
1. Q u a l i t y B u s i n e s s a t attractive valuations
2. Companies with strong cash flows
3. Companies with MOAT advantage
Pharmaceuticals also look good from a contrarian point of view.
Tell us something about your stock-selection strategy. What kind of stocks do you prefer and what do you avoid?
Harsha Upadhyaya - We prefer to invest in companies that have s c a l a b l e b u s i n e s s opportunities. Focus is always on steady cash flow generation and efficient capital allocation. We place high importance on management quality. Typically, we look for compounding characteristics of earnings g r o w t h a t r e a s o n a b l e valuations, and build portfolio around that strategy.
Ajay Tyagi- The fund follows a strategy of investing into high quality companies that operate at very strong RoCEs through the cycle. The strategy is predicated on the fact that companies that generate sustainbly high RoCEs at all points of time in the cycle are the ones that generate economic value and it is this economic value generation hat is ultimately the source of long term wealth creation. Within
Q.
34
Tête-à-tête
ICICIdirect Money Manager June 2017
trying to time the market and trying to get cues from your friends and advisors when is the best time to invest, start investing small amounts into the markets by way of mutual funds in a systematic and disciplined manner and you would soon realize that the long term results are very satisfying.
Ihab Dalwai- Investors could consider investing in large-cap and multicap funds. However, as the uncertainty of global events cannot be ruled out, we believe that the equity market could be volatile in the near term. New or first time investors looking for equity exposure, can consider SIP (Systematic Investment Plan) in ICICI Prudential Balanced Advantage Fund. Investors who aim to benefit from volatility can be overweight in equity by investing lump-sum in dynamic asset allocation funds . IC IC I Pruden t i a l Infrastructure Fund could be a favourable choice for investors with high risk appetite who may want to benefit from Government ' s focus on building infrastructure in India
4. Companies with great brand
5. Good Management with strong track record
6. Good return ratio - ROE and ROCE
Your advice to new investors entering in equity market?
Harsha Upadhyaya -Investors may continue to invest through SIP/STP in case their equity allocation is still below desired asset allocation levels. One s h o u l d a v o i d c h a s i n g momentum and maintain disciplined approach.
Ajay Tyagi- My advice to new i n v e s t o r s i s t o v i e w investments into equity markets from a very long term perspective, at least 5 years and preferably 10 years. Like I explained earl ier equity markets will ultimately mirror the underlying economic growth over the long term and since our is a high growth economy, long term investors would certainly be rewarded for their patience. This has been the history of equity investing over the last 40 years in India and more than 100 years in the US. Rather than
Q.
35
ASK OUR PLANNER
ICICIdirect Money Manager June 2017
How to manage your personal finance?
Q.
A.
I have pension policy ULIP mode
started in November 2006 and
annual premium of Rs.24,000/- and
invested 2.5 lac till date and current
fund value is around 4.8lacs. Out of
this corpus, if I reinvest 2.8 lac in a
new policy and withdraw the
balance 2 lac as payout, what are
tax implications?Please advice.- Dipankar Ghosh
If your pension policy has
matured, then you will be able
to withdraw a maximum of rdonly 1/3 of the fund value as
lumpsum i.e. Rs.1.6 lakh; the
balance has to be converted to
annuity. The lumpsum to be
received will be exempt from
tax and can be re-invested into
a new policy. The annuity to be rd
received from the balance 2/3
will be added to your income
every year and taxed as per
your income slab.
On the other hand, if your
pension pol icy has not
matured yet and you are
planning to surrender the
po l i cy, then the ent i re
surrender proceeds of Rs.4.8
lakh (assuming there are no
surrender charges), will be
added to your income and
taxed as per your income slab.
You can either re-invest the
surrender proceeds into a new
policy or utilize the same for
any other purpose.
My mother has always been a
conservative investor and prefers
to choose bank fixed deposits over
market instruments. However, she
is willing to invest in a slightly
aggressive product to earn better
returns than FD. She already holds
two FDs of around 7 lakhs
(maturing this and following year).
Can experts please suggest
potential investment choices for
her? She is 46 years old and falls
under 5% tax category.- Ranjit Kumar Chaturvedi
If your mother is not looking
to generate regular income
from the investments and if she
does not require the amount
for atleast another 3 years,
then she can look to start
investing into Monthly Income
Plans offered by various
Q.
A.
36
ASK OUR PLANNER
ICICIdirect Money Manager June 2017
mutual funds. These plans
typically invest around 80-85%
into debt instruments and 15-
20% into equity instruments.
These plans, on an average,
have given around 10-11% p.a.
return during the last 3 years.
However, there's no guarantee
on the higher returns than a
fixed deposit, as these plans
could give lower returns than a
fixed deposit, if their equity
instruments do not perform
well.
I am 28 years old salaried
person. Shall I or shall I not put
money in endowment policies? My
parents had already started one
policy of Rs. 5,00,000 when I was
15 years old. Please line out its pros
and cons.- Mohit Konar
Most of the endowment
policies are participating in
nature, which means that they
share a part of their profit with
the policyholders in the name
of 'bonus'. Bonus is declared
every year for the policy and
gets paid out at the maturity of
the policy, alongwith the sum
assured. The premium being
paid towards the endowment
Q.
A.
policy can be claimed as
deduction from your income
under Section 80C of the
Income Tax Act, subject to a
maximum of Rs.1.50 lakh per
financial year. Also, the
maturity benefit (or the death
benefit) to be received at
maturity will be exempt from
tax.
These policies are also illiquid
and the minimum term would
be 10 years; you cannot
withdraw in between. The
insurance companies do not
disclose where your money
gets invested into, unlike unit-
linked policy.
These policies work best only if
you stay invested for the entire
duration and are suitable for
people looking at capital
protection and steady returns,
similar to that of a fixed
deposit.
If your parents have already
started a policy in your name
and have been pay ing
premium for the last 13 years,
it's better to continue the same
till maturity. If you surrender
the policy before its maturity,
you would not get the entire
37
ASK OUR PLANNER
ICICIdirect Money Manager June 2017
closure of personal loan? Both have
similar pre-payment charges. What
is advisable? - Rakshak Anwar
The interest rate on a
personal loan is generally
more than that of a car loan.
Hence, from that point of view,
it's better to pre-close your
personal loan, so that you can
save on the higher interest
outflow to be paid.
A.
premiums paid and stand to
lose.
I have a car loan of Rs. 7 lakh
taken in December 2014 from HDFC
bank. Outstanding loan amount for
which is Rs.3.57 lakh. I also have a
personal loan from the same bank
with due amount of Rs. 2 lakh. I am
expecting a big payment in couple
of months and confused about
which loan to clear off. Should I
part-pay my car loan or opt for pre
Q.
Do you also have similar queries to ask our experts? Write to us at: [email protected].
MUTUAL FUND ANALYSIS
38
Dynamic Bond Funds
ICICIdirect Money Manager June 2017
Dynamic bond funds as the name suggests are debt funds where the manager dynamically and actively manoeuvres the fund by moving between G-secs (government securities) of differing maturities, corporate debt papers and commercial papers. The manager changes positions in these asset classes primarily based on his views and expectations about interest rates. The manager would increase duration if she expects rates to fall as bond yields fall in conjunction with interest rate declines while simultaneously the bond's price increases, delivering capital gains. Bond prices and yields move in opposite directions. Conversely, the manager would reduce duration by buying shorter maturity papers if he expects interest rates to harden in the future. The farther away the bond's maturity is, the more its price is affected by interest rate movements.
After the RBI altered its policy stance to 'neutral' from 'accomodative' in February, longer maturity papers suffered losses as yields moved up sharply. However, in recent months the yields have softened again amid falling inflation, less sticky core inflation and sustained domestic and foreign inflows into debt and equity and other factors. The benchmark 10 year G-sec (government security) yield fell from 6.96 in end-April to 6.66 in end-May and further to ~6.53 after the RBI's June policy meet where it sounded incrementally dovish about inflation levels – the key determinant of interest rates – going forward, raising hopes of a rate cut this fiscal. At the very least, it is expected that the chances of a rate hike in the near future have all but disappeared. This shift in commentary provides an opportunity for fund managers to increase allocation to G-Secs.
Following the above mentioned approach we recommend the following three dynamic bond schemes.
Investing in Dynamic Bond funds
Birla Sun Life Dynamic Bond Fund
Fund Objective:
To generate optimal returns
with high liquidity through
active management of the
portfolio by investing in high
quality Debt and Money
Market instruments.
NAV as on May 31, 2017 ( ) 11.9
Inception Date November 13, 2014
Fund Manager Maneesh Dangi,Pranay Sinha
Minimum Investment (`)
Lumpsum 1000
Expense Ratio (%) 1.46
Last declared YTM 7.77
Exit LoadNil upto 15%
of units,0.50%in excess of
limit on orbefore 90D and
Nil after 90D
Benchmark Crisil Short TermBond Fund Index
Modified Duration 7.48
`
Key Information:
9.9
10.0
8.9
8.8
9.1
9.1
7.5 8.0 8.5 9.0 9.5
10.0 10.5 11.0
1 Year 3 Year 5 Year Since Inception
10.5
Fund Benchmark
Performance vs. Benchmark
39
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager June 2017
Product Label:
This Product is Suitable for Investors Who are Seeking
• income with capital growth over short term
• i nves tments in ac t i ve ly managed portfolio of high quality debt and money market i n s t r u m e n t s i n c l u d i n g government securities
Performance:The fund has long term track record of consistently beating its benchmark and peers. The fund has delivered 9.9% return in 1 year versus 8.8% returns generated by its benchmark. Three year CAGR returns of 10.5% vs. 9.1% of benchmark index. Over 5 year time frame the fund has outperformed its benchmark by comfortable margin, generating returns of 10.0% CAGR as compared to 9.1% CAGR delivered by its benchmark.
%
40.0
15.0
3.8
3.7
3.6
3.4
2.9
2.9
2.4
2.4
Top 10 Holdings Asset Type
08.13% GOI - 22-Jun-2045 Government Securities
08.17% GOI - 01-Dec-2044 Government Securities
06.79% GOI - 26-Dec-2029 Government Securities
Piramal Enterprises Ltd. SR-I (19-Jul-19) Corporate Debt
Clearing Corporation Of India Ltd. Cash & Cash Equivalents
Shriram Transport Finance Company Ltd. SR-D-08 OPT-III 8.80% (29-Jul-19) Corporate Debt
Indiabulls Housing Finance Ltd 08.8% (23-Aug-21) Corporate Debt
07.68% GOI - 15-Dec-2023 Government Securities
Tata Motors Finance Ltd. -SR-E (12-Mar-19) Corporate Debt
Net Current Asset Cash & Cash Equivalents
40
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager June 2017
Whats In %
Birla SL Cash Plus(G)-Direct Plan 0
08.83% GOI 2023 0.1
08.83% GOI - 12-Dec-2041 0.2
Whats Out %
Indiabulls Housing Finance Ltd OP-II LOA 9.80% (09-Sep-18) 0.6
08.97% GOI - 05-Dec-2030 0.4
Rural Electrification Corpn Ltd SR-135 08.36% (22-Sep-20) 0.2
Yearly Returns
0.0
2.0
4.0
6.0
8.0
31-Mar-16 To 31-Mar-17 31-Mar-15 To 31-Mar-16 31-Mar-14 To 31-Mar-15
Retu
rn%
Fund BenchMark
Portfolio:The fund predominantly invests in h igh qua l i ty c o r p o r a t e b o n d s a n d government securities. The fund aims to generate optimal returns by designing a p o r t f o l i o w h i c h w i l l dynamically track interest rate movements in the short term by reducing duration in a rising ra te envi ronment whi le increasing duration in a falling
interest rate environment. Currently the fund has 65% allocation G-sec, 28% the mix o f A A A a n d A A r a t e d securities, 1% in A rated p a p e r s a n d r e m a i n i n g proportion is in cash and cash equivalents. The Modified Duration of the fund has been in the range of 6.6 to 8.4 years in last 14 months. The current Yield-to-Maturity of the fund is 7.77 %
May-17 Apr-17 Mar-17 Feb-17 Jan-17 Dec-16 Nov-16 Oct-16 Sep-16 Aug-16 Jul-16 Jun-16 May-16 Apr-16
CDs -- -- -- -- -- -- -- -- 0.7 -- 1.1 0.2 -- --CPs -- -- -- -- -- -- -- 0.8 1.6 -- -- 0.1 2.0 --Corp Bond 26.8 28.8 29.4 28.6 26.3 26.8 26.0 32.9 34.1 28.1 25.5 12.0 15.6 13.5Gsec 64.3 64.2 63.9 66.7 68.2 68.0 67.6 61.8 58.9 67.1 68.4 62.7 75.9 75.7Others 9.0 7.0 6.8 4.7 5.5 5.2 6.4 4.5 4.6 4.7 5.0 25.0 6.5 10.8
A & Eqiv 1.0 1.1 1.0 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.1 -- -- --AA & Equiv 22.1 23.1 21.9 20.6 19.8 20.3 20.6 23.5 24.4 21.9 20.3 9.3 10.2 8.0AAA & Equiv 6.1 7.3 9.1 8.4 8.2 8.4 7.5 11.0 12.6 6.8 6.9 3.5 8.0 6.0Cash & Equivalent 6.5 4.3 4.1 3.5 2.8 2.4 2.7 2.7 3.0 3.1 3.4 15.9 2.0 10.2SOV 64.3 64.2 63.9 66.7 68.2 68.0 67.6 61.8 58.9 67.1 68.4 71.3 75.9 75.7Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
Avg Maturity(Yrs) 17.3 17.3 17.3 17.5 18.2 18.2 18.9 16.6 16.4 19.7 18.5 17.7 20.5 20.9
Modified Duration 7.5 7.5 7.5 7.7 8.2 8.1 8.3 6.6 6.5 8.4 7.8 6.9 8.1 8.1
Asset Allocation %
Credit quality %
Other attributes (Years)
41
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager June 2017
Performance of other schemes managed by the fund managers
Gold-India 0.38 2.33 -0.07
Fund Name 1 year 3 year 5 year
Best 3 performing funds
Worst 3 performing funds
Birla SL Constant Maturity 10 Year Gilt
Birla SL MIP II - Wealth 25 Fund 19.28 15.10 14.51CRISIL MIP Blended Fund Index 12.07 10.71 10.29
Birla SL Gilt Plus Fund PF Fund
10.60 9.90 7.78
-- -- --
Birla SL Gold ETF
14.45 12.78 10.86
-- -- --
Birla SL Balanced 95 Fund 19.58 16.88 19.16
CRISIL Balanced Fund - Aggressive Index 15.61 10.47 12.85
Birla SL Income Plus Fund 11.05 10.07 8.80
CRISIL Composite Bond Fund Index 10.95 10.67 9.42
-0.73 1.06 -1.29
Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 7 other schemes of the concerned Mutual Fund
Fund Name 1 year 3 year 5 year
Birla SL Corporate Bond Fund 11.06 -- ---- -- --
Birla SL Treasury Optimizer Fund 9.96 10.04 10.09
CRISIL Short Term Bond Fund Index 8.82 9.07 9.08
Birla SL Medium Term Fund 9.90 10.14 10.39-- -- --
Birla SL ST Opportunities Fund 9.12 9.40 9.96
-- -- --
Birla SL Short Term Fund 9.20 9.40 9.53
CRISIL Short Term Bond Fund Index 8.82 9.07 9.08
Performance of all the schemes managed by the fund manager - Maneesh Dangi (CAGR Returns %)
Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 5 other schemes of the concerned Mutual Fund
Data as on May 31,2017 ;Portfolio details as on Apr-2017Source: ACE MF, ICICIdirect Research, AMC factsheet
You can view performance of other schemes being managed by the fund manager of this scheme on the following link: http://mutualfund.birlasunlife.com/MFUSFactsheetsAddendums/Empower-June-2017.pdf
42
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager June 2017
IDFC Dynamic Bond Fund
Fund Objective:Seek to generate optimal returns with high liquidity by active management of the portfolio; by investing in high quality money market & debt instruments. However there is n o a s s u r a n c e t h a t t h e investment objective of the scheme will be realized.
Key Information: Performance:
The fund has delivered 12.8%
1-year return, 10.9% 3-year
annualized return and 5-year
annualized return, beating the
benchmark index and most
funds in the category across
these t ime frames. The
d y n a m i c d u r a t i o n
management has helped the
fund outperform the peers.
Product Label:
This product is suitable for investors who are seeking*:
• To generate long term optimal returns by active management.
• Investments in high quality m o n e y m a r k e t & d e b t instruments including G-Sec securities. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Fund Benchmark
Performance vs. Benchmark
NAV as on May 31, 2017 ( ) 20.4
Inception Date December 1, 2008
Fund Manager Suyash Choudhary
Minimum Investment (`)Lumpsum 5000
Expense Ratio (%) 1.49
Last declared YTM 7.44
Exit Load Nil
Benchmark Crisil Composite Bond Fund Index
Modified Duration 5.41
`
10.9
9.9
8.7
10.9
10.7
9.4
8.5
-
5.0
10.0
15.0
1 Year 3 Year 5 Year Since Inception
Retu
rn%
12.8
43
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager June 2017
Yearly Returns
13.1
5.1
16.3
11.1
8.2
14.6
0.0
5.0
10.0
15.0
20.0
31-Mar-16 To 31-Mar-17 31-Mar-15 To 31-Mar-16 31-Mar-14 To 31-Mar-15
Retu
rn%
Fund BenchMark
Portfolio:The fund seeks to actively manage the portfolio through exposure to money market a n d d e b t i n s t r u m e n t s depending upon the market c o n d i t i o n s . T h e f u n d ' s investment approach is to generate returns by taking active duration calls rather than credit bets. The fund has reduced its G-sec allocation to 78% in May from around 95%
levels seen 6 months ago. The balance portfolio is invested in a mix of AAA-rated securities (19%) and cash & cash e q u i v a l e n t s ( 2 % ) , t h u s minimising the credit risk of the portfolio by consciously a v o i d i n g e x p o s u r e t o securities rated below AAA or equivalent. Currently the fund's Modified Duration is 5.41 years and Yield-to-Maturity is 7.44%
%
21.49
8.37
6.01
5.29
4.48
4.06
3.77
3.41
3.26
2.89
Top 10 Holdings Asset Type
07.16% GOI - 20-May-2023 Government Securities
08.20% GOI - 15-Feb-2022 Government Securities
Indian Railway Finance Corpn Ltd. SR-118 7.83% (21-Mar-27) Corporate Debt
08.21% Haryana SDL - 31-Mar-2023 Government Securities
NTPC Ltd. SR-66 07.37% (14-Dec-31) Corporate Debt
08.21% Haryana SDL - 31-Mar-2022 Government Securities
08.64% Uttar Pradesh Uday Bond - 10-Mar-2023 Government Securities
08.39% Rajasthan SDL - 15-Mar-2023 Government Securities
Export-Import Bank Of India SR-U-02 07.56% (18-May-27) Corporate Debt
07.74% Tamil Nadu SDL - 01-Mar2027 Government Securities
Whats In %
08.20% GOI - 15-Feb-2022 8.4
07.16% GOI - 20-May-2023 21.5
07.59% Karnataka SDL - 29-Mar-2027 2.8
44
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager June 2017
Whats Out %
07.72% GOI - 25-May-2025 12.9
07.81% Telangana UDAY BOND - 07-Mar-2027 0.1
Our View:The fund's portfolio is tilted towards sovereign bonds, thus it is likely to benefit from the falling interest rates in the economy. With the expectation of fall in inflation in near term, RBI's recent slightly more dovish stance apparent from the June monetary policy and persistence of system liquidity,
t he fund seems to be pos i t ioned to t ake the advantage in this scenario. The fund has a modified duration of 5.41 years. This means a fall in interest rates by 100 bps can yield capital gains of ~5.41%. IDFC Dynamic Bond Fund can be looked at by relatively more risk averse investors.
May-17 Apr-17 Mar-17 Feb-17 Jan-17 Dec-16 Nov-16 Oct-16 Sep-16 Aug-16 Jul-16 Jun-16 May-16 Apr-16
Asset allocation
CDs -- -- -- -- -- -- -- -- -- -- -- -- -- --CPs -- -- -- -- -- -- -- -- -- -- 0.84 2.52 16.03 16.22Corp Bond 19.05 18.34 25.26 20.97 10.67 12.61 -- -- -- -- -- -- 1.56 2.98Gsec 78.77 79.42 66.72 46.06 87.50 71.45 99.04 97.02 97.15 97.46 97.39 95.47 79.65 78.36Others 2.18 2.23 8.02 32.97 1.83 15.94 0.96 2.98 2.85 2.54 1.76 2.01 2.77 2.44
A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --AA & Equiv -- -- -- -- -- -- -- -- -- -- -- -- -- --AAA & Equiv 19.05 18.34 25.26 20.97 10.67 12.61 -- -- -- -- 0.84 2.52 17.58 19.20Cash & Equivalent 2.18 2.23 8.02 32.97 1.83 15.94 0.96 2.98 2.85 2.54 1.76 2.01 2.77 2.44SOV 78.77 79.42 66.72 46.06 87.50 71.45 99.04 97.02 97.15 97.46 97.39 95.47 79.65 78.36Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
Avg Maturity(Yrs) 7.52 8.17 7.90 2.65 4.40 5.20 13.17 7.64 8.27 8.67 8.42 6.49 5.20 5.24
Modified Duration 5.41 5.76 5.50 2.12 3.48 3.77 8.38 5.61 5.94 6.13 6.05 4.89 3.93 3.97
Asset Allocation %
Credit quality %
Other attributes (Years)
Performance of other schemes managed by the fund manager
Fund Name 1 year 3 year 5 year
IDFC G Sec-PF-Reg(G) 14.43
11.28 10.55I-Sec Composite Gilt Index -- -- --
12.09 11.00
IDFC G Sec-Invest-Reg(G) 13.52
I-Sec Composite Gilt Index -- -- --
IDFC SSIF-MT-Reg(G) 9.16 8.92 8.60
Crisil Short Term Bond Fund Index 8.82 9.07 9.08
IDFC SSIF-Invest-Reg(G) 12.49 10.59 9.65
Crisil Composite Bond Fund Index 10.95 10.67 9.42
IDFC SSIF-ST-Reg(G) 7.94 8.45 8.61
-- -- -- --
10,000
12,500
Data as on May 31,2017 ;Portfolio details as on Apr-2017Source: ACE MF, ICICIdirect Research, AMC factsheet
45
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager June 2017
ICICI Prudential Income Plan
Fund Objective:To generate income through investments in a range of debt a n d m o n e y m a r k e t i ns t ruments o f va r ious maturities with a view to maximising income while maintaining the optimum balance of yield, safety and liquidity.
Key Information:
Product Label:
This product is suitable for investors who are seeking*:
• Long term wealth creation solution
* A Debt Fund that invests in debt and money market instruments of various maturities with a view to maximise income while maintaining optimum balance of yield, safety and liquidity.
Performance:The fund has performed well by delivering annualized returns of 12.6% in 1 year and 11.1% CAGR in 3 year period vs. benchmark return of 10.9% and 10.7% CAGR respectively for the given periods. Five year CAGR return of the fund stands at 9.3% vs. 9.4% of the benchmark index, demon- strating that the fund has started to beat its benchmark by a wider margin in recent times.
Performance vs. Benchmark
Fund Benchmark
NAV as on May 31, 2017 ( ) 53.1
Inception Date July 9, 1998
Fund Manager Manish Banthia
Minimum Investment (`)
Lumpsum 5000
Expense Ratio (%) 1.86
Last declared YTM 7.76
Exit Load 0.25% on or before1M, Nil after 1M
Benchmark Crisil Composite Bond Fund Index
Modified Duration 7.82
`
11.1
9.3
9.2
10.9
10.7
9.4
10.2
-
5.0
10.0
15.0
1 Year 3 Year 5 Year Since Inception
12.6
46
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager June 2017
Performance vs. Benchmark (CAGR Returns %)
12.7
5.7
17.4
11.1
8.2
14.6
0.0
5.0
10.0
15.0
20.0
31-Mar-16 To 31-Mar-17 31-Mar-15 To 31-Mar-16 31-Mar-14 To 31-Mar-15
Retu
rn%
Fund BenchMark
Portfolio:The scheme aims to invest in high rated corporate debt papers and government securities with relatively low risk and easy liquidity. The fund holds 68% sovereign bonds, 19% AAA rated papers, 9% AA
rated papers and 3% in cash and equivalents. Recently the fund has inc reased i t s allocation to longer maturity papers indicating the fund managers bullish view on interest rates.
%
20.26
12.13
6.78
6.5
5.24
4.33
4.21
4.09
3.84
3.74
Reliance Utilities & Power Ltd. SR- PPD 4 9.75% (02-Aug-24) Corporate Debt
Great Eastern Shipping Company Ltd. 8.70% (06-May-26) Corporate Debt
07.95% GOI 2032 Government Securities
Great Eastern Shipping Company Ltd. 8.70% (31-May-25) Corporate Debt
The Great Eastern Shipping Company Ltd. 08.24% (10-Nov-26) Corporate Debt
Government Securities
08.13% GOI - 22-Jun-2045 Government Securities
07.88% GOI - 19-Mar-2030
Top 10 Holdings Asset Type
08.17% GOI - 01-Dec-2044 Government Securities
07.73% GOI 2034 Government Securities
Axis Bank Ltd. SR-26 8.75% Corporate Debt
%
0.3
2.8
4.3
Whats In
07.35% GOI 2024
07.50% GOI 2034
07.95% GOI 2032
%
0.3
0.3
0.3
Whats Out
08.27% Telangana UDAY BOND - 07-Mar-2028
08.08% Telangana UDAY BOND - 07-Mar-2029
07.98% Telangana UDAY BOND - 07-Mar-2030
Our View:I C I C I Pr u I n c o m e P l a n predominantly invests in
sovereign bonds as well as high rated corporate debt hence carries comparatively
47
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager June 2017
May-17 Apr-17 Mar-17 Feb-17 Jan-17 Dec-16 Nov-16 Oct-16 Sep-16 Aug-16 Jul-16 Jun-16 May-16 Apr-16
CDs -- -- -- -- -- -- -- -- -- -- -- -- -- 9.96CPs -- -- -- -- -- -- -- -- -- -- -- -- 1.10 2.13Corp Bond 28.84 27.81 33.30 54.16 56.16 51.62 33.64 44.51 27.39 16.12 16.71 16.61 18.64 11.82Gsec 68.26 69.13 65.80 42.96 41.04 44.15 61.79 53.08 70.92 81.88 77.17 76.57 78.20 70.12Others 2.90 3.06 0.90 2.88 2.80 4.23 4.57 2.42 1.69 2.00 6.12 6.82 2.05 5.98
A & Eqiv 0.04 0.04 0.04 0.03 -- -- -- -- -- -- -- -- -- --AA & Equiv 9.64 9.37 9.84 10.05 9.82 8.55 2.14 2.29 2.29 5.65 5.58 5.51 6.39 5.83AAA & Equiv 19.12 18.41 23.42 44.08 46.34 43.07 31.50 42.22 25.10 10.47 11.13 11.10 13.36 18.07Cash & Equivalent 2.90 3.06 0.90 2.88 2.80 4.23 4.57 2.42 1.69 2.00 6.12 6.82 2.05 5.98SOV 68.26 69.13 65.80 42.96 41.04 44.15 61.79 53.08 70.92 81.88 77.17 76.57 78.20 70.12Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
Avg Maturity(Yrs) 15.17 14.89 14.41 12.06 11.22 11.65 11.86 10.98 11.27 11.08 11.07 15.35 15.65 14.54
Modified Duration 7.82 7.61 7.49 6.69 6.47 6.73 6.94 6.70 6.93 6.83 6.61 7.59 7.75 6.99
Asset Allocation %
Credit quality %
Other attributes (Years)
Performance of other schemes managed by the fund manager
-1.28
Gold-India 0.38 2.33 -0.07
ICICI Pru Regular Gold Savings Fund(G) 0.36 1.51 -1.08
Gold-India 0.38 2.33 -0.07
ICICI Pru MIP (G) 13.07 10.80
Worst 3 performing funds
7.05 8.12
-- -- --
ICICI Pru Gold iWIN ETF -0.80 2.13
1 year
ICICI Pru Balanced Fund(G) 26.73 17.57 20.10CRISIL Balanced Fund - Aggressive Index 15.61 10.47 12.85
3 year 5 year
Best 3 performing funds
Fund Name
10.69
CRISIL MIP Blended Fund Index 12.06 10.71 10.29
ICICI Pru Child Care Gift Plan (G) 18.43 13.17 17.95CRISIL Balanced Fund - Aggressive Index 15.61 10.47 12.85
ICICI Pru Equity Arbitrage Fund (G) 6.44
Data as on May 31,2017 ;Portfolio details as on Apr-2017Source: ACE MF, ICICIdirect Research, AMC factsheet
lower credit risk. The fund has the flexibility to move across d i f f e r e n t t e n u r e s a n d instruments depending upon the interest rate scenario. The fund is positioned to benefit from a falling interest rate scenario. Corporate debt papers which offer higher interest rates than G-secs will
increase the overall returns of the fund. The modif ied duration of the fund is 7.82 years which means a fall in interest rates by 100 bps can yield capital gains of~ 7.8%. It i s a fund tha t can be c o n s i d e r e d b y m o r e aggressive debt investors.
You can view performance of other schemes being managed by the fund manager of this scheme on the following link:http://www.icicipruamc.com/docs/default-source/default-document-library/fund-factsheet-for-may270000ff41026ea9a3af27f6b759be82. pdf?sfvrsn=0
48ICICIdirect Money Manager June 2017
This month on iCommunity
1. Discussions
Will merger among PSU banks result in improvement in performance?
With the aim to have a handful of strong and bigger banks of international level, government has expressed its intention of consolidation in the public sector banking space against the backdrop of the mountain of bad loans. So do you expect an improved performance of banks post consolidation? Come and be a part of this discussion with the fellow traders and investors on iCommunity
2. Expert event
Unpack tension.Our expert clarifies
all your Travel Insurance doubts
Choosing a right travel insurance
policy is one of the critical tasks of
planning a trip; be it an overseas
trip or visiting cities close to your
home. Top 25 queries have been
answered by
3. Q & A Forum
Seek answers to your queries regarding
investments and market updates for free.
Questions like:
> What is mutual fund NFO?
> What's the process to apply for rights issue?
> I have 50 shares of XXXX stock. Should I hold or
sell?
.
Travel Insurance Expert
from ICICI Lombard. Login to iCommunity to know the answers.
What is iCommunity?iCommunity is ICICIdirect's interactive platform where one can answer and get answered as well. With extensive range of forums, events & discussions iCommunity serves as an opportunity to learn more about financial world.
49
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager June 2017
Name of the company
Largecap Stocks
Model Portfolio
Largecap(%)
Midcap(%)
Diversified(%)
Auto 15.0 10.5
Tata Motor DVR 4.0 2.8
Bosch 3.0 2.1
Maruti 5.0 3.5
EICHER Motors 3.0 2.1
BFSI 32.0 22.4
HDFC Bank 8.0 5.6
Axis Bank 4.0 2.8
HDFC 8.0 5.6
Bajaj Finance 6.0 4.2
SBI 6.0 4.2
Capital Goods 4.0 2.8
L & T 4.0 2.8
Cement 4.0 2.8
UltraTech Cement 4.0 2.8
FMCG/Consumer 18.0 12.6
Dabur 5.0 3.5
Marico 4.0 2.8
Asian Paints 5.0 3.5
Nestle 4.0 2.8
IT 12.0 8.4
Infosys 6.0 4.2
TCS 6.0 4.2
Meida 4.0 2.8
Zee Entertainment 4.0 2.8
Oil & Gas 5.0 3.5
GAIL Ltd. 5.0 3.5
Pharma 6.0 4.2
Lupin 6.0 4.2
Largecap share in diversified 100.0 70.0
50
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager June 2017
Aviation 6.0 1.8
Interglobe Aviation 6.0 1.8
Auto 6.0 1.8
Bharat Forge 6.0 1.8
BFSI 12.0 3.6
Bajaj Finserve 6.0 1.8
J&K Bank 6.0 1.8
Capital Goods 6.0 1.8
Bharat Electronics 6.0 1.8
Cement 6.0 1.8
Ramco Cement 6.0 1.8
Consumer 30.0 9.0
Symphony 6.0 1.8
Supreme Ind 6.0 1.8
Kansai Nerolac 6.0 1.8
Pidilite 6.0 1.8
Rallis 6.0 1.8
Infrastructure 8.0 2.4
NBCC 8.0 2.4
Logistics 6.0 1.8
Container Corporation of India 6.0 1.8
Pharma 14.0 4.2
Natco Pharma 6.0 1.8
Biocon 8.0 2.4
Textile 6.0 1.8
Arvind 6.0 1.8
Midcap share in diversified 100 30
TOTAL 100 100 100.0
51
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
June 16, 2017
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 June 16, 2017
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager June 2017
Largecap Midcap Divesified
101.7613698
216.9314675
129.9709547
77.1489667
134.1079884
93.69169834
0255075
100125150175200225250
%
7300000
7300000
7300000
10146456.7
2
11547779.2
1
9954848.2
9
11990504.0
3
11075662.7
9
3500000
4500000
5500000
6500000
7500000
8500000
|
QUIZ TIME
1. The end consumer demand does not get impacted by GST. True/False
2. Q4FY17 was a challenging quarter for the ____________ sector on the profitability front owing to increase in domestic cotton prices and appreciation of the rupee.
3. With the recent correction ___________sector looks good from a contrarian point of view.
4. In terms of demand environment, most Indian ITcompanies sounded _________ on the BFSI segment.
5. Demonetization had a carry forward effect on the overall auto space, resulting in volumes remaining ___________ in fourth quarter.
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 May2017 quiz are:
1. Your retirement portfolio should aim to ______________ sufficient assets
A. accumulate
2. The gap between retiring age and average life expectancy in India has ____________.
A. widened
3. As per regulations, NPS can invest _________ amount into equity asset class.
A. up to 20%
4. Returns on this post-retirement investment product -______________ are fixed at 8.6%.
A. Senior Citizen Savings Scheme
5. Advice seekers __________________ are likely to seek advice around one particular need, rather than take holistic advice.
A. non-planners
52ICICIdirect Money Manager June 2017
53
PRIME NUMBERS
Equity Markets
ICICIdirect Money Manager June 2017
Domestic Equity Indices
Global Equity Indices
Sectoral Indices
31-May-17 28-Apr-17 Change (%)
CNX Nifty 9621.0 9304.0 3.4%
CNX Midcap 17510.0 18086.0 -3.2%
S&P BSE Sensex 31146.0 29918.0 4.1%
S&P BSE 100 9929.0 9670.0 2.7%
S&P BSE 200 4166.0 4083.0 2.0%
S&P BSE 500 13199.0 12979.0 1.7%
31-May-17 28-Apr-17 Change (%)
Dow Jones 21,008.7 20,940.5 0.3%
S&P 500 2,411.8 2,384.2 1.2%
Nasdaq 6,198.5 6,047.6 2.5%
FTSE 7,520.0 7,203.9 4.4%
DAX 12,615.1 12,438.0 1.4%
CAC 40 5,283.6 5,267.3 0.3%
Nikkei 19,650.6 19,196.7 2.4%
Hang Seng 25,660.7 24,615.1 4.2%
Shanghai Composite 3,117.2 3,154.7 -1.2%
Taiwan Weighted 10,040.7 9,872.0 1.7%
Straits Times 3,210.8 3,175.4 1.1%
31-May-17 28-Apr-17 Change (%)
S&P BSE Auto 24,162.0 22,782.4 6.1%
S&P BSE Bankex 26,547.0 25,325.3 4.8%
S&P BSE FMCG 10,106.0 9,412.3 7.4%
S&P BSE Healthcare 13,563.0 15,019.4 -9.7%
S&P BSE Metals 11,247.0 11,303.4 -0.5%
S&P BSE Oil & Gas 14,247.0 14,455.0 -1.4%
S&P BSE Power 2,221.0 2,329.8 -4.7%
S&P BSE Realty 1,931.0 1,923.9 0.4%
S&P BSE Teck 5,711.0 5,450.2 4.8%
54
PRIME NUMBERS
ICICIdirect Money Manager June 2017
Debt Markets
Government Securities (G-Sec) Yields (in %) May-17 Change (bps)Apr-17
Corporate Bond Yields (in %) Change (bps)May-17 Apr-17
Commercial Paper (CP) Rates (in %) Change (bps)May-17 Apr-17
Treasury Bill (T-Bills) Yields (in %) Change (bps)May-17 Apr-17
Volatility Index (VIX)
31-May-17
VIX 11.76 10.86 0%
28-Apr-17 Change (%)
10 year 6.66 6.96 -30
5 year 6.82 6.90 -9
3 year 6.61 6.79 -18
1 year 6.53 6.54 -1
AAA 10 year 7.94 8.14 -20
AAA 5 year 7.70 7.85 -15
AAA 3 year 7.50 7.62 -12
AAA 1 year 7.22 7.20 2
AA 10 year 8.29 8.41 -12
AA 5 year 8.08 8.25 -17
AA 3 year 7.94 8.08 -14
AA 1 year 7.62 7.57 5
12 Months 7.30 7.25 5
6 Months 6.96 7.03 -7
3 Months 6.70 6.75 -5
1 Month 6.50 6.53 -3
91D TB 6.28 6.18 11
182D TB 6.38 6.27 11
364D TB 6.44 6.41 3
55
PRIME NUMBERS
10-year benchmark yields (%) across countries
ICICIdirect Money Manager June 2017
Macro-economic Indicators
Consumer price index (CPI)
Wholesale price index (WPI)Month
Countries 31-May-17 28-Apr-17 Change in bps
US 2.20 2.28 (8)
UK 1.05 1.09 (4)
Japan 0.05 0.02 3
Spain 1.54 1.64 (10)
Germany 0.30 0.32 (1)
France 0.73 0.83 (10)
Italy 2.20 2.28 (8)
Brazil 10.70 10.30 40
China 3.64 3.47 16
India 6.66 6.96 (30)
MF Investment May-17 Apr-17 YTD
Equity 9357 11244 30040
Debt 9514 55932 174925
FII Investment May-17 Apr-17 YTD
Equity 9956 -2209 51968
Debt 20197 19401 69061
Items Weights(%) Mar-17 Apr-17 May-17
Food&bev. 45.86 2.46 1.29 -0.22
Pan,tob& intox. 2.38 6.30 6.05 6.17
Cloth & Foot 6.53 4.52 4.58 4.41
Housing 10.07 4.96 4.86 4.84
Fuel & light 6.84 5.56 6.13 5.46
Misc. 28.31 4.86 4.25 3.81
CPI 100 3.89 2.99 2.18
Weights Mar-17 Apr-17 May-17WPI 100.0 5.11 3.85 2.17 Primary Articles 22.6 3.33 1.82 -1.79 Fuel & Power 13.2 22.35 18.52 11.69 Manufactured Goods 64.2 3.22 2.66 2.55
*WPI numbers are based on new series with 2011-12 as the base year'
56
PRIME NUMBERS
Commodities
Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research
ICICIdirect Money Manager June 2017
Mutual Funds: Category Average Returns
Equity Funds Returns (in %)Tenure Diversified Funds Mid-cap &
Small-cap Funds
Large-capFunds
ELSS (Tax-
savingfunds)
Returns as on May 31, 2017
Debt Funds Returns (in %)
Returns as on May 31, 2017
Tenure Liquid Funds
Index of industrial production (IIP) Sector-wise growth rate (%)
Currencies and CommoditiesCurrencies
*IIP numbers are based on new series with 2011-12 as the base year'
Categories 28-Apr-17 31-Mar-17 28-Feb-17 Weight(%)Mining -21.9 15.7 -3.4 14.4Manufacturing -10.8 9.0 -1.5 77.6Electricity 1.8 13.6 -6.3 8.0Overall -11.2 10.2 -2.1 100.0
31-May-17 28-Apr-17 Change (%) StatusUSDINR 64.51 64.25 -0.4% AppreciatedEURINR 72.36 70.26 -3.0% DepreciatedGBPINR 82.83 83.17 0.4% DepreciatedAUDINR 48.11 48.01 -0.2% AppreciatedCHFINR 66.42 64.85 -2.4% DepreciatedJPYINR 0.5824 0.577 -0.9% AppreciatedCNYINR 9.461 9.320 -1.5% Appreciated
31-May-17 28-Apr-17 Change (%)Crude ($/barrel) 50.3 51.7 -2.7%Gold ($/ounce) 1,268.9 1,268.3 0.1%
6 months 16.71 19.21 16.69 17.401 year 24.88 30.86 21.38 24.463 year 17.22 24.79 13.73 16.875 year 16.93 26.62 17.23 19.43
6 months 5.95 4.57 5.70 0.82
1 year 6.49 8.73 7.67 10.03
3 year 7.61 8.68 8.18 9.54
Debt ST Ultra ST Debt LT
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