ICICI May 15 Issuecontent.icicidirect.com/MoneyManagerMagazine/May_2015.pdf · crude oil prices are here to stay and it will help our economy to grow. Further, since the equity markets

77

After almost a secular movement, the stock markets seem to be resting and in fact lost some ground. An upward trend in the markets for months together can lead us to extrapolate the returns linearly and therefore a downward movement like this can disappoint us even more. However volatility is embedded in the markets and the best way to look at equity investments is with a long term horizon. At the same time it is important to understand the reason behind the volatility and more importantly to know if it is still a good time to invest into Indian equity markets.

India has been one of the top performing markets globally last year, on account of election of the new government at the centre and decline in commodity prices. The other BRIC (Brazil, Russia, India and China)

Anup BagchiMD & CEO

ICICI Securities Ltd.

countries' economies, which are mostly commodity driven, have had a difficult period and underperformed the Indian markets due to the sharp decline in world commodities prices. Several measures have been taken by these economies to revive their GDP (gross domestic product) growth.

China's move to lower interest rates and increase lending targets also led to partial recovery in commodity prices. Consequently, YTD (year-to-date) the Chinese, Russian and Brazilian markets outperformed the Indian markets amid a lower base. Being underweight on these markets, the left out syndrome induced the global fund managers increase their fund flows to these markets, thereby creating volatility in the global and Indian markets. We believe that the current volatility in the Indian markets should be used to build strong equity portfolio as the government measures and lower commodity prices will revive the domestic economy, going forward.

The Indian markets have underperformed global emerging markets YTD on account of re-allocation of funds by global investors coupled with uncertainty on tax front, unseasonal rains and weak corporate earnings in the domestic market. However, in the last few months, we have seen improvement in lead indicators like passenger vehicles and FMCG (fast moving consumer goods) sales, which suggests improving sentiment.

1ICICIdirect Money Manager May 2015

We expect the private and government capex (capital expenditure) plans will follow and lead to improvement in economic growth rate. Also, several measures taken by the government such as auctioning of coal mines, allowing FDI (foreign direct investment) in several sectors, online forest clearances, etc. will result in higher investments in the economy. With lower commodity prices and inflation at comfortable levels, we expect interest rates reduction in the medium term. We believe lower interest rates will revive the investment cycle and result in increased corporate earnings for the next 2-3 years.While economic growth has already started to pickup, corporate earnings revival will follow with a lag. Sensex earnings grew in mid single digit in FY15, while we expect robust higher teen growth for next two years.

Also, benchmark indices are currently trading at 14x FY17E earnings, which are far lower than historical bull-run multiples, suggesting scope for further appreciation. Historically, the Indian markets rally has been marked by several interim phases of sharp correction and consolidation. We believe such phases of correction make markets healthy and it gets prepared for the next phase of Bull Run. An investor should not be apprehensive in such times and use the opportunity to accumulate quality stocks at fair prices. Moreover, relatively weaker prospects for competing asset classes like gold and real estate will further stimulate money flow into equities.

We believe, India is at a sweet spot with decline in crude prices, lower agricultural commodity, rapidly declining industrial commodity prices and lower interest rates across the globe. Secondly, the country has a majority government for the first time in thirty years, which enables it to take tough decisions and pass key bills. Also, the past few measures from the government point towards a progressive, reformist and growth-oriented policy stance, which augurs well for the economy. Lower input prices and quick policy actions reduce the overall cost of growth.

While we may continue to see interim blips in the equity markets, as the major economies across the globe try calibrating liquidity in a bid to revive growth, the Indian economy witnesses confluence of several positive conditions, helping it emerge as the fastest growing major economy. Backed by this belief, we see the markets amidst a multi-year, structural bull run and the current volatility opens an opportunity to build a good long-term portfolio.

Our message remains the same - 'Keep investing and stay invested for your life goals.' Through this magazine and our website www.icicidirect.com we want to make an earnest attempt to partner with you in setting and achieving your financial goals. Give us an opportunity to serve you, walk into any of your Neighbourhood Financial Superstore and talk to us.

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The prices of crude oil play an important role in keeping economy in good health, especially for oil-importing countries like India. India imports around 75 per cent of its crude oil requirements. Since crude oil forms the major chunk of our import bill, any change in its price impacts our trade bill, which in turn, impacts our fiscal balance and other macro economic indicators such as GDP (gross domestic product), inflation, interest rates, etc. For instance, every $10 per barrel fall in oil price can boost India's GDP growth by 10 basis points (bps), lower consumer inflation by 20 bps and improve current account and fiscal balance by 0.5% and 0.1% of GDP, according to one of the global financial services firms Nomura.

Oil prices over the past one year have fallen sharply, from over $100 per barrel to below $60 per barrel. What has led to this heavy fall? Will the price bounce back or will it stabilize? These are some of the important questions which many of you may have. We try to answer these in our cover story of this edition. All in all, we believe, lower crude oil prices are here to stay and it will help our economy to grow.

Further, since the equity markets have turned volatile of late, you may be unsure with your investments. To help you stay invested, we have Mr. Pankaj Pandey, Head - Research, ICICIdirect, talking about how to use current volatility to build a strong equity portfolio.

While in fixed-income space, as interest rates are expected to go down further, there is a potential to benefit by investing in long duration funds. Do read our section of fixed income. The issue also offers comprehensive information and analysis on some of the top performing funds.

Lastly, if you wish to get clarity on different aspects of personal finance or any other money matter through Ask our Planner, you may write to us at [email protected]. So read on, stay updated and involved. Do write in with your feedback and share your thoughts.

Editor & Publisher : Abhishake Mathur, CFA

Coordinating Editor : Yogita Khatri

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

CMEditorial Team : Azeem Ahmad, Nithyakumar VP CFP , Nitin Kunte, Sachin Jain, Sheetal Ashar

ICICIdirect Money Manager May 2015

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


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

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

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

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

Equity Market Round-up & Outlook................................................................5

Debt Market Round-up & Outlook................................................................. 8

Getting Technical with Dharmesh Shah.......................................................11

Derivatives Strategy by Amit Gupta.............................................................13

Stock Ideas: Bharti Infratel and Timken India...............................................21

Flavour of the Month: Lower oil prices to keep India's growth story intactCrude oil prices have dropped sharply (~40%) over the past one year. What has led to this heavy fall? Will the price bounce back or will it stabilize? Read on to find out…............................................................29

Expert Speak: Use current volatility to build strong equity portfolioBy Pankaj Pandey, Head - Research, ICICIdirect...................................38

Ask Our Planner: Options available at maturity of a PPF accountYour personal finance queries answered…..........................................41

Mutual Fund Analysis: Short-term Credit Opportunities FundsWith interest rates expected to go down further, there is a potential to benefit by investing in these funds.......................................................44

Mutual Fund Top Picks Here we present our research team's top mutual fundrecommendations, across equity and debt categories…....................50

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

Quiz Time..................................................................................................57

Monthly Trends.........................................................................................58

Premium Education Programmes Schedule..................................................62

4ICICIdirect Money Manager

Gold monetisation scheme: Interest on deposits to be tax-exemptSeeking to mobilise gold held by households and institutions, government came out with a draft scheme under which a person or entity can earn interest by depositing the metal with banks. As per the draft guidelines, minimum gold deposit is proposed at 30 gms and the interest earned on it would be exempt from income tax as well as capital gains tax. A person or institution holding surplus gold can get it valued from BIS-approved hallmarking centres, open a Gold Savings Account in banks for a minimum period of one year and earn interest in either cash or gold units, the draft said.

Courtesy: The Times of India

There is some comforting thought for Indian stock investors despite the volatility in the market. Exposure of most large offshore funds is the highest ever and even more than the weights that emerging market stock indices give India. Global Funds, Asia-Pacific Funds and Emerging Market Funds are overweight on India by 120 to 500 basis points (bps) compared with their benchmark indices. For instance, these EM funds have parked 10.9% of their money in India as against a country weight of 6.7% in the MSCI EM Index - a widely tracked index by fund managers. Indeed, this is the highest weight these global funds have accorded to any emerging market in the past 20 years.

Courtesy: The Economic Times

India's weightage is now the highest ever assigned to any EM

India might soon have regional insurance companies operating only in select locations and regions. In its proposed amendments to the Registration of Indian Insurance Companies Regulations, the Insurance Regulatory and Development Authority of India (Irdai) has asked new applicants to specify the city, region or concentration (rural/urban) that they will concentrate on. “Prospective applicants need not open branches all across the country. They can have operations only in few cities or rural, urban centres,” said Irdai officials.

Courtesy: Business Standard

India to have regional insurers soon

Investors may soon be able to view all the details of dividend payments by companies, interest income and redemption proceeds in a single consolidated statement. The Securities and Exchange Board of India (Sebi) recently gave an in-principle nod to allow depositories to act as a single point of contact for all cash benefits. National Securities Depository Ltd and Central Depository Services Ltd are the two depositories in India. At present, rules require companies to give all cash benefits through ECS (electronic clearing service) credit into an investor's bank account. But, investors with several investments end up getting confused on the status of interest income payments and redemptions. The proposed system will help investors see all securities market activities for a particular period.

Courtesy: The Economic Times

Investors can now view all cash benefits in a single statement

May 2015


Dismal Q4 earnings, rising crude prices, global sell-off to keepmarkets on tenterhooks

Domestic equity benchmarks

posted losses in April, ending

the month down ~3.5% amid

weak corporate earnings and

global equity sell-off. During

the month, the Reserve Bank of

India (RBI) maintained status

quo as expected in its bi-

monthly April policy. The repo

rate was kept unchanged at

7.5% while cash reserve ratio

(CRR) was maintained at 4%.

Inflation fell further for March

2015. A consumer price index

(CPI) came in at 5.2% while a

wholesale price index (WPI)

came in at -2.3% and both

m o d e r a t e d f a s t e r- t h a n -

expected (Bloomberg Survey:

CPI: 5.4%; WPI:-2%) on easing

food inflation.

The mood was also influenced

by several earnings releases.

The overall trend in earnings

growth remained subdued.

Tier-I Information Technology

(IT) companies reported a

weak set of Q4FY15 earnings

as constant currency revenues

grew 1.3% QoQ vs. 3.8% in Q3

& 1.7% in Q4FY14. Company

specific structural issues

(select verticals and clients)

coupled with cross currency

headwinds dragged overall

revenue growth. The Q4FY15

performance of private banks

was by-and-large healthy with

profit after tax (PAT) traction of

~20% year-on-year (YoY), on

an average. For most banks

asset quality was steady. The

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

performance was sound with

margins maintained quarter-

on-quarter (QoQ). The telecom

sector saw robust volume

growth in both voice minutes

and da ta consumpt ion .

However, the fall in realisations

was a concern. Major cement

companies reported volume

de-growth of 3-4% during the

quarter, which can mainly be

attributed to low government

spending on infrastructure

coupled with a slowdown in

EQUITY MARKET ROUND-UP& OUTLOOK


the private sector capex cycle.

Further, unseasonal rains also

led to a fall in cement demand

from the rural segment, which

also had a negative impact of

~280 basis points (bps) on

margins. Maruti's numbers

came in above expectation.

The benchmark 10-year bond

yield ended the month at

7.83%, up 9 bps on an month-

on-month (MoM) basis. Crude

( B r e n t ) e n d e d a t

~ U S $ 6 4 . 8 / b a r r e l v s .

US$53.3/barrel at the end of

March. Gold prices ended the

month at US$1184.3/ounce,

flat on an MoM basis. The

rupee depreciated to 63.4/$

against 62.4/$ at the end of

March.

Global markets continued to

be influenced by worries about

the long-term outlook for

interest rates and rising

commodity prices. The Fed left

interest rates unchanged and

acknowledged that economic

`

`

Markets across geographies

growth slowed during winter. It

showed an unwillingness to

speculate about the outcome

of the June meeting. US GDP

(gross domestic product)

inched up just 0.2% in Q1

following the 2.2% growth

seen in the Q4 as against

expectations of 1.0% increase.

The US markets ended on a

positive note on the back of the

Fed's comments regarding the

outlook for interest rates in the

l a s t p o l i c y m e e t t h a t

overshadowed weak macro

data and mixed corporate

earnings. The Dow Jones, S&P

500 and the Nasdaq were up

0 .4%, 0 .9% and 0 .8%,

respectively, during the month.

The European markets were

mixed with the UK FTSE and

French CAC registering gains

of 2.8% and 0.3% in the month

and the German Dax posting

losses to the tune of 4.3%. In

Asian markets, Hong Kong and

Shangha i SSEC pos ted

substantial gains of 13% and

18.5%, respectively, while the



Japan Nikkei was up 1.6%. The

Indian markets, posted losses

wherein both the Sensex as

well as the Nifty down 3.4%

and 3.6%, respectively.

The foreign institutional

investors (FIIs) were net

buyers to the tune of ~ 7,627

crore whereas the domestic

institutional investors (DIIs)

were net buyers to the tune of

~ 10,378 crore.

The Nifty and Sensex posted

huge losses of 3.4% and 3.6%,

respectively, during the

month. Except the BSE FMCG

Index and Metals Index, which

were up ~8.1% and 3.5%, all

major indices were in the red.

BSE Technology (-7.4%), BSE

Healthcare (-6.1%), BSE

Realty(-5.5%), BSE Auto

Index(-4.8%) were major

losers. BSE Power, Oil & Gas

posted losses to the tune of

1.5% and 1.2%. The BSE

Bankex was marginally up by

0.8%.

Domestic markets

`

`

Outlook: Profit booking likely to

persist as crude, currency issues

resurface

Expectat ions of a weak

monsoon, a global sell-off in

stocks & bonds and lack of

clarity on minimum alternate

tax (MAT), which the tax

department has demanded

from foreign funds on past

i n v e s t m e n t s ( d e s p i t e

clarification), added to the

bearish trend in April. The

other concern is crude oil

prices, which are now about

40% above their recent lows.

Add to this, the falling rupee

and we have an ideal situation

for profi t booking after

considering ~27% of Trailing

Twelve Months (TTM) gains

(Nifty) as of March 31. The Q4

numbers continue to portray a

dismal picture while the

reforms process continues to

be in the pause mode. With no

near-term triggers, we expect

markets to cont inue to

languish at current levels.



DEBT MARKET ROUND-UP& OUTLOOK

Easing inflation raises hopes for a rate cut

The yield on the benchmark 10-year government securities (G-Sec) reversed from 7.73% to 7.86% by April end and further moved up to 7.9%. A weak rupee coupled with a rise in global crude oil prices weighed on gilts. The rupee has depreciated 3% against the US dollar from 62.5 |/$ to 64.1 |/$ while crude oil rose to 63.84 $/per barrel, an increase of 20% since the start of FY16. The only comforting data that

came in the month was consumer price inflation (CPI) April 2015, which moderated to below 5% in line with market expectation at 4.9% and the wholesale price index (WPI) April 2015 at -2.3%. The index of industrial production (IIP) growth slowed to 2.1% against expectation of 2.8%. Both data, slower inflation and moderate growth, increased hopes of a rate cut in the upcoming June policy.

While the G-sec yields have moved up, corporate bond yields, so far, have not risen so sharply leading to a credit spread compression.

Government Securities (G-Sec) Yield Apr-15 Mar-15 Change (bps)

Corporate Bond Yields Apr-15 Mar-15 Change (bps)

10 year 7.99 7.74 24.9

5 year 8.02 7.75 27.5

3 year 8.19 7.79 39.5

1 year 7.91 7.88 3.6

AAA 10 year 8.49 8.40 9.3

AAA 5 year 8.49 8.42 6.9

AAA 3 year 8.50 8.46 3.2

AAA 1 year 8.52 8.54 -1.5

AA 10 year 9.06 9.01 4.5

AA 5 year 8.96 9.04 -8.1

AA 3 year 8.97 9.09 -11.8

AA 1 year 9.05 9.17 -12.0

Source: Bloomberg, ICICIdirect.com, Research




Credit Spread Mar-15 Feb-15 Change (bps)

G sec - AAA 10 year 51 67 -16

G sec - AAA 5 year 47 67 -21

G sec - AAA 3 year 31 67 -36

G sec - AAA 1 year 61 66 -5

Forex Rates Apr-15 Mar-15 Change (%)

USD - INR 63.42 62.50 -1%

Euro - INR 70.95 67.20 -5%

Pound Sterling - INR 97.75 92.45 -5%

Japanese Yen - INR 53.53 52.11 -3%



L i q u i d i t y r e m a i n e d comfortable throughout the month with banks having parked on an average 279 crore on daily basis with the Reserve Bank of India (RBI). Short-term yields, therefore,

`

corrected with call rates d r o p p i n g t o 7 . 1 % a n d certificate of deposit (CD)/ commercial paper (CP) yields in the one to three months duration down ~20-30 basis points (bps).

Money Market Rates Apr-15 Mar-15 Change (bps)

Call 7.12 7.30 -18

CBLO 7.51 7.46 4

Certificate of Deposit (CD) Rates Apr-15 Mar-15 Change (bps)

12 Months 8.41 8.37 4

6 Months 8.34 8.40 -6

3 Months 8.29 8.52 -23

1 Month 8.23 8.84 -61

Commercial Paper (CP) Rates Apr-15 Mar-15 Change 12 Months 8.99 8.79 20

6 Months 8.89 8.85 4

3 Months 8.73 8.86 -14

1 Month 8.43 9.20 -77




Volume Data (Average for the month – ` Crore) Mar-15 Feb-15 Change

Average ( Crore)

Call Volume 14542 13959 583

CBLO Volume 77285 84815 -7530

LAF Volume -279.68 180.4 -460.08

Total ( Crore)

FII Debt Market 3483 6334 -2851.41

DII Debt Market 28649 77299 -48650

`

`


OutlookWe believe the odds remain in f a v o u r o f g o v e r n m e n t secur i t ies (G -Sec) y ie ld trending down over the next one or two years. The front loaded rate cuts by the RBI can push overall interest rates down depending on how soon banks transit it into the system by repricing their assets and liabilities lower. The central government has signed a memorandum with the RBI setting out a clear inflation objective to bring the inflation rate to the mid-point of the band of 4 +/- 2%. CPI, as per our assessment, should average close to 5% for Fy16 (on assumption of normal monsoon and a s tab le currency). The government's c o m m i t m e n t t o w a r d s controlling price shocks and steps taken to improve the s u p p l y c h a i n a r e commendable. Also, global prices that have corrected sharply are supportive, be they

crude, metal or food prices. Hence, inflation should likely stay on the intended path. This creates room for the RBI to cut rates by another 25 bps to earn a real return of 2%. On the supply front, the Budget has pegged the market borrowing for FY16 at 6 lakh crore on a gross basis and 4.56 lakh crore on a net basis. Both gross and net market borrowings w e r e c l o s e t o m a r k e t expectations. Borrowings related concern is expected to come down, g iven the government's commitment towards reducing the fiscal deficit to 3% of GDP by Fy17.

Investors may look to lock in the current close to 8-9% accruals available on corporate bonds via investing in short term credit opportunities funds. While interest rates may come down, returns in long bond and gilt funds returns may moderate compared to last year.

``

ICICIdirect Money Manager

TECHNICAL OUTLOOK

Emergence of value area = Buying time

May 2015

The pullback in equities at the start of April 2015 fizzled out precisely near our earmarked resistance area of 29000, 8800 (Sensex, Nifty). The benchmarks reversed lower after making highs of 29094, 8844. In the ensuing correction, they have breached their March 2015 lows (27248/8269) to form a lower-high lower-low on monthly time-frame for the first time in 12 months. The violation of higher high/low sequence on the m o n t h l y s c a l e s i g n a l s d e c e l e r a t i o n o f u p w a r d momentum and paves the way for a round of consolidation in the coming month.

We believe the current decline will get arrested near the key medium-term value area of 27000-26300, 8185-8000 levels in the coming month. As the selling momentum gets absorbed near the key value area we expect the benchmarks to undergo a basing formation which will lay the ground work for a pullback towards 28250, 8580 over the coming months.

We believe the price-wise correct ion is approaching

maturity as the benchmarks have already corrected over 10% from recent life-time highs (30024, 9119) and are poised near the key medium-term value area of 27000-26300, 8185-8000 levels, which is the confluence of following technical parameters:

Ø The long-term rising 52-week EMA (Exponent ia l Moving Average) is currently placed at 26760, 8048 levels. The index approaching its long term moving average after a span of over 14 months will trigger value buying.

Ø Price parity of the current down move from April 2015 high (29094) with the March 2015 decline (2776 points) is placed at 26318, 7994 levels.

Ø At around 27000, 8000 the entire correction from life-time high (30024,9119) will equal the magnitude of the last major declining segment of 2013 (20443-17448), which measured 2995 points.

Ø T h e m o n t h l y l o w s o f December 2014 (26469, 7961) and January 2015 (26776, 8065) are placed in the vicinity of 8000 levels.

Based on the aforementioned observations, we believe the benchmarks should hold the 27000-26300, 8185-8000 support

11


TECHNICAL OUTLOOK

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

current decline from life-time highs will equal the magnitude of the 2013 fall in percentage terms (15%) at around 25500, 7700. We do not expect the markets to sustain below these levels as value buying will outstrip supply and lead to a gradual recovery.

in the current correction. Only a decisive breach of the 26300, 8000 support threshold would lead to a panic situation in markets and trigger a further decline towards 25500, 7700. We believe any such panic decline towards the 25500, 7700 region should be used as a buying opportunity. The

BSE Sensex – Monthly Candlestick Chart

We believe the price wise correction is approaching maturity as the index is poised near the key value area of 27000-26300. The index is expected to undergo a basing formation in the coming month before resolving higher towards 28250 being the 61.8% retracement of the current decline

Source: Bloomberg, ICICIdirect.com Research

The 14 week RSI is poised at a

reading of 46. Historically, the bull market support for weekly RSI is placed at 38–40 readings. The oscillator approaching this zone will trigger a bullish reversal on price front

Ø

The 52 week EMA is placed at 26760Ø

Price parity of April 2015 decline with the March 2015 fall is placed at 26318 levels

Ø The entire decline from life highs will achieve price equality with the 2013 correction at around 27000

levels

Ø

Monthly lows of January 2015 is placed in the at 26776 levels

61.8% @ 28250

Dec’14

26469

30024

Jan’15

26776


DERIVATIVES STRATEGY

Uptrend likely to resume if Nifty holds 8600. On downsides, key support placed near 8250.

Nifty witnesses profit booking after positive news outcomes

Nifty reacts negatively to all positive news suggesting factoring in

8,300

8,400

8,500

8,600

8,700

8,800

8,900

9,000

27-F

eb

1-M

ar

Union Budget

RBIrate cut

US FOMC delaying Int rate lift off ...

3-M

ar

5-M

ar

7-M

ar

9-M

ar

11-M

ar

13-M

ar

15-M

ar

17-M

ar

19-M

ar

21-M

ar

23-M

ar

25-M

ar

27-M

ar

The March series ended with a loss of 4% as participants booked profits on every positive news flow, suggesting these news flows were already priced in.

The market breadth (as measured by NSE Advances – Declines) was negative for most of the month.

The strongest performance came from pharma and healthcare, which moved up consistently (more than 11%) despite the selling seen in other sectors.

A m o n g s e c t o r s , m a j o r weakness was seen in metals, consumer goods & power. Banking also corrected over 13% from highs it made on March 4 post rate cut.

Amit Gupta

Head - Derivatives Research,ICICI Securities



Nifty expiry returns in trailing 12 months

-4%-3%

9%

-4%

3%3%3%4%

6%

3%

6%

4%

-1%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Mar

'15

Feb'1

5

Jan'1

5

Dec

Nov

Oct

Sep

Aug

Jul

Jun

MayAp

r

Mar

Sectoral performance in March: Broad based weakness

-10 -8 -6 -4 -2 0 2 4 6 8 10

Consumer Goods



Nifty key support lies near 8200-8250

Since the election verdict, FIIs have created long index future p o s i t i o n s o n m u l t i p l e occasions in blocks. In the first instance, the Nifty moved up 8.5%, in the second instance it moved up 11% while recently in January 2015, the Nifty moved up 10%. The key takeaway from this analysis is that from the point from where buy ing in index fu ture commences the level has not been violated (the chart below displays the same).

T h e r e c e n t b u y i n g commenced from 8250 on January 13, 2015. Hence, the Nifty is unlikely to dip below

this level. This would remain a positional support for the Nifty i n t h e c u r r e n t u p w a r d momentum, which started post the election verdict.

H i g h e s t p u t o p t i o n s concentration at the 8200 strike also suggests the key support around this level.

Nifty futures OI at the inception of the April series is 21.8 million shares, which is the lowest OI l s i n c e J a n u a r y 2 0 1 5 , suggesting lower leverage in the Nifty. This suggests that on any intermediate decline, a fall could get arrested.

Large index future buying starts at 8250 in 20151st instance Aug 14 2nd instance Oct 14 3rd Instance Jan 15

11-Aug-14 162.46 17-Oct-14 1030.18 13-Jan-15 440.83

12-Aug-14 1390.77 20-Oct-14 1455.01 14-Jan-15 178.2

13-Aug-14 717.77 21-Oct-14 398.53 15-Jan-15 3896.76

14-Aug-14 604.91 22-Oct-14 751.09 16-Jan-15 -848.13

19-Aug-14 451.36 27-Oct-14 680.01 19-Jan-15 56.02

20-Aug-14 276.72 28-Oct-14 592.15 20-Jan-15 1749.06

21-Aug-14 -157.58 29-Oct-14 2166.72 21-Jan-15 483.32

22-Aug-14 448.55 30-Oct-14 1286.49 22-Jan-15 901.84

25-Aug-14 191.55 31-Oct-14 1485.22 23-Jan-15 1371.99

26-Aug-14 269.04 3-Nov-14 163.56 27-Jan-15 1731.69

27-Aug-14 437.8 5-Nov-14 721.73 28-Jan-15 -1301

28-Aug-14 847.03 7-Nov-14 332.44 42033 1867

Inr in Cr 5640.38 Inr in Cr 11063.13 Inr in Cr 10527.58

Nifty returns 8.50% Nifty returns 11% Nifty returns 10%

Nifty Low 7568 Nifty Low 7720 Nifty Low 8248



lNifty levels where major FII buying in Nifty futures

Key resistance for Nifty placed near 8600…It may enter consolidation below this level

Broad based profit booking was seen in the March series within index heavyweights, leading the Nifty to end 4% lower for the series. As we head into the April series, the Q4 numbers are likely to decide the future course of action from here on.

Why 8600 is key level on higher side ?In the recent Nifty decline, highest additions were seen at the 8600 Call strike, which is likely to impose a resistance.

Nifty futures current premium is high. Historically, at high Nifty premiums, the index enters into consolidation.

In the last two series, 8500 was the highest Put base, which was breached on March expiry day. Hence, a move above 8600 would finally conform the sustainability above the pivotal area of 8500-8600.

In the last series, the market fell even on positive outcomes. It suggests most positive news flows were already priced in.



Within the Nifty sigma band, the grey line (which is the moving average of the entire data) is placed near 8600 levels.

In December 2014, after making a high of 8630, the Nifty

struggled to surpass this level till January 2015. Thus, this level could again impose a resistance, going ahead.

Nifty options build-up in April series

0

1

2

3

4

5

6

7

8000

8100

8200

8300

8400

8500

8600

8700

8800

8900

9000

OI i

n M

illio

n S

hare

s

Call OI Put OI

lNifty 2 sigma Band: Sigma contraction suggests consolidation

5700

6200

6700

7200

7700

8200

8700

9200

9700

Apr

-14

Ma

y-1

4

Ju

n-1

4

Jul

-14

Au

g-1

4

Se

p-1

4

Oc

t-1

4

No

v-1

4

De

c-1

4

Ja

n-1

5

Fe

b-1

5

Ma

r-1

5

Nifty Mean+ 2 SD Average Mean - 2 SD



Bank Nifty: 17550 remains important support for banking index

The Bank Nifty was the key trigger for the weakness in the broader markets. The banking index fell over 13% from its March 4 highs of 20540 post RBI’s second rate cut.

In the recent declines, short addition was seen in the b a n k i n g i n d e x a n d heavyweights. Both PSU and private sector heavyweights have started the April series with higher open interest. The Bank Nifty future OI swelled close to 30%. These positions have seen a smooth rollover of positions into the April series, suggesting the pressure may continue. The current Bank Nifty future OI at of 2.17 million shares is the highest OI at inception since May 2014.

The current price ratio (Bank Nifty/Nifty) is at 2.15, which is

likely to deteriorate further as short positions are intact in the banking segment. It is likely to drag the index lower and the price ratio towards 2.11 levels. Expectations of a weak set of Q4 numbers for many banks are likely to keep the short covering move in check.

Look ing at the opt ions segment, the current scattered build-up is slowly focusing on the 17500 Put and 18500 Call. Thus, ahead of RBI’s policy review on April 7, the banking index is likely to trade in this band.

A directional move is expected from the Q4 numbers, which are expected to get kick started with results from IndusInd Bank in the middle of April.

Bank Nifty options build-up for April series

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1750

0

1770

0

1790

0

1810

0

1830

0

1850

0

1870

0

1890

0

1910

0

1930

0

1950

0

Call OI Put OI



After over 30% returns in 2014, Indian equities one of the biggest underperformers after recent fall in 2015

At the start of the year, most brokerages and fund houses (domestic & foreign) upgraded their allocation for Indian equities. As a result, money also came in and pulled the Nifty up past 9000. However, ahead of the all-important Q4 earnings season there is subdued expectation from many of the Nifty companies, which are likely to report pressure on earnings growth and stretched valuations as a result.

The other problem keeping investors wary include a move in crude oil prices towards

US$60 barrel on the back of geo-political worries (lower crude prices were the key for India's improved macros). From the local currency perspective, the RBI is trying to keep the currency appreciation in check as it hurts exporters.

Post the ECB QE announcement, the euro has plunged pushing European equities to record highs, with the Dax registering over 23% upsides. In 2015 in Asia, Japan is up more than 12%, China is up 13% and Indonesia is up over 3% while India is down over 1% for 2015.

lEquity market returns of 2015 for key DMs and EMs: India equity

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Italy

Ger

man

y

Fran

ce

Japa

n

Rus

sia

Chi

na

Sou

th A

fric

a

Bra

sil

Kore

a

Mal

yasi

a

Taiw

an

Hon

g Ko

ng

Sin

gapo

re

Indo

nesi

a

US

Thai

land

Indi

a

Turk

ey



India VIX: Likely to consolidate in range of 12-16 in coming month

On expected lines, India VIX cooled off sharply post the Union Budget announcement and the trend continued in the March series as well. Despite the decline seen in broader markets, India VIX continues to head lower towards our stated target of 13.

With the markets entering the Q4 earnings season of Fy15, India VIX is likely to remain subdued and could slip further lower towards 12. Only a weaker-than-expected results from Nifty heavyweights could

push VIX towards 16 levels, which is likely to remain a key resistance. The key 50 week moving average for the fear gauge is also placed near this level.

With India VIX expected to remain in the range of 12-16, a move towards the higher band should be used to create short strangles on the Nifty as the index is also expected to consolidate while selling options would be a profitable trade in the upcoming months.

India VIX likely to consolidate in the earnings season

21

STOCK IDEAS


Bharti Infratel: Safest bet in the telecom space

Company Background

Bharti Infratel Limited (BIL) was incorporated in 2006 as a subsidiary of Bharti Airtel, which is, in turn, a part of the Bharti Group. BIL plays the role of a telecom tower infrastructure service provider that deploys, owns and manages telecom towers and communication structures, for various mobile operators. In January 2008, Bharti Airtel transferred its tower assets to Bharti Infratel through a scheme of arrangement effective as of January 31, 2008. On a standalone basis, the company has about 37,196 towers as on date. BIL also has a 42% stake in Indus Towers, which is a joint venture between Bharti Airtel, Idea and Vo d a f o n e f o r p a s s i v e infrastructure sharing. On a consolidated basis, with the Indus stake, BIL has emerged as the largest telecom tower company in India with a tower portfolio of 85,892 towers and a pan-India presence. The c o m p a n y e n j o y s t h e competitive advantage of a very strong clientele with

Bhar t i A i r te l , Idea and Vodafone forming about ~70% of the total telecom market share as its anchor tenants.

Colossal by tower portfolio (~85,892 towers), reducing competition

Bharti Infratel (together with Indus) is India's largest tower player. It has 85,892 towers across 22 c i rc les on a consolidated basis, which includes 37,196 towers (at the standalone level) and 42% stake in the 1,15,942 Indus Towers. As per industry data for March 2012, there are approximately 3.7 lakh towers and 6.5 lakh co-locations in t o t a l . B h a r t i I n f r a t e l ' s standalone & Indus taken together had a market share of 37.8% in terms of installed tower base at a tower count of 1.4 lakh. Market share in terms of co-locations stood at 42.5% with 2.7 lakh co-locations. With its widespread portfolio of towers it is indispensable in the telecom infrastructure space. It posted a tower & tenancy

Investment Rationale


growth of 3% & 7% in FY12-15, which led to a 32% increase in rental revenues over the same period. Going ahead, with a 2% & 10% increase in towers & tenancy we expect rental revenues to grow at 11% CAGR (compounded annual growth rate) in FY15-17E to 8,729 crore.

Data growth to be fuelled by government's digital plans, BIL to benefit

With government of India (GoI) taking keen interest in meeting the PMO's (Prime Minister's Office) Digital India vision and developing an eco-system for high-speed data, data growth seems inevitable. The overall mobile data, which is expected to grow to 55x monthly consumpt ion by FY18E necessitates higher loading. Airtel and Idea are expected to post data volume growth of 51.1% and 41.5% CAGR in FY15E-17E to 664 and 345 billion GB, respectively. Hence, data revenues may then form a b o u t 2 3 - 2 5 % o f t o t a l r ev enues f r om 1 5 - 1 7 % currently. BIL with Airtel, Idea and Vodafone as anchor tenants, who together control about 70% revenue market

`

share, is certain to benefit from increasing tenancies as the data volume increases.

Stable cash flows, strong dividend policy, optimisation of capital structure

It has an annuity led business with a remaining estimated contract life of ~6 years, which lends certainty to ~ 22,950 crore of future cash flows. The company delivered 2.8% dividend yield by declaring a dividend of 11 in FY15. We expect BIL to pay dividends to the tune of 11 and Rs. 11.5 per share in FY16E and FY17E, respectively. The management h a s b e e n c o n s t a n t l y highlighting its keen interest in re-aligning its capital structure where the debt/equity ratio is currently 0.1x by resorting to buyback, excess dividend route, etc. Such a re-alignment will be return ratios accretive.

Maintain BUY; belief in sustainable growth story; target price 450

With ballooning data growth and tremendous opportunity, going ahead, considering the kind of spectrum purchased by telcos and stable annuity based business model, we value Bharti Infratel at 450,

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STOCK IDEAS

STOCK IDEAS


based on a Sum-of-the-parts-Discounted cash flow (SOTP- DCF) based methodology. We

m a i n t a i n B U Y r e c o m - mendation on BIL.

Key Financials

Valuations Summary

Stock Data

Net sales ( crore) 10,827 11,668 12,385 13,346

EBITDA ( crore) 4,412 5,004 5,691 6,447

Net profit ( crore) 1,530 1,992 2,429 2,885

EPS ( ) 8.1 10.5 12.8 15.2

FY14 FY15 FY16E FY17E

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P/E (x) 48.8 37.5 30.8 25.9

Target P/E (x) 55.6 42.8 35.1 29.6

EV / EBITDA (x) 16.7 14.4 12.7 11.1

P/BV (x) 4.1 4.4 4.5 4.5

RoNW (%) 8.5 11.7 14.6 17.3

RoCE (%) 11 15.1 18.5 22.1

FY14 FY15 FY16E FY17E

Market capitalization ( crore) 74,805.1

Total debt (FY15) ( crore) 1,713.1

Cash and investments (FY15) ( crore) 4,312.7

Enterprise value (EV) ( crore) 72,205.5

52-week High / Low ( ) 401 / 214

Equity capital ( crore) 1,893.8

Face value ( ) 10

MF holding (%) 0.9

FII holding (%) 22.5

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STOCK IDEAS


Key Risks

Rentals per sharing tenant may decline

The sharing revenue per t e n a n t p e r m o n t h h a s remained more or less flat for BIL in the past three to five years. The decline due to rising tenancy has been partially offset by higher loading. However, in the event of other smaller players in the tower space resorting to price discounts on rentals to te lecom opera tors , the company may have to reduce its rentals. This could be a downside risk to our estimates.

Technology risks

The business is exposed to technology risks. If telecom players are able to innovate and make the sites usable for both 3G and 4G coverage, the revenue from loading would be lower-than-expected. In addit ion, with the huge quan tum o f l i be ra l i sed 800/900/1800 MHz spectrum put up for auction in the past two auctions, players would shift their data plans towards these efficient bands of spectrum. This could lead to a lower uptake in loading and tenancy.

(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; P/BV: Price-to-book value; RoNW: Return on net worth; RoCE: Return on Capital Employed; MF: Mutual Funds; FII: Foreign Institutional Investors)


STOCK IDEAS

Timken India - Opportunities galore!

Company Background

Incorporated in 1987, Timken

India is the Indian subsidiary of

the US-based Timken Group,

which is a global leader in

tapered rol ler bearings.

Timken India is the fourth

largest company in the Indian

bearing market with ~8%

revenue market share. It

commands ~40% share in

tapered roller bearings (which

form ~62% of the topline) in

India. It is well diversified

across segments catering

mainly to mobile (40-45% of

revenues excluding exports)

and process industries (25% of

revenues). In the mobile

segment, Timken India caters

to OEMs (Original equipment

manufacturers) and end users

i n i n d u s t r i e s l i k e C v s

(commercial vehicles) and off

highways (20-25% of revenue)

and Railways (20-25% of

revenue). In the process

industries, they cater to heavy

i n d u s t r i e s , i n d u s t r i a l

processes, gear devices,

e n e r g y a n d i n d u s t r y

distribution. Exports (33% of

revenues) are made to

Timken's parent company

( m a i n l y t a p e r e d r o l l e r

bearings). In terms of clientele

base, the major clients of

Timken India are BHEL,

Titagarh Wagons, Tata Steel,

Spicer India, JSW Ispat Steel,

Indian Railways, Escorts Ltd,

HAL, etc. Timken India has two

facil i t ies: Jamshedpur &

Raipur.

Strong exports –boost during tough

domestic demand scenario

Timken India's strong export

revenue growth enabled it to

combat the muted domestic

business. Exports comprised

26% of FY14 revenues vs. 12%

in CY09. The company logged

~32% CAGR in FY09-14 from

78.9 crore to 237.9 crore.

Going ahead, Timken India is

Investment Rationale

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STOCK IDEAS

expected to be a key hub for

export to various customers of

Timken entities. Hence, we

expect export revenues to

g r o w a t ~ 2 4 % C A G R

(compounded annual growth

rate) in FY14-17E to 452

crore.

Huge opportunity in services &

railway segment

Backed by the know-how of

Philadelphia Gears (acquired

by the parent in 2011), Timken

India has set up a gear box

repair facility in Raipur to

servethe heavy process

industry. Currently served by

unorganised players, the

m a n a g e m e n t p e g s t h e

opportunity in the segment at

~ 2,500 crore in India wherein

it is looking to garner up to 15%

market share over the longer

term. We expect repairs and

services revenues to zoom to

137 crore in FY17E (~11% of

net sales) vs. meagre 24 crore

in Fy14. Furthermore, the

Dedicated Freight Corridor

(DFC) would also provide an

`

`

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incremental bearing market

opportunity of ~ 500 crore led

by incremental ordering of

new wagons.

Growth prospects justify the

premium valuation

Timken is trading at premium

valuations of 30.7x FY17E

earnings, given its superior

revenues growth led by

exports, the huge opportunity

and growth prospects in the

railways segment and repairs

business which it caters to.

Given the leadership in the

tapered bearings led by strong

parentage, robust balance

sheet and strong earning

CAGR (~46% over FY14-17E),

we ascribe a 0.8x PEG

(implying a P/E of 36.5x) with a

target price of 740/share. We

initiate coverage on a stock

with a BUY rating.

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STOCK IDEAS

Key Financials

Valuations Summary

Stock Data

Net sales ( crore) 720.1 918.1 1,058.7 1,236.4

EBITDA ( crore) 71.6 129.1 163.9 204.4

Net profit ( crore) 44.8 82.6 106.4 137.9

EPS ( ) 6.6 12.1 15.6 20.3

FY14 FY15E FY16E FY17E

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P/E (x) 94.5 51.2 39.8 30.7

Target P/E (x) 112.5 60.9 47.3 36.5

EV / EBITDA (x) 58.9 32.6 25.6 20.9

P/BV (x) 11.1 9.9 8.6 7.2

RoNW (%) 11.7 19.4 21.6 23.4

RoCE (%) 14.5 25.8 29.1 27.2

FY14 FY15E FY16E FY17E

Market capitalization ( crore) 4,228.8

Total debt (FY15E) ( crore) 3.2

Cash and investments (FY15E) ( crore) 18.9

Enterprise value ( crore) 4,213.2

52-week High / Low ( ) 653 / 203

Equity capital ( crore) 68

Face value ( ) 10

MF Holding (%) 9.9

FII Holding (%) 0.9

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STOCK IDEAS

Key Risks

Domestic demand pick-up delay may impact earnings assumptions

Timken sells two-thirds of its products domestically. We highlight that the overall slowdown in the economy affecting the industrial as wellas CV segment, has impac ted the domest i c business of Timken (decline of

~5% in FY14). A sustained slowdown in CV segment or industries may lead to an overall slowdown in sales growth and our earnings estimate. Hence, we have run asensitivity analysis to find outthe impact of higher-t h a n e x p e c t e d o r l o w e r d o m e s t i c d e m a n d onFY17E EPS assumptions.

(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; P/BV: Price-to-book value; RoNW: Return on net worth; RoCE: Return on Capital Employed; MF: Mutual Funds; FII: Foreign Institutional Investors)

Domestic Topline Growth11.0% 13.0% 15.0% 17.0% 19.0%

FY17E EPS 19.4 19.9 20.3 20.7 21.1

Raw material cost rise could impact our earnings estimates

A sharp rise in key raw material like steel could also pose a risk to our earnings estimates impacting the margins. Hence, we have run a sensitivity analysis to find out the

impact of a change in RM (raw material) to sales on our FY17E earnings assumptions. We highlight that every 100 basis points (bps) change in RM to sales would impact our earnings by ~7%.

31.0% 32.0% 33.0% 34.0% 35.0%FY16E EPS 17.8 16.7 15.6 14.6 13.5FY17E EPS 22.8 21.6 20.3 19.0 17.7

RM to Sales


FLAVOUR OF THE MONTH

Lower oil prices to keep India's growth story intact

May 2015

Crude oil prices play a very important role in the Indian economy as it imports ~75% of its crude oil requirements. Over the past 4-5 years, higher crude oil prices of ~ USD 100 per barrel led to negative impact on the India's macro economic variables such as current account deficit (CAD), fiscal deficit, exchange rates, inflation, interest rates, etc. thereby weakening the Indian economy. The sharp crude oil price correction in the last year had been a boon for India's economy. However, the increase in the crude oil prices from the recent lows has been worrisome for the investors. We believe that the era of higher crude oil prices is over, and expect the crude oil prices to stabilise at lower levels in the medium term, which would now be the new normal. Hence, we believe oil prices will not be spoilsport in India's growth story. We have outlined the following reasons to our belief of lower crude oil prices.

US oil output to continue to remain strongThe recent boom in the unconventional shale oil production has led to an unprecedented rise in the supply of oil in the US markets, which is also the largest importer of conventional oil globally. Currently, shale contributes more than 30% of the US oil & gas domestic

production. In spite of the sharp decline in crude oil prices, US domestic oil production continues to remain strong. The US alone has added 4 million extra barrels of crude oil per day to the global market since 2008 and is expected to add another 0.7 million barrels per day in the next few years.

US indigenous oil production

5000

6000

7000

8000

9000

10000

Dec-1

0

Ju

n-1

1

Dec-1

1

Ju

n-1

2

Dec-1

2

Ju

n-1

3

Dec-1

3

Ju

n-1

4

Dec-1

4

000' b

arr

els

per

day

Source: Bloomberg, ICICI Securities



May 2015

US oil import

5000

6000

7000

8000

9000

10000

Dec-

10

Ju

n-1

1

Dec-

11

Ju

n-1

2

Dec-

12

Ju

n-1

3

Dec-

13

Ju

n-1

4

Dec-

14

000' b

arr

els

per

day


Even as US is reducing its dependence on imported crude oil, we see that its strategic reserves have been continuously building up, which is currently 458 million barrels, comparable to levels last seen in 1982. The US storage capacity is 63% full,

compared to 48% a year ago as per the Energy Information Administration (EIA). It is expected that at the current pace of oil production, the strategic oil reserves would fill up completely by the end of 2015, which may limit the upside to crude oil prices.

US Oil Inventory

320

370

420

470

Jan

Feb

Apr

May

Jun

e

Au

g

Sep Oct

De

c

Month

MM

bbls

2011 2012 2014 2015 5 Years Average




May 2015

China slowdown to impact incremental oil demandChina has been one of the major drivers of the crude oil super-cycle witnessed in the last decade. China's GDP growth rate had averaged ~9% since the beginning of 2000 led by investment spending leading to a surge in global oil demand. However, China's GDP growth rate has slowed down from 9.8% in CY10 to 7.4% last year, the lowest in 24 years. China's slow growth rate is also evident from the lower industrial production growth rate, which has declined from 10.4% in September 2012 to 6.8% in February 2015. Given

the scale of China's appetite for crude oil, small shifts in China's domestic demand-supply b a l a n c e h a v e m a j o r implications for global crude oil markets. Over the last few years, China's oil consumption growth has been slowing down from 12.2% in 2010 to 3.8% in 2013. It was reflected last year as well, where consumption remained flat year-on-year (YoY). As China contributes majorly to global oil demand growth (~40% average over the last four years), the slowdown in China will continue to have a negative impact on global crude oil prices.

Slowdown in China's GDP growth rate

6

7

8

9

10

11

12

Mar

-10

Jun

-10

Sep-

10

De

c-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec-

13

Mar

-14

Jun

-14

Sep

-14

De

c-14

(%)




May 2015

China's Industrial production has been on a downward slide

7

8

9

10Jan

-14

Feb

-14

Mar-

14

Ap

r-14

May-1

4

Ju

n-1

4

Ju

l-14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

Dec-

14

(%)


10.210.7 11.1 11.3

6.35.0

10.8

3.2

0

3

6

9

12

15

2010 2011 2012 2013

(%)

China's Demand as a percentage of Global Demand

China Oil Consumption Growth




May 2015

21.9

51.760.1

30.1

0

10

20

30

40

50

60

70

2010 2011 2012 2013

(%)

China's contribution to incremental world oil consumption


Also, China's strategic oil reserves are estimated at ~40 days now. It increases to ~50 days when commerc ia l reserves are factored in. Lured by low crude prices, China has been aggressively adding to its strategic oil reserves for the past eight months, peaking in December when its purchases hit a record 7.2 million barrels per day. Now that available storage tanks have nearly topped off, China's incremental oil demand for its storage facilities is likely to decline. This may weigh on crude oil prices.

Iran deal leading to removal of sanctions may increase global oil supply

Iranian oil exports in recent years have been essentially capped by Western sanctions aimed at pressuring Tehran over its nuclear ambitions. Negotiations toward a possible US nuclear deal with Tehran could allow more Iranian oil exports. The deal could affect the global oil market that is already facing oversupply. While the timing of such a move would be some months away, the easing of sanctions could eventually translate into an additional 1 million barrels per day in Iranian crude heading into the global markets that are currently facing a glut. The country produced 2.8 million barrels oil



May 2015

per day during February 2015, compared with 3.6 million barrels per day at the end of 2011 while currently it exports

just 1.3 million barrels per day compared to 2.5 million barrels per day in mid-2012 when the sanctions were imposed.

Iran oil production

2400

2600

2800

3000

3200

3400

3600

3800

4000

Ma

r-0

9

Se

p-0

9

Ma

r-1

0

Se

p-1

0

Ma

r-1

1

Se

p-1

1

Ma

r-1

2

Se

p-1

2

Ma

r-1

3

Se

p-1

3

Ma

r-1

4

Se

p-1

4

00

0'

Ba

rre

ls/D

ay


Also, if the situation stabilises

in Libya, more supply could be

added to the global oil markets

as the current production of

Libya is still three times less

than its capacity of about ~1.7

million barrels per day, which

shows the long term potential

for the Libya oil supply.

Russia has been at the centre

of world attraction lately after

Russia's desperate measures to

revive its economy will lead to

higher oil supply

the sanctions imposed by the

US, European Union and other

countries due to the Ukrainian

cr is is . Russ ia is h ighly

dependent on oil & gas

production with oil revenues

making up 45% of the

government Budget. The

sharp fall in prices has been

ruinous. It is estimated that

Russia's GDP would shrink by

at least 4.5% in 2015 if oil

remains below $60 per barrel.

The plunging price of oil has



May 2015

also caused the Ruble's value

to collapse, leading to panic in

the Russian economy. This

could lead to desperate

measures by Russia to support

its economy.

Russia has also accelerated the

re-orientation of its exports to

Asia as its diplomatic relations

with Europe continues to

deter iora te . Moscow is

currently prioritising relations

with China, South Korea and

Japan and the growth potential

of these economies is several

times higher than that of

Western Europe, ensuring a

long-term growth market for

Russian oi l . Russia has

boosted its oil supplies to

China, Japan and South Korea

by 10 million tonnes in 2014,

increasing the proportion of oil

exports to Asia from 7.2% to

8.7%. In the next five years, the

flow of Russian oil to China

could increase by 15-20 million

tonnes. Rising shipments from

Russia, which ranks with Saudi

Arabia and the US as the

world's biggest oil producers,

would put more pressure on

crude, which has already

declined ~50% since last year.

Restarting of Japan's nuclear

reactor to ease its fossil fuel

demandJapan has relied heavily on

fossil fuels following the

meltdown at Fukushima

Dai ichi and subsequent

shutdown of the country's

nuclear fleet, as it was once the

world's largest producers of

nuclear-generated electricity.

In 2013, when almost all of

Japan's nuclear fleets were

shut down, more than 86% of

Japan's generation mix was

composed of fossil fuels.

T h e c u r r e n t J a p a n e s e

government believes the use

of nuclear energy is necessary

to help reduce current energy

supply strains and alleviate

high electricity prices. Japan's

new energy policy, framed in

2014, emphasizes energy

security, economic efficiency

and greenhouse gas emissions

reduction. The government is

increasingly pushing for a

restart on the grounds that

continuing to import oil, coal

and natural gas to keep the

economy ticking over is

prohibitively expensive, as

well as increasing the nation's



May 2015

carbon dioxide output.

Japan's nuclear reactors may

restart in May 2015, as Kyushu

Electric's Sendai Units 1 and 2

in south-western Japan

received approval f rom

Japan's Nuclear Regulatory

Agency (NRA) and local

authorities in November 2014.

The NRA has also approved

Kansai Electric's Takahama

Units 3 and 4 at the end of 2014

although these units are still

awaiting authorisation from

the local government. The

resumption of some of the

nuclear power units may lower

demand for fossil fuels, which

may have some impact on the

global markets.

Source: EIA, ICICI Securities

Lower crude oil prices is the new

normalEven though crude oil prices

have declined sharply over last

year, we believe crude prices

will stabilise at lower levels in

the medium term as global

crude oil supply is already in

surplus and there is no major

demand growth. Increased oil

production in the US due to

shale revolution and possibility

of higher oil supply from Russia

and Iran will lead to oversupply

of crude oil in the global

markets . Lower demand

growth due to the slowdown in

China, Europe and other major



May 2015

e c o n o m i e s a l o n g w i t h

resumption of Japanese

nuclear power plants and

emergence of a l ternate

sources of energy will hamper

the global demand for crude

o i l . S u b s e q u e n t l y, t h e

mismatch in g loba l o i l

demand-supply scenario is

expec ted to l ead to a

stabilisation of crude oil prices

at lower levels.

As India has high dependence

on crude oil imports to meet its

demand for natural resources,

lower crude oil prices will be a

boon for India. In FY14, India

imported ~US$ 165 billion

worth of crude oil out of total

imports of US$ 450 billion,

forming 36.6% of total imports.

The price decline in crude oil in

FY15 had a positive impact on

India's oil import bill, which

declined by 16% YoY to ~US$

138 billion leading to positive

effect on India's trade and

current account deficit (CAD).

Moreover, oil imports as a

percentage of GDP which will

Lower oil prices to keep India's

growth story intact

decline from 8.7% of GDP in

FY14 to 5.1% of GDP in FY16E

after the reduced global crude

prices. It also led to the decline

in the fiscal deficit levels in

India from 4.4% in FY14

to4.1% in FY15. The fiscal

deficit situation is further

expected to improve with the

lowering of government

subsidy payment in future

years. The decline in oil prices

had also helped in containing

inflation levels from 9.5% in

FY14 to 6.4% in FY15 and we

expect it at 5-6.5% in FY16E as

well. Lower inflation in future

in-turn facilitates reducing in

interest rates in FY16E and will

accelerate India's economic

growth. To conclude, we

believe that lower crude oil

price is here to stay and it won't

be spoilsport in India growth

story.

Please send your feedback to [email protected]


Use current volatility to build strong equity portfolio

May 2015

EXPERT SPEAK

At the start of 2015, India was

in a sweet spot, after posting

30% returns for 2014, most of

the fund allocators were

overweight on India. However

in the recent past, post the

keenly anticipated events of

Union Budget and Reserve

Bank of India (RBI) rate cut,

there has been a profit booking

trend. Bulk of the selling has

come from foreign institutional

investors (FIIs) who shifted

some funds out of India into

other emerging markets (Ems).

On a year-to-date (YTD) basis

as well, India ranks among the

weakest performers globally,

as global investors booked

profits as they perceived the

Indian equity markets are over-

heated from the short-term

perspective and the earnings

per share (EPS) growth was

missing in Q3FY15 and Q4

FY15 results till date.

Weakness was also seen in

Debt markets, wherein the 10-

year G-Sec (Government

Security) yield shot up close to

8% in the recent past and is

close to 20 basis points (bps)

higher for 2015. The resultant

weakness has also started to

reflect in depreciating Indian

Rupee (INR), which has hit the

lowest level since September.

INR could further weaken if the

Head –Research,ICICIdirect

Pankaj Pandey

Nifty performance: Weakest amongst global peers

-10%-5%0%

5%10%15%20%25%30%35%40%

US UK

Germ

any

Japa

n

Indi

a

Indo

nesi

a

Philip

ines

Bra

zil

Sout

hA

fric

a

Tur

key

Thai

land

T-30 YTD TTM


EXPERT SPEAK

pace/extent of FII outflow

increases. As visible in the

chart below, since 2014 the INR

has been one of the strongest

p e r f o r m i n g c u r r e n c i e s ,

wherein the key currencies

have depreciated by 10%, INR

has deprecated only little over

a percent.

Indian Rupee performance amongst global peers

INR Performance since 2014

-20%-10%

0%10%

20%30%

40%50%

60%

Arg

entin

e Pe

so

Thai

Bah

t

Phi

lippi

nes

Peso

Indo

nesi

a R

upia

h

Chi

nese

Yua

n

S. K

orea

n W

on

Taiw

anes

e D

olla

r

Turk

ish

Lira

Mal

aysi

an R

ingg

it

S. A

fric

an R

and

Bra

zilia

n R

eal

Mex

ican

Pes

o

Rus

sian

Rub

le

Brit

ish

Poun

d

Aus

tral

ian

Dol

lar

Japa

nese

Yen

Can

adia

n D

olla

r

Euro

Sw

iss

Fran

c

Indi

an R

upeeA

ppre

ciat

ion

/ D

epric

iatio

n

The market rally has been marked with several interim phases of consolidation. We believe, such phases of consolidation lend credence and support to the long-term rally, signifying investor confidence, who return to buying after profit booking. The alternating phases of consolidation and uptrend would continue in the future. The overall sentiment remains positive, led by several positive steps by the new government like allowing foreign direct investment (FDI) in several sectors, railway fare hike, online environment &

forest c learances. After presenting a pragmatic and r e f o r m i s t b u d g e t a n d successfully addressing the concerns in the coal mining sector. We have already witnessed a bottoming out of the economic growth cycle with GDP (gross domestic product) growth averaging 7.43% in 9MFY15, against 6.65% in FY14. A reduction in crude and other commodity pr ices has a ided lower inflation, which has already prompted a 50 bps rate cut and may lead to further cuts.

However, an improvement in corporate earnings will follow


EXPERT SPEAK

with a lag. Sensex earnings are expected to grow at lower rate of 4.4% in FY15. Nevertheless, growth is expected to rebound t o ~ 1 7 . 6 % ( C AG R i . e . Compounded annual growth rate) in next two years. Markets have been running ahead on expectations of improving business environment amid quick policy actions. Even though the government has initiated several confidence building measures and taken key decisions, economic recovery will happen only at a gradual pace. On domestic front El-Nino effect raises the possibi l i ty of a weaker monsoon. In addition, steep depreciation in INR, rise in G-sec yields, lower corporate earnings growth are likely to fuel investor apprehension. At the global level, uncertainties like Fed rate hike in June, Greece Debt stand-off, crude price recovery and bond market selloff are likely to keep equity markets nervous. While investors have booked some profits in the last month or so, we believe, markets would continue on the upwards trajectory after taking a

breather. From the valuations stand point as well Sensex is currently trading at 14 times FY17E earnings, suggesting scope for the expansion.

We are positive on Auto and Cement on back of robust demand outlook and Capital Goods on account of balance sheet improvement and margin expansion. Lower crude prices and positive policy triggers also makes the Oil & Gas sector attractive. In addition, we are positive on Banks on expectations of interest rates cuts, reviving credit growth and fading concerns around asset quality deterioration.

To sum it up, Indian equities from a medium to long term perspective is still a compelling buy as India is likely clock the higher GDP growth of close to 7-8% in FY16 (making India one of the fastest growing economies among all the major global markets). With the RBI rate cut effect likely to get materialized by H2FY16 we believe the current volatility should be used to build strong equity portfolio.

The views expressed in the interview are personal views of the authors and do not necessarily represent the views of ICICI Securities.


ASK OUR PLANNER

Options available at maturity of a PPF account

May 2015

Q:

A:

I have a Public Provident Fund

(PPF) account which will be

maturing by the end of this financial

year (March, 2016). I know that this

account can be extended beyond

the maturity. But I want to know for

how long it can be extended. Is it

mandatory to make contributions

every year in the account during the

extended period? Can I withdraw

the amount any time during the

extended period?-Deepak Kumar

Once your PPF account

matures, you can do either of

the following three:

1)You can withdraw the

maturity amount and close the

account. The maturity amount

you withdraw is exempt from

tax.

2)You can extend your account

in blocks of 5 years and

continue making contribution

into the same. There is no limit

to the number of blocks your

account can be extended. In

such a case, you can make

withdrawals from the account

only upto 60% of the account

balance that was available at

the beginning of the extended

period.

3)You can extend your account

without making any further

contributions, and continue to

earn interest on the available

balance every year. In this case,

any amount can be withdrawn

from your account once a year.

I have a Birla Sunlife Freedom

policy 58 (unit linked pension plan) th

which I took on 28 July 2009 and

surrendered in 2014. I have not

claimed any deductions under

Section 80 for the premium paid on

this policy.

Upon surrender, will the surrender

value be included as taxable

income or can I compute capital

gains because I did not claim any

deduction under Section 80?

- R Seshadri

Irrespective of whether you

have claimed tax benefit on

premium payment under

Section 80C or not, the

surrender value of a pension

policy will be added to your

income and taxed as per the

income slab. Claiming tax

Q:

A:


ASK OUR PLANNER

benefit under Section 80C for

premium payment has no

relevance with taxation of

surrender value of the policy.

I have read that in case you

possess more than one house, one

house can be declared as self

occupied while computing income

tax. My question is whether I can

declare a house self occupied even

if both houses are actually let out?

- Suresh John David

This rule will apply if you

have two house properties

which are either vacant or self-

occupied or occupied by

parents. In such a case, you

can declare any one of the two

house properties as self-

occup ied , as pe r your

discretion. The other property

will be “Deemed to be let out”.

If both the properties are

actually let out, you cannot

declare either of them as self-

occupied.

I am 38.5 years old and can

invest Rs. 20,000 per month. I want

to invest for my retirement, child

education and marriage and a

home. Till date my savings are just

2 or 3 lakhs. Please suggest me

Q:

A:

Q:

what can I do.

-Deepak

It's better late than never to

start planning for your goals.

Now that you have listed your

goals, put a time frame to each

g o a l a l o n g w i t h t h e

approximate amount required

for each goal. Make a financial

plan for yourself through a

financial planner. This will help

you in understanding your

projected future cash-flow and

to what extent your goals can

be achieved and how you need

to go about to achieve them.

ICICIdirect also offers Financial

Planning Services. You may

write to us at

[email protected] for

further details.

Kindly advise me for contribution

to NPS scheme. I am 56 year male

retiring after 4 years. How to create

retirement corpus?

-Rangnath Kamble

In National Pension System

(NPS), the account will mature

at your age of 60 years and

ideal ly can be used to

accumulate retirement corpus

if you have a longer time to

A:

Q:

A:


ASK OUR PLANNER

retire, say more than 10 years.

In your case, if you open an

NPS account now at your age

of 56 years, you will have only

4 years left to contribute. You

may not be able to accumulate

a big corpus through this and

cannot rely only upon this for

y o u r p o s t - r e t i r e m e n t

expenses. Further, with only 4

years left, you may not get a

higher return even if you

choose Equity (E) class of NPS,

as equity markets are generally

volatile in short term. On the

other hand, if you choose debt

classes of NPS (corporate

bonds (C) and government

securities (G)), the returns may

not be so volatile but are

generally lower. Also, the

maturity proceeds of NPS, as

per current law, are taxable,

resulting in lower net return.

Considering all this, it may not

be prudent to invest in NPS

with such a short investment

horizon (4 years).

Q:

A:

In the recent budget, service tax

has been increased from 12.36% to

14%. However, I still notice that at

all places, people continue to

charge only 12.36%. Is there any

date from which this change is

applicable?

-Kavita Rai

The budget has proposed a

change in service tax from

12.36% to 14% through the

Finance Bill, 2015. The Bill has

been passed in Lok Sabha last

month. The Bill has to be

passed in Rajya Sabha and

then assented by the President

of India, post which the

Finance Bill will become

Finance Act.

After it becomes an Act, the

Government will issue a

notification in which a specific

date will be mentioned from

which this change will be

applicable. The service tax

charged by relevant service

providers will have to be

changed from that date.

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

MUTUAL FUND ANALYSIS


Investing in short-term credit opportunities funds

Birla Sun Life Medium Term Plan

Fund Objective:To generate regular income

through investments in debt &

money market instruments in

order to make regular dividend

payments to unit holders &

secondary objective is growth

of capital.

Key Information:

Fund Manager: Maneesh Dangi

Performance:

Maneesh Dangi has over 10 years of experience in Finance & Research. Prior to joining B i r l a S u n L i f e A s s e t M a n a g e m e n t C o m p a n y (BSLAMC) he worked with Pioneer Investcorp as a head of f ixed-income investment consultancy and merchant banking division.

The fund has delivered 12% return in FY15, which is the best for the period of its existence. The fund goes real low on credit and, therefore, has the highest yield to maturity (YTM), which earns alpha. An investment of 10,000 at the inception of the fund (March 2009) would have grown to 17,046 earning a compounded annual return (CAR) of 9.2% since inception.

`

`Product Label:

This product is suitable for investors who are seeking*:

•

•

•

income with capital growth over medium to long term

investments in debt and money market instruments

Medium risk

NAV as on April 30, 2015 ( ) 17.2

Inception Date March 25, 2009

Fund Manager Maneesh Dangi

Minimum Investment (`)

(Lumpsum) 5000

Expense Ratio (%) 1.27

Last declared YTM % 10.96

Exit Load 2.00% on or before 365D,

1.00% after 365D but on or

before 730D,Nil after 730D

Benchmark CRISIL AA Short Term Bond Index

`

Performance vs. Benchmark

Fund Benchmark

5.3

11.5

10.9

9.9

0

2

4

6

8

10

12

14

6 Month 1 Year 3 Year 5 Year

Retu

rn%



Yearly Returns

Portfolio:The fund manager goes real low on the credit front with ~61% of the portfolio in less than or equivalent to AA-rated debt instruments. The credit strategy helps the fund earn h i g h e r Y T M o f ~ 1 1 % . However, comparatively the default risk increases. The fund manager aims to optimise r e t u r n s b y i d e n t i f y i n g mispriced credit opportunities in medium term securities in

11.9

10.4

11.2

10.6

9.8 1

1.0

14.5

7

- 0.9

6

11.2

5

-2.00.02.04.06.08.0

10.012.014.016.0

31-Mar-14 To 31-Mar-15 31-Mar-13 To 31-Mar-14 31-Mar-12 To 31-Mar-13

Retu

rn%

Fund Benchmark Crisil Ten year Gilt Index

the market and then selectively investing in them.

We believe the fund is a perfect investment alternative in the current period. The portfolio is currently running a higher YTM, which the investor needs to lock-in at the current stage. Going forward, the interest rate trajectory is down and YTM is for sure gone be lower. The credit risk from here on is going to come down as with better business environment corporate earnings growth gains traction zeroing the default risk. It is the best time to play the credit risk to earn higher return.

Our View:

Asset Allocation %

Credit quality %

Apr-15 Mar-15 Feb-15 Jan-15 Dec-14 Nov-14 Oct-14 Sep-14 Aug-14 Jul-14 Jun-14 May-14 Apr-14 Mar-14

CDs 2.49 -- -- 4.86 4.93 -- -- -- 2.24 4.52 3.08 -- -- 5.67

CPs 2.48 7.39 8.78 8.88 7.63 -- 0.86 -- 1.80 -- -- -- 0.84 3.65

Corp Bond 81.91 89.08 83.81 80.56 83.88 86.10 89.45 93.55 89.45 92.08 91.57 97.04 97.02 86.77

Gsec -- -- -- -- -- -- -- -- -- -- -- -- -- –

Others 13.12 3.53 7.42 5.70 3.56 13.90 9.70 6.45 6.51 3.40 5.35 2.96 2.14 3.91

A & Eqiv 27.87 32.92 33.46 34.13 34.67 33.96 25.69 26.29 26.58 26.99 28.87 29.32 31.17 27.29

AA & Equiv 34.12 36.26 30.17 25.98 26.35 32.24 37.24 38.07 31.60 35.69 31.49 37.07 38.66 37.63

AAA & Equiv 24.89 27.29 28.96 34.19 35.42 19.90 27.37 29.20 35.31 33.91 34.29 30.65 28.04 31.17

Cash & Equivalent 11.86 2.22 7.42 1.89 1.90 13.90 9.70 6.45 6.51 3.40 5.35 2.96 2.14 2.97

SOV -- -- -- -- -- -- -- -- -- -- -- -- -- –

Others -- -- -- -- -- -- -- -- -- -- -- -- -- –



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

(Blue) Investors understand that

their principal will be at low risk

(Yellow) Investors understand that

their principal will be at meduim risk

(Brown) Investors understand

that their principal will be at high

risk

Data as on May 4, 2015; Portfolio details as on April 30, 2015Source: ACE MF, ICICIdirect Research

Top 10 Holdings Asset Type %

Whats In %

Net Current Asset Cash & Cash Equivalents 11.33

RKN Retail Pvt Ltd. 7% (11-Mar-18) Corporate Debt 9.29

DLF Ltd. 12.5% (30-Apr-18) Corporate Debt 6.45

RHC Holding Pvt Ltd. SR-B 11.00% (12-Nov-19) Corporate Debt 6.41

Adani Power Ltd. (30-Apr-18) Corporate Debt 6.26

Relationship Properties Pvt Ltd.10.60% (29-Sep-18) Corporate Debt 5.74

IL&FS Education & Technology Services Ltd.SR-C 11.00% (10-Apr-20) Corporate Debt 5.03

IL&FS Education & Technology Services Ltd.SR-B 10.52% (10-Oct-17) Corporate Debt 3.9

HC Holding Pvt Ltd. SR-A 11.00% (12-Nov-19) Corporate Debt 3.85

Adani Power Ltd. 10.95% (30-Apr-18) Corporate Debt 3.77

Coffee Day Enterprises Pvt Ltd. 0.9

ING Vysya Bank Ltd. (15-Jun-15) 2.5

Small Industries DevelopmentBank of India -87D (15-Jun-15) 2.5

%Whats OutRHC Holding Pvt Ltd. 13.75% (30-Mar-17) 0.2

Sterlite Technologies Ltd. 11.45% (05-May-16) 0.7

Housing Development Finance Corporation Ltd.-364D (29-Dec-15) 7.4

Performance of all the schemes managed by the fund manager

Fund Name31- -14Mar

31-Mar-15

31-Mar-13

31-Mar-14

31- -12Mar

31- -13MarValue of standard investment of

10000 since inception`

Birla SL Dynamic Bond Fund-Ret(G) 15.21 6.94 10.45

Crisil Short Term Bond Fund Index 10.33 8.79 9.10

Birla SL Medium Term Fund(G) 17046 11.89 10.44 11.22

CRISIL AA Short Term Bond Index 17594 10.55 9.81 11.00

CRISIL Ten year Gilt Index 13791 14.57 -0.96 11.25



Franklin India Short Term Income Plan

Fund Objective:

The objective of the scheme is to provide investors stable returns by investing in fixed income securities.

Key Information:

Product Label:

This product is suitable for investors seeking*:

• Regular income for medium term

• A fund that invests in short term corporate bonds including PTCs

• Low risk

NAV as on April 30, 2015 ( ) 2889.8

Inception Date February 4,2002

Fund Manager Santosh Kamath

Minimum Investment (`)

(Lumpsum) 5000

Expense Ratio (%) 1.54

Last declared YTM % 10.53

Exit Load 0.50% on or before 1Y

Benchmark Crisil Short Term Bond Fund Index

`

Fund Managers: Santosh Kamath

and Kunal Agrawal

Santosh Kamath is Managing

Director (MD) and Chief

Investment Officer (CIO) at

Franklin Templeton, Fixed

Income in India. He joined

F r a n k l i n T e m p l e t o n

Investments in 2006 and has

over 20 years of investment

and research experience. Mr.

Kamath earned his MBA from

XLRI, Jamshedpur in 1993 and

his Bachelor of Engineering

degree in electronics and

telecom from REC, Bhopal.

is the co-head

credits, with the fixed income

team of Franklin Templeton

Fixed Income in Mumbai, India.

He joined Franklin Templeton

in 2011 and has over five years

of exper ience in credi t

analysis. Mr. Agrawal holds a

postgraduate degree in

management from Indian

Institute of Management (IIM)

in Calcutta and a bachelor of

technology degree from Indian

Institute of Technology (IIT) in

Delhi.

As stated in the objective to

earn stable returns, the fund

h a s i n l i n e d e l i v e r e d

compounded annual ised

return (CAR) of 9.2% in the last

five years. An investment of

10,000 in the scheme at its

inception (February 2002)

would have grown to 28,738

earning a CAR of 8.35%.

Kunal Agrawal

Performance:

`

`



Portfolio:The fund has investment in debt instruments with shorter maturity periods focusing at the shorter end of the yield curve. The average maturity of the portfolio of the scheme is likely to be between 4 months and 12 months while the m a t u r i t y o f i n d i v i d u a l

securities in the scheme is likely to be less than 3 years. The fund manager invests primarily in corporate bonds with a focus on higher accrual income. Exposure to less than and equivalent to AA securities is ~71% which is on the higher side and hence the higher yield of 10.53%.

We are positive on the fund especially because it is from t h e F r a n k l i n A s s e t management stable. With a veteran fixed income fund manager having a strong credit team, this fund becomes an obvious choice for playing the credit strategy. The fund is a pure portfolio fund for any debt investment.

Our View:

Asset Allocation %

Credit quality %

Performance vs. Benchmark

Fund Benchmark

5.1

11.3

10.4

9.2

4.7

10.1

9.3

8.3

0

2

4

6

8

10

12

6 Month 1 Year 3 Year 5 Year

Retu

rn%

Yearly Returns

11.9

9.5 10.4

10.3

8.8 9.1

14.6

-1.0

11.3

-2.00.02.04.06.08.0

10.012.014.016.0

31-Mar-14 To 31-Mar-15 31-Mar-13 To 31-Mar-14 31-Mar-12 To 31-Mar-13

Retu

rn%

Fund Crisil Short term index Crisil Ten year gilt index

Apr-15 Mar-15 Feb-15 Jan-15 Dec-14 Nov-14 Oct-14 Sep-14 Aug-14 Jul-14 Jun-14 May-14 Apr-14 Mar-14

CDs 1.85 1.83 1.40 -- -- -- 1.10 -- 0.10 8.72 12.19 18.66 13.71 16.80

CPs 1.48 1.29 -- -- 0.57 3.06 2.66 2.45 -- 1.55 1.02 2.32 2.71 2.02

Corp Bond 93.80 95.98 96.93 95.81 98.07 95.28 93.56 93.28 92.49 77.61 76.68 73.65 76.96 78.26

Gsec -- -- -- -- -- -- -- -- -- -- -- -- -- –

Others 2.86 0.89 1.66 4.19 1.36 1.67 2.68 4.27 7.40 12.12 10.11 5.37 6.62 2.91

A & Eqiv 25.32 24.24 23.74 26.49 30.69 32.57 35.51 36.54 22.17 24.72 24.40 22.57 24.18 20.37

AA & Equiv 44.06 46.20 48.24 48.49 47.66 45.22 43.98 47.84 53.99 43.80 43.40 48.96 49.39 55.49

AAA & Equiv 24.62 25.49 23.88 18.38 17.84 18.11 17.86 11.42 12.67 19.49 22.25 23.30 20.06 21.54

Cash & Equivalent 2.85 0.87 1.65 4.17 1.34 1.64 2.65 2.80 6.20 2.50 2.25 1.95 6.31 2.54

SOV -- -- -- -- -- -- -- -- 1.10 9.49 7.70 3.22 0.05 0.06

Others -- -- -- -- -- -- -- -- -- -- -- -- -- –

Performance of all the schemes managed by the fund manager

Fund Name31-Mar-14

31-Mar-15

31-Mar-13

31-Mar-14

31- -12Mar

31- -13MarValue of standard investment of

10000 since inception`

Franklin India IBA-A(G) 13.48 8.13 11.06

Crisil Composite Bond Fund Index 14.59 4.34 9.27

Franklin India Income Opportunities Fund(G) 11.90 8.85 10.53


Franklin India Corporate Bond Opportunities Fund(G) 11.89 8.83 11.12


Franklin India Low Duration Fund(MD) 7.62 7.89 8.61


Franklin IndiaST Income Plan(G) 28738 11.87 9.54 10.39

Crisil Short Term Bond Fund Index NA 10.33 8.79 9.10

Crisil Ten Year Gilt Index 20987 14.57 -0.96 11.25



Top 10 Holdings Asset Type %

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

(Blue) Investors understand that

their principal will be at low risk

(Yellow) Investors understand that

their principal will be at meduim risk

(Brown) Investors understand

that their principal will be at high

risk

Data as on May 4, 2015; Portfolio details as on April 30, 2015Source: ACE MF, ICICIdirect Research

Shriram Transport Finance Company Ltd. Corporate Debt 8.91

Dewan Housing Finance Corporation Ltd. Corporate Debt 7.74

Adani Enterprises Ltd. Corporate Debt 5.48

HPCL-Mittal Pipelines Ltd. Corporate Debt 4.67

JSW Steel Ltd. Corporate Debt 4.66

JSW Energy Ltd. Corporate Debt 4.64

Jindal Steel & Power Ltd. Corporate Debt 4.34

Sprit Textiles Pvt Ltd. Corporate Debt 3.8

Reliance Project Ventures And Management Pvt Ltd. Corporate Debt 3.79

Dolvi Minerals And Metals Ltd. Corporate Debt 3.23

Whats In % %Whats OutHousing Development FinanceCorporation Ltd. 0

Essel Propack Ltd. 0.2

JSW Steel Ltd. 4.7

Call Money 0.9

Tata Bluescope Steel Ltd. 10.25%(27-Sep-15) 0.1

Tata Power Company Ltd. 9.15%(17-Sep-16) 0


MUTUAL FUND TOP PICKS

Wth over thousand of mutual fund schemes available in the market, selecting the right ones may become too complex. To make it easy for you, we present our research team’s top recommendations, across equity and debt categories

Mutual Fund Top Picks

Equity

Category Top Picks

Largecaps Axis Equity FundBirla Sunlife Frontline equity FundICICI Pru Focussed Bluechip Equity FundUTI Opportunities Fund

Midcaps HDFC Midcap Opportunities FundICICI Prudential Value Discovery FundFranklin India Smaller Companies FundSBI Magnum Global Fund

Diversified Franklin India Prima PlusICICI Prudential Dynamic PlanReliance Equity Opportunities

ELSS Axis Long Term EquityICICI Prudential Tax PlanFranklin India Tax shield

Sector - Banking ICICI Prudential Banking Reliance BankingUTI Banking

May 2015


MUTUAL FUND TOP PICKS

May 2015

Short Term Birla Sunlife Short Term FundHDFC Short Term Opportunities FundICICI Pru Short Term Plan

Credit Opportunities Fund

Birla Sunlife Medium Term PlanFranklin India Short term PlanICICI Prudential Regular Savings

Income Funds ICICI Prudential Dynamic Bond FundBirla Sun Life Income Plus - Regular Plan IDFC Dynamic Bond Fund

Gilts Funds ICICI Pru Gilt Inv. PF PlanBirla Sunlife Gilt Plus

MIP(Aggressive)

Birla Sunlife Savings 5ICICI Prudential MIP 25DSP Blackrock MIP

Debt

Category Top Picks

Liquid Funds HDFC Cash Mgmnt Saving Plan ICIC Pru Liquid PlanReliance Liquid Treasury Plan

Ultra Short Term Birla Sunlife Savings FundFranklin India Ultra Short Term Bond FundICICI Pru Flexible Income Plan


EQUITY MODEL PORTFOLIO

Our indicative large-cap equity model portfolio (“Quality-21”) has continued to deliver an impressive return of 82.3% (inclusive of dividends) till date (as on May 5, 2015) since its inception (June 21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex) return of 56.3% during the same period, out-performance of 26%. This validates our thesis of selecting companies with sound business fundamentals that forms the core theme of our portfolio. Our “Consistent-15” mid-cap portfolio also continues to outperform, delivering 112.3% (inclusive of dividends) till date (as on May 5, 2015) vis-à-vis the benchmark index (CNX Midcap) return of 69%, out-performance of 43.3%. Our consistent out-performance demonstrates our superior stock picking ability as markets in H2FY15 aligned to our view of favourable risk-reward, good franchisee vs. reward-at-any-risk businesses. Some key performers of our portfolio are Lupin, Sun Pharmaceuticals, Axis Bank, TCS and Shree Cement delivering ~160-330% returns since inception.

We have always suggested the systematic investment plan (SIP) mode of investment and still find a lot of merit in it as the preferred mode of deployment given the market conditions and volatility associated since the inception of the portfolio. It has outperformed other portfolios, thus, reinforcing our belief in a plan of investment. However, now we are also advising clients to look at lump sum investments at any possible dips.

The last few months saw a paradigm shift in the global energy industry as crude prices declined to a historic five-year low to $58 (down ~40% since June 2014). Intense competition among oil-producing nations for market share (OPEC (Organization of the Petroleum Exporting Countries) vs. non-OPEC) and ramp-up in US shale resources led to this slump in global commodity aided further by languishing global growth prospects. While world economies adjust to this new normal, India, which fulfils ~80% of its oil demand through imports, could be a major beneficiary of this benign oil scenario. Thus, domestic equities attracted strong foreign institutional investor (FII) flows ($16 billion+ during CY14, highest ever) helped by a stable, reformist central government. Consequently, sectors geared towards a pick-up in domestic economy like consumer discretionary, banks, auto and cement outperformed the benchmark index. On the other hand, defensives

May 2015



saw profit booking as CNX IT and FMCG indices underperformed by ~13% each during 2014 on moderating valuations and changing investor preference.

Thus, we rebalanced our portfolio in December 2014, to capture the essence of a broader economic revival, growing urbanisation and benefits of crude declines. Accordingly, thus add stocks like Castrol India (crude), CARE (economy), Voltas (consumerisation) and Heidelberg Cement (value buying) while we feel Tata Steel, ONGC are well placed to be added to large-cap portfolio.

Though we have a tilt towards higher beta that could generate substantial returns given their respective market dominance, we have not deviated from our core focus on holding good brands. We exit DCB (74% returns), JK Cement (71%) to book profits since potential upside appears limited, hereafter, and remove Tata Global Beverages and Oberoi Realty as company-specific headwinds could likely persist in the medium term.

Our conviction in domestic recovery is visible in terms of relative weightage of sector vis-à-vis the index. We remain overweight on the consumer discretionary (auto, consumer), financials (private sector banks in particular), and the infra space (cement, infra and power). This has been primarily triggered by hopes of a rate cut by the Reserve Bank of India (RBI) on the back of moderating inflation and possibility of decisive action in the infrastructure and real economy space by the new government. We are also overweight on telecom, media owing to reducing concerns & better earnings growth.

We have turned underweight on oil & gas as we have chosen to replace Reliance with ONGC, which has better risk-reward (muted return of investment (RoI) from unrelated investments could impact the former while the latter has lessening regulatory challenges). We continue to remain underweight on pure play defensives (IT, FMCG) as secular earnings coupled with sector rotation could de-rate valuations and offer limited upside. We remain equal weight on pharmaceuticals, metals (global generic opportunity, stock specific play).

On individual names, we are strongly overweight on companies like L&T and UltraTech in the infrastructure space while we prefer HDFC & SBI in financials.

May 2015



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

May 2015

Consumer Discretionary 12 8.4

United Spirits 4 2.8

Tata Motors DVR 4 2.8

Bajaj Auto 2 1.4

Titan 2 1.4

BFSI 30 21

HDFC 8 5.6

HDFC Bank 7 4.9

SBI 8 5.6

Axis Bank 7 4.9

Power, Infrastructure & Cement 15 10.5

L & T 8 5.6

UltraTech Cement 7 4.9

FMCG 8 5.6

ITC 8 5.6

Metals & Mining 4 2.8

Tata Steel 4 2.8

Oil and Gas 8 5.6

ONGC 6 4.2

Gail 2 1.4

Pharma 5 3.5

Lupin 2 1.4

Sun Pharma 3 2.1

IT 13 9.1

Infosys 5 3.5

TCS 5 3.5

Wipro 3 2.1

Telecom 3 2.1

Bharti Airtel 3 2.1

Media 2 1.4

Zee Entertainment 2 1.4

Largecap share in diversified 70100



Midcap Stocks

Content source: ICICIdirect.com Research

ICICI Securities has received an investment banking mandate from Government of India for disinvestment in ONGC. This report is prepared based on publicly available information.

ICICI Securities Limited has received a mandate from SBI.

This report is prepared based on publicly available information.

Name of the company Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

May 2015

Consumer Discretionary 34 10.2

Bosch 6 1.8

Cox & Kings Ltd 6 1.8

Arvind 6 1.8

Voltas 8 2.4

Castrol 8 2.4

IT 6 1.8

Info Edge 6 1.8

BFSI 14 4.2

CARE 6 1.8

IndusInd Bank 8 2.4

FMCG 8 2.4

Kansai Nerolac 8 2.4

Pharma 6 1.8

Natco Pharma 6 1.8

Media 8 2.4

PVR 8 2.4

Capital Goods 6 1.8

Cummins 6 1.8

Realty/Infrasturcture/Cement 18 5.4

Heidelberg Cement 6 1.8

Container Corporation of India 6 1.8

Shree Cement 6 1.8

Midcap share in diversified 30

Total of all three portfolios 100 100 100



Performance* so far Since inception

*Returns (in %) as on , 2015

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

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

May 5

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

Portfolio Benchmark

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: June 30, 2011; *Value as on May 5, 2015

May 2015

82.3

112.3

92.3

56.3

69.058.7

0

25

50

75

100

125

%

4,8

00,0

00

4,8

00,0

00

4,8

00,0

00

6,6

55,2

14 8,8

15,8

67

7,2

27,5

05

6,2

35,0

14

7,3

89,8

73

6,5

16,3

90

3,500,000

4,500,000

5,500,000

6,500,000

7,500,000

8,500,000

|

QUIZ TIME

1. As per the draft guidelines of gold monetisation scheme, minimum gold deposit is proposed at ______ gms.

2. The new service tax rate of 14% will come into effect from ______.

3. You can extend your PPF account in blocks of 5 years without making any further contributions. True / False

4. In FY14, India imported ~US$ ______ billion worth of crude oil out of total imports of US$ 450 billion.

5. When you extend your PPF account in blocks, you can make withdrawals from the account only upto ______% of the account balance that was available at the beginning of the extended period.

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:

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 April 2015 quiz are:

1. An NRI cannot subscribe to National Pension System (NPS). True / False

A: False

2. If you withdraw money before 60 years from your NPS account, only _______% of the accumulated corpus can be withdrawn as lump sum.

A: 20%

3. Contributions to both Tier-I and Tier-II NPS accounts get tax exemptions. True / False

A: False

4. The rate of service tax has been proposed to be increased from existing rate of _____% to _____%.

A: 12.36% to 14%

5. Expand PRAN.A: Permanent Retirement Account Number

[email protected]



MONTHLY TRENDS

7.74

6.31

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Feb-15 Mar-15

(%)

47.60

59.63

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

31-Mar 5-Apr 10-Apr 15-Apr 20-Apr 25-Apr 30-Apr

$ pe

r ba

rrel

356.07

-3,157.61

283.71 2,460.80

-7000

-2000

3000

8000

13000

18000


FII DII

.

WPI INFLATION (FOOD)

(The figures are in %)

CRUDE OIL

NYMEX crude oil prices ($/barrel)

FII & DII INVESTMENTS

(Foreign institutional investors (FIIs) and domestic institutional

investors (DII) net equity investment ( ` in crore)

May 2015


27957.49

27011.31

25500

26000

26500

27000

27500

28000

28500

29000

29500


8491.00

8181.50

7800

8000

8200

8400

8600

8800

9000

DOMESTIC INDICES BSE Sensex

NSE Nifty

May 2015

VIX

14.49

17.23

10.0

15.0

20.0

25.0


VOLATILITY INDEX (VIX)

MONTHLY TRENDS

VIX is a key measure of market expectations of near term volatility. When the markets are highly volatile, the VIX tends to rise.

3.38%

3.65%


17776.1217840.52

17400

17700

18000

18300


GLOBAL INDICESDow Jones

4,900.88 4,941.42

4700

4800

4900

5000

5100

5200


NASDAQ

62.28

63.52

61.0

61.5

62.0

62.5

63.0

63.5

64.0


US

D /

INR

EXCHANGE RATES USD-INR

MONTHLY TRENDS

0.36%

0.83%

1.99%


66.83

71.28

65.0

67.0

69.0

71.0

73.0

€/

INR

1,183.10 1,183.85

1100

1175

1250


$ pe

r O

unce

16.62

16.12

15.0

17.0

19.0


$ pe

r O

unce

POUND-INR

EURO-INR

BULLION GOLD

(The prices are in $ per ounce).

SILVER

(The prices are in $ per ounce). (Source for all indicators: Bloomberg, Reuters)

MONTHLY TRENDS

92.28

97.50

86.0

88.0

90.0

92.0

94.0

96.0

98.0

100.0


£/

INR

5.66%

6.66%


ICICIdirect Centre for Financial Learning (ICFL) imparts quality education on financial markets to beginners and amateurs, student, housewives, working professionals and self employed. ICFL's broad objective is to make participant feel confident to start investing in stock market.

Here is the list of our programmes scheduled for the month of May, 2015.

Schedule for Beginners' programme on Futures and Options (F&O) TradingSr.No

City Dates For More Information & Registration call:

Premium Education Programmes Schedule

Schedule for Fast-Track Programme on Futures & Options (F&O)Sr.No City Dates For More Information & Registration call:

Sr.No City Dates For More Information & Registration call:

Schedule for Market Master Programme

Sr.No


Schedule for Technical Analysis Programme

1 Kolkata 09 and 10 MAY, 2015 Sumit Sarkar on 8017516187

2 Mumbai 16 and 17 MAY, 2015 Vidhu on 9619716146

3 Thane 16 and 17 MAY, 2015 Vidhu on 9619716146

4 New Delhi 16 and 17 MAY, 2015 Vishal on 07838290143, Harneet on 09582158693

5 Hyderabad 23 and 24 MAY, 2015 Ruchi on 8297362323


7 Navi Mumbai 23 and 24 MAY, 2015 Manish Jamb on 8451057943

8 Jaipur 15 and 16 MAY, 2015 Vishal on 07838290143

9 Bangalore 09 and 10 MAY, 2015 Subrata on 9620001478

10 Ahmedabad 16 and 17 MAY, 2015 Yogesh on 8238053563






Sr.No


Schedule for Foundation Programme on Stock Investing


17 Thane 09 and 10 MAY, 2015 Vidhu on 9619716146


19 Navi Mumbai 09 and 10 MAY, 2015 Manish Jamb on 8451057943


Contact us

Email:

Send us an email at [email protected] mention the name, date and venue of the programme you have

attended or wish to attend, for faster resolution of your queries.

SMS:

SMS EDU to 5676766 for more details

Sr.No


Schedule for Advanced Derivatives Trading Strategies Programme


Schedule for Fast-track Programme on Stock Investing


Schedule for Fast-track Programme on Technical Analysis




23 Mysore 16 and 17 MAY, 2015 Subrata on 9620001478







30 Surat 03 MAY, 2015 Yogesh on 8238053563

31 Dhanbad 10 MAY, 2015 Sumit Sarkar on 8017516187

32 Kolhapur 16 MAY, 2015 Kusmakar on 7875442311

33 Trichy 09 MAY, 2015 Subrata on 9620001478

held in January 2015.

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

Documents

ICICI May 15 Issuecontent.icicidirect.com/MoneyManagerMagazine/May_2015.pdf · crude oil prices are here to stay and it will help our economy to grow. Further, since the equity markets