ICICI Octo 16 Issuecontent.icicidirect.com/MoneyManagerMagazine/October... · 2016-11-30 · summer holidays; short-term goals are all about growing money in shorter period (less

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Anup BagchiMD & CEO

ICICI Securities Ltd.

An important part of any investor's life is to see to his life-stage goals and achieve them with proper financial planning. It's a long journey from setting goals to attaining them and the choices investor makes on the path ultimately decide outcome of the journey. Once these milestones are categorized into short-term and long-term goals managing finance f o r t h e m b e c o m e s m o r e convenient.

Be it the amount for down payment of the dream house that you intend to buy in next couple of years, accumulating capital for a business start-up or a vacation fund for next summer holidays; short-term goals are all about growing money in shorter period (less than three years) with minimal risk and penalty.

However, if the goal to purchase a house is not on top of the list or a start-up is going to take longer than five years to get established investor's horizon is naturally extended. Long-term goals like retirement planning, purchase of property, child's future etc. aims at building wealth over the period of time. Thus they require more elaborate portfolio that can produce generous returns in long run.

An investor can either opt for short-term or long-term arrangement depending upon his financial requirement. Simply put, the amount that is required to fulfill urgent or nearer future needs is invested in short-term vehicles and the amount that can remain untouched for quite a few years, say five to ten, is moved in long-term investment vehicles.

A short-term investment option fits best when talking about capital protection, rainy day fund, and immediate cash usage etc. Whereas long-term investment is dedicated to larger and farther goals.

1ICICIdirect Money Manager October 2016

Eventually it all depends upon the objective of an investment and nature of the investor.

A short-term strategy implies easy accessibility of cash where a person can liquidate his investment almost instantly and meet current economic needs. This is a convenient option when objective of an investment is to safeguard one's money. These plans provide the much needed flexibility which gives control over funds without extended lock-in periods.

Moreover, short-term investment tools like liquid funds and debt mutual funds manage to produce substantial returns even over the period of few months by investing into debt market instruments.

On the other hand, right from fixed deposits to equity mutual funds, almost all the investment avenues submit stronger returns over longer tenure. Equity, especially, has shown multi-fold results over the past two decades. And despite of domestic andglobal market fluctuations, it continues to give inflation-adjusted returns.

While investing in equity via direct stocks or even mutual fund, it is recommended to stay invested for at least full market cycle. This helps to average out the returns and make best of 'buy low sell high' investing strategy. The power of returns is the most appreciative when invested for prolonged period.

A lot of conservative investors may find bank fixed deposits the most sensible investment tool, whereas an aggressive risk taker might see stock investments as the only potential vehicle to produce high returns. All in all, only the right proportion of both short-term and long-term investment instruments is what makes the portfolio an ideal picture.

Although short-term investment tools are prominent to resolve unforeseen crisis in one's personal finance, long-term vehicles are equally significant and have crucial role to play in financial journey. The two terms differ in their objectives, tax implications, risks and returns relations but it is important to find the right balance so that their blend gives perfect balance to an individual's personal finance cart.

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 Neighborhood Financial Superstore and talk to us.

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As important it is to set goals in one's life, it is equally necessary to plan financial strategies according to these goals. A short-term goal demands an investment of shorter period which can yield results within few months or years. Whereas a distant goal can be achieved by a long-term investment planning. Identifying each one of them and including the right combination of both in your portfolio is what makes personal wealth management a successful task.

Apart from goal, several other factors are influential in deciding the term of an investment. Some investment plans have proportional risk-returns relation while some are designed to give stable returns while maintaining low risk profile. Important thing to remember is that it's not just the number of years an investor has to look upon. The elements that contribute to the average rate of returns, external factors affecting investment performance, tax concessions and rules applicable to the tool and several such things have to be taken into consideration before choosing the path.

This month's issue is a discussion platform on the very same dilemma of short-term & long term investments. The main feature is built up around various factors and characteristics affixed to both these investment horizons. In talk with Mr Venugopal Manghat, Head Equities, L&T Investment Management, this month's Money Manager tries to provide some expert insights into personal finance management, taking into consideration current market scenario.

Taking the opportunity of festival time we have included a special feature to highlight the ways in which one can celebrate his/her personal finance. It's an attempt to enlighten our readers about productive ways to channel the festival bonus and help manage personal finance more efficiently.

I would also like to draw your attention to our updated Mutual Fund Top Picks, which are revised by the team of our efficient market research team. So read ahead and s tay updated. Do share your feedback a t [email protected] and let us know your thoughts and opinions on our edition.

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

ICICIdirect Money Manager October 2016

Editor & Publisher : Abhishake Mathur, CFA

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

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

Coordinating Editor : Namrata Lonkar


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

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

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

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

Stock ideas: Infosys and Jubilant..................................................5

Flavour of the MonthA clear distinction between short-term and long-term

investment and an in-depth understanding of these

phenomena can make the investment decision simpler and

more convenient.........................................................................14

Special featureOptimize your festival bonus by adopting smart investment and personal finance management choices……...................... 31

Ask Our PlannerThe journey of financial management takes a lot of thinking and

planning. Our expert here answers the queries related to

personal wealth management................................................... 33

Mutual Fund Analysis..................................................................... 36

Equity Model Portfolio.....................................................................50

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

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

Tête-à-TêteMr. Venugopal Manghat, Head Equities, L&T Investment

Management shares his proficient views on investment choices

to be made in current economic environment..........................26

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Indirect Tax collections up

The figures for indirect tax collections (Central Excise, Service Tax and Customs) up to September 2016 in the current Financial Year 2016-17 show that net revenue collections are at Rs 4.08 lakh crore which is 25.9% more than the net collections for the corresponding period last year i.e. 2015-16. Till September 2016, 52.5% of the Budget Estimates of indirect taxes for Financial Year 2016-17 has been achieved.

Courtesy: TOI

Analysts tracking the IT sector expect slow growth for the software services industry, despite the July-September quarter being the strongest quarter traditionally for Indian IT services companies. According to ICICI Securities the top-five IT services companies are expected to witness their slowest sequential Q2 growth in the past decade.

The gloomy forecast is attributed to the slowdown in healthcare and banking and financial services (BFS) segments, project delays with clients, Britain's impending exit from the European Union, wage increases and cuts in discretionary spending by customers.

The Hindu Courtesy:

IT majors to witness slow growth in Q2

IPOs in 2016 set to hit six-year high

The year 2016 is turning out to be a blockbuster for IPOs with collections set to hit the highest level in six years. Until now, 50 companies have already raised $2.93 billion while another 22 are set to issue shares in the next two months, taking the estimated issuances during the year to $5.8 billion, more than double the $2.18 billion raised by 71 companies last year.

Some of the big ticket listing expected in FY16 include Vodafone, SBI Life Insurance, IL&FS, National Stock Exchange, Bombay Stock Exchange, PNB Housing and GoAirlines. Vodafone which is expected to raise $3 billion could become India's biggest IPO.

Courtesy: TOI


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STOCK IDEAS


Infosys – Aspiration to achieve US$ 20 billion in revenue by 2020…

Company Background

Renew and New Strategy…

Infosys is a global leader in

technology services and

consulting. Enable clients in

more than 50 countries to

create and execute strategies

for their digital transformation.

F r o m e n g i n e e r i n g t o

application development,

knowledge management and

b u s i n e s s p r o c e s s

management, Infosys help its

clients to find the right

problems to solve, and to solve

these effectively. Infosys

employs around 199,000+

innovators, across the globe, is

d i f f e r e n t i a t e d b y t h e

imagination, knowledge and

experience, across industries

and technologies that bring to

every project it undertakes.

Under the new CEO, Infosys is

u n d e r g o i n g s t r a t e g i c

transformation and is broadly

emphasising on two themes:

1. renewing the core business,

and 2. innovating into new

business. Infosys has set an

ambitious goal of achieving

$20 billion in revenue by 2020

with operating margins of 30%

and achieving revenue per

employee at $ 80,000. We

believe this transformation is

demanding and aspiration is

s l i g h t l y s t r e t c h e d , b u t

management s t i l l f ee l s

confident of strong execution.

Management emphasised

massive embrace of design

thinking – new – in renewing

existing offerings such as

consulting services, product

engineering and finacle and

committ ing considerable

investments in this area.

Currently, ~8300 entry level

and 160+ senior employees

have been trained on design

thinking while more could

follow. Interestingly, 70% of

the US based consultants have

been trained on design

Embracing new technologies…


STOCK IDEAS

thinking while 1000 people

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

AI/machine learning with 500

being added every quarter. The

company is hiring aggressively

in new technologies with

headcount up 59% in data

analytics, 31% in infrastructure

services, 22% in security, 13%

in cloud, and 4% in digital in

the past few quarters.

“Renew and new strategy” to

drive growth is seeing some

signs as visible in top accounts

revenue growth with average

revenue per 10 accounts grew

8% YoY to $214 million in Fy16

and large deal wins grew by

45% to $ 2.8 billion. In order to

expand the bandwidth of the

business, recently Infosys has

also split its business into 12-

15 smaller business units each

with revenue of $500-700

million which could help

company in better market

p e n e t r a t i o n a n d c l i e n t

management. Attrition too saw

Strong operat ional metr ics

visible…

moderation in past couple of

years which now stood at

15.7% in Q2FY17 vs 18.7% in

FY14. One of the traditional

lever utilisation too improved

sharply from 70.7% in FY13 to

82.5% by Q2FY17.

Infosys is trading at an

attractive valuation of 14.9x

FY18 EPS with near term

weakness is factored in as it is

trading at 10% discount to

average PE multiple of 16.2x

during FY11-16E. Also its

dividend yield of ~2.5% limits

the downside. We now

anticipate Infosys revenues to

grow at a CAGR of 10.6% with

average EBIT margin of 24.9%

over FY16-18E. Hence, we

m a i n t a i n o u r B U Y

recommendation on Infosys

with target of 1175.

Valuations compelling to BUY…

`


STOCK IDEAS

Stock Data

Key Financials

Valuations Summary

Key risks include:

Global macro environmentInfosys derives maximum revenue from US and Europe, so any macro volatility in respective economies could impact company's revenue growth.

Currency volatilityInfosys derives revenues in terms of currency from AUD (7.5% of revenue), GBP (6%), EURO (9.6%) etc, any adverse currency movement could impact revenue and margin profile.

Net Sales 53,319 62,441 68,931 76,387

EBITDA 14,901 17,079 18,698 20,956

Net Profit 2,369 2,394 9,421 2,374

EPS ( ) 53.9 59.0 62.3 69.1

(YoY Growth) FY15 FY16 FY17E FY18E

`

P/E 19.0 17.4 16.5 14.9

Target P/E 21.8 19.9 18.9 17.0

EV / EBITDA 13.6 11.7 10.4 9.0

P/BV 4.3 3.8 3.4 3.1

RoNW (%) 22.5 21.8 20.7 20.6

RoCE (%) 31.4 30.2 29.0 28.9

(x) FY15 FY16 FY17E FY18E

Market Capitalization 234,723.3

Total Debt (FY16) 0.0

Cash and Investments (FY16) 32,697.0

EV (FY16) 188,746.2

52 week H/L ( ) 1278 / 996

Equity capital 1,144.0

Face value 5

MF Holding (%) 6.6

FII Holding (%) 40.4

`

`


STOCK IDEAS

ANALYST CERTIFICATION We /I, Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:ICICI Securities Limited is a SEBI registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

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

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

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

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

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

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

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

It is confirmed that Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

It is confirmed that Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.


STOCK IDEAS

Jubilant Lifesciences – Waning debt concerns +FCF generation = rerating

Company Background

Incorporated in 1978, Jubilant

Life Sciences (JLS; formerly

Jubilant Organosys), is a mid

sized integrated chemicals

turned pharmaceuticals player.

It started as a full fledged

chemical company by entering

the vinyl acetate monomer

(VAM) business in 1983.

B r o a d l y, t h e c o m p a n y

operates through two business

segments- Pharmaceuticals

(46% of the turnover) and Life

Science Ingredients (54% of

t h e t u r n o v e r ) . T h e

Pharmaceuticals segment

consists of sub segments such

as 1) Generics- APIs and

formulations, 2) Specialty

Pharma- Radio Pharma,

Allergy Therapy products and

Contract manufacturing (CMO)

of Sterile injectables, 3) Drug

discovery and development

solutions. EBITDA margins in

Pharmaceuticals segment are

normally much higher due to

presence of formulations and

specialty pharma. The LSI

segment consists of sub

segments such as as 1)

Advanced intermediates and

Specialty Ingredients, 2)

Nutrition Products, 3) Life

Science Chemicals. This

segment caters to more kind of

rout ine customers wi th

committed requirements.

Because of the commodity

nature, the margins in this

segment are relatively low.

Pharmaceuticals business has

grown at a CAGR of 14.5%

between FY11-16 driven by the

Gener ics and Spec ia l ty

pharma. However pricing

pressure in the drug discovery

b u s i n e s s a n d s o m e

formulations in the US have

put consistent pressure on the

EBITDA margins of the Pharma

business. Add to this, the

expenses at the US based

Spoken facility to address the

USFDA warning letter and the

subsequent postponement of

shipment has deteriorated the

P h a r m a c e u t i c a l s b u s i n e s s

segment getting back to normal


STOCK IDEAS

financials further. However, off-

late the margin scenario is

getting back to normal on the

back of generic launches in the

US, launches in the Specialty

pharma space and successful

resolution of the two CMO

facilities. We expect Pharma to

grow at CAGR of 17.2%

between FY16-19E to | 4912

crore.

The Life Science Ingredients

(LSI) caters to more kind of

rout ine customers wi th

committed requirements.

Because of the commodity

nature, the margins in this

segment are around 15-16%.

The business has grown at a

CAGR of 7.7% between FY11-

16. Off-late the company has

adopted calibrated approach

thereby the focus will shift to

prof i table products and

defocus on less lucrative / loss

making sub-segments. We

expect LSI to de-grow at CAGR

of 2% between FY16-19E to |

2589 crore.

LSI segment mostly commoditised

but offers stable returns

Debt no more a fear factor

In its pursuit for building

capacities and create multiple

revenue heads the debt

situation had complicated over

the years. As most of the debt

had been US$ denominated,

the sharp | depreciation has

worsened the debt situation

further. After hitting the trough

in FY15, things have started to

change especially in Fy16

w h e r e i n t h e c o m p a n y

registered best ever EBITDA

margins in the last ten years.

W i t h i m p r o v e m e n t i n

operational performance, free

cash flow (FCF) situation has

improved markedly. While the

Net D/E ratio improved to 1.4x

from 1.8x in FY15, the

Debt/EBITDA has improved to

3.5x from 7.0x. As the capex

cycle moderates in medium

term, the company expects to

utilise maximum FCF for debt

repayment. We expect the

company's Net D/E ratio further

go down to 0.4x by FY19E from

1.4x in FY16 and Debt/EBITDA

ratio to 1.3x from 3.5x in Fy16.

Radiopharma segment (23% of

Margin accretive businesses on a

faster track


STOCK IDEAS

Pharma business) grew 44%

between FY12-16 to | 713

crore. Jubilant is the only listed

Indian company which has

strong exposure in the niche

Radiopharma segment. We

believe, recently USFDA 505

(b)(2) approval for Ruby-fill

would be a key milestone for

the company. Apart from the

US, the company has received

Ruby-fill approval in Germany,

Switzerland and Canada. We

expect this segment to grow at

27% CAGR over FY16-19E to |

1 4 4 8 c r o r e . O v e r a l l

Pharmaceutical business to

grow at 21% to | 2873 crore on

the back of strong growth in

R a d i o p h a r m a b u s i n e s s

followed by CMO and generic

sub-segments. We expect

Radio pharma's contribution to

Pharma and total revenues to

improve from 23% and 12% in

FY16 to 29% and 19% by FY19.

Similarly the EBITDA margins

are likely to improve to 26.3%

by FY19 from 22.0% Fy16

given the tilt of product mix

towards margin accretive

businesses. With improved

visibility led by improvement in

product approvals and better

segment mix we expect

continuous improvement in

free cash flow generation. Our

target price is | 795 base on

12x FY19E EPS of | 66.2.

Valuation is still substantial

discount to peers pharma

companies due to blended

business model (47% of the

revenues from commoditised

LSI segment) besides volatile

past.

Key Financials

( Crore) FY16 Fy17 FY18E FY19E ` E

Revenues 5,802.3 6,000.9 6,641.9 7,374.8

EBITDA 1,277.8 1,544.0 1,746.2 1,941.3

Net Profit 431.5 699.4 871.9 1,054.2

Adjusted EPS ( ) 26.0 43.9 54.7 66.2`


STOCK IDEAS

Valuations Summary

Stock Data

(` crore)

Key risks include:

Debt still a key concern

Increased USFDA scrutiny

The company has a gross debt of | 4534 crore as on June 2016. Of this, rupee debt is | 2047 crore while foreign currency debt is | 2487 crore. The debt-equity ratio for Fy16 stood at 1.6x.

The company 's US based facilitates Montreal facility and Spokane facility have received warning letters from USFDA in FY13 which were cleared by USFDA in FY14 and Fy15 respectively. The fallout from the

impending patent cliff is the increased intensity of the USFDA scrutiny. As increasing number of drugs were coming out of patent protect ion, the inspect ion intensity for hitherto unknown players was bound to increase to comply with required quality standards. Even the pattern of inspection has changed with more surprises and greater focus on data integrity besides quality. Even established players had to contend with the USFDA embargo besides scores of other Indian companies.

P/E 23.7 14.6 11.7 9.7

Target P/E 29.4 18.1 14.5 12.0

EV / EBITDA (x) 11.3 8.9 7.4 6.3

Price to book (x) 3.5 2.9 2.3 1.9

RoNW (%) 14.2 19.7 20.0 19.6

RoCE (%) 12.0 15.9 17.6 19.0

(x) FY16 Fy17 FY18E FY19E E

Market Capitalization 10244

Total Debt (FY16) 3752

Cash (FY16) 8.4

EV 4273

52 week H/L (`) 676 / 273

Equity capital ( ` Crore) 16

Face value ` 1

MF Holding (%) 0.0

FiII Holding (%) 26.7


STOCK IDEAS

ANALYST CERTIFICATION We /I, Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:ICICI Securities Limited is a SEBI registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

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

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

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

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

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

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

It is confirmed that Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

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Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

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We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

14

FLAVOUR OF THE MONTH

Which investment path should you choose? Short-term or long-term?

Every investor, on the path of his investment journey, comes across the tug o' war between short-term and long-term investment at least once. They differ from each other in more than one aspect. There is a difference between their risk-return ratio, tax implications & impact of inflation on each of them. An investor, in order to walk on his investment path smoothly, must figure out which horizon is suitable for him first. To know that and more about these two horizons keep reading…..


Managing personal finance eff iciently means taking immediate as well as distant needs into consideration. Since each financial need seeks different f inancial planning the investment choices for them too differs. And time, out of all the aspects, plays a key role in making these choices. Thus a clear distinction between short-term and long-term investment and an in-depth understanding of these phenomena can make the investment decision simpler and more convenient.

Short-term investment:Any investment which is held for less than three years plus allows easy cash accessibility can be called as short-term investment. Meaning, an equity stock held for 6 months and a fixed deposit with the tenure of 3 years both are short-term investments as long as they can be liquidated

immediately.

Long-term investment:The investment which is started with the purpose of substantial returns over long period of time (more than 3 years) is categorized as long-term investment. These type of investments may or may not be easily liquidated and are designed to provide additional income over primary sources.

Objective of investmentFor any investor, irrespective of his financial experience and investing-type, there are three main objectives for starting an investment. Growth, safety and returns.

By definition, investment means gaining more than invested amount so an investor looks forward to pick a tool that can generate wealth over the period of time. But while investing the money, his concern of its safety remains of

15



high significance thereby safety being second important objective. And last but not the least is the rate of return. Growth alone is not enough to meet up to an investor's expectations. Speed at which the growth is occurring plays equally crucial role in many investors' eyes.

Risk factorRisk associated with short-term investment is that of purchasing power risk, also known as inflation risk. This means returns of particular inves tment wi l l not be sufficient in future if inflation weakens its worth. The impact of inflation slows down the growth of money hence purchasing power of that amount is adversely affected. Suppose you have invested Rs. 10,000 in a fund with 10% rate of returns. Now, if the inflation rate goes 3%, with every Rs. 100 p roduced on your investment its value becomes that of Rs. 97 and Rs. 94 the next year.

Since the short-term investor is more worried about return of principal amount than returns

on principal amount, the value of his investment is not as worth as it would have been before inflation breached in the economy.

The risk of inflation affects the long-term schemes just as much but the extended duration of regular investment averages out the returns and offer inflation-beating results. L o n g - t e r m i n v e s t m e n t , however, are highly influential during volatile market times as compared to short-term plans.

Short-term investment options:Fixed Deposit SchemesT h e t r i e d - a n d - t r u s t e d traditional method of keeping money in a Fixed Deposit (FD) scheme is one of the most credible short-term investment tool. FDs are the vehicles where one-time amount is invested for a fixed period of time. The amount to be paid on the maturity of scheme is fixed and known to the investor. The rate of interest differs from bank to bank depending upon investor's choice of tenure and amount of investment.

Most FDs range between 7 days to 10 years and their

16



interest rate usually ranges from 4% to 9%. Although withdrawals before maturity date are not allowed, one can do so by losing up some share of interest to the bank. Investing in fixed deposit for short-term provides easy access to cash to attain immediate financial goals or cover up for emergencies.

Fixed deposit schemes also have an added advantage of overdraft facility wherein an individual can take personal loan against his deposited amount at relatively lower interest rates and make do with his immediate financial needs. Each bank provides certain percentage of pr inc ipa l amount and accrued interest for the account holder to borrow.

Fixed Maturity Plans (FMPs)This is a close-ended debt fund. The amount is deposited one time for a fixed period of one month or extending up to 5 years. These are popular among debt market followers for two main reasons - capital protection and immunity to interest rate volatility.

The capital invested in FMPs mostly goes into corporate deposits (CD), money market instruments, commercial papers and similar debt-concentrated plans. Equity sector is purposely kept out of inclusion thus safeguards funds from radical market fluctuations.

The fund manager of FMP directs investor's money into debt instruments that are set to mature at the same time of FMP's maturity. The fund cannot be liquidated before the maturity and trading through stock is the only route to exit it. The indexation benefit is an added advantage for the FMP holder.

Liquid Funds This type of investment tool concentrates on investing into debt and money market instruments like certificate of deposit, commercial papers, government bonds, treasury b i l l s e tc . The s tandard investment period for any liquid fund is up to 91 days.

Since access to cash is one of the primary concerns for most of the short-term investors, liquid funds may seem most

17



suitable in this respect because there is no lock-in period and one can withdraw any time before the residual maturity of the fund. Another remarkable feature of liquid funds is that they have no or very low entry and exit load which makes the investment decision even more convenient for the investor.

As the focus of the liquid fund is investing in fixed income securities the risk of interest rate volatility affecting returns is relatively low. In fact, returns offered by liquid funds are considered one of the bests during inflation time. This is because, central bank keeps the interest rates high during the inflation. In order to manage national financial stability, liquidity of assets is also squeezed by the RBI which turns out favorable for liquid funds and thereby giving healthy outcomes at the end of the tenure.

Ultra short-term fundsUltra short-term funds are the mutual fund investments that focus upon fixed income securities. The investment period usually ranges between

three to nine months. These are immune to interest rate changes but unlike liquid funds, returns of ultra short-t e r m f u n d s a r e o f t e n significantly affected by market fluctuations.

Short-term debt funds Debt mutual funds which primarily pools money into debt securities with maturity up to 3 years. The average maturity of short-term debt fund is larger than that of liquid and ultra short-term funds. This option is best suitable for t h e i n v e s t o r s s e e k i n g reasonable returns while avo id ing equ i ty market volatility altogether.

Taking in account recent repo rate cuts, accrual funds (debt mutual funds consisting high yielding bonds and securities) can give more than 8 -8.5 % annualized returns. Investors with low risk appetite and short-term horizon orientation make a go for short-term debt funds.

Recurring deposit (RD)It is a term deposit started with the purpose of saving money at frequent intervals to earn

18



modest interest at the time of maturity. The rate of return, like fixed deposit, is pre-decided and known to the investor at the beginning of investment. The only difference between an FD and recurring deposit is that RD allows flexibility to put money in small amounts on timely basis rather than investing accumulated funds at one go.

Banks levy 1% - 2% penalty over interest rate upon pre-mature liquidation of the RD. The minimum deposit term to open a recurring account is 6 months and can go up to 10 years. Pledging the balance amount in RD as collateral or claiming loan over the invested amount is another added advantage of this short-term investment tool.

Long-term investment options:Long-term bank FDBank FDs can be an ideal investment tool when one is looking for 'guaranteed returns' over the period of time while ensuring protection of capital as well. This traditional tried-a n d - t r u s t e d m e t h o d o f growing money has been popular among salaried class

especially for its secured and stable returns.

B a n k s p r o v i d e d e p o s i t insurance to an FD above Rs.1, 00,000, making this tool all the more credible for moderate risk takers. Moreover, the interest rate of a long-term FD is higher than short-term fixed deposit.

Corporate FDsLeading corporate firms also provide a similar option- corporate f ixed deposit/ company deposit. Interest rate is decided by the company and does not fluctuate during the t e n u r e . H e r e , p a r t i a l withdrawals are restricted and premature closure can only be availed after paying penalty charges. Their interest rate is usually higher than the bank FDs but security of the fund moves parallel with the performance status of the company.

Public Provident Fund (PPF)Another popular long-term investment tool that has been popular amongst majority of Indians for its reliable returns and consistent affirmative p e r f o r m a n c e i s p u b l i c

19



provident fund. PPF is a g o v e r n m e n t b a c k e d investment vehicle primarily promoting savings habit and helps to generate wealth by offering reasonable interest rate.

The standard tenure for any PPF account is 15 years. Maximum extension of 5 years is allowed after the fifteen years timeline. Although partial premature withdrawals and overdraft facility can be availed during the PPF tenure, complete amount can be withdrawn only at the time of m a t u r i t y. T h e e x i s t i n g overnment directive suggests annual deposit of at least Rs. 500 in an individual's PPF account.

Post Office Savings Scheme (POSS)This is a fine investment option for small amount savings with long-term horizon. Post offices across India provide various plans like Post Office Time Deposit, Monthly Income Scheme, National Savings Certificate, National Savings Scheme, and Kisan Vikas Patra. National Savings Certificate

(NSC) is considered relatively a better option due to its guaranteed substantial returns over the horizon of ten years.

Unit Linked Insurance Plans (ULIP) ULIP is an investment avenue that aims at the target of wealth creation while providing life cover to the investor. It's an insurance cum mutual fund product where the amount paid in the form of premium is directed towards capital market. Thus, unlike most insurance plans, ULIPs give market-linked returns and help to build corpus along with life protection cover.

Investor can avail both partial and complete withdrawal before the plan matures. If market volatility gives you second thoughts about equity funds, there's an option to switch to the debt instruments and vice versa. This flexibility bridges the gap between risk tolerance and expectant returns. The investor is free to select any type of fund (equity, debt or mixed) based on his/her goals and experience. The investor also has the

20



liberty to choose method of premium payment i.e. lump sum or regular intervals.

Equity/stock History shows that equity has done exceptionally well over the long period time in Indian as well as international m a r k e t s . D i r e c t s t o c k investment has gradually outperformed returns of other asset classes in the last decade. Although considered high-risk investment vehicle, it has given average annualized returns of around 16% against the benchmark index (Nifty) over the period of last fifteen years which make them an essential part of an investor's portfolio when thinking about a long-term horizon.

Long-term mutual fundFor those of us who want to invest in stock market but are hesitant due to the risk stocks bring along, mutual fund investment is an apt vehicle that pools money in equity while balancing risk and returns. Mutual funds invest into equity, debt, money market instrument or a combination of those. This diversification is essentially

responsible for minimizing the market associated risk.

Professional managers, after detailed study and research, create a portfolio that can best suit an investor's needs. Their experience and knowledge about financial market only adds up to the credibility of fund. A team of research experts constantly works to analyze performance and prospects of the assets and securities available in the market.

There are wide range of mutual fund products available today that can fulfill different goals of investors wi th di f ferent investment profile. Selecting a right mutual fund is a decision based on various factors like purpose of the investment, tenure, risk tolerance of the investor etc. Once all these criteria are gauged, selection of mutual fund becomes a lot m o r e c o n v e n i e n t a n d reasonable.

Equity mutual funds: Also known as growth funds, these funds invest in stock exchange listed companies' shares. They are started mainly with the

21



p u r p o s e o f c a p i t a l appreciation. Investor's money is directed towards companies that are shor t l i s ted by experienced fund managers and the returns are paid off in proportion with performance of the firms enlisted under that mutual fund.

Debt funds: These invest in fixed income securities like government or corporate b o n d s , t r e a s u r y b i l l s , ce r t i f i ca te o f depos i t s , debentures etc. They provide relatively steadier growth and regular income to the investor. Investing in such funds for the long-term is a way to build wealth at a steady pace without having to deal with volatile equity market.

Balanced funds: Balanced funds invest in both equity and debt funds. These are ideal for investors with moderate risk appetite. Equity and debt together put forth stable yet substantial growth.

G i l t f u n d s : T h e s e a r e government backed funds that invest only in State and Central government's securities. Since the instruments chosen by gilt

fund managers have sovereign guarantee their returns are less likely to get affected by market fluctuations.

Sector funds: As the name explains, these plans invest in one particular sector of the m a r k e t . F o r e x a m p l e , technology sector fund invests in big IT firms listed on stock exchange. Real estate funds, utility funds, precious metal funds, healthcare funds, f inanc ia l funds, natura l resources funds are some of the sector funds commonly known to investors.

Index funds: An index fund tries to replicate security holdings as per selected index proportion. These funds track the performance of a particular index and returns/dividends are reflected by this index outcome.

Tax-saving funds: These type of funds have special tax concessions under Income Tax Act of India. For e.g.: An investor holding ELSS ( Equity Linked Savings Scheme) funds avails tax exemption under section 80C of Income Tax Act of India.

22



Tax implications Tax is an extremely essential component of our personal f inance and cannot be overlooked while making any investment decision. Returns on short-term and long-term investments have different tax implications and are applicable to each individual separately depending upon which tax bracket he falls in.

The interest earned on fixed depos i t s and recur r ing deposit, both short-term and long-term, is considered as taxable income. The bank

deducts 10% TDS (Tax Deducted at Source) from every deposit holder (who is also a tax payer) if the accrued interest amount exceeds Rs. 10,000 in a financial year.

An individual investing in Fixed Maturity Plan avails indexation benefit. But since these are debt-oriented investments the capital gains earned through FMPs are taxable. Indexation only helps to lower the tax burden and not eliminate it.

Returns on liquid funds, short term debt funds and ultra short- term funds receive same

Source: jaagoinvestor

23



tax treatment as all of these are held for not more than 36 m o n t h s a n d t h e r e b y producing short-term capital gains which taxable under Income Tax Act of India.

The government backed long term investment vehicles like Public Provident Fund, Post Off ice Savings Scheme, National Pension Scheme and

ULIPs are widely popular for their tax-efficient returns. Interest earned on PPF is tax free. NPS holder can avail tax deduction up to Rs. 50,000 under section 80 CCD 1 (B) of Income Tax Act. This benefit is exclusive of the existing limit of Rs. 1.5 lakhs tax deduction (u/s 80CCE)

Returns earned on mutual fund investment that is held for less than 36 months are considered short- term capital gains and for the investment held for more than 36 months (except equity) they become long- term capital gains.

An equity mutual fund or a balanced fund with at least 65

Source: Scripbox

per cent equity share, if held for more than 12 months it's taken as a long-term capital asset and its returns long-term capital gains. These returns are absolutely tax-free. If you liquidate equity inves tment be fore 12 months, 15% income tax is levied upon the respective returns.

24



For non-equity mutual funds, short-term capital gains are taxed as per the investor's tax bracket and long-term capital

gains are charged at base rate of 20% income tax, with indexation benefit.

Gains

Long-Term

Gains Gains

Debt

Funds

At tax slab

rates of the

individual

At 20% with

Indexation At tax slab

rates of the

individual

10% without indexation

or 20% with indexation

whichever is lower

Equity

Funds

15% Nil

15%

Nil

Short-Term Short-Term Long-Term Gains

Source: Cleartax

Goal-oriented tenureTenure of the investment is a

significant factor of the

investment, and the one that is

subjective. An investment

instrument may not serve the

same purpose for two different

investors. The key to right

investment period is in

analyzing the purpose, the goal

of an investment.

Real estate (long-term)Purchasing the dream house or

b u y i n g a p r o p e r t y f o r

investment purpose, both

goals require strong corpus to

get over the down-payment

phase. Making f inancial

arrangement through long-

term investment avenues is the

ideal solution to attain this

goal. Equity mutual funds that

offer considerable returns over

the period of time helps in

building substantial amount by

the time you are ready to apply

for home loan.

Fund protection (Short-term

and long-term)Security of money is the

topmost concern of any

individual and it can be

attained by both short-term

and long-term avenues.

Investments in FDs, PPFs, NPS

and all other government

supported or debt-oriented

vehicles are epitome of

25



secured investment channels.

A l t h o u g h e q u i t y - b a s e d

instruments are exposed to

m a r k e t r i s k s p r o p e r

diversification and market

research can lead to a wise

inves tment cho ice tha t

balances security and returns.

Rainy day fund (short-term)Emergencies and financial

crisis do not come knocking on

the door. A resourceful

investor is the one who is

considerate of all times and

look after the emergency funds

even during financially wealthy

period. Prepare your rainy day

fund by investing small

amounts on regular basis in

short-term investment tools

that are easy to liquidate and

without penalty or exi t

charges.

Retirement planning (long-

term)Ideally, a person should start

saving and investing for his

retirement right from his early

earning days. It takes number

of years to build wealth that

can suffice to maintain same

l i festyle; even more to

increase it's worth. Thus

investing in a vehicle that

y ie lds inf lat ion-adjusted

returns for a longer period of

time is the wisest solution to

retirement planning.

Child's future (long-term and

short-term)Financial goals like payment of

school fees and small family

vacation are short-term goals

w h i c h c a n b e f u l f i l l e d

conveniently by opting for low-

r i s k , m o d e r a t e r e t u r n s

investment options. Whereas

bigger goals like higher or

abroad studies, marriage need

proper planning and economic

execution. Thus the portfolio

should include investments

that favor capital appreciation

over the period of time.

Depending upon the goal and

object ive per iod of the

investment may differ from

person to person. The key is in

deciding the right term for the

s e l e c t e d g o a l . A w e l l -

catalogued portfolio that has

the perfect balance of risk and

return and the one that suits

investor's needs and available

resources is the ultimate

solution to healthy personal

finance.

26

Tête-à-tête

Indian economy is in the midst of a gradual recovery

We are approaching the earnings season with the expectations of a modest pickup in aggregate earnings. We believe the earnings outlook is improving every quarter and this quarter will be better than the previous one, says Venugopal Manghat, Head Equities, L&T Investment Management, in an interview with ICICI Direct Money Manager. Markets have recovered strongly post the sharp correction seen early this year, he adds. Excerpts:

Venugopal Manghat,

Head Equities,

L&T Investment Management


Q.

A.

Can you tell our readers how you approach investing and your investment philosophy?

We follow a bottom up approach to stock selection. In g e n e r a l , g r o w t h a t a reasonable price is what we look for. The Indian market has 5,000 companies listed but not all qualify to become a part of the investment universe. We follow our proprietary process

called GEM - Idea Generation (G), Evaluation of Companies (E) and Portfolio Manufacturing and Monitoring (M). Herein we actively look for new ideas which could come from sources such as investment team meetings, external research, meetings with company management / competitors / suppliers, industry experts, regulators, etc. These ideas are then filtered using various filters such as liquidity, market capitalisation, ownership, etc t o s h o r t l i s t i n v e s t a b l e c o m p a n i e s w h i c h a r e thoroughly evaluated by the analyst , based on their profitability and attractiveness of business, competitive positioning, balance sheet strength, management track record, corporate governance and valuations. The fund m anager has c o m p l e te responsibility for portfolio construction and stocks may

27

Tête-à-tête


be bought in d i f fe ren t portfolios depending on the type of stock, objectives of the scheme managed, liquidity etc. The stocks bought in the p o r t f o l i o a r e r e v i e w e d periodical ly and as the portfolio manager, one may decide to exit a stock on achieving the price target or for o ther reasons such as weakening business prospects o r i f t h e r e a r e b e t t e r investment opportunities elsewhere. The portfolios are monitored continuously to ensure that they are positioned to meet their investment objectives.

What are some of the important factors investors should keep in mind before investing in equity mutual funds?

A successful long term portfolio is built with intent to create wealth and not take small profits. Accordingly, an investor should assess his risk profile, his goals and the various time periods that he needs the corpus for. As such, choosing a right investment plan is very critical if you want a lump sum closer to your goals and at a higher rate over inflation. The first step is

Q.

A.

planning; how much is required for the goal which could be chi ld 's school education, higher studies, wedding etc. Start early - the sooner you start saving, the longer your investment has time to grow. Just like the early bird gets the worm, investing early and when you have time on your side, you could benefit f r o m t h e p o w e r o f compounding and the length of time until you need the money either for your child's education or marriage. A key tool which allows you to invest regularly, smoothen out market volatility and benefit from power of compounding is S y s t e m a t i c m o n t h l y investments which could help in building up a sizeable corpus over the years.

What are your expectations from the H1 FY17 results?

We are approaching the earnings season with the expectations of a modest pickup in aggregate earnings.

We believe the earnings outlook is improving every quarter and this quarter will be better than the previous one. Sectors such as autos, cement, metals, consumer durables etc

Q.

A.

28

Tête-à-tête


are expected to perform relatively better. Revenue growth could continue to improve on a quarter on q u a r t e r b a s i s . T h e improvement in operating profit margins seen over the last few quarters is expected to sustain and this will be further followed up by lower financing costs. Overall, we could expect a modest growth in earnings in the quarter and the second half of the year to be much better.

From here on, which equity segment (large cap, midcap or small cap) do you expect to perform well? How should investors view investments in these segments?

As a fund house, we are market cap agnostic. We see each idea based on the potential that exists. In the last few months, small and mid caps have seen lot of inflows and many of these companies have shown reasonable growth and have moved from small to midcap and from midcap to large cap. In any market, across market caps and across various sectors, you will always find some stocks which are looking expensive and some that are cheap. Instead of being

Q.

A.

o b s e s s e d w i t h m a r k e t capitalization, investors would do well to focus more on assessing businesses on a stock specific basis and /or remain invested in funds which are good at doing that.

From an investor standpoint, two things matter, the right stocks and the ability to remain invested for a longer term. As I mentioned earlier, a number of mid / small cap stocks have gone up significantly and the mid / small cap indices are at a premium to large cap currently. Logically, therefore, these overvalued mid and small cap stocks can correct if growth expectations are not met. Having said that, liquidity driven rallies are unpredictable and hence the rally may continue for some more time before it fizzles out. In the longer term, mid and small cap stocks have done better than large caps if stock selection has been good.

What according to you are some of the key risk facing the Indian markets?

In the calendar year, both FII and domestic flows have kept t h e m a r k e t m o m e n t u m positive and we have seen

Q.

A.

29

Tête-à-tête


these flows across stocks whether large, mid or small cap. We have also been b e n e f i c i a r i e s o f l o w commodity prices. At this point, any change of trend in global equity markets and / or FII flows could be a risk to the markets. In the next two months, there are events in the global landscape that can potentially impact the risk appetite of investors and therefore fund flows, even if temporarily. Also from a valuation point, markets are not cheap. Earnings growth could still take time to come back into the system.

What are the sectors that investors should look at currently and which sectors are a no-no?

We are more positive on cyclical sectors as we believe that the Indian economy is in the midst of a gradual recovery. Within this space, we b e l i e v e c o n s u m e r discretionary could be the first to move given the monsoon, increase in salaries, etc. In the infrastructure basket, the sectors that are beneficiaries of government spending and increased government focus are likely to do well, which

Q.

A.

include construction, urban and rural infrastructure and companies in sectors like railways, defence etc. On the o t h e r h a n d , l o w b e t a , defensive sectors like FMCG, pharmaceuticals etc are seeing slowing growth and are at high valuations. Export oriented sectors are a lso under pressure due to a slowing global economy.

What is your short and long term view of the markets?

Markets have recovered strongly post the sharp correction seen early this year. Global markets have been supportive and have done well in this period. Improvement in commodity prices, more monetary st imulus from various central banks, a belief that the US Federal Reserve will not hike interest rates in this calendar year, have all contributed to a strong recovery in emerging markets, especially in the beaten down commodity producers. This scenario continues even as commodities have stabilised after a rally. But there are now higher expectation of the US economy having a rate hike t h i s y e a r, p r o b a b l y i n

Q.

A.

30

Tête-à-tête


December. The scenario around Brexit that will unfold over the next few months may a l s o r e s u l t i n g r o w t h expectations for the world economy being reduced and some increased currency volatility. Hence in the short term, one would advise caution.

The Indian market had more reasons to rally in the last few months compared to global markets given a reasonably good monsoon, the approval

of GST and the expectation of ththe 7 Pay commission dole

out. The macro economic scenario seems to be getting better, with the economy on a g radua l recovery pa th , inflation down meaningfully, interest rate reducing, deficits under control, etc. Earnings growth is also expected to pick up which should support markets going forward. Hence the medium to long term view on the market is positive.

CL03699This article (including views expressed herein) solely provides general information about the markets and comparisons made, if any, are only for illustration purposes. The information in this article should not be construed as providing investment advice and does not seek to address specific investment objectives, financial situations and particular needs of any specific person who may receive this information. The recipient of this article, therefore, should rely on his/her investigations and obtain professional advice (legal, tax and financial) before taking any investment decision, and should understand that statements made herein regarding future prospects may not be realised. Recipient should also understand that any reference to the securities/ sectors / indices/ schemes, etc. in the document is only for illustration purpose. Neither this document nor the units of L&T Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.

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

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

31

SPECIAL FEATURE


Celebrate your personal finance

As the time to celebrate festival comes near, the dilemma of using festive bonus grows even stronger. So which is the right thing to do with this windfall income- saving or spending? The answer lies in the right balance of both.

Since spending is an inevitable aspect of festivals fair share of bonus must be directed towards it. But there is a very thin line between spending and splurging. As long as the expense is made thoughtfully on only necessary things, the balance is maintained.

However, the lump sum received is an opportunity to improve your personal finance and keeping it aside for saving and investing purpose is the ultimate key to ideal balance. Saving the bonus amount in instruments that can optimize the returns will, in fact, increase your purchasing power in the future.

Best of bonusFestivals are the occasions to bring home prosperity and success. So, here are some choices listed for bonus-

recipients to make good use of this extra money. For those who have not, these still are promising financial options that can give prompt boost to your personal finance.

Prepay loanThe loan EMIs are major eaters of your monthly income and the interest rate that credit card companies and personal loan lenders charge disturbs one's cash flow considerably. So the first thing to do is to get rid of such loans.

If the bonus amount is not e n o u g h m a k e p a r t -prepayment and unload some of the burden. Prepaying the debt also strengthens your credit score. Besides, there's nothing more rejoicing than a debt-free festival.

Set an emergency fundMedical crisis, house repairs, car break down and number of other things can pop in this list. Having an emergency fund set a s i d e t o m e e t t h e s e unexpected problems is the smartest way to tackle financial crunches. There are multiple short-term as well as long-term

32

SPECIAL FEATURE


investment options where you can deposit funds on regular basis or even at a go that serves dual purpose of returns over depos i t and easy a c c e s s i b i l i t y w h e n e v e r needed.

Your advanced preparation saves the trouble of liquidating rigid assets at the last moment and paying bulky penalty over their premature withdrawals. Which makes setting an emergency fund more sensible and practical step towards personal finance celebration.

Start gold investmentGold has been the most celebrated investment in almost every Indian household especially during festivals and celebrations. But a lot of us are unaware that there are viable options, other than making jewelry, which maximizes the value of yellow metal by investing via alternate route.

One can invest in Gold Exchange Traded Fund (ETF), a mutual fund that allows systematic investment plan (SIP) mode to invest in gold. Sovereign Gold Bonds is an alternative for holding physical gold initiated by Government

of India. The interest rate they bear of 2.75% is paid semi annually to the bondholder. Gold Monetization Scheme, is a n o t h e r g o l d - b a s e d investment that offers tax benefit along with regular payouts to the investor.

Think of a tax-breakWe are in the middle of a financial year. These are suitable times to start thinking about income tax planning and invest in instruments that can avail you tax benefits by the time tax deadline hits the door. Insurance, PPFs, NSCs are some of the commonly known t a x - s a v i n g i n v e s t m e n t vehicles. Additionally, you can also start an Equity Linked Savings Scheme (ELSS) that comes up with a lock-in period of 3 years but offers pre-tax returns up to 14-16%.

Just remember, whatever financial decision you make it should s t rengthen your personal finance and lift it up a notch higher. Festivals, after all, are supposed to bring joy and welfare in our lives. So take this opportunity to enhance your personal wealth management and spark the festival zeal with it.

33

ASK OUR PLANNER


Personal finance choices to make in current economic scenario

Q.

A.

My mother has retired 2 years ago and received a lump sum Rs. 20 lacs at the time of retirement. She wishes to set up a fund for her loved ones. What are the potential options to invest or direct this money so she can pass on her wealth to her family and loved ones?

- Prince Kumar As you have mentioned that

this amount has to be entirely used for generating wealth and passing as an estate, we assume that your mother's regular expenses are taken c a r e o f t h r o u g h o t h e r resources. In such case, your mother can take more risk and look to invest this amount into equity mutual funds, assuming a term of around 20 years (till her expected lifetime).

However, instead of investing the entire amount as a lumpsum into equity mutual funds, she can invest the entire amount into 4 different debt mutual funds for Rs.5 lakh each and then start a Systematic Transfer Plan (STP) around Rs.20,000 p.m. from each fund to a different equity mutual

fund. This will ensure that the investment into 4 equity mutual funds are staggered over a period of next 2-3 years, thereby averaging the cost of investment.

Also, while writing her Will, your mother can specifically mention the names of these funds / folio no. and the details of the beneficiaries to whom she wishes to pass on the money invested into these funds.

I have a pension policy due to mature in 2018. I would like to know how can I purchase annuity from a different insurance company on maturity as the annuity of the company in which I hold my policy is very low for the option return of funds after death whereas the other company is providing more than that.

- Jeffry Fernandes Generally, you have to buy

an annuity from the same insurance company from which you have bought the policy. However, some of the policies issued by insurance companies provide you an

Q.

A.

34

ASK OUR PLANNER


open market option to choose the annuity provider at the time of vesting. (For example, some pension policies issued by ICICI Prudential in the past have offered this benefit). Through this option, you can choose a different company other than your existing insurer for buying an annuity. You can refer your policy document for details regarding the same and if such option has been provided, you c o n t a c t y o u r e x i s t i n g i n s u r a n c e c o m p a n y t o understand the process for the same.

Please note that once you decide on an annuity and start receiving the same, the annuity rate fixed at the beginning will remain constant for your entire lifetime and will not change. The annuity rates are generally fixed based on the prevailing interest rates in the market. If the interest rates are low in the m a r k e t a t t h e t i m e o f purchasing an annuity, it's prudent to wait and watch before finalizing on when to start your annuity, as some companies provide you the option to defer the time from

when you can start your annuity.

I am a 32 year old Indian banker. I have started saving for my retirement since I was 25. I have a PPF, NPS account and a fair amount invested in LIC policy. I have also scheduled small SIPs in diversified mutual funds for ten years. Will this all suffice for a tension-free retirement? If not, what else? Please share your views on the same.

- Reena Patel It's good to note that you

have started investing very early for your retirement. You have also invested into a mix of instruments. You can look to invest more into equity oriented investments, as your retirement is fairly long time away.

To understand whether the quantum of investments you are making is sufficient, you will have to make a financial plan for yourself through a financial planner, who can provide you a detailed plan. If you are fine with a rough figure, you can check out r e t i r e m e n t c a l c u l a t o r s available in the internet.

To give a rough idea -

Q.

A.

35

ASK OUR PLANNER


Assuming you are going to retire in the next 25 years, with an expected lifetime of 75 years, you will require a r e t i r e m e n t c o r p u s o f approximately Rs.3.90 crore to fund expenses of Rs.4 lakh p.a. ( i n today ' s va lue ) . Fo r accumulating this amount, you would have to invest around Rs.23,000 p.m. into equity m u t u a l f u n d s t i l l y o u r retirement, if you start afresh.

My monthly income is Rs.50,000 and the net income is around Rs. 20,000 after home loan and personal loan EMIs are deducted. I am 26 years old. I am looking for security of my financial future 20 years down the line without having to cut on my current lifestyle. Kindly suggest how and where I should invest my money to achieve both short-term and long-term goals.

- Mohit Kelkar With the disposable income

of Rs.20,000 p.m. in hand, you will have to manage all your expenses first. After fulfilling the same, if there's any surplus left, you can look at investing the same for your short-term

Q.

A.

goals. For these goals (which are 3-4 years away), you can look at investing largely into debt mutual funds and some part into monthly income plans (growth option).

after 2-3 years, your personal loan repayment would stop and your income also would have increased, thereby increasing your monthly investible surplus. You can then start investing for your long-term goals by investing into equity mutual funds.

We suggest you to make a customized and detailed financial plan for yourself through a financial planner, which will help you understand how you should progress towards all your financial goals. ICICIdirect also offers Financial Planning Services and provides you a customized and comprehensive financial p l a n , b a s e d o n y o u r requirements. You can write to [email protected] to make your financial plan.

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

MUTUAL FUND ANALYSIS

36

Equity Savings fund


Investing in Equity Savings Fund

Fund Objective:The primary investment objective of this fund is to generate income and capital appreciation by investing in arbitrage opportunities & pure equity investments along with investments in debt securities & money market instruments.

Key Information:

Equity Savings Funds are the hybrid equity oriented funds which have a pre defined asset allocation in equities, equity derivatives & debt. These funds typically invest 20-45% in equities (cash market), 30-50% in equity arbitrage opportunities and remaining portion in debt. Hence with low exposure to direct equities, these funds are suited for conservative investors seeking lower volatility with stable returns. These funds have tax efficiency of equity funds i.e. 15% of short term capital gains if held for 1 year & Nil if held for more than 1 year.

Although the medium term outlook for equity market remains, volatility may increase in the near term as global uncertainty may increase around US Fed rate decision and US election at the end of the year. Equity markets have also rallied significantly in the last 2-3 years and therefore dynamic asset allocation funds are better suited in current market environment. “Equity savings funds” category of mutual fund are better placed for risk-averse investors who want stable returns over medium term with some exposure in equities but with limited volatility.

NAV as on October 14, 2016 ( ) 10.9

Inception Date May 30, 2015

Fund Manager Sanjay Parekh,Jahnvee Shah,

Anju Chhajer

Minimum Investment (`)

Lumpsum 5000

SIP 100

Expense Ratio (%) 2.00

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

Benchmark Crisil Liquid (40%), Nifty 50 (30%),

Crisil Short-TermBond (30%)

Last declared QuarterlyAAUM(` cr) 677

`

Product Label:

This product is suitable for investors who are seeking:

• I n c o m e a n d c a p i t a l appreciation over long-term

• Investment predominantly in a r b i t r a g e o p p o r t u n i t i e s between cash & derivative market and in unhedged equity

Performance:The performance of this category is not comparable directly to any pure benchmark because of its hybrid asset

37



allocation. The performance of this fund is always likely to be stable. Fund has delivered 7.1% return in the last 6

7.1

6.2

5.2

9.5

9.7

9.3

0

2

4

6

8

10

12

6 Month 1 Year 3 Year 5 Year

Ret

urn%

Performance vs. Benchmark

Fund Benchmark

Reliance Equity Savings Fund

Benchmark

Last Three Years Performance

Fund Name30-Sep-15 30-Sep-14 30-Sep-13

30-Sep-16

9.31 9.90 10.12

30-Sep-15 30-Sep-14

7.03 -- --

months period and 6.2% in the last 1 year. The fund has limited track record of less than 2 year.

Portfolio:The fund parks 65-70% in equity and equity arbitrage opportunities and remaining in debt. The equity exposure is divided into 20-40% in direct equitiesand25-70% in equity arbitrage opportunities. The equity allocation is large cap tilted with 70-75% exposure and 25-30% in mid caps. The fund tracks divergence in valuation between large & midcaps in the same sector & also across sectors. The fund aims to generate alpha through dynamic management of

equity exposure. The arbitrage strategy seeks to generate income through arbitrage opportunities arising out of pricing mismatch. The fixed income portion aims to maintain a f ine balance between liquidity and credit risk. The focus is on accrual through investments in m e d i u m t o l o n g t e r m corporate bonds with optimal liquidity.

Reliance Equity Savings Fund has a pre-determined asset allocation which gives leeway

Our View:

38



to fund manager to move between direct equities, arbitrage and fixed income in the given range. The fund has diversified portfolio of 42 stocks with top 10 holdings contributing 34% of the equity portfolio. On the debt side, the fund seeks to capture the credit spreads actively which is

reflected in its portfolio which is a mix of high rated & medium rated securities.

The fund offers an alternative investment option as against aggressive monthly income plan due to favourable tax treatment.

%

7.4

6.9

5.1

5.0

4.1

3.9

3.7

3.7

3.0

3.0

Top 10 Holdings Asset Type

L&T Metro Rail (Hyderabad) Ltd. SR-1 9.81% (18-Jun-35) Corporate Debt

Indian Oil Corporation Ltd. Domestic Equities

Bajaj Finance Ltd. SR-180 08.75% (14-Aug-26) Corporate Debt

Volkswagen Finance Pvt Ltd. SR-A 08.85% (01-Dec-17) Corporate Debt

Renew Power Ventures Pvt Ltd. SR-1 30-Jul-21 Corporate Debt

HDFC Bank Ltd. Deposits (Placed as Margin)

Reliance Power Ltd. SR-II 11.5% (17-Mar-17) Corporate Debt

Infosys Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

Maruti Suzuki India Ltd. Domestic Equities

%12.3

10.0

5.5

5.1

4.9

4.3

3.7

3.5

3.4

2.7

Top 10 Sectors Asset TypeBank - Private Domestic Equities

IT - Software

Domestic Equities

TV Broadcasting & Software Production Domestic Equities

Automobiles-Trucks/Lcv Rights

Engineering - Construction Domestic Equities

Auto Ancillary Domestic Equities

Finance - Housing

Domestic Equities

Refineries Domestic Equities

Automobiles - Passenger Cars Domestic Equities

Pharmaceuticals & Drugs Domestic Equities

6.352.900.020.08-4.03

Risk ParametersStandard Deviation (%)BetaSharpe ratioR SquaredAlpha (%)

39



55

58.7

57.4

53

54

55

56

57

58

59

1Yr 3Yrs 5Yrs 10Yrs

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

Total Investment Fund Value Benchmark Value

%

0

0.70.6

Whats out

Lupin Ltd.

Oil & Natural Gas Corporation Ltd.Castrol India Ltd.

42.045.722.5

4.1

Portfolio AttributesTotal StocksTop 10 Holdings (%)Fund P/E RatioBenchmark P/E RatioFund P/BV Ratio

67.527.9

4.6

Asset AllocationEquityDebtCash

47.510.9

7.9

Market Capitalisation (%)LargeMidSmall

40



Data as on October 14,2016;Portfolio details as on Sept-2016Source: ACE MF, ICICIdirect Research, AMC factsheet

Performance of all the schemes managed by the fund manager

30 -Sep-15 -14 -13

30 -Sep-16 30 -Sep-15 30 -Sep-14

30 -Sep 30 -SepFund Name

Reliance Banking Fund(G) 16.81 13.24 73.48

NIFTY BANK 12.02 11.85 60.04

Reliance US Equity Opp Fund(G) 13.81 -- –

S&P 500 12.93 -- –

Reliance Reg Savings Fund-Balanced Plan(G) 11.82 10.71 55.23

CRISIL Balanced Fund - Aggressive Index 9.68 4.38 28.89

Reliance Retirement Fund-Income Generation(G) 10.56 -- –

Crisil MIP Blended Index 11.17 -- –

Reliance Banking & PSU Debt Fund(G) 9.73 -- –

Crisil Short Term Bond Fund Index 9.31 -- –

Reliance Japan Equity Fund-(G) 5.22 1.70 –

Reliance Dual Adv FTF-IV-E(G) 6.43 5.59 –

Crisil MIP Blended Index 11.17 10.72 –

Reliance Liquid-Treasury-Ret(G) 6.96 7.63 8.45

Crisil Liquid Fund Index 7.69 8.56 9.49

Reliance Equity Savings Fund(G) 7.03 -- –

NIFTY 50 8.33 -- –

Reliance Dual Adv FTF-V-G-(G) 7.03 7.00 –


Reliance Dual Adv FTF-V-A-(G) 7.12 6.89 –


Reliance Liquid-Cash(G) 7.12 7.93 8.63


Reliance Inv II-2(G) 7.21 9.26 –

Crisil Short Term Bond Fund Index 9.31 9.90 –

Reliance Inv II-1(G) 7.41 8.88 –


Reliance MIP(G) 9.08 12.63 21.31

Crisil MIP Blended Index 11.17 10.72 15.45

41


HDFC Equity Savings Fund

Fund Objective:The investment objective of the scheme is to provide capital appreciation and income distribution to the investors using arbitrage opportunities, investment in equ i ty / equ i ty re la ted instruments and debt / money market instruments.


Key Information:

Product Label:

Performance:The fund has given benchmark

beating returns in the category.

One, three and five-year show

of the fund remains very good

with a decent margin of out

performance over and above

the benchmark. The fund has

relatively higher allocation to

large cap stocks providing

stability of returns. The fund

has delivered 10.2% CAGR

returns over five years vs

benchmark return of 9.3%.


Inception Date September 17, 2004

Fund Managers Vinay R. Kulkarni,Anil Bamboli,

Krishan Kumar Daga


Lumpsum 5000

SIP 500


Exit Load NIL upto 15% ofinvestment and 1%

in excess of 15%of investment on

or before 1Y,NIL after 1Y

Benchmark Crisil Short TermBond Fund Index

(30%), Nifty 50(40%). Crisil LiquidFund Index (40%)

Last declared Quarterly AAUM(` cr) 279

`

This product is suitable for investors who are seeking*:

• Capital appreciation while generat ing income over medium to long term

• provide capital appreciation and income distribution to the investors by using equity andequity related instruments, arbitrage opportunities, and investments indebt and money market instruments

42



13.7

15.4

4

12.0

6

10.2

5.2

8.3

6

12.1

9.3

02468

1012141618


Retu

rn%


Fund Benchmark

HDFC Equity Savings Fund

Benchmark

30-Sep-15 30-Sep-14

15.44 3.31 18.02


30-Sep-16

8.36 3.52 10.12


Portfolio:The fund re-balances the portfol io between asset classes based on market c o n d i t i o n s a n d a s s e t valuations. The fund maintains 65%+ allocation in the mix of equity & equity arbitrage and remaining portion in debt. Of the equity portion, it invests 15-40% in direct equity and 0-50% in equity derivatives. On equity side, it invests in companies which trade below their intrinsic values with a focus on capital appreciation. It has 25% allocation in debt. The

investment strategy involves investing in a range of debt and money market instruments of various credit ratings with a view to maximizing income while maintaining an optimum balance of yield, safety and liquidity. Majority portion of the debt portfolio is invested in G-Sec & High rated papers.

HDFC Equity Savings Fund has consistently outperformed its peers and benchmark across the time frame. Though the fund has flexibility to move across the market cap, it

Our View:

43



t y p i c a l l y k e e p s ~ 7 5 % allocation to large caps which is higher as compared to its peers. The fund minimizes the

credit and liquidity risk with a well- diversified, portfolio of debt.

%

5.5

5.3

4.8

4.3

3.8

3.7

3.6

3.6

3.6

3.1

Sun Pharmaceutical Industries Ltd. Domestic Equities

State Bank of India SR-II 8.75% Corporate Debt

Quess Corp Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

LIC Housing Finance Ltd. TRCH 235 OPT 2 08.72% (28-Nov-19) Corporate Debt

HDFC Bank Ltd. Deposits

Housing Development Finance Corporation Ltd. SR-P-021 8.38% (15-Jul-19) Corporate Debt

State Bank Of India Domestic Equities

Repco Home Finance Ltd. SR-4 (06-Sep-18) Corporate Debt

Mahindra & Mahindra Financial Services Ltd. SR-AA2015 (16-Jan-20) Corporate Debt


%10.9

10.7

8.6

5.5

3.1

3.1

2.5

2.0

1.9

1.9

Miscellaneous Domestic Equities

Metal - Non Ferrous Domestic Equities

Engineering - Industrial Equipments Domestic Equities

Automobiles - Passenger Cars Domestic Equities

Steel & Iron Products Domestic Equities

Top 10 Sectors Asset TypeBank - Public Domestic Equities

Bank - Private Domestic Equities


Finance - Housing Domestic Equities

Engineering - Construction Domestic Equities

7.222.620.080.07

-10.18

Sharpe ratioR SquaredAlpha (%)

Risk ParametersStandard Deviation (%)Beta

49.88.87.2Small

Market Capitalisation (%)LargeMid

%

1.3

1.4

0.5Wockhardt Ltd.

Whats In

The Federal Bank Ltd.

VIP Industries Ltd.

%

2.9

01.5

Whats out

Infosys Ltd.

Zee Entertainment Enterprises Ltd.Indian Oil Corporation Ltd.

44





120 360 600

1200

133.

92

428 7

86.9

9

2031

132.6

6

420

890.

7

1736.

4

0

500

1000

1500

2000

2500

1Yr 3Yrs 5Yrs 10Yrs

50.041.324.9

--3.4

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

Portfolio AttributesTotal StocksTop 10 Holdings (%)

65.825.09.3Cash

Asset AllocationEquityDebt


30 -Sep-15 -14 -13

30 -Sep-16 30 -Sep-15 30 -Sep-14


HDFC Gold Fund(G) 18.94 -4.50 -12.30

Gold-India 19.71 -3.37 -11.08

HDFC Gold ETF 18.34 -1.87 -11.99

Gold-India 19.71 -3.37 -11.08

HDFC Equity Savings Fund(G) 15.44 3.31 18.02

NIFTY 50 8.33 -0.20 38.87

HDFC Gilt-Long Term Plan(G) 13.73 16.13 11.98

I-Sec Li-BEX 13.80 15.70 12.85

HDFC High Interest Fund-Dynamic Plan(G) 12.04 13.51 10.95

Crisil Composite Bond Fund Index 11.51 12.56 11.61

HDFC CPO Fund-I-36M-Oct13-Reg(G) 5.67 6.72 –


HDFC Debt Fund for Cancer Cure-Reg-100 per Div Don 5.71 7.57 –


HDFC Debt Fund for Cancer Cure-Reg-50 per Div Don 5.71 7.57 –


HDFC CPO Fund-I-36M-Sep13-Reg(G) 5.76 6.18 –


HDFC CPO Fund-III-1207D-Dec14-Reg(G) 5.80 -- –


HDFC CPO Fund-II-36M-June14-Reg(G) 5.87 6.81 –

45




HDFC CPO Fund-II-36M-Jan14-Reg(G) 5.89 5.98 –


HDFC CPO Fund-II-36M-Feb14-Reg(G) 6.09 5.55 –


HDFC CPO Fund-III-1173D-Jan15-Reg(G) 6.26 -- –


HDFC CPO Fund-II-36M-May14-Reg(G) 6.32 6.54 –


HDFC CPO Fund-III-1100D-Oct14-Reg(G) 6.35 -- –


HDFC Arbitrage Fund(G) 6.47 7.55 8.35


HDFC Cash Mgmt-Call(G) 6.59 7.63 8.26


HDFC Dual Advantage Fund-I-Reg(G) 7.08 -- –

Crisil Debt Hybrid (75:25) 9.27 -- –

HDFC FMP-XXVII-370D-Sep 2013(3)-Reg(G) 7.46 9.94 9.41

Crisil Short Term Bond Fund Index 9.31 9.90 10.12

HDFC FMP-XXVII-1143D-July 2013(1)-Reg(G) 7.55 9.49 10.78






HDFC FMP-XXVI-370D-July 2013(3)-Reg(G) 7.72 9.89 9.78


HDFC FMP-XXIX-369D-Dec 2013(1)-Reg(G) 7.72 9.19 –




HDFC Cash Mgmt-Savings(G)




HDFC FMP-XXVII-370D-Aug 2013(4)-Reg(G) 7.76 10.08 9.43


HDFC FMP-XXVI-371D-July 2013(1)-Reg(G) 7.79 9.89 9.12


HDFC FMP-XXVII-370D-Aug 2013(3)-Reg(G) 7.80 10.06 9.64




HDFC FMP-XXVII-371D-Aug 2013(1)-Reg(G)


HDFC FMP-XXIX-840D-Jan 2014(1)-Reg(G) 7.87 9.98 –


HDFC FMP-XXVIII-370D-Oct 2013(1)-Reg(G) 7.90 9.95 –

Data as on October 16,2016 ;Portfolio details as on Sep-2016

HDFC FMP-XXVI-370D-Aug 2013(1)-Reg(G) 7.93 9.88 9.71

Crisil Short Term Bond Fund Index 10.12



Inception Date December 5, 2014

Fund Manager Sankaran Naren,Chintan Haria,

Manish Banthia


Lumpsum 5000

SIP 1000


Exit LoadNIL upto 20% of

investment and 1% for remaining

investment on orbefore 1Y,

NIL after 1Y

Benchmark Crisil Short TermBond Fund Index

(30%), Nifty 50 (40%).Crisil Liquid

Fund Index (40%)

Last declared Quarterly AAUM(` cr) 583

`

46


ICICI Pru Equity Income Fund

Fund Objective:The investment objective of the scheme is to generate income by investing in arbitrage opportunities in the cash and derivatives segment of the equity market, and capital appreciation through a moderate exposure in equity.


Key Information:

Product Label:

Performance:The fund has a track record of 1.8 years where i t has generated double digits returns outpacing benchmark and peers. It has generated 10.4% as compared to 7.7% in one year period.

This product is suitable for investors who are seeking*:

• long-term capital appreciation

*An equity scheme that seeks to generate regular income through investments in fixedincome securities, arbitrage and other derivative strategiesand aim f o r l o n g t e r m capitalappreciationby investing in e q u i t y a n d e q u i t y r e l a t e d instruments.

9.87 10

.4

3.7

7.7 8.

5

8.6

0

2

4

6

8

10

12


Ret

urn

%


Fund Benchmark

47



ICICI Prudential Equity Income Fund

Benchmark



30-Sep-16

7.70 -- --

30-Sep-15 30-Sep-14

10.40 -- --

Portfolio:

Our View:

The fund invests 65% of its portfolio in equities and remaining portion in fixed income. Within the equities, it maintains 20-40% in direct equities (cash market) & 30-50% in equity derivatives. It invests predominantly in large caps with 90% allocation. On the debt side the fund has high quality debt instruments with allocation in AAA, G-sec and short term deposits.

The fund decidesallocation based on the market valuations parameters such as price-to-earnings and price-to-book value. Hence, if the markets are expensive, then considerable equity exposure will be

hedged based on the asset allocation provided. When the markets are attractively valued, then net long equity exposure will be higher. This strategy of the fund provides. The fund ident i f ies f ixed income securities which offer a superior level of yield at lower level of risks. The risk will be controlled through in-depth credi t evaluat ion which i n c l u d e s t h e o p e r a t i n g environment of the issuer and the short as well long-term financial health of the issuer. This fund is a good bet for conservative investor as it has flexible asset allocation which seeks to limit the downside along with providing stable returns.

%

34.2

8.7

5.7

5.2

5.2

4.8

4.5

4.4

4.3

4.0


Hindalco Industries Ltd. 9.55% (25-Apr-22)

Net Current Asset Cash & Cash Equivalents

08.24% GOI - 10-Nov-2033 Government Securities

Aurobindo Pharma Ltd. Domestic Equities

Domestic Equities

Housing Development Finance Corporation Ltd. SR-P-022 8.15% (22-Jul-18) Corporate Debt

LIC Housing Finance Ltd. TRCH 305 OPT 2 8.05% (01-Feb-18) Corporate Debt

HDFC Bank Ltd. Deposits (Placed as Margin)

Corporate Debt

Coal India Ltd.

Power Grid Corporation Of India Ltd. Domestic Equities

Axis Bank Ltd. Domestic Equities

48



%14.6

8.7

6.2

6.1

4.7

3.9

3.1

3.0

3.0

3.0

Top 10 Sectors Asset Type

IT - Software Domestic Equities

Power Generation/Distribution

Domestic Equities

Fertilizers Domestic Equities

Telecommunication - Service Provider Domestic Equities

Refineries Domestic Equities

Domestic Equities

Mining & Minerals Domestic Equities

Oil Exploration Domestic Equities

Lubricants Domestic Equities


Bank - Private

5.462.840.060.013.96

Risk ParametersStandard Deviation (%)BetaSharpe ratioR SquaredAlpha (%)

60.86.40.3

Market Capitalisation (%)LargeMidSmall



60

64.9

62.1

56

58

60

62

64

66

1Yr 3Yrs 5Yrs 10Yrs

%

3.1

0.2

Whats In

Castrol India Ltd.

Wipro Ltd.

%

0.4

Whats out

Grasim Industries Ltd.

49




38.080.920.7

--4.9

Portfolio AttributesTotal StocksTop 10 Holdings (%)Fund P/E RatioBenchmark P/E RatioFund P/BV Ratio

67.523.88.7

Asset AllocationEquityDebtCash


30 -Sep-15 -14 -13

30 -Sep-16 30 -Sep-15 30 -Sep-14


ICICI Pru Regular Gold Savings Fund(G) 23.54 -4.19 -11.06

Gold-India 19.71 -3.37 -11.08

ICICI Pru Top 100 Fund(G) 19.43 -1.93 48.25

NIFTY 50 8.33 -0.20 38.87

ICICI Pru Gold iWIN ETF 18.77 -2.01 -11.98

Gold-India 19.71 -3.37 -11.08

ICICI Pru Dynamic Plan(G) 16.83 -0.49 50.04

NIFTY 50 8.33 -0.20 38.87

ICICI Pru Indo Asia Equity Fund(G) 16.72 6.64 49.30

NIFTY 50 8.33 -0.20 38.87

ICICI Pru Infrastructure Fund(G) 5.19 6.05 63.22

NIFTY INFRA -1.13 -6.48 41.45

ICICI Pru Short Term Plan(G) 9.93 10.39 10.56


ICICI Pru Income Opportunities Fund(G) 10.37 12.99 11.78


ICICI Pru Growth Fund-8(DP) 10.41 -- –

NIFTY 50 8.33 -- –

ICICI Pru Balanced Advantage Fund(G) 10.85 10.22 35.70


ICICI Pru Value Fund-1(D) 10.92 6.31 –

S&P BSE 500 11.45 3.19 –

ICICI Pru Income(G) 11.75 13.45 11.65


ICICI Pru Long Term Plan-Ret(G) 12.18 15.14 13.59


ICICI Pru Value Fund-6(G) 12.89 -- –

S&P BSE 500 11.45 -- –

ICICI Pru Gilt-Invest-PF(G) 13.12 15.90 13.52

I-Sec Li-BEX 13.80 15.70 12.85

ICICI Pru Equity Income Fund(G) 13.33 -- –

NIFTY 50 8.33 -- –


S&P BSE 500 11.45 3.19 –

ICICI Pru Balanced Fund(G) 15.96 8.70 50.38



S&P BSE 500 11.45 3.19 --

50

Our indicative large cap equity model portfolio has continued to

deliver an impressive return (inclusive of dividends) of 86% since

its inception (June 21, 2011) vis-à-vis the benchmark index (S&P

BSE Sensex) return of 59.3% during the same period, an

outperformance of 26.7%. This validates our thesis of selecting

companies with sound business fundamentals that form the core

theme of our portfolio. Our midcap portfolio of 16 stocks also

continues to outperform, delivering 163% (inclusive of

dividends) vis-à-vis the benchmark index (CNX Midcap) return of

106.9%, outperformance of 56.1%. Our consistent

outperformance demonstrates our superior stock picking ability

as markets in the first half of CY17 aligned to our view of

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

businesses. Some key performers of our portfolio are Bajaj

Finance, Lupin, Axis Bank and HDFC Bank in the large cap

portfolio while Natco Pharma, Bajaj Finserv and UltraTech have

delivered stupendous returns in the midcap portfolio.

We have always suggested the SIP mode of investment and still

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

the market conditions and volatility associated since the

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

portfolio has consistently outperformed the indices. This affirms

our belief in the staggered and systematic approach of

investment amid market volatility.

Following the same pace and opportunities in the market, we

have not changed much in our portfolio. Among large caps, we

have maintained the weight of Bajaj Finance (2%) and Maruti,

UltraTech and Marico by 1% as earlier. Affirming our view on

consumption demand, Dabur continues to be part of our large

cap portfolio. We believe that as the softness in commodities

EQUITY MODEL PORTFOLIO


51


continues oil & gas and metal sectors would continue to remain

under pressure. Following this, we have exited Reliance

Industries from Large caps.

In the large cap space we continue to remain positive on auto

infrastructure & cement. Relative to the benchmark index, we are

underweight on BFSI. With the exclusion of Reliance Industries,

we affirm our underweight stance on metals and oil & gas. With

the recent cleanup drive in PSU banks, we continue to believe the

underperformance would continue. In the private banking space,

we prefer large banks with a strong brand name and a pan India

retail presence. We remain overweight to neutral on pure play

defensives (IT, FMCG) as secular earnings coupled with sector

rotation could lead to consolidation in near term valuations and

offer stock specific opportunities. We remain positive on auto,

pharma, capital goods and infrastructure.

Among individual names, we continue to recommend Infosys

and TCS in the IT space. A revival in the capex cycle coupled with

lower interest rate scenario would benefit the BFSI and

construction space (UltraTech, L&T, HDFC, HDFC Bank).


52



Name of the company

Largecap Portfolio

Weightage(%)

Auto 15.0

Tata Motor DVR 4.0

Bosch 3.0

Maruti 5.0

EICHER Motors 3.0

BFSI 25.0

HDFC Bank 8.0

Axis Bank 3.0

HDFC 8.0

Bajaj Finance 6.0

Capital Goods 4.0

L & T 4.0

Cement 4.0

UltraTech Cement 4.0

FMCG/Consumer 18.0

Dabur 5.0

Marico 4.0

Asian Paints 5.0

Nestle 4.0

IT 18.0

Infosys 10.0

TCS 8.0

Media 2.0

Zee Entertainment 2.0

Pharma 14.0

Lupin 6.0

Dr Reddys 5.0

Aurobindo Pharma 3.0

Total 100.0

53



Name of the company

Diversified Portfolio

Weightage(%)

Auto 12

Tata Motor DVR 3

Bosch 2

Maruti 4

Eicher Motors 2

Bharat Forge 2

Consumer Discretionary 16

Symphony 2

Supreme Ind 2

Kansai Nerolac 2

Pidilite 2

Asian Paints 4

Arvind 2

Interglobe Aviation 2

Rallis 2

BFSI 19

HDFC Bank 6

Axis Bank 2

HDFC 6

Bajaj Finance 4

Bajaj Finserve 2

Power, Infrastructure & Cement 12

L & T 3

UltraTech Cement 3

Ramco Cement 2

NBCC 2

Container Corporation of India 2

FMCG 9

Nestle 3

Marico 3

Dabur 4

Pharma 16

Lupin 4

Dr Reddys 4

Aurobindo Pharma 2

Natco Pharma 2

Torrent Pharma 2

Biocon 2

IT 13

Infosys 7

TCS 6

Media 1

Zee Entertainment 1

Total 98.2

54



Name of the company

Midcap Model Portfolio

Weightage(%)

ICICI Securities Ltd has received an investment banking mandate from group company of Larsen and Toubro Ltd. The report is prepared based on publicly available information.

Aviation 6.0

Interglobe Aviation 6.0

Auto 6.0

Bharat Forge 6.0

BFSI 6.0

Bajaj Finserve 6.0

Cement 6.0

Ramco Cement 6.0

Consumer 30.0

Symphony 6.0

Supreme Ind 6.0

Kansai Nerolac 6.0

Pidilite 6.0

Rallis 6.0

Infrastructure 8.0

NBCC 8.0

Logistics 6.0

Container Corporation of India 6.0

Pharma 20.0

Natco Pharma 6.0

Torrent Pharma 6.0

Biocon 8.0

Textile 6.0

Arvind 6.0

Total #REF!

55

Performance* so far Since inception

*Returns (in %) as on

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

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

Aug 17, 2016

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

Portfolio Benchmark

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: , 2011; *Value as on June 30 Aug 17, 2016



86.06695682

163.0844815

99.26243478

59.36157127

106.9907314

72.98821953

0255075

100125150175

%

6500000

6500000

6500000

8786894.8

39 1

3261985.1

8

9727627.8

89

6173090.6

88

5299863.4

91

7723864.2

98

3500000

4500000

5500000

6500000

7500000

8500000

|

QUIZ TIME

1. The standard investment period for any liquid fund is up to __________ days.

2. Bank FDs offer interest rate that usually ranges from _______ to ______

3. __________________ funds invest only in State or Central government backed securities and debentures.

4. For non-equity mutual funds, ____% income tax is levied upon the investor (including indexation benefit) over long-term capital gains.

5. The government of India allows account continuance beyond maturity for _____ years at every renewal for public provident fund account holder.

Note: All the answers are in the stories that have appeared in this edition of ICICIdirect Money Manager. You may send in your answers at: [email protected]. The answers will be published in our next edition. The names of the earliest all correct entries will be published too. So jog your grey cells and be quick to send in your entries.

Correct answers for the September 2016 quiz are:1. Equity is a high-risk, high-return asset class. But investors

can expect more returns from this asset class than from any other. True or false

A: True

2. Gold can be bought in the form of jewellery, coins, bars, bonds, ______________ and so on.

A: Exchange traded funds

3. In general, the risk involved in an investment is directly proportional to the ________ expected from it.

A. Returns

4. _____________ is the level of uncertainty that investors are willing to tolerate to earn a profit on their investment.

A: Risk appetite5. It is important to have a ______ before you start investing. A. Goal


57

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

30-Sep-16 31-Aug-16 Change (%)

CNX Nifty 8611.2 8786.2 -2.0%

CNX Midcap 15413.1 15370.9 0.3%

S&P BSE Sensex 27866.0 28452.2 -2.1%

S&P BSE 100 8863.7 9021.5 -1.7%

S&P BSE 200 3719.6 3768.6 -1.3%

S&P BSE 500 11700.7 11834.9 -1.1%


Dow Jones 18,308.2 18,400.9 -0.5%

S&P 500 2,168.3 2,171.0 -0.1%

Nasdaq 5,312.0 5,213.2 1.9%

FTSE 6,899.3 6,781.5 1.7%

DAX 10,511.0 10,592.7 -0.8%

CAC 40 4,448.3 4,438.2 0.2%

Nikkei 16,449.8 16,887.4 -2.6%

Hang Seng 23,297.2 22,976.9 1.4%

Shanghai Composite 3,004.7 3,085.5 -2.6%

Taiwan Weighted 9,166.9 9,068.9 1.1%

Straits Times 2,869.5 2,820.6 1.7%


S&P BSE Auto 22,231.7 22,008.2 1.0%

S&P BSE Bankex 22,045.6 22,656.6 -2.7%

S&P BSE FMCG 4,597,564 4,747,204 -3.2%

S&P BSE Healthcare 16,181.1 16,161.7 0.1%

S&P BSE Metals 9,763.7 9,939.7 -1.8%

S&P BSE Oil & Gas 11,377.6 11,072.7 2.8%

S&P BSE Power 1,989.6 2,098.4 -5.2%

S&P BSE Realty 1,512.2 1,542.1 -1.9%

S&P BSE Teck 5,630.8 5,753.3 -2.1%

58

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Sep-16 Change (bps)Aug-16

Corporate Bond Yields (in %) Change (bps)Sep-16 Aug-16

Commercial Paper (CP) Rates (in %) Change (bps)Sep-16 Aug-16

Treasury Bill (T-Bills) Yields (in %) Change (bps)Sep-16 Aug-16

Volatility Index (VIX)

30-Sep-16 31-Aug-16

VIX 17.18 13.24 0%

Change (%)

10 year 6.82 7.11 -29

5 year 6.77 7.00 -22

3 year 6.73 6.88 -16

1 year 6.69 6.82 -14

AAA 10 year 7.69 7.80 -11

AAA 5 year 7.50 7.68 -18

AAA 3 year 7.49 7.60 -11

AAA 1 year 7.37 7.50 -13

AA 10 year 8.21 8.37 -16

AA 5 year 8.03 8.23 -20

AA 3 year 7.98 8.17 -19

AA 1 year 7.86 8.07 -21

12 Months 7.56 7.71 -15

6 Months 7.18 7.34 -16

3 Months 6.78 7.00 -23

1 Month 6.69 6.84 -15

91D TB 6.42 6.55 -13

182D TB 6.51 6.64 -13

364D TB 6.55 6.68 -13

59

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

Countries 30-Sep-16 31-Aug-16 Change in bps

US 1.59 1.58 1

UK 0.75 0.64 10

Japan (0.09) (0.06) (3)

Spain 0.88 1.01 (13)

Germany (0.12) (0.07) (5)

France 0.18 0.18 1

Italy 1.19 1.15 4

Brazil 11.58 12.08 (50)

China 2.74 2.81 (7)

India 6.82 7.11 (29)

MF Investment Sep-16 Aug-16 YTD

Equity 3841 1320 73951

Debt 52876 12119 274086

FII Investment Sep-16 Aug-16 YTD

Equity 9336 9786 50005

Debt 10577 -2949 1360

Items Weights(%) Jul-16 Aug-16 Sep-16

Food&bev. 45.86 7.96 5.83 4.12

Pan,tob& intox. 2.38 6.83 6.94 6.82

Cloth & Foot 6.53 5.23 5.30 5.19

Housing 10.07 5.42 5.29 5.18

Fuel & light 6.84 2.75 2.57 3.07

Misc. 28.31 4.01 4.18 4.51

CPI 100 6.07 5.13 4.31

Weights Sep-15 Aug-16 Sep-16

WPI 100.0 -4.59 3.74 3.57

Primary Articles 20.1 -2.29 7.47 4.76

Fuel & Power 14.9 -17.71 1.62 5.58

Manufactured Goods 65.0 -1.73 2.42 2.48

60

PRIME NUMBERS

Commodities

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


Mutual Funds: Category Average Returns

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

Small-cap Funds

Large-capFunds

ELSS (Tax-

savingfunds)

Returns as on July 29, 2016

Debt Funds Returns (in %)

Returns as on August 31, 2016

Tenure Liquid Funds Short-termincome funds

Ultra short-term funds

Long-termincome funds

Gilt funds

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

Currencies and CommoditiesCurrencies

Categories 16-Aug-16 16-Jul-16 16-Jun-16 Weight(%)Mining -5.6 0.9 5.3 14.2Manufacturing -0.3 -3.5 0.7 75.5Electricity 0.1 1.6 8.3 10.3

30-Sep-16 31-Aug-16 Change (%) StatusUSDINR 66.61 66.96 0.5% AppreciatedEURINR 74.42 74.58 0.2% AppreciatedGBPINR 86.43 87.98 1.8% AppreciatedAUDINR 50.76 50.35 -0.8% DepreciatedCHFINR 68.41 68.10 -0.5% DepreciatedJPYINR 0.66 0.65 -1.5% DepreciatedCNYINR 9.98 10.03 0.4% Appreciated

30-Sep-16 31-Aug-16 Change (%)Crude ($/barrel) 49.1 47.0 4.3%Gold ($/ounce) 1,315.8 1,309.0 0.5%

6 months 17.64 22.91 14.94 17.231 year 12.84 16.83 10.84 11.853 year 25.19 37.93 20.03 24.285 year 16.66 23.37 14.56 16.46

6 months 7.31 11.12 9.18 14.35 16.79

1 year 7.48 9.37 8.62 9.73 11.2

3 year 8.26 9.46 8.82 10.46 11.50

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