ICICI October 15 Issue newcontent.icicidirect.com/MoneyManagerMagazine/October_2015.pdf · Indian economy as it reduced the benchmark repurchase rate by 50 bps to 6.75%. The cash

7 57

Anup BagchiMD & CEO

ICICI Securities Ltd.

Each generation has its own set

of financial needs and priorities.

Though the basic priorities

remain more or less similar

across generations – owning a

home, funding child's education

and planning for retirement -

today's young generation or

Gen-Y has diverse set of needs

than older generations. There is

a bigger challenge between

consumpt ion today and

investments for tomorrow.

Older generations perhaps had

simpler and limited needs.

Returns, even on fixed-income

investments were higher, in the

range of 12-15 per cent, so there was no need to take additional

risks. Employers took the responsibility to plan for retirement by

giving pension and medical benefits. Effectively a little bit of

planning by oneself was good enough to make achieve the

critical life goals. Today, factors such as increasing cost of living,

increasing life spans, preference for nuclear families, absence of

pension systems, etc. call for greater and early planning for the

future.

The young generation does face more challenges. It is our

responsibility to educate them and help them recognize that

securing future requires greater amount of discipline, diligence

and patience. Investing randomly, without a defined investment

plan would hardly provide any fruitful result. Young individuals

1ICICIdirect Money Manager October 2015

sometimes get carried away with short-term returns in the

market and start investing arbitrarily based on suggestions from

friends, relatives or even media. Such investments without

keeping goals in mind and withdrawing money midway can

result in below-average performance or even loss-making

transactions. We need to have a goal and set time horizon in

mind, preferably long term, to invest in markets.

Achieving goals requires a methodical and disciplined approach.

It requires thorough planning to balance retirement planning with

funding children's education, among other goals. Financial

planning helps to prioritize goals and provides optimal solutions

and strategies to meet goals within a planned time line. While

most of us understand the importance of planning for a financial

future, the action and implementation still falls short for many.

The services of a professional financial planner can help you truly

channelize your investments to your life goals. This issue will

help you understand goal-based investing.

Our message remains the same - 'Keep investing and stay

invested for your life goals.' Through this magazine and our

website www.icicidirect.com we want to make an earnest

attempt to partner with you in setting and achieving your financial

goals. Give us an opportunity to serve you, walk into any of your

Neighbourhood Financial Superstore and talk to us.

2

One of the best ways to achieve your financial needs and goals is to have a proper plan in place. With proper planning and by adopting a goal-based investment strategy, you can effectively invest in products that are best suited to your profile. Goal-based investment strategy matches your assets and investments to your liabilities and goals and ensures that you have sufficient funds to meet a particular goal. All it requires is a process to be followed called “financial planning”. In our cover story of this edition, we explain, how through proper planning you get more clarity and confidence to achieve your financial goals.

The edition also covers an interview with Ashwin Patni, Head Products & Fund Manager at Axis Mutual Fund, who believes our economy's fundamentals are really strong and should help us withstand any global shocks. He recommends investors to go for asset allocation regardless of their risk appetite to optimize risk-return outcomes.

The RBI in its most recent monetary policy cut repo rate by a higher than-expected 50 basis points to 6.75%. With interest rates expected to go down further, we believe this presents an attractive opportunity to invest in duration funds for better returns. Read on more about these funds in our Mutual Funds Analysis section.

Further, in order to help you provide you a collective overview on major asset classes, we have combined our equity and debt market round-up sections, and included views on gold. We have also revamped our monthly trends section with inclusion of more data points and indicators.

I would also like to draw your attention to our updated Equity Model Portfolio; we aligned the same to capture the new opportunities available in the market. So read on, stay updated and involved. Do write in with your feedback and share your thoughts at [email protected]

Editor & Publisher : Abhishake Mathur, CFA

Coordinating Editor : Yogita Khatri

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Sheetal Ashar

ICICIdirect Money Manager October 2015

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


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

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

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

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

Asset Class Insights

A monthly review and outlook on major asset classes – equity,

debt/fixed-income and gold...................................................................5

Stock Ideas: Arvind Ltd. and Bajaj Finserv...................................................10

Flavour of the Month: How to achieve your financial goals

Here we explain how through proper planning you get more clarity

and confidence to achieve your financial goals... Read on.................19

Tête-à-tête: 'Long term prospects continue to remain attractive’

An interview with Ashwin Patni, Head Products & Fund Manager, Axis

Mutual Fund.......................................................................................... 26

Ask Our Planner:

Your personal finance queries answered.............................................29

Mutual Funds Analysis: Investing in Duration Funds

With interest rates expected to go down further, this presents an

attractive opportunity to invest in duration funds for better returns..33

Mutual Fund Top Picks.............................................................................. 40

Updated Equity Model Portfolio

We have aligned our portfolio to capture the new opportunities

available in the market..........................................................................42

Quiz Time.................................................................................................47

Prime Numbers

A revamped section of monthly trends, with inclusion of more data

points and indicators............................................................................ 48

Premium Education Programmes Schedule..................................................52

4ICICIdirect Money Manager

Withdraw PF within 3 hours through EPFO's online settlement facility by March end

All that paperwork for withdrawing your PF money may soon be history. Retirement fund body EPFO is hopeful of launching an online PF withdrawal facility by March end after the Supreme Court extended voluntary use of Aadhaar card to government schemes, including provident fund. The Employees' Provident Fund Organisation with over five crore subscribers has been working on such a facility for online settlement of PF claims within three hours of receiving an application. Once this is operational, subscribers can apply online for PF withdrawal, which will be transferred directly to their bank accounts.

Courtesy: The Financial Express

Foreign investment inflows into Indian debt are set to exceed those in local equities for the second straight year, data on portfolio inflows shows. Overseas investments into debt in Asia's third largest economy are also the highest among emerging economies in the continent. Foreign institutional investors (FIIs) have bought a net of $8.05 billion in local debt this year, more than double the $4.02 billion they have pumped into stocks. Inflows into Indian debt have been the highest among Asian emerging economies, HSBC Economic Research said in a report.

Courtesy: Livemint

FIIs pick bonds over equities for second year in a row

Software stocks have regained their second-most favoured status with fund managers. This is the first time since March that fund managers have more assets deployed in information technology (IT) than in automobile stocks. In September, Rs 43,053 crore, or 10.65 per cent of total equity assets, found their way into shares of infotech majors like Infosys, Tata Consultancy Services (TCS), HCL Technologies and Tech Mahindra. On the other hand, Rs 41,239 crore, or 10.2 per cent of equity assets, were held as stocks of automobile companies.

Courtesy: Business Standard

IT second-most favoured sector by fund managers

October 2015

India ranks last in global pension index: MercerThe country's retirement system ranks last in the global pension index, says a study by global consulting major Mercer. The country's index value fell from 43.5 in 2014 to 40.3 in 2015, primarily due to a recent review conducted by the economic intelligence unit that showed a material reduction in its household savings rate, Melbourne Mercer Global Pension Index (MMGPI) report said. Enhanced participation in the National Pension System (NPS) will help the country increase its index value, it added. Denmark has been rated as the country with the best retirement system in the world. Australia, Germany, Japan, Singapore and the UK have increased their pension age to offset the increase in life expectancies.

Courtesy: Business Standard


Equity: After surprise RBI gift, it's back to Q2 earnings seasonAfter a negative August spillover effect, domestic equity markets witnessed a late recovery in September on the back of two positive developments during the month. Firstly, the US Federal Reserve decided to defer the interest rates hike in its September FOMC (Federal Open Market Committee meet. Back home, the Reserve Bank of India (RBI) surprised the

markets positively with its decision to reduce interest rates by 50 basis points (bps). Both the Sensex and the Nifty ended the month marginally lower by 0.5% and 0.3%, respectively. The foreign institutional investors (FIIs) were net sellers to the tune of ~ Rs. 5,695.7 crore amid volatility in markets while d o m e s t i c i n s t i t u t i o n a l investors (DIIs) were net buyers to the tune of ~ 9,320.2 crore.

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ASSET CLASS INSIGHTS

Source: ACE MF

Sectoral performance

-30.2 -29.1

-13.8

-1.5-7.9

-17.8

3.3

-13.7-18.3

-7.4-12.1

-14.9

13.6

0.65.3

8.64.5

11.7 5.4 7.6 6.5 7.74.8 3.8

-35.0-30.0-25.0-20.0-15.0-10.0-5.00.05.0

10.015.0

Metal

Auto

Healthcare

FMC

G

Banking

Sensex

PS

U

IT

Oil &

Gas

Cap.G

oods

Ret

urn

%

RealIty

Co

n.D

ura

Asset Class Insights: Equity, Fixed-income and Gold

Monthly review of the major asset classes - equity, fixed-incomeand gold -- and a snapshot of our outlook.

18000

20000

22000

24000

26000

28000

30000

Sep

-13

Dec

-13

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Source: Bloomberg

Rally in markets in one month


The RBI provided a much needed shot in the arm to the Indian economy as it reduced the benchmark repurchase rate by 50 bps to 6.75%. The cash reserve ratio (CRR) and statutory liquidity ratio (SLR) were left unchanged at 4% and 21.5%, respectively. Post the rate cut by RBI, the largest domestic bank reduced its base rate by 40 bps to 9.3%. The RBI has cumulatively reduced interest rates by 125 bps in 2015.

The Q1FY16 GDP (gross domestic product) came in at 7%, lower than 7.5% in Q4FY15 but higher than 6.7% seen in Q1FY15. It was lower than expectation of 7.4%. The Index of Industrial Production (IIP) for July 2015 came in at 4.2% year-on-year (YoY), better than growth of 3.8% YoY recorded in the previous month. The consumer price index (CPI) for August came in a t 3 .66%, in l ine wi th

consensus estimate and lower than CPI July of 3.69%. WPI August came in at-4.95%, lower than consensus estimate and WPI July of -4.05%.

Markets across geographies: Global markets continued to be influenced by concerns over subdued commodity prices, concerns on a Chinese slowdown and the long term outlook for US interest rates. The markets reacted positively as the US Federal Reserve maintained status quo on benchmark rates. The Fed cited the recent volatility in financial markets, sluggish inflation on the domestic front and an uncertain outlook for a global economic recovery as primary reasons for opting to refrain from raising interest rates as it held benchmark federal funds rate at 0-0.25%. The European Central Bank (ECB) also reinforced its dovish stance as it left interest rates unchanged at near-zero level of 0.05%.

Global markets grapple with slowdown concerns in China

-0.5

-1.5

-3.0

-3.4

-4.2

-4.8

-5.8

-8.0-5

.4

-7.5

-8.4

-15.

0

-8.5

-24.

7

-12.

8

-13.

5

-30

-20

-10

0

Indi

a

US UK

Braz

il

Fran

ce

Chin

a

Germ

any

Japa

n

(%)

1 M 3 M

Source: Bloomberg. Returns as on September 30, 2015



Fed blinks, RBI does more than expec ted ; focus sh i f t s to government, earnings: The Fed kept on toying with market sentiments with it's ''catch me if you can'' policy with the deferral of rate hikes. The RBI, however, went a step further by reducing repo rates by 50 bps. In the process, it shifted the ball to the government's c o u r t . T h e t w o m o v e s somewhat calmed down the jitters caused by the weak Chinese macro data and fears of a global slowdown in August. As we brace for the Q2 earning season, markets will look for positive surprises from earnings besides global events. Interest rate sensitive sectors may remain in focus in the backdrop of a repo rate cut amid the approaching festive season.

In a surprise move, the RBI cut the repo rate by 50 basis points to 6.75% from 7.25% against market expectation of 25 bps. The tone of the policy is also dovish indicating it will c o n t i n u e t o b e accommodative. The policy also mentioned tepid growth a c r o s s m a n u f a c t u r i n g , services and export segment

Fixed-income: Duration funds remain attractive

of the economy. The positive sentiment resulted in a rally in g o v e r n m e n t b o n d s . Consequently, the benchmark 10 year G-Sec yield fell around 20 bps from 7.72% to 7.50%.

The RBI mentioned that while i t s s t a n c e w i l l r e m a i n accommodative, the focus in the near term will be to ensure transmission of the cumulative 125 bps of rate cuts that had taken place in this cycle. Although the 50 bps rate cut by the RBI was higher than market expectation, the rally in the G-Sec market was limited. The structural downward shift in G-Sec yield was prevented by higher yields on tax free bonds, small savings instruments line PPF, NSC, etc. Unless yields on these instruments come down, demand f rom domest ic institutional investors like provident funds for G-Sec yields may remain restricted. R B I h a s c a t e g o r i c a l l y mentioned the same for the government to review.

An increase in FII limit in a phased manner to 5% of outstanding government securities (that are currently at 3.8%) along with 2% additional limit for state development loans are a structural positive for long term bonds.



FII investment in debt market in last few months while MFs have been consistent significant buyers

-10000

0

10000

20000

30000

40000

50000

60000

70000

80000

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

` c

rore

FII Debt MF DebtSource: Bloomberg

Inflation continues to soften with CPI for August slipping to a nine-month low of 3.66% while WPI came in at -4.95%. Core CPI, a measure of demand pressure in the economy, fell 19 bps to 3.86% YoY.

Indian debt markets remain attractive from a medium-term perspective as the inflation trend remains on a downward trajectory and well within RBI's target range. Investors may consider both duration as well as accrual funds depending on their risk-return profile.

Global gold prices traded in a n a r r o w r a n g e d u r i n g

Gold: Range bound movement to continue

September 2015 after the extremely volatile month of August 2015. Uncertainty surrounding the US Fed rate hike, however, led to some volatility. Global gold prices traded in the range of US$1100 and US$1140 per ounce during September 2015. Indian prices following global prices traded between 25,700 and 26,700 per 10 gram. The near term uncertainty surrounding China government ac t ion and deferral of the US Fed rate hike may provide some support to global gold prices in the near term.

Investment demand for gold is largely governed by the broader economic climate. One of the major determinants

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of investment demand is inflationary concerns. With a low global economic growth env i ronment add ing to d e f l a t i o n a r y p r e s s u r e , inflationary demand factor for gold remains absent in the near term. Another major determinant for global gold prices is real interest rates. With the US Federal Reserve likely to raise interest rates, going forward, the opportunity cost of holding gold will increase while the same is

likely to put pressure on gold prices from a medium-term perspective.

Technically, after the multiyear bull phase during 2004-12, g o l d p r i c e s c o r r e c t e d significantly. The violation of the long term trend line highlights the breach of a decade long trend of out performance. This breach of long term up trend support, signals a period of medium-term consolidation.

Volatility increases in near term on increased global capital market uncertainty

1050

1100

1150

1200

1250

1300

1350

Se

p-1

4

Oc

t-14

No

v-14

De

c-1

4

Ja

n-1

5

Fe

b-15

Ma

r-15

Ap

r-1

5

Ma

y-1

5

Ju

n-1

5

Ju

l-15

Au

g-1

5

Se

p-1

5

Oct

-15

Price ($/Ounce)

Indian prices rise sharply taking cues from global prices

May

-15

Jun

-15

Jul-

15

Aug

-15

Sep

-15

Oct

-15

24000

26000

28000

30000

32000

Ja

n-1

3

Fe

b-13

Ma

r-1

3

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Aug

-13

Sep

-13

Oc

t-13

No

v-13

De

c-1

3

Ja

n-1

4

Fe

b-14

Ma

r-1

4

Ap

r-14

May

-14

Jun

-14

Jul-

14

Aug

-14

Sep

-14

Oc

t-14

No

v-1

4

De

c-1

4

Ja

n-1

5

Fe

b-15

Ma

r-1

5

Ap

r-15

Price (|/10 grams)

Source: Bloomberg


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STOCK IDEAS

ICICIdirect Money Manager October 2015

Arvind Ltd: Metamorphosing to brand powerhouse

Company BackgroundArvind Limited is the flagship company of the Lalbhai Group that has been around since 1930. Arvind started as a superfine fabric manufacturer in the early 30s. Since then, the company has been constantly reinventing itself by venturing into new categories in textiles like denim, suiting, shirting, etc. Arvind has been a pioneer in India in launching domestic denim brands like Ruff & Tuff and Flying Machine. The company has also been licensing international brands like Arrow and US Polo in India. Currently, Arvind is considered India's leading fully integrated textile, branded apparel & retail company, which has a strong presence across the value chain. The company is a market leader i manufacturing denim in India with total capacity of 108 million metre per annum (mmpa) of which 44% is export driven. The textile division comprises sub-categories like denim, woven, voiles and knits. The company a l s o h a s g a r m e n t i n g

capabilities with an annual capacity of ~22 million pieces as on Q1FY16.

The brand & retail business of Arvind operates through Arvind Brand & Retail (ARBL) a wholly-owned subsidiary of Arvind. The brand business of Arv ind compr i ses bo th company owned value brands along with premium and bridge to luxury international brands. Top international brands in Arvind's portfolio include Tommy Hilfiger, Arrow, GAP, Nautica, Calvin Klein, US Polo, Hanes, etc. while its own Indian brand portfolio includes Flying Machine, Excalibur, Karigari etc. The company also operates large format retail stores like Megamart, Next and Arvind Store, which mainly focus on benefiting from the mall going culture in India. Recently, the company de merged and independently listed its real estate arm, Arvind Infrastructure. The swap ratio was one share of Arvind Infrastructure for every 10 shares held in Arvind Ltd.


STOCK IDEAS

Investment Rationale

Strategic shift from a textile manufacturer to garmenting & brand house

Arvind Ltd. continues to get strategically transformed from a textile manufacturer to a major garmenting and brand house with a portfolio of major brands, which capture the “Adopt the West” strategy. The company's position as No.1 denim manufacturer coupled with its verticalisation strategy of garmenting capabilities and entrenched reta i l reach position it as the most favoured integrated textile player. Revenues are expected to grow at 13% CAGR (compounded annual growth rate) in FY15-17 mainly driven by its brands business. However, restructuring of Megamart and scaling up of its e x i s t i n g b r a n d s w o u l d consolidate profitability at current levels. We believe Arvind is best suited to capture t h e i m m e n s e g r o w t h opportunity in the branded apparel segment.

Po i s e d t o c a p t u r e “ b r a n d conscious” Indian apparel industry

The Indian retail apparel

industry is currently valued at 2,50,000 crore. Arvind over t ime has developed an enviable array of brands, which perfectly reflect western culture. With a variety of offerings at different price points, the company is well positioned to capture the rising per capita consumption of apparel. In FY15, Arvind L i festy le Brands (ALBL) contributed ~30% of total revenues. Power brands like Arrow, US Polo, Tommy Hilfiger and Flying Machine contributed 60% of overall b r a n d r e v e n u e . N e w l y acquired brands like The Children's Place and GAP would continue its retail revenues growth momentum. We expect the contribution of ALBL to revenues to increase to 35% by Fy17.

Verticalisation strategy to aid in margin improvement

Arvind's business model is diversified across the value cha in o f tex t i l es . Wi th manufacturing capacity of 108 million metre (mm), it is the l a r g e s t d e n i m f a b r i c m a n u f a c t u r e r i n I n d i a . Additionally, it has weaving and knitting capacity of 282

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STOCK IDEAS


mm. Approximately 5% of fabrics produced are used for garmenting. Going ahead, m a j o r i t y o f A r v i n d ' s investments are marked t o w a r d s i n c r e a s i n g i t s garmenting capabilities. The strategy around the same is to p r o v i d e r e s i d e n t i a l accommodation to workers and improve efficiencies on the back of lower absentees and contracted labour. The management has a target of 25% captive usage of textiles by 2018, which we believe would be a tailwind for standalone margins.

M e g a m a r t r e s t r u c t u r i n g ; monetising brands; warrant BUY

Arvind has restructured its retail strategy for its Megamart stores. The company now plans to widen its offerings by increasing the size of the store rather than opening new stores. Furthermore, new stores from GAP and Children's Place coupled with a host of probable power brands would enhance revenue visibility and aid profitability. Given the diversified business model and multiple positive triggers, we value Arvind's standalone business at 4x EV/EBITDA and A L B L a t 2 x m a r k e t capitalisation to sales. We recommend BUY with a target price of 330.`

Key Financials

Net sales ( crore) 6,862.1 7,851.4 9,022.3 10,045.6

EBITDA ( crore) 934 1,012.8 1,180.1 1,338.3

Net profit ( crore) 353.9 341.1 398.5 500.8

EPS ( ) 13.7 13.2 15.4 19.4

FY14 FY15 FY16E FY17E

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Valuations Summary

P/E (x) 21.1 21.2 18.1 14.4

EV / EBITDA (x) 11 10.4 9 8

P/BV (x) 2.9 2.7 2.4 2.1

RoNW (%) 13.7 12.5 13 14.3

RoCE (%) 13.8 14.4 15.1 16


STOCK IDEAS


Key Risks

Standalone margins to get impacted by cotton prices

Cotton prices have been volatile over the past few years. The textile business of the company is exposed to the risks of this volatility. Though the company procures cotton during S e p t e m b e r - D e c e m b e r, t h e procurement is on the back of existing orders. The inventory managed by the company on its textile business is to the extent 72 days. The increase in co t ton pr i ces wou ld impac t standalone prices and result in lower EBITDA.

Increase in royalty payments

Currently, the company operates in a combination of arrangements with international brands. This includes setting up of subsidiary/ joint venture

(JV), franchisee or licensing. The current royalty payment is 2.87% of net sales. Any increase in royalty payments or any hike in taxation on royalty payment would impact EBITDA margins for Arvind Brands & Retail (ARBL).

Failure of new brands /investment overshadows core performance

The company currently has 31 brands in its portfolio. If there is sluggishness in the uptake of apparels, new brands /investments of the company would drag down the overall consolidated performance. Furthermore, till new brands stabilise they would keep denting the company's profitability for an extended period. This would also result in new brands not choosing Arv ind and pre fer r ing o ther companies for their strategic partnership.

(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; P/BV: Price-to-book value; RoNW: Return on net worth; RoCE: Return on capital employed; FII: Foreign institutional investors; DII: Domestic institutional investors)

Stock Data

Market capitalization ( crore) 7,300

Total debt (FY15) ( crore) 3,397

Cash (FY15) ( crore) 83

Enterprise value (EV) ( crore) 10,415

52-week High/ Low ( ) 341 / 216

Equity capital ( crore) 258

Face value ( ) 10

FII holding (%) 14.7

DII holding (%) 15.8

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STOCK IDEAS

Bajaj Finserv: Core strength - Consumer finance & general insurance

Company BackgroundBa ja j F inserv L td . was

incorporated on April 30, 2007.

As per the scheme of de-

merger of the erstwhile Bajaj

Auto Ltd. in 2007, the

shareholding of Bajaj Auto in

Bajaj Finance and other

financial businesses along with

windmill has been vested with

Bajaj Finserv, which is the

financial services arm of the

Bajaj Group. The de-merger

was ef fect ive f rom the

appointed date on March 31,

2007.

Bajaj Finserv is now a financial

conglomerate that is engaged

in life insurance, general

insurance, consumer finance

and other financial products.

Apart from financial services,

t h e c o m p a n y h a s a n

operational wind energy asset.

The portfolio includes 74% in

the two insurance companies

viz. Bajaj Allianz Life Insurance

Company (BALIC) and Bajaj

Allianz General Insurance

Company (BAGIC) , 50%

holding in Bajaj Al l ianz

Financial Distributors, 57.6% in

Bajaj Finance and 100%

holding in Bajaj Financial

Solutions.

BAGIC has cons is tent ly

maintained its strong position

among private general

insurance players, owing to its

significant retail focus, wide

distribution network and

customer centric business

approach. Retail (motor+

health) forms ~75% of GWP

(gross written premium) and is

expected to continue to

contribute a major portion of

the overall business. We

expect GWP to grow at 14.5%

CAGR (compounded annual

growth rate) in FY16-17E to

6,856 crore. With prudent

underwriting standards and

anticipated increase in third

party insurance rates, we

expect combined ratio to

remain below 100% in FY16-

17E (combined ratio at 97-98%

in last two years). Supported

by investment yield of ~9%,

we expect PAT (profit after tax)

Investment Rationale

Bajaj Allianz General Insurance

(BAGIC) – a class apart

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STOCK IDEAS

to grow at 10.3% CAGR in

FY16-17E with RoE (return on

equity) staying ahead of peers

at ~20-22%. Peer RoEs are in

the range of -12.5-19% vs. 25%

reported for BAGIC in Fy15.

The target valuation assigned

is 7,592 crore (for 74% stake)

and 429 per share of Bajaj

Finserv post 10% holding

company discount.

BALIC recorded its first profit

from FY10 of 542 crore. The

company is now earning

higher PAT of 876 crore, after

touching peaks of 1,311

crore. Group premium has

been driving the business for

BALIC currently at 80% of NBP

(new business premium) in

Q1FY16 and 61% in Fy15. We

factor in an improvement in the

scenario with linked NBP from

individual growing at 14%

CAGR to 3,088 crore and APE

(annual premium equivalent)

seen growing at 36% CAGR

(on lower base) to 1,511 crore

over FY15-17E. Accordingly,

the AUM (assets under

management) and PAT is

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Bajaj Allianz Life Insurance

Company (BALIC) – Gearing for

stable growth

expected to grow at a CAGR of

12.5% and 28.5% to 48,680

crore and 1,123 crore,

respectively, by FY17E.

We are considering the full

74% economic interest of Bajaj

Finserv in the business. Valuing

the life business on appraisal

valuation methodology with

1.2x EV +10x NBAP results in

BALIC target valuation of 161

billion on FY17E basis. This

culminates to 119 billion for

74% BALIC stake and thereby

674/share of Bajaj Finserv post

1 0 % h o l d i n g c o m p a n y

discount.

Bajaj Finance (BFL), is one of

the leading asset finance

NBFCs (non-banking financial

companies). The USP (unique

selling proposition) of BFL is its

stronghold in the consumer

durable (CD) & lifestyle product

financing business (~15% of

the AUM) wherein it does not

have any major competition

(BFL's share is ~16%). Post

i n d u c t i o n o f t h e n e w

management in FY07, BFL

transformed itself from merely

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Bajaj Finance: Unique product

offering commands premium


STOCK IDEAS

financing a few products to a

wide range of products divided

into three broad categories viz.

consumer finance (40% of

l o a n s ) , S M E ( 5 4 % ) &

commercial & rural category

(6%). Such diversity has given

BFL an edge in terms of AUM

growth (44% CAGR to 32,410

crore in FY11-15) and asset

quality (GNPA (gross non-

performing assets) ratio steady

in 1.2-1.5% range in the past

three years) despite a weak

economic environment. PAT

has increased at 38% CAGR in

FY11-15 to 897 crore. Over

FY15-17E, we expect PAT

traction to remain strong at

27% CAGR to 1,456 crore.

BFL's premium valuations are

expected to sustain on better

earnings visibility and valued

at 3.6x FY17E ABV (adjusted

book value) at 974 in SoTP

(sum of the parts). Bajaj

Finance is independently listed

and we assigned target of

5,600 for the same.

Given Bajaj's strong leadership

in the domestic market and

presence in growing business

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SoTP valuation - Bajaj Finserv

verticals, we expect the entity

to continue its focus on

improvement in earnings

growth and sustenance of a

healthy balance sheet. Both

insurance companies are yet to

pay dividend. In case of

payouts, consolidated profits

can see further upside not

factored in estimates. The

same can improve the return

r a t i o s f u r t h e r f o r t h e

consolidated entity. We expect

22% CAGR in PAT to 2,532

crore and RoE at 17.8%

without factoring in the

dividend.

Based on our SoTP valuation,

we ascribe a target of 2,102

per share for Bajaj Finserv,

which implies a multiple of 13x

on FY17E conso l ida ted

earnings. This reiterates the

fact that the stock is available at

reasonable P/E valuation of 11x

FY17E earnings even post

c o n s e r v a t i v e f o r w a r d

estimates. We initiate coverage

on the stock with a BUY

recommendation with an

upside of 18% at the current

market price of 2,102.

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STOCK IDEAS

SoTP Valuation

Business Basis Stake (%)

BusinessValue(Rs.crore)

Valueofstake(Rs.crore)

Value/shareafter10%discount(Rs.)

Bajaj Allianz Life Insurance 1.2x EV + 10x NBAP 74 16,128 11,917 674

Bajaj Allianz General Insurance 15x PAT 74 10,260 7,592 429

Bajaj Finance 3.6x BV 57.8 29,797 17,223 974

Windmill 6 per mw 100 390 390 25

Total 2,102

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Key Financials

Revenue ( crore) 15,554 18,030.9 20,279.5 22,977.3

Profit before tax ( crore) 2,905 3,246.2 3,875.3 4,624.2

Net profit ( crore) 1,547.7 1,689.8 2,038.3 2,532.2

EPS ( ) 97.3 106.2 128.1 159.1


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Valuations Summary

P/E (x) 18.5 16.9 14.1 11.3

Target P/E (x) 21.6 19.8 16.4 13.2

P/BV (x) 3.1 2.6 2.2 1.8

Target P/BV (x) 3.6 3 2.6 2.2

RoA (%) 2.2 2 2.1 2.3

RoE (%) 18.1 16.7 17 17.8



STOCK IDEAS

Stock Data

Market capitalization (Rs. crore) 28,403

Net worth (FY15) (Rs. crore) 10,973

52-week High/ Low (Rs.) 2,160/ 1,001

Equity capital (Rs. crore) 80

Face value (Rs.) 5

DII holding (%) 7.2

FII holding (%) 8.4

Key Risks

Call option with Allianz to impact stock – in case exercised

As per the agreement entered in 2001, Allianz SE has a Call option, which allows it to raise its stake in BAGIC/BALIC at Rs. 10/Rs. 5.42 per share plus interest at 16% per annum compounded annually till July 30, 2016, April 22, 2016. With FDI (foreign direct investment)

limits raised to 49% from 26%, the probability of Allianz increasing its stake in the insurance business at substantially discounted valuation exist, which is negative for the holding company.

Though recent RBI (Reserve Bank of India) views on transfer pricing and Tata DoCoMo case make the case weak for Allianz to raise stake at discounted prices.

(EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; P/BV: Price-to-book value; RoA: Return on assets; RoE: Return on equity; DII: Domestic institutional investors; FII: Foreign institutional investors)


FLAVOUR OF THE MONTH

How to achieve your financial goals

October 2015

Investing is not always disciplined and can vary significantly in approach. Sometimes it is to save on taxes, sometimes it is to park surplus cash and sometimes to catch up with a trending investment. Our goals don't necessarily define our investments. A global survey of investors conducted by France-based asset management firm Natixis shows that 57% of investors do not have clear financial goals, 67% do not have a financial plan in place to reach what goals they have, and 77% rely on gut instincts to make investment decisions. Although the study did not include India, the findings seem relevant in the Indian context too. Investing without a defined plan and a disciplined approach often ends up off the track. When you invest based on your goals and with an appropriate plan, it provides you with more clarity and confidence into your financial journey. Here's how to go about reaching your financial goals.

A case in point

Pankaj Bhat, 35-year old, is software professional. His family comprises his wife and a daughter. Among other goals, Pankaj wants to accumulate a corpus to provide for his daughter's education. With this intention, he set himself an investment horizon of 12 years. To start with, Pankaj started investing in the fixed deposits (an investment approach majority of us follow)

with the plan that the proceeds of the maturity would be used for his daughter's education.

As the goal is nearing, Pankaj is deeply worried that he runs the risk of not being able to provide for his daughter's education as intended. On the other hand, Manish Kumar, Pankaj's friend, with similar profile and goals, is confident enough to achieve all his goals. How? Let's take a look at their financial details to understand more.

Pankaj and Manish’s Financial Details

Current age and profile 35 years; working in Pune, native Nasik; spouse 31 years, a homemaker

Annual income (post-tax)

` 12 lakh

Annual expenses ` 11 lakh (including EMI)

Annual investments ` ` ` 1 lakh ( 25,000 into PPF, 35,000 into endowment policies and 40,000 into FDs)`



October 2015

Assets Self-occupied house: 50 lakh; PPF: 55,000; ` `

FD: 2 lakh; EPF: 8 lakh; Plot of land at native: ` `

` ` 8 lakh and Physical gold: 5 lakh

Insurance Endowment policy: Sum assured 7 lakh; `

Premium: 35,000 p.a.; Maturing after 19 years `

from now

Liabilities Home loan outstanding: 20 lakh (EMI: 25,000 ` `for another 11 years)

Goals 1) Daughter’s higher education: ` 10 lakh (in today’s

value) after 12 years

2) Daughter’s wedding: ` 10 lakh (in today’s value)

after 16 years

3) To build a retirement home in the plot of land at native: 15 lakh (in today’s value) after 18 years`

Retirement To retire after 20 years; need 4.50 lakh p.a. (in `today’s value) post retirement till the age of 75 of self and spouse

Here's how they fared on their investments and financial goals over the years.

Cash-flow management and investment planning: Pankaj and Manish, both have annual expenses of 11 lakh and majority of investments into fixed-income instruments. P a n k a j c o n t i n u e d h i s investment approach, with the risk of not sufficiently meeting his goals, since the fixed-income instruments hardly beat inflation and do not provide the required growth to meet the future requirements. Manish, on the other hand, sought professional help and based on his financial plan, took the following steps to improve his finances and could reach his goals.

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F i r s t , h e r e d u c e d h i s discretionary spending and brought down the total annual expenses by 2 lakh to Rs. 9 lakh. This way, he could increase the total annual savings to 3 lakh from Rs. 1 lakh earlier.

Second, he surrendered his endowment po l i cy and stopped paying premiums towards the same, which left him with increased surplus.

Next, he stopped investing into fixed deposits, leaving him with the increased total annual surplus of 2.75 lakh i.e. 23,000 per month. This amount he used for investments based on his goals. He diverted his

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October 2015

investments from debt to equity, as goals are long-term in nature.

Insurance planning: Pankaj largely re l ied upon his employer-provided cover for both life ( 30 lakh) and medical ( 4 lakh), apart from his own 7 lakh endowment policy.

What's the risk? In case of any eventuality, Pankaj's family would get 30 lakh from employer cover, 7 lakh from endowment policy and 21 lakh from financial and real estate investments, totaling to 58 lakh. Out of this amount,

20 lakh will be used to repay the home loan liability. The balance 38 lakh will suffice only for 6 years to cover family's expenses (assuming 75% of Rs. 11 lakh p.a.).

Where-as in case of any medical emergency, 4 lakh only would be available at disposal. Also, if Pankaj shifts

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to any other company, there he might not get a cover for the entire family. Further, if he tries to take a separate policy at later stage in life, it might not be available if he develops any specific illness or disorder.

Manish did not take this risk. Based on his financial plan, he took a life cover of 2.40 crore so that his family can reach goals even when he's not a r o u n d . F o r m e d i c a l requirements, he opted for a Rs. 5 lakh family floater cover and a top-up medical cover of 10 lakh. Both put together, he allocated 2,800 per month for premium from the available monthly surplus of 23,000.

This way, Manish's family is fully protected, has sufficient corpus to replay liabilities, fund expenses and life goals. The sufficient medical cover also would be available all times.

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Goals planning:Goal Years to

achieve

Present value (Rs.) Future value (Rs.)

Daughter’s graduation 12 10 lakh 31.38 lakh

Daughter’s wedding

16

10 lakh

29.52 lakh

Building a retirement home 18 15 lakh 50.70 lakh

Inflation assumed: Graduation goal – 10% p.a.; other goals – 7% p.a.



October 2015

Daughter's graduation: Out of his

existing investments, Pankaj

could use only fixed deposits

(FDs) since other investment -

PPF – has lock-in period and is

maturing only after this goal.

His existing FD of 2 lakh and

ongoing FDs of 35,000 p.a.

for the next 12 years fetched

him only around 11.18 lakh,

assuming a post-tax return of

6% p.a. To fund the balance

amount (i.e. 20.2 lakh, he

planned to sell the land,

however, could not do so as

the buyers were not available

immediately. So he decided to

pledge his physical gold

(jewellery) and got a loan of

about 6.28 lakh (70% of the

gold's value, which is assumed

to have increased at 5% p.a.).

Still, it left him with a shortfall

of about 13.92 lakh, for which

he had to opt for an education

loan.

H a d h e p l a n n e d h i s

nvestments well in advance,

Pankaj could have avoided this

situation. His existing home

loan EMI would have stopped

after 11 years, which would

have increased the available

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surp lus pe r month fo r

investment for other goals and

retirement. However, the debt

b u r d e n ( j e w e l l e r y a n d

education loans) started again,

eating into the available

surplus. Further, the jewellery

loan had to be closed in next 4

years, as these jewels were to

be given for his daughter's

wedding.

While Manish set aside his Fds

for any contingency and

invested separately for his

daughter's education – 9,000

per month from the available

monthly surplus of 23,000

and increased his investment

by 7% p.a. (based on the

average growth in his salary).

With this, he could accumulate

the required corpus of 31.38

lakh at the end of 12 years.

Daughter's wedding: For

meeting this goal, Pankaj had

to bank upon investments he

had planned for some other

goals and needs. He used his

maturity proceeds from PPF

account of around 9.72 lakh

and since there was a shortfall

of 19.78 lakh, he sold off his

plot of land for around 20 lakh

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October 2015

and achieved the goal.

The plot of land on which

Pankaj wanted to build his

retirement home has been

used towards daughter's

wedding goal. This is the

classic case of utilizing existing

investment, which has been

mentally assigned for some

o t h e r g o a l , l e a d i n g t o

compromise in the goal for

which it was initially assigned

to.

While Manish, as per his

financial plan, allocated his PPF

account towards this goal,

which fetched him around

9.72 lakh. For the balance

amount, he had started

investing 3,100 per month

towards this goal, out of the

available monthly surplus of

23,000 and increased the

investment by 7% p.a. (based

on the average growth in his

salary). With this, he could

accumulate the required

shortfall in corpus of 19.78

lakh at the end of 16 years.

Building a retirement home: Pankaj

could not achieve his goal of

building a retirement home at

his native place Nasik since he

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had already sold off the plot of

land for h is daughter 's

wedding goal.

This means he would have to

stay in his current house at

Pune. The cost of living might

be higher in Pune, which will

affect his post-retirement

needs. Alternatively, he could

sell his Pune house and buy a

new house at Nasik at

retirement. Had he built a

retirement home at Nasik, he

might have let his Pune

property on rent, which could

have helped him fund some of

his post-retirement needs.

Manish, as per his financial

plan, had started investing

6,100 per month from his

available monthly surplus of

23,000 and increased the

investment by 7% p.a. (based

on the average growth in his

salary). By the end of 18 years,

he could accumulate the

required corpus of 50.70 lakh.

Retirement planning: Pankaj sold

off his Pune property and

bought a house at Nasik for

retirement. For post-retirement

needs, he did not have any

source of income as the rental

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October 2015

income planned from Pune

property did not materialize

since he had sold it off. He

could not rely upon his PPF

account also, since it was used

earlier for his daughter's

wedding goal. He is now left

w i t h E P F ( e m p l o y e e s '

provident fund) account only.

The EPF accumulation and

gratuity put together came to

around 1.50 crore. After

retirement, he thought of

depositing the retirement

benefits of 1.50 crore into FDs

and generat ing interest

income, which will be enough

to take care of his needs.

However, he did not know that

the retirement corpus required

for funding the post-retirement

expenses would come to

around 3.71 crore. The

requirement of 4.50 lakh p.a.

( in today's value) post-

retirement would have inflated

to around 17.41 lakh p.a. by

the time he retired and would

keep inflating post retirement

too.

With 1.50 crore, he would be

able to sustain only for 8.5

years post-retirement i.e. only

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up to his age of 63.5 years.

How he will be able to manage

expenses post that will remain

a concern and would be

realized by him only when he

w o u l d s e e t h e c o r p u s

depleting after retirement,

which is too late to take any

corrective course of action.

Manish had built his retirement

home at Nasik and hence,

could let out his Pune property

on rent which fetched him a

rent of 15,000 a month (in

today's value) post retirement.

This reduced the requirement

of retirement corpus to 2.84

crore. His projected retirement

benefits – EPF & gratuity – were

1.50 crore at retirement. He

had to accumulate the shortfall

of 1.34 crore by the time he

retired. As per his financial

plan, he started investing the

balance amount left after

paying suggested premiums

and investing for other goals

from the available surplus i.e.

2 , 0 0 0 p . m . t o w a r d s

accumulating the shortfall in

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

increasing the investment by

7% p.a. (based on the average

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October 2015

growth in his salary). In

addition to this, after the

existing home loan EMI is

stopped, the same was

diverted as investment for this.

Also, as and when the other

goals were achieved the

amount being invested for

those goals were diverted as

investment for this. As an

ef fect , he was able to

accumulate the required

shortfall in retirement corpus

of 1.34 crore comfortably

th rough the sugges ted

investments in his financial

plan.

The power of planningInvesting requires a systematic

and disciplined approach. You

need to have a clear roadmap

so that you achieve your

financial goals. This requires

you to look at the bigger

picture – your goals, time

horizon, and appropriate

investment for each goal.

Investors such as Manish on

their part would do well and

stay on course to achieve their

financial goals when they have

a proper in place.

`

How we can help youAchieving your financial goals

requires comprehensive

planning. Articulating your

goals, assessing your risk

appetite, investible surplus,

designing an asset allocation

plan, preparing a cash-flow

statement and a detailed

financial plan -- all require

t e c h n i c a l s k i l l s . A n

experienced financial advisor,

such as ICICIdirect Financial

Planning Services, can help

you develop an integrated plan

that is just right for you. At

ICICIdirect, you can also

execute and track your

financial plan online, at your

convenience and at all points

of time. Our intelligent 'Track &

Act' robo-advisory platform

gives you triggers whether you

are maintaining your asset

allocations right, it helps you

track if you are saving as per

the plan and even advice you

where to invest and/or

withdraw from.

If you haven't started planning,

this is the right time to do so.

Plan your future. Today!

Please send your feedback to [email protected]


Tête-à-tête

Long term prospects continue to remain attractive'

Indian markets have always tended to be noisy and volatile in the short

term. Investors should look through the shorter term volatility and focus on

medium to long term prospects which continue to remain attractive, says

Ashwin Patni, Head Products & Fund Manager, Axis Mutual Fund in an

interview with ICICIdirect Money Manager. All investors regardless of risk

appetite should go for asset allocation to ensure that they can optimize

their risk-return outcomes, he adds. Excerpts:

Q:

A:

The markets continue to remain volatile. How long, do you see the current sharp volatility to continue?

Indian markets have always tended to be noisy and volatile in the short term. This year, we have also been affected by global factors such as issues facing China, commodities and emerging markets. Investors should look through the

Ashwin Patni,

Head Products & Fund Manager,

Axis Mutual Fund

shorter term volatility and focus on medium to long term prospects which continue to remain attractive.

What are the key concerns related to markets one should be watchful about?

T h e r e a r e 3 b r o a d concerns in the short term. Firstly concerns on the weak earnings data reported by the domestic companies. S e c o n d l y c o n c e r n s o n political challenges being faced by the government that have affected the pace of reforms and lastly global slowdown fears.

What do the recent macro economic data suggest about our economy?

The macro -economic fundamenta ls are rea l ly strong and should help us w i t h s t a n d a n y s h o c k s emanating from the global

Q:

A :

Q:

A :


Tête-à-tête

s i t u a t i o n . I n f l a t i o n c o n t i n u e s t o r e m a i n subdued and will provide headroom for further rate cuts. Growth is recovering from a multi-year weakness and the improvement is gradual and uneven. We expect the recovery in growth rates to take another 1-2 years to fully play out.

The Reserve Bank of India (RBI) surprised the market with a 50 basis points rate cut. Do you see more easing soon?

Inflation continues to remain soft and the economy is growing below capacity. Fu r t h e r t h e e c o n o m y ' s fundamentals are real ly strong. As a result we expect the RBI to cut rates further over the next 6-12 months.

The US Federal Reserve has postponed the rate hike decision. What led to this move? Do you foresee more delay?

The US economy has entered a soft patch of late and inflation has remained on the lower side. Further the global weakness is affecting the growth prospects of the US economy as well. The exact time of policy normalization

Q:

A:

Q:

A:

remains unclear although in their most recent update the Fed has indicated that they would look do so in the next few months.

Global investors continue their pull out from the emerging markets. Why such move and how do you see the trend ahead?

Investors are reacting to the weak growth prospects in China as well as the challenges faced by the commodity exporters. Emerging markets are also at risk from policy normalization in the US.

The second quarter results of the financial year will start getting announced soon. Do you see pressure on earnings to continue? What is the road ahead?

Earnings will remain under pressure for the next 1-2 quarters. We expect growth pick-up to start reflecting in the corporate numbers towards the end of the financial year.

Can you briefly tell us about your stock selection process?

We are bottom up stock investors. Our key philosophy is that - we look for quality companies that can generate sustainable growth. Our investment process focuses on

Q:

A:

Q:

A:

Q:

A:


Tête-à-tête

risk management as an integral part of the process and looks at genera t ing s t rong r i sk-adjusted returns.

Which sectors look attractive in the current scenario and which ones would you avoid?

As India undergoes cyclical revival most sectors that are exposed to the macro-economy should benefit including financials, auto, consumer discretionary and industrials. We also like export focused sectors such as IT and healthcare. Sectors where c o m p a n i e s a r e f a c i n g significant headwinds include commodities, infrastructure and capital goods sectors.

Post RBI rate cut, how should a long-term fixed-income investor optimize his returns?

Inflation continues to remain soft and the economy is

Q:

A:

Q:

A:

growing below capacity. Fu r t h e r t h e e c o n o m y ' s fundamentals are really strong. As a result we expect the RBI to cut rates further over the next 6-12 months. Therefore we recommend investors to look at adding duration to their portfolios using appropriate strategies such as short term, income or dynamic bond funds.

What is your advice for investors at this point in terms of their overall portfolio and asset allocation?

Investors should look through short term noise and remain focused on the long term prospects. Further all investors regardless of risk appetite should go for asset allocation to ensure that they can optimize their risk-return outcomes.

Q:

A:

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

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee:Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.


ASK OUR PLANNER

October 2015

Q:

A:

I am 61 and have retired 3 years back. I have invested most of my funds into fixed deposits (FDs) and senior citizen savings scheme (SCSS). I notice that there are quite a few issues of tax-free bonds coming regularly. What's your take on them? Should I invest part of my funds into them?

- Rangarajan V

Since the tax-free bonds are issued largely by government undertakings, the credit risk is minimal compared to bonds issued by other entities. These bonds however come with longer tenures - 10, 15 or 20 years, requiring you to hold these for such long periods. Though these bonds are t r a d e d t h r o u g h s t o c k exchanges, the volume / liquidity is not so high. Further, though tax-free bonds offer regular income, they do not offer compounding benefit.

However, from taxation point of view, it scores well. Interest income earned from tax-free bonds is exempt from tax. Whereas the interest income earned from investments like FDs and SCSS is added to your income and taxed as per the

income slab which you fall under.

Hence, to compare FDs and SCSS with tax-free bonds, you will have to look at the equivalent effective pre-tax interest rate from tax-free bonds.

Since you are already retired, you may be falling under the 10% or 20% tax-slab. If we assume you fall under the 10% slab and the interest rate offered by tax-free bonds is 7.5% p.a., then the effective pre-tax interest rate works out to 8.36% p.a. In this case, the benefit by investing in tax-free bonds will not be much, as the interest rates (pre-tax) offered by FDs and SCSS are similar or even more.

However, if you fall under the 30% tax-slab and the interest rate offered by tax-free bonds is 7.5% p.a., then the effective pre-tax interest rate works out to 10.85% p.a. In this case, the benefit of investing in tax-free bonds is significant, as the interest rate (pre-tax) is more than what is being offered by FDs and SCSS.

To put in a nutshell, tax-free

Are tax-free bonds a good option for retired investors?


ASK OUR PLANNER

bonds a re su i tab le fo r investors falling under the higher tax-slabs of 20% - 30%, provided one is looking for regular income and is not concerned about liquidity issues.

I am going to buy a car in the next 1 or 2 months. I have zeroed in on Hyundai i20. The cost of the model I have opted is expected to be around Rs. 7 lakh. I have received some bonus from my organization some time back and I can buy the car using the funds. However, I am thinking to take a car loan to the tune of Rs. 6 lakh and fund Rs. 1 lakh from my funds towards down-payment, as I intend to utilize the balance funds of Rs. 6 lakh for investing towards my son's higher education (due after 7 years). Which is a better option?

- Sagar

Traditionally, for this kind of a problem, solution was always to go for an option where you can fund from your own sources, rather than opting for a loan and paying interest. However, it is always helpful to do some maths before taking a decision.

Let's take both the scenarios – taking a loan and funding on your own. In scenario one,

Q:

A:

assuming you take a car loan of Rs. 6 lakh with a repayment term of 7 years, then you would be paying an EMI of Rs.10,273 (assuming an interest rate of 11% p.a.). In this case, you would have Rs. 6 lakh available from your funds to invest as a lump sum towards your child's higher education.

In scenario two, assuming you pay the entire amount from your sources and do not take a car loan, then the EMI outgo of Rs.10,273 will be a saving now and can be invested towards your child's higher education.

The choice between scenario one and two will depend upon on the return to be generated from the investment to be made in both the scenarios (lump sum of Rs. 6 lakh in scenario one and Rs. 10,273 per month in scenario two). If your investment is able to generate a return of 12% per annum or more, then you can opt for scenario one and take a car loan. Otherwise, option two makes more sense i.e. funding on your own.

I recently applied for a home loan with a private sector bank. The loan executive told me that my loan application may be rejected, as I do

Q:


ASK OUR PLANNER

not have a good credit score. I had asked him to provide the credit score, but he said it's not possible to share the same with me. How do I get my credit score and how can I improve the same?

-Ankit

When you apply for any loan, the bank will scrutinize your loan application and get your credit score from any of the credit bureaus it has tie-up with. Currently, there are four credit bureaus in India, the oldest of them being Credit Information Bureau (India) Limited (CIBIL), which is operational for more than a decade in India. (The other three are: Equifax, Experian a n d H i g h M a r k C r e d i t Information Services).

While the bank is under no obligation to share your credit score with you, you can apply and get your credit score directly from these credit bureaus, by paying a fee. You can also avail your credit score of CIBIL by applying online through ICICIdirect.com (Click on Portfolio Tab under Trade & Invest page for visiting the Credit Score section). CIBIL's Score is in the range of 300 - 900. If your score is more than 750, then there is a higher

A:

chance of your loan being approved.

As per CIBIL, there are 4 major factors that affect your credit score:

1. Payment history: Making late payments or defaulting your equated monthly installments (EMIs) or dues (recently or consistently) shows you are having trouble to pay your existing credit obligations and will negatively affect your score.

2. High utilization of credit limit: While increased spending on your credit card will not necessarily affect your score in a negative manner, an increase in the current balance of your credit card indicates an increased re-payment burden and may negatively affect your score.

3. Higher percentage of credit cards or personal loans (also known as unsecured loan): Having a balanced mix between the secured loans (such as auto, home loan) and unsecured loan (such as personal loan, credit card) is likely to have a more positive effect on your score.

4. Many new accounts opened recently: If you have recently


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

been sanctioned multiple loans and credit cards, then lenders wi l l v iew your application with caution b e c a u s e t h i s b e h a v i o r indicates your debt burden has i n c r e a s e d , w h i c h w i l l negatively impact your score.

CIBIL also suggests the below ways through which you can improve your credit score:

1. Always pay your dues on time: Late payments are viewed negatively by lenders.

2. Keep your balances low: It is always prudent to not use too much credit, control your utilization.

3. Maintain a healthy mix of credit: It is better to have a healthy mix of secured and unsecured loans. Too many unsecured l o a n s m a y b e v i e w e d negatively.

4. Apply for new credit in moderation: You don't want to seem credit hungry; apply for new credit cautiously.

5. Monitor your co-signed, guaranteed and joint accounts m o n t h l y : I n c o - s i g n e d , guaranteed or jointly held

accounts, you are held equally liable for missed payments. Your joint holder's (or the g u a r a n t e e d i n d i v i d u a l ) negligence could affect your ability to access credit when you need it.

6. Review you credit history frequently throughout the year: Check your credit score from t i m e t o t i m e t o a v o i d unpleasant surprises in the form of a rejected loan application.

If I deposit Rs. 50,000 in national pension system (NPS) Tier-II account, will I get tax benefits?

- Anita Kumari

Tax benefits are not available for investing into Tier-II a c c o u n t o f N P S . T h e contributions to Tier-I account only are eligible for tax deduction.

The Tier-I account is a mandatory, non-withdrawable account, meant for retirement savings. The Tier-II account is a withdrawable account, simply like a voluntary savings facility. It can be opened only when there is an active Tier-I account in your name.

Q:

A:

MUTUAL FUND ANALYSIS


Investing in Duration Funds

Key Information:

With interest rates expected to move down further, this presents a good time to invest in duration funds to derive maximum returns.

A duration strategy is where the fund manager takes a call on the direction of interest rate movements and accordingly focuses on adjusting the duration of his portfolio to maximize returns. He is less focused on searching for corporate credits with high accruals and sticks to government bonds focusing on managing duration to drive returns. In periods of declining interest rates, fund manager will maintain relatively high duration to maximize the benefit of increase in bond price on fall in interest rates. Conversely, in periods of rising interest rates, he would minimise the duration of the fund to protect against capital losses on the portfolio. This not only protects against capital losses, but at the same time, allows him to reinvest maturity proceeds at higher yields in a rising rate environment.

Birla Sun Life Income Plus

Fund Objective:An open-ended income scheme with the objective to generate consistent income through superior yields on its investments at moderate levels of risk through a d i v e r s i f i e d i n v e s t m e n t approach. This income may be complemented by pr ice changes of instruments in the portfolio.

NAV as on October 07, 2015 ) 65.0

Inception Date November 10, 1995

Fund Manager Prasad Dhonde

Minimum Investment ( )

Lumpsum 5000

Expense Ratio (%) 1.56

Last declared YTM 7.78

Exit Load Nil

Benchmark Crisil Composite

Bond Fund Index

Modified Duration 8.92

(`

`

Riskometer :

This product is suitable for investors who are seeking*:•

•

income with capital growth over medium to long termi n v e s t m e n t s i n a combination of debt and money market instruments i nc lud ing government s e c u r i t i e s o f v a r y i n g maturities

Fund Manager: Prasad DhondePrasad Dhonde has been managing the fund since 5



years now. Prior to joining Birla Sun Life Asset Management Company (BSLAMC) he worked with Birla SL securities, CARE, Time Investors, etc and has 11 years of experience in financial service sector.

The fund has delivered 13.5% return in 1 year and 7.5% YTD (year-to-date) on annualized basis. The fund has delivered compounded annual ized return (CAR) for the last five years at 8.9% as against the 8.5% delivered by benchmark index. In 2008, when the government securities (G-Sec) yield fell ~200 basis points (bps), the fund delivered a whopping 23% return in that year.

Performance:

Yearly Returns

13.5

9.4

3.8

12.6

11.6

3.5

0.0

5.0

10.0

15.0

30-Sep-14 To 30-Sep-15 30-Sep-13 To 30-Sep-14 30-Sep-12 To 30-Sep-13

Retu

rn%

Fund BenchMark

Performance vs. Benchmark

Fund Benchmark

3.1

13.1

8.8

8.8

4.5

12.3

9.1

8.5

0

5

10

15

6 Month 1 Year 3 Year 5 Year

Retu

rn%

Portfolio:

Our View:

The fund manager goes high on G - Secs w i th 95 .4% holdings in sovereign bonds. In corporate bonds category the fund plays safe and majorly holds only AAA-rated bonds. With interest rates on a declining trend, the fund has gradual ly increased the holdings of sovereign bonds from 81% in August 2014 to 95% in August 2015.

With CPI (consumer price index) eas ing and WPI (wholesale price index) in the negative territory for the past 10 months, the inflation is set to remain favourable as the global economic slowdown will keep commodity prices under check going forward.

Demand supply dynamics are in favour of bond prices given the increase in FPI (foreign portfolio investment) limits for investing in G-Secs, banks having higher surplus to invest in sovereign bonds on account of lower credit to deposit g rowth and no fu r ther incremental borrowings plan by the government. Also CPI is expected to stay well below



Reserve Bank of India's (RBI's) target of 5.8% by January 2016. This opens the room for further rate cut and thus government bonds yields are expected to come at 6-6.5% which will bode beneficial for duration funds.

Birla Sun Life Income Plus fund has modified duration of 8.82 years which makes it attractive

as the expected fall in yields will lead to increase in prices of the bonds which in turn will give capital gains (Modified duration of 8.82 years implies that a 100 bps fall in yield will lead to 8.82% increase in prices). The fund is set to benefit largely from the falling interest rates in the economy.

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

Other attributes (Years)

Asset Allocation %

Credit quality %

CDs -- -- -- -- 1.42 0.53 -- -- -- -- 0.03 0.16 -- --

CPs -- -- -- -- -- -- -- -- -- -- -- -- -- --

Corp Bond 1.13 1.78 4.46 4.44 4.79 9.63 13.12 5.44 4.35 9.19 14.38 17.47 17.38 15.97

Gsec 95.39 95.38 93.62 89.84 85.93 87.79 83.81 90.06 92.44 74.61 80.28 78.28 77.38 81.01

Others 3.48 2.85 1.92 5.72 7.87 2.05 3.07 4.50 3.22 16.20 5.31 4.09 5.23 3.01

A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --

AA & Equiv 1.06 -- -- -- 0.97 1.09 1.08 1.02 1.08 1.22 5.36 6.71 3.77 5.10

AAA & Equiv 0.61 2.34 4.46 4.44 5.79 9.63 12.59 4.94 3.81 8.60 9.84 11.73 14.44 11.67

Cash & Equivalent 2.93 2.28 1.92 5.72 7.32 1.50 2.53 3.98 2.67 12.21 4.52 3.28 4.41 2.22

SOV 95.39 95.38 93.62 89.84 85.93 87.79 83.81 90.06 92.44 74.61 80.28 78.28 77.38 81.01

Others -- -- -- -- -- -- -- -- -- -- -- -- -- --

Avg Maturity(Yrs) 13.36 16.22

Modified Duration 8.92 8.82 8.53 7.18 7.09 7.14 7.51 7.13 7.37 6.92 7.99 8.12 7.90 7.61

Top 10 Holdings Asset Type %

08.17% GOI - 01-Dec-2044 Government Securities 27.54

08.60% GOI - 02-Jun-2028 Government Securities 22.57


07.72% GOI - 25-May-2025 Government Securities 7.47


08.15% GOI - 24-Nov-2026 Government Securities 5.8

08.40% GOI 2024 Government Securities 5.54

Net Current Asset Cash & Cash Equivalents 2.93

Talwandi Sabo Power Ltd. Corporate Debt 1.06


Whats In %

ICICI Bank Ltd. 0.1

Power Finance Corporation Ltd. 0.5

Talwandi Sabo Power Ltd. 1.1

Whats Out %

Clearing Corporation Of India Ltd. 0.2

ICICI Bank Ltd. 9.98% (13-Sep-16) 0.1

Power Finance Corpn. Ltd. (20-Nov-19) 0.6



Performance of all the schemes managed by the fund manager

30 -Sep-14 30 -Sep-13 30 -Sep-12

30 -Sep-15 30 -Sep-14 30 -Sep-13

Fund Name

Birla SL Gilt Plus-PF(G) 15.99 12.72 3.94

I-Sec Li-BEX 15.70 12.85 2.91

Birla SL G-Sec-LT(G) 15.61 10.12 4.03

I-Sec Li-BEX 15.70 12.85 2.91

Birla SL Income Plus(G) 13.55 9.41 3.77

Crisil Composite Bond Fund Index 12.56 11.61 3.45

Birla SL Constant Maturity 10 Year Gilt Fund-Reg(G) 12.91 6.27 2.45

I-Sec Li-BEX 15.70 12.85 2.91

Birla SL Treasury Optimizer Plan-Ret(G) 11.31 10.87 8.84

Crisil Short Term Bond Fund Index 9.90 10.12 7.73

Birla SL Short Term Fund(G) 10.37 10.34 7.95


Birla SL FRF-Long Term Plan-Ret(G) 9.36 9.62 9.00

Crisil Liquid Fund Index 8.56 9.49 8.54

Birla SL CPO Fund-Sr 18 8.49 – –

Crisil MIP Blended Index 10.72 – –

Birla SL CPO Fund-Sr 22 8.24 -- –



Crisil MIP Blended Index 10.72 -- –





Birla SL Inv Inc-QS I-Ret(G) 7.98 9.52 9.36




Birla SL Qrtly Inv 4(G) 7.63 9.08 9.29




Birla SL Gilt Plus-Liquid(G) 7.58 8.45 9.14

I-Sec Si-BEX 9.91 8.93 7.10

Birla SL CPO Fund-Sr 11 7.49 15.51 –

Crisil MIP Blended Index 10.72 15.45 –



Birla SL G-Sec-ST(G) 7.31 7.97 8.13

I-Sec Si-BEX 9.91 8.93 7.10





Birla SL Dynamic Asset Allocation Fund(G) 4.86 32.27 2.29

Crisil Balanced Fund Index 4.38 28.89 1.86

Birla SL Gold ETF -2.07 -11.63 -6.20

Gold-India -3.37 -11.08 -3.70

Data as on October 07,2015 ;Portfolio details as on Sep-2015Source: ACE MF, ICICIdirect Research



ICICI Prudential Income Plan

Fund Objective:To generate income through investments in a range of debt a n d m o n e y m a r k e t i ns t ruments o f va r ious maturities with a view to maximising income while maintaining the optimum balance of yield, safety and liquidity.

Key Information:

Risk-O-Meter:

This product is suitable for investors who are seeking:

•

•

Long term wealth creation solution

A debt fund that invests in debt and money market instruments of various

NAV as on October 07, 2015 ( ) 45.4

Inception Date July 9, 1998

Fund Manager Manish Banthia

Minimum Investment (`)

Lumpsum 5000

Expense Ratio (%) 1.50

Last declared YTM 7.71

Exit Load 1% on or before

1Y, Nil after 1Y

Benchmark Crisil Composite

Bond Fund Index

Modified Duration 8.15

`

maturities with a view to maximize income while m a i n t a i n i n g o p t i m u m balance of yield, safety and liquidity

Fund Managers: Manish Banthia

Performance:

Manish Banthia is B.Com, ACA and MBA. He is managing the fund since 2012 and has 5 years of experience in financial services sector.

As stated in the objective to earn stable returns, the fund h a s i n l i n e d e l i v e r e d compounded annual ised return (CAR) of 8.3% in the last five years. The CAR for past 10 years is 8.4% and since the inception of the fund is 9.1%. The fund has delivered return of 13.5% in past 1 year and YTD annualised return of 8%. In 2008, when the G-Sec yield fell ~200 bps, the fund delivered returns of 25% in that year.

Fund BenchMark

13.5

11.7

1.2

12.6

11.6

3.5

0.0

5.0

10.0

15.0

30-Sep-14 To 30-Sep-15 30-Sep-13 To 30-Sep-14 30-Sep-12 To 30-Sep-13

Retu

rn%

Yearly Returns



3.6

13

8.6

8.3

4.5

12.3

9.1

8.5

0

5

10

15

6 Month 1 Year 3 Year 5 Year

Retu

rn%

Performance vs. Benchmark

Fund Benchmark

Portfolio:The fund holds 81.48% of its portfolio in sovereign bonds and 16.2% in corporate bonds. The fund generally invests in AAA-rated bonds and very less in AA-rated bonds. It doesn't invest in A-rated bonds. With interest rates on a declining trend, the fund has gradually increased the holdings of sovereign bonds from 74% in August 2014 to 82% in August 2015.

Our View:As stated earlier, the expected further rate cut and thus expected fall in government bonds yields at around 6-6.5% wil l bode beneficial for duration funds.

The average maturity of the fund is 16.8 years and modified dura t ion o f 8 .15 years (Modified duration of 8.15 years implies that a 100 bps fall in yield will lead to 8.15% increase in prices) which makes it extremely favourable in the present scenario where decreasing interest rates which will lead to fall in G-Sec yield and thus increase in bond prices.

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

Asset allocation

CDs -- -- -- -- -- -- -- -- 1.79 -- -- -- -- --CPs -- -- -- -- -- 0.62 -- -- -- -- -- -- -- --Corp Bond 16.20 17.18 21.34 19.07 18.56 19.19 10.63 11.04 11.90 16.67 20.43 26.32 23.64 22.36Gsec 81.48 80.66 76.65 77.50 78.88 81.85 83.54 87.12 85.41 80.26 77.29 72.09 73.89 74.45Others 2.32 2.16 2.01 3.44 2.56 -1.67 5.83 1.84 0.90 3.07 2.28 1.59 2.47 3.20

A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --AA & Equiv 3.61 3.61 3.62 3.60 3.59 3.73 3.79 3.93 4.39 7.91 8.04 10.03 9.55 9.07AAA & Equiv 12.59 13.58 17.72 15.47 14.98 16.09 6.84 7.11 9.31 8.76 12.39 16.29 14.09 13.29Cash & Equivalent 2.32 2.16 2.01 3.44 2.56 -1.67 5.83 1.84 0.90 3.07 2.28 1.59 2.47 3.20SOV 81.48 80.66 76.65 77.50 78.88 81.85 83.54 87.12 85.41 80.26 77.29 72.09 73.89 74.45Others -- -- -- -- -- -- -- -- -- -- -- -- -- --

Avg Maturity(Yrs) 16.78 16.21 15.98 15.80 14.37 14.44 12.45 13.47 15.06 15.29 14.17 14.77 14.58 14.00

Modified Duration 8.15 8.02 7.91 7.80 7.57 7.76 6.97 7.42 7.73 7.40 7.15 7.13 7.00 7.01

Asset Allocation %

Credit quality %

Other attributes (Years)

07.88% GOI - 19-Mar-2030 Government Securities 14.51

07.40% GOI - 09-Sep-2035 Government Securities 13.57



1.44% GOI IIB 2023 Government Securities 6.03


08.30% GOI - 02-Jul-2040 Government Securities 5.26

07.95% GOI 2032 Government Securities 4.7


Reliance Utilities & Power Ltd. SR- PPD 4 9.75% (02-Aug-24) Corporate Debt 2.76

Top 10 Sectors Asset Type %



Performance of all the schemes managed by the fund manager

30 -Sep-14 30 -Sep-13 30 -Sep-12

30 -Sep-15 30 -Sep-14 30 -Sep-13

Fund Name

ICICI Pru Gilt-Invest-PF-Reg(G) 15.90 13.52 1.25

I-Sec Li-BEX 15.70 12.85 2.91

ICICI Pru Long Term Plan-Ret(G) 15.14 13.59 8.43


ICICI Pru Income-Reg(G) 13.45 11.65 1.24


ICICI Pru Income Opportunities Fund(G) 12.99 11.78 4.01


ICICI Pru Short Term Plan-Reg(G) 10.39 10.56 6.80


ICICI Pru Balanced Advantage Fund-Reg(G) 10.22 35.70 6.98

Crisil Balanced Fund Index 4.38 28.89 1.86

ICICI Pru Gold ETF -2.01 -11.98 -5.61

Gold-India -3.37 -11.08 -3.70

ICICI Pru Regular Gold Savings Fund(G) -4.19 -11.06 -6.37

Gold-India -3.37 -11.08 -3.70

Data as on October 07,2015 ;Portfolio details as on August-2015Source: ACE MF, ICICIdirect Research


MUTUAL FUND TOP PICKS

Based on our quarterly rankings, we have updated our mutual fund (MF) top picks.

Mutual Fund Top Picks

Equity

Category Top Picks

Largecaps Birla Sunlife Frontline equity FundICICI Pru Focussed Bluechip Equity FundUTI Opportunities FundSBI Bluechip Fund

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

Diversified Franklin India Prima PlusICICI Prudential Dynamic PlanReliance Equity Opportunities

ELSS Axis Long Term EquityICICI Prudential Tax PlanFranklin India Tax shield

October 2015


MUTUAL FUND TOP PICKS

October 2015

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

Credit Opportunities Fund

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

Income Funds ICICI PrudenIncome FundBirla Sun Life Income Plus - Regular Plan UTI Bond Fund

Gilts Funds ICICI Pru Gilt Inv. PF PlanBirla Sunlife Constant Maturity 10 yeargilt plan

MIP(Aggressive)

Birla Sunlife Savings 5ICICI Prudential MIP 25DSP Blackrock MIP

Debt

Category Top Picks

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

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


EQUITY MODEL PORTFOLIO

October 2015

Our indicative large-cap equity model portfolio (“Quality-20”) has

continued to deliver an impressive return (inclusive of dividends)

of 80% since its inception (June 21, 2011) vis-à-vis the index

return of ~53% during the same period, an outperformance of

~27%. This validates our thesis of selecting companies with

sound business fundamentals that form the core theme of our

portfolio. Our mid-cap portfolio (“Consistent-15”) outperformed

the benchmark by ~1.9x since June 2011. Our consistent

outperformance demonstrates our superior stock picking ability

as markets in H1CY15 aligned to our view of favourable risk

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

Some key performers of our portfolio are Lupin, Axis Bank and

TCS in the large-cap portfolio while Natco Pharma and Shree

Cement have delivered stupendous returns in the mid-cap

portfolio.

We have always suggested the SIP (systematic investment plan)

mode of investment and still find a lot of merit in it as the

preferred mode of deployment given the market conditions and

volatility associated since the inception of the portfolio. It has

outperformed other portfolios, thus, reinforcing our belief in a

plan of investment. However, now we are also advising clients to

look at lump sum investments on any possible dips.

On a YTD (year-to-date) basis, the markets have been

consolidating in a broad range of 8000-8800 on the Nifty. This is

owing to a) markets awaiting a turnaround on the ground and,

hence, corporate earnings and b) taking a breather post a

stupendous rise witnessed in CY14 wherein valuations in some

areas were ahead of fundamentals. Going ahead, in the medium

term, stocks with reasonable earnings visibility and valuations

should do well and will find flavour among investors.

On the back of this run up in stock prices and valuations running

ahead of fundamentals, we have aligned our portfolio to capture



October 2015

the new opportunities available in the market. We have replaced

Bajaj Auto with Maruti and Titan Company with Asian Paints.

Furthermore, we have transferred Bosch which was earlier a part

of the mid-cap portfolio to the large-cap portfolio. Apart from

shuffling stocks, we have also increased/reduced the allocation

weights of some companies.

In the large-cap space as compared to broader indices we

continue to remain overweight on Pharma & IT, following which

FMCG forms the major portion of the asset allocation.

We continue to remain underweight on metals and oil & gas with

our only pick being ONGC and Tata Steel, which have a better

risk-reward opportunity. We believe that return on investment

(RoI) for these sectors would continue to remain stressed due to

a subdued pricing environment and discreet trade activities. We

continue to remain over-weight 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 are strongly overweight on Infosys,

TCS in the IT space, HDFC and HDFC Bank in the BFSI space, ITC

and PVR in consumer space and L&T and NBCC in the infra space.

House view on Index: Factoring in the fall in inflation, comfortable

CAD (current account deficit), improved sentiments and pick-up

in GDP (gross domestic product) growth, we expect Sensex EPS

(earnings per share) to grow 13.2% and 19.4% to Rs. 1,539 and

Rs. 1,838 during FY16E and FY17E, respectively (CAGR of 16% in

FY15-17E). We assign a P/E (price-to-earnings) multiple of 16.5x

on FY17E EPS to arrive at a fair value of 30,300 for the Sensex by

end CY15 with the Nifty estimated to reach 9,100.



October 2015

Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

Auto 10 7

Tata Motors DVR 3 2.1

Bosch 3 2.1

Maruti 4 2.8

BFSI 29 20.3

HDFC Bank 8 5.6

Axis Bank 7 4.9

HDFC 8 5.6

SBI 6 4.2

Capital Goods 6 4.2

L & T 6 4.2

Cement 3 2.1

UltraTech Cement 3 2.1

FMCG/Consumer 13 9.1

ITC 7 4.9

United Spirits 2 1.4

Asian Paints 4 2.8

IT 18 12.6

Infosys 10 7

TCS 8 5.6

Meida 2 1.4

Zee Entertainment 2 1.4

Metal 2 1.4

Tata Steel 2 1.4

Oil & Gas 3 2.1

ONGC 3 2.1

Pharma 11 7.7

Lupin 6 4.2

Dr Reddys 5 3.5

Telecom 3 2.1

Bharti Airtel 3 2.1

Largecap share in diversified 70



October 2015

Content source: ICICIdirect.com Research

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

ICICI Securities Limited has received a mandate from SBI. This report is prepared based on publicly available information.

ICICI Securities Limited has received an Investment Banking mandate from Castrol India Ltd. This report is prepared based on publicly available information.

ICICI Securities Limited has received an Investment Banking mandate from HDFC Ltd. This report is prepared based on publicly available information.

Midcap Stocks

Name of the company Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

Auto 8 2.4

Eicher Motors 8 2.4

BFSI 14 4.2

Bajaj Finance 8 2.4

CARE 6 1.8

Capital Goods 6 1.8

Cummins 6 1.8

Cement 6 1.8

Shree Cement 6 1.8

Consumer 12 3.6

Symphony 6 1.8

Kansai Nerolac 6 1.8

FMCG 8 2.4

Nestle 8 2.4

Infrastructure 6 1.8

NBCC 6 1.8

Logistics 6 1.8

Container Corporation of India 6 1.8

Media 8 2.4

PVR 8 2.4

Oil & Gas 6 1.8

Castrol 6 1.8

Pharma 14 4.2

Natco Pharma 8 2.4

Torrent Pharma 6 1.8

Textile 6 1.8

Arvind 6 1.8

Total 100 30

Total of all three portfolios 100 100



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

October 14, 2015

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 October 14, 2015

October 2015

80.1

144.1

98.6

52.5

71.856.1

0

25

50

75

100

125

150

175

%

5,30

0,00

0

5,30

0,00

0

5,30

0,00

0

6,94

4,57

6

9,80

5,78

4

7,68

5,13

7

6,25

1,14

6

6,70

4,59

9

6,55

9,83

6

3,500,000

4,500,000

5,500,000

6,500,000

7,500,000

8,500,000

|

QUIZ TIME

1. Principal invested as well as interest income earned from tax-free bonds is exempt from tax. True / False

2. The Employees' Provident Fund Organisation (EPFO) is expected to launch an online PF withdrawal facility by ______.

3. Currently, there are four credit bureaus in India, viz. ______, ______, ______ and ______.

4. Interest income earned from senior citizen savings scheme (SCSS) is exempt from tax. True / False

5. If your CIBIL score is more than ______, then there is a higher chance of your loan being approved.

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 2015 quiz are:

1. The Reserve Bank of India (RBI) has cut the repo rate by ______ basis points (bps) to ______%.

A: 50 bps to 6.75%

2. Under its Employees Deposit Linked Insurance (EDLI) scheme, EPFO has hiked insurance cover up to Rs ______ lakh from current limit of Rs 3.6 lakh.

A: 6

3. The Rajiv Gandhi Equity Savings Scheme (RGESS) got notified in ______.

A: December 2013

4. When you invest in stocks in the name of your parents or major children, clubbing provisions of taxation apply. True / False

A: False

5. You can adjust the shortfall against the short-term capital gains and pay tax only on the remaining capital gains, if your total income (excluding capital gains) is less than the minimum tax slab. True / False

A: TrueCongratulations to the following winner for providing correct answers!

Ahamed Shareef



PRIME NUMBERS

October 2015

Equity Markets

Domestic Equity Indices Index 30-Sep-15 31-Aug-15 Change (%)

CNX Nifty 7,948.9 7,971.3 -0.3%

CNX Midcap 12,984.5 13,059.1 -0.6%

S&P BSE Sensex 26,154.8 26,283.1 -0.5%

S&P BSE 100 8,077.4 8,121.0 -0.5%

S&P BSE 200 3352.02 3,368.4 -0.5%

S&P BSE 500 10,498.3 10,536.4 -0.4%

Global Equity Indices

Sectoral Indices Index 30-Sep-15 31-Aug-15 Change (%)

S&P BSE Auto 17,391.1 17,865.3 -2.7%

S&P BSE Bankex 19,681.6 19,637.2 0.2%

S&P BSE FMCG 4,183,637.0 4,113,737.0 1.7%

S&P BSE Healthcare 17,779.2 17,961.8 -1.0%

S&P BSE Metals 6,833.7 7,446.1 -8.2%

S&P BSE Oil & Gas 8,694.7 8,878.0 -2.1%

S&P BSE Power 1,841.7 1,834.4 0.4%

S&P BSE Realty 1,396.6 1,260.7 10.8%

S&P BSE Teck 6,255.6 6,096.7 2.6%

Volatility Index (VIX)

Index 30-Sep-15 31-Aug-15 Change (%)

VIX 19.63 24.60 -20.20

Index 30-Sep-15 31-Aug-15 Change (%)

Dow Jones (US) 16,284.7 16,528.0 -1.5%

S&P 500 (US) 1,920.0 1,972.2 -2.6%

Nasdaq (US) 4,620.2 4,776.5 -3.3%

FTSE (UK) 6,061.6 6,247.9 -3.0%

DAX (Germany) 9,660.4 10,259.5 -5.8%

CAC 40 (France) 4,455.3 4,653.0 -4.2%

Nikkei (Japan) 17,388.2 18,890.5 -8.0%

Hang Seng (Hong Kong) 20,846.3 21,670.6 -3.8%

Shanghai Composite (China) 3,052.8 3,206.0 -4.8%

Taiwan Weighted (Taiwan) 8,181.2 8,174.9 0.1%

Straits Times (Singapore) 2,790.9 2,921.4 -4.5%


PRIME NUMBERS

Debt Markets

Government Securities (G-Sec) Yields (in %) Sep-15 Aug-15 Change (bps)10-year 7.54 7.79 -25

5-year 7.63 7.91 -29

3-year 7.50 7.82 -31

1-year 7.25 7.45 -20

Corporate Bond Yields (in %) Sep-15 Aug-15 Change (bps)

AAA 10-year 8.41 8.45 -3.5

AAA 5-year 8.44 8.42 2.4

AAA 3-year 8.37 8.33 4.1

AAA 1-year 8.23 8.21 2.2

AA 10-year 8.95 9.03 -8.2

AA 5-year 8.98 8.99 -0.6

AA 3-year 8.91 8.91 -0.2

AA 1-year 8.77 8.82 -4.3

Certificate of Deposit (CD) Rates (in %) Sep-15 Aug-15 Change (bps) 12 Months 7.38 7.83 -46

6 Months 7.24 7.67 -43

3 Months 7.12 7.41 -29

1 Month 7.13 7.34 -22

Commercial Paper (CP) Rates (in %) Sep-15 Aug-15 Change (bps) 12 Months 8.05 8.30 -25

6 Months 7.73 8.08 -34

3 Months 7.51 7.81 -31

1 Month 7.36 7.52 -16

Treasury Bill (T-Bills) Yields (in %) Sep-15 Aug-15 Change (bps)91-day 7.04 7.39 -35.2

182-day 7.10 7.46 -36.0

364-day 7.12 7.54 -41.5


PRIME NUMBERS

10-year benchmark yields (%) across countries

Countries 30-Sep-15 31-Aug-15 Change in bps

India 7.54 7.79 (24.60)

US 2.04 2.22 (18.11)

UK 1.76 1.96 (20.00)

Japan 0.36 0.38 (2.40)

Spain 1.89 2.11 (21.60)

Germany 0.59 0.80 (21.10)

France 0.98 1.15 (16.70)

Italy 1.73 1.96 (23.70)

Brazil 15.40 14.27 (113.70)

China 3.27 3.40 (13.00)

Inflows In Equity and Debt Markets

MF Inflows (in Rs. crore) Sep-15 Aug-15 YTDEquity 9,320 10,533 56,801

Debt 16,660 24,189 3,56,720

FII Inflows (in Rs. crore) Sep-15 Aug-15 YTD

Equity -5,696 -17,209 21,612

Debt 165 -480 38,987

Macro-economic Indicators

Consumer price index (CPI)

ItemsWeights Jun-15 (in %) Jul-15 (in %) Aug-15 (in %) Weights Sept (in %)

Food & beverages 45.86 5.73 2.81 2.92 4.29

Pan, tobacco and intoxicants 2.38 9.68 9.76 9.34 9.35

Cloth & Foot 6.53 6.26 5.88 5.77 6.00

Housing 10.07 4.48 4.44 4.68 4.74

Fuel & light 6.84 5.83 5.44 5.70 5.42

Misc. 28.31 4.19 3.44 3.08 3.34

CPI 100 5.40 3.69 3.66 4.41

Wholesale price index (WPI) Particulars Weights Jul-15 (in %) Aug-15 (in %) Sept (in %)

WPI 100 -4.05 -4.95 -4.54 Primary Articles 20.1 -3.66 -3.71 -2.09 Fuel & Power 14.9 -12.81 -16.50 -17.71 Manufactured Goods 65.0 -1.47 -1.92 -1.73


PRIME NUMBERS

Index of industrial production (IIP) Sector-wise growth rate (%)Categories May-15 Jun-15 Jul-15 Aug-15 Weight (%)

Mining 2.3 -0.5 1.3 3.8 14.2Manufacturing 2.0 5.4 4.7 6.9 75.5Electricity 6.0 1.3 3.5 5.6 10.3

Currencies and CommoditiesCurrencies

Currency pair 30-Sep-15 31-Aug-15 Change (%) StatusUSD/INR 65.59 66.48 1.3% AppreciatedEUR/INR 73.50 74.50 1.3% AppreciatedGBP/INR 99.58 102.50 2.8% AppreciatedAUD/INR 46.12 47.40 2.7% AppreciatedCHF/INR 67.37 68.89 2.2% AppreciatedJPY/INR 54.59 54.77 0.3% AppreciatedCNY/INR 10.32 10.42 1.0% Appreciated

Commodities Item 30-Sep-15 31-Aug-15 Change (%)

Crude ($/barrel) 47.1 51.3 -8.1%Gold ($/ounce) 1,115.1 1,134.8 -1.7%

Mutual Funds: Category Average Returns

Equity Funds Returns (in %)

Tenure Diversified Funds Mid-cap & Small-cap

Funds

Large-capFunds

ELSS (Tax-

savingfunds)

6-month -1.90 2.10 -4.29 -2.801-year 8.59 18.37 4.32 8.303-year 18.71 28.12 15.05 18.355-year 9.73 15.49 7.85 9.42Returns as on Sept. 30, 2015

Debt Funds Returns (in %)

Tenure Liquid Funds Short-termincome funds

Ultra short-term funds

Long-termincome funds

Returns as on Sept. 30, 2015

Gilt funds

6-month 7.93 7.90 8.31 7.08 7.081-year 8.27 9.42 8.65 11.63 12.203-year 8.67 8.76 8.86 8.90 9.00

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


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

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

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

City Dates For More Information & Registration call:

Premium Education Programmes Schedule

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

1 Pune 3rd and 4th October 2015 Kusmakar on 7875442311

2 Mumbai 10th and 11th October 2015 Nihal on 9619359592

3 Mumbai 17th and 18th October 2015 Manish on 8451057943

4 New Delhi 17th and 18th October 2015 Vishal on 07838290143, Harneet on 09582158693

5 Hyderabad 24th and 25th October 2015 Ruchi on 8297362323


7 Chennai 24th and 25th October 2015 Rajat on 9962294867

8 Pune 17th and 18th October 2015 Kusmakar on 7875442311


10 Vijayawada 4th October 2015 Ruchi on 8297362323

11 Rajahmundry 4th October 2015 Ruchi on 8297362323

12 Ahmedabad 11th October 2015 Yogesh on 8238053563

13 Guwahati 18th October 2015 Sumit Sarkar on 8017516187

14 Vapi 18th October 2015 Yogesh on 8238053563

15 Ajmer 18th October 2015 Vishal on 07838290143, Harneet on 09582158693

16 Jodhpur 25th October 2015 Vishal on 07838290143, Harneet on 09582158693

Sr.No


Schedule for Technical Analysis Programme

17 Chennai 10th and 11th October 2015 Rajat on 9962294867

18 Thane 10th and 11th October 2015 Manish on 8451057943



21 Mumbai 31st October and 1st November 2015 Nihal on 9619359592

22 Pondicherry 31st October and 1st November 2015 Rajat on 9962294867

Sr.No


Schedule for Foundation Programme on Stock Investing

23 Thane 24th and 25th October 2015 Manish on 8451057943 on 8451057943


25 New Delhi 17th and 18th October 2015 Vishal on 07838290143,Harneet on 09582158693


27 Bangalore 10th and 11th October 2015 Subrata on 9620001478

28 Kolkata 10th and 11th October 2015 Sumit Sarkar on 8017516187


30 Thane 3rd and 4th October 2015 Manish on 8451057943


Contact us

Email:

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

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

SMS:

SMS EDU to 5676766 for more details

31 Mumbai 3rd and 4th October 2015 Manish on 8451057943

32 Mumbai 31st October and 1st November 2015 Manish on 8451057943

33 Chennai 31st October and 1st November 2015 Rajat on 9962294867



36 Pune 31st October and 1st November 2015 Kusmakar on 7875442311

37 Chandigarh 17th and 18th October 2015 Vishal on 07838290143, Harneet on 09582158693


Schedule for Fast-track Programme on Stock InvestingSr.No


39 Dhanbad 18th October 2015 Sumit Sarkar on 8017516187

40 Ranchi 4th October 2015 Sumit Sarkar on 8017516187

41 Indore 18th October 2015 Kusmakar on 7875442311

42 Vadodara 18th October 2015 Yogesh on 8238053563

43 Patna 11th October 2015 Sumit Sarkar on 8017516187

44 Jaipur 11th October 2015 Vishal on 07838290143, Harneet on 09582158693

45 Bikaner 18th October 2015 Vishal on 07838290143, Harneet on 09582158693

46 Ahmedabad 18th October 2015 Yogesh on 8238053563

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

Schedule for Fast-track Programme on Technical Analysis

47 Surat 4th October 2015 Yogesh on 8238053563

48 Surat 11th October 2015 Yogesh on 8238053563


Schedule for Techno Derivatives Programme



Schedule for MarketMaster Programme

50 Hyderabad 31st October and 1st November 2015 Ruchi on 8297362323

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Documents

ICICI October 15 Issue newcontent.icicidirect.com/MoneyManagerMagazine/October_2015.pdf · Indian economy as it reduced the benchmark repurchase rate by 50 bps to 6.75%. The cash