7
Anup BagchiMD & CEO
ICICI Securities Ltd.
Interest rates play an important role in the economy as well as in your personal finances. The Reserve Bank of India (RBI) r e g u l a r l y m o n i t o r s macroeconomic conditions and uses its monetary policies to stimulate growth or slow down an overheated economy. When RBI increases interest rates, it is an effort to restrict spending in the economy and curb inflation expectations. On the other hand, when it decreases, RBI strives to encourage economic activity and stimulate growth. Both rising and falling interest rates affect everything right down to your savings and investments.
We are in a falling interest rate environment, with RBI cutting repo rate (the rate at which banks borrow from the central bank) by a total of 150 basis points (bps) since January 2015, including the latest 25 bps cut in April 2016. There is a consensus that rates would fall further, thanks to easing inflation and normal monsoon forecast. So how do interest rates impact you and how should you prepare for falling interest rates ahead? Falling interest rates is positive for growth overall, but is also negative for investors who are dependent on interest income.
If falling interest rates create a surplus in your savings, it is a good idea to pay off your high-interest loans. Credit card bills can go first, followed by personal loans, car and consumer durable loans, education loans and home loans. It is also likely that your
1ICICIdirect Money Manager April 2016
debt, especially long term debt investments may see an appreciation. This is a good opportunity to review your investment's asset-allocation and rebalance to the target.
Decline in interest rates also helps equity markets since they reduce the overall cost of doing business in an economy, which in turn improves margins and profitability of companies. It also positively impacts the revenues of companies since lower interest rates provide impetus to consumption. So it is a good time to view your stock portfolio in this light.
Lower interest rates is a major concern for senior citizens and retirees, as they rely heavily on fixed-income producing investments (in the form of regular interest payouts) to meet their monthly commitments.Interest rates on small savings schemes have also got cut recently, in the range of 60 and 130 bps, across schemes. The rates on these schemes have now become market linked and will be reset every quarter. This will bring down the returns. Lower interest rates are correlated to lower inflation expectations. Therefore part of the decrease in interest income will be absorbed by lower than expected expenses. However, it is likely that as we grow as a stronger economy, interest rates will soften further. The cost of capital and interest rates reflect the macroeconomic situation and confidence of the investors all over the world. Retirees will therefore need to look at more sophisticated investment strategies, than just relying on bank deposits or other debt instruments. Their portfolios will need to have a mix of growth and income.
At ICICIdirect, we remain committed to help you with your finances and investments at whatever stage of life you may be in. Our message remains the same “Keep investing and stay invested for your life goals.” Through this magazine and our website www.icicidirect.com we want to make an earnest attempt to partner with you in setting and achieving your financial goals. Give us an opportunity to serve you, walk into any of your Neighbourhood Financial Superstore and talk to us.
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Interest rates are one of the important macroeconomic indicators
that affect our investments. They keep rising and falling and these
changes can significantly affect both equity and debt investments. In
case of equity, rising interest rates have a direct impact on the
company's profitability and may negatively affect their stock
performance, while lower interest rates reduce the overall cost of
doing business in an economy, aiding growth. Whereas in case of
debt instruments, rising interest rates drive bond prices down and
falling rates drive them up, since they share an inverse relationship.
In all, a deeper understanding is warranted on interest rates and its
impact on investments to make better investment decisions. Our
cover story of this edition takes you through the fine details of
current interest rate environment and discusses investment options
that you may consider to better align your portfolio to interest rate
changes.
Further, with the latest repo rate cut and liquidity easing measures by
Reserve Bank of India (RBI), we seem to be at the end of easing
interest rate cycle. In this scenario, short-term debt funds look
attractive. Therefore, a good part of your funds can be routed to
good quality short-term debt funds. Read on more about our
recommended funds in Mutual Funds Analysis section. I am sure
you will find this issue on Interest Rates interesting.
The edition also covers an interview with Sankaran Naren, Chief
Investment Officer (CIO), ICICI Prudential Mutual Fund, who urges
investors to look at this market as an opportunity and advises
investors to stay invested for long term. So read on, stay updated
and involved. Do wr i te in wi th your feedback a t
[email protected] and share your thoughts.
Editor & Publisher : Abhishake Mathur, CFA
Coordinating Editor : Yogita Khatri
Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey
CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Isha Bansal
Your magazine is now also available on www.magzter.com, a digital newsstand.
ICICIdirect Money Manager April 2016
3
MD Desk....................................................................................................1
Editorial.....................................................................................................2
Contents....................................................................................................3
News.........................................................................................................4
Asset Class InsightsA monthly review and outlook on major asset classes – equity, debt/fixed-income and gold…................................................................5
Stock Ideas: Greenply Industries and Majesco............................................ 11
Flavour of the Month: How to Align Your Portfolio to Current Interest Rate EnvironmentInterest rates in India have been trending lower and are currently at 5-year low. There is a consensus that rates would fall further. So how should you be aligning your portfolio to a low interest rate environment? Read on to find out....................................................... 20
Tête-à-tête: 'Good opportunity to build position in equities’An interview with Sankaran Naren - Chief Investment Officer (CIO), ICICI Prudential Mutual Fund…............................................................ 31
Ask Our Planner: Your personal finance queries answered….........................................35
Mutual Funds Analysis: Investing in Short-term Debt FundsWith the latest repo rate cut and liquidity easing measures by the RBI, short-term debt funds look attractive. Here are our top three recommended funds, which you may consider investing into..........39
Mutual Fund Top Picks..............................................................................51
Equity Model Portfolio...............................................................................52
Quiz Time................................................................................................ 57
Prime NumbersA revamped section of monthly trends, with inclusion of more data points and indicators............................................................................58
Premium Education Programmes Schedule.................................................62
Effect of new interest rates on small savings schemes
ICICIdirect Money Manager April 2016
4
Government rolls back restrictions on withdrawal of provident fund
Bowing to pressure from trade unions, the government has set aside the controversial provident fund (PF) withdrawal norms that had restricted complete withdrawal from PF account before the retirement age of 58 years. This is the second major stepback by the government on provident fund in less than two months and comes close on the heels of it withdrawing the budget announcement of imposing tax on withdrawal from Employee Provident Fund (EPF) account. "The withdrawal restriction imposed under the EPF scheme was at behest of trade unions but now since they don't want it we have withdrawn the notification dated February 10," labour secretary Shankar Agarwal said.
Courtesy: The Economic Times
The National Payments Corporation of India (NPCI) has unveiled the Unified Payments Interface (UPI), hailed as a next generation technology in the money transfer space that is set to completely revolutionise payments by making it as simple as sending a text message on a mobile phone. Under the new system, making payments has become simpler than other modes of online money transfer such as Immediate Payments Service (IMPS), National Electronic Funds Transfer (NEFT) or Real-time Gross Settlement (RTGS). Now, one can transfer money to another person through a unique virtual address (virtual addresses are aliases to a bank account allowing a customer's account to be uniquely mapped), or mobile number, or Aadhaar number. Customers do not need to know the payee's IFSC code, bank account details, etc, for transfer of up to Rs 1 lakh per transaction.
Courtesy: Business Standard
Now, transfer your money via SMS
capital markets regulator Securities and Exchange Board of India (Sebi) is trying to shorten the gap between an initial public offering (IPO) and the listing of shares to three days from the current six days, according to two people familiar with discussions held by the regulator. Reducing the time between an IPO and listing of shares helps limit risks related to market volatility, which may emerge within that period, and would bring closer to developed markets like the US where the time between an IPO and listing of shares is as low as one day.
Courtesy: Livemint
Sebi plans shorter gap between IPO and listing
Indian economy can grow at 8.5% in 2016-17: Arun JaitleyFinance minister Arun Jaitley said that India's economic growth this year could outpace estimates and accelerate to as much as 8.5% if the monsoon keeps its date with the country after back-to-back years of drought. India's economy could grow by 8-8.5% in 2016-17, if forecasts of normal monsoon rainfall prove correct, Jaitley said at the meeting organized by Citigroup Inc. The India Meteorological Department (IMD) last week projected monsoon rainfall this year at 106% of the long-term average after two consecutive years of below-normal rainfall in many parts of the country.
Courtesy: Livemint
ICICIdirect Money Manager April 2016
5
Equity markets: Consolidation in sight after rebound… stock specific movement expectedIndian markets rebounded sharply in March 2016 on the back of a strong global market recovery and value buying at lower levels, particularly in beaten down sectors.
Indian markets recovered around 10% from the lows on the Union Budget day. Beaten down sectors like banking, real estate, capital goods and auto outperformed. The healthcare sector underperformed on the back of negative regulatory issues resulting into profit booking by many institutional investors.
Global markets also seem to have stabilised after a rebound in commodity prices, particularly crude oil. The further economic stimulus measures announced by the European Central Bank (ECB) and improving US economic data provided the much needed sentiment boost for global investors. Importantly, emerging markets witnessed
the return of foreign inflows with most emerging markets outperforming in March 2016 on rising expectation that the next hike in US interest rates could be somewhat delayed. The US dollar fell in value against all emerging market currencies indicating the risk on trade.
We expect the markets to enter a consolidation phase, going forward, to work off the overbought conditions developed after the strong rally in March. In the coming month, we expect the broader consolidation to pan out in the range of around 24000 to 26000 on Sensex levels while stock specific activity will remain in focus at the onset of quarterly earnings season. We believe any dips to form a higher bottom in the coming month should be used as an incremental buying opportunity. We do not foresee the benchmarks going below the near term base of around 24000 levels on BSE Sensex.
Markets have triggered a
ASSET CLASS INSIGHTS
Asset Class Insights: Equity, Fixed-income and Gold
A monthly review of the major asset classes - Equity, Fixed-Income and Gold -- and
a snapshot of our outlook.
ICICIdirect Money Manager April 2016
6
ASSET CLASS INSIGHTS
positive structural turnaround during the current up move post Budget session bottom of 6825 as the index has posted faster retracement of a major falling segment for the first time in 13 months.
The Q4FY16 performance is likely to be subdued with the average topline of Sensex companies likely to grow ~2.4% YoY (year-on-year) while EBITDA (earnings before
interest, taxes, depreciation and amortization) is expected to report moderate growth of ~7.4%. The earnings growth is expected to be higher at 9.9% but will be aided by one-time boost from a couple of companies in the auto and p h a r m a s e c t o r. O n a normalised basis, net profit growth is likely to remain muted.
ICICIdirect Money Manager April 2016
BSE Sensex rebounds sharply from lower levels,, may consolidate in near term
22000
24000
26000
28000
30000
Ap
r-15
Jun
-15
Au
g-1
5
Oc
t-1
5
De
c-1
5
Feb
-16
Ap
r-1
6
Source: Bloomberg
Global economy and markets: The
US Fed adopted a dovish rate
hike stance with market
expectations, as it flagged up
risks to the US economic
outlook from global factors like
plunging commodity prices,
haphazard policymaking in
China and concerns over
weaker global economic
growth. However, the Fed gave
a broadly positive assessment
of the US economy's
performance, noting that
inflation had picked up, the
l a b o u r m a r k e t w a s
strengthening and that the
economy had continued to
expand moderately, despite
the risks from overseas. The
US economy grew more
quickly than previously
7
ASSET CLASS INSIGHTS
ICICIdirect Money Manager April 2016
thought in the final months of
last year, further dispelling
fears of an imminent
recession.
G l o b a l e q u i t y m a r k e t s regained a lot of ground in March, as investor confidence returned to the market. Emerging market equities led the way, producing a double-digit return over the month. The new-found optimism came in the wake of further economic stimulus measures announced by the European
Central Bank (ECB), improving US economic data and some respite from the downward spiral that had plagued oil prices.
Emerging equity markets had their best month since October 2011 during March 2016. Gains were led by Brazil as political deve lopments over rode economic news. Emerging market currencies appreciated against the US dollar as commodity prices rose.
Emerging markets outperform among global peers
17.0
11.
8
10
.2
7.1
5.0
4.6
1.3
0.7
15.
5
-15.
1
-3.0
1.5
-7.2
-12.
0
-1.1
-5.4
-20
-10
0
10
20
Bra
zil
Ch
ina
Ind
ia US
Ger
man
y
Japa
n
UK
Fra
nce
(%)
1 M 3 M
Source: Bloomberg. Returns as on March 31, 2016
11
.1
-3.1 -1
.6
3.2
-1.6
-8.8
-9.4
-12
.7
-12
.9
-16
.7
-19.
9
8.6
1.9
-3.6-0
.5
-2.1
-25
-15
-5
5
15
US
Bra
zil
UK
Ind
ia
Jap
an
Fra
nce
Ge
rman
y
Ch
ina
(%)
6M 1Y
All major markets witness negative return on a one-year basis
Source: Bloomberg, Returns as on March 31, 2016
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ASSET CLASS INSIGHTS
ICICIdirect Money Manager April 2016
Fixed income: RBI liquidity surprise to benefit short maturity papersReserve Bank of India (RBI) in line with market expectations, cut repo rate by 25 basis points (bps) to 6.5%. MSF (marginal standing facility) rate was reduced by 75 bps to 7% while reverse repo was increased by 25 bps to 6%, thereby reducing the policy corridor to +/- 50 bps f rom +/ - 100 bps previously. This move comes in to fine tune the alignment of weighted average call rate (WACR) to the repo rate and reduce variability in the metric.
Key takeaways on important aspects:a . L i q u i d i t y : R B I h a s differentiated its liquidity management framework into short term liquidity management and durable liquidity management. Short-term liquidity management will be driven by the need to supply or wi thdraw short- term liquidity from the market so as to accommodate seasonal and frictional liquidity needs such as the buildup of government balances and demand for cash during festivals and elections. The durable l iquidity management will include modulating net foreign assets (NFA) and net domestic assets
(NDA) growth over the course of the year, broadly consistent with the demand for liquid assets to meet transaction needs of the economy to facilitate growth. NDA includes purchase and sale of domestic bonds through OMOs (open market operations). Detailed guidelines are being issued separately by the RBI.
b. Inflation: Inflation trajectory remains on a projected path with target for FY17 at 5.1% and for FY18 at 4.2%. The probability of upside risk is higher due to Seventh Pay Commission and OROP (One Rank One Pension).
c. Future rate cuts: RBI's baseline and professional forecasters' projections indicate repo rate at 6.25% indicating one more rate cut of 25 bps in Fy17.
d. Growth projections: RBI's assessment of global growth is still muted and it also perceives a risk that the uneasy calm in global markets since the January sell off can be dispelled by a sudden risk off on incoming data . The domestic growth assessment is much more sanguine.
The pol icy was largely centered on addressing the critical concern of elevated
9
ASSET CLASS INSIGHTS
ICICIdirect Money Manager April 2016
systemic liquidity deficit. L iquid i ty has worsened significantly in recent months on the back of a rise in government balances with RBI and currency in circulation. The central bank highlighted its intention to focus on meeting requirements of durable liquidity (i.e., core liquidity) and then streamline steps to address short term liquidity to ensure that it remains at around 0% of the total NDTL (Net Demand and Time Liabilities) of banking system from current 1% ( 80,000 crore). Market expects that OMO to the tune of 15,000 crore per month would be required to achieve RBI's durable liquidity target which be positive for long term yields.
The overall liquidity measures announced are extremely positive for funds at the short to medium term maturity papers. Therefore, bulk of the debt investment should be in good quality short-term debt funds. Ultra short-term debt funds and liquid funds are likely to benefit from the fall in short-term yields.
Although the outlook on G-Sec yields remains positive, the
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duration strategy should be played through act ively managed income or dynamic bond funds. They will be able to make swift duration change within G-Secs or switch between corporate bonds and G-Sec within specific duration.
Gold: Range bound movement expected post sharp reboundGold prices are trading in a n a r r o w r a n g e a r o u n d US$1250/ounce in March 2016 after having rallied significantly in the first two months of 2016. The year 2016 has turned the wave in favour of safe haven demand amid extreme global capital market uncertainty. Global gold prices rallied around 18% in January and February 2016.
The risk that was initially confined to commodities space started to spill over to currencies, equit ies and recently was also been impacting the credit markets as gauged by financial conditions and high yield bond market. The worsening condition is visible in rising credit default swap of countries like Brazil and companies like Deutsche Bank. As a result, the there is flight to safety and safe heavens like developed market
10
ASSET CLASS INSIGHTS
ICICIdirect Money Manager April 2016
sovereign bonds (even when there is negative yield) and gold.
The expectation of quantum of rate hike by US Fed has declined significantly post recent turmoil in global capital markets. The market is now factoring in just one rate hike in the whole of the calendar year 2016 especially post dovish statement from US Fed Chair. Interest rate hike in general is negative for gold prices. With rate hike concern receding, the overhang on prices also
abates in the near term.
The steep fall in industrial commodity prices including crude oil led to sharp fall in inflation and inflationary expectations across the global and particularly in developed economies. The same led to reduced demand for gold as an inflationary hedge investment.
The medium term demand, however, will continue to be impacted by the overall global environment particularly US Fed rate hike trajectory.
Gold prices consolidating post sharp rally at start of year
1050
1100
1150
1200
1250
1300
Ap
r-1
5
Ma
y-15
Ju
n-1
5
Ju
l-15
Au
g-1
5
Se
p-1
5
Oc
t-1
5
No
v-15
De
c-1
5
Ja
n-1
6
Feb
-16
Ma
r-1
6
Ap
r-1
6
Price ($/Ounce)
Indian prices followed global prices
24000
25000
26000
27000
28000
29000
30000
Apr
-15
May
-15
Jun
-15
Ju
l-15
Au
g-1
5
Se
p-15
Oct
-15
No
v-1
5
Dec
-15
Ja
n-1
6
Feb
-16
Mar
-16
Ap
r-1
6
|
Price (|/10 grams)
Source: Bloomberg
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STOCK IDEAS
ICICIdirect Money Manager April 2016
Greenply Industries: Numero uno player in MDF!
Company BackgroundIncorporated in 1984, Greenply Industries (GIL) is a leading player in the organised plywood and medium density fibreboard (MDF) market. The company has a strong pan-India presence with 33 plywood branches and 15 MDF branches. GIL has a distributor and stockist strength of 1170 and 600 in the plywood and MDF segments, respectively. This strong brand presence helps it to increase its market penetration in this highly fragmented wood panel industry. In 2014, the company de-merged its decorative b u s i n e s s c o m p r i s i n g laminates and allied products into Greenlam Industries, mainly to focus on its plywood and MDF business.
Over the past two decades, GIL has grown s igni f icant ly resulting in 26% market share in the organised plywood market and 30% market share in the domestic MDF industry. Furthermore, the company's strong brand presence and a well entrenched distribution network have helped GIL to evolve with changing times and cater to rising customer expectations. Moreover, to support its growth, GIL has
b u i l t f o u r p l y w o o d manufacturing facilities across the country with total capacity of 1,29,600 cubic metre (CBM) and an MDF facility with capacity of 1,80,000 CBM. With MDF demand on the rise, the company is undertaking a greenfield expansion to build an MDF facility in Andhra Pradesh with an annual capacity of 3,60,000 CBM.
Leading plywood player with 26% share of organised pieGIL is one of the leading players in the Indian plywood industry commanding ~26% market share in the organised space. GIL's plywood revenues have grown at a CAGR (compounded annual growth rate) of 14.3% in FY11- 15. The company is well placed in the market along with Century with both together accounting for ~50% of organised market. Both companies have grown ahead of their peers due to their strong brand presence, well entrenched distribution network , ba lance sheet strength and raw material security enabling them to charge a premium to their peers.
Investment Rationale
12ICICIdirect Money Manager April 2016
STOCK IDEAS
Asset light model with better utilisation to improve plywood division RoCEsGIL is currently operating at full capacity in the plywood division. Going ahead, with the optimal use of the product size mix (with higher proportion of products of 12-19 mm size), we expect the company's capacity utilisation to improve to 115% in FY18E. Furthermore, GIL has been following an outsourcing model in its plywood segment to cater to incremental d e m a n d . I n F Y 1 5 , o u t s o u r c i n g / t r a d i n g accounted for ~28% of total sales volume of 46.1 MSM. Going ahead, we expect o u t s o u r c i n g / t r a d i n g a s percentage of total sales volumes to increase to ~34% i n F Y 1 8 E . W i t h b e t t e r capacity utilisation coupled with higher proportion of outsourcing/trading (35-40% RoCE (return on capital employed) in outsourcing vs. 1 8 - 2 0 % i n o w n manufacturing), we expect the RoCE of the plywood division to improve to 19.4% in FY18E vs. 16.3% in Fy15.
Numero uno player in MDF segmentThe MDF business in India dates back to the late 1980s when Mangalam Timber
Products set up an MDF plant in 1985. In 2010, when GIL entered the market, there were only two players in the MDF space viz. Nuchem (which has n o w s h u t d o w n ) a n d Mangalam Timber Products. In spite of entering the segment in 2010, GIL has managed to become the market leader in the MDF industry. Currently, major players in the market include Rushil Décor, Action Tesa, Mangalam and Shirdi Industries. GIL has set up an MDF manufacturing facility in Pantnagar, Uttarakhand with an annual capacity of 1,80,000 cubic metre (CBM). The MDF market in India has grown steadily over the years and has a 5% share ( 1,400 crore) in the Ind ian wood pane l industry. On account of MDF's advantages over other wood products and reduced price differential between MDF and cheap unorganised plywood, a shift towards MDF is seen, going forward. In a market where pr ices o f cheap plywood are on the rise amid a strain on raw material supply from Myanmar, GIL launched its economy grade MDF 'Ecolite'. Consequently, we expect Ecolite to gain market share from cheap unorganised plywood, going ahead.
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13ICICIdirect Money Manager April 2016
STOCK IDEAS
GIL to benefit from transition towards organised pie; initiate with BuyAt the current market price (CMP) of Rs. 175, GIL is trading at 12.4x FY18E EPS. With its strong brand presence, well es tab l i shed d is t r ibut ion n e t w o r k c o u p l e d w i t h increasing brand aspiration, the company is all set to ride the structural shift towards the
o r g a n i s e d m a r k e t w i t h expected GST (goods and services tax) implementation. Going ahead, we anticipate GIL's topline/bottomline will grow at a CAGR of 11.5%/ 16.5%, respectively, in FY16-18E with a comfortable balance sheet. Hence, we initiate coverage on GIL with a BUY recommendation with target price of 225.`
Stock Data
Market capitalization ( crore) 2,197
Total debt ( crore) 306.2
Cash ( crore) 7.2
Enterprise value (EV) ( crore) 2,456.8
52-week High/ Low ( ) 226 / 152
Equity capital ( crore) 12.1
Face value ( ) 1
FII holding (%) 10.2
DII holding (%) 13.3
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Key Financials
Valuations Summary
FY15 FY16E FY17E FY18E
Net sales ( crore) 1,564.3 1,633.3 1,826.8 2,032
EBITDA ( crore) 204.3 243.1 277.9 316.2
Net profit ( crore) 121.8 125.5 148.4 170.4
EPS ( ) 10.1 10.4 12.3 14.1
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P/E (x) 17.7 17.2 14.5 12.7
Target P/E (x) 22.3 21.6 18.3 15.9
EV / EBITDA (x) 12.1 10 8.8 8.5
P/BV (x) 4.5 3.6 2.9 2.4
RoNW (%) 25.2 20.9 20.1 19
RoCE (%) 18.3 19.3 19.1 16.6
FY15 FY16E FY17E FY18E
14ICICIdirect Money Manager April 2016
STOCK IDEAS
Key Risks
Tax, excise duty exemptions to end at certain facilities: GIL enjoys tax benefits and excise duty exemptions at its manufacturing units in Nagaland and Uttarakhand (plywood & particle board unit and MDF unit). However, at some locations, these benefits are either being phased out or reducing, going ahead. Consequently, it is expected to lead to a higher tax outgo
impacting GIL's bottomline negatively. Though we have already factored in a higher tax rate of 25% in FY16E, 28% in FY17E and 30% in FY18E vs. 13.8% in FY15E, any higher-than-expected tax implication may i m p a c t i t s e a r n i n g s g r o w t h significantly. Domestic demand pick-up delay may impact earnings assumptions
Plant Product Benefits
Tizit, Nagaland Plywood 100% corporate tax exemption from FY06-15.
Excise duty exemption from FY16-25
Pantnagar, Uttarakhand Plywood 100% corporate tax exemption for FY07-11
30% corporate tax exemption for FY12-16.
Excise duty exemption for FY07-16
Pantnagar, Uttarakhand MDF 100% corporate tax exemption for FY10-14
30% corporate tax exemption for FY15-19
Excise duty exemption till FY20
Lack of raw material availability: The industry procures majority of its raw material from Myanmar as well as countries like Vietnam, Indonesia, Thailand, Germany, etc. We believe the biggest risk for GIL as well as industry is their inability to procure raw material on the back of any unforeseen regulat ion in the respective jurisdiction e.g. Myanmar's ban on raw timber export. However, we believe GIL is well placed in terms of raw material security after setting up a peeling unit in Myanmar to facilitate the sourcing of face veneers.
Any such respective jurisdiction changes in regulation may impact GIL's business significantly.
Delay in GST implementation: GST will be a huge positive for GIL as it would bring in a shift of consumers from the unorganised to organised space with a reduction in the price differential, going ahead. GST will address inefficiencies in the current tax system. However, any delay in implementation of GST could impact GIL, as it would be difficult for GIL to gain market share, going ahead.
(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)
15ICICIdirect Money Manager April 2016
STOCK IDEAS
Majesco: An attractive investment story
Company Background
Investment Rationale
Majesco, the demerged entity of Mastek, underwent a reorganisation in 2015. With building blocks in place, we believe, Majesco is poised to capture incremental opportunities in the core insurance outsourcing space, by leveraging its product offerings, top rated product, sticky client relationships and first-rate execution. This coupled with a healthy balance sheet and attractive valuations (~50% discount to global peer group average) makes Majesco an attractive investment story.
Majesco awaits large addressable marketThe Top 100 US property and casual ty (P&C) insurers underwrote net premium worth ~$450 billion in Cy14. Typically, insurers budget ~3-4% of their annual revenues on IT related spends including s t a f f i n g , h a r d w a r e , maintenance and product development, translating to ~$15 billion worth of spending. Even if we were to
assume that 70-80% of spends could be in-sourced or attributed to hardware and staffing related, core product development, even then software, business intelligence & data analytics and warehousing could still be a large addressable market worth $3-$5 billion dollars. The management estimates the a d d r e s s a b l e m a r k e t opportunity at ~$9-10 billion based on technology spends by carriers.
Cloud is Majesco's moatMajesco has 30 customers on private cloud, which is its key differentiator. Cloud revenues constitute 18.5% of total, up 400 basis points (bps) QoQ (quarter on quarter) while 30-40% of deals last year involve cloud. The rationale is 1) cloud adoption has picked up within mid and small sized carriers, which is Majesco's primary target market, 2) few competitors have cloud-based software, 3) lower total cost of ownership given Majesco implements its own software and has India (offshore) based delivery and 4) Guidewire's
16ICICIdirect Money Manager April 2016
STOCK IDEAS
(GWRE) catch-22 situation. On the one hand, Guidewire, among the largest, is working t o w a r d s c l o u d - e n a b l e d software but Majesco has early mover advantage, while, on the other, large P&C carriers, GWRE's primary target market, are reluctant to run systems on cloud given large operations. Further, E&Y, Cap Gemini SA, PWC, IBM and Deloi t te (together with >$1 billion in implementation revenues from GWRE) GWRE's largest system integrators could lose annuity revenues if it completely embraces cloud. We believe the environment favours Majesco and could lead to 1) market leader positioning in mid-market segment, and 2) market share gains within large carriers (recent tier-I wins include QBE and MMG in P&C and Unum in L&A).
Cover-All integration augments Majesco's offeringsMajesco's recent merger with Cover-Al l and i ts Agi le acquisition notonly strengthen its product offerings but could also drive incremental revenue opportunities. Cover-All's business intelligence
platform adds analytics capabi l i t ies – improves response time based on user feedback – while Agile's US based consultants add consulting capability – has higher than company average margins and could aid downstream revenues. Together they brought 50+ customers to Majesco with minimum overlap and could aid cross-selling opportunities. Fu r t h e r, C o v e r - A l l h a s proven commercial insurance software, which could hasten the development of modules of Majesco's commercial insurance platform – driving cost synergies – and establish its market presence. Finally, Cover-All gave Majesco the all-important NYSE capital market access and could generate US institutional investors interest.
Healthy wins in 9MFY16 support bullish thesis of FY17E/18EGenerally, the sales cycle in the insurance product business is elongated with lead time of >12 months wherein Majesco consults the insurance carriers in choosing the required product. However, during 9MFY16, the company won 14 deals taking the 12-month
17ICICIdirect Money Manager April 2016
STOCK IDEAS
order backlog to $63 million. Assuming implementation tenure of two to three years likely provides growth cushion in the next two years. We expect Majesco's revenues to grow at 25% CAGR in FY15-18E led by deal wins and conversion. PAT could grow at 128% CAGR in FY16-18E with average 9.2% EBITDA margins (which could rise to 6.1%, 12.3% in FY17E/18E vs. 0.9% in FY16E). Our growth thesis is s u p p o r t e d b y h e a l t h y bookings.
Healthy cash balance may support growth; valuation attractive relative to global peersAmong the primary reasons to restructure Mastek and create Majesco as a separate entity were to better leverage existing IP capabilities, capital allocation strategies, access to global capital, attract investors with risk appetite and value creat ion by address ing shareholder concerns of sub-optimal performance of the combined entity. Though the post-restructuring market capitalisation of the combined entity has risen significantly to ~ 1500 crore vs. 300 crore pre-demerger, we believe
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Majesco, still offers a deep discount value. The rationale is that Majesco US trades at a 50% discount on MCap/sales metric to global peer group average and ~70%+ discount to the Guidewire's multiple. T h o u g h m e d i o c r e growth/margins and RoCE profile could be attributed to the same, the management aims to double its revenues to $ 200-225 million in the next three years with double digit operating margins (12-14%). Despite Guidewire and Duck Creek (Accenture) are large vendors w i th s t i cky relationship, we believe Majesco's steep discount is unwarranted given it is a notable vendor with nine of the top 25 insurers as customers while higher scale with CoverAll (and its mid-market focus could help capture incremental opportunities through cross-selling) and rising growth, profitability could narrow operat ing performance divergence gap. We value the shares at 2.5-2.6x on MCap/sales metric to arrive at our target price of 700-750 and recommend BUY.
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18ICICIdirect Money Manager April 2016
STOCK IDEAS
Key Financials
Valuations Summary
Stock Data
Net sales ( crore) NA 493.6 690 820
EBITDA ( crore) NA 2 6 50
Net profit ( crore) NA (18.8) 5 21
EPS ( ) NA (8.3) 2.2 9.2
FY14 FY15 FY16E FY17E
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P/E (x) NA NA NA 60.6
Target P/E (x) NA NA 340 81.7
EV / EBITDA (x) NA NA 200.4 24
P/BV (x) NA 4.7 4.6 4.2
RoNW (%) NA NA 1.8 7.2
RoCE (%) NA NA NA 6.4
FY14 FY15 FY16E FY17E
Market capitalization ( crore) 1,273
Total debt ( crore) 80.5
Cash ( crore) 151.3
Enterprise value (EV) ( crore) 1202.3
52-week High/ Low ( ) 789 / 287
Equity capital ( crore) 22.9
Face value ( ) 10
FII holding (%) 7.2
DII holding (%) 8.3
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19ICICIdirect Money Manager April 2016
STOCK IDEAS
Key Risks
Business specificSustaining new logo wins could be t r i c k i e r t h a n a n t i c i p a t e d : A l though the insurance software market opportunity is huge, new logo wins are key to sustaining growth momentum while the sales cycle, generally, is elongated and has greater than twelve month lead time. Further, though Majesco's billing and policy admin software is ranked No. 1 and No. 3, respectively, the market is highly fragmented while relat ionships are st icky. Majesco caters primarily to the mid-market segment. Inability to win new deals could j e o p a r d i s e o u r g r o w t h est imates and, in turn, valuation thesis, which is also obligated by execution and earnings delivery.
Company specificAcquisitions, rising tax rates could be near term concerns: Tax rates could rise significantly in FY17E, FY18E to 30% as the US could contribute a majority of incremental profits, where tax rates are high while India losses could be ineffective to capture tax breaks advantages available in India. Reduction of losses or rising profitability in India could lower overall tax rates. Majesco plans to acquire companies in the US, which could accelerate the growth momentum. However, inability to integrate the same could worsen operating metrics and pressur ise the earnings trajectory. Conversely, a significant upside risk to estimates exists if Majesco successfully acquires and integrates a decent size acquisition.
(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)
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FLAVOUR OF THE MONTH
How to Align Your Portfolio to Current Interest Rate Environment
Interest rates in India have been trending lower and are currently at 5-year low with repo being at 6.5%. The Reserve Bank of India (RBI) has cut repo rate (the rate at which it lends to commercial banks) by a total of 150 basis points (bps) since January 2015, including the latest 25 bps cut in April 2016. While low interest rates are good for borrowers, investors get a hit in their overall portfolio returns. So how do you deal with it? This article addresses the effect of interest rate changes and suggests how you may align your portfolio for better returns in the current low interest rate environment.
ICICIdirect Money Manager April 2016
Understanding the bigger picture
Preparing for interest rate
changes requires that you first
unders tand the cur rent
macroeconomic scenario. We
are fundamentally in a falling or
low interest rate environment,
thanks to easing inflation.
“Other factors such as fiscal
deficit and current account
deficit (CAD) are also in control
and are looking better. This
gives us comfort and reason to
believe that we are in for a
sustained low interest rate
cycle,”
“The current debt market
scenario is extremely positive
with the economy on a
continuous disinflationary trend,
government's commitment to
fiscal consolidation plan, RBI's
commitment to neutral system
liquidity with accommodative
stance and relatively stable
currency and other external
market factors,”
says a debt fund manager
with Kotak Mutual Fund.
says Prashant
Pimple, Senior Fund Manager - Fixed
Income Investment, Reliance Mutual
Fund.
Source: Bloomberg, April 2016 (by Franklin Templeton Mutual Fund)
Headline inflation trend (% YoY); Primary articles inflation seeinga downtrend
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2016
RBI Policy Rates Trend
Source: RBI, April 2016 (by Franklin Templeton Mutual Fund)
Asymmetry in monetary policy
transmission
Akhil Mittal,
Senior Debt Fund Manager at Tata
Mutual Fund:
Though the RBI has cut repo
rate by a cumulative of 150
basis points since January
2015, the transmission of
policy rates to lending rates
has not taken place fully yet.
Why? Explains
“The system had
been grappling with huge
liquidity deficit situation,
caused both by structural as
well as to a certain extent
caused by seasonal factor.
These tight conditions were
being considered to be an
impediment for effective
monetary transmission.”
However, with the latest
liquidity easing measures by
the RBI and the cut on small
savings interest rates,
monetary policy transmission
would improve, believe debt
fund managers.
“The RBI has taken precise
efforts to identify and address
the pressing need for easier
liquidity to be made available in
the system. The change in
stance from maintaining deficit
liquidity to neutral liquidity is a
huge shift from the earlier
regime. The central bank
proposes to use a combination
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2016
of short term and durable
liquidity to effectively achieve
the dual objective of dealing
wi th f r ic t iona l l iqu id i ty
requirements and providing for
sustainable liquidity to transmit
rate cuts,”
“The cut in small savings
schemes rates would improve
monetary policy transmission.
Banks frequently cited the high
s m a l l s a v i n g s r a t e a s
cannibalizing bank deposits.
Therefore, lower small savings
rates, along with marginal cost-
based pricing of loans from April
2016, should facilitate an
improvement in monetary
policy transmission (lower
lending rates) going forward,”
“Further, lower small savings
rates will also lower the total
accretion into these small
savings schemes and this
should reduce the interest
burden for the cent ra l
government as the interest rate
paid through these schemes are
not market linked and were
says Franklin Templeton
Mutual Fund in its debt commentary
note.
says Prashant Pimple.
generally higher than market
r a t e s . T h u s , m o n e t a r y
transmission would improve
going ahead, further lowering
rates and in turn benefitting debt
market investors
The last financial year i.e. Fy16
saw a cumulative rate cut of 125
bps, but the government
Securities (G-Sec) yields fell only
by 25 bps and remained sticky at
high end. Why? “Major reasons
for the same were Global viz.
Federal Reserve rate hike scare,
volatile capital market flows,
depreciating EM currencies
amongst others. On the
domestic front, low deposit
growth, uncertainty surrounding
fiscal consolidation, high small
savings rate and tight liquidity
condition were some of the
major reasons for yield
movement not following rate
easing cycle. Since February,
with clarity on fiscal, inflationary
trends, and stable global factors,
we have seen a sharp fall in
yields,”
, he adds.
G-Sec yields did not follow RBI's rate
cuts
explains Akhil Mittal.
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2016
Benchmark 10-year G-sec Yield Trend
Source: Bloomberg, ICICIdirect.com Research
More rate cuts ahead?
Prashant Pimple.
Akhil Mittal says,
Post RBI's latest repo rate cut in its April 2016 monetary policy, m a j o r i t y o f d e b t f u n d managers foresee one more rate cut ahead of 25 bps in FY17. “We expect RBI to lower policy rate by an additional 25 bps in FY17 provided the hi-frequency inflation numbers continue to undershoot RBI's projections. But effective rate cut can be additional 50 bps if system liquidity becomes Neutral from the current deficit mode,” says
“There still exists a small window of oppor tun i ty fo r fu r ther monetary easing by a maximum of 25 bps. However,
a cut beyond 25 bps, will only lower the real rate below RBI's comfort range, given the upside risks to inflation pointed out by RBI.”
“Headline retail inflation should see some cooling off over the next quarter, primarily driven by favorable base effect and supported by normal monsoon as being widely anticipated. We expect another 25 bps rate reduction this year,” says
L o w e r i n f l a t i o n , t h e government's adherence to
Franklin Templeton Mutual Fund in its debt commentary note.
Expected trends ahead for G-Sec Yields
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2016
fiscal discipline by maintaining the fiscal deficit target for FY16-17 at 3.5% and a sharp cut in small saving deposit rates have led to a much anticipated rally in G-sec yields. The outlook on G-sec yields remains positive.
“As we approach towards terminal end of current easing cycle, we believe that yield curve should steepen going ahead. As market participants demand higher premium for duration risk, there would a limited downside to yields at longer end of the curve. However, the RBI measures to bring the system liquidity to neut ra l a long wi th the narrowing of the corridor to 50 bps and CRR (cash reserve ratio) maintenance at 90 percent will allow overnight rates to remain very close to the repo rate or even drift marginally lower. This would in turn be positive for shorter end of the curve,” says Akhil Mittal.
The l iqu id i ty measures announced by the RBI in its recent policy meeting will
Short-term debt funds looking attractive
soften short term yields. Short-term funds have the aim of delivering returns by investing in higher accrual AAA and AA corporate bonds with maturity of around one to three years alongside some investment in money market instruments. Many short-term funds focus on utilising credit opportunities by investing in sub AAA rated papers with reasonable credit worthiness with the aim of delivering higher returns. Higher accrual income and held to maturity portfolio (with less duration of about two years) make these funds comparatively less volatile as against long term funds. Short term debt funds are stable performing funds with low volatility in returns. Although outlook on interest rate remain positive, G-Sec funds or Income funds or Dynamic bond funds are more volatile and carry higher interest rate risk.
“Ultra short-term and short term funds would benefit the most out of the bull steepening trade going forward. With positive liquidity framework of RBI, shorter end rates provide
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2016
attractive carry opportunity at current absolute yields,”
“With shorter end rates expected to ease further, Credit funds also look better poised to benefit out of the fall in shorter end yields. With recent fall in the small savings rates & expected fall in FD rate products, credit funds are an attractive investment option given the higher spreads available right now,” he adds.
“In line with our view on market and yield curve, we believe short duration funds could provide better risk adjusted return as compared to long duration funds. However, if one has higher risk appetite, one could look at long duration funds also as we are still in easing cycle,”
Short-to-medium term debt funds make good investment sense for investors with the low risk appetite and still are looking for returns. As the name connotes, these invest in short and medium term papers, and the portfolio maturity hovers around a few months to few years. These
says Prashant Pimple.
says Akhil Mittal.
funds offer good risk-adjusted returns to investors who are willing to remain invested with at least one-year horizon. As the rates are said to be peaking and are expected to be there for some time, short-term bond funds are very good opt ions for r isk averse investors. These schemes offer investors to benefit from the high short-term interest rates with minimum risk.
Typically, long-term debt funds perform well in an easing interest rate cycle and short-term funds in a rising interest rate cycles. For example, we saw rising interest rate cycles in 2004-07 and 2009-13 and short term funds delivered better CAGR returns (6.18%) than gilt funds (4.13%). On the other hand, in a falling interest rate cycle from 2014 till date, gilt funds have performed well (11.45%) as compared to short-term funds (9.32%).
Read more about our recommended short-term debt funds in our Mutual Funds Analysis section of this edition.
Long term debt funds are also an option
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2016
Interest Rate Cycles - Repo and G-Sec Trends
By Reliance Mutual Fund
Performance of debt funds across interest rate cycles
CategoryRising Interest Rate Cycle Falling Interest Rate Cycle
2004-07
2009-13
2014-till date
Gilt Funds* 4.13%
3.81%
11.45%
Short Term Funds* 6.18% 7.43% 9.32% Repo Rate 6%
7%
6.5%
*CAGR (compounded annual growth rate) of funds in specific categories; By Reliance Mutual Fund
“We expect another 25 bps rate
reduction this year. We thus
remain bullish on medium-to-
long duration segment and
recommend investors (who
can withstand volatility) to
consider duration bond / gilt
funds for the medium to long
term,”
“Long duration funds would benefit over the next 12 months from the fall in yields across the curve .We expect scope for further capital gains exists on further monetary
says Franklin Templeton
Mutual Fund in its note.
easing . Positive global trends can trigger huge domestic bond appetite,”
Long-term funds invest in corporate and government securities with long maturities. These funds are exposed to interest rates risk. If interest rates move up, the price of the bond falls and vice versa. As these funds invest in long dated paper, sensitivity to interest rates - price movement in opposite direction of movement in interest rates – is very high. In rising interest rate
says Prashant Pimple.
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2016
scenario, investors in these funds lose. But if the rates are about to fall (like the current scenario) the portfolio will offer two way gains with fall in interest rates. First - it will offer
coupon payments and second it will also offer capital appreciation as bond prices go up. But if interest rates go up, this will not fructify.
Things to know: Three basic investment strategies of debt funds
There are basically three strategies of debt products: Hold-to-maturity (HTM), accrual and duration.
HTM
accrual strategy
duration strategy
is a passive strategy, wherein the fund manager buys and hold high-yielding debt securities till maturity, e.g. fixed maturity plans (FMPs). This way the investor is not exposed to any interest rate volatility if he holds on to the maturity of the fund. Bank and corporate fixed deposits are also part of the HTM strategy.
In , the focus is on searching for corporate bonds with higher yields - e.g. short-term funds.
Whereas in , the focus is on adjusting the duration of the portfolio based on interest rate outlook to maximise returns - e.g. income funds, gilt funds and dynamic bond funds.
Deposits, small savings schemes and tax-free bondsIf you are planning to invest in corporate and bank deposits and small savings schemes, do so before the interest rates are further reduced. Given the possibility of a further fall in rates, it makes sense to lock in your money for the longer term. But if inflation climbs up, you are exposed to the risk of earning a negative rate of return. Fixed deposit investors always suffer this risk in times when the rate payable on fixed deposits is lower than the
prevailing inflation. If such situation persists for long time periods, it eats into the purchasing power of an investor.
Tax-free bonds are also a good investment option for tax efficient returns in the current markets. These are fairly safe option for investors, and for those in the high tax bracket the net yield is higher than fixed deposits of similar risk. These bonds are listed on the stock exchange and most of them have reasonable liquidity. However for large holdings,
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2016
one may have to stagger the sale over a period of time or it may help to invest across issuers.
Senior citizens and retirees are hit the most when there is a rate cut. This is because they are mainly dependent on interest-bearing instruments for their needs. With falling interest rates, elderly need to be prepared for higher income by looking at higher-yielding instruments such as corporate f i x e d d e p o s i t s , b o n d s , equities, etc.
Elderly need to prepare for higher income
Ty p i c a l l y, f i x e d - i n c o m e instruments provide very low real returns after accounting for inflation and taxes. It is therefore important to include growth assets such as equity to your portfolio even when nearing retirement or are already retired.
A retirement portfolio can be divided into two parts: Income and Growth. A part of the portfolio, say for example, 15-20% can be allocated to equity for growth. Equity diversified funds / large-cap funds are best options that keep volatility as low as possible.
How we can help you
Retirement income planning is complex, especially in a current low interest rate environment. It is really important to judiciously deploy your retirement corpus so that you get adequate regular income through your golden period. If you are considering taking professional help, our Retirement Planning Service can provide you with a personalized plan that can go a long way in achieving your retirement objectives of safety, income and growth.
As a first step, we spend time with you to understand your risk profile, preferences and collect information that would help us design a customized retirement income plan. Once the plan is ready, it is then incorporated on your ICICIdirect.com account so you can execute and track your plan online, at your convenience and at all points of time. Our intelligent 24X7 'Track&Act™' robo-advisory platform will help you give triggers if you are maintaining your asset allocations right, will help track if your withdrawals are as per the plan, and even advice you where to invest into and/or withdraw from. Speak with your ICICIdirect relationship manager today to plan your retirement well.
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FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 2016
Home loan borrowers to gainFalling interest rates benefit borrowers the most, especially those with floating-rate loans such as home loans. The other loans – auto, personal, etc. are generally fixed in nature and a rate cut may not impact them.
Let's understand the impact of a rate cut on home loan with an example. Suppose you have taken a home loan of 40 lakh `
five years back at an interest rate of 10.50% p.a. for a tenure of 20 years. It translates into an EMI of 39,935 for the last five years.
Now, let's take a look at three different scenarios, where the interest rate on your home loan has been reduced by 25 bps, 50 bps and 100 bps. This will result into lower EMIs, as follows:
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Original EMI for first years: Rs. 39,935`
25 bps rate cut
50 bps rate cut 100 bps rate cut
Reduced EMI for the next 15 years ` 39,377 ` 38,823 ` 37,725
Savings per month due to lower EMI ` 558 ` 1,113 ` 2,210
As you can see in the above table, with 100 bps rate cut, you can save 2,210 per month. It would be a good idea to
Say for example, if you invest 2,210 per month in an equity diversified fund for the next 15 years, you would be able to create a corpus of 10.52 lakh, assuming a return of 12% p.a. This way, with lower EMIs, you are able to generate additional corpus side by side, which can help you in meeting your other financial goals.
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convert your EMI savings into an SIP.
There is also another option of prepaying your home loan. You can invest your EMI savings, say into a balanced mutual fund, generating an average return of 9% p.a., and use the accumulation at the end of every 5 years to make part prepayment of your home loan. With this, you can pre-close your home loan faster than the original tenure.
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FLAVOUR OF THE MONTH
Please send your feedback to [email protected]
ICICIdirect Money Manager April 2016
Original loan tenure: 20 years 25 bps rate cut 50 bps rate cut 100 bps rate cut
Total tenure in which loan can be closed
19 years and 7 months
19 years and 2 months
18 years and 4 months
Tenure gets reduced by 5 months 10 months 20 months
Summing up
Debt instruments play an
i m p o r t a n t r o l e i n o u r
investment portfolios – be it
through capital protection,
stable income, diversification,
or some combination thereof.
By tak ing a thought fu l
approach, you can better align
your portfolio to current
interest rate environment and
make the most of it. Make sure
you maintain your portfolio
asset allocation across equity
and debt and focus on total
returns, not just current
interest rates.
31
Tête-à-tête
‘Good opportunity to build position in equities'
There is a lot of gloom because of global factors but structurally if we look at India, this is a good opportunity for investors to build position for creating long term wealth, says Sankaran Naren - Chief Investment Officer (CIO), ICICI Prudential Mutual Fund, in an interview with ICICIdirect Money Manager. New or existing investors should start building position in equities if they are ready to remain invested for a full cycle (five years or more), he adds. Excerpts:
Sankaran Naren -
Chief Investment Officer (CIO),
ICICI Prudential Mutual Fund
ICICIdirect Money Manager April 2016
Q:
A:
Financial markets across the globe have largely been in red in 2016 so far. Will we see more of the same this year?
As crude oil fell dramatically, the budget estimate for many oil producing countries went out of sync. As budget losses increased, the sovereign wealth fund (SWF) of these countries started to pull out their investments to support the budget deficit at home. This became one of the biggest reasons for losses witnessed
by indices globally. We believe that oil prices should become stable around USD 50, the fair p r i c e , w h e r e b o t h t h e consumer and the producers may benefit. If this happens, then markets could recover.
What are a few reasons to be optimistic in the midst of the gloom?
There is a lot of gloom because of global factors but structurally if we look at India, this is a good opportunity for investors to build position for creating long term wealth. Historically, when investors have built position when foreign institutional investors (FIIs) outflow was high like in 2002 , 2008 , and 2011 , investors have made good returns over the following three years.
Also if we look at the average capacity utilisation, we can see that we are at a low again (below 75%). This would bring in operating leverage for many of these companies, once demand starts picking up.
Q:
A:
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Tête-à-tête
ICICIdirect Money Manager April 2016
They will not have to invest for increasing production in the immediate future thereby allowing the companies to report higher operating profit.
Foreign institutional investors (FIIs) have been net sellers with over $2.2 billion outflows year-to-date. Do you see more selling in the offing?
It is very difficult to time the selling spree of the FIIs. We believe as oil prices become stable around the USD 50 range, global turmoil will lessen and markets may turn out to be steadier. At that time, India could present as one of t h e b e t t e r i n v e s t m e n t opportunities for FII investors as the government's fiscal deficit could be within a reasonable limit and the macro s t o r y m a y p r e s e n t a n investment opportunity. Also, as Sovereign Wealth Fund (SWF) flows may resume to emerging markets, investment f low to Ind ia too may recommence.
Corporate profitability is at a 10-year low. Deteriorating corporate and banking sector health can exacerbate risks, says IMF. What are your views on this? By when do you see corporate and banking balance sheets improving?
C u r r e n t l y, c a p a c i t y utilisation in the manufacturing
Q:
A:
Q:
A :
sector is at a multi-year low, but we be l ieve that s t rong operat ing leverage and gradual improvement in demand could improve the utilisation rate and drive corporate earnings over the next three to four quarters. Also the government's focus on the infrastructure space, as evident in Union Budget, will give impetus to manufacturing activity. Higher capacity ut i l isat ion coupled with reduction in non-performing assets (NPAs) in the banking space cou ld boos t the economy.
The rupee has been depreciating against the U.S. dollar, making it one of the worst performing emerging-market currencies this year. How do you see this impacting India's heavily indebted companies, especially those with dollar-denominated obligations?
Over long-term, we believe the Indian currency will continue to follow the path of gradual depreciation against the dollar due to inflation and interest rate differentials.
Crude and other commodity prices have been plunging. How do you see this benefiting the overall economy in general and corporate India in particular?
For the Indian economy, lower crude and commodities
Q:
A:
Q:
A:
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Tête-à-tête
ICICIdirect Money Manager April 2016
prices help the government to consolidate its fiscal position. For corporate India, the effect is more dependent on the nature of the industry. To explain with an example, lower commodity pr ices have benefited the FMCG (fast-moving consumer goods) and tyre industries by lowering raw material prices. On the other hand, many trading partners of I n d i a n c o m p a n i e s a r e expor ters of pet ro leum producing countries. A fall in oil price may impact their e c o n o m y, a n d h a m p e r demand for Indian products.
The Union Budget 2016-17 seems to be fiscally prudent. How do you see this benefiting both equity and debt markets in the medium to long term?
We believe that the FY2016-17 budget is a balanced budget where the government has maintained its commitment to fiscal consolidation. The government borrowing in 2016-17 has a lso been contained and this could lead the Reserve Bank of India (RBI) to ease policy rates further. We believe fixed income is clearly a preferred asset class at this point in time, as returns may be front-ended.
We believe the government has set the stage for RBI for further rate-cuts. Thus, fixed
Q:
A:
income investors could expect good returns during 2016.
The Union Budget a lso underlines the Government's determination to provide an impetus to the economy e s p e c i a l l y t h r o u g h t h e infrastructure, rural and financial sectors. It lays emphasis on repairing balance sheets of banks, reducing non-p e r f o r m i n g a s s e t s a n d boosting employment in the largest section of the economic pyramid.
Given this focus on reform, repair and revival, we see a prospective up-cycle in the economy.
The recovery process could provide ample opportunities to accumulate equities in 2016. We maintain our view and recommend investors to go marginally overweight on equ i t ies now and fu l ly overweight by end of 2016.
Given that the government remains committed to fiscal prudence, where do you see interest rates heading towards? Where should a long-term fixed-income investor invest currently?
We believe that interest rates will continue on the downward trajectory, especially due to the fiscal prudence as shown by t h e g o v e r n m e n t . W e
Q:
A:
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Tête-à-tête
ICICIdirect Money Manager April 2016
recommend investors to stay invested in long duration funds.
New investors can invest in short to medium term and dynamic duration funds for long term; and for tactical allocations one may invest in long duration funds with a short term investment horizon.
Which sectors would you prefer now to add to your portfolio? Which ones would you avoid?
We believe that the NPA issue in the banking sector is peaking out; therefore it is an important sector where investors can build position. Also domestic cyclical industry is something which we believe is better placed.
FMCG as a sector is over valued though there maybe few selective opportunities present.
Could you please throw some light on the Brexit (British exit from the European Union)? What are the key economic and financial risks of Brexit? What could U.S elections mean for the Indian markets and investors?
Events like these may result in high volatility in the stock m a r k e t i n t h e s h o r t termthereby providing good opportunities for investors. We
Q:
A:
Q:
A:
believe that in such scenario asset allocation funds may give reasonable returns.
In the backdrop of the current market scenario, what is your advice to new and existing investors?
In India retail investors are underexposed to equities, hence, they should look at this market as an opportunity. Historically, it has been rewarding for investors when they maintained exposure to equities over longer periods.
New or existing investors should start building position in equities if they are ready to remain invested for a full cycle (five years or more). Investors should adhere to the principles of asset allocation and balance their portfolios based on their risk appetite and time horizon of investments.
What are the key fundamental principles of building a successful, long-term investment portfolio?
Asset allocation is very important for investors to build a successful, long term investment portfolio. The other thing that is important for investors is to understand their risk level and time horizon to be spent in a particular asset class.
Q:
A:
Q:
A:
The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities.
35
ASK OUR PLANNER
Effect of new interest rates on small savings schemes
ICICIdirect Money Manager April 2016
Q: I had missed the recent announcements relating to the interest rate changes of Post Office Investments. I have existing investments into Post Office – a Senior Citizen Saving Scheme and a Monthly Income Scheme a year back. Will the new interest rates be changed in these too or are they only for new accounts to be opened from this financial year? How it will affect while renewing these investments after maturity? What
about Public Provident Fund, as my son is investing into the same?
- Kailash Sawant
The Government slashed interest rates on small savings schemes offered by Post Office in March 2016, due to the substantial cut in policy rates by the Reserve Bank of India (RBI) in the past one year. These changes will be with effect from April 1, 2016.
A:
Revision of interest rates for Small Savings Schemes
Source: The Ministry Of Finance, Government of India.
The government has also decided to review the interest rates of small savings schemes
Sr. No.
Quarter for which revised rate of interest would be effective
Date on which the revision would be notified
1. April to June
15th
March
2. July to September 15th June
3. October to December
15th
September
4. January to March 15th December
every quarter, so that the effect of change in policy rates can be passed on more frequently.
36
ASK OUR PLANNER
ICICIdirect Money Manager April 2016
In schemes like Senior Citizen
Savings Scheme (SCSS), Post
O f f i ce Month ly Income
Scheme (POMIS), National
Savings Certificate (NSC),
Kisan Vikas Patra (KVP), etc.,
the new rates are applicable
only for new customers.
In your case, you are locked at
the rates at which you bought.
Hence, your existing
investments into SCSS and
POMIS will remain the same as
it was at the time of investing a
year back. The interest will
remain fixed in your
investments for the entire
duration of the investment i.e.
5 years. On maturity, when you
renew these investments, you
can lock the interest rates
applicable at the time of
renewal.
In products like PPF and
Sukanya Samriddhi Scheme,
the lowered rates will be
applicable for the entire
accumulated corpus and not
just for the new investments.
I sold one of my houses in
February 2016 for 80 lakh. I
bought this house in 2007-08 for
35 lakh. I want to know how much
Q:
`
`
tax I should pay on the capital gains
made. Is there any way I can avoid
paying the tax? If yes, can you
please guide me on the same?
- Rohan Shah
Firstly, capital gains on sale
of properties are classified as
short-term (if sold within 36
months from the date of
purchase) and long-term (if
sold on or after 36 months from
the date of purchase). The
short-term capital gains (i.e.
sale price less purchase price)
are added to your income in
the year of sale and taxed as
per your income slab. There is
no exemption available on this
gain.
For calculating long-term
capital gains, first, the indexed
cost of purchase has to be
calculated as in the year of sale,
using cost of inflation index
(CII). You have purchased the
house in 2007-08, when the CII
was 551; and in the year of sale
i.e. 2015-16, the CII was 1081.
Hence, the indexed cost of
purchase in 2015-16 is 68.67
lakh (i.e. 35 lakh / 551 x 1081).
Now, capital gains will be the
difference between the sale
A:
`
37
ASK OUR PLANNER
ICICIdirect Money Manager April 2016
price and the indexed cost of
purchase, which comes to
11.33 lakh.
Long-term capital gains on
properties are taxed at 20.6%
( i n c l u d i n g c e s s ) a f t e r
indexation. Hence, you will be
liable to pay a tax of 233,479
(i.e. 20.6% on 11.33 lakh).
H o w e v e r , t h e r e a r e
exemptions available on this
capital gain, if you reinvest the
capital gain in any of the below
2 options:
1) Section 54: Purchase of
another residential property
within 1 year before or 2 years
after the date of sale; or
construction of residential
house property within a period
of 3 years from the date of sale.
Such new property should not
be sold within a period of 3
years from the date of
acquisition. The capital gains
shall be exempt only to the
extent it is invested in the
purchase / construction of
another house.
2) Section 54EC: Investment of
capital gain into capital gain
bonds within a period of 6
`
`
months from the date of sale.
These bonds are generally
issued by REC and NHAI and
the interest rate offered is 6%
p.a. with duration of 3 years.
The interest earned on this is
taxable. The maximum limit of
investment into such bonds is
50 lakh.
I am a senior citizen and I would
like to know if the return by way of
annual/monthly pension for the
investment in LIC's Jeevan
Akshay's Pension scheme is
taxable or is it tax free.
- B. Ramaswamy
LIC Jeevan Akshay is an
immediate annuity plan. The
annuity i.e. pension to be
received from any annuity plan
will be added to your income
and taxed as per your income
slab.
For example, let's assume you
have invested 10 lakh in an
immediate annuity plan and it
gives you an annual pension of
80,000. Apart from this
income, you have a rental
income of 1.80 lakh and
interest income from various
fixed deposits amounting to
`
`
`
`
`
Q:
A:
38
ASK OUR PLANNER
ICICIdirect Money Manager April 2016
Do you also have similar queries to ask our experts? Write to us at: [email protected].
60,000 p.a. Then, your total
income for the year will be
3.20 lakh. If you are 60 and
above (but less than 80 years of
age), then 3 lakh will be
deducted from this and the
balance amount of 20,000 will
be taxed at 10.30%, amounting
to an income tax of 2,060. If
you are less than 60, then 2.5
lakh will be deducted and
70,000 will be taxed at
10.30%, amounting to an
income tax of 7,210.
Kindly let me know whether I
can invest 50,000 for saving tax
u/s 80CCD (1); my age is above 75
years.
- Harbanslal Nagee
The normal maturity age in a
National Pension System
(NPS) account is 60 years.
However, you can extend
contributions / lump sum
withdrawal up to the age of
only 70 years and not beyond
it. Hence, you will not be able
to invest into NPS to claim tax
exemption under Section
80CCD (1).
`
`
`
`
`
`
`
`
Q:
A:
Q:
A:
Can I partially withdraw/redeem
amount from my fund in my pension
policy (ICICI Prudential Life Time
Pension Plan)? How long will it
take? Or can I avail loan against
this?
- P Vijay
You can do a partial
withdrawal from your pension
policy, if the policy allows you
to do so. There could be
conditions with respect to the
minimum duration you should
have held the policy before
being eligible for partial
withdrawal. Please check your
policy document for the same.
Generally, partial withdrawal
requests will be processed in 3-
4 working days.
Loans are generally available
against traditional insurance
policies like endowment &
money back policies. Since
unit-linked plans are linked to
market and the fund value may
fluctuate according to market
movements, loan against
these policies are generally not
provided.
MUTUAL FUND ANALYSIS
39
Investing in Income Funds
ICICIdirect Money Manager April 2016
The Reserve Bank of India (RBI) in its monetary policy of April 5, 2016 announced several liquidity measures, which are extremely positive for funds at the short to medium term maturity papers. Therefore, bulk of the debt investment should be in good quality short-term debt funds. Ultra short-term debt funds and liquid funds are likely to benefit from the fall in short-term yields. Investors can consider investing in the following short-term debt funds: Birla Sunlife Short Term Fund, HDFC Short Term Opportunities Fund and ICICI Pru Short Term Plan.
Birla Sun Life Short Term Fund
Fund Objective:The scheme aims to generate current income and capital appreciation from a portfolio that invests 100% in debt and money market securities.
Key Information:
Product Label:
This product is suitable for investors who are seeking*:
•
•
income with capital growth over short term
investments in debt and money market instruments.
NAV as on April 07, 2016 ( ) 57.1
Inception Date March 3, 1997
Fund Manager Prasad Dhonde
Minimum Investment (`)
Lumpsum 5000
Expense Ratio (%) 0.30
Last declared YTM 8.20
Exit Load Nil
Benchmark Crisil Short TermBond Fund Index
Modified Duration 1.73
`
Fund Manager: Prasad DhondeMr. Dhonde
Performance:
is a B.Sc (Tech) and MMS (Finance). Prior to joining Birla Sun Life AMC he has worked with Credit Analysis & Research Ltd, Times Investors Services Pvt. Ltd., Birla Sun Li fe Securi t ies Ltd. , RR Financial Consultants Ltd. & Probity Research & Services Pvt. Ltd.
The fund has delivered returns better than the benchmark over 6 months, 1 year, 3 year and 5 year time. It delivered 9% CAGR (compounded annual growth rate) over period of 1 year as against benchmark which delivered 8.7%. It has delivered 9.5% CAGR return since inception whereas c a t e g o r y a v e r a g e h a s delivered 8.9% CAGR returns only. It has been consistent in its performance and has always been among top performing funds.
40
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2016
Portfolio:The scheme seeks to generate
regular returns by investing in
short-term corporate bonds
and sovereign bonds. The fund
has dynamic a l locat ion
strategy and has increased the
percentage of cash holdings in
volatile market. The fund holds
33% sovereign bonds, 46%
AAA-rated corporate bonds
and 7% AA-rated papers. It
doesn't invest in sub-AA
papers. Average maturity of
the fund is 2.01 years and
modified duration is 1.73
years. (Modified Duration is
the approximate percentage
change in price for a 100 basis
point change in interest rates.)
Our View:The fund has been consistent
in its performance with
portfolio inclined towards
short term sovereign bonds
and corporate bonds. It has
always been among the top
performers and delivered
better returns than category
average and the benchmark.
With government resorting to
short term liquidity easing
measures, short-term debt
funds are going to benefit the
most. Higher accrual income
and held to maturity portfolio
(with less duration of about
two years) make these funds
comparatively less volatile as
against long term funds. Short
term debt funds are stable
performing funds with low
volatility in returns, apt for the
current volatile environment.
Performance vs. Benchmark
Fund Benchmark
4.4
9 9.4 9.7
4.1
8.7 9.2
9
02468
1012
6 Month 1 Year 3 Year 5 Year
Retu
rn%
8.7 1
0.9
8.71
0.3
8.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
31-Mar-15 To 31-Mar-16 31-Mar-14 To 31-Mar-15 31-Mar-13 To 31-Mar-14
Retu
rn%
Yearly Returns
Fund BenchMark
41
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2016
Performance of all the schemes managed by the fund manager
31 -Mar-15 -14 -13
31 -Mar-16 31 -Mar-15 31 -Mar-14
31 -Mar 31 -MarFund Name
Data as on April 07, 2016; Portfolio details as on Feb-2016Source: ACE MF, ICICIdirect Research
Feb-16 Jan-16 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 Apr-15 Mar-15 Feb-15 Jan-15 Dec-14
Avg Maturity(Yrs) 2.01 2.39 2.46 2.17 2.01 2.26 2.15
Modified Duration 1.73 2.04 2.01 1.81 1.67 1.90 1.88 1.99 1.95 1.69 1.77 1.68 1.78 1.92
Asset Allocation %
Credit quality %
Other attributes (Years)
Others 11.79 9.01 6.98 8.81 13.18 3.60 5.59 9.96 16.79 5.36 3.50 15.04 10.46 6.48
Gsec 33.96 40.41 39.37 32.26 34.27 37.70 33.33 24.18 22.59 14.09 15.34 20.07 23.66 26.24
Corp Bond 36.28 36.08 41.89 44.92 36.27 42.24 42.93 50.73 51.50 61.70 68.70 58.35 63.25 66.31
CPs 14.97 9.23 3.96 6.55 7.39 6.14 6.77 4.01 3.84 6.74 8.35 2.30 2.47 0.80
CDs 3.01 5.27 7.80 7.46 8.89 10.32 11.38 11.12 5.28 12.11 4.11 4.24 0.16 0.17
Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
SOV 33.96 40.41 39.37 32.26 34.27 37.70 33.44 24.30 22.71 14.22 15.39 29.76 26.88 27.91
Cash & Equivalent 11.79 7.96 6.98 8.81 13.18 3.60 5.48 9.84 11.77 5.23 3.44 5.35 5.61 2.82
AAA & Equiv 46.52 42.17 44.09 46.60 39.58 44.19 48.49 51.49 47.15 66.43 68.46 51.39 51.80 52.45
AA & Equiv 7.74 8.41 9.55 12.33 12.97 14.51 12.59 14.37 13.48 14.12 12.70 13.50 14.08 14.82
A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --
Birla SL Gold ETF 10.14 -10.29 -3.81
Gold-India -- -8.38 -3.19
Birla SL Short Term Fund(G) 8.70 10.88 8.73
Crisil Short Term Bond Fund Index -- 10.33 8.79
Birla SL FRF-Long Term Plan-Ret(G) 8.63 9.35 9.76
Crisil Liquid Fund Index -- 8.98 9.46
Birla SL Treasury Optimizer Plan-Ret(G) 8.59 12.37 9.92
Crisil Short Term Bond Fund Index -- 10.33 8.79
Birla SL Constant Maturity 10 Year Gilt Fund-Reg(G) 7.40 13.12 -0.40
I-Sec Li-BEX -- 19.88 1.72
Birla SL Inv Inc-QS I-Ret(G) 7.23 8.79 9.86
Crisil Liquid Fund Index -- 8.98 9.46
Birla SL Qrtly Inv 4(G) 7.07 8.43 9.62
Crisil Liquid Fund Index -- 8.98 9.46
Birla SL Gilt Plus-PF(G) 6.32 20.27 2.69
I-Sec Li-BEX -- 19.88 1.72
Birla SL G-Sec-LT(G) 5.86 18.14 2.27
I-Sec Li-BEX -- 19.88 1.72
Birla SL Income Plus(G) 4.69 16.79 1.57
Crisil Composite Bond Fund Index -- 14.59 4.34
Birla SL CPO Fund-Sr 23 4.28 – –
Birla SL CPO Fund-Sr 22 4.26 – –
Birla SL CPO Fund-Sr 18 4.10 14.38 –
Crisil MIP Blended Index -- 16.45 –
Birla SL CPO Fund-Sr 21 4.05 – –
Birla SL CPO Fund-Sr 20 4.02 – –
Birla SL CPO Fund-Sr 17 3.80 14.64 –
Crisil MIP Blended Index -- 16.45 –
Birla SL CPO Fund-Sr 16 3.78 14.32 –
Crisil MIP Blended Index -- 16.45 –
Birla SL CPO Fund-Sr 19 3.68 13.60 –
Crisil MIP Blended Index -- 16.45 –
Birla SL Dynamic Asset Allocation Fund(G) 1.30 23.03 13.04
CRISIL Balanced Fund - Aggressive Index -- 22.53 13.38
Birla SL CPO Fund-Sr 25 -1.10 -- –
42
MUTUAL FUND ANALYSIS
HDFC Short-term Opportunities Fund
Fund Objective:The investment objective of the Scheme is to generate regular income through investments in Debt/Money Market Instruments and Government Securities with maturities not exceeding 30 months.
This product is suitable for investors who are seeking*:
•
•
Regular income over short to medium term.
l Investment in debt and money market ins t ruments and government securities with maturities not exceeding 36 months.
ICICIdirect Money Manager April 2016
Key Information:
Product Label:
Fund Managers: Anil Bamboli
Mr. Bamboli
Performance:
is a CFA and managed multiple funds in HDFC since 2010. Prior to joining HDFC AMC he has w o r k e d w i t h S B I Fu n d Management for 11 years.
The fund has been a consistent top performing fund in short term debt funds category. It has delivered 1-year return of 8.5% against benchmark return of 8.7%. On 5-year basis, it has delivered 9.4% CAGR return as against 9% return of benchmark. Its CAGR return since inception stands at 9 .1% whereas category average has delivered 8.9% return over same period.
Yearly Returns
Fund BenchMark
NAV as on April 07, 2016 ( ) 16.6
Inception Date June 25, 2010
Fund Manager Anil Bamboli
Minimum Investment (`)Lumpsum 5000
Expense Ratio (%) 0.32
Last declared YTM 8.51
Exit Load 0.25% on or before 1M, Nil after 1M
Benchmark Crisil Short TermBond Fund Index
Modified Duration 1.40
`
8.4 1
0.3
8.81
0.3
8.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
31-Mar-15 To 31-Mar-16 31-Mar-14 To 31-Mar-15 31-Mar-13 To 31-Mar-14
Retu
rn%
Performance vs. Benchmark
Fund Benchmark
4.1
8.5 9.2
9.4
4.1
8.7
9.2 9
0
2
4
6
8
10
6 Month 1 Year 3 Year 5 Year
Retu
rn%
43
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2016
Portfolio:The scheme invests in short-term corporate bonds of AAA and AA-rated papers and in sovereign bonds. It has drastical ly increased its holdings in sovereign bonds from 0.8% in February 2015 to 10.8% in February 2016. It has also decreased its holding in sub-AAA rated papers due to increasing credit risk in the market. It holds 5% cash for l i q u i d i t y r e q u i r e m e n t s . Average maturity for the fund is 1.66 years and modified durat ion is 1 .40 years . (Modified Duration is the approximate percentage change in price for a 100 basis point change in rates).
Our View:The fund holds short-term papers in sovereign as well as corporate bonds. In i ts monetary policy RBI has taken dras t ic l iqu id i ty eas ing measures which are going to be positive for the short term interest rates and hence short term debt funds. Higher accrual income and held to maturity portfolio (with less duration of about two years) m a k e t h e s e f u n d s comparatively less volatile as against long term funds. Short term debt funds are stable performing funds with low volatility in returns, apt for the current volatile environment.
Feb-16 Jan-16 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Feb-15 Jan-15
CDs 4.90 6.33 5.11 3.06 4.72 7.93 12.71 13.19 11.68 12.12 12.60 6.60 6.51 6.63
CPs 2.49 4.92 2.84 7.29 3.95 3.45 4.11 3.94 4.18 5.42 5.17 4.42 2.20 2.48
Corp Bond 76.07 71.33 74.06 71.03 73.80 71.96 59.56 68.49 71.29 70.44 69.13 74.92 84.01 85.70
Gsec 10.81 12.34 16.65 15.04 15.57 12.83 12.19 6.33 4.92 5.11 4.51 0.76 0.87 0.99
Others 5.72 5.09 1.35 3.59 1.96 3.83 11.43 8.05 7.93 6.91 8.59 13.30 6.41 4.20
A & Eqiv -- -- -- 1.55 -- -- -- -- -- -- -- -- -- --
AA & Equiv 10.92 17.35 19.24 20.51 22.84 21.50 15.85 17.41 18.24 17.44 15.87 15.05 19.55 20.47
AAA & Equiv 72.54 65.22 62.77 59.31 59.63 61.84 60.52 68.21 68.91 70.54 71.03 70.89 73.17 74.34
Cash & Equivalent 5.72 3.51 1.35 3.59 1.96 3.83 11.43 8.05 5.75 3.63 2.67 4.08 6.41 4.20
SOV 10.81 12.34 16.65 15.04 15.57 12.83 12.19 6.33 4.92 5.11 4.51 0.76 0.87 0.99
Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
Avg Maturity(Yrs) 1.66 1.68 1.80 1.81 1.90 1.88 1.61 1.72 1.73 1.71 1.69 1.69 1.74 1.71
Modified Duration 1.40 1.42 1.53 1.54 1.61 1.59 1.36 1.45 1.45 1.44 1.43 1.42 1.43 1.41
Asset Allocation %
Credit quality %
Other attributes (Years)
44
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2016
Performance of all the schemes managed by the fund manager
31 -Dec-14 -13 -12
31 -Dec-15 31 -Dec-14 31 -Dec-13
31-Dec 31 -DecFund Name
HDFC FMP-XXIX-1175D-Jan 2014(1)-Reg(G) 10.64 12.87 –
Crisil Composite Bond Fund Index -- 14.59 –
HDFC FMP-XXIX-1127D-Mar 2014(1)-Reg(G) 10.62 12.73 –
Crisil Composite Bond Fund Index -- 14.59 –
HDFC FMP-XXIX-1095D-Mar 2014(1)-Reg(G) 9.80 11.17 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-793D-Feb 2014(1)-Reg(G) 9.49 11.81 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC STP(G) 9.38 10.98 7.85
Crisil Short Term Bond Fund Index -- 10.33 8.79
HDFC Gilt-Short Term Plan(G) 9.30 10.09 5.94
I-Sec Si-BEX -- 9.75 6.62
HDFC FMP-XXXII-1134D-Sep 2014(1)-Reg(G) 8.93 – –
HDFC Banking and PSU Debt Fund-Reg(G) 8.93 9.95 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC Annual Inv-1-A-Reg(G) 8.71 9.30 9.43
Crisil Short Term Bond Fund Index -- 10.33 8.79
HDFC FMP-XXIX-435D-Mar 2014(1)-Reg(G) 8.64 9.07 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-441D-Feb 2014(1)-Reg(G) 8.60 9.06 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC Annual Inv-1-B-Reg(G) 8.57 9.33 9.21
Crisil Short Term Bond Fund Index -- 10.33 8.79
HDFC FMP-XXIX-453D-Feb 2014(1)-Reg(G) 8.56 9.03 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXXII-1107D-Oct 2014(1)-Reg(G) 8.55 – –
HDFC FMP-XXVIII-370D-Oct 2013(2)-Reg(G) 8.53 9.55 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-434D-Feb 2014(1)-Reg(G) 8.53 9.06 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-369D-Mar 2014(1)-Reg(G) 8.52 9.13 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXXII-1099D-Aug 2014(1)-Reg(G) 8.52 -- –
HDFC FMP-XXXII-1125D-Sep 2014(1)-Reg(G) 8.52 – –
HDFC FMP-XXIX-370D-Jan 2014(1)-Reg(G) 8.52 8.95 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-840D-Jan 2014(1)-Reg(G) 8.51 10.38 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXXII-1113D-Oct 2014(1)-Reg(G) 8.51 – –
HDFC FMP-XXXII-1128D-Sep 2014(1)-Reg(G) 8.50 – –
HDFC FMP-XXIX-366D-Mar 2014(1)-Reg(G) 8.50 9.13 –
45
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2016
Performance of all the schemes managed by the fund manager
31 -Dec-14 -13 -12
31 -Dec-15 31 -Dec-14 31 -Dec-13
31-Dec 31 -DecFund Name
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-369D-Mar 2014(3)-Reg(G) 8.50 9.09 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-371D-Feb 2014(1)-Reg(G) 8.49 9.25 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-369D-Feb 2014(2)-Reg(G) 8.49 9.12 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-371D-Jan 2014(1)-Reg(G) 8.49 8.97 –
Data as on April 07,2016 ;Portfolio details as on Feb-2016 10.33 –
HDFC FMP-XXIX-370D-Mar 2014(1)-Reg(G) 8.48 9.15 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXXII-1115D-Jan 2015(1)-Reg(G) 8.48 – –
HDFC FMP-XXXII-1113D-Nov 2014(1)-Reg(G) 8.48 -- –
HDFC FMP-XXIX-370D-Feb 2014(1)-Reg(G) 8.48
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVI-370D-Aug 2013(2)-Reg(G) 8.47 9.86 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-447D-Feb 2014(1)-Reg(G) 8.47 9.05 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-491D-Jan 2014(1)-Reg(G) 8.47 9.01 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-478D-Jan 2014(1)-Reg(G) 8.47 9.08 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVII-370D-Sep 2013(1)-Reg(G) 8.46 9.96 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVI-370D-Aug 2013(1)-Reg(G) 8.46 9.85 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-369D-Jan 2014(1)-Reg(G) 8.46 8.97 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVI-371D-July 2013(1)-Reg(G) 8.45 9.30 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-369D-Mar 2014(2)-Reg(G) 8.45 9.13 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-372D-Jan 2014(1)-Reg(G) 8.44 8.97 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVII-370D-Aug 2013(4)-Reg(G) 8.44 9.87 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-369D-Feb 2014(1)-Reg(G) 8.44 9.35 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVII-370D-Aug 2013(3)-Reg(G) 8.43 10.04 –
Crisil Short Term Bond Fund Index -- 10.33 –
46
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2016
Performance of all the schemes managed by the fund manager
31 -Dec-14 -13 -12
31 -Dec-15 31 -Dec-14 31 -Dec-13
31-Dec 31 -DecFund Name
HDFC FMP-XXIX-372D-Dec 2013(1)-Reg(G) 8.43 9.25 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-371D-Feb 2014(2)-Reg(G) 8.43 9.07 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC Short Term Opportunities Fund(G) 8.43 10.26 8.78
Crisil Short Term Bond Fund Index -- 10.33 8.79
HDFC FMP-XXIX-372D-Feb 2014(1)-Reg(G) 8.42 9.36 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-504D-Dec 2013(1)-Reg(G) 8.41 8.97 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-369D-Dec 2013(1)-Reg(G) 8.40 9.30 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVIII-370D-Oct 2013(1)-Reg(G) 8.40 10.00 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVI-370D-July 2013(3)-Reg(G) 8.39 9.97 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVII-370D-Sep 2013(2)-Reg(G) 8.39 10.14 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-371D-Jan 2014(2)-Reg(G) 8.39 9.27 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-371D-Dec 2013(2)-Reg(G) 8.37 9.19 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVII-370D-Sep 2013(4)-Reg(G) 8.37 10.29 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXXII-1113D-Aug 2014(1)-Reg(G) 8.37 – –
HDFC FMP-XXIX-472D-Jan 2014(1)-Reg(G) 8.36 9.00 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVII-1875D-Aug 2013(1)-Reg(G) 8.34 12.51 –
Crisil Composite Bond Fund Index -- 14.59 –
HDFC FMP-XXVII-371D-Aug 2013(1)-Reg(G) 8.34 9.45 -
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-372D-Dec 2013(2)-Reg(G) 8.33 9.28 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXXII-1107D-Dec 2014(1)-Reg(G) 8.31 -- –
HDFC FMP-XXIX-531D-Dec 2013(1)-Reg(G) 8.28 9.01 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXVII-1143D-July 2013(1)-Reg(G) 8.23 10.23 –
Crisil Composite Bond Fund Index -- 14.59 –
HDFC FMP-XXVII-370D-Sep 2013(3)-Reg(G) 8.18 10.05 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-378D-Mar 2014(1)-Reg(G) 8.17 8.86 –
47
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2016
Performance of all the schemes managed by the fund manager
31 -Dec-14 -13 -12
31 -Dec-15 31 -Dec-14 31 -Dec-13
31-Dec 31 -DecFund Name
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-400D-Mar 2014(1)-Reg(G) 8.15 8.89 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-390D-Mar 2014(1)-Reg(G) 8.14 8.91 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC FMP-XXIX-384D-Mar 2014(1)-Reg(G) 8.13 8.79 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC Cash Mgmt-Savings(G) 8.10 8.95 9.44
Crisil Liquid Fund Index -- 8.98 9.46
HDFC FMP-XXXII-1111D-Nov 2014(1)-Reg(G) 8.01 – –
HDFC FMP-XXVII-1846D-Aug 2013(1)-Reg(G) 7.69 11.88 –
Crisil Composite Bond Fund Index -- 14.59 –
HDFC FMP-XXVII-1001D-Aug 2013(1)-Reg(G) 7.67 10.14 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC Cash Mgmt-Call(G) 7.09 8.03 8.39
Crisil Liquid Fund Index -- 8.98 9.46
HDFC Debt Fund for Cancer Cure-Reg-50 per Div Don 6.53 8.81 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC Debt Fund for Cancer Cure-Reg-100 per Div Don 6.53 8.81 –
Crisil Short Term Bond Fund Index -- 10.33 –
HDFC Gilt-Long Term Plan(G) 6.37 19.59 1.58
I-Sec Li-BEX -- 19.88 1.72
HDFC High Interest Fund-Dynamic Plan(G) 5.75 16.77 5.30
Crisil Composite Bond Fund Index -- 14.59 4.34
HDFC CPO Fund-III-1173D-Jan15-Reg(G) 4.42 – –
HDFC CPO Fund-III-1100D-Oct14-Reg(G) 3.79 -- –
HDFC CPO Fund-I-36M-Oct13-Reg(G) 3.77 11.36 –
Crisil MIP Blended Index -- 16.45 –
HDFC CPO Fund-III-1207D-Dec14-Reg(G) 3.68 -- –
HDFC CPO Fund-II-36M-May14-Reg(G) 3.60 -- –
HDFC CPO Fund-II-36M-June14-Reg(G) 3.57 – –
HDFC CPO Fund-II-36M-Feb14-Reg(G) 3.50 10.70 --
Crisil MIP Blended Index -- 16.45 –
HDFC CPO Fund-I-36M-Aug13-Reg(G) 3.46 11.00 –
Crisil MIP Blended Index -- 16.45 –
HDFC CPO Fund-II-36M-Jan14-Reg(G) 3.37 11.42 –
Crisil MIP Blended Index -- 16.45 –
HDFC CPO Fund-I-36M-Sep13-Reg(G) 3.33 11.09 –
Crisil MIP Blended Index -- 16.45 --
Data as on April 07, 2016; Portfolio details as on Feb-2016Source: ACE MF, ICICIdirect Research
48
MUTUAL FUND ANALYSIS
ICICI Prudential Short Term Plan
Fund Objective:To generate income through investment in basket of debt securities and money market instruments.
ICICIdirect Money Manager April 2016
Fund Managers: Manish BanthiaMr. Manish Banthia
Performance:
is B.Com, ACA
and MBA. He joined ICICI
prudential in 2012.
The fund has performed well over
the years except from Nov 2009
through May 2014 during which
t i m e t h e f u n d h a s
underperformed 66% of its
category peers. The fund
manager plays through duration
management and spread analysis
and invests in corporate bonds,
gilts and cash. The fund has
delivered 8.6% return against
8.75% benchmark return in 1 year.
For 5-year period it has delivered
9.2% CAGR return against 9%
CAGR return of benchmark.
Key Information:
Product Label:
This product is suitable for investors who are seeking*:
•
•
Short term income generation and capital appreciation solution
A debt fund that aims to generate income by investing in a range of debt and money market instruments of various maturities.
NAV as on April 07, 2016 ( ) 31.1
Inception Date October 29, 2001
Fund Manager Manish Banthia
Minimum Investment (`)
Lumpsum 5000
Expense Ratio (%) 0.98
Last declared YTM 8.48
Exit Load Nil
Benchmark Crisil Short TermBond Fund Index
Modified Duration 3.47
`
Yearly Returns
Fund BenchMark
8.1
11.5
7.3
10.3
8.8
0.02.04.06.08.0
10.012.014.0
Retu
rn%
31-Mar-15 To 31-Mar-16 31-Mar14 To 31-Mar-15 31-Mar-13 To 31-Mar-14
Performance vs. Benchmark
Fund Benchmark
4.1
8.6 9 9.2
4.1
8.7
9.2 9
0
2
4
6
8
10
6 Month 1 Year 3 Year 5 Year
Retu
rn%
49
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2016
Portfolio:
Our View:
The scheme invests heavily in
sovereign funds with holding
percentage in the same at
44%. Its current holding in
AAA-rated corporate bond
papers is 39%. It has reduced
its holdings in sub-AAA papers
due to increasing credit risk in
the market. I ts average
maturity is 4.76 years and its
modified duration is 3.47
years. (Modified Duration is
the approximate percentage
change in price for a 100 basis
point change in rates).
The fund holds short to
medium term papers in
sovereign as well as corporate
bonds. In its monetary policy
RBI has taken drastic liquidity
easing measures which are
going to be positive for the
short term interest rates and
hence short term debt funds.
Higher accrual income and
held to maturity portfolio (with
less duration of about two
years) make these funds
comparatively less volatile as
against long term funds. Short
term debt funds are stable
performing funds with low
volatility in returns, apt for the
current volatile environment.
Feb-16 Jan-16 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Feb-15 Jan-15
CDs -- -- -- -- -- -- -- -- -- 0.46 1.85 0.46 8.12 4.54
CPs -- -- -- -- -- -- -- -- 3.30 3.65 3.64 3.70 5.40 1.70
Corp Bond 50.79 57.00 60.50 57.28 61.46 65.50 63.57 65.75 66.64 68.79 66.31 62.86 53.47 54.05
Gsec 44.31 39.30 34.73 35.20 34.28 31.03 33.29 28.51 27.32 23.39 25.02 28.60 28.66 28.80
Others 4.90 3.70 4.77 7.52 4.26 3.47 3.13 5.74 2.74 3.71 3.18 4.37 4.34 10.91
A & Eqiv -- -- -- -- -- -- -- -- -- -- 0.98 1.01 1.06 1.16
AA & Equiv 12.50 22.32 24.08 24.36 21.27 23.05 22.31 26.20 28.70 27.91 27.00 27.19 26.65 27.12
AAA & Equiv 38.29 34.69 36.41 32.92 40.19 42.45 41.26 39.55 41.23 44.98 43.82 38.83 39.28 32.01
Cash & Equivalent 4.90 3.70 4.77 7.52 4.26 3.47 3.13 5.74 2.74 3.71 3.18 4.37 4.34 10.91
SOV 44.31 39.30 34.73 35.20 34.28 31.03 33.29 28.51 27.32 23.39 25.02 28.60 28.66 28.80
Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
Avg Maturity(Yrs) 4.76 4.55 4.29 4.16 4.65 4.60 4.51 3.82 3.30 3.16 3.03 3.04 2.72 2.80
Modified Duration 3.47 3.33 3.17 3.04 3.38 3.35 3.27 2.84 2.50 2.37 2.35 2.36 2.14 2.15
Asset Allocation %
Credit quality %
Other attributes (Years)
50
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2016
Performance of all the schemes managed by the fund manager
31 -Dec-14 -13 -12
31 -Dec-15 31 -Dec-14 31 -Dec-13
31 -Dec 31 -DecFund Name
Data as on April 07, 2016; Portfolio details as on Feb-2016Source: ACE MF, ICICIdirect Research
ICICI Pru Gold ETF 9.88 -6.18 -7.45
Gold-India -- -8.38 -3.19
ICICI Pru Short Term Plan(G) 8.12 11.50 7.26
Crisil Short Term Bond Fund Index -- 10.33 8.79
ICICI Pru Income Opportunities Fund(G) 7.40 15.30 4.55
Crisil Composite Bond Fund Index -- 14.59 4.34
ICICI Pru Regular Gold Savings Fund(G) 7.13 -10.96 -2.47
Gold-India -- -8.38 -3.19
ICICI Pru Long Term Plan-Ret(G) 6.79 20.29 9.43
Crisil Composite Bond Fund Index -- 14.59 4.34
ICICI Pru Gilt-Invest-PF(G) 6.23 20.31 1.43
I-Sec Li-BEX -- 19.88 1.72
ICICI Pru Income(G) 5.73 17.41 0.74
Crisil Composite Bond Fund Index -- 14.59 4.34
ICICI Pru Balanced Advantage Fund(G) 1.10 26.61 20.59
CRISIL Balanced Fund - Aggressive Index -- 22.53 13.38
51
MUTUAL FUND TOP PICKS
Based on our quarterly rankings, we have updated our mutual fund (MF) top picks recently
Mutual Fund Top Picks
Equity
Largecaps
Midcaps
Diversified
ELSS
Birla Sunlife Frontline equity FundICICI Pru Focussed Bluechip Equity FundSBI Bluechip Fund
HDFC Midcap Opportunities FundFranklin India Smaller Companies FundSBI Magnum Global Fund
Franklin India Prima PlusReliance Equity OpportunitiesICICI Prudential Value Discovery Fund
Axis Long Term EquityICICI Prudential Tax PlanFranklin India Tax shield
Liquid Funds
HDFC Cash Mgmnt Saving Plan ICIC Pru Liquid PlanReliance Liquid Treasury Plan
Ultra Short Term
Birla Sunlife Savings FundReliance Medium Term FundICICI Pru Flexible Income Plan
Short Term
Birla Sunlife Short Term FundHDFC Short Term Opportunities FundICICI Pru Short Term Plan
Credit Opportunities FundBirla Sunlife Short Term Opportunities PlanReliance Regular Savings FundICICI Prudential Regular Savings
Income FundsICICI PrudenIncome FundBirla Sun Life Income Plus - Regular Plan UTI Bond Fund
Gilts Funds
ICICI Pru Gilt Inv. PF PlanBirla Sunlife Constant Maturity 10 year gilt plan
MIP Aggressive
Birla Sunlife Savings 5ICICI Prudential MIP 25DSP Blackrock MIP
Debt
ICICIdirect Money Manager April 2016
52
Our indicative large-cap equity model portfolio (“Quality-21”) has
continued to deliver an impressive return of 99.8% (inclusive of
dividends) till date (as on April 12, 2016) since its inception (June
21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex) return
of 43.2% during the same period, out-performance of over
56.6%. This validates our thesis of selecting companies with
sound business fundamentals that forms the core theme of our
portfolio. Our “Consistent-15” mid-cap portfolio also continues
to outperform, delivering 119.5% (inclusive of dividends) till date
(as on April 12, 2016) vis-à-vis the benchmark index (CNX
Midcap) return of 44.4%, out-performance of 75%. 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 systematic investment plan (SIP)
mode of investment and still find a lot of merit in it as the
preferred mode of deployment given the market conditions and
volatility associated since the inception of the portfolio. It has
outperformed other portfolios, thus, reinforcing our belief in a
plan of investment. However, now we are also advising clients to
look at lump sum investments on any possible dips.
On a year-to-date (YTD) basis, the markets have been
consolidating in a broad range of 8,000-8,800 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
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager April 2016
53
EQUITY MODEL PORTFOLIO
ahead of fundamentals, we have aligned our portfolio to capture
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.
ICICIdirect Money Manager April 2016
54
Name of the company
Largecap Stocks
Model Portfolio
Largecap(%)
Midcap(%)
Diversified(%)
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager April 2016
Auto 14 9.8
Tata Motor DVR 4 2.8
Bosch 3 2.1
Maruti 4 2.8
EICHER Motors 3 2.1
BFSI 23 16.1
HDFC Bank 8 5.6
Axis Bank 3 2.1
HDFC 8 5.6
Bajaj Finance 4 2.8
Capital Goods 5 3.5
L & T 5 3.5
Cement 3 2.1
UltraTech Cement 3 2.1
FMCG/Consumer 14 9.8
ITC 7 4.9
United Spirits 2 1.4
Asian Paints 5 3.5
IT 21 14.7
Infosys 10 7.0
TCS 8 5.6
Wipro 3 2.1
Meida 2 1.4
Zee Entertainment 2 1.4
Metal 2 1.4
Tata Steel 2 1.4
Oil & Gas 4 2.8
Reliance Industries 4 2.8
Pharma 12 8.4
Lupin 5 3.5
Dr Reddys 4 2.8
Aurobindo Pharma 3 2.1
Largecap share in diversified 100 70
55
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager April 2016
Aviation 6.0 1.80
Interglobe Aviation 6.0 1.80
Auto 6.0 1.80
Bharat Forge 6.0 1.80
BFSI 6.0 1.80
Bajaj Finserve 6.0 1.80
Capital Goods 6.0 1.80
Bharat Electronics 6.0 1.80
Cement 6.0 1.80
Ramco Cement 6.0 1.80
Consumer 24.0 7.20
Symphony 6.0 1.80
Supreme Ind 6.0 1.80
Kansai Nerolac 6.0 1.80
Pidilite 6.0 1.80
FMCG 8.0 2.40
Nestle 8.0 2.40
Infrastructure 8.0 2.40
NBCC 8.0 2.40
Oil & Gas 6.0 1.80
Castrol 6.0 1.80
Logistics 6.0 1.80
Container Corporation of India 6.0 1.80
Pharma 12.0 3.60
Natco Pharma 6.0 1.80
Torrent Pharma 6.0 1.80
Textile 6.0 1.80
Arvind 6.0 1.80
Midcap share in diversified 100 30
TOTAL 100 100 100.0
5,90
0,00
0
5,90
0,00
0
5,90
0,00
0
7,04
3,61
6
10,1
59,6
78
7,73
2,61
9
6,78
3,04
8
5,55
1,58
1 7,30
5,74
3
3500000
4500000
5500000
6500000
7500000
8500000
|
56
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
April 12, 2016
Value of 1,00,000 invested via SIP at the end of every month `
Portfolio Benchmark
Investment Value of Investment in Portfolio Value if invested in Benchmark
Start date of SIP: , 2011; *Value as on June 30 , 2016April 12
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager April 2016
99.8
119.5111.1
43.2 44.4 49.0
0
25
50
75
100
125
150
%
QUIZ TIME
1. If you had invested into Senior Citizen Savings Scheme (SCSS) on or before 31st March 2016, the new rates would be applicable to you. True / False
2. The National Payments Corporation of India (NPCI) has recently unveiled an app called _______, which will help you transfer money as simple as sending a text message on a mobile phone.
3. Long-term capital gains on properties are currently taxed at _____% (including cess) after indexation.
4. Immediate annuity plans are tax-free. True / False
5. Anyone can subscribe to the National Pension System (NPS), including a person aged 75. True / False
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 March 2015 quiz are:
1. The government has recently cut interest rate on Public Provident Fund (PPF) to _____% from 8.7% now.
A: 8.1%
2. Tax rebate, under Budget 2016-17 proposals, has been raised to Rs. 3,000 fom Rs. 2,000 currently. True / False
A: False, it's increased to Rs. 5,000
3. Leave encashment amount received any time is entirely tax-free for all employees. True / False
A: False
4. Under Budget 2016-17 proposals, tax deduction for rent paid under section 80GG has been increased to Rs. _____ p.a. from Rs. 24,000 p.a. currently.
A: Rs. 60,000
5. Sixty per cent of your NPS (National Pension System) accumulations at the time of withdrawals will be tax exempt once the Budget proposals come into force. True / False
A: False, 40% would be tax-free
Congratulations to the following winner for providing correct answers!
B S R Murthy
57ICICIdirect Money Manager April 2016
58
PRIME NUMBERS
Equity Markets
ICICIdirect Money Manager April 2016
Domestic Equity Indices
Global Equity Indices
Sectoral Indices
31-Mar-16 29-Feb-16 Change (%)
CNX Nifty 7738.4 6987.1 10.8%
CNX Midcap 12752.6 11558.7 10.3%
S&P BSE Sensex 25341.9 23002.0 10.2%
S&P BSE 100 7835.5 7075.4 10.7%
S&P BSE 200 3259.4 2946.8 10.6%
S&P BSE 500 10185.1 9206.0 10.6%
31-Mar-16 29-Feb-16 Change (%)
Dow Jones 17,685.1 16,516.5 7.1%
S&P 500 2,059.7 1,932.2 6.6%
Nasdaq 4,869.8 4,558.0 6.8%
FTSE 6,174.9 6,097.1 1.3%
DAX 9,965.5 9,495.4 5.0%
CAC 40 4,385.1 4,353.6 0.7%
Nikkei 16,758.7 16,026.8 4.6%
Hang Seng 20,776.7 19,111.9 8.7%
Shanghai Composite 3,003.9 2,688.0 11.8%
Taiwan Weighted 8,744.8 8,411.2 4.0%
Straits Times 2,840.9 2,666.5 6.5%
31-Mar-16 29-Feb-16 Change (%)
S&P BSE Auto 18,001.8 15,851.6 13.6%
S&P BSE Bankex 18,392.0 15,814.8 16.3%
S&P BSE FMCG 4,163,635 3,845,354 8.3%
S&P BSE Healthcare 15,149.3 15,207.7 -0.4%
S&P BSE Metals 7,540.8 6,759.2 11.6%
S&P BSE Oil & Gas 9,161.6 8,214.2 11.5%
S&P BSE Power 1,775.7 1,582.5 12.2%
S&P BSE Realty 1,228.4 1,051.1 16.9%
S&P BSE Teck 6,104.9 5,513.6 10.7%
59
PRIME NUMBERS
ICICIdirect Money Manager April 2016
Debt Markets
Government Securities (G-Sec) Yields (in %) Mar-16 -16 Change (bps)Feb
Corporate Bond Yields (in %) Change (bps)Mar Feb-16 -16
Commercial Paper (CP) Rates (in %) Change (bps)Mar Feb-16 -16
Treasury Bill (T-Bills) Yields (in %) Change (bps)Mar Feb-16 -16
Volatility Index (VIX)
31-Mar-16 29-Feb-16 Change (%)
VIX 16.58 20.16 -17.7%
10 year 7.51 7.63 -11
5 year 7.55 7.64 -9
3 year 7.30 7.98 -68
1 year 7.34 7.34 -1
AAA 10 year 8.47 8.67 -19.8
AAA 5 year 8.36 8.59 -23.0
AAA 3 year 8.30 8.53 -22.6
AAA 1 year 8.27 8.47 -19.9
AA 10 year 9.08 9.14 -6.3
AA 5 year 9.05 9.08 -3.5
AA 3 year 8.99 9.01 -1.9
AA 1 year 8.91 8.90 0.6
12 Months 8.86 9.24 -38
6 Months 8.80 9.23 -42
3 Months 8.74 9.28 -54
1 Month 8.70 8.53 17
91D TB 7.24 7.26 -2.4
182D TB 7.17 7.26 -8.5
364D TB 7.10 7.25 -14.8
60
PRIME NUMBERS
10-year benchmark yields (%) across countries
Macro-economic Indicators
Consumer price index (CPI)
Wholesale price index (WPI)
ICICIdirect Money Manager April 2016
Month
Countries 31-Mar-16 29-Feb-16 Change in bps
US 1.77 1.73 3
UK 1.42 1.34 8
Japan (0.03) (0.06) 3
Spain 1.43 1.53 (9)
Germany 0.15 0.11 5
France 0.49 0.47 2
Italy 1.22 1.42 (20)
Brazil 13.97 16.06 (209)
China 2.89 2.90 (1)
India 7.47 7.63 (16)
Items Weights Mar-16 Feb-16 Jan-16Food&bev. 45.86 5.27 5.52 6.66
Pan,tob& intox. 2.38 8.51 8.46 9.03
Cloth & Foot 6.53 5.50 5.60 5.71
Housing 10.07 5.31 5.33 5.20
Fuel & light 6.84 3.38 4.59 5.32
Misc. 28.31 4.01 4.38 3.95
CPI 100 4.83 5.26 5.69
Weights Mar-16 Feb-16 Jan-16WPI 100.0 -0.85 -0.91 -1.07 Primary Articles 20.1 2.13 1.58 4.30 Fuel & Power 14.9 -8.30 -6.40 -9.89 Manufactured Goods 65.0 -0.13 -0.58 -1.17
Index of industrial production (IIP) Sector-wise growth rate (%)Categories Feb-16 Jan-16 Dec-15 Weight (%)
Mining 5 1.5 2.7 14.2Manufacturing 0.7 -2.8 -2.2 75.5Electricity 9.6 6.6 3.2 10.3Total 2 -1.5 -1.2 100.0
61
PRIME NUMBERS
Currencies and CommoditiesCurrencies
Commodities
Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research
ICICIdirect Money Manager April 2016
31-Mar-16 29-Feb-16 Change (%) StatusUSDINR 66.25 68.42 3.2% AppreciatedEURINR 75.37 74.49 -1.2% DepreciatedGBPINR 95.45 94.80 -0.7% DepreciatedAUDINR 50.95 48.89 -4.2% DepreciatedCHFINR 68.93 68.28 -1.0% DepreciatedJPYINR 0.59 0.61 2.7% AppreciatedCNYINR 10.27 10.44 1.7% Appreciated
31-Mar-16 29-Feb-16 Change (%)Crude ($/barrel) 39.6 36.0 10.1%Gold ($/ounce) 1,232.7 1,238.7 -0.5%
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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 April, 2016.
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:
ICICIdirect Money Manager April 2016
1 Hyderabad 16th & 17th Apr 2016 Ruchi on 8297362323
2 New Delhi 16th & 17th Apr 2016 Harneet on 09582158693
3 Pune 23rd & 24th Apr 2016 Kusmakar on 7875442311
4 Kolkata 16th & 17th Apr 2016 Sumit Sarkar on 8017516187
5 Mumbai 23rd & 24th Apr 2016 Harsheel on 9167684228
6 Thane 30th Apr & 1st May 2016 Manish on 8451057943
7 Ahmedabad 17th Apr 2016 Yogesh on 8238053563
8 Vadodara 17th Apr 2016 Yogesh on 8238053563
Sr.No
City Dates For More Information & Registration call:
Schedule for Technical Analysis Programme
9 New Delhi 9th & 10th Apr 2016 Harneet on 09582158693
10 Bangalore 16th & 17th Apr 2016 Subrata on 9620001478
11 Kolkata 23rd & 24th Apr 2016 Sumit Sarkar on 8017516187
12 Mumbai 16th & 17th Apr 2016 Harsheel on 9167684228
13 Thane 16th & 17th Apr 2016 Manish on 8451057943
Sr.No
City Dates For More Information & Registration call:
Schedule for Foundation Programme on Stock Investing
14 Pune 9th & 10th Apr 2016 Kusmakar on 7875442311
15 New Delhi 23rd & 24th Apr 2016 Harneet on 09582158693
16 Pune 30th Apr & 1st May 2016 Kusmakar on 7875442311
17 Kolkata 16th & 17th May 2016 Sumit Sarkar on 8017516187
18 Mumbai 9th & 10th Apr 2016 Harsheel on 9167684228
19 Thane 9th & 10th Apr 2016 Manish on 8451057943
20 Mumbai 23rd & 24th Apr 2016 Manish on 8451057943
21 Nagpur 16th & 17th May 2016 Kusmakar on 7875442311
Sr.No City Dates For More Information & Registration call:
Schedule for Fast-track Programme on Stock Investing
22 Bhubaneswar 24th Apr 2016 Sumit Sarkar on 8017516187
23 Ranchi 24th Apr 2016 Sumit Sarkar on 8017516187
24 Surat 17th Apr 2016 Yogesh on 8238053563
25 Coimbatore 23rd Apr 2016 Subrata on 9620001478
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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
ICICIdirect Money Manager April 2016
Sr.No City Dates For More Information & Registration call:
Schedule for Techno Derivatives Programme
Sr.No City Dates For More Information & Registration call:
Schedule for Advanced Derivatives Trading Strategies Programme
26 Pune 9th & 10th Apr 2016 Kusmakar on 7875442311
27 Chennai 16th & 17th Apr 2016 Rajat on 9962294867
28 Bangalore 9th & 10th Apr 2016 Subrata on 9620001478
29 Kolkata 23rd & 24th Apr 2016 Sumit Sarkar on 8017516187
30 Trichy 30th Apr 2016 Subrata on 9620001478
Sr.No City Dates For More Information & Registration call:
Schedule for Professional Trader & Investor Programme
31 Ahmedabad 8th to 12th Apr 2016 Yogesh on 8238053563
32 Hyderabad 22nd to 26th Apr 2016 Ruchi on 8297362323
33 Bangalore 29th Apr to 3rd May 2016 Subrata on 9620001478
34 New Delhi 22nd to 26th Apr 2016 Harneet on 09582158693
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