Upload
socialcitadelle
View
86
Download
0
Embed Size (px)
Citation preview
August 2015 3
In two minds India Strategy | August, 2015
Foreword
Dear Investor,
The investing climate that we are seeing around us is a tale of two minds. We are seeing
investors in a dilemma and divided across the board. One set are those who has seen the ‘India
Story’ lose it's way over the last 8 years and are justified in their continued pessimism and the
other who are optimistic about the turnaround underway, since the change of guard at the
centre. The former set who have been let down one time too many, wants to see actual results by way of increase in
corporate profits, lowering NPAs, credit growth taking off, capex cycle clearly evident etc. The latter set, the optimists
argue in favour of the quiet work done by the NDA government by way of approvals that cleared the many stumbling
blocks, for power, roads, mining etc., and say Govt. can only facilitate industry and simplify policy but in itself cannot cause
growth. The growth will still be a decision of the measured minds of entrepreneurs who see actual and increasing demands
for their goods and services. The question is when will it come?
We believe it has started feebly, already. The bottoming out and turn-around of the IIP numbers, credit off take numbers
etc., are as sustainable to grow in response to increasingly favourable policy at the centre, as the deterioration that started
many years back thanks to another government that wasted its mandate.
What about US Interest rates? Will the world not collapse and a tsunami occur when Fed sneezes? Our study, attached
inside, shows that neither has happened in the past. Think about it. Which Government in its saner mind will wilfully upset
the apple cart? Raising interest rates by Uncle Sam, has always been into a rebounding and strengthening US economy
which has till then benefited from loose monetary policy. The hikes have always been done to avoid bubbles than to prick
one. By this measure, we haven't reached the final stages of the bubble yet. Don't believe us..? Please see the study inside
and conclude for yourself. Yes ‘this time could be different’
What about a China? Our view… It didn't matter earlier much nor can it matter at this stage of their already slowing
growth. If at all, it's a boon for India from an inflation perspective. China, is a factory to the world and not to itself. It's
slowing down means that the world has slowed down. From where things stands, the slowing china means lowered
demand for commodities, low global industrial goods inflation. And yes lower oil too, as no one can now claim the ‘huge
and pent up demand’ from China. And what's more, India will be seen as the ‘only game in the town’.
Coming back to our advocation that beneath all the guesswork whether the glass is half full or half empty, the portfolios
we have selected have done quite well excepting the Fixed Income portion. Our Direct Equity portfolio – Citadelle Growth
Opportunities (CGOP) continues to outperform its benchmark Nifty by 11.7% and nearly 94% of all equity oriented Mutual
Funds in the country, CYTD 2015. And with 10% still underweight in Cash.
In order to navigate the short term uncertainties around the tough choices between the earnings pickup expected in the
second half of FY16, and the prevailing high valuations, we strongly recommended Forefront Alternative Equity Scheme
(FAES) in our last month’s edition. It has delivered 7.90% in July vs Nifty of 1.96% up. It has been very consistent in its performance as
it has delivered 60.55% since inception (Inception date: 19th August 2014) whereas Nifty has delivered 8.04% for the same period.
Warm Regards,
A V Srikanth
August 2015 4
Alpha Edge | “In two minds”
Asset Class performance
Asset Class returns for July 2015
Source: Bloomberg
Equity markets are in a consolidation phase in July after surviving the turbulence in the month of June. Equity has been the best performer amongst the asset classes for July 2015 with returns of 1.96%. Gold has been the worst performer with returns of -6.69% in anticipation of a strong dollar and economic recovery.
FII Flows for CY 2015
Source: ACEMF
Equity as well as Debt markets have seen steady flows in July. Equities saw net inflow of Rs 5,319 Crs. whereas Debt market has seen a paltry net inflow of Rs 4 Crs.
Sector Returns for July 2015
Source: Bloomberg
IT, Teck and FMCG have been outperformers for July
2015. Metal, Realty and Oil & Gas have been the
laggards during the same period.
1.96%1.13%
0.66%
-6.69%-8.00%
-7.00%
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
Equity 10 yrTreasuries
Cash Gold
Asset Class Returns For July 2015
47 3771
-53
83133
-3
128 113 9744
-6
4
9
12
5
46
42
35
-51
160
39
-100
-50
0
50
100
150
200
250
300
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
CYT
D
FII F
low
s (i
n `
00
0 C
rs)
Equity Debt
-7.1
-1.8
0.4
1.1
1.2
2.1
2.1
2.5
2.9
3.2
3.2
4.4
5.0
5.6
6.0
6.8
-12.0 0.0 12.0
S&P BSE METAL Index
S&P BSE Realty Index
S&P BSE OIL & GAS Index
S&P BSE PSU
S&P BSE SENSEX
S&P BSE Power Index
S&P BSE AUTO Index
S&P BSE BANKEX
S&P BSE Health Care
S&P BSE Consumer Durables
S&P BSE Capital Goods
S&P BSE FMCG
S&P BSE TECk Index
S&P BSE Mid-Cap
S&P BSE IT
S&P BSE Small-Cap
Sector Returns for July 2015 (%)
August 2015 5
Alpha Edge | “In two minds”
Fed Rate Hike: Old ghost is back to haunt?
A rate increase is not necessarily a bad thing for equities.
When that has happened in the past, there is a short-term
shock.
But historically, the trends for equities have been pretty
good. For the six-month period leading up to a Fed
tightening, the Standard & Poor’s 500 has returned about
-4.84%, on average.
S&P’s 500 performance following the beginning of the
Fed tightening:
Absolute (%) CAGR (%)
Date 6 Months 1 Year 2 Years 3 Years
19-Feb-10 -3.02% 21.08% 10.78% 11.07%
30-Jun-04 6.37% 4.43% 5.52% 9.63%
4-Feb-94 -2.43% 1.88% 16.34% 18.75%
Average 0.31% 9.13% 10.88% 13.15%
But the market averages about a paltry 0.31% for 6
months and 9.13% for 1 year, following the beginning of
the Fed tightening, whereas 10.88% and 13.15% returns
for 2 years and 3 years respectively on compounding
annualised basis following the beginning of the Fed
tightening.
For the same period we tried to analyze BSE’s Sensitivity
Index (BSE Sensex), and we found out that the Sensex
performance has been agnostic with initiation of Fed rate
hikes.
For the six-month period leading up to a Fed tightening,
the Sensex has returned about -7.24%, on average.
Sensex performance following the beginning of the Fed
tightening:
Absolute (%) CAGR (%)
Date 6 Months 1 Year 2 Years 3 Years
19-Feb-10 13.98% 12.47% 6.28% 6.40%
30-Jun-04 36.87% 50.01% 48.74% 45.10%
4-Feb-94 9.79% -7.13% -10.01% -5.33%
Average 20.21% 18.45% 15.00% 15.39%
But the market averages about a 20.21% for 6 months and
18.45% for 1 year, following the beginning of the Fed
tightening, whereas 15.00% and 15.39% returns for 2
years and 3 years respectively on compounding
annualised basis following the beginning of the Fed
tightening.
We believe that there may be some volatility here and
there, but over the next 12 to 24 months, it looks like
equities will be substantially higher than where they are
today.
August 2015 6
Alpha Edge | “In two minds”
Infrastructure – A Shot in the arm!
Increasing fiscal revenue is supporting the government’s
medium term agenda of raising infrastructure
investment. The focus is likely to be on urbanisation,
clearing supply bottlenecks through better logistics,
stronger infrastructure and ending power and coal
shortages, which can raise India’s trend growth rate.
Railways, highways, ports and urban infrastructure
projects are likely to be prioritised. Along with coal and
power, we estimate that the government could spend an
additional USD190bn in the next five years on these
sectors.
India could be enjoying close to double-digit real GDP
growth by FY20, even if only 75% of the planned
infrastructure investments are realised.
For urbanisation, the government’s smart cities initiative
will complement the planned creation of several green
field cities across the country. Higher investment in urban
projects should also improve productivity in next five
years.
The government is targeting ‘24x7’ power availability
across the country by 2019. We believe that the first
obstacle of fuel availability has been resolved, and the
nation’s power deficit is shrinking, a trend that looks set
to continue, based on planned capacity additions.
The highways construction programme could see
additional spending of INR2trn in the next five years,
which should strengthen connectivity and fundamentally
lower underlying inflation pressures. Railways and ports
may see potential additional investments of INR5trn and
INR1trn respectively in capacity building, which should
further improve economic connectivity and reduce the
cost of doing business in India.
We believe execution risks will persist in India, given lack
of clarity on land acquisition rules, issues of NPAs in the
banking sector, and generally poor demand conditions,
both domestically and globally. Headwinds for growth
may also increase if the logistical improvements are not
coordinated, which may render some investments to be
unproductive.
We expect government spending to rise, the GST bill to be
cleared, inflation to continue to moderate, more rate cuts
in the 2H15, and earnings to be better than in the previous
two quarters.
August 2015 7
Alpha Edge | “In two minds”
Mounting Tiger, Tamed Dragon!
The explosion in margin financing behind the recent
astonishing run-up in Chinese A shares is a new twist on
China credit concerns, a long-standing grey swan for
Chinese and global growth. As of the beginning of June,
the balance of margin financing outstanding was
RMB2.2tn, an estimated 12% of the free float market cap
of marginable stocks and 3.5% of GDP, easily the highest
in the history of global equity markets. And these
estimates do not take into account “hidden” leverage
from other types of borrowing (i.e., consumer loans and
trust products) where proceeds were used to invest in
stocks, which we estimate at RMB 1tn to RMB 1.5tn,
assuming effective system-wide leverage of 2.2x.
We estimate that a significant portion of the hidden
leverage has now been unwound and the reported official
margin balance has dropped to RMB1.5tn. This unwinding
has contributed to a dramatic correction in Chinese equity
markets, erasing a sizable portion—though not all—of the
stock gains this year.
While a range of market-supporting policies (banning of
selling from large stakeholders for a period of six months,
suspending IPOs, relaxing the forced selling requirement
of underwater margin positions, among others) finally
halted the sell-off on July 9, questions remain about
whether the equity market turmoil could threaten other
Chinese assets, economic growth and broader financial
market stability.
The tumult in China’s stock markets has turned into a
blessing for Indian shareholders. International investors
are pulling out of China, fueling record outflows through
the Shanghai-Hong Kong exchange link, amid a $2.8
trillion plunge in mainland equity values since June 12.
They’ve plowed $705 million into India over the same
period, sparking a world-beating 7 percent gain in the
benchmark S&P BSE Sensex index.
The recent travails in China make India seem like an oasis
of calm in terms of volatility.
Gains in Indian shares over the past seven weeks mark a
turnaround from the preceding four months, when
China’s bull market and doubts over Prime Minister
Narendra Modi’s economic policies kept foreigners away.
The Sensex tumbled 11 percent from this year’s peak on
March, 3rd through June 12, making it the world’s worst
performer after Egypt.
India’s recent outperformance could be because it has a
steady macro-economic picture and is relatively insulated
from any slowdown in China compared with other
emerging markets such as South Korea and Brazil.
India could see greater interest, now that it is projected
to be the fastest-growing major economy.
August 2015 8
Alpha Edge | “In two minds”
Model Portfolio: Conservative
Conservative Market Cap wise (%)
Asset Class Sub-Asset Class Mutual Fund Schemes
Strategic
Tactical
Large cap Mid &
Small cap
Others
Equity - - PMS - - Large Cap - - ICICI Pru Focused BlueChip Eq Fund - - 90.4 3.1 6.5
UTI Opportunities Fund - - 84.3 13.1 2.7
Mirae Asset India Opportunities Fund - - 72.5 23.1 4.4
Mid & Small Cap - - Religare Invesco Mid N Small Cap Fund - - 27.9 67.7 4.4
HDFC Mid-Cap Opportunities Fund - - 32.6 62.4 5.0
BNP Paribas Mid Cap Fund - - 30.7 65.2 4.1
Multi Cap - - L&T India Spl. Situations Fund - - 55.8 42.4 1.7
ICICI Pru Value Discovery Fund-Reg - - 55.8 34.5 9.7
Franklin India High Growth Cos Fund - - 56.3 26.9 16.8
Thematic / Sectoral Funds - - Equity Hybrid Funds - - Average
Maturity Years
Mod
Duration Years
YTM
(%)
Debt 90.0% 92.5% Short Term 30.0% 30.0% Axis Short Term Fund 10.0% 10.0% 3.2 2.4 8.6
Franklin India ST Income Plan 10.0% 10.0% 2.6 2.3 10.8
HDFC STP 10.0% 10.0% 2.2 1.7 10.1
Dynamic Bond Funds 30.0% 32.5% IDFC Dynamic Bond Fund-Reg 10.0% 10.8% 16.5 8.8 8.1
SBI Dynamic Bond 10.0% 10.8% 15.3 8.0 8.1
UTI Dynamic Bond Fund-Reg 10.0% 10.8% 10.8 6.7 8.3
Income Funds 30.0% 30.0% DWS Premier Bond Fund 10.0% 10.0% 2.0 1.7 8.4
HDFC Income Fund 10.0% 10.0% 16.0 7.9 8.3
UTI Bond Fund 10.0% 10.0% 10.9 7.2 8.4
Gilt - - Debt Hybrid Funds - -
Cash 5.0% 5.0% Liquid Funds - - Ultra Short Term 5.0% 5.0%
Gold 5.0% 2.5% Gold 5.0% 2.5% Total 100.0% 100.0%
0.0%
90.0%
5.0%5.0%
Strategic Portfolio
Equity Debt Cash Gold
0.0%
92.5%
5.0%2.5%
Tactical Portfolio
Equity Debt Cash Gold
96.0
98.0
100.0
102.0
104.0
106.0
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Conservative UCI Index
August 2015 9
Alpha Edge | “In two minds”
Model Portfolio: Moderately Conservative
Mod Conservative Market Cap wise (%)
Asset Class Sub-Asset Class Mutual Fund Schemes
Strategic
Tactical
Large cap Mid &
Small cap
Others
Equity 25.0% 25.0% PMS - - Large Cap 25.0% 25.0% ICICI Pru Focused BlueChip Eq Fund 8.3% 8.3% 90.4 3.1 6.5
UTI Opportunities Fund 8.3% 8.3% 84.3 13.1 2.7
Mirae Asset India Opportunities Fund 8.3% 8.3% 72.5 23.1 4.4
Mid & Small Cap - - Religare Invesco Mid N Small Cap Fund - - 27.9 67.7 4.4
HDFC Mid-Cap Opportunities Fund - - 32.6 62.4 5.0
BNP Paribas Mid Cap Fund - - 30.7 65.2 4.1
Multi Cap - - L&T India Spl. Situations Fund - - 55.8 42.4 1.7
ICICI Pru Value Discovery Fund-Reg - - 55.8 34.5 9.7
Franklin India High Growth Cos Fund - - 56.3 26.9 16.8
Thematic / Sectoral Funds - - Equity Hybrid Funds - - Average
Maturity Years
Mod
Duration Years
YTM
(%)
Debt 65.0% 67.5% Short Term 30.0% 30.0% Axis Short Term Fund 10.0% 10.0% 3.2 2.4 8.6
Franklin India ST Income Plan 10.0% 10.0% 2.6 2.3 10.8
HDFC STP 10.0% 10.0% 2.2 1.7 10.1
Dynamic Bond Funds 30.0% 32.5% IDFC Dynamic Bond Fund-Reg 10.0% 10.8% 16.5 8.8 8.1
SBI Dynamic Bond 10.0% 10.8% 15.3 8.0 8.1
UTI Dynamic Bond Fund-Reg 10.0% 10.8% 10.8 6.7 8.3
Income Funds 5.0% 5.0% DWS Premier Bond Fund 1.7% 1.7% 2.0 1.7 8.4
HDFC Income Fund 1.7% 1.7% 16.0 7.9 8.3
UTI Bond Fund 1.7% 1.7% 10.9 7.2 8.4
Gilt - - Debt Hybrid Funds - -
Cash 5.0% 5.0% Liquid Funds - - Ultra Short Term 5.0% 5.0%
Gold 5.0% 2.5% Gold 5.0% 2.5% Total 100.0% 100.0%
25.0%
65.0%
5.0%5.0%
Strategic Portfolio
Equity Debt Cash Gold
25.0%
67.5%
5.0% 2.5%
Tactical Portfolio
Equity Debt Cash Gold
96.0
98.0
100.0
102.0
104.0
106.0
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Mod Conservative UCI Index
August 2015 10
Alpha Edge | “In two minds”
Model Portfolio: Balanced
Balanced Market Cap wise (%)
Asset Class Sub-Asset Class Mutual Fund Schemes
Strategic
Tactical
Large cap Mid & Small cap
Others
Equity 45.0% 45.0% PMS - - Large Cap 30.0% 30.0% ICICI Pru Focused BlueChip Eq Fund 10.0% 10.0% 90.4 3.1 6.5
UTI Opportunities Fund 10.0% 10.0% 84.3 13.1 2.7
Mirae Asset India Opportunities Fund 10.0% 10.0% 72.5 23.1 4.4
Mid & Small Cap 15.0% 7.5% Religare Invesco Mid N Small Cap Fund 5.0% 2.5% 27.9 67.7 4.4
HDFC Mid-Cap Opportunities Fund 5.0% 2.5% 32.6 62.4 5.0
BNP Paribas Mid Cap Fund 5.0% 2.5% 30.7 65.2 4.1
Multi Cap - - L&T India Spl. Situations Fund - - 55.8 42.4 1.7
ICICI Pru Value Discovery Fund-Reg - - 55.8 34.5 9.7
Franklin India High Growth Cos Fund - - 56.3 26.9 16.8
Thematic / Sectoral Funds - - Equity Hybrid Funds - 7.5% Edelweiss Absolute Return Fund 7.5%
%
Average Maturity Years
Mod Duration Years
YTM (%)
Debt 45.0% 50.0% Short Term 30.0% 30.0% Axis Short Term Fund 10.0% 10.0% 3.2 2.4 8.6
Franklin India ST Income Plan 10.0% 10.0% 2.6 2.3 10.8
HDFC STP 10.0% 10.0% 2.2 1.7 10.1
Dynamic Bond Funds 15.0% 20.0% IDFC Dynamic Bond Fund-Reg 5.0% 6.7% 16.5 8.8 8.1
SBI Dynamic Bond 5.0% 6.7% 15.3 8.0 8.1
UTI Dynamic Bond Fund-Reg 5.0% 6.7% 10.8 6.7 8.3
Income Funds - - DWS Premier Bond Fund - - 2.0 1.7 8.4
HDFC Income Fund - - 16.0 7.9 8.3
UTI Bond Fund - - 10.9 7.2 8.4
Gilt - - Debt Hybrid Funds - - DSPBR Dynamic Asset Allocation Fund - - - - -
Cash - - Liquid Funds - - Ultra Short Term - -
Gold 10.0% 5.0% Gold 100.0% 100.0%
45.0%
45.0%
0.0%
10.0%
Strategic Portfolio
Equity Debt Cash Gold
45.0%50.0%
0.0%
5.0%
Tactical Portfolio
Equity Debt Cash Gold
96.0
98.0
100.0
102.0
104.0
106.0
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Balanced UCI Index
August 2015 11
Alpha Edge | “In two minds”
Model Portfolio: Moderately Aggressive
Mod Aggressive Market Cap wise (%)
Asset Class Sub-Asset Class Mutual Fund Schemes
Strategic
Tactical
Large cap Mid & Small cap
Others
Equity 70.0% 70.0% PMS - - Large Cap 30.0% 30.0% ICICI Pru Focused BlueChip Eq Fund 10.0% 10.0% 90.4 3.1 6.5
UTI Opportunities Fund 10.0% 10.0% 84.3 13.1 2.7
Mirae Asset India Opportunities Fund 10.0% 10.0% 72.5 23.1 4.4
Mid & Small Cap 30.0% 12.0% Religare Invesco Mid N Small Cap Fund 10.0% 4.0% 27.9 67.7 4.4
HDFC Mid-Cap Opportunities Fund 10.0% 4.0% 32.6 62.4 5.0
BNP Paribas Mid Cap Fund 10.0% 4.0% 30.7 65.2 4.1
Multi Cap 10.0% 6.7% L&T India Spl. Situations Fund 3.3% 2.2% 55.8 42.4 1.7
ICICI Pru Value Discovery Fund-Reg 3.3% 2.2% 55.8 34.5 9.7
Franklin India High Growth Cos Fund 3.3% 2.2% 56.3 26.9 16.8
Thematic / Sectoral Funds - - Equity Hybrid Funds - 21.3% Edelweiss Absolute Return Fund 21.3% Average
Maturity Years
Mod
Duration Years
YTM
(%) Debt 20.0% 25.0%
Short Term 20.0% 20.0% Axis Short Term Fund 6.7% 6.7% 3.2 2.4 8.6
Franklin India ST Income Plan 6.7% 6.7% 2.6 2.3 10.8
HDFC STP 6.7% 6.7% 2.2 1.7 10.1
Dynamic Bond Funds - 5.0% IDFC Dynamic Bond Fund-Reg - 1.7% 16.5 8.8 8.1
SBI Dynamic Bond - 1.7% 15.3 8.0 8.1
UTI Dynamic Bond Fund-Reg - 1.7% 10.8 6.7 8.3
Income Funds - - DWS Premier Bond Fund - - 2.0 1.7 8.4
HDFC Income Fund - - 16.0 7.9 8.3
UTI Bond Fund - - 10.9 7.2 8.4
Gilt - - Debt Hybrid Funds - - DSPBR Dynamic Asset Allocation Fund - - - - -
Cash - -
Liquid Funds - - Ultra Short Term - -
Gold 10.0% 5.0%
Gold 10.0% 5.0% Total 100.0% 100.0%
70.0%
20.0%
0.0%10.0%
Strategic Portfolio
Equity Debt Cash Gold
70.0%
25.0%
0.0%5.0%
Tactical Portfolio
Equity Debt Cash Gold
90.0
95.0
100.0
105.0
110.0
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Mod Aggressive UCI Index
August 2015 12
Alpha Edge | “In two minds”
Model Portfolio: Aggressive
Aggressive Market Cap wise (%)
Asset Class Sub-Asset Class Mutual Fund Schemes
Strategic
Tactical
Large cap Mid & Small cap
Others
Equity 90.0% 90.0% PMS - - Large Cap 30.0% 30.0% ICICI Pru Focused BlueChip Eq Fund 10.0% 10.0% 90.4 3.1 6.5
UTI Opportunities Fund 10.0% 10.0% 84.3 13.1 2.7
Mirae Asset India Opportunities Fund 10.0% 10.0% 72.5 23.1 4.4
Mid & Small Cap 30.0% 15.0% Religare Invesco Mid N Small Cap Fund 10.0% 5.0% 27.9 67.7 4.4
HDFC Mid-Cap Opportunities Fund 10.0% 5.0% 32.6 62.4 5.0
BNP Paribas Mid Cap Fund 10.0% 5.0% 30.7 65.2 4.1
Multi Cap 30.0% 20.0% L&T India Spl. Situations Fund 10.0% 6.7% 55.8 42.4 1.7
ICICI Pru Value Discovery Fund-Reg 10.0% 6.7% 55.8 34.5 9.7
Franklin India High Growth Cos Fund 10.0% 6.7% 56.3 26.9 16.8
Thematic / Sectoral Funds - - Equity Hybrid Funds - 25.0% Edelweiss Absolute Return Fund 25.0% Average
Maturity Years
Mod
Duration Years
YTM
(%)
Debt - 5.0% Short Term - - Axis Short Term Fund - - 3.2 2.4 8.6
Franklin India ST Income Plan - - 2.6 2.3 10.8
HDFC STP - - 2.2 1.7 10.1
Dynamic Bond Funds - 5.0% IDFC Dynamic Bond Fund-Reg - 1.7% 16.5 8.8 8.1
SBI Dynamic Bond - 1.7% 15.3 8.0 8.1
UTI Dynamic Bond Fund-Reg - 1.7% 10.8 6.7 8.3
Income Funds - - DWS Premier Bond Fund - - 2.0 1.7 8.4
HDFC Income Fund - - 16.0 7.9 8.3
UTI Bond Fund - - 10.9 7.2 8.4
Gilt - - Debt Hybrid Funds - - DSPBR Dynamic Asset Allocation Fund - - - - -
Cash - - Liquid Funds - - Ultra Short Term - -
Gold 10.0% 5.0% Gold 10.0% 5.0% Total 100.0% 100.0%
90.0%
0.0%0.0%10.0%
Strategic Portfolio
Equity Debt Cash Gold
90.0%
5.0%
0.0% 5.0%Tactical Portfolio
Equity Debt Cash Gold
85.0
90.0
95.0
100.0
105.0
110.0
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Aggressive Nifty
August 2015 13
Alpha Edge | “In two minds”
Citadelle Growth Opportunities Portfolio Company Name
% Allocation
Recommended Price
Market price
% Incr/Decr
Rationale Result Update
Axis Bank Ltd. 5% 502.05
573.75 14%
Axis Bank is geared up to ride the next growth cycle with strong capitalization (12.6% Tier I), healthy ROA (1.7%) and expanding liability franchise (2,505 branches). Leveraging on the strong distribution network AXSB increased the share of retail deposits and CASA increased to 79% as compared 59% in FY11. It has delivered stable numbers with improving margins though economy was at a recovery mode. We remain confident of bank’s ability of strengthening its retail franchise further.
Axis Bank’s 1QFY16 operational performance was healthy, but at the same time loan slippage for the quarter was higher. Advances grew much above industry average at 24%. Deposit growth was lower at 13% with a stable CASA (current account savings account) deposit ratio on a sequential basis. NIM (net interest margin) was flattish sequentially at 3.8% Net interest income (NII) grew at a healthy rate of 23% YoY.
Bharat Forge Ltd.
5% 942.30 1145.90 22%
It is global leader in forging business having transcontinental presence across India, Germany and Sweden, serving several sectors including automotive, power, oil and gas, etc. CV business will benefit from pre-buying in US before emission norm changes and strong cyclical recovery in India. This coupled with scale-up in PVs would drive strong growth in Auto segment.
BFL’s Revenues at Rs. 1,129cr higher by 14.2% yoy; lower than our estimates Tonnage volumes were higher by 5.6% YoY but lower 8.4% QoQ. OPM at 30.7% was higher by 200bps yoy, on the back of benefits of operating leverage, better product mix and higher value addition. PAT at 195cr jumped 34.7% YoY but was lower 3.7% QoQ; was lower than estimates
Britannia Industries Ltd.
5% 2548.90 3156.35 24%
Britannia is the market leader in the biscuits
category. Biscuits contribute over 85% of
Company’s consolidated revenue. Over the
years, the company has forayed into other
bakery items and dairy products (constituting
~15% of consolidated revenues). The company
enjoys strong brand equity and has been
consistently ranked amongst the top food brand
in India.
Britannia’s 1QFY16F results
were significantly ahead of
the street estimates. While
revenue growth was largely
as expected, margins
expanded 480bps y-y as
against street expectation of
220bps. This is largely on
account of the operating
leverage and cost saving
initiatives by the company.
Dewan Housing Fin Corpn Ltd.
5% 395.15 481.90 22%
Dewan Housing is a good play on Tier 2 and Tier 3 cities housing demand growth. Strong visibility on business growth and margins, superior asset quality, healthy provision cover and healthy return ratios augurs well for Dewan Housing.
DHFL’s loan book grew (27.9%YoY, 5.5%QoQ) to INR 600bn in 1QFY16, led by healthy growth in sanctions (32.1%YoY) to INR 78.1bn and disbursements (13.6%YoY) to INR 49.4bn. Average ticket size was noted at INR 1.17mn Vs INR 1.20mn in 4QFY15. LTV stood at 46.6%. Spread intact at 2.6% as cost of borrowing benefits passed on to customers. Cost/income ratio decline with sweating of existing network
Eicher Motors Ltd.
5% 15103.50 19070.1 26%
Eicher Motors is a leader in Cruise bikes in India and No.2 player in Medium Commercial Vehicles. The management has increased its production target to 280,000 units in CY2014 (from 250,000 units) and is expected that demand can reach 500,000 units in 3-4 years. Eicher Motors will invest Rs. 6 bn over the next two years in the Royal Enfield business to expand capacity in the Oragdum plant.
Eicher’s 1QCY15 operating results were strong and ahead of our forecasts. While consolidated revenues (Rs 25.7bn, +33.5% YoY) were in line, EBITDA (Rs 3.7bn, +65% YoY) was 5% higher vs. our forecasts. PAT at Rs 2 bn (+40% YoY) was only 1% above cons. estimate due to higher depreciation & taxes.
August 2015 14
Alpha Edge | “In two minds”
Company Name
% Allocation
Recommended Price
Market price
% Incr/Decr
Rationale Result Update
Gujarat Pipavav Port Ltd.
5% 206.50
235.70 14%
GPPV is favorably positioned on the West coast which enables access to the global trade route/rich northern hinterland. Strong parentage and robust evacuation further provides comfort. GPPV is expanding its container handling facility from 0.8m TEUs to 1.35m TEUs, which would be key driver of volume growth. In addition, higher throughput of liquid volume (2m tons capacity) would aid volume growth.
Gujarat Pipavav Port’s (GPPL) Imperative for GPPV (and peers) to fill new capacities in a weak market can impact pricing EBITDA margin is the key (though possibly transient) upside risk Pipavav is preferred port of call; DFC may shift competitive edge to Hazira - industry cargo growth rate.
HDFC Bank Ltd. 5% 952.00 1111.20 17%
HDFC Bank is best-placed in the current environment, with a CASA ratio of ~45%, growth outlook of at least 1.3x of industry and least asset quality risk.
HDFC Bank 1QFY16 PAT grew 21% YoY (in line) to INR27b. Core revenue (NII + Fees) growth was healthy at 23% YoY, led by strong loan growth (+5% QoQ and +22% YoY) and healthy fee income growth (+22% YoY). Strong retail loan growth at 6% QoQ and 26% YoY, led by 1) CV/CE (+6% QoQ and +14% YoY v/s 8% YoY in 4QFY15), 2) personal loan (+12% QoQ, +34% YoY), 3) home loans (+11% QoQ, +37% YoY) and d) auto loans (+7% QoQ, +24% YoY). 4) Share of retail loans (based on HDFC bank’s classification) increased to 63% v/s 61% in 1QFY15.
Ashok Leyland Ltd.
5% 71.45 84.50 18%
Ashok Leyland is the flagship company of Hinduja Group. It is the 2nd largest MHCV with ~26% market share and the largest Bus manufacturer in India. To expand its product offerings, AL has entered into 50:50 JV with Nissan for LCVs and John Deere for construction equipment.
N/A
IndusInd Bank Ltd.
5% 802.55 977.60 22%
IndusInd Bank Ltd is one of the new generation private sector banks in India. Asset quality performance remains healthy, despite a challenging environment and significant slowdown in the CV segment. The management expects that the worst for CV financing is behind and gradual improvement is likely to be seen in coming quarters We believe that IndusInd Bank has the potential to grow faster than the industry and strengthen its market share as it expands its network.
Indusind Bank’s Strong revenue growth (+23% YoY) was backed by Loan growth 23% YoY, driven by corporate (+27% YoY), non-vehicle retail (+65% YoY), and a gradual pickup in vehicle financing (11% YoY vs. 8% YoY in F4Q15). NIM was stable QoQ. Core fee growth was good at 23% YoY. Slippages normalized to ~0.2% of loans, compared to a very weak last quarter (0.9%). GNPL ratio was stable QoQ at 0.8%. NPL provisions were stable QoQ at ~50bps, coverage were lower QoQ to 61% vs. 63%.
5%
Kotak Mah. Bank is one of the fastest growing bank. Merger with ING Vysya Bank will be BV accretive for Kotak Mah. Bank at standalone and consolidated level. Merger places Kotak Bank in a sweet spot for the next growth cycle with strong presence across geographies, expertise in key product lines and continued healthy capitalization.
Kotak Mahindra Bank’s 3QFY15 consolidated PAT missed our estimate by 18%. While banking business’ profits were in line with consensus estimates, aided by strong loan (+22% YoY) and fees (+45% YoY in 3Q/9M) growth, continued competitive pressure on other businesses (EPS INR 9.29) impacted overall profitability (est. EPS of INR 11.3).
14%
L&T is well placed to capitalize on long-term infrastructure demand. L&T’s order inflow prospects is expected to double from last year’s level, to US$75bn. L&T’s preparedness to exploit the evolving India defence opportunity. The stock’s underperformance vs. the BSE Sensex.
Not yet announced
11%
Lupin is amongst the larger pharma companies that is actively targeting the regulated generics markets. Strategy of focusing on niche, low-competition products for the US market likely to benefit in the long run. US generics is expected to grow 20-22% due to a rich generic pipeline.
Not yet announced
August 2015 15
Alpha Edge | “In two minds”
Company Name
% Allocation
Recommended Price
Market price
% Incr/Decr
Rationale Result Update
Kotak Mahindra Bank Ltd.
5% 631.58
695.70 10%
Kotak Mah. Bank is one of the fastest growing bank. Merger with ING Vysya Bank will be BV accretive for Kotak Mah. Bank at standalone and consolidated level. Merger places Kotak Bank in a sweet spot for the next growth cycle with strong presence across geographies, expertise in key product lines and continued healthy capitalization.
Kotak Mahindra Bank’s The merged bank’s PAT came in lower-than-expected at 190 crore in Q1FY16 (consensus estimate 635 crore) Variation in earnings was due to lower-than-expected other income at 93 crore (consensus estimate - 816 crore) & higher than expected operating expense at 1593 crore. Higher operating expense could be attributable to integration cost (63 crore in Q1FY16) and alignment of employee compensation making 39 crore pension provision for erstwhile ING Vysya Bank employees. We believe that growth trajectory is intact & the merger will add value in long term.
Larsen & Toubro Ltd.
5% 1496.50 1789.55 20%
L&T is well placed to capitalize on long-term infrastructure demand. L&T's order inflow prospects is expected to double from last year's level, to US$75bn. L&T’s preparedness to exploit the evolving India defense opportunity. The stock's underperformance vs. the BSE Sensex.
Consolidated sales grew 7% YoY, aided by a 36% YoY growth in the international market, while domestic sales declined 3% YoY. EBITDA margin during 1Q stood at 11.3% vs 13.3% YoY, impacted by lower margins in its manufacturing businesses as well as a dip in the infrastructure segment.
Lupin Ltd. 5% 1427.55 1695.65 19%
Lupin is amongst the larger pharma companies that is actively targeting the regulated generics markets. Strategy of focusing on niche, low-competition products for the US market likely to benefit in the long run. US generics is expected to grow 20-22% due to a rich generic pipeline.
Lupin revenues, margins largely in line; PAT beat on higher other income due to hedging gains Lupin Acquired New Jersey based GAVIS Pharma for US$880mn, ~9x CY14 sales of US$96mn; deal establishes scale in derma and controlled substances Earnings momentum to return in H2 FY16 with large launches
Maruti Suzuki India Ltd.
5% 3328.30 4330.40 30%
Maruti is the best auto OEM play on macro-economic recovery in India. Following flat volumes for the past four years, we expect car sales to bounce back, led by high pent-up demand, economic recovery, and deceleration in car ownership costs. Maruti’s strong product pipeline, coupled with lower competitive intensity, should help it consolidate its leadership.
MSIL’s 1QFY16 EBITDA margin was ~16.3% (best since 1QFY08, despite increase in discounts and one-off write-off), driven by favorable mix, commodity prices and forex. We see upside risk to consensus margins estimates and scope of further re-rating, driven by a) improved competitive positioning compared with the previous cycle, (b) lower capital intensity, (c) improvement in RoIC to ~65% by FY17 (v/s average of ~30% in the last 10 years) and (d) increase in dividend payout.
August 2015 16
Alpha Edge | “In two minds”
Company Name
% Allocation
Recommended Price
Market price
% Incr/Decr
Rationale Result Update
Thermax Ltd. 5% 1067.65
1042.10 -2%
Thermax is benefiting from few structural trends: (1) energy shortages and inconsistent availability of power, driving demand for energy efficiency products, (2) hunt for alternative energy, given demanding regulations and improving viability, (3) increased environmental concerns and stringent regulatory intervention, (4) currency depreciation leading to increased possibilities of exports etc. Thermax is likely to report acceleration in revenue growth, driven by improvement in GFCF particularly in base industries) and interplay of several structural trends.
Thermax results beat Street and our expectations on operational parameters; order inflow remains weak. Revenues at INR10.0bn grew 19% y-y, which is 11% ahead of Street expectations. EBITDA at INR0.9bn was up 58% y-y, which is 9% ahead of the Street. PAT at INR0.6bn was up 49% y-y, which is 8% ahead of the Street. However, standalone and consolidated order book declined 18% and 7% y-o-y to INR42.8bn and INR55.4bn, respectively.
PVR Ltd. 5% 703.10 841.40 20%
India’s largest and fastest growing multiplex chain with 23-25% Bollywood market share and 33-35% Hollywood market share. Movie screening is an under-penetrated business in India and we believe PVR will be the biggest beneficiary of revival in discretionary spends.
PVR Ltd’s Q1FY16 earnings grew 700% YoY with 34.2% YoY growth in revenue and 800bps improvement in EBITDA, against our expectations of 328%YoY and 16.7% YoY growth in earnings and revenue respectively. After a weak FY15, Exhibition and F&B revenue witnessed robust growth of 32%YoY and 45.8% YoY respectively in Q1FY16.
Shree Cement Ltd.
5% 9412.10 11387.9
0 21%
Shree Cement is one of the most cost efficient cement producers in India. Shree Cement is the largest single-location integrated cement plant in North India, with an installed capacity of 13m ton.
N/A
Tech Mahindra Ltd.
5% 647.89 529.60 -18%
Satyam's acquisition will help Tech Mahindra to diversify its client base and industry focus. Large deals like those of KPN and a gradual revival in the telecom vertical will help volume growth. Deals have kept growth coming (outside the BT account) despite challenged IT budgets in the telecom vertical.
Tech Mahindra reported a 0.5% QoQ US$ revenue growth to US$ 989 mn. with EBITDA margins declining by ~30 bps QoQ to 14.9%, in line with our estimates of 0.2% QoQ US$ revenue growth and estimate of ~50 bps QoQ decline in margins.
Ultratech Cement Ltd.
5% 2671.25 3149.65 18%
Ultratech is the largest cement company with pan-India presence. It has potential to increase its output without incurring major capex by increasing utilization and blending, along with locational advantage, gives it the flexibility to either export or sell in the domestic market. Significant potential to increase output by increasing blending. Allied businesses of white cement and RMC lend stability to overall performance.
UltraTech’s Q1 earnings surprised the street positively beating consensus by 8% on EBITDA. UltraTech reported better stability in earnings compared to peers — at an EBITDA/tonne of Rs 860 (+5% yoy; ‐13% qoq), its earnings are much better and stable compared to ACC’s (EBITDA/tonne at Rs 453, ‐28% yoy, ‐36% qoq).
August 2015 17
Alpha Edge | “In two minds”
Company Name
% Allocation
Recommended Price
Market price
% Incr/Decr
Rationale Result Update
TVS Motor Company Ltd.
5% 268.30 237.95 -11%
TVS is well positioned to benefit from the scooterization wave with its complete scooter portfolio. With international presence in more than 50 countries in Asia, Africa and Latin America it plans to launch multiple products across segments to reinforce and fill gaps in portfolio in next 2 years.
TVS Motor’s Net sales rise 13.7% yoy owing to 9.2% yoy growth in volumes and 4.1% jump in realizations, Sales were in line with our expectations OPM at 6.2% was substantially below our estimates of 7%, while gross margins were higher by 70bps, 29bps yoy increase in overheads was disappointing APAT was at Rs. 90cr was lower than estimates on weaker than expected operating performance Growth in volumes was on account of 8.1% yoy increase in motorcycles and 18.6% yoy jump in three-wheeler volumes
VA Tech Wabag Ltd.
5% 737.40 759.80 3%
VA Tech Wabag (VATW) is one of the leading players in water treatment industry, is attempting to expand into new geographies, including South East Asia, Sub-Sahara Africa, LatAm, Central Asia, etc. In FY14, the company received initial orders in Nepal, Tanzania, etc. which also opens up interesting growth possibilities to ramp-up the business. Order intake in overseas subsidiaries has increased from INR6-7b in FY12-13 to INR16.4b in FY14
N/A
90%
10%
Citadelle Growth Opportunities Portfolio Current Asset Allocation
Equity Cash
114.77
103.02
95
100
105
110
115
120
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Citadelle Growth Opportunities Portfolio Performance
Citadelle Growth Opportunities Portfolio NAV Nifty Index
Alpha Edge | “In two minds” .
Thank you for your time!
Safe harbor statement!
This document has been prepared by Citadelle Asset Advisors Private Limited (CAAPL). CAAPL, its holding company and associate companies offer full range of, integrated investment banking, portfolio management and brokerage services, through own and or partnerships.
Our research analysts and sales persons provide important input into our investment advisory activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. CAAPL or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (is) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your information.
This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject CAAPL and affiliates/ group companies to any registration or licensing requirements within such jurisdiction.
The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. CAAPL reserves the right to make modifications and alterations to this statement as may be required from time to time. However, CAAPL is under no obligation to update or keep the information current. Nevertheless, CAAPL is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither CAAPL nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a guide to future performance.
The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. CAAPL generally prohibits its analysts, persons reporting to analysts and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Any dispute arising out of the document shall be subject to the exclusive jurisdiction of the Courts in Mumbai, India
August 2015 18