derivatives are very popular - icici direct

Derivatives are very popular

financial instruments all across

global financial markets both

with the institutional as well as

retail investors. They started as

instruments to control and

hedge the commodity pricing

and have developed as one of the most important innovations in

the financial markets.

Today a derivative instruments are available across segments

and asset classes including stocks, indices, currency,

commodities and interest rates. They were introduced in India in

2001 and have gained significant popularity since then. Over 80

per cent of stock exchange volumes are now in equity derivatives

instruments and a large chunk of it is through retail investors. In

India, there are two derivative instruments available for trading -

Future and Options (F&O). Each one of them has its pros and cons

and provides different trading opportunities for almost any kind

of market condition.

Derivatives (Futures and Options), as financial instruments can

be used for trading as well as hedging positions for a long term

investors. For a trader they allow to slice various components of

the market movement including the value of the underlying

stock, the volatility of the markets and rate of change of either of

them. Thus strategies on derivatives have numerous dimensions

and can be used to take advantage of up, down or sideway trends

of market.

Vijay Chandok, MD & CEO, ICICI Securities Ltd.

ICICIdirect Money Manager April-May 20191

In fact an F&O trader can have strategies that can accrue profits in

almost any kind of market conditions to generate profits. This is

unlike an equity investments, where the focus is largely long only

portfolios that generate profits if the market is bullish. Another

important use of F&O is their ability to hedge an existing position

in markets. They therefore can play an important role in

managing risk in a portfolio.

F&O instrument and their strategies are not simple. They require

understanding of concepts. Most importantly, they are leveraged

and so are much more riskier. Leverage means that a small

amount of investing capital can give a larger exposure to the

markets and in adverse situation can reduce the investment

substantially. It is advisable to keep your long-term portfolio

separate from your trading portfolio.

Derivatives are risky especially in the hands of untrained traders

or investors. It is therefore critical to know and understand these

instruments well before trading in them. At ICICIdirect, we offer a

number of self-learning guides as well as classroom trainings to

help you begin with your trading journey. You can also get in

touch with your assigned ICICIdirect relationship manager, who

can further guide you and help you get started.

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.

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


Editor & Publisher : Abhishake Mathur, CFA

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

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

2

Volatility that provides you opportunities to profit from both upward

and downward trends of market, and even from sideways trend. Small

expected movements can create opportunities to benefit from the

markets. Derivatives - Futures and Options (F&O) are uniquely

positioned to benefit from these movements and even control the

extent of risk that you may wish to take. For one these are leveraged

instruments, linked to the value and movements of the underlying

asset, and that makes them more sensitive. Second the structure of

derivatives enables them to split the components of risks in the market

and enable you create strategies in any market scenario. They can be

used very well to hedge and protect a position from any adverse market

impact.

F&O also have risk attached especially if they are not understood well.

Since they are leveraged instruments, the capital deployed on them can

get eroded fully in case of an adverse movement.

This edition will bring you exclusive picture of derivative market that is

supported by various types of derivative instruments. It will help you

trade and make you understand how hedging could be applied to

protect your investments from losses. Though the product looks

complex but it is easy to understand and is very much beneficial to

traders and investors. We also bring you insights from Mr. Amit Gupta,

VP and Head-Derivatives Research, ICICI Securities through his

interview in the edition.

The April-May edition of Money Manager also offers comprehensive

review of mutual funds recommended by our research team. The top

two stock picks of the months are also selected by some of our finest

research analysts. So stay updated, start investing and keep reading to

stay financially fit. Do write us back [email protected] for any queries or feedback.


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

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

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

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

Stock ideas: L&T Infotech and Brigade Enterprises Ltd................................5

Flavour of the Month: Understanding Derivatives

A financial instrument that is derived from an underlying asset that

gets excised on or before expiry date. An instrument which is typically

used to hedge risk involved in price fluctuation, interest rate

movements, currency fluctuation, inflation, market movements, etc.

Are you familiar with words like Futures, Options, Call, Put, Margin,

etc. this all will be explored here as you go in depth of this article.

Learn more...................................................................................................15

Tête-à-tête

With the moving need to protect ones profit and loss, one tries to

hedge their position to be safe. In similar lines this month interview

with Mr. Amit Gupta, VP and Head - Derivatives Research, ICICI

Securities, brings out the insights to the derivative product and

market. Also, his views will guide you before getting into the derivative

market................................................................................................................................29

Ask Our Planner

Our financial expert answers your personal finance queries......32

Mutual Fund Analysis

Which are the top performing mutual funds in current market scenario?

Check these top banking funds recommended by our research team..........37

This month on iCommunity

Look out for an extraordinary financial platform for traders and investors.........46

Equity Model Portfolio......................................................................................48

Quiz Time........................................................................................................52

Prime Numbers................................................................................................53


TCS signs a deal with India Post to transform country's mail delivery system

India's largest IT services company, Tata Consultancy Services(TCS), has partnered

with the Department of Posts in a bid to transform it into a multi-service digital hub,

modernise the delivery of mail and packages, enhance customer experience, and

launch innovative services that will drive new revenues. Over 130,000 DARPAN

(Digital Advancement of Rural Post Office for A New India) hand-held devices that

Gramin Dak Sevaks use to provide postal, banking, insurance, and cash

management services in remote villages, even those without network connectivity.

Courtesy: Live Mint

Ratan Tata invests in Ola Electric Mobility as part of Series a funding

Ola Electric Mobility on 6th May announced that Ratan Tata, chairman emeritus of

Tata Sons, in his personal capacity, has invested an undisclosed amount in the

company as part of its Series a round of funding. Ratan Tata is also an early investor

in ANI Technologies, Ola's parent company. Ola Electric said it is currently running

several pilots involving charging solutions, battery swapping stations and

deploying vehicles across two-, three- and four-wheeler segments. "The electric

vehicle ecosystem is evolving dramatically every day, and I believe Ola Electric will

play a key role in its growth and development," said Ratan Tata.

Courtesy: Financial Express

Form 16 will now have more details of your income and deductionsIn yet another attempt to increase transparency and minimize tax evasion, the Central Board of Direct Taxes (CBDT) has notified various changes in the formats of Form 16 and Form 24Q. The new amendments are in line with the changes in income-tax rules and new income tax return (ITR) forms recently notified by CBDT for assessment year (AY) 2019-20. The changes will come into force from 12 May 2019 and all employers issuing Form 16 after that date will need to adhere to the new rules. The last date to issue Form 16 is 15 June of each assessment year.

Courtesy: Live Mint

Good News! Health insurance plans likely to have fewer exclusions

Health insurance policies will have less exclusions as the insurance regulator has

come out with a draft exposure to rationalise and standardise the exclusions in

health insurance contracts. An insurance firm cannot deny a claim after four years of

continuous coverage. If an individual is suffering from any such disease, the

insurance company will insist on a medical test and then underwrite the cover.

IRDAI has identified 17 existing diseases that can be permanently excluded. After

the expiry of the moratorium period no health insurance policy will be contestable

except for proven fraud and permanent exclusions specified in the policy contract.

Courtesy: Financial Express

STOCK IDEAS


Brigade Enterprises Ltd (BRIENT) – Upping the Ante in Lease Portfolio …

Company Background

Brigade Enterprises (BEL), with

over three decades of experience

in real estate, is one of the leading

property developers in South India

primarily in the Bengaluru market.

Headquartered in Bengaluru,

K a r n a t a k a , t h e c o m p a n y ' s

businesses are classified into three

segments – real estate (residential

& commercial projects sales),

lease rentals (retail & offices) and

hospitality. Currently, its business

portfolio comprises real estate

business (50.6 msf), leasing

portfolio (8.9 msf) and hospitality

business (1788 keys).

Investment Rationale

Surging lease portfolio to provide

strong income growth....

As on FY19, BEL has an operational lease portfolio (five office assets & three retail malls) with a total leasable area of ~3.29 million square feet (msf) out of which they have leased 2.54 msf. This includes lease area aggregating ~0.6 msf at Brigade Tech Garden &

WTC Chennai, which is yet to be operational. Going ahead, it plans to lease incremental ~3.0 msf area in FY20E (1.5 msf at Brigade Tech Garden, 1.0 msf at WTC Chennai and balance ~0.5 msf at other leasable projects). With the sharp expansion in lease portfolio largely through GIC JV, we expect BEL's leasing portfolio to expand from 2.6 msf to 8.9 msf (BEL's share – 6.3 msf) over the next one or two years. With this, we anticipate BEL's share of lease income to grow at 20.6% CAGR to 560.1 crore in FY18-`23E.

Looking at 4 msf sales volumes in FY20E...

During FY15-18, BEL's sales volume declined from 2.8 msf to 1.8 msf in the residential business on the back of a slowdown in the sector and very few launches. However, BEL recouped its sales volume wi th the hea l thy launch pipeline. It clocked strong sales volumes of 2.97 msf sales


STOCK IDEAS

6

volumes at pre-sales worth | 1,644.0 crore on account of healthy 5.69 msf launches in FY19. Furthermore, it achieved collections worth 2,241.6 `crore in FY19. Going ahead, the management plans to launch ~6.5 msf projects (5.5 msf residential and 1.0 msf commercial sales), going ahead, and aims to achieve 4 msf sales volumes in FY20E

Attractively priced considering ramp up in lease portfolio

We like Brigade Enterprises

considering a sharp ramp up in

i ts leas ing port fo l io and

sustained sales momentum in

the residential business. We

value its lease portfolio at

` 3 2 7 / s h a r e u s i n g N AV

methodology and residential

business at 189/share. We `

believe BEL's current valuation

is attractive (1.3x FY20E P/BV).

Hence, we maintain our BUY

recommendation on the stock

with an SoTP-based target

price of 330/share `


STOCK IDEAS

7

Key Financials

Valuations Summary

Stock Data

` Crore FY18 FY19E FY20E FY21E

Net Sales 1897.2 2972.8 3152.2 2627.9

EBITDA 554.5 789.7 893.1 879.8

EBITDA Margin(%) 29.2 26.6 28.3 33.5

Net Profit 139.2 239.9 244.5 136.6

EPS (`) 10.2 17.6 18.0 10.0

FY18 FY19E FY20E FY21E

P/E(x) 24.6 14.3 14.0 25.1

P/B (x) 1.5 1.5 1.4 1.3

EV/EBITDA(x) 11.6 8.5 8.9 8.9

RoE(%) 6.1 10.3 9.9 5.3

RoCE(%) 8.1 11.5 10.4 8.8

` crore Amount (` crore)

Market Capitalization 3429.0

Total Debt 3744.1

Cash 250.8

EV 6922.3

52 week H/L (`) 275/ 157

Equity capital 136.1

Face value (`) 10.0

Key risks include:

SEZ benefits are available for units

commencing up to March, 2020

BEL has two commercial

properties – WTC Chennai and

Brigade Tech Gardens in SEZ.

There are benefits for tenants

such as 100% income tax

exemption on export income

for SEZ units under Section

10AA of the Income Tax Act for

the first five years, 50% for the

next five years, thereafter, and

50% of the export profit

ploughed back for the next five

years. These benefits for

tenants are available to players


STOCK IDEAS

8

who commence their operation

till March, 2020. Post that, these

benefits are expected to be

withdrawn. Thus, if BEL is

unable to lease out these assets

before the sunset clause kicks

in, the company may find it

difficult to lease the leftover

area. Hence, it could have to

lower lease rate in such a

scenario. Nonetheless, we have

already considered lower than

expected lease rate in our

valuation.

Geographically concentrated in

Bengaluru

B E L h a s ~ 7 0 % o f t h e

commercial portfolio (operational

& underdevelopment) & ~90% of

the ongoing project in real estate

business are concentrated in

Bengaluru. Any slowdown in

B e n g a l u r u p r o p e r t y o r

commercial market could have

adverse impact on BEL'.

Slowdown in IT/ITeS sector

High proportion of the company's

leasing revenues comes from the

IT/ITeS sector. Any major

slowdown in the overall IT/ITeS

sector may slow down office

space leasing in Bengaluru. It

could also impact its real estate in

case of slowdown in IT/ITeS

sector.

ANALYST CERTIFICATION

We /I, Deepak Purswani, CFA, MBA (Finance), Harsh Pathak, MBA (Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com

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

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stock's price movement, outstanding positions, trading volume etc as opposed to focusing on a company's fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Research.


STOCK IDEAS

9

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

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

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

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

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

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

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

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

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

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

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

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


STOCK IDEAS

10

Larsen & Turbo Infotech – New alpha among its pack

Company Background

L&T Infotech (LTI) (a subsidiary

of India's large conglomerate

Larsen & Toubro) is among top

20 global IT service company

and sixth largest Indian IT

company. Incorporated in

1996, LTI has operations

spanning 27 countries, has

around 28,000 employees and

caters to 66 Fortune 500

clients. The key drivers of the

company's growth have been

winning large deals, new

logos, client mining and its

continuous efforts to drive the

same. This is visible in LTI's

financial performance wherein

revenues and PAT have grown

at a CAGR of 13% and 15%,

respectively, over FY16-18.

Investment Rationale

Digital transformation key growth

driver

In FY19, digital witnessed

growth of 37% YoY ahead of

LTI 's growth of 19% YoY

indicating growing digital

capability of the company.

Going forward, based on

g l o b a l s p e n d i n d i g i t a l

technologies, we expect Indian

IT companies to witness at

least 25% growth in digital

revenues. LTI with its faster

adoption, strong execution

capabilities, could be a major

beneficiary of rising digital

proportion ensuring healthy

profitability over the coming

years. We expect digital to

grow at a CAGR of ~30% in

FY19-21E for LTI. Based on the

deal pipel ine and robust

growth in digital revenues, we

expect the company to register

dollar revenue CAGR of 15.4%

over FY19-21E.

LTI to witness superior margins vis-

à-vis midcap peers

LTI's overall EBITDA margins

are in the 19-21% range

compared to midcap peers like

NIIT Tech (15.8-18.6%) and

Persistent (14.8-19.7%). We

believe this is mainly due to

h igher share o f organ ic

growth, digital proportion,

offshore revenues and better

pricing. Going forward, we

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


STOCK IDEAS

11

continue maintaining industry

leading margins (19.3% in

FY21E vs. peer average of

17.6%) mainly led by robust

growth in revenues and

improving share of digital

revenues (from 36.5% in FY19

to ~47% in FY21E).

Strong execution, better account

mining key driving force

LTI's strong focus on client

mining has been one of the

main driving forces behind the

momentum on the revenue

front. Top 10 clients witnessed

a CAGR of 10.4% in FY16-18

and 15.1% YoY in FY19.

Further, ~42% of incremental

growth in revenue is driven by

top 10 client. LTI has crafted

certain strategies for mining

top accounts. LTI's strategy

called 'ADEA', which aims at

instilling analytics and digital in

every account and 'Minecraft'

(aimed at mining the top 50

accounts) has led to 17.2%

CAGR in non-top 20 clients.

Further, LTI has one account in

the US$100 million+ revenue

category and five accounts in

the US$50 million+. Looking at

history trends when Indian IT

players reached the threshold

of US$1 billion (Infosys in

2004, HCL Tech in 2007), we

believe LTI's performance is

more or less on par with the

t i e r-1 p layers when the

respective players reached the

US$1 billion threshold. Further,

based on past data, we believe

LT I w o u l d a l s o w i t n e s s

significant acceleration in

c l i e n t g r o w t h p o s t t h e

achievement of US$1 billion

revenue mark in 2018.

D i g i t a l e x p e r t i s e , s u p e r i o r

execution key to growth; BUY

We like LTI given its- 1) digital

story acceleration, 2) focus on

client mining, 3) healthy deal

p i p e l i n e a n d 4 ) s t r o n g

management foothold. Hence,

w e b e l i e v e i t i s b e t t e r

positioned with relatively

h i g h e r r e v e n u e / m a r g i n

visibility. We expect LTI to

witness healthy double digit

revenue growth of 15.4%

CAGR in FY19-21E in dollar

terms with stable EBITDA

margins of 19.3% and net

profit margins of 14.8% in

FY21E. Thus, we have BUY

recommendation on the stock


STOCK IDEAS

12

with a target price of 1940/ `

share based on 18x FY21E

EPS. In our view, our target

multiple for LTI is justified

considering the robust growth

trajectory implying a PEG ratio

of 0.8x and strong return ratio

(RoCE – 34.5% in FY21E).

Key Financials

Valuations Summary

Stock Data

(` Crore) FY18 FY19 FY20E FY21E

Net Sales 7,306 9,446 10,870 12573

EBITDA 1,188 1,883 2,132 2422

EBITDA Margins (%) 16.3 19.9 19.6 19.3

Net Profit 1113 1516 1643 1863

EPS (`) 64.7 87.3 94.6 107.3

(x) FY18 FY19 FY20E FY21E

P/E (x) 26.6 19.7 18.2 16.0

Target P/E 30.0 22.2 20.5 18.0

EV/EBITDA (x) 23.8 14.7 12.6 10.8

P/BV 7.7 6.1 5.0 4.2

RoE (%) 28.8 31.0 27.8 26.2

RoCE (%) 36.0 40.4 36.4 34.5

RoIC 43.4 60.5 62.7 64.1

Particular Amount

Market Capitalisation ` 29877 crore

Cash and Investments ` 2155 crore

EV ` 27722 crore

52 week H/L 1990 / 1438

Equity Capital ` 17 crore

Face Value ` 1


STOCK IDEAS

13

Key risks include:

Attrition at key man level may impact growth momentum

The company saw certain changes in key management position in the last two to three years. Current CEO Sanjay Jalona joined LTI in 2015 from Infosys, wherein he served as EVP and Global Head of high-t e c h , m a n u f a c t u r i n g & eng ineer ing serv ices a t Infosys. His joining at LTI was followed by a series of new additions in the leadership team (CFO, COO, head of verticals, etc). This has added strength to the company, visible in the fact that the company's revenue grew in healthy double digits of 13% CAGR in FY16-18 compared to 7.7% CAGR in FY13-16. A higher attrition at the top level could adversely impact the current growth momentum.

Higher offshore presence, changes in US policies to impact margins

The company has a higher offshore presence (52.5% of overall revenues in FY19) compared to peers. A shift in mix towards more onsite will have an adverse impact on

margins. In addition, supply constraints in the US due to curbs in H1B visa and rising pressure on IT companies to hire local talent could also impact margins adversely. We believe LTI is catching up in terms of increasing local hiring (that we factor in our est imates) . However, an a g g r e s s i v e a t t e m p t t o increase local talent and rising attrition in onsite regions could have an adverse impact on the company's financials.

High client concentration may impact growth

C l i e n t c o n c e n t r a t i o n i s relatively higher in the top buckets with top five, top 10 and top 20 clients constituting 34.9%, 48.9% and 64.8% of revenues, respectively, in FY19. Any client specific issue within top 20 accounts could impact our assumptions of steady financial performance for the company. On the other h a n d , h i g h c l i e n t concentrat ion opens up opportunities of cross selling new services and gain market share. Also, the company's e f fo r t in min ing top 50 accounts puts less risk on the table.


STOCK IDEAS

14

November

ANALYST CERTIFICATION I/We, Devang Bhatt, PGDBM, Deepti Tayal, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views

expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was,

is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of

this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer,

director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and

distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with SEBI Registration Number – INH000000990. ICICI

Securities Limited Sebi Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India's largest private sector

bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund

management, etc. (“associates”), the details in respect of which are available on www.icicibank.com

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and

our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment

Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest

in the securities or derivatives of any companies that the analysts cover.

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stock's price movement, outstanding positions,

trading volume etc as opposed to focusing on a company's fundamentals and, as such, may not match with the recommendation in fundamental reports.

Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

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FLAVOUR OF THE MONTH


Understanding Derivatives

Investing in equity markets is a boon as long as the markets are bullish.

However, what do you do when the markets turn bearish? Who do the

long term investors turn to for protecting their returns on investments

when suddenly there is fall everywhere? What do you do when the

markets are in a consolidation phase and do not move at all? Just wait to

watch your eggs hatch! Well most of the time this seems to be the best

alternative -Wait and Watch!

Is there a better alternative than just waiting? Yes, there is! It is

Derivatives Trading. Here we take you through its basics to help you get

started.

Concept of derivative

The first exchange traded

index derivative contract in

India was launched in the year

2001 which had futures traded

on the exchange. Gradually,

the Index Options were traded

in the next year and till today

you see a lot of investors in the

der ivat ive segment . The

derivative market has been

tremendously increasing in

size as measured by market

capitalization as about 6,

23,820 crore is the average

t u r n o v e r m a d e b y F & O

segment NSE on 5 April 2019.

Derivat ive s imply means

parties that come together on a

contract and b id on the

underlying asset value to be

h igh/ low in fu ture date .

Derivative is the financial

instrument that is derived from

an underlying value i.e. stocks,

i n d i c e s , c u r r e n c i e s ,

commodity, bonds, precious

meta ls e tc . I t has a se t

instruments such as Futures,

Options, Forward and Swaps.

Here, the buyers and sellers

get into a contract that states a

pre decided date for their

p u r c h a s i n g a n d s e l l i n g

transaction.

Types of derivative

There are 4 kinds of derivative

styles traded in the derivative

market.

*Futures *Options *Forward

*Swaps

Of which Futures and Options



are traded on exchange, and

Forward and Swaps are traded

over the counter (not on

exchange).

Exchange Traded Contracts:

In the derivative market, the

contracts that is legally traded,

benefits of facilitating liquidity,

p rov id ing t ransparency,

maintaining the current price

and has supervision of SEBI is

an Exchange traded contract.

There is no third party risk of

default in payment and there is

a standardized format to trade

i.e. margin and specific lot size

to all. Futures and Options are

the two derivative instruments

traded on the exchange. The

parties involved in trading is

unknown and there is higher

volumes to trade in this

market.

Futures:

F u t u r e s a r e t r a d e d o n

exchange and is safe as

guarded by SEBI. Most traders

don't trade directly in the future

market until they trade in the

equity markets which is simpler

than the futures. In future

contracts investors get to trade

in equ i ty, commodi t i es ,

indices, foreign currencies and

Bonds.

A future contract is a derivative

product that deals with buying

and selling of the underlined

asset at a specified date. When

it comes to the buyer of a future

contract he is taking the

o b l i g a t i o n t o b u y t h e

underlying asset and the seller

takes obligation to provide the

underlying asset until the

expiry date.

In simple words a trader that

wishes to stay long in the

market goes for a long position

until expiry or if he feels the

market is going in the opposite

direction he could go for short

position until expiry. Traders

could excise their future

position any time before the

expiry.

Futures work similar to equity

markets but here there is a

percentage of margin that is

traded. In equity market you

have to pay the total value to

trade in the market but the

future contract has a fixed lot

size x market value = Total

value, of which percentage of

total value is traded.



B a s e d o n t h e m a r k e t

movements the trader needs

to have a margin in his account

till the expiry of the future

contract.

For example, you Buy Nifty 50

Futures

Market Lot: 75

Market Price: 11,670

Assuming the percentage to

be: 20%

Value traded: 11,670 x 75 x

20% = Rs. 1, 75, 050

Here, if the Market Price comes

to 11,666 i.e. making a loss of 4

x 75 = 300, this much margin

has to be available by the

trader in his portfolio. Till the

expiry date or before the

squaring off the position the

value will be debited to your

account i.e. if the Market price

goes to 11,700 on the expiry

day 30 x 75 = Rs. 2,250 will be

credited to your bank account.

Until then the gain or loss in the

position reflects the need of

margin in your portfolio to be

traded which changes on daily

basis. The contract expires on

the Last Thursday of every

m o n t h o r t h e p r e v i o u s

business day, if the same is a

holiday.

Options:

Options are the derivative

contract that works different

from the equity or future

markets. This is a complex

financial instrument but very

beneficial for the traders. There

are two components used in an

option contract, one is a Call

and the other is said to be Put.

One buys a Call option and bids

for higher value until expiry

date. Here, the trader only pays

the premium against the strike

price. As the market goes up

the strike goes in your favour

making trader to be In the

Money (ITM) and benefiting

the traders to make profits. He

could end up in losses if the

market goes in the opposite

direction.

Premiums:

It is the value derived from the

underlying asset. Premiums

include two components i.e.

intrinsic value and Time value

of money. Of which Intrinsic

value is the difference of

market price (underlying value)

and strike price. Time value of

money is the value of money as



of today. (Here, intrinsic value

appears when the strike price

is In the money (ITM) portion of

the value while the remaining

value is time value of money)

Let's understand what's a Call

option and a Put Option.

Call Option:

It is the right but not the

obligation to buy the underlying

asset/security at a future date.

Call options buyers are bullish

in market and the trader trades

in Call expecting the market to

go upwards.

In Call option, traders get to

buy and sell the call option but

the advantage lies highly on

the buying of Call than selling

of Call. Taking an example of

premium to be Rs. 400. In

Buying Call option the profits

are said to be to the maximum

whereas the losses are up to

the premiums paid i.e. the

premium could go until zero.

(Profit= unlimited, LOSS= 0-

400). In Selling Call option the

trader is expecting the market

to fall and here his profits are

limited to the premium and

losses are unlimited. (Profit=

0-400, LOSS= unlimited). In

addition, there is a margin

requirement (similar to the

futures contract) in case you

sell the option, whether CALL

or PUT.

With the help of an example

Call option will be understood

better:



For, Call Option: BUY

Name of the Index: Bank Nifty

Market Price (Underlying

Value) = 29,824.70

Strike price = 29,500

Premium = 416.25

Market Lot = 20thExpiry Date = 25 April 2019

Here, at Market Price (MP)

29,824.70 the trader could

choose to go for a Strike price

of 29,500 that is an In the

M o n e y ( I T M ) p o s i t i o n .

Premium multiplied by the

market lot size is the value

traded i.e. 416.25 x 20 = 8325.

If the market goes up the

premium will rise say approx.

450 the difference of 33.75

(450-416.25) that should be

multiplied by lot 33.75 x 20 =

675 is your profit.

On the opposite if the market

goes against your taken

position and goes to 28,000,

the maximum that a trader is

going to bear losses is until the

premium goes to 0 so the loss

is limited up to 416.25. Until the th

25 April 2019 the position has

to be squared off otherwise the

broker will do so.

Note: for SELL of Call option the

strike price would be higher

29,900 and above where the

trader is expecting the market

to fall below the Market price

i.e. 29,824.70 and less. A

margin is set by the exchange

and an upfront margin needs to

be paid to the broker for this

transaction. This ensures the

trader doesn't have to bear

much losses.

Based on the above example:

Terms

Explanation

Example

In the Money Strike price is less

than MP 29,824.70 and below

At the Money Strike Price is exact

as MP Approx. 29,800 or will be

nearest to the available

contract. Out of the

Money

Strike Price is more

than MP

29,824.70 and above



Put Option:

It is the right but not the

o b l i g a t i o n t o s e l l t h e

underlying asset/security at a

future date. Put option holders

are said to be bearish in the

market and the trader trades in

Put Option expecting the

market to go downwards.

In Put option, traders get to buy and sell the put option but the advantage is limited to its

traders. Taking an example of premium to be Rs. 400. In Buying Put option the profits are unlimited whereas the losses are maximum to the premiums paid . (Prof i t= unlimited, LOSS= 0-400). In Selling Put option the trader is expecting the market to rise and here his profits are limited to the premium whereas the losses are unlimited. (Profit= 400, LOSS= unlimited).

With the help of an example Put option will be understood better:

For, Put Option: BUY

Name of the Index: Bank Nifty

Market Price (Underlying Value) =

29,734.45

Strike price = 30,000

Premium = 305

Market Lot = 20thExpiry Date = 25 April 2019

Here, at Market Pr ice (MP)

29,734.45 the trader could choose

to go for a Strike price of 30,000

that is an In the Money (ITM)



position. Premium multiplied by

the market lot size is the value

traded i.e. 305 x 20 = 6100. If the

market goes down the premium

will rise say approx. 350 the

difference of 45 (350-305) that

should be multiplied by lot 45 x 20

= 900 is your profit.

On the opposite if the market goes

against your taken position and

goes to 30,500, the trader will be

exposed to limited losses up to the

premium paid and the profits

wo u l d b e re st r i c te d to t h e thpremium up to 305. Until the 25

April 2019 the position has to be

squared off otherwise the broker

will do so.

A margin is set by the exchange and an upfront margin needs to be paid to the broker for this transaction. This ensures the traders doesn't have to bear higher losses.

Note: for SELL of Put option the strike price would be lower 29,700 and less where the trader is expecting the market to fall below the Market price i.e. 29,734.45 and less. Here, the derivative trader will face unlimited losses.

Based on the above example:

Terms

Explanation

Example

In the Money

Strike Price is more

than MP 29,734.45 and above

At the Money Strike Price is exact

as MP Approx. 29,700 or will be

nearest to the available

contract. Out of the

Money

Strike price is less

than MP

29,734.45 and below

Margin:

Margin is the fixed amount that

is set for derivative traders.

When taking a position in a

future market a percentage of

margin is paid and the trader

could trade easily. During an

option contract the writer of

the option is required to keep a

margin with the broker beyond

that trading is not possible. As

the two conditions are getting

fulfilled that is the trader is

known of his limit set to trade



and second is the trader is

secured from further losses.

Minimum Margin is the margin

amount that is required for the

position taken in the derivative

market all the time.

Mark to Market (MTM):

Mark to Market is the measure

of value that is taken into

account due to its frequent

changes over time. During

t r a d i n g a n d i n v e s t m e n t

derivative securities have to

face the current value of the

investment so MTM comes in

picture. Mark to Market in

s imp le word means the

position taken in the market is

viewed on the daily basis

especially its notional profits

and losses which is adjusted

by the broker and if the extra

margin required is not availed

then the broker will square off

the position after taking traders

concern.

Over the Counter:

In derivative market, this

contract has no standard

format and the advantage here

is that it could be customized

according to the traders. The

parties that are involved are

known to each other and thus

with the help of the broker they

can come into a contract. Here,

the chances of default in

payment by the party is high.

SEBI or for that matter any

regulator is not involved as

these are customized contracts

between the involved parties,

so the security to your contract

is less.

Forward:

Forwards trade similar to a

future contract but the trading

is done on commodity that is

not traded on an exchange.

Two parties come together and

negotiate on the term of

delivery, price and size of the

contract. Here, the traders are

pu re ly o f a specu la t ion

perspective.

Swap:

Swap contracts involves

trading done in liabilities and

cash flows from two different

financial instruments. Swaps

are dealt in interest rates, stock

indices, foreign currency and

commodities. For example,

one party would go for a fixed

interest rate whereas the other

party would go for a floating



interest rate.

Strategies to Derivative

Hedging:The commonly used tool for

investments is hedging done in

derivative markets. It is an

opposite position taken in the

derivative market here the

mechanism is to hedge risk of

adverse price movements in

an asset i.e. protecting losses

by help of other investment.

For example, Mr. X buys an

equity share from cash market

at price Rs. 100, and due to the

volatility in the market Mr. X

feels the price could fall so he

buys a Put options in derivative

market to gain the profits in

case the market goes against

its favour.

Arbitrage:

Arbitrage is a tool that takes the

a d v a n t a g e o f p r i c e

differentiation of the same

security in different markets.

Here , the advan tage an

arbitrager gets is the difference

in the price of the stock. For

example, bought XYZ stock

@1363.30 on BSE and sold

XYZ stock @1363.85 on NSE.

The difference of .55 is the gain

to the trader.

Speculation:

Speculation is termed as to

guess the price of a particular

stock/ index with a bit of

research done on the trend

m o v e m e n t s a n d m a r k e t

updates. Speculation is purely

based on assumption that

t r a d e r s h a v e o r t h e i r

p e r s p e c t i v e o n m a r k e t

movement.

Want to trade in derivative market?

· T h e f i r s t s t e p i s t o

understand the derivative

market and its different tools

of strategies before you

actually start to trade.

· Understand that the equity

and derivative market works

differently. Know before you

trade.

· Only Future and Options are

traded on exchange and are

safe unlike the Forward and

Swaps.

· In the derivative market

margins play an important

role for trading.

· Based on your marg in

capacity the trading is

possible like if there is a



profit the value will be

credited to your account and

if there is a loss the value

needs to be debited to your

account until the squaring

off day i.e. expiry day.

· While considering trading in

derivative contracts, few

factors such as cash in hand,

margin requirements, price

of the contract, the expiry

date , Lot s i ze and the

u n d e r l y i n g v a l u e i s

important.

Benefits of trading in derivative

market:

· In the derivative market,

h e d g i n g a n d r i s k

management is possible as it

gives the traders a base to

protect themselves from the

loss.

· Higher exposure can be

taken by trading with a

minimum percentage of

margin. Unlike an equity

trader a derivative trader

could trade in small amounts

leaving them with extra cash

that could be invested in

other modes. Taking an

example of a derivative

contract of Rs. 1,00,000, the

margin comes up to Rs.

10,000 that is traded of which

remaining 90,000 could be

t r a d e d i n d i f f e r e n t

investments or additional

lots could be purchased of

the same contract.

· Using the mispricing tool i.e.

arbitrage profits could be

made using the equity and

derivative market.

· There is much liquidity in the

derivative market.

· As the trading is based on

margins, the transaction cost

on derivative is low as

compared to the equity

market.

Risks involved in the derivative

market

· Derivatives are prone to

market risk as they rely on

other markets. In case the

market reacts in the opposite

direction the trader will have

to pay that much margin.

· With the concept of margins,

trader pays a fraction of what

is required to enter into a

position in an asset/security.

This helps multiply his profit

(Return on Capital %) as his



capital required is less.

However this acts as a

double edge sword, if the

trade does not go his way.

Similar to magnified profits,

losses can also be magnified,

which in turn can lead to

a d d i t i o n a l m a r g i n

requirement and subsequent

burden on trader's finances.

· If you haven't traded in the

equity segment yet, trading

directly in derivative markets

would be risky.

· In case of a forward contract

the third party risk is a

concern, as the chances to

default is highly visible in this

contract.

Terminology in derivative

Name Concept

Equity

Derivative

A derivative instrument that trades in equity keeping it

as the underlying asset. They include stocks and

indices.

Currency

Derivative

Trading done keeping the currency of the different

countries as an underlying value e.g. USD/INR

Commodity

Derivative

Trading done keeping the commodities as an

underlying value like food grains, Crude oil, Metals,

Energy, Livestock and Meat.

Expiry Date

End of the Contract e.g. Last Thursday of the

Month(monthly and weekly expiry)

Spot Price

A term for current market price i.e. the assets are

bought and sold on immediate basis.

Strike Price A feature of option contract that is a price that the

contract could be exercised.

American

option

Can excise the position any day until the expiry date

European

Option

Is excised on the expiry day.

Underlying

Value

It states a value given to a derivative contract. An

instrument to be traded on.



Premiums

Premiums are paid to get the right of the option

contract. Premium= Intrinsic Value + Time Value

Lot Size

That is the fixed size set for the underlying instrument.

Intrinsic Value

It is the difference of current market price and strike

price

Intrinsic Value= Current Market Price-

Strike Price

Time Value

(TV)

in Option

The TV in option is the remaining value from the

difference of Premium and Intrinsic value.

Margin A fixed value that is deposited for the outstanding

position in the derivative market.

Service at ICICI Securities:

FUTURES

At ICICI Securities, you can

trade on index and stock

futures on NSE. It comes with a

comprehensive tracking cum

risk management solution to

give you enhanced leveraging

on your trading limits.

In futures trading, you take

buy/sell positions in index or

stock(s) contracts expiring in

different months. If, during the

course of the contract life, the

price moves in your favor

(rises in case you have a buy

position or falls in case you

have a sell position), you make

a profit. In case the price

movement is adverse, you

incur a loss.

To take the buy/sell position

on index/stock futures, you

have to place certain % of

order value as margin. With

futures trading, you can

leverage on your trading limit

by taking buy/sell positions

much more than what you

could have taken in cash

segment. However, the risk

profile of your transactions

goes up.

Future PLUS

Future PLUS is a newly added

feature provided by us under

Future product where one

can convert his existing

position under a contract in



Future to Future PLUS position

of the same contract within the

stipulated time prescribed by I-

Sec.

The customer could take

buy/sell positions in future

contracts with the intention of

squaring off the position on the

very same day before close of

market hours i.e. an intraday. If,

during the day, the price

moves in favour (rises in case

of a buy position or falls in case

of a se l l pos i t ion) , then

customers would make a profit

and vice versa.

The advantage of Plus here is

that you have to deposit lesser

margin as compared to that

required for Futures. Thereby

you can trade more in Future

PLUS than you can in Futures

with the same limit. With

"Future PLUS" you will be able

to leverage more on your

trading limit by taking buy/sell

positions of higher value than

what you are currently able to

take in Futures.

Future PLUS Stop LOSS

Future Plus Stop loss gives you

a limit set for not going further

in losses (liquid stocks). A stop

loss is said to be a level set in

case the market goes opposite

direction, here the investor can

save himself from any further

loss that could occur. For

example, the futures brought

at price Rs. 100, you set a stop

loss of 90 that means if the

market falls at 90 the position

gets squared off and the

investors is at ease even if the

market falls until 80.

Options

Customers of ICICIdirect, can

trade on index and stock

options on NSE. It comes with

a comprehensive tracking cum

risk management solution to

give you enhanced leveraging

on your trading limits.

In options trading, you take

buy/sell positions in index or

stock(s) contracts expiring in

different months with various

Strike Price. If, during the

course of the contract life, the

price moves in your favor, you

make a profit. In case the price

movement is adverse, you

incur a loss. To take the buy/sell

pos i t ion on index /s tock

options, you have to place



certain % of order value as

margin. With options trading,

you can leverage on your

trading limit by taking buy/sell

positions much more than

what you could have taken in

cash segment. However, the

risk profile of your transactions

goes up.

Options PLUS

OptionPLUS is an intraday

product having an order

placement feature wherein

y o u p l a c e t w o o r d e r s

simultaneously wherein Fresh

order will be a market/Limit

order and with the second

order you limit your loss on

every position by necessarily

p l a c i n g a c o v e r o r d e r

specifying the Stop Loss

Trigger Price (SLTP) and a Limit

Price.

Since the OptionPLUS position gives a clear view of maximum downs ide invo lved in a

part icular posi t ion, ICICI Securities Limited (I-Sec) would block margin to the extent of the maximum loss which you may suffer on that position. ICICI Securities at its discretion may charge higher margin if it deems appropriate.

To view more on derivatives you could log on to

https://secure.icicidirect.com/IDirectTrading/Trading/FNO/StaticData/FAQ-Futures.htm

Summing Up:

Derivative is not a complex product anymore, there is more advantage attached to this product that a normal equity investor would switch to der iva t ive product a f te r perceiving its advantages. The benefit to hedge your risk happens well in a derivative market and the margin helps the investors set a limit and not exceed their positions.

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


Tête-à-tête

Are you a hedger to every market position?Derivative contract allows traders the opportunity to leverage and hedge their

positions. Margin is an important component while trading in the derivative

markets as its purpose arises to restrict ones losses especially when the market

moves in the opposite direction. Many such elements are highlighted in this

interview by Mr. Amit Gupta, VP and Head-Derivatives Research, ICICI

Securities that will lay the foundation for you while trading in derivative markets.

At the most extreme price movements, one of the derivative instrument comes

in use, want to know which one? Read on………

Mr. Amit Gupta,VP and Head-Derivatives Research,

ICICI Securities.

Q. What should one keep in mind while trading in derivatives market?

A. A m o n g d e r i v a t i v e s instruments, one can go long or short on F&O contracts, which derive their value from the under ly ings l i ke equ i ty, currency, etc. When the price of the underlying changes, the value of the derivatives contract also changes. Derivatives contracts have an expiry date and a pre-decided quantity

If market participants have a futures contract or are short on

options contract, the following t w o r e q u i r e m e n t s a r e necessary to understand:

a. He/she must have sufficient exposure margin amount, which is decided by exchange

b. After executing the trade, one has to maintain mark to market margin, which is the amount of difference that the buyer or seller has to pay when the trade moves opposite to the transaction price

Q. While trading in an F&O market, what risk would an investor encounter?

A. Traders should enter the F&O m a r k e t w i t h p r o p e r understanding. Futures trading and shorting options involve risk because the loss can be unlimited in case of adverse price move of the underlying. There can be sharp adverse


Tête-à-tête

movement in the index/stocks. If the trader is unable to fulfil the mark to mark margin, his/her position can be liquidated. To avoid this scenario and to mitigate risk, one should adhere to stop loss for derivative positions.

Buying an option requires a

s m a l l p r e m i u m m a r g i n

compared to option writing. If

someone is buying a Put or Call

option at the available premium

of any particular strike then he

has to pay the premium amount

and the risk is limited to that

extent only. However, one can

lose the whole premium if the

underlying asset remains flat or

moves in an adverse direction.

Q. Is there any advantage one can

gain in the derivative market

compared to the equity market?

A. Derivatives allows traders to get leverage and also hedge their positions. Also, one can trade in the index only in derivatives. Short positions can be created in derivatives contracts. Let us say an investor makes an investment in the equity market and it is coming down. To protect his portfolio,

he can hedge his positions by going short in derivatives contracts. In addition, a lot of market participants have been writing options to gain from the time decay of the option premiums.

Q. Do you think hedging should be

done for every transaction?

A. Hedging is usually done to

reduce the portfolio risk. If

someone i s l ook ing fo r

positional trade then yes he

should hedge the position to

minimise the risk and avoid

overnight events or risk.

We do not think hedging should

be done for every transaction.

Hedging comes with a cost and

is recurring in nature. We cannot

buy Put options for every

positional trade every month at

a cost of 2-3%, which may dilute

the earnings potential. At the

same time, hedging is important

w h e n s o m e o n e e x p e c t s

volatility to be on the higher side

e.g. at the time of quarterly

results announcement. At the

same time, the choice of

instrument is more important

whi le dec id ing hedging.

Sometime, writing Calls gives


Tête-à-tête

better returns than buying Puts.

A t the t ime o f ex t reme

movements, it may be futures,

which help us to overcome that

period.

Q. What is your opinion on options trading?

A. Unlike futures, trading options provides better risk reward opportunities for a trader. However, one should always keep in focus the options characteristics primarily Theta and Vega. While higher Theta goes against option buyers, an

increase in Vega works against option writers.

While index options constitute almost 80% of the derivatives market, it is clearly the first choice for traders. For example, options also allow a trader to profit from even range bound movement, which is impossible with any other instrument. Options enable one to formulate different strategies in index or stocks for different views like bullish, moderately bullish and extremely bullish scenario as also for bearish markets.

Disclaimer:

The views expressed in the article are personal views of the

author and do not necessarily represent the views of ICICI

Securities.

ASK OUR PLANNER


Having doubts related to pension plan?

Q. I have been regularly paying

premium for a pension plan for last

10 years, with no sum assured. It is

maturing next month. Please

a d v i s e t h e t a x l i a b i l i t y o n

commuted portion and annuity

portion. Also please suggest if the

tax, if any, can be saved by

investing in other scheme.

- Neeraj Mendirata

A. On maturity of a pension

policy, you can withdraw upto rd

1/3 of the maturity value as

lumpsum, which is exempt

from tax. And, the remaining

amount would be converted

into annuity, from which you

would start receiving regular

annuity, which would be added

to your income and taxed as

per your income slab.

If, after adding annuity to your

income, your income crosses

the basic exemption limit, then

to save tax, you can look to

invest into any of the options

provided under Section 80C of

the Income Tax act, to the

extent required. If your age is

60 or more, you can look at

investing into Senior Citizen

Savings Scheme, which is one

of the options under Section

80C. However, the interest

earned from this scheme

would be added to your

income and taxed as per your

income slab.

Q. I have invested Rs. 3,00,000 in

DHFL FDs thru icicidirect.com

K i n d l y a d v i s e h o w I c a n

prematurely close the FDs

- Manjunath Shet

A. You will need to send the

duly discharged original FDR

by pasting Rs. 1/- revenue

stamp on the back side of it

cross signed by the 1st holder

along with the request letter for

premature redemption & a

cancel led cheque leaf to

DHFL's address.

Q. I am 41 years old. I have 15 thousand invested through SIP in blue chip (HDFC top 100 and ICICI Prunier BlueChip), Mid cap (HDFC Midcap opportunit ies & L&T MidCap fund) and Small cap (SBI Small Cap & Reliance small cap) respectively with total equity investment equals to 45, 000/- per

ASK OUR PLANNER


month. I have 5000/- per month investment in RD with interest rate of 9.5% (had opened in 2012 for 10 years). I do have around 3 lakh of FD for 10 years on similar interest rate. I am thinking about investing in Gold fund. Please suggest any good gold mutual fund or should I invest in government gold debt fund? I have not invested in any typical hybrid or debt mutual fund as I have it in RD & FD. Please suggest if you find this good investment.

Also, I recently saw HDFC top 100 is also in recommended list. I r e c e i v e d a n e m a i l f r o m ICICISecurit ies / ICICIDirect showcasing past performances and encouraging to invest in HDFC top 100 fund. On debt fund what is your view on recent open Jana Small finance bank fixed deposit which they are offering for 9.5% and also L&T Finance Limited's S e c u r e d R e d e e m a b l e N o n -Convertible Debentures (NCDs) which is open for 9.1%. Please suggest.

-Binit Jha

A. All the equity funds in your portfolio are currently in the r e c o m m e n d e d l i s t o f ICICIdirect Research, except

HDFC Top 100 and SBI Small C a p . I n L a r g e c a p , w e recommend Reliance Large C a p , a p a r t f r o m I C I C I Prudential Bluechip. In Small cap, we recommend HDFC Small Cap and L&T Emerging B u s i n e s s e s , a p a r t f r o m Reliance Small Cap.

For investing into gold, you can look at Gold Sovereign Bonds. However, there could be issue of liquidity in these bonds, as they are not traded much in the stock exchange. If you can stay invested till maturity, then you can consider the same. Else, you can look at Gold Exchange Traded Funds (ETFs), which provide liquidity and can be traded through the stock exchange.

It's important that all your investments should follow your goals. Hence, charting your financial plan becomes significant to understand if your investments will help you achieve al l your goals & retirement and how much more you need to invest, if there's a shortfall. If you are i n t e r e s t e d t o h a v e a comprehensive & customized

ASK OUR PLANNER


premiums paid. However, if

y o u h a v e n ' t c l a i m e d

deduction, then only the gains

(i.e. surrender proceeds less

the premiums paid) would be

added to your income and

taxed as per your income slab.

Q. I was having an ICICI Prudential

pinnacle policy taken in July 2012

and I paid premium for 5 years. I

want to surrender the policy in

March 2019. Can you please advise

me what would be my tax liability of

the said transaction if done? And

what will be the rate of TDS if

applicable?

- Anil Goel

A. If your policy had a sum

assured which was 10 times

the annual premium at all times

during the policy, then the

surrender proceeds would be

exempt from tax and no TDS

would be applicable.

On the other hand, if in any

policy year, the sum assured

was less than 10 times the

annual premium, then the

surrender proceeds would be

taxable. You would have to pay

tax on the difference between

the fund value and the total

f i nanc ia l p l an made fo r yourself, please write to [email protected] to know more about the service.

HDFC Top 100 may have been

in our recommended l ist

earlier; but it is not in the

recommended list currently.

However, our Research's

current view on the fund is

'Hold'. In the debt space, we

generally suggest debt mutual

funds only.

Q. I took an ICICI Prudential

lifetime pension policy in Feb-2004

and I paid premium for 14 years. I

surrendered the policy in Feb-2018

and got the surrender value during

the current financial year without

any deduct ion o f TDS (Tax

Deducted at Source). Can you

please advise me what would be

my tax l iab i l i ty of the sa id

transaction to help me include it in

this year's tax return?

- Ranjani R. Thota

A. With reference to your

query, as it's a pension policy,

the entire surrender proceeds

would be added to your

income and taxed as per your

income slab, if you have

claimed deduction for the

ASK OUR PLANNER


premiums paid, as per your

income slab. A TDS of 1% will

also be applicable, when the

insurance company pays you

the surrender proceeds, in

such a case.

Q. I have purchased ULIP - wealth

builder in 2011 and have paid up for

5 years. I am NRI, but not able to get

tax residency certificate as my job

keeps me relocating and moreover

it cost more than 25,000 INR for 1

year validity. Also note I have never

claimed any tax benefits in India so

far. I have paid premium of 5 lac per

year with assured insurance of 10

times. Now the current value of

policy is around 21 lacs, so do I

need to pay TDS of 32% on 21 lacs

or 15 lacs or what will calculation

or way to save tax on it, in case I

want to redeem it now or should I

wait till policy mature in 2027.

- Anup Bist

A. Tax will be deducted at

source (TDS) under Section

195 of the Income Tax Act,

1961 on any sum paid under a

life insurance policy to Non-

Resident Indians, only if the

policy is not exempt under

Section 10(10D). As your

policy was purchased before

April 1, 2012 and the sum

assured is more than 5 times of

the annual premium, any sum

received from the policy, either

o n m a t u r i t y o r n o w a t

surrender, would be exempt

f r o m tax und er Sec t i o n

10(10D). Hence, TDS does not

come into picture for your

policy. You can write to your

insurance company to get a

confirmation before opting to

surrender.

Q. I am a Senior Citizen. Please

suggest me some good ELSS for tax

saving purpose!

- Bharat Kumar Mathur.

A. You can refer Mutual Funds

page in the Research section of

our website

www.icicidirect.com for our

r e c o m m e n d a t i o n s . T h e

current top picks by our

Research team in ELSS are:

· Aditya Birla SL Tax Relief 96

· IDFC Tax Advantage (ELSS)

Reg

· DSP Tax Saver

Of the above three funds, DSP

Tax Saver has around 72%

exposure into large cap stocks,

c o m p a r e d t o I D F C Ta x

Advantage (46%) and Aditya

ASK OUR PLANNER


Birla SL Tax Relief '96 (43%), as

on February 28, 2019 and

would be more suitable to

conservative investors. If you

are fine with taking higher

risks, then you can consider

any / both of the other two

funds.

Q. I p u r c h a s e d L I F E S TA G E

ASSURE policy from ICICI Prulife on

25 Feb 2009 for a period of 10 years

for insured amount of Rs. 10 Lacs

with annual premium of Rs. 26000/-

per year. The policy matured on 25

Feb 19 and I received a payout of

Rs. 383288/-. Please enlighten me

whether I have to pay any tax for

this year. The Company has not

deducted any TDS on maturity

amount.

- Rameshwar Pandey

A. As you had purchased the

policy before April 1, 2012 and

the sum assured was more

than 5 times of the annual

p r e m i u m , t h e m a t u r i t y

proceeds are exempt from tax

under Section 10(10D) of the

Income Tax Act, which is also

confirmed by the fact that the

insurance company has not

deducted any TDS. Had the

matur i ty p roceeds been

t a x a b l e , t h e i n s u r a n c e

c o m p a n y w o u l d h a v e

deducted TDS @ 1%.

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

MUTUAL FUND ANALYSIS


Investing in banking funds

Indian markets witnessed a turnaround in performance in the last three month since February 2019. After remaining subdued since the start of CY18, markets have regained momentum since March 2019 and are back near all-time high levels. Sector rotation is being s e e n w i t h b a n k i n g , i n f r a s t r u c t u r e f u n d s significantly outperforming in the recent uptrend while the IT s e c t o r, w h i c h t h e b e s t per forming sector s ince January 2018, underperformed significantly. We have been recommending banking funds since the start of CY19 as we believe that underperformance c o u p l e d w i t h i m p r o v e d earnings growth outlook over the next two years make it well positioned to deliver a superior performance.

In general, banking funds offer a good investment opportunity, p a r t i c u l a r l y i n a s t a b l e government environment. I nves to rs may cons ide r investing lumpsum amount in banking funds.

Expectation of recovery in

profits for large corporate

banks, led by moderation in

provision resulted in the recent

rally in large private banks and

public sector banks. In our

o p i n i o n , a s c h a l l e n g e s

surrounding growth and asset

quality have receded, we

expect large banks to continue

to benefit disproportionately on

growth and thereby operating

profit. We believe the banking

sector may outperform and

may continue to lead the market

rally over the next few quarters.

Investors may invest in banking

funds as part of their thematic

allocation with an investment

horizon of more than two to

three years

Being thematic in nature,

allocation to banking funds

should not exceed 5-10% of an

investor 's overa l l equi ty

portfolio. Our preferred funds in

this sector are Reliance Banking

Fund and ICICI Pru Banking &

Financial Services Fund.



Reliance Banking Fund

Product Label:

Fund Objective:The pr imary inves tment objective of the Scheme is to seek to generate continuous returns by actively investing in equity and equity related securities of companies in the Banking Sector and companies engaged in allied activities related to Banking Sector.

NAV as on April 30, 2019 ( )` 279.8Inception DateFund Manager Vinay SharmaMinimum Investment ( )` Lumpsum 5000

SIP 100Expense Ratio (%) 2.20Exit Load 1% on or before 1Y, Nil after 1YBenchmark NIFTY BANK - TRILast declared Quarterly AAUM(| cr) 2991

Key Information

May 26, 2003

THIS PRODUCT IS SUITABLE FOR INVESTORS WHO ARE SEEKIN• GLong term capital wealth creation solution

• An equity fund that predominantly invests in equity and equity related securities of companies engaged in banking and financial services.

Investors understand that their principal will be at high risk

Performance:The fund is among the oldest funds in the banking sector space. The funds recent performance has lagged its benchmark as it shied away from few of the expensive stocks which continued to rally in last few months. However we believe that the fund is well positioned to outperform the benchmark going forward. As of April 30, it has generated CAGR of 19.2% and 18.1% over three years and five years vs. 21.8% and 19.1% returns by benchmark, respectively.

Performance vs. Benchmark

4

19

.2

18

.1 23

.2

17

.1 21

.8

19

.1

20

.3

05

10152025

1 Year 3 Year 5 Year SinceInceptionC

AG

R R

etu

rns

%

Fund Benchmark



Portfolio:

The portfolio comprises 22

stocks. Currently, the portfolio

is tilted towards large caps

(~64%) while midcap and

small cap stocks make up the

rest. The fund has significant

exposure to large private

corporate centr ic banks,

%15.9

11.4

10.9

8.3

7.1

6.4

5.1

4.8

3.8

3.5

Certificate of Deposit

Bharat Financial Inclusion Ltd. Domestic Equities

Domestic Equities

Bank Of Baroda Domestic Equities

Bajaj Finserv Ltd. Domestic Equities

The Federal Bank Ltd. Domestic Equities

Canara Bank Domestic Equities

ICICI Bank Ltd. (31-May-19)

ICICI Bank Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

State Bank Of India Domestic Equities

Axis Bank Ltd.

Top 10 Holdings Asset Type

indicating a play on capex

cycle revival. However, the

fund also has stocks catering to

the retail segment. The fund

has handpicked public sector

banks (non PCA) with relatively

better capital adequacy poised

to benefit from a revival in the

credit cycle.

%42.2

22.8

12.4

7.9

2.7

2.5

1.8

0.8

0.8Ratings Domestic Equities

Insurance Domestic Equities

Finance - Others Domestic Equities

Finance - Asset Management Domestic Equities

Domestic Equities

Finance - NBFC Domestic Equities

Finance - Investment Domestic Equities

Finance - Housing Domestic Equities

Top 10 Sectors Asset TypeBank - Private Domestic Equities

Bank - Public

%1.4

Whats InCholamandalam Financial Holdings Ltd.

%Whats out



Our View:

The fund's strong performance

since inception and a long history

are comforting factors even

though the performance in recent

times has been mediocre. With a

good mix of stocks that are a play

on corporate lending and private

lending, we feel investors can

consider the fund from a three-

year perspective.

You can view performance of other schemes being managed

by the fund manager of this scheme on the following link:

https://www.reliancemutual.com/InvestorServices/Factsheets

Documents/Fundamentals-May-2019.pdf

Data as on April 30, 2019; Portfolio details as on Mar- 2019Source: ACE MF, ICICI Direct



ICICI Pru Banking & Financial Services Fund

Fund Objective:

To generate long-term capital

appreciation to unit holders

from a portfolio that is invested

predominantly in equity and

equity related securities of

c o m p a n i e s e n g a g e d i n

banking and financial services.

However, there can be no

assurance that the investment

objective of the Scheme will be

realized

NAV as on April 30, 2019 ( )` 65.2Inception DateFund Manager Roshan ChutkeyMinimum Investment ( )` Lumpsum 5000

SIP 100Expense Ratio (%) 2.16Exit Load 1% on or before 15D, NIL after 15DBenchmark Nifty Financial Services - TRILast declared Quarterly AAUM( cr)` 3068

Key Information

August 22, 2008

Product Label:THIS PRODUCT IS SUITABLE FOR INVESTORS WHO ARE SEEKING

• Long term capital wealth creation solution

• An equity fund that predominantly invests in

equity and equity related securities of companies engaged in banking and financial services.

Performance

The fund has consistently been among the top performing funds in the sector over shorter as well as longer timeframes. It has delivered 23.2% CAGR and 21.5% CAGR returns, respectively, for three and five-year time frames vs. 24.2% CAGR and 19.9% CAGR p e r f o r m a n c e o f t h e benchmark over these time

thframes (as of April 30 ).

Investors understand that their principal will be at high risk

Performance vs. Benchmark

8.3

23.2

21.5

19.2

18.3 2

4.2

19.9

13.1

2

0

10

20

30

1 Year 3 Year 5 Year SinceInceptionC

AG

R R

etu

rns

%

Fund Benchmark

Portfolio

The fund 's port fo l io has

exposure to a diverse mix of

businesses within the banking

and financial services space –

banks (private as well public),



NBFCs as well as insurance. Its

focus on corporate facing

private banks is accentuated

by recent additions to the

portfolio. Currently, there are

29 stocks in the portfolio,

making it less concentrated

than some other funds and

with a larger tail than most

peers. The fund has lower

exposure to its top picks than

some other peers. It has ~60%

of its portfolio invested in large

cap stocks with the rest

invested in midcaps and small

caps.

%13.5

10.0

9.0

9.0

6.2

5.4

4.2

3.3

3.2

2.8

Top 10 Holdings Asset Type

Bank Of Baroda Domestic Equities

Bajaj Finserv Ltd. Domestic Equities

Mahindra & Mahindra Financial Services Ltd. Domestic Equities

ICICI Bank Ltd. Domestic Equities

Tri-Party Repo (TREPS) Cash & Cash Equivalents and Net Assets

State Bank Of India Domestic Equities

HDFC Bank Ltd. Domestic Equities

Net Current Asset Cash & Cash Equivalents and Net Assets

Muthoot Finance Ltd. Domestic Equities

LIC Housing Finance Ltd. Domestic Equities

%36.7

17.3

15.2

7.1

5.4

5.1

1.8

0.8

-1.1

-2.3

Bank - Private Domestic Equities

Finance - NBFC Domestic Equities

Bank - Public Domestic Equities

Insurance Domestic Equities

Finance - Investment Domestic Equities

Top 10 Sectors Asset Type

Bank - Private Derivatives-Futures

Index Derivatives-Futures

Finance - Housing Domestic Equities

Finance - Others Domestic Equities

Finance - Stock Broking Domestic Equities

%0.3

Whats InCentral Depository Services (India) Ltd.

%Whats out



Our View:The portfolio is well constructed in terms of diversi f icat ion.

Investors can consider the fund from a three-year perspective.

You can view performance of other schemes being managed by

the fund manager of this scheme on the following link:

https://www.icicipruamc.com/docs/default-source/default-

document-library/fund-factsheet-for-april270002ff41026

ea9a3af27f6b75f9f0c.pdf?sfvrsn=0

Data as on April 30, 2019; Portfolio details as on Mar- 2019Source: ACE MF, ICICI Direct Research



1. Reliance Banking Fund

Performance of other schemes managed by these fund managers:

Note : The schemes may or may not have been managed by the same

Fund Manager since its inception

Note : The concerned Fund Manager manages 2 other schemes of the

concerned Mutual Fund





9.95 20.65 14.8918.18 23.32 16.003.98 13.28 15.866.18 15.15 11.95

Fund Name 1 Year 3 Years 5 Years

Top 3 Performing Schemes Reliance Banking Fund(G)NIFTY BANK - TRI

Performance of other schemes managed by the fund manager - Vinay Sharma

Reliance Focused Equity Fund(G)S&P BSE 500 - TRI

12.87 15.43 --13.99 16.95 11.4211.02 9.00 10.21

-- -- --9.95 20.65 14.8918.18 23.32 16.00

-13.98 -- --7.10 14.09 10.56

-- -- ---- -- --

-- -- --7.10 14.09 10.56S&P BSE 200

S&P BSE 200Reliance Nivesh Lakshya Fund(G)Crisil Long Term Debt Index

Reliance India Opp Fund-Sr-A(G)

Bottom 3 Performing SchemesReliance Capital Builder Fund-IV-C(G)

Reliance US Equity Opp Fund(G)S&P BSE SENSEX - TRIReliance Gilt Securities Fund(G)CRISIL Dynamic Gilt IndexReliance Banking Fund(G)NIFTY BANK - TRI

Performance of other schemes managed by the fund manager - Kinjal Desai


Top 3 Performing Schemes



2. ICICI Pru Banking & Financial Services Fund









Data as on February 28, 2019; Portfolio details as on Jan-2019Source: ACE MF, ICICI Direct Research

13.94 23.73 18.1523.09 25.69 17.721.07 10.58 --12.82 16.28 11.45

-- -- ---2.47 11.26 11.55

-- -- --5.16 13.71 10.58

Performance of other schemes managed by the fund manager - Roshan Chutkey

ICICI Pru Value Fund-8(D)NIFTY 50 - TRIICICI Pru Bharat Consumption Fund-5-(G)NIFTY CONSUMPTION

NIFTY 500

Bottom 3 Performing SchemesICICI Pru India Opp Fund(G)


Top 3 Performing Schemes ICICI Pru Banking & Fin Serv Fund(G)Nifty Financial Services - TRI

13.94 23.73 18.1523.09 25.69 17.7211.43 17.46 --11.34 14.73 10.0511.25 12.85 11.6412.82 16.28 11.45

-- -- --4.52 -4.60 5.68

-- -- ---2.47 11.26 11.55

-- -- --11.34 14.73 10.05

Performance of other schemes managed by the fund manager - Priyanka Khandelwal

NIFTY 50

NIFTY CONSUMPTION

ICICI Pru CPO Fund-XIV-A-1275D(G)

ICICI Pru Pharma Healthcare & Diagnostics (P.H.D) Fund-(G)

S&P BSE Health CareICICI Pru Bharat Consumption Fund-3-(G)

Nifty Financial Services - TRIICICI Pru Growth Fund-2(DP)NIFTY 50ICICI Pru US Bluechip Equity Fund(G)NIFTY 50 - TRI

Bottom 3 Performing Schemes


Top 3 Performing Schemes ICICI Pru Banking & Fin Serv Fund(G)


This month on iCommunity

46

1. Buzz in the market discussion - Your voice matters!

How will you ride this election season volatility?

In each of the past three election years, Nifty 50 (large caps) and Nifty500 (broad-based) In each of the past three election years, Nifty 50 (large caps) and Nifty500 (broad-based) have generated returns in excess of 11% and 18%, respectively. The second half of election years has always witnessed a broad-based rally led by cyclical (double-digit returns).

In two out of three occasions, the markets behaved indecisively five months prior to elections. In contrast, throughout the past three elections, both Nifty and Nifty 500 indices exhibited a robust performance seven months post the election phase with average returns of 27% and 33%, respectively.

During seven months post elections, all sectors performed and clocked double-digit gains. How do you plan to ride this years' election volatility?

Share your thoughts on ICICIdirect exclusive knowledge sharing platform - iCommunity.

Link to join the discussions: https://bit.ly/1TW2rx8

2. Q & A Forum

Seek answers to your queries regarding investments and market updates for free. Questions like:

> Recommend me some small cap companies to invest for growth, can hold for 8 to 10 years.

> Should I continue my SIP in XXX fund? I can hold for 5 years.

> What is the future of XXX? Can it be bought at current levels?

Login to ask questions, give your comments on the questions asked before or browse through the various segments.


3. Polls

Give Views --> Polls <-- Get Views

Checkout the latest topics for Polls

4. BlogsInformation is a Key to widen knowledge- so we have come up with interesting topics that will help you in the journey of financial well-being. Don't forget to view our Blog's page.

What is iCommunity? iCommunity is ICICIdirect's interactive platform

where one can answer and get answered as well. With extensive

range of forums, events & discussions iCommunity serves as an

opportunity to learn more about financial world.

EQUITY MODEL PORTFOLIO


Our indicative large-cap equity model portfolio is delivering an impressive

return (inclusive of dividends) of 157.28% till date (as on April 30, 2019) since

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

return of 122.68% during the same period, an outperformance of 34.6. This

validates our thesis of selecting companies with sound business

fundamentals that forms the core theme of our portfolio. We have revised

stocks in our midcap portfolio. It continues to outperform, delivering 256.33%

(inclusive of dividends) till date (as on April 30, 2019) vis-à-vis the benchmark

index (CNX Midcap) return of 127.18%, an outperformance of 129.15. Our

consistent outperformance demonstrates our superior stock picking ability as

markets aligned to our view of favourable risk reward, good franchisee vs.

reward-at-any-risk businesses.

We have always suggested the SIP mode of investment and still find a lot of

merit in it as the preferred mode of deployment given the market conditions

and volatility associated since the inception of the portfolio. We highlight that

the SIP return of our portfolio has consistently outperformed the indices.

Following the same pace and opportunities in the market, our latest portfolio

(large caps) remains overweight on BFSI sector – HDFC Bank (10%), HDFC

Limited (9%), Axis Bank (6%) Bajaj Finance (6%) and SBI (6%). Tech Mahindra

Limited is the latest addition to the large-cap portfolio, given 6% weightage.

Maruti Suzuki and EICHER Motors have been removed from the large-cap and

diversified model portfolio. Please note that the weightage for State Bank of

India and Divis Laboratories have been revised. Affirming our view on

consumption demand, Dabur (5%) and Marico (4%) continue to be part of our

large cap portfolio.

Brigade Enterprises given 6% weightage and Somany Ceramics given 6%

weightage are the latest addition to the mid-cap portfolio. Exide Industries and

Graphite India have been removed from the mid-cap and diversified model

portfolio.

We remain positive on auto, IT and pharma. We remain overweight to neutral

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

rotation could lead to consolidation in near term valuations and offer stock

specific opportunities.

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

being Gail Ltd., which has a better risk reward opportunity. Among individual

names, we recommend TCS in the IT space, HDFC and HDFC Bank in the BFSI

space and ITC in consumer space.



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

Mahindra & Mahindra (M&M) 4.0 2.8

HDFC Bank 10.0 7.0

Axis Bank 6.0 4.2

HDFC Limited 9.0 6.3

Bajaj Finance 6.0 4.2

State Bank of India 8.0 5.6

Larsen & Toubro 6.0 4.2

UltraTech Cement 4.0 2.8

Dabur India 5.0 3.5

Marico 4.0 2.8

ITC 6.0 4.2

Nestle India 4.0 2.8

Tata Consultancy Services 6.0 4.2

Tech Mahindra Limited 6.0 4.2

Hindustan Zinc 6.0 4.2

GAIL Ltd. 5.0 3.5

Divis Laboratories 5.0 3.5

Total 100.0

Largecap share in diversified 70.0



Bharat Forge 6.0 1.8

Bajaj Finserve 8.0 2.4

Indian Bank 6.0 1.8

AIA Engineering 6.0 1.8

Kalpataru Power transmission 6.0 1.8

Ramco Cement 6.0 1.8

Kansai Nerolac 6.0 1.8

Pidilite Industries 6.0 1.8

Tata Chemicals 6.0 1.8

Bata India 6.0 1.8

Brigade Enterprises 6.0 1.8

Somany Ceramics 6.0 1.8

Firstsource Solutions 6.0 1.8

Container Corporation of India 6.0 1.8

Syngene International 8.0 2.4

Arvind Fashions 6.0 1.8

Total 100.0

Midcap share in diversified 30

TOTAL 100.0

ICICI Securities has received an Investment Banking mandate from Mahindra & Mahindra.



Performance so far since inception*

157.2818391

256.3338009

182.2877753

122.6778623127.1791423 122.9624133

0

100

200

300

Large Cap Midcap Diversified

%

Portfolio Benchmark

*Returns (in %) as on April 30, 2019

Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination of BSE Sensex and CNX Midcap

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

9500

000

9500

000

9500

000

1510

5348

.17

2235

6089

.84

1603

5774

.32

1356

1086

.64

1436

0773

.76

1313

0282

.42

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

Largecap Midcap Divesified

|

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: June 30, 2011; *Value as on April 30, 2019

QUIZ TIME


4 5

1

2

6

3

Crosswords:

Questions:

1. Which option to buy if a trader expects market to move up/ has bullish

opinion

2. Which day of the week does derivative contracts in India Expire?

3. Difference of Strike Price and Underlying Value

4. Which derivative instrument requires only a portion of total contract

value for trade to take place?

5. A portion of total contract value required to enter into a derivative

contract

6. What is the moneyness of the option when Strike Price & Underlying

Market Price is same?

Note: 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.

QuizCorrect answers for the March 2019 Quiz is:

1. A loan that requires a collateral

· Home loan

2. There are 3 types of loan

· False

3. It charges 2-3% more interest rate than offered by bank

· Loans against fixed deposit

4. CIBIL stands for

· Credit Information Bureau of India Limited

5. Which is the right way to manage your credit card?

· Reduce the number of credit card

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

53

30-Apr-19 29-Mar-19 Change (%)

CNX Nifty 11748.2 11624.0 1.1%

CNX Midcap 17566.4 18258.5 -3.8%

S&P BSE Sensex 39031.6 38672.9 0.9%

S&P BSE 100 11868.1 11809.2 0.5%

S&P BSE 200 4915.5 4907.6 0.2%

S&P BSE 500 15293.8 15304.6 -0.1%


Dow Jones 26,592.9 25,928.7 2.6%

S&P 500 2,945.8 2,834.4 3.9%

Nasdaq 8,095.4 7,729.3 4.7%

FTSE 7,385.3 7,279.2 1.5%

DAX 12,345.4 11,526.0 7.1%

CAC 40 5,538.9 5,350.5 3.5%

Nikkei 22,258.7 21,205.8 5.0%

Hang Seng 29,699.1 29,051.4 2.2%

Shanghai Composite 3,078.3 3,090.8 -0.4%

Taiwan Weighted 10,897.1 10,641.0 2.4%

Straits Times 3,400.2 3,212.9 5.8%


S&P BSE Auto 18,839.4 18,824.9 0.1%

S&P BSE Bankex 33,328.5 34,141.9 -2.4%

S&P BSE FMCG 18,030.6 18,472.0 -2.4%

S&P BSE Healthcare 14,367.0 14,407.9 -0.3%

S&P BSE Metals 11,513.2 11,355.1 1.4%

S&P BSE Oil & Gas 15,357.9 15,269.7 0.6%

S&P BSE Power 1,969.5 2,034.4 -3.2%

S&P BSE Realty 2,008.6 2,077.1 -3.3%

S&P BSE Teck 7,979.3 7,621.8 4.7%

PRIME NUMBERS


Debt Markets

Volatility Index (VIX)

54

30-Apr-19 29-Mar-19

VIX 21.83 18.88

Government Securities Yield (in %) Apr-19 Mar-19 Change (bps)

10 year 7.41 7.35 6

5 year 7.34 6.93 40

3 year 7.05 6.77 28

1 year 6.57 6.43 14

Corporate Bond Yields (in %) Apr-19 Mar-19 Change (bps)

AAA 10 year 8.69 8.73 -5

AAA 5 year 8.43 8.25 18

AAA 3 year 8.08 7.98 10

AAA 1 year 7.88 7.69 19

AA 10 year 9.13 9.10 3

AA 5 year 8.88 8.72 16

AA 3 year 8.59 8.51 9

AA 1 year 8.45 8.28 17

Commercial Paper (in %) Apr-19 Mar-19 Change (bps)

12 Months 0

6 Months 0

3 Months 0

1 Month 0

Note : Data not available on Bloomberg for 3,6 and 12 month CP post 1/15/19 and for 1 month CP post 3/27/18

T-Bills Yields (in %) Apr-19 Mar-19 Change (bps)

91D TB 0

182D TB 0

364D TB 0

Note : Data not available on Bloomberg for 3,6 and 12 month Tbill post 3/28/18

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

55

Countries 30-Apr-19 31-Mar-19 Change in bps

US 2.502 2.405 10

UK 1.185 1.000 19

Japan (0.040) (0.081) 4

Spain 0.998 1.093 (10)

Germany 0.013 (0.070) 8

France 0.366 0.316 5

Italy 2.555 2.489 7

Brazil 8.878 8.965 (9)

China 3.346 3.069 28

India 7.397 7.351 5

MF Investment Apr-19 Mar-19 Fy19

Equity -4600 -7665 87667

Debt 50820 75041 389356

FII Investment Apr-19 Mar-19 Fy19

Equity 10729 42668 9722

Debt -10863 20358 -39425

Items Weights(%) Feb-19 Mar-19 Apr-19

Food&bev. 45.86 -0.07 0.66 1.38

Pan,tob& intox. 2.38 5.49 4.61 4.27

Cloth & Foot 6.53 2.73 2.59 2.01

Housing 10.07 5.10 4.93 4.76

Fuel & light 6.84 1.24 2.42 2.56

Misc. 28.31 6.02 5.68 5.10

CPI 100 2.57 2.86 2.92

Weights Feb-19 Mar-19 Apr-19WPI 100.0 2.93 3.18 3.07 Primary Articles 22.6 4.84 5.07 6.50 Fuel & Power 13.2 2.23 5.41 3.84 Manufactured Goods 64.2 2.25 2.16 1.72

*WPI numbers are based on new series with 2011-12 as the base year’

PRIME NUMBERS

Commodities


Mutual Funds: Category Average Returns

Equity Funds Returns (in %)

Debt Funds Returns (in %)

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

Currencies and Commodities

Currencies

56

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

Categories 31-Mar-19 28-Feb-19 31-Jan-19 Weight(%)Mining 17.9 -5.6 4.2 14.4Manufacturing 8.0 -4.4 -0.5 77.6Electricity 16.1 -8.6 0.4 8.0Overall 10.0 -5.0 0.1 100.0

*IIP numbers are based on new series with 2011-12 as the base year’

30-Apr-19 31-Mar-19 Change (%) StatusUSDINR 69.6 69.2 0.6% DepreciatedEURINR 78.0 77.7 0.5% DepreciatedGBPINR 90.5 90.5 0.0% AppreciatedAUDINR 49.1 49.0 0.1% DepreciatedCHFINR 68.2 69.4 -1.7% AppreciatedJPYINR 0.6 0.6 0.1% DepreciatedCNYINR 10.3 10.3 0.2% Depreciated

30-Apr-19 31-Mar-19 Change (%)Crude ($/barrel) 72.8 68.4 6.4%Gold ($/ounce) 1,282.8 1,292.4 -0.7%

Multicap Midcap Large Cap Small cap ELSS6 months 5.22 3.04 8.92 3.70 6.111 year -2.20 -9.41 4.18 -16.05 -3.833 year 12.46 10.45 12.62 10.61 12.825 year 14.50 16.58 13.28 17.51 14.90

Returns as on May 2, 2019

Liquid Debt ST Ultra ST Debt LT

6 months 7.02 8.72 7.04 13.43

1 year 6.87 6.88 6.22 8.73

3 year 6.84 6.97 6.82 7.79

Returns as on May 2, 2019

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