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January 19, 2011
ICICIdirect.com|Mutual Fund
Mutual Fund Review
CICI Securities Limited
Equity markets
Update
In 2010, the BSE Sensex delivered 16% return. It is down around 4%in the last month ending January 15, 2011 while the Midcap index wasdown around 5%
The year 2011, so far, has not been good for the markets as it haswitnessed around 8% correction in the first half of the first calendar
month of the new year
Heavy selling pressure was witnessed across all sectors on concernsof a rate hike by the central bank later this month to contain surging
inflation
Persistent high inflation, particularly primary and food inflation, is aworrying factor for the economy as well as for the Indian equity
markets as it will force regulators to slow down the economy to
suppress demand. The same is already seen in the RBI raising rates
and on low IIP data
FIIs were seen as net sellers in January as high valuation andperceived risk of moderation in economic activity due to rising
interest rates and inflation resulted in some profit booking
Mutual funds were seen as net buyers in the recent correction andhave bought around | 500 crore in the first half of January 2011
Realty continued to underperform on the negative impact of interestrate hike. The auto sector witnessed profit booking on rate hike and
slowdown in sales after record sales in the last quarter while FMCG
and healthcare outperformed the broader markets
Global markets remained positive with most markets outperformingthe Indian markets, and, thereby, providing support to the markets
Outlook
The recent market correction in the first half of January has providedinvestors an opportunity to invest in a staggered way. From current
levels, every dip should be utilised by investors to invest in equity
markets
The appetite for equity investment from domestic institutionalinvestors at lower levels seems strong
Global news flows regarding tightening monetary policy to preventrising inflation and sovereign risk may have a negative impact on the
global equity markets
Higher commodity prices, including crude, are a major concern forthe Indian economy
Foreign institutional flows may be volatile on global news flows. Thismay have its impact on Indian markets as they continue to be
dominant market participants
Indias domestic economy continues to remain on a strong footingwith visible growth prospects. The same is expected to drive the
equity market over a longer period of time
Investors should avoid taking high cash call as fund managersthemselves manage the portfolio in accordance with market
development
Large cap biased funds offer a better risk adjusted opportunity forinvestors
CY10 was a year of choppy rise
4500
4700
4900
5100
5300
55005700
5900
6100
6300
6500
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Nifty
17 % up move
Source: Bloomberg, ICICIdirect.com Research
At the fag end of CY10 the mid & small capsunderperformed the Sense x stocks
16.0
15.3
15.3
14.8
14.5
13.9
13
13
14
14
15
15
16
16
17
BSESens
ex
BSE5
00
BSE2
00
BSE1
00
BSEMidc
ap
BSESmallC
ap
Return(%)
Source: Bloomberg, ICICIdirect.com Research
Consumption oriented sectors outperformed .
65
35 34 32 31 3123
16
8 1
-1 -2-8
-26-40
-20
020
40
60
80
Con.D
ur
Auto
Healthcare
Banking IT
FMCG
Teck
Sensex
Cap.G
oods
Oil
Metals
PSU
Power
Reality
Source: Bloomberg, ICICIdirect.com Research
Analysts name
Sachin [email protected]
Sheetal Ashar
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ICICI Securities Limited
Debt markets
Update
The year 2010 has not been good for Indian debt markets asinterest rate increased, particularly short-term rates. Short-term
rates (three months CD rates) have increased by around 5% in2010 putting pressure on returns of short-term debt funds
The RBI has raised interest rates (repo rate) six times by 150 bps from 4.75% to 6.25% in 2010 to control inflation as economic
recovery picked up pace and rising commodity prices put upward
pressure on prices
The liquidity scenario turned negative with large ticket size publicissues hitting the market and sucking liquidity putting pressure
yields across the curve
Longer duration debt funds also witnessed pressure due to the risein longer duration yields as rising inflation and high government
borrowing put pressure on yields of longer duration governmentsecurities
Corporate bond yields remained range bound in 2010 as lack ofany new issuances helped it to contain a rise in yields at the longer
duration. As a result, the spread compared to G-Sec narrowed to
around 80 bps as compared to 100 bps at the start of 2010
In the last month, yields remain volatile as high WPI and foodinflation at 8.43% and 16.91%, respectively, prevented yields from
coming down
Global markets witnessed a fall in longer duration sovereign yieldstill the last quarter of 2010 as the slow economic recovery resulted
in low inflationary expectations. However, in the last quarter,positive economic data, particularly from the US, resulted in
improved inflationary expectations and better equity market
outlook. Therefore, money was seen flowing from global debt
funds to global equity funds
Commodity prices, particularly crude, have been rising swiftly inthe later part of 2010. The same is fuelling inflation and is a major
threat for the debt market
Outlook
We believe that 2011 will be good for the debt market andinvestments in all categories, viz. ultra short-term funds, short-term funds and income funds should deliver good returns
Inflation, although stubborn in recent times, is expected to comedown in the coming months. This will be beneficial for the debt
market and debt funds
Currently, short-term debt funds offer better return opportunity asshort-term rates have already risen sharply due to tight liquidity.
They are expected to moderate from current levels
Ultra short-term funds also offer good returns due to tight liquidityand elevated rates on short maturity money market instruments
Fixed maturity plans are also offering the opportunity to lock incurrent higher rates. We expect longer duration G-sec yields toease off further by around 20-30 bps from current levels. The
same may add to the total returns
ield curve flattens as short-term yields inch higherue to tight liquidity condition
6.4
7.2
7.1 7.5 7.87.9
4.33.7
7.6
8.2
3
4
5
6
7
8
9
3mnth
1Year
3Year
5Year
10Year
(%)
1-Jan-10 14-Jan-11
Source: Bloomberg, ICICIdirect.com Research
Liquidity remains tight for whole of the second halfeading to increase in short-term lending rates
-2000
-1500
-1000
-500
0
500
1000
1500
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
|C
r.
Source: Bloomberg, ICICIdirect.com Research
Credit spreads widen in the later half
159
137
121
83
116
99105
81
50
70
90
110
130
150
170
1yr 3yr 5yr 10 yr
14-Jan-11 1-Jan-10
Source: Bloomberg, ICICIdirect.com Research
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ICICI Securities Limited
Institutional fund flow
Exhibit 1:Throughout CY10 mutual funds sold heavily
-1311-718
-3807
-1428
99
-961
-4405
-3170
-6161 -5801
-100
1131434.8
-8000
-6000
-4000
-2000
0
2000
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
|Cr
4800
5100
5400
5700
6000
6300
Net MF Investment CNX Nifty (RHS)
Source: Bloomberg , ICICIdirect.com Research
Exhibit 2:. contrary to MFs, FIIs were buyers throughout CY10
-1136
2114
18834
9900
-9175
9708
17658
11186
2919624770
18966
-2495 -3181
-20000
-10000
0
10000
20000
30000
40000
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
|Cr
4800
5100
5400
5700
6000
6300
Net FII Investment CNX Nifty (RHS)
Source: Bloomberg , ICICIdirect.com Research
Exhibit 3:FII flows are at decade high indicating India has been their preferred investmentdestination
128203576
30793 38763
48060
37603
74902
-56778
84269
133050
-100000
-50000
0
50000
100000
150000
CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10
|C
rore
0
5000
10000
15000
20000
25000
FII Investment (RHS) Sensex
Source: Bloomberg , ICICIdirect.com Research
Higher market valuation and redemption pressure led to
mutual funds being net sellers during 2010
However, things are likely to improve as the mutual
fund industry has adjusted to the regulatory changes
and market correction will lead to larger incremental
inflows in 2011
Indian stocks continued to sparkle in the eyes of FIIs as their
holding in indices like the Nifty, Sensex and BSE midcap is
currently at peak levels of 17.9%, 15.9% and 13.6%,
respectively
On the global liquidity front, we believe India is unlikely to see
any major impairment in FII inflows as the western world is
unlikely to commence rate tightening in CY11 in a hurry
In addition, healthy participation in disinvestment programme
of | 49865 crore during CY10 and likely strong pipeline of |51,000 crore in 2011 would keep FII interest alive for Indian
equities
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ICICI Securities Limited
Industry Synopsis
Exhibit 4:Assets under managementdeclined..
Dec-10,
626314
500000
600000
700000
800000
900000
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Source: AMFI, ICICIdirect.com Research
Exhibit 5:Outflows continued
-90722
143774
-150000
-100000
-50000
0
50000
100000150000
200000
CY10 CY09
Source: AMFI, ICICIdirect.com Research
Exhibit 6:Regulatory changes affect income and money market fund rather than equity funds33.2
25.1
32.2
3.12.8
2.3
14.211.4
9.4
1.91.41.2
47.6
62.0
52.1
0
5
10
15
20
25
30
35
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
%
30
35
40
45
50
55
60
65
%
Equity Balanced Money Market Others Income (RHS)
Source: AMFI, ICICIdirect.com Research
Exhibit 7:AAUM and market share September 2010
4
6
8
10
12
14
16
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Q4
%Share
Reliance HDFC ICICI Prudential UTI
Birla Sun Life SBI Franklin
Source: AMFI, ICICIdirect.com Research
The AUM declined 17% YoY as the industry witnessed
outflows to the extent ~| 1 lakh crore
In CY10, regulatory changes w.r.t valuation of debt securities,
Sebi asking banking to put a strict check on their MF holdings
and closure of the liquid plus funds category led to lesser
inflows in to income funds and their share dropped from 62% in
January 2010 to 47%in December 2010
Equity funds and Gold ETFs gained share among total AUM in
2010
AAUM for the last quarter CY10 stood at |6.75 lakh crore,
down from AAUM of |7.14 lakh crore for September 2010
Reliance Mutual Fund continues to be the market leader in
terms of AAUM followed by HDFC Mutual Fund with AAUM of~| 1 lakh crore and | 0.8 lakh crore, respectively
Among major AMCs, LIC Mutual Fund saw a decline in the
share whereas Franklin Templeton Mutual Fund and DSP Black
Rock Mutual Fund garnered higher share of the tota l pie
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ICICI Securities Limited
Category Analysis
Equityfunds
Exhibit 8:Sub-category wise fund returns vs. respective BSE indices
0.2
1
-2.5
2
-2.4
6
-5.0
3
-6.2
3-5.3
7
-10.0
1
2.17
-2.2
5
0.5
3
-5.2
3
-5.1
3
-6.0
8
-9.8
1
-16
-14
-12
-10
-8
-6
-4
-2
0
2
4
Technology Pharma FMCG Diversified Infrastructure Mid cap Banking
Returns(%)
Category Return (%) Index Return (%)
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : % Returns are absolute 1 month returns as on January 14, 2011
Exhibit 9:Net fund flow: Worst seems to be over
9801514
-2016-1133
1256
-1446
-3400-2890
-7011
-2869
-41877
-9500
-7500
-5500
-3500
-1500
500
2500
4500
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
NetInflow
(|
Cr)
Source: Crisil Fund Analyser, ICICIdirect.com Research
Exhibit 10:Deployment of funds by equity schemes (including ELSS * Balanced Schemes)
16
.1
8.5
6.8
6.6
6.4
5.7
4.8
4.1
3.8
3.8
13.6
7.7
6.0
7.9
6.6
5.7 6
.1
3.0
4.5
4.1
0
4
8
12
16
20
Banking IT
Pharma
Cap.G
oods
Consum.
Durab
Pertroleum
Power
Auto
Finance
Oil
%ofEquityAUM
Dec-10 Jan-10
Source: SEBI, , ICICIdirect.com Research
In the equity funds category, except for technology funds all
other fund gave negative returns for the one month periodending January 14, 2010. Banking funds continued to be
laggards as also infrastructure funds
For CY10, it was sector funds - pharma & banking, which were
major gainers. For CY11, we expect the Indian equity
performance to be growth induced. It would mirror the
trajectory of economic and corporate growth
We do not expect sector rotation/preference to undergo much
change on the likely levers of higher growth even though
valuation multiples appear to be rich
Outflows moderated considerably during November and
December and saw some decent inflows, giving some comfort
to AMCs
On account of a lack of push to the product and profit booking
at 20000+ levels on the Sensex, the equity funds category
witnessed outflows to the tune of ~|16,100 crore for CY10
Banking being the sector with highest weightage in the index
continues to be a major sector
After the recent correction, fund managers continued to
increase their holdings as seen from the increase in share to
16% in December 2010 from 13% in January 2010
IT, pharma and auto still continue to be in favour
Capital goods and power saw some shift of interest
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ICICI Securities Limited
Equity Diversified Funds
CY10 was good for Indian equities as FIIs pulled the index by over16%. Equities were also one of the highest yielding asset classes.
Equity diversified funds have performed in line with the broader
markets
However, CY11, so far, has not been good with around 8%correction in the first half of the first month
The correction in our view can be used as an opportunity to invest for the long-term in diversified funds. Diversified large-cap
oriented funds should be preferred and core portfolio investment
in these funds should be done in a staggered manner utilising
each major dip as an opportunity to buy for the long-term
Indias domestic economy continues to remain on a strong footingwith visible growth prospects. The same is expected to drive the
equity market over a longer period of time
Exhibit 11:Category average vs. benchmark
-5.0
-9.4
3.1
7.3
-2.9
14.2
-10.1
2.55.1
-4.6
14.3
-5.2
-15
-10
-5
0
5
10
15
20
1M 3M 6M 1Yr 3Yr 5Yr
Return(%)
Category Average BSE 200
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : % Returns are as on Jan 14, 2010 Returns above 1 yr are CAGR returns
Exhibit 12:Positive & negative bias fundsTop Recomeded Equity Diversiifed FundsScheme Name 6 M 1 Yr 3 Yr
Fidelity Equity 4.64 16.22 3.31
ICICI Prudential Focused Bluechip Equity Fund 8.25 15.95 N.A
HDFC Top 200 Fund 5.78 14.18 7.12
Birla Sun Life Frontline Equity Fund - Plan A 5.28 7.95 3.19
Reliance Regular Savings Fund - Equity 2.96 7.28 1.10
Benchmark - BSE 200 2.50 5.13 -4.58
Category Average 3.12 7.30 -2.89
Negative Bias FundsScheme Name 6 M 1 Yr 3 Yr
Reliance Equity Fund -5.92 -8.34 -7.58
JM Contra Fund -6.87 -7.27 -24.71
HSBC Progressive Themes Fund -8.20 -6.99 -15.49
Birla Sun Life Advantage Fund -9.94 0.26 -6.89
Principal Growth Fund 0.08 3.05 -12.22
Benchmark - BSE 100 2.50 5.13 -4.58
Category Average 3.12 7.30 -2.89
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : % Returns are as on Jan 14, 2011, Returns above 1 yr are CAGR returns
Staggered investment through SIP is the best way to
approach the market in 2011
ViewShort-term: NeutralLong-term: Positive
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ICICI Securities Limited
Equity Midcap Funds
Midcap stocks tumbled the most in the recent market correctionas news flows over price rigging and the Sebi probe resulted in
risk aversion from the segment
Midcap category funds are more volatile but also offer betterreturn potential
The funds offer a good opportunity for an investment horizon ofover three to five years to ward off the interim volatility
In this category, stock selection as well as fund selection plays agreater role as it is a high-risk high-return game with huge
deviation in returns among the best and worst performers
Exhibit 13:Category average vs. Benchmark Indices
-5.4
-12.0
-0.3
6.1
-6.0
-13.5
-1.6
5.7
-3.2
14.312.0
-6.1
-15
-10
-5
0
5
10
15
20
1M 3M 6M 1 YR 3YR 5YR
Return(%)
Category Average CNX MidCap
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : % Returns are as on Jan 14, 2011, Returns above 1 yr are CAGR returns
Exhibit 14:Negative & positive bias fundsTop Recomeded Equity Mid Cap Funds
Scheme Name 6 M 1 Yr 3 Yrs
IDFC Premier Equity Fund - Plan A 5.47 15.51 4.61
ICICI Prudential Discovery Fund 4.38 15.19 10.23
Sundaram BNP Paribas Select Midcap 4.51 7.87 1.75
Benchmark - CNX Midcap -1.62 5.73 -3.18
Category Average -0.31 6.11 -6.01
Negative Bias FundsScheme Name 6 M 1 Yr 3 Yrs
SBI Magnum Midcap Fund 2.94 -0.51 -13.66
JM Emerging Leaders Fund -7.32 -9.60 -26.07
JM Small and Midcap Fund -11.20 -14.58 -32.46
CNX Midcap -1.62 5.73 -3.18
Category Average -0.31 6.11 -6.01
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : % Returns are as on Jan 14, 2011, Returns above 1 yr are CAGR returns
SIP investment in midcap funds should be able to
outperform in the next two or three years
ViewShort-term: NeutralLong-term: Positive
Midcap funds are alpha generators. However, they are
risky bets with higher variation in the best and worst
fund performance, Proper selection plays a key role.
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ICICI Securities Limited
Equity Banking Funds
The banking sector, a heavyweight on the BSE Sensex with a 17%share, has emerged stronger in CY10 with the Banking Indexdelivering 30%+ returns for CY10
The short-term performance may be muted due to significantoutperformance in 2010 and near term pressure on interest
margins and over ownership among investors
Near term pressure on NIM persists but the effect of base rate andBPLR hikes will come into play and FY12E NIM should not see any
further erosion
We continue our positive stance on the sector over a longerperiod of time as stable economic growth and more than 20%
credit growth will continue to help them to grow
Exhibit 17:Category average vs. fund return
3.4
20.7
-9.8
-17.3
4.6
19.7
-1.9
18.02
2.6
-2.1
-10.0
-
17.7
-30
-20
-10
0
10
20
30
1M 3M 6M 1 YR 3YR 5YR
Return(%)
Category Average Bankex
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : % Returns are as on Jan 14, 2011 Returns above 1 yr are CAGR returns
The BFSI space, which has ~17 weightage in the Nifty,
lifted the index in the recent rallyHowever, the past few
sessions saw the banking index paring some of the
gains
ViewShort-term: Neutral
Long-term: Positive
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ICICI Securities Limited
Equity Pharma Funds
Pharma funds have delivered the highest return among sectorfunds in CY10 of ~25%
The outperformance is expected to continue although with a lowergap
We expect major pharma players to clock ~18-20% kind ofgrowth in domestic formulations driven by strong growth in
chronic therapies such as anti-diabetics, cardiovascular (CVS),
central nervous system (CNS) and oncology
Rapid urbanisation, changing lifestyles, demographic transitionand growing health insurance coverage are some of the obvious
factors that will drive the chronic growth
In 2010, almost all domestic players increased their field force.This will start yielding a positive effect from the second half of
CY11 onwards. This incremental field force will complement the
added capacities since 2009
On the exports front, we see a continuance of the three prongedstrategy of risk mitigation adopted by major generic players
a. to increase the presence in regulated markets of the US,Japan and EU by aggressive product filing and making
their facilities regulatory compliant and
b. expanding their presence in the so called pharmergingcountries (BRIC nations ex-India, Mexico, Turkey and
South Korea) via marketing and distribution agreements
with the pharma MNCs and
c. forming alliances for licensing and distribution withleading pharma MNCs as per their requirements
We do not see significant headwinds from either currency orcrude based derivatives that may suppress the EBITDA margins of
the companies
Given the relative certainty of growth in earnings, the sector islikely to benefit from a change in investor sentiment in its favour
Exhibit 18:Fund returns vs. Benchmark
0.45 0.12
4.35
27.6025.84
-2.25
1.71
13.68
25.57
15.59
-5
0
5
10
15
20
25
30
1 M 3 M 6 M 1 Yr 3 Yr
Returns(%)
Reliance Pharma Fund BSE Healthcare
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : % Returns are as on Jan 14, 2011, Returns above 1 yr are CAGR returns
Around 5-10% can be invested in Reliance Pharma Fund to
capture the sector momentum and add the alpha to the
portfolio
ViewShort-term: PositiveLong-term: Positive
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ICICI Securities Limited
Equity FMCG
Currently, the BSE FMCG index is trading at 32.7x with YTD upsideof 26.7%. Hence, with the FMCG P/E of 1.8x to that of the Sensex
P/E, the valuation for the sector seems to be expensive with the
sectors historical premium being ~0.4-1.2x
Though we believe revenue growth will continue its uptrend inCY11, margin pressure and high valuations could keep the
premium capped. Hence, we remain neutral on the performance
of the sector
Exhibit 19:Category average vs. fund return
-1.1
-3.1
7.9
30.1
-2.5
-7.1
4.4
20.5
-0.2
-5.4
8.4
39.7
0
.53
-1.9
7
12.6
28.6
8
-10
0
10
20
30
40
50
1 M 3 M 6 M 1 Yr
Returns%
Franklin FMCG Fund ICICI Pru FMCG Fund Magnum SFU - FMCG Fund BSE FMCG
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : % Returns are as on Jan 14, 2011, Returns above 1 yr are CAGR returns
Equity Technology Funds
The IT sector had a favourable year led in part by strong volumegrowth as clients across continents continued to spend top dollars
on driving efficiencies through IT. Business spending revived
adequately but wage inflation and attrition worries continue
We believe CY11 could be a year of discretionary spends ledearnings upgrade
We are positive on the sector for CY11. However, sector fundsmay not be suitable for long-term investment
Exhibit 20:Fund return vs. Benchmark
-0.7
0.6
10.8 1
5.3
-2.9
-4.8
3.7
14.5
4.1 8
.4
20.4
30.2
3.5
9.4
27.6
43.4
1.5 4
.113.5 2
1.0
4.9 7
.6
20.2
29.2
-10
0
10
20
3040
50
1 M 3 M 6 M 1 Yr
Returns%
Birla Sun Life New Millennium Fund DSP BlackRock Technology FundFranklin Infotech Fund ICICI Prudential Technology FundSBI Magnum Sector Umbrella - Infotech Fund BSE IT
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : % Returns are as on Dec 15, 2010, Returns above 1 yr are CAGR returns
Segmental or category risk seems less as compared to
other sectors. Volatility in the markets always tends to
move funds to these low beta sectors
Manufacturing and retail verticals saw demand uptick led
by consumer technology and hi-tech sectors while telecomand Europe, the weak link in prior quarters, bounced back..
ViewShort-term: NeutralLong-term: Positive
ViewShort-term: NeutralLong-term: Neutral
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ICICI Securities Limited
Arbitrage Funds
Arbitrage funds are generally considered a better option againstliquid funds. They are classified as equity funds for tax treatment.
Hence, the dividends declared are tax free
Arbitrage opportunities keep on arising from time to timedepending on market volatility. Therefore, the investment horizon
should be longer to capitalise on the opportunity that may arise
from time to time
Arbitrage funds should be used as a liquid investment and shouldnot be a major part of the investors portfolio
Exhibit 21:Category average vs. Benchmark9.3
8.5
7.57.0
6.4
5.3
6.1
9.4
0
1
2
3
4
5
6
7
8
9
10
1M 3M 6M 1 YR
AbsoluteReturn%
Category Average Crisil Liquid Fund Index
Source: Crisil Fund Analyser, , ICICIdirect.com Research
Note : Annualised returns % as on Jan 14,2011
Exhibit 22:Top recommended fundsTop Recommended Arbritage Funds
Scheme Name 1M 3M 6MICICI Prudential Equity and Derivatives Fund - Income
O timiser Plan11.62 11.67 9.70
HDFC Arbitrage Fund - Retail 8.97 9.51 8.69Kotak Equity Arbitrage Fund 9.28 9.75 8.49
UTI SPrEAD Fund 8.27 7.68 6.52CRISIL Liquid Fund Index 7.47 7.00 6.39
Category Average 9.32 9.42 8.53
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : Annualised return (%)as on Jan 14, 2011
Arbitrage funds offer alternate investment option to liquid
funds...
ViewShort-term: NeutralLong-term: Neutral
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ICICI Securities Limited
Exchange Traded Funds (ETF)
In India, there are three kinds of ETFs available : Equity Index ETFs, Liquid ETFs and Gold ETFs
An equity index ETF tracks a particular equity index such as theBSE Sensex, NSE Nifty, Nifty Junior, etc
An equity index ETF scores higher than index funds on severalgrounds. The expense of investing in ETFs is relatively less by
0.50-1.00% in comparison to an index fund. Expense ratio for
ETFs is in the range of 0.50-0.75% excluding brokerage while for
index funds the expense ratio varies in the range of 1.0-1.5%.
However, brokerage (which varies) is applicable on ETFs while
there are no entry loads now on index funds
The tracking error, which explains the extent of deviation ofreturns from the underlying index, is usually low in ETFs as ittracks the equity index on a real time basis whereas it is done only
once in a day for index funds
ETFs also provide liquidity as they are traded on stock exchangesand investors may subscribe or redeem on an intra-day basis also.
This is not available in index funds, which are
subscribed/redeemed on a closing NAV basis only
There are over 400 ETFs traded globally. ETFs are transparent andcost efficient. The decision on which ETF to buy should be largely
governed by the decision of getting exposure in that asset class
Exhibit 23:Top Recommended ETFTop Recommended ETF
Scheme Name 6M 1Yr 3Yr
Nifty Benchmark Exchange Traded Scheme - Nifty BeES 5.16 8.29 -2.33
S&P CNX Nifty 4.98 7.50 -3.06
Source: Crisil Fund Analyser, , ICICIdirect.com Research
Note : Returns above one year are Compounded Annualised return as on Dec 15, 2010
..Traded volumes should be the major criterion that is used
while deciding on investment in ETFs. Higher volume
ensures lower spread and better pricing to investors...
..Tracking error, though it should be considered, is not the
deciding factor as variation among funds is not huge...
..Volumes are higher only in Benchmark ETFs and tracking
error is also lowest at 0.08%. Therefore, it is our top pick
for investors wanting Nifty-linked returns
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ICICI Securities Limited
Balanced Funds
Equity markets are dwindling and G Sec yields are at theirstructurally upward trend. Hence, balanced funds may not yield
good returns in the near term
Balanced funds have more than 65% invested into equities.Hence, they offer tax savings as any capital gain over a one year
period becomes tax free. Therefore, even the 35% debt portion is
not subjected to tax
However, the return also gets reduced over diversified peersowing to the debt component. Even in downward trending equity
markets well performing diversified funds have the capability to
outperform the balance funds
Investors with a limited investible surplus and a lower risk appetitebut with a willingness to invest into equities can look to invest in
these funds
Exhibit 24:Imbalanced inflows
56 88-40 -57
206
-51 -43
398
-414
26
255
326
-600
-400
-200
0
200
400
600
Jan-10
Feb-10
Apr-10
May-10
Jun-10
Aug-10
Sep-10
Nov-10
NetInflow
(|Cr)
Source: AMFI, ICICIdirect.com Research
Exhibit 25: Balanced returns
6.1
11.3
6.8
1.3
12.3
7.3
-2.9
14.2
0.1
-5
0
5
10
15
20
1 YR 3YR 5YR
Returns(%)
Category AverageCrisil Balance fund IndexDiversified Funds
Source: Crisil Fund analyser, ICICIdirect.com Research
Note: % Returns as on Jan 14, 2011
Returns above 1 yr are CAGR returns
Exhibit 26:Positive & negative bias fundsScheme Name 6M 1 Yr 3 Yrs 5 YrsHDFC Prudence Fund 4.73 17.06 8.75 19.35Reliance Regular Savings Fund - Balanced 4.45 13.94 9.58 17.19Birla Sun Life 95 Fund 4.41 11.98 4.47 17.68DSP BlackRock Balanced Fund 3.16 8.01 4.23 17.09
Crisil Balanced Fund Index 3.96 6.81 1.29 12.33Category Average 1.74 6.13 0.05 11.33
Negative Bias Funds
Scheme Name 6M 1 Yr 3 Yrs 3 YrsJM Balanced Fund -1.39 6.19 -11.84 6.12Birla Sun Life Freedom Fund -0.92 -2.03 -3.89 7.37
Crisil Balanced Fund Index 3.96 6.81 1.29 12.33Category Average 1.74 6.13 0.05 11.33
Source: Crisil Fund Analyser, ICICIdirect.com Research
Note: % Absolute Returns as on Jan 14, 2011
Investors interest towards the balanced fund category has
been one of total imbalance
ViewShort-term: NeutralLong-term: Neutral
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ICICI Securities Limited
Monthly Income Plans (MIP)
An MIP offers investors an option to invest in debt with someparticipation in equity, approximately 10-15% of the portfolio
Investors who want higher returns compared to debt funds andare comfortable with nominal risk in returns may look to invest in
MIPs
The equity portion of the funds provides extra return to the fundwhile the debt part acts as a cushion towards any fall in equity and
provides regular income
In the current month, the volatility in G Sec yields and a correctionin the equity market muted the returns
Investors should invest in MIPs with lower equity allocation toavoid capital erosion and earn stable returns
Exhibit 27:Category average vs. benchmark
-0.8
1.8
4.55.1
7.8
-0.6
2.2
5.2 4.9
7.5
-0.4 -0.4
-2
-1
0
1
2
3
4
5
6
7
8
9
1M 3M 6M 1 YR 3YR 5YR
AbsoluteRetur(%)
Category Average Crisil MIPEX
Source: Crisil Fund Analyser, ICICIdirect.com Research
Note :% Returns as on Jan 14, 2011, Returns above 1 yr are CAGR returns
Exhibit 28:Top recommended fundsScheme Name 1 Yr 3 Yrs 5 Yrs
HDFC Monthly Income Plan - LTP 8.25 9.32 11.50
Reliance Monthly Income Plan 6.50 12.37 11.76Birla Sun Life MIP II - Savings 5 Plan 5.53 11.23 9.75
Crisil MIP Index 5.18 4.91 7.52
Category Average 4.46 5.11 7.83
Source: Crisil Fund Analyser, ICICIdirect.com Research
Note : Returns are annualized returns as on Jan 14,2011
ViewShort-term: PositiveLong-term: Positive
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ICICI Securities Limited
Debt funds
Exhibit 29: Debt fund returns
7.32 7.28 6.885.83 5.59
4.694.14
5.17
7.276.03
0
1
2
3
4
5
6
7
8
Income
UST
Liquid Crisil
LiquiFex
Income
ST
Crisil
STBx
Gilt
MT<
Gilt ST I-SEC
Com.Gilt
Income Crisil
ComBex
AnnulaisedReturns(%)
Source: Crisil Fund Analyser ICICIdirect.com Research
Note : Returns are annualised returns for one month ending Jan 14, 2011
Exhibit 30:Deployment of funds
58.2
%
14.6
%
16.0
%
11.2
%
64.0
4%
12%
13.7
%
10.5
%
62.9
8%
12%
12.1
%
12.5
%
63.8
7%
13%
11.0
%
12.5
%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
< 90 days 90 days to 182 days 182 days to 1 year 1year and above
Jul-10 Aug-10 Sep-10 Oct-10
Source: SEBI, ICICIdirect.com Research
Note : Holding as % of total AUM
Exhibit 31:G-Sec yield curve
6.4
7.2
7.17.5 7.8
7.9
7.6
3.7 4.3
8.2
3
4
5
6
7
8
9
3mnth
1Year
3Year
5Year
10Year
(%)
1-Jan-10 14-Jan-11
Source: Bloomberg, ICICIdirect.com Research
Exhibit 32:Credit spread159
137
121
83
116
99105
81
50
70
90
110
130
150
170
1yr 3yr 5yr 10 yr
14-Jan-11 1-Jan-10
Source: Bloomberg, ICICIdirect.com Research
Short-term rates are at 7% plus levels and, therefore, ultra
short-term and liquid funds have higher yields
The yield curve rose across the curve and more at the
shorter end. After the policy, the yield eased off from the
high levels, which helped the debt fund to close positive on
an MoM basis.
With three months CP/CD rates skyrocketing, the maturity
profile slightly increased at the shorter end
The yield curve flattened as shorter duration yield rose
amid a tight liquidity scenario likely to be maintained by the
RBI
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ICICI Securities Limited
Liquid Funds
The liquidity crunch continues with the RBI lending close to ~| 1lakh crore on a daily basis
Liquidity, though, eased off a bit for another month in the wake ofthe last leg of government borrowing, forthcoming IPOs and
advance tax outflows
Call rates are hovering in a 67% range. Short-term yields onmoney market papers, particularly three to six months CP/CDs, are
offering good yields due to the prevailing liquidity crunch
Liquid funds will continue to offer better returns in the debt fundscategory
Exhibit 33:Call rates have risen on account of liquidity crunch
9.15
9.6
3
4
5
6
7
8
9
10
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Rate(%)
3M CD 3M CP
Source: Bloomberg, ICICIdirect.com
Exhibit 34:Liquidity as measured under LAF...
-2000
-1500
-1000
-500
0
500
16-Jul
23-Jul
30-Jul
6-Aug
13-Aug
20-Aug
27-Aug
3-Sep
10-Sep
17-Sep
24-Sep
1-Oct
8-Oct
15-Oct
22-Oct
29-Oct
5-Nov
12-Nov
19-Nov
26-Nov
3-Dec
10-Dec
17-Dec
24-Dec
31-Dec
7-Jan
14-Jan
Source: Bloomberg, ICICIdirect.com Research
Liquidity crunch has kept call rates volatile in the higher
range of 4.5-6.5%
Most fund managers see the liquidity crunch continuing for
some more days
ViewPositive
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ICICI Securities Limited
Exhibit 35:Net fund flow (Total purchase Total sales)
-10218
-5163971
9275
-29334
17029
34303
21922
-36108
22836111
-12500
-45000
-30000
-15000
0
15000
30000
45000
60000
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
NetInflow
(|Cr
)
Source: AMFI, , ICICIdirect.com Research
Exhibit 37:Top recommended fundsTop recommended Liquid Funds
Particulars/Period 7 Days 1 M 3 M 6 M 1 Yr
HDFC Cash Management Fund - Savings Plan 7.67 7.49 6.98 6.39 5.55
UTI Money Market Fund 7.41 7.45 6.68 6.03 5.11
HDFC Liquid Fund - Growth 7.48 7.31 6.79 6.19 5.30Birla Sun Life Cash Manager 7.46 7.27 6.76 6.24 5.29
Reliance Liquid Fund - Treasury Plan 7.48 7.11 6.49 5.91 5.14
Bench mark - Crisil liquid Fund Index 7.27 7.47 7.00 6.39 5.30
Category Average 7.29 7.28 6.80 6.19 5.31
Source: Crisil Fund Analyser, ICICIdirect.com Research
Note : Annualised returns as on Jan 14, 2011
Liquidity crunch faced by India Inc has reduced inflows into
these funds
After October 2009, when the regulatory change came into
effect, liquid funds had lost their sheen. It is now that these
funds offer some investment opportunity as call rates have
risen sharply
In the debt funds category, liquid funds will continue to
provide stable and highest 6% plus annualised returns in
the current scenario
Exhibit 36:High call rates have helped funds post higher return7.29 7.28
6.806.19
7.27 7.47 7.006.39
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
7 Days 1 M 3 M 6 M
AnnualisedReturns%
Category Average Bench mark - Crisil liquid Fund Index
Source: Crisil Fund Analyser, , ICICIdirect.com Research
Note : Annualised returns as on Jan 14, 2011
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ICICI Securities Limited
Income Funds
We believe that 2011 will be good for debt market andinvestments in all the category viz. ultra short-term funds, short-
term funds and income funds should deliver good returns
Currently, short-term debt funds offer better return opportunity asshort-term rates have already risen sharply due to tight liquidity
and are expected to moderate from current levels
Ultra short-term funds also offer good returns due to tight liquidityand elevated rates on short maturity money market instruments
Exhibit 38:Net fund flow (Total purchase Total sales)
106092
4887
-164487
177773
-35084
-134354
47516561
-28637-5305
11307
-32698
-200000
-150000
-100000
-50000
0
50000
100000
150000
200000
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
NetInflows(Rs.C
r)
Source: AMFI, , ICICIdirect.com Research
Exhibit 39:Average maturity profile (Sept 2010)Ultra Short Term Funds 0-0.5Short Term Funds 1-2.6
Long term income Funds 3 -12.03
Source: Crisil Fund Analyser, ICICIdirect.com Research
Exhibit 40:Income fund average returns7.3 7.4
6.86.2
6.9
4.94.4
4.94.7 5.2 4.6 5.0
0.0
2.0
4.0
6.0
8.0
1 M 3 M 6 M 1 Yr
AnnualisedReturn
%
Ultra Short Term Short Term Long term income
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : Annualised Returns (%)as on Jan 14, 2011
Tight liquidity conditions and upward trending interest
rates have led inflows into longer duration income funds
Ultra short-term funds continue to yield good returns with
less risk on account of lower maturity
ViewUltra-short term: Positive
Short-term: PositiveLong-term: Positive
Rising interest rate environment
make this fund less attractive
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ICICI Securities Limited
Exhibit 41:Top recommended ultra short-term fundsTop Recommended Funds
Particulars/Period 7 Days 1 M 3 M 6 M 1 Yr
Tata Floater Fund 8.41 8.41 8.07 7.36 6.71
Reliance Money Manager Fund - Retail 7.80 7.80 7.42 6.78 6.10
BNP Paribus Money Plus Fund 7.52 7.66 7.08 6.41 5.67
HDFC Cash Management Fund - Treasury Advt. 7.59 7.59 7.41 6.78 6.20
ICICI Prudential Flexible Income Plan 6.75 6.75 7.27 6.37 5.79
Crisil liquid Fund Index 7.27 7.27 7.47 7.00 6.39
Average 7.32 7.32 7.41 6.78 6.15
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : Annualised Returns(%)as on Jan 14, 2011
Exhibit 42:Top recommended short-term fundsTop Recommended Funds
Particulars/Period 7 Days 1 M 3 M 6 M 1 Yr
Birla Sun Life Dynamic Bond Fund 0.97 8.69 4.25 4.45 5.55
Templeton India Short Term Income Plan 0.69 6.31 4.14 4.06 5.52
ICICI Prudential Short Term Plan -0.66 5.73 3.35 3.12 4.35Reliance Regular Savings Fund -0.04 4.96 3.23 3.21 4.62
HDFC High Interest Fund - Short Term Plan -3.28 4.89 2.80 3.36 4.90
Crisil Short Term Bond Fund Index 1.47 6.03 4.48 4.15 4.65
Average 3.67 6.88 4.89 4.43 4.85
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : Annualised Returns(%)as on Jan 14, 2011
Exhibit 43:Top recommended income long-term fundsTop Recommended Funds
Particulars/Period 7 Days 1 M 3 M 6 M 1 Yr
Canara Robeco Income -0.26 7.51 5.38 3.73 4.77
HDFC High Interest Fund -5.77 3.61 3.48 3.59 4.87
Templeton India Income Fund 0.83 6.09 3.70 3.45 3.46
ICICI Prudential Income Plan -5.70 3.27 2.52 1.96 2.67
BNP Paribas Flexi Debt Fund 0.16 5.10 1.66 1.71 3.68
Crisil Composite Bond Fund Index -5.36 4.14 3.20 3.28 4.54
Category Average -2.14 4.69 5.16 4.62 5.03
Source: CRISIL Fund Analyser, ICICIdirect.com Research
Note : Annualised Returns(%)as Jan 14, 2011
Ultra-short term...can be looked upon for one to three
months horizon...
Short-term funds will benefit as sharply rising yields are
likely to decline first compared to long-term yields
Invest for a one year plus horizon as these funds have
maturity of over four years and can be volatile on account
of a hike in interest rates....
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ICICI Securities Limited
Gilt Funds
A rate hike of 25 bps in the policy meeting on January 25, hasalready been factored in the yields taking the benchmark 10 Year
G sec yields to 8.15-8.20 levels
Inflation, although stubborn in recent times, is expected to comedown in the coming months. This will ease off the yields
We expect longer duration G-Sec yields to ease off from higherlevels of post 8.20. The same may add to the total returns
Aggressive or long-term investors with an investment horizon ofaround one year may consider government securities funds
Exhibit 44:Net fund flow (Total purchase Total sales)
-257 -185
267
-49 -96 -13240 55
521
117
431
-369
-1500
-1000
-500
0
500
1000
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
NetInflow
(|
Cr)
Source: AMFI, , ICICIdirect.com Research
Exhibit 45:G-Sec funds return analysis5.6
5.1
4.1 4.3
5.8
4.9
3.3
4.2
5.2 4.9
3.6
5.1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1 M 3 M 6 M 1 Yr
Gilt Short term Gilt Medium to long term I-SEC Composite Gilt Index Source: Crisil Fund Analyser, ICICIdirect.com Research
Note : Returns are annualised returns as on Jan 14, 2011
Exhibit 46:Top recommended gilt fundsTop recommended Gilt Funds
Particulars/Period 7 Days 1 M 3 M 6 M 1 Yr
ICICI Prudential Gilt - Investment - PF Option 1.01 5.75 6.94 6.20 4.94
Birla Sun Life Gilt Plus - Regular Plan 5.54 9.71 5.70 4.52 3.07
I-SEC Composite Gilt Index -3.40 5.17 4.92 3.59 5.12
Source: Crisil Fund Analyser, , ICICIdirect.com Research
Note : Returns are annualized returns as on Jan 14, 2011
Trading opportunity in gilt fund is available as the yields are
above 8% levels and are expected to come down by 30-40
bps...
ViewShort-term: NeutralLong-term: Positive
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ICICI Securities Limited
Gold ETF
In 2010, gold outperformed all other asset classes. Demand picked upon account of flight-to-quality flows associated with the financial crisis
and the measures put in place to remedy it (namely, quantitative
easing from the worlds central banks), increase in gold holding by
central banks and currency wars. All this has led to gold making
successive new highs in 2010
Gold continued to maintain its strength as depreciation in the dollarhelped it to gain 2.5% in December 2010
Silver continued its outperformance and delivered around 8% returnin December 2010 in dollar terms
World Gold Council estimates during the week indicated that Indiaimported 624 tonnes of gold till the third quarter of 2010 ahead of 559
tonnes in the entire year of 2009 despite higher prices
The European sovereign crises, geo-political tensions and currencyvolatility are also keeping demand for gold upbeat
Silver prices have seen a smarter run-up recently outperforming allcommodities including gold. ETF holding in iShare Silver Trust
continued to see record levels and stands at around 10,900 tonnes as
on December 31, 2010 as compared to 10780 as at the start of
December 2010
Strong investment demand, higher gold price, ongoing recovery inindustrial demand and no real potential threat to prices from higher
scrap or government sales will continue to support silver prices
We continue to remain positive on gold. However, at these levels, oneshould remain a little cautious while making a fresh entry, as a pause
in the US dollar could trigger some correction in the short-term.
However, any turbulence in the global economy would restrict asignificant fall
Exhibit 47:Gold rising to new highs supported by dollar depreciation
75
77
79
81
83
85
87
89
91
Dec-10
Nov-10
Sep-10
Aug-10
Jul-10
May-10
Apr-10
1000
1050
11001150
1200
1250
1300
1350
1400
1450
Dollar Index(RHS) Gold(LHS)
Source: Bloomberg, ICICIdirect.com Research
Gold($/Ounce)
1000
1100
1200
1300
1400
1500
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Price ($/Ounce)
25 %
return for
Source: Bloomberg, , ICICIdirect.com Research
Gold (Mumbai Spot)
15000
16000
17000
18000
19000
20000
21000
22000
Jan-10
Mar-10
M
ay-10
Jul-10
Sep-10
Nov-10
Jan-11
23 % return for
CY10
Source: Bloomberg, , ICICIdirect.com Research
5
Fund flow (total purchase- total sales)
1425
1583
1590
1711
1837
1939
1972
2639
2849
3097 3
464
3516
10001400
1800
2200
2600
3000
3400
3800
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Gold ETFs AUM
Source: AMFI, , ICICIdirect.com Research
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ICICI Securities Limited
Model Portfolios
Equity funds model portfolio
Investors who are wary of investing directly into equities can still get
returns almost as good as equity markets through the mutual fund route.
We have designed three mutual fund model portfolios, namely,
conservative, moderate and aggressive mutual fund portfolios. These
portfolios have been designed keeping in mind various key parameters
like investment horizon, investment objective, scheme ratings and fund
management.
Exhibit 48:Equity model portfolioParticulars Aggressive Moderate Conservative
Time Horizon 1 2 Years 2- 3 Years Above 3 Years
Review Interval Monthly Monthly Quarterly
Risk Return High Risk- High Return Medium Risk - Medium Low Risk - Low Return
Funds Allocation
CoreBirla Sunlife Frontline Equity 20 20 20
Franklin India Prima Plus 20 20 10
HDFC Top 200 20 20 20
ICICI Prudential Focissed Bluechip Eq. 20 - -
ICICI Prudential Dynamic Plan - 10 20
Fidelity Equity Fund 20 20
Sub Total(a) 80 90 90
Satellite
Sundarm Select Midcap 20 10 -
Sub total(b) 20 10 0
Debt
Biral Sunlife Dynamic Bond Fund - - 10
Sub total (c ) 0 0 10
Grand Total(a+b+c) 100 100 100
% Allocation
Source: , ICICIdirect.com Research
Exhibit 49:CY10 - all portfolios have outperformed BSE 100 indices
-7.0-
4.3
-6.8
3.1
8.7
-3.7
-5.0
10.0
-5.0
-8.3
3.6
7.1
3.5
-4.2
10.1
4.2
-12.0
-9.0
-6.0-3.0
0.0
3.0
6.0
9.0
12.0
1M 3M 6M 1YR
Aggressive Moderate Conservative BSE 100
Source: Crisil Fund Analyser, ICICIdirect.com Research
Returns as on Jan 14, 2011
Aggressive portfolio
Change in allocation Current Previous
Moderate portfolioChange in allocation Current Previous
Conservative portfolio Allocation
Change in allocation Current Previous
No change
Allocation
Allocation
No change
No change
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ICICI Securities Limited
Exhibit 50:Value of investment of | 1,00,000 since inception166372
160867156271 154330
100000
120000
140000
160000
180000
A g g r e s s
i v e
M o
d e r a
t e
C o n s e r v
a t i
v e
B S
E 1
0 0
Growth of Rs. 1 Lakh
Source: Crisil Fund Analyser,, ICICIdirect.com Research
Returns as on Jan 14, 2011
Date of inception of portfolios: May 15, 2009
Major Contributors:
Debt Funds ICICI Prudential Dynamic Plan
Major Draggers:
Sundaram Select Midcap ICICI Prudential Focussed Blue chip Equity fund
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ICICI Securities Limited
Debt funds model portfolio
We have designed three different mutual fund model portfolios for
different investment duration namely less than six months, six months to
one year and above one year. These portfolios have been designed
keeping in mind various key parameters like investment horizon, interestrate scenarios, credit quality of the portfolio and fund management, etc.
Exhibit 51:Debt funds model portfolioParticulars
0 6 months 6months - 1 Year Above 1 Year
Objective Liquidity
Liquidity with
moderate return Above FD
Review Interval Monthly Monthly Quarterly
Risk Return
Very Low Risk -
Nominal Return
Medium Risk -
Medium Return
Low Risk - High
Return
Funds AllocationUltra Short term Funds
Fortis Money Plus 20 20 -
DWS Ultra Shorterm Plan 20 - -
Short Term Debt Funds
HDFC High Interest Short Term Fund 20 20 20
Birla Sun Life Dynamic Bond Fund 20 20 20
Reliance Short term plan 20 20 -
Long Term Debt Funds
ICICI Prudential Gilt Inv. PF Plan - - 20
Fortis Flexi Debt - 20 20
Canara Robeco Income Fund - - 20
Total 100 100 100
Time Horizon
% Allocation
Source: ICICIdirect.com Research
Exhibit 52:Model portfolio performance since inception
6.0
3
5.3
3
3.8
7
7.4
1
5.3
6
1.1
6
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
0-6 Months 6 Mnths - 1Yr Above 1 Yr
Portfolio Index
Source: Crisil Fund Analyser, , ICICIdirect.com Research
Note : Returns are one month Annualised return % as on Jan 14 ,2011
*Index: 0-6 months portfolio Crisil Liquid Fund Index,6 months-1 year Crisil Short term IndexAbove 1 year: 80% Crisil Composite Bond Index + 20% Isec Libex
What Changed?
0-6 Month Portfolio Allocation
6M-1Yr Portfolio Allocation
Above 1 Yr Portfolio Allocation
No change
No change
No change
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ICICI Securities Limited
Investment Strategy
We expect the performance of the Indian equity market in 2011 to begrowth induced. It would mirror the trajectory of economic and
corporate profitability growth
We expect the Sensex to grow in line with earnings CAGR of 21%over FY10-12E EPS to 23165 levels (17x weighted average of FY12-13
EPS of 1363, 16% upside). In our bear case, we expect the Sensex to
find comfort at 16924 levels (14x FY12E EPS of 1209, 15% downside),
which could emanate from events such as fading of US growth
outlook, no respite on Euro zone worries, a spike in commodities and
geopolitical tensions
With the US recovery still at a nascent stage, the US Fed will continuewith its loose monetary policy for an extended period of time to
stimulate growth and ensure unemployment rates drop to more
reasonable levels. A low interest rate in the US would lead to larger
capital inflows towards emerging markets like India
Global commodity prices, which have risen 25-30% in the last fourmonths, are a major worry for the Indian economy as well as for
Indian equity markets like India. Negative news flows from Europe
and China may also have a negative impact on the Indian markets
In the short-term, volatility is expected as markets will take cues fromthe third quarter results and foreign liquidity flows
We have been maintaining that we do not expect a major correctionin the markets. We continue to maintain that any sharp dip, as seen
recently, should be utilised as an investment opportunity to increase
equity exposure
We believe the debt market is offering good investment opportunitiesboth at the shorter end of the curve (three months to one year) as
well as at the longer end of the curve Short-term and conservative investors should invest in ultra short
term or short-term funds to take advantage of the current higher
yields due to liquidity crunch
Aggressive investors may look at investing some portion of theportfolio in the longer duration G-Sec funds with an investment
horizon of around one year
Exhibit 53:Market dips are excellent opportunity to buy equities
14500
15500
16500
17500
18500
19500
20500
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Buying at dips strategy wouldhave yielded better results
Indian markets are taking cues from the global market.
However, India has outperformed its global peers and the
same is expected to continue in the longer period...
With around 8% correction in the first half of January 2011,
markets are providing an opportunity to start deploying funds
particularly for those investors who have been underweight on
equities or are under owned as compared to their risk
appetite...
Short-term debt funds and FMPs offer a better opportunity to
capture the return potential
Gilt funds provide good investment opportunity with
investment horizon of one year as we expect G-Sec yields to
moderate and inflation to come down going forward
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ICICI Securities Limited
Exhibit 54:BSE Sensex target scenario
18882.25
16924
18882.25
23165
18882.25
25451
Base Case
Bear Case
Bull Case
7000
9000
11000
13000
15000
17000
1900021000
23000
25000
27000
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Source: ICICIdirect.com Research
Exhibit 55:Sensex target scenario analysisSensex Target Scenario
Key Parameters Bull Case Base Case Bear Case
Global Factors
Economic Data flow Robust Moderate Worsening
Geopolitical Tension Low Low High
Commodity Prices Low Moderate High
Domestic Growth
Inflation Low Moderate High
Earnings Growth >20% 15%-20%
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ICICI Securities Limited
Exhibit 56:Fund Manager SurveyQuestions Options Response
Grossly Undervalued 0
Slightly Undervalued 9
Fairly Valued 55
Slightly Overvalued 36
Grossly Overvalued 0
Very bullish 0
Bullish 18
Neutral 64
Bearish 18
Very Bearish 0A 0
B 27
C 64
D 9
E 0
> 20000 9
22000-24000 64
18000 -22000 27
16000-18000 0
< 16000 0
Yes. Will continue to enjoy 27
Yes. But premium may reduce 73
No 0
Higher Crude Oil prices 73
Slow US economic recovery 9
European sovereign crises 27
China economic slowdown 0
Geo-political tensions 0
FY 2011-12
Less than 10% 0
10-15% 9
15-20% 82
>20% 9
FY 2012-13
Less than 10% 9
10-15% 27
15-20% 55
>20% 0
Largecaps 82
Midcaps 18
Pharma 13
IT 12
BFSI 11
Metals 10
FMCG 9
Auto 8
Telecom 7
Capital Goods 6
Cement 5
Oil and Gas 4
Media 3
Construction 2
Aviation 1
How much corporate earnings growth you are expecting for FY 2011-12 and FY 2012-13?
Where will you position the broader Indian equity market on a valuation scale
How do you rate your medium term (3 months) view about the broader market?
What equity market strategy would you suggest right now?
Where do you expect the BSE Sensex after 1 Year?
What could be the major global risk for Indian Equity markets?
Which segment of the market you prefer for investment horizon of 1 year?
Rank the sector according to your preference?
Will India continue to command valuation premium over other Emerging markets?
Source: ICICIdirect.com Research
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ICICI Securities Limited
Exhibit 57:Fund Manager SurveyQuestions Options Response
Yes
No 82
US 73
Brazil 18
China 9
European countries 0
Any other: 0
Above 8.20% 27
8-8.20% 45
7.75-8% 27
Below 7.75% 0
G-Sec Fund 9
Income Funds 9
Short term Funds 45
Ultra short term funds 27
Indian equity 18
Global equity 18
Indian Debt 18
Gold 9
Agro commodities 55
With 6 months horizon, which segment of the debt market you expect to deliver better returns?
With asset class do you think will outperform in the year 2011?
Do you see Indian equity markets underperforming other emerging markets in the next 1 year?
Which global equity market do you expect to outperform in the next 1 year?
Where do you Benchmark 7.80% 10 year G-Sec yield in 3 months?
Source: ICICIdirect.com Research
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ICICI Securities Limited
Exhibit 58:Top picksCategory Top Picks
Short Term Long Term
Equity
Largecaps Neutral Positive Birla Sunlife Frontline Equity Fund
HDFC Top 200
ICICI Pru Focussed Equity Fund
Fidelity Equity
Reliance Regular Savings Equity
Midcaps Neutral Positive Sundarm Select Midcap Fund
IDFC Premier Equity
ICICI Prudential Discovery Fund
ELSS Positive Positve HDFC Tax Saver
ICICI Prudential Tax Plan
Fidelity Tax saver
Debt
Liquid Funds Positive HDFC Cash Mgmnt Saving Plan
Reliance Liquid Treasury Plan
Short Term Debt Funds Positive Positive HDFC High Interest Short Term Fund
Birla Sun Life Dynamic Bond Fund
ICICI Prudential Short term plan
Ultra Short Term Positve - Fortis Money Plus Fund
DWS Ultra Short Term Fund
ICICI Pru Flex. Income Premium
Income Funds Neutral Positive Fortis Flexi Debt
ICICI Prudential Income Fund
HDFC High Interest Fund
Gilts Funds Neutral Positive ICICI Pru Gilt Inv. PF Plan
Birla Sunlife Gilt Plus
MIP Positive Positive Birla Sun Life MIP II Savings- 5
Reliance Monthly Income Plan
HDFC MIP - LTP
Arbritage Neutral Neutral UTI SPREAD Fund
ICICI Prudential Eq. & Deriv. Fund Opt.
HDFC Arbritage
Outlook
Source: ICICIdirect.com Research
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ICICI Securities Limited
Pankaj Pandey Head Research [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,7th Floor, Akruti Centre Point,MIDC Main Road, Marol Naka,Andheri (East)
Mumbai 400 093
DisclaimerICICI Securities Ltd. - AMFI Regn. No.: ARN-0845. Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India. The
selection of the Mutual Funds for the purpose of including in the indicative portfolio does not in any way constitute any recommendation by ICICI Securities Limited (hereinafter
referred to as ICICI Securities) with respect to the prospects or performance of these Mutual Funds. The same should also not be considered as solicitation of offer to buy or
sell these securities/units. The investor has the discretion to buy all or any of the Mutual Fund units forming part of any of the indicative portfolios on icicidirect.com. Before
placing an order to buy the securities/units forming part of the indicative portfolio, the investor has the discretion to deselect any of the securities/units, which he does not wish
to buy. Nothing in the indicative portfolio constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate
to the investor's specific circumstances.
The details included in the indicative portfolio are 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. The securities included in the indicative portfolio may not be suitable for all investors, who must make their owninvestment decisions, based on their own investment objectives, financial positions and needs. This may not be taken in substitution for the exercise of independent
judgement by any investor. The investor should independently evaluate the investment risks. ICICI Securities and affiliates accept no liabilities for any loss or damage of any
kind arising out of the use of this indicative portfolio. Past performance is not necessarily a guide to future performance. Actual results may differ materially from those set forth
in projections. ICICI Securities may be holding all or any of the securities/units included in the indicative portfolio from time to time. Please note that Mutual Fund Investments
are subject to market risks, read the offer document carefully before investing for full understanding and detail. ICICI Securities Limited is not providing the service of Portfolio
Management Services (Discretionary or Non Discretionary) to its clients.
The 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 Limited. The contents of this mail are solely for
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