investment advisory group presentation march 2016€¦ · 5 research presentation – contents...
TRANSCRIPT
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Investment Advisory Group
Presentation
March 2016
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Aggressive Moderate Conservative
Direct Equity /Equity Funds 65% 50% 35%
Debt Funds 20% 40% 55%
Alternative Investments 10% 5% 5%
Gold 5% 5% 5%
Recommended Asset Allocation & Equity Funds Strategy
CY15 equity market returns were impacted by lower capex, muted topline and bottomline growth of the corporates. This along with weak global macro conditions led most of the global equity markets, especially emerging markets to underperform. We anticipate earnings turnaround to start showing up in FY17.
For CY15, the broader Indices were weak and the Mid and Small Cap indices outperformed. While the near term growth outlook seems to have been tempered down, the medium to long term outlook for India continues to be robust. We expect the economic growth to see pickup in H2FY16 and in FY17 on the back of improved government capex, turnaround in the corporate capex and rising urban consumption.
We expect strong returns from equities over the next 2-3 years, given the reasonable valuations and expected turnaround in the earnings; hence recommend an overweight stance on equities for investors across risk profile. Higher incremental growth rates of Indian economy compared to its Emerging Market peers and larger Developed Economies would continue to help liquidity flows into India.
Volatility in the equity markets has presented the investors with good opportunities to further invest with a higher focus on Large cap stocks with selective allocations to midcap and small cap stocks.
Investors should look at Large cap, Flexi cap and Balanced Funds for fresh investments. The investment strategy should be 75% lump sum and rest should be staggered over the next 2-3 months.
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Equity Market Strategy
The Global commodity prices are expected to consolidate after sharp decline over the past 12-18 months, which is likely to provide stability
to the risk assets.
China, being the second largest economy, has been in the forefront of being the key player leading this decline as its economy transitions
from being investment driven to being consumption driven.
US and Europe economic data points have been mixed recently, which has weighed down overall global growth.
Large exporting economies have seen weakness in growth and higher liquidity infusion which has led to devaluation of their currencies.
Currency devaluation as a theme has been playing out consistently over last many months, but its leading to a vicious cycle for countries to
stay competitive.
Though Indian equity markets have been impacted by the rout in the emerging markets, India‘s structural strength has made it a clear
outperformer.
India continues to be amongst the fastest growing economies in the world amidst weakness all around, which is likely to attract the attention
of global asset allocators once the emerging market volatility winds down
Sound Macro environment and the focus of he government to drive reforms and execution is likely to hold the markets in good stead.
The Union Budget focussed on improving the Rural growth stress and Public investments into infrastructure, while maintaining the fiscal
deficit target and guidance.
This has also opened up enough space for a general decline in the interest rates in the economy.
We believe that, with the revival in infrastructure creation activities, reduction in rural stress, removal of supply-side bottlenecks and decline
in interest rates, the urban demand could pickup and the rural economy could get a boost, pushing the corporate earnings higher in the next
2-5 quarters.
We expect the FII flows to be robust in CY16 as Indian economy could continue to outperform its emerging market peers. The key themes
in CY16 is expected to be Urbanisation, Government spending and Urban Consumption.
We think that large dips in the equity markets would continue to present the investors with good opportunities to further invest in equities
with a higher focus on large cap stocks, with a selective approach towards midcap and small cap names given the high valuation
differentials.
We recommend that equity investment strategy should be at 75% lumpsum and rest staggered over the next 2-3 months; as we
think that the markets are trading at reasonable valuations.
We recommend investment into RIL, ONGC, SBI, L&T, Bharti Airtel, Grasim, Tata Motors, M&M, Exide, TCS, Infosys, GSFC, ENIL, NTPC, Atul, Voltas and UPL from a 2-3 year perspective.
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Debt Mutual Fund Strategy
Income/Duration funds can be considered by aggressive investors for a horizon
of 24 months and above; though preference currently should be given to
dynamically managed funds.
Investment into Medium Term funds with an investment horizon of over 15
months can be considered by moderate and conservative investors.
Short Term Funds can be considered with an investment horizon of 12 months.
Investors looking to invest into higher accrual portfolio can consider investing
into HDFC Corporate Debt Opportunities Fund and HDFC Short Term Plan.
Investors can also look at 3-year FMPs as the short-term rates are attractive.
Investors looking to invest with a horizon of 1 to 3 months can consider liquid
funds, while ultra-short term funds can be considered for a horizon of 3 months
and above.
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Research Presentation – Contents
Mixed US economic data….. future rounds of rate hike could be gradual
Eurozone to come up with next round of easing
China continues to be under pressure due to transition from investment to consumption led economy and fall in the commodity prices
Post sharp correction, commodities expected to consolidate, once the inefficient players gradually move out
India has remained among the fastest growing economy, amidst modest global growth……..
…….As the key macro indicators continued to show strength of the Indian economy
Government continued to focus on reform agenda to spur the growth
Railway Budget – Pragmatic with higher focus on improving the execution and efficiency
Economic survey noted relatively stable conditions of the economy, growth to led by pickup in the investment cycle…….
Union Budget 2016-17 – Reflecting Government‘s commitment to boost investments in key sectors while sticking to the fiscal conso lidation path
The 10 major laws to be discussed in Parliament session
Going forward Urbanization, Consumption and Government spending to see pick-up
Expectations of good monsoon along with govt.‘s focus on agriculture… to help pickup in rural economy
Q3FY16 numbers showed negative surprise in Banks and Commodity companies, while other sectors reported steady results.
Low FII inflows have historically been followed up with strong market performance and higher FII flows in India… trend expected to continue..
Incremental shifting in India‘s savings from physical to financial assets seems underway
……despite the recent correction in the markets, the Valuation gap between Large Cap and Midcap Indices remain high
Markets are consolidating in a range, valuations reasonable
Equity Market Round Up – February 2016
Equity Market – Outlook and Stocks
Fixed Income
Inflation rises for 6th consecutive month on high food prices… still within RBI‘s comfort zone
Liquidity conditions remain tight…higher govt. balance with RBI maintained pressure
Union Budget 2016-17…fiscal prudence maintained & lowered net borrowings
Comfortable CAD and Forex Reserves adds support…
GDP Growth , led by Private consumption and Government spending…
Muted Credit Growth may create additional demand for G-secs
FIIs turn net sellers in February 2016… uncertainty in global financial markets lead to safe havens
10Y benchmark G-sec yield declined…low net govt. borrowings lifted the sentiments
Credit Spreads not attractive…Risk-Reward not in favour
10 Yr G-sec & Repo rate spread remains high…scope for the spreads to contract going forward
Key Risks
Fixed Income Outlook
Investment Strategy
Equity Mutual Funds
Recommended Equity Mutual Funds
Fixed Income Options
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Mixed US economic data….. future rounds of rate hike could be gradual
Source: US Commerce Department
US Gross domestic product (GDP) expanded at a moderate
1.0% annual rate from October to December 2015 (Q4CY15).
Softer consumer spending, weak exports and a moderate
build-up in business inventories were largely the causes of
slowdown for Q4CY15 GDP growth.
While imports rose by 1.1% YoY, exports fell by 2.5% YoY as a
strong dollar and weaker growth in many foreign countries
dented sales of American-supplied goods and services.
Inflation as measured by the PCE index slowed to a 0.1%
annual rate from 1.3% in Q3CY15 — well below the US Fed‘s
2% target.
On the positive side, home construction outlays jumped 8.1%
YoY, reflecting a pickup in building amid a steady rise in sales.
More people can afford to buy homes after the biggest surge in
hiring since the late 1990s.
The job market in the US continues to show improvement. The
latest initial jobless claims came in at 272,000 , marginally
better than the expectations of 270,000.
New orders for long-lasting U.S. manufactured goods in
January 2016 rose by the most in 10 months as demand
picked up broadly, offering a ray of hope for the downtrodden
manufacturing sector.
The US dollar continues to be stronger against most
currencies globally hurting the export growth.
With mixed economic data, weak global markets and
strong US dollar, the future rounds of rate hike in the
US is expected to be gradual and data driven.
Trend in growth for key factors in US GDP
Source: Bloomberg
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Eurozone to come up with next round of easing
Eurozone continues to remain under pressure with
consistent weak economic data points.
The Eurozone‘s Purchasing Managers‘ Index (PMI) fell to
52.7 in February 2016, from 53.6 in January 2016.
The inflation in the Eurozone continues to remain below
the European Central Bank‘s (ECB) target of ~2%.
Eurozone‘s January 2016 CPI was revised to 0.3% YoY
from 0.4% YoY forecast earlier and 0.2% YoY in
December 2015, forcing the ECB to slash its inflation
target.
In February 2016, the Economic Sentiment Indicator (ESI)
decreased significantly in both the Euro Area (by 1.3
points to 103.8) and the European Union (by 1.5 points to
105.2), marking its second consecutive decline in 2016.
While the macro economic data continues to be negative,
there has been some improvement on the job market with
unemployment rate reducing from 11.4% in December
2014 to 10.4% at the end of December 2015.
In order to revive the economic growth, the ECB
president Mario Draghi seems set to unveil a package
of measures to counter the threat posed by the
slowdown in emerging markets, financial market
turmoil and weak oil prices.
Euro area annual inflation and its main components
Source: Eurostat
Source: Eurostat
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China continues to be under pressure due to transition from investment
to consumption led economy and fall in the commodity prices
Chinese economy continues to witness weakness due to its
transition phase of economic transformation from export &
investment-led growth and manufacturing to consumption and
services.
The manufacturing activity in China shrank at its fastest rate in
four years in February 2016, indicating a fresh sign of sustained
weakness in the world's second-largest economy.
The official Purchasing Managers' Index (PMI) fell to 49.0 in
February 2016, from 49.4 in January 2016.
The Caixin/Markit purchasing managers' index also slipped to a
five-month low of 48.0 in February 2016 from 48.4 the previous
month.
The services activities fell to the weakest in seven years at 52.7 in
February 2016, from 53.5 in January 2016.
The weakness in the economy is clearly reflected in the volatility
in the financial, forex and commodity markets.
In order to stabilize the economy, financial and forex markets; the
Chinese authorities has been taking various economic measures.
Recently, PBOC has cut its reserve requirement ratio (RRR)
another 50 basis points to 17.0% for large banks. The PBOC
last cut the RRR on October 2015 and the latest move is the
fifth such cut since last February 2015.
China continues to face hindrances in pushing GDP and
inflation towards growth trajectory.
Source: World Bank
Production shares of key commodity groups
Impact of China’s growth slowdown on commodity prices
Source: World Bank
Trend in China’s manufacturing PMI
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Source: Bloomberg, *BBG stands for Bloomberg Index
Post sharp correction, commodities expected to consolidate, once the
inefficient players gradually move out
Globally, majority of the commodities have resetted to prices seen seven to twelve years ago, on the back of supply glut,
weak global demand environment and slowing Chinese economy.
As per United Nations food agency, the price of international food commodities were down by ~1.9% MoM in January 2016.
According to the latest data by the World Steel Association, world steel production dropped by 2.8% to 1,622.8 million tonnes in
2015.
Recently, Russia‘s Energy Minister Alexander Novak said that 15 nations, producing 73% of oil across the globe, support a
decision to stabilize oil production.
Amid uncertainty about Iran joining the league of oil producing nations to consider reducing oil production, oil prices rose by ~8%
during the month of February 2016 on the prospects of a deal between other major oil producing countries to curb one of the
biggest supply gluts in history.
While describing the sharp oil price drops at the end of 2015 and early 2016 as not fully warranted by fundamental drivers of oil
demand and supply, the World Bank anticipates a gradual recovery in oil prices over the course of the year (2016).
The commodities are likely to see consolidation as the prices are running the risk of going below marginal cost of production and
weaker players may shut the mines/capacities, resulting in fall in the supply.
However, for India, being the net importing country, lower and stable crude oil prices would be beneficial as it will help in
saving forex reserves and containing the twin deficit for the country.
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Trend in metal commodity
LME Aluminum LME Nickel BBG Industrial Metals LME Copper
Copper
Aluminum
Nickel
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Trend in agri commodity
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India has remained among the fastest growing economy, amidst modest
global growth……..
As per Economic Survey FY16, India showed significant improvement
in overall index of macroeconomic vulnerability.
Since 2013, India‘s index has improved by 5.3 percentage points
compared with 0.7 percentage point for China, 0.4 percentage point for all
countries in India‘s investment grade (BBB), and a deterioration of 1.9
percentage points in the case of Brazil.
As per the Central Statistics Office (CSO), the advance estimates of the
growth rate of GDP at constant market prices is projected to increase to
7.6% in FY16 from 7.2% in FY15.
The World Bank expects India's growth to pick up to 7.8% in the next
financial year, projecting it to be the fastest growing economy in the world
for the next three years by a distance, riding on stronger domestic policy
reforms.
In World Economic Forum 2016 Annual Meeting, India was ranked
22nd among the list of the world's best countries.
The International Monetary Fund (IMF) expects India to be the world‘s
fastest growing major economy, and also expressed optimism about its
future prospects.
IMF expects India's fiscal situation to improve steadily over the next five
years
IMF also lowered its global growth forecast by 0.2 percentage points to
3.4% in 2016, citing an uneven recovery as well as increasing downside
risks to the growth outlook for emerging market economies.
The IMF expects China to grow 6.3% in 2016 while the US is expected to
grow at 2.6%.
Amidst slowdown in global growth, most multilateral agencies
remained upbeat on India growth story by projecting the growth
forecast substantially higher than global growth averages.
Higher growth differentials compared to global average is expected to ensure healthy FII/ FDI flows in the country.
Source: IMF, For India , data and forecasts are presented on a fiscal year basis
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7.5
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6.9
7.3
Brazil
Russia
South Africa
Euro Zone
US
World Economy
China
India
IMF's GDP growth estimates
2015 2016 2017
Source: Economic Survey FY16 and IMF WEO, October 2015 and January 2016 update, Note: * BBB is the classification of countries as per Fitch ratings agency in which India falls.
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India’s fundamental strength is clearly visible due to following facts:
As per the CSO, India’s GDP growth at constant market prices is projected to
increase to 7.6% in FY16 from 7.2% in FY15, making it amongst the fastest
growing large economies in the world.
Twin deficit remains under check: The twin deficits – Fiscal Deficit as
percentage of GDP (at 3.9% for FY16E and 3.5% for FY17E) and Current
Account Deficit as percentage of GDP (projected at 1.4% of GDP in FY16E)
are well within the comfort zone.
Lower trade deficits: Being a net importing country, India has benefitted
significantly with fall in the international commodity prices. The trade deficit is at
multi year low.
With the Indian basket of crude oil price plummeting to an multi-year-low of
~$30 a barrel, the country is set to save over Rs.2 trillion on its oil import bill
alone in FY16, according to the oil ministry.
Lower inflationary scenario: The inflation continues to remain benign with
both, CPI and WPI closer to its historic lows. The latest CPI came in at 5.69%
YoY in January 2016 and WPI was negative at 0.9% YoY for January 2016.
Interest rates have enough scope to fall: With inflation at closer to historic
lows and budget deficit under control, the interest rates in the economy have
ample scope to glide down.
Credible reform process by the government: The government remains
focused in its reform process which is likely to revive the investment cycle in
the economy.
Forex reserves are at all time high: India‘s forex reserves increased to all
time high at ~$350 bn at the end of 19 February 2016 from ~$334 bn at the end
of same period last year.
Foreign Direct Investment in India increased by 40% YoY to
$29.44 bn ($21.04 bn) during April-December in the current fiscal.
Indian Rupee was amongst the top performing currencies in the emerging
market currency basket, with the devaluation of ~2.9% in past six months.
We think that all the above factors well differentiates India vis-a-vis other
emerging countries which is likely to support the economic growth.
Source: Bloomberg
Source: MOSPI
Source: RBI
…….As the key macro indicators continued to show strength of the
Indian economy
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Twin deficit under control
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19.5
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Argentina
SouthAfrica Currency
russian ruble
Brazil
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India
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Currency Devlaution against USD in past six months
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Forex Reserves (USD Bn)
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Government continued to focus on reform agenda to spur the growth
When the global economy has been struggling to stand against slower growth in developed nations and rout in emerging markets
due to lower commodity prices, the government of India focused on strengthening the economy with various reform
announcements targeting to improve both social and physical infrastructure in order to set structural drivers for long term
sustainable economic growth. Among all, following were the key reforms and announcements:
Make In India: with emphasis on Defence & Electronics manufacturing: Orders worth of Rs 2 trillion has been placed in last one year
Large infrastructure projects: Dedicated Freight corridors, River Linking project, Metros, the Smart Cities Mission, Atal Mission for
Rejuvenation and Urban Transformation (AMRUT) and Housing for All
Digital India: To spend over $15bn over 5 years – e-governance services across spectrum, in addition to complete urban digitization &
connecting 2.5 lac villages. The govt announced 22 new initiatives and broadening the scope of existing ones under the Digital India
programme include projects in the areas of digital infrastructure, digital empowerment, on-demand government services and promotion
of industry, to make more services accessible to the masses.
Agriculture reforms: Restructuring Food Corporation of India, Agriculture Produce Marketing Corporation reforms, Soil health cards,
Farmer insurance, proposal for National Irrigation scheme, Easing supply side bottle necks
Swatch Bharat: Over the next 5years, the government plans to invest nearly Rs 2 trillion to construct over 10 crore toilets across India.
A total of 318.3 mn toilets were built between April 2014 and January 2015 under this campaign, which is 25.4% of the target for 2014-
15.
Direct-Benefit-Transfer: To bring all social sector schemes under-fold ~800 mn Aadhar cards were issued so far. LPG transfer is
already underway.
Ease of doing business: Establishing NITI, single window clearances, online approval systems, e-tenders – leading to substantial
reduction in bureaucracy. To help bring in more foreign capital and increase job creation opportunities in the country, the govt
announced reforms in Foreign Direct Investment (FDI) across 15 sectors:
Indradhanush: PSU Banks revival plan
Gold Monetization: Aimed to attract tonnes of the precious metal from India households into the banking system.
UDAY (Ujwal DISCOM Assurance Yojana): For financial turnaround of Power Distribution Companies- to benefit the entire power
chain.
‘Rurban Mission’ for developing 300 villages as urban growth centres.
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The government banned duty- free import of capital goods for power generation and transmission projects under the Export
Promotion Capital Goods Scheme to push growth in domestic capital goods sector (2 Feb)
The government has disbursed Rs 200 bn crore on bank capitalization so far in this fiscal. (4 Feb)
As per Union Transport Minister Nitin Gadkari, the central government will contribute Rs 1 trillion in next two years for road
development in Karnataka. (4 Feb)
The Public Private Project Appraisal Committee (PPPAC) and the Empowered Committee in the Finance Ministry have cleared six
roads and one port sector project with estimated cost of ~Rs.97 bn. (4 Feb)
The government is in the process of setting up a $1.25 bn fund, backed by state-owned and private institutions, to finance renewable
energy projects. (5 Feb)
The Ministry of Coal has approved a proposal to grant a short-term coal linkage to central and state public sector units that have been
allotted Schedule III mines. (10 Feb)
India and the United Arab Emirates (UAE) signed a clutch of pacts to boost their strategic and economic ties, including one on
concluding a mechanism to allow UAE institutional investors to put money into India‘s cash-starved infrastructure and another for rupee-
dirham currency swaps. (12 Feb)
Five multi-modal logistic parks including one on the river front at Varanasi at an estimated cost of Rs.50 bn would be set up along the
Dedicated Freight Corridor (DFC) spanning across the country to facilitate seamless movement of goods. (17 Feb)
Private sector manufacturers have an opportunity to pick up a 25% share of defence production, said A.K. Gupta, secretary,
department of defence production, ministry of defence. (17 Feb)
The ministry of new and renewable energy (MNRE) has come out with fresh guidelines that allow state governments to use
unproductive and non-agricultural land for the purpose, and emphasize minimum use of private land. (17 Feb)
The cabinet gave ex-post facto approval for memorandum of understanding (MoU) signed between India and 13 countries
including Israel and Syria for cooperation in the field of agriculture and allied sectors. (18 Feb)
Cabinet approved the construction of six rail lines and a railway bridge at an estimated cost of Rs 107 bn to cater to increased
passenger and freight needs. (18 Feb)
NHAI plans to add around 50,000 km of road network in five to six years involving an investment of Rs 17 trillion. (18 Feb)
Prime Minister Narendra Modi launched the ambitious ‘Rurban Mission’ for developing 300 villages across the country as urban
growth centres. (22 Feb)
Bihar has become the sixth state to join the central government‘s financial revival scheme UDAY for electricity distribution utilities which
will give the state a benefit of Rs 90 bn over the next three years. (23 Feb)
The Government strongly augmented its reform announcements which indicates that the government is well focused on reviving
the investment climate, improving ease of doing business in the economy and thereby pushing economic growth.
……reform announcements and execution continued (for the month of
Feb 2016)
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Railway Budget – Pragmatic with higher focus on improving the
execution and efficiency
With overall pragmatic approach, the Railway Budget FY17 was an
extension of the ambitious five year development plan charted out
last year.
The railway budget projects operating ratio at 92% for FY17
compared to 90% in FY16, despite the impact of 7th Pay
Commission.
For FY16, the railways reported a total savings of Rs.87.20 bn,
neutralizing most of the revenue shortfall.
The railway budget assumes a gross traffic receipts revenue of
Rs.1.85 trillion which is a growth of 10.1% from the FY16RE.
The planned Capex for FY17 was pegged at Rs.1.21 trillion, up by
21% YoY. The implementation would be done through joint
ventures with states, developing new frameworks for Public Private
Partnership, etc.
Capex of Rs.8.56 trillion over the next five years has been
reiterated in the budget
Dedicated Freight Corridor contracts worth Rs.240 bn have been
awarded against Rs.130 bn worth of contracts in the past six years.
It has also proposed three more corridors to be funded under the
PPP (public-private partnership) model.
The ministry proposes to augment resources through station
redevelopment and monetising land along tracks, amongst others.
Budget indicated increased focus on project execution. It
announced commissioning Broad Gauge lines at over 7 kms per
day against an average of about 4.3 kms per day in the last 6
years.
Source: Indian Railways
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15
Economic survey noted relatively stable conditions of the economy,
growth to led by pickup in the investment cycle…….
As per Economic Survey 2016, India stands out as a haven of stability
and an country of opportunity. The task now is to sustain them in an
even more difficult global environment.
The GDP growth for FY16 has been estimated in the range of
7-7.5% YoY. However, economic survey emphasized that the country‘s
long run potential growth rate is around 8-10% YoY.
Survey indicates that fiscal consolidation continues to be vital, and will
need to maintain credibility and reduce debt, in an uncertain global
environment, while sustaining growth.
On the government‘s ―reform-to-transform‖ agenda, a series of
measures, each incremental but collectively meaningful have been
enacted during the year.
However, there have also been some disappointments—especially the
Goods and Services Tax—which need to be retrieved going forward.
During the year, the inflation remained around 5.5% YoY, while
measures of underlying trends—core inflation, rural wage growth and
minimum support price increases—have similarly remained muted.
Pick up in the consumption is likely to be a major driver of overall GDP
growth for FY17.
The benign outlook for inflation, widening output gaps, the uncertainty
about the growth outlook and the over-indebtedness of the corporate
sector all imply for a room for easing the system.
Government’s initiatives including the new bankruptcy law,
rehabilitation of stalled projects, proposed changes to the
Prevention of Corruption Act as well as the broader JAM agenda
hold the promise of facilitating exit, and providing a significant
boost to long-run efficiency and growth. Source: Economic Survey 2016
Source: Economic Survey 2016
______________________________________________________________________
16
Union Budget 2016-17 – Reflecting Government’s commitment to boost
investments in key sectors while sticking to the fiscal consolidation path The Union Budget FY17 reflects Government’s firm commitment to substantially boost investment in Agriculture, Social Sector,
Infrastructure and Employment generation on the one hand and simultaneously sticking to the fiscal consolidation path.
The key pillars for the current year‘s budget were Agriculture and Farmers‘ Welfare, Rural Sector: with emphasis on rural employment
and infrastructure, social sector including Healthcare, Education, Skills and Job creation, Infrastructure and Investment,
Financial Sector Reforms, Governance and Ease of Doing Business, Fiscal Discipline and Tax Reforms.
The total fiscal deficit was pegged at Rs.5.33 trillion or 3.5% of the GDP in FY17 as against 3.9% in FY16. Most of the major
estimates on the Expenditure, Revenue receipts and Capital receipts looked credible.
The government set revenue target of Rs.565 bn from sale of securities/disinvestment and of Rs.990 bn from Spectrum sale and further
targets to manage the current subsidy burden at Rs.2.50 trillion (which has improved from Rs.2.57 trillion FY16RE, largely due to decline
in oil prices and lower fuel subsidy).
Focus on rural employment generation by increasing allocation to schemes like Pradhan Mantri Gram Sadak Yojana and MGNREGA.
The government stated that it is looking to double the farmer’s income in the next five years.
The budgetary allocation to the ministry of Agriculture and Farmers welfare rose by 93.8% YoY to Rs.444.85 bn.
The government allocated Rs.877 bn for rural sector. It also stated that Rs.2.87 trillion will be given as Grant in Aid to Gram
Panchayats and Municipalities as per the recommendations of the 14th Finance Commission.
The budget has provided Rs.18 bn for skill development (73% higher on a YoY basis)
The total outlay for infrastructure creation in the budget was to the tune of Rs.2.21 trillion.
Total investment in the road sector, including PMGSY allocation, would be Rs.970 bn during FY17.
The budget allocated Rs.250 bn towards PSU bank recapitalization.
The overall plan expenditure for FY17 was projected to grow by 15.3% YoY to Rs.5.5 trillion.
The budget also provided for a one time window of opportunity for domestic taxpayers to come forth and declare undisclosed income
after paying a total of 45% (tax+surcharge+penalty) and get immunity from any further prosecution.
Amendments in the SARFAESI Act 2002 to enable the sponsor of an Asset Reconstruction Companies to hold up to 100% stake in the
ARC and permit non institutional investors to invest in Securitization Receipts.
The budget was largely a continuation of the process which started last year. It continued to envision improvement in the human
development index by bringing in new initiatives in the social sector. Policies for fostering entrepreneurship, innovation and poverty
alleviation were continued to be focused upon. Also all the big agenda of the government on Make in India, Digital India, Water,
Housing for all, 24x7 power, Ease of Doing Business and Policy transparency found place in the budget.
______________________________________________________________________
17
Positive for Infrastructure, Cement & Capital goods, neutral for IT &
Telecom
Sector Impact Companies Impacted
Positive Negative
Automobile Mixed Ashok Leyland, Tata Motors, Hero Motocorp,
Bajaj Auto M&M, Maruti
Capital Goods Positive
Suzlon Wind Energy, Inox Wind, L&T, Bharat
Electronics, BEML and
Astra Microwave
Cement Positive Ultratech Cement, Sanghi Industries
Consumer Goods Mixed ITC, HUL, Dabur, Jyothy Labs,
Cox and Kings, PVR
Titan, PC Jeweller, Shoppers
Stop, Aditya Birla Fashion and
Retail
Fertilizer & Agrochemicals Positive UPL, GSFC
Infrastructure Positive L&T, Voltas, IRB infra, IL&FS Transportation,
VA Tech Wabag
IT/E-commerce/ Start-ups Neutral
Oil & Gas Mixed RIL, BPCL, HPCL and IOCL ONGC and OIL
Power Neutral
Telecom Neutral
______________________________________________________________________
18
Legislation to give statutory status to AADHAAR
IMPACT: Aadhaar virtually becomes the social security number
Model Shop & Establishment Bill
IMPACT: Allow small shops and establishments to remain open all seven days in a week
Public Utility (resolution of disputes) Bill
IMPACT: The proposed Bill, along with the guidelines for re-negotiation of PPP contracts, and the bankruptcy
code, would help speed up resolution of disputes in construction contracts, PPPs, and public utility contracts
A Comprehensive Code For Resolution Of Bankruptcy Situations in Financial Sector Entities
IMPACT: Will work in tandem with the Insolvency and Bankruptcy Code, 2015, when enacted, to deal with
bankruptcy situations in banks, insurance companies, and other financial sector entities
A Bill to deal with illicit deposit raising schemes
IMPACT: To curb illicit deposit taking schemes that mostly affect the poor and the financially illiterate
Amend the SARFAESI Act, 2002
IMPACT: To give more say to lenders, allows non-institutional investors to invest in securitisation receipts
Amend the RBI Act, 1934, to provide statutory basis for the monetary policy framework
IMPACT: Enable setting up of a Monetary Policy Committee
Amend the SEBI Act to increase number of benches in the securities appellate tribunal
IMPACT: The proposed move will help expedite cases related to the securities markets
Amend the Companies Act for Ease Of Doing Business
IMPACT: Will make registration of a company in one day a reality
Amend the Motor Vehicles Act to end government monopoly in state transportation
IMPACT: This proposal will open up the public transportation sector to private players.
The 10 major laws to be discussed in Parliament session
______________________________________________________________________
19
Going forward Urbanization, Consumption and Government spending to
see pick-up
The Consumer sentiments in the Urban India continue to witness signs of
rising demand.
India was one of the fastest-growing retail e-commerce markets in the world
in 2015, growing 129.5% year over year to $14.0 billion in 2015 from $6.10
billion in 2014, according to research firm eMarketer Inc. That represented
only 1.7% of India‘s $818.33 billion retail market, according to eMarketer
data.
As per ICRA, retail credit of NBFCs is expected to grow 16-18% in the
current fiscal on the back of rising demand in the new commercial vehicle
segment and also given the general pick-up in business environment.
India will need 110 mn new houses by 2022, consultant KPMG forecasts, as
it tries to fulfil Prime Minister Narendra Modi's ambitious plan of providing
housing for all.
As per RBI data, housing loans during Apr‘15-Jan‘16 grew by 18.4% YoY as
compared to 17.1% YoY growth in same period last year.
Prime Minister Narendra Modi launched the ambitious ‗Rurban Mission‘ for
developing 300 villages across the country as urban growth centres.
Government‘s focus on creating smart cities and improving connectivity is
likely to see higher movement from Rural to Urban centres.
Government has committed Rs.4 trillion to states under AMRUT, Smart City
Mission and for construction of 20 mn houses for urban poor under Prime
Minister‘s Awas Yojana (Urban).
Government‘s plan capital expenditure in the Apr'15-Jan‘16 period rose by
55.6% YoY as compared to the same period last year.
Going ahead, government’s key implementation like hike in Minimum
Support Prices (MSP), One Rank, One Pension (OROP), 7th Pay Commission
and general fall in the commodity prices are likely to push consumption in
general which is likely to push the economic growth in the medium to long
term.
Source: Media reports
Source: Mid Year Economic review FY16
Capital Expenditure by Government in 8MFY16
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
25-A
pr-08
29-A
ug-08
19-D
ec-08
24-A
pr-09
28-A
ug-09
18-D
ec-09
23-A
pr-10
27-A
ug-10
31-D
ec-10
22-A
pr-11
26-A
ug-11
30-D
ec-11
20-A
pr-12
24-A
ug-12
28-D
ec-12
19-A
pr-13
23-A
ug-13
27-D
ec-13
18-A
pr-14
22-A
ug-14
26-D
ec-14
17-A
pr-15
21-A
ug-15
25-D
ec-15
% Growth in Personal and Housing loan (YoY)
Personal Loans Housing (Including Priority Sector Housing)
Source: RBI
______________________________________________________________________
20
Expectations of good monsoon along with govt.’s focus on agriculture…
to help pickup in rural economy
India‘s agricultural production affected consecutively for last two years,
largely on the back of strong El Niño effect.
The 2015 El Niño has been the strongest since 1997, depressing
production over the past year
However, there are expectations that the current weather phenomenon
will swiftly transform into a La Nina — which tends to bring rainfall in
Southeast Asia and Australia.
Global forecasters such as the Japan Agency for Marine-Earth Science
and Technology said there was a probability of La Nina developing in
2016.
According to National Oceanic and Atmospheric Administration, US, the
chance of El Niño gradually decreases into the spring and ENSO-
neutral is favored by May-June-July 2016. The chance of La Niña
increases to 50% in September-October-November 2016.
Further, the European Centre for Medium Range Weather Forecasts
said that a rapid weakening in the ENSO regions was taking place and
this could transition to neutral or La Nina, building in expectations of
good monsoon in 2016.
As per the Australian Bureau of Meteorology, a model on the past 26 El
Nino events since 1900 suggests that around 50% have been followed
by a neutral year, and 40% have been followed by La Nina.
In addition to this, the Government of India has increased the Minimum
Support Prices (MSP) of Rabi crop at an average of 6.8% YoY.
Good monsoon rain in India along with the steady hike in MSPs is likely
to help in improving farm incomes and pick up in rural economy.
It could come as a welcome boost for the economy as it is likely to
push the sales of discretionary and non discretionary products
and services in rural areas. In addition, it could ease the
government’s burden of spending on welfare schemes to drive the
growth and improve standard of living in rural areas.
Source: National Oceanic and Atmospheric Administration, US
6.9
4.5
7.2 7.0
21.2
13.1
3.72.0
6.8
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Average hike in MSP of rabi crop (%, yoy)
Source: Govt of India, Media Reports
Source: Economic Survey FY16
______________________________________________________________________
21
Q3FY16 numbers showed negative surprise in Banks and Commodity
companies, while other sectors reported steady results.
Note: S&P BSE Sensex excluding banks and Finance, Source: Capitaline
Q3FY16 earnings have seen negative surprise in the Banking and Commodity led companies.
The Asset quality review by the RBI and the declining commodity prices weighed down on the results of banking and commodity companies respectively.
Most of the other companies reported earnings in line with expectations.
The aggregate sales of the S&P BSE Sensex companies (ex Financials) fell by 3.7% YoY in Q3FY16 due to weak demand and low pricing power owing to lower
commodity prices. However, better than the de-growth seen in the previous two quarters.
Lower input cost continued to help the companies in expanding their EBITDA margins which led to steady performance in bottom-line.
Going forward, Q4FY16 and FY17 is poised for improved earnings, driven by pick up in the government spending, improvement in the general demand scenario
and a low base effect.
Co_Name Sector Q1FY16 Q2FY16 Q3FY16 Q1FY16 Q2FY16 Q3FY16 Q1FY16 Q2FY16 Q3FY16
Hero Motocorp Automobile -2.0 -1.7 5.6 10.6 15.9 38.7 33.3 1.1 36.5
M & M Automobile -3.0 -1.8 17.1 -1.3 1.7 25.0 -3.4 -2.4 -14.2
Tata Motors Automobile -6.2 1.1 3.7 -19.3 -55.8 -8.2 -48.7 -113.1 -2.0
Maruti Suzuki Automobile 18.1 13.2 20.4 57.9 48.1 34.0 56.5 42.1 27.1
Bajaj Auto Automobile 7.2 2.6 -1.0 23.2 67.5 -4.5 37.1 57.9 4.7
B H E L Capital Goods -15.5 -3.2 -14.0 -196.1 -262.6 -657.8 -82.5 -264.1 -618.3
O N G C Oil & Gas 4.4 1.0 -1.7 19.4 -2.8 -43.2 14.2 -11.1 -64.0
Hind. Unilever FMCG 5.3 4.7 3.2 14.4 5.0 -0.5 0.2 -2.6 -22.4
GAIL (India) Gas Dist -6.1 0.2 -10.4 -0.1 -58.2 17.3 -31.7 -66.2 10.0
Larsen & Toubro Infrastructure 6.7 9.5 7.6 -8.8 11.0 -8.2 -37.3 15.6 19.4
Adani Ports Infrastructure 39.9 27.3 3.1 39.4 14.8 14.6 12.8 16.4 25.9
Wipro IT - Software 10.0 6.4 7.2 2.9 6.4 -0.2 4.0 7.2 1.9
Infosys IT - Software 12.4 17.2 15.3 7.3 14.6 7.3 5.0 9.8 6.6
TCS IT - Software 16.1 14.1 11.7 13.3 14.6 9.5 2.6 16.0 14.2
Coal India Mining 6.5 8.2 6.8 2.8 17.7 20.2 -6.7 16.0 14.0
Asian Paints Paints/Varnish 7.6 4.0 13.9 29.9 15.2 27.9 34.4 14.9 25.8
Cipla Pharmaceuticals 42.7 27.8 15.3 91.8 41.4 -18.1 120.9 44.4 4.7
Dr Reddy's Labs Pharmaceuticals 6.8 11.2 3.2 20.6 44.2 8.3 13.7 25.7 0.8
Lupin Pharmaceuticals -6.4 2.0 6.8 -26.7 -19.3 -0.7 -16.0 -35.1 -11.9
Sun Pharma.Inds. Pharmaceuticals 3.4 -14.7 2.3 -31.5 -36.9 0.2 -60.2 -46.0 258.3
NTPC Power -5.9 6.9 -7.6 -2.7 23.3 -0.9 -3.0 39.9 -18.9
Reliance Inds. Refineries -26.3 -35.4 -27.0 13.2 -18.1 30.8 4.4 12.5 38.7
Tata Steel Steel -17.3 -18.1 -16.5 2.9 -302.1 -97.9 126.2 21.9 -1454.0
Bharti Airtel Telecomm 3.1 4.3 3.7 9.4 9.6 8.2 40.2 10.1 -22.2
ITC FMCG -7.2 -1.4 3.4 3.3 2.0 4.1 3.6 0.3 0.7
Total (ex Financial) -6.0 -6.9 -3.7 4.8 -19.6 -3.2 -1.6 -4.0 -4.4
Total -2.9 -3.8 -1.7 9.3 -5.7 2.5 1.6 0.5 -6.4
EBITDA PATYoY Growth (%) Net Sales
______________________________________________________________________
36
305390
472365
715
-530
834
1333
-27
12841131
971
189
-1000
-500
0
500
1000
1500
CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15
Yearly trend in FPI/FII Net Investments (Rs in bn)
22
Low FII inflows have historically been followed up with strong market
performance and higher FII flows in India… trend expected to continue..
Source: Bloomberg, NSDL
The historical performance of S&P BSE Sensex over the last 15 years indicates strong returns were seen post the year(s) of correction.
It can also be observed that in the past the longer the period of correction, faster the recovery process has happened and returns were
also stronger during the period of recovery.
Negative/low FII inflows have generally been followed up by higher flows in the subsequent years (as seen in last 13 years data)
FII flows are expected to come back in India in 2016 due to strong macro economic factors, upbeat multilateral agencies that expects
India GDP to outperform and the government‘s focus on reform announcement to drive the economic growth higher.
64
-21 -18
4
73
13
42 47 47
-52
81
17
-25
26
9
30
-5
CY
19
99
CY
20
00
CY
20
01
CY
20
02
CY
20
03
CY
20
04
CY
20
05
CY
20
06
CY
20
07
CY
20
08
CY
20
09
CY
20
10
CY
20
11
CY
20
12
CY
20
13
CY
20
14
CY
20
15
Historical returns on S&P BSE Sensex (%)
Low/Negative FII flow
Low/Negative FII flow
Low/Negative FII flow
Low/Negative FII flow
______________________________________________________________________
23
Incremental shifting in India’s savings from physical to financial assets
seems underway
Source: Axis Mutual Fund
According to Reserve Bank of India, India‘s Household financial savings
stood at 7.5% of India's national income in FY15, up from 7.3% in FY14.
As per RBI, people have been putting more of their money in financial
assets like deposits, equity stocks, insurance, mutual funds and pension
funds, while investing less in gold and real estate in the past few years.
This has been largely possible because returns from financial assets
have become attractive with a moderation in inflation as well as a pick-
up in economic activity.
A slowdown in inflation resulted in higher disposable income for
Household savings.
Assets managed by the Indian mutual fund (MF) industry has grown
from Rs 11.63 trillion (tn) in January 2015 to Rs 13.54 tn in January
2016, a 16% YoY growth.
During the period of Jul‘14 to Jan‘16, MF inflows stood at Rs.1.35 tn
which is much higher than cumulative inflows of Rs.950 bn received
during Sep'04-Jun'14.
The surge in savings flows towards equity and deposits indicates
a gradual shift in the nature of Indian household savings from
physical assets to financial assets which augurs well for the
equity/bond markets.
Scope for domestic household savings to move into equities
Source: SEBI, AMFI, Bloomberg
Source: Axis Mutual Fund
0.6 0.6
1.5
0.7
1.6
0.7
1.5
1.3
0.20
0.89
0.64
0.990.87
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Feb-
15
Mar
-15
Apr-1
5
May
-15
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec
-15
Jan-
16
Feb-
16
USD
Bn
DII Flows
-100
-50
0
50
100
150
Apr
-04
Sep
-04
Feb
-05
Jul-0
5
Dec
-05
May
-06
Oct
-06
Mar
-07
Aug
-07
Jan-
08
Jun-
08
Nov
-08
Apr
-09
Sep
-09
Feb
-10
Jul-1
0
Dec
-10
May
-11
Oct
-11
Mar
-12
Aug
-12
Jan-
13
Jun-
13
Nov
-13
Apr
-14
Sep
-14
Feb
-15
Jul-1
5
Dec
-15
Net equity flows in MFs (Rs. bn)
Cumulative MF inflows in equity during Sep'04-Jun'14 = Rs. 950bn(MFs got more money in last 17 months than in previous 10 years)
Rs 1.35tn
______________________________________________________________________
24
……despite the recent correction in the markets, the Valuation gap
between Large Cap and Midcap Indices remain high
Source: Bloomberg, Reliance AMC
18.0 18.1
22.5
8.4
16.116.7
11.8
16.6
14.4
25.0
26.3
19.120.8
22.1
11.4
24.1
20.4
14.8
16.7 16.719.4 19.8
5.0
10.0
15.0
20.0
25.0
30.0
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
Trailing P/E S&P BSE Midcap Trailing P/E S&P BSE Sensex
Feb-16
24.6
18.7
______________________________________________________________________
25
Over a longer term, India equity markets have climbed many walls of
worries and delivered strong returns
Source: Capitaline, Note: Nifty50 Return, *CY2016 is up to February
Over the past 12 years, actual returns were higher than
intra year decline in Nifty50.
Over the last 12 calendar years, Nifty50 has given
positive return in 8 years.
This indicates that corrections should be taken as an
opportunity to invest.
Also, the above chart shows, equity markets have
generally been able to deliver steady returns over the
long term, irrespective of the magnitude of any near
term event.
Source: Reliance AMC
-9 -9
-10
-63
-14 -10
-27
-1
-14 -6 -9
-14
36 40
55
-52
76
18
-25
27
6
30
-4-12
-80
-60
-40
-20
0
20
40
60
80
100
CY20
05
CY20
06
CY20
07
CY20
08
CY20
09
CY20
10
CY20
11
CY20
12
CY20
13
CY20
14
CY20
15
CY20
16*
Intra year Decline in the year (%) Actual Return (%)
0
5000
10000
15000
20000
25000
30000
35000
July 1999,Kargil War
Mar 2000Tech-bubble
Dec 2007Historic high
of 20,000
Sep 2008Lehman Bros
collapse
Eurozone Crisis
FedTapering
GreeceDefault
China Concern
US Fed Hike
S&P BSE Sensex
______________________________________________________________________
26
Markets are consolidating in a range, valuations reasonable
While there has been downward revision for S&P BSE
Sensex earnings. At current level, the market is at reasonable
valuation. S&P BSE Sensex is trading at 17.5x FY16E revised
consensus EPS of Rs.1400 and 14.9x FY17E revised
consensus EPS of Rs.1650 and 12.6x FY18E consensus EPS
of Rs.1950. (S&P BSE Sensex price as on 03.03.2016).
The downgrades on the S&P BSE Sensex continued post
Q3FY16 earnings. Its expected that the downgrade cycle is
likely reverse from FY17 onwards on the back of improved
economic activity due to reforms and spending by the
government and incremental FDI into various sectors.
Volatility in the equity markets should be used by investors
as an opportunity to adding into their exposure in line with
their risk profile with a 2-3 years investment horizon. Source: Bloomberg
Source: Bloomberg S&P BSE Sensex Consensus EPS (Rs.)
11561172
1309 1349 1400
1650
1950
0
500
1000
1500
2000
2500
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Val
ues
in R
s
______________________________________________________________________
27
Decline in commodity prices could put pressure on the global financial
markets
Delay in turnaround in corporate profitability may hit the sentiment.
Any major geopolitical issues may lead to volatility in the markets.
A faster pace of interest rate hikes in US may lead to tightening of global
liquidity and volatility in the equity markets.
China remain a key monitorable as it is expected to remain in transition and
sharp decline in Chinese economic growth can have impact on global
commodity exporting economies..
Sharp slowdown in global growth which are leading to disinflationary
pressure on some of the large developed economies.
Key Risks
______________________________________________________________________
28
Equity Market Round Up – February 2016
Indices 29 Feb 2016 29 Jan 2016 Chg %
S&P BSE Sensex 23,002 24,871 (7.5)
S&P BSE Mid Cap 9,575 10,417 (8.1)
S&P BSE Small Cap 9,548 10,870 (12.2)
S&P BSE 100 7,075 7,652 (7.5)
S&P BSE 500 9,206 10,014 (8.1)
FIIs data
(Rs. Bn)
Gross
Purchases Gross Sales Net
CY16 1,439 1,606 (166)
CY15 11,655 11,467 188
CY14 10,227 9,256 970
CY13 7,968 6,837 1,131
Source: BSE, SEBI (as on 29 February 2016)
During the month of February 2016, the S&P BSE Sensex
was volatile and ended on a negative note, declining by 7.5%
MoM.
The S&P BSE Midcap index and the S&P BSE Smallcap
index also closed on a negative note with loss of 8.1% MoM
and 12.2% MoM, respectively
Among the sectoral indices, the S&P BSE Metal index and
S&P BSE FMCG index, the top performers by declining the
least among the lot, fell by 2.0% MoM and 4.4% MoM,
respectively. The top two underperformers were the
S&P BSE Power index and the S&P BSE Infra index which
fell by 13.9% MoM and 13.4% MoM, respectively.
For February 2016, FIIs were net sellers to the tune of
~Rs.55 bn while DIIs were net buyers to the tune of
~Rs.49 bn.
Source: Bloomberg
12500
15000
17500
20000
22500
25000
27500
30000
Mar
-13
Aug
-13
Dec
-13
Apr
-14
Sep
-14
Jan-
15
May
-15
Sep
-15
Feb
-16
S&
P B
SE
Sen
sex
Leve
ls
BSE Sensex Price Earning (PE) 1 year forward
16x
18x
14x
12x
______________________________________________________________________
29
Equity Market – Outlook Globally, US has been reporting mixed economic data with moderate Q4CY15 GDP and consistent improvement in the job market. Hence, the future round of interest
rate hike could be gradual and data driven.
Eurozone continues to remain under pressure due to weak economic growth with deteriorating manufacturing sector performance and fall in the crude oil prices.
Chinese economy continues to witness weakness due to its transition phase of economic transformation from export & investment-led growth and manufacturing to
consumption and services.
Hence, countries across the world are making the efforts for reviving the economic growth by announcing incremental stimulus packages.
Commodity prices are expected to consolidate after a very sharp decline in the previous year. Inflation is expected to remain benign, though there is expectation of
recovery in the pricing power for corporates.
Amidst modest global growth, India remained among the fastest growing economy with multilateral agencies remaining upbeat on India growth story by keeping the
growth forecast substantially higher than global growth averages.
The Union Budget FY17 reflects Government‘s firm commitment to substantially boost investment in Agriculture, Social Sector, Infrastructure and Employment
generation on the one hand and simultaneously sticking to the fiscal consolidation path.
The total fiscal deficit was pegged at Rs.5.33 trillion or 3.5% of the GDP in FY17 as against 3.9% in FY16. Most of the major estimates on the Expenditure, Revenue
receipts and Capital receipts looked credible.
The Railway budget FY17 was pragmatic with focus on improving the operating efficiency. It also extended its ambitious five year development plan charted out last
year.
India‘s key structural macro drivers like strong GDP growth, twin deficits under control, favourable commodity cycle, benign inflation, high scope to reduce the interest
rate, government‘s focus in its reform process and forex reserves being at all-time high, well differentiates India vis-a-vis other emerging countries which are likely to
support the economic growth.
We believe that, with the revival in infrastructure creation activities, removal of supply-side bottlenecks and decline in interest rates, the urban demand could pickup and
the rural economy could get a boost, pushing the corporate earnings higher in the next 2-5 quarters.
The expectations of normal monsoon, along with government‘s focus on the rural India is expected to improve the rural consumption.
Q3FY16 numbers showed negative surprise in Banks and Commodity companies, while other sectors reported steady results. Going forward, FY17 is poised for
improved earnings, driven by pick up in the government spending, improvement in the general demand scenario and a low base effect.
We believe that, with the revival in infrastructure creation activities, removal of supply-side bottlenecks and decline in interest rates, the urban demand could pickup and
the rural economy could get a boost, pushing the corporate earnings higher in the next 2-5 quarters.
We expect the FII flows to be robust in CY16 as Indian economy could continue to outperform its emerging market peers. The key themes in CY16 is expected to be
Urbanization, Government spending and Urban Consumption.
Volatility in the equity markets should be used by investors as an opportunity to adding into their exposure in line with their risk profile with a 2-3 years investment
horizon.
We recommend that equity investment strategy should be at 75% lumpsum and rest staggered over the next 2-3 months; as we think that the markets are
trading at reasonable valuations. We recommend investment into RIL, ONGC, SBI, L&T, Bharti Airtel, Grasim, Tata Motors, M&M, Exide, TCS, Infosys, GSFC, ENIL,
NTPC, Atul, Voltas and UPL from a 2-3 year perspective.
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Recommended Stocks Reliance Industries: RIL continues to be on track to improve the profitability with GRM in Q3FY16 at a seven year high. The company‘s capex
in the core business is expected to help the company to reverse trend of stagnant earnings witnessed in the last three years. RIL continues to
make progress on commissioning the USD 17 bn downstream projects which is expected to be completed by FY17. The large investment in
telecom venture and muted outlook in the both US shale and domestic gas remains a key monitorable. We continue to recommend a Buy on the
stock with a price target of Rs.1196 at 13x (maintained the previous multiple) FY17E EPS of Rs 92.
M&M: M&M continues to be a leader in the domestic Tractor and UV industry with 42.7% and 38.6% market share, respectively. While the
domestic tractor industry saw a minor growth in Q3FY16, the management believes full recovery is likely in FY17 based on lower base effect
and expectations of good monsoon. With series of launches during the year, M&M has filled the gap in its product portfolio in UV segment and is
now focusing on boosting the volumes to drive the growth. We believe M&M has geared up itself to take on the competition and to grab the
opportunity arising from expected recovery in auto industry with series of new launches done in FY16. We remain positive on the stock on the
back of new product launches which is likely to drive revenue growth for the company and based on good return ratios of over 20%. We
continue to recommend a Buy on the stock with the target price of Rs.1535 at 16x (maintaining earlier multiple) FY17E EPS of Rs.74.4 adding
Rs.344 as value of subsidiaries at 30% holding company discount.
Tata Motors: We are positive on the stock on the back of well diversified global presence, expected new launches in both domestic and JLR
business, recovery in domestic CV industry, long term structural drivers and on good return ratios of over 20%. We recommend a BUY on the
stock with target price of Rs.569 based on the SOTP valuation (JLR (Rs.512/share) + Standalone business (Rs.47/Share) + other subsidiaries
(Rs.30/Share) - net automotive debt (Rs.20/Share)).
Bharti Airtel: Bharti Airtel‘s strategy to acquire spectrum in the 900mhz, 2100mhz and 2300mhz has allowed it to have presence across
regions and spectrum bands. Thus, it helps the company to create scale to improve customer service and ward of incremental competition. We
think that the telecom sector in India has turned the corner with the recent spectrum auctions paving way for companies to get required
spectrum for the next 20 years. With strong Data adoption, increasing 3G penetration and launch of 4G services the Bharti seems to be on a
strong wicket and is best positioned to counter any challenge which could be posed by the launch of Reliance JIO. We think that Bharti with its
strong brand positioning and superior network coverage and large customer base would benefit from this in the medium to longer term. The
company has been trying to improve its operating performance in Africa which is starting to show up and is likely to sustain in the forthcoming
quarters. We remain positive on the medium to long term potential of the India business and recommend a Buy rating on the stock and
continue with a price target of Rs.453 at 20x FY17E (maintaining previous multiple) EPS of Rs.20.67, adding Rs.40/hare of the value of its
telecom tower JV.
Larsen & Toubro: L&T is India's largest Engineering & Construction Company. Apart from core construction activity, L&T has made significant
presence into a diverse range of products and services through its subsidiaries and manufacturing JVs in power Boiler Turbine & Generator
(BTG), forging and shipbuilding. The management continues to be optimistic about the potential opening up of the defense sector which could
be a big opportunity for L&T as it is ready with capacity and expertise to grab such opportunities. Overall, investment cycle in private sector is
expected to recover in about 6-9 months which is likely to drive the order inflow for the company. We continue to recommend a Buy on the stock
with a target price of Rs.1983 (20x FY17E standalone EPS of Rs.71.2 + Subsidiary value of Rs.560/share).
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Recommended Stocks Grasim Industries: Grasim is a global leader in VSF with an aggregate installed capacity of 498,225 tonne per annum. The company is also the largest
producer of Sodium Sulphate, a by-product of VSF manufacture, widely used in the paper and pulp, detergent, glass and textile industries. While there are no
immediate plans to augment the capacity, the focus would be on increasing premium product mix, expanding domestic reach, increasing capex in organic and
inorganic route at the right time and improving cost efficiencies. This is likely to further push up the margins. We think that VSF continues to hold favorable
position in comparison to other fibers due to preference for comfort fabric which will lead to increase in demand for high quality cellulosic fibre. We continue to
recommend Buy on the stock with SOTP price target of Rs.4546 which is summation of 7xFY17E (maintaining earlier multiple) EPS of Rs.66 for VSF business
and 63% company‘s stake in UltraTech Cement valued at Rs.3072/share (after providing for 30% holding company discount).
Exide Industries: Exide continued to report strong improvement in its margin profile with the help of its cost cutting initiative and lower commodity prices.
However, subdued volume growth has impacted the revenue performance of the company. For past few years, OEM segment has been struggling which is
likely to impact the performance of the company in the replacement market going forward. However, Indian Automobile sector is showing early signs of revival
given the strong growth in commercial vehicle and passenger vehicle sales in recent past months that bodes well for a recovery in Exide‘s OEM sales. Further,
strong market share in Solar, Power, Manufacturing and Project sector may drive the volume growth over the long term. We think that the management would
be able to shore up its margins on the back of lower raw material cost and its cost cutting initiatives. We continue to recommend a Buy on the stock and
maintain the target price of Rs. 209 at 20x (10% discount to 5-year avg) FY17E EPS of Rs 9.7 and adding Rs.15 per share for the stake in Insurance business.
UPL: UPL is a leading global generic player in the Agrochemical Industry and ranks among the top-10 post patent generic agrochemical manufacturers in the
world. The company has consistently and successfully expanded its geographical presence and product bouquet. The management maintains 12‐15% organic
growth with margin improvement of 60‐100bps in FY16. UPL expect revenue growth trajectory to continue going ahead on back of new product launches and
strong registration pipeline in all key geographies. Additionally, management‘s initiatives to capture USD 5 bn worth of products going off‐patent over next 5
years look impressive. We maintain Buy on the stock with a price target of Rs. 588 which is 15xFY17E (maintaining earlier multiple) EPS of Rs.39.2.
Atul: Atul Ltd, with its diversified product and customer profile is well positioned to reap the benefits of recovery in the domestic and global economies. The
government‘s initiatives like Make in India for manufacturing and discouraging imports augurs well for Atul Ltd. Further, management‘s focus on expanding
capacities of high margin segments are likely improve the earnings and return ratios. The company has reported healthy return ratios with RoE and RoCE of
23.2% and 26.1% for FY15. The Balance Sheet continuous to be robust with Debt/Equity ratio of 0.3x in FY15. We continue to recommend Buy on the stock
with price target of Rs.2250 which is 16xFY18E (Peg ratio of 0.6) EPS of Rs.140.7.
ONGC: While there are concerns in the near term due to fall in the crude oil prices, however ONGC‘s large size in the oil & gas space, strong balance sheet (net
cash), steady cash flows and consistent dividend payment track record gives us the comfort. Any clarity on the oil cess relief and uptick in the crude oil prices
could be the trigger for the company in the near to medium term. However, with significant fall in the crude oil prices and expected downward revision in the gas
prices, we have revised the earnings downward and recommend Buy on the stock with revised price target of Rs.303 which is 11xFY17E (maintaining earlier
multiple) EPS of Rs.27.5.
Infosys: The strategic growth outlook suggests that the management is working towards a plan to maintain the business momentum. The company‘s strategy on
improving productivity in the legacy business and trying to grow newer high margin business could help it to achieve the desired objectives. The ability of the
company to ramp up its utilization and drive down costs could lead to gradual margin uptick in the longer term. Also, the new management is focusing more on
nonlinear business model and acquisitions which could sustainably drive revenues and earnings in the longer term. We believe that IT businesses would continue
to deliver strong earnings growth as they adapt to the changing paradigm in the industry and keeps innovating new business delivery models and processes. We
think that the new management has its sight set on those goals firmly. Currently, we recommend a Hold on the stock with a price target of Rs.1273 at 16x (in line
with its historical multiples) FY17E EPS of Rs 70.7 added with Rs 142 of cash per share.
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Recommended Stocks GSFC: GSFC is India‘s largest producer of the chemical Caprolactam and also has a leading position in the complex fertiliser. Over the years, the company has
continued to have a debt free balance sheet. Company‘s Nylon-6 expansion and Fully Drawn Yarn Project (FDY) are on schedule and expected to get
commissioned by Q4FY16. Management expects incremental revenue of Rs.1 bn in FY17 and scaling upto Rs.2.5 bn in the subsequent years. The pressure on
the Chemical segment is likely to be eased post commission of the Nylon capacity, resulting in margin uptick. We continue to recommend Buy on the stock with a
target price of Rs.142 which is 10xFY17E EPS (maintained earlier multiple) of Rs.14.2.
NTPC: NTPC Ltd is the largest power generating company in India with an installed capacity of ~45.5 GW (16% of India‘s total installed capacity) at the end of
Q3FY16. The company reiterated its long-term plans to add 128 GW by FY32. The company also has aggressive plans for solar power where in it plans to add 10
GW by FY22. We think that the company is likely to benefit from the improved coal availability situation which is likely to support its existing and incremental
capacity. With strong pipeline of capacity addition, growth visibility for the company remains promising. We remain long term positive and continue to recommend
a Buy on the stock with target price of Rs.240 which is 2x FY17E (maintaining earlier multiple) book value of Rs.120/share.
ENIL: ENIL continued on the path of steady earnings growth driven by high utilization and improved realizations. We think that Radio Sector in India is now starting
to get investor attention on the back of steady growth and improving profitability. Many advertisers are now beginning to see the positive impact of targeted
marketing which can be done through FM radio. We believe that in an economic upswing the sector is likely to do better than its current growth. We continue to like
the company for the potential growth, strong balance sheet and improving return ratios (FY15 ROE-16.9%, ROCE: 21.4%). We continue to recommend a Buy on
the stock and maintain the price target of Rs 744 at 29x (30% premium to 3 year average multiple of 22x owing to the large growth potential post Phase-III
auctions) on FY17E EPS of Rs 25.7.
Voltas: While the current environment in the international market remains weak, Voltas continues to focus on profitable order intake to enhance margins (5%
threshold). On the UCP, the company continues to remain market leader with the focus on margin expansion through better product quality & improved revenue
mix. The company has expanded the capacity and distribution network for Air coolers which is expected to new revenue driver for the company. On the
Engineering Product segment, the company expects orders to pick up with increase in demand for mining equipments. The company continues to have strong
balance sheet and cash flow generation capability. We recommend Buy on the stock with a price target of Rs.366 which is 25x (maintaining earlier multiple) FY17E
EPS of Rs.14.6.
TCS: TCS performance was muted as the management had already guided to weak quarter due to Chennai floods. The lower utilization rates impacted the overall
margin profile and the profitability during the quarter which is seasonal in nature. The management continues to remain positive on the overall growth trajectory of
the company, given strong deal pipeline and healthy client spending due to adoption of new technologies in the Digital, Analytics, Aritfical Intelligence and Mobility
Space. The company is also focusing on improving revenues from its IP led products and platform business which could lead to margin improvement in the longer
term. We continue to maintain our positive stance on the company from a medium term perspective. The company continues to deliver strong return ratios and
high payouts. We continue to recommend a Buy on the stock with a price target of Rs 3022 at 20x (maintained the previous multiple) FY17E EPS of Rs 151.
State Bank of India: We recommend a Buy on the stock with the target of Rs 336 based on PBV multiple of 1.7x on FY17E adjusted book value of Rs 170.1 and
adding Rs 46.8 per share for value of other subsidiaries.
Rating Expected to
Buy Appreciate more than 10% over a 12 to 15 month period
Hold Appreciate below 10% over a 12 to 15 month period
Under Review Rating under review
Exit Exited out of the Model Portfolio
Rating Interpretation
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Fixed Income
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Inflation rises for 6th consecutive month on high food prices… … still within RBI’s comfort zone
The CPI based Inflation for January 2016 rose to a 17-month high of 5.69% YoY.
The CPI inflation for December 2015 and January 2015 stood at 5.61% YoY and
5.19% YoY respectively.
Though the CPI inflation rose in January 2016, it remained well within the RBI‘s
comfort zone of 6% inflation for January 2016.
The rise in the January CPI inflation was mainly on account of rise in food
inflation, especially pulses. Food inflation stood at 6.66% YoY in January 2016 as
against 6.31% YoY in December 2015 and 6.30% YoY in January 2015.
Vegetables inflation stood at 6.39% YoY compared to 4.41% YoY in the previous
month. Though inflation in Pulses remained sticky, it was marginally lower than
that of previous month‘s reading. Inflation in Pulses stood at 43.32% YoY in
January 2016.
Proteinaceous food items like meat & fish, egg and milk products witnessed sharp
rise in prices in January 2016 from its previous month levels, while prices of
vegetables and pulses softened from its December levels.
Housing inflation rose by 5.2% YoY and Fuel and light inflation rose by 5.32%
YoY in January 2016.
Wholesale Price based inflation (WPI) declined 0.90% YoY in January 2016 as
against 0.73% in December 2015. Food articles inflation declined to 6% as
against 8.2% in the previous month.
In the sixth bimonthly policy review, the RBI maintained its inflation target at 5%
by March 2017 without factoring in the impact from implementation of 7th Pay
Commission and OROP.
The Economic Survey for FY16 projects CPI inflation will ease to between 4.5%-
5% in 2016-17.
Furthermore, monsoon is expected to return to normal. This will likely ease food
prices.
Source: finmin.nic.in
Source: CSO, HDFC Bank
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Liquidity conditions remain tight… …higher govt. balance with RBI maintained pressure
Liquidity conditions continued to remain tight during the month.
Liquidity, as measured by RBI‘s Liquidity Adjustment Facility (LAF), on 29th Feb
was at a deficit of ~Rs. 1.6 tn. as against a deficit of ~Rs.1.5 tn as of the previous
month-end.
Government‘s cash balances with the RBI, year-end demand for funds and
auctions of government securities maintained pressure on systemic liquidity.
While Feb month-end government‘s surplus with RBI was lower than the previous
month-end, the average cash balance in February was around same levels as in
January.
The average government‘s surplus was around Rs. 1tn, while the Feb-end
surplus with RBI stood at Rs. 953 bn versus Rs. 1.3 tn as on Jan-end.
Credit growth as on 19th Feb stood at 11.6% YoY compared to 11.4% YoY as on
22nd Jan, and deposit growth stood at 11% as on 19th Feb compared to 11.1% -
suggesting higher demand for funds.
Auctions of Dated securities and State Development Loans conducted by the RBI
also added to the pressure on system liquidity.
The RBI conducted OMO purchase of G-secs to the tune of Rs. 100 bn during the
month in order to provide liquidity support.
In addition to the OMOs, the RBI also repurchased G-secs maturing in CY16 to
the tune of Rs. 346.87 bn, which provided some liquidity support.
The call rates hovered in the range of 5.90% - 7.60% during the month.
Going forward in March, the liquidity condition is expected to remain tight - mainly
on account of state government borrowings, expectation of lower government
spending to manage the fiscal balance, improvement in bank advances and
advance tax payments. Source: RBI and HDFC Bank
Source: RBI and HDFC Bank
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Union Budget 2016-17… …fiscal prudence maintained & lowered net borrowings
In 2015-16, fiscal deficit and revenue deficit were budgeted at Rs. 5.55 tn (3.9%
of GDP) and Rs. 3.94tn (2.8% of GDP) respectively.
In the Union Budget for FY17, the finance minister stated that the fiscal deficit
target of 3.9% of GDP for FY16 will be achieved. The Fiscal Deficit target, in
value terms, was revised downward to Rs. 5.35 tn from Rs. 5.55 tn due to lower
than estimated nominal GDP growth.
Revenue Deficit estimates of Rs. 3.94 tn (2.8% of GDP) in BE 2015-16 was
revised downwards at Rs. 3.42 tn (2.5% of GDP) in RE 2015-16.
The growth in gross tax revenues, as per the revised estimates, is 17.25% over
FY15 actuals. The growth in tax revenues was buoyed by better than expected
indirect taxes. Direct tax revenues, however, was lower than the budgeted
estimates.
The non-tax revenue receipt was revised upwards in 2015-16 RE, although there
was a shortfall in achieving the disinvestment targets. The improvement in
revised estimates was due to higher dividends from RBI & PSUs, higher
spectrum receipts and other non-tax revenues collections.
On the expenditure side, the government adhered to the fiscal consolidation
process while continuing with higher capital expenditure and investments
together. The revised Plan capital spending was higher than the budgeted
targets.
In the Union Budget, the fiscal deficit target for FY17 was pegged at 3.5% of
GDP. The revenue deficit target for FY17 has been set at 2.3% of GDP. The total
gross borrowing is budgeted at Rs. 6 tn and the net market borrowing is pegged
at Rs.4.25 tn, almost lower by 3.5% than the current fiscal‘s revised estimates.
The net market borrowings as a percentage to Gross Fiscal Deficit has been
pegged at 80% compared to 89% in FY15.
With lower net market borrowings from the central government, the concerns
over demand – supply dynamics will depend upon the states' borrowings. With
States getting benefit of higher devolution of tax share from the Centre, States‘
fiscal deficit is not expected to deviate much.
Source: HDFC Bank
Source: Union Budget FY17, HDFC Bank
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Exports and imports declined by 13.6% YoY and 11.0% YoY in USD terms in
January 2016. During January 2016, oil imports and non-oil imports declined by
39.0% YoY and 1.4% YoY respectively.
In Apr-Jan 2015-16, exports declined by 17.6% to value at USD 217.7 bn as against
USD 264.3 bn in the corresponding period of the previous year.
Imports declined by 15.5% at USD 324.5 bn as compared to USD 383.9 bn in the
corresponding period of the previous year. Imports of petroleum, oil and lubricants
(POL) declined by 41.4% in Apr-Jan 2015-16, Non-POL imports declined by 3%.
Trade deficit decreased to USD 106.8 bn during Apr-Jan period, as against USD
119.6 bn in the corresponding period of the previous year.
CAD was USD 14.4 bn in Apr-Sep 2015, as compared to USD 18.4 bn in Apr-Sep
2014.
On a BoP basis, there was a net accretion to India's foreign exchange reserves by
USD 10.6 bn in Apr-Sep 2015. Foreign exchange reserves stood at USD 350 bn as
on February 19, 2016.
The external debt was USD 483.2 bn at end-September 2015, recording an
increase of USD 8.0 billion (1.7%) over the level at end-March 2015. The long term
external debt accounted for 82.2% of India's total external debt, while the remaining
portion (17.8%) was short-term external debt.
In the month of Feb 2016 the Rupee depreciated by ~ 1% MoM, whereas during
April-Feb 2016 the rupee depreciated by ~ 10%
The Economic Survey states that the current account deficit is at comfortable levels;
foreign exchange reserves are well above standard norms for reserve adequacy;
and net FDI inflows have risen up by 26% in Apr-Dec 2015 over the corresponding
period in the previous year. These fundamentals are likely to provide stability to the
domestic currency movement relative to other emerging market currencies, though
in the recent past INR has been amongst the worst performer. Source: Economic Survey FY16
Comfortable CAD and Forex Reserves adds support…
Source: Economic Survey FY16
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GDP Growth , led by Private consumption and Government spending…
As per the Advanced Estimates released by the Central Statistics Office, the economy is estimated to grow at 7.6% in 2015-16, higher than the
economic growth of 7.2% achieved in 2014-15.
The growth in agriculture, industry and services is estimated at 1.1%, 7.3% and 9.2% in 2015-16 as opposed to (-) 0.2%, 5.9% and 10.3%
respectively in 2014-15.
This shows a pick-up in industrial growth, driven by manufacturing which is estimated to grow at 9.5 per cent (in 2015-16), as compared to
5.5% registered in 2014-15.
The growth in agriculture remained low on back of second consecutive year of subdued monsoon.
GDP growth during April-December 2015 (first 3 quarters) was 7.5%, compared to 7.4% in the same time period in 2014-15.
GDP growth was also helped by a reorientation of government spending toward needed public infrastructure.
From the demand angle, the growth in private final consumption expenditure at 7.6% in 2015-16 has been the major driver of growth. The
growth of fixed investment improved from 4.9 % in 2014- 15 to 5.3% in 2015-16.
In the Union Budget, the Finance Minister announced various measures to boost the agriculture and manufacturing sector. This is likely to help
the economy to remain on growth path.
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Muted Credit Growth may create additional demand for G-secs
After sluggish Credit Growth between May and November 2015, Credit Growth has gradually started picking up though it still far
off March 2014 levels of around 14% YoY growth.
As on Feb 19, 2016 bank advances picked up by 11.4% YoY outpacing deposits growth of 11% YoY.
Credit to Deposit ratio has also picked-up to March 2015 levels representing year end demand for funds.
Banking aggregate deposits have grown by 11% YoY as on 19th Feb 2016. The deposit growth was 11.1% on 22nd January
2016.
Amidst low credit demand and continued growth in aggregate deposit, Bank‘s demand for g-secs is likely to remain strong.
Source: RBI, HDFC Bank F1: Fortnight I & F2: Fortnight II
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FIIs turn net sellers in February 2016… …uncertainty in global financial markets lead to safe havens
FIIs turned net sellers in the month of February 2016 after being buyers in January 2016.
The FIIs were net sellers to the tune of Rs. 82 bn in February 2016 as against a net buying of Rs. 23 bn in January 2016.
Fall in crude prices, weak emerging market cues and mixed data points from developed markets lead to subdued flows from FIIs
in the Indian Bond markets.
In the month of October 2015 the RBI had raised the FII investment limits in Indian bonds in the first tranche for FY16.
In January 2016, RBI raised the FII investment limits in the second tranche by additional Rs. 130bn.
Overall the RBI had stated that the limits for FII investment in the central government securities will be increased in phases to 5%
of the outstanding stock by March 2018.
This will ensure that the demand for G-secs continues to remain strong.
However, volatility in global financial markets as well as any volatility in INR is likely to affect FII flows.
Source: NSDL and HDFC Bank
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10Y benchmark G-sec yield declined… ...low net govt. borrowings lifted the sentiments
Domestic g-sec yields were volatile during the month but closed on a positive note by Feb-end. The new 10 year benchmark 7.59% 2026 G-sec
yield closed at 7.62% on 29th February compared to 7.64% levels as on 29th January.
The bond yields rose initially as the heavy supply of dated G-secs and State Development Loans exerted upward pressure on the bond yields.
The sentiments were further dampened with the cautious stance by the RBI in its sixth bimonthly monetary policy review.
The RBI conducted OMO purchases and repurchased g-secs to boost the liquidity in the system, which helped in capping the upward
movement in the benchmark 10Y G-sec yield.
However, higher headline inflation for the month of January 2016 and fears of upward revision in the fiscal deficit target for FY2017 maintained
its pressure on bond yields, pushing it upwards.
The Union Budget for FY17 brought back optimism in the bond markets with benchmark 10Y G-sec rallying by almost 25bps.
The fiscal deficit projection of 3.5% of GDP for FY17, while focusing on capital expenditure, rural welfare and provisioning for the
implementation of 7th Pay Commission recommendations & OROP, lifted the bond prices.
The bond market reacted positively to the low net government borrowings of Rs. 4.25tn announcement in the Union budget resulting in the new
10 year benchmark 7.59% 2026 G-sec yield falling to 7.62% from the pre-Budget levels of 7.86%.
Source: Bloomberg & HDFC Bank
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Credit Spreads not attractive… …Risk-Reward not in favour
From the above graph it can be seen that the credit spreads on corporate bonds are not very attractive.
At the same time the risk of investing in below AAA rated corporate bonds continues to remain high, given the global slowdown which
might put pressure on domestic growth also.
Highly leveraged companies might face even more stress on their balance sheets, if growth doesn't pick up or takes longer then
anticipated.
A slowdown in growth can potentially lead to pressure on cash flows in highly leveraged companies. In the current scenario weakness in
the credit environment continues to remain.
Given the risk-reward, it may be prudent to invest in portfolios that predominantly invest in highest rated securities instead of portfolios that
take exposure to sub-AAA rated securities to boost the portfolio yield.
Source: ICICI Prudential MF and HDFC Bank
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10 Yr G-sec & Repo rate spread remains high… …scope for the spreads to contract going forward
The spread between the 10 year benchmark G-sec yield and the repo rate continued to remain high despite the recent decline in the yield after
the Union Budget.
This spread is currently at 88 bps, which had been over 100 bps in the past couple of months.
The average spread between the 10 year benchmark G-sec yield and the repo rate over the past 2 years has been at about 50-55 bps.
While the spreads declined after the Union Budget, the spreads continues to remain attractive.
The government showcased its commitment to fiscal rectitude in the Union Budget. This with a benign inflation outlook, the RBI will have more
headroom to reduce the key interest rates going forward to support domestic growth.
With the expectation of RBI exercising monetary easing going forward the spread is expected to decline gradually.
Source: Bloomberg and HDFC Bank
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Key Risks
Sub-normal Monsoon. However, it is anticipated that India will likely to witness normal to above
normal monsoon.
US Fed hiking interest rates aggressively. However, in the testimony, the Federal Reserve raised
the prospect of a delay in interest rate hikes citing global financial conditions could pose risks to the
US economic growth.
Rise in crude and other commodity prices. However, in a weak global demand environment rise in
crude prices and other commodity prices may be gradual.
Devaluation in EM currencies. Since India is one of the major emerging markets, Indian currency
may get impacted due to volatilities in emerging market currencies. However, in the recent past,
Indian currency has been resilient and outperformed other EM currencies on back of favourable
macro economic conditions like lower CAD, continuation of fiscal prudence, and robust foreign
exchange reserves.
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The RBI maintained its inflation target at 5% by March 2017 without factoring in the impact from implementation of 7th Pay Commission and OROP. The
Economic Survey for FY16 projects CPI inflation will ease to between 4.5%-5% in 2016-17. Better monsoon will improve the prospects of lower inflation as crude
prices and other commodity prices are at lower levels.
In March, the liquidity condition is expected to remain tight - mainly on expectations of state government borrowings, lower government spending to manage the
fiscal balance, improvement in bank advances and advance tax payments. RBI will continue to provide liquidity support to the system as it stated in February, that
it will be accommodative to provide liquidity through various instruments.
The fiscal deficit target of 3.9% of GDP for FY16 is expected to be achieved. In the Union Budget for FY17, the fiscal deficit target was budgeted at 3.5% of GDP
which shows government‘s commitment for fiscal prudence.
In the Union Budget, the net market borrowing is pegged at Rs.4.25 tn, almost lower by 3.5% than the current fiscal‘s revised estimates.
With lower net market borrowings from the central government, the concerns over demand – supply dynamics will depend upon the states' borrowing
programme. With States getting benefit of higher devolution of tax share from the Centre, States‘ fiscal deficit is not expected to deviate much.
Fall in crude prices has helped the CAD to correct to around 1.4% of GDP. The Economic Survey states that the current account deficit is at comfortable levels;
foreign exchange reserves are well above standard norms for reserve adequacy; and net FDI inflows has risen up. These provide stability to the domestic
currency compared to other emerging market currencies.
Though the credit growth is gradually improving, it is still lower than the March 2014 levels. Banking aggregate deposits have grown by 11% YoY as on 19th Feb
2016. Lower credit growth when deposit growth is reasonable may likely be positive for bond markets, as Banks are likely to invest the surplus funds in G-secs
driving down the yields.
Though FII flows were negative in February, allocations to Indian bond markets are expected to resume as they begin focusing on emerging markets. The spread
between Indian 10Y G-sec yield and US 10Y Treasury yield is at attractive level. Further, enhancement of FII limits is likely to create more demand for Indian
bonds.
The benchmark 10Y G-sec yield is expected to decline gradually on account of benign inflationary expectations, expectations of monetary easing by the RBI,
improvement in liquidity as we move in to the new financial year and favourable demand-supply dynamics.
Income/Duration funds can be considered by aggressive investors for a horizon of 24 months and above; though preference currently should be
given to dynamically managed funds.
Investment into Medium Term funds with an investment horizon of over 15 months can be considered by moderate and conservative investors.
Short Term Funds can be considered with an investment horizon of 12 months.
Investors looking to invest into higher accrual portfolio can consider investing into HDFC Corporate Debt Opportunities Fund and HDFC Short Term
Plan.
Investors can also look at 3-year FMPs as the short-term rates are attractive.
Investors looking to invest with a horizon of 1 to 3 months can consider liquid funds, while ultra-short term funds can be considered for a horizon of 3
months and above.
Fixed Income Outlook
______________________________________________________________________ Investment Strategy
We recommend investors to rebalance/realign the portfolios according to the recommended asset allocation
On Equity Funds:
We expect strong returns from equities over the next 2-3 years, given the reasonable valuations and expected turnaround in the earnings; hence recommend an overweight stance on equities for investors across risk profile.
Volatility in the equity markets would continue to present the investors with good opportunities to further invest. We continue to remain positive on the long-term outlook on the Indian equity markets on the back of strong macro parameters, improving growth outlook and benign inflation and believe that investors should invest into equities in line with their risk profile.
The investment strategy should be 75% lumpsum and rest should be staggered over the next 2-3 months.
Investors should look at Large cap, Flexi cap and Balanced Funds for fresh investments with an investment horizon of 2-3 years.
On Fixed Income:
Income/Duration funds can be considered by aggressive investors for a horizon of 24 months and above; though preference currently should be given to dynamically managed funds.
Investment into Medium Term funds with an investment horizon of over 15 months can be considered by moderate and conservative investors.
Short Term Funds can be considered with an investment horizon of 12 months.
Investors looking to invest into higher accrual portfolio can consider investing into HDFC Corporate Debt Opportunities Fund and HDFC Short Term Plan.
Investors can also look at 3-year FMPs as the short-term rates are attractive.
Investors looking to invest with a horizon of 1 to 3 months can consider liquid funds, while ultra-short term funds can be considered for a horizon of 3 months and above.
46
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47
Equity Mutual Funds
Large Funds
1. Kotak Select Focus Fund - An actively managed fund investing across select sectors
2. BNP Paribas Equity Fund - An aggressive large cap fund investing into large cap with some exposure to mid cap stocks
3. DSP BlackRock Focus 25 Fund - An aggressive large cap fund investing into concentrated portfolio of around 25 stocks
4. SBI Blue Chip - A conservative fund predominantly investing into large cap stocks
5. Birla SL Frontline Equity Fund - A conservative large cap fund which invests across sectors in line with BSE 200 Index
Flexi Cap Funds
1. ICICI Prudential Value Discovery Fund – Invests in companies which are available at attractive valuations
2. Reliance Equity Opportunities Fund - Fund invests across themes and sectors from a longer term perspective
3. Franklin India High Growth Companies Fund - Fund investing into companies with high growth rates or above average potential
4. HDFC Capital Builder Fund - A Multi Cap fund investing into strong companies at prices which are reasonably valued
5. L&T India Special Situations Fund - An actively managed flexi cap fund invests in high conviction stocks in Special Situations
Balanced Funds
1. Tata Balanced Fund - An aggressive balanced fund
2. Franklin India Balanced Fund - A conservative balanced fund
3. HDFC Balanced Fund - A conservative balanced fund
Mid Cap oriented Funds
1. SBI Magnum Mid cap Fund - An actively managed mid cap fund
2. Franklin India Prima Fund - An actively managed mid cap & small cap fund
3. HDFC Mid-Cap Opportunities Fund - An actively managed fund investing into Small and Mid cap stocks
______________________________________________________________________
48
Top Sectoral Allocation of Large Cap Funds Compared to Nifty and Sectoral Benchmark Indices Performance
Portfolio as on 29th January 2016. Returns (%) as on 29th February 2016. Returns are absolute for < = 1year and Compounded Annualized for > 1 year. Source: MFI Explorer
Over the last 3 months, the Indian markets were negative. The benchmark index S&P BSE Sensex was down by 11.71%, whereas the S&P
BSE Capital Goods (CG) index and S&P BSE Realty index declined sharply by 22.19% and 20.58% respectively during the same period.
Equity benchmark – over the last 1 year, S&P BSE Sensex index has delivered the negative return of 21.61%. The decline in the market was
largely due to the mixed data flows from domestic & global markets, concerns over global growth outlook, volatility in crude oil prices & FII flows
and weak corporate earnings growth.
Over the last 1 year, Health Care, FMCG, IT, Oil & Gas and Auto sector indices have outperformed the S&P BSE Sensex index, whereas the
S&P BSE Bankex , S&P BSE Metal, S&P BSE CG and S&P BSE Realty sector indices have underperformed the S&P BSE Sensex. Amongst
the sector indices (mentioned in above table), S&P BSE Realty index was the major loser, declined by 42.22% during the period.
Most of the large cap equity funds continue to have Banks & Finance, IT and Auto & Auto Ancillaries sector stocks as top sectoral exposure.
All the funds (mentioned above) are underweight on Banks & Finance sector as compared to Nifty 50 index. However, all the above funds are
overweight on Pharma sector except the funds like Kotak Select Focus fund and DSP BR Focus 25 fund as compared to Nifty 50 index.
Sectoral Indices Performance
Indices 3 Mths 6 Mths 1 Yr 2 Yrs 3 Yrs 5 Yrs
S&P BSE IT -5.46 -8.53 -14.50 2.21 14.82 10.86
S&P BSE HC -6.93 -13.74 -4.07 18.42 24.85 21.58
S&P BSE FMCG -10.42 -8.96 -13.44 4.74 7.86 15.67
S&P BSE Bankex -19.93 -19.63 -29.87 13.44 6.19 5.95
S&P BSE CG -22.19 -30.99 -36.71 4.07 6.96 -1.94
S&P BSE AUTO -15.70 -11.89 -20.62 12.15 14.85 13.93
S&P BSE METAL -5.26 -8.63 -35.97 -11.64 -9.32 -15.11
S&P BSE Oil & Gas -11.65 -7.18 -15.15 -1.26 -1.70 -2.78
S&P BSE Realty -20.58 -17.64 -42.22 -6.54 -19.42 -11.90
S&P BSE Sensex -11.71 -12.78 -21.61 4.35 6.83 5.23
______________________________________________________________________
49
Top 10 Stocks Allocation (%) of Large Cap Funds Compared to Nifty
Portfolio as on 29th January 2016. Source: MFI Explorer, Nifty Index - www.nseindia.com
Amongst the above funds, BNP Paribas Equity fund has highest allocation to top Banking stocks. It can be seen that amongst the top
stocks allocation, the funds are holding higher allocation to Banking and IT sector stocks. SBI Bluechip fund and DSP BlackRock Focus
25 fund are overweight on Sun Pharmaceuticals Industries Ltd while, all the other funds (mentioned above) are underweight on Sun
Pharmaceuticals Industries Ltd as compared to Nifty 50 index.
DSP BlackRock Focus 25 and BNP Paribas Equity funds have higher allocation of 9.12% and 8.64% respectively to HDFC Bank Ltd as
compared to Nifty 50 index whereas, Kotak Select Focus, Birla SL Frontline Equity and SBI Bluechip funds are underweight on HDFC
Bank Ltd as compared to Nifty 50 index. Birla SL Frontline Equity fund is well diversified fund across top ten Nifty 50 stocks.
BNP Paribas Equity fund is overweight on Kotak Mahindra Bank Ltd whereas, DSP BlackRock Focus 25 fund and SBI Bluechip fund are
underweight on Kotak Mahindra Bank Ltd as compared to Nifty 50 index. All the above funds are underweight on Infosys Ltd, HDFC Ltd,
ITC Ltd, Reliance Industries Ltd, ICICI Bank Ltd, TCS Ltd and Larsen & Tourbo Ltd as compared to Nifty 50 index.
Stocks Kotak Select
Focus Fund
BNP Paribas
Equity Fund
DSP
BlackRock
Focus 25 Fund
SBI Bluechip
Fund
Birla Sun Life
Frontline
Equity Fund
Weightage in
Nifty 50 Index
Infosys Ltd. 5.65 6.16 4.99 5.53 6.15 8.61
HDFC Bank Ltd. 6.20 8.64 9.12 6.38 6.58 7.70
Housing Development Finance Corporation Ltd. 0.48 0.00 0.00 1.26 1.14 6.90
ITC Ltd. 1.26 0.00 0.00 0.63 3.62 6.67
Reliance Industries Ltd. 2.96 0.00 5.97 5.78 4.66 6.33
ICICI Bank Ltd. 2.19 2.99 0.00 0.71 3.24 4.95
Tata Consultancy Services Ltd. 0.00 1.12 2.21 2.92 1.61 4.56
Sun Pharmaceuticals Industries Ltd. 2.30 3.40 5.92 5.66 3.04 3.52
Larsen & Toubro Ltd. 2.76 0.00 0.00 2.49 2.93 3.34
Kotak Mahindra Bank Ltd. 0.39 4.35 0.00 0.00 1.85 2.61
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50
Recommended Equity MF’s: Asset Allocation & Market Capitalization
Portfolio as on 29th January 2016. Source: MFI Explorer
Flexi cap funds continue to remain fully invested into equities except funds like ICICI Prudential Value Discovery which
has relatively higher cash exposure. The fund has exposure of around 9% into debt & cash equivalent as of January
2016.
During the Month of January 2016, some of the funds have marginally increased the exposure to equity stocks while,
reduced the exposure to debt & cash as compared with December 2015 portfolio. SBI Magnum Multi Cap fund has
around 13% exposure to small cap stocks, whereas, Franklin India High Growth Companies fund has marginal exposure
of around 1% to small cap stocks.
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51
Tax Planning - ELSS Funds
Returns (%) as on 29th February 2016. Returns are absolute for < = 1yr and CAGR for > 1 Yr
Name of Scheme 1 yr 3 yr 5 Yrs
Axis Long Term Equity Fund -11.90 24.35 18.67
Birla Sun Life Tax Relief 96 -12.97 19.78 12.75
Tata India Tax Savings Fund (Div) -12.65 16.61 12.45
Franklin India Taxshield -12.24 16.92 13.74
Religare Invesco Tax Plan -16.47 17.17 13.13
Reliance Tax Saver (ELSS) Fund -24.99 18.87 14.23
DSP BlackRock Tax Saver Fund -14.19 16.04 11.95
BNP Paribas Long Term Equity Fund -14.20 16.46 15.25
Kotak Taxsaver -18.49 11.55 8.71
ICICI Prudential Long Term Equity Fund -15.85 16.52 12.17
SBI Magnum Tax Gain Scheme 93 -17.90 14.66 11.31
IDFC Tax Advantage (ELSS) Fund -17.32 15.13 11.88
Nifty 50 -21.46 7.06 5.54
Objective Long-term Capital Appreciation & Tax Planning
Risk Medium to High
Investment Portfolio Equity & Equity Related instruments – Generally Large & Midcap stocks
Investment horizon Long Term ( Lock in period of 3 years) Tax Deduction- Sec 80 C * Investment up to Rs.1.50 Lakh Exempt from Tax
Tax Implications * Dividend-Tax Free Long Term Capital Gains – Tax Free
Particulars PPF NSC ELSS
Lock-in period - Years 15 5 3
Minimum Investment (Rs) 500 100 500
Max Investment for Tax Benefit (Rs) 1,50,000
Risk Low Risk Low Risk Medium to High
Returns 8.70% ^ 8.50% $ ^ 9% - 19% #
Interest Income / Dividend Tax Free Taxable Tax Free
#Returns (%) are historical for last 5 years (CAGR) as on 29th February 2016. $8.50%
compounded six monthly but payable at maturity. Moreover, 'past returns cannot be taken
as an indicator of future performance. ^Source: http://indiapost.gov.in, Rates incorporates
compounding wherever applicable. *As per current income tax rates individual falling in
highest tax bracket.
Comparison of ELSS V/S other tax savings instrument
As per Sec 80C of the Income Tax Act, qualifying investments up to a
maximum of Rs 1.50 Lakh are deductible from total income of the
individual.
Investment of Rs 1.50 Lakh in the qualifying investments, can save tax
upto Rs 46,350* as per the current income tax slab & rate for FY –2015
– 2016.
There are fixed income options available under section 80 C, but they
may not be able to provide returns commensurate to beat the inflation.
ELSS helps in tax planning as well as provides scope to benefit from
the long term growth potential of equities.
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52
Risk – Return Matrix of Large Cap & Flexi Cap Oriented Equity Funds
ICICI Prudential Value Discovery fund and
Franklin India High Growth Companies fund
are the best funds in terms of risk to return
matrix in the flexi Cap category.
Kotak Select Focus fund and SBI Bluechip
fund from large cap category have been able
to balance the risk return reward over the last
3 year period.
In terms of corpus size, Reliance Equity
Opportunities fund is the largest Flexi cap
recommended fund with the corpus of around
Rs.10,664 Cr. ( As on January 2016 ).
Bubble chart displays the positioning of the
schemes on risk (standard deviation) and
return parameters. The size of the bubble
indicates the corpus of the schemes. Funds
closer to X-Axis and away from Y-axis have
better risk adjusted returns. Data – Rolling
Returns.(3 Years, 3 Months) – As on 29th
January 2016.
Source: MFI ICRA - www.mutualfundindia.com
______________________________________________________________________
53
Returns (%) as on 29th February 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
Performance of Mid Cap Oriented Funds
The Mid Cap oriented funds have outperformed not only the Mid Cap Index but also the broader indices like Nifty 500 index
and Nifty 50 index over the last 1 year and 2 – 5 years period .
Over the last 3 years, the recommended mid cap oriented funds have outperformed the Nifty Midcap 100 index. The
recommended funds rose by an average of close to 27% against the Nifty Midcap 100 index which delivered close to 15%
returns. Fund managers managing mid cap funds have been able to generate higher alpha through stock selection.
Currently, the mid cap stocks are trading at relatively higher valuations and are expected to remain volatile over the near term,
however, the mid cap stocks are expected to perform better over the longer period.
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54
Performance of Infrastructure Oriented Funds
The Central Government has raised hopes for the recovery in economy and investment cycle with help of higher spending and various reforms.
Government‘s plan capital expenditure in the Apr'15-Jan‘16 period rose by 55.6% YoY as compared to the same period last year.
As per the Union Budget 2016-17, total investment in the road sector, including PMGSY allocation, would be Rs.970 bn during FY17. Together
with the capital expenditure of the Railways, the total outlay on roads and railways will be Rs.2.18 trillion in FY17.
UDAY (Ujwal DISCOM Assurance Yojana) for financial turnaround of Power Distribution Companies - to benefit the entire power chain. The
government has also planned 100% village electrification by 1st May, 2018.
Government has committed Rs.4 trillion to states under AMRUT, Smart City Mission and for construction of 20 mn houses for urban poor under
Prime Minister‘s Awas Yojana (Urban).
Average returns of the recommended Infrastructure funds have significantly outperformed not only the Nifty 50 index but also the Nifty
Infrastructure index over the last one, two and three years period and expected to perform better over the long term investment horizon.
Returns (%) as on 29th February 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
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55
Invest in Balanced Funds for diversification
Balanced funds are hybrid funds. The primary investment is into equities which broadly remains in range of 65% to 75%, while the balance is invested into
debt securities.
During the bull run, the funds might under perform the pure equity diversified funds as these funds tend to have some exposure into debt instruments. The
funds maintain a balance between equity and debt investment and there by help in reducing the overall risk of the portfolio as compared to equity funds.
In general, the equity investment strategy can be an active management strategy across market capitalization. The Debt investment strategy can be across
fixed income securities including G-secs. Certain funds dynamically manage the equity and debt exposure. The debt portfolio helps the funds during the fall in
equity market and reduces the overall beta of the portfolio. Also, the bond portfolio is expected to generate capital gains in a falling interest rate scenario.
The recommended balance funds have significantly outperformed Nifty 50 and Crisil Balanced Fund index over the last 1, 3 and 5 years. The recommended
balance funds on an average have delivered about 15% returns over the past 3 years, whereas both Nifty 50 & Crisil Balanced fund indices have delivered
average returns close to 7% and 8% respectively during the same period.
Balanced funds are subject to equity taxation. The short term capital gains tax on investments up to 12 months are taxed at 15% (excluding cess and
surcharge) and there is nil tax on investments held for more than a year. Dividends declared by balanced funds are tax free.
Returns (%) are in percentage and are as on 29th February 2016. Returns are absolute for < = 1 year and Compounded Annualized for > 1 year. Note: * Portfolio data are as on 29th January 2016.
Scheme Name (YTM)
%*
Average*
Maturity
(years)
Modified*
Duration
(years)
1 Y % 3 Y % 5 Y %
SBI Magnum Balanced Fund 8.91 5.22 3.37 -7.36 16.54 12.84
L&T India Prudence Fund 8.26 8.36 5.17 -7.61 17.72 12.85
Tata Balanced Fund 7.79 6.61 4.30 -11.72 16.99 14.23
ICICI Prudential Balanced 7.50 12.64 6.18 -11.63 14.78 13.59
Reliance RSF - Balanced 7.81 3.78 2.82 -9.36 14.10 11.73
Franklin India Balanced Fund 8.15 12.72 6.93 -7.38 16.00 12.47
HDFC Balanced Fund 7.38 12.78 6.40 -10.53 16.55 13.20
ICICI Prudential Balanced
Advantage Fund 6.88 7.13 4.41 -6.83 12.37 12.37
Birla Sun Life Balanced 95 8.31 18.48 8.43 -10.71 14.87 11.48
HDFC Prudence Fund 8.58 18.18 8.20 -16.93 12.02 9.49
Crisil Balanced Fund Index -- -- -- -12.21 7.86 6.91
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56
ICICI Prudential Balanced Advantage Fund
Asset Allocation (%) - Last 5 months The scheme seeks to provide capital appreciation and income distribution to
the investors by using equity derivatives strategies, pure equity and debt
market investments.
The fund is a balanced fund and has the benchmark index as Crisil Balanced
Fund Index. The fund invests predominantly in equities and use derivatives to
hedge the downside risk of the portfolio.
The fund manager actively maintains a balance between equity and debt
investment which helps in reducing the overall risk of the portfolio as
compared to equity funds. During the month of January 2016, the fund
manager has increased the exposure to equity, while reduced the exposure to
debt & cash.
The fund has around 78% exposure to Equity and 22% exposure to Debt &
Cash. Within the Debt & Cash allocation, the fund has about 1% exposure to
money market instruments including cash equivalents and other current assets
and 19% exposure in Sovereign Papers - G-Sec whereas, around 3% invested
in Bank FDs and Debentures, as of January 2016 .
Tax implication is like any other equity fund i.e. dividends are tax-free in the
hands of investors. The long term capital gains taxation is also nil similar to
any other equity funds.
The fund seeks to provide investors a reasonable opportunity to benefit out of
market volatility, since the fund is structured with intent to benefit from such
volatilities.
The fund is suitable for conservative to moderate investors with investment
horizon of 2-3 years.
Exit Load: If redeemed before 18 Months - Exit Load is 1%.
Particulars 1 Year 2 Years 3 Years 5 Years
Scheme -6.83 11.42 12.37 12.37
Crisil Balanced Fund -12.21 7.72 7.86 6.91
Nifty 50 -21.46 5.50 7.06 5.54
Returns (%) as on 29th February 2016. Returns are absolute
for < = 1year and CAGR for > 1 year.
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57
Recommended Equity Mutual Funds – Performance
Returns (%) as on 29th February 2016. Returns are absolute for < = 1year and CAGR for > 1 year.
Theme Scheme Name 1 Month 3 Months 6 Months 1 Year 2 Years 3 Years
Large Cap, Aggressive Kotak Select Focus Fund -7.38 -12.54 -12.51 -14.84 19.05 17.12
Large Cap, Aggressive BNP Paribas Equity Fund -6.49 -12.52 -12.89 -15.35 16.88 14.46
Large Cap, Aggressive DSP BlackRock Focus 25 Fund -6.97 -13.51 -14.10 -16.23 17.35 13.26
Large Cap, Aggressive Reliance Top 200 Fund -9.23 -15.45 -16.06 -19.88 14.61 13.20
Large Cap, Conservative SBI Bluechip Fund -7.64 -10.18 -9.17 -10.64 18.22 16.12
Large Cap, Conservative Birla Sun Life Frontline Equity Fund -7.34 -11.13 -11.40 -16.26 14.31 13.91
Flexi Cap, Aggressive ICICI Prudential Value Discovery Fund -8.04 -15.00 -13.82 -15.46 25.22 21.66
Flexi Cap, Aggressive Reliance Equity Opportunities Fund -11.78 -18.03 -18.30 -21.94 14.12 13.30
Flexi Cap, Conservative Franklin India High Growth Companies Fund -7.81 -17.49 -15.69 -18.27 24.08 20.31
Flexi Cap, Conservative SBI Magnum Multi Cap Fund -9.13 -12.03 -10.03 -10.31 21.57 17.60
Flexi Cap, Conservative HDFC Capital Builder Fund -10.42 -15.65 -13.51 -16.76 13.88 14.59
Flexi Cap, Conservative L&T India Special Situations Fund -8.83 -14.16 -15.46 -17.86 15.45 13.65
Mid Cap, Aggressive SBI Magnum Midcap Fund -9.52 -12.24 -10.60 -5.15 26.75 27.66
Mid Cap, Aggressive Reliance Small Cap Fund -13.79 -19.12 -11.06 -10.94 34.33 31.43
Mid Cap, Aggressive Franklin India Prima Fund -7.53 -12.12 -9.96 -11.56 28.92 23.96
Mid Cap, Aggressive HDFC Mid-Cap Opportunities Fund -9.05 -13.50 -13.65 -11.56 24.10 23.19
Infra Sector, Aggressive L&T Infrastructure Fund -12.59 -18.50 -18.28 -21.55 21.54 14.28
Aggressive Balanced Fund Tata Balanced Fund -7.06 -9.80 -10.60 -11.72 18.97 16.99
Conservative Balanced Fund Franklin India Balanced Fund -4.85 -7.88 -7.56 -7.38 18.87 16.00
Conservative Balanced Fund HDFC Balanced Fund -6.47 -10.46 -10.00 -10.53 16.47 16.55
Active Balanced Fund ICICI Prudential Balanced Advantage Fund -6.36 -9.60 -8.23 -6.83 11.42 12.37
Nifty 50 -7.62 -11.78 -12.61 -21.46 5.50 7.06
Nifty Midcap 100 -7.30 -12.35 -11.93 -11.85 21.66 15.29
S&P BSE 200 -7.66 -12.16 -12.75 -19.76 8.67 8.48
Nifty Infrastructure -6.73 -17.92 -24.29 -31.55 -1.06 -0.56
Crisil Balanced Fund Index -4.92 -7.55 -7.20 -12.21 7.72 7.86
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58
Performance of some recommended Income Funds
Scheme Name
AAA or
Equivalent
Exp
Avg.
Maturity
(Yrs)
Portfolio
Yield (%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years
ICICI Prudential LTP - Growth 100.00% 19.90 8.24 -0.18 1.59 3.05 11.51
UTI Bond Fund - Growth 97.33% 10.82 8.30 0.30 2.04 3.79 10.58
BNP Paribas Flexi Debt Fund - Growth 100.00% 13.39 8.00 0.89 2.65 4.49 9.85
ICICI Prudential Income Opportunities Fund - Growth 100.00% 6.36 8.29 0.11 2.29 5.78 10.93
Birla Sun Life Dynamic Bond Fund - Ret - Growth 87.88% 8.36 ^ 8.29 -0.13 1.74 5.17 10.42
UTI Dynamic Bond Fund - Reg - Growth 97.20% 10.01 8.15 0.67 2.62 4.86 10.23
Crisil Short Term Bond Fund Index -- -- -- 1.61 3.76 8.12 9.39
Crisil Composite Bond Fund Index -- -- -- 1.13 3.47 7.00 11.18
Returns (%) as on 29th February 2016. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio details are on 29th January 2016.
^ Modified Duration
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59
Performance of some recommended Short Term Funds
Scheme Name
AAA or
Equivalent
Exp
Avg.
Maturity
(Yrs)
Portfolio
Yield (%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years
Birla Sun Life Treasury Optimizer Plan - Reg -
Growth 89.32% 4.30 ^ 8.44 1.34 3.55 7.34 10.13
DSP BlackRock Banking & PSU Debt Fund - Reg -
Growth 100.00% 2.62 8.03 1.21 3.40 7.13 9.29
Birla Sun Life Short Term Fund - Reg - Growth 91.59% 2.04 ^ 8.06 1.80 3.98 8.34 9.85
HDFC Short Term Opportunities Fund - Growth 82.65% 1.68 8.36 1.43 3.63 7.97 9.37
L&T Short Term Opportunities Fund - Growth 100.00% 2.60 8.11 0.97 3.21 7.18 8.94
Crisil Short Term Bond Fund Index -- -- -- 1.61 3.76 8.12 9.39
Crisil Composite Bond Fund Index -- -- -- 1.13 3.47 7.00 11.18
Returns (%) as on 29th February 2016. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio details are on 29th January 2016.
^ Modified Duration
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60
Performance of some recommended MIPs
Scheme Names AAA or
Equivalent
Avg.
Maturity
(Yrs)
Debt
Allocation
(%)
Equity
Allocation
(%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years
UTI - MIS - Advantage Fund -
Growth 67.58% 6.60 76.07 23.93 -1.75 -0.70 1.29 12.08
IDFC Monthly Income Plan - Reg
- Growth 74.25% 5.85 76.89 23.11 -2.46 -1.46 0.38 10.68
Canara Robeco Monthly Income
Plan - Growth 75.07% 15.17 79.16 20.84 -4.73 -3.24 -2.63 9.46
UTI Monthly Income Scheme -
Growth 70.80% 5.24 86.62 13.38 -1.29 -0.40 1.35 9.36
Birla Sun Life MIP II - Savings 5 -
Reg - Growth 80.88% 6.85 ^ 90.61 9.39 -0.61 0.58 2.88 11.06
Crisil MIP Blended Index -- -- -- -- -0.91 0.95 2.33 10.46
Returns (%) as on 29th February 2016. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio details are on 29th January 2016.
^ Modified Duration
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61
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change. Computations adopted in this note are indicative and are based on current market prices and general market sentiment. No representation or warranty is given by
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company regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this note and should understand that
statements regarding future prospects may not be realized. It may be noted that investments in equity and equity-related securities involve a degree of risk and investors
should not invest any funds unless they can afford to take the risk of losing their investment. Investors are advised to undertake necessary due diligence before making an
investment decision. For making an investment decision, investors must rely on their own examination of the Company including the risks involved. Investors should note
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damages, including lost profits arising in any way from the information contained in this material.
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contained herein shall not form the basis of any contract. It is also not meant to be or to constitute any offer for any transaction.
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Disclosures:
Research analyst or his/her relatives or HDFC Bank or its associates may have financial interest in the subject company in ordinary course of business. Research analyst
or his/her relatives does not have actual/ beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of
publication of research report: HDFC Bank or its associates may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month
immediately preceding the date of publication of research report. Subject company may have been client of HDFC Bank or its associates during twelve months preceding
the date of publication of the research report. HDFC Bank or its associates may have received compensation from the subject company in the past twelve months. HDFC
Bank or its associates may have managed or co-managed public offering of securities for the subject company in the past twelve months. HDFC Bank or its associates
may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. HDFC Bank or
its associates may have received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject
company in the past twelve months. HDFC Bank or its associates has not received compensation or other benefits from the subject company or third party in connection
with the research report. Research analyst has not served as an officer, director or employee of the subject company. Neither research analyst nor HDFC Bank has been
engaged in market making activity for the subject company. Three year price history of the daily closing price of the securities covered in this note is available at
www.nseindia.com and www.bseindia.com.