A monthly investment update Issue: April, 2016 Vol : 33

K NOWL E DGE P OWE R . WE ALT H E NHANC E R

For private circulation only

actions of central banks and a recov-ery in the oil price were important contributors to the market turnaround. The MSCI Emerging Markets index posted a solid gain and outperformed MSCI World in the first quarter of 2016. Emerging markets rebounded strongly, with several markets supported by a deferral in expectations of monetary tightening in the US and an easing in US dollar strength

Read the detailed report inside .

Thanking you,Best Regards,

Krishnan Ramachandran ,CEO

SHAM’S SUGGESTS

earn save invest

Many of us give utmost important to preserving the capital while investing. Such investors pour their money to secure investment avenues, overlooking the villain in the picture: Inflation. That is why it is very important to invest in avenues, which in the long term helps beat inflation

“Beat Inflation”

Dear Investor,Greetings! Indian equity markets witnessed a strong up-move along with other emerging markets in the month of March 2016. RBI (Reserve Bank of India) cut the benchmark Repo Rate by 25bps in line with expec-tations to 6.50%. While the rate cut was largely in line with expectations, RBI also announced a series of measures to improve the overall liquidity in the system. The INR appears stronger than most of the other EM currencies.

Global equities followed a V-shaped trajectory over the quarter, with stocks falling sharply to mid- February and rebounding thereafter to end virtually flat in US dollar terms. The

INFLATION

Editorial

INTERVIEW EXCERPTSINVESTMENT IDEAS

Bharat Electronics Ltd (BEL) is a Navaratna enterprise having 37% market share in Indian Defence Electronics. BEL’s core capabilities are in radar & weapons systems, defence communication & electronic warfare.

Indian Defence industry on cusp of change...Government of India is giving greater priority to defence in its “Make in India” programme with emphasis on indigenization to reduce import cost. Some of the measures taken in this direction include: hike in FDI in defence to 49% from 25%, fast tracking of Rs2,3900cr projects and relaxed industrial license norms to build domestic capabilities. Also minis-try of defence is likely to announce new defence procure-ment policy in which Indian designed, developed and manu-factured products to get priority with focus on enhancing the role of MSMEs & deep interaction with the industry at every stage of procurement.

Defence Electronics a thrust area...Defence electronics is impetus for better performance of defence forces and all major global forcesare arming themselves with

products including radars, unmanned aerial vehicles, network centric systems, electronic warfare and tactical communication systems to gain upper hand from its peers. The opportunity in Indian defence electronics is estimated to be more than USD70bn over the next 10-15 years.

Leader in Defence Electronics...BEL has limited competition from other private players due to its niche capabilities and strong technological tie-ups (both national technical laboratories & joint ventures with global defence players). The strategic nature of projects, capital inten-sive nature & high gestation periods act as strong barriers for competition. BEL spends 8% of sales in R&D and 80% of its products are developed indige-nously which underlines its leadership position.

ValuationsAt CMP, BEL is trading at 20x and 18x FY17E & FY18E EPS of Rs61 & Rs68 respectively. Going forward BEL will benefit from healthy order book which is 4.6x of FY15 sales at Rs32,333cr. We value BEL at 20x on FY18E, with a target price of Rs1,355 and we have a „Buy‟ rating for the stock.

BSE CODE: 500049NSE CODE: BELBloomberg CODE: BHE IN

BUY

Rating as per Large Cap

12 month investment period

CMP Rs 1199

TARGET Rs 1355

RETURN 13%

THE LEADER IN DEFENCE ELECTRONICS...

Geojit BNP Paribas Research

BHARAT ELECTRONICS LTD

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For full report and disclaimer click here http://goo.gl/PwxuAu

Defence Electronics

FUND WATCH

Liquid Funds

ELSS

Large Cap Equity Funds

Midcap Equity Funds

Small Cap Equity Funds

Balanced Fund

# Absolute returns are shown in case of Equity Index funds, Equity Funds,Balanced Funds, Fund of Funds for the period less than one-year

Indian Fund performanceAs on 08.04.2016 5 YRS

Return

3YRS1YRS6 Mnth3 Mnth1 Mnth

SBI BlueChip Fund-Reg

Franklin India Bluechip Fund

Birla SL Frontline Equity Fund

Birla SL Top 100 Fund

2.78 0.08 -2.21

2.54 1.57 -4.20

2.17 -0.29 -4.56

2.07 -1.36 -5.67

-5.62 20.34 13.36

-7.12 14.82 8.91

-8.24 18.14 11.14

-8.56 19.12 11.58

SBI Magnum MidCap Fund-Reg

Kotak Emerging Equity Scheme

HDFC Mid-Cap Opportunities Fund

Sundaram Select Midcap

5.94 -2.81 -0.62

6.05 -2.91 -3.89

4.86 -3.15 -3.93

5.01 -4.81 -5.33

-0.66 34.20 20.79

-5.05 28.62 17.40

-5.18 28.44 18.40

-5.37 28.70 16.83

Reliance Small Cap Fund

DSPBR Micro-Cap Fund-Reg

5.87 -8.77 -3.43

6.25 -5.88 -3.05

-0.31 38.03 20.02

-0.86 40.20 21.19

Birla SL Pure Value Fund

HDFC Capital Builder Fund

ICICI Pru Value Discovery Fund

2.21 -5.92 -2.45

3.52 -3.59 -3.92

2.63 -2.55 -6.39

-4.19 30.74 17.36

-7.02 19.76 11.03

-9.93 26.14 16.72

DSPBR Tax Saver Fund-Reg

Reliance Tax Saver (ELSS) Fund

4.27 -1.52 -2.45

4.31 -3.64 -3.33

-6.01 21.39 12.33

-14.53 24.90 14.58

ICICI Pru Liquid Plan 9.27 8.19 7.92 8.18 8.85 9.06

HDFC Balanced Fund 3.44 -0.36 -2.78 -4.17 20.60 13.44

FUND WATCH

NEW FUND OFFERS

International Fund performanceReturn

5 YRS3YRS2YRS1YRS6 Mth2 Mth1 Mth

Equity Schemes

As on 08.04.2016

Closed-end

Fund Name Opening Date Type

Closing Date

“Disclaimer : Investments in equity, commodity, currency, futures & options are subject to market risk, please read the risk disclosure document before investing. Past performance does not guarantee returns in the future.”

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INTERVIEW EXCERPTS ARTICLE

liquidity easing measures. In this meeting, the RBI reiterated that the “monetary policy stance will remain accommodative”.

Impact: Banks cost of borrowing from RBI is expected to come down while parking funds with RBI will fetch higher returns. This would lower cost of funds for banks which inturn would further aid monetary policy transmis-sion.

Liquidity Easing Measures:

Moving from Liquidity deficit mode to Neutral mode: RBI will progressively lower the average ex-an-te liquidity deficit in the system from currently 1% of NDTL to neutral. This is a significant shift in RBI’s stance and will help in reducing banks’ funding cost.

In the first bi-monthly policy of the FY2016-17, the RBI cut key policy rate by 25 bps and announced revised liquidity framework for monetary policy operations in form of slew of

25 bps cut in Repo rate: RBI has cut the policy repo rate by 25 bps points to 6.5% in line with its accommoda-tive stance.

Narrowed the policy rate corridor: RBI has reduced policy rate corridor from +/- 100 bps to +/- 50 bps by reducing the Marginal standing facility (MSF) rate by 75 bps to 7% and increasing the reverse repo rate by 25 bps to 6%). This was done with the view to ensure alignment of weighted average call rate with repo rate. This is line with Urjit Patel committee report recommendations of setting up of corridor between reverse repo, repo, and MSF at 100bps.

Accommodative Stance with Structural Liquidity improvements measures in slew

Monetary Policy measures:

Reliance Capital Asset Management ltd

INTERVIEW EXCERPTS

(i.e. Banks cutting lending rates) are the prerequisites. FY17 Growth projection maintained: RBI maintains its FY17 projection for the Indian economy at 7.6% on assumptions of normal monsoon, boost to consump-tion demand from 7th Pay commission implementation and OROP and continuing monetary policy accommo-dation.

The stance of monetary policy remains accommodative. “The RBI will contin-ue to watch macro-economic and financial developments in coming months with a view to responding with further policy action as space opens ups”. In our view, the Policy stance remains accommodative and data-dependent but space for aggres-sive cuts has narrowed down.

The RBI’s economic assessment indicates steady decline in inflation and moderate economic growth:

Inflation projection: Inflation has evolved along the RBI’s projected trajectory. Going forward, CPI inflation is expected to decelerate modestly and remain around 5% during FY17. Upside risk are in form of monsoon, implementation of 7th Pay commis-sion implementation and rise in oil prices.

GDP projection: RBI has retained its GDP projections at 7.6% for FY17 on assumptions of normal monsoon, likely boost to consumption demand from implementation of 7th Pay commission and OROP and accommo-dative monetary policy.

Liquidity: RBI has changed the liquidi-ty framework for monetary policy operations and has decided to move from Liquidity deficit mode to neutral mode - by providing ample of durable liquidity first and then the short-term liquidity measures.

Provide durable Liquidity to meet the liquidity deficit: RBI intends to meet requirements of durable (permanent) liquidity first (through reserve money creation) and then fine-tune short-term liquidity (through term repos). For durable liquidity, the RBI intends to depend extensively on Open Market Operations (OMOs) and Forex intervention strategies.

Reduction in Daily Cash Reserve Ratio (CRR) requirement: RBI has reduce the minimum daily mainte-nance of CRR from 95% of the product requirement to 90% with effect from fortnight beginning April 16, 2016. This move will provide additional liquidity to the banks in times of deficit.

Moderate the seasonal build-up of Government cash balances in consul-tation with the Government: This measure, if implemented, would help in easing liquidity conditions especial-ly in fourth quarter of fiscal year, when the government normally runs huge government surpluses to keep fiscal deficit under control.

Inflation to remain on track: RBI expects the headline CPI inflation to trend towards 5% target by

March 2017 on the assumptions of normal rains. However, the risk to this inflation forecast is that the imple-mentation of 7th Pay commission might put upward pressure on inflation.

Further accommodation likely: RBI continued to remain accommodative and watch out for macro-economic and financial developments in the coming months with a view to respond with further policy actions. For further rate actions, normal monsoon, easing of Core CPI & Headline CPI numbers in coming months and transmission of rate cuts

Key Takeaways:

Policy Stance:

Macro View:

ARTICLE

INTERVIEW EXCERPTS

on liquidity is a big positive and support our Bull Steepener view. The change in the liquidity framework has increased market expectations of the magnitude and frequency of OMOs. With the RBI stating that it will supply permanent liquidity via aggressive bond purchases, our OMO estimate for FY17 stands at INR 80,000 crs – 1,00,000 crs. This additional demand for G-Secs from RBI will help in filling in the gap for the demand – supply mismatches for FY17.

Also, the narrowing of the policy rate corridor to +/-50bps from +/-100bps means lower volatility in overnight call money rates. The combination of better liquidity conditions, continued FPI flows , increased RBI demand for G-Secs, and more stable overnight rates is a positive development for the rates market. This should support G-Secs and bull steepen the rates curves.

We expect the 10-year yield to inch lower towards 7.00% - 7.10% by end-FY2017 on the back of further monetary easing by RBI, inflation remaining below RBI’s trajectory, OMO purchases for RBIs balance sheet expansion and quarterly increases in FPI debt limit.

The RBI’s policy stance remains accommodative. Along with the accommodative stance, the RBI has now clearly focused to enhance the existing liquidity framework. The revision in the liquidity framework, cut in key policy rate (along with the alignment of small savings rates with market rates) as well as the imple-mentation of the MCLR is expected to further facilitate transmission and in turn enhance monetary policy effica-cy.

We expect RBI to lower policy rate by an additional 25 bps in FY17 provided the hi-frequency inflation numbers continue to undershoot RBI’s projec-tions. Further management of durable liquidity through aggressive Open Market Operations (OMOs) is a big positive as far as lower bond yields are concerned and positive liquidity to encourage steeper yield curve going forward.

We reiterate that, Steepener and Roll-Down are the best strategy in the current market dynamics and remains the best defensive strategy to gener-ate stable returns over next 06 to 12 months .The shift in the RBI's stance

Market View:

Key Takeaways:

ARTICLE

Current (April 2016) Yield Curve March 2017 Yield Curve (E)

30 Yr20 Yr15 Yr10 Yr5Yr

8.30%

7.80%

7.30%

6.80%

INTERVIEW EXCERPTS

on further monetary easing . Positive Global trends can trigger huge domes-tic bond appetite.

With shorter end rates expected to ease further, Credit funds will come back to fore: With recent fall in the small savings rates & expected fall in FD rate products, credit funds can become attractive investment options given the higher spreads available right now. .Carry is the biggest driver of returns in a stable market.RMF Credit Funds are more focused on structured assets than simply going down the credit curve.

Impact on different Fund category going forward:

USTs and STFs would continue to benefit the most out of the bull steep-ening trade going forward. With positive liquidity framework of RBI, shorter end rates provide attractive carry opportunity at current absolute yields. There is clear visibility on outperformance over liquid funds.

Long Duration Funds would benefit over the next 12 months from the fall in yields across the curve .We expect scope for further capital gains exists

ARTICLE

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