icici nov 16 issuecontent.icicidirect.com/moneymanagermagazine/november_2016.pdfmanaging our...

Shilpa KumarMD & CEO

ICICI Securities Ltd.

We often overlook inflation while managing our personal finance. To most of us it is a macroeconomic concept that deals with finance on broader level and has very little to do with common man's financial activities. But it has direct and significant impact on our day-to-day life irrespective of financial status we hold. The wise solution to fight inflation is to concentrate on its precautions than cures.

Ideally, our money should grow at least 3% each year in order to retain future prices. Our personal finance should be well-built to beat any level of inflation. Either save and invest enough or take calculated risk that outdoes inflation effect. In any case, financial goals should not be suffered. Even inflation rate of 4% makes considerable difference to our standard of living.

Draw a strategy that can secure your financial future and keep you financially healthy during volatile/inflation time. There are investment instruments specially designed as inflation measures. Inflation Indexed Bonds (IIB) and Inflation Indexed National Savings Certificate (IINSC) not only provide protection against inflation but offer extra interest income above the average inflation rate.

Gold is our traditionally tried-and-tested investment hedge. In physical form, however, it loses value over the period of time. Exchange-traded gold funds, gold mutual funds, sovereign gold bonds are some of the options that can add modest diversity to your inflation-proof portfolio.

Another preventive strategy is to apply higher inflation rate while working a financial plan and setting long-term objectives. Goals like child's education, healthcare and retirement can be significantly damaged if not planned attentively. Consider inflation rate of 10-15% while investing for these long-term goals.

1ICICIdirect Money Manager November 2016

Investing for any financial goal is not a one-time activity. The portfolio should be reviewed and redesigned every year in accordance with respective inflation rate.

Consumer Price Index in the past decade has seen average rate of 8.07%. Which means investments with returns up to 8% cannot strengthen your finances if prices of goods and services rise beyond expectation. Since returns on debt and inflation rate move inverselya 100% debt-dedicated portfolio cannot beat inflation. However, including it in the portfolio is necessary as it is a source of safe, solid and stable returns.

Equity is by far is the most rewarding investment vehicle against inflation. History shows that stocks have performed exceptionally well over the long period of time with equity based balanced funds at 10-12% and equity funds at 12-15% returns. Their potential to match the pace of inflation shields your portfolio for a longer time.

Selecting an investment tool is both crucial and critical. The rate of return that is received after deducting current inflation rate consequences is the 'real rate of return' on an investment. It is this real rate of returns an investor should consider and not the nominal one before finalizing the investment.

Another tip is to stay invested in the market. Stock returns have a tendency to average out returns. Even volatile markets have boosted upright and fallen stocks have outperformed the leading ones over longer-term. As long as you stay invested there's a probability of earning substantial returns. Those with moderate or small risk appetite can opt for less aggressive stock. But including equity in your inflation-adjusted portfolio is highly recommended.

Lastly, it is also suggested to develop a habit of investing regularly. Invest small amount frequently into inflation-beating instruments. It will help reduce burden and also develop a wealthy habit of investing.

Our message remains the same –'Keep investing and stay invested for your life goals.' Through this magazine and our website www.icicidirect.com we want to make an earnest attempt to partner with you in setting and achieving your financial goals. Give us an opportunity to serve you, walk into any of your Neighborhood Financial Superstore and talk to us.

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While dealing with routine finances such as EMIs, latest investment product, e-commerce trends etc. most of us overlook bigger picture that affects our financial profile. Inflation is one such element in the economy which gradually yet significantly affects our finance on several levels. Hence it is important to know basic characteristics of inflation to get a grip over our personal finance especially during volatile economy.

Questions like what causes inflation, what makes it stronger, which tools can be implemented to prevent or even control inflation, how it affects a common man and how is it calculated keep coming to our minds. Their answers are very crucial in designing our personal finance. It is also necessary to be aware about where, on the inflation scale, India stands today and what has brought us here.

Considering all these, November issue of the magazine talks exclusively about 'inflation'. To give a clearer picture of this intricate concept we have put together basic information about inflation. The 'flavour of the month' is an attempt to provide an insight from a layman's perspective. It talks about all the hows and whys of inflation. Along with describing the facts we also intend to offer an informative piece that can help our readers improve their personal finance during inflation period.

This month's interview with Mr. Abhishake Mathur, SVP and Head - Investment Advisory and Service, ICICI Securities, is a brief account on co-relation between inflation and interest rates. As inflation has direct impact on interest rates and interest rates further upon individual's investment, this interview is an educational feature for all our readers.

This month's issue is also offering updated Mutual Fund Top Picks and Equity Portfolio to enlighten our investor-readers. The data is revised by our resourceful team of financial experts. So read ahead and stay updated. Do share your feedback at moneymanager@ icicisecurities.com and let us know your thoughts and opinions on our edition.

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

ICICIdirect Money Manager November 2016

Editor & Publisher : Abhishake Mathur, CFA

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

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

Coordinating Editor : Namrata Lonkar


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

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

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

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

Stock ideas: Exide Industries & Lupin.................................................5

Flavour of the Month

Inflation is not only about the change in price of goods but

change in value of money. It makes a considerable difference

to everyone who is part of Indian economy. Read this section

to know how and why it affects your life..................................13

Tête-à-Tête

Mr. Abhishake Mathur, SVP and Head - Investment Advisory

and Service, ICICI Securities, talks about co-relation between

inflation and interest rates. Unfolding the facts that are

overlooked but important to our personal finance...................26

Ask Our Planner

Our financial expert answers your queries that make significant

difference to your investment journey. Read it and know how

your investment choices affect your portfolio.......................... 28

Mutual Fund Analysis..................................................................... 32

Equity Model Portfolio.................................................................... 40

Quiz Time.......................................................................................47

Prime Numbers.............................................................................. 48

Premium Education Programmes Schedule....................................... 52

4

Note ban: Deposit rates fall, bond yields rise

Banks are expected to be inundated with deposits following the demonetisation of R1,000 and R500 notes by the government. However, lenders are unsure of how sticky these deposits will be and believe much of it could flow out soon. In the absence of meaningful demand for credit, lenders are preferring to keep their costs down so as not to jeopardise their margins. As of Wednesday, the inflows into SBI totalled R1.14 lakh crore.

Courtesy: The Financial Express

Faced with liquidity comfort, major lenders, including ICICI and HDFC Bank, on August 17, lowered FD rates by up to 0.25 per cent in view of surge in deposits following the demonetisation. The lowering in fixed deposit rates may herald reduction in lending rate as well in the next few days. Private lender Axis Bank has cut marginal cost of fund-based lending rate (MCLR) by 0.15-0.20 per cent. According to estimates, banks have collected cash deposit of over Rs. 4 lakh crore following the demonetisation decision announced on November 8 by Prime Minister Narendra Modi.

Courtesy: The Hindu

Cash flood: ICICI, HDFC Bank cut FD rates by 0.25%

Housing finance sector in for a wild ride

The housingfinance industry is one of those that has been pretty badly hit by demonetisation. Stocks have been sold down substantially. Interest rates are more or less guaranteed to come down. Banks are flush with deposits. The Reserve Bank of India will probably make a big rate cut in December (at least 50 basis points, perhaps 100 bps) to encourage business activity. This means housing finance companies can source funds cheaper and offer lower EMIs.

Courtesy: Business Standard


The uncertainty in goldprices seems to be settling after conclusion of the US polls. The metal is expected to see a correction soon and in the medium term (one to two years), investors can expect moderate returns. Gnanasekar Thiagarajan, director at Commtrendz Research, says that depending on rupee movement, goldcan even fall to Rs 26,000 per 10 grams.

Courtesy: Business Standard

Gold will remain below Rs 30,000 in coming months.

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STOCK IDEAS


Exide Industries – Market leader well placed to gain from demand recovery…

Company BackgroundExide Industries (EIL) was

established in 1946 & is among

the leading producers of lead

acid storage batteries for both

automotive and industrial

applications globally. As of

FY16, the company has

manufacturing capacity of 12.2

mn/units & 22 mn/units' of 4-W

& 2-W batteries while its

industrial battery capacity

stands at 2824 mn/mAhr. The

company overall has ~9 plants

across India with an employee

strength of >5,000. EIL has

presence over 35,000 retail

network and over 40 countries.

In terms of revenue mix, 62%

of the total revenue is from the

automotive segment while the

remaining of 38% is from the

Industr ia l segment. The

c o m p a n y h a s s t r o n g

relationship with marquee

clients including Maruti Suzuki,

Tata Motors, M&M, Hero,

General Motors, Honda,

Lucent, ABB etc. Apart from

the battery segment, EIL

through its subsidiary also has

an insurance arm and smelting

division (which caters ~40% of

its captive requirement).

In FY12-16, the overal l

automotive demand scenario

remained subdued (volume

CAGR of ~4%). However, with

normal monsoons and the

positive impact of the Seventh

Pa y C o m m i s s i o n , O E M

demand has seen a recovery

with volumes on a YTD basis

up 11.9% YoY. We believe OEM

demand is likely to continue

(expect CAGR of >10%) to

benefit EIL, as it is the market

leader in the automotive

battery space (market share of

>60% in the OEM). Also,

assuming a three phase

replacement cycle, we expect

automot ive replacement

demand to revive (up ~15%) in

FY18E, which will be positive

for EIL. The industrial battery

segment is likely to pick up

gradually in line with overall

economic improvement. As

per the management, there

was an improvement in

Investment Rationale

Demand recovery to benefit EIL


STOCK IDEAS

demand for both automotive &

industrial battery segment in

H1FY17. We believe the trend

will continue, going forward &

thus estimate EIL's revenue

CAGR of 13.5% in FY16-18E.

The management has shifted

its focus to margins rather than

gaining market share at the

cost of profitability. The

company has a clear strategy

of hiving off the existing lesser

profitable OEMs. It is also

going slow on adding lower

profitable OEM within the

b a t t e r y s p a c e . T h e

management has set a target

of achieving & maintaining

EBITDA margins of >15% for

the next couple of years. We

believe this is achievable

through 1) cost cutting &

internal efficiencies and 2)

focus on more profitable

segment. EIL also has technical

co l laborat ions for both

automotive & industrial battery

space, which helps them

manufacture high quality

products. According to the

management, technology

upgradation & cost control

remain an important part of

Management focus on profitability

to support margins

EIL's strategy to improve its

profitability.

Keeping in mind the structural

recovery in automot ive

demand, EIL remains a play

that has strong re-rating

possibilities. Its cost reduction

initiative & focus on profitable

segment is likely to drive its

margins. Thus, we believe EIL

would see better days in

coming years & expect

revenue to register CAGR of

13.5% while EBITDA & PAT is

expected to grow 19% each

over FY16-18E. Hence, we

value its core business at 20x

FY18E EPS of 10.3. Further, EIL

also has an insurance arm.

Keeping in mind the recent

deals and valuations of its

peers in the insurance

business, on a conservative

basis, we value its business at

1.6x FY16 embedded value

with 20% holding discount to

arrive at a price of 28/share.

Thus, on a SOTP (including

value of smelting division) we

arrive at a target price of

2 4 0 / s h a r e w i t h a B U Y

recommendation on the stock.

Market leader avai lable at

attractive valuations

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STOCK IDEAS

Stock Data

Key Financials

Valuations Summary

Key risks include:

Volatility in lead price (key input) …Volatility or adverse movement in the average lead price which is key input for EIL might impact its operating performance. Lead & Lead Alloys are the primary materials consumed in the manufacture of batter ies representing >70% of total material consumption by value. About 30% of company's business is with OEM which has Lead price variation clause

(ability to pass on) however balance 70% is with retail customers which is exposed to lead price volatility.

We believe any slowdown or delay in demand recovery could impact company's top-line growth. Further EIL is also expanding its capacity and any delay in recovery will further result into higher overhead cost impacting its performance going forward.

Slowdown/delay in demand might impact its growth

Net Sales 6,874.2 6,809.2 7,607.0 8,768.2

EBITDA 907.7 1,010.6 1,166.0 1,423.3

PAT 545.9 622.7 718.3 875.3

EPS (`) 6.4 7.3 8.5 10.3

` Crore FY15 FY16 FY17E FY18E

(x) FY15 FY16 FY17E FY18E

P/E 27.1 23.8 20.4 16.8

Target P/E 32.7 28.6 24.6 20.3

EV / EBITDA 16.3 14.6 12.7 10.4

P/BV 3.6 3.3 3.0 2.7

RoNW (%) 13.5 14.0 14.7 16.1

RoCE (%) 18.9 18.7 19.7 22.3

Market Capitalization 14,739.0

Total Debt 102.5

Cash 73.8

EV 14,767.7

52 week H/L ( ) 208 / 116

Equity capital 85.0

Face value ( ) | 1

FII Holding (%) 19.2

DII Holding (%) 22.3

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STOCK IDEAS

ANALYST CERTIFICATION We /I, Nishit Zota, MBA & Vidrum Mehta, MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:ICICI Securities Limited is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

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

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

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

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

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

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.

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

It is confirmed that Nishit Zota, MBA & Vidrum Mehta, MBA, research Analyst of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.

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

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

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

It is confirmed that Nishit Zota, MBA & Vidrum Mehta, MBA, research Analyst do not serve as an officer, director or employee of the companies mentioned in the report.

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

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

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

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


STOCK IDEAS

Lupin - Outlook upbeat on strong US prospects

From a global leader in anti-tuberculosis (TB) and other infectious diseases to one of t h e f a s t e s t g r o w i n g prescription companies in the US, Lupin has come a long way to emerge as a leading Indian generic exporter. Established in 1968, the company adapted well as per the changed industry dynamics like other peers such as Sun, Dr Reddy's, Ranbaxy and Cipla. During this journey, it changed focus in therapies - from acute to chronic and also geographies, from domestic driven to export oriented. It received USFDA approvals for two facilities- Ankaleshwar and Mandideep way back in 1989. Besides this, the company has been fairly active on the global M&A front. It has acquired companies in J a p a n ( s i g n i f i c a n t acquis i t ions) , Aust ra l ia , Philippines and South Africa. Similarly, the company also acquired small ticket but lucrative brands in the US (Suprax, Antara, Locoid lotion, Inspira Chamber and Alinia). Its latest acquisition, it has acquired US based Gavis

Pharmaceuticals and Novel laboratories for US$880 million in March 2016. Infrastructure - 11 manufacturing facilities including two in Japan – seven formulations (three USFDA approved) and four APIs (two USFDA approved).

Lupin's US business (~43% of total turnover) is witnessing a shift from branded to generics with a slowdown in the branded space and emergence o f g e n e r i c s . Po s t t h e acquisition of US based Gavis, the company now owns one of the strongest ANDA pipeline comprising 338 filed ANDAs and 142 pending approvals including 45 FTFs. This acquisition will strengthen its position in dermatology, controlled substance products and other high value niche generics segments besides its m a i d e n f o r a y i n t o U S institutional business. We expect US sales to grow at a CAGR of 23% in FY16-19E to 11068 crore.

Investment Rationale

US business main growth engine despite pricing headwinds

`


STOCK IDEAS

Indian formulations growth steady

Core strength in geographical diversification, strong financials

Lupin ranks fifth in domestic formulations with a market share of 3.4%. The acute: chronic: sub-chronic ratio for the company is at 27:39:33. In terms of MR productivity, at 60lakh per MR it has one of the best MR productivity among large cap peers. Recent tie-ups with Eli Lilly and Boehringer for anti-diabetics and with MSD for pneumonia vaccines are some of the steps to bolster the domestic franchise. We expect sales from India to grow at a CAGR of 14% in FY16-19E to 5032 crore.

Lupin is bearing the fruits of geographical diversification for broad based growth. It has established a significant presence in the US by 1) f o c u s i n g o n l i m i t e d c o m p e t i t i o n / F T F opportunities, 2) concentration on niche therapies such as oral contraceptives, dermatology, ophthalmology, respiratory, etc, and 3) acquiring small but profitable brands at the right price. It is slowly but surely establishing itself in other

`

`

geographies such as Japan and Australia. Higher growth on a fairly consistent basis, a strong balance sheet (despite Gavis acquisition) and high return ratios are some of the differentiators for Lupin b e s i d e s m a n a g e m e n t pedigree.

With the Goa EIR (Indore earlier), a major overhang has been neutralised and the company can focus on the launches at a regular interval. The management is now guiding for 30+ launches annually in the US in FY18 and it expects the trend to continue going ahead. Ramp up at Gavis is also likely to support launches. With one of the strongest pending pipelines in t h e U S ( 1 4 2 p e n d i n g approvals) at its disposal, the company is well poised to address the pricing issue. India and Japan are likely to complement the US driven growth. We remain upbeat about future prospects and maintain BUY with a target price of 1890 based on 22xFY19E EPS of 85.7.

Outlook upbeat on strong US prospects

``


STOCK IDEAS

Key Financials

Valuations Summary

Stock Data

(` crore)

Revenues 14,208.5 18,151.4 20,386.4 24,071.2

EBITDA 3,733.4 4,455.9 5,004.1 6,149.2

Net Profit 2,270.7 2,835.1 3,021.5 3,861.9

EPS (`) 50.4 62.9 67.1 85.7

( Crore) FY16 FY17E FY18E FY19E `

PE (x) 27.9 22.4 21.0 16.4

Target PE (x) 37.5 30.0 28.2 22.0

EV to EBITDA (x) 18.7 14.9 12.9 10.1

Price to book (x) 5.8 4.8 4.0 3.3

RoNW (%) 20.7 21.3 19.1 20.3

RoCE (%) 18.6 19.6 20.6 24.3

FY16 FY17E FY18E FY19E

Market Capitalisation 63,514.7

Debt (FY16) 5,719.9

Cash (FY16) 1,327.1

EV 67,907.5

52 week H/L 1912/1294

Equity capital 90.3

Face value (`) 2.0

Key risks include:

Regulatory hurdles

Costly Acquisition

Lupin gets significant part of its revenue from US market (43% of sales in FY16) and any delay in regulatory approvals or adverse USFDA action could impact our estimates.

Lupin has completed acquisition o f U S b a s e d G a v i s

Pharmaceuticals and Novel laboratories for US$880 million in March 2016. Gavis posted sales of US$96 million in CY14 with EBITDA margins of 36%.Gavis like costly acquisitions can stretch the balance sheet further if the product pipeline fails to deliver the expected payback.


STOCK IDEAS

ANALYST CERTIFICATION We /I, Siddhant Khandekar, CA Inter and Mitesh Shah, MS (finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:ICICI Securities Limited is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

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

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

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

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

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

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.

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

It is confirmed that Siddhant Khandekar, CA Inter and Mitesh Shah, MS (finance) Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.

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

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

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

It is confirmed that Siddhant Khandekar, CA Inter and Mitesh Shah, MS (finance), Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

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

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

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

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities

described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

13

FLAVOUR OF THE MONTH

Inflation: How and why does it matter?


In August 2016, the finance ministry of India notified the consumer inflation target of 4% for next five years (until 2021), with an upper tolerance level of 6% and lower limit of 2%. While most economists are optimistic about stable inflation in the vicinity of four per cent, the slow growth of I n d i a n e c o n o m y c a n significantly influence this balance. Our personal finance is one of the vital elements of economy, and vice versa. So does this mean changes in economic growth directly affect our personal finance? Read on to find out….

Our economy is constantly under the process of changes and developments. Data of previous decade indicates that everything from rice to electronics has undergone gradual change in terms of prices. Although this pattern of fluctuating costs is inevitable, one must know what causes these changes? With passing years the value of our currency erodes which widens the gap between available resources and purchasing power. This, in

economics, is termed as inflation. Simply put, inflation is nothing but a situation where the level of cost of living increases due to weakened power of rupee.

Introduction to inflationThe widely accepted definition of inflation describes it as 'increase in general price level of goods & services'. This 'general level' means sustained increase in cost of more than one or two products. For example, set of particular goods in 'X' country remains Rs. 10 for 2 years. Whereas, the price of same set of goods in country 'Y' has increased from Rs. 10 to Rs. 30 in last couple of years. Here, country 'Y' is suffering from inflation due to sustained hike in prices of goods.

Inflation is not only about the change in price of goods but change in value of the money. It is measured on the basis of difference between previous and existing price of the consumer basket (most commonly bought food and household items). Which means if price of apples

14



increases and price of oranges falls (assuming both apples and oranges are consumed equa l ly ) , average pr ice remains constant and hence there is no inflation.

Inflation thresholdsIf rise in price of goods and services is inflation, fall of the same price in economy is called as deflation. The economists suggest nominal amount of inflation (up to 3%) is in fact healthy for any economy. A balanced growth of economy can be ensured only when inflation level has not underdone or overdone its threshold limit.

<0% Deflation

0% - 2.5% Price stability

2.5% - 5.0% Moderate inflation

5% - 8% serious inflation

8% - 12 % Self-compounding inflation

12% - 20% Hyperinflation

20% + Explosive inflation

To give some hallmark events across the world in the history of inflation: Germany was hit brutally by inflation after the end of World War I. The prices were soared up to 140% and were increasing rapidly every week. Russia in 1923, Greece in 1944, Zimbabwe in 2008 are s o m e o f t h e n o t a b l e

hyperinflation examples world has seen. But in the history of global economics, Hungary w i t n e s s e d t h e w o r s t hyperinflation ever. Prices of daily goods were rising at the lightening rate of 150,000% every day during this period.

Inflation Causes

Demand-pull inflationWhen economy suffers from an over-thriving demand that outstrips supply it is known to be a demand-pull inflation. This is the most commonly observed type of inflation across the globe. If supply of the general goods and services is unable to match unusually rapid pace of consumer demand available resources bear the pressure.

In the situation of booming demand, sellers/producers raise the prices in order to make bigger gains on the sale. The national GDP growth rate o u t p e r f o r m s i t s o w n anticipated pace. There are number of reasons responsible for this sudden upraise of demand in an economy.

Expansion of money supply by central bank is one of the most important reasons amongst all.

15



This enhances purchasing power of the consumer but does very little improve nation's produce or sources. Also, once the consumer senses that prices are picking up he would want to make bigger and sooner purchases to avoid further price hike.

(Graph shows the nature of

demand-pull inflation where

demand curve shifts/ increases

from D0 to D1 while supply (S)

remains constant)

Exchange rate depreciation is another cause of demand-pull inf lation. The difference between price of imported goods and foreign price of exported goods leads to declined currency exchange rate and hence rise in average demand. Meaning, rapid growth of other economies severely affects demand of both imports and exports.

Another reason for this kind of inflation can be favourable tax regulations. Tax-relieving government policies reduces tax burden off individual's shoulders. And lower tax increases their disposable income and indirectly the need of demand. Similarly, lower interest rates encourage people to borrow money and hence expand their purchasing power.

In the 1980s, the UK experienced rapid economic growth. The

government cut interest rates and also cut taxes. House prices

rose by up to 30% fuelling a positive wealth effect and a rise in

consumer confidence. This increased confidence led to higher

spending, lower saving and an increase in borrowing.

However, the rate of economic growth reached 5% a year –

well above the UK's long run trend rate of 2.5 %. The result was

a rise in inflation as firms could not meet demand. It also led to

a current account deficit. - EconomicsHelp

16



Cost-push inflationIf producer raises the price of commodities due to increased labor, raw material or any other pre-manufacturing cost it is termed as cost-push inflation. Unlike demand-pull, here the demand stays put or changes marginally, but that is not the

(Graph shows the nature of cost-push inflation where aggregate supply decreases from SO to S1 thus leading to change in general level of price from Z to Y.)

Rising wages is one of the most crucial causes of cost-push inflation. This may happen due to two reasons. First, during an underemployment period, firm is lack ing sk i l led labor therefore it may give raises to continue production. Second, if inflation expectations are sensed by labor unions they may ask for higher wages. Since wages formulates

reason of increased general price level of goods and services. Manufacturers set higher market prices due to increased production costs. And since there is scarcity of supply, the consumer is ready to buy at soared price.

important cost to a firm it ultimately impacts market price of goods and services.

Moreover, a company that has capacity to monopolies market can also become a cause of cost-push inflation as the supply is solely controlled by one party it gives them liberty to make changes in the prices.

17



Natural disasters like floods,

earthquakes etc. severely

damages country's production

c a p a c i t y. O v e r u s e a n d

e x p l o i t a t i o n o f n a t u r a l

resources like crude oil, natural

Source: tutor2u (Economics)

Monopoly power over oil was the goal behind the formation of OPEC, the Organization of Petroleum Exporting Countries. As long as these oil-exporting countries competed with each other on price, they could not receive what they thought was a reasonable value for a non-renewable natural resource. By banding together, the members of OPEC produce 42% of oil each year, and control 80% of the world's proven oil reserves. As long as they conform to OPEC's price decisions, they can raise oil prices, creating cost-push inflation. This happened during the1970s oil embargo, when OPEC restricted oil in 1973, quadrupling prices. – The Balance

gas is another reason that can

restrain supply and lead to

p r i c e h i k e . B e s i d e s ,

government taxation rules also

have direct impact on pricing

of goods and services.

18



Impact of inflationInflation affects every sector of society on different levels. It can create massive crisis for some while make marginal difference to others, but it certainly affects each and every one of us. To give a clearer idea, we have listed down groups and impact of inflation over them.

On consumersEconomists say, in any economy consumer gets the major stab of inflation since it directly hits his purchasing power. As rise in prices of goods weakens one's capacity to buy things, inflation affects s tandard o f l iv ing. For example, if you were able to buy 1 kg rice for Rs. 100 earlier; post-inflation same money may not be sufficient to buy that amount of rice. And if the price keeps marching up, you may end up paying Rs. 100 for just half a kg rice over few days.

Due to this fear of racing inflation, many consumers prefer to buy today than tomorrow. This further leads to extra demand while supply remains scarce. Increased demand pushes distributors to

escalate already-hiked prices and the cycle continues until stopped by some external measure.

On investorsThe impact of inflation on your investments depends upon the vehicles you have invested in. An investor holding assets like stocks or gold bonds receives a pos i t ive returns out of inflation. This is considering he has purchased these assets before prices were increased and his income is increasing at faster or similar rate as that of inflation rate.

Stocks have historical ly performed well in the long run keeping up with the speed of inflation. But one has to first accurately spot the stock that has potential to yield inflation-beating results in order to tackle inflation. Meaning, if stock A and stock B are offering 7 % a n d 9 % r e t u r n s respect ively, during the inflation rate of 8%, stock A will give negative returns while stock B will continue to give marginally better yet inflation-matching returns.

Fixed-income investments suffers the most during

19



inflation. The first thing Reserve Bank of India does in inflation is raising short-term interest rates. The step is taken to rein the credit demand which can worsen the already tensed financial scenario. Since returns over debt funds/bonds and interest rates are inversely correlated, rising interest rates slows the growth of debt market and thereby f i xed - income inves to r ' s portfolio.

For instance, let's say you paid Rs. 100 for a dozen of fruits today. If the inflation rate is 4%, that same dozen would cost you Rs. 104 after a year. Now assume you had invested in a debt fund with 2% rate of return earlier this year. So after a year, your investment will be worth Rs. 102. Which means, even if the principal value is increased by 2%, your 'real returns' are negative (-2%).

On imports & exportsAs discussed earlier, inflation causes depreciation of money. It means currency (INR in this case) gradually loses power to buy foreign exchange. And this makes impor ted goods

expens ive and expor t s cheaper. So if tomorrow India faces high inflation, our goods become more expensive as compared to other goods in global market and it affects their competitiveness. This results into fall of Indian exports and thereby fall of Indian Rupee (INR).

On lenders and borrowersInflation affects borrowers and lenders both positively and negatively, depending on the circumstances. If a person has borrowed money before inflation occurred (that has also given rise to wages), the inflation, in fact, proves favourable for the borrower. This way, loan amount remains constant even after inflation but increased wages improves borrower's ability to pay off the debt.

However, for the lender, there are multiple benefits of inflation over the lent amount. If there is no increase in wages during inflation time, people will have to look out for loans to meet their financial needs. Besides, the lender makes profit out of increased interest

20



rate as people will have no other option than to borrow at given rate. For example, if the price of footwear goes up from Rs. 1500 to Rs. 1600 due to inflation, lender will now earn 10% on Rs. 1600 not on 1500.

Moreover, inf lat ion also increases cost of living. Thus spending more on basic living e x p e n s e s d i m i n i s h e s b o r r o w e r ' s r e p a y m e n t capacity. And even if he takes long to pay off the debt, lender still gains by earning bigger interest.

Inflation indexes: How is it measured?There are several things s t a t i s t i c i a n s t a k e i n t o consideration while measuring inflation. Inflation rate is calculated on the basis of comparison between prices of goods and services that are p r i m a r i l y r e p r e s e n t i n g consumpt ion of overa l l population over the period of time. This gives us the price index which determines the change in cost of common goods at starting of the year over the course of twelve months. It is derived in the form of percentage.

Indices are measured on the basis of fluctuation of certain sets of goods. But certain items are more volatile than others and change in their price and thereby inflation rate cannot be applied to other less-volatile items. Thus different indices are generated to calculate inflation depending upon what goods are taken into account.

Consumer Price Index (CPI) and Wholesale Price Index (WPI) are two main indices of measuring inflation in India. CPI measures change in price f r o m a c o n s u m e r ' s perspective. It calculates index over the retail prices of most commonly consumed goods which represent large segment of Indian market, but not whole.

WPI on the other hand represents wholesale goods i.e products which are sold in bulk amount and t raded by o r g a n i z a t i o n s a n d n o t consumers. It is thus used by b igger ins t i tu t ions l i ke government, bank, business industries etc. The percentage difference between WPI at the beginning and end of the year determines our inflation rate.

21



WPICPI divergence Source-economic survey

Inflation in India

Chart – historic CPI inflation India (yearly basis) – full term

Source: inflation.eu

Being a developing economy,

India has witnessed several

ups and downs on the path of

financial stability. Over the

course of time, some efforts

turned out productive while

few didn't. Nevertheless, we

continuously work to balance

the graph & have managed to

maintain moderate inflation for

last subsequent three years.

22



Monetary policy declared by our central bank (Reserve Bank of India) is the key determinant o f s t a t u s o f i n f l a t i o n . Economists draw annual data by following WPI & CPI to calculate annual interest rate.

Inflation rate in India has averaged 7.54% from 2012 until 2016. The highest point during this tenure being 11.16% (November 2013) and lowest being 3.69% (July 2015)

Source: www.tradingeconomics.com | Ministry of Statistics and Programme Implementation (MOSPI) India

Experts on demonetization affecting inflation

The government's recent move to demonetize Rs 500 and Rs 1000 rupee notes could lead to moderation in inflation unless there is tangible action from the Reserve Bank of India (RBI). This will also lead to surge in bank savings and shrinking of money in circulation (MI), money supply as the excess cash in the system would be wiped off.- Arvind Panagariya, NITI Aayog Vice Chairman (Courtesy: Business

Standard)

This is a significant move which can be game changing and bring about structural changes in the economy. It also curtails some amount of that discretionary large spend which can have a cooling impact on inflation. There is a whole lot of positive structural impact which it will create in the economy.- Chanda Kochhar , ICICI Bank Chief (Courtesy: Economic Times)

23



Potential measures to control

inflationChanges in general level of

prices over the period of time is

i n e v i t a b l e . H o w e v e r ,

government and policy makers

are constantly working to

prevent drastic price changes.

Listed down are few such

measures which can be

implemented to control

inflation.

Monetary policy alterationMonetary policy is RBI's

instrument to manage money

supply in the economy. In

simple words it is a strategy

that decides basic interest rate

at which lenders will lent the

money and hence indirectly

controlling credit supply in

market.

Increasing interest rates of

bank automatically reduces

the demand of loan. Lack of

credit promotes savings and

a lso controls consumer

spending. And when the

demand and spending is at

bay, inflation is likely to stay

low.

Higher interest rates also mean

rise in exchange rate. Stronger

INR lowers the prices of

imports & increases the prices

of exports. It also encourages

firms to cut down production

cost thereby taking down cost-

push inflation.

Fiscal measuresFiscal policy consists of

government expenditure and

government revenue. By

reducing either one or both of

them government can bring

down inflation in the country.

Moreover, government can

also increase taxes so that

individuals reduce their private

spending. Increasing taxes

means extra revenue for the

government. And increased

revenue simply means there

will be no deficit planning

(borrowing).

Price controlRestricting general price level

of goods and services to rise

further is another potential

measure to tackle inflation. The

problem with this solution,

however, is inflation controlled

24



by this method cannot be

suppressed for very long. Price

control merely decreases

extent of inflation.

During the time of world war,

b a t t l i n g c o u n t r i e s

implemented method of price

control to stabilize their

economy. But prices in few

countries remained at peak

and this led to wide difference

between prices of goods

across global market. The

consequent result was sharp

price hike where war-fighting

countries suffered the most.

Increase in output As inflation is the result of

aggregate demand exceeding

available supply, enhancing

national output seems the

most appropriate solution.

Directing channels and forces

to productive methods that

can increase aggregate supply

in country will efficiently

control the inflation.

Investment choices to beat

inflationI t i s a n i n d i v i d u a l ' s

responsibility as much as the

g o v e r n m e n t ' s t o t a k e

preventive steps to fight

inflation. If you plan your

portfolio with proper research

and guidance it can be a lot

easier to manage personal

finance during high inflation

period.

EquityExperts have long beaten the

drum of equity investments to

stay ahead of inflation. Staying

invested in equity market for

long-term averages returns

and gives positive output over

the period of time. Nifty has

given average return of 16%

beating the inflation rate of 7%

over the period of last 10 years.

One can also opt for equity

mutual funds, which are

relatively less volatile than

equity market. Moreover,

equity mutual funds allows SIP

(Systematic Investment Plan)

which reduces the risk of

volatile market and also helps

t o b e a t i n f l a t i o n b y

considerable difference.

25



GoldGold, as commonly known as

inflation hedge can also be part

of inflation-proof portfolio.

Exchange-traded gold funds,

gold mutual funds, sovereign

gold bonds are efficient

substitutes to physical gold.

Gold is our traditionally

admired asset and including it

in the inf lat ion beat ing

portfolio is extremely crucial.

Inflation-indexed bondsSpecially designed to beat

inflation, these bonds give

positive returns both before

and dur ing in f la t ionary

economy. Investing some

amount frequently in these

bonds can protect your

portfolio from being affected

by inflation hike.

To outplay inflation, it is

important to first strategize

asset allocation. An ideal

portfolio should include assets

that have potential to offer

higher real rate of return.

Balanced diversification of all

assets (equity, debt, real

estate, gold &cash) maximizes

returns and minimizes inflation

risk. An expert advice by

financial planner can prove

helpful to build a healthy

customized portfolio.

In current scenario, India's

g o o d m o n s o o n , l a t e s t

amendments in the monetary

policy and efficient supply

management measures are all

indicators of positive inflation

scale. Moreover, consumer

inflation is likely to soften if the

growth rate accelerates. But

one must not get too optimistic

or rely solely on government's

moderation schemes. In order

to beat inflation, it is very

important to understand this

concept and learn about

potential ways to fight it. As

long as you manage your

personal finance efficiently and

build a substantial portfolio to

match the pace of economic

growth your financial health

stays secure and durable.

26

Tête-à-tête

‘Both very low inflation and very high inflation is detrimental for the long term economic growth.'

If inflation rises, central banks increase the interest rates to offset the decline in real interest rate and vice-versa. This is done with the intention to encourage the financial savings in the economy which is an important source of investment for a country, says Mr. Abhishake Mathur, SVP and Head - Investment Advisory and Service, ICICI Securities in an interview with ICICIdirect Money Manager. According to him benign inflation has brought nominal interest rates lower resulting into lower income for fixed income investors. Excerpts:


Q.

A.

Could you briefly tell us how inflation crops up?

Inflation is rise in the general price level of goods and services in the economy. When inflation goes up, there is adecline in the purchasing power of money. It is caused by two factors: demand side (if demand is growing faster than supply, prices will increase -

usually occurs in growing economies like India) and cost side (cost of producing goods grows due to factors like rise in raw material prices, higher wages, decline in productivity etc.) Inflation rate which ensures long term productivity and economic growth and encourages both savers and investors in the economy is desirable. Both very low inflation and very high inflation is detrimental for the long term economic growth.

How is inflation and interest rates linked?

In general, central banks maintain a positive correlation between inflation and interest rates and ensure that interest rates remain above inflation level. The difference between interest rates and inflation is real interest rates and central bankers ensure that real interest rates remain static and

Q.

A.

Abhishake Mathur, SVP and

Head - Investment Advisory and Service,

ICICI Securities

27

Tête-à-tête


in a narrow range most of the time. Therefore, if inflation r i s e s , c e n t r a l b a n k s increasethe interest rates to offset the decline in real interest rate and vice-versa. This is done with the intention to encourage the financial savings in the economy which is an important source of investment for a country.

What o ther fac to rs a re important while determining interest rates?

Inflation-Growth dynamic is the basic factor determining the interest rates in the economy. Assuming inflation cons tan t , i f the ac tua l e c o n o m i c g r o w t h o r expectation of growth in the near term is lower than the long term potential growth of the economy, interest rates are reduced to incentivise the i n v e s t m e n t s a n d consumption. Similarly, if the short term growth rate is higher than long term potential growth, interest rates are hiked to prevent the economy from over heating. Other factors which determine interest rates are global interest rate

Q.

A.

environment, risk premium, currency movement, liquidity scenario etc.

What is the impact of lowering of interest rates on investors?

In India, high yields on fixed i n c o m e a n d b o n d s haveensured that one could rely on them for a reasonable inflation adjusted returns. Our investment portfolios have tradi t ional ly been t i l ted t o w a r d s f i x e d i n c o m e . However, benign inflation has brought nominal interest rates lower resulting into lower income for fixed income investors.

Though the real interest rates are maintained, inflation doesn't impact all goods & serv ices un i formly. For example healthcare has seen a steeper inflation, so reliance on real interest rates is not a solution. In addition, as economies grow and become more stable, the real rates drop further. What this means for investors is that they need to look at their asset allocation s t r a t e g y a n d i n c r e a s e allocation towards equity.

Q.

A.

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

28

ASK OUR PLANNER


How your investment choices affect your portfolio

Q.

A.

I want to buy a comprehensive

accidental insurance for both me

and my wife. Can you please

suggest some good plans? Also,

does it make sense to buy a floater

or a separate cover? Do we have

any product in market where

accidental insurance and critical

illness are sold together? If so, does

that make sense? Please suggest

some good plans and the ideal

amount (or the way to arrive at it)

for the same.- Sailesh Damani

Personal accident insurance

policies generally cover risk of

death & disability due to

accidents. Most companies

provide a lumpsum amount on

a c c i d e n t a l d e a t h a n d

permanent total disablement.

Some companies provide the

sum insured in the form of

monthly payouts too in such

instances.

Apart from these, permanent

partial disablement is also

covered in these policies,

which will provide a specified

percentage of sum insured

epending on the disability

occurred. Some companies

offer a fixed amount every

week for a specified period if

there's a temporary total

disablement.

Some companies offer these

policies for a family, but the

sum insured will be separate

for the individuals covered in

the policy and will not work like

a floater policy, as it's a benefit

p o l i c y , a n d n o t a

reimbursement policy. Hence,

it doesn't make difference

between an individual policy

and a family policy, except that

there might be a discount on

premium in a family policy.

There are some policies which

offer both personal accident

insurance and critical illness

insurance together charging

premium or both put together.

There's hardly any difference

between taking separate

policies and both combined

into one. You can opt for this

29

ASK OUR PLANNER


combo-policy, only if you want

to cover both the risks.

How much cover is ideal for a

personal accident policy?

While taking a life insurance

policy, we generally consider

the kind of expenses required

by the dependents to arrive at

the sum assured to be availed.

While opting for a personal

accident policy, in addition to

the expenses required by the

dependents, we need to factor

in our expenses (both regular &

medical expenses due to

disablement) too for arriving at

the ideal amount to be insured

for.

You can browse through to find

out which policy suits you the

best. However, keep in mind

that the policy covers all

categories of disablement –

permanent total disablement,

permanent partial disablement

a n d t e m p o r a r y t o t a l

disablement and opt for an

amount close to the ideal cover

as suggested above.

I am working in private sector

company. My age is 54 years. Can I

Q.

invest in NPS and take benefit of

50000 under section 80ccd (1b) and

is it beneficial? What is the

procedure?- M. L. Joshi

You can invest in NPS and

claim a deduction of Rs.50,000.

You will have to open a NPS

account first through any Point

o f P r e s e n c e ( e g :

ICICIdirect.com) and then

make your contribution in the

account every year.

However, please note that your

NPS account will mature at

your age of 60 years and

hence, you might not be able to

accumulate a sizeable corpus

through NPS in 6 years to get a

handful of pension from the

scheme. Hence, it might not be

beneficial from that point of

view. But you may consider

inves t ing in to NPS for

deferring some part of your tax

liability till the age of your 60

years, as you have to pay tax

on 60% of the maturity

amount, to be received as

lumpsum and annuity.

A.

30

ASK OUR PLANNER


Q.

A.

Q.

I have taken a unit-linked

pension policy on 19/06/2010 and

paid for 3 years continuously. Now

want to redeem as I need the

money. I want to know whether I

have to pay income tax for the

amount I draw in future. - Chendrayudu Jinka

Any pension policy, if

surrendered before the

original tenure of the policy,

will be taxed. The entire

surrender proceeds, not the

gains, will be added to your

income and taxed as per the

income slab in which you fall

under.

Want to know about STP

(systematic transfer plan) in mutual

fund. Is it that transfer has to be in

the same AMC or I can transfer to

other AMC? I have some thematic

fund which is not performing well

since last 3 years and hence would

like to transfer the same to some

other equity fund. Also, is it today's

value of the investment that will get

transferred or the or iginal

investment value that will get

transferred?- Arun Sapkal

A. Most of us know systematic

investment plan, where we

invest at regular intervals. But

only a few are aware of

systematic transfer plan (STP).

Under STP, at regular intervals,

an amount you opt for is

transferred from one mutual

fund scheme to another of

your choice. You can get into a

weekly, monthly or a quarterly

transfer plan, as per your

needs.

You may choose to transfer a

fixed sum from one scheme to

another. The mutual fund will

reduce the number of units

equal to the amount you have

specified from the scheme you

intend to transfer money. At

the same time, the amount

such transferred will be utilised

to buy the units of the scheme

you intend to transfer money

into, at the applicable NAV.

Some fund houses allow you

to transfer only the capital

appreciation to be transferred

at regular intervals.

You can do STP from one fund

to another of the same AMC

only.

31

ASK OUR PLANNER


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

STP is a useful tool to take a

step by step exposure into

equities or to reduce exposure

over a period of time. Say you

have Rs 10 lakh to invest in

equity over a period of time.

You could put this amount in

the liquid fund of a mutual fund

or a short-term debt fund. This

gives an opportunity to earn a

better return than saving bank

account. You can then start n

STP where every month a pre-

determined amount will be

invested into an equity fund.

This helps in deploying funds

at regular intervals in equities

with minimum timing risk.

I tried to invest an amount of

Rs.75,000 in Mirae Asset Emerging

Bluechip Fund recently through

ICICIdirect.com, but the scheme is

not enabled for purchase in the site.

Can you please check & enable the

same?- Priyanshi A. Mehta

The asset management

company of Mirae Asset

Mutual Fund has temporarily

Q.

A.

s u s p e n d e d l u m p s u m

subscription of units under

M i r a e A s s e t E m e r g i n g

Bluechip Fund with effect from

October 25, 2016. Hence, you

would not have been able to

invest in the fund. However,

fresh registration through

Systematic Investment Plans is

allowed for a maximum of upto

Rs.25,000 per each installment.

The fund house has witnessed

heavy inflows in this fund over

the last two years and hence, to

protect the interest of the

existing investors, the fund

house has stopped accepting

fresh lumpsum subscriptions

till further notice.

I am an aggressive risk profiler

and run a manufacturing

business for living. Are there

any investment options where

money can be invested at

regular frequency as well as

lump sum? If yes, what should

be the ideal horizon to invest in

such an instrument?

MUTUAL FUND ANALYSIS

32

Investing in Dynamic Bond funds


Birla Sun Life Dynamic Bond Fund

Fund Objective:To generate optimal returns with high liquidity through active management of the portfolio by investing in high quality Debt and Money Market instruments.

Key Information:

Product Label:

Fund Manager: Maneesh Dangi

Mr. Maneesh Dangi

Performance:

is an MBA and FRM. He has over 10 years of experience in Finance & Research. He has been managing this fund since 2007.

The fund has long term track record of consistently beating its benchmark and peers. The fund has delivered 15% return in 1 year versus 10% returns generated by its benchmark. Three year CAGR returns of 13% vs. 9.9% of benchmark index. Over 5 year time frame the fund has outperformed its benchmark by comfortable margin, generating returns of 11.3% CAGR as compared to 9.4% CAGR delivered by its benchmark.

NAV as on November 16, 2016 ( ) 29.6

Inception Date September 27, 2004

Fund Manager Maneesh Dangi

Minimum Investment (`)

Lumpsum 1000

Expense Ratio (%) 1.63

Last declared YTM 7.74

Exit Load 0.50% on or before90D, Nil after 90D

Benchmark Crisil Short TermBond Fund Index

Modified Duration 6.5

`

This product is suitable for investors who are seeking:

income with capital growth over short term

•

•

•

investment in actively managed portfolio of high quality debt and money

market instrument including government securities.

12.5

14.8

10.5

9.3 9.9 10.1

0.02.04.06.08.0

10.012.014.016.0

30-Sep-15 To 30-Sep-16 30-Sep-14 To 30-Sep-15 30-Sep-13 To 30-Sep-14

Retu

rn%

Fund BenchMark

Yearly Returns

33



Portfolio:

Our View:

The fund predominantly invests in h igh qua l i ty c o r p o r a t e b o n d s a n d government securities. The fund aims to generate optimal returns by designing a p o r t f o l i o w h i c h w i l l dynamically track interest rate movements in the short term by reducing duration in a rising ra te envi ronment whi le increasing duration in a falling interest rate environment. Currently the fund has 59% allocation G-sec, 30% the mix of AAA and AA rated securities and remaining proportion is in cash and cash equivalents. The Modified Duration of the fund has been in the range of 6.5 to 8 years in last 15 months. The current Yield-to-Maturity of the fund is 7.74 %

The fund is one of most consistent performing fund

with long track record. The f u n d m a n a g e r a c t i v e l y manages the a l locat ion between G-Secs, high quality corporate bonds and money market instruments depending upon market opportunity. funds in its performance with portfolio inclined towards sovereign bonds which are g o i n g t o b e n e f i t f r o m decreasing interest rates in the economy. The domestic macroeconomic environment continues to remain conducive on the back of a structural improvement in fiscal deficit, trade balance and inflation along with the government's policy reform measures. Inflation is not a policy concerns currently with RBI Governor stating that the inflation remain on a projected trajectory, thus providing headroom for further rate cut. We believe that in the next one or two years, duration funds

10.7

15

13

11.3

5.8

10.2

9.9

9.4

0

5

10

15

20

6 Month 1 Year 3 Year 5 Year

Retu

rn%

Fund Benchmark

Performance vs. Benchmark

34



will yield better returns as interest rates fall further. The modified duration (determines percentage change in price of a bond for a percent change in

yield) of the fund is 6.5 years. This means a fall in interest rates by 100 bps can yield capital gains of 6.5%.

Oct-16 Sep-16 Aug-16 Jul-16 Jun-16 May-16 Apr-16 Mar-16 Feb-16 Jan-16 Dec-15 Nov-15 Oct-15 Sep-15

CDs -- 0.73 -- 1.08 0.19 -- -- 3.93 -- -- -- -- -- --

CPs 0.81 1.61 -- -- 0.08 2.00 -- 0.79 -- -- -- -- -- --

Corp Bond 32.89 34.09 28.13 25.55 12.01 15.61 13.48 10.59 12.76 13.30 13.36 12.79 16.86 18.49

Gsec 61.76 58.92 67.14 68.36 62.67 75.93 75.67 82.01 84.08 84.02 84.77 84.46 79.73 79.16

Others 4.53 4.65 4.73 5.01 25.05 6.47 10.85 2.69 3.16 2.67 1.87 2.75 3.40 2.35

A & Eqiv 1.01 1.05 1.04 1.08 -- -- -- -- -- -- -- -- -- --

AA & Equiv 23.53 24.40 21.86 20.30 9.34 10.24 8.05 6.41 11.54 12.12 12.17 11.64 15.48 16.09

AAA & Equiv 11.03 12.60 6.83 6.91 3.54 7.97 6.05 8.89 1.21 1.18 1.19 1.15 1.39 2.40

Cash & Equivalent 2.66 3.04 3.13 3.35 15.87 2.00 10.23 2.69 3.16 2.67 1.87 2.75 3.40 2.35

SOV 61.76 58.92 67.14 68.36 71.26 75.93 75.67 82.01 84.08 84.03 84.78 84.46 79.73 79.16

Others -- -- -- -- -- -- -- -- -- -- -- -- -- --

Asset Allocation %

Credit quality %

Performance of all the schemes managed by the fund manager

30 -Sep-15 30 -Sep-14 30 -Sep-13

30 -Sep-16 30 -Sep-15 30 -Sep-14

Fund Name

Birla SL Dynamic Bond Fund-Ret(G) 12.50 14.79 10.47

Crisil Short Term Bond Fund Index 9.31 9.90 10.12

Birla SL Medium Term Fund(G) 10.33 11.50 11.61

Birla SL Corp Bond Fund-Reg(G) 10.11 -- --

Data as on November 16,2016 ;Portfolio details as on Oct-2016Source: ACE MF, ICICIdirect Research, AMC factsheet

35


IDFC Dynamic Bond Fund

Fund Objective:To generate optimal returns with high liquidity by active management of the portfolio; by investing in high quality m o n e y m a r k e t & d e b t instruments.


Key Information:

Product Label:

Fund Managers: Suyash Choudhary

Mr. Suyash Choudhary

Performance:

is a B.A (H)

E c o n o m i c s f r o m D e l h i

University and PGDM from IIM

Calcutta. Prior to joining IDFC

Mutual Fund he has worked

with HSBC Asset Management

(India) Pvt. Ltd., Standard

Chartered Asset Management

Co. Pvt. Ltd. and Deutsche

Bank.

The fund has delivered 12.5%

1-year return and 11.5% 3-year

annualized return with returns

less than the benchmark index

but more than other funds in

the category. Five year CAGR

return at 10.4% is at par with

the benchmark returns for the

same periods. The dynamic

duration management has

helped the fund outperform

the peers.


Inception Date June 25, 2002

Fund Manager Suyash Choudhary


Lumpsum 5000

Expense Ratio (%) –

Last declared YTMExit Load Nil

Benchmark Crisil CompositeBond Fund Index

Modified Duration

`

This Product is suitable for investors who are seeking:

• To generate long term optimal returns by active management

• Investments in high quality

m o n e y m a r k e t & d e b t instrument including G-Sec Securities

36



Portfolio:The fund seeks to actively manage the portfolio through exposure to money market a n d d e b t i n s t r u m e n t s depending upon the market c o n d i t i o n s . T h e f u n d ' s investment approach is to generate returns by taking active duration calls rather than credit bets. The fund has 97% allocation to G-Sec and remaining in the mix of AAA-rated securities and cash & c a s h e q u i v a l e n t s , t h u s

minimising the credit risk of the portfolio. Currently the fund's Modified Duration is 5.61 years and Yield-to-Maturity is 6.89%

The fund's portfolio is tilted towards sovereign bonds, thus it is likely to benefit from the falling interest rates in the economy. With the expectation of fall in inflation in near term, RB I ' s dov i sh s tance in monetary policy and infusion of liquidity through Bond

Our View:

9.7

12.5

11.5

10.4

9.2

13.8

12.6

10.2

0

5

10

15


Retu

rn%

Fund Benchmark

Yearly Returns

8.7

14.7

7.9

11.5

12.6

11.6

0.02.04.06.08.0

10.012.014.016.0


Retu

rn%

Fund Benchmark


37



purchase, the fund seem to be pos i t ioned to take the advantage in this scenario. The fund has a modified duration of

6.61 years. This means a fall in interest rates by 100 bps can yield capital gains of 6.61%..


A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --

AA & Equiv -- -- -- -- -- -- -- -- -- -- -- -- -- --

AAA & Equiv -- -- -- 0.84 2.52 17.58 19.20 31.97 26.79 -- -- -- 0.03 0.03

Cash & Equivalent 2.98 2.85 2.54 1.76 2.01 2.77 2.44 2.06 2.50 2.01 1.31 1.51 2.14 0.93

SOV 97.02 97.15 97.46 97.39 95.47 79.65 78.36 65.96 70.71 97.99 98.69 98.49 97.83 99.04

Others -- -- -- -- -- -- -- -- -- -- -- -- -- --

Asset Allocation %

Credit quality %

Others 2.98 2.85 2.54 1.76 2.01 2.77 2.44 2.06 2.50 2.01 1.31 1.51 2.14 0.93

Corp Bond -- -- -- -- -- 1.56 2.98 10.55 9.99 -- -- -- 0.03 0.03

Gsec 97.02 97.15 97.46 97.39 95.47 79.65 78.36 65.96 70.71 97.99 98.69 98.49 97.83 99.04

CDs -- -- -- -- -- -- -- 3.39 -- -- -- -- -- --

CPs -- -- -- 0.84 2.52 16.03 16.22 18.04 16.80 -- -- -- -- --


30 -Sep-15 30 -Sep-14 30 -Sep-13

30 -Sep-16 30 -Sep-15 30 -Sep-14

Fund Name

Data as on November 16,2016 ;Portfolio details as on Oct-2016Source: ACE MF, ICICIdirect Research, AMC factsheet

IDFC G Sec-PF-Reg(G) 10.73 16.34 9.48

I-Sec Composite Gilt Index 11.90 13.30 11.12

IDFC G Sec-Invest-A(G) 9.84 15.58 8.92

I-Sec Composite Gilt Index 11.90 13.30 11.12

IDFC G Sec-STP-Reg(G) 9.34 11.60 11.60

I-Sec Si-BEX 8.74 9.91 8.93

IDFC SSIF-MT-Reg(G) 8.87 10.32 8.79


IDFC SSIF-Invest-Reg(G) 8.83 14.83 8.14

Crisil Composite Bond Fund Index 11.51 12.56 11.61

IDFC SSIF-ST-Reg(G) 8.63 9.37 9.69

DFC Dynamic Bond-A(G) 8.67 14.68 7.91


38


ICICI Pru Equity Income Fund

Fund Objective:To generate income through investments in a range of debt a n d m o n e y m a r k e t i ns t ruments o f va r ious maturities with a view to maximising income while maintaining the optimum balance of yield, safety and liquidity.


Key Information:

Product Label:

Fund Managers: Manish Banthia

Mr. Manish Banthia

Performance:

is B.Com, ACA and MBA. He has e x t e n s i v e e x p e r i e n c e including as a fixed income dealer. He has been managing this fund since Sep, 2013. He has overall 12 years of industry experience.

The fund has performed well by delivering annualized returns of 15.1% in 1 year and 13% CAGR in 3 year period vs. benchmark return of 13.8% and 12.6% CAGR respectively for the given periods. Five year CAGR return of the fund stands at 10.3% vs. 10.2% of the benchmark index, clearly indicating the consistency in the performance of the fund.

This product is suitable for investors who are seeking*:

• long-term wealth creation solution


Inception Date July 9, 1998

Fund Manager Manish Banthia


Lumpsum 5000

Expense Ratio (%) 1.81

Last declared YTM 7.47

Exit Load 1% on or before7D, Nil after 7D

Benchmark Crisil CompositeBond Fund Index

Modified Duration 6.70

`

* A Debt Fund that invests in debt and money market instruments of various maturities with a view to maximize income while maintaining optimum balance of yield, safety and liquidity.

39



Fund Benchmark

11.7

13.5

11.7

11.5

12.6

11.6

10.511.011.512.012.513.013.514.0


Retu

rn%

Yearly Returns

9.87 10

.4

3.7

7.7 8.

5

8.6

0

2

4

6

8

10

12


Ret

urn

%


Fund Benchmark

Portfolio:The scheme aims to invest in high rated corporate debt papers and government securities with relatively low risk and easy liquidity. The fund holds 53% sovereign bonds, 42% AAA rated papers and 2.3% AA rated papers. Due to the portfolio mix of G-Sec and corporate debt papers, the fund are able to garner higher returns as compared to the other funds in the category.

Our View:I C I C I P r u I n c o m e P l a n predominantly invests in sovereign bonds as well as high rated corporate debt hence carries lower credit risk. The fund has the flexibility to move across different tenures and instruments depending upon the interest rate scenario which is likely to generate stable returns over the long term. The fund is likely to benefit from the falling interest


30 -Sep-15 30 -Sep-14 30 -Sep-13

30 -Sep-16 30 -Sep-15 30 -Sep-14

Fund Name

ICICI Pru Regular Gold Savings Fund(G) 23.54 -4.19 -11.06

Gold-India 19.71 -3.37 -11.08

ICICI Pru Gold iWIN ETF 18.77 -2.01 -11.98

Gold-India 19.71 -3.37 -11.08

ICICI Pru Gilt-Invest-PF(G) 13.12 15.90 13.52

I-Sec Li-BEX 13.80 15.70 12.85

ICICI Pru Long Term Plan-Ret(G) 12.18 15.14 13.59


ICICI Pru Income(G) 11.75 13.45 11.65


ICICI Pru Short Term Plan(G) 9.93 10.39 10.56


ICICI Pru Income Opportunities Fund(G) 10.37 12.99 11.78


ICICI Pru Balanced Advantage Fund(G) 10.85 10.22 35.70

CRISIL Balanced Fund - Aggressive Index 9.68 4.38 28.89

40



r a t e s i n t h e e c o n o m y. Corporate debt papers which offer higher interest rates than G-secs will increase the overall returns of the fund. The

modified duration of the fund is 6.7 years which means a fall in interest rates by 100 bps can yield capital gains of 6.7%.


Asset allocation

CDs -- -- -- -- -- -- 9.96 5.21 -- -- -- -- -- --

CPs -- -- -- -- -- 1.10 2.13 -- -- -- -- -- -- --

Corp Bond 44.51 27.39 16.12 16.71 16.61 18.64 11.82 12.02 13.07 9.88 9.81 12.01 13.30 16.08

Gsec 53.08 70.92 81.88 77.17 76.57 78.20 70.12 77.65 84.63 88.44 88.27 85.42 84.17 82.38

Others 2.42 1.69 2.00 6.12 6.82 2.05 5.98 5.12 2.29 1.68 1.92 2.56 2.53 1.54

A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --

AA & Equiv 2.29 2.29 5.65 5.58 5.51 6.39 5.83 6.75 7.07 3.87 3.84 3.55 3.53 3.56

AAA & Equiv 42.22 25.10 10.47 11.13 11.10 13.36 18.07 10.49 6.01 6.01 5.97 8.46 9.76 12.52

Cash & Equivalent 2.42 1.69 2.00 6.12 6.82 2.05 5.98 5.12 2.29 1.68 1.92 2.56 2.53 1.54

SOV 53.08 70.92 81.88 77.17 76.57 78.20 70.12 77.65 84.63 88.44 88.27 85.42 84.17 82.38

Others -- -- -- -- -- -- -- -- -- -- -- -- -- --

Avg Maturity(Yrs) 10.98 11.27 11.08 11.07 15.35 15.65 14.54 17.10 19.53 19.34 19.36 18.37 18.04 17.50

Modified Duration 6.70 6.93 6.83 6.61 7.59 7.75 6.99 8.02 8.65 8.53 8.60 8.40 8.36 8.46

Asset Allocation %

Credit quality %

Other attributes (Years)

Data as on October 14,2016;Portfolio details as on Sept-2016Source: ACE MF, ICICIdirect Research, AMC factsheet

41

Our indicative large cap equity model portfolio has continued to

deliver an impressive return (inclusive of dividends) of 69% since

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

BSE Sensex) return of 59.3% during the same period, an

outperformance of 19%. This validates our thesis of selecting

companies with sound business fundamentals that form the core

theme of our portfolio. Our midcap portfolio of 16 stocks also

continues to outperform, delivering 140% (inclusive of

dividends) vis-à-vis the benchmark index (CNX Midcap) return of

85.7%, outperformance of 54.3%. Our consistent

outperformance demonstrates our superior stock picking ability

as markets in the first half of CY17 aligned to our view of

favourable risk reward, good franchisee vs. reward-at-any-risk

businesses. Some key performers of our portfolio are Bajaj

Finance, Lupin, UltraTech and HDFC Bank in the large cap

portfolio while Pidilite, Bajaj Finserv and NBCC have delivered

stupendous returns in the midcap portfolio.

We have always suggested the SIP mode of investment and still

find a lot of merit in it as the preferred mode of deployment given

the market conditions and volatility associated since the

inception of the portfolio. We highlight that the SIP return of our

portfolio has consistently outperformed the indices. This affirms

our belief in the staggered and systematic approach of

investment amid market volatility.

Following the same pace and opportunities in the market, we

have not changed much in our last portfolio. Among large caps,

we have maintained the weight of Bajaj Finance (2%) and Maruti,

UltraTech and Marico by 1% as earlier. Affirming our view on

consumption demand, Dabur continues to be part of our large

cap portfolio. We believe that as the softness in commodities

EQUITY MODEL PORTFOLIO


42


continues oil & gas and metal sectors would continue to remain

under pressure.

In the large cap space we continue to remain positive on auto

infrastructure & cement. Relative to the benchmark index, we are

underweight on BFSI. With the exclusion of Reliance Industries,

we affirm our underweight stance on metals and oil & gas. With

the recent cleanup drive in PSU banks, we continue to believe the

underperformance would continue. In the private banking space,

we prefer large banks with a strong brand name and a pan India

retail presence. We remain overweight to neutral on pure play

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

rotation could lead to consolidation in near term valuations and

offer stock specific opportunities. We remain positive on auto,

pharma, capital goods and infrastructure.

Among individual names, we continue to recommend Infosys

and TCS in the IT space. A revival in the capex cycle coupled with

lower interest rate scenario would benefit the BFSI and

construction space (UltraTech, L&T, HDFC Bank).


43



Name of the company

Largecap Portfolio

Weightage(%)

Auto 15.0

Tata Motor DVR 4.0

Bosch 3.0

Maruti 5.0

EICHER Motors 3.0

BFSI 25.0

HDFC Bank 8.0

Axis Bank 3.0

HDFC 8.0

Bajaj Finance 6.0

Capital Goods 4.0

L & T 4.0

Cement 4.0

UltraTech Cement 4.0

FMCG/Consumer 18.0

Dabur 5.0

Marico 4.0

Asian Paints 5.0

Nestle 4.0

IT 18.0

Infosys 10.0

TCS 8.0

Media 2.0

Zee Entertainment 2.0

Pharma 14.0

Lupin 6.0

Dr Reddys 5.0

Aurobindo Pharma 3.0

Total 100.0

44



Name of the company

Diversified Portfolio

Weightage(%)

Auto 12

Tata Motor DVR 3

Bosch 2

Maruti 4

Eicher Motors 2

Bharat Forge 2

Consumer Discretionary 16

Symphony 2

Supreme Ind 2

Kansai Nerolac 2

Pidilite 2

Asian Paints 4

Arvind 2

Interglobe Aviation 2

Rallis 2

BFSI 19

HDFC Bank 6

Axis Bank 2

HDFC 6

Bajaj Finance 4

Bajaj Finserve 2

Power, Infrastructure & Cement 12

L & T 3

UltraTech Cement 3

Ramco Cement 2

NBCC 2

Container Corporation of India 2

FMCG 9

Nestle 3

Marico 3

Dabur 4

Pharma 16

Lupin 4

Dr Reddys 4

Aurobindo Pharma 2

Natco Pharma 2

Torrent Pharma 2

Biocon 2

IT 13

Infosys 7

TCS 6

Media 1

Zee Entertainment 1

Total 98.2

45



Name of the company

Midcap Model Portfolio

Weightage(%)

ICICI Securities Ltd has received an investment banking mandate from group company of Larsen and Toubro Ltd. The report is prepared based on publicly available information.

Aviation 6.0

Interglobe Aviation 6.0

Auto 6.0

Bharat Forge 6.0

BFSI 6.0

Bajaj Finserve 6.0

Cement 6.0

Ramco Cement 6.0

Consumer 30.0

Symphony 6.0

Supreme Ind 6.0

Kansai Nerolac 6.0

Pidilite 6.0

Rallis 6.0

Infrastructure 8.0

NBCC 8.0

Logistics 6.0

Container Corporation of India 6.0

Pharma 20.0

Natco Pharma 6.0

Torrent Pharma 6.0

Biocon 8.0

Textile 6.0

Arvind 6.0

Total #REF!

46

Performance* so far Since inception

*Returns (in %) as on

Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

Nov 17, 2016

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

Portfolio Benchmark

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: , 2011; *Value as on June 30 Nov 17, 2016



68.95261079

140.1450414

81.37051353

49.76219085

85.69313008

59.40165713

0

25

50

75

100

125

150

%

6600000

6600000

6600000

8014103.7

57

12006009.7

5

8911821.0

62

5895404.0

05

4281762.7

74

7209121.7

59

3500000

4500000

5500000

6500000

7500000

8500000

|

QUIZ TIME

1. Monetary policy, the key determinant of inflation is declared by____________

2. ________________investments suffers the most during inflation.

3. Government's inability to collect sufficient revenue for public expenditure promotes _________

4. The impact of inflation on your investments does not depend upon the vehicles you have invested in. True or false

5. Fall of prices of goods and services in the economy is known as______________.

Note: All the answers are in the stories that have appeared in this edition of ICICIdirect Money Manager. You may send in your answers at: [email protected]. The answers will be published in our next edition. The names of the earliest all correct entries will be published too. So jog your grey cells and be quick to send in your entries.

Correct answers for the October 2016 quiz are:

1. The standard investment period for any liquid fund is up to __________ days.

A: 91

2. Bank FDs offer interest rate that usually ranges from _______ to ______.

A: 7 to 9 %

3. __________________ funds invest only in State or Central government backed securities and debentures.

A: Gilt

4. For non-equity mutual funds, ____% income tax is levied upon the investor (including indexation benefit) over long-term capital gains.

A: 15

5. The government of India allows account continuance beyond maturity for _____ years at every renewal for public provident fund account holder.

A: Five


48

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

31-Oct-16 30-Sep-16 Change (%)

CNX Nifty 8625.7 8611.2 0.2%

CNX Midcap 15912.3 15413.1 3.2%

S&P BSE Sensex 27930.2 27866.0 0.2%

S&P BSE 100 8928.2 8863.7 0.7%

S&P BSE 200 3759.4 3719.6 1.1%

S&P BSE 500 11878.9 11700.7 1.5%


Dow Jones 18,142.4 18,308.2 -0.9%

S&P 500 2,126.2 2,168.3 -1.9%

Nasdaq 5,189.1 5,312.0 -2.3%

FTSE 6,954.2 6,899.3 0.8%

DAX 10,665.0 10,511.0 1.5%

CAC 40 4,509.3 4,448.3 1.4%

Nikkei 17,425.0 16,449.8 5.9%

Hang Seng 22,934.5 23,297.2 -1.6%

Shanghai Composite 3,100.5 3,004.7 3.2%

Taiwan Weighted 9,290.1 9,166.9 1.3%

Straits Times 2,813.9 2,869.5 -1.9%


S&P BSE Auto 22,185.4 22,231.7 -0.2%

S&P BSE Bankex 22,368.3 22,045.6 1.5%

S&P BSE FMCG 4,632,922 4,597,564 0.8%

S&P BSE Healthcare 16,472.0 16,181.1 1.8%

S&P BSE Metals 10,317.6 9,763.7 5.7%

S&P BSE Oil & Gas 12,316.8 11,377.6 8.3%

S&P BSE Power 2,006.1 1,989.6 0.8%

S&P BSE Realty 1,556.1 1,512.2 2.9%

S&P BSE Teck 5,525.0 5,630.8 -1.9%

49

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Oct-16 Sep-16 Change (bps)

Corporate Bond Yields (in %) Oct-16 Sep-16 Change (bps)

Commercial Paper (CP) Rates (in %) Oct-16 Sep-16 Change (bps)

Treasury Bill (T-Bills) Yields (in %) Oct-16 Sep-16 Change (bps)

Volatility Index (VIX)

31-Oct-16 30-Sep-16

VIX 15.49 17.18 0%

Change (%)

10 year 6.79 6.82 -2

5 year 6.71 6.88 -17

3 year 6.57 6.71 -15

1 year 6.55 6.69 -13

AAA 10 year 7.83 7.82 1

AAA 5 year 7.77 7.82 -5

AAA 3 year 7.75 7.78 -3

AAA 1 year 7.65 7.66 -1

AA 10 year 8.17 8.24 -7

AA 5 year 8.03 8.12 -10

AA 3 year 7.95 8.02 -7

AA 1 year 7.73 7.88 -15

12 Months 7.42 7.56 -15

6 Months 7.28 7.18 10

3 Months 6.99 6.78 21

1 Month 6.73 6.69 4

91D TB 6.37 6.42 -5

182D TB 6.42 6.51 -9

364D TB 6.44 6.55 -11

50

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

Countries 31-Oct-16 30-Sep-16 Change in bps

US 1.83 1.59 23

UK 1.25 0.75 50

Japan (0.05) (0.09) 4

Spain 1.20 0.88 32

Germany 0.16 (0.12) 28

France 0.46 0.18 28

Italy 1.66 1.19 48

Brazil 11.40 11.58 (19)

China 2.74 2.74 1

India 6.79 6.82 (2)

MF Investment Oct-16 Sep-16 YTD

Equity 8106 3841 22056

Debt 24455 52876 298541

FII Investment Oct-16 Sep-16 YTD

Equity -4990 9336 45014

Debt -7152 10577 -5791

Items Weights(%) Jul-16 Aug-16 Sep-16

Food&bev. 45.86 5.83 4.12 3.71

Pan,tob& intox. 2.38 6.94 6.82 7.01

Cloth & Foot 6.53 5.30 5.19 5.24

Housing 10.07 5.29 5.18 5.15

Fuel & light 6.84 2.57 3.07 2.81

Misc. 28.31 4.18 4.51 4.58

CPI 100 5.13 4.31 4.20

Weights Oct-15 Sep-16 Oct-16

WPI 100.0 -3.70 3.57 3.39

Primary Articles 20.1 0.04 4.76 3.31

Fuel & Power 14.9 -16.32 5.58 6.18

Manufactured Goods 65.0 -1.67 2.48 2.67

51

PRIME NUMBERS

Commodities

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


Mutual Funds: Category Average Returns

Equity Funds Returns (in %)Tenure Diversified Funds Mid-cap &

Small-cap Funds

Large-capFunds

ELSS (Tax-

savingfunds)

Returns as on July 29, 2016

Debt Funds Returns (in %)

Returns as on August 31, 2016

Tenure Liquid Funds Short-termincome funds

Ultra short-term funds

Long-termincome funds

Gilt funds

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

Currencies and CommoditiesCurrencies

Categories 16-Sep-16 16-Aug-16 16-Jul-16 Weight(%)Mining -3.1 -5.6 0.9 14.2Manufacturing 0.9 -0.3 -3.5 75.5Electricity 2.4 0.1 1.6 10.3

31-Oct-16 30-Sep-16 Change (%) StatusUSDINR 66.78 66.61 -0.3% DepreciatedEURINR 72.90 74.42 2.0% AppreciatedGBPINR 80.89 86.43 6.4% AppreciatedAUDINR 50.57 50.76 0.4% AppreciatedCHFINR 67.15 68.41 1.8% AppreciatedJPYINR 0.63 0.66 3.7% AppreciatedCNYINR 9.85 9.98 1.3% Appreciated

31-Oct-16 30-Sep-16 Change (%)Crude ($/barrel) 48.3 49.1 -1.5%Gold ($/ounce) 1,277.3 1,315.8 -2.9%

6 months 14.42 19.35 11.53 14.291 year 11.45 17.38 8.08 10.603 year 23.02 36.01 17.50 22.065 year 16.46 23.99 13.95 16.23

6 months 6.98 10.40 8.55 13.44 15.80

1 year 7.42 9.31 8.61 9.97 11.59

3 year 8.18 9.26 8.72 10.10 11.04

52

ICICIdirect Centre for Financial Learning (ICFL) imparts quality education on financial markets to beginners and amateurs, student, housewives, working professionals and self employed. ICFL's broad objective is to make participant feel confident to start investing in stock market.

Here is the list of our programmes scheduled for the month of November, 2016.

Schedule for Beginners Program on Futures and Options (F&O) TradingSr.No

City Dates For More Information & Registration call:

Premium Education Programmes Schedule

ICICIdirect Money Manager September 2016

Schedule for Fast Track Beginners Programme on Futures and OptionsSr.No


Schedule for Fast Track Program on Technical AnalysisSr.No City Dates For More Information & Registration call:

Schedule for Fast Track Program on Stock InvestingSr.No City Dates For More Information & Registration call:

Schedule for Foundation Programme on Stock InvestingSr.No City Dates For More Information & Registration call:

Sr.No


Schedule for Foundation Programme on Stock Investing

1 New Delhi 17th Dec & 18th Dec 2016 Harneet on 9528152693

2 Mumbai_Chembur 17th Dec & 18th Dec 2016 Kusmakar on 7875442311

3 Ludhiana 17th Dec & 18th Dec 2016 Harneet on 9528152693

4 Mumbai_Thane 24th Dec & 25th Dec 2016 Kusmakar on 7875442311

5 Mumbai_Andheri 24th Dec & 25th Dec 2016 Kusmakar on 7875442311

6 Jodhpur 11th Dec 2016 Yogesh on 8238053563

7 Bhubaneswar 11th Dec 2016 Jayeeta on 9007391920

8 Vadodara 4th Dec 2016 Yogesh on 8238053563

9 Mumbai_Andheri 3rd Dec 2016 & 4th Dec 2016 Kusmakar on 7875442311

10 New Delhi 3rd Dec 2016 & 4th Dec 2016 Harneet on 9528152693

11 Pune 10th Dec 2016 & 11th Dec 2016 Kusmakar on 7875442311

12 New Delhi 17th Dec 2016 & 18th Dec 2016 Harneet on 9528152693

13 Mumbai_Chembur17th Dec 2016 & 18th Dec 2016 Kusmakar on 7875442311

14 Hyderabad 17th Dec 2016 & 18th Dec 2016 Ruchi on 8297362323

15 Bangalore 17th Dec 2016 & 18th Dec 2016 Subrata on 9620001478

16 Chennai 15th Dec 2016 to 19th Dec 2016 Abdul on 8939930837

17 Mumbai_Thane 16th Dec 2016 to 20th Dec 2016 Kusmakar on 7875442311

18 Bangalore 17th Dec 2016 & 21st Dec 2016 Subrata on 9620001478

Sr.No


Schedule for Technical Analysis-Trading Professionals

19 Kolkata 3rd Dec 2016 & 4th Dec 2016 Jayeeta on 9007391920


21 Chennai 10th Dec 2016 & 11th Dec 2016 Abdul on 8939930837

22 Mumbai_Andheri 17th Dec 2016 & 18th Dec 2016 Kusmakar on 7875442311

23 Indore 17th Dec 2016 & 18th Dec 2016 Yogesh on 8238053563


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