icici october 17 issuecontent.icicidirect.com/moneymanagermagazine/october_2017.pdf · low risk...

Shilpa KumarMD & CEO

ICICI Securities Ltd.

Traditionally we have been more inclined to look at fixed income investments like bank deposits, post office savings scheme and bonds rather than market-linked products as investment to achieve our financial goals. This was with a background of our low risk appetite, high interest rates and lack of knowledge and access to other products. There has however been a gradual shift with more and more investors looking at long term investments in equity to achieve their goals.

Fixed income instruments give certainty of returns and clearly well suited to reduce volatility of returns in ones investment portfolio. They make a great case when the goal demands safe and steady returns at regular intervals.

But the fact that market-linked investments such as equity, are more likely to beat inflation and yield higher returns makes them a must have in one's portfolio. They provide the actual growth in ones portfolio.

The choice between fixed-income and market-linked investments primarily depends upon your risk tolerance and investment horizon. Fixed income instruments provide stability of returns and market linked instruments provide long term growth.

Short-term goals which are within 12 months like an emergency fund or family vacation can be achieved through investing in liquid fundsor ultra-short-term debt funds. These schemes have the potential to give better returns as compared to saving bank deposit, which is where majority of Indians put money for easy

1ICICIdirect Money Manager October 2017

liquidity.

For mid-term goals ranging between 1 to 3 years such as buying a car, house renovation or marriage, one can invest in balanced mutual funds. These funds can generate returns which can be considerably higher than the fixed-income instruments such as Fixed Deposits and other comparable investments.

For long term goals like retirement or funding children education there is no better alternative than investing in equity. One can invest directly in stocks or through equity mutual funds. Direct equity does require time and effort to invest, else, mutual funds with their professional management is what one should look at. Mutual funds also give the added benefit to invest in lump sum or regular small investments via Systematic Investment Plan (SIP).

Investing in equity linked investments can also help in building a tax-efficient portfolio. Equity linked savings scheme (ELSS) are mutual funds with additional benefit of tax saving. They come with a shorter lock-in period than traditional tax-saving instruments like PPF (Public Provident Fund), Post Office among others.

The National Pension System (NPS) is also a beneficial investment avenue for retirement. NPS can give better returns than the traditionally used PPF or EPF (Employee Provident Fund) that return about 7-8 per cent returns. NPS can invest up 50 per cent in equity markets and provides additional tax break over and above 80C.

In today's scenario of availability of multiple products, your choice of products should be defined by the asset allocation strategy which in turn should be defined by your investment goals.

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 help investors know more on investing, make them aware of the options they have and to partner with them in setting and achieving their financial goals. We welcome you to write to us or visit our branches to assist you.

2

These are interesting times for the markets. There is a sense of confidence, which is supported by macro-economic indicators, support to the economy from the Government and retail investments in the markets to state a few. The recent move by the government to recapitalization PSU banks is another shot in the arm. Of course, there are risks to this overall expectations from the market. Amongst the factors are enhanced valuations- markets are not all that cheap, earning growth expectations and global geo political tensions are some of the risks. Most importantly is the risk of our own bias to extrapolate the recent run up in the markets and build similar return expectations in short run. It is the basic nature of the markets that they perform in spurts and the returns smoothens over the long term. What is important even today is to have a long term perspective and invest.

The cover story of our October edition of Money Manager is presenting insights from the industry experts about investment outlook. We offer you an exclusive interview with fund managers from different asset management companies (AMCs), wherein they talk about investment approach in current economic scenario. Their unanimous favour to Indian equities, their take on mid-term and long-term investment horizons, sector- wise performance, investment strategy and guidelines is worth a read.

Moreover, we bring you the latest developments under GST (Goods and Service Tax) regime. The GST council has carried out changes in the current system to ease out compliance for small and medium firms. Tax rates of some goods and services have also been revised. Our October edition presents a quick glimpse of these changes to help you keep updated and informed.

We also provide a house view of major asset classes: equity, debt and gold along with top picks for retail investors. 'A closer look at the market' published in this issue is a special market strategy report by ICICIdirect research team.

The edition further covers selective stocks and mutual funds with detailed analysis and a comprehensive equity model portfolio. We look forward to educate our readers and help them manage their personal finance more efficiently. So read on, stay updated and financially healthy. Do write in with your feedback at [email protected] and share your thoughts.

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

ICICIdirect Money Manager October 2017

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: Ramco Cements &Ratnamani Metals and Tubes ..............5

Flavour of the Month: Market outlook by industry experts

Here we bring to you a few fund managers' views on how they see current market scenario panning out for major asset classes and their advice for retail investors. Read on to find out what experts are saying…......................................................................................15

Ask Our Planner

Our financial expert answers your personal finance queries...22

A closer look at the markets (Research report).................................27

GST latest updates.........................................................................39

Mutual Fund Analysis

Which are the top performing mutual funds in current market scenario? Check these top three infrastructure funds recommended by our research team.............................................................................................40

This month on iCommunity

Take a look at the latest activities on our unique information platform-iCommunity (for October 2017)..................................51

Equity Model Portfolio.................................................................... 52

Quiz Time.......................................................................................56

Prime Numbers ............................................................................. 57

4

Richard Thaler wins Nobel Prize in economics

The Nobel Prize for Economics was on Monday awarded to Richard H Thaler. Thaler is professor at the University of Chicago for his “contribution to behavioural economics”. “He's made economics more human,” the Nobel jury said, calling Thaler “a pioneer” on integrating economics and psychology.

One of the founders of behavioural finance, which studies how cognitive limitations influence financial markets, Thaler developed a model for explaining how people tend to focus on the narrow impact rather than the overall effect of each decision they make, which is called limited rationality.

Courtesy: Indian Express

Prices of refrigerators, air-conditioners and washing machines are set to go up 3-5% starting November, as white goods makers plan to pass on higher input costs. However, consumers will mostly feel the impact only from December, as retailers are saddled with unsold inventory from Diwali which they will first clear before sourcing fresh stock at higher prices, three senior industry executives said. Input cost has gone up by 30-50% since the last price hike, which the industry effected in January.

The price of steel has since increased by 40% and that of copper by 50%. A crucial chemical called MDI, which is used to make foams mostly for refrigerators, is facing a global shortage and its price has doubled.

Courtesy: Economic Times

Fridge, AC to cost more from next month

Govt. may get equity from PSBs for recapitalisation bonds: CEAThe Centre could receive equity equivalent to value of the recapitalisation bonds placed with the public sector banks, according to Arvind Subramanian, Chief Economic Adviser (CEA).Mr. Subramanian also said the current system of public sector banks lending to private companies had turned toxic and there was a view that private-to-private lending and private-to-public lending should instead be encouraged.

He also said the climate of caution, inertia and fear under which public sector bank managers operate must be addressed.

Courtesy: The Hindu


Investment by mutual funds in domestic equities touched a staggering $12 billion in the April-September period on strong retail investor interest, even as foreign investors trimmed their exposure.

Moreover, fund houses are upbeat over-investment in the stock markets for the remainder of the current fiscal.

Courtesy: Business Standard

Mutual funds pump $12 bn into equities in first six months of FY18

5

STOCK IDEAS


Ramco Cements – A premium play of south…

Company BackgroundThe Ramco Cement (Ramco) is

one of the largest cement

players in south India with a

total production capacity of

16.5 MT (out of which capacity

of satellite grinding units is 4

MT). Further, it is also one of

the most cost efficient cement

p r o d u c e r s , w i t h c o s t

advantage emerging from the

captive thermal power of 175

MW and s t ra teg ic p lan t

locations (split grinding unit

near the markets and clinker

plant near the mines). The

company sells cement in Tamil

Nadu (TN), Kerala, Karnataka,

Andhra Pradesh (AP), West

Bengal and Odisha. Out of the

total cement sales 59% is sold

in TN and Kerala, 11% in West

B e n g a l , 1 0 % e a c h i n

Karnataka, AP and Odisha.

Apar t f rom cement , the

company also produces ready

mix concrete and dry mix

mortar.

Investment Rationale

Operating markets key beneficiary

of increased infra spends…Out of total 1.2 crore affordable

h o u s e s t o b e b u i l t b y

Government of India over

FY18E-19E, ~40% of these

houses (48 lakh) has been

allotted in Ramco's operating

markets. This, coupled with

higher budgetary allocation

towards roads and irrigation by

states and central government

in which Ramco has a major

presence, is expected to drive

cement demand in the next

t h r e e y e a r s . We e x p e c t

Ramco's operating markets to

grow at a CAGR of 7-8% over

the next three to four years.

Capacity expansion, geographical

diversification to drive growth…Ramco plans to expand its

capacity by ~20% to 19.5 MT

over the next 18 months. Of the

3 MT capacity expansion, 2 MT

will be in the east (1 MT each in

West Bengal, Odisha) while 1

MT will be set up in the south

(in Andhra Pradesh). The

capacity expansion in the east

will enable the company to

remove capacity constraint

and also increase its market

share. Apart from expansion in

t h e e a s t , t h e c a p a c i t y


STOCK IDEAS

expansion in AP (south) will

enable it to tap the growing

opportunity of this market (that

is expected to grow at 14%

CAGR in the next two or three

years).

Ramco enjoys premium positioning

in southern markets…Ramco is the second largest

cement player in the south in

terms of capacity. Further, it is

one of the oldest cement

players in southern India and is

considered a Tier-I cement

brand. The company enjoys

strong brand recognition

among IHB customers due to

its reach in the rural interiors of

Ta m i l N a d u a n d Ke r a l a

compared to other leading

brands. While the company's

brand is a premium one in

Ta m i l N a d u , Ke r a l a a n d

Karnataka, it falls in the tier-II

bracket in Andhra Pradesh.

Healthy cash flow generation

to keep balance sheet light!During the downturn in the

south over FY10-15, efficient

management of cash flows has

enabled the company to

reduce debt-equity from 1.6x

to 1.0x in FY15 and further to

0.4x in FY17. Going forward,

we believe the company's

robust cash flow generation

(~ 3,500 crore in FY17-20E) `

will not only enable to fund its

c a p e x t h r o u g h i n t e r n a l

accruals but also reduce its

debt-equity further to 0.2x.

Well poised for growth The company 's capac i ty

expansion in the east and AP is

expected to drive topline over

the next three years. This

coupled with revival in the rural

economy and inc reased

government spending is

expected to result in revenue

CAGR of 12.2% over FY17-20E.

I n a d d i t i o n w e e x p e c t

stabilisation of power and

f r e i g h t c o s t s o n

commissioning of grinding

units to boost EBITDA margin

in coming years. At the CMP,

Ramco is trading at a valuation

of US$150/t and 11.0x FY20E

EV/Tonne & EV/EBITDA. Hence

w e h a v e a B U Y

recommendation on the stock.

We h a v e v a l u e d R a m c o

Cement on SOTP basis arriving

at a target price of | 822/share.


STOCK IDEAS

Stock Data

Key Financials

Valuations Summary

` Crore FY17 FY18E FY19E FY20E

Net Sales 3950 4307 4851 5575

EBITDA 1176 1165 1326 1548

EBITDA (%) 29.8 27.1 27.3 27.8

Net Profit 649 602 698 870

EPS (`) 27.3 25.5 29.6 36.9

FY17 FY18E FY19E FY20E

P/E 25.6 27.4 23.6 18.9

Target P/E 30.1 32.2 27.8 22.3

EV / EBITDA 15.1 15.6 13.5 11.2

P/BV 4.4 4.1 3.6 3.2

RoNW 17.4 14.9 15.4 16.8

RoCE 12.7 11.1 11.9 13.6

Market Capitalization (` Crore) 16469.0

Total Debt (FY17) (` Crore) 1424.8

Cash and Investments (FY17) (` Crore) 144.6

EV (` Crore) 17749.2

52 week H/L (`) 765/479

Equity capital (` crore) 23.6

Face value (`) 1.0

MF Holding (%) 18.5

FII Holding (%) 14.5


STOCK IDEAS

Key risks include:

Capacity expansion in east to outpace demand…

Although demand in the east is expected to grow at 7.8% per annum, capacity addition is expected to grow at a CAGR of 8.2% per annum. We believe this will keep utilisation levels lower and also limit price hikes in the region. Due to higher lead distance, Ramco operates at a lower margin compared to its other markets . Hence, any deterioration in demand in the r e g i o n o r a d v e r s e p r i c e movements could hamper the c o m p a n y ' s r e v e n u e a n d profitability.

Sand mining issues in Tamil Nadu may impact volumes…Despite capacity expansion in the east, we believe the company would still generate more than 80% of its sales from the southern region. The southern region is h is tor ica l ly p lagued by an o v e r c a p a c i t y s i t u a t i o n . I n addition, a sand mining issue in

Tamil Nadu (Ramco sells 59% of its volumes in Tamil Nadu) could create headwinds in growth in the near term. We assume lower growth in Tamil Nadu (of 5% in FY18E) but if the same persists over a longer term it could adversely impact the company's growth prospects

Restricting use of pet cokeThe Supreme Court-appointed India's Environmental Pollution Control Authority (EPCA) has recommended ban on petcoke import into India and a ban on the use of petcoke in all industries other than cement. Most of the players in the cement industry are using 80.0% pet coke in their fuel mix. If the usage of pet coke is banned in cement industry as well then it will lead to higher power cost for the entire industry. Pet coke is still 10-15% cheaper than coal on per KCAL basis, if the ban is imposed on cement industry

then it would result in ~ 100/t `increase in power cost.


STOCK IDEAS

ANALYST CERTIFICATION We /I, Rashesh Shah, CA, and Devang Bhatt, PGDBM 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 (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities 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 associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Rashesh Shah, CA, and Devang Bhatt, PGDBM 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 or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

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

It is confirmed that Rashesh Shah, CA, and Devang Bhatt, PGDBM 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.


STOCK IDEAS

Ratnamani Metals & Tubes Limited – Opportunities in the pipeline

Company BackgroundRatnamani Metals and Tubes (RMTL) is a niche player with superior capabilities in the domestic industrial pipes domain. The company has stainless steel capacity of 28000 tonnes and carbon steel capacity of 350000 tonnes. RMTL manufactures a wide range of stainless steel and carbon steel pipes and tubes, which find application in the highly corrosive environment of end user industries like oil & gas refineries, power, water and chemicals. The company has ~40% domestic market sha re o f s ta in less s tee l tubes/pipes (high margin b u s i n e s s ) f o r n i c h e applications. The product offering of the company has approvals from all leading indust ry majors both in d o m e s t i c a s w e l l a s international markets.

Investment Rationale

Capex revival in key end user industries to provide requisite demand push...The Indian oil & gas sector is at the cusp of a capex revival on

the back of a) enhancement of domestic refining capacity and b) upgradation of refineries to meet the BS VI standard by 2020. Furthermore, in the m e d i u m t o l o n g e r t e r m horizon, a notable capex is p lanned in power (bo th thermal and nuclear), fertiliser, city gas distribution (CGD), cross country pipes lines, etc. This is expected to enhance the overall demand for pipes. Within the SSTP segment itself, this planned aggregate capex is likely to create an a n n u a l a d d r e s s a b l e opportunity of ~ 2400-2800 `c r o r e f o r t h e i n d u s t r y. Historically, in such a niche S S T P s e g m e n t , R M T L ' s domestic market share has been ~40%, thereby providing healthy revenue visibility.

Expansion in stainless steel pipe & tube segment augurs well…RMTL has chalked out plans to set up a hot extrusion facility fo r l a rge d iameter (d ia ) seamless stainless steel pipes and matching cold finishing capacity. Incremental capacity of 20000 tonnes is being set up


STOCK IDEAS

in the stainless steel seamless tube and pipe segment at a capex of ~ 350-400 crore and `i s e x p e c t e d t o b e commissioned by Q4FY19. The new facility will be funded through internal accruals. This facility will make RMTL the only p layer in Ind ia wi th the capability to extrude mother hollow pipes of up to 8” in d i a m e t e r a g a i n s t t h e company's current capability of extruding tubes up to only 2” diameter. After commissioning this new facility RMTL will be able to manufacture large dia pipes, which will ensure import substitution as well as further penetration of export market. Given the limited competition domestically and high entry barriers (long gestation period and stringent approval), the capacity expansion in the higher margin stainless steel business is likely to enhance the company's market share further.

Healthy Orderbook provides strong earning visibility...Over the last couple of years, Ratnamani has consistently maintained an aggregate order book to the tune of ~ 700-800 `crore. However, recently there

healthy traction was witnessed in the carbon steel segment order book where in the company won large ticket size orders, which boosted the overall order book of the company. Recent order wins have resulted in a healthy order book of ~ 2100 crore as on `September 2017, increasing from 830 crore in May 2017. `The current order book is split between orders of ~ 1800 `crore for carbon steel pipes and ~ 300 crore for stainless `steel orders. Of the total order book, domestic orders were at ~ 1500 crore while the export `order book was at 600 crore.`

On strong footing, recommend BUY...Ratnamani with its competi -t ively placed capacity is perfectly positioned to cater to the upcoming demand. As on date, RMTL has a strong multi-year higher order-book (~ `2100 crore, aggregate of stainless steel and carbon steel order book), which provides a strong revenue visibility. We expect RMTL's topline, EBITDA and PAT to register a CAGR of 14.5%, 15.6% and 17.3% respectively during FY17-20E.


STOCK IDEAS

Key Financials

Valuations Summary

Stock Data

` crore FY16 FY17 FY18E FY19E FY20E

Net Sales 1717.7 1411.7 1660.5 1898.8 2120.0

EBITDA 284.4 257.4 285.1 336.5 397.5

EBITDA (%) 16.6 18.2 17.2 17.7 18.8

Net Profit 163.9 144.3 158.0 193.0 232.8

EPS 35.1 30.9 33.8 41.3 49.8

FY16 FY17 FY18E FY19E FY20E

P/E 24.8 28.2 25.7 21.1 17.5

Target P/E 29.9 34.0 31.0 25.4 21.1

EV / EBITDA 14.3 15.7 13.9 12.0 9.6

P/BV 3.9 3.4 3.1 2.8 2.4

RoNW 15.8 12.2 12.0 13.1 13.9

RoCE 23.3 17.8 18.4 19.9 21.1

Market Capitalization 4092.0

Total Debt 0.0

Cash and Investments 88.5

EV 4003.5

52 week H/L (`) 959 / 540

Equity capital 9.3

Face value ` 2

DII Holding (%) 5.9

FII Holding (%) 14.7


STOCK IDEAS

Key risks include:

Any slowdown or trimming of proposed capex in oil & gas sector…The oil & gas sector is by far the largest contributor to the revenue pie of the company, contributing ~54%. During the last couple of years, a slowdown in the oil & gas sector on account of falling crude oil prices had resulted in sluggish capex thereby impacting the order book of the company. With revival in the capex of the oil & gas sector, RMTL is in a sweet spot to capitalise on the opportunity. However, any delay, deferral or trimming of the capex is likely to result in lower volumes and revenues for the stainless steel segment, thereby impacting the overall revenue growth as well as profitability of the company.

Vo l a t i l i t y i n p r i c e s o f r a w material…N i c k e l , a k e y i n p u t f o r manufacturing stainless steel, is up ~24% YTD. This is likely to a l ter the cost dynamics of stainless steel producers and lead to an increase in stainless steel

prices. Coils, plates and ingots of various grades of stainless steel and carbon steel are key raw material inputs for the company. The company procures raw mater ia l f rom p layers l i ke Outokumpu, Arcelor group, SEAH Steel, and SMST etc. Any volatility in raw material prices coupled with the company's inability to pass it on to its customers may have a material impact on the profitability of RMTL.

Delay in pro ject execut ion, approvals from clients for new facility…Any delay in project completion beyond the estimated timeline of Q4FY19E, may lead to cost and time overrun for the company. Furthermore, the company would also require fresh approvals from the end user for its new capacity. Any hindrance in approval from the clientele is likely to adversely impact the volumes of the new facility, thereby impacting its overall operational and financial performance.


STOCK IDEAS

ANALYST CERTIFICATIONWe /I, Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), 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 (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities 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 Securitiesis 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 associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), 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 or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

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

It is confirmed that Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), 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.

15

FLAVOUR OF THE MONTH

Market outlook with industry experts


Indian equities have been outperforming most of their global emerging markets (EM) counterparts given the superior growth prospects. What about other sectors and overall economy? In an interview to ICICIdirect Money Manager,a few of the market experts shared their readings and outlook on current economic scenario, retail investment options as well as specific sectors.Here we bring you insights by Mr. IhabDalhwai of ICICI Prudential AMC,Mr. Harsha Upadhyaya, Kotak Mahindra Asset Management Co. Ltd,Mr. Sumit Bhatnagar,Indiabulls AMC Ltd and Mr. V Srivastava, UTI Mutual Funds. Read on…..

1. Can you please give readers an overview of current market scenario?

Ihab Dalhwai - From a cyclical perspective, the market is yet to reach its peak. Capex cycle, credit growth and capacity utilisation are yet to improve. We believe that equity cycle can peak when capaci ty utilisation goes up. There is room for earnings to go higher from current levels. However, one should also be ready for intermittent volatility because of global reasons and not so cheap valuations.

We believe earnings cycle may play out over the next two

years. Capacity utilisation in the Indian corporate sector is low and going forward it is l i k e l y t o g o u p . A s a n incremental output from high capacity utilisation can occur without any capex, operating leverage is likely to contribute significantly to earnings. In the meantime, private capex cycle is also expected to gather pace.

Harsha Upadhyaya - Equity valuations have been on the higher side for last several months, and within equity basket mid-small cap stocks are trading at relatively much higher valuations compared to that of large cap companies.

Mr. IhabDalhwai,

ICICI Prudential AMC

Mr. Harsha Upadhyaya,

Kotak Mahindra

Asset Management Co. Ltd

Mr. Sumit Bhatnagar,

Indiabulls AMC Ltd

Mr. V Srivastava,

UTI Mutual Funds.

16



We are beginning to see some moderation in mid-small cap stock movements, which may continue for some more time. We advise investors to choose large cap or large cap oriented multi cap funds at this point of t ime, as we be l ieve the immediate volatility could be higher in case of midcap segment.

S u m i t B h a t n a g a r - I n d i a n economy is recovering from twin resets of De-monetization and GST implementation. Though both these reforms have led to short term volatility in economic data, they are critical for formalization of Indian economy and should have signif icant benef i ts accruing over medium term. Already, high frequency data like PMIs & core sector data, Automobile sales, railway freight etc. are indicating that a gradual recovery is in progress and should strengthen over next few months. Global economic environment is fairly strong and likely getting better, leading to review of QE p r o g r a m b y U S . T h i s combined with weak domestic macros has led to FIIs selling and resultantly volatility in the markets. Going ahead as the macro economic commentary

improves, we expect markets to stabil ize. Geo-polit ical tensions around North Korea is key risk in short term.

V. Sr ivastava - The Indian markets is seeing long term triggers from two ends – i m p r o v i n g m a c r o a n d corporate earnings in the next three to five years and strong f l o w o f l i q u i d i t y o r financialization of savings as the investors realise the long term attractiveness of equity . In terms of macro, the growth is expected to pick up in the medium term as the drivers of growth in terms of strong middle class, strong infra spending and stable fiscal and external deficits are in place. In terms of economy, we are headed towards the perfect b l e n d o f h i g h g r o w t h , moderate inflation, low interest rates and low fiscal and current account deficit and stable currency which would make India the perfect choice for investment for any global investor. In terms of market, this should lead sustained growth in corporate profits.

2. What is in store for the market in the medium to long term?

ICICI AMC The long term story of India is intact. Therefore,

17



investors should look forward to building position in equities.

Harsha Upadhyaya - Current macro-environment is quite stable and supportive for e q u i t i e s . We h a v e a l s o witnessed path breaking reforms such as petroleum s u b s i d y r e m o v a l , demonetisat ion and GST implementation – all of which a r e e x p e c t e d t o y i e l d significant and sustainable benefits for Indian economy and corporate world. From a long term perspective, we continue to remain positive on Indian equities

Sumit Bhatnagar - India is one of the best placed among large economies in the world in te rms o f demograph ics , demand, growth potential etc. Outlook for Indian economy and equ i t i es looks very promising over medium to l o n g t e r m . W i t h I n d i a expected to be a $5 trillion economy by 2025, equity markets would be a b ig b e n e f i c i a r y. Fa v o u r a b l e d e m o g r a p h i c s , h u g e aspirational consumption demand, Government policies like Housing for All, 24*7 Power fo r A l l , focus on in f ras t ruc tu re and ru ra l economy, resets like DeMon &

GST, measures to improve ease of do ing bus iness , liberalized FDI policies can catalyze strong and stable economic growth for a long period of time. We believe India is on cusp of a structural economic upturn and equities are likely to remain the best asset class from a 3 to 5 years perspective.

3. The rupee has been depreciating against the U.S. dollar. How do you see this impacting India's heavily indebted companies?

Harsha Upadhyaya - While Indian Rupee has depreciated a bit in the recent few weeks, overall trend is quite stable. In fact, despite recent depreciation Indian Rupee has appreciated by over 3% against US Dollar since the beginning of 2017. We do not expect currency movement to be a major factor affecting corporate profitability in the near term.

Sumit Bhatnagar - This is an emerging risk which needs to monitored closely. According to India ratings, 64% of forex exposure of corporate was unhedged as of last year. This can lead to serious pain on companies' financials and worsen their credit profile significantly.

18



V. Srivastava - The rupee has seen decent appreciation in the last six months and this has h e l p e d t h e c o m p a n i e s importing and having high level of debt. However given the current account deficits and our loss of competi-t i v e n e s s a m o n g s t t h e e m e r g i n g e c o n o m i e s especially china, we believe rupee should depreciate from these levels in line with the historical trends of 3-4%

4. What is the road ahead for domestic and FII flows over the next six to 12 months?

Harsha Upadhyaya - From overall f low perspect ive, Indian equities seem to be in strong position. Currently equity MF inflows have been ranging over Rs 15,000 crores per month. At least about Rs 7,500 crores out of this seems long term oriented and structural in nature, which includes SIP and EPFO inves tments . Th is portion seems unlikely to go down even if there is some short term volatility in the markets. While FII flows have been negative in the past few months, on an aggregate basis we expect overall FII flows for the year to be in positive zone.

Sumit Bhatnagar - Increased

financial literacy, subdued real e s t a t e m a r k e t s a n d D e Monetisation have provided s i g n i f i c a n t i m p e t u s t o 'Financialization of savings'. Mutual Funds now have SIP book of around Rs. 5200 crores monthly and have witnessed inflows in excess of Rs. 20000 crores into equity MF schemes in last two months. We expect this trend to continue, as historic evidence suggests that equities are a best performing asset class over a long term. We expect FI I f lows into equities to remain negative for some time, as they adjust their positions in view of impending QE withdrawal by US Fed.

V. Srivastava - We expect the domestic flows to be strong as large part of the mutual fund inflows of around Rs 5000 crores is in SIP which is expected to be stable and we see equity as a very good investment for the retai l individual investor. FII flows are more complex to estimate and depend on variety of factors such as global appetite of risk and expected returns in other e m e r g i n g m a r k e t s a n d currency outlook between the various emerging markets.

5. Are there any mid-or small-caps that investors can add in their

19



portfolio at the current levels?

I C I C I A M C - A t c u r r e n t valuations, we believe that investors should invest in large-caps and focus on asset allocation.

Sumit Bhatnagar - We cannot comment on individual stocks. In immediate term, valuations in this space look stretched on a broader level. But still there are pockets available where valuations are ok. It's just that one needs to be a little bit more careful and have a longer time frame. Finding 1-2 investable ideas in a month is not that difficult.

6. I n t h e c u r r e n t d y n a m i c environment what factors are essential while making investment decisions for a retail investor?

ICICI AMC - Investors should understand the risk involved with equities.

Harsha Upadhyaya - Prudent asset allocation and long term focus are very critical for all investors. We are advising investors to enter equity market in a disciplined and staggered manner, preferably through SIP route with long term investment horizon in mind. With recent strong upmove in the market, it is not advisable to chase market

momentum.

Sumit Bhatnagar - Decide your goals and the time horizon to achieve them and understand the risk involved in achieving them. Consider diversifying across several asset classes. Stay invested in the markets and do not worry too much about short term volatility.

V. Srivastava - The key factors are – risk return profile of the investor, liquidity needs of the investor, balancing of regular i n c o m e a n d c a p i t a l appreciation and taxation.

7. Which sectors you are bullish and bearish on and why?

ICICI AMC- IT and pharma are pockets we are positive on. Pharma as a sector has been under stress owing to FDA related problems. We believe these issues can be sorted out over the next couple of years. It has been seen that when the country prospers, pharma as a percentage of GDP improves. When it comes to IT, we believe that select companies could benefit from the ongoing d ig i ta l d is rupt ion in the information technology space.

Harsha Upadhyaya - The key overweight sectors for us are – Cement, Capital Goods and O i l & G a s . G o v e r n m e n t ' s

20



continued focus on affordable housing and infrastructure creation should aid demand in Cement and Capital Goods. Oil&Gas sector is likely to del iver one of the more consistent set of earnings growth in the market, and is also reasonably valued.

Some other sectors such as Pharma, Telecom and IT are facing structural headwinds and ea rn ings a re under pressure. We do not envisage any improvement in the short to medium term in these sectors. Valuation-wise there are many other sectors such as NBFCs, FMCG etc which are trading at rich multiples, and therefore could pose risk.

Sumit Bhatnagar - We are p o s i t i v e o n d o m e s t i c consumption driven sectors like Automobiles, Cement, Private sector banks, NBFCs, FMCG, Oil & Gas etc. as

thmultiple demand drivers like 7 pay commission, rural demand recovery, low interest rate environment, government policy provide necessary tail winds. Pharma continues to suffer from US FDA related issues and pricing pressure. IT i s f a c i n g w e a k d e m a n d environment and margin pressure. Telecom continues

to face intense competition and NPA pressure on PSU banks continues unabated.

V. Srivastava - We are bullish on P h a r m a , I n f o r m a t i o n technology and utilities . In case of IT and pharma , we believe that the worst is in the prices and we see earnings growth ahead in the next couple of years and believe long term outlook in the sector is very intact and valuations are at a record low in this sector . In case of utilities, we believe that the sector is posied for upturn as the domestic demand picks up and this sector has huge operating leverage. We are negative on consumer and NBFC as the valuations are at record high and the growth in the next few years will be below market expectations.

8. In the backdrop of the current market scenario, what is your advice to new and exist ing investors?

ICICI AMC - Investors should focus on asset allocation in this period. It is often seen that in a bull market, investors tend to fo rge t to prac t i ce asse t al location. However, one should remember that asset allocation is the critical factor when it comes to creating long-term wealth. Following one's

21



p r e - d e t e r m i n e d a s s e t al location and not going overweight on a particular asset class just because it is performing well is important. The other thing to watch out for is buying something just because it appears cheap, although fundamentally weak.

Sumit Bhatnagar - Over short term markets look volatile, but longer term horizon for Indian e q u i t i e s l o o k s r o b u s t . Investors should continue to part ic ipate in the equity markets through STP and SIP route. Lump sum investments can wait for better entry points or may be split them in 3 – 4 parts.

V. Srivastava - For any class of i n v e s t o r, p a t i e n c e a n d diligence is the key to succeed, In case of equity learning to live with volatility and patience is the key for any retail investor.

9. What are the key fundamental principles of building a successful, long-term investment portfolio?

ICICI AMC - Maintaining asset a l l o c a t i o n d i s c i p l i n e i s important for building long-term investment portfolio.

Harsha Upadhyaya - Discipline and pat ience are key to inves tment success . An investor should ideally build a portfolio with regular review of overall asset allocation based on one's risk profile. Risk levels built in should be able to digest short term volatility without compromising on long term focus.

Sumit Bhatnagar - Buy high quality companies with proven t r a c k r e c o r d , p r o v e n managements, strong brands and strong financials. Key is to identify long term structural themes and then allow them to play out. Take a long term view and avoid timing the market. Be patient but review the investment thesis periodically. Do not invest based on tips, do your homework.

V. Srivastava - Main principles is to identify the risk profile of the investor and then build the portfolio , review the portfolio in light of the increasing age of the investor and performance and outlook of the asset class, successful exit strategy for each investment class.

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

22

ASK OUR PLANNER


Keys to make important personal finance decisions

the new loan, if you pre-close the existing loan.

However, i t can make a difference, if the existing loan& house is in single name & the new one is in joint name, as both the joint holders can claim deduction on principal & interest. If that's the case, then you can pre-close the existing loan with your mutual fund investments and take a higher amount of loan for your second house.

P l e a s e n o t e t h a t w h i l e r e d e e m i n g m u t u a l f u n d investments, they are subject to tax on capital gains earned based on the period of holding & asset class, as below:

Q. This is regarding home loan. I had taken a house loan in 2012 @ interest rate of 8.35% and the outstanding amount now is around 9 lakh. I intend to buy second home in next few months. I have mutual fund investments amounting nearly 8 lakhs. Will it be wiser to foreclose my first loan with this or use this money to add up to down payment of my second house? Please suggest.

- Rahul Pai

A . I t w o u l d n o t m a k e a d i f f e r e n c e f r o m c o s t perspective. If you have been claiming tax benefits from your existing home loan, now you can split the same among both the loans or replace it with only

Equity & Equity-oriented mutual fundsLong-term:

Held for more than 12 months

Short-term:

Held for 12 months or less

Long-term capital gains

Nil

Short-term capital gains 15%

Mutual Funds other than Equity-oriented schemes Long- Held for more than 36 months

Short-term: Held for 36 months or less

Long-term capital gains

20% with indexation

Short-term capital gains As per income slab

23

ASK OUR PLANNER


Q. What are ELSS mutual funds?

Are they better than the NPS

scheme, as both invest in market-

linked products? Please adviceas

the investment goal is tax planning

as well as wealth creation.– Mrs. Venugopalan V

A. ELSS stands for Equity

L inked Savings Scheme.

These are tax-saving mutual

funds that you can use to

invest and claim deduction upto

Rs 1.5 Lakh under Section 80C.

ELSS funds have a lock-in

period of 3 years and invest

most of the funds in the stock

market and hence, have the

potential to offer you higher

returns in the long term.You

can either make a lumpsum

investment or investment

through SIP into ELSS. If you

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

th rough S IP, then every

installment will have a lock-in

per iod of 3 years. Also,

taxation on capital gains is nil

for ELSS, as you would be able

to redeem these funds only

after 3 years.

NPS invests into different asset

classes – equity, corporate

b o n d s & g o v e r n m e n t

securit ies – in a defined

proportion. There are 2 types

of allocation one can choose –

Fixed Allocation & Lifecycle

based allocation. Under fixed

allocation, you can invest only

a maximum of 50% into equity

asset class. Under lifecycle

b a s e d a l l o c a t i o n , t h e

percentage of allocation into

different asset classes would

be based on your age; you can

invest a maximum of 75% into

equity asset class if you are

upto 35 years of age, beyond

which the proportion towards

equity would keep reducing

every year, as your age

increases. The amount you

invest can be claimed as

deduction under Section 80C

u p t o R s . 1 . 5 0 l a k h a n d

additional Rs.50,000 deduction

can be availed under Section

80CCD(1b).

You should invest a minimum

of Rs.1,000 every year into

your NPS account and the

scheme will mature at your age

of 60 years. At maturity, you

will be able to withdraw only a

maximum of 60% of the fund

value as lumpsum, of which

24

ASK OUR PLANNER


only 40% is exempt from tax

and remaining 20% is added to

your income and taxed as per

your income slab. Minimum

40% of the fund value would

be converted into annuity and

the annuity received would be

taxed as per your income slab

every year.

Both these instruments would

suit only for longer term. If you

are aggressive and can take

higher risk, then ELSS would

suit your needs; else, NPS can

be considered.

Q. I invested in ICICI FOREVER LIFE

(RP) Deferred Pension Insurance

policy on 21st Mar 2003. I paid

annual premium of Rs 10000 +

taxes. Till date I have paid premium

of Rs. 1, 30,000 and have accrued

benefits of Rs. 1, 34,000 in my

account.

a) What will be its surrender value

as on today and what the tax

liability is? Will any tax be deducted

at source?

b) What will be the lump sum

amount that I will get if I continue

the policy and the amount of

pension if the last premium due is in

Mar 2026.

- Meenu Mohindra

A. a) T h e g u a r a n t e e d

surrender value of this policy

will be equal to thirty five

percent of all premiums paid

exc lud ing the f i r s t year

premium, all extra premiums

and p remiums fo r r ide r

b e n e f i t s . C a s h v a l u e o f

guaranteed additions and

vested bonuses will be paid

along with the guaranteed

surrender value. The company

may allow surrender values at

such other rates not less than

the Guaranteed Surrender

Values specified above. Please

check with the insurance

company to find out the exact

surrender value, as on date, for

your policy. The surrender

value you receive from this

policy will be added to your

income in the year of receipt

and taxed as per your income

slab.

b) At maturity, you have the

option to take one fourth

amount of maturityamount as

lump sum. The matur i ty

amount would be the addition

o f y o u r s u m a s s u r e d ,

guaranteed additions and

25

ASK OUR PLANNER


vested bonuses. Please refer

your policy document for the

s u m a s s u r e d a n d t h e

guaranteed additions of your

policy. The vested bonuses

would be declared every year

by the insurance company,

based on the profit generated.

Hence, you might not be able

to compute the exact maturity

value; however, based on the

past data of declaration of

bonus, you can project an

approximate amount. You can

get the historical data of bonus

from the insurance company;

it may be available in their

website too. The remaining

t h r e e - f o u r t h a m o u n t o f

maturity amount will be used

to provideannuity, which

would be added to your

income every year and taxed

as per your income slab. There

are 5 annuity options provided

in the policy (please refer your

policy document for the same)

and the amount of pension

would be fixed based on the

option you choose; you can

choose this option just before

the policy matures.

Q. I am a 28-year-old bachelor and

want to start investing for my

retirement soon. I am left with Rs.

35k after paying my home loan and

personal loan EMIs.

a) How much should I invest every

month out of thirty five thousand

and how frequently should I change

my portfolio?

b) Where should I invest this

amount?

c) Are pension plans by private

banks and firms reliable? Reply.

- Mithoon Chanda

A. As you have more than 20

years left for your retirement,

you can invest more into equity

mutual funds. You can refer

Research sect ion of our

website ICICIdirect.com for the

list of recommended funds. To

decide how much you need to

invest, you would need to

ideally make a retirement plan

for yourself through a financial

planner, who would take into

account various details from

you and chart out the plan for

you. You have to review your

portfolio atleast once a year

and take corrective actions, if

r e q u i r e d , b a s e d o n t h e

26

ASK OUR PLANNER


performance of your funds.

Pension plans offered by banks

would be pension policies of

life insurance companies, who

have a tie-up with these banks.

These are also instruments

which help you accumulate

required corpus for your

retirement. Pension policies

are largely traditional plans

a n d a r e s u i t a b l e f o r

conservative investors.

Q. I started invested in ULIP in

March 2010. I have invested Rs. 3.5

lac till date and current fund value

is around 5.4lacs. I want to invest

half of this amount in a new policy

and other half to payout. What are

the tax impl icat ions in th is

situation? Appreciate your advice.

- MukeshBhadane

A. If you had, in any of the

policy years, paid premium

more than 20% of the sum

a s s u r e d , o n l y t h e n t h e

surrender amount would be

taxable; e lse, the ent i re

surrender amount is fully

exempt from tax, as the policy

has completed 5 years. If you

re-invest part of the amount

into a new policy, then such

premium would be eligible for

deduction under Section 80C

upto Rs.1.50 lakh.

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

27

RESEARCH REPORT


A closer look at the market

House ViewEquity

Ø Equity benchmarks pared a l l g a i n s a n d t u r n e d s h a r p l y l o w e r i n the second ha l f o f September amid risk-off sentiment. Earlier, the Nifty made a new life-time high of 1 0 1 7 8 . H o w e v e r, t h e Sensex failed to achieve this feat. The US Fed's hawkish monetary policy stance and indication of another rate hike in December along with rising geopolitical risks and depreciating rupee weighed on sentiments.

Ø Going forward, we expect the index to extend the time wise corrective phase in the coming month while price wise correction will be limited. As per our technical team, only a decisive close below 9650 will warrant extended profit booking towards 9450-9500, which w i l l aga in p resen t an a t t r a c t i v e b u y i n g opportunity.

Ø B r o a d e r m a r k e t s o u t p e r f o r m e d t h e

benchmark by a healthy margin during the up move since the August 2017 bottom. The NSE midcap and smal l cap indices surged to new life time highs well ahead of the benchmark. The relative outperformance of broader markets during the up move as well as the corrective phase highlights the stock specific action in market a m i d t h e b r o a d e r c o n s o l i d a t i o n o n t h e benchmark front.

With corporate earnings likely to

improve over two to three years, the

outlook for the equity market remains

positive. However, given the sharp

run-up in recent months, some

correction may not be ruled out. Any

correction should be used as a buying

opportunity.

Debt

Ø RBI, in its monetary policy on October 4, kept policy rates unchanged as was widely expected.

Ø RBI acknowledged that food prices are likely to remain largely stable but outlined

28

RESEARCH REPORT


bui ld ing up of pr ic ing pressures in fuel (largely from crude oil). It mentioned that upside risks to the inflation trajectory could arise on the back of fiscal slippages due to farm loan w a i v e r s a n d s t a t e ' s implementation of salary, allowances. Factors like increased likelihood of US Fed rate hike later in the year and quantitative easing (QE) retreat relatively soon may have prevented a rate cut or change of policy stance.

Ø In the last two months since the monetary policy on August 2, 2017, the 10 year benchmark G-sec yield has hardened around 30 bps f rom 6 .45% to 6 .75% currently. Globally, the US 10 year yield has also hardened around 30 bps to 2.36%. Corporate bond yields, however, remained stable despite the profit booking in G-Sec during the same period.

Ø Although overall view on Indian debt market stays positive, exhausting of investment limit of foreign portfolio investors and concerns over additional

s p e n d i n g b y t h e government to support weakening growth may prevent yield from coming down meaningfully in the near term.

With low prospects of significant capital gains in duration funds, accrual funds are better placed for a stable performance.

Gold

Ø Global prices were volatile in September. Starting from a base of ~US$1321 per ounce, they gained sharply till September 8 (~US$1349 p e r o u n c e ) b e f o r e commencing a sustained decline – f irst towards US$1300 per ounce and then below it. The month end price of ~US$1280 represents a -3.1% return in September.

Ø Concerns at the geopolitical level, especially tensions between North Korea and the US, had sparked safe haven investment demand for gold in August. The same continued in the first week of September, helping the metal register a 13 - month h igh. However,

29

RESEARCH REPORT


easing of the situation cooled interest in gold. The US Dollar Index rallied for much of September while gold prices tracked the rise, leading to a fall in prices of the dollar denominated metal. Any deterioration s u r r o u n d i n g t h e geopolitical situation could lend support to gold.

Gold prices are likely to remain range bound in the near term. The downside , however, looks limited.

Global economy and markets

Ø The US Federal Reserve decided to maintain status quo on key policy rates at its September meeting. The Fed also announced that its balance sheet trimming p r o g r a m m e w o u l d commence in October in a gradual and predictable manner. Market expectation in the US is building up that the earlier outlined third (and final) hike for 2017 would happen in December while increasing confidence was displayed in the rise in b o n d y i e l d s a n d strengthening of the dollar. Employment levels in the

US continue to remain strong but a series of inflation readings far lower than the targeted 2% mark could cast doubts over the future rate hike trajectory. The current benchmark rate is in the 1.0-1.25% range.

Ø US 10-year G-Sec yield softened sharply in early September but started c l imbing sharp ly post September 9 (2 .05%), ending the month at 2.33%.

Ø Brent crude gained sharp momentum, rallying to 2017 highs in September due to better demand supply dynamics. Prices r o s e t o l e v e l s o f ~US$56.5–57.5 per barrel against August levels of ~US$51.5 per barrel. US equity indices continued to remain around life-time highs in the past month, rising ~1-2% sequentially. N a s d a q h a s r e t u r n e d ~20.7% YTD while the Dow J o n e s h a s d e l i v e r e d ~13.4% in the same period. Tax cut and infrastructure push hopes, a decent e a r n i n g s r e c o v e r y andoptimism surrounding economic growth drove market momentum.

30

RESEARCH REPORT


Global markets delivered a mixed performance in September, with developed economies delivering a relatively stronger performance

Brazil has outperformed other markets on an annual basis.

31

RESEARCH REPORT


Q2FY18 preview: Robust topline growth shaking off GSTjitters…

Ø The last three quarters were interspersed with one-time s t r u c t u r a l e v e n t s o f demonetisation and GST implementation, which led to subduedtopline growth for sectors characterised by l o n g s u p p l y c h a i n s . H o w e v e r, c o n t r a r y t o expectation of GST putting b r a k e s o n t h e structuralstory of strong domestic consumption led g r o w t h , p o s t implementation, Q2FY18E is expected to witness strong topline growth of 8.8% YoY (exBFSI and oil & gas) with most sectors warding off the GST jitters. Restockingpost GST is expected to accentuate the growth in this festivityladen quarter).

Ø Consumer driven sectors like FMCG & consumer discretionary thatwitnessed muted business activity in Q1FY8 amid de-stocking of c h a n n e l i n v e n t o r y a r e expected to exh ib i t a growth revival in Q2FY18 on accountof re-stocking and price revision in items

like cigarette, fans, cables, etc.,due to a change in tax s l a b p o s t G S T i m p l e m e n t a t i o n . Anotherbeneficiary of re- s t o c k i n g w a s a u t o & ancillary that witnessed strongdouble digit volume growth of ~12% (vs. 7% in Q 1 F Y 1 8 ) a c r o s s s u b segments(except 3-W). Major sectors like oil & gas and metal & miningwill b e n e f i t f r o m h i g h e r commodity prices. They m a y p r o v e t o b e keycontr ibutors in the top l ine growth of our coverage universe.

Ø However, certain export driven sectors, viz. pharma & IT have beenwitnessing a slowdown in business in recent quarters. The same t r e n d i s e x p e c t e d i n Q2FY18E. While the IT sector is facing an uncertain demandenvironment due to emerging technologies & p r o t e c t i o n i s t measuresacross regions, t h e p h a r m a s p a c e i s experiencing acute pricing p r e s s u r e i n U S, a l b e i t domes t i c pharma has experienced recovery post GST. Thetelecom sector

32

RESEARCH REPORT


also continues to witness s t e e p p r i c i n g l e d competition, leading to sharp decline in financials.

Ø In Q2FY18E, total revenue, PAT of Sensex companies on a normalized basis (excluding companies that have one-off abnormality) is likely togrow 5.5%, 4.9% YoY, respectively. The auto

s e c t o r a n d m e t a l s & m i n i n g s p a c e h a v e a significant impact on the topline growth, contributing morethan 50% of absolute growth. Similarly, EBITDA marg ins are expected t o e x p a n d a s h i g h e r commodity prices will be m a r g i n a c c r e t i v e f o r themetal space.

We expect Sensex EPS to grow at a CAGR of 15.6% in FY17-19E. Going ahead, H2FY18E may witness a normalization ofthe earnings trend as we expect a recovery in bankingsector (moderation in NPA provisioning) and auto sector tobe at the forefront of the trend. Also, support from cyclicalsectors like capital goods and cement will cushion recovery.

33

RESEARCH REPORT


Equity market: Outlook remains positive, continue staggeredbuying

Ø Equity benchmarks pared all gains and turned sharply lower in thesecond half of September amid risk-off sentiment. Earlier, the Nifty madea new life-time high of 10178. However, the Sensex failed to achieve thisfeat. The US Fed's hawkish monetary policy s tance and indicat ion ofanother rate hike in December along with rising g e o p o l i t i c a l r i s k s anddepreciating rupee weighed on sentiments.

Ø Historically, bull markets tend to undergo periodic p h a s e s o f s e c o n d a r y correction. This, in turn, c r e a t e s f r e s h b u y i n g o p p o r t u n i t i e s . W e b e l i e v e t h e i n d e x i s undergoing a secondary corrective phase that forms part ofthe larger degree u p t r e n d . T h e r e f o r e , investors should utilize this a s a n o p p o r t u n i t y t o accumulate quality stocks in a staggered manner.

Ø Going forward, we expect the index to extend the time

wise correctivephase in the coming month while price wise correction will be l imited.We expect the index to hold the 9650-9700 s u p p o r t b a s e i n t h e p r e s e n t s c e n a r i o a n d e x t e n d t h e o n g o i n g consolidation between 9650 and 10000in the coming month. Only a decisive close below 9650 will warrantextended profit booking towards 9450- 9500, which will again present anattractive buying opportunity.

Ø B r o a d e r m a r k e t s o u t p e r f o r m e d t h e benchmark by a healthy marginduring the up move since the August 2017 bottom. The NSE midcap and small cap indices surged to new life-time h i g h s w e l l a h e a d o f t h e b e n c h m a r k . T h e e n s u i n g m a r k e t w i d e correction has seen the Nifty wipeoff the entire gains whereas the NSE midcap and small cap indices haveso far retraced the August-September rise by about 61 .8%. The relativeoutperformance of

34

RESEARCH REPORT


broader markets during the u p m o v e a s w e l l a s t h e c o r r e c t i v e p h a s e highlightthe stock specific action in market amid thebroader consolidation on the benchmark front.

Ø S t r u c t u r a l l y, b r o a d e r markets have consistently o u t p e r f o r m e d t h e benchmark in the entire up

move since January 2017 till date barring justone instance in May 2017. It h ighl ights the overa l l robust price structure and a u g u r s w e l l f o r t h e benchmark, going forward.

Ø Domestic retail money continues to remain a key driver for Indian markets.

Unprecedented inflows into equity markets in domesticmutual funds and increased equity allocation from EPFOalong with rising NPS corpus is providing ample liquidity tothe markets. They are the driving factor behind the recentrally. The outlook for liquidity remains strong.

35

RESEARCH REPORT


Fixed income: Range bound

movement to continue…

Ø RBI in its monetary policy

on October 4, kept policy

rates unchanged aswas

widely expected. The RBI

lowered the statutory

liquidity ratio (SLR)to be

maintained by banks by 50

bps from 20% to 19.5%.

Ø RBI acknowledged that

food prices are likely to

remain la rge ly s tab le

butoutlined building up of

pricing pressures in fuel

(largely from crude oil).

Itmentioned that upside

r i s k s t o t h e i n f l a t i o n

t ra jectory could ar ise

fromfiscal slippages due to

farm loan waivers and

state's implementation

ofsalary and allowances.

Factors l ike increased

l i k e l i h o o d o f U S Fe d

ratehike later in the year

and quantitative easing

(QE) retreat relat ively

sooncould have prevented

a rate cut or change of

policy stance.

Ø The 10-year benchmark G-

sec yield hardened slightly

b y 7 b p s t o

~6.7%following the policy

announcement.

Ø Foreign portfolio investors

(FPI), who remained net

sellers in 2016, haveturned

significant buyers since

February 2017, investing

~US$20 billionthus far in

calendar year 2017. The 10

year benchmark G-Sec

yield hadsoftened to below

6.5% during this period.

Ø As per RBI, inflation is

expected to rise from its

c u r r e n t l e v e l a n d

rangebetween 4.2% and

4.6% in the second half of

F Y 1 8 , m a r g i n a l l y

higherthan its projection of

4-4.5% for Q4FY18, made in

its last policy meeting. The

upward revision in inflation

o u t l o o k w a s l a r g e l y

u n e x p e c t e d . T h e M P C

a c k n o w l e d g e d t h e

l ikel ihood of a growth

s l o w d o w n c o n t i n u i n g

but“requires more data to

b e t t e r a s c e r t a i n t h e

t r a n s i e n t v e r s u s

sustained head winds in the

recent growth prints”.

36

RESEARCH REPORT


Ø The policy statement did

not include a softening of

stance and delivereda

balanced commentary,

perhaps disappointing

some market quarterswho

expected a slight dovish

outlook on the back of

slowing economicgrowth.

In the absence of fresh

triggers and the slightly

hawkish tone inthe inflation

trajectory, the G-sec yield

may trade in a narrow

range in thenear term as

participants wait on the

sidelines.

Ø In the last two months since

the monetary policy on

August 2, 2017, the10 year

benchmark G-Sec yield has

hardened around 30 bps

f r o m 6 . 4 5 % t o 6 . 7 5 %

currently. Globally, US 10

y e a r y i e l d h a s a l s o

hardened around30 bps to

2.36%. Corporate bond

yields, however, remained

stabledespite the profit

booking in G-Sec during

the same period.

Ø Although the overall view

on the Indian debt market

remain positive,exhaustion

of the investment limit of

foreign portfolio investors

a n d c o n c e r n s o v e r

additional spending by the

g o v e r n m e n t t o

supportweakening growth

may prevent yields from

c o m i n g d o w n

meaningfullyin the near

term.

Gold: Geopolitical worries put

focus on metal

Ø Global prices were volatile

in September. Starting

from a base of~US$1321

per ounce, they gained

sharply till September 8

(~US$1349per ounce)

before commencing a

sustained decline – first

t o w a r d s U S $ 1 3 0 0 p e r

ounce and then below it.

The month end pr ice

of~US$1280 represents a -

3.1% return in September.

Ø C o n c e r n s a t t h e

g e o p o l i t i c a l l e v e l ,

e s p e c i a l l y t e n s i o n s

between NorthKorea and

the US had sparked safe

haven investment demand

for goldin August. The

37

RESEARCH REPORT


same continued in the first

w e e k o f S e p t e m b e r,

helpingthe metal register a

13 month high. However,

e a s i n g o f t h e

situationcooled interest in

gold. The US Dollar Index

r a l l i e d f o r m u c h

ofSeptember while gold

prices tracked the rise,

leading to a fall in prices

ofthe dollar denominated

metal. Any deterioration

s u r r o u n d i n g t h e

geopolitical situation could

lend support to gold.

Ø A p a r t f r o m r i s k - o f f

investment demand, gold

direction would continue

tobe impacted by the US

Fed rate hike trajectory. The

Fed has hiked ratestwice

thus far in 2017. There is a

growing expectation that a

third hikecould yet be

delivered in December.

Persistent undershooting

of inflationprints from the

targeted level could impact

this stated trajectory. If

USbond yields rise slower

than expected , non -

interest bearing assets

l i kegold could a t t ract

investment demand.

Ø Domestically, the rupee

weakened against the

dollar, losing ~2.8% in

themonth. On a YTD basis,

the domestic currency

a p p r e c i a t e d ~ 3 . 2 % .

Thishas shielded Indian

gold prices, limiting the up

m o v e t o ~ 6 . 6 %

against~11.1% in global

gold prices.

38

RESEARCH REPORT


Gold prices corrected in September 2017 amidexpectations of one more rate hike by the Fed this year andreceding geopolitical uncertainty in Europe.

39

GST


GST LATEST UPDATES

Four months after the roll out, Goods and Service Tax (GST) council has brought new changes in current reform to tackle the bottlenecks faced by consumers and small businesses. Thecouncil has revised tax rates on more than a dozen items and reduced compliance burden on small and medium enterprises. Here are highlights of these changes:

1. Composite scheme now applicable to businesses having annual turnover up to Rs. 1 crore. The threshold for taxpayers in special category States hiked to Rs. 75 lakhs.

2. Taxpayers whose turnover is less than Rs. 20 lakhs and Rs. 10 lakhs in special category States (except Jammu & Kashmir) to be exempted from registration of inter-state supplies.

3. Services provided by Goods Transport Agencies (GTA) to an unregistered entity will be exempted from GST.

4. Small and medium businesses with annual aggregate turnover of Rs. 1.50 crore can now file quarterly returns instead of monthly filings, starting from the Third Quarter of FY 18 i.e. October- December, 2017

5. Such firms are not required to pay GST on advances on account of supply of goods and services.

6. Reverse charge mechanism u/s 9(4) of CGST and section 5 of IGST suspended till March 31, 2018. It will be reviewed by the GST council before resuming.

7. Registration and operationalization of TDS/TCS provisions is postponed till March 31, 2018.

8. The e-wallet system will be rolled out nationwide from April 1, 2018.

9. Deadline for taxpayers filing returns in Form GSTR 4 & 6 extended th th 15 Nov 2017 for the quarter ending 30 Sept 2017.

10. Revised GST rates on selective goods and services are as following: Ø 0%:Duty credit scrips

Ø 5% : Mango sliced dried, Khakra and plain chapatti, ICDS food packets for children, Unbranded namkeen, unbranded ayurvedic medicines, Plastic and rubber waste, paper waste, Real Zari job work, scrap of Glass, E waste, Biomass briquettes

Ø 12%: Yarn,nylon, polyester, acrylic, viscose rayon, Cuprammonium,

Ø 18%: Poster colour, Modelling paste, Diesel engine parts, Plain Shaft Bearing 8483, stones used in flooring, except marble and granite, office articles such as files, letter clips etc. made of base metal

MUTUAL FUND ANALYSIS

40

Investing in infrastructure funds


The government spending and focused push on sectors such as roads, railways, housing, power, mining, ports and oil & gas is likely to offer greater opportunities to companies operating in the infrastructure and allied sectors. Over the past year or two, the government has been working on providing the much needed groundwork that can see the infrastructure sector take off in coming years. The removal of sectoral bottlenecks such as land acquisition, environmental approvals and allocation of mining resources may lead to timely completion of infra projects. Project economics is changing for the good. Low oil and commodity prices are flattening the cost curve for infra projects.

The increased allocation to railways, roads and highways and urban development segments will have a multiplier effect on the economy in terms of infrastructure creation and benefit companies operating in allied sectors. A number of infrastructure related government schemes and introduction of new regulatory measures are expected to help organised players in the infrastructure space over the medium to long term. This will place infrastructure and ancillary stocks on an attractive footing. Infrastructure funds focusing on specific companies capitalising on growth potential in the sector are offering good investment option to investors.

Aggressive investors may consider investing in the recommended infrastructure funds as a part of their thematic allocation. We recommend the following funds: Aditya Birla SL Infrastructure Fund, L&T Infrastructure Fund, and Reliance Diversified Power Sector Fund. Investors should avoid allocating more than 10% of their equity mutual fund corpus in any sector or thematic fund.

Aditya Birla Sun Life Infrastructure Fund

Fund Objective:An open-end growth scheme with the objective of providing for medium to long-term capital appreciation by investing predominantly in a diversified portfolio of equity and equity related securities of companies that are participating in the growth and development of Infrastructure in India.

Key Information:

Product Label:

NAV as on September 29, 2017 (`) 36.1

Inception Date March 17, 2006

Fund Manager Mahesh Patil

Minimum Investment (`)

Lumpsum 1000

SIP 1000

Expense Ratio (%) 2.69

Exit Load 1% on or before 1Y, Nil after 1Y

Benchmark NIFTY 50

Last declared QuarterlyAAUM(`cr) 606

41



This product is suitable for investors who are seeking:

• Long term capital growth

• Investments in equity and equity related securities of companies that are participating in the growth and development of infrastructure in India

Performance:The fund has consistently outperformed the category and the benchmark and has been a top quartile performer over the three and five year time frame (as of September 30). It has generated CAGR of 16.4% and 18.7% in the last three years and five years vs.

7.1% and 11.4% returns by benchmark, respectively (as of S e p t e m b e r 3 0 , 2 0 1 7 ) . However, this comparison is n o t s t r i c t l y c o m p a r a b l e because the fund has chosen Nifty 50 as its benchmark. Looking at the scheme's performance vis-à-vis the category average would be more appropriate. It is here t h a t t h e f u n d ' s r e l a t i v e o u t p e r f o r m a n c e i s c o m m e n d a b l e , h a v i n g delivered 29.35% (one year), 16.29% CAGR (three years) and 18.72% CAGR (five years) against category average of 24.38%, 13.81% CAGR and 15.24% CAGR, respectively, as of September 30, 2017.

Investors understand that their principal will be at high risk

Fund Benchmark

Performance vs. Benchmark

27.2

16.4

18.7

11.8

13.7

7.1 1

1.4

10.1

0

10

20

30

1 Year 3 Year 5 Year Since Inception

Portfolio:The fund has traditionally invested heavily in financials and industrials with these two sectors regularly constituting ~50-55% of the portfolio. However, over the last two to

three years it has consistently cut exposure to these sectors while increasing allocation to materials. Other sectors in which the fund has reduced in recent times include energy and consumer discretionary.

42



The portfolio displays a slight midcap bias with the portfolio seeing allocation of ~40% in large caps and ~60% in mid and small cap stocks. At the stock level the fund tries to

m i t i g a t e t h i s r i s k b y diversifying heavily. It currently holds more than 55 stocks with the top 10 bets making up around a third of the portfolio.

%

5.0

4.6

4.0

3.6

3.2

3.1

2.9

2.8

2.7

2.7

Hindustan Petroleum Corporation Ltd. Domestic Equities

PNC Infratech Ltd Domestic Equities

Carborundum Universal Ltd. Domestic Equities

Asset Type

Honeywell Automation India Ltd. Domestic Equities

Vedanta Ltd. Domestic Equities

Hindalco Industries Ltd. Domestic Equities

Housing Development Finance Corporation Ltd. Domestic Equities

NTPC Ltd. Domestic Equities

Mahanagar Gas Ltd. Domestic Equities

Indraprastha Gas Ltd. Domestic Equities

Top 10 Holdings

%25.3

20.3

13.2

10.4

8.4

6.0

5.8

5.0

2.2

0.8

Information Technology Domestic Equities

Consumer Discretionary Domestic Equities

Others Warrants

Domestic Equities

Energy Domestic Equities

Others Domestic Equities

Industrials Domestic Equities

Materials Domestic Equities

Top 10 Sectors Asset Type

Financials Domestic Equities

Utilities


%

1.4

0.8

Whats In

GAIL (India) Ltd.

Indiabulls Housing Finance Ltd.

%

2.4

0.7

Whats out

ICICI Bank Ltd.

Suzlon Energy Ltd.

43



Our View:The fund has worked on diversifying its portfolio by moving away from highly concentrated positions in financials and industrials. Having reduced exposure to

sectors such as consumer discretionary and financials the fund is now truer to the infrastructure theme. Investors can consider this fund from a three-year perspective.

You can view performance of other schemes being managed by the fund manager of this scheme on the following link:

http://mutualfund.birlasunlife.com/MFUSFactsheetsAddendums/Empower-October-2017.pdf

Data as on September 30, 2017; Portfolio details as on August-2017Source: ACE MF, ICICI Direct Research

44



L&T Infrastructure Fund

Fund Objective:The scheme seeks to generate c a p i t a l a p p r e c i a t i o n b y investing predominantly in equity and equity related instruments of companies in the infrastructure sector.

Key Information:

This product is suitable for investors who are seeking*:

• Long term capital appreciation

• Investment predominantly in equity and equity-related instruments of companies in the infrastructure sector

Product Label:


Performance:The fund has been a top quartile performer over the last one year, three year and five-year t ime frames (as on S e p t e m b e r 3 0 , 2 0 1 7 ) , i n d i c a t i n g i t s r e l a t i v e outperformance over its peers. It has also comfortably and cons i s ten t l y bea ten the benchmark Nifty Infra by ~19% (one year), ~18% CAGR (three years) and ~15% CAGR (five years) (as of September 30, 2017).


Inception Date September 27, 2007

Fund Manager Soumendra Nath Lahiri

Minimum Investment (`) Lumpsum 5000

SIP 500


Exit Load 1% on or before 1Y, Nil after 1Y

Benchmark NIFTY INFRA

Last declared QuarterlyAAUM(` cr) 806

Fund Benchmark


35.1

20.3

20.7

5.1

16.2

2.4 5.1

2.3

0

10

20

30

40


45



Portfolio:The portfolio has undergone a significant change in character over the years. Till 2012, the holdings were dominated by financial, energy and industrial stocks. However, post 2012 it started shedding financial stocks in favour of materials sector and post 2015, the holdings in financial stocks has been cut to a large extent. As a result, now the fund truly

resembles an infrastructure f u n d w i t h t h e p o r t f o l i o predominantly comprising of a p p r o p r i a t e c o n s t i t u e n t sectors, viz. industrials (40%), materials (20%), energy (6%) and telecom (4.5%). Currently, there are ~ 50 stocks in the fund with the top holdings making up close to 34% of the portfolio. The fund also has ~5.5% of the portfolio in cash currently.

%

6.2

5.9

4.6

3.2

3.1

3.0

2.9

2.7

2.7

2.7

Top 10 Holdings Asset Type

Larsen & Toubro Ltd. Domestic Equities

Net Current Asset Cash & Cash Equivalents

Graphite India Ltd. Domestic Equities

Sterlite Technologies Ltd.

Petronet LNG Ltd. Domestic Equities

Bharat Forge Ltd. Domestic Equities

Bharat Electronics Ltd. Domestic Equities

Domestic Equities

OCL India Ltd. Domestic Equities

KEI Industries Ltd. Domestic Equities

Lakshmi Machine Works Ltd. Domestic Equities

%40.5

19.9

7.6

6.0

4.9

4.6

4.1

3.5

1.7

1.0

Top 10 Sectors Asset TypeIndustrials Domestic Equities

Materials

Telecommunication Services Domestic Equities


Utilities Domestic Equities

Domestic Equities

Financials Domestic Equities





%

1.5

0.3

Whats out

Siemens Ltd.

Sanghvi Movers Ltd.

46



Data as on September 30, 2017; Portfolio details as on August-2017� �Source: ACE MF, ICICI Direct Research

Our View:The fund is on the aggressive side with higher allocation to midcaps than large caps. However, the portfolio is well

cons t ruc ted in te rms o f diversi f icat ion. Investors looking for a true-blue infra f u n d c a n c o n s i d e r L & T Infrastructure Fund.

47



Reliance Diversified Power Sector Fund

Fund Objective:The pr imary inves tment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity and equity related securities of companies in the power sector.

Key Information:

Product Label:

This product is suitable for investors who are seeking*:

• Long term capital growth

* Investment in equity and equity related securities of companies in power sector

Performance:The fund has outperformed its benchmark BSE Power Index exceedingly well over the years. The one year, three y e a r s a n d f i v e - y e a r performance (as of September 30) is 39.5%, 14.9% CAGR and 13.3% CAGR, respectively, as compared to BSE Power Index's 10.9%, 3.7% CAGR and 1.5% CAGR. When compared to its category peers the performance has picked up over the last year but over three and five years' time frame it has underperformed.



Fund Benchmark


Inception Date May 8, 2004

Fund Manager Sanjay Doshi

Minimum Investment (`) Lumpsum 5000

SIP 100


Exit Load 1% on or Before 1Y, Nil After 1Y

Benchmark S&P BSE Power Index

Last declared Quarterly AAUM (` cr) 1873

39.5

14.9

13.3 19.4

10.9

3.7

1.5

0

0

10

20

30

40

50


48



Portfolio:I n d u s t r i a l s a n d u t i l i t i e s consistently make up ~75-80% of the scheme portfolio. The scheme has taken outsized positions on these sectors over the years. In recent times, exposure to materials has also increased and it is now the

third largest holding in terms of sectors. The fund likes to take large bets on its top holdings, with the top five stocks all individually constituting 4.5% or more of the portfolio. Overall, the fund currently has 37 stocks in the portfolio and has a pronounced midcap tilt.

Our View:The fund is more suited to savvy, exper ienced and aggressive investors due to factors such as significant

midcap bias of ~75% and heavily concentrated calls in terms of stocks as well as sectors.

%

7.0

6.7

5.5

5.1

4.6

4.5

4.5

4.4

4.2

4.1

Top 10 Holdings Asset Type

Apar Industries Ltd. Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

Torrent Power Ltd. Domestic Equities

PTC India Ltd. Domestic Equities

KEC International Ltd. Domestic Equities

Jindal Stainless (Hisar) Ltd. Domestic Equities

Kirloskar Pneumatic Company Ltd. Domestic Equities

KSB Pumps Ltd. Domestic Equities

GE Power India Ltd. Domestic Equities

CESC Ltd. Domestic Equities

%55.0

24.4

5.6

5.1

3.5

2.6

1.4

Top 10 Sectors Asset Type


Materials

Industrials Domestic Equities

Utilities Domestic Equities

Domestic Equities




%

0.8

0.6

Whats In

Hindustan Construction Company Ltd.

NLC India Ltd.

49



Performance of other schemes managed by these fund managers:

Note : The schemes may or may not have been managed by the same Fund Manager since its inception

Note: The concerned Fund Manager manages 7 other schemes of the concerned Mutual Fund


Note : The concerned Fund Manager manages 10 other schemes of the concerned Mutual Fund

1. Aditya Birla Sun Life Infrastructure Fund

30.71 18.65 19.7519.19 9.70 12.6129.85 23.58 29.3819.19 9.70 12.6125.67 22.93 --19.60 20.17 19.32

20.02 14.80 18.8619.19 9.70 12.6118.25 15.00 18.49

19.19 9.70 12.6115.92 15.47 17.9419.19 9.70 12.61

Aditya Birla SL Top 100 Fund(G)NIFTY 50Aditya Birla SL Frontline Equity Fund(G)NIFTY 50Aditya Birla SL Balanced '95 Fund(G)NIFTY 50

Fund Name 1 Year 3 Years 5 Years

Top 3 Performing Schemes Aditya Birla SL Infrastructure Fund(G)NIFTY 50

Performance of other schemes managed by the fund manager - Mahesh Patil

Aditya Birla SL Pure Value Fund(G)NIFTY 50Aditya Birla SL Emerging Leaders Fund-3-Reg(G)S&P BSE Mid-Cap

Bottom 3 Performing Schemes

30.71 18.65 19.7519.19 9.70 12.6119.98 11.75 14.5619.19 9.70 12.6119.15 13.53 13.39

-- -- --

6.32 -- --9.16 10.37 9.916.28 -- --9.16 10.37 9.91

5.49 6.87 --9.16 10.37 9.91

Aditya Birla SL CPO Fund-Sr 22Crisil MIP Blended Fund Index

Crisil MIP Blended Fund IndexAditya Birla SL CPO Fund-Sr 30Crisil MIP Blended Fund Index

Top 3 Performing Schemes Aditya Birla SL Infrastructure Fund(G)NIFTY 50Aditya Birla SL Dividend Yield Plus(G)NIFTY 50Aditya Birla SL Intl. Equity Fund-B(G)

Performance of other schemes managed by the fund manager - Vineet Maloo


S&P Global 1200

Bottom 3 Performing SchemesAditya Birla SL CPO Fund-Sr 29

50



2. L&T Infrastructure Fund

3. Reliance Diversified Power Sector Fund

Note: The schemes may or may not have been managed by the same Fund Manager since its inception

Note : The concerned Fund Manager manages 1 other schemes of the concerned Mutual Fund


Note: The concerned Fund Manager manages 8 other schemes of the concerned Mutual Fund

Data as on September 30, 2017; Portfolio details as on August-2017� �Source: ACE MF, ICICI Direct Research

37.90 27.78 --28.83 17.94 19.0037.61 23.88 22.1020.55 4.77 6.1733.26 25.44 28.4818.15 19.56 19.02

18.33 13.73 16.8819.70 12.27 14.2617.82 15.76 18.89

7.33 8.83 8.877.66 8.64 14.427.33 8.83 8.87


Top 3 Performing Schemes L&T Emerging Businesses Fund-Reg(G)S&P BSE Small-Cap

Bottom 3 Performing SchemesL&T Equity Fund-Reg(G)

Performance of other schemes managed by the fund manager - Soumendra Nath Lahiri

L&T Infrastructure Fund-Reg(G)NIFTY INFRAL&T Midcap Fund-Reg(G)Nifty Free Float Midcap 100

Crisil Short Term Bond Fund Index

S&P BSE 200L&T India Prudence Fund-Reg(G)Crisil Short Term Bond Fund IndexL&T Dynamic Equity Fund-Reg(G)

39.92 16.97 13.8512.43 4.48 2.11


Top 3 Performing Schemes Reliance Diver Power Sector Fund(G)S&P BSE Power Index

Performance of other schemes managed by the fund manager - Sanjay Doshi


What is iCommunity?iCommunity is ICICIdirect's interactive platform where one can answer and get answered as well. With extensive range of forums, events & discussions iCommunity serves as an opportunity to learn more about financial world.

iCommunity wins Asian Customer Engagement Forum & Awards, 2017We are pleased to inform you that ICICIdirect Community has won "Bronze" Award under "Excellence in Customer Experience" category at the coveted ACEF (Asian Customer Engagement Forum & Awards), 2017.

Be a part of this unique platform and find answers to all your financial queries through our on l ine act iv i t ies and discussions.

Q&A Session A special session with Derivatives Research Analyst - Mr. Amit Gupta. Some questions asked by customers were: a) I need your opinion on Marico in F&O this week (for the pre Diwali session) b) Why Indian Markets are so volatile when American, Japanese and Chinese share markets are stable and keep moving upwards?

B u z z i n t h e m a r ke t G O I ' s m a j o r

recapitalisation plan for PSU banks – A

much awaited boost?

So, in your view, is it a much needed

boost for PSU Banks?

This month on iCommunity

52

EQUITY MODEL PORTFOLIO


Our indicative large-cap equity model portfolio has continued to deliver an impressive return (inclusive of dividends) of 112.91% till date (as on October 25, 2017) since its inception (June 21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex) return of 95.27% during the same period, an outperformance of 17.634. This validates our thesis of selecting companies with sound business fundamentals that forms the core theme of our portfolio. Our midcap portfolio of 16 stocks continues to outperform well, delivering 314.17% (inclusive of dividends) till date (as on October 25, 2017) vis-à-vis the benchmark index (CNX Midcap) return of 148.12%, outperformance of 166.05%. Our consistent outperformance demonstrates our superior stock picking ability as markets aligned to our view of favourable risk reward, good franchisee vs. reward-at-any-risk businesses.

We have always suggested the SIP mode of investment and still find a lot of merit in it as the preferred mode of deployment given the market conditions and volatility associated since the inception of the portfolio. We highlight that the SIP return of our portfolio has consistently outperformed the indices.

Following the same pace and opportunities in the market, our portfolio (large caps) remain overweight on BFSI sector – HDFC Bank (10%), HDFC (9%), Bajaj Finance (6%) and SBI (6%). Affirming our view on consumption demand, Dabur (5%) and Asian Paints (5%) continue to be part of our large cap portfolio. However, there's an addition of metal sector- Hindustan Zinc (6%) in the revised portfolio.

We remain positive on auto, IT and pharma. We remain overweight to neutral on pure play defensives (IT, FMCG) as secular earnings coupled with sector rotation could lead to consolidation in near term valuations and offer stock specific opportunities.

Among individual names, we continue to recommend 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, SBI, Asian Paints).

53



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

Auto 16.0 11.2

Tata Motor DVR 4.0 2.8

Maruti 5.0 3.5

EICHER Motors 3.0 2.1

Mahindra & Mahindra (M&M) 4.0 2.8

BFSI 37.0 25.9

HDFC Bank 10.0 7.0

Axis Bank 6.0 4.2

HDFC 9.0 6.3

Bajaj Finance 6.0 4.2

SBI 6.0 4.2

Capital Goods 4.0 2.8

L & T 4.0 2.8

Cement 4.0 2.8

UltraTech Cement 4.0 2.8

FMCG/Consumer 18.0 12.6

Dabur 5.0 3.5

Marico 4.0 2.8

Asian Paints 5.0 3.5

Nestle 4.0 2.8

IT 6.0 4.2

TCS 6.0 4.2

Media 4.0 2.8

Zee Entertainment 4.0 2.8

Metals 6.0 4.2

Hindustan Zinc 6.0 4.2

Oil and Gas 5.0 3.5

GAIL Ltd. 5.0 3.5

Largecap share in diversified 100.0 70.0

54



Please note that ICICI Securities Limited has been appointed as one of the Book Running Lead Managers to the initial public offer of SBI Life Insurance Company Limited. This report is prepared on the basis of publicly available information

Auto 6.0 1.8

Bharat Forge 6.0 1.8

BFSI 20.0 6.0

Bajaj Finserve 8.0 2.4

J&K Bank 6.0 1.8

Indian Bank 6.0 1.8

Capital Goods 6.0 1.8

Bharat Electronics 6.0 1.8

Cement 6.0 1.8

Ramco Cement 6.0 1.8

Consumer 36.0 10.8

Symphony 6.0 1.8

Supreme Ind 6.0 1.8

Kansai Nerolac 6.0 1.8

Pidilite 6.0 1.8

Tata Chemicals 6.0 1.8

Bata 6.0 1.8

Metals 6.0 1.8

Graphite India 6.0 1.8

Infrastructure 8.0 2.4

NBCC 8.0 2.4

Logistics 6.0 1.8

Container Corporation of India 6.0 1.8

Textile 6.0 1.8

Arvind 6.0 1.8

Total 100.0 30.0

Midcap share in diversified 30

TOTAL 100 0 100.0

55

Performance* so far since inception

*Returns (in %) as on Oct 25, 2017

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

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

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: June 30, 2011; *Value as on Oct 25, 2017



112.9147353

314.178204

157.7154603

95.27092565

148.1258241108.4522709

0255075

100125150175200225250275300325350

Large Cap Midcap Diversified

%

7800000

7800000

7800000

11131652.7

8

12555195.5

1

10336618.2

3

12190589.3

6

11400983.5

5

3500000

4500000

5500000

6500000

7500000

8500000

Largecap Midcap Divesified

|

QUIZ TIME

1. Historically, __________ markets tend to undergo periodic phases of secondary correction.

2. If US bond yields rise slower than expected, non-interest bearing assets like ________ could attract investment demand.

3. Major sectors like oil & gas and metal & miningwill benefitfrom higher commodity prices.True/ false

4. “With India expected to be a $5 trillion economy by 2025, _________ markets would be a big beneficiary.”

5. The upward revision in inflation outlook was largely ____________.

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 September 2017 quiz are:

1. Loan processing fees, insurance premiums and bank transaction charges will _______ narrowly in GST regime.A. Hike

2. The advantage of reduced tax outgo directly affects inflation in the economy. True/FalseA. True

3. National Anti-Profiteering Authority comprises ______ member. A. Five

4. Jaggery is categorized under ____ % tax slab under GST. A. 0%

5. IGST is levied on all goods and services that come under ___________ trade category. A. inter-state


57

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

30-Sep-17 31-Aug-17 Change (%)

CNX Nifty 9789.0 9918.0 -1.3%

CNX Midcap 18108.0 18277.5 -0.9%

S&P BSE Sensex 31284.0 31730.5 -1.4%

S&P BSE 100 10173.0 10315.2 -1.4%

S&P BSE 200 4281.0 4334.6 -1.2%

S&P BSE 500 13611.0 13762.1 -1.1%


Dow Jones 22,405.1 21,948.1 2.1%

S&P 500 2,519.4 2,471.7 1.9%

Nasdaq 6,496.0 6,428.7 1.0%

FTSE 7,372.8 7,430.6 -0.8%

DAX 12,828.9 12,055.8 6.4%

CAC 40 5,329.8 5,085.6 4.8%

Nikkei 20,356.3 19,646.2 3.6%

Hang Seng 27,554.3 27,970.3 -1.5%

Shanghai Composite 3,348.9 3,360.8 -0.4%

Taiwan Weighted 10,383.9 10,585.8 -1.9%

Straits Times 3,219.9 3,277.3 -1.7%


S&P BSE Auto 24,180.0 23,688.7 2.1%

S&P BSE Bankex 27,025.0 27,440.8 -1.5%

S&P BSE FMCG 9,772.7 10,174.1 -3.9%

S&P BSE Healthcare 13,487.8 13,149.3 2.6%

S&P BSE Metals 13,563.9 13,284.1 2.1%

S&P BSE Oil & Gas 14,842.5 15,177.3 -2.2%

S&P BSE Power 2,206.2 2,261.5 -2.4%

S&P BSE Realty 2,065.4 2,137.7 -3.4%

S&P BSE Teck 5,607.6 5,709.0 -1.8%

58

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Sep-17 Aug-17 Change (bps)

Corporate Bond Yields (in %) Sep-17 Aug-17 Change (bps)

Commercial Paper (CP) Rates (in %) Sep-17 Aug-17 Change (bps)

Treasury Bill (T-Bills) Yields (in %) Sep-17 Aug-17 Change (bps)

Volatility Index (VIX)


VIX 12.48 11.95 0%

10 year 6.66 6.53 13

5 year 6.64 6.50 14

3 year 6.41 6.35 6

1 year 6.28 6.14 14

AAA 10 year 7.67 7.63 4

AAA 5 year 7.08 7.31 -24

AAA 3 year 7.15 7.17 -2

AAA 1 year 6.95 6.73 22

AA 10 year 8.08 7.99 9

AA 5 year 7.87 7.75 12

AA 3 year 7.62 7.61 1

AA 1 year 7.31 7.14 18

12 Months 7.04 6.94 11

6 Months 6.84 6.76 8

3 Months 6.64 6.57 7

1 Month 6.56 6.39 17

91D TB 6.08 6.09 -1

182D TB 6.18 6.18 0

364D TB 6.23 6.25 -2

59

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

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

Countries 30-Sep-17 30-Aug-17 Change in bps

US 2.334 2.117 22

UK 1.365 1.034 33

Japan 0.068 0.009 6

Spain 1.597 1.554 4

Germany 0.464 0.361 10

France 0.742 0.660 8

Italy 2.111 2.045 7

Brazil 9.734 9.975 (24)

China 3.623 3.659 (4)

India 6.663 6.525 14

MF Investment Sep-17 Aug-17 YTD

Equity 17456 17941 86344

Debt 31855 36467 296253

FII Investment Sep-17 Aug-17 YTD

Equity -10758 -11108 36530

Debt 992 15204 129515

Items Weights(%) Jul-17 Aug-17 Sep-17

Food&bev. 45.86 0.43 1.96 1.76

Pan,tob& intox. 2.38 6.39 6.85 6.95

Cloth & Foot 6.53 4.22 4.58 4.63

Housing 10.07 4.98 5.58 6.10

Fuel & light 6.84 4.86 5.02 5.56

Misc. 28.31 3.28 3.85 3.83

CPI 100 2.36 3.28 3.36

Weights Jul-17 Aug-17 Sep-17WPI 100.0 1.88 3.24 2.60 Primary Articles 22.6 0.46 2.66 0.15 Fuel & Power 13.2 4.37 9.99 9.01 Manufactured Goods 64.2 2.18 2.45 2.72

60

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 September 30, 2017

Debt Funds Returns (in %)

Returns as on September 30, 2017

Tenure Liquid Funds

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

Currencies and CommoditiesCurrencies

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

Debt ST Ultra ST Debt LT

Categories 30-Jul-17 30-Jun-17 30-May-17 Weight(%)Mining -6.5 -2.8 2.6 14.4Manufacturing -1.2 -4.1 6.8 77.6Electricity 3.1 -6.8 5.0 8.0Overall -1.3 -4.2 6.0 100.0

30-Sep-17 30-Aug-17 Change (%) StatusUSDINR 65.12 63.91 1.9% DepreciatedEURINR 77.36 76.24 1.5% DepreciatedGBPINR 87.83 82.54 6.4% DepreciatedAUDINR 51.83 50.78 2.1% DepreciatedCHFINR 66.86 66.97 -0.2% AppreciatedJPYINR 0.5812 0.585 -0.6% AppreciatedCNYINR 9.834 9.663 1.8% Depreciated

30-Sep-17 30-Aug-17 Change (%)Crude ($/barrel) 56.5 52.4 7.9%Gold ($/ounce) 1,280.2 1,321.4 -3.1%

6 months 8.81 11.02 8.30 9.391 year 17.23 20.80 15.08 17.623 year 12.95 18.12 10.45 12.825 year 17.30 24.24 14.55 17.03

6 months 6.29 7.90 7.21 7.96

1 year 6.27 7.44 7.05 7.11

3 year 7.36 8.68 8.05 9.53

Printed by jasmine Art Printers Pvt. Ltd., A-737/3, TTC Ind. Area, MIDC, Navi Mumbai - 400 710.

icici october 17 issuecontent.icicidirect.com/moneymanagermagazine/october_2017.pdf · low risk...

Documents