icicidirect_mfreport_ january2011

8/6/2019 ICICIdirect_MFReport_ January2011

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January 19, 2011

ICICIdirect.com|Mutual Fund

Mutual Fund Review

CICI Securities Limited

Equity markets

Update

In 2010, the BSE Sensex delivered 16% return. It is down around 4%in the last month ending January 15, 2011 while the Midcap index wasdown around 5%

The year 2011, so far, has not been good for the markets as it haswitnessed around 8% correction in the first half of the first calendar

month of the new year

Heavy selling pressure was witnessed across all sectors on concernsof a rate hike by the central bank later this month to contain surging

inflation

Persistent high inflation, particularly primary and food inflation, is aworrying factor for the economy as well as for the Indian equity

markets as it will force regulators to slow down the economy to

suppress demand. The same is already seen in the RBI raising rates

and on low IIP data

FIIs were seen as net sellers in January as high valuation andperceived risk of moderation in economic activity due to rising

interest rates and inflation resulted in some profit booking

Mutual funds were seen as net buyers in the recent correction andhave bought around | 500 crore in the first half of January 2011

Realty continued to underperform on the negative impact of interestrate hike. The auto sector witnessed profit booking on rate hike and

slowdown in sales after record sales in the last quarter while FMCG

and healthcare outperformed the broader markets

Global markets remained positive with most markets outperformingthe Indian markets, and, thereby, providing support to the markets

Outlook

The recent market correction in the first half of January has providedinvestors an opportunity to invest in a staggered way. From current

levels, every dip should be utilised by investors to invest in equity

markets

The appetite for equity investment from domestic institutionalinvestors at lower levels seems strong

Global news flows regarding tightening monetary policy to preventrising inflation and sovereign risk may have a negative impact on the

global equity markets

Higher commodity prices, including crude, are a major concern forthe Indian economy

Foreign institutional flows may be volatile on global news flows. Thismay have its impact on Indian markets as they continue to be

dominant market participants

Indias domestic economy continues to remain on a strong footingwith visible growth prospects. The same is expected to drive the

equity market over a longer period of time

Investors should avoid taking high cash call as fund managersthemselves manage the portfolio in accordance with market

development

Large cap biased funds offer a better risk adjusted opportunity forinvestors

CY10 was a year of choppy rise

4500

4700

4900

5100

5300

55005700

5900

6100

6300

6500

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Nifty

17 % up move

Source: Bloomberg, ICICIdirect.com Research

At the fag end of CY10 the mid & small capsunderperformed the Sense x stocks

16.0

15.3

15.3

14.8

14.5

13.9

13

13

14

14

15

15

16

16

17

BSESens

ex

BSE5

00

BSE2

00

BSE1

00

BSEMidc

ap

BSESmallC

ap

Return(%)


Consumption oriented sectors outperformed .

65

35 34 32 31 3123

16

8 1

-1 -2-8

-26-40

-20

020

40

60

80

Con.D

ur

Auto

Healthcare

Banking IT

FMCG

Teck

Sensex

Cap.G

oods

Oil

Metals

PSU

Power

Reality


Analysts name

Sachin [email protected]

Sheetal Ashar

[email protected]


2/31

ICICIdirect.com|Mutual FundPage 2

ICICI Securities Limited

Debt markets

Update

The year 2010 has not been good for Indian debt markets asinterest rate increased, particularly short-term rates. Short-term

rates (three months CD rates) have increased by around 5% in2010 putting pressure on returns of short-term debt funds

The RBI has raised interest rates (repo rate) six times by 150 bps from 4.75% to 6.25% in 2010 to control inflation as economic

recovery picked up pace and rising commodity prices put upward

pressure on prices

The liquidity scenario turned negative with large ticket size publicissues hitting the market and sucking liquidity putting pressure

yields across the curve

Longer duration debt funds also witnessed pressure due to the risein longer duration yields as rising inflation and high government

borrowing put pressure on yields of longer duration governmentsecurities

Corporate bond yields remained range bound in 2010 as lack ofany new issuances helped it to contain a rise in yields at the longer

duration. As a result, the spread compared to G-Sec narrowed to

around 80 bps as compared to 100 bps at the start of 2010

In the last month, yields remain volatile as high WPI and foodinflation at 8.43% and 16.91%, respectively, prevented yields from

coming down

Global markets witnessed a fall in longer duration sovereign yieldstill the last quarter of 2010 as the slow economic recovery resulted

in low inflationary expectations. However, in the last quarter,positive economic data, particularly from the US, resulted in

improved inflationary expectations and better equity market

outlook. Therefore, money was seen flowing from global debt

funds to global equity funds

Commodity prices, particularly crude, have been rising swiftly inthe later part of 2010. The same is fuelling inflation and is a major

threat for the debt market

Outlook

We believe that 2011 will be good for the debt market andinvestments in all categories, viz. ultra short-term funds, short-term funds and income funds should deliver good returns

Inflation, although stubborn in recent times, is expected to comedown in the coming months. This will be beneficial for the debt

market and debt funds

Currently, short-term debt funds offer better return opportunity asshort-term rates have already risen sharply due to tight liquidity.

They are expected to moderate from current levels

Ultra short-term funds also offer good returns due to tight liquidityand elevated rates on short maturity money market instruments

Fixed maturity plans are also offering the opportunity to lock incurrent higher rates. We expect longer duration G-sec yields toease off further by around 20-30 bps from current levels. The

same may add to the total returns

ield curve flattens as short-term yields inch higherue to tight liquidity condition

6.4

7.2

7.1 7.5 7.87.9

4.33.7

7.6

8.2

3

4

5

6

7

8

9

3mnth

1Year

3Year

5Year

10Year

(%)

1-Jan-10 14-Jan-11


Liquidity remains tight for whole of the second halfeading to increase in short-term lending rates

-2000

-1500

-1000

-500

0

500

1000

1500

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

|C

r.


Credit spreads widen in the later half

159

137

121

83

116

99105

81

50

70

90

110

130

150

170

1yr 3yr 5yr 10 yr

14-Jan-11 1-Jan-10



3/31



Institutional fund flow

Exhibit 1:Throughout CY10 mutual funds sold heavily

-1311-718

-3807

-1428

99

-961

-4405

-3170

-6161 -5801

-100

1131434.8

-8000

-6000

-4000

-2000

0

2000

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

|Cr

4800

5100

5400

5700

6000

6300

Net MF Investment CNX Nifty (RHS)

Source: Bloomberg , ICICIdirect.com Research

Exhibit 2:. contrary to MFs, FIIs were buyers throughout CY10

-1136

2114

18834

9900

-9175

9708

17658

11186

2919624770

18966

-2495 -3181

-20000

-10000

0

10000

20000

30000

40000

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

|Cr

4800

5100

5400

5700

6000

6300

Net FII Investment CNX Nifty (RHS)


Exhibit 3:FII flows are at decade high indicating India has been their preferred investmentdestination

128203576

30793 38763

48060

37603

74902

-56778

84269

133050

-100000

-50000

0

50000

100000

150000

CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10

|C

rore

0

5000

10000

15000

20000

25000

FII Investment (RHS) Sensex


Higher market valuation and redemption pressure led to

mutual funds being net sellers during 2010

However, things are likely to improve as the mutual

fund industry has adjusted to the regulatory changes

and market correction will lead to larger incremental

inflows in 2011

Indian stocks continued to sparkle in the eyes of FIIs as their

holding in indices like the Nifty, Sensex and BSE midcap is

currently at peak levels of 17.9%, 15.9% and 13.6%,

respectively

On the global liquidity front, we believe India is unlikely to see

any major impairment in FII inflows as the western world is

unlikely to commence rate tightening in CY11 in a hurry

In addition, healthy participation in disinvestment programme

of | 49865 crore during CY10 and likely strong pipeline of |51,000 crore in 2011 would keep FII interest alive for Indian

equities


4/31



Industry Synopsis

Exhibit 4:Assets under managementdeclined..

Dec-10,

626314

500000

600000

700000

800000

900000

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Source: AMFI, ICICIdirect.com Research

Exhibit 5:Outflows continued

-90722

143774

-150000

-100000

-50000

0

50000

100000150000

200000

CY10 CY09


Exhibit 6:Regulatory changes affect income and money market fund rather than equity funds33.2

25.1

32.2

3.12.8

2.3

14.211.4

9.4

1.91.41.2

47.6

62.0

52.1

0

5

10

15

20

25

30

35

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

%

30

35

40

45

50

55

60

65

%

Equity Balanced Money Market Others Income (RHS)


Exhibit 7:AAUM and market share September 2010

4

6

8

10

12

14

16

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Q4

%Share

Reliance HDFC ICICI Prudential UTI

Birla Sun Life SBI Franklin


The AUM declined 17% YoY as the industry witnessed

outflows to the extent ~| 1 lakh crore

In CY10, regulatory changes w.r.t valuation of debt securities,

Sebi asking banking to put a strict check on their MF holdings

and closure of the liquid plus funds category led to lesser

inflows in to income funds and their share dropped from 62% in

January 2010 to 47%in December 2010

Equity funds and Gold ETFs gained share among total AUM in

2010

AAUM for the last quarter CY10 stood at |6.75 lakh crore,

down from AAUM of |7.14 lakh crore for September 2010

Reliance Mutual Fund continues to be the market leader in

terms of AAUM followed by HDFC Mutual Fund with AAUM of~| 1 lakh crore and | 0.8 lakh crore, respectively

Among major AMCs, LIC Mutual Fund saw a decline in the

share whereas Franklin Templeton Mutual Fund and DSP Black

Rock Mutual Fund garnered higher share of the tota l pie


5/31



Category Analysis

Equityfunds

Exhibit 8:Sub-category wise fund returns vs. respective BSE indices

0.2

1

-2.5

2

-2.4

6

-5.0

3

-6.2

3-5.3

7

-10.0

1

2.17

-2.2

5

0.5

3

-5.2

3

-5.1

3

-6.0

8

-9.8

1

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

Technology Pharma FMCG Diversified Infrastructure Mid cap Banking

Returns(%)

Category Return (%) Index Return (%)

Source: CRISIL Fund Analyser, ICICIdirect.com Research

Note : % Returns are absolute 1 month returns as on January 14, 2011

Exhibit 9:Net fund flow: Worst seems to be over

9801514

-2016-1133

1256

-1446

-3400-2890

-7011

-2869

-41877

-9500

-7500

-5500

-3500

-1500

500

2500

4500

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

NetInflow

(|

Cr)

Source: Crisil Fund Analyser, ICICIdirect.com Research

Exhibit 10:Deployment of funds by equity schemes (including ELSS * Balanced Schemes)

16

.1

8.5

6.8

6.6

6.4

5.7

4.8

4.1

3.8

3.8

13.6

7.7

6.0

7.9

6.6

5.7 6

.1

3.0

4.5

4.1

0

4

8

12

16

20

Banking IT

Pharma

Cap.G

oods

Consum.

Durab

Pertroleum

Power

Auto

Finance

Oil

%ofEquityAUM

Dec-10 Jan-10

Source: SEBI, , ICICIdirect.com Research

In the equity funds category, except for technology funds all

other fund gave negative returns for the one month periodending January 14, 2010. Banking funds continued to be

laggards as also infrastructure funds

For CY10, it was sector funds - pharma & banking, which were

major gainers. For CY11, we expect the Indian equity

performance to be growth induced. It would mirror the

trajectory of economic and corporate growth

We do not expect sector rotation/preference to undergo much

change on the likely levers of higher growth even though

valuation multiples appear to be rich

Outflows moderated considerably during November and

December and saw some decent inflows, giving some comfort

to AMCs

On account of a lack of push to the product and profit booking

at 20000+ levels on the Sensex, the equity funds category

witnessed outflows to the tune of ~|16,100 crore for CY10

Banking being the sector with highest weightage in the index

continues to be a major sector

After the recent correction, fund managers continued to

increase their holdings as seen from the increase in share to

16% in December 2010 from 13% in January 2010

IT, pharma and auto still continue to be in favour

Capital goods and power saw some shift of interest


6/31



Equity Diversified Funds

CY10 was good for Indian equities as FIIs pulled the index by over16%. Equities were also one of the highest yielding asset classes.

Equity diversified funds have performed in line with the broader

markets

However, CY11, so far, has not been good with around 8%correction in the first half of the first month

The correction in our view can be used as an opportunity to invest for the long-term in diversified funds. Diversified large-cap

oriented funds should be preferred and core portfolio investment

in these funds should be done in a staggered manner utilising

each major dip as an opportunity to buy for the long-term

Indias domestic economy continues to remain on a strong footingwith visible growth prospects. The same is expected to drive the

equity market over a longer period of time

Exhibit 11:Category average vs. benchmark

-5.0

-9.4

3.1

7.3

-2.9

14.2

-10.1

2.55.1

-4.6

14.3

-5.2

-15

-10

-5

0

5

10

15

20

1M 3M 6M 1Yr 3Yr 5Yr

Return(%)

Category Average BSE 200


Note : % Returns are as on Jan 14, 2010 Returns above 1 yr are CAGR returns

Exhibit 12:Positive & negative bias fundsTop Recomeded Equity Diversiifed FundsScheme Name 6 M 1 Yr 3 Yr

Fidelity Equity 4.64 16.22 3.31

ICICI Prudential Focused Bluechip Equity Fund 8.25 15.95 N.A

HDFC Top 200 Fund 5.78 14.18 7.12

Birla Sun Life Frontline Equity Fund - Plan A 5.28 7.95 3.19

Reliance Regular Savings Fund - Equity 2.96 7.28 1.10

Benchmark - BSE 200 2.50 5.13 -4.58

Category Average 3.12 7.30 -2.89

Negative Bias FundsScheme Name 6 M 1 Yr 3 Yr

Reliance Equity Fund -5.92 -8.34 -7.58

JM Contra Fund -6.87 -7.27 -24.71

HSBC Progressive Themes Fund -8.20 -6.99 -15.49

Birla Sun Life Advantage Fund -9.94 0.26 -6.89

Principal Growth Fund 0.08 3.05 -12.22

Benchmark - BSE 100 2.50 5.13 -4.58

Category Average 3.12 7.30 -2.89


Note : % Returns are as on Jan 14, 2011, Returns above 1 yr are CAGR returns

Staggered investment through SIP is the best way to

approach the market in 2011

ViewShort-term: NeutralLong-term: Positive


7/31



Equity Midcap Funds

Midcap stocks tumbled the most in the recent market correctionas news flows over price rigging and the Sebi probe resulted in

risk aversion from the segment

Midcap category funds are more volatile but also offer betterreturn potential

The funds offer a good opportunity for an investment horizon ofover three to five years to ward off the interim volatility

In this category, stock selection as well as fund selection plays agreater role as it is a high-risk high-return game with huge

deviation in returns among the best and worst performers

Exhibit 13:Category average vs. Benchmark Indices

-5.4

-12.0

-0.3

6.1

-6.0

-13.5

-1.6

5.7

-3.2

14.312.0

-6.1

-15

-10

-5

0

5

10

15

20

1M 3M 6M 1 YR 3YR 5YR

Return(%)

Category Average CNX MidCap



Exhibit 14:Negative & positive bias fundsTop Recomeded Equity Mid Cap Funds

Scheme Name 6 M 1 Yr 3 Yrs

IDFC Premier Equity Fund - Plan A 5.47 15.51 4.61

ICICI Prudential Discovery Fund 4.38 15.19 10.23

Sundaram BNP Paribas Select Midcap 4.51 7.87 1.75

Benchmark - CNX Midcap -1.62 5.73 -3.18

Category Average -0.31 6.11 -6.01

Negative Bias FundsScheme Name 6 M 1 Yr 3 Yrs

SBI Magnum Midcap Fund 2.94 -0.51 -13.66

JM Emerging Leaders Fund -7.32 -9.60 -26.07

JM Small and Midcap Fund -11.20 -14.58 -32.46

CNX Midcap -1.62 5.73 -3.18

Category Average -0.31 6.11 -6.01



SIP investment in midcap funds should be able to

outperform in the next two or three years


Midcap funds are alpha generators. However, they are

risky bets with higher variation in the best and worst

fund performance, Proper selection plays a key role.


8/31


9/31



Equity Banking Funds

The banking sector, a heavyweight on the BSE Sensex with a 17%share, has emerged stronger in CY10 with the Banking Indexdelivering 30%+ returns for CY10

The short-term performance may be muted due to significantoutperformance in 2010 and near term pressure on interest

margins and over ownership among investors

Near term pressure on NIM persists but the effect of base rate andBPLR hikes will come into play and FY12E NIM should not see any

further erosion

We continue our positive stance on the sector over a longerperiod of time as stable economic growth and more than 20%

credit growth will continue to help them to grow

Exhibit 17:Category average vs. fund return

3.4

20.7

-9.8

-17.3

4.6

19.7

-1.9

18.02

2.6

-2.1

-10.0

-

17.7

-30

-20

-10

0

10

20

30


Return(%)

Category Average Bankex


Note : % Returns are as on Jan 14, 2011 Returns above 1 yr are CAGR returns

The BFSI space, which has ~17 weightage in the Nifty,

lifted the index in the recent rallyHowever, the past few

sessions saw the banking index paring some of the

gains

ViewShort-term: Neutral

Long-term: Positive


10/31



Equity Pharma Funds

Pharma funds have delivered the highest return among sectorfunds in CY10 of ~25%

The outperformance is expected to continue although with a lowergap

We expect major pharma players to clock ~18-20% kind ofgrowth in domestic formulations driven by strong growth in

chronic therapies such as anti-diabetics, cardiovascular (CVS),

central nervous system (CNS) and oncology

Rapid urbanisation, changing lifestyles, demographic transitionand growing health insurance coverage are some of the obvious

factors that will drive the chronic growth

In 2010, almost all domestic players increased their field force.This will start yielding a positive effect from the second half of

CY11 onwards. This incremental field force will complement the

added capacities since 2009

On the exports front, we see a continuance of the three prongedstrategy of risk mitigation adopted by major generic players

a. to increase the presence in regulated markets of the US,Japan and EU by aggressive product filing and making

their facilities regulatory compliant and

b. expanding their presence in the so called pharmergingcountries (BRIC nations ex-India, Mexico, Turkey and

South Korea) via marketing and distribution agreements

with the pharma MNCs and

c. forming alliances for licensing and distribution withleading pharma MNCs as per their requirements

We do not see significant headwinds from either currency orcrude based derivatives that may suppress the EBITDA margins of

the companies

Given the relative certainty of growth in earnings, the sector islikely to benefit from a change in investor sentiment in its favour

Exhibit 18:Fund returns vs. Benchmark

0.45 0.12

4.35

27.6025.84

-2.25

1.71

13.68

25.57

15.59

-5

0

5

10

15

20

25

30

1 M 3 M 6 M 1 Yr 3 Yr

Returns(%)

Reliance Pharma Fund BSE Healthcare



Around 5-10% can be invested in Reliance Pharma Fund to

capture the sector momentum and add the alpha to the

portfolio

ViewShort-term: PositiveLong-term: Positive


11/31



Equity FMCG

Currently, the BSE FMCG index is trading at 32.7x with YTD upsideof 26.7%. Hence, with the FMCG P/E of 1.8x to that of the Sensex

P/E, the valuation for the sector seems to be expensive with the

sectors historical premium being ~0.4-1.2x

Though we believe revenue growth will continue its uptrend inCY11, margin pressure and high valuations could keep the

premium capped. Hence, we remain neutral on the performance

of the sector

Exhibit 19:Category average vs. fund return

-1.1

-3.1

7.9

30.1

-2.5

-7.1

4.4

20.5

-0.2

-5.4

8.4

39.7

0

.53

-1.9

7

12.6

28.6

8

-10

0

10

20

30

40

50

1 M 3 M 6 M 1 Yr

Returns%

Franklin FMCG Fund ICICI Pru FMCG Fund Magnum SFU - FMCG Fund BSE FMCG



Equity Technology Funds

The IT sector had a favourable year led in part by strong volumegrowth as clients across continents continued to spend top dollars

on driving efficiencies through IT. Business spending revived

adequately but wage inflation and attrition worries continue

We believe CY11 could be a year of discretionary spends ledearnings upgrade

We are positive on the sector for CY11. However, sector fundsmay not be suitable for long-term investment

Exhibit 20:Fund return vs. Benchmark

-0.7

0.6

10.8 1

5.3

-2.9

-4.8

3.7

14.5

4.1 8

.4

20.4

30.2

3.5

9.4

27.6

43.4

1.5 4

.113.5 2

1.0

4.9 7

.6

20.2

29.2

-10

0

10

20

3040

50

1 M 3 M 6 M 1 Yr

Returns%

Birla Sun Life New Millennium Fund DSP BlackRock Technology FundFranklin Infotech Fund ICICI Prudential Technology FundSBI Magnum Sector Umbrella - Infotech Fund BSE IT


Note : % Returns are as on Dec 15, 2010, Returns above 1 yr are CAGR returns

Segmental or category risk seems less as compared to

other sectors. Volatility in the markets always tends to

move funds to these low beta sectors

Manufacturing and retail verticals saw demand uptick led

by consumer technology and hi-tech sectors while telecomand Europe, the weak link in prior quarters, bounced back..


ViewShort-term: NeutralLong-term: Neutral


12/31



Arbitrage Funds

Arbitrage funds are generally considered a better option againstliquid funds. They are classified as equity funds for tax treatment.

Hence, the dividends declared are tax free

Arbitrage opportunities keep on arising from time to timedepending on market volatility. Therefore, the investment horizon

should be longer to capitalise on the opportunity that may arise

from time to time

Arbitrage funds should be used as a liquid investment and shouldnot be a major part of the investors portfolio

Exhibit 21:Category average vs. Benchmark9.3

8.5

7.57.0

6.4

5.3

6.1

9.4

0

1

2

3

4

5

6

7

8

9

10

1M 3M 6M 1 YR

AbsoluteReturn%

Category Average Crisil Liquid Fund Index

Source: Crisil Fund Analyser, , ICICIdirect.com Research

Note : Annualised returns % as on Jan 14,2011

Exhibit 22:Top recommended fundsTop Recommended Arbritage Funds

Scheme Name 1M 3M 6MICICI Prudential Equity and Derivatives Fund - Income

O timiser Plan11.62 11.67 9.70

HDFC Arbitrage Fund - Retail 8.97 9.51 8.69Kotak Equity Arbitrage Fund 9.28 9.75 8.49

UTI SPrEAD Fund 8.27 7.68 6.52CRISIL Liquid Fund Index 7.47 7.00 6.39

Category Average 9.32 9.42 8.53


Note : Annualised return (%)as on Jan 14, 2011

Arbitrage funds offer alternate investment option to liquid

funds...



13/31



Exchange Traded Funds (ETF)

In India, there are three kinds of ETFs available : Equity Index ETFs, Liquid ETFs and Gold ETFs

An equity index ETF tracks a particular equity index such as theBSE Sensex, NSE Nifty, Nifty Junior, etc

An equity index ETF scores higher than index funds on severalgrounds. The expense of investing in ETFs is relatively less by

0.50-1.00% in comparison to an index fund. Expense ratio for

ETFs is in the range of 0.50-0.75% excluding brokerage while for

index funds the expense ratio varies in the range of 1.0-1.5%.

However, brokerage (which varies) is applicable on ETFs while

there are no entry loads now on index funds

The tracking error, which explains the extent of deviation ofreturns from the underlying index, is usually low in ETFs as ittracks the equity index on a real time basis whereas it is done only

once in a day for index funds

ETFs also provide liquidity as they are traded on stock exchangesand investors may subscribe or redeem on an intra-day basis also.

This is not available in index funds, which are

subscribed/redeemed on a closing NAV basis only

There are over 400 ETFs traded globally. ETFs are transparent andcost efficient. The decision on which ETF to buy should be largely

governed by the decision of getting exposure in that asset class

Exhibit 23:Top Recommended ETFTop Recommended ETF

Scheme Name 6M 1Yr 3Yr

Nifty Benchmark Exchange Traded Scheme - Nifty BeES 5.16 8.29 -2.33

S&P CNX Nifty 4.98 7.50 -3.06


Note : Returns above one year are Compounded Annualised return as on Dec 15, 2010

..Traded volumes should be the major criterion that is used

while deciding on investment in ETFs. Higher volume

ensures lower spread and better pricing to investors...

..Tracking error, though it should be considered, is not the

deciding factor as variation among funds is not huge...

..Volumes are higher only in Benchmark ETFs and tracking

error is also lowest at 0.08%. Therefore, it is our top pick

for investors wanting Nifty-linked returns


14/31



Balanced Funds

Equity markets are dwindling and G Sec yields are at theirstructurally upward trend. Hence, balanced funds may not yield

good returns in the near term

Balanced funds have more than 65% invested into equities.Hence, they offer tax savings as any capital gain over a one year

period becomes tax free. Therefore, even the 35% debt portion is

not subjected to tax

However, the return also gets reduced over diversified peersowing to the debt component. Even in downward trending equity

markets well performing diversified funds have the capability to

outperform the balance funds

Investors with a limited investible surplus and a lower risk appetitebut with a willingness to invest into equities can look to invest in

these funds

Exhibit 24:Imbalanced inflows

56 88-40 -57

206

-51 -43

398

-414

26

255

326

-600

-400

-200

0

200

400

600

Jan-10

Feb-10

Apr-10

May-10

Jun-10

Aug-10

Sep-10

Nov-10

NetInflow

(|Cr)


Exhibit 25: Balanced returns

6.1

11.3

6.8

1.3

12.3

7.3

-2.9

14.2

0.1

-5

0

5

10

15

20

1 YR 3YR 5YR

Returns(%)

Category AverageCrisil Balance fund IndexDiversified Funds

Source: Crisil Fund analyser, ICICIdirect.com Research

Note: % Returns as on Jan 14, 2011

Returns above 1 yr are CAGR returns

Exhibit 26:Positive & negative bias fundsScheme Name 6M 1 Yr 3 Yrs 5 YrsHDFC Prudence Fund 4.73 17.06 8.75 19.35Reliance Regular Savings Fund - Balanced 4.45 13.94 9.58 17.19Birla Sun Life 95 Fund 4.41 11.98 4.47 17.68DSP BlackRock Balanced Fund 3.16 8.01 4.23 17.09

Crisil Balanced Fund Index 3.96 6.81 1.29 12.33Category Average 1.74 6.13 0.05 11.33

Negative Bias Funds

Scheme Name 6M 1 Yr 3 Yrs 3 YrsJM Balanced Fund -1.39 6.19 -11.84 6.12Birla Sun Life Freedom Fund -0.92 -2.03 -3.89 7.37

Crisil Balanced Fund Index 3.96 6.81 1.29 12.33Category Average 1.74 6.13 0.05 11.33


Note: % Absolute Returns as on Jan 14, 2011

Investors interest towards the balanced fund category has

been one of total imbalance



15/31



Monthly Income Plans (MIP)

An MIP offers investors an option to invest in debt with someparticipation in equity, approximately 10-15% of the portfolio

Investors who want higher returns compared to debt funds andare comfortable with nominal risk in returns may look to invest in

MIPs

The equity portion of the funds provides extra return to the fundwhile the debt part acts as a cushion towards any fall in equity and

provides regular income

In the current month, the volatility in G Sec yields and a correctionin the equity market muted the returns

Investors should invest in MIPs with lower equity allocation toavoid capital erosion and earn stable returns

Exhibit 27:Category average vs. benchmark

-0.8

1.8

4.55.1

7.8

-0.6

2.2

5.2 4.9

7.5

-0.4 -0.4

-2

-1

0

1

2

3

4

5

6

7

8

9


AbsoluteRetur(%)

Category Average Crisil MIPEX


Note :% Returns as on Jan 14, 2011, Returns above 1 yr are CAGR returns

Exhibit 28:Top recommended fundsScheme Name 1 Yr 3 Yrs 5 Yrs

HDFC Monthly Income Plan - LTP 8.25 9.32 11.50

Reliance Monthly Income Plan 6.50 12.37 11.76Birla Sun Life MIP II - Savings 5 Plan 5.53 11.23 9.75

Crisil MIP Index 5.18 4.91 7.52

Category Average 4.46 5.11 7.83


Note : Returns are annualized returns as on Jan 14,2011

ViewShort-term: PositiveLong-term: Positive


16/31



Debt funds

Exhibit 29: Debt fund returns

7.32 7.28 6.885.83 5.59

4.694.14

5.17

7.276.03

0

1

2

3

4

5

6

7

8

Income

UST

Liquid Crisil

LiquiFex

Income

ST

Crisil

STBx

Gilt

MT&LT

Gilt ST I-SEC

Com.Gilt

Income Crisil

ComBex

AnnulaisedReturns(%)

Source: Crisil Fund Analyser ICICIdirect.com Research

Note : Returns are annualised returns for one month ending Jan 14, 2011

Exhibit 30:Deployment of funds

58.2

%

14.6

%

16.0

%

11.2

%

64.0

4%

12%

13.7

%

10.5

%

62.9

8%

12%

12.1

%

12.5

%

63.8

7%

13%

11.0

%

12.5

%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

< 90 days 90 days to 182 days 182 days to 1 year 1year and above

Jul-10 Aug-10 Sep-10 Oct-10

Source: SEBI, ICICIdirect.com Research

Note : Holding as % of total AUM

Exhibit 31:G-Sec yield curve

6.4

7.2

7.17.5 7.8

7.9

7.6

3.7 4.3

8.2

3

4

5

6

7

8

9

3mnth

1Year

3Year

5Year

10Year

(%)

1-Jan-10 14-Jan-11


Exhibit 32:Credit spread159

137

121

83

116

99105

81

50

70

90

110

130

150

170

1yr 3yr 5yr 10 yr

14-Jan-11 1-Jan-10


Short-term rates are at 7% plus levels and, therefore, ultra

short-term and liquid funds have higher yields

The yield curve rose across the curve and more at the

shorter end. After the policy, the yield eased off from the

high levels, which helped the debt fund to close positive on

an MoM basis.

With three months CP/CD rates skyrocketing, the maturity

profile slightly increased at the shorter end

The yield curve flattened as shorter duration yield rose

amid a tight liquidity scenario likely to be maintained by the

RBI


17/31



Liquid Funds

The liquidity crunch continues with the RBI lending close to ~| 1lakh crore on a daily basis

Liquidity, though, eased off a bit for another month in the wake ofthe last leg of government borrowing, forthcoming IPOs and

advance tax outflows

Call rates are hovering in a 67% range. Short-term yields onmoney market papers, particularly three to six months CP/CDs, are

offering good yields due to the prevailing liquidity crunch

Liquid funds will continue to offer better returns in the debt fundscategory

Exhibit 33:Call rates have risen on account of liquidity crunch

9.15

9.6

3

4

5

6

7

8

9

10

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Rate(%)

3M CD 3M CP

Source: Bloomberg, ICICIdirect.com

Exhibit 34:Liquidity as measured under LAF...

-2000

-1500

-1000

-500

0

500

16-Jul

23-Jul

30-Jul

6-Aug

13-Aug

20-Aug

27-Aug

3-Sep

10-Sep

17-Sep

24-Sep

1-Oct

8-Oct

15-Oct

22-Oct

29-Oct

5-Nov

12-Nov

19-Nov

26-Nov

3-Dec

10-Dec

17-Dec

24-Dec

31-Dec

7-Jan

14-Jan


Liquidity crunch has kept call rates volatile in the higher

range of 4.5-6.5%

Most fund managers see the liquidity crunch continuing for

some more days

ViewPositive


18/31



Exhibit 35:Net fund flow (Total purchase Total sales)

-10218

-5163971

9275

-29334

17029

34303

21922

-36108

22836111

-12500

-45000

-30000

-15000

0

15000

30000

45000

60000

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

NetInflow

(|Cr

)

Source: AMFI, , ICICIdirect.com Research

Exhibit 37:Top recommended fundsTop recommended Liquid Funds

Particulars/Period 7 Days 1 M 3 M 6 M 1 Yr

HDFC Cash Management Fund - Savings Plan 7.67 7.49 6.98 6.39 5.55

UTI Money Market Fund 7.41 7.45 6.68 6.03 5.11

HDFC Liquid Fund - Growth 7.48 7.31 6.79 6.19 5.30Birla Sun Life Cash Manager 7.46 7.27 6.76 6.24 5.29

Reliance Liquid Fund - Treasury Plan 7.48 7.11 6.49 5.91 5.14

Bench mark - Crisil liquid Fund Index 7.27 7.47 7.00 6.39 5.30

Category Average 7.29 7.28 6.80 6.19 5.31


Note : Annualised returns as on Jan 14, 2011

Liquidity crunch faced by India Inc has reduced inflows into

these funds

After October 2009, when the regulatory change came into

effect, liquid funds had lost their sheen. It is now that these

funds offer some investment opportunity as call rates have

risen sharply

In the debt funds category, liquid funds will continue to

provide stable and highest 6% plus annualised returns in

the current scenario

Exhibit 36:High call rates have helped funds post higher return7.29 7.28

6.806.19

7.27 7.47 7.006.39

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

7 Days 1 M 3 M 6 M

AnnualisedReturns%

Category Average Bench mark - Crisil liquid Fund Index


Note : Annualised returns as on Jan 14, 2011


19/31



Income Funds

We believe that 2011 will be good for debt market andinvestments in all the category viz. ultra short-term funds, short-

term funds and income funds should deliver good returns

Currently, short-term debt funds offer better return opportunity asshort-term rates have already risen sharply due to tight liquidity

and are expected to moderate from current levels

Ultra short-term funds also offer good returns due to tight liquidityand elevated rates on short maturity money market instruments


106092

4887

-164487

177773

-35084

-134354

47516561

-28637-5305

11307

-32698

-200000

-150000

-100000

-50000

0

50000

100000

150000

200000

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

NetInflows(Rs.C

r)


Exhibit 39:Average maturity profile (Sept 2010)Ultra Short Term Funds 0-0.5Short Term Funds 1-2.6

Long term income Funds 3 -12.03


Exhibit 40:Income fund average returns7.3 7.4

6.86.2

6.9

4.94.4

4.94.7 5.2 4.6 5.0

0.0

2.0

4.0

6.0

8.0

1 M 3 M 6 M 1 Yr

AnnualisedReturn

%

Ultra Short Term Short Term Long term income


Note : Annualised Returns (%)as on Jan 14, 2011

Tight liquidity conditions and upward trending interest

rates have led inflows into longer duration income funds

Ultra short-term funds continue to yield good returns with

less risk on account of lower maturity

ViewUltra-short term: Positive

Short-term: PositiveLong-term: Positive

Rising interest rate environment

make this fund less attractive


20/31



Exhibit 41:Top recommended ultra short-term fundsTop Recommended Funds


Tata Floater Fund 8.41 8.41 8.07 7.36 6.71

Reliance Money Manager Fund - Retail 7.80 7.80 7.42 6.78 6.10

BNP Paribus Money Plus Fund 7.52 7.66 7.08 6.41 5.67

HDFC Cash Management Fund - Treasury Advt. 7.59 7.59 7.41 6.78 6.20

ICICI Prudential Flexible Income Plan 6.75 6.75 7.27 6.37 5.79

Crisil liquid Fund Index 7.27 7.27 7.47 7.00 6.39

Average 7.32 7.32 7.41 6.78 6.15


Note : Annualised Returns(%)as on Jan 14, 2011

Exhibit 42:Top recommended short-term fundsTop Recommended Funds


Birla Sun Life Dynamic Bond Fund 0.97 8.69 4.25 4.45 5.55

Templeton India Short Term Income Plan 0.69 6.31 4.14 4.06 5.52

ICICI Prudential Short Term Plan -0.66 5.73 3.35 3.12 4.35Reliance Regular Savings Fund -0.04 4.96 3.23 3.21 4.62

HDFC High Interest Fund - Short Term Plan -3.28 4.89 2.80 3.36 4.90

Crisil Short Term Bond Fund Index 1.47 6.03 4.48 4.15 4.65

Average 3.67 6.88 4.89 4.43 4.85


Note : Annualised Returns(%)as on Jan 14, 2011

Exhibit 43:Top recommended income long-term fundsTop Recommended Funds


Canara Robeco Income -0.26 7.51 5.38 3.73 4.77

HDFC High Interest Fund -5.77 3.61 3.48 3.59 4.87

Templeton India Income Fund 0.83 6.09 3.70 3.45 3.46

ICICI Prudential Income Plan -5.70 3.27 2.52 1.96 2.67

BNP Paribas Flexi Debt Fund 0.16 5.10 1.66 1.71 3.68

Crisil Composite Bond Fund Index -5.36 4.14 3.20 3.28 4.54

Category Average -2.14 4.69 5.16 4.62 5.03


Note : Annualised Returns(%)as Jan 14, 2011

Ultra-short term...can be looked upon for one to three

months horizon...

Short-term funds will benefit as sharply rising yields are

likely to decline first compared to long-term yields

Invest for a one year plus horizon as these funds have

maturity of over four years and can be volatile on account

of a hike in interest rates....


21/31



Gilt Funds

A rate hike of 25 bps in the policy meeting on January 25, hasalready been factored in the yields taking the benchmark 10 Year

G sec yields to 8.15-8.20 levels

Inflation, although stubborn in recent times, is expected to comedown in the coming months. This will ease off the yields

We expect longer duration G-Sec yields to ease off from higherlevels of post 8.20. The same may add to the total returns

Aggressive or long-term investors with an investment horizon ofaround one year may consider government securities funds


-257 -185

267

-49 -96 -13240 55

521

117

431

-369

-1500

-1000

-500

0

500

1000

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

NetInflow

(|

Cr)


Exhibit 45:G-Sec funds return analysis5.6

5.1

4.1 4.3

5.8

4.9

3.3

4.2

5.2 4.9

3.6

5.1

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1 M 3 M 6 M 1 Yr

Gilt Short term Gilt Medium to long term I-SEC Composite Gilt Index Source: Crisil Fund Analyser, ICICIdirect.com Research

Note : Returns are annualised returns as on Jan 14, 2011

Exhibit 46:Top recommended gilt fundsTop recommended Gilt Funds


ICICI Prudential Gilt - Investment - PF Option 1.01 5.75 6.94 6.20 4.94

Birla Sun Life Gilt Plus - Regular Plan 5.54 9.71 5.70 4.52 3.07

I-SEC Composite Gilt Index -3.40 5.17 4.92 3.59 5.12


Note : Returns are annualized returns as on Jan 14, 2011

Trading opportunity in gilt fund is available as the yields are

above 8% levels and are expected to come down by 30-40

bps...



22/31



Gold ETF

In 2010, gold outperformed all other asset classes. Demand picked upon account of flight-to-quality flows associated with the financial crisis

and the measures put in place to remedy it (namely, quantitative

easing from the worlds central banks), increase in gold holding by

central banks and currency wars. All this has led to gold making

successive new highs in 2010

Gold continued to maintain its strength as depreciation in the dollarhelped it to gain 2.5% in December 2010

Silver continued its outperformance and delivered around 8% returnin December 2010 in dollar terms

World Gold Council estimates during the week indicated that Indiaimported 624 tonnes of gold till the third quarter of 2010 ahead of 559

tonnes in the entire year of 2009 despite higher prices

The European sovereign crises, geo-political tensions and currencyvolatility are also keeping demand for gold upbeat

Silver prices have seen a smarter run-up recently outperforming allcommodities including gold. ETF holding in iShare Silver Trust

continued to see record levels and stands at around 10,900 tonnes as

on December 31, 2010 as compared to 10780 as at the start of

December 2010

Strong investment demand, higher gold price, ongoing recovery inindustrial demand and no real potential threat to prices from higher

scrap or government sales will continue to support silver prices

We continue to remain positive on gold. However, at these levels, oneshould remain a little cautious while making a fresh entry, as a pause

in the US dollar could trigger some correction in the short-term.

However, any turbulence in the global economy would restrict asignificant fall

Exhibit 47:Gold rising to new highs supported by dollar depreciation

75

77

79

81

83

85

87

89

91

Dec-10

Nov-10

Sep-10

Aug-10

Jul-10

May-10

Apr-10

1000

1050

11001150

1200

1250

1300

1350

1400

1450

Dollar Index(RHS) Gold(LHS)


Gold($/Ounce)

1000

1100

1200

1300

1400

1500

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Price ($/Ounce)

25 %

return for

Source: Bloomberg, , ICICIdirect.com Research

Gold (Mumbai Spot)

15000

16000

17000

18000

19000

20000

21000

22000

Jan-10

Mar-10

M

ay-10

Jul-10

Sep-10

Nov-10

Jan-11

23 % return for

CY10

Source: Bloomberg, , ICICIdirect.com Research

5

Fund flow (total purchase- total sales)

1425

1583

1590

1711

1837

1939

1972

2639

2849

3097 3

464

3516

10001400

1800

2200

2600

3000

3400

3800

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Gold ETFs AUM



23/31



Model Portfolios

Equity funds model portfolio

Investors who are wary of investing directly into equities can still get

returns almost as good as equity markets through the mutual fund route.

We have designed three mutual fund model portfolios, namely,

conservative, moderate and aggressive mutual fund portfolios. These

portfolios have been designed keeping in mind various key parameters

like investment horizon, investment objective, scheme ratings and fund

management.

Exhibit 48:Equity model portfolioParticulars Aggressive Moderate Conservative

Time Horizon 1 2 Years 2- 3 Years Above 3 Years

Review Interval Monthly Monthly Quarterly

Risk Return High Risk- High Return Medium Risk - Medium Low Risk - Low Return

Funds Allocation

CoreBirla Sunlife Frontline Equity 20 20 20

Franklin India Prima Plus 20 20 10

HDFC Top 200 20 20 20

ICICI Prudential Focissed Bluechip Eq. 20 - -

ICICI Prudential Dynamic Plan - 10 20

Fidelity Equity Fund 20 20

Sub Total(a) 80 90 90

Satellite

Sundarm Select Midcap 20 10 -

Sub total(b) 20 10 0

Debt

Biral Sunlife Dynamic Bond Fund - - 10

Sub total (c ) 0 0 10

Grand Total(a+b+c) 100 100 100

% Allocation

Source: , ICICIdirect.com Research

Exhibit 49:CY10 - all portfolios have outperformed BSE 100 indices

-7.0-

4.3

-6.8

3.1

8.7

-3.7

-5.0

10.0

-5.0

-8.3

3.6

7.1

3.5

-4.2

10.1

4.2

-12.0

-9.0

-6.0-3.0

0.0

3.0

6.0

9.0

12.0

1M 3M 6M 1YR

Aggressive Moderate Conservative BSE 100


Returns as on Jan 14, 2011

Aggressive portfolio

Change in allocation Current Previous

Moderate portfolioChange in allocation Current Previous

Conservative portfolio Allocation

Change in allocation Current Previous

No change

Allocation

Allocation

No change

No change


24/31



Exhibit 50:Value of investment of | 1,00,000 since inception166372

160867156271 154330

100000

120000

140000

160000

180000

A g g r e s s

i v e

M o

d e r a

t e

C o n s e r v

a t i

v e

B S

E 1

0 0

Growth of Rs. 1 Lakh

Source: Crisil Fund Analyser,, ICICIdirect.com Research

Returns as on Jan 14, 2011

Date of inception of portfolios: May 15, 2009

Major Contributors:

Debt Funds ICICI Prudential Dynamic Plan

Major Draggers:

Sundaram Select Midcap ICICI Prudential Focussed Blue chip Equity fund


25/31



Debt funds model portfolio

We have designed three different mutual fund model portfolios for

different investment duration namely less than six months, six months to

one year and above one year. These portfolios have been designed

keeping in mind various key parameters like investment horizon, interestrate scenarios, credit quality of the portfolio and fund management, etc.

Exhibit 51:Debt funds model portfolioParticulars

0 6 months 6months - 1 Year Above 1 Year

Objective Liquidity

Liquidity with

moderate return Above FD

Review Interval Monthly Monthly Quarterly

Risk Return

Very Low Risk -

Nominal Return

Medium Risk -

Medium Return

Low Risk - High

Return

Funds AllocationUltra Short term Funds

Fortis Money Plus 20 20 -

DWS Ultra Shorterm Plan 20 - -

Short Term Debt Funds

HDFC High Interest Short Term Fund 20 20 20

Birla Sun Life Dynamic Bond Fund 20 20 20

Reliance Short term plan 20 20 -

Long Term Debt Funds

ICICI Prudential Gilt Inv. PF Plan - - 20

Fortis Flexi Debt - 20 20

Canara Robeco Income Fund - - 20

Total 100 100 100

Time Horizon

% Allocation

Source: ICICIdirect.com Research

Exhibit 52:Model portfolio performance since inception

6.0

3

5.3

3

3.8

7

7.4

1

5.3

6

1.1

6

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

0-6 Months 6 Mnths - 1Yr Above 1 Yr

Portfolio Index


Note : Returns are one month Annualised return % as on Jan 14 ,2011

*Index: 0-6 months portfolio Crisil Liquid Fund Index,6 months-1 year Crisil Short term IndexAbove 1 year: 80% Crisil Composite Bond Index + 20% Isec Libex

What Changed?

0-6 Month Portfolio Allocation

6M-1Yr Portfolio Allocation

Above 1 Yr Portfolio Allocation

No change

No change

No change


26/31



Investment Strategy

We expect the performance of the Indian equity market in 2011 to begrowth induced. It would mirror the trajectory of economic and

corporate profitability growth

We expect the Sensex to grow in line with earnings CAGR of 21%over FY10-12E EPS to 23165 levels (17x weighted average of FY12-13

EPS of 1363, 16% upside). In our bear case, we expect the Sensex to

find comfort at 16924 levels (14x FY12E EPS of 1209, 15% downside),

which could emanate from events such as fading of US growth

outlook, no respite on Euro zone worries, a spike in commodities and

geopolitical tensions

With the US recovery still at a nascent stage, the US Fed will continuewith its loose monetary policy for an extended period of time to

stimulate growth and ensure unemployment rates drop to more

reasonable levels. A low interest rate in the US would lead to larger

capital inflows towards emerging markets like India

Global commodity prices, which have risen 25-30% in the last fourmonths, are a major worry for the Indian economy as well as for

Indian equity markets like India. Negative news flows from Europe

and China may also have a negative impact on the Indian markets

In the short-term, volatility is expected as markets will take cues fromthe third quarter results and foreign liquidity flows

We have been maintaining that we do not expect a major correctionin the markets. We continue to maintain that any sharp dip, as seen

recently, should be utilised as an investment opportunity to increase

equity exposure

We believe the debt market is offering good investment opportunitiesboth at the shorter end of the curve (three months to one year) as

well as at the longer end of the curve Short-term and conservative investors should invest in ultra short

term or short-term funds to take advantage of the current higher

yields due to liquidity crunch

Aggressive investors may look at investing some portion of theportfolio in the longer duration G-Sec funds with an investment

horizon of around one year

Exhibit 53:Market dips are excellent opportunity to buy equities

14500

15500

16500

17500

18500

19500

20500

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Buying at dips strategy wouldhave yielded better results

Indian markets are taking cues from the global market.

However, India has outperformed its global peers and the

same is expected to continue in the longer period...

With around 8% correction in the first half of January 2011,

markets are providing an opportunity to start deploying funds

particularly for those investors who have been underweight on

equities or are under owned as compared to their risk

appetite...

Short-term debt funds and FMPs offer a better opportunity to

capture the return potential

Gilt funds provide good investment opportunity with

investment horizon of one year as we expect G-Sec yields to

moderate and inflation to come down going forward


27/31



Exhibit 54:BSE Sensex target scenario

18882.25

16924

18882.25

23165

18882.25

25451

Base Case

Bear Case

Bull Case

7000

9000

11000

13000

15000

17000

1900021000

23000

25000

27000

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11


Exhibit 55:Sensex target scenario analysisSensex Target Scenario

Key Parameters Bull Case Base Case Bear Case

Global Factors

Economic Data flow Robust Moderate Worsening

Geopolitical Tension Low Low High

Commodity Prices Low Moderate High

Domestic Growth

Inflation Low Moderate High

Earnings Growth >20% 15%-20%


28/31



Exhibit 56:Fund Manager SurveyQuestions Options Response

Grossly Undervalued 0

Slightly Undervalued 9

Fairly Valued 55

Slightly Overvalued 36

Grossly Overvalued 0

Very bullish 0

Bullish 18

Neutral 64

Bearish 18

Very Bearish 0A 0

B 27

C 64

D 9

E 0

> 20000 9

22000-24000 64

18000 -22000 27

16000-18000 0

< 16000 0

Yes. Will continue to enjoy 27

Yes. But premium may reduce 73

No 0

Higher Crude Oil prices 73

Slow US economic recovery 9

European sovereign crises 27

China economic slowdown 0

Geo-political tensions 0

FY 2011-12

Less than 10% 0

10-15% 9

15-20% 82

>20% 9

FY 2012-13

Less than 10% 9

10-15% 27

15-20% 55

>20% 0

Largecaps 82

Midcaps 18

Pharma 13

IT 12

BFSI 11

Metals 10

FMCG 9

Auto 8

Telecom 7

Capital Goods 6

Cement 5

Oil and Gas 4

Media 3

Construction 2

Aviation 1

How much corporate earnings growth you are expecting for FY 2011-12 and FY 2012-13?

Where will you position the broader Indian equity market on a valuation scale

How do you rate your medium term (3 months) view about the broader market?

What equity market strategy would you suggest right now?

Where do you expect the BSE Sensex after 1 Year?

What could be the major global risk for Indian Equity markets?

Which segment of the market you prefer for investment horizon of 1 year?

Rank the sector according to your preference?

Will India continue to command valuation premium over other Emerging markets?



29/31



Exhibit 57:Fund Manager SurveyQuestions Options Response

Yes

No 82

US 73

Brazil 18

China 9

European countries 0

Any other: 0

Above 8.20% 27

8-8.20% 45

7.75-8% 27

Below 7.75% 0

G-Sec Fund 9

Income Funds 9

Short term Funds 45

Ultra short term funds 27

Indian equity 18

Global equity 18

Indian Debt 18

Gold 9

Agro commodities 55

With 6 months horizon, which segment of the debt market you expect to deliver better returns?

With asset class do you think will outperform in the year 2011?

Do you see Indian equity markets underperforming other emerging markets in the next 1 year?

Which global equity market do you expect to outperform in the next 1 year?

Where do you Benchmark 7.80% 10 year G-Sec yield in 3 months?



30/31



Exhibit 58:Top picksCategory Top Picks

Short Term Long Term

Equity

Largecaps Neutral Positive Birla Sunlife Frontline Equity Fund

HDFC Top 200

ICICI Pru Focussed Equity Fund

Fidelity Equity

Reliance Regular Savings Equity

Midcaps Neutral Positive Sundarm Select Midcap Fund

IDFC Premier Equity

ICICI Prudential Discovery Fund

ELSS Positive Positve HDFC Tax Saver

ICICI Prudential Tax Plan

Fidelity Tax saver

Debt

Liquid Funds Positive HDFC Cash Mgmnt Saving Plan

Reliance Liquid Treasury Plan

Short Term Debt Funds Positive Positive HDFC High Interest Short Term Fund

Birla Sun Life Dynamic Bond Fund

ICICI Prudential Short term plan

Ultra Short Term Positve - Fortis Money Plus Fund

DWS Ultra Short Term Fund

ICICI Pru Flex. Income Premium

Income Funds Neutral Positive Fortis Flexi Debt

ICICI Prudential Income Fund

HDFC High Interest Fund

Gilts Funds Neutral Positive ICICI Pru Gilt Inv. PF Plan

Birla Sunlife Gilt Plus

MIP Positive Positive Birla Sun Life MIP II Savings- 5

Reliance Monthly Income Plan

HDFC MIP - LTP

Arbritage Neutral Neutral UTI SPREAD Fund

ICICI Prudential Eq. & Deriv. Fund Opt.

HDFC Arbritage

Outlook



31/31


Pankaj Pandey Head Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,7th Floor, Akruti Centre Point,MIDC Main Road, Marol Naka,Andheri (East)

Mumbai 400 093

[email protected]

DisclaimerICICI Securities Ltd. - AMFI Regn. No.: ARN-0845. Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India. The

selection of the Mutual Funds for the purpose of including in the indicative portfolio does not in any way constitute any recommendation by ICICI Securities Limited (hereinafter

referred to as ICICI Securities) with respect to the prospects or performance of these Mutual Funds. The same should also not be considered as solicitation of offer to buy or

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The details included in the indicative portfolio are based on information obtained from public sources and sources believed to be reliable, but no independent verification has

been made nor is its accuracy or completeness guaranteed. The securities included in the indicative portfolio may not be suitable for all investors, who must make their owninvestment decisions, based on their own investment objectives, financial positions and needs. This may not be taken in substitution for the exercise of independent

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