investment advisory group presentation january 2017
TRANSCRIPT
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1
Investment Advisory Group
Presentation
March 2018
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Aggressive Moderate Conservative
Direct Equity /Equity Funds 65% 50% 35%
Debt Funds 20% 40% 55%
Alternative Investments 10% 5% 5%
Gold 5% 5% 5%
Equity Strategy & Recommended Asset Allocation
Union Budget delivered on the expectations of spending on Key sectors but fiscal slippage and reintroduction of
Long term capital gains were key negatives.
Focus on infra spending by the government, improved urban consumption, rebounding exports and better farm
income has the potential to shore up the economy in the medium term. We expect the economic growth to pickup on
the back of government capex, better external demand, and favorable demographics.
Rising trend in Oil prices, commodity prices and expectation of higher foods prices could have negative impact on
inflation and interest rates which may further cause volatility in the equity markets. Protectionist measures by the US
may lead to similar actions by other trading partners and can be negative from market’s perspective.
On the positive side, the Q3FY18 results of the companies is showing emerging trend of improving corporate
performance.
Despite the recent volatility, the overall equity market valuations remains high , from an Equity Mutual Fund
perspective, investors should look at Large cap Funds, Balanced Funds and Equity Savings Fund for fresh
investments.
The Equity investment strategy, continues to remain at 50% Lumpsum and rest 50% staggered over the next 3-4
months.
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Debt Mutual Fund Strategy
Investments into Short Term Funds can be considered with an investment
horizon of 12 months and above.
Investors looking to lock in current yields, can invest in Fixed Maturity Plans
(FMPs).
Investments into Medium Term Funds can be considered by Moderate and
Conservative investors with an investment horizon of 15 months and above.
Income/Duration Funds can be considered by Aggressive investors for a
horizon of 24 months and above; though currently preference should be given
to dynamically managed funds.
Investors looking to invest into high accrual portfolio can consider investing
into HDFC Corporate Debt Opportunities Fund and HDFC Regular Savings
Fund (erstwhile HDFC Short Term Plan).
Investors looking to invest with a horizon of up to 3 months can consider
Liquid Funds, while Arbitrage Funds can be considered for a horizon of 3
months and above.
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Research Presentation – Contents
Strengthening of advanced economies leading to rise in expectation of faster interest rate hike…
Pickup in global growth driving the demand for commodities…Leading to higher commodity prices
Higher growth expected to push inflation upwards…which is reflecting in the rising bond yields in the US
Rising interest rates leading to FPI outflows from emerging economies…
While the overall Indian macroeconomic scenario remains stable…Key emerging negatives include rising inflation, trade deficit
India regaining the lost momentum as Q3FY18 GDP grows at 7.2% YoY, improving for second consecutive quarter
Over last few years many high profile reform and policy measures have been announced and implemented to improve the economic potential…
… Other reforms/reform related events during the month of February
Initial signs of micro level improvement… 1) improving rural demand supported by government’s effort…
2) Steady growth in urban demand
3) Capex cycle seems to be improving gradually….visible from CV sales, improving capacity utilization and order book of Cap Goods Cos.
4) Pick up in bank credit growth suggests improving demand conditions, however weak deposit growth is a cause of concern…
5) Visible improvement in Q3FY18 earnings growth
Equity valuation still relatively rich, despite earnings growth reviving and a minor correction in the markets…but is expected to catch-up in medium term
Valuation differential between Large Cap and Midcap Indices continued to rise and remains at high levels, making Large caps attractive from a risk-reward perspective
Equity Market Round Up – February 2018
Key Risks
Equity Market – Outlook and Stocks
Fixed Income
MPC more confident about economic growth recovery…however, concerns rising over inflation fuelled by growth.
Headline CPI inflation takes temporary breather…
Inflation risks have accentuated in the recent past…RBI’s medium term inflation target likely to be met at the higher end
US FOMC meeting minutes indicate faster interest rate hikes…US treasury yields surge
Liquidity near neutral…pick up in credit growth likely to put pressure on liquidity
Bank’s demand for G-secs could be impacted given rising credit demand and losses due to rise in bond yields...
Traded deficit at 56 months high…can pose a risk to other macro variables
FPIs turn net seller in Indian Debt Markets
Growth-Inflation Dynamics point to higher interest rates…
Fiscal slippage may pose challenge to Inflation targeting by RBI…
G-sec yields rise sharply in February 2018
Yield curve continues to remain steep...yields rise across the curve
Key Risks and Variables to watch out for…
Investment Strategy
Fixed Income Outlook
Equity Mutual Funds
Fixed Income Options
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Economic data continues to improve for U.S., Euro Zone and other advanced economies like U.K. and
Japan. The progress towards implementation of Tax reforms and higher spending in the budget by
U.S. further improved the growth expectations for the US economy.
Global economic growth momentum continued in Q4CY17 as well with PMI for most of the developed
economies rising sharply in the last few months.
The Eurozone economy expanded at its fastest rate in a decade in 2017, growing by 2.5% YoY and
similarly, U.S. economy also saw sharp rise in growth at 2.3% YoY in 2017, an acceleration from the
1.5% YoY seen in 2016.
Both U.S. and Eurozone saw robust growth in Manufacturing PMI data during 2017 and expansion
continued in the month of Feb 2018 as well where Markit Eurozone Manufacturing PMI came in at 58.6
and for U.S. at 55.3%.
Federal Reserve officials at their January meeting believed that improving global economic prospects
and the effects of recently passed tax cuts had raised the prospect for solid economic growth and
thereby inflation outlook, paving the way for gradual interest rate hikes in the future .
As a result markets seems to be already confident that the Fed will lift rates three times this year, and
attaches a roughly 70% chance to that outcome.
Strengthening of advanced economies leading to rise in expectation of
faster interest rate hike…
U.S. and Euro both continue to grow at robust pace with growth momentum expected to be maintained going ahead. However, inflation
trajectory, given the expected steady improvement in the economic data points for Euro and given the policy actions by US President, would
be key monitorable for interest rates in these economies.
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Pickup in global growth driving the demand for commodities…
…Leading to higher commodity prices
Strong pick up in manufacturing activities in Euro, U.S. and other advanced economies along with stronger economic growth outlook going
ahead on one side and production cuts undertaken by China on the other, have resulted in sharp up move in industrial metal prices over the last
one year.
Additionally, growing demand for building large, capital-intensive public and private infrastructure projects, is likely to increase the demand for
mined metals, in particular steel for bridges and buildings, aluminum & copper for wiring and other inputs used for making steel: coking coal, iron
ore, manganese and Nickel.
As a result, over the last one year, London Metal Exchange Index (LMEX), jumped sharply by ~18.5%, while prices for Industrial metals like
Aluminum, Copper and Steel have risen by 13.5%, 19.7% and 8.6% respectively.
Brent Crude prices have also risen by ~21% in last one year, although Crude prices have cooled of recently from its near term peak of ~$70/bbl
in January 2018.
Recently, Agriculture commodity prices have seen a slight rise in Jan-Feb of 2018 after being in range bound scenario in the last few months
mainly on account of rising demand in the physical market coupled with restricted supplies from producing region.
Prices of wheat and palm oil have risen by 8.7% and 4.2% respectively in the last two months.
Going ahead, pick up in U.S. economy, slower commissioning of new capacities, tighter environmental constraints and policy actions by
Chinese government (largest producer and consumer of metals) would be the key monitorable for metal price trend. Apart from demand
from advanced economies, any growth uptick in Chinese economy, being the largest consumer of industrial metals, is also likely to further
result in higher demand for commodities and thereby drive prices higher.
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Industrial metal prices consolidating at higher levels
LME Aluminium LME Copper LME SteelSource: Bloomberg
20.0
30.0
40.0
50.0
60.0
70.0
80.0
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US
D/b
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Brent Crude prices continues to remain at elevated levels in the month of Feb 2018
Source: Bloomberg
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Agri commodity prices sees uptick in last few months
Palm Oil Wheat BBG Agriculture Spot
Source: Bloomberg
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Strong growth trajectory for U.S., Euro and other advanced economies like U.K. and Japan along with fiscal stimulus in the US has led
to the expectation of the inflation rising upwards going ahead. This has led to sharp rise in US bond yields over the last few months as
changes in expected inflation have a direct effect on long-term interest rates.
Growing confidence in economic expansion and falling unemployment in U.S. has raised the investors’ expectation of future inflation, pulling
up the nominal interest rate on ten-year bonds.
Additionally, expectation of widening of U.S. budget deficit and rising national debt expected to push up long-term interest rates have also
led to sharp rise in the bond yields off late.
As a result, the U.S. government’s net sale of bonds is likely to rise in 2018 and getting the market to absorb those bonds may require higher
real interest rates.
Given the above expectations, long-term interest rates in the U.S. are rising and over the past 20 months, the yield on 10 year Treasury bills
has more than doubled, from 1.38% to 2.92%.
Going ahead, commentary by Federal Reserve officials on outlook for global economic growth prospects and thereby its inflation
outlook and interest rate hike path would be the key monitorable for the inflation and interest rate trajectory for US and other
developed markets.
Higher growth expected to push inflation upwards…
…which is reflecting in the rising bond yields in the US
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1.4
1.6
1.8
2
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2.4
2.6
2.8
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Apr-
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May
-16
Jun-
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Jul-1
6
Aug-
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Sep-
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Oct
-16
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-16
Dec
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Feb-
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US Bond Yields rising to new high in anticipation of higher inflation
US 10Y Bond Yield @2.92
during Feb 2018
Source: Bloomberg
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Rising interest rates leading to FPI outflows from emerging economies…
Steady improvement in the US economy along with rising bond yields
seems to have led to outflows from the Emerging markets due to possible
shuffling of global asset allocation.
US treasuries is likely to become attractive with rising interest rates and
as a result US dollar has strengthened against Emerging markets
currencies.
Additionally, with hike in US yields, Emerging economies bonds are likely
to become less attractive and therefore are witnessing a sell-off by
foreign investors.
Equity market for Emerging economies are also seeing correction as with
the expectation of US rate hike, risk premium offered by Emerging
economies is likely to go down and thus negatively impacting FPI
sentiments.
Going ahead, reduction in liquidity and increasing inflationary impulses in
Emerging economies is expected to create pressure on domestic interest
rates and currencies
-3,448
-2,692
-1,359-1,198
-991-699
-278
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-4000
-3500
-3000
-2500
-2000
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-500
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Th
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Bra
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Ind
on
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Ph
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es
Vie
tnam
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SD M
n
FPI outflows from Emerging economies during month of Feb 2018 (in USD mn)
Source: Bloomberg, *MTD data upto 27 Feb 2018
-5.4%
-5.0%
-3.3%
-2.6%
-0.1%
0.2%
0.5%
1.0%
-6.0% -4.0% -2.0% 0.0% 2.0%
S Korea
India
Philippines
Taiwan
Indonesia
Thailand
Brazil
Vietnam
Returns for most of the emerging economies equity indices saw decline in Feb 2018
Source: Bloomberg
-2.7%
-2.5%
-1.9%
-1.6%
-1.4%
-0.5%
-0.5%
-0.2%
-3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0%
Indonesia
India
Brazil
Philippines
S Korea
Thailand
Taiwan
Vietnam
Emerging Markets currencies depreciating against USD during the month of Feb 2018
Source: Bloomberg
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While the overall Indian macroeconomic scenario remains stable …
…Key emerging negatives include rising inflation, trade deficit
Key Positives: 1) India’s Q3FY18 GDP growth came at 7.2% YoY, further uptick over Q2FY18 growth of 6.5% YoY. 2) Per Capita income rising 8.6% YoY
during FY18. 3) Forex reserves continues to rise further to new life time high during February 2018 at ~USD 421 bn. 4) Continued CV sales growth over the
last few months.
Key Emerging Negatives: 1) Growth in Equity FDI inflow showing flattish growth of 0.3% YoY during 9MFY18. 3) Volatile GST revenue collections. 3) Retail
inflation remains over 5% mark in January 2018 for second consecutive month. 4) India’s trade deficit shot up to a 56-month high of USD 16.3 bn in Jan 2018
as imports of precious stones and crude oil surged during the month while growth in exports slowed down.
While micro (corporate earnings and management commentary) seems to be improving over the last few quarters, there are certain negatives emerging
for the macro economy over the last few months like higher trade deficit and rising inflation. Going forward, stability in GST collection combined with
healthy infrastructure related investment allocation in Union Budget are likely to drive the macro growth in the economy.
Positives for the economy – GDP seeing further uptick, steady growth Per Capita Income, improving CV sales data and rising forex reserves.
Emerging negatives for the economy – Declining growth rate for FDI and lower GST collections and rising inflation and trade deficit.
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US
D B
n
Forex Reserves continues to rise further in Feb 2018 reaching all time high level of USD 421.9 bn
Source: RBI
10.59.9
8.9 10.4
13.213.8
13.0 11.4 11.6
9.0
14.0 13.8
14.9
16.3
7.5
10.0
12.5
15.0
17.5
De
c-16
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Feb
-1
7
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r-1
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Apr-1
7
Ma
y-1
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Jun-17
Jul-1
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Aug-17
Sep-17
Oct-
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No
v-17
De
c-17
Trade Deficit inching up over last few months ($ Bn)
Source: Ministry of Finance
0
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CPI remians at elevated levels of above 5% in the last couple of months
WPI (%) CPI (%)Source: Bloomberg
16.6
21.0
29.4
35.8 35.9
10.0
15.0
20.0
25.0
30.0
35.0
40.0
9MFY14 9MFY15 9MFY16 9MFY17 9MFY18
Growth rate of FDI Equity inflows in India moderating during 9MFY18 over 9MFY17 (US $ Bn)
Source: dipp.nic.in
5.5
6.4
7.5
8.0 7.97.5
7.0
6.15.7
6.5
7.2
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
FY13 FY14 FY15 FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18
in %
GDP growth for Q3FY18 rising sharply to 7.2% YoY vs 6.5% YoY for Q2FY18
Source: Ministry of Statistics and Programme Implementation
7941286879
94130103870
112764
0
20000
40000
60000
80000
100000
120000
FY14 (RE) FY15 (RE) FY16 (RE) FY17 (RE) FY18 (AE)
in R
s.
Per Capita Income rising 8.6% YoY in FY18 (AE)
Source: Ministry of Statistics, RE: Revised Esrtimates, AE: Advanced Estimates (Second)
922.8906.7
921.5
833.5
808.1
867.0 863.2
750
800
850
900
950
Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18
Declining GST collection trend (Rs. Bn)
Source: Ministry of Finance
-5%
2%
12%
24% 25%
6%
53% 54%
38%
30%
-10%
0%
10%
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30%
40%
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60%
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-18
Continued growth in CV* Sales (YoY %)
Source: Company, *Tata Motors, Ashok Leyland, SML, Eicher and M&M
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India regaining the lost momentum as Q3FY18 GDP grows at 7.2% YoY,
improving for second consecutive quarter India’s GDP growth continued to improve for second consecutive quarter in Q3FY18 and came in
at 7.2% YoY and Gross Value Added (GVA) at 6.7% YoY
9MFY18 GDP growth stood at 6.4% YoY compared with 7.5% YoY in 9MFY17 and GVA growth
stood at 6.2% YoY compared with 7.5% YoY in 9MFY17.
Q3FY18 GVA growth was driven by growth in Industry segment especially in following sectors;
Agriculture, forestry and fishing – up by 4.1% YoY vs 2.7% YoY in Q2FY18
Manufacturing – up by 8.1% YoY vs 6.9% YoY in Q2FY18
Construction – up by 6.8% YoY vs 2.8% YoY in Q2FY18
Financial, Insurance, Real estate & Professional services– up by 6.7% YoY vs 6.4% YoY
in Q2FY18
However, Mining & quarrying and some of the Services sector grew at lower rate as compare to
Q2FY18;
Mining & quarrying – de-growth of 0.1% YoY vs growth of 7.1% YoY in Q2FY18
Electricity, Gas, Water supply & other Utility Services–up by 6.1% YoY vs 7.7% YoY in
Q2FY18
Hotel, Transport, Communication and Services related to Broadcasting – up by
9.0% YoY vs 9.9% YoY in Q2FY18
On the expenditure side, improvement in Gross Fixed Capital Formation (GFCF) growth
continued along with improvement in the government consumption which was one of the positive
factor; however, sustainability of the same going ahead would be the key to watch out for.
However, the deceleration of private consumption growth may pose a threat going ahead.
Government Final Consumption Expd. – up by 6.1% YoY vs 2.9% YoY in Q2FY18
Gross Fixed Capital Formation (GFCF) – up by 12.0% YoY vs 6.9% YoY in Q2FY18
Private Final Consumption Expenditure – up by 5.6% YoY vs 6.6% YoY in Q2FY18
The trend reversal seen in GDP growth in Q2 was sustained in Q3 as well. The
improvement in growth rate in various industry segment and GFCF, a proxy for private
capex, is hinting towards improvement in private capex that may lead to further
improvement in GDP growth rate going ahead.
Moreover, multilateral agencies have showed faith in Indian economy by stating that the
growth to rebound in long term as the benefits of government reforms starts to flow in.
7.97.5
7.0
6.15.7
6.57.2
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18
Q3FY18 GDP growth (% YoY) improving for second consecutive quarter
Source: Ministry of Statistics and Programme Implementation
Industry Q1FY18 Q2FY18 Q3FY18
Agriculture, Forestry & Fishing 2.7 2.7 4.1
Mining & quarrying 1.8 7.1 (0.1)
Manufacturing (1.8) 6.9 8.1
Electricity, Gas, Water supply & other Utility Services 7.1 7.7 6.1
Construction 1.5 2.8 6.8
Trade, Hotel, Transport, Communication & Services Related To Broadcasting 8.4 9.3 9.0
Financial, Insurance, Real Estate & Professional services 8.9 6.4 6.7
Public administration, defence & other services 13.2 5.6 7.2
GVA at Basic Price 5.6 6.2 6.7
Source: Mospi
Growth (% YoY) in Sectoral GVA at basic prices
Expenditures of GDP (% YoY) Q1FY18 Q2FY18 Q3FY18
Private Final Consumption Expenditure 6.6 6.6 5.6
Government Final Consumption Expenditure 17.1 2.9 6.1
Gross Fixed Capital Formation 1.6 6.9 12.0
Change in Stocks (2.8) 5.8 7.0
Valuables 125.5 56.5 40.8
Exports 5.9 6.5 2.5
Less Imports 16.0 5.4 8.7
Discrepancies 25.2 (25.3) (36.6)
GDP at market prices 5.7 6.5 7.2
Source: Mospi
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11
Over last few years many high profile reform and policy measures have
been announced and implemented to improve the economic potential… The government of India has been consistently working on inclusive development with the help of various reform announcements targeting to improve both social
and physical infrastructure in order to set structural drivers for long term sustainable economic growth. Among all, following were the key reforms and
announcements:
Pradhan Mantri Awaas Yojana (PMAY) – Gramin is rural housing programme designed to provide affordable household to rural population. A total of 3.2 mn houses
have been completed in FY17. Department of Rural Development plans to complete 5.1 mn houses in FY18 and a similar number is proposed to be completed in FY19
making the completion during FY16-19 period of 13.5 mn houses. Recently, central government has announced a new public-private partnership (PPP) policy for
affordable housing that allows extending central assistance of up to Rs.0.25 mn per each house to be built by private builders even on private lands. Positive for
cement, steel and housing finance sectors
Pradhan Mantri Awaas Yojana – Urban: The government plans to construct as many as 11.2 mn houses by FY22 under the scheme. Positive for cement, steel and
Housing Finance sectors
24*7 Power for All scheme is a joint initiative of the central and state governments, with the objective of providing round-the-clock electricity to all households,
industry, commercial businesses and any other electricity consuming entities within four years. Prime Minister Narendra Modi has launched a Rs.163.2 bn “Saubhagya”
scheme to supply electricity to all households by December 2018, providing free connections to the poor and at very low cost to others. Positive for power generation
as well as transmission and distribution sector, capital goods and cables sectors.
Direct Benefit Transfer (DBT) Scheme: As per Finance Secretary, the direct benefit transfer in various social sector schemes resulted in savings to the tune of
Rs.570.3 bn. Currently 412 schemes under 56 Ministries are covered under DBT as against 34 schemes in March 2015. The government plans to bring a total of 533
central pay-out schemes in 64 ministries under the DBT mechanism by March 31, 2018. Positive for oil and gas, fertilizer and health care.
Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial Inclusion to ensure access to financial services, namely, Banking/ Savings & Deposit
Accounts, Remittance, Credit, Insurance, Pension in an affordable manner. As on 21-02-2018, about 311.4 mn accounts has been opened under the scheme with
balance in beneficiary accounts standing at Rs.747.58 bn. Positive for banking and insurance sector.
Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched in January 2016. Under the scheme the farmer’s part of premium is 2% of sum assured for Kharif crops,
1.5% for rabi crops and 5% of premium for commercial and horticulture crops and remaining part of premium is paid equally by the central and respective state
governments. Under 2016-17 rabi and Kharif season of 2016, about 9 mn farmers have benefitted from crop insurance scheme where around Rs.77 bn was paid to
the farmers. Positive for agriculture and insurance sectors.
Demonetization: As per Moody’s, demonetization would result in efficiency gains through greater formalization of economic and financial activity, which would help
broaden the tax base and expand usage of the financial system. Positive for large organized players in retail sectors and banking sector.
Goods and Service Tax (GST): Govt. of India implemented one of the biggest tax reforms of the country, Goods and Services Tax (GST) on 1 July, 2017. The
collection under GST in Jan 2018 stood at Rs.863.18 bn as against Rs.867.03 bn collected in the month of Dec 2017. The GST is likely to boost GDP growth in the
long term as it is expected to drive the volume growth for Organized players. Positive for Retail, Consumer Durables, Auto ancillary, home improvement and
building material items like ceramics, tiles, plywood and other sectors with large unorganized share.
PSU Bank Recapitalization program: Government has approved a state bank recapitalisation plan of Rs.2.11 trillion rupees (USD 32.43 bn) over the next two years,
in a bid to clean banks’ books and revive investment in a slowing economy. Under the recapitalization program, recapitalization bonds of Rs.1.35 trillion – Govt to issue
bonds to banks and money raised from these bonds will be used to infuse capital in the PSU banks to increase capital adequacy ratio. And balance from budgetary
support and equity issuance Rs.760 bn – where bank would raise capital by issuing equity shares either to government and in the market. Positive for Banking
sector.
National Health Protection Scheme: The National Health Protection Scheme (NHPS) aims to offer health insurance up to Rs.0.5 mn per family per year, covering
over 100 mn vulnerable families, benefitting about 500 mn people. Both secondary and tertiary care hospitalization will be covered. Positive for Insurance sector.
______________________________________________________________________
12
… Other reforms/reform related events during the month of February The Centre has sanctioned Rs.15 bn for three years to promote organic farming in Uttarakhand. (1 Feb)
India will auction 60 discovered small oil and gas fields with the potential to produce 194.65 mn tons of oil and oil equivalent gas, the government said
(8 Feb)
The Centre has released nearly Rs.99.4 bn to the states so far for the Smart Cities Mission, with Maharashtra accounting for the highest amount of
Rs.13.78 bn. (12 Feb)
Maharashtra government has announced a number of changes to the state’s Integrated Industrial Area (IIA) policy to boost investment and employment
generation (15 Feb)
Prime Minister Narendra Modi has launched Nasscom’s Future Skills platform, which seeks to initially upskill 4 mn IT employees and prospective job
seekers in eight emerging technologies that could drive IT jobs in the future. (20 Feb)
The government has extended the waiver of inter-state power transmission charges and losses for the solar and wind power projects commissioned
till 31 March 2022. (20 Feb)
As per Commerce Minister Suresh Prabhu, government will soon come out with a comprehensive strategy to increase the share of global trade to
40% of GDP, which is expected to touch USD 5 trillion by 2025. (20 Feb)
The Union Cabinet has approved setting up of a Rs.600 bn National Urban Housing Fund (NUHF) to facilitate the implementation of the Pradhan Mantri
Awas Yojana (Urban) Mission. (21 Feb)
The Union cabinet has approved the introduction of a proposed law to ban unregulated entities from collecting deposits from individuals in an effort
to protect small investors from ponzi schemes. (21 Feb)
The Union cabinet has decided to open up the coal sector to commercial mining by private entities. (21 Feb)
The government approved a Rs.29.2 bn project for widening a section of national highway-275, connecting Bengaluru and Mysuru, in Karnataka. (21
Feb)
Prime Minster announced creation of a defence industrial corridor in Bundelkhand, Uttar Pradesh at an investment of Rs.200 bn. (22 Feb)
The National Mission for Clean (NMCG) Ganga has given green signal to projects worth Rs.40 bn, including a 20 mn litre per day (MLD) common effluent
treatment plant (CETP) at Jajmau near Kanpur for tannery units. (23 Feb)
The government plans to set up an online platform for trading in cow dung and agricultural waste under its recently announced waste-to-wealth
scheme. (24 Feb)
The Sushil Modi-headed Group of Ministers on GST has decided to go for a phased launch of e-way Bill system and recommended that it be made
mandatory for inter-State movement of goods from April 1. (24 Feb)
Government continued its reform announcements which indicates that the government is well focused on reviving the investment climate, improving
ease of doing business in India and thereby pushing economic growth and improve the standard of living across population.
______________________________________________________________________
13
Initial signs of micro level improvement… 1) improving rural demand supported
by government’s effort…
The rural economy, representing ~69% of India’s population, is worth USD 1 trillion and contributes ~45%
to India’s GDP. Small & Medium Enterprises account for ~30% while agriculture contributes ~15% to
India’s GDP.
Government has launched various initiatives and providing timely allocation to these schemes
Agri credit was pegged at Rs.11 trillion against allocation of Rs.10 trillion in FY18RE
Target of doubling farmer’s income by 2022 – MSP to be 1.5x of cost of production
Creation of National Farm Mkt (eNAM) & Agri-Market Infra. Fund with Rs.20 bn corpus
Special focus on irrigation with sufficient budget, with the aim of “Per Drop More Crop”.
Promotion of ancillary activities like poultry, beekeeping, and aquaculture by creating separate
fund with a corpus of Rs.100 bn
Ensuring Financial Inclusion by linking of Aadhar cards & Direct Benefit Transfer to the bank
The initial signs of recovery in rural demand is visible from the steady growth in tractor sales and
volume growth for FMCG companies. Companies like Maruti are also hinting towards rural recovery with
strong demand witnessed for their products (19% YoY FY18YTD) during Q3FY18 management call.
Announcement of Farm loan waiver by states like UP, Punjab, Maharashtra, Telengana, Andhra Pradesh
and Karnataka and disbursal of the same like Maharashtra (Rs124 bn to 3.1 mn farmers) is likely to help
in reducing rural stress. Though, this may be a concern in long run, as farm loan waiver can be
moral hazard.
Along with govt’s increased focus, second consecutive year (CY17) of good monsoon rainfall leading to
higher output coupled with higher MSPs is likely to accelerate the gradual recovery witnessed in
Rural demand. However, hike in MSP’s may lead to inflationary pressure in the economy in near term.
State
Waiver amount
(Rs in Bn)
Waiver amount (%
of GSDP)
No. of farmers
benefiting (in Mn.)
Maharashtra 340 1.30% 3.1
Punjab 100 2.10% 1.0
Uttar Pradesh 364 2.60% 4.9
Karnataka 82 0.63% 2.2
Telangana 40 0.53% 3.6
Andhra Pradesh 240 3.10% 4.9
MP 60 0.81% NA
Gujarat 407 3.21% NA
Haryana 560 8.60% NA
Tamil Nadu 78 0.50% NA
Source: Media Reports
Farm loan waivers approved
Waiver being demanded/Under discussion
Farm loan waivers to reduce rural stress
Steady growth in tractor demand
Source: Escorts Q3FY18 Presentation
Volume growth YoY % Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18
HUL consumer business (4) 4 0 4 11
Marico Group (4) 10 (9) 8 9
Marico (Parachute) (1) 15 (9) 12 15
Marico (saffola) 6 6 (9) 3 0
Marico (hair oil) (12) 10 (8) 12 8
Jyothy Lab 4 5 (15) 4 12
Emami 0 (2) (18) 10 6
Dabur (5) 2 (4) 7 13
Colgate (12) (3) (5) (1) 12
Source: Company data
0%
5%
10%
15%
20%
25%
30%
Min. ofAgriculture
PMGSY - Roads PMKSY - Irrigation PMFBY - Crop Ins
(% i
ncre
ase
Yo
Y)
Budget allocation increased for Rural related schemes
Source: Budget Documents 2018-19
______________________________________________________________________
14
2) Steady growth in urban demand
Urban demand has been consistently rising over past few years as witnessed in growth in domestic
tourism expenditure, airline passenger traffic and sales of passenger vehicle (PV) in domestic market
Domestic tourism expenditure grew at a CAGR of 7.5% YoY during 2011-17.
Foreign Tourist Arrivals in India during CY17 grew by 15.6% YoY, highest in last five years –
continued its uptrend though at a slower pace in January 2018.
Passenger Vehicle (PV) sales continued its steady performance in the month of February
2018, with cumulative sales of top-5 PV companies growing by ~12% YoY.
Domestic air passenger traffic growth sustained its double digit growth for 41 months in
January 2018, was up 19.9% YoY – expected to grow 18-20% and cross 150 mn in FY19,
as per aviation consultancy CAPA.
Spending via Credit card (mainly urban centric) has been growing steadily over
30% YoY for last 10 months.
Government has also increased its allocation to scheme related urban area
Allocation for regional air connectivity (UDAN) was increased by ~5x to Rs.10.14 bn
Allocation to aviation in the budget rose by 144% over FY18RE to Rs.66 bn.
Allocation to smart cities project under the Urban Development ministry rose by 54%
over FY18RE to Rs.61.7 bn
In long term, the momentum in urban demand is likely to continue given the steady
consumption demand, payment of allowances under seventh pay commission, increased
allocation in budget and increased job creation in urban centres.
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Oct-
14
No
v-1
4D
ec-1
4Ja
n-1
5F
eb
-15
Ma
r-1
5A
pr-
15
Ma
y-1
5Ju
n-1
5Ju
l-1
5A
ug-1
5S
ep-1
5O
ct-
15
No
v-1
5D
ec-1
5Ja
n-1
6F
eb
-16
Ma
r-1
6A
pr-
16
Ma
y-1
6Ju
n-1
6Ju
l-1
6A
ug-1
6S
ep-1
6O
ct-
16
No
v-1
6D
ec-1
6Ja
n-1
7F
eb
-17
Ma
r-1
7A
pr-
17
Ma
y-1
7Ju
n-1
7Ju
l-1
7A
ug-1
7S
ep-1
7O
ct-
17
No
v-1
7D
ec-1
7Jan-1
8
Yo
Y %
Sustained double digit domestic airline passenger growth for last 41 months
Source: DGCA
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Jan
-16
Ap
r-16
Jul-
16
Oct
-16
Feb
-17
May
-17
Au
g-17
Dec
-17
Strong growth in Credit card outstanding indiactes steady urban consumption demand
Source: RBI
7.6 7.9 8.5 9.8 10.7
8.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Foreign Tourist Arrivals continue to grow in CY18 even at higher base
Foreign Tourist (in lakh) Growth YoY (RHS)Source: Ministry of Tourism
13
58
3
45
0
5
10
15
20
25
30
35
40
45
50
Maruti Suzuki Hyundai Motor Mahindra &Mahindra
Toyota Tata Motors
(Yo
Y gr
ow
th in
%)
Steady growth in PV sales in February 2018
Source: Media Reports
______________________________________________________________________
15
3) Capex cycle seems to be improving gradually….visible from CV sales,
improving capacity utilization and order book of Cap Goods Cos.
Central government has continuously focused on capital spending since it came to power as
the private capex was stalled on account of high leverage and weak capacity utilization
levels. Government has
Raised allocation for Capital expenditure – CAGR 11.1% YoY over FY15 to FY19E
Allocation to Roads–16% over FY18RE, Allocation to Aviation-144% over FY18RE
Preponement of Union Budget for FY18 led to jump in government spending to
~Rs.18 trillion during Apr’17 to Jan’18 which is 83.0% of the full-year target, against
80.3% during the same period in previous year.
PSU companies also supporting as they also started announcing capex plan
SAIL’s capex revised upward to Rs.40 bn for FY19 vs Rs.35 bn for FY18.
State oil companies have planned a capital spending of Rs.890 bn in FY19
Private players started participating in the capex cycle
Some of the private sector companies specially in consumer durable, FMCG and metal
segment that are witnessing strong demand has started working on their capex plan.
Vedanta has planned a capex of USD 2.4 bn over the next two years.
MRF plans to invest ~Rs 40 bn to set up a facility in Gujarat
Maruti Suzuki India to invest Rs.40 bn in next fiscal on capital expenditure
Pick up in capex cycle is also visible
Improvement in order book for some of the capital goods companies – strong double digit
growth for companies like Siemens, Thermax, Voltas and KEC etc.
As per RBI’s survey on the Manufacturing sector for Q2FY18
Capacity Utilization recorded a slight uptick and stood at 71.8% in Q2FY18
New orders recorded substantial growth in Q2FY18 – 17.5% QoQ and 29.3% YoY
Improvement in sales growth in Commercial vehicle (CV) – over 30% in past three months
Capex cycle in India seems to be gradually improving as indicated by factors like CV sales,
improvement in order book for capital goods companies, strong growth in new orders, rising
GFCF and uptick in capacity utilization. Capex cycle which was led by the government is now
witnessing participation from the private players as well which is expected to improve further as
capacity utilization rates rise across the economy.
Order book for capital goods companies started improving
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Apr
-17
May
-17
Jun-
17
Jul-1
7
Aug
-17
Sep-
17
Oct
-17
Nov
-17
Dec
-17
Jan-
18
Growth in commercial vehicle sales (% YoY)
Source: Bloomberg, Media Reports
Order book (Rs bn) Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 YoY % Growth
ABB 118 120 121 121 115 -2.5
SIEMENS 118 136 138 123 143 21.2
GE T&D 81 81 84 81 74 -8.6
BHEL 993 1,052 1,014 1,013 969 -2.4
LNT 2,585 2,613 2,629 2,575 2,707 4.7
THERMAX 47 40 49 53 56 19.1
VOLTAS (MEP) 41.9 43.2 49.1 50 48.5 15.8
KEC 111 126 135 140 172 55.0
KALPATARU 83 97 98 96 105 26.5
Total 4,178 4,309 4,317 4,252 4,390 5.1
Growth in % YoY total order book 0.3 4.1 4.1 4.0 5.1
Source: Company Data
Growth in new orders
Source: RBI
______________________________________________________________________
16
4) Pick up in bank credit growth suggests improving demand conditions,
however weak deposit growth is a cause of concern…
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Jan
-16
May
-16
Au
g-1
6
No
v-1
6
Feb
-17
Jun
-17
Sep
-17
De
c-1
7
Growth in Bank's Non-food Credit witnessing strong upmove
Source: RBI
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Feb
-17
May
-17
Au
g-1
7
De
c-1
7
Growth in Bank's credit to Industry moved to positive territory
Source: RBI
0.0
5.0
10.0
15.0
20.0
25.0
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Feb
-17
May
-17
Au
g-1
7
De
c-1
7
Growth in Personal Loans continue to remain steady
Source: RBI
Bank Credit growth in India has been growing steadily with strong pick up in Industry credit growth and steady growth in personal loans
However, both Scheduled Banks and Scheduled Commercial
Banks are witnessing deceleration in growth in aggregate
deposit
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Jan
-16
May
-16
Au
g-1
6
No
v-1
6
Mar
-17
Jun
-17
Sep
-17
De
c-1
7
Same decelerating trend also witnessed in growth inAggregate deposits for All Scheduled Banks
Source: RBI
5.6
5.8
6
6.2
6.4
6.6
6.8
7
Feb
-16
Ap
r-1
6
Jun
-16
Au
g-1
6
Oct
-16
De
c-1
6
Feb
-17
Ap
r-1
7
Jun
-17
Au
g-1
7
Oct
-17
De
c-1
7
Feb
-18
Trend in Repo Rate
Source: RBI
Lower deposit growth coupled with pick-up in demand for
credit may lead to increase in interest rates
______________________________________________________________________
17
The corporate earnings announcement in Q3FY18 ended on a positive
note and a visible improvement was seen during the quarter. The
improvement in the topline numbers was mainly because of lower base
of Q3FY17 (due to impact of demonetization) and a gradual recovery
post implementation of GST.
The net sales of companies in CNX 200 index grew by 9.6% YoY.
However, rising commodity prices impacted the EBITDA growth, which
resulted in subdued 6.8% YoY growth in Q3FY18. Reported PAT growth
stood at 11.8% YoY in Q3FY18.
Some of the IT and banking companies reported numbers in-line with the
expectations while FMCG companies reported improvement in earnings
driven by stabilization in trade channels and rationalization of GST rates
in some of the products. Rising crude oil prices have led to better than
expected numbers for Oil & Gas companies. Auto & Auto Ancillary
companies witnessed improvement in top-line driven by demand growth
on the back of gradual recovery in rural demand. Moreover,
Infrastructure/Construction/Capital Goods companies indicated a
recovery in order inflow growth.
Weaknesses persisted in the results of PSU banks and some Pharma
companies.
We think that the trend of organized sector gaining share from the
unorganized sector would continue to gain traction in the new GST
regime, which is likely to help improve corporate earnings in the
medium term, along with structural rise in the consumption
demand.
Moreover, improvement in global growth, strengthening of
structural drivers of domestic market due to steady reform
announcements and factors like improvement in rural demand and
steady urban demand are likely to drive earnings going ahead.
5) Visible improvement in Q3FY18 earnings growth
Source: Capitaline
Change in % YoY Net Sales EBITDA Reported PAT
Air Transport Service 23.9 58.8 56.4
Auto & Auto Anc 18.6 39.9 25.9
Bank, Fin & Ins 4.9 -6.9 -15.9
Capital Goods 5.6 -3.3 -7.9
Cement & Cem Product 26.8 27.6 28.9
Chemicals & Fert 12.3 10.8 49.8
FMCG / Retail -16.8 15.4 19.0
Healthcare & Pharma 4.1 -5.3 -32.1
Hotels & Restaurants 5.8 5.0 12.0
Infrastructure 8.3 9.2 -17.1
IT 4.6 1.2 7.3
Logistics 24.7 71.0 55.4
Media & Ent 9.5 10.8 16.3
Metal & Mining 20.8 26.5 39.8
Miscellaneous 1.4 -7.4 -6.4
Oil & Gas 19.5 38.4 35.0
Power 4.9 4.6 -2.5
Realty -7.9 -7.8 1184.1
Telecomm -14.6 -13.8 -113.1
Textiles 10.7 -7.6 -12.7
Trading 15.5 70.1 -4.6
Grand Total 9.6 6.8 11.8
Grand Total Ex Telecom 10.4 7.6 13.9
______________________________________________________________________
18
India’s GDP growth continued its upwards momentum for second consecutive quarter in
Q3FY18 with visible improvement in GFCF during 9MFY18.
In addition, the Corporate earnings announcement in Q3FY18 ended on a positive note and a
visible improvement was seen during the quarter.
Though, rising bond yields and other global factors led to some profit booking in the
market, current valuation still looks relatively rich with S&P BSE Sensex trading at 22.3x
FY18E consensus EPS of Rs.1530 and 18.5x FY19E consensus EPS of Rs.1850.
(S&P BSE Sensex price as on 28.2.2018).
The current valuations are at the higher end of historical average range but it is not yet at the
bubble territory seen in 2007-08. However, going ahead earnings are expected to catch up
with market expectation to lead to further up move in the markets.
Equity valuation still relatively rich, despite earnings growth reviving and a minor
correction in the markets…
…..but is expected to catch-up in medium term
Source: HDFC AMC
We expect the GDP growth momentum to pickup in CY18, which may lead to increase in the corporate earnings and thus catchup with the
market valuations.
In long term India is likely to see a steady growth on the back of improvement in Rural economy, rising government expenditure and higher
disposable income in the hands of consumers. With strong demographic dividend that India is seeing, we expect the economic growth and
demand conditions in the country to remain strong for a long period. This is likely to augur well for investment in equities.
Hence, any major volatility in the equity markets should be used by investors as an opportunity to adding into their exposure in line with
their risk profile with a 2-3 years investment horizon.
1309 1349 1385 13601530
1850
0
500
1000
1500
2000
FY14 FY15 FY16 FY17 FY18E FY19E
S&P BSE Sensex Consensus EPS (Rs.)
Source: Bloomberg
0
5
10
15
20
25
30
0
5000
10000
15000
20000
25000
30000
35000
40000
Fe
b-0
7
Aug-0
7
Ja
n-0
8
Jun-0
8
No
v-0
8
Ma
y-0
9
Oct-
09
Ma
r-1
0
Au
g-1
0
Feb
-11
Ju
l-1
1
De
c-1
1
Ju
n-1
2
No
v-1
2
Ap
r-1
3
Se
p-1
3
Ma
r-1
4
Au
g-1
4
Ja
n-1
5
Ju
n-1
5
De
c-1
5
Ma
y-1
6
Oct-
16
Ma
r-1
7
Se
p-1
7
Fe
b-1
8
S&P BSE Sensex & Trailing P/E
S&P BSE Sensex (LHS) P/E (RHS)
Source: Capitaline
14
6.5
52
.06
95
.3
95
.3
54
.5
68
.6
60
.8
83
.6
74
.2
74
.1
11
4.2
89
.7
0
20
40
60
80
100
120
140
160
Dec-07Dec-08Dec-09Dec-10Dec-11Dec-12Dec-13Dec-14Dec-15Dec-16Dec-17Feb-18
Mkt Cap to India GDP (curr prices)
Source: Bloomberg
Bubble Territory -Previous peak with Sensex at ~21000
Mkt cap to GDP highest in last
seven year
______________________________________________________________________
19
Valuation differential between Large Cap and Midcap Indices continued to rise and
remains at high levels, making Large caps attractive from a risk-reward perspective
1.0
0.70.7 0.8 0.8
1.0
0.9
1.3 1.3
1.4
1.9
1.7
0.0
0.5
1.0
1.5
2.0
Feb
-07
Jun
-07
Oct
-07
Feb
-08
Jun
-08
Oct
-08
Feb
-09
Jun
-09
Oct
-09
Feb
-10
Jun
-10
Oct
-10
Feb
-11
Jun
-11
Oct
-11
Feb
-12
Jun
-12
Oct
-12
Feb
-13
Jun
-13
Oct
-13
Feb
-14
Jun
-14
Oct
-14
Feb
-15
Jun
-15
Oct
-15
Feb
-16
Jun
-16
Oct
-16
Feb
-17
Jun
-17
Oct
-17
Feb
-18
Valuation Premium of Midcap over Sensex
Source: Capitaline, Reliance AMC
0.0
10.0
20.0
30.0
40.0
50.0Fe
b-0
7
Jun
-07
Oct
-07
Feb
-08
Jun
-08
Oct
-08
Feb
-09
Jun
-09
Oct
-09
Feb
-10
Jun
-10
Oct
-10
Feb
-11
Jun
-11
Oct
-11
Feb
-12
Jun
-12
Oct
-12
Feb
-13
Jun
-13
Oct
-13
Feb
-14
Jun
-14
Oct
-14
Feb
-15
Jun
-15
Oct
-15
Feb
-16
Jun
-16
Oct
-16
Feb
-17
Jun
-17
Oct
-17
Feb
-18
Valuation gap between large cap and mid cap remains at higher levels
Trailing P/E S&P BSE Midcap Trailing P/E S&P BSE Sensex
Source: Capitaline, Reliance AMC
______________________________________________________________________
20
Equity Market Round Up – February 2018
Indices 28 Feb 2018 31 Jan 2018 Chg %
S&P BSE Sensex 34,184 35,965 (5.0)
S&P BSE Mid Cap 16,563 17,364 (4.6)
S&P BSE Small Cap 18,128 18,717 (3.1)
S&P BSE 100 10,865 11,419 (4.9)
S&P BSE 500 14,670 15,347 (4.4)
Net Flow (Rs. Bn) FPI DII
CY18* 27 223
CY17 513 1187
CY16 151 475
CY15 131 710
Source: BSE, NSDL (*CY18 FPI data as on 27 Feb 2018 and DII data as on 26 Feb 2018)
Indian markets witnessed profit booking in the month of February 2018
as the S&P BSE Sensex and Nifty 50 ended with a loss of 5.0% MoM
and 4.9% MoM, respectively.
The S&P BSE Midcap index and the S&P BSE Smallcap index also
followed the suit and fell by 4.6% MoM and 3.1% MoM, respectively.
All the sectoral indices ended in red with the S&P BSE IT index and
S&P BSE Metal index declining the least by 0.4% MoM and
1.6% MoM, respectively. The S&P BSE Bankex index and S&P BSE
Capital Goods index were the major looser as they fell by 8.6% MoM
and 6.3% MoM, respectively.
During the month of February 2018, Foreign Portfolio Investors (FPI)
were net seller to the tune of ~Rs.110 bn and Domestic Institutional
Investors (DII) were net buyers to the tune of ~Rs.132 bn.
Source: Bloomberg
17500
20000
22500
25000
27500
30000
32500
35000
Feb-
14
Jul-1
4
Dec
-14
May
-15
Oct
-15
Feb-
16
Jul-1
6
Dec
-16
May
-17
Sep-
17
Feb-
18
S&P
BSE
Sen
sex
Leve
ls
BSE Sensex Price Earning (PE) 1 year forward
16x
18x
14x
20x
______________________________________________________________________
21
A faster than anticipated pace of QE rollback and interest rate hike by US Fed or
ECB may lead to tightening of global liquidity and volatility in the equity markets.
Rising trend of protectionism across economies also could pose a risk to overall
global growth
Worsening in geo-political situations across globe
Rise in volatility in commodity prices could put pressure on the global financial
markets
China remains a key monitorable as it is expected to remain in transition and
sharp decline in Chinese economic growth can impact on global commodity
exporting economies.
Slower than expected transition to formal economy in India.
Sharp slowdown in global growth which may lead to disinflationary pressure on
some of the large developed economies.
Key Risks
______________________________________________________________________
22
Equity Market Outlook The economic data point continues to strengthen for advanced economies like U.S., Euro Zone, U.K. and Japan. This has poured confidence in the central banks of these
economies, which are currently contemplating to speed up the rate hike cycle.
Strong pick up in manufacturing activity across the globe is driving the demand for commodities especially for industrial commodities. The higher demand is leading to sharp
uptick in commodity prices.
Higher global growth outlook coupled with rising commodity prices is expected to push inflation upwards. This expectation is very well reflected in recent sharp up move
witnessed in US bond yields.
Improvement in growth scenario at advanced economies coupled with rising bond yields is likely to make emerging markets less attractive. As a result, these markets are
witnessing FPI outflow in the month of February 2018.
While the overall macro-economic data for India continued to remain stable with key indicators like GDP, Bank Credit and CV sales witnessing improvement. However, some
of the data points, like inflation, trade deficit etc., have started witnessing weakness. India has regained the lost momentum as Q3FY18 GDP grows at 7.2% YoY, improving
for second consecutive quarter.
Over last few years, many high profile reform and policy measures have been announced and implemented by the government in order to improve economic potential for
sustainable long-term growth. These reforms have also helped in improving the micro level fundamentals.
Some of the initial signs of micro level improvement are stated as follows 1) rural demand started improving with the help of government effort to boost farmer’s income. 2)
growth in urban demand continued to remain steady.
3) Capex cycle seems to be improving gradually as visible in CV sales, improving capacity utilization and order book of Cap Goods Cos. Government’s effort to push capex
cycle is getting good support from PSU companies. Some of the private companies also started participating in the process.
4) Bank Credit growth in India has been growing steadily with strong pick up in Industry credit growth and steady growth in personal loans. This indicates that the demand
scenario is improving. However, deposit growth remained weak due to low interest rate scenario and is posing a cause of concern.
5) The Corporate earnings announcement in Q3FY18 ended on a positive note and a visible improvement was seen during the quarter. The improvement in topline numbers
was mainly because of lower base of Q3FY17 (due to impact of demonetization) and a gradual recovery post the implementation of GST.
India’s GDP growth continued its upwards momentum for second consecutive quarter in Q3FY18 with visible improvement in GFCF during 9MFY18. In addition, the
Corporate earnings announcement in Q3FY18 ended on a positive note and a visible improvement was seen during the quarter.
Though, rising bond yields and other global factors led to some profit booking in the market, current valuation still looks relatively rich with S&P BSE Sensex trading at 22.3x
FY18E consensus EPS of Rs.1530 and 18.5x FY19E consensus EPS of Rs.1850. (S&P BSE Sensex price as on 28.2.2018).
The current valuations are at the higher end of historical average range but it is not yet at the bubble territory seen in 2007-08. However, going ahead earnings are expected
to catch up with market expectation to lead to further up move in the markets.
We expect the GDP growth momentum to pick up in CY18, which may lead to increase in the corporate earnings and thus catchup with the market valuations
In long term India is likely to see a steady growth on the back of improvement in Rural economy, rising government expenditure and higher disposable income in the hands
of consumers. With strong demographic dividend that India is seeing, we expect the economic growth and demand conditions in the country to remain strong for a long
period. This is likely to augur well for investment in equities. Hence, any major volatility in the equity markets should be used by investors as an opportunity to adding into
their exposure in line with their risk profile with a 2-3 years investment horizon.
We continue to recommend that the investment strategy should be 50% lumpsum and rest 50% staggered over the next 3-4 months. From investment perspective focus
should be on Large cap stocks or Midcaps where the valuations are reasonable considering their long term averages and growth outlook. Investment into SBI, Petronet LNG,
ONGC, Apollo Hospitals, UPL, Grasim, Tata Motors, Exide, M&M, Godrej Agrovet, BHEL, Cummins India and Apar Industries could be looked upon from a 2-3 year
perspective in line with the individual risk profile.
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23
Recommended Stocks (*CMP as on March 1, 2018)
State Bank of India (CMP: Rs.263): We have a Buy rating on the stock with the target of Rs.377 based on PBV multiple of 2x on FY19E adjusted book value of Rs.188.4.
Petronet LNG (CMP: Rs.241): PLNG remains a structural story of India’s increasing gas demand due to increasing demand from key users like power stations, fertilizers companies, refineries
and petrochemical companies, city gas distribution for compressed natural gas (CNG), domestic purpose usage and steel manufacturers. On the operational front, Petronet LNG’s back-to-back
LNG purchase-sales agreement at Dahej terminal provides comfort on the business model and provides revenue visibility for the company. While the Kochi terminal is currently underutilized, a
slight uptick in the utilization levels for Kochi terminal by FY19 and beyond would result in sharp rise in the earnings for the company given the improving utilization for the existing capacities.
Improving utilization and additional 2.5 MTPA capacity addition plans for Dahej terminal is likely to further improve the earnings and profitability for PLNG. We believe visibility on PLNG’s
medium/long term earnings on the back of huge gas demand-supply gap in India, volume growth via Kochi ramp up and gradual capacity addition at Dahej along with earnings growth boosted by
annual re-gas charge escalation of 5% YoY is likely to drive the margins as well as profitability in future. Currently, we have a Buy rating on the stock with the target price of Rs.324 based on PE
multiple of 18.5x (maintaining earlier multiple) FY19E EPS of Rs.17.5. Any earnings/target price revision would depend upon the fluctuation in LNG prices, any disruption from the upcoming
competition; scale up of existing terminal and general changes in the business scenario.
ONGC (CMP: Rs.190): Post a prolonged period of stagnant oil & gas production growth, ONGC has started to see some traction in oil & gas output over the last few quarters with gas production
increasing sharply both from domestic as well as overseas operations (i.e. JVs). We believe, the recent acquisition of government’s 51.1% stake in HPCL is likely to benefit the company as
integration of state-run oil PSUs into a single major consolidated company is likely create economies of scale and thereby increase the bargaining power for them. On the ONGC operational
front, strong traction expected in the gas production going ahead led by several ongoing projects is likely to drive growth for the company. ONGC’s large size in the oil & gas space, strong
balance sheet, steady cash flows and consistent dividend payment track record gives us the comfort. Strong growth guidance for Oil and Gas production, declining operating cost on the back of
improved efficiencies and the extension of OPEC production cut resulting into rise in crude prices should drive profitability for ONGC going ahead. We maintain our Buy rating on the stock with a
price target of Rs.233 which is 11x FY19E (maintaining earlier multiple) EPS of Rs.21.2. Any revision in the earnings/target price would depend upon change in the international crude oil prices,
subsidy share, general business momentum and rollover to next financial year.
Apollo Hospitals (CMP: Rs.1,182): AHEL is one of the stronger healthcare delivery services company with leadership position, pan India presence and an aggressive organic and inorganic
growth strategy. AHEL has continued with its strategy of focusing on commencement of new hospitals and improvement in occupancy level in these hospitals to bring revenue growth. While
EBITDA margin is likely to be under pressure in near term due to commercialization of new hospitals and regulatory changes but is expected to see gradual improvement from the current levels
as losses start to reduce in the new hospitals as they mature. We remain long term positive on the stock considering its strong brand equity, robust business model with low leverage (~0.7x net
debt equity ratio in FY17), focus on improving penetration in Tier-II & Tier-III cities and expected improvement in return ratio as the company is near completion of capex cycle. We are
maintaining our Buy rating on the stock with the target price to Rs.1378 at 18x (maintaining earlier EV/EBITDA multiple) to FY19E EBITDA and adjusting for FY17 net debt of Rs.174 per share.
Any earning/target price revision would depend on the performance of new hospitals, improvement in occupancy level & margins, rollover to next financial year and changes in general business
momentum.
Godrej Agrovet (CMP: Rs.654): Godrej Agrovet Ltd (GAVL), part of the Godrej group, is a well-diversified agri-business company with operations across five business verticals i.e. animal feed,
crop protection, oil palm, dairy and poultry and processed foods. Over the years, GAVL has continued to focus on improving its market share across all its business verticals, which are
underpenetrated and are largely catered by unorganized players. The company is focusing on improving market share by leveraging on strong presence in these sectors. GAVL is also working
on strategy to increase its revenue by extending its product pipeline by introducing innovative and value added products and expanding its geographical presence across its business divisions.
GAVL also intends to improve its cost efficiency and productivity by implementing effective and efficient operational techniques in order to improve its margins in the long term. We have a
positive view on the stock considering the steady operational performance over the years, strong parentage, leadership position in various divisions, improving margins and return ratios, strong
and robust balance sheet. Hence, we maintain our Buy rating on the stock with the target price of Rs.788 based on a PE multiple of 30x (15% premium to PEG (Price to Earning/Growth) ratio of
1x given the high growth potential going ahead) FY20E EPS of Rs.26.3. Any earning/target price revision would depend on the performance of its sub-divisions, improvement in market share
and changes in general business momentum.
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24
Recommended Stocks
UPL (CMP: Rs.715): UPL is a leading global generic player in the Agrochemical Industry and ranks among the top-10 post patent agrochemical manufacturers in the world. UPL’s leadership
position in key pest resistance products and its cost advantage position would further help it in gaining market share. UPL has managed to increase its market share in the domestic market in
current quarter as well by registering the double-digit growth despite the weak demand scenario in industry. Going ahead, the overall volume growth is expected to improve on the back of
increased focus on 1) product portfolio expansion, 2) sustainable technology, 3) untapped markets like Africa & China and 4) synergy benefit of consolidation of seeds business of Advanta Ltd. The
management has maintained its revenue growth guidance of 8-10% YoY and 50-75 bps EBITDA margin expansion for FY18. We have a long term positive view on the stock and hence maintain
Buy rating on the stock with the target price of Rs.914 which is 17x (maintaining earlier multiple) FY19E EPS of Rs.53.8. Any revision in the target price would depend upon the change in the
product launching strategy, volume growth, forex impact, management guidance and general business momentum.
Grasim (CMP: Rs.1,167): Grasim is a global leader in VSF with an aggregate installed capacity of 498,225 TPA as on Q3FY18. On VSF business, management highlighted that realization
witnessed improvement during the quarter led by strong demand and rise in global fibre prices. Also, management’s focus on increasing the share of specialty products is likely to support the
margin improvement. Caustic soda demand in India is expected to see stable growth going ahead led by growth in users like textile, aluminium, paper, soap and detergent. Moreover, we believe,
with the merger of Aditya Birla Nuvo Ltd (ABNL) with Grasim Industries Ltd, would give investors in Grasim access to multiple diversified lines of business, including cement, finance, chemical and
retail. Currently, we have a Buy rating on the stock with a price target of Rs.1438 which is summation of 9x FY19E (maintaining earlier multiple) EPS of Rs.32.9 for VSF business along with 60.2%
company’s stake in UltraTech Cement valued at Rs.675/share (after providing for 40% holding company discount based on our FY19 target price of Rs.4471 for UltraTech) and 57% company
stake in ABCL valued at Rs.467/share (after providing for 40% holding company discount based on Q2FY18 ending market price). Any revision in the target price would depend upon change in
VSF volumes, realizations, valuation of UltraTech Cement or ABCL, general business momentum and the valuation of the business which is to be merged.
BHEL (CMP: Rs.91): BHEL’s performance remained muted during H1FY18 mainly due to execution slowing down led by sharp decline in new order inflows and poor performance for the Industrial
segment. However, BHEL’s performance improved marginally in Q3FY18 led by pick up in execution during the quarter. Additionally slow moving order backlog of total order book has declined
sharply in Q3FY18 vs that in Q2FY18, leading to ~47% YoY jump in the executable orders. Going ahead, management expects good traction in hydro power plant along with emission norms
related projects in the pipeline, which is likely to support growth for the company. The long-term growth of BHEL’s earnings would be supported by its large size, execution capability and strong
balance sheet. Further, with the government’s clear focus on manufacturing sector by the initiative like “Make in India”, the company has indicated of new opportunity in railways and defence sector
as well. This is likely to drive the revenue from the Industrial segment over the next few years led by railways, defence, Transmission, Solar and Water. We think that as its execution picks up, we
expect strong margin expansion for Industrial segment as for the overall company over the medium term. We have a Buy rating on the stock with a price target of Rs.132, based on price/book
value multiple of 1.5x (maintaining earlier multiple) of FY17 book value of Rs.88. Key monitorable for our earnings expectations would be improving order flows, faster execution and rollover to next
financial year.
Apar Industries (CMP: Rs.785): Apar Industries has established presence across diverse businesses like Conductors (23% market share), Transformers & Specialty Oils (45% market share),
Cables and Auto Lubes. We believe with its diversified product profile, Apar is well positioned to reap the benefits of improvement in the power T&D space in India. Management is optimistic about
the medium to long term demand for conductors business in domestic market where it expects ordering to pick up sharply in FY19 on the back of healthy order inflows expected in near future. On
operational front, both the new manufacturing facilities in Jharsuguda (conductor) and Hamriyah, Sarjah (specialty oils) are ramping up strongly and the management expects to ramp up utilization
levels further to 100% in FY19. Similarly, management expects a healthy improvement in cables business on the back of strong demand from railways and defence segment. We have a Buy rating
on the stock with a price target of Rs.896 which is 15x FY19E EPS (maintaining earlier multiple) of Rs.59.7. Any revision in the stock price would depend upon the change in crude oil price, order
inflow, and general business momentum.
Cummins India (CMP: Rs.804): Cummins continued to deliver weak performance for the quarter on the back of muted export performance and increased competitiveness in the powergen
segment. We believe that as the economic growth momentum and investment cycle picks up, Cummins could be among the biggest beneficiaries in its sector owing to its strong competitive
positioning, superior brand recall, strong parentage and solid product innovations. We also think that increasing capacity utilization would help the company to improve upon its operating margins
going forward which would result in superior earnings growth over the medium to long term. The company is also focusing on opportunities in the renewable sector, though the segment is at a very
nascent stage currently. We continue to like the strong cash rich balance sheet and the high capital efficiency of the company (20% ROE and 26% ROCE in FY17), which we believe could be
improved upon over the medium term. The company would also be a potential beneficiary from strong outsourcing orders by its parent. In the near to medium term the growth of the company
would be hinged largely on the growth in domestic markets. However given the weak outlook in the exports business and domestic power gen business we have revised our earnings estimates.
We maintain a Buy rating on the stock with a price target of Rs.957 at 30x (maintaining earlier multiple) FY19E revised EPS of Rs.31.9. Any changes in our earnings/price objective would hinge on
the pace of economic recovery, changes in the margin profile and general business momentum.
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25
Recommended Stocks
Exide Industries (CMP: Rs.209): Exide is India’s largest manufacturer of lead acid storage batteries and power storage solutions provider with strong presence in automotive, power, telecom,
infrastructure projects, computer industries, railways, mining, renewable energy and defence sectors. Going ahead, the steady demand for Automobile in India especially in passenger vehicle bodes
well for Exide’s Original Equipment Manufacturers (OEM) segment. Further, the strong market share in Industrial segments of Solar, Backup Power, Manufacturing and Project sector may drive the
volume growth with the expected recovery in industrial capex cycle over the long term. The company is working on expanding its portfolio for emerging requirements like electric vehicles, hybrid cars
and start-stop batteries and has recently added e-rickshaw battery in its portfolio. Further, it is focusing on capturing market share in the unorganized commercial vehicles and tractor battery markets
with target to enhance customer outlet to 2500 from current 1500+ outlets. Currently, we have a Buy rating with the target price of Rs.267 at 22x (maintaining earlier multiple) FY19E EPS of Rs.11.1
and adding Rs.24 per share for the embedded value in Insurance business (as of Sept 2017). Any earning/target price revision would depend on the improvement in margin, changes in market share,
implementation of GST and its tax structure, value in Insurance business and changes in general business momentum.
Tata Motors (CMP: Rs.371): Tata Motors (TTMT), India's one of the largest automobile company, has strong presence in domestic CV industry and holds renowned international luxury car brands
like Jaguar Land Rover (JLR). In Q3FY18, TTMT witnessed strong improvement in standalone business with both CV and PV showing signs of revival. Going forward, the growth momentum in
TTMT’s overall volume performance is likely to continue on the back of strong product pipeline in both domestic as well as JLR business. We remain long term positive on the stock on the back of
well diversified global presence, recent launches in both domestic and JLR business, expected steady growth in domestic CV industry due to government’s infrastructure & rural spending, near
normal monsoon, restrictions on overloading, expected implementation of Scrappage policy and cyclical recovery in LCV. The overall margins are expected improve in near term on the back of
company’s strong focus on cost optimization and improvement in operational efficiency. However, the sustainability of the same would be important point to watch out going ahead given the focus on
electrification, high variable marketing and launch cost. We maintain our Buy rating on the stock with the target price of Rs.551 based on the Sum of the parts (SOTP) valuation (JLR (Rs.501/share)
+ Standalone business (Rs.45/Share) + other subsidiaries (Rs.32/Share) - net automotive debt (Rs.26/Share)). Any earning/target price revision would depend on the performance of new launches,
improvement in market share and changes in general business momentum.
Mahindra & Mahindra (CMP: Rs.733): M&M continues to be a leader in the domestic Tractor industry with ~43% market share as of 9MFY18. The management expects domestic Tractor sales
volume to grow by 8% in FY19. The management has reiterated its stance of focusing on building a strong product pipeline in both FES and Automotive segment by introducing new product every
year starting from FY18 and further preparing itself in upcoming electric vehicle space by increasing the capex activity. We believe M&M is geared up to take on the competition and to grab the
opportunity arising from ongoing improvement in growth in auto industry and recovery in rural demand. We remain positive on the medium term potential of the company on the back of new product
launches that is likely to drive revenue growth for the company and on good return ratios of close to 20% (i.e, RoCE of 19% in FY17). Currently, we have Buy rating on the stock with the target price
of Rs.852 at 16x (maintaining earlier multiple) FY19E EPS of Rs.39.5 adding Rs.220 as value of subsidiaries at 30% holding company discount. Any earning/target price revision would depend on the
performance of new launches, improvement in market share, any regulatory changes, changes in the value of subsidiaries, rollover to next financial year and changes in general business momentum.
Rating Expected to
Buy Appreciate more than 10% over a 12 to 15 month period
Hold Appreciate below 10% over a 12 to 15 month period
Under Review Rating under review
Exit Exited out of the Model Portfolio
Rating Interpretation
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26
Fixed Income
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27
MPC more confident about economic growth recovery… …however, concerns rising over inflation fuelled by growth.
Dr. Chetan Ghate
“…All measures of inflation have converged above
5%. Adverse supply side shocks could push the
Phillips curve of the economy upward posing a strong
risk to the medium-term inflation target of 4%.…”
“…With respect to economic growth, data trends
have largely been positive in the last few months, as
suggested by many high frequency indicators.…”
Dr. Pami Dua
“…Going forward, several upside risks to inflation
remain. These include the possibility of an increase in
global commodity prices and higher crude oil prices. ....”
“… positive signs of economic growth are visible…”
Dr. Ravindra H. Dholakia
“…inflation trends need to be watched carefully. Although
the base effects are going to be favourable over the next
3-4 months, the oil price movements can create
uncertainties and serious upside risks.....”
“…The expectation about recovery in the growth of GVA
remained subdued in the Economic Survey 2017-18 in
line with what I had anticipated in my statement in the
last meeting of MPC.….”
Dr. Michael Debabrata Patra
“…In the near term outlook (up to mid-2018), inflation
is likely to drift well above target...”
Turning to the state of the economy, a turnaround
has likely begun in the third quarter of 2017-18 –
sales are accelerating even as inventories are being
drawn down; the capex cycle is starting up; and
pricing power is returning…”
Dr. Viral V. Acharya
“…Headline inflation prints since last policy have been
significantly above the target. While a part of this is
statistical due to the Centre's HRA implementation,
there has also been a rise in inflation sans HRA....”
“… Real economic activity indicators also suggest a
broad-based growth revival. While RBI growth
projections for next year are in line with this buoyant
activity of late, the recovery is nevertheless nascent and
worthy of some support in the short run.…”
Dr. Urjit R. Patel
“…Looking forward, inflation in the baseline scenario is
projected to remain above the target of 4% throughout
2018-19...”
“…Domestic economic growth impulses are
strengthening. Manufacturing activity has picked up…”
“… The economic recovery is also at a nascent stage
and calls for a cautious approach at this juncture…”
Monetary Policy Committee (MPC) members voted 5 out of 6 in favour of maintaining a status quo on interest rates.
Dr. Michael Debabrata Patra voted for a repo rate hike of 25 bps.
While MPC members are growing more confident of recovery in economic growth;
They have highlighted that inflation target of 4% could be breached fuelled by pickup in economic growth.
Other factors being fiscal slippage, hike in MSPs, global growth and inflation; and commodity price rises.
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Headline CPI inflation takes temporary breather…
After rising to 17 month high of 5.21% YoY in December 2017, inflation based on Consumer
Price Index (CPI) declined to 5.07% YoY in January 2018.
The decline in CPI inflation for January 2018 was mainly on account of decline in food
inflation.
Headline CPI inflation came in a tad bit lower than the Monetary Policy Committee’s (MPC)
revised projection of 5.1% for Q4FY18.
Core CPI (inflation excluding food and fuel) however, continued to remain sticky and
witnessed a rise and come in at 5.10% YoY as compared to 5.09% YoY (revised) in
December 2017.
CPI food inflation declined in the month of January 2018 and came in at 4.7% YoY as
compared to 4.96% YoY in the previous month.
In the core inflation basket, Housing inflation continued to witness a rise and came in at
8.33% YoY compared with 8.25% YoY in the previous month.
CPI Inflation Components
Source: CSO
Description Weights Dec.17 Jan.18
Cereals and products 9.67% 2.57% 2.33%
Meat and fish 3.61% 4.22% 4.34%
Egg 0.43% 9.48% 8.70%
Milt and products 6.61% 4.37% 4.21%
Oils and fats 3.56% 1.43% 1.26%
Fruits 2.89% 6.63% 6.24%
Vegetables 6.04% 29.13% 26.97%
Pulses and products 2.38% -23.47% -20.19%
Sugar and Confectionary 1.36% 6.21% 2.85%
Spices 2.50% -2.21% -1.43%
Non-alcoholic beverages 1.26% 1.74% 1.90%
Prepared meals, snacks, sweets etc 5.55% 4.71% 4.69%
Food and beverages 45.86% 4.85% 4.58%
Pan, tobacco and intoxicants 2.38% 7.76% 7.58%
Clothing 5.58% 4.99% 5.05%
Footwear 0.95% 4.08% 4.07%
Clothing and footwear 6.53% 4.80% 4.94%
Housing 10.07% 8.25% 8.33%
Fuel and light 6.84% 7.90% 7.73%
Household goods and services 3.80% 4.18% 4.25%
Health 5.89% 4.96% 4.88%
Transport and communication 8.59% 2.16% 1.97%
Recreation and amusement 1.68% 3.86% 4.43%
Education 4.46% 4.06% 4.28%
Personal care and effects 3.89% 4.46% 4.60%
Miscellaneous 28.32% 3.79% 3.78%
General Index (All Groups) 100.00% 5.21% 5.07%
Consumer Food Price Index 39.06% 4.96% 4.70%
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29
Inflation risks have accentuated in the recent past… …RBI’s medium term inflation target likely to be met at the higher end
What has fuelled inflation so far?
Lack of seasonal decline in
Vegetable prices
Increase in housing inflation due to
higher HRA for under the 7th CPC.
Core inflation (inflation excluding
food and fuel) remained stubborn Unfavourable Base Effect
Going Ahead Factors to Impart Upside Pressures
Global Growth:-
Economic growth recovery in the developed economies is now making a strong foot hold with the Advanced Economic (AE) growing at fastest pace
in nearly a decade. According to latest estimates the global economy is expected to grow at 3.7% in 2017.
Rise in International Commodity Prices:-
Commodity prices have seen a gradual rise since mid 2016. With global growth getting stronger, demand for commodities may push the commodity
prices even further.
Domestic Growth:-
With domestic growth recovery picking pace, expected increase in demand is likely push inflation higher.
The RBI had set the objective of achieving the medium-term target for CPI inflation of 4% within a band of +/- 2%, while supporting growth.
However, Given the current inflation trajectory, CPI inflation is expected to be at the higher end of the targeted range.
Source:CSO
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30
US FOMC meeting minutes indicate faster interest rate hikes… …US treasury yields surge
In the January 2018 FOMC meeting the Fed voted to keep the Federal Funds rate unchanged at a range of 125 to 150 basis points.
However, the Fed stated that ,the Committee expected that economic conditions will evolve in a manner that will warrant further
gradual increases in the federal funds rate;
The minutes also said that, members agreed that the strengthening in the near-term economic outlook increased the likelihood
that a gradual upward trajectory of the federal funds rate would be appropriate.
The minutes highlighted that the recent tax reform by the Trump administration is likely to boost the economic growth.
The Minutes also stated that: Almost all participants continued to anticipate that inflation would move up to the Committee’s 2% objective over the medium term as economic growth remained above trend and the labour market stayed strong.
The US treasury yields rose sharply racking the release the minutes Fed’s latest meeting.
The US 10 year treasury yield rose to 2.95% during the month and closed the month at 2.86% compared to 2.71% in January 2018.
Source: federalreserve.gov/ Source: Bloomberg
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31
Liquidity near neutral… …pick up in credit growth likely to put pressure on liquidity
February 2018 witnessed the highest daily deficit in banking system liquidity since demonetisation of high value currency notes.
That being said the overall liquidity including government’s cash balances remained near neutral.
The daily average liquidity measured by the RBI’s Liquidity Adjustment facility (LAF) was at deficit of ~Rs.116 bn in February 2018 compared to surplus
of Rs.362.82 bn in January 2018.
Banks credit growth has been improving gradually with the pick up in domestic growth.
Bank’s credit grew at 10.7% YoY as on 16 February 2018 compared with 4.4% YoY during the same period last year
Deposits on the other hand grew at 5.9% YoY compared to 12.3% YoY.
Deposit growth has been slower on account of a higher base effect coupled with lower interest rates.
Going forward the expected pick up in credit growth, is likely to put pressure banking system liquidity.
Source: Bloomberg
Banking Liquidity Near Neutral Credit-Deposit ratio now
at pre-demonitisation levels
Gap between Deposits and Credit
closing in
Source: Bloomberg Source: Bloomberg
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32
Bank’s demand for G-secs could be impacted given rising credit demand and losses due to rise in bond yields...
In the Union Budget 2018-19, the Gross market borrowings for FY19 have been pegged at Rs.6.06 trillion; whereas the net market
borrowings have been pegged at Rs.4.62 trillion.
As per the finance minister the bank recapitalization will pave the way for the public sector banks to lend additional credit of Rs. 5 trillion.
Also with the expected improvement in economic growth, credit growth has started to pick up.
In the recent past the excess liquidity received by the banks was invested in G-secs as banks could earn attractive yields along with
sovereign safety.
However the recent sharp rise in G-sec yields has left the banks dealing with mark to market losses, which may also impact their appetite
for investing into G-secs
Source: RBI Source: GOI and RBI
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33
Traded deficit at 56 months high… …can pose a risk to other macro variables
Domestic trade deficit rose sharply tracking rise in imports of crude oil and precious stones.
Merchandise exports rose 9.1% YoY in January 2018; whereas merchandise imports grew at 26.1% YoY. Import of precious stones rose
55.7% YoY and petroleum 42.6% YoY.
The Union Budget 2018-19 announced increase in import duty on various items. While increase import duties would support and
encourage domestic production; however if the rise in import duties does not suitably curb imports, then it may lead to rise in Indi’s CAD.
This may also fuel inflation, as the price of imported goods increase.
Higher CAD also impacts the currency exchange rate by weakening the domestic currency; which in turn can again make import
expensive fuelling inflation.
Weaker currency also affects FPI flows.
Source: Bloomberg Source: Bloomberg Source: http://pib.nic.in/
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34
FPIs turn net seller in Indian Debt Markets
FPI turned net sellers in the Indian debt market in February 2018.
In February 2018 the FPIs were net sellers to the tune of ~Rs. 2.53 bn as compared to net buying of ~Rs. 85 bn in the previous month.
Rising inflation and expectations of tighter monetary policy in India; and higher yields in the US, kept the FPI flows in Indian debt markets volatile
during the month.
While the spread between the Indian 10 year G-secs and the US 10 year Treasury bond continues to be attractive at ~486 bps as of 28 February
2018; with higher yields and the strengthening of the US economy, US bonds have become relatively attractive.
Recent exchange rate volatility also could have contributed to FPIs selling Indian bonds in February 2018.
Source: NSDL Source: Bloomberg Source: Bloomberg
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35
Growth-Inflation Dynamics point to higher interest rates…
The Q3FY18 GDP numbers improved significantly indicating businesses are finally stabilising post GST implementation.
The Q3FY18 GDP growth rate came in at 7.2% YoY compared with 6.5% YoY in the previous quarter.
The RBI’s Monetary Policy Committee (MPC)also has shown increased confidence in economic growth pickup.
While economic growth recovery taking strong roots; inflation too has been on the rising trend.
Current Growth-Inflation dynamics seems to have left no room for the RBI to be accommodative.
Source: Bloomberg
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36
Fiscal slippage may pose challenge to Inflation targeting by RBI…
RBI has been highlighting its focus on fiscal deficit, as fiscal expansion can have inflationary implications on the economy.
In the Sixth bimonthly monetary policy the RBI had highlighted the need to monitor certain variables from the perspective of inflation, which included:-
rising input cost conditions, pointing towards higher risk of pass-through to inflation
implication of fiscal slippage on inflation
global monetary policy normalization in Advanced Economies
fiscal expansion in the US carrying risks for inflation amongst others.
Source:- indiabudget.gov.in *Projected
Source: Union Budget
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37
• G-sec yields rose sharply during the month tracking important events domestically as well as globally.
• Yield on the benchmark 10 year G-sec closed the month at 7.73% compared to 7.43% as of the previous month.
• Domestically, Union Budget for FY18-19, RBI’s sixth bi-monthly monetary policy and better than expected GDP growth data for Q3FY18 led to the rise in G-sec yields.
• Globally, rise in US treasury yields due to increase in expectations of faster interest rate hikes and rise in crude oil prices put pressure on domestic G-sec yields.
Source: Bloomberg
G-sec yields rise sharply in February 2018…
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38
Yield curve continues to remain steep... …yields rise across the curve
• The G-sec yield curve witnessed a parallel shift wherein yields rose in the range of 3-34 bps across the curve on a month on month basis.
• Yields rose further tracking the US Bond Market and release of RBI’s MPC Minutes.
• As on 28th February 2018 Spread between the 1 year and the 5 years G-sec widened to 76 bps compared to 65 bps as of 31st January 2018.
• Spread between 1 year and the 30 years G-secs also widened to 124 bps from 104.
• The liquidity surge that Indian banks experienced over the past one year or so, has gradually moved out of the banking system.
• Rise in currency circulation and pick up in credit demand without commensurate rise in deposits has led the short term rates to rise.
• Seasonal tightness in liquidity due to financial year end, has also contributed to the seasonal rise in short term rates.
Source: Reuters.in Source: Bloomberg
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39
Key Risks and Variables to watch out for…
While the push given to the rural economy and farmers in the Union Budget for FY19, is likely to be inflationary in
nature, monsoons are also likely to play a very important role. While a good monsoon is a key to lower or contained
food prices, it can also further boost rural economy and vice versa. Thus early forecasts on monsoon are likely to be
keenly watched.
While the system liquidity conditions are currently comfortable, improvement in economic growth as well as credit
growth can put pressure on liquidity.
RBI’s neutral liquidity stance has kept the hopes for Open Market Operations (OMO) purchases alive. Given the current
liquidity scenario, any announcement of MOM purchases by the RBI is likely to be positive for bond yields. That being
said the quantum and more importantly the choice of duration of the G-secs in the OMOs will be important.
Stretched fiscal deficit can put pressure on already rising inflation which can lead the RBI to continue with its cautious
stance on monetary policy.
Commodity prices have been on an uptrend, if the trend continues, then that could jeopardise the RBI’s target of
maintaining CPI inflation in the 4% (+-2%) range.
Impact of likely improvement in banks’ lending abilities on G-sec demand-supply dynamics remains to be an important
variable to watch out.
Most of the developed nations have started off with the normalisation of their respective loose monetary policies. Global
bond yields have taken direction following the monetary policies of the developed nations; which in turn can also lead to
volatility in domestic bond yields.
Any global and domestic geo-political tensions may lead to volatility in global as well as domestic capital markets.
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40
With the recent MPC meeting minutes, it is now clear that there is no scope for monetary policy accommodation in the near term. While the RBI is expected to be in
a pause mode for the time being, given that the growth recovery needs to be nurtured; pace of improvement in high frequency macroeconomic data points will
determine whether the RBI moves sooner or later, towards monetary policy tightening.
Domestic inflation has been on an uptrend post bottoming out in June 2017. Several factors (as mentioned in previous slides) are working in tandem which are
resulting the inflation to continue on its upward trajectory. Inflation is expected to continue to rise in the medium term as global as well domestic growth recovery
continues.
There are certain mitigating factors to increase in inflation which can be in the form of good monsoons which may limit the rise in overall inflation by easing food
inflation, wearing off of the increased HRA impact, government’s supply management amongst others. In the absence of any of these factors inflation woes can
accentuate.
As advanced economies are on a monetary tightening mode due to better growth prospects and inflation coming back, their bonds yields are also rising. This is likely
to continue till the advanced economies return to their full growth potential and inflation targets achieved. Rise in yields in advanced economies leads to rise in global
yields. Thus, aiding the upward movement in Indian bond yields as well.
Domestic liquidity conditions are now normalising and returning to the pre-demonetisation period. While several factors like economic growth pick up, credit growth
pickup, elections, are likely to pressure on system liquidity; RBI’s neutral liquidity stance are is likely to keep liquidity in the neutral zone.
Domestic macro economic variables like Inflation, CAD, currency exchange rate, Fiscal deficit amongst others, that looked comfortable a few months, need to be
watched very carefully. Any signs of stress on macro variables can be negative for bond yields.
As we move into the new financial year, the bond markets are going to be hit by supply of G-secs. Even with lower supply of G-secs recently, the bond yields have
surged sharply. With demand of G-secs from Banks likely to be limited, the demand supply dynamics could come under pressure leading to further rise in yields.
However, that is likely to open scope for raising the FPI investments limits in Indian bonds by the RBI and the government.
Thus, overall the domestic bond yields are expected to remain volatile across the yield curve. With that being said the recent rise in the short term yields has made
investing at this segment of the yields curve relatively more attractive. Also, passively managed portfolio strategies that look at locking in current high yields at the
shorter end of the yields curve are expected to be beneficial at the current juncture.
Investments into Short Term Funds can be considered with an investment horizon of 12 months and above.
Investors looking to lock in current yields, can invest in Fixed Maturity Plans (FMPs).
Investments into Medium Term Funds can be considered by Moderate and Conservative investors with an investment horizon of 15 months and above.
Income/Duration Funds can be considered by Aggressive investors for a horizon of 24 months and above; though currently preference should be given to
dynamically managed funds.
Investors looking to invest into high accrual portfolio can consider investing into HDFC Corporate Debt Opportunities Fund and HDFC Regular Savings Fund
(erstwhile HDFC Short Term Plan).
Investors looking to invest with a horizon of up to 3 months can consider Liquid Funds, while Arbitrage Funds can be considered for a horizon of 3 months and
above.
Fixed Income Outlook
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41 41
We recommend investors to rebalance/realign the portfolios according to the recommended asset allocation
On Equity Funds:
Union Budget delivered on the expectations of spending on Key sectors but fiscal slippage and reintroduction of Long term capital gains
were key negatives.
Focus on infra spending by the government, improved urban consumption, rebounding exports and better farm income has the potential to
shore up the economy in the medium term. We expect the economic growth to pickup on the back of government capex, better external
demand, and favorable demographics.
Rising trend in Oil prices, commodity prices and expectation of higher foods prices could have negative impact on inflation and interest
rates which may further cause volatility in the equity markets. Protectionist measures by the US may lead to similar actions by other trading
partners and can be negative from market’s perspective.
On the positive side, the Q3FY18 results of the companies is showing emerging trend of improving corporate performance.
Despite the recent volatility, the overall equity market valuations remains high , from an Equity Mutual Fund perspective, investors should
look at Large cap Funds, Balanced Funds and Equity Savings Fund for fresh investments.
The Equity investment strategy, continues to remain at 50% Lumpsum and rest 50% staggered over the next 3-4 months.
On Fixed Income:
Investments into Short Term Funds can be considered with an investment horizon of 12 months and above.
Investors looking to lock in current yields, can invest in Fixed Maturity Plans (FMPs).
Investments into Medium Term Funds can be considered by Moderate and Conservative investors with an investment horizon of 15 months
and above.
Income/Duration Funds can be considered by Aggressive investors for a horizon of 24 months and above; though currently preference
should be given to dynamically managed funds.
Investors looking to invest into high accrual portfolio can consider investing into HDFC Corporate Debt Opportunities Fund and HDFC
Regular Savings Fund (erstwhile HDFC Short Term Plan).
Investors looking to invest with a horizon of up to 3 months can consider Liquid Funds, while Arbitrage Funds can be considered for a
horizon of 3 months and above.
Investment Strategy
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42
Equity Mutual Funds
Largecap Funds
1. Axis Focused 25 Fund - The fund is a large cap bias equity fund that maintains a concentrated portfolio of 25 high conviction stocks and mainly invests in top 200 companies by market capitalization.
2. Kotak Select Focus Fund - An actively managed fund investing across select sectors with large cap bias
3. IDFC Classic Equity Fund - An actively managed large cap bias fund with some allocation to small/mid cap stocks
4. SBI Bluechip Fund - A conservative fund predominantly investing into large cap stocks
5. Franklin India Prima Plus Fund - A conservative large cap fund with some allocation to small/mid cap stocks
6. Aditya Birla Sun Life Frontline Equity Fund - A conservative large cap fund that invests across sectors in line with sectoral weight in Benchmark Index
Balanced Funds
1. DSP BlackRock Balanced Fund – An aggressive balanced fund
2. Aditya Birla Sun Life Balanced 95 Fund – An aggressive balanced fund
3. L&T India Prudence Fund - A conservative balanced fund
4. HDFC Balanced Fund – A conservative balanced fund
5. Reliance RSF – Balanced – A conservative balanced fund
Equity Savings Funds
1. HDFC Equity Savings Fund – The un-hedged equity exposure of the fund is capped at 40% of the portfolio with flexibility to invest across market capitalisation
2. Kotak Equity Savings Fund - The un-hedged equity exposure is maintained upto 25% of the portfolio
3. Aditya Birla Sun Life Equity Savings Fund – The un-hedged equity exposure is maintained in range of 20% to 45% of the portfolio
______________________________________________________________________
43
Top Sectoral Allocation of Large Cap Funds Compared to Nifty 50 Index Sectoral Benchmark Indices Performance
Portfolio as of 31 January 2018. Returns (%) as on 28 February 2018. Returns are Absolute for < = 1year and Compounded Annualized for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Over the last 3 months, the Indian equity markets closed on a positive note. The benchmark index - S&P BSE Sensex moved up by 1.68% whereas, the S&P BSE
Realty, S&P BSE Capital Goods, S&P BSE Metal and S&P BSE IT indices delivered returns of 2.75%, 3.16%, 7.35% and 15.24% respectively during the same
period, outperforming the benchmark index.
Equity Benchmark – Over the last 1 year, Indian equity markets delivered positive returns amidst volatility with S&P BSE Sensex index rising by 18.93%
Over the last 1 year, Realty, Metals, Capital Goods, Banking, IT and FMCG sectors’ indices have outperformed the S&P BSE Sensex index, whereas, Auto, Oil & Gas
and Health Care sectors’ indices have underperformed the S&P BSE Sensex index. Amongst the sectoral indices (mentioned in above table), S&P BSE Realty index
was major gainer, up by 65.10% during the period.
Most of the large cap equity funds continue to have Banking & Finance, Auto & Auto Ancillaries, FMCG and Oil & Gas as top sectoral exposure. All the funds
(mentioned above) are overweight on FMCG sector as compared to Nifty 50 index. Except Aditya Birla Sun Life Frontline Equity Fund, all the other funds (mentioned
above) are overweight on Auto & Auto Ancillaries sector as compared to Nifty 50 index. Kotak Select Focus Fund and IDFC Classic Equity Fund are overweight on Oil
& Gas sector whereas, all the other funds (mentioned above) are underweight on it as compared to Nifty 50 index.
Sectoral Indices Performance
Indices 3 Mths 6 Mths 1 Yr 2 Yrs 3 Yrs 5 Yrs
S&P BSE IT 15.24 23.24 20.52 9.36 1.47 13.10
S&P BSE HC 0.55 6.14 -8.27 -3.54 -3.80 12.55
S&P BSE FMCG 1.53 3.71 19.39 21.49 8.51 13.12
S&P BSE Bankex -3.32 2.77 20.57 34.37 7.84 16.47
S&P BSE CG 3.16 10.24 24.41 28.85 2.37 15.73
S&P BSE AUTO -2.28 5.05 15.57 24.38 7.50 18.87
S&P BSE METAL 7.35 15.88 27.59 49.72 12.80 10.84
S&P BSE Oil & Gas -3.39 3.95 14.57 36.20 16.97 12.38
S&P BSE Realty 2.75 17.71 65.10 53.21 10.64 4.19
S&P BSE Sensex 1.68 7.66 18.93 21.41 5.20 12.62
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44
Top 10 Stocks Allocation (%) of Large Cap Funds Compared to Nifty 50
Portfolio as of 31 January 2018. Source: Nifty 50 Index - www.nseindia.com
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Amongst the above funds, Franklin India Prima Plus Fund, Aditya Birla Sun Life Frontline Equity Fund and SBI Bluechip Fund have higher
allocation to top Banking stocks. It can be seen that amongst the top stock allocation, other funds are also holding higher allocation to
Banking sector stocks.
Aditya Birla Sun Life Frontline Equity Fund is a well diversified fund across top ten Nifty 50 index stocks. Aditya Birla Sun Life Frontline
Equity Fund is underweight on TCS Ltd whereas, all the other funds (mentioned above) have no exposure to TCS Ltd.
Kotak Select Focus Fund has no exposure to Kotak Mahindra Bank Ltd while, funds like IDFC Classic Equity Fund, Franklin India Prima
Plus Fund, SBI Bluechip Fund and Aditya Birla Sun Life Frontline Equity Fund are underweight on it as compared to Nifty 50 index.
All the above funds are underweight on Reliance Industries Ltd, HDFC Ltd, ITC Ltd, Infosys Ltd, TCS Ltd and Kotak Mahindra Bank Ltd as
compared to Nifty 50 index.
Stocks Kotak Select
Focus Fund
Franklin
India Prima
Plus Fund
IDFC
Classic
Equity Fund
Aditya Birla
Sun Life
Frontline
Equity Fund
SBI
Bluechip
Fund
Nifty 50
Index
HDFC Bank Ltd. 7.2 9.6 5.3 7.5 8.7 9.6
Reliance Industries Ltd. 5.4 0.0 2.4 1.6 1.6 7.8
Housing Development Finance Corporation Ltd. 4.4 0.0 2.1 2.5 1.8 7.3
ITC Ltd. 3.0 0.0 2.4 4.3 3.3 5.4
Infosys Ltd. 1.7 4.8 2.8 4.1 1.5 5.4
ICICI Bank Ltd. 4.7 4.6 2.8 6.1 2.2 5.3
Larsen & Toubro Ltd. 5.6 4.3 3.2 2.9 5.1 4.1
Tata Consultancy Services Ltd. 0.0 0.0 0.0 0.2 0.0 3.6
Kotak Mahindra Bank Ltd. 0.0 3.1 2.3 1.8 2.5 3.5
Maruti Suzuki India Ltd. 3.2 0.0 0.0 2.6 2.0 3.0
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45
Tax Planning - ELSS Funds
Returns (%) as on 28 February 2018. Returns are Absolute for < = 1yr and CAGR for > 1
Yr. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online
Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Name of Scheme 1 yr 3 yr 5 Yrs
Tata India Tax Savings Fund - Reg - Dividend 24.22 13.38 21.51
IDFC Tax Advantage (ELSS) Fund - Reg - Growth 33.38 14.07 22.38
Aditya Birla Sun Life Tax Relief 96 - Growth 27.81 12.37 22.92
L&T Tax Advantage Fund - Reg - Growth 25.74 13.89 20.43
DSP BlackRock Tax Saver Fund - Growth 17.36 12.50 21.03
Axis Long Term Equity Fund - Growth 24.92 10.09 23.87
Kotak Taxsaver - Reg - Growth 13.72 8.74 17.00
Franklin India Taxshield - Growth 13.92 8.74 18.58
Objective Long-term Capital Appreciation & Tax Planning
Risk Medium to High
Investment Portfolio Equity & Equity Related instruments – Generally Large & Midcap stocks
Investment horizon Long Term ( Lock in period of 3 years) Tax Deduction- Sec 80 C * Investment up to Rs.1.50 Lakh Exempt from Tax
Tax Implications Long Term Capital Gains Tax
Particulars PPF** NSC** ELSS
Lock-in period - Years 15 5 3
Minimum Investment (Rs) 500 100 500
Max Investment for Tax Benefit (Rs) 1,50,000
Risk Low Risk Low Risk Medium to High
Returns 7.60% ^ 7.60% ^ 17% - 24% #
Interest Income / Dividend Tax Free Taxable Taxable
#Returns (%) are historical for last 5 years (CAGR) as on 28 February 2018. Moreover,
past returns cannot be taken as an indicator of future performance. ^Source:
http://indiapost.gov.in, Rates incorporates compounding wherever applicable. *As per
current income tax rates individual falling in highest tax bracket. Note:** Rates for PPF and
NSC are applicable from 1st January 2018.
Comparison of ELSS V/S other tax savings instrument
As per Sec 80C of the Income Tax Act, qualifying investments up to a
maximum of Rs 1.50 Lakh are deductible from total income of the
individual.
Investment of Rs 1.50 Lakh in the qualifying investments, can save tax
upto Rs 53,820* (Rs 1.5 Lakhs X 35.88%@ tax + surcharge + cess^^) as
per the income tax slab & rate for FY 19.
There are fixed income options also available under section 80C.
ELSS helps in tax planning as well as provides scope to benefit from
the long term growth potential of equities. @ Taxation has been taken for individual with annual income of Rs.1.00 crore and above (30%+15%+4%).
^^ effective from 1 April 2018
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46
Invest in Balanced Funds for diversification
Scheme Name YTM (%)*
Average*
Maturity
(years)
Modified*
Duration
(years)
1 Y % 3 Y % 5 Y %
ICICI Prudential Balanced – Growth 7.64 3.28 2.35 14.53 11.05 18.59
DSP BlackRock Balanced Fund - Growth 8.25 3.37 2.58 14.00 10.62 16.56
Aditya Birla Sun Life Balanced 95 – Growth 7.63 6.92 3.95 13.47 9.45 17.38
HDFC Prudence Fund - Growth 8.36 5.37 3.50 14.76 9.83 17.55
L&T India Prudence Fund - Reg - Growth 7.80 4.59 3.24 16.01 10.45 18.95
SBI Magnum Balanced Fund - Growth 7.82 6.89 4.58 17.41 9.53 17.58
HDFC Balanced Fund - Growth 7.53 5.36 3.41 17.34 11.22 19.50
Reliance RSF - Balanced - Growth 9.19 4.18 2.92 18.05 11.14 17.63
CRISIL Hybrid 35+65 - Aggressive Index -- -- -- 14.71 8.84 13.72
The Balanced funds are hybrid funds. The primary investment objective is to invest in equities which broadly remains in the range of 65% to 75%, while the
balance is invested in debt securities.
During the bull run, the funds might underperform the pure equity diversified funds as these funds tend to have some exposure into debt instruments. The
funds maintain a balance between equity and debt investment and thereby help in reducing the overall risk of the portfolio as compared to equity funds.
In general, the equity investment strategy can be an active management strategy across market capitalization. The debt investment strategy can be across
fixed income securities including G-secs. Certain funds dynamically manage the equity and debt exposure. The debt portfolio helps the funds during the fall in
equity market and reduces the overall beta of the portfolio. Also, the bond portfolio is expected to generate capital gains in a falling interest rate scenario.
The recommended balanced funds have outperformed Nifty 50 index and CRISIL Hybrid 35+65 - Aggressive Index over the last 3 and 5 years period. The
recommended balanced funds on an average have delivered about 10% returns over the past 3 years, whereas Nifty 50 index and CRISIL Hybrid 35+65 -
Aggressive Index have delivered average returns close to 6% and 9% respectively during the same period.
Balanced funds are subject to equity taxation.
*Portfolio as of 31 January 2018. Returns (%) as on 28 February 2018. Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
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47
Arbitrage Funds: Introduction and Advantages
Buying the securities in one market and selling the same in another market simultaneously to take advantage of
a temporary price differential is called arbitrage.
E.g. Assume stock price of ABC Ltd is at Rs.190/‐ in the cash
market. This stock is also traded in the derivatives segment,
where its future price is Rs.197/‐ In such a case, one can
make a risk‐free profit by selling a futures contract of ABC Ltd
at Rs.197/‐ and simultaneously buy an equivalent number of
shares in the equity market at Rs190/-.
On settlement day, it wouldn’t matter which direction the stock
price has taken in the interim. Because on the expiry day
(settlement date) the price of equity shares and their futures
tend to converge.
The cash market price converges with the futures price at the end of the month.
Note: The above simulation is for illustration purposes only and should not be constructed as a promise or minimum returns or safeguard of capital.
Source: HDFC Mutual Fund
Advantages:
Generate income through arbitrage opportunities arising out
of pricing mismatch in a security between different markets
or as a result of special situations.
Completely hedged positions, neutralizes market risk
(volatility) and targets absolute returns irrespective of market
conditions.
Enhance portfolio returns using different trading strategies
within derivatives segment.
Balance of safety, returns and liquidity
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48
Equity Savings Fund - Positioned Between MIP & Balance Fund
Key Advantages of Equity Savings Fund:
Introduction:
The Equity Savings funds endeavors to provide moderate volatility and regular income through investment into arbitrage
opportunities and fixed income securities. At the same time, to provide a higher growth potential as compared to an arbitrage
fund or a debt fund, the fund also invests some exposure into equity stocks. Thus, the equity exposure including equity
arbitrage allocation would be more than 65%, hence equity taxation would be applicable.
However, with higher equity allocation, the volatility of these funds are higher as compared to MIP or pure debt
funds.
Tactical Equity Allocation: Potential capital
appreciation through tactical allocation in Equity
Market
Aims at Regular Income: Regular income through
investments in Fixed Income and Arbitrage
Opportunities
Tax Advantage: The Equity Savings fund are
applicable for equity taxation even with moderate
participation in pure equity.
Diversification: The Equity Savings fund have well
diversified portfolio by investing in different asset
classes like Equities, Equity Arbitrage Opportunities,
and Fixed income.
Equity Savings Fund
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49
Recommended Equity Mutual Funds – Performance
Theme Scheme Name 1M 3M 6M 1Y 2Y 3Y
Large Cap, Aggressive Axis Focused 25 Fund - Growth -4.21 0.27 5.64 26.12 30.09 12.10
Large Cap, Aggressive Kotak Select Focus Fund - Reg - Growth -4.09 -1.09 3.37 17.82 27.59 11.66
Large Cap, Conservative SBI Bluechip Fund - Growth -3.68 -0.48 4.00 17.20 22.16 10.12
Large Cap, Conservative IDFC Classic Equity Fund - Reg - Growth -5.08 -0.73 6.06 21.21 29.26 11.95
Large Cap, Conservative Aditya Birla Sun Life Frontline Equity Fund - Reg - Growth -4.94 -0.76 2.57 15.96 23.60 8.67
Flexi Cap, Aggressive Motilal Oswal MOSt Focused Multicap 35 Fund - Reg - Growth -2.60 0.19 2.37 21.71 31.06 16.60
Flexi Cap, Aggressive DSP BlackRock Opportunities Fund - Reg - Growth -5.51 -2.87 4.90 18.94 30.74 13.72
Flexi Cap, Aggressive Aditya Birla Sun Life Equity Fund - Growth -4.18 -0.50 3.31 17.15 30.75 12.78
Flexi Cap, Aggressive Franklin India High Growth Companies Fund - Growth -6.35 -3.76 6.54 16.02 26.66 9.52
Flexi Cap, Conservative SBI Magnum Multi Cap Fund - Growth -4.21 -0.54 6.22 19.94 27.54 13.56
Flexi Cap, Conservative Tata Equity P/E Fund - Reg - Growth -3.11 0.69 7.49 23.78 37.56 14.68
Flexi Cap, Conservative HDFC Capital Builder Fund - Growth -5.14 -0.45 11.49 25.51 31.52 12.99
Flexi Cap, Conservative IDFC Classic Equity Fund - Reg - Growth -5.08 -0.73 6.06 21.21 29.26 11.95
Flexi Cap, Conservative Kotak Opportunities Fund - Reg - Growth -4.45 -1.90 3.01 17.51 27.75 11.10
Mid Cap, Aggressive L&T Midcap Fund - Reg - Growth -4.73 -1.16 8.05 29.33 38.53 18.90
Infra Sector, Aggressive L&T Infrastructure Fund - Reg - Growth -4.96 -1.09 12.44 32.75 42.91 17.38
Aggressive Balanced Fund DSP BlackRock Balanced Fund - Growth -3.61 -1.41 3.57 14.00 22.05 10.62
Aggressive Balanced Fund Aditya Birla Sun Life Balanced 95 - Growth -3.29 -1.71 2.28 13.47 21.34 9.45
Conservative Balanced Fund HDFC Balanced Fund - Growth -3.60 -0.07 4.83 17.34 24.10 11.22
Conservative Balanced Fund Reliance RSF - Balanced - Growth -3.35 -0.08 4.62 18.05 22.90 11.14
Equity Savings Fund HDFC Equity Savings Fund - Growth -1.92 -0.01 3.00 9.83 18.27 10.23
Equity Savings Fund Kotak Equity Savings Fund - Reg - Growth -0.83 1.07 3.44 10.81 11.54 7.97
Nifty 50 -4.75 1.18 5.85 18.17 22.08 5.63
Nifty Free Float Midcap 100 -7.61 -2.16 8.29 19.32 30.53 14.44
S&P BSE 200 -4.90 0.25 6.13 18.99 24.48 7.70
Nifty Infrastructure -5.03 -2.03 3.55 15.16 22.27 1.44
CRISIL Hybrid 35+65 - Aggressive Index -3.74 -0.17 3.83 14.71 19.82 8.84
Returns (%) as on 28 February 2018. Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
______________________________________________________________________
50
Fixed Income Options
______________________________________________________________________
51
Performance of recommended Income Funds
Returns (%) as on 28 February 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio as of 31 January 2018.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Scheme Name AAA &
Equivalent
Avg.
Maturity
(Yrs)
Portfolio
Yield (%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years 3 Years
Aggressive Funds
ICICI Prudential LTP - Growth 86.53% 4.54 7.63 -0.28 -0.66 6.15 11.71 8.20
SBI Dynamic Bond Fund - Growth 100.00% 7.68 7.22 -2.00 -2.15 2.80 9.06 6.87
Reliance Dynamic Bond Fund - Growth 100.00% 7.74 7.77 -2.27 -2.59 2.77 8.23 6.10
UTI Bond Fund - Growth 87.01% 6.21 8.01 -1.94 -2.17 3.13 8.66 6.64
Aditya Birla Sun Life Income Plus - Reg - Growth 100.00% 7.50 7.62 -2.25 -2.74 3.13 8.71 5.73
IDFC SSIF - Invt Plan - Reg - Growth 100.00% 7.18 7.75 -2.04 -2.78 2.07 7.48 5.94
Conservative Funds
Sundaram Flexible Fund - Flexible Income - Reg - Growth 100.00% 5.04 7.88 -0.96 -0.26 4.90 8.43 7.52
ICICI Prudential Dynamic Bond Fund - Reg - Growth 92.80% 6.25 7.87 -1.33 -1.53 4.46 8.87 7.44
ICICI Prudential Income Opportunities Fund - Growth 97.74% 4.56 7.77 -0.64 -0.34 4.75 8.24 7.29
UTI Dynamic Bond Fund - Reg - Growth 88.88% 5.37 8.00 -1.42 -1.46 3.88 9.58 7.60
Tata Dynamic Bond Fund - Reg - Growth 100.00% 6.84 7.01 -0.95 -1.03 3.66 7.90 6.57
BNP Paribas Flexi Debt Fund - Growth 90.97% 4.12 7.10 -1.14 -1.19 4.09 8.49 6.73
Crisil Short Term Bond Fund Index -- -- -- 0.41 1.52 5.67 7.75 7.77
Crisil Composite Bond Fund Index -- -- -- -1.41 -1.20 4.25 8.26 7.59
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52
Performance of recommended Short Term Funds
Returns (%) as on 28 February 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio as of 31 January 2018.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Scheme Name AAA or
Equivalent
Avg.
Maturity
(Yrs)
Portfolio
Yield (%)
Returns (%)
3 Mths 6 Mths 1 Year 2 Years 3 Years
Aggressive Funds
HDFC Medium Term Opportunities Fund - Growth 100.00% 2.66 7.87 0.33 1.40 5.90 8.56 8.14
Sundaram Banking & PSU Debt Fund - Reg - Growth 100.00% 2.94 7.65 0.05 1.04 5.60 6.67 7.19
Aditya Birla Sun Life Treasury Optimizer Plan - Reg - Growth 90.20% 2.50 7.80 0.28 1.16 6.11 9.09 8.21
Reliance Banking & PSU Debt Fund - Reg - Growth 100.00% 2.65 7.55 0.19 1.13 5.72 7.87 --
ICICI Prudential Banking & PSU Debt Fund - Reg - Growth 85.79% 2.94 7.90 0.30 0.82 6.03 9.46 8.50
Kotak Flexi Debt Scheme - Reg - Growth 73.73% 4.83 8.23 -0.08 0.50 5.73 9.54 8.21
ICICI Prudential STP - Growth 91.68% 2.17 7.76 0.39 1.14 5.80 8.77 7.95
HDFC Regular Savings Fund - Growth 33.16% 1.80 8.61 0.68 1.77 5.74 8.14 8.28
Conservative Funds
HDFC Short Term Opportunities Fund - Growth 92.59% 1.49 7.79 0.85 2.15 6.06 7.91 7.86
Aditya Birla Sun Life Short Term Fund - Reg - Growth 80.96% 2.00 7.88 0.61 1.77 6.16 8.24 8.15
Axis Short Term Fund - Growth 88.33% 2.20 7.88 0.51 1.57 5.42 7.85 7.53
IDFC SSIF - Short Term - Reg - Growth 99.40% 2.10 7.85 0.48 1.50 5.34 7.36 7.26
UTI Short Term Income Fund - IP - Growth 83.87% 1.92 8.06 0.51 1.56 5.65 8.04 7.77
SBI Short Term Debt Fund - Growth 92.95% 2.15 7.77 0.48 1.42 5.42 7.81 7.55
Crisil Short Term Bond Fund Index -- -- -- 0.41 1.52 5.67 7.75 7.77
Crisil Composite Bond Fund Index -- -- -- -1.41 -1.20 4.25 8.26 7.59
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53
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