monthly brst communique brstbrstbrs brstbrstbrst · last 12 months equity inflows of s at $15bn are...

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STBRSTJuly 2015

1Portfolio Management Services | Regn No. PMS INP 000000670

CommuniqueMONTHLY

CommuniqueMONTHLY

Dear Investors and My Dear Advisor Friends,

As you might have seen in various media reports, Indian investors' allocation into equity markets over the last

year or so has been higher than cumulative investment over the last 12 years. For the first time in my experience,

I have seen research reports stating that in June 2015, FII outflows were USD 981 mn but the markets held

steady because FII outflow was

more than counter balanced by

domestic inflows from Mutual

Funds and Insurance Companies to

the tune of USD 1.88 bn of which

USD 1.4 bn was from Mutual Funds

alone. (Source: Deutsche Bank India

Equity Strategy dated July 3, 2015)

Last 12 months equity inflows of s at $15bn are equal to the cumulative

s equity inflows of the previous 10 years

MF

MF

Cumulative MF inflows in equity during Sep’04-Jun’14 = Rs. 950bn

(the same amount s received in last 12 months)MF150

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Net equity flows in s (Rs. bn)MF

Rs. 950

bn

Source:AMFI

In the past, I have expressed concerns that Indians don't own enough

of India and its growth because bulk of Indian companies is owned by

promoters and foreigners. I hope this trend continues and I would

hazard a few reasons below as to why I believe this trend will indeed

continue for some time to come:

1. From a long term trend perspective, it is worth understanding

that habits change with generations. Till late 90s and early

2000s, the Indian markets had a very high level of fixed income rates. RBI used to issue GoI Relief Bonds at 12% in late 90s and the rates started

to decline only in mid 2000s. Just imagine, GoI issuing bonds at 12% risk free and tax free and that's not too far back. Till recently most

favoured public sectors banks like the SBI used to pay between 9 and 11% on their fixed deposits. With this kind of rate structure running till

very recently, it is worth noting we have huge populace of moneyed investors who are just about getting accustomed to a variable rate market

linked environment while they have seen 10-12% being generated risk free not too far back It is now that we are all likely to get used to the

idea that “there is no return without risk” (source: Reserve Bank of India)

2. Off late there are abundant indications that other competing asset classes like Gold, Equities and Commodities are not showing any price

movement. Real estate prices are stagnating or showing

marginal downtrend while gold prices have been correcting over

the last couple of years. This trend can be seen in the chart below

which shows that demand for gold as reflected in gold imports

has fallen 50% over two years. Equity as an asset class is showing

up favourably on all comparison charts which was not the case

until recently.

3. Lower interest rates are here to stay and we don't envisage

sovereign linked products to give high returns in the near future.

Recent decision of EPFO to start allocating funds to equities is

ample testimony to this trend.

4. Cyclically, India is moving from a period of economic slowdown

into a period with better growth prospects and for some time to

come equity may show good returns which will encourage more

equity flows on the back of good returns on past investments.

Figure 14: Net gold import has fallen considerably from its peak in FY12

(US$ bn) Net Gold Imports

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3 2 2 31

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36

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Source: RBI, IIFL Research

(Continued overleaf)

The moot question is that with so much money being allocated and more likely to be allocated to equity what process of investing does the

investor follow? I have very few opportunities to meet investors but I do meet distributors and advisors on daily basis. The first process to be

followed is to identify the right intermediary to guide you in the process of investing and in selecting the right funds. The intermediary will be

crucial to ensuring that you identify the right funds and for right reasons. Talking of reasons, the most significant trend that I have picked up from

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Buy Right Stock Characteristics

‘Q’uality

‘G’rowth

‘L’ongevity

‘P’rice

denotes quality of the business and

management

denotes growth in earnings and sustained RoE

denotes longevity of the competitive

advantage or economic moat of the business

denotes our approach of buying a good business

for a fair price rather than buying a fair business for a

good price

QGLP

Sit Tight Approach

Buy and Hold:

Focus:

We are strictly buy and hold investors and

believe that picking the right business needs skill and

holding onto these businesses to enable our investors to

benefit from the entire growth cycle needs even more

skill.

Our portfolios are high conviction portfolios with

20 to 25 stocks being our ideal number. We believe in

adequate diversification but over-diversification results

in diluting returns for our investors and adding market

risk

intermediaries is high returns over the recent most 1 year and 3 years periods. This is intuitively how we buy any product based on its track

record or past performance. Mutual Funds have a few more nuances than just checking past performance. It is widely publicized that “Past

performance is not an indicator of future” – which means one may still buy a fund with good past performance but one must never extrapolate it

into the future or assume that similar performance will be repeated in future. So how does one figure out whether past performance is likely to

be repeated or sustained?

Its an interesting trend nowadays whereby we are teaching consumers what's the right question to ask. I recently saw an online retailer teaching

consumers the value of asking “aur dikhao”. And I am sure you have seen India's highest selling four wheeler nudging consumers to ask “kitna

degi”. So what's the right question to ask when someone shows you or talks to you about performance of mutual funds and you are wondering,

well, this is past, I am impressed but will this be repeated in future? The question to ask when someone shows past performance is “kaise aaya?”

If the performance being shown to you is an outcome of some process being followed then one knows that yes it can be sustained or there is

likelihood of getting same outputs. What's the definition of the word process? Businessdictionary.com says process is defined as “sequence of

interdependent and linked procedures which, at every stage, consume one or more resources (employee time, energy, machines, money) to

convert inputs (data, material, parts, etc.) into outputs.” It means that for same output to be generated, the same inputs need to be provided in

the same sequence of interdependent or linked procedures.

At Motilal Oswal AMC, we have always believed that performance is an output or an end product and considering we are operating in equity

markets, the output cannot be controlled. What we can control is the quality of inputs and meticulous following of the same set of

interdependent procedures for the inputs to be provided.

This is manifested in the chart below. We believe in buying right (Q-G-L-P companies) and sitting tight (concentrated portfolios; buy and hold).

Read more about this at:

and

So the next time you discuss performance please ask “kaisa aaya”? The question is important and more importantly you need someone to

answer it for you – and that's where your advisor has a big role to play.

Happy Investing,

Managing Director & CEO

Aashish P Somaiyaa

www.motilaloswalmf.com/knowledge-centre/buy-right-sit-tight www.motilaloswalmf.com/knowledge-centre/qglp


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Value Strategy

The Strategy aims to benefit from the long term

compounding effect on investments done in good

businesses, run by great business managers for

superior wealth creation.

Strategy Objective


Investment Strategy

• Value based stock selection

• Investment Approach: Buy & Hold

• Investments with Long term perspective

• Maximize post tax return due to Low Churn

Details

Fund Manager : Manish Sonthalia

Strategy Type : Open ended

Date of Inception : 24th March 2003

Benchmark : CNX Nifty

Investment Horizon : 3 Years +

Subscription : Daily

Redemption : Daily

Valuation Point : Daily

The Above strategy returns are of a Model Client. Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows in the strategy. The Above returns are

calculated on NAV basis and are based on the closing market prices as on . Past performance may or may not be sustained in future. Returns above 1 year are annualized. Please refer to

the disclosure document for further information.

30th June 2015

Top Sectors

Sector Allocation % Allocation*

*Above 5% & Cash

Auto & Auto Ancillaries

Banking & Finance

Pharmaceuticals

Infotech

Engineering & Electricals

FMCG

Alcoholic Beverages and Distilleries

Cash

36.02

24.06

10.80

6.26

5.88

5.49

5.22

6.27

Data as on 30th June 2015

Top Holdings

Particulars % Allocation*

*Above 5%

Eicher Motors Ltd.

Sun Pharmaceuticals Ltd.

HDFC Bank Ltd.

Bosch Ltd.

Housing Development Finance Corporation Ltd.

State Bank of India

Tata Consultancy Services Ltd.

Larsen & Toubro Ltd.

Asian Paints Ltd.

United Spirits Ltd.

18.23

10.80

9.68

8.98

7.94

6.44

6.26

5.88

5.49

5.22


Key Portfolio Analysis

Standard Deviation (%)

Beta

24.06

1.00

Performance Data CNX NiftyValue Strategy

21.51

0.81


Value Strategy CNX Nifty All Figures in %

Period

% o

f re

turn

s


32.34

34.69

22.64

16.6 15.61

19.72

28.06

9.95

19.68

16.6

10.439.51

14.19

18.79

0

5

10

15

20

25

30

35

40

1 Year 2 Year 3 Year 4 Year 5 Year 10 Year Since Inception*


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Next Trillion Dollar Opportunity Strategy


Investment Strategy

• Stocks with Reasonable Valuation

• Concentration on Emerging Themes

• Buy & Hold Strategy

Details

Fund Manager : Manish Sonthalia

Strategy Type : Open ended

Date of Inception : 11th Dec. 2007

Benchmark : CNX Midcap

Investment Horizon : 3 Years +

Subscription : Daily

Redemption : Daily

Valuation Point : Daily

Strategy Objective

The strategy aims to deliver superior returns by

investing in focused themes which are part of the

next Trillion Dollar GDP growth opportunity. It

aims to predominantly invest in Small & Mid Cap

stocks with a focus on Identifying Emerging

Stocks/Sectors.

Top Sectors

Banking & Finance

Auto & Auto Ancillaries

FMCG

Oil and Gas

Diversified

Engineering & Electricals

Cash

28.34

24.46

18.83

9.49

6.41

5.26

0.69

Sector Allocation % Allocation*

*Above 5% & CashData as on 30th June 2015

Top Holdings

Eicher Motors Ltd.

Bajaj Finance Ltd.

Page Industries Ltd.

Hindustan Petroleum Corporation Ltd.

Bosch Ltd.

Voltas Ltd.

Max India Ltd.

Particulars % Allocation*

17.14

10.49

9.57

9.49

7.32

6.41

5.04

*Above 5%Data as on 30th June 2015

Key Portfolio Analysis

Standard Deviation (%)

Beta

23.02

1.00

Performance Data CNX MidcapNTDOP

18.27

0.69


Period

% o

f re

turn

s

NTDOP Strategy CNX Midcap All Figures in %


The Above strategy returns are of a Model Client. Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows in the strategy. The Above returns are

calculated on NAV basis and are based on the closing market prices as on . Past performance may or may not be sustained in future. Returns above 1 year are annualized. Please refer to

the disclosure document for further information.

30th June 2015

68.97

55.88

45.49

35.46

29.97

19.7817.24

33.11

20.96

12.839.86

5.84

0

10

20

30

40

50

60

70

80

1 Year 2 Year 3 Year 4 Year 5 Year Since Inception *


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All opinions, figures, charts/graphs, estimates and data included in this document are as on date and are subject to change without notice. While utmost

care has been exercised while preparing this document, Motilal Oswal Asset Management Company Limited does not warrant the completeness or

accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. No part of this document may be

duplicated in whole or in part in any form and/or redistributed without prior written consent of the Motilal Oswal Asset Management Company Limited.

Readers should before investing in the Strategy make their own investigation and seek appropriate professional advice. Investments in Securities are

subject to market and other risks and there is no assurance or guarantee that the objectives of any of the strategies of the Portfolio Management Services

will be achieved. Clients under Portfolio Management Services are not being offered any guaranteed/assured returns. Past performance of the Portfolio

Manager does not indicate the future performance of any of the strategies. The name of the Strategies do not in any manner indicate their prospects or

return. The investments may not be suited to all categories of investors. Neither Motilal Oswal Asset Management Company Ltd. (MOAMC), nor any person

connected with it, accepts any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their

own professional advice. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory,

compliance, or other reasons that prevent us from doing so. The Portfolio Manager is not responsible for any loss or shortfall resulting from the operation of

the strategy. Recipient shall understand that the aforementioned statements cannot disclose all the risks and characteristics. The recipient is requested to

take into consideration all the risk factors including their financial condition, suitability to risk return, etc. and take professional advice before investing. As

with any investment in securities, the value of the portfolio under management may go up or down depending on the various factors and forces affecting

the capital market. For tax consequences, each investor is advised to consult his / her own professional tax advisor. This document is not for public

distribution and has been furnished solely for information and must not be reproduced or redistributed to any other person. Persons into whose possession

this document may come are required to observe these restrictions. No part of this material may be duplicated in any form and/or redistributed without'

MOAMCs prior written consent. Distribution Restrictions - This material should not be circulated in countries where restrictions exist on soliciting business

from potential clients residing in such countries. Recipients of this material should inform themselves about and observe any such restrictions. Recipients

shall be solely liable for any liability incurred by them in this regard and will indemnify MOAMC for any liability it may incur in this respect. Securities

investments are subject to market risk. Please read on carefully before investing.

Risk Disclosure And Disclaimer

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Sit Tight Approach

QGLP

BUY RIGHT : SIT TIGHTBuying quality companies and riding their growth cycle

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