the first step of investing is to - icici...

The first step of investing is to

decide allocation among different

asset classes. Asset allocation is

the most important factor that

determines the performance of a

portfolio. How much you invest in

equity or debt depends on your

stage of life and goals. Once you

have decided the allocation, it is

time to select products that would

fit the asset classes you want to

invest in. Today with a large

product su i te ava i lab le to

investors, this is a point of some

amount of confusion. At an overall

level, we should consider the

product features, liquidity, costs,

potential risks and tax efficiency

before selecting the product.

Anup BagchiMD & CEO

ICICI Securities Ltd.

Amongst all the parameters of evaluation, tax efficiency is an

extremely important aspect.

Tax-efficiency determines how much of a return we get to keep after

accounting for taxes. Put simply, the net post-tax return. As

investors, our goal should be to maximize the post-tax return of a

portfolio. This can be done through selecting products that are more

tax-efficient. In general, equity-linked products are best positioned

to provide better post-tax returns over the long run due to their

beneficial tax rules.

Keep in mind, even a small amount of tax saved today can make a big

difference to our net worth in the long run. For instance, even if we

manage to save 15,000 every year on taxes, for a period of next 25

years, and invest this amount, it would grow to 16.23 lakh at 10 per

cent rate of return. This is the gain of over 12 lakh on an investment

of 3.75 lakh (15,000 X 25 years).

``

``

1ICICIdirect Money Manager November 2014

Further, when it comes to saving taxes, we realize that certain

deductions and benefits are well known, while others are not. It is

important to be conversant with tax laws and fully utilize the benefits

available to us. Our experience is that health insurance tax limits

under section 80D are rarely fully used and these are over and above

1.50 lakh that we get under section 80C. One can save maximum

up to 40,000 under section 80D, if assesee and parents, both are

senior citizens (above age 60 years).

Even the tax deductions available under section 80C are rarely fully

used by most of us. If we do so, we can build a sizable corpus to meet

our goals. If we consider that a taxpayer is saving 1.50 lakh per year

under section 80C in tax-saving instruments from the age of 30 till

the retirement age of 60, and assuming 8 per cent rate of return, this

amount will grow to 1.77 crore. This is the magic of compounding.

And if we make proper asset allocation among different tax-saving

products, the corpus can grow even bigger.

Although tax-efficiency is important, the investment decision should

not be solely based on it. Our investments should go beyond just tax

saving and should focus more on fulfilling goals.

Last, but not the least, we are in a growing nation with further

potential for a long foreseeable future. Therefore, we must take full

advantage of that and participate and ride the growth through

equities, either directly or through other indirect route of investment

products.Investing in equity-related instruments (ELSS) is a good

option to create wealth in the long run. With its lock-in period of three

years, it allows us to ride out the inherent volatility in the markets and

remain invested for the long term. And the tax benefit it provides is

the additional cream on the pie.

Our message remains the same - 'Keep investing and stay invested

for your life goals'. Through this magazine and our website

www.icicidirect.com we want to make an earnest attempt to partner

with you in setting and achieving your financial goals. Do walk into

any of your Neighbourhood Financial Superstore and talk to us.

``

`

`

November 2014

2

When it comes to investing, most of us know that it is important to

look at the real rate of return. Real return is how much our

investments have grown over inflation. The returns also need to

be adjusted for tax to understand the real return in hand. While

the asset classes (equity, debt, etc.) define the real returns most of

the times, it is the product choice, in the specific asset class, that

defines the tax efficiency.

We must factor in the tax implications of each product, based on

our personal situations, in order to know what returns we are

likely to get in. Tax laws and implications keep changing. To help

you get the updated information, we, in our cover story of this

edition, list various investments across asset classes, in the light

of tax implications.

The edition also offers comprehensive information and analysis

on ELSS, tax-saving mutual funds, which are best option for

saving taxes as well as creating wealth in the long run. All in all,

this issue is a wholesome tax planning package, which we hope,

will help you plan your taxes more efficiently and in sync with

your financial goals.

I would also like to draw your attention to our interview, with

Pankaj Murarka, Head – Equity, Axis Mutual Fund, who advises

investors to remain focused on their long-term asset allocation.

Further, if you wish to get clarity on different aspects of personal

finance or any other money matter through Ask our Planner, you

may write to us at money manager @icicisecurities.com. So read

on, stay updated and involved. Do write in with your feedback

and share your thoughts.

Editor & Publisher : Abhishake Mathur, CFA

Coordinating Editor : Yogita Khatri

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

CMEditorial Team : Azeem Ahmad, Nithyakumar VP CFP , Nitin Kunte, Sachin Jain, Sheetal Ashar

ICICIdirect Money Manager November 2014

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

3

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

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

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

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

Markets Round-up & Outlook.................................................................. 5

Getting Technical with Dharmesh Shah................................................... 8

Derivatives Strategy by Amit Gupta.......................................................10

Stock Ideas: SKF India and L&T .............................................................. 15

Flavour of the Month: Tax implications of various investments Here we take you through the various avenues of investments across asset classes, in the light of tax implications…..................21

Tête-à-tête: 'Remain focused on long-term asset allocation'An interview with Pankaj Murarka, Head – Equity, Axis Mutual Fund…..............................................................................................34

Ask Our Planner: Switching your investment options Your personal finance queries answered…....................................36

Mutual Fund Analysis: Category - ELSSHere we analyse top-performing ELSS funds, which are best option for saving taxes as well as creating wealth in the long run….................................................................................................40

Equity Model Portfolio..........................................................................47

Mutual Fund Top PicksHere we present our research team's top mutual fund recommendations, across equity and debt categories…..............52

Quiz Time............................................................................................54

Monthly Trends....................................................................................55

Premium Education Programmes Schedule.............................................58

ICICIdirect Money Manager November 2014

4ICICIdirect Money Manager

No PAN requirement for investment in Kisan Vikas Patra

The Finance Minister Arun Jaitley and Communication Minister Ravi Shankar Prasad relaunched Kisan Vikas Patra (KVP) scheme. The Finance Ministry has said that there will not be requirement of Permanent Account Number or PAN in putting money in relaunched KVP. It will be available to the investors in the denomination of Rs. 1000, Rs 5,000, Rs 10,000 and Rs 50,000, with no upper ceiling on investment. The investment made in the certificate will double in 100 months.

Courtesy: The Hindu Business Line

Maintaining a bullish stance on Indian equities, foreign investors increased their exposure in BSE Sensex companies to an all-time high of 27 per cent in the September quarter, says a report. “FII stake in Sensex companies has been rising continuously since 2009,” the global financial services major Bank of America Merrill Lynch said in a research note, adding the FII stake stood at an all-time peak of 27 per cent as of September 30. As of June 2014, FIIs collectively held around 22.5 per cent of the market and around 46 per cent of the free float.

Courtesy: The Indian Express

FII stake in Sensex companies hits all-time peak of 27 pct: BofA-ML

About 80 per cent of respondents, read parents, who participated in the annual ING Zing survey, said they believed that their children followed their money habits. Even more discerning is the fact that children tend to pick parents' spending habits marginally more than their saving habits, at least among those who earn above Rs 8 lakhs annually. The study also observes that as your income levels go up, children tend to develop spending habits more while parents' tend to shore up their savings habits.

Courtesy: Business Standard

Children mimic parent's money habits, spending event more: ING survey

Negative growth rates in major sectors such as engineering, pharma, gems and jewellery, and petroleum products saw the country's overall merchandise exports shrink 5.04% in October. India's exports have plunged into the negative zone after a gap of six months. An export contraction was last witnessed in March when it fell 3.15%. Coupled with the largely unexpected decline in exports, a surge in imports of gold kept the trade deficit at $13.35 billion in October against the $10.59 billion a year earlier. The deficit was thankfully a bit lower than that in September when it stood at an 18-month high of $14.24 billion.

Courtesy: The Financial Express

October exports shrink 5% after a gap of six months

November 2014


MARKETS ROUND-UP

Markets to take cues from reforms and CPI data as Q2 season comes to end

October month was a tale of

two halves with the first half

showing weakness while the

second half saw a sharp

recovery with global

commodity prices correcting

sharply and an improvement

in global cues. A drop in

m a n u f a c t u r i n g P M I

(Purchasing Managers' Index)

on a month-on-month (MoM)

basis coupled with muted

global cues led to the sluggish

start to the month. Lower

industrial production data also

dented the market confidence.

The consumer price index

(CPI) for September 2014

cooled off to 6.5% vis-à-vis

7.8% in August 2014 (the

lowest value in the last 22

months). The WPI (wholesale

price index) was also lower

and came at its five-year low of

2.4%. The decline in both CPI

and WPI was cheered by the

markets as expectations of a

policy rate cut by the Reserve

Bank of India (RBI) in its next

monetary policy in the first

week of December resurfaced

again. The sentiments also

improved in the second half of

the month on the back of a

drastic decline in crude oil

prices to ~$85/barrel and

positive cues from around the

globe at the fag end of the

month as Bank of Japan's

Moneta ry Po l i cy Board

unexpectedly decided to raise

the monetary base at an

annual pace of about 80 trillion

Yen.

The Q2 earnings season in

October also influenced the

performance of the markets.

The banking sector continued

to show an improvement in the

operational performance with

both private and public sector

banks improving sequentially.

Consumer d iscret ionary

stocks continued to show an

improvement in operational

performance, especially the

auto sector, which showed

positive earnings led by

volume growth on improved

sent iments and fes t ive

demand. The FMCG (fast

moving consumer goods)

s e g m e n t , h o w e v e r ,

November 2014


MARKETS ROUND-UP

disappointed as volume

growths continued to remain

low. The IT (Information

Technology) pack had a

disappointing earnings season

mainly driven by an

unfavourable currency impact.

Pharmaceutical companies,

on the other hand, had a mixed

bag with a positive bias.

The global markets have been

driven by contrasting news

flows across the globe. Post

the disappointing industrial

output data from Germany, the

German government had cut

the growth estimate for this

year as well as the next year to

1.2% and 1.3%, respectively.

The market sentiment further

deteriorated as the

International Monetary Fund

(IMF) cut its global growth

forecast to 3.3% from 3.4%,

the third such revision in the

year. The decline in crude oil

continued unabated in the

month clearly highlighting

growth concerns. The market

sentiment, however, received

a boost as the Federal Open

Market Committee (FOMC)

meeting ended with the

minutes revealing the dovish

stance of the Fed on the policy

rate front, even as the

Quantitative Easing (QE)

programme ended. At the end

of the month, the Bank of

Japan unexpectedly surprised

the markets with a spurt of

monetary easing.

During the month, crude

(Brent) continued the decline

and ended at ~$85/barrel. The

trend continued in early

November as well, with crude

reaching the lows of $81.

The US markets continued to

trade with a negative bias

through the month but ended

with a strong positive bias post

the announcement from the

Bank of Japan. Major indices,

Dow Jones, S&P 500 and the

Nasdaq gained about 1.9%,

2% and 2.8%, respectively.

European markets, however,

remained weak despite the late

surge in the indices in the last

two sessions while the FTSE

lost 2.8%. The German Dax

and French CAC lost 3.3% and

5%, respect ively. Asian

markets, also gained in the last

two sessions to end on a

positive note with the Nikkei

Global markets

November 2014


MARKETS ROUND-UP

and Shanghai SSEC gaining

0.6% and 2.6%, respectively,

while the Hang Seng posted a

gain of 3.3%.

The foreign institutional

investors (FIIs) continued to

remain net buyers in the Indian

markets although the pace has

considerably slowed down

over the past couple of months

and the net buy figure was ~

900 crore while domestic

institutional investors (DIIs)

heavily bought to the tune of

~ 5,700 crore led by strong

inflows into mutual fund

schemes.

The Nifty and Sensex ended

firmly in the positive territory

for the month with most

sectoral indices also ending

the month in the green. Except

BSE Realty (-1.8%) and BSE

FMCG (-1.8%), all other indices

ended October on a strong

note. BSE Bankex, BSE Power,

BSE PSU, BSE Auto and BSE

Oil saw sharp gains of 10.7%,

9.5%, 7.2%, 4.7% and 4%,

respectively, while BSE IT and

BSE Healthcare ended the

month flat.

Domestic markets

Outlook: Post Q2 numbers, focus

`

`

shifts to government reforms and

RBI policy

As the earning season comes

to an end without much

surprise (negative or positive),

the markets will eagerly look

towards government reforms

as well as the RBI's policy

stance (next policy meet on

ecember 2). In order to

expedite the reforms process,

the Modi government initiated

the much awaited portfolio

expansion by induct ing

t e c h n o c r a t s a n d c a d r e

workers in the Cabinet. After

the clear mandate for the BJP

in Haryana and the emergence

as the largest party in

Maharashtra, this expansion

will be construed as a step in

the right direction and is likely

to be cheered by the markets.

Falling crude prices and

improving CPI numbers are

likely to add to the buoyancy

w i t h h o p e s o f d o v i s h

comments by the RBI in its

next policy meet. In this

scenario, markets are likely to

pay less attention to the global

cues and focus on the

domestic situation.

November 2014


TECHNICAL OUTLOOK

Bulls reign supreme; index eyeing 28800

Benchmark indices overcame huge bouts of volatility amid weak global cues owing to worries about global growth and the end of years of US stimulus. After displaying resilience in the face of a volatile global environment, market sentiments were boosted by reform measures announced by the government and a strong verdict in the state assembly elections. The benchmarks (Sensex and Nifty) staged a firm rebound precisely from the close to our earmarked support zone of 26,000/7,800 levels and surged to new all-time highs in line with our expectation.

The dash towards new all-time highs after one month corrective phase signals resumption of upward momentum after a brief pause. Going forward we expect benchmarks to remain in a rising trajectory and head

towards 28,800/8,650 levels over the medium-term. The O c t o b e r 2 0 1 4 l o w o f 25,910/7,723 will act as a key short- term base for the markets.

The decline unfolding since hitting the September 2014 high of 27,354/8,180 displayed all the signs of a healthy corrective decline within an established uptrend and re-affirmed the overall positive price structure as index retraced its 25-session decline in just 8 trading sessions.

The resolution past September 2014 highs opens target of 28,800/8,650 being the depth of the September correction (27,354-25,910) as projected above September 2014 highs over a medium term.

Sectorally, the banking index resumed its leadership role and ventured into new all-time highs ahead of the benchmarks. We expect banking to lead the benchmarks, going forward. The auto and capital goods sectors are also expected to outperform in the coming month.

November 2014

2976 pts

3098 pts

21

week EMA

Extended rally measuring 3244 pts so far


TECHNICAL OUTLOOK

BSE Sensex – Weekly Candlestick Chart

Source: Bloomberg, ICICIdirect.com Research

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

Weekly RSI tested its own rising trend line support along with price approaching its key support of 26000 levels and produced a strong pullback indicating strength in the up move

November 2014

Index concluded a month long corrective phase and signalled r e s u m p t i o n o f u p w a r d momentum by recouping its last falling segment in faster time. We expect the index to remain in rising trajectory and head towards 28800 over the medium term


DERIVATIVES STRATEGY

Nifty to move towards highest call base of 8500

Amit Gupta

Head - Derivatives Research,ICICI Securities

Nifty recovered sharply in the

second half of the October

series and is currently trading

close to 8400 levels. At the

same time, strong global cues

coupled with sustained foreign

institutional investors' (FII)

interest in the equities also

helped Nifty to scale new highs

and Nifty is likely to hit target of

8500.

Open interest in Nifty futures

has risen to 1-year high and it

almost tested 25 million shares

during the series. FIIs have

bought more than 11,000

crore since October 17 when

Nifty made the low of 7730.

Looking at the significant build-

up of positions, a round of

profit booking cannot be ruled

out. However, Nifty is likely to

find buying support once again

near its previous highs of 8200

which also coincides with the

highest Put open interest base.

On higher side, 8500 call strike

`

h a s s e e n c o n t i n u o u s

accumulation, which remains

the target.

November 2014

Option open interest of November Series

0

50000

100000

150000

200000

250000

7800 7900 8000 8100 8200 8300 8400 8500 8600 8700 8800

OI (

No.

of

Con

trac

ts)

Put OI Call OI

Bank Nifty: likely to move

towards target of 17500/17800

The Bank Nifty was the key

catalyst in the current up-leg of

the Nifty. Post the cool-off seen

in consumer price index (CPI)

and wholesale price index

(WPI) readings the index

rocketed 1400+ points to

16600 levels.

The banking space also got a

push from bond yields. Yields

came down to a 13-month low

of 8.32 (10-year government

security (G-Sec)).

With most private sector banks

reporting stronger net interest

margins (NIMs) and profit

margins, there is a clear

preference for private sector



November 2014

banks over public sector

banks. This bodes well for the

banking index, as private

banks have more than three-

fourth weightage in the

banking index.

Since the election verdict, this

space has been relatively

under-owned. Until recently,

most stocks were struggling to

take out their election verdict

highs. Sticky inflation was one

of the key reasons for this.

However, as inflation cooled-

off sharply during the month

coupled with a weak set of Q2

numbers from technology

majors, banking stocks are

back in favour. Banking stocks

are likely to move up in the

coming month while the short

open interest (OI) in many of

the stocks is still high and is

seeing a rollover of these

positions into the November

series.

Looking at the options build

up, the highest Call base

remains the target for the

index, which is at 17500

followed by 18000 strike. On

the lower side, support is

placed at 16000 levels, which is

the highest Put base.

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

1550

0

1570

0

1590

0

1610

0

1630

0

1650

0

1670

0

1690

0

1710

0

1730

0

1750

0

Call OI Put OI

India VIX: Likely to consolidate

above 10.5 as geo-political and

economic risks stay elevated

globally

On expected lines, India

Volatility Index (VIX) saw a

jump of 30% to 17 levels as the

Nifty fell on the back of weak

global cues. However, towards

the month end, as markets

recovered, the fear gauge also

cooled-off.

Going ahead, as geo-political

risks and global market jitters

remain alive, the VIX could

remain higher above its

extraordinary low levels of 10.5

seen in September.

On a positional basis, the 50 &

100 week moving average is at

18.2. This level is likely to be

tested only in the event of the

Nifty reaching 7800.



November 2014

S&P 500: Current momentum likely to continue above 1980 levels

After witnessing the worst selling pressure of last 3 years which eroded almost 10% value, the recovery was even more prominent as S&P 500 surpassed its highest Call base of 2000 strike to make a new life high. We expect the current momentum is unlikely to fade out until S&P move below 1980 levels once again.

Even for coming up December series, the highest Call option base is placed at Call 2000 s t r i k e a l o n g w i t h t h e noteworthy Put base. We expect S&P to continue its momentum on the back of stuck up Call writers. Only a move below 1980 levels is likely to change the ongoing trend.

Unlike the previous pull backs, S&P 500 Index has found support of small-cap stocks as well suggesting broader

participation in the move.

Russell 2000 Index has erased all of its declines in the recent bounce back, which was not seen previous pull backs as Russell Index has under performed S&P500.

S&P has shown tendency of moving towards its 50-DMA (displaced moving average) in case of any intermediate profit booking. Currently 50 DMA for S&P is placed near 1980 levels which makes it buying level on declines.

S&P500 options open interest for December Series

0

20000

40000

60000

80000

100000

120000

140000

160000

1940

1950

1960

1980

2000

2020

2040

2050

2075

2090

2100

Call OI Put OI

Dax: Immediate support is placed at 9200

The German Index, Dax, has

underperformed most of its

peers as it is still trading below

its breakdown levels of 9600.

Despite a thousand points

recovery, under-performance

can largely be attributed to

w e a k e n i n g c u r r e n c y o f

Eurozone.

The highest Put base of

German Index is placed at 9000



November 2014

strike for December series

which is likely to remain crucial

support for the index in the

near term. At the same time,

Call base is placed evenly

above 9500 strike. Hence a

move above 9500 may induce

fresh momentum in the DAX.

Importantly, both 100 and 200

DMA levels for German Index

are placed in the vicinity of

9 5 0 0 s t r i k e i n d i c a t i n g

immediate resistance for the

index. Hence, fresh upward

bias is expected if DAX is able

to sustain above these levels.

Unlike the rest of equity

markets, volatility index for

German Index is still at higher

at 16.5. US VIX is near 12.7

while India Volatility Index is

near 14 levels. Higher volatility

index in DAX indicates

prevailing skepticism in the

German markets.

DAX option open interest for December Series

0

10000

20000

30000

40000

50000

60000

8900

9000

9100

9200

9300

9400

9500

9600

9700

9800

Dollar Index: Likely to surpass 2008

highs towards our immediate target

of 90

As expected, Dollar Index did

not move below 84 levels and

resume its upward trend

towards su rpass ing i t s

previous highs. Along with

s t r e n g t h i n d o l l a r ,

simultaneous selling pressure

in the US Bonds suggests

money flow from safer assets

to r i sky assets due to

expectations of sustained

liquidity flow.

The Dollar Index in the last

couple of months has moved

up sharply and posted the

highest quarterly gains since

2008. The primary move from

80 to 85 in Dollar Index was

triggered by weakness in Euro.

Statements from European

Central Bank (ECB) hinted at

further expansion of balance

sheet, which triggered another

round of weakness in Euro

currency. We expect Euro to

remain weak and test 2010

lows of 120 in days to come. At

the same time, coupling effect

was observed from Japanese



November 2014

Yen, which is at the highest

levels since 2008.

Both Euro and Japanese Yen

cumulatively holds more than

70% weight in the Dollar index,

given the weakness in the

major currencies, we expect

Dollar index to surpass its 2008

highs of 89.5 and move

towards 90 in the near term.

Brent Crude: Downsides likely to extend for target of 78/75 levels

As expected, Crude failed to

witness any meaningful

recovery and hovered near 80

levels for most part of the last

month. The Put base placed at

85 strike remained major

hurdle for Crude and it failed to

sustain above these levels.

As per U.S. CFTC (Commodity

Futures Trading Commission)

data, net long positions in

Brent Crude have declined

sharply to 60,000 contracts

from 240,000 contracts seen in

the June series. The current

trend of long liquidation is

likely to continue in the Brent

and declines are likely to get

extended.

Along with speculators, Hedge

position holders for Brent are

still bearish as almost 39%

positions are still hedged

against further decline. Despite

Crude trading near 4 year lows,

s u c h a h i g h h e d g i n g

p e r c e n t a g e i n d i c a t e s

skepticism prevailing for the

crude prices.

Recent declines have forced

crude to breach its three-year

consolidation range. It may

eventually find support at its

July 2010 breakout levels of

$78. Hence, our downside

positional target in Brent is at

$78.

Crude option open interest for December Series

0

4000

8000

12000

77 78 79 80 81 82 83 84 85 86 87

Call OI Put OI

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

15

STOCK IDEAS

SKF India: Leader in the Bearings space

ICICIdirect Money Manager

Company Background

Incorporated in 1961, SKF India is the Indian subsidiary of the Sweden based SKF Group, which is a global leader in b e a r i n g s , s e a l s a n d mechatronics & lubrication systems. The company is a leader in the Indian bearing market with ~28% market share. SKF is well-diversified across the automotive (54% of revenues including exports, which are manufactured in India) and industrial segment (46% of revenues, which are mainly imported from SKF Group companies) as well as S K F Te c h n o l o g i e s ( t h e subsidiary of the parent). In the automotive segment, SKF India caters to both two-wheelers as well as four-wheelers (PV (passenger vehicles), CV (commercial vehicles), tractors, etc.) of which two-thirds come from or iginal equipment manufacturer (OEM) and r e m a i n i n g f r o m t h e replacement markets. SKF India caters to almost all automotive OEMs in India such as Tata Motors, Hero MotoCorp, HMSI, Maruti, Bajaj Auto, Mahindra & Mahindra, TVS, Bosch, etc. In

the industrial segment, SKF India supplies to all major industries like heavy industries such as steel, mining etc, agriculture, power, capital goods, oil & gas and food & b e v e r a g e ( F & B ) . W i t h i n industrial, ~65% pertains to aftermarket and 35% to OEMs. Its clientele includes: heavy industries: SAIL, Coal India, JSW, Essar, Tata Steel; energy: NTPC, Tata Power, Suzlon; industrial machinery: Bhel, GE, L&T; oil & gas: Reliance, ONGC, Cairn India; F&B: Nestlé, ITC, Pepsi. SKF India has three manufacturing facilities: Pune, Haridwar and Bangalore.

Leading bearing manufacturer with equal presence in industrial & auto

SKF is the leader in the Indian bearing market (pegged at 8,000-8,500 crore) with ~28% share. Known for deep groove ball bearings (forming ~35% of revenues and ~45% market share), SKF is equally present across the industrial (46% of s a l e s ) a n d a u t o m o t i v e segments (54% of sales inc luding exports) . With expected industrial revival and

Investment Rationale

`

November 2014

16

STOCK IDEAS


up-tick in auto demand going ahead, SKF is well poised to capture the opportunity given its strong balance sheet with cash flow generation and scalability bandwidth. We expect revenues to grow at 13.3% compounded annual growth rate (CAGR) over CY13-16E to 3,266 crore.

Early signs of recovery seen in auto, SKF to be key beneficiary

For year-to-date (YTD) Cy14, the auto sector has shown signs of recovery with ~12.3% growth (mainly driven by two wheeler segment growth, which was up 16.3% year-on-year (YoY)). With the auto industry finally showing signs of recovery after nearly two years of a demand slump, new launches and product refreshes are the key, going ahead. SKF, being the largest bearings player in the industry, commands scalabi l i ty bandwidth coupled with a lean balance sheet and is poised to capture the opportunity arising from the revival in demand in the automotive segment. We expect SKF's manufactured product (auto) sales to exhibit ~14.6% CAGR over CY13-16E, in line with overall auto growth assumptions.

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Localisation of industrial bearing to boost margins & market share

Industrial bearings (46% of revenues) are sourced from the parent (~90%) and SKF Technologies. We expect import substitution of industrial bearings, through ramp up in SKF Technologies, to be a key revenue driver for SKF's r e v e n u e s a n d m a r g i n expansion as SKF would improve its turnaround time while the resultant cost saving would lead to market share gains. Consequently, we expect industrial (traded goods) sales to grow at 11.6% CAGR over CY13-16E with overall EBITDA margins recovering to 13.7% in CY16E vs. 11.5% in Cy13.

Premium valuations driven by growth prospects ahead

SKF is trading at 20.8x CY16E EPS. Given SKF's leadership position in the bearing space, strong earnings growth (CAGR of 24% in CY13-16E), healthy balance sheet with robust cash flow generation ( 680 crore over CY14E-16E) and core return on equity (RoE) in excess of 30%, we ascribe a P/E multiple of 24x (implying a PEG (Price/Earnings to Growth) of 1x) on CY16E EPS. Hence, we assign a target price of 1,448/share with a BUY rating.

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November 2014

17

STOCK IDEAS


Key risks include: Japanese competition which may thwart market share, Sustained slowdown in key segment, Raw material cost rise, Delay in SKF Technologies ramp up may delay localisation process and Forex Risk impact on financial performance.

(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; RoNW: Return on net worth; RoCE: Return on Capital Employed; FII: Foreign Institutional Investors; DII: Domestic Institutional Investors)

Key Financials

Valuations Summary

Stock Data

November 2014

Net sales ( crore) 2,246.4 2,446.8 2,802.4 3,266.5

EBITDA ( crore) 261.4 318.9 376.2 453.1

Net profit ( crore) 166.7 223.4 263.6 318

CY13 CY14E CY15E CY16E

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`EPS ( ) 31.6 42.4 50 60.3

P/E (x) 39.7 29.6 25.1 20.8

Target P/E (x) 45.8 34.2 28.9 24

EV / EBITDA (x) 23.9 19.2 16 12.9

P/BV (x) 5.2 4.7 4.2 3.7

RoNW (%) 13 15.9 16.7 17.6

RoCE (%) 16.6 18.9 20.2 21.7

CY13 CY14E CY15E CY16E

Market capitalization ( crore) 6,620

Total debt (CY13) ( crore) 0

Cash and investments (CY13) ( crore) 376

Enterprise value ( crore) 6,244

52-week High/ Low ( ) 1,248/ 511

Equity capital ( crore) 52.7

Face value ( ) 10

FII holding (%) 15.5

DII holding (%) 17.1

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STOCK IDEAS


L&T: Best way to capture capex recovery cycle

Company Background

Investment Rationale

After being incorporated in 1938, Larsen & Toubro (L&T) has come a long way to bec om e I nd ia ' s l a r ges t engineering and construction (E&C) company. The company has business interests in engineering, construction, manufacturing, information technology and financial services. Considered the bellwether of the Indian engineering sector, it is renowned for its strong execution capabilities and professional management. The company commands a dominant presence in India's i n f r a s t r u c t u r e , p o w e r, hydrocarbon, machinery and railway related projects. With a customer base spanning across 30 countries, the company has significantly increased its global footprint, along with a notable presence in the Middle East. The company operates across different business verticals through the independent companies.

Proxy play on India Infrastructure story

L&T is the most diversified engineering & infrastructure developer in the country with a presence across all segments of infrastructure i.e. power, roads , hydroca rbons & process industries. It is also planning to scale up in niche areas like defence, nuclear power and shipbuilding, which have the potential to add s ign i f i can t l y to overa l l revenues in the next three to five years (for instance, opening of defence foreign direct investment (FDI) and ordering can help L&T achieve scale of 5x in terms of defence segment revenues from current 1,000 crore run rate). Over the last couple of years, L&T has added capacity to meet increasing volumes. For instance, the company had added 5,000 MW (MegaWatts) of power equipment facility, the heavy engineering facility in Oman (FY10) and recently added a complex shipbuilding facility. Hence, we expect L&T to register a revenue CAGR (compounded annual growth rate) of 16.58% in FY14-16E as it commands a strong order backlog of 2,14,000 crore, thereby providing visibility for

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November 2014

19

STOCK IDEAS


three years.

In Q1FY15, hydrocarbon business reported an EBIT (earnings before interest and taxes) loss of 942 crore. This was mainly due to cost/time overruns in Middle East hydrocarbon orders to the tune of 10,000 crore. The management expects these orders to get executed by FY15E. However, in Q2FY15, the segment reported a minor loss of 54 crore indicating that most provisions are provided for and losses will be completely provided for in the next six to nine months. Hence, we expect most of the pain to be over by Q4FY15.

We expect revenue CAGR of 16.8% over FY14-16E while EBITDA (earnings before interest, taxes, depreciation, and amortization) CAGR over the same period is expected at 13.4%. Hence, with operating leverage in play, our PAT (profit after tax) CAGR over FY14-16E stands at ~11% as we have assumed flattish other income

Ghost of hydrocarbon segment losses receding gradually

Revenue and PAT to exhibit 16.8% and 11% CAGR in FY14-16E on pick up in execution, margin stability

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component in FY16E over FY14 while depreciation and interest costs are expected to exhibit a CAGR of ~9% and 3%, respectively. Hence, we expect L&T's PAT to be at 6,461 crore in FY16E vs. 5,247 crore in Fy14.

Concerns such as a depleting order book in the power/heavy engineering segment seem to be abating as ordering trends in H1FY15 for these segments seems to be encouraging. This, we believe will lead to robust revenue booking over Fy16 17E coupled with continued strong execution of the infrastructure segment. Even the ghost of hydrocarbon seems to be factored into the valuation. We assign a target price of 2,206 (24-months perspective) as we believe by December 2015, we will get clarity on the intensity of the capex (capital expenditure) cycle recovery and markets will start discounting into FY17E-18E earnings and visibility. Thus, we believe L&T's is the best option to play the capex recovery cycle in India. We recommend 'Buy'.

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Worst seems to be getting over as FY16E to see robust execution; recommend 'Buy’

November 2014

20

STOCK IDEAS


Key risks include: Delay in macro economic environment pickup, policy inaction and rising competitive intensity from domestic as well as Chinese and Korean players.

(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; P/BV: Price-to-book value; RoNW: Return on net worth; RoCE: Return on Capital Employed; DII: Domestic institutional investors; FII: Foreign Institutional Investors)

Key Financials

Valuations Summary

Stock Data

November 2014

Net sales ( crore) 60,874 66,580.2 74,114.5 90,823.8

EBITDA ( crore) 6,403.9 7,280.5 7,915.8 9,365.3

Net profit ( crore) 4,729.5 5,247.2 5,374.8 6,461.8

EPS ( ) 51.1 56.7 58.1 69.9

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P/E (x) 32.3 29.1 28.4 23.6

Target P/E (x) 18.9 17.1 16.7 13.9

EV / EBITDA (x) 25.1 22.1 20.3 17.2

P/BV (x) 5.2 4.7 4.2 3.8

RoNW (%) 16.2 16.2 14.9 16

RoCE (%) 14.8 15.1 14.8 16.2

Market capitalization ( crore) 1,52,608.5

Total debt (FY15E) ( crore) 10,836.2

Cash and investments (FY15E) ( crore) 2,799.3

Enterprise value (EV) ( crore) 16,0645.4

52-week High/ Low ( ) 1.5

Equity capital ( crore) 185

Face value ( ) 2

DII holding (%) 36.6

FII holding (%) 15.6

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FLAVOUR OF THE MONTH

Tax implications of various investments

One of the important aspects of investments, which, we as investors often overlook, is: Tax-efficiency of returns. Tax efficiency is a measure of how much of an investment's return is left over after taxes are paid. Tax efficiency is essential in order to maximize net returns on our investments. “As regards the return of investment, one needs to consider the real net returns and not gross returns. There are various tax implications, as regards to returns on investments, which one needs to consider before investing,” says CA Dhananjay J. Gokhale. A basic understanding of investment income and taxes can go a long way in helping you build a tax-efficient portfolio. Mr. Gokhale takes us through the various avenues of investments across asset classes, in the light of tax implications. Read on.

INVESTMENTS IN EQUITY

Stocks (Equity and Preference

Shares):

There are two types of income

which are earned from stock,

viz., Dividend and / or Capital

Gain / (Loss) when the stock is

sold.

As regards the tax aspect on

d i v i d e n d o n s h a r e s o f

domest ic company, the

dividend is not taxable in the

hands of the investor as the

company pays dividend

distribution tax or DDT at

17.65% on the same. (It Was

15% up to September 30, 2014

and has been increased to

17.65% w.e.f. October 01,

2014). For details on DDT,

please refer Section 115O of

Income Tax Act, 1961.

When a stock is sold, the same

is considered as capital gain

except in case wherein the

investment is made in the

course of business of trading in

securities and not as an

investment. As regards the tax

aspect on Gain / (Loss) on sale

of stock the period of holding is

important to determine the

taxability of the income, which

will be clear from the following

table:

November 2014

CA Dhananjay J. Gokhale



November 2014

Type of security Period of holding

Type of capital gain / (loss)

Taxability

Equity shares / preference shares which are listed

Up to 12

months

Short -term capital gain / (loss) at

15%

Taxable

More than 12 months

Long -term capital gain / (loss )

Not Taxable if securities tran saction tax (STT ) paidTaxable if STT is not paid

Equity shares / preference shares which are not listed

Up to 36 months

Short -term capital gain / (loss)

Taxable

More than 36 months

Long -term capital gain / (loss)

Taxable

There are various avenues to prudently save the taxable long-term capital gains, which are as follows:

Section Particulars Amount / Limitations54F If net consideration is

invested in residential house property purchased either before one year or within two years or constructed within three years

The benefit cannot be availed if the assessee owns more than one house property (other than the newly acquired / constructed property) as on the date of capital gain

If the amount is not utilised for purchase / construction of house property by the end of the financial year, the same needs to be deposited in Capital Gain Scheme Account on or before the due date of filing Income Tax return

54EC If amount of capital gain is invested in specified securities

Rs. 50 lakh

Employee Stock Option Plans (ESOPs):

Today, there a re many corporates who offer ESOPs to its employees wherein the employees are rewarded by

offer ing a stake in the ownership of the company.

As regards the taxability of the ESOPs, when an employee exercises the option under ESOP, i.e., when he subscribes



November 2014

to the equity shares (securities) of the company, his taxability is dependent on the Fair Market Value (FMV) as on the date of exercising the option:

(I) If the FMV is lower than the exercise price, the difference is taxable in the hands of the employee as a perquisite and is considered as Income from Salary and taxed accordingly;

(ii) If the FMV is higher than the exercise price, generally the employee does not exercise the option to subscribe the equity shares. In case if it is exercised, there is no tax incidence.

When equity acquired under ESOPs are sold, the same are governed by the regulations applicable to equity shares, except that the cost price is required to be considered as FMV or exe rc i se p r i ce w h i c h e v e r i s h i g h e r (presuming that the taxability of the same is taken care of at the time of exercising the option as stated in the above para).

Derivatives:

The transactions in derivatives a r e n o t c o n s i d e r e d a s “Speculative Transactions”

w.e.f. financial year 2005-06, thanks to the provisions of Finance Act, 2005. The classification of income from derivatives as capital gain or business income depends on various factors in relation to the assessee such as:

(I) I n t e n t i o n b e h i n d undertaking transactions

(ii) Frequency of transactions(iii) Holding period(iv) Volume of transaction

However, as all the above factors are subjective in nature, there is always a grey area to determine the nature of income from derivatives transactions. In case if the said income is considered as b u s i n e s s i n c o m e , t h e compliance of tax audit needs to be kept in mind, if the turnover (which is gross summation of profit and loss from derivative transactions), exceeds 1 crore during a financial year and in other cases, compliance with section 44AD needs to be ensured.

Equity Mutual Funds:

There are two types of income which are earned from equity-oriented mutual funds, viz., Dividend (in case of dividend

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November 2014

option) and/or Capital Gain/ Loss when the units are redeemed.

As regards the tax aspect on dividend (income) from equity-oriented mutual funds, the dividend is not taxable in the hands of the investor as the

mutual fund pays DDT at 14.28% on the same (Note: 14.28% is for individual investors and for others it is 42.86%). For details on DDT, please refer Section 115R of Income Tax Act, 1961.

When mutual fund units are sold or redeemed, the same is considered as capital gain, which is subject to taxability as follows:

Type of security

Period of holding

Type of capital gain / (loss)

Taxability

Equity oriented mutual funds where in STT is paid

Up to

12 months


Taxable

More than 12 months


Not t axable

Equity oriented mutual funds where in STT is not paid

Up to

36 months

Sho rt -term capital gain / (loss)

Taxable

More than 36 months


Taxable

Further, in case if an assessee invests in Equity Linked Savings Scheme (ELSS) mutual funds, the investment is eligible for deduction from his

taxable income to the extent of 1,50,000 (Refer section 80C of

Income Tax Act, 1961) with a lock-in period of three years from the date of investment.

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Following table will give a comparative statistics as regards the various angles related to tax implications w.r.t. growth and regular (dividend) option of equity mutual funds.

Holding period wherein STT is paid

Equity mutual fund – Growth

Equity mutual fund – Dividend Dividend

Principal amount

Up to 12 months

Taxable as short-term capital gain at 15%

DDT p aid by MF at 14.28%

Taxable as short-term capital gain at 15%

More than 12 months Not taxable

DDT paid by MF at14.28%

Not taxable



November 2014

Thus, an investor should

prudently choose the type of

scheme, depending on his

taxable income and applicable

tax bracket.

Rajiv Gandhi Equity Savings

Scheme (RGESS):

The scheme was launched as a

new tax advantage saving

scheme for equity investors in

India, who are first time retail

investors in securities market.

Under the scheme an investor

was allowed to invest a

maximum amount of 50,000

per financial year and was

eligible for 50% deduction

from his taxable income. The

said scheme can be availed by

t h e i n v e s t o r f o r t h r e e

consecutive years and the

gains arising out the scheme

can be realized after one year.

The said scheme is applicable

for investors with annual

income not more than 12 lakh

per annum.

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The taxability of income (in the

form of dividend / gain arising

out of redemption of units) is

same as in case of equity

mutual funds.

Unit Linked Insurance Plans

(ULIPs)/ Unit Linked Pension Plan

(ULPPs)/ National Pension System

(NPS):

The investment made under

ULIP as well as ULPP/NPS, is

eligible for deduction from

taxable income, under section

80C to the extent of 1,50,000

per annum. (In case of NPS,

eligible for deduction under

section 80CCD to the extent of

1,00,000 within over all limit

of 1,50,000 under section

80CCE). However, as regards

the taxability from encashment

of the same, one needs to

check various aspects which

are summar ised in the

following table:

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November 2014

Type of investment

Event for encashment

Taxability Conditions

ULIP Death of policy holder

Not taxable in the hands of the recipient

Surrender of policy before maturity


If paid for five years

Taxable in the hands of the recipient

If not paid for five years

Surrender of policy at the time of maturity


ULPP Death of policy holder


Surrender of policy before maturity

Benefit availed under section 80C will be reversed and the surrender value will be required to be offered to tax

Surrender of policy at the time of maturity

1/3 rd

of the surrender value is tax -free and balance 2/3 rd

needs to be used for purchas e of annuity plan

NPS Death of policy holder


Closure or opting out of the scheme or pension received from annuity plan purchased

Taxable

As regards NPS, there is an additional benefit available for employees which is in addition to the overall ceiling of 1,50,000 under section 80CCE, wherein the contribution is

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made by an employer to account of an employee under NPS, subject to a ceiling of 10% employee's salary will be eligible for deduction from his taxable income. (Please refer



November 2014

sub-section (2) of section 80CCD of Income Tax Act, 1961 for more details on this additional benefit).

Bank Fixed Deposits (Fds): There are no tax-incentives for investment in bank fixed deposits (FDs) except for Fds kept with a scheduled bank with a lock-in period of not less than five years, wherein deduction under section 80C is available. However, such tax-benefit FDs are subjected to certain conditions like lock-in period of at least five years, no advances can be granted against security of these Fds. As regards the interest received on bank FDs, the

INVESTMENTS IN FIXED-INCOME

same is taxable in the hands of the assessee.

Corporate Fixed Deposits (Fds):

The investment in corporate fixed deposits (FDs) does not offer any tax benefit. As regards the interest received on corporate FDs, the same is taxable in the hands of the assessee.

Debentures / Non-Convertible Debentures (NCDs):

The investment in Debentures / NCDs does not offer any tax benefit. As regards the interest received on Debentures / NCDs, the same is taxable in the hands of the assessee.

Debt Mutual Funds (Including Fixed Maturity Plans or FMPs):

The investment in debt mutual funds does not offer any tax benefit. As regards the taxability of the income earned on the debt mutual funds, the taxability is as per following table:

Holding period Debt mutual fund – Growth

Debt mutual fund – Dividend Dividend Principal

amountUp to 36 months

Taxable as short-term capital gain

DDT paid by MF at 33.33%

(42.86% if the

investor is other than Individual)


More than 36 months

Taxable as long-term

capital gain at

20% after indexation

DDT paid by MF at

33.33%

Taxable as long-term capital gain at 20% after indexation



November 2014

PPF/ EPF/ KVP/ NSC/ SCSS/ Other Post Office Savings Schemes:

There are various other avenues for investments which are fixed-income generating and the taxability w.r.t. the same is given in the following table:

Type of investment

Tax benefit available on investment

Taxability on income earned

Taxability on withdrawal of

principal amountPublic Provident Fund (PPF)

Eligible for deduction under section 80C within overall limit of Rs. 1,50,000 p.a.

Tax -free Tax -free

Employees’ Provident Fund (EPF)

Eligible for deduction un der section 80C within overall limit of Rs. 1,50,000 p.a.

Tax -free

Tax -free, provided the employee is in employment for a continuous period of not less than five years, otherwise taxable

Kisan Vikas Patra (KVP)

No benefit

Taxable

Not taxable

National Sa vings Certificates (NSC)


Taxable but eligible for deduction under section 80C

Not taxable

Senior Citizen Savings Scheme (SCSS)

Eligible for deduction under section 80C with in overall limit of Rs. 1,50,000 p.a.

Taxable

Not taxable

Five -year time deposit with Post Office


Taxable

Not taxable

Recurring Deposit (RD) / Monthly Income Scheme (MIS) with Post Office

No benefit Taxable Not taxable



November 2014

INVESTMENTS IN CASH /LIQUID ASSETS

Savings Bank Account:

The interest earned on savings bank account in excess of 10,000 p.a. is taxable in the hands of the individual (Deduction to the extent of 10,000 is available under section 80TTA of Income Tax Act, 1961). In case if the amount of interest does not exceed 10,000, the same is not taxable in the hands of the

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individual.

Liquid Mutual Funds:

The investment in liquid mutual funds does not offer any tax benefit. However, these mutual funds are popular amongst the investors for parking of surplus funds and ea rn be t te r r e tu rns as compared to short-term fixed deposits of banks and also due to very lower or nil exit load charged by the mutual funds.

As regards the taxability of the income earned on the liquid mutual funds, the taxability is as per following table:

Holding period Liquid mutual funds –Growth

Liquid mutual funds–Dividend Dividend

Principal amount

Up to 36 months

Taxable as sho rt -term capital gain

DDT paid by MF at

33.33%

(42.86% if the investor is other than Individual)

Taxable as short -term capital gain

More than 36 months

Taxable as long -term capital gain at

20% after indexation

DDT

paid by MF at

33.33%

Taxable as long-term capital gain at 20% after indexation

INVESTMENTS IN GOLD

I n Ind ia , a lmos t every household invests in gold in v a r i o u s f o r m s ( t h o u g h traditionally is purchased in physical form) and at various occasions.

Investment in gold in any of the

following forms attracts same tax treatment w.e.f. FY: 2014- 15:

I) Physical Form

ii) Gold Exchange Traded Funds (ETFs)

iii) Gold Mutual Funds



November 2014

Holding period Taxability Tax rate

Up to 36 months

Taxable as short term capital gain

Will be clubbed along with the overall income, thus, app licable tax bracket depending on the taxable income of the assessee

More than 36 months Taxable as long -term

capital gain20% after indexation

There are various avenues to prudently save the taxable long-term capital gain, which are as follows:


invested in residential house property purchased either

before one year or within two years or constructed within three years .


If the amount is not utilised for purchase / construction of house property by the end of the financial year, the same needs to be deposited in Capital Gain Scheme Account on or before the due date of filing Income Tax return


Rs. 50 lakh

INVESTMENTS IN REAL ESTATE

Physical Property:

The taxability of income from

investment in real estate

(physical investment) is

considered as “Income from

House Property” and taxed

according to the provisions

under Income Tax.

As regards the gains arising out of sale of physical property, the tax incidence and avenues of saving of tax are as follows:



November 2014

Type of security Period of holding* Type of capital gain / (loss)

Taxability

i) Residential house property

ii) Land used for agricultural purposes

Up

to 36 months


Taxable

More than 36 months

Long -term capital gain / (los s)

Taxable

*To be calculated from the date of possession of the house property and not from the date of purchase agreement


Section Type of capital gain Particulars Amount / Limitations

54 Residential house property

If amount of capital gain is invested in residential house property purchased either before one year or within two years or constructed within three years

No limitIf the amount is not ut ilised for purchase /construction of house property by the end of the financial year, the same needs to be deposited in Capital Gain Scheme Account on or before the due date of filing Income Tax return

54B Land used for agricultural purposes

If amount of capital gain is invested in land to be used for agricultural purpose within two years from the date of transfer

The land sold should have been used for agricultural purpose for two years immediately preceding the date on which transfer took place

If th e amount is not utilised for purchase /construction of house property by the end of the financial year, the same needs to be deposited in Capital Gain Scheme Account on or before the due date of filing Income Tax return


Rs. 50 lakh



November 2014

Real Estate Investment Trusts (REITs):

The recent announcement by the Securities and Exchange Board of India (SEBI) as regards guidelines for creation of REITs, it is expected that it would be a new investment avenue for avid investors who are on the look-out for non-t r a d i t i o n a l i n v e s t m e n t avenues . However, t he success of REITs would largely depend on the way the scheme are drafted and launched. As regards the taxability of the REITs, presuming that the same are launched as mutual funds, is likely to be in line with non-equity mutual funds. But one needs to wait and watch for the REITs to be launched to understand the nitty-gritty of taxation.

ALTERNATE INVESTMENTS

Art Effects /Private Equity (PE) /Venture Capital:

These are unconventional investment avenues, not su i tab le for r i sk-averse investors, thanks to the illiquidity of such investments and uncertainty of income generation on the same. As r e g a r d s t h e i n c o m e generation, the same may be generated in the form of dividend on Private Equity (PE) investments , which has taxability similar to dividend on equity shares, which is not taxable in the hands of the investor. As regards income received on Venture Capital, the taxability depends on the nature of instruments as to whether the same is in the form of units of mutual fund, or equity or debentures.

The taxability on sale of investments made in Art (effects), Private Equity and Venture Capital (whether in the form of units, equity or debentures) is as follows:

Holding Period Taxability Tax Rate

Up to 36 months


Will be clubbed along with the overall income, thus, applicable tax bracket depending on the taxable income of the assessee

More than 36 months Taxable as long-term

capital gain20% after indexation



November 2014



invested in residential house

property purcha sed either before one year or within two years or constructed within three years


If the

amount is not utilised for purchase / construction of house property by the end of the financial year, the same needs to be deposited in Capital Gain Scheme Account on or before the due date of filing Income Tax return


Rs. 50 lakh

Portfolio Management Services (PMS):

The taxability of investments made under PMS depend on the intention of the investor, i.e., whether the same is to be treated as business income or capital gain. Depending on the

intention of the investor (which is a subjective concept), the tax incidence on such transaction needs to be determined as stated earlier in relevant type of securities (dependent on the type of investment, viz., equity, debentures, etc.).

Note:The implication of tax on various aspects of investment is a vast subject and is dependent on case to case basis. This article is limited to the extent of having an overview of the same. It may be noted that the reader of the article is expected to take a decision only after consulting an expert in the field of taxation and not depending on the contents of this article. This article is not an expression of an opinion by the author, and in no manner is intended to provide guidance to the investor in what so ever manner. The decision of investment made by the reader of the article should be made at his own risk and without any recourse to the author of this article.

Please send your feedback to [email protected]


'Remain focused on long-term asset allocation'

Indian macro has stabilized and has become more supportive for economic growth, says Pankaj Murarka, Head – Equity, Axis Mutual Fund in an interview with ICICIdirect Money Manager. He advises investors to remain focused on their long-term asset allocation and not make too many frequent adjustments based on recent market actions.

Pankaj Murarka,

Head – Equity,

Axis Mutual Fund

Tête-à-tête

Q :

A:

Markets seem to be in consolidation mode, after sharp gains in the recent past. How do you see them trending in the near term? What are the risks to the market?

We do not take a view on markets in the short-term as we do not think it is possible to predict short-term market movements.

The key risk to the market over the medium-term is linked to execution by the government. Market expects the government

t o i m p l e m e n t g r o w t h -enhancing policies over the next 6-12 months.

Do valuations look expensive?

Valuations are around the fair-value range. However, it should be noted that corporate earnings are at the low-end of the cycle and any growth rebound should lead to a strong earnings boost.

How is the economic situation looking like?

Indian macro has stabilized a n d h a s b e c o m e m o r e support ive for economic growth. While growth has revived, it remains weak and uneven. It will take a couple of years for the economy to move to a decisively higher growth path and government policies will be crucial to decide the trajectory.

How are September quarter earnings looking like? What is the road ahead for corporate earnings?

In the absence of a broad based recovery so far, Earnings activity is extremely stock-spec i f i c . H igher qua l i t y

Q:

A:

Q:

A:

Q:

A:

November 2014


Tête-à-tête

November 2014

companies have been able to maintain/grow profits but many other companies have got i m p a c t e d b y t h e w e a k economy. On a consolidated basis, earnings-to-GDP (gross domestic product) ratio is far lower than the level seen in 2007. Sustained revival in growth should provide a strong boost to earnings.

Which sectors are you favoring currently and why?

Rather than looking at sectors, our approach has always been to look at quality companies across sectors that offer good medium-term earnings growth prospects. From a portfolio perspective, over the last few months, we have run a higher exposure to cyclical stocks that are exposed to the economic recovery. We believe that the economy has bottomed and the revival over the medium term will provide a big boost to quality stocks that can take advantage of the same.

The Reserve Bank of India (RBI) has maintained status quo in its recent monetary policy. By when do you see the interest rates easing?

Inflation is on a weakening trend and the RBI should be able to comfortably meet its glide path target in January 2015. We expect policy rates to be cut over the next 6-12 months.

Q:

A:

Q:

A:

Q:

A:

Q:

A:

How do you see the currency reacting to the expected Fed action in 2015?

Given the stability in Indian macro situation, the economy should not face any disruptive risk from any rate hikes by the Fed. Some points to note are the significant fall in current account deficit (CAD), higher forex (FX) reserves, one of the highest interest rates in emerging markets, and being at a dif ferent stage in the economic cycle compared to the US.

What is your advice for investors at this point in terms of their overall portfolio and asset allocation?

Investors should remain focused on their long-term asset allocation and not make too many frequent adjustments based on recent market actions. Going forward, from a medium-to-long term perspective, both equity and fixed-income seem to be poised to generate r e a s o n a b l e r e t u r n s f o r investors. Investors should only look at quality portfolios and avoid making large allocations to narrow strategies.

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


ASK OUR PLANNER

Switching your investment options

Q:

A:

Our Group Superannuation Fund is managed by ICICI Prudential Life Insurance for the last 7 years. We have been given a choice to select the fund and I have chosen 'Short Term Debt Fund ' f rom the beginning. We have the option of switching to Tradition Plan / Balanced Plan / Growth Plan. Is it advisable to switch it to Traditional plan / Balanced Plan for a better return with minimal risk? My age is 47.

- Sivaramakrishnan KG

Short Term Debt Funds are ideal for investing for shorter term i.e. less than 1 year. Staying invested in them for a period of 7 years is not advisable. If your horizon is long i.e.15 years or more, you should consider investing some portion into equity-oriented funds. Now that you are 47 and might retire in the next 10-12 years, you can still consider investing into equity for below reasons:

One, your provident fund already invests into debt instruments and will be a signif icant part of your retirement corpus. Two, the

provident fund accumulation can be utilized for funding your initial post-retirement years, say 10 to 15 years, depending on the accumulation and your post-retirement expenses. This means that your other investments can stay invested into equity - oriented instruments for this period too, adding to the 10-12 years left now for retirement.

Since the number of years your other investments can stay invested is over 15-20 years, you can consider switching the funds even to Growth Plan. Growth Plan carries risk, but the risk can get minimized if you hold it over a longer period of time (15-20 years).

Also, while switching to Growth Plan, it is suggested not to switch the entire amount in lump sum, rather it is better to switch systematically on a regular basis, say, once in a month or quarter, depending on how it is allowed for you in your Superannuation Fund. This will help in averaging the entry point into equity.

I am a retired employee aged 60 Q:

November 2014


ASK OUR PLANNER

years. My requirement of housing, medical and monthly income is taken care of. I would like to invest part of my retirement corpus of around 30 lakh in mutual funds with following objectives: To beat the inflation and grow the corpus in tax-efficient manner in next five – seven years.

Since investing big amount of money through SIP route is not possible in a short time, please let me know if it is a good idea to invest in lump sum in mutual funds at current levels. Please suggest funds for investment keeping my profile in mind.

- Manjunath

In order to beat inflation and grow tax-efficient corpus, the best option is to invest into equity. However, it is not advisable to invest lump sum amount in equity, given its inherent volati le nature. Hence, it is best to invest systematically, either through SIP (systematic investment plan) or STP (systematic transfer plan).

If you invest through SIP, the entire amount would be kept in savings bank account, earning you a nominal rate of return. Instead, you may shift the

`

A:

entire amount in liquid funds, which will provide better return than savings bank account.

You can then start an STP from liquid mutual fund, which will systematically transfer a fixed amount from your liquid mutual fund into equity mutual fund regularly, say, every month. However, the gains from your liquid mutual fund shall be added to your income and will be taxable as per your income slab.

Let's say you invest 30 lakh into liquid mutual funds and start doing an STP of 1.50 lakh per month into equity mutual funds from next month onwards. You would have transferred the entire amount into equity funds over the next 22 months approximately. The gain booked from the liquid m u t u a l f u n d s w h i l e transferring every month will be added to your income. This can be around 2 lakh in the first year and 60,000 in the next year (assuming the liquid fund gives you a return of 9% p.a.).

On equity side, if your horizon is more than 10 years, it is better to stick to balanced

`

`

` `

November 2014


ASK OUR PLANNER

November 2014

funds and large-cap funds only. Of the entire gamut of equity funds, these will be the lesser riskier ones comparatively. However, if you are looking at strictly 5 to 7 years horizon, it is better to stick to Monthly Income Plans (MIPs), as shifting all your funds into equity funds will itself take close to 2 years, leaving you with only 3 to 5 years for growth, which may not be an ideal time horizon for investing the full amount into equity funds.

For our recommended mutual funds, please refer our MF Top Picks in this edition or visit our website www.icicidirect.com.

I have an ICICI Prudential Life Time Pension policy maturing on 23.01.15. I do not want annuity now as my age is 51 years. The total amount is approximately 2.40 lakh on maturity. My annual income is above 25 lakh. My query is:

1. What is the tax implication if I surrender the policy now and invest the whole amount in National Pension System (NPS)?

2. Is it possible that on maturity I get 1/3rd amount back as tax-free and instead of purchasing annuity, balance 2/3rd is credited to my NPS

Q:

`

`

account, or entire amount is credited to my NPS account? Or, is there any other tax beneficial option?

- A Saraswat

First option: If you surrender any pension plan before its maturity, then the entire surrender proceeds, not just the gain, will be added to your income and taxed as per your income slab. This had been done to discourage investors from surrendering pension plans. However, there is no Tax Deducted at Source (TDS).

Second option: On maturity of a pens ion p lan , you can

rd withdraw a maximum of 1/3 of the maturity value in lump-sum, which will be exempt

rdfrom tax. The balance 2/3 has to be necessarily utilized to purchase annuity.

In the first option, you can invest the post-tax surrender proceeds into NPS. If you opt for the second option, you will

rdbe able to invest only 1/3 of the maturity value into NPS on maturity of the policy.

From taxation perspective, pulling out money from one EET (Exempt-Exempt-Tax) investment, i.e. pension policy,

A:


ASK OUR PLANNER

November 2014

and putting it into another EET ( E x e m p t - E x e m p t Ta x ) investment, i.e. NPS will not make much difference.

(EET regime means your investment at the stages of contribution and accumulation is Exempt from tax, denoted by E-E-, but at the time of withdrawal, it is Taxable, denoted by T).

If you are not keen on receiving

annuity, then surrendering the

amount and investing into

equity mutual funds in a

staggered manner may be a

better choice, as this will help

you recover the tax paid on

surrender proceeds quicker

than NPS if markets do well

and also the gains after a

per iod o f 1 year f rom

investment into equity funds

will be exempt from tax.

I want to know the two best

mutual funds to invest 3,000 p.m.

for long term purpose. I would also

like to get some rough idea of the

corpus that these two funds would

generate in next say 15 or 20 years.

- H S Harikrishnan

The table below gives you an

idea of how much corpus will

be generated if you invest

3,000 per month in two equity

mutual funds for a period of

next 15 or 20 years. This is at

different rates of returns.

Q:

A:

`

`

In the last 15 years, some of the consistently performing equity mutual funds have given returns of around 15% p.a. While no return is guaranteed by any mutual fund, in the longer term – 15 to 20 years, you can expect a decent

return, which will help you beat inflation comfortably.

T o k n o w a b o u t o u r recommended mutual funds, please refer our MF Top Picks in this edition or visit our website www.icicidirect.com.

Period

Returns (p.a.)

8% 10% 12% 15%

15 years ` 10,19,335 ` 12,04,864 ` 14,27,794 ` 18,49,097

20 years ` 17,17,980 ` 21,71,960 ` 27,59,572 ` 39,81,220

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

40

MUTUAL FUND ANALYSIS

ICICIdirect Money Manager September 2014

Category: Equity Linked Savings Scheme (ELSS)

Key Information:

The Equity Linked Savings Schemes (ELSS), tax-saving mutual funds, are the best avenue for saving taxes as well as creating wealth in the long run. Here we analyse the top-performing funds.

Fund Objective:

To generate income and long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securit ies. However, there can be no assurance the investment objective of the scheme will be achieved.

Product Label:

This product is suitable for investors seeking*:

• Capital appreciation & generating

income over long term

• Investment in a diversified portfolio

predominantly consisting of equity and equity related instruments

• High risk

Fund Manager:

Performance:

Jinesh Gopani has a total experience of 13 years in the capital markets of which four years are in equity fund management. He has done his MMS in finance from Mumbai University.

E x c e p t i o n a l l y g o o d performance so far makes the fund a top ranking ELSS fund. On a one-year basis, the fund has delivered a whopping 66% return (as on October 30, 2014) vs. 35% delivered by its benchmark and ~47% being category average in the same year.

Over three years - minimum for which ELSS funds get locked in, the fund has delivered 2 8 . 3 % c o m p o u n d e d annualised return (CAR), thereby not only beating other tax-saving instruments but comparing very well against its own benchmark (S&P BSE 200) CAR of 15.5% and ELSS category average CAR of ~20% for the same three-year

NAV as on October 30, 2014 ( ) 26.7

Inception Date December 29,2009

Fund Manager Jinesh Gopani

Minimum Investment (`)

- Lumpsum 500

- SIP –

Expense Ratio (%) 2.33

Exit Load Nil

Benchmark S&P BSE 200

Last declared Quarterly AAUM( cr) 2512

`

`

Axis Long Term Equity

41



period. An investment of 100,000 would have grown to 2,17,094 in three years. Additionally, the investment would have earned tax savings of 30,900 for the individual falling in the highest tax b r a c k e t . T h e r e f o r e , a cumulative return of 147,997 ( 117,097+ 30,900) is the gain on the 1,00,000 invested within a period of three years.

``

`

`` `

`

Performance vs. Benchmark

38.4

66.3

28.3

24 3

4.9

15.5

11.2

010203040506070

6 Month 1 Year 3 Year 5 Year

Retu

rn%

Fund Benchmark

30-Sep-13 30-Sep-12

30-Sep-13 30-Sep-12 30-Sep-11

30-Sep-14

Last Three Years Performance

Fund Name

Fund 76.27 3.26 18.97

Benchmark 42.50 -1.11 13.77

CNX Nifty 38.87 0.56 14.42

2013 2012 2011 2010 2009

Calendar Year-wise Performance

NAV as on Dec 31 ( ) 17.3 14.8 11.1 13.0 10.0

Return (%) 16.5 33.7 -14.8 30.0 0.0

Benchmark (%) 4.4 31.0 -27.0 16.2 88.5

Net Assets (` Cr) 840 426 137 60

`

`Date

Fund 25950

Benchmark 14957

CNX Nifty 15532

* As on Sep 30, 2014

Note: Investors should note that past performance may or may not be repeated in future

Portfolio:

Being an ELSS, funds get

locked in for three years, which

give fund managers the liberty

to increase exposure to

midcap stocks. Some of Mr.

Gopani's mid-cap bets have

been exceptionally rewarding:

e.g. Page Industries, Astral

Polytechnic. The portfolio is a

selection of high-quality stocks

within the chosen sector.

Banking exposure is restricted

to private sector banks as asset

quality pressure is lowest.

Public sector banks reeling

under asset quality pressure

find no place in the portfolio.

The fund manager has

remained so cautious that

even the leader - State Bank of

India (SBI), the favourite stock

of his peers and an index

heavyweight - has not been

included.

Overall, the portfolio is mix of

fundamentally strong large-

cap and mid-cap companies. It

i s t h e o p t i m u m f u n d

forinvesting with three year

horizon.

Value of investement of 10000 since inception`

42



Top 10 Holdings Asset Type %

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

(Blue) Investors understand that

their principal will be at low risk

(Yellow) Investors understand that

their principal will be at meduim risk

(Brown) Investors understand

that their principal will be at high

risk

HDFC Bank Ltd. Domestic Equities 8.2Kotak MahindraBank Ltd. Domestic Equities 5.5Tata Consultancy Services Ltd. Domestic Equities 5.3Housing Development Finance Corporation Ltd. Domestic Equities 4.9Larsen & Toubro Ltd. Domestic Equities 4.8Sun Pharmaceutical Industries Ltd. Domestic Equities 4.2TTK Prestige Ltd. Domestic Equities 4.0Motherson Sumi Systems Ltd. Domestic Equities 3.4Tech Mahindra Ltd. Domestic Equities 3.4Maruti Suzuki India Ltd. Domestic Equities 3.4

Top 10 Sector Asset Type %

Bank - Private Domestic Equities 17.0IT - Software Domestic Equities 11.1Pharmaceuticals & Drugs Domestic Equities 10.0Finance - Housing Domestic Equities 7.2Auto Ancillary Domestic Equities 6.8Consumer Durables - Domestic Appliances Domestic Equities 6.1Engineering - Construction Domestic Equities 4.8Automobiles - Passenger Cars Domestic Equities 3.4Finance - NBFC Domestic Equities 3.2Diesel Engines Domestic Equities 2.9

Market Capitalisation (%)

Large 68.1

Mid 26.7

Small 2.8

Portfolio Attributes

Total Stocks 41.0

Top 10 Holdings (%) 47.2

Fund P/E Ratio 35.8

Benchmark P/E Ratio –

Fund P/BV Ratio 7.5

Asset Allocation

Equity 97.6

Debt 0.0

Cash 2.4

Risk Parameters

Standard Deviation (%) 11.85

Beta 0.79

Sharpe ratio 0.26

R Squared 0.82

Alpha (%) 7.73

Dividend History

Jan-07-2014 10

Aug-08-2012 8

Sep-01-2010 10

Date Dividend (%)

Performance of all the schemes managed by the fund manager

Fund Name30-Sep-13

30- -14Sep

30- -12Sep

30- -13Sep

31- -11Sep

31- -12Sep

Axis LT Equity Fund(G) 76.27 3.26 18.97S&P BSE 2004 2.50 -1.11 13.77Axis Hybrid Fund-7-Reg(G) 22.82 – –Crisil MIP Blended Index 15.45 – --

Data as on October 31, 2014; Portfolio details as on September 30, 2014

Source: ICICIdirect.com Research, Accord Fintech

43



Franklin India Tax Shield

Fund Objective:

To provide medium to long term

growth of capital along with

income tax rebate.

Key Information:

NAV as on October 30, 2014 ( ) 373.8

Inception Date April 10, 1999

Fund Managers Anand Radhakrishnan and Anil Prabhudas

Minimum Investment ( )- Lumpsum 500

- SIP 500

Expense Ratio (%) 2.39

Exit Load Nil

Benchmark CNX 500 Index

Last declared Quarterly AAUM( cr) 1413

`

`

`

Product Label:

This product is suitable for investors

seeking*:

• Long term capital appreciation

• An ELSS fund offering tax benefits

underSection 80C of the Income Tax Act

• Medium risk

Fund Managers:

Anand Radhakrishnan and Anil

Prabhudas

Anand Radhakrishnan is Chief

Investment Officer (CIO),

Franklin Templeton Asset

Management (India) Pvt Ltd.

He has overall 18 years of

experience in the investment

management industry. Mr.

Radhak r i shnan ho lds a

postgraduate degree in

management (Indian MBA),

from the Indian Institute of

M a n a g e m e n t ( I I M ) ,

Ahmedabad, and a Bachelor of

T e c h n o l o g y d e g r e e ,

special ising in chemical

eng ineer ing f rom Anna

University, Chennai in 1990. He

is also a Chartered Financial

Analyst (CFA) charter holder.

Anil Prabhudas is assistant vice

president and senior research

analyst for Franklin Templeton

India AMC Ltd, based in

Chennai, India. He holds a

bachelor in commerce from

Bombay University, and is also

a chartered accountant.

The fund is a steady performer.

It is sure to deliver above

category average return in any

kind of market (bull market,

bear market or consolidation).

However, the fund hardly ever

is a top ranker. It will always fall

in the first quartile beating

several of its peer funds in

terms of performance. This

uniqueness is across all funds

from the Franklin Templeton

AMC stable in their respective

categories.

Performance:

44



Performance vs. Benchmark

34.6 5

1.6

21.1

18.425

37.9

15.8

11.3

0102030405060

6 Month 1 Year 3 Year 5 Year

Retu

rn%

Fund Benchmark

30-Sep-13 30-Sep-12

30-Sep-13 30-Sep-12 30-Sep-11

30-Sep-14

Last Three Years Performance

Fund Name

Franklin India Taxshield 59.14 0.21 13.54

Benchmark 46.08 -2.49 13.22

CNX Nifty 38.87 0.56 15.42

2013 2012 2011 2010 2009

Calendar Year-wise Performance

Value of investement of 10000 since inception`

`Date

NAV as on Dec 31 ( ) 256.1 241.3 186.5 219.9 178.1

Return (%) 6.1 29.4 -15.2 23.5 78.8

Benchmark (%) 3.6 31.8 -27.2 14.1 88.6

Net Assets (` Cr) 1004 942 747 884 760

`

Fund 373196

Benchmark NA

BSE Sensex 76876

Portfolio:

The portfolio comprises of large-

cap stocks with highest weightage

to private sector banks. The two

large public sector banks - State

Bank of India (SBI) and Punjab

National Bank (PNB) also form

part of the portfolio indicating the

fund manger 's preference

towards the sector. Finance

companies and rating agencies

also find a place indicating the

fund manger is positive on the

economic recovery cycle leading

increased growth rates for

banking & finance companies. The

fund has also benefited from the

rally in the auto and auto ancillary

companies and still continues to

hold many of them (combined

exposure: ~10% of portfolio).

There is no bias towards a

particular theme and the portfolio

comprises companies from

diverse sectors.

A large-cap bias along with

optimum sector diversification

makes the fund relatively low on

risk. It is a suitable ELSS fund for a

moderate to conservat ive

investor.

An investment of 1,00,000

would have grown to

1,81,340 in three years.

Additionally, the investment

would have earned tax

savings of 30,900 for the

individual falling in the

highest tax bracket. Therefore

a cumulative return of

1,12,240 is the gain on the

1,00,000 invested.

`

`

`

`

`

45



Top 10 Sectors Asset Type %Bank - Private Domestic Equities 24.7

IT - Software Domestic Equities 9.0

Pharmaceuticals & Drugs Domestic Equities 8.8

Telecommunication - Service Provider Domestic Equities 5.9

Auto Ancillary Domestic Equities 5.9

Automobiles-Trucks/Lcv Domestic Equities 4.2

Diversified Domestic Equities 3.6

Refineries Domestic Equities 3.3

Diesel Engines Domestic Equities 3.3

Ratings Domestic Equities 3.1

Whats In %Crompton Greaves Ltd. 0.4

SKF India Ltd. 0.9

Alstom T&D India Ltd. 0.1

%Whats OutHousing Development Finance Corporation Ltd. 1.6

Idea Cellular Ltd. 0.5

Numero Uno International Ltd. 0

Portfolio Attributes

Total Stocks 55.0

Top 10 Holdings (%) 43.9

Fund P/E Ratio 26.2

Benchmark P/E Ratio –

Fund P/BV Ratio 4.9Risk Parameters

Standard Deviation (%) 11.70

Beta 0.81

Sharpe ratio 0.22

R Squared 0.90

Alpha (%) 1.99

Market Capitalisation (%)

Large 76.1

Mid 169.0

Small 5.0

Asset Allocation

Equity 93.4

Debt 0.0Cash 6.6

Dividend History

Jan-27-2014 30

Jan-21-2013 20

Feb-06-2012 30

Jan-17-2011 40

Jan-18-2010 30

Dec-19-2008 30

Date Dividend (%)

Top 10 Holdings

Call Money Cash & Cash Equivalents 6.6

Bharti Airtel Ltd. Domestic Equities 5.6

Infosys Ltd. Domestic Equities 5.4

ICICI Bank Ltd. Domestic Equities 5.3

HDFC Bank Ltd. Domestic Equities 5.0

IndusInd Bank Ltd. Domestic Equities 3.6

Yes Bank Ltd. Domestic Equities 3.2

Eicher Motors Ltd. Domestic Equities 3.1

Torrent Pharmaceuticals Ltd. Domestic Equities 3.1

Dr. Reddys Laboratories Ltd. Domestic Equities 3.0

Asset Type %

46



Performance of all the schemes managed by the fund manager

Fund Name30-Jun-13

30-Jun-14

30-Jun-12

30-Jun-13

31-Jun-11

31-Jun-12

Franklin Build India Fund(G) 87.81 1.48 16.37

CNX 500 Index 46.08 -2.49 13.22

Franklin India Taxshield(G) 59.14 0.21 13.54

CNX 500 Index 46.08 -2.49 13.22

Franklin India Prima Plus Fund(G) 58.95 0.38 13.49

CNX 500 Index 46.08 -2.49 13.22

Franklin India Balanced Fund(G) 46.77 1.39 11.49

Crisil Balanced Fund Index 28.89 1.86 13.74

Franklin India Life Stage FOFs-20(G) 42.62 -0.41 11.95

CNX 500 Index 46.08 -2.49 13.22

Franklin India Bluechip Fund(G) 41.41 -0.61 12.28

S&P BSE SENSEX 37.41 3.29 14.03

Franklin India Index Fund-NSE Nifty(G) 38.57 0.73 15.26

CNX Nifty Index 38.87 0.56 15.38

Franklin Infotech Fund(G) 34.47 27.62 13.75

S&P BSE IT 36.33 32.36 12.27

Franklin India Life Stage FOFs-30(G) 31.64 1.07 11.09

CNX 500 Index 46.08 -2.49 13.22

Franklin India Pension Plan(G) 28.87 2.37 11.15

CNX 500 Index 46.08 -2.49 13.22

Franklin India Dynamic PE Ratio FOFs(G) 27.89 0.38 10.77

Crisil Balanced Fund Index 28.89 1.86 13.74


CNX 500 Index 46.08 -2.49 13.22

Franklin India MIP(G) 19.88 5.24 9.94

Crisil MIP Blended Index 15.45 3.18 10.64


Crisil Composite Bond Fund Index 11.61 3.45 9.55

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

(Blue) Investors understand that

their principal will be at low risk

(Yellow) Investors understand that

their principal will be at meduim risk

(Brown) Investors understand

that their principal will be at high

risk

Data as on October 31, 2014; Portfolio details as on September 30, 2014

Source: ICICIdirect.com Research, Accord Fintech


EQUITY MODEL PORTFOLIO

Our indicative large-cap equity model portfolio has continued to deliver an impressive return of 78.7% (inclusive of dividends) till date (as on November 11, 2014) since its inception (June 21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex) return of 58.9% during the same period, out-performance of ~20%. Our portfolio approach towards high-quality stocks aided us in outperforming the Sensex with continued success. We continue to trust our philosophy of choosing stocks where the risk reward is favourable and not just the reward aspect. We feel “Quality-21” large-cap portfolio will continue to be aligned to the same philosophy.

Our “Consistent-15” mid-cap portfolio also continues to outperform, delivering 87% (inclusive of dividends) till date (as on November 11, 2014) vis-à-vis the benchmark index (CNX Midcap) return of 57.1%, as we continued to identify fundamentally strong stocks. Some key performers of our portfolio are Sun Pharmaceuticals, Lupin, Tata Consultancy Services (TCS), Tata Motors, Info Edge and Dabur India delivering 97%-190% returns since inception.

We have always suggested the systematic investment plan (SIP) mode of investment and still find a lot of merit in it as the preferred mode of deployment given the market conditions and volatility associated since the inception of the portfolio. It has outperformed other portfolios, thus, reinforcing our belief in a plan of investment. However, now we are also advising clients to look at lump-sum investments at any possible dips.

In the last few years, anxiety stemming from weak economic health and unstable policy environment has resulted in defensive sectors commanding high scarcity premium while debt-ridden cyclicals witnessed a de-rating. However, the recent decisive election verdict has given investors optimism over the overall growth prospects of the economy. Thus, the current rally has totally reversed the penchant for defensives (like information technology (IT), pharmaceuticals and fast-moving consumer goods (FMCG)), which have underperformed in 2014 year-to-date (YTD). On the other hand, old economy sectors, including capital goods, realty, metals, power and oil & gas have been

November 2014



topping the charts this year, signifying changing investor preference.

Thus, from a portfolio perspective, we have now leaned forward towards inclusion of stocks with more real economy, domestic discretionary exposure viz. GAIL, JK Cement, Arvind, etc. We have, thus, taken a strategic call of including stocks that possibly have a larger opportunity size either via reforms push or via revival in the discretionary demand from domestic consumers. Thus, we exit Page Industries and Nestlé with minimal returns.

Hence, we have made a significant shift in our portfolio stance to play the recovery cycle. In terms of relative weightage of the sector vis-à-vis the Sensex, we have changed our stance and gone overweight on financials (raising weights of public sector banks), oil & gas, the infrastructure space (cement, infrastructure and power). This has been primarily triggered by the possibility of decisive action in the infrastructure and real economy space by the new government. We have maintained our overweight stance on telecom considering the reducing regulatory hurdles and relatively better earnings growth profile. We are also overweight on sunrise sectors like media via Zee Entertainment.

We have, thus, positioned away from pure play defensives like the pure play mature exporter- IT and the expensive FMCG space. We feel both these sectors may have normalised earnings growth but the sectoral churning would cause them to de-rate on valuation terms.

For other equal weight sectors we are playing consumer discretionary sectors like autos (pent up demand, strong franchises) and the metals and mining space (high infrastructure demand expected), pharmaceuticals (large global generic opportunity yet to be tapped).

On individual names, we are strongly overweight on companies like L&T and UltraTech Cement in the infrastructure space while in public sector banks we like State Bank of India (SBI).

We believe we now have a better balance to our portfolio going into a recovery cycle and possibly a longer-term Bull Run.

November 2014



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

November 2014

Consumer Discretionary 10 7

United Spirits 2 1.4

Tata Motors DVR 4 2.8

Bajaj Auto 2 1.4

Titan 2 1.4

BFSI 27 18.9

HDFC 6 4.2

HDFC Bank 6 4.2

SBI 8 5.6

Axis Bank 7 4.9

Power, Infrastructure & Cement 13 9.1

L & T 8 5.6

Ultratech Cement 5 3.5

FMCG 10 7

ITC 10 7

Metals & Mining 4 2.8

NMDC 4 2.8

Oil and Gas 14 9.8

Reliance 11 7.7

Gail 3 2.1

Pharma 5 3.5

Lupin 2 1.4

Sun Pharma 3 2.1

IT 12 8.4

Infosys 3 2.1

TCS 6 4.2

Wipro 3 2.1

Telecom 3 2.1

Bharti Airtel 3 2.1

Media 2 1.4

Zee Entertainment 2 1.4

Largecap share in diversified 70



Midcap Stocks

Content source: ICICIdirect.com Research

ICICI Securities Ltd. has been assigned an advisory mandate by Ranbaxy Laboratories Limited with regard to Sun Pharmaceutical Industries Limited's acquisition of Ranbaxy Laboratories Limited. This report is prepared on the basis of publicly available information.

Name of the company Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

November 2014

Consumer Discretionary 20 6

Bosch 6 1.8

Cox & Kings 6 1.8

Arvind 8 2.4

IT 6 1.8

Info Edge 6 1.8

BFSI 16 4.8

DCB 8 2.4

IndusInd Bank 8 2.4

FMCG 14 4.2

Kansai Nerolac 8 2.4

Tata Global Beverages 6 1.8

Pharma 6 1.8

Natco Pharma 6 1.8

Media 8 2.4

PVR 8 2.4

Capital Goods 6 1.8

Cummins 6 1.8

Realty/Infrasturcture/Cement 24 7.2

JK Cement 6 1.8

Container Corporation of India 6 1.8

Oberoi Realty 6 1.8

Shree Cement 6 1.8

Midcap share in diversified 30

Total of all three portfolios 100 100 100



Performance* so far Since inception

*Returns (in %) as on , 2014

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

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

November 11

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

Portfolio Benchmark

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: June 30, 2011; *Value as on November 11, 2014

November 2014

78.787.0

78.8

58.9 57.1 55.8

0

20

40

60

80

100

Large Cap Midcap Diversified

%

4,2

00,0

00

4,2

00,0

00

4,2

00,0

00

5,9

95,3

39

7,0

60,7

88

6,2

67,5

22

5,7

49,1

77 6,3

02,5

86

4,9

29,2

08

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Largecap Midcap Divesified


MUTUAL FUND TOP PICKS

Wth over thousand of mutual fund schemes available in the market, selecting the right ones may become too complex. To make it easy for you, we present our research team’s top recommendations, across equity and debt categories

Mutual Fund Top Picks

November 2014

Equity

Category Top Picks

Largecaps Axis Equity FundBirla Sunlife Frontline equity FundICICI Pru Focussed Bluechip Equity FundUTI Opportunities Fund

Midcaps HDFC Midcap Opportunities FundICICI Prudential Value Discovery FundFranklin India Smaller Companies FundSBI Magnum Global Fund

Diversified Franklin India Prima PlusICICI Prudential Dynamic PlanReliance Equity Opportunities

ELSS Axis Long Term EquityICICI Prudential Tax PlanFranklin India Tax shield

Sector - Banking ICICI Prudential Banking Reliance BankingUTI Banking


MUTUAL FUND TOP PICKS

November 2014

Short Term Birla Sunlife Short Term FundHDFC Short Term Opportunities FundICICI Pru Short Term Plan

Credit Opportunities Fund

Birla Sunlife Medium Term PlanFranklin India Short term PlanICICI Prudential Regular Savings

Income Funds ICICI Prudential Dynamic Bond FundBirla Sun Life Income Plus - Regular Plan IDFC Dynamic Bond Fund

Gilts Funds ICICI Pru Gilt Inv. PF PlanBirla Sunlife Gilt Plus

MIP(Aggressive)

Birla Sunlife Savings 5ICICI Prudential MIP 25DSP Blackrock MIP

Debt

Category Top Picks

Liquid Funds HDFC Cash Mgmnt Saving Plan ICIC Pru Liquid PlanReliance Liquid Treasury Plan

Ultra Short Term Birla Sunlife Savings FundFranklin India Ultra Short Term Bond FundICICI Pru Flexible Income Plan

QUIZ TIME

1. When a domestic company pays dividend, it pays dividend distribution tax (DDT) at ______ per cent currently.

2. If an assessee invests in Equity Linked Savings Scheme (ELSS) mutual funds, the investment is eligible for deduction from his taxable income to the extent of Rs. ______ under section 80C.

3. There are no tax-incentives for investment in bank and corporate fixed deposits (FDs). True/ False

4. The interest earned on savings bank account in excess of Rs. ______ p.a. is taxable in the hands of the individual.

5. Expand EET (Hint: It's a taxation regime).

Note: All the answers are in the stories that have appeared in this edition of ICICIdirect Money Manager. You may send in your answers at:[email protected]

The answers will be published in our next edition. The names of the earliest all correct entries will be published too. So jog your grey cells and be quick to send in your entries.

Correct answers for the October 2014 quiz are:

1. Expand UAN (Hint: It would be provided for provident fund (PF) accounts).

A: Universal Account Number

2. Non-equity mutual funds do not invite tax on dividends for unit holders. True/ False.

A: True; the tax on dividend is payable by the mutual fund houses

3. The period for long-term capital gains has been changed from 12 months to 24 months in case of non-equity mutual funds for taxation purpose. True/ False.

A: False; it has been increased to 36 months

4. All Monthly Income Plans (MIPs) are debt-oriented funds. True/ False.

A: True

5. Short-term capital gains are taxed at ______% for equity mutual funds.

A: 15%

Congratulations to the following winners for providing correct answers! Neelakandan Eswaran



MONTHLY TRENDS

3.52

2.70

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Sep-14 Oct-14

(%)

91.16

82.20

74.0

76.0

78.0

80.0

82.0

84.0

86.0

88.0

90.0

92.0

30-Sep 5-Oct 10-Oct 15-Oct 20-Oct 25-Oct 30-Oct

$ pe

r bar

rel

-157.13

1906.73

201.24

-276.49

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

30-Sep 5-Oct 10-Oct 15-Oct 20-Oct 25-Oct 30-OctFII DII

.

WPI INFLATION (FOOD)

(The figures are in %)

CRUDE OIL

NYMEX crude oil prices ($/barrel)

FII & DII INVESTMENTS

(Foreign institutional investors (FIIs) and domestic institutional

investors (DII) net equity investment ( ` in crore)

November 2014

13.1513.30

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0


VIX

VOLATILITY INDEX (VIX)


MONTHLY TRENDS

26630.51

27865.83

25000

25500

26000

26500

27000

27500

28000

28500


7964.80

8322.20

7400

7500

7600

7700

7800

7900

8000

8100

8200

8300

8400


DOMESTIC INDICES BSE Sensex

NSE Nifty

4.49%

4.64%

November 2014

17042.90

17390.52

15300

15600

15900

16200

16500

16800

17100

17400

17700


GLOBAL INDICES

2.04%

Dow Jones

4493.39

4630.74

4000

4100

4200

4300

4400

4500

4600

4700


NASDAQ

3.06%


MONTHLY TRENDS

61.93

61.39

60.4

60.6

60.8

61.0

61.2

61.4

61.6

61.8

62.0


US

D /

INR

100.39

98.19

96.0

96.5

97.0

97.5

98.0

98.5

99.0

99.5

100.0

100.5

101.0


£/

INR

78.22

76.89

76.0

78.0

80.0


€/

INR

1208.74

1173.92

1150

1225

1300


$ pe

r O

unce

16.94

16.14

15.0

17.0

19.0


$ pe

r Oun

ce

EXCHANGE RATES USD-INR

POUND-INR

EURO-INR

BULLION GOLD

(The prices are in $ per ounce).

SILVER

(The prices are in $ per ounce). (Source for all indicators: Bloomberg, Reuters)

2.19%

0.86%

1.70%

November 2014


Premium Education Programmes Schedule

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

Here is the list of our programmes scheduled for the month of November, 2014.

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

City Dates For More Information & Registration call:

Sr.No


Schedule for Chartered Financial Analyst (CFA) Level 1

November 2014

1 New Delhi Nov 01 and 02, 2014 Vishal on 07838290143, Harneet on 09582158693

2 Kolkata Nov 01 and 02, 2014 Sumit on 08017516187

3 Mumbai-Andheri Nov 08 and 09, 2014 Vidhu on 9619716146

4 Pune Nov 15 and 16, 2014 Kusmakar on 7875442311

5 Thane Nov 15 and 16, 2014 Vidhu on 9619716146


7 Bangalore Nov 22 and 23, 2014 Subrata on 9620001478

8 Navi Mumbai Nov 22 and 23, 2014 Manish on 8451057943


10 Mumbai-Chembur Nov 22 and 23, 2014 Manish on 8451057943

11 Mumbai-Malad Nov 02 and 09, 2014 Vidhu on 9619716146


Sr.No


Schedule for Chartered Financial Analyst (CFA) Level 1 ( FOR ICICI GROUP EMPLOYESS)


Sr.No


Schedule for Certified Financial PlannerCM (CFP CM) certification

14 Mumbai-Malad Nov 02 and 09, 2014 Vidhu on 9619716146


Sr.No


Schedule for Chartered Wealth Manager® (CWM) certification


Sr.No


Schedule for Fast-Track Programme on Futures & Options (F&O)

17 Ahmedabad 02 Nov, 2014 Yogesh on 8238053563

18 Rajkot 09 Nov, 2014 Yogesh on 8238053563

19 Lucknow 09 Nov, 2014 Harneet on 09582158693

20 Surat 16 Nov, 2014 Yogesh on 8238053563

Sr.No


Schedule for Fast-Track Programme on Stock Investing

21 Bhubaneshwar 02 Nov, 2014 Sumit Sarkar on 8017516187

22 Aurangabad 02 Nov, 2014 Kusmakar on 7875442311

23 Ludhiana 02 Nov, 2014 Vishal on 7838290143

24 Jalandhar 02 Nov, 2014 Vishal on 7838290143

25 Ghaziabad 02 Nov, 2014 Harneet on 09582158693

26 Dehradun 02 Nov, 2014 Harneet on 09582158693


27 Vadodara 16 Nov, 2014 Yogesh on 8238053563

28 Jaipur 16 Nov, 2014 Vishal on 07838290143

29 Jamshedpur 23 Nov, 2014 Sumit Sarkar on 8017516187

30 Dhanbad 23 Nov, 2014 Sumit Sarkar on 8017516187

31 Ajmer 23 Nov, 2014 Harneet on 09582158693

32 Bikaner 23 Nov, 2014 Harneet on 09582158693

33 Guwahati 30 Nov, 2014 Sumit Sarkar on 8017516187

34 Amritsar 30 Nov, 2014 Vishal on 07838290143, Harneet on 09582158693

Sr.No


Schedule for Fast-Track Programme on Technical Analysis

35 Meerut 09 Nov, 2014 Vishal on 07838290143, Harneet on 09582158693

36 Ranchi 23 Nov, 2014 Sumit Sarkar on 8017516187

Sr.No


Schedule for MarketMaster Programme

37 Chandigarh 08 and 09 Nov, 2014 Vishal on 07838290143, Harneet on 09582158693

38 New Delhi 15 and 16 Nov, 2014 Vishal on 07838290143, Harneet on 09582158693

Sr.No


Schedule for Technical Analysis

39 Bangalore 15 and 16 Nov, 2014 Subrata on 9620001478

40 Hyderabad 15 and 16 Nov, 2014 Ruchi on 8297362323


42 Pune 22 and 23 Nov, 2014 Kusmakar on 7875442311

43 Mumbai-Andheri 22 and 23 Nov, 2014 Vidhu on 9619716146


45 Kolkata 29 and 30 Nov, 2014 Sumit on 08017516187

Sr.No


Schedule for Foundation Programme on Stock Investing

46 Pune Nov 01 and 02, 2014 Kusmakar on 7875442311



49 NEw Delhi 08 and 09 Nov, 2014 Vishal on 07838290143, Harneet on 09582158693



52 Mumbai-Chembur 08 and 09 Nov, 2014 Manish on 8451057943

53 Thane 08 and 09 Nov, 2014 Vidhu on 9619716146

54 Nagpur 15 and 16 Nov, 2014 KUsmakar on 7875442311

55 Navi Mumbai 15 and 16 Nov, 2014 Manish on 8451057943



58 Chandigarh 22 and 23 Nov, 2014 Vishal on 07838290143, Harneet on 09582158693






Sr.No


Schedule for Advanced Derivatives Trading Strategies



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