alpha edge - march 2016

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“A Balancing Act”

India Strategy | March 2016

March 2016 3

A Balancing Act India Strategy | March, 2016

Foreword

Dear Investor,

The pain that started in the year seem to be going strong in the month of Feb as markets fell

another 7.6% making it a fall of 12% for the calendar year. The markets continued to tank as

no one was willing to heed the GDP growth number of 7.6% for the Dec quarter. We think that

the market if finally realizing the cause for the disconnect between GDP growth & Sales / Profit

growth thanks to the missing ingredient called inflation. It’s natural to be perplexed as to how we can possibly grow at

such a fast pace when the IIP & manufacturing is struggling and when the earnings just refuse to resurrect along with

credit growth. The answer lies in the low to negative WPI inflation for a good portion of this FY 16.

Back to the issue that dominated February.. Expectation from the Budget!! The prevailing mood into the budget was one

that looked forward to an accommodative fiscal stance in response to sluggish domestic situation. Everyone expected

Government to relax the Fiscal Deficit targets of this year, set at 3.5% of GDP and support a growth oriented policy by

spending & borrowing more. However it looks like NDA, stung at being labelled a "suit-boot ki sarkar", chartered a

departure from their known positioning. The Finance minister presented a very balanced budget which surprised everyone

as the government stuck to its fiscal deficit target of 3.5% and stumped the opposition as it turned out to be a populist

budget with focus on rural, agriculture, socio economic reforms and infrastructure. We saw sincere efforts of the

government to address issues that has caused most of the pain in recent time to the domestic economy. Even though

analysts are trying to comb the numbers to see how the government will be able to stick to its fiscal path with a significant

expenditure hit coming due to the seventh pay commission. We believe this also appeals to the global investors who look

for consistency in India’s commitment to fiscal discipline, something that RBI desperately wants, in case another bout of

emerging market currency volatility presents itself. This budget’s expenditure side break down seems to portend a revival

in the rural demand that has seen setbacks due to two consecutive weak monsoons and low MSP hikes. What’s left to see

is evidence of how the government manages the revenue end, to meet the strict deficit targets and whether we would

see fiscal slippages going forward? Else, the bond yields that seem to cool off for now can once again retrace higher.

In the meanwhile the Global economy continues to struggle, with the ‘R’ (Recession) word being spoken freely. Countries

that were earlier trying to flush their system with liquidity to spur demand, are now focused on devaluing their currency

to increase their share of the slowing global exports pie. Japan has resorted to measures like NIRP (Negative Interest Rate

Policy) in order to not let its currency strengthen any further. Depositors are now being pushed to spend rather than lose

money by saving with their Governments. Not a good sign at all. China is expected to exacerbate the situation by devaluing

its currency significantly to stay competitive. This will spread deflationary forces can accelerate into a recession. On

another note, Oil seems to have stabilized at levels that are 70% lower from their highs. While it is good for us as importers,

exporting countries who are under pressure to fund their deficits, may continue to redeem from their Global stock/bond

portfolios causing some continuity of volatility. Lower Oil is a Catch 22 for those of us who pray for lower oil prices.

We pray that India’s policies continue to give it the much needed stability amidst the darkening global clouds.

Warm Regards,

A V Srikanth

March 2016 4

Alpha Edge | “A Balancing Act”

Asset Class performance

Asset Class returns for February 2016

Source: Bloomberg

The turbulence in all emerging markets has continued in the month of February. Equity markets have shredded another 7.62% last month. Investors again have shifted their assets towards Gold as a safe haven and it has been the best performer with returns of 9.73% for the month.

FII Flows for Calendar Year 2016

Source: ACEMF

Equity as well as Debt markets have seen outflows in February. Equities saw a net outflow of Rs 2,816 Crs whereas Debt market has seen net outflow of Rs 8,194 Crs.

Sector Returns for February 2016

Source: Bloomberg

Metal, FMCG and Healthcare Indices have been

outperformers for February 2016. Power, Realty and

PSU have been the laggards during the same period.

-7.62%

-0.40%

0.58%

9.73%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Equity 10 yrTreasuries

Cash Gold

Asset Class Returns For Feb 2016

Equity 10 yr Treasuries Cash Gold

47 3771

-53

83133

-3

128 113 97

18-17

-6

4

9

12

5

46

42

35

-51

160

46

-6

-100

-50

0

50

100

150

200

250

300

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

FII F

low

s (i

n `

00

0 C

rs)

Equity Debt

-13.9

-13.1

-12.2

-11.4

-11.3

-10.2

-9.3

-9.1

-8.4

-8.1

-7.5

-7.0

-7.0

-6.7

-4.4

-2.0

-35.0 -21.0 -7.0 7.0 21.0 35.0

S&P BSE Power Index

S&P BSE Realty Index

S&P BSE Small-Cap

S&P BSE PSU

S&P BSE OIL & GAS Index

S&P BSE BANKEX

S&P BSE Consumer Durables

S&P BSE Capital Goods

S&P BSE IT

S&P BSE Mid-Cap

S&P BSE SENSEX

S&P BSE AUTO Index

S&P BSE TECk Index

S&P BSE Health Care

S&P BSE FMCG

S&P BSE METAL Index

Sector Returns for Feb 2016(%)

March 2016 5


US Interest rates – Fed holds the line…for now

The US economy ended the year on a stronger

footing than expected, providing some reassurance

as the global outlook falters. However, the economy

has for long being giving mixed signals. It expanded

at an annualized 1 percent quarter on quarter in the

last three months of 2015, higher than a preliminary

figure of 0.7 percent. The resilience of household

spending which constitutes 2/3rd of the GDP has

proved to be a bright spot for the economy in

recent quarters.

Whereas, with a lack luster earnings season winding

down, solid macroeconomic data is the key to keep

the momentum going for US indices. Again, Oil

prices will continue to be a major factor for equities,

as we have seen that the rise in U.S. crude prices in

the short term has been a key ingredient in the

advance of U.S. stocks off their 10-month low.

However, the way the equities have been closely

tied to movements in crude of late, another

downturn in the commodity prices is likely to put

pressure on US stocks.

We still continue to believe that Fed would be

closely watching the faltering global economy in

order to decide the path of rate hike. Also, with a

slowdown in the global economy resulting in to

strengthening of deflationary pressures it is likely

that the expectation of inflation would be low. This

in turn would make it difficult for the Fed to raise

interest rates soon.

Source: Bloomberg

Negative interest rates in Japan – What does it

mean?

Just when the markets thought they have seen it all,

something new happened. Japanese 10 year yield

slipped in to the negative territory for the first time.

The Bank of Japan announced it had cut the rate on

excess reserves to minus 0.1%, meaning institutions

will have to pay the central bank for the privilege of

parking reserves that exceed those required by

regulators. The Yen appreciating in the last 6

months was another big reason for such a step

taken. As it turns out, the negative yield on the 10-

year government bond was compelled by the

negative rate the Bank of Japan is charging for

deposits, as expected the banks simply moved into

the next safe haven – government bonds which led

to the yields falling in the negative territory.

The goal of such rates is to force banks to lend their

excess reserves. The assumption is that such lending

will boost aggregate demand and help struggling

economies recover. This has come when

Abenomics, an economic policy which started in

2012 in order to revive demand and inflation in

Japanese economy seem to be failing to do so.

According to us negative interest rates are a final

act of desperation to spur demand in the economy

by forcing cash out of the banking system and make

people spend when everything else fails. The

problem with negative interest rates is that history

has shown little evidence of the impact of such a

policy on economy or inflation. No country that has

gone into negative rates has experienced major

shifts in its growth and inflation profile as a result

every dip has resulted in to further cuts in interest

rates. We believe the shift to negative interest rates

is all the more problematic. Given persistent

sluggish aggregate demand worldwide, a new set of

risks is introduced by penalising banks for not

making new loans. This would cause the banks to

lend to borrowers with a low credit profile. Post the

announcement of negative rates Nikkei rose around

4% and then after that we have seen it fall around

1.91.1

33.8

-0.9

4.6 4.3

2.1

0.6

3.9

2

1

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

US GDP

March 2016 6


10% thus indicating markets have not taken this

new policy well.

Japanese Yen appreciating

Japanese Interest rate

Low Crude oil price - Is it the new normal?

Brent crude for the month of Feb has stayed in the

range of $30 - $36 per barrel as the world ponders

whether crude has bottomed out. Oil prices for the

month stayed firm and have in fact seen strong

gains in the last week of Feb month on the back of

news from the US where the rig count is falling and

the hopes that the fall would ease the excess

supply. Oversupply and tepid demand growth have

pushed down prices by around 70% since mid-2014.

Analysts say the persistently low prices are forcing

some high-cost producers, such as those in North

America, to trim production in order minimize cost.

The latest data released by the U.S. Energy

Information Administration shows U.S. crude

production continues to be on a downtrend, falling

to 9.1 million barrels a day in the end week ended

Feb 19. The decline in the rig count shows that

current lower prices is not making production

economically viable for shale gas producers.

One of the key reasons for the start of the fall of

crude prices from over $100 per barrel was

discovery of US shale gas in the US which was then

followed by lower demand and further increase in

the supply by OPEC countries to lower the crude

price to the extent that it is not viable for the shale

gas producers. We believe that even if going

forward we see cuts in the production by OPEC

countries in order to revive the prices, there would

be a limit to do so. Firstly the data from IEA shows

that crude oil would be oversupplied until 2017

even if current levels of production is maintained as

the demand too will be hit in a slowing global

economy. This would mean the prices would be

under pressure due to oversupply. Secondly, even if

due to production cuts by OPEC crude prices inch

upwards, it would result in to US shale gas

producers returning at higher levels (Which would

make their production economically viable) and

hence resulting in increase in supply which would

eventually lead to lower prices.

105

110

115

120

125

130

USD JPY

253035404550556065

2-J

an-1

5

2-F

eb

-15

2-M

ar-1

5

2-A

pr-

15

2-M

ay-1

5

2-J

un

-15

2-J

ul-

15

2-A

ug-

15

2-S

ep

-15

2-O

ct-1

5

2-N

ov-

15

2-D

ec-1

5

2-J

an-1

6

2-F

eb

-16

Crude oil

March 2016 7


However, the depths that the index is now lessening

is quite alarming and suggests trouble in the global

trade picture. It would also suggest perhaps that the

deflationary pressure is not just a supply issue.

Indian Economy

Budget analysis – Fiscal discipline maintained,

Focus towards rural growth

As was expected the Budget 2016 put the rural

economy and infrastructure at helm. Finance

minister stressed upon the fact that rural economy is

a major growth pillar of our Indian economy. Post 2

consecutive weak monsoons the broader rural

economy has been ailing, it was this economy that

that had the strongest growth engine in the last

decade. We have been experiencing the effects of

the ailments especially in the earnings with rural

demand at its weakest in recent times. For overall

rural development Rs.87,765 crore has been

allocated by the government with an aim to provide

impetus to farmers and create vast employment

opportunities which would be widely expected to

revive the demand in the rural economy.

Based on an assessment of the pattern of revenue

and expenditure during Apr-Dec’15, the survey

states that the fiscal deficit target of 3.9% for FY16 is

likely to be achieved. Considering market

participants were expecting that the hit of OROP &

seventh pay commission would be taken in the 2016-

17 financial year hence it would be difficult for the

government to stay on the fiscal path laid down.

However government posted a pleasant surprise by

sticking to the pre-announced fiscal deficit target of

3.5% of GDP this is expected to bring macroeconomic

stability, although. Although the government

acknowledges that the FY17 target will be a challenge

it stresses on improving tax compliance &

administration and tapping new resources to raise

more revenue, while improving the quality of

expenditure to achieve sustained fiscal consolidation

in order to maintain credibility.

CAD to come in at 1-1.5%. Finance minister pointed

out that India’s external sector remains strong due to

better macroeconomic fundamentals and low

commodity prices, despite the volatility in global

markets linked to concerns over China’s growth,

financial markets and currency. He expects the

slowdown in exports to continue for a while before

picking up in FY17. However, the continuance of low

global commodity prices augurs well for sustaining

low trade and current account deficits.

There were few disappointments too in the budget

including recapitalization of banks with markets

expecting a much higher number than 25,000 cr.

Proposal to tax dividends above Rs 10 lakh in the

hands of the investor and increase in securities

transaction tax for options trades. A slight relief

although was the absence of increase in tenure for

long term capital gains tax. Not too much

Overall we believe this budget has rightly focused on

rural economy, infrastructure spending, social

welfare schemes and ‘digital’ initiatives. Government

has tried to manage a balance between the sagging

rural economy and growth expectations of the

industry with benefits given to the poor and not

much given to the salaried and the rich. It could be

said that this budget is more populist, however with

focus on quality of spending. The focus on improved

infrastructure through network of roads, rail, ports

and airports will provide impetus for enhanced

growth and in turn will generate employment.

Despite the hefty commitments on rural, health care

and social along with OROP & seventh pay

commission the government has managed to stick to

the fiscal road map which obviously will give room to

9091 92 92 92

9394

95 9596

97 97World Oil Supply

Mill

ion

bar

rels

per

March 2016 8


RBI for further rate cuts. This budget is like a ‘tax

wisely and spend more wisely’ kind of budget.

Key Budget Highlights

Taxation Excise duty raised from 10 to 15 per cent on tobacco products other than beedis

1 per cent service charge on purchase of luxury cars over Rs. 10 lakh and in-cash purchase of goods and services over Rs. 2 lakh.

SUVs, Luxury cars to be more expensive. 4% high capacity tax for SUVs.

Companies with revenue less than Rs 5 crore to be taxed at 29% plus surcharge

Excise 1 per cent imposed on articles of jewellery, excluding silver.

Dividend in excess of Rs. 10 lakh per annum to be taxed at additional 10 per cent.

0.5 per cent Krishi Kalyan Cess to be levied on all services, effective 1 June 2016

Pollution cess of 1 per cent on small petrol, LPG and CNG cars; 2.5 per cent on diesel cars of certain specifications; 4 per cent on higher-end models.

Personal

Finance

No changes have been made to existing income tax slabs

Deduction for rent paid will be raised from Rs 20,000 to Rs 60,000 to benefit those living in rented houses.

Additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, provided cost of house is not above Rs. 50 lakh

15 per cent surcharge on income above Rs. 1 crore

Investments

and

infrastructure

Rs. 27,000 crore to be spent on roadways

Shops to be given option to remain open all seven days in a week across markets.

Rs. 55,000 crore for roads and highways. Total allocation for road construction, including PMGSY, - Rs 97,000 crore

Total outlay for infrastructure in Budget 2016 now stands at Rs. 2,21,246 crore

Amendments to be made in Motor Vehicles Act to open up the road transport sector in the passenger segment

Health A new health protection scheme for health cover upto 1 lakh per family.

National Dialysis Service Prog with funds thru PPP mode to provide dialysis at all district hospitals.

Senior citizens will get additional healthcare cover of Rs 30,000 under the new scheme

PM Jan Aushadhi Yojana to be strengthened, 300 generic drug store to be opened

Education 10 public and 10 private educational institutions to be made world-class.

Entrepreneurship training to be provided across schools, colleges and massive online courses.

Objective to skill 1 crore youth in the next 3 years under the PM Kaushal Vikas Yojna-FM Jaitley

National Skill Development Mission has imparted training to 76 lakh youth. 1500 Multi-skill training institutes to be set up.

62 new navodaya vidyalayas to provide quality education

Financial

Sector

New derivative products will be developed by the market regulator Securities and Exchange Board od India, or Sebi, in the Commodity Derivatives market

Rate of Securities Transaction tax in case of ‘Options’ is proposed to be increased

March 2016 9


from 0.017 per cent to .05 per cent.

Banks get a big boost: Rs 25,000 crore towards recapitalisation of public sector banks.

Govt to increase ATMs, micro-ATMs in post offices in next three years

Agriculture The proposed allocation for agriculture and farmers’ welfare is Rs 35,984 crore.

28.5 lakh heactares of land wil be brought under irrigation.

Rs 60,000 crore for ground water recharging as there is urgent need to focus on drought hit areas cluster development for water conservation.

Dedicated irrigation fund in NABARD of Rs.20.000 cr

Nominal premium and highest ever compensation in case of crop loss under the PM Fasal Bima Yojna.

Recovery momentum faltering: IIP at -1.3% in

December

It has been second month in a row that IIP has

shown a negative growth. The reported December

IIP of -1.3% has been significantly short of

consensus expectations of -0.1%. Among the major

sectors, mining growth quickened (2.9%). Electricity

sector turned up once again to a respectable 3.2%.

Ten out of 22 industry groups registered negative

growth to keep the manufacturing sector trending

southward, it accounts for over 75 per cent of the

index, and has declined by 2.4 per cent against a

growth of 4.1 per cent in December 2014.

While the upstream basic goods barely recovered

(0.5%) from the degrowth of last month (-0.7%),

capital goods continued to show deep downturn of

-19.7% for the second successive months as

compared to 6.1% in the same month a year ago.

Intermediate goods however turned into positive

territory again (0.9%).

Strong growth in durables continued (16.5%), a

lower degrowth of non-durables (-3.2%) helped the

overall consumer sector to register accelerated

growth of 2.8% from just 1% a month back.

We do expect the volatility in IIP to continue given

the slow growth in global economy especially

slowdown in China and domestic concerns on weak

rural demand.

3.6 2.84.8

2.5 3.0 2.54.2 4.1

6.33.8

9.9

-3.2-1.3

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

IIP

-1.7

2.9

1.82.3

2014-15 2015-16

Mining

Dec Apr-Dec

4.8

10

3.24.5

2014-152015-16

Electricity

Dec Apr-Dec

4.1

-2.4

1.83.1

2014-15 2015-16

Manufacturing

Dec Apr-Dec

March 2016 10


Fixed income

India Consumer Inflation Rises to 17-Month High

Consumer prices in India went up 5.69 percent year-on-

year in January of 2016, higher than 5.61 percent in

December of 2015 and accelerating for the sixth straight

month. It is the highest figure since August of 2014 and

above market expectations of 5.4 percent. Food inflation

increased to 6.85 percent from 6.4 percent in December,

also the highest in seventeen months.

Year-on-year, cost of food and beverages rose 6.66

percent (6.31 percent in December. The food index

increased to 6.85 percent compared to 6.4 percent in

the previous month. The biggest rise came from pulses

(up 43.32 percent from 45.92 percent in the previous

month).

Cost of clothing and footwear went up 5.71 percent

year-on-year (5.74 percent in December); fuel and light

rose 5.32 percent (5.45 percent in December); and

housing prices increased 5.26 percent (5.06 percent in

December). The corresponding provisional inflation rates

for rural and urban areas are 6.48 percent and 4.81

percent.

Outlook

As we had mentioned in out earlier reports that the

rate cut trajectory depends on the fiscal discipline

of the government. With the next year deficit

unchanged to 3.5% it seems the government is not

looking to digress from the fiscal path laid down

earlier. Immediately post the budget

announcement we saw a fall in the yields by around

15 bps to 7.62%. This came on the back of the

expectation that RBI will now cut the rates.

We believe that now the government has in effect

put the ball in RBI governer’s court by sticking to the

fiscal deficit target of 3.5% for FY17. RBI governor

surely will have the room to cut the rates however

other factors that affect the interest rates too needs

to be evaluated. CPI has been on an uptrend thanks

to the food inflation, even though it has been within

RBI target line it needs to be seen how the monsoon

turns out this year which should help ease the food

inflation. The advantage of the fall in commodities

that we have seen in the last one and a half year

now seems to waning out which could put upward

pressure on CPI. Another factor that needs to be

looked at is the real return target of 1.5% to 2% that

the RBI looks at. With inflation target of around 5%

for March 2017 and a real return target of 1.5% it

leaves RBI with little room for rate cuts. Also we

believe the policy makers would be combing

through the numbers to understand as to how the

government was able to strike a fine balance

between fiscal consolidation and making a populist

budget at the same time. Based on these

parameters we believe that RBI would cut rates by

25 bps for the FY2017, unless we see inflation

undershooting well below RBI’s target.

-10

-5

0

5

10

CPI and WPI

CPI WPI

March 2016 11


Equity – Earnings downgrade continue…

Volatility continued in the Indian markets

considering it was the budget month with Nifty

trending downwards through the month and ending

at 6987 down 7.6%. CNX midcap ended 7.30% down

for the month as compared to -6.92% for the

previous month. Small cap index had another bad

month and it was down -13.28% as compared to -

11.02% for the previous month.

FII & DII Flows

FII’s continued the selling spree on the back of

global uncertainties, another weak earnings season

etc. FII’s sold around Rs.12,513 cr. in Indian equities

in the month of February. On the contrary DII’s

continued their buying spree with around 10,491 cr.

of equity bought in February.

Flows in Rs cr February 2016

January 2016

Domestic Institutional Investors (DIIs)

Mutual Fund

5,945 6,702

Insurance 4,546 6,172

Total 10,491 12,874.9

Foreign Institutional Investors (FIIs)

(12,513) (13,943)

Results update

As expected this turned out to be another

disappointing quarter for Nifty earnings with

revenue declining 2% and PAT declining 3% YoY

with margins remaining intact and results of the

broader markets fared even worst. A major part of

the decline could be attributed to global commodity

players reeling under the pain that has been

brought by weakening global commodity prices and

PSU banks faring the worst of the lot as they

continue to suffer from the NPA’s. The total gross

non performing assets (NPAs) were up 50% yoy

(together for all private and public sector banks)

during the December quarter. The PSU banks

accounted for around 90% of those gross NPAs. The

only bright spot was that ex global commodities the

revenue was up around 9%

Several things that have plagued the earnings

recently like slowing rural demand, low capacity

utilisation, volatility in global markets and turmoil in

the Banking sector. However, falling crude prices

have helped in improving the operational

performance of most companies across the sectors.

WE started the financial year with a forecast of

double digit growth rates for FY16 however we

could end well in the negative territory based on

current estimates. Currently the estimates for FY17

hover around 15%-18% due to a low base effect, an

expected revival in domestic demand and recovery

in global commodities. The demand revival is pinned

on enhanced government spending, boost to urban

consumption from OROP and seventh pay

commission along with a forecast of strong

monsoon this year which would revive the rural

demand.

Outlook

Even though we believe we could see earnings

recovery in FY17 it is still well below the current

consensus estimates of 15%-18% growth. We

believe that we could see a single digit recovery in

the earnings for FY17 as the economy battles a rural

demand crisis along with global deflation worries.

With an eye on domestic growth drivers in the

midst of turbulence in the global economy, finance

minister focused on reviving rural demand, pushing

public investment and encouraging affordable

housing. Fiscal discipline from the government has

resulted in markets now expecting the RBI to cut

rates sooner. Hence from a domestic stand point we

believe that budget rightfully address the pain

points in the Indian economy which would hopefully

result in the earnings improvement in FY17

From the markets point of view we believe the

environment in the world is still volatile, even

though India is one of the brightest spots (relatively)

in the global economy it seems difficult that India

March 2016 12


would grow significantly if the volatility persists.

What would guide the markets for the next financial

year is how the crisis in China is handled. If we see

China devaluing its currency significantly while it

tries to avoid a hard landing it will export

deflationary pressure to the world which would hurt

the markets globally and in India. Recovery of crude

oil prices is another major factor that will affect the

FII flows. With the excess supply being there for

another year or so we do not believe that oil could

stage a significant recovery during the year. Any

signs of slowdown in the US would be taken quite

negatively by the world markets after expectation

of its staging a strong recovery is currently priced in.

From valuation stand point given the fact that we

are looking at a first year of negative growth in a

financial year since 2009 and even though we may

be nearing average valuations we believe that the

valuations this time around would be justified when

it is well below the averages given the lack of

earnings growth and a series of downgrades that we

have seen. Hence we believe that valuations could

moderate further given a weaker shorter term

outlook and an uncertain global environment.

The harsh reality that we currently face is that India

is indeed a globalized economy and any slowdown

in the world would result in flight to safety

impacting the flows and growth. Even though the

domestic economy would revive but it would only

floor the downside risk arising out of uncertain

global growth. Having said that this year will give

umpteen opportunities to invest in equity markets

from a longer term stand point where the

fundamentals still remain intact, hence the right

strategy would be to stagger investments

throughout the year.

Valuations moderating

0

5

10

15

20

25

30

Nifty PE Average

March 2016 13


Citadelle Growth Opportunities Portfolio

Company Name 3 yr Avg ROE PAT 3yr CAGR Dividend Yield(%)

Star Rating

Ahluwalia Contracts (India) Ltd. 1.04 133.11 0.00

AIA Engineering Ltd. 19.71 33.44 0.64

Ajanta Pharma Ltd. 41.05 58.81 0.49

Aurobindo Pharma Ltd. 27.95 236.96 0.37

Avanti Feeds Ltd. 41.93 60.69 1.79

Bajaj Corp Ltd. 33.50 12.86 2.50

Bajaj Finance Ltd. 20.11 30.20 0.44

Bajaj Finserv Ltd. 27.26 8.42 0.13

Bosch Ltd. 17.71 6.01 0.33

Cadila Healthcare Ltd. 27.33 20.28 0.69

Caplin Point Laboratories Ltd. 49.84 72.28 0.54

CCL Products (India) Ltd. 21.00 37.34 0.84

Cholamandalam Investment & Finance Company Ltd. 17.88 37.96 0.60

DB Corp Ltd. 25.60 16.06 2.09

Gillette India Ltd. 14.84 27.78 0.33

Gujarat Pipavav Port Ltd. 15.43 89.17 0.00

Gulf Oil Lubricants India Ltd. 24.48 356.17 1.08

Himachal Futuristic Communications Ltd. 88.88 179.95 0.00

Honeywell Automation India Ltd. 12.70 2.15 0.15

JM Financial Ltd. 11.29 43.00 2.81

Kitex Garments Ltd. 36.80 53.67 0.23

KRBL Ltd. 23.73 63.85 1.02

Lupin Ltd. 30.37 40.13 0.37

Marksans Pharma Ltd. 39.39 117.64 0.19

Navneet Education Ltd. 26.35 18.83 2.22

Procter & Gamble Hygiene & Health Care Ltd. 30.49 24.03 0.45

Skipper Ltd. 19.20 107.95 0.85

Sonata Software Ltd. 15.69 204.12 3.93

Tata Elxsi Ltd. 28.13 38.09 0.95

Vinati Organics Ltd. 31.48 28.29 0.67

Note: Post changes in portfolio from 8th Jan ’16, portfolio construct has become more diversified, hence we have changed the benchmark to Nifty 500 from Nifty 50.

90%

10%

Citadelle Growth Opportunities Portfolio Current Asset Allocation

Equity Cash

91.80

82.6380859095

100105110115120

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Citadelle Growth Opportunities Portfolio Performance

Citadelle Growth Opportunities Portfolio NAV Benchmark*

March 2016 14


Model Portfolio: Conservative

Conservative Market Cap wise (%)

Asset Class Sub-Asset Class Mutual Fund Schemes

Strategic

Tactical

Large cap Mid &

Small cap

Others

Equity - - PMS - - Large Cap - - ICICI Pru Focused BlueChip Eq Fund - - 82.4 9.4 8.2

Birla SL Frontline Equity Fund

- - 88.9 3.0 8.1

Mid & Small Cap - - BNP Paribas Mid Cap Fund - - 28.2 66.7 5.1

Edelweiss Emerging Leaders Fund - - 15.8 77.8 6.4

Mirae Asset Emerging BlueChip - - 30.3 65.7 4.0

Multi Cap - - MOSt Focused Multicap 35 Fund - - 87.8 12.1 0.0

Birla SL Pure Value Fund - - 17.4 76.0 6.6

Franklin India High Growth Cos Fund - - 57.3 24.9 17.8

Thematic / Sectoral Funds - - Equity Hybrid Funds - - Average

Maturity Years

Mod

Duration Years

YTM

(%)

Debt 90.0% 90.0% Short Term 30.0% 30.0% Axis Short Term Fund 10.0% 10.0% 2.7 2.0 8.0

Franklin India ST Income Plan 10.0% 10.0% 2.5 2.3 10.5

HDFC STP 10.0% 10.0% 2.2 1.8 9.8

Dynamic Bond Funds 30.0% 30.0% IDFC Dynamic Bond Fund-Reg 10.0% 10.0% 15.9 8.7 7.8

SBI Dynamic Bond 10.0% 10.0% 17.5 8.5 7.8

UTI Dynamic Bond Fund-Reg 10.0% 10.0% 14.8 7.2 8.1

Income Funds 30.0% 30.0% DWS Premier Bond Fund 10.0% 10.0% 1.8 1.5 8.0

HDFC Income Fund 10.0% 10.0% 16.4 8.1 8.0

UTI Bond Fund 10.0% 10.0% 16.3 7.9 8.2

Gilt - - Debt Hybrid Funds - -

Cash 5.0% 5.0% Liquid Funds - - Ultra Short Term 5.0% 5.0%

Gold 5.0% 5.0% Gold 5.0% 5.0% Total 100.0% 100.0%

0.0%

90.0%

5.0%5.0%

Strategic Portfolio

Equity Debt Cash Gold

90.00

95.00

100.00

105.00

110.00

115.00

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-1

5Ja

n-1

6Fe

b-1

6

Conservative UCI Index

0.0%

90.0%

5.0%5.0%

Tactical Portfolio


March 2016 15


Model Portfolio: Moderately Conservative

Mod Conservative Market Cap wise (%)


Strategic

Tactical

Large cap Mid &

Small cap

Others

Equity 25.0% 25.0% PMS - - Large Cap 25.0% 25.0% ICICI Pru Focused BlueChip Eq Fund 12.5% 12.5% 82.4 9.4 8.2


12.5% 12.5% 88.9 3.0 8.1

Mid & Small Cap - - BNP Paribas Mid Cap Fund - - 28.2 66.7 5.1


Mirae Asset Emerging BlueChip - - 30.3 65.7 4.0




Thematic / Sectoral Funds - - Equity Hybrid Funds - - Average

Maturity Years

Mod

Duration Years

YTM

(%)



HDFC STP 10.0% 10.0% 2.2 1.8 9.8


SBI Dynamic Bond 10.0% 10.0% 17.5 8.5 7.8


Income Funds 5.0% 5.0% DWS Premier Bond Fund - - 1.8 1.5 8.0

HDFC Income Fund - - 16.4 8.1 8.0

UTI Bond Fund 5.0% 5.0% 16.3 7.9 8.2

Gilt - - Debt Hybrid Funds - -

Cash 5.0% 5.0% Liquid Funds - - Ultra Short Term 5.0% 5.0%

Gold 5.0% 2.5% Gold 5.0% 2.5% Total 100.0% 100.0%

90.00

100.00

110.00

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-1

5Ja

n-1

6Fe

b-1

6

Mod Conservative

25.0%

65.0%

5.0%5.0%

Strategic Portfolio


25.0%

67.5%

5.0% 2.5%

Tactical Portfolio


96.00

98.00

100.00

102.00

104.00

106.00

108.00

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-1

5Ja

n-1

6Fe

b-1

6

Mod Conservative UCI Index

25.0%

65.0%

5.0%5.0%

Tactical Portfolio


March 2016 16


Model Portfolio: Balanced

Balanced Market Cap wise (%)


Strategic

Tactical

Large cap Mid & Small cap

Others



15.0% 15.0% 88.9 3.0 8.1

Mid & Small Cap 15.0% 10.0% BNP Paribas Mid Cap Fund 7.5% 5.0% 28.2 66.7 5.1


Mirae Asset Emerging BlueChip 7.5% 5.0% 30.3 65.7 4.0




Thematic / Sectoral Funds - - Equity Hybrid Funds - 5.0% Edelweiss Absolute Return Fund 5.0%

%

Average Maturity Years

Mod Duration Years

YTM (%)



HDFC STP 10.0% 10.0% 2.2 1.8 9.8


SBI Dynamic Bond - - 17.5 8.5 7.8


Income Funds - - DWS Premier Bond Fund - - 1.8 1.5 8.0


UTI Bond Fund - - 16.3 7.9 8.2

Gilt - - Debt Hybrid Funds - - DSPBR Dynamic Asset Allocation Fund - - - - -

Cash - - Liquid Funds - - Ultra Short Term - -

Gold 10.0% 10.0% Gold 100.0% 100.0%

45.0%

45.0%

0.0%

10.0%

Strategic Portfolio


45.0%50.0%

0.0%

5.0%

Tactical Portfolio


94.0096.0098.00

100.00102.00104.00106.00108.00

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-1

5Ja

n-1

6Fe

b-1

6

Balanced UCI Index

45.0%

45.0%

0.0%10.0%

Tactical Portfolio


March 2016 17


Model Portfolio: Moderately Aggressive

Mod Aggressive Market Cap wise (%)


Strategic

Tactical


Others



15.0% 15.0% 88.9 3.0 8.1


Edelweiss Emerging Leaders Fund 10.0% 6.0% 15.8 77.8 6.4


Multi Cap 10.0% 10.0% MOSt Focused Multicap 35 Fund 10.0% 10.0% 87.8 12.1 0.0



Thematic / Sectoral Funds - - Equity Hybrid Funds - 12.0% Edelweiss Absolute Return Fund 12.0% Average

Maturity Years

Mod Duration Years

YTM (%)



HDFC STP - - 2.2 1.8 9.8

Dynamic Bond Funds - - IDFC Dynamic Bond Fund-Reg - - 15.9 8.7 7.8


UTI Dynamic Bond Fund-Reg - - 14.8 7.2 8.1



UTI Bond Fund - - 16.3 7.9 8.2


Cash - -

Liquid Funds - - Ultra Short Term - -

Gold 10.0% 10.0%

Gold 10.0% 10.0% Total 100.0% 100.0%

70.0%

20.0%

0.0%10.0%

Strategic Portfolio


70.0%

25.0%

0.0%5.0%

Tactical Portfolio


80.00

90.00

100.00

110.00

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-1

5Ja

n-1

6Fe

b-1

6

Mod Aggressive UCI Index

70.0%

20.0%

0.0%10.0%

Tactical Portfolio


March 2016 18


Model Portfolio: Aggressive

Aggressive Market Cap wise (%)


Strategic

Tactical


Others



15.0% 15.0% 88.9 3.0 8.1


Edelweiss Emerging Leaders Fund 10.0% 6.6% 15.8 77.8 6.4


Multi Cap 30.0% 30.0% MOSt Focused Multicap 35 Fund 10.0% 10.0% 87.8 12.1 0.0

Birla SL Pure Value Fund 10.0% 10.0% 17.4 76.0 6.6

Franklin India High Growth Cos Fund 10.0% 10.0% 57.3 24.9 17.8

Thematic / Sectoral Funds - - Equity Hybrid Funds - 10.0% Edelweiss Absolute Return Fund 10.0% Average

Maturity Years

Mod

Duration Years

YTM

(%)

Debt - - Short Term - - Axis Short Term Fund - - 2.7 2.0 8.0

Franklin India ST Income Plan - - 2.5 2.3 10.5

HDFC STP - - 2.2 1.8 9.8

Dynamic Bond Funds - - IDFC Dynamic Bond Fund-Reg - - 15.9 8.7 7.8


UTI Dynamic Bond Fund-Reg - - 14.8 7.2 8.1



UTI Bond Fund - - 16.3 7.9 8.2


Cash - - Liquid Funds - - Ultra Short Term - -

Gold 10.0% 10.0% Gold 10.0% 10.0% Total 100.0% 100.0%

90.0%

0.0%0.0%10.0%

Strategic Portfolio


90.0%

0.0%0.0%

10.0%Tactical Portfolio


80.00

90.00

100.00

110.00

120.00

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-1

5Ja

n-1

6Fe

b-1

6

Aggressive Nifty

March 2016 19


Thank you for your time!

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