icici may 18 issuecontent.icicidirect.com/moneymanagermagazine/may_2018.pdfsuch volatile times are...
TRANSCRIPT
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Shilpa KumarMD & CEO
ICICI Securities Ltd.
I n d i a n m a r k e t s h a v e b e e n
outperforming the major equity
markets globally with benchmark
indices up 31% in CY17 vs. 18% for US
and 5% for China. In YTD CY18, the
outperformance trend, barring Brazil,
has continued with Indian markets up
2.4% vs. 0.6% for the US and -3.6% for
China. Many factors including the
overall growth in the economy backed
by reforms from the government have
led to this uptrend. Another factor that
is likely to be impacting the markets is
the “TINA” factor (There is no
al ternat ive) .The ' return to r isk '
advantage of equity as an asset class is
changing over assets at this point of
time.
Although FIIs have been the major source of capital for Indian capital markets
traditionally, their recent sell-off was more than offset by DIIs primarily
channelizing strong domestic savings. To put things in perspective, FIIs (
Foreign Institutional Investors) sold equities worth ~Rs 40,000 crore in CY17
while DIIs ( Domestic Institutional Investors) bought equities to the tune of
~Rs 91,000 crore in the aforesaid period. The trend continued in YTD CY18
with FII's outflows at ~Rs 11,000 crore in contrast to DII's inflows at ~Rs 36,700
crore. This is structurally positive as domestic savings are more durable and
address the need for risk capital.
With the structural uptrend in place, some concerns resurfaced recently on
the back of the trade war between the two largest economies, which has the
potential to slow down the global GDP growth rate. The increase in Brent
crude prices (US$75/barrel vs. an average US$58 in FY18) and domestic
political anxiety amid upcoming elections in key states in CY18 followed by
ICICIdirect Money Manager May 20181
the Lok Sabha elections in CY19 has led to some tepidness in investor
sentiment.
Such volatile times are transitory. With the strong domestic macro
environment in place, any such dip should be looked at as a buying
opportunity. Some of the ways to invest in volatile markets is by investing in
quality stocks, investing regularly through a SEP or a SIP and by adhering to
an asset allocation strategy that is aligned to your goals.
Quality stocks depict capital efficiency and possess sustainable growth
prospects. They are businesses that are high on quality and management
pedigree, depicted though consistent performance and return ratios viz. RoE
& RoCE. Quality should be followed by growth trajectory and the moat that the
company possesses, providing sustainable growth prospects, going forward.
Historically, it has been observed that capital efficient businesses have been
the best value creators. Such businesses, are best bought at times of volatility
as prices are a bit suppressed during such periods.
Retail investors can embrace volatility by investing through the Systematic
Equity Plans (SEP in direct stocks) or SIP in Mutual Funds. Investing regularly
instead of putting investments in a lump sum averages out the volatility. It not
just introduces discipline in investing but helps buy at lows. SIP returns in Nifty
50 stocks over a three-year period gave returns of 15.5% vs. lump sum
investment of 10.9% in the same period.
Goal-based investing ensures that your investments tagged to short term
goals are invested in less risk assets. Therefore investors adhering to a goal-
based investing protect their goals from any short term volatility.
The current volatile environment is likely to be short-lived doing no structural
damage to the growth prospects and earnings recovery. Forecast of normal
monsoon 2018 will further aid a demand recovery in rural areas. This is
expected to provide a fillip to corporate earnings with earnings expected to
grow in excess of 20% CAGR in FY18-20E. Therefore, the present time is right
for investors to ride this volatility for long term wealth generation. Through
our website and this magazine we want to make an www.icicidirect.com
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.
In the light of recent volatility in the markets, many investors seem concerned about their
investments. Few investors who may have made investments recently may be
experiencing minor losses in those investments. Studies show that a loss over two times
more painful than the pleasure that one experiences by making profit of the same amount.
This prompts investors to take irrational decisions like exiting fast or not continuing their
existing investments.
There are a few lessons and realizations that stand out. Amongst the first is our own
comfort in dealing with these movements in the markets. Our ability and willingness to
take risk defines the very core strategy of where we should invest. Do define an asset
allocation plan with a financial planner if you have not done so already.
The second is the discipline of investing. Systematic investments into the markets ensure
that you buy more when prices are low and buy less when prices are high. This averages
your cost and gives you much better returns than timing the market, which is not always
possible. If you have discontinued your systematic investments, we would recommend
that you restart. Remember that equity investments reward the long term holders.
Lastly, volatility in markets provides with great opportunities and valuations to invest.
While our emotions lead us away from investing in these times, smart investors seize the
opportunity to buy undervalued stocks and assets.
Investments based on these principles have stood the test of time over the years. In our
latest edition of ICICIdirect Money Manager, we explore these fundamental principles of
equity investing, which, if followed, will help you sail through all the times.
Further, our cover story answers to the most pressing questions in the current
environment viz., what an individual investor should do now and how to remain invested.
Mr. Vishal Gulechha, Head- Equity, ICICIdirect also shares his insights about managing
equity portfolio in our interview section. He advocates equity saying it is “the only
investment where you can choose which business to invest in and have flexibility to exit
and change the sector at any given point of time due to the high liquidity available.”
I would also like to draw your attention to our revised Equity Model Portfolio and Prime
Numbers – with inclusion of more data points and indicators - to let you have a
comprehensive overview. So read on, stay updated and involved. Do write in with your
feedback and share your thoughts at moneymanager @icicisecurities.com.
Your magazine is now also available on www.magzter.com, a digital newsstand.
ICICIdirect Money Manager May 2018
Editor & Publisher : Abhishake Mathur, CFA
Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey
CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Research Team
Coordinating Editor : Namrata Lonkar
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ICICIdirect Money Manager May 20183
MD Desk .......................................................................................................... 1
Editorial ........................................................................................................... 2
Contents .......................................................................................................... 3
News ............................................................................................................... 4
Stock ideas: Jubilant Life Sciences & SKF India ................................ 5
Flavour of the Month: Investing in equities? Get some doubts cleared first
It is not unusual for a beginner to worry about timing his first stock
purchase. In fact, timing the market has proved a difficult task for
seasoned investors as well. Research shows that disciplined
investment produce better results than timing the market. Investing
small amount on regular basis helps............................................... 15
Tête-à-tête: In talk with Mr. Vishal Gulechha, Head- Equity, ICICIdirect
In talk with the head of equity product group of ICICIdirect, we
unfold some key insights into equity investing under volatile
circumstances. His take on building an equity portfolio for short and
long term, amid other things, is certainly worth a read ............... 23
Ask Our Planner
Our financial expert answers your personal finance queries........... 29
Mutual Fund Analysis
Which are the top performing mutual funds in current market
scenario? Check these top infrastructure funds recommended by our
research team .................................................................................. 33
This month on iCommunity
Take a look at the latest activities on our unique information platform-
iCommunity (for May 2018) ............................................................. 43
Equity Model Portfolio ..................................................................................... 44
Quiz Time ......................................................................................................... 48
Prime Numbers ................................................................................................ 49
ICICIdirect Money Manager May 20184
The finance ministry has joined hands with over two dozen e-commerce firms, including major players like Amazon, Flipkart, Ola and Uber, to provide easy finance to small entrepreneurs under the Pradhan Mantri Mudra Yojana (PMMY), a top government official said. The three way partnership between lenders, industry and the government aims to facilitate small business loans.
PMMY is a flagship scheme of the government to provide loans of up to Rs 10 lakh to small entrepreneurs. The loans are being given by banks, small finance banks, non-banking financial companies (NBFCs) and micro finance institutions. The scheme aims to strengthen forward and backward linkages for robust value chains anchored by industries, aggregators, franchisors and associations.
Courtesy: Financial Express
Finance ministry ties up with e-commerce firms to give loans
Higher crude prices threaten govt's dividend income from oil PSUs
Rising crude oil prices are not only bad for India's currency and current account deficit, but could also negatively impact the government's income from central public sector enterprises by drying up the dividend bonanza from oil companies.
In FY17, energy public sector undertakings (PSUs) such as Oil and Natural Gas Corporation (ONGC), Indian Oil, Bharat Petroleum, Hindustan Petroleum and Gail (India) accounted for 46 per cent of all dividend payouts by PSUs, the highest in at least a decade and up from 25 per cent a year ago.
Courtesy: Business Standard
Bank credit grows at 12.64%, deposits at 7.61%
Banks' credit grew by 12.64% year-on-year to Rs8,551,099 crore in the fortnight ended 11 May 2018, according to Reserve Bank of India (RBI) data.In March this year, the non-food bank credit rose by 8.4%, the same rate as in March 2017. Loans to agriculture and allied activities increased by 3.8% in March 2018, against an increase of 12.4% in March 2017. Advances to industry grew by 0.7% in March 2018, compared with a contraction of 1.9% in March 2017.
Courtesy: Livemint
Mobile trading share jumps in 2 years
Latest data from the stock exchanges show that the share of such trading had more than doubled in the last two years as investors, especially retail, become more confident with trading through efficient apps amid growing popularity of discount brokerages and increased use of smartphones.
On the National Stock Exchange (NSE), the share of mobile trading as a percentage of total turnover was pegged at 7.7% in April, which was more than double the 3.3% in April 2016. On the BSE, the share of such trading rose from 1.84% to 4.49% between April 2016 and April 2018.
Courtesy: The Hindu
STOCK IDEAS
ICICIdirect Money Manager May 2018
Company Background
Incorporated in 1978, Jubilant Life
Sciences (JLS; formerly Jubilant
Organosys), is a mid-sized
integrated chemicals turned
pharmaceuticals player. It started
as a full-fledged chemical
company by entering the vinyl
acetate monomer (VAM) business
in 1983. Broadly, the company
operates through two business
segments - pharmaceuticals (55%
of the turnover) and life science
ingredients (45% of turnover). The
pharmaceuticals segment consists
of sub segments like 1) Generics-
APIs and formulations, 2) specialty
pharma - radio pharma, allergy
therapy products and contract
manufacturing (CMO) of sterile
injectables, 3) drug discovery and
development solutions. EBITDA
margins in the pharmaceuticals
segment are normally much
higher due to the presence of
formulations and specialty
pharma. The LSI segment consists
of sub segments like 1) advanced
intermediates and specialty
ingredients, 2) nutrition products
and 3) life science chemicals. This
segment caters to more routine
customers with committed
requirements. Due to the
commodity nature, margins in this
segment are relatively low.
Investment Rationale
Pharmaceuticals business
segment returning to normal
The pharma business has grown
at 8% CAGR in FY13-18 driven by
generics and specialty pharma.
The margin scenario is returning
to normal on the back of launches
in special ty pharma and
successful resolution of two CMO
facilities. Recent long term
contract in the radiopharma
business as well as approval for
Rubyfill in the US will strengthen
the speciality sub-segment
growth. This is likely to grow at
26% CAGR in FY18-20E to 3040 `
crore on the back of strong
growth in the radiopharma
business followed by CMO.
However, steep price erosion in
the US is likely to impact near
term generic segment growth.
Overall, we expect pharma
segment to grow at 23% CAGR in
FY18-20E to 6019 crore. `
Segment margins are expected
to fall to ~24% in FY20 from 32%
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Jubilant Life Sciences - Maintains growth tempo…
ICICIdirect Money Manager May 2018
STOCK IDEAS
in FY17 due to consolidation of
US radiopharmacy business
(Triad).
LSI segment showing turnaround in
performance
LSI business has grown at 6%
CAGR in FY13-18. However,
going ahead, the company is
seeing a good demand and
pricing environment, on the
back of a slowdown in Chinese
speciality chemicals exports &
better global petchem prices
(pegging effect), coupled with
de-bottlenecking of facilities.
Hence, the company is seeing
greater capacity utilisation and
improvement in margins (19%
in FY18 from a normal run rate
of 15-16%). LSI is likely to grow
at 14% CAGR in FY18-20E to `
4375 crore.
Debt no more fear factor
In its pursuit of building
capacity and creating multiple
revenue heads, the debt
situation had got complicated
over the years . Wi th an
improvement in operational
performance, the free cash
f low (FCF) s i tuat ion has
improved markedly. As the
capex cycle moderates in the
medium term, the company
expects to utilise maximum
FCF for debt repayment. We
expect the net D/E ratio to
further go down to 0.3x by
FY20E from 0.8x in FY18 and
debt/EBITDA ratio to 1.1x from
2.3x in Fy18.
Firing on all cylinders; maintain
BUY
In FY18, while speciality pharma
continued to show a strong
performance, LSI business
performance was a big positive,
thanks to multiple tailwinds like a
better pricing scenario, lower raw
material prices, higher demand,
especially in the backdrop of a
slower Chinese push, etc.
Structurally, we expect the better
margin scenario in LSI to continue
as the core reason for this is better
operating leverage. For specialty
pharma, we expect the growth
momentum to continue, thanks to
healthy CMO order book and
robust growth in radio pharma.
With improved visibility in both
speciality pharma and LSI, we
expect a continuous improvement
in free cash flow generation and
sustained debt repayment. We
arrive at our target price of ~ `
1080 based on 14x FY20E EPS of
~ 77.`
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ICICIdirect Money Manager May 2018
STOCK IDEAS
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Stock Data
Key Financials
Valuations Summary
` Crore FY17 FY18E FY19E FY20E
Net Sales 6,006.3 7,557.8 9,379.4 10,657.4
EBITDA 1,345.3 1,518.4 1,861.9 2,153.2
Net Profit 575.6 642.8 954.1 1,198.9
EPS (`) 36.9 41.3 61.2 77.0
FY17 FY18E FY19E FY20E
P/E 23.4 21.0 14.1 11.2
Target P/E 29.2 26.2 17.6 14.0
EV / EBITDA 12.7 11.0 8.8 7.2
P/BV 3.9 3.3 2.7 2.2
RoNW 16.8 16.0 19.4 19.8
RoCE 13.8 14.9 18.9 21.1
Stock Data ` crore
Market Capitalization (` Crore) 13,778
Total Debt (FY18) (` Crore) 3,480
Cash & Investments (FY18) (` Crore) 249
EV 17,009
52 week H/L ` 1039 / ` 600
Equity capital `15.9
Face value ` 1
ICICIdirect Money Manager May 2018
STOCK IDEAS
8
Key risks include:
Increased USFDA scrutiny
The fallout from the impending
patent cliff is the increased
intensity of the USFDA scrutiny.
As increasing number of drugs
were coming out of patent
protection, the inspection
intensity for hitherto unknown
players was bound to increase
to comply with required quality
standards. Even the pattern of
inspection has changed with
more surprises and greater
focus on data integrity besides
quality. With maximum number
of USFDA approved plants
outside the US, Indian players
received maximum number of
import alerts and warning
letters. Even established players
had to contend with the USFDA
embargo besides scores of
other Indian companies.
Delay in approvals for customer
products to impact profitability
T h e c o m p a n y ~ 1 7 % o f
pharmaceut ica l segment
revenues come from the CRAMS
business. Any delay in regulatory
approvals for its clients would
impact our projections.
Consolidation at client to
increase pricing pressure and
may hamper future orders
Currently the US generic
business is facing acute pricing
pressure due to the consolidation
of clients. Also consolidation at
the client's end may hamper
future order flow if the acquirer
has different priorities.
ICICIdirect Money Manager May 2018
STOCK IDEAS
9
ANALYST CERTIFICATION We /I, Siddhant Khandekar CA-INTER, Mitesh Shah MS (Finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financialinstruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.
It is confirmed that Siddhant Khandekar CA-INTER, Mitesh Shah MS (Finance) Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.
Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.It is confirmed that Siddhant Khandekar CA-INTER, Mitesh Shah MS (Finance) Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. �Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securitiesdescribed herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
ICICIdirect Money Manager May 2018
STOCK IDEAS
SKF India – Going Strong...
Company Background
SKF is the leader in the Indian
bearing market with ~28%
share . Known for deep
groove ball bearings (forming
~35% of revenues and
~45% market share), SKF is
a lmost equa l ly 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).
Investment Rationale
Decent Q4FY18, positive outlook
in key segments – auto/industrial
SKF's revenue growth looks
m u t e d a t 7 . 6 % Yo Y i n
Q4FY18. However, as clarified
by the management in the
conference call, the same is
much higher at ~11% after
adjusting for import related
countervailing duties. The
m a n a g e m e n t h a s a l s o
ind ica ted a t con t inued
growth in the auto segment
led by newer products and
addition of newer capacity.
For the industrial segment, it
expects growth to pick up led
by segments like mining,
steel, cement, etc. In FY18,
the indus t r i a l segment
reported muted growth of 3%
Yo Y d u e t o a l m o s t n i l
contribution of wind energy
related revenues. However, it
is expecting this segment to
pick up over the next two
quarters, with potential to
cont r ibu te ~5% to the
topline.
Railways, new products to act as
growth drivers
Currently, SKF is major
supplier in LHB coaches.
However, the company was
unable to supply its bearings
to conventional coaches, as
railway policies did not allow
procurement of over 10% of
the requirement from a single
supplier. This is likely to
change from FY19E onwards
as production factories and
railways will now separately
f l o a t t e n d e r s f o r t h e i r
requirements. This will allow
10
ICICIdirect Money Manager May 2018
STOCK IDEAS
11
players like SKF to supply
higher quantities in both these
segments. Furthermore, the
company has also forayed into
the railway freight segment
that has a market potential of
~ 1000 crore. Other projects `
like Dedicated Freight Corridor
(DFC) and expansion of metro
rail network in a number of
cities are also likely to augur
well for the company. In the
a u t o s e g m e n t , S K F i s
introducing newer products
(like HUB-3 bearings) with the
Indian auto industry moving
from first generation bearing
to third generation bearing.
New products are also likely to
open up export opportunities
for the company.
Maintain BUY on upbeat outlook,
strong capex plans
S K F b e i n g t h e l a r g e s t
bea r ings p l aye r i n the
industry, caters to a wide
range of industr ies l ike
mining, steel, cement, textiles,
construction, energy, etc. As
per management, most of
these industries are now
seeing an up-tick in demand.
Accordingly, we expect SKF's
key segments, auto and
industrial to grow at a healthy
rate of 10.2% and 11.7%,
respectively. SKF has also
outlined strong capex plans of
` 80-120 crore in FY18-20E (2x
c a p e x o f F Y 1 6 - 1 8 ) .
Accordingly, we expect SKF to
deliver sales, EBITDA and PAT
CAGR of 11%, 11.3% and
10.1%, respectively, in FY18-
20E. We continue to value the
company at 32x P/E on FY20E
EPS of 69.8 to arrive at a `
target price of 2225/share. `
We maintain BUY on SKF.
ICICIdirect Money Manager May 2018
STOCK IDEAS
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Valuations Summary
Key Financials
` crore FY17 FY18 FY19E FY20E
Net Sales 2631 2750 3108 3388
EBITDA 336 435 494 539
Net Profit 244 296 333 358
EPS 46.3 57.6 64.8 69.8
FY17 FY18 FY19E FY20E
P/E 38.9 31.2 27.8 25.8
Target P/E 48.1 38.6 34.3 31.9
EV / EBITDA 26.6 20.3 17.3 15.4
P/BV 5.2 5.0 4.4 3.9
RoNW 13.5 16.1 15.9 15.2
RoCE 20.1 23.7 23.6 22.7
Stock Data
Stock Data ` crore
Market Capitalization (` Crore) 9492.0
Total Debt (FY18) (` Crore) 85.0
Cash and Cash Equivalent (FY18) (` Crore) 743.0
Enterprise Value (` Crore) 8834.0
52 week H/L (`) 2010 / 1490
Equity Capital 51.3
Face Value 10.0
ICICIdirect Money Manager May 2018
STOCK IDEAS
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Key risks include: Raw material cost rise could
impact our earnings estimatesSharp rise in key raw material
like steel could adversely
impact the profitability of the
company. This is on the
account of delay, the company
may face in passing elevated
prices.Slowdown in key segment may
derail earnings assumptions
The bearings industry is highly
correlated with economic
growth given the industry
linked usage and demand for
bearings. A slowdown in any of
the key segments (auto – two
wheelers, CV, PV, etc) or
industries could lead to an
overall slowdown in sales
growth and consequently our
earnings estimate
ICICIdirect Money Manager May 2018
STOCK IDEAS
ANALYST CERTIFICATION We /I, Chirag Shah PGDBM; Sagar Gandhi MBA (Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
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14
FLAVOUR OF THE MONTH
ICICIdirect Money Manager May 201815
Investing in equities? Get some doubts cleared first
What is the current market status?
Cy18 has been full of ups and
downs so far. Early February saw
sharp correction in the global
markets. Now, there are two
possible outcomes for Indian
markets. First, the inflation may
gradually rise in 2018 as a result
of increased Fed rates. This, in
turn, might raise uncertainty in
the Indian market that are already
trading at high valuations.
Second, inflation stays under
control and prompts global
economic recovery to raise
earnings. In either case, these are
interesting times for equity
markets.
According to Mr. Pankaj Pandey,
Head- Research, ICICIdirect, we
have witnessed Indian equities
(as well as global) re-rating
driven by the falling yields
which is behind us as interest
rate improvement cycle has
played over the last couple of
years. The focus now shifts on
macroeconomic factors as well
as corporate earnings, where
we have already seen green
shoots of improvement. For
instance, the growth rate (FY18)
of core sectors such as Auto
(14.5% YoY), Cement (up 5.7%
YoY), Steel (~6% YoY) and
Power (5.2% YoY), amid the
impact of GST, points towards a
sharp upt ick in ensu ing
economic activity.
Similarly, tendering activity
across key infrastructure
segments such as roads (up
23%), railways (up 13.1%), real
estate (96.1%) and irrigation
(55% YoY) have s ta r ted
resulting in strong ordering
trends.
Our research team, therefore,
suggests that Indian equities
remain in a sweet spot. We
have our index targets (Sensex
at 37,600 & Nifty at 11,725),
implying ~17x P/E on FY20E
EPS which is in tandem with
the long period average. There,
could, however be some
volatility on the back of global
factors such as concerns over
tariff war and commodity cycle
reversal.
Market usually seeks stability in
regime and that is why we
recently saw that political
FLAVOUR OF THE MONTH
ICICIdirect Money Manager May 201816
sentiments did play a spoil
sport with the recent defeat of
the ruling party in the UP by-
polls. “The upcoming state
elections can create anxiety and
any adverse results can dent
sentiments on the domestic
front. Having said that, these
sentimental shocks are short
term based and eventually
focus shifts on macroeconomic
factors and corporate earnings,
wherein we are treading an
improvement path”, says Mr.
Pandey
Source: Business Standard
When should I enter in equities?
It is not unusual for a beginner
to worry about timing his first
stock purchase. Timing the
means that an investor is angle
to exit just before the markets
go down and enter the markets
just when it is about to go up.
How much ever exciting the
strategy appears, it is not
possible for the best of the
experts to time the market
always. It is but natural for
anyone, to miss a few of these
timing opportunities (exiting
when markets are likely to go
down and entering when the
markets are to go up). That is
the weak point of timing the
market. Markets reward in
spurts (unlike a fixed deposits
where the growth is uniformly
divided over the horizon). A
few days in a year can at times
define the overall return for
that year.
FLAVOUR OF THE MONTH
ICICIdirect Money Manager May 201817
A study done by ICICIdirect
Investment Advisory Services
in 2017 states that even if an
investor misses 1% of most
critical opportunity to time the
market the overall return is
less than a simple buy and hold
strategy.
Additionally, research shows
that disciplined investment
produce better results than
timing the market. Investing
small amount on regular basis
helps to average out risk and
returns. In other words,
investing systematically in
quality stocks/equity funds for a
longer haul saves you from
timing the market.
What should be my investment horizon?Equity investments are perpetual in nature which means there is no maturity date (as against a deposit or a bond investment). Equity investors benefit from the growth of the business of the company they are invested in. It can take time before the full benefits are transmitted to the price of the stock.
While the expected returns of equity are always high (as compared to other assets) with time, the volatility of returns decreases. Studies show that the vo la t i l i t y o f re tu rns decreases significantly in the 3 -7 years of horizon.
Source: 10xinvesting (an equity research firm)
FLAVOUR OF THE MONTH
ICICIdirect Money Manager May 201818
The practice of buying a stock
and holding it for a long term is
commonly known as 'Buy and
hold' strategy. It is based on the
view that equity markets give
good returns in the long run
despite periods of volatility or
decline. As timing the market is
difficult, it is better to simply buy
and hold the quality stocks for
long term and create wealth.
While this passive approach to
investing sounds easy to
execute, overlooking company
and market performance for an
extended period may adversely
affect one's portfolio. It is, thus,
recommended to monitor your
investments on a regular basis
and exit from underperforming
stocks. Over the years, this
strategy has proved suitable for
both new and veteran investors.
Before investing in stocks
When there a re tens o f
thousands of stocks to select
from, how do you finalize the
most suitable one? Analyzing
every balance sheet and
comparing them to understand
which company has a favorable
position is nearly impossible.
Instead, aspiring stock investors
can take it step-by-step to make
sound investment choices.
What is the objective?
L ike any o ther f inanc ia l
decision, the first step in stock
investment is to determine the
investment purpose. Investors
seeking income generation or
capital preservation are likely to
benefit from steady-growth
companies or b lue ch ip
corporations to gain low-risk
returns. On the other hand,
those focused on capital
appreciation and having a
greater risk tolerance should
invest in growth stocks.
Plus, picking out individual
stocks requires detail study of the
company. Investors should ask
questions such as how is stock's
performance consistency; what
is its growth rate compared to its
competitors; before finalizing the
stock. Ask a professional if the
particular selection of stocks will
perform as per your expectation
in the given period.
How many stocks should I buy?
Diversification is one of the fundamental principles of investing. It helps reduce the overall portfolio risk as you spread your investments across different avenues and asset
FLAVOUR OF THE MONTH
ICICIdirect Money Manager May 201819
classes. Being “adequately” diversified is critical for better risk-adjusted returns. If you under-diversify, say 2-3 stocks in a portfolio, your specific risk would be very high. Conversely, if you over diversify, say 80-100 stocks in a portfolio, you run the risk of complexity - monitoring and managing your holdings become difficult. Further, it doesn't add any incremental diversification benefit to your portfol io. So, how much diversification is enough? What is the optimum number of stocks to hold in a portfolio?
We have seen investors holding as many as 100 stocks and 50 mutual funds in a portfolio. There is a common m i s c o n c e p t i o n a m o n g investors that with every
additional stock or mutual fund in a portfolio, the overall risk gets reduced to that extent. However, this is not true. While increasing the number of stocks in a portfolio helps reduce the specific risk, there is a level beyond which it doesn't benefit much.
Our research has found that
holding 13 to 22 stocks in a
por t fo l io o f fe rs op t ima l
diversification. Beyond 22
s t o c k s , t h e a d d i t i o n a l
diversification benefit starts to
decline. We simulated portfolios
by randomly picking stocks
from 1 to 69 from Nifty 100 and
this was simulated 100 times.
On average, a well-diversified
portfolio is found to contain 13
to 22 randomly chosen stocks.
Source: ICICI Securities Investment Advisory Services
FLAVOUR OF THE MONTH
ICICIdirect Money Manager May 201820
T h e o p t i m u m p o r t f o l i o
diversification is to own not
more than 20-22 stocks to nearly
eliminate specific / unsystematic
risk. You can diversify your stock
portfolio by the size of the
companies (large-, mid-, or
small-cap stocks), by geography
(domestic or international), and
by industry and sector.
Before investing in equity
mutual funds
Investing in equity through
mutual funds sidesteps all the
problems one might face while
directly investing in stocks. The
selection of stocks vetted by a
resourceful team of experts is
the biggest advantage equity
funds have over direct equity.
Nevertheless, it is wiser to
evaluate past performance,
check expense ratio, exit load
and other significant factors
before investing. Remember,
the most suitable mutual fund
is the one that aligns with your
investment goals, horizon and
risk profile.
Should I rely on the fund ratings?
A fund rating is a scale that
measures a mutual fund's risk-
a d j u s t e d p e r f o r m a n c e
compared with other funds in
the same bracket. In other
words, it gives you an idea
about fund's potential to
generate returns for a given
extent of risk. Rating companies
assign stars to mutual funds
based on their rating (1 being
the worst and 5 being the best).
The rating assessment, however,
is done considering past
performance of the mutual fund
and does not guarantee future
returns. Since the ratings are
dynamic, it is recommended to
use fund rating as a starting
point and not a sole benchmark.
Investors must review the
performance of the funds once a
year.
How much should I allocate to
equities?
Equi ty a l locat ion in the
portfolio primarily depends on
the investor's goal and risk
to le rance . S ince equ i ty
generates highest inflation-
beating returns (as compared
to other asset classes), it
should be given fair weightage
in every portfolio.
FLAVOUR OF THE MONTH
ICICIdirect Money Manager May 201821
An investor with a long-term goal has more opportunities to ride out market volatility and thus, should allocate 50- 80% capital to equity.
H o w e v e r, a r i s k - a v e r s e
individual can reduce this
exposure as per his tolerance
level. As equity mutual fund is
diversified by nature, we say,
allocate maximum capital to
this avenue.
A better way is to align the investments to goals. Short term goals need to be aligned to much lesser portion of equities and long term should have a health allocation of equities.
Large-cap, mid-cap or small-
cap?
S e l e c t i n g a m o n g t h e s e
ca tegor ies i s a ba lance
between returns and risk.
While all three offer generous
returns in the long run,
investors should weigh risk
associated with each type.
Generally, Large-cap funds are
cons idered su i tab le fo r
conservative and moderate
risk takers while mid and small
cap funds for risk-tolerant
indiv iduals . Again, your
willingness to face volatility is
the prime criterion. It is also
recommended to change this
allocation in line with market
movements. Research has
shown that a dynamic strategy
synced with major market
fluctuation produces optimum
returns.
Ground rules of equity investing to be a better investor
Know yourself:
The first and foremost thing before investing in equities is to understand
yourself. Understand your financial objectives, risk taking capacity and time
horizon. These three paramount factors are essential to bear in mind for
taking any investment decision. Knowing these factors will guide you in your
financial journey and help you achieve goals.
Understand the inherent nature of markets:
An equity investor needs to understand the inherent volatile nature of markets. He needs to understand that markets go through various phases such as bull-run, bear-run, volatility, extreme volatility, lackluster mode, etc.
FLAVOUR OF THE MONTH
ICICIdirect Money Manager May 201822
As rightly said by a legendary investor Peter Lynch: “You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets.”
Understand the company and its business model:
Before investing in a company's shares, make a point that you are aware of its fundamentals and business model. It is also important to have a confidence in company's founders and leaders.
Delve into financial nitty-gritty:
Dig into company's income statement and balance sheet and look for revenues and income trends (historical as well as future forecasts). The future earnings guidance given by a company management can help you take better investment decision. Go for a clean balance sheet with low debt levels in relation to equity.
Invest regularly and systematically:
This is the piece of advice given by all the experts. And it does work. Making investments in a regular and systematic manner pays off well. A systematic investment plan (SIP) in equity mutual fund is the most appropriate and disciplined way of investing to ride out market volatility. Regular entries in the market ensure averaged returns on your investment. In fact, a dip in the market allows you to buy more number of shares if you invest on a regular basis.
Start early:
Start early on. The sooner you start investing, the more time you will have for your money to grow. For example: Rs. 5000 monthly index fund SIP at the age of 25 would give approximately Rs. 1.65 crore by the age of 50.
Keep your emotions away:
Emotions generally overwhelm your investment decisions to buy or sell a particular stock. While investing in markets, it is always prudent to do thorough research. Be diligent and take investment decisions wisely.
Long-term pays:
Stock markets go down but they don't stay down. They go up in the long run. Invest in equities for long term and you will be surprised to look at the returns it generates in the long haul.
Stick to your plan and review it periodically:
Lastly, stick to your asset allocation plan and monitor it regularly as circumstances keep changing.
Tête-à-tête
ICICIdirect Money Manager May 2018
Choose the company by its merit and build your portfolio with multiple stocks
23
Vishal Gulechha, Head- Equity, ICICIdirect.
Just 10 years ago, when the stock markets crashed, the Indian equity investor went into a tizzy, selling stocks and exiting mutual fund SIPs in a hurry. Then in 2015, when the markets witnessed volatility following global cues, there was very little knee-jerk reaction, indicating growing maturity on the part of the Indian investor. This gradual evolution of equity investors has been evident during the dips in the past few years, and is clearly on display during the current market volatility as well, says Vishal Gulechha - Head- Equity, ICICIdirect. The approach of investing early and on a regular basis helps the customer to generate wealth from Equity markets, he adds. Excerpt:
Q. Can you tell us why is investment
in equities important in a portfolio?
A. Firstly, we are living in an
environment where inflation has
been high and expected to
remain high on the average in the
coming years. If you invest in
assets which cannot beat inflation
then you are losing purchasing
power of your wealth. On the
other hand history has shown that
equities can be great investments
over the long term. Equities have
historically delivered annualized
returns of over 15% despite
factors like recession, war, natural
disasters, corporate scandal and
other financial crises. There has
been a significant growth in size
and value in Indian stock markets
since the financial liberalization in
1990's . With the progress in India
economy and with Government's
focus on sustainable development
the re w i l l be max imum
participation from almost all
sections of the society. Equity
markets provide higher risk
adjusted returns and tend to
outperform other asset classes in
the long run.
Equity in fact is the only
investment where you can
become a part owner of the
company by investing small
ICICIdirect Money Manager May 201824
Tête-à-tête
amounts. So by investing in a
Blue Chip company it is like
making the best of management
and minds work towards your
wealth creation. Equity is the
only investment where you can
choose which business to invest
in and have flexibility to exit and
change the sector at any given
point of time due to the high
liquidity available. You can reach
your financial goals with the
right mix on investment because
equity allows you to diversify
your investment with a relatively
lesser cost. Investing in Equity is
easy on your pocket. Anyone
and everyone can start investing
in equity through small SIPs and
benefit from the compounding
returns to generate wealth over
a long term.
Q. What factors should investors
cons ider whi le invest ing in
equity for a long term?
A. It has been seen that investors
often get perturbed when the
price of the stocks in their
portfolio starts falling. In case if
the fall is steep and if the time for
the price to recover is longer,
then the investor, out of
frustration sells it at a loss or for
a low profit when his stock
comes back to his buy price. In
an in-house study on successful
investment principles where we
tried to analyze our customer
behavior, it has been seen that
investors who have bought
fundamentally good, large cap
stocks and held it for long term
have made higher returns.
Fundamentally good companies
with strong management &
steady earnings give better
return on investment in the
longer run.
Even large cap stocks go
through a rough patch when the
markets are weak. The prices of
these stocks also fall. But if there
is no change in the character of
the stocks fundamentally, the
large cap stocks recover when
markets turn positive & give
good returns if held for a long
term. ICICIdirect study on
successful investment practices
has shown that investing into
large cap stocks from the top
100 stocks in the country by
way of market capitalization i.e.
Nifty 100 stocks have given
higher returns when held across
3 years
The longer you invest, the
higher are chances of better
re turns . But choose the
ICICIdirect Money Manager May 201825
Tête-à-tête
company by its merit and build
your portfolio with multiple
stocks.
Q. And what advice would you
give to those investing for a short-
term?
A. An investor's time horizon is
a critical element to consider
when looking at how to put
money to work. Investing for
short-term needs requires a
different approach than when
investing for long-term goals,
such as retirement or a child's
future education. While most
investment plans are designed
to grow an investor's wealth
over extended periods of time,
there may be occasions, like
saving for a short term goal,
when there is only a short
window of time to reach a goal.
Given such an abbreviated
time period, it is prudent to
reduce the level of risk in an
investment plan or portfolio. A
business or market cycle
usually lasts more than three
years, so there typically isn't
enough time to recover from a
loss that may occur if choosing
higher risk assets such as
equities. If one gets into the
wrong cycle of growth then
there is risk of capital loss in
shor t te rm. Invest ing in
equities need patience and
investors have to give enough
time for their stocks to perform
and grow.
So it may be wise to invest in
lesser riskier investment with
lesser fixed returns for short
term.
A. Do you see a tangible shift in
investor interest from equity to
other asset classes because of the
recent volatility?
A .Market t ra jec tory i s a
function of what happens
globally and what happens
with Indian macro economy.
T h e g l o b a l o u t l o o k h a s
weakened a little bit because
we are looking at rate hikes and
tightening by various global
central banks.
Just 10 years ago, when the
stock markets crashed, the
Indian equity investor went
into a tizzy, selling stocks and
exiting mutual fund SIPs in a
hurry. Then in 2015, when the
markets witnessed volatility
following global cues, there
was very l i t t le knee- jerk
ICICIdirect Money Manager May 201826
Tête-à-tête
reaction, indicating growing
maturity on the part of the
Indian investor. This gradual
evolution of equity investors
has been evident during the
dips in the past few years, and
is clearly on display during the
current market volatility as well
Equity markets are designed to
perform over a longer term and
with more and more investors
becoming aware of this fact, the
maturity level of investors have
increased over the years. In
India, household saving is
shifting from physical to financial
assets. Share of financial savings
as a proportion of household
has increased to 41pc in 2016
from 31pc in 2012. Expected to
rise further. Investment in equity
is witnessing a multitude of
changes with rising retail
participation, increasing share of
internet and mobile trading,
institutional investment into
equities, etc
Q . What are the key r isks
associated with equity investments?
What strategy should one adopt to
manage these risks?
A. The stock markets have a lot
to offer. Many avoid investing in
stocks, because they are afraid of
the many associated risks. The
confidence of potential investors
is eroded due to news about the
occasional market recession or
slump and consequently, they're
excluded from this market of
opportunities.
If you're a potential investor, it's
possible to rid yourself of this fear
and make good returns from
stocks. Be aware of your appetite
for risk and invest accordingly.
Generally, you can evaluate a
potential investment by analyzing
risks like Market risk associated
with market bubbles and crashes,
inflation risk and liquidity risks by
investing into stocks of well-known
fundamentally good companies.
Nifty 50 stocks are a good
example. Only fundamentally
good companies find their place in
top nifty companies and
underperforming companies are
eventual ly replaced with
performing companies. So there is
a level of filtration already done by
exchanges itself. Many investors
invest in mid and small cap stocks
with the expectation that it will
double or triple in short period of
time. A year later, many times
ICICIdirect Money Manager May 201827
Tête-à-tête
these investors feel disappointed.
If you are an experienced investor
with time to understand the
business models of mid and small
companies, then you should
continue investing in it as its return
potential are definitely higher. For
new investors as well as investors
with less risk appetite, investing in
the best companies in India, in
terms of market capitalization, has
proven to be successful.
One can further reduce their risk
by diversifying. In the study that
ICICIdirect conducted on
successful investment principles,
we saw that there are 2 kinds of
divergent patterns investors,
when it comes to diversification
of stocks. (a) Concentrated
Portfolio & (b) Over Diversified
Portfolio,
In a Concentrated Portfolio:
We s e e s o m e i n v e s t o r s
accumulate very large quantity
in a single stock expecting
significant returns. They feel it
is that stock itself which can
change the fortunes of their
lives.
Now, in an Over-diversified
Portfolio: The investor we see
is the one who keeps adding
stocks in their portfolio with
expectation that one of them
would do better. This largely
happens when their existing
portfolio is not performing well
and they hope that the newly
added stocks would help in
balancing the losses. With this
kind of approach of adding
many stocks, the portfolio size
increases beyond a limit where
the investor is not able to track
and manage
A diversified portfolio having 10
to 12 good quality stocks tends
to yield higher positive returns
than por t fo l ios tha t a re
concentrated or over diversified.
A rightly diversified portfolio
also reduces the r isk by
balancing the losses, if any,
made in few stocks with the
profits from the others. The
study shows this is true across
large, mid and small cap stocks.
Even if, your preference is to
invest in small companies
anticipating higher future
returns, it would be a wiser idea
to diversify them into 10-12
stocks, so that even if 1 or 2
stocks don't perform, there are
others who make up for it. So it's
a smart investor's strategy to
diversify well in 10-12 good
ICICIdirect Money Manager May 201828
Tête-à-tête
stocks. Even if you like small
caps, don't invest fully in one
stock. However if you still want
to invest in concentrated
portfolios, pick from NIFTY 50
or Nifty 100 stocks.
Q. What message will you give to
those who are just entering into
equities?
A. Not everyone who invests in
the stocks market is successful.
As a new investor you must
make decisions carefully so as
to avoid loss associated with
the market risks. Profit or loss
in the stock market largely
depends upon the decision-
making ability and choose the
right stock at the right time.
However a new investor may
not have the abi l i ty and
experience to do so. In
ICICIdirect our objective has
always been to guide and
educate new customers to
invest regularly in equities with
a longer term objective. This
approach of investing early
and on a regular basis helps the
customer to generate wealth
from Equity markets. We have
launched a scheme called
Pehal for our new customers.
Through Pehal we encourage
new customers to invest into
equity through ETFs and
Mutual funds. ETFs like Nifty
ETF can help spreading your
investments r isks over a
number of securities and
reduce stock specific risks. The
customer can choose an
option of investing a certain
amount of money into stocks
through our Equity SIPs on
regularly and can select an
option of investing monthly,
weekly, daily basis. In fact over
60% of or new customers
choose the option of investing
into equities through the SIP
route in ETFs which helps them
in not only reducing the risk but
by providing them with higher
chances of wealth creation
over long term.
ASK OUR PLANNER
ICICIdirect Money Manager May 201829
Take sound financial decisions based on thorough knowledge and professional help
Q. I have investments in two of the
funds through SIP and I see them
not even beating their benchmark
since last 1 year, both funds are
from Franklin Templeton, can you
please advice if I should continue
with them, if they hold promise for
future performance, or should I
stop SIPs in them and move to some
other funds? If so, which funds?
The two funds are:
1. Franklin Build India Fund - Direct
(G)
2. Franklin India Prima Plus - Direct
(G)
- Sailesh Damani
A. Both these funds have a
'Hold' view by our Research.
You can hold the investments
which you have accumulated till
now. For fresh investments, you
can refer ICICIdirect.com >
Research > Mutual funds for
our list of recommended funds.
Q. With the introduction of LTCG on
equity shares from 1st April, my
query is – how to calculate value of
shares for bonus and demerger
cases?
- A I patel
A. The fair market value of the bonus shares as on January 31, 2018 will be taken as cost of acquisition, and hence, the gains accrued upto January 31, 2018 wil l continue to be exempt. If you sell such shares post April 1, 2018, then the c a p i t a l g a i n s w o u l d b e calculated as sale price less fair market value price as on January 31, 2018. However, if the sale price is less than the fair market value as on January 31, 2018, then the long-term capital gain will be NIL.For shares which were unlisted on January 31, 2018, but listed on the date of sale, then the cost of acquisition would be indexed, to calculate long-term capital gains. This will also apply for unlisted shares which are substituted in tax neutral transfers (like amalgamation, demerger, gift, succession, etc) for shares which are listed on date of sale.Q. I understand that there are certain IT provisions under which income earned from the money given to my wife is taxable as if it is my income. I also understand that the income generated by her will
ASK OUR PLANNER
ICICIdirect Money Manager May 201830
not be taxable as my income in case I give a loan to her. It is also mentioned that I should charge a reasonable interest from her. My doubt i s regard ing what i s reasonable interest. I earn less than 7%PA on the FDs in bank and which I am paying tax now and just 3.5% pa in case of SB balances. Assuming my average annual balance in the bank is 10 lakhs in the last year and I earned about 50 thousand as interest, can I loan 5 lakhs and charge an interest of say 26000 per annum without needing to add (to my income) any income she earns on investing that 5 lakhs or claiming any deduction in case she incurs a loss?Although there will be saving of income tax for me, the main motive is to make her understand and get the ability to stand on her own.
- HVS Sastri A. The amount is considered loaned and is planned to be re turned and in terest i s charged as well. In case you are charging a reasonable interest and also showing this as your income in your return, income earned by your wife may not be clubbed. There's no c l e a r a n s w e r t o w h a t a reasonable interest is. It will be the tax authorities who would
judge whether the interest charged is reasonable or not.However, in cases where amount is shown as loaned to your wife and she is investing that money in shares to earn an income, and thereby you end up saving significant tax by avoiding clubbing of income (gains) on shares, it may be hard to convince the tax authorities about the lender borrower arrangement, given the close relationship of the parties and the tax saved involved. Usually in most cases – it's misused as a tax saving avenue and that is what the tax authorities want to be careful of.Q. I'm trying to lower my monthly payments to save to buy a house. What should I pay off first: my credit card debt or my car loan?
- Nikunj Ghedia A. You should pay off your c red i t ca rd ou ts tand ing amount first, without a doubt, given that the interest rate you would be paying on the same would be much higher than your car loan. Q. I am 55 years old, still working but don't think I have enough saved for retirement. I have saved 5 lakhs in fixed deposit account. The
ASK OUR PLANNER
ICICIdirect Money Manager May 201831
amount in my PF account will not suffice for my later years. Should I invest in NPS now and save it up for my retirement? Which other investment or savings options would you suggest?
- Nilima Mahade A. Now that you are nearing your retirement, you would need to act quickly & invest more to build up the shortfall in the required corpus. First of all, you can look at getting a customized financial plan done through a financial planner, which would help you in es t imat ing the requ i red retirement corpus for fulfilling all your post-retirement needs. Once you get to know the shortfall, the financial planner would guide you as to how you can bridge up the shortfall and where you would have to invest to build the shortfall. As you have mentioned that you have invested into FD & have accumulated corpus in PF for retirement, you can now look at investing into equity mutual funds to have some exposure into equity asset class as well. The debt portion of your corpus could help you in fulfilling your post-retirement
needs in the initial years, whereas the equity portion could help you in accumulating the shortfall and could be used to fulfill your post-retirement needs in the later years of your retired life.
Q. I want to start a SIP, or Systematic Investment Plan, in an index fund. What are the risks associated with these funds and what are the factors I should consider before I invest? I've heard that it offers diversification. Which ones would be my best options?
- Kavin S
A. Index funds try and mirror the portfolio of the underlying index with the stocks held in the same weightages as in the underlying index. There are index funds for almost all the major indices available. Depending on your risk appetite, you can choose the index fund. For example, if you are looking to invest only into large-cap companies, you can look at Nifty / Sensex / BSE 100 funds. You can also look at diversifying by investing into funds which track different indices. Before choosing the fund, you can look at the performance of the funds with
ASK OUR PLANNER
ICICIdirect Money Manager May 201832
Do you also have similar queries to ask our experts? Write to us at: [email protected].
respect to their peers & the underlying index. As these funds are not actively managed, the expense ratios for these f u n d s w o u l d b e l o w e r compared to actively managed
funds. While comparing similar index funds, you can look at this ratio and opt for the ones which have a lower ratio compared to its peers.
MUTUAL FUND ANALYSIS
Investing in infrastructure funds
ICICIdirect Money Manager May 2018
Equity markets have been
volatile since the start of 2018.
After having declined sharply in
February and March, markets
have recovered almost all of its
losses since then. However,
infrastructure stocks have
lagged in the recent rally and
still offer a better investment
opportunity.
Within equities, the infrastructure
segment remains well placed to
offer a better investment
opportunity. Various segments
like roads, railways, ports, oil &
gas, defence and housing have
been key thrust areas of the
government. Policy measures to
create a favourable environment
for private investment along with
the government's own huge
expenditure on the infrastructure
segment have started to result in
order inflows and execution on
the ground.
Tendering activity in infra and
capex segments is a lead
indicator of a pick-up in
economic activity. Tendering is
followed by actual awarding of
contracts, which later leads to
ground level execution. Large
scale tendering for mega infra
projects is beneficial for larger,
stronger companies that are
more typically found in the
organised space. Whi le
tendering activity was dominated
by the government, participation
of private players in tendering
activity was very limited in the
last three to four years due to
high leverage and an elevated
interest rate scenario along with
uncerta inty over pol icy
framework. However, we believe
private investment could see an
uptick in investment possibly,
going forward, as there are early
signs of corporate balance sheet
repairs. Overall, we believe
execution activity would be
boosted over the next few
months as tendering activity,
which has already picked up
(and is highest since 2012), will
ultimately translate into action.
Furthermore, opening up of
various financing options like
InvITs, REITs along with Budget
focus on promoting the bond
market for lower rated companies
33
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager May 201834
wil l make the business
environment conducive to private
investment in infrastructure.
In its Budget announcements,
the government has underlined
its commitment to provide a
continued thrust to the infra
space. Budgetary allocation to
roads, highways and transport
was increased 16.3% YoY while
that to urban development was
increased 11.2% YoY. Railways
received a bumper push, with
budgetary allocation increasing
32.7% YoY. Consequently,
a l loca t ion towards key
development related schemes
was increased 14.1% YoY.
Over the past few years, the
government has been working
on providing the much needed
groundwork that can see the
infrastructure sector take off in
coming years. The removal of
sectoral bottlenecks like land
acquisition, environmental
approvals, allocation of mining
resources along with measures
for ease of doing business may
lead to timely completion of
infrastructure projects. As
infrastructure projects involve
high capital expenditure, a
sharp fall in interest rates has
significantly added to the
profitability of the sector.
Infrastructure funds focusing on
specific companies capitalising
on growth potential in the
sector are offering good
investment options to investors.
Aggressive investors may
consider investing in the
recommended infrastructure
funds as a part of their thematic
allocation.
We recommend the following
f unds : Ad i t ya B i r l a SL
Infrastructure Fund, L&T
Infrastructure Fund and Reliance
Diversified Power Sector Fund.
Inves tors shou ld avo id
allocating more than 10% of
their equity mutual fund corpus
in any sector or thematic fund.
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager May 201835
Product Label:
This product is suitable for investors who are seeking:
· Long term capital growth ·
Investments in equity and equity related securities of companies that are participating in the growth and development of infrastructure in India
Investors understand that their principal will be at high risk
Performance:
The fund has outperformed the
benchmark and has been among
the top two quartiles over the
five-year time frame (as of April
30). It has generated CAGR of
12.2% and 19.9% in the last three
years and five years vs. 10.9%
and 14% returns by benchmark,
respectively (as of April 30, 2018).
However, this comparison is not
strictly comparable because the
fund has chosen Nifty 50 as its
benchmark. Looking at the
scheme's performance vis-à-vis
the category average would be
more appropriate. Here, the fund
has marginally underperformed
its peers in recent times but has
outperformed over a five-year
timeframe.
Aditya Birla Sun Life Infrastructure Fund
Fund Objective:
An open-end growth scheme
with the objective of providing
for medium to long-term capital
appreciation by investing
predominantly in a diversified
portfolio of equity and equity
related securities of companies
that are participating in the
growth and development of
Infrastructure in India.
NAV as on April 30, 2018 ( )` 36.5Inception DateFund Manager Vineet MalooMinimum Investment ( )` Lumpsum 1000
SIP 1000Expense Ratio (%) 2.68Exit Load 1% on or before 1Y, Nil after 1YBenchmark NIFTY 50 - TRILast declared Quarterly AAUM( cr)` 671
Key Information
March 17, 2006
Performance vs. Benchmark (CAGR Returns %)
9.5 12
.2 19.9
11.317
10.9 14 11.8
05
10152025
1 Year 3 Year 5 Year SinceInception
Fund Benchmark
Portfolio:The fund has tradit ionally invested heavily in financials and industrials with these two sectors regularly constituting
~50-55% of the portfol io. However, over the last two to three years it has consistently cut exposure to these sectors while increasing allocation to
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager May 201836
%
5.1
4.1
3.8
3.7
3.6
3.5
3.1
2.7
2.4
2.4
KEC International Ltd. Domestic Equities
NTPC Ltd. Domestic Equities
Hindustan Petroleum Corporation Ltd. Domestic Equities
Asset Type
Cash & Cash Equivalents and Net Assets
PNC Infratech Ltd. Domestic Equities
Vedanta Ltd. Domestic Equities
Indraprastha Gas Ltd. Domestic Equities
Honeywell Automation India Ltd. Domestic Equities
Carborundum Universal Ltd. Domestic Equities
Bharat Electronics Ltd. Domestic Equities
Clearing Corporation Of India Ltd.
Top 10 Holdings
%15.4
5.9
5.3
5.1
5.1
4.4
4.2
4.1
3.8
3.7
Industrial Gases & Fuels Domestic Equities
Finance - NBFC Domestic Equities
Abrasives Domestic Equities
Engineering - Industrial Equipments Domestic Equities
Air Conditioners Domestic Equities
Domestic Equities
Bank - Private Domestic Equities
Metal - Non Ferrous Domestic Equities
Consumer Durables - Electronics Domestic Equities
Top 10 Sectors Asset TypeEngineering - Construction Domestic Equities
Refineries
%
1.9
Whats In
Voltas Ltd.
%
2.6
0.70.2
Whats out
Housing Development Finance Corporation Ltd.
Steel Authority Of India Ltd.Hindustan Zinc Ltd.
materials. The portfolio displays a significant midcap bias with the portfolio seeing allocation of ~40% in large caps and ~60% in midcap and small cap stocks. At the stock level, the fund tries
t o m i t i g a t e t h i s r i s k b y diversifying heavily. It currently holds 63 stocks with the top 10 bets making up around a third of the portfolio.
Our View:T h e f u n d h a s w o r k e d o n
diversifying its portfolio by
moving away f rom highly
concentrated posi t ions in
financials and industrials. Having
reduced exposure to sectors
such as consumer discretionary
and financials the fund is now
truer to the infrastructure theme.
Investors can consider this fund
from a three-year perspective.
You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://mutualfund.adityabirlacapital.com//media/bsl/files/resources/factsheets/2018/empower-april-2018.pdf
Data as on April 30, 2018; Portfolio details as on March-2018� �Source: ACE MF, ICICI Direct Research
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager May 201837
L&T Infrastructure Fund
Fund Objective:
The scheme seeks to generate c a p i t a l a p p r e c i a t i o n b y investing predominantly in equity and equity related
NAV as on April 30, 2018 ( )` 18.0Inception DateFund Manager
Soumendra Nath Lahiri
Minimum Investment ( )` Lumpsum 5000SIP 500
Expense Ratio (%) 2.22Exit Load 1% on or before 1Y, Nil after 1YBenchmark NIFTY INFRA - TRILast declared Quarterly AAUM( cr)` 1934
Key Information
September 27, 2007
Product Label:
This product is suitable for investors who are seeking• Long term capital appreciation• Investment predominantly in equity and equity-related instruments of companies in the infrastructure sector
Investors understand that their principal will be at high risk
Performance:
The fund has been a top quartile performer over the last one year, three year and five-year time frames (as on April 30, 2018), indicating its relative outperformance over its peers. It has also comfortably and cons i s ten t l y bea ten the benchmark Nifty Infra by ~10% (one year), ~14% CAGR (three years) and ~6% CAGR (five years) (as of April 30, 2018).
instruments of companies in the infrastructure sector.
Performance vs. Benchmark (CAGR Returns %)
19.4
19.1
24.5
5.79.1
4.9 9.
1
-1.3-10
0
10
20
30
1 Year 3 Year 5 Year SinceInception
Fund Benchmark
Portfolio:
The portfolio has undergone a
significant change in character over
the years. Till 2012, the holdings
were dominated by financial,
energy and industrial stocks.
However, post 2012 it started
shedding financial stocks in favour
of materials sector and post 2015,
the holdings in financial stocks has
been cut, to a large extent. As a
result, now the fund truly resembles
an infrastructure fund with the
portfolio predominantly comprising
appropriate constituent sectors, viz.
industrials, materials, energy and
telecom. Currently, there are 57
stocks in the fund with the top 10
holdings making up close to 36% of
the portfolio. The fund also has ~8%
of the portfolio in cash currently.
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager May 201838
%
7.6
7.2
4.4
3.7
3.6
3.5
3.2
3.0
2.8
2.8
Carborundum Universal Ltd. Domestic Equities
Bharat Electronics Ltd. Domestic Equities
Hindustan Zinc Ltd. Domestic Equities
Asset Type
Domestic Equities
Graphite India Ltd. Domestic Equities
Shree Cement Ltd. Domestic Equities
Lakshmi Machine Works Ltd. Domestic Equities
Cash & Cash Equivalent Cash & Cash Equivalents and Net Assets
Larsen & Toubro Ltd. Domestic Equities
The Ramco Cements Ltd. Domestic Equities
Bharti Airtel Ltd.
Top 10 Holdings
%13.1
11.6
8.0
7.2
5.9
5.5
5.4
5.2
4.3
3.6
Construction - Real Estate Domestic Equities
Diversified Domestic Equities
Metal - Non Ferrous Domestic Equities
Logistics Domestic Equities
Steel & Iron Products Domestic Equities
Domestic Equities
Engineering - Industrial Equipments Domestic Equities
Telecommunication - Service Provider Domestic Equities
Electrodes & Welding Equipment Domestic Equities
Top 10 Sectors Asset TypeCement & Construction Materials Domestic Equities
Engineering - Construction
%
1.3
Whats In
HG Infra Engineering Ltd.
%Whats out
Our View:The fund is on the aggressive side with higher allocation to midcaps than large caps. However, the portfolio is well
const ruc ted in te rms o f diversification. Investors looking for a true-blue infra fund can consider L&T Infrastructure Fund.
You can view performance of other schemes being managed by
the fund manager of this scheme on the following link:
https://www.ltfs.com/content/dam/lnt-financial-services/lnt-
mutual-fund/downloads/factsheets/2017-18/LT%20Factsheet%20Mar%202018.pdfData as on April 30, 2018; Portfolio details as on March-2018� �Source: ACE MF, ICICI Direct Research
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager May 2018
Reliance Diversified Power Sector Fund
39
Fund Objective:The pr imary inves tment objective of the scheme is to generate long term capital appreciation by investing
NAV as on April 30, 2018 ( )` 116.6Inception DateFund Manager Sanjay DoshiMinimum Investment ( )` Lumpsum 5000
SIP 100Expense Ratio (%) 2.11Exit Load 1% on or Before 1Y, Nil After 1YBenchmark NIFTY INFRA - TRILast declared Quarterly AAUM( cr)` 1853
Key Information
May 8, 2004
Product Label:
This product is suitable for investors who are seeking• Long term capital growth• Investment in equity and equity related securities of companies in power sector
Investors understand that their
principal will be at high risk
Performance:The fund has outperformed its benchmark BSE Power Index strongly over the years. The one year, three years and five-year performance (as of April 30) is 14.5%, 16.7% CAGR and 18.3% CAGR, respectively compared to BSE Power Index' 9.1%, 4.9% CAGR and 9.1% CAGR. When compared to its category peers, the performance has picked up over the last three years but over five years' time frame it has underperformed.
Performance vs. Benchmark (CAGR Returns %)
14.5
16.7
18.3
19.2
9.1
4.9 9.
1
9.5
05
10152025
1 Year 3 Year 5 Year SinceInception
Fund Benchmark
predominantly in equity and equity related securities of companies in the power sector.
PortfolioI ndus t r i a l s and u t i l i t i e s consistently make up ~75-80% of the scheme portfolio. The scheme has taken outsized positions on these sectors over the years. In recent times, exposure to materials has also increased. It is now the third largest holding in terms of
sectors. The fund likes to take large bets on its top holdings, with the top five stocks all individually constituting 5% or more of the portfolio and the top 10 stocks constituting ~52% of the portfolio. Overall, the fund currently has 33 stocks in the portfolio and has a pronounced midcap tilt.
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager May 201840
%
8.2
8.0
6.2
5.5
5.0
4.5
4.3
4.1
4.0
3.6
Top 10 Holdings Asset Type
Apar Industries Ltd. Domestic Equities
PTC India Ltd. Domestic Equities
KSB Pumps Ltd. Domestic Equities
KEC International Ltd. Domestic Equities
Larsen & Toubro Ltd. Domestic Equities
GE Power India Ltd. Domestic Equities
Thermax Ltd. Domestic Equities
Jindal Stainless (Hisar) Ltd. Domestic Equities
Torrent Power Ltd. Domestic Equities
NTPC Ltd. Domestic Equities
%27.9
22.4
16.5
10.7
4.3
3.4
3.3
3.2
3.2
1.3
Top 10 Sectors Asset Type
Electric Equipment Domestic Equities
Engineering - Industrial Equipments
Engineering - Construction Domestic Equities
Power Generation/Distribution Domestic Equities
Cable Domestic Equities
Diesel Engines Domestic Equities
Bank - Private Domestic Equities
Domestic Equities
Steel & Iron Products Domestic Equities
Transmission Towers / Equipments Domestic Equities
Compressors / Pumps Domestic Equities
%Whats In
%
1.4
0.80.4
Whats out
Exide Industries Ltd.
Jindal Saw Ltd.JMC Projects (India) Ltd.
Our View:
The fund is more suited to savvy,
experienced & aggressive
investors due to factors like
significant midcap bias of ~80%
and heavily concentrated calls in
terms of stocks as well as
sectors.
You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://www.reliancemutual.com/InvestorServices/FactsheetsDocuments/Fundamentals-April-2018.pdf
Data as on April 30, 2018; Portfolio details as on March-2018� �Source: ACE MF, ICICI Direct Research
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager May 201841
Performance of other schemes managed by these fund managers:
1. Aditya Birla Sun Life Infrastructure Fund
18.23 3.04 8.7217.01 10.89 14.0311.16 9.83 13.6617.01 10.89 14.039.49 12.16 19.9019.00 10.71 14.15
4.43 -- --5.73 8.48 9.224.03 5.70 --
5.73 8.48 9.223.89 11.98 12.9112.45 11.20 13.50
CRISIL Hybrid 85+15 - Conservative IndexAditya Birla SL Balanced Advantage Fund(G)
Fund Name 1 Year 3 Years 5 Years
Top 3 Performing Schemes Aditya Birla SL Intl. Equity Fund-A(G)NIFTY 50 - TRI
CRISIL Hybrid 35+65 - Aggressive Index
Performance of other schemes managed by the fund manager - Vineet Maloo
Aditya Birla SL Intl. Equity Fund-B(G)NIFTY 50 - TRIAditya Birla SL Infrastructure Fund(G)S&P BSE Sensex - TRI
Bottom 3 Performing SchemesAditya Birla SL CPO Fund-Sr 29CRISIL Hybrid 85+15 - Conservative IndexAditya Birla SL CPO Fund-Sr 22
Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 10 other schemes of the concerned Mutual Fund
2. L&T Infrastructure Fund
27.49 27.60 --20.53 19.89 --19.38 19.08 24.549.11 4.89 9.0619.21 21.31 30.3913.35 18.34 22.54
16.04 11.89 18.4317.14 12.83 16.2412.22 12.39 19.18
17.14 12.83 16.248.28 5.81 15.6017.14 12.83 16.24
S&P BSE 200 - TRIL&T Dynamic Equity Fund-Reg(G)
Fund Name 1 Year 3 Years 5 Years
Top 3 Performing Schemes L&T Emerging Businesses Fund-Reg(G)S&P BSE Small-Cap - TRI
S&P BSE 200 - TRI
Bottom 3 Performing Schemes
Performance of other schemes managed by the fund manager - Soumendra Nath Lahiri
L&T Infrastructure Fund-Reg(G)NIFTY INFRA - TRIL&T Midcap Fund-Reg(G)Nifty Midcap 100 - TRI
L&T Equity Fund-Reg(G)S&P BSE 200 - TRIL&T India Prudence Fund-Reg(G)
Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 8 other schemes of the concerned Mutual Fund
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager May 2018
Data as on April 30, 2018; Portfolio details as on March-2018� �Source: ACE MF, ICICI Direct Research
42
14.52 16.67 18.349.11 4.89 9.06
Performance of other schemes managed by the fund manager - Sanjay Doshi
Fund Name 1 Year 3 Years 5 Years
Top 3 Performing Schemes Reliance Power & Infra Fund(G)NIFTY INFRA - TRI
3. Reliance Power & Infra Fund
Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 1 other schemes of the concerned Mutual Fund
ICICIdirect Money Manager May 2018
This month on iCommunity
Q & A SessionQ& A Session with Derivatives Head: Mr. Amit GuptaBelow mentioned questions were asked during the event -
a) We have observed huge movement in bank nifty
on Expiry day. Is there any way to pre-empt the
same?
b) I am new to F&O market. As I see on the "F&O on
your fingertip" many things are popping up. Let me
know simple rules to start trading in F&O?
43
Discussion
Your voice matters!
Voice your opinions on: Should you invest in stocks/mutual funds in
times of volatility?
What is iCommunity?iCommunity is ICICIdirect's interactive platform where one can answer and get answered as well. With extensive range of forums, events & discussions iCommunity serves as an opportunity to learn more about financial world.
What's more?
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager May 2018
Our indicative large-cap equity model portfolio is delivering an
impressive return (inclusive of dividends) of 128.60% till date (as on
April 30, 2018) since its inception (June 21, 2011) vis-à-vis the
benchmark index (S&P BSE Sensex) return of 103.15% during the
same period, an outperformance of 25.45. This validates our thesis
of selecting companies with sound business fundamentals that
forms the core theme of our portfolio. We have revised stocks in our
midcap portfolio. It continues to outperform, delivering 382.09%
(inclusive of dividends) till date (as on March 28, 2018) vis-à-vis the
benchmark index (CNX Midcap) return of 163.57%, outperformance
of 218.52. Our consistent outperformance demonstrates our
superior stock picking ability as markets aligned to our view of
favourable risk reward, good franchisee vs. reward-at-any-risk
businesses.
We have always suggested the 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. We highlight that the SIP return of our portfolio has
consistently outperformed the indices.
Following the same pace and opportunities in the market, our latest
portfolio (large caps) remains overweight on BFSI sector – HDFC
Bank (10%), HDFC (9%), Axis Bank (6%) Bajaj Finance (6%) and SBI
(6%). ITC is the latest addition to the large-cap portfolio, given6%
weightage. Affirming our view on consumption demand, Dabur
(5%) and Marico (4%) continue to be part of our large cap portfolio.
We remain positive on auto, IT and pharma. However, please note
that the weightage for Tata Motor DVR, Maruti and EICHER Motor is
revised. We remain overweight to neutral on pure play defensives
(IT, FMCG) as secular earnings coupled with sector rotation could
lead to consolidation in near term valuations and offer stock specific
opportunities.
We continue to remain underweight on metals and oil & gas with our
only pick being Gail Ltd., which has a better risk reward opportunity.
Among individual names, we recommend TCS in the IT space, HDFC
and HDFC Bank in the BFSI space, ITC in consumer space and NBCC
in the infra space.
44
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager May 2018
Name of the company
Largecap Stocks
Model Portfolio
Largecap(%)
Midcap(%)
Diversified(%)
45
Auto 17.0 11.9
Tata Motor DVR 3.0 2.1
Maruti 6.0 4.2
EICHER Motors 4.0 2.8
Mahindra & Mahindra (M&M) 4.0 2.8
BFSI 37.0 25.9
HDFC Bank 10.0 7.0
Axis Bank 6.0 4.2
HDFC 9.0 6.3
Bajaj Finance 6.0 4.2
SBI 6.0 4.2
Capital Goods 6.0 4.2
L & T 6.0 4.2
Cement 4.0 2.8
UltraTech Cement 4.0 2.8
FMCG/Consumer 19.0 13.3
Dabur 5.0 3.5
Marico 4.0 2.8
ITC 6.0 4.2
Nestle 4.0 2.8
IT 6.0 4.2
TCS 6.0 4.2
Metals 6.0 4.2
Hindustan Zinc 6.0 4.2
Oil and Gas 5.0 3.5
GAIL Ltd. 5.0 3.5
Largecap share in diversified 100.0 70.0
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager May 2018
ICICI Securities has received an Investment Banking mandate from Mahindra & Mahindra, Oil and Gas and Indian Bank.
46
Midcap Stocks
Auto 6.0 1.8
Bharat Forge 6.0 1.8
BFSI 20.0 6.0
Bajaj Finserve 8.0 2.4
J&K Bank 6.0 1.8
Indian Bank 6.0 1.8
Capital Goods 12.0 3.6
Bharat Electronics 6.0 1.8
Kalpataru Power transmission 6.0 1.8
Cement 6.0 1.8
Ramco Cement 6.0 1.8
Consumer 30.0 9.0
Symphony 6.0 1.8
Kansai Nerolac 6.0 1.8
Pidilite 6.0 1.8
Tata Chemicals 6.0 1.8
Bata 6.0 1.8
Metals 6.0 1.8
Graphite India 6.0 1.8
Infrastructure 8.0 2.4
NBCC 8.0 2.4
Logistics 6.0 1.8
Container Corporation of India 6.0 1.8
Textile 6.0 1.8
Arvind 6.0 1.8
Total 100.0 30.0
Midcap share in diversified 30
Value of Rs 1,00,000 invested via SIP at end of every month
Start date of SIP: June 30, 2011; *Value as on 30, 2018April
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager May 201847
Performance so far since inception*
128.6083748
382.0960796
181.1560721
103.1530464
163.5771397
119.3757708
0255075
100125150175200225250275300325350375400425
Large Cap Midcap Diversified
%
Performance since inception
Portfolio Benchmark
*Returns (in %) as on April 30, 2018
84
00
00
0
84
00
00
0
84
00
00
0
12
62
45
13
.76
11
11
23
54
.06
13
08
93
61
.12
12
61
35
80
.93
3500000
4500000
5500000
6500000
7500000
8500000
Largecap Midcap Divesified
|
Investment Value of Investment in Portfolio Value if invested in Benchmark
QUIZ TIME
ICICIdirect Money Manager May 201848
Quiz Time1. Even if an investor misses ________ of most critical
opportunity to time the market the overall return is less than a simple buy and hold strategy.
2. With time, the volatility of returns on equity investment _____________
3. Select companies (stocks) with a clean balance sheet & ________ debt levels in relation to equity.
4. ICICIdirect Research study shows that beyond 25 stocks, the additional diversification benefit starts to decline. True/False
5. Over diversification runs the risk of complexity True/False
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 April 2018 quiz are:1. Each index provider may not have its own construction
methodology, resulting in wide variations in turnover and other portfolio characteristics. False
2. Expense ratio of an index fund is usually lower than traditional mutual funds, but slightly higher than ETFs.
3. When underlying stocks are doing well, the value of
corresponding index rises. 4. The authorized participant acquires securities from
the open market/secondary market to create ETF units.
5. In an ETF, the details of fund's holdings under management are disclosed on a daily basis.
PRIME NUMBERS
Equity Markets
ICICIdirect Money Manager May 2018
Domestic Equity Indices
Global Equity Indices
Sectoral Indices
49
30-Apr-18 28-Mar-18 Change (%)
CNX Nifty 10739.0 10114.0 6.2%
CNX Midcap 20290.3 18757.0 8.2%
S&P BSE Sensex 35160.4 32968.7 6.6%
S&P BSE 100 11153.0 10502.6 6.2%
S&P BSE 200 4723.5 4432.6 6.6%
S&P BSE 500 15047.7 14125.5 6.5%
30-Apr-18 29-Mar-18 Change (%)
Dow Jones 24,163.2 24,163.2 0.0%
S&P 500 2,648.1 2,648.1 0.0%
Nasdaq 7,066.3 7,066.3 0.0%
FTSE 7,509.3 7,509.3 0.0%
DAX 12,612.1 12,612.1 0.0%
CAC 40 5,520.5 5,520.5 0.0%
Nikkei 22,467.9 22,467.9 0.0%
Hang Seng 30,808.5 30,808.5 0.0%
Shanghai Composite 3,082.2 3,082.2 0.0%
Taiwan Weighted 10,657.9 10,657.9 0.0%
Straits Times 3,613.9 3,613.9 0.0%
30-Apr-18 28-Mar-18 Change (%)
S&P BSE Auto 25,833.8 24,057.3 7.4%
S&P BSE Bankex 28,651.9 27,197.9 5.3%
S&P BSE FMCG 11,305.7 10,290.1 9.9%
S&P BSE Healthcare 14,153.6 13,157.6 7.6%
S&P BSE Metals 14276.9 13322.03 7.2%
S&P BSE Oil & Gas 14,429.5 14,614.4 -1.3%
S&P BSE Power 2,238.1 2,125.8 5.3%
S&P BSE Realty 2,420.2 2,229.9 8.5%
S&P BSE Teck 7,097.4 6,513.3 9.0%
PRIME NUMBERS
ICICIdirect Money Manager May 2018
Debt Markets
Government Securities (G-Sec) Yields (in %) Apr-18 Mar-18 Change (bps)
Corporate Bond Yields (in %) Apr-18 Mar-18 Change (bps)
Commercial Paper (CP) Rates (in %) Apr-18 Mar-18 Change (bps)
Treasury Bill (T-Bills) Yields (in %) Apr-18 Mar-18 Change (bps)
Volatility Index (VIX)
50
30-Apr-18 28-Mar-18
VIX 12.36 15.76
10 year 7.75 7.40 35
5 year 7.78 7.40 38
3 year 7.59 7.09 50
1 year 6.70 6.45 25
AAA 10 year 8.59 8.18 41
AAA 5 year 8.27 7.89 38
AAA 3 year 8.17 7.72 45
AAA 1 year 7.81 7.62 18
AA 10 year 9.05 8.64 41
AA 5 year 8.78 8.48 31
AA 3 year 8.63 8.25 38
AA 1 year 8.20 8.06 13
12 Months 7.48 7.475 0
6 Months 7.33 7.15 18
3 Months 7.10 6.93 18
1 Month 7.74 -774
Note : Data not available on Bloomberg for 1 month CP post 3/28/18
91D TB 6.11 -611
182D TB 6.33 -633
364D TB 6.42 -642
Note : Data not available on Bloomberg for 3,6 and 12 month Tbill post 3/28/18
PRIME NUMBERS
10-year benchmark yields (%) across countries
ICICIdirect Money Manager May 2018
Macro-economic Indicators
Consumer price index (CPI)
Wholesale price index (WPI)Month
*WPI numbers are based on new series with 2011-12 as the base year’
51
Countries 30-Apr-18 30-Mar-18 Change in bps
US 2.953 2.739 21
UK 1.418 1.350 7
Japan 0.055 0.043 1
Spain 1.274 1.164 11
Germany 0.559 0.497 6
France 0.784 0.718 7
Italy 1.785 1.782 0
Brazil 9.835 9.492 34
China 3.648 3.751 (10)
India 7.767 7.396 37
MF Investment Apr-18 Mar-18 Fy18
Equity 11293 9255 141769
Debt 20165 37977 370716
FII Investment Apr-18 Mar-18 Fy18
Equity -13950 13114 22272
Debt -6209 -5216 120388
Items Weights(%) Feb-18 Mar-18 Apr-18
Food&bev. 45.86 3.46 3.08 3.00
Pan,tob& intox. 2.38 7.27 7.72 7.91
Cloth & Foot 6.53 4.93 4.91 5.11
Housing 10.07 8.28 8.31 8.50
Fuel & light 6.84 6.88 5.73 5.24
Misc. 28.31 3.85 4.16 4.96
CPI 100 4.44 4.28 4.58
Weights Jan-18 Feb-18 Mar-18WPI 100.0 2.84 2.48 2.47 Primary Articles 22.6 2.37 0.79 0.24 Fuel & Power 13.2 4.08 3.81 4.70 Manufactured Goods 64.2 2.78 3.04 3.03
PRIME NUMBERS
Commodities
Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research
ICICIdirect Money Manager May 2018
Mutual Funds: Category Average Returns
Equity Funds Returns (in %)Tenure Diversified Funds Mid-cap &
Small-cap Funds
Large-capFunds
ELSS (Tax-
savingfunds)
Returns as on April 30, 2018
Debt Funds Returns (in %)
Returns as on April 30, 2018
Tenure Liquid Funds
Index of industrial production (IIP) Sector-wise growth rate (%)
Currencies and CommoditiesCurrencies
*IIP numbers are based on new series with 2011-12 as the base year'
Debt ST Ultra ST Debt LT
52
Categories Mar-18 Feb-18 Jan-18 Weight(%)Mining 19.3 -3.9 -0.8 14.4Manufacturing 6.7 -2.8 1.3 77.6Electricity 15.1 -9.0 3.9 8.0Overall 9.0 -3.6 1.2 100.0
27-Apr-18 27-Mar-18 Change (%) StatusUSDINR 66.7 65.0 2.6% DepreciatedEURINR 80.5 80.5 0.1% DepreciatedGBPINR 91.8 91.6 0.2% DepreciatedAUDINR 50.4 50.1 0.6% DepreciatedCHFINR 67.3 68.6 -1.9% AppreciatedJPYINR 0.6 0.6 -0.6% AppreciatedCNYINR 10.5 10.3 1.8% Depreciated
30-Apr-18 30-Mar-18 Change (%)Crude ($/barrel) 74.9 69.1 8.3%Gold ($/ounce) 1,315.0 1,325.0 -0.8%
6 months 2.28 4.98 2.52 2.931 year 13.57 16.14 13.22 14.633 year 12.76 16.81 10.45 12.885 year 19.00 27.22 15.61 18.99
6 months 6.43 3.34 5.24 -0.23
1 year 6.44 5.64 6.30 3.85
3 year 6.95 7.37 7.39 6.71
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