ADVICE FOR THE WISE

April 2016

CONTENTS • From The CEO’s Desk

• Did You Know?

• Domestic Equity Outlook

• Domestic Debt Outlook

• Domestic Debt Strategy

• Global Equity Outlook

• Global Economy Update

• Global Debt Outlook

• Sector Outlook

• Real Estate Outlook

• Commodities

• Foreign Exchange

• What’s Trending.

• Disclaimer

FROM THE CEO’s DESK

Dear Investors,

With the Indian summer well on its way, the Bulls (rather than the “Bears”) seem to be coming out of a long winter hibernation. It’s heartening to note

that the Indian equity markets have rallied by over 10% in the last one month itself. The Finance Minister’s decision to walk the path of fiscal prudence

has been well-received by both, global and domestic investors. Additionally, global risk factors seemed to have diminished into the background

temporarily, causing investors to return to equity markets. After several months of consistent outflows, we have received a net inflow of around

Rs.20,000 crores in equities in the month of March alone.

Apart from the equity markets, the month saw some significant action in the fixed income arena as well. The Government finally slashed the interest

rates for various Small Savings Schemes like NSC, KVP, PPF and other postal deposits. Though the move was largely expected, the steep fall in

some cases took investors by surprise. The rates will now be re-calibrated every quarter and will be linked to the prevailing returns on G-secs. Given

that inflation is well within the 6% mark, the real rate of return continues to be attractive in these instruments. More importantly, the Government’s

intent has been to remove the disparity between returns from Small Savings Schemes and Bank Deposits, thereby making the latter more attractive.

This would also enable banks to transmit the RBI’s rate cuts.

Hogging the headlines this month have been several news clips on how the Government and the RBI in conjunction with the judicial system,

have been tightening the noose around big corporate defaulters. The authorities are making sure they leave no stone unturned in solving the

NPA issues that are plaguing the banking system. On the other hand, we are looking at some large companies selling off their subunits to repay

debts or to reduce losses where there has been underperformance. Though it may appear to be a case of ‘too little too late’, I believe these

developments augur well for the impending clean-up that needs to take place on the balance sheets of the country’s corporate sector.

In spite of the recent run-up, the equity markets still present value and we recommend investors to keep continuing their systematic

investments. Corporate results which are to be declared in April, will provide us further direction.

With the Financial Year drawing to an end, let’s close all accounts on our misunderstandings, fears, failures and negative emotions, and start a

fresh account of hope, optimism and determination. Wishing you all a happy, healthy and prosperous new Financial Year 2016-17!

DID YOU KNOW

Saudi Arabia’s Ghawar oil field

contains about 85 billion barrels of

oil (the world’s largest).

First joint stock bank of british

India was State Bank of India

41% of all forex transactions

happen in the UK, whereas only

19% happen in the US. The rest of

the world only accounts for 40%.

DOMESTIC EQUITY OUTLOOK

Equity markets, taking positive cues from the Union Budget, rallied

smartly during the month of March. Higher outlay for rural sector and

increase in infrastructure investments is a step in the right direction.

Focus on social and farm sectors should also boost the domestic macro

growth over long term. However, retaining the fiscal deficit of 3.5% for

FY2016-17 was one of the key reasons for the optimism in the market.

Uncertain global environment and weak inflation prevented US Fed from

making any rate hikes during the month. Global equities too cheered the

move as one would expect only two rate increases this year as against

four envisaged earlier. Domestic macros remained mixed. Industrial

growth continued to contract; mainly on account of poor numbers in

manufacturing and capital goods segment. However, retail inflation

surprised positively with a better than expected figure of 5.2%. Declining

crude and gold imports led to lower trade deficit. With this data on hand,

the prospects of a rate cut in the April monetary policy seems certain.

Seventh pay commission and OROP should boost consumption and

growth in the coming years. At a broader level, markets continue to

await recovery in the corporate earnings. Till the time we see a full-

fledged economic recovery, rate-sensitive and consumer discretionary

themes are expected to out-perform the overall markets.

As on 23rd

March 2016 1 Month Change

1 Year

Change

Equity Markets

BSE Sensex 25,337 9.43% -10.03%

CNX Nifty 7,716 9.77% -9.67%

BSE Mid Cap 10,524 9.94% 0.30%

BSE Small Cap 10,501 9.91% -1.40%

80

90

100

110

120 S & P BSE Sensex CNX Nifty BSE Midcap BSE Smallcap

DOMESTIC EQUITY OUTLOOK

GOVERNMENT POLICY With the budget now behind us, focus would be on continuing the reforms that would help in rejuvenating the investment cycle thereby pushing

overall growth. Progress on pending bills including the key GST bill would be keenly monitored.

WHOLESALE PRICE INDEX

• India's wholesale prices index stood at -0.91% for February,

2016 as compared to -0.90% for the month of January.

• Food inflation increased in the month of February by 3.35%.

Vegetables declined by 3.35%. Inflation in the fuel and power

segment was -6.40%%, while that of manufactured products it

was -0.58% in February.

CONSUMER PRICE INDEX

• CPI for the month of February came in at 5.18% as compared

to 5.69% in January.

• Year-on-year, cost of food and beverages rose 5.52 percent

(6.66 percent in January).

• The food prices rose at a slower 5.3% compared to 6.85% in

the previous month. The biggest rise came from pulses (up

38.3% from 43.32% in the previous month)

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16

WPI CPI

IIP

• Industrial Output in India declined by 1.5% year-on-year in January

2016.

• The manufacturing sector, which constitutes over 75% of the index,

declined by 2.8% in January 2016. Meanwhile, the mining sector

output rose by 1.20% in January 2016

• The cumulative growth for April – January 2016 stood at 2.7% as

per CSO.

GDP

• India's Gross Domestic Product (GDP) growth for the third quarter

of the current financial year grew at 7.3% versus an upwardly

revised 7.7% for the previous quarter.

• Manufacturing sector showed a robust growth of 12.3%, whereas

agricultural growth came in at -1%%. Mining sector witnessed a

growth coming at 1.2% Y-o-Y.

4.0

5.0

6.0

7.0

8.0

GDP

-5.0%

0.0%

5.0%

10.0%

15.0%

Jan 15

Feb 15

Mar 15

Apr 15

May 15

Jun 15

Jul 15

Aug 15

Sep 15

Oct 15

Nov 15

Dec 15

Jan 16

IIP

DOMESTIC DEBT OUTLOOK

The yields on 10 Yr G sec closed at 7.51% which is 31 bps

lower than the last months close of 7.82%

To boost inflows of foreign funds into Indian capital markets,

regulator Sebi today raised the FPI investment limit in central

government securities to Rs 1,40,000 crore from April 4.

Despite the government sticking to its fiscal deficit target of 3.5

per cent and maintaining the gross borrowing at Rs 6 lakh crore

for the next financial year, interest payments on public debt are

estimated to rise in 2016-17.

As on 23rd

March 2016

1 Month

Change 1 Year Change

Equity Markets

10-Yr G-Sec-

Yield 7.51 (31bps) (24bps)

Fixed Deposit 7.25 0bps (125bps)

0

100

200

300

400

AAA AA+ AA AA- A+ A A- BBB+

Corporate Bond Spreads

5 Years 10 Years 15 Years

7.40 7.60 7.80 8.00 8.20 8.40 8.60 8.80 9.00 9.20 9.40

G-Sec 10 YR Gsec Yield 5 YR Gsec Yield 15 YR Gsec Yield

DOMESTIC DEBT STRATEGY

SHORT TERM DEBT Investors who have a low appetite for interest rate volatility and seeking accrual returns with moderate duration can look

at short term debt funds with the time horizon of 1 year to 2 years. Even though, most of the short term fund’s YTMs

have fallen to sub-9%, our recommended short term debt funds still have high YTMs (8.20%-11.50%) providing

interesting investment opportunities.

CORPORATE BOND FUNDS

The macro economic outlook along with corporate profitability seems to be improving. We remain positive on the credit

outlook and we look for opportunities in the credit space. The corporate bond market segment continues to be attractive

over the medium to long term. The yields are at elevated levels and interest rate outlook seems favorable. The current

scenario offers the potential opportunity to lock in higher accruals, with the expectation that these levels of yields may not

sustain over the short to medium term. With credit easing, there are chances that the companies’ rating will be upgraded

that would further cause a rally in bonds, which in turn will benefit corporate bond funds.

DYNAMIC BOND FUNDS As RBI has reduced the key policy rates by125 basis points in CY2016, dynamic bond funds have benefited a lot as

most of them have a mix of gilt and long term bonds in their portfolio. Going ahead, we expect RBI to further reduce key

policy rates in FY2017, which will further boost dynamic bond funds. Investors who don’t want to time the market and

who can depend on fund managers to take view on interest rates can look at dynamic bond funds.

LONG TERM DEBT FUNDS As RBI is expected to further reduce key policy rates, long term debt and gilt funds having long term maturity will benefit

from rate cuts. Investors looking for long term investments (5 years and above) in debt with medium to high risk appetite

can look at Long term debt and Gilt funds.

GLOBAL EQUITY OUTLOOK

As on 25th

March 2016

1 Month

Change

1 Year

Change

Equity Markets

MSCI World 1623 4.45% -6.95%

Hang Seng 20345 5.07% -16.95%

S&P 500 2035 4.51% -1.22%

Nikkei 17002 5.03% -12.68%

80

90

100

110

120

130

140

150 MSCI World Hang Seng S&P 500 Nikkei

GLOBAL INDICES

GLOBAL EQUITY OUTLOOK

• The US Fed kept the key policy rates unchanged during the month.

• Uncertain global economy and weak inflation were the key reasons for no monetary tightening. However with improving labor market and uptick

in consumer spend, one could expect a hike in June quarter.

• With Chinese officials not showing any intent of near term Yuan devaluation, emerging markets and related currencies should stabilize.

• A rebound in crude and commodities has been a welcome relief for emerging markets whose economies are driven by those prices.

GLOBAL ECONOMY UPDATE

UNITED STATES Gold hit its lowest in a month, as the dollar firmed ahead of new U.S. economic data and speeches by

Federal Reserve officials that may signal more interest rate increases than anticipated.

The U.S. dollar index dropped to a five-month low while shares on Wall Street rallied to lead global

equities higher as a dovish U.S. Federal Reserve emboldened investors to take on more risk.

JAPAN Japan's factory output in February fell the most since 2011 when a devastating earthquake ruptured the

supply chain, stoking fears of another recession and renewing pressure on policymakers to take evasive

action.

Hosting this year’s Group of Seven summit will boost demand in the Japanese economy by around 107.1

billion yen ($942 million), a local government estimate shows.

GLOBAL ECONOMY UPDATE

EUROPE Economic recovery in the euro zone is set to continue in the coming months, but not as fast as hoped

owing to global uncertainties and slowing growth in emerging economies, view of European Central Bank.

Germany's debt agency would issue around 50.5 billion Euros worth of bond and treasury bills in the

second quarter of 2015, in line with issuance plans from December.

EMERGING

ECONOMIES

China's trade deficit in services narrowed to $16 billion in February compared with $20.7 billion in January.

February's gap was largely due to a $15.5 billion gulf in spending between Chinese who spent more

abroad than foreign tourists in China, data from the State Administration of Foreign Exchange (SAFE).

The Indian economy is expected to grow at 7.2 per cent in 2016-17, a tad lower than Central Statistics

Office's advance estimates of 7.6 per cent in the current fiscal due to weak investments and external

headwinds, says BMI Research.

GLOBAL DEBT OUTLOOK

Central banks are "running out of time" to reflate global economies

as their aggressive policies including quantitative easing and low,

even negative, interest rates are losing their effectiveness.

Argentina is expected to take a big step toward reentering the global

financial system with the Senate set to pass a landmark deal to

repay creditors who rejected earlier restructurings of the country's

sovereign debt.

Federal Reserve Chair Janet Yellen said on 22nd March, the U.S.

central bank should proceed only cautiously as it looks to raise

interest rates, pushing back on a handful of her colleagues who

have suggested another move may be just around the corner.

Britain's European Union referendum could push up credit costs and

weaken sterling more, the Bank of England warned on Tuesday, as

it moved to bolster banks' risk buffers and slow a boom in lending to

landlords.

Ratings Country 10 Yr G-Sec Yield 1 Month

Change

AAA

Germany 0.15% (2bps)

Hong Kong 1.41% (7bps)

Sweden 0.51% (3bps)

Switzerland -0.36% (8bps)

AA+ USA 1.81% (7bps)

AA-

China 2.93% (7bps)

Japan -0.04% (2bps)

SECTOR OUTLOOK

SECTOR OUTLOOK

SECTOR STANCE REMARKS

Automobiles

Passenger vehicles and CVs will continue to outperform two-wheeler segment. Tractors could benefit on

account of base effect and expected normal monsoons.

Auto-ancillaries expected to do well due to revival of demand and stable global markets.

IT/ITES Select verticals displaying better growth. Digital segment to drive revenues.

Long term outlook to improve once global uncertainties come down.

FMCG

We prefer “discretionary consumption” theme within FMCG. Key beneficiaries such as durables and branded

garments, as the growth in this segment will be disproportionately higher vis-à-vis the increase in disposable

incomes. A bounce in raw materials could put pressure on margins. Expect uptick in volumes post

monsoons.

Cement

Cement volumes and realizations continue to witness pressure in South region. However, early signs of

recovery, specifically hopes of bounce back in North and West region. Cost benefits would drive earnings.

Pricing would be key for sector valuations.

SECTOR OUTLOOK

SECTOR STANCE REMARKS

Power Utilities Lack of fuel linkages , poor SEB health, adverse CERC guidelines have compromised the ROE’s leading to

de-rating in near term. Reform initiatives through UDAY can improve sector prospects in long run.

BFSI Private sector banks continued to deliver earnings in line with expectations. However, PSBs delivered muted

numbers on asset quality concerns and lower credit growth. We expect this trend to continue going forward.

Healthcare Regulatory risks have become more evident and frequent with FDA inspections for Pharma companies. US

growth continues to be muted for large caps due to lower approvals and regulatory issues.

E&C Order inflows expected to improve as spending and capital expenditure likely to move up on economic

recovery. Moreover, sluggish execution and weak macros create a challenging environment.

SECTOR OUTLOOK

SECTOR STANCE REMARKS

Energy With declining crude prices and price deregulation of diesel, we believe the total subsidy burden on Oil PSU’s

will come down significantly this year. Govt. has decided to pay full subsidy to OMC’s .

Telecom

Regulatory uncertainties have come down. However, aggressive bids for spectrum has revived fears of sub-

optimal returns on capital. Further, expected launch of R-Jio at competitive prices in 4QFY16 will have

negative implications.

Metals Lower global growth and Chinese slowdown has kept the growth subdued. Absence of US monetary stimulus

will lead to further downward pressure on prices.

REAL ESTATE OUTLOOK

REAL ESTATE OUTLOOK

The Central Government has eased FDI norms and lifted

restrictions on ticket size, Project size and stage of entry

of capital thus, paving way for virtually any project to

receive Foreign equity funds. Residential Prices have

remained stagnant across Tier I markets. All Tier I

markets have continued to witness moderate decrease in

demand with sluggish market sentiments.

With improvements in infrastructure across cities like

Chandigarh, Jaipur, Lucknow, Ahmedabad, Bhopal,

Nagpur, Patna and Cochin and quality products being

offered the end users /investors are being spoilt for

choice. The Demand drivers have increased

nuclearization, rising disposable incomes and easier

availability of credit.

RESIDENTIAL Tier I Tier II

REAL ESTATE OUTLOOK

Bangalore NCR and Hyderabad have seen strong

demand in the commercial segment and even Mumbai

has picked up in the later half of the year. The capital

values have also been on rise in major markets except in

NCR where values have remained stable. Absorption

volumes have been surpassing new completions

consistently, since H1 2014, as a result of which, the

vacancy levels in India have been dwindling.

Low unit sizes have played an important role in

maintaining the absorption levels in these markets. Lease

rentals as well as capital values continue to be stable at

their current levels in the commercial asset class.

COMMERCIAL Tier I Tier II

REAL ESTATE OUTLOOK

In Mumbai demand for space in successful malls

continued to be on the rise and categories such as F&B,

premium apparel and entertainment dominated leasing

activity. International brands were seen increasing their

footprints . Hyderabad has seen a steady growth in

demand while markets like NCR, Bangalore and Chennai

remained stagnant.

The Mall concept is new to Tier II cities and High Street

retail is still popular. Anecdotal evidence suggests that

rentals have remained stagnant in this space.

RETAIL Tier I Tier II

REAL ESTATE OUTLOOK

Fringe areas with improving connectivity to Metro cities

and other top 8 to 10 cities in India have seen interest in

purchase of Plotted / Villa developments due to lower

ticket size and better marketing by developers

/aggregators. There is an uptick in demand for

warehousing with the growth of E commerce.

Land in Tier II and III cities along upcoming / established

growth corridors have seen good percentage appreciation

due to low investment base in such areas.

LAND Tier I Tier II

COMMODITIES

GOLD

During March, the “Risk-on” strategy was back as the preferred

theme. After posting double digit gains in previous months, gold

prices consolidated and remained in a narrow range. For near to

medium term, the larger band of $1100-1300 remains.

• As on 23rd March, 2016 : 25,148 per 10gm

• 1 month change : -2.13%

• 1 year change : 8.78%

24000

25000

26000

27000

28000

29000

30000 Gold

COMMODITIES

CRUDE OIL

Crude oil prices recovered 23 % month on month to close at

$38.84 per bbl

• As on 23rd March, 2016: $38.84 per bbl

• 1 month change : 23.30%

• 1 year change : -27.80% 0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

Crude

Currency As on 31st

March 2015 1 Month Change 1 Year Change

USD/INR 66.33 -3.30% -6.29%

GBP/INR 95.09 -0.51% -2.48%

Euro/INR 75.10 -0.77% -9.14%

Yen/INR 59.06 -3.20% -11.56%

USD/Euro 0.88 -3.89% -4.77%

FOREIGN EXCHANGE

• Most emerging Asian currencies rose on 30th March,

adding to monthly and quarterly gains, as waning

expectations of near-term U.S. interest rate hikes spurred

investors to seek higher yields in the region.

• The Chinese yuan climbed as the central bank set its daily

guidance rate at its strongest this year. The renminbi was

set to post its largest quarterly gain since July-September

2014.

• Reuters has reported sources with direct knowledge that

the Peoples Bank of China has temporarily suspended

some FX business of several foreign banks until the end of

March

-3.30%

-0.51%

-0.77%

-3.20% -3.50%

-3.00%

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

USD GBP EURO YEN

WHAT’S TRENDING

THE REAL ESTATE REGULATORY BILL

What is it?

• The real estate bill seeks to set up a Real Estate Regulatory Authority in states and federal territories to oversee real estate transactions. It will

help regulate sector and bring in clarity in terms of who governs/monitors realty projects. The bill is touted as a key reform measure in the vast

real estate sector.

Impact of the Bill?

• Once the bill becomes an Act, in case of any grievance, the consumer can go to the real estate regulator for redressal.

• The bill will make it mandatory for all commercial and residential real estate projects where the land is over 500 sq. mt. or eight apartments will

have to register with the regulator before launching a project.

• Developer will have to put 70% of the money collected from a buyer in a separate account to meet the construction cost of the project. States can

increase the ceiling but not lower it.

• It is likely to stabilize housing prices. The bill will lead to enhanced activity in the sector, leading to more housing units supplied to the market.

• The bill also seeks to impose strict regulations on the promoter and ensure that construction is completed on time.

Due to the above, and many more reforms in the real estate sector, the currently unregulated Real Estate Sector will have a Regulatory Authority

to mediate, regulate and protect both, the Buyer and the Developers interests.

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