alpha edge - may 2015

www.citadelle.in

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“The wait gets longer..”

India Strategy | May 2015

May 2015 3

The wait gets longer..

India Strategy | May, 2015

Foreword

Dear Investor,

The month of April has finally seen some across-the-board correction, majorly in the high-

growth quality stocks as investors have started questioning the Street’s earnings assumptions.

Corporate earnings is not the only dampener.

The biggest disappointment for most investors has been on the reform front. The hope for transformational or structural

reform that fundamentally changes the way a government functions and takes decisions now seems a fast diminishing

hope. The building blocks for a structural improvement in productivity do not seem to be falling in place even now.

Another big blow to investor perception is this whole minimum alternate tax (MAT) issue for foreign institutional investors.

Without getting into the details of the matter, it is clear that India and the government have lost the perception battle.

For now! Perhaps unfairly, most investors sitting overseas are convinced that the government is acting in an arbitrary and

illogical manner. Not too different from UPA? India is risking not being the blue-eyed boy of foreign investors in 2015 as it

was in 2014. Somebody will benefit at our loss and this time it’s our good friend China which is on a roll in 2015. Oh yes!

They are also the best performing emerging market so far..

While the short term looks tough, we believe 100% in the longer-term outlook for India. Economic and corporate growth

will speed up, interest rates and inflation will settle lower as governance and productivity improvements are being put in

place and a long-term secular shift of domestic savings into financial assets is underway. It is just taking longer than we

thought. There remain enough low-hanging fruit, that even incremental reform and centralized, more cohesive decision-

making are enough to deliver the growth targets needed. Patience is the key.

Thus, India seems poised to go through a period of consolidation, with markets at best staying put - but more likely

continuing to correct. This corrective phase, to my mind, will be a buying opportunity, but your conviction will get tested.

With the markets underperforming, earnings disappointing and perceptions on reform weakening, one will need to keep

an eye on the long term and the big picture.

Our cautious stance since the beginning of the year seems to pay off so far. Due to our underweight stance in equities by

25%, all the five model portfolios, Conservative to the Aggressive, have out-performed their benchmarks. Our

recommended Ambit Alpha Fund and Edelweiss Absolute Return Fund have done exceptionally well in extremely volatile

last 2 months, Ambit Alpha Fund has given returns of 2.23% and Edelweiss Absolute Return Fund has 0.54%, whereas Nifty

has declined by 8.01%.

Our Direct Equity portfolio – Citadelle Growth Opportunities (CGOP) outperformed its benchmark Nifty by 5% and nearly

87% of all equity oriented Mutual Funds in the country, YTD 2015.

With current decline in markets we would like to slowly build back risk in our Equity portion of model portfolios. We switch

all underweight Equity into Edelweiss Absolute Return Fund today, 6th May. This will find its way into midcap funds as

markets find their feet sooner than latter

Warm Regards,

A V Srikanth

https://gallery.mailchimp.com/0df9ced5fe165c9cbfd02d4cb/files/Ambit_Newsletter_Apr_2015.pdf

May 2015 4

Alpha Edge | “The wait gets longer”

Asset Class performance

Asset Class returns for April 2015

Source: Bloomberg

Gold has been the best performer for April 2015 with returns of 3.11%. Equity has been the worst performer with returns of -3.65% and Long term debt has a paltry performance of -0.04%.

FII Flows for CY 2015

Source: ACEMF

Equity markets have continued with its dismal performance, however Flows have been buoyant in Equities and Debt markets in April 2015. Equities saw Net Inflow of Rs 11,720 Crs whereas Debt market has seen net inflow of Rs 3,611 Crs.

Sector Returns

Source: Bloomberg

Metal, Bankex and Consumer Durables have been

outperformers for April 2015. IT, Teck and Healthcare

have been the laggards during the same period.

-3.65%

-0.04%

0.68%

3.11%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

Equity 10 yrTreasuries

Cash Gold

Asset Class Returns For April 2015

47 3771

-53

83133

-3

128 113 9748

-6

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9

12

5

46

42

35

-51

160

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Equity Debt

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S&P BSE IT

S&P BSE TECk

S&P BSE Health Care

S&P BSE Realty

S&P BSE AUTO

S&P BSE Capital Goods

S&P BSE SENSEX

S&P BSE FMCG

S&P BSE Mid-Cap

S&P BSE Power

S&P BSE OIL & GAS

S&P BSE PSU

S&P BSE Consumer Durables

S&P BSE Small-Cap

S&P BSE BANKEX

S&P BSE METAL

Sector Returns for April 2015 (%)

May 2015 5


Global Macro

Inflation:

US

Consumer prices in the United States fell 0.1% year-on-year in March after being flat in February due to lower energy cost. Yet, core inflation edged up to 1.8%. Year-on-year, the energy index declined 18.3%, more than offsetting increases in the indexes for food (up 2.3%) and all items less food and energy (up 1.8%). On a monthly basis, prices increased 0.2% for the second consecutive time in March. Increases in the energy and shelter indexes more than offset a decline in the food index and were the main factors in the rise of the seasonally adjusted all items index. The energy index rose 1.1% as advances in the gasoline and fuel oil indexes outweighed declines in the electricity and natural gas indexes. In contrast, the food index declined 0.2%, with the food at home index posting its largest decline since April 2009.

Eurozone:

Eurozone consumer prices fell 0.1% year-on-year in March, slowing from a 0.3% drop in February and matching preliminary estimates. Monthly inflation accelerated to 1.1%, the highest in two years.

Year-on-year, the largest upward impacts came from restaurants & cafés (+0.11%age points), rents (+0.09 pp) and tobacco (+0.07 pp), while fuels for transport (-0.44 pp), heating oil (-0.16 pp) and telecommunications (-0.06 pp) had the biggest downward impacts.

Annual core inflation rate which excludes prices of energy, food, alcohol and tobacco slowed to 0.6% from 0.7% in the previous month.

In the European Union, annual inflation was also -0.1% in March 2015, up from a revised -0.3% in February. The monthly rate increased to 0.9% from 0.6% in February.

In March 2015, negative annual rates were observed in twelve Member States. The lowest annual rates were registered in Greece (-1.9%), Cyprus (-1.4%), Poland (-1.2%), Bulgaria and Lithuania (both -1.1%). The highest annual rates were recorded in Austria (0.9%), Romania (0.8%) and Sweden (0.7%). Compared with February

2015, annual inflation fell in three Member States, remained stable in three and rose in twenty-two.

China

China's annual inflation rate was recorded at 1.4% in

March of 2015, the same as in the previous month and

above market expectations. The politically sensitive food

prices increased 2.3% while non-food cost rose at a

slower 0.9%.

Among food prices, the highest increases came from

fresh fruits (+6.7% in March from +4.1% in February), in

contrast, prices of liquid milk and dairy products declined

by 1.7% after a 1.5% fall in the previous month.

For non-food categories, upward pressures came from

prices of: education services (+3.2% from +2.9%), In

contrast, downward pressures came from prices of:

transport and communication (-1.5% from -1.7%),

On a monthly basis, consumer prices declined by 0.5% in

March, following a 1.2% increase in the preceding

month.

The producer price index fell by 4.6% from a year earlier

in March, improving from a 4.8% drop in February. The

index has been in a persistent decline since March 2012.

Japan Consumer prices in Japan rose 2.3% on a year in March, up from 2.2% reported in the previous month and above market expectations. Year-on-year, the biggest price increases were reported for: food (+4.2%); fuel, light and water (+3.6%). Cost of transportation and communication rose 0.2% compared with 0.4% decline reported in February. Core consumer prices, which includes oil products but excludes fresh food prices, rose 2.2% in March from a year earlier. When stripped of the impact from a recent sales tax hike, the core inflation was 0.2%. It had fallen to zero year-on-year in February. The so-called core-core inflation index, which excludes food and energy prices rose 2.1% in the year to March. The consumer price index for Ku-area of Tokyo in April 2015 (preliminary) was 102.5 (2010=100), up 0.4% from the previous month, and up 0.7% over the year.

May 2015 6


Interest Rates: US

The US recovery has lost momentum during the winter months and the pace of hiring has moderated, the Federal Reserve said in a statement released on April 29th, reinforcing expectations that rates would be kept near zero at next meeting in June or longer. The Federal Reserve kept the interest rate at 0.25%. To support continued progress toward maximum employment and price stability, the Federal Open

Market Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. The monetary tightening scare has been deferred for at least couple of months. Latest US wage data has again disappointed economists’ longstanding expectations that wages are about to get traction in America. Moreover, previous wage data was revised down. Thus, US average hourly earnings growth for private employees slowed from 2.2% YoY in February to 2.1%YoY in March.

Source: Bloomberg

Unless we see any traction in Wage data it will not be prudent to say that the American economy is nothing like as robust as the consensus assumes.

Eurozone

The European Central Bank left its benchmark interest rate unchanged at a record low 0.05% on April 15th as widely expected. Policymakers also said the bond-buying program will be maintained as there's clear evidence it is

effective. The interest rates on the marginal lending facility and the deposit facility were left on hold at 0.30% and -0.20% respectively. Looking ahead, the ECB’s focus will be on full implementation of the monetary policy measures. Through these measures, it will contribute to a further improvement in the economic outlook, a reduction in economic slack and a recovery in money and credit growth. Together, such developments will lead to a sustained return of inflation towards a level below, but close to, 2% over the medium term and will underpin the firm anchoring of medium to long-term inflation expectations.

China The People’s Bank of China lowered the reserve requirement ratio for all commercial banks by 100 bps to 18.5%, aiming to boost credit and growth. The decision was taken on Sunday April 19th but was effective from April 20th, 2015. Policymakers also lowered the reserve ratio by an additional 100 bps for rural commercial banks and by an additional 200 bps to China Agricultural Development Bank. It is the second cut in two months. The last time People’s Bank of China reduced the reserve requirement ratio by 50 basis points was on February 4th, the first cut since May of 2012. In February, the central bank also lowered the benchmark interest rate by 25 bps.

Japan The Bank of Japan kept its monetary policy unchanged at the meeting held on April 30th and lowered slightly its projections for core inflation rate and GDP growth. The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen.

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May 2015 7


With regard to the asset purchases, the Bank decided, by an 8-1 majority vote, to continue with the following guidelines:

The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 80 trillion yen. With a view to encouraging a decline in interest rates across the entire yield curve, the Bank will conduct purchases in a flexible manner in accordance with financial market conditions. The average remaining maturity of the Bank's JGB purchases will be about 7-10 years.

The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 3 trillion yen and about 90 billion yen respectively.

As for CP and corporate bonds, the Bank will

maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen respectively.

May 2015 8


Domestic Macro Inflation:

Source: rbi.org

After 4 months of divergence observed in consumer

and wholesale prices, The WPI and CPI both have seen

some pressure in the month of March. As we rightly

pointed out last month, the rise in CPI numbers was

largely due to the base effect and erratic weather

pattern of unseasonal rains that firmed up vegetable

inflation to 13% and food inflation to 6.8%.

For March, India annual CPI inflation decreased to

5.17% in March of 2015 from 5.37% in February, below

market expectations. It is the lowest rate in three

months due to a slowdown in food cost.

Cost of food and beverages rose 6.2% in March, down

from 6.76% in the previous month, provisional

estimates showed. The food alone index rose 6.14%

(6.79% in February). Cost of vegetables slowed to

11.26% (13.01% in the previous month) and fruit prices

eased to 7.41% (8.93% in the previous month). Cost of

meat and fish increased 5.11%; snacks, prepared meals

and sweets rose 7.54%; milk went up 8.35% and spices

surged 9.03%. In contrast, price decreases were

reported for sugar (-2.61%) and egg (-3.47%).

Cost of fuel and light rose 5.07% in March, up from

4.72% in February. Prices of clothing and footwear

eased to 6.27% (6.38% in the previous month) while

growth in housing cost slowed to 4.77% (4.98% in the

previous month). In addition, transport and

communication cost fell 1.35% compared to 2.16%

decline in February.

The corresponding provisional inflation rates for rural

and urban areas for March of 2015 are 5.58% and

4.75%.

Indian wholesale prices fell 2.33% year-on-year in

March of 2015, following a 2.06% drop in the previous

month, as petrol prices declined while food cost

slowed. The figure came far below market forecasts and

is the deepest decline since November of 1976.

Year-on-year, petrol prices fell 17.70%, following a

21.35% drop in the previous month and cost of diesel

decreased by 12.11%, following a 16.62% fall in

February.

Food prices rose 6.31%, slowing from a 7.74% increase

in February. Among food prices, onion recorded the

highest increase (36.49%), followed by pulses

(+13.22%), fruits (12.60%), vegetables (+9.68%), milk

(+7.48%) and food articles (+6.31%). In contrast, prices

fell for potato (-20.66%), fibres (-19.29%), non-food

articles (-7.12%) and oil seeds (-1.35%).

In March, cost of manufactured products declined by

0.19% from a 0.33% increase in the previous month.

8.88.0 8.3 8.6 8.3

7.3 8.0 7.76.5

5.5

4.45.05.2

5.45.2

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Divergence in CPI and WPI

CPI WPI

May 2015 9


Interest Rates:

The Reserve Bank of India left its benchmark repo rate

on hold at 7.5 percent in April, following a surprise rate

cut last month. The lack of pass-through of past rate

cuts, the largely comfortable liquidity situation and

banks’ large excess SLR holding have led to the status

quo in monetary policy. Policymakers said that they will

allow the disinflationary momentum to spread through

the economy while waiting for commercial banks to cut

lending rates.

Reserve Bank of India also decided to

Continue with cash reserve ratio at 4% of net

demand and time liabilities (NDTL).

Continue with statutory liquidity ratio SLR at

21.50%, as the banks are holding excess SLR of

6—7% of NDTL over the statutory requirement,

the case for another SLR cut today was rather

weak, at least as a short- to medium-term

measure.

Continue with reverse repo rate at 6.5% and

stands unmoved at 100 bps lower than the repo

while the Marginal Standing Facility (MSF) rate

remains 100 bps higher than the repo rate at

8.5%.

May 2015 10


Industrial Production:

Source: rbi.org

The new IIP series is showing some signs of pick-up in

growth in Q4 of fiscal 2015.

Industrial production grew 5% in February, after hovering

around 3% growth in the last two months. During the

month, growth was broad-based, but a weak base

provided significant lift to growth, especially in the

manufacturing sector. Even so, given the high volatility in

IIP in the recent past, monthly growth rates do not offer

much insight into its future trajectory. In the last twelve

months, year-on-year growth in the IIP series has ranged

between -2.6% and 5.6%. Moreover, sluggish pace of

domestic demand and weak export demand are weighing

on industrial production. The good news is that the 3

month moving average of the IIP series, which is much

less volatile, is showing a consistent upturn.

Meanwhile, the silver lining in capital goods faded with

February seeing growth slow to 8.8%, compared to 12.5%

in January. But consumer goods production was up 5.2%,

led by 10.7% growth in consumer non-durables. Again, a

low base is believed to have spurred growth in this sector.

Source: rbi.org

During February, manufacturing sector sped faster,

growing 5.2%. This is the fastest growth in 9 months.

While some sectors did witness a pick-up, a large part of

the jump is also due to a very low base. In February 2014,

manufacturing sector output had declined by 3.9%. This

month, 15 of the 22 sub-sectors saw positive growth

compared to 14 in continued to post a decline for the 18th

and 24th consecutive month respectively. In fiscal 2015 so

far, these two sectors have recorded an average decline

of 52.5% compared to 27.1% in fiscal 2014. However,

higher growth in February was led by sectors such as

cables, rubber, apparels, stainless / alloy steel, electricity

and conditioner.

Mining sector numbers have shown a phenomenal

turnaround as output expanded 2.5% after falling by 2%

in the previous two months. Index for coal was up nearly

12.6% during the month. An indication that the

government actions are beginning to translating into

meaningful results

Similarly, electricity output too gained some traction, with

growth at 5.9% compared to an average of 4.1% in the

previous two months.

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Basic Goods Capital Goods

Consumer Durables Consumer Non-durables

Intermediate Goods

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Electricity General Index

Manufacturing Mining & Quarrying

May 2015 11


Earnings Update:

IT firms posted a poor set of numbers with Infosys earning

numbers were 5% down QoQ. TCS and HCL Technologies

were major disappointments with -30% and -12% de-

growth on a QoQ basis. After poor set of numbers posted

by IT firms, there was not much to cheer during the last

month.

Out of a total 50 Nifty stocks, 21 reported earnings so far,

only 7 have reported earnings above 20% on a YoY basis.

Of these prominent names were Maruti, HDFC Bank,

Indusind Bank and Yes Bank. Axis saw improvement in

asset quality along with good NII growth. But both ICICI

and HDFC were below expectations and HDFC Bank in

line.

Maruti Suzuki reported a healthy performance driven by

a strong operating performance, which was better than

expectations. A key contributor towards this strong

operating performance was higher gross margin due to

benefits arising from cost reduction, favourable currency

movement, lower commodity prices and lower sales

promotion expenses.

Cement has seen low levels of realisations in the month

of March which have thwarted their JFM quarter

numbers.

Another laggard within Nifty 50 was Cairn India, which has

reported net loss of Rs. 240 Crs.

The overall trend will become much clearer as more

companies report in coming weeks.

May 2015 12


Factors which are cause of concern:

Slow pick up of the Government Infrastructure

Weak corporate performance leading to

Continuous earnings downgrades

Unseasonal rains and monsoon uncertainty. and

Uncertainty of MAT on FIIs

However, if we look at the other side of the window, there

are a lot of positives factors that the

Several things that have been working in favor of Indian

markets are:

Retail inflation came down to 5% from a very

sticky 10% levels backed by benign global food

and commodity prices.

Lower inflation has led the Central bank to cut

rate by 50 bps and banks have started reducing

their lending rates as well.

Moody has upgraded India’s outlook to positive.

The government is continuing to take measures

to improve things at the ground level.

QE in major economies continue to provide global

liquidity.

Private-sector capital expenditure remains in an oblivion,

thwarted by a combination of bust balance sheets, no risk

appetite or capital with the majority of the banks and little

improvement in end demand. Simply trying to unclog

projects has not been enough to unlock investment.

Power, metals and public-private partnerships were the

drivers of the last corporate capex cycle. Each of these

sectors is today embroiled in policy or global business

cycle issues. They will neither bounce back quickly, nor

lead the next investment cycle In FY2016, the economy is expected to get some support from

moderating trend in inflation and lagged impact of monetary accommodation. steady progress in the government’s reforms

process will be key in sustaining business sentiment and, in turn, investment cycle recovery.

May 2015 13


Model Portfolio: Conservative

Conservative Market Cap wise (%)

Asset Class Sub-Asset Class Mutual Fund Schemes

Strategic

Tactical

Large cap Mid &

Small cap

Others

Equity - - PMS - - Large Cap - - ICICI Pru Focused BlueChip Eq Fund - - 91.2 3.9 4.8

UTI Opportunities Fund - - 83.7 13.4 2.9

Mirae Asset India Opportunities Fund - - 72.9 23.2 3.8

Mid & Small Cap - - Religare Invesco Mid N Small Cap Fund - - 29.8 66.7 5.5

HDFC Mid-Cap Opportunities Fund - - 24.6 70.8 2.8

BNP Paribas Mid Cap Fund - - 34.9 63.6 2.2

Multi Cap - - L&T India Spl.Situations Fund - - 53.2 43.0 3.8

ICICI Pru Value Discovery Fund-Reg - - 50.0 40.5 9.5

Franklin India High Growth Cos Fund - - 54.1 30.9 15.0

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

Maturity Years

Mod

Duration Years

YTM

(%)

Debt 90.0% 92.5% Short Term 30.0% 30.0% Axis Short Term Fund 10.0% 10.0% 2.6 2.1 8.5

Franklin India ST Income Plan 10.0% 10.0% 2.7 2.5 10.5

HDFC STP 10.0% 10.0% 2.2 1.7 10.0

Dynamic Bond Funds 30.0% 32.5% IDFC Dynamic Bond Fund-Reg 10.0% 10.8% 15.4 8.6 7.8

SBI Dynamic Bond 10.0% 10.8% 15.4 7.8 7.9

UTI Dynamic Bond Fund-Reg 10.0% 10.8% 13.6 NA NA

Income Funds 30.0% 30.0% DWS Premier Bond Fund 10.0% 10.0% 2.2 1.8 8.4

HDFC Income Fund 10.0% 10.0% 14.6 7.5 8.0

UTI Bond Fund 10.0% 10.0% 14.3 NA NA

Gilt - - Debt Hybrid Funds - -

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

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

0.0%

90.0%

5.0%5.0%

Strategic Portfolio

Equity Debt Cash Gold

0.0%

92.5%

5.0%2.5%

Tactical Portfolio


98

100

102

104

Jan-15 Feb-15 Mar-15 Apr-15

Conservative UCI Index

May 2015 14


Model Portfolio: Moderately Conservative

Mod Conservative Market Cap wise (%)


Strategic

Tactical

Large cap Mid &

Small cap

Others

Equity 25.0% 25.0% PMS - - Large Cap 25.0% 25.0% ICICI Pru Focused BlueChip Eq Fund 8.3% 8.3% 91.2 3.9 4.8

UTI Opportunities Fund 8.3% 8.3% 83.7 13.4 2.9

Mirae Asset India Opportunities Fund 8.3% 8.3% 72.9 23.2 3.8

Mid & Small Cap - - Religare Invesco Mid N Small Cap Fund - - 29.8 66.7 5.5

HDFC Mid-Cap Opportunities Fund - - 24.6 70.8 2.8

BNP Paribas Mid Cap Fund - - 34.9 63.6 2.2




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

Maturity Years

Mod

Duration Years

YTM

(%)



HDFC STP 10.0% 10.0% 2.2 1.7 10.0 Dynamic Bond Funds 30.0% 32.5%

IDFC Dynamic Bond Fund-Reg 10.0% 10.8% 15.4 8.6 7.8

SBI Dynamic Bond 10.0% 10.8% 15.4 7.8 7.9


Income Funds 5.0% 5.0% DWS Premier Bond Fund 1.7% 1.7% 2.2 1.8 8.4

HDFC Income Fund 1.7% 1.7% 14.6 7.5 8.0

UTI Bond Fund 1.7% 1.7% 14.3 NA NA

Gilt - - Debt Hybrid Funds - -

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

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

25.0%

65.0%

5.0%5.0%

Strategic Portfolio


25.0%

67.5%

5.0% 2.5%

Tactical Portfolio


96

98

100

102

104


Mod Conservative UCI Index

May 2015 15


Model Portfolio: Balanced

Balanced Market Cap wise (%)


Strategic

Tactical

Large cap Mid & Small cap

Others




Mid & Small Cap 15.0% 7.5% Religare Invesco Mid N Small Cap Fund 5.0% 2.5% 29.8 66.7 5.5

HDFC Mid-Cap Opportunities Fund 5.0% 2.5% 24.6 70.8 2.8

BNP Paribas Mid Cap Fund 5.0% 2.5% 34.9 63.6 2.2




Thematic / Sectoral Funds - - Equity Hybrid Funds - 7.5% Edelweiss Absolute Return Fund 7.5%

%

Average Maturity Years

Mod Duration Years

YTM (%)



HDFC STP 10.0% 10.0% 2.2 1.7 10.0

Dynamic Bond Funds 15.0% 20.0% IDFC Dynamic Bond Fund-Reg 5.0% 6.7% 15.4 8.6 7.8

SBI Dynamic Bond 5.0% 6.7% 15.4 7.8 7.9


Income Funds - - DWS Premier Bond Fund - - 2.2 1.8 8.4

HDFC Income Fund - - 14.6 7.5 8.0

UTI Bond Fund - - 14.3 NA NA

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

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

Gold 10.0% 5.0% Gold 100.0% 100.0%

45.0%

45.0%

0.0%

10.0%

Strategic Portfolio


95

97

99

101

103

105


Balanced UCI Index

45.0%50.0%

0.0%

5.0%

Tactical Portfolio


May 2015 16


Model Portfolio: Moderately Aggressive

Mod Aggressive Market Cap wise (%)


Strategic

Tactical


Others







Multi Cap 10.0% 6.7% L&T India Spl.Situations Fund 3.3% 2.2% 53.2 43.0 3.8

ICICI Pru Value Discovery Fund-Reg 3.3% 2.2% 50.0 40.5 9.5

Franklin India High Growth Cos Fund 3.3% 2.2% 54.1 30.9 15.0

Thematic / Sectoral Funds - - Equity Hybrid Funds - 21.3% Edelweiss Absolute Return Fund 21.3% Average

Maturity Years

Mod

Duration Years

YTM

(%) Debt 20.0% 25.0%

Short Term 20.0% 20.0% Axis Short Term Fund 6.7% 6.7% 2.6 2.1 8.5


HDFC STP 6.7% 6.7% 2.2 1.7 10.0

Dynamic Bond Funds - 5.0% IDFC Dynamic Bond Fund-Reg - 1.7% 15.4 8.6 7.8

SBI Dynamic Bond - 1.7% 15.4 7.8 7.9

UTI Dynamic Bond Fund-Reg - 1.7% 13.6 NA NA





Cash - -

Liquid Funds - - Ultra Short Term - -

Gold 10.0% 5.0%

Gold 10.0% 5.0% Total 100.0% 100.0%

70.0%

20.0%

0.0%10.0%

Strategic Portfolio


90

95

100

105

110


Mod Aggressive UCI Index

70.0%

25.0%

0.0%5.0%

Tactical Portfolio


May 2015 17


Model Portfolio: Aggressive

Aggressive Market Cap wise (%)


Strategic

Tactical


Others







Multi Cap 30.0% 20.0% L&T India Spl.Situations Fund 10.0% 6.7% 53.2 43.0 3.8

ICICI Pru Value Discovery Fund-Reg 10.0% 6.7% 50.0 40.5 9.5

Franklin India High Growth Cos Fund 10.0% 6.7% 54.1 30.9 15.0

Thematic / Sectoral Funds - - Equity Hybrid Funds - 25.0% Edelweiss Absolute Return Fund 25.0% Average

Maturity Years

Mod

Duration Years

YTM

(%)

Debt - 5.0% Short Term - - Axis Short Term Fund - - 2.6 2.1 8.5

Franklin India ST Income Plan - - 2.7 2.5 10.5

HDFC STP - - 2.2 1.7 10.0

Dynamic Bond Funds - 5.0% IDFC Dynamic Bond Fund-Reg - 1.7% 15.4 8.6 7.8

SBI Dynamic Bond - 1.7% 15.4 7.8 7.9

UTI Dynamic Bond Fund-Reg - 1.7% 13.6 NA NA





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

Gold 10.0% 5.0% Gold 10.0% 5.0% Total 100.0% 100.0%

90.0%

0.0%0.0%10.0%

Strategic Portfolio


90

95

100

105

110


Aggressive Nifty

90.0%

5.0%

0.0% 5.0%Tactical Portfolio


May 2015 18


Citadelle Growth Opportunities Portfolio Company Name

% Allocation

Recommended Price

Market price

% Incr/Decr

Rationale Result Update

Axis Bank Ltd. 5% 502.05 567.85 13%

Axis Bank is geared up to ride the next growth cycle with strong capitalization (12.6% Tier I), healthy ROA (1.7%) and expanding liability franchise (2,505 branches). Leveraging on the strong distribution network AXSB increased the share of retail deposits and CASA increased to 79% as compared 59% in FY11. It has delivered stable numbers with improving margins though economy was at a recovery mode. We remain confident of bank’s ability of strengthening its retail franchise further.

Axis Bank delivered decent set of numbers. Asset quality surprised positively in an otherwise weak and challenging quarter for banks. Gross slippages of INR6bn were much better than expected (INR10bn). One off profits of INR1.6b utilized to build provisioning for contingencies (INR2b).

Bharat Forge Ltd.

5% 942.30 1254.05 33%

It is global leader in forging business having transcontinental presence across India, Germany and Sweden, serving several sectors including automotive, power, oil and gas, etc. CV business will benefit from pre-buying in US before emission norm changes and strong cyclical recovery in India. This coupled with scale-up in PVs would drive strong growth in Auto segment.

Not Declared

Crompton Greaves Ltd.

5% 187.65 168.70 -10%

Crompton Greaves is part of the USD4b Avantha Group, and is a global leader in the management and application of electrical energy Crompton Greaves is aggressively focusing on increasing exports and leveraging the Indian manufacturing base.

Not Declared

Dewan Housing Fin Corpn Ltd.

5% 395.15 446.40 13%

Dewan Housing is a good play on Tier 2 and Tier 3 cities housing demand growth. Strong visibility on business growth and margins, superior asset quality, healthy provision cover and healthy return ratios augurs well for Dewan Housing.

Dewan Housing Finance’s (DEWH) 4QFY15 PAT grew 15% YoY to INR1.62b. While the net income was in line with our estimate (at INR4.07b, +20% YoY), higher than-expected provisions led to 4.6% below estimate PAT. Healthy AUM growth of +27% YoY (+8.1% QoQ), FY15 reported margins of 2.89% (up18bp v/s FY14); and 6bp YoY increase in NPLs (largely technical in nature) to 84bp were the key highlights

Eicher Motors Ltd.

5% 15103.50 15217.85 1%

Eicher Motors is a leader in Cruise bikes in India and No.2 player in Medium Commercial Vehicles. The management has increased its production target to 280,000 units in CY2014 (from 250,000 units) and is expected that demand can reach 500,000 units in 3-4 years. Eicher Motors will invest Rs. 6 bn over the next two years in the Royal Enfield business to expand capacity in the Oragdum plant.

Not Declared

May 2015 19


Company Name

% Allocation

Recommended Price

Market price

% Incr/Decr


Gujarat Pipavav Port Ltd.

5% 206.50 221.25 7%

GPPV is favorably positioned on the West coast which enables access to the global trade route/rich northern hinterland. Strong parentage and robust evacuation further provides comfort. GPPV is expanding its container handling facility from 0.8m TEUs to 1.35m TEUs, which would be key driver of volume growth. In addition, higher throughput of liquid volume (2m tons capacity) would aid volume growth.

Not Declared

HDFC Bank Ltd. 5% 952.00 989.20 4%

HDFC Bank is best-placed in the current environment, with a CASA ratio of ~45%, growth outlook of at least 1.3x of industry and least asset quality risk.

HDFC Bank reported Q4FY15 PAT of INR28bn, in-line with our estimate, benefitting from better core revenue momentum. Key highlights: 1) NII grew 21% YoY on above‐average loan growth (up 5%) and superior NIMs (4.4%); 2) core fee income maintained momentum for the second consecutive quarter feeding into improvement in core operating profitability (up >20% YoY), sustainability of which will be key to maintain traction; 3) opex continued to run higher with 21% increase, a derivative of front‐end network expansion (added 355 branches in Q4FY15); and 4) though slippages were higher (1 bad account), the bank’s proactive sale to ARC led to improvement in headline asset quality.

Hero MotoCorp Ltd.

5% 3103.40 2329.45 -25%

Strong franchise of Splendor & Passion, and wide distribution reach makes it best placed to tap strong emand growth, especially in rural markets. It is targeting exports of 1m units over by FY17 Post split from Honda, Hero MotoCorp is free to tap global opportunity in 2W.

Not Declared

IndusInd Bank Ltd.

5% 802.55 823.95 3%

IndusInd Bank Ltd is one of the new generation private sector banks in India. Asset quality performance remains healthy, despite a challenging environment and significant slowdown in the CV segment. The management expects that the worst for CV financing is behind and gradual improvement is likely to be seen in coming quarters

Indusind Bank’s 4QFY15 PAT was in line with our estimates (+25% YoY) at INR4.95b. Healthy loan growth (+8% QoQ and +25% YoY), stable NIM QoQ (3.7%), strong fee income growth (+29% YoY), continued traction in SA (+31% YoY) and pick-up in CV loans (+4% QoQ v/s largely flattish in last two years) were the key highlights. We believe that IndusInd Bank has the potential to grow faster than the industry and strengthen its market share as it expands its network.

5%

Kotak Mah. Bank is one of the fastest growing bank. Merger with ING Vysya Bank will be BV accretive for Kotak Mah. Bank at standalone and consolidated level. Merger places Kotak Bank in a sweet spot for the next growth cycle with strong presence across geographies, expertise in key product lines and continued healthy capitalization.

Kotak Mahindra Bank’s 3QFY15 consolidated PAT missed our estimate by 18%. While banking business’ profits were in line with consensus estimates, aided by strong loan (+22% YoY) and fees (+45% YoY in 3Q/9M) growth, continued competitive pressure on other businesses (EPS INR 9.29) impacted overall profitability (est. EPS of INR 11.3).

14%

L&T is well placed to capitalize on long-term infrastructure demand. L&T's order inflow prospects is expected to double from last year's level, to US$75bn. L&T’s preparedness to exploit the evolving India defence opportunity. The stock's underperformance vs. the BSE Sensex.

Not yet announced

11%

Lupin is amongst the larger pharma companies that is actively targeting the regulated generics markets. Strategy of focusing on niche, low-competition products for the US market likely to benefit in the long run. US generics is expected to grow 20-22% due to a rich generic pipeline.

Not yet announced

May 2015 20


Company Name

% Allocation

Recommended Price

Market price

% Incr/Decr


Kotak Mahindra Bank Ltd.

5% 1263.15 1333.90 6%

Kotak Mah. Bank is one of the fastest growing bank. Merger with ING Vysya Bank will be BV accretive for Kotak Mah. Bank at standalone and consolidated level. Merger places Kotak Bank in a sweet spot for the next growth cycle with strong presence across geographies, expertise in key product lines and continued healthy capitalization.

Kotak Mahindra Bank’s Standalone PAT grew 37% YoY (on a lower base) to INR4.65b (in-line). Strong total income growth (+28% YoY) was driven by healthy fees (+45% YoY) and higher trading gains (+123% YoY). Share of CV/CE loans (-16% YoY) in overall loans is down to an all-time low of ~7.8%. Loan growth (ex-CV) remains healthy at 27% YoY driven by unsecured retail loans (9% of loans, +38% YoY) and corporate banking (34% of loans, +33% YoY). Reported CASA ratio up 100bp QoQ to 32% led by continued traction in CA (+13% QoQ) and SA (+6%). Banking business’ profits were in line, aided by strong loan (+22% YoY) and fees (+45% YoY in 3Q/9M) growth, continued competitive pressure on other businesses (INR2.5b, flat YoY) impacted overall profitability (est. of INR3b).

Larsen & Toubro Ltd.

5% 1496.50 1632.50 9%

L&T is well placed to capitalize on long-term infrastructure demand. L&T's order inflow prospects is expected to double from last year's level, to US$75bn. L&T’s preparedness to exploit the evolving India defence opportunity. The stock's underperformance vs. the BSE Sensex.

Not Declared

Lupin Ltd. 5% 1427.55 1772.80 24%

Lupin is amongst the larger pharma companies that is actively targeting the regulated generics markets. Strategy of focusing on niche, low-competition products for the US market likely to benefit in the long run. US generics is expected to grow 20-22% due to a rich generic pipeline.

Not Declared

Maruti Suzuki India Ltd.

5% 3328.30 3732.05 12%

Maruti is the best auto OEM play on macro-economic recovery in India. Following flat volumes for the past four years, we expect car sales to bounce back, led by high pent-up demand, economic recovery, and deceleration in car ownership costs. Maruti’s strong product pipeline, coupled with lower competitive intensity, should help it consolidate its leadership.

Maruti Suzuki reported a healthy performance in Q4FY15, driven by a strong operating performance, which was better than expectations. While revenue growth was on expected lines at 12.3%, Op Pr growth was 72% YoY A key contributor towards strong operating performance was due to benefits arising from cost reduction, favourable currency, lower commodity prices and lower sales promotion expenses.

Thermax Ltd. 5% 1067.65 984.20 -8%

Thermax is benefiting from few structural trends: (1) energy shortages and inconsistent availability of power, driving demand for energy efficiency products, (2) hunt for alternative energy, given demanding regulations and improving viability, (3) increased environmental concerns and stringent regulatory intervention, (4) currency depreciation leading to increased possibilities of exports etc. Thermax is likely to report acceleration in revenue growth, driven by improvement in GFCF

Not declared

particularly in base industries) and interplay of several structural trends.

May 2015 21


Company Name

% Allocation

Recommended Price

Market price

% Incr/Decr


PVR Ltd. 5% 703.10 615.85 -12%

India’s largest and fastest growing multiplex chain with 23-25% bollywood market share and 33-35% Hollywood market share. Movie screening is an under-penetrated business in India and we believe PVR will be the biggest beneficiary of revival in discretionary spends.

Not declared

Shree Cement Ltd.

5% 9412.10 10210.25

8%

Shree Cement is one of the most cost efficient cement producers in India. Shree Cement is the largest single-location integrated cement plant in North India, with an installed capacity of 13m ton.

Shree Cement reported an EBITDA/t of Rs 831/t (-23.7% YoY, +15.1% QoQ) even as volume growth grinded to a near halt (4.0 mTPA, 3.0% YoY). Realizations surprised positively (Rs 3,701, +4.4% QoQ, -4.5% YoY) likely driven by sharp price hikes in mid-March. Power division turned in a tepid quarter with EBITDA/unit at Rs 0.36, led by weaker volumes (334 mnkWh, -37.7% YoY) and pricing (Rs 3.39/kWh, + 2.4% YoY, -13.7% QoQ).

Tech Mahindra Ltd.

5% 647.89 623.30 -4%

Satyam's acquisition will help Tech Mahindra to diversify its client base and industry focus. Large deals like those of KPN and a gradual revival in the telecom vertical will help volume growth. Deals have kept growth coming (outside the BT account) despite challenged IT budgets in the telecom vertical.

Not Declared

TVS Motor Company Ltd.

5% 268.30 235.60 -12%

TVS is well positioned to benefit from the scooterization wave with its complete scooter portfolio. With international presence in more than 50 countries in Asia, Africa and Latin America it plans to launch multiple products across segments to reinforce and fill gaps in portfolio in next 2 years.

Not Declared

Ultratech Cement Ltd.

5% 2671.25 2666.10 0%

Ultratech is the largest cement company with pan-India presence. It has potential to increase its output without incurring major capex by increasing utilization and blending, along with locational advantage, gives it the flexibility to either export or sell in the domestic market. Significant potential to increase output by increasing blending. Allied businesses of white cement and RMC lend stability to overall performance.

UltraTech Cement’s Q4FY15 EBIDTA of INR13.1bn (up 6% YoY) was ~4% ahead of estimate led by low energy cost/t (down 9% QoQ due to sharp increase in pet coke consumption to 64% from 51% in Q3FY15). Cement sales at 11.5mt declined 4.5% YoY (implying ~10% dip excluding JP‐Gujarat) due to poor demand from infrastructure segment (low government spending) and rural demand (due to unseasonal rains).

May 2015 22


Company Name

% Allocation

Recommended Price

Market price

% Incr/Decr


VA Tech Wabag Ltd.

5% 737.40 699.20 -5%

VA Tech Wabag (VATW) is one of the leading players in water treatment industry, is attempting to expand into new geographies, including South East Asia, Sub-Sahara Africa, LatAm, Central Asia, etc. In FY14, the company received initial orders in Nepal, Tanzania, etc which also opens up interesting growth possibilities to ramp-up the business. Order intake in overseas subsidiaries has increased from INR6-7b in FY12-13 to INR16.4b in FY14

Not declared

With current decline in markets we would like to slowly build back risk in Citadelle Growth Opportunities Portfolio. We switch 10% of the portfolio back to equity portion today, 6th May from the 20% cash call taken on April 1st .

Citadelle Growth Opportunities Portfolio Current Asset Allocation

Equity Cash

103.86

98.7895

100

105

110

115

Jan-2015 Feb-2015 Mar-2015 Apr-2015

Citadelle Growth Opportunities Portfolio Performance

Citadelle Growth Opportunities Portfolio NAVNifty Index

Alpha Edge | “The wait gets longer..”

Thank you for your time!

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May 2015 23

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