Budget rally on the card

Market will become strong once the Nifty crosses its strong resistance at 7980 The parliament session ended on an unsatisfactory note as the GST bill failed to pass yet again. Global indices

remained upbeat after the US Federal raised interest rates. Crude prices rose marginally although they are likely

to struggle at higher levels. FIIs trend were mixed for the month while DIIs tried to support at lower level.

Macroeconomic data, trend in global markets, trend in investment activity from foreign portfolio investors (FPIs)

and domestic institutional investors (DIIs), the movement of rupee against the dollar and crude oil price

movement will dictate trend on the bourses in the near term.

Events to be Watched

On, 6 January 2016, Markit Economics will unveil the outcome of a monthly survey on India's

services sector for December 2015.

On, 6 January 2016, the Caixin China services PMI data for the month of December 2015 is due. The

Caixin China services PMI dropped to 51.2 in November 2015 from a three-month high of 52 in October

2015. On the same day, the Eurozone Markit PMI composite index for the month of December 2015 is

also due.

In the United States, the crucial non-farm payrolls data for the month of December 2015 is due on

Friday, 8 January 2016.

India's Industrial production data will be released on 12 January. Industrial production in India rose

9.8 percent year-on-year in October of 2015

WPI for the December 2015 will be announced on 14th January 2016.

Macro Factors

Eight core infrastructure sector output declines 1.3% in November 2015. The Eight Core Industries

comprising nearly 38% of the weight of items included in the Index of Industrial Production (IIP)

recorded 1.3% decline in output in November 2015 over November 2014. Its cumulative growth during

April to November 2015-16 stood at 2.0%.

GDP growth for FY16 pegged at 8.1 pc, says ASSOCHAM Mid Year Review. India will truly live up

to its reputation of being the bright spot in an otherwise hazy horizon of global economy with a “likely”

GDP growth of over eight per cent and “very likely” acceleration of 7.8- 8 per cent in the current financial

year, an ASSOCHAM Mid Year Review has pointed out.

India's current account deficit narrows to 1.6% of GDP in Q2FY2016. CAD narrows to 1.4% of GDP

in H1FY16 from 1.8% in H1FY15. India's current account deficit (CAD) at US$ 8.2 billion (1.6% of

GDP) in Q2 of 2015-16 was lower than US$ 10.9 billion (2.2% of GDP) in Q2 of 2014-15 but increased

from US$ 6.1 billion (1.2% of GDP) in the preceding quarter.

Conclusion The strength of the US dollar, coupled with worries about demand from China, added pressure on commodities. While copper slumped to a six-and-a-

half year low, oil prices sank further down in the previous some days. Rupee continues to depreciate over possible rate hike by the US, crises in the

Middle East and outflow of foreign funds from the Indian markets. Foreign Institutional Investors (FIIs) have been selling in expectation of rate hike

in the US, which will lead to dollar appreciation. European Central Bank President Mario Draghi announced that the ECB would extend its huge 60

billion euro ($63.5 billion) a month bond-buying scheme until at least March ’17. He also said the central bank would cut the deposit rate to minus

0.30% from minus 0.20%. The market will start galloping once the Nifty crosses its strong resistance at 7980 and the Sensex gets past 26K.

The winter session of parliament is over, the US federal rate hike fear is over, GST bill remains an uncertainty but everyone hopes it will get

through in the budget session. Hence a budget rally is on the cards and the worst seems to be over.

Introduction The Indian pharmaceuticals market is the third largest in terms of volume and thirteenth largest in terms of value.

Branded generics dominate the pharmaceuticals market, constituting nearly 70 to 80 per cent of the market. India is the

largest provider of generic drugs globally with the Indian generics accounting for 20 per cent of global exports in terms

of volume. India enjoys an important position in the global pharmaceuticals sector. The UN-backed Medicines Patent

Pool has signed six sub-licences with Aurobindo, Cipla, Desano, Emcure, Hetero Labs and Laurus Labs, allowing them to

make generic anti-AIDS medicine Tenofovir Alafenamide (TAF) for 112 developing countries.

Market Size According to India Ratings, a Fitch company, the Indian pharmaceutical industry is estimated to grow at

20 per cent compound annual growth rate (CAGR) over the next five years. The Indian pharma industry,

which is expected to grow over 15 per cent per annum between 2015 and 2020, will outperform the global

pharma industry, which is set to grow at an annual rate of 5 per cent between the same period1. Presently the

market size of the pharmaceutical industry in India stands at US$ 20 billion. As on March 2014, Indian

pharmaceutical manufacturing facilities registered with the US Food and Drug Administration (FDA) stood at

523, highest for any country outside the US.

Indian pharmaceutical firms are eyeing acquisition opportunities in Japan's growing generic market as the

Japanese government aims to increase the penetration of generic drugs to 60 per cent of the market by 2017

from 30 per cent in 2014, due to ageing population and rising health costs.

Investments The Union Cabinet has given its nod for the amendment of the existing Foreign Direct Investment (FDI) policy

in the pharmaceutical sector in order to allow FDI up to 100 per cent under the automatic route for

manufacturing of medical devices subject to certain conditions. The drugs and pharmaceuticals sector attracted

cumulative FDI inflows worth US$ 13.32 billion between April 2000 and September 2015.

Some of the major investments in the Indian pharmaceutical sector are as follows: Cipla announced the acquisition of two US-based companies, InvaGen Pharmaceuticals Inc. and Exelan

Pharmaceuticals Inc., for US$ 550 million. Glaxosmithkline Pharmaceuticals has started work on its largest greenfield tablet manufacturing facility in

Vemgal in Kolar district, Karnataka, with an estimated investment of Rs 1,000 crore (US$ 150 million). Lupin has acquired two US based pharmaceutical firms, Gavis Pharmaceuticals LLC and Novel Laboratories Inc, in

a deal worth at US$ 880 million. Strides Arcolab entered into a licensing agreement with US-based Gilead Sciences Inc to manufacture and

distribute the latter's cost-efficient Tenofovir Alafenamide (TAF) product to treat HIV patients in developing countries. The licence to manufacture Gilead's low-cost drug extends to 112 countries.

CDC, the UK’s development finance institution, invested US$ 48 million in Narayana Hrudayalaya hospitals, a multi-speciality healthcare provider, with an aim to expand affordable treatment in eastern, central and western India.

Cadila Healthcare Ltd announced the launch of a biosimilar for Adalimumab - for rheumatoid arthritis and other auto immune disorders.

Torrent Pharmaceuticals entered into an exclusive licensing agreement with Reliance Life Sciences for marketing three biosimilars in India — Rituximab, Adalimumab and Cetuximab.

Indian Immunologicals Ltd plans to set up a new vaccine manufacturing facility in Pondicherry with an investment of Rs 300 crore (US$ 45 million).

Indian Pharma sector : A Healthy Tonic :Estimated to grow

at 20 percent CAGR over the next five years

Fall in crude oil prices will benefit the industry

the sector

Major Players of the Sector

Torrent Pharma CMP Rs.1449

Torrent Pharmaceuticals (TPL) was started in 1959 by U N Mehta as Trinity Laboratories. The company

changed its name to present one in 1971. TPL is flagship company of the Torrent group, a leader in

cardiovascular and central nervous system segments. It also has presence in gastro-intestinal, diabetology, anti-

infective and pain management segments.

Its manufacturing facilities are located at Indrad (Gujarat) and Baddi (Himachal Pradesh). The company's

Indrad plants manufactures bulk drugs, APIs, formulation in form of tablets, capsules and vials. It has annual

production capacity of 6000 million kg of formulations and 15000 kg of bulk drugs/APIs.TPL's Baddi plant has

a manufacturing capacity of 3600 million tablets, 400 million capsules and 18 million oral liquid bottles per

annum.In India the company has 11 sales and marketing divisions. It has 1000 product registrations across 50

countries that includes US Latin America, Russia, Europe, Japan and many more. TPL's research and

development department has a team of 560 scientists engaged in drug discovery, drug development and new

drug delivery systems. The company has subsidiaries namely Zao Torrent Pharma (Russia), Torrent Do Brasil

Ltda (Brazil), Torrent Pharma GmbH (Germany), Torrent Pharma Inc. (USA) and Torrent Pharma Philippines

Inc. (Philippines).

Cadila Healthcare CMP Rs.320 Cadila Healthcare (CHL), incorporated in 1995, is part of the Zydus Cadila Group. The company operates in

areas of active pharmaceutical ingredients (API) to formulations, and animal health products to

cosmeceuticals.Cadila Pharmaceuticals Ltd. is one of the largest privately held pharmaceutical companies in

India, headquartered at Ahmedabad, in the state of Gujarat. Over the last five decades, it has been developing

and manufacturing pharmaceutical products and selling and distributing these in over 50 countries around the

world. An integrated healthcare solutions provider with pharmaceutical product basket, it caters to over 45

therapeutic areas that include cardiovascular, gastrointestinal, analgesics, haematinics, anti-infectives and

antibiotics, respiratory agents, antidiabetics and immunologicals. The company focuses on providing high

quality, appropriately priced products to its customers and supports all these with dedicated customer service.

Cadila Pharmaceuticals has a multicultural, multilingual and multinational workforce of more than four

thousand employees including over two hundred people outside India in forty-nine countries of Africa, CIS,

Japan and USA.

Consumer product division- This is a healthcare division that has brands like Sugar Free, Nutralite and

Everyuth. Its sugar-free has range of sugar substitutes; Nutralite is cholesterol-free bread spread and Everyuth

has range of skincare products.

Sun Pharma CMP Rs.797 It is an international speciality pharma company, with a presence in 30 markets. It also make active

pharmaceutical ingredients. In branded markets, its products are prescribed in chronic therapy areas like

cardiology, psychiatry, neurology, gastroenterology, diabetology and respiratory. Realizing the fact that

research is a critical growth driver, they established their research center SPARC in 1993 and this created a base

of strong product and process development skills. Another API plant, its Ahmednagar plant, was acquired from

the multinational Knoll Pharmaceuticals in 1996, and upgraded for approvals from regulated markets, with

substantial capacity addition over the years. This was the first of several sensibly priced acquisitions, each of

which would bring important parts to the long-term strategy.

A number of its plants hold approvals from the USFDA and the UK MHRA. APIs and Dosage forms are made

in 19 sites across India, US, Hungary and Bangladesh. Sun Pharma is a market leader in speciality therapy

areas, with high quality brands trusted for chronic disease. Its API (Active Pharmaceutical Ingredients) program

began in 1995 with a simple objective - facilitating the manufacture of complex formulations, for which,

sourcing the API would restrict entry.

U.S. manufacturing contracted further in December as lower oil prices undercut spending in the energy sector while

construction spending fell in November for the first time in nearly 1-1/2 years, suggesting the economy ended 2015

with less momentum. "The year begins with manufacturing activity shrinking and, looking further in the data.

The U.S. Institute for Supply Management (ISM) said its index of national factory activity fell to 48.2 from 48.6

in November and is now at its lowest level since June 2009.

The Institute for Supply Management said its manufacturing index slipped to 48.2% last month from 48.6% in

November. That’s the lowest reading since the last month of the Great Recession.

The business of American manufacturers contracted in December for the second straight month, giving heavy

industry a sour end to 2015, a survey of executives found. The Institute for Supply Management said its

manufacturing index slipped to 48.2% last month from 48.6% in November. That’s the lowest reading since the last

month of the Great Recession.

The Big Three auto makers hammered out robust gains in December U.S. sales, as car makers remained poised

to report their highest annual sales ever, shattering the record set in 2000. Car sales are on track for their best-selling

month of the year and their best December ever. Fiat Chrysler Automobiles NV posted a 12.6% gain to 217,527

vehicles sold in the U.S. for the month, extending the Italian-U.S. auto maker’s sales gains streak to 69 months. Jeep

brand sales soared 42% for their best month ever.

Markit's final manufacturing Purchasing Managers' Index rose to a 20-month high of 53.2 in December, just

above a flash reading of 53.1 and beating November's 52.8. It has held above the 50 mark that separates growth from

contraction for well over two years.

Growth in the eurozone economy slowed slightly in December from the previous month, new monthly figures suggest.

The Purchasing Managers' Index (PMI) figure for December fell to 54, down from November's figure of 54.2,

according to Markit.

Eurozone inflation was also revised up to 0.2% in November, down from the previous month, and down 7.3%

compared with the same period the year before.

The greatest price increase in November was for unprocessed food, which rose 2.7% - however, that is lower than

October's rise of 3.2%.

Q3 2015 Eurozone GDP revision 0.3% vs 0.3% exp q/q

Consumer prices in the eurozone rose at an unchanged and sluggish pace in December, a fresh sign that it is

proving more difficult for the European Central Bank to boost inflation than policy makers had expected.

Policy makers and economists had expected the annual rate of inflation to pick up from late 2015, since oil prices were

thought unlikely to repeat their late 2014 falls. But with oil prices once again on the slide as 2015 drew to a close, those

hopes have been dashed for now, making it possible that the ECB will again add to its stimulus measures this year.

New car sales in Japan fell 9.3 percent in 2015 with respect to 2014, A total of 5,046,511 units had sold in Japan last

year, the first time sales have dropped in four years.

The services sector in Japan continued to expand in December, the latest survey from Nikkei revealed with a PMI

score of 51.5.That's down marginally from 51.6 in November.

The Caixin/Markit manufacturing purchasing managers' index (PMI)came in at 48.2 in the December of 2015, down

from 48.6 in November and missing expectations for the 49.0.

China's services sector ended 2015 on a strong note, The official manufacturing Purchasing Managers' Index

(PMI)stood at 49.7 in December,

US

EUROZONE

ASIA

SHAH INVESTOR’S HOME LTD FIXED DEPOSITS OF THE MONTH

COMPANY RATING

Min. Deposit INTEREST RATE (%)

Amount * Months 12

Months 24

Months 36

Months

DEWAN HOUSING FINANCE CORP. LTD* *

CARE (AAA) & BWR (FAAA)

10000*1000 9.00

(14MONTH) 8.75 9.00 9.00

SHRIRAM UNNATI CRISIL"FAA" & ICRA "MAA"

5000*1000-C 10000 – Q

48 & 60M 9.00 8.75 8.75

9.00

HDFC PREMIUM DEPOSITS**

FAAA

M-40000 Q-20000 H-20000 A-20000

15 MONTHS-8.35

22 MONTHS-

8.40

30 MONTHS-

8.35

44 MONTHS-

8.40

HUDCO LTD** FITCH”TAAA” CARE-“AA+”

10000 8.15 8.15 8.15

HDFC DEPOSITS** FAAA 20000*1000 12M-23M

8.35 24M-60M

8.35

MAHINDRA FINANCE LTD**

CRISIL "FAA+"

Cum 10000*1000

18M-8.45

8.45-C 8.45 -C 8.45 -C

H.Y- 25,000 QTR- 50,000

7.90-Q 8.20-Q 8.20-Q

BAJAJ FINANCE LTD** CRISIL-“FAAA”

100000

12M-17M 8.75-C 8.45-Q

18M-23M 8.85-C 8.55-Q

24M-60M 8.90-C 8.60-Q

NATIONAL HOUSING BANK SR.- 0.60 EXTRA***

CRISIL-“FAAA”

50000

8.25 8.25 8.50

PNB HOUSING FINANCE** CRISIL-“FAAA”

20000

15M-8.05 22M-8.05 30M-8.35 44M-8.40

8.00

8.00 8.25

LIC HOUS.FIN.LTD **

>50K < 50K =0.10%

CRISIL-

“FAAA” 10000

8.25 8.35 8.40

GRUH FINANCE LTD**

FAAA by

CRISIL, MAAA

by ICRA

1000*1000

7.75 8.00 8.25

K.T.D.F.C**

10000*1000 8.75 8.75 8.75

CENT BANK HONE FINANCE LTD (Subsidiary of Central Bank Of India)

CRISIL BY “FA/STABLE”

10000*1000 12M-15M

8.20 24M-30M

8.35 33M-36M

8.40

SRS LTD

FA- by CRISIL

3000*1000 11.75 12.00 12.25

** 0.25% Extra for Senior Citizen *** 0.60% Extra for Senior Citizen

Top 5 short term debt mutual funds in 2015

Debt mutual funds offer a large variety of products that cater to a wide spectrum of investment needs, risk profiles and interest rate scenarios. While bank fixed deposit is almost an automatic choice for most retail investors as far as short term or medium term low risk investment is concerned, over the past one year, fixed deposits interest rates have come down by 1%, making it challenging for investors who rely on fixed deposit interest as a source of income. On the other hand, if you look at the performance of debt mutual funds, you will see that across the entire range of investment tenures, mutual funds in different debt categories have given significantly higher post tax returns than fixed deposits. Fixed deposits are risk free investments with assured returns, while debt funds have an element of risk associated with it. However, it is important to understand that, risks involved in debt funds are very different from risks involved in equity funds.

We have discussed the characteristics and suitability of different types of debt funds. As such, if you understand the risk return or characteristics of debt funds and you can make appropriate investment choices, you can get significantly higher returns on your short term to medium investments. We will review Top 5 short term income funds. Short term income funds are good investment choices for conservative investors looking for stable income over an investment horizon of one to two years or maybe even longer. Before we get to the top 5 short term income funds, let us review some important concepts related to debt funds.Debt funds invest in fixed income securities, they employ two different kinds of investment strategy:-

Hold till Maturity: This is also known as accrual strategy, by which the fund invests in certain types of fixed income Securities (or bonds) and hold them till maturity of the bond, earning the interest offered by the bond over the maturity period. Interest rate risk in accrual strategy is quite low. Duration Calls: Using this strategy the fund manager, takes a view on the trajectory of interest rates. Bond prices go up when interest rate falls and declines when interest rate goes up. When interest increases duration Call strategy will give a lower return, and when they decrease the same strategy will give higher returns. This strategy involves interest rate risk. Short term debt funds primarily employ hold to maturity or accrual strategy. Therefore interest rate risk of these funds is quite low. In addition to interest rate risk, debt funds can be exposed to another kind of risk known as credit risk. It is risk of default by the bond issuer, either with respect to interest payment or principal repayment or both. Credit rating agencies like CRISIL and ICRA in India rate fixed income securities based on their credit risk. Higher the credit rating, lower the yield but the risk is also lower. As we will see later in the blog, top short term income funds have excellent credit quality.Let us now understand two other important concepts related to debt investments. Yield to Maturity: Yield to maturity (YTM) is the return which the debt fund will get by holding the securities in its portfolio to maturity. For example if a debt fund’s portfolio has a YTM of 10% and a duration of 2 years, it means that, assuming no change to the portfolio, the fund employing accrual strategy will give 10% returns over the next two years. Average Maturity: This is in simplest terms, is the average time period till all the fixed income securities in the fund’s portfolio matures and principal is repaid. During the maturity tenure, fixed income securities receive the interest payment, also known as coupon payments. Once you know the yield to maturity and average maturity of a debt fund, you can estimate how much income you can get, assuming no changes to the fund’s portfolio.

Top 5 Short Term Income Funds Our selection of short term income funds is based on the most recent CRISIL ranking. CRISIL ranks short term

debt funds based on several parameters like annualized returns, volatility, asset quality (exposure to credit risk), company concentration, modified duration, liquidity and exposure to sensitive sector. Each of the short term income funds in our selection has been assigned either Rank 1 or 2 by CRISIL. We have Here are the top 5 short-term income funds selected using the discussed criteria, sorted on the basis of the last 1 year returns.

HDFC Medium Term Opportunities Fund: The scheme was launched in June 2010 and has Rs 4,082 crores of Assets

under Management. The expense ratio of the fund is 0.28%. CRISIL has assigned Rank 2 for HDFC Medium Term

Opportunities Fund, while Morningstar has given the scheme a 4 star rating. Over a one to three years investment period

the fund gave in excess of 9% trailing annualized returns. The average maturity of the fund’s portfolio is 1.5 years and the

yield to maturity (YTM) is 8.03%. In our view, for short term income funds, YTM is a better indicator of expected returns

than historical returns. As discussed earlier an YTM of 8.03% and an average maturity of 1.5 years imply that, if you hold

units of this scheme for 1.5 years, assuming no changes to fund portfolio, you can get a return of 8.03% before expenses

are deducted. However, you should note that YTM is only an indicator, because there will be changes to fund portfolio.

For example, there may be bonds maturing in fund portfolio during the investment period, which gets reinvested at

different yields. The asset quality of the scheme is excellent with 88% of the scheme portfolio securities rated AAA. The

scheme has an exit load of 1% for redemptions within 365 days.

Birla SL Short Term Fund: The scheme was launched in March 1997 and has Rs. 9,557 crores of Assets under

Management. The expense ratio of the fund is 0.28%. CRISIL has assigned Rank 1 for Birla SL Short Term Fund, while

Morningstar has given the scheme a 4 star rating. One year trailing annualized return of the scheme is nearly 9%, while

the three year trailing annualized return is 9.4%. The average maturity of the fund’s portfolio is 2.2 years and the yield to

maturity (YTM) is 7.93%. The asset quality of the scheme is excellent with 86% of the scheme portfolio securities rated

AAA. The scheme has no exit load.

Birla SL Treasury Optimizer Plan: The scheme was launched in April 2008 and has Rs.5, 084 crores of Assets under

Management. The expense ratio of the fund is 0.37%. CRISIL has assigned Rank 2 for Birla SL Treasury Optimizer Plan,

while Morningstar has given the scheme a 4 star rating. One year trailing annualized return of the scheme is nearly 8.9%,

while the three year trailing annualized return is 10.2%. The average maturity of the fund’s portfolio is 5 years and the

yield to maturity (YTM) is 8.1%. Interest rate risk is limited. The asset quality of the scheme is excellent with 87% of the

scheme portfolio securities rated AAA. The scheme has no exit load.

L&T Short Term Opportunities Fund: The scheme was launched in April 2008 and has Rs.1, 681 crores of Assets

under Management. The expense ratio of the fund at 0.8% is slightly on the higher side relative to the other top short term

income funds. CRISIL has assigned Rank 1 for L&T Short Term Opportunities Fund, while Morningstar has given the

scheme a 4 star rating. One year trailing annualized return of the scheme is nearly 8.2%, while the three year trailing

annualized return is 8.9%. The average maturity of the fund’s portfolio is 2 years and the yield to maturity (YTM) is 8.1.

The asset quality of the scheme is excellent with 96% of the scheme portfolio securities rated AAA. The scheme has an

exit load of 0.5% for redemptions with 30 days.

IDFC Super Saver Income Fund - Medium Term: The scheme was launched in April 2008 and has Rs 1,681 crores of

Assets under Management. The expense ratio of the fund is on the higher side at 1.2% on a relative basis. CRISIL has

assigned Rank 2 for IDFC Super Saver Income Fund - Medium Term, while Morningstar has given the scheme a 4 star

rating. One year trailing annualized return of the scheme is nearly 8.2%, while the three year trailing annualized return is

8.7%. The average maturity of the fund’s portfolio is 4.1 years and the yield to maturity (YTM) is 8.15. The asset quality

of the scheme is excellent with 86% of the scheme portfolio securities rated AAA. The scheme has an exit load of 0.5%

for redemptions with 90 days.

Taxation of Debt Funds

If units of debt mutual funds are redeemed within 36 months of purchase, then short term capital gains is calculated by

subtracting the purchase cost from sales consideration. Short term capital gains is added to the income of the investor and

taxed as per the income tax rate of the investor. If the units are redeemed after 36 months from the date of purchase then

long term capital gains apply. Long term capital gains for debt mutual funds are calculated by subtracting the indexed cost

of purchase from the sales consideration. The indexed cost of purchase is calculated by multiplying the actual cost of

purchase with the ratio of cost of inflation index in the year of redemption and the year of purchase. Cost of inflation

index table is published by the Reserve Bank of India and is available in the public domain. Long term capital gains.