icici april 17 issuecontent.icicidirect.com/moneymanagermagazine/april_2017.pdf · work favorably...

Shilpa KumarMD & CEO

ICICI Securities Ltd.

Financial prudence suggests that it is always good to get an annual check done of our financial stability to ensure that we are on track to achieve our goals. But there is also another aspect to check our financial viability that is often ignored or s o m e t h i n g w e a r e n o t completely aware about - our Credit Score.

Not all our goals or financial requirements can be met just th rough our sav ings or investments. For quite a few of our high value goals like buying a house, for example, we would require to take a loan. This is where a good credit score helps. It would decide if we would be lent adequate money to finance our key goals.

The decision of approving or rejecting a loan application is primarily based on our credit score. Banks or other financial institutions prefer the applicants with clean credit history which is reflected in the credit score.

Credit score is usually a three digit number and ranges from 300 to 900. Anything above 700 is considered as a good credit score. The more you score in this report, the more confidence the bank has in you and as your credibility increases the more amount of loan you are likely to get approved.

The most important factor that shapes your credit score is the past payments. Record of delayed payments may reflect negatively on your credit worthiness. The types of loan you have

1ICICIdirect Money Manager April 2017

taken, whether they are secured or unsecured, is also taken into account while counting your score. Home loan and auto loan work favorably on the report. A larger exposure to unsecured debts like credit card loan or personal loan shows that you are already committed to high interest rate debt obligations.

Excessive use of credit card and outstanding rolled over credit balance impacts your credit report. Another way the bank gauges your credit health is by studying your recent loans. Seeking excessive credit over short period can lower your credit score. To control this, check your credit card balance frequently and make sure it doesn't cross a particular limit.

In some western countries living condition of the borrower is also considered as one of the criteria to decide his credit reliance. Homeowner is considered as more reliable applicant than the tenant. In some cases, even geo-demographic data, such as number of houses in neighborhood is taken into account.

I would like to highlight that maintaining credit performance after getting a loan is as important as building it before applying for the loan. Penalties on missing out an EMI can be unhealthy for your credit score.

It doesn't take a lot to establish and maintain a strong credit history after all. Pay your bills on time, try not to miss a scheduled payment, stay below the credit exhausting limit and opt for secured credit cards. In addition, it helps to regularly review your scores.

At icicidirect.com, you can get access to your Credit Information report at the click of a button. You can also subscribe for our Loan Portfolio Services. The service can help you monitor your loan outstanding and credit scores every month.

Our message remains the same - 'Keep investing and stay invested for your life goals'. Through this magazine and our website www.icicidirect.com we want to make an earnest attempt to partner with you in setting and achieving your financial goals. Do walk into any of your Neighborhood Financial Superstore and talk to us.

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The success of personal finance management depends on how well we balance our assets and liabilities. While it is important to work towards increasing assets, our liabilities require just as much attention. In fact, overlooking loan or other debt obligations can sometimes put your assets, built over a period of time, in trouble.

In order to manage them, we need to understand different types of liabilities, their significance and necessity. While taking a loan, the purpose becomes as important. A loan for a depreciating asset or for discretionary spending like holidays, buying an expensive watch or dress is not always a good idea, until you have a plan to repay it well in time. In a way it is a good idea to match the tenure of the loan with the tenure of the utility for which you have taken a loan for. Loans utilized to achieve financial goals like property purchase, business establishment or higher studies produce beneficial output in long-term. We believe a borrower should be able to interpret this distinction between good debt and bad debt. Of course over leveraging (not having enough income to pay) even for a good-case loan is not a good idea.

Other factors like rate of interest, loan term, tax regulations, pre-closure or loan transfer terms, lender's reputation and ability to repay loan also need to be taken into account before applying for a loan. Our cover story is highlighting all such basics in detail. The purpose of this edition is to enlighten our readers about important aspects of loan.

Another essential element - credit worthiness needs careful attention. In talk with Mr. Hrushikesh Mehta - Vice President & Head - Direct to Consumer Interactive, CIBIL, we provide an insight into how credit history of an individual shapes his loan application. He explains the concept of credit score and its importance. His message for the borrowers is 'always pay your dues on time and ensure that you are being prudent and not using too much credit.’

The April edition of Money Manager also offers comprehensive review of mutual funds recommended by our research team. The top two stock picks of the month are also selected by some of our finest research analysts. So stay updated, manage taxes and keep reading to stay financially fit. Do write us back at moneymanage [email protected] any queries or feedback.

Your magazine is now also available on www.magzter.com, a digital newsstand.

ICICIdirect Money Manager April 2017

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


MD Desk.........................................................................................1

Editorial...........................................................................................2

Contents..........................................................................................3

News..............................................................................................4

Stock ideas: Rallis India & Deccan cement....................................5

Flavour of the Month

The seamless loan process is making us more dependent and

in some cases careless. If you are taking a loan to fulfil a

financial goal you must know what factors to check and

get the best deal possible. There are number of things to be

considered and questions to be answered before you sign the

dotted line. Questions like…......................................................14

Tête-à-tête: CIBIL expert on credit score

Hrushikesh Mehta - Vice President & Head - Direct to

Consumer Interactive, CIBIL, explains the concept of credit

score and its importance............................................................21

Ask Our Planner

Our financial expert answers your personal finance queries...25

Mutual Fund Analysis

Which are the top performing mutual funds in current market

scenario? Check these top three funds recommended by our

research team.............................................................................28

Quiz Time.......................................................................................36

Prime Numbers..............................................................................3 7

4

EPFO weighs exit policy to maximise returns on investments

Retirement fund body EPFO has decided to bring out an exit policy to liquidate its investments in government securities, ETFs and state loans to maximise returns for its members. The Central Board of Trustees (CBT) had decided to provide 8.65 per cent interest on EPF deposits for 2016-17 in December last year. But the finance ministry had not approved the same and asked the EPFO to reduce it by up to 50 basis points to avoid any deficit.

Courtesy: The Economic Times

Edelweiss Global Asset and Wealth Management has raised $350 million for the final close of its second credit-focused fund, Edelweiss Special Opportunities Fund (ESOF) II, said a senior executive of the firm.The fund achieved a first close of $205 million in June 2015.Edelweiss's second credit fund comes at a time when a host of other firms in the alternative investment space are in the market to raise credit-focused funds. These include the likes of Reliance AIF Asset Management Co. Ltd, Avendus Capital and private equity firms Kohlberg Kravis Roberts & Co. Lp and Baring Private Equity Asia.

Courtesy: Livemint

Edelweiss raises $350 million for credit-focused fund

Infosys to hire more locals in USIT major Infosys plans to focus more on local hiring in the US and is also looking at setting up development and training centres in the country as part of its efforts to tide over visa-related issues.Infosys has been in favour of a healthy mix of local and global personnel even though hiring locals in overseas markets often pushes up operational costs for IT outsourcing firms.With the US mulling over various measures to make visa norms stricter under the Donald Trump administration, Indian IT firms have been contemplating tweaking their business models and accommodating more locals.

Courtesy: Asian Age


Mobile phone users, especially those who travel within India, would be greeted with a lower bill for April as India's major telcos — Bharti Airtel, Vodafone India, Idea Cellular and Aircel —-have taken giant steps towards abolishing roaming in their attempt to match Reliance JioInfocomm's offers. Starting April 1, Bharti Airtel, Vodafone India, Idea Cellular and Aircel have already abolished incoming charges while roaming.

Courtesy: The Economic Times

Get ready for lower phone bills as telcos do away with roaming charges

5

STOCK IDEAS


Deccan Cement– Well poised to ride uptick in demand!!!

Company Background

Investment Rationale

Strong up-tick in demand expected

in company's key markets…

Deccan Cements (DCL) was

promoted and incorporated as

a public limited company in

1979 by MB Raju, who is also

its current executive chairman.

DCL has an installed capacity

of 2.3 MT. The company's plant

is located in Nalgonda

(Telangana). It is largely a retail

focused cement player and

sells cement under the brand

name Deccan Cement in

A P / Te l a n g a n a ( 4 8 . 0 % ) ,

Karnataka (16.0%), Tamil Nadu

( 1 7 . 0 % ) a n d Ke r a l a &

Maharashtra (17.0%). The

cement plant is self-sufficient

in power. Focus on high

realisation markets and captive

power plants have enabled

DCL to register healthy

margins. With the demand

revival in the south, improving

pricing scenario and operating

leverage benefit, we expect

sales and EBITDA to grow at a

CAGR of 9.9% and 19.2%,

respectively in FY17E-19E.

Post bifurcation of AP, the

southern region has witnessed

a healthy improvement in

demand (up 4% in FY16 and

14% in 9MFY17) mainly led

byhigher government spend

from AP and Telangana

(substantiated by 3x increase

in ordering activities in Fy16).

Going forward, we expect

cement demand in the AP &

Telangana region to further

improve main ly led by

infrastructure projects like

Polavaram project ( 36,000

crore project) i rr igat ion

pro jects and Te langana

housing scheme (2,70,000

2BHK houses). Further, the

Andhra Pradesh government

has proposed to invest

32,000 crore to develop its new

capital Amaravathi. We believe

all cement companies within

the vicinity of AP & Telangana

will be a direct beneficiary of

the increased demand (CAGR

of 8.0% over the next two or

three years).

New capacity expansion in the

southern region during Fy13

`

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Slow pace of capacity addition in

southern region to boost utilisation!


STOCK IDEAS

16 slowed down to 7 MT vs.

about 37 MT in the preceding

three years. Going forward, we

expect capacity expansion to

further slow down to ~6 MT in

FY17E-19E. Hence, supply

p r e s s u r e f r o m n e w

p layers /capac i ty should

remain low. Further, with

improvement in demand led

by infra projects and individual

house builders we expect

demand (~25 MT) to outpace

supply (~6 MT) positively

impacting utilisation levels. We

expect utilisation to improve

from 62% in FY17E to 70% in

FY19E thereby positively

impacting margins led by

operating leverage benefits.

DCL enjoys better pricing in its

key markets for its products

compared to its other smaller

comparable peers. As a result

of healthy pricing and better

cost management (lower

employee cost led by higher

contracted employee and

lower power cost), DCL has

been able to maintain healthy

profitability over the years. In

Higher realisation in company's key

markets and cost efficiency enable

Deccan to post better margins

the worst year of FY14, in the

southern region where most

comparable players reported

insignificant EBITDA margins

(close to zero), Deccan was

able to not only maintain its

margins but also expand its

margins from 13.0% in FY13 to

15.0% in FY14 mainly due to

healthy realisation. Going

forward, as demand improves,

we expect the company to

register 19.2% CAGR in

EBITDA in FY17E-19E mainly

led by healthy realisation and

operating leverage benefit.

With the recovery in south

region coupled with capacity

expansion, we expect sales

and EBITDA to grow at a CAGR

o f 9 . 9 % a n d 1 9 . 2 % ,

respectively, in FY17E-19E.

DCL is currently trading at an

EV/EBITDA of 6x in FY18E and

5x in FY19E. With anticipated

improvement in financial

p e r f o r m a n c e , w e h a v e

ass igned an EV/EBITDA

multiple of 6-6.3x in FY19E,

arriving at a target price of

1,400-1,450/share.

Improving macros, attractive

valuations

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STOCK IDEAS

Stock Data

Key Financials

Valuations Summary

Net Sales 579.1 575.7 633.0 694.9

EBITDA 114.6 102.5 127.9 145.7

Net Profit 45.6 51.9 70.0 82.5

EPS (`/share) 65.1 74.1 100.0 117.9

` crore FY16 FY17E FY18E FY19E

P/E 17.4 15.3 11.3 9.6

Target P/E 22.3 19.6 14.5 12.3

EV / EBITDA 7.6 8.0 5.9 4.7

P/BV 2.8 2.4 2.0 1.7

RoNW 16.4 15.4 17.5 17.4

RoCE 24.5 20.0 24.2 24.0

FY16 FY17E FY18E FY19E

Market Capitalization 792.4

Total Debt (FY16) 106.1

Cash and Cash Equivalent (FY16) 27.5

Enterprise Value 871.0

52 week H/L 1220 / 653

Equity Capital 7.0

Face Value (`) 10.0

DII Holding (%) 10.0

FII Holding (%) 1.1

Key risks include:

Weak production discipline

While the south market, as a whole, appears fragmented, the fragmentation is more in AP/Telangana, where a large number of producers and sellers are present. However, the leveraged position of most sellers in AP/Telangana has led to supply discipline in the region. This production discipline has led to a sharp rise in price. Going forward, cement prices are expected to be driven by production discipline. As a result, weak production discipline would adversely impact south based cement players.

Conservative approach in expansion/cost pressure

DCL has not expanded its capacity since FY10. While this has worked in its favour, we believe that with the pick-up in demand, a conservative approach in expansion may lead to loss of market share for the company. Further, the company's cost of production has increased at a CAGR of 8.6% over FY11-16 mainly led by higher power and freight cost. While DCL has been able to offset the same with 8.8% CAGR in realisation, any inability to pass on the higher cost (led by weak pricing discipline) may adversely impact the company's financials.


STOCK IDEAS

ANALYST CERTIFICATION We /I, Rashesh Shah, CA, and Devang Bhatt, PGDBM 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

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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

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STOCK IDEAS

Rallis India– On firm footing; quality play!!!

Company Background

Rallis India (Rallis) is a major agri input player domestically with a presence across the agri value chain viz. seeds & agro-chemicals (crop protection). In the agro-chemical space, the company has ~7% market share domestically while in the seeds segment through its subsidiary i.e. Metahelix, it commands a market share of ~ 3 % U n d e r t h e c r o p p r o t e c t i o n s e g m e n t , i t manufactures and markets insecticides, herbicides & f u n g i c i d e s . W i t h manufacturing facilities spread across four geographic locations domestically, the company has a capacity of 10,000 tonne of technical grade pesticides and ~30,000 tonne/litres of formulations per annum. Rallis has a strong distribution network with ~2300 dealers and 40,000 retailers, thereby covering ~80% of Indian districts. The company has got transformed from only an insecticide player to a total agro service solution provider. The transformation began in FY11 when it acquired

a majority stake in a seed manufacturing company i.e. Metahelix Life Sciences. In FY13, it acquired a majority stake in an organic manure & s o i l c o n d i t i o n e r s manufacturing company Zero Waste Agro Organics. Rallis also has an institutional and contract manufacturing arm.

The Indian Meteorological Department (IMD) in its first forecast for the upcoming monsoon season 2017 has pegged the monsoon rainfall at 96% of LPA and expects it to be normal in nature. IMD also expects monsoons to be spatially well distributed across the country. IMD has assigned a probability of 38% for normal monsoons. Normal monsoons bode well for the domestic agriculture sector and should result in healthy f a r m p r o d u c t i o n a n d consequent increase in farm income. It is positive for all agri

Investment Rationale

Normal monsoon forecasts for 2017 and increase in cotton acreages a double boost for Rallis…


STOCK IDEAS

input companies including Rallis India. Furthermore, majority of agro-chemicals domestically find application in cotton crop, which witnessed a decline in acreages to the tune of ~12% in FY17 primarily tracking low profitability in FY15-16 and occurrence of increasing pests. However, given remunerative cotton crop prices currently and low pest occurrence in FY17, we expect cotton acreages to witness strong double digit growth in FY18E, driving growth in earnings on both the Metahelix (cotton seeds) as wel l as domest ic agro-chemical front.

U n i o n B u d g e t 2 0 1 7 - 1 8 delivered on its expectations with a clear focus on achieving its vision to double farm i n c o m e b y 2 0 2 2 . D u e emphasis was given to both productivity and better farm realisations. Total allocation towards agriculture & farmer welfare was increased 16% YoY to 41,855 crore in FY18E. Notably, a sizable increase in allocation to the insurance

Farmer centric Budget 2017-18; focused to double farm income by 2022

`

scheme PMFBY to 9000 crore (up 64% YoY) and irrigation scheme (PMKSY) to 7377 crore (up 28% YoY) in FY18E was encouraging. Moreover, the government increased allocation towards subsidy under farm mechanisation to 525 crore in FY18E (vs. 358 crore in FY17E). Furthermore, agricultural credit in 2017-18 was fixed at record levels of 10 lakh crore (up 11% YoY). T h i s w i l l b o o s t f a r m productivity & consequent f a r m i n c o m e t h e r e b y benef i t ing al l agr i - input companies, including Rallis India.

Rallis is a portfolio stock with a p r e s e n c e a c r o s s t h e agricultural value chain and good brand recall. It is a debt free company with net cash of ~ 150 crore as of FY17E. The company will generate ~ 200 crore as free cash flow per year in FY17-19E. Rallis also has robust return ratios with average FY16-19E RoCE & RoIC at 22% & 34%, respectively. We expect sales, on a consolidated basis, to grow at 9.8% CAGR in

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``

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Portfolio stock; healthy balance sheet & return ratios, recommend BUY!


STOCK IDEAS

Stock Data

Key Financials

Valuations Summary

FY17-19E with PAT growing at a CAGR of 17.1% in FY17-19E, f a c t o r i n g i n 1 5 0 b p s improvement in EBITDA margins. We value Rallis at 300 i.e. 25x P/E on FY19E EPS

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of 12.0. We have a BUY rating on the stock with a target price of 300. Rallis is indeed a stock worth holding in one's portfolio with a long term investment horizon.

`

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Net Sales 1,611.6 1,665.1 1,845.9 2,006.7

EBITDA 230.1 266.2 313.2 350.6

Normalized PAT 143.0 170.3 197.0 233.4

Normalized EPS (`/share) 7.4 8.8 10.1 12.0

` crore FY16 FY17E FY18E FY19E

FY16 FY17E FY18E FY19E

P/E 34.0 28.9 24.7 20.8

Target P/E 40.8 20.3 29.6 25.0

EV / EBITDA 21.4 17.7 14.8 12.8

P/BV 5.4 4.4 4.0 3.5

RoNW (%) 15.9 15.1 16.0 17.0

RoCE (%) 20.1 19.9 22.8 23.6

Market Capitalization 4,862.5

Total Debt (FY17E) 39.7

Cash and Cash Equivalent (FY17E) 187.4

Enterprise Value 4,714.8

52 week H/L 265 / 180

Equity Capital 19.5

Face Value (|) 1.0

DII Holding (%) 12.2

FII Holding (%) 5.7


STOCK IDEAS

Key risks include:

Weather conditions/ Inadequate Monsoons

Rallis' product profile is highly weather dependent, the control of which is beyond the company's ambit. Any adverse weather conditions including inadequate or excess rainfall can likely result in loss of revenues for the company. The company's core business i.e. a g r o c h e m i c a l ( c r o p protection) is also dependent on weather & soil conditions which result in growth of pests & weeds. Any anomaly in the a b o v e m i g h t a l t e r t h e occurrence of pests & weeds which can result in loss of revenues for the company. Though the initial forecast (IMD at 96% of LPA) point towards normal monsoon activity in 2017 however any deviation on the negative side and its uneven distribution can adversely affect the implied profitability at Rallis.

Failure to develop new products

Though Rallis enjoys a good brand recall but failure to develop any new products according to the market needs can adversely affect the company's financials. The c o m p a n y ' s i n t e r n a l benchmarks i.e. Innovation Turnover Index has moved to a lower trajectory (Innovation index at 15, 10, and 11 in Fy14 16 vis-à-vis 30, 30, 31 in Fy08 10) depicting decreasing share o f r e v e n u e s f r o m n e w products. Though there might we some blockbuster product by the company which had been launched more than 4 years ago and hence not accounted under this index, but still any reduction in launches of new products can h a m p e r t h e g r o w t h i n company's revenues going forward.


STOCK IDEAS

ANALYST CERTIFICATION We /I, Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets), 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 financial instruments. 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 Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets), 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 Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets). 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 securities described 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.

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 financial instruments. 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 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 have any material conflict of interest at the time of publication of this report.

It is confirmed that Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets), 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.

14

FLAVOUR OF THE MONTH

Some basics before taking out a loan


The seamless loan process is making us more dependent and in some cases careless. If you are taking a loan to fulfil a financial goal you must know what factors to check and get the best deal possible. You should know if the loan is beneficial or can be a burden on your personal finance. There are number of things to be considered and questions to be answered before you sign the dotted line. Questions like:

Do you really need it?The most fundamental yet neglected question you should ask is 'Do I really need the loan?' Because the amount that we repay is not only the borrowed amount (principal) but also the fees charged by l e n d e r f o r u s i n g h i s money(interest). So it doesn't make sense to take a loan just because it is accessible or

because there are tax-benefits associated with it. Give all v i a b l e o p t i o n s s e r i o u s consideration before deciding to borrow from the bank.

Is it a good loan or a bad loan?Yes. Depending on the purpose of the loan, we can categorize loans into two types – good loans & bad loans. Any loan that helps the borrower build an appreciative asset over a period of time (like buying a house)is considered good loan. And a loan taken to fulfill luxurious needs or to acquire assets that do not increase in value (foreign vacation) is grouped as bad debt. Below is the summary of different loans based on its utility.

1. Home loanThis is a good debt under most circumstances. With soaring real estate market, value of

Taking a loan for a new house or car or television set has become easier than it was a few years ago. Today, there's a loan for every possible requirement andwith rapid developments in technology, banks and Non-banking Financial Companies (NBFCs) are reaching to even the remotest consumer in India. But while access to money has become simpler, guidelines for borrower remain unchanged. That is, what should you consider before taking a loan.

15



residential properties are most likely to grow over years. Besides, house is the most reliable asset when it comes to financial security. Home loan for second house is also a productive move as it can generate income in the form of rent , provided that the borrower is capable to repay two debts at a time. What more, you can avail tax benefits under section 80 and 24 of Income Tax Act on both principal and interest amount of the home loan.

2. Education loanSpending on one's education helps to build firm human asset and thereby product ive outcome. The asset o f knowledge and skills that will stay with an individual forever and eventually help him enhance his career. Borrowing money to support higher s t u d i e s m a y n o t g i v e immediate tangible results, but it carries long-term advantage of making us financially independent.

3. Business loanLoan taken out for developing the business, acquiring funds, expanding work space , m a r k e t i n g c a m p a i g n s ,

e x t e n d i n g w o r k f o r c e , managing work capital or for any purpose that promotes growth of your business is a good loan.

4. Personal loanThese are easy-to-get but high interest rate loans which are used to bridge the gap between financial needs and one's inability to pay for them now. Unless there is an inevitable emergency and no other source of f inance available, personal loans should be avoided. Taking a personal loan for medical crisis or house renovation is justified up to certain extent but using it for funding a foreign vacation, pre-closure of another loan, paying credit card bills, helping friend or fulfi l l ing other luxurious indulgences is simply a bad idea.

5. Auto loanEveryone dreams of owning a house and a car at some point of his life. A house, as mentioned above, is an appreciative asset. But a car or any other vehicle starts depreciating in value the moment it's driven out of the showroom.Moreover, with proper financial planning, it is

16



possible to purchase a vehicle in cash. So why get a loan and pay interest for the asset that is not even making any money for you.

6. Credit cardAnother type that comes at very high interest rates are loans on credit card. They are considered as bad debt and leave an unhealthy trace on your credit report if failed to repay on time. Credit card balances are also a form of loan and a bad one indeed. Penalties for delayed bill payments can get as bad as 40% interest per annum. Hence, steer clear of them.

7. Loan against assetTaking a loan against gold, securities, insurance and fixed deposits can be treated as good or bad depending on purpose of the loan. Borrowing money against these is a better option than liquidating entire investment.

8. Consumer durable loanThis type of loan is consumed for purchasing household or lifestyle products like laptop, washing machine, television sets, modern furniture, mobile phones etc. Although such loans come at 0% interest rate

there are two drawbacks linked here – a. processing fee is c h a r g e d b . p r o d u c t s purchased are depreciative. So in any case it's better to not apply for them.

Once you have decided to take a loan, next important thing is to pick the correct lender and select the best suitable offer. Having a solid purpose alone is not enough to apply for loan. There are other important things to be considered which shape your loan requirement. Such as:

• Financial status-quoYour current financial status depicts your ability to repay the loan. Although the bank checks your credit worthiness before making you an offer, you should a lso know your limitations. Remember, the EMIs should not make it difficult to make the ends meet. Take a loan that is easy to repay because living beyond means only adds up to the financial stress. If you are already paying dearly towards housing and car loan, it may not be wise to apply for second auto loan. Use online EMI calculator to know your loan eligibility. Give all the correct details in order to

17



get the most suitable loan amount for your profile.Even a difference of few hundreds can

affect your loan amount considerably. Check out following examples:

Case 1:

Case 2:

Case 3:

Source: ICICI Bank (home loan EMI calculator)

• Loan termA loan term is the period of loan agreement, and borrower is bound to repay the debt before or at the end of this term. If you can afford bigger EMI adjust it with shorter loan term. For instance, monthly EMI of Rs. 25,000 for 25 years or Rs. 30,000 for 20 years,

which one will you choose? The latter one is bettersince there's no sense in carrying the debt obligation for extra five years.Also, while finalizing the agreement ask your lending institution about pre-closure clause and penalties of such action.

18



• Interest rateCompare in teres t ra tes charged by different banks.

Take help of online portals to figure it out. Even a difference of 0.25% is significant.

The thumb rule is - 'do not jump

on the first opportunity you

come across.' Weigh all the

loan offers and take your time

before making your mind.

• Tax benefitsGood debts like home loanand

education loan are eligible for

tax benefits in our country. For

the home loan of ready-to-

move in property, repayment

of principal amount (up to Rs.

1, 50,000) & interest (up to Rs.

2, 00,000) is eligible for tax

deduction u/s 80C & 24

respectively. Other charges

l i k e s t a m p d u t y c o s t ,

registration fees, processing

fees & home loan insurance

premium are also tax-efficient.

If it's your first housing loan,

you can avail additional tax

break of Rs. 50,000 under

section 80EE.

Those taking education loan

for higher studies can claim tax

deduction over entire interest

repayment. However, this

deduction can only be claimed

within 8 years from the date of

first interest payment or until

entire interest amount is

repaid, whichever is earlier.

• Pre-closure and other charges

Paying outstanding amount

before the loan term ends

seems like financial relief but

there can be penalties tied to

this provision. Your bank may

charge you on pre-closure

(paying loan balance in full) or

19



prepayment (paying partial

amount) of the loan to

compensate for its loss of

interest rate. There are fees on

balance fund transfer, if you are

shifting from current bank to

another bank that offers lower

interest rate. If the penalty

levied by your current lender is

huge and you are shifting loan

for marginal interest rate,

there's no sense in applying for

transfer. Read the terms and

conditions in your loan

agreement ca re fu l l y to

understand all such charges.

When is it OK to take loan?So if taking loan is such a

complicated business, why

take it in the first place? Why

not just save money to attain

our goals? Right? No. Because

saving big amount is a time

consuming process and there

are certain circumstances

when taking loan is inevitable.

Some goals require immediate

attention. So borrowing

money to overcome these

difficulties is, in fact, the most

appropriate way to handle the

situation.

Medica l emergenc ies , for

instance, are one of such

unannounced difficulties.

Although health insurance

efficiently safeguards medical

crisis, a large number of people

are still oblivious to insurance

benefits. In the absence of

adequate health insurance

cover, taking loan is not only a

permitted option but also

necessity.

Also, credit worthiness and loan

are mutually responsible

factors of our personal finance.

The ability to repay loan on

t ime se ts the f inanc ia l

character of a person. So

taking loan (and repaying it on

schedule) is one way to build

and improve your credit score.

This is viable only if your

routine expenses are not

suffering due to this new debt.

If you qualify for special loan

schemes that are available at

lower interest rate repaying it is

a lot easier. For example, the

government has introduced

several schemes like Shree

Shakti Package, MahilaUdyam

20



Nidhi Scheme. Pradhan Mantri

Mudra Yojana etc. to fund

aspiring business women.

W o m e n a l s o e n j o y

concessional rate of interest

over housing loans. Many

banks offer special doctor loan

schemes to cater to the

financial needs of the doctors.

Therefore, look around all your

options before signing on the

dotted line.

Lastly, if interest rate is lower than

returns on investment it is wiser

to take a loan instead of

liquidating asset to overcome

financial crunch. Wouldn't it be

smarter to take a loan at 12%

interest rate than to give up on

an investment that generates

20% annual returns?

Bottom lineIt is important to understand

the repercussions of failing to

repay debt. The loan is taken

out to fulfill urgent necessities

that cannot be accomplished

due to cash unavailability. A

foreign vacation or desire to

buy second vehicle are

luxurious indulgences and not

necessities. Debt is a liability

that shouldn't outweigh your

financial balance.

One smart way to manage

personal finance is to make

i n v e s t m e n t s t h a t g i v e

rewarding returns in both

short-term and long-term

periods. Start an emergency

fund by investing small

amount every month to tackle

unforeseen events in life.

S e l e c t a S y s t e m a t i c

Investment Plan (SIP) in equity

mutual fund that is fast-to-

grow and easy-to-liquidate.

P r i o r i t i z e h i g h - y i e l d

investments, do a detailed

research before taking big

decisions (such as loan).

Nothing can fail a well-

composed financial planning.

The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities

21

Tête-à-tête


'CIBIL Score provides testimony of your financial discipline to lenders'

Q.

A.

Can you briefly explain the

concept of credit score to our

readers?

A credit score is a 3 digit

numeric summary of one's

credit report. A credit report is

one's credit payment history

across loan types and credit

institutions over a period of

time. A credit report does not

contain details of your savings,

investments or fixed deposits.

The score is derived by using

the details found in the

"Accounts" and "Enquiries"

sections on your credit report

and ranges from 300 to 900

points. The score provides a

lender with an indication of

your "probability of default"

based on your credit history.

The closer the individual's

Score is to 900; the more

favorably the loan application

will be viewed by a lender.

A CIBIL Score and Report

provides testimony of your

financial discipline to lenders

when you are applying for a

loan or credit card. A CIBIL

Score and healthy credit report

i nd i ca tes tha t you a re

managing your loans and

credit accounts well and are

Given the importance of CIBIL Score and Report, monitoring it should be treated as

a credit health management exercise, and not only something you do when you

need a loan. Therefore individuals should monitor their CIBIL Score & Report

through the year, says Hrushikesh Mehta – Vice President &Head - Direct to

Consumer Interactive, CIBIL. It has been observed that 79% of all loans are

provided to consumers with a CIBIL Score of 750 or more, he adds. Excerpts:

Hrushikesh Mehta,

Vice President &Head

Direct to Consumer Interactive, CIBIL


Tête-à-tête

financially savvy.

How is the credit score

calculated?

The score is calculated

based on the following factors:

• Past Performance: Individ

uals past performance on

their debt obligations is the

most important criterion

and contributes approxi

mately 30% weightage to

the score.

• Credit Type & Duration: Type

of loan availed whether

secured or unsecured loan,

and the duration of credit

h i s t o r y e s t a b l i s h e d

contributes an additional

25% to the score.

• Credit Exposure: The total

amount of credit exposure

contributes another 25%

• Other factors: Other factors

such as credit utilization,

recent credit behavior

contribute the remaining

20% to the score.

What steps should be taken to

ensure good credit discipline and

how does that help establish good

Q.

A.

Q.

credit history?

Here are steps that you can

take to improve and maintain

their CIBIL Score and report:

• Pay your loan EMIs and credit

dues on time: Ensure you pay

the EMIs on your loans and

your credit card bills by the

due day every month. Your

payment history has a

significant impact on your

C IB IL Score . Regu la r

payments of EMIs and credit

card bills will help you build

a high credit score and a

healthy credit report.

• Keep a control on your credit

card limits: While increased

spending on your credit

cards may not necessarily

negatively affect your CIBIL

Score, an increase in the

current balance on the card

over time is an indication of

an increased repayment

burden and may negatively

impact your score. It's

always prudent to not use

too much credit.

• Limit credit exposure: The total

size of your debt reflects on

your credit report and has an

A.


impact on your CIBIL Score.

Having many loans or credit

cards increases the total

amount of debt you owe and

increases your credi t

exposure. High credit

exposure may impact your

CIBIL Score. If you have

many loans running ensure

that you close some of them

so that your total credit

exposure is reduced, before

you apply for new loans.

• Maintain a healthy mix of credit:

A higher concentration of

home loans or auto loans

(commonly known as

Secured Loans) is likely to

be more favorable for your

CIBIL Score than a large

number of unsecured loans.

Although unsecured loans

offer easy access to finance,

it's also by far the most

expensive form of credit.

More the number o f

unsecured loans with high

utilization, larger are the

payments resulting from its

high rate of interest

• Monitor your co-signed, joint

accounts monthly as these

also form a part of your

credit history and impact

your CIBIL Score.

• Monitor the loan accounts

for which you have stood as

a 'guarantor'. It is important to

understand that by pledging

as a guarantor on the loan,

y o u a r e a l s o l e g a l l y

responsible towards the

timely repayment of the

loan. In case of defaults and

de l inquenc ies by the

principal borrower, the CIBIL

Score of the guarantor will

a l s o g e t n e g a t i v e l y

impacted. Hence, i t ' s

i m p e r a t i v e t h a t t h e

guarantor on the loan

should ensure that the

borrower pays the EMIs

regularly on the due date,

month on month.

• Review your CIBIL Score and

credit history regularly in

order to track your financial

standing and be “loan

ready” always.

In a nutshell, always pay your

dues on time and ensure that

you are being prudent and not

using too much credit.

Tête-à-tête


Tête-à-tête

Given the importance of your

CIBIL Score and Report,

monitoring it should be treated

as a credit health management

exerc ise , and not on ly

something you do when you

need a loan. Therefore

individuals should monitor

their CIBIL Score & Report

through the year.

How financial institutions weigh

credit worthiness of a borrower

based on three-digit number?

It has been observed that

when financial institutions

appraise credit the CIBIL

Score is considered and hence

does plays an important role in

the approval of your loan or

credi t card appl icat ion.

However, the final sanction/

rejection of a credit facility is

the decision of the concerned

financial institution. There are

o t h e r f a c t o r s t h a t t h e

concerned financial institution

may consider and these may

include:

• Other loans reported on

your credit report – this

gives lenders an indication

of your existing debt and

Q.

A.

any missed payments that

you may have

• Your current income – the

amount of income you have

a v a i l a b l e t o s u p p o r t

a d d i t i o n a l m o n t h l y

payments is important to

the loan approval. A rule of

thumb is that you are

unlikely to get existing credit

if your total EMIs exceed

50% of your monthly salary.

• KYC documentation – the

lender will require adequate

identity and address proof.

For purchase of property like

a home or a car the

a p p r o p r i a t e t i t l e

documentation will be

required before the loan is

disbursed.

What is the ideal credit score for

opting for loan?

While each bank will have its

own credit score cut-off

b a s e d o n t h e c r e d i t

sanctioning policies, it has

been observed that 79% of

all loans are provided to

consumers with a CIBIL

Score of 750 or more.

Q.

A.

25

ASK OUR PLANNER


Financial planning for stable investment portfolio

Q.

A.

Q.

M y t o t a l i n c o m e i s approximately Rs. 11.5 lakh. My NPS deductions amount to total of Rs. 1.40 lakh. I also have home loan for which 60000 is principal amount. Can I claim benefit of savings to 2 lakh by splitting my NPS amount to include it in additional 50000 to make it 2 lakh?

- Puneet Sharma Yes, you can. The amount

contributed to NPS can be claimed only once – you can claim the same under either Section 80C or Section 80CCD(1b) or split and claim under both, provided it does not cross the limits specified under these sections.

I have got a new job and started to earn from February 2017. My monthly salary, after all deductions is around Rs. 23,000, with no major monthly expenses. I am planning to go for an MBA in the year 2019/2020. I want to build a corpus to fund a part of my MBA university fees. Currently, i'm invested in HDFC Mid Cap Opportunities Fund and Mirae Asset Emerging BlueChip Fund with an SIP of Rs. 1,000 in each of them. Should I invest in other modes of investment

too, or is this two funds sufficient?- Samarth Kumar

The funds opted by you are e q u i t y - o r i e n t e d a n d specifically invest into mid-cap companies. These funds carry higher risk and are more suitable for a longer time horizon i.e. 10 years or more. Since you are planning for your post graduation in another 2 years, it's better to invest into short-term debt mutual funds or growth option of monthly income plans, if you want to have a little exposure into equity.

Also, you will have to increase the monthly investment amount, depending on the fee required to be paid. For eg., if your fee is Rs.3 lakh, then the monthly investment required would be around Rs.11,500.

I have been salaried for ten years in a PSU and holding a PPF account also. I had already crossed 80c limit of tax savings. Besides that I have an endowment fund investing 54k annually.I have just started SIPs in equity funds and currently have 8 lacs in Fixed Deposits. Want to invest it in Debt

A.

Q.

26

ASK OUR PLANNER


funds and switch systematically to equity funds. But there are a lot of debt funds in market. I am confused which to go for. My objective is long term wealth creation and I want this 8 lacs to be parked in debt funds and switch the extra units earned over time to equity funds. Please suggest me the different debt funds with portion of amount to invest or else a better investment plan for wealth creation.- D Mohapatra

You can consider ultra-short term mutual funds / short term funds with lesser average duration. Please refer our Research recommendations in ICICIdirect.com > Research > M u t u a l F u n d s > Recommended Funds > Investment Horizon 1 month – 12 months, to know the name of the funds in which you can invest this lumpsum amount and start a Systematic Transfer Plan (STP) to equity funds.

You can also refer the list of E q u i t y f u n d s u n d e r Recommended Funds in the above link to know the name of the equity funds in which you can t rans fer the funds systematically every month from the debt funds.

A.

Q.

A.

I have a pension plan since 22-Mar-2007 and going to expire on 22-Mar-2017, and I am depositing 20,000 annually towards its premium. By now I have deposited 2,00,000 in last 10 years and the entire corpus is amounting 3,50,000 now. I have nottaken any 80C deductions against this policy as it was not required.

I know that since it is a pension plan, the annuity will be taxable. All of the life insurance advisers from the insurance company told me the following: If I transfer this corpus into another existing/new ULIP plan (non- pension) of the same insurance company through TOF (transfer of fund) facility, after the maturity of this new ULIP, the whole maturity amount will be non-taxable under section 10(10(D). However my chartered accountant is suggesting me that it will be taxable. Please clarify.

- Manish Gupta Irrespective of whether you

have claimed any deduction for the premiums paid to the pension policy under Section

rd80C, only 1/3 of the maturity proceeds of the pension policy can be received as lumpsum, which is exempt from tax, and

rdfrom the balance 2/3 , you will get annuity, which is taxable.

27

ASK OUR PLANNER


Do you also have similar queries to ask our experts? Write to us at: [email protected].

rdThe 2/3 maturity amount has to be converted to annuity immedia te ly or can be deferred, but cannot be utilized or transferred to a new policy.

rdThe 1/3 maturity amount can be withdrawn or utilized in any manner like buying a new policy; however, that amount is already exempt from tax.

I took aICICIPru LIFETIME SUPER PENSION policy in 2007 and paying a premium of Rs 3500 every month. I want to know the taxes and charges that will be levied if I want to withdraw as lump sum at maturity.

- Surya Challa Since it's a pension policy,

you will be able to withdraw rd

only 1/3 of the maturity proceeds as lumpsum, which will be exempt from tax. The

rdbalance 2/3 amount will be utilized to purchase an annuity, which will be added to your income and taxed as per your income slab in the years of receipt. Generally, there will not be any charges levied at ma tu r i t y ; however, i t ' s suggested to check your policy document for the same.

Q.

A.

Q.

A.

I'm a 45 year old housewife. I have total 6 fixed deposits ranging from Rs. 75,000 to Rs.3,00,000. I w a n t e d t o k n o w t h e t a x implications/TDS associated with fixed deposit. Please explain.

- Reema Shah If the source of funds for

fixed deposits is your own, then the interest will have to be shown as your income and taxed as per your income during the year.

The bank shall deduct TDS, if the interest income exceeds Rs.10,000 in a financial year. However, if you do not have any other income, you can submit Form 15G to the bank every financial year declaring that your income, including the interest income, is less than the taxable limit. Based on your declaration through Form 15G, the bank shall not deduct any TDS.

However, if the source of funds for fixed deposits is your husband's income, the interest earned on these fixed deposits will be added to his income and taxed as per his income slab.

MUTUAL FUND ANALYSIS

28

Arbitrage Funds


Arbitrage funds are equity funds that exploit market inefficiencies that manifest in the form of price differences between securities in the cash (equity) segment and the derivatives segment. This is done by relatively low risk transactions of purchasing shares in the cash segment and selling corresponding futures in the derivatives segment. Inefficiencies in the market lead to pricing differences of an underlying stock between the cash and derivatives market. Arbitrage funds specialize in identifying these opportunities and exploiting them in order to generate returns.

Since these funds invest more than 65% of the corpus in equity or equity related instruments, they are taxed as equity oriented funds and consequently dividends are tax free for the investor and there is no capital gains incidence after one year.

Investors can look at arbitrage funds as alternatives to liquid funds. This is because arbitrage funds are a lower risk product and are safe and carry little risk. The fund managers reduce the risk of equities by hedging against the derivatives. However, investors should note that performance of these funds would depend on the extent of arbitrage opportunities available in the market.

IDFC Arbitrage Fund

Fund Objective:

The investment objective of

the Scheme is to generate

capital appreciation and

income by predominantly

i n v e s t i n g i n a r b i t r a g e

opportunity in the cash and the

derivative segments of the

equity markets and the

arbitrage opportunity available

within the derivative segments

and by investing the balance in

debt and money market

instruments.

Key Information:NAV as on March 31, 2017 ( ) 20.7

Inception Date December 21, 2006

Fund Manager Yogik Pitti, Arpit Kapoor

Minimum Investment (`)

Lumpsum 5000

Expense Ratio (%) 0.92

Last declared YTM

Exit Load 0.25% on or before 1M

Benchmark Crisil Liquid Fund Index

Modified Duration

`

Product Label:

This product is suitable for investors who are seeking:

• To generate low volatility

Investing in Arbitrage Fund

29



returns over short to medium term

• Investments predominantly in arbitrage opportunities in the cash and derivative segments of the equity markets and the a r b i t r a g e o p p o r t u n i t i e s available within the derivative segment and by investing the balance in debt and money market instruments market and in unhedged equity

Performance:The performance of this category follows arbitrage

opportunities available in the market. Fund has delivered 6.24% return over 1 year period and annualised 7.96% in the last 3 years. The fund's performance is not strictly comparable to its benchmark (Crisil Liquid) as recently liquid funds have benefited from high short term rates, while market conditions dictate arbitrage scope. Overall the fund remains among the better performers in the category.

6.2

4

7.0

7

7.3

5

7.1

1

7.6

2

-

2.00

4.00

6.00

8.00

10.00

1 Year 3 Year 5 Year Since Inception

8.0

4

7.9

6

8.3

6

Fund Benchmark

Performance vs. Benchmark

Portfolio:IDFC Arbitrage fund invests in arbitrage opportunities in the cash and the derivative segments of the equity markets. It aims to capture the spread between the cash and f u t u r e s m a r k e t b y simultaneously executing buy in the cash market and sell in the futures market. The balance is invested in debt and

money market instruments. The fund typically follows a strategy of taking market neutral (equally offsetting) positions in the equity market making it a low risk product irrespective of movements in equity market.

The fund has close to 70% holdings in cash and cash

Our View:

30



equivalents and ~15% in deposits which are placed as margin. Within equities, the fund is not as focused towards a particular market cap as some of its peers and takes exposure to mid cap stocks as well as large cap stocks.

IDFC Equity Arbitrage Fund is a consistent performer in its peer group. Investors looking for a relatively safe option in the equity space with liquid fund – like returns can look at this fund as an option.

%

70.11

8.3

6.68

4.03

3.24

2.91

2.84

2.61

2.32

2.28

Power Finance Corpn. Ltd. SR-139 C BD 08.17% (18-Aug-18) Corporate Debt

Maruti Suzuki India Ltd. Domestic Equities

Indiabulls Housing Finance Ltd. Domestic Equities

Bharat Financial Inclusion Ltd. Domestic Equities

Bharat Petroleum Corporation Ltd. Domestic Equities

Aurobindo Pharma Ltd. Domestic Equities

Cairn India Ltd. Domestic Equities

Top 10 Holdings Asset Type

Net Current Asset Cash & Cash Equivalents

HDFC Bank Ltd. Deposits (Placed as Margin)

IndusInd Bank Ltd. Deposits (Placed as Margin)

%

0

0.1

0

Whats In

Power Finance Corporation Ltd.

Tech Mahindra Ltd.

NMDC Ltd.

%

0

0

0

Whats Out

Kaveri Seed Company Ltd.

Kaveri Seed Company Ltd.

Mahindra & Mahindra Financial Services Ltd.

Data as on March 20, 2017; Portfolio details as on Feb -2017Source: ACE MF, ICICIdirect Research, AMC factsheet

You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://www.idfcmf.com/Downloads.aspx

31


ICICI Pru Equity Arbitrage Fund

Fund Objective:To generate low volatility returns by using arbitrage and other derivative strategies in e q u i t y m a r k e t s a n d investments in short-term debt portfolio.


Key Information:Performance:The fund has delivered 6.5% return over 1 year and 8.4% annualised return over 3 years. The performance of the fund has not been compared to the benchmark (Nifty 50 Arbitrage Index) as the benchmark has been in existence for less than a year.

Although the performance has slipped slightly within the last year, over a horizon of 1-3 years and beyond the fund is among the top performers in its category.

Product Label:

This product is suitable for investors who are seeking*:

• Short term income generation solution

• An equity fund that aims for low volatility returns by using arbitrage and other derivative strategies in equity markets.

NAV as on March 31, 2017 (|) 21.8

Inception Date December 30, 2006

Fund Manager Kayzad Eghlim,Manish Banthia

Minimum Investment (|)

Lumpsum 5000


Last declared YTM

Exit Load 0.25% on or before1M, Nil after 1M

Benchmark Nifty 50 Arbitrage Index

Modified Duration

Fund Benchmark


6.5

1

7.2

7

-

2.00

4.00

6.00

8.00

10.00


8.3

9

7.8

7

Portfolio:

The fund aims to have a controlled exposure to equity

with a view to have reasonable returns. The fund primarily focuses on large cap stocks and

32



%

8.7

4.59

3.17

3.08

3.01

2.8

2.78

2.73

2.71

2.56


CBLO Cash & Cash Equivalents



Housing Development Finance Corporation Ltd. -175D (30-Aug-17) Commercial Paper

ITC Ltd. Domestic Equities

Tata Capital Financial Services Ltd. SR-L OPT I 9.55% (01-Sep-17) Corporate Debt

Kotak Mahindra Bank Ltd. Deposits (Placed as Margin)

Axis Bank Ltd. Domestic Equities

ICICI Bank Ltd. Domestic Equities

Housing Development Finance Corporation Ltd. -364D (13-Oct-17) Commercial Paper

%

0.1

0.2

0.1

Idea Cellular Ltd.

DLF Ltd.

Tech Mahindra Ltd.

Whats In

%

0

0.1

0.1

Whats Out

Jet Airways (India) Ltd.

Ultratech Cement Ltd.

HCL Technologies Ltd.

You can view performance of other schemes being managed by the fund manager of this scheme on the following link:

http://www.icicipruamc.com/docs/default-source/default-document-library/fund-factsheet-for-mar270000ff41026ea9a3af27f6b7597bc2. pdf?sfvrsn=0

Data as on February 14, 2017; Portfolio details as on January -2017Source: ACE MF, ICICI Direct Research

selective participation in the initial public offerings.

The fund concentrates on generating reasonable returns w i t h l o w v o l a t i l i t y b y predominantly using equity derivative strategies. The Fund Manager may employ a combination of the following cash arbitrage and equity arbitrage strategies.

The fund has the flexibility of increasing its exposure to 35% in debt securities.

Among its equity portfolio the

Our View:

f u n d l o o k s p r i m a r i l y a t established names in the large cap space. It also takes exposure to corporate bonds, unlike some of the peer group offerings. Its level of commercial paper holding is higher compared to other arbitrage funds, also featuring ~0.7% G-Sec holding.

ICICI Pru Equity Arbitrage Fund has a proven long term track record. In the prevai l ing conditions where markets are not range bound investors looking at arbitrage category can consider this fund.

33


Kotak Equity Arbitrage Fund

Fund Objective:T o g e n e r a t e c a p i t a l appreciation and income by predominantly investing in arbitrage opportunities in the cash and derivatives segment of the equity market, and by investing the balance in debt a n d m o n e y m a r k e t instruments


Key Information:

Product Label:

This product is suitable for investors who are seeking*:

• I n c o m e f r o m a r b i t r a g e opportunities in the equity market

* Inves tment i n a rb i t r age opportunities in the cash & derivatives segment of the equity market.

Performance:The fund has delivered 6.3% return over 1 year and 8.14% annualised return over 3 years. The performance of the fund has not been compared to the benchmark (Nifty 50 Arbitrage Index) as the benchmark has been in existence for less than a year.

Although the performance has slipped slightly within the last year, over a horizon of 1-3 years and beyond the fund is among the top performers in its category.

NAV as on March 31, 2017 ( ) 23.4

Inception Date September 29, 2005

Fund Manager Deepak Gupta

Minimum Investment (`)

Lumpsum 5000


Last declared YTM

Exit Load 0.25% on or before30D, Nil after 30D

Benchmark Nifty 50 Arbitrage Index

Modified Duration

`


Fund Benchmark

6.3

1

7.3

2

-

2.00

4.00

6.00

8.00

10.00


8.1

4

7.6

7

34



Portfolio:Kotak Equity Arbitrage Fund looks to capture the spread or a rb i t r age oppor tun i t i es be tween the cash and derivative segments.

The fund also holds ~9.4% in high rated corporate debt while the majority of the portfolio is held in equities and cash equivalents.

%

70.5

5.34

4.15

4.11

3.26

3.25

3.01

2.84

2.44

2.07

Mahindra & Mahindra Financial Services Ltd. SR-CX2015 (23-Oct-17) Corporate Debt


Housing Development Finance Corporation Ltd. SR-Q-006 7.67% (23-Nov-17) Corporate Debt

Kotak Mahindra Prime Ltd. SR-I (28-Jul-17) Corporate Debt

Reliance Industries Ltd. Domestic Equities


Axis Bank Ltd. Deposits (Placed as Margin)


Net Current Asset Cash & Cash Equivalents

Kotak Floater-ST(G)-Direct Plan Domestic Mutual Funds Units

IndusInd Bank Ltd. Deposits (Placed as Margin)

%

0.1

0.1

0

Whats In

Biocon Ltd.

Canara Bank

Indian Oil Corporation Ltd.

%

0

0.4

0

Ultratech Cement Ltd.

HCL Technologies Ltd.

Havells India Ltd.

Whats Out

Our View:

Kotak Equity Arbitrage Fund is one of the few funds in the category to hold Mutual Fund units. Its major equity holdings are primarily in the large cap space, however there is p r e s e n c e o f m i d c a p companies as well.

The fund is a solid option for investors due to its long term track record of consistent performance.

You can view performance of other schemes being managed by the fund manager of this scheme on the following link:

http://assetmanagement.kotak.com/fact-sheet

35



Performance of other schemes managed by the fund manager Yogik Pitti

16.56 11.11 11.87IDFC Sensex ETF -- -- --

S&P BSE Sensex 14.96 9.78 11.44

IDFC Arbitrage Plus Fund - Reg(G) 6.50

CAGR Returns %Fund Name

1 year 3 year 5 year

6.83 7.36Crisil Liquid Fund Index 7.11 8.04 8.36

IDFC Nifty ETF -- -- --

NIFTY 50

Performance details of other schemes managed by the concerned fund managers: 1. IDFC Arbitrage Fund

2. ICICI Pru Equity Arbitrage Fund

ICICI Pru Nifty Next 50 Index Fund(G)

NIFTY 100

ICICI Pru Nifty iWIN ETF

NIFTY 50

ICICI Pru Sensex iWIN ETF

S&P BSE SENSEX

ICICI Pru Blended B (G)

Crisil Liquid Fund Index

Performance of other schemes managed by the fund manager - Kayzad Eghlim


13.73

18.55 11.01 11.60

23.07 19.15

8.04

ICICI Pru Nifty 100 iWIN ETF 21.59

NIFTY NEXT 50 33.92

13.12 10.30 9.34

7.11

ICICI Pru Blended A (G) 6.27 7.44

Crisil Liquid Fund Index 7.11 8.04

8.36

18.08 11.08 12.54

16.88 9.77 11.21

8.36

8.65

34.70 23.00 19.05

20.87

19.96

12.78

12.25

12.72

Fund NameCAGR Returns %

Top 3 Performing Schemes :

Bottom 3 Performing Schemes :

Note : The schemes may or may not have been managed by the same Fund Manager since its inception

Note: Kayzad Eghlim manages 11 other schemes of the concerned Mutual Fund

ICICI Pru Balanced Advantage Fund (G)

I-Sec Li-Bex

ICICI Pru Long Term Plan

Crisil Composite Bond Fund Index

ICICI Pru Income Opportunities Fund (G)

Crisil Composite Bond Fund Index

ICICI Pru Regular Gold Savings Fund (G)

Performance of other schemes managed by the fund manager - Manish Banthia

Fund NameCAGR Returns %


17.94 14.70 15.48Crisil Balanced Fund - Aggressive index 16.10 11.36 11.12ICICI Pru Gilt Invest - PF (G) 13.76 13.27 10.36

-- -- --

1.61 -1.03 -0.51

-0.28 -0.08 0.30

13.58 13.24 11.88

11.09 11.26 9.45

10.21 10.91 9.84

Top 3 Performing schemes :

Bottom 3 performing schemes :

Gold-India

ICICI Pru Gold iWIN ETF -2.51 0.17 -0.69

Gold-India -0.28 -0.08 0.30

11.09 11.26 9.45

-


Note : Manish Banthia manages 8 other schemes of the concerned Mutual Fund

Performance of other schemes managed by the fund manager

Kotak World Gold Fund(G) 9.69 12.52 -22.71

FTSE Gold Mines -- -- --

Kotak Equity Savings Fund(G) 11.10 3.09 --

Nifty 50 Arbitrage Index, Nifty 50 -- -- --

Kotak Global Emerging Market Fund (G) 19.94 -7.66 28.04

MSCI Emerging Market Index -- -- --

Bottom 3 performing schemes :

Kotak Banking ETF 33.77

NIFTY PSU BANK 44.00

CAGR Returns %

Kotak Tax Saver Scheme(G) 29.78 23.28 16.68

Nifty 500 23.91 15.22 13.61

Fund Name1 year 3 year 5 year

Kotak PSU Bank ETF 44.42

NIFTY BANK 32.85 18.93 15.9745

9.30 2.23

8.79 0.82

Top 3 performing schemes :


Note: Deepak Gupta manages 12 other schemes of the concerned Mutual Fund

3. Kotak Equity Arbitrage Fund

QUIZ TIME

1. Loan taken out for purchase of the second house should be treated as bad debt. True or False

2. ______________ & _______________ carry highest interest rate among all types of loan.

3. Special loans are offered for doctors at concessional rates. True or False

4. Value of household appliances ___________ over time.

5. A personal loan taken out to clear credit card balance is good loan. True or 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 March 2017 quiz are:

1. Interest paid towards home loan up to Rs. 2 lakh is eligible for tax deduction under section __________.

A. 24

2. Donations made towards prescribed causes and institutions are eligible for tax deductions. True or False

A. True

3. Person with severe disability is liable to claim __________deduction u/s80U.

A. Rs. 1.25 lakh

4. If the cost of health insurance of a parent is split between two children, only one child can claim tax benefit. True or False

A. False

5. 40% of the maturity proceeds generated from ________ are exempt from tax.

A. NPS (National Pension System)

Congratulations to the following winner for providing correct answers at the earliest

Uma Rengaswamy, B S R Murthy, Amit K Singh


37

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

31-Mar-17 28-Feb-17 Change (%)

CNX Nifty 9173.8 8880.0 3.3%

CNX Midcap 17197.2 16480.0 4.4%

S&P BSE Sensex 29620.5 28743.3 3.1%

S&P BSE 100 9494.4 9190.7 3.3%

S&P BSE 200 3991.9 3858.8 3.4%

S&P BSE 500 12631.9 12177.0 3.7%


Dow Jones 20,663.2 20,812.2 -0.7%

S&P 500 2,362.7 2,363.6 0.0%

Nasdaq 5,911.7 5,825.4 1.5%

FTSE 7,322.9 7,263.4 0.8%

DAX 12,312.9 11,834.4 4.0%

CAC 40 5,122.5 4,858.6 5.4%

Nikkei 18,909.3 19,119.0 -1.1%

Hang Seng 24,111.6 23,740.7 1.6%

Shanghai Composite 3,222.5 3,241.7 -0.6%

Taiwan Weighted 9,811.5 9,750.5 0.6%

Straits Times 3,175.1 3,096.6 2.5%


S&P BSE Auto 22,012.7 21,486.1 2.5%

S&P BSE Bankex 24,420.8 23,482.4 4.0%

S&P BSE FMCG 9,270.3 8,800.0 5.3%

S&P BSE Healthcare 15,312.4 15,385.0 -0.5%

S&P BSE Metals 11,804.5 11,893.1 -0.7%

S&P BSE Oil & Gas 13,563.6 13,534.5 0.2%

S&P BSE Power 2,274.4 2,195.8 3.6%

S&P BSE Realty 1,600.0 1,495.1 7.0%

S&P BSE Teck 5,771.5 5,765.4 0.1%

38

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Mar-17 Change (bps)Feb-17

Corporate Bond Yields (in %) Change (bps)Mar-17 Feb-17

Commercial Paper (CP) Rates (in %) Change (bps)Mar-17 Feb-17

Treasury Bill (T-Bills) Yields (in %) Change (bps)Mar-17 Feb-17

Volatility Index (VIX)

31-Mar-17

VIX 12.42 13.79 0%

28-Feb-17 Change (%)

10 year 6.67 6.87 -20

5 year 6.75 6.80 -5

3 year 6.56 6.58 -1

1 year 6.26 6.34 -8

AAA 10 year 8.07 8.02 5

AAA 5 year 7.73 7.63 10

AAA 3 year 7.45 7.32 13

AAA 1 year 7.15 6.99 16

AA 10 year 8.35 8.32 4

AA 5 year 8.08 8.06 2

AA 3 year 7.93 7.79 14

AA 1 year 7.52 7.48 3

12 Months 7.24 7.34 -10

6 Months 6.96 7.06 -10

3 Months 6.61 6.84 -23

1 Month 6.50 6.58 -8

91D TB 5.78 6.10 -33

182D TB 5.87 6.16 -28

364D TB 6.10 6.21 -11

39

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

Countries 31-Mar-17 28-Feb-17 Change in bps

US 2.39 2.39 (0)

UK 1.14 1.15 (1)

Japan 0.07 0.06 1

Spain 1.65 1.66 (0)

Germany 0.33 0.21 12

France 0.97 0.89 8

Italy 2.32 2.08 24

Brazil 10.06 10.24 (17)

China 3.29 3.33 (4)

India 6.68 6.87 (19)

MF Investment Mar-17 Feb-17 YTD

Equity 2368 1855 53603

Debt 40085 38627 321476

FII Investment Mar-17 Feb-17 YTD

Equity 33782 10485 55104

Debt 26094 5980 -9633

Items Weights(%) Jan-17 Feb-17 Mar-17

Food&bev. 45.86 1.37 2.39 2.46

Pan,tob& intox. 2.38 6.36 6.25 6.23

Cloth & Foot 6.53 4.71 4.38 4.60

Housing 10.07 5.02 4.90 4.96

Fuel & light 6.84 3.34 3.90 5.64

Misc. 28.31 4.98 4.79 4.78

CPI 100 3.17 3.65 3.81

Weights Mar-16 Feb-17 Mar-17WPI 100.0 -0.45 6.55 5.70Primary Articles 20.1 2.97 5.00 4.63Fuel & Power 14.9 -8.30 21.02 18.16Manufactured Goods 65.0 0.13 3.66 2.99

40

PRIME NUMBERS

Commodities

Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research


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 March 31, 2017

Debt Funds Returns (in %)

Returns as on March 31, 2017

Tenure Liquid Funds Short-termincome funds

Ultra short-term funds

Long-termincome funds

Gilt funds

Index of industrial production (IIP) Sector-wise growth rate (%)

Currencies and CommoditiesCurrencies

Categories 28-Feb-17 31-Jan-17 16-Dec-16 Weight(%)Mining 3.3 5.3 5.5 14.2Manufacturing -2.0 2.9 -1.7 75.5Electricity 0.3 3.9 6.3 10.3

31-Mar-17 28-Feb-17 Change (%) StatusUSDINR 64.85 66.83 3.0% AppreciatedEURINR 69.30 70.42 1.6% AppreciatedGBPINR 80.92 82.42 1.8% AppreciatedAUDINR 49.57 51.14 3.1% AppreciatedCHFINR 64.83 66.16 2.0% AppreciatedJPYINR 0.5801 0.5872 1.2% AppreciatedCNYINR 9.416 9.711 3.0% Appreciated

31-Mar-17 28-Feb-17 Change (%)Crude ($/barrel) 52.8 55.6 -5.0%Gold ($/ounce) 1,249.4 1,248.3 0.1%

6 months 7.54 8.84 6.24 7.191 year 26.27 33.03 21.75 25.213 year 20.36 30.04 15.76 19.265 year 17.08 24.41 14.58 16.84

6 months 6.08 6.81 6.71 5.96 6.55

1 year 6.75 9.00 7.91 10.23 11.80

3 year 7.77 8.95 8.34 10.04 11.17

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