icici dec 16 issuecontent.icicidirect.com/moneymanagermagazine/december_2016.pdf · here we give a...

Shilpa KumarMD & CEO

ICICI Securities Ltd.

The end of the year is always a

good time to pause and reflect on

the happenings of the past 12

months. Equally, the beginning of

the New Year gives us a chance to

translate these reflections and

learnings into planning for the

future.

2016 has certainly been a year of

many defining moments. Brexit,

the US elections and geopolitical

events in the Middle East

highlighted the ever present

volatility in a world that is anyway

experiencing a prolonged period of

slow growth and cheap money. It

also continued to highlight the

positives of the Indian economy

which has seen cont inued

i m p r o v e m e n t i n k e y

macroeconomic factors like GDP growth, lower inflation, and lower

current and fiscal deficits. More importantly, this year saw significant

structural changes that can have a long term positive impact on the

economy: the setting up of the Monetary Policy Committee, the

Bankruptcy legislation, the GST bill, etc. Demonetisation capped off

this eventful year, impacting every part of and every person in the

country.

Clearly, these are events that will have an impact on our personal

finances as well.

Let me briefly describe how the latest event, demonetization, will have

considerable long term impact on our personal finance. To start with,

the move paves way to an increasingly cashless society, increasing the

efficiency with which transactions are made. It will also mean more

savings get channelled through the banking system, bringing more

funds to the formal economy and this can have a multiplier effect on the

1ICICIdirect Money Manager December 2016

economy. The government will also find it increasingly easier to

monitor, control and use resources better and plug leakages both in

their capital spending as well as subsidy distribution. All this will lead to

the lowering of interest rates in the long term.

From a personal finance point of view, it will change the way we save. It

will accelerate the trend of the movement of our savings and

investments to financial assets like stocks, mutual funds and away from

physical assets like real estate and gold.

The global low interest rates environment, which is likely to stay, will

also have an impact on our investments strategy. Low interest rates are

beneficial to borrowers at the cost of investors. So your loans may get

cheaper as the trend continues but returns on fixed deposits will

reduce. In an environment like this, as an investor, you may need to re-

look at the current asset allocation strategy and perhaps think of an

appropriate allocation towards equity.

As the year draws to a close, it is advisable to review your asset

allocation against the target you had. This is the ideal time to re-balance.

If you are not aware of the asset allocation that is right for you, I would

advise you to get your financial planning done. Financial planning

includes evaluating your goals, your present assets and future income

to chart an investment strategy that meets your risk and return

objectives. This is specifically important in light of these significant

economic events.

Take this opportunity to also review your insurance requirement both

for life and health. These are critical yet ignored part of your finances,

which can negatively impact your financial plan. And last but not the

least, do prepare a Will for your existing wealth to ensure that you

prepared for any eventuality.

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. Give us an

opportunity to serve you, walk into any of your neighbourhood

Financial Superstore and talk to us.

2

The news that impact the country has a direct or indirect impact on our finances. Everything from tax-reforms to rupee's value against US dollar is important in shaping our financial being in some manner. Which makes it important to know and understand these events and keep a track of the most crucial ones.

So as 2016 is drawing to a close it can be a good idea to revise such chapters that impacted our money management decisions in last twelve months. Planning future economic plans is a lot easier when we understand factors that are responsible for current state of our personal finance.

Our December issue is a recap of five important events that took place in 2016. Here we give a brief glimpse of 'important 5s' which left traces on an average Indian's personal finance. Did they affect our long-term financial plans or influenced our daily transactions? Should investors revamp their asset allocation or these events will produce positive returns in long run? We talk about such queries and more of its kind in our latest issue.

Moreover, in talk with Mr. Rajeev Thakkar - CIO & Director, PPFAS Mutual Fund this month we present an expert's perspective on current investment scenario. His take on investor's ideal choices during volatile market and weak stock prices is worth a read. He further explains how demonetization has touched stock market and what investment strategy one should apply to maintain personal economic balance.

This month's issue is also offering updated Mutual Fund Top Picks and Equity Portfolio to enlighten our investor-readers. The data is revised by our resourceful team of financial experts. So read ahead and stay updated. Do share your feedback at [email protected] and let us know your thoughts and opinions on our edition.

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

ICICIdirect Money Manager December 2016

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:TCS & HDFC Bank.....................................................................5

Flavour of the Month

The financial highlights of 2016 which made difference to our

personal finance are worth a read. Major five financial affairs of this

year and how they developed into influential events is what we will

discover in this month's theme article................................................. 13

Tête-à-Tête

Mr. Rajeev Thakkar - CIO & Director, PPFAS Mutual Fund, gives his

expert view on current investment scenario. He talks about

demonetization, volatile stock market times, equity mutual funds and

many more things. Read on to find out…............................................25

Ask Our Planner

Our financial expert answers your queries that make significant

difference to your investment journey. Read it and know how your

investment choices affect your portfolio............................................. 28

Mutual Fund Analysis

It's time to remain constructive in balanced funds and maintain

stability in the portfolio. Here are three funds to consider................. 31

Equity Model Portfolio...............................................................................46

Quiz Time.................................................................................................52

Prime Numbers.........................................................................................53

4

Metal, oil & gas sectors see sharpest rally in seven years in CY16

Oil & gasand metal sectors are set to post their biggest yearly gain since 2009, when they had rallied 73 per cent and 234 per cent, respectively. Thus far in 2016, both indices have gained 26 per cent and 40 per cent, respectively, compared with a 0.98 per cent rise in the benchmark – the S&P BSE Sensex till December 19. According to analysts at Antique Stock Broking, the Indian IT industry after slowdown in revenue growth in CY16, is witnessing positive tailwinds from the improving US economy.

Courtesy: Business Standard

In order to further incentivise electronic transactions, the government on Wednesday announced that it has directed all public sector banks to lower the fees they charge for various forms of digital transactions up to March 31, 2017. Transactions between 10,000 and less than 1 lakh attract a fee of 5, those between 1 lakh and 2 lakh attract a fee of 15, and the fee for transactions above 2 lakh is 25.

Courtesy: The Hindu

` ` ` ` ` `

` `

Banks asked to lower charges on digital transactions above 1,000`

Snapdeal to now deliver cash at your doorstep

The e-commerce player will be using the cash it receives through Cash on Delivery (CoD) to operate its "Cash@Home" service. Users can request for a maximum of 2,000 per booking and use any bank's ATM card to pay for the cash. A nominal fee of 1 will be charged as convenience fee by the company, which will be paid through FreeCharge or through a debit card at the time of booking the order. Interestingly, customers are not obliged to order anything else from Snapdeal to access this facility.

Courtesy: The Economic Times

``


India is the seventh wealthiest country in the world. It figures among the 10 wealthiest countries, with a total individual wealth of $ 5,600 billion. According to a report by New World Wealth, India is ranked seventh, ahead of Canada ($ 4,700 billion), Australia ($ 4,500 billion) and Italy ($ 4,400 billion), which came in at 8th, 9th and 10th slots, respectively.

The U.S is the wealthiest in the world in terms of total individual wealth held ($ 48,900 billion) while China stood second and Japan third.

Courtesy: The Hindu

India on 10 wealthiest countries list, takes 7th spot

5

STOCK IDEAS


TCS – Ability to withstand challenges…

Tata Consultancy Services is an IT services, consulting and b u s i n e s s s o l u t i o n s organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS of fers a consul t ing- led, integrated portfolio of IT, BPS, infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery Model, recognized as the benchmark of excellence in software development. Part of the Tata group, India's largest industrial conglomerate, TCS has over 371,000 of the world's best-trained consultants in 45 c o u n t r i e s . C o m p a n y genera ted conso l ida ted revenues of US $16.5 billion for year ended March 31, 2016

TCS derives ~56% business f rom Amer ica , ~25 .6% revenues from Europe, 5.8% from India, ~10.2% from Asia Pacific and ~2.4% from Middle East & Africa (MEA). Among verticals, ~40.4% from BFSI, 13.4% from Retail &CPG,

Investment Rationale Moderating revenue growth led by cautious environment…

11.4% from Communication & M e d i a , 1 0 . 7 % f r o m Manufacturing, 7.6% from life-sciences & healthcare and rest from other verticals. During Q2FY17 topline was impacted by expected softness in discretionary spending in BFSI, especially in the US. Beside this, retail vertical weakness and postponement of India revenue came in as a negative surprise. Gloomy macro environment and Brexit event has resulted in a holding back in discretionary spending. Macro environment remains more volatile especially in BFSI (40.4% of revenue) & retail and CPG (13.4% of revenue) leading to a change in our dol lar revenues growth estimate. We now expect dollar revenue to grow 6.8%/ 9 . 0 % i n F Y 1 7 E / F 1 8 E , respectively. We believe TCS c a n w i t h s t a n d c u r r e n t challenges by way of its good execution capabilities, strong presence across geographies, verticals and service offerings along with investments in newer technologies and re-skilling employees to cater to digital transformation wave.


STOCK IDEAS

Strong operational performance despite headwinds…

Digital segment growing at a steady pace; now @16% of revenue…

At 26.0%, EBIT margins inc reased 90 bps QoQ weighed down by the absence of a wage hike, visa cost, better operational efficiency but offset by lower revenue growth and cross currency headwind (down 40 bps) and was above our 60 bps growth and 25.7% estimate. Attrition in IT services fell to 11.9% vs. 12.5% QoQ. Overall attrition also declined to 12.9% vs. 13.6% QoQ. Q1 gross hiring w a s 2 2 , 6 6 5 e m p l o y e e s including 11,884 trainees & 7,486 laterals while net hiring was 9,440 employees. Net hiring for H1FY17 was at 17676 v s . 1 5 9 6 4 i n H 1 F Y 1 6 . Management has earlier too mentioned that net hiring would pace marginally thereby leading to non-linear growth going ahead. Consequently, we have tweaked our margin estimates to 26.1% each in FY17E, FY18E due to better-than-expected margins in Q2FY17.

Digital contributed 16.1% to revenue vs. 15.9% in Q1FY17, up 1.5% QoQ with nine new

digital wins during Q2FY17. Traction is being witnessed in robo-advisory, digital wealth management and block-chain along with cloud enablement, IoT and big data technologies. Management has alluded that client spending is continuing in digital technologies but the c u r r e n t 1 6 % d i g i t a l contribution to revenue is growing at a much slower pace to offset the tradit ional segment. TCS has recently trained its employees in newer technologies along with embedding automation tools in each projects thereby leading to productivity gains through leveraging its Ignio platform too along with other measures.

We cut our estimates by 2-4% in FY17E & FY18E factoring in uncertainty due to a volatile macro environment and c u r r e n c y v o l a t i l i t y . Consequently, we estimate rupee revenue, PAT CAGR of 9.3%, 8.5% in FY16-18E (average 26.1% EBIT margins in FY16-18E), vs. 23.8%, 22.8% r e p o r t e d i n F Y 1 1 - 1 6 , respectively. We value TCS at 18x FY18E EPS of 144.7 to arrive target price of 2,600

Steady but slowing; maintain BUY

``


STOCK IDEAS

Stock Data

Key Financials

Valuations Summary

Key risks include:

Global macro environmentTC S d e r i v e s m a x i m u m revenue from US and Europe, so any macro volatility in respective economies could impact company's revenue growth

Currency volatalityTCS derives revenues in terms of currency from USD (56.92% of revenue), GBP (12%), EURO (8.16%) and others (22.9%) etc, any adverse currency movement could impact revenue and margin profile.

Net Sales 94,648 108,646 118,327 129,883

EBITDA 24,666 30,678 33,013 36,237

PAT 19,648 24,215 26,048 28,510

EPS (`) 100.3 123.2 132.2 144.7

` Crore FY15 FY16 FY17E FY18E

(x) FY15 FY16 FY17E FY18E

P/E 22.9 18.7 17.1 15.4

Target P/E 25.9 21.2 19.3 17.5

EV / EBITDA 17.4 15.8 14.5 13.0

P/BV 7.8 6.2 5.2 4.3

RoNW (%) 37.7 33.1 30.2 28.1

RoCE (%) 67.6 46.2 43.5 40.9

Market Capitalization 450,501.0

Total Debt 196.0

Cash 29,517.5

EV 433,668.7

52 week H/L ( ) 2740 / 2119

Equity capital 195.9

Face value ( ) 1

`

` `


STOCK IDEAS

ANALYST CERTIFICATION We /I, Deepak Purswani, CFA MBA (Finance), Tushar Wavhal, MBA, Deepti Tayal, MBA, 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 is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited

(ICICI Securities) is full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and

distribution of financial products. 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 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 Deepak Purswani, CFA MBA (Finance), Tushar Wavhal, MBA, Deepti Tayal, MBA, 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 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.


STOCK IDEAS

HDFC Bank –Preferred in this uncertain environment

Company Background

Investment Rationale Play not on

scale but core earnings-strategy to

stay with strong retail book

HDFC Bank's balance sheet

size stands at ~| 790000 crore

as on Q2FY17. It is the second

largest private sector bank in

terms of size but highest in

terms of market cap of ~ |

300000 c rore . The key

promoter is HDFC Ltd which

holds ~21% stake while FIIs

and public holds the balance.

The bank has wide distribution

network comprising of 4548

branches and 12,016 ATMs in

~2,596 cities / towns. HDFC

Bank is one of the top three

p l a y e r s i n a u t o l o a n s ,

commercial vehicles, personal

loans, cash management, and

supply chain management.

The bank's key strength

include its brand pedigree,

professional management,

distribution reach, high CASA,

clean book compared to peers,

and focus on profitability.

HDFC Bank, India's second

largest private bank, has

grown its balance sheet at 23%

CAGR to | 400000 crore over

FY07-13 maintaining its profit

growth of 30% CAGR to | 6726

crore . PAT growth had

moderated to 20% at | 12297

crore in FY16. Going forward,

we expect PAT to grow at

21.4% CAGR over FY16-18E to

| 18117 crore. It has 51.1%

etail (| 252409 crore) and 42%

wholesale loan book (| 208882

crore) in loan book of | 494417

crore as on Q2FY17. Within

retail (25% YoY growth),

personal loans, credit cards

and home loans grew higher at

4 0 % , 1 9 % a n d 1 8 % ,

respectively. Retail has 22% in

auto, 7% in CV/CE, 18%

personal loans, 13% home

loans (acquired) and 12% in

business banking. It enjoys

largest market share in credit

cards in industry at | 21336

rore book, which generally

fetches higher margins and

returns for a bank. I ts

acquisition of Centurion Bank

in FY08 also helped strengthen

its retail book. We expect it to


STOCK IDEAS

continue with higher credit

growth than industry at 22%

over FY16-19E to | 838114

crore and profit to sustain

similar trend with 22% growth.

We observe HDFC Bank has

strategised to dig deep in the

rural belt to expand markets

with >900 branches opened in

the last two years and >600 in

rural areas of Punjab, Gujarat

and other states. The bank has

a strong liability franchise with

CASA of 43% (in FY05-16) and

retail term deposit comprising

~85% of total deposit of |

546424 crore as on Fy16.

CASA and fee based income

from cross-selling continues to

grow on a rising presence in

remote locations. This has led

cost of funds to remain less

volatile, thereby enabling

l u c r a t i v e N I M > 4 %

consistently. We expect NIM at

~4.3-4.5% in FY17-19E with

focus on the high yield retail

segment.

Rural expansion drive to go long

way, operating leverage to be

seen…

Asset quality contained - GNPA at

1% due to seasoned credit book

Price for consistency to continue;

maintain BUY

GNPA and NNPA ratios have

been stable around 1-1.5% in

the last 25 quarters. Retail NPA

had risen just once in the Fy08

crisis to 2%. However, being a

seasoned portfolio, we factor

NPA and NNPA will be stable

~1% (| 8604 crore) and 0.5%

(| 4663 crore), respectively, by

FY19E.

Considering the

superior quality of balance

sheet & stable management,

we factor in 18% CAGR in NII,

22% in PAT in FY16-19E to |

22133 crore. RoA at ~1.9% is

one of the best in class. The

bank remains a portfolio stock

& premium valuation may

continue due to consistency in

performance. We maintain our

TP of | 1500 valuing at (3.6x

FY19E ABV). We maintain BUY.

We believe investors would

continue to prefer high quality

retail private banks owing to

their strong visibi l i ty &

consistency in earnings.


STOCK IDEAS

Key Financials

Valuations Summary

Stock Data

(` crore)

Key risks include:

E m e r g e n c e o f h i g h e r delinquencies… HDFC bank has been able to maintain a relatively clean loan book compared to its peers. H i g h e r t h a n e x p e c t e d delinquencies due to the loan m i x a n d s y s t e m - w i d e deterioration in the quality of retail assets may affect its

profitability and valuations.

The bank has consistently delivered above industry loan growth in the past. We expect it to continue. However, any major slowdown in expected asset growth could affect growth in profitability.

Substantial slowdown in loan growth

NII 27590 32332 38608 45674

PPP 21364 25194 303473 36826

PAT 12297 14840 18117 22132

EPS (`) 48.6 58.7 71.7 87.5

( Crore) FY16 FY17E FY18E FY19E`

P/E 24.1 20.0 16.4 13.4

Target P/E 30.8 25.6 20.9 17.1

P/ABV 4.2 3.6 3.2 2.9

Target P/ABV 5.3 4.6 4.1 3.7

RoE 18.2 18.9 20.2 21.8

RoA 1.9 1.9 1.9 2.0

FY16 FY17E FY18E FY19E

Market Capitalisation ( Crore) 299,467.0

GNPA (` Crore) 4,921.0

NNPA (` Crore) 1,493.0

NIM (%) 4.2

52 week H/L 1318 /929

Networth (` Crore) 80,557.0

Face value (`) 2.0

`


STOCK IDEAS

ANALYST CERTIFICATIONWe /I, Kajal Gandhi, CA, Vasant Lohiya, CA, and Vishal Narnolia, MBA, 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 Sebi registered Research Analyst having registration no. INH000000990. 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 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 orco-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 Kajal Gandhi, CA, Vasant Lohiya, CA, and Vishal Narnolia, MBA, 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 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 Kajal Gandhi, CA, Vasant Lohiya, CA, and Vishal Narnolia, MBA, 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.

13

FLAVOUR OF THE MONTH

Important financial events in 2016


Our personal finance is a

planned activity that is shaped

and affected by several factors.

If one has to review his annual

financial performance it is

necessary to take all the

elements occurred during that

year that influenced his finance

into consideration. The year

2016 turned out quite eventful

in terms of financial aspect.

Some decisions had direct

impact upon our personal

finance while some didn't.

As we step into a new year let's

take a look at some remarkable

episodes that took place in

2016 and how their occurrence

altered our personal finance.

Here's the list of few important

events that h ighl ighted

financial journey of this year.

Union Budget 2016-17 was

announced with the opening

1. Union budget 2016-17

remark that Indian economy is

growing steadily in spite of

l o p s i d e d g l o b a l

circumstances. Accelerated

GDP at 7.6% and declined CPI

inflation at 5.4% both indicated

much the same.

Healthcare, rural development

and infrastructure were the

primary targets of this year's

general budget. Although no

changes were made in existing

income tax slabs, some

relieving decisions were taken

to lift off the tax burden.

Individual tax payers whose

annual income is below Rs.

5lakh were extended the tax

rebate of Rs. 5,000 (which was

Rs. 2000 earlier). The House

Rent Allowance limit under

section 80GG of Income Tax

Act was also raised from Rs.

24,000 to Rs. 60,000 (Rs. 5000

every month.

While we are all set to welcome 2017 let's not forget it is important to take a look back before looking ahead. All important events that took place in the past twelve months were significant to our personal finance up to certain extent. Understanding their causes and how they affected our finance can help us build more constructive money management strategy for next year. What were the highlighters of 2016 and how they affected our personal finance? Read on to find out…..

14



First time home buyers were

given special privilege under

section 80EE. If the value of the

property is below Rs. 50 lakh

and loan amount taken is up to

Rs. 30 lakh, loan applicant can

avail deduction of Rs. 50,000,

in addition to existing tax

deduction of Rs. 1, 50,000 and

Rs. 2, 00,000 under section 80C

and 24 respectively.

Union budget 2016-17 focused

on encouraging business in

India. In order to promote

entrepreneurs, start-ups are

offered 100% tax exemption

up to 3 years. Rs. 500 crores

were allocated for women and

cand idates f rom SC/ST

category to help them set their

start-ups.

The surcharge on income tax

was increased from 12% to

15% for those whose annual

ncome is more than 1 crore.

Introduction of Swachh Bharat

Cess and Krishi Kalyan Cess

scooted service tax to 15%.

Which means for availing

facilities like restaurant meals,

movie theatres, hotel rooms

and other services specified by

the Government we will be

paying 15% service tax (which st

was 12.36% till 31 May, 2015).

Cars, cigarette products, gold,

diamond, jewelry, branded

garments, coal, aerated drinks,

a i r fares etc are some

important products that have

become costlier post budget

16-17. However, with new

changes in retirement funds

withdrawal of 60% of EPF

deposits, which was under EEE

(exempt-exempt-exempt)

category earlier is now taxable.

Heal thcare was another

important takeaway from this

y e a r ' s b u d g e t . T h e

government announced

National Health Protection

S c h e m e w h e r e i n e a c h

household is offered health

cover of Rs. 1lakh. Senior

citizens were offered additional

cover of Rs. 30,000. Emphasis

on opening Jan Aushadhi

stores to make generic

m e d i c i n e s a v a i l a b l e a t

reasonable costs was another

appreciative step taken by this

year's budget.

15



2. GSTIn August 2016, Goods and Service Tax (GST) bill was finally approved by both the h o u s e s o f Pa r l i a m e n t . Introduction of GST is meant to overthrow current complex structure of indirect taxes. A common consumer in India today pays multiple taxes such as Value Added Tax (VAT), state tax , exc ise , surcharge , entertainment tax etc. before consuming final service. GST is a blanket tax that will cover and simplify all these tax layers.

In current tax system cost of a product jumps at three levels – manufacturer, wholesaler and retailer. Let's take an example of a shirt. The manufacturer combines raw material cost, margin price and excise duty together and sell it to the

wholesaler. Wholesaler then adds his margin price and VAT (12.5% ) to this amount before selling it to the retailer. At this final stage retailer adds his share of profit margin plus VAT before displaying it in a shopping window. Thus price of the shirt is combination of all these double taxes and profit margins levied by middle parties.

How will GST work?GST, on the other hand is a d e s t i n a t i o n - b a s e d -tax.Meaning it is charged at consumpt ion l eve l and nowhere in the middle. Although GST implementation makes consumer the sole bearer of tax burden it will bring down the final price of product by eliminating tax layers.

Source: Reserve Bank of India report

16



Present Regime vs. GST Regime

S.

NOIssues Present Regime GST Regime

1. Broad scheme

There are separate laws for

separate levy. For e.g.

Central Excise Act, 1944,

respective State VAT laws.

There will be only one such law because

GST shall subsume various taxes as

specified above.

2. Tax rates

There are separate rates. For

e.g. Excise 12.36 % and

Service Tax 14%.

There will be one CGST rate and a

uniform rate of SGST across all states.

3 Cascading effect

This Problem arises because

credit of CST and many other

taxes not allowed.

This situation will not arise as CST

concept is being eliminated with

introduction of IGST.

4. Tax burdenUnder present scenario, tax

burden on tax payer is high.

Under this, tax burden is expected to

reduce since all taxes are integrated

which make it possible the burden to be

split equitably between manufacturing

and services

5.Cost Burden on

Consumers

Due to presence of cascading

effect, certain taxes become

part of cost.

As GST mechanism removes such effect

by providing credit, cost burden is

reduced.

6Concurrent

Power

At present, there is no such

power to both Centre and

State on same subject tax

matter

Both Centre and State are vested with

the power to make law on GST by virtue

of proposed Article 246A of the

Constitution

7. Compliance

Tax compliance is complex

because of multiplicity of

laws and their provisions to

be followed.

Tax compliance would be easier as only

one law subsuming other taxes need to

be followed

8.Transparent Tax

Administration

Presently, tax is levied at two

stages in broad manner i.e. 1.

When product moves out of

factory. 2. At retail outlet.

GST is to be levied only at final

destination of consumption and not at

various points. This brings more

transparency and corruption free tax

administration.

Source: CAKnowledge

What is in it for you?Current taxes put together

sums around 25-27% whereas

GST covers for subsumes

everything in 18-20%. Apart

from simplification of indirect

taxes GST will also help to

strengthen tax compliance.

Moreover, the lesser the tax

burden the lower will be prices

17



of services we consume.

Automobile services, movies,

dine-outs and FMCG products

(packed food, grocery, soft

drinks etc.) are likely to cost

lower i f GST sus ta ins .

However, services like online

shopping, medicines, telecom,

and real estate may become

costlier in GST regime.

What's the catch?Even if GST system looks

sorted and well-efficient to

boost economy, it will take

considerable time to see

noticeable changes in MRPs.

Actual implementation of GST

r e q u i r e s s u b s t a n t i a l

information-technology &

infrastructure support. There's

also the fear of rise in prices

from manufacturer or retailer

side to compensate for

minimal tax burden. VAT free

services will cost more post

GST.

t hOn December 7 , 2016,

monetary policy committee

decided to keep repo rate at

6.25 per cent. Repo rate is the

interest rate at which the

central bank, Reserve Bank of

I n d i a , l e n d s m o n e y t o

3. Repo cut

commercial banks. This rate is

decided by the monetary

authorities. It is their measure

to control inflation. When

inflation is rising central bank

increases repo cut to minimize

commercial banks' capacity to

borrow. This consequently

reduces money supply in the

economy. Result ing low

liquidity helps to beat inflation.

Since January 2015, the RBI

has cut the repo rate by 1.50

per cent*. This series of repo

cuts has led to fall of average

interest rate of banks by about

0.5%.

What changes now?As repo rate touches six-year

low at 6.25% banks are likely to

reduce interest rates on home

loan. Reduction in outflows

can establ ish extremely

p o s i t i v e b o r r o w i n g

environment. It will take some

time to see reflection of base-

rate cut in home loan EMIs for

exist ing borrowers; but

experts see this as a great time

for fresh borrowers. If the

paceof rate cut continues,

b o r r o w e r s a r e t o g a i n

maximum from the situation.

18



On a 9.50 per cent interest on a home loan of Rs 40 lakh for 15 years, the total interest burden can be reduced by Rs 1 lakh if the home loan rate also reduces by 0.25 per cent. Here's how much you can save on various loan amounts:

Source: The Economic Times

Existing borrowers?Existing home loan borrowers

can see positive impact of repo

cut by either reduction in

monthly installments (EMIs) or

loan tenure. This can be

availed of course if the loan

was taken on flexible interest

rate. Even a 0.25 reduction of

lending rate can bring down

loan tenure by 40 months if the

EMI is constant and your bank

a g r e e s w i t h s i m i l a r

adjustment.

The fall of lending rates also

makes options of balance

transfer more convenient than

earlier. If some competitor

bank is offering lower interest

rate there's a good opportunity

to foreclose loan at current

lender and transfer the balance

amount to another bank.

The repo rate may seem like a

core economic concept and

v e r y l i t t l e t o d o w i t h

layman'sfinance; but swings in

this rate over the period of 12

months has led to several

significant changes and thus

making it an important part of

this year's financial journey.

What is Brexit?In order to maintain economic

stability among European

nations post World War II an

integrated system named

E u r o p e a n U n i o n w a s

established. In 1993 almost

every European country

4. Brexit

19



merged with this entity. But

bulk immigration in mid-2000s

and global market crash of

2008 disturbed the economic

balance of EU members.

Severe situation in some

countries dragged fellow

members into European debt

crisis where wealthy countries

like The United Kingdom had

to bail out less wealthy EU

countries to settle their debts.

This entire series of events

constructed the possibility of

'British Exit'. Britain held a

referendum to decide whether

to stay in European Union or

withdraw from it. It became

politically and economically

ajor event in 2016. Markets

across the world saw some of

the worst fallouts post Brexit

referendum. British pound

dropped by more than 11%

against dollar which affected

many countr ies outs ide

European Union as well.

How is India affected? If Britain votes to step out of EU

and become an independent

economy Indian market, like

many other major economies,

will have to face new changes

(both positive and negative).

As global markets will tank,

sensex and nifty will fall in the

short-run. But he exit may pan

out right in long horizon.

Today, Indian companies

established in the UK can trade

their products anywhere in

Europe easily under European

free market system. But if

Brexit takes place this can

change India's attitude towards

Br i t ish market . India is

currently the second largest

source of FDI (Foreign Direct

Investment) for Britain. But

Britain, outside of EU, will not

make a very a t t rac t ive

investment market. This lack of

interest and investment will

force Britain to soften tax

breaks and regulations to

entice Indian investors.

Britain's exit will make trading

in Britain much easier than

current state as it will no longer

have to follow EU's complex

structure. It will also force India

to tie up with other EU

members to access European

market and thereby expand

Indian market's regime.

20



Source: The Financial Express

Further, the UK is Indians'

favorite location for higher

studies. Brexit may increase

our opportunities to study

there as Britain will no longer

be compelled to assign

scholarship to EU citizens. This

will free the UK's funds to make

m o r e o p e n i n g s f o r

scholarships and hence raising

our chances to take courses in

the UK.

Brexit will also impact Indian

GDP but in the long-run

markets are expected to

perform stable and strong,

s a y s S a c h d e v a . A .

Balasubrahmanian, CEO, Birla

Sunlife MF. Many experts are of

an opinion that investors need

not to worry over such short-

term volatility. Brexit may take

some time to reflect positively

on investments but holding

o n t o i n v e s t m e n t s a n d

investing further is the wisest

choice for an investor as per

them.

On the downside, rupee will

certainly see slope due to

British pound's movement

against dollar. Prices of gold,

electronic goods, fuel are likely

to increase with dollar rise.

Consequently, Indian exports

will become competitive.

British tourists will also find it

difficult to travel to India with

weak British currency which

can further harm our forex

income from tourism. Textile

and clothing sectors which are

overexposed to EU and British

market may also suffer post

Brexit. Although disintegration

will simplify trading structures,

21



Indian companies will have to

a p p r o a c h t w o m a r k e t s

separately -Britain and EU, and

thereby increasing the costs.

On November 8, 2016 a radical

move by Indian Government

stunned large number of

Indian population. Banning of

Rs.500 and Rs.1000 notes as

legal tender threw majority of

Indians off balance. The step

originally taken to root out

black wealth from country

certainly made highlight of the

year.

500 and 1000 notes constituted

over 85% of total circulation

when demonetization was

announced. The overnight

banning of widely circulated

notes resulted into chaotic

response across the nation.

However, the advantages of

demonetization cannot be

overlooked.

Apart from tracking black

money, this step is said to be

impactful to bring down

terrorism rate and money

laundering incidents. The

d i s c l o s e d i n c o m e a n d

deposited amount in banks

5. Demonetisation

means increased tax revenue

for the government which can

be used for public good and

development.

In short-run demonetization

may cause inconvenience,

shortage of liquidity, poor

demand and consumption.

However, in longer term it can

accelerate tax revenues,

g o v e r n m e n t c a p i t a l

expenditure and digitalization

in India.

Lessons from demonetization

Make and follow budgetThe first and most important

lesson demonetization taught

us about personal finance is

always stick to budget. Don't

wait for crisis or crunch to

spend carefully. A lot of people

had to priorities critical spends

like bills, medical, investments

during the cash crunch.

Discretionary expenses clearly

had to be done away with. Lack

of l iquidity pointed out

importance of saving and

budgeting for us.

Invest. Don't just saveSaving cash in physical form

brought most of the people in

bank queues. Keeping an

22



emergency fund ready at

home in cash form is wise, as

long as there's a limit. Instead

of stashing money, putting this

in a short-term investment

vehicle would have been both

value-appreciative and time-

s a v i n g ( c o n s i d e r i n g

demonetization scenario).

Digitalize your financeThe demonetization drive

proved less problematic for

those who were aware and

comfortable with onl ine

transactions. Use of mobile

wallets and internet banking

saved a lot of time & efforts.

Even use of plastic money

(debit/credit cards) balanced

out liquidity crisis for some.

Impact on investmentsD e m o n e t i z a t i o n w a s

immediately followed by

sudden increase in debt prices

as banks started to buy

g o v e r n m e n t b o n d s t o

channelize load of cash

entered through publ ic

deposits. The result was lower

yields which boosted bond

prices & made long-term bond

funds and tax free bonds hero

investments. One drawback of

excess deposits in bank was

Fixed Deposit (FD) rate cut.

Increased liquidity and lack of

credit pick up in market has

forced banks to reduce

interestrates on FDs. Major

players in banking industry,

such as SBI, HDFC Bank, IDBI

Bank have already decided to

bring down their FD rate.

Equity market has offered

value buying opportunity for

long-term investors post

demonetization. Experts say

that demonetization drive will

benef i t o rgan ized/ l i s ted

companies and thus make

equity a lucrative asset for

long-term investors. Impact of

squeezing cash on equity

market is just for time being

and in long run, equity can

manage to give healthy

returns.

In the immediate aftermath of

demonetization gold prices

saw a sudden hike. The yellow

metal's price shot 3-year highs

due to extravagant demand.

B u t a s g o l d h a s

underperformed equity and

debt assets in the long-term

thus it is recommended to

allocate 5-10% of investment

portfolio to this asset.

23



Immediate hike in gold pricesSource: The Economic Times (Compiled by ETIG Database)

In order to channel overflow of depos i t s rece ived pos t demonetization, banks have started to lower lending rates. This will not only ease liquidity but also help banks to manage big deposits. Lower interest rates, all other things being same, can in fact give stimulus to Indian economy. But the flipside here is, lack of new

currency can restrain bank's lending movement.

More changes and financial updates are yet to come in 2017 but it is always good to stay updated with past events that affected our personal finance. Knowing what goes around our financial world can certainly help to maintain our financial fitness.

How Demonetization Impacts Your Loans And Investments?

Mutual Funds will do wellIn the long term, the mutual fund industry, will benefit from scrapping of 500 and 1,000 rupee notes. Banks will soon reduce the fixed deposit rates. Some banks have already reduced fixed deposit rates. With fixed deposits offering less interest, citizens will shift money to mutual funds, to get returns more than inflation. Investments in mutual fund schemes, will increase. When interest rates are falling in the economy, debt mutual funds do well. Many debt mutual fund schemes, have given more than 2% returns in a week. This could continue for some time.

Good equity mutual funds, invest in fundamentally strong stocks. Stocks with good fundamentals, do well in the long term. With stock markets falling due to demonetization uncertainty, you can invest in good equity

24



mutual funds, at a low price. Expect to get good returns, from your equity mutual funds, in the long term.

Bank FD rates will go downBanks are offering low interest on FD's. Why are banks reducing fixed deposit rates? After scrapping of 500 and 1,000 rupee notes, citizens are depositing money with banks. In fact…banks are getting a lot of deposits from citizens. Most of these deposits are in savings bank accounts. Now banks have a lot of money to lend to you and other citizens. Banks pay very less interest (about 4% a year), on the money you and other citizens, deposit in the savings bank account. With banks having lots of money to lend, they can easily cut interest rates on fixed deposits. Why should the bank offer you and other citizens, high interest on fixed deposits, when they get money easily through savings bank accounts?

If you are a senior citizen, invest money in senior citizen savings scheme (SCSS). Interest rates on SCSS could fall down, but expect higher returns than bank fixed deposits. Small savings schemes like PPF and NSC, are known to give higher returns than bank fixed deposits.

Should you consider tax free bonds? You can invest money in tax free bonds, which give 6% return, with no lock-in period. If you fall in the higher tax bracket, this is an excellent investment. Interest you earn on tax free bonds, is not taxed. However, interest you earn on FD's is taxed.

Your car loan and home loan EMI's could fallAfter the scrapping of 500 and 1,000 rupee notes, citizens have lined up to deposit money in banks. Most of this money is deposited in savings bank accounts. Banks pay you only 4% interest on savings bank accounts, per year. For banks, money collected through savings bank accounts, are low cost deposits (they don't have to pay much interest on them). Now banks have a lot of money to lend.

With banks collecting so much money through savings bank accounts, they don't really need your fixed deposits. Why should banks pay 7-7.25% a year on FD's, when they have collected lots of money through SB accounts at 4% a year? Now many banks are cutting interest rates offered on FD's. This is a positive sign and soon lending rates could go down. With banks paying very little interest to you and other citizens, as most deposits are coming through savings bank accounts, banks can easily lend at lower rates. Expect your EMI's on car and home loans to go down, in the next 3 to 6 months.

Yes, the Government has scrapped 500 and 1000 rupee notes. It is your duty to find out the impact of demonetization, on your investments and loans. Be Wise, Get Rich.

- Mr. C S Sudheer, Founder & CEO, IndianMoney.com

25

Tête-à-tête

Investors should use weakness in stock prices as good entrypoints into the markets

It is expected that the December 2016 and March 2017 quarter's results for companies will be weak. It is to be noted that an investor's asset allocation is paramount and demonetization is not a reason to go overweight or underweight on equities, says Rajeev Thakkar - CIO & Director, PPFAS Mutual Fund in an interview with ICICIdirect Money Manager. There are many attractive investment opportunities abroad which get missed by Indian investors, he adds. Excerpts:


Q.

A.

Can you please give us a brief of

your investment strategy in equity

mutual funds?

Our equity strategy is to look

for attractive opportunities

across market capitalisation,

sectors and geographies. We

focus on owning companies

where the management is

good, where the business is

attractive and where things do

not change very rapidly. Finally

we look for an attractive price

on the stock to make a

purchase. Having made a

purchase, we would typically

own the company for a long

period of time.

This evens out periodic moves

on account of political events,

interest rate cycles, monsoon

related economic impact and

so on. Hence our main focus is

in company specific and

industry specific factors rather

than macro events.

How will demonetization

affect the stock market? What

should investors do?

D e m o n e t i z a t i o n i s

something that does not

usually happen in an economy.

While things like rise and fall in

interest rates, inflation, tax

changes etc. happen with

s o m e r e g u l a r i t y ,

demonetization is a one off.

Given i t unique nature,

economists and markets are

Q.

A.

Rajeev Thakkar

CIO & Director,

PPFAS Mutual Fund

26

Tête-à-tête


grappling for answers as to its

impact.

In the near term, we have

already seen volume declines

being reported across sectors

like FMCG, Auto, Consumer

Durables etc. However the

main question that people are

seeking an answer to is

whether this is a 1 - 2 month

phenomenon or is the impact

going to be longer.

It is important to realise that the

impact will not be uniform

across sectors. Sectors like

FMCG which are daily need

items are expected to bounce

back faster as compared to

discret ionary i tems l ike

Consumer Durable and Auto.

Again, organised players are

expected to benefit while the

unorganised players will see

an adverse impact. For

example, organised retailers

having capability to accept

credit and debit cards saw

sales increase while cash

dependent retailers were

struggling to do business.

There will be some knock on

effects on the economy as well

g i v e n t h a t g r o w t h ,

employment etc has slowed

down and there will be some

lead time required to come

back to speed again. It is

expected that the December

2016 and March 2017 quarter's

results for companies will be

weak. Investors should use

weakness in results and stock

prices as good entry points

into the markets. Again it is to

be noted that an investor's

asset allocation is paramount

and demonetisation is not a

reason to go overweight or

underweight on equities.

What is your advice to short-

term investors in terms of equity

mutual funds?

Equity as an asset class is not

well suited for short term

investors. Short term investors

would be best served by fixed

income securities and mutual

funds.

What is your view on the debt

m a r k e t s p o s t t h e r e c e n t

developments?

Given the steep rise in bank

deposits there were a lot of

expectations of a lower interest

rate regime. However given

the fact that crude oil prices are

on the rise, the US Fed has

increased rates and has guided

Q.

A.

Q.

A.

27

Tête-à-tête


for more rate hikes in the future

and the fact that RBI has held

interest rates has given a pause

to the interest rate declines in

India. The only factors positive

for rate declines in India are

subdued inflation and the

economic s lowdown on

account of demonetization.

On balance, my view is that

interest rates should move in a

range and the big up or down

moves may not happen soon

unless something materially

changes.

SIP route or lump sum, which

mode would you recommend? And

why?

Most people have regular

income and savings. For these

people, SIP is the obvious

choice. SIP matches their cash

flows as well as tunes out the

volatility in the markets. SIP is

such a good tool that even

those with lump sum cash

flows should make use of SIP /

STP to average out the

purchase price. This reduces

the fear of sudden drops in

stock prices and is a huge

confidence boosting measure.

Q.

A.

Q.

A.

Which investment strategy can

stand firm against current market

volatility?

Regular savings through

SIPs obviously help against

volatility. However they are not

enough to guard against

volatility. A good investment

plan includes various asset

classes as per the risk profile

and financial goals. Having an

adequate mix of equity, debt,

retirement savings, primary

residence as an asset, risk

covers and so on goes a long

way in addressing the volatility

issue.

One factor that is most often

missed and which can help

address the volatility issue is

global diversification. India is

only about 4%-6% of the

global economy. There are

many attractive investment

opportunities abroad which

get missed by Indian investors.

Having investments in global

equities apart from Indian

equities is a great way of

reducing the portfolio volatility.

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

28

ASK OUR PLANNER


How your investment choices affect your portfolio

Q.

A.

My savings under Section 80C barring NPS is Rs.1.5lakh. From an earlier response from you I understand that investing in NPS under 80CCD (1b) is beneficial. However, I wou ld l i ke to understand the below points on this scheme.a) If I invest 50,000 this year,

should I invest the same amount every year?

b) How much return can I expect and when?

c) Can I withdraw the invested amount before the term ends?

d) At the end of term will the returns be taxed? If yes, how much?

The response to your queries is as below:

a) Rs.50,000 is the maximum limit of deduction available under Section 80CCD (1b) in NPS Tier I account. You can invest a higher / lower amount a l s o a n d t h e r e i s n o requirement to invest the same amount every year. However, you should invest a minimum amount of Rs.6,000 every year into your NPS Tier I account.

b) T h e r e t u r n s a r e n o t guaranteed and are market

linked. The returns delivered by the funds over the last 5 years are in the range of 11 13% p.a. The NPS matures by the time you turn 60 years of age. At maturity, you will be able to withdraw a maximum of 60% of the accumulation as lumpsum and the balance will be converted into annuity.

c) You can close your NPS account before its maturity. However, you will be able to withdraw only 20% of the accumulation as lumpsum and the balance will be converted into annuity.

d) The taxation on maturity has changed since the time NPS was launched. As of date, out of 60% of the accumulation which would be received as lumpsum, 40% is exempt from tax and 20% is added to income and taxed as per your income slab. The annuity to be received every year from the remaining 40% accumulation will be added to the respective year's income and taxed as per income slab.

I am private employee and investing LIC, PPF and Housing loan Q.

29

ASK OUR PLANNER


around 2.6 lakhs. If I invest in NPS RS 50,000(sec 80CCD(1B) can I get the tax benefit. I am spending for my own house painting around Rs 50,000 and paying municipal tax around Rs 5000/year. Is it possible to get the tax benefit for these two? If yes where to show? Please explain.

You can avail deduction of Rs.50,000 under Section 80CCD (1B) if you invest into NPS Tier-I account and have not claimed deduction under Section 80CCD (1) or Section 80C for the invested amount.

To answer your second query, municipal taxes are allowed as deduction only for let out properties. If your house is let out, then you can deduct this amount from the rental income while computing 'Income from house property' and on the net amount, you can avail a standard deduction of 30%, w h i c h i s p r o v i d e d f o r maintenance, repairs, painting, insurance, etc. You cannot claim the actual amount being spent on these, as the limit of 30% on net annual value (i.e. rental minus municipal taxes) is fixed.

If your house is self-occupied, then you cannot c la im

A.

deduction on municipal taxes paid. Also, you cannot claim the standard deduction of 30%, as the net annual value in this case will be nil.

I a m 3 2 y e a r s o l d businesswoman having two children 5 & 3 years old. I want to invest Rs.5,000 per month through SIP for 7 to 10 years. Please tell me what is the best plan.

If you are looking to invest for your children's higher education, then you can look at investing more into equity oriented mutual funds, as the tenure of such investments will be more than 12 years.

You can look at investing 60% into a large-cap fund and 40% into a mid-cap fund. You can refer to 'Research' section of ICICIdirect.com to know about the mutual funds currently recommended by us.

I am a government employee. Rs. 60,000 has been deducted under NPS contribution as 10% of basic +DA. I have deposited Rs.70,000 in PPF, Rs.40,000 in LIC. So can I claim Rs.20,000 of NPS contribution under 80CCD(1b) and Rs.40,000 under 80CCD(1) in ITR?

The overall limit of Section 8 0 C i n c l u d i n g S e c t i o n 80CCD(1) is Rs.1.50 lakh.

Q .

A.

Q.

A.

30

ASK OUR PLANNER


H e n c e , y o u c a n c l a i m Rs.70,000 of PPF, Rs.40,000 of LIC premiums under Section 80C and Rs.40,000 of NPS (Tier I) contribution under Section 80CCD(1).

Since you have claimed only Rs.40,000 of NPS (Tier I) contribution under Section 80CCD(1), you can claim the balance Rs.20,000 of NPS (Tier I) contribution under Section 80CCD(1b), which has a maximum limit of Rs.50,000, over and above Section 80CCD(1).

I am an aggressive risk profiler and run a manufacturing business for living. Are there any investment options where money can be invested at regular frequency as well as lump sum? If yes, what should be the ideal horizon to invest in such an instrument?

Your asset allocation should always be goal-oriented, rather than risk-profile based. Once you arrive at an ideal asset allocation based on the criticality and tenure of your goals, then based on your risk profile, you can choose the avenues of investments under each asset class.

Q.

A.

For short-term goals (upto 3 years), even though you are an aggressive investor, you will have to invest more into debt instruments to protect the investments from volatility.

For longer term goals, being an aggressive investor, you can look at investing more into mid-cap equity funds or even into direct equity through systematic investment plans, for the equity part of the asset allocation. For debt part of the asset allocation, you can consider investing into income funds.

Investments can be made lumpsum or regularly through systematic investment plans. It doesn't matter much in a debt-o r i e n t e d m u t u a l f u n d . However, in an equity-oriented mutual fund, where there's more volatility due to market movements, it does matter. Systematic investments help in averaging the cost of your i n v e s t m e n t s . Lu m p s u m investments are good when you invest during a bear phase of the market.

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

MUTUAL FUND ANALYSIS

31

Investing in balanced funds


With the demonetization leading to cash crunch in the system and the volatility surrounding the market, which is assessing the effect of this move on the economy, equity markets have been on tenterhooks in the last few weeks. Add to that the global events like Fed rate hike, US president election, unfolding of Brexit has only added to the uncertainty in the equity markets. Given this backdrop, a conservative investor who is wary of risk but do not want to forego returns should look at balanced funds to ride out the choppy markets.

Balanced Funds are hybrid funds that invest in a mix of equity and debt instruments. Balanced funds maintain around 65-70% exposure to equities while the rest is maintained in fixed income instruments. Balanced funds are less volatile than pure equity funds due to the cushion of debt proportion in the fund. Hence, these funds do well when stock markets are going through a difficult phase. They are better equipped to withstand shocks in falling markets. However, when stock markets are rising, they may not do as well as funds with 100% equity component but perform better than debt funds. Capital gain tax on balanced funds is similar to equity funds viz. exempt after one year and 15% if sold before one year, plus applicable surcharge if any. Debt portfolio is mainly comprised of Government securities or good credit quality corporate bonds. Therefore credit risk is very low in the debt portfolio.

In the current market scenario, where volatility seem to be continuing in the near term, investors should use balanced funds to ride out the volatile markets and create long term wealth.

Investors can look to invest in the following funds: HDFC Balanced Fund, ICICI Prudential Balanced Fund, and SBI Magnum Balanced Fund.

Birla Sun Life Dynamic Bond Fund

Fund Objective:The primary objective of the Scheme is to generate capital appreciat ion along with current income f rom a combined portfolio of equity & equity related and debt & money market instruments.

Key Information:NAV as on December 14, 2016 ( ) 119.8

Inception Date September 11, 2000

Fund Manager Chirag Setalvad,Rakesh Vyas

Minimum Investment (`)

Lumpsum 5000

SIP 500

Expense Ratio (%) 1.97

Exit Load NIL upto 15% ofinvestment and 1%

in excess of 15%of investment on

or before 1Y,NIL after 1Y

Benchmark CRISIL Balanced Fund- Aggressive Index

Last declared QuarterlyAAUM(`cr) 8136

`

32



Product Label:

This product is suitable for investors who are seeking:

• capital appreciation along with current long term

• investment predominantly inequity and equity related instruments with balance exposure to debt and money market instruments

Fund Manager: Chirag Setalvad

Rakesh Vyas

Mr. Vyas

Mr. Chirag is a B.Sc. and MBA from University of North Carolina. He has been working with HDFC AMC since 2007. Prior to joining HDFC AMC, he has worked with New Vernon Advisory

joined HDFC Mutual f und in Oc tober 2009 . Previously, Mr. Vyas served as

a Research Analyst and Associate at Nomura Securities Co. Ltd. He has extensive experience equity research.

The fund has consistently outperformed the category and the benchmark. It has generated CAGR returns of 13.8% in last 3 years vs. 9.6% returns by benchmark. In 2014 market rally, the fund has generated absolute returns of 51% as compared to 25% returns generated by the benchmark. The fund has not only participated in the rally but also managed to contain the downside well. In 2011, when the Sensex was down 24% and the Benchmark (CR IS IL Balanced Fund Index) has fallen by 14%, the fund has was fallen to a lesser extent at 10%. Fund has outperformed the benchmark on 6 months, 1 year, 3 year and 5 year returns basis.

Performance:

2015 2014 2013 2012 2011

108.5 105.3 69.5 63.9 50.5

3.0 51.5 8.8 26.6 -10.6

0.5 25.3 6.1 21.3 -14.4

4911 3087 1208 1101 496Net Assets (| Cr)

Return (%)

NAV as on Dec 31 ( )`

Benchmark (%)

Calendar Year-wise Performance

33



Fund Benchmark

Performance vs. Benchmark

7.5

13.8

21.3

18

3.7

9.6 11

11.2

0

5

10

15

20

25

6 Month 1 Year 3 Year 5 Year

Retu

rn%

HDFC Balanced Fund

Benchmark

30-Sep-15 30-Sep-14

13.65 11.65 60.86

Fund Name30-Sep-15 30-Sep-14 30-Sep-13

30-Sep-16

9.68 4.38 28.89

Last Three Years Performance

Portfolio:The fund is an ideal long term balanced fund. It is aggressive in nature among its peers and makes the most of bull markets. The fund maintains 65-70 percent allocation to equities and remaining portion in debt. The equity portfolio of the fund has stocks across the market cap. The fund has large cap allocation of 40% and 25% in the mix of mid and small cap companies. Top holdings among the consistently held stocks include Infosys, ICICI Bank, HDFC Bank, Reliance Industries and State Bank of India. The debt portfolio is dynamically managed by the fund manager based on the interest rate scenario. The fund has more than 75% of the debt allocation in the mix of AAA

r a t e d s e c u r i t i e s a n d Government Securities.

The fund maintains slightly higher equity allocation as compared to its peers and does not take cash calls. This makes the fund slightly more aggressive as compared to its peers. The value investment a p p r o a c h f o r e q u i t y investment makes it good long term balanced fund. The debt portion does not take any credit risk and is therefore less risky. The performance may be volatile during a short period of time but is likely to be among better performers over a longer period of time. The fund, therefore, is best for those willing to take on a little risk for higher returns.

Our View:

34



%

4.7

3.2

3.1

3.1

3.0

3.0

2.7

2.5

2.5

2.4

State Bank Of India Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

Tube Investments Of India Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

ICICI Bank Ltd. Domestic Equities

Infosys Ltd. Domestic Equities

Reliance Industries Ltd. Domestic Equities

HDFC Liquid Fund(G)-Direct Plan Domestic Mutual Funds Units

08.24% GOI - 10-Nov-2033 Government Securities

08.30% GOI - 02-Jul-2040 Government Securities

Top 10 Holdings Asset Type

%

12.7

5.3

4.9

4.6

4.4

4.2

2.7

2.5

2.2

2.1

Power Generation/Distribution Domestic Equities

Air Conditioners Domestic Equities

Pharmaceuticals & Drugs Domestic Equities

Cycles Domestic Equities

Chemicals

Top 10 Sectors Asset Type

Engineering - Construction

Domestic Equities

Domestic Equities

Bank - Private Domestic Equities

Bank - Public Domestic Equities

IT - Software Domestic Equities

Refineries Domestic Equities

11.071.010.050.886.36

Sharpe ratioR SquaredAlpha (%)

Risk ParametersStandard Deviation (%)Beta

42.015.68.7Small

Market Capitalisation (%)

LargeMid

SIP Performance (Value if invested 5000 per month (in'000))`

60 1

80 300

600

64 2

16 4

53.2

1383.9

62.2 197.7

375

938.

8

0

500

1000

1500

1Yr 3Yrs 5Yrs 10Yrs

Total Investment Fund Value Benchmark Value

35



%

0.4

0.7

Whats InHousing Development Finance Corporation Ltd.

Bajaj Finance Ltd.

68.0

30.1

20.8

--

3.4

Fund P/E Ratio

Benchmark P/E Ratio

Fund P/BV Ratio

Portfolio AttributesTotal Stocks

Top 10 Holdings (%)

66.3

26.8

7.0Cash

Asset AllocationEquity

Debt

Dividend History

Date Dividend (%)

Mar-25-2015 20

Jun-28-2016 5

Mar-29-2016 6

Dec-29-2015 5

Sep-27-2016 5

Sep-29-2015 5

Data as on December 14, 2016; Portfolio details as on Nov -2016Source: ACE MF, ICICI Direct Research

Performance of all the schemes managed by the fund manager

30 -Sep-15 30 -Sep-14 30 -Sep-13

30 -Sep-16 30 -Sep-15 30 -Sep-14

Fund Name

HDFC Mid-Cap Opportunities Fund(G) 21.40 17.32 91.44

Nifty Free Float Midcap 100 18.70 13.72 63.17

HDFC Long Term Adv Fund(G) 18.94 -0.93 61.80

S&P BSE SENSEX 6.54 -1.79 37.41

HDFC Small Cap Fund-Reg(G) 18.49 11.06 55.38

NIFTY SMALL 100 17.27 5.87 80.47

HDFC Multiple Yield Fund 2005(G) 10.53 6.31 22.93

Crisil MIP Blended Index 11.17 10.72 15.45

36


ICICI Prudential Balanced Fund

Fund Objective:The primary investment objective of the Scheme is to seek to generate long term capital appreciation and current income f rom a portfolio that is invested in equity and equity related securities as well as in fixed income securities.


Key Information:

Product Label:

NAV as on December 14, 2016 ( ) 104.8

Inception Date November 3, 1999

Fund ManagerSankaran Naren,

Yogesh Bhatt,Manish Banthia


Lumpsum 5000

SIP 1000


Exit LoadNil on 10% of

units within 1Yand 1% for

more than 10%of units within

1Y, Nil after 1Y.


Last declared Quarterly AAUM(` cr) 4627

`

This product is suitable for investors who are seeking*:

• long-term wealth creation solution

• A balanced fund aiming for long term capital appreciation and current income by investing in equity as well as fixed income securities

Fund Managers: Sankaran Naren

Mr. Naren

Yogesh Bhatt:

Mr. Bhatt

Manish Banthia:

Mr. Banthia

has rich experience of around 23 years in almost all spectrum of the financial services industry. He has done B. Tech degree from IIT Chennai and MBA in finance from IIM Kolkota. He has worked with financial service organizations like Refco Sify Securities India Pvt. Ltd., HDFC S e c u r i t i e s L t d . a n d Y o h a S e c u r i t i e s i n variouspositions prior to joining ICICI Prudential AMC.

is a Chartered Accountant from the Institute of Cost Accountants of India. Prior to joining ICICI, Mr. Bhatt was an Equity Dealer and Strategist at Sushil Finance Consultants Ltd. from 1999 to June 2004.

has extensive

37



experience including as a fixed income dealer. He is a C.A. Mr. Banthia holds an M.B.A. and B.Com. Previously, he worked at Aditya Birla Nuvo Ltd. and at Aditya Birla Management Corporation Ltd.

The fund has been a star performer in the balanced fund category. The three- and five-year show of the fund remains very good with a 7-8% margin

Performance:

of out-performance over and above the benchmark. The fund has delivered 18.9% CAGR returns over five years vs benchmark return of 11.2%. The fund has consistently beaten the benchmark in last 5 calendar years from 2010 to 2015. In the choppy markets of 2015 when the markets have remained flat, the fund has managed to generate positive returns.

2015 2014 2013 2012 2011

92.1 90.2 61.9 55.7 43.1

2.1 45.6 11.2 29.4 -9.3

0.5 25.3 6.1 21.3 -14.4

2569 1515 630 410 300

Benchmark (%)

Net Assets ( Cr)`

Return (%)



Fund Benchmark


11.6

17

20.4

18.9

3.7

9.6 11

11.2

0

5

10

15

20

25


Retu

rn%

ICICI Pru Balanced Fund

Benchmark 9.68 4.38 28.89

15.96 8.70 50.38



30-Sep-16 30-Sep-15 30-Sep-14

Portfolio:The fund typically has a mix of 70:30 in equity and debt. The equity portfolio of the portfolio has large cap tilt with 60%

allocation which is higher than the peers; the remaining portion of 10% is allocated in the mix of mid and small cap companies. The fund manager

38



invests in the theme which plays out in the long term. The debt portion is invested mainly in good-quality bonds. The fund has maintained balance of d u r a t i o n a c r o s s d e b t ins t ruments r igh t f rom g o v e r n m e n t b o n d s t o corporate.

The equity portion of the fund is managed as a large-cap biased diversified portfolio.

Our View:

The stock selection by the fund manager is key here. The fund manager does not hold typical large-cap holding as is common in many diversified schemes. The fund hold high potential large-cap stocks with the objective for long term wealth creation. Balanced funds in general are ideal funds for conservative investors who want equity participation with low volatility.

%

5.7

4.7

4.7

4.2

3.6

3.4

3.3

3.1

3.1

3.0Domestic Equities


Power Grid Corporation Of India Ltd. Domestic Equities

Cipla Ltd. Domestic Equities


Bharti Airtel Ltd. Domestic Equities

91 Days Treasury Bill - 15-Dec-2016 Treasury Bills

Tata Chemicals Ltd. Domestic Equities

Coal India Ltd. Domestic Equities

07.61% GOI - 09-May-2030 Government Securities

ICICI Bank Ltd. Domestic Equities

Tata Motors Ltd.

%

10.3

9.9

8.0

5.7

5.4

4.7

4.4

4.2

3.0

2.8

Domestic Equities


Fertilizers Domestic Equities

Engineering - Construction Domestic Equities



Top 10 Sectors Asset Type

Mining & Minerals Domestic Equities

Automobiles-Trucks/Lcv Domestic Equities

Refineries Domestic Equities

Bank - Private Domestic Equities

Telecommunication - Service Provider

11.331.040.070.865.37



39



55.714.33.7

Market Capitalisation (%)

LargeMidSmall

60 1

80 300

600

65.6 219.7 458.4

1296

62.2 197.

7

375

938.

8

0

200

400

600

800

1000

1200

1400

1Yr 3Yrs 5Yrs 10Yrs



%

1.1

0.4

1.9Tata Steel Ltd.

Whats In

Housing Development Finance Corporation Ltd.

Titan Company Ltd.

%

0.5

2.1

0.2

Whats out

Grasim Industries Ltd.

ACC Ltd.

City Union Bank Ltd.

47.038.822.8

--4.9

Fund P/E Ratio

Benchmark P/E Ratio

Fund P/BV Ratio


Top 10 Holdings (%)

73.7

21.6

4.8

Asset AllocationEquity

Debt

Cash

Oct-17-2016 1.5

Sep-19-2016 1.5

Dividend HistoryDate Dividend (%)Dec-05-2016 2

Aug-29-2016 1.5

Jul-18-2016 1.2

2.5Nov-07-2016

40





30 -Sep-15 30 -Sep-14 30 -Sep-13

30 -Sep-16 30 -Sep-15 30 -Sep-14

Fund Name

ICICI Pru Regular Gold Savings Fund(G) 23.54 -4.19 -11.06

Gold-India 19.71 -3.37 -11.08

ICICI Pru Top 100 Fund(G) 19.43 -1.93 48.25

NIFTY 50 8.33 -0.20 38.87

ICICI Pru Gold iWIN ETF 18.77 -2.01 -11.98

Gold-India 19.71 -3.37 -11.08

ICICI Pru Value Fund-7(D) 17.30 -- –

S&P BSE 500 11.45 -- –

ICICI Pru Dynamic Plan(G) 16.83 -0.49 50.04

NIFTY 50 8.33 -0.20 38.87

ICICI Pru Infrastructure Fund(G) 5.19 6.05 63.22

NIFTY INFRA -1.13 -6.48 41.45

ICICI Pru Short Term Plan(G) 9.93 10.39 10.56

Crisil Short Term Bond Fund Index 9.31 9.90 10.12

ICICI Pru Income Opportunities Fund(G) 10.37 12.99 11.78

Crisil Composite Bond Fund Index 11.51 12.56 11.61

ICICI Pru Balanced Advantage Fund(G) 10.85 10.22 35.70

CRISIL Balanced Fund - Aggressive Index 9.68 4.38 28.89

ICICI Pru Value Fund-1(D) 10.92 6.31 –

S&P BSE 500 11.45 3.19 –

ICICI Pru Income(G) 11.75 13.45 11.65


ICICI Pru Long Term Plan-Ret(G) 12.18 15.14 13.59


ICICI Pru Value Fund-6(G) 12.89 -- –

S&P BSE 500 11.45 -- –

ICICI Pru Gilt-Invest-PF(G) 13.12 15.90 13.52

I-Sec Li-BEX 13.80 15.70 12.85

ICICI Pru Equity Income Fund(G) 13.33 -- –

NIFTY 50 8.33 -- –


S&P BSE 500 11.45 3.19 –

ICICI Pru Balanced Fund(G) 15.96 8.70 50.38



S&P BSE 500 11.45 3.19 –

ICICI Pru Indo Asia Equity Fund(G) 16.72 6.64 49.30

NIFTY 50 8.33 -0.20 38.87

NAV as on December 14, 2016 ( ) 26.7

Inception Date December 31, 1995

Fund Manager R. Srinivasan,Dinesh Ahuja


Lumpsum 5000

SIP 1000


Exit LoadNil for 10% of

investments and 1%for remaining

investment on orbefore 12M,

Nil after 12M


Last declared QuarterlyAAUM (`cr) 7407

`

41


SBI Magnum Balanced Fund

Fund Objective:To provide investors long term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. The scheme will invest in a diversified portfolio of equities of high g rowth compan ies and balance the risk through investing the rest in a relatively safe portfolio of debt.


Key Information:

Product Label:

This product is suitable for investors who are seeking*:

• long-term capital appreciation

*primarily a large cap fund with some allocation to small/mid cap stocks

Fund Manager: R Srinivasan

R Srinivasan

Dinesh Ahuja

Mr, Ahuja

Performance:

is a Senior Fund Manager since May 2009. He has an experience of more than 22 years in equities having worked with Future Capital Hold ing, Pr inc ipa l PNB, Oppenheimer & Co (later Blackstone), Indosuez WI Carr and Motilal Oswal, among others. Srinivasan is a post graduate in Commerce and has done his MFM from the University of Mumbai.

is a Fund manager in SBI since 2010. Prior to joining SBIFM, he was a fund manager w i t h L & T I n v e s t m e n t Management and Reliance Group for four years. Dinesh is a Commerce graduate and holds his Masters degree in F i n a n c e f r o m M u m b a i University.

In three- and five-year time-frames, the fund has beaten its benchmark returns by a huge

42



margin of 7-8% points. The fund has generated 18% CAGR in past 5 year vs 11.2% returns by benchmark. In the sideways market of 2015 when the benchmark has remained flat the fund has been able to generate 6.5% returns. The fund has managed to beat the benchmark in last 6 out of 7 calendar years. An investment

of Rs 5,000 per month via Systematic Investment Plan in this fund over past 5 years, totalling Rs 3 lakh would have grown to Rs 4.42 lakh by

thDecember 14 , 2016 at 19.7% a n n u a l i s e d r e t u r n s . I n comparison, a similar amount invested in the benchmark would have returned Rs 3.75 lakh at 11.18%.

2015 2014 2013 2012 2011

27.2 28.7 22.8 25.3 20.6

7.4 43.2 11.9 35.0 -22.2

0.5 25.3 6.1 21.3 -14.4

3242 1226 456 364 377

Benchmark (%)

Net Assets ( Cr)`

Return (%)



3.7

8.8

18

18

3.7

9.6 1

1

11.2

0

5

10

15

20


Retu

rn%


Fund Benchmark

SBI Magnum Balanced Fund

Benchmark 9.68 4.38 28.89

0.68 0.01 22.02



30-Sep-16 30-Sep-15 30-Sep-14

Portfolio:It maintains a 75-25 equity debt mix. The equity part is multi cap, with 40-50% of the equity portion, in large caps (defined as the top 100 companies by

market cap) and the rest in mid and small caps. Some offbeat mid-cap picks are used to spice up returns. The equity portion features a mix of large- and mid-cap stocks, with a mix of

43



both defensives and cyclicals. About 40 to 50% of the debt portion is deployed in high-yielding credits to improve income. The balance is managed using G-secs and liquid AAA bonds, while keeping in mind the overall view on interest rates. The fund rebalances on a daily basis and caps cash calls at 7.5 per cent.

Consistency in the mandate and the strategy has been

Our View:

evident from 2009 and this has paid off by way of a good show across market phases. The multi-cap approach to equity portfolio offers a good blend of stability and growth to the portfolio. SBI as an AMC has improved significantly over the last few years in its investment processes and approach. The performance of most of the funds across category has improved significantly over the last few years.

%

6.5

5.2

5.1

4.2

4.2

3.2

2.7

2.5

2.3

2.3

Sundaram-Clayton Ltd. Domestic Equities

Gruh Finance Ltd. Domestic Equities

Aurobindo Pharma Ltd. Domestic Equities

07.61% GOI - 09-May-2030 Government Securities

Infosys Ltd. Domestic Equities

Divis Laboratories Ltd. Domestic Equities



State Bank Of India Domestic Equities

Kotak Mahindra Bank Ltd. Domestic Equities

CBLO Cash & Cash Equivalents

%12.4

7.2

6.8

5.2

4.6

3.5

2.8

2.7

2.5

1.8


Finance - Housing Domestic Equities

Breweries & Distilleries Domestic Equities

Domestic Equities


Auto Ancillary Domestic Equities

BPO/ITeS Domestic Equities

Domestic Equities


Top 10 Sectors Asset TypeBank - Private

Finance - NBFC Domestic Equities

Bank - Public

44



9.720.890.030.817.36



38.224.07.0Small

Market Capitalisation (%)LargeMid



60 1

80 300

600

62.1 210.

4 443.

7

1173

62.2 197.

7

375

938.

8

0

200

400

600

800

1000

1200

1400

1Yr 3Yrs 5Yrs 10Yrs

%

0.4

0.4

Whats In

United Spirits Ltd.

Redington (India) Ltd.

47.0

38.0

27.6

--

5.4

Fund P/E Ratio

Benchmark P/E Ratio

Fund P/BV Ratio


Top 10 Holdings (%)

Cash

Asset Allocation

Equity

Debt

69.1

25.4

5.4

Sep-24-2015 9

Jun-26-2015 9

Jun-24-2016 6

Mar-23-2016 6.5

Dec-23-2015 7

Dividend HistoryDate Dividend (%)

Sep-30-2016 7

45




30 -Sep-15 30 -Sep-14 30 -Sep-13

30 -Sep-16 30 -Sep-15 30 -Sep-14

Fund Name

SBI Tax advantage Fund-II(G) 21.79 7.50 91.17

S&P BSE 500 11.45 3.19 44.92

SBI LT Advantage Fund-II-Reg(G) 19.56 -- –

S&P BSE 500 11.45 -- –

SBI Small & Midcap Fund-Reg(G) 19.31 29.69 99.07

S&P BSE Small-Cap 15.97 3.18 95.41

SBI LT Advantage Fund-I-Reg(G) 18.50 -- –

S&P BSE 500 11.45 -- –

SBI Tax Advantage Fund-I(G) 16.53 6.95 89.70

S&P BSE 500 11.45 3.19 44.92

SBI Magnum Income(G) 9.64 12.53 7.35


SBI Magnum Global Fund 94-Reg(D) 9.71 18.77 77.69

SBI Corporate Bond Fund-Reg(G) 10.11 11.49 9.85


SBI Magnum Gilt-STP(G) 10.39 12.47 10.06

I-Sec Si-BEX 8.74 9.91 8.93

SBI Dynamic Bond(G) 10.47 13.41 6.99


SBI Magnum Gilt-LTP-Reg(G) 10.88 17.81 11.60

I-Sec Li-BEX 13.80 15.70 12.85

SBI Magnum Balanced Fund-Reg(D) 11.10 13.26 51.08


SBI Contra Fund-Reg(D) 11.50 9.46 50.79

S&P BSE 100 9.73 0.77 40.05

SBI Magnum Equity Fund-Reg(D) 14.08 9.97 44.98

NIFTY 50 8.33 -0.20 38.87

SBI Tax Advantage Fund-III-Reg(G) 15.56 13.45 –

S&P BSE 500 11.45 3.19 –

SBI Emerging Businesses Fund-Reg(G) 15.98 10.02 65.20

S&P BSE 500 11.45 3.19 44.92


46

Our indicative large cap equity model portfolio has continued

to deliver an impressive return (inclusive of dividends) of 68%

since its inception (June 21, 2011) vis-à-vis the benchmark

index (S&P BSE Sensex) return of 50% during the same

period, an outperformance of 18%. This validates our thesis of

selecting companies with sound business fundamentals that

form the core theme of our portfolio. Our midcap portfolio of

16 stocks also continues to outperform, delivering 140%

(inclusive of dividends) vis-à-vis the benchmark index (CNX

Midcap) return of 89.92%, outperformance of 50.57%. Our

consistent outperformance demonstrates our superior stock

picking ability as markets aligned to our view of favourable risk

reward, good franchisee vs. reward-at-any-risk businesses.

Some key performers of our portfolio are Infosys, TCS, Bajaj

Finance, Lupin, and SBI in the large cap portfolio while NBCC,

Pidilite, Bajaj Finserv continue to deliver stupendous returns in

the midcap portfolio.

We have always suggested the SIP mode of investment and

still find a lot of merit in it as the preferred mode of deployment

given the market conditions and volatility associated since the

inception of the portfolio. We highlight that the SIP return of

our portfolio has consistently outperformed the indices. This

affirms our belief in the staggered and systematic approach of

investment amid market volatility.

Following the same pace and opportunities in the market, we

have updated our portfolio. Among large caps, we give

highest weightage to IT sector – Infosys (8%), TCS (6%).

Affirming our view on consumption demand, Dabur (5%)

EQUITY MODEL PORTFOLIO


47


continues to be part of our large cap portfolio. We believe that

as the softness in commodities continues oil & gas and metal

sectors would continue to remain under pressure.

In the private banking space, we prefer large banks with a

strong brand name and a pan India retail presence. We remain

overweight to neutral on pure play defensives (IT, FMCG) as

secular earnings coupled with sector rotation could lead to

consolidation in near term valuations and offer stock specific

opportunities. We remain positive on auto, pharma, capital

goods and infrastructure.

Among individual names, we continue to recommend Infosys

and TCS in the IT space. A revival in the capex cycle coupled

with lower interest rate scenario would benefit the BFSI and

construction space (UltraTech, L&T, SBI, Asian Paints).


48



Name of the company

Largecap Portfolio

Weightage(%)

Auto 15.0

Tata Motor DVR 4.0

Bosch 3.0

Maruti 5.0

EICHER Motors 3.0

BFSI 32.0

HDFC Bank 8.0

Axis Bank 4.0

HDFC 8.0

Bajaj Finance 6.0

SBI 6.0

Capital Goods 4.0

L & T 4.0

Cement 4.0

UltraTech Cement 4.0

FMCG/Consumer 18.0

Dabur 5.0

Marico 4.0

Asian Paints 5.0

Nestle 4.0

IT 14.0

Infosys 8.0

TCS 6.0

Media 4.0

Zee Entertainment 4.0

Pharma 9.0

Lupin 6.0

Aurobindo Pharma 3.0

Total 100.0

49



Name of the company

Diversified Portfolio

Weightage(%)

Auto 12

Tata Motor DVR 3

Bosch 2

Maruti 4

Eicher Motors 2

Bharat Forge 2

Consumer Discretionary 16

Symphony 2

Supreme Ind 2

Kansai Nerolac 2

Pidilite 2

Asian Paints 4

Arvind 2

Interglobe Aviation 2

Rallis 2

BFSI 24

HDFC Bank 6

Axis Bank 3

SBI 4

HDFC 6

Bajaj Finance 4

Bajaj Finserve 2

Power, Infrastructure & Cement 13

L & T 3

UltraTech Cement 3

Ramco Cement 2

NBCC 2

Bharat Electronics 2

Container Corporation of India 2

FMCG 9

Nestle 3

Marico 3

Dabur 4

Pharma 12

Lupin 4

Aurobindo Pharma 2

Natco Pharma 2

Torrent Pharma 2

Biocon 2

IT 10

Infosys 6

TCS 4

Media 3

Zee Entertainment 3

Total 100

50



Name of the company

Midcap Model Portfolio

Weightage(%)

Aviation 6.0

Interglobe Aviation 6.0

Auto 6.0

Bharat Forge 6.0

BFSI 6.0

Bajaj Finserve 6.0

Capital Goods 6.0

Bharat Electronics 6.0

Cement 6.0

Ramco Cement 6.0

Consumer 30.0

Symphony 6.0

Supreme Ind 6.0

Kansai Nerolac 6.0

Pidilite 6.0

Rallis 6.0

Infrastructure 8.0

NBCC 8.0

Logistics 6.0

Container Corporation of India 6.0

Pharma 20.0

Natco Pharma 6.0

Torrent Pharma 6.0

Biocon 8.0

Textile 6.0

Arvind 6.0

Total 100.0

51

Performance* so far Since inception

*Returns (in %) as on

Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

Nov 17, 2016

Value of 1,00,000 invested via SIP at the end of every month `

Portfolio Benchmark

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: , 2011; *Value as on June 30 Nov 17, 2016



68.95261079

140.1450414

81.37051353

49.76219085

85.69313008

59.40165713

0

25

50

75

100

125

150

%

6600000

6600000

6600000

8014103.7

57

12006009.7

5

8911821.0

62

5895404.0

05

4281762.7

74

7209121.7

59

3500000

4500000

5500000

6500000

7500000

8500000

|

QUIZ TIME

1. Union budget 2016-17 announced ___________% exemption for

start-ups up to 3 years.

2. The home loan borrowers can see positive impact of repo cut by

either reduction in monthly installments (EMIs) or

___________________.

3. Increased liquidity and lack of credit pick up in market has forced

bank to increase interest rates on FDs. True or false

4. 500 and 1000 notes constituted over ______________ of total

circulation when demonetization was announced.

5. India is currently the third largest source of FDI for Britain. 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 November 2016 quiz are:

1. Monetary policy, the key determinant of inflation is declared by

____________

A: Reserve Bank of India

2. ________________investments suffers the most during inflation.

A: Fixed-income

3. Government's inability to collect sufficient revenue for public

expenditure promotes _________.

A: Deficit planning

4. The impact of inflation on your investments does not depend

upon the vehicles you have invested in. True or false

A: False

5. Fall of prices of goods and services in the economy is known

as______________.

A: Deflation


53

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

30-Nov-16 31-Oct-16 Change (%)

CNX Nifty 8225.0 8626.0 -4.6%

CNX Midcap 14907.0 15912.0 -6.3%

S&P BSE Sensex 26658.8 27930.2 -4.6%

S&P BSE 100 8479.7 8928.2 -5.0%

S&P BSE 200 3558.2 3759.4 -5.4%

S&P BSE 500 11195.0 11878.9 -5.8%


Dow Jones 19,123.6 18,142.4 5.4%

S&P 500 2,198.8 2,126.2 3.4%

Nasdaq 5,223.6 5,189.1 0.7%

FTSE 6,789.7 6,954.2 -2.4%

DAX 10,640.3 10,665.0 -0.2%

CAC 40 4,578.3 4,509.3 1.5%

Nikkei 18,308.5 17,425.0 5.1%

Hang Seng 22,789.8 22,934.5 -0.6%

Shanghai Composite 3,250.0 3,100.5 4.8%

Taiwan Weighted 9,240.7 9,290.1 -0.5%

Straits Times 2,905.2 2,813.9 3.2%


S&P BSE Auto 20,144.6 22,185.4 -9.2%

S&P BSE Bankex 21,316.0 22,368.3 -4.7%

S&P BSE FMCG 8,071 8,511 -5.2%

S&P BSE Healthcare 15,686.4 16,472.0 -4.8%

S&P BSE Metals 10,666.3 10,317.6 3.4%

S&P BSE Oil & Gas 11,964.3 12,316.8 -2.9%

S&P BSE Power 2,028.7 2,006.1 1.1%

S&P BSE Realty 1,281.8 1,556.1 -17.6%

S&P BSE Teck 5,411.3 5,525.0 -2.1%

54

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Nov-16 Change (bps)Oct-16

Corporate Bond Yields (in %) Change (bps)Nov-16 Oct-16

Commercial Paper (CP) Rates (in %) Change (bps)Nov-16 Oct-16

Treasury Bill (T-Bills) Yields (in %) Change (bps)Nov-16 Oct-16

Volatility Index (VIX)

30-Nov-16 31-Oct-16

VIX 16.85 15.49 0%

Change (%)

10 year 6.25 6.79 -55

5 year 6.24 6.71 -47

3 year 6.03 6.57 -54

1 year 6.07 6.55 -48

AAA 10 year 7.34 7.75 -41

AAA 5 year 7.29 7.63 -34

AAA 3 year 7.11 7.50 -40

AAA 1 year 6.80 7.28 -48

AA 10 year 7.72 8.17 -44

AA 5 year 7.68 8.03 -34

AA 3 year 7.51 7.95 -44

AA 1 year 7.28 7.73 -44

12 Months 7.06 7.42 -36

6 Months 6.79 7.28 -49

3 Months 6.46 6.99 -52

1 Month 6.41 6.73 -31

91D TB 5.95 6.37 -41

182D TB 6.00 6.42 -42

364D TB 6.05 6.44 -39

55

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

Countries 30-Nov-16 31-Oct-16 Change in bps

US 2.38 1.83 56

UK 1.42 1.25 17

Japan 0.02 (0.05) 7

Spain 1.55 1.20 36

Germany 0.27 0.16 11

France 0.75 0.46 29

Italy 1.99 1.66 32

Brazil 11.83 11.40 44

China 3.39 2.74 64

India 6.25 6.79 (55)

MF Investment Nov-16 Oct-16 YTD

Equity 13610 9118 38189

Debt 11307 24852 301997

FII Investment Nov-16 Oct-16 YTD

Equity -17737 -4990 27378

Debt -19603 -7152 -25394

Items Weights(%) Sep-16 Oct-16 Nov-16

Food&bev. 45.86 4.12 3.71 2.56

Pan,tob& intox. 2.38 6.82 7.01 6.21

Cloth & Foot 6.53 5.19 5.24 4.98

Housing 10.07 5.18 5.15 5.04

Fuel & light 6.84 3.07 2.81 2.80

Misc. 28.31 4.51 4.58 4.83

CPI 100 4.31 4.20 3.63

Weights Nov-15 Oct-16 Nov-16

WPI 100.0 -2.04 3.39 3.15

Primary Articles 20.1 2.15 3.31 1.25

Fuel & Power 14.9 -10.99 6.18 7.07

Manufactured Goods 65.0 -1.42 2.67 3.20

56

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 November 30, 2016

Debt Funds Returns (in %)

Returns as on November 30, 2016

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 16-Oct-16 16-Sep-16 16-Aug-16 Weight(%)Mining -1.1 -3.1 -5.6 14.2Manufacturing -2.4 0.9 -0.3 75.5Electricity 1.1 2.4 0.1 10.3

30-Nov-16 31-Oct-16 Change (%) StatusUSDINR 68.39 66.78 -2.4% DepreciatedEURINR 72.55 73.12 0.8% AppreciatedGBPINR 85.07 81.16 -4.8% DepreciatedAUDINR 51.00 50.76 -0.5% DepreciatedCHFINR 67.46 67.51 0.1% AppreciatedJPYINR 0.60 0.64 5.0% AppreciatedCNYINR 9.93 9.85 -0.8% Depreciated

30-Nov-16 31-Oct-16 Change (%)Crude ($/barrel) 49.9 46.7 6.8%Gold ($/ounce) 1,173.3 1,277.3 -8.1%

6 months 6.32 8.83 3.13 5.281 year 5.97 7.78 4.49 5.433 year 19.62 30.04 14.75 18.335 year 16.51 23.48 13.97 16.11

6 months 6.83 12.35 9.25 18.37 22.53

1 year 7.38 10.45 8.86 13.47 16.41

3 year 8.11 9.61 8.79 11.29 12.57

57

ICICIdirect Centre for Financial Learning (ICFL) imparts quality education on financial markets to beginners and amateurs, student, housewives, working professionals and self employed. ICFL's broad objective is to make participant feel confident to start investing in stock market.

Here is the list of our programmes scheduled for the month of November, 2016.

Schedule for Beginners Program on Futures and Options (F&O) TradingSr.No

City Dates For More Information & Registration call:

Premium Education Programmes Schedule


Schedule for Fast Track Beginners Programme on Futures and OptionsSr.No


Schedule for Fast Track Program on Technical AnalysisSr.No City Dates For More Information & Registration call:

Schedule for Fast Track Program on Stock InvestingSr.No City Dates For More Information & Registration call:

Schedule for Foundation Programme on Stock InvestingSr.No City Dates For More Information & Registration call:

Sr.No


Schedule for Foundation Programme on Stock Investing

1 New Delhi 17th Dec & 18th Dec 2016 Harneet on 9528152693

2 Mumbai_Chembur 17th Dec & 18th Dec 2016 Kusmakar on 7875442311

3 Ludhiana 17th Dec & 18th Dec 2016 Harneet on 9528152693

4 Mumbai_Thane 24th Dec & 25th Dec 2016 Kusmakar on 7875442311

5 Mumbai_Andheri 24th Dec & 25th Dec 2016 Kusmakar on 7875442311

6 Jodhpur 11th Dec 2016 Yogesh on 8238053563

7 Bhubaneswar 11th Dec 2016 Jayeeta on 9007391920

8 Vadodara 4th Dec 2016 Yogesh on 8238053563

9 Mumbai_Andheri 3rd Dec 2016 & 4th Dec 2016 Kusmakar on 7875442311

10 New Delhi 3rd Dec 2016 & 4th Dec 2016 Harneet on 9528152693

11 Pune 10th Dec 2016 & 11th Dec 2016 Kusmakar on 7875442311

12 New Delhi 17th Dec 2016 & 18th Dec 2016 Harneet on 9528152693

13 Mumbai_Chembur17th Dec 2016 & 18th Dec 2016 Kusmakar on 7875442311

14 Hyderabad 17th Dec 2016 & 18th Dec 2016 Ruchi on 8297362323

15 Bangalore 17th Dec 2016 & 18th Dec 2016 Subrata on 9620001478

16 Chennai 15th Dec 2016 to 19th Dec 2016 Abdul on 8939930837

17 Mumbai_Thane 16th Dec 2016 to 20th Dec 2016 Kusmakar on 7875442311

18 Bangalore 17th Dec 2016 & 21st Dec 2016 Subrata on 9620001478

Sr.No


Schedule for Technical Analysis-Trading Professionals

19 Kolkata 3rd Dec 2016 & 4th Dec 2016 Jayeeta on 9007391920


21 Chennai 10th Dec 2016 & 11th Dec 2016 Abdul on 8939930837

22 Mumbai_Andheri 17th Dec 2016 & 18th Dec 2016 Kusmakar on 7875442311

23 Indore 17th Dec 2016 & 18th Dec 2016 Yogesh on 8238053563


Printed by jasmine Art Printers Pvt. Ltd., A-737/3, TTC Ind. Area, MIDC, Navi Mumbai - 400 710.

icici dec 16 issuecontent.icicidirect.com/moneymanagermagazine/december_2016.pdf · here we give a...

Documents