icici jan 17 issue sachincontent.icicidirect.com/moneymanagermagazine/january_2018.pdf · repairs...

Shilpa KumarMD & CEO

ICICI Securities Ltd.

At the onset, let me start by wishing

you a Very Happy New Year!

2017 was an eventful year on many

fronts. The year began with

a d j u s t m e n t s r e l a t e d t o

demonetization and ended with

s imi la r e f fo r ts to accus tom

ourselves with the Goods and

Service Tax. Both events are an

important economic landmark. We

look a t 2018 w i th renewed

optimism. We believe it to be the

year of stabilization as various steps

taken by the government may start

bearing fruit in CY18. With potential

government policies in place,

private sector's balance sheet

repairs and mending of banking

sector, private sector investments can accelerate in the year ahead. All

these factors are likely to resurrect India's GDP growth.

Indian nominal GDP growth seems to have bottomed out and is poised

for long term structural growth on account of enduring reforms such as

demonetization, GST, Insolvency and Bankruptcy code (IBC), etc.

Although adjustments to reforms have taken a toll on the nominal GDP

(9.3% in H1FY18) in the short-term, realization of long term advantages

will start mainly from FY19.

GST collections thus far are below our estimate. Lower than expected

GST collections (and thus, lower indirect taxes) would be an overhang

on fiscal deficit financing. GST collections would need to match

comparable indirect tax revenues to ensure zero revenue loss under the

new system. However, complete clarity is yet to emerge on the

implication of initial GST collection from official sources. A possible

ICICIdirect Money Manager January 20181

encouraging aspect to future collections is the implementation of

interstate e-way bill system on goods valued above Rs. 50000 with

effect from February 1, 2018. E-way bill implementation in states under

the previous system (pre-GST) had helped boost tax revenues by

15-20%.

We expect RBI to maintain status quo on benchmark rates for most of

year 2018, though we believe there is still scope of lower lending rates in

the banking system. Lower credit cost in terms of lower provisioning,

re-pricing of deposits at lower rates and structural reforms like lower

cash to GDP ratio, increased digital transactions, increase in merchant

discount rate (MDR) rates expected to cut losses, benchmarking of

lending rates to marginal cost lending rate (MCLR) is likely to provide

scope for further rate transmission.

Government's “Housing for All by 2022” scheme is expected to be a key

catalyst in economic recovery. We believe Housing for All scheme will

revive the economy with 250+ sectors forward and backward linkages.

Beside this, it would result in huge employment generation.

For CY18, we expect that the key driving force for the market would be

earnings recovery, which would be backed by a rise in asset turn

thereby improving the RoCE profile. We remain positive on Equity.

However for personal investments, it is important to follow a strict asset

allocation strategy that is backed by your goals and investment

objectives. It is important that you allocate your capital into both equity

(for growth) and debt (to provide stability). The start of the year is an

opportune time to work on your financial plan and an asset allocation

strategy.

Our message remains the same - 'Keep investing and stay invested for

your l i fe 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 Neighborhood Financial

Superstore and talk to us.

As we head into 2018, one of the foremost questions that we would like answered is how will the markets perform and the trend going forward. Will it have the same robustness as last year or get better or are there some surprises in store.

In our New Year edition of ICICIdirect Money Manager, we put together a detail account of investment outlook 2018. Some of the leading experts in the industry put forth their views on last year's financial review, expectations from different asset classes in the upcoming year, key risks in the market today on micro and macro level. All in all, through this edition, we try to answer one common question, “How should you position your investment portfolio for the year 2018?”

While it is important to know the market expectations, the information needs to be used in tandem with our own financial goals and investment objectives. These investment objectives should in turn define the asset allocation. An asset allocation strategy defines how much one need to invest in diverse assets like equity, debt, gold etc. It is a great time to start or review your financial plan and define an appropriate asset allocation strategy.

With a fresh year ahead, set clear, concise financial goals and make a plan to put finances into shape. Give yourself adequate time to list down your priorities. Make investments that fit your risk appetite and that are linked to your goals.

In order to give you more in-depth take on the markets, we bring to you the fundamental, technical and derivatives market outlook 2018 from our internal team of research experts. Our research team also presents the performance review of different categories of mutual funds, along with the outlook for near future. So read on, stay updated and tuned. Do write us your feedback at [email protected] and share your thoughts.

Team ICICIdirect Money Manager wishes you a happy New Year.

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


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

2


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

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

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

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

Stock ideas: Greenply Industries & Gujarat Gas .....................................5

Fundamental Outlook 2018 ........................................................................13

Technical Outlook 2018 .............................................................................24

Derivatives strategy for 2018 .....................................................................30

Flavour of the Month 2017 was an eventful year on many fronts. As we step into a new fiscal,three experts from the industry share their viewpoints on CY17 and expectations from CY18................................................................34

Ask Our PlannerOur financial planner answers personal finance queries to help you build a substantial portfolio more easily...............................................47

Mutual Fund Analysis It's time to remain constructive in balanced funds and maintain stability in the portfolio. Check these top three funds recommended by our research team............................................................................50

This month on iCommunityTake a look at the latest activities on our unique information platform- iCommunity (for January 2018)............................................................59

Equity Model Portfolio................................................................................60

Quiz Time .................................................................................................64

Prime Numbers ........................................................................................65

3

India's oil consumption in 2017 expanded at the slowest pace in four years as a surprise ban on high-value currency notes and a new national sales tax weakened the economy. The nation's consumption of petroleum products rose 2 percent to about 200 million tons, the Oil Ministry's Petroleum Planning and Analysis Cell said Wednesday. That's the slowest since 2013, when demand grew 1.7 percent while global oil prices averaged about $109 a barrel, almost double last year's level. The cash ban and the new tax hit truckers the hardest, affecting demand for diesel as they are the largest consumers of the fuel in India.

Courtesy: Financial Express

India's oil consumption hits a rough patch, demand growth weakest since 2013 as economy slows

'India largest market for freelancers'

India is the largest freelancer market with 10 million people freelancing, according to PayPal.Freelancers in India, on an average, earn about Rs. 19 lakh per year, according to a new survey by global digital payments giant PayPal.“Of the surveyed freelancers, 41% have witnessed very fast growth in through the past 12 months, with 80% of them working with international as well as domestic clients,” the report said.The survey, conducted with 500 Indian freelancers, found that they were below the age of 40 and predominantly men.

Courtesy: The Hindu


The December quarter performance of Tata Consultancy Servicec was without surprises or shocks. But investors may feel relieved given the possibility that the country's largest software exporter may show better revenue growth in dollar terms for the current fiscal compared with the previous two.

In addition, a stronger momentum in the digital segment is a bright spot amid subdued trend in banking, financial services and insurance (BFSI) verticals, which contributed over one-third to the total revenue. While the momentum in revenue seems to be reviving, the company is yet to restore the operating margin (EBIT margin) back to its target range of 26-28 per cent.

Courtesy: Economic Times

TCS topline shows signs of revival

Budget bonanza: Govt likely to do away with dividend distribution tax

The finance ministry is likely to do away with the dividend distribution tax (DDT) in the upcoming Union Budget. At present, if a company gives dividend to its shareholders, it has to pay DDT of 20.36 per cent (15 per cent plus surcharge and cess)."It is expected that Budget 2018 may propose a withdrawal of DDT and return to the classic system of dividend taxation, that is, dividend income to be taxed at the hands of the recipient shareholders," said SonuIyer, partner and leader, India region people advisory services, EY.

Courtesy: Business Standard

4

STOCK IDEAS


Greenply Industries – MDF division to drive future growth…

Company Background

Incorporated in 1984, Greenply Industries (GIL) is a leading p layer in the o rgan ised plywood and medium density fibreboard (MDF) market. The company has a strong pan-India presence and has a d i s t r ibu to r and s tock i s t strength of 1656 and 841 in the plywood and MDF segments, respectively. This strong brand presence helps it to increase its market penetration in this highly fragmented wood panel industry. In 2014, the company de-merged its decorative b u s i n e s s c o m p r i s i n g laminates and allied products into Greenlam Industries, mainly to focus on its plywood and MDF business.

Over the past two decades, GIL has g rown s ign i f i can t l y resulting in 26% market share in the organised plywood market and 30% market share in the domestic MDF industry. Furthermore, the company's strong brand presence and a well entrenched distribution network have helped GIL to evolve with changing times and cater to rising customer

expectations. Moreover, to support its growth, GIL has b u i l t f o u r p l y w o o d manufacturing facilities across the country with total capacity of 32.4 MSM (million square metre) and an MDF facility with capacity of 1,80,000 CBM. With MDF demand on the rise, the company is undertaking a greenfield expansion to build an MDF facility in Andhra Pradesh w i th an annua l capacity of 3,60,000 CBM. Also, i t is expanding i ts plywood capacity by 40% to 46 MSM.

Investment Rationale

MDF facil ity expected to be commissioned by July, 2018…

GIL is setting up a new MDF facility in Andhra Pradesh with a capacity of 360,000 CBM entailing a capex of | 750 crore (already spent | 530 crore till Q2FY18). Construction is in full swing while the management is aiming to commission the plant three months ahead of schedule in July, 2018. It plans to operate the plant at 60% capacity utilisation in FY19E. The new plant will cater to

5


STOCK IDEAS

southern demand (30% of G I L ' s M D F s a l e s ) . T h e company would export the remaining portion. It is aiming at full utilisation by FY22E. With the commissioning of the new MDF plant, we expect, GIL's MDF revenues to grow robustly at 33.5% CAGR to | 1134.6 crore over FY17-20E.

New plywood capacity to be operational by Q3FY19E…

GIL is expanding its plywood capacity due to capacity constraints at its existing units. It is setting up a facility in UP with a manufacturing capacity of 13.5 MSM, which would take its total capacity to 45.9 MSM. It plans to spend ~| 125 crore and wou ld manu fac tu re premium plywood at the plant. The plant is expected to come on stream by Q3FY19E. GIL is also setting up a decorative veneer unit in Gujarat that is a l s o e x p e c t e d t o b e commissioned by Q3FY19E. To e n s u r e r a w m a t e r i a l security, the company has also set up a veneer unit in Gabon. Currently, three production lines are operational while the remaining three would be operational by December, 2017. Reduction in GST rates

from 28% to 18% coupled with the expected implementation of the E-way bill by April 1, 2018 would result in a quicker shift from unorganised to o r g a n i s e d p l a y e r s . C o n s e q u e n t l y , t h e management expects 12-15% revenue CAGR in the plywood division in the next two years. We expect plywood revenues to grow at 12.4% CAGR to | 1658.2 crore in FY18E-20E.

MDF division - future growth engine!!!

We remain positive on GIL as t h e s h a r e o f o r g a n i s e d plywood players (currently 30% of plywood market) is set to expand with GST rate cut, higher brand aspirations and GIL's strong brand presence. GIL's strategy of capex across p r o d u c t s e g m e n t s l i k e plywood, MDF and decorative veneer bode well for the company's future growth. Consequently, we expect topline, bottomline to grow at 19.8%, 19.4% to | 2842.3 c r o r e , | 2 2 9 . 8 c r o r e , respectively, in FY17-20E. We continue to maintain our BUY rating on the stock with a revised target price of | 425 (~22x FY20E EPS).

6


STOCK IDEAS

Stock Data

Key Financials

Valuations Summary

` Crore FY17 FY18E FY19E FY20E

Net Sales 1656.9 1779.9 2037.7 2845.0

EBITDA 247.0 248.8 297.9 447.1

Net Profit 135.0 142.6 148.2 229.8

EPS (`) 11.2 11.8 12.3 19.0

FY17 FY18E FY19E FY20E

P/E 32.2 30.5 29.3 18.9

Target P/E 38.0 36.0 34.6 22.3

EV/EBITDA 18.8 20.1 17.2 11.1

P/BV 5.5 4.7 4.1 3.4

RoNW (%) 17.2 15.5 14.0 18.1

RoCE (%) 17.6 13.1 13.0 18.5

Market Capitalization 4344.5

Total Debt (FY17) 306.7

Cash (FY17) 71.6

EV 4579.7

52 week H/L (`) 370 / 243

Equity capital 12.1

Face value (`) 1.0

FII Holding (%) 14.8

DII Holding (%) 21.4

7

Key risks include:

Lack of raw material availability…

The industry procures majority of its raw

material from Myanmar, Gabon, Vietnam,

Indonesia, Thailand etc. We believe the

biggest risk for GIL as well as industry is

their inability to procure raw material on

the back of any unforeseen regulation in

the respective jurisdiction e.g. Myanmar's

ban on raw timber export. However, we

believe GIL is well placed in terms of raw

material security after setting up a veneer

unit in Gabon to facilitate the sourcing of

face veneers. Any such respective

jurisdiction changes in regulation may

impact GIL's business significantly.

Over-capacity of MDF in the market…

Currently, several players in India are either

expanding or setting up new MDF plants.

The current MDF capacity in India stands at

~600000 CBM which is expected to

increase significantly over next few years.

If this expansion in MDF industry results in

over capacity in the market, it could lead to

increased competition and could impact

GIL's financials, going forward.


STOCK IDEAS

ANALYST CERTIFICATION We /I, Deepak Purswani, CFA MBA (Finance), Vaibhav Shah, MBA (Finance); Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Deepak Purswani, CFA MBA (Finance), Vaibhav Shah, MBA (Finance); Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

It is confirmed that Deepak Purswani, CFA MBA (Finance), Vaibhav Shah, MBA (Finance); 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.

8


STOCK IDEAS

Gujarat Gas - Price hike to support healthy margins…

Company Background

Gujarat Gas (GG) is one of the

Ind ia ' s la rgest p layer in

industrial gas segment and city

gas distribution (CGD) with a

dominant presence in Gujarat.

It caters to the gas demand of

~3000 industrial consumers,

~5 lakh CNG vehicles and ~12

lakh households in Gujarat.

Total volumes in FY17 were at

5 . 4 m m s c m d w i t h t h e

industrial and retail segments

contributing ~68% of total

volumes.

Investment Rationale

Profitable growth to continue

on account price hikes...

The company has announced

price hikes for its industrial

customers in the month of

December, which were due for

a considerable period of time.

For industrial units in Morbi,

prices have been hiked by |

2 . 5 / s c m t o | 2 7 . 9 / s c m ,

whereas for other industrial

units, prices have been hiked

by | 2.6/scm to | 29.2/scm. In

the near term, the company

has been witnessing a dip in

gross margins on account of

rise in LNG prices (input costs)

and no price hike for industrial

customers mainly on account

of state elections. However, the

current price hikes will help the

company to restore its healthy

margins in the range of | 7-

7.5/scm. Going ahead, better

gas sourcing arrangements

and relatively stable LNG

prices will enable the company

t o m a i n t a i n i t s

competitiveness.

Volume growth to remain

stable, going ahead

For H1FY18, the company

reported volume growth of

1 5 % Yo Y w i t h a v e r a g e

volumes at 5.9 mmscmd.

External factors like Gujarat

floods and GST transition

phase had some impact on

industrial volumes in the

previous quarter (Q2FY18).

However, we believe volumes

will come back on track in

coming quarters. Currently,

industrial volumes contribute

~70% of Gujarat Gas' total

sales volumes. Going ahead,

the company expects the share

9


STOCK IDEAS

to reduce to ~60% over the

long term given the relatively

higher growth of CNG and

domestic PNG segment. In lieu

of the same, the company is

aiming to set up 200 CNG

stations in coming years.

Overall, we believe increase in

both CNG as well as industrial

PNG demand will drive Gujarat

G a s ' v o l u m e g r o w t h

momentum. Vo lumes in

FY18E, FY19E are estimated at

6 mmscmd, 6.8 mmscmd,

respectively.

Rapid expansion in CGD to

puts Gujarat Gas in sweet

spot

With its expanding presence

across several districts in

Gujarat and relatively low gas

prices, Gujarat Gas is set to

benefit, going ahead, from

volume growth in CNG, and

industrial retail segment. We

believe the company's strong

CGD network offers good

demand potential due to lower

C N G , r e s i d e n t i a l P N G

penetration and increased

usage of natural gas for

industrial volumes. We now

value Gujarat Gas at 25x FY19E

EPS of | 40 on the back of

better visibility on earnings

growth. We have a BUY rating

with a target price of | 1000.

Valuations Summary

Key Financials

` Crore FY16 FY17 FY18E FY19E

Net Sales 6105.9 5093.0 5989.3 7155.2

EBITDA 725.2 749.0 930.5 1195.2

Net Profit 178.6 223.1 342.7 550.7

EPS (`) 13.0 16.2 24.9 40.0

FY16 FY17 FY18E FY19E

P/E 71.2 57.0 37.1 20.7

Target P/E 69.4 55.5 36.2 25.0

EV / EBITDA 20.7 20.0 16.1 12.2

P/BV 7.6 6.9 6.8 5.5

RoNW 11.8 13.6 18.3 24.0

RoCE 12.4 12.3 16.0 21.1

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STOCK IDEAS

Stock Data

Key risks include:

Disruption in gas supplies

Gujarat Gas receives more

than 80% of the current gas

supplies from GAIL. Any

n e g a t i v e c h a n g e i n t h e

allocation of gas to GG would

have an impact on the earnings

estimates and valuations of the

company.

Currency Risk

GG's supply contracts for the

purchase of gas are mostly

denominated in US dollars

while the company supplies to

customers in Indian rupees.

Hence, any sharp depreciation

in the Indian rupee will have a

short-term negative impact on

earnings of the company, as it

will be difficult for GG to pass

on the increase in raw material

costs to customers.

Market Capitalization (` crore) 11399.9

Debt (` crore) 2350.9

Cash and Cash Equivalent (` crore) 62.1

EV (` crore) 15010.4

52 Week High / Low (`) 973 / 500

Equity Capital 137.7

Face Value (`) 10.0

11


STOCK IDEAS

ANALYST CERTIFICATION We /I, Mayur Matani, MBA and Akshay Gavankar, PGDM) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.




ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Mayur Matani, MBA and Akshay Gavankar, PGDM Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. ,

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

It is confirmed that Mayur Matani, MBA and Akshay Gavankar, PGDM. 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.

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12

FUNDAMENTAL OUTLOOK2018


Investment Outlook 2018

Pankaj Pandey,Head-Research,ICICIdirect

CY 17 was a remarkable year for equities as liquidity across the globe ensured that it was the most favored asset class. Back home in India, the story was no different as Sensex delivered a handsome 29% return, aided further by the falling yields which led to decline in cost of capital and consequent expansion of P/E multiples. Amid all these, the year was also marked by one-offs such as Demonetisation and implementation of GST, which temporarily led to a down tick in corporate earnings and GDP growth.

Government to lead capex, its p o l i c i e s t o b r e a k p r i v a t e investment jinx… Based on our bottom up approach, in f ras t ructure investment may jump up to Rs .48 lakh c rore led by housing, roads and railways in

the next five years, which i m p l i e s 1 0 % C A G R i n infrastructure spending in the next five years. Hence, we expect infrastructure spending as percentage of GDP to inch up to 6.0% in the next five years vs. 5.6% in the previous f i ve years . In our v iew, inc reased in f ras t ruc ture spending may inch up GDP growth rate by 80 to 100 bps. Government's “Housing for All b y 2 0 2 2 ” s c h e m e ( t o t a l

Source: ICICIdirect.com Research

13



TINA factor locally, globally to continue amid shrinking investible bond poolThe overarching theme for equity remains “There is no

opportunity of Rs.20 lakh crore) is expected to be a key catalyst in the economic recovery. Furthermore, an improvement in policy reform m a k e s t h e b u s i n e s s environment conducive for p r i v a t e i n v e s t m e n t i n infrastructure.

alternative” (TINA) better than equities. In the yield starved world, the case for equities is getting more compelling as earnings yields for equites continue to remain attractive compared to bond yields. A similar trend of higher earnings yield also remains for EMs. Indian equities may gain on the back of this trend as FIIs have been on the sidelines in the last couple of years.

Source: Bloomberg, ICICIdirect.com Research

Yields led P/E re-rating largely

done; earnings recovery to be

key driver now

We highlight that Sensex P/E

expansion has been driven by

falling yields. The relationship

between the P/E ratio and 10

year G�sec yield is inverse.

The key reason for the same is

that falling yields lead to lower

cost of capital. Hence, this

drives the valuation multiple

(i.e. high P/E ratio) for the

market. We pointed out the

above thes is in our last

strategy report (find here).

We expect inflation levels in

2018 at 4.5%. Adding to it a

14



normalized real interest rate of

175 bps and further 75-100 bps

markup for 10 year G-sec, we

expect the 10 year G-sec yield

to hover close to 7-7.25%

(similar to current levels).

Therefore, we believe much of

the yield based re�rating is

largely done.

However, going ahead, the key

driving force for the market

would be earnings recovery

(earnings CAGR of 17.4% in

FY17-20), which will largely be

the function of improving

c a p a c i t y u t i l i s a t i o n a t

corporate level (currently at

five year low).

Sensex RoCE to expand as utilization levels of India Inc improve

=Ex-financials, Sensex RoCE is expected to expand 220 bps in FY17-20E to 24.7% by FY20E vs. 22.5% in FY17, leading to earnings CAGR of 11% over FY17-20E

=Improvement is envisaged on account of higher sweating of assets and consequent better asset turnovers coupled with operational leverage benefits in terms of improved EBITDA margin profile

15



For financials; core RoAs are

expected to improve gradually

to 3.3% in FY20E vs. 3.1% in

FY17 primarily tracking a

revival of credit growth.

C o n s e q u e n t l y, B F S I i s

expected to report a robust

33% earnings CAGR over

FY17�20E.

Measuring Nifty fair value:

SoTP methodology intersects

P/E valuation at 11,725

We have tried to evolve 2018

Index target based on bottoms

up approach by using a sum of

the parts (SoTP) evaluation of

individual index constituents

T h e r a t i o n a l e o f s u c h

methodology stems from the

fact that over the period of

time, companies, within the

index, with presence in various

verticals/businesses have

witnessed value unlocking and

in such case the concept of

SoTP captures the value in a

better way than purely P/E

based valuations (especially

for businesses where earnings

are yet to mature). Moreover,

we also note that superior

b u s i n e s s e s , e x h i b i t i n g

consistent RoCEs, within the

index now command higher

valuat ions, whi le certain

businesses within the index

continue to trade at/below

average index multiple .

It should be noted that our

Sensex target implies target

P/E of 18x on average of FY19

and FY20 earnings(i.e. 1x PEG),

which is on the higher end of

historical average P/E of

16�17x commanded by the

market. However, we highlight

that improving RoCE is a better

metric than PE dissonance

during an economic upturn.

16



GST collections yet to stabilize

GST collections thus far are below our estimate, and we suspect below the revenue neutral rate required. Lower than expected GST collections (and thus, lower indirect taxes) would be an overhang on fiscal deficit financing. In absence of off icial estimates for the targeted col lect ions, we arrived at a revenue neutral figure of GST collections by working backwards from combined FY17 indirect tax revenues of the Central and State governments. GST collections would need to match comparable indirect tax revenues to ensure zero revenue loss under the new system.

Income tax collections boosted

Demonetisation-impacted H2FY17 saw a rise of 16% in direct tax collections YoY. In comparison, H1FY17 (six m o n t h s b e f o r e demonetisation) had recorded a 9% YoY growth over the comparable period. Apart from crackdown on black money, voluntary income declaration s c h e m e s , i n c r e a s e i n

surcharges for higher income slabs (above Rs.50 lakh and Rs.1 crore) and fear of action from authorities seem to have p r o v i d e d a b o o s t t o co l l ec t ions . In te rms o f p e r s o n a l i n c o m e t a x collections, the government managed to rake in Rs.3.5 lakh crore from individual tax payers in FY17, a rise of 21% YoY from FY16 collection of Rs.2.9 lakh crore. The total number of tax returns filed by individual assesses during FY17 was 5.43 crore, up 17.3% YoY. 1.26 crore new taxpayers (i.e. return filers and non-filers making tax payments) were added to the tax base

Corporate tax rates to decline gradually as near term fisc is challenged…

The Finance Minister in his previous Budget 2015 had made clear his intention to cut corpora te taxes to 25% gradually over a period to e n c o u r a g e f o r e i g n investments and jobs. In this direction, the government in the last Budget reduced the tax rate for companies with an annual turnover up to Rs.50 crore to 25% to promote

17



MSME and encourage firms to migrate to the company format.

However, in the coming Budget, there is little room for the government to reduce corporate tax rates as clarity is yet to emerge on GST revenue collections. With the phasing out of major profit linked deductions like accelerated depreciation, SEZ, area based deductions, etc., and plugging loopholes in the direct tax systems, the government can g r a d u a l l y b r i n g d o w n corporate taxes to the desired levels of 25% over a period of time

We expect the fiscal deficit for FY17�18 at 3.4% of GDP, 20 bps above the targeted fiscal deficit of 3.2%. For FY17�18, disinvestment receipts have been budgeted at Rs.72,500 crore. However, we expect the same at Rs.1,08,000 crore on account of significant stake stales, buybacks in Q4FY18 . We b e l i e v e t h e e x c e s s proceeds from disinvestment of Rs.35,500 crore are likely to provide significant cushion to the government to meet the fiscal target for FY17�18.

Indian nominal GDP growth seems to have bottomed out and is poised for long term structural growth on account of enduring reforms such as d e m o n e t i s a t i o n , G S T, Insolvency and Bankruptcy code (IBC), etc. Although reforms have taken a toll on the nominal GDP (9.3% in H1FY18) in the short�term, realisation of long term advantages will start mainly from FY19. Private consumption (PFCE), the backbone of India's GDP, is expected to continue its steady growth momentum due to an increase in disposable income.

Traction in disposable income & state pay commission to drive consumption…

Agri loan waiver and increase in disposable income are expected to provide support to f o o d & b e v e r a g e s c o n s u m p t i o n a n d b a s i c h o u s i n g n e e d s , w h i c h contribute 45% to PFCE. Also, robust growth in consumption of clothing & footwear (7% of P F C E ) , t r a n s p o r t & communication (18%) among others are expected to lead to i m p r o v e m e n t i n p r i v a t e consumption growth.

18



Source: RBI, Mospi, Government of India, media articles, ICICIdirect.com Research

After the central government's

implementation of Seventh

Pay Commission, states are

also likely to follow suit by

i n c r e a s i n g e x p e n d i t u r e

towards salaries and pension.

Some of the states have

already announced the budget

for incremental salaries and

wages. Initial figures suggest

the release of incremental

Rs.70,000 crore from some of

major states. This can go up to

R s . 2 l a k h c r o r e w i t h

implementation across all

states. We expect expenditure

of states on salaries and wages

to increase sharply at 19.3% in

FY19E.

Also, HRA dues to the tune of

Rs.30000 crore and Rs.10000

crore for teachers in UGC

funded un ivers i t i es and

colleges, respectively, lined up

for payment between H2FY18

and FY19E is likely to increase

the quantum of GFCE. As

salaries and wages constitutes

65% of the GFCE, hike in the

s a m e w o u l d s t i m u l a t e

consumption over the next

couple of years. Hence, we

expect the GFCE to increase at

12.6% and 14.8% in FY18E and

FY19E, respectively.

Source: RBI, Mospi, Government of India, media articles, ICICIdirect.com Research

19



Real interest rate within RBI range,

to maintain status quo on Repo rate

RBI has indicated to maintain

real interest rate in the range of

1.25%-2.00%. RBI earlier said

the equilibrium real interest

rate in India was 1.5�2.0% but

it subsequently brought down

the range to 1.25%

We have tried to analyse the

future rate action by RBI with

real rate assumption of 1.75%

and average inflation range for

year 2018 at 4.25% to 4.75%

We expect RBI to maintain

status quo on repo rate at 6.0%

during CY18. While we do not

expect a further rate cut, we

also do not expect a reversal in

the interest rate cycle in the

near future

The recent up move in G-sec

yield with 10 year yield moving

t o 7 . 3 0 % i s m o r e o f a

r e t r a c e m e n t o f b u l l i s h

positioning as investors adjust

from a declining rate cycle to a

prolonged status quo phase in

benchmark rates. Considering

the 10 Year G-Sec yield spread

over repo at 100-125bps, we

expect 10 year G-Sec yield to

trade in the range of 7.0%-

7.25%

Scope for banking system to lower

rates remains…deposit repricing

effect still at play

Whi le we expect RB I to

m a i n t a i n s t a t u s q u o o n

benchmark rates for most of

year 2018, we believe there is

still scope of lower lending

rates in the banking system.

Lower credit cost in terms of

lower provisioning, repricing

of deposits at lower rates and

structural reforms like lower

cash to GDP ratio, increased

digital transactions, increase in

merchant discount rate (MDR)

rates expected to cut losses,

benchmarking of lending rates

to marginal cost lending rate

(MCLR) provide scope for

further rate transmission. We

estimate scope of further

reduction of 40 bps in the

banking system in a gradual

m a n n e r p a r t i c u l a r l y i n

c o r p o r a t e l e n d i n g r a t e .

{assumed 40 bps = 20 bps

from deposits + 15 bps from

provisions + 5 bps from lower

opex}

20



Rising inflation may tilt spotlight

f rom equ i t y to o the r asse t

classes…

Higher inflation has potential to

partly unwind TINA for equites

Inflation remained elusive in

2017 as inflation fell and drove

term premium and resultant

bond yields lower. Inflation

outlook for 2018 is relatively

stronger for 2018 (crude and

commodity price recovery

being key catalysts) and

remains a key risk. There is a

c lear d i rect re la t ionship

b e t w e e n e a r n i n g s y i e l d

(inverse of PE) and bond yield

over a long time horizon.

Earnings yields have average

1.5x bond yields. Increase in

bond yield from current 2.4%

(because of higher inflation)

will result in a proportionate

increase in earnings yield,

which may result in declining

PE. Any inflationary shock has

the pot

Risk factor that may derail ongoing

“rationale exuberance” in equities

China continues to add on their

aggregate debt. Its debt to GDP

ratio exceeded 30% over its

long term average of 220

(fueled by significant rise in

corporate debt). Though there

is sufficient debt servicing

capacity due to current lower

interest policy, any sudden

spikes in interest rates could

expose financial risks.

21



Sectoral Outlook:

- We are positive on sectors like

auto (volume driven operating

leverage benefit &increasing

share of premium) , banking

(PSU banks' return potential),

c a p i t a l g o o d s , c e m e n t

(demand fromrural, Individual

House Builder (IHB) segment

and government led infra

p r o j e c t s ) , c o n s u m e r

discretionary (India's shifting

preference towards premium

products and increas ing

penetration of the electrical

goods, asset light model, cash

surplus status of companies),

FMCG (increasing demand

22



from rural India, structural

r e fo rms ) , i n f r as t ruc tu re

(government's renewed focus

on sector, “Housing for All by

2022”scheme, historic road

building program), logistics

(implementation of the e-way

bill) , media, retail (Incremental

benefit of the shift from

unorganised to organized) and

telecom (data usage adoption

- We are neutral on defensives

l i k e I T ( t r a n s i t i o n o f I T

landscape from traditional to

digital, client IT spending

pattern towards emerging

technologies) , textiles and

apparels, pharma (post GST

r e c o v e r y , n o r m a l i z e d

emerging markets currency

volatility and new product

launches) , power, real estate

(optimist ic on affordable

h o u s i n g s e g m e n t a m i d

government's policy push,

improvement in fundamental

drivers such as sales volumes)

, metals and mining (stable

rea l i za t ions and hea l thy

demand prospects) , oil and

gas (sharp run-up in stock

prices, steady volume led

growth expected)

23

TECHNICAL OUTLOOK 2018


Triangulation reaffirms faith in Bulls

As 2017 draws to an end with>20% gain on domestic indices, a common question that an investor is pondering upon is “Is a significant correction in sight?” or “Are we at a tipping point,which would converge into a mega bull rally for the next couple of years?” Hence, we have centered our“Market Strategy2018” report around the above questions in order to gauge what is in store for equities in CY18.

Dharmesh Shah,Head-Technical analysis, ICICIdirect

WeinitiatedaTriangulationpro

cessinascertainingthewayah

eadformarketsthatpencilsina)

bottomupapproach,b)conve

ntionalchartingmethodsandc

)marketinternals.Alloutcome

sreaffirmthatbullswillprevaili

nCY18whereintheNiftyisexpe

ctedtoreturn14%withapotent

ialtargetof11900overthenext

12-15months.

Apartfromtheabove,wealsod

ecipheredinterestingobserva

tionsthatinclude:

> Mega t rend ana lys is

highlights multifold rallies

over the next few years and

m i n o r c o r r e c t i o n s

accompanied by i t that

should be utilized as an

i n c r e m e n t a l b u y i n g

opportunity

>Dissecting 'unconventional/

unloved' ideas (both large

and mid/small caps) for beta

c a p t u r i n g . I n c a s e o f

unconventional ideas we

have constructed in-house

sectoral indices that have

eventually helped us pick

stocks from those baskets.

F o r u n l o v e d s t o c k s ,

observation of cycles across

a longer time frame and back

testing it have also thrown up

interesting ideas across the

spectrum

Onlydownsiderisktoourprog

nosisiselongatedtimecorrecti

onwithlimitedpricedamageas

wedonotexpecttheNiftytosus

tainbelow9400levels.

24



Source: ICICIdirect research

Decrypting “Bottoms up way”:

Nifty @ 11900

We continue with our bottom

up approach to make a

prognosis for the Nifty for

CY18.We adopted our in-

house composite model to

screen all Nifty constituents.

Our composite model includes

a study of the long term trends,

i n v e s t o r p a r t i c i p a t i o n

parameters and time cycles

influencing respective stock

pr ice movements, which

helped us categorise the

stocks under four buckets viz.

Outperformers, Turn around

Stocks, Bargain Buys and

Neutra l . Out of the four

categories, three highlight

bullish sentiment whereas the

Neutral category highlights

l i k e l y c o n s o l i d a t i o n o r

correction in the coming year.

Outcome:

The key take away of this

exercise is as follows:

-Highestnumberofstocks(21)fa

llunderOutperformerbasket,co

mmandingcombinedweightag

e o f 4 9 % - S e c o n d h i g h e s t

numberofstocks(16)withweigh

tageof21%fallunderNeutralbas

ket,astheyarelikelytounderperf

orm

25



-Eightindexconstituentswith18

%weightagehaveapproached

price,timewisematurityofcorre

ction&settobeginfreshuptrend

-Fivestockscarryingweightagef

12%arewitnessingastructural

Source: Bloomberg, ICICI Direct.com Research

Mega trends: Are we at a tipping

point?

The Sensex witnessed two

m e g a t r e n d s s i n c e i t s

inception. Between 1979 and

1992,theindexgained40timeso

ver13yearswhi lethe2003-

08rallygainedseventimesinma

g n i t u d e . W h i l e t h e 2 0 0 3 -

08rallywasbornoutofa11yearb

e a r p h a s e ( 1 9 9 2 -

2003),thecurrentbullmarket,w

hichcommencedfrom2013low

s,wasprecededbysixyearsof

underperformance (2008-

14whentheactualbreakoutocc

urred)


26



Technically,wewanttopresenta

casethatinvestorsshouldfocus

onlongtermtrendsandbenefitfr

omthemratherthanworryingab

outshort term a berrations as

e v i d e n t f r o m h i s t o r i c a l

evidence.Anempiricalevidenc

egivesusconfidencethatthecur

rentbullmarketinIndiaisstillina

nearlystageandisl ikely to

extend over then extfourt of

I've years. Therefore, were

commend utilizing any inter

media tecorrections as a

n i n c r e m e n t a l b u y i n g

opportunity.

General Elections: Bulls charge…

The year 2018 being a pre-

election year wil l have a

s i g n i f i c a n t b e a r i n g o n

sentiments in equity markets. It

has been observed tha t

benchmark ind ices have

performed relatively well in

pre-election year. Hence,

historical evidence suggest

that there are unlikely to be

large drawdowns in CY18.


Gold ($1264): Bullion to extend

its time correction, upsides

capped at $1400...

= Gold prices have gained

almost 10% during CY17 on

the back of weakness in the US

dollar and increased global

geopolitical tensions. Despite

the up move, gold prices

remained in a broad range of

$1400-1050 in the last four

years.

= Going forward, we expect

gold prices to continue the

c u r r e n t c o r r e c t i v e

econsolidation. Prices, after 11

years of stupendous rally from

$252 to $1921, have been in a

27



corrective trend in the last six

year while retracing 50% of the

previous rally. We expect

prices to remain in the time

wise consolidation phase

while upsides look capped

around the $1400 region, as it

is the higher band of the last

four years consolidation and

the 38.2% retracement of the

entire decline from 2011 peak

of $1921 to 2015 bottom of

$1046 levels.


B r e n t ( $ 6 3 . 8 0 ) : T i m e w i s e

consolidation to extend...

=WeexpectBrentcrudepricest

oshifttheirtradingrangehigher

whileconsolidatinginarangego

inginto2018.Theupsidelooksc

appedaround$70levelsasitisth

econfluenceoffollowingtechni

calparameters:

>Price parity with previous

2016 rally from $ 31 to $ 58 as

projected from the 2017 low of

$ 43 projects upside towards $

70 levels

>The previous yearly high of

2015 is placed around $ 70

levels

=Declinesinoilpricesarelikelyt

o b e a n c h o r e d a t ~ $ 5 0 -

52beingthe61.8%retracement

ofpastfivemonthsrally($44-

64)placedat$52andvalueofther

isingtrendlineconnectingyearl

ylowsof2016($27)and2017($4

4)

28



=To sum up, Brent prices are

expected to remain in a

broader trading range of $50-

72 amid lack of structural turn

around on long term charts


US$INR (64.05): Rupee likely to

appreciate to 62…

=Fromayearlyperspective,the

USDINRpairformedabearishen

gulfingcandlethisyear,hintinga

tatemporaryhalttotherupeede

preciationtrajectorythatbeena

majorthemesinceCY11.

=WeexpecttheUSDINRpairto

depreciatein2018andheadtow

ardsthemajorsupportarea

s e e n n e a r t h e 6 2 . 4 0 -

62.00region,whichistheconflu

enceof:i)61.8%Fibonacciexten

sionofdeclinefrom2013 high to

2014lowextendedfrom2016hi

gh,andii)61.8%Fibonacciexten

sionofdeclinefrom68.87to63.9

2extendedfrom65.89.

=Havingsaidthat,wedonotfor

eseethepairsustainingbelow62

-62.00rangenextyear,aspolicy

divergencebetweentheFederal

ReserveandotherG7centralban

ksshouldkeepthedollarsupport

edagainsttheG7basket

=Thepairhasmajorresistancei

nthecomingyeararound66.50l

evelsbeingtheconfluenceofthe

breakdownareaofMarch2017a

ndthe61.8%retracementofthe

2017downmove.

29

DERIVATIVES STRATEGYFOR 2018


Rational exuberance to drive Nifty higher for target of 11700…

Amit GuptaHead - Derivatives Research,ICICI Securities

Since the commencement

of rate hike by the US Fed in

2015, equity markets have

constantly outperformed

other key asset classes like

gold and bonds. This has

triggered strong inflows into

equities at the expense of

other key asset classes like

bond and gold. S&P is likely

to clock strong positive

returns in 2018, as the Fed is

expected to deliver two or

three rate hikes in 2018,

which is likely to keep the

underperformance trend of

bonds, gold intact (caveat

being deflation shock).Easy

financial conditions coupled

with subdued volatility and

robust sent iment f rom

corporates, individuals to

cont inue to thrus t US

equities higher.

The decline in standard

dev ia t ion (SD) o f S&P

returns was seen in 2016

when SD declined from 4%

to 3%. In the Nifty, it was

seen in 2017 when SD of

Nifty returns fell from 5% to

3%. We believe 2018 would

be the year in which SD of

Nifty returns could witness a

further decline from 3% to

1.5% following S&P pattern.

Hence, we believe the Nifty

should be able to post near

17% return in the coming

year.

30




June 2018, 9700 Put writing further strengthens view of strong support near these levels

= The action happened not only in 2017 Put strike but also in June 2018 Put strike where premiums were shorted in a n t i c i p a t i o n o f l i m i t e d downsides in the market

= The 9700 Put of June 2018 is still witnessing writing. This also started when the Nifty was near 9700. This strengthens the view that strong support for the market is close to these levels.

While the US Fed has started its unwinding of balance sheet, ECB and BoJ are likely to c o n t i n u e w i t h t h e i r Q E

programme. Together, they will continue to push US$100 billion of QE till June 2018. Even after this, BoJ is likely to continue with its US$60 billion QE run rate. Hence, the central bank liquidity picture is likely to remain positive in 2018. A positive liquidity environment bodes well for risk assets like equities

Equity ETF in US clocked record inflow

ETFs in US have outgrown actively managed MFs. On a consolidated basis, strong inflow is seen in equity ETF. As per the latest data for 2017, equi ty based ETFs have received almost double the record inflows seen in 2016.

31



This suggests preference for equity remains

Volatility to remain lower in equities

Cross asset volatility is likely to remain low. In equity markets more specifically, volatility has been moving in sync not only for India and EMs but also the developed markets. With chances of any major risk shock remaining benign, volatility across equity markets is likely to remain low

Bond market f lows taking a breather

At the start of the year, as the reflation trade eased, EM bonds saw strong buying i n t e r e s t i n H 1 o f 2 0 1 7 . However, in H2 of 2017, as growth picked up pace in most Ems, the inflows in bonds tapered off. Additionally, the decidedly hawkish centrals banks of the US & Europe kept yields higher. This reduced the spread between developed markets and EMs. As a result, the alpha from EM bond portfolio has reduced. FIIs are using the equity route for EMs as GDP growth and EPS expansion remains intact for most Ems. Hence, in 2018, EM

equites should continue to see strong inflows even if bond m a r k e t i n f l o w s r e m a i n subdued.

Major currencies have appreciated

At the start of the year, on fears o f “r e f l a t i o n t r a d e ” E M currencies were looking weak. However during the year, as the EM's continued to post robust growth, their currency and forex reserves positions improved. The usual suspect “Current account deficit”, also improved for most key EM's. Hence as we look into 2018, the EM currency basket seems substantially resilient (when compared in the last couple of years). With the commodity recovery story intact in midst of strong macro environment, EM's are set to deliver strong & s y n c h r o n i s e d p r i c e performance in 2018.

Equity corrections have reduced

Since the last few years the steady flows in the equity markets have restricted the equity downsides. Certain m a j o r d o w n s i d e s h a v e become on account of events like US rate hike, Election jitters in Euro.

32




Stocks witnessing accumulation pattern- Quant Picks for 2018


33

FLAVOUR OF THE MONTH

Investment Outlook 2018


2017was a remarkable year for equities on both national and global fronts. While

Sensex delivered 29% returns, gold prices gained almost 10% amongst other

categories that offered positive returns in CY17. Will the good run continue for

2018? We asked a panel of industryexperts for their views on the year ahead and

also a look back on 2017. Let's take a look:

2018 India Equity Market Outlook –

On Your Mark, Get Set, 2019?

2018 will mark the fourth year

of the Modi Government in

office and the penultimate year

before the general elections

scheduled for April-May 2019.

With the Dec 2017 state

election victories for the

BJP/NDA in Gujarat and

Himachal Pradesh, markets

may heave a sigh of relief.

H o w e v e r, t h e q u e s t i o n

remains: Will the government

stick to the path of economic

reforms, or focus on politics

(read populism), before 2019?

We would place our bets on

reforms, and we base this on a

number of factors including –

(i) 19 out of 29 states in India

are now under BJP/NDA rule

potentially making it easier for

the ruling party to bring about

its reforms, (ii) several reforms

are on the anvil including

improvements to the Direct

Tax Code, e-way bill, real-

estate sector, banking sector

among others, (iii) the reform

agenda has been recognized

globally - India has jumped 30

spots in the World Bank's Ease

of Doing Business ranking, (iv)

stellar foreign inflows this year,

both FDI (+US$ 54.7bn till Oct-

end) and FPI (+US$ 8.5bn till

Nov-end), on the back of

reforms.

The Government reforms over

the past couple of years could

Anup Maheshwari,Executive Vice President and CIO- Equities, DSP BlackRock

34



2018 India Equity Market Outlook –

On Your Mark, Get Set, 2019?

2018 will mark the fourth year

of the Modi Government in

office and the penultimate year

before the general elections

scheduled for April-May 2019.

With the Dec 2017 state

election victories for the

BJP/NDA in Gujarat and

Himachal Pradesh, markets

may heave a sigh of relief.

H o w e v e r, t h e q u e s t i o n

remains: Will the government

stick to the path of economic

reforms, or focus on politics

(read populism), before 2019?

We would place our bets on

reforms, and we base this on a

number of factors including –

(i) 19 out of 29 states in India

are now under BJP/NDA rule

potentially making it easier for

the ruling party to bring about

its reforms, (ii) several reforms

are on the anvil including

improvements to the Direct

Tax Code, e-way bill, real-

estate sector, banking sector

among others, (iii) the reform

agenda has been recognized

globally - India has jumped 30

spots in the World Bank's Ease

of Doing Business ranking, (iv)

stellar foreign inflows this year,

both FDI (+US$ 54.7bn till Oct-

end) and FPI (+US$ 8.5bn till

Nov-end), on the back of

reforms.

The Government reforms over

the past couple of years could

broadly be broken into three

main categories: a) Crackdown

on black money b) Financial

inclusion through Aadhaar and

Jan Dhan bank accounts and c)

Direct benefit transfer (DBT) of

subsidies. These are critical

long term structural reforms in

our view, the benefits of which

will be realized over the next

few years. And as we had

anticipated, these caused near

term pain to growth and

earnings.

However, this did not stop

Indian equities from rallying

sharply in 2017 - up ~36% in

USD terms or ~28% in INR

terms. The obvious question

has been on high valuations

and its sustainability. We think

this run up has been a part of

the broader EM rally and that

35



India is not an outlier. Markets

are certainly at a high but

valuations are not. An earnings

catch-up could certainly help

sustain these valuations. We

expect corporate earnings to

see a broad based recovery in

FY19 and FY20. Along with the

positive base effect, a mix of

global cyclicals (metals), autos,

oil marketing companies and

banks may be the key drivers

for this.

After hitting a low of 5.7% in Q1

FY18, GDP growth recovered

to 6.3% in Q2 FY18, and we

expect the upward trend to

continue. With demonetization

behind us, implementation of ththe 7 pay commission along

with the higher government

spending on the rural segment

could help support demand.

This should benefit consumer

facing companies like staples,

consumer durables and other

under-penetrated sub sectors

which will also benefit from

initiatives on “Housing for All”

and “Power for All”.

On the investment front,

private sector capex may

remain subdued as corporates

continue to operate at lower

util izations of ~70%. For

reference, ~80% utilization

was the threshold for new

capex growth last time around.

However, new capex may be

r e p l a c e d b y i n o r g a n i c

acquisition of existing idle

capacities spurred by sales

through the National Company

Law Tribunal (NCLT). The onus

will then likely lie on the

G o v e r n m e n t t o d r i v e

investments. If private capex

does revive however, it is likely

to be swift, given the inherent

efficiencies of the private

sector.

Flows: We expect domestic

flows (led by mutual funds) to

continue to outpace foreign

flows for the fourth year in a

row in 2018, as India is finally

w i t n e s s i n g a s h i f t f r o m

physical to financial savings

which looks more structural.

EMs have seen equity inflows

of ~60 billion in 2017 so far

which is after four years of net

outflows from EMs. Global

p o r t f o l i o m a n a g e r s a r e

36



underweight EM equities,

l e a v i n g m o r e r o o m f o r

additional buying in EMs and

India.

Currency: INR continues to

r e m a i n o n e o f t h e b e s t

performing currencies since

the Taper Tantrum in 2013 and

has also been amongst the

least volatile. We expect this

trend to continue over the next

few years with RBI committed

to keeping the currency stable

and with the improvement in

forex reserves and FDI. On the

global front, while more rate

hikes in 2018 by the US Fed are

highly anticipated, we believe

the disruption to EM equities

a n d c u r r e n c i e s w i l l b e

temporary, if at all, especially if

the rate increases are a

function of growth coming

back in the world's largest

e c o n o m y. T h i s s h o u l d

eventually be positive for

exporting countries like India

and other EMs in general. A

rise in global GDP growth

bodes well for global trade

which has been subdued over

the past few years.

Risks: While the broad outlook

for India may remain positive,

we believe there are certain

risks which investors must

consider. These include: A

shortfall in the yearly GST

collection (will negatively

impact the fiscal deficit), rising

oil prices (leading to higher

current account deficit), rising

inflation (higher oil and food

price base effect) and geo-

pol i t ics (China's growing

influence and strength in the

We have included statements/opinions/recommendations in this document, which contain words, or

phrases such as “will”, “expect”, “should”, “believe” and similar expressions or variations of such

expressions that are “forward looking statements”. Actual results may differ materially from those

suggested by the forward looking statements due to risk or uncertainties associated with our expectations

with respect to, but not limited to, exposure to market risks, general economic and political conditions in

India and other countries globally, which have an impact on our services and/or investments, the monetary

and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign

exchange rates, equity prices or other rates or prices etc.

37



Harsha Upadhyaya, Chief Investment Officer – Equity,

Kotak Mahindra AMC

2018: Back to basics; Focus on

fundamentals

As we enter the New Year

2018, as is customary, we

spend some time looking back

at the year gone by and also

attempt to gaze into the crystal

ball to understand what 2018

has in store for us. The theme

this 2018 is “back to basics”

with a focus on fundamentals

and disciplined investing. In

this regard the quote from

Benjamin Graham seem very

apt.

“ S u c c e s s f u l i n v e s t i n g

professionals are disciplined

and consistent and they think a

great deal about what they do

and how they do it.” - Benjamin

Graham

2017: The year of reforms

2017 can clearly be termed as

the 'year of reforms'. Reform

measures such as GST (Goods

a n d S e r v i c e s Ta x ) , t h e

Insolvency and Bankruptcy

Code (IBC) and the flagship

schemes like Direct Benefit

Transfer (DBT) were some of

the major initiatives of the year.

2017 started with the economy

grappling with the after effects

of demonetization. This was

f o l l o w e d b y t h e

implementation of GST, which

is by far the biggest tax reform

that the country has seen.

While there has been some

temporary d is rupt ion in

activity on account of GST, we

do believe that supportive

g l o b a l g r o w t h , s t r o n g

c o n s u m p t i o n d e m a n d

(including revival in rural

demand) and improv ing

corporate profitability would

spur growth in 2018.

GST implementat ion has

resulted in two large structural

thematic shifts in India which

are still playing out: (a) shift

from the unorganized to the

organized space and (b) a shift

38



in savings from physical to

financial assets. Favourable

demographics combined with

macro stability and initiatives

to educate investors, as well as

progressive regulations, have

all supported this shift in

savings behaviour.

We also believe that over time

as the GST infrastructure and

r a t e s s t a b i l i s e , b e t t e r

compliance would ensure that

these is an improvement in the

tax- GDP ratio in our country

which would help us move

further along the path of fiscal

consolidation.

Another big development in

2017 were the steps taken to

expedite the banking sector

s t ress reso lu t ion . Large

corporate Non Performing

Loans (NPLs) have been

plaguing the banking sector

resulting in eroding balance

sheet strength. RBI (Reserve

Bank of India) has decided to

re fe r some o f the la rge

corporate delinquent accounts

t o t h e N C LT ( N a t i o n a l

Company Law Tribunal) under

the Insolvency and Bankruptcy

Code in order to find a time

bound resolution to the NPLs.

2018: The year ahead; Focus on

fundamentals and corporate

earnings

One of the key concerns in

2017 was that the up-move in

the markets has not been

supported by strong earnings

growth. While earnings growth

has been muted for the last few

years, we now think that the

trend is about to reverse and

corporate earnings are set for a

recovery and such a recovery

would be one of the main pre-

condit ions to the market

sustaining current valuations.

This earnings recovery would

in our opinion be led by the

macro polices and reforms

a g e n d a , a b o o s t t o

infrastructure spending, export

growth supported by global

growth revival , a robust

consumer demand (including

improvement in rural demand)

and a nascent recovery in

private capex.

When we talk of earnings

recovery, a recovery in overall

capital formation cycle would

be a key factor apart from

39



growth in consumption. While

the key driver for capex in the

economy would continue to be

public spend, the private capex

cycle should also benefit from

three years of low average

lending rates, better corporate

profitability, easier availability

of credit from the banking

system, higher equity raising

from a buoyant market, more

FDI into manufacturing and

infrastructure and a renewed

focus on housing. Public capex

growth is likely to remain

healthy with a focus on roads,

r u r a l d e v e l o p m e n t a n d

affordable housing.

A p a r t f r o m t h e f a c t o r s

mentioned above, the pace of

resolution of NPLs and the

repair of the balance sheets of

corporate private sector banks

and PSU banks would play a

role in the revival of private

sector investments in India. In

this regard, the plan to infuse

Rs 2.11Trn of capital into Public

sector banks through a mix of

recapitalisation bonds, capital

infusion as planned in the

budget and fresh raise from the

market, stands in good stead.

Over time as the resolution of

big ticket NPLs gather pace, the

cycle of low capital and low

growth could be broken,

resulting in a pick-up in credit

growth.

While 2017 was the year of

reforms, in 2018 the focus of

the Government will be on

consolidation and building on

r e f o r m s l i k e G S T, b a n k

r e c a p i t a l i z a t i o n p l a n ,

bankruptcy and insolvency

process and nurturing the

economy back into a higher

growth path in a pre-election

year. In this context we would

a l s o a w a i t t h e

r e c o m m e n d a t i o n o f t h e

Committee on Direct tax

reforms with the focus on

improving tax buoyancy and

compliance

The later part of 2018, will see

many states coming up for

elections (8 state elections are

slated to be held). In our base

case, we build in a fairly stable

political scenario leading up to

the General Elections in 2019.

Against this backdrop we

expect the Nifty to report

40



~15% earnings growth in

F Y 1 9 E . W i t h i m p r o v i n g

corporate earnings, we too

would continue follow our

investment philosophy of

Growth at a Reasonable Price

( G A R P ) w i t h a n a i m o f

investing in companies which

have the potential to report

earnings growth higher than

the market, strong balance

sheet position and stable

management.

We would continue to urge

investors to invest through

mutual funds in a systematic

manner for the medium to long

t e r m k e e p i n g i n m i n d

individual risk profile and

return expectations. Prudent

asset allocation and long term

focus are very critical for all

investors. With recent strong

upmove in the market, it is not

advisable to chase market

momentum.

Key risks

· Sharp and sustained rise in

oil prices is a key risk to the

near term growth story for

India

· S u p p l y o f p a p e r : A n

acceleration in the supply of

paper in a bunched up

manner could impact market

performance

· Lo n g b o n d y i e l d s a r e

unlikely to retrace to lower

l e v e l s i n a h u r r y a n d

therefore any sharp and

sustained spike in bond

yields could impact the cost

of capital.

· Any political instability as a

result of the heavy election

calendar of 2018

Fixed Income Outlook: Policy rates

likely to remain on hold; Inflation

data holds the key

The key focus fo r RB I ' s

monetary policy is to keep

inflation under check and to

ensure that CPI (Consumer

Price Index) inflation remains

close to the medium term

target of ~4%. It is likely that

inflation stays elevated in

H 2 F Y 1 8 o n t h e b a c k o f

hardening food prices and the

pass through impact of the

HRA (House Rent Allowance)

hike post the implementation

of the recommendations of the th7 Pay Commission. We expect

41



CPI inflation to average ~4% in

FY18E (March end inflation

likely to be ~5%) and between

4.7-5% in FY19E.

Given this backdrop, we

expect that policy rates would

be kept on hold for the medium

term as the central bank (RBI)

would monitor domestic CPI

inflation, trends in fiscal deficit

and the outcome of the policy

actions by the US Federal

Reserve.

In terms of liquidity, the stance

of the MPC (Monetary Policy

Committee) remains neutral.

The excess liquidity in the

system which had peaked post

demonetization, has been

coming off with increase in

currency in circulation. The

expectation is that liquidity

would remain marginally in

surplus in FY18 while moving

closer to neutral levels by

Q1FY19. RBI would however

continue to manage liquidity

t h r o u g h t h e L i q u i d i t y

Adjustment Facility (LAF) and

would also use open market

operations (OMOs) if the need

arises.

PVK Mohan, Head – Equity, Principal Pnb

Asset Management Company

CY 2017 – In retrospective

Over the past 12 months in CY 2017, we have witnessed a strong equity market rally with the Nifty 50 Index notching up 28% gains on the expectations of a broad economic revival, expectations of successful resolution of stressed assets and the recapitalization of banks, expected benefits from a GST rollout and a general pick up in earnings growth. The market clearly brushed aside e a r l y c o n c e r n s f r o m demonetization and initial hiccups of the GST rollout in Q2 CY 2017. But at the end of the CY 2017 after a strong market rally, we are now faced with lofty multiples for the equity market which has been supported by strong domestic

42



liquidity from robust MF flows into equity funds. Earnings growth currently remains tepid for the markets as a whole, though street expects earnings to recover after bottoming out in the past quarter.

In CY 2017 YTD, India Equities as reflected by the Nifty 200 Index Returns de l ivered 3 1 . 8 6 % a n d t h e C R I S I L Balanced Fund Aggressive category returns delivered 24.77 %. Further India equities have outperformed Fixed Income and Gold, with the CRISIL Composite Bond Fund Index delivering 5.07% and Gold that delivering 2.86% over the same period (Data Source: www.nseindia.com, www.amf i ind ia .com and Bloomberg; Data as on 19 th

Dec 2017)

On the global front, on the back of a stronger US economy and earnings growth in 2017 and with an expected tax reform by the Trump administration to be rolled out in 2018, we expect US economy and markets to continue to trend strongly. This in turn has resulted in a rebound in oil prices and we now have oil price above USD 63.5 per barrel. This has

impacted the Indian macro picture adversely with current account deficit rising by nearly USD 7.2 Billion (nearly 1.2% of GDP) over Q3 2017. The stronger oil price has also spiked up headline inflation and inflation expectations driving up India Gilts yields (with the 10 years yield at about 7.25% currently) and has dented recent India bond market returns. Further with the current neutral stance maintained by the recent RBI credit policy and caution from rising CPI levels to 4.9% (up from 3.17% in Jan 2017), chances of any rate cuts in the next 6 months would be low. Also, a weaker Dollar and a high positive real rate in India has resulted in a stronger Rupee with the Rupee trading at about Rs. 64-65 / USD, which has impacted the pace of recovery in exports.

Having sa id th is , India 's macroeconomic parameters remain stable with the recent Sovereign rating upgrade by Moody signaling to investors the overall economic stability backed by ongoing reforms in the economy, steady FDI flows, and forex reserves of over USD

43



400 Billion.

Ahead of general elections in 2019, and particularly after the results of the Gujarat elections i t i s e x p e c t e d t h a t t h e government will focus on the rural areas in the budget and in policy formulation. Hopefully, we should not see many instances of farm loan waiver as the union government has clearly said that it would not fund the states for these. Politically, the many state level elections in 2018 will keep news flow active, and the markets choppy, though the markets would look through these if the central government cont inues implement ing reforms.

T h e s e c u l a r l o n g - t e r m expected growth potential of India over the next 5-7 years is on the back of a strong demographic profile, rising urbanization and consumption growth, an efficient corporate s e c t o r a n d c o n t i n u e d e c o n o m i c r e f o r m s a n d development agenda of the government that is expected to give a fillip to infrastructure (roads, railways, ports, and airports), rural development and power. Another very

powerful theme is affordable h o u s i n g a n d s p r e a d o f digitalization under Digital India. These long-term trends are positive for future earnings growth and equity market returns over the next 3-5 years.

Outlook for CY2018

We are cautiously optimistic for the outlook on markets in 2018 on account of a host of global market factors, local macroeconomic situation which is stable with some headwinds on inflation, and a busy political season in the run up to the 2019 Genera l Elections. The Union budget f o r F Y 1 9 w o u l d b e a n important near-term market catalyst for India's equity markets, for overall fiscal situation and the trends in India's Bond markets. While we expect earnings growth and return ratios to recover over the next 4-6 quarters, (we expect earnings growth to be between 17-20% for FY 19), we expect near term equity market returns to be volatile through 2018. We do not see any major themes for 2018, rather the markets should reward bottom up stock selection and active management. India's bond

44



market returns would mainly depend on the RBI policies in the backdrop of rising headline oil price and India CPI trend. We expect money-market bond yields to harden in H1, CY 2018 as l iquidity surplus reduces.

How should MF investors navigate the opportunities and risks in 2018?

Tactical Asset Allocation will be the key to investments in CY2018. Asset Allocation is a trade-off between investment-specific risk and return and is hence an antidote to market volatility. The main goal of asset allocation is to optimally diversify across core asset classes such as Equities, Fixed Income, Bank Deposits, Gold and Real Estate etc. in the context of the investor 's financial goals to minimize overall risk and maximize returns.

Different asset classes perform differently from one another during various regimes and time periods. Equity is a more volatile asset class but has historically delivered superior returns over longer periods and would be suitable for

wealth creation and beating inflation over the long haul. In contrast, debt instruments such as bonds have lower volatility and are suitable for steady income generation. But as these asset classes have low correlations, they can be suitably combined to develop well-diversified portfolios to deliver solid and consistent financial outcomes across time.

In essence, a diversified asset allocation helps investor feel more comfortable with the portfolio, when the market shifts. That's because the diversification enables better risk management: with a mix of different investment options from various asset classes, the impact may not be as much by changes to a single category. Diverse asset allocation also helps ride out market highs and lows and resist the urge to speculate dur ing market swings.

Mutual funds are the ideal vehicles for implementing strategic and tactical asset allocation for realizing financial goals. They offer various solutions to retail investors w h i l e l e v e r a g i n g t h e

45



i nves tment exper t i se o f professionals. Furthermore, Systematic Investment plans (SIPs) in Mutual funds also give investors the opportunity to benef i t f rom rupee - cost averaging and help ride out the ebb and flow of markets and follow a disciplined long-term approach to wealth creation. “Mutual funds SahiHai” is the mantra!

Amongst various types of funds offered by Mutual funds, Dynamic asset allocation funds combines dual benefit of diversification as well as rebalancing, based on levels of m a r k e t v a l u a t i o n s . B y adjusting the equity exposure these funds aim to deliver superior risk adjusted returns a c r o s s m a r k e t r e g i m e s . F u r t h e r t h e s e f u n d s dynamically rebalance the

equity and f ixed income exposures in a tax-efficient manner. Thus, these funds e l i m i n a t e t h e n e e d f o r investors to resort to market-timing and avoid cumbersome rebalancing steps and the associated costs arising from exit loads.

In this regard, well managed Dynamic asset allocation funds may be suitable vehicles for coping with short term market vo la t i l i t y wh i l e o f fe r ing calibrated equity exposure and being optimally positioned to capitalize on India's potential growth opportunities and p o t e n t i a l f u t u r e c a p i t a l appreciation over the longer term. Additionally, Balanced Funds, would also continue to be an attractive investment category in 2018.

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

The views expressed and information herein are independent views and for informative purpose only and under no circumstances should be construed as an opinion or Investment advice. The information contained herein is not intended to be an offer to seek solicitation for purchase or sale of any financial product or instrument. Investment involves risk. It should be understood that any reference to the securities/ sectors in the document is only for illustration purpose. Past performance is not indicative of future performance and investors may not get back the full amount invested. As an investor you are advised to conduct your own verification and consult your own financial and tax advisor before investing. The Sponsor, Trustee, AMC, Mutual Fund, their directors, officers or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained herein. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

46

ASK OUR PLANNER


Diversified investments can stabilize your personal finance portfolio

Q. My age is 37 years and I

want to retire at the age of 50. I

want to invest 15 lakh in mutual

funds for the next 10 years. Is this a

good idea or sha l l I invest

somewhere else? I am ready to

take risk. Please suggest what

avenues I should include in my

retirement portfolio.

- P. R. Maheshvari

A. Given that your time horizon

is more than 10 years, you can

consider investing into equity

mutual funds. You can invest

around 30-35% into mid-cap

funds, 40% into diversified

funds & the balance into large-

cap funds. If you are investing

a lumpsum at the current level,

it's better to invest the amount

into liquid or ultra-short term

debt mutual funds and shift the

amount gradually into equity

funds through a Systematic

Transfer Plan (STP).

2. I am looking for a short

term (3 to 5 years) investment, for

pre-closure of my home loan. I can

invest up to Rs. 5000 per month.

Help me with a proper investment

plan.

- Rohini Kalavare

A. If you are looking to invest

for the entire duration of 3-5

years and then withdraw the

amount to pre-close the loan,

you can consider Monthly

Income Plans (MIPs), with

growth option, as they largely

invest into debt and also invest

15-20% into equity, as well.

You can also look at investing

25% of the amount into

balanced mutual funds as well.

However, if you intend to make

part payments every year by

accumulating some funds,

then you can consider ultra-

short term debt funds. Making

part prepayment every year is

better, as it would reduce the

outstanding principal amount

every year, thereby reducing

the interest outgo.

3. I have a joint demat account

with my father. My father is the first

applicant and I'm the second

applicant. Are we both liable to pay

tax on short-term capital gains

earned from the sale of shares?

How taxes on capital gains work?

Please explain

47

ASK OUR PLANNER


Long-term capital gains (units

held for 36 months or more):

Such gains would be taxed at

20% with indexation ^ +

Surcharge (if applicable)* +

3% Cess

For resident individuals, tax is

not deducted at source. You

would have to declare the

g a i n s a n d p a y t h e t a x .

However, for non-resident

individuals, the entire tax

amount is deducted at source.

* S u r c h a r g e a t 1 0 % i s

applicable for individuals with

income more than Rs.50 lakh

but less than Rs.1 crore and at

15% for individuals with

income more than Rs.1 crore.

^ Indexation is used to adjust

the purchase price to knock off

that portion of gains attributed

due to inflation.

5. I am a salaried woman and

my company deducts and pays tax

regularly. But, I missed filing my tax

return before July 31, 2017 this

year. Is there any way I can get this

done now? Will I be charged any

penalty?

- Mohana Dikshit

A. If you have missed on the

deadline of filing returns by the

- Mohit Thakker

A. Taxation on capital gain

earned from sale of shares

would fall only on the first

holder of the demat account.

Hence, in your case, your

father would have to declare

the capital gains in his income

tax return and pay tax on the

short-term capital gains on

shares.

4. I am an ICICI Direct customer

and am interested in investing in

debt mutual funds. Can you please

explain to me the tax / TDS

provisions of different Debt MF

schemes like liquid funds, FMPs,

GILT Funds, Debt long / short term,

etc?

- Hiten Vashi

A. For any mutual fund other

than equity-oriented funds, the

capital gains would be taxed as

below:

Short-term capital gains (units

held for less than 36 months):

Such gains would be added to

your income and taxed as per

your income slab. Say for

example, if you are at the

highest slab, then, you would

have to pay 30% + Surcharge

(if applicable)* + 3% Cess

48

ASK OUR PLANNER


due date, you can still file a

belated return before the end

of the assessment year i.e.

before March 31, 2018. As of

now, if you have already paid

all your taxes and no further

amount is due, then you would

not be charged any penalty. If

you have any unpaid tax

liability, then filing your return

after due date would result in

levy of penal interest @ 1% per

month from the due date of

filing the return till the actual

date of filing. If you do not file

the return even by March 31,

2018, then you might be

charged a penalty of Rs.5,000/-

(even if there's no tax liability).

From next assessment year i.e.

2018-19 (when you would file

returns of financial year 2017-

18), if you are required to file

returns and you miss the

deadline, then you would be

charged a fee of Rs.5,000 if

returns are filed after the due

date, but before December 31

of the assessment year and

Rs.10,000 if filed beyond that.

However, if your total income

does not exceed Rs.5 lakh, the

fee payable shall be only

Rs.1,000.

It's always advisable to file your

returns within the due date. If

you do not file the returns

within the due date, you will

miss out on the below benefits:

No carry forward of losses: You

will not be able to carry forward

t h e l o s s e s f r o m

business/profession, capital

gains and other sources to the

next year, to set off from the

next year's income.

Loss in interest on refunds: If

you are claiming a refund, the

interest on refund is normally

computed from April 1 of the

assessment year till the date of

granting refund. However, in

case of a belated return,

interest is computed from the

actual date of filing the return,

instead of April 1, till the date of

granting refund.

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

49

MUTUAL FUND ANALYSIS

Investing in ELSS funds


Equity linked savings schemes (ELSS) are diversified equity mutual fund schemes that are eligible for tax benefits under Section 80C of the Income Tax Act. It is the only fully equity investment option available under Section 80C. ELSS gives aggressive investors an ideal option to utilise tax benefit to invest in equity oriented funds. Effectively, ELSS are multicap mutual funds with similar return profile. The lock-in period of three years is lowest among other investment options available under Section 80C of the Income Tax Act.

Advantages of ELSS

§ Investment in ELSS is eligible for tax benefits under section 80C. Maximum tax savings up to | 46,350 on an investment of | 1.5 lakh in a financial year

§ ELSS invests in equity stocks, which has greater potential for long term capital appreciation. Professional, experienced f und m anager s ano the r positive.

§ Capital gains at the end of the lock-in period are completely tax free

§ The lock-in period of three years curtails panic selling in case of interim volatility in e q u i t y m a r k e t s . H e n c e , investments reap the benefit of long term investing in equities

§ S y s t e m a t i c m o d e o f investment (regular monthly investment) available

ELSS category nature

ELSS funds are the only fully equity-based investment option under Section 80C. As such, the performance potential of ELSS

funds is superior compared to alternatives like National Pension S y s t e m ( N P S ) , E m p l o y e e s Provident Fund (EPF)/Voluntary Provident Fund (VPF), Public Provident Fund (PPF) and tax-saving fixed deposits (FDs). ELSS funds have displayed consistent performance.

H is tor ica l ly, the ELSS fund performance has not deviated directionally from the performance of other equity fund categories. This is because ELSS funds have tended to invest across market caps – large, mid and small, thus keeping performance in line with the general performance of the wider equity markets, as a whole. This lack of market cap bias enables comparison of ELSS fund performance with that of multi-cap funds (also known as diversified equity funds). In recent times, ELSS funds have delivered returns in line with multicap funds.

Under th is background, we recommend the following funds: L&T Tax Advantage Fund, Franklin India Taxshield Fund and Reliance Tax Saver Fund

50



L&T Tax Advantage Fund

Fund Objective:To generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities.

Key Information:

Product Label:

Investors understand that their principal will be at moderately high risk

This product is suitable for investors who are seeking:• Long term capital growth• Investment predominantly in equity and equity related securities

Performance:The fund has been among the top two quartiles performance wise over the last one, three and five year periods (as of December 31). It has managed to outperform the category and the benchmark across these time frames. The margin of outperformance over its benchmark has increased in recent times. It has generated CAGR of 16.6% and 19.6% in the last three years and five years vs. 10.9% and 14.1% r e t u r n s b y b e n c h m a r k , respectively (as of December 31, 2017.

Portfolio:Financial and consumption s t o c k s h a v e l e d t o outperformance of the scheme recently. Additionally, the fund

manager has demonstrated good stock picking ability in the commodities space as well as some turnaround opportunities by identifying gainers quite early

Fund Benchmark

Performance vs. Benchmark

NAV as on December 29, 2017 (`) 57.5

Inception Date February 27, 2006

Fund Manager Soumendra Nath Lahiri

Minimum Investment (`)

Lumpsum 500

SIP 500

Expense Ratio (%) 2.08

Exit Load Nil

Benchmark S&P BSE 200

Last declared Quarterly AAUM(` cr) 2762

42.3

16.6

19.6

15.9

33.3

10.9

14.1

11.5

0

10

20

30

40

50

1 Year 3 Year 5 Year Since Inception

51



on. The scheme is significantly overweight consumption stocks w h e n c o m p a r e d t o i t s benchmark although exposure has reduced recently in favour of financials. The fund has recently added names from the newly listed insurance players. There are more than 60 stocks in the portfolio with the weightage to

no stock being much above 4%. This reduces concentration risk at the portfolio level. However the top four picks in terms of sectors contribute ~66% of the portfolio. The fund is slightly tilted towards large cap stocks but still holds significant amount of midcap stocks.

%

4.4

4.2

4.0

3.9

3.1

3.1

3.0

2.9

2.6

2.3

Top 10 Holdings Asset Type

Domestic Equities

ICICI Bank Ltd. Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

Axis Bank Ltd. Domestic Equities

ITC Ltd. Domestic Equities

Future Lifestyle Fashions Ltd. Domestic Equities

Net Current Asset Cash & Cash Equivalents and Net Assets

HDFC Bank Ltd. Domestic Equities

Graphite India Ltd. Domestic Equities

Housing Development Finance Corporation Ltd.

Kotak Mahindra Bank Ltd. Domestic Equities

%17.0

6.0

4.5

4.2

4.0

3.9

3.5

3.2

3.1

3.1

Top 10 Sectors Asset TypeBank - Private Domestic Equities

Engineering - Construction

Domestic Equities

Insurance Domestic Equities

IT - Software Domestic Equities

Finance - Housing Domestic Equities

Retailing Domestic Equities

Automobiles - Passenger Cars Domestic Equities

Domestic Equities

Pharmaceuticals & Drugs Domestic Equities

Cement & Construction Materials Domestic Equities

Electrodes & Welding Equipment

%

0.8

0.1

1Navkar Corporation Ltd.

Whats In

General Insurance Corporation of India Ltd.

HDFC Standard Life Insurance Co Ltd

%

0.9

0.11.3

Whats out

Grasim Industries Ltd.

Reliance Industries Ltd.Idea Cellular Ltd.

52

Our View:Investors with a slightly higher

risk appetite can consider the fund from a three-five year perspective.

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

https://www.ltfs.com/content/dam/lnt-financial-services/lnt-mutual-f u n d / d o w n l o a d s / f a c t s h e e t s / 2 0 1 7 - 1 8 / LT % 2 0 Fa c t s h e e t % 20November%202017.pdf

Data as on November 30,2017 ;Portfolio details as on Oct-2017Source: ACE MF, ICICI Direct Research



Franklin India Taxshield Fund

Fund Objective:To provide medium to long term growth of capital along with income tax rebate.

Key Information:

This product is suitable for investors who are seeking*:

• Long term capital appreciation

• An ELSS fund offering tax benefits under Section 80C of the Income Tax Act

Product Label:

Performance:The fund has outperformed its benchmark over most periods, however the performance has suffered over the last year. It has beaten the benchmark Nifty 500 Index by ~0.2% CAGR (three years) and ~3.5% CAGR (f ive years) (as of December 31, 2017).

Fund Benchmark


Investors under-stand that their principal will be at moderately high risk

Portfolio:The portfolio over the last year has reduced exposure to financials, healthcare and technology stocks in favour of energy and utility stocks. In t e r m s o f p o r t f o l i o construction, the fund has a

significant large cap bias, with ~80% of the portfolio invested in such stocks with midcap stocks making up the rest. The proportion of large cap stocks in the portfolio has increased over the last month or so. This has contributed to the recent


Inception Date April 10, 1999

Fund Manager Lakshmikanth Reddy


Lumpsum 500

SIP 500


Exit Load Nil

Benchmark NIFTY 500


29.1

12.1 18.6 243

5.9

11.9

14.9

0

0

10

20

30

40


53



underperformance to some ex ten t , espec ia l l y when compared to peers which are more multicap in nature. Currently there are ~60 stocks

in the portfolio with some of the top picks being fairly concentrated positions. The fund currently has ~9% cash in the portfolio as well.

Our View:Putt ing as ide the recent u n d e r p e r f o r m a n c e , t h e scheme is one of the few ELSS offerings with a long term track record of performance. We

der ive comfort f rom the presence of an experienced and pedigreed fund manager. Investors with a slightly longer term horizon can consider this fund within the ELSS category.

%

7.8

7.7

5.7

4.5

4.0

3.3

3.1

3.0

3.0

2.6


State Bank Of India Domestic Equities

Indian Oil Corporation Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

Call Money Cash & Cash Equivalents and Net Assets

Axis Bank Ltd. Domestic Equities

Mahindra & Mahindra Ltd. Domestic Equities

Kotak Mahindra Bank Ltd. Domestic Equities

Bharti Airtel Ltd. Domestic Equities

Yes Bank Ltd. Domestic Equities

Hindustan Unilever Ltd. Domestic Equities

%25.4

6.0

5.1

4.9

4.0

3.6

3.5

3.3

3.2

3.1

Top 10 Sectors Asset Type

Power Generation/Distribution Domestic Equities

Automobiles - Passenger Cars

Domestic Equities

IT - Software Domestic Equities

Telecommunication - Service Provider Domestic Equities

Bank - Private

Bank - Public Domestic Equities

Automobile Two & Three Wheelers Domestic Equities

Domestic Equities

Refineries Domestic Equities

Household & Personal Products Domestic Equities

Pharmaceuticals & Drugs Domestic Equities

%

4

Whats In

Kotak Mahindra Bank Ltd.

%

0.2

Whats out

Aditya Birla Capital Ltd.

Data as on December 31,2017 ;Portfolio details as on Nov-2017Source: ACE MF, ICICI Direct Research

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

https://www.franklintempletonindia.com/downloadsServlet?docid=jaytocqq

54



Reliance Tax Saver Fund

Fund Objective:To generate long-term capital appreciation from a portfolio that is invested predominantly in e q u i t y a n d e q u i t y r e l a t e d instruments.

Key Information:

Product Label:

This product is suitable for investors who are seeking*:

• Long term capital growth

* Investment in equity and equity related securities.

Performance:The fund has consistently outperformed the category and its benchmark over the last year, 3 years and 5 years. It has been a top quartile performer in the last one year period and 5 year period and a second quartile performer in the last 3 year period (as of December 31). The one year, three years and five-year performance (as of November 30) is 46%, 13.9% CAGR and 22.9% CAGR, respectively, as compared to BSE Sensex's 27.9%, 7.4% CAGR and 11 .9% CAGR respectively (as of December 31).


Fund Benchmark

Investors under-stand that their principal will be at moderately high risk

PortfolioThe fund demonstrates a bias towards high growth and scalable businesses, which has helped it deliver well during the

good run for equity markets beginning from mid-2013. The portfolio earlier was multicap in nature with an almost equal split between large cap and


Inception Date September 21, 2005

Fund Manager Ashwani Kumar


Lumpsum 500

SIP 500


Exit Load Nil

Benchmark S&P BSE SENSEX


46

13.9 2

2.9

17

27.9

7.4 1

1.9

12

0

10

20

30

40

50


55



mid cap stocks. However recently it has added some more large cap stocks giving it a slightly greater large cap tilt. W h e n c o m p a r e d t o i t s benchmark, the scheme is underweight on financials and significantly overweight on automobiles. It has exited

some financial stocks over the last month. While some of the top stock picks have fairly healthy allocations, at the overall portfolio level the scheme seeks to mitigate concentration risk with a fairly large number of holdings (60+ currently).

%

7.6

7.1

5.5

5.5

4.8

4.1

3.4

3.2

3.2

3.1


TVS Motor Company Ltd. Domestic Equities

State Bank Of India Domestic Equities

Tata Steel Ltd. Domestic Equities

ICICI Bank Ltd. Domestic Equities

Infosys Ltd. Domestic Equities

Tata Motors Ltd. Domestic Equities

Bharti Airtel Ltd. Domestic Equities

Honeywell Automation India Ltd. Domestic Equities

Bharat Forge Ltd. Domestic Equities

ABB India Ltd. Domestic Equities

%10.9

7.6

7.5

6.1

5.8

5.6

5.5

4.1

4.0

3.5

Top 10 Sectors Asset Type

Electric Equipment Domestic Equities

IT - Software

Automobile Two & Three Wheelers Domestic Equities

Cement & Construction Materials Domestic Equities

Bank - Public Domestic Equities

Automobiles-Trucks/Lcv Domestic Equities

Forgings Domestic Equities

Domestic Equities

Bank - Private Domestic Equities

Auto Ancillary Domestic Equities

Steel & Iron Products Domestic Equities

%

0.2

0.3

0.2Orient Cement Ltd.

Whats In

The New India Assurance Co. Ltd.

HDFC Standard Life Insurance Co Ltd

%

0.9

1.5

Whats out

Bharat Petroleum Corporation Ltd.

Axis Bank Ltd.

56



Our View:The fund is slightly on the aggressive side with significant midcap holdings. However, the

portfolio is well constructed in terms of sector-level and stock-level diversification.

You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://www.reliancemutual.com/InvestorServices/FactsheetsDocuments/Fundamentals-December-2017.pdf

Performance of other schemes managed by these fund managers:

2. Franklin India Taxshield Fund

1. L&T Tax Advantage Fund

Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote: The concerned Fund Manager manages 5 other schemes of the concerned Mutual Fund

66.96 28.22 --60.87 20.62 21.2162.20 23.77 23.5335.30 6.67 7.0453.21 23.18 28.9748.42 19.40 20.05

35.32 11.96 17.1634.54 11.18 14.0628.27 13.86 18.286.11 8.19 8.65

11.76 5.89 13.656.11 8.19 8.65

Performance of other schemes managed by the fund manager - Soumendra Nath Lahiri

L&T Infrastructure Fund-Reg(G)NIFTY INFRAL&T Midcap Fund-Reg(G)Nifty Free Float Midcap 100

S&P BSE 200L&T India Prudence Fund-Reg(G)

Fund Name 1 Year 3 Years 5 Years

Top 3 Performing Schemes L&T Emerging Businesses Fund-Reg(G)S&P BSE Small-Cap

Crisil Short Term Bond Fund Index

L&T Equity Fund-Reg(G)Bottom 3 Performing Schemes

Crisil Short Term Bond Fund IndexL&T Dynamic Equity Fund-Reg(G)

32.23 12.08 18.3329.95 8.48 12.2430.23 12.54 18.6529.95 8.48 12.2421.75 11.29 16.5029.95 8.48 12.24

13.99 9.35 12.440.03 7.42 7.029.57 8.35 10.440.03 7.42 7.02

Performance of other schemes managed by the fund manager - Lakshmikanth Reddy

Franklin India Taxshield(G)NIFTY 50Franklin India Balanced Fund(G)NIFTY 50


Top 3 Performing Schemes Franklin India Flexi Cap Fund(G)NIFTY 50

Crisil 10 Yr Gilt IndexFranklin India MIP(G)Crisil 10 Yr Gilt Index

Bottom 3 Performing SchemesFranklin India Pension Plan(G)

57



Data as on December 31,2017 ;Portfolio details as on Nov-2017Source: ACE MF, ICICI Direct Research

Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 6 other schemes of the concerned Mutual Fund

3. Reliance Tax Saver Fund

Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 4 other schemes of the concerned Mutual Fund

44.46 20.94 30.1429.95 8.48 12.2440.98 18.14 25.4429.95 8.48 12.2436.69 13.60 18.5029.95 8.48 12.24

32.23 12.08 18.3329.95 8.48 12.2431.81 13.16 18.9029.95 8.48 12.2430.23 12.54 18.6529.95 8.48 12.24

NIFTY 50

Top 3 Performing Schemes Franklin India Smaller Cos Fund(G)NIFTY 50Franklin India Prima Fund(G)NIFTY 50Franklin India Opportunities Fund(G)NIFTY 50

Bottom 3 Performing SchemesFranklin India Flexi Cap Fund(G)

Performance of other schemes managed by the fund manager - R. Janakiraman

Fund Name 1 Year 3 Years

NIFTY 50Franklin India Prima Plus Fund(G)

Franklin India Taxshield(G)NIFTY 50

5 Years

47.87 14.19 22.9532.83 9.85 13.0442.68 13.09 18.1532.83 9.85 13.0439.90 12.92 18.2134.54 11.18 14.06

-- -- --34.54 11.18 14.06

Performance of other schemes managed by the fund manager - Ashwani Kumar

Reliance Vision Fund(G)S&P BSE 100Reliance Top 200 Fund(G)S&P BSE 200


Top 3 Performing Schemes Reliance Tax Saver (ELSS) Fund(G)S&P BSE 100

S&P BSE 200

Bottom 3 Performing SchemesReliance Capital Builder Fund-IV-B(G)

58


What is iCommunity?iCommunity is ICICIdirect's interactive platform where one can answer and get answered as well. With extensive range of forums, events & discussions iCommunity serves as an opportunity to learn more about financial world.

This month on iCommunity

DiscussionsFinancial Planning related discussionVisit http://community.icicidirect.com/content /who-will-win-2018-hare-or-tortoiseand let us know which character do you identify the most with? "HARE OR TORTOISE"?

Buzz in the Market

Do you think that India has the potential to grow at 7%+ in 2018?

D e s p i t e i n i t i a l s e t b a c k s f r o m demonetisation and GST, India is estimated to have grown at 6.7% in 2017. It is believed that the country has enormous growth potential compared to other emerging economies with the implementation of comprehensive reforms.

So, do you believe that India has the potential to grow at 7%+ in 2018?

Come and be a part of this discussion with fellow traders and investors on iCommunity. Join the discussion here :http://community.icicidirect. com/service_forum

Q & A ForumSeek answers to your queries regarding investments and market updates for free. Questions like: > What is futures and options in trading world?> What's the process to apply for IPO?> I have 20 shares of XXXX stock. Should I hold or sell?

59

EQUITY MODEL PORTFOLIO


Our indicative large-cap equity model portfolio has continued to deliver an impressive return (inclusive of dividends) of 125.72% till date (as on January 11, 2017) since its inception (June 21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex) return of 102.05% during the same period, an outperformance of 23.67. This validates our thesis of selecting companies with sound business fundamentals that forms the core theme of our portfolio. Our midcap portfolio of 16 stocks continues to outperform well, delivering 416.15% (inclusive of dividends) till date (as on December 18, 2017) vis-à-vis the benchmark index (CNX Midcap) return of 181.41%, outperformance of 234.74%. 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.

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.

Following the same pace and opportunities in the market, our portfolio (large caps) remain overweight on BFSI sector – HDFC Bank (10%), HDFC (9%), Axis Bank (6%) Bajaj Finance (6%) and SBI (6%). Affirming our view on consumption demand, Dabur (5%) and Asian Paints (5%) continue to be part of our large cap portfolio. However, there's an addition of metal sector- Hindustan Zinc (6%) in the revised portfolio.

We remain positive on auto, IT and pharma. 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.

Among individual names, we continue to recommend 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).

60



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

Auto 16.0 11.2

Tata Motor DVR 4.0 2.8

Maruti 5.0 3.5

EICHER Motors 3.0 2.1

Mahindra & Mahindra (M&M) 4.0 2.8

BFSI 37.0 25.9

HDFC Bank 10.0 7.0

Axis Bank 6.0 4.2

HDFC 9.0 6.3

Bajaj Finance 6.0 4.2

SBI 6.0 4.2

Capital Goods 4.0 2.8

L & T 4.0 2.8

Cement 4.0 2.8

UltraTech Cement 4.0 2.8

FMCG/Consumer 18.0 12.6

Dabur 5.0 3.5

Marico 4.0 2.8

Asian Paints 5.0 3.5

Nestle 4.0 2.8

IT 6.0 4.2

TCS 6.0 4.2

Media 4.0 2.8

Zee Entertainment 4.0 2.8

Metals 6.0 4.2

Hindustan Zinc 6.0 4.2

Oil and Gas 5.0 3.5

GAIL Ltd. 5.0 3.5

Largecap share in diversified 100.0 70.0

61



ICICI Securities has received a mandate from Indian Bank'.

Auto 6.0 1.8

Bharat Forge 6.0 1.8

BFSI 20.0 6.0

Bajaj Finserve 8.0 2.4

J&K Bank 6.0 1.8

Indian Bank 6.0 1.8

Capital Goods 6.0 1.8

Bharat Electronics 6.0 1.8

Cement 6.0 1.8

Ramco Cement 6.0 1.8

Consumer 36.0 10.8

Symphony 6.0 1.8

Supreme Ind 6.0 1.8

Kansai Nerolac 6.0 1.8

Pidilite 6.0 1.8

Tata Chemicals 6.0 1.8

Bata 6.0 1.8

Metals 6.0 1.8

Graphite India 6.0 1.8

Infrastructure 8.0 2.4

NBCC 8.0 2.4

Logistics 6.0 1.8

Container Corporation of India 6.0 1.8

Textile 6.0 1.8

Arvind 6.0 1.8

Total 100.0 30.0

Midcap share in diversified 30

TOTAL 100 0 100.0

62

Performance* so far since inception

*Returns (in %) as on Jan 18, 2018

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

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

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: June 30, 2011; *Value as on Jan 18, 2018



125.7215384

416.1527575

188.0248492

102.0502482

181.418671122.2404779

0255075

100125150175200225250275300325350375400425450

Large Cap Midcap Diversified

%

80

00

00

0

80

00

00

0

80

00

00

0

12

14

97

55

.71

14

36

60

50

.58

11

00

30

34

.19

14

89

84

96

.6

12

46

71

35

.05

3500000

4500000

5500000

6500000

7500000

8500000

Largecap Midcap Divesified

63

QUIZ TIME

1. GDP growth of India recovered to _______________ in second quarter of Fy18.

2. As per the latest data for 2017, equity based ETFs have received almost ________ the record inflows seen in 2016.

3. ______________ is a trade-off between investment-specific risk and return and is hence an antidote to market volatility.

4. Lower than expected GST collections would be an overhang on_________ financing.

5. Agriculture loan waiver and increase in disposable income are less likely to provide support to food & beverages consumption and basic housing needs. True/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 December2017 quiz are:

1. ______________ is a key element of establishing a successful financial plan.A. Tax-planning

2. Young investors should prioritize _____________ over provident funds for tax saving.A. Equity

3. Entire amount paid towards insurance premiums cannot be deducted while calculating taxable income.True/ falseA. True

4. __________________ offers investor the liberty to allocate his money across three asset classes based on his risk profile.A. National pension system (NPS)

5. Parents of children pursuing higher studies can claim deduction only on the __________ paid on education loan.A. Interest

Congratulations to the following winner for providing correct answers!

N K Damle


PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

29-Dec-17 30-Nov-17 Change (%)

CNX Nifty 10531.0 10227.0 3.0%

CNX Midcap 21133.5 19895.2 6.2%

S&P BSE Sensex 34056.8 33149.4 2.7%

S&P BSE 100 11029.8 10705.4 3.0%

S&P BSE 200 4678.7 4527.4 3.3%

S&P BSE 500 15002.7 14,493.6 3.5%


Dow Jones 24,719.2 24,272.4 1.8%

S&P 500 2,673.6 2,647.6 1.0%

Nasdaq 6,903.4 6,874.0 0.4%

FTSE 7,687.8 7,326.7 4.9%

DAX 12,917.6 13,024.0 -0.8%

CAC 40 5,312.6 5,372.8 -1.1%

Nikkei 22,764.9 22,725.0 0.2%

Hang Seng 29,919.2 29,177.4 2.5%

Shanghai Composite 3,307.2 3,317.2 -0.3%

Taiwan Weighted 10,642.9 10,560.4 0.8%

Straits Times 3,402.9 3,433.5 -0.9%


S&P BSE Auto 26,751.2 25,205.4 6.1%

S&P BSE Bankex 28,856.8 28,631.4 0.8%

S&P BSE FMCG 10,695.2 10,321.2 3.6%

S&P BSE Healthcare 14,799.4 13,990.3 5.8%

S&P BSE Metals 14939.8 13,902.3 7.5%

S&P BSE Oil & Gas 16,283.3 15,927.9 2.2%

S&P BSE Power 2,381.7 2,320.7 2.6%

S&P BSE Realty 2,608.3 2,445.7 6.6%

S&P BSE Teck 6,408.2 6,080.6 5.4%

65

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Dec-17 Nov-17 Change (bps)

Corporate Bond Yields (in %) Dec-17 Nov-17 Change (bps)

Commercial Paper (CP) Rates (in %) Dec-17 Nov-17 Change (bps)

Treasury Bill (T-Bills) Yields (in %) Dec-17 Nov-17 Change (bps)

Volatility Index (VIX)


VIX 12.67 13.55 0%

10 year 7.32 7.05 27

5 year 7.11 6.90 21

3 year 6.77 6.59 18

1 year 6.28 6.20 8

AAA 10 year 8.19 7.91 28

AAA 5 year 7.65 7.37 28

AAA 3 year 7.58 7.29 29

AAA 1 year 7.37 6.93 44

AA 10 year 8.52 8.34 18

AA 5 year 8.24 8.00 24

AA 3 year 8.06 7.76 30

AA 1 year 7.71 7.37 34

12 Months 7.53 7.19 34

6 Months 7.33 7.00 33

3 Months 7.06 6.80 26

1 Month 6.86 6.58 29

91D TB 6.20 6.12 8

182D TB 6.32 6.22 10

364D TB 6.40 6.27 13

66

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

*WPI numbers are based on new series with 2011-12 as the base year'

Countries 29-Dec-17 30-Nov-17 Change in bps

US 2.405 2.410 (0)

UK 1.190 1.330 (14)

Japan 0.048 0.039 1

Spain 1.558 1.438 12

Germany 0.427 0.367 6

France 0.780 0.680 10

Italy 2.016 1.748 27

Brazil 10.256 10.364 (11)

China 3.902 3.917 (1)

India 7.326 7.059 27

MF Investment Nov-17 Oct-17 YTD

Equity 8333 12080 118572

Debt 18997 41978 381126

FII Investment Nov-17 Oct-17 YTD

Equity -4747 19180 52885

Debt 2433 -1426 148483

Items Weights(%) Oct-17 Nov-17 Dec-17

Food&bev. 45.86 2.26 4.41 4.85

Pan,tob& intox. 2.38 6.84 7.75 7.76

Cloth & Foot 6.53 4.76 4.96 4.88

Housing 10.07 6.68 7.36 8.25

Fuel & light 6.84 6.44 7.92 7.90

Misc. 28.31 3.57 3.63 3.79

CPI 100 3.58 4.88 5.21

Weights Oct-17 Nov-17 Dec-17WPI 100.0 3.59 3.93 3.58Primary Articles 22.6 3.33 5.28 3.86Fuel & Power 13.2 10.52 8.82 9.16Manufactured Goods 64.2 2.62 2.61 2.61

67

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 December 29, 2017

Debt Funds Returns (in %)

Returns as on December 29, 2017

Tenure Liquid Funds

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

Currencies and CommoditiesCurrencies

*IIP numbers are based on new series with 2011-12 as the base year'

Debt ST Ultra ST Debt LT

Categories 30-Oct-17 30-Sep-17 30-Aug-17 Weight(%)Mining 7.1 2.2 0.1 14.4Manufacturing -1.0 1.5 3.9 77.6Electricity -0.5 -3.2 2.3 8.0Overall -0.1 1.2 3.2 100.0

29-Dec-17 29-Nov-17 Change (%) StatusUSDINR 63.9 64.3 -0.7% AppreciatedEURINR 76.5 76.1 0.5% DepreciatedGBPINR 86.3 86.2 0.0% DepreciatedAUDINR 49.9 48.8 2.4% DepreciatedCHFINR 65.5 65.3 0.3% DepreciatedJPYINR 0.6 0.6 -1.5% AppreciatedCNYINR 9.8 9.7 1.0% Depreciated

29-Dec-17 29-Nov-17 Change (%)Crude ($/barrel) 66.8 62.8 6.4%Gold ($/ounce) 1,303.1 1,274.9 2.2%

6 months 14.96 19.49 12.16 14.911 year 37.52 48.04 33.26 37.963 year 13.85 19.62 11.21 13.845 year 18.43 25.87 15.27 18.20

6 months 6.20 4.86 5.96 1.95

1 year 6.18 6.07 6.41 4.34

3 year 7.16 7.90 7.71 7.61

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