icici jun 18 issuecontent.icicidirect.com/moneymanagermagazine/june_2018.pdf · media, metals and...

Shilpa KumarMD & CEO

ICICI Securities Ltd.

Overall the Indian markets have been fairly resilient given the challenging environment on the growth front faced by major global economies. Specifically FY18 was a transitional year for Indian markets amidst a successful economic transformation post demonetisation and GST. The year ended with encouraging corporate quarterly earnings with the Sensex Profit after Tax (PAT) (ex-banks) up a healthy ~15% YoY. This marks Q4FY18 as the first quarter staging double digit bottom line growth since previous five quarters. It is largely attributable to a robust consumer demand depicted by ~24% YoY growth in automobile sales volume, double digit volume growth in the FMCG pack and ~15% YoY growth in cement sales volume.

The recent concerns about depreciating rupee and current account deficit (CAD) (at record high levels) has caused some anxiety among investors. The turbulence in the rupee due to sharp hike in crude oil prices is likely to trigger a temporary shifting of liquidity in the global landscape. This in turn, is also expected to cause volatility across asset classes.

Going into FY19, we expect the global liquidity allocation to focus back on the core fundamentals of respective economies and assets classes across the globe. In that respect, India is expected to stand taller as prominent concerns on inflation, CAD and weaker currency will be on the mend.

Our house view on equity remains positive as equity benchmarks gained in April, snapping their two month losing streak, amid expectations of earnings pickup and positive global equities. We believe the broader consolidation would make the market healthy by cooling off the overbought situation. As for the recent rise in yields due to surge in crude oil prices and higher state government borrowing has dented investor sentiment.

ICICIdirect Money Manager June 20181

However, gross YTMs of most accrual funds or credit funds have risen making them an ideal investment option.

The earnings seasons i.e. Q4FY18 was marred by losses at large public and private sector banks, owing to increased provisioning following a RBI directive. However, with much of the pain already recorded and IBC resolutions underway, we expect incremental slippages to be contained aiding moderate provisions. This, coupled with improving credit growth, will enable profitability to improve in PSU and corporate banks over FY19-20E. Therefore, going forward, with rebound in banking space amidst forecast of normal monsoon 2018 and firm rural demand, we expect corporate earnings to stage an impressive recovery, growing in excess of 20% CAGR over FY18-20E.

On the brighter side, India's GDP (gross domestic product) touched a better-than-expected 7.7 per cent in the last quarter, outperforming China (6.8 per cent in the corresponding quarter) by nearly a percentage point and retaining India's rank as the world's fastest-growing economy. Addressing the inflation concerns, RBI in its latest monetary policy meet had increased the key benchmark rates by 25 bps, first rate hike in last 4 years. The primary aim of the same is to control inflation with forward stance held as Neutral. RBI has also maintained its domestic GDP growth projection for FY19E at 7.4% vs. 6.7% in FY18. GDP growth is projected in the range of 7.5-7.6% in H1 and 7.3-7.4% in H2, with risks evenly balanced.

Improving sentiments, stable political environment and pickup in economic activity would continue to attract investor towards equities, resulting in shift in preference towards financial savings from physical savings. Moreover, other asset classes including gold and real estate have shown signs of tiring up. Even though markets have run up in the recent past, investors should continue to increase exposure towards equities to create a balanced portfolio in the long run. In an environment like this the importance of systematic investments plans (SIPs) just cannot be ignored. While SIPs are traditionally used to invest in mutual funds for those of you who prefer the direct route to equity investments you can also start SEPs in stocks as well.

Through our website and this magazine we want to www.icicidirect.commake an earnest attempt to partner with you in setting and achieving your financial goals. Do walk into any of your Neighbourhood Financial Superstore and talk to us.

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

The end of earning season is a good time to review individual's investment portfolio,

track projected returns and modify investment allocation if necessary. The annual

report along with the quarterly results gives details of market's performance, the

profits, cash flows, inventories and other key indicators. Analysis of quarterly

reports is examined by experts and coherent messages of the outcome are

conveyed to all the investors. This information helps the investor to take informed

decisions with regard to their investments in those companies.

In this edition of Money Manager we bring you a detailed analysis of the Fourth

Quarter results. On the sectoral front, in Q4FY18, overall auto volumes increased

23.9% YoY mainly due to low base & strong growth momentum across segments.

While the topline growth for the quarter was led by the commodity space and

consumer driven auto space, bottomline growth, on the other hand, witnessed a

divergence. Additionally, sectors like auto, capital goods, cement, FMCG, real estate,

media, metals and pharma reported positive performance; whereas, banking, oil

and gas, building material & telecom failed to show robust growth.

These quarterly reviews would give you a bird's eye view of the financial situation of

various sectors in our economy. ICICIdirect research has dissected the numbers and

come out with estimates for the ongoing financial year, which I am sure you will find

very useful.

We believe, this information helps the investor to take informed decisions with

regard to their investments in analyzed companies or sectors. We also bring to you

an interview with Jinesh Gopani, Head- Equities, Axis Mutual Fund. His insights into

Q4FY18 results, among others, are definitely worth a read.

The edition also offer comprehensive information and analysis on infrastructure

funds, which present good investment opportunity with high growth potential. We

welcome your comments and queries on personal finance or any other money-

related matter….please write to us at [email protected] . Read

on, stay updated.


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

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

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

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

Stock ideas: Bandhan Bank & Ashok Leyland ........................ 5

Flavour of the Month: Q4FY18 results special: Know who performed how

Quarterly financial results are a periodical review of the performance

of India Inc. The research team at ICICIdirect has analyzed the fourth

quarter results put out by different companies. Here we provide you

a report card of various sectors and what promise they hold for

investors in the near future. .................................................. 15

Tête-à-tête: In talk industry experts about current economic scenario

In an exclusive interview with Jinesh Gopani, Head- Equities, Axis

Mutual Fund and Nimesh Chandan, portfolio manager at Canara

Robeco Asset Management ................................................... 32

Ask Our Planner

Our financial expert answers your personal finance queries … 39

Mutual Fund Analysis

Which are the top performing mutual funds in current market

scenario? Check these top infrastructure funds recommended by our

research team. .......................................................................... 42

This month on iCommunity

Take a look at the latest activities on our unique information platform-

iCommunity (for June 2018)..................................................... 55

Equity Model Portfolio ............................................................................ 56

Quiz Time ................................................................................................. 60

Prime Numbers ....................................................................................... 61


The information technology (IT) sector has put brakes on new investment to

conserve cash but has done so even as share buybacks and dividends have

become their preferred route to keep the stock markets happy. As a result, the

country's top IT companies have reported a decline in their assets for the first time

in many years. The combined assets of the top five -Tata Consultancy Services

(TCS), Infosys Technologies, Wipro, HCL Technologies and Tech Mahindra were

down one per cent to Rs 2,774 billion at the end of 2017-18, from Rs 2,801 bn a year

before.

Courtesy: Business Standard

Information technology companies slam brakes on fresh investment

Oil companies plan to add 25,000 petrol pumps

NEW DELHI: State oil companies plan to add an unprecedented 25,000 petrol pumps in one shot, nearly half as much as operational today, across the country after the government signaled them to do so, according to people familiar with the matter. The oil ministry has also scrapped an official policy on petrol pump dealers' appointment, giving fuel retailers such as Indian Oil, Hindustan Petroleum and Bharat Petroleum the freedom to design their own rules for setting up filling stations, according.

Courtesy: Economic Times

The 5G committee of the telecom ministry has said that around 6000 Mhz of spectrum can be made available without delay for the next generation mobile service. If accepted, the panel's recommendation, which has been submitted to the government, can lead to India's largest ever spectrum allocation for a service. An expert member of the panel, Arogyaswami Paulraj told PTI in an interview that initially the service will enhance mobile data speed in India by up to 50 per cent compared to current levels. Paulraj is Professor Emeritus, Stanford University, and a pioneer of MIMO wireless communications, a technology break through that enables improved wireless performance. MIMO is now incorporated into all new wireless systems, as per Stanford site.

Courtesy: Financial Express

5G panel identifies 6000 Mhz spectrum as available for next gen service

The Centre has unveiled a revamped version of its 'Incredible India' website with an aim to pitch the country as a 'must-visit' destination. The website, which has been developed by Tech Mahindra, is mobile-ready and will provide more interactive and personalised experience for the travellers. "With the help of Adobe solution suite, the Ministry of Tourism will now be able to engage effectively with visitors across web and social channels and measure engagement to deliver real time personalised experiences for each visitor," an official statement said.

Courtesy: The Hindu

'Incredible India' website revamped

STOCK IDEAS


Ashok Leyland - Strong growth momentum to continue…

Company Background

Ashok Leyland (ALL) is one of the few pure play major c o m m e r c i a l v e h i c l e manufacturers in India. ALL is the second largest player a c r o s s v a r i o u s M & H C V segments with an overall market share of ~34%. At present, trucks accounts for >70% of its revenue, the company over the years has d i v e r s i f i e d i n t o o t h e r segments namely buses, LCV, exports, defense & spares.

Investment Rationale

Favourable macro factors + company initiative = double digit growth

ALL saw a robust FY18 performance with volumes growing ~21% (M&HCV-16% & L C V- 3 7 % ) , r e v e n u e s growing 30% & broadly maintaining market share (~40 bps increase). Going ahead, the management expects M&HCV total industry volumes (TIV) to grow 10-12% in FY19E on the back of macro factors like 1) quantum j u m p i n i n f r a s t r u c t u r e spending & 2) GST led faster

turnaround time and more hub-spoke adoption leading to h i g h e r f l e e t o p e r a t o r profitability & shift to higher tonnage trucks. In FY20E, double digit growth will be achieved on the back of pre-b u y i n g a h e a d o f B S - 6 implementation in 2020 (where price of vehicles will increase in range of 6-8%). Post FY20E, growth in the M&HCV industry will sustain on the back of scrappage policy wherein the m a n a g e m e n t e x p e c t s ~2,00,000-2,50,000 vehicles (~70% of TIV) to be replaced, if t h e c u r r e n t p r o p o s a l ( sc rappage o f >20 -yea r vehicle) is adopted. The benefit of favourable macro factors will be accentuated by new launches like 41 tonne MAV (4123), 25 tonne tipper (2532) & introduction of LCV products post FY20E to fill the white space. We expect total M&HCV & LCV volumes of ALL to grow ~12.5% & 21% in FY18-20E.

Focus on non-cyclical business to yield positive outcome

The current business mix of

ALL is at: truck-72%, bus-7%,


STOCK IDEAS

6

expor t-9%, LCV-7% and

defence-3%. The defence

business has grown ~35%

while exports have grown 38%

in FY18. ALL is looking to de-

volatilise its business in the

next three to five years, by

g r o w i n g h i g h e r m a r g i n

aftermarket (from 10% to 30%

of sales). The aftersales will be

aided by an increasing dealer

network (M&HCV- FY14-649 to

FY18-2894; LCV-FY14-300 to

FY18-465). In the defence

business, the company has

won 23 of 27 tenders in the last

two years. These tenders have

a revenue potential of 5000 `

crore in the next few years.

Overall, we expect EBITDA

margins of 11.3%, 11.5% for

FY19E, FY20E, respectively.

Ahead of the curve

The management initiatives to

cu t cos t s , r educe deb t ,

improve working capital cycle,

divest non-core assets and fill

product gaps have yielded

results in terms of meaningful

m a r k e t s h a r e g a i n a n d

consistently strong financial

performance. Our earnings are

expected to grow at a CAGR of

32% in FY18-20E. We value the

stock on an SOTP basis, to

arrive at a target price of 180. `

We have a BUY rating on the

stock


STOCK IDEAS

7

Key Financials

Valuations Summary

` crore FY17 FY18 FY19E FY20E

Net Sales 20019 26248 32886 39047

EBITDA 2203 2739 3715 4477

Net Profit 1223 1563 2245 2715

EPS 4.3 5.3 7.7 9.3

FY17 FY18 FY19E FY20E

P/E 27.1 27.2 19.0 15.7

Target P/E 41.8 33.7 23.4 19.4

EV / EBITDA 18.8 13.8 10.1 8.0

P/BV 6.8 6.0 4.9 4.1

RoNW 25.0 21.9 26.0 25.9

RoCE 23.9 28.5 34.9 35.4

Stock Data

Stock Data ` crore

Market Capitalization (` Crore) 41,551.6

Total Debt (FY18) (` Crore) 417.1

Cash and Cash Equivalent (FY18) (` Crore) 1,033.7

Enterprise Value (` Crore) 40,935.0

52 week H/L (`) 168/90

Equity Capital 292.7

Face Value ` 1


STOCK IDEAS

8

Key risks include:

Slowdown in the overall demand

environment might impact its

performance

Though, we be l ieve the

domestic M&HCV industry has

multiple catalyst in terms of

growth over the next couple of

years , any s lowdown in

demand due to regulatory

change or postponement of

demand (purchases) by the

fleet operators (due to rise in

interest & fuel cost in the near

term) might impact ALL's

r e v e n u e g r o w t h g o i n g

forward.

Higher raw material cost + Intense

competition = could impact its

margin

We believe if ALL is unable to

pass on the rise in input cost to

its consumers its margins

m i g h t g e t i m p a c t e d .

Addit ional ly, the intense

competition in the market,

might result into discounts &

offers which could impact its

overall market share and

margin.


STOCK IDEAS

9

ANALYST CERTIFICATION We /I, Nishit Zota, MBA & Vidrum Mehta, MBA Research Analyst, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accuratelyreflect 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

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securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment

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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.

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ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period

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It is confirmed that Nishit Zota, MBA & Vidrum Mehta, MBA Research Analyst, of this report have not received any compensation from the

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

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document may come are required to inform themselves of and to observe such restriction.


STOCK IDEAS

Bandhan Bank - Best yields with lower cost of funds; unique model

Company Background

Bandhan started as Bandhan

Konnagar in 2001 as a non-

governmental organisation

(NGO) providing microfinance

serv ices to soc ia l ly and

economically disadvantaged

women in rural West Bengal.

Bandhan Financial Services

(BFSL) started its microfinance

business in 2006. The NGO

transferred its microfinance

business to BFSL in 2009. On

April 9, 2014, RBI granted an in-

principle approval to BFSL to

set up a scheduled commercial

bank in the private sector.

Upon receipt of the in-principle

approval, BFSL and Bandhan

Bank entered into a business

transfer agreement to transfer

a l l o f B F S L ' s e x i s t i n g

m i c r o f i n a n c e b u s i n e s s ,

including all assets, liabilities,

accumulated profits and entire

infrastructure, along with a

wide consumer base to the

bank . By the t ime BFSL

transferred its microfinance

business to the bank, it was

India's largest microfinance

company with AUM of ~ 8309 `

crore and ~70 lakh customers.

With historical strength in the

m i c r o f i n a n c e s e g m e n t ,

Bandhan Bank, which began

operations on August 23, 2015,

is now a commercial bank

focused on serving under-

banked and under-penetrated

markets in India.

Bandhan Bank is a unique

bus iness mode l o f h igh

yielding micro finance loan

portfolio (94% priority sector

fu l f i lment ) and low cost

deposit franchise with 34.3%

CASA offered in the ambit of a

commercial bank. It was the

only MFI to receive a universal

banking licence from the RBI in

2014. Bandhan Bank, with 13-

14% market share, operates

936 branches and 2 ,764

dedicated doorstep services

centres servicing ~1.3 crore

customers in 33 states. East

and northeast (West Bengal,

B i h a r , A s s a m ) a r e i t s

stronghold. FY18 AUM was at `

10


STOCK IDEAS

11

32340 crore a PAT at 1346 `

crore.

Investment Rationale

Consistent track record of quality

growth, banking adds positive leg

Bandhan MFI was one of the

few institutions to sail through

t h e A P c r i s i s ( 2 0 1 1 ) ,

demonetisation (2016), farm

loan waivers, etc. I t has

demonstrated stellar growth at

~90% CAGR in those 10 years.

Even in the last five years,

advances grew at 51% CAGR.

In bank, AUM has grown from `

15,578.4 crore as of FY16 to `

32,340 crore as of FY18 while

customer base has increased

to ~1.3 crore. Micro credit

forms 86% of loan book while

retail, SME together are still

small. Asset quality is strong at

1.2% GNPA ratio. We expect

38% CAGR in loans to 61546 `

crore by FY20E.

Strong deposit franchisee in short

span, high CASA offers low CoF

Bandhan Bank has focused on

building a strong deposit base

and has grown from zero as of

August 23, 2015, to 33,869 `

crore in FY18. Current and

savings account deposi t

(CASA) was at 11,617 crore, `

constituting 34.3% of deposits.

CASA provides stable low-cost

funding with CoF now at 6.7%.

We expect deposits growth at

~31% with CASA ratio ~36%.

Only 6% of deposits come

from MFI clients. Majority of

deposits come from bank

branch customers while 80%

of the same is retail.

Strong NIMs, low cost-to-income

lead to above par return ratios, BUY

Net interest margin (NIM) was

at 9.8% for FY18. With low cost

funds, we expect NIM to

sustain at ~9% even as the

bank starts building non-micro

loans. Along with higher NIM,

low operating cost at ~35% C/I

r a t i o r e m a i n s i t s k e y

differentiator, high RoA driver.

Its opex to AUM ratio was at

4% for FY18. We expect high

RoA of 3.5-4%, RoE >20% to

sustain. With almost double

NIM, RoA vs. HDFC Bank &

lower C/I ratio, with no legacy

corporate portfolio pains, we

believe Bandhan Bank will

command higher premium to

HDFC Bank. At CMP of 490, `

the stock is available at 4.4x

FY20E ABV of 111. On P/E `


STOCK IDEAS

12

Valuations Summary

Key Financials

Stock Data

` Crore FY17 FY18E FY19E FY20E

NII 2,403 3,032 4,348 5,790

PPP 1,793 2,430 3,567 4,656

PAT 1,112 1,346 2,018 2,612

FY17 FY18E FY19E FY20E

P/E 48.3 43.4 29.0 22.4

Target P/E 59.1 53.2 35.5 27.4

P/ABV 12.2 6.3 5.3 4.4

Target P/ABV 15.0 7.8 6.6 5.4

P/BV 12.1 6.2 5.2 4.3

RoE (%) 28.6 19.5 19.6 21.1

RoA (%) 4.4 3.6 4.0 4.0

Market Capitalization (` Crore) 58,232

Networth 9,382

52 week H/L (`) 540 / 455

Equity Capital 1,193

Face Value 10.0

DII Holding (%) 1.9

FII Holding (%) 10.1

basis, it is available at 22.4x

FY20E earnings of 22 EPS. `

Valuing the bank at 5.4x FY20E

ABV, we arrive at a target price

of 600. We initiate coverage `

with a BUY recommendation.


STOCK IDEAS

13

Key risks include:

Concentration risk as substantial operations in eastern India

A substantial proportion of Bandhan's branches & DSCs along with a significant portion of its deposits and advances are in East and Northeast India and, in particular, the states of West Bengal, Bihar and Assam. As on December 17, ~81% of loans, 69% o f DSCs and 65% o f branches are from these regions. Due to such concentration, the success and profitability of the overa l l operat ions may be disproportionately exposed to regional factors that include, a m o n g o t h e r s , i n c r e a s e d competition as more players enter these geographies, general economic conditions and other developments including political unrest, floods and other natural calamities.

Continuity of management team and skilled personnel

The company's performance is h i g h l y d e p e n d e n t o n t h e c o n t i n u e d s e r v i c e s o f i t s management team. In particular, this includes the efforts of its Managing Director & CEO along

with other experienced members of its Board of Directors & senior management. In accordance with requirements prescribed by RBI, the retirement age is 70 years for the managing director, CEO and whole-time directors of the Bank. Bandhan's Managing Director is 57 years old. Any loss of a key personnel or inability to replace key personnel may restrict its ability to grow and manage the overall running of operations.

Reduction in promoter stake to 40% as per RBI norms

As per RBI's new bank licensing guidel ines, Bandhan Bank's promoter – Bandhan Financial Holdings Ltd is required to reduce its shareholding in the bank to 40% within the first three years of commencement of operations, ending in August 2018. As of March 2018, the promoter holding was at ~82.3%. The management has indicated at continuous engagement with the RBI for an ex tens ion o f the t ime l ine . Rejection of an extension on part of the central bank could entail huge equity supply and thereby s u b s t a n t i a l d i l u t i o n i n performance parameters.


STOCK IDEAS

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

Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a 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.

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14

FLAVOUR OF THE MONTH


Q4FY18 results special: Know who performed how

Quarterly financial results are a periodical review of the performance of India Inc. Carrying forward the positive current from the last quarter, the performance of Sensex companies was robust in Q4FY18. With forecast of normal monsoon 2018 and firm rural demand amid a pick-up in industrial activity, we expect Sensex to stage an impressive earnings recovery, growing in excess of 20% CAGR over FY18-20E. The research team at ICICIdirect has analyzed the fourth quarter results put out by different companies. While sectors like auto, capital goods, cement, FMCG, real estate, media, metals and pharma reported positive performance; banking, oil and gas, building material & telecom failed to show robust growth. Here we provide you a report card of various sectors and what promise they hold for investors in the near future. ….

Large caps lead earnings recovery…

Ÿ Sensex companies (ex-

banking space) continued

their positive momentum

with Q4FY18 the first quarter

that was marked by double

digit bottomline growth. It is largely attributable to robust

c o n s u m e r d e m a n d a n d

s u c c e s s f u l e c o n o m i c

t r a n s f o r m a t i o n p o s t

demonetisation and GST. For

Sensex compan ies (ex-

banks), net sales in Q4FY18

are up healthy 15.7% YoY to

Rs. 538,048 crore. Companies

continued to witness falling

gross margins (down 186 bps)

on account of a r ise in

commodity prices, which was

more than compensated by

operating leverage benefits

(up 250 bps) on account of

sweat ing of assets with

consequent inc rease in

EBITDA margins by 28 bps to

19.1% in Q4FY18.. On a full

year basis, in FY18, sales

increased 10.9% YoY resulting

in bottomline growth of 10%

YoY.

Ÿ At a broader level (listed

un iverse ) , the ea rn ings seasons was marred by losses at large public and private sec to r banks , ow ing to i n c r e a s e d p r o v i s i o n i n g following a RBI directive. However, with much of the pain already recorded and IBC (Insolvency and Bankruptcy



Code) resolutions underway, w e e x p e c t i n c r e m e n t a l slippages to be contained aiding moderate provisions. This, coupled with improving credit growth, will enable profitability to improve in PSU and corporate banks over FY19-20E.

Ÿ On the sectoral front, in

Q4FY18, overall auto volumes

increased 23.9% YoY mainly

due to low base & strong

growth momentum across

segments. In the FMCG space,

double digit volume growth is

encouraging. This, coupled

with ~15% volume growth in

the cement space, depicts

robust demand prospects

domestically. In the capital

goods space, robust execution

led to healthy double digit

growth in sales amid robust

build-up of order book. Going

forward, with forecast of normal

monsoon 2018 and firm rural

demand amid a pick-up in

industrial activity (increased

sales of M&HCV, cranes), we

expect Sensex to stage an

impressive earnings recovery,

growing in excess of 20%

CAGR over FY18-20E

Source: ICICIdirect Research



On a YoY basis, in Q4FY18, ex

banks, the Sensex topline

increased convincingly at

double digits at 15.7% YoY

(highest in recent past) .

EB ITDA growth , fo r the

quarter, came in at 17.3% YoY

thereby exceeding topline

growth primarily tracking 30

bps expansion in EBITDA

margins to 19.1%. The margin

improvement was factoring in

lower overhead costs mainly

other expenses (250 bps),

which was partly compensated

by an increase in raw material

costs (190 bps) on account of

an increase in commodity

prices and higher employee

costs (up 30 bps YoY). PAT in

Q4FY18 was up a healthy

15.0% YoY

Industry wise profit

movement and revenue

Topline growth for the quarter was led by the commodity space viz. oil & gas (up 32.2% YoY) and consumer driven auto space (up 19.0% YoY). Pharma & telecom continued their underperformance with topline growth of -2.0% & -10.5%, respectively. FMCG performance looks muted (up

1.8% YoY) despite robust growth at HUL (up 11.1% YoY) primarily tracking de-growth at ITC (down - 4.6% YoY). Tier-I IT companies witnessed average g rowth o f 1 .2% QoQ in constant currency terms in Q4FY18. Cross currency provided strength of ~120-190 bps to dollar revenue growth to 2.9% sequentially



Industry wise aggregate revenue (Sensex companies) (Rs. crore)

Bottomline growth, on the

other hand, witnessed a

divergence. Growth was led by

m e t a l s ( u p 1 2 9 % Yo Y )

primarily tracking loss to profit

at Tata Steel, followed by the

oil & gas space (up 24.1% YoY,

upbeat crude price). IT &

telecom reported de-growth at

t h e PAT l e v e l . Te l e c o m

operators continued to bleed

in Q4 on account of continued

price erosion (fresh round of

price cut by Jio in January

2018) and international IUC cut

impact.

Industry wise aggregate net profit (Sensex companies) (Rs. crore)

Sector specific takeaways from

quarter

Auto & auto ancillaryOverall auto volumes increased

23.9% YoY in Q4FY18 mainly

due to low base of last year

(impacted by demonetisation) &

strong growth momentum

across segments. In terms of

segments, 2-W reported healthy

growth of 25.2% YoY, driven by



both motorcycle & scooters (up

27.1% YoY & 24.1% YoY

respectively) supported by a

revival in rural sentiment in key

underpenetrated states. The 3-

W saw strong demand revival

as volumes grew 84.2% YoY,

led equal ly by domest ic

(attributable to favourable

industry development) & export

market. On the flip side, PV

segment remained subdued, up

6.7% YoY. Thus, overall revenue

of I-direct auto universe [ex Tata

Motors (TML)] grew 25.3% YoY,

with OEM & ancillary revenue

growth was at ~23.7% YoY &

~27.7% YoY, respectively The EBITDA margin of our

universe (ex-TML) increased,

as OEM margin expanded

w h i l e a n c i l l a r y m a r g i n

contracted. We believe higher

volumes resulted into positive

operating leverage for OEMs.

This was partly offset by higher

input cost resulting into margin

expansion. Among our coverage OEM

universe, the results of Ashok

Leyland & Hero were in line

with our estimates on the

o p e r a t i o n a l f r o n t . M S I L

reported higher other expense

mainly due to a rise in freight

cost, expenses related to

participation in Auto Expo &

Swift model launch thereby

i m p a c t i n g i t s o p e r a t i n g

margin. Eicher Motors took an

impairment loss of Rs. 187

crore towards winding down of

operations of Eicher Polaris.

TML disappointed with its

results. The management

lowered JLR EBIT margin

guidance to 4-7% over FY19-

21E On the ancillary front, Apollo

Tyres & JK Tyre reported

healthy volume driven revenue

growth in their domestic

business & margin expansion

o n a Yo Y & Q o Q b a s i s .

However, Balkrishna Industries

reported strong volume driven

revenue growth. Its margins

were impacted due to higher

crude derivative price.

Among battery players, Exide

reported a strong operational

performance. However, Amara

Raja disappointed with its

results on all parameters. The

integration of PKC group

(revenue of Rs. 2,174 crore)

l i f ted Motherson Sumi ' s

revenue - up 35.8% YoY

(adjusted growth is at 17.3%



YoY). However, a higher start-

up cost impacted its margins.

Bosch also reported a decent

performance led by healthy

growth in its automotive

segment

Banking Q4FY18 has been one of the

worst quarters for the banking

industry in terms of asset

quality led by frauds, new NPA

framework introduced by RBI

(discarding past restructuring

formats), NPA divergences &

absence of any resolution in

large NCLT cases referred

earlier Absolute GNPA (Gross Non-

Performing Advances) of PSU

banks increased 31% YoY

(15% QoQ) to Rs. 896601 crore

while that of private banks

increased 39% YoY to Rs.

127985 crore. GNPA ratio of

the industry is ~11.8% as on

FY18 Corporate based private banks

l ike Axis Bank witnessed

heightened NPA pressure

along with most PSU banks

Rise in slippages led to large

interest reversals, which

impacted NII growth of the

sector, at 1.3% YoY. For PSU

banks, NII declined 4.4% YoY.

This was despite healthy credit

growth of ~10% YoY Provis ions in Q4 a lmost

doubled QoQ to Rs. 148276

crore. This was led by PSU

banks. Accordingly, the sector

reported highest quarterly loss

of Rs. 55648 crore with PSU

bank loss at Rs. 62681 crore.

Private Banks continued to

report a relatively healthy set of

numbers owing to their retail

orientation. They continue to

grab market share from PSU

banks. They managed to report

PAT of Rs. 7033 crore in Q4

Capital goods On an overall basis, revenue

for capital goods companies

grew 10.8% YoY in Q4YF18

backed by robust execution

t r e n d s a c r o s s a l l E P C

companies. EBITDA margins

were flattish YoY. Interest cost

also witnessed a sharp decline

of 18% YoY due to working

capital improvement and debt

repayment during the quarter On the order inflow front, L&T

announced order wins in to the

tune of Rs. 49,600 crore with

strong order wins in the

domestic market. Strong



tendering in the domestic

market helped L&T report 7%

YoY growth in order inflows for

FY18 . Go ing ahead , the

company has guided for a 10-

12% order inflow growth for

FY19E In the midcap space, KEC was

key performer as order inflows

for FY18 were at ~Rs. 15098

crore mark coupled with

strong revenue growth of

28.6% YoY along with an

improvement in the working

capital cycle Bearing companies like SKF,

Timken and NRB reported

healthy performance with

topline growth of 10-25%

coupled with EBITDA growth of

20-55%. Strong performance

was mostly on account of

robust offtake from the auto

segment and recovery in

industrial segment of the

business

Cement: Healthy volume

growth, high energy costs

dent margins

Cement companies under our

coverage reported healthy

volume growth of 15.5% YoY

m a i n l y l e d b y h i g h e r

government spending and

be t te r sand ava i l ab i l i t y.

Excluding UltraTech (that had

merged Jaypee) vo lume

growth was up 8.5% YoY. In

terms of regional performance,

r e g i o n s l i k e R a j a s t h a n ,

Himachal Pradesh and Gujarat

were impacted by sand & water

availability and RERA impact

while rest of the regions

witnessed healthy demand

f rom in f ras t ruc tu re and

individual house builders.

Realisation for the quarter was

up 4.8% YoY led by healthy

demand. Consequently, total

revenue of the sector increased

21.1% YoY toRs. 24,613 crore.

In terms of margins, higher

power cost (led by a sharp rise

in pet coke prices) and freight

cost (due to increase in diesel

prices, change in sales pattern

and s t r i c t adherence to

overloading in northern region)

have led to a fall in margins

(down from 17.5% in Q4FY17 to

17.3% in Q4FY18) Cement realisation in our

coverage universe increased

4.8% YoY during the quarter

mainly due to change in sales

mix (from ex-factory to FOR),

low base and better pricing in



the western & central region EBITDA/t in our coverage

universe increased 3.6% YoY

to Rs. 823/t mainly due to low

base. Among the coverage

universe, JK Lakshmi and

He i lde lberg repor ted an

increase of 45.2% YoY and

55.5% YoY mainly led by

operating leverage benefit and

low base in last year

Cement volumes & capacity utilization trends

Source: ICICIdirect research

Consumer Durables

I-direct CD universe (excluding

Lloyd's business in Havells)

recorded sales growth of

~13% YoY (12% QoQ) during

Q4 led by strong sales growth

of ~15% in the paint category

(volume were up ~12% YoY).

Under the piping segment,

Supreme Industries and Astral

Poly recorded sales growth of

~15% and ~11%, largely

driven by non-core business

( industr ia l and adhes ive

segments, respectively)

However, lower-than-expected

volume growth of the piping

segment was mainly due to a

slow pick-up in demand from

agriculture and real estate

segment in Q4FY18. On the

other hand, untimely rains in

most parts of the country

coupled with pre-buying activity

in Q3FY18 (owing to a change in



energy ratings) translated into

lower volume offtake in Q4FY18

for Voltas, Symphony and

Lloyds, respectively. As a result,

Symphony sales declined

~14% YoY wh i le Vo l tas

recorded flattish sales during

Q4FY18

On the margin front, I-direct CD

universe recorded flattish

margin on a YoY basis at 15.5%

as inflationary pressure on raw

material (higher prices of crude

derivatives, copper YoY) had

kept gross margins under

check.

FMCG

FMCG companies witnessed

strong growth in the March

quarter led by robust volume

g r o w t h c o u p l e d w i t h a

stabilising trade channel.

Aggressive advertisement and

promotions also aided growth.

O u r c o v e r a g e u n i v e r s e

reported 4.8% growth on a

comparable basis (net of

excise in base quarter). After

several quarters of stress in the

aftermath of demonetisation

and ro l lou t o f GST, the

consumer goods sector seems

to be back on the growth track

led by a pick-up in rural

consumption

We expect consumer demand

to remain resilient in urban

India as well. We believe

companies would continue to

witness strong volume growth

w i t h t h e g o v e r n m e n t ' s

increasing thrust on improving

rura l income leve ls and

expected normal monsoon in

2 0 1 8 . I n o u r c o v e r a g e

universe, HUL, Nestlé, Varun

B e v e r a g e s a n d J y o t h y

Laboratories witnessed 10.8%,

1 0 . 6 % , 2 4 . 5 % & 1 6 . 7 %

comparable sales growth,

respectively, led by robust

volume growth

Majority of the companies reported strong double digit growth in EBITDA led by a favourable base, soft raw m a t e r i a l p r i c e s a n d p r e m i u m i s a t i o n . M o s t companies in our universe r e p o r t e d g r o s s m a r g i n expansion. Our coverage universe has seen a 240 bps e x p a n s i o n i n o p e r a t i n g margins. Though inflation is expected to go up on the back of rising crude oil and higher



minimum support prices (MSP) announced by the Centre, companies would be able to mitigate the pressure through calibrated price increases

Led by higher EBITDA, net p r o f i t f o r o u r c o v e r a g e universe companies has seen healthy growth of 14.8%. FMCG behemoths HUL and ITC have seen net profit growth of

17.9% & 9.9%, respectively. In order to strengthen growth, companies are focusing on new products launches. We believe FY19E would further witness new product launches i n v a r i o u s s e g m e n t s . Simultaneously, advertisement spend in FY19E may go up with companies investing in new launches

Source: ICICdirect Research

Information Technology

Tier-I IT companies witnessed

average growth of 1.2% QoQ

in constant currency terms in

Q4FY18 while cross currency

provided strength of ~120-190

bps to dollar revenue growth to

2.9% QoQ

Analysing the growth drivers

for Tier-I IT companies in this



quarter, Europe continued to

lead growth in the last three to

four quarters outpacing the

US, the largest contributor

among geographies. Among

verticals, growth in banking &

financial services (BFSI) is yet

to see a pick-up while energy

and manufacturing saw good

growth in the quarter. With

movement of the IT landscape

m o r e t o w a r d s d i g i t a l &

emerging technologies, digital

forms ~22-30% of overall

revenues with healthy double

digit growth and continues to

inch up

Citing revenue outlook for

FY19E, Infosys and HCL Tech

guided for revenue guidance of

6-8% and 9.5-11.5% in CC

terms with organic growth

(~5% in FY19E) muted in HCL.

G o i n g b y m a n a g e m e n t

c o m m e n t a r y, F Y 1 9 E i s

expected to better compared to

FY18 owing to an improvement

in BFSI segment and scaling up

of digital revenues

On the operating margin front, it

was a mixed bag performance

in Tier- I IT companies. Infosys'

EBIT margins expanded 40 bps

to 24.7% while Wipro IT

services margins declined 40

bps QoQ to 14.4% on account

of one-off. In terms of EBIT

margin trajectory, for FY19E,

TCS (26-28%) and HCL Tech

(19.5-20.5%) retained their

margin guidance while there

was disappointment as Infosys

lowered its EBIT margin range

to 22- 24% for FY19E

Infrastructure

Our construction universe

companies continue to benefit

from a strong set of opportunities

across verticals. Consequently,

t h e o r d e r b o o k o f o u r

cons t ruc t ion compan ies

remained buoyant with strong

order inflows during the year.

However, on the financial front,

universe reported mixed set of

results. While NCC's topline grew

11.9% YoY to Rs. 2394.8 crore,

NBCC's topline fell 6.9% to Rs.

2184.2 crore. Consequently, the

topline of our construction

universe grew moderately by

3.2% YoY to Rs. 6227.2 crore.

On the operational front, there

was a 60 bps YoY expansion in

EBITDA margin to 10.4% on

account of exceptionally high



margins for NCC. Despite

m a r g i n e x p a n s i o n , t h e

bottomline of our construction

universe fell 10.3% YoY to

Rs.273.7 crore owing to 56.1%

YoY PAT de-growth of Simplex

Infra

Our road universe players

have benefited from strong

awarding from NHAI & MoRTH.

Also, execution has picked up

pace. Consequent ly, the

topline of our road universe

grew 9.0% YoY to Rs. 3947.9

crore. Also, toll collections on a

like-to-like basis grew 16.0%

YoY to Rs. 614.9 crore in

Q4FY18. Furthermore, EBITDA

margins contracted 280 bps

YoY to 26.0%. However, the

b o t t o m l i n e o f o u r r o a d

universe reported significant

growth of 40.6% to Rs. 526.6

crore due to 231% YoY growth

in the PAT of PNC Infratech

Building materials

Our building material coverage

un iverse posted a weak

performance. The growth was

largely impacted by a delay in

implementation of e-way bill,

wh ich s lowed down the

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

unorganised to organised

segment. However, with the

interstate e-way bill in place

and passage of intrastate e-

way bill by July, 2018, we

expect this anticipated shift to

hasten and benefit organised

players. Overall, e-way bill

implementation would be a

key growth moni torab le

ahead. While revenues grew

1.9% Rs. 2258.0 crore, EBITDA

margins contracted 160 bps

YoY to 13.6% amid rising input

costs while PAT de-grew

18.4% YoY to Rs. 157.8 crore

In Q4FY18, our tiles universe

reported moderate volume

growth of 3.7% YoY to 36.2

M S M . H o w e v e r, o n t h e

financial front, results were

disappointing. Revenues de-

grew 0.2% YoY to Rs. 1276.7

crore as realisations softened.

Further, with pressure of rising

fuel prices, EBITDA margins

contracted 100 bps YoY to

13.1%. Hence, PAT declined

significantly by 6.5% YoY. On

t h e p o s i t i v e s i d e ,

managements indicated that

realisations have bottomed out

in Q4FY18

In Q4FY18, our plywood

universe reported a mixed



performance. While volume

performance was decent with

Century P ly & Greenp ly

reporting 8.7% and 5.3%

volume growth, respectively, a

significant drop in realisations

impacted topline. Consequently,

the topline of our plywood

universe grew moderately by

4.9% YoY to Rs. 981.3 crore. On

the operational front, EBITDA

margins declined 230 bps YoY to

14.3% amid stiff competition

a n d r i s i n g i n p u t c o s t s .

Consequently, the bottomline

de-grew significantly by 30.1%

YoY to Rs. 68.4 crore

Real estate

Q4FY18A witnessed a gradual

improvement in the real estate

sector. Furthermore, new

launches are expected to pick

up from FY19E onwards. Our

real estate coverage universe

repor ted s t rong vo lume

performance with volume

growth of 15.6% QoQ to 15.9

lakh sq ft (lsf). Sobha's volumes

grew 8.8% QoQ to 10.16 lsf

while Mahindra Lifespace's

sales volumes grew 44.0%

QoQ to 3.6 lsf. However,

Oberoi's volumes de-grew

13.6% QoQ at 1.3 lakh sq ft,

given the absence of new

launches

Metals

For Q4FY18, the metals &

mining sector reported a

healthy performance primarily

driven by higher realisations.

The topline of the coverage

un iverse (ex- Coa l Ind ia )

increased 16% YoY and 13%

QoQ, while the aggregate

sector EBITDA registered

growth of 19% YoY and 21%

QoQ. The corresponding

EBITDA margins was at 25.6%,

up 55 bps YoY and 185 bps

QoQ

The ferrous space reported

outperformance on the back of

healthy realisations. Tata Steel

reported a healthy Q4FY18

performance. The Indian

operations posted sales volume

of 3.03 million tonnes (MT)

while European operations

reported steel sales of 2.55 MT.

Domestic operations' (TSI)

EBITDA/tonne increased QoQ

to Rs. 15872/tonne. European

operations reported a healthy



EBITDA/tonne of US$70/tonne

On the back of healthy prices of

non-ferrous metals and crude,

Vedanta reported a steady

performance for Q4FY18

wherein the top line increased

22.7% YoY and 13.4% QoQ to

R s . 2 7 6 3 0 c r o r e . T h e

corresponding EBITDA margin

was at 28.4%

Graphite electrode majors

reported another upbeat

performance for Q4FY18

driven by higher realisations.

Graphite India reported sales

of Rs. 1212.2 crore. The

EBITDA came in at Rs. 668.6

crore (implying EBITDA margin

of 55.2%). HEG also reported a

robust performance. Net sales

were at Rs. 1295.5 crore (up

401% YoY) wi th EBITDA

margin of 73.6%

Oil & gas

The oil & gas sector reported a

steady performance in Q4FY18.

The resul ts of upstream

companies were largely in line

with our estimates on the oil &

gas production and revenues

front, benefiting from higher

crude oil prices. While revenues

increased ~4% QoQ, EBITDA

declined ~9% QoQ and came in

below our estimates. The miss

on the operational front was

mainly on account of inflated

costs related to workover

operations, water injection,

repairs & maintenance and

decommissioning. Going

forward, uncertainty looms

large with regard to subsidy

sharing and windfall taxes for

upstream oil companies

Oil marketing companies

reported a mixed performance

on the operational front with

core GRMs coming in below

our estimates. On the marketing

front, product sales growth

remained healthy at ~7% YoY

and flat QoQ, temporarily

overcoming the threats from

increased competition from

private players

Pharmaceuticals

Aided by a low base of Q4FY17,

the I-direct healthcare universe

reported strong double digit

profitability growth. Revenues

also grew in high single digits.

On the geographical front, the

challenging environment in US



generic space continued to

impact overall US growth.

However, excluding US, Brazil

(country specific issues) most

o ther geograph ies have

reported strong growth on the

back of new launches and

favourable currency movement.

Domestic formulations also

grew in double digits, in line with

our estimates. Overall, I-direct

universe revenues were at Rs.

40,196 crore, up 7.4% YoY

Despite overall decent growth,

seven out of 19 companies

under coverage registered

negative or muted revenue

growth in Q4FY18 due to

continued pricing pressure in

the US.

Power

Regulated utilities reported a

muted performance in terms of

revenue and profitability. NTPC

r e p o r t e d ~ 4 4 2 3 M W o f

capacity addition in FY18 while

the target for FY19E seems

encouraging in terms of

capacity addition. On the

Q4FY18 performance, the

generation growth at 7.5% YoY

(PLFs of coal based stations

improved 210 bps to 79%) was

in line but EBIDTA was below

estimates on account of higher

other expenses leading to

flattish profitability

Power Grid also reported asset

capitalisation in FY18 that was

below expectations at Rs.

28,000 crore given some delay

in receipt of approvals which

impacted cap i ta l i sa t ion .

Revenues and PAT grew below

estimates on account of lower

transmission revenues and

higher-than-expected other

expenses

Retail

A strong wedding season and

l o w b a s e e f f e c t o f

demonetisation resulted in

decent topline growth for the

retail sector in Q4FY18. On the

prof i tabi l i ty f ront , lower

discounting days (preponing of

end of season sale in Q3FY18)

and efforts towards cost

optimisation, boosted the

EBITDA margins for the quarter.

Hence, revenues for our retail

coverage universe grew 10%

while EBITDA grew robustly by

54% YoY in Q4FY18



Textiles

Softening of cotton prices by

~7% YoY to Rs. 113/kg, led to

improvement in margins for

textile players in Q4FY18.

EBITDA margins for Vardhman

Textiles recovered to 17.2% in

Q4FY18 (Q3FY8: 13 .7%,

Q2FY18: 13.0% and Q1FY18:

14.1%). EBITDA margins for

Page, Siyaram and Rupa,

expanded 450 bps, 270 bps

and 550 bps, YoY, respectively

On the balance sheet front,

except for Page, stretching of

working capital days was

a p p a r e n t i n Q 4 F Y 1 8 o n

account of issues related to

G S T i m p l e m e n t a t i o n .

Extension of credit period to

the dealers and distributors led

to higher receivable days. We

believe a gradual stabilisation

of trade channels will ease

working capital requirements

and generate healthy cash flow

from operations in FY19E

Logistics

Q4 continued to report a

strong quarter for surface

logistics players. The TCI pack,

wh ich inc ludes Transpor t

Corporation of India (TCI) and TCI

Express (TCIEL), led the growth

in the I-direct surface logistics

universe.

Overall I-direct logistics universe

grew 12% YoY (up 6% QoQ) to

Rs. 3750 crore. TCI, TCIEL and

BlueDart aided the profitability

growth of the universe, which

led EBITDA, PAT for the universe

to grow 12% and -10% to Rs. 601

c ro re and Rs . 422 c ro re ,

respectively

Media

The media sector performance

in Q4 was marked by strong

show by mul t ip lexes and

broadcasting while segment like

print had a weak outing as it

continues to struggle in localised

ad growth.

Telecom operators

Telecom operators continue to

bleed in Q4 on account of

continued price erosion (fresh

round of price cut by Jio in

January 2018) and international

IUC cut impact. This led to

continued downward trend in



ARPU that had an impact on

EBITDA and profitability.

In the tower space, Infratel

witnessed the impact of gross

exi ts of 9813 tenancies,

reflecting the pressure of

consolidation and exits of

marginal players. We also note

that there remains further risk of

tenancy exits as Vodafone-Idea

merger gets completed. Sterlite

Tech continued to report strong

number, reporting ~19.7% YoY

growth in top l ine wh i le

operating margins came in at

26% (200 bps better than our

expectations) because of

revenue mix skewed towards

product business. Sterlite

remains a key beneficiary of

4G/5G infrastructure backhaul

led by optical fiber demand

globally and in India.

Tête-à-tête


We believe India's fundamentals remain solid

32

Jinesh Gopani Nimesh Chandan

India has been a stand-out investment opportunity for domestic and global

investors ever since 2013 when global events led to a significant deterioration on

the country's fiscal position. Since then a series of policy measures have made the

economy better position to manage global stresses, says Jinesh Gopani, Head-

Equities, Axis Mutual Fund. Domestically, the risks are rising inflation due to

higher energy and food prices and deterioration in current account deficit, adds

Nimesh Chandan, fund manager, Canara Robeco Asset Management.

which to some extent have

been balanced out by domestic

investors. Midcap and small cap

stocks which saw a sustained

rally in the preceding years are

currently seeing a repricing of

earnings potential. What is

interesting to note is quality

companies (regardless of size)

that we have been tracking and

have significant investments in

Q. What is your take on current

market situation? Do you see the

markets to remain within existing

range or do you see a break-out in

either direction?

A. Jinesh Gopani - We continue to

believe markets will remain

volatile for the remainder of the

y e a r. F P I ` s h a v e b e e n

consistent sellers in the market


Tête-à-tête

have seen limited falls or have

been stand out performers

during this volatile period.

C o m p a n i e s t h a t h a v e

consistently reported healthy

growth and have matched

investor expectations have

been perceived as 'companies

to incrementally invest' in

d u r i n g v o l a t i l e m a r k e t

conditions such as one that we

currently see ourselves in.

Nimesh Chandan - Currently

the market is expected to be

range bound. After a strong

rally last year, the markets can

take a breather for some time.

Rising interest rates globally,

depreciation in EM currencies

and trade wars are likely to

keep global equity markets

under pressure. Domestically,

we expect pressure from rising

inflation mainly due to rise in

energy and food pr ices.

Elections, both state and

central are likely to add to

volatility at the end of the year.

On the good news, we see

improvement in earnings

growth in FY19 and FY20.

Major reforms undertaken by

the Modi government are likely

to start showing results. We

believe this volatility will

provide an opportunity to add

quality companies to the

p o r t f o l i o a t r e a s o n a b l e

valuations.

Q. What are the key risks to Indian

markets that one should be

watchful about?

A. Jinesh Gopani - Globally,

markets have seen the return

of volatility after a sustained

period of a low volatil ity

e n v i r o n m e n t . T h i s h a s

reflected in the Indian markets

as well. Currently markets have

been focusing on short term

news flow on a wide variety of

aspects ranging from geo

political tensions, oil prices, US

interest rates, and more locally

domestic polit ical moves

amongst others.

Crude prices have hit a new 5

year' high of US$80. USD-INR

depreciated to Rs 67.5/US$ in

May from Rs66.5/US$ in April.

T h i s c o u p l e d w i t h a

deteriorating rupee has seen

domestic oil prices move to

their all-time highest levels.

Rising oil prices have once

again raised fears of inflation


Tête-à-tête

and fiscal slippage. If oil related

excise duties are reduced, the

deficit might widen.

FPI's have been sellers in the

market for the better half of the

current calendar year in line

with the overall global shift

away from risk assets in a flight

to safety. However, domestic

institutional investors and

retail participation in equity

markets have minimized to

some extent the intensity of

the fall. Should this support

deteriorate, we should see

significant volatility in the

markets.

With that being said, India has

been a stand-out investment

opportunity for domestic and

global investors ever since

2013 when global events led to

a significant deterioration on

the country`s fiscal position.

Since then a series of policy

measures have made the

economy better position to

manage global stresses. We

believe India`s fundamentals

remain solid. The economy

continues to remain highly

dependent on domest ic

consumption and hence will

remain insulated from external

shocks.

Nimesh Chandan - The risks to the

market from the international

front are rising interest rates,

depreciation in Emerging

market currencies and trade

wars. Domestically, the risks

are rising inflation due to

higher energy and food prices

and deterioration in Current

account deficit.

Q. How has the Q4FY18 earnings

season panned out in your opinion?

A . Jinesh Gopani - Midcap

companies in general have

underper fo rmed marke t

expectations this quarter. This is

reflective of their performance

over the last month. However,

company results for Q4 FY18

have seen improvement across

sectors that we cover. The IT

sector results point to selective

opportunities within the space

on the back of an improved

global outlook. Consumer

focused companies within

banking (Reta i l Banks &

NBFC`s), consumer staples and

discretionary companies have

continued to match investor

expectations. Consensus NIFTY


Tête-à-tête

earnings also did not see

significant negative surprises

unlike earlier years, highlighting

that there is confidence in a

likely step-up in growth going

forward.

Nimesh Chandan - The Q4FY18

r e s u l t s w e r e b e l o w

expectations mainly due to

the drag on profits from the

banking sector. Corporate

banks reported a significant

jump in the slippages and

provisions which were at an

all-time high this quarter.

Companies in the consumer

sectors performed better

than expectations. Metals

and Oil and Gas continued to

deliver good results.

Q. What are your expectations in

terms of earnings growth for FY19?

A. Jinesh Gopani - We continue to

believe in the India growth

story and see green shoots in

corporate earnings. We believe

that the corporate sector is at

the cusp of a signif icant

earnings recovery in the

coming quarters. The long

term opportunities and secular

growth prospects are clearly

visible in many of the themes

that we are currently looking at.

We expect profit growth our

investment universe to grow

18-20% on average in the next

4 quarters.

Nimesh Chandan - We expect

earnings of the Nifty-50 Index to

grow at 20% CAGR for the next

two years. This is likely to be led

by recovery in contribution from

the banking sector due to sharp

decline in loan-loss provisions. We

also expect general demand

recovery in domestic consumption

sectors such as automobiles and

staples. A weaker Indian Rupee is

likely to support realizations and

profitability in global commodity

and services sectors.

Q. What are the key sectors or

themes that you are looking at this

time?

A. Jinesh Gopani - We remain

bullish on the rural theme and

the consumpt ion space .

Improving trend in real rural

wage growth i s d i rec t ly

encouraging for the rural

consumption outlook and

indirectly for the aggregate

demand and for the investment

cycle. We currently find select


Tête-à-tête

opportunities in the rural

housing, and finance cyclical

businesses spaces which are

likely to be direct beneficiaries.

We have been positive on B2C

as compared to B2B for the last

several quarters due to their

under l y ing fundamenta l

strengths and signif icant

market opportunities. The

consumption space continues

to remain attractive and the

recent fall has been a good

buying opportunity in select

mid and large cap names. The

consumption space offers

opportunities in companies

with high quality businesses,

stable cash flows and steady

growth metrics.

Nimesh Chandan - We are

posit ive on consumption

growth , espec ia l ly rura l

c o n s u m p t i o n . W i t h t h e

forecast of normal monsoon

and rising farm incomes, we

expect rural spending to pick

up. Consumer companies are

a l s o b e n e f i c i a r i e s o f

implementation of GST as it

leads to market moving from

unorganized to organized

players. With the rise in interest

rates too, the consumer

companies that are cash rich

will be better placed than

leveraged sectors.

We are currently underweight

on Utilities, Metals, Telecom

and Oil and Gas.

Q. Tell us something about your

stock-selection strategy. What kind

of stocks do you prefer and what do

you avoid?

A. Jinesh Gopani - We primarily

f o l l o w b o t t o m - u p s t o c k

selection approach with a

minimum 2-3-year view on

stocks. Bias towards high

quality and growth with strong

fundamentals are the key look

outs us to select companies for

any of our portfolios. Having

s a i d t h a t , c o m p e t i t i v e

advantage, pricing power and

right to win are underlying

elements which one needs to

assess crucially, since ROE,

market share, leadership are

derivatives of this.

To elaborate more, growth

aspect can be a quantitative

measure, wherein industry

growth, market penetration

and company specific growth

(both sales and profit), is


Tête-à-tête

measured over cycles. Our

perception on these pointers is

crit ical in our evaluation

process.

While quality is assessed from

both quantitative and qualitative

p e r s p e c t i v e . U n d e r t h e

quantitative aspects, we consider

Return on Equity (RoE), cash flow

quality, asset turnover, capital

allocation, etc. In qualitative

aspects corporate governance,

pedigree and stabil ity of

management and value creation

for its stakeholders form the key

measures.

This framework is irrespective

of the size of the company.

Nimesh Chandan - We focus on the

fundamentals of companies. We

believe it is the quality of the

company's business and

management that creates or

destroys wealth for the investors

over the long term rather than

technical or quantitative aspects

of the market. Hence our

investment philosophy that “It is

companies and not stocks that

create wealth”

The objective for the investment

team is “to invest in robust

growth-oriented businesses

with competent management at

reasonable valuations”. We

have a three stage investment

research process which covers

both top-down and bottom-up

stock selection approach.

Through this process we try to

assess the quality of business

and management of the

company and prepare a range

of valuation that it should ideally

trade on.

We prefer companies that are

on a susta inable growth

tra jectory, where capi ta l

intensity is low, deliver good

return on equity and have a

strong competitive positioning

Q. What is your advice for investors

at this point in terms of their overall

portfolio and asset allocation?

A. Jinesh Gopani - Volatility is a

friend of the long term investor.

While equity markets are

volatile in the short run, they

tend to fo l low earn ings

performance in the long run.

T h e I n d i a n e c o n o m y a s

highlighted above is the fastest

growing large economy in the

world. With revival in the

Indian corporate sector, the


Tête-à-tête

long term potential of equities

continues to look attractive.

Systematic investments offer a

prudent yet simple mechanism

for investors to r ide the

volatility. SIP`s help ride the

downturns without investors

facing the risks associated with

timing the markets.

Asset allocation is essential for

portfolio construction keeping

in mind the investor risk

appetite and goals. Regardless

of market fluctuations investors

must stick to their targeted

asset allocations to generate

long term performance in line

with investor expectations.

N i m e s h C h a n d a n - A s s e t allocation will depend on the client's risk return profile. Within equities, we expect this year to be a volatile year due to in te rna t iona l as we l l as d o m e s t i c i s s u e s . W i t h acceleration in GDP growth and improvement in earnings growth for the next three years, we expect the market to provide healthy returns over the next three years. Hence a correction in the market can be taken as an opportunity to i n c r e a s e i n v e s t m e n t i n Equities. Investors can also choose the SIP route to increase equity allocation at this point.

ASK OUR PLANNER


Q. What would be the amount

if I want to surrender my

policy ICICI Prudential Life

Stage Assure after completing 10

years. Is it the fund value OR Fund

value+GMA OR Fund value+GMA-

taxes. If taxes are there, what

would be its proportion? I have

taken my policy in Feb 2009.

- Sudhir Kumar

A. If you surrender the policy,

you would be receiving only

the fund value; the Guaranteed

Maturity Addition (GMA) will

not be paid. As you have taken

the policy in February, 2009,

the surrender value would not

be taxed, if the sum assured of

your policy was at least 5 times

the premium paid every year.

However, if it's not the case,

then you would have to pay tax

on the difference between the

fund value and the sum of

premiums paid, as per your

income slab. For such cases,

the insurance company would

deduct 1% TDS on the amount,

if the amount to be received

exceeds Rs.1 lakh in a financial

year.

Q. I have taken an ICICI Prudential

Life Time Pension Plan taken in

2004 March. Total sum assured

was 1lk and I am paying 10000

premium yearly. Now it i getting

expire in 2019 and current value is

340000. Just want to know if I Opt

for taking full money on maturity, do

i need to pay income tax for the

whole money? if so what is the

percent of tax i need to pay? I am

working and i am already under

30% tax bracket.

- Uday

A. This is an unit linked pension

policy. For all pension policies,

on maturity, you would be able

to withdraw only a maximum rdof 1/3 of the maturity value as

lumpsum and the balance

amount has to be converted

into annuity. You would start

receiving regular pension from

such amount, depending on

the frequency opted by you. rdThe lumpsum amount of 1/3

withdrawn would be exempt

from tax. The pension you

would be receiving every year

would be added to your

income and taxed as per your

income slab.

Tax-planning is a crucial part of your personal finance

ASK OUR PLANNER


Q. I would like to know being an

NRI and if I surrender Pension

Policy of 40 lakhs corpus nearing

maturity of years and reinvest in

other ICICI fund or ulip directly if

available without getting the

surrender value back what are tax

impl icat ions and any opt ion

available for saving the TDS on the

same. Alternately if I produce Tax

Residency Certificate and Form 10F

is the surrender value still taxable.

- Jeffry Fernandes

A. If you surrender a pension

policy, then the entire

surrender proceeds would be

added to your income and

taxed as per your income slab,

irrespective of how you utilize

the surrender proceeds.

However, if you are a NRI, no

tax wil l be deducted for

countries where DTAA benefit

is available as per Section 90 of

The Income Tax Act, 1961, and

if you have submitted complete

& valid Form 10F and Tax

residency certificate with the

insurance company. This

benefit is only available if the

DTAA treaty with the country of

your residence specifies that

the income is taxable in other

country and not in India. These

forms should be submitted by

res iden ts o f on ly those

countries who have a NO TDS

agreement as per DTAA with

the country of their residence.

Please visit

https://www.iciciprulife.com/s

ervices/nri-corner/nri-tax-bene

fits-on-life-insurance.html for

further information.

Q. I have bought my first home with

home Loan from SBI and paying

EMI of Rs.20,000. The house I

reside in currently was bought 3

years back with home loan from

another bank, for which I pay EMI

of Rs. 26,000. I am claiming tax

benefits for the first home given for

rent for the past 7yrs. Now I want to

change this & claim Tax benefit for

the second home (self-occupied)

because I am paying higher EMI.

What should I do?

- Mangesh Manohar

A. You can claim deduction on

the interest on the home loan

taken for both the house

proper t ies . For the f i rs t

p roper ty, you wou ld be

declaring rent and accordingly

the deduction would be loss on

house property, which is

limited to Rs.2 lakh. For the

second property, which is self-

occupied, the interest on

ASK OUR PLANNER


house loan can be claimed

upto Rs.2 lakh separately.

Q. I recently moved to New

Zealand, where my employer

p rov ides adequa te med ica l

coverage. I have a family floater

plan in India that also covers my

parents. Can I remove my name

from the plan and let my parents

continue the policy? I'm the policy

proposer

- Shashi Bohra

A. Yes, you can remove your

name from the list of insured

persons in the plan and let your

parents only remain as insured.

You can choose to continue to

be the proposer and pay the

premiums or either of your

parents can become the

proposer. Any kind of such

changes can happen only

during the renewal of the

policy.

Q. Is it advisable for me to invest Rs.

5 lac in fixed annuities (with

guaranteed return of principal) that

was gifted to me in cash by my

parents? I am 40 years old. I need to

invest this lump sum for the goal of

my retirement. Please suggest

suitable options.

- Ramchandra G. Vartak

A. If you are looking to invest

this amount for your retirement,

you can choose the investment

avenue based on the time left

for retirement. If you have more

than 15 years to retire, you can

choose to invest into equity

oriented instruments l ike

mutual funds and post your

retirement, you can invest the

accumulated corpus into

annuity plans, to receive a fixed

annuity from the same.

Instead of investing the entire

amount in one go into equity

m u t u a l f u n d s , y o u c a n

consider investing the amount

into liquid funds and shift the

amount systematically into

equity funds every month over

next 1 to 2 years through

Systematic Transfer Plan

(STP).

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

MUTUAL FUND ANALYSIS

Investing in infrastructure funds


The year 2018 has been an extremely volatile year so far with profit booking being witnessed in broader markets along with a change in sectoral performances compared to earlier years. With sharp deter iorat ion in markets sentiments due to global and domestic factors, sectors like infrastructure underperformed in recent months.We believe the recent correction in infrastructure and related stocks offers a good investment o p p o r t u n i t y . V a r i o u s infrastructure segments remain well placed to offer a better inves tment oppor tun i ty. Segments like roads, railways, ports, oil & gas, defence and housing have been key thrust areas of the government. Policy measures to create a favourable env i ronment for pr iva te investment along with the government ' s own huge e x p e n d i t u r e o n t h e infrastructure segment have started to result in order inflows and execution on the ground.

Tendering activity in infra and capex segments is a lead indicator of a pick-up in

economic activity. Tendering is followed by actual awarding of contracts, which later leads to ground level execution. Large scale tendering for mega infra projects is beneficial for larger, stronger companies that are more typically found in the o r g a n i s e d s p a c e . W h i l e t e n d e r i n g a c t i v i t y w a s dominated by the government, participation of private players in tendering activity was very limited in the last three to four years due to high leverage and an elevated interest rate scenario along with uncertainty o v e r p o l i c y f r a m e w o r k . However, we believe private investment could see an uptick in investment possibly, going forward, as there are early signs of corporate balance sheet repairs. Overall, we believe execution activity would be boosted over the next few months as tendering activity, which has already picked up (and is highest since 2012), will ultimately translate into action.

Furthermore, opening up of various financing options like InvITs, REITs along with Budget



focus on promoting the bond m a r k e t f o r l o w e r r a t e d companies will make the b u s i n e s s e n v i r o n m e n t conducive to private investment in infrastructure.

In its Budget announcements, the government has underlined its commitment to provide a continued thrust to the infra space. Budgetary allocation to roads, highways and transport increased 16.3% YoY while that t o u r b a n d e v e l o p m e n t increased 11.2% YoY. Railways received a bumper push, with budgetary allocation increasing 32.7% YoY. Consequently, a l l o c a t i o n t o w a r d s k e y development related schemes increased 14.1% YoY.

Over the past few years, the government has been working on providing the much needed groundwork that can see the infrastructure sector take off in coming years. The removal of sectoral bottlenecks like land acquisition, environmental approvals, allocation of mining

resources along with

measures for ease of doing business may lead to timely completion of infrastructure projects. As infrastructure projects involve high capital expenditure, a sharp fall in interest rates has significantly added to the profitability of the sector.

Infrastructure funds focusing o n s p e c i f i c c o m p a n i e s capitalising on growth potential in the sector are offering good i n v e s t m e n t o p t i o n s t o investors. Aggressive investors may consider investing in the recommended infrastructure funds as a part of their thematic allocation.We recommend the following f u n d s : A d i t y a B i r l a S L Infrastructure Fund, L&T In f ras t ruc tu re Fund and Reliance Diversified Power Sector Fund. Investors should avoid allocating more than 10% of their equity mutual fund corpus in any sector or thematic fund.



Aditya Birla Sun Life Infrastructure Fund

Fund Objective:

An open-ended growth scheme

with the objective of providing

for medium to long-term capital

appreciation by investing

predominantly in a diversified

portfolio of equity and equity

related securities of companies

that are participating in the

growth and development of

Infrastructure in India.

NAV as on May 31, 2018 (|) 34.3Inception DateFund Manager Vineet MalooMinimum Investment (|) Lumpsum 1000

SIP 1000Expense Ratio (%) 2.68Exit Load 1% on or before 1Y, Nil after 1YBenchmark NIFTY INFRA - TRILast declared Quarterly AAUM(| cr) 689

Key Information

March 17, 2006

Product Label:This product is suitable for investors who are

seeking:

· Long term capital growth

· Investments in equity and equity related

securities of companies that are participating

in the growth and development of

Investors understand that their principal will be at high risk

Performance:

The fund has managed to beat

the Nifty Infra TRI index, its

benchmark, across most time

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

inception (as of May 31).

However, its performance

relative to peers has not been

as impressive over the last

three years. It has generated

CAGR of 8.9% and 18.9% in the

last three years and five years

vs. 2.5% and 8.8% returns by

benchmark, respectively (as of

May 31).

Performance vs. Benchmark (CAGR Returns %)

4

8.9

18

.9

10

.6

5.3

2.5

8.8

3.5

0

5

10

15

20

1 Year 3 Year 5 Year SinceInception

Fund Benchmark



%

5.5

4.3

3.4

3.4

3.3

3.1

3.0

2.7

2.4

2.2

KEC International Ltd. Domestic Equities

NTPC Ltd. Domestic Equities

Hindalco Industries Ltd. Domestic Equities

Asset Type

Honeywell Automation India Ltd. Domestic Equities

Carborundum Universal Ltd. Domestic Equities

Bharat Electronics Ltd. Domestic Equities

Clearing Corporation Of India Ltd. Cash & Cash Equivalents and Net Assets

PNC Infratech Ltd. Domestic Equities

Indraprastha Gas Ltd. Domestic Equities

Tata Steel Ltd. Domestic Equities

Top 10 Holdings

%22.2

17.0

15.3

10.2

8.8

7.4

5.2

2.0

1.9

1.9

Others Domestic Equities

Cement & Cement Products Domestic Equities

Automobile Domestic Equities


Consumer Goods Domestic Equities

Domestic Equities

Construction Domestic Equities

Financial Services Domestic Equities

Metals Domestic Equities

Top 10 Sectors Asset TypeIndustrial Manufacturing Domestic Equities

Energy

Portfolio:

The fund has traditionally

invested heavily in financials

and industrials with these two

sectors regularly constituting

~50-55% of the portfolio.

However, over the last two to

three years, it has consistently

cut exposure to these sectors

while increasing allocation to

mater ia l s . The por t fo l io

displays a significant midcap

bias with the portfolio seeing

allocation of ~40% in large

caps and ~60% in midcap and

small cap stocks. At the stock

level, the fund tries to mitigate

this risk by diversifying heavily.

It currently holds 65 stocks

with the top 10 bets making up

around a third of the portfolio.



Our View:

The fund has worked on

diversifying its portfolio by

moving away from highly

concentrated positions in

financials and industrials.

Having reduced exposure to

sectors such as consumer

discretionary and financials the

fund is now truer to the

infrastructure theme. Investors

can consider this fund from a

three-year perspective.

You can view performance of

other schemes being managed

by the fund manager of this

scheme on the following link:

https://mutualfund.adityabirla

capital.com//media/bsl/files/re

sources/factsheets/2018/emp

ower-may-2018.pdf

Data as on May 31, 2018; Portfolio details as on April-2018� �Source: ACE MF, ICICI Direct Research

%

0.5

0.3

1.4

Whats In

JSW Steel Ltd.

The Ramco Cements Ltd.

ICICI Bank Ltd.

%

1.1

1.3

Whats out

The India Cements Ltd.

Axis Bank Ltd.



L&T Infrastructure Fund

Fund Objective:

The scheme seeks to generate c a p i t a l a p p r e c i a t i o n b y investing predominantly in equity and equity related instruments of companies in the infrastructure sector.

NAV as on May 31, 2018 (|) 17.2Inception DateFund Manager Soumendra Nath LahiriMinimum Investment (|) Lumpsum 5000

SIP 500Expense Ratio (%) 2.10Exit Load 1% on or before 1Y, Nil after 1YBenchmark NIFTY INFRA - TRILast declared Quarterly AAUM(| cr) 2106

Key Information

September 27, 2007

Product Label: This product is suitable for

investors who are seeking

• Long term capital appreciation

• Investment predominantly in

equity and equity -related

instruments of companies in the


Performance:

The fund has been a top

quartile performer over the last

one year, three year and five-

year time frames (as on May

31), indicating its relative

outperformance over its peers.

It has also comfortably and

cons i s ten t l y bea ten the

benchmark Nifty Infra TRI by

~8% (one year), ~13% CAGR

(three years) and ~15% CAGR

(five years) (as of May 31).


13 16.1

24.1

5.2

5.3

2.5 8

.8

-1.7-10

0

10

20

30


Fund Benchmark

The portfolio has undergone a

significant change in character

over the years. Till 2012, the

holdings were dominated by

financial, energy and industrial

stocks. However, post 2012 it



started shedding financial

stocks in favour of materials

sector and post 2015, the

holdings in financial stocks has

been cut, to a large extent. As a

result, now the fund truly

resembles an infrastructure

f u n d w i t h t h e p o r t f o l i o

predominantly comprising

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

sectors , v i z . industr ia ls ,

materials, energy and telecom.

Currently, there are 56 stocks in

the fund with the top 10

holdings making up close to

38% of the portfolio. The fund

also has ~8% of the portfolio in

cash currently.

%

8.3

7.0

4.9

4.6

3.7

3.5

3.3

3.2

3.1

2.6

Top 10 Holdings Asset Type

Domestic Equities

Lakshmi Machine Works Ltd. Domestic Equities

Bharti Airtel Ltd. Domestic Equities

Grasim Industries Ltd. Domestic Equities

Cash & Cash Equivalent Cash & Cash Equivalents and Net Assets

Larsen & Toubro Ltd. Domestic Equities

Shree Cement Ltd. Domestic Equities

The Ramco Cements Ltd.

Graphite India Ltd. Domestic Equities

Carborundum Universal Ltd. Domestic Equities

Hindustan Zinc Ltd. Domestic Equities

%28.1

20.9

17.2

8.3

6.7

4.0

3.3

1.9

0.8

0.2

Top 10 Sectors Asset TypeIndustrial Manufacturing Domestic Equities



Metals Domestic Equities

Telecom Domestic Equities

Services Domestic Equities

Consumer Goods Domestic Equities


Energy Domestic Equities




Our View:The fund is on the aggressive side with higher allocation to midcaps than large caps. However, the portfolio is well const ruc ted in te rms o f diversi f icat ion. Investors looking for a true-blue infra f u n d c a n c o n s i d e r L & T Infrastructure Fund.

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-mutualfund/downloads/factsheets/201819/LT%20Factsheet%20April%202018.pdf

Data as on May 31, 2018; Portfolio details as on April-2018� �Source: ACE MF, ICICI Direct Research

%

1.2

Whats In

Grindwell Norton Ltd.

%

0.6

1.5

Whats out

Hindustan Petroleum Corporation Ltd.

Jindal Steel & Power Ltd.



Reliance Power & Infra Fund

Fund Objective:

The pr imary inves tment

objective of the scheme is to

generate long term capital

appreciation by investing

predominantly in equity and

equity related securities of

companies in the power sector.

NAV as on May 31, 2018 (|) 109.4Inception DateFund Manager Sanjay DoshiMinimum Investment (|) Lumpsum 5000

SIP 100Expense Ratio (%) 2.11Exit Load 1% on or Before 1Y, Nil After 1YBenchmark NIFTY INFRA - TRILast declared Quarterly AAUM(| cr) 1944

Key Information

May 8, 2004

Product Label:This product is suitable for

investors who are seeking

• Long term capital growth

• Investment in equity and equity

related securities of companies in

power sector


Performance:

The fund has outperformed its

benchmark BSE Power Index

strongly over the years. The

one year, three years and five-

year performance (as of May

31) is 9.7%, 14.2% CAGR and

18.1% CAGR, respectively

compared to Nifty Infra Index'

5.3%, 2.5% CAGR and 8.8%

CAGR. When compared to its

c a t e g o r y p e e r s , t h e

performance has picked up

over the last three years but

over five years time frame it

has underperformed.


9.7

14.2

18.1

18.5

5.3

2.5

8.8

9

0

5

10

15

20


Fund Benchmark



%

8.1

7.6

5.4

5.1

4.8

4.4

4.4

4.2

3.9

3.4

Top 10 Holdings Asset Type

Domestic Equities

Jindal Stainless (Hisar) Ltd. Domestic Equities

KSB Pumps Ltd. Domestic Equities

Apar Industries Ltd. Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

KEC International Ltd. Domestic Equities

GE Power India Ltd. Domestic Equities

PTC India Ltd.

Torrent Power Ltd. Domestic Equities

NTPC Ltd. Domestic Equities

Sterlite Technologies Ltd. Domestic Equities

%37.1

36.2

14.0

4.8

1.6

1.5

0.4

Top 10 Sectors Asset TypeEnergy Domestic Equities

Industrial Manufacturing Domestic Equities



Telecom Domestic Equities



Portfolio

I n d u s t r i a l s a n d u t i l i t i e s

consistently make up ~75-

80% of the scheme portfolio.

The scheme has taken outsized

positions on these sectors over

the years. In recent times,

exposure to materials has also

increased. It is now the third

largest holding in terms of

sectors. The fund likes to take

large bets on its top holdings,

with the top five stocks all

individually constituting ~5%

or more of the portfolio and the

top 10 stocks constituting

~52% of the portfolio. Overall,

the fund currently has 36

stocks in the portfolio and has a

pronounced midcap tilt.



Data as on May 31, 2018; Portfolio details as on April-2018��Source: ACE MF, ICICI Direct Research

%

0.9

0.9

1.6Bharti Airtel Ltd.

Whats In

Bharat Electronics Ltd.

The India Cements Ltd.

%

1.3

0.6

Whats out

ICICI Bank Ltd.

Texmaco Rail & Engineering Ltd.

Our View:The fund is more suited to s a v v y, e x p e r i e n c e d & aggressive investors due to factors like significant midcap bias of ~80% and heavily concentrated calls in terms of stocks as well as sectors.

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-May-2018.pdf



Performance of other schemes managed by these fund managers:

1. Aditya Birla Sun Life Infrastructure Fund

2. L&T Infrastructure Fund

17.89 3.70 7.9311.71 10.73 13.806.74 9.14 12.9611.71 10.73 13.804.13 -- --3.48 8.37 8.62

2.33 11.47 12.60-- -- --

1.53 7.34 13.86

11.17 13.34 12.220.87 9.50 18.461.52 2.26 8.21NIFTY INFRA - TRI

CRISIL Hybrid 50+50 - Moderate IndexAditya Birla SL Dividend Yield Fund(G)NIFTY DIV OPPS 50 - TRIAditya Birla SL Infrastructure Fund(G)

Fund Name 1 Year 3 Years 5 Years

Top 3 Performing Schemes Aditya Birla SL Intl. Equity Fund-A(G)NIFTY 50 - TRI

Bottom 3 Performing Schemes

Performance of other schemes managed by the fund manager - Vineet Maloo

Aditya Birla SL Intl. Equity Fund-B(G)NIFTY 50 - TRIAditya Birla SL CPO Fund-Sr 30CRISIL Hybrid 85+15 - Conservative Index

Aditya Birla SL Balanced Advantage Fund(G)

Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 10 other schemes of the concerned Mutual Fund

12.91 24.28 --9.34 16.32 --9.46 14.46 19.1311.17 12.02 15.529.42 16.12 23.631.52 2.26 8.21

7.12 5.63 15.1611.17 12.02 15.526.60 11.62 18.28

11.17 12.02 15.525.85 11.30 17.9711.17 12.02 15.52

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

L&T Tax Advt Fund-Reg(G)S&P BSE 200 - TRIL&T Infrastructure Fund-Reg(G)NIFTY INFRA - TRI


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

S&P BSE 200 - TRI

Bottom 3 Performing SchemesL&T Dynamic Equity Fund-Reg(G)S&P BSE 200 - TRIL&T Large and Midcap Fund-Reg(G)S&P BSE 200 - TRIL&T Hybrid Equity Fund-Reg(G)




3. Reliance Power & Infra Fund

10.46 8.80 --9.70 10.54 13.935.88 14.37 17.331.52 2.26 8.21

Performance of other schemes managed by the fund manager - Sanjay Doshi

Reliance Power & Infra Fund(G)NIFTY INFRA - TRI


Top 3 Performing Schemes Reliance Capital Builder Fund-II-B(G)S&P BSE 200


26.71 7.75 12.9711.71 10.73 13.8019.21 -- --13.51 10.77 13.9314.36 22.58 34.929.34 16.32 --

-- -- --9.70 10.54 13.93

-- -- --9.70 10.54 13.93

-- -- --9.70 10.54 13.93S&P BSE 200

Bottom 3 Performing SchemesReliance Capital Builder Fund-IV-B(G)S&P BSE 200Reliance Capital Builder Fund-IV-C(G)S&P BSE 200

Reliance Capital Builder Fund-IV-D(G)

Reliance ETF Hang Seng BeESNIFTY 50 - TRIReliance US Equity Opp Fund(G)S&P BSE Sensex - TRIReliance Small Cap Fund(G)S&P BSE Small-Cap - TRI

Performance of other schemes managed by the fund manager - Kinjal Desai


Top 3 Performing Schemes


Data as on May 31, 2018; Portfolio details as on April-2018��Source: ACE MF, ICICI Direct Research


This month on iCommunity

55

DiscussionYour voice matters! Voice your opinions on: Will this monsoon affect your portfolio?It is believed that normal monsoons for a third successive year are likely to result in an increase in food grain production with a consequent rise in farm income. This could boost rural demand, thereby benefiting sectors like farm mechanization (tractors, tillers, and pumps), agricultural input (seeds, agro chemicals), and FMCG and consumer durables, among others. So do you subscribe to our view?

Share your thoughts on ICICIdirect's exclusive information platform - iCommunity.Join the discussions: http://community.icicidirect.com/service_forum

Q & A SessionQ & A Session with Travel Insurance Expert - ICICI Lombard

Below mentioned questions were asked during the event -

a) What types of casualties are covered in Travel Insurance? Can you

please elaborate?

b) What if I want to stay away longer than originally planned? Can I

extend my policy to cover me for the extra time I'm out of India, and

how do I make the necessary arrangements?

c) What kind of coverage do I need for a 4 family member visit to USA

for a period of 18 days?

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.

EQUITY MODEL PORTFOLIO


Our indicative large-cap equity model portfolio is delivering an

impressive return (inclusive of dividends) of 131.8% till date (as on May

30, 2018) since its inception (June 21, 2011) vis-à-vis the benchmark

index (S&P BSE Sensex) return of 103.5% during the same period, an

outperformance of 28.3. This validates our thesis of selecting

companies with sound business fundamentals that forms the core

theme of our portfolio. We have revised stocks in our midcap portfolio.

It continues to outperform, delivering 343.7% (inclusive of dividends)

till date (as on May 30, 2018) vis-à-vis the benchmark index (CNX

Midcap) return of 145.6%, outperformance of 198.1. 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 latest

portfolio (large caps) remains overweight on BFSI sector – HDFC Bank

(10%), HDFC (9%), Axis Bank (6%) Bajaj Finance (6%) and SBI (6%). ITC

is the latest addition to the large-cap portfolio, given6% weightage.

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

(4%) continue to be part of our large cap portfolio.

We remain positive on auto, IT and pharma. However, please note that

the weightage for Tata Motor DVR, Maruti and EICHER Motor is revised.

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

secular earnings coupled with sector rotation could lead to

consolidation in near term valuations and offer stock specific

opportunities.

We continue to remain underweight on metals and oil & gas with our

only pick being Gail Ltd., which has a better risk reward opportunity.

Among individual names, we recommend TCS in the IT space, HDFC

and HDFC Bank in the BFSI space, ITC in consumer space and NBCC in

the infra space.



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

Tata Motor DVR 3.0 2.1

Maruti 6.0 4.2

EICHER Motors 4.0 2.8

Mahindra & Mahindra (M&M) 4.0 2.8

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

L & T 6.0 4.2

UltraTech Cement 4.0 2.8

Dabur 5.0 3.5

Marico 4.0 2.8

ITC 6.0 4.2

Nestle 4.0 2.8

TCS 6.0 4.2

Hindustan Zinc 6.0 4.2

GAIL Ltd. 5.0 3.5

Largecap share in diversified 100.0 70.0



Bharat Forge 6.0 1.8

Bajaj Finserve 8.0 2.4

J&K Bank 6.0 1.8

Indian Bank 6.0 1.8

Bharat Electronics 6.0 1.8

Kalpataru Power transmission 6.0 1.8

Ramco Cement 6.0 1.8

Symphony 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

Graphite India 6.0 1.8

NBCC 8.0 2.4

Container Corporation of India 6.0 1.8

Arvind 6.0 1.8

Total 100.0 30.0

Midcap share in diversified 30

TOTAL 100 0 100.0

ICICI Securities has received an Investment Banking mandate from Mahindra & Mahindra, ONGC and Indian Bank.



Performance so far since inception*

131.7698723

343.6897355

180.9073546

103.4961191

145.5595898115.264005

0255075

100125150175200225250275300325350375

Large Cap Midcap Diversified

%

Performance since inception

Portfolio Benchmark

*Returns (in %) as on May 31, 2018

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

85

00

00

0

85

00

00

0

85

00

00

0

12

87

31

25

.37

11

23

12

88

.81

12

61

02

27

.83

12

47

52

89

.95

3500000

4500000

5500000

6500000

7500000

8500000

Largecap Midcap Divesified

|

Investment Value of Investment in Portfolio Value if invested in Benchmark

QUIZ TIME


Quiz Time1. Q4FY18 has been one of the best quarters for the

banking industry in terms of asset. True/False2. After several quarters of stress in the aftermath of

___________ and ____________, the consumer goods

sector seems to be back on the growth track.3. The growth in building material sector was largely

impacted by a delay in implementat ion of

_____________4. Improving credit growth may enable profitability to

improve in PSU and corporate banks over FY19-20E.

True/False5. Q4 continued to report a _____________quarter for

surface logistics players.

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 May 2018 quiz are:1. Even if an investor misses 1% of most critical

opportunity to time the market the overall return is less

than a simple buy and hold strategy.2. With time, the volatility of returns on equity

investment decreases.3. Select companies (stocks) with a clean balance sheet

& low debt levels in relation to equity.4. ICICIdirect Research study shows that beyond 25

stocks, the additional diversification benefit starts to

decline. False5. Over diversification runs the risk of complexity True

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

61

31-May-18 30-Apr-18 Change (%)

CNX Nifty 10736.0 10739.0 0.0%

CNX Midcap 18903.3 20290.3 -6.8%

S&P BSE Sensex 35322.4 35160.4 0.5%

S&P BSE 100 11040.8 11153.0 -1.0%

S&P BSE 200 4654.4 4723.5 -1.5%

S&P BSE 500 14765.7 15047.7 -1.9%


Dow Jones 24,415.8 24,163.2 1.0%

S&P 500 2,705.3 2,648.1 2.2%

Nasdaq 7,442.1 7,066.3 5.3%

FTSE 7,678.2 7,509.3 2.2%

DAX 12,604.9 12,612.1 -0.1%

CAC 40 5,398.4 5,520.5 -2.2%

Nikkei 22,201.8 22,467.9 -1.2%

Hang Seng 30,468.6 30,808.5 -1.1%

Shanghai Composite 3,095.5 3,082.2 0.4%

Taiwan Weighted 10,875.0 10,657.9 2.0%

Straits Times 3,428.2 3,613.9 -5.1%


S&P BSE Auto 24,471.6 25,833.8 -5.3%

S&P BSE Bankex 30,007.1 28,651.9 4.7%

S&P BSE FMCG 11,291.5 11,305.7 -0.1%

S&P BSE Healthcare 13,002.7 14,153.6 -8.1%

S&P BSE Metals 13612.1 14276.9 -4.7%

S&P BSE Oil & Gas 14,429.4 14,429.5 0.0%

S&P BSE Power 2,129.3 2,238.1 -4.9%

S&P BSE Realty 2,234.7 2,420.2 -7.7%

S&P BSE Teck 6,966.2 7,097.4 -1.8%

PRIME NUMBERS


Debt Markets

Volatility Index (VIX)

62

Note : Data not available on Bloomberg for 1 month CP post 3/28/18

Note : Data not available on Bloomberg for 3,6 and 12 month Tbill post 3/28/18

31-May-18 30-Apr-18

VIX 13.22 12.36

Government Securities Yield May-18 Apr-18 Change (bps)

10 year 7.83 7.75 8

5 year 7.93 7.78 15

3 year 7.70 7.59 11

1 year 6.91 6.70 21

Corporate Bond Yields May-18 Apr-18 Change (bps)

AAA 10 year 8.58 8.59 -1

AAA 5 year 8.54 8.27 27

AAA 3 year 8.44 8.17 27

AAA 1 year 8.31 7.81 50

AA 10 year 9.02 9.05 -3

AA 5 year 8.97 8.78 19

AA 3 year 8.88 8.63 25

AA 1 year 8.69 8.20 49

Commercial Paper May-18 Apr-18 Change (bps)

12 Months 8.43 7.48 96

6 Months 8.08 7.33 76

3 Months 7.58 7.10 48

1 Month 0

T-Bills Yields May-18 Apr-18 Change (bps)

91D TB 0

182D TB 0

364D TB 0

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

63

Countries 31-May-18 30-Apr-18 Change in bps

US 2.859 2.953 (9)

UK 1.230 1.418 (19)

Japan 0.040 0.055 (2)

Spain 1.487 1.274 21

Germany 0.341 0.559 (22)

France 0.664 0.784 (12)

Italy 2.794 1.785 101

Brazil 11.456 9.835 162

China 3.638 3.648 (1)

India 7.826 7.767 6

MF Investment May-18 Apr-18 Fy18

Equity 13618 11293 24912

Debt -14085 20165 6079

FII Investment May-18 Apr-18 Fy18

Equity -9660 -13950 -15900

Debt -17750 -6209 -31700

Items Weights(%) Feb-18 Mar-18 Apr-18

Food&bev. 45.86 3.46 3.08 3.00

Pan,tob& intox. 2.38 7.27 7.72 7.91

Cloth & Foot 6.53 4.93 4.91 5.11

Housing 10.07 8.28 8.31 8.50

Fuel & light 6.84 6.88 5.73 5.24

Misc. 28.31 3.85 4.16 4.96

CPI 100 4.44 4.28 4.58

Weights Feb-18 Mar-18 Apr-18WPI 100.0 2.84 2.48 2.47 Primary Articles 22.6 2.37 0.79 0.24 Fuel & Power 13.2 4.08 3.81 4.70 Manufactured Goods 64.2 2.78 3.04 3.03

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

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 May 31, 2018

Debt Funds Returns (in %)

Returns as on May 31, 2018

Tenure Liquid Funds

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

Currencies and CommoditiesCurrencies

Debt ST Ultra ST Debt LT

64

Categories Apr-18 Mar-18 Feb-18 Weight(%)Mining -20.9 19.3 -3.9 -0.8Manufacturing -11.0 6.7 -2.8 1.3Electricity -1.9 15.1 -9.0 3.9Overall -11.5 9.0 -3.6 1.2

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

31-May-18 27-Apr-18 Change (%) StatusUSDINR 67.4 66.7 1.1% DepreciatedEURINR 78.8 80.5 -2.1% AppreciatedGBPINR 89.9 91.8 -2.1% AppreciatedAUDINR 51.1 50.4 1.5% DepreciatedCHFINR 68.3 67.3 1.6% DepreciatedJPYINR 0.6 0.6 1.5% DepreciatedCNYINR 10.5 10.5 -0.1% Appreciated

30-May-18 30-Apr-18 Change (%)Crude ($/barrel) 77.1 74.9 3.0%Gold ($/ounce) 1,298.5 1,315.0 -1.3%

6 months -0.95 -3.03 1.47 -0.771 year 9.68 11.61 9.33 10.443 year 10.64 13.83 8.83 10.685 year 18.29 25.84 15.19 18.11

6 months 6.50 3.27 5.23 0.12

1 year 6.46 4.98 6.03 2.73

3 year 6.90 7.32 7.34 6.74

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