icici march 18 issuecontent.icicidirect.com/moneymanagermagazine/march_2018.pdf · continuous...

Shilpa KumarMD & CEO

ICICI Securities Ltd.

“ D e t e r m i n a n t s o f Po r t f o l i o

Performance,” a landmark paper

published in 1986, by Gary P.

Brinson, L. Randolph Hood, and

Gilbert L. Beebower concluded that

asset allocation is the primary

determinant of a portfolio's return

variability, with security selection

and market-timing playing minor

roles. While this study has been

revisited several times for and

against it, there is no doubt that

asset allocation is the cornerstone

of any investment strategy.

There are broadly two approaches

to look at asset allocation strategy -

risk profile based and goal based.

In the risk-oriented approach,

investor's age, level and growth of

his income, number of dependents, his liabilities a n d y e a r s t o

retirement are considered to shape his asset allocation strategy. For

example, investors below the age of thirty have considerable time to

ride out market risks. Thus, a stock-oriented portfolio seems most

suitable at this stage. At the same time for those above sixty, assets

offering capital protection like fixed-income or debt instruments pay off

better. In other words, in this strategy equity-debt proportion is likely to

change along with changes in age and income.

Our risk profile is nothing but our level of risk tolerance, i.e. our

willingness and ability to withstand market volatility. Based on this level,

investors are categorized as conservative, moderate and aggressive.

The basic premise is that our risk tolerance is likely to lower with

increasing age. But it's not a standard rule. An investor approaching

retirement may prefer equity-oriented portfolio to attain capital growth

during later years. Similarly, a conservative investor can gradually move

towards moderate and then aggressive portfolio as his tolerance level

increases over time.

Risk based approach is simple and can be used as a quick decision

making tool. However, if there are goals which are critical and short-

term and the risk profile is aggressive, adopting an aggressive portfolio

might not be a good idea. In such instances, other factors like

investment's time horizon and objective play a significant role. Goal

based asset allocation approach is more prudent.

Goal based approach involves choosing asset allocation based on

tenure and criticality of goals. This way, every goal would have different

asset allocation and offer bottom-up approach towards financial

objectives. Long-term goals like child's future or retirement can be

reached easily with stock centric asset allocation. Whereas for short-

term goals, the investor requires less volatile assets to attain his aim.

The only shortcoming is, this approach does not take investor's risk

tolerance into consideration.

Ideally, our portfolio mix should focus on equity to keep up with inflation

and debt allocation should give some amount of stability. The perfect

balance is where the returns and risks are both optimized. So, one can

follow risk-profile based asset allocation while taking quick decision on

investing; however, if one plans and invests considering specific

objectives in mind, goal-based asset allocation is more appropriate.

Last, but not the least, to gain in the long run, you need to adopt a

systematic approach towards investing. In a disciplined investment

style, you should regularly invest some amount, be it big or small, on a

continuous basis. The markets may turn volatile in the short term and

you may have an urge to exit the markets. For investors who prefer to

avoid hassle of 'timing the market', equity SIP is a great way to invest. It

is a well-established fact that in the long run, the equity markets deliver

much better returns than most other asset classes.

Our message remains the same – “Keep investing and stay invested for

your l ife goals.” Through this magazine and our website

www.icicidirect.com we want to make an earnest attempt to partner

with you in setting and achieving your financial goals. Give us an

opportunity to serve you, walk into any of your Neighbourhood

Financial Superstore and talk to us.

ICICIdirect Money Manager March 20181

There are several factors that affect the performance of one's investment

portfolio. Investor's risk profile, horizon, economic factors - both Indian &

global markets, are a few to name. However, there's one underlying

component that plays a significant role in deciding success of our portfolio-

asset allocation strategy.Studies on portfolio performance have shown that

the asset allocation strategy contributes to over 90 per cent of variation in the

performance (the other major components being stock selection and market

timing).

Asset allocation is not difficult to understand. Just as we would include

different nutrients via different foods for a healthy diet, asset allocation is

nothing but spreading your investments across different asset classes -

mostly based on your risk profile - to make your portfolio work better for your

and thus stay healthy.

The March edition of ICICIdirect Money Manager focuses on this aspect of

investing. It's important to consider the investment objectives and first decide

on the asset allocation strategy. Only then should you take the next step of

purchasing a product. Our cover story seeks to open yourvistas to other

investment opportunities that exist in the marketand can help broaden your

investment horizon.

The edition also features an interview with Mr. Manish Gunwani, CIO – Equity

Investments, Reliance Nippon Life Asset Management Limited (RNAM)

&Ashwin Patni, Head Products & Fund Manager, Axis Asset Management

Company Limited, who share their views on markets and strategies to follow

in the current scenario. They expect gradual yet steady economic recovery in

the coming fiscal.

Equity as an asset class is likely to deliver durable and strong growth over the

medium to long term. Under this background, our research team

recommends three top-performing equity linked savings schemes (ELSS) to

be part of your mutual fund portfolio.The equity model portfolio and stock

picks of the month continue to give good performance. So stay updated, and

keep reading to s tay f inanc ia l ly hea l thy. Do wr i te to us a t

[email protected] and share your thoughts.

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


Editor & Publisher : Abhishake Mathur, CFA

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Research Team

Coordinating Editor : Namrata Lonkar

2


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

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

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

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

Stock ideas: KSB Pumps & Music Broadcast .........................................5

Flavour of the Month: Choosing the right asset allocation strategy Combination of multiple asset classes is a tried-and-tested technique to optimize growth of our investments. In other words, the idea of asset allocation is to diversify your investments to meet investor's requirements for income, growth and liquidity. With the right asset allocation, you can look to improve risk-adjusted returns. Here's how…....................................................................................................16

Tête-à-tête: Fund managers' advise to equity and fixed-income investors In talk with Manish Gunwani, CIO - Equity Investments, Reliance Nippon Life Asset Management Limited (RNAM) & Ashwin Patni, Head Products & Fund Manager, Axis Asset Management Company Limited ..................................................................................................28

Ask Our PlannerOur financial expert answers How tax deduction under government-backed schemes works? And your other personal finance queries...34

Mutual Fund Analysis Which are the top performing mutual funds in current market scenario? Check these top three funds recommended by our research team........................................................................................37

This month on iCommunityTake a look at the latest activities on our unique information platform- iCommunity (for March2018)................................................................47

Equity Model Portfolio .............................................................................. 48

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

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

Traders counting on the Reserve Bank of India to keep buying dollars may have to think again. The central bank bought $36 billion of foreign exchange in the 12 months to January, seeking to stem the rupee's appreciation. That's likely to change given India's widening current-account deficit and slowing capital inflows, with Rabobank saying the RBI may instead look to use some of its $420 billion of reserves to plug the dollar spending gap.

At a time when domestic money market liquidity has tightened, selling dollars could see short-term rates advance and push up the entire yield curve. That will put the nation's economic recovery and the government's new borrowing plan at risk.

Courtesy: Economic Times

Forex reserves set to fall as capital inflows plunge

Delhi Economic Survey: City's per capita income almost three times of national average

The Delhi government pegged the size of the Gross State Domestic Product (GSDP) at Rs 6.86 lakh crore for 2017-18, which is at a growth rate of 11.22 per cent over the last fiscal. Ahead of the Delhi budget, the latest economic survey of the national capital was tabled in the Assembly, which has estimated that the city's per capita income was almost three times of the national average, both at current and constat prices. “The advance estimate of the GSDP of Delhi at current prices during 2017-18 is likely to attain a level of Rs 6,86,017 crore, which is at a growth of 11.22 per cent over 2016-17,” according to the the Economic Survey of Delhi 2017-18.

Courtesy: Financial Express


Demonetised ₹ 500 and ₹ 1,000 notes, which have been counted and processed for genuineness, are shredded and briquetted before being disposed off through a tendering process, the RBI has said.

The central bank had earlier estimated the value of old ₹ 500 and ₹ 1,000 notes received, as on June 30, 2017, at ₹15.28 trillion.At least 59 sophisticated Currency Verification and Processing (CVPS) machines are in operation in various branches of RBI across the country to process demonetised notes for their arithmetical accuracy and genuineness.

Courtesy: The Hindu

Demonetised notes are being shredded, briquetted: RBI

Market may be heading for a bear phase; short-term trend clearly negative

The rupee has lost ground since pre-Budget, against three major hard currencies (yen, dollar and euro). The European Central Bank and the Bank of Japan maintained status quo in recent policy meetings. The short-term trend is clearly negative. The next bounce, on short-covering is likely to come along soon. But, the zone at 10,275-10,300 is now likely to provide stiff resistance. A quick rebound beyond 10,300 could lead to another phase of range trading. The signals out of the bond marketremain negative with G-Sec yields rising despite better inflation data in February. The Reserve Bank of India is expected to maintain status quo in its April 5 meeting.

Courtesy: Business Standard

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STOCK IDEAS


KSB Pumps – Quality Twin (Agri + Industrial) Play in pumps segment

Company Background

KSB Pumps, promoted by KSB A G ( G e r m a n y ) , w a s established in 1960 and set up a pump manufacturing facility at Pimpri, Pune (Maharashtra). The company has been at the f o r e f r o n t o f i m p o r t i n g technology from its parent for delivering cutting edge, high q u a l i t y p r o d u c t s i n t h e domestic market. Globally, KSB AG is one of the largest pump manufacturers with sales in excess of €2.2 billion (~US$2.8 billion) out of the total pump market, which is pegged at US$47 billion as of 2014. In India, KSB supplies pumps and valves to all major industries viz. power, waste water treatment, irrigation (agriculture), chemicals, etc. KSB's products are used for pumping, transportation and flow control of fluids, which include clean or contaminated wa te r, exp los i ve f l u ids , corrosive and viscous fluids, slurries and f luid/solid mixtures. In India, the company has a wide distribution network that

includes four zonal offices, 15 branch off ices, over 800 author ised dealers , four s e r v i c e s t a t i o n s , 1 1 0 authorised service centres and 22 warehouses.

Investment Rationale

Union Budget 2018-19: Focus on income insurance benefits KSB

Union Budget 2018-19 was pro-farmer in nature & well aligned to double farm income by 2022. Apart from the increase in allocation towards risk mitigation (crop insurance) and eff ic iency ( irr igat ion including micro irrigation) schemes, i t lays specia l emphasis on augmenting farm income through remunerative farm gate prices thereby targeting “income insurance”. Emphasis has been put on fixing MSP prices at a mark-up o f 5 0 % a b o v e c o s t o f production while at the same time bringing more crops under the MSP net. On the risk mitigation front, in its flagship insurance scheme i.e. PMFBY, allocation has been increased to 13,000 crore. On the `efficiency front, in the irrigation

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STOCK IDEAS

space, total allocation under PMKSY is being increased to `9,429 crore, up 28% YoY. I n s t i t u t i o n a l c r e d i t f o r agriculture sector has been modestly raised to 11 lakh `crore, up 10% YoY. KSB is one o f t h e l e a d i n g p u m p manufacturers with quality product profile of energy efficient pumps & strong brand recall. Hence, it will be a key beneficiary of increasing i r r i g a t i o n p e n e t r a t i o n domestically.

Incremental capacity in place; levers to grow; credible MNC; retain BUY

I n C Y 1 7 , K S B r e a l i s e d consolidated sales of 946 `crore, up 16% YoY with sales at the pumps segment at 788 `(up 15% YoY) while the valves segment posted sales of 158 `crore (up 19% YoY). Double d i g i t t o p l i n e g r o w t h i s comforting and is re-emerging a f t e r f i v e y e a r s . W i t h technology support from its parent i.e. KSB AG, KSB is best p l a c e d t o c a p t u r e t h e envisaged opportunity in the domestic refining segment (change in fuel efficiency), revival of domestic capex

cycle and increasing thrust on i r r i g a t i o n p r o j e c t s ( l i f t irrigation). The company's recent order win from NPCIL ( `413 crore) supports our view and KSB's ability to play an important role in the nuclear power industry, going forward. On the balance sheet front, KSB has a debt free balance sheet with surplus cash of ~ `100 crore as of CY17. However, KSB did witness an elongation of working capital cycle with increase in debtor days by ~ 30 days (CY17). We believe this will normalise in CY18-19E. KSB has also in the recent past (December 2017) commenced commercial production at its manufacturing facility in Satara w h e r e i t i n t e n d s t o manufacture high margin super critical pumps. Factoring i n t h e p o s i t i v e s , o n a consolidated basis, we model sales, PAT CAGR of 12.7%, 23.2%, respectively, in CY17-19E. We build in a 230 bps improvement in EB ITDA margins in the aforesaid period. We value KSB at 35x P/E on CY19E EPS of 30.9 `with a target price of 1080 and `a BUY rating on the stock.

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STOCK IDEAS

7

Stock Data

Key Financials

Valuations Summary

` Crore CY16 CY17 CY18E CY19E

Net Sales 817.6 944.3 1080.0 1200.4

EBITDA 99.1 107.5 136.7 164.4

Net Profit 65.3 70.9 83.6 107.6

EPS (`) 18.8 20.4 24.0 30.9

CY16 CY17 CY18E CY19E

P/E 42.6 39.3 33.3 25.9

Target P/E 57.6 53.1 44.9 35.0

EV/EBITDA 26.1 25.1 19.4 15.6

P/BV 4.3 3.9 3.6 3.3

RoNW (%) 10.1 10.0 10.9 12.7

RoCE (%) 10.6 10.6 12.9 14.6

Market Capitalization ` 2785 crore

Total Debt (Cy17) ` 12.6 crore

Cash and Investments (Cy17) ` 97 crore

EV ` 2701 crore

52 week H/L 936 / 600

Equity capital ` 34.8 crore

Face value ` 10

MF Holding (%) 15.7

FII Holding (%) 3.5


STOCK IDEAS

8

Key risks include:

Volatility in raw materials prices,

especially steel price

Iron derivative products like pig

iron, iron castings, stampings,

metal scrap, etc. form the major

raw material costs for pumps &

valves with the management

guiding that ~35% of the sales

value is composed of i ron

products (35%of sales equivalent

to ~80% of raw material costs;

raw material as a percentage of

s a l e s a t ~ 4 5 % ) . We h a v e

modelled steel price to be a

complete pass through for the

company. However, any inability

of the company to pass through

the increase in steel costs will dent

EBITDA margins and will have a

consequent negative impact on

our target price calculation.

Royalty

By virtue of technology transfer

and support from the parent

group i.e. KSB AG, KSB pays a

royalty fee amounting to ~2% of

i t s s a l e s . T h e c o m p a n y ' s

management has guided for a

royalty payment of 2-5% (of sales

value) depending upon the

product to its parent company.

The total royalty outgo consists of

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

professional fee and technical fee.

Therefore, any increases in the

royalty outgo (as a percentage of

sales), going forward, will have an

adverse impact on the company's

profitability with a direct impact

on our target price calculations.


STOCK IDEAS

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

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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.

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

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

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

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

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STOCK IDEAS

Music Broadcast- Growth driven by prudent investments…

Company Background

Music Broadcast (MBL) is the first private FM broadcaster in I n d i a . T h e c o m p a n y commenced operations of its first radio station in Bangalore in 2001 where it is still a leader in terms of market share, as per l a t e s t R a d i o A u d i e n c e Measurement (RAM) data. The B a n g a l o r e l a u n c h w a s fo l lowed by launches in Lucknow, Mumbai and Delhi. From four cities in 2003, today the company has 39 stations in as many cities in India with a pan-India presence. Out of 39 cities, licenses in 28 cities were won in Phase I & II while 11 stations were acquired in Phase III auctions. MBL has a presence in 12 out of the top 15 cities in India by population. It also has a presence in internet radio space with radiocity.in having 43 radio stations.

In terms of advertisement volume split across sectors, government and real estate form approximately one-fourth of total advertisement volumes for the company. The government contributes 16%

while the share of real estate is 10%. It is followed by retail, BFSI and e-commerce with 8%, 7% and 6%, respectively. Total ad volumes grew at 15% CAGR in 2014-16 from 48.1 million (mn) seconds to 63.7 mn seconds in top 14 cities. The company has 5.2 crore listeners in 23 cities as per ANZ Research.

Investment Rationale

L e a d e r s h i p a m i d h i g h competitive intensity

We note there is no publicly a v a i l a b l e i n d e p e n d e n t research of listenership data for radio in India. We highlight that MBL has claimed to be in a leadership position across markets as far as listenership is concerned. The company has 52.5 mn listeners as per ANZ report (conducted across 23 Indian markets) followed by Radio Mirchi (ENIL), Big FM (Zee Media) with listenership base of 42.1 mn, 27.1 mn, respectively. It is also in a leadership position in key metro cities of Mumbai, Delhi a n d B a n g a l o r e w i t h

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STOCK IDEAS

11

listenership base of 8.4, 9.2 and 4.7 mn, respectively

It has also enjoyed a leadership position compared to peers in terms of advertising volumes. According to the company, advertising volume for the company grew at industry leading 12.1% CAGR in FY11-17 to 74.9 mn seconds in FY17. Advertising volumes in FY17 were a notch below market leader ENIL (75.4 mn seconds of advertising volume in FY17).

Prudent bidding in Phase III auctions; major capex over

MBL has acquired 11 stations viz. Kanpur, Patna, Madurai, Nasik, Kolhapur, Udaipur, A j m e r , K o t a , B i k a n e r , Jamshedpur and Patiala in batch I of auctions. It paid | 63 crore for acquisition of these stations. In the same auction, ENIL paid | 339 crore for 17 stations against reserve price of | 155 crore while HT Media paid | 340 crore for 10 stations against reserve price of | 112 crore. We observe that MBL has been prudent in terms of a c q u i s i t i o n s s i n c e f i n a l successful price to reserve price ratio was ~2x for MBL compared to 3.6x for Digital

Radio Broadcasting, 2.2x for ENIL. At the same time, MBL has stayed away from Phase III, Batch II auctions, while other players were aggressive.

Balanced approach in pricing, volume augur well for MBL

MBL fo l lows a ba lanced approach in volume and pricing wherein they increase prices whenever there is scope for the same else growth is driven by volumes. They also strategically do not follow a multi-frequency approach since they believe second f r e q u e n c i e s e s s e n t i a l l y cannibalize existing ones, r a t h e r t h a n a d d i n g incrementally. Moreover, the RoCE after steep bidding seems a difficult proposition, e s p e c i a l l y f o r s e c o n d frequencies. As far as new stations are concerned, the management feels the price increase kicks in only when the utilization of the station hits 60%. We believe this strategy augurs well for MBL, which has shown industry leading growth in revenues and EBITDA in the last four years compared to its peers.

Fundamentals remain intact;


STOCK IDEAS

12

maintain BUY!

Music Broadcast is one of the quasi plays on the expanding reach of radio driven by new stations in Phase III. The c o m p a n y h a s e x h i b i t e d industry leading topline and EBITDA CAGR of 17.3% and 28.6%, respectively, over FY12-17, which reflects its e f f i c i e n c y i n a h i g h l y competitive industry. Going ahead, we expect 13.9% CAGR in topline in FY17-20 driven by growth from new stations on c a p a c i t y u t i l i z a t i o n improvement as well as steady

growth from legacy stations on y ie ld improvement . The improved profitability of new s t a t i o n s c o u p l e d w i t h operating leverage derived from handsome growth of legacy stations is likely to result in 17% CAGR in EBITDA over FY17 -20E , w i th marg ins expanding to 36.5% in FY20 vs 33.6% in FY17. We assign a target price of | 450/share, b a s e d o n t r i a n g u l a t e d approach (DCF, P /E and EV/EBITDA), with implied of P/E and EV/EBITDA multiple of 30x and 15x on FY20E.


STOCK IDEAS

13

Valuations Summary

Key Financials

` Crore FY17 FY18 FY19E FY20E

Net Sales 271 298 347 401

EBITDA 91 95 121 146

Net Profit 37 48 71 90

EPS (`) 8.1 8.4 12.4 15.8

FY17 FY18E FY19E FY20E

P/E 46.2 44.1 30.0 23.5

Target P/E 55.9 53.3 36.3 28.4

EV / EBITDA 21.7 20.6 15.7 12.6

P/BV 3.1 3.8 3.5 3.2

RoNW 6.7 8.6 11.8 13.8

RoCE 11.3 14.8 18.5 21.5

Stock Data

Market Capitalization (` Crore) 2122.3

Debt (` Crore FY17) 149.8

Cash & Liquid Investments( ` Crore FY17) 294.6

EV (` Crore) 1977.4

52 week H/L 458 / 332

Equity capital 57.1

Face value 10.0


STOCK IDEAS

Key risks include:

Risk of digital adoption remains

Sharper adoption of music

streaming apps remains a risk

for rad io as a whole as

advertisement pie shift could

be seen. Considering the

higher reach of TV and digital

compared to radio, (albeit they

charge a premium compared

t o r a d i o ) , t h e r e l i e s a

continuous risk of losing

advertising share to these two

media

R e c e n t s u c c e s s o f s e c o n d

frequency may be detrimental to

MBL

We believe the success of the

second frequency of its peers

could potentially create a

threat for MBL in terms of loss

in advertiser's mindshare. This

could, subsequently, result in a

loss of market share impacting

its financials.

Increase in content cost may take

away benef i ts o f operat ing

leverage

The primary content for radio

stations is sound recordings

that they broadcast. A majority

of these sound recordings are

licensed by third parties. The

c o m p a n y p a y s

royalties/license fees to these

third parties for the right to

b r o a d c a s t t h e m . A n y

alternation or termination of

such contracts could affect

c o n t e n t s o u r c i n g a n d

s u b s e q u e n t l y r e s u l t o f

operations. In additions to this,

there is the risk of the same

content being available to

competitors, which could

impact financials.

14


STOCK IDEAS

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15

FLAVOUR OF THE MONTH

Choosing the right asset allocationstrategy


Our portfolio asset allocation is like a balanced meal. Eating variety of food ensures we receive wide range of nutrients which help our body to function at its optimal capacity. Similarly, a well-balanced portfolio ensures our financial fitness. Combination of multiple asset classes is a tried-and-tested technique to optimize growth of our investments. In other words, the idea of asset allocation is to diversify your investments to meet investor's requirements for income, growth and liquidity. With the right asset allocation, you can look to improve risk-adjusted returns. Here's how…

16

What is asset allocation?

Asset allocation is the process

by wh ich i nves to rs can

distribute their investment

capital between various asset

classes within their portfolio.

The goal is to create a well-

diversified portfolio. That is,

one which effectively reduces

the overall portfolio risk while

maintaining the expected level

of returns. It implies dividing

money among asset classes

that respond differently to the

same market forces, at the

same time.

Asset allocation, in simplest

terms, is deciding how to

distribute your investment

capital among various types of

asset classes, such as equity,

debt, cash, gold, real estate,

etc.

A s s e t a l l o c a t i o n V S

diversification

Most people confuse asset

allocation with diversification.

Diversification means having a

wide variety of investments

within a portfolio, but that

doesn't necessarily have to

involve different asset classes.

Whereas asset allocation is the

process of building a portfolio

of different asset classes with

varying levels of correlation.

Correlationis a measure of the

extent to which one asset class

behaves in tandem wi th

another. Correlations between

pairs of asset classes range

from -1 to +1. A correlation of

positive one (+1) means that

two assets will move together

in lockstep or in same direction

(as one rises, the other also

rises). A correlation of negative

one (-1) means that two assets

will move in exact opposite

directions (as one rises, the



other falls). A correlation of

zero (0) means that two assets

w i l l m o v e c o m p l e t e l y

independently from each other

(uncorrelated to each other).

The idea is to choose assets

that are negatively correlated

to each other or are less

correlated. This will help

ensure, that if any time, one

asset does not do well, the

other will help provide some

solace to the portfolio.

Besides diversification across

asset class, it is recommended

that you diversify within asset

classes as well. Within stocks,

you should diversify across

industries and companies.

W i t h i n f i x e d i n c o m e

investments, you should

diversify across different

tenure. Taking diversification a

step further, the option of

d i v e r s i f y i n g a c r o s s

geographies is also open for

Indian investors. You can buy

stocks in overseas markets and

also invest in other assets like

debt or real estate.

Introduction to asset classes

Equity

Big companies need a lot of

capital for growth and regular

operations. The funds can be

gathered by either taking a loan

from a financial institution or

se l l i ng a por t ion o f the

company by issuing shares.

The shares are issued to the

public who wish to invest their

money. When you buy some of

these shares, you hold a

certain stake in this company.

The stake is equivalent to the

amount of shares you buy. This

is also called equity.

A shareholder has share in the

profit earned by the company

and he is also liable for any loss

that the company may incur.

The more stocks of a company

you buy, the more your share

in that company increases. To

get the maximum benefit from

your investment in equity, you

should invest for the long term.

Equity is a capital- appreciating

asset that carries high-risk. But

investors can expect more

returns from this asset class

than from any other.To earn

returns that safeguard against

inflation, one must invest in

equity. Over the long term, the

rate of return offered by equity

exceeds the rate of inflation.



A p a r t f r o m c a p i t a l

appreciation, stocks offer

benefit of dividend (payments

made periodically when the

company earns a profit). Stock

exchange, mutual funds, unit-

linked insurance plans, and

pension schemes are common

vehicles for holding equity.

Debt

In debt investments, investors

l o a n t h e i r m o n e y t o

organizations, banks, or the

government. In return, these

entities promise to pay a

specific interest rate in addition

to the invested amount after a

specified duration. Your funds

are in safe hands and you know

the expected returns from this

investment. You will get the

promised returns at the end of

the period regardless of how

the markets or the entity

performs.

Debt is a suitable asset class for

a conservative investor who

wants to take on a minimal risk.

D e b t i n v e s t m e n t s a r e

preferable to meet short-term

financial goals.

They have lower risk than

equity and lower expected

returns too. Debt investments

give you a fixed rate of interest

on your principle amount, but

this is lower than the equity

rate of return. However, the

security offered protects you

against the losses you may

incur in equity investments.

Debt instruments do carry

some risks. This could be

credit risk, default risk or

interest rate risk or all of them.

For example a GOI bond issued

by the Government has

virtually no risk but since they

are issued for a long term, they

carry interest risk (if interest

rate increases, their market

value depreciate).

The inflation rate may eat into

the returns expected from debt

investments. This can happen

if the rate of inflation exceeds

the interest rate offered by the

debt instrument. Thus, it

affects your purchasing power.

F i x e d d e p o s i t s , p u b l i c

provident fund, nat ional

savings cert i f icates, and

government bonds are some

of the common debt vehicles.

Real Estate

This asset class offers some of



t h e v e r y b e s t f e a t u r e s ,

including a stream of rental

income, potential for capital

appreciation, ability to hedge

inflation and diversification.

The returns in real estate

depend on the location of the

property and demand/supply

situation in the city or area.

Therefore, assigning a value to

the property based on average

values may not be correct.

However, direct investment in

property has specific risks.

First, as investment in this

asset class can be large

(expensive), it can destabilize

your portfolio. Liquidity is

another risk. A panic sell can

drastically bring down the

returns. And this can get

amplified if the markets are

down or the property markets

are low. The there is also the

r i s k o f o v e r l e v e r a g i n g

associated with this asset.

If the property is bought on

loan, the interest rates can

fluctuate due to inflation. This

will affect your total outgo.

Profit is earned by selling the

property. You could also earn

regular rent by leasing the

property. One can invest in real

estate by buying property

(residential or commercial),

land, or shares in real estate

companies.

Gold

Gold acts as a hedge against

inflation. It holds its own value in

the event of polit ical

uncertainties and its traditionally

negative correlation with other

asset classes such as stocks,

fixed income securities and

commodities.

Gold protects your portfolio

from volatility because the

factors, both at the

macroeconomic and micro-

economic fronts that affect the

returns from most asset classes

do not significantly influence

the price of gold. So it is a good

option for diversification but

not necessarily for growth.

Gold can be bought in the form

of jewelry, coins, bars, bonds

and gold ETFs (exchange

traded funds).

Cash

Cash is the most liquid asset

class. You can access cash as

and when you need the money.

But the basic purpose of cash

differs from that of other asset



classes because i t gives

negligible or no returns. It is

used to carry out transactions,

he ld as a precaut ionary

measure, or used to invest in

other asset classes. Since you

do not invest the funds

anywhere, it does not bear

capital risk or default risk.

Some vehicles in this asset

class offer a very low rate of

return.

Al though there is no or

negligible risk in investing

cash, it faces a high inflation

risk. If you keep cash with you,

it will not earn any interest.

Your savings account will pay

you interest in the range of four

to five per cent. If the inflation

rate is higher than this, your

real return will be negative. In

other words, the real worth of

your cash will be lower.

Cash offers zero profit as an

asset class. You may earn

some small returns from the

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

vehicles, such as savings

accounts, short-term fixed

deposits, and liquid funds. As

an investor, you must try to

keep your cash balance as low

as possible based on your

need and requirements.

Alternative assets

O l d c u r r e n c y, s t a m p s ,

paintings, and antiques are

some of the instruments that

come under alternative assets.

Other forms of investments,

like hedge funds and venture

capital, also belong to this

class. Products in this class are

less liquid than other classes.

That is because these products

take time to gain value. Hence,

they are good long-term

investments.

Alternative assets often are

highly dependent on novel

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

individual skill in selecting

specif ic investments. For

example, hedge funds exist to

pursue investing strategies

t h a t o f t e n r e l y o n t h e

manager's judgment and that

may be difficult or impossible

for a mutua l fund; wi th

collectiblessuch as art or

antiques,the value of your

investmentdepends on the

properties of a specific work.

As a result, even if you are very

k n o w l e d g e a b l e a b o u t a

specific asset class you might

do well to seek expertadvice



and guidance whenselecting

alternative assets forinclusion

in your portfolio.

Asset classes can further be

sub-categorized based on

specific asset class features.

For example, based on the

existence of credit risk bonds

can be categorized as those

w i t h o u t c r e d i t r i s k

(Government securities) and

those that have credit risk

(Corporate bonds). Or on the

basis of residual tenor, bonds

can be categorized as short-

term (with less than one year to

maturity) or long-term bonds

(with more than one year to

maturity). Similarly, equity

shares can be categorized

based on the industry they

b e l o n g t o , m a r k e t

capitalization (large, mid and

small) and others.

ASSET ALLOCATION (Based on goal tenure and risk profile)

Goal Tenure / Risk

Profile

Conservative Moderate Aggressive

1 to 3 years Equity – 5%

Debt –

95%

Equity – 15%

Debt –

85%

Equity – 30%

Debt –

70%

4 to 6 years Equity – 15%

Debt – 85%

Equity – 30%

Debt – 70%

Equity – 50%

Debt – 50%

7 to 10 years

Equity –

30%

Debt – 70%

Equity –

50%

Debt – 50%

Equity –

70%

Debt – 30%

> 10 years

Equity –

40%

Debt – 60%

Equity –

60%

Debt – 40%

Equity –

80%

Debt – 20%

The above table provides you only a general indication of the asset allocation,

based on risk profile & goal tenure; however, it's advisable to get a customized

asset allocation plan based on your goals.

Factors shaping asset allocation

Risk tolerance

Risk tolerance is your ability

and willingness to lose some

o r a l l o f y o u r o r i g i n a l

investment in exchange for

greater potential returns. The

way you perceive risk depends

on a lot of factors. You should



analyze your risk taking ability

before taking the plunge to

make an investment. An

aggressive investor, or one

with a high-risk tolerance, is

more likely to take greater risk

in order to get better potential

r e tu rns . A conserva t i ve

investor, or one with a low-risk

tolerance, tends to favor

investments that will preserve

the original investment capital.

Every individual has different

risk profile depending on

his/her risk taking ability. If we

consider the three major risk

profiles, namely aggressive,

moderate and conservative,

there will be a different asset

mix in them. Here 's the

overview:

Please note: The above chart is for illustration purpose only.

Life stage

The different life stages –

single, married, married with

children, pre-retirement and

post-retirement – are the

phases of every person's life.

Depending upon which stage

you are at, you should make

your investments to achieve

your life goals based on your

needs. If you are young and

single, you can afford to be an

aggressive investor. If you are

middle-aged and married, it is

better to take on only moderate

risk. If you are retired, it is

prudent to stay away from risk

as the income sources have

depleted.

Investment horizon/ financial goals

It is the expected number of

months, years or decades you

will be investing to achieve a

particular financial goal. For a

long-term goal an investor may

feel more comfortable taking

on a riskier, or more volatile

investment because time is not



at a premium, and he or she

can wait out slow economic

cycles and the inevitable ups

and downs of our markets. By

contrast, an investor saving up

for a child's college education

in three years will be wary of

taking risks because the parent

has a shorter time horizon.

Asset allocation techniques

Strategic asset allocation

It is a method of choosing an

initial asset allocation based on

investor's objectives, time

horizon and risk profile. This is

a proportional combination of

assets based on expected

rates of return for each asset

class. For example, if equities

have historically returned 12%

a year and debt have returned

7% a year, a mix of 50% equity

and 50% debt would be

expected to return 8.5%-9%

per year.

A revision of the proportions

can also occur based on

changes to the investor's

situation. For example, an

investor may decide to have

80% in equity and 20% in debt

when the plan to save for

retirement was begun in the

early earning years. As the

investor nears retirement the

desire would be to change the

ratio in favour of debt over

equity.

On the downside, there is no

change in the allocations to

assets based on market

movements and therefore

there is no active call about

which asset class is likely to

out-perform or under-perform.

Portfolios built through this

method can under-perform

during bull runs in certain

a s s e t s , w h e n i t w o u l d

systematically take out of a

winning asset class and invest

the proceeds into a losing

asset class to maintain a fixed

ratio between the two asset

classes.

Over the long run, a strategic or

or ig ina l asset a l locat ion

s t r a t e g y m a y r e q u i r e

rebalancing to meet with long

term objectives. In that case,

tac t i ca l asse t a l loca t ion

strategy, a view-based plan,

plays an important role.

Tactical asset allocation

This is moderately active

strategy that seeks to enhance



portfolio performance by re-

balancing it to the original

asset mix, in response to the

changing patterns of return

and risk of various asset

classes. It ensures active

portfolio management. As the

name suggest, this method

tactical ly shifts focus on

powerful asset classes and

r e d u c e e x p o s u r e t o

overvalued assets based on

the market view in order to

outperform the asset class

indices.

Rebalancing of the portfolio

can be done at three levels.

The investors may themselves

take a call on the market

p e r f o r m a n c e a n d m a k e

changes in the portfolio. The

role of the advisor would be

l imi ted to execut ing the

changes. In a more involved

advisory mode, the advisors

may express their views on the

market and recommend over-

weighting asset classes which

they expect to perform well;

under-weighting where they

expect under performance;

and neutral-weighting where

they expect no significant

change in performance. At the

th i rd l eve l , the p roduc t

provider, such as a mutual fund

may make the tactical shifts in

the portfolio without recourse

to the investor or advisor.

Asset classes with their key characteristicsASSET CLASSES

Parameter Equity Debt Cash Gold Real Estate Alternate

Assets

Representative

investments

Shares,

equity

mutual

funds

Bonds,

debt

mutual

funds

Savings

account,

Money

market

funds

Physical

gold, Gold

ETFs, e-gold,

gold mutual

funds

Physical

property, real

estate mutual

funds, REITs,

realty stocks

Art, Antiques

and

Collectibles

Risk High

Low

Low

Medium

Medium

High

Return High

Low

Low

Medium to

High (but

cyclical)

Medium to

High (but

cyclical)

High (but

Indian market

is volatile and

still needs to

mature)



Inflation

protection

High Low Very low High High High

Liquidity High

(except

for ELSS

funds)

High

(except

for bonds

locked in

for

minimum

period)

High Medium to

High

Low Low

Income Yes, in

case of

dividend

paying

stocks

and

funds

Yes

Yes

Yes, in case

of dividend

paying gold

funds

Yes, if you

rent out your

property or

land

No

Capital

appreciation

Yes (but

cyclical)

Yes (in

some

debt

instrume

nts)

No Yes (but

cyclical)

Yes (but

cyclical)

Yes (but

cyclical)

Reviewing asset allocation

Asset allocation is not static. It

changes with time, as the age

of the investor increases and

risk profile changes. Also,

whenever there is a change in

the portfolio mix due to the

returns generated by the

various asset classes, there is a

requirement for re-balancing

the portfolio to bring it back to

the initial allocation. If not

rebalanced, the portfolio might

take a hit on the returns

generated over a period of

time. In simple terms, re-

balancing helps adhere to

one's risk-return tolerance

level. It's a good idea to re-

balance your portfolio at least

o n c e a y e a r o r o n a n y

important life event.

Bottom line

When allocating your portfolio

between various investments,

you should effectively and

eff ic ient ly diversi fy your

port fol io. For successful

diversification, you need to

spread your assets so that the

same factors do not affect all

the investments in the same



way. It is always wiser to make

changes in your portfolio

under the guidance of a

financial expert. The ideal

situation will be when one

asset class is negatively

impacted by a systemic risk,

another asset class benefits

from that same factor. This

provides protection to your

portfolio.

CASE STUDY

Ashok, aged 34, and Priya, aged 33, have one child Diya,

aged 3 years. They want to plan for the below goals:

1) Abroad vacation costing Rs.6 lakh (in today's value) in 2

years.

2) Buying a car worth Rs.10 lakh (in today's value) in 5 years.

3) Diya's higher education – Rs.10 lakh (in today's value) in

15 years.

4) Diya's post graduation – Rs.15 lakh (in today's value) in 19

years.

5) Diya's marriage – Rs.20 lakh (in today's value) in 22 years.

They have accumulated below financial assets till date & do

not have any liabilities.

Equity – Rs.10 lakh; Equity Mutual Funds – Rs.12 lakh;

Debt/Liquid Mutual Funds – Rs.8 lakh; Bank Fixed Deposits –

Rs.8 lakh; NCDs – Rs.10 lakh. Ashok & Priya want to know if

their current asset allocation is fine or they need to make any

changes.

Current Asset Allocation:

Asset Class Amount Percentage (%)

Equity 22 lakh

46%

Debt 26 lakh 54%

Total 48 lakh 100%



Suggestion:

Before suggesting an appropriate asset allocation for Ashok

& Priya, we need to understand the criticality & the tenure of

their goals, as the asset allocation would be based on these

two factors.

GoalPresent

Value

Years to

Goal

Tenure

classification

Criticality of Goal

*

Abroad Vacation 6 lakh

2

Short-Term

Discretionary

Buying Car 10 lakh

5

Medium-Term

Important

Diya’s Graduation 10 lakh 15 Long-Term Critical

Diya’s Post Graduation

15 lakh

18

Long-Term

Important

Diya’s Marriage 20 lakh 22 Long-Term Important

*Critical Goals - Goals which cannot be postponed and little /

no deviation is acceptable in the expected corpus;

Important Goals - Willing to take some risk in fulfillment &

some deviation in the expected corpus is acceptable;

Discretionary Goals - Lifestyle Goals that can be postponed /

modified based on the performance of the portfolio.

Suggested Asset Allocation:

Based on the criticality & tenure of the goals of Ashok & Priya,

their existing financial assets are suggested to be allocated

as below:Asset Class Amount Percentage (%)

Equity 31.54 lakh 66%

Debt 16.46 lakh 34%

Total 48 lakh 100%

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

Tête-à-tête


Fund managers on current economic scenario, rupee changes and state elections

28

Ashwin PatniHead Products & Fund Manager,

Axis Asset Management Company Limited

Manish Gunwani

1. How do you think FY19 will be

different from last fiscal? What is

the landscape for Indian markets

looking like?

Manish Gunwani- We believe

that Indian economy is on the

c u s p o f s t r o n g c y c l i c a l

recovery. We are optimistic

that growth in lot of segments

of Indian economy will pick up

due to:

· Significant pick up in global

growth.

· Government making growth

a priority now as seen in

PSU bank recap, GST rate

exemptions etc.

Next 15 months likely to see

hefty election related spending

due to both state and general

elections.

Low base of capita l and

c o n s u m e r d i s c r e t i o n a r y

related sectors due to slow

down over last 4-5 years.

Domestic macroeconomic

data over the last couple of

months is also suggesting that

t h e e c o n o m y i s f i n a l l y

shrugging off the drags from

demonetization and GST.

Corporate earnings which is an

important tr igger for the

market is displaying signs of

recovery. We expect to see a

d o u b l e - d i g i t g r o w t h i n

earnings for FY18 and FY19.

Overall the growth recovery is

e x p e c t e d t o b e l e d b y

consumption while capex

growth is likely to recover

more gradually.

Ashwin Patni- While the markets

were just recovering from the

demon shock, last fiscal year

brought quite a few events like

Implementation of GST, rollout

of the Bankruptcy bill and

initiation of resolution process,

etc. that disrupted markets in

the short run. These events,

on top of poor monsoons,

tight control on MSP increases

and weakness in the real

estate & infrastructure sector,

CIO - Equity Investments, Reliance Nippon Life Asset

Management Limited (RNAM)


Tête-à-tête

added discomfort in the rural

sector and unorganized part of

t h e e c o n o m y . G S T

implementation will require

lots of continuing work in 2018

in order for it to stabilize and

start contributing – both in

terms of higher tax revenues

as well as ease of business for

corporates. These economic

disruptions that impacted

corporate earnings are already

m o v i n g t o w a r d s

normalization. We see coming

q u a r t e r s w i t h u p t i c k i n

e a r n i n g s a n d i m p r o v e d

economic environment. The

government on its part has

pivoted towards boosting the

rural economy and boosting

housing and infrastructure

spending in order to tackle the

u n d e r l y i n g c h a l l e n g e s .

Therefore 2018 will be about

moving from disruptions into

reflating the economy as the

government readies itself for

the 2019 elections.

2. Crude and other commodity

prices have been plunging. How do

you see this affecting our economy

in general and corporate India in

particular?

Manish Gunwani-Commodities &

crude oil notwithstanding the

near-term correction, had

witnessed a strong run over

the last 1 year and the outlook

continues to be optimistic

given the weakening US Dollar.

From a Corporate Indian point

of view few large segments like

Metals, Oil & Gas are direct

beneficiaries of a rally in

commodities while few sectors

like Auto, Capital Goods etc.

may be impacted by rising

import costs. Hence, we

believe the impact of

reasonable commodity price

movement, on Corporate India

is largely neutral.

Ashwin Patni- As the global

economic sentiments are

recovering, especially in the

US and China, commodities,

after years of volatility, have

rallied globally. India being the

net importer of oil ad metals,

this rise in commodity prices

might stretch our government

finances and put pressure on

corporate profits. However, we

continue to believe that Indian

markets have plethora of

opportunities for a long term

investor as India enters a

period of growth revival on


Tête-à-tête

account of a favorable macro

backdrop and continued pro-

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

government.

3. Where do you see index level in

next twelve months?

Manish Gunwani-In equities, it is

difficult to get the short term

right – in general we think on a

three-year basis double digit

returns are likely as earnings

are expected to compound at a

faster rate and usually markets

follow the earnings.

Ashwin Patni- Indian equity

markets saw correction in the

recent past which was based

on global factors stemming

largely from the US debt

market which saw significant

decline in bond prices. The

continued upward trajectory of

bond yields is likely to have a

negative impact on global as

wel l as domest ic equi ty

markets. Having said that, we

believe that the economy has

bottomed and that we should

see a significant pick up in

earnings momentum going

forward. While valuations are

on the higher side, earnings

growth should help support

markets from a medium to

long term perspective.

4. What industry sectors are you

favoring currently and why?

Manish Gunwani-In the backdrop

of improving global growth

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

recovery we believe themes

which were impacted due to

challenging macros previously

can mean revert. Sectors

which we are positive include:

Large banks where credit cost

is high today due to corporate

lending as we see the asset

quality stress improving over

next 1-2 years.

Industrials in segments which

are likely to see quick recovery

if economy revives.

Pharma where we th ink

earnings are likely to bottom

out in FY18.

A s h w i n Pa t n i - I n l igh t o f

budgetary announcements

a n d c l e a r f o c u s o n

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

livelihood, we believe that rural

theme and consumpt ion

sector offer investing value at

this point in time. There is clear

rising trend in rural wage

growth and this will have direct

impact on rural consumption


Tête-à-tête

and improvement in aggregate

demand. Hence, we believe

that the sectors with rural

linkages can benefit in the

coming cycle. This segment

include rural housing, infra,

finance and any other sector

that may have an edge over its

competitors due to rural

involvement. Consumption

sector continues to remain

at t ract ive i f part ic ipated

through quality companies

with free cash flows, sound

management and credible

fundamentals.

5. Where do you see interest rates

heading towards? Where should a

long-term fixed income investor

invest currently?

Manish Gunwani- In the latest

policy, the RBI kept the key

policy rate unchanged at 6%

and maintained the neutral

stance of monetary policy. The

central bank expects average

inflation to be around 5% in

FY19. RBI is also focusing on

growth at the same time and

hence the focus on growth

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

t r a j e c t o r y w i t h i n R B I ' s

projection can keep the rate

action on hold for some time.

However, in case the CPI

inflation shoots up above RBI's

trajectory, the RBI may raise

the policy rates by 25-50 bps

during Fy19

We expect Liquidity trades to

dominate Macro trades in the

short term and hence curve to

bull steepen thus carry to be

the biggest driver of returns.

For the long term investors

with moderate risk appetite we

believe accrual based funds

are ideal. These funds have

potential to benefit from high

c a r r y ; C r e d i t s p r e a d

compression due to balance

sheet improvements & Credit

migrat ion and rol l down

benefits on steeper yield curve.

Ashwin Patni- RBI has a very

f l e x i b l e i n f l a t i o n t a r g e t

mandate i.e. 4% + 2%. In light

of this, the inflation remaining

in upper half of the band can

risk RBI pre-emptively raising

rates to cool the economy.

However, various risks like

rising oil prices, delayed fiscal

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

increase in MSPs & increase in

import duties in the budget are

already priced in by the market

now. These concerns may


Tête-à-tête

keep RBI reasonable hawkish

going forward.

We expect long bond yields to

be range bound. We dont see

much value in longer front of

the curve given the underlying

duration risk that is involved.

Money market yields have

risen. We believe that 1-5 year

segment offers reasonable

opportunities. Improvement in

corporate profits acts as a

posit ive factor for credit

e n v i r o n m e n t ( n o n - A A A

space).

Investors with a medium term

holding horizon should look to

short and medium term funds,

while those with a short-term

h o l d i n g p e r i o d s h o u l d

consider liquid and ultra-short

funds.

6. How should one go about

investing in equity markets in the

current scenario?

Manish Gunwani- We believe

tha t regu la r d i sc ip l i ned

investments can lead to long

term wealth creation, hence

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

investing systematically either

through SIPs or SWPs. In case

some investors are under

allocated to equities they can

consider a combination of

Lump Sum with Systematic

investments in line with their

asset allocation plan. Also

w i th in the equ i ty space

investors should have an

optimal mix of Large Cap and

Mid & Small caps in line with

their risk profile & investment

goals.

Ashwin Patni- It is quite evident

from the history of Indian

equity markets that the market

is always trapped in between

various market impacting

events which can either be

positive or negative for the

market indices. Markets have

always reacted to events in the

short term and reverted back to

their fundamental valuations.

Recently, domestic equity

markets have seen correction

which we believe is more

global than fundamental in

nature and was mostly driven

by concerns on rising interest

rates. We believe that equity

investors should look through

the noise and target long term

investments. We continue to

believe that Indian economy

has the advantage of a solid


Tête-à-tête

macro foundation, which

combined with structural

reforms is l ikely to push

growth higher in the medium

term. We suggest staggered

investments for investors who

are looking to invest through

lumpsum or inves tment

through system investment

plan (SIP) that works optimal

over long term period.

Disclaimer1:

The views expressed herein constitute only the opinions and do not constitute any

guidelines or recommendation on any course of action to be followed by the viewer.

This information is meant for general viewing purposes only and is not meant to serve

as a professional guide for the viewers. Certain factual and statistical (both historical and

projected) industry and market data and other information was obtained by RNAM from

independent, third-party sources that it deems to be reliable, some of which have been

cited in the video. However, RNAM has not independently verified any of such data or

other information, or the reasonableness of the assumptions upon which such data and

other information was based, and there can be no assurance as to the accuracy of such

data and other information. Further, many of the statements and assertions contained in

this video reflect the belief of RNAM which belief may be based in whole or in part on

such data and other information.

Disclaimer2:

This document represents the views of Axis Asset Management Co. Ltd. and must not

be taken as the basis for an investment decision.The material is prepared for general

communication and should not be treated as research report. The data used in this

material is obtained by Axis AMC from the sources which it considers reliable.The AMC

reserves the right to make modifications and alterations to this statement as may be

required from time to time.

ASK OUR PLANNER


Continue investing or make fresh investments in equity asset class for long-term goals

34

Q. Please explain the recent

changes introduced in Union

Budget over long term capital gains

tax . Shou ld I re look a t my

investment portfolio?

- Bani Shrivastava

A. It has been proposed in the

Union Budget 2018 to tax long-

term capital gains earned from

equity asset class, beyond Rs.1

lakh in a financial year, at 10%.

This is with effect from April 1,

2018. However, any gains

accrued till January 31, 2018

would be exempt. Also, any

g a i n s i n c u r r e d d u r i n g

redemption of investments till

March 31, 2018 is exempt from

tax.

Hence, unless your investment

value is more than January 31,

2018, you would not save any

t a x b y r e d e e m i n g t h e

investments before March 31,

2018. Given the current market

conditions, there would be

only very less number of

stocks with such opportunity.

With this change, should you

shift your investments to other

c l a s s e s ? E v e n a f t e r

considering the proposed

taxation on long term capital

gains, equity as an asset class

would perform better than

other asset classes over the

longer term. Hence, for long-

term goals, you can continue

to remain invested or make

fresh investments in equity

asset class.

Q. I wish to know what the tax

implications are if units allotted to

me out of yearly premium that are

withdrawn partially or surrendered

fully after the lock-in period of 3

years. The policy was started in

June 2006. If the sum received is

taxable, can the premium amount

be deducted from the proceeds

received and add the net amount to

other income at the time of filing IT

returns?

- Antonio Diniz

A. If you are surrendering or

partially withdrawing now

from this policy (assuming it's

an unit-linked non-pension

policy), then such proceeds

would be exempt from tax, as it

has completed 5 years.

ASK OUR PLANNER


Q. I have a Unit linked Lifetime

pension policy taken from ICICI

Prudential Life Insurance. The

policy was taken in February, 2003.

I read that the maturity proceeds of

such policies taken before 31st

March 2003 are tax free. Is it

correct?

- Anand Chitale

A. The information you are

referring to is for unit linked &

other life insurance policies

(non-pension policies). For

such policies taken upto March

3 1 , 2 0 0 3 , t h e m a t u r i t y

proceeds would be exempt

f r o m t a x w i t h o u t a n y

conditions. For such policies

taken from April 1, 2003 till

March 31, 2012, the maturity

proceeds would be exempt

from tax only if premium paid

is upto 20% of the sum assured

in all the policy years. For such

policies taken from April 1,

2012, the maturity proceeds

would be exempt from tax only

if premium paid is upto 10% of

the sum assured in all the

policy years.

For unit-linked pension policies

a n d t r a d i t i o n a l p e n s i o n

policies though, the above

clauses are not applicable. On

35

maturity of pension policies,

you can receive a maximum of rd

1/3 as lumpsum, which is

exempt from tax. The balance rd2/3 would be converted into

annuity and received as per the

frequency opted by you –

either monthly, quarterly or

yearly. Such pension would be

added to your income in the

years of receipt and taxed as

per your income slab.

Q. I work for a private sector

company in Pune. Following yet

again decline in the interest rates of

government backed scheme

(provident fund), is it wise to

continue investing in such options?

Your advice to salaried class?

- Manish Jha

A. For your long-term goals /

retirement, some portion of your

investments would be allocated to

debt asset class. EPF is one of the

best options in that category, which

offers better tax-efficient return

than most of the other fixed

income options. You can also

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

investments into the same through

Voluntary Provident Fund (VPF), if

your current contribution is not

sufficient to meet the required

ASK OUR PLANNER


what is the tax implication? Or the

surrender value is exempt from

tax?

- Ranganayaki Rajagopalan

A. As per the Section 80CCC(2)

of Income Tax Act, if any

amount available in a pension

policy, in respect of which

deduction has been allowed,

together with interest or

bonus, is received on account

of surrender, then such amount

is added to your income and

taxed as per your income slab.

Interpreting the same would

mean that the portion of

surrender value on which

deduction has been claimed on

the premiums only would have

to be added entirely to your

income. For the balance

portion, only the gains (i.e.

d i f fe rence between tha t

portion of surrender value on

which deduction has not been

claimed on the premiums less

premiums paid on which

deduct ion has not been

claimed) would have to be

added to your income. Please

consult your tax advisor for

appropriateness.

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

debt allocation in your portfolio.

Q. I have been investing in a Super

pension policy since 10 years. It

has matured in this year. Kindly

advise whether it is taxable fully or

partially? Is it ok if I reinvest the

maturity money to save taxes?

Please advise.

- Vijaykumar P R

A. On maturity of a pension

policy, you can receive a rdmaximum of 1/3 as lumpsum,

which is exempt from tax. The r d

b a l a n c e 2 / 3 w o u l d b e

converted into annuity and

received as per the frequency

opted by you – either monthly,

quarterly or yearly. Such

pension would be added to

your income in the years of

receipt and taxed as per your

income slab.

Q. I purchased a pension policy

[Plan-Flexi growth] in July 2009.

Paid Rs.40000/- per year for 3

years. After completion of 8th year I

s u r r e n d e r e d t h i s p o l i c y i n

December 2017 & rece ived

surrender proceeds.The surrender

value is Rs.2,75,151; Total Premium

paid Rs.1,20,000; in this scenario,

MUTUAL FUND ANALYSIS

Investing in ELSS funds


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

Advantages of ELSS

§ Investment in ELSS is eligible for

tax benefits under section 80C.

Maximum tax savings up to |

46,350 on an investment of | 1.5

lakh in a financial year

§ ELSS invests in equity stocks,

which has greater potential for

long term capital appreciation.

Professional, experienced fund

managers another positive.

§ The lock-in period of three years

curtails panic selling in case of

interim volati l i ty in equity

markets. Hence, investments

reap the benefit of long term

investing in equities

§ Systematic mode of investment

(regular monthly investment)

available

ELSS category nature

ELSS funds are the only fully

equity-based investment option

under Section 80C. As such, the

performance potential of ELSS

funds is superior compared to

alternatives like National Pension

S y s t e m ( N P S ) , E m p l o y e e s

Provident Fund (EPF)/Voluntary

Provident Fund (VPF), Public

Provident Fund (PPF) and tax

saving fixed deposits (FDs). ELSS

funds have displayed consistent

performance.

H is tor ica l ly, the ELSS fund

performance has not deviated

directionally from the performance

of other equity fund categories.

This is because ELSS funds have

tended to invest across market

caps – large, mid and small, thus

keeping performance in line with

the general performance of the

wider equity markets, as a whole.

This lack of market cap bias

enables comparison of ELSS fund

performance with that of multi-cap

funds (also known as diversified

equity funds). In recent times, ELSS

funds have delivered returns in line

with multicap funds.

Under th is background, we

recommend the following funds:

L&T Tax Advantage Fund, Franklin

India Taxshield Fund and Reliance

Tax Saver Fund

37



L&T Tax Advantage Fund

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

Key Information:

Product Label:

Investors understand that their principal will be at moderately high risk

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

Performance:The fund has been among the top two quartiles performance wise over the last one, three and five year periods (as of February 28). It has managed to outperform the category and the benchmark across these time frames. The margin of outperformance over its benchmark has increased in recent times. It has generated CAGR of 13.9% and 20.4% in the last three years and five years vs. 7.7% and 14.7% r e t u r n s b y b e n c h m a r k , respectively (as of February 28, 2018)

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

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

Fund Benchmark

Performance vs. Benchmark

38

NAV as on February 28, 2018 (`) 56.1

Inception Date February 27, 2006

Fund Manager Soumendra Nath Lahiri

Minimum Investment (`)

Lumpsum 500

SIP 500

Expense Ratio (%) 2.06

Exit Load Nil

Benchmark S&P BSE 200

Last declared Quarterly AAUM(` cr) 3033

25.7

13.9 2

0.4

15.419

7.7

14.7

11.2

0

10

20

30

1 Year 3 Year 5 Year Since Inception



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

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

39

Our View:Investors with a slightly higher

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

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

https://www.ltfs.com/content/dam/lnt-financial-services/lnt-mutual-fund/downloads/factsheets/2017-18/LT%20Factsheet%20November% 202017.pdf

Data as on February 28, 2018; Portfolio details as on January 2018Source: ACE MF, ICICI Direct Research

%

4.4

4.2

4.2

3.3

3.2

3.2

3.0

2.8

2.4

2.4

Top 10 Holdings Asset Type

Housing Development Finance Corporation Ltd. Domestic Equities

Graphite India Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

ICICI Bank Ltd.

ITC Ltd. Domestic Equities

Future Lifestyle Fashions Ltd. Domestic Equities

Kotak Mahindra Bank Ltd. Domestic Equities

Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

Cash & Cash Equivalent Cash & Cash Equivalents and Net Assets

Axis Bank Ltd. Domestic Equities

%16.6

5.5

4.9

4.9

4.4

4.4

4.2

3.3

3.2

2.8

Top 10 Sectors Asset TypeBank - Private Domestic Equities

Engineering - Construction

Cement & Construction Materials Domestic Equities

Electrodes & Welding Equipment Domestic Equities

IT - Software Domestic Equities

Domestic Equities

Insurance Domestic Equities

Pharmaceuticals & Drugs Domestic Equities

Finance - Housing Domestic Equities

Retailing Domestic Equities

Cigarettes/Tobacco Domestic Equities

%

0.5

0.6

0.9Emami Paper Mills Ltd.

Whats In

Ipca Laboratories Ltd.

Idea Cellular Ltd.



DSPBR Taxsaver Fund

Fund Objective:The pr imary inves tment objective of the Scheme is to seek to generate medium to long-term capital appreciation from a diversified portfolio that is substantially constituted of equity and equity related securities of corporates, and to enable investors avail of a deduction from total income, as permitted under the Income Tax Act, 1961 from time to time.

Key Information:

This product is suitable for investors who are seeking*:

• Long-term capital growth with a three-year lock-in

• Investment in equity and equity- related securities to form a diversified portfolio.

Product Label:

Performance:The fund has outperformed its benchmark over most periods. However, the performance has suffered over the last year. It has beaten the benchmark Nifty 500 Index by ~3.9% CAGR (three years) and ~5.4% CAGR (f ive years) (as of February 28 , 2018) . The performance over the last year or so has suffered due to lower exposure to midcap stocks than i ts benchmark. The midcap space has enjoyed substantial rerating during this time, which has hurt funds that are tilted towards large caps.

Fund Benchmark


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

40


Inception Date January 18, 2007

Fund Manager Rohit Singhania


Lumpsum 500

SIP 500


Exit Load Nil

Benchmark NIFTY 500


17.4

12.5

21

14.72

0.1

8.6

15.6

9.4

0

5

10

15

20

25




Portfolio:The portfolio has significant exposure to the financial sector, followed by materials a n d d i s c r e t i o n a r y consumption. In terms of portfolio construction, the fund has a significant large cap bias, with ~70% of the portfolio invested in such stocks with midcap stocks making up the rest. The proportion of large cap stocks in the portfolio has reduced slightly over the last month or so. Relatively higher

exposure to large caps has contributed to the recent underperformance to some ex ten t , espec ia l l y when compared to peers which are more multicap in nature. Currently there are ~70 stocks in the portfolio with individual weights to stocks not crossing 4% (except the top few picks). This indicates a focus on risk m a n a g e m e n t . T h e f u n d currently has ~2.5% cash in the portfolio.

%

6.7

4.6

4.3

4.0

3.3

3.1

2.5

2.5

2.4

2.2


HDFC Bank Ltd. Domestic Equities

ICICI Bank Ltd. Domestic Equities

Tata Steel Ltd.

Maruti Suzuki India Ltd. Domestic Equities

ITC Ltd. Domestic Equities

Hindustan Petroleum Corporation Ltd. Domestic Equities

Domestic Equities

State Bank Of India Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

GAIL (India) Ltd. Domestic Equities

Vedanta Ltd. Domestic Equities

%16.0

7.4

6.9

6.3

4.6

4.3

4.2

3.8

3.2

3.1

Top 10 Sectors Asset Type

Finance - NBFC Domestic Equities

Refineries Domestic Equities

Engineering - Construction Domestic Equities

Steel & Iron Products Domestic Equities

Automobiles - Passenger Cars Domestic Equities

Bank - Private Domestic Equities

Bank - Public Domestic Equities

Pharmaceuticals & Drugs Domestic Equities

Insurance Domestic Equities

Industrial Gases & Fuels Domestic Equities

%

0.7

1.2

0.4KEC International Ltd.

Whats In

LIC Housing Finance Ltd.

Welspun India Ltd.

%

0.4

0.81.7

Whats out

Procter & Gamble Hygiene & Health Care Ltd.

Eicher Motors Ltd.Sun Pharmaceutical Industries Ltd.



Our View:Putt ing as ide the recent u n d e r p e r f o r m a n c e , t h e scheme has a good long term track record on its side. Due to

its positioning as a large cap tilted fund, it is suitable for slightly more conservative investors.

Data as on February 28, 2018; Portfolio details as on January 2018Source: ACE MF, ICICI Direct Research

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

https://dspblackrock.com/investor-centre/download



Reliance Tax Saver Fund

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

Key Information:

Product Label:

This product is suitable for investors who are seeking*:

• Long term capital growth

* Investment in equity and equity related securities.

Performance:The fund has consistently outperformed the category and its benchmark over the last year, three years and five years. It has been a top quartile performer in the last one-year period and five-year period and a second quartile performer in the last three -year per iod (as of February 28). The one year, three years and five-year performance (as of February 28) is 19.9%, 8.3% CAGR and 23.3% CAGR, respectively, compared to BSE Sensex' 18.2%, 6.5% CAGR and 13.7% CAGR, respectively, (as of February 28).


Fund Benchmark

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

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

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

43


Inception Date September 21, 2005

Fund Manager Ashwani Kumar


Lumpsum 500

SIP 500


Exit Load Nil

Benchmark S&P BSE 100


19.9

8.3

23.3

1618.2

6.5

13.7

12.1

0

5

10

15

20

25




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

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

44

%

8.3

6.7

4.7

4.6

4.5

4.1

3.7

3.2

2.9

2.9


State Bank Of India Domestic Equities

TVS Motor Company Ltd. Domestic Equities

Tata Motors Ltd.

Infosys Ltd. Domestic Equities

Honeywell Automation India Ltd. Domestic Equities

Ambuja Cements Ltd. Domestic Equities

Domestic Equities

Tata Steel Ltd. Domestic Equities

ICICI Bank Ltd. Domestic Equities

ABB India Ltd. Domestic Equities

Bharat Forge Ltd. Domestic Equities

%14.8

9.1

6.7

5.5

4.7

4.6

4.6

3.7

3.6

3.3

Top 10 Sectors Asset Type

Automobile Two & Three Wheelers Domestic Equities

Auto Ancillary Domestic Equities

Automobiles-Trucks/Lcv Domestic Equities

Steel & Iron Products Domestic Equities

Bank - Private Domestic Equities

Bank - Public Domestic Equities

Electric Equipment Domestic Equities

IT - Software Domestic Equities

Forgings Domestic Equities

Cement & Construction Materials Domestic Equities

%

1.8

1.4

0Yes Bank Ltd.

Whats In

Bharat Heavy Electricals Ltd.

The Indian Hotels Company Ltd.

%

0.7

1.30.1

Whats out

ACC Ltd.

HCL Technologies Ltd.Union Bank Of India

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

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

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



Performance of other schemes managed by these fund managers: 1. L&T Tax Advantage Fund

45

Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 8 other schemes of the concerned Mutual Fund

39.09 24.42 --18.98 6.70 14.1131.29 17.19 24.9816.73 2.86 9.7228.18 18.74 29.7719.44 15.49 22.19

17.97 8.58 18.0218.98 6.70 14.1115.12 10.33 18.8218.98 6.70 14.117.72 3.61 14.90

18.98 6.70 14.11

Fund Name 1 Year 3 Years 5 Years

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

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

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

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

S&P BSE Sensex - TRI

S&P BSE Sensex - TRIL&T India Prudence Fund-Reg(G)S&P BSE Sensex - TRIL&T Dynamic Equity Fund-Reg(G)

2. DSPBR TaxSaver Fund

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

22.77 10.79 18.6718.47 6.86 14.2221.28 25.26 24.6318.47 6.86 14.2217.94 13.60 20.6420.48 9.70 16.77

16.41 12.35 20.8720.48 9.70 16.77

DSPBR Natural Res & New Energy Fund-Reg(G)NIFTY 50 - TRIDSPBR Opportunities Fund-Reg(G)NIFTY 500 - TRI


Top 3 Performing Schemes DSPBR India T.I.G.E.R Fund-Reg(G)NIFTY 50 - TRI

Bottom 3 Performing SchemesDSPBR Tax Saver Fund-Reg(G)NIFTY 500 - TRI

Performance of other schemes managed by the fund manager - Rohit Singhania



Data as on February 28,2018 ;Portfolio details as on Jan-2018Source: ACE MF, ICICI Direct Research

46

3. Reliance Tax Saver Fund

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

20.87 9.29 18.6318.98 6.70 14.1119.04 7.29 18.4318.98 6.70 14.1118.47 8.09 22.9618.98 6.70 14.11

-- -- --17.79 7.54 14.55

Reliance Vision Fund(G)S&P BSE Sensex - TRIReliance Tax Saver (ELSS) Fund(G)S&P BSE Sensex - TRI


Top 3 Performing Schemes Reliance Top 200 Fund(G)S&P BSE Sensex - TRI

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

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


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

This month on iCommunity

Discussion

Q & A Forum

Q& A Session with Investment Advisory and Services Head :Mr

Abhishake Mathur - March 12,2018

Below mentioned questions were asked during the event -

a) Is it good to buy a house taking a loan at 8.30% or invest the money in equity ?

b) If I want a monthly income of 1 lakh/ month after 20yrs what is the corpus required to be accumulated?

c) Give me a list of equities for 10 years instrument which has potential to give 20 percent annualized returns.

47

EQUITY MODEL PORTFOLIO


Our indicative large-cap equity model portfolio has continued to deliver an impressive return (inclusive of dividends) of 118% till date (as on February28, 2018) since its inception (June 21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex) return of 99.56% during the same period, an outperformance of 18.44. This validates our thesis of selecting companies with sound business fundamentals that forms the core theme of our portfolio. Our midcap portfolio of 16 stocks continues to outperform well, delivering 334.85% (inclusive of dividends) till date (as on February 06, 2018) vis-à-vis the benchmark index (CNX Midcap) return of 155.45%, outperformance of 179.4%. Our consistent outperformance demonstrates our superior stock picking ability as markets aligned to our view of favourable risk reward, good franchisee vs. reward-at-any-risk businesses.

We have always suggested the SIP mode of investment and still find a lot of merit in it as the preferred mode of deployment given the market conditions and volatility associated since the inception of the portfolio. We highlight that the SIP return of our portfolio has consistently outperformed the indices.

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

We remain positive on auto, IT and pharma. We remain overweight to neutral on pure play defensives (IT, FMCG) as secular earnings coupled with sector rotation could lead to consolidation in near term valuations and offer stock specific opportunities.

Among individual names, we continue to recommend TCS in the IT space. A revival in the capex cycle coupled with lower interest rate scenario would benefit the BFSI and construction space (UltraTech, L&T, SBI, Asian Paints).

48



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

49

Auto 16.0 11.2

Tata Motor DVR 4.0 2.8

Maruti 5.0 3.5

EICHER Motors 3.0 2.1

Mahindra & Mahindra (M&M) 4.0 2.8

BFSI 37.0 25.9

HDFC Bank 10.0 7.0

Axis Bank 6.0 4.2

HDFC 9.0 6.3

Bajaj Finance 6.0 4.2

SBI 6.0 4.2

Capital Goods 4.0 2.8

L & T 4.0 2.8

Cement 4.0 2.8

UltraTech Cement 4.0 2.8

FMCG/Consumer 18.0 12.6

Dabur 5.0 3.5

Marico 4.0 2.8

Asian Paints 5.0 3.5

Nestle 4.0 2.8

IT 6.0 4.2

TCS 6.0 4.2

Media 4.0 2.8

Zee Entertainment 4.0 2.8

Metals 6.0 4.2

Hindustan Zinc 6.0 4.2

Oil and Gas 5.0 3.5

GAIL Ltd. 5.0 3.5

Largecap share in diversified 100.0 70.0



ICICI Securities has received a mandate from Indian Bank'.ICICI Securities has received an Investment Banking mandate from Mahindra & Mahindra and BHARAT HEAVY ELECTRICALS LTD

50

Auto 6.0 1.8

Bharat Forge 6.0 1.8

BFSI 20.0 6.0

Bajaj Finserve 8.0 2.4

J&K Bank 6.0 1.8

Indian Bank 6.0 1.8

Capital Goods 6.0 1.8

Bharat Electronics 6.0 1.8

Cement 6.0 1.8

Ramco Cement 6.0 1.8

Consumer 36.0 10.8

Symphony 6.0 1.8

Supreme Ind 6.0 1.8

Kansai Nerolac 6.0 1.8

Pidilite 6.0 1.8

Tata Chemicals 6.0 1.8

Bata 6.0 1.8

Metals 6.0 1.8

Graphite India 6.0 1.8

Infrastructure 8.0 2.4

NBCC 8.0 2.4

Logistics 6.0 1.8

Container Corporation of India 6.0 1.8

Textile 6.0 1.8

Arvind 6.0 1.8

Total 100.0 30.0

Midcap share in diversified 30

TOTAL 100 0 100.0

Performance* so far since inception

*Returns (in %) as on Feb 28, 2018

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

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

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

Portfolio Benchmark

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: June 30, 2011; *Value as on Feb 28, 2018



118.0033591

334.857383

165.9802166

99.56351395

155.4530043113.8761164

0255075

100125150175200225250275300325350375

Large Cap Midcap Diversified

%

8200000

8200000

8200000

11788216.5

13365584.2

7

10962764.2

4

12686401.5

3

12093506.0

1

3500000

4500000

5500000

6500000

7500000

8500000

Largecap Midcap Divesified

|

QUIZ TIME

1. A correlation of -40% tells us that historically ______ of the time, the two assets were moving in opposite directions.

2. Unit-linked insurance plans is one of the common vehicles for holding equity. True/False

3. In ______________ method, advisor reduces exposure to overvalued assets based on the market view in order to outperform the asset class indices.

4. An investor saving up for a child's education in 10 years should not invest in low risk assets. True/False

5. ___________ is a good option (/asset) for diversification but not necessarily for growth.

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 February2018 quiz are:

1. In a non-discretionary irrevocable trust, the settlor lets the trustees take decisions regarding asset distribution. False

2. After obtaining probate, it is the duty of the executor to carry out the distribution of the property in accordance with the provisions of the will.

3. If the nominee of an asset and beneficiary mentioned in the will are same, the process of estate distribution takes lesser time.

4. If there is no will containing a guardianship designation, then a judge will need to make the designation based on what he or she decides is in the best interests of your child.True

5. Legatee/beneficiary is the person who is named in a will to receive a portion of the deceased person's estate.


PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

53

28-Feb-18 31-Jan-18 Change (%)

CNX Nifty 11028.0 -100.0%

CNX Midcap 19665.0 20785.0 -5.4%

S&P BSE Sensex 34184.0 35965.0 -5.0%

S&P BSE 100 10865.0 11419.0 -4.9%

S&P BSE 200 4592.0 4812.0 -4.6%

S&P BSE 500 14670.0 15347.0 -4.4%


Dow Jones 25,029.2 26,149.4 -4.3%

S&P 500 2,713.8 2,823.8 -3.9%

Nasdaq 7,273.0 7,411.5 -1.9%

FTSE 7,231.9 7,533.6 -4.0%

DAX 12,435.9 13,189.5 -5.7%

CAC 40 5,320.5 5,481.9 -2.9%

Nikkei 22,068.2 23,098.3 -4.5%

Hang Seng 30,844.7 32,887.3 -6.2%

Shanghai Composite 3,259.4 3,480.8 -6.4%

Taiwan Weighted 10,815.5 11,103.8 -2.6%

Straits Times 3,517.9 3,534.0 -0.5%


S&P BSE Auto 24,832.4 25,945.3 -4.3%

S&P BSE Bankex 28,313.9 30,986.0 -8.6%

S&P BSE FMCG 10,506.4 10,711.0 -1.9%

S&P BSE Healthcare 14,113.0 14,559.4 -3.1%

S&P BSE Metals 15173.8 15427.4 -1.6%

S&P BSE Oil & Gas 15,505.8 16,368.2 -5.3%

S&P BSE Power 2,223.1 2,319.0 -4.1%

S&P BSE Realty 2,468.3 2,609.1 -5.4%

S&P BSE Teck 6,742.5 6,831.0 -1.3%

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Feb-18 Jan-18 Change (bps)

Corporate Bond Yields (in %) Feb-18 Jan-18 Change (bps)

Commercial Paper (CP) Rates (in %) Feb-18 Jan-18 Change (bps)

Treasury Bill (T-Bills) Yields (in %) Feb-18 Jan-18 Change (bps)

Volatility Index (VIX)


VIX 13.80 15.93 0%

54

10 year 7.72 7.43 29

5 year 7.55 7.40 15

3 year 7.20 7.08 12

1 year 6.68 6.67 1

AAA 10 year 8.31 8.19 12

AAA 5 year 7.98 7.82 16

AAA 3 year 7.81 7.60 21

AAA 1 year 7.80 7.54 26

AA 10 year 8.78 8.61 17

AA 5 year 8.49 8.35 14

AA 3 year 8.34 8.14 20

AA 1 year 8.21 7.91 30

12 Months 8.16 7.98 18

6 Months 8.01 7.89 12

3 Months 7.91 7.76 15

1 Month 6.88 6.95 -7

91D TB 6.28 6.40 -12

182D TB 6.48 6.46 2

364D TB 6.63 6.55 8

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

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

55

Countries 28-Feb-18 31-Jan-18 Change in bps

US 2.861 2.705 16

UK 1.501 1.510 (1)

Japan 0.053 0.085 (3)

Spain 1.531 1.422 11

Germany 0.656 0.697 (4)

France 0.916 0.966 (5)

Italy 1.974 2.029 (5)

Brazil 9.610 9.720 (11)

China 3.845 3.922 (8)

India 7.726 7.430 30

MF Investment Feb-18 Jan-18 YTD

Equity 13261 9083 129593

Debt 26547 22240 325626

FII Investment Feb-18 Jan-18 YTD

Equity -12491 12983 9156

Debt -2771 9355 125604

Items Weights(%) Dec-17 Jan-18 Feb-18

Food&bev. 45.86 4.85 4.58 3.38

Pan,tob& intox. 2.38 7.76 7.58 7.34

Cloth & Foot 6.53 4.95 4.94 5.00

Housing 10.07 8.25 8.33 8.28

Fuel & light 6.84 7.90 7.73 6.80

Misc. 28.31 3.79 3.78 3.85

CPI 100 5.21 5.07 4.44

Weights Dec-17 Jan-18 Feb-18WPI 100.0 3.58 2.84 2.48Primary Articles 22.6 3.86 2.37 0.79Fuel & Power 13.2 8.03 4.08 3.81Manufactured Goods 64.2 2.79 2.78 3.04

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 February 28, 2018

Debt Funds Returns (in %)

Returns as on February 28, 2018

Tenure Liquid Funds

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

Currencies and CommoditiesCurrencies

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

Debt ST Ultra ST Debt LT

56

Categories 31-Dec-17 30-Nov-17 30-Oct-17 Weight(%)Mining 7.5 6.4 6.8 14.4Manufacturing 2.7 3.3 -1.3 77.6Electricity 2.7 -6.5 -0.5 8.0Overall 3.3 2.8 -0.3 100.0

28-Feb-18 31-Jan-18 Change (%) StatusUSDINR 65.2 63.6 2.5% DepreciatedEURINR 79.7 79.2 0.6% DepreciatedGBPINR 90.4 89.9 0.6% DepreciatedAUDINR 50.9 51.5 -1.3% AppreciatedCHFINR 69.1 68.2 1.4% DepreciatedJPYINR 0.6 0.6 4.1% DepreciatedCNYINR 10.3 10.1 1.8% Depreciated

28-Feb-18 31-Jan-18 Change (%)Crude ($/barrel) 64.5 68.8 -6.3%Gold ($/ounce) 1,318.4 1,345.2 -2.0%

6 months 6.70 10.45 4.44 6.491 year 20.08 25.16 17.70 20.063 year 10.46 15.04 7.68 10.215 year 19.07 26.73 15.86 18.74

6 months 6.12 3.12 4.99 -1.17

1 year 6.32 5.77 6.29 4.12

3 year 7.05 7.47 7.51 6.57

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