icici may 16 issue newcontent.icicidirect.com/moneymanagermagazine/may_2016.pdf · cio, icici...

Anup BagchiMD & CEO

ICICI Securities Ltd.

Achieving your financial goals is a process in itself. And as with any process, it needs to be monitored for its progress. Doing so will help you to understand how well you are doing and how far you have come towards achieving your goals. The entire point here is to clearly know where you have been, how far you have come, and what it will take to get ahead. This is specifically important with a dynamic economic and market environment. There are changes that are required to be made as the investments do above or below expectations or as the risk-taking ability or capacity changes.

It can be tough to measure your progress if you don't have a written financial plan and a tracking platform in place. Keep in mind, measuring financial progress involves more than simply focusing on your investments' performance. It is a widespread look at your spending, saving and investing patterns, debt management, tax planning, etc. - all within the context of changing economic, financial and market conditions. Further, changes to your life, health, family, career, etc. can all have a profound impact on your plan. So to navigate through these changes, you must track your plan to keep it flexible enough to adjust to these changes. Even throughout retirement, you should be monitoring your plan to ensure you are adequately addressing your and family's financial needs.

A sound tracking platform in place helps increase the chances of achieving your goals. For example, if your progress meets the recommended action plan, you would want to keep doing what you are doing. If your results aren't on track, you would want to take

1ICICIdirect Money Manager May 2016

actions to improve them. This could include tweaking your asset allocation, savings target and portfolio value. ICICIdirect's robo-

TMadvisory platform Track&Act helps you track your financial progress with a few clicks of the mouse. You not only can monitor your progress, but also can execute financial transactions from the comfort of your home or office to move closer to your goals.

At ICICIdirect, we have a human-hybrid robo-advisory service, which offers human touch as well as online platform, for greater alignment to your goals and accuracy of recommendations. Before we set up the platform for you, we collect information on your goals, cash flows, assets, liabilities and risk-preferences. This ensures that the financial plan is just right for your situation. Based on the inputs, our expert financial planners design a comprehensive financial plan. We use sophisticated algorithms and simulate over 2.5 million paths to decide on the best path that your investments must take.

TMOur robo-advisory platform Track&Act then helps you track and monitor your progress. This is critical to meeting your financial plan. The system gives suggestions and triggers, as and when the

TMsituation changes. Track&Act helps with tracking your asset allocation, re-balancing to target allocation, maintaining savings rate and doing a periodic review. The system also has an intelligent logic that gives answers on where you should be investing and which investment to withdraw from, if you need to. The advice, at its root, is based on your personal situation and leads to intelligent investing that is less prone to emotional biases.

With this type of holistic approach to financial planning, you are well-equipped to take control of your finances and secure your future. Do talk to your ICICIdirect relationship manager to help you with a customized plan.

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

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Planning for your financial goals is one part of your investment journey. It basically involves charting out a road-map for financial progress. However, for actual progress to take place, action is required, without which, it is almost impossible to reach your goals. The best way to make progress and move closer to your goals is to have a system in place. It helps you get tangible results and gives you much required confidence in achieving your goals.

ICICIdirect Financial Planning Services, along with its online robo-TMadvisory platform Track&Act , not only helps you with 'planning'

part of your goals, but also 'making progress' part. It helps you take action towards achieving your financial goals in the most efficient manner without biases at play. Our cover story of this edition takes

TMyour through the details of our platform Track&Act in detail and tells you how you can move closer to your goals with this platform in place.

The edition also covers an interview with Sankaran Naren, ED and CIO, ICICI Prudential Mutual Fund, who believes that the large-cap stocks are better valued as compared to the midcap stocks, presenting a good investing opportunity at this point in time.

Further, given that the markets have recovered post Budget, investors should remain constructive and accumulate on dips for the next 2-3 years. We believe it is best to stick to quality large-cap stocks through equity mutual funds. Read more about our recommended funds in our Mutual Funds Analysis section.

I would also like to draw your attention to our recently updated Equity Model Portfolio. We have made minor changes to capture the new opportunities available in the market. So read on, stay updated and involved. Do write in with your queries, feedback and share your thoughts at [email protected].

Editor & Publisher : Abhishake Mathur, CFA

Coordinating Editor : Yogita Khatri

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Isha Bansal

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

ICICIdirect Money Manager May 2016

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

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

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

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

Asset Class InsightsA monthly review and outlook on major asset classes – equity, debt/fixed-income and gold….....................................................5

Stock Ideas: Dredging Corporation and Syngene...............................10

Flavour of the Month: How to move closer to reaching your financial goalsReaching your financial goals is all about incremental progress. Read on to find out steps that you can take to move closer toward your financial goals........................................................19

Tête-à-tête: 'Large-cap stocks are better valued’An interview with Sankaran Naren, ED & CIO, ICICI Prudential Mutual Fund…............................................................................35

Ask Our Planner: MF Investing - SIP or Lump Sum?

Your personal finance queries answered…..............................39

Mutual Funds Analysis: 3 Large-cap Equity Funds to Consider

It's time to remain constructive in equity markets and accumulate on dips for the next 2-3 years. Here are three large-cap equity funds that you may consider to take exposure in equity markets…........................................................................ 43

Mutual Fund Top Picks....................................................................56

Updated Equity Model Portfolio

We have made minor changes to capture the new opportunities available in the market….................................... 57

Quiz Time......................................................................................62

Prime NumbersA revamped section of monthly trends, with inclusion of more data points and indicators.........................................................63

Premium Education Programmes Schedule...................................... 67


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Sebi to reduce the number of listed firms

The capital market regulator intends to reduce the number of listed companies to curb the risk of price manipulation through entities that are not actively traded. The Securities and Exchange Board of India (Sebi) will also increase oversight of auditors and take action against them if they are found to have abetted market manipulation. Both steps are intended to improve the governance of public markets and companies listed on them.

Courtesy: Livemint

governor of the Reserve Bank of India (RBI), Raghuram Rajan, has warned that a "sharp" slowdown in China's growth posed a threat to the global economy, highlighting possible impact from the shadow banking system of its neighbour, the RBI said. Rajan's comments were made in India's financial capital in a speech to central bank governors from the nations of the South Asian Association for Regional Cooperation (SAARC) grouping, the RBI said in a statement.

Courtesy: The Times of India

China slowdown a threat to world economy, says Rajan

credit rating agency Moody's Investors Service said India's bankruptcy code boosts creditors bargaining power against big borrowers. However, Moody's also said significant infrastructure constraints have to be crossed for the framework to be fully operational. On May 11, Indian parliament passed the national bankruptcy law, the Insolvency and Bankruptcy Code, 2016, which is now pending for the President's signature.

Courtesy: Business Standard

India's bankruptcy law positive for banks: Moody's

EPFO to provide 3-yr life cover to subscribers after job loss

Retirement fund body EPFO next month is likely to consider and approve a proposal to provide life insurance cover to its subscribers for three years after cessation of employment. “The maximum sum assured under the Employees' Deposit Linked Scheme (EDLI) will soon be enhanced to Rs 6 lakh this month,” the source said. The proposal provides for voluntary retention of EDLI membership to subscribers at reduced rate of contribution for three years after losing job.

Courtesy: Business Standard


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Equity markets: Outlook positive, start accumulatingIndian markets consolidated in a narrow range in April 2016 af ter having rebounded sharply during March 2016 in line with global markets, which also witnessed a lacklustre performance during the month.

Domestic macroeconomic variables like benign inflation, increased expectations of n o r m a l m o n s o o n s , implementation of the Seventh Pay Commission along with i n c r e a s e d g o v e r n m e n t ordering in sectors like road, railways and power are set to provide the much needed fillip to economic activity.

Indian markets after been in a declining trend from March 2015 to February 2016, recovering some of their gains post Budget. Markets seem to have formed a near term bottom in February 2016. I n d i a n m a r k e t s m a y consolidate in the near term but the overall downward trend, which started last year,

seems to have reversed.

The majority of the latest Q4FY16 results, so far, have been in line or better than expectations. Sectorally, most companies among auto, private banks & NBFC (non-banking financial companies), cement, telecom and FMCG (fast-moving consumer goods) sectors declared good results. Earnings growth is likely to pick up further in the coming quarters. Earnings growth for FY17 and FY18 should be significantly better than the last few years.

If global markets remain supportive, Indian markets are likely to perform well as the domestic economic outlook is i m p r o v i n g o n n o r m a l monsoon, government policy action and improved liquidity from the RBI (Reserve Bank of I n d i a ) . S e v e n t h P a y Commission and OROP (One Rank, One Pension) remain a trigger for a consumption boost for the economy.

Global markets also seem to have stabilised after a rebound

ASSET CLASS INSIGHTS

Asset Class Insights: Equity, Fixed-income and Gold

A monthly review of the major asset classes - Equity, Fixed-Income and Gold -- and

a snapshot of our outlook.


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i n c o m m o d i t y p r i c e s , particularly crude oil. The continued easing of the monetary policy stance by European Central Bank (ECB), Bank of Japan and China along with the dovish stance of the US Federal Reserve while indicating a further rate hike provided the much needed sentiment boost to global i n v e s t o r s . I m p o r t a n t l y, emerging markets witnessed a

return of foreign inflows with most emerging markets outperforming in the last few m o n t h s . S t a b i l i t y i n commodity and currency markets also bode well for the global equity markets.

We believe investors should be bullish on equity markets and accumulate on dips for the next two to three years.


BSE Sensex rebounds sharply from lower levels, may consolidate in near term

Source: Bloomberg

F i x e d i n c o m e : S t r u c t u r a l improvement makes medium term outlook positiveBond yields remained steady as investors were cautious amid lack of fresh economic triggers. Yields fell following an escalation in US treasury prices but the scenario reversed on caution ahead of t h e w e e k l y a u c t i o n o f

government debt.

Benchmark 10-year G-sec (Government Securities) yields remained absolutely flat during April 2016 at around 7.45%.

Liquidity continued to be in deficit but improved in April. It is expected to ease further in coming months as the RBI moves to improve the deficit

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situation. RBI has committed to progressively reduce liquidity deficit in system from 1% of NDTL (Net Demand and Time Liabilities) to 'a position closer to neutrality.' RBI announced var ious l iquidi ty easing measures including OMOs (open market operations). Start of the new financial year also helped bring back the year end deficit.

Improving liquidity helped reduce yields on short-term papers across instruments viz. CDs Certificates of Deposit (CDs), Commercial Papers (CPs), and the short-term corporate bond market.

The structural improvement in the form of benign inflation and p r o s p e c t s o f n o r m a l monsoons continue to lead to a positive outlook in the medium-term.

Headline CPI for March 2016 came in much lower-than-expected at 4.83% compared to 5.26% in the previous month as food inflation fell to 5.21% from 5.30% in the previous month. In its initial forecast for 2016 south-west monsoon, the I n d i a n M e t e o r o l o g i c a l Department (IMD) expects a

high probability of an above-normal monsoon. This will provide a much needed breather to the economy that has witnessed two consecutive years of poor monsoon. However, the actual impact would also be dependent on the spatial and inter-temporal distribution of monsoons and the sowing pattern.

The overall liquidity measures announced are extremely positive for the short to medium term maturity papers. Therefore, bulk of the debt investment should be in good quality short-term debt funds. Return on ultra short-term debt fund and liquid funds are likely to be lower going forward as yield on short maturity papers have declined.

Although the outlook on G-sec yields remains positive, the duration strategy should be played through act ively managed income or dynamic bond funds. They will be able to make swift duration change within G-secs or switch between corporate bonds and G - s e c s w i t h i n s p e c i f i c duration.

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CP rates decline 50-80 bps since March

AAA-rated corporate bond yield declines in range of 10-40 bps

7.8

8.1 8.28.3

8.6 8.7 8.8 8.8

7.0

7.5

8.0

8.5

9.0

1M CP 3M CP 6M CP 12M CP

10-May-16 31-Mar-16

Source: Company, ICICIdirect.com, Research

Source: Company, ICICIdirect.com, Research

7.9

8.1

8.28.38.3

8.3 8.48.4

7.6

7.8

8.0

8.2

8.4

8.6

AAA 1 year AAA 3 year AAA 5 year AAA 10 year

10-May-16 31-Mar-16

Gold: Outlook stays positive, may consolidate in near termGold prices continue to trade with an upward bias during April 2016 on the back of weakness in the US dollar. Global gold prices rallied 3.5% during the month taking the gains for 2016 to 20%.

Gold prices are close to US$1300 per ounce, highest since January 2015. Investors are flocking to the precious metal due to a much weaker d o l l a r a n d t h e p o o r performance of stock markets. Gold is priced in dollars, so a

weak dollar makes it a more attractive investment to non-US buyers.

The dovish stance adopted by the US Federal Reserve in its interest rates guidance and a w e a k g l o b a l g r o w t h envi ronment leading to uncertain equity market outlook are the main catalysts for a rise in gold prices since the start of the year.

The near term outlook remain positive on the dovish rate hike stance of the US Fed, a weak US dollar, an uncertain global

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economic outlook on weak global growth and lack of inves tment op t ions fo r investors.

The expectation on quantum of rate hike by the US Fed has declined significantly post the recent turmoil in the global capital markets. The market is now factoring in just one rate hike in the whole of the calendar year 2016, especially post the dovish statement from the US Fed Chair. Interest rate hikes, in general, are negative for gold prices. With rate hike concerns receding, the overhang on prices also

abates in the near term.

The steep fall in industrial commodity prices including crude oil led to a sharp fall in inflation along with inflationary expectations across the globe and particularly in developed economies. The same led to reduced demand for gold as an inflationary hedge investment remaining a medium-term risk for global gold prices.

M e d i u m - t e r m d e m a n d , however, will continue to be impacted by the overall global environment, particularly, the US Fed rate hike trajectory.

Gold prices consolidating post sharp rally at start of the year

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Indian prices follow global prices

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Source: Bloomberg

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STOCK IDEAS


Dredging Corporation: Beneficiary of government's coastal agenda

Company BackgroundDredging Corporation of India (DCI) was established in 1976 as a public sector unit (PSU) and conferred “Category I PSU Miniratna” status in 1999. DCI's main aim is to provide dredging services to major and minor ports in India. With its head office in Visakhapatnam, DCI owns and operates a fleet of 13 trailer suction hoppers dredgers (TSHD), three cutter suction dredgers (CSD), two survey launches and one b a c k h o e d r e d g e r. T h e company provides dredging services mainly to Indian ports (major, minor) and Indian Navy. DCI is the market leader in maintenance dredging with 75% market share. However, due to the presence of more efficient capital dredgers with a number of foreign players, it lags behind in capital dredging activity with an approximate market share of 10%.

I n k e e p i n g w i t h t h e Government of India's “Make in India” effort, there is an urgent need to develop cheaper modes of logistics. On the back of the same, the Ministry of Shipping (MoS) has

embarked on the journey to promote coastal shipping, which would help reduce congestion on rail and road. Furthermore, DCI intends to play an important role in implementation of projects like “Jal Vikas Marg” and “Sagar Mala”. Subsequently, the company aims to become a Navratna by 2020. With the addition of two new dredgers and on resumption of its international operations, DCI intends to expand its market share.

Push for coastal shipping; Need for dredgingWith about 14 states and 137 rivers, India has a river length of ~28,511 km. Approximately 13,000 km (~45%) is navigable in nature of which India utilises only 4,500 km for inland transportation. With the need to supplement the choked road and rail network, Sagar Mala has envisaged 150 projects for port augmentation, entailing an investment of 1,00,000 crore. Approximately 20% of port development costs relate to dredging activity resulting in a market opportunity of

Investment Rationale

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STOCK IDEAS

20,000 crore. Given the technicalities of dredging, an experience of over two decades on the Indian coast positions DCI as the biggest beneficiary.

Sustained market leadership in maintenance dredgingCurrently, major and minor ports (including Indian Navy) require ~110 mcm (million cubic meters) of maintenance dredging on an annual basis. On an execution basis, ~70% i.e. 80 mcm of maintenance is actually achieved. With the current fleet, DCI claims to maintain ~60 mcm, which pegs its market share at 75%. The mandate by the Ministry of Shipping to increase the port draft to a minimum of 18 metre would be followed by a global average of 23 metre. This would create higher demand for maintenance dredging, which would directly benefit DCI. Moreover, being a market leader, DCI could be appointed a nodal agency for projects like Clean Ganga for which the Budget FY17 has allocated 2,250 crore.

Past issues getting sorted out – Future looks optimisticThe proceeds from the long

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p e n d i n g i s s u e o f Sethusamudram Corporation Ltd. (SCL) are expected to be in the favour of DCI. Although the timing is uncertain, DCI is confident of recovering the receivables to the tune of 308.97 crore. It feels that Government of India (at whose behest the contract with SCL was entered) will reimburse DCI 308 crore to compensate for the actual expenditure incurred on this project. DCI intends to use proceeds for buying dredgers, going ahead. In addition to the same, the company is also undergoing refurbishment of existing aged dredgers, which would lead to a reduction in operational costs. Further, as 93% of DCI's spare parts are imported, there has been a substantial cost associated in procuring the same. Subsequently, the c o m p a n y h a s s t a r t e d procuring spares from BEML which would be cost effective.

Additional capacity; increased prospects, quality play!DCI has added three new dredgers over the past three years, which yields higher daily realisation rates. Further, on the back of higher visibility, it

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STOCK IDEAS

proposes to order two additional dredgers. With issues around Sethusam- udram project expected to be resolved in the near term, DCI would be able to unlock investments of 300 crore. Owing to huge opportunities around coastal development,

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we expect DCI to be the biggest beneficiary and assign a P/E (price-to-earnings) multiple of 12x to the expected EPS (earnings per share) of 41.6 in FY18. We recommend BUY on DCI with a target price of 500.

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Market capitalization ( crore) 1,106

Total debt (FY15) ( crore) 924.4

Cash and investments (FY15) ( crore) 147.9

Enterprise value (EV) ( crore) 1,882.6

52-week High/ Low ( ) 420/290

Equity capital ( crore) 28

Face value ( 10

FII holding (%) 0.4

DII holding (%) 13

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Stock Data

Key Financials

Valuations Summary

Net Sales ( crore) 735 672.4 780.3 925.8

EBITDA ( crore) 173.2 175.7 223.1 276.5

Net Profit ( crore) 62.4 63 91.4 116.6

EPS ( ) 22.3 22.5 32.6 41.6

FY15 FY16E FY17E FY18E

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Fy15 FY16E FY17E FY18E

P/E (x) 17.7 17.6 12.1 9.5

Target P/E (x) 22.4 22.2 15.3 12

EV / EBITDA (x) 11 10.8 9.3 8.3

P/BV (x) 0.8 0.7 0.6 0.6

RoNW (%) 4.3 4.1 5.4 6.4

RoCE (%) 6.8 7.1 8.1 9


STOCK IDEAS

Key Risks

Client concentration from Kolkata port

More than ~50% of total revenues are derived from dredging operations at Kolkata Port. Prior to 2014, pursuant to the Ministry of Shipping's (MoS) nomination process, DCI was the sole external m a i n t e n a n c e d r e d g i n g company servicing the port. The dredging operations are substantially funded by GoI. Post 2014, this nomination process ceased to exist and Ko lka ta Por t op ted fo r competitive bidding. DCI being the only bidder in the 2015 bidding process got the contract for dredging at Kolkata Port. Kolkata port has come out with a new tender for maintenance dredging for a

period of five years for which the process is expected to conclude by March. The tender from the port remains the key for DCI as it has still been unable to diversify revenues.

Fuels and lubricants may have a material adverse impact on performance Fuels and lubricants form ~50% of the total expenditure. The company is exposed to volatility in crude prices as it enters into long term contracts with suppl iers of these materials over a defined period. Some of the dredging contracts into which DCI has entered do not contain an escalation clause for fuel price hikes. Hence, if prices of fuels and lubricants r ise, the operational profitability would be adversely affected.

(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; P/BV: Price-to-book value; RoNW: Return on net worth; RoCE: Return on capital employed; FII: Foreign institutional investors; DII: Domestic institutional investors)

Sensitivity of fuel & lubricants to EBITDA margins

-10.0% -5.0% 0% 5.0% 10.0%

FY17E 33.1 31.6 30.1 28.6 27.1

FY18E 37.6 34.8 32.0 28.9 25.8

Change in Fuel prices

EBITDA margins

Source: Company, ICICIdirect.com Research


STOCK IDEAS

Syngene: Well poised to monetise research capability

Company BackgroundIncorporated in 1993 as a

subsidiary of Biocon, Syngene

International Ltd. (SIL) is a

leading Contract Research

Organisation (CRO), which

supports R&D (research and

development) programmes of

global innovative companies.

SIL offers outsourced services

to support discovery and

development for organisations

across industrial sectors like

pharmaceuticals, biopharma-

ceuticals, neutraceuticals,

animal health, agro-chemicals,

etc. It currently caters to 256

global players including

Bristol-Myers Squibb (BMS),

Abbott and Baxter, among

others.

SIL's services encompass a

range of R&D activities from

NME (new molecular entity)

discovery, development to

pilot manufacturing. Over the

years, it has evolved from a

discovery chemistry and

discovery biology-focused

CRO to an integrated provider

of discovery and development

services for NMEs across a

range of domains including

small molecules (chemical

drugs) and large molecules

(biologics).

SIL manages a pool of 2,122

scientists including 258 PhDs

and 1665 scientists with a

master's degree, to ensure

timely execution of projects,

cost effectiveness and quality

of projects, confidentiality and

protection of intellectual

property.

The company owns two state-

of-the-art research facilities

spread over 9,00,000 sq ft in

Bengaluru certified by major

regulatory bodies.

The company cur rent ly

conducts laboratory and

manufacturing activities at two

primary facilities –

Biocon SEZ, Bommasandra,

Bengaluru

Bommasandra Industrial Area,

Bengaluru

Apart from this, it is in process

o f e s t a b l i s h i n g a n e w

commercial-scale facility in

M a n g a l u r u ( S E Z ) t o


STOCK IDEAS

manufacture novel small

molecules for innovator

companies as it plans to foray

into commercial manufact-

uring for customers.

The company intends to

evolve from a CRO into a

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

manu fac tu r ing se rv i ces

(CRAMS) organisation with

c o m m e r c i a l - s c a l e

manufacturing capabilities.

This is in keeping with SIL's

plan to leverage its existing

relationships with clients and

provide forward integration on

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

development continuum.

Well poised to cash on growing

global pharma R&D outsourcing

trendGlobal pharmaceutical players

are facing structural issues

from impending patent cliff, a

drying product pipeline and

rising R&D costs. At the one

end, these once mighty giants

are shrinking in size due to loss

of blockbuster exclusivities.

However, at the other end, the

new product approvals by the

USFDA are also on the rise

Investment Rationale

paving the way for increased

compet i t ion . Hence , to

maintain the structural balance

and improve probability of

success these are inclined to

outsource substantial part of

the R&D work. Outsourcing

allows innovators to convert a

portion of their R&D budgets

from fixed to variable cost,

giving them greater flexibility

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

development priorities in

response to market conditions.

Also, a sharp increase in new

startup innovative companies

lacking infrastructure and

funds a lways prefer to

outsource most of their

research work. Besides the

obvious outsourcing benefits,

SIL offers the India cost

arbitrage.

Integrated business model ,

customer stickiness to the core

SIL's revenues grew at 27.8%

CAGR (compounded annual

growth rate) in FY11-15 to Rs.

860 crore mainly due to a sharp

increase in new client addition

and scaled-up revenues from

ex is t ing c l ien ts led by

integrated service offerings,


STOCK IDEAS

high data integrity ethos and

continuous endeavour to scale

up the value chain. The client

base has grown to 256 in Fy16

from 103 in FY12. A sharp

increase in clientele was

mainly due to offering of

complete basket of services

from discovery, development

and pilot manufacturing under

one roof through flexible

business models customised

to client's requirements. Also,

a flexible business model

al lows SIL to meet the

discovery and development

needs of a wide range of

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

biotechnology companies to

l a r g e p h a r m a c e u t i c a l

companies. The company has

been able to take advantage of

India's large, low-cost scientific

talent pool to deliver its

services to multinational

companies at competitive

r a t e s , e s p e c i a l l y w h e n

compared with costs for

comparable serv ices in

developed countries.

Compelling non-generic option

with thrust on capexIn the crowded Indian pharma

space dominated by generic

exporters, SIL stands out as an

atypical candidate with new

molecular entity (NME) focus.

Syngene is well poised to

capture opportunities in the

global CRO space on account

of strategic outsourcing by

global innovators in the

b a c k d r o p o f s t r u c t u r a l

cha l l enges such as an

impend ing pa ten t c l i f f ,

controlling costs and keeping

new products introduction

f low in tac t . I t s p roven

capabilities have been backed

by robust financials, which

have been fairly consistent,

thanks to regular customer

addition and stickiness of

existing customers. This is also

on account of continuous

broaden ing o f serv ices

offering by the company since

inception. We expect sales,

EBITDA and PAT to grow at a

CAGR of 24.2%, 26.8% and

29.5% to 1707 crore, Rs.

575.2 crore and 371 crore,

respectively, between FY16P

and FY18E. We recommend

BUY and have ascribed a target

price of 445 based on 24x

FY18E EPS of 18.5.

`

`

`

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STOCK IDEAS

Key Financials

Valuations Summary

Stock Data

Revenues ( crore) 859.9 1,107 1,411.6 1,707

EBITDA ( crore) 281.1 357.8 458.2 575.2

Net profit ( crore) 175 221.2 311.7 371

EPS ( ) 8.8 11.1 15.6 18.5

FY15 FY16P FY17E FY18E

`

`

`

`

PE (x) 44.4 35.2 25 21

M.Cap/ Revenues (x) 9 7 5.5 4.6

EV to EBITDA (x) 27.3 21.5 17.4 13.7

P/B (x) 9.2 7.4 5.9 4.7

ROE (%) 20.7 21.2 23.5 22.4

RoCE (%) 19.5 13.3 16.7 18.2

FY15 FY16P FY17E FY18E

Market capitalisation ( crore) 7,742

Debt (FY16P) ( crore) 891

Cash (FY16P) ( crore) 710

Enterprise value (EV) ( crore) 7,923

52-week High/ Low ( ) 436/295

Equity capital ( crore) 200

Face value ( ) 10

FII holding (%) 16.2

DII holding (%) 0.8

`

`

`

`

`

`

`


STOCK IDEAS

Key Risks

High dependency on limited customers

The company earns over 70% of its revenues from top 10 clients including ~30% of revenues from BMS. Any change in priority leading to a s igni f icant a l terat ion in contractual arrangements either 1) by way of decline in volume of work or 2) reduction in price at which the services have been offered, can lead to substantial revenue loss.

Client consolidation

In a growing trend of global pharma consolidation, if the priorities of the resultant entity are changed, there can be a

loss of business in existing projects. This may severely affect the business prospects.

CMO business prone to higher USFDA scrutiny

The company has signed commercial contracts for two late stage products with existing clients. Starting the commercialisation business would complete SIL's chain of business from discovery and d e v e l o p m e n t t o n o w c o m m e r c i a l i s a t i o n o f products. However, the CMO opportunity would come along with higher risk of USFDA scrutiny. In the event of adverse findings from the agency there is a risk of loss of business.

(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; P/B: Price-to-book ratio; RoE: Return on equity; RoCE: Return on capital employed; FII: Foreign institutional investors; DII: Domestic institutional investors)

19

FLAVOUR OF THE MONTH

How to move closer to reaching your financial goals

We all know that planning is important to reach our goals. But execution is clearly

even more important. Any plan made, but not executed or implemented, is

worthless. Same goes with your financial plan too. Even if you have made a plan

and know that you need to invest, not acting on it is unlikely to get you desired

results. Once you have put together a roadmap, it is important to follow the path to

reach your destination. How about having a written financial plan in place and

also an online platform where you can track your plan and take timely investment

decisions to move closer to your goals? ICICIdirect's Financial Planning Service TMalong with its robo-advisory platform Track&Act helps you just do that. Read on

to know more.


Written plan of action

According to the CFP (Certified Financial Planner) Board,

Having a written financial plan of action provides your goals a clear direction to achieve them.

a written financial plan helps families better manage their finances. It makes them feel more confident and report more success in managing m o n e y , s a v i n g s a n d investments than those who do not have a plan. They are also significantly more likely to feel good about their progress toward meeting key goals.

ICICIdirect Financial Planning Service tailors a plan to best fit your needs and goals. We start b y c o l l e c t i n g d e t a i l e d information from you for developing an accurate plan. It includes information regarding

your current situation and plans as well as your future goals. This gives a clear understanding of where you stand today and whether you are on target to meet your future goals.

We then project your future cash flows (till retirement) by taking into account your income, expenses, savings and investment details. It helps i n a l l o c a t i n g e x i s t i n g investments and future surplus towards goals by providing a clear year-wise allocation of surplus for each goal. We also assess your risk profile to narrow down investment choices best suited for you.

By understanding your short, medium and long term goals (across priorities - Critical, Important and Discretionary),

20



we put together a plan to help you get where you want to be. Further, to ensure that your plan continues to be relevant to your changing needs and goals, our robo-advisory

TM platform Track&Act helps you track your plan and gives periodic reviews and triggers so that you can implement your plan and stay the course throughout. This is what sets us apart from our competitors.

Implementing a financial plan takes a lot of discipline. And when you have a system in

Robo-advisory platform Track & TMAct

TMplace like Track&Act , it ensures that you are making satisfactory progress towards achieving your goals. Let's understand this with a real life case study.

Anand Shah, 40, is a salaried individual, earning around 15 lakh p.a. and his wife Meera, 37, is earning around 10 lakh p.a. (both post-tax income). The couple has a 4-year old daughter. Anand approached ICICIdirect Financial Planning Services for making his financial plan. He has the following financial goals:

`

`

Anand's Financial Goals

Financial Goal Years To Achieve Cost of Goal Today ( )`

Contingency Fund Immediate 2,00,000

Family Vacation

1

2,50,000

Contribution to Brother's Wedding

2

1,00,000

Replacing small car

3

6,00,000

Foreign Trip – 1

4

2,50,000

Replacing sedan 7 12,00,000

Funds for family function

7

2,50,000

Foreign Trip – 2

10

2,50,000

Daughter - Graduation

13

12,00,000

Daughter - Post Graduation

17

15,00,000

Post-Retirement Expenses 20 10,00,000 p.a.

Daughter – Marriage 22 20,00,000

21



Anand stays in his own house and is repaying a home loan with EMI (equated monthly installment) of 14,000. The current value of all his investments into financial assets is 12.98 lakh and his existing asset allocation (financial assets) is: Equity: 7.53%; Fixed Income: 92.47%; Gold: 0%.

As a part of his financial plan, we projected the cash-flow till Anand's retirement and arrived at the approximate amount he could save every year and figured out if all his goals could be met through his existing investments and fu ture savings. It turned out that all his goals (including post-retirement expenses) could be comfortably met, provided he makes some changes to his existing asset allocation and starts investing his future surplus towards his goals.

Unlike Anand's case, there are certain cases where all goals cannot be achieved with the existing investments and future surplus. We then work on various scenarios and suggest options accordingly, such as compromising on non-critical goals, postponing them

`

`

or reducing their value, or even dropping some of those goals. In some cases, we suggest cutting down discretionary expenses and/or exploring ways to increase income level, p o s t p o n i n g r e t i r e m e n t schedule or starting part-time job post retirement.

1) Starting / Tweaking Asset Allocation

2) Savings Target for next 1 year

3) Target Asset Allocation at the end of 1 year and

4) Expected Overall Portfolio Value at the end of 1 year

The financial plan had these suggested action points for the next 1 year and how these can be implemented by Anand and tracked through our robo-advisory platform Track &

TMAct . Let's understand this in detail.

Move from an existing asset allocation to the following recommended one, based on the goals.

In case of Anand, the action plan suggested was the following:

Action Point 1: Starting / Tweaking Asset Allocation

Recommendation:

22



Asset Type

Current Asset AllocationRecommended Asset

Allocation

Amount ( )`

Percentage Amount

( )` Percentage

Equity 97,762 7.5% 6,96,768 53.7%

Fixed Income

12,00,000

92.6%

6,00,994

46.3%

Total 12,97,762 1,297,762

Action:

Tracking:

Anand has to redeem part of his fixed income investments and shift to equity-based investments as soon as possible – within 1 month from the date of plan.

TM In “Track & Act ”

module, he can view on a real-time basis his asset allocation at any point of time and compare the same with the recommended asset allocation

to check if he has moved to the same. And, if there is any deviation, the system prompts him to take necessary action – with the message “Action Required”.

As on the date of his financial plan, the Starting Asset Allocation page looks like this:

On the date of plan:

TMThe robo-advisory Track&Act platform dynamically suggests the action to be taken by Anand based on the deviations in every asset class of his asset allocation in comparison with the recommended asset allocation.

23



Here, Anand has to take more exposure to equity and hence, the system suggests the customer to “Add and Rebalance from other assets where he's over exposed” dynamically against Equity asset class.

Once Anand re-aligns his asset allocation and comes closer to the recommended asset allocation, then the system displays a message “You are on Track” and “No immediate rebalancing required” against all asset classes, as shown below.

Tracking after a month:

Once the 'Starting Asset Allocation' tab displays the message “You are on Track”, then Anand can start implementing the other action points in the plan.

24



Tracking and adhering to the target allocation as per your financial plan is the best strategy while you invest in assets that are mean reverting (go back to the mean from ups and down) like equities. Effectively you end up buying at lows and selling at highs. Let's understand this with an example:

Maintaining the ratio of asset allocation across market cycles ensures you reach your

goals well on time. Let us take two scenarios of falling and rising markets to understand better.

Suppose you have a portfolio size of 10 lakh and were advised to maintain an asset allocation of 60% in equities, 30% in debt and rest in cash/cash equivalents.

Scenario 1: Falling markets

`

Target asset allocation:

Asset class Equity Debt Cash / cash equivalents

Asset allocation ratio

60% 30% 10%

Portfolio value 6,00,000 3,00,000 1,00,000

Now, as the markets have dropped, your portfolio value would have come down to say,

10,00,000. This means, your ` ` 9,00,000 from the original

asset allocation has gone out of sync to 5,00,000 in equity (55.55%), 3,00,000 in debt (33.33%) and 1,00,000 in cash /cash equivalents (11.11%)

` `

`

Current asset allocation:Asset class Equity Debt Cash / cash equivalents


55.55% 33.33% 11.11%

Portfolio value 5,00,000 3,00,000 1,00,000

As a prudent and disciplined investor, it is time to rebalance the portfolio and get back to the target asset allocation. That is, pull out the extra money from debt and cash (3.33% and 1.11%, respectively) and pump into equity so as to

maintain an overall ratio of 60-30-10 (equity-debt-cash).This exercise does not just hold true only for falling markets. In the rising markets, if you asset al location gets lopsided towards equity, it's time to rebalance and book the profits.

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Scenario 2: Rising markets

Your target asset allocation:

Asset class Equity Debt Cash / cash equivalents


60% 30% 10%

Portfolio value 6,00,000 3,00,000 1,00,000

Now, as the markets rise, your portfolio value would increase to say, the original 10,00,000. This means, your asset allocation

` `

11,00,000 from have

has gone out of sync to 7,00,000 in equity (63.63%), 3,00,000 in debt (27.27%) and 1 ,00 ,000 in cash /cash equivalents (9.09%).

` ` `

Current asset allocation:Asset class Equity Debt Cash / cash equivalents


63.63% 27.27% 9.09%

Portfolio value 7,00,000 3,00,000 1,00,000

As a prudent and disciplined investor, it is time to rebalance the portfolio and book profits in equity and invest that sum into debt and cash so as to maintain the target asset allocation ratio of 60-30-10 (equity-debt-cash).In effect, rebalancing your portfolio ensures that you book profits from assets which have given better returns over a period and at the same time invest into other asset classes which are available at a greater value.It is advisable to review your asset allocation at a regular frequency to remain on track. O else, it becomes

difficult to reach your goals. For example, if there is a major critical goal in next 1 or 2 years and recommended asset allocation is more into fixed income but existing asset allocation is more into equity, there are chances that markets face downturn and you may not be able to reach your goals if you do not track and re-balance on time. Action Point 2: Savings Target for next 1 year

Recommendation: From the surplus to be generated in the next 1 year, as projected in the cashflow, save and invest 5.21 lakh over the next 1 year.

`

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Particulars Amount

(in `)

Savings Target for next 1 year 5,21,000

Savings represent sacrifice on consuming that amount today for the future. It is critical to meeting a financial goal. Saving target helps in bringing discipline and also helps to control unnecessary spending.

Anand has to start saving aggressively and invest 5.21 lakh over the next 12

months from the date of plan into the asset class as specified in the financial plan provided to him (64% into equity & 36% into fixed income), in order to ensure he is on track to achieve his goals and attain the target asset allocation at the end of 1 year, as set in the plan.

Action:

`

Tracking:


TM On Track & Act

platform, Anand can view on a real-time basis how much he has invested from the date of the plan and how much more he needs to invest at any given point of time in the next 1 year. The system will add up all the investments made through ICICIdirect.com from the date of the plan and net off the total with the redemptions made from the date of the plan and display the net savings done by Anand till date. He can also view the required amount to be invested on a monthly basis.

'Track your Savings' page looks like this:

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Tracking after 6 months: As and when Anand starts investing towards his goals and as per his asset allocation, the 'Track Y o u r S a v i n g s ' p a g e dynamically keeps a progress of his savings and keeps updating the required savings rate.

Anand invested around 2.75 lakh in the first 6 months after the plan. The proportionate

`

savings target in 6 months is 2.6 lakh (i.e. 5.21 lakh divided by 2). Whenever Anand keeps up with the required savings rate (proportionately i.e. savings as required till any given point of time), then the system displays 'You are on Track' message and the graph shows how far he has progressed till date, as below:

` `

Action Point 3: Target Asset Allocation

Recommendation: Once Anand moves to the recommended asset allocation as per point no.1 within 1 month from the date of the plan and invests the required amount over next 1 year in the specified asset class

as per point no.2, then his asset allocation at the end of 1 year should be as per the table below.

Target Asset Allocation at theend of 1 year

Asset Type

Percentage

(%)

Equity 74.4%

Fixed Income 25.6%

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Action:

Tracking:

If Anand implements point no.1 and 2 properly and in time, the above target asset a l locat ion would be an outcome of the same.

TM On the Track & Actplatform, Anand can view on a real-time basis his asset allocation at any point of time and compare the same with the target asset allocation to

check if he is progressing towards the same. Till the time he reaches towards the allocation, the system prompts him to take necessary action – with the message “Action Required”.

The Target Asset Allocation page looks like this:


Tracking after 6 months: As and when Anand starts investing the surplus in the suggested asset class and the existing portfolio keeps growing, the 'Track on Targe t Asse t Allocation' page dynamically tracks if he is progressing towards the Target Asset Allocation.

Anand has invested 2.74 lakh in the first 6 months and his existing assets also would have probably grown in 6 months. Whenever he visits t h e p a g e , t h e s y s t e m recommends the action to be taken by him against each asset class in order to reach the Target Asset Allocation. As and

`

29



when he reaches the target, then the system displays 'You are on Track' message. The

page, when he visits after 6 months, will look like:

Action Point 4: Expected Overall Portfolio Value

Recommendation: Once Anand moves to the recommended asset allocation as per point no.1 within 1 month from the date of the plan and invests the required amount over next 1 year in the specified asset class as per point no.2, then his portfolio is expected to grow to a specific amount defined in the financial plan, as below:

Expected portfolio value at the end of 1 year

Rs.19,05,000

Action:

Tracking:


If Anand implements point no.1 and 2 properly and in time, his portfolio is expected to grow to 19,05,000, if the asset classes provide returns as assumed in the financial plan.

`

TM On the Track & Actplatform, Anand can view on a real-time basis his portfolio value at any point of time and compare the same with the expected portfolio value at the end of 1 year to check if he is progressing towards the same.

'Track Portfolio Value' page looks like this:

30



Tracking after 6 months: As and

when Anand starts investing

the surplus in the suggested

asset class and the existing

portfolio keeps growing, the

'Track Portfolio Value' page

dynamically tracks if the

customer is progressing

towards the expected portfolio

value. The expected growth on

the portfolio is shown as a

separate line in the graph and

the actual growth of the

portfolio is shown as a

separate line to help the

customer understand easily

how his portfolio is growing

vis-à-vis the expected growth.

After 6 months, when Anand

visits the page, the same will

look like:

31



Where to invest / Where to

withdraw from?

Apart from tracking these four

action points on a real-time

basis, Anand would also want

to know on regular basis:

1: Where to invest any surplus

amount / one-time income /

maturity proceeds of an

existing investment.

2. Wh ich inves tment to

redeem / withdraw if there is

any urgent requirement of

funds

In both the cases, without

affecting the recommended

asset allocation in the financial

plan, action has to be taken.

Investing and withdrawing as

per the allocation ensures that

all your investing activities are

linked to the financial plan and

you take just the right risk that

is required for your situation.

Our robo-advisory platform TMTrack & Act helps Anand to

take decision on both these

situations without any human

intervention, based on an

algorithm defined in the

system. Let's take a look at

how this is done:

Let's assume Anand's wife

Meera receives an additional

incentive or bonus of 2 lakh

from her employer and Anand

wants to invest the same. He

wants to know where to invest

this amount. He can visit the

link 'Have Surplus? Know

where to invest' and input the

amount he wants to invest.

The system will compute and

suggest the asset class in

which he has to invest the

amount, based on his asset

allocation at that point of time,

the target asset allocation to be

achieved by the end of 1 year

from the date of the plan and

the amount available for

investment now.

Since Anand has to increase

his equity exposure as per the

t a r g e t a s s e t a l l o c a t i o n

suggestion in the plan, for

Anand, the system has

suggested investing the entire

amount into Equity asset class.

Where to invest?

`

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After ascertaining the asset

class in which he has to invest

the amount as suggested by

the system, Anand can pick up

the specific mutual fund in

which he has to invest the

amount by cl icking the

Recommended Mutual Funds

link available on the page.

Let's assume Anand wants an

amount of 3 lakh urgently to

be paid to someone and wants

t o k n o w f r o m w h i c h

investment he has to withdraw

this amount. He can visit the

link 'Want to withdraw? Know

where to withdraw from' and

input the amount he wants to

withdraw.

Where to withdraw from?

`

The system will compute and

suggest the asset class from

which he has to withdraw the

amount, based on his asset

allocation at that point of time,

the target asset allocation to be

achieved by the end of 1 year

from the date of the plan and

the amount to be withdrawn

now.

Since Anand has to reduce his

exposure into Fixed Income as

per the target asset allocation,

the system suggests him to

withdraw the entire amount of

3 lakh from Fixed Income

asset class.

`

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After ascertaining the asset

class from which he has to

withdraw the amount, as

suggested by the system, the

customer would want to know

the exact investment which he

has to redeem. To help him

take a decision, there is a link

provided in the page which

gives him the list of long-term

investments available in his

existing portfolio (i.e. the

investments which have

completed 'short-term' for

capital gain purpose) along

with the Research View on the

investments i.e. Buy / Hold /

Sell. Anand can choose the

i n v e s t m e n t s w h i c h a r e

recommended as 'Sell' by

Research and exit from them,

as the taxation is also nil / less

i n t h e s e l o n g - t e r m

investments.

A plan without action is merely

a dream. In order to reach your

financial goals, you need to

know what steps are to be

taken. With our very unique

r o b o - a d v i s o r y p l a t f o r m TMTrack&Act , you can get to

know those steps and move

closer to your financial goals.

Since this is an algorithm

b a s e d , r o b o - a d v i s o r y

Summing up

34



platform, it also helps you keep

y o u r e m o t i o n s o u t o f

investments and helps you

stay invested across market

cycles based on your goals and TMneeds. Track&Act platform

provides you all the control,

flexibility and security, which

makes it convenient for you to

implement your financial plan.

For our Financial Planning

Services, we have a mix of

offline (human touch) and

online (Track&ActTM platform)

approach, which not only

helps you consult with a

human planner on goal setting

/prioritizing and risk tolerance,

but at the same time, provides

online access to track those

g o a l s a n d m a n a g e

investments accordingly. We

spend considerable time with

you to understand your

situation, goals and risk

preferences. A comprehensive

financial plan is then prepared

using high-end simulations.

Once the financial plan is

prepared, it is incorporated on T M

Track&Act p la t form on

ICICIdirect.com, where you

can access it regularly to take

timely decisions on your

investments. This platform

h e l p s r e f l e c t p o r t f o l i o

performance, current cash

flow, and progress toward your

goals. ICICI Securities is

registered with SEBI under the

I n v e s t m e n t A d v i s e r s

Regulations, 2013. You may

write to fps@icicisecurities.

com to know more about

services andour Track&ActTM

robo-advisory platform.

Please send your feedback to [email protected]

35

Tête-à-tête

'Large-cap stocks are better valued'

The market has recovered due to improving global flows – Foreign

Institutional Investors (FII) inflows in India for two consecutive

months reflect their confidence towards India's long term growth

story, says Sankaran Naren, Executive Director (ED) and Chief

Investment Officer (CIO), ICICI Prudential Mutual Fund, in an

interview with ICICIdirect Money Manager. We continue to believe

that the large-cap stocks are better valued as compared to the midcap

stocks, thus it presents a good investing opportunity at this point in

time, he adds. Excerpts:

Sankaran Naren,

Executive Director (ED) &

Chief Investment Officer (CIO)

ICICI Prudential Mutual Fund


Q:

A:

How do you see two years of the

Modi government - What are some

hits and misses? What do you

expect ahead?

The key economic indicators

like Current Account Deficit

(CAD), Fiscal Deficit and

Inflation have improved. The

growth has not picked up to

the same extent because the

government seems to be intent

on solving the non-performing

loan (NPL) problems in the

banking sector. We believe

over the next 2-3 years, there

should be a durable economic

revival which could help Indian

markets.

The bankruptcy code is a key

reform which can have a good

impact as it gets implemented.

The government has also

brought in a slew of reforms to

e l imina te in f ras t ruc ture

bottlenecks. There have been

other rule based changes

which could help increase

growth. In fact, in the global

environment, India is one of

the few places where the

growth appears to be likely to

improve.

36

Tête-à-tête


Q:

A:

Q:

A:

The markets seem to have

recovered post Budget. What's

driving up this rally? Is it

sustainable? What lies ahead for

2016 and beyond?

The market has recovered

due to improving global flows

– Fo r e i g n I n s t i t u t i o n a l

Investors (FII) inflows in India

for two consecutive months

ref lect their conf idence

towards India's long term

growth story. However, the

global markets will continue to

be volatile this year, and

therefore Indian markets could

be volatile in the near term too.

Over the next three years,

economic and earn ings

growth could pick up in India.

Therefore, investing today

could help reap benefits in the

long term. We recommend

investing in dynamic asset

allocation funds with an aim for

lower volatility in returns.

The March quarter corporate

results have largely been in line or

better than expectations. Is it the

low basic effect or are we seeing

some real signs of recovery? What

is the road ahead for India Inc?

After four quarters, the

e a r n i n g s r e p o r t e d b y

companies in S&P BSE Sensex

Index show signs of positive

year on year (Y-O-Y) growth.

The lower commodity prices

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

consumption which is helping

earnings recover.

Incremental capex (capital

expenditure) spending by

government in areas like

roads, railways, ports and

defense could further help in

earnings growth. Therefore,

sectors benefitting from these

activities provide favourable

opportunities for investors.

At a global level, rebound in the

crude oil prices could benefit

the global flow of investments

into Emerging Markets, and

India could be one of the key

beneficiaries of any such flows.

How have been the latest

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

variables? What are some risks

investors should be aware of in the

near future?

Current Account Deficit

(CAD) has cons i s ten t l y

improved over the last 3 fiscal

years. This is mostly on

account of lower t rade

Q:

A:

37

Tête-à-tête


deficit–Positive for interest

rates in longer term.

Lower Minimum Support

P r i c e s ( M S P s ) , b e t t e r

management of food stocks

and reducing freebies has

helped in containing inflation.

Even the INR Currency has

been relatively stable amongst

Ems (emerging markets).

The India Meteorological

Department's (IMD's) forecast

of above-normal monsoon and

lower consumer price inflation

( C P I ) n u m b e r s a r e

encouraging signs for the

economy.

US index provider MSCI has

recently announced some changes

to its India Index constituents.

Could you please take us through

its details and impact on markets in

genera l and companies in

particular?

There are no major changes

in the constituents of the index.

Against the backdrop of lower

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

commodity prices, the Indian

economy is currently among

the few bright spots in a

slowing global economy. We

continue to believe that India's

Q:

A:

weight in MSCI is likely to only

increase over time. Hence we

don't believe the changes

could have any major impact

on markets.

India's bad loans are getting

messier. What is to be blamed and

how can it be tackled?

Clearly there is a big effect of

macro variables like credit

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

commodity prices etc. on the

profitability of these banks.

While, we believe that a fair

amount of asset quality pain is

priced in the valuation of PSU

(public sector unit) banks, one

needs to look at this segment

with caution.

The government has retained

the capital infusion in PSU

Banks at 250 billion which we

hope is adequate to support

the economic recovery.

Alternatively, we expect the

Government to infuse more

capital if required as Bank

Recapitalization could boost

the economy's growth and

revival to large extent. With

this budget, first phase of the

deleveraging cycle will be

completed as the government

Q:

A:

`

38

Tête-à-tête


takes steps to clean up the

NPLs in the system.

Which sectors would you prefer

now to add to your portfolio? Which

ones would you avoid?

We have been overweight

on sectors like power utilities,

private banks and select auto

companies. We have been

cautious on leveraged sectors

and select banks with high

NPLs. We have also been

cautious on the capex cycle

across many sectors, since

capex cycle is likely to be back-

ended rather than being front-

ended due to lower capacity

ut i l i za t ion across these

sectors.

We continue to believe that the

large-cap stocks are better

valued as compared to the

midcap stocks, thus it presents

a good investing opportunity

at this point in time.

In the backdrop of the current

market scenario, what is your

advice to new and existing

investors?

It may be a prudent strategy,

thus, to add flavour of funds in

the balanced advantage and

Q:

A:

Q:

A:

dynamic asset allocation

category. These funds seek to

increase allocation to equity

when the markets are cheap,

and book profits in equities

when markets are rising

thereby reducing volatility and

providing reasonable returns.

However, if an investor is well

invested in equities, we would

recommend investing this

amount in a staggered manner

through equity mutual funds

over the course of next 6

months. The outlook for equity

markets is very positive for the

next 3-5 years.

What are the key fundamental

principles of building a successful,

long-term investment portfolio?

Adhering to asset allocation

model is one of the key

fundamental principles that

help investors to reach their

financial goals. Building a

portfolio based on the suitable

asset a l locat ion, ins t i l s

discipline in investing, helps

avoid the tendency to invest at

market tops and redeem at

market bottoms.

Q:

A:

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

39

ASK OUR PLANNER

MF Investing: SIP or Lump Sum?


Q:

A:

I am planning to invest into

mutual funds. I am a first time

investor into mutual funds. I have

read that SIP (Systemat ic

Investment Plan) is the best way to

invest into mutual funds. But one of

my friends explained with an

example that lumpsum investment

into mutual funds produce better

returns than SIP. How should I go

about investing – lumpsum or SIP

into mutual funds? Which will

produce better returns?- Vishesh S

The example provided by

your fr iend might have

assumed that the market was

on the rise for the entire

duration of the investment. In

such a case, the returns

generated by the lumpsum

investment would have been

better than the SIP investment.

This is because the cost of

investment has been growing

in the SIP investment, as the

market was on the rise.

However, when you invest for a

longer term, the market is

bound to be volatile and will

not be on an uptrend all the

times. This will help you

a v e r a g e y o u r c o s t o f

investment when you opt for

SIP. Also, it is close to

impossible to time the market

to decide when to invest a

lumpsum amount.

Let's understand the difference

between lumpsum investment

and SIP investment through an

example. On lumpsum front,

let's assume you invest

60,000 into a mutual fund and

stay invested for 12 months.

On SIP front, let's assume you

invest 5,000 p.m. for the

same period of 12 months. The

table below shows you how

both these investments have

per formed over the 12

months:

`

`

40

ASK OUR PLANNER


As you can see from the table above, in the lumpsum investment, the investment value has grown from 60,000 to 72,000, as the NAV of the fund has grown from 10 to 12 by the end of 12 months. In the SIP investment, as you invest 5,000 every month you are allocated different number of units based on the prevailing NAV as on the date of investment. With equity markets being volatile, the NAV of the fund keeps fluctuating and accordingly the cost of investment gets averaged out and better returns are generated as shown below:

` ` ` `

`

Parameter Lumpsum SIP

Average cost 10

9.14

Absolute returns 20% 31.28%

Internal Rate Of Return (IRR)*

20% 62.42%

* taking into account the exact period of each installment in SIP

Hence, if you want to invest regularly, SIP is the ideal way to invest. However, if you have a lumpsum amount to invest, you can invest the same into a liquid mutual fund and then start a Systematic Transfer Plan (STP) into an equity mutual fund.

Month Date NAVLumpsum investment SIP investment

No. of units Amount No. of units Amount

1 1-Jan-15 10 6,000 60,000 500 5,000

2 1-Feb-15

9

-

-

556

5,000

3 1-Mar-15

11

-

-

455

5,000

4 1-Apr-15

8

-

-

625

5,000

5 1-May-15

7

-

-

714

5,000

6 1-Jun-15 11 - - 455 5,000

7 1-Jul-15 10 - - 500 5,000

8 1-Aug-15

9

-

-

556

5,000

9 1-Sep-15

8

-

-

625

5,000

10 1-Oct-15

8

-

-

625

5,000

11 1-Nov-15

10

-

-

500

5,000

12 1-Dec-15 11 - - 455 5,000

End of 12 months

31-Dec-15 12 6,0 00 72,000 6,564 78,768

41

ASK OUR PLANNER


Q:

A:

I have two Unit-Linked Insurance

Plans (ULIPs) - LifeTime and Life

Stage with the details given below.

I am now 59 years old. I want to

know if I should continue or

surrender these policies as the

mortality charges and other

deductions have increased. Can I

get a term insurance policy instead

of these two? 1. LifeTime: Year of

Commencement - 2003, Sum

Assured (SA) – 10 lakhs, Premium

– 18,000/year, Mortality charges

and other deduct ions –

9,540/year, Fund value – 1,86,916.

2 . L i f e S t a g e : Y e a r o f

Commencement - 2007, SA – 15

lakhs, Premium – 1,00,000/year,

Mortality charges and other

deductions – 24,530/year, Fund

value – 12,26,498.- S. Kunder

As your age has increased,

mortality charges would have

increased; but other charges

l ike premium al locat ion

charges would have reduced

over a period of time. Unit

linked insurance plans (ULIPs)

give better returns only on a

`

`

`

`

`

`

`

`

long term basis and it's

suggested to hold these

policies. However, as you may

not require life cover (if you

have accumulated enough

a s s e t s t o c o v e r y o u r

dependent's future expenses),

you can reduce the sum

assured in these policies to the

minimum level i.e. 5 times the

premium, which will reduce

t h e m o r t a l i t y c h a r g e s

significantly. You can generally

get your sum assured changed

during the policy anniversary.

Interest rates on Bank Fixed

Deposits (FDs) have come down

drastically. What are the alternate

investment avenues recommended

for retired persons? If you think one

should invest in debt funds, please

specify the type of debt funds.

Further is it advisable to invest in

Government of India (GOI) 2003 8%

Bonds?- Abhishek Sinha

If you are looking for fixed

returns, you can check out

Senior Citizen Savings Scheme

(SCSS) offered by Post Office,

Q:

A:

42

ASK OUR PLANNER


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

if you are 60 years or above.

Else, you can look at Corporate

Fixed Deposits with a good

credit rating. GOI bonds are

also an alternate, but the

interest rate offered will be

lower than SCSS / corporate

FDs. If you are fine to take a

little risk and are not keen on

fixed returns, then you can

invest into monthly income

plans (MIPs) offered by mutual

funds.

I n genera l , how much

percentage of my income should I

invest in share market and mutual

funds?- Satish Kumar

Q :

A : We a l w a y s s u g g e s t

customers to invest as per their

goals, as investments are

largely done to fulfill financial

goals. If you have more / major

short-term goals, then your

major investments will have to

b e m a d e i n t o d e b t

instruments; however, on the

other hand, if you have more

long-term goals, then your

percentage of investments

towards equity (share market

and mutual funds) instruments

should be higher.

MUTUAL FUND ANALYSIS

43

3 Large-cap Equity Funds to Consider


Indian markets after been in a declining trend from March 2015 to February 2016, recovered some its gains post budget. Markets seem to have formed a near-term bottom in February 2016. Indian markets may consolidate in the near term, but the overall downward trend which started last year seems to have reversed. If global markets remain supportive, Indian markets are likely to perform better as domestic economic outlook is improving. We believe that investors should be constructive in equity markets and accumulate on dips for the next 2-3 years. Here are our three recommended large-cap equity funds which you may consider to investing into.

Birla Sun Life Frontline Equity Fund

Fund Objective:An open-end growth scheme with the objective of long term growth of capital, through a por t fo l io w i th a ta rget allocation of 100% equity by aiming at being as diversified across various industries and or sectors as its chosen benchmark index, BSE 200.

Key Information:

NAV as on May 09, 2016 ( ) 159.2

Inception Date August 30, 2002

Fund Manager Mahesh Patil

Minimum Investment (`)

Lumpsum 5000

SIP 0

Expense Ratio (%) 1.75

Exit Load 1% on or before1Y, Nil after 1Y

Benchmark S&P BSE 200

Last declared QuarterlyAAUM(`cr) 10684

`

Product Label:

This product is suitable for investors who are seeking*:

•

•

*Investors should consult their financial advisors, if in doubt about whether the product is suitable for them.

long-term capital growth

investments in equity and equity related securities

Fund Manager: Mahesh PatilMahesh Patil

Performance:

is managing the fund since 2005. Prior to joining Birla Sun Life AMC he has worked with reputed financial services firms. Mr. Patil is B.E (Electrical), MMS in F i n a n c e a n d C h a r t e r e d Financial Accountant from ICFAI Hyderabad.

Fund's performance in the past has been significantly superior leading to better than industry A U M ( a s s e t s u n d e r management) growth. The fund has delivered 12.9% compounded annual ised

44



return (CAR) in the 5-year period compared with 7.8% C A R d e l i v e r e d b y i t s benchmark. For the period of 3 years, the fund has given

2015 2014 2013 2012 2011

158.8 157.0 108.5 99.3 73.0

1.1 44.7 9.3 36.1 -22.9

-1.5 35.5 4.4 31.0 -27.0

10490 7886 3756 3020 2806

Return (%)

Calendar Year-wise Performance

NAV as on Dec 31 (|)

Benchmark (%)

Net Assets (| Cr)

1 6 . 3 % c o m p o u n d e d annualized return as compared to the benchmark which delivered only 11% returns.

Performance vs. Benchmark

Fund Benchmark

0.5 0.8

16.3

12.9

-0.6

-2.5

11

7.8

-5

0

5

10

15

20

6 Month 1 Year 3 Year 5 Year

Retu

rn%

Birla Sun Life Frontline Equity Fund

Benchmark

31-Mar-15 31-Mar-14

-5.25 40.94 22.71

Last Three Years Performance

Fund Name31-Mar-15 31-Mar-14 31-Mar-13

31-Mar-16

-7.86 31.93 17.19

Portfolio:The fund has consistently invested 70-80 per cent of its portfolio in large-cap stocks and the rest 20-25 per cent in midcaps. The fund does not invest in small caps. It has usually been overweight in large-caps compared to its peers. This fund attempts to target the same sector weights in its portfolio, as is found in its

benchmark - BSE 200. The fund manager may also pick promising companies that are not from the index, but are potential entrants into it.

The portfolio is well diversified w i t h n o s i n g l e s t o c k accounting for more than 5% of the total assets under management . The fund manager intends to invest in

Our View:

45



the leaders of the sectors. The fund manager takes active cash call if he is not convinced by the fundamentals of the market. The fund provides a portfolio, which is diversified across sectors. A portfolio diversified across sectors with

investments into frontline stocks within the sector and managed by an experienced fund manager makes Birla Sunlife Frontline Equity fund suitable for core portfolio holding.

%

6.4

6.1

5.6

3.8

3.8

3.2

2.8

2.7

2.7

2.6

Top 10 Holdings Asset Type

ITC Ltd. Domestic Equities

Reliance Industries Ltd. Domestic Equities

ICICI Bank Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

Infosys Ltd. Domestic Equities

Birla SL Cash Plus(G)-Direct Plan Domestic Mutual Funds Units

HCL Technologies Ltd. Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

Clearing Corporation Of India Ltd. Cash & Cash Equivalents

Sun Pharmaceutical Industries Ltd. Domestic Equities

%19.2

12.1

7.6

6.4

3.8

3.7

3.2

2.9

2.5

2.3

Pharmaceuticals & Drugs Domestic Equities

Refineries

Bank - Private Domestic Equities

IT - Software Domestic Equities

Top 10 Sectors Asset Type

Finance - NBFC Domestic Equities

Finance - Housing Domestic Equities

Diversified Domestic Equities

Domestic Equities

Cigarettes/Tobacco Domestic Equities

Power Generation/Distribution Domestic Equities

Engineering - Construction Domestic Equities

16.240.96-0.010.955.14

Sharpe ratioR SquaredAlpha (%)

Risk ParametersStandard Deviation (%)Beta

80.46.91.2Small

Market Capitalisation (%)LargeMid

46



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

60 1

80 300

600

60.9 215.2 436.4

1242.1

60.3 201 3

83.5

949.4

0

200

400

600

800

1000

1200

1400

1Yr 3Yrs 5Yrs 10Yrs

Total Investment Fund Value Benchmark Value

%

0.5

0.4

1.6

Whats In

Cipla Ltd.

Torrent Pharmaceuticals Ltd.

Crompton Greaves Consumer Electricals Ltd.

%

0.1

0.40.2

Whats out

Bharat Petroleum Corporation Ltd.

Motherson Sumi Systems Ltd.Ultratech Cement Ltd.

73.039.722.2

--4.5

Fund P/E RatioBenchmark P/E RatioFund P/BV Ratio

Portfolio AttributesTotal StocksTop 10 Holdings (%)

90.00.1

10.0Cash

Asset AllocationEquityDebt

Dec-02-2013 10

Apr-15-2013 10

Apr-27-2015 17.5

Nov-07-2014 12

Apr-21-2014 12

Dividend HistoryDate Dividend (%)Nov-02-2015 35

Data and Portfolio details as on May 10, 2016Source: ACE MF, ICICIdirect Research

47


SBI Bluechip Fund

Fund Objective:The objective of the scheme would be to provide investors with opportunities for long-term growth in capital through an active management of investments in a diversified basket of equity stocks of companies whose market capitalization is at least equal to or more than the least market capitalised stock of BSE 100 Index.

This product is suitable for investors who are seeking*:

•

•

Investors should consult their financial advisors, if in doubt about whether the product is suitable for them.

long-term capital growth

investments in equity and equity related securities

*


Key Information:

Product Label:

NAV as on May 09, 2016 ( ) 28.8

Inception Date January 20, 2006

Fund Manager Sohini Andani


Lumpsum 5000

SIP 1000


Exit Load 1% on or before 1Y, Nil after 1Y

Benchmark S&P BSE 100

Last declared QuarterlyAAUM(` cr) 5124

`

Fund Manager: Sohini AndaniSohini Andani

Performance:

is fund manager at S B I M u t u a l F u n d a n d managing the fund since 2010. She is a B.Com (H) and C.A. Prior to joining SBI Mutual Fund she has worked with ING Investment Management Pvt. Ltd., ASK Raymond James & Associates Pvt. Ltd., LKP Shares & securities Ltd., Advani Share Broker Pvt. Ltd., CRISIL, and K R Choksey Shares & Securities Pvt. Ltd.

This fund put up a middle of the road performance in the first four years of its existence with returns from 2007 to 2010 just about keeping pace with the benchmark and lagging the category. But with the fund altering its investment strategy and stock selection process from 2011, the improvement in p e r f o r m a n c e h a s b e e n

48



dramatic. The fund has convincingly beaten both benchmark and category in the last three years. Its 3-year CAGR return stands at 19%

outperforming the headline benchmark (9.6% return) and 1-year CAGR return stands at 5.6% vis-à-vis benchmark which was down -3.8%.

2015 2014 2013 2012 2011

28.5 26.3 17.8 16.6 12.0

8.0 47.9 7.6 38.2 -24.2

-3.3 32.3 5.9 30.0 -25.7

3624 1371 753 747 693


NAV as on Dec 31 ( )`

Benchmark (%)

Net Assets (| Cr)

Return (%)


2.9 5.6

19

15.2

-0.8

-3.8

9.6

7.3

-10

0

10

20

30


Retu

rn%

Fund Benchmark

SBI Blue Chip Fund

Benchmark



31-Mar-16

-8.96 28.32 18.11

31-Mar-15 31-Mar-14

-2.05 48.30 18.49

Portfolio:The fund is predominantly a large-cap fund with the flexibility to invest upto 20% of its assets in midcap stocks. The fund also restricts risk by monitoring tracking error. The fund can take upto 8% additional weight in a sector against its benchmark and upto 4% on a stock. These

constraints impose both sector and stock discipline on the fund which helps to reduce risk. In practice, the fund has m a i n t a i n e d a b o u t 7 0 % exposure to large-cap stocks and rest in midcaps in the last one year. The fund has kept a w a y f r o m s m a l l - c a p s . Currently overweight on consumer d iscret ionary,

49



pharma and technology sector viz-a-viz the benchmark and is underweight on private sector banks on account of lower exposure to one of the largest private sector banks.

SBI Bluechip Fund has become one of the most consistent performing funds in the recent years. The fund runs a fairly

Our View:

diversif ied portfol io not limiting to largecap. It has a sizeable mid-cap allocation. The fund has maintained about 70% exposure to large-cap stocks and rest in midcaps in the last one year. Flexible investment opt ion wi th c o n s i s t e n c y i n f u n d ' s performance makes it an ideal portfolio fund.

%

7.6

6.9

6.2

5.6

5.1

4.6

2.8

2.6

2.5

2.4


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

Cash & Cash Equivalent Cash & Cash Equivalents


Tata Consultancy Services Ltd. Domestic Equities


Maruti Suzuki India Ltd. Domestic Equities

Reliance Industries Ltd. Domestic Equities


Sun Pharmaceutical Industries Ltd. Domestic Equities

Ultratech Cement Ltd. Domestic Equities

%12.1

10.8

9.1

7.8

5.2

4.7

3.9

3.4

3.1

2.3

Top 10 Sectors Asset Type


Refineries Domestic Equities

Finance - NBFC Domestic Equities

Cement & Construction Materials Domestic Equities

Automobiles - Passenger Cars Domestic Equities

Bank - Private Domestic Equities



Pesticides & Agrochemicals Domestic Equities

Bearings Domestic Equities

14.940.850.010.91

12.34Alpha (%)

Risk ParametersStandard Deviation (%)BetaSharpe ratioR Squared

68.516.20.8Small

Market Capitalisation (%)LargeMid

50




60 1

80 300

600

62.2 230.1 471.6

1212.4

60.2 196.1

373.6

924.4

0

200

400

600

800

1000

1200

1400

1Yr 3Yrs 5Yrs 10Yrs


%

0.1

Whats In

Kotak Mahindra Bank Ltd.

50.046.226.7

--4.6Fund P/BV Ratio

Portfolio AttributesTotal StocksTop 10 Holdings (%)Fund P/E RatioBenchmark P/E Ratio

83.41.2

15.5Cash

Asset AllocationEquityDebt

Dividend History

Date Dividend (%)Jul-17-2015 25Mar-21-2014 18Nov-04-2010 15Nov-30-2007 20


51


Franklin India Prima Plus Fund

Fund Objective:A diversified equity fund that seeks to provide capital appreciation by investing in c o m p a n i e s f o c u s e d o n shareholder wealth creation. It is an open ended growth scheme with the objective to provide growth of capital plus regular dividends through a diversified portfolio of equities, fixed income securities and money market instruments.


Key Information:

NAV as on May 09, 2016 ( ) 441.4

Inception Date September 29, 1994

Fund Manager Anand Radhakrishnan


Lumpsum 5000

SIP 500


Exit Load 1% on or before 1Y

Benchmark NIFTY 500Last declared Quarterly

AAUM(`cr) 7021

`

Product Label:

This product is suitable for investors who are seeking*:• long-term capital appreciation

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

F u n d M a n a g e r : A n a n d RadhakrishnanMr. Radhakrishnan

Performance:

is a B.Tech, CFA and PGDM from IIM Ahmedabad. Prior to joining Franklin Templeton AMC, Sundaram AMC and SBI AMC. Apart from other funds, he has been managing this fund since 2007.

The fund's performance has been consistent with 5 year compounded annual ized growth at 15% viz. a viz. benchmark return of 8.1%. The fund has delivered 21.3% compounded annual ized growth for a period of 3 years viz. a viz. benchmark which delivered 11.7% during the same time. During bear phase also it has contained the downslide by delivering 3.7% returns in past 1 year as compared to -1.9% returns of the benchmark.

52



2015 2014 2013 2012 2011

435.9 417.6 266.3 252.3 192.6

4.4 56.8 5.6 31.0 -16.4

-0.7 37.8 3.6 31.8 -27.2

6337 3568 2014 2142 1679


NAV as on Dec 31 ( )`

Benchmark (%)

Net Assets ( Cr)`

Return (%)


1.2 3.7

21.3

15

-0.6

-1.9

11.7

8.1

-10

0

10

20

30


Retu

rn%

Fund Benchmark

Franklin India Prima Plus Fund

Benchmark



31-Mar-16

-7.54 33.56 17.72

31-Mar-15 31-Mar-14

-2.25 53.17 21.45

Portfolio:The fund is a well diversified, large-cap oriented player with low volatility and decent returns. The fund, having 65-75% allocation to large-cap stocks, 20-30% to midcaps and a tiny small-cap allocation of sub-5%, is managed in a bottom-up style. The fund follows a blend of growth and value styles. It focuses on the historic record as well as the future ability of the companies to generate wealth in a competitive environment. The small and frequently churned exposure to lower cap stocks add alpha to the fund.

Our View:The fund has given 20% CAGR returns in a period of 20 years, making it among the top wealth creator in the equity space. The performance has been steady in bull and bear phases, giving the fund the ability to contain the downside extremely well during the bear phases of 2008 and 2011. The fund manager does not buy into fads easily and follows his own convictions, e.g. the low exposure to metals and energy in 2007 and the higher-than average exposure to financial services in 2007 and 2008. The fund is ideal for risk averse investors, delivering neither flashy return nor below-par returns.

53



%

7.1

6.9

4.7

4.4

4.0

3.8

3.1

2.8

2.7

2.7


IndusInd Bank Ltd. Domestic Equities

Bharti Airtel Ltd. Domestic Equities

Yes Bank Ltd. Domestic Equities


Call Money Cash & Cash Equivalents


ICICI Bank Ltd. Domestic Equities

Dr. Reddys Laboratories Ltd. Domestic Equities


Axis Bank Ltd. Domestic Equities

%26.0

8.8

8.0

4.6

3.1

3.1

2.7

2.7

2.4

2.3

Top 10 Sectors Asset TypeBank - Private Domestic Equities



Telecommunication - Service Provider Domestic Equities

Cement & Construction Materials Domestic Equities

Automobiles-Trucks/Lcv Domestic Equities

Breweries & Distilleries Domestic Equities

Automobile Two & Three Wheelers Domestic Equities


Batteries Domestic Equities

14.760.840.000.91

10.84

Risk ParametersStandard Deviation (%)BetaSharpe ratioR SquaredAlpha (%)

68.619.32.8

Market Capitalisation (%)LargeMidSmall


60 1

80 300

600

61.4 2

32 4

70.2

1328

60.3 203.3 388.7

954.4

0

200

400

600

800

1000

1200

1400

1Yr 3Yrs 5Yrs 10Yrs


54



%

0.2

Whats In

Crompton Greaves Consumer Electricals Ltd.

%

0.3

Whats out

Crompton Greaves Ltd.

62.042.323.9

--5.2

Portfolio AttributesTotal StocksTop 10 Holdings (%)Fund P/E RatioBenchmark P/E RatioFund P/BV Ratio

93.10.06.9

Asset AllocationEquityDebtCash

Feb-29-2016

Dividend HistoryDate Dividend (%)

Mar-05-2012 25Feb-21-2011 30

25Feb-16-2015 25Feb-24-2014 20Feb-18-2013 30

55



Performance of all the schemes managed by the fund manager

31 -Dec-14 -13 -12

31 -Dec-15 31 -Dec-14 31 -Dec-13

31 -Dec 31 -DecFund Name


Franklin India Life Stage FOFs-50s +FR(G) 5.92 14.53 10.25

Crisil Liquid Fund Index -- 8.98 9.46

Franklin India Life Stage FOFs-50(G) 4.33 17.11 6.54

Crisil Composite Bond Fund Index -- 14.59 4.34


NIFTY 500 -- 33.56 17.72

Franklin India Dynamic PE Ratio FOFs(G) 1.53 24.16 11.29

CRISIL Balanced Fund - Aggressive Index -- 22.53 13.38

Franklin India Multi-Asset Solution Fund(G) 1.35 -- –


NIFTY 500 -- 33.56 17.72

Franklin India Smaller Cos Fund(G) -0.70 77.23 37.90

Nifty Free Float Midcap 100 -- 50.96 16.36

Franklin India Life Stage FOFs-20(G) -1.43 36.20 14.67

NIFTY 500 -- 33.56 17.72

Franklin India Prima Fund(G) -1.78 68.51 28.81

NIFTY 500 -- 33.56 17.72

Franklin India Prima Plus Fund(G) -2.25 53.17 21.45

NIFTY 500 -- 33.56 17.72

Franklin India Bluechip Fund(G) -3.17 36.28 15.76

S&P BSE SENSEX -- 24.89 18.85

Franklin India Flexi Cap Fund(G) -4.41 52.00 22.97

NIFTY 500 -- 33.56 17.72

Franklin Build India Fund(G) -6.60 84.95 24.69

NIFTY 500 -- 33.56 17.72

Franklin India High Growth Cos Fund(G) -7.58 73.45 24.75

NIFTY 500 -- 33.56 17.72

Franklin India Opportunities Fund(G) -8.05 57.59 21.18

S&P BSE 200 -- 31.93 17.19

56

MUTUAL FUND TOP PICKS

Based on our quarterly rankings, we have updated our mutual fund (MF) top picks recently

Mutual Fund Top Picks

Equity

Largecaps

Midcaps

Diversified

ELSS

Birla Sunlife Frontline equity FundICICI Pru Focussed Bluechip Equity FundSBI Bluechip Fund

HDFC Midcap Opportunities FundFranklin India Smaller Companies FundSBI Magnum Global Fund

Franklin India Prima PlusReliance Equity OpportunitiesICICI Prudential Value Discovery Fund

Axis Long Term EquityICICI Prudential Tax PlanFranklin India Tax shield

Liquid Funds

HDFC Cash Mgmnt Saving Plan ICIC Pru Liquid PlanReliance Liquid Treasury Plan

Ultra Short Term

Birla Sunlife Savings FundReliance Medium Term FundICICI Pru Flexible Income Plan

Short Term

Birla Sunlife Short Term FundHDFC Short Term Opportunities FundICICI Pru Short Term Plan

Credit Opportunities FundBirla Sunlife Short Term Opportunities PlanReliance Regular Savings FundICICI Prudential Regular Savings

Income FundsICICI PrudenIncome FundBirla Sun Life Income Plus - Regular Plan UTI Bond Fund

Gilts Funds

ICICI Pru Gilt Inv. PF PlanBirla Sunlife Constant Maturity 10 year gilt plan

MIP Aggressive

Birla Sunlife Savings 5ICICI Prudential MIP 25DSP Blackrock MIP

Debt


57

Our indicative large-cap equity model portfolio has continued to

deliver an impressive return (inclusive of dividends) of 93.1%

since its inception (June 21, 2011) vis-à-vis the index return of

37% during the same period, an outperformance of 57%. This

validates our thesis of selecting companies with sound business

fundamentals that form the core theme of our portfolio. Our

midcap portfolio of 16 stocks outperformed the benchmark by

~3x since June 2011. Our consistent outperformance

demonstrates our superior stock picking ability as markets in

CY15 aligned to our view of favourable risk-reward, good

franchisee vs. reward at-any-risk businesses. Some key

performers of our portfolio are Lupin, HDFC Bank and TCS in the

largecap portfolio while Natco Pharma, Cummins and Shree

Cement have delivered stupendous returns in the midcap

portfolio.

We reiterate the SIP (systematic investment plan) mode of

investment as the preferred mode of deployment given the

current volatile market conditions. We highlight that the SIP

return of our portfolio has consistently outperformed the indices.

This affirms our belief in the staggered and systematic approach

of investment amid market volatility.

The initial results of some companies were higher than Street

expectations, indicating a revival in the earnings cycle.

Furthermore, India's eight core industries output expanded 6.4%

YoY (yearon-year) in March 2016, which is the fastest growth in

the last 16 months The countries' top automakers are off to a

strong start in the new financial year with all segments passenger

vehicles (PV), two-wheelers, commercial vehicles (CV) and

tractors reporting strong April sales. These initial upticks are the

lead indicators for an economic revival.

Given the last revamp in the portfolio, we have made minimal

changes in the current edition, to capture the new opportunities

available in the market. Following the same we have reshuffled

EQUITY MODEL PORTFOLIO


58


the weights of some companies. Among large caps, we have

reduced the weight of L&T by 1% and simultaneously increased

the weights in Lupin and Dr Reddy's by 1% each. Furthermore,

affirming our view on consumption demand, we have added

Marico in our large cap portfolio. We believe that as the softness

in commodities continues, oil & gas and metal sectors would

continue to remain under pressure. Following this, we have

exited Tata Steel from large caps Furthermore following the

prospects of a good monsoon we have added Rallis in our

midcap portfolio and exited Castrol.

In the large cap space we continue to remain positive on auto,

infrastructure & cement. Relative to the benchmark index, we are

underweight on BFSI (Banking, Financial services and

Insurance).

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

our only pick being Reliance Industries, which has a better risk

reward opportunity. We expect PSU (public sector unit) banks to

underperform next year owing to steep asset quality woes

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

strong retail presence. We continue to remain overweight to

neutral on pure play defensives (IT, FMCG) as secular earnings

coupled with sector rotation could lead to consolidation in near

term valuations and offer stock specific opportunities. We remain

positive on auto, pharma, capital goods and infrastructure.

Among individual names, we are strongly overweight on Infosys,

TCS in the IT space, HDFC and HDFC Bank in the BFSI space, ITC

and Nestlé in the consumer space and L&T & NBCC in the infra

space.

House view on Index: We expect Sensex EPS to de-grow 3.5% to

Rs. 1311 in FY16E. However, following the de-growth in two

consecutive year, Sensex EPS is expected to grow 19% in FY17E

to Rs. 1559.


59



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

Auto 14 10

Tata Motor DVR 4 3

Bosch 3 2

Maruti 4 3

Eicher Motors 3 2

BFSI 23 16

HDFC Bank 8 6

Axis Bank 3 2

HDFC 8 6

Bajaj Finance 4 3

Power, Infrastructure & Cement 11 8

L & T 4 3

UltraTech Cement 3 2

Reliance Industries 4 3

FMCG / Consumer 17 12

ITC 7 5

Marico 3 2

Zee Entertainment 2 1

Asian Paints 5 4

Pharma 14 10

Lupin 6 4

Dr Reddys 5 4

Aurobindo Pharma 3 2

IT 21 15

Infosys 10 7

TCS 8 2

Wipro 3 2

Largecap share in diversified 100 70

60



Auto 6 2

Bharat Forge 6 2

BFSI 6 2

Bharat Forge 6 2

Consumer Discretionary 36 11

Symphony 6 2

Supreme Ind 6 2

Kansai Nerolac 6 2

Pidilite 6 2

Interglobe Aviation 6 2

Arvind 6 2

Infrastructure, Defence & Logistics 26 8

NBCC 8 2

Ramco Cement 6 2

Bharat Electronics 6 2

Concor 6 2

FMCG & Agro 14 4

Rallis 6 2

Nestle 8 2

Pharma 12 4

Natco Pharma 6 2

Torrent Pharma 6 2

Midcap share in diversified 100 30

Total of all three portfolios 100 100 100

61

Performance* so far Since inception

*Returns (in %) as on

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

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

May 12, 2016

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

Portfolio Benchmark

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: , 2011; *Value as on June 30 , 2016May 12



93.1

132.0

104.6

36.643.0 45.0

0

25

50

75

100

125

150

%

5,9

00,0

00

5,9

00,0

00

5,9

00,0

00

5,1

97,9

67

6,8

80,8

37

7,1

84,5

40

6,8

35,9

92

5,6

61,2

09

7,2

80,8

02

3,500,000

4,500,000

5,500,000

6,500,000

7,500,000

8,500,000

|

QUIZ TIME

1. SEBI is planning to reduce the number of _______companies to curb the risk of price manipulation.

2. The latest (April 2016) Consumer Price Index (CPI) figure came in at _______%.

3. Retirement fund body EPFO is likely to provide life insurance cover to its subscribers for _______ years after cessation of employment.

4. The latest (March 2016) total Index of Industrial Production (IIP) growth rate came in at _______%.

5. ICICI Securities' robo-advisory platform is called _______.

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 April 2016 quiz are:

1. If you had invested into Senior Citizen Savings Scheme (SCSS) on or before 31st March 2016, the new rates would be applicable to you. True / False

A: False, it would be applicable to investors investing on or after 1st April 2016

2. The National Payments Corporation of India (NPCI) has recently unveiled an app called _______, which will help you transfer money as simple as sending a text message on a mobile phone.

A: Unified Payments Interface (UPI)

3. Long-term capital gains on properties are currently taxed at _____% (including cess) after indexation.

A: 20.6%

4. Immediate annuity plans are tax-free. True / FalseA: False, income is taxed as per applicable slab

5. Anyone can subscribe to the National Pension System (NPS), including a person aged 75. True / False

A: False Congratulations to the following winners for providing correct answers!

Umesh Singh; B S R Murthy


63

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

29-Apr-16 31-Mar-16 Change (%)

CNX Nifty 7849.8 7738.4 1.4%

CNX Midcap 13195.3 12752.6 3.5%

S&P BSE Sensex 25606.6 25341.9 1.0%

S&P BSE 100 7973.9 7835.5 1.8%

S&P BSE 200 3321.6 3259.4 1.9%

S&P BSE 500 10406.1 10185.1 2.2%


Dow Jones 17,773.6 17,685.1 0.5%

S&P 500 2,065.3 2,059.7 0.3%

Nasdaq 4,775.4 4,869.8 -1.9%

FTSE 6,241.9 6,174.9 1.1%

DAX 10,039.0 9,965.5 0.7%

CAC 40 4,429.0 4,385.1 1.0%

Nikkei 16,666.1 16,758.7 -0.6%

Hang Seng 21,067.1 20,776.7 1.4%

Shanghai Composite 2,938.3 3,003.9 -2.2%

Taiwan Weighted 8,377.9 8,744.8 -4.2%

Straits Times 2,838.5 2,840.9 -0.1%


S&P BSE Auto 18,469.4 18,001.8 2.6%

S&P BSE Bankex 19,114.8 18,392.0 3.9%

S&P BSE FMCG 4,166,376 4,163,635 0.1%

S&P BSE Healthcare 15,582.3 15,149.3 2.9%

S&P BSE Metals 7,958.9 7,540.8 5.5%

S&P BSE Oil & Gas 9,356.2 9,161.6 2.1%

S&P BSE Power 1,846.3 1,775.7 4.0%

S&P BSE Realty 1,356.7 1,228.4 10.4%

S&P BSE Teck 6,121.8 6,104.9 0.3%

64

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Apr-16 Change (bps)Mar-16

Corporate Bond Yields (in %) Change (bps)Apr-16 Mar-16

Commercial Paper (CP) Rates (in %) Change (bps)Apr-16 Mar-16

Treasury Bill (T-Bills) Yields (in %) Change (bps)Apr-16 Mar-16

Volatility Index (VIX)


VIX 16.54 16.58 -0.3%

10 year 7.44 7.51 -8

5 year 7.44 7.55 -11

3 year 7.27 7.98 -71

1 year 7.06 7.34 -28

AAA 10 year 8.26 8.47 -21.4

AAA 5 year 8.18 8.36 -17.4

AAA 3 year 8.04 8.30 -26.2

AAA 1 year 7.81 8.27 -46.0

AA 10 year 9.04 9.08 -4.4

AA 5 year 8.95 9.05 -9.4

AA 3 year 8.74 8.99 -25.4

AA 1 year 8.37 8.91 -54.0

12 Months 8.34 8.86 -53

6 Months 8.28 8.80 -53

3 Months 8.16 8.74 -58

1 Month 7.88 8.70 -82

91D TB 6.81 7.24 -43.3

182D TB 6.85 7.17 -32.5

364D TB 6.88 7.10 -22.2

65

PRIME NUMBERS

10-year benchmark yields (%) across countries

Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)


Month

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

Countries 29-Apr-16 31-Mar-16 Change in bps

US 1.83 1.77 6

UK 1.60 1.42 18

Japan (0.08) (0.03) (5)

Spain 1.59 1.43 16

Germany 0.27 0.15 12

France 0.63 0.49 15

Italy 1.49 1.22 27

Brazil 12.47 13.97 (150)

China 2.92 2.89 3

India 7.44 7.47 (3)

Items Weights(%) Feb-16 Mar-16 Apr-16

Food&bev. 45.86 5.52 5.27 6.21

Pan,tob& intox. 2.38 8.46 8.51 7.96

Cloth & Foot 6.53 5.60 5.50 5.56

Housing 10.07 5.33 5.31 5.37

Fuel & light 6.84 4.59 3.38 3.03

Misc. 28.31 4.38 4.01 4.34

CPI 100 5.26 4.83 5.39

Weights Feb-16 Mar-16 Apr-16WPI 100.0 -0.85 -0.85 0.34Primary Articles 20.1 2.03 2.13 2.34Fuel & Power 14.9 -7.06 -8.30 -4.83Manufactured Goods 65.0 -0.52 -0.13 0.71

Mar-16 Feb-16 Jan-16 Weight (%)

Mining -0.1 5.1 1.5 14Manufacturing -1.2 0.7 -2.8 76Electricity 11.3 9.6 6.6 10Total 0.1 2.0 -1.5 100

66

PRIME NUMBERS

Currencies and CommoditiesCurrencies

Commodities

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


29-Apr-16 31-Mar-16 Change (%) StatusUSDINR 66.33 66.25 -0.1% DepreciatedEURINR 75.59 75.37 -0.3% DepreciatedGBPINR 97.01 95.45 -1.6% DepreciatedAUDINR 50.65 50.95 0.6% AppreciatedCHFINR 68.84 68.93 0.1% AppreciatedJPYINR 0.62 0.59 -5.2% DepreciatedCNYINR 10.24 10.27 0.3% Appreciated

29-Apr-16 31-Mar-16 Change (%)Crude ($/barrel) 48.1 39.6 21.5%Gold ($/ounce) 1,293.0 1,232.7 4.9%

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 April 30, 2016

Debt Funds Returns (in %)

Returns as on April 30, 2016

Tenure Liquid Funds Short-termincome funds

Ultra short-term funds

Long-termincome funds

Gilt funds

6 months -2.94 -2.14 -3.05 -3.091 year -1.45 2.50 -3.59 -2.653 year 18.46 28.62 13.99 17.545 year 11.18 17.85 9.01 10.91

6 months 7.57 7.90 8.24 6.34 7.36

1 year 7.78 8.06 8.19 7.13 7.67

3 year 8.48 8.47 8.73 7.86 8.26

67

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

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

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

City Dates For More Information & Registration call:

Premium Education Programmes Schedule


1 Mumbai 14th & 15th May 2016 Manish on 8451057943

2 Thane 14th & 15th May 2016 Manish on 8451057943

3 Kolkata 14th & 15th May 2016 Jayeeta - 9007391920

4 New Delhi 21st & 22nd May 2016 Harneet on 09582158693

5 Pune 28th & 29th May 2016 Kusmakar on 7875442311

6 Vadodara 22nd May 2016 Yogesh on 8238053563

Schedule for Fast-Track Programme on Futures & Options (F&O)Sr.No City Dates For More Information & Registration call:

7 Pune 14th & 15th May 2016 Kusmakar on 7875442311

8 Bangalore 14th & 15th May 2016 Subrata on 9620001478

9 Mumbai 21st & 22nd May 2016 Manish on 8451057943

10 New Delhi 21st & 22nd May 2016 Harneet on 09582158693

11 Surat 21st May 2016 Yogesh on 8238053563

12 Bhubaneswar 22nd May 2016 Jayeeta - 9007391920

13 Ranchi 22nd May 2016 Jayeeta - 9007391920

14 Patna 29th May 2016 Jayeeta - 9007391920

15 Nagpur 14th & 15th May 2016 Kusmakar on 7875442311

Sr.No


Schedule for Technical Analysis Programme

16 Hyderabad 14th & 15th May 2016 Manish- 8451057943 , Shraddha - 8451942818

17 New Delhi 14th & 15th May 2016 Harneet on 09582158693

18 Bangalore 21st & 22nd May 2016 Subrata on 9620001478

19 Chennai 21st & 22nd May 2016 Abdul - 8939930837

20 Visakhapatnam 15th May 2016 Manish- 8451057943 , Shraddha - 8451942818

Sr.No


Schedule for Techno Derivatives Programme

21 Ahmedabad 28th & 29th May 2016 Yogesh on 8238053563

68

Contact us

Email:

Send us an email at [email protected] mention the name, date and venue of the programme you have

attended or wish to attend, for faster resolution of your queries.

SMS:

SMS EDU to 5676766 for more details


Sr.No City Dates For More Information & Registration call:

Schedule for Advanced Derivatives Trading Strategies Programme

Sr.No City Dates For More Information & Registration call:

Schedule for Professional Trader & Investor Programme

22 Trichy 14th May 2015 Subrata on 9620001478

23 Mumbai 28th & 29th May 2016 Manish on 8451057943

24 Chennai 28th & 29th May 2016 Abdul - 8939930837

25 New Delhi 20th to 24th May 2016 Harneet on 09582158693

26 Kolkata 27th to 30th May 2016 Jayeeta - 9007391920

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