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TRANSCRIPT
MD Desk
Anup BagchiMD & CEO
ICICI Securities Ltd.
To get the best out of your investments, invest savings regularly. A disciplined approach to investments makes the process emotions-free and helps the overall portfolio to gain from what is called as Rupee Cost Averaging.
However, it is not always possible to stagger investments. The business income, a bonus payout, maturity of a policy, or even an inheritance are examples of lump sum payouts. Taking a decision to invest such payouts is more complex.
Investing a lump sum payout should not be a hasty decision. It is very easy to fall in for an investment option that comes first to you. Instead, we recommend you to take a detailed look at your current financial situation and determine how you may use these funds to your financial advantage. Though each one of us has a unique financial situation, here are some fundamental steps that could be helpful.
First, review the loans and interest rates you are paying on them. Prioritize debt payments with the highest interest rates first, such as credit card outstanding and personal loans. Depending on the amount of lump sum received, you may also want to reduce your car loan or home loan.
Next, review your insurance coverage, both life and health. Majority of us are still either un-insured or have inadequate amounts of insurance. As per Lloyd’s report, India is the second
ICICIdirect Money Manager 1 April 2014
most under-insured market in the world. Your lump-sum funds can be used to build coverage or to enhance any coverage you may already have, a decision that is usually postponed.
Third, it is advisable to evaluate your basic solvency ratio or simply put your emergency fund. This ratio indicates one’s ability to meet monthly expenses in case of any emergency. A sum - equal to three to six times of monthly expenses, depending on the certainty of your income, can be set aside into higher return giving instruments like liquid funds.
The next step would be to create an investing plan. Take a stock of your investments and determine whether your investment run rate is keeping pace with your requirements. If not, you may use your lump-sum amounts to bridge your required run rate. It is important to make investments that fit your overall asset allocation. The asset allocation depends on one’s risk profile, time horizon and return expectations. For example, if you want to save for a long-term goal such as retirement, you need to allocate higher portion of your capital into equity for growth. Whereas, a portfolio heavily weighted towards equity, for instance, would be inappropriate for a short-term goal. Therefore, it is crucial to link your investments to your overall asset allocation and goals.
Once you have these elements in place you should have an investment strategy to run with. And there is no better strategy than to systematically start channeling your money, i.e. through systematic transfer plans (STPs). This is a good way to stagger the left over corpus.
Last but not the least, don’t forget to re-invest some of the money in yourself - enhance your capabilities to strengthen such revenue streams in the future.
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.
ICICIdirect Money Manager April 20142
EDITORIAL
Editor & Publisher : Abhishake Mathur, CFA
Coordinating Editor : Yogita Khatri
Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey
Editorial Team : Azeem Ahmad, Nithyakumar VP, Nitin Kunte, Sachin Jain, Shaboo Razdan, Sheetal Ashar
Many of us set aside a certain portion of our income on a regular basis to meet specific financial goals. For instance, we may participate in employees' provident fund (EPF) account to plan our retirement, or contribute in mutual funds and other such instruments for our children's education.
Of course, investment surpluses are not always generated on a monthly basis. A bonus payout, maturity of a policy, a sale of an asset, etc. can create situations with lump sum payouts and can present unique challenges in terms of deciding on how to invest them.
With proper planning process and a clear road-map, we can efficiently manage it and put ourselves and our family on a stronger financial footing. Our cover story of this edition takes you through that process and steps involved. All in all, the key point is to accommodate such payouts in our overall financial plan and invest accordingly. To achieve an optimal risk-return trade-off, it is important to adopt fundamental investment strategies like asset allocation and diversification.
The edition also features an interview with Sunil Singhania, CIO - Equity Investments, Reliance Mutual Fund, who shares his views on the economy, markets, and how you may invest in the current scenario. We also offer comprehensive information and analysis on mid-cap equity funds, which present good investment opportunity with high growth potential.
So read on, stay updated and involved. We welcome you to write to us at [email protected] with your feedback or any queries on personal finance.
ICICIdirect Money Manager April 20143
Important: All the contents of ICICIdirect Money Manager are the exclusive property of ICICI Securities Ltd. No article, either in whole or in part, may be published circulated or distributed through any medium without the express consent of ICICI Securities Ltd.
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CONTENTS
MD Desk ......................................................................................................... 01
Editorial .......................................................................................................... 02
Contents ......................................................................................................... 03
News ............................................................................................................... 04
Markets Round-up & Outlook ....................................................................... 05
Getting Technical with Dharmesh Shah ...................................................... 08
Derivatives Strategy by Amit Gupta ............................................................ 10
Stock Ideas: Coal India and MRPL ................................................................ 14
Flavour of the Month: Investing a Lump Sum
Have received a bonus at work, an inheritance, or a financial surprise of some kind? Here we discuss a few options to help you make the most of your lump sum payouts .................................................................................. 20
Tête-à-tête
Interview with Sunil Singhania, CIO - Equity Investments, Reliance Mutual Fund, who shares his views on the economy, markets, and how you may invest in the current scenario ......................................................................... 28
Ask Our Planner
Your personal finance queries answered ....................................................... 34
Your Financial Health Check
Here we analyze Mumbai-based young individual's finances and suggest a suitable way forward ....................................................................................... 38
Primer: Understanding Monetary Policy ...................................................... 41
Mutual Fund Analysis: Category – Mid-cap Equity Funds .......................... 43
Equity Model Portfolio .................................................................................. 50
Mutual Funds Model Portfolio ...................................................................... 53
Quiz Time ....................................................................................................... 55
Monthly Trends .............................................................................................. 56
Premium Education Programmes Schedule ................................................. 59
ICICIdirect Money Manager April 20144
NEWS
EPFO to allot permanent a/c number by Oct 2014Retirement fund body EPFO will provide permanent or universal account numbers (UAN) on the pattern of core banking services to its over 50 million active subscribers by October 15 this year. Under core banking services, a customer can avail the bank services in any of its branch through his allotted unique account number. The UAN will facilitate subscribers in avoiding filing of PF transfer claims on changing jobs. "UAN will be allotted to the present active members by October 15, 2014 and thereafter the coverage of other members will be taken up," the EPFO’s action plan for this fiscal stated.
Courtesy: Business Standard
IRDA forms working group for simple products in general insuranceThe Insurance Regulatory and Development Authority (IRDA) has formed a working group to review 'File & Use' (F&U) guidelines to ensure availability of simple products in the general insurance category. "It is felt by the Authority that a review of extant guidelines has to be undertaken to ensure that products are designed, marketed, sold and serviced ensuring that a viable, simple and useful product is available to consumers and is sustainable for insurers," says a circular issued by IRDA. The working group is expected to submit its report to Member (Non-Life) in three months.
Courtesy: The Economic Times
Come July, all insurers may offer digitised insurance policiesAll life insurance companies may be required to offer insurance policies in a digitised format from July onwards. In a recent meeting with the sector representatives, sources said The Insurance Regulatory and Development Authority (IRDA) had asked companies to tie up with all insurance repositories. S V Ramanan, CEO of CAMS Repository Service (CAMSRep), said 1,10,000 policies had been digitised but many customers were not aware of this process. He explained that apart from top bank-promoted private life insurers, other companies have not been active in this space. CAMSRep has digitised 70,000 policies across 380 locations, he said.
Courtesy: Business Standard
PFRDA selects 8 companies to manage pension funds of private sectorThe Pension Fund Regulatory and Development Authority (PFRDA) is believed to have selected eight companies for managing pension funds of non-government employees. "Eight fund managers including LIC Pension Fund, SBI Pension Fund, UTI Retirement, Reliance Capital Pension Fund have been selected by PFRDA for managing the funds of private sector NPS," a source said. The other fund managers selected include DSP Blackrock, ICICI Prudential Pension Funds Management and Kotak Mahindra Pension Fund, sources said.
Courtesy: The Economic Times
ICICIdirect Money Manager April 20145
MARkETS ROUND-UP
Rally to persist on up-beat sentiments as election marathon begins
In March, Indian indices
were amongst the few global
indices that closed in green.
The markets opened on a weak
note owing to the tensions
in Ukraine. However, as the
month progressed, a series of
positive data points and the
announcement of the election
schedule improved the market
sentiment. Encouraging
inflation as well as trade
deficit / current account deficit
(CAD) gauges, a firmer rupee
and falling bond yields helped
to lift the mood. The rupee
appreciated 2.9% to close the
month at 60.
For February 2014, the trade
deficit further reduced to
US$ 8.1 billion from US$
9.9 billion in January 2014.
Exports marginally de-grew
to US$ 25.7 billion (down
3.7%) while imports dipped
17.1% year-on-year (y-o-y)
to US$ 33.8 billion. Similarly
the CAD for the December
quarter narrowed to US$ 4.2
billion or 0.9% of the GDP,
from US$ 31.9 billion or 6.5%
of the GDP, a year earlier. After
three consecutive months of
negative growth, the Index
of Industrial Production (IIP)
grew albeit barely by 0.1% in
January 2014. The consumer
price inflation (CPI) further
reduced from 8.8% to 8.1%
on the back of lower food and
fuel inflation. The wholesale
price index (WPI) too fell
from 5.05% in January 2014
to 4.68% in February 2014.
In the bi-monthly monetary
policy, the key rates were left
unchanged.
Global markets started the
month’s trading on a weak
note owing to the tensions
ICICIdirect Money Manager April 20146
MARkETS ROUND-UP
prevailing in Ukraine. On the
bright side, the Eurozone
gross domestic product (GDP)
growth numbers came in
better-than-expected. Also
positive industrial production
data from the US and lower
inflation data from the
Eurozone provided some
encouragement. However,
weak trade, industrial
production, retail sales and
fixed investment data from
China led to a significant sell-
off in the Chinese markets
and it had a spill-over effects
on other global markets
as concerns about global
economic growth worsened.
Similarly a slightly hawkish
tone from the Federal Open
Market Committee (FOMC)
meeting was taken with a
pinch of salt. At the end the
markets closed in the negative
territory.
During the month, Crude
(Nymex) closed 1% lower at
$ 101.6/barrel.
Global markets
Most global indices closed
in the red for the month of
March. The Dow Jones and
S&P 500 gained marginally,
closing 0.8% and 0.7% up,
respectively. On the other
hand, the Nasdaq, FTSE,
Dax and French CAC lost
2.5%, 3.1%, 1.4% and 0.4%,
respectively. Among Asian
indices, the Hang Seng,
Shanghai SSEC and Nikkei
fell 3.0%, 1.1% and 0.1%,
respectively.
Domestic markets
The foreign institutional
investors (FIIs) were net
buyers to the tune of ~` 28,200
crore while the domestic
institutional investors (DIIs)
were net sellers to the tune of
~` 9,050 crore.
ICICIdirect Money Manager April 20147
MARkETS ROUND-UP
The Nifty and Sensex gained
6.8% and 6%, respectively,
in March. The rally was led
by realty, banking, metals,
public sector undertakings
(PSUs), power and oil & gas
stocks. The BSE Midcap and
BSE Small cap indices gained
9% and 9.7%, respectively.
Among sectoral indices, major
gainers were BSE Realty, BSE
Bankex, BSE Metals, BSE
PSU, BSE Power and BSE Oil
indices which gained 22%,
18.6%, 16.1%, 15.2%, 12.8%
and 12.6%, respectively.
Apart from these, BSE FMCG
and BSE Auto indices gained
7.5% and 5.4%, respectively.
Among losers were BSE IT
and BSE Healthcare indices
which lost 10.2% and 7%,
respectively.
Outlook
March witnessed across-
the-board rally barring the
so-called defensives such as
Information Technology (IT)
and Healthcare. The large-
caps as well as mid-cap /
small-caps participated in the
rally thus signifying the impact
of some serious buying in
beaten-down stocks. Again
this was in anticipation of
possible NDA victory (recent
surveys highlighted even
higher probability of the same)
in the forthcoming elections.
On the economy front the
gauges continued to impress
in an otherwise sombre
environment. Going ahead, we
expect the optimism to persist
as markets are expected to
continue to ride on the pre-
election rally. Robust FII
buying activity suggests that
the foreigners are in no mood
to take the foot off the gas as
the country enters the election
phase.
ICICIdirect Money Manager April 20148
TECHNICAL OUTLOOk
Ride the pre-poll rally…
Dharmesh ShahHead - Technical Analysis, ICICIdirect
Domestic equity benchmarks
outperformed their global
peers and posted a strong rally
in the month of March. The
benchmarks defied the broad
scepticism prevailing in global
markets and stormed past their
historical highs to venture into
unchartered territory led by
strong foreign fund inflows
and a strengthening rupee.
The biggest near-term catalyst
for the Indian market is the
upcoming general election
and the current rally is seen
as one fuelled by hopes of a
stable government. Based on
the technical observations, we
expect the index to ride the
current positive momentum
and head towards 22800 levels
in the coming month.
Time-wise, since January
2013, each major directional
move on the index has lasted
4-5 weeks before witnessing
a cool-off. The up-move from
February lows also paused
after rising for four weeks
and witnessed a sideways
consolidation for nine sessions
before resuming the up-trend.
Going by this time-wise
trait, the current up-leg from
March 24, 2014 onwards
may pause around late April
2014. The index is expected
to turn volatile thereafter and
ICICIdirect Money Manager April 20149
TECHNICAL OUTLOOk
markets will look for further
direction from the outcome of
the general elections. A firm
weekly close above 22800
will signal extending markets
and see the current rally from
February 2014 lows (19963)
to achieve 100% equality with
the August-December 2013
rally (17448 to 21483 = 4035
points), projecting upside
towards 24000 levels.
From a Technical perspective, the index conquering its major historical peak of 2008 and sustaining above the same marks an important turnaround and augurs well for further upside in the medium term
Historical highs and upper band of last 4 months’ consolidation (21200-21400) is likely to reverse its role and act as support
Weekly RSI remains in rising mode and indicates continuation of positive momentum in the short term
BSE Sensex – Weekly Line Chart
Source: Bloomberg, ICICIdirect.com Research
The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities.
ICICIdirect Money Manager April 201410
DERIvATIvES STRATEGY
Level of 6650-6700 remains a buying opportunity for upside target of 6850/7000
Amit GuptaHead - Derivatives Research, ICICI Securities
In the ongoing April series,
after consolidating near 6700
levels, Nifty moved towards
our mentioned targets of 6850.
Despite weak US markets,
domestic indices held the
momentum and broader
participation was observed
in last few sessions. Small-
cap and mid-cap stocks have
out performed Nifty. From the
inception of April series, Nifty
gained just 0.7% while small-
cap index clocked the gains
of almost 8.75% and mid-cap
index gained almost 2.8%.
In the options segment,
continuous writing was
observed at out-of-the-money
(OTM) Put strikes of 6500 and
6600 indicating support placed
at lower levels. Currently the
highest Put base is shifted to
6700 strike. On higher side, no
major Call writing is visible at
near the money strikes. Hence
further upsides may be seen
once again after consolidation.
Meanwhile volatility index (VIX)
has risen considerably in the
last few weeks. Buying among
index options particularly of
May series is clearly visible in
anticipation of big movement
after election outcome. Volatility
has risen almost 120% at 28 and
is currently trading at the highest
levels since September 2013.
We expect volatility to remain
at elevated levels till mid May
when election results would be
announced.
Banking stocks were the major
movers of the recent up- move.
We expect the positive bias to
continue among Cement and
Banking space as significant
short positions are still visible in
these stocks.
ICICIdirect Money Manager April 201411
DERIvATIvES STRATEGY
01234567
6300
6400
6500
6600
6700
6800
6900
7000
7100
Call OI Put OI
Bank Nifty may test 13500 if holds above 12700
The Bank Nifty has important support at 12700. The index had spent couple of weeks before breaching this level. Hence, on downsides, it may act as a good support. Moreover, the noticeable for the Bank Nifty is at 12000 followed by 12500, which also suggests support at 12250.
The highest Call build-up for the banking index is placed at 13000 strike followed quite closely by 13500 strike. It seems eventually it would try to test 13500 levels as these are stuck Call writers who have been rolling their positions towards higher levels.
The rise in government security (G-sec) yields after the recent monetary policy may play spoilsport in the short-term. However, despite rising yields from 8.8 to 9.02 so far, the banking sector is inching up.
050000
100000150000200000250000300000350000400000450000500000
1250
0
1260
0
1270
0
1280
0
1290
0
1300
0
1310
0
1320
0
1330
0
1340
0
1350
0
Call OI Put OI
FIIs have been buying in last 35
trading sessions consecutively
and the quantum has surpassed
US$ 6 billion
Foreign institutional investors
(FIIs) continued with their buying
in the cash segment. As the Lok
Sabha polling has commenced,
FIIs are hedging these positions
aggressively and in 2nd week of
April they bought over US $ 570
million of Index options.
FII focus still seems to be in mid-
cap & small-cap segments, with
buying seen in public sector
undertaking (PSU) banking,
infrastructure and metals.
Domestic institutional investors
(DIIs) on the other hand,
continued with their selling in
the cash segment and they sold
over US$440 million in 2nd week
of April .
ICICIdirect Money Manager April 201412
S&P 500: Level of 1810 remains important support in current uptrend
As expected, another round of profit booking was seen at the highest Call base of 1900 strike and US equities saw sharp decline of almost 5% to move below 1850. In the process, S&P 500 erased its yearly gains while Technology dominant index, Nasdaq has turned negative and closed below its 100 DMA levels first time since December 2012.
For the May series as well, significant accumulation of Put options is visible at 1800 strike indicating major support is placed at these levels. On the other hand, Call options base is evenly distributed at at-the-money (ATM) and out-of-the-money (OTM) strikes. Major resistance can be expected around 1900 levels.
100 DMA levels for S&P has acted as crucial support in last two years and S&P did not spend much time below these levels. Currently 100 DMA for S&P is
placed near 1825 levels. Hence major decline below 1825 is not expected and levels near 1810 can be utilised for creating long positions.
S&P500 options open interest for May Series
0
10000
20000
30000
40000
50000
60000
1700
1750
1780
1800
1820
1850
1870
1900
1920
1900
Call OI Put OI
DAX: Underperformance is likely to continue, major support lies at 9300
German index DAX respected its 200 DMA levels and strong recovery in the late March was seen but it failed once again to sustain at higher levels. Selling pressure was experienced near its January highs of 9700 levels. At the same time, it also failed to perform in line with US indices which made their life highs.
DAX moved towards its highest Put base placed at 9300 strike in the recent decline. Looking at the options concentration, DAX is expected to remain sideways in the range of 9300-9800 in the days to come.
DERIvATIvES STRATEGY
ICICIdirect Money Manager April 201413
The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities.
Both 50 DMA and 100 DMA for
German Index are placed in the
vicinity of 9400 levels. We expect
it to continue its consolidation in
the near term. As DAX reverted
from its 200 DMA levels of 8950,
we do not expect it to test these
levels once again. However
below 9300 levels, some
extended selling pressure can
be expected.
DAX option open interest for May Series
0
2000
4000
6000
8000
10000
12000
9100
9200
9300
9400
9500
9600
9700
9800
9900
1000
0
Gold: 1280 levels to remain
crucial support in the current
uptrend for target of 1400
Gold failed to surpass 1400
levels last month and witnessed
selling pressure which forced it
to breach1300 levels this month.
However, it found support near
its 100 DMA levels of 1280 and
bounced back.
For the April series, significant Put writing is visible at 1275 strike indicating major support for the safe heaven. We expect these levels to remain crucial support for Gold in the near term. Moreover, the 50% retracement of the entire up move seen from 1180 to 1390 is also placed near these levels. Hence one should trade long with stop loss placed below 1280 levels.
On higher sides, we expect 1400 is likely to be tested which has acted as stiff resistance since May 2013.
As per Commodity Futures Trading Commission (CFTC) data reported for the Chicago Mercantile Exchange (CME), significant portion of open interest in gold has positive bias.
Golds option open interest for January Series
0
1000
2000
3000
4000
5000
6000
7000
1175
1200
1225
1250
1275
1300
1325
1350
1375
1400
1425
Call OI Put OI
DERIvATIvES STRATEGY
ICICIdirect Money Manager April 201414
Coal India: Steady volume growth; patience holds key
Company Background
Coal India Limited (CIL), a Maharatna public sector enterprise, is engaged in mining coal, the key material used in generating thermal power. CIL is the largest coal producing company in the world with huge coal reserves. CIL also enjoys a dominant status in the domestic market wherein it contributes ~81% of India’s total coal output and on the demand side meets ~65% of domestic consumption requirements. The company supplies coal to sectors like power, steel, cement, defence, fertiliser, etc.
Investment Rationale
Huge mineral resource base
Coal India has a huge extractable reserve base (reserves of 18.2 billion tonnes) and is well placed to cater to the rising domestic demand. Its extractable coal reserves can easily suffice for current production levels for the next 40 years (reserves: production at 40). The company also possesses healthy coal
resource base amounting 62.7 billion tonnes.
Government support to aid production growth going forward
The coal production at CIL has been sluggish with FY13 and FY14 coal production growth at 3.7% & 2.3% respectively. However, a series of steps undertaken by the government should boost the production volumes for the company. Few of the notable steps include: (i) Government has allowed expansion in existing coal projects without any public hearing, under environmental appraisal process. Under this proposal, it is decided to allow one-time capacity expansion upto 50%, or incremental production of upto 1 million tonnes per annum (MTPA), whichever is higher. This relaxation is for coal mining projects with annual production of less than 8 million tonnes (MT). (ii) CIL has also received approval from Ministry of Environment & Forests (MoEF) for 23 projects (16 projects have
STOCk IDEAS
ICICIdirect Money Manager April 201415
been granted environmental clearance (EC), 2 projects have been granted stage-II forest clearance (FC) while 5 projects have been granted stage-I FC) after intervention by the Cabinet Committee on Investment (CCI). (iii) Introduction of mine-developer-operator approach. This all is likely to help state-run CIL boost output, going forward. We expect coal production at the company to grow at a compounded annual growth rate (CAGR) of 4% in FY13-16E to 509 MT in FY16E.
Competitive cost of production resulting in healthy operating margins
CIL produces ~90% of its coal through open cast mining and witnesses low stripping ratio (1.8 during the nine months ended FY14), thereby ensuring that reserves are easily extractable. Hence, this helps to position the company as among the lowest cost coal producers in the world. The cost of production in case of open cast mines is ~ ` 700-800 per tonne, which is in the lowest decile of the global cost curve and at almost one-fourth of underground
mining cost of ~ ` 3000-4000 per tonne. CIL’s blended cost of production stands at ~ ` 1050/tonne (~US$18 /tonne).
Faith to last in midst of blackest storms, add fuel to your portfolio
CIL has a strong balance sheet with robust cash flows and a healthy liquidity position. In FY13-16E, we expect the top line to grow at a CAGR of 4.1% with EBITDA (earnings before interest, taxes, depreciation, and amortization) and PAT (profit after tax) de-growing 3.9% and 3.2%, respectively, on the back of declining e-auction realisations and other income yield. We have valued the stock at 6.5x FY16E adjusted enterprise value (EV)/EBITDA (adjusted for overburden removal), thereby valuing the company at its international peers’ average FY16E EV/EBITDA of 6.5x and arrived at a target price of ` 320. A healthy dividend payout and impressive dividend yield (~4.3% on a normalised basis) reiterate our positive stance on the company. We have a BUY recommendation.
STOCk IDEAS
ICICIdirect Money Manager April 201416
key Financials
FY13 FY14E FY15E FY16E Net sales (` crore) 68,303 68,008 72,695 77,088EBITDA (` crore) 18,084 14,413 14,959 16,053Net profit (` crore) 17,356 14,061 14,551 15,736
valuations Summary
FY13 FY14E FY15E FY16E EPS (`) 27.5 22.3 23.0 24.9P/E (x) 10.2 12.6 12.2 11.2 Target P/E (x) 11.7 14.4 13.9 12.9 EV / EBITDA (x) 6.4 8.4 7.5 6.5 P/BV (x) 3.6 4.3 3.8 3.3 RoNW (%) 35.8 34.2 31.1 29.3 RoCE (%) 32.3 29.4 27.0 25.4
Stock Data
Particulars FiguresMarket capitalization (` crore) 1,76,858.2 Total debt (FY13) (` crore) 1,909.1 Cash and investments (FY13) (` crore) 62,236.6 EV (` crore) 1,16,530.7 52-week High/Low (`) 331 / 238Equity capital (` crore) 6316.4 CroreFace value (`) 10DII Holding (%) 2.4FII Holding (%) 5.5
key risks include: Coal Ministry’s directive to sign fuel supply agreement (FSA) for power capacities amounting 78,000 MW which may lead to levying of penalty in case of insufficient coal; delay in environment clearance for coal mines thereby hampering coal production; E-auction volume may be sacrificed to fulfil FSA commitments; insufficient railways rakes for offloading coal from the company’s mines.(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 (P/BV); RoNW: Return on net worth; RoCE: Return on capital employed; DII: Domestic institutional investors; FII: Foreign institutional investors).
STOCk IDEAS
ICICIdirect Money Manager April 201417
MRPL: At the crack of dawn
Company Background
Mangalore Refinery &
Petrochemicals Limited
(MRPL), a subsidiary of Oil
and Natural Gas Corporation
(ONGC), is a standalone
refinery operating in the port
city of Mangalore, Karnataka,
with a capacity of 15 MMTPA
(million metric tonne per
annum). MRPL is strategically
located on the west coast
of South India, close to the
Middle East and Far East crude
and product markets. MRPL
buys crude oil from ONGC,
Saudi Aramco (National oil
Company of Saudi Arabia),
Abu Dhabi National Oil
Company (ADNOC), National
Iranian Oil Company (NIOC),
Kuwait Petroleum Corporation
(KPC), Nigeria, Angola, Egypt,
etc. MRPL is now a ‘Mini Ratna,
Category 1’ and a Schedule
“A” public sector enterprise.
Investment Rationale
Capacity expansion and
upgradation project to boost
refining margins
Higher complexity on
commissioning of Phase-III
project will lead to an increase
in distillate yield from 76.5%
to 80.1%, better capability to
handle heavier & sourer crude
and production of higher
margin value-added products.
Additionally, MRPL would
save on freight cost due to the
single-point mooring facility,
commissioned in August 2013.
We believe these benefits will
translate into an improvement
of US$3.5-4/barrel in refining
margins in the next couple of
years.
Downstream integration into
petrochemicals to further
boost gross refinery margins
(GRMs)
MRPL is foraying into the
petrochemical business
STOCk IDEAS
ICICIdirect Money Manager April 201418
by setting up 2.2 MMT
(million metric tonnes) PFCC
(petrochemical fluidized
catalytic cracking) and 440
kilo tonnes per annum
(KTPA) polypropylene units
under its Phase-III expansion
project. These units, once
commissioned, will produce
higher margin yielding
products that will contribute
US$1.5-2/barrel to refining
margins. We believe the ̀ 1800
crore polypropylene unit will
generate a return on capital
employed (ROCE) of 13%-
16%.
Best placed to play refining cycle among public sector undertaking (PSU) peers
MRPL has managed its business better than its peers in terms of better cash conversion cycle (only PSU refinery which has a negative working cycle), which is mainly due to the higher percentage of sourcing of crude from NIOC of Iran that offers a 90-
day credit period. The recent truce between Iran and the six western nations will benefit MRPL in terms of better credit period, lower pressure on working capital and reduction in interest expense. Also, the completion of Phase-III project will allow MRPL to regain its edge over peer PSU refiners in terms of GRMs. Overall, we prefer MRPL because of its lower policy leverage, improving GRM outlook and lowest gearing on the balance sheet amongst PSU refineries.
An investment opportunity; ready to unfold
Given the improvement in complexity, better distillate yield and access to cheaper crude oil, we expect MRPL to achieve higher profitability. We value the stock at 5.5x FY16E EV/EBITDA multiple to arrive at a target price of ` 61. We have a BUY recommendation on MRPL with a target price
of ̀ 61.
STOCk IDEAS
ICICIdirect Money Manager April 201419
key FinancialsFY12 FY13 FY14E FY15E FY16E
Revenues (` crore) 54,060.7 66,086.2 71,249.0 74,102.0 75,345.8EBITDA (` crore) 1,638.8 318.0 215.5 2339.9 3,088.5Net profit (` crore) 908.6 -756.9 -595.2 650.2 1,096.3EPS (`) 5.2 -4.3 -3.4 3.7 6.3
valuations Summary FY13 FY14E FY15E FY16EPE (x) -11.6 -14.7 13.5 8.0Target PE (x) NA NA 16.3 9.7EV to EBITDA (x) 44.4 70.2 6.6 4.3Price to book (x) 1.4 1.5 1.4 1.2RoNW (%) -11.7 -10.1 10.4 15.4RoCE (%) -2.1 -3.6 9.1 14.4
Stock Data
Particulars FiguresMarket capitalization (` crore) 8,763.3 Debt (FY13) (` crore) 6,979.8Cash + Liquid investments (FY13) (`crore) 1,620.8 EV (` crore) 14,122.3 52-week High/Low (`) 51 / 26Equity capital (` crore) 1,752.7Face value (`) 10MF holding (%) 0.6FII holding (%) 0.9
key risks include: Further delay in commissioning of secondary processing units will have adverse impact on the refining margins. Any slowdown in the global economy and weaker demand will lead to a decline in gross refining margins and will have a negative impact on the profitability of the company. MRPL’s longer credit period will have an adverse impact on profitability in the phase of depreciation of the rupee. If tensions rebuild between Iran and western countries, imports from Iran would drop further, leading to an increase in working capital and higher crude oil costs for the company.
(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS: Earnings per share; P/E: Price-to-earnings; Ev: Enterprise value; RoNW: Return on net worth; RoCE: Return on capital employed; DII: Domestic institutional investors; MF: Mutual funds).
STOCk IDEAS
ICICIdirect Money Manager April 201420
FLAvOUR OF THE MONTH
Investing a Lump Sum
For most of us, money comes at a fairly expected schedule. But occasionally, we might get an additional sum, over and above our regular income. This could be from bonus at work, inheritance from a family, investment payout, or even a lottery win. So what do you do with this money? While it may be tempting to splurge, to go on a holiday or buy a new car, it also presents an opportunity to secure your financial future. The choices you make today may have a direct impact on your financial life later on. Here are a few options to help you make the most of your lump sum payouts.
Do not rush
When we receive an extra sum of money, it becomes difficult to resist impulsive buying. This is mainly because we tend to look at this money differently than our regular hard-earned money. Just to give an example, researchers at Harvard University found that, even small windfalls, i.e. a sudden $10-off, led to an increased spending of $1.59 by online grocery shoppers, on things, which they typically do not buy. This is a result of “mental accounting”, a behavioral finance trait, which implies that we treat money differently depending upon its source.
Put simply, we may think twice before freely spending our ‘hard-earned’ money, but if we won the same amount of money, we spend it more easily, because we categorize that income as ‘found money’ or ‘extra cash.’
Therefore, in order to avoid making irrational purchase decisions, it is important that you give yourself some time, until you develop a long-term plan. In the meanwhile, deposit the entire sum in safer options, such as a liquid fund, to get you earning.
Take stock of your current financial situation
To begin with, take a thorough
ICICIdirect Money Manager April 201421
FLAvOUR OF THE MONTH
look at your current financial situation, so that you can determine how you may use the lump sum or a windfall to your financial advantage. List your current income and expenses. List your assets: The amount in your bank accounts, brokerage accounts
and any other investments you may own. Make a list of your debts, including credit cards, personal loan, home loan, etc. Performing this exercise will not only help you provide the reality check needed but also help you set some priorities.
Your Financial Picture
What is your current total monthly income? `______________
What are your current total monthly expenses? `______________
Do you have credit card debt? o Yes o No
If yes:
Credit card Outstanding dues Interest rate (p.a.)
1. _____________________ `_____________ ________%
2. _____________________ `_____________ ________%
3. _____________________ `_____________ ________%
Do you have any other debt? (Personal, consumer durables, car, etc.) o Yes o No
If yes:
Type Total outstanding Interest rate (p.a.) balance
1. _____________________ `_____________ ________%
2. _____________________ `_____________ ________%
3. _____________________ `_____________ ________%
Do you have an emergency fund in place? o Yes o No
Do you currently have any investments? o Yes o No
If yes:
Investment avenue (shares, mutual funds, etc.) Current value
1. ________________________________ `_____________
2. ________________________________ `_____________
3. ________________________________ `_____________
4. ________________________________ ` _____________
ICICIdirect Money Manager April 201422
FLAvOUR OF THE MONTH
Are you/your assets insured? o Yes o No
If yes,
Type (life, health, home, etc.) Sum assured
1. ________________________________ `_____________
2. ________________________________ `_____________
3. ________________________________ `_____________
4. ________________________________ ` _____________
What are your financial goals (planning for children education, retirement, etc.)?
Goal Money needed in today’s value
1. ________________________________ `_____________
2. ________________________________ `_____________
3. ________________________________ `_____________
4. ________________________________ ` _____________
Looking at the bigger picture will help you determine how you may use your
lump sum payouts to meet your financial obligations and goals.
Develop the plan
The key to managing lump
sum money responsibly is to
draw up a plan based on your
current financial situation and
goals. Though the amount of
payout or windfall also plays a
key role as in what goals you
can achieve with it, here are a
few basic steps you can take to
maximize the benefit of your
additional financial gains.
Paying off expensive debt:
Using lump sum payouts to
pay-off your debts may be
a wise idea, especially if it is
an expensive debt, i.e. debt
with a high interest rate. This
would include your credit card
out-standings and personal
loans. By clearing off this debt
or at least cutting it down
significantly, you can save
up on high interest costs. For
ICICIdirect Money Manager April 201423
FLAvOUR OF THE MONTH
example, if you owe ` 1 lakh
on a credit card that has an
interest rate of 25% p.a. and
you pay the balance off, it
is like investing in an option
which gives 25% p.a. return.
The next in line could be your
car loan, which costs around
12-16% p.a. It's better to use
your extra financial benefits to
pay off high-interest debts so
that the future earnings could
be used to meet your financial
goals.
Building a financial safety-
net:
Uncertainties and emergencies
can strike anytime.
Unexpected expenses such
as a medical emergency,
layoff, sudden large repair
bills, etc. can put a significant
financial burden on you. So
if you don’t already have an
emergency fund in place,
this may be another prudent
financial step to consider for
your windfall. Just to give an
example, about 60 per cent
of households in Ahmedabad
do not set aside any funds for
meeting emergency expenses,
according to a survey by
ASSOCHAM (Associated
Chambers of Commerce and
Industry of India).
It is important to keep aside
a substantial sum, at least
six months’ living expenses,
to be used only in case of
emergency. The money need
not remain in savings account,
earning 4 per cent interest.
Instead, you can put it in a
better alternative, a liquid fund,
offering higher returns than
savings accounts. The current
category average return for
liquid funds is 9% p.a.
If you are unable to deposit a
sum equal to your six months’
living expenses at one go,
start with a small amount and
increase it as your income or
savings increase.
ICICIdirect Money Manager April 201424
FLAvOUR OF THE MONTH
Keep in mind, the need for an
emergency fund increases with
age. Depending upon your age
group, you could put away 5
per cent to 15 per cent of your
money for emergencies.
Re-assessing your insurance
needs:
After you have built up
your emergency fund and
eliminated high-interest debt,
next you may want to consider
reviewing the insurance
coverage you currently
have and determine if it’s
adequate to meet financial
contingencies, in case, an
unforeseen event occurs.
Essentially, your life cover
should take care of: a) Family
expenses till lifetime; b)
Liabilities outstanding and c)
Family and children goals.
Here’s the worksheet to
help you review your current
insurance coverage, and fill
the gaps, if any.
1. Providing for family expenses till lifetime
Annual expenses required for dependants
` 2,40,000
Number of years for which you wish to provide above expenses
25 years
A: Corpus required for funding family expenses
` 60,00,000
2. Liabilities Outstanding
Home loan ` 15,00,000
B: Corpus required for repaying liabilities
` 15,00,000
3. Family Goals
Child’s education (today’s cost) ` 8,00,000
Child’s marriage (today’s cost) ` 10,00,000
C: Corpus required for fulfilling goals
` 18,00,000
A + B + C = The estimated amount of life insurance you will need
` 93,00,000
(From this estimated cover, you can deduct existing life cover, if any, and assets that you have accumulated - excluding the ones for your family’s use)
In case, you are unable to cover
all the above three (i.e. A, B and
C), then cover can be taken at
least for some of them, based
on the this order of priority:
a) Unsecured liabilities; b)
Family expenses till lifetime; c)
Secured liabilities; d) Children
goals; and e) Family goals.
Keep in mind, even a really
big financial windfall can be
ICICIdirect Money Manager April 201425
FLAvOUR OF THE MONTH
quickly wiped out if one faces
with an unexpected medical
emergency. So it may be wise
to channelize your lump sum
payouts to get an adequate
insurance coverage. And this
does not hold true for life
insurance alone. Do re-asses
the coverage of your health
insurance, home insurance,
etc. to be adequately protected
at every life stage.
Moving closer to reaching
your goals:
After you have addressed
protection needs, it may be
time to consider strategies to
move closer to reaching your
financial goals. Look back at
Your Financial Picture - what
are your short, medium, and
long-term goals? Work out
how much you will need for
each of these goals in future
and then work backwards to
evaluate how much you need
to invest now for each of these
goals.
Let’s assume one of your
main goals is to secure your
retirement. This is how one
can go about it.
Assume you are aged 28, your
current monthly expenses are
` 35,000 and that you want
to retire at age 60 which is 32
years from now. Surely, given
inflation this amount will have
risen by the time you retire.
If we assume an inflation of
7% you will actually need
` 3.05 lakh per month when
you retire. Given that your
regular income will stop after
retirement you will have to
create a fund which will help
you generate income for these
expenses. An amount of ` 5.17
crore can help you generate
this income. However, to
create this fund you will need
to invest ` 13,290 beginning
now. This amount is what you
need to start saving.
Now, let’s take a look at how
you can link your lump sum
ICICIdirect Money Manager April 201426
payouts or windfall gains to
meet your retirement goal.
Say for example, you, a young
individual, have received a
bonus of ` 1 lakh. If you invest
this lump sum amount in
an investment option which
gives 10% p.a. return, you will
be able to create a corpus of
` 10,83,471 in a period of 25
years.
Choosing the STP route:
You may also consider
systematic transfer plans
(STPs) for investing your lump
sum payouts. STP allows you
to invest a lump sum amount in
one scheme (source scheme)
and periodically transfer the
amount in another (target
scheme) of the same asset
management company (AMC).
Say for example, you may first
deposit your lump sum money
in a liquid fund and instruct
the concerned fund house to
transfer say Rs 5,000 every
month from liquid fund to your
chosen fund, equity or debt
fund, and thus, staggering
your investments.
STP has integral feature
of systematic investment
plan (SIP) and systematic
withdrawal plan (SWP). The
amount is systematically
withdrawn from one scheme
and invested in another.
Therefore it helps you to buy
more units at lower net asset
value (NAV) and fewer units at
higher NAV.
Spending thoughtfully:
Once you have set aside funds
for your top financial priorities,
you may consider spending
a small portion of your lump
sum benefits, say 5 per cent
to 10 per cent, on something
you would like. It is important
to understand that a financial
windfall or lump sum benefits
are occasional in nature. If
the funds are used to spend
irrationally, you may run the
risk of draining your resources.
FLAvOUR OF THE MONTH
ICICIdirect Money Manager April 201427
FLAvOUR OF THE MONTH
Please send your feedback to [email protected]
Windfall wisdom through life stages
Life-stages Potential source(s) of lump sum benefit/
windfall
Prudent approach
Young & single Bonus at work
- Eliminate high-cost debt. Build your credit score.- Be aggressive. Invest maximum in growth assets such as equities. Ideal allocation could be: 80% in equity, 10% in fixed income, 10% in cash.- Buy a health insurance cover for yourself and parents.
Newly marriedBonus at work, gifts from family and relatives
- Prepare for emergencies. Build up an adequate emergency fund.- Get an adequate life cover.- If servicing a home loan, use any windfall gain for prepayment.- Buy a cover for protection against home loan and home contents.- Include wife in family floater health cover.- Start saving for retirement.
Starting a family
Bonus at work
- Start saving for children's education and marriage. Earmark specific investments for these goals.- Enhance life cover to take care of long-term goals.- Include children in health insurance cover.
Grown-up children
Investment payouts, inheritance, bonus at work
- Buy critical illness cover for self and wife.- Adopt a balanced approach. Allocation could be: 60% in equity, 30% in fixed income, 10% in cash
Retired
Maturity proceeds of investments and insurance, lump sum pension amount, etc.
- Ensure adequate health insurance.- Enhance protection with a contingency fund.- Focus on safety. However, inflation means you can't avoid equity. You could consider: 20% in equity, 70% in fixed income, 10% in cash.
To sum up, if you plan well and control the urge to spend impulsively, a windfall gain or a lump sum payout can be a big boost to your financial future.
ICICIdirect Money Manager April 201428
Indian economy is entering an interesting phase, after some
years of muted growth, says Sunil Singhania, Chief Investment
Officer (CIO) - Equity Investments, Reliance Mutual Fund, in an
interview with ICICIdirect Money Manager. He believes overall
market valuations are reasonable and present an investment
opportunity for the long-term investors. Excerpts:
‘Fairly confident on the economy coming back on track’
Tête-à-tête
Sunil Singhania CIO - Equity Investments
Reliance Mutual Fund
What is your take on
current market situation?
Do you see the markets to
remain within existing range
or do you see a break-out in
either direction?
Indian economy is
entering an interesting
phase, after some years of
muted growth. The gross
domestic product (GDP)
growth is stabilizing through
improvement in global
demand, good monsoons in
India and possible peaking
of inflation and interest rates.
With the Central Government
elections underway and an
increasing possibility of a
stable formation, the policy
slowdown is expected to see
a reversal. Inflation continues
Q:
A:
to trend downwards along
with the currency stability
reflecting a better outlook for
interest rate reversal over the
next few quarters.
Overall valuations appear
reasonable, despite the
recent rally in markets as a
ICICIdirect Money Manager April 201429
Tête-à-tête
lot of rerating is also due to
improvement in earnings on a
low base. We believe equities
can be among the best
performing asset classes over
the medium to long term.
What are the key risks
to Indian markets that one
should be watchful about?
The near term direction
of the market will be very
focused on the key domestic
event of General Elections
and based on the formation
there can be some short term
impact on the sentiment. The
Reserve Bank of India (RBI)
in its recent policy review
highlighted the potential risk
to inflation from weather
phenomenon like El Nino. (El
Nino is an abnormal warming
of surface ocean waters in the
eastern tropical Pacific Ocean,
with an impact on weather
conditions around the world).
Markets have witnessed
significant participation from
Q:
A:
foreign institutional investors
(FIIs) in the recent past and
there can be some outflows
based on near term events
like election results or profit
booking.
What is your general
assessment of our domestic
macro story? Is India growth
story still intact in your
opinion?
The key macro
challenges like twin deficits
(current account deficit and
fiscal deficit), inflation and
currency volatility have been
subsiding and domestic
factors are increasingly
favoring a strong equity
market. On the global front
also recovery in key markets
like the US, Europe, etc. have
created positive sentiment
for equity markets. Within
emerging markets space
India offers a fairly diversified
investment opportunity unlike
few other markets which
Q:
A:
ICICIdirect Money Manager April 201430
Tête-à-tête
are skewed towards select
sectors like commodities,
energy, etc. Thus, given the
backdrop of a revival in key
economic parameters, we
believe it’s just a matter of
time that the GDP growth
will pick up and we are fairly
confident on the economy
coming back on track sooner
than later.
What, according to
you, are the key factors
that will drive investment
opportunities in the country?
Over the last few years
we have witnessed a subdued
investment environment
given the domestic and
global worries. During this
period corporate houses had
maintained a cautious stance
and preferred cash to capital
expenditure. However we
have witnessed a renewed
interest in the economy
as the key headwinds like
inflation, interest rates, etc.
Q:
A:
are peaking, at the margin.
Additionally, improving
global demand on the back
of recovery in key developed
markets is likely to lead to a
better GDP growth. Increasing
possibility of stable central
government post elections is
likely to lead to reversal in the
policy slowdown witnessed in
last few years.
All these key positive factors
are expected to lead to an
improved investment climate
in the country.
What is your view on
valuations? Are the current
market valuations attractive?
The current market
valuations appear to be
reasonable and present an
investment opportunity for
the long-term investors.
The 1-year forward price/
earnings (P/E) ratio of the key
benchmark index like Nifty is
at 14 and is more than 50%
Q:
A:
ICICIdirect Money Manager April 201431
lower than the peak valuations
that prevailed during 2007-
2008. The current valuations
are even lesser than the eight-
year averages.
Further, not only are the
valuations of the overall
market reasonable, lots of
stocks are available at very
attractive valuations. We
analyzed a universe of over
750 companies with a market
capitalisation of at least ` 100
crore and in terms of trailing
twelve-month PE, we found
that:
• 50%ofcompanies in the
universe are traded at PE of
less than 10
• 75%ofcompanies in the
universe are traded at PE of
less than 20
Thus, despite the recent rally,
where benchmark indices
scaled new highs, the overall
valuations are reasonable.
Which sectors are
looking interesting now?
Which sectors would you
advice to stay away from?
Domestic recovery
themes like consumer
discretionary, banking,
industrials appear to
be interesting areas of
opportunity. Sectors that can
benefit from global recovery
like technology, healthcare,
etc. also remain important
investment themes.
We remain cautious on
sectors with higher valuations
like fast-moving consumer
goods (FMCG) and remain
focused on stock-specific
opportunities in themes like
commodities and real estate.
What are your key
takeaways from the
December 2013 quarter
results? What are your broad
expectations from India Inc
for FY15?
Q:
A:
Q:
Tête-à-tête
ICICIdirect Money Manager April 201432
We have witnessed an
improvement in the corporate
results and for the first time in
many quarters the results for
December 2013 quarter were
better than the estimates. We
believe corporate earnings
will steadily improve given the
improved growth dynamics
and expect the FY15 earnings
to be significantly higher from
current levels.
How should one go
about investing in equity
markets in the current
scenario?
Equities as an asset
class have created enormous
wealth over a period of time.
For example, BSE Sensex
has generated compounded
returns of approximately
17% p.a. over the last 34
years. The asset class also
was among top performing
asset classes over the last few
years. However, despite the
return potential of equities,
A:
Q:
A:
we have witnessed investors
remaining under allocated to
the asset class based on near-
term underperformance.
This clearly highlights
the need for proper asset
allocation and adequate
investment horizon to gain
from equity investment.
Hence, we believe, based
on the investment horizon
and risk profile, the investors
can consider investments in
equity funds via lump sum or
systematic investment plans
(SIPs).
Tell us about your stock
selection process. How do
you find ideas for your funds?
We have a strong in-
house research team of
over 15 members and track
around 500 companies.
Of this, approximately 250
companies are tracked in
house. We believe that the
best investment is one where
Q:
A:
Tête-à-tête
ICICIdirect Money Manager April 201433
the performance and the
perception can both improve.
For performance, the key
parameters we focus on are,
external opportunities for
the company, sustainable
competitive advantage,
scalability, management
quality and integrity, as well
as concern for the minority
shareholders.
For the perception part, past
track record, entry barriers to
business, growth prospects,
return on investment (ROI)
and return on equity (ROE) as
well as broad market outlook,
historical benchmarks, etc. are
key considerations.
Intelligence checks on the
company, management,
business models along with
company meetings also for
important inputs for stock
selection.
Idea sources include
investment team meetings
(fund managers and research
analysts), external research
reports, customized research
by appointed agencies, etc.
Anything else you
would like to share with our
readers?
We remain positive on
equity markets and expect
superior returns from the
asset class over the medium
to long term. Domestic
investors remain hugely
under-allocated to equities,
and despite near-term events,
investors can consider
investments in equity funds
in-line with their risk profile
and investment horizon.
The views expressed in the
interview are personal views
of the author and do not
necessarily represent the
views of ICICI Securities.
Q:
A:
The views expressed in the interview are personal views of the author and do not necessarily represent the views of ICICI Securities.
Tête-à-tête
ICICIdirect Money Manager April 201434
Understanding Inflation Indexed National Savings Securities (IINSS)
ASk OUR PLANNER
I heard that Inflation
Indexed National Savings
Securities (IINSS) have been
launched recently. How does it
work? Is it advisable to invest?
- Amol Shinde
IINSS is an instrument, in
which, interest is linked with the
rate of inflation. Inflation rate
is based on the final combined
Consumer Price Index (CPI). The
final combined CPI is used as a
reference CPI with a lag of three
months. For example, the final
combined CPI for the month of
September 2013 will be used
as a reference CPI for whole of
December 2013.
The interest rate on IINSS
is divided into two parts: (i)
The fixed rate of 1.5% p.a. (ii)
Inflation rate. Say for example,
if inflation rate during the six
months period is 5%, then the
Q:
A:
interest rate for these six months
would be 5.75% (i.e. fixed rate of
0.75% and inflation rate of 5%).
The fixed rate of 1.5% would
act as a floor, which means
that 1.5% p.a. interest rate is
guaranteed if there is deflation.
For instance, if inflation rate is
-5%, then interest rate should
be -3.5%. But in such case,
negative inflation will not be
recognised and investors would
get fixed rate of 1.5% p.a.
The interest is accrued and
compounded in the principal
on half-yearly basis and is paid
along with the principal at the
time of redemption.
The minimum investment
limit for IINSS is ` 5,000. The
maximum limit is ` 10 lakh per
annum for individual investors.
The tenure of this instrument
is 10 years. For senior citizens
ICICIdirect Money Manager April 201435
ASk OUR PLANNER
above 65 years, the premature
redemption is allowed after one
year. For others, it is allowed
after 3 years.
IINSS was launched on
December 23, 2013 and was
scheduled to close on December
31, 2013. However, due to low
response, the closing date was
extended to March 31, 2014.
IINSS is meant for long-term
savings. With inflation being
high in India in recent years,
this instrument can be looked
to generate good returns and
protect from inflation. The safety
of principal also is not a concern,
as it will be considered par with
government securities. Even
though the taxation is similar to
that of fixed deposits (FDs), the
interest can be higher than FDs
during high inflation periods.
However, during low inflation
periods, the interest can be
lower than FDs.
However, there are some pitfalls.
One is liquidity. The premature
redemptions are available only
on the coupon dates and that
too with some penalty. Two,
IINSS are not tradable in the
secondary market. Further,
there are no tax benefits offered
for principal and interest.
IINSS are expected to hit the
market this financial year too. It
is advisable to wait for the offer
to know the features and then
take a decision.
I am 32-year old male.
Here are my financial details:
Take home income: ` 50,000
p.m. Liabilities: Car loan
outstanding - ` 4 lakh, Credit
card outstanding - ` 1 lakh,
Personal loan outstanding -
` 1.5 lakh. Investments: LIC:
` 30,000 p.a.; Insurance: HDFC
ergo Health insurance: `. 4,000
p.a.
Q:
ICICIdirect Money Manager April 201436
ASk OUR PLANNER
kindly suggest a detailed plan
on how to save ` 20 lakh in 3
years time to purchase a house
in Bangalore. Also, need your
expert advice on investments
in MFs to reach ` 50 lakh in 8
years time.
- Premanka Majumder
You have not provided any
details of accumulation of your
existing investments, which, if
any, can be used to close your
high cost loans – credit card
and personal loan. Else, you
will have to use your monthly
surplus for the same.
Assuming you spend about 40%
of your monthly income towards
household and other expenses
(i.e. ` 20,000 p.m.), ` 5,500 p.m.
towards EMI of your personal
loan (assuming 3 more years)
and ` 13,500 p.m. towards EMI
of your car loan (assuming 3
more years), you will be left with
a monthly surplus of ` 11,000.
A:
This amount can be used for
next 12 months to payoff your
credit card outstanding amount.
After paying off your credit card
outstanding amount, you can
start investing the surplus (i.e.
` 11,000 p.m.) towards your goal
of buying a house in Bangalore.
This will fetch you around
` 2.87 lakh with two years of
investment (assuming rate of
return at 8% p.a.). Therefore,
accumulating ̀ 20 lakh in 3 years
time to purchase a house seems
improbable.
Coming to your goal of
accumulating ̀ 50 lakh in 8 years
time, assuming that you invest
` 2.87 lakh, which you would
have accumulated in 3 years time
as mentioned above, along with
` 30,000 p.m. surplus (` 5,500
p.m. as personal loan would
have been paid off + ` 13,500
p.m. as car loan would have
been paid off + ` 11,000 p.m.
ICICIdirect Money Manager April 201437
Do you also have similar queries to ask our experts? Write to us at: moneymanager@
icicisecurities.com.
– your initial investible surplus),
for the next 5 years, you will be
able to accumulate around ` 30
lakh in 8 years time (assuming
rate of return at 12% p.a.).
This can be achieved by
investing into two to three
diversified equity mutual funds.
You can refer our website www.
icicidirect.com to know about
the recommended funds.
I have spent ` 5,000 for
getting MRI of my wife. Can I
claim deduction under section
80D under heading preventive
health check-up? Also, how can
I show my share trading money
in income tax return?
- Bk Singh
You can claim the amount
under section 80D if the MRI
scan has been done as a part
Q:
A:
of preventive health check-
up. Else, if you are employed
and are getting medical bill
reimbursement, this amount
can be claimed under that
(the maximum limit being
` 15,000 p.a.).
If your main business is trading
in securities, then the profit
generated from trading in
securities has to be shown
under the head 'Income from
Business and Profession' and
the same will be taxed as per
your income slab. Else, you
can show the profit generated
under the head 'Income from
Capital Gains', where any long-
term capital gain (profit from
securities held for more than
1 year) will be exempt from
tax and short-term capital gain
(profit from securities held up to
1 year) will be taxed at 15%.
ASk OUR PLANNER
ICICIdirect Money Manager April 201438
Prioritize, Plan, and Prosper
YOUR FINANCIAL HEALTH CHECk
Every month, ICICIdirect Money Manager
assesses one family's current financial
situation, and suggests a suitable way
forward to help them reach their goals...
The SHINDES
Mandar (25), Ranjit (52), Asha (48)
Reside in: Mumbai Annual income: ` 4,00,000
Family Profile
Mandar Shinde, 25, stays in Mumbai. He is a software engineer
by profession. Mandar's father Ranjit is working with a bank
and his mother Asha is a school teacher. Mandar approached
ICICIdirect Money Manager to better plan his finances.
MANDAR’S BASIC EXPENSES (ANNUAL BREAk-UP)
Household expenses ` 1,00,000
Holiday and entertainment expenses ` 60,000
Traveling expenses ` 50,000
Miscellaneous ` 40,000
Total ` 2,50,000
INvESTMENT DETAILS
Mandar invests ` 70,000 annually in public provident fund (PPF)
account, which he started last year only.
ICICIdirect Money Manager April 201439
YOUR FINANCIAL HEALTH CHECk
ASSETS AND LIABILITIES
Assets: Mandar has saved
` 3 lakh in his savings bank
account. Liabilities: Currently,
he has no liabilities.
MANDAR’S FINANCIAL
GOALS
1. Buy a car. Time to achieve
goal: 1 year.
2. Save for marriage
expenses. Time to achieve
goal: 4 years.
3. Accumulate a corpus of
` 20 lakh for renovating his
ancestral house. Time to
achieve goal: 10 years.
PLANNING
1. Car: Mandar wants to buy
a new car worth ` 5 lakh in
the next 1 year. Considering
the rise in prices (at 7%), the
cost of this goal may go up
to around ` 5.35 lakh after
1 year. Supposing, he takes
a car loan, he will still have
to arrange for the down-
payment. Considering the
down payment to be 20%, this
would amount to ` 1.07 lakh
after 1 year. To accumulate
this amount, Mandar needs to
save and invest approximately
` 8,551 per month to achieve
this goal. As the goal tenure
is short, Mandar should
invest in debt instruments.
Alternatively, as he already
has ̀ 3 lakh in his savings bank
account, he can invest ̀ 99,074
from it in a bank fixed deposit
(FD) for 1 year to accumulate
for the down payment.
2. Marriage expenses:
Mandar plans to get married
after 4 years and wants to
contribute a certain amount,
i.e. ` 5 lakh for his marriage
expenses. Considering the
rise in general prices, he will
need approximately ` 6.6
ICICIdirect Money Manager April 201440
YOUR FINANCIAL HEALTH CHECk
lakh after 4 years. To achieve
this goal, Mandar needs to
save and invest ` 11,623 per
month or ` 1.34 lakh annually
for 4 years. Mandar’s surplus
isn’t sufficient to save for this
goal currently; however, he
expects an annual increase in
his income by 10%. So, he can
follow a stepped up investing
approach for this goal, as his
income increases.
3. Ancestral house renovation:
Mandar wants to accumulate
a corpus of ` 20 lakh after
10 years for renovating his
ancestral house. Considering
the inflation, he may need
around ` 39.3 lakh after 10
years. To achieve this goal,
Mandar needs to save and
invest approximately ` 17,561
per month or approximately
` 2 lakh annually. As Mandar’s
annual surplus currently is not
sufficient to plan for this goal,
he should re-look at his goals
and prioritize them. He can
then start investing as per the
goal priority and do a stepped-
up investing with increase in
his income.
Retirement and Insurance
Mandar has not listed
retirement planning as his
goal. He thinks he is too young
to plan for his retirement yet.
Advisably, the sooner he starts
planning, the better he’ll be
able to build corpus for his
sunset years.
Further, insurance is another
important area Mandar should
consider. Currently, he has
no liabilities and his parents
are also not dependant on
him, however, he should
continuously monitor his
finances as he may have
liabilities in future, for which,
adequate amount of insurance
is suggested.
ICICIdirect Money Manager April 201441
Understanding Monetary Policy
One event that catches investors’ attention every quarter is the monetary policy by the Reserve Bank of India (RBI). This is because monetary policy actions affect stock prices. What is monetary policy? How does RBI conduct it? What are the various monetary policy instruments? In our new series “Monetary Policy Simplified” we’ll demystify these step-by-step. To start with, in this edition, we make an attempt to simplify the concept of monetary policy.
PRIMER
What is monetary policy?
One of the main functions of RBI is to manage the money supply in a country. This is done through a monetary policy. Put simply, monetary policy is nothing but the management of money supply and interest rates, in order to control inflation (price stability) and promote economic growth.
Two broad objectives of monetary policy: (i) Maintain price stability, and (ii) Enhance economic growth
Why is it important?
As monetary policy determines the price of money and money supply in the economy, depending on the situation and assessment of the RBI,
it has implications for both households and corporates. Lower cost of money will mean people will borrow more and consume more. This, in turn, will drive demand and growth. If an economy is witnessing high inflation, the RBI will raise the cost of money by raising interest rates, and it will mean lower borrowing, lower consumption and slower growth.
Monetary policy approaches
A typical monetary policy takes either a contractionary (tighten money supply) approach or an expansionary (loosen money supply) approach.
Contractionary: Rise in interest rates. Individual loans more expensive. Assets lose value. It
ICICIdirect Money Manager April 201442
PRIMER
is used as a measure to control
inflation.
Expansionary: Cut in interest
rates. It is used to promote
employment and growth.
Source: RBI
For effective implementation of monetary policy, monetary policy framework needs a supporting operating procedure. An operating procedure is defined as day-to-day management of monetary conditions consistent with the overall stance of monetary policy. Generally, it involves: (i) defining an operational target, generally an interest rate; (ii) setting a policy rate which could influence the operational target; (iii) setting the width of corridor for short-term market interest rates; (iv) conducting liquidity operations to keep the operational target interest rate stable within the corridor; and (v) signalling of policy intentions.
To sum up, monetary policy is an important constituent of overall economic policy towards the pursuit of various economic goals, including expansion of employment, higher economic growth, and maintenance of price stability.
Monetary policy framework
The current framework of monetary policy in India can be termed as an augmented multiple indicator approach as illustrated in chart below:
Augmented Multiple Indicator Approach
Monetary Policy Action
Panel of TimeSeries Models
Growth and inflation outlook withrisks. Liquidity conditions
Monetary ProjectionsBroad Money. AggregateDeposits. Cridit to thePrivate Sector
Rate VariablesInterest rates in moneygovernment securitiesand credit markets,various inflation rates;asset prices and exchangerate
Quantity VariablesMoney, credit, fiscal deficit,rainfall index, industrialproduction, service sectoractivity, exports and imports,balance of payments andcapital flows
Forward IndicatorsRelevant variables fromindustrial outlook survey,capacity utilization survey,professional forecasters’survey and inflationexpections survey
ICICIdirect Money Manager April 201443
MUTUAL FUND ANALYSIS
Category: Mid-cap Equity Funds
IDFC Premier Equity
Fund Objective
The scheme shall seek to
generate long-term capital
growth from an actively
managed portfolio of
predominantly equity and
equity related instruments.
key Information
NAV as on March 31, 2014 (`)
47.2
Inception Date September 28, 2005Fund Manager Kenneth AndradeMinimum Investment (`) Lumpsum SIP
100002000
Expense Ratio (%) 2.13Exit Load 1% on or before
365D.Benchmark S&P BSE 500Last declared Quarterly AAUM (`cr)
3773
Product LabelThis product is suitable for investors seeking*:l Create wealth over a long period of time.l Investment predominantly in equity and
equity related instruments across market capitalisation.
l High risk (BROWN)
Fund Management
Mr. Kenneth Andrade has been managing the fund since June 2006. He is also the chief investment officer (CIO) at IDFC Mutual Fund. He has over 15 years of experience in fund management and equity research.
Performance
Launched in mid-2005, the fund has since then generated ~20% compounded annualised return (CAR) till date in its eight years of
existence. Consumption stocks have been major contributors to fund’s returns leading its journey to the best performing midcap fund. In the last two calendar years, the fund performance has seen a little drop from its historical outperformance as the portfolio converges from consumption heavy to more diverse sector holdings. Even then, the fund manger has managed to outperform most of its peers and beat the benchmark by a decent margin.
ICICIdirect Money Manager April 201444
MUTUAL FUND ANALYSIS
Performance vs. Benchmark30
.8
29.4
14.7
29.7
18.2
17.1
3.7
18.7
0
10
20
30
40
6 Month 1 Year 3 Year 5 Year
Ret
urn%
Fund Benchmark
Calendar Year-wise Performance
2013 2012 2011 2010 2009
NAV as on Dec 31 (`)
42.5 40.2 28.5 34.8 26.4
Return (%) 5.6 40.8 -18.0 32.1 102.1
Benchmark (%) 3.3 31.2 -27.4 16.4 90.2
Net Assets (` Cr) 3706 3603 2259 1986 1222
Last Three Years Performance
Fund Name31-Mar-13 31-Mar-12 31-Mar-11
31-Mar-14 31-Mar-13 31-Mar-12
Fund 29.40 10.84 5.24
Benchmark 17.08 4.81 -9.11
Portfolio
The fund portfolio is a mix
of large-cap as well as mid-
cap stocks with the latter
having higher weightage. Bold
contrarian calls have generated
the alpha for the fund. This may
be a riskier strategy but the fund
manager is known in the industry
as a good stock picker backed on
the strong performance of the
scheme so far.
In the current year, the fund
manager has booked profits in
its age old holding Kaveri Seeds.
Despite some profit booking,
the stock still continues to be the
top most holding of the scheme.
In the banking sector, more
large-cap banks are held
compared to mid-cap banks. The
fund manager has accumulated
United Bank, contrary to the
Street, which is not so bullish
on the stock. The fund has the
lowest allocation to banks of
~3-4% again contrary to many
other diversified schemes.
The stock which has been the
“find of the year” is VA Tech
Wabag. The stock has seen a
more than 60% up-move since
ICICIdirect Money Manager April 201445
MUTUAL FUND ANALYSIS
it was included in the portfolio.
Also, Larsen & Toubro (L&T),
though a pure large- cap, does
find a place in the portfolio and
has contributed to the returns.
The fund manager has preferred
playing the macroeconomic
recovery theme through
engineering and construction
companies unlike most of the
other peers who have preferred
playing it by having higher
weightage in private sector
banks as portfolio holding.
Godfrey Philips, the Cigarette
Company, United Breweries and
Tilaknagar Industries in the alcohol
industry, Bata India and retailing
companies like Trent, Shoppers
Stop and V-Mart comprise stocks
under the consumption theme.
Page Industries has been in the
portfolio for quite a few years and
contributed significantly to the
scheme’s returns almost every
year in the period of its holding.
While the consumption theme
has been the major contributor
to the portfolio returns so far,
it remains to be seen how
the current diverse portfolio
performs in the future. We
believe, stocks in the portfolio
are unique and have the potential
to grow bigger from hereon.
Top 10 Holdings Asset Type %Kaveri Seed Company Ltd. Domestic Equities 7.8Page Industries Ltd. Domestic Equities 6.6CBLO Cash & Cash
Equivalents5.1
Bata India Ltd. Domestic Equities 4.5Blue Dart Express Ltd. Domestic Equities 4.4MRF Ltd. Domestic Equities 3.6VA Tech Wabag Ltd. Domestic Equities 3.1Asian Paints Ltd. Domestic Equities 3.1GAIL (India) Ltd. Domestic Equities 3.0Zee Entertainment Enterprises Ltd.
Domestic Equities 2.9
Whats In %Godfrey Phillips India Ltd. 2.2Kotak Mahindra Bank Ltd. 2Greaves Cotton Ltd. 1.8
Whats out %Arvind Ltd. 0.6HDFC Bank Ltd. 1.9Gujarat State Fertilizers & Chemicals Ltd.
0
ICICIdirect Money Manager April 201446
Performance of all the schemes managed by the fund manager
Fund Name 31-Mar-13 31-Mar-12 31-Mar-11
31-Mar-14 31-Mar-13 31-Mar-12
IDFC Premier Equity Fund-Reg(G) 29.40 10.84 5.24
S&P BSE 500 17.08 4.81 -9.11
IDFC Equity Fund-Reg(G) 18.53 8.03 -8.05
CNX Nifty Index 17.98 7.31 -9.23
Market Capitalisation (%)Large 29.0Mid 55.7Small 8.7
Dividend HistoryDate Dividend
(%)Mar-26-2014 25Mar-26-2013 24.8Mar-23-2012 24.2Mar-29-2011 24Mar-29-2010 24Apr-28-2009 15
Top 10 Sectors Asset Type %Agriculture Domestic Equities 7.8Textile Domestic Equities 6.6Gas Transmission/Marketing
Domestic Equities 5.4
Engineering - Construction
Domestic Equities 5.1
TV Broadcasting & Software Production
Domestic Equities 5.0
Leather Domestic Equities 4.5Courier Services Domestic Equities 4.4Retailing Domestic Equities 4.2Power Generation/Distribution
Domestic Equities 3.9
Fertilizers Domestic Equities 3.6
Risk Parameters
Standard Deviation (%) 12.32
Beta 0.66
Sharpe ratio 0.11
R Squared 0.85
Alpha (%) 5.44
Portfolio Attributes
Total Stocks 32.0
Top 10 Holdings (%) 48.3
Fund P/E Ratio 19.0
Benchmark P/E Ratio 16.9
Fund P/BV Ratio 4.8
*Investors should consult their financial advisors if in doubt about whether the product is suitable for them
Note : Risk is represented as:
(BLUE) Investors understand that their principal will be at low risk
(YELLOW) Investors understand that their principal will be at medium risk
(BROWN) Investors understand that their principal will be at high risk
Data as on March 31, 2014 and Portfolio Details as on February 28, 2014Source: ICICIdirect.com Research; ACE MF
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 201447
Category: Mid-cap Equity Funds
HDFC Midcap Opportunities
Fund Objective
The aim of the fund is to
generate long-term capital
appreciation from a portfolio
that substantially consists
of equity and equity related
securities of small and midcap
companies.
Fund Management
Mr. Chirag Setalvad has been
managing the fund since April
2007, and has over 16 years of
industry experience.
Performance
The fund has been a star
performer in the mid-cap funds
category. In CY10, when the
benchmark CNX Midcap index
slipped by 31%, in same year the
fund limited losses to 18%. In the
rally of CY09, the fund delivered
key Information
NAV as on March 31, 2014 (`)
22.5
Inception Date June 25, 2007Fund Manager Chirag SetalvadMinimum Investment (`) Lumpsum SIP
50000
Expense Ratio (%) 2.13Exit Load 1% on or before 1Y,
NIL after1YBenchmark CNX MidcapLast declared Quarterly AAUM (`cr)
3201.34
Product LabelThis product is suitable for investors seeking*:l Capital appreciation over long term.l Investment predominantly in equity and
equity related instruments of Small and Mid Cap companies.
l High risk (BROWN)
same returns as the benchmark.
In the recent rally, the fund
has beaten the benchmark by
huge margins. CNX Mid-cap
Index, in the last six months,
has delivered 23% return while
the fund has outperformed the
index delivering a whopping
35% return. The performance
has mainly come on the back
of several mid-cap banks
and being overweight on the
pharmaceuticals sector. The
fund was launched in 2007
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 201448
when markets were at their
peaks. Since inception, the fund
has delivered 13% compounded
annualised returns (CAR) as
against 6.12% CAR delivered
by the benchmark CNX Midcap
index.
Portfolio
The fund has 64 stocks in the
portfolio of which 61 have been
held for more than a year at
least. The buy and hold strategy
in mid-cap stocks has benefited
the fund. Diversification in mid-
cap stocks is optimum as the
fund has accumulated assets
under management (AUM) of
over ` 3,000 crore.
Sector bias is often seen in
the portfolio. Currently, the
portfolio has ~17% allocation
to pharmaceuticals stocks.
Despite the run-up there is no
profit-booking indicating the
fund manager’s positive outlook
on the sector is intact. In mid-
cap pharmaceuticals stocks,
any major downfall for whatever
specific reason is being used as
a buying opportunity for long
term.
Allocation to technology stocks
has been reduced while mid-
cap banking stocks have seen
some addition. Consumption
theme is played through air
conditioners and domestic
appliance manufacturers. Being
a mid-cap fund, auto ancillaries
and tyre companies also form a
decent part of the portfolio.
Overall, a quality larger mid-
cap stocks portfolio, buy and
hold strategy, no cash calls
and outstanding performance
history make the fund suitable
for long-term investment.
Top 10 Holdings Asset Type %
Aurobindo Pharma Ltd. Domestic Equities 4.4
Ipca Laboratories Ltd. Domestic Equities 4.3
Mindtree Ltd. Domestic Equities 3.9
Supreme Industries Ltd. Domestic Equities 3.5
NIIT Technologies Ltd. Domestic Equities 3.2
Net Current Asset Cash & Cash Equivalents
3.1
Torrent Pharmaceuticals Ltd.
Domestic Equities 2.8
Persistent Systems Ltd. Domestic Equities 2.7
Divis Laboratories Ltd. Domestic Equities 2.7
Lupin Ltd. Domestic Equities 2.7
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 201449
Whats In %Navneet Education Ltd. 0.4
Whats out %
Market Capitalisation (%)
Large 39.0
Mid 31.1
Small 21.9
Top 10 Sectors Asset Type %
Pharmaceuticals & Drugs Domestic Equities 17.4
IT - Software Domestic Equities 11.8
Bank - Private Domestic Equities 6.7
Bank - Public Domestic Equities 5.9
Auto Ancillary Domestic Equities 4.5
Bearings Domestic Equities 3.8
Plastic Products Domestic Equities 3.5
Chemicals Domestic Equities 3.3
Abrasives Domestic Equities 2.9
Tyres & Allied Domestic Equities 2.7
Asset AllocationEquity 96.9Debt 0.0Cash 3.1
Market Capitalisation (%)Large 37.5Mid 47.2Small 12.2
Asset AllocationEquity 96.9Debt 0.0Cash 3.1
Risk ParametersStandard Deviation (%) 12.95Beta 0.70Sharpe ratio 0.11R Squared 0.92Alpha (%) 7.56
Portfolio AttributesTotal Stocks 65.0Top 10 Holdings (%) 33.4Fund P/E Ratio 18.8Benchmark P/E Ratio 14.1Fund P/BV Ratio 3.7
Dividend HistoryDate Dividend
(%)Feb-28-2014 17.5Feb-28-2013 11.5Feb-23-2012 15
*Investors should consult their financial advisors if in doubt about whether the product is suitable for them
Note : Risk is represented as:
(BLUE) Investors understand that their principal will be at low risk
(YELLOW) Investors understand that their principal will be at medium risk
(BROWN) Investors understand that their principal will be at high risk
Data as on March 31, 2014 and Portfolio Details as on February 28, 2014Source: ICICIdirect.com Research; ACE MF
Performance of all the schemes managed by the fund managerFund Name 31-Mar-13 31-Mar-12 31-Mar-11
31-Mar-14 31-Mar-13 31-Mar-12HDFC Mid-Cap Opportunities Fund(G) 30.52 5.23 8.51CNX Midcap 16.36 -4.02 -4.09HDFC Long Term Adv Fund(G) 24.05 7.10 -3.75S&P BSE SENSEX 18.85 8.23 -10.50HDFC Multiple Yield Fund 2005(G) 11.47 6.54 9.41Crisil MIP Blended Index 6.47 9.09 5.26
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 201450
Our indicative large-cap equity model portfolio has continued to deliver an impressive return (inclusive of dividends) of ~47% since its inception (June 21, 2011) vis-à-vis Sensex return of ~29% during the same period, nearly 1.6x the index performance. This has lent further confidence to our stock picking philosophy for “Quality-21” large-cap stocks. The mid-cap portfolio, which has generally outperformed the market since inception mainly driven by our prudent stock selection, has witnessed a reduction in outperformance to ~1.6x vis-à-vis the midcap index. The “Consistent-15” delivered a return ahead of its benchmark index (~24% since its inception vis-à-vis CNX Midcap return of 15% during the same period). Some key performers of our portfolios are Sun Pharmaceuticals, Lupin, TCS, Tata Motors, ITC, Maruti Suzuki and Dabur India delivering 57-126%returns since inception.We have always suggested the Systematic Investment Plan (SIP) mode of investment and still find a lot of merit in it as the preferred mode of deployment given the market conditions and volatility associated since the inception of the portfolio. It has outperformed other portfolios, thus, reinforcing our belief in a plan of investment.The index has scaled the walls of fear and positive expectations related to a new stable government have pushed it towards its life-time highs at ~6,800 levels. We feel the market could continue to see an expectation led rally going into general elections in May 2014. However, post this in case the outcome remains as expected we could witness a more grounded behaviour beyond that for the remaining year. Thus, we have leaned forward towards inclusion of stocks with more discretionary domestic export exposure viz. Page Industries and United Spirits. We have favoured booking profit in stocks that we feel can be better replaced, thus exiting Maruti Suzuki with a return of ~70% since inception. We also exit Navneet Publications. We believe we have a better balance to the portfolio going into a possible recovery in H1FY15E.In terms of relative weightage to the sector vis-à-vis the Sensex, we continue to remain overweight on IT, pharma and telecom given their relatively better earnings growth profile. We have also incrementally added to our overweight consumer discretionary stance as we believe it will witness strong delta in terms of both sales growth and earnings rise. We are underweight on financials (prefer private vis-à-vis public sector banks), oil & gas, the infra space (cement, infra and power) as real economic recovery remains still some time away. For other equal weight sectors we are playing specific themes like FMCG (overweight ITC) and the metals and mining space as we like individual names like L&T in the pure play infra space and feel bullish on the cement space via UltraTech Cement while remaining negative on the power space.
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager April 201451
EQUITY MODEL PORTFOLIO
Name of the company Model PortfolioLargecap
(%)Midcap
(%)Diversified
(%)Largecap StocksConsumer Discretionary 11 7.7United Spirits 3 2.1Tata Motors DVR 5 3.5Bajaj Auto 3 2.1BFSI 19 13.3HDFC 6 4.2HDFC Bank 6 4.2SBI 3 2.1Axis Bank 4 2.8Power, Infrastructure & Cement 8 5.6L & T 5 3.5Ultratech Cement 3 2.1FMCG 13 9.1Nestle 3 2.1ITC 10 7Metals & Mining 3 2.1NMDC 3 2.1Oil and Gas 11 7.7Reliance 11 7.7Pharma 7 4.9Lupin 3 2.1Sun Pharma 4 2.8IT 17 11.9Infosys 5 3.5TCS 8 5.6Wipro 4 2.8Telecom 5 3.5Bharti Airtel 5 3.5Media 3 2.1Zee Entertainment 3 2.1Retail 3 2.1Titan 3 2.1Largecap share in diversified 70
ICICIdirect Money Manager April 201452
Content source: ICICIdirect.com Research
ICICI Securities Ltd. has been assigned an advisory mandate by Ranbaxy Laboratories Limited with regard to Sun Pharmaceutical Industires Limited's acquisition of Ranbaxy Laboratories Limited. This report is prepared on the basis of publicly available information.
EQUITY MODEL PORTFOLIO
Name of the company Model PortfolioLargecap
(%)Midcap
(%)Diversified
(%)Midcap Stocks
Consumer Discretionary 14 4.2
Bosch 8 2.4
Page Industries 6 1.8
IT 6 1.8
Info Edge 6 1.8
BFSI 16 4.8
J&K Bank 8 2.4
IndusInd Bank 8 2.4
FMCG 20 6
Kansai Nerolac 8 2.4
Dabur 6 1.8
Tata Global Beverages 6 1.8
Pharma 14 4.2
Cadilla 8 2.4
Natco Pharma 6 1.8
Media 6 1.8
Sun TV 6 1.8
Capital Goods 6 1.8
Cummins 6 1.8
Realty/Infrasturcture/Cement 18 5.4
Container Corporation of India 6 1.8
Oberoi Realty 6 1.8
Shree Cement 6 1.8
Midcap share in diversified 30
Total of all three portfolios 100 100 100
ICICIdirect Money Manager April 201453
MUTUAL FUND MODEL PORTFOLIO
EQUITY MUTUAL FUNDS MODEL PORTFOLIO
20.6720.99 20.99
17.96
16
17
18
19
20
21
22
Aggressive Moderate Conservative BSE 100
(%)
Returns
Investors who are wary of investing directly into equities can still get returns almost as good as equity markets through the mutual fund route.We have designed three mutual fund model portfolios, namely, conservative, moderate and aggressive mutual fund portfolios. These portfolios have been designed keeping in mind various key parameters like investment horizon, investment objective, scheme ratings, and fund management.
Particulars Aggressive Moderate ConservativeReview Interval Monthly Monthly QuarterlyRisk Return High Risk- High
ReturnMedium Risk -
Medium ReturnLow Risk - Low
ReturnFunds Allocation % Allocation
Franklin India Prima Plus 25 25 25Birla Sunlife Frontline Equity 25 25 25ICICI Prudential Dynamic Plan - 25 25ICICI Prudential Focused Blue-chip Eq.
25 - -
UTI Opportunities 25 25 25
Grand Total (a+b) 100 100 100Source: ICICIdirect.com Research
All three portfolios have outperformed the BSE 100 Index in FY14 delivering 21% absolute return
Returns (in %) are absolute; Source: ICICIdirect.com Research, Crisil Fund Analyser; Portfolio inception date: September 15, 2009
ICICIdirect Money Manager April 201454
MUTUAL FUND MODEL PORTFOLIO
DEBT MUTUAL FUNDS MODEL PORTFOLIO
8.60
6.205.49
9.048.31
3.56
0.01.02.03.04.05.06.07.08.09.0
10.0
0-6 Months 6 Months -Year Above 1yr
%
Portfolio Index
We have designed three different mutual fund model portfolios for different investment duration namely less than six months, six months to one year and above one year. These portfolios have been designed keeping in mind various key parameters like investment horizon, interest rate scenarios, credit quality of the portfolio and fund management, etc.Keeping in mind the current market scenario and portfolio of the funds we have changed the allocation. Based on the portfolios of individual funds, we have introduced new funds in the portfolio.Particulars Time Horizon 0 – 6 months 6 months - 1 Year Above 1 YearObjective Liquidity Liquidity with
moderate returnAbove FD
Review Interval Monthly Monthly QuarterlyRisk Return Very Low Risk -
Nominal ReturnMedium Risk -
Medium ReturnLow Risk - High
ReturnFunds Allocation % AllocationUltra Short term Funds IDFC Money Manager Fund - Investment Plan 20 - -Templeton India Low Duration Fund 20 - -Reliance Medium Term Fund 20 - -Short Term Debt Funds Taurus Short Term Income Fund 20 - -Birla Sunlife Short Term Fund 20 - -Birla Sunlife Short Term Opportunities Fund - 20 20ICICI Prudential Short Term - 20 -ICICI Prudential Regular Savings - - 20IDFC SSI Short Term - 20 -Sundaram Select Debt - 20 20UTI Short Term Fund - 20 -Tempelton Short Term Income - - 20Long Term/Dynamic Debt Funds IDFC Dynamic Bond fund - - 20Total 100 100 100
Source: ICICIdirect.com ResearchAbove 1-year portfolio outperformed benchmark index despite volatile yields
throughout FY14
Model portfolio performance: FY14; Source: Crisil Fund Analyser, ICICIdirect.com Research; Index: 0-6 months portfolio – Crisil Liquid Fund Index; 6 months-1 year – Crisil Short Term Index; Above 1 year: Crisil Composite Bond Index.(Note: Higher allocation to short-term funds led to underperformance of the 6 months to 1 year debt funds portfolio against the benchmark Crisil Short Term Bond Index)
ICICIdirect Money Manager April 201455
1. Retirement fund body EPFO will soon provide ______ number to its subscribers, which will facilitate them to avoid filing of provident fund transfer claims on changing jobs.
2. The tenure of Inflation Indexed National Savings Securities (IINSS) is ______ years.
3. Short-term capital gains, i.e. profit from securities held up to 1 year, are taxed at ______ per cent.
4. A typical monetary policy takes either a ______ approach (i.e. tighten money supply) or an ______ approach (i.e. (loosen money supply).
5. The Inflation Indexed National Savings Securities (IINSS) are tradable in the secondary market. True/False
Note: All the answers are in the stories that have appeared in this edition of ICICIdirect Money Manager. You may send in your answers at: [email protected] 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 March 2014 quiz are:1. In India, a person can make a Will if he or she is above the age of ______ years.A: 212. You can walk into any bank to get your pre-2005 currency notes – including
Rs. 500 and Rs. 1,000 denominations - exchanged till ______.A: January 1, 20153. When you open a new demat account for Rajiv Gandhi Equity Savings Scheme
(RGESS) purpose, you need to first designate the account under RGESS through Form ______, before starting to invest.
A: Form A4. A new pension scheme (NPS) account opened matures only when the
subscriber turns ______ years of age.A: 605. If persons from Christian, Parsi and Jew religions die without making a Will,
______ Act gets applied to them for inheritance purposes.A: Indian Succession Act
Congratulations to the following winner for providing correct answers!Chetan Prajapati
QUIZ TIME
ICICIdirect Money Manager April 201456
MONTHLY TRENDS
WPI INFLATION (FOOD)
(The figures are in per cent) CRUDE OIL
NYMEX crude oil prices ($/barrel) FII & DII INvESTMENTS
(Foreign institutional investors (FIIs) and domestic institutional investors (DII) net equity investment (` in crore)
vOLATILITY INDEX (vIX)
VIX is a key measure of market expectations of near term volatility. When the markets are highly volatile, the VIX tends to rise.
8.12 9.90
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Feb-14 Mar-14
(%)
102.59 101.58
94.0
96.0
98.0
100.0
102.0
104.0
106.0
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
$ pe
r bar
rel
607.801117.70
12.02-611.22
-2000
-1000
0
1000
2000
3000
4000
5000
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-MarFII DII
.
14.18
18.37
12.0
16.0
20.0
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
VIX
ICICIdirect Money Manager April 201457
MONTHLY TRENDS
DOMESTIC INDICESBSE Sensex
NSE Nifty
GLOBAL INDICESDow Jones
NASDAQ
EXCHANGE RATESUSD-INR
21120.12
22386.27
20000
20500
21000
21500
22000
22500
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
6276.95
6704.20
5900
6000
6100
6200
6300
6400
6500
6600
6700
6800
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
16321.71
16457.66
15600
15900
16200
16500
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
4308.12
4198.99
4000
4100
4200
4300
4400
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
61.79
60.01
58.5
59.0
59.5
60.0
60.5
61.0
61.5
62.0
62.5
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
USD
/ IN
R
5.99%
6.81%
0.83%
2.89%
2.53%
ICICIdirect Money Manager April 201458
MONTHLY TRENDS
103.46
99.98
97.0
98.0
99.0
100.0
101.0
102.0
103.0
104.0
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
₤/ IN
R
POUND-INR
EURO-INR
BULLIONGOLD
(The prices are in $ per ounce).
SILVER
(The prices are in $ per ounce).
(Source for all indicators: Bloomberg, Reuters)
85.28
82.63
78.0
80.0
82.0
84.0
86.0
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
€/ I
NR
1325.791283.64
1150
1225
1300
1375
1450
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
$ pe
r Oun
ce
21.19
19.71
18.0
20.0
22.0
28-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar
$ pe
r Oun
ce
3.36%
3.11%
ICICIdirect Money Manager 59 April 2014
Premium Education Programmes Schedule
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 April, 2014.
Schedule for Beginners Programme on Futures and Options Trading
Sr. No
City Dates For More Information & Registration call:
1 Pune April 19 and 20 2014 Kusmakar on 7875442311
2 New Delhi April 26 and 27 2014 Vishal on 07838290143, Harneet on 09582158693
3 Kolkata April 26 and 27 2014 Sumit on 8017516187
4 Mumbai-Chembur
April 19 and 20 2014 Manish on 8451057943
5 Navi Mumbai April 19 and 20 2014 Manish on 8451057943
6 THANE April 19 and 20 2014 Vidhu on 9619716146
7 Bangalore April 26 and 27 2014 Subrata on 9620001478
Schedule for Fast Track Beginners Programme on Futures and Options Trading
Sr. No
City Dates For More Information & Registration call:
8 Lucknow April 13 2014 Vishal on 07838290143
9 Ahmedabad April 27 2014 Yogesh on 8238053563
10 Kolkata April 27 2014 Sumit on 8017516187
Schedule for Foundation Programme on Stock Investing
Sr. No
City Dates For More Information & Registration call:
11 Pune April 12 and 13 2014 Kusmakar on 7875442311
12 Pune April 26 and 27 2014 Kusmakar on 7875442311
13 New Delhi April 26 and 27 2014 Vishal on 07838290143, Harneet on 09582158693
14 Mumbai-Andheri April 26 and 27 2014 Vidhu on 9619716146
15 Bangalore April 19 and 20 2014 Subrata on 9620001478
16 Bangalore April 05 and 06 2014 Subrata on 9620001478
17 Kolkata April 12 and 13 2014 Sumit on 8017516187
18 New Delhi April 05 and 06 2014 Vishal on 07838290143, Harneet on 09582158693
19 Chandigarh April 19 and 20 2014 Harneet on 09582158693
20 New Delhi April 19 and 20 2014 Vishal on 07838290143, Harneet on 09582158693
21 Hyderabad April 19 and 20 2014 Ruchi on 8297362323
22 Nagpur April 19 and 20 2014 Kusmakar on 7875442311
ICICIdirect Money Manager 60 April 2014
Contact us
Email:
Send us an email at [email protected] Please 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
23 Mumbai-Chembur
April 12 and 13 2014 Manish on 8451057943
24 Mumbai-Andheri April 19 and 20 2014 Vidhu on 9619716146
25 THANE April 26 and 27 2014 Vidhu on 9619716146
26 Hyderabad April 26 and 27 2014 Ruchi on 8297362323
27 Indore April 26 and 27 2014 Yogesh on 8238053563
28 Navi Mumbai April 19 and 20 2014 Manish on 8451057943
Schedule for Fast Track Foundation Programme on Stock Investing
Sr. No
City Dates For More Information & Registration call:
29 Lucknow April 20 2014 Vishal on 07838290143
30 Surat April 20 2014 Yogesh on 8238053563
31 Gurgaon April 20 2014 Harneet on 09582158693
32 Vadodara April 20 2014 Yogesh on 8238053563
33 Ahmedabad April 13 2014 Yogesh on 8238053563
34 Aurangabad April 20 2014 Kusmakar on 7875442311
Schedule for Advance Derivatives
Sr. No
City Dates For More Information & Registration call:
35 Kolkata April 26 and 27 2014 Sumit on 8017516187
36 Mumbai-Chembur
April 26 and 27 2014 Manish on 8451057943
37 Hyderabad April 12 and 13 2014 Ruchi on 8297362323
Schedule for Technical Analysis
Sr. No
City Dates For More Information & Registration call:
38 New Delhi April 12 and 13 2014 Vishal on 07838290143, Harneet on 09582158693
39 Mumbai-Andheri April 19 and 20 2014 Vidhu on 9619716146
40 Bangalore April 12 and 13 2014 Subrata on 9620001478
41 Pune April 12 and 13 2014 Kusmakar on 7875442311
Schedule for Fast Track Technical Analysis
Sr. No
City Dates For More Information & Registration call:
42 Patna April 13 2014 Sumit on 8017516187
43 Ghaziabad April 13 2014 Vishal on 07838290143
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Printed at: SAP Print Solutions Pvt. Ltd., 28A, Laxmi Industrial Estate, S.N. Path, Lower Parel (W), Mumbai 400 013.Printed at: SAP Print Solutions Pvt. Ltd., 28A, Laxmi Industrial Estate, S.N. Path, Lower Parel (W), Mumbai 400 013.Printed at: SAP Print Solutions Pvt. Ltd., 28A, Laxmi Industrial Estate, S.N. Path, Lower Parel (W), Mumbai 400 013.