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Sharekhan

Product Review (June)

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01-Jul-17 1

&

Market Outlook (July)



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Fundamental Research Offerings� Top Picks folio

� Stock Ideas/Viewpoints• Third level

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01-Jul-17 2

� Wealth Creator



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• Third levelSharekhan’s Top Picks folio• Third level

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01-Jul-17 3

An all-weather balanced portfolio



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• A well-balanced portfolio of thoroughly researched

10-12 companies

• Prefers sustainable business model, focuses on near-

term triggers without losing sight of long-term wealth

creation

Sharekhan’s

Top Picks folio

• Careful selection of stocks to deliver superior risk

adjusted returns and outperform benchmark indices

• To maximise shareholders’ returns with minimum risk

and outperform the benchmark indices

Key objectives

• Only thoroughly researched and fundamentally strong

Top Picks folio

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How is our

portfolio different?

We religiously

follow the process

• Only thoroughly researched and fundamentally strong

stocks included, no place for market rumoured, lousy or

grapevine stocks

• Delivered superior returns consistently across equity

cycles since inception

• Actively tracked and reviewed every month without

exception; generally in initial days of the month

• Explains all changes/revisions in the folio for better

understanding of investors



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Superior returns across Market Cycles (on absolute as well as relative basis)

Beating the benchmark indices consistently (absolute returns in %; not annualised)

Sharekhan (Top Picks) Sensex Nifty CNX MIDCAP

YTD CY2017 35.9 16.0 16.3 23.5

CY2016 8.8 1.8 3.2 7.1

CY2015 13.9 -5.1 -4.1 6.5

CY2014 63.6 29.9 30.9 55.1

CY2013 12.4 8.5 6.4 -5.6

CY2012 35.1 26.2 29.0 36.0

CY2011 -20.5 -21.2 -21.7 -25.0

Cumulative returns

(since April 2009)

100

200

300

400

500

600

700

800

900

39911

40004

40097

40190

40283

40376

40469

40562

40655

40748

40841

40934

41027

41120

41213

41306

41399

41492

41585

41678

41771

41864

41957

42050

42143

42236

42329

42422

42515

42608

42701

42794

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CY2010 16.8 11.5 12.9 11.5

CY2009 116.1 76.1 72.0 114.0

Consistent outperformance (absolute returns in %; not annualised) %

1 mth 3 mth 6 mth 1 year 3 year 5 year

Top Picks 3.5 14.6 35.9 37.5 110.1 258.9

Sensex -0.7 4.3 16.0 14.4 20.5 77.0

Nifty -1.0 3.8 16.3 15.0 24.4 81.7

CNX MIDCAP 1.3 3.6 23.5 28.3 58.8 143.5

Note: The returns are based on the assumption that at the beginning of each month an equal amount was invested in each stock of the Top

Picks basket

39911

40004

40097

40190

40283

40376

40469

40562

40655

40748

40841

40934

41027

41120

41213

41306

41399

41492

41585

41678

41771

41864

41957

42050

42143

42236

42329

42422

42515

42608

42701

42794

42887

Sharekhan Top Picks Sensex Nifty



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Well Balanced Portfolio

NameCMP* PER (x) RoE (%) Price Upside

(Rs) FY17 FY18E FY19E FY17 FY18E FY19Etarget (Rs)# (%)

Godrej Industries 637 74.0 - - 14.9 - - 685 8

HDFC Bank 1,654 29.1 24.2 20.2 17.9 18.7 19.9 1,750 6

IndusInd Bank 1,488 30.8 23.6 18.6 16.3 17.2 18.6 1,680 13

ITC 324 38.6 31.5 27.2 23.5 26.6 28.5 350 8

KEC International 236 19.8 14.6 12.2 21.2 23.1 22.7 290 23

L&T Finance Holdings 144 27.6 19.0 14.8 11.9 13.6 15.2 153 8

Maruti Suzuki 7,218 29.7 25.2 21.9 23.0 21.9 21.1 7,900 9

Petronet LNG 432 19.0 15.4 13.5 23.2 24.0 23.4 500 16

Power Grid Corp 211 14.9 12.5 10.6 13.8 14.4 15.1 225 9• Third level

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*CMP as on 30th June, 2017 # Price target for next 6-12 months, ** Under review^ Used SOTP method to derive the target price

Easy to follow with revision done at the beginning of the month (usually changes in 2 stocks on an average); for simplicity, we recommend equal weightage in each stock and assume the same to calculate monthly performance.

Please note the returns shown do not include transaction cost.

Power Grid Corp 211 14.9 12.5 10.6 13.8 14.4 15.1 225 9

Reliance Industries 1,380 13.6 13.6 11.5 11.2 10.1 10.8 1,550 12

Sundram Fasteners 429 27.3 22.9 19.4 29.1 28.4 27.7 442 --

ZEE Entertainment 493 38.8 31.8 26.6 18.3 19.2 19.7 580 18



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Sharekhan Top Picks – Another month of strong outperformance

Markets have taken a breather in June after five consecutive months of a strong rally. The

nervousness stems from the uncertainty created by implementation of Goods & Services Tax

(GST) with effective from July. Like any other major reform implementation of GST could

cause temporary disruption in the system and adversely impact corporate results in Q1 and H1

of FY2018. The global cues also have not been too favourable.

In this backdrop, the Sensex/Nifty declined marginally by 0.7-1% during the last month.

However, the Sharekhan Top Picks folio appreciated by 3.5% in the same period; thereby

highlighting the importance of stock selection in achieving superior returns once again.

Made one change in portfolio

Top Picks performance for June 2017

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01-Jul-17 7

Made one change in portfolio

This month, we are suggesting only one change in the portfolio. We are booking profits in

Supreme Industries (appreciated by 8% last month) and replacing it by KEC International. The

financial performance of Supreme Industries could suffer in the immediate term due to

destocking done by dealers before the implementation of GST. Also the upside to our target

price for Supreme Industries is limited from the current level. On the other hand, KEC

International would not have much of impact from GST and is set to grow at a healthy rate on

the back of strong order inflow in FY2017.



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Make an informed decision• Third level

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01-Jul-17 8

Make an informed decision



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• Identify right stocks across sectors

through bottom-up approach

• Focus on generating absolute returns

with a time frame of 6-12 months and a

favorable risk-reward ratio

Key objectives

• Closely tracked stocks with regular

Sharekhan's Stock Ideas

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• Closely tracked stocks with regular

interaction with companies’

management to stay abreast of the

business outlook

• Regular updates and news with view on

stocks through Investor’s Eye and also

Fundamental News & Analysis (FNA)

Focussed approach



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• We put great emphasis on investor’s risk

and reward, so in line with the upside

potential of a stock and the associated

risks, we review our rating regularly

• This also allows investors to churn their

portfolio by switching from one stock to

another to optimise the overall return

Risk and reward

Sharekhan's Stock Ideas

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• Our last 27 Stock Ideas generated 103%

returns on an aggregate basis.

• Some of the blockbuster Stock Ideas:

Bajaj Finance (up 672%), TVS Motor(up 492%), Gabriel India (up 361%)Finolex Cables (up 287%), & LICHousing Finance (up 220%)

Track record



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Top 10 Stock Ideas delivered strong returns

Company Reco. Initiation DateInitiation Price (Rs)

CMP* (Rs)Returns (%)

Bajaj Finance Buy 21-May-14 178 1374 672

TVS Motor Company Buy 30-Apr-14 92 545 492

Gabriel India Buy 16-Apr-14 33 151 361

Finolex Cables Buy 22-Apr-14 119 461 287

LIC Housing Finance Buy 28-Mar-14 232 742 220

Supreme Industries Buy 09-Jan-14 420 1207 187

Century Plyboards Buy 27-Nov-14 151 302 100

Skipper Buy 19-Jan-15 112 198 77

Triveni Turbine Buy 13-Nov-14 91 140 53

KEC International Buy 14-Mar-17 169 253 49• Third level

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-In last 39 months, we have initiated 27 new stock idea which have given average returns of

103% per new idea.

- Top Ten ideas have generated aggregate return of 250% on absolute basis.

*CMP as on June 29, 2017

KEC International Buy 14-Mar-17 169 253 49



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• The idea is to arm investors with

knowledge to help you take informed

decisions in the market

• Focus on generating absolute returns of

20-25% in a short time

Key objectives

Sharekhan's Viewpoints

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• Stocks with strong business

fundamentals and adequate

understanding through management

interaction/meeting

• Regular updates and news flow on

stocks through updates and also FNA

Focussed approach



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Viewpoints performance snapshot

Date of initiation

Viewpoint Reco Price

Date of closure

Closure price

Total Returns (%)

25-Sep-14 Indo Count Industries172

16-Feb-15 422 145.3

13-Jun-14 Dhanuka Agritech 380 19-May-17 831 118.7

26-Mar-14 FIEM Industries 409 7-Jan-15 886 116.6

25-Jun-14 JK Tyre 64 23-Dec-14138

115.4

16-Oct-14 Dhanuka Agritech 428 19-May-17 831 94.2

1-Sep-14 Salzer Electronics 136 11-Mar-15 257 89.0

14-Aug-14 Force Motors 687 23-Sep-14 1,281 86.5

5-Feb-14Power Finance

146 22-Aug-14 269 84.2

Total number of calls generated 239

Number of closed calls 134

Number of calls in profit 114

Number of calls in loss 18

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5-Feb-14Power Finance

Corporation146 22-Aug-14 269 84.2

19-Mar-14 JK Lakshmi Cement 97 23-May-14 178 83.5

25-Aug-14 Marico Kaya 488 26-Nov-14 876 79.5

29-Jun-16 Chambal Fertilizer 69 19-Jun-17 121 75.4

3-Sep-14 Gulf Oil Lubricants 313 16-Dec-14 541 72.8

14-Mar-14 Arvind 143 30-Jul-14 241 68.5

04-May-16 IFB Industries 353 08-Feb-17 590 67.1

24-Sep-14 TCPL Packaging 255 13-Nov-14 425 66.7

No Profit No Loss 2

Success ratio 91%

Aggregate return 25.4%

Top 15 calls return 91%



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Viewpoint closed in June 2017

Date of release

Date of closure

Viewpoint Reco. Price

Call closure price

Abs Returns (%)

02-Aug-16 01-Jun-17Mahindra Holidays &

Resorts410 509 24

29-Jun-16 19-Jun-17 Chambal fertilizer 69 121 75

30-Jun-16 20-Jun-17 Eveready Industries 266 353 33• Third level

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31-Dec-14 23-Jun-17 Roto Pumps 160 148 -8



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• Gulf Oil Lubricants India Limited (GOLI) has increased its market share from 5% to 7% in retail Indian lubricant market. The company

has shown sound track record of volume CAGR of 10.1% over FY2015-FY2017, which is almost 3-4x of the industry growth. The

management has guided to grow at around 8-10% (which is 2-3x the industry growth rate) over FY2018-FY2019.

• GOLI is currently operating a 90mn liters lubricant plant in Silvassa and in the midst of setting up of an additional 40-50mn liters

lubricant plant at Chennai. Apart from volume growth and market share gain, the company expects saving of Rs3-4/liter in freight

cost as 30% of existing volume (being transported to the southern region from Silvassa plant) would get supplied by Chennai plant

post commissioning in Q3FY2018. We expect GOLI’s EBITDA margins to improve to 16-18% from 15% in Q4FY2017.

• GOLI targets two new OEM tie-ups every year to improve OEM tie-ups and also to strengthen the B2C business segment. The company

also aims to increase share of high growth (growing at 20%) and high margin personal mobility segment, which currently accounts for

around 22-23% of total volumes.

• On back of industry leading double digit volume growth and likely margin expansion, we expect GOLI’s earnings to grow at a CAGR of

23% over FY2017-FY2019E. Moreover, the company’s balance sheet is robust with negative net debt to equity ratio of 0.3x in FY2017.

We are positive on GOLI’s long term earnings growth prospects and expect 18-20% upside from current levels

Reco Price– Rs 787 CMP – Rs810 View: Positive

New Initiation – Gulf Oil Lubricants India Limited

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Particulars (Rs. Cr.) FY16 FY17 FY18E FY19E

Net sales 1,011 1,129 1,290 1,475

EBITDA margin (%) 15.7 15.8 16.5 18.0

PAT 100 121 149 182

EPS 20.2 24.4 30.1 36.7

RoE (%) 46.1 39.9 36.6 34.9

PER (x) 38.9 32.3 26.2 21.4



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• AIA Engineering (AIA) is the second largest manufacturer of high chrome mill internals (grinding media, liners, diaphragms) globally

which are used in crushing and grinding operations in cement, mining and power industries. AIA commands significant market share

(~25% in cement and 5% in mining), in the oligopolistic market and is further gaining market share due to its technological edge and

comparatively low cost of operations as against its key competitor, Magotteaux (Belgium).

• AIA has managed to show a CAGR earnings growth of 20% over the past five years (FY2012-17) largely aided by healthy CAGR volume

growth of 10% along with benefits of rupee depreciation in exports revenues during the period. Given the improving mining demand

globally, AIA is further adding a Greenfield manufacturing capacity at Kerala of 1,00,000MT for Rs500crore in a phased manner over

the next two years. The first phase of expansion will add a capacity of 50,000 TPA in FY2018 while the second phase will add another

50,000 TPA capacity in FY2019; taking the total installed capacity of the company to 4,40,000 TPA at end of FY2019. The expansion

would be largely funded by cash and internal accruals. We expect AIA to report a CAGR volume growth of ~15% over the next two

years. Post expansion, AIA would generate ~Rs500crore of free cash flows over the next two years.

• Given its leadership position, strong earnings growth visibility with robust RoCE of 22-23% on consistent basis, AIA would continue to

trade at premium valuations in the engineering space. The strong internal accruals and tight working capital will help the company

to maintain a healthy balance sheet with a steady return on equity (15-16%). The stock however has recently corrected due to sharp

appreciation of rupee and increase in ferro chrome prices. We see this as a good opportunity for decent returns of 18-20% along with

Reco Price– Rs 1,345 CMP – Rs1,381 View: Positive

New Initiation – AIA Engineering

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appreciation of rupee and increase in ferro chrome prices. We see this as a good opportunity for decent returns of 18-20% along with

a limited down side risk. We initiate with a positive view on the stock over a period of one year and any further correction, owing to

market volatility, should be used to accumulate the stock for a long term investment view by the investors.


Net sales 2,098 2,246 2,524 3,014

OPM (%) 29.1 28.3 25.6 26.2

Adj. PAT 424 457 474 586

Adj. EPS 45.0 48.4 50.2 62.1

PER (x) 30.2 28.1 27.1 21.9

RoE (%) 19.4 18.3 16.7 18.6

RoCE (%) 26.3 25.2 23.2 25.6



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• Tube Investments of India Limited (TIL) is engaged in manufacturing of cycles and accessories (bicycles & fitness products),

engineering products (tubes, cold rolled strips, & tubular components), metal formed products (chains for automobile sector &

Industrial applications, doorframe & channels for passenger cars), automotive and industrial gears and dies.

• TIL has earlier in November 2016 approved the scheme of demerger of its manufacturing business into wholly owned subsidiary called

TI Financial Holdings Ltd. We believe the demerger scheme augurs well for the value unlocking for the investors and also post the

separate listing, the value discovery of individual businesses will more transparent and create long term value for the investors.

• Currently, the financials and manufacturing business valuation are getting mixed up and holding discounts restricting the value

discovery in the businesses. Out of two financials companies only Chola investments and Financials company is listed, while

Cholamandalam MS (general insurance, TIL stake at 60%), yet to get listed (as per last deal with Mitsui Sumitomo Insurance, it valued

at Rs6,300 crore). The general insurance business is a wild card in the pack, which will create long term value for the investors given

the super strong growth in the earnings.

• The secondary market remains highly positive on the general insurance growth prospects with potential listing of players such as New

India Assurance, General Insurance Co of India, Reliance General Insurance and ICICI Lombard General Insurance Company.

• TIL’s standalone business net income expect to deliver a CAGR of 22.5% over FY17-19E, with overall operational improvement in all

the business segment such as Engineering, Metals forming and Cycles (though there could be near term transition impact owing to


New Initiation – Tube Investments of India Limited

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the business segment such as Engineering, Metals forming and Cycles (though there could be near term transition impact owing to

GST roll out). Based on our SOTP valuation of TIL, we expect 18-20% return in stock in next 6-8 months.


Net sales 3,753.5 3,900.5 4,493.3 5,162.8

EBITDA margin (%) 8.3 9.2 10.7 11.1

PAT 123.6 196.1 238.1 294.3

EPS 6.6 10.5 12.7 15.7

RoE (%) 6.1 9.3 10.4 11.8

PER (x) 4.8 6.3 7.8 8.4



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• PGCIL reported topline growth of 17% YoY to Rs6,712 crore in Q4FY2017 led by 18% growth in Transmission segment. Telecom

revenue grew by 27% YoY to Rs133 crore while consultancy income decline by 12% YoY to Rs144 crore in Q4FY2017. OPM however

impacted by 355bps to 83.7% due to higher employee cost and other expenses. Employee cost almost doubled to Rs537 crore due to

hike in salary and gratuity relating to pay commission provision while other expenses jumped 35% YoY to Rs556 crore due to CSR

related expenses in Q4FY2017. Hence, operating profit grew by 12% YoY to Rs5,619 crore. Other income grew significantly by 40%

YoY to Rs342 crore as it includes profit of Rs50 crore on sales of POSCO to Government of India (GOI). Hence, adjusted profit grew by

22% YoY to Rs1,916 crore on higher other income.

• Capitalisation during FY17 came at Rs31,000 crore including Rs20,000 crore capitalization of TBCB projects. As on date, PGCIL has an

ongoing projects totaling Rs1,05,000 crore and projects under development stage of Rs5,000 crore taking the overall projects in hand

at Rs1,10,000 crore. Furthermore, the company has also won few TBCB projects worth Rs20,000 crore. Thus the total project as on

date totals Rs1,30,000 crore of which CWIP totals Rs39,000 crore. These projects are expected to be capitalized over next four years

of period and thus we expect average annual capitalization of ~Rs33,000 crore of assets over next four years. Capex over next four

years are expected to be Rs91,000 crore.

• PGCIL has delivered strong earnings growth of 25% YoY on back of highest capitalisation in FY2017. We expect PGCIL to continue the

capitalisation momentum which will translate into earnings CAGR of 18% over FY2017-19E. Also, we remain bullish on investment in


Re-iterate- Power Grid Corporation Ltd

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capitalisation momentum which will translate into earnings CAGR of 18% over FY2017-19E. Also, we remain bullish on investment in

the transmission sector due to (a) potential for energy demand growth (b) rising share of Rural Electrification and (c)

underinvestment in T&D. PGCIL being defensive bet in the utility space with strong earnings growth visibility and healthy balance

sheet offers a sustainable RoE of 15%. Hence, we reiterate positive stance on the stock with a potential upside of 10-12%.

Particulars (Rs. Cr.) FY15 FY16 FY17 FY18E FY19E

Net sales 17,177 21,007 26,206 28,525 32,018

OPM (%) 86.2 88.6 88.1 88.1 88.4

Adjusted PAT 4,979 5,949 7,520 8,727 10,334

Adj. EPS 9.6 11.4 14.2 16.9 20.0

P/BV (x) 2.8 2.5 2.2 2.0 1.7

RoE (%) 11.8 12.2 13.8 14.4 15.1



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• Crompton Greaves Consumer Electricals’ (CGCE) net sales for Q4FY2017 rose by 7% YoY, led by an 8% YoY growth in ECD segment

(primarily growth in Fans). Revenue from Premium Fans jumped 23% YoY, increasing their share in the total revenue of the Fans

business to 16% at the end of FY2017. Despite the headwinds from commodity inflation, OPM in Q4FY2017 expanded by 20BPS to

12.9%, driven by cost-control measures as well as premiumisation of the product portfolio. Other income jumped more than 3x to Rs7

crore and finance costs dropped 13% YoY to Rs15 crore, leading to a 30% YoY growth in the PAT to Rs86 crore.

• The share of Premium Fans in the total revenue from the Fans segment has increased to 16% from 7% at the end of FY2017. This is

estimated to grow further, with the management’s focus on driving growth through Premium Fans resulting in increased market

share and profitability. With implementation of GST, CGCE’s revenue should go through some temporary disruption during Q1FY2018,

as the distribution channels realign their inventories to adjust for the net impact of GST rates.

• CGCE is expected to generate substantially higher free cash flows and superior return ratios going forward, driven by the

management’s sharp focus on enhancing its core competency through an asset-light business model. The cash generated can be

distributed as dividend or to undertake incremental promotional activities for strengthening the Crompton Greaves brand or for

inorganic growth opportunities in the future. We remain positive on the company’s future growth outlook and the ability of the

experienced management to deliver industry-leading growth. We had initiated a positively biased viewpoint report on CGCE at the

end of January 2017. Since then, the stock has delivered more than 20% returns. We reiterate our ‘positive’ stance on the stock due


Re-iterate- Crompton Greaves Consumer Electricals

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01-Jul-17 20

end of January 2017. Since then, the stock has delivered more than 20% returns. We reiterate our ‘positive’ stance on the stock due

to its competent management, impressive return ratios and high cash flow generating profile, which will help it to drive shareholder

value in the future and expect to generate 5-10% returns from the current level despite a high valuation multiple.

Particulars (Rs. Cr.) FY17 FY18E FY19E

Net sales 3,976 4,525 5,212

OPM (%) 12.3 12.7 12.8

Adjusted PAT 291 353 436

Adj. EPS 4.6 5.6 7.0

PER (x) 52.3 43.1 34.9

RoE (%) 53.9 54.7 48.2



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• Astral Poly Technik Limited (Astral) is a manufacturer and provider of chlorinated polyvinyl, chloride piping, plumbing systems for

hot and cold water, industrial and pressure systems applications and adhesive products. The Company is a leading manufacturer of

chlorinated polyvinyl chloride (CPVC) piping, as well as lead free PVC plumbing system in India. Astral entered into Adhesives and

Construction chemical segment in the year FY15 post acquisition of Resinova and Seal IT.

• Astral has delivered another strong set of numbers in Q4FY2017, despite demonetization challenges. Consolidated revenues grew by

12.6% yoy to Rs656 crore, led by strong growth in both plastics (11%YoY) and adhesive (18.9%YoY) segments.

• Operating profit margins (OPM) improved by 250BPS YoY to 13.6%, led by strong margins improvement in plastics segment (up 270BPS

YoY to 13.8%) as the company commenced the operation of its composite plant. In the adhesive segment, the margin expansion

continued in Q4FY2017, OPM expanded by 200BPS/240BPS YoY/QoQ to stand at 13.7%.

• Management has given a very strong commentary on margin expansion, which would be supported by backward integration across all

its manufacturing plants. Further, the management believes that the improvement in the adhesive business will continue in coming

quarters (the UK plant is expected to grow in double digits at EBITDA level from Q2FY2018 onwards)

• We remain positive on the growth prospects of its piping division driven by Government’s initiative in affordable housing scheme,

spending in agricultural segment and introduction of GST to favor the organized industry, margin expansion on account of backward

integration and ramp up of adhesive business (strong positive trigger for long-term). We believe Astral is a multiyear growth story


Re-iterate- Astral Poly Technik

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integration and ramp up of adhesive business (strong positive trigger for long-term). We believe Astral is a multiyear growth story

and expected to witness significant earnings tractions in the coming years.


Net sales 1,874.5 2,123.5 2,383.8 2,801.2

EBITDA margin (%) 11.1 12.4 13.3 13.7

PAT 101 144.7 192.6 251.8

EPS 8.4 12.1 16.1 21

RoE (%) 12.9 15.7 17.4 18.6

PER (x) 17.7 20.6 22.7 24.1



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Wealth Creator

Generating meaningful wealth in a multi-year rally• Third level

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01-Jul-17 22

Generating meaningful wealth in a multi-year rally



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• A well balanced portfolio of 16-18 quality

companies to create meaningful wealth

in multi-year rally in the Indian stock

market

• Capturing the long-term triggers over a

period of 3-4 years

Sharekhan’s Wealth

Creator portfolio

Sharekhan's Wealth Creator

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• Careful selection of quality stocks

against a backdrop of reviving macro

environment and improving policy

reforms

• It is actively tracked and reviewed

every month; timely changes/revisions

are made to the portfolio and

communicated to the investors

Focussed approach



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Wealth Creator: ahead of broader indices

Returns (%) (as on 29th June 2017)Since inception

(Aug 21, 2014)

Wealth Creator Folio (weighted average returns) 32.8

- Large cap (64%) 29.9

- Mid cap (36%) 38.0

Sensex 17.1

Nifty 20.1

CNX Midcap 57.4• Third level

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• Sharekhan’s Wealth Creator portfolio continues to outperform the broader indices in the month of May2017 with cumulative weighted average returns of 32.8% as against 17.1% and 20.1% return inSensex/Nifty.

• We are not making any changes in the current portfolio and expect it to maintain the leading performancein 2017.

CNX Midcap 57.4



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Wealth Creator Folio

Sr No Scrip Weights Price as on Target Price Potential Upside

(%) 29-Jun-17 Mar-20 (%)

LargeCaps (64% weightage)

1 Axis Bank 8% 512 1110 116.9

2 Larsen & Toubro 8% 1702 3800 123.2

3 Maruti Suzuki 8% 7223 11050 53.0

4 Britannia 8% 3638 6400 75.9

5 IndusInd Bank 8% 1478 2550 72.6

6 Sun Pharmaceuticals 8% 539 975 81.1

7 Tata Consultancy Services 8% 2335 5100 118.4

8 TVS Motors 8% 545 900 65.3

Midcaps (36% weightage; 4% each)• Third level

– Fourth level

» Fifth level

01-Jul-17 25

* Pls note we see scope for upward revision in target price (3-year) of some of the stock depending on theextent of economic recovery and will keep updating on the same.

Midcaps (36% weightage; 4% each)

9 Capital First 4% 660 1485 124.9

10 V-Guard Ltd 4% 173 310 79.2

11 Indian Oil Corporation 4% 387 750 94.0

12 IRB Infra 4% 209 545 161.1

13 Network 18 Media 4% 50 105 109.4

14 Gabriel India 4% 151 225 49.3

15 Century Plyboard 4% 302 485 60.4

16 Triveni Turbine 4% 140 265 89.8

17 PI Industries 4% 825 1850 124.3



– Second level

• Third level

Segment Product Corpus Clients

Cash Top Picks - Investors

Cash Actionable Ideas - Investors

Cash Alpha Delivery Picks 3 lac Short Term traders

Advisory Product Offerings

• Third level

– Fourth level

» Fifth level

01-Jul-17 26

Cash Alpha Delivery Picks 3 lac Short Term traders

Cash + FNO CTFT 3 lac Traders

Options Derivative Calls 1 Lac Option traders

Options+Fut Derivative Idea 5 lac

Strategy + Future

traders



– Second level

• Third level

1-2 months delivery based Ideas based on Shortterm triggers (Results/ corporate action/Policy)&/or reported flows. Each Idea will have aFundamental Rationale/Key Triggers Points .

New Alpha Delivery Picks

Alpha Delivery Picks & Actionable Ideas

Actionable Ideas focus on generating absolute• Third level

– Fourth level

» Fifth level

01-Jul-17 27

Actionable

Ideas

Actionable Ideas focus on generating absolutereturns with a time frame of 6-12 months and afavorable risk-reward ratio. Stocks are closelytracked with regular interaction with companies’management to stay abreast of the businessoutlook.



– Second level

• Third level

New Alpha Delivery Picks

Ideas Ideas based on Stock Ideas, Viewpoints,

Stock Update, Market Analysis

Weightage(%) 7

Stop Loss (%)Max -10

Min -5

Profit Potential(%)Max -20

Min -10

Alpha Delivery Picks - Rules

• Third level

– Fourth level

» Fifth level

01-Jul-17 28

Min -10

Time Frame Max - 2 Months

Trail Stop loss 5% trailing Stop loss on 5% rise in stock price

Exit Rules

A) Pre defined / Trail Stop loss is hit

B) Unexpected Event/ News/ Outcome

C) Time frame

Performance Reporting Daily



– Second level

• Third level

Alpha Delivery Picks Performance June’17

Sr No Scrip Name Buy Date Close Date Buy Price Sell Price ReturnProfit/

Loss

1 Federal Bank 29-May-17 2-Jun-17 109.85 116.85 6.37% Profit

2 Godrej Properties 2-Jun-17 14-Jun-17 513.28 552.60 7.66% Profit

3 Bank Of Baroda 2-Jun-17 12-Jun-17 179.55 172.00 -4.20% Loss

4 JK Tyres 6-Jun-17 19-Jun-17 180.90 168.00 -7.13% Loss

5 Exide Inds 19-Jun-17 23-Jun-17 225.80 213.70 -5.36% Loss

6 Tata Chemicals 20-Jun-17 27-Jun-17 621.70 590.00 -5.10% Loss

7 Manappuram Finance 8-Jun-17 94.55 Open

8 Petronet LNG 19-Jun-17 436.85 Open• Third level

– Fourth level

» Fifth level

01-Jul-17 29

Summary June -17

Initated Open Calls Profit Booked Loss Booked

7 2 2 4

New Alpha Delivery Picks Performance

Financial YearNo of Calls Open Calls Profit Booked Loss Booked

FY 2017 – 2018 19 2 7 10

FY 2016 – 2017 100 8 67 25



– Second level

• Third level

Actionable Ideas Performance June’17

Sr No CompanyInitiation

DateExit Date Comments

Close

price

Initiation

PriceTarget

Profit/Loss

(%)

1 Maruti Suzuki 21-Jun-17 7215 7900

2 LIC Hsg Fin 23-Jun-17 770 855

3 LIC Hsg Fin 16-Jan-15 13-Jun-17 Tgt Achieved 780 466 780 67.38%

4 Orbit Exports 20-Jul-15 09-Jun-17 Loss Booked 177 441 177 -59.86%

5 Aurobindo Pharma 01-Jun-16 27-Jun-17 Loss Booked 680 786 680 -13.49%• Third level

– Fourth level

» Fifth level

01-Jul-17 30

6 Info Edge 01-Nov-16 05-Jun-17 Tgt Achieved 950 899 950 5.67%

7 Maruti Suzuki 28-Apr-17 09-Jun-17 Tgt Achieved 7265 6371 7265 14.03%

8 Supreme Inds 02-May-17 23-Jun-17 Tgt Achieved 1250 1087 1250 15.00%

9 Gabriel India 17-May-17 15-Jun-17 Tgt Achieved 150 129 150 16.28%

10 Hindustan Unilever 18-May-17 02-Jun-17 Tgt Achieved 1100 1006 1100 9.34%

11 Century Plyboards 25-May-17 01-Jun-17 Tgt Achieved 280 241 280 16.18%

12 Cox & Kings 31-May-17 13-Jun-17 Tgt Achieved 255 218 255 16.97%



– Second level

• Third level

Actionable Ideas Performance June’17

June-17

Initiated Calls Profit Booked Loss Booked

2 8 2

Summary • Third level

– Fourth level

» Fifth level

01-Jul-17 31

Summary

No of CallsOpen Calls Profit BookedLoss

Booked

Avg Profit Booked per Idea

Unrealized Profit / Loss Per Idea

Strike Rate

304 49 218 33 14.40% 1.18% 87%



– Second level

• Third level

Derivative Calls

Derivative Idea

Derivatives Calls & Derivative Idea

• Third level

– Fourth level

» Fifth level

01-Jul-17 32

Rs. 1,00,000 Margin

Rs. 5,00,000 Margin



– Second level

• Third level

Derivative Calls

• OPTIONS only• OPTIONS onlySEGMENT

• LONG ONLY IDEAS• LONG ONLY IDEASTYPE

• Rs.1,00,000• Rs.1,00,000MARGIN

• 30-40• 30-40AVG. IDEAS PER MONTH

• 3-5• 3-5MAX OPEN POSITIONS• Third level

– Fourth level

» Fifth level

01-Jul-17 33

• 3-5• 3-5MAX OPEN POSITIONS

• 1-5 Days• 1-5 DaysTIME FRAME(MONTHS)

• 50%• 50%TARGET(%)

• 20-30%• 20-30%STOP LOSS

• 30-35% of Invested Capital• 30-35% of Invested CapitalDRAWDOWN AMOUNT (Rs.)



– Second level

• Third level

Derivative calls Performance June’17

Summary June-17

Initated

Profit

Booked

Loss

Booked Profit/Loss

23 14 9 23006*

Derivative Calls Performance • Third level

– Fourth level

» Fifth level

01-Jul-17 34

Derivative Calls Performance

Financial YearNo of Calls

Profit

Booked

Loss

BookedProfit/Loss

FY 2017 – 2018 90 53 37 58136*

* Excluding Brokerage



– Second level

• Third level

Derivative Idea

• FUTURE & OPTION TRADING STRATEGY• FUTURE & OPTION TRADING STRATEGYSEGMENT

• LONG & SHORT IDEAS• LONG & SHORT IDEASTYPE

• Rs.5,00,000• Rs.5,00,000MARGIN

• 15-20• 15-20AVG. IDEAS PER MONTH

• 3• 3MAX OPEN POSITIONS• Third level

– Fourth level

» Fifth level

01-Jul-17 35

• 3• 3MAX OPEN POSITIONS

• 1 DAY – 1 MONTH• 1 DAY – 1 MONTHTIME FRAME(MONTHS)

• 4-5%• 4-5%TARGET FOR FUTURE (%)

• 1-2%• 1-2%STOP LOSS FOR FUTURE

• 30-35% of Invested Capital• 30-35% of Invested CapitalDRAWDOWN AMOUNT (Rs.)



– Second level

• Third level

Derivative Idea – Banknifty CE spread

Position Option Type Strike Qty CMP Value

Buy BankNifty CE 23200 40 115 4600

Sell BankNifty CE 23400 -40 50 -2000• Third level

– Fourth level

» Fifth level

01-Jul-17 36

Click for Report

Loss Potential : Rs. 2600

(If Nifty expires below 23200)

Max profit potential : Rs 5400

(if nifty expire @ 23400 & above 23400)

NET OUTFLOW 2600



– Second level

• Third level

CTFT

� Carry Today for Tomorrow.

� Popularly known as BTST / STBT.

CTFT

• Third level

– Fourth level

» Fifth level

01-Jul-17 37

� CTFT is a Trade, Intraday Tradershave to carry forward for next dayeither in Cash segment and/or F&Osegment.



– Second level

• Third level

CTFT

Ideas Ideas / Calls are based on EOD Momentum Triggers

Risk: Reward Ratio 1:2

Time Of InitiationAfter 2:30 PM

Day of Initiation

Time Of Square Off Any Time after initiation or

Next Trading Day

CTFT Calls - RULES

• Third level

– Fourth level

» Fifth level

01-Jul-17 38

Time Of Square Off Next Trading Day

Time Frame 1 Day

Exposure per Call Rs 1 Lakh in Cash Segment & 1 Lot in F&O Segment

Exit RulesA) Pre defined Target / Stop Loss is hit

B) Time Frame

Performance Reporting Daily

Target Clients Aggressive & High Risk Traders



– Second level

• Third level

CTFT Calls - Offering

Cash Ticket Size Rs. 125000

FNO Ticket Size Rs. 500000

Calls per Day

� Max 1 Call in Cash (Long Only).

� Max 1-3 Calls in FNO (Long / Short).• Third level

– Fourth level

» Fifth level

01-Jul-17 39

Coverage Universe *CNX 500 & FNO Stocks*

Trigger Points End Of Day Momentum Stocks.

BTST Calls Segment Cash & FNO Segment.

Draw Down 25% of the Corpus.



– Second level

• Third level

CTFT Performance June’17

Sr No Scrip NameBuy/Sell

Date

Close

Date

Buy/S

ell

Reco

PriceClose Price

Stop

LossTargets

Returns

(%)

Profit /

LossGross P/L

1 Century Plyboards Ltd 31-May-17 1-Jun-17 Buy 266.04 265.75 258.40 270-275 -0.11% Loss (109.04)

2 Sun Tv 2-Jun-17 5-Jun-17 Buy 832 842.74 817.00 850-866 1.29% Profit 1,288.80

3 Power Finance Corp. Ltd 6-Jun-17 7-Jun-17 Buy 127.25 126.50 125.00 131-134 -0.59% Loss (590.25)

4 India Cements 9-Jun-1712-Jun-

17Buy 214.41 210.35 210.00 219.50-223 -1.89% Loss (1,887.90)

5 Kajaria Ceramics 12-Jun-1713-Jun-

17Buy 695.75 701.35 680.00 708-722 0.80% Profit 812.00

6 Equitas 16-Jun-1719-Jun-

17Buy 155.58 155.85 153.00 160-163 0.17% Profit 173.07

7 Dabur 23-Jun-1727-Jun-

Buy 290.25 284.71 285.00 295-302 -1.91% Loss (1,911.30)• Third level

– Fourth level

» Fifth level

01-Jul-17 40

7 Dabur 23-Jun-1727-Jun-

17Buy 290.25 284.71 285.00 295-302 -1.91% Loss (1,911.30)

8 IRB Infra June Fut 8-Jun-17 9-Jun-17 Sell 229 230.25 232.50 224-220 -0.55% Loss (3,125.00)

9 Ajanta pharma June Fut 14-Jun-1715-Jun-

17Buy 1581.75 1608.00 1555.00 1608-1636 1.66% Profit 10,500.00

10 GAIL June Fut 19-Jun-1720-Jun-

17Buy 382 378.05 378.00 387-392 -1.03% Loss (7,900.00)

11 TECHM June Fut 20-Jun-1721-Jun-

17Buy 395.4 393.55 388.00 402-410 -0.47% Loss (2,035.00)

12 Amara Raja Batteries June Fut 21-Jun-1722-Jun-

17Buy 845.8 854.15 831.00 868-880 0.99% Profit 5,010.00

13 Dr.Reddy July Fut 28-Jun-1729-Jun-

17Buy 2657 2639.60 2622.00 2690-2740 -0.65% Loss (3,480.00)

14 Titan July Fut 30-Jun-17 - Buy 521.65 - 511.00 529-540 - Open



– Second level

• Third level

CTFT Performance June’17

Summary June-17

Initated Open Calls

Profit

Booked

Loss

Booked

14 1 5 8

CTFT Performance • Third level

– Fourth level

» Fifth level

01-Jul-17 41

FY 2016-2017: Profit of Rs 81438

CTFT Performance

Financial Year

No of

Calls

Open

Calls

Profit

Booked

Loss

Booked

Profit / Loss

Amount

FY 2017 – 2018 44 1 20 23 33508



– Second level

• Third level

Call/Alerts Window in TT

Step 3

• Third level

– Fourth level

» Fifth level

01-Jul-17 42

Mode of Communication of Calls:

- Trade Tiger Call Alert Window (Pop Up)

- Email from Advisory Team to Branches



– Second level

• Third level

Market OutlookJuly 2017

• Third level

– Fourth level

» Fifth level

01-Jul-17 43



– Second level

• Third level

Valuations turn reasonableOverview

GST Impact analysis; Sectoral view

Market Valuation : At premium, but sustainable

Cues for the market & Earnings outlook• Third level

– Fourth level

» Fifth level

01-Jul-17 44

Key Investment themes

Key Concerns & Conclusion



– Second level

• Third level

GST: Impact analysis of the game changer tax reform

• Third level

– Fourth level

» Fifth level

01-Jul-17 45



– Second level

• Third level

Valuations turn reasonableGST implementation from July 1: The Goods and Service Tax (GST), the reform aimed at

overhauling the entire indirect tax regime will be implemented from July 1, 2017. GST will subsume

all the indirect taxes governed by state (VAT, Octroi, entry tax) as well as the centre (service

tax, excise duty) in a single tax levy that is uniform for each product/services category across the

country. There are four tax slabs 5%, 12%, 18% and 28% depending upon product/services.

Near term pain; long term gain: For business, the access to national market, cost optimization

through uniform tax regime and better distribution system would improve cost efficiencies and

productivity. On the other hand, the end consumer would benefit from lower product prices and

availability of more options in the similar price range. Thus, the implementation of GST is expected

to be win-win situation for the government, companies and end consumers in the long run. However

any new reform will cause short term disruption in the system and the performance of the

companies.

GST – Positive reform for long term growth

• Third level

– Fourth level

» Fifth level

01-Jul-17 46

companies.

Corporate earnings – weak Q1 and H1 results in this fiscal: Corporate earnings performance

would be affected due to de-stocking of goods by various trade channels (including dealers and

distributors) and re-aligning of supply chain under the new regime (will take two to three months to

stabilise). However the sales are expected to recover from Q3FY2018 and will gradually improve in

the subsequent quarters.

Sectors positively impacted by GST: Auto, FMCG, Building Materials and Logistic

Sectors negatively impacted by GST: Hotels, Restaurants and Branded Apparels



– Second level

• Third level

Valuations turn reasonableGST – Positive impact on sectors

Sectors Tax Implications under GST Companies to benefit

Auto -Commercial Vehicle (CV)/Two wheelers (2W)

Tax rate under GST would come down marginally by 1% as compared to the existing tax structure.

Sentimentally Positive

Eicher Motors, Ashok Leyland, Tata Motors, Hero Motocorp, Bajaj Auto, TVS Motors, Eicher Motors

Auto - Small cars

Tax rate under GST for small cars (under 4 meter length and < 1500 cc engine) would come down by 2-2.5% as compared to the existing tax

structure. Sentimentally Positive Maruti Suzuki

Auto - Mid sized cars and SUV

Tax rate for Mid sized cars (above 1500 cc and above 4 meters in length) and SUV would come down by 8% and 12% respectively as compared to existing tax structure. Sentimentally Positive

Maruti Suzuki, M&M and Tata Motors

Effective tax rate in essential goods such as • Third level

– Fourth level

» Fifth level

01-Jul-17 47

Consumer goods - essential items

Effective tax rate in essential goods such as soaps, toothpaste, edible oil and hair oils under

vairous tax slabs - PositiveHUL, Marico, Godrej Consumer

Products and ITC etc

Consumer goods - Cigarettes

Effective tax under GST would be 28% along with additional cess and other taxes. The government is planning to keep GST rate on cigarettes in-line with existing rate would gradually increase over

the period next 5 to 6 years - Positive ITC and Godfrey Phillips

Consumer goods - Footwear

Effective tax rate on Footwears costing less than Rs500 has been reduced to 5% from 9.5% earlier and above Rs500 has been reduced to 18% from

24-30% earlier - PositiveRelaxo Footwear and Bata India

etc



– Second level

• Third level

Valuations turn reasonableGST – Positive impact on sectors

Sectors Tax Implications under GST Companies to benefit

Building Materials

Higher tax rate in building material segment

is expected to benefit organised players over

a long term with market share gain as pricing

spread between organised and unorganised

players gets reduced. However, higher tax

rate may lead to tax evasion through

loopholes which is a concern among

organised players

Kajaria Ceramics, Cera

Sanitaryware, HSIL, Century

Plyboards, Greenply Industries

among others

Implementation of GST is likely to allow

consolidation of warehouses across the

country with free movement of goods leading • Third level

– Fourth level

» Fifth level

01-Jul-17 48

Logistics

country with free movement of goods leading

to higher volumes for logistic companies.

However execution of the same is likely to

take time as unorganised players will have to

adapt to new systems under GST.

Container Corporation, Gateway

Distriparks, Allcargo Logistics



– Second level

• Third level

Valuations turn reasonableGST – Negative impact on sectors

Sectors Tax Implications under GSTCompanies with negative

impact

Hotel more than Rs7500 room

rental

The tax rate on fine dinning restaurants has

increased to 28% from 15% earlier - Negative

This will result in hike in the

room rentals, which will have

negative impact on the

occupancies. Hotels, Hotel

Leela Ventures, ITC's hotel

business and Royal Orchid

The increase in tax rate will

further the affect the fine

dining restaurant industry,

which has seen significant

pressure on the footfalls/sales • Third level

– Fourth level

» Fifth level

01-Jul-17 49

Restaurants & fine dinning

The tax rate on fine dinning restaurants has

increased to 18% from 15% earlier - Negative

pressure on the footfalls/sales

due to slowdown in macro

environment. Speciality

Restaurants and Sayaji Hotels

Branded Apparels

The tax on the garments above Rs1000 will

be taxed at 12% which is higher than 7%

earlier

This is negative for branded

apparel companies such as

Arvind, Kewal Kiran Clothing

and Aditya Birla Fashion as the

price hikes in key brands would

result in late recovery in sales.



– Second level

• Third level

Valuation:At premium but sustainable• Third level

– Fourth level

» Fifth level

01-Jul-17 50

At premium but sustainable



– Second level

• Third level

Market Valuation at a premium but justified…

50%

60%

19

21 MCap to GDP

Sensex currently trades at ~18.1x one year forward PE which is slightly higher than its

historical average however on a MCAP to GDP basis it does not seem to be to expensive

with an improving earning scenario.

With persisting low interest rate scenario, normal monsoon and structural reforms like

GST coming into picture the outlook for economy is positive which could have been

factored in by the markets

• Third level

– Fourth level

» Fifth level

01-Jul-17 51

0%

10%

20%

30%

40%

50%

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Sensex Premium to MSCI EM

10 Year Average Premium

11

13

15

17

19

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Sensex PE Sensex Average PE

0.8X

1.0X

0.6X

1.0X

0.9X

0.7X0.6X

0.7X

0.8X

0.7X

0.9X



– Second level

• Third level

Valuations turn reasonable

�However, if we look at the emerging market valuation to

developed market, MSCI emerging market is trading at around

12.5x earnings, while the MSCI United States (18.2×), MSCI

Europe (15.1×), MSCI Japan (14.1×), MSCI United Kingdom

(14.6×), and MSCI World (16.9×) indices are trading at levels

that are 10% to 50% richer by comparison..

Valuations: It’s a global rally

• Third level

– Fourth level

» Fifth level

01-Jul-17 52

�Thus, Indian market being on a economic and earning up

cycle does not look stretched looking at the global re-rating

of equity as an asset class..

*data based on March 2017



– Second level

• Third level

Strong Indian Rally, led by midcaps

In the first six months of 2017, the Nifty/Sensex has appreciated by 17%

whereas midcap and smallcap index are up by 22% and 24% respectively.

17% 17%

22%

24%

20%

25%

30%

• Third level

– Fourth level

» Fifth level

01-Jul-17 53

0%

5%

10%

15%

Sensex NIFTY NIFTY MID CAP NIFTY SMALL CAP

Last 6 Months Returns (%)



– Second level

• Third level

Favorable macros precursor to eco and earning growth

Low interest rates and easing inflationary pressures to spur faster economic growth and a

precursor to uptick in consumer demand and earnings growth – which leads to re-rating and

higher valuations at the beginning of eco cycle, as we are in a up cycle will see double digits

earnings growth over next few years with superior RoE, as compared to other EM.

Further, with lower inflation, improving CAD situation , Oil prices staying on the lower side

the rupee is showing strength, as FII investors pour in to count on economic growth.

60

61

627.2

7.4

7.6

6

7

4

6

8

• Third level

– Fourth level

» Fifth level

01-Jul-17 54

63

64

65

66

67

68

69

70

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

USD INR

6.0

6.2

6.4

6.6

6.8

7.0

7.2

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

10 Year Gsec Yield %

0

1

2

3

4

5

-8

-6

-4

-2

0

2

4

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

WPI Inflation % CPI Inflation % (RHS)



– Second level

• Third level

Manufacturing : India readies to surge ahead

- Auto sales data indicates another positive data-point- Most passenger vehicle manufacturers reported healthy growth in sales inApril, swiftly overcoming the Demonetization related impact.

10.0%

20.0%

30.0%

40.0%

• Third level

– Fourth level

» Fifth level

01-Jul-17 55

Demonetization

effect

-30.0%

-20.0%

-10.0%

0.0%

May-15

Aug-15

Nov-15

Feb-16

May-16

Aug-16

Nov-16

Feb-17

May-17

YoY Domestic Auto Sales Growth (%)



– Second level

• Third level

Policy Measures: Addressing Issues in Key Sectors

Banking Sector: NPA Ordinance aimed at NPA resolutionBanks are back bone of economy but so far large corporate facing banks and

public sector banks have been hobbled by the huge NPA burden. RBI is taking

steps to encourage/guide banks to take stricter measures to resolve stressed

assets and effectively deal with defaulters.

Power Sector: A new dawn (UDAY)Huge investments stuck getting resolved by through gas/coal pooling and

reduce stress on State Electricity board – UDAY Scheme showing results• Third level

– Fourth level

» Fifth level

01-Jul-17 56

Roads/Railways: New projects under hybrid modelAnother big roadblock in economic growth was the huge number of road

projects struck due to non availability of land/environment clearance in time

and aggressive bidding by construction companies; resolution of old sticky

projects and new projects under hybrid model with lower implementation

risk has kick start the flow and execution of projects



– Second level

• Third level

Ample liquidity in the system –conducive for investment pickup

• Third level

– Fourth level

» Fifth level

01-Jul-17 57



– Second level

• Third level

No dearth of liquidity…and likely to continue

�Indian equity indices have seen ample liquidity flows from from DII’s and

FII’s, and incidentally DIIs flows have been much higher than FIIs flows in the

last 24 months, led by strong surge in SIPs flows and higher allocation to

equity , as other assets class return looks relatively soft..

�EPFO also plans to invest ~Rs20000 crore in equity markets this year which

is around 15% of the corpus from 5% earlier should also add to liquidity

�PFRDA also mulls over to pursue government to allow subscribers under the• Third level

– Fourth level

» Fifth level

01-Jul-17 58

�PFRDA also mulls over to pursue government to allow subscribers under the

NPS to invest in equities up to 50% from the current limit of 15%

Expected Flow in Markets this year (Sticky Money) In Crs

SIP 48000 4000 Cr Monthly

EPFO 20000 Expected Flow this year

PFRDA 25000 Expected Flow this year



– Second level

• Third level

With limited opportunity to get decent returns in other asset class, the

inflows in equity likely to remain strong going ahead.

FII flows, though unpredictable, tend to favor growth economy like India,

owing to domestic advantage and government pro-reforms agenda..

Ample Liquidity.. with Equity being the favored asset class..

20,000

30,000

40,000

10,000

20,000

30,000

40,000

• Third level

– Fourth level

» Fifth level

01-Jul-17 59

-20,000

-10,000

0

10,000

Jul/16

Aug/16

Sep/16

Oct/16

Nov/16

Dec/16

Jan/17

Feb/17

Mar/17

Apr/17

May/17

Jun/17

DII Net inflow YTD Net inflow

-30,000

-20,000

-10,000

0

10,000

Jul/16

Aug/16

Sep/16

Oct/16

Nov/16

Dec/16

Jan/17

Feb/17

Mar/17

Apr/17

May/17

Jun/17

FII Net inflow YTD Net inflow



– Second level

• Third level

Positive cues for markets & Earnings Outlook

• Third level

– Fourth level

» Fifth level

01-Jul-17 60



– Second level

• Third level

Normal Monsoon Forecast: Positive cue for overall economyNormal Monsoon Forecast: Positive cue for overall economy

�For FY17, IMD forecasts NORMAL monsoon; upgraded forecast to 98% (from 96%) of LPA.

�Coming after 2 yrs of deficit rainfall (2014 & 2015) India saw good monsoon for FY16 which

greatly helps to revive demand in country

�Since ~60% of rural households depend on Agriculture & allied activities for their primary

source of income hence better monsoon is crucial for income levels, rural demand

�The government too has increased budget allocation for rural, agriculture and allied activities

by 24% from FY17 to Rs1872 billion. This along with better monsoon could provide shot in the

arm for rural economy.

120 18722000• Third level

– Fourth level

» Fifth level

01-Jul-17 61

0

20

40

60

80

100

120

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Monsoon forecast % LPA Actual Rainfall % LPA

Average

1510

1872

0

400

800

1200

1600

2000

FY17 FY18

Budget allocation for Rural, Agri and allied sectors Rs Bn

24%

increase

in

budgetary

allocation



– Second level

• Third level

- For fundamental perspective, it is earnings growth which matters.

- Importantly, the downgrade in earnings factor in lot of negatives, and still the

growth in FY2017-18 is expected to be healthy double-digit.

Consensus earnings estimates (Bloomberg)

Earning Estimates Stable Now

Year EPS Growth2100

2300

2500

• Third level

– Fourth level

» Fifth level

01-Jul-17 62

2017 1358 -

2018E 1635 20%

2019E 2012 23%*Bloomberg Estimates

1500

1700

1900

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Sensex EPS consensus Estimates FY18

Sensex EPS consensus Estimates FY19



– Second level

• Third level

- Net profits of companies under Sharekhan coverage universe showed strong

growth of 32.6% over Q4 last year

- Growth was primarily driven by normalisation of earnings of Banks and Oil&Gas

sectors. Excluding banks and Oil&Gas, the PAT declined by 0.6% in Q4FY2017.

- Thus the performance is quite skewed with domestic demand still weak while

exporters like IT and pharma facing sector specific issues.

Q4 Earnings – Strong growth figures

92021

7670580000

100000

• Third level

– Fourth level

» Fifth level

01-Jul-17 63

76705

45471

69382 69344

45687

0

20000

40000

60000

80000

SKn Coverage Adj.PAT SKn Coverage Adj.PAT (Ex Bank)

SKn Coverage Adj PAT (ex-Bank, Ex Energy)

Q4FY17 Q4FY16



– Second level

• Third level

Q4 Earnings – Similar trend in Sensex

- For Sensex companies, the aggregate net profit increased by 6.0% which is slightly

ahead of estimates.

- But the earnings growth was fueled by normalization in earnings of Banks earnings

along with robust results of few companies like HUL, L&T and Tata Motors

- Consensus estimates of close to 20% growth though the margin pressure and short

term disruption from GST could hurt financial results in first half of financial year.

6.00%7.00%

21.90%25.00%• Third level

– Fourth level

» Fifth level

01-Jul-17 64

5.20%

6.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

Estimated (sharekhan) Actual

Sensex Adj.PAT Growth

21.90%20.20%

0.00%

5.00%

10.00%

15.00%

20.00%

Q4FY16 Q4FY17

EBIDTA Margin (Ex-BFSI) Sensex Companies



– Second level

• Third level

- Normalisation Banks/Metals earnings to drive growth in FY2018 earnings

- Low base of FY2017 would also make FY2018 growth look healthy optically

Strong revival in Earnings to support valuations

• Third level

– Fourth level

» Fifth level

01-Jul-17 65



– Second level

• Third level

Developed markets reviving steadily

500

�US economy has been on an improving trend with various macro indicators

gaining trend, also Q1CY2017 earnings performance of S&P 500 was

decent, (75% of Cos reported > Consensus Nos)

�S&P 500 companies have beaten the mean EPS estimate and 64% of S&P 500

companies have beaten the mean sales estimate.

140 58• Third level

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» Fifth level

01-Jul-17 66

0

100

200

300

400

500

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

US Jobless Claim data

0

20

40

60

80

100

120

140

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

US consumer confidence index

50

51

52

53

54

55

56

57

58

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

EUROZONE PMI



– Second level

• Third levelKey Investment Themes• Third level

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01-Jul-17 67



– Second level

• Third level

� Banking NPA Resolution: Spurred by RBI initiatives, Banks have

started bankruptcy proceedings against 4 A/c and also fast tracked

proceedings against remaining 8 A/cs. Meaningful steps on NPA

resolution would result in re-rating of corporate lending focused

banks; Prefer ICICI Bank and Axis Bank. In case of public sector

banks, SBI and BOB are prefered picks

� Push to affordable housing: Sectors/segments to benefit -

Cement, Housing Finance Cos, Paints and construction companies

Key Investment Themes

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01-Jul-17 68

Cement, Housing Finance Cos, Paints and construction companies

� Return of infra/construction companies due to low interest

rates, rationale biding and success of projects under hybrid annuity

model

Cautious on Pharma (especially formulations); Neutral on It Services



– Second level

• Third level

KEY INVESTMENT THEMES

Banks: NPA resolution Ahead(Re-rating of corporate lenders; narrowing of valuation gap with retail focused banks)• Third level

– Fourth level

» Fifth level

01-Jul-17 69

valuation gap with retail focused banks)



– Second level

• Third level

Banks: NPA resolution chances brightens

� Banks with relatively high exposure to corporate loans has been sharply de-rated on

the back of close to Rs7-7.5 trillion worth of sticky loans (bad or restructured)

� RBI has identified 12 accounts with 25% of bank bad loans and pushing case for fast-

track resolution / bankruptcy proceedings agasint them.

� NPA resolution could result in re-rating of coprporate lending banks and reduce

their valuation gap with retail focused peers.

• Third level

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» Fifth level

01-Jul-17 70

82.49 80.2970.37

59.11

0

20

40

60

80

100

Q1FY17 Q2FY17 Q3FY17 Q4FY17*

ICICI bank Slippages (Rs Bn)

5.4%

3.5%

2.8%2.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Q1FY17 Q2FY17 Q3FY17 Q4FY17

Axis Bank O/s Watch List as % of loans

67% 66%

62%59%

55%

51%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

BoB SBI BoI PNB Corp Bank

Union Bank

PCR (%)

*Excluding one large account which accounted for ~48% of slippage



– Second level

• Third level


Affordable Housing -- Big opportunity• Third level

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01-Jul-17 71



– Second level

• Third level

Opportunity - low mortgage penetration in India

Low mortgage penetration in India implies room for growth

Mortgage as % of nominal GDP

• Third level

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» Fifth level

01-Jul-17 72



– Second level

• Third level

Affordable housing: Key investment theme

A major investment theme in the works:

�India’s economy is set for a $1.3 trillion bonanza from 60 million new homesbetween 2018 and 2024 from the push to affordable housing sector by the NDA

government

�Positive rub off effect on Cement, Steel, Paints, Housing finance, Tiles, Sanitary ware

among other industries. Overall help in creating over 2 million jobs annually and add

up to 75 basis points to India’s GDP

Positive levers in place• Third level

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01-Jul-17 73

Positive levers in place�India has given infrastructure status to the affordable housing sector providing low

cost funding opportunity for development.

�Central and state assistance in funding, subsidized interest rates from banks, usage

of provident fund for buying and sevicing EMIs among others are key steps towards

pushing affordable housing

�Increasing transparency and focus on improving execution through Real Estate Act

(RERA).



– Second level

• Third level


Infra: Huge investment in rail & roads• Third level

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01-Jul-17 74



– Second level

• Third level

Infrastructure: Key investment theme

A major investment theme in the works:� India’s infrastructure investment is estimated to the tune of Rs43 lakh crore($646 billion) over the next 5 years -- 70% in rail, roads and urban infrastructure

� Road construction and award target of 15000km (up 82% YoY) for FY2018.

� Investments planned in urban development (AMRUT scheme), 12 airportscapacity expansion, 100 smart cities, Irrigation etc over the next five years

Positive levers in place• Third level

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� Addressing funding issues: Offshore fund raising, infrastructure investment

trusts , restructuring & refinancing loans from banks; and above all benefits from

low interest rates.

� Fast tracking of projects through faster environmental clearances, replacement

of concessionaires, re-bidding of projects, prior land acquisition, periodic

monitoring etc.



– Second level

• Third level

Infrastructure: Key investment theme

0

50

100

150

200

250

300

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Infrastructure spending (USD Bn)

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Infra spending as a % of GDP

Infrastructure spending on the rise… As a % of GDP…

Increasing outlay towards Roads segment.. Road project award/construction trend..• Third level

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Increasing outlay towards Roads segment.. Road project award/construction trend..

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Central plan outlay to MoRTH (Rs cr)

0.0

10.0

20.0

30.0

40.0

50.0

0

5000

10000

15000

20000

25000

30000

Total project award (nhai+Morth) Total project construction (nhai+Morth)

Construction per day (km)



– Second level

• Third level


View on beleaguered sectors:IT & Pharma• Third level

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» Fifth level

01-Jul-17 77

IT & Pharma



– Second level

• Third level

• Soft quarter along expected lines:

o In Q4FY17, the top five Indian IT companies delivered a muted performance, but the revenue growth

remained broadly in line with the estimates (ex Infosys).

o The operating profit margin (OPM) during the quarter was affected on account of the rupee’s

appreciation, acceleration in local hiring, investments in setting up delivery centres in the USA and

pricing pressure in the legacy businesses, despite automation and internal operational efficiencies.

• Outlook: Maintain Neutral stance, pains yet to get over: we do not expect any material growth

revival in the revenues for the IT sector in FY18 as issues around immigration, reskilling

programme, acceleration in localisation programmes, increase in offshorisation and intense

competition continue to act as an overhang.

• Comfort on valuations, worries on upside; stay selective: The current valuations are reasonable

IT Sector – Soft quarter; reasonable valuationView: Neutral

• Third level

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01-Jul-17 78

• Comfort on valuations, worries on upside; stay selective: The current valuations are reasonable

for investment with a time horizon of 12-15 months, but the material outperformance will be

limited in the near term owing to the sector overhang. Further, the increase in the pay-out ratio

(one-time share buyback/dividend) provides downside protection to IT stocks amid an ongoing

challenging environment. We remain selective in our preference for stocks.

Leaders in Q4FY2017: HCL Tech

Laggards in Q4FY2017: Tech Mahindra

Preferred picks: HCL Tech (in large-cap space) and Persistent Systems (in mid-cap).



– Second level

• Third level

• View : Cautious

• Weak performance:

o In Q4FY2017, the pharmaceutical companies in our coverage universe reported weak

performance. On an aggregate basis, our coverage universe reported marginal de-growth of 0.5%

in revenue and 8% fall in adjusted profit. OPM declined by 480 bps to 21% vs. 25.8% in Q4FY2106.

o Weak performance during the quarter was due to US business of majority pharmaceutical players

witnessed high single to double digit pricing pressure due to increased competition, consolidation

of channels and delay in key product approvals due to ongoing USFDA issues (also Q4FY2016 had

high one of sales due to exclusivity for few companies). Also domestic business witnessed slow

down due to GST which shall roll-out in the near term.

• Outlook: Cautious outlook; stay selective: Indian pharma companies have seen significant correction

/ multiple de-rating due to uncertain regulatory environment coupled with pricing pressure on account

Pharma Sector – Weak quarter; caution warranted

• Third level

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01-Jul-17 79

/ multiple de-rating due to uncertain regulatory environment coupled with pricing pressure on account

of increased competition. On the domestic front, GST roll-out is likely to result in difficulties (channel

disruption) in H1FY2018. Appreciating rupee is likely to add further pressure on businesses in the near

term. Hence we expect earnings growth in FY18 & FY19 to remain under pressure. We warrant a

cautious outlook for pharma sector for next 12-18 months and hence advice to stay selective. Also

progress of pharma companies in complex generics and specialty will be key monitorables to watch for

as quality of pipeline will be crucial for re-rating of multiple for the sector.

• Laggards in Q4FY2017: Divis, Sun Pharma & Torrent Pharma.

• Preferred pick: Aurobindo Pharma.



– Second level

• Third level

Key Concerns:More Global than Local

• Third level

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01-Jul-17 80



– Second level

• Third level

�Geopolitical issues continue to be a mixed bag for markets:

•The PM’s successful US visit augurs well for the long term capital

inflow, investments for India

•US and North Korean brinkmanship may precipitate a localized military

conflict

•Fractured Mandate in UK elections makes Brexit negotiations tricky, may

impede the Euro region’s economic growth & demand

•Few countries like Saudi Arabia have recently cut diplomatic ties with Qatar

which may escalate tensions in the middle east region, implications for Oil

prices

Geopolitical Issues

• Third level

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01-Jul-17 81

prices

So are investors underestimating the risk potential of one or more of aboveconflicts spiralling into a more serious crisis?

�Our view: It is likely, investors are counting on that policymakers’ monetary and

fiscal policy may be able to turn post-shock market corrections into buying

opportunities, as seen as several other events in the last two decades.



– Second level

• Third level

Conclusion

�Recent rally makes valuation of Indian equities at premium

to long term average multiples and to its peers (other

emerging markets);

Valuation at premium but justified and sustainable as:

�Favourable macros: Low interest rates and inflation precursor to eco growth

�Policy measures: Addressing structural issues in key areas like banks, power, roads• Third level

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01-Jul-17 82

�Policy measures: Addressing structural issues in key areas like banks, power, roads

�Ample liquidity: retail inflows driven by lack of decent returns in other asset class

�Corporate earnings: estimates stable; revival in FY2018; Q4 results reaffirm our

expectations to quite an extent.

Stick to our investment themes and use the market volatility to pick the

quality stocks



– Second level

• Third levelThank you

• Third level

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» Fifth level

01-Jul-17 83



– Second level

• Third level

Disclaimer

This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This Document may

contain confidential and/or privileged material and is not for any type of circulation and any review, retransmission, or any other use is strictly prohibited. This Document

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volume, as opposed to focusing on a company’s fundamentals and as such, may not match with a report on a company’s fundamentals.(Technical specific) This document

does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated

to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue

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The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the

accuracy and completeness of the said data and hence it should not be relied upon as such. While we would endeavour to update the information herein on reasonable

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information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the

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– Fourth level

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01-Jul-17 84

registration or licencing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category

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