ICICI October 15 Issue newcontent.icicidirect.com/MoneyManagerMagazine/October_2015.pdf · Indian...
Transcript of ICICI October 15 Issue newcontent.icicidirect.com/MoneyManagerMagazine/October_2015.pdf · Indian...
7 57
Anup BagchiMD & CEO
ICICI Securities Ltd.
Each generation has its own set
of financial needs and priorities.
Though the basic priorities
remain more or less similar
across generations – owning a
home, funding child's education
and planning for retirement -
today's young generation or
Gen-Y has diverse set of needs
than older generations. There is
a bigger challenge between
consumpt ion today and
investments for tomorrow.
Older generations perhaps had
simpler and limited needs.
Returns, even on fixed-income
investments were higher, in the
range of 12-15 per cent, so there was no need to take additional
risks. Employers took the responsibility to plan for retirement by
giving pension and medical benefits. Effectively a little bit of
planning by oneself was good enough to make achieve the
critical life goals. Today, factors such as increasing cost of living,
increasing life spans, preference for nuclear families, absence of
pension systems, etc. call for greater and early planning for the
future.
The young generation does face more challenges. It is our
responsibility to educate them and help them recognize that
securing future requires greater amount of discipline, diligence
and patience. Investing randomly, without a defined investment
plan would hardly provide any fruitful result. Young individuals
1ICICIdirect Money Manager October 2015
sometimes get carried away with short-term returns in the
market and start investing arbitrarily based on suggestions from
friends, relatives or even media. Such investments without
keeping goals in mind and withdrawing money midway can
result in below-average performance or even loss-making
transactions. We need to have a goal and set time horizon in
mind, preferably long term, to invest in markets.
Achieving goals requires a methodical and disciplined approach.
It requires thorough planning to balance retirement planning with
funding children's education, among other goals. Financial
planning helps to prioritize goals and provides optimal solutions
and strategies to meet goals within a planned time line. While
most of us understand the importance of planning for a financial
future, the action and implementation still falls short for many.
The services of a professional financial planner can help you truly
channelize your investments to your life goals. This issue will
help you understand goal-based investing.
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.
2
One of the best ways to achieve your financial needs and goals is to have a proper plan in place. With proper planning and by adopting a goal-based investment strategy, you can effectively invest in products that are best suited to your profile. Goal-based investment strategy matches your assets and investments to your liabilities and goals and ensures that you have sufficient funds to meet a particular goal. All it requires is a process to be followed called “financial planning”. In our cover story of this edition, we explain, how through proper planning you get more clarity and confidence to achieve your financial goals.
The edition also covers an interview with Ashwin Patni, Head Products & Fund Manager at Axis Mutual Fund, who believes our economy's fundamentals are really strong and should help us withstand any global shocks. He recommends investors to go for asset allocation regardless of their risk appetite to optimize risk-return outcomes.
The RBI in its most recent monetary policy cut repo rate by a higher than-expected 50 basis points to 6.75%. With interest rates expected to go down further, we believe this presents an attractive opportunity to invest in duration funds for better returns. Read on more about these funds in our Mutual Funds Analysis section.
Further, in order to help you provide you a collective overview on major asset classes, we have combined our equity and debt market round-up sections, and included views on gold. We have also revamped our monthly trends section with inclusion of more data points and indicators.
I would also like to draw your attention to our updated Equity Model Portfolio; we aligned the same to capture the new opportunities available in the market. So read on, stay updated and involved. Do write in with your feedback and share your thoughts at [email protected]
Editor & Publisher : Abhishake Mathur, CFA
Coordinating Editor : Yogita Khatri
Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey
CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Sheetal Ashar
ICICIdirect Money Manager October 2015
Your magazine is now also available on www.magzter.com, a digital newsstand.
3ICICIdirect Money Manager October 2015
MD Desk....................................................................................................1
Editorial.....................................................................................................2
Contents....................................................................................................3
News........................................................................................................4
Asset Class Insights
A monthly review and outlook on major asset classes – equity,
debt/fixed-income and gold...................................................................5
Stock Ideas: Arvind Ltd. and Bajaj Finserv...................................................10
Flavour of the Month: How to achieve your financial goals
Here we explain how through proper planning you get more clarity
and confidence to achieve your financial goals... Read on.................19
Tête-à-tête: 'Long term prospects continue to remain attractive’
An interview with Ashwin Patni, Head Products & Fund Manager, Axis
Mutual Fund.......................................................................................... 26
Ask Our Planner:
Your personal finance queries answered.............................................29
Mutual Funds Analysis: Investing in Duration Funds
With interest rates expected to go down further, this presents an
attractive opportunity to invest in duration funds for better returns..33
Mutual Fund Top Picks.............................................................................. 40
Updated Equity Model Portfolio
We have aligned our portfolio to capture the new opportunities
available in the market..........................................................................42
Quiz Time.................................................................................................47
Prime Numbers
A revamped section of monthly trends, with inclusion of more data
points and indicators............................................................................ 48
Premium Education Programmes Schedule..................................................52
4ICICIdirect Money Manager
Withdraw PF within 3 hours through EPFO's online settlement facility by March end
All that paperwork for withdrawing your PF money may soon be history. Retirement fund body EPFO is hopeful of launching an online PF withdrawal facility by March end after the Supreme Court extended voluntary use of Aadhaar card to government schemes, including provident fund. The Employees' Provident Fund Organisation with over five crore subscribers has been working on such a facility for online settlement of PF claims within three hours of receiving an application. Once this is operational, subscribers can apply online for PF withdrawal, which will be transferred directly to their bank accounts.
Courtesy: The Financial Express
Foreign investment inflows into Indian debt are set to exceed those in local equities for the second straight year, data on portfolio inflows shows. Overseas investments into debt in Asia's third largest economy are also the highest among emerging economies in the continent. Foreign institutional investors (FIIs) have bought a net of $8.05 billion in local debt this year, more than double the $4.02 billion they have pumped into stocks. Inflows into Indian debt have been the highest among Asian emerging economies, HSBC Economic Research said in a report.
Courtesy: Livemint
FIIs pick bonds over equities for second year in a row
Software stocks have regained their second-most favoured status with fund managers. This is the first time since March that fund managers have more assets deployed in information technology (IT) than in automobile stocks. In September, Rs 43,053 crore, or 10.65 per cent of total equity assets, found their way into shares of infotech majors like Infosys, Tata Consultancy Services (TCS), HCL Technologies and Tech Mahindra. On the other hand, Rs 41,239 crore, or 10.2 per cent of equity assets, were held as stocks of automobile companies.
Courtesy: Business Standard
IT second-most favoured sector by fund managers
October 2015
India ranks last in global pension index: MercerThe country's retirement system ranks last in the global pension index, says a study by global consulting major Mercer. The country's index value fell from 43.5 in 2014 to 40.3 in 2015, primarily due to a recent review conducted by the economic intelligence unit that showed a material reduction in its household savings rate, Melbourne Mercer Global Pension Index (MMGPI) report said. Enhanced participation in the National Pension System (NPS) will help the country increase its index value, it added. Denmark has been rated as the country with the best retirement system in the world. Australia, Germany, Japan, Singapore and the UK have increased their pension age to offset the increase in life expectancies.
Courtesy: Business Standard
5ICICIdirect Money Manager October 2015
Equity: After surprise RBI gift, it's back to Q2 earnings seasonAfter a negative August spillover effect, domestic equity markets witnessed a late recovery in September on the back of two positive developments during the month. Firstly, the US Federal Reserve decided to defer the interest rates hike in its September FOMC (Federal Open Market Committee meet. Back home, the Reserve Bank of India (RBI) surprised the
markets positively with its decision to reduce interest rates by 50 basis points (bps). Both the Sensex and the Nifty ended the month marginally lower by 0.5% and 0.3%, respectively. The foreign institutional investors (FIIs) were net sellers to the tune of ~ Rs. 5,695.7 crore amid volatility in markets while d o m e s t i c i n s t i t u t i o n a l investors (DIIs) were net buyers to the tune of ~ 9,320.2 crore.
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ASSET CLASS INSIGHTS
Source: ACE MF
Sectoral performance
-30.2 -29.1
-13.8
-1.5-7.9
-17.8
3.3
-13.7-18.3
-7.4-12.1
-14.9
13.6
0.65.3
8.64.5
11.7 5.4 7.6 6.5 7.74.8 3.8
-35.0-30.0-25.0-20.0-15.0-10.0-5.00.05.0
10.015.0
Metal
Auto
Healthcare
FMC
G
Banking
Sensex
PS
U
IT
Oil &
Gas
Cap.G
oods
Ret
urn
%
RealIty
Co
n.D
ura
Asset Class Insights: Equity, Fixed-income and Gold
Monthly review of the major asset classes - equity, fixed-incomeand gold -- and a snapshot of our outlook.
18000
20000
22000
24000
26000
28000
30000
Sep
-13
Dec
-13
Mar
-14
Jun-
14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Source: Bloomberg
Rally in markets in one month
6ICICIdirect Money Manager October 2015
The RBI provided a much needed shot in the arm to the Indian economy as it reduced the benchmark repurchase rate by 50 bps to 6.75%. The cash reserve ratio (CRR) and statutory liquidity ratio (SLR) were left unchanged at 4% and 21.5%, respectively. Post the rate cut by RBI, the largest domestic bank reduced its base rate by 40 bps to 9.3%. The RBI has cumulatively reduced interest rates by 125 bps in 2015.
The Q1FY16 GDP (gross domestic product) came in at 7%, lower than 7.5% in Q4FY15 but higher than 6.7% seen in Q1FY15. It was lower than expectation of 7.4%. The Index of Industrial Production (IIP) for July 2015 came in at 4.2% year-on-year (YoY), better than growth of 3.8% YoY recorded in the previous month. The consumer price index (CPI) for August came in a t 3 .66%, in l ine wi th
consensus estimate and lower than CPI July of 3.69%. WPI August came in at-4.95%, lower than consensus estimate and WPI July of -4.05%.
Markets across geographies: Global markets continued to be influenced by concerns over subdued commodity prices, concerns on a Chinese slowdown and the long term outlook for US interest rates. The markets reacted positively as the US Federal Reserve maintained status quo on benchmark rates. The Fed cited the recent volatility in financial markets, sluggish inflation on the domestic front and an uncertain outlook for a global economic recovery as primary reasons for opting to refrain from raising interest rates as it held benchmark federal funds rate at 0-0.25%. The European Central Bank (ECB) also reinforced its dovish stance as it left interest rates unchanged at near-zero level of 0.05%.
Global markets grapple with slowdown concerns in China
-0.5
-1.5
-3.0
-3.4
-4.2
-4.8
-5.8
-8.0-5
.4
-7.5
-8.4
-15.
0
-8.5
-24.
7
-12.
8
-13.
5
-30
-20
-10
0
Indi
a
US UK
Braz
il
Fran
ce
Chin
a
Germ
any
Japa
n
(%)
1 M 3 M
Source: Bloomberg. Returns as on September 30, 2015
ASSET CLASS INSIGHTS
7ICICIdirect Money Manager October 2015
Fed blinks, RBI does more than expec ted ; focus sh i f t s to government, earnings: The Fed kept on toying with market sentiments with it's ''catch me if you can'' policy with the deferral of rate hikes. The RBI, however, went a step further by reducing repo rates by 50 bps. In the process, it shifted the ball to the government's c o u r t . T h e t w o m o v e s somewhat calmed down the jitters caused by the weak Chinese macro data and fears of a global slowdown in August. As we brace for the Q2 earning season, markets will look for positive surprises from earnings besides global events. Interest rate sensitive sectors may remain in focus in the backdrop of a repo rate cut amid the approaching festive season.
In a surprise move, the RBI cut the repo rate by 50 basis points to 6.75% from 7.25% against market expectation of 25 bps. The tone of the policy is also dovish indicating it will c o n t i n u e t o b e accommodative. The policy also mentioned tepid growth a c r o s s m a n u f a c t u r i n g , services and export segment
Fixed-income: Duration funds remain attractive
of the economy. The positive sentiment resulted in a rally in g o v e r n m e n t b o n d s . Consequently, the benchmark 10 year G-Sec yield fell around 20 bps from 7.72% to 7.50%.
The RBI mentioned that while i t s s t a n c e w i l l r e m a i n accommodative, the focus in the near term will be to ensure transmission of the cumulative 125 bps of rate cuts that had taken place in this cycle. Although the 50 bps rate cut by the RBI was higher than market expectation, the rally in the G-Sec market was limited. The structural downward shift in G-Sec yield was prevented by higher yields on tax free bonds, small savings instruments line PPF, NSC, etc. Unless yields on these instruments come down, demand f rom domest ic institutional investors like provident funds for G-Sec yields may remain restricted. R B I h a s c a t e g o r i c a l l y mentioned the same for the government to review.
An increase in FII limit in a phased manner to 5% of outstanding government securities (that are currently at 3.8%) along with 2% additional limit for state development loans are a structural positive for long term bonds.
ASSET CLASS INSIGHTS
8ICICIdirect Money Manager October 2015
FII investment in debt market in last few months while MFs have been consistent significant buyers
-10000
0
10000
20000
30000
40000
50000
60000
70000
80000
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
` c
rore
FII Debt MF DebtSource: Bloomberg
Inflation continues to soften with CPI for August slipping to a nine-month low of 3.66% while WPI came in at -4.95%. Core CPI, a measure of demand pressure in the economy, fell 19 bps to 3.86% YoY.
Indian debt markets remain attractive from a medium-term perspective as the inflation trend remains on a downward trajectory and well within RBI's target range. Investors may consider both duration as well as accrual funds depending on their risk-return profile.
Global gold prices traded in a n a r r o w r a n g e d u r i n g
Gold: Range bound movement to continue
September 2015 after the extremely volatile month of August 2015. Uncertainty surrounding the US Fed rate hike, however, led to some volatility. Global gold prices traded in the range of US$1100 and US$1140 per ounce during September 2015. Indian prices following global prices traded between 25,700 and 26,700 per 10 gram. The near term uncertainty surrounding China government ac t ion and deferral of the US Fed rate hike may provide some support to global gold prices in the near term.
Investment demand for gold is largely governed by the broader economic climate. One of the major determinants
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ASSET CLASS INSIGHTS
9ICICIdirect Money Manager October 2015
of investment demand is inflationary concerns. With a low global economic growth env i ronment add ing to d e f l a t i o n a r y p r e s s u r e , inflationary demand factor for gold remains absent in the near term. Another major determinant for global gold prices is real interest rates. With the US Federal Reserve likely to raise interest rates, going forward, the opportunity cost of holding gold will increase while the same is
likely to put pressure on gold prices from a medium-term perspective.
Technically, after the multiyear bull phase during 2004-12, g o l d p r i c e s c o r r e c t e d significantly. The violation of the long term trend line highlights the breach of a decade long trend of out performance. This breach of long term up trend support, signals a period of medium-term consolidation.
Volatility increases in near term on increased global capital market uncertainty
1050
1100
1150
1200
1250
1300
1350
Se
p-1
4
Oc
t-14
No
v-14
De
c-1
4
Ja
n-1
5
Fe
b-15
Ma
r-15
Ap
r-1
5
Ma
y-1
5
Ju
n-1
5
Ju
l-15
Au
g-1
5
Se
p-1
5
Oct
-15
Price ($/Ounce)
Indian prices rise sharply taking cues from global prices
May
-15
Jun
-15
Jul-
15
Aug
-15
Sep
-15
Oct
-15
24000
26000
28000
30000
32000
Ja
n-1
3
Fe
b-13
Ma
r-1
3
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Aug
-13
Sep
-13
Oc
t-13
No
v-13
De
c-1
3
Ja
n-1
4
Fe
b-14
Ma
r-1
4
Ap
r-14
May
-14
Jun
-14
Jul-
14
Aug
-14
Sep
-14
Oc
t-14
No
v-1
4
De
c-1
4
Ja
n-1
5
Fe
b-15
Ma
r-1
5
Ap
r-15
Price (|/10 grams)
Source: Bloomberg
ASSET CLASS INSIGHTS
10
STOCK IDEAS
ICICIdirect Money Manager October 2015
Arvind Ltd: Metamorphosing to brand powerhouse
Company BackgroundArvind Limited is the flagship company of the Lalbhai Group that has been around since 1930. Arvind started as a superfine fabric manufacturer in the early 30s. Since then, the company has been constantly reinventing itself by venturing into new categories in textiles like denim, suiting, shirting, etc. Arvind has been a pioneer in India in launching domestic denim brands like Ruff & Tuff and Flying Machine. The company has also been licensing international brands like Arrow and US Polo in India. Currently, Arvind is considered India's leading fully integrated textile, branded apparel & retail company, which has a strong presence across the value chain. The company is a market leader i manufacturing denim in India with total capacity of 108 million metre per annum (mmpa) of which 44% is export driven. The textile division comprises sub-categories like denim, woven, voiles and knits. The company a l s o h a s g a r m e n t i n g
capabilities with an annual capacity of ~22 million pieces as on Q1FY16.
The brand & retail business of Arvind operates through Arvind Brand & Retail (ARBL) a wholly-owned subsidiary of Arvind. The brand business of Arv ind compr i ses bo th company owned value brands along with premium and bridge to luxury international brands. Top international brands in Arvind's portfolio include Tommy Hilfiger, Arrow, GAP, Nautica, Calvin Klein, US Polo, Hanes, etc. while its own Indian brand portfolio includes Flying Machine, Excalibur, Karigari etc. The company also operates large format retail stores like Megamart, Next and Arvind Store, which mainly focus on benefiting from the mall going culture in India. Recently, the company de merged and independently listed its real estate arm, Arvind Infrastructure. The swap ratio was one share of Arvind Infrastructure for every 10 shares held in Arvind Ltd.
11ICICIdirect Money Manager October 2015
STOCK IDEAS
Investment Rationale
Strategic shift from a textile manufacturer to garmenting & brand house
Arvind Ltd. continues to get strategically transformed from a textile manufacturer to a major garmenting and brand house with a portfolio of major brands, which capture the “Adopt the West” strategy. The company's position as No.1 denim manufacturer coupled with its verticalisation strategy of garmenting capabilities and entrenched reta i l reach position it as the most favoured integrated textile player. Revenues are expected to grow at 13% CAGR (compounded annual growth rate) in FY15-17 mainly driven by its brands business. However, restructuring of Megamart and scaling up of its e x i s t i n g b r a n d s w o u l d consolidate profitability at current levels. We believe Arvind is best suited to capture t h e i m m e n s e g r o w t h opportunity in the branded apparel segment.
Po i s e d t o c a p t u r e “ b r a n d conscious” Indian apparel industry
The Indian retail apparel
industry is currently valued at 2,50,000 crore. Arvind over t ime has developed an enviable array of brands, which perfectly reflect western culture. With a variety of offerings at different price points, the company is well positioned to capture the rising per capita consumption of apparel. In FY15, Arvind L i festy le Brands (ALBL) contributed ~30% of total revenues. Power brands like Arrow, US Polo, Tommy Hilfiger and Flying Machine contributed 60% of overall b r a n d r e v e n u e . N e w l y acquired brands like The Children's Place and GAP would continue its retail revenues growth momentum. We expect the contribution of ALBL to revenues to increase to 35% by Fy17.
Verticalisation strategy to aid in margin improvement
Arvind's business model is diversified across the value cha in o f tex t i l es . Wi th manufacturing capacity of 108 million metre (mm), it is the l a r g e s t d e n i m f a b r i c m a n u f a c t u r e r i n I n d i a . Additionally, it has weaving and knitting capacity of 282
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STOCK IDEAS
12ICICIdirect Money Manager October 2015
mm. Approximately 5% of fabrics produced are used for garmenting. Going ahead, m a j o r i t y o f A r v i n d ' s investments are marked t o w a r d s i n c r e a s i n g i t s garmenting capabilities. The strategy around the same is to p r o v i d e r e s i d e n t i a l accommodation to workers and improve efficiencies on the back of lower absentees and contracted labour. The management has a target of 25% captive usage of textiles by 2018, which we believe would be a tailwind for standalone margins.
M e g a m a r t r e s t r u c t u r i n g ; monetising brands; warrant BUY
Arvind has restructured its retail strategy for its Megamart stores. The company now plans to widen its offerings by increasing the size of the store rather than opening new stores. Furthermore, new stores from GAP and Children's Place coupled with a host of probable power brands would enhance revenue visibility and aid profitability. Given the diversified business model and multiple positive triggers, we value Arvind's standalone business at 4x EV/EBITDA and A L B L a t 2 x m a r k e t capitalisation to sales. We recommend BUY with a target price of 330.`
Key Financials
Net sales ( crore) 6,862.1 7,851.4 9,022.3 10,045.6
EBITDA ( crore) 934 1,012.8 1,180.1 1,338.3
Net profit ( crore) 353.9 341.1 398.5 500.8
EPS ( ) 13.7 13.2 15.4 19.4
FY14 FY15 FY16E FY17E
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Valuations Summary
P/E (x) 21.1 21.2 18.1 14.4
EV / EBITDA (x) 11 10.4 9 8
P/BV (x) 2.9 2.7 2.4 2.1
RoNW (%) 13.7 12.5 13 14.3
RoCE (%) 13.8 14.4 15.1 16
FY14 FY15 FY16E FY17E
STOCK IDEAS
13ICICIdirect Money Manager October 2015
Key Risks
Standalone margins to get impacted by cotton prices
Cotton prices have been volatile over the past few years. The textile business of the company is exposed to the risks of this volatility. Though the company procures cotton during S e p t e m b e r - D e c e m b e r, t h e procurement is on the back of existing orders. The inventory managed by the company on its textile business is to the extent 72 days. The increase in co t ton pr i ces wou ld impac t standalone prices and result in lower EBITDA.
Increase in royalty payments
Currently, the company operates in a combination of arrangements with international brands. This includes setting up of subsidiary/ joint venture
(JV), franchisee or licensing. The current royalty payment is 2.87% of net sales. Any increase in royalty payments or any hike in taxation on royalty payment would impact EBITDA margins for Arvind Brands & Retail (ARBL).
Failure of new brands /investment overshadows core performance
The company currently has 31 brands in its portfolio. If there is sluggishness in the uptake of apparels, new brands /investments of the company would drag down the overall consolidated performance. Furthermore, till new brands stabilise they would keep denting the company's profitability for an extended period. This would also result in new brands not choosing Arv ind and pre fer r ing o ther companies for their strategic partnership.
(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; P/BV: Price-to-book value; RoNW: Return on net worth; RoCE: Return on capital employed; FII: Foreign institutional investors; DII: Domestic institutional investors)
Stock Data
Market capitalization ( crore) 7,300
Total debt (FY15) ( crore) 3,397
Cash (FY15) ( crore) 83
Enterprise value (EV) ( crore) 10,415
52-week High/ Low ( ) 341 / 216
Equity capital ( crore) 258
Face value ( ) 10
FII holding (%) 14.7
DII holding (%) 15.8
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14ICICIdirect Money Manager October 2015
STOCK IDEAS
Bajaj Finserv: Core strength - Consumer finance & general insurance
Company BackgroundBa ja j F inserv L td . was
incorporated on April 30, 2007.
As per the scheme of de-
merger of the erstwhile Bajaj
Auto Ltd. in 2007, the
shareholding of Bajaj Auto in
Bajaj Finance and other
financial businesses along with
windmill has been vested with
Bajaj Finserv, which is the
financial services arm of the
Bajaj Group. The de-merger
was ef fect ive f rom the
appointed date on March 31,
2007.
Bajaj Finserv is now a financial
conglomerate that is engaged
in life insurance, general
insurance, consumer finance
and other financial products.
Apart from financial services,
t h e c o m p a n y h a s a n
operational wind energy asset.
The portfolio includes 74% in
the two insurance companies
viz. Bajaj Allianz Life Insurance
Company (BALIC) and Bajaj
Allianz General Insurance
Company (BAGIC) , 50%
holding in Bajaj Al l ianz
Financial Distributors, 57.6% in
Bajaj Finance and 100%
holding in Bajaj Financial
Solutions.
BAGIC has cons is tent ly
maintained its strong position
among private general
insurance players, owing to its
significant retail focus, wide
distribution network and
customer centric business
approach. Retail (motor+
health) forms ~75% of GWP
(gross written premium) and is
expected to continue to
contribute a major portion of
the overall business. We
expect GWP to grow at 14.5%
CAGR (compounded annual
growth rate) in FY16-17E to
6,856 crore. With prudent
underwriting standards and
anticipated increase in third
party insurance rates, we
expect combined ratio to
remain below 100% in FY16-
17E (combined ratio at 97-98%
in last two years). Supported
by investment yield of ~9%,
we expect PAT (profit after tax)
Investment Rationale
Bajaj Allianz General Insurance
(BAGIC) – a class apart
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15ICICIdirect Money Manager October 2015
STOCK IDEAS
to grow at 10.3% CAGR in
FY16-17E with RoE (return on
equity) staying ahead of peers
at ~20-22%. Peer RoEs are in
the range of -12.5-19% vs. 25%
reported for BAGIC in Fy15.
The target valuation assigned
is 7,592 crore (for 74% stake)
and 429 per share of Bajaj
Finserv post 10% holding
company discount.
BALIC recorded its first profit
from FY10 of 542 crore. The
company is now earning
higher PAT of 876 crore, after
touching peaks of 1,311
crore. Group premium has
been driving the business for
BALIC currently at 80% of NBP
(new business premium) in
Q1FY16 and 61% in Fy15. We
factor in an improvement in the
scenario with linked NBP from
individual growing at 14%
CAGR to 3,088 crore and APE
(annual premium equivalent)
seen growing at 36% CAGR
(on lower base) to 1,511 crore
over FY15-17E. Accordingly,
the AUM (assets under
management) and PAT is
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Bajaj Allianz Life Insurance
Company (BALIC) – Gearing for
stable growth
expected to grow at a CAGR of
12.5% and 28.5% to 48,680
crore and 1,123 crore,
respectively, by FY17E.
We are considering the full
74% economic interest of Bajaj
Finserv in the business. Valuing
the life business on appraisal
valuation methodology with
1.2x EV +10x NBAP results in
BALIC target valuation of 161
billion on FY17E basis. This
culminates to 119 billion for
74% BALIC stake and thereby
674/share of Bajaj Finserv post
1 0 % h o l d i n g c o m p a n y
discount.
Bajaj Finance (BFL), is one of
the leading asset finance
NBFCs (non-banking financial
companies). The USP (unique
selling proposition) of BFL is its
stronghold in the consumer
durable (CD) & lifestyle product
financing business (~15% of
the AUM) wherein it does not
have any major competition
(BFL's share is ~16%). Post
i n d u c t i o n o f t h e n e w
management in FY07, BFL
transformed itself from merely
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Bajaj Finance: Unique product
offering commands premium
16ICICIdirect Money Manager October 2015
STOCK IDEAS
financing a few products to a
wide range of products divided
into three broad categories viz.
consumer finance (40% of
l o a n s ) , S M E ( 5 4 % ) &
commercial & rural category
(6%). Such diversity has given
BFL an edge in terms of AUM
growth (44% CAGR to 32,410
crore in FY11-15) and asset
quality (GNPA (gross non-
performing assets) ratio steady
in 1.2-1.5% range in the past
three years) despite a weak
economic environment. PAT
has increased at 38% CAGR in
FY11-15 to 897 crore. Over
FY15-17E, we expect PAT
traction to remain strong at
27% CAGR to 1,456 crore.
BFL's premium valuations are
expected to sustain on better
earnings visibility and valued
at 3.6x FY17E ABV (adjusted
book value) at 974 in SoTP
(sum of the parts). Bajaj
Finance is independently listed
and we assigned target of
5,600 for the same.
Given Bajaj's strong leadership
in the domestic market and
presence in growing business
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SoTP valuation - Bajaj Finserv
verticals, we expect the entity
to continue its focus on
improvement in earnings
growth and sustenance of a
healthy balance sheet. Both
insurance companies are yet to
pay dividend. In case of
payouts, consolidated profits
can see further upside not
factored in estimates. The
same can improve the return
r a t i o s f u r t h e r f o r t h e
consolidated entity. We expect
22% CAGR in PAT to 2,532
crore and RoE at 17.8%
without factoring in the
dividend.
Based on our SoTP valuation,
we ascribe a target of 2,102
per share for Bajaj Finserv,
which implies a multiple of 13x
on FY17E conso l ida ted
earnings. This reiterates the
fact that the stock is available at
reasonable P/E valuation of 11x
FY17E earnings even post
c o n s e r v a t i v e f o r w a r d
estimates. We initiate coverage
on the stock with a BUY
recommendation with an
upside of 18% at the current
market price of 2,102.
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17ICICIdirect Money Manager October 2015
STOCK IDEAS
SoTP Valuation
Business Basis Stake (%)
BusinessValue(Rs.crore)
Valueofstake(Rs.crore)
Value/shareafter10%discount(Rs.)
Bajaj Allianz Life Insurance 1.2x EV + 10x NBAP 74 16,128 11,917 674
Bajaj Allianz General Insurance 15x PAT 74 10,260 7,592 429
Bajaj Finance 3.6x BV 57.8 29,797 17,223 974
Windmill 6 per mw 100 390 390 25
Total 2,102
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Key Financials
Revenue ( crore) 15,554 18,030.9 20,279.5 22,977.3
Profit before tax ( crore) 2,905 3,246.2 3,875.3 4,624.2
Net profit ( crore) 1,547.7 1,689.8 2,038.3 2,532.2
EPS ( ) 97.3 106.2 128.1 159.1
FY14 FY15 FY16E FY17E
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Valuations Summary
P/E (x) 18.5 16.9 14.1 11.3
Target P/E (x) 21.6 19.8 16.4 13.2
P/BV (x) 3.1 2.6 2.2 1.8
Target P/BV (x) 3.6 3 2.6 2.2
RoA (%) 2.2 2 2.1 2.3
RoE (%) 18.1 16.7 17 17.8
FY14 FY15 FY16E FY17E
18ICICIdirect Money Manager October 2015
STOCK IDEAS
Stock Data
Market capitalization (Rs. crore) 28,403
Net worth (FY15) (Rs. crore) 10,973
52-week High/ Low (Rs.) 2,160/ 1,001
Equity capital (Rs. crore) 80
Face value (Rs.) 5
DII holding (%) 7.2
FII holding (%) 8.4
Key Risks
Call option with Allianz to impact stock – in case exercised
As per the agreement entered in 2001, Allianz SE has a Call option, which allows it to raise its stake in BAGIC/BALIC at Rs. 10/Rs. 5.42 per share plus interest at 16% per annum compounded annually till July 30, 2016, April 22, 2016. With FDI (foreign direct investment)
limits raised to 49% from 26%, the probability of Allianz increasing its stake in the insurance business at substantially discounted valuation exist, which is negative for the holding company.
Though recent RBI (Reserve Bank of India) views on transfer pricing and Tata DoCoMo case make the case weak for Allianz to raise stake at discounted prices.
(EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; P/BV: Price-to-book value; RoA: Return on assets; RoE: Return on equity; DII: Domestic institutional investors; FII: Foreign institutional investors)
19ICICIdirect Money Manager
FLAVOUR OF THE MONTH
How to achieve your financial goals
October 2015
Investing is not always disciplined and can vary significantly in approach. Sometimes it is to save on taxes, sometimes it is to park surplus cash and sometimes to catch up with a trending investment. Our goals don't necessarily define our investments. A global survey of investors conducted by France-based asset management firm Natixis shows that 57% of investors do not have clear financial goals, 67% do not have a financial plan in place to reach what goals they have, and 77% rely on gut instincts to make investment decisions. Although the study did not include India, the findings seem relevant in the Indian context too. Investing without a defined plan and a disciplined approach often ends up off the track. When you invest based on your goals and with an appropriate plan, it provides you with more clarity and confidence into your financial journey. Here's how to go about reaching your financial goals.
A case in point
Pankaj Bhat, 35-year old, is software professional. His family comprises his wife and a daughter. Among other goals, Pankaj wants to accumulate a corpus to provide for his daughter's education. With this intention, he set himself an investment horizon of 12 years. To start with, Pankaj started investing in the fixed deposits (an investment approach majority of us follow)
with the plan that the proceeds of the maturity would be used for his daughter's education.
As the goal is nearing, Pankaj is deeply worried that he runs the risk of not being able to provide for his daughter's education as intended. On the other hand, Manish Kumar, Pankaj's friend, with similar profile and goals, is confident enough to achieve all his goals. How? Let's take a look at their financial details to understand more.
Pankaj and Manish’s Financial Details
Current age and profile 35 years; working in Pune, native Nasik; spouse 31 years, a homemaker
Annual income (post-tax)
` 12 lakh
Annual expenses ` 11 lakh (including EMI)
Annual investments ` ` ` 1 lakh ( 25,000 into PPF, 35,000 into endowment policies and 40,000 into FDs)`
20ICICIdirect Money Manager
FLAVOUR OF THE MONTH
October 2015
Assets Self-occupied house: 50 lakh; PPF: 55,000; ` `
FD: 2 lakh; EPF: 8 lakh; Plot of land at native: ` `
` ` 8 lakh and Physical gold: 5 lakh
Insurance Endowment policy: Sum assured 7 lakh; `
Premium: 35,000 p.a.; Maturing after 19 years `
from now
Liabilities Home loan outstanding: 20 lakh (EMI: 25,000 ` `for another 11 years)
Goals 1) Daughter’s higher education: ` 10 lakh (in today’s
value) after 12 years
2) Daughter’s wedding: ` 10 lakh (in today’s value)
after 16 years
3) To build a retirement home in the plot of land at native: 15 lakh (in today’s value) after 18 years`
Retirement To retire after 20 years; need 4.50 lakh p.a. (in `today’s value) post retirement till the age of 75 of self and spouse
Here's how they fared on their investments and financial goals over the years.
Cash-flow management and investment planning: Pankaj and Manish, both have annual expenses of 11 lakh and majority of investments into fixed-income instruments. P a n k a j c o n t i n u e d h i s investment approach, with the risk of not sufficiently meeting his goals, since the fixed-income instruments hardly beat inflation and do not provide the required growth to meet the future requirements. Manish, on the other hand, sought professional help and based on his financial plan, took the following steps to improve his finances and could reach his goals.
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F i r s t , h e r e d u c e d h i s discretionary spending and brought down the total annual expenses by 2 lakh to Rs. 9 lakh. This way, he could increase the total annual savings to 3 lakh from Rs. 1 lakh earlier.
Second, he surrendered his endowment po l i cy and stopped paying premiums towards the same, which left him with increased surplus.
Next, he stopped investing into fixed deposits, leaving him with the increased total annual surplus of 2.75 lakh i.e. 23,000 per month. This amount he used for investments based on his goals. He diverted his
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21ICICIdirect Money Manager
FLAVOUR OF THE MONTH
October 2015
investments from debt to equity, as goals are long-term in nature.
Insurance planning: Pankaj largely re l ied upon his employer-provided cover for both life ( 30 lakh) and medical ( 4 lakh), apart from his own 7 lakh endowment policy.
What's the risk? In case of any eventuality, Pankaj's family would get 30 lakh from employer cover, 7 lakh from endowment policy and 21 lakh from financial and real estate investments, totaling to 58 lakh. Out of this amount,
20 lakh will be used to repay the home loan liability. The balance 38 lakh will suffice only for 6 years to cover family's expenses (assuming 75% of Rs. 11 lakh p.a.).
Where-as in case of any medical emergency, 4 lakh only would be available at disposal. Also, if Pankaj shifts
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to any other company, there he might not get a cover for the entire family. Further, if he tries to take a separate policy at later stage in life, it might not be available if he develops any specific illness or disorder.
Manish did not take this risk. Based on his financial plan, he took a life cover of 2.40 crore so that his family can reach goals even when he's not a r o u n d . F o r m e d i c a l requirements, he opted for a Rs. 5 lakh family floater cover and a top-up medical cover of 10 lakh. Both put together, he allocated 2,800 per month for premium from the available monthly surplus of 23,000.
This way, Manish's family is fully protected, has sufficient corpus to replay liabilities, fund expenses and life goals. The sufficient medical cover also would be available all times.
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Goals planning:Goal Years to
achieve
Present value (Rs.) Future value (Rs.)
Daughter’s graduation 12 10 lakh 31.38 lakh
Daughter’s wedding
16
10 lakh
29.52 lakh
Building a retirement home 18 15 lakh 50.70 lakh
Inflation assumed: Graduation goal – 10% p.a.; other goals – 7% p.a.
22ICICIdirect Money Manager
FLAVOUR OF THE MONTH
October 2015
Daughter's graduation: Out of his
existing investments, Pankaj
could use only fixed deposits
(FDs) since other investment -
PPF – has lock-in period and is
maturing only after this goal.
His existing FD of 2 lakh and
ongoing FDs of 35,000 p.a.
for the next 12 years fetched
him only around 11.18 lakh,
assuming a post-tax return of
6% p.a. To fund the balance
amount (i.e. 20.2 lakh, he
planned to sell the land,
however, could not do so as
the buyers were not available
immediately. So he decided to
pledge his physical gold
(jewellery) and got a loan of
about 6.28 lakh (70% of the
gold's value, which is assumed
to have increased at 5% p.a.).
Still, it left him with a shortfall
of about 13.92 lakh, for which
he had to opt for an education
loan.
H a d h e p l a n n e d h i s
nvestments well in advance,
Pankaj could have avoided this
situation. His existing home
loan EMI would have stopped
after 11 years, which would
have increased the available
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surp lus pe r month fo r
investment for other goals and
retirement. However, the debt
b u r d e n ( j e w e l l e r y a n d
education loans) started again,
eating into the available
surplus. Further, the jewellery
loan had to be closed in next 4
years, as these jewels were to
be given for his daughter's
wedding.
While Manish set aside his Fds
for any contingency and
invested separately for his
daughter's education – 9,000
per month from the available
monthly surplus of 23,000
and increased his investment
by 7% p.a. (based on the
average growth in his salary).
With this, he could accumulate
the required corpus of 31.38
lakh at the end of 12 years.
Daughter's wedding: For
meeting this goal, Pankaj had
to bank upon investments he
had planned for some other
goals and needs. He used his
maturity proceeds from PPF
account of around 9.72 lakh
and since there was a shortfall
of 19.78 lakh, he sold off his
plot of land for around 20 lakh
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23ICICIdirect Money Manager
FLAVOUR OF THE MONTH
October 2015
and achieved the goal.
The plot of land on which
Pankaj wanted to build his
retirement home has been
used towards daughter's
wedding goal. This is the
classic case of utilizing existing
investment, which has been
mentally assigned for some
o t h e r g o a l , l e a d i n g t o
compromise in the goal for
which it was initially assigned
to.
While Manish, as per his
financial plan, allocated his PPF
account towards this goal,
which fetched him around
9.72 lakh. For the balance
amount, he had started
investing 3,100 per month
towards this goal, out of the
available monthly surplus of
23,000 and increased the
investment by 7% p.a. (based
on the average growth in his
salary). With this, he could
accumulate the required
shortfall in corpus of 19.78
lakh at the end of 16 years.
Building a retirement home: Pankaj
could not achieve his goal of
building a retirement home at
his native place Nasik since he
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had already sold off the plot of
land for h is daughter 's
wedding goal.
This means he would have to
stay in his current house at
Pune. The cost of living might
be higher in Pune, which will
affect his post-retirement
needs. Alternatively, he could
sell his Pune house and buy a
new house at Nasik at
retirement. Had he built a
retirement home at Nasik, he
might have let his Pune
property on rent, which could
have helped him fund some of
his post-retirement needs.
Manish, as per his financial
plan, had started investing
6,100 per month from his
available monthly surplus of
23,000 and increased the
investment by 7% p.a. (based
on the average growth in his
salary). By the end of 18 years,
he could accumulate the
required corpus of 50.70 lakh.
Retirement planning: Pankaj sold
off his Pune property and
bought a house at Nasik for
retirement. For post-retirement
needs, he did not have any
source of income as the rental
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24ICICIdirect Money Manager
FLAVOUR OF THE MONTH
October 2015
income planned from Pune
property did not materialize
since he had sold it off. He
could not rely upon his PPF
account also, since it was used
earlier for his daughter's
wedding goal. He is now left
w i t h E P F ( e m p l o y e e s '
provident fund) account only.
The EPF accumulation and
gratuity put together came to
around 1.50 crore. After
retirement, he thought of
depositing the retirement
benefits of 1.50 crore into FDs
and generat ing interest
income, which will be enough
to take care of his needs.
However, he did not know that
the retirement corpus required
for funding the post-retirement
expenses would come to
around 3.71 crore. The
requirement of 4.50 lakh p.a.
( in today's value) post-
retirement would have inflated
to around 17.41 lakh p.a. by
the time he retired and would
keep inflating post retirement
too.
With 1.50 crore, he would be
able to sustain only for 8.5
years post-retirement i.e. only
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up to his age of 63.5 years.
How he will be able to manage
expenses post that will remain
a concern and would be
realized by him only when he
w o u l d s e e t h e c o r p u s
depleting after retirement,
which is too late to take any
corrective course of action.
Manish had built his retirement
home at Nasik and hence,
could let out his Pune property
on rent which fetched him a
rent of 15,000 a month (in
today's value) post retirement.
This reduced the requirement
of retirement corpus to 2.84
crore. His projected retirement
benefits – EPF & gratuity – were
1.50 crore at retirement. He
had to accumulate the shortfall
of 1.34 crore by the time he
retired. As per his financial
plan, he started investing the
balance amount left after
paying suggested premiums
and investing for other goals
from the available surplus i.e.
2 , 0 0 0 p . m . t o w a r d s
accumulating the shortfall in
r e t i r e m e n t c o r p u s a n d
increasing the investment by
7% p.a. (based on the average
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25ICICIdirect Money Manager
FLAVOUR OF THE MONTH
October 2015
growth in his salary). In
addition to this, after the
existing home loan EMI is
stopped, the same was
diverted as investment for this.
Also, as and when the other
goals were achieved the
amount being invested for
those goals were diverted as
investment for this. As an
ef fect , he was able to
accumulate the required
shortfall in retirement corpus
of 1.34 crore comfortably
th rough the sugges ted
investments in his financial
plan.
The power of planningInvesting requires a systematic
and disciplined approach. You
need to have a clear roadmap
so that you achieve your
financial goals. This requires
you to look at the bigger
picture – your goals, time
horizon, and appropriate
investment for each goal.
Investors such as Manish on
their part would do well and
stay on course to achieve their
financial goals when they have
a proper in place.
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How we can help youAchieving your financial goals
requires comprehensive
planning. Articulating your
goals, assessing your risk
appetite, investible surplus,
designing an asset allocation
plan, preparing a cash-flow
statement and a detailed
financial plan -- all require
t e c h n i c a l s k i l l s . A n
experienced financial advisor,
such as ICICIdirect Financial
Planning Services, can help
you develop an integrated plan
that is just right for you. At
ICICIdirect, you can also
execute and track your
financial plan online, at your
convenience and at all points
of time. Our intelligent 'Track &
Act' robo-advisory platform
gives you triggers whether you
are maintaining your asset
allocations right, it helps you
track if you are saving as per
the plan and even advice you
where to invest and/or
withdraw from.
If you haven't started planning,
this is the right time to do so.
Plan your future. Today!
Please send your feedback to [email protected]
26ICICIdirect Money Manager October 2015
Tête-à-tête
Long term prospects continue to remain attractive'
Indian markets have always tended to be noisy and volatile in the short
term. Investors should look through the shorter term volatility and focus on
medium to long term prospects which continue to remain attractive, says
Ashwin Patni, Head Products & Fund Manager, Axis Mutual Fund in an
interview with ICICIdirect Money Manager. All investors regardless of risk
appetite should go for asset allocation to ensure that they can optimize
their risk-return outcomes, he adds. Excerpts:
Q:
A:
The markets continue to remain volatile. How long, do you see the current sharp volatility to continue?
Indian markets have always tended to be noisy and volatile in the short term. This year, we have also been affected by global factors such as issues facing China, commodities and emerging markets. Investors should look through the
Ashwin Patni,
Head Products & Fund Manager,
Axis Mutual Fund
shorter term volatility and focus on medium to long term prospects which continue to remain attractive.
What are the key concerns related to markets one should be watchful about?
T h e r e a r e 3 b r o a d concerns in the short term. Firstly concerns on the weak earnings data reported by the domestic companies. S e c o n d l y c o n c e r n s o n political challenges being faced by the government that have affected the pace of reforms and lastly global slowdown fears.
What do the recent macro economic data suggest about our economy?
The macro -economic fundamenta ls are rea l ly strong and should help us w i t h s t a n d a n y s h o c k s emanating from the global
Q:
A :
Q:
A :
27ICICIdirect Money Manager October 2015
Tête-à-tête
s i t u a t i o n . I n f l a t i o n c o n t i n u e s t o r e m a i n subdued and will provide headroom for further rate cuts. Growth is recovering from a multi-year weakness and the improvement is gradual and uneven. We expect the recovery in growth rates to take another 1-2 years to fully play out.
The Reserve Bank of India (RBI) surprised the market with a 50 basis points rate cut. Do you see more easing soon?
Inflation continues to remain soft and the economy is growing below capacity. Fu r t h e r t h e e c o n o m y ' s fundamentals are real ly strong. As a result we expect the RBI to cut rates further over the next 6-12 months.
The US Federal Reserve has postponed the rate hike decision. What led to this move? Do you foresee more delay?
The US economy has entered a soft patch of late and inflation has remained on the lower side. Further the global weakness is affecting the growth prospects of the US economy as well. The exact time of policy normalization
Q:
A:
Q:
A:
remains unclear although in their most recent update the Fed has indicated that they would look do so in the next few months.
Global investors continue their pull out from the emerging markets. Why such move and how do you see the trend ahead?
Investors are reacting to the weak growth prospects in China as well as the challenges faced by the commodity exporters. Emerging markets are also at risk from policy normalization in the US.
The second quarter results of the financial year will start getting announced soon. Do you see pressure on earnings to continue? What is the road ahead?
Earnings will remain under pressure for the next 1-2 quarters. We expect growth pick-up to start reflecting in the corporate numbers towards the end of the financial year.
Can you briefly tell us about your stock selection process?
We are bottom up stock investors. Our key philosophy is that - we look for quality companies that can generate sustainable growth. Our investment process focuses on
Q:
A:
Q:
A:
Q:
A:
28ICICIdirect Money Manager October 2015
Tête-à-tête
risk management as an integral part of the process and looks at genera t ing s t rong r i sk-adjusted returns.
Which sectors look attractive in the current scenario and which ones would you avoid?
As India undergoes cyclical revival most sectors that are exposed to the macro-economy should benefit including financials, auto, consumer discretionary and industrials. We also like export focused sectors such as IT and healthcare. Sectors where c o m p a n i e s a r e f a c i n g significant headwinds include commodities, infrastructure and capital goods sectors.
Post RBI rate cut, how should a long-term fixed-income investor optimize his returns?
Inflation continues to remain soft and the economy is
Q:
A:
Q:
A:
growing below capacity. Fu r t h e r t h e e c o n o m y ' s fundamentals are really strong. As a result we expect the RBI to cut rates further over the next 6-12 months. Therefore we recommend investors to look at adding duration to their portfolios using appropriate strategies such as short term, income or dynamic bond funds.
What is your advice for investors at this point in terms of their overall portfolio and asset allocation?
Investors should look through short term noise and remain focused on the long term prospects. Further all investors regardless of risk appetite should go for asset allocation to ensure that they can optimize their risk-return outcomes.
Q:
A:
The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities.
Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee:Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
29ICICIdirect Money Manager
ASK OUR PLANNER
October 2015
Q:
A:
I am 61 and have retired 3 years back. I have invested most of my funds into fixed deposits (FDs) and senior citizen savings scheme (SCSS). I notice that there are quite a few issues of tax-free bonds coming regularly. What's your take on them? Should I invest part of my funds into them?
- Rangarajan V
Since the tax-free bonds are issued largely by government undertakings, the credit risk is minimal compared to bonds issued by other entities. These bonds however come with longer tenures - 10, 15 or 20 years, requiring you to hold these for such long periods. Though these bonds are t r a d e d t h r o u g h s t o c k exchanges, the volume / liquidity is not so high. Further, though tax-free bonds offer regular income, they do not offer compounding benefit.
However, from taxation point of view, it scores well. Interest income earned from tax-free bonds is exempt from tax. Whereas the interest income earned from investments like FDs and SCSS is added to your income and taxed as per the
income slab which you fall under.
Hence, to compare FDs and SCSS with tax-free bonds, you will have to look at the equivalent effective pre-tax interest rate from tax-free bonds.
Since you are already retired, you may be falling under the 10% or 20% tax-slab. If we assume you fall under the 10% slab and the interest rate offered by tax-free bonds is 7.5% p.a., then the effective pre-tax interest rate works out to 8.36% p.a. In this case, the benefit by investing in tax-free bonds will not be much, as the interest rates (pre-tax) offered by FDs and SCSS are similar or even more.
However, if you fall under the 30% tax-slab and the interest rate offered by tax-free bonds is 7.5% p.a., then the effective pre-tax interest rate works out to 10.85% p.a. In this case, the benefit of investing in tax-free bonds is significant, as the interest rate (pre-tax) is more than what is being offered by FDs and SCSS.
To put in a nutshell, tax-free
Are tax-free bonds a good option for retired investors?
30ICICIdirect Money Manager October 2015
ASK OUR PLANNER
bonds a re su i tab le fo r investors falling under the higher tax-slabs of 20% - 30%, provided one is looking for regular income and is not concerned about liquidity issues.
I am going to buy a car in the next 1 or 2 months. I have zeroed in on Hyundai i20. The cost of the model I have opted is expected to be around Rs. 7 lakh. I have received some bonus from my organization some time back and I can buy the car using the funds. However, I am thinking to take a car loan to the tune of Rs. 6 lakh and fund Rs. 1 lakh from my funds towards down-payment, as I intend to utilize the balance funds of Rs. 6 lakh for investing towards my son's higher education (due after 7 years). Which is a better option?
- Sagar
Traditionally, for this kind of a problem, solution was always to go for an option where you can fund from your own sources, rather than opting for a loan and paying interest. However, it is always helpful to do some maths before taking a decision.
Let's take both the scenarios – taking a loan and funding on your own. In scenario one,
Q:
A:
assuming you take a car loan of Rs. 6 lakh with a repayment term of 7 years, then you would be paying an EMI of Rs.10,273 (assuming an interest rate of 11% p.a.). In this case, you would have Rs. 6 lakh available from your funds to invest as a lump sum towards your child's higher education.
In scenario two, assuming you pay the entire amount from your sources and do not take a car loan, then the EMI outgo of Rs.10,273 will be a saving now and can be invested towards your child's higher education.
The choice between scenario one and two will depend upon on the return to be generated from the investment to be made in both the scenarios (lump sum of Rs. 6 lakh in scenario one and Rs. 10,273 per month in scenario two). If your investment is able to generate a return of 12% per annum or more, then you can opt for scenario one and take a car loan. Otherwise, option two makes more sense i.e. funding on your own.
I recently applied for a home loan with a private sector bank. The loan executive told me that my loan application may be rejected, as I do
Q:
31ICICIdirect Money Manager October 2015
ASK OUR PLANNER
not have a good credit score. I had asked him to provide the credit score, but he said it's not possible to share the same with me. How do I get my credit score and how can I improve the same?
-Ankit
When you apply for any loan, the bank will scrutinize your loan application and get your credit score from any of the credit bureaus it has tie-up with. Currently, there are four credit bureaus in India, the oldest of them being Credit Information Bureau (India) Limited (CIBIL), which is operational for more than a decade in India. (The other three are: Equifax, Experian a n d H i g h M a r k C r e d i t Information Services).
While the bank is under no obligation to share your credit score with you, you can apply and get your credit score directly from these credit bureaus, by paying a fee. You can also avail your credit score of CIBIL by applying online through ICICIdirect.com (Click on Portfolio Tab under Trade & Invest page for visiting the Credit Score section). CIBIL's Score is in the range of 300 - 900. If your score is more than 750, then there is a higher
A:
chance of your loan being approved.
As per CIBIL, there are 4 major factors that affect your credit score:
1. Payment history: Making late payments or defaulting your equated monthly installments (EMIs) or dues (recently or consistently) shows you are having trouble to pay your existing credit obligations and will negatively affect your score.
2. High utilization of credit limit: While increased spending on your credit card will not necessarily affect your score in a negative manner, an increase in the current balance of your credit card indicates an increased re-payment burden and may negatively affect your score.
3. Higher percentage of credit cards or personal loans (also known as unsecured loan): Having a balanced mix between the secured loans (such as auto, home loan) and unsecured loan (such as personal loan, credit card) is likely to have a more positive effect on your score.
4. Many new accounts opened recently: If you have recently
32ICICIdirect Money Manager October 2015
ASK OUR PLANNER
Do you also have similar queries to ask our experts? Write to us at: [email protected].
been sanctioned multiple loans and credit cards, then lenders wi l l v iew your application with caution b e c a u s e t h i s b e h a v i o r indicates your debt burden has i n c r e a s e d , w h i c h w i l l negatively impact your score.
CIBIL also suggests the below ways through which you can improve your credit score:
1. Always pay your dues on time: Late payments are viewed negatively by lenders.
2. Keep your balances low: It is always prudent to not use too much credit, control your utilization.
3. Maintain a healthy mix of credit: It is better to have a healthy mix of secured and unsecured loans. Too many unsecured l o a n s m a y b e v i e w e d negatively.
4. Apply for new credit in moderation: You don't want to seem credit hungry; apply for new credit cautiously.
5. Monitor your co-signed, guaranteed and joint accounts m o n t h l y : I n c o - s i g n e d , guaranteed or jointly held
accounts, you are held equally liable for missed payments. Your joint holder's (or the g u a r a n t e e d i n d i v i d u a l ) negligence could affect your ability to access credit when you need it.
6. Review you credit history frequently throughout the year: Check your credit score from t i m e t o t i m e t o a v o i d unpleasant surprises in the form of a rejected loan application.
If I deposit Rs. 50,000 in national pension system (NPS) Tier-II account, will I get tax benefits?
- Anita Kumari
Tax benefits are not available for investing into Tier-II a c c o u n t o f N P S . T h e contributions to Tier-I account only are eligible for tax deduction.
The Tier-I account is a mandatory, non-withdrawable account, meant for retirement savings. The Tier-II account is a withdrawable account, simply like a voluntary savings facility. It can be opened only when there is an active Tier-I account in your name.
Q:
A:
MUTUAL FUND ANALYSIS
33ICICIdirect Money Manager October 2015
Investing in Duration Funds
Key Information:
With interest rates expected to move down further, this presents a good time to invest in duration funds to derive maximum returns.
A duration strategy is where the fund manager takes a call on the direction of interest rate movements and accordingly focuses on adjusting the duration of his portfolio to maximize returns. He is less focused on searching for corporate credits with high accruals and sticks to government bonds focusing on managing duration to drive returns. In periods of declining interest rates, fund manager will maintain relatively high duration to maximize the benefit of increase in bond price on fall in interest rates. Conversely, in periods of rising interest rates, he would minimise the duration of the fund to protect against capital losses on the portfolio. This not only protects against capital losses, but at the same time, allows him to reinvest maturity proceeds at higher yields in a rising rate environment.
Birla Sun Life Income Plus
Fund Objective:An open-ended income scheme with the objective to generate consistent income through superior yields on its investments at moderate levels of risk through a d i v e r s i f i e d i n v e s t m e n t approach. This income may be complemented by pr ice changes of instruments in the portfolio.
NAV as on October 07, 2015 ) 65.0
Inception Date November 10, 1995
Fund Manager Prasad Dhonde
Minimum Investment ( )
Lumpsum 5000
Expense Ratio (%) 1.56
Last declared YTM 7.78
Exit Load Nil
Benchmark Crisil Composite
Bond Fund Index
Modified Duration 8.92
(`
`
Riskometer :
This product is suitable for investors who are seeking*:•
•
income with capital growth over medium to long termi n v e s t m e n t s i n a combination of debt and money market instruments i nc lud ing government s e c u r i t i e s o f v a r y i n g maturities
Fund Manager: Prasad DhondePrasad Dhonde has been managing the fund since 5
34ICICIdirect Money Manager October 2015
MUTUAL FUND ANALYSIS
years now. Prior to joining Birla Sun Life Asset Management Company (BSLAMC) he worked with Birla SL securities, CARE, Time Investors, etc and has 11 years of experience in financial service sector.
The fund has delivered 13.5% return in 1 year and 7.5% YTD (year-to-date) on annualized basis. The fund has delivered compounded annual ized return (CAR) for the last five years at 8.9% as against the 8.5% delivered by benchmark index. In 2008, when the government securities (G-Sec) yield fell ~200 basis points (bps), the fund delivered a whopping 23% return in that year.
Performance:
Yearly Returns
13.5
9.4
3.8
12.6
11.6
3.5
0.0
5.0
10.0
15.0
30-Sep-14 To 30-Sep-15 30-Sep-13 To 30-Sep-14 30-Sep-12 To 30-Sep-13
Retu
rn%
Fund BenchMark
Performance vs. Benchmark
Fund Benchmark
3.1
13.1
8.8
8.8
4.5
12.3
9.1
8.5
0
5
10
15
6 Month 1 Year 3 Year 5 Year
Retu
rn%
Portfolio:
Our View:
The fund manager goes high on G - Secs w i th 95 .4% holdings in sovereign bonds. In corporate bonds category the fund plays safe and majorly holds only AAA-rated bonds. With interest rates on a declining trend, the fund has gradual ly increased the holdings of sovereign bonds from 81% in August 2014 to 95% in August 2015.
With CPI (consumer price index) eas ing and WPI (wholesale price index) in the negative territory for the past 10 months, the inflation is set to remain favourable as the global economic slowdown will keep commodity prices under check going forward.
Demand supply dynamics are in favour of bond prices given the increase in FPI (foreign portfolio investment) limits for investing in G-Secs, banks having higher surplus to invest in sovereign bonds on account of lower credit to deposit g rowth and no fu r ther incremental borrowings plan by the government. Also CPI is expected to stay well below
35ICICIdirect Money Manager October 2015
MUTUAL FUND ANALYSIS
Reserve Bank of India's (RBI's) target of 5.8% by January 2016. This opens the room for further rate cut and thus government bonds yields are expected to come at 6-6.5% which will bode beneficial for duration funds.
Birla Sun Life Income Plus fund has modified duration of 8.82 years which makes it attractive
as the expected fall in yields will lead to increase in prices of the bonds which in turn will give capital gains (Modified duration of 8.82 years implies that a 100 bps fall in yield will lead to 8.82% increase in prices). The fund is set to benefit largely from the falling interest rates in the economy.
Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Feb-15 Jan-15 Dec-14 Nov-14 Oct-14 Sep-14 Aug-14
Other attributes (Years)
Asset Allocation %
Credit quality %
CDs -- -- -- -- 1.42 0.53 -- -- -- -- 0.03 0.16 -- --
CPs -- -- -- -- -- -- -- -- -- -- -- -- -- --
Corp Bond 1.13 1.78 4.46 4.44 4.79 9.63 13.12 5.44 4.35 9.19 14.38 17.47 17.38 15.97
Gsec 95.39 95.38 93.62 89.84 85.93 87.79 83.81 90.06 92.44 74.61 80.28 78.28 77.38 81.01
Others 3.48 2.85 1.92 5.72 7.87 2.05 3.07 4.50 3.22 16.20 5.31 4.09 5.23 3.01
A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --
AA & Equiv 1.06 -- -- -- 0.97 1.09 1.08 1.02 1.08 1.22 5.36 6.71 3.77 5.10
AAA & Equiv 0.61 2.34 4.46 4.44 5.79 9.63 12.59 4.94 3.81 8.60 9.84 11.73 14.44 11.67
Cash & Equivalent 2.93 2.28 1.92 5.72 7.32 1.50 2.53 3.98 2.67 12.21 4.52 3.28 4.41 2.22
SOV 95.39 95.38 93.62 89.84 85.93 87.79 83.81 90.06 92.44 74.61 80.28 78.28 77.38 81.01
Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
Avg Maturity(Yrs) 13.36 16.22
Modified Duration 8.92 8.82 8.53 7.18 7.09 7.14 7.51 7.13 7.37 6.92 7.99 8.12 7.90 7.61
Top 10 Holdings Asset Type %
08.17% GOI - 01-Dec-2044 Government Securities 27.54
08.60% GOI - 02-Jun-2028 Government Securities 22.57
08.13% GOI - 22-Jun-2045 Government Securities 18.55
07.72% GOI - 25-May-2025 Government Securities 7.47
09.23% GOI - 23-Dec-2043 Government Securities 6.81
08.15% GOI - 24-Nov-2026 Government Securities 5.8
08.40% GOI 2024 Government Securities 5.54
Net Current Asset Cash & Cash Equivalents 2.93
Talwandi Sabo Power Ltd. Corporate Debt 1.06
08.24% GOI - 10-Nov-2033 Government Securities 0.59
Whats In %
ICICI Bank Ltd. 0.1
Power Finance Corporation Ltd. 0.5
Talwandi Sabo Power Ltd. 1.1
Whats Out %
Clearing Corporation Of India Ltd. 0.2
ICICI Bank Ltd. 9.98% (13-Sep-16) 0.1
Power Finance Corpn. Ltd. (20-Nov-19) 0.6
36ICICIdirect Money Manager October 2015
MUTUAL FUND ANALYSIS
Performance of all the schemes managed by the fund manager
30 -Sep-14 30 -Sep-13 30 -Sep-12
30 -Sep-15 30 -Sep-14 30 -Sep-13
Fund Name
Birla SL Gilt Plus-PF(G) 15.99 12.72 3.94
I-Sec Li-BEX 15.70 12.85 2.91
Birla SL G-Sec-LT(G) 15.61 10.12 4.03
I-Sec Li-BEX 15.70 12.85 2.91
Birla SL Income Plus(G) 13.55 9.41 3.77
Crisil Composite Bond Fund Index 12.56 11.61 3.45
Birla SL Constant Maturity 10 Year Gilt Fund-Reg(G) 12.91 6.27 2.45
I-Sec Li-BEX 15.70 12.85 2.91
Birla SL Treasury Optimizer Plan-Ret(G) 11.31 10.87 8.84
Crisil Short Term Bond Fund Index 9.90 10.12 7.73
Birla SL Short Term Fund(G) 10.37 10.34 7.95
Crisil Short Term Bond Fund Index 9.90 10.12 7.73
Birla SL FRF-Long Term Plan-Ret(G) 9.36 9.62 9.00
Crisil Liquid Fund Index 8.56 9.49 8.54
Birla SL CPO Fund-Sr 18 8.49 – –
Crisil MIP Blended Index 10.72 – –
Birla SL CPO Fund-Sr 22 8.24 -- –
Crisil MIP Blended Index 10.72 – –
Birla SL CPO Fund-Sr 20 8.19 -- –
Crisil MIP Blended Index 10.72 -- –
Birla SL CPO Fund-Sr 16 8.18 -- –
Crisil MIP Blended Index 10.72 – –
Birla SL CPO Fund-Sr 17 8.15 -- –
Crisil MIP Blended Index 10.72 -- –
Birla SL Inv Inc-QS I-Ret(G) 7.98 9.52 9.36
Crisil Liquid Fund Index 8.56 9.49 8.54
Birla SL CPO Fund-Sr 19 7.89 -- –
Crisil MIP Blended Index 10.72 -- –
Birla SL Qrtly Inv 4(G) 7.63 9.08 9.29
Crisil Liquid Fund Index 8.56 9.49 8.54
Birla SL CPO Fund-Sr 23 7.59 -- –
Crisil MIP Blended Index 10.72 -- –
Birla SL Gilt Plus-Liquid(G) 7.58 8.45 9.14
I-Sec Si-BEX 9.91 8.93 7.10
Birla SL CPO Fund-Sr 11 7.49 15.51 –
Crisil MIP Blended Index 10.72 15.45 –
Birla SL CPO Fund-Sr 21 7.42 -- –
Crisil MIP Blended Index 10.72 -- –
Birla SL G-Sec-ST(G) 7.31 7.97 8.13
I-Sec Si-BEX 9.91 8.93 7.10
Birla SL CPO Fund-Sr 13 6.22 25.77 –
Crisil MIP Blended Index 10.72 15.45 –
Birla SL CPO Fund-Sr 14 5.26 26.85 –
Crisil MIP Blended Index 10.72 15.45 –
Birla SL Dynamic Asset Allocation Fund(G) 4.86 32.27 2.29
Crisil Balanced Fund Index 4.38 28.89 1.86
Birla SL Gold ETF -2.07 -11.63 -6.20
Gold-India -3.37 -11.08 -3.70
Data as on October 07,2015 ;Portfolio details as on Sep-2015Source: ACE MF, ICICIdirect Research
37ICICIdirect Money Manager October 2015
MUTUAL FUND ANALYSIS
ICICI Prudential Income Plan
Fund Objective:To generate income through investments in a range of debt a n d m o n e y m a r k e t i ns t ruments o f va r ious maturities with a view to maximising income while maintaining the optimum balance of yield, safety and liquidity.
Key Information:
Risk-O-Meter:
This product is suitable for investors who are seeking:
•
•
Long term wealth creation solution
A debt fund that invests in debt and money market instruments of various
NAV as on October 07, 2015 ( ) 45.4
Inception Date July 9, 1998
Fund Manager Manish Banthia
Minimum Investment (`)
Lumpsum 5000
Expense Ratio (%) 1.50
Last declared YTM 7.71
Exit Load 1% on or before
1Y, Nil after 1Y
Benchmark Crisil Composite
Bond Fund Index
Modified Duration 8.15
`
maturities with a view to maximize income while m a i n t a i n i n g o p t i m u m balance of yield, safety and liquidity
Fund Managers: Manish Banthia
Performance:
Manish Banthia is B.Com, ACA and MBA. He is managing the fund since 2012 and has 5 years of experience in financial services sector.
As stated in the objective to earn stable returns, the fund h a s i n l i n e d e l i v e r e d compounded annual ised return (CAR) of 8.3% in the last five years. The CAR for past 10 years is 8.4% and since the inception of the fund is 9.1%. The fund has delivered return of 13.5% in past 1 year and YTD annualised return of 8%. In 2008, when the G-Sec yield fell ~200 bps, the fund delivered returns of 25% in that year.
Fund BenchMark
13.5
11.7
1.2
12.6
11.6
3.5
0.0
5.0
10.0
15.0
30-Sep-14 To 30-Sep-15 30-Sep-13 To 30-Sep-14 30-Sep-12 To 30-Sep-13
Retu
rn%
Yearly Returns
38ICICIdirect Money Manager October 2015
MUTUAL FUND ANALYSIS
3.6
13
8.6
8.3
4.5
12.3
9.1
8.5
0
5
10
15
6 Month 1 Year 3 Year 5 Year
Retu
rn%
Performance vs. Benchmark
Fund Benchmark
Portfolio:The fund holds 81.48% of its portfolio in sovereign bonds and 16.2% in corporate bonds. The fund generally invests in AAA-rated bonds and very less in AA-rated bonds. It doesn't invest in A-rated bonds. With interest rates on a declining trend, the fund has gradually increased the holdings of sovereign bonds from 74% in August 2014 to 82% in August 2015.
Our View:As stated earlier, the expected further rate cut and thus expected fall in government bonds yields at around 6-6.5% wil l bode beneficial for duration funds.
The average maturity of the fund is 16.8 years and modified dura t ion o f 8 .15 years (Modified duration of 8.15 years implies that a 100 bps fall in yield will lead to 8.15% increase in prices) which makes it extremely favourable in the present scenario where decreasing interest rates which will lead to fall in G-Sec yield and thus increase in bond prices.
Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Feb-15 Jan-15 Dec-14 Nov-14 Oct-14 Sep-14 Aug-14 Jul-14
Asset allocation
CDs -- -- -- -- -- -- -- -- 1.79 -- -- -- -- --CPs -- -- -- -- -- 0.62 -- -- -- -- -- -- -- --Corp Bond 16.20 17.18 21.34 19.07 18.56 19.19 10.63 11.04 11.90 16.67 20.43 26.32 23.64 22.36Gsec 81.48 80.66 76.65 77.50 78.88 81.85 83.54 87.12 85.41 80.26 77.29 72.09 73.89 74.45Others 2.32 2.16 2.01 3.44 2.56 -1.67 5.83 1.84 0.90 3.07 2.28 1.59 2.47 3.20
A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- --AA & Equiv 3.61 3.61 3.62 3.60 3.59 3.73 3.79 3.93 4.39 7.91 8.04 10.03 9.55 9.07AAA & Equiv 12.59 13.58 17.72 15.47 14.98 16.09 6.84 7.11 9.31 8.76 12.39 16.29 14.09 13.29Cash & Equivalent 2.32 2.16 2.01 3.44 2.56 -1.67 5.83 1.84 0.90 3.07 2.28 1.59 2.47 3.20SOV 81.48 80.66 76.65 77.50 78.88 81.85 83.54 87.12 85.41 80.26 77.29 72.09 73.89 74.45Others -- -- -- -- -- -- -- -- -- -- -- -- -- --
Avg Maturity(Yrs) 16.78 16.21 15.98 15.80 14.37 14.44 12.45 13.47 15.06 15.29 14.17 14.77 14.58 14.00
Modified Duration 8.15 8.02 7.91 7.80 7.57 7.76 6.97 7.42 7.73 7.40 7.15 7.13 7.00 7.01
Asset Allocation %
Credit quality %
Other attributes (Years)
07.88% GOI - 19-Mar-2030 Government Securities 14.51
07.40% GOI - 09-Sep-2035 Government Securities 13.57
08.30% GOI - 31-Dec-2042 Government Securities 12.17
08.24% GOI - 10-Nov-2033 Government Securities 8.99
1.44% GOI IIB 2023 Government Securities 6.03
08.17% GOI - 01-Dec-2044 Government Securities 5.39
08.30% GOI - 02-Jul-2040 Government Securities 5.26
07.95% GOI 2032 Government Securities 4.7
08.60% GOI - 02-Jun-2028 Government Securities 3.86
Reliance Utilities & Power Ltd. SR- PPD 4 9.75% (02-Aug-24) Corporate Debt 2.76
Top 10 Sectors Asset Type %
39ICICIdirect Money Manager October 2015
MUTUAL FUND ANALYSIS
Performance of all the schemes managed by the fund manager
30 -Sep-14 30 -Sep-13 30 -Sep-12
30 -Sep-15 30 -Sep-14 30 -Sep-13
Fund Name
ICICI Pru Gilt-Invest-PF-Reg(G) 15.90 13.52 1.25
I-Sec Li-BEX 15.70 12.85 2.91
ICICI Pru Long Term Plan-Ret(G) 15.14 13.59 8.43
Crisil Composite Bond Fund Index 12.56 11.61 3.45
ICICI Pru Income-Reg(G) 13.45 11.65 1.24
Crisil Composite Bond Fund Index 12.56 11.61 3.45
ICICI Pru Income Opportunities Fund(G) 12.99 11.78 4.01
Crisil Composite Bond Fund Index 12.56 11.61 3.45
ICICI Pru Short Term Plan-Reg(G) 10.39 10.56 6.80
Crisil Short Term Bond Fund Index 9.90 10.12 7.73
ICICI Pru Balanced Advantage Fund-Reg(G) 10.22 35.70 6.98
Crisil Balanced Fund Index 4.38 28.89 1.86
ICICI Pru Gold ETF -2.01 -11.98 -5.61
Gold-India -3.37 -11.08 -3.70
ICICI Pru Regular Gold Savings Fund(G) -4.19 -11.06 -6.37
Gold-India -3.37 -11.08 -3.70
Data as on October 07,2015 ;Portfolio details as on August-2015Source: ACE MF, ICICIdirect Research
40ICICIdirect Money Manager
MUTUAL FUND TOP PICKS
Based on our quarterly rankings, we have updated our mutual fund (MF) top picks.
Mutual Fund Top Picks
Equity
Category Top Picks
Largecaps Birla Sunlife Frontline equity FundICICI Pru Focussed Bluechip Equity FundUTI Opportunities FundSBI Bluechip Fund
Midcaps HDFC Midcap Opportunities FundICICI Prudential Value Discovery FundFranklin India Smaller Companies FundSBI Magnum Global Fund
Diversified Franklin India Prima PlusICICI Prudential Dynamic PlanReliance Equity Opportunities
ELSS Axis Long Term EquityICICI Prudential Tax PlanFranklin India Tax shield
October 2015
41ICICIdirect Money Manager
MUTUAL FUND TOP PICKS
October 2015
Short Term Birla Sunlife Short Term FundHDFC Short Term Opportunities FundICICI Pru Short Term Plan
Credit Opportunities Fund
Birla Sunlife Medium Term PlanFranklin India Short term PlanICICI Prudential Regular Savings
Income Funds ICICI PrudenIncome FundBirla Sun Life Income Plus - Regular Plan UTI Bond Fund
Gilts Funds ICICI Pru Gilt Inv. PF PlanBirla Sunlife Constant Maturity 10 yeargilt plan
MIP(Aggressive)
Birla Sunlife Savings 5ICICI Prudential MIP 25DSP Blackrock MIP
Debt
Category Top Picks
Liquid Funds HDFC Cash Mgmnt Saving Plan ICIC Pru Liquid PlanReliance Liquid Treasury Plan
Ultra Short Term Birla Sunlife Savings FundFranklin India Ultra Short Term Bond FundICICI Pru Flexible Income Plan
42ICICIdirect Money Manager
EQUITY MODEL PORTFOLIO
October 2015
Our indicative large-cap equity model portfolio (“Quality-20”) has
continued to deliver an impressive return (inclusive of dividends)
of 80% since its inception (June 21, 2011) vis-à-vis the index
return of ~53% during the same period, an outperformance of
~27%. This validates our thesis of selecting companies with
sound business fundamentals that form the core theme of our
portfolio. Our mid-cap portfolio (“Consistent-15”) outperformed
the benchmark by ~1.9x since June 2011. Our consistent
outperformance demonstrates our superior stock picking ability
as markets in H1CY15 aligned to our view of favourable risk
reward, good franchisee vs. reward-at-any-risk businesses.
Some key performers of our portfolio are Lupin, Axis Bank and
TCS in the large-cap portfolio while Natco Pharma and Shree
Cement have delivered stupendous returns in the mid-cap
portfolio.
We have always suggested the SIP (systematic investment plan)
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. However, now we are also advising clients to
look at lump sum investments on any possible dips.
On a YTD (year-to-date) basis, the markets have been
consolidating in a broad range of 8000-8800 on the Nifty. This is
owing to a) markets awaiting a turnaround on the ground and,
hence, corporate earnings and b) taking a breather post a
stupendous rise witnessed in CY14 wherein valuations in some
areas were ahead of fundamentals. Going ahead, in the medium
term, stocks with reasonable earnings visibility and valuations
should do well and will find flavour among investors.
On the back of this run up in stock prices and valuations running
ahead of fundamentals, we have aligned our portfolio to capture
43ICICIdirect Money Manager
EQUITY MODEL PORTFOLIO
October 2015
the new opportunities available in the market. We have replaced
Bajaj Auto with Maruti and Titan Company with Asian Paints.
Furthermore, we have transferred Bosch which was earlier a part
of the mid-cap portfolio to the large-cap portfolio. Apart from
shuffling stocks, we have also increased/reduced the allocation
weights of some companies.
In the large-cap space as compared to broader indices we
continue to remain overweight on Pharma & IT, following which
FMCG forms the major portion of the asset allocation.
We continue to remain underweight on metals and oil & gas with
our only pick being ONGC and Tata Steel, which have a better
risk-reward opportunity. We believe that return on investment
(RoI) for these sectors would continue to remain stressed due to
a subdued pricing environment and discreet trade activities. We
continue to remain over-weight to neutral on pure play
defensives (IT, FMCG) as secular earnings coupled with sector
rotation could lead to consolidation in near term valuations and
offer stock specific opportunities. We remain positive on auto,
pharma, capital goods and infrastructure.
Among individual names, we are strongly overweight on Infosys,
TCS in the IT space, HDFC and HDFC Bank in the BFSI space, ITC
and PVR in consumer space and L&T and NBCC in the infra space.
House view on Index: Factoring in the fall in inflation, comfortable
CAD (current account deficit), improved sentiments and pick-up
in GDP (gross domestic product) growth, we expect Sensex EPS
(earnings per share) to grow 13.2% and 19.4% to Rs. 1,539 and
Rs. 1,838 during FY16E and FY17E, respectively (CAGR of 16% in
FY15-17E). We assign a P/E (price-to-earnings) multiple of 16.5x
on FY17E EPS to arrive at a fair value of 30,300 for the Sensex by
end CY15 with the Nifty estimated to reach 9,100.
44ICICIdirect Money Manager
EQUITY MODEL PORTFOLIO
October 2015
Name of the company
Largecap Stocks
Model Portfolio
Largecap(%)
Midcap(%)
Diversified(%)
Auto 10 7
Tata Motors DVR 3 2.1
Bosch 3 2.1
Maruti 4 2.8
BFSI 29 20.3
HDFC Bank 8 5.6
Axis Bank 7 4.9
HDFC 8 5.6
SBI 6 4.2
Capital Goods 6 4.2
L & T 6 4.2
Cement 3 2.1
UltraTech Cement 3 2.1
FMCG/Consumer 13 9.1
ITC 7 4.9
United Spirits 2 1.4
Asian Paints 4 2.8
IT 18 12.6
Infosys 10 7
TCS 8 5.6
Meida 2 1.4
Zee Entertainment 2 1.4
Metal 2 1.4
Tata Steel 2 1.4
Oil & Gas 3 2.1
ONGC 3 2.1
Pharma 11 7.7
Lupin 6 4.2
Dr Reddys 5 3.5
Telecom 3 2.1
Bharti Airtel 3 2.1
Largecap share in diversified 70
45ICICIdirect Money Manager
EQUITY MODEL PORTFOLIO
October 2015
Content source: ICICIdirect.com Research
ICICI Securities has received an investment banking mandate from Government of India for disinvestment in ONGC. This report is prepared based on publicly available information.
ICICI Securities Limited has received a mandate from SBI. This report is prepared based on publicly available information.
ICICI Securities Limited has received an Investment Banking mandate from Castrol India Ltd. This report is prepared based on publicly available information.
ICICI Securities Limited has received an Investment Banking mandate from HDFC Ltd. This report is prepared based on publicly available information.
Midcap Stocks
Name of the company Model Portfolio
Largecap(%)
Midcap(%)
Diversified(%)
Auto 8 2.4
Eicher Motors 8 2.4
BFSI 14 4.2
Bajaj Finance 8 2.4
CARE 6 1.8
Capital Goods 6 1.8
Cummins 6 1.8
Cement 6 1.8
Shree Cement 6 1.8
Consumer 12 3.6
Symphony 6 1.8
Kansai Nerolac 6 1.8
FMCG 8 2.4
Nestle 8 2.4
Infrastructure 6 1.8
NBCC 6 1.8
Logistics 6 1.8
Container Corporation of India 6 1.8
Media 8 2.4
PVR 8 2.4
Oil & Gas 6 1.8
Castrol 6 1.8
Pharma 14 4.2
Natco Pharma 8 2.4
Torrent Pharma 6 1.8
Textile 6 1.8
Arvind 6 1.8
Total 100 30
Total of all three portfolios 100 100
46ICICIdirect Money Manager
EQUITY MODEL PORTFOLIO
Performance* so far Since inception
*Returns (in %) as on
Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio
Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination
of BSE Sensex and CNX Midcap
October 14, 2015
Value of ` 1,00,000 invested via SIP at the end of every month
Portfolio Benchmark
Investment Value of Investment in Portfolio Value if invested in Benchmark
Start date of SIP: , 2011; *Value as on June 30 October 14, 2015
October 2015
80.1
144.1
98.6
52.5
71.856.1
0
25
50
75
100
125
150
175
%
5,30
0,00
0
5,30
0,00
0
5,30
0,00
0
6,94
4,57
6
9,80
5,78
4
7,68
5,13
7
6,25
1,14
6
6,70
4,59
9
6,55
9,83
6
3,500,000
4,500,000
5,500,000
6,500,000
7,500,000
8,500,000
|
QUIZ TIME
1. Principal invested as well as interest income earned from tax-free bonds is exempt from tax. True / False
2. The Employees' Provident Fund Organisation (EPFO) is expected to launch an online PF withdrawal facility by ______.
3. Currently, there are four credit bureaus in India, viz. ______, ______, ______ and ______.
4. Interest income earned from senior citizen savings scheme (SCSS) is exempt from tax. True / False
5. If your CIBIL score is more than ______, then there is a higher chance of your loan being approved.
Note: All the answers are in the stories that have appeared in this edition of ICICIdirect Money Manager. You may send in your answers at: [email protected]. The answers will be published in our next edition. The names of the earliest all correct entries will be published too. So jog your grey cells and be quick to send in your entries.
Correct answers for the September 2015 quiz are:
1. The Reserve Bank of India (RBI) has cut the repo rate by ______ basis points (bps) to ______%.
A: 50 bps to 6.75%
2. Under its Employees Deposit Linked Insurance (EDLI) scheme, EPFO has hiked insurance cover up to Rs ______ lakh from current limit of Rs 3.6 lakh.
A: 6
3. The Rajiv Gandhi Equity Savings Scheme (RGESS) got notified in ______.
A: December 2013
4. When you invest in stocks in the name of your parents or major children, clubbing provisions of taxation apply. True / False
A: False
5. You can adjust the shortfall against the short-term capital gains and pay tax only on the remaining capital gains, if your total income (excluding capital gains) is less than the minimum tax slab. True / False
A: TrueCongratulations to the following winner for providing correct answers!
Ahamed Shareef
47ICICIdirect Money Manager October 2015
48ICICIdirect Money Manager
PRIME NUMBERS
October 2015
Equity Markets
Domestic Equity Indices Index 30-Sep-15 31-Aug-15 Change (%)
CNX Nifty 7,948.9 7,971.3 -0.3%
CNX Midcap 12,984.5 13,059.1 -0.6%
S&P BSE Sensex 26,154.8 26,283.1 -0.5%
S&P BSE 100 8,077.4 8,121.0 -0.5%
S&P BSE 200 3352.02 3,368.4 -0.5%
S&P BSE 500 10,498.3 10,536.4 -0.4%
Global Equity Indices
Sectoral Indices Index 30-Sep-15 31-Aug-15 Change (%)
S&P BSE Auto 17,391.1 17,865.3 -2.7%
S&P BSE Bankex 19,681.6 19,637.2 0.2%
S&P BSE FMCG 4,183,637.0 4,113,737.0 1.7%
S&P BSE Healthcare 17,779.2 17,961.8 -1.0%
S&P BSE Metals 6,833.7 7,446.1 -8.2%
S&P BSE Oil & Gas 8,694.7 8,878.0 -2.1%
S&P BSE Power 1,841.7 1,834.4 0.4%
S&P BSE Realty 1,396.6 1,260.7 10.8%
S&P BSE Teck 6,255.6 6,096.7 2.6%
Volatility Index (VIX)
Index 30-Sep-15 31-Aug-15 Change (%)
VIX 19.63 24.60 -20.20
Index 30-Sep-15 31-Aug-15 Change (%)
Dow Jones (US) 16,284.7 16,528.0 -1.5%
S&P 500 (US) 1,920.0 1,972.2 -2.6%
Nasdaq (US) 4,620.2 4,776.5 -3.3%
FTSE (UK) 6,061.6 6,247.9 -3.0%
DAX (Germany) 9,660.4 10,259.5 -5.8%
CAC 40 (France) 4,455.3 4,653.0 -4.2%
Nikkei (Japan) 17,388.2 18,890.5 -8.0%
Hang Seng (Hong Kong) 20,846.3 21,670.6 -3.8%
Shanghai Composite (China) 3,052.8 3,206.0 -4.8%
Taiwan Weighted (Taiwan) 8,181.2 8,174.9 0.1%
Straits Times (Singapore) 2,790.9 2,921.4 -4.5%
49ICICIdirect Money Manager October 2015
PRIME NUMBERS
Debt Markets
Government Securities (G-Sec) Yields (in %) Sep-15 Aug-15 Change (bps)10-year 7.54 7.79 -25
5-year 7.63 7.91 -29
3-year 7.50 7.82 -31
1-year 7.25 7.45 -20
Corporate Bond Yields (in %) Sep-15 Aug-15 Change (bps)
AAA 10-year 8.41 8.45 -3.5
AAA 5-year 8.44 8.42 2.4
AAA 3-year 8.37 8.33 4.1
AAA 1-year 8.23 8.21 2.2
AA 10-year 8.95 9.03 -8.2
AA 5-year 8.98 8.99 -0.6
AA 3-year 8.91 8.91 -0.2
AA 1-year 8.77 8.82 -4.3
Certificate of Deposit (CD) Rates (in %) Sep-15 Aug-15 Change (bps) 12 Months 7.38 7.83 -46
6 Months 7.24 7.67 -43
3 Months 7.12 7.41 -29
1 Month 7.13 7.34 -22
Commercial Paper (CP) Rates (in %) Sep-15 Aug-15 Change (bps) 12 Months 8.05 8.30 -25
6 Months 7.73 8.08 -34
3 Months 7.51 7.81 -31
1 Month 7.36 7.52 -16
Treasury Bill (T-Bills) Yields (in %) Sep-15 Aug-15 Change (bps)91-day 7.04 7.39 -35.2
182-day 7.10 7.46 -36.0
364-day 7.12 7.54 -41.5
50ICICIdirect Money Manager October 2015
PRIME NUMBERS
10-year benchmark yields (%) across countries
Countries 30-Sep-15 31-Aug-15 Change in bps
India 7.54 7.79 (24.60)
US 2.04 2.22 (18.11)
UK 1.76 1.96 (20.00)
Japan 0.36 0.38 (2.40)
Spain 1.89 2.11 (21.60)
Germany 0.59 0.80 (21.10)
France 0.98 1.15 (16.70)
Italy 1.73 1.96 (23.70)
Brazil 15.40 14.27 (113.70)
China 3.27 3.40 (13.00)
Inflows In Equity and Debt Markets
MF Inflows (in Rs. crore) Sep-15 Aug-15 YTDEquity 9,320 10,533 56,801
Debt 16,660 24,189 3,56,720
FII Inflows (in Rs. crore) Sep-15 Aug-15 YTD
Equity -5,696 -17,209 21,612
Debt 165 -480 38,987
Macro-economic Indicators
Consumer price index (CPI)
ItemsWeights Jun-15 (in %) Jul-15 (in %) Aug-15 (in %) Weights Sept (in %)
Food & beverages 45.86 5.73 2.81 2.92 4.29
Pan, tobacco and intoxicants 2.38 9.68 9.76 9.34 9.35
Cloth & Foot 6.53 6.26 5.88 5.77 6.00
Housing 10.07 4.48 4.44 4.68 4.74
Fuel & light 6.84 5.83 5.44 5.70 5.42
Misc. 28.31 4.19 3.44 3.08 3.34
CPI 100 5.40 3.69 3.66 4.41
Wholesale price index (WPI) Particulars Weights Jul-15 (in %) Aug-15 (in %) Sept (in %)
WPI 100 -4.05 -4.95 -4.54 Primary Articles 20.1 -3.66 -3.71 -2.09 Fuel & Power 14.9 -12.81 -16.50 -17.71 Manufactured Goods 65.0 -1.47 -1.92 -1.73
51ICICIdirect Money Manager October 2015
PRIME NUMBERS
Index of industrial production (IIP) Sector-wise growth rate (%)Categories May-15 Jun-15 Jul-15 Aug-15 Weight (%)
Mining 2.3 -0.5 1.3 3.8 14.2Manufacturing 2.0 5.4 4.7 6.9 75.5Electricity 6.0 1.3 3.5 5.6 10.3
Currencies and CommoditiesCurrencies
Currency pair 30-Sep-15 31-Aug-15 Change (%) StatusUSD/INR 65.59 66.48 1.3% AppreciatedEUR/INR 73.50 74.50 1.3% AppreciatedGBP/INR 99.58 102.50 2.8% AppreciatedAUD/INR 46.12 47.40 2.7% AppreciatedCHF/INR 67.37 68.89 2.2% AppreciatedJPY/INR 54.59 54.77 0.3% AppreciatedCNY/INR 10.32 10.42 1.0% Appreciated
Commodities Item 30-Sep-15 31-Aug-15 Change (%)
Crude ($/barrel) 47.1 51.3 -8.1%Gold ($/ounce) 1,115.1 1,134.8 -1.7%
Mutual Funds: Category Average Returns
Equity Funds Returns (in %)
Tenure Diversified Funds Mid-cap & Small-cap
Funds
Large-capFunds
ELSS (Tax-
savingfunds)
6-month -1.90 2.10 -4.29 -2.801-year 8.59 18.37 4.32 8.303-year 18.71 28.12 15.05 18.355-year 9.73 15.49 7.85 9.42Returns as on Sept. 30, 2015
Debt Funds Returns (in %)
Tenure Liquid Funds Short-termincome funds
Ultra short-term funds
Long-termincome funds
Returns as on Sept. 30, 2015
Gilt funds
6-month 7.93 7.90 8.31 7.08 7.081-year 8.27 9.42 8.65 11.63 12.203-year 8.67 8.76 8.86 8.90 9.00
Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research
52ICICIdirect Money Manager October 2015
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 October, 2015.
Schedule for Beginners' programme on Futures and Options (F&O) TradingSr.No
City Dates For More Information & Registration call:
Premium Education Programmes Schedule
Schedule for Fast-Track Programme on Futures & Options (F&O)Sr.No City Dates For More Information & Registration call:
1 Pune 3rd and 4th October 2015 Kusmakar on 7875442311
2 Mumbai 10th and 11th October 2015 Nihal on 9619359592
3 Mumbai 17th and 18th October 2015 Manish on 8451057943
4 New Delhi 17th and 18th October 2015 Vishal on 07838290143, Harneet on 09582158693
5 Hyderabad 24th and 25th October 2015 Ruchi on 8297362323
6 Mumbai 24th and 25th October 2015 Nihal on 9619359592
7 Chennai 24th and 25th October 2015 Rajat on 9962294867
8 Pune 17th and 18th October 2015 Kusmakar on 7875442311
9 New Delhi 24th and 25th October 2015 Vishal on 07838290143, Harneet on 09582158693
10 Vijayawada 4th October 2015 Ruchi on 8297362323
11 Rajahmundry 4th October 2015 Ruchi on 8297362323
12 Ahmedabad 11th October 2015 Yogesh on 8238053563
13 Guwahati 18th October 2015 Sumit Sarkar on 8017516187
14 Vapi 18th October 2015 Yogesh on 8238053563
15 Ajmer 18th October 2015 Vishal on 07838290143, Harneet on 09582158693
16 Jodhpur 25th October 2015 Vishal on 07838290143, Harneet on 09582158693
Sr.No
City Dates For More Information & Registration call:
Schedule for Technical Analysis Programme
17 Chennai 10th and 11th October 2015 Rajat on 9962294867
18 Thane 10th and 11th October 2015 Manish on 8451057943
19 Hyderabad 10th and 11th October 2015 Ruchi on 8297362323
20 New Delhi 17th and 18th October 2015 Vishal on 07838290143, Harneet on 09582158693
21 Mumbai 31st October and 1st November 2015 Nihal on 9619359592
22 Pondicherry 31st October and 1st November 2015 Rajat on 9962294867
Sr.No
City Dates For More Information & Registration call:
Schedule for Foundation Programme on Stock Investing
23 Thane 24th and 25th October 2015 Manish on 8451057943 on 8451057943
24 Hyderabad 17th and 18th October 2015 Ruchi on 8297362323
25 New Delhi 17th and 18th October 2015 Vishal on 07838290143,Harneet on 09582158693
26 New Delhi 24th and 25th October 2015 Vishal on 07838290143, Harneet on 09582158693
27 Bangalore 10th and 11th October 2015 Subrata on 9620001478
28 Kolkata 10th and 11th October 2015 Sumit Sarkar on 8017516187
29 Mumbai 17th and 18th October 2015 Nihal on 9619359592
30 Thane 3rd and 4th October 2015 Manish on 8451057943
53ICICIdirect Money Manager October 2015
Contact us
Email:
Send us an email at [email protected] mention the name, date and venue of the programme you have
attended or wish to attend, for faster resolution of your queries.
SMS:
SMS EDU to 5676766 for more details
31 Mumbai 3rd and 4th October 2015 Manish on 8451057943
32 Mumbai 31st October and 1st November 2015 Manish on 8451057943
33 Chennai 31st October and 1st November 2015 Rajat on 9962294867
34 Pune 10th and 11th October 2015 Kusmakar on 7875442311
35 Pune 24th and 25th October 2015 Kusmakar on 7875442311
36 Pune 31st October and 1st November 2015 Kusmakar on 7875442311
37 Chandigarh 17th and 18th October 2015 Vishal on 07838290143, Harneet on 09582158693
38 New Delhi 10th and 11th October 2015 Vishal on 07838290143, Harneet on 09582158693
Schedule for Fast-track Programme on Stock InvestingSr.No
City Dates For More Information & Registration call:
39 Dhanbad 18th October 2015 Sumit Sarkar on 8017516187
40 Ranchi 4th October 2015 Sumit Sarkar on 8017516187
41 Indore 18th October 2015 Kusmakar on 7875442311
42 Vadodara 18th October 2015 Yogesh on 8238053563
43 Patna 11th October 2015 Sumit Sarkar on 8017516187
44 Jaipur 11th October 2015 Vishal on 07838290143, Harneet on 09582158693
45 Bikaner 18th October 2015 Vishal on 07838290143, Harneet on 09582158693
46 Ahmedabad 18th October 2015 Yogesh on 8238053563
Sr.No City Dates For More Information & Registration call:
Schedule for Fast-track Programme on Technical Analysis
47 Surat 4th October 2015 Yogesh on 8238053563
48 Surat 11th October 2015 Yogesh on 8238053563
Sr.No City Dates For More Information & Registration call:
Schedule for Techno Derivatives Programme
49 New Delhi 10th and 11th October 2015 Vishal on 07838290143, Harneet on 09582158693
Sr.No City Dates For More Information & Registration call:
Schedule for MarketMaster Programme
50 Hyderabad 31st October and 1st November 2015 Ruchi on 8297362323
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