ICICI_magajine_june11

56 l ICICIdirect Money Manager

From the Managing Director’s desk

On an average, on a monthly basis, ICICIdirect helps close to 10,000 of our customers articulate and plan for their life goals. These range from planning for their children’s future to their own retirement. But one goal that is invariably high on the list of priority is to buy a home. It is by far one of the most sought after acquisitions and a sentimental one at that.A report by Mckinsey Global Institute on the urbanization of India mirrors this sentiment. According to the report, by 2030, $1.2 trillion of capital investment will have to be made to meet the infrastructure demand from Indian cities. About 700-900 million square metres of commercial and residential space needs to be built to satisfy the growing demand from the developing urban areas. The report further projects that over the next 20 years the demand for affordable housing may rise to 38 million units. So housing and investment in the sector is indeed an area of growth. Buying a home entails one of the largest investments one makes in his lifetime and as such it becomes very important to get it right. Taking a cue from what we have seen our customers articulate and the queries we otherwise receive, this issue of ICICIdirect Money Manager is focused on helping you buy that home.It’s best to start the process by really evaluating the need to buy. Taking a house on rent gives more flexibility and one should evaluate renting with buying, especially if your job involves transfers. However, given the inflation in land and cost of construction, it is advisable to buy one house from a retirement planning perspective.If you do decide to buy one, make sure that the following factors are at the top of your mind. Look at a house you can afford, evaluate how your finances hold up after the new outflows in terms of EMI, maintenance charges, etc. Stretching your

ICICIdirect Money Manager l 1

June 2011

finances is quite natural, especially since owning a house is a matter of pride. It is however best to avoid over stretching and err on the side of affordability. Housing is an illiquid investment and it is a good practice to actually write down the complete calculation on your cash flows with a few scenarios like increase in interest rates (in case you plan to take a loan). It is worthwhile to include the tax benefits that accrue if the house is taken on loan.A home loan taken after some groundwork is always a good vehicle to create a sound asset in the long term. While evaluating a home loan, make sure you get the best deal. Check for interest rates and other charges like processing fee and prepayment penalties.The area and the type of house you want to buy is always a personal decision but keep in mind the locality and the amenities that are around or are slated to come up, this will decide the future appreciation in the value of the property.And finally, where it is your hard earned money at work it always pays to be safe than be sorry. Make sure that all the legal formalities are clear. Take services of professionals to make sure that your transaction is safeguarded.Now having bought that house, ensure that the house is insured. The house should be covered for any damage in case of calamities and also insured for the EMI payments. All these will ensure that your ‘dream house’ remains so in your pursuit to fulfill your life goals.Through our website www.icicidirect.com and this magazine we want to make an earnest attempt to partner with you in setting and achieving your financial goals. Do walk into any of your Neighbourhood Financial Superstore and talk to us.


June 2011

EDITORIAL

Editor & Publisher : Abhishake Mathur (CFP CM)Coordinating Editor : Zam JoseEditorial Board : Pankaj Pandey, Sameer ChavanEditorial Team : Amit Gupta, Azeem Ahmad, Dharmesh Shah, Gulzar Maniyar, Nitin Kunte,

Purnendu Jha, Sachin Jain, Shaboo Razdan, Sheetal Ashar, Varun Shah, Viraj Gandhi

One of the most exciting moments that individuals or families go through in life is the joy and satisfaction of buying a house. While it is one of the largest financial commitments that we make there is also a whole lot of emotions involved in the process. Our Flavour of the Month for this issue of ICICIdirect Money Manager will serve as a compendium on the elements that one needs to keep in mind before buying that home. What I would like to touch upon here is the emotional elements of that process. There is no doubt that emotions are one of the key elements that drives the home buying process. It is an integral part.The important part is to not let emotions cloud taking a sound financial decision. The entire buying process has to be backed with facts, analysis and evaluation before you make a move. You would be investing a substantial sum of money and will also have regular outflows in terms of EMI for years. Make sure you take time to gather the information you need to make an informed and justified decision about the home you purchase. This will ensure the soundness of your investment, even after the emotions have waned.In this issue we also feature an exclusive interview with Mr. Sachin Khandelwal, MD & CEO, ICICI Home Finance Company Limited for his views on the real estate segment. I am sure this issue will help give you an all-round view on things to look for while buying your house. Do write in with your feedback at :[email protected]


June 2011

COnTEnTs

Important:All the contents of ICICIdirect Money Manager are the exclusive property of ICICI securities Ltd. no article, either in whole or in part, may be published circulated or distributed through any medium without the express consent of ICICI securities Ltd.

From the Managing Director’s desk ....................................................1Editorial ..................................................................................................2Contents .................................................................................................3news ......................................................................................................4Markets round-up ..................................................................................5Technical Outlook ..................................................................................9Derivatives View ..................................................................................11Top Pick - Jet Airways and TCs Limited ...........................................13sector analysis ....................................................................................16Analysts of ICICIdirect.com Research from Banking, Infra and pharma sectors share their viewsFlavour of the Month - House purchase ...........................................21Before you plan your dream home, you must understand that there are various aspects you must look intoTête-à-tête ...........................................................................................27Interview with Sachin Khandelwal, SGM, ICICI Housing Finance Company Ltd.Query Corner ........................................................................................29Financial Planning ................................................................................30Case study of a working professional who has one childKnowledge Base - Moving Averages ................................................33Investing Tips - Effect of compounding ............................................37Mutual Fund Fact sheet - Balanced funds .........................................38Equity Model portfolio ........................................................................46Quiz .......................................................................................................52Customer solution ..............................................................................53Glossary ................................................................................................54


June 2011 nEWs small savings get panel’s boosterA committee headed by RBI deputy governor, Ms Shyamala Gopinath, on June 8 recommended a hike in interest on the post office savings account from 3.5 percent to four percent. The committee has also rec-ommended an upward revision of the ceiling on annual subscriptions in public provident fund (PPF) from the current ̀ 70,000 to ̀ 1 lakh. The committee’s recommendations come as a shot in the arm for the small investors. It has asked for discontinuation of Kisan Vikas Patra (KVP). The report was presented to the finance minister, Mr Pranab Mukher-jee, on June 8. The RBI in its last credit policy review had increased the interest rates on bank’s saving deposits from 3.5 percent to 4 percent due to the high inflation in the economy. The Gopinath committee has recommended the benchmarking of interest rates on other small sav-ings schemes to rates of government securities of similar maturity. As per the formula suggested by the committee returns for the PPF would improve to 8.2 percent from 8 percent.

Courtesy: Deccan Chronicle sEBI allows market makers for equity derivativesMarket regulator Securities and Exchange Board of India on June 2 allowed stock exchanges to appoint market makers in the derivatives segment. These market makers, appointed and incentivised in a trans-parent manner, can operate for a maximum of six months. The move will help Bombay Stock Exchange, which has been trying to prop up its near-zero market share in futures and options. “BSE has been pushing for this for two years. The new guidelines allow exchanges to increase liquidity in a transparent manner. This is how globally deep and liquid financial markets are created,” said Sayee Srinivasan, head-product strategy, Bombay Stock Exchange. It will also help new exchanges like United Stock Exchange and MCX Stock Exchange get a headstart as and when they launch equity derivative products.

Courtesy: Business Standard Disney eyes higher stake in UTV software, may delist companyMickey Mouse wants to consolidate his grip over his Indian joint ven-ture partner UTV Software Communication. According to three inde-pendent sources in the know, Walt Disney Company – the US head-quartered entertainment giant and creator of iconic toons like Mickey Mouse and Donald Duck – is looking at raising its stake in the company. Sources said the move is likely to trigger the eventual delisting of the stock from the Indian exchanges as well. Disney currently owns 50.4 percent in the media firm through its subsidiary Walt Disney Compa-ny Southeast Asia. The Indian promoters, led by Rohinton (Ronnie) Screwvala have a 19.8 percent stake, which is held by different entities like Unliazer Exports and Management Consultants Ltd, Unilazer Hong Kong Ltd and by Screwvala in his personal capacity.

Courtesy: Business Standard


June 2011 MARKETs ROUnD-UP

Markets across the globe com-menced May 2011 on a nega-tive note. Negative data from the US towards the end of the month (slower private sector job growth, rising unemploy-ment, rising consumer prices) enabled profit booking in US markets, the first negative return in calendar year 2011. Markets across the globe were under pressure except for Hang Seng (which remained flat in May). For Indian markets, lacklustre Q4 FY11 earnings (no positive surprises), food inflation great-er than 8 percent throughout the month and monetary tight-ening by RBI (hiked Reverse repo, Repo by 50 bps in policy review) provided enough rea-sons for FII to turn net sellers in May.Core industries grew 7.4 per-cent in March. The core sector comprises crude oil, coal, elec-tricity, petroleum refinery, fin-ished (carbon) steel which has 26.7 percent weight in IIP. IIP for March came in at 7.3 percent (Street estimates: 3.6 percent). Crude oil (Nymex) declined by 9.5 percent in May on contin-ued unrest in the MENA (Middle East-North African) region.

Markets to remain in a range

Global marketsUs

In May, Dow Jones, Nasdaq and S&P corrected by 1.9 percent, 1 percent and 1.2 percent re-spectively.

Initially the data from US (eco-nomic + corporate earnings) were encouraging. Some of them were durable goods or-ders (surged by 2.5 percent in March following a revised 0.7 percent increase in February), the Consumer confidence in-dex (rose to 65.4 in April from an upwardly revised 63.8 in March), and new home sales (rose 11.1 percent to an annual rate of 300,000 units in March from the revised February rate of 270,000 units). Auto major Ford, 3M, UPS, IBM Corpora-tion, Apple, Insurance giant Travelers, Dell posted strong earnings.

However, towards the end of May, data from US showed economic recovery is not tak-ing shape as expected by the policymakers. A separate re-port released by the US’ Com-merce department shows that the pace of US GDP growth in the first quarter remains at 1.8 percent (annualised), un-


June 2011 MARKETs ROUnD-UPMARKETs ROUnD-UPchanged from the last quarter. Payroll processor Automatic Data Processing indicated a slowdown in pace of private sector job growth in April. At the same time, the Labor Department informed that the unemployment rate unexpect-edly rose to 9 percent in April from 8.8 percent in March. The trade deficit widened to $48.2 billion in March from a revised $45.4 billion in February, which is expected to hurt the pace of GDP growth. National As-sociation of Realtors released a report which indicates an unexpected decrease in exist-ing home sales in the month of April. On the economic front, a report published by commerce department indicates that hous-ing starts fell 10.6 percent to an annual rate of 523,000 units in April from the revised March estimate of 585,000 units. A report released by US Labour department showed that con-sumer prices up 3.2 percent YoY, the fastest annual growth since October 2008.

Source: ICICIdirect.com Research, Bloomberg

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Nikkie Index

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CAC 40 Index


June 2011 MARKETs ROUnD-UP

Source: ICICIdirect.com Research, Bloomberg Source: ICICIdirect.com Research, Bloomberg

Source: ICICIdirect.com Research, Bloomberg Source: ICICIdirect.com Research, Bloomberg

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Shanghai Index

Other marketsDuring the end of May, Fitch ratings lowered its credit rat-ings on Greece to B+ from BB+ citing the scale of the country’s challenge in securing solvency while S&P revised downward its outlook for Italy’s credit ratings to negative from stable. In mid-May, China hiked the reserve requirement for banks by 50 bps after inflation figure came in 5.3 percent.In May, FTSE, German DAX, French CAC lost 1.5 percent, 3.5 percent and 2.5 percent respectively. The Hang Seng remained flat gaining 0.2 per-cent in May 2011. The Shanghai SSEC declined by 5.8 percent making it the worst performing index for the second month in a row while Japan Nikkei lost 3.1 percent.

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NIFTY

Domestic marketsIn May 2011, FIIs were net sell-ers to the tune of ̀ 5,158 crore. MFs and insurance companies bought shares worth ` 435 crore and ̀ 3,658 crore respec-tively.For May 2011, Sensex and Nifty lost 2.5 percent and 2.6 percent, respectively. The CNX Midcap was flat, losing 0.68 percent, while BSE Small Cap Index lost 4.4 percent on a monthly basis. BSE FMCG and Healthcare out-performed the broader markets and delivered 3.16 percent and 2.16 percent returns respec-tively, while BSE Auto, Power and Metals were key underper-formers in May 2011.The top gainers from Sensex components were Hero Honda (9.52 percent), Hindustan Uni-lever (8.43 percent) and DLF


June 2011

Indices 2-May-11 31-May-11 Change (%)UsA markets Dow Jones 12,807.4 12,569.8 -1.9S&P 500 1,361.2 1,345.2 -1.2Nasdaq 2,864.1 2,835.3 -1.0European markets UK FTSE 6,082.9 5,990.0 -1.5German DAX 7,527.6 7,293.7 -3.1French CAC 4,108.8 4,006.9 -2.5Asian markets Japan Nikkei 10,004.2 9,693.7 -3.1Hong Kong Hangseng 23,633.3 23,684.1 0.2Shangai SSEC 2,911.5 2,743.5 -5.8Domestic markets BSE Sensex 18,998.0 18,503.3 -2.6NSE Nifty 5,701.3 5,560.2 -2.5Content source: ICICIdirect.com Research

MARKETs ROUnD-UPMARKETs ROUnD-UP(5.27 percent) while companies that lost ground were SBI (14.63 percent), Reliance Infrastruc-ture (13.85 percent), Tata Mo-tors (11.07 percent). From CNX Midcap Index, Britannia (15.27 percent), Titan (12.51 percent) and Marico (9.74 percent) led the gainers. On the other hand, Anant Raj Inds (20.24 percent), Piramal Healthcare (19.92 per-cent) and Jindal Saw (18.83 per-cent) were on the losing end.OutlookNifty broke the intermediate trading range of 5,400-5,600 and tested sub-5,200 levels in May. The support of 5,200 is critical and looks like markets

are holding on to it for the near-term. A brief correction in crude prices will be positive for the Indian economy and markets should react positively to this situation. In the near-term, so long as Nifty holds on to 5,400-5,450 zone, we can expect it to test the higher end of the range at 5,650-5,700. On other hand, breaking 5,400 will intensify selling pressure and the markets can again test the recent lows of 5,200. We expect more stock-specific activity and markets will trade within a range.


June 2011 TECHnICAL OUTLOOK

sensex: 18503 / nifty: 5560FlashbackIndian equity benchmarks edged lower amid growing con-cerns over spiraling inflation, political uncertainties on the domestic front and weak global cues. BSE Sensex and NSE Nif-ty ended lower over 3 percent for the month. Sensex closed at 18,503, down 633 points while Nifty settled with a loss of 190 points at 5,560. Broader indices also came under bear attack as BSE M-cap and S-cap indices lost 2.6 percent and 5.5 percent respectively.On the sectoral front, Auto (-6.6 percent), Metals (-4.8 percent) and Oil & gas (-4.1 percent) and Banking (-4.1 percent) were key draggers while FMCG (+2.7 percent) and Healthcare (+2.6 percent) outperformed the benchmarks.Technical outlookSensex continued its south-bound journey early on, testing lows of 17,786 before moving higher post-expiry of the May series of derivative contracts. Indices traded with negative bias for the entire month of May 2011.

Index likely to trade range-bound

Monthly chart of Sensex dis-played a Bear candle for May 2011 with lower shadow indi-cating supportive effort near March lows. Structurally, index remains in a bear trend as it continues to form lower peaks and troughs on weekly charts. More recent-ly, Sensex has formed potential higher bottom at 17,786 which will be confirmed only if index makes higher top above 19811 levels. After bouncing from March 2011 lows, index is display-ing hesitance at 200 day EMA (18,677). It will require showing strength above 18,677 to trig-ger further upsides towards 19,000-19,150 levels where the current up-move is expected to exhaust (basis Fibonacci price projections).On the flip side, index, has a strong support in the vicinity of 17,790-17,295, lows of March 2011 and Feb 2011 respectively. Only a weekly close below these levels will open further downsides towards 16,800 lev-els which is low of May 2010.Amongst oscillators, monthly MACD (Moving average con-


June 2011 TECHnICAL OUTLOOK

Content source: ICICIdirect.com Research

vergence divergence) contin-ues to remain below its signal line (0) and indicates negative bias in the medium term.We, however, wish to draw at-tention towards some seasonal pattern observed in the Indian markets. Over the past decade, index has shown a tendency to hit the yearly bottoms dur-ing the second quarter in eight out of ten cases. Keeping this in mind, a panic sell-off if any can create a good buying op-

portunity for investors in the near future.In a nut shell, we expect index to trade in a range of 17,300-18,800 for a while. However, a panic fall from current levels towards 17,300-16,800, if any, will throw good buying oppor-tunities for investors.Key supports for Sensex are 17,790 and 17,295 while resis-tance is at 18,677 and 19,150 levels.


June 2011 DERIVATIVEs VIEWJune series may remain less volatile

June series index futures start-ed with 20.8 million shares which is the lowest open inter-est (OI) since inception of the January series. Significantly lower rolls into index futures were the prima-ry reason for such lower OI. Prima-facie, it seems like re-duced spread for the short roll has kept away the short posi-tions from being rolled.On the options front, Nifty Call options did not witness any major accumulation, suggest-ing immediate resistances. Most of the ATM and OTM strikes had approximately 30 lakh shares in OI across the strikes. At the same time, the highest accumulation at Put option was seen at 5300 strike.Implied Volatility (IV) trend continues to be muted. The IV trend suggests expectations of range-bound movement in the June series. Major directional movement during the series may not be witnessed.Directional trend for June series• No directional trend fol-

lowed in June. However, volatility seems to cool down in June with respect to May.

• Only twice in the last dec-

ade it has shown the move-ment of more than 10 per-cent (close to close basis) and in the last 7 years, the average directional move-ment was just -1 percent.

• Swings in the June series were observed in the range of 6-18 percent between month high and month low. Most of the time, it shows marginally lower di-rectional movement com-pared to May series.

• Since Nifty has shown a di-rectional move of about 5 percent in the May series, we can expect another range-bound movement in June as well. It suggests the broad range for Nifty in June could be 5300-5800.

Rollover snapshot nifty lacks rollover, stocks rolls inline• Nifty rolls were observed at

59.73 percent, lower than 3M average of 66 percent while market-wide rollover observed at 84.65 percent, in line with its 3M average of 85 percent

• Sectorally, the Telecom and Infrastructure space observed the highest rollo-ver of positions while Phar-ma and Automobile stocks witnessed lower rolls.


June 2011 DERIVATIVEs VIEW• Index heavyweights like

Reliance (81 percent), In-fosys (80 percent), TCS (77 percent), SBI (78 percent) and Tata Steel (87 percent) saw marginally better than average rollover into June series.

• Stock specific rollover ac-tivities were on a higher side while index rollover was quite low in compari-son to their three-month average figures. The activ-ity indicates expectations of stock-specific move-ment instead of broader market movement.

OI build-up in current and mid series

sectoral highlightsBanking heavyweights like HDFC Bank and SBI are incept-ing the series with significantly higher open interest. Moreo-ver, index heavyweights like Bharti and ONGC are also ob-serving major open interest al-ready accumulated in the June series with positive roll cost, suggesting long bias main-tained in these stocks.

At the same time, DLF and Hindustan Uniliver are also starting the series with note-worthy open interest for June series. The prevailing nega-tive roll cost for these stocks indicates bearish sentiments to prevail in the near- to mid-term. Cement majors like ACC and Ambuja Cement also saw negative roll cost for June se-ries which was observed in the last few settlements as well.

sectoral rolloversHigh Rollover Low Rollover

sector Rollover %

sector Rollover %

Transport 90.70 Pharma 71.32Textile 90.10 Automobile 72.39Telecom 89.59 Banking 79.07Infrastructure 88.75 Finance 81.64Sugar 88.02 Cement 82.32

stock rolloversHigh Rollover Low Rollover

stock Rollover %

stock Rollover %

CARN 94.90 PFC 41.69JSWSTEEL 91.93 RANBAXY 54.78RECLTD 91.69 FEDERALBNK 55.47GMRINFRA 91.25 CIPLA 56.46SCI 91.21 TATAPOWDER 61.68

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June 2011 TOP PICK

JET AIRWAys (JETAIR) Company Background

Jet Airways (India) Ltd (JAL), India’s largest private sector airline with a domestic market share of 24.9 percent, began its operation in May 1993. The company strengthened its position in the aviation sector by acquiring Air Sahara (rechristened as JetLite, the all-economy, no-frills service) in April 2007. At present, JAL operates 116 aircraft (Jet:97, Jetlite:19), which flies to more than 61 destinations in India and abroad. In May 2009, JAL launched Jet Airways Konnect (JAK), an all-economy service, by utilising the idle business class capacity of the parent company, Jet Airways (JA). JetLite operates predominantly on the domestic routes

Investment rationale Jet Airways, India’s largest airline company by market share, has not only benefited from a rebounce of domestic passengers but also the company is witnessing healthy traction in international routes through improved code share agreements with various international airline companies and focused customer services. With no major capacity additions lined up over the next 2 years by other major airline companies on account of streched balancesheets, we expect load factors to remain healthy at an average rate of over 75 percent during our forecast period FY11-13E and expect Jet’s revenue CAGR of 16 percent during the same period. We have assumed average crude prices to be $100 per barrel for FY12/FY13 that in turn

will help the company improve its margins going forward. The Bandra-Kurla Complex land deal and aircraft sale and leaseback transactions are also the key things on the company’s radar to reduce their debt burden after the recent high court ruling in the Jet-Sahara case. In Q4FY11, Jet Airways (JAL) reported consolidated revenues of `3,660.9 crore, which was marginally lower than our expectations (I-direct estimate: `3,770.7 crore) on account of a higher-than-expected drop in yields in the LCC segment (JetLite). However, international operations that account for 52 percent of total revenues outperformed with revenues in this segment growing 18.1 percent YoY due to strong demand. During the quarter, fuel costs rose sharply by over 53 percent YoY to `1,524 crore. That led to a sharp decline in operating margins. It declined by 1,444 bps to a mere 1.3 percent. As a result, the company reported a net loss of `200 crore as against net profit of `224.8 crore last year.Valuation We expect revenue CAGR of 16 percent during FY11-13E, as demand will continue to outpace supply growth on healthy pax traffic. The stock has corrected about 45 percent in the past 4/5 months due to the concern on rising jet fuel prices which in turn resulted from the recent disruption in production of sweet crude in Libya. With demand continuing to remain healthy, we believe any potential fall in oil prices will improve the


June 2011

TATA COnsULTAnCy sERVICEs (TCs)Company Background

Established in 1968, TCS is one of the oldest and largest, both in terms of revenue and employees, information technology companies in India. The company offers a range of IT outsourcing, infrastructure, business process outsourcing, engineering and consulting services. Primary operating segments include banking, financial services & insurance, manufacturing, retail & distribution and telecom. In FY11, the company earned revenues of ` 37,325 crore ($8.2 billion), net profit of ` 8,683 crore ($1.9 billion) and employed about 200,000 people.

Investment Rationale

TCS revenue and volume growth continues to outperform its peers, driven by scale and efficiency. The company added 70,000 people in

company’s profitability significantly. At the CMP of `446, the stock is trading at 10.2x and 5.1x its FY12E and FY13E EV/EBITDA, respectively.

We have assigned a BUY rating to the stock with a target price of `520 (i.e. valuing the stock at 5.5x FY13E EBITDA).

FY09 FY10 FY11 FY12E FY13E

Net sales 13,078 11,876 14,523 16,849 19,705

EBITDA -859 1,062 1,576 1,639 2,739

Net Profit -961 -420 -86 222 1,023

EPS (`) -111 -49 -10 26 119

PE (x) NA NA NA 17.4 3.4

Price to Book (x) 2.5 2.2 2.3 2.0 1.3

RoNW (%) -30.3 -21.4 -5.1 12.6 42.2

RoCE(%) -10.0 0.5 4.3 4.8 13.4

FY11 with some of them not yet billable and has given an initial FY12 hiring guidance of 60,000. This suggests good demand traction with healthy visibility on qualified pipeline. Further, non-linear initiative such as iON (cloud based solution for small & medium businesses), platform BPO and financial products could help sustain revenue growth momentum and operating margins. Finally, TCS appears cohesive, aggressive and reinvigorate unit with the current CEO N Chandra who is just 48 years old while official retirement age at TCS is 65 years, which implies minimal churn/stable management at the topIn Q4FY11, TCS reported 4.7 percent US$ and 5.1 percent rupee revenue growth in a seasonally weak quarter led by 2.9 percent volume growth. Q4FY11 revenues grew 31.3 percent YoY to ` 10,157 crore with 52 bps


June 2011 TOP PICKYoY improvement in EBIT margins to 28 percent as against 27.5 percent in Q4FY10. Though the company does not provide guidance, it expects to maintain FY12 operating margins in a narrow band relative to FY11 levels. Noticeably, despite raising our FY12E EPS estimate by 6 percent to ` 51.9 (` 49 earlier) post-Q4FY11 earnings, we are about 2 percent conservative relative to consensus at ` 52.7.Valuation We expect TCS to report US$ and

rupee revenue growth of 20.9 percent CAGR and 18.9 percent CAGR over FY10-FY13E period. Further, we expect earnings to grow at 19.5 percent CAGR during the same period. Thus, we value TCS at ` 1,320 i.e. at 22x FY13E EPS estimate of ` 60. Key risks to investments include material economic weakness in developed geographies and significant exchange rate volatility which can impact revenue growth and operating margins.

(` crore) FY09 FY10 FY11 FY12E FY13E

Net sales 27,813.3 30,027.9 37,324.5 44,142.2 50,478.4

EBITDA 7,178.0 8,678.8 11,189.3 12,658.6 14,470.5

Net profit 5,171.6 6,872.6 8,682.8 10,157.0 11,740.6

EPS (`) 26.4 35.1 44.4 51.9 60.0

PE (x) 43.3 32.6 25.8 22.0 19.1

Price to Book (x) 14.4 12.2 9.2 7.1 5.6

RoNW (%) 33.2 37.4 35.7 32.4 32.6

RoCE(%) 39.6 42.2 41.6 36.8 36.9


June 2011 VIEW POInTsector analysis

Analysts of ICICIdirect.com Research and who are experts of three sectors —Kajal Gandhi of the banking sector, Deepak Purswani of infrastructure sector and siddhant Khandekar of pharmaceutical sector — share their views and outlook for the respective industries.

BankingBanking stocks have correct-ed since the last 6 months. What are the major reasons?• There is a haze of high

inflation ruling at greater than 8 percent, consist-ently leading to tighter RBI policy actions. Continu-ous rate hikes by RBI and initially deposit costs ris-ing for banks have resulted in negative outlook being built for banks’ net interest margins (NIM).

• Saving deposits rate hike of 50 bps will also affect margins.

• Rising operating costs on account of pension and gratuity provisions that banks are required to make has been the trend in Q4FY11 numbers for most banks, particularly SBI where we saw NPA and pension provisions put to-gether had wiped out the entire quarter’s profit.

• Slippages have risen for many large banks like SBI, BoB, and hence concerns on asset quality for PSU

banks continued. Power and infra exposures of banks are under the scan-ner.

How is the industry growth happening currently?Indian banking industry’s non-food credit continued its healthy growth momentum and grew by 22.08 percent (year-on-year) as on May 20, 2011. Its aggregate deposits growth too improved margin-ally to 17.4 percent. The in-cremental CD ratio, however, is still relatively high at 91.44 percent. RBI has indicated its full-year credit growth target at 19 percent and deposits at 17 percent and we expect the same to be achievable unless the economy slows down sub-stantially.yields are rising means pres-sure of MTM on bond portfo-lios of banks, correct?Currently 10-year G-Sec yield has risen sharply from 8 per-cent to 8.3 percent within 2 months and this will lead to public sector banks like SBI,


June 2011

PNB, Oriental Bank of Com-merce, Indian Overseas Bank to have material hit on their profits as their AFS portfolios are 20-25 percent of SLR with higher maturity profile. Bank stocks are available at cheap valuations. What is your recommendation?Currently, we are cautious on

public sector banks as slippag-es and employee provisions are expected to keep profit growth lower than 20 percent. However, private banks can remain in flavour for the next couple of quarters. We recom-mend accumulating large caps like HDFC Bank, SBI at dips. Among mid-caps, Federal Bank can be looked at.

InfrastructureWhat has been the key reason for the underperformance of infrastructure stocks over the last one year?Infrastructure sector has lagged behind the benchmark indices over the last one year mainly due to execution delays that the sector suffered due to multifold reasons across verti-cals. Looking at the issues that popped up in different verti-cals in the last year, the road segment saw disappointment on the NHAI awarding front where only about 5,000 km were awarded as against the initial target of 9,000 km. Then concerns loomed large over gas supply cut and coal avail-ability issues for new power projects. The airport develop-ers too faced the uncertainty over the lack of clarity in the AERA guidelines for revenues and then over ADF collection.

There was also slowdown in ir-rigation in the AP region due to the ensuing Telangana issues and other pending clearances. And then the projects across the verticals also faced delays due to environmental and land acquisition issues. So if we look at the sector as a whole, there have been challenges across the board which led to the stocks’ underperformance over the last one year.so how do we see the path ahead for the infrastructure sector?There is plethora of opportuni-ties available in this sector with infrastructure spending as a percentage of GDP expected to increase from nearly 7 per-cent currently to about 9 per-cent at the end of the XII Five Year plan. At the same time, private participation is expect-ed to increase from 37 percent

VIEW POInT


June 2011

to 50 percent during the same period, indicating growing role for private players. But delays in policy reforms have been a major letdown lead-ing to execution delays and cost overruns. However, gov-ernment initiatives in recent times have been encouraging and we can clearly see the intent of policy reforms. For example, government, in the 2011-12 Budget, has indicated setting up of dedicated infra-structure debt fund which will be a major boost in terms of funding for public-private part-nership projects. If we look at the road segment, there have been major reforms such as BK Chaturvedi Committee re-port implementation, the re-forms in awarding process and increasing clarity in terms of targets. So we do see a kick in the reform albeit at slower pace, but definitely a positive sign for the sector. Moreover, we would also see the infra-structure companies getting a breather in H2FY11 with be-nign interest rates if there is some respite in inflation.

With so many challenges, can one consider exposure to-wards infrastructure stocks?The infrastructure sector has been surrounded by concerns and challenges stated above but if you look at the valua-tions, these concerns seem to be priced in at the current levels. If we look at the cur-rent valuations, most of the infrastructure stocks are trad-ing at the lower band of their historical one year forward valuation matrix. For example, if we look at players like GVK Power, it is currently trading at 0.9x P/B which is lower than its historical range of 3.1x to 1.3x. So if we are looking at a larger investment horizon of 18-24 months, the sector definitely becomes attractive given the present valuation. We believe that policy reforms will be seen across verticals going ahead, giving respite to the concerns over execution since the last one year. One can con-sider exposure towards the sector with a longer horizon at the current levels.

Pharmaceuticals

Discuss the Q4Fy11 numbers in a nut shell.Majority of pharma compa-nies have reported better-than-expected sales growth in

Q4FY11 albeit some pressure on the margins. The new prod-uct launches in both develop-ing and developed countries drove the sales growth. In-

VIEW POInT


June 2011

crease in crude oil prices and spurt in employee cost put pressure on margins. In the last two years, many players have also expanded their field force, causing higher employ-ee cost and other promotional activities. Was there a slowdown in the domestic markets visible in some numbers?The Indian pharmaceutical industry has grown approxi-mately 15-16 percent in FY11. We have seen some slow down in the third and fourth quarters due to lower growth in acute therapies. In the second half of FY11, the DCGI imposed price cuts for more than 50 drugs; majority of them were acute therapy drugs. Also, increase in competition resulted into lower growth rates in acute therapies. However, chronic therapies like diabetes, CNS & CVS are growing above mar-ket rate, at about 18-20 per-cent. Going ahead, we expect domestic pharma to grow at about 14-15 percent p.a. driv-en by strong chronic growth, incremental field force and ru-ral foray.

How was the performance in the Us generics market?Indian generic players have re-ported strong set of numbers

in the US market due to launch of a few exclusivity products and niche products. However, pharma companies are facing delays in getting approvals from the USFDA due to in-crease in ANDAs filings by ge-neric players across the globe in general and Indian players in particular. Only those Indian players that own big product baskets and a large number of ANDA filing will continue to perform strongly in the US market. In the January-March quarter, Indian players re-ceived approval for more than 40 ANDAs. CRAMs players saw some re-vival. Is it sustainable?We have seen revival in the performance of CRAMS play-ers after almost 8-9 quarters. The recovery seems to be confined to Contract Manu-facturing Organisations (CMO) than Contract Research Or-ganisations (CRO). Till now, the recovery was visible only for companies to large MNCs, where the re-stocking has just started. During the quarter, we have seen good growth from players like Divi’s Laboratories and Piramal Healthcare while Dishman Pharma and Jubi-lant Life Sciences continued to disappoint. We believe overall CRAMS business will take at

VIEW POInT


June 2011

least couple of quarters to re-cover fully. What will be the impact of withdrawal DEPB scheme on the pharma industry? Barring a few exceptions like Dr Reddy’s and Torrent Phar-ma, the impact will not be sig-nificant as majority of pharma companies are getting export incentives through various schemes like duty-drawbacks, deemed exports, etc, beside DEBP benefits. share your views on increased M&A activities in the global and Indian pharma space?The global Pharma industry is in consolidation mode since the last few years. This was on the back of many factors like drying R&D pipeline, impend-ing patent cliff and increased competition. We believe M&As to increase going ahead. For the Indian pharma industry, we have seen 4-5 sizeable M&As in the last 2-3 years. There are

more buyers than sellers in the domestic market and majority of promoters are reluctant to dilute their stake, resulting in higher valuations. However, we believe the industry has to consolidate on account of stricter regulatory norms as many small and medium play-ers will be unable to cope up with this and may be willing to sell their stake or entire busi-ness.

How good are the opportuni-ties coming out of Japan?Japan, being the second larg-est pharma market ($80 bil-lion), poses good opportu-nity especially after the recent Indo-Japan deal and the de-cision of the Japanese gov-ernment to increase generic penetration from the current about 9 percent to approxi-mately 25 percent by 2013-14. This will benefit Indian com-panies Lupin, Cadila and Ran-baxy.

VIEW POInT


June 2011

Hitting a home runA dream home is what most of us desire. Before we plan to acquire this property, you must understand that there are various aspects you must look into before going in for this investment. Here are the factors that you should be aware of before you make that significant decision.

FLAVOUR OF THE MOnTH

Buying a home is the biggest purchase in one’s life for most Indians. Naturally there are a lot of complications and you have to find your way out with utmost care to ensure that you strike the best deal. The things start with a need of a separate shelter, which arises out of trig-gers such as need for privacy, migration and mental peace. Rent or buy This is probably the first step most have to climb up before they end up owning a nice home. Unfortunately, there is no simple answer to this ques-tion. If you do not have a clear idea of what kind of house to buy or you do not have funds for down payment better to rent. If you are in a job where transfers are inevitable, it is better to stay in a rented ac-commodation. Needless to say, if you cannot afford buy-ing a house better rent one. But if you know you have come across a house in which you plan staying for the next 20 years or you can afford to pay the home loan factoring

in the possible rise in interest rates, it is the time you buy a home. If you are of the opinion that the property prices are go-ing to rise, better buy a home for yourself. There are ‘rent or buy’ calcula-tors available on various web-sites, which help you calculate the impact of renting and buy-ing over a long tenure of say 20 years. These calculators allow you to assess options such as renting a property and buying a property after you assume the long-term inter-est rates, long-term property prices trend and long-term rent trends. In some cases, it also factors in the benefits on the tax front and opportunity costs.But you should appreciate the fact that the number games are based on long-term as-sumptions. In a real estate market which is inevitably a long-term asset market, things change over a period of time. Human abilities have their own limitations when it comes to foreseeing how things will un-


June 2011 FLAVOUR OF THE MOnTHfold after 5, 10, 15 or 20 years. This is especially true in India where there is less informa-tion available on the real es-tate market and the sector is plagued with lack of transpar-ency. That makes many prefer to buy a home.Buying a second home can have an element of retirement planning. This property can be used to generate income post retirement by either selling it or through rent. Paying for a homeAs asset prices rise, especially in the urban areas, the homes are going beyond the reach of most buyers. An obvious outcome of this situation is that many prefer to go in for a home loan. A home loan taken after some groundwork is al-ways a good vehicle to create a sound asset in the long term. Let us look at how to go about taking a home loan.The first step is to do some homework before you ap-proach a bank. Let us under-stand this with an example. Satish, a young executive, wants to go in for a home loan. A bank will typically lend him 40 to 50 percent of his month-ly income. At 9.75 percent rate of interest for a 20-year term, equated monthly instal-

ment (EMI) works out to be ` 949 for ` 1 lakh borrowed. As-sume he earns a monthly sal-ary of ` 80,000. 40 percent of this monthly salary is ` 32,000. Let us further assume he is paying ` 3,000 per month for repayment of a personal loan. Hence the bank will account for that too. Now he is left with ` 29,000 (` 32,000 minus ` 3,000). Divide this by ` 949, the EMI amount for ` 1 lakh, and he arrives at 30.55 — ` 30.55 lakh is the amount he can borrow as home loan. If the interest rate climbs to 10.25 percent, he can borrow ` 29.53 lakh. If the rate remains unchanged but the term of the loan is halved to 10 years, he can borrow ` 22.17 lakh. Oth-er things remaining constant, if the rate goes up, the loan you can raise falls. If the loan term is reduced, other things remaining constant, your loan raising capacity falls.Here the bank funds up to 85 percent of the value of the property. First, Satish has to make the down payment and then the bank brings in their contribution. For example, if he is looking at a property worth ` 50 lakh, the bank will offer him a loan of ` 42.5 lakh (at 85 percent of the property value). But here we have seen


June 2011 FLAVOUR OF THE MOnTHthe maximum Satish can bor-row is ` 30.55 lakh. Here he can consider adding a co-bor-rower – the best would be to include his working wife. The co-borrower not only shares the ownership of the house but also brings in the much needed income support for the loan. But note that most banks are not comfortable of-fering loans to siblings since there is a high possibility of a dispute over the ownership of property in the future. Keep your latest salary slip ready while approaching the bank. Some banks do insist on last three years’ income tax return filings. Be it the case of borrowing on individual’s capacity or bor-rowing together, always keep in mind the rate of interest that you have used now is floating rate of interest and may go up in future. Over the last five years, the rate of interest has moved up by 5-6 percentage points. It can be pinching. For example, at 7.5 percent for 20-year term ` 805 is the EMI for every ` 1 lakh borrowed. But if the rate climbs to ` 12 per-cent the borrower has to pay ` 1,101 per month, other things remaining the same. So better keep some headroom for yourself.

While shopping for a home loan do your homework well. Check the terms and condi-tions and know the interest rate and other charges like processing fee and prepay-ment penalties. If you are a self-employed pro-fessional or a businessman many banks will charge you a higher rate of interest for the home loan in comparison to a government servant. But there is a way out to save on the interest costs. Ask for a home loan linked to a current account. These home loans charge higher interest rates, but charge you on daily reduc-ing balance basis. If you have a home loan outstanding of ` 40 lakh, and you maintain a cur-rent account balance of ` 25 lakh, you will be charged an interest for ` 15 lakh for that period. This leads to great sav-ings on the interest front. But go in for such loans if and only if you are in a business where you are maintaining large sums in the current account. A fortnight spent meeting bankers is worth the effort as you end up saving at least a few thousands on the long-term commitment. If possible, approach bankers in group. This way banks get a large-sized business at one go and


June 2011 FLAVOUR OF THE MOnTHyou get the necessary dis-counts. It makes sense to get a pre-approved loan before you go out searching for the house. After you decide on the house, the bank will then do its due diligence on the house and then disburse the loan. This saves on time and offers you some peace of mind when you are at a negotiation table with a seller. Tax benefitThough the tax break is a by-product of a home loan, it is all the more important as it brings down the cost of the home loan. For example, if you are paying interest of ` 100,000 per annum and you are in the highest tax slab, the same is deducted from your taxable income and your effective in-terest payout falls to ` 70,000 as you need not pay tax on ` 1 lakh of income. If you go in for a home loan now, an inter-est payment up to ` 1.5 lakh is deductible from the gross salary. For the principal repay-ment you get a tax shelter up to ` 1 lakh under section 80 C in a financial year. In case of a joint home loan application, both the co-borrowers can en-joy tax break.Getting the right houseA lot of subjectivity comes

into the picture at this stage. You have to better identify your needs clearly. The local-ity in which you prefer to stay and the size of the house also needs to be clearly decided before you go shopping. The size of the house has got two aspects. First is the area – when the seller quotes area in square feet, it is better to confirm if he is talking about carpet area, built-up area or super built-up area. Note: car-pet area is the one you actu-ally enjoy whereas the super built-up area includes the area occupied by common spaces and staircase, etc. It is safe to assume that the super built-up area is at least 25 percent more than the carpet area. Second aspect of size of house is the number of rooms. Many a times, developers talk about a two bedroom hall kitchen flat, where a small passage makes the second bed room. It is better to have a look at the sample flat or at least ask for an approved design. The cost of the house does not end with the simple calcula-tion – area in square feet mul-tiplied by the price per square feet. You have to addition-ally pay for society charges, stamp duty registration and brokerage if any and in some


June 2011 FLAVOUR OF THE MOnTHcases 3-5 year maintenance deposits. If you are buying a resale house, better inspect the house twice, as there is a possibility of a major repair expenditure waiting for the new buyer. Once you decide on purchasing a flat, there is another more important busi-ness — legal documentation — waiting for you. Finally, buying a house is a matter of pride and sometimes the emotional quotient can get the better of us. Make sure you can actually afford the house you are buying and that you do not stretch yourself too far.What to checkMany find it one of the least important and the most time consuming part of a transac-tion. But it is in your interest to stick to the rule, to avoid any problems with your owner-ship and smooth enjoyment of your ownership rights of the house. First among all the legal formalities is ‘clear title’. The builder should have a liti-gation-free ownership of land. The same should not have any encumbrances and should be capable of being transferred in the name of new buyers. The same can be verified by em-ploying a lawyer for a fee. The lawyer will then come out with a search report that establish-

es the title of the asset and its status, in terms of any encum-brances. The builder should have com-mencement certificate. It is is-sued by the local authorities, such as Municipal Corpora-tion, which permits the builder to begin construction only af-ter the authorities are satisfied that all necessary approvals are in place. If you are buy-ing a flat in a ‘to be launched’ project do insist on a copy of the commencement certifi-cate. If you are buying a flat in an existing building which is being modified and the flat is a part of such ‘extended or modified’ part of the building, the builder needs to get a sep-arate approval for the same. In such cases you should always ask for a copy of ‘approved’ revised building plan. The ap-provals sought by the builder for the old structure do not count.With tight liquidity in finan-cial markets, the builders are finding it difficult to fund their working capital requirements. In such cases, more number of builders is opting for fund-ing wherein they mortgage their property. There is noth-ing wrong in this. The prob-lem starts when a buyer buys into one of the flat in such a


June 2011

project. If the builder defaults in future on the repayment of the loan, the bank simply takes over the project. In that case, the bank can make the buyer of the home vacate the house, to sell it to recover the money lent to the builder. Here the buyer of such a flat faces trouble for no mistake on his part. The best way to deal with this is to keep your eyes open while dealing with the builder. If the builder asks for a cheque in favour of the builder’s name (or seller’s name) and a bank account number with bank name, it is a clear sign of the flat is mortgaged with the bank. Generally, banks put up a condition where the builder has to deposit all the sale pro-ceeds in an escrow account opened with the lender bank. But do not worry. You can ask the builder to arrange for a ‘No objection certificate’ from the bank. The bank issues such certificate at no cost. The cer-

tificate carries the specification of the ‘property’ (flat number, building number, name of the project, etc) and further va-cates its charge on the flat sub-ject to the condition that the buyer makes all the payments in the escrow account. If you are of the opinion that the ‘legal by-lanes’ to your dream home are far too complicated for you, better get an expert hand for your assistance. The cheapest way to get an expert on your side is to go in for a home loan. When the home loan company extends a home loan to you for purchase of a property, it does the necessary legal background check. This is just one more benefit of a home loan that enables you to acquire your dream home and brings you some tax break. So when are you buying your peace of mind — the much coveted place full of love and affection — your home?

FLAVOUR OF THE MOnTH


June 2011 Tête-à-tête

‘Good time to invest for long-term investors’Real estate is an asset class that most Indians will prefer to own. It occupies a significant portion of your investment port-folio. Hence it is necessary to be aware of the trends shown by this asset class. sachin Khandelwal, MD & CEO, ICICI Home Finance Company, shares his views on the real estate scenario in India.

What are your views on real estate as an investment av-enue when compared with other options?Real estate is a significant por-tion of investments for most Indian HNI customers now, given the continuing demand-supply gap for residential and the fact that the ticket size is very large. It is even the largest asset class for a large portion of these clients, since most markets have delivered signifi-cant capital appreciation over the last decade in India. From a returns equation, it is a very good asset class in India, for a 5-year horizon. It can yield 12-15 percent returns over a mini-mum 4-year horizon. For short-term investments, it is purely speculative and one needs to be careful.

What are factors that one should keep in mind while ap-proaching real estate as an in-vestment option?

The most critical factor to be kept in mind is the location.

This would mean not just the geographical area within the city, but factors like proximity to business districts and com-mercial areas are important. From a property point of view, the pedigree, reputation and past track record of the builder is a must to be checked before investing. Another key factor is the entry price, since buy-ing the same property at two different points in time could give varying yields. From an ability to rent or resale, the transportation access and so-cial infrastructure (shopping,

sachin Khandelwal, MD & CEO

ICICI Home Finance Company


June 2011

schools and hospitals) avail-able or coming up in that area are also to be kept in mind while investing, since this will decide the future appreciation of a property. We hear that the number of overall transactions have dropped in the recent past. What is the reason?The key reason is that most builders in large markets are still holding onto the prices, even though some markets have seen significant appre-ciation in the past two years. While clients are expecting discounts which are not com-ing that easily and with the in-crease in interest rates, there is more bargaining leading to a wait-and-watch phase in a lot of areas. However, there is a drop in Q1 of 2011 as com-pared with Q4 of 2010 (which has a traditional festive de-mand skew in India), but the same data when compared with Q1 of 2010 is actually showing an increase.Is this a good time to invest in? What does drop in overall transactions mean for individ-uals who are looking to buy now?For investors with a long-term view (at least 4-5 years), it is still a good time to invest. If at

all, then the corrections will be marginal only in some pockets of some markets. For commer-cial real estate, it is better since currently most markets are at a price point which are approxi-mately 30-40 percent lower than the peak rates of 2007. And Q4 of 2010 saw more than 11 million sq ft absorption in commercial against a quarterly average of 8 million sq ft over the last year.Is residential or commercial property a better option for an individual looking to cre-ate a future stream of income from real estate?For residential property, the re-turns will depend on the area, its current occupancy levels and development in that area. Residential gives capital appre-ciation which is usually more than in commercial property; however, the yields in com-mercial are superior. If one is looking for a long-term holding then rental returns in India are approximately 3 percent for residential and 6-7 percent for commercial real estate. Com-mercial has the downside of coming with a higher ticket, but lower capital appreciation. Hence one should ideally keep a balance, if possible, between both.

Tête-à-tête


June 2011 Query CornerConsolidate your holdings in one place for easy tracking

Q I have invested into a lot of mutual fund schemes over the past 5 years. I have been maintaining all these folios in physical format for all these years. But now I find it very difficult to track all these manually. Is there a way out to manage it more efficiently?

- Pradeep Kulkarni A Most of the investors carry the concern raised by you. Some investors have been using spreadsheets like MS Excel to maintain the folio details. There are also a lot of websites which provide access for you to update your portfolio with them without any fee. If you are an ICICIdirect.com customer, you can transfer all your physical mutual fund holdings into online by submitting an application, along with the required documents. And from there on, you can start tracking, redeeming, purchasing online. Q I started my career 2 years ago. My employer deducts tax from my salary every month and also provides me Form 16 at the end of the financial year. I was under the impression that this is sufficient. But one of my friends told me that I need to file my tax return also, apart from this. Is that so?

- Smita Nair A People starting their

career normally have this query. While it is the duty of an employer to deduct tax from the income paid to you, it is your duty to file your tax return every year. You can file tax return with the data provided by your employer in Form 16. From Assessment Year 2011-12, you need to file tax return if your annual taxable income is below ` 5 lakh; your Form 16 will suffice.

Q I own an independent house at Chennai. The current market value of my house (including land) is around ` 1.5 crore. I am planning to insure my house. How much should I ideally cover it for?

- Sharath Kumar A The structure of any house is always covered based on the reinstatement value, and not on the market value. Also, there is no cover provided for the land. Reinstatement value refers to the cost incurred to reconstruct the home if it is damaged. Sum insured is calculated by multiplying the built-up area of your home with the construction rate per sq. feet. For example, if the built-up area of your home is 1,000 sq. feet and the construction rate is ` 800 per sq. feet, the sum insured for your home structure is ` 8 lakh.


June 2011 FInAnCIAL PLAnnInGPlan early for your young child

nikhil Ketkar, aged 34, lives in Mumbai. He is a professional. He has a daughter nisha aged 5. nikhil had been managing his family’s finances and he wants to fine tune the same to incorporate his financial goals. He approached ICICIdirect through ICICIdirect Money Manager to create a financial plan that would help secure his family’s financial future.

Nikhil’s financial details:

Annual household income

` 20 lakh

Annual household expense

` 12.17 lakh

Expenses break up

Household expenses ` 1.8 lakhHoliday & entertainment expenses

` 70,000

Educational expenses ` 1 lakhVehicle maintenance expenses

` 25,000

Other expenses ` 50,000Home Loan EMI ` 6.36 lakhCar Loan EMI ` 1.56 lakh

Investment detailsNikhil annually invests ` 1.8 lakh in mutual funds in the form of Systematic Investment Plan (SIP). In addition to this, he makes an annual payment of ` 20,000 towards insurance premium for Term Plan.Asset details Total asset value of the Ketkar family is ` 16,375,000.

Real estate investment ` 1.5 croreEquity holding ` 4 lakhVehicle ` 3.75 lakhHome content value ` 1 lakhAlternate assets ` 3 lakhSaving bank account ` 2 lakh

Outstanding liabilities details Nikhil has two liabilities at present in the form of housing loan and car loan. His total out-standing liability is ` 46 lakh.

Home loan outstanding ` 45 lakhCar loan outstanding ` 1 lakh

Financial ratiossaving ratio: The savings ratio assesses the adequacy of your savings to meet your life goals and future requirements. It is advisable to save 20 percent of the income in order to be fi-nancially healthy. Nikhil is cur-rently saving at a healthy 39 percent. Liquidity ratio: This ratio as-sesses the ability to meet short-term cash requirements in the event of emergencies


June 2011 FInAnCIAL PLAnnInGand opportunities. Generally, the higher the value of the ra-tio, the larger is the margin of safety that an individual pos-sesses to cover short-term debts. It is advisable to main-tain liquidity of 15 percent. Debt ratio: This ratio evalu-ates debt burden and checks whether one still has a margin of safety or not. Debt repay-ment should not take more than 45 percent of one’s in-come. Family goalsNikhil has a few goals which he wants to fulfill in future. Nikhil wants to buy a second house and to ensure a better future to his family. He wants to provide the best education to his daughter, Ni-sha. He is planning to send her abroad for the same. Nikhil wants to improve his standard of living after his re-tirement. Let’s look at his financial goals.General goalsBuying a houseOne of Nikhil’s goals is to buy a house costing ` 80 lakh in 3 years. Nikhil will have to take a home loan to part-fund this purchase. However, he will also have to make a down payment of about 20 percent

which amounts to ` 16 lakh in present value. Factoring in any increase in the cost over the next 3 years, he will need ` 21 lakh for his downpayment. To accumulate this amount it advisable to invest ` 51,000 monthly or ` 5.9 lakh annually. This amount can be well sup-ported by the annual surplus. Child goal Nikhil is very focused towards his daughter’s future. He wants to plan her education at one of the best institutes.nisha’s educationNikhil estimates that he will need ` 50 lakh for Nisha’s edu-cation in today’s cost. He has planned these goals and has ` 1.5 lakh already invested that gives him an annual return of 15 percent.Nisha is currently 5 years old; her graduation will start at the age of 19. She will require ` 1.36 crore for her education after 14 years (assuming rise in cost of education and the future value of his current in-vestments). To save up for this goal, Nikhil should continue to invest ` 33,000 per month or ` 4.2 lakh per annum. Since the goal is long term he can consider equity as an invest-ment route and start an SIP in Mutual Funds.


June 2011

Retirement planningNikhil is conscious that he needs to plan now for his re-tirement at the age of 50. His current investment towards this is his Provident Fund con-tribution in which he has accu-mulated ̀ 3 lakh and an invest-ment of ` 4 lakh in equity. He has the advantage of time and must seriously start planning and making the right invest-ments towards his retirement. As a first step, he has outlined what expenses will increase and what will decrease post-retirement. Nikhil’s estimate of his annual expenses post-retirement in today’s cost is ` 4.75 lakh. If we factor in inflation, his an-nual expenses at the time of retirement (50 years) will rise to ` 14 lakh.To maintain his family’s de-sired lifestyle and fulfill his post-retirement requirements, Nikhil will need to build a cor-pus of ` 2.63 crore. To accumulate the corpus, Nikhil needs to invest ` 27,000 per month in addition to his current investments. Since the goal is long term he can consider equity as investment route and start an SIP in Mu-tual Funds. This will ensure a desired lifestyle for 30 years after his retirement.

Taking into account his cur-rent annual savings and esti-mated rise in income, he has sufficient surplus to plan for his goals. He should remain disciplined in his investments and regularly monitor the progress. Insurance and protectionNikhil has a term insurance policy of ` 40 lakh. Ideally, insurance cover should be seven to eight times of the an-nual income. Since Nikhil’s an-nual income is ` 20 lakh, the suggested insurance cover is ` 1.4 crore. Considering the dependent daughter whose education and other expense is his responsibility in addition to his existing liabilities, he should top-up his term cover by another ` 1 crore. Health insuranceNikhil has not taken a medical policy for himself and his fam-ily. But medical emergencies are unpredictable and consid-ering the rise in cost of medi-cal expenses, it is suggested that he should take a floater medical policy. Financial planning is not a one-time activity. He should continuously monitor his fi-nancial plan and check for the progress of his goals.

If you would like us to help you create a financial plan FREE of cost for your family, please register on www.icicidirect.com or email your request to [email protected]

FInAnCIAL PLAnnInG


June 2011 KnOWLEDGE BAsEstrong trading tool: Moving averages

Continuing from where we left in the May 2011 edition of ICICIdirect Money Manager, let’s look at another trading tool which is again used by a sizable number of traders on a day to day basis. Let us re-member one thing explicitly; larger the following of the indi-cator greater is the impact by that indicator and vice versa. Moving averages enjoy a de-cent share of following from the trader community thus making it quite a strong in-dicator to bank upon. Let us look at the moving averages in detail and try and understand how we can benefit out of it in terms of trading better.Moving averagesMA (Moving average) is the mathematical result which is calculated by averaging a number of past data points. When we say past, it means we use historical numbers and use them to form the moving averages and finally use the moving averages to predict the follow-up movement in the price. Common types of moving averagesA few commonly used moving averages by the market partic-ipants are as follows:

20 DMA / 20 sMA (20 days moving average or 20 days simple moving average)• It is a simple average of

the daily closing prices of a stock/index for the past 20 days (Days here are the working days for the ex-change)


the daily closing prices of a stock/index for the past 50 days

100 DMA / 100 sMA (100 days moving average or 100 days simple moving average)

Hitesh Sidhwani, BE, MBA, has more than 10 years of rich experience in stock mar-kets and over the years has mastered the art of scientifically tracking markets. Hitesh has entrepreneurial interests in IT & Soft-ware and also passion for teaching. He is associated with ICICIdirect Institute as an expert faculty.

About the author:


June 2011 KnOWLEDGE BAsE• It is a simple average of




A few points to consider when looking at the moving aver-ages1. Moving averages act as

support and resistance points for the stock/in-dex price movement. For instance, if the price cur-rently is trading above the 20DMA then 20DMA will act as the support for the prices and will not let the prices to fall below 20DMA easily.

2. If let us say 20DMA is broken on the down side then 50DMA will act as the next support, breaching it on the lower side will let the market take support at 100DMA and then at 200DMA.

3. Also, a very important point to consider is that once the support is broken then it starts acting as a resist-ance and vice versa. For in-

stance, if the market price falls below the 20DMA and after the fall the mar-kets gather momentum to rise then the same 20DMA which was supporting the market from not falling will act as the resistance and will not let the market to cross itself so easily.

4. A very strong perception in the market, more the number of days to calcu-late the moving average, stronger is the support/re-sistance. For instance, 200 DMA/SMA is stronger sup-port/resistance as com-pared to 100DMA/SMA, 50DMA/SMA & 20DMA/SMA and vice versa.

5. The short term traders fo-cus a lot on 2 moving av-erages which are 20DMA/SMA and 50DMA/SMA.

6. Also, remember the rule, more the following by mar-ket participants for a par-ticular indicator stronger is the visible impact of that indicator.

Let us try and understand the above points with an illustra-tion.Below is the chart for Nifty and it has been respecting the 20DMA average decently, let’s dig deeper.


June 2011 KnOWLEDGE BAsE

The smooth line on the chart is the 20DMA line and the rough line (with lot of ups and downs) is the Nifty movement line and the bars are the vol-ume indicators.Observe the downwards point-ing arrow to the extreme left of the chart; this was the time when the Nifty prices crossed the 20DMA line from above and sunk below, the moment the cross happens it is a bear-ish signal.If you observe the Circles marked ‘R’, where the points were the 20DMA resisted the Nifty from going further up and the moment there was a touch to this line the mar-ket fell. You would appreciate that the moment the 20DMA is breached from above, it is acting as resistance going for-ward and continues to do so for a considerable time.Strategy here should have been to ‘Sell on Rises’, means the moment prices are ap-

proaching 20DMA, sell the stock/index and wait for it to fall and buy back lower. Thus following the principle of buy-ing when low and selling when high (irrespective of buying first or selling first).Going further, if we see that the moment the prices cross the 20DMA from below (at the up-ward pointing arrow) and rises then it is a bullish signal. After this crossover the 20DMA acts as a support line. This is con-firmed with the circles marked with ‘S’.Nifty took support at four in-stances exactly on the 20DMA line. So here the strategy should have been to ‘Buy on dips’, means the moment the prices are approaching 20DMA, go long on stock/index and wait for the rise to exit.A 200DMA is considered to be a very strong support or resist-ance.Moving average crossoversWhen the moving averages cross each other they assign a meaning to the market move-ment. Moving average crosso-vers are considered as good entry and exit points into the trade.A few points to consider be-fore we touch upon the illus-tration:


June 2011

1. Whenever a lower DMA crosses the higher DMA from above it is a bearish signal, usually after the crossover there is an ag-gressive down move.

2. Whenever a lower DMA crosses the higher DMA from below it is bullish sig-nal, usually after the cross-over there is an aggressive up move.

Let us look at an illustra-tion:

The chart we saw above we use the same chart but here we are considering 20 as well as 50DMA for un-derstanding crossovers.

If we observe in the chart moment 20DMA is Cross-ing 50DMA from above there is aggressive fall in the market, this aggressive fall could be utilized to go short and earn a few quick bucks, so 20DMA crossing 50DMA is a signal to enter a short position.

Also, if we observe 20DMA crossing 50DMA from be-low there is an aggressive rise in the market, this ag-

gressive rise could be uti-lized to go long and earn some quick money, so 20DMA crossing 50DMA from below is a signal to enter a long position.

Hence we can safely as-sume that trading with the help of moving averages delivers few nice opportu-nities to trade and moreo-ver they also give a fair understanding of the mar-ket movement most of the times.

Above all, few words of caution:

Successful trading re-quires a lot of other param-eters which are to be fol-lowed apart from Moving Averages; this is just the beginning, keep following this space for more inputs on successful trading.

Till then, happy trading.

Disclaimer:The views expressed in this article by the author(s) are theirs alone, and do not necessarily reflect the views of I-Sec or any employee thereof. I-Sec makes no representations as to accuracy, completeness, currentness, suitability, or va-lidity of any information contained therein and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising therefrom.

KnOWLEDGE BAsE


June 2011 InVEsTInG TIPsPower of compounding

When the earnings from an asset are reinvested in order to generate their own earnings, we say compounding has taken place. In other words, compounding refers to generating earnings from previous earnings.

The power of compounding was said to be deemed the eighth wonder of the world - or so the story goes - by Albert Einstein.Let’s learn this with a simple example. Consider, you have `100 and you invest it @10 percent.

Time Principal (`)

Interest (`)

Total amount (`)

After 1 year 100.00 10.00 110.00After 2 years 110.00 11.00 121.00After 3 years 121.00 12.10 133.10After 4 years 133.10 13.31 146.41After 5 years 146.41 14.64 161.05Total Compound Interest earned 61.05

Had you invested the same amount at a simple interest of 10 percent for 5 years, you would get only `50 as interest. The difference is because compounding reinvests the amount earned in order to generate more earnings which is otherwise ignored.

One can benefit more from the power of compounding by starting early and staying invested for a long duration of time. The more time you stay invested and leave the corpus to grow, the more will be the compounding effect.

Early start leads to a secure future

There are two individuals A and B.

Both want to retire at 55. Now A who is 30 years old starts investing ̀ 3,000 per month at 12 percent whereas B waits for a few years and starts at the age of 35. He invests a higher amount of ` 5,000 per month at the same rate of return.

You can see from the table below the difference in the corpus they accumulate at 55. In spite of investing a higher amount, B ends up accumulating a lesser corpus in comparison to A. This is because of an early start and the power of compounding.

A BCurrent age (years) 30 35Retirement age (years) 55 55Monthly investment (`) 3,000 5,000Rate of return (%) 12 12Corpus accumulated (`) 5,106,620 4,599,287


June 2011 FUnD CARD

HDFC Prudence FundFund ObjectiveAims to provide periodic returns and capital appreciation over a long period of time, from a judicious mix of equity and debt investments, with the aim to prevent/minimise any capi-tal erosion.Key Information

nAV as on June 01, 2011 214.3

Inception Date February 1, 1994Fund Manager Prashant JainMinimum InvestmentLumpsum 5,000.0 SIP 0.0Expense Ratio (%) 1.8Exit Load (%) 1.0AUM (` Crore) as on April 30, 2011

6,125.0

Benchmark Crisil Balance Fund Index

Calendar year-wise Performance2010 2009 2008 2007 2006

NAV as Dec 31 (`)

220.1 174.3 94.3 162.9 113.8

Return (%)

26.3 84.8 -42.1 43.2 33.3

Bench-mark (%)

13.6 48.7 -34.4 36.8 25.2

Net As-sets (` Cr)

5964.6 3418.3 1929.9 3511.8 2207.0

Best Return (%)Period Fund Benchmark

Month 28/04/09 to 28/05/09

28.3 18.0

Quarter 10/03/09 to 10/06/09

70.7 48.9

year 11/03/09 to 11/03/10

122.7 60.9

Worst Return(%)

Period Fund BenchmarkMonth 27/09/08 to

27/10/08-25.8 -25.1

Quarter 02/09/08 to 02/12/08

-31.2 -27.6

year 20/11/07 to 20/11/08

-44.9 -39.2

Market Cycle Returns

Market Phase Period Returns (%)

Bull Phase 14/01/2006-08/01/2008

89.7

Bear Phase 08/01/2008-09/03/2009

-50.7

Bull Phase 09/03/2009-06/01/2010

118.8

Dividend History

Date Dividend (%)

Mar-18-2011 35.00

Mar-19-2010 35.00Mar-20-2009 25.00

Feb-22-2008 50.00

Feb-22-2007 50.00Mar-04-2006 50.00

Risk Parameters

Standard Deviation (%) 12.8

Beta 0.9

Sharpe ratio 0.1

R Squared 0.9

Alpha (%) 11.1


June 2011 FUnD CARDPortfolio Attributes

Total Stocks 112.0

Top 10 Holdings (%) 38.0

Fund P/E Ratio 13.7

Benchmark P/E Ratio

Fund P/BV Ratio 2.5

Market Capitalisation %Large 51.3

Mid 20.1

Small 9.3

Asset Allocation as on May 2011

%

Equity 72.9Debt 20.3Cash 6.8

Top 10 Holdings %Net Current Asset 5.0

State Bank of India 4.4

ICICI Bank 4.0

Infosys Technologies 3.8

Top 10 Holdings %

Tata Consultancy Services 3.7

Bank Of Baroda 3.0

Coal India 2.9

Titan Industries 2.9

ONGC 2.2

Page Industries 2.1

Top 10 sectors %

Bank - Public 8.5

IT - Software 7.8

Bank - Private 6.0

Pharmaceuticals & Drugs 5.4

Refineries 4.2

Oil Exploration 3.4

Textile 3.1

Mining & Minerals 2.9

Watches & Accessories 2.9

Chemicals 2.0

-3.2

14.6 18

.6

19.2

-3.5

9.5

6.3

11.6

-5

0

5

10

15

20

25

6 Month 1 Year 3 Year 5 Year

Ret

urn

%

Fund Benchmark

Performance vs. Benchmark sIP Performance(Value if invested ` 5,000 per month (in ‘000))

60 180 30

0 600

60.6 26

5.4

479.

8

2406

.4

55.8 21

4.9

379.

2

1076

.1

0

500

1000

1500

2000

2500

3000

1Yrs 3Yrs 5Yrs 10Yrs

Total Investment Fund Value Bechmark Value

Data as on June 01, 2011Content source: ICICIdirect.com Research


June 2011 FUnD CARD

Birla sun Life ‘95 FundFund ObjectiveThe fund seeks to achieve long-term capital appreciation and current in-come from a balanced portfolio with a target allocation of 60% equity, 40% debt and money market securities.Key Information

nAV as on June 01, 2011 310.7

Inception Date March 28, 1995Fund Manager Satyabrata

MohantyMinimum InvestmentLumpsum 5,000.0 SIP 0.0Expense Ratio (%) 2.3Exit Load (%) 1.0AUM (` Crore) as on March 31, 2011

391.7

Benchmark Crisil Balanced Fund Index


NAV as Dec 31 (`)

322.5 269.5 158.3 265.2 174.0

Return (%)

19.7 70.2 -40.3 52.4 28.5

Bench-mark (%)

13.6 48.7 -34.4 36.8 25.2

Net As-sets (` Cr)

377.4 241.5 119.6 204.6 129.6


Month 04/12/99 to 04/01/00

33.4

Quarter 21/11/99 to 21/02/00

80.3

year 11/03/09 to 11/03/10

218.8

Worst Return(%)


06/04/00-24.9

Quarter 26/02/00 to 26/05/00

-34.7

year 12/04/00 to 12/04/01

-45.0



Bull Phase 14/01/2006-08/01/2008

99.7

Bear Phase 08/01/2008-09/03/2009

-48.6

Bull Phase 09/03/2009-06/01/2010

95.2

Dividend History

Date Dividend (%)

May-02-2011 65.00

Oct-18-2010 75.00Mar-15-2010 70.00

Oct-15-2009 70.00

Jun-02-2008 50.00Mar-13-2006 25.00

Risk Parameters


Beta 0.9

Sharpe ratio 0.1

R Squared 0.9

Alpha (%) 7.1



Total Stocks 66.0


Fund P/E Ratio 14.6

Benchmark P/E Ratio

Fund P/BV Ratio 2.6


Mid 13.3

Small 2.7


%


Top 10 Holdings %LIC Housing Finance Ltd. - Debentures

9.3

IDBI Bank - Certificate of Deposit

5.8

07.83% GOI 2018 4.8

ICICI Bank - Certificate of Deposit

4.7

Top 10 Holdings %

Tata Consultancy Services 4.0

S&P CNX Nifty - Futures 3.6

Vijaya Bank - Certificate of Deposit

3.5

Reliance Industries 3.0

ICICI Bank 2.7

Rallis India 2.5

Top 10 sectors %

Bank - Private 9.1


Refineries 4.6

Bank - Public 4.4

IT - Software 4.0

Index 3.6

Oil Exploration 3.0

Electric Equipment 2.9

Pesticides & Agrochemicals 2.5

Diesel Engines 2.3


Data as on June 01, 2011 Content source: ICICIdirect.com Research

-3.4

12.6

13.7 16

.1

-3.5

9.5

6.3

11.6

-5

0

5

10

15

20


Ret

urn

%

Fund Benchmark 60

180 30

0

600

60

243.

5 439.

4

1874

.2

55.8 21

4.9

379.

2

1076

.1

0

200

400

600

800

1000

1200

1400

1600

1800

2000




June 2011

DsP Black Rock Balanced FundFund ObjectiveTo generate long term capital appre-ciation and current income from a portfolio constituting equity and eq-uity-related securities as well as fixed income securities.Key Information

nAV as on June 01, 2011 66.3

Inception Date May 31, 1999

Fund Manager Appoorva Shah

Minimum InvestmentLumpsum 5,000.0

SIP 0.0

Expense Ratio (%) 2.1

Exit Load (%) 1.0

AUM (` Crore) as on April 30, 2011

754.1



NAV as Dec 31 (`)

68.9 59.6 36.1 58.2 38.5

Return (%)

15.7 65.0 -38.0 51.3 32.7

Bench-mark (%)

13.6 48.7 -34.4 36.8 25.2

Net As-sets (` Cr)

799.8 680.1 422.9 566.5 408.0


Month 02/05/09 to 02/06/09

24.9 18.8

Quarter 10/03/09 to 10/06/09

47.6 48.9

year 23/04/03 to 23/04/04

89.6 62.0

Worst Return(%)


14/06/06-22.0 -17.4

Quarter 22/02/00 to 22/05/00

-30.7 NA

year 07/01/08 to 07/01/09

-39.9 -36.2



Bull Phase 14/01/2006-08/01/2008

97.1

Bear Phase 08/01/2008-09/03/2009

-43.0

Bull Phase 09/03/2009-06/01/2010

81.1

Dividend History

Date Dividend (%)Mar-14-2011 20.00

Mar-08-2010 30.00

Dec-15-2008 15.00

Sep-24-2007 60.00

Aug-23-2006 40.00

Dec-16-2004 25.00

Risk Parameters


Beta 0.9Sharpe ratio 0.1R Squared 0.9

Alpha (%) 4.3

FUnD CARD



Total Stocks 97.0


Fund P/E Ratio 14.1

Benchmark P/E Ratio

Fund P/BV Ratio 2.2


Mid 25.4

Small 5.1


%


Top 10 Holdings %Tata Consultancy Services 3.8

Tata Motors Finance - Bonds/NCDs

3.3

LIC Housing Finance - Floating Rate notes

3.3

Housing Development Finance Corporation

3.3

Top 10 Holdings %ICICI Bank 3.0

Axis Bank - Floating Rate notes

2.6

Hindustan Petroleum Corpo-ration - Bond/NCDs

2.6

HDFC Bank 2.4

Cairn India 2.3

ONGC 2.2

Top 10 sectors %

IT - Software 6.7

Bank - Private 6.3

Oil Exploration 4.5


Finance - Housing 3.3

Electric Equipment 3.2

Bank - Public 2.8

Refineries 2.7

Mining & Minerals 2.4

Engineering - Construction 2.2



-2.

8

11 10.6

16.2

-3.

5

9.5

6.3

11.6

-5

0

5

10

15

20


Ret

urn

%

Fund Benchmark

60

180 30

0

600

60

232.

5 423.

3

1844

. 2

55.8 21

4.9 37

9.2

1076

.1

0

200

400

600

800

1000

1200

1400

1600

1800

2000




June 2011 FUnD CARD

ICICI Prudential Balanced FundFund ObjectiveThe primary investment objective of the scheme is to seek to generate long-term capital appreciation and current income from a a portfolio that is invested in equity and equity-related securities as well as in fixed income securities. However, there can be no assurance that the invest-ment objective of the scheme will be realized.Key Information

nAV as on June 01, 2011 46.5

Inception Date November 3, 2008Fund Manager Prashant KothariMinimum InvestmentLumpsum 5,000.0 SIP 1,000.0Expense Ratio (%) 2.3Exit Load (%) 1.0AUM (` Crore) as on March 31, 2011

264.0


Calendar year-wise Performance

2010 2009 2008 2007 2006NAV as Dec 31 (`)

47.5 40.1 26.6 47.3 34.6

Return (%)

18.6 50.7 -43.8 36.6 29.4

Bench-mark (%)

13.6 48.7 -34.4 36.8 25.2

Net Assets (` Cr)

274.2 262.8 224.1 469.4 495.4


Month 04/12/99 to 04/01/00

30.9

Quarter 21/11/99 to 21/02/00

62.4

year 23/04/03 to 23/04/04

79.6 62.0

Worst Return(%)


25/04/00-34.6

Quarter 22/02/00 to 22/05/00

-43.2

year 03/12/07 to 03/12/08

-46.9 -38.0



Bull Phase 14/01/2006-08/01/2008

72.7

Bear Phase 08/01/2008-09/03/2009

-49.3

Bull Phase 09/03/2009-06/01/2010

68.0

Dividend History

Date Dividend (%)

Aug-27-2010 5.00Dec-24-2009 6.00Jun-29-2009 6.00Oct-13-2008 8.40Mar-24-2008 10.00Sep-17-2007 10.00

Risk Parameters

Standard Deviation (%) 12.0Beta 0.9Sharpe ratio 0.1R Squared 1.0Alpha (%) 3.0



Total Stocks 41.0


Fund P/E Ratio 7.9

Benchmark P/E Ratio

Fund P/BV Ratio 2.0


Mid 23.3

Small 9.9


%


Top 10 Holdings %Corporation Bank 5.2

Bank of India 5.2

Cash & Cash Equivalent 5.1

Punjab National Bank 4.6

Top 10 Holdings %Tata Consultancy Services 3.7

Sundaram Finance 3.6

Reliance Capital 3.6

Reliance Industries 3.5

Oil & Natural Gas Corpn. 3.5

Torrent Pharmaceuticals 3.2

Top 10 sectors %

Bank - Public 10.1

IT - Software 7.3

Bank - Private 6.4


Oil Exploration 5.3

Cigarettes/Tobacco 3.8

Refineries 3.5

Tyres & Allied 2.9

Automobile Two & Three Wheelers

2.7

Telecommunication - Service Provider

2.7



-1.4

14.8

7.3 10

.1

-3.

5

9.5

6.3

11.6

-5

0

5

10

15

20


Ret

urn%

Fund Benchmark

60

180 30

0

600

61.3 23

1.9 38

7

1462

.2

55.8 21

4.9 37

9.2

1076

.1

0

200

400

600

800

1000

1200

1400

1600




June 2011 MODEL PORTFOLIO

MODEL EQUITy PORTFOLIO

COnsERVATIVE PORTFOLIO

Portfolio management is an incomplete exercise without a periodic review. Every security should be subject to severe scrutiny and a case made out for its continuation or disposal. The frequency of review will depend on the size, amount involved and the kind of securities held in the portfolio.Here, we present three model portfolios viz. conservative portfolio, moderate portfolio and the aggressive portfolio. These portfolios have been designed keeping in mind various key parameters like the time horizon of investment, returns expected, the indices to which they are benchmarked, etc. We have included the intervals at which the performance of each portfolio will be reviewed.

Conservative Moderate AggressiveTime horizon 18-24 months 12-18 months 9-12 monthsExpected return 20% 20%-30% >30%Benchmark BSE Sensex/BSE 100 BSE 500 BSE 500

Review intervals Quarterly Quarterly MonthlyRisk return Low risk-Low return Medium risk-

Medium returnHigh risk - High return

Portfolio Philosophy: The conservative portfolio is in the nature of direct equity. The ideal investment horizon is 18-24 months. The universe for selection of stocks is the BSE Sensex/Nifty and BSE 100 / BSE 500. The minimum number of sectors is five with the maximum exposure to each sector capped at 25 percent. The portfolio will include 12-15 stocks. The performance review for this portfolio will be done on a quarterly basis.Conservative PortfolioCompany name ICICIdirect

codesAllocation (%)

Financials 16Axis Bank UTIBAN 3HDFC Bank HDFBAN 3SBI STABAN 4Bank of Baroda BANBAR 3Indian Overseas Bank INDOVE 3


June 2011 MODEL PORTFOLIOCompany name ICICIdirect

codesAllocation (%)

Engineering & Capital Goods 6

BHEL BHEL 3L&T LARTOU 3Pharma 13Biocon BIOCON 3Glenmark GLEPHA 3Lupin LUPIN 4Apollo Hospitals APOHOS 3IT 11HCL Technology HCLTEC 4Infosys INFTEC 3TCS TCS 4FMCG 6ITC ITC 3Nestle NESIND 3Oil & Gas and Petro Products 9ONGC ONGC 3GAIL GAIL 3Reliance Industries RELIND 3Cement/Construction/Infra 6ACC ACC 3Jaiprakash Associates JAIASS 3Media 3Dish TV DISHTV 3Auto 9Maruti MARUTI 4Tata Motors TELCO 3Exide EXIIND 2Metals 6

Coal India COALIN 3Hindustan Zinc HINZIN 3Cash 15Grand Total 100



MODERATE PORTFOLIOPortfolio Philosophy: The moderate portfolio is in the nature of direct equity. The ideal investment horizon is 12-15 months. The universe for selection of stocks is the BSE 500. The minimum number of sectors is five with the maximum exposure to each sector capped at 15 percent. The portfolio will include 12-15 stocks and has certain allocation to cash as well. The performance review for this portfolio will be done on a quarterly basis.

Company name ICICIdirect codes

Allocation (%)

Financials 16

Axis Bank UTIBAN 3

HDFC Bank HDFBAN 3

SBI STABAN 4

Bank of Baroda BANBAR 3

Indian Overseas Bank INDOVE 3

Engineering & Capital Goods 6

BHEL BHEL 3

L&T LARTOU 3

Pharma 12

Biocon BIOCON 3

Glenmark GLEPHA 3

Lupin LUPIN 4

Apollo Hospitals APOHOS 2

IT 11

HCL Technology HCLTEC 4

Infosys INFTEC 3

TCS TCS 4


June 2011 MODEL PORTFOLIOCompany name ICICIdirect

codesAllocation (%)

FMCG 6

ITC ITC 3

Nestle NESIND 3

Oil & Gas and Petro Products 9

ONGC ONGC 3

GAIL GAIL 3

Reliance Industries RELIND 3

Cement/Construction/Infra 3

Jaiprakash Associates JAIASS 3

Media 3

Dish TV DISHTV 3

Auto 10

Maruti MARUTI 3

M&M MAHMAH 2

Tata Motors TELCO 3

Exide EXIIND 2

Metals 6

Coal India COALIN 3

Hindustan Zinc HINZIN 3

Others 3

Shree Renuka Sugar RENSUG 3

Cash 15

Grand Total 100



Portfolio Philosophy: The agressive portfolio is in the nature of direct equity. The ideal investment horizon is 9-12 months. The universe for selection of stocks is the BSE 500. The minimum number of sectors is five with the maximum exposure to each sector capped at 15 percent. The portfolio will include 12-15 stocks and has certain allocation to cash as well. The performance review for this portfolio will be done on a monthly basis.Company name ICICIdirect

codeAllocation

Financials 15

Axis Bank UTIBAN 3

HDFC Bank HDFBAN 3

SBI STABAN 3

Bank of Baroda BANBAR 3

Indian Overseas Bank INDOVE 3

Engineering & Capital Goods 6BHEL BHEL 3

L&T LARTOU 3

Pharma 12Aurbindo Pharma AURPHA 3

Glenmark GLEPHA 3

Lupin LUPIN 4

Apollo Hospitals APOHOS 2IT 11

HCL Technology HCLTEC 4

Infosys INFTEC 3

TCS TCS 4

FMCG 6

ITC ITC 3

Nestle NESIND 3

AGGREssIVE PORTFOLIO


June 2011

Company name ICICIdirect code

Allocation

Oil & Gas and Petro Products 9

ONGC ONGC 3

GAIL GAIL 3

Reliance Industries RELIND 3

Media 3

Dish TV DISHTV 3

Auto 10

Maruti MARUTI 3

M&M MAHMAH 2

Tata Motors TELCO 3

Exide EXIIND 2

Metals 6

Coal India COALIN 3

Hindustan Zinc HINZIN 3

Others 5

Shree Renuka Sugar RENSUG 3

Indian Hotels INDHOT 2

Cash 17

Grand Total 100

source: ICICIdirect.com Research

MODEL PORTFOLIO

note: There is no change in the portfolios since its last update and so there are no stocks in the What’s in/ What’s out section.


June 2011 QUIZ TIME

Ask & Tell1. The Supreme Court of India consists of a Chief Justice and

_______ number of Judges.

2. A Finance Commission is constituted every ______ years.

3. Where is the permanent Secretariat of the South Asian Association for Regional Co operation (SAARC) located?

4. The highest denomination in which currency notes are issued at present in India?

5. According to provisional figures of the 2011 Census report, what is the overall literacy rate of India?

you may send in your answers to the quiz at:[email protected]

The answers will be published in the next edition of ICICIdirect Money Manager. The names of the earliest all-correct entries will be published too. So put on your thinking caps and be quick to send in your entries. Watch this space for more…

Answers for April 2011 quiz:

1. Budget

2. NSDL (National Securities Depository Limited) and CSDL (Central Securities Depository Limited)

3. Dividend

4. 9% payable quarterly

5. Vatican City

Congratulations to the winner of the May 2011 quiz Anil Agarwal

nisha srikanthRitesh Rajput


June 2011 CUsTOMER sOLUTIOnDownload & Read ICICIdirect Money Manager

You now have the option to download ICICIdirect Money Manager onto your computer and save it.

On the ICICIdirect Money Manager e-magazine link, you will find the ‘Download’ button on the Menu panel. Click on the ‘Download’ button.

A new window pops up which will guide you in downloading. You have the convenience to select and download individual pages or download the complete magazine at one go.You need to specify the location to save the files. The pages/magazine will be downloaded as zip files which can be easily extracted. Once extracted, the PDF files of the pages/magazine will be saved to the specified directory.You can then read them at your leisure or print them if you so desire.


June 2011 GLOssARyAlpha It is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted per-formance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha.Beta It is a measure of the volatility, or sys-tematic risk, of a security or a portfo-lio in comparison to the market as a whole. A beta of 1 indicates that the security’s price will move with the market. A beta of less than 1 means that the security will have lesser vola-tility than the market.sharpe ratio A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free from the rate of return for a portfolio and dividing the result by the standard deviation of the portfo-lio returns. The Sharpe ratio tells us whether a portfolio’s returns are due to smart investment decisions or a result of excess risk. The greater a portfolio’s Sharpe ratio, the better its risk-adjusted performance has been.standard deviation It is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is ap-plied to the annual rate of return of an investment to measure the invest-ment’s volatility. Higher the standard deviation, higher is the volatility.R-squared It is a statistical measure that repre-

sents the percentage of a fund or security’s movements that can be explained by movements in a bench-mark index. R-squared values range from 0 to 100. A high R-squared (be-tween 85 and 100) indicates the fund’s performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn’t act much like the index.

Price-Earnings (P/E) ratio

It is a valuation ratio of a company’s current share price compared to its per-share earnings. A high P/E sug-gests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. It would not be useful for inves-tors using the P/E ratio as a basis for their investment to compare the P/E of a technology company to a utility company as each industry has much different growth prospects.

Price-to-Book Value (P/BV) ratio

It is a ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the lat-est quarter’s book value per share. A lower P/BV ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the com-pany.

Open Interest

It is the total number of options and/or futures contracts that are not closed or delivered on a particular day. It can also be the number of buy market or-ders before the stock market opens.

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