Monthly Issue1

8/10/2019 Monthly Issue1

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MD Desk

Anup BagchiMD & CEO

ICICI Securities Ltd.

To get the best out of your

investments, invest savingsregularly. A disciplined approach

to investments makes the

process emotions-free and helps

the overall portfolio to gain from

what is called as Rupee Cost

Averaging.

However, it is not always possible

to stagger investments. The

business income, a bonus payout,

maturity of a policy, or even an

inheritance are examples of lump

sum payouts. Taking a decision

to invest such payouts is morecomplex.

Investing a lump sum payout

should not be a hasty decision. It

is very easy to fall in for an investment option that comes first

to you. Instead, we recommend you to take a detailed look at

your current financial situation and determine how you may use

these funds to your financial advantage. Though each one of

us has a unique financial situation, here are some fundamental

steps that could be helpful.

First, review the loans and interest rates you are paying on them.

Prioritize debt payments with the highest interest rates first,

such as credit card outstanding and personal loans. Depending

on the amount of lump sum received, you may also want toreduce your car loan or home loan.

Next, review your insurance coverage, both life and health.

Majority of us are still either un-insured or have inadequate

amounts of insurance. As per Lloyds report, India is the second


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ICICIdirect Money Manager 1 April 2014

most under-insured market in the world. Your lump-sum funds can be

used to build coverage or to enhance any coverage you may already

have, a decision that is usually postponed.

Third, it is advisable to evaluate your basic solvency ratio or simply put

your emergency fund. This ratio indicates ones ability to meet monthly

expenses in case of any emergency. A sum - equal to three to six times

of monthly expenses, depending on the certainty of your income, can

be set aside into higher return giving instruments like liquid funds.

The next step would be to create an investing plan. Take a stock of

your investments and determine whether your investment run rate is

keeping pace with your requirements. If not, you may use your lump-

sum amounts to bridge your required run rate. It is important to make

investments that fit your overall asset allocation. The asset allocation

depends on ones risk profile, time horizon and return expectations. For

example, if you want to save for a long-term goal such as retirement,

you need to allocate higher portion of your capital into equity for growth.Whereas, a portfolio heavily weighted towards equity, for instance,

would be inappropriate for a short-term goal. Therefore, it is crucial to

link your investments to your overall asset allocation and goals.

Once you have these elements in place you should have an investment

strategy to run with. And there is no better strategy than to systematically

start channeling your money, i.e. through systematic transfer plans(STPs). This is a good way to stagger the left over corpus.

Last but not the least, dont forget to re-invest some of the money in

yourself - enhance your capabilities to strengthen such revenue streams

in the future.

Our message remains the same - Keep investing and stay invested

for your life goals. Through this magazine and our website www.icicidirect.com we want to make an earnest attempt to partner with you

in setting and achieving your financial goals. Give us an opportunity to

serve you, walk into any of your Neighbourhood Financial Superstore

and talk to us.


4/64

ICICIdirect Money Manager April 20142

EDITORIAL

Editor & Publisher : Abhishake Mathur, CFA

Coordinating Editor : Yogita Khatri

Editorial Board : Sameer Chavan, CWM, Pankaj Pandey

Editorial Team : Azeem Ahmad, Nithyakumar VP, Nitin Kunte, Sachin Jain, Shaboo Razdan,Sheetal Ashar

Many of us set aside a certain portion of our income on a

regular basis to meet specific financial goals. For instance,

we may participate in employees' provident fund (EPF)

account to plan our retirement, or contribute in mutual fundsand other such instruments for our children's education.

Of course, investment surpluses are not always generated

on a monthly basis. A bonus payout, maturity of a policy,

a sale of an asset, etc. can create situations with lump sum

payouts and can present unique challenges in terms of

deciding on how to invest them.

With proper planning process and a clear road-map, we can

efficiently manage it and put ourselves and our family on a

stronger financial footing. Our cover story of this edition

takes you through that process and steps involved. All in

all, the key point is to accommodate such payouts in our

overall financial plan and invest accordingly. To achieve

an optimal risk-return trade-off, it is important to adopt

fundamental investment strategies like asset allocation and

diversification.

The edition also features an interview with Sunil Singhania,

CIO - Equity Investments, Reliance Mutual Fund, who shares

his views on the economy, markets, and how you may

invest in the current scenario. We also offer comprehensiveinformation and analysis on mid-cap equity funds, which

present good investment opportunity with high growth

potential.

So read on, stay updated and involved. We welcome you

to write to us at [email protected] with

your feedback or any queries on personal finance.


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Important: All the contents ofICICIdirect Money Managerare the exclusiveproperty of ICICI Securities Ltd. No article, either in whole or in part, maybe published circulated or distributed through any medium without theexpress consent of ICICI Securities Ltd.

Join us on Facebook at http://www.facebook.com/icicidirect

CONTENTS

MD Desk ......................................................................................................... 01

Editorial .......................................................................................................... 02

Contents ......................................................................................................... 03

News ............................................................................................................... 04

Markets Round-up & Outlook ....................................................................... 05

Getting Technical with Dharmesh Shah ...................................................... 08

Derivatives Strategy by Amit Gupta ............................................................ 10

Stock Ideas: Coal India and MRPL ................................................................ 14

Flavour of the Month: Investing a Lump Sum

Have received a bonus at work, an inheritance, or a financial surprise of

some kind? Here we discuss a few options to help you make the most of

your lump sum payouts .................................................................................. 20

Tte--tte

Interview with Sunil Singhania, CIO - Equity Investments, Reliance Mutual

Fund, who shares his views on the economy, markets, and how you may

invest in the current scenario ......................................................................... 28Ask Our Planner

Your personal finance queries answered ....................................................... 34

Your Financial Health Check

Here we analyze Mumbai-based young individual's finances and suggest a

suitable way forward ....................................................................................... 38

Primer: Understanding Monetary Policy ...................................................... 41Mutual Fund Analysis: Category Mid-cap Equity Funds .......................... 43

Equity Model Portfolio .................................................................................. 50

Mutual Funds Model Portfolio ...................................................................... 53

Quiz Time ....................................................................................................... 55

Monthly Trends .............................................................................................. 56

Premium Education Programmes Schedule ................................................. 59


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NEWS

EPFO to allot permanent a/c number by Oct 2014Retirement fund body EPFO will provide permanent or universal accountnumbers (UAN) on the pattern of core banking services to its over 50 million

active subscribers by October 15 this year. Under core banking services, acustomer can avail the bank services in any of its branch through his allottedunique account number. The UAN will facilitate subscribers in avoiding filing ofPF transfer claims on changing jobs. "UAN will be allotted to the present activemembers by October 15, 2014 and thereafter the coverage of other memberswill be taken up," the EPFOs action plan for this fiscal stated.

Courtesy: Business Standard

IRDA forms working group for simple products in general insuranceThe Insurance Regulatory and Development Authority (IRDA) has formed aworking group to review 'File & Use' (F&U) guidelines to ensure availability ofsimple products in the general insurance category. "It is felt by the Authoritythat a review of extant guidelines has to be undertaken to ensure that productsare designed, marketed, sold and serviced ensuring that a viable, simple anduseful product is available to consumers and is sustainable for insurers," saysa circular issued by IRDA. The working group is expected to submit its reportto Member (Non-Life) in three months.

Courtesy: The Economic Times

Come July, all insurers may offer digitised insurance policiesAll life insurance companies may be required to offer insurance policies ina digitised format from July onwards. In a recent meeting with the sectorrepresentatives, sources said The Insurance Regulatory and DevelopmentAuthority (IRDA) had asked companies to tie up with all insurance repositories.S V Ramanan, CEO of CAMS Repository Service (CAMSRep), said 1,10,000policies had been digitised but many customers were not aware of thisprocess. He explained that apart from top bank-promoted private life insurers,other companies have not been active in this space. CAMSRep has digitised70,000 policies across 380 locations, he said.

Courtesy: Business Standard

PFRDA selects 8 companies to manage pension funds of private sectorThe Pension Fund Regulatory and Development Authority (PFRDA) is believedto have selected eight companies for managing pension funds of non-

government employees. "Eight fund managers including LIC Pension Fund,SBI Pension Fund, UTI Retirement, Reliance Capital Pension Fund have beenselected by PFRDA for managing the funds of private sector NPS," a sourcesaid. The other fund managers selected include DSP Blackrock, ICICI PrudentialPension Funds Management and Kotak Mahindra Pension Fund, sources said.

Courtesy: The Economic Times


7/64


MARKETS ROUND-UP

Rally to persist on up-beat sentiments as electionmarathon begins

In March, Indian indiceswere amongst the few global

indices that closed in green.

The markets opened on a weak

note owing to the tensions

in Ukraine. However, as the

month progressed, a series of

positive data points and the

announcement of the election

schedule improved the market

sentiment. Encouraging

inflation as well as trade

deficit / current account deficit

(CAD) gauges, a firmer rupee

and falling bond yields helped

to lift the mood. The rupee

appreciated 2.9% to close the

month at 60.

For February 2014, the trade

deficit further reduced to

US$ 8.1 billion from US$

9.9 billion in January 2014.

Exports marginally de-grew

to US$ 25.7 billion (down

3.7%) while imports dipped

17.1% year-on-year (y-o-y)to US$ 33.8 billion. Similarly

the CAD for the December

quarter narrowed to US$ 4.2

billion or 0.9% of the GDP,

from US$ 31.9 billion or 6.5%

of the GDP, a year earlier. After

three consecutive months of

negative growth, the Index

of Industrial Production (IIP)

grew albeit barely by 0.1% in

January 2014. The consumer

price inflation (CPI) further

reduced from 8.8% to 8.1%

on the back of lower food and

fuel inflation. The wholesale

price index (WPI) too fell

from 5.05% in January 2014

to 4.68% in February 2014.

In the bi-monthly monetary

policy, the key rates were left

unchanged.

Global markets started the

months trading on a weak

note owing to the tensions


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MARKETS ROUND-UP

prevailing in Ukraine. On the

bright side, the Eurozone

gross domestic product (GDP)growth numbers came in

better-than-expected. Also

positive industrial production

data from the US and lower

inflation data from the

Eurozone provided some

encouragement. However,

weak trade, industrial

production, retail sales and

fixed investment data from

China led to a significant sell-

off in the Chinese markets

and it had a spill-over effects

on other global markets

as concerns about global

economic growth worsened.

Similarly a slightly hawkish

tone from the Federal Open

Market Committee (FOMC)

meeting was taken with a

pinch of salt. At the end the

markets closed in the negative

territory.

During the month, Crude

(Nymex) closed 1% lower at

$ 101.6/barrel.

Global markets

Most global indices closed

in the red for the month of

March. The Dow Jones and

S&P 500 gained marginally,

closing 0.8% and 0.7% up,

respectively. On the other

hand, the Nasdaq, FTSE,

Dax and French CAC lost

2.5%, 3.1%, 1.4% and 0.4%,

respectively. Among Asian

indices, the Hang Seng,

Shanghai SSEC and Nikkei

fell 3.0%, 1.1% and 0.1%,

respectively.

Domestic markets

The foreign institutional

investors (FIIs) were net

buyers to the tune of ~`28,200

crore while the domestic

institutional investors (DIIs)

were net sellers to the tune of

~`9,050 crore.


9/64


MARKETS ROUND-UP

The Nifty and Sensex gained

6.8% and 6%, respectively,

in March. The rally was ledby realty, banking, metals,

public sector undertakings

(PSUs), power and oil & gas

stocks. The BSE Midcap and

BSE Small cap indices gained9% and 9.7%, respectively.

Among sectoral indices, major

gainers were BSE Realty, BSE

Bankex, BSE Metals, BSE

PSU, BSE Power and BSE Oil

indices which gained 22%,

18.6%, 16.1%, 15.2%, 12.8%

and 12.6%, respectively.

Apart from these, BSE FMCG

and BSE Auto indices gained

7.5% and 5.4%, respectively.

Among losers were BSE IT

and BSE Healthcare indices

which lost 10.2% and 7%,

respectively.

Outlook

March witnessed across-

the-board rally barring the

so-called defensives such as

Information Technology (IT)

and Healthcare. The large-caps as well as mid-cap /

small-caps participated in the

rally thus signifying the impact

of some serious buying in

beaten-down stocks. Againthis was in anticipation of

possible NDA victory (recent

surveys highlighted even

higher probability of the same)

in the forthcoming elections.

On the economy front the

gauges continued to impress

in an otherwise sombre

environment. Going ahead, we

expect the optimism to persist

as markets are expected to

continue to ride on the pre-

election rally. Robust FII

buying activity suggests that

the foreigners are in no mood

to take the foot off the gas as

the country enters the election

phase.


10/64


TECHNICAL OUTLOOK

Ride the pre-poll rally

Dharmesh Shah

Head - Technical Analysis,

ICICIdirect

Domestic equity benchmarks

outperformed their global

peers and posted a strong rally

in the month of March. The

benchmarks defied the broad

scepticism prevailing in global

markets and stormed past their

historical highs to venture into

unchartered territory led by

strong foreign fund inflows

and a strengthening rupee.

The biggest near-term catalyst

for the Indian market is the

upcoming general election

and the current rally is seen

as one fuelled by hopes of a

stable government. Based on

the technical observations, we

expect the index to ride the

current positive momentum

and head towards 22800 levels

in the coming month.

Time-wise, since January

2013, each major directional

move on the index has lasted

4-5 weeks before witnessing

a cool-off. The up-move from

February lows also paused

after rising for four weeks

and witnessed a sideways

consolidation for nine sessions

before resuming the up-trend.

Going by this time-wise

trait, the current up-leg from

March 24, 2014 onwards

may pause around late April

2014. The index is expected

to turn volatile thereafter and


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TECHNICAL OUTLOOK

markets will look for further

direction from the outcome of

the general elections. A firm

weekly close above 22800

will signal extending markets

and see the current rally from

February 2014 lows (19963)

to achieve 100% equality with

the August-December 2013

rally (17448 to 21483 = 4035

points), projecting upside

towards 24000 levels.

From a Technical perspective, the index conquering

its major historical peak of 2008 and sustaining

above the same marks an important turnaround and

augurs well for further upside in the medium term

Historical highs and upper band of

last 4 monthsconsolidation (21200-

21400) is likely to reverse its role and

act as support

Weekly RSI remains in rising mode and indicates continuation of positive

momentum in the short term

BSE Sensex Weekly Line Chart

Source: Bloomberg, ICICIdirect.com Research

The views expressed in the article are personal views of the author and do notnecessarily represent the views of ICICI Securities.


12/64


DERIVATIVES STRATEGY

Level of 6650-6700 remains a buying opportunity for

upside target of 6850/7000

Amit Gupta

Head - Derivatives Research,

ICICI Securities

In the ongoing April series,

after consolidating near 6700levels, Nifty moved towards

our mentioned targets of 6850.

Despite weak US markets,

domestic indices held the

momentum and broader

participation was observed

in last few sessions. Small-

cap and mid-cap stocks have

out performed Nifty. From the

inception of April series, Nifty

gained just 0.7% while small-

cap index clocked the gains

of almost 8.75% and mid-cap

index gained almost 2.8%.

In the options segment,

continuous writing was

observed at out-of-the-money

(OTM) Put strikes of 6500 and

6600 indicating support placed

at lower levels. Currently the

highest Put base is shifted to6700 strike. On higher side, no

major Call writing is visible at

near the money strikes. Hence

further upsides may be seen

once again after consolidation.

Meanwhile volatility index (VIX)

has risen considerably in the

last few weeks. Buying among

index options particularly of

May series is clearly visible in

anticipation of big movementafter election outcome. Volatility

has risen almost 120% at 28 and

is currently trading at the highest

levels since September 2013.

We expect volatility to remain

at elevated levels till mid Maywhen election results would be

announced.

Banking stocks were the major

movers of the recent up- move.

We expect the positive bias tocontinue among Cement and

Banking space as significant

short positions are still visible in

these stocks.


13/64



0

12

3

4

5

6

7

6300

6400

6500

6600

6700

6800

6900

7000

7100

Call OI Put OI

Bank Nifty may test 13500 if

holds above 12700

The Bank Nifty has important

support at 12700. The index hadspent couple of weeks before

breaching this level. Hence,

on downsides, it may act as a

good support. Moreover, the

noticeable for the Bank Nifty is at

12000 followed by 12500, whichalso suggests support at 12250.

The highest Call build-up for the

banking index is placed at 13000

strike followed quite closely by

13500 strike. It seems eventually

it would try to test 13500 levelsas these are stuck Call writers

who have been rolling their

positions towards higher levels.

The rise in government security

(G-sec) yields after the recent

monetary policy may playspoilsport in the short-term.

However, despite rising yields

from 8.8 to 9.02 so far, the

banking sector is inching up.

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

12500

12600

12700

12800

12900

13000

13100

13200

13300

13400

13500

Call OI Put OI

FIIs have been buying in last 35

trading sessions consecutively

and the quantum has surpassed

US$ 6 billion

Foreign institutional investors

(FIIs) continued with their buying

in the cash segment. As the Lok

Sabha polling has commenced,

FIIs are hedging these positionsaggressively and in 2nd week of

April they bought over US $ 570

million of Index options.

FII focus still seems to be in mid-

cap & small-cap segments, withbuying seen in public sector

undertaking (PSU) banking,

infrastructure and metals.

Domestic institutional investors

(DIIs) on the other hand,

continued with their selling in

the cash segment and they sold

over US$440 million in 2ndweek

of April .


14/64


S&P 500: Level of 1810 remains

important support in current

uptrend

As expected, another round of

profit booking was seen at the

highest Call base of 1900 strike

and US equities saw sharp

decline of almost 5% to move

below 1850. In the process, S&P500 erased its yearly gains while

Technology dominant index,

Nasdaq has turned negative and

closed below its 100 DMA levels

first time since December 2012.

For the May series as well,

significant accumulation of Put

options is visible at 1800 strike

indicating major support is

placed at these levels. On the

other hand, Call options base

is evenly distributed at at-the-

money (ATM) and out-of-the-

money (OTM) strikes. Major

resistance can be expected

around 1900 levels.

100 DMA levels for S&P hasacted as crucial support in last

two years and S&P did not spend

much time below these levels.

Currently 100 DMA for S&P is

placed near 1825 levels. Hence

major decline below 1825 is not

expected and levels near 1810

can be utilised for creating long

positions.

S&P500 options open interest for May Series

0

10000

20000

30000

40000

50000

60000

1700

1750

1780

1800

1820

1850

1870

1900

1920

1900

Call OI Put OI

DAX: Underperformance

is likely to continue, major

support lies at 9300

German index DAX respectedits 200 DMA levels and strong

recovery in the late March was

seen but it failed once again to

sustain at higher levels. Selling

pressure was experienced near

its January highs of 9700 levels.

At the same time, it also failed to

perform in line with US indices

which made their life highs.

DAX moved towards its highest

Put base placed at 9300 strike in

the recent decline. Looking atthe options concentration, DAX

is expected to remain sideways

in the range of 9300-9800 in the

days to come.



15/64


The views expressed in the article are personal views of the author and donot necessarily represent the views of ICICI Securities.

Both 50 DMA and 100 DMA for

German Index are placed in the

vicinity of 9400 levels. We expect

it to continue its consolidation in

the near term. As DAX reverted

from its 200 DMA levels of 8950,

we do not expect it to test these

levels once again. However

below 9300 levels, someextended selling pressure can

be expected.

DAX option open interest for May Series

0

2000

4000

6000

8000

10000

12000

9100

9200

9300

9400

9500

9600

9700

9800

9900

10000

Gold: 1280 levels to remain

crucial support in the current

uptrend for target of 1400Gold failed to surpass 1400

levels last month and witnessed

selling pressure which forced it

to breach1300 levels this month.

However, it found support near

its 100 DMA levels of 1280 and

bounced back.

For the April series, significant

Put writing is visible at 1275

strike indicating major support

for the safe heaven. We expect

these levels to remain crucial

support for Gold in the near

term. Moreover, the 50%

retracement of the entire up

move seen from 1180 to 1390

is also placed near these levels.

Hence one should trade long

with stop loss placed below

1280 levels.

On higher sides, we expect 1400

is likely to be tested which hasacted as stiff resistance since

May 2013.

As per Commodity Futures

Trading Commission (CFTC)

data reported for the Chicago

Mercantile Exchange (CME),

significant portion of open

interest in gold has positive bias.

Golds option open interest for January Series

0

10002000

3000

4000

5000

6000

7000

1175

1200

1225

1250

1275

1300

1325

1350

1375

1400

1425

Call OI Put OI



16/64


Coal India: Steady volume growth; patience holds key

Company Background

Coal India Limited (CIL), a

Maharatna public sector

enterprise, is engaged in mining

coal, the key material used in

generating thermal power. CIL

is the largest coal producing

company in the world with hugecoal reserves. CIL also enjoys a

dominant status in the domestic

market wherein it contributes

~81% of Indias total coal

output and on the demand

side meets ~65% of domestic

consumption requirements.

The company supplies coal

to sectors like power, steel,

cement, defence, fertiliser, etc.

Investment Rationale

Huge mineral resource base

Coal India has a huge extractable

reserve base (reserves of 18.2

billion tonnes) and is well placed

to cater to the rising domestic

demand. Its extractable coal

reserves can easily suffice forcurrent production levels for

the next 40 years (reserves:

production at 40). The company

also possesses healthy coal

resource base amounting 62.7

billion tonnes.

Government support to aid

production growth going

forward

The coal production at CIL has

been sluggish with FY13 andFY14 coal production growth

at 3.7% & 2.3% respectively.

However, a series of steps

undertaken by the government

should boost the production

volumes for the company. Few

of the notable steps include:(i) Government has allowed

expansion in existing coal

projects without any public

hearing, under environmental

appraisal process. Under this

proposal, it is decided to allow

one-time capacity expansion

upto 50%, or incremental

production of upto 1 million

tonnes per annum (MTPA),

whichever is higher. This

relaxation is for coal mining

projects with annual productionof less than 8 million tonnes

(MT). (ii) CIL has also received

approval from Ministry of

Environment & Forests (MoEF)

for 23 projects (16 projects have

STOCK IDEAS


17/64


been granted environmental

clearance (EC), 2 projects have

been granted stage-II forest

clearance (FC) while 5 projectshave been granted stage-I FC)

after intervention by the Cabinet

Committee on Investment

(CCI). (iii) Introduction of mine-

developer-operator approach.

This all is likely to help state-run

CIL boost output, going forward.

We expect coal production

at the company to grow at a

compounded annual growth

rate (CAGR) of 4% in FY13-16E

to 509 MT in FY16E.

Competitive cost of production

resulting in healthy operating

margins

CIL produces ~90% of its coal

through open cast mining and

witnesses low stripping ratio (1.8

during the nine months endedFY14), thereby ensuring that

reserves are easily extractable.

Hence, this helps to position the

company as among the lowest

cost coal producers in the

world. The cost of production

in case of open cast mines is

~ ` 700-800 per tonne, which

is in the lowest decile of the

global cost curve and at almost

one-fourth of underground

mining cost of ~ ` 3000-4000

per tonne. CILs blended cost of

production stands at ~ `1050/

tonne (~US$18 /tonne).

Faith to last in midst of

blackest storms, add fuel to

your portfolio

CIL has a strong balance sheet

with robust cash flows and ahealthy liquidity position. In

FY13-16E, we expect the top

line to grow at a CAGR of 4.1%

with EBITDA (earnings before

interest, taxes, depreciation,

and amortization) and PAT

(profit after tax) de-growing3.9% and 3.2%, respectively, on

the back of declining e-auction

realisations and other income

yield. We have valued the stock at

6.5x FY16E adjusted enterprise

value (EV)/EBITDA (adjusted for

overburden removal), thereby

valuing the company at its

international peers average

FY16E EV/EBITDA of 6.5x and

arrived at a target price of `320.

A healthy dividend payout

and impressive dividend yield(~4.3% on a normalised basis)

reiterate our positive stance on

the company. We have a BUY

recommendation.

STOCK IDEAS


18/64


Key Financials

FY13 FY14E FY15E FY16ENet sales (`crore) 68,303 68,008 72,695 77,088EBITDA (`crore) 18,084 14,413 14,959 16,053Net profit (`crore) 17,356 14,061 14,551 15,736

Valuations Summary

FY13 FY14E FY15E FY16EEPS (`) 27.5 22.3 23.0 24.9P/E (x) 10.2 12.6 12.2 11.2

Target P/E (x) 11.7 14.4 13.9 12.9EV / EBITDA (x) 6.4 8.4 7.5 6.5P/BV (x) 3.6 4.3 3.8 3.3RoNW (%) 35.8 34.2 31.1 29.3RoCE (%) 32.3 29.4 27.0 25.4

Stock Data

Particulars Figures

Market capitalization (` crore) 1,76,858.2Total debt (FY13) (` crore) 1,909.1Cash and investments (FY13) (` crore) 62,236.6EV (` crore) 1,16,530.752-week High/Low (`) 331 / 238Equity capital (` crore) 6316.4 CroreFace value (`) 10

DII Holding (%) 2.4FII Holding (%) 5.5

Key risks include:Coal Ministrys directive to sign fuel supply agreement(FSA) for power capacities amounting 78,000 MW which may lead tolevying of penalty in case of insufficient coal; delay in environmentclearance for coal mines thereby hampering coal production; E-auctionvolume may be sacrificed to fulfil FSA commitments; insufficientrailways rakes for offloading coal from the companys mines.

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

STOCK IDEAS


19/64


MRPL: At the crack of dawn

Company Background

Mangalore Refinery &

Petrochemicals Limited

(MRPL), a subsidiary of Oil

and Natural Gas Corporation

(ONGC), is a standalone

refinery operating in the port

city of Mangalore, Karnataka,

with a capacity of 15 MMTPA

(million metric tonne per

annum). MRPL is strategically

located on the west coast

of South India, close to the

Middle East and Far East crude

and product markets. MRPL

buys crude oil from ONGC,

Saudi Aramco (National oil

Company of Saudi Arabia),Abu Dhabi National Oil

Company (ADNOC), National

Iranian Oil Company (NIOC),

Kuwait Petroleum Corporation

(KPC), Nigeria, Angola, Egypt,

etc. MRPL is now a Mini Ratna,

Category 1 and a Schedule

A public sector enterprise.

Investment Rationale

Capacity expansion and

upgradation project to boost

rening margins

Higher complexity on

commissioning of Phase-III

project will lead to an increase

in distillate yield from 76.5%

to 80.1%, better capability to

handle heavier & sourer crude

and production of higher

margin value-added products.

Additionally, MRPL would

save on freight cost due to the

single-point mooring facility,

commissioned in August 2013.

We believe these benefits will

translate into an improvement

of US$3.5-4/barrel in refiningmargins in the next couple of

years.

Downstream integration into

petrochemicals to further

boost gross renery margins(GRMs)

MRPL is foraying into the

petrochemical business

STOCK IDEAS


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by setting up 2.2 MMT

(million metric tonnes) PFCC

(petrochemical fluidizedcatalytic cracking) and 440

kilo tonnes per annum

(KTPA) polypropylene units

under its Phase-III expansion

project. These units, once

commissioned, will produce

higher margin yielding

products that will contribute

US$1.5-2/barrel to refining

margins. We believe the `1800

crore polypropylene unit will

generate a return on capital

employed (ROCE) of 13%-

16%.

Best placed to play rening

cycle among public sector

undertaking (PSU) peers

MRPL has managed its

business better than its

peers in terms of better cash

conversion cycle (only PSU

refinery which has a negative

working cycle), which is mainly

due to the higher percentage

of sourcing of crude from

NIOC of Iran that offers a 90-

day credit period. The recent

truce between Iran and the six

western nations will benefit

MRPL in terms of better credit

period, lower pressure on

working capital and reduction

in interest expense. Also, the

completion of Phase-III project

will allow MRPL to regain itsedge over peer PSU refiners

in terms of GRMs. Overall,

we prefer MRPL because

of its lower policy leverage,

improving GRM outlook and

lowest gearing on the balancesheet amongst PSU refineries.

An investment opportunity;

ready to unfold

Given the improvement in

complexity, better distillate

yield and access to cheaper

crude oil, we expect MRPL to

achieve higher profitability. We

value the stock at 5.5x FY16E

EV/EBITDA multiple to arrive

at a target price of ` 61. We

have a BUY recommendation

on MRPL with a target price

of `61.

STOCK IDEAS


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Key Financials

FY12 FY13 FY14E FY15E FY16ERevenues (`crore) 54,060.7 66,086.2 71,249.0 74,102.0 75,345.8

EBITDA (`crore) 1,638.8 318.0 215.5 2339.9 3,088.5Net profit (`crore) 908.6 -756.9 -595.2 650.2 1,096.3EPS (`) 5.2 -4.3 -3.4 3.7 6.3

Valuations Summary

FY13 FY14E FY15E FY16EPE (x) -11.6 -14.7 13.5 8.0Target PE (x) NA NA 16.3 9.7

EV to EBITDA (x) 44.4 70.2 6.6 4.3Price to book (x) 1.4 1.5 1.4 1.2RoNW (%) -11.7 -10.1 10.4 15.4RoCE (%) -2.1 -3.6 9.1 14.4

Stock Data

Particulars Figures

Market capitalization (` crore) 8,763.3Debt (FY13) (` crore) 6,979.8Cash + Liquid investments (FY13) (`crore) 1,620.8EV (` crore) 14,122.352-week High/Low (`) 51 / 26Equity capital (` crore) 1,752.7Face value (`) 10MF holding (%) 0.6FII holding (%) 0.9

Key risks include: Further delay in commissioning of secondaryprocessing units will have adverse impact on the refining margins. Anyslowdown in the global economy and weaker demand will lead to adecline in gross refining margins and will have a negative impact on theprofitability of the company. MRPLs longer credit period will have anadverse impact on profitability in the phase of depreciation of the rupee.If tensions rebuild between Iran and western countries, imports from

Iran would drop further, leading to an increase in working capital andhigher crude oil costs for the company.

(EBITDA:Earnings before interest, taxes, depreciation, and amortization; EPS:

Earnings per share;P/E:Price-to-earnings;EV:Enterprise value;RoNW:Return on

net worth;RoCE:Return on capital employed;DII:Domestic institutional investors;

MF:Mutual funds).

STOCK IDEAS


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FLAVOUR OF THE MONTH

look at your current financial

situation, so that you can

determine how you may use

the lump sum or a windfall

to your financial advantage.

List your current income and

expenses. List your assets:

The amount in your bank

accounts, brokerage accounts

and any other investments you

may own. Make a list of your

debts, including credit cards,

personal loan, home loan, etc.

Performing this exercise will

not only help you provide the

reality check needed but also

help you set some priorities.

Your Financial Picture

What is your current total monthly income? `______________

What are your current total monthly expenses? `______________

Do you have credit card debt? oYes oNo

If yes:

Credit card Outstanding dues Interest rate (p.a.)

1. _____________________ `_____________ ________%

2. _____________________ `_____________ ________%

3. _____________________ `_____________ ________%

Do you have any other debt? (Personal, consumer durables, car, etc.) oYes oNo

If yes:

Type Total outstanding Interest rate (p.a.)

balance1. _____________________ `_____________ ________%

2. _____________________ `_____________ ________%

3. _____________________ `_____________ ________%

Do you have an emergency fund in place? oYes oNo

Do you currently have any investments? oYes oNo

If yes:

Investment avenue (shares, mutual funds, etc.) Current value

1. ________________________________ `_____________

2. ________________________________ `_____________

3. ________________________________ `_____________

4. ________________________________ `_____________


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Are you/your assets insured? oYes oNo

If yes,

Type (life, health, home, etc.) Sum assured

1. ________________________________ `_____________

2. ________________________________ `_____________

3. ________________________________ `_____________

4. ________________________________ `_____________

What are your nancial goals (planning for children education, retirement,

etc.)?

Goal Money needed in todays value

1. ________________________________ `_____________

2. ________________________________ `_____________

3. ________________________________ `_____________

4. ________________________________ `_____________

Looking at the bigger picture will help you determine how you may use your

lump sum payouts to meet your financial obligations and goals.

Develop the plan

The key to managing lump

sum money responsibly is todraw up a plan based on your

current financial situation and

goals. Though the amount of

payout or windfall also plays a

key role as in what goals youcan achieve with it, here are a

few basic steps you can take to

maximize the benefit of your

additional financial gains.

Paying off expensive debt:

Using lump sum payouts to

pay-off your debts may bea wise idea, especially if it is

an expensive debt, i.e. debt

with a high interest rate. This

would include your credit card

out-standings and personalloans. By clearing off this debt

or at least cutting it down

significantly, you can save

up on high interest costs. For


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example, if you owe ` 1 lakh

on a credit card that has an

interest rate of 25% p.a. andyou pay the balance off, it

is like investing in an option

which gives 25% p.a. return.

The next in line could be your

car loan, which costs around12-16% p.a. It's better to use

your extra financial benefits to

pay off high-interest debts so

that the future earnings could

be used to meet your financial

goals.

Building a nancial safety-

net:

Uncertainties and emergencies

can strike anytime.Unexpected expenses such

as a medical emergency,

layoff, sudden large repair

bills, etc. can put a significant

financial burden on you. So

if you dont already have an

emergency fund in place,

this may be another prudent

financial step to consider for

your windfall. Just to give an

example, about 60 per cent

of households in Ahmedabaddo not set aside any funds for

meeting emergency expenses,

according to a survey by

ASSOCHAM (Associated

Chambers of Commerce and

Industry of India).

It is important to keep aside

a substantial sum, at least

six months living expenses,

to be used only in case of

emergency. The money need

not remain in savings account,

earning 4 per cent interest.

Instead, you can put it in a

better alternative, a liquid fund,

offering higher returns thansavings accounts. The current

category average return for

liquid funds is 9% p.a.

If you are unable to deposit a

sum equal to your six months

living expenses at one go,

start with a small amount and

increase it as your income or

savings increase.


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Keep in mind, the need for an

emergency fund increases with

age. Depending upon your agegroup, you could put away 5

per cent to 15 per cent of your

money for emergencies.

Re-assessing your insurance

needs:

After you have built up

your emergency fund and

eliminated high-interest debt,

next you may want to consider

reviewing the insurancecoverage you currently

have and determine if its

adequate to meet financial

contingencies, in case, an

unforeseen event occurs.

Essentially, your life cover

should take care of: a) Family

expenses till lifetime; b)

Liabilities outstanding and c)

Family and children goals.

Heres the worksheet to

help you review your current

insurance coverage, and ll

the gaps, if any.

1. Providing for family expenses till lifetime

Annual expenses required for

dependants

`2,40,000

Number of years for which you wishto provide above expenses

25 years

A: Corpus required for funding

family expenses

`60,00,000

2. Liabilities Outstanding

Home loan `15,00,000

B: Corpus required for repaying

liabilities

`15,00,000

3. Family Goals

Childs education (todays cost) `8,00,000

Childs marriage (todays cost) `10,00,000

C: Corpus required for fulfilling

goals

`18,00,000

A + B + C = The estimated amount

of life insurance you will need

`93,00,000

(From this estimated cover, you can deduct

existing life cover, if any, and assets that you have

accumulated - excluding the ones for your familys

use)

In case, you are unable to cover

all the above three (i.e. A, B and

C), then cover can be taken at

least for some of them, based

on the this order of priority:

a) Unsecured liabilities; b)

Family expenses till lifetime; c)

Secured liabilities; d) Childrengoals; and e) Family goals.

Keep in mind, even a really

big financial windfall can be


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quickly wiped out if one faces

with an unexpected medical

emergency. So it may be wiseto channelize your lump sum

payouts to get an adequate

insurance coverage. And this

does not hold true for life

insurance alone. Do re-asses

the coverage of your health

insurance, home insurance,

etc. to be adequately protected

at every life stage.

Moving closer to reaching

your goals:

After you have addressed

protection needs, it may be

time to consider strategies to

move closer to reaching your

financial goals. Look back atYour Financial Picture - what

are your short, medium, and

long-term goals? Work out

how much you will need for

each of these goals in future

and then work backwards to

evaluate how much you need

to invest now for each of these

goals.

Lets assume one of your

main goals is to secure your

retirement. This is how onecan go about it.

Assume you are aged 28, your

current monthly expenses are

` 35,000 and that you want

to retire at age 60 which is 32

years from now. Surely, given

inflation this amount will have

risen by the time you retire.

If we assume an inflation of

7% you will actually need

` 3.05 lakh per month whenyou retire. Given that your

regular income will stop after

retirement you will have to

create a fund which will help

you generate income for these

expenses. An amount of`5.17

crore can help you generate

this income. However, to

create this fund you will need

to invest ` 13,290 beginning

now. This amount is what youneed to start saving.

Now, lets take a look at how

you can link your lump sum


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payouts or windfall gains to

meet your retirement goal.

Say for example, you, a youngindividual, have received a

bonus of`1 lakh. If you invest

this lump sum amount in

an investment option which

gives 10% p.a. return, you will

be able to create a corpus of

` 10,83,471 in a period of 25

years.

Choosing the STP route:

You may also consider

systematic transfer plans

(STPs) for investing your lump

sum payouts. STP allows you

to invest a lump sum amount in

one scheme (source scheme)

and periodically transfer theamount in another (target

scheme) of the same asset

management company (AMC).

Say for example, you may first

deposit your lump sum money

in a liquid fund and instruct

the concerned fund house to

transfer say Rs 5,000 every

month from liquid fund to your

chosen fund, equity or debt

fund, and thus, staggering

your investments.STP has integral feature

of systematic investment

plan (SIP) and systematic

withdrawal plan (SWP). The

amount is systematically

withdrawn from one scheme

and invested in another.

Therefore it helps you to buy

more units at lower net asset

value (NAV) and fewer units at

higher NAV.

Spending thoughtfully:

Once you have set aside funds

for your top financial priorities,

you may consider spending

a small portion of your lumpsum benefits, say 5 per cent

to 10 per cent, on something

you would like. It is important

to understand that a financial

windfall or lump sum benefits

are occasional in nature. If

the funds are used to spend

irrationally, you may run the

risk of draining your resources.



29/64



Please send your feedback to [email protected]

Windfall wisdom through life stages

Life-stages Potential source(s)

of lump sum benet/

windfall

Prudent approach

Young & single Bonus at work

- Eliminate high-cost debt. Build your creditscore.

- Be aggressive. Invest maximum in growthassets such as equities. Ideal allocation couldbe: 80% in equity, 10% in fixed income, 10%in cash.

- Buy a health insurance cover for yourself

and parents.

Newly marriedBonus at work, gifts

from family andrelatives

- Prepare for emergencies. Build up anadequate emergency fund.

- Get an adequate life cover.

- If servicing a home loan, use any windfallgain for prepayment.

- Buy a cover for protection against home loanand home contents.

- Include wife in family floater health cover.- Start saving for retirement.

Starting afamily

Bonus at work

- Start saving for children's education andmarriage. Earmark specific investments forthese goals.

- Enhance life cover to take care of long-termgoals.

- Include children in health insurance cover.

Grown-upchildren

Investment payouts,inheritance, bonusat work

- Buy critical illness cover for self and wife.- Adopt a balanced approach. Allocation couldbe: 60% in equity, 30% in fixed income, 10%in cash

Retired

Maturity proceedsof investments andinsurance, lump sum

pension amount, etc.

- Ensure adequate health insurance.

- Enhance protection with a contingency fund.

- Focus on safety. However, inflation meansyou can't avoid equity. You could consider:

20% in equity, 70% in fixed income, 10% incash.

To sum up, if you plan well and control the urge to spend impulsively, a

windfall gain or a lump sum payout can be a big boost to your financial future.


30/64


Indian economy is entering an interesting phase, after some

years of muted growth, says Sunil Singhania, Chief InvestmentOfcer (CIO) - Equity Investments, Reliance Mutual Fund, in an

interview with ICICIdirect Money Manager. He believes overall

market valuations are reasonable and present an investment

opportunity for the long-term investors. Excerpts:

Fairly condent on the economy coming back on track

Tte--tte

Sunil SinghaniaCIO - Equity Investments

Reliance Mutual Fund

What is your take on

current market situation?

Do you see the markets to

remain within existing range

or do you see a break-out in

either direction?

Indian economy is

entering an interesting

phase, after some years of

muted growth. The gross

domestic product (GDP)

growth is stabilizing through

improvement in global

demand, good monsoons in

India and possible peaking

of inflation and interest rates.

With the Central Government

elections underway and anincreasing possibility of a

stable formation, the policy

slowdown is expected to see

a reversal. Inflation continues

Q:

A:

to trend downwards along

with the currency stability

reflecting a better outlook for

interest rate reversal over the

next few quarters.

Overall valuations appear

reasonable, despite the

recent rally in markets as a


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Tte--tte

lot of rerating is also due to

improvement in earnings on a

low base. We believe equitiescan be among the best

performing asset classes over

the medium to long term.

What are the key risks

to Indian markets that one

should be watchful about?

The near term direction

of the market will be very

focused on the key domestic

event of General Elections

and based on the formation

there can be some short term

impact on the sentiment. The

Reserve Bank of India (RBI)

in its recent policy review

highlighted the potential riskto inflation from weather

phenomenon like El Nino. (El

Nino is an abnormal warming

of surface ocean waters in the

eastern tropical Pacific Ocean,

with an impact on weather

conditions around the world).

Markets have witnessed

significant participation from

Q:

A:

foreign institutional investors

(FIIs) in the recent past and

there can be some outflowsbased on near term events

like election results or profit

booking.

What is your general

assessment of our domesticmacro story? Is India growth

story still intact in your

opinion?

The key macro

challenges like twin deficits(current account deficit and

fiscal deficit), inflation and

currency volatility have been

subsiding and domestic

factors are increasingly

favoring a strong equity

market. On the global front

also recovery in key markets

like the US, Europe, etc. have

created positive sentiment

for equity markets. Withinemerging markets space

India offers a fairly diversified

investment opportunity unlike

few other markets which

Q:

A:


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Tte--tte

are skewed towards select

sectors like commodities,

energy, etc. Thus, given thebackdrop of a revival in key

economic parameters, we

believe its just a matter of

time that the GDP growth

will pick up and we are fairly

confident on the economy

coming back on track sooner

than later.

What, according to

you, are the key factors

that will drive investment

opportunities in the country?

Over the last few years

we have witnessed a subdued

investment environment

given the domestic and

global worries. During this

period corporate houses had

maintained a cautious stance

and preferred cash to capital

expenditure. However wehave witnessed a renewed

interest in the economy

as the key headwinds like

inflation, interest rates, etc.

Q:

A:

are peaking, at the margin.

Additionally, improving

global demand on the backof recovery in key developed

markets is likely to lead to a

better GDP growth. Increasing

possibility of stable central

government post elections is

likely to lead to reversal in the

policy slowdown witnessed in

last few years.

All these key positive factors

are expected to lead to an

improved investment climate

in the country.

What is your view on

valuations? Are the current

market valuations attractive?

The current market

valuations appear to be

reasonable and present an

investment opportunity for

the long-term investors.

The 1-year forward price/

earnings (P/E) ratio of the key

benchmark index like Nifty is

at 14 and is more than 50%

Q:

A:


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lower than the peak valuations

that prevailed during 2007-

2008. The current valuationsare even lesser than the eight-

year averages.

Further, not only are the

valuations of the overall

market reasonable, lots ofstocks are available at very

attractive valuations. We

analyzed a universe of over

750 companies with a market

capitalisation of at least`100

crore and in terms of trailing

twelve-month PE, we found

that:

50% of companies in the

universe are traded at PE ofless than 10

75% of companies in the

universe are traded at PE of

less than 20

Thus, despite the recent rally,

where benchmark indices

scaled new highs, the overall

valuations are reasonable.

Which sectors are

looking interesting now?

Which sectors would youadvice to stay away from?

Domestic recovery

themes like consumer

discretionary, banking,

industrials appear tobe interesting areas of

opportunity. Sectors that can

benefit from global recovery

like technology, healthcare,

etc. also remain important

investment themes.

We remain cautious on

sectors with higher valuations

like fast-moving consumer

goods (FMCG) and remain

focused on stock-specific

opportunities in themes like

commodities and real estate.

What are your key

takeaways from the

December 2013 quarter

results? What are your broad

expectations from India Inc

for FY15?

Q:

A:

Q:

Tte--tte


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We have witnessed an

improvement in the corporate

results and for the first time inmany quarters the results for

December 2013 quarter were

better than the estimates. We

believe corporate earnings

will steadily improve given the

improved growth dynamics

and expect the FY15 earnings

to be significantly higher from

current levels.

How should one go

about investing in equity

markets in the current

scenario?

Equities as an asset

class have created enormous

wealth over a period of time.

For example, BSE Sensex

has generated compounded

returns of approximately

17% p.a. over the last 34

years. The asset class alsowas among top performing

asset classes over the last few

years. However, despite the

return potential of equities,

A:

Q:

A:

we have witnessed investors

remaining under allocated to

the asset class based on near-term underperformance.

This clearly highlights

the need for proper asset

allocation and adequate

investment horizon to gainfrom equity investment.

Hence, we believe, based

on the investment horizon

and risk profile, the investors

can consider investments in

equity funds via lump sum or

systematic investment plans

(SIPs).

Tell us about your stock

selection process. How do

you nd ideas for your funds?

We have a strong in-

house research team of

over 15 members and track

around 500 companies.

Of this, approximately 250

companies are tracked in

house. We believe that the

best investment is one where

Q:

A:

Tte--tte


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the performance and the

perception can both improve.

For performance, the key

parameters we focus on are,

external opportunities for

the company, sustainable

competitive advantage,

scalability, managementquality and integrity, as well

as concern for the minority

shareholders.

For the perception part, past

track record, entry barriers tobusiness, growth prospects,

return on investment (ROI)

and return on equity (ROE) as

well as broad market outlook,

historical benchmarks, etc. are

key considerations.

Intelligence checks on the

company, management,

business models along with

company meetings also for

important inputs for stock

selection.

Idea sources include

investment team meetings

(fund managers and researchanalysts), external research

reports, customized research

by appointed agencies, etc.

Anything else you

would like to share with our

readers?

We remain positive on

equity markets and expect

superior returns from the

asset class over the medium

to long term. Domestic

investors remain hugely

under-allocated to equities,

and despite near-term events,

investors can consider

investments in equity fundsin-line with their risk profile

and investment horizon.

The views expressed in the

interview are personal views

of the author and do not

necessarily represent the

views of ICICI Securities.

Q:

A:

The views expressed in the interview are personal views of the author and donot necessarily represent the views of ICICI Securities.

Tte--tte


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Understanding Ination Indexed National SavingsSecurities (IINSS)

ASK OUR PLANNER

I heard that InationIndexed National Savings

Securities (IINSS) have been

launched recently. How does it

work? Is it advisable to invest?

- Amol Shinde

IINSS is an instrument, in

which, interest is linked with the

rate of inflation. Inflation rate

is based on the final combined

Consumer Price Index (CPI). The

final combined CPI is used as a

reference CPI with a lag of three

months. For example, the final

combined CPI for the month of

September 2013 will be used

as a reference CPI for whole of

December 2013.

The interest rate on IINSS

is divided into two parts: (i)

The fixed rate of 1.5% p.a. (ii)

Inflation rate. Say for example,

if inflation rate during the six

months period is 5%, then the

Q:

A:

interest rate for these six monthswould be 5.75% (i.e. fixed rate of

0.75% and inflation rate of 5%).

The fixed rate of 1.5% would

act as a floor, which means

that 1.5% p.a. interest rate is

guaranteed if there is deflation.

For instance, if inflation rate is

-5%, then interest rate should

be -3.5%. But in such case,

negative inflation will not be

recognised and investors would

get fixed rate of 1.5% p.a.

The interest is accrued and

compounded in the principal

on half-yearly basis and is paid

along with the principal at the

time of redemption.

The minimum investment

limit for IINSS is ` 5,000. The

maximum limit is`

10 lakh perannum for individual investors.

The tenure of this instrument

is 10 years. For senior citizens


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ASK OUR PLANNER

above 65 years, the premature

redemption is allowed after one

year. For others, it is allowedafter 3 years.

IINSS was launched on

December 23, 2013 and was

scheduled to close on December

31, 2013. However, due to low

response, the closing date was

extended to March 31, 2014.

IINSS is meant for long-term

savings. With inflation being

high in India in recent years,

this instrument can be looked

to generate good returns and

protect from inflation. The safety

of principal also is not a concern,

as it will be considered par with

government securities. Even

though the taxation is similar to

that of fixed deposits (FDs), the

interest can be higher than FDs

during high inflation periods.

However, during low inflation

periods, the interest can be

lower than FDs.

However, there are some pitfalls.

One is liquidity. The premature

redemptions are available onlyon the coupon dates and that

too with some penalty. Two,

IINSS are not tradable in the

secondary market. Further,

there are no tax benefits offeredfor principal and interest.

IINSS are expected to hit the

market this financial year too. It

is advisable to wait for the offer

to know the features and then

take a decision.

I am 32-year old male.

Here are my nancial details:

Take home income: ` 50,000

p.m. Liabilities: Car loan

outstanding - ` 4 lakh, Credit

card outstanding - ` 1 lakh,

Personal loan outstanding -

`1.5 lakh. Investments: LIC:

`30,000 p.a.; Insurance: HDFC

ergo Health insurance: `. 4,000

p.a.

Q:


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ASK OUR PLANNER

Kindly suggest a detailed plan

on how to save ` 20 lakh in 3

years time to purchase a housein Bangalore. Also, need your

expert advice on investments

in MFs to reach ` 50 lakh in 8

years time.

- Premanka Majumder

You have not provided any

details of accumulation of your

existing investments, which, if

any, can be used to close your

high cost loans credit card

and personal loan. Else, you

will have to use your monthly

surplus for the same.

Assuming you spend about 40%

of your monthly income towards

household and other expenses

(i.e. `20,000 p.m.), ` 5,500 p.m.

towards EMI of your personal

loan (assuming 3 more years)

and ` 13,500 p.m. towards EMI

of your car loan (assuming 3

more years), you will be left with

a monthly surplus of ` 11,000.

A:

This amount can be used for

next 12 months to payoff your

credit card outstanding amount.

After paying off your credit card

outstanding amount, you can

start investing the surplus (i.e.

` 11,000 p.m.) towards your goal

of buying a house in Bangalore.

This will fetch you around

`2.87 lakh with two years of

investment (assuming rate of

return at 8% p.a.). Therefore,

accumulating `20 lakh in 3 years

time to purchase a house seems

improbable.

Coming to your goal of

accumulating `50 lakh in 8 years

time, assuming that you invest

`2.87 lakh, which you would

have accumulated in 3 years time

as mentioned above, along with

` 30,000 p.m. surplus (` 5,500

p.m. as personal loan would

have been paid off + ` 13,500

p.m. as car loan would have

been paid off + ` 11,000 p.m.


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Do you also have similar queries to ask our experts? Write to us at: moneymanager@

icicisecurities.com.

your initial investible surplus),

for the next 5 years, you will be

able to accumulate around `30lakh in 8 years time (assuming

rate of return at 12% p.a.).

This can be achieved by

investing into two to three

diversified equity mutual funds.

You can refer our website www.

icicidirect.com to know about

the recommended funds.

I have spent ` 5,000 for

getting MRI of my wife. Can I

claim deduction under section

80D under heading preventive

health check-up? Also, how can

I show my share trading money

in income tax return?

- BK Singh

You can claim the amount

under section 80D if the MRI

scan has been done as a part

Q:

A:

of preventive health check-

up. Else, if you are employed

and are getting medical billreimbursement, this amount

can be claimed under that

(the maximum limit being

`15,000 p.a.).

If your main business is trading

in securities, then the profit

generated from trading in

securities has to be shown

under the head 'Income from

Business and Profession' andthe same will be taxed as per

your income slab. Else, you

can show the profit generated

under the head 'Income from

Capital Gains', where any long-

term capital gain (profit from

securities held for more than

1 year) will be exempt from

tax and short-term capital gain

(profit from securities held up to

1 year) will be taxed at 15%.

ASK OUR PLANNER


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Prioritize, Plan, and Prosper

YOUR FINANCIAL HEALTH CHECK

Every month, ICICIdirect Money Manager

assesses one family's current financialsituation, and suggests a suitable way

forward to help them reach their goals...

The SHINDES

Mandar (25), Ranjit (52), Asha (48)

Reside in: Mumbai Annual income:`4,00,000

Family Prole

Mandar Shinde, 25, stays in Mumbai. He is a software engineer

by profession. Mandar's father Ranjit is working with a bank

and his mother Asha is a school teacher. Mandar approached

ICICIdirect Money Manager to better plan his finances.

MANDARS BASIC EXPENSES (ANNUAL BREAK-UP)

Household expenses `1,00,000

Holiday and entertainment expenses `60,000

Traveling expenses `50,000

Miscellaneous `40,000

Total `2,50,000

INVESTMENT DETAILS

Mandar invests`70,000 annually in public provident fund (PPF)

account, which he started last year only.


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YOUR FINANCIAL HEALTH CHECK

ASSETS AND LIABILITIES

Assets: Mandar has saved

` 3 lakh in his savings bank

account. Liabilities: Currently,

he has no liabilities.

MANDARS FINANCIAL

GOALS

1. Buy a car. Time to achieve

goal: 1 year.

2. Save for marriage

expenses. Time to achieve

goal: 4 years.

3. Accumulate a corpus of

` 20 lakh for renovating his

ancestral house. Time to

achieve goal: 10 years.

PLANNING

1. Car: Mandar wants to buy

a new car worth ` 5 lakh in

the next 1 year. Considering

the rise in prices (at 7%), the

cost of this goal may go up

to around ` 5.35 lakh after

1 year. Supposing, he takes

a car loan, he will still have

to arrange for the down-

payment. Considering thedown payment to be 20%, this

would amount to ` 1.07 lakh

after 1 year. To accumulate

this amount, Mandar needs to

save and invest approximately` 8,551 per month to achieve

this goal. As the goal tenure

is short, Mandar should

invest in debt instruments.

Alternatively, as he alreadyhas` 3 lakh in his savings bank

account, he can invest`99,074

from it in a bank fixed deposit

(FD) for 1 year to accumulate

for the down payment.

2. Marriage expenses:

Mandar plans to get married

after 4 years and wants to

contribute a certain amount,

i.e. ` 5 lakh for his marriage

expenses. Considering the

rise in general prices, he will

need approximately ` 6.6


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Understanding Monetary Policy

One event that catches investors attention every quarter isthe monetary policy by the Reserve Bank of India (RBI). This isbecause monetary policy actions affect stock prices. What ismonetary policy? How does RBI conduct it? What are the variousmonetary policy instruments? In our new series MonetaryPolicy Simplied well demystify these step-by-step. To startwith, in this edition, we make an attempt to simplify the conceptof monetary policy.

PRIMER

What is monetary policy?

One of the main functions of

RBI is to manage the money

supply in a country. This is done

through a monetary policy.

Put simply, monetary policy is

nothing but the management of

money supply and interest rates,

in order to control inflation (price

stability) and promote economic

growth.

Two broad objectives ofmonetary policy: (i) Maintain

price stability, and (ii) Enhance

economic growth

Why is it important?

As monetary policy determinesthe price of money and money

supply in the economy,

depending on the situation

and assessment of the RBI,

it has implications for both

households and corporates.

Lower cost of money will mean

people will borrow more and

consume more. This, in turn,

will drive demand and growth. If

an economy is witnessing high

inflation, the RBI will raise the

cost of money by raising interest

rates, and it will mean lower

borrowing, lower consumption

and slower growth.

Monetary policy approaches

A typical monetary policy takes

either a contractionary (tighten

money supply) approach or an

expansionary (loosen money

supply) approach.

Contractionary:Rise in interest

rates. Individual loans more

expensive. Assets lose value. It


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PRIMER

is used as a measure to control

inflation.

Expansionary: Cut in interest

rates. It is used to promote

employment and growth.

Source: RBI

For effective implementation of monetary policy, monetary policy framework

needs a supporting operating procedure. An operating procedure is defined as

day-to-day management of monetary conditions consistent with the overall

stance of monetary policy. Generally, it involves: (i) defining an operational

target, generally an interest rate; (ii) setting a policy rate which could influence the

operational target; (iii) setting the width of corridor for short-term market interestrates; (iv) conducting liquidity operations to keep the operational target interest

rate stable within the corridor; and (v) signalling of policy intentions.

To sum up, monetary policy is an important constituent of overall economic

policy towards the pursuit of various economic goals, including expansion of

employment, higher economic growth, and maintenance of price stability.

Monetary policy framework

The current framework of

monetary policy in India canbe termed as an augmented

multiple indicator approach as

illustrated in chart below:

Augmented Multiple Indicator Approach

Monetary Policy Action

Panel of TimeSeries Models

Growth and inflation outlook withrisks. Liquidity conditions

Monetary ProjectionsBroad Money. AggregateDeposits. Cridit to thePrivate Sector

Rate VariablesInterest rates in moneygovernment securitiesand credit markets,various inflation rates;asset prices and exchangerate

Quantity VariablesMoney, credit, fiscal deficit,rainfall index, industrial

production, service sectoractivity, exports and imports,

balance of payments andcapital flows

Forward IndicatorsRelevant variables fromindustrial outlook survey,capacity utilization survey,

professional forecasterssurvey and inflationexpections survey


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MUTUAL FUND ANALYSIS

Category: Mid-cap EquityFunds

IDFC Premier Equity

Fund Objective

The scheme shall seek to

generate long-term capital

growth from an actively

managed portfolio of

predominantly equity and

equity related instruments.

Key Information

NAV as on March 31,2014 (`)

47.2

Inception Date September 28, 2005Fund Manager Kenneth AndradeMinimum Investment(`) Lumpsum SIP

100002000

Expense Ratio (%) 2.13Exit Load 1% on or before

365D.

Benchmark S&P BSE 500Last declared QuarterlyAAUM (`cr)

3773

Product LabelThis product is suitable for investors seeking*:

l Create wealth over a long period of time.

l Investment predominantly in equity andequity related instruments across marketcapitalisation.

l High risk (BROWN)

Fund Management

Mr. Kenneth Andrade has

been managing the fund since

June 2006. He is also the

chief investment officer (CIO)

at IDFC Mutual Fund. He has

over 15 years of experience in

fund management and equity

research.

Performance

Launched in mid-2005, the fund

has since then generated ~20%

compounded annualised return

(CAR) till date in its eight years of

existence. Consumption stocks

have been major contributors to

funds returns leading its journey

to the best performing midcap

fund. In the last two calendaryears, the fund performance

has seen a little drop from

its historical outperformance

as the portfolio converges

from consumption heavy to

more diverse sector holdings.Even then, the fund manger

has managed to outperform

most of its peers and beat the

benchmark by a decent margin.


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Performance vs. Benchmark

30.8

29.4

14.7

29.7

18.2

1

7.1

3.7

18.7

0

10

20

30

40

6 Month 1 Year 3 Year 5 Year

Return%

Fund Benchmark

Calendar Year-wise Performance

2013 2012 2011 2010 2009

NAV as on Dec

31 (`)

42.5 40.2 28.5 34.8 26.4

Return (%) 5.6 40.8 -18.0 32.1 102.1

Benchmark (%) 3.3 31.2 -27.4 16.4 90.2

Net Assets (`Cr) 3706 3603 2259 1986 1222

Last Three Years Performance

Fund Name31-Mar-13 31-Mar-12 31-Mar-11

31-Mar-14 31-Mar-13 31-Mar-12

Fund 29.40 10.84 5.24

Benchmark 17.08 4.81 -9.11

Portfolio

The fund portfolio is a mix

of large-cap as well as mid-

cap stocks with the latter

having higher weightage. Bold

contrarian calls have generated

the alpha for the fund. This may

be a riskier strategy but the fund

manager is known in the industry

as a good stock picker backed on

the strong performance of the

scheme so far.

In the current year, the fund

manager has booked profits in

its age old holding Kaveri Seeds.

Despite some profit booking,

the stock still continues to be the

top most holding of the scheme.

In the banking sector, more

large-cap banks are held

compared to mid-cap banks. The

fund manager has accumulated

United Bank, contrary to the

Street, which is not so bullish

on the stock. The fund has the

lowest allocation to banks of

~3-4% again contrary to many

other diversified schemes.

The stock which has been the

find of the year is VA Tech

Wabag. The stock has seen a

more than 60% up-move since


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Performance of all the schemes managed by the fund manager

Fund Name 31-Mar-13 31-Mar-12 31-Mar-11

31-Mar-14 31-Mar-13 31-Mar-12

IDFC Premier Equity Fund-Reg(G) 29.40 10.84 5.24

S&P BSE 500 17.08 4.81 -9.11

IDFC Equity Fund-Reg(G) 18.53 8.03 -8.05

CNX Nifty Index 17.98 7.31 -9.23

Market Capitalisation (%)

Large 29.0

Mid 55.7

Small 8.7

Dividend History

Date Dividend

(%)

Mar-26-2014 25

Mar-26-2013 24.8

Mar-23-2012 24.2

Mar-29-2011 24

Mar-29-2010 24

Apr-28-2009 15

Top 10 Sectors Asset Type %

Agriculture Domestic Equities 7.8

Textile Domestic Equities 6.6

Gas Transmission/

Marketing

Domestic Equities 5.4

Engineering -

Construction


TV Broadcasting &

Software Production


Leather Domestic Equities 4.5

Courier Services Domestic Equities 4.4

Retailing Domestic Equities 4.2

Power Generation/

Distribution


Fertilizers Domestic Equities 3.6

Risk Parameters

Standard Deviation (%) 12.32

Beta 0.66

Sharpe ratio 0.11

R Squared 0.85

Alpha (%) 5.44

Portfolio Attributes

Total Stocks 32.0

Top 10 Holdings (%) 48.3

Fund P/E Ratio 19.0

Benchmark P/E Ratio 16.9

Fund P/BV Ratio 4.8

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

Note : Risk is represented as:

(BLUE) Investors understand

that their principal will be at

low risk

(YELLOW) Investors understand

that their principal will be at

medium risk

(BROWN) Investors

understand that their

principal will be at high risk

Data as on March 31, 2014 and Portfolio Details as on February 28, 2014Source: ICICIdirect.com Research; ACE MF



49/64


Category: Mid-cap Equity

Funds

HDFC Midcap Opportunities

Fund Objective

The aim of the fund is to

generate long-term capital

appreciation from a portfolio

that substantially consists

of equity and equity related

securities of small and midcap

companies.

Fund Management

Mr. Chirag Setalvad has been

managing the fund since April

2007, and has over 16 years of

industry experience.

Performance

The fund has been a star

performer in the mid-cap funds

category. In CY10, when the

benchmark CNX Midcap index

slipped by 31%, in same year the

fund limited losses to 18%. In the

rally of CY09, the fund delivered

Key Information

NAV as on March 31,2014 (`)

22.5

Inception Date June 25, 2007Fund Manager Chirag SetalvadMinimum Investment(`) Lumpsum SIP

50000

Expense Ratio (%) 2.13Exit Load 1% on or before 1Y,

NIL after1Y

Benchmark CNX MidcapLast declared QuarterlyAAUM (`cr)

3201.34

Product LabelThis product is suitable for investors seeking*:

l Capital appreciation over long term.

l Investment predominantly in equity andequity related instruments of Small and MidCap companies.

l High risk (BROWN)

same returns as the benchmark.

In the recent rally, the fund

has beaten the benchmark by

huge margins. CNX Mid-cap

Index, in the last six months,

has delivered 23% return while

the fund has outperformed the

index delivering a whopping

35% return. The performance

has mainly come on the backof several mid-cap banks

and being overweight on the

pharmaceuticals sector. The

fund was launched in 2007



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when markets were at their

peaks. Since inception, the fund

has delivered 13% compoundedannualised returns (CAR) as

against 6.12% CAR delivered

by the benchmark CNX Midcap

index.

Portfolio

The fund has 64 stocks in the

portfolio of which 61 have been

held for more than a year at

least. The buy and hold strategy

in mid-cap stocks has benefited

the fund. Diversification in mid-cap stocks is optimum as the

fund has accumulated assets

under management (AUM) of

over `3,000 crore.

Sector bias is often seen inthe portfolio. Currently, the

portfolio has ~17% allocation

to pharmaceuticals stocks.

Despite the run-up there is no

profit-booking indicating the

fund managers positive outlook

on the sector is intact. In mid-

cap pharmaceuticals stocks,

any major downfall for whatever

specific reason is being used as

a buying opportunity for long

term.Allocation to technology stocks

has been reduced while mid-

cap banking stocks have seen

some addition. Consumption

theme is played through air

conditioners and domestic

appliance manufacturers. Being

a mid-cap fund, auto ancillaries

Monthly Issue1

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