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______________________________________________________________________
Investment Advisory Group Presentation December 2018
1
Equity Strategy & Recommended Asset Allocation ______________________________________________________________________
Sharp correction in Crude Oil, Soothing statement by the US Fed and consequent rally in the INR seems to have lifted the market sentiments. Strong liquidity infusion by the RBI also seems to have alleviate the concerns related to credit flow tightening.
In India, focus on infra spending by the government, improved urban consumption, rebounding exports and better farm income has the potential to shore up the economy in the medium term. However, the Q2FY19 GDP was below expectation, on the back of lower Agri and Manufacturing performance. Private Consumption saw some tapering of growth momentum
Strong USD, increasing global interest rates, trade wars and state/general elections could cause volatility in the equity markets.
On the positive side, the key demand indicators are showing continued traction and there seems to be some pricing power returning to businesses, as is being witnessed in the strong revenue growth of corporates in Q2FY19 results. However the earnings performance has been weaker than anticipated.
Post Q2FY19, earnings performance has been mixed with few sectors showing improvement and some showing weakness. Earnings growth needs to improve for markets to move higher sustainably. From an Equity Mutual Fund perspective, investors should look at Large cap Funds for fresh investments and SIP into Midcap and Small caps stocks/funds can begin with the longer horizon.
The Equity investment strategy, continues to remain at 50% Lumpsum and rest 50% staggered over the next 4-5 months.
Aggressive
Moderate
Conservative
Direct Equity /Equity Funds
65%
50%
25%
Debt Funds
20%
40%
70%
Alternative Investments
10%
5%
-
Gold
5%
5%
5%
2
Debt Mutual Fund Strategy ______________________________________________________________________ Investments into Short Term Funds can be considered with an investment horizon of 12 months and above. Investors looking to invest with a horizon of up to 3 months can consider Liquid Funds, while Arbitrage Funds and Ultra Short Duration Funds can be considered for a horizon of 3 months and above. Investors looking to lock in current yields can invest in Fixed Maturity Plan (FMPs). Investor who are comfortable with intermittently volatility, can look also at strategies that focus at the longer end of the yield curve. i.e. High duration funds.
3
Research Presentation – Contents ______________________________________________________________________
Outcome of State Assembly elections… likely to be key sentiment driver in near team
Trump factor and expectation of over supply situation results in Brent crude prices falling to near one year low
Divergence seen in developed markets…U.S. economic data continues to remain steady while EU is waning
Trade war taking toll on China‟s GDP growth…may put pressure on its trading partners
Most of the Emerging Market currencies take a breather…see uptick in FPI flows during the month of Nov‟18
Sharp decline in Oil prices and Rupee appreciation led to strong bounce back in Indian indices
Steady IIP and PMI data, high credit growth and strong currency reflect improvement in macro trends
India continued to be fastest growing major economy in the world… as it grew by 7.1% YoY in Q2FY19 though lower than expectations
Early signs of consumption demand weakening, while the larger picture still remains healthy
Capacity utilization improving … Revival of pricing power may push corporates to look for further Capex
Q2FY19 results were mixed… Revenue growth continued to improve while margins got impacted
Upmove in the markets, driven by crude oil, and earnings downgrade led to valuation rising higher again… earnings growth is needed for improvement in valuation
Key concerns to watch out ….
Valuation differential between Large Cap and Midcap Indices remains high…earnings growth remains the key
Nifty 50 rolling returns for last 15 years… S&P BSE Sectoral Indices monthly performance for October 2018
Equity Market Round Up – November 2018
Equity Market – Outlook and Stocks
Fixed Income
G-sec rally continued in November 2018...
Corporate bond yields declined less compared to G-sec yields…tracking caution on credit ratings of companies and tight liquidity conditions
Crude oil prices decline sharply in November 2018…big positive for domestic macros and bond yields
US FOMC gives hints of less aggressive monetary tightening…
CPI inflation for October 2018 declines tracking lower food inflation…
Fiscal deficit for April-Oct 2018 overshoots the budget estimate…
Banking System liquidity tightens further…RBI continues to support liquidity through regular OMO purchases
The G-sec yield curve continues to remain flat…
Key Risks and Variables to watch out for…
Fixed Income Outlook
Equity Mutual Funds
Insurance
4
Outcome of State Assembly elections… … likely to be key sentiment driver in near team ______________________________________________________________________ Term Completing on
No. of Seats in Rajya Sabha
Time line of Elections
No. of Seats in Lok Sabha
Mizoram
15.12.2018
40
Voting Over
1
Rajasthan
20.01.2019
200
7 Dec 2018
25
Chhattisgarh
05.01.2019
90
Voting Over
13
Madhya Pradesh
07.01.2019
230
Voting Over
29
119
7 Dec 2018
17
Apr-May 2019 (Expected)
543
State
Telangana General Elections
03.06.2019
Source: Media reports
5
Three out of Five states have gone through voting round, while two more will go for voting on December 7, 2018.
The outcome of these elections would be released on December 11, 2018.
The outcome of these elections would be key monitorable as markets could interpret results as some kind of trend of the upcoming general elections (Lok Sabha), which are likely to be held in early part of FY20.
Although, periods of elections have been unpredictable in the past and it is difficult to gauge the exact impact on the sentiments, clearly this could be a volatile period which may continue to throw good investment opportunities.
Trump factor and expectation of over supply situation results in Brent crude prices falling to near one year low ______________________________________________________________________ Brent Crude prices reacting on Trump's tweet in recent past... 90
"... The OPEC monopoly must get prices down now!"
85
"Oil prices are too high, OPEC is at it again. Not good!"
USD/bbl
80
75 "Hope OPEC will increase production substantially. Need to keep prices down!"
70 65
"So great that oil prices are falling (thank you President T)..)!!"
"Looks like OPEC is at it again"
60
Nov-18
Nov-18
Nov-18
Oct-18
Oct-18
Oct-18
Sep-18
Sep-18
Sep-18
Aug-18
Aug-18
Aug-18
Jul-18
Jul-18
Jul-18
Jun-18
Jun-18
Jun-18
May-18
May-18
May-18
May-18
Apr-18
Apr-18
Apr-18
Mar-18
Mar-18
Mar-18
Feb-18
Feb-18
Jan-18
Jan-18
Jan-18
Jan-18
55
Source: Bloomberg, Media Reports
Brent crude prices had risen sharply in the last few month to near its 4 year high of ~USD 85/bbl during the start of October on the back of supply side concerns, apart from other key reasons like the U.S. sanctions on Iran‟s energy sector, declining Venezuela oil production and Geo political tensions.
However, in the last two months, Brent crude prices have come off sharply by ~29.5% to its one year low of ~USD 58/bbl on the back of expectation of higher supply amid concerns of slowing global growth.
U.S. waiver to eight countries including India, China and Japan to continue to buy oil from Iran has also resulted in cooling off some pressure during the month of Nov‟18. Moreover, U.S. crude oil production rose by 129,000 bpd in Sept‟18 to a fresh record of 11.475 mn bpd, which also led to downward pressure on Brent crude prices.
Also, U.S. President‟s Donald Trump‟s tweets criticizing higher crude oil prices and assurance by major oil producers like Saudi Arabia to pump in more oil in response also resulted in Brent crude oil prices seeing downward movement in the recent past.
Although oil demand has remained soft in the last few months, any expected increase in seasonal demand as winter kicks in, would be key monitorable for oil price movement in the near term apart from any supply cuts announced in the upcoming OPEC meeting on 6 December 2018.
Going forward, oil supply by OPEC and Non OPEC member nations and political conditions in Middle East on one hand and expectation of global growth and U.S. shale production on the other hand are likely to direct the crude oil prices in the near to medium term.
6
Divergence seen in developed markets… …U.S. economic data continues to remain steady while EU is waning ______________________________________________________________________
U.S. economic data has remained steady over the last many months with trend continuing in the month of November 2018 as well.
Real Gross Domestic Product increased at an annual rate of 3.5% QoQ in Q3CY18. The U.S. Manufacturing PMI remained at 55.3 in Nov‟18 vs 55.7 in Oct‟18, while the unemployment rate stood at 3.7% in Oct 2018, lowest level since 1969.
Moreover, wages climbed sharply in Oct 2018 by the most since the recession ended in 2009, by 3.1% YoY. This may result in inflation rising in U.S. which is again a positive for the economy.
US Fed chair statement that interest rates are just below the neutral level, where it would neither speed up nor slow down economic growth also boosted the global market sentiments.
On the other hand, European Union (EU) growth has slowed down recently mainly due to temporary factors like Trade-war, slowdown in global growth, Brexit, Italy slowdown amongst others.
On the economic data, EU manufacturing PMI signaled the continued growth slowdown with Nov‟18 reading coming in at 51.8 vs 52.0 in Oct‟18. Euro area‟s GDP growth slowed down to 0.2% QoQ and 1.7% YoY in Q3CY18 vs 0.4% QoQ and 2.2% YoY in Q2CY18.
At the same time, recent disagreement between Italian government and European Commission over the Italy‟s budget proposal has also resulted in some political instability in the region.
Also, Britain has been demanding for softer Brexit deal with EU including a free trade agreements with U.S. and China, which is also likely to create a overhang on the EU growth as possibility of a “no deal” situation may affect free movement of goods and services.
Also, expectations of ECB‟s Quantitative Easing (QE) coming to an end from December, remains a key concern over the growth. While the U.S. economic data continues to remain steady over the last few quarters, going ahead, U.S. Fed’s monetary policy stance, liquidity conditions given Fed’s balance sheet tapering program and U.S. and China trade policies would be key monitorable for the U.S. economy. While, EU growth has wobbled in the recent past, deals under Brexit and Italy's revised budget proposal would be key monitorable for European economy.
7
Euro area GDP growth showing declining trend (Change YoY%) 3.0%
2.7% 2.4%
2.5%
2.2%
2.0%
1.7%
1.5% 1.0% 0.5% Q4CY17
Q1CY18
Q2CY18
Q3CY18 Source: Eurostat
Trade war taking toll on China’s GDP growth… …may put pressure on its trading partners ______________________________________________________________________ US-China Trade Relations Over the Years 600 500 USD Bn
400
399
365
338
321
463
296
300 200 63
70
70
92
CY07
CY08
CY09
CY10
100
506
483
468
440
426
104
111
122
124
116
116
130
0 CY11
Chinese exports to US
CY12
CY13
CY14
CY15
CY16
CY17
US exports to China Source: US Census Bureau
Since the beginning of the year, the Trump administration‟s pledge to narrow the U.S. trade deficit with China had resulted in a threat of Trade/tariff war like situation between U.S. and China, both having the world‟s biggest trading relationship.
The U.S. has imposed tariff on about USD 250 bn worth Chinese goods imported by U.S., thus prompting China to retaliate with charges on USD 110 bn worth of U.S. products imported by China.
Thus, given such geo-political tensions, International Monetary Fund (IMF) has cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets. IMF expects global growth at 3.7% YoY for CY18 and CY19 both, which is 0.2% point lower for both years against its forecast in April 2018. The impact of the ongoing trade war has also resulted in slow down in China‟s Gross domestic product as it grew by 6.5% YoY in Q3CY18 compared to 6.7% YoY seen in Q2CY18, which is also the slowest growth rate since 2009.
Thus, the impact of a trade war between these superpowers may impact the global and other Emerging economies and also the slowdown in China’s growth is likely to have repercussion on other Emerging economies like South Korea, Taiwan, Thailand, Brazil, Vietnam, Indonesia amongst others who are trading partners of China.
However, earlier during the month of November, the U.S. president suggested his administration could soon strike a deal with China and as per media reports, President Trump has agreed that on January 1, 2019, U.S. will leave the tariffs on USD 200 bn worth of product at the 10% and not raise it to 25%, thus giving a 9- day window for further discussions.
While the deterioration in economic growth data signaled by various agencies may impact the sentiments in near term, announcements or actions by US President on trade policy and reciprocal announcement by China and other countries would be the key monitorable for the global growth projections. Also, going ahead, any slow down in Chinese economy is also likely to have repercussion on the China’s trading partners, especially in Emerging Markets.
8
Most of the Emerging Market currencies take a breather… …see uptick in FPI flows during the month of Nov’18 ______________________________________________________________________ Most of the Emerging Markets currencies have appreciated against USD during Nov 2018
Positive FPI inflows seeing in most of the Emerging Markets during November 2018(in USD mn)
6.6%
5000
4,440 3,522
4000
in USD Mn
3000
1,794
1000
India Philippines
238
248
Taiwan
S Korea
Thailand
Indonesia
Philippines
Thailand
0.8% 0.4%
-72 Brazil
Vietnam
-378
S Korea
1.7%
0
-1000
Indonesia
5.9% 2.0%
2000
Taiwan
0.2%
China
0.1%
Vietnam Russia
-1.7%
Brazil
-3.9%
-6.0%
-4.0%
Source: Bloomberg, *Data for Nov 2018
Turkey
5.9%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0% Source: Bloomberg
Foreign investors pulled out capital from most of the emerging economies‟ equity markets since the start of the year on the back of trade war like situation between U.S. and China and firming up of U.S. bond yields on the back of expected higher growth for U.S.
Also the Global liquidity tightening or reduction of major central bank‟s balance sheets have also resulted in the yields going up sharply in the recent past. This also led to hardening of yields in U.S. and other advanced markets and resultant flight of FPI flows from Emerging Markets (EMs) to dollar denominated securities in the advanced markets.
However, recently in the month of Nov‟18, most of the EM equity markets saw positive FPI inflows as sentiments improved on the back of sharp decline in crude oil prices and trade war worries between US and China showing signs of cooling off along with positive statements coming from US Federal Reserve.
As a result, most of the EM currencies have gained against the US dollar during the month.
Amongst the EMs, Turkish Lira has appreciated by ~6.6% MoM in Nov‟18 and Indian Rupee and Indonesia Rupiah have also appreciated by 5.9% MoM each while Chinese Yuan appreciated marginally by ~0.2% MoM during the same period.
Going ahead, tightening of liquidity as signaled by major central banks like U.S. Fed and ECB is likely to guide the bond yields up in these markets and hence may result in money flowing out of EMs to developed markets on the back of risk aversion amongst FPIs. Additionally, any negative global sentiments due to trade war like situation and its negative impact on exporting EMs may create pressure for EMs equity markets and currency.
9
Sharp decline in Oil prices and Rupee appreciation led to strong bounce back in Indian indices
______________________________________________________________________ Nifty 50
Movement in Indian Rupee (INR per unit of USD)
11900 11700 11500 11300 11100 10900 10700 10500 10300 10100 9900
75 73 71
69 67 65
Source: Bloomberg
Nifty 50 registered 4.7% gain in the month of November 2018 owing to
Nov-18
Oct-18
Sep-18
Aug-18
Jul-18
Jun-18
May-18
Apr-18
Mar-18
Mar-18
Jan-18
Dec-17
Nov-18
Oct-18
Sep-18
Aug-18
Jul-18
Jun-18
May-18
Apr-18
Mar-18
Mar-18
Jan-18
Dec-17
63
Source: Bloomberg
300
sharp decline of ~22% MoM in Brent Crude Oil prices
200
appreciation of Rupee by ~6% MoM
100
revival in buying from FPI to the tune of ~Rs. 60 bn and steady flow from DIIs to the tune of ~Rs. 36 bn
Trend in FPI and DII (Rs in Bn)
0 -100 -200
rising expectation of lower Current Account Deficit
However, further upmove in the markets would depend on consistently oil prices remaining at lower levels and benefits of lower oil prices and currency appreciation flowing into the corporate earnings.
10
-300
-400 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18
FPI - Equity
Jul-18 Aug-18 Sep-18 Oct-18 Nov-18
DIIs Source: NSDL, SEBI Data as on 29 Nov 2018
Steady IIP and PMI data, high credit growth and strong currency reflect improvement in macro trends ______________________________________________________________________ Certain macro data showing improvement – steady PMI and IIP data, improving credit growth data and lower CPI .
12
2
Jul-17
9/17/2018
8/17/2018
Source: MoSPI, Min of Commerce
Source: Bloomberg
10/17/2018
7/17/2018
6/17/2018
5/17/2018
4/17/2018
3/17/2018
2/17/2018
1/17/2018
12/17/2017
11/17/2017
9/17/2017
10/17/2017
8/17/2017
7/17/2017
6/17/2017
5/17/2017
4/17/2017
3/17/2017
Jul-18
Sep-18
Jun-18
Aug-18
Apr-18
May-18
Jan-18
Feb-18
Mar-18
Oct-17
Dec-17
Nov-17
Jul-17
Sep-17
Jun-17
Aug-17
Apr-17
May-17
Jan-17
Feb-17
Mar-17
Oct-16
Dec-16
Sep-16
Nov-16
Aug-16
Oct-18
Nov-18
Sep-18
Jul-18
Aug-18
Jun-18
Apr-18
May-18
Mar-18
Jan-18
Feb-18
Dec-17
Nov-17
-2.0
2/17/2017
0
0.0
48
Oct-18
6 4
2.0
49
8
Sep-18
50
10
Jul-18
4.0
Aug-18
51
Jun-18
6.0
Apr-18
52.2
May-18
51.7
51.2
Mar-18
51.6
Jan-18
51.0
Feb-18
52.3
52.1
Dec-17
52.4
52
14
Oct-17
52.6
53
5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5
16
8.0
53.1
Change YoY %
53.1
Nov-17
54
54
CPI based inflation coming down in last few months
in %
55
Credit Growth continues to show improvement in last few months (YoY %)
IIP and core sector growth data stabilizing in last few months (YoY %)
10.0
Sep-17
54.7
Aug-17
Manufacturing PMI rises to 11 month high in Nov'18 56
CPI (%) Source: Bloomberg, MoSPI, Min of Commerce
Source: RBI
While certain Economic data like rising Fiscal deficit, Current Account Deficit and rising trade deficits in recent months are yet to reverse
2.5%
1.4%
Source: CGA
Source: Ministry of Commerce and Industry
Certain macro data like steady PMI and IIP data along with improving non-food credit growth to ~15% YoY in the first week Nov‟18 and cooling off of CPI based inflation in the recent months are signalling improving macro scenario. While, certain economic data like higher fiscal deficit of ~103.9% for April-October of FY19, rising Current Account deficit and Trade Deficit are indicating weakness in the certain macro picture.
Going ahead, the recent decline in the oil prices and appreciation of Indian rupee may result in lowering of CAD and Trade Deficit and also it is likely to be lower than earlier estimate given the sharp fall in crude prices seen in the recent months.
11
Oct-18
Sep-18
Aug-18
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Source: RBI
7.0 Jul-18
0.1%
0.0%
Jun-18
April-October FY19
May-18
April-October FY18
0.6% Apr-18
0.5%
90%
9.0
9.5
0.6%
Mar-18
92%
12.0
14.0
12.0
11.4 11.6
1.1%
1.0%
17.4
14.6
13.7 13.7
Feb-18
1.5%
94%
14.9 14.0 13.8
14.5
Jan-18
96.1%
96%
1.9%
Dec-17
98%
2.1%
Nov-17
2.0%
Oct-17
2.5%
100%
17.1
16.6
16.3
17.0
Sep-17
102%
18.0
2.4%
Aug-17
3.0%
103.9%
104%
Trade Deficit seen rising in the last few month ($ Bn)
Current Account Deficit rising sharply in last few quarters (as % of GDP)
Jul-17
Fiscal Deficit as a percentage of full year target rises sharply in YTD FY19 upto October (in %)
India continued to be fastest growing major economy in the world… as it grew by 7.1% YoY in Q2FY19 though lower than expectations ______________________________________________________________________ Trend in GDP growth (% YoY) 9.0 8.0
7.7
7.6 6.1
6.0
India’s GDP grew at 7.1% YoY in Q2FY19 and Gross Value Added (GVA) at 6.9% YoY at a slower pace than Q1FY19.
H1FY19 GDP growth stood at 7.6% YoY compared with 6.0% YoY in H1FY18 and GVA growth stood at 7.4% YoY compared with 5.8% YoY in H1FY18.
Q2FY19 GVA growth was driven by growth in services sectors especially in following sectors;
8.2 7.1
7.0
6.8
7.0
6.3 5.6
5.0
4.0 3.0
Electricity, Gas, Water supply & other Utility Services – up by 9.2% YoY vs 7.3% YoY in Q1FY19
Trade, Hotel, Transport, Communication & Services Related To Broadcasting – up by 6.8% YoY vs 6.7% YoY in Q1FY19
Public Admin, Defence & other services – up by 10.9% YoY vs 9.9% YoY in Q1FY19
2.0 1.0 0.0 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Source: Ministry of Statistics and Programme Implementation
Growth (% YoY) in Sectoral GVA at basic prices Industry Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Agriculture, Forestry & Fishing 2.6 3.1 4.5 5.3 3.8 Mining & quarrying 6.9 1.4 2.7 0.1 (2.4) Manufacturing 7.1 8.5 9.1 13.5 7.4 Electricity, Gas, Water supply & other Utility Services 7.7 6.1 7.7 7.3 9.2 Construction 3.1 6.6 11.5 8.7 7.8 Trade, Hotel, Transport, Communication & 8.5 8.5 6.8 6.7 6.8 Services Related To Broadcasting Financial, Insurance, Real Estate & 6.1 6.9 5.0 6.5 6.3 Professional services Public administration, defence & other services 6.1 7.7 13.3 9.9 10.9 GVA at Basic Price 6.1 6.6 7.6 8.0 6.9 Source: Mospi
Expenditures of GDP (% YoY) Q2FY18 Private Final Consumption Expenditure 6.8 Government Final Consumption Expenditure 3.8 Gross Fixed Capital Formation 6.1 Change in Stocks 5.8 Valuables 54.2 Exports 6.8 Less Imports 10.0 Discrepancies 15.4 GDP at market prices 6.3 Source: Mospi
12
Q3FY18 5.9 6.8 9.1 7.2 37.2 6.2 10.5 (55.0) 7.0
Q4FY18 6.7 16.8 14.4 7.8 29.1 3.6 10.9 (21.8) 7.7
Q1FY19 8.6 7.6 10.0 8.6 (8.0) 12.7 12.5 0.4 8.2
Q2FY19 7.0 12.7 12.5 3.8 23.3 13.4 25.6 22.7 7.1
However, some of the sectors grew at lower rate as compare to Q1FY19;
Agriculture, Forestry & Fishing – up by 3.8% YoY vs 5.3% YoY in Q1FY19
Mining & quarrying – fell by 2.4% YoY vs growth of 0.1% YoY in Q1FY19
Manufacturing – up by 7.4% YoY vs 13.5% YoY in Q1FY19
Construction – up by 7.8% YoY vs 8.7% YoY in Q1FY19
On the expenditure side, Gross Fixed Capital Formation (GFCF) growth, a proxy to investment demand, continued to improve on YoY basis. However, private consumption on the one hand slowed down a bit, government consumption growth on other hand saw improvement.
The improvement in GFCF, a proxy for private capex, is hinting towards improvement in private capex that may lead to further improvement in GDP growth rate going ahead.
While the multilateral agencies continue to keep faith reposed in India’s sustained growth momentum driven by strong consumption and investment growth in the economy, they marginally trimmed their growth forecast for FY19 and FY20 owing to liquidity constraint at NBFCs and rising interest rates.
Early signs of consumption demand weakening, while the larger picture still remains healthy.
______________________________________________________________________
Overall consumption demand remains steady key indicators continue to report steady growth… Domestic airline passenger traffic continued to see double digit growth for 50 straight months 30.0
Sustained double digit domestic airline passenger growth for last 50 months
Same store growth in QSR* companies 30.0% 25.0%
25.0
20.0%
20.0 YoY %
Strong same store growth in QSR* companies depicts urban demand remain steady
15.0% 15.0
10.0%
10.0
5.0% 0.0%
5.0
-5.0% Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18
0.0
-10.0% Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Jubilant FoodWorks Westlife Development Source: Company Data, Note: *Quick service restaurants
Source: DGCA
Volume growth for FMCG companies remained steady during Q2FY19 though moderated a bit Trend in Volume growth for FMCG Companies Volume growth YoY % Q2FY18 Q3FY18 Q4FY18 Q1FY19 HUL consumer business 4 11 11 12 Marico Group 8 9 1 12 Marico (Parachute) 12 15 (5) 9 Marico (saffola) 3 0 (1) 10 Marico (hair oil) 12 8 11 15 Jyothy Lab 4 12 11 19 Emami 10 6 9 16 Dabur 7 13 8 21 Colgate (1) 12 4 4 Source: Company data
Q2FY19 10 6 8 5 5 4 (4) 8 7
However, initial signs of weakness are emerging in terms of moderation in auto sales numbers especially in PV and moderation in personal loan growth
Source: Media Reports
Jul-18
Oct-18
Jan-18
-16 -18 Toyota Ford India
Apr-18
Maruti Suzuki
Jul-17
M&M
Oct-17
Honda Cars
Jan-17
-20
Apr-17
Tata Motors
-15
Jul-16
Hyundai Motor
-10
Oct-16
-1.0
Jan-16
-0.7
Apr-16
-5
Jul-15
0.5
Oct-15
0.8
0
Jul-14
(YoY growth in %)
5
Oct-14
10
10
21.00 20.00 19.00 18.00 17.00 16.00 15.00 14.00 13.00 12.00 11.00
Jan-15
% Growth in Personal loan (YoY)
PV sales in November 2018 15
However, hike in MSP for Rabi crops may support the rural demand growth momentum
Personal loan growth also witnessing moderation
Apr-15
Weakness witnessed in Passenger vehicle growth
Source: RBI
Wheat Barley Gram Masur (Lentil) Rapeseed & Mustard Safflower Source: http://pib.nic.in
Hike in MSP for Rabi Crops MSP MSP Cost of Increase Return over (Rs/quintal) (Rs/quintal) production in MSP (%) cost* (%) FY18 FY19 (Rs/quintal) FY19 1735 1840 866 6.1 112.5 1410 1440 860 2.1 67.4 4400 4620 2637 5.0 75.2 4250 4475 2532 5.3 76.7 4000 4200 2212 5.0 89.9 4100 4945 3294 20.6 50.1
While overall consumption demand condition remained steady, some early signs are coming to forefront which indicates weakness is creeping in the consumption demand. Moderation in personal loan growth and tightness in lending and lending rate may create further pressure going ahead. Similarly, a deficiency in monsoon (~9% from LPA) and lower Rabi sowing may lead to slowdown in rural demand but hike in Rabi MSPs, higher Kharif crop production output (first est. 141 mn tonnes) and reservoir levels (~100% of last year‟s storage) may provide some cushion. However, increased focus of the government towards doubling the rural income, hike in Kharif and Rabi crop MSPs, higher allocation to schemes related to Urban India and higher per capita income is likely to keep consumption demand buoyant in the long term.
13
Capacity utilization improving … …. Revival of pricing power may push corporates to look for further Capex
______________________________________________________________________
Govt. spending rose by ~10% YoY in Apr-Oct’18
India‟s fiscal deficit touched 103.9% of the budgeted target during the Apr-Oct period
The aggregate capital expenditure by 20 major states in April-Sept of FY19 was Rs 1.31 trillion, 16% higher than in the year-ago period, Uttar Pradesh (151%), Rajasthan (62%) and Gujarat (29%) reported the sharpest acceleration in capex in H1FY19
Govt is keen to set up 5000 compressed bio-gas plant in next 5 years by investing Rs.1.75 trillion
Indicators of Investment demand also looking up
6.0 4.0
2.0
Q2FY19
Q1FY19
Q4FY18
Q3FY18
Q2FY18
Q1FY18
Q4FY17
Q3FY17
Q2FY17
Source: MOSPI
Healthy growth in cement production over the last one year (YoY %) 23.1%
25.0%
17.7% 19.6% 16.9%
20.0% 15.0%
Vodafone Idea is planning for Rs.270 bn Capex for 4G coverage by FY20
0.0%
JSW Steel to invest over Rs.50 bn on strengthening downstream manufacturing capacity
-5.0%
Jul-18
Jun-18
Apr-18
May-18
Mar-18
-1.3%
Feb-18
0.7% 1.2% -3.1% 0.3%
Jan-18
5.0%
Oct-18
10.8% 14.3% 11.8%
10.0%
Sep-18
Swedish company IKEA plans to open over 40 stores across different formats as against 25 stores (Rs.105 bn capex) planned earlier.
18.4%
16.5% 13.0% 13.2% 13.5%
Aug-18
Dec-17
PSU, Private and foreign companies have started participating in the capex cycle,
Q1FY17
0.0
FDI in India, which grew by 23% YoY to USD 12.75 bn during Q1FY19, also bodes well for investment activity going ahead.
Steady government efforts to push capex cycle and steady in demand condition led to sharp improvement in Capacity Utilization which stood at 75% in Q1FY19.
Capital spending by some of India Inc’s larger firms rose to a staggering ~Rs.4.63 trillion at Source: MoSPI the end of FY18, up from ~Rs.3.47 trillion in FY17. A lot of corporates have stayed back in recent past when it comes to capex announcement due to slack period seen in their profitability in last 3-4 years. However, some of the companies have started taking initiative for new capex announcement as they see improvement in their capacity utilization. We believe that as the aggregate demand scenario is expected to remain steady going ahead owing to steady growth in automobile sales, cement production, improvement in order book for capital goods companies and rising GFCF, there is likely to be revival in pricing power of the corporate for their goods and services, which may push corporates to initiate fresh capex announcement.
8.0
Nov-17
10.0
Oct-17
As per the RBI‟s annual report, household financial savings, which has improved from 9.1% in FY17 to 11.1% in FY18, are the most important source of funds for investment in the economy.
12.0
Q4FY16
Import of “Machinery, electrical & non-electrical” and “Electronic goods” rose by 12.5% YoY and 31.9% YoY in Oct‟18
14.0
Sep-17
16.0
Aug-17
Cement production is up by 18.4% YoY in Oct‟18
Trend in GFCF growth
18.0
Q3FY16
Growth in Gross Fixed Capital Formation, a proxy to investment activity in India, is witnessing a sharp improvement from 0.8% YoY growth in Q1FY18 to 12.5% YoY growth in Q2FY19.
Jul-17
Jun-17
Central government continued its efforts to push capex cycle by raising allocation for Capital expenditure – CAGR 11.1% YoY over FY15 to FY19E
(in YoY %)
14
Q2FY19 results were mixed… … Revenue growth continued to improve while margins got impacted ______________________________________________________________________ YoY Change in % Ai r Tra n s p o rt Se rvi ce Au to & Au to An c BFSI Ca p i ta l Go o d s Ce me n t & Pro d u cts Ch e m & Fe rt FMCG & Re ta i l He a l th ca re Ho te l s & Re s ta u ra n ts I n fra s tru ctu re IT Lo gi s ti cs Me d i a & En t Me ta l & Mi n Mi s ce l l a n e o u s Oi l & Ga s Po we r Re a l ty Te l e co mm Te xti l e s Grand Total ex BFSI Source: Capitaline
Q2FY19 16.9 7.0 9.8 35.0 15.0 17.2 7.1 9.5 13.3 18.6 16.3 26.1 70.6 20.9 35.7 48.1 12.7 19.6 (3.6) 25.8 21.2 23.1
Net Sales Q1FY19 13.2 18.2 11.0 29.3 15.4 12.5 0.1 15.9 7.5 11.6 13.0 6.9 71.6 27.2 12.4 34.0 2.0 10.8 (12.8) 64.9 18.7 18.7
Q2FY18 27.0 14.6 7.2 9.7 15.7 1.1 (6.0) 3.7 (4.0) 6.4 4.6 6.2 (3.2) 25.5 (21.1) 13.7 (0.4) (0.0) (12.8) 56.1 9.0 8.3
Q2FY19 (236.1) (12.1) 10.2 123.0 (5.9) 0.4 10.8 (6.2) (1.1) 8.3 17.5 62.0 56.2 50.6 232.7 20.4 (14.7) 2.4 (33.5) (58.9) 9.5 11.1
EBITDA Q1FY19 (101.0) 17.8 0.1 164.6 (4.5) 6.0 19.0 38.7 18.6 5.5 15.3 15.6 75.8 52.5 (159.0) 63.9 (0.9) (11.4) (24.9) 72.5 15.7 15.6
Q2FY18 277.3 22.8 1.7 47.8 7.9 24.9 13.9 (7.1) (14.7) 25.2 3.1 36.9 6.1 33.8 (72.0) 34.8 3.4 4.3 (22.0) 54.6 9.6 8.7
Reported PAT Q2FY19 Q1FY19 Q2FY18 (218.2) (96.6) 294.4 (26.9) (28.3) 17.1 (39.2) (36.6) 13.3 81.7 156.9 (38.9) (6.3) (16.8) (6.2) 0.5 0.9 36.1 15.4 20.7 13.3 (10.1) 67.4 (19.7) (90.7) (132.0) 143.7 13.2 16.1 50.7 12.8 12.7 4.8 46.8 2.4 45.0 (11.3) 59.8 56.0 75.2 82.7 49.4 372.5 (89.9) (83.2) 11.3 37.4 22.9 5.7 15.6 3.5 109.0 87.5 (3.8) (3,598.6) 194.4 (95.2) (227.4) 13.4 (25.6) (4.7) 11.8 9.7 (2.3) 15.6 8.9
The corporate results announced far in Q2FY19 were as per the market expectation where top line continued to improve but margins got impacted.
The net sales of 196 companies in CNX 200 index grew by 21.2% YoY. However, rising commodity prices and delay in pricing action affected the EBITDA, which grew at a slower pace of 9.5% YoY. However, Reported PAT fell by 4.7% YoY during the quarter. Excluding banking, financial and insurance (BFSI) companies‟ data, net sales would have grown by 23.1% YoY and EBITDA by 11.1% YoY, while Reported PAT fell by 2.3% YoY.
The demand momentum continued to remain healthy for FMCG companies as seen in volume growth especially in rural India. Capital Goods companies also saw improvement in revenue growth owing to healthy order book and infrastructure push by the government. Automobile sector saw muted topline growth due to delayed festive season and on the cost side due to commodity price rise. Management of these companies have highlighted that the price hike has been taken and this is likely to be reflected in the next quarter. In the banking space, Corporate banks witnessed reduction in fresh NPA recognition. IT companies witnessed improvement in demand and a tailwind from currency depreciation.
We believe the demand improvement seen in recent earnings announcement is likely to continue going ahead on the back of improvement in global growth and in domestic micro level fundamentals like improving rural demand, steady growth in urban demand and gradual acceleration in capex activity especially in private sector. We think that the trend of organized sector gaining share from the unorganized sector would continue to gain traction in the new GST regime as the number of people under the tax net increases, which is likely to help improve corporate earnings further in the medium term.
15
Upmove in the markets, driven by crude oil, and earnings downgrade led to valuation rising higher again… earnings growth is needed for improvement in valuation ______________________________________________________________________ S&P BSE Sensex & Trailing P/E
45000
Mkt Cap to India GDP (curr prices)
30 160
40000
25
35000 30000 25000 20000
140
20
120
15
100
2500
Mkt cap to GDP highest in last seven year
Bubble Territory Previous peak with Sensex at ~21000
S&P BSE Sensex Consensus EPS (Rs.) 2100
2000 1500
1740 1540
1385
1360
FY16
FY17
80
Source: Capitaline
95.3
54.5
68.6
60.8
83.6
74.2
74.1
114.2
76.5
500
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Nov-18
P/E (RHS)
52.06
S&P BSE Sensex (LHS)
95.3
20
Dec-09
0
Nov-07 May-08 Oct-08 Mar-09 Aug-09 Feb-10 Jul-10 Dec-10 May-11 Nov-11 Apr-12 Sep-12 Mar-13 Aug-13 Jan-14 Jun-14 Dec-14 May-15 Oct-15 Mar-16 Sep-16 Feb-17 Jul-17 Dec-17 Jun-18 Nov-18
0
40
Dec-08
5000
1000
60
5
146.5
10
10000
Dec-07
15000
0
0
Source: Bloomberg
Indian markets ended on a positive note during the month of November 2018 as S&P BSE Sensex and Nifty 50 ended with the gain of 5.1% MoM and 4.7% MoM, respectively. The upmove was mainly due to ~22% MoM fall in crude oil prices and ~6% MoM appreciation in Indian Rupee.
Corporate results in Q2FY19 witnessed strong revenue growth, however, they have also witnessed compression in margins due to higher raw material cost, which led to downgrade in FY19E EPS.
Currently, the S&P BSE Sensex is trading at 20.8x FY19E consensus EPS of Rs.1740 and 17.2x FY20E consensus EPS of Rs.2100. (S&P BSE Sensex price as on 30.11.2018).
However, we expect the GDP growth momentum to pickup going ahead given the steady growth seen in IIP, Core sector and other lead indicators, which may lead to increase in the corporate earnings and thus improve the market valuations.
In long term India is likely to see a steady growth on the back of improvement in Rural economy, rising government expenditure and higher disposable income in the hands of consumers. With strong demographic dividend that India is seeing, we expect the economic growth and demand conditions in the country to remain strong for a long period. This is likely to augur well for investment in equities.
Hence, investors should use any major volatility in the equity markets as an opportunity to adding into their exposure in line with their risk profile with a 2-3 years investment horizon.
16
FY18
FY19E FY20E Source: Bloomberg
Key concerns to watch out …. ______________________________________________________________________
17
Domestic factors ….elections, currency movement, liquidity situation and demand momentum
Outcome of five state election would be one of the key determinants of investor sentiment before the General Elections.
If Rupee depreciates (~8.9% CYTD November 2018), then it may impact the country‟s twin deficit.
Accentuation of contagious effect of an NBFC default to other companies/sectors
Tightening of corporate credit cycle may lead to delay in capex cycle due to funding requirement
Weakening of discretionary consumption demand
Global factors ….hike in interest rate, rollback of QE and trade war
Quantitative tapering by the US and Europe leading to tightening of global liquidity, impacting global currencies while strengthening USD.
Faster interest rate hike by the US Fed leading to rise in bond yield thereby resulting in shift of capital from Emerging markets to Developed markets.
Rising trend of protectionism across economies leading to trade war situation could pose a risk to overall global growth.
Slowdown in growth in key developed (Europe) and developing (China) economies
Worsening in geo-political situations (Brexit, trade wars, etc) across globe.
Rise in volatility in commodity prices could put pressure on the global financial markets.
Valuation differential between Large Cap and Midcap Indices remains high…earnings growth remains the key ______________________________________________________________________ 50.0
Valuation differential between Large Cap and Midcap Indices corrected but still remains high
40.0 30.0 20.0
10.0
Trailing P/E S&P BSE Midcap
Nov-18
Jul-18
Mar-18
Nov-17
Jul-17
Mar-17
Nov-16
Jul-16
Mar-16
Nov-15
Jul-15
Mar-15
Nov-14
Jul-14
Mar-14
Nov-13
Jul-13
Mar-13
Nov-12
Jul-12
Mar-12
Nov-11
Jul-11
Mar-11
Nov-10
Jul-10
Mar-10
Nov-09
Jul-09
Mar-09
Nov-08
Jul-08
Mar-08
Nov-07
0.0
Trailing P/E S&P BSE Sensex Source: Capitaline
2.0
1.9
Valuation Premium of Midcap over Sensex
1.4
1.5 1.0 1.0 0.7
0.5
0.9
0.8
0.8
0.7
1.4
1.3
1.3
1.0
Nov-18
Jul-18
Mar-18
Nov-17
Jul-17
Mar-17
Nov-16
Jul-16
Mar-16
Nov-15
Jul-15
Mar-15
Nov-14
Jul-14
Mar-14
Nov-13
Jul-13
Mar-13
Nov-12
Jul-12
Mar-12
Nov-11
Jul-11
Mar-11
Nov-10
Jul-10
Mar-10
Nov-09
Jul-09
Mar-09
Nov-08
Jul-08
Mar-08
Nov-07
0.0
Source: Capitaline
18
Nifty 50 rolling returns for last 15 years ______________________________________________________________________ Nifty 50: 1-year rolling return for last 15 years
Nifty 50: 3-year rolling return for last 15 years
70
120 100 80 60 40 20 0 -20 -40 -60 -80
60 50 40 30 20 10 0
1 Year
avg
3 Years
Source: ICRA Online
avg
Nov-18
Nov-17
Nov-16
Nov-15
Nov-14
Nov-13
Nov-12
Nov-11
Nov-10
Nov-09
Nov-08
Nov-07
Nov-06
Nov-05
Nov-04
Nov-18
Nov-17
Nov-16
Nov-15
Nov-14
Nov-13
Nov-12
Nov-11
Nov-10
Nov-09
Nov-08
Nov-07
Nov-06
Nov-05
Nov-04
-10
Source: ICRA Online
Nifty 50: 5-year rolling return for last 15 years
50 40 30 20
10 0
5 Years
avg
Nov-18
Nov-17
Nov-16
Nov-15
Nov-14
Nov-13
Nov-12
Nov-11
Nov-10
Nov-09
Nov-08
Nov-07
Nov-06
Nov-05
Nov-04
-10
Source: ICRA Online
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
19
S&P BSE Sectoral Indices monthly performance for November 2018 ______________________________________________________________________ 8.0%
7.2%
S&P BSE Sectoral Indices monthly performance 6.7%
6.6% 5.6%
6.0%
5.1%
4.7%
4.0%
2.0% 0.0% 0.0% 0.0% -2.0%
-1.6% -2.4%
-4.0%
-2.7%
-6.0%
-5.5%
-8.0% Cons Durable
Realty
Cap Goods
Bankex
Auto
FMCG Sector
Infra.
Oil&Gas
(Month on Month change in %)
20
IT
Power
Healthcare
Metal
Source: Bloomberg
Equity Market Round Up – November 2018 ______________________________________________________________________ Indian markets ended on a positive note during the month of November 2018 as S&P BSE Sensex and Nifty 50 ended with the gain of 5.1% MoM and 4.7% MoM, respectively.
The S&P BSE Midcap index and the S&P BSE Smallcap index also ended on a positive note with the gain of 2.9% MoM and 1.6% MoM, respectively.
On the sectoral indices front, the S&P BSE Cons. Durable index and S&P BSE Realty index were the top two outperformers, as they rose by 7.2% MoM and 6.7% MoM, respectively. The S&P BSE Metal index and S&P BSE Healthcare index were top two underperformers as they fell by 5.5% MoM and 2.7% MoM, respectively. During the month of November‟18, FPIs were net buyers to the tune of ~Rs.60 bn while DIIs were net buyers to the tune of ~Rs.36 bn (as of 29 November 2018).
BSE Sensex Price Earning (PE) 1 year forward
21x
41000
Indices
30 Nov 2018
31 Oct 2018 Chg %
S&P BSE Sensex
36,194
34,442
5.1
S&P BSE Mid Cap
15,039
14,613
2.9
S&P BSE Small Cap
14,427
14,201
1.6
S&P BSE 100
11,119
10,662
4.3
S&P BSE 500
14,429
13,882
3.9
Net Flow (Rs. Bn)
FPI
DII
CY18*
(361)
1088
CY17
513
1187
CY16
151
475
CY15
131
710
19x 38000
17x
S&P BSE Sensex Levels
35000
32000
15x
29000
26000
23000
Source: BSE, NSDL (*CY18 FPI data and DII data as on 29 Oct 2018)
Source: Bloomberg
21
Nov-18
Jun-18
Feb-18
Sep-17
Apr-17
Dec-16
Jul-16
Feb-16
Oct-15
May-15
Dec-14
20000
Equity Market Outlook ______________________________________________________________________
Indian markets would be closely tracking the outcome of state assembly elections as it would be the key sentiment driver in near term.
In commodities markets, the Trump (US President) factor and expectation of oversupply situation resulted in sharp decline in Brent crude oil prices, which are currently hovering around near one-year low. Going ahead, any increase in seasonal demand for oil and outcome of upcoming OPEC meeting on 6 December 2018 would be key monitorable for oil price movement in the near term.
In global markets, a divergence was seen in growth momentum in developed markets with the US continued to see steady growth, while EU growth momentum started waning. Similarly, China is also witnessing slowdown in GDP growth mainly due to ongoing trade issues with the US. This may also put pressure on China‟s trading partners.
However, majority of the emerging markets witnessed uptick in FPI flows during the month as a result currencies of these market also appreciated in the range of 2-6% MoM.
Sharp decline in Brent crude oil and rupee appreciation led to strong bounce back in Indian indices. However, further upmove in the markets would depend on consistently oil prices remaining at lower levels and benefits of lower oil prices and currency appreciation flowing into the corporate earnings.
Steady IIP and PMI data, high credit growth and strong currency during the month continue to reflect improvement in macro trends. The GDP growth in Q2FY19 came in at 7.1% YoY, which was lower than expectations, however, India continued to be fastest growing major economy in the world.
On the demand scenario, the consumption demand is showing some early signs of weakening in terms of moderation in automobiles sales numbers especially in Passenger Vehicle and moderation in personal loan growth. However, the larger picture still remains healthy as some key indicators like domestic air passenger data, SSG growth in QSR and volume growth of FMCG companies continued to report steady growth.
While consumption demand looks weakening, indicators of Investment demand is looking up with capacity utilization levels started to improve. However, a majority of corporate is likely to follow once they see revival in pricing power for their goods and services.
The corporate results announced far in Q2FY19 were as per the market expectation where top line continued to improve but margins got impacted. The net sales of 196 companies in CNX 200 index grew by 21.2% YoY. However, rising commodity prices and delay in pricing action affected the EBITDA, which grew at a slower pace of 9.5% YoY. However, Reported PAT fell by 4.7% YoY during the quarter
Indian markets ended on a positive note during the month of November 2018 as S&P BSE Sensex and Nifty 50 ended with the gain of 5.1% MoM and 4.7% MoM, respectively. The upmove was mainly due to ~22% MoM fall in crude oil prices and ~6% MoM appreciation in Indian Rupee. Corporate results in Q2FY19 witnessed strong revenue growth, however, they have also witnessed compression in margins due to higher raw material cost, which led to downgrade in FY19E EPS.
Currently, the S&P BSE Sensex is trading at 20.8x FY19E consensus EPS of Rs.1740 and 17.2x FY20E consensus EPS of Rs.2100. (S&P BSE Sensex price as on 30.11.2018).
However, we expect the GDP growth momentum to pickup going ahead given the steady growth seen in IIP, Core sector and other lead indicators, which may lead to increase in the corporate earnings and thus improve the market valuations.
In long term India is likely to see a steady growth on the back of improvement in Rural economy, rising government expenditure and higher disposable income in the hands of consumers. With strong demographic dividend that India is seeing, we expect the economic growth and demand conditions in the country to remain strong for a long period. This is likely to augur well for investment in equities.
However, in the near to medium term, some of the key concern on the domestic side like elections, currency movement, tightening in corporate credit cycle, weakening of discretionary consumption demand and earnings momentum would be key monitorable. Similarly, global factors like rising interest rate, rollback of quantitative easing impacting global currencies, slowdown in growth and trade wars are also likely to bring volatility in the market which in turn may provide opportunity to invest for long term.
We continue to recommend that the investment strategy should be 50% lumpsum and rest 50% staggered over the next 4-5 months. From investment perspective, focus should be on Large cap stocks or Midcaps where the valuations are reasonable considering their long term averages and growth outlook. Investment into BEL, Voltas, KEC International, SBI, ITC, Godrej Agrovet, Birla Corp, Thyrocare, Phoenix Mills, M&M, Exide, PLNG and Reliance could be looked upon from a 2-3 year perspective in line with the individual risk profile.
22
Recommended Stocks (*CMP as on December 3, 2018) ______________________________________________________________________
Bharat Electronics (CMP: Rs.85): BEL is a niche public sector play on defence sector with strong and readily available manufacturing base in the defense space compared to various other players which are at planning stage of setting up the capacity. During the quarter BEL saw sharp improvement in its operational performance both on the revenue growth as well as improvement in operating margin. In the near term, we believe execution of low margin orders for Electronic Voting Machine (EVM) and VVPAT are likely to drag the gross margins for the company. While over the long term, BEL is likely to benefit significantly from the Government‟s key orders in the defence segment and thereby improve margin for the company. Additionally, current order book to bill ratio continues to remain robust at ~4.7x on FY18 revenue and expected order inflow for Akash Missile System in H2FY19 is further likely to drive the order inflow in the coming quarters and improves the revenue visibility for the company. However, the recent announcement of revision of PBT margins from 12.5% to 7.5% on prospective nomination based defence orders would be structural negative news for Defence sector PSUs as it would remain a cause of concerns on the future margins. However, policy being applicable only on the prospective nomination based orders; current orders would be executed at the similar margins. Thus, given the size of the current order book, these new margins may be reflected only after FY21, when execution of old nomination based orders would be completed. We continue to like BEL for a long term play on defence sector given its strong execution in the past, robust order inflow guidance and strong balance sheet strength. Given the recent correction in the stock, we continue to have a Buy rating on the stock with a target price of Rs.143 at 15x (maintained earlier multiple) FY20E EPS of Rs.7.4 and adding cash per share of Rs.33. Any revision in target price would depend upon the general business momentum, changes in order inflow, execution issues and rollover of earnings to next financial year.
Voltas (CMP: Rs.556): Voltas Ltd is one of India‟s leading engineering solution providers. While, the sales for the Unitary Cooling Product (UCP) segment remained weak during the quarter due to erratic weather conditions, management commentary on the overall growth for the company remains positive on the back of strong traction for EMP business. Although the sales for the UCP segment remained muted during the quarter, company continues to remain market leader (with increased market share of ~25.6% for Q2FY19) led by higher than industry growth during the quarter. Moreover, company has also successfully launched new products under its recently formed Joint Venture with a Turkish major “Arcelik and management guided that the initial feedback for the products was positive. We believe existing dealer and channel network in the ACs segment would be leveraged by the company for growth into other durable goods as well. On the EMP, Voltas saw further expansion in EBIT margin on YoY basis during the quarter and expects EBIT margins to remain steady as slow moving orders move out of the backlog and newer projects with better profitability come into execution. The company continues to have strong balance sheet and cash flow generation capability which would augur well for the capital requirement for the entry into other consumer durable products. We have a Buy rating on the stock with a price target of Rs.719 which is 30x (maintaining earlier multiple) FY20E EPS of Rs.24. Any change in earnings/price target would depend upon the order inflow/execution in domestic and international markets, margin improvement; scale up of the new JV, general business momentum and rollover to the next financial year.
KEC International (CMP: Rs.287): Over the last couple of years, KEC has been able to diversify its revenue base, by gradually raising the contribution from the Railways and Cables segments. Management expects order inflow in the domestic T&D to pick up on the back of orders from Power Grid as well as Private players. Indian Railways‟ long term plan to electrify ~35000 kms of railway lines by FY20 improves the revenue visibility for the railway segment for KEC, given the leadership position in the railway overhead electrification segment. We believe, overall outlook for the company continues to remain steady led by strong order book growth (up by 43.7% YoY at the end of Q2FY19) thus translating into healthy Book to bill ratio of 1.9x Trailing Twelve Month (TTM) basis. We believe, expected improvement in order inflow, reducing debt profile, diversification of overall company revenue via both, diversified client base and segment base coupled with expectation of improving ROCEs and ROE going ahead is likely to drive profitability for the company in the medium to long term. We have a Buy rating on the stock with the target price of Rs.392 based on PE multiple of 15x (maintaining earlier multiple) FY20E EPS of Rs.26.1. Any earning/target price revision would depend on the ordering and tendering activities by domestic T&D players, improvement in market share and changes in general business momentum.
State Bank of India (CMP: Rs.287): We recommend a Buy on the stock with the target of Rs.395 based on PBV multiple of 2x on FY20E core adjusted book value of Rs.182.4 and balance value accruing from Subsidiaries. Any revision in the target price would depend on changes in the NPA profile, Capital dilution and momentum in the NPA resolution process.
Birla Corporation (CMP: Rs.624): During Q2FY19, the company has delivered strong volume growth on the consolidated basis driven by pickup demand in most of the regions where the company operates. Although, profitability of the company was impacted due to high cost pressure, however on the positive side, uptick in realization was seen in most of the markets where BCorp operates. Additionally, company‟s strategy of cross branding of production at the acquired Reliance plants has started to yield better profitability for the company. We think with the economic growth picking up and sand unavailability issues in Uttar Pradesh and Bihar behind us coupled with election in the state of Rajasthan and Madhya Pradesh by year end and General election towards the end of FY19; demand scenario is likely to improve in the near term. We think that the stock commands premium to the current valuation due to visible synergy benefits between the acquired Reliance Cement plants (capacity 5.5 MTPA) and Standalone BCorp capacities and thereby expected pick up in the valuations due to improvement in profitability and strong cash flow generation capability given the entry into high growing central regions via the acquisition. We have a Buy rating on the stock with a revised price target of Rs.1325 which is 12xFY20E EV/EBITDA (average multiple for other medium to large cement players). However, any changes to the price target would be hinged upon changes in business momentum/economic cycle, capex execution issues and acceleration of cost optimization initiatives.
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Recommended Stocks ______________________________________________________________________
ITC (CMP: Rs.283): ITC continued to report improvement in its overall FMCG business‟ performance amid challenging business environment due to pressure on the cigarette industry. Moreover, the company was able to consolidate its position in some of the major categories in FMCG business and continue to enter into new categories in the FMCG business. In addition, the company has been aggressively focusing on new launches in the existing business and entering into new markets in order to bring the incremental growth. We believe cigarette business may continue to witness improvement going ahead given the stability starting to emerge post GST implementation, however, if there is any upward revision in GST rates that may force company to take price hike then the company might start to see pressure on volumes again. However, ITC has been consolidating its leadership position in the Cigarette segment and continuing to improve its standing in key competitive markets across the country. Hence, Cigarette segment should continue to perform well over the longer term on the back of healthy margins and strong brands available at various sizes. We maintain our positive stance on the company given the long-term positive benefits of GST, expected improvement in FMCG business and steep discount as compared to its peers. Hence, we are maintaining our Buy rating on the stock with target price of Rs.350 at 30x (maintaining earlier multiple) FY20E EPS of Rs.11.7. Any earning/target price revision would depend on the performance of FMCG business, any regulatory changes in Cigarette business and in general business momentum.
Godrej Agrovet (CMP: Rs.507): GAVL, part of the Godrej group, is a well-diversified agri-business company with operations across various business verticals i.e. animal feed, crop protection, oil palm, dairy and poultry and processed foods. Over the years, GAVL has continued to focus on improving its market share across all its business verticals, which are underpenetrated and are largely catered by unorganized players, by leveraging on strong presence in these sectors. GAVL is also working on strategy to increase its revenue and profitability by extending its product pipeline by introducing innovative and value added products and expanding its geographical presence across its business divisions. GAVL also intends to improve its cost efficiency and productivity by implementing effective and efficient operational techniques in order to improve its margins in the long term. We have a positive view on the stock considering the strong parentage, leadership position in various divisions, improving volume growth, strong and robust balance sheet. We maintain our Buy rating on the stock with the target price of Rs.734 based on a PE multiple of 30x (maintaining earlier multiple) FY20E EPS of Rs.24.5. Any earning/target price revision would depend on the performance of its sub-divisions, improvement in market share and changes in general business momentum.
Thyrocare Tech Ltd (CMP:Rs.558): The company has seen some improvement in its growth on sequential basis in Q2FY19, driven by its pricing strategy. The management is hopeful of further improvement in coming quarters. We remain long-term positive on the stock given the current structural drivers like low spending on Preventive and Wellness healthcare and rising urbanization, sedentary lifestyle, and peaking stress levels leading to lifestyle diseases such as cancer, obesity, heart disease, diabetes, among others. With bulk of the market in the pathology segment being unorganised, there is significant headroom for the organised sector to grow although the management expects it at a slower pace. Thyrocare being a pan India player with the clear focus on expanding its network both on diagnostic as well as on imagining services business, it is well placed to grab this opportunity. Moreover, strong brand, lower pricing model, expanding the number of diagnostic tests and expanding the platforms also puts Thyrocare in a favorable position. Thyrocare‟s well established brand image, huge opportunity size, robust return ratios and cash rich balance sheet supports our long term view. Hence we maintain our Buy rating on the stock with the revised target price of Rs.813 based on a PE multiple of 30x (maintaining earlier multiple) FY20E EPS of Rs.27.1 (mainly due to reduction in equity due to buyback offer). Any earning/target price revision would depend on the performance of its sub-segments, impact of its new strategy, change in regulation, delay in expansion plans and changes in general business momentum.
Phoenix Mills( CMP: Rs.622): PML continued to deliver strong set of numbers during Q2FY19 led by sharp rise in the rental income as more and more malls turn mature with rental income growing at faster pace as compared to consumption growth. With the next leg of growth being partly funded via CPPIB deal and near completion of minority buyouts in existing malls, PML is expected to generate strong free cash flows. We believe these free cash flows can be utilized to unlock development potential of 4.6 msf in its existing land parcels. On the industry dynamics for retail sector, as per FICCI and PWC report, India‟s retail sector is expected to touch USD 1.3 trillion by 2020 from USDS 630 bn in 2015, growing at a CAGR of 16.7% over the same period (Source: PML Annual Report). The Government‟s initiatives for relaxing Foreign Direct Investment (FDI) regulations in certain retail segments are providing further impetus for consumption growth. With increasing household incomes, consumer attitude towards discretionary spending is gradually shifting and consumers are increasingly using quality and premium products. Thus we believe that India stands at an inflection point from where the retail consumption pie in the country is set to grow at a much higher growth rate for the next decade and given the PML‟s leadership position in the mall business in India, it is best equipped to tap this huge opportunity going ahead. Key growth drivers for PML in the form of i) doubling its mall portfolio to ~10-11 msf over the next few years, ii) focus on building retail mixed led commercial portfolio, iii) bottoming of real-estate sector and (iv) improving dynamics for hospitality sector augurs well for the company. Given the healthy cash flow generating assets, reasonable valuations and positive long term outlook on the organized retail segment, we continue to remain positive on the company and have a Buy rating on the stock with a target price of Rs.898 at 31x (maintained earlier multiple) FY20E EPS of Rs.29.0. Any earnings/target price revision would depend upon a slowdown in retail business; slowdown in real estate business, any new policy or announcement by Government on the real estate policy frame work, change in the interest rate and changes in general business momentum.
Mahindra and Mahindra (CMP: Rs.760): M&M continues to be a leader in the domestic Tractor industry with ~39% market share as of Q2FY19. The management expects domestic Tractor industry volume to grow by 12-14% YoY in FY19. The management has reiterated its stance of focusing on building a strong product pipeline in both FES and Automotive segment by introducing new product every year and further preparing itself in upcoming electric vehicle space by increasing the capex activity. We believe M&M is geared up to take on the competition and to grab the opportunity arising from ongoing improvement in growth in auto industry and recovery in rural demand. We remain positive on the medium term potential of the company on the back of new product launches that is likely to drive revenue growth for the company and on healthy return ratios of 15% plus (i.e, RoCE in FY18). Currently, we have a Buy rating on the stock with the revised target price of Rs.1037 at 16x (maintaining earlier multiple) FY20E EPS of Rs.50.3 adding Rs.232 as value (revised) of subsidiaries at 30% holding company discount. Any earning/target price revision would depend on the performance of new launches, improvement in market share, any regulatory changes, changes in the value of subsidiaries, rollover to next financial year and changes in general business momentum.
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Recommended Stocks ______________________________________________________________________
Exide Industries (CMP: Rs.260): Exide is India‟s largest manufacturer of lead acid storage batteries and power storage solutions provider with strong presence in automotive, power, telecom, infrastructure projects, computer industries, railways, mining, renewable energy and defence sectors. Going ahead, the steady demand for Automobile in India especially in passenger vehicle bodes well for Exide‟s Original Equipment Manufacturers (OEM) segment. Further, the strong market share in Industrial segments of Solar, Backup Power, Manufacturing and Project sector may drive the volume growth with the expected recovery in industrial capex cycle over the long term. The company is working on expanding its portfolio for emerging requirements like electric vehicles, hybrid cars and start-stop batteries and has recently added e-rickshaw battery and completely sealed and maintenance-free battery in its portfolio. Recently, the management had highlighted that the company would be manufacturing lithium-ion batteries at the facility of Tudor India in Gujarat in collaboration with Swiss company, „Leclanché‟. The company expects module and battery-pack assembly line to be operational by Q2CY19 and a lithium-ion cell production plant is expected to be operational by mid-CY20. Further, it is focusing on capturing market share from the unorganized commercial vehicles and tractor battery markets with target to enhance customer outlet and launch of nine new products in the aftermarket segment across categories and price points. The company is also expanding its reach in overseas markets like GCC (Gulf Co-operation Council) countries, South East Asian countries and select African nations. The lead prices (key raw material) had been very volatile and would be the key parameter to watch out for in the near term. However, the management is working on various cost cutting initiatives and improving the product mix to maintain its margins. Currently, we have a Buy rating on the stock with the target price of Rs.301 at 22x (maintaining earlier multiple) FY20E EPS of Rs.12.5 and adding Rs.25 per share for the embedded value in Insurance business (as of March 2018). Any earning/target price revision would depend on the improvement in margin, changes in market share, implementation of GST and its tax structure, value in Insurance business and changes in general business momentum.
Reliance Industries (CMP: Rs.1,156): RIL continues to be on track to improve the profitability on the back of improved performance for the Petrochemical business despite muted performance for the Refining business. Petrochemical business continued its strong performance during the quarter, clearly indicating Reliance‟s dominance in the segment. Strong ramp up in JIO paid subscriber base during last few quarters along with recent announcement to buy stakes in Multi Service operators (MSOs) companies Hathway and Den has raised the revenue visibility for the telecom venture going ahead. Although Refining margins have come off slightly in the last few quarters, we believe benefits of Petcoke Gasification plant is likely to be seen from FY20. Key monitorable for Reliance going ahead would be subscriber ramp-up and average revenue per user (ARPU) in the telecom business with expected ramp up of the petcoke gasifier over the next six months to further improve the profitability for petrochemical business. We have revised our earnings estimates to incorporate the sharp depreciation of Indian Rupee (INR) and rise in the crude oil prices and currently we have a Buy rating on the stock with a price target of Rs.1455 at 15x (maintained earlier multiple) FY20E EPS of Rs.70 and balance value accruing from RJIO, Shale Gas and Retail Business. Any changes in the estimates/target price would depend upon trend in crude price, currency movement, gas price & GRM and changes in capex and general business momentum.
Petronet LNG (CMP: Rs.213): PLNG remains a structural story of India‟s increasing gas demand from key users like power stations, fertilizers companies, refineries and petrochemical companies, city gas distribution for compressed natural gas (CNG), domestic purpose usage and steel manufacturers. Moreover, we do not see any meaningful competition for Dahej LNG terminal from upcoming Mundra LNG terminal (expected to commission by end of 2018) given PLNG competitive edge in terms of lower re-gas tariff. While the Kochi terminal is currently underutilized, a slight uptick in the utilization levels for Kochi terminal by FY19/20 and beyond would result in sharp rise in the earnings for the company given the improving utilization for the existing capacities. Thus we believe improving utilization at Kochi and additional 2.5 MTPA capacity additions at Dahej terminal is likely to further improve the earnings and profitability for PLNG. We believe visibility on PLNG‟s medium/long term earnings on the back of huge gas demandsupply gap in India, volume growth via Kochi ramp up and gradual capacity addition at Dahej along with earnings growth boosted by annual re-gas charge escalation of 5% YoY is likely to drive the margins as well as profitability in future. Currently, we have a Buy rating on the stock with the target price of Rs.316 based on PE multiple of 16x (maintained earlier multiple) FY20E EPS of Rs.19.8. Any earnings/target price revision would depend upon the fluctuation in LNG prices, any disruption from the upcoming competition; scale up of existing terminal, any decision by government on re-gas tariffs and general changes in the business scenario.
Rating Buy Hold Under Review Exit
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Rating Interpretation Expected to Appreciate more than 10% over a 12 to 15 month period Appreciate below 10% over a 12 to 15 month period Rating under review Exited out of the Model Portfolio
______________________________________________________________________
Fixed Income
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G-sec rally continued in November 2018...
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Domestic G-sec prices rallied (yields declined) during November 2018; wherein yield on the benchmark 10 year G-sec 7.17% 2028 bond closed at 7.61% on 30 November 2018 compared to 7.85% on 31 October 2018.
Rally in G-secs was largely on account of:
OMO Purchases by the RBI in November 2018 and announcement of further OMO purchases in December 2018.
Decline in crude oil Prices and Strengthening of Rupee against the USD.
Decline in CPI inflation to 13 month low.
Comments from FOMC‟s November 2018 meeting, indicating that Federal Funds rate may be closer to the neutral rate.
On the negative side, India‟s fiscal deficit for April-October 2018 stood at Rs 6.49 tn, which is ~103.9% of the budgeted target for FY19.
While sentiments in G-sec markets remained positive, corporate bond markets continued to grapple with caution following the IL&FS Ltd. defaults since September 2018.
This resulted in better performance of G-sec markets compared to corporate bond markets.
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Corporate bond yields declined less compared to G-sec yields… …tracking caution on credit ratings of companies and tight liquidity conditions ______________________________________________________________________ Spreads between Non PSU AAA HFCs and G-secs
Spreads between Non PSU AAA HFCs and G-secs
31-Aug-18 28-Sep-18 31-Oct-18 30-Nov-18 1 Years 112 125 183 171 2 Years 91 132 168 166 3 Years 74 122 133 161 5 Years 69 116 129 142 10 Years 80 97 119 132 Source:-IDFC MF
Source:-IDFC MF
After staying elevated at the start of the month, corporate bond yields declined towards the later part of the month, tracking liquidity infusion by the RBI.
Caution on the NBFC and Housing Finance sectors and tight liquidity conditions kept the corporate bond yields elevated for the first half of the month.
However RBI‟s liquidity support through OMOs and other measures announced for easing liquidity crunch in the NBFC sector led to some decline in the bond yields towards the later part of the month.
Bond spreads at the very short end of the yield curve declined; however short to longer end yields witnessed a rise in bond spreads.
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Crude oil prices decline sharply in November 2018… …big positive for domestic macros and bond yields ______________________________________________________________________
Source:-Bloomberg
Source:-Bloomberg
Source:-Bloomberg
Brent crude oil price declined sharply in November 2018 and closed at 58.44/Barrel on 30 Nov 2018 compared with 73.86/Barrel on 31 Oct 2018.
On a MoM basis crude oil prices declined by ~21% compared to a decline of ~ 10.96% MoM in Oct 2018.
Rupee also strengthened in Nov 2018 by about ~6% MoM as compared to depreciation of ~ 2% in Oct 2018.
After two months of net selling, FPIs turned net buyers in the month of Nov 2018 to the tune of Rs.~56 bn in Nov 2018, compared to net selling of Rs.~100 bn in Oct 2018.
After declining to 5 month low of USD 13.98 bn in Sept 2018, trade deficit inched up in Oct 2018 and stood at USD 17.13 bn.
While it is being anticipated that CAD for Q2FY19 could be closer to 3% of GDP, if crude oil prices stay at current levels or decline further, it could have some positive impact on CAD going forward.
OPEC Decision on crude oil production will be an important variable as it will give a sense on direction of crude oil prices in the near term.
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US FOMC gives hints of less aggressive monetary tightening…
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Source: - RBI
Source: - RBI
In November 2018, the US Fed kept the Federal Funds rate unchanged in the range of 2.00-2.25%.
While maintaining a pause on interest rates in Nov 2018, minutes of the meeting showed hints of less aggressive interest rate hikes going forward.
Minutes of the Nov 2018 FOMC meeting show that US Fed is confident in continuing with its monetary policy normalization.
The minutes of the Nov 2018 FOMC meeting stated that “….a few participants, while viewing further gradual increases in the target range of the federal funds rate as likely to be appropriate, expressed uncertainty about the timing of such increases. A couple of participants noted that the federal funds rate might currently be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations…”
Release of the minutes of the FOMC meeting led to decline in the US 10 year treasury yield below the 3% mark for the first time since September 2018.
Spread between the US and India 10 year Government bond yields continued to remain attractive stood at ~462 bps as of 30 Nov 2018. Compared to ~471 bps as on 31 Oct 2018.
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CPI inflation for October 2018 declines tracking lower food inflation… ______________________________________________________________________ CPI Inflation
Inflation based on Consumer Price Index (CPI) for the month of October 2018 declined to a 13 month low and came in at 3.31% YoY compared to 3.70% YoY (revised) in September 2018.
CPI inflation continued to remain below the RBI‟s medium term target of 4% for the third month in a row.
Decline in CPI inflation was mainly on account of decline in food inflation which witnessed deflation in the month of October 2018.
CPI food prices deflated by 0.86% YoY in October 2018 compared to an inflation of 0.51% YoY in the previous month.
Within the food segment, vegetable prices deflated by 8% YoY compared to a deflation of 4.21% YoY in September 2018.
CPI core inflation however, increased in October 2018 and came in at 6.22% YoY compared to 5.81% YoY in September 2018.
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Description
Weights
Cereals and products Meat and fish Egg Milt and products Oils and fats Fruits Vegetables Pulses and products Sugar and Confectionary Spices Non-alcoholic beverages Prepared meals, snacks, sweets etc Food and beverages Pan, tobacco and intoxicants Clothing Footwear Clothing and footwear Housing Fuel and light Household goods and services Health Transport and communication Recreation and amusement Education Personal care and effects Miscellaneous General Index (All Groups) Consumer Food Price Index Core CPI Inflation
9.67% 3.61% 0.43% 6.61% 3.56% 2.89% 6.04% 2.38% 1.36% 2.50% 1.26% 5.55% 45.86% 2.38% 5.58% 0.95% 6.53% 10.07% 6.84% 3.80% 5.89% 8.59% 1.68% 4.46% 3.89% 28.32% 100.00% 39.06%
Inflation (YoY) Sept.18 Oct.18 2.90% 2.59% 2.39% 3.02% 3.76% 2.29% 2.36% 0.92% 3.13% 2.18% 1.68% 0.35% -4.21% -8.00% -8.65% -10.28% -6.42% -7.64% 2.88% 2.79% 1.55% 2.33% 4.41% 3.78% 1.01% -0.14% 5.57% 6.13% 4.68% 3.52% 4.27% 3.28% 4.64% 3.48% 7.07% 6.55% 8.63% 8.55% 4.80% 6.06% 5.97% 7.92% 6.51% 7.72% 5.16% 4.99% 6.40% 6.24% 4.14% 5.23% 5.65% 6.73% 3.70% 3.31% 0.51% -0.86% 5.81% 6.22%
Source:-Ministry of Statistics and Program Implementation
Fiscal deficit for April-Oct 2018 overshoots the budget estimate…
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Source:- http://pib.nic.in/
Government‟s fiscal deficit for the period April-Oct 2018 touched ~103% of the budget estimate for FY19.
During the same period last year fiscal deficit was at ~96% of the budget estimate for FY18.
The total expenditure for the April-Oct 2018 stood at 56% of the budget estimate for FY19 compared to 60% in FY18.
Revenue receipts for April-Oct 2018 stood at ~46% of the budget estimate for FY19 as against ~48% during the same period last year.
On the other hand, collections under Goods and Services Tax (GST) in November 2018 declined and stood at Rs.~976 bn compared to the Rs.1 trillion mark in the previous month.
The government continued to reiterate its commitment to achieve the fiscal deficit target of 3.3% of GDP for FY19
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Banking System liquidity tightens further… …RBI continues to support liquidity through regular OMO purchases ______________________________________________________________________
Source: - RBI
Source: - RBI
Source: - RBI
Domestic liquidity conditions continued to remain tight in Nov 2018. However towards the end of the month, liquidity deficit declined helped by regular OMO purchases by the RBI. Liquidity as measured by the RBI‟s Liquidity Adjustment Facility (LAF) stood at a daily average deficit of Rs.~846.26 bn compared to deficit of Rs.~615.58 bn in the previous month. The RBI conducted Open Market Operations (OMO) purchase of G-secs for an aggregate amount of Rs.~500 billion in November 2018 in order to provide support to domestic liquidity.
Source: - RBI
Credit growth outpacing deposit growth, has also been adding to liquidity tightness. As of 9 Nov 2018 Banks‟ credit growth stood at 14.88% YoY; where as deposits grew by 9.14% YoY. Gap between credit and deposits growth continued to widen; wherein credit-deposit ratio stood at 77.05% as on 30 Nov 2018 compared to the average of 75.58% seen in the financial year so far. Rise in Currency in Circulation also continued to exert pressure on system liquidity. The RBI conducted Open Market Operations (OMO) purchase of G-secs for an aggregate amount of Rs.500 bn in Nov 2018 in order to provide support to domestic liquidity. Source: - RBI
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The G-sec yield curve continues to remain flat…
______________________________________________________________________ Term Spreads Sep-18 Oct-18 1-5 Years 54 49 1-10 Years 49 51 5-10 Years -6 2
Nov-18 37 50 13
Source:- IDFC Mutual Fund
Source:- IDFC Mutual Fund
G-sec yields declined across the yield curve in November 2018; with the yield curve continuing to remain relatively flat.
The shorter end of the yield curve declined due to RBI‟s liquidity support; whereas longer end declined with rising expectations of softer money by the RBI in near term tracking improvement in important macro variables.
The term spread between 1 and 5 years G-secs continued to contract marginally; whereas spread between 1 and the 10 years G-secs remained almost at similar as the previous month.
Decline in the yields has been higher at the short to medium term segments of the yield curve, compared to the very short and longer ends.
The 1 year G-sec declined by about 44 bps from end of September 2018 to end November 2018; whereas the 5 years G-sec yield decline by about 61 bps.
The 10 year G-sec yield declined by about 42 bps from end of September 2018 to Nov 2018 end.
Key Risks and Variables to watch out for… ______________________________________________________________________ Domestic Variables
Rupee Movement:- Rupee movement will be a key variable to watch out for, as it plays an important role in the trajectory of other macro economic fundamentals in the economy.
Domestic Macros:- As bond yields are driving by evolving macro economic variables, trajectory of macro economic variables like inflation, CAD and fiscal deficit amongst others are likely to give direction to domestic bond yields.
Liquidity Conditions:- With the sustained tightness in system liquidity, RBI has been conducting OMO purchases regularly in the recent past. Thus, movement in system liquidity and RBI‟s response to the same is likely to influence the bond yields across the yield curve as seen recently.
MSP impact on food inflation:- Government‟s procurement policy needs to be tracked very closely to in order to assess the impact of hike in MSPs on food inflation.
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Global Variables
OPEC Decision on crude oil production:- This will be an important variable as it will give a sense on direction of crude oil prices in the ear term.
Global growth and inflation scenario:- Global monetary polices are likely to take shape tracking global economic growth and inflation; which in turn can influence the monetary policy domestically
Commodity Prices:- Especially crude oil prices are likely to give direction to bond yields, as crude oil prices have a bearing on domestic macro economic variables like inflation and Current Account Deficit.
Global trade tensions and geopolitical tensions:- These can have a bearing on the global growth scenario thus altering the current perceived path of the monetary policies of some of the major developed nations, as well as domestically.
Fixed Income Outlook ______________________________________________________________________
The liquidity conditions have relatively eased post RBI‟s OMO purchases. Given the RBI‟s announcement of OMO purchase of G-secs to the tune of Rs. 400 bn for Dec 2018, liquidity conditions may further improve. That being said, with credit growth outpacing deposit growth and rising currency in circulation in an election year, is likely to keep the pressure on system liquidity.
Factors impacting domestic inflation have turned positive over the past few months. Not only has food inflation remained benign, crude oil prices have also declined sharply. Prices of other commodities have also largely remained muted. Additionally at this point the Minimum Support Prices (MSPs) don‟t seem to be inflationary in nature.
Rupee also witnessed strengthening in Nov 2018. Improvement seen in some of the macro economic variables coupled with government's commitment to stick to its fiscal deficit target, may provide support to Rupee.
Current Account Deficit continues to remain a cause of concern; with CAD for Q2FY19 being expected closer to 3% of GDP. However decline in crude oil prices and strengthening of Rupee may turn things around for domestic CAD.
The government has reiterated its commitment to stick to the fiscal deficit target for FY19. This is a positive for bond markets. Any further transfer of surplus by the RBI to government will also be an important variable to track. Not only the fiscal deficit target but the quality of the fiscal math will be important for bond markets.
While monetary tightening in US is expected to continue, with recent comments in the FOMC meeting minutes regarding Fed being closer to its neutral rate, it will important to track any subtle changes in language of the US Fed to understand the path of its monetary policy. Also with the recent downward revision in global growth forecasts it will be extremely important to track the trajectory of global growth, which in turn can give a sense of global monetary policies and interest rate scenario.
Global Geo-political tensions have imparted volatility to global capital markets including India. Thus, going forward also global geo-political developments are likely to continue to keep Indian capital markets volatile.
While yields at the longer end of the yield curve have declined, volatility is likely to continue tracking the movement in crude oil prices, movement in Rupee, outcome of the upcoming state elections and global geo-political developments. That being said some of the variables that have an impact on longer end yields like, domestic inflation, OMO purchases by RBI, Crude oil prices and Rupee movement amongst others have turned positive, which may prevent the yields from rising and may even lead to some decline.
Short term rates have also declined tracking liquidity support by the RBI, which has benefitted investment strategies focusing on the shorter end of the yield curve. Going forward the RBI is likely to continue with its liquidity support measures. Thus, the Shorter end of the yield curve is expected to continue to benefit from the same.
Conservative investors who do not wish to see volatility in returns should continue to look at debt funds that invest at the very short end of the yield curve; investors can also look at strategies that allow investors to lock in the current attractive short term rates.
Thus , investments into Short Term Funds can be considered with an investment horizon of 12 months and above.
Investors looking to invest with a horizon of up to 3 months can consider Liquid Funds, while Arbitrage Funds and Ultra Short Duration Funds can be considered for a horizon of 3 months and above.
Investors looking to lock in current yields can invest in Fixed Maturity Plan (FMPs).
Investor who are comfortable with intermittently volatility, can look also at strategies that focus at the longer end of the yield curve. i.e. High duration funds.
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Investment Strategy ______________________________________________________________________
We recommend investors to rebalance/realign the portfolios according to the recommended asset allocation
On Equity Funds:
Global headwinds like trade war and interest rate hike by the US coupled with domestic concern of depreciating currency, FPI outflow and impact of default by IL&FS to other companies dampened the market sentiments.
In India, focus on infra spending by the government, improved urban consumption, rebounding exports and better farm income has the potential to shore up the economy in the medium term. With Q1FY19 GDP growth at 8.2% YoY, we think that the momentum is likely to continue on the back of government capex, better domestic demand, and favorable demographics.
Strong USD, increasing global interest rates, trade wars and expectation of higher foods prices could have negative impact on inflation, currency and interest rates which may cause volatility in the equity markets.
On the positive side, the key demand indicators are showing continued traction and there seems to be some pricing power returning to businesses, as is being witnessed in the strong revenue growth of corporates in Q2FY19 results.
Recent correction in market have helped valuations to improve. However, earnings growth needs to persist for markets to move higher. From an Equity Mutual Fund perspective, investors should look at Large cap Funds for fresh investments and SIP into Midcap and Small caps stocks/funds can begin with the longer horizon.
The Equity investment strategy, continues to remain at 50% Lumpsum and rest 50% staggered over the next 4-5 months.
On Fixed Income:
Investments into Short Term Funds can be considered with an investment horizon of 12 months and above.
Investors looking to invest with a horizon of up to 3 months can consider Liquid Funds, while Arbitrage Funds and Ultra Short Duration Funds can be considered for a horizon of 3 months and above.
Investors looking to lock in current yields can invest in Fixed Maturity Plan (FMPs).
Investor who are comfortable with intermittently volatility, can look also at strategies that focus at the longer end of the yield curve. i.e. High duration funds.
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Equity Mutual Funds ______________________________________________________________________ Large/Multi Cap Oriented Funds 1.
Axis Focused 25 Fund - The fund maintains a concentrated portfolio of 25 high conviction stocks and mainly invests in top 200 companies by market capitalization
2.
Reliance Large Cap Fund – An actively managed large cap equity fund
3.
ICICI Prudential Bluechip Fund - A conservative large cap fund
4.
Kotak Standard Multicap Fund - An actively managed multi cap fund investing across select sectors with large cap bias
5.
Aditya Birla Sun Life Frontline Equity Fund – A conservative large cap equity fund
Mid/Small Cap Oriented Funds 1.
HDFC Small Cap Fund - The fund is a small cap fund that invests predominantly in small cap companies.
2.
SBI Focused Equity Fund – An actively managed large cap equity fund
Balanced / Hybrid Funds
1.
L&T Hybrid Equity Fund – An aggressive hybrid fund
2.
ICICI Prudential Equity & Debt Fund – An aggressive hybrid fund
3.
SBI Equity Hybrid Fund – An aggressive hybrid fund
Equity Savings Funds 1.
Kotak Equity Savings Fund - The un-hedged equity exposure is maintained in the range of 20% to 40% of the portfolio
2.
HDFC Equity Savings Fund – The un-hedged equity exposure of the fund is maintained upto 40% of the portfolio with flexibility to invest across market capitalisation
38
Performance of Mid Cap Oriented Funds ______________________________________________________________________
Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
The Mid Cap oriented recommended funds have outperformed not only the Mid Cap Index but also the broader indices like Nifty 500 index and Nifty 50 index over the longer period from 3 years to 5 years.
Over the last 3 years, the recommended mid cap oriented funds have outperformed the Nifty Midcap 100 index. The recommended funds delivered an average returns of around 12% (CAGR) against the Nifty Midcap 100 index which delivered close to 10% (CAGR) returns.
Currently, the mid cap stocks are trading at relatively higher valuations and are expected to remain volatile over the near term, however, the mid cap stocks are expected to perform better over longer period.
39
Performance of Infrastructure Oriented Funds ______________________________________________________________________
Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
The Union Cabinet, in the month of October 2017 announced Bharatmala Pariyojana - an initiative to add 35000km of new highways, 9000 km of economic corridor, 6000km of inter-corridor, 2000km of border roads and 10000km of the national highway with an total outlay of Rs.6.92 trillion over the next five years. As per Transport Minister Nitin Gadkari, over 9829 kms of National Highways were constructed during FY18, up by ~20% YoY over 8231 kms constructed in FY17. He further added that 17055 kms of road length was awarded in FY18 against 15948 kms in FY17. For FY19, the ministry has set a construction target of 16420 kms which translates into average length of roads constructed per day rising from 27 kms in FY18 to 45 kms in FY19. Around 20000 kms will be awarded to reach this construction target. In the Union Budget for FY19, the allocation for Roads, Urban development, Shipping, Aviation and Railways together stood at Rs.1.84 trillion. Total investment in the Road sector is projected at Rs.710 bn reflecting a growth of 16% over FY18RE. For FY19BE, the total capital and development expenditure of Railways has been pegged at Rs.1.48 trillion including Rs.550 bn provided by the government. The Budget also proposed creation of 5.1 mn rural houses and 3.7 mn urban houses in FY19 under the Pradhan Mantri Awas Yojna (PMAY). About 4.354 mn rural houses have been completed in the last three years while 5.495 mn urban households have been constructed under the PMAY scheme. Average returns of the recommended Infrastructure funds have outperformed not only the Nifty 50 index but also the Nifty Infrastructure index over the last three years to five years period and expected to perform better over the long term investment horizon.
40
Invest in Balanced / Hybrid Funds for diversification ______________________________________________________________________ Scheme Name
Average* Modified* YTM (%)* Maturity Duration 1 Y % 3 Y % 5 Y % (years) (years)
HDFC Balanced Advantage Fund - Growth
9.54
3.07
2.44
-4.16
9.47
15.97
Aditya Birla Sun Life Equity Hybrid 95 Fund Growth
9.66
3.01
1.98
-3.99
9.13
15.28
L&T Hybrid Equity Fund - Reg - Growth
8.60
2.41
1.90
-1.77
8.79
16.15
ICICI Prudential Equity & Debt Fund - Growth
8.49
1.09
0.88
-1.26
11.12
16.15
SBI Equity Hybrid Fund - Growth
8.49
2.92
2.14
0.14
9.32
15.68
HDFC Hybrid Equity Fund - Growth
8.46
3.51
2.62
-1.23
10.51
17.01
--
--
--
NIFTY 50 Hybrid Composite Debt 65:35 Index
6.66 10.81 11.89
*Portfolio data as of 31 October 2018. Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
The primary investment objective of Balanced / Hybrid funds is to invest in equities which broadly remains in the range of 65% to 80%, while the balance is invested in debt securities. During the bull run, the funds might underperform the pure equity diversified funds as these funds tend to have some exposure into debt instruments. The funds maintain a balance between equity and debt investment and thereby help in reducing the overall risk of the portfolio as compared to equity funds. In general, the equity investment strategy can be an active management strategy across market capitalization. The debt investment strategy can be across fixed income securities including G-secs. Certain funds dynamically manages the equity and debt exposure. The debt portfolio helps the funds during the fall in equity market and reduces the overall beta of the portfolio. Also, the bond portfolio is expected to generate capital gains in a falling interest rate scenario. The recommended balanced / hybrid funds have outperformed Nifty 50 index and NIFTY 50 Hybrid Composite Debt 65:35 index over the last 5 years period. The recommended balanced funds on an average have delivered around 16% returns over the past 5 years, whereas Nifty 50 and NIFTY 50 Hybrid Composite Debt 65:35 indices both have delivered average returns of around 12% each during the same period. Balanced / Hybrid funds are subject to equity taxation.
41
Arbitrage Funds: Introduction and Advantages ______________________________________________________________________ Buying the securities in one market and selling the same in another market simultaneously to take advantage of a temporary price differential is called arbitrage. E.g. Assume stock price of ABC Ltd is at Rs.190/‐ in the cash market. This stock is also traded in the derivatives segment, where its future price is Rs.197/‐ In such a case, one can make a risk‐free profit by selling a futures contract of ABC Ltd at Rs.197/‐ and simultaneously buy an equivalent number of shares in the equity market at Rs190/-. On settlement day, it wouldn‟t matter which direction the stock price has taken in the interim. Because on the expiry day (settlement date) the price of equity shares and their futures tend to converge. Advantages: Generate income through arbitrage opportunities arising out of pricing mismatch in a security between different markets or as a result of special situations. Completely hedged positions, neutralizes market risk (volatility) and targets absolute returns irrespective of market conditions. Enhance portfolio returns using different trading strategies within derivatives segment. Balance of safety, returns and liquidity The cash market price converges with the futures price at the end of the month.
Note: The above simulation is for illustration purposes only and should not be constructed as a promise or minimum returns or safeguard of capital. Source: HDFC Mutual Fund
42
Equity Savings Fund - Positioned Between MIP & Balance Fund ______________________________________________________________________ Introduction: The Equity Savings funds endeavors to provide moderate volatility and regular income through investment into arbitrage opportunities and fixed income securities. At the same time, to provide a higher growth potential as compared to an arbitrage fund or a debt fund, the fund also invests some exposure into equity stocks. Thus, the equity exposure including equity arbitrage allocation would be more than 65%, hence equity taxation would be applicable. However, with higher equity allocation, the volatility of these funds are higher as compared to MIP or pure debt funds.
Key Advantages of Equity Savings Fund: Tactical Equity Allocation: Potential capital appreciation through tactical allocation in Equity Market Aims at Regular Income: Regular income through investments in Fixed Income and Arbitrage Opportunities Tax Advantage: The Equity Savings fund are applicable for equity taxation even with moderate participation in pure equity. Diversification: The Equity Savings fund have well diversified portfolio by investing in different asset classes like Equities, Equity Arbitrage Opportunities, and Fixed income.
43
Equity Savings Fund
Recommended Equity Mutual Funds – Performance ______________________________________________________________________ Theme
Scheme Name
SEBI Categorisation
1M
3M
6M
1Y
2Y
3Y
Large Cap, Aggressive Large Cap, Conservative Large Cap, Conservative Large Cap, Conservative Multi Cap, Aggressive Multi Cap, Aggressive Multi Cap, Aggressive Multi Cap, Conservative Multi Cap, Conservative Multi Cap, Conservative Multi Cap, Conservative Multi Cap, Conservative Mid Cap, Aggressive Mid Cap, Aggressive Mid Cap, Aggressive Infra Sector, Aggressive
Axis Focused 25 Fund - Growth Reliance Large Cap Fund - Growth ICICI Prudential Bluechip Fund - Growth Kotak Standard Multicap Fund - Reg - Growth Invesco India Contra Fund - Growth ICICI Prudential Multicap Fund - Growth SBI Large & Midcap Fund - Growth Tata Equity P/E Fund - Reg - Growth SBI Magnum Multi Cap Fund - Growth HDFC Capital Builder Value Fund - Growth Aditya Birla Sun Life Equity Fund - Growth UTI Equity Fund - Growth HDFC Small Cap Fund - Growth L&T Midcap Fund - Reg - Growth SBI Focused Equity Fund - Growth L&T Infrastructure Fund - Reg - Growth
6.69 4.41 3.46 6.45 5.58 2.87 5.14 5.40 6.33 6.30 5.98 5.55 1.76 4.30 4.23 4.07
-10.99 -6.28 -7.40 -7.39 -8.48 -8.14 -5.98 -10.15 -8.30 -7.99 -6.64 -11.54 -8.62 -9.08 -8.52 -8.91
-4.16 2.96 -0.05 0.65 -1.94 1.97 -0.60 -6.44 -3.78 -2.74 -1.13 -2.50 -9.18 -7.64 -5.87 -8.17
4.17 1.38 1.09 0.90 1.19 2.43 -3.00 -5.14 -3.76 -3.23 -0.86 5.90 -4.57 -10.10 -2.59 -13.44
18.77 15.93 13.46 13.94 17.37 11.43 12.99 12.71 11.58 14.88 11.67 13.66 19.29 13.65 13.36 14.31
15.22 11.61 11.64 12.94 14.23 11.00 10.17 14.32 11.25 11.66 13.88 10.20 16.06 13.29 11.82 13.45
Aggressive Balanced/Hybrid
HDFC Balanced Advantage Fund - Growth
1.82
-5.08
0.43
-4.16
8.36
9.47
Conservative Balanced/Hybrid Aggressive Balanced/Hybrid Conservative Balanced/Hybrid Equity Savings Fund
L&T Hybrid Equity Fund - Reg - Growth ICICI Prudential Equity & Debt Fund - Growth SBI Equity Hybrid Fund - Growth Kotak Equity Savings Fund - Reg - Growth Nifty 50 Nifty Midcap 100 S&P BSE 200 Nifty Infrastructure NIFTY 50 Hybrid Composite Debt 65:35 Index
Focused Fund Large Cap Fund Large Cap Fund Multi Cap Fund Contra Fund Multi Cap Fund Large & Mid Cap Fund Value Fund Multi Cap Fund Value Fund Multi Cap Fund Multi Cap Fund Small cap Fund Mid Cap Fund Focused Fund Sectoral/Thematic Dynamic Asset Allocation or Balanced Advantage Aggressive Hybrid Fund Aggressive Hybrid Fund Aggressive Hybrid Fund Equity Savings
3.63 1.40 4.12 2.28 6.65 3.78 6.04 5.13 5.01
-5.67 -4.61 -4.26 -1.24 -6.85 -11.83 -8.10 -5.08 -3.42
-3.12 0.25 -0.63 2.28 2.47 -7.76 0.17 -7.40 3.71
-1.77 -1.26 0.14 4.81 6.36 -12.02 2.19 -12.23 6.66
9.77 9.40 9.96 8.65 15.00 8.36 14.03 5.15 12.12
8.79 11.12 9.32 8.18 11.07 9.72 11.18 3.66 10.81
Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
44
______________________________________________________________________
Fixed Income Options
45
Performance of recommended Long Duration/Dynamic Bond Funds ______________________________________________________________________ Returns (%)
SEBI Categorisation
AAA & Equivalent
Avg. Maturity (Yrs)
Portfolio Yield (%)
3 Mths
6 Mths
1 Year
2 Years
3 Years
Dynamic Bond
100.00%
3.34
8.31
3.36
4.67
3.87
3.02
7.26
Medium to Long Duration Fund
75.13%
3.30
8.94
0.89
1.79
1.81
2.27
6.77
Dynamic Bond
100.00%
4.14
8.28
2.01
3.04
2.06
1.85
6.66
ICICI Prudential All Seasons Bond Fund - Growth
Dynamic Bond
63.57%
1.42
8.73
1.48
3.14
4.61
4.13
8.79
UTI Dynamic Bond Fund - Reg - Growth
Dynamic Bond
84.77%
3.15
8.72
1.05
2.23
2.78
3.16
7.64
Kotak Dynamic Bond Fund - Reg - Growth
Dynamic Bond
81.15%
3.35
8.97
2.22
4.33
5.23
4.71
8.43
Medium to Long Duration Fund
95.80%
3.12
8.62
1.66
3.20
3.18
3.81
6.69
Dynamic Bond
100.00%
2.47
7.47
2.42
3.31
3.09
3.21
7.68
NIFTY Short Duration Debt Index
--
--
--
1.88
3.80
5.67
6.25
7.21
ICRA Composite Bond Fund Index
--
--
--
3.03
4.73
4.10
4.38
7.80
Scheme Name
Aggressive Funds IDFC D B F - Reg - Growth (Re-Launched) UTI Bond Fund - Growth Reliance Dynamic Bond Fund - Growth Conservative Funds
ICICI Prudential Bond Fund - Growth SBI Dynamic Bond Fund - Growth
Please note that returns data for Crisil indces is not available. Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio as of 31 October 2018. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
46
Performance of recommended Short Duration Funds ______________________________________________________________________ Scheme Name
SEBI Categorisation
Avg. AAA & Portfolio Maturity Equivalent Yield (%) 3 Mths (Yrs)
Returns (%) 6 Mths
1 Year
2 Years 3 Years
Aggressive Funds ICICI Prudential Banking & PSU Debt Fund - Reg - Growth
Banking and PSU Fund
82.42%
1.17
8.75
1.48
3.32
4.68
4.83
7.87
Corporate Bond Fund
100.00%
1.73
8.87
1.94
3.92
5.28
5.69
7.69
Reliance Banking & PSU Debt Fund - Reg - Growth
Banking and PSU Fund
85.67%
1.57
8.74
1.98
3.82
5.14
5.31
7.27
DSP Banking & PSU Debt Fund - Reg - Growth
Banking and PSU Fund
100.00%
1.87
8.01
2.04
3.85
5.06
5.04
7.25
ICICI Prudential Corporate Bond Fund - Reg - Growth
Corporate Bond Fund
100.00%
1.05
8.55
1.73
3.67
5.56
5.71
7.42
Kotak Corporate Bond Fund - Std - Growth
Corporate Bond Fund
100.00%
1.14
9.16
1.80
3.84
6.77
6.71
7.73
HDFC Short Term Debt Fund - Growth
Short Duration Fund
93.85%
1.33
9.02
1.88
3.90
6.15
6.37
7.46
ICICI Prudential Short Term Fund - Growth
Short Duration Fund
93.75%
1.25
8.62
1.65
3.37
4.77
5.17
7.50
Banking and PSU Fund
79.52%
1.29
8.84
1.90
3.83
6.75
6.54
7.24
Corporate Bond Fund
87.94%
2.18
8.82
2.26
4.14
6.02
6.08
7.81
Banking and PSU Fund
90.81%
0.95
8.77
1.76
3.67
5.62
6.01
8.20
Short Duration Fund
86.24%
1.24
8.99
1.43
3.33
5.07
5.37
7.26
NIFTY Short Duration Debt Index
--
--
--
1.88
3.80
5.67
6.25
7.21
ICRA Composite Bond Fund Index
--
--
--
3.03
4.73
4.10
4.38
7.80
HDFC Corporate Bond Fund - Growth
Conservative Funds
SBI Banking and PSU Fund - Growth Aditya Birla Sun Life Corporate Bond Fund - Reg - Growth UTI Banking & PSU Debt Fund - Reg - Growth UTI Short Term Income Fund - Reg - Growth
Please note that returns data for Crisil indces is not available Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio as of 31 October 2018. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
47
______________________________________________________________________ Disclaimer: This communication is being sent by the Investment Advisory Group of HDFC Bank Ltd., registered under SEBI (Investment Advisors) Regulations, 2013 This note has been prepared exclusively for the benefit and internal use of the recipient and does not carry any right of reproduction or disclosure. Neither this note nor any of its contents maybe used for any other purpose without the prior written consent of HDFC Bank Ltd, Investment Advisory Group. In preparing this note, we have relied upon and assumed, without any independent verification, accuracy and completeness of all information available in public domain or from sources considered reliable. This note contains certain assumptions and views, which HDFC Bank Ltd, Investment Advisory Group considers reasonable at this point in time, and which are subject to change. Computations adopted in this note are indicative and are based on current market prices and general market sentiment. No representation or warranty is given by HDFC Bank Ltd, Investment Advisory Group as to the achievement or reasonableness or completeness of any idea and/or assumptions. This note does not purport to contain all the information that the recipient may require. Recipients should not construe any of the contents herein as advice relating to business, financial, legal, taxation, or other matters and they are advised to consult their own business, financial, legal, taxation and other experts / advisors concerning the company regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this note and should understand that statements regarding future prospects may not be realized. It may be noted that investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds unless they can afford to take the risk of losing their investment. Investors are advised to undertake necessary due diligence before making an investment decision. For making an investment decision, investors must rely on their own examination of the Company including the risks involved. Investors should note that income from investment in such securities, if any, may fluctuate and that each security‟s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Neither HDFC Bank nor any of its employees shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. 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Subject company may have been client of HDFC Bank or its associates during twelve months preceding the date of publication of the research report. HDFC Bank or its associates may have received compensation from the subject company in the past twelve months. HDFC Bank or its associates may have managed or co-managed public offering of securities for the subject company in the past twelve months. HDFC Bank or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. HDFC Bank or its associates may have received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months. HDFC Bank or its associates has not received compensation or other benefits from the subject company or third party in connection with the research report. Research analyst has not served as an officer, director or employee of the subject company. Neither research analyst nor HDFC Bank has been engaged in market making activity for the subject company. Three year price history of the daily closing price of the securities covered in this note is available at www.nseindia.com and www.bseindia.com.
48
Investment Advisory Group Presentation December 2018
1
Equity Strategy & Recommended Asset Allocation ______________________________________________________________________
Sharp correction in Crude Oil, Soothing statement by the US Fed and consequent rally in the INR seems to have lifted the market sentiments. Strong liquidity infusion by the RBI also seems to have alleviate the concerns related to credit flow tightening.
In India, focus on infra spending by the government, improved urban consumption, rebounding exports and better farm income has the potential to shore up the economy in the medium term. However, the Q2FY19 GDP was below expectation, on the back of lower Agri and Manufacturing performance. Private Consumption saw some tapering of growth momentum
Strong USD, increasing global interest rates, trade wars and state/general elections could cause volatility in the equity markets.
On the positive side, the key demand indicators are showing continued traction and there seems to be some pricing power returning to businesses, as is being witnessed in the strong revenue growth of corporates in Q2FY19 results. However the earnings performance has been weaker than anticipated.
Post Q2FY19, earnings performance has been mixed with few sectors showing improvement and some showing weakness. Earnings growth needs to improve for markets to move higher sustainably. From an Equity Mutual Fund perspective, investors should look at Large cap Funds for fresh investments and SIP into Midcap and Small caps stocks/funds can begin with the longer horizon.
The Equity investment strategy, continues to remain at 50% Lumpsum and rest 50% staggered over the next 4-5 months.
Aggressive
Moderate
Conservative
Direct Equity /Equity Funds
65%
50%
25%
Debt Funds
20%
40%
70%
Alternative Investments
10%
5%
-
Gold
5%
5%
5%
2
Debt Mutual Fund Strategy ______________________________________________________________________ Investments into Short Term Funds can be considered with an investment horizon of 12 months and above. Investors looking to invest with a horizon of up to 3 months can consider Liquid Funds, while Arbitrage Funds and Ultra Short Duration Funds can be considered for a horizon of 3 months and above. Investors looking to lock in current yields can invest in Fixed Maturity Plan (FMPs). Investor who are comfortable with intermittently volatility, can look also at strategies that focus at the longer end of the yield curve. i.e. High duration funds.
3
Research Presentation – Contents ______________________________________________________________________
Outcome of State Assembly elections… likely to be key sentiment driver in near team
Trump factor and expectation of over supply situation results in Brent crude prices falling to near one year low
Divergence seen in developed markets…U.S. economic data continues to remain steady while EU is waning
Trade war taking toll on China‟s GDP growth…may put pressure on its trading partners
Most of the Emerging Market currencies take a breather…see uptick in FPI flows during the month of Nov‟18
Sharp decline in Oil prices and Rupee appreciation led to strong bounce back in Indian indices
Steady IIP and PMI data, high credit growth and strong currency reflect improvement in macro trends
India continued to be fastest growing major economy in the world… as it grew by 7.1% YoY in Q2FY19 though lower than expectations
Early signs of consumption demand weakening, while the larger picture still remains healthy
Capacity utilization improving … Revival of pricing power may push corporates to look for further Capex
Q2FY19 results were mixed… Revenue growth continued to improve while margins got impacted
Upmove in the markets, driven by crude oil, and earnings downgrade led to valuation rising higher again… earnings growth is needed for improvement in valuation
Key concerns to watch out ….
Valuation differential between Large Cap and Midcap Indices remains high…earnings growth remains the key
Nifty 50 rolling returns for last 15 years… S&P BSE Sectoral Indices monthly performance for October 2018
Equity Market Round Up – November 2018
Equity Market – Outlook and Stocks
Fixed Income
G-sec rally continued in November 2018...
Corporate bond yields declined less compared to G-sec yields…tracking caution on credit ratings of companies and tight liquidity conditions
Crude oil prices decline sharply in November 2018…big positive for domestic macros and bond yields
US FOMC gives hints of less aggressive monetary tightening…
CPI inflation for October 2018 declines tracking lower food inflation…
Fiscal deficit for April-Oct 2018 overshoots the budget estimate…
Banking System liquidity tightens further…RBI continues to support liquidity through regular OMO purchases
The G-sec yield curve continues to remain flat…
Key Risks and Variables to watch out for…
Fixed Income Outlook
Equity Mutual Funds
Insurance
4
Outcome of State Assembly elections… … likely to be key sentiment driver in near team ______________________________________________________________________ Term Completing on
No. of Seats in Rajya Sabha
Time line of Elections
No. of Seats in Lok Sabha
Mizoram
15.12.2018
40
Voting Over
1
Rajasthan
20.01.2019
200
7 Dec 2018
25
Chhattisgarh
05.01.2019
90
Voting Over
13
Madhya Pradesh
07.01.2019
230
Voting Over
29
119
7 Dec 2018
17
Apr-May 2019 (Expected)
543
State
Telangana General Elections
03.06.2019
Source: Media reports
5
Three out of Five states have gone through voting round, while two more will go for voting on December 7, 2018.
The outcome of these elections would be released on December 11, 2018.
The outcome of these elections would be key monitorable as markets could interpret results as some kind of trend of the upcoming general elections (Lok Sabha), which are likely to be held in early part of FY20.
Although, periods of elections have been unpredictable in the past and it is difficult to gauge the exact impact on the sentiments, clearly this could be a volatile period which may continue to throw good investment opportunities.
Trump factor and expectation of over supply situation results in Brent crude prices falling to near one year low ______________________________________________________________________ Brent Crude prices reacting on Trump's tweet in recent past... 90
"... The OPEC monopoly must get prices down now!"
85
"Oil prices are too high, OPEC is at it again. Not good!"
USD/bbl
80
75 "Hope OPEC will increase production substantially. Need to keep prices down!"
70 65
"So great that oil prices are falling (thank you President T)..)!!"
"Looks like OPEC is at it again"
60
Nov-18
Nov-18
Nov-18
Oct-18
Oct-18
Oct-18
Sep-18
Sep-18
Sep-18
Aug-18
Aug-18
Aug-18
Jul-18
Jul-18
Jul-18
Jun-18
Jun-18
Jun-18
May-18
May-18
May-18
May-18
Apr-18
Apr-18
Apr-18
Mar-18
Mar-18
Mar-18
Feb-18
Feb-18
Jan-18
Jan-18
Jan-18
Jan-18
55
Source: Bloomberg, Media Reports
Brent crude prices had risen sharply in the last few month to near its 4 year high of ~USD 85/bbl during the start of October on the back of supply side concerns, apart from other key reasons like the U.S. sanctions on Iran‟s energy sector, declining Venezuela oil production and Geo political tensions.
However, in the last two months, Brent crude prices have come off sharply by ~29.5% to its one year low of ~USD 58/bbl on the back of expectation of higher supply amid concerns of slowing global growth.
U.S. waiver to eight countries including India, China and Japan to continue to buy oil from Iran has also resulted in cooling off some pressure during the month of Nov‟18. Moreover, U.S. crude oil production rose by 129,000 bpd in Sept‟18 to a fresh record of 11.475 mn bpd, which also led to downward pressure on Brent crude prices.
Also, U.S. President‟s Donald Trump‟s tweets criticizing higher crude oil prices and assurance by major oil producers like Saudi Arabia to pump in more oil in response also resulted in Brent crude oil prices seeing downward movement in the recent past.
Although oil demand has remained soft in the last few months, any expected increase in seasonal demand as winter kicks in, would be key monitorable for oil price movement in the near term apart from any supply cuts announced in the upcoming OPEC meeting on 6 December 2018.
Going forward, oil supply by OPEC and Non OPEC member nations and political conditions in Middle East on one hand and expectation of global growth and U.S. shale production on the other hand are likely to direct the crude oil prices in the near to medium term.
6
Divergence seen in developed markets… …U.S. economic data continues to remain steady while EU is waning ______________________________________________________________________
U.S. economic data has remained steady over the last many months with trend continuing in the month of November 2018 as well.
Real Gross Domestic Product increased at an annual rate of 3.5% QoQ in Q3CY18. The U.S. Manufacturing PMI remained at 55.3 in Nov‟18 vs 55.7 in Oct‟18, while the unemployment rate stood at 3.7% in Oct 2018, lowest level since 1969.
Moreover, wages climbed sharply in Oct 2018 by the most since the recession ended in 2009, by 3.1% YoY. This may result in inflation rising in U.S. which is again a positive for the economy.
US Fed chair statement that interest rates are just below the neutral level, where it would neither speed up nor slow down economic growth also boosted the global market sentiments.
On the other hand, European Union (EU) growth has slowed down recently mainly due to temporary factors like Trade-war, slowdown in global growth, Brexit, Italy slowdown amongst others.
On the economic data, EU manufacturing PMI signaled the continued growth slowdown with Nov‟18 reading coming in at 51.8 vs 52.0 in Oct‟18. Euro area‟s GDP growth slowed down to 0.2% QoQ and 1.7% YoY in Q3CY18 vs 0.4% QoQ and 2.2% YoY in Q2CY18.
At the same time, recent disagreement between Italian government and European Commission over the Italy‟s budget proposal has also resulted in some political instability in the region.
Also, Britain has been demanding for softer Brexit deal with EU including a free trade agreements with U.S. and China, which is also likely to create a overhang on the EU growth as possibility of a “no deal” situation may affect free movement of goods and services.
Also, expectations of ECB‟s Quantitative Easing (QE) coming to an end from December, remains a key concern over the growth. While the U.S. economic data continues to remain steady over the last few quarters, going ahead, U.S. Fed’s monetary policy stance, liquidity conditions given Fed’s balance sheet tapering program and U.S. and China trade policies would be key monitorable for the U.S. economy. While, EU growth has wobbled in the recent past, deals under Brexit and Italy's revised budget proposal would be key monitorable for European economy.
7
Euro area GDP growth showing declining trend (Change YoY%) 3.0%
2.7% 2.4%
2.5%
2.2%
2.0%
1.7%
1.5% 1.0% 0.5% Q4CY17
Q1CY18
Q2CY18
Q3CY18 Source: Eurostat
Trade war taking toll on China’s GDP growth… …may put pressure on its trading partners ______________________________________________________________________ US-China Trade Relations Over the Years 600 500 USD Bn
400
399
365
338
321
463
296
300 200 63
70
70
92
CY07
CY08
CY09
CY10
100
506
483
468
440
426
104
111
122
124
116
116
130
0 CY11
Chinese exports to US
CY12
CY13
CY14
CY15
CY16
CY17
US exports to China Source: US Census Bureau
Since the beginning of the year, the Trump administration‟s pledge to narrow the U.S. trade deficit with China had resulted in a threat of Trade/tariff war like situation between U.S. and China, both having the world‟s biggest trading relationship.
The U.S. has imposed tariff on about USD 250 bn worth Chinese goods imported by U.S., thus prompting China to retaliate with charges on USD 110 bn worth of U.S. products imported by China.
Thus, given such geo-political tensions, International Monetary Fund (IMF) has cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets. IMF expects global growth at 3.7% YoY for CY18 and CY19 both, which is 0.2% point lower for both years against its forecast in April 2018. The impact of the ongoing trade war has also resulted in slow down in China‟s Gross domestic product as it grew by 6.5% YoY in Q3CY18 compared to 6.7% YoY seen in Q2CY18, which is also the slowest growth rate since 2009.
Thus, the impact of a trade war between these superpowers may impact the global and other Emerging economies and also the slowdown in China’s growth is likely to have repercussion on other Emerging economies like South Korea, Taiwan, Thailand, Brazil, Vietnam, Indonesia amongst others who are trading partners of China.
However, earlier during the month of November, the U.S. president suggested his administration could soon strike a deal with China and as per media reports, President Trump has agreed that on January 1, 2019, U.S. will leave the tariffs on USD 200 bn worth of product at the 10% and not raise it to 25%, thus giving a 9- day window for further discussions.
While the deterioration in economic growth data signaled by various agencies may impact the sentiments in near term, announcements or actions by US President on trade policy and reciprocal announcement by China and other countries would be the key monitorable for the global growth projections. Also, going ahead, any slow down in Chinese economy is also likely to have repercussion on the China’s trading partners, especially in Emerging Markets.
8
Most of the Emerging Market currencies take a breather… …see uptick in FPI flows during the month of Nov’18 ______________________________________________________________________ Most of the Emerging Markets currencies have appreciated against USD during Nov 2018
Positive FPI inflows seeing in most of the Emerging Markets during November 2018(in USD mn)
6.6%
5000
4,440 3,522
4000
in USD Mn
3000
1,794
1000
India Philippines
238
248
Taiwan
S Korea
Thailand
Indonesia
Philippines
Thailand
0.8% 0.4%
-72 Brazil
Vietnam
-378
S Korea
1.7%
0
-1000
Indonesia
5.9% 2.0%
2000
Taiwan
0.2%
China
0.1%
Vietnam Russia
-1.7%
Brazil
-3.9%
-6.0%
-4.0%
Source: Bloomberg, *Data for Nov 2018
Turkey
5.9%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0% Source: Bloomberg
Foreign investors pulled out capital from most of the emerging economies‟ equity markets since the start of the year on the back of trade war like situation between U.S. and China and firming up of U.S. bond yields on the back of expected higher growth for U.S.
Also the Global liquidity tightening or reduction of major central bank‟s balance sheets have also resulted in the yields going up sharply in the recent past. This also led to hardening of yields in U.S. and other advanced markets and resultant flight of FPI flows from Emerging Markets (EMs) to dollar denominated securities in the advanced markets.
However, recently in the month of Nov‟18, most of the EM equity markets saw positive FPI inflows as sentiments improved on the back of sharp decline in crude oil prices and trade war worries between US and China showing signs of cooling off along with positive statements coming from US Federal Reserve.
As a result, most of the EM currencies have gained against the US dollar during the month.
Amongst the EMs, Turkish Lira has appreciated by ~6.6% MoM in Nov‟18 and Indian Rupee and Indonesia Rupiah have also appreciated by 5.9% MoM each while Chinese Yuan appreciated marginally by ~0.2% MoM during the same period.
Going ahead, tightening of liquidity as signaled by major central banks like U.S. Fed and ECB is likely to guide the bond yields up in these markets and hence may result in money flowing out of EMs to developed markets on the back of risk aversion amongst FPIs. Additionally, any negative global sentiments due to trade war like situation and its negative impact on exporting EMs may create pressure for EMs equity markets and currency.
9
Sharp decline in Oil prices and Rupee appreciation led to strong bounce back in Indian indices
______________________________________________________________________ Nifty 50
Movement in Indian Rupee (INR per unit of USD)
11900 11700 11500 11300 11100 10900 10700 10500 10300 10100 9900
75 73 71
69 67 65
Source: Bloomberg
Nifty 50 registered 4.7% gain in the month of November 2018 owing to
Nov-18
Oct-18
Sep-18
Aug-18
Jul-18
Jun-18
May-18
Apr-18
Mar-18
Mar-18
Jan-18
Dec-17
Nov-18
Oct-18
Sep-18
Aug-18
Jul-18
Jun-18
May-18
Apr-18
Mar-18
Mar-18
Jan-18
Dec-17
63
Source: Bloomberg
300
sharp decline of ~22% MoM in Brent Crude Oil prices
200
appreciation of Rupee by ~6% MoM
100
revival in buying from FPI to the tune of ~Rs. 60 bn and steady flow from DIIs to the tune of ~Rs. 36 bn
Trend in FPI and DII (Rs in Bn)
0 -100 -200
rising expectation of lower Current Account Deficit
However, further upmove in the markets would depend on consistently oil prices remaining at lower levels and benefits of lower oil prices and currency appreciation flowing into the corporate earnings.
10
-300
-400 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18
FPI - Equity
Jul-18 Aug-18 Sep-18 Oct-18 Nov-18
DIIs Source: NSDL, SEBI Data as on 29 Nov 2018
Steady IIP and PMI data, high credit growth and strong currency reflect improvement in macro trends ______________________________________________________________________ Certain macro data showing improvement – steady PMI and IIP data, improving credit growth data and lower CPI .
12
2
Jul-17
9/17/2018
8/17/2018
Source: MoSPI, Min of Commerce
Source: Bloomberg
10/17/2018
7/17/2018
6/17/2018
5/17/2018
4/17/2018
3/17/2018
2/17/2018
1/17/2018
12/17/2017
11/17/2017
9/17/2017
10/17/2017
8/17/2017
7/17/2017
6/17/2017
5/17/2017
4/17/2017
3/17/2017
Jul-18
Sep-18
Jun-18
Aug-18
Apr-18
May-18
Jan-18
Feb-18
Mar-18
Oct-17
Dec-17
Nov-17
Jul-17
Sep-17
Jun-17
Aug-17
Apr-17
May-17
Jan-17
Feb-17
Mar-17
Oct-16
Dec-16
Sep-16
Nov-16
Aug-16
Oct-18
Nov-18
Sep-18
Jul-18
Aug-18
Jun-18
Apr-18
May-18
Mar-18
Jan-18
Feb-18
Dec-17
Nov-17
-2.0
2/17/2017
0
0.0
48
Oct-18
6 4
2.0
49
8
Sep-18
50
10
Jul-18
4.0
Aug-18
51
Jun-18
6.0
Apr-18
52.2
May-18
51.7
51.2
Mar-18
51.6
Jan-18
51.0
Feb-18
52.3
52.1
Dec-17
52.4
52
14
Oct-17
52.6
53
5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5
16
8.0
53.1
Change YoY %
53.1
Nov-17
54
54
CPI based inflation coming down in last few months
in %
55
Credit Growth continues to show improvement in last few months (YoY %)
IIP and core sector growth data stabilizing in last few months (YoY %)
10.0
Sep-17
54.7
Aug-17
Manufacturing PMI rises to 11 month high in Nov'18 56
CPI (%) Source: Bloomberg, MoSPI, Min of Commerce
Source: RBI
While certain Economic data like rising Fiscal deficit, Current Account Deficit and rising trade deficits in recent months are yet to reverse
2.5%
1.4%
Source: CGA
Source: Ministry of Commerce and Industry
Certain macro data like steady PMI and IIP data along with improving non-food credit growth to ~15% YoY in the first week Nov‟18 and cooling off of CPI based inflation in the recent months are signalling improving macro scenario. While, certain economic data like higher fiscal deficit of ~103.9% for April-October of FY19, rising Current Account deficit and Trade Deficit are indicating weakness in the certain macro picture.
Going ahead, the recent decline in the oil prices and appreciation of Indian rupee may result in lowering of CAD and Trade Deficit and also it is likely to be lower than earlier estimate given the sharp fall in crude prices seen in the recent months.
11
Oct-18
Sep-18
Aug-18
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Source: RBI
7.0 Jul-18
0.1%
0.0%
Jun-18
April-October FY19
May-18
April-October FY18
0.6% Apr-18
0.5%
90%
9.0
9.5
0.6%
Mar-18
92%
12.0
14.0
12.0
11.4 11.6
1.1%
1.0%
17.4
14.6
13.7 13.7
Feb-18
1.5%
94%
14.9 14.0 13.8
14.5
Jan-18
96.1%
96%
1.9%
Dec-17
98%
2.1%
Nov-17
2.0%
Oct-17
2.5%
100%
17.1
16.6
16.3
17.0
Sep-17
102%
18.0
2.4%
Aug-17
3.0%
103.9%
104%
Trade Deficit seen rising in the last few month ($ Bn)
Current Account Deficit rising sharply in last few quarters (as % of GDP)
Jul-17
Fiscal Deficit as a percentage of full year target rises sharply in YTD FY19 upto October (in %)
India continued to be fastest growing major economy in the world… as it grew by 7.1% YoY in Q2FY19 though lower than expectations ______________________________________________________________________ Trend in GDP growth (% YoY) 9.0 8.0
7.7
7.6 6.1
6.0
India’s GDP grew at 7.1% YoY in Q2FY19 and Gross Value Added (GVA) at 6.9% YoY at a slower pace than Q1FY19.
H1FY19 GDP growth stood at 7.6% YoY compared with 6.0% YoY in H1FY18 and GVA growth stood at 7.4% YoY compared with 5.8% YoY in H1FY18.
Q2FY19 GVA growth was driven by growth in services sectors especially in following sectors;
8.2 7.1
7.0
6.8
7.0
6.3 5.6
5.0
4.0 3.0
Electricity, Gas, Water supply & other Utility Services – up by 9.2% YoY vs 7.3% YoY in Q1FY19
Trade, Hotel, Transport, Communication & Services Related To Broadcasting – up by 6.8% YoY vs 6.7% YoY in Q1FY19
Public Admin, Defence & other services – up by 10.9% YoY vs 9.9% YoY in Q1FY19
2.0 1.0 0.0 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Source: Ministry of Statistics and Programme Implementation
Growth (% YoY) in Sectoral GVA at basic prices Industry Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Agriculture, Forestry & Fishing 2.6 3.1 4.5 5.3 3.8 Mining & quarrying 6.9 1.4 2.7 0.1 (2.4) Manufacturing 7.1 8.5 9.1 13.5 7.4 Electricity, Gas, Water supply & other Utility Services 7.7 6.1 7.7 7.3 9.2 Construction 3.1 6.6 11.5 8.7 7.8 Trade, Hotel, Transport, Communication & 8.5 8.5 6.8 6.7 6.8 Services Related To Broadcasting Financial, Insurance, Real Estate & 6.1 6.9 5.0 6.5 6.3 Professional services Public administration, defence & other services 6.1 7.7 13.3 9.9 10.9 GVA at Basic Price 6.1 6.6 7.6 8.0 6.9 Source: Mospi
Expenditures of GDP (% YoY) Q2FY18 Private Final Consumption Expenditure 6.8 Government Final Consumption Expenditure 3.8 Gross Fixed Capital Formation 6.1 Change in Stocks 5.8 Valuables 54.2 Exports 6.8 Less Imports 10.0 Discrepancies 15.4 GDP at market prices 6.3 Source: Mospi
12
Q3FY18 5.9 6.8 9.1 7.2 37.2 6.2 10.5 (55.0) 7.0
Q4FY18 6.7 16.8 14.4 7.8 29.1 3.6 10.9 (21.8) 7.7
Q1FY19 8.6 7.6 10.0 8.6 (8.0) 12.7 12.5 0.4 8.2
Q2FY19 7.0 12.7 12.5 3.8 23.3 13.4 25.6 22.7 7.1
However, some of the sectors grew at lower rate as compare to Q1FY19;
Agriculture, Forestry & Fishing – up by 3.8% YoY vs 5.3% YoY in Q1FY19
Mining & quarrying – fell by 2.4% YoY vs growth of 0.1% YoY in Q1FY19
Manufacturing – up by 7.4% YoY vs 13.5% YoY in Q1FY19
Construction – up by 7.8% YoY vs 8.7% YoY in Q1FY19
On the expenditure side, Gross Fixed Capital Formation (GFCF) growth, a proxy to investment demand, continued to improve on YoY basis. However, private consumption on the one hand slowed down a bit, government consumption growth on other hand saw improvement.
The improvement in GFCF, a proxy for private capex, is hinting towards improvement in private capex that may lead to further improvement in GDP growth rate going ahead.
While the multilateral agencies continue to keep faith reposed in India’s sustained growth momentum driven by strong consumption and investment growth in the economy, they marginally trimmed their growth forecast for FY19 and FY20 owing to liquidity constraint at NBFCs and rising interest rates.
Early signs of consumption demand weakening, while the larger picture still remains healthy.
______________________________________________________________________
Overall consumption demand remains steady key indicators continue to report steady growth… Domestic airline passenger traffic continued to see double digit growth for 50 straight months 30.0
Sustained double digit domestic airline passenger growth for last 50 months
Same store growth in QSR* companies 30.0% 25.0%
25.0
20.0%
20.0 YoY %
Strong same store growth in QSR* companies depicts urban demand remain steady
15.0% 15.0
10.0%
10.0
5.0% 0.0%
5.0
-5.0% Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18
0.0
-10.0% Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Jubilant FoodWorks Westlife Development Source: Company Data, Note: *Quick service restaurants
Source: DGCA
Volume growth for FMCG companies remained steady during Q2FY19 though moderated a bit Trend in Volume growth for FMCG Companies Volume growth YoY % Q2FY18 Q3FY18 Q4FY18 Q1FY19 HUL consumer business 4 11 11 12 Marico Group 8 9 1 12 Marico (Parachute) 12 15 (5) 9 Marico (saffola) 3 0 (1) 10 Marico (hair oil) 12 8 11 15 Jyothy Lab 4 12 11 19 Emami 10 6 9 16 Dabur 7 13 8 21 Colgate (1) 12 4 4 Source: Company data
Q2FY19 10 6 8 5 5 4 (4) 8 7
However, initial signs of weakness are emerging in terms of moderation in auto sales numbers especially in PV and moderation in personal loan growth
Source: Media Reports
Jul-18
Oct-18
Jan-18
-16 -18 Toyota Ford India
Apr-18
Maruti Suzuki
Jul-17
M&M
Oct-17
Honda Cars
Jan-17
-20
Apr-17
Tata Motors
-15
Jul-16
Hyundai Motor
-10
Oct-16
-1.0
Jan-16
-0.7
Apr-16
-5
Jul-15
0.5
Oct-15
0.8
0
Jul-14
(YoY growth in %)
5
Oct-14
10
10
21.00 20.00 19.00 18.00 17.00 16.00 15.00 14.00 13.00 12.00 11.00
Jan-15
% Growth in Personal loan (YoY)
PV sales in November 2018 15
However, hike in MSP for Rabi crops may support the rural demand growth momentum
Personal loan growth also witnessing moderation
Apr-15
Weakness witnessed in Passenger vehicle growth
Source: RBI
Wheat Barley Gram Masur (Lentil) Rapeseed & Mustard Safflower Source: http://pib.nic.in
Hike in MSP for Rabi Crops MSP MSP Cost of Increase Return over (Rs/quintal) (Rs/quintal) production in MSP (%) cost* (%) FY18 FY19 (Rs/quintal) FY19 1735 1840 866 6.1 112.5 1410 1440 860 2.1 67.4 4400 4620 2637 5.0 75.2 4250 4475 2532 5.3 76.7 4000 4200 2212 5.0 89.9 4100 4945 3294 20.6 50.1
While overall consumption demand condition remained steady, some early signs are coming to forefront which indicates weakness is creeping in the consumption demand. Moderation in personal loan growth and tightness in lending and lending rate may create further pressure going ahead. Similarly, a deficiency in monsoon (~9% from LPA) and lower Rabi sowing may lead to slowdown in rural demand but hike in Rabi MSPs, higher Kharif crop production output (first est. 141 mn tonnes) and reservoir levels (~100% of last year‟s storage) may provide some cushion. However, increased focus of the government towards doubling the rural income, hike in Kharif and Rabi crop MSPs, higher allocation to schemes related to Urban India and higher per capita income is likely to keep consumption demand buoyant in the long term.
13
Capacity utilization improving … …. Revival of pricing power may push corporates to look for further Capex
______________________________________________________________________
Govt. spending rose by ~10% YoY in Apr-Oct’18
India‟s fiscal deficit touched 103.9% of the budgeted target during the Apr-Oct period
The aggregate capital expenditure by 20 major states in April-Sept of FY19 was Rs 1.31 trillion, 16% higher than in the year-ago period, Uttar Pradesh (151%), Rajasthan (62%) and Gujarat (29%) reported the sharpest acceleration in capex in H1FY19
Govt is keen to set up 5000 compressed bio-gas plant in next 5 years by investing Rs.1.75 trillion
Indicators of Investment demand also looking up
6.0 4.0
2.0
Q2FY19
Q1FY19
Q4FY18
Q3FY18
Q2FY18
Q1FY18
Q4FY17
Q3FY17
Q2FY17
Source: MOSPI
Healthy growth in cement production over the last one year (YoY %) 23.1%
25.0%
17.7% 19.6% 16.9%
20.0% 15.0%
Vodafone Idea is planning for Rs.270 bn Capex for 4G coverage by FY20
0.0%
JSW Steel to invest over Rs.50 bn on strengthening downstream manufacturing capacity
-5.0%
Jul-18
Jun-18
Apr-18
May-18
Mar-18
-1.3%
Feb-18
0.7% 1.2% -3.1% 0.3%
Jan-18
5.0%
Oct-18
10.8% 14.3% 11.8%
10.0%
Sep-18
Swedish company IKEA plans to open over 40 stores across different formats as against 25 stores (Rs.105 bn capex) planned earlier.
18.4%
16.5% 13.0% 13.2% 13.5%
Aug-18
Dec-17
PSU, Private and foreign companies have started participating in the capex cycle,
Q1FY17
0.0
FDI in India, which grew by 23% YoY to USD 12.75 bn during Q1FY19, also bodes well for investment activity going ahead.
Steady government efforts to push capex cycle and steady in demand condition led to sharp improvement in Capacity Utilization which stood at 75% in Q1FY19.
Capital spending by some of India Inc’s larger firms rose to a staggering ~Rs.4.63 trillion at Source: MoSPI the end of FY18, up from ~Rs.3.47 trillion in FY17. A lot of corporates have stayed back in recent past when it comes to capex announcement due to slack period seen in their profitability in last 3-4 years. However, some of the companies have started taking initiative for new capex announcement as they see improvement in their capacity utilization. We believe that as the aggregate demand scenario is expected to remain steady going ahead owing to steady growth in automobile sales, cement production, improvement in order book for capital goods companies and rising GFCF, there is likely to be revival in pricing power of the corporate for their goods and services, which may push corporates to initiate fresh capex announcement.
8.0
Nov-17
10.0
Oct-17
As per the RBI‟s annual report, household financial savings, which has improved from 9.1% in FY17 to 11.1% in FY18, are the most important source of funds for investment in the economy.
12.0
Q4FY16
Import of “Machinery, electrical & non-electrical” and “Electronic goods” rose by 12.5% YoY and 31.9% YoY in Oct‟18
14.0
Sep-17
16.0
Aug-17
Cement production is up by 18.4% YoY in Oct‟18
Trend in GFCF growth
18.0
Q3FY16
Growth in Gross Fixed Capital Formation, a proxy to investment activity in India, is witnessing a sharp improvement from 0.8% YoY growth in Q1FY18 to 12.5% YoY growth in Q2FY19.
Jul-17
Jun-17
Central government continued its efforts to push capex cycle by raising allocation for Capital expenditure – CAGR 11.1% YoY over FY15 to FY19E
(in YoY %)
14
Q2FY19 results were mixed… … Revenue growth continued to improve while margins got impacted ______________________________________________________________________ YoY Change in % Ai r Tra n s p o rt Se rvi ce Au to & Au to An c BFSI Ca p i ta l Go o d s Ce me n t & Pro d u cts Ch e m & Fe rt FMCG & Re ta i l He a l th ca re Ho te l s & Re s ta u ra n ts I n fra s tru ctu re IT Lo gi s ti cs Me d i a & En t Me ta l & Mi n Mi s ce l l a n e o u s Oi l & Ga s Po we r Re a l ty Te l e co mm Te xti l e s Grand Total ex BFSI Source: Capitaline
Q2FY19 16.9 7.0 9.8 35.0 15.0 17.2 7.1 9.5 13.3 18.6 16.3 26.1 70.6 20.9 35.7 48.1 12.7 19.6 (3.6) 25.8 21.2 23.1
Net Sales Q1FY19 13.2 18.2 11.0 29.3 15.4 12.5 0.1 15.9 7.5 11.6 13.0 6.9 71.6 27.2 12.4 34.0 2.0 10.8 (12.8) 64.9 18.7 18.7
Q2FY18 27.0 14.6 7.2 9.7 15.7 1.1 (6.0) 3.7 (4.0) 6.4 4.6 6.2 (3.2) 25.5 (21.1) 13.7 (0.4) (0.0) (12.8) 56.1 9.0 8.3
Q2FY19 (236.1) (12.1) 10.2 123.0 (5.9) 0.4 10.8 (6.2) (1.1) 8.3 17.5 62.0 56.2 50.6 232.7 20.4 (14.7) 2.4 (33.5) (58.9) 9.5 11.1
EBITDA Q1FY19 (101.0) 17.8 0.1 164.6 (4.5) 6.0 19.0 38.7 18.6 5.5 15.3 15.6 75.8 52.5 (159.0) 63.9 (0.9) (11.4) (24.9) 72.5 15.7 15.6
Q2FY18 277.3 22.8 1.7 47.8 7.9 24.9 13.9 (7.1) (14.7) 25.2 3.1 36.9 6.1 33.8 (72.0) 34.8 3.4 4.3 (22.0) 54.6 9.6 8.7
Reported PAT Q2FY19 Q1FY19 Q2FY18 (218.2) (96.6) 294.4 (26.9) (28.3) 17.1 (39.2) (36.6) 13.3 81.7 156.9 (38.9) (6.3) (16.8) (6.2) 0.5 0.9 36.1 15.4 20.7 13.3 (10.1) 67.4 (19.7) (90.7) (132.0) 143.7 13.2 16.1 50.7 12.8 12.7 4.8 46.8 2.4 45.0 (11.3) 59.8 56.0 75.2 82.7 49.4 372.5 (89.9) (83.2) 11.3 37.4 22.9 5.7 15.6 3.5 109.0 87.5 (3.8) (3,598.6) 194.4 (95.2) (227.4) 13.4 (25.6) (4.7) 11.8 9.7 (2.3) 15.6 8.9
The corporate results announced far in Q2FY19 were as per the market expectation where top line continued to improve but margins got impacted.
The net sales of 196 companies in CNX 200 index grew by 21.2% YoY. However, rising commodity prices and delay in pricing action affected the EBITDA, which grew at a slower pace of 9.5% YoY. However, Reported PAT fell by 4.7% YoY during the quarter. Excluding banking, financial and insurance (BFSI) companies‟ data, net sales would have grown by 23.1% YoY and EBITDA by 11.1% YoY, while Reported PAT fell by 2.3% YoY.
The demand momentum continued to remain healthy for FMCG companies as seen in volume growth especially in rural India. Capital Goods companies also saw improvement in revenue growth owing to healthy order book and infrastructure push by the government. Automobile sector saw muted topline growth due to delayed festive season and on the cost side due to commodity price rise. Management of these companies have highlighted that the price hike has been taken and this is likely to be reflected in the next quarter. In the banking space, Corporate banks witnessed reduction in fresh NPA recognition. IT companies witnessed improvement in demand and a tailwind from currency depreciation.
We believe the demand improvement seen in recent earnings announcement is likely to continue going ahead on the back of improvement in global growth and in domestic micro level fundamentals like improving rural demand, steady growth in urban demand and gradual acceleration in capex activity especially in private sector. We think that the trend of organized sector gaining share from the unorganized sector would continue to gain traction in the new GST regime as the number of people under the tax net increases, which is likely to help improve corporate earnings further in the medium term.
15
Upmove in the markets, driven by crude oil, and earnings downgrade led to valuation rising higher again… earnings growth is needed for improvement in valuation ______________________________________________________________________ S&P BSE Sensex & Trailing P/E
45000
Mkt Cap to India GDP (curr prices)
30 160
40000
25
35000 30000 25000 20000
140
20
120
15
100
2500
Mkt cap to GDP highest in last seven year
Bubble Territory Previous peak with Sensex at ~21000
S&P BSE Sensex Consensus EPS (Rs.) 2100
2000 1500
1740 1540
1385
1360
FY16
FY17
80
Source: Capitaline
95.3
54.5
68.6
60.8
83.6
74.2
74.1
114.2
76.5
500
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Nov-18
P/E (RHS)
52.06
S&P BSE Sensex (LHS)
95.3
20
Dec-09
0
Nov-07 May-08 Oct-08 Mar-09 Aug-09 Feb-10 Jul-10 Dec-10 May-11 Nov-11 Apr-12 Sep-12 Mar-13 Aug-13 Jan-14 Jun-14 Dec-14 May-15 Oct-15 Mar-16 Sep-16 Feb-17 Jul-17 Dec-17 Jun-18 Nov-18
0
40
Dec-08
5000
1000
60
5
146.5
10
10000
Dec-07
15000
0
0
Source: Bloomberg
Indian markets ended on a positive note during the month of November 2018 as S&P BSE Sensex and Nifty 50 ended with the gain of 5.1% MoM and 4.7% MoM, respectively. The upmove was mainly due to ~22% MoM fall in crude oil prices and ~6% MoM appreciation in Indian Rupee.
Corporate results in Q2FY19 witnessed strong revenue growth, however, they have also witnessed compression in margins due to higher raw material cost, which led to downgrade in FY19E EPS.
Currently, the S&P BSE Sensex is trading at 20.8x FY19E consensus EPS of Rs.1740 and 17.2x FY20E consensus EPS of Rs.2100. (S&P BSE Sensex price as on 30.11.2018).
However, we expect the GDP growth momentum to pickup going ahead given the steady growth seen in IIP, Core sector and other lead indicators, which may lead to increase in the corporate earnings and thus improve the market valuations.
In long term India is likely to see a steady growth on the back of improvement in Rural economy, rising government expenditure and higher disposable income in the hands of consumers. With strong demographic dividend that India is seeing, we expect the economic growth and demand conditions in the country to remain strong for a long period. This is likely to augur well for investment in equities.
Hence, investors should use any major volatility in the equity markets as an opportunity to adding into their exposure in line with their risk profile with a 2-3 years investment horizon.
16
FY18
FY19E FY20E Source: Bloomberg
Key concerns to watch out …. ______________________________________________________________________
17
Domestic factors ….elections, currency movement, liquidity situation and demand momentum
Outcome of five state election would be one of the key determinants of investor sentiment before the General Elections.
If Rupee depreciates (~8.9% CYTD November 2018), then it may impact the country‟s twin deficit.
Accentuation of contagious effect of an NBFC default to other companies/sectors
Tightening of corporate credit cycle may lead to delay in capex cycle due to funding requirement
Weakening of discretionary consumption demand
Global factors ….hike in interest rate, rollback of QE and trade war
Quantitative tapering by the US and Europe leading to tightening of global liquidity, impacting global currencies while strengthening USD.
Faster interest rate hike by the US Fed leading to rise in bond yield thereby resulting in shift of capital from Emerging markets to Developed markets.
Rising trend of protectionism across economies leading to trade war situation could pose a risk to overall global growth.
Slowdown in growth in key developed (Europe) and developing (China) economies
Worsening in geo-political situations (Brexit, trade wars, etc) across globe.
Rise in volatility in commodity prices could put pressure on the global financial markets.
Valuation differential between Large Cap and Midcap Indices remains high…earnings growth remains the key ______________________________________________________________________ 50.0
Valuation differential between Large Cap and Midcap Indices corrected but still remains high
40.0 30.0 20.0
10.0
Trailing P/E S&P BSE Midcap
Nov-18
Jul-18
Mar-18
Nov-17
Jul-17
Mar-17
Nov-16
Jul-16
Mar-16
Nov-15
Jul-15
Mar-15
Nov-14
Jul-14
Mar-14
Nov-13
Jul-13
Mar-13
Nov-12
Jul-12
Mar-12
Nov-11
Jul-11
Mar-11
Nov-10
Jul-10
Mar-10
Nov-09
Jul-09
Mar-09
Nov-08
Jul-08
Mar-08
Nov-07
0.0
Trailing P/E S&P BSE Sensex Source: Capitaline
2.0
1.9
Valuation Premium of Midcap over Sensex
1.4
1.5 1.0 1.0 0.7
0.5
0.9
0.8
0.8
0.7
1.4
1.3
1.3
1.0
Nov-18
Jul-18
Mar-18
Nov-17
Jul-17
Mar-17
Nov-16
Jul-16
Mar-16
Nov-15
Jul-15
Mar-15
Nov-14
Jul-14
Mar-14
Nov-13
Jul-13
Mar-13
Nov-12
Jul-12
Mar-12
Nov-11
Jul-11
Mar-11
Nov-10
Jul-10
Mar-10
Nov-09
Jul-09
Mar-09
Nov-08
Jul-08
Mar-08
Nov-07
0.0
Source: Capitaline
18
Nifty 50 rolling returns for last 15 years ______________________________________________________________________ Nifty 50: 1-year rolling return for last 15 years
Nifty 50: 3-year rolling return for last 15 years
70
120 100 80 60 40 20 0 -20 -40 -60 -80
60 50 40 30 20 10 0
1 Year
avg
3 Years
Source: ICRA Online
avg
Nov-18
Nov-17
Nov-16
Nov-15
Nov-14
Nov-13
Nov-12
Nov-11
Nov-10
Nov-09
Nov-08
Nov-07
Nov-06
Nov-05
Nov-04
Nov-18
Nov-17
Nov-16
Nov-15
Nov-14
Nov-13
Nov-12
Nov-11
Nov-10
Nov-09
Nov-08
Nov-07
Nov-06
Nov-05
Nov-04
-10
Source: ICRA Online
Nifty 50: 5-year rolling return for last 15 years
50 40 30 20
10 0
5 Years
avg
Nov-18
Nov-17
Nov-16
Nov-15
Nov-14
Nov-13
Nov-12
Nov-11
Nov-10
Nov-09
Nov-08
Nov-07
Nov-06
Nov-05
Nov-04
-10
Source: ICRA Online
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
19
S&P BSE Sectoral Indices monthly performance for November 2018 ______________________________________________________________________ 8.0%
7.2%
S&P BSE Sectoral Indices monthly performance 6.7%
6.6% 5.6%
6.0%
5.1%
4.7%
4.0%
2.0% 0.0% 0.0% 0.0% -2.0%
-1.6% -2.4%
-4.0%
-2.7%
-6.0%
-5.5%
-8.0% Cons Durable
Realty
Cap Goods
Bankex
Auto
FMCG Sector
Infra.
Oil&Gas
(Month on Month change in %)
20
IT
Power
Healthcare
Metal
Source: Bloomberg
Equity Market Round Up – November 2018 ______________________________________________________________________ Indian markets ended on a positive note during the month of November 2018 as S&P BSE Sensex and Nifty 50 ended with the gain of 5.1% MoM and 4.7% MoM, respectively.
The S&P BSE Midcap index and the S&P BSE Smallcap index also ended on a positive note with the gain of 2.9% MoM and 1.6% MoM, respectively.
On the sectoral indices front, the S&P BSE Cons. Durable index and S&P BSE Realty index were the top two outperformers, as they rose by 7.2% MoM and 6.7% MoM, respectively. The S&P BSE Metal index and S&P BSE Healthcare index were top two underperformers as they fell by 5.5% MoM and 2.7% MoM, respectively. During the month of November‟18, FPIs were net buyers to the tune of ~Rs.60 bn while DIIs were net buyers to the tune of ~Rs.36 bn (as of 29 November 2018).
BSE Sensex Price Earning (PE) 1 year forward
21x
41000
Indices
30 Nov 2018
31 Oct 2018 Chg %
S&P BSE Sensex
36,194
34,442
5.1
S&P BSE Mid Cap
15,039
14,613
2.9
S&P BSE Small Cap
14,427
14,201
1.6
S&P BSE 100
11,119
10,662
4.3
S&P BSE 500
14,429
13,882
3.9
Net Flow (Rs. Bn)
FPI
DII
CY18*
(361)
1088
CY17
513
1187
CY16
151
475
CY15
131
710
19x 38000
17x
S&P BSE Sensex Levels
35000
32000
15x
29000
26000
23000
Source: BSE, NSDL (*CY18 FPI data and DII data as on 29 Oct 2018)
Source: Bloomberg
21
Nov-18
Jun-18
Feb-18
Sep-17
Apr-17
Dec-16
Jul-16
Feb-16
Oct-15
May-15
Dec-14
20000
Equity Market Outlook ______________________________________________________________________
Indian markets would be closely tracking the outcome of state assembly elections as it would be the key sentiment driver in near term.
In commodities markets, the Trump (US President) factor and expectation of oversupply situation resulted in sharp decline in Brent crude oil prices, which are currently hovering around near one-year low. Going ahead, any increase in seasonal demand for oil and outcome of upcoming OPEC meeting on 6 December 2018 would be key monitorable for oil price movement in the near term.
In global markets, a divergence was seen in growth momentum in developed markets with the US continued to see steady growth, while EU growth momentum started waning. Similarly, China is also witnessing slowdown in GDP growth mainly due to ongoing trade issues with the US. This may also put pressure on China‟s trading partners.
However, majority of the emerging markets witnessed uptick in FPI flows during the month as a result currencies of these market also appreciated in the range of 2-6% MoM.
Sharp decline in Brent crude oil and rupee appreciation led to strong bounce back in Indian indices. However, further upmove in the markets would depend on consistently oil prices remaining at lower levels and benefits of lower oil prices and currency appreciation flowing into the corporate earnings.
Steady IIP and PMI data, high credit growth and strong currency during the month continue to reflect improvement in macro trends. The GDP growth in Q2FY19 came in at 7.1% YoY, which was lower than expectations, however, India continued to be fastest growing major economy in the world.
On the demand scenario, the consumption demand is showing some early signs of weakening in terms of moderation in automobiles sales numbers especially in Passenger Vehicle and moderation in personal loan growth. However, the larger picture still remains healthy as some key indicators like domestic air passenger data, SSG growth in QSR and volume growth of FMCG companies continued to report steady growth.
While consumption demand looks weakening, indicators of Investment demand is looking up with capacity utilization levels started to improve. However, a majority of corporate is likely to follow once they see revival in pricing power for their goods and services.
The corporate results announced far in Q2FY19 were as per the market expectation where top line continued to improve but margins got impacted. The net sales of 196 companies in CNX 200 index grew by 21.2% YoY. However, rising commodity prices and delay in pricing action affected the EBITDA, which grew at a slower pace of 9.5% YoY. However, Reported PAT fell by 4.7% YoY during the quarter
Indian markets ended on a positive note during the month of November 2018 as S&P BSE Sensex and Nifty 50 ended with the gain of 5.1% MoM and 4.7% MoM, respectively. The upmove was mainly due to ~22% MoM fall in crude oil prices and ~6% MoM appreciation in Indian Rupee. Corporate results in Q2FY19 witnessed strong revenue growth, however, they have also witnessed compression in margins due to higher raw material cost, which led to downgrade in FY19E EPS.
Currently, the S&P BSE Sensex is trading at 20.8x FY19E consensus EPS of Rs.1740 and 17.2x FY20E consensus EPS of Rs.2100. (S&P BSE Sensex price as on 30.11.2018).
However, we expect the GDP growth momentum to pickup going ahead given the steady growth seen in IIP, Core sector and other lead indicators, which may lead to increase in the corporate earnings and thus improve the market valuations.
In long term India is likely to see a steady growth on the back of improvement in Rural economy, rising government expenditure and higher disposable income in the hands of consumers. With strong demographic dividend that India is seeing, we expect the economic growth and demand conditions in the country to remain strong for a long period. This is likely to augur well for investment in equities.
However, in the near to medium term, some of the key concern on the domestic side like elections, currency movement, tightening in corporate credit cycle, weakening of discretionary consumption demand and earnings momentum would be key monitorable. Similarly, global factors like rising interest rate, rollback of quantitative easing impacting global currencies, slowdown in growth and trade wars are also likely to bring volatility in the market which in turn may provide opportunity to invest for long term.
We continue to recommend that the investment strategy should be 50% lumpsum and rest 50% staggered over the next 4-5 months. From investment perspective, focus should be on Large cap stocks or Midcaps where the valuations are reasonable considering their long term averages and growth outlook. Investment into BEL, Voltas, KEC International, SBI, ITC, Godrej Agrovet, Birla Corp, Thyrocare, Phoenix Mills, M&M, Exide, PLNG and Reliance could be looked upon from a 2-3 year perspective in line with the individual risk profile.
22
Recommended Stocks (*CMP as on December 3, 2018) ______________________________________________________________________
Bharat Electronics (CMP: Rs.85): BEL is a niche public sector play on defence sector with strong and readily available manufacturing base in the defense space compared to various other players which are at planning stage of setting up the capacity. During the quarter BEL saw sharp improvement in its operational performance both on the revenue growth as well as improvement in operating margin. In the near term, we believe execution of low margin orders for Electronic Voting Machine (EVM) and VVPAT are likely to drag the gross margins for the company. While over the long term, BEL is likely to benefit significantly from the Government‟s key orders in the defence segment and thereby improve margin for the company. Additionally, current order book to bill ratio continues to remain robust at ~4.7x on FY18 revenue and expected order inflow for Akash Missile System in H2FY19 is further likely to drive the order inflow in the coming quarters and improves the revenue visibility for the company. However, the recent announcement of revision of PBT margins from 12.5% to 7.5% on prospective nomination based defence orders would be structural negative news for Defence sector PSUs as it would remain a cause of concerns on the future margins. However, policy being applicable only on the prospective nomination based orders; current orders would be executed at the similar margins. Thus, given the size of the current order book, these new margins may be reflected only after FY21, when execution of old nomination based orders would be completed. We continue to like BEL for a long term play on defence sector given its strong execution in the past, robust order inflow guidance and strong balance sheet strength. Given the recent correction in the stock, we continue to have a Buy rating on the stock with a target price of Rs.143 at 15x (maintained earlier multiple) FY20E EPS of Rs.7.4 and adding cash per share of Rs.33. Any revision in target price would depend upon the general business momentum, changes in order inflow, execution issues and rollover of earnings to next financial year.
Voltas (CMP: Rs.556): Voltas Ltd is one of India‟s leading engineering solution providers. While, the sales for the Unitary Cooling Product (UCP) segment remained weak during the quarter due to erratic weather conditions, management commentary on the overall growth for the company remains positive on the back of strong traction for EMP business. Although the sales for the UCP segment remained muted during the quarter, company continues to remain market leader (with increased market share of ~25.6% for Q2FY19) led by higher than industry growth during the quarter. Moreover, company has also successfully launched new products under its recently formed Joint Venture with a Turkish major “Arcelik and management guided that the initial feedback for the products was positive. We believe existing dealer and channel network in the ACs segment would be leveraged by the company for growth into other durable goods as well. On the EMP, Voltas saw further expansion in EBIT margin on YoY basis during the quarter and expects EBIT margins to remain steady as slow moving orders move out of the backlog and newer projects with better profitability come into execution. The company continues to have strong balance sheet and cash flow generation capability which would augur well for the capital requirement for the entry into other consumer durable products. We have a Buy rating on the stock with a price target of Rs.719 which is 30x (maintaining earlier multiple) FY20E EPS of Rs.24. Any change in earnings/price target would depend upon the order inflow/execution in domestic and international markets, margin improvement; scale up of the new JV, general business momentum and rollover to the next financial year.
KEC International (CMP: Rs.287): Over the last couple of years, KEC has been able to diversify its revenue base, by gradually raising the contribution from the Railways and Cables segments. Management expects order inflow in the domestic T&D to pick up on the back of orders from Power Grid as well as Private players. Indian Railways‟ long term plan to electrify ~35000 kms of railway lines by FY20 improves the revenue visibility for the railway segment for KEC, given the leadership position in the railway overhead electrification segment. We believe, overall outlook for the company continues to remain steady led by strong order book growth (up by 43.7% YoY at the end of Q2FY19) thus translating into healthy Book to bill ratio of 1.9x Trailing Twelve Month (TTM) basis. We believe, expected improvement in order inflow, reducing debt profile, diversification of overall company revenue via both, diversified client base and segment base coupled with expectation of improving ROCEs and ROE going ahead is likely to drive profitability for the company in the medium to long term. We have a Buy rating on the stock with the target price of Rs.392 based on PE multiple of 15x (maintaining earlier multiple) FY20E EPS of Rs.26.1. Any earning/target price revision would depend on the ordering and tendering activities by domestic T&D players, improvement in market share and changes in general business momentum.
State Bank of India (CMP: Rs.287): We recommend a Buy on the stock with the target of Rs.395 based on PBV multiple of 2x on FY20E core adjusted book value of Rs.182.4 and balance value accruing from Subsidiaries. Any revision in the target price would depend on changes in the NPA profile, Capital dilution and momentum in the NPA resolution process.
Birla Corporation (CMP: Rs.624): During Q2FY19, the company has delivered strong volume growth on the consolidated basis driven by pickup demand in most of the regions where the company operates. Although, profitability of the company was impacted due to high cost pressure, however on the positive side, uptick in realization was seen in most of the markets where BCorp operates. Additionally, company‟s strategy of cross branding of production at the acquired Reliance plants has started to yield better profitability for the company. We think with the economic growth picking up and sand unavailability issues in Uttar Pradesh and Bihar behind us coupled with election in the state of Rajasthan and Madhya Pradesh by year end and General election towards the end of FY19; demand scenario is likely to improve in the near term. We think that the stock commands premium to the current valuation due to visible synergy benefits between the acquired Reliance Cement plants (capacity 5.5 MTPA) and Standalone BCorp capacities and thereby expected pick up in the valuations due to improvement in profitability and strong cash flow generation capability given the entry into high growing central regions via the acquisition. We have a Buy rating on the stock with a revised price target of Rs.1325 which is 12xFY20E EV/EBITDA (average multiple for other medium to large cement players). However, any changes to the price target would be hinged upon changes in business momentum/economic cycle, capex execution issues and acceleration of cost optimization initiatives.
23
Recommended Stocks ______________________________________________________________________
ITC (CMP: Rs.283): ITC continued to report improvement in its overall FMCG business‟ performance amid challenging business environment due to pressure on the cigarette industry. Moreover, the company was able to consolidate its position in some of the major categories in FMCG business and continue to enter into new categories in the FMCG business. In addition, the company has been aggressively focusing on new launches in the existing business and entering into new markets in order to bring the incremental growth. We believe cigarette business may continue to witness improvement going ahead given the stability starting to emerge post GST implementation, however, if there is any upward revision in GST rates that may force company to take price hike then the company might start to see pressure on volumes again. However, ITC has been consolidating its leadership position in the Cigarette segment and continuing to improve its standing in key competitive markets across the country. Hence, Cigarette segment should continue to perform well over the longer term on the back of healthy margins and strong brands available at various sizes. We maintain our positive stance on the company given the long-term positive benefits of GST, expected improvement in FMCG business and steep discount as compared to its peers. Hence, we are maintaining our Buy rating on the stock with target price of Rs.350 at 30x (maintaining earlier multiple) FY20E EPS of Rs.11.7. Any earning/target price revision would depend on the performance of FMCG business, any regulatory changes in Cigarette business and in general business momentum.
Godrej Agrovet (CMP: Rs.507): GAVL, part of the Godrej group, is a well-diversified agri-business company with operations across various business verticals i.e. animal feed, crop protection, oil palm, dairy and poultry and processed foods. Over the years, GAVL has continued to focus on improving its market share across all its business verticals, which are underpenetrated and are largely catered by unorganized players, by leveraging on strong presence in these sectors. GAVL is also working on strategy to increase its revenue and profitability by extending its product pipeline by introducing innovative and value added products and expanding its geographical presence across its business divisions. GAVL also intends to improve its cost efficiency and productivity by implementing effective and efficient operational techniques in order to improve its margins in the long term. We have a positive view on the stock considering the strong parentage, leadership position in various divisions, improving volume growth, strong and robust balance sheet. We maintain our Buy rating on the stock with the target price of Rs.734 based on a PE multiple of 30x (maintaining earlier multiple) FY20E EPS of Rs.24.5. Any earning/target price revision would depend on the performance of its sub-divisions, improvement in market share and changes in general business momentum.
Thyrocare Tech Ltd (CMP:Rs.558): The company has seen some improvement in its growth on sequential basis in Q2FY19, driven by its pricing strategy. The management is hopeful of further improvement in coming quarters. We remain long-term positive on the stock given the current structural drivers like low spending on Preventive and Wellness healthcare and rising urbanization, sedentary lifestyle, and peaking stress levels leading to lifestyle diseases such as cancer, obesity, heart disease, diabetes, among others. With bulk of the market in the pathology segment being unorganised, there is significant headroom for the organised sector to grow although the management expects it at a slower pace. Thyrocare being a pan India player with the clear focus on expanding its network both on diagnostic as well as on imagining services business, it is well placed to grab this opportunity. Moreover, strong brand, lower pricing model, expanding the number of diagnostic tests and expanding the platforms also puts Thyrocare in a favorable position. Thyrocare‟s well established brand image, huge opportunity size, robust return ratios and cash rich balance sheet supports our long term view. Hence we maintain our Buy rating on the stock with the revised target price of Rs.813 based on a PE multiple of 30x (maintaining earlier multiple) FY20E EPS of Rs.27.1 (mainly due to reduction in equity due to buyback offer). Any earning/target price revision would depend on the performance of its sub-segments, impact of its new strategy, change in regulation, delay in expansion plans and changes in general business momentum.
Phoenix Mills( CMP: Rs.622): PML continued to deliver strong set of numbers during Q2FY19 led by sharp rise in the rental income as more and more malls turn mature with rental income growing at faster pace as compared to consumption growth. With the next leg of growth being partly funded via CPPIB deal and near completion of minority buyouts in existing malls, PML is expected to generate strong free cash flows. We believe these free cash flows can be utilized to unlock development potential of 4.6 msf in its existing land parcels. On the industry dynamics for retail sector, as per FICCI and PWC report, India‟s retail sector is expected to touch USD 1.3 trillion by 2020 from USDS 630 bn in 2015, growing at a CAGR of 16.7% over the same period (Source: PML Annual Report). The Government‟s initiatives for relaxing Foreign Direct Investment (FDI) regulations in certain retail segments are providing further impetus for consumption growth. With increasing household incomes, consumer attitude towards discretionary spending is gradually shifting and consumers are increasingly using quality and premium products. Thus we believe that India stands at an inflection point from where the retail consumption pie in the country is set to grow at a much higher growth rate for the next decade and given the PML‟s leadership position in the mall business in India, it is best equipped to tap this huge opportunity going ahead. Key growth drivers for PML in the form of i) doubling its mall portfolio to ~10-11 msf over the next few years, ii) focus on building retail mixed led commercial portfolio, iii) bottoming of real-estate sector and (iv) improving dynamics for hospitality sector augurs well for the company. Given the healthy cash flow generating assets, reasonable valuations and positive long term outlook on the organized retail segment, we continue to remain positive on the company and have a Buy rating on the stock with a target price of Rs.898 at 31x (maintained earlier multiple) FY20E EPS of Rs.29.0. Any earnings/target price revision would depend upon a slowdown in retail business; slowdown in real estate business, any new policy or announcement by Government on the real estate policy frame work, change in the interest rate and changes in general business momentum.
Mahindra and Mahindra (CMP: Rs.760): M&M continues to be a leader in the domestic Tractor industry with ~39% market share as of Q2FY19. The management expects domestic Tractor industry volume to grow by 12-14% YoY in FY19. The management has reiterated its stance of focusing on building a strong product pipeline in both FES and Automotive segment by introducing new product every year and further preparing itself in upcoming electric vehicle space by increasing the capex activity. We believe M&M is geared up to take on the competition and to grab the opportunity arising from ongoing improvement in growth in auto industry and recovery in rural demand. We remain positive on the medium term potential of the company on the back of new product launches that is likely to drive revenue growth for the company and on healthy return ratios of 15% plus (i.e, RoCE in FY18). Currently, we have a Buy rating on the stock with the revised target price of Rs.1037 at 16x (maintaining earlier multiple) FY20E EPS of Rs.50.3 adding Rs.232 as value (revised) of subsidiaries at 30% holding company discount. Any earning/target price revision would depend on the performance of new launches, improvement in market share, any regulatory changes, changes in the value of subsidiaries, rollover to next financial year and changes in general business momentum.
24
Recommended Stocks ______________________________________________________________________
Exide Industries (CMP: Rs.260): Exide is India‟s largest manufacturer of lead acid storage batteries and power storage solutions provider with strong presence in automotive, power, telecom, infrastructure projects, computer industries, railways, mining, renewable energy and defence sectors. Going ahead, the steady demand for Automobile in India especially in passenger vehicle bodes well for Exide‟s Original Equipment Manufacturers (OEM) segment. Further, the strong market share in Industrial segments of Solar, Backup Power, Manufacturing and Project sector may drive the volume growth with the expected recovery in industrial capex cycle over the long term. The company is working on expanding its portfolio for emerging requirements like electric vehicles, hybrid cars and start-stop batteries and has recently added e-rickshaw battery and completely sealed and maintenance-free battery in its portfolio. Recently, the management had highlighted that the company would be manufacturing lithium-ion batteries at the facility of Tudor India in Gujarat in collaboration with Swiss company, „Leclanché‟. The company expects module and battery-pack assembly line to be operational by Q2CY19 and a lithium-ion cell production plant is expected to be operational by mid-CY20. Further, it is focusing on capturing market share from the unorganized commercial vehicles and tractor battery markets with target to enhance customer outlet and launch of nine new products in the aftermarket segment across categories and price points. The company is also expanding its reach in overseas markets like GCC (Gulf Co-operation Council) countries, South East Asian countries and select African nations. The lead prices (key raw material) had been very volatile and would be the key parameter to watch out for in the near term. However, the management is working on various cost cutting initiatives and improving the product mix to maintain its margins. Currently, we have a Buy rating on the stock with the target price of Rs.301 at 22x (maintaining earlier multiple) FY20E EPS of Rs.12.5 and adding Rs.25 per share for the embedded value in Insurance business (as of March 2018). Any earning/target price revision would depend on the improvement in margin, changes in market share, implementation of GST and its tax structure, value in Insurance business and changes in general business momentum.
Reliance Industries (CMP: Rs.1,156): RIL continues to be on track to improve the profitability on the back of improved performance for the Petrochemical business despite muted performance for the Refining business. Petrochemical business continued its strong performance during the quarter, clearly indicating Reliance‟s dominance in the segment. Strong ramp up in JIO paid subscriber base during last few quarters along with recent announcement to buy stakes in Multi Service operators (MSOs) companies Hathway and Den has raised the revenue visibility for the telecom venture going ahead. Although Refining margins have come off slightly in the last few quarters, we believe benefits of Petcoke Gasification plant is likely to be seen from FY20. Key monitorable for Reliance going ahead would be subscriber ramp-up and average revenue per user (ARPU) in the telecom business with expected ramp up of the petcoke gasifier over the next six months to further improve the profitability for petrochemical business. We have revised our earnings estimates to incorporate the sharp depreciation of Indian Rupee (INR) and rise in the crude oil prices and currently we have a Buy rating on the stock with a price target of Rs.1455 at 15x (maintained earlier multiple) FY20E EPS of Rs.70 and balance value accruing from RJIO, Shale Gas and Retail Business. Any changes in the estimates/target price would depend upon trend in crude price, currency movement, gas price & GRM and changes in capex and general business momentum.
Petronet LNG (CMP: Rs.213): PLNG remains a structural story of India‟s increasing gas demand from key users like power stations, fertilizers companies, refineries and petrochemical companies, city gas distribution for compressed natural gas (CNG), domestic purpose usage and steel manufacturers. Moreover, we do not see any meaningful competition for Dahej LNG terminal from upcoming Mundra LNG terminal (expected to commission by end of 2018) given PLNG competitive edge in terms of lower re-gas tariff. While the Kochi terminal is currently underutilized, a slight uptick in the utilization levels for Kochi terminal by FY19/20 and beyond would result in sharp rise in the earnings for the company given the improving utilization for the existing capacities. Thus we believe improving utilization at Kochi and additional 2.5 MTPA capacity additions at Dahej terminal is likely to further improve the earnings and profitability for PLNG. We believe visibility on PLNG‟s medium/long term earnings on the back of huge gas demandsupply gap in India, volume growth via Kochi ramp up and gradual capacity addition at Dahej along with earnings growth boosted by annual re-gas charge escalation of 5% YoY is likely to drive the margins as well as profitability in future. Currently, we have a Buy rating on the stock with the target price of Rs.316 based on PE multiple of 16x (maintained earlier multiple) FY20E EPS of Rs.19.8. Any earnings/target price revision would depend upon the fluctuation in LNG prices, any disruption from the upcoming competition; scale up of existing terminal, any decision by government on re-gas tariffs and general changes in the business scenario.
Rating Buy Hold Under Review Exit
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Rating Interpretation Expected to Appreciate more than 10% over a 12 to 15 month period Appreciate below 10% over a 12 to 15 month period Rating under review Exited out of the Model Portfolio
______________________________________________________________________
Fixed Income
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G-sec rally continued in November 2018...
______________________________________________________________________
Domestic G-sec prices rallied (yields declined) during November 2018; wherein yield on the benchmark 10 year G-sec 7.17% 2028 bond closed at 7.61% on 30 November 2018 compared to 7.85% on 31 October 2018.
Rally in G-secs was largely on account of:
OMO Purchases by the RBI in November 2018 and announcement of further OMO purchases in December 2018.
Decline in crude oil Prices and Strengthening of Rupee against the USD.
Decline in CPI inflation to 13 month low.
Comments from FOMC‟s November 2018 meeting, indicating that Federal Funds rate may be closer to the neutral rate.
On the negative side, India‟s fiscal deficit for April-October 2018 stood at Rs 6.49 tn, which is ~103.9% of the budgeted target for FY19.
While sentiments in G-sec markets remained positive, corporate bond markets continued to grapple with caution following the IL&FS Ltd. defaults since September 2018.
This resulted in better performance of G-sec markets compared to corporate bond markets.
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Corporate bond yields declined less compared to G-sec yields… …tracking caution on credit ratings of companies and tight liquidity conditions ______________________________________________________________________ Spreads between Non PSU AAA HFCs and G-secs
Spreads between Non PSU AAA HFCs and G-secs
31-Aug-18 28-Sep-18 31-Oct-18 30-Nov-18 1 Years 112 125 183 171 2 Years 91 132 168 166 3 Years 74 122 133 161 5 Years 69 116 129 142 10 Years 80 97 119 132 Source:-IDFC MF
Source:-IDFC MF
After staying elevated at the start of the month, corporate bond yields declined towards the later part of the month, tracking liquidity infusion by the RBI.
Caution on the NBFC and Housing Finance sectors and tight liquidity conditions kept the corporate bond yields elevated for the first half of the month.
However RBI‟s liquidity support through OMOs and other measures announced for easing liquidity crunch in the NBFC sector led to some decline in the bond yields towards the later part of the month.
Bond spreads at the very short end of the yield curve declined; however short to longer end yields witnessed a rise in bond spreads.
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Crude oil prices decline sharply in November 2018… …big positive for domestic macros and bond yields ______________________________________________________________________
Source:-Bloomberg
Source:-Bloomberg
Source:-Bloomberg
Brent crude oil price declined sharply in November 2018 and closed at 58.44/Barrel on 30 Nov 2018 compared with 73.86/Barrel on 31 Oct 2018.
On a MoM basis crude oil prices declined by ~21% compared to a decline of ~ 10.96% MoM in Oct 2018.
Rupee also strengthened in Nov 2018 by about ~6% MoM as compared to depreciation of ~ 2% in Oct 2018.
After two months of net selling, FPIs turned net buyers in the month of Nov 2018 to the tune of Rs.~56 bn in Nov 2018, compared to net selling of Rs.~100 bn in Oct 2018.
After declining to 5 month low of USD 13.98 bn in Sept 2018, trade deficit inched up in Oct 2018 and stood at USD 17.13 bn.
While it is being anticipated that CAD for Q2FY19 could be closer to 3% of GDP, if crude oil prices stay at current levels or decline further, it could have some positive impact on CAD going forward.
OPEC Decision on crude oil production will be an important variable as it will give a sense on direction of crude oil prices in the near term.
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US FOMC gives hints of less aggressive monetary tightening…
______________________________________________________________________
Source: - RBI
Source: - RBI
In November 2018, the US Fed kept the Federal Funds rate unchanged in the range of 2.00-2.25%.
While maintaining a pause on interest rates in Nov 2018, minutes of the meeting showed hints of less aggressive interest rate hikes going forward.
Minutes of the Nov 2018 FOMC meeting show that US Fed is confident in continuing with its monetary policy normalization.
The minutes of the Nov 2018 FOMC meeting stated that “….a few participants, while viewing further gradual increases in the target range of the federal funds rate as likely to be appropriate, expressed uncertainty about the timing of such increases. A couple of participants noted that the federal funds rate might currently be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations…”
Release of the minutes of the FOMC meeting led to decline in the US 10 year treasury yield below the 3% mark for the first time since September 2018.
Spread between the US and India 10 year Government bond yields continued to remain attractive stood at ~462 bps as of 30 Nov 2018. Compared to ~471 bps as on 31 Oct 2018.
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CPI inflation for October 2018 declines tracking lower food inflation… ______________________________________________________________________ CPI Inflation
Inflation based on Consumer Price Index (CPI) for the month of October 2018 declined to a 13 month low and came in at 3.31% YoY compared to 3.70% YoY (revised) in September 2018.
CPI inflation continued to remain below the RBI‟s medium term target of 4% for the third month in a row.
Decline in CPI inflation was mainly on account of decline in food inflation which witnessed deflation in the month of October 2018.
CPI food prices deflated by 0.86% YoY in October 2018 compared to an inflation of 0.51% YoY in the previous month.
Within the food segment, vegetable prices deflated by 8% YoY compared to a deflation of 4.21% YoY in September 2018.
CPI core inflation however, increased in October 2018 and came in at 6.22% YoY compared to 5.81% YoY in September 2018.
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Description
Weights
Cereals and products Meat and fish Egg Milt and products Oils and fats Fruits Vegetables Pulses and products Sugar and Confectionary Spices Non-alcoholic beverages Prepared meals, snacks, sweets etc Food and beverages Pan, tobacco and intoxicants Clothing Footwear Clothing and footwear Housing Fuel and light Household goods and services Health Transport and communication Recreation and amusement Education Personal care and effects Miscellaneous General Index (All Groups) Consumer Food Price Index Core CPI Inflation
9.67% 3.61% 0.43% 6.61% 3.56% 2.89% 6.04% 2.38% 1.36% 2.50% 1.26% 5.55% 45.86% 2.38% 5.58% 0.95% 6.53% 10.07% 6.84% 3.80% 5.89% 8.59% 1.68% 4.46% 3.89% 28.32% 100.00% 39.06%
Inflation (YoY) Sept.18 Oct.18 2.90% 2.59% 2.39% 3.02% 3.76% 2.29% 2.36% 0.92% 3.13% 2.18% 1.68% 0.35% -4.21% -8.00% -8.65% -10.28% -6.42% -7.64% 2.88% 2.79% 1.55% 2.33% 4.41% 3.78% 1.01% -0.14% 5.57% 6.13% 4.68% 3.52% 4.27% 3.28% 4.64% 3.48% 7.07% 6.55% 8.63% 8.55% 4.80% 6.06% 5.97% 7.92% 6.51% 7.72% 5.16% 4.99% 6.40% 6.24% 4.14% 5.23% 5.65% 6.73% 3.70% 3.31% 0.51% -0.86% 5.81% 6.22%
Source:-Ministry of Statistics and Program Implementation
Fiscal deficit for April-Oct 2018 overshoots the budget estimate…
______________________________________________________________________
Source:- http://pib.nic.in/
Government‟s fiscal deficit for the period April-Oct 2018 touched ~103% of the budget estimate for FY19.
During the same period last year fiscal deficit was at ~96% of the budget estimate for FY18.
The total expenditure for the April-Oct 2018 stood at 56% of the budget estimate for FY19 compared to 60% in FY18.
Revenue receipts for April-Oct 2018 stood at ~46% of the budget estimate for FY19 as against ~48% during the same period last year.
On the other hand, collections under Goods and Services Tax (GST) in November 2018 declined and stood at Rs.~976 bn compared to the Rs.1 trillion mark in the previous month.
The government continued to reiterate its commitment to achieve the fiscal deficit target of 3.3% of GDP for FY19
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Banking System liquidity tightens further… …RBI continues to support liquidity through regular OMO purchases ______________________________________________________________________
Source: - RBI
Source: - RBI
Source: - RBI
Domestic liquidity conditions continued to remain tight in Nov 2018. However towards the end of the month, liquidity deficit declined helped by regular OMO purchases by the RBI. Liquidity as measured by the RBI‟s Liquidity Adjustment Facility (LAF) stood at a daily average deficit of Rs.~846.26 bn compared to deficit of Rs.~615.58 bn in the previous month. The RBI conducted Open Market Operations (OMO) purchase of G-secs for an aggregate amount of Rs.~500 billion in November 2018 in order to provide support to domestic liquidity.
Source: - RBI
Credit growth outpacing deposit growth, has also been adding to liquidity tightness. As of 9 Nov 2018 Banks‟ credit growth stood at 14.88% YoY; where as deposits grew by 9.14% YoY. Gap between credit and deposits growth continued to widen; wherein credit-deposit ratio stood at 77.05% as on 30 Nov 2018 compared to the average of 75.58% seen in the financial year so far. Rise in Currency in Circulation also continued to exert pressure on system liquidity. The RBI conducted Open Market Operations (OMO) purchase of G-secs for an aggregate amount of Rs.500 bn in Nov 2018 in order to provide support to domestic liquidity. Source: - RBI
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The G-sec yield curve continues to remain flat…
______________________________________________________________________ Term Spreads Sep-18 Oct-18 1-5 Years 54 49 1-10 Years 49 51 5-10 Years -6 2
Nov-18 37 50 13
Source:- IDFC Mutual Fund
Source:- IDFC Mutual Fund
G-sec yields declined across the yield curve in November 2018; with the yield curve continuing to remain relatively flat.
The shorter end of the yield curve declined due to RBI‟s liquidity support; whereas longer end declined with rising expectations of softer money by the RBI in near term tracking improvement in important macro variables.
The term spread between 1 and 5 years G-secs continued to contract marginally; whereas spread between 1 and the 10 years G-secs remained almost at similar as the previous month.
Decline in the yields has been higher at the short to medium term segments of the yield curve, compared to the very short and longer ends.
The 1 year G-sec declined by about 44 bps from end of September 2018 to end November 2018; whereas the 5 years G-sec yield decline by about 61 bps.
The 10 year G-sec yield declined by about 42 bps from end of September 2018 to Nov 2018 end.
Key Risks and Variables to watch out for… ______________________________________________________________________ Domestic Variables
Rupee Movement:- Rupee movement will be a key variable to watch out for, as it plays an important role in the trajectory of other macro economic fundamentals in the economy.
Domestic Macros:- As bond yields are driving by evolving macro economic variables, trajectory of macro economic variables like inflation, CAD and fiscal deficit amongst others are likely to give direction to domestic bond yields.
Liquidity Conditions:- With the sustained tightness in system liquidity, RBI has been conducting OMO purchases regularly in the recent past. Thus, movement in system liquidity and RBI‟s response to the same is likely to influence the bond yields across the yield curve as seen recently.
MSP impact on food inflation:- Government‟s procurement policy needs to be tracked very closely to in order to assess the impact of hike in MSPs on food inflation.
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Global Variables
OPEC Decision on crude oil production:- This will be an important variable as it will give a sense on direction of crude oil prices in the ear term.
Global growth and inflation scenario:- Global monetary polices are likely to take shape tracking global economic growth and inflation; which in turn can influence the monetary policy domestically
Commodity Prices:- Especially crude oil prices are likely to give direction to bond yields, as crude oil prices have a bearing on domestic macro economic variables like inflation and Current Account Deficit.
Global trade tensions and geopolitical tensions:- These can have a bearing on the global growth scenario thus altering the current perceived path of the monetary policies of some of the major developed nations, as well as domestically.
Fixed Income Outlook ______________________________________________________________________
The liquidity conditions have relatively eased post RBI‟s OMO purchases. Given the RBI‟s announcement of OMO purchase of G-secs to the tune of Rs. 400 bn for Dec 2018, liquidity conditions may further improve. That being said, with credit growth outpacing deposit growth and rising currency in circulation in an election year, is likely to keep the pressure on system liquidity.
Factors impacting domestic inflation have turned positive over the past few months. Not only has food inflation remained benign, crude oil prices have also declined sharply. Prices of other commodities have also largely remained muted. Additionally at this point the Minimum Support Prices (MSPs) don‟t seem to be inflationary in nature.
Rupee also witnessed strengthening in Nov 2018. Improvement seen in some of the macro economic variables coupled with government's commitment to stick to its fiscal deficit target, may provide support to Rupee.
Current Account Deficit continues to remain a cause of concern; with CAD for Q2FY19 being expected closer to 3% of GDP. However decline in crude oil prices and strengthening of Rupee may turn things around for domestic CAD.
The government has reiterated its commitment to stick to the fiscal deficit target for FY19. This is a positive for bond markets. Any further transfer of surplus by the RBI to government will also be an important variable to track. Not only the fiscal deficit target but the quality of the fiscal math will be important for bond markets.
While monetary tightening in US is expected to continue, with recent comments in the FOMC meeting minutes regarding Fed being closer to its neutral rate, it will important to track any subtle changes in language of the US Fed to understand the path of its monetary policy. Also with the recent downward revision in global growth forecasts it will be extremely important to track the trajectory of global growth, which in turn can give a sense of global monetary policies and interest rate scenario.
Global Geo-political tensions have imparted volatility to global capital markets including India. Thus, going forward also global geo-political developments are likely to continue to keep Indian capital markets volatile.
While yields at the longer end of the yield curve have declined, volatility is likely to continue tracking the movement in crude oil prices, movement in Rupee, outcome of the upcoming state elections and global geo-political developments. That being said some of the variables that have an impact on longer end yields like, domestic inflation, OMO purchases by RBI, Crude oil prices and Rupee movement amongst others have turned positive, which may prevent the yields from rising and may even lead to some decline.
Short term rates have also declined tracking liquidity support by the RBI, which has benefitted investment strategies focusing on the shorter end of the yield curve. Going forward the RBI is likely to continue with its liquidity support measures. Thus, the Shorter end of the yield curve is expected to continue to benefit from the same.
Conservative investors who do not wish to see volatility in returns should continue to look at debt funds that invest at the very short end of the yield curve; investors can also look at strategies that allow investors to lock in the current attractive short term rates.
Thus , investments into Short Term Funds can be considered with an investment horizon of 12 months and above.
Investors looking to invest with a horizon of up to 3 months can consider Liquid Funds, while Arbitrage Funds and Ultra Short Duration Funds can be considered for a horizon of 3 months and above.
Investors looking to lock in current yields can invest in Fixed Maturity Plan (FMPs).
Investor who are comfortable with intermittently volatility, can look also at strategies that focus at the longer end of the yield curve. i.e. High duration funds.
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Investment Strategy ______________________________________________________________________
We recommend investors to rebalance/realign the portfolios according to the recommended asset allocation
On Equity Funds:
Global headwinds like trade war and interest rate hike by the US coupled with domestic concern of depreciating currency, FPI outflow and impact of default by IL&FS to other companies dampened the market sentiments.
In India, focus on infra spending by the government, improved urban consumption, rebounding exports and better farm income has the potential to shore up the economy in the medium term. With Q1FY19 GDP growth at 8.2% YoY, we think that the momentum is likely to continue on the back of government capex, better domestic demand, and favorable demographics.
Strong USD, increasing global interest rates, trade wars and expectation of higher foods prices could have negative impact on inflation, currency and interest rates which may cause volatility in the equity markets.
On the positive side, the key demand indicators are showing continued traction and there seems to be some pricing power returning to businesses, as is being witnessed in the strong revenue growth of corporates in Q2FY19 results.
Recent correction in market have helped valuations to improve. However, earnings growth needs to persist for markets to move higher. From an Equity Mutual Fund perspective, investors should look at Large cap Funds for fresh investments and SIP into Midcap and Small caps stocks/funds can begin with the longer horizon.
The Equity investment strategy, continues to remain at 50% Lumpsum and rest 50% staggered over the next 4-5 months.
On Fixed Income:
Investments into Short Term Funds can be considered with an investment horizon of 12 months and above.
Investors looking to invest with a horizon of up to 3 months can consider Liquid Funds, while Arbitrage Funds and Ultra Short Duration Funds can be considered for a horizon of 3 months and above.
Investors looking to lock in current yields can invest in Fixed Maturity Plan (FMPs).
Investor who are comfortable with intermittently volatility, can look also at strategies that focus at the longer end of the yield curve. i.e. High duration funds.
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Equity Mutual Funds ______________________________________________________________________ Large/Multi Cap Oriented Funds 1.
Axis Focused 25 Fund - The fund maintains a concentrated portfolio of 25 high conviction stocks and mainly invests in top 200 companies by market capitalization
2.
Reliance Large Cap Fund – An actively managed large cap equity fund
3.
ICICI Prudential Bluechip Fund - A conservative large cap fund
4.
Kotak Standard Multicap Fund - An actively managed multi cap fund investing across select sectors with large cap bias
5.
Aditya Birla Sun Life Frontline Equity Fund – A conservative large cap equity fund
Mid/Small Cap Oriented Funds 1.
HDFC Small Cap Fund - The fund is a small cap fund that invests predominantly in small cap companies.
2.
SBI Focused Equity Fund – An actively managed large cap equity fund
Balanced / Hybrid Funds
1.
L&T Hybrid Equity Fund – An aggressive hybrid fund
2.
ICICI Prudential Equity & Debt Fund – An aggressive hybrid fund
3.
SBI Equity Hybrid Fund – An aggressive hybrid fund
Equity Savings Funds 1.
Kotak Equity Savings Fund - The un-hedged equity exposure is maintained in the range of 20% to 40% of the portfolio
2.
HDFC Equity Savings Fund – The un-hedged equity exposure of the fund is maintained upto 40% of the portfolio with flexibility to invest across market capitalisation
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Performance of Mid Cap Oriented Funds ______________________________________________________________________
Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
The Mid Cap oriented recommended funds have outperformed not only the Mid Cap Index but also the broader indices like Nifty 500 index and Nifty 50 index over the longer period from 3 years to 5 years.
Over the last 3 years, the recommended mid cap oriented funds have outperformed the Nifty Midcap 100 index. The recommended funds delivered an average returns of around 12% (CAGR) against the Nifty Midcap 100 index which delivered close to 10% (CAGR) returns.
Currently, the mid cap stocks are trading at relatively higher valuations and are expected to remain volatile over the near term, however, the mid cap stocks are expected to perform better over longer period.
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Performance of Infrastructure Oriented Funds ______________________________________________________________________
Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
The Union Cabinet, in the month of October 2017 announced Bharatmala Pariyojana - an initiative to add 35000km of new highways, 9000 km of economic corridor, 6000km of inter-corridor, 2000km of border roads and 10000km of the national highway with an total outlay of Rs.6.92 trillion over the next five years. As per Transport Minister Nitin Gadkari, over 9829 kms of National Highways were constructed during FY18, up by ~20% YoY over 8231 kms constructed in FY17. He further added that 17055 kms of road length was awarded in FY18 against 15948 kms in FY17. For FY19, the ministry has set a construction target of 16420 kms which translates into average length of roads constructed per day rising from 27 kms in FY18 to 45 kms in FY19. Around 20000 kms will be awarded to reach this construction target. In the Union Budget for FY19, the allocation for Roads, Urban development, Shipping, Aviation and Railways together stood at Rs.1.84 trillion. Total investment in the Road sector is projected at Rs.710 bn reflecting a growth of 16% over FY18RE. For FY19BE, the total capital and development expenditure of Railways has been pegged at Rs.1.48 trillion including Rs.550 bn provided by the government. The Budget also proposed creation of 5.1 mn rural houses and 3.7 mn urban houses in FY19 under the Pradhan Mantri Awas Yojna (PMAY). About 4.354 mn rural houses have been completed in the last three years while 5.495 mn urban households have been constructed under the PMAY scheme. Average returns of the recommended Infrastructure funds have outperformed not only the Nifty 50 index but also the Nifty Infrastructure index over the last three years to five years period and expected to perform better over the long term investment horizon.
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Invest in Balanced / Hybrid Funds for diversification ______________________________________________________________________ Scheme Name
Average* Modified* YTM (%)* Maturity Duration 1 Y % 3 Y % 5 Y % (years) (years)
HDFC Balanced Advantage Fund - Growth
9.54
3.07
2.44
-4.16
9.47
15.97
Aditya Birla Sun Life Equity Hybrid 95 Fund Growth
9.66
3.01
1.98
-3.99
9.13
15.28
L&T Hybrid Equity Fund - Reg - Growth
8.60
2.41
1.90
-1.77
8.79
16.15
ICICI Prudential Equity & Debt Fund - Growth
8.49
1.09
0.88
-1.26
11.12
16.15
SBI Equity Hybrid Fund - Growth
8.49
2.92
2.14
0.14
9.32
15.68
HDFC Hybrid Equity Fund - Growth
8.46
3.51
2.62
-1.23
10.51
17.01
--
--
--
NIFTY 50 Hybrid Composite Debt 65:35 Index
6.66 10.81 11.89
*Portfolio data as of 31 October 2018. Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
The primary investment objective of Balanced / Hybrid funds is to invest in equities which broadly remains in the range of 65% to 80%, while the balance is invested in debt securities. During the bull run, the funds might underperform the pure equity diversified funds as these funds tend to have some exposure into debt instruments. The funds maintain a balance between equity and debt investment and thereby help in reducing the overall risk of the portfolio as compared to equity funds. In general, the equity investment strategy can be an active management strategy across market capitalization. The debt investment strategy can be across fixed income securities including G-secs. Certain funds dynamically manages the equity and debt exposure. The debt portfolio helps the funds during the fall in equity market and reduces the overall beta of the portfolio. Also, the bond portfolio is expected to generate capital gains in a falling interest rate scenario. The recommended balanced / hybrid funds have outperformed Nifty 50 index and NIFTY 50 Hybrid Composite Debt 65:35 index over the last 5 years period. The recommended balanced funds on an average have delivered around 16% returns over the past 5 years, whereas Nifty 50 and NIFTY 50 Hybrid Composite Debt 65:35 indices both have delivered average returns of around 12% each during the same period. Balanced / Hybrid funds are subject to equity taxation.
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Arbitrage Funds: Introduction and Advantages ______________________________________________________________________ Buying the securities in one market and selling the same in another market simultaneously to take advantage of a temporary price differential is called arbitrage. E.g. Assume stock price of ABC Ltd is at Rs.190/‐ in the cash market. This stock is also traded in the derivatives segment, where its future price is Rs.197/‐ In such a case, one can make a risk‐free profit by selling a futures contract of ABC Ltd at Rs.197/‐ and simultaneously buy an equivalent number of shares in the equity market at Rs190/-. On settlement day, it wouldn‟t matter which direction the stock price has taken in the interim. Because on the expiry day (settlement date) the price of equity shares and their futures tend to converge. Advantages: Generate income through arbitrage opportunities arising out of pricing mismatch in a security between different markets or as a result of special situations. Completely hedged positions, neutralizes market risk (volatility) and targets absolute returns irrespective of market conditions. Enhance portfolio returns using different trading strategies within derivatives segment. Balance of safety, returns and liquidity The cash market price converges with the futures price at the end of the month.
Note: The above simulation is for illustration purposes only and should not be constructed as a promise or minimum returns or safeguard of capital. Source: HDFC Mutual Fund
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Equity Savings Fund - Positioned Between MIP & Balance Fund ______________________________________________________________________ Introduction: The Equity Savings funds endeavors to provide moderate volatility and regular income through investment into arbitrage opportunities and fixed income securities. At the same time, to provide a higher growth potential as compared to an arbitrage fund or a debt fund, the fund also invests some exposure into equity stocks. Thus, the equity exposure including equity arbitrage allocation would be more than 65%, hence equity taxation would be applicable. However, with higher equity allocation, the volatility of these funds are higher as compared to MIP or pure debt funds.
Key Advantages of Equity Savings Fund: Tactical Equity Allocation: Potential capital appreciation through tactical allocation in Equity Market Aims at Regular Income: Regular income through investments in Fixed Income and Arbitrage Opportunities Tax Advantage: The Equity Savings fund are applicable for equity taxation even with moderate participation in pure equity. Diversification: The Equity Savings fund have well diversified portfolio by investing in different asset classes like Equities, Equity Arbitrage Opportunities, and Fixed income.
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Equity Savings Fund
Recommended Equity Mutual Funds – Performance ______________________________________________________________________ Theme
Scheme Name
SEBI Categorisation
1M
3M
6M
1Y
2Y
3Y
Large Cap, Aggressive Large Cap, Conservative Large Cap, Conservative Large Cap, Conservative Multi Cap, Aggressive Multi Cap, Aggressive Multi Cap, Aggressive Multi Cap, Conservative Multi Cap, Conservative Multi Cap, Conservative Multi Cap, Conservative Multi Cap, Conservative Mid Cap, Aggressive Mid Cap, Aggressive Mid Cap, Aggressive Infra Sector, Aggressive
Axis Focused 25 Fund - Growth Reliance Large Cap Fund - Growth ICICI Prudential Bluechip Fund - Growth Kotak Standard Multicap Fund - Reg - Growth Invesco India Contra Fund - Growth ICICI Prudential Multicap Fund - Growth SBI Large & Midcap Fund - Growth Tata Equity P/E Fund - Reg - Growth SBI Magnum Multi Cap Fund - Growth HDFC Capital Builder Value Fund - Growth Aditya Birla Sun Life Equity Fund - Growth UTI Equity Fund - Growth HDFC Small Cap Fund - Growth L&T Midcap Fund - Reg - Growth SBI Focused Equity Fund - Growth L&T Infrastructure Fund - Reg - Growth
6.69 4.41 3.46 6.45 5.58 2.87 5.14 5.40 6.33 6.30 5.98 5.55 1.76 4.30 4.23 4.07
-10.99 -6.28 -7.40 -7.39 -8.48 -8.14 -5.98 -10.15 -8.30 -7.99 -6.64 -11.54 -8.62 -9.08 -8.52 -8.91
-4.16 2.96 -0.05 0.65 -1.94 1.97 -0.60 -6.44 -3.78 -2.74 -1.13 -2.50 -9.18 -7.64 -5.87 -8.17
4.17 1.38 1.09 0.90 1.19 2.43 -3.00 -5.14 -3.76 -3.23 -0.86 5.90 -4.57 -10.10 -2.59 -13.44
18.77 15.93 13.46 13.94 17.37 11.43 12.99 12.71 11.58 14.88 11.67 13.66 19.29 13.65 13.36 14.31
15.22 11.61 11.64 12.94 14.23 11.00 10.17 14.32 11.25 11.66 13.88 10.20 16.06 13.29 11.82 13.45
Aggressive Balanced/Hybrid
HDFC Balanced Advantage Fund - Growth
1.82
-5.08
0.43
-4.16
8.36
9.47
Conservative Balanced/Hybrid Aggressive Balanced/Hybrid Conservative Balanced/Hybrid Equity Savings Fund
L&T Hybrid Equity Fund - Reg - Growth ICICI Prudential Equity & Debt Fund - Growth SBI Equity Hybrid Fund - Growth Kotak Equity Savings Fund - Reg - Growth Nifty 50 Nifty Midcap 100 S&P BSE 200 Nifty Infrastructure NIFTY 50 Hybrid Composite Debt 65:35 Index
Focused Fund Large Cap Fund Large Cap Fund Multi Cap Fund Contra Fund Multi Cap Fund Large & Mid Cap Fund Value Fund Multi Cap Fund Value Fund Multi Cap Fund Multi Cap Fund Small cap Fund Mid Cap Fund Focused Fund Sectoral/Thematic Dynamic Asset Allocation or Balanced Advantage Aggressive Hybrid Fund Aggressive Hybrid Fund Aggressive Hybrid Fund Equity Savings
3.63 1.40 4.12 2.28 6.65 3.78 6.04 5.13 5.01
-5.67 -4.61 -4.26 -1.24 -6.85 -11.83 -8.10 -5.08 -3.42
-3.12 0.25 -0.63 2.28 2.47 -7.76 0.17 -7.40 3.71
-1.77 -1.26 0.14 4.81 6.36 -12.02 2.19 -12.23 6.66
9.77 9.40 9.96 8.65 15.00 8.36 14.03 5.15 12.12
8.79 11.12 9.32 8.18 11.07 9.72 11.18 3.66 10.81
Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
44
______________________________________________________________________
Fixed Income Options
45
Performance of recommended Long Duration/Dynamic Bond Funds ______________________________________________________________________ Returns (%)
SEBI Categorisation
AAA & Equivalent
Avg. Maturity (Yrs)
Portfolio Yield (%)
3 Mths
6 Mths
1 Year
2 Years
3 Years
Dynamic Bond
100.00%
3.34
8.31
3.36
4.67
3.87
3.02
7.26
Medium to Long Duration Fund
75.13%
3.30
8.94
0.89
1.79
1.81
2.27
6.77
Dynamic Bond
100.00%
4.14
8.28
2.01
3.04
2.06
1.85
6.66
ICICI Prudential All Seasons Bond Fund - Growth
Dynamic Bond
63.57%
1.42
8.73
1.48
3.14
4.61
4.13
8.79
UTI Dynamic Bond Fund - Reg - Growth
Dynamic Bond
84.77%
3.15
8.72
1.05
2.23
2.78
3.16
7.64
Kotak Dynamic Bond Fund - Reg - Growth
Dynamic Bond
81.15%
3.35
8.97
2.22
4.33
5.23
4.71
8.43
Medium to Long Duration Fund
95.80%
3.12
8.62
1.66
3.20
3.18
3.81
6.69
Dynamic Bond
100.00%
2.47
7.47
2.42
3.31
3.09
3.21
7.68
NIFTY Short Duration Debt Index
--
--
--
1.88
3.80
5.67
6.25
7.21
ICRA Composite Bond Fund Index
--
--
--
3.03
4.73
4.10
4.38
7.80
Scheme Name
Aggressive Funds IDFC D B F - Reg - Growth (Re-Launched) UTI Bond Fund - Growth Reliance Dynamic Bond Fund - Growth Conservative Funds
ICICI Prudential Bond Fund - Growth SBI Dynamic Bond Fund - Growth
Please note that returns data for Crisil indces is not available. Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio as of 31 October 2018. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
46
Performance of recommended Short Duration Funds ______________________________________________________________________ Scheme Name
SEBI Categorisation
Avg. AAA & Portfolio Maturity Equivalent Yield (%) 3 Mths (Yrs)
Returns (%) 6 Mths
1 Year
2 Years 3 Years
Aggressive Funds ICICI Prudential Banking & PSU Debt Fund - Reg - Growth
Banking and PSU Fund
82.42%
1.17
8.75
1.48
3.32
4.68
4.83
7.87
Corporate Bond Fund
100.00%
1.73
8.87
1.94
3.92
5.28
5.69
7.69
Reliance Banking & PSU Debt Fund - Reg - Growth
Banking and PSU Fund
85.67%
1.57
8.74
1.98
3.82
5.14
5.31
7.27
DSP Banking & PSU Debt Fund - Reg - Growth
Banking and PSU Fund
100.00%
1.87
8.01
2.04
3.85
5.06
5.04
7.25
ICICI Prudential Corporate Bond Fund - Reg - Growth
Corporate Bond Fund
100.00%
1.05
8.55
1.73
3.67
5.56
5.71
7.42
Kotak Corporate Bond Fund - Std - Growth
Corporate Bond Fund
100.00%
1.14
9.16
1.80
3.84
6.77
6.71
7.73
HDFC Short Term Debt Fund - Growth
Short Duration Fund
93.85%
1.33
9.02
1.88
3.90
6.15
6.37
7.46
ICICI Prudential Short Term Fund - Growth
Short Duration Fund
93.75%
1.25
8.62
1.65
3.37
4.77
5.17
7.50
Banking and PSU Fund
79.52%
1.29
8.84
1.90
3.83
6.75
6.54
7.24
Corporate Bond Fund
87.94%
2.18
8.82
2.26
4.14
6.02
6.08
7.81
Banking and PSU Fund
90.81%
0.95
8.77
1.76
3.67
5.62
6.01
8.20
Short Duration Fund
86.24%
1.24
8.99
1.43
3.33
5.07
5.37
7.26
NIFTY Short Duration Debt Index
--
--
--
1.88
3.80
5.67
6.25
7.21
ICRA Composite Bond Fund Index
--
--
--
3.03
4.73
4.10
4.38
7.80
HDFC Corporate Bond Fund - Growth
Conservative Funds
SBI Banking and PSU Fund - Growth Aditya Birla Sun Life Corporate Bond Fund - Reg - Growth UTI Banking & PSU Debt Fund - Reg - Growth UTI Short Term Income Fund - Reg - Growth
Please note that returns data for Crisil indces is not available Returns (%) as on 30 November 2018. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio as of 31 October 2018. Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
47
______________________________________________________________________ Disclaimer: This communication is being sent by the Investment Advisory Group of HDFC Bank Ltd., registered under SEBI (Investment Advisors) Regulations, 2013 This note has been prepared exclusively for the benefit and internal use of the recipient and does not carry any right of reproduction or disclosure. Neither this note nor any of its contents maybe used for any other purpose without the prior written consent of HDFC Bank Ltd, Investment Advisory Group. In preparing this note, we have relied upon and assumed, without any independent verification, accuracy and completeness of all information available in public domain or from sources considered reliable. This note contains certain assumptions and views, which HDFC Bank Ltd, Investment Advisory Group considers reasonable at this point in time, and which are subject to change. Computations adopted in this note are indicative and are based on current market prices and general market sentiment. No representation or warranty is given by HDFC Bank Ltd, Investment Advisory Group as to the achievement or reasonableness or completeness of any idea and/or assumptions. This note does not purport to contain all the information that the recipient may require. Recipients should not construe any of the contents herein as advice relating to business, financial, legal, taxation, or other matters and they are advised to consult their own business, financial, legal, taxation and other experts / advisors concerning the company regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this note and should understand that statements regarding future prospects may not be realized. It may be noted that investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds unless they can afford to take the risk of losing their investment. Investors are advised to undertake necessary due diligence before making an investment decision. For making an investment decision, investors must rely on their own examination of the Company including the risks involved. Investors should note that income from investment in such securities, if any, may fluctuate and that each security‟s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Neither HDFC Bank nor any of its employees shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. This note does not constitute an offer for sale, or an invitation to subscribe for, or purchase equity shares or other assets or securities of the company and the information contained herein shall not form the basis of any contract. It is also not meant to be or to constitute any offer for any transaction. HDFC Bank and its affiliates, officers, directors, key managerial persons and employees, including persons involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein. HDFC Bank may at any time solicit or provide commercial banking, credit, advisory or other services to the issuer of any security referred to herein. Accordingly, information may be available to HDFC Bank, which is not reflected in this material, and HDFC Bank may have acted upon or used the information prior to, or immediately following its publication. HDFC BANK neither guarantees nor makes any representations or warranties, express or implied, with respect to the fairness, correctness, accuracy, adequacy, reasonableness, viability for any particular purpose or completeness of the information and opinions. Further, HDFC BANK disclaims all liability in relation to use of data or information used in this report which is sourced from third parties. Disclosures: Research analyst or his/her relatives or HDFC Bank or its associates may have financial interest in the subject company in ordinary course of business. Research analyst or his/her relatives does not have actual/ beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: HDFC Bank or its associates may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report. Subject company may have been client of HDFC Bank or its associates during twelve months preceding the date of publication of the research report. HDFC Bank or its associates may have received compensation from the subject company in the past twelve months. HDFC Bank or its associates may have managed or co-managed public offering of securities for the subject company in the past twelve months. HDFC Bank or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. HDFC Bank or its associates may have received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months. HDFC Bank or its associates has not received compensation or other benefits from the subject company or third party in connection with the research report. Research analyst has not served as an officer, director or employee of the subject company. Neither research analyst nor HDFC Bank has been engaged in market making activity for the subject company. Three year price history of the daily closing price of the securities covered in this note is available at www.nseindia.com and www.bseindia.com.
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