Growth PP - Aug 10
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Transcript of Growth PP - Aug 10
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8/3/2019 Growth PP - Aug 10
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Portfolio Management ServicesPMS Registration No.INP000001546
Title
Wealth Management Services
August 2010
Portfolio Management Services
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Domestic Consumption
Indias economy is driven by domestic consumption. Indias private
domestic consumption as a percentage of GDP is 57%*, as compared toChina which consumes only 37%* of its GDP.
Rural India which constitutes 72%^ of the total population is insulatedfrom global shocks to a great extent as it still depends on agriculture andallied activities. Moreover services aimed at domestic market continue to
do well due to a high pent up demand.
A stable economy thrives on positive demographic profile leading to a mixof savings and consumption.
India which ranks 164# in the world lagging behind countries such as
Kazakhstan, Sri Lanka, and Cuba in terms of per capita income will makesignificant progress in the years to come.
*Global Insight: McKinsey Global Institute Analysis ^ Press Information Bureau # CIA World Fact Book
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Favorable Demographic Profile
India has a low median age of 25* years with 55%* of the population
below the age of 35*.
Indias working population has been growing at a healthy 2.1%*,
compared to a 1.1%* growth in the US and a 0.5%* growth in the UK.
Closer home, the proportion of working-age population in East Asiancountries will stabilize by 2015 and decline gradually.
India, in contrast, is at an inflexion point as its working age population is
expected to grow till 2035 before stabilizing for another 15 years.
* UN Department of Economic & Social Affairs
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India Growth Story has Just Begun
A stable economy thrives on positive demographic profile leading to a mix
of savings and consumption.
India which has a median age of 25*, per capita income of USD 3100*
(ranks 164* in the world in terms of per capita income) will make
significant progress in the years to come.
Indias savings rate has improved over the years to 36%* of GDP.
Consumption growth will also accelerate as the young take center stage.
India still lags behind hugely on all core infrastructure and consumption
parameters.
* CIA World Fact Book
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Power Consumption (Per Capita kWh)
12607
2118
487
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
0
2000
4000
6000
8000
10000
12000
14000
USA China India
Power Consumption ( Per Capita kWh)
Chinas per capita power consumption is 5x of India
kWh kWh
US per capita power consumption is 25x of India
Source: Angel Research, US Geological Survey
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Steel & Cement Consumption
420 400328
1000
30
150
0
200
400
600
800
1000
1200
Steel Consumption ( per capita kg) Cement Consumption ( per capita kg)
USA China India
(Kg)
Source: Angel Research, World Steel Association
Chinese per capita steel consumption is 10x of India
Chinese per capita cement consumption is 6x of India
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Car Penetration per 1000
900
20
13
0
10
20
30
40
50
60
70
80
90
100
0
100
200
300
400
500
600
700
800
900
1000
USA China India
(Nos.) (Nos.)
Source: Angel Research, Crisil
US car penetration is 70x of India
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Credit Under Penetration
Source: Angel Research, World Bank
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Market Cap Follows GDP Growth
India will also witness strong growth in
market capitalization
US has seen good market capitalization
with GDP growth
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
1970 1980 1990 2000 2008
USA Mcap/Gdp(x)
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1990 2000 2010P 2020P 2030P
India Mcap/Gdp(x)
Source: Angel Research, World BankSource: Angel Research
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Why Invest in Midcaps?
India ploughs back only 5%* of its domestic savings into the equity market
every year. As interest rates head lower structurally, it is imperative thatequity would be become the preferred asset class in the next 10 to 15^years.
It is also important to note that equity is already gaining acceptanceamong Indias working classes with each passing year.
As equity gains prominence, a doubling of the domestic allocations to10%^ of savings in the next 5^ years (domestic allocations doubled duringthe previous 5 year period FY2004-09) would increase retail and HNIinflows by 3.5x^ into the equity market.
When exposure to equities increases over a period of time, it has beenobserved that midcaps tend to create more wealth than large caps.
* RBI ^ Angel Research
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Midcap Investing Dynamics
It is interesting to note that a large part of the change in stock prices (and
indices) happen because of change in valuation multiples (P/E, P/BV)
Re(De)-rating is a leading indicator for any expected change in the
performance of a business.
Midcaps are especially sensitive to changes in valuation metrics.
After a strong battering in CY2008, midcaps recovered in CY2009 but many
of them are still below their median valuations.
Combining a strong earnings growth in the medium term, a lot of wealth
can be created in the right midcaps.
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P/E Analysis- CNX Midcap v/s SENSEX
P/E (x)
5
10
15
20
25
5
10
15
20
25
Apr-04
Sep-04
Feb-05
Jul-05
Dec-05
May-06
Oct-06
Mar-07
Aug-07
Jan-08
Jun-08
Nov-08
Apr-09
Sep-09
Feb-10
Jul-10
CNX MIDCAP (LHS) SENSEX (RHS)Source: NSE India, Capitaline, Bloomberg, Angel Research
P/E (x)
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Rs 1 Lac invested in Mar -03 would have amounted to more than Rs 49 Lac in Mar -10
Wealth Creation in Midcaps -
Praj Industries
0
20
40
60
80
100
120
FY03 FY10
- Stock returns: 49x
- Institutional Holding up from 15% to 28%
- Sensex P/E expanded from 11.2x to 19.5x
- Discount to Sensex in FY03: 4%
PAT(R
s.Cr)
Source: BSE India, Capitaline, Bloomberg, Angel Research
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Wealth Creation in Midcaps -
Havells India
Rs 1 Lac invested in Mar -03 would have amounted to more than Rs 58 Lac in Mar -10
0
25
50
75
100
125
150
175
200
225
250
FY03 FY10
- Stock returns :58x
- Institutional Holding up from 2.5% to 37%
- Sensex P/E expanded from 11.2x to 19.5x
- Discount to Sensex in FY03: 34%
PAT(Rs
.Cr)
Source: BSE India, Capitaline, Bloomberg, Angel Research
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Wealth Creation in Midcaps -
Elecon Engineering
0
10
20
30
40
50
60
FY03 FY10
- Stock returns: 101x
- Institutional Holding upfrom 6.5% to 16%
- Sensex P/E expanded from 11.2x to 19.5x
- Discount to Sensex in FY03 : 69%
PAT(Rs.Cr)
Rs 1 Lac invested in Mar -03 would have amounted to more than Rs 101 Lac in Mar -10
Source: BSE India, Capitaline, Bloomberg, Angel Research
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Wealth Creation in Midcaps -
Shriram Transport Finance
Rs 1 Lac invested in Mar -03 would have amounted to more than Rs 230 Lac in Mar -10
0
100
200
300
400
500
600
700
800
900
FY03 FY10
- Stock returns: 230x
- Institutional Holding up from 2.5% to 37%
- Sensex P/E expanded from 11.2x to 19.5x
- Discount to Sensex in FY03: 78%
PAT(R
s.Cr)
Source: BSE India, Capitaline, Bloomberg, Angel Research
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Midcap Investing
Midcap investing presents a daunting challenge of assessing the
qualitative and quantitative aspects of a business to decide the right
value.
A good stock bought at expensive valuation may lead to
underperformance while investing in a bad business at any level may lead
to a capital loss.
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Angel Growth Strategy
Combines the best of Value & Growth investing.
Value forms the bedrock of all investments.
Growth in core business is essential for an investment to be a part of the
portfolio.
Growth is viewed through the prism of value.
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Investment Objective
To create Wealth over the medium to long term by investing in mid
caps and small caps blending the philosophy of Value and Growth
investing.
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Investment Strategy
Growth is viewed through the prism of value. A unique matrix of
Profitability (RoNW), Growth prospects, and Value proposition employed
to chose 12 to 14 Companies among thousands of listed stocks.
Portfolio Profitability (RoNW) Growth Value
Angel Growth Weighted average RoNW
of the portfolio to be at
least equal to that of
Sensex Companies* on12 to 18 month forward
estimates
Weighted average
Growth prospects of
the portfolio to be at
least equal to that ofSensex Companies* on
12 to 18 month
forward estimates
Weighted average
P/E or P/BV (which
ever is applicable) of
the portfolio to be atleast 25% lower to
that of Sensex
Companies *on 12
to 18 month forward
estimates
Profitability- Growth- Value Matrix
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Investment Strategy
Turn around stories are also considered with in the framework of the
Profitability- Growth- Value matrix. For instance:
Tech Mahindras profits have been impacted due to the debt taken on its books for the
acquisition of Satyam Computers. It paid an interest of Rs 218 Crore in FY10 compared to
Rs 2.5 Crore in FY09. Interest adjusted for taxes accounted for almost 26% of its profits of
Rs 700 Crore in FY10. Tech Mahindra generates a free cash in excess of Rs 800 Crore per
annum and at that rate it can retire its debt of approximately 1400 Crore in 2 years leading
to a huge jump in profits.
Businesses that generate inferior Return on Networth (RoNW) as
compared to the Sensex Companies* over longer periods of time (3 to 5
years) are not considered for investment.
*Note: Although our performance benchmark is BSE Midcap, we intend to invest in Midcaps and Small-caps
whose business fundamentals are in line or better than the Sensex Companies who happen to be the leaders in
their respective industries .
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Active portfolio management ensures periodic profit booking while
infusion of fresh ideas keeps the portfolio current with the macro-
economic conditions.
Emphasis on Wealth creation. Endeavor to leverage the power of
compounding to grow the portfolio. Ensure that unnecessary churning isavoided in the portfolio to reduce the financial costs to the client.
Stock selection based on Fundamental Analysis.
Investment Strategy
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Angel Growth- Sector Allocation
* As on 31stJuly 2010
Banking & Financial
Services, 19.7%
FMCG, 10.0%
Infrastructure, 19.5%IT & ITES, 28.1%
Auto Ancillaries, 0.8%
Shipping, 6.6%
Tyres, 9.1%
Cash, 6.2%
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Angel Growth- Top 5 Holdings
Company Weightage Sector
Heritage Foods 10.0% FMCG
Jyoti Structures 10.1% Infrastructure
Punj Lloyd 9.4% Infrastructure
3i Infotech 9.3% IT & ITES
JK Tyres & Industries 9.1% Tyres
* As on 31stJuly 2010
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Angel Growth- Performance
* As on 31stJuly 2010 ^ Annualized/Compounded returns
3 Months 6 Months 1 Year 2 Years^ Since Inception^( 08 August 2007)
Angel Growth - 6.1% - 2.9% 26.5% 36.6% 17.8%
BSE Midcap 3.1% 11.8% 41.5% 15.4% 3.6%
Note: The above indicated Strategy returns are absolute (except where it is indicated^) in nature and are
calculated on the Time Weighted Rate of Returns (TWR) methodology. Returns of individual clients may vary
depending on their time of entry/profit booking in the Strategy. Past performance may not be indicative of the
future returns delivered by the Portfolio Manager.
Fund Manager: P.Phani Sekhar
Experience: Equity Research (Indian Markets, US Markets), PortfolioManagement (multiple Portfolios) at Angel Broking since inception of PMS.
Education: BE (Mechanical Engg.), MBA (Finance)
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Service Proposition
Online Access to Portfolio Login Id & Password
Interactive back office interface for detailed view of portfolio
Monthly fund performance and fund manager views on e-mails
Quarterly performance report statement in a new form
Dedicated fund coordinator for fund related queries
Centralized team of service coordinators for hassle free servicing
Event based interaction with fund management team
Servicing from large network of branches across India
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Fee Structure & Other Details
Nature of Fees Fee
One Time upfront Fee / Processing Fee NilFixed Management Fees (on Assets under Management) per annum 2%*
Exit Load Nil
Custodian Fees Nil
Depository Charges As Applicable
Registrar & Transfer Fees Nil
Service Tax, Security Transaction Tax & Other Statutory levies As Applicable
Brokerage 0.5% per Transaction
*In the case of redemption with in the first year, a fixed management fee of 2% will be levied on the
assets under management.
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Investment Dynamics
Investment horizon: 18 to 24 months
Risk: Moderate
Return: Moderate
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DISCLAIMER: Investments in Securities are subject to market risks and other related risks and there is no assurance or guarantee that
the objectives of any of the strategies of the Portfolio Management.
As a SEBI registered Portfolio Manager Angel Broking Ltd provides Portfolio Management Services to clients and at no point of time
assure guaranteed returns. Past Performance of schemes do not guarantee/indicate future performance.
This document has been prepared by Angel Broking Ltd. based upon information available to the public and sources including
newspapers and information available on various financial web-portals and other media which are generally believed to be reliable. No
representation or warranty, express or implied is made by Angel Broking Ltd with regard to the accuracy, correctness and completeness
of the contents.
The information contained herein does not constitute an offer, solicitation or recommendation for the purchase or sale of any
securities or other financial instruments nor does the information constitute advice or an expression of our view as to whether a
particular security or financial instrument is appropriate. The recipient is requested to make itself aware of all the risk factors including
its financial condition, suitability to risk return profile, e.t.c and read and understand the Risk Disclosure Document prior to availing
Portfolio Management Services
This document is not for public distribution and has been furnished solely for information and must not be reproduced or
redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions.
No part of this material may be duplicated in any form and/or redistributed.
This material should not be circulated in countries where restrictions exist on soliciting business from potential clients residing in such
countries. Recipients of this material should be aware of any restrictions imposed on them w.r.t possession of such documents. AngelBroking Ltd stands indemnified from any disputes/issues that may arise on account of failure on this part by the recipient.
SEBI Registration No : INB 010996539
Website: www.angeltrade.com
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