ICICI July 16 Issue new -...

Anup BagchiMD & CEO

ICICI Securities Ltd.

Insurance is often an overlooked area when it comes to building an investment portfolio. Be it life or general insurance, particularly health insurance. Though the insurance penetration may haveseen some improvement over the years, India largely remains an under-penetrated market. According to the latest sigma study from global reinsurer Swiss Re, India's insurance penetration stands at 3.3% compared to global average of 6.2%. Insurance penetration is measured as a percentage of premiums to a country's gross domestic product (GDP). Out of this 3.3%, general insurance is at even less than 1%. No doubt, rising cost of healthcare and early onset of lifestyle-related diseases have made people aware of the importance of health insurance, but it still has a larger room for improvement.

Given the changes in lifestyle, double-digit medical inflation, fading employee benefits, getting a separate and adequate health insurance policy today is more important than ever. One cannot rely entirely upon the employer to provide protection. Just like retirement, we have to fend for ourselves for our insurance needs as well. Even for retirees, rising healthcare costs remain a major worry, shows a recent study by DBS. Having to dip into savings to cover these costs remained a cause of worry.

I am often asked why one should take health insurance if one is already covered by the employer. It is indeed good to have an employer-provided health cover. However, it is important to find if

1ICICIdirect Money Manager July 2016

the policy indeed takes care of all your insurance needs. Each individual has unique needs and it is important that you identify and anticipate your medical needs and take additional cover to meet your health expenses. Does it cover your family or dependants and is it adequate to cover critical illness? What happens when you are between employments?

The other question is how do I know what is an adequate health cover. While there are many methods by which one can arrive at a Life Cover requirement, it is difficult to measure health insurance. Let me share a back of the envelope calculation that one can use. Start with the cost of an average critical illness expense, say a major operation expense, add to that any incidental expenses during the treatment, which normally should be around 50% of the expense. Then you should also factor in any indirect loss because of the illness, like loss of salary or business. From this sum, reduce any existing cover you may have. This should give you a fair idea of the health insurance you should have. More importantly, consult your financial planner before you buy.

The other point that we tend to miss with health insurance is the tax benefit it offers. Our experience is that health insurance tax limits under section 80D are rarely fully and they are over and above 1.5 lakh that we get under section 80C. One can save maximum up to 60,000 under section 80D if assesee and parents both are senior citizens (above age 60 years). Even preventive health check-up expenses up to 5,000 can be claimed under section 80D. We must take health insurance with a high level of confidence so that we can put it to best use in case of an emergency.

You can buy health insurance online from ICICIdirect.com with ease. You can also get in touch with your assigned ICICIdirect relationship manager, who can guide you further. Our message remains the same “Keep investing and stay invested for your life goals.” Through this magazine and our website www.icicidirect.com we want to make an earnest attempt to partner with you in setting and achieving your financial goals. Give us an opportunity to serve you, walk into any of your Neighbourhood Financial Superstore and talk to us.

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Healthcare today is an expensive affair, making it extremely

important to invest in health insurance to protect one's family and

finances from the huge dent that a medical emergency can cause.

When you are young and healthy, you may feel like health

insurance is a waste of money. But every human being, including

young, is exposed to various health hazards / accidents. The

importance of health insurance being an integral part of your

financial plan can only be overstressed. Our lead story of this

issue will hand-hold you through the details of health insurance

and help mitigate your family from the risk.

The edition also covers an interview with Manish Gunwani,

Deputy CIO, ICICI Prudential Mutual Fund, who believes Indian

economy in the midst of gradual recovery, and is therefore

positive on domestic-focused sectors like financials, utilities,

logistics etc.

In the mutual funds space, balanced funds look ideally placed,

given the current market scenario where equity market has run

up sharply in a short period of time. We list out top 3

recommended balanced funds in our Mutual Funds Analysis

section, which you may consider investing into.

Further, if you wish to get clarity on different aspects of personal

finance or any other money matter through Ask our Planner, you

may write to us at [email protected]. So read

on, stay updated and involved. Do write in with your feedback

and share your thoughts.

Editor & Publisher : Abhishake Mathur, CFA

Coordinating Editor : Yogita Khatri

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Research Team

Your magazine is now also available on www.magzter.com, a digital newsstand.

ICICIdirect Money Manager July 2016


MD Desk......................................................................................... 1

Editorial...........................................................................................2

Contents..........................................................................................3

News..............................................................................................4

Asset Class InsightsA monthly review and outlook on major asset classes – equity, debt/fixed-income and gold.........................................................5

Stock Ideas: Phillips Carbon Black and VA Tech Wabag.....................12

Flavour of the Month: Why You Should Buy Health InsuranceGiven the changes in lifestyle, double-digit medical inflation,fading employee benefits, getting a separate and adequatehealth insurance policy today is more important than ever.Here's the handy guide for you. Read on..................................20

Tête-à-tête: 'Indian economy in the midst of gradual recovery’An interview with Manish Gunwani, Deputy CIO, ICICIPrudential Mutual Fund.............................................................. 30

Ask Our Planner: How are insurance maturity proceeds taxed?Your personal finance queries answered.................................. 34

Mutual Funds Analysis: 3 Balanced Funds to ConsiderGiven the current market scenario, balanced funds look ideally placed..........................................................................................38

Mutual Fund Top Picks....................................................................51

Equity Model Portfolio.................................................................... 52

Quiz Time...................................................................................... 57

Prime NumbersA revamped section of monthly trends, with inclusion of more data points and indicators......................................................... 58

Premium Education Programmes Schedule.......................................62

4

PFRDA launches new features for NPS subscribers

Pension Fund Regulatory and Development Authority (PFRDA) has introduced new features for the benefit of National Pension System (NPS) subscribers, including an mobile app. According to the statement, through the mobile app, 'NPS by NSDL e-Gov', subscribers can raise a request for transaction statement for a particular financial year that will be sent to the registered mail ID at end of the day. Now, the NPS subscribers can view his/her NPS account, latest details of scheme wise units along with latest NAV and the total value of the schemes, details of the last five contributions credited, can change contact details (Telephone/Mobile no/Email ID), etc, it added. The subscribers also can now update/modify their address on their own using Aadhaar based authentication. The statement said a subscriber whose bank has not confirmed (rejected) his/her KYC verification request can now update the address details and confirm KYC using Aadhaar based authentication. Besides, the eNPS subscribers can now access the Central Recordkeeping Agency (CRA) system immediately after registering without waiting for physical I-PIN to be dispatched.

Courtesy: Business Standard

Buoyed by strong stock markets, Labour Minister Bandaru Dattatreya has said the Employees Provident Fund Organisation may invest up to 12 per cent of its investable amount in equities over a period of time. According to the minister, as on June 30, the EPFO invested 7,468 crore in two index-linked ETFs (Exchange Traded Funds) -- one to the BSE's Sensex and the other to NSE's Nifty -- and as of now the market value of the investment stood at 8,024 crore with 7.45 per cent yield.

Courtesy: The Economic Times

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EPFO may invest up to 12% in equity markets: Labour Minister

With an aim to make the Real Estate Investment Trusts (Reits) more attractive to investors and real estate players, the Securities and Exchange Board of India (Sebi) has proposed relaxed norms for related party transactions and allowed these Trusts to invest more in under-construction assets. Sebi also proposed removal of restrictions on Reits relating to investment in special purpose vehicle (SPV) structures while norms relating to related party transactions would also be eased. The proposed move would allow up to 20 per cent investment by Reits in under-construction projects, up from a maximum of 10 per cent allowed currently.

Courtesy: Business Standard

Sebi issues draft paper on REIT to attract investors, realtors

CIBIL may soon give one free credit report a yearYou could soon be getting one free credit report a year from the Credit Information Bureau of India (CIBIL). A healthy CIBIL report and score increases one's chances of getting a loan and costs 500. "By the end of the year, the Credit Information Bureau of India will start providing individuals with one free credit report a year, so that they can check their credit rating and petition if they see possible discrepancies," RBI governor Raghuram Rajan told delegates at a seminar on 'Transforming Rural India through Financial Inclusion'.

Courtesy: The Economic Times

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5

ASSET CLASS INSIGHTS

Asset Class Insights: Equity, Fixed-income and Gold


A monthly review of the major asset classes - Equity, Fixed-Income and Gold -- and a snapshot of our outlook.

Equity markets: Outlook remains positive; buy on dipsG l o b a l e q u i t y m a r k e t s continued their posit ive momentum during June, 2016 and move higher. Markets w i t n e s s e d h e i g h t e n e d volatility intra-month following the declaration of results of the U K r e f e r e n d u m o n E U membership. While UK's exit from EU could hurt UK's long term growth prospects, its effects on the rest of the world in the near future are more uncertain. After the initial knee jerk reaction, markets seem to have settled down. Key global equity markets had recovered their losses by the end of the month.

Indian equity markets were up 1.2% during June 2016 adding to the previous month's gains. Volatility, however, increased on global new flows on Brexit but markets staged a smart recovery post that event.

The broader markets, as represented by the midcap and small cap indices, displayed a strong outperformance over

the last month. The Nifty midcap and small cap indices z o o m e d 8 % a n d 1 1 % , respectively, from the Brexit bottom while the benchmark is up 5% from the corresponding panic bottom of 7927. This clearly highlights increased market participation and inherent strength in the trend. We expect this outperforming trend of broader markets to continue in the short-term.

The progress of monsoon season has been excellent. Although slightly delayed, the rains have caught up towards the end of June and start of July. Indications and forecasts point to a normal monsoon. As always, July and August remain the key months for the season.

The markets were surprised by the announcement by Dr Rajan that he would be moving on from RBI after the conclusion of his first term in September. RBI has built significant credibility under Dr Rajan through its tough stance on CPI inflation targeting and banking



system NPA recognition and clean-up. The appointment of a new Governor and his/her stance on these policy matters will be keenly monitored by the markets.

The government continued to push out reform measures. Seven key sectors including aviation, defence, media, single brand retail and pharma sectors were opened up further for FDI investments. It is notable that FDI inflows into India remain extremely strong and have reached record levels over the last 12 months. The coming session of Parliament will be keenly watched to understand the fate of the GST bill.

The Union Cabinet has approved the implementation of the Seventh Central Pay C o m m i s s i o n ( C P C ) recommendations, effective from January 1, 2016. The announcement was largely on expected lines and as per what had been budgeted. The award is expected to provide a big b o o s t t o d i s c r e t i o n a r y consumption in coming months, which is likely to also be helped by good monsoons. The markets have a tendency

to form major bottom on the outcome of major negative events. In the present scenario, markets have absorbed major events like the RBI governor's exit and Brexit outcome as the previous major resistance area and recent breakout level of 8000 acted as strong supports, as per our technical team.

We believe investors should be constructive on the equity markets and accumulate on dips for the next two to three years.

Global economy and markets: With the markets completely wrong-footed by the decision of UK voters on June 23 to leave the European Union (EU), the immediate market reaction was extreme. In a classic risk-off move, equities around the world fell while bond markets, particularly core government bond markets, went up with yields of 10-year US treasuries German Bunds and UK gilts witnessing historic lows.

In a sharp turnaround in sentiment, global capital markets recovered sharply on expectations of easier overall global monetary policy for longer with the market now



pricing very low probability on rate hike by the US Federal Reserve.

Sentiments towards emerging equity markets were boosted by expectations of easier overall global monetary policy for longer with the futures market now pricing out any US interest rate hike until 2017.

The equity performance in emerging Europe varied greatly - countries with high exposure to the UK/EU were most negatively impacted whereas those with less in-depth trade relationships enjoyed gains.

Brazil was the best performing market on the back of a rebound in commodity prices.

Mixed global markets performance on country specific development

6.3

4.4

1.2

0.8

0.4

-5.7

-6.0

-9.6

2.9 5.

3 6.5

1.4

-2.5

-2.9

-3.4

-7.1

-20

-10

0

10

Bra

zil

UK

Indi

a

US

Chi

na

Ger

man

y

Fran

ce

Japa

n

(%)

1 M 3 M

Source: Bloomberg. Return as June 30, 2016

Exhibit 1: All major markets have negative returns on one year basis

3.4

0.2

-0.2

-8.6

-17.

2

1.8

-2.9

-11.

6

-23.

0

-11.

5

-31.

5

4.2

2.9

-0.1

-0.3

-2.8

-35

-25

-15

-5

5

15

UK

Indi

a

US

Bra

zil

Ger

man

y

Japa

n

Fran

ce

Chin

a

(%)

6M 1Y

Source: Bloomberg, Return as June 30, 2016



Fixed income: Well poised on RBI's

liquidity boost

Liquidity in the Indian debt

market improved significantly

over the last month on the back

of a significant amount of

OMOs done by the RBI.

System liquidity, which was in

deficit, to the extent of around

1.8 lakh crore in the first

quarter of 2016, has turned into

surplus. Borrowing under

liquidity adjustment facility

(LAF) has fallen into the

negative territory indicating

that banks/financial institutions

are not borrowing any more

from the RBI.

Money market rates fell to

multi year lows with three

month, six months and 12

month CD falling to around

6 .9%, 6 .7% and 7 .3%,

respectively.

G-sec yields have also fallen in

the range of 20-50 bps since

February 2016. Globally, the

yield on sovereign papers has

fallen significantly post Brexit

event on rising risk aversion.

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The same has helped ease

domestic yields as well.

E x p e c t a t i o n s o n t h e

announcement of new RBI

Governor have also pushed the

long term G-Sec yield down,

which were otherwise stuck in

a range. The market is

expect ing the new RBI

Governor to adopt a dovish

s tance on the in f la t ion

targeting regime.

The RBI in its monetary policy

o n J u n e 6 , 2 0 1 6 k e p t

benchmark policy repo rates

unchanged at 6.5%. RBI

maintained its stance to

provide liquidity as required to

progressively lower the

average ex ante liquidity deficit

in the system from 1% of NDTL

to a posit ion closer to

neutrality.

Although the latest PCI

inflation was higher than

market expectations, the

medium term outlook remains

positive on normal monsoons.

The monsoon, after a delayed

start, has progressed rapidly in



the last fortnight covering

almost all parts of country. As

per IMD, for a country as a

whole the southwest monsoon

as of July 7, 2016 has been 1%

above long period average

(LPA) wherein all regions

expect north east receiving

surplus rainfall. The weather

conditions are favourable for

further advancement of

sowing activity domestically,

which was held up due to a

delay in monsoon rains. For

southwest monsoon 2016, the

I M D a n d S k y m e t h a v e

maintained above normal

rainfall forecast of 106% and

109% of LPA, respectively.

The change in l iquidity

framework has increased

market expectations on the

magnitude and frequency of

OMOs. It is a big positive as far

as lower bond yields are

concerned and posi t ive

liquidity to encourage a

steeper yield curve, going

forward.

The combination of better

liquidity conditions, increased

OMO purchases by RBI and

quarterly increases in FPI debt

limit is a positive development

for the overall debt market.

Although the outlook on G-sec

yields remains positive, the

duration strategy should be

played through act ively

managed income or dynamic

bond funds. They will be able

to make swift duration change

within G-secs or switch

between corporate bonds and

G - s e c s w i t h i n s p e c i f i c

duration.

As the outlook on system

liquidity is positive, short-term

debt funds are best placed.

Credit opportunities funds with

a consistent track record and

exposure to stable sectors

offer a good investment

opportunity to earn higher

accrual. Ultra short term debt

fund and liquid funds remain

well placed. However, returns

are likely to be lower as short

term CP/CD rates have already

fallen significantly.



Gold: Two year high on global risk

aversion

Gold prices rallied to a two year

high in June 2016 on the back

of heightened risk aversion

post the unexpected Brexit

event. The global risk-off trade

was visible across asset

classes with perceived safe

haven assets like gold and

treasuries attracting investors'

interest.

Global gold prices crossed

US$1360 per ounce in July

2016 rising sharply by almost

12% since June. Indian prices

also crossed 31000 per 10

gram on MCX.

As the UK decided to exit

European Union, concerns

were raised on negative

implications on international

trade. Many analysts believe

the Brexit could have a severe

impact on the recovery efforts

of both the UK and EU.

Currency movement was

extremely sharp further

accentuating the impact of the

event.

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G o l d h a s w i t n e s s e d a

spectacular rally since the start

of calendar year 2016. Global

prices have rallied 28% since

the star of the year. The rally

was triggered by fears on a

hard landing in China, which

resulted in a sharp sell-off in

Chinese equities that extended

to other parts of the world. This

sent investors toward safe-

haven assets, boosting ETF

holdings. Buying pressure in

go ld was bo ls te red by

downward revisions to the

expected path of US interest

rates from investors and the

F e d . F e d t i g h t e n i n g

expectations through the first

quarter pushed gold higher by

pressurising the dollar 4%

lower and by moving real

yields on the 10-year US

treasuries to their lowest since

April 2015.

The expectat ion on the

quantum of rate hike by the US

Fed has declined significantly

post the recent turmoil in

global capital markets. The



market is now factoring in just

one rate hike in the whole of

calendar year 2016 especially

post the dovish statement

from the US Fed Chair. The

interest rate hike in general is

negative for gold prices. With

rate hike concern receding, the

overhang on prices has also

abated in the near term.

M e d i u m t e r m d e m a n d ,

however, will continue to be

impacted by the overall global

environment, particularly the

US Fed rate hike trajectory.

Gold prices consolidating post sharp rally at the start of the year

1000

1100

1200

1300

1400

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Jul-1

5

Oct

-15

Jan-

16

Apr

-16

Jul-1

6Price ($/Ounce)

Indian prices follow

global prices

24000

25000

26000

27000

28000

29000

30000

Fe

b-1

5

Ma

r-1

5

Ap

r-1

5

Ma

y-1

5

Ju

n-1

5

Ju

l-1

5

Au

g-1

5

Se

p-1

5

Oct-

15

No

v-1

5

De

c-1

5

Ja

n-1

6

Fe

b-1

6

Ma

r-1

6

Ap

r-1

6

Ma

y-1

6

Ju

n-1

6

|

Price (|/10 grams)

Source: Bloomberg

12

STOCK IDEAS


Phillips Carbon Black: Turnaround in Sight;on Robust Earnings Trajectory

Company BackgroundPhillips Carbon Black (PCBL) is an RP-Sanjiv Goenka group (CESC promoter group) company manufactur ing carbon black domestically. It was incorporated in the year 1960 in collaboration with Phillips Petroleum Company, US. In 1988, the company entered into a technical collaboration with Columbian Chemicals Company, US. P C B L ' s f i r s t p l a n t f o r manufacturing carbon black was set up in Durgapur (West Bengal) with an installed capacity of 14 KT, which commenced production in 1962. As of FY16, PCBL has four plants across India manufacturing carbon black with associated waster heat recovery power p lants; Durgapur, WB (147 KT, 30 MW); Mundra, Gujarat (140 KT, 30 MW); Palej, Gujarat (95 KT, 12 MW); Kochi, Kerala (90 KT, 10 MW). It has an installed capacity to manufacture 472 KT of carbon black annually. The e f fec t i ve capac i ty, however, gets limited to 411 KT due to fungibility across

various carbon black grades. PCBL also has 76 MW of power capacity, operating on waste gases produced during the process of manufacturing carbon black making it a carbon neutral company.

Carbon black is primarily used as a reinforcement material in tyres and other industrial rubber goods. . It is critical for manufacturing tyres and forms 23% by volume of the tyre weight and 10% by value of tyre costs. PCBL is the largest manufacturer of carbon black in India with a market share at 31%. PCBL has an effective installed capacity of 411 kilo tonne (KT) for carbon black (name plate capacity at 472 KT). In FY16, PCB operated at 81% capacity utilisation levels with carbon black sales at 335 KT. Going forward, on the back of a pick-up in tyre demand domestically & imposition of anti dumping duty, PCBL is witnessing robust demand of ca rbon b lack . Capac i ty

Investment Rationale

Carbon black - capacity utilisation inching upwards


STOCK IDEAS

utilisation is expected to augment to 93% in FY18E with corresponding carbon black sales at 380 KT in FY18E, implying sales volume CAGR of 6.5% in FY16-18E. PCBL also sells high margin speciality grade carbon black, which finds application in plastics, inks, etc. Its volume in Fy16 was at 5 KT (2.5 KT in Fy15). Going forward, the speciality g rade sa les vo lume i s expected at 10 KT in FY17E & 18 KT in FY18E, which will further drive profitability at PCBL.

PCBL uses carbon black feed stock (CBFS) as its key raw material for manufacturing carbon black. CBFS is a crude derivative and, therefore, declining crude price and consequent decline in CBFS price benefits Indian players despite raw material price being a pass through. Hence, d e c l i n i n g C B F S p r i c e , increasing capacity utilisations levels & increasing share of speciality grade sales are expected to create healthy operating leverage at PCBL. Consequently, we expect

Decline in crude price; operating leverage to enhance profitability

EBITDA margins to improve at PCBL to the tune of 450 bps over FY16-18E. We expect PCBL to clock EBITDA margins of 13.2% in FY17E & 13.3% in FY18E (8 .7% in Fy16 ) . EBITDA/tonne is expected at 6374/tonne in FY17E & 6556/tonne in FY18E ( 4926/tonne in FY16). Sales growth, however, is expected to be flat in FY16-18E despite volume growth due to steep correction in realisations in FY17E (blended realisations assumed at US$674/tonne vs. FY16 at US$828/tonne largely tracking the decline in crude price.

B y v i r t u e o f d e c l i n i n g profitability (6.2% EBITDA margins in FY15) and an elongated working capital cycle (93 days in FY15) PCBL has accumulated huge debt with peak debt at 1220 crore as of FY15. However, with the tide now turning in favour of PCBL and working capital controls, debt has reduced to 1021 crore as of FY16 with consequent debt: equity at 2.0x. Going forward, with a s t r o n g o p e r a t i o n a l

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Turnaround in sight; declining debt; strong earnings


STOCK IDEAS

Stock Data

Key Financials

Valuations Summary

performance, we expect PCBL to generate healthy CFO annually to the tune of ~ 200 crore (FCF to the tune of ~ 175 crore annually). This will further reduce debt, with consequent debt: equity at 1.2 x by FY18E. Going forward, in FY16-18E, on account of sales

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volume growth (6.5% CAGR), expansion in EBITDA margins (450 bps) and reducing interest costs, we expect PAT to quadruple to 93 crore in Fy18 vs. 23 crore in FY16. We value PCBL at 225-240, i.e. 8.5x-9.0x P/E (0.1x PEG) on FY18E EPS of 27.

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` crore FY15 FY16 FY17E FY18E

Net Sales 2470.2 1894.7 1740.4 1880.6

EBITDA 152.3 165.0 230.5 249.2

Net Profit 12.6 22.7 49.5 92.9

EPS 3.7 6.6 14.4 27.0

P/E 47.8 26.4 12.2 6.5

Target P/E 62.6 34.5 16.0 8.5

EV / EBITDA 11.9 8.9 6.0 5.2

P/BV 1.2 1.2 1.1 1.0

RoNW 2.5 4.4 8.9 14.7

RoCE 6.2 8.0 13.1 14.2

ROIC 5.8 8.4 13.5 14.9

FY15 FY16 FY17E FY18E

Market Capitalization ( crore) 603.1

Debt (FY16) ( crore) 1021.4

Cash and Cash Equivalent (FY16) ( crore) 148.6

Enterprise Value ( crore) 1475.9

52 week H/L 181 / 80

Equity Capital ( crore) 34.5

Face Value ( ) 10.0

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STOCK IDEAS

Key risks include:

Carbon black price; crude linked; inherent volatility

The realisation of carbon black largely tracks crude prices as it utilises CBFS as its key raw material, which is a crude d e r i v a t i v e . T h e r e f o r e , realisations are subject to a lot of volatility given volatile crude prices. As an industry practice, in terms of carbon black pricing, companies operate with a quarterly price lag i.e. average of daily crude price during the current quarter (Apr i l - June) is used to determine/fix the carbon black price for the subsequent quarter (July-September), which makes them susceptible to pricing risk unless one has the capacity to hold the inventory for the entire quarter. Since PCBL operates with around 45 days of inventory, it is also susceptible to pricing risk and has limited ability to hedge the same. Therefore, sharp swings in crude price m a y r e s u l t i n v o l a t i l e realisations and consequent volat i le prof i tabi l i ty for

industry participants including PCBL, going forward.

PCBL primarily imports its CBFS requirements with imports constituting a healthy 79% of its entire raw material needs ( 922 crore in FY16). PCBL also exports carbon black to other countries with the share of exports to gross sales at ~21% ( 473 crore in FY16). This indeed makes PCBL a net importer and is susceptible to forex risk (US$). The company gains from rupee appreciation and is worse off from depreciation. All short-term borrowings are also dollar denominated ( 704 crore). Hence, even this is susceptible to forex risk. PCBL spends a considerable amount as hedging costs ( 47 crore in F Y 1 6 ) a n d s t i l l i n c u r s translational forex losses/gains due to adverse currency movement. Going forward, the re fo re , any adverse movement in currency beyond hedged limits may impact its profitability.

High forex exposure; hedging costs

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STOCK IDEAS

VA Tech Wabag: Moderate performance, strong outlook

Company Background

VA Tech Wabag (Wabag) is a

leading MNC in the water

treatment space with a

presence in India, Middle

East, North Africa, Central &

Eastern Europe, China and

South East Asia with access

to over 100 patents. The

company operates on an

asset light EPC model,

thereby manifesting a lean

balance sheet. With growing

concern on access to clean

water and urgent measures

to solve the issue of depleting

w a t e r r e s o u r c e s , t h e

i n v e s t m e n t i n w a t e r

treatmentis likely to increase

m a n i f o l d g l o b a l l y .

Accordingly, Wabag is

e x p e c t e d t o b e n e f i t

significantly by leveraging its

strong domestic presence

and rising global footprint.

The company's strong book-

to-bill ratio of ~2.9x provides

revenue visibility for three

years. This, coupled with a

strong execution track record

is expected to lead to 22.1%

revenue CAGR in FY16-18E to

3,800 crore while the margin

is expected to expand ~190

bps to 10.7% in FY16-18E.

VA Tech Wabag (Wabag) is a

leading MNC in the water

treatment space (water

desalination, sewage water

treatment, waste water

treatment, etc), with a global

presence. The company

operates on an asset light-

EPC led model in water

treatment projects across

munic ipa l & indus t r ia l

segments. It focuses on

design & engineering while

outsourcing civil construction

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Investment Rationale

VA Tech Wabag - Leading global

water treatment player


STOCK IDEAS

& erection jobs. Wabag has

executed over 2,250 projects

till date and has a market

share of ~14% in the Indian

m a r k e t . T h e c o m p a n y

garners a higher EBITDA

margin of ~13-14% across its

India business, 8-9% across

the India internat ional

business and 5-6% across the

Europe segment taking

overall EBITDA margin to

~9.3%. Wabag registered

strong growth in its order

inflow over FY10-15, at 13.8%

CAGR. This led to revenue

and PAT CAGR of 14.6% and

23.1%, respectively over the

same period.

Wabag's order backlog and

revenue are expected to

increase at a CAGR of 17.9%

and 22.1%, respectively, in

FY16-18E driven by the

robust opportunity across the

Remain positive on robust order

backlog, new order wins

water treatment industry. We

have pencilled in an order

intake of 4,100 crore and

4,500 crore for FY17E and

FY18E, respectively, leading

to a robust book-to-bill ratio

of ~2.7x. We have revised our

FY18E earnings marginally

downwards to factor in the

c u r r e n t s u b d u e d

performance. However, we

maintain our positive stance

on the company and expect it

to maintain its low D/E ratio

factoring in its asset light

business model that would

continue to provide positive

FCF (~ 200 crore over FY16-

18E). Also, order intake for

FY16 crossed 5000 crore,

surpassing the company's

annual guidance. We revise

our target price to 760 ( 823

earlier) and maintain BUY

recommendation on VA Tech

Wabag valuing it at 19x FY18E

EPS of 40.

` `

`

`

` `

`


STOCK IDEAS

Key Financials

Valuations Summary

Stock Data

(` crore)

Net Sales 2,435.2 2,548.6 3,225.0 3,799.8

EBITDA 234.5 224.7 341.8 406.6

Net Profit 110.2 92.2 181.5 218.1

EPS ( ) 20.3 16.9 33.3 40.0

(YoY Growth) FY14 FY15 FY16E FY17E

`

P/E 30.6 36.7 18.6 15.5

Target P/E 37.4 44.6 22.8 19.0

EV / EBITDA 14.0 15.5 9.8 8.1

P/BV 3.7 3.4 2.9 2.5

RoNW (%) 12.6 9.7 17.0 17.6

RoCE (%) 18.9 17.0 23.0 24.2

(x) FY15 FY16 FY17E FY18E

Market Capitalization ( Crore) 3,367.0

Total Debt (FY16) ( Crore) 206.0

Cash and Investments (FY16) ( Crore) 311.0

EV ( Crore) 3,262.0

52 week H/L ( ) 970/551.4

Equity capital ( Crore) 10.9

Face value 2

FII Holding (%) 27.7

DII Holding (%) 22.5

`

`

`

`

`

`

`


STOCK IDEAS

Key risks include:

Political risk across various

geographies

The company operates and

has ongoing projects across

various geographies globally,

which exposes the company to

political risk. Any political

uncertainty in regions where

the company has ongoing

operations could hamper its

profitability. A point in case is

the recent delay in engineering

approvals in a few projects

under the Europe cluster

which contributed to the drop

in revenue from overseas

projects. Any such prolonged

political risk in any particular

region could impact Wabag's

project execution and, thus,

financials, going ahead.

Fuels and lubricants form

~50% of the total expenditure.

The company is exposed to

volatility in crude prices as it

enters into long term contracts

with suppl iers of these

materials over a defined

period. Some of the dredging

contracts into which DCI has

entered do not contain an

escalation clause for fuel price

hikes. Hence, if prices of fuels

and lubricants r ise, the

operational profitability would

be adversely affected.

Fuels and lubricants may have a

material adverse impact

20

FLAVOUR OF THE MONTH

Why You Should Buy Health Insurance

Lifestyles have changed. Sedentary routines, little exercise, unbalanced diets,

high levels of stress… All these factors impact our health in more than just one

way. Non-communicable diseases such as obesity, diabetes, high blood

pressure, strokes, and heart attacks are on the rise. One in every five Indians is

obese, diabetic, and suffers from high BP, shows data. It is not only important to

keep our health in check, but also safeguard our interests through adequate health

insurance coverage. Remember, illnesses strike without warning and can cause

huge dent our finances. In fact, medical bills are the biggest cause (62%) of

personal bankruptcies in the US. In India too, majority (60%) pay healthcare

expenses out of their pocket. Healthcare costs are rising at an exponential rate.

It is prudent to take health insurance at an early age. Here's the handy guide for

you to ensure protection throughout life stages. Read on.


To start with, a few striking

truths…· O v e r 8 0 % o f I n d i a n

population is not covered

under any health insurance

(As high as 86% of rural

population and 82% of urban

population).

· People in villages mainly

depend on `household

income or savings' (68%)

and `borrowings' (25%) to

f u n d h o s p i t a l i z a t i o n

expenses.

· In cities, people rely much

more on their 'income or

savings' (75%) than on

'borrowings' (18%) to fund

their treatment.

·health insurance by people

across all age groups.

· Customers do understand

that healthcare costs have

risen. However, they do not

consider buying health

insurance.

· Nearly half of all deaths in the

country occur due to non

communicable diseases

(NCDs), with cardiovascular

diseases responsible for

23% of them.

(Sources: National Sample Survey

Office (NSSO), Registrar General of

India, insurance company surveys)

Low priority given to buying



Amit Bhandari,

Head - Health Underwriting & Claims,

ICICI Lombard General Insurance Company.

Procedures 2008 2013 Increase

%

Heart Valve Replacement

` 1,75,415

` 3,43,145

52%

Knee Replacement

` 2,70,220

` 4,36,730

61%

Cataract Removal

` 16,000

` 25,000

56%

Angiography ` 14,000 ` 22,000 57%

Coronary Artery Bypass Graft

` 1,65,000

` 2,40,000

45%

Appendectomy

` 28,000

` 47,000

66%

Gall Bladder Removal

` 32,000

` 59,000

84%

Angioplasty (PTCA) with 2 Stents ` 1,75,000 ` 2,65,000 51%

Please Note: Rates are as per the approximate cost of treatment. (Source: www.onemint.com), we can add 10% inflation year-on-year from here. (By ICICI Lombard General Insurance Company).

”The prevalence of lifestyle diseases like diabetes and hypertension are rising due to changing lifestyles. Moreover, non communicable diseases are now affecting more young adults than before. In addition to

this, the medical inflation rate is growing. Fai l ing to hold adequate amount of health insurance cover can prove to be a major personal finance disaster. It could lead to either poor health care because of non-affordability or lead an individual into financial distress due to high medical bills. Hence it is better to buy health insurance with adequate cover at early age,” says

In the last 5 years, the medical cost has increased, making it difficult for a common man to borne the expenses from his pocket. Let us look at the cost of few medical treatments in India:

Amit Bhandari, Head - Health Underwriting & Claims, ICICI Lombard Genera l I nsu rance Company.

Rising cost of medical treatments



What holds one back from buying health insurance

There are two most common myths that generally hold one back from buying health insurance. One: 'I am young and healthy and do not need health insurance.' Two: 'I have coverage under my employer's group insurance policy and separate cover is not required'.

Many youngsters feel that if they are young and healthy, they do not require any health insurance. However, one should always be prepared to deal with any untoward incident and availing a health insurance policy is the best way.

“A medical exigency can arise at any time in one's life and it is best to be prepared for such an eventuality from early on. The idea l t ime to purchase healthinsurance is when one is younger and healthiest. A

policy purchased early in life and renewed regularly, leads to better claim experiences should the need arise. Certain maladies remain undiscovered unti l symptoms become evident. These pre-existing diseases are covered only after a person holds a health insurance policy for at least a certain number of months (24/ 36/ 48). Therefore, buying health insurance early is a good idea, as the policyholder stays insured at any life stage. Health insurance needs to be renewed regularly to ensure continued coverage especially during old age,” advises

“Further it is always easier to avail insurance at younger age. As age progresses, most insurance companies ask the insured to undergo medical tests and also the criteria for g e t t i n g i n s u r a n c e g e t s stringent,” he adds.

Bhandari.

The premiums are also lower when you enroll in a health insurance cover at early age. For example, At 25, a plan with Rs 5 lakh coverage would cost you around Rs 4000, at 35 you'll have to shell out around Rs 6000 and at 45 the cost rises to Rs 8000.

Secondly, many salaried

employees believe that their

employer's health insurance is

enough and there is no need to

23



take separate cover. “However,

it is necessary to check the

details of the group health

i n s u r a n c e p r o v i d e d b y

employer thoroughly. The

coverage amount needs to be

checked for sufficiency. Also

the terms and conditions,

features, exclusions need to be

studied. If the insurance is not

adequa te , i t i s a lways

recommended to have an

individual/ family cover. You

also need to remember that the

group cover will continue only

as long as you are in the job.

The period between switching

j o b s m a y l e a v e y o u

unprotected. Therefore ,

having your own health

insurance policy helps,”

Most employers provide

medical insurance for the

e m p l o y e e s a n d t h e i r

immediate family. Some

employers extend the facility

even to dependent parents;

whereas some offer an option

to add dependent parents but

at an additional cost i.e. by

deducting the premium from

an employee's salary. In such

says

Bhandari.

cases, it makes better sense to

pay additional premium and

cover your parents, if they do

not have a separate medical

cover. This is because separate

medical cover may not be

available to them if they have

any existing disease / disorder.

Along with the basic medical

insurance, some employers

also provide Even if

not provided for, you may

consider taking it separately

from outside, in order to have a

higher cover, specifically for

your parents. Say for instance,

your employer provides Rs. 4

lakh family floater medical

cover for you, your spouse,

your chi ldren and your

parents. You may consider

taking a top-up plan of Rs. 10

l a k h f o r y o u r p a r e n t s ,

separately. It will help you

recover the expenses incurred

over and above Rs. 4 lakh (your

base cover). Premium for top

up plans is generally much

lower than buying the fresh,

basic health cover.

There are also

available, which may be a

top-up plans.

super top-up plans

24



better proposition than top-up

plans. “A top-up cover will pay

you only if your claim amount

(bill for a single hospitalization)

is above the threshold.

Whereas in a super top-up

plan, the claim will be triggered

i f the sum tota l of a l l

hospitalization expenses in a

policy year crosses the

aggregate threshold limit. For

example, if you have a top up

health cover of Rs 10 lakh sum

assured with the threshold

limit of Rs 5 lakh, in case your

claim amount is Rs 8 lakh, then

it will only pay you Rs 3 lakh (8 –

5), and NOT Rs 8 lakh total. The

top up cover will help you only

when your bill is above Rs 5

lakh each time. But if you have

two bills of Rs 4 lakh each, then

the normal top up cover will

not help because no single bill

amount is above the threshold

limit of Rs 5 lakh. That's where

super top-up plans come into

picture, which takes into

consideration the TOTAL of the

bills in a year and not just the

single instance. So in case of

two bills of Rs 4 lakh each, your

total bill is Rs 8 lakh (above

threshold limit of Rs 5 lakh),

then super top-up cover will

pay you, where a top-up cover

will not. Also, as the claim is

triggered only after a certain

deductible limit, premium for

top-up plans are lesser than the

regular mediclaim plan,”

Salaried employees usually

have some form of health

cover provided by their

employers. But for

there is no

such protection. Hence, self

employed persons need to buy

hea l th po l i cy fo r the i r

individual and family needs.

We suggest that they

which

not only cover inpatient

hospitalization cover but also

outpatient treatment cover,

which will cater to overall

healthcare needs. Premium

should not be the only factor to

decide which insurer to go

with.

Health insurance plans can be

b r o a d l y c l a s s i f i e d a s :

which are

explains Bhandari.

self-

employed persons

should go

for comprehensive plans

Types of health insurance policies

Hospitalization plans

25



indemnity plans that pay cost

of hospitalization and medical

costs of the insured subject to

the sum insured. These

policies can be taken for an

individual or a family floater

basis. Apart from this, there are

which

provide daily cash benefit to

the insured for every day that

he is hospitalized subject to a

maximum number of days.

Also, there are

which give cover for

severe illnesses like heart

attack, cancer etc. Under these

policies, lump sum benefit

amount is paid if the customer

is diagnosed with a critical

illness for the first time.

“Traditional health policies pay

for basic hospital ization

expenses and expenses

related to day care procedures.

Critical Illness policies are

benefit policies which help the

individual take care of the

greater financial liabilities

rather than just the medical

expenses incurred for the

treatment. Both treatment of

critical illness and recovery will

need time, money and utmost

hospital daily cash products

critical illness

plans

care. It is important to be

f inanc ia l l y secure pos t

treatment also, as there may be

a change required in job and

l i f es ty le . The lumpsum

p a y m e n t r e c e i v e d o n

diagnosis of critical illness will

help in providing this financial

security,”

can also be

opted for which they provide

death and disability benefit in

case of accident.

Hospital Cash, Critical Illness

and Personal Accident covers

are available on standalone

basis or can be taken as an add-

on under the indemnity policy.

There are also some

available in the

market that are catching up –

for specific ailments such as

diabetes, high blood pressure

and cancer. Should you go for

these? “Single-disease policies

are generally bought by people

who are in the high-risk

category. Since the base

hospitalization policy covers all

diseases except the excluded

ones, a single-disease policy is

usually not required. Only such

says Bhandari. Personal

accident covers

single

disease covers

26



single diseases that are

otherwise excluded in regular

hospitalization policy may be

relevant. A single-disease

c o v e r p l a n w i l l o f f e r

comprehensive coverage for a

specific disease and serves as

an add-on cover for regular

health insurance policies. At

the time of opting for single-

disease cover, check for the

salient features and benefits in

the plan along with OPD cover,

exclusions, etc. and the

relevance of a single disease

product for you,”

Critical illness policies

usually cover a number of

illnesses like cancer, heart

attack, kidney failure, etc. On

the other hand, a single-

disease cover plan offers

comprehensive coverage for a

specific disease. Currently,

there are plans that cover for

specific diseases such as

dengue, cancer. Before

selecting a suitable health

insurance plan, it is important

to keep in mind that there is no

advises

Bhandari.

How is critical illness cover

different from single-disease

covers?

one size that fits all. Whether

you opt for a single-disease

cover or critical illness cover,

compare health insurance

q u o t e s f r o m d i f f e r e n t

providers to ensure you find

the most competitive deal

possible.

While comparing health

insurance products available in

market, you should look for

major factors like sum insured

options available, extent of

coverage: both in patient & out

patient, room rent capping, if

any, coverage for maternity

and waiting period for the

same, exclusions, length of

waiting period for pre-existing

diseases, optional add-on

covers, disease sub-limits, co-

pay applicability, benefits like

free health checkups, no claim

bonus, etc.

Secondly, efficiency in claim

services of the company is also

very important factor. In house

v s . T PA ( T h i r d P a r t y

A d m i n i s t r a t i o n ) , c l a i m

settlement ratio etc. should be

noted. Insurance is a promise

How to zero down a right policy

27



and promptness and fairness

in settling the claims is the

delivery on this promise.

Based on this comparison, you

should narrow down few

products that suit the health

care needs of yourself and

your family. While doing so,

you should keep in mind both

anticipated and unexpected

health care needs in future as

well. After that premiums

should be compared. If the

plan that suits you best and if

the company offering it has

good claim service, it's worth

to choose it even if the

premiums are a little on the

higher side.

“At any stage of life, an

individual should ensure that

he has a comprehensive health

insurance plan which takes

care of his and his family's

needs. Typically at a ,

it is important to consider

purchasing a health plan as

well as disability coverage. If

you are thinking about

, you will want to review

Adequate cover throughout life

stages

young age

starting a

family

your health plan to be sure you

are able to add a new family

member to the plan and make

sure you have adequate

coverage. A family floater

policy can take care of

insurance needs of your

spouse and children till they

are dependent on you. At the

,

you can still continue with your

existing health plan. At the

same time, the market has

certain specific plans which

cater to senior citizens and one

can opt for these also,” says

Bhandari.

The adequate size of cover

depends on your present and

future health care needs, city

where you are staying (medical

costs are different in metro and

n o n - m e t r o c i t i e s ) a n d

affordability. We suggest you

should go for a comprehensive

plan which gives OPD (out-

patient department) and

maternity cover as well which

will cater to your future

healthcare needs as well.

later stage of life as a senior citizen

Making claims: Cashless /

Reimbursement

28



You can make a claim under a

health insurance policy on a

c a s h l e s s b a s i s o r

reimbursement basis. For a

claim on cashless basis, your

treatment must be only at a

network hospital with which

your insurance company/ TPA

has a tie-up. The list of network

hospitals is provided along

with policy copy or available

on the company website. You

have to seek authorisation for

availing the treatment on a

c a s h l e s s b a s i s a s p e r

procedures laid down and in

the prescribed form. Once the

claim is authorised by the

insurance company/ TPA,

treatment can be availed and

the claim amount will be

directly settled with the

hospital. If there are any

deductions as per the policy

terms and conditions, the

insured will have to pay for

such part of the claim amount.

Usually when treatment is

done in a non-network

hospital, insured will have to

pay the hospital expenses on

his own and later claim under

the reimbursement process. It

i s n e c e s s a r y t h a t y o u

understand the procedure and

the documents required for

m a k i n g a c l a i m o n

reimbursement basis which

will be mentioned in the policy.

When a claim arises you

should inform the insurance

company as per procedures

required. After hospitalization,

you have to ensure that you

obta in and keep ready

documents such as claim form,

d i s c h a r g e s u m m a r y ,

prescriptions and bills that you

should submit for a claim.

Buying health insurance also

helps you save on taxes under

section 80D. One can save up

to Rs. 60,000 towards health

insurance premiums paid if

assesee and parents both are

senior citizens (above age 60

years) as per current tax laws.

You can also claim tax

deduct ion on expenses

incurred for preventive health

check-ups, up to Rs. 5,000, as a

part of section 80D. All these

deductions are over and above

the deductions available under

section 80C.

Tax benefits: Icing on the cake

29



Summing upWith a lifestyle encompassing stress, pollution and not enough exercise, healthcare related issues are on the rise. Simultaneously, healthcare is b e c o m i n g i n c r e a s i n g l y e x p e n s i v e . T h e s e uncertainties make it even more important to procure a health insurance plan and maintain it regularly to lead a happy and hassle free life.

“Rising cost of medical care and early onset of chronic l i f es ty le re l a ted hea l th conditions have made people aware of the importance of health insurance. Still this awareness has not yet translated into proportionately improved penetration of health insurance in our country. There should be more efforts

towards marke t ing and d e v e l o p i n g v a r i o u s distribution channels for health insurance products. These channels will lead to improved awareness regarding health insurance among different strata of the society. This coupled with various health insurance products with features suitable to specific health needs of population will improve the penetration of health insurance,”

To buy, or to find out about individual health insurance plans, please contact your IC IC Id i rec t Re la t ionsh ip Manager or walk to any ICICIdirect stores. You can also buy a health insurance policy online from ICICI Lombard by visiting ICICIdirect.com.

concludes Bhandari.

Particulars Limit

Mediclaim (Individual / HUF)

Rs. 25,000

Mediclaim towards health of parents who are not senior citizen

Rs. 25,000

Mediclaim towards health of parents who are senior citizen (60 years

and above)

Rs. 30,000

Preventive Health Check-up

Rs. 5,000

Medical Expenditure incurred on oneself or his / her parents. This clause

is applicable only for very senior citizens (80 years or above). Condition:

Provided, there is no medical insurance in force for such persons.

Rs. 30,000

Please send your feedback to [email protected]

30

Tête-à-tête

'Indian economy in the midst of gradual recovery'

We believe that the Indian economy is in the midst of a gradual recovery and

combined with better valuations, domestic focused sectors look more attractive

to us - these include financials, utilities, logistics etc., says Manish Gunwani,

Deputy CIO (Chief Investment Officer), ICICI Prudential Mutual Fund in an

interview with ICICIdirect Money Manager. On an overall basis, we are quite

positive on equities on a 2-3 year time frame, he adds. Excerpts:

Manish Gunwani,

Deputy CIO (Chief Investment Officer),

ICICI Prudential Mutual Fund


Q:

A:

The markets have had a good run

post Budget 2016. What's the

outlook ahead?

We can look this from three

angles - macro, valuation and

f l o w s . F r o m a m a c r o

perspective the domestic

macro looks reasonably

attractive with CAD (current

account deficit) and inflation in

control. Globally growth is

tepid which is also hindering

the veloci ty of India 's

growthrev iva l . From a

valuation basis the market is

now in middle zone on

earnings and book value post

this run up. From a flow angle,

globally with dollar weakening

the prospects of flows into

emerging markets in general

and India in particular have

improved. So, on an overall

basis, we are quite positive on

equities on a 2-3 year time

frame.

What are some risks investors

should be watchful of in the near

term?

Some of the key risks to

Q:

A:

31

Tête-à-tête


watch in the near term could

be monsoons, Fed being

unexpectedly hawkish which

depends on US data on

inflation and employment and

China's macro becoming

unstable in terms of credit

i s s u e s a n d c u r r e n c y

devaluation.

How would Brexit impact Indian

markets and investors?

The economic activity

impact is unlikely to be high in

the short term. Of course the

political risks for both UK and

EU have gone up - if they

intensify it could flow through

to various markets like

currency, commodities etc.

which could then effect Indian

equit ies also. However

currently the impact seems

limited.

How have been the latest

macroeconomic variables - both

domestic and international?

Early indicators of monsoon

Q:

A:

Q:

A:

are healthy and clearly some

part of the run up in the market

is due to this - if the monsoon is

weak definitely there could be

some impact on the country's

economy. As far as inflation

goes the headwinds and

tailwinds seem to be in

balance. The positive side is

prospects of a good monsoon

and low capacity utilization in

lot of sectors - the headwinds

are the pull back in commodity

prices especially oil in the last

few months and sticky inflation

expectations.

What are your key takeaways

from the past quarter's earnings?

Given muted expectations

the results were quite good.

C lear ly sec tors fac ing

consumers benefitted from the

fact that input prices especially

those linked to crude oil have

been on a deflationary trend.

Also lot of corporates

demonstrated the ability to

control costs much better than

Q:

A:

32

Tête-à-tête


expected in an environment

where topline growth is scarce.

Genera l ly the pos i t ive

surprises came from sectors

like auto, FMCG, cement and

industrials.

Concerns on the banking sector

with respect to asset quality, credit

growth and margins have not

abated. What's the road ahead for

this sector?

Clearly there is a big effect of

macro variables like credit

growth, interest rates,

commodity prices etc. on the

profitability of these banks.

While we believe that a fair

amount of asset quality pain is

priced in the valuation of PSU

(public sector unit) banks, one

needs to look at this segment

with caution.

The government has retained

the capital infusion in PSU

Banks at 250bn which we

hope is adequate to support

the economic recovery.

Alternatively, we expect the

Q:

A:

`

Government to infuse more

capital if required as Bank

Recapitalization could boost

the economy's growth and

revival to large extent. With this

budget, first phase of the

deleveraging cycle will be

completed as the government

takes steps to clean up the

Non-Performing Loans in the

system.

Which sectors have you been

overweight and underweight on?

We believe that the Indian

economy is in the midst of a

g r a d u a l r e c o v e r y a n d

c o m b i n e d w i t h b e t t e r

valuations, domestic focused

sectors look more attractive to

us - these include financials,

utilities, logistics etc.

Indian households remain largely

under-invested in equities. How can

the retail investor participation be

increased?

From a structural perspective

we do believe that Indian

households are under invested

Q:

A:

Q:

A :

33

Tête-à-tête


in equities and that this asset

class remains the most

attractive for them in a 2-3 year

time frame. We do expect that

domestic investors could shift

their savings share from

physical assets to financial

assets including equities.

We believe that equities

remaining the best major asset

class for domestic investors

from a 2-3 year timeframe and

inves to rs can have a

sys temat i c manner o f

increasing allocation to this

asset class

In the backdrop of the current

market scenario, what is your

advice to new and existing

investors?

It may be a prudent strategy,

thus, to add flavour of funds in

the balanced advantage and

dynamic asset allocation

category. These funds seek to

increase allocation to equity

Q:

A:

when the markets are cheap,

and book profits in equities

when markets are rising

thereby reducing volatility and

providing reasonable returns.

However, if an investor is well

invested in equities, we would

recommend investing this

amount in a staggered manner

through equity mutual funds

over the course of next 6

months. The outlook for equity

markets is positive for the next

3-5 years.

What are the key fundamental

principles of building a successful,

long-term investment portfolio?

We recommend investors to

increase their allocation to an

asset class with attractive

valuations, which is usually

when there is some fear; also,

adopt a long term approach to

investments and avoid selling

in panic.

Q:

A:

The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities.

34

ASK OUR PLANNER

How are insurance maturity proceeds taxed?


Q:

A:

I bought a policy on 31/12/2007,

which matured in January 2016. The

sum assured of the policy is 80,000

and the annual premium is 10,100.

Is the maturity amount taxable or

not?- Shahid Hassan

You haven't mentioned if your

policy is a pension policy or a

normal unit-linked/endowment

policy. Your policy has been

issued between the period April

01, 2003 and March 31, 2012.

The maturity proceeds of

normal unit-linked / endowment

policies issued in this period are

exempt from tax only if the

premium payable for every year

is less than/upto 20% of the sum

assured (i.e. minimum amount

assured under the policy at any

time during the term of the

policy).

Hence, if your policy is a normal

unit-linked/ endowment policy,

then the maturity proceeds of

your policy will be exempt from

tax, provided the sum assured

`

`

was 50,500 or more in all the

policy years. However, if your

policy is a pension policy, then rd

1/3 of the maturity proceeds

will be received in lumpsum and

exempt from tax and the rd

remaining 2/3 will be received

in the form of annuity and will be

taxed on receipt as per the

income slab in which you fall in

for income tax purpose.

I am a government employee. We

have no pension scheme. I want to

grow capital so that at the time of

retirement I can purchase the

pension plan. My rest of the service

period is 16 years. I want to invest in

mutual fund (MF) @ 6,000 p.m.

May you guide me how to proceed

and in which MF?- Bishwajit Kumar Saha

Investing into mutual funds is

a good way to accumulate your

retirement corpus, given that

you have 16 years for your

retirement. You can look at an

asset allocation of around 70-

80% into equity mutual funds

`

`

Q:

A:

35

ASK OUR PLANNER


and the rest into debt funds.

However, before fixing up the

amount of investment, you can

approach a financial planner to

find out how much retirement

corpus would be required to

meet your post-retirement

needs. This will give you a clear

idea on how much to invest for

your retirement and even where

exactly your investments should

be made.

You can refer to 'Research'

section of ICICIdirect.com to

know about the mutual funds

currently recommended by us.

I would like to know which of the

two modes i.e., SIP and Lumpsum

would be better for Equity and Debt

Mutual Funds. Timeframe would be

8-10 yrs in Equity MF and 1-3 yrs in

Debt MF.- Susheel Ratna Raj M

The basic difference between

these two modes i.e. SIP and

Lumpsum is that the former

helps in averaging the cost of

investment as it's done over a

period of time, while the latter

fails to do so, being a one-time

Q:

A:

investment. The averaging

aspect is more relevant in equity

funds, as the level of volatility is

m u c h h i g h e r i n t h e s e

instruments than debt funds.

Hence, for equity funds, SIP is a

better option than lumpsum, as

timing the market and investing

at the lowest point is always a

difficult task.

In debt funds, for the tenure of 1-

3 years, it is ideal to choose

short-term funds as the volatility

in these funds is lesser

compared to long duration

funds. In that case, you could

choose to invest as a lumpsum.

I had taken ICICIPru LifeStage

Pension Advantage policy in year

2010. Till year 2016 I have paid a sum

of 3,50,000 with 50,000 being

paid every year as premium for the

last 7 years. The year of Severity for

the Policy is 2034 and Sum Assured

is 0 (ZERO) Rupees. I want to

withdraw the entire fund value for

this policy and not continue with the

same.

I had not claimed any deduction for

the premiums paid for this policy.

Q:

` `

36

ASK OUR PLANNER


Would the total fund value that I

receive would still be taxable? Ifthe

total fund value is taxable then

wouldn't it be the case of double

taxation since I never claimed any

deductions for the premiums paid as

part of this policy in earlier years?- Yogesh Shahane

This being a pension policy,

the entire surrender proceeds

would be added to your income

and taxed as per your income

slab. It does not matter if you

have availed deduction earlier

for the investment into the

policy, as these are dealt

through two different sections in

The Income Tax Act; and there is

no such condition specified in

the relevant sections of the Act.

Can you please tell me tax payable

on following transaction? I have

invested in ICICI Prudential Super

Pension plan. I have not claimed

deduction for the same u/s

80CCC/80C.

Now I want to redeem the plan

before maturity. Please advise on:

What will be tax payable if redeemed

before maturity?

A:

Q:

What will be tax payable on receipt

of maturity?- C.B. Dushi

Please refer the answer to the

previous question, which will

answer your first question. To

answer your second question,

when you withdraw pension

plans on maturity, usually, you rdcan withdraw upto 1/3 of the

maturity proceeds as lumpsum,

which will be exempt from tax; rdthe balance 2/3 of the maturity

proceeds will be converted to

annuity, hich will be added to

your income on receipt and

taxed as per your income slab.

As you may be aware the Bank FD

rates has been shrinked off quarter

on quarter, what is the alternate and

best option to get a reasonable

return? What is the difference

between MIP and FMP products and

which are good funds to start invest

on? What is the applicable tax on

them? What otheral ternate

investment you can suggest.Vasanth L. Iyer

If you are looking to invest

only into debt instruments, apart

A:

Q:

A:

37

ASK OUR PLANNER


from Bank Fixed Deposits, there

are a few more options

available. There are non-

convertible debentures (NCDs)

& Fixed Deposits offered by

various corporates. Some of

them offer much higher yield,

when compared to a Bank Fixed

Deposit. However, you should

always check out the credit

rating of these issues and invest

into a high credit rated

instrument.

Fixed Maturity Plans (FMPs) are

similar to Bank FDs with a fixed

term; however, the capital gains

earned on FMPs with a term of

more than 36 months attracts a

lower taxation i.e. 20% with

indexation; the net tax rate after

considering indexation is much

lesser. FMPs are close-ended

schemes.

Monthly Income Plans (MIPs)

are most ly open-ended

schemes and invest mostly into

debt instruments with a little

portion around 10 to 15%

diverted into equity. This helps

MIPs to provide a slightly higher

return than a debt mutual fund;

the taxation part remains the

same as a FMP or any other debt

mutual fund. To know the best

funds under this category, you

can visit Research section of

ICICIdirect.com.

If you are looking for alternation

options in debt for a term of 3

years or more, debt mutual

funds and MIPs are the best bets

which offer betterpost-tax return

than a Bank Fixed Deposit.

Do you also have similar queries to ask our experts? Write to us at: [email protected].

MUTUAL FUND ANALYSIS

38

3 Balanced Funds to Consider


ICICI Prudential Balanced Fund

Fund Objective:The primary investment objective of the Scheme is to seek to generate long term capital appreciation and current income from a portfolio that is invested in equi ty and equity re lated securities as well as in fixed income securities. However, there can be no assurance that the investment objective of the Scheme will be realized.

Key Information:

Product Label:

This product is suitable for investors who are seeking*:

• long-term wealth creation solution

• a balanced fund aiming for long term capital appreciation and current income by investing in equity as well as fixed income securities

In current market scenario where the equity market has run up sharply in a short period of time, and the medium to long term outlook remains positive, balanced funds are ideally placed. Balanced funds are suitable for all types of investors.

Balanced funds are hybrid funds that invest in a mix of equity and debt instruments. Balanced maintain around 65-70% exposure to equity markets while the rest is maintained in debt instruments. Balanced funds do well when stock markets are going through a difficult phase as they have a cushion of debt. So, they are better equipped to withstand shocks in falling markets. However, when stock markets are rising, they may not do as well as funds with 100% equity component but perform better than debt funds. Capital gain tax on balanced funds is similar to equity funds viz. exempt after one year and 15% if sold before one year. Debt funds are mainly comprised of government securities or good credit quality corporate bonds. Therefore credit risk is very low in the debt portfolio.

Investors can look to invest in the following funds: HDFC Balanced Fund, ICICI Prudential Balanced Fund, and SBI Balanced Fund.

NAV as on July 12, 2016 ( ) 99.4

Inception Date November 3, 1999

Fund Manager Sankaran Naren

Minimum Investment (`)

Lumpsum 5000

SIP 1000

Expense Ratio (%) 2.33

Exit Load NIL upto 20% of units and for remaining - 1% on or

before 1Y, Nil after 1Y

Benchmark CRISIL Balanced Fund - Aggressive Index

Last declaredQuarterly AAUM(` cr) 3018

`

Fund Manager: Sankaran Naren

Mr. Sankaran Naren has a B. Tech degree from IIT Chennai and MBA from IIM Kolkata. He joined ICICI Prudential AMC in 2004.

39



Performance:The fund has consistently outperformed its benchmark over a period of time. The fund has delivered a CAGR return of 15.9% over a period of 5 years

as against benchmark return of 9.4%. Except for 2007, 2008 and 2009, when the marginally underperformed, the fund has outperformed its benchmark in all years.

2015 2014 2013 2012 2011

92.1 90.2 61.9 55.7 43.1

2.1 45.6 11.2 29.4 -9.3

0.5 25.3 6.1 21.3 -14.4

2569 1515 630 410 300Net Assets ( Cr)`

Return (%)

NAV as on Dec 31 ( )`

Benchmark (%)

Calendar Year-wise Performance

Performance vs. Benchmark

Fund Benchmark

12.1

7.6

20.7

15.9

10.8

5.2

11.5

9.4

0

5

10

15

20

25

6 Month 1 Year 3 Year 5 Year

Retu

rn%

ICICI Prudential Balanced Fund

Benchmark

30-Jun-15 30-Jun-14

6.70 17.06 41.23

Fund Name30-Jun-15 30-Jun-14 30-Jun-13

30-Jun-16

3.12 10.58 20.99

Last Three Years Performance

Portfolio:The fund seeks to optimize the r i sk-ad jus ted re turn by distributing assets between both equity and debt markets. In bullish markets equity allocation can go up to 80%. In bear i sh marke ts equ i ty allocation can go down to 65%. This dynamic allocation along with core debt portfolio

reduces the volatility of return.

The equity portion of the fund is managed as a largecap biased diversified portfolio. The stock selection by the fund manager is a key here. The fund manager does not hold typical largecap holding as is common in many diversified

Our View:

40



schemes. The fund hold high potential largecap stocks with the objective for long term wealth creation. Balanced

funds in general are ideal funds for conservative investors who want equity participation with low volatility.

%

10.5

5.5

4.3

4.2

4.2

4.1

4.1

4.0

3.9

3.6

08.60% GOI - 02-Jun-2028 Government Securities

07.59% GOI 2029 Government Securities

HCL Technologies Ltd. Domestic Equities

Cipla Ltd. Domestic Equities

Reliance Industries Ltd. Domestic Equities

Bharti Airtel Ltd. Domestic Equities

CBLO Cash & Cash Equivalents

Nifty Index Derivatives-Futures

Power Grid Corporation Of India Ltd. Domestic Equities

Coal India Ltd. Domestic Equities

Top 10 Holdings Asset Type

%9.8

9.8

8.7

6.4

6.3

4.5

4.2

4.1

4.1

3.3

Oil Exploration Domestic Equities

Mining & Minerals Domestic Equities

Refineries Domestic Equities

Telecommunication - Service Provider Domestic Equities

Finance - Investment Domestic Equities

Top 10 Sectors Asset TypeBank - Private Domestic Equities

Power Generation/Distribution Domestic Equities

Pharmaceuticals & Drugs Domestic Equities

Index Derivatives-Futures

IT - Software Domestic Equities

12.841.040.010.856.19

Sharpe ratioR SquaredAlpha (%)

Risk ParametersStandard Deviation (%)Beta

60.515.1

3.4Small

Market Capitalisation (%)LargeMid

%

1

0.9

Whats In

Infosys Ltd.

Axis Bank Ltd.

%

0.4

1

0.9

Whats out

Vedanta Ltd.

Larsen & Toubro Ltd.

Motherson Sumi Systems Ltd.

41



SIP Performance(Value if invested 5000 per month (in'000))`

60 1

80 300

600

65.8 228.

3 466.

1

1288.

3

64.6 208.

8

393

979.4

0

200

400

600

800

1000

1200

1400

1Yr 3Yrs 5Yrs 10Yrs

Total Investment Fund Value Benchmark Value

40.048.319.9

--3.2

Fund P/E RatioBenchmark P/E RatioFund P/BV Ratio

Portfolio AttributesTotal StocksTop 10 Holdings (%)

69.319.011.8Cash

Asset AllocationEquityDebt

May-23-2016 1.2Apr-20-2016 1.2Mar-21-2016 1.2

Jun-20-2016

Dividend History

Date Dividend (%)

1.2

Feb-22-2016 1.2Jan-18-2016 1.5

42



Data as on July 12,2016 ;Portfolio details as on Jun-2016 ICICIdirect Research

Performance of all the schemes managed by the fund manager

30 -Jun-15 -14 -13

30 -Jun-16 30 -Jun-15 30 -Jun-14

30 -Jun 30 -JunFund Name

ICICI Pru Gold ETF 17.90 -5.72 9.79

Gold-India -- -5.61 12.32

ICICI Pru Regular Gold Savings Fund(G) 13.11 -6.31 9.75

Gold-India -- -5.61 12.32

ICICI Pru Value Fund-3(D) 12.48 11.72 –

S&P BSE 500 -- 11.36 –

ICICI Pru Gilt-Invest-PF(G) 11.49 12.91 1.47

I-Sec Li-BEX -- 13.34 1.67

ICICI Pru Long Term Plan-Ret(G) 11.06 12.61 13.30

Crisil Composite Bond Fund Index -- 11.10 4.55

ICICI Pru Income(G) 10.43 10.64 1.33


ICICI Pru Short Term Plan(G) 9.38 9.21 7.84

Crisil Short Term Bond Fund Index -- 9.56 8.76

ICICI Pru Income Opportunities Fund(G) 9.15 11.01 5.08


ICICI Pru Multicap Fund(G) 8.07 19.13 45.74

S&P BSE 200 -- 12.01 34.45

ICICI Pru Balanced Advantage Fund(G) 7.31 15.23 31.21

CRISIL Balanced Fund - Aggressive Index -- 10.58 20.99

ICICI Pru Equity Income Fund(G) 7.16 -- –

ICICI Pru Value Fund-1(D) 6.72 13.18 –

S&P BSE 500 -- 11.36 –

ICICI Pru Balanced Fund(G) 6.70 17.06 41.23

CRISIL Balanced Fund - Aggressive Index -- 10.58 20.99

ICICI Pru Top 100 Fund(G) 5.79 7.42 47.67

NIFTY 50 -- 9.95 30.28

43


SBI Balanced Fund

Fund Objective:To provide investors long term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. The scheme will invest in a diversified portfolio of equities of high g rowth compan ies and balance the risk through investing the rest in a relatively safe portfolio of debt.


Key Information:

This product is suitable for investors who are seeking*:

•

• Investment in a mix of debt and equity through stocks of high g r o w t h c o m p a n i e s a n d relatively safe portfolio of debt to provide both long term

long-term capital appreciation

NAV as on July 12, 2016 ( ) 101.7

Inception Date January 6, 1996

Fund Manager R. Srinivasan, Dinesh Ahuja


Lumpsum 5000

SIP 1000


Exit Load Nil for 10% of investments and 1% for remaining

investment on or before12M, Nil after 12M

Benchmark CRISIL Balanced Fund -Aggressive Index

Last declared QuarterlyAAUM(` cr) 5184

`

Product Label:

Fund Manager: R Srinivasan

Mr. Srinivasan

Performance:

is M.com and MFM. He has been working with SBI AMC since 2009. Prior to joining SBI he has worked with Principal PNB AMC, Motilal oswal, etc

The fund has been an excellent performer in the last 5 years. The fund got off to a great start and then had a difficult time from 2008 to 2011. Since then, this scheme has made a strong comeback. The fund has outpaced the benchmark and its peers in the last five years. The fund has fared very well against both the benchmark and the peers over three and five years.

44



2015 2014 2013 2012 2011

230.4 214.6 149.8 134.0 99.2

7.4 43.2 11.9 35.0 -22.2

0.5 25.3 6.1 21.3 -14.4

3242 1226 456 364 377

Return (%)



Benchmark (%)

Net Assets ( Cr)`

Portfolio:It maintains a 75-25 equity-debt mix. The equity part is multi cap, with 40-50% of the equity portion, in large caps (defined as the top 100 companies by market cap) and the rest in mid and small caps. Some offbeat mid-cap picks are used to spice up returns. The equity portion features a mix of large- and mid-cap stocks, with a mix of both defensives and cyclicals. About 40 to 50% of the debt

portion is deployed in high yielding credits to improve income. The balance is managed using G-secs and liquid AAA bonds, while keeping in mind the overall view on interest rates. The fund rebalances on a daily basis and caps cash calls at 7.5 per cent.

Consistency in the mandate and the strategy has been evident from 2009 and this has paid off by way of a good show across market phases. The

Our View:


Fund Benchmark

7.1

6

21.1

15.5

10.8

5.2

11.5

9.4

0

5

10

15

20

25


Retu

rn%

SBI Magnum Balanced Fund

Benchmark

30-Jun-15 30-Jun-14

5.59 23.63 37.28



30-Jun-16

3.12 10.58 20.99

45



multicap approach to equity portfolio offers a good blend of stability and growth to the portfolio. SBI as an AMC has improved significantly over the

last few years in its investment processes and approach. The performance of most of the funds across category has improved significantly over the last few years.

%

6.8

5.2

4.7

4.3

3.7

3.3

2.9

2.6

2.5

2.4



07.68% GOI - 15-Dec-2023 Government Securities

State Bank Of India Domestic Equities


HDFC Bank Ltd. Domestic Equities

Infosys Ltd. Domestic Equities

Divis Laboratories Ltd. Domestic Equities


07.61% GOI - 09-May-2030 Government Securities

eClerx Services Ltd. Domestic Equities

%8.4

7.4

6.8

3.7

3.4

3.3

2.4

2.3

2.2

2.2

Finance - NBFC Domestic Equities

BPO/ITeS

Asset Type

Domestic Equities

Power Generation/Distribution Domestic Equities

Bank - Public Domestic Equities



Bank - Private Domestic Equities

Top 10 Sectors

Cement & Construction Materials Domestic Equities

Mining & Minerals Domestic Equities

Household & Personal Products Domestic Equities

10.470.890.010.789.36

Standard Deviation (%)BetaSharpe ratioR SquaredAlpha (%)

Risk Parameters

32.025.712.3Small


Dividend History

Date Dividend (%)Jun-24-2016 6

Jun-26-2015 9Mar-20-2015 10

Mar-23-2016 6.5Dec-23-2015 7Sep-24-2015 9

46




%

1.6

0.8

0Mahanagar Gas Ltd.

Whats In

Bajaj Holdings & Investment Ltd.

Maruti Suzuki India Ltd.

%

0.5

2.40.4

Whats out

Hero MotoCorp Ltd.

ICICI Bank Ltd.Orient Refractories Ltd.

49.0

38.4

27.2--

5.3

Portfolio Attributes

Total Stocks

Top 10 Holdings (%)

Fund P/E Ratio

Benchmark P/E Ratio

Fund P/BV Ratio

68.729.61.7Cash

Asset AllocationEquityDebt

SIP Performance (Value if invested 5000 per month (in'000))`


60 1

80 300

600

64.2 228.

9 473.5

1236.

9

64.6 208.

8

393

979.

4

0

200

400

600

800

1000

1200

1400

1Yr 3Yrs 5Yrs 10Yrs

NAV as on July 12, 2016 ( ) 116.2

Inception Date September 11, 2000

Fund Manager Chirag Setalvad


Lumpsum 5000

SIP 0


Exit Load NIL upto 15% of investment and 1% in excess of 15%

of investment on or before1Y, NIL after 1Y

Benchmark CRISIL Balanced Fund- Aggressive Index

Last declared QuarterlyAAUM(` cr) 6207

`

47


HDFC Balanced Fund

Fund Objective:The primary objective of the Scheme is to generate capital appreciat ion along with current income f rom a combined portfolio of equity & equity related and debt & money market instruments.


Key Information:

Product Label:

This product is suitable for

investors who are seeking*:

•

current income over long term.

Capital appreciation along with

Fund Manager: Chirag Setalvad

Mr. Chirag Setalvad

Performance:

has Bachelor

in Science degree in Business

Administration from University

of North Carolina. He has been

with HDFC Mutual Fund since

2007.

The fund has been a consistent

performer over a longer period

of time. 3 year and 5 year

returns show it to be outpacing

the benchmark by 6-12

percentage points. The fund's

ten-year record is quite

comparable to pure equity

funds. Despite its aggression,

the fund has contained

downside well in the bear

markets of 2011 and 2008,

relative to its peers. On the

debt side, the focus is on

playing duration calls, with no

risks on credit quality.

•

equity and equity related

instruments with balance

exposure to debt and money

market instruments

Investment predominantly in

48



2015 2014 2013 2012 2011

108.5 105.3 69.5 63.9 50.5

3.0 51.5 8.8 26.6 -10.6

0.5 25.3 6.1 21.3 -14.4

4911 3087 1208 1101 496Net Assets ( Cr)`

Return (%)


Benchmark (%)



Fund Benchmark

10.9

7.8

23.4

15

10.8

5.2

11.5

9.4

0

5

10

15

20

25


Retu

rn%

HDFC Balanced Fund

Benchmark

30-Jun-15 30-Jun-14

5.97 18.07 49.60


30-Jun-16

3.12 10.58 20.99


Portfolio:The fund is an ideal long term balanced fund. It is aggressive in nature among its peers and makes the most of bull markets. This fund maintains a more or less steady-state asset allocation between equities and debt, with a 70-72 per cent equity allocation, which is higher than that its peers. The fund avoids cash calls and dynamic changes in allocation. The debt portion is invested mainly in good-quality bonds,

recently extending duration to take advantage of falling interest rates.

The fund maintains slightly higher equity allocation as compared to its peers and does not take cash calls. This makes the fund slightly more aggressive as compared to its peers. The value investment a p p r o a c h f o r e q u i t y investment makes it good long term balanced fund. The debt portion does not take ant

Our View:

49



%

5.2

4.9

4.8

3.6

3.3

3.2

2.8

2.8

2.8

2.5


Larsen & Toubro Ltd. Domestic Equities

08.28% GOI - 21-Sep-2027 Government Securities

ICICI Bank Ltd. Domestic Equities

State Bank Of India Domestic Equities

08.32% GOI - 02-Aug-2032 Government Securities

CBLO Cash & Cash Equivalents

Infosys Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

Reliance Industries Ltd. Domestic Equities


%

12.2

7.1

5.6

4.7

4.6

4.0

2.4

2.3

2.2

1.9


Chemicals Domestic Equities

Cigarettes/Tobacco Domestic Equities

Air Conditioners Domestic Equities

Hotel, Resort & Restaurants Domestic Equities

Top 10 Sectors Asset Type

Bank - Private Domestic Equities


Bank - Public Domestic Equities

Refineries Domestic Equities

Engineering - Construction Domestic Equities

11.931.000.010.848.32

Sharpe ratioR SquaredAlpha (%)

Risk ParametersStandard Deviation (%)Beta

42.515.013.1Small


Mar-25-2015 20Feb-28-2014 12.5

5Mar-29-2016 6Dec-29-2015 5Sep-29-2015 5

Jun-28-2016

Dividend History

Date Dividend (%)

creditrisk and is therefore less risky. The performance may be volatile during a short period of time but is likely to be among better performers over a

longer period of time. The fund, therefore, is best for those willing to take on a little risk for higher returns.

50



Performance of all the schemes managed by the fund manager

-15 -14 -13

30 -Jun-16 30 -Jun-15 30 -Jun-14

30 -Jun 30 -Jun 30 -JunFund Name


SIP Performance (Value if invested 5000 per month (in'000))`


60 1

80 300

600

65.3 232.

1 469.

4

1420.

6

64.6 208.8

393

979.

4

0

500

1000

1500

1Yr 3Yrs 5Yrs 10Yrs

%

0

Whats In

Mahanagar Gas Ltd.

%

0.5

Whats out

Greenlam Industries Ltd.

67.035.919.5

--3.7

Fund P/E RatioBenchmark P/E RatioFund P/BV Ratio

Portfolio AttributesTotal StocksTop 10 Holdings (%)

68.9

24.0

7.2Cash

Asset Allocation

Equity

Debt

HDFC Small and Mid Cap Fund-Reg(G) 10.10 20.32 40.58

NIFTY SMALL 100 -- -1.21 85.40

HDFC Mid-Cap Opportunities Fund(G) 8.60 26.72 70.10

Nifty Free Float Midcap 100 -- 17.24 51.13

HDFC Multiple Yield Fund 2005(G) 7.81 7.59 20.59

Crisil MIP Blended Index -- 11.05 8.24

HDFC Long Term Adv Fund(G) 4.53 11.08 48.59

S&P BSE SENSEX -- 9.31 31.03

51

MUTUAL FUND TOP PICKS

Based on our quarterly rankings, we have updated our mutual fund (MF) top picks recently

Mutual Fund Top Picks

Equity

Largecaps

Midcaps

Diversified

ELSS

Birla Sunlife Frontline equity FundICICI Pru Focussed Bluechip Equity FundSBI Bluechip Fund

HDFC Midcap Opportunities FundFranklin India Smaller Companies FundSBI Magnum Global Fund

Franklin India Prima PlusReliance Equity OpportunitiesICICI Prudential Value Discovery Fund

Axis Long Term EquityICICI Prudential Tax PlanFranklin India Tax shield

Liquid Funds

HDFC Cash Mgmnt Saving Plan ICIC Pru Liquid PlanReliance Liquid Treasury Plan

Ultra Short Term

Birla Sunlife Savings FundReliance Medium Term FundICICI Pru Flexible Income Plan

Short Term

Birla Sunlife Short Term FundHDFC Short Term Opportunities FundICICI Pru Short Term Plan

Credit Opportunities FundBirla Sunlife Short Term Opportunities PlanReliance Regular Savings FundICICI Prudential Regular Savings

Income FundsICICI PrudenIncome FundBirla Sun Life Income Plus - Regular Plan UTI Bond Fund

Gilts Funds

ICICI Pru Gilt Inv. PF PlanBirla Sunlife Constant Maturity 10 year gilt plan

MIP Aggressive

Birla Sunlife Savings 5ICICI Prudential MIP 25DSP Blackrock MIP

Debt


52

Our indicative large-cap equity model portfolio has continued to

deliver an impressive return (inclusive of dividends) of 101.5%

since its inception (June 21, 2011) vis-à-vis the index return of

59.1% during the same period, an outperformance of 42%. This

validates our thesis of selecting companies with sound business

fundamentals that form the core theme of our portfolio. Our

midcap portfolio of 16 stocks outperformed the benchmark by

85% since June 2011. Our consistent outperformance

demonstrates our superior stock picking ability as markets in

CY15 aligned to our view of favourable risk-reward, good

franchisee vs. reward at-any-risk businesses. Some key

performers of our portfolio are Lupin, HDFC Bank and TCS in the

largecap portfolio while Natco Pharma, Cummins and Shree

Cement have delivered stupendous returns in the midcap

portfolio.

We reiterate the SIP (systematic investment plan) mode of

investment as the preferred mode of deployment given the

current volatile market conditions. We highlight that the SIP

return of our portfolio has consistently outperformed the indices.

This affirms our belief in the staggered and systematic approach

of investment amid market volatility.

The initial results of some companies were higher than Street

expectations, indicating a revival in the earnings cycle.

Furthermore, India's eight core industries output expanded 6.4%

YoY (yearon-year) in March 2016, which is the fastest growth in

the last 16 months The countries' top automakers are off to a

strong start in the new financial year with all segments passenger

vehicles (PV), two-wheelers, commercial vehicles (CV) and

tractors reporting strong April sales. These initial upticks are the

lead indicators for an economic revival.

Given the last revamp in the portfolio, we have made minimal

changes in the current edition, to capture the new opportunities

available in the market. Following the same we have reshuffled

EQUITY MODEL PORTFOLIO


53


the weights of some companies. Among large caps, we have

reduced the weight of L&T by 1% and simultaneously increased

the weights in Lupin and Dr Reddy's by 1% each. Furthermore,

affirming our view on consumption demand, we have added

Marico in our large cap portfolio. We believe that as the softness

in commodities continues, oil & gas and metal sectors would

continue to remain under pressure. Following this, we have

exited Tata Steel from large caps Furthermore following the

prospects of a good monsoon we have added Rallis in our

midcap portfolio and exited Castrol.

In the large cap space we continue to remain positive on auto,

infrastructure & cement. Relative to the benchmark index, we are

underweight on BFSI (Banking, Financial services and

Insurance).

We continue to remain underweight on metals and oil & gas with

our only pick being Reliance Industries, which has a better risk-

reward opportunity. We expect PSU (public sector unit) banks to

underperform next year owing to steep asset quality woes

ahead. In the private banking space, we prefer large banks with a

strong retail presence. We continue to remain overweight to

neutral on pure play defensives (IT, FMCG) as secular earnings

coupled with sector rotation could lead to consolidation in near

term valuations and offer stock specific opportunities. We remain

positive on auto, pharm!, capital goods and infrastructure.

Among individual names, we are strongly overweight on Infosys,

TCS in the IT space, HDFC and HDFC Bank in the BFSI space, ITC

and Nestlé in the consumer space and L&T & NBCC in the infra

space.

House view on Index: We expect Sensex EPS to de-grow 3.5% to

1311 in FY16E. However, following the de-growth in two

consecutive year, Sensex EPS is expected to grow 19% in FY17E

to 1559.

`

`


54



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

Auto 14 10

Tata Motor DVR 4 3

Bosch 3 2

Maruti 4 3

Eicher Motors 3 2

BFSI 23 16

HDFC Bank 8 6

Axis Bank 3 2

HDFC 8 6

Bajaj Finance 4 3

Power, Infrastructure & Cement 11 8

L & T 4 3

UltraTech Cement 3 2

Reliance Industries 4 3

FMCG / Consumer 17 12

ITC 7 5

Marico 3 2

Zee Entertainment 2 1

Asian Paints 5 4

Pharma 14 10

Lupin 6 4

Dr Reddys 5 4

Aurobindo Pharma 3 2

IT 21 15

Infosys 10 7

TCS 8 2

Wipro 3 2

Largecap share in diversified 100 70

55



ICICI Securities Ltd has received an investment banking mandate from group company of Larsen and Toubro Ltd. The report is prepared based on publicly available information.

Auto 6 2

Bharat Forge 6 2

BFSI 6 2

Bharat Forge 6 2

Consumer Discretionary 36 11

Symphony 6 2

Supreme Ind 6 2

Kansai Nerolac 6 2

Pidilite 6 2

Interglobe Aviation 6 2

Arvind 6 2

Infrastructure, Defence & Logistics 26 8

NBCC 8 2

Ramco Cement 6 2

Bharat Electronics 6 2

Concor 6 2

FMCG & Agro 14 4

Rallis 6 2

Nestle 8 2

Pharma 12 4

Natco Pharma 6 2

Torrent Pharma 6 2

Midcap share in diversified 100 30

Total of all three portfolios 100 100 100

56

Performance* so far Since inception

*Returns (in %) as on

Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

July 14, 2016

Value of 1,00,000 invested via SIP at the end of every month `

Portfolio Benchmark

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: , 2011; *Value as on June 30 July 14, 2016



101.5

145.6

114.9

59.1 60.4 66.0

0

25

50

75

100

125

150

175

%

6,20

0,00

0

6,20

0,00

0

6,20

0,00

0

8,27

9,86

2

12,0

07,6

83

8,96

0,35

1

6,99

4,17

6

5,68

0,86

1

8,56

9,39

0

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

|

QUIZ TIME

1. Under section 80D, one can save tax up to Rs. _______ towards health insurance premiums paid if assesee and parents both are senior citizens (above age 60 years).

2. Capital gains earned on fixed maturity plans (FMPs) with a term of more than 36 months attract tax of _______ per cent with indexation.

3. The Employees Provident Fund Organisation (EPFO) may invest up to _______ per cent of its investable amount in equities over a period of time.

4. Health insurance premiums tend to go down as one ages. True / False

5. The entire surrender proceeds of a pension policy are taxable. True / False

Note: All the answers are in the stories that have appeared in this edition of ICICIdirect Money Manager. You may send in your answers at: [email protected]. The answers will be published in our next edition. The names of the earliest all correct entries will be published too. So jog your grey cells and be quick to send in your entries.

Correct answers for the June 2016 quiz are:

1. Cabinet has approved big pay hike for government employees. The Seventh Pay Commission had recommended a _______ per cent increase in pay.

A: 23.5%

2. _______companies are in race to manage EPFO's equity investments in Fy17.

A: Seven

3. NRIs are allowed to buy life insurance policies in India. True / FalseA: True

4. The current interest rate offered on Senior Citizens Savings Scheme is _______% p.a.

A: 8.6%

5. Expand ULHIP.A: Unit-linked health insurance plans

Congratulations to the following winners for providing correct answers! K L Lakshmipathi; B S R Murthy; Uma Rengaswamy


58

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

30-Jun-16 31-May-16 Change (%)

CNX Nifty 8287.8 8160.1 1.6%

CNX Midcap 13816.5 13292.7 3.9%

S&P BSE Sensex 26999.7 26668.0 1.2%

S&P BSE 100 8430.0 8276.7 1.9%

S&P BSE 200 3513.8 3442.8 2.1%

S&P BSE 500 11029.5 10761.5 2.5%


Dow Jones 17,930.0 17,787.2 0.8%

S&P 500 2,098.9 2,097.0 0.1%

Nasdaq 4,842.7 4,948.1 -2.1%

FTSE 6,504.3 6,230.8 4.4%

DAX 9,680.1 10,262.7 -5.7%

CAC 40 4,237.5 4,505.6 -6.0%

Nikkei 15,575.9 17,235.0 -9.6%

Hang Seng 20,794.4 20,815.1 -0.1%

Shanghai Composite 2,929.6 2,916.6 0.4%

Taiwan Weighted 8,666.6 8,535.6 1.5%

Straits Times 2,840.9 2,791.1 1.8%


S&P BSE Auto 19,744.6 19,363.3 2.0%

S&P BSE Bankex 20,531.2 20,111.7 2.1%

S&P BSE FMCG 4,570,470 4,343,881 5.2%

S&P BSE Healthcare 15,493.0 15,246.2 1.6%

S&P BSE Metals 8,519.7 7,950.4 7.2%

S&P BSE Oil & Gas 9,721.0 9,322.0 4.3%

S&P BSE Power 1,996.1 1,871.7 6.6%

S&P BSE Realty 1,532.8 1,421.1 7.9%

S&P BSE Teck 6,068.8 6,227.1 -2.5%

59

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Jun-16 Change (bps)May-16

Corporate Bond Yields (in %) Change (bps)Jun-16 May-16

Commercial Paper (CP) Rates (in %) Change (bps)Jun-16 May-16

Treasury Bill (T-Bills) Yields (in %) Change (bps)Jun-16 May-16

Volatility Index (VIX)


VIX 16.29 16.05 1.5%

10 year 7.45 7.47 -2

5 year 7.39 7.45 -6

3 year 7.14 7.23 -9

1 year 7.03 7.05 -2

AAA 10 year 8.36 8.31 5

AAA 5 year 8.18 8.22 -4

AAA 3 year 8.05 8.11 -6

AAA 1 year 7.93 7.95 -2

AA 10 year 9.09 9.09 0

AA 5 year 8.89 8.89 0

AA 3 year 8.69 8.69 0

AA 1 year 8.40 8.40 0

12 Months 8.27 8.31 -4

6 Months 8.08 8.16 -8

3 Months 7.79 7.98 -19

1 Month 7.60 7.73 -13

91D TB 6.65 6.84 -19

182D TB 6.79 6.92 -13

364D TB 6.88 6.93 -5

60

PRIME NUMBERS

10-year benchmark yields (%) across countries

Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)


Month

Index of industrial production (IIP) Sector-wise growth rate (%)

Countries 30-Jun-16 31-May-16 Change in bps

US 1.47 1.85 (38)

UK 0.87 1.43 (56)

Japan (0.22) (0.11) (11)

Spain 1.16 1.47 (31)

Germany (0.13) 0.14 (27)

France 0.18 0.48 (30)

Italy 1.26 1.36 (10)

Brazil 12.07 12.99 (92)

China 2.86 2.97 (11)

India 7.45 7.47 (2)

Items Weights(%) Apr-16 May-16 Jun-16

Food&bev. 45.86 6.29 7.20 7.38

Pan,tob& intox. 2.38 8.04 7.82 7.28

Cloth & Foot 6.53 5.56 5.37 5.01

Housing 10.07 5.37 5.35 5.46

Fuel & light 6.84 3.03 2.94 2.92

Misc. 28.31 4.26 3.96 3.85

CPI 100 5.47 5.76 5.77

Weights Apr-16 May-16 Jun-16

WPI 100.0 0.34 0.79 5.50

Primary Articles 20.1 2.34 4.55 4.55

Fuel & Power 14.9 -4.83 -6.14 -3.62

Manufactured Goods 65.0 0.71 0.91 1.17

May-16 Apr-16 Mar-16 Weight (%)

Mining 1.3 1.1 0.3 14

Manufacturing 0.7 -3.7 -1.0 76

Electricity 4.7 14.6 11.8 10

Total 1.2 -1.3 0.3 100

61

PRIME NUMBERS

Currencies and CommoditiesCurrencies

Commodities

Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research


Mutual Funds: Category Average Returns

Equity Funds Returns (in %)Tenure Diversified Funds Mid-cap &

Small-cap Funds

Large-capFunds

ELSS (Tax-

savingfunds)

Returns as on June 30, 2016

Debt Funds Returns (in %)

Returns as on June 30, 2016

Tenure Liquid Funds Short-termincome funds

Ultra short-term funds

Long-termincome funds

Gilt funds

30-Jun-16 31-May-16 Change (%) Status

USDINR 67.53 67.26 -0.4% Depreciated

EURINR 75.24 75.08 -0.2% Depreciated

GBPINR 90.90 98.36 7.6% Appreciated

AUDINR 50.37 48.84 -3.1% Depreciated

CHFINR 69.17 67.99 -1.7% Depreciated

JPYINR 0.66 0.60 -8.6% Depreciated

CNYINR 10.16 10.21 0.6% Appreciated


Crude ($/barrel) 49.7 49.7 0.0%

Gold ($/ounce) 1,322.2 1,215.3 8.8%

6 months 4.06 3.77 4.65 3.88

1 year 3.35 7.54 0.11 1.64

3 year 21.82 33.08 16.80 20.66

5 year 12.77 19.73 10.52 12.51

6 months 7.65 8.63 8.32 9.04 11.06

1 year 7.68 8.47 8.14 8.78 9.88

3 year 8.44 8.48 8.71 7.72 8.01

62

ICICIdirect Centre for Financial Learning (ICFL) imparts quality education on financial markets to beginners and amateurs, student, housewives, working professionals and self employed. ICFL's broad objective is to make participant feel confident to start investing in stock market.

Here is the list of our programmes scheduled for the month of July, 2016.

Schedule for Beginners' programme on Futures and Options (F&O) TradingSr.No

City Dates For More Information & Registration call:

Premium Education Programmes Schedule


Schedule for Fast-Track Programme on Futures & Options (F&O)Sr.No City Dates For More Information & Registration call:

Sr.No


Schedule for Foundation Programme on Stock Investing

1 Navi Mumbai 16th & 17th July 2016 Kusmakar on 7875442311

2 Pune 23rd & 24th July 2016 Kusmakar on 7875442311

3 New Delhi 23rd & 24th July 2016 Harneet on 9528152693

4 Chennai 23rd & 24th July 2016 Abdul on 8939930837

5 Thane 23rd & 24th July 2016 Kusmakar on 7875442311

6 Mumbai 23rd & 24th July 2016 Kusmakar on 7875442311

7 Jaipur 23rd & 24th July 2016 Harneet on 9528152693

8 Rajahmundry 24th July 2016 Manish on 8451057349 and Shraddha on 8451942818

9 Ahmedabad 24th July 2016 Yogesh on 8238053563

10 Thane 16th & 17th July 2016 Kusmakar on 7875442311

11 Nagpur 16th & 17th July 2016 Kusmakar on 7875442311

12 Hyderabad 16th & 17th July 2016 Manish on 8451057349 and Shraddha on 8451942818

13 Chennai 23rd & 24th July 2016 Abdul on 8939930837

14 New Delhi 23rd & 24th July 2016 Harneet on 9528152693

15 Pune 30th & 31st July 2016 Kusmakar on 7875442311

16 Mumbai 30th & 31st July 2016 Kusmakar on 7875442311

Sr.No


Schedule for Fast-track Programme on Stock Investing

17 Bhubaneshwar 17th July 2016 Jayeeta on 9007391920

Sr.No City Dates For More Information & Registration call:

Schedule for Technical Analysis Programme

18 New Delhi 16th & 17th July 2016 Harneet on 9528152693

19 Chennai 16th & 17th July 2016 Abdul on 8939930837

20 Bangalore 23rd & 24th July 2016 Subrata on 9620001478

63

Contact us

Email:

Send us an email at [email protected] mention the name, date and venue of the programme you have

attended or wish to attend, for faster resolution of your queries.

SMS:

SMS EDU to 5676766 for more details

ICICIdirect Money Manager

Sr.No


Schedule for Fast-track on Technical Analysis Programme

Sr.No


Schedule for Techno Derivatives Programme

Sr.No


Schedule for Advanced Derivatives Trading Strategies Programme

Sr.No


Schedule for Professional Trader & Investor Programme

July 2016

21 Mysore 16th July 2016 Subrata on 9620001478

22 Jodhpur 17th July 2016 Harneet on 9528152693

23 Surat 24th July 2016 Yogesh on 8238053563

24 Pune 16th & 17th July 2016 Kusmakar on 7875442311

25 New Delhi 16th & 17th July 2016 Harneet on 9528152693

26 Kolkata 23rd & 24th July 2016 Jayeeta on 9007391920

27 Coimbatore 23rd July 2016 Subrata on 9620001478

28 Salem 16th July 2016 Subrata on 9620001478

29 Mysore 16th July 2016 Subrata on 9620001478

30 Chennai 23rd & 24th July 2016 Subrata on 9620001478

31 Erode (Tirupur) 23rd July 2016 Subrata on 9620001478

32 Tirunelveli 30th July 2016 Subrata on 9620001478

33 Kolkata 15th to 19th July 2016 Jayeeta on 9007391920

34 Pune 22nd to 24th July 2016 Kusmakar on 7875442311

35 Bangalore 29th July to 2nd Aug 2016 Subrata on 9620001478

36 Chandigarh 29th July to 2nd Aug 2016 Harneet on 9528152693

37 Chennai 30th & 31st July 2016 Abdul on 8939930837

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