MOSt Advisor November 2016 - Motilal Oswal · England, Bank of Japan or Federal Reserve of USA....

AdvisorMOStMonthly Markets Newsletter

In This Issue

• Market Outlook for the month

• Investment Ideas

• Equity Market Outlook

• Derivatives & Commodities Market Outlook

• Model Advisory Portfolios

• Recommended Funds

• Bond

Dear Investor,

Samvat 2073: Indian equities seem to be on a cusp of new

growth trajectory enabled by several policy measures being

taken and implemented so far. Monsoons have been near

normal which is likely to boost agriculture dependent rural

income. Domestic cyclicals have turned from being earnings

dragger to earnings driver while global cyclicals growth

momentum is maintained. Though, markets continued to consolidate in Oct'16 after

a sharp 24% run-up in six months over Feb-Aug'16. 2QFY17 earnings update so far

has been encouraging. 90 MOSL Universe companies and 30 Nifty companies have

declared their 2QFY17 results as of November 1st, 2016. The companies that have

declared results so far comprise (a) 67% of estimated PAT for MOSL Universe and

69% of estimated PAT for Nifty, and (c) 48% of Indian market cap. Key take away

being in line head line numbers with much better internals. MOSL universe has

reported Sales, EBITDA and PAT growth of 3.6%, 15% and 13%, against expectations

of 3.1%, 13.4% and 8.6%, respectively. Nifty (30 Companies): Sales grew 5.8% YoY

(v/s estimate of 4.4% YoY), EBITDA grew 9.4% YoY (v/s estimate of 8.1% YoY) and

PAT grew 7.4% YoY (v/s estimate of 3.4% YoY). Major Earning surprises were from

Maruti, ONGC, Grasim and HCL Tech.

Globally equity asset gained traction in October. Brazil and Japan were outperformers

delivering 10% and 5% returns, respectively. Central bankers across the globe

maintained status quo on liquidity enhancing policy measures be it ECB, Bank of

England, Bank of Japan or Federal Reserve of USA. Markets are now focused on

outcome of US Presidential election. Major concern which may plague equity asset

class are continuous slowdown of global economy, US interest rate hikes which may

make USD stronger and hence FII's likely to pull out of emerging markets and

geopolitical issues particularly between India & Pakistan.

Outlook: Indian equity offering stand on firm footing when compared to most of

its global peers. 2QFY17 earnings so far have been good. Key sectors to watch out

for are Automobiles, NBFCs, Metals, Cement, Banks, Infra and Capital Goods. We

maintain our stance positive outlook on markets and advocate sticking to our QGLP

philosophy for deploying money into quality stocks.

Global Market

Index 31-Oct 16 MoM (%) YoY(%)

Sensex 27,930 0.2 4.8

Nifty 8,626 0.2 6.9

FTSE 6,954 0.8 9.3

Dow 18,142 -0.9 2.7

Nasdaq 5,189 -2.3 2.7

Hang Sang 22,935 -1.6 1.3

Economic Pulse

Thought for the month

Dharmesh Kant

Vice President- Head Of Retail Research

Key Highlights for the Month

Better 2QFY17 Earnings, so far!

US Interest Rate Hike Deferred

November 2016

Key Indicators Current Mth Pre. Mth

IIP -0.7% -2.4%

WPI 3.57% 3.74%

10 Year Yield 6.79% 6.81%

USD/ INR 66.78 66.61

Crude ($) 48.3 49.06

Gold (10 gms) 30049 31175

1


BUY

LIC Housing Finance

CMP*: INR 588

Target: INR 748

√ LICHF is the 2nd largest housing finance company with 10% market share in India

√ LICHF has a granular loan book with retail home loans comprising 88 % of the book and

the LAP comprising an additional 10% of the book. Around two-thirds of loan

sourcing is from LIC agents

√ Owing to the falling interest cycle, LICHF will reap significant benefits from refinancing

over next few quarters

√ We estimate 22% EPS CAGR over FY16-19 with consistent RoEs of ~20% which should

drive re-rating. Buy with a target price of INR748 (2.7x Sep 2018E BV)

On This Page

Investment Ideas

Must Act

Investment Ideas

√ SCUF has successfully evolved as a multiproduct lender over the past decade. Core focus

of the company is towards small enterprise loans where it has market share of over 40%

√ The period FY13-15 was marked by rebalancing of loan book away from gold loans to

more of small enterprise and two wheeler loans. We expect SCUF to deliver 20% CAGR

in AUM over FY16-19E vs 7% CAGR during FY13-16.

√ Buy with a target price of INR3000 comprising of INR 2,865 from the standalone busi-

ness (valued at 3.0x Sep 2018) and INR 135 from housing finance subsidiary.BUY

Shriram City Union Finance

CMP*: INR 2591

Target: INR 3000

√ BEL is well positioned to benefit from the rising defense expenditure supported by a)

strong manufacturing base and execution track record, b) relationship with defense and

government agencies, c) strategic collaboration with foreign technology partners d) in-

house R&D (R&D spend at 8.2% of revenues) and e) Increased focus on exports.

√ BEL enjoys a robust order book - to - sales position of over 4.6x. Key orders like Akash

missile system weapon locating radar, tactical communication system, mobile cellular

communication system, electronic warfare systems, advanced composite communica-

tion system and commander TI sights are likely to be finalized in coming months which

would further strengthen the order book. Buy with a target of INR1,480 (21x FY18E EPS.

Bharat Electronics Ltd.

CMP*: INR 1327

Target: INR 1450

BUY

√ AMRJ is India's second-largest lead-acid battery manufacturer (next to market leader EXID),

with market leadership in telecom and UPS segments.

√ Company aims to increase its share in the OEM & replacement segments to 40% (from

30%) and 30% (from 24%) respectively over the medium term. In the telecom segment,

AMRJ expects to maintain its market share at current levels (60% currently).

√ The company is ideally poised with stable competitive environment, significant FCF gen-

eration (~INR2.6b over FY16-18), earnings growth of 20% over FY16-18E and stable RoE

of 25% -coupled with potential shift from unorganized to organized players when GST

rolls out. Buy with a target price of ?INR1,038 ( ?25x FY18E EPS) Data as on 31st October 2016.

BUY

Amara Raja Batteries

CMP*: INR 1026

Target: INR 1257

November 2016

2


Sectoral Highlights

On This Page

Equity Market Outlook

Markets & Our Recommendations

Equity Market Outlook

√ Nifty remained gyrating within the expected range throughout the Octo-

ber series & ended the month on a flat note with a modest gain of 0.31%.

√ MSCI emerging market index has been consolidating well and augurs well

for the nifty while a decline only below the threshold support of 870,

could be an alarm. On the monthly scale the 'Spinning Top' formation

serves as a sign of 'make or break' situation & a decisive breach outside its

range could unfold directional momentum. The index remained confined

within its previous months range throughout the October series expiry. The

sequence of narrow range bodies post the July run up augurs well for the

continuation formation. The pattern resembles a 'Rising Three' formation &

could witness sharp upward momentum in the current expiry.

√ On the daily scale multiple reversal patterns confirmed the support zone at

8500. The recent upmove post the 'Bullish Hammer' formation re-con-

firmed the support & the ongoing contraction now seems mature for a

breakout. Post contracting for almost two months now a breach outside

the pattern could unleash directional momentum. A sustained breakout

above 8730 could see an immediate movement towards 8880.

√ Amongst sectors there is no sector which is apparently displaying major

weakness as Energy, Mid & Small cap, Auto & Media could continue

to witness steady up move while Pharma is displaying signs of a trend

reversal.

Technical Outlook

Pharma Positive Auro Pharma Buy / 811

Oil & Gas Positive IGL Buy / 860

Media Positive Sun TV Buy / 547

Bank Positive Indusind Bank Buy / 1199

Sector Our Views Top Pick MBP/MSP

Note: #Technical view for 1 month perspective,

MSCI EMERGING MARKET INDEX

Nifty Monthly (Expiry)

Nifty Daily

November 2016

3

Detailed report available on- http://ftp.motilaloswal.com/emailer/Marketdiary/QuantitativeMonthly/MOStQuantitativeOutlookMonthly-November2016.pdf

Data as on 31st October 2016.


On This Page

Derivatives Market Outlook,

Commodities Market Outlook

Markets & Our Recommendations

Derivatives Market Outlook

√ October series continued sideways activity in the range of 8500-8800 with no clear trend is place. Nifty ended marginally up 0.25% E-o-E (last

3 expiry saw closing near 8600) while Banknifty was up ~1.5% E-o-E. Rollovers were in line with 3 month average. Market wide roll was 82%

V/s 80%. Nifty roll 67% V/s 67% and Banknifty roll 66% V/s 68%. Stock specific activities were in limelight across sectors. Considering robust

market rollover, stock specific activity could continue to prevail in November series too. Open interest activity shows accumulation in Media,

Two Wheeler, Power, Oil & Gas along with positive price activity

SECTORS OI Nifty- Ratio Call Spread

Buy 8650 CE 1lot ; Sell 8800 CE 2 lot

Target: INR6300 SL: INR1500 Hedge: Buy future above 8900

√ Nifty is oscillating in band of 8500-8800 from past couple of

expiries

√ Strong support at 8500 raises expectation for an up move

√ Unwinding in 8600 CE could see momentum picking up

√ Considering Bullish outlook, Ratio Call Spread is recommended

Commodities Market Outlook

√ Gold prices slumped sharply last month on a resurgent dollar and increased expectations of a Fed rate hike. US data over the last couple of

months has broadly supported a case for a rate hike in December and reduced appeal for gold.

√ Investment demand has been subdued in the last three months with global ETF holdings barely increasing last month while speculative longs

also saw big liquidation last month. Physical demand was weak until September but has shown signs of pick up in the festive season in India

with domestic prices flipping into a premium compared to global prices.

√ We believe that the short term outlook for gold is contingent on the outcome of the US Presidential election. We have already seen a jump in

prices as Donald Trump's chances improved and an election outcome in favor of Trump could induce significant volatility in global markets akin

to the reaction after the Brexit vote. Such fears could keep precious metals well bid and take prices towards highs seen earlier this year.

√ Gold will also benefit from the fact that a Trump win will deter the Fed from hiking rates this year. From a longer term perspective, even if the

Fed hikes in December, the pace of subsequent rate hikes is going to be glacial and prevent any major correction in prices.

√ Overall, the gold bull trend is intact but intermittent price corrections and consolidation can be expected until we get any meaningful triggers

for a fresh rally. In terms of price outlook, downside looks limited from current level and thus dip towards supports around 28500-29000

would be an opportunity to create longs with potential target near INR 31900-32400 zone

Gold

November 2016

4

√ Long built up: Mainly Auto Ancilliary, Two wheeler, Oil & Gas, Media and Power.

Average rollover of 85% was witnessed in these sectors

√ Short built up : Shorts is Tyre. Below average Roll-over of 79%

√ Accumulation in Pharma with in line roll-over of 82%

√ Short covering: FMCG, Engineering, Chemical and Cement witnessed positive price

activity however open interest reduced MoM. Above average rollover ~82%


On This Page

MOSt Value, MOSt Velocity, MOSt Mid-Cap

Build a Portfolio

MOSt Multi Cap - Model Portfolio for Investors

Scrip CMP Wtg.

Ultratech Cement 3964 10

LIC Housing Fin 588 10

Hero Motocorp 3352 10

Zee Entert 518 10

HDFC Bank 1253 10

CG Consumer Elec 185 5

Manpasand Beverages730 5

Can Fin Homes Ltd 1864 5

PVR Ltd 1229 5

Granules India Ltd 123 5

P I Industries Ltd 865 5

TVS Motor 409 5

SRF Ltd 1827 5

Shriram City Union Fin2591 5

Castrol India Ltd 458 5

Total 100

Sectoral Allocation

November 2016

5

MOSt Velocity 10 - Model Portfolio for Positional Traders

Scrip CMP Wtg.

Bharti Airtel 319 10

Auro Pharma 818 10

Infosys 1002 10

Emami Ltd 1204 10

LIC Housing Finance 588 10

IndusInd Bank 1195 10

Bank of Baroda 156 10

Shriram City Union Fin2591 10

Cash 20

Total 100

Sectoral Allocation

For Whom : Long Term Investors

Investment Duration : Few months to a year

Risk Profile : Moderate Investors

For Whom : Medium Term Investors

Investment Duration : Few months horizon

Risk Profile : Moderate Investors

Returns 3mth 6mth 12mth

Portfolio 6.4% 18.8% 13.5%

BSE 200 3.2% 14.7% 10.7%

Scrip CMP Wtg. Sectoral Allocation

What’s In

For Whom : Long Term Investors

Investment Duration : Few months to a year

Risk Profile : Aggressive Investors

MOSt Mid Cap- Model Portfolio for Aggressive Investors

Manpasand Bev. 730 10

Can Fin Homes 1864 10

PVR 1229 10

Granules 123 10

PI Inds. 865 10

SRF 1827 10

TVS Motors 409 10

Shriram City Union 2591 10

Castrol 458 10

CG Consumer Elec 185 10

Total 100

Shriram CityUnion Fin.

√ Portfolio requirement to INR 10 Lakhs

√ 50% Large-caps and 50% in our MIDCAPs portfolio

√ 15 companies to invest in at the maximum, 10 minimum

√ 5 Large-caps that are suitable for SIP investments also

√ 1 Semi Large-cap from our MIDCAP portfolio

√ 10 stocks in the MICAPS space

√ Adheres to our QGLP philosophy

We are recommending a MULTI-CAP approach instead of a MIDCAP

approach. The Multi-cap INVESTMENT portfolio will have the

following characteristics:

Data as on 31st October 2016.

What’s In

What’s Out

What’s OutIndo Count Ind.

Shriram CityUnion Fin.

Indo Count Ind.


On This Page

MOSt PMS, MOSt Mutual - Model Portfolio

Managed Funds

November 2016

6

MOSt PMS Top Holdings in Value Strategy

√ Inception date:- 25th March 2003.

√ The Strategy aims to benefit from the Long term compounding effect on investments done

in good businesses, run by great business managers for superior wealth creation.

√ Value Strategy has the investment style of buying Undervalued stock & Sell overvalued

stocks, irrespective of Index Movements.

√ INR 1 Cr invested in Value PMS in March 2003 is worth Rs. 22.07 Crs vs. 8.54Crs in Nifty

50.

√ Since its inception, Value Strategy has delivered annualized returns of 25.52% vs. Nifty 50

returns of 17.06%, an outperformance of 8.5% (CAGR).

Value Strategy Scrips % Holdings

Bharat Petroleum Corporation 9.38

Bosch 8.65

Sun Pharmaceuticals 8.55

HDFC Bank 8.24

Kotak Mahindra Bank 8.10

Sector Allocation % Holdings

Banking & Finance 27.41

Auto & Auto Ancillaries 26.10

Oil and Gas 9.38

Pharmaceuticals 8.55

FMCG 7.38

NTDOP Strategy

√ Inception date:- 5th Dec 2007.

√ The strategy aims to deliver superior returns by investing in focused themes which are part

of the next Trillion Dollar GDP growth opportunity. It aims to predominantly invest in Mid

Cap stocks with a focus on Identifying Emerging Stocks/Sectors.

√ The strategy aims to capitalize on the themes of Consumerism, Banking & Financial Services

& Infrastructure in the Indian Economy.

√ In last three year, strategy has delivered a return of 44.16% CAGR vs. NIFTY Freefloat

Midcap 100 is 28.93% CAGR i.e., NTDOP has delivered an alpha of 15.23%.

Top Holdings in NTDOP Strategy

Scrips % Holdings

Bajaj Finance 15.86

Hindustan Petroleum Corporation 14.56

Page Industries 7.84

Eicher Motors 6.49

Voltas 6.22

All the above figures are of a model client. Returns shown above are calculated on NAV method "Returns shown above arepost fees & expenses". Past performance may or may not be sustained in future. Data as on 31st October 2016.



Oil and Gas 16.61

FMCG 15.37

Auto & Auto Ancillaries 14.67

Diversified 6.22

India Opportunity Portfolio Strategy

√ Inception date:- 15th Feb 2010.

√ The Strategy aims to benefit from the long term compounding effect on investments done

in good businesses, run by great business managers for superior wealth creation.

√ In last 1 year, IOP Strategy has delivered a returns of 45.58% vs. BSE 200 returns of 10.43%,

i.e. delivered an alpha of 35.15%

√ Focus Theme for Next Five year: REVIVAL IN CAPEX CYCLE | MAKE IN INDIA | THIRD

TRILLION DOLLAR OPPORTUNITIES

√ Investment Approach: Buy & Hold

√ Investments with Long term perspective

√ Maximize post tax return due to Low Churn

Top Holdings in IOP Strategy

Scrips % Holdings

Development Credit Bank 11.28

Birla Corporation 10.73

Canfin Home 10.02

TTK Prestige 8.25

Aegis Logistics 7.26



Pharmaceuticals 14.24

Cement & Infrastructure 14.12

Consumer Durable 13.94

Oil and Gas 12.01


On This Page

Investment Product

Bond

November 2016

7

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MOSt Advisor November 2016 - Motilal Oswal · England, Bank of Japan or Federal Reserve of USA....

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