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Shilpa KumarMD & CEO
ICICI Securities Ltd.
Exchange Traded Funds have
been of great interest in the
recent years. They provide a low
cost and rule based investment
opportunity in the markets. In
simple terms, ETFs are mutual
funds that trade on a stock
exchange. While ETFs share a
few similar traits with mutual
funds; it is their resemblance to
stocks that has gained traction
among investors. They represent
a basket of securities that tracks
indices such as Sensex or Nifty,
much like index mutual funds.
E T F s e x p e r i e n c e p r i c e
fluctuation throughout the day.
This flexibility of trading proves
beneficial to exit and enter at a
defined price. In addition ETFs are rule based which ensures that
the strategy of investment is well known in advance. Most ETFS
track an index and do not aim at beating the index.
Our ETF industry has come a long way since its foundation in 2001.
This is propelled by the success of Gold and CPSE ETFs amongst
retail investors and channeling of part of employee provident
funds into markets by the EPFO. As per a Bloomberg report in
2017, India was world's second-fastest growing exchange traded
funds (ETF) market, behind only Japan.
The ETF industry is still at a nascent stage in our country. This is
partially due to lack of knowledge about the product. Globally,
specifically in the US, the interest in ETFs has grown many times,
given its success in returns, innovations and availability of diverse
underlying assets. In order to attain similar market outcome in
India, we need a large number of participation by Indian investors
and more importantly, awareness about ETFs. An understanding
how ETFs differ from their conventional counterparts and their
role in our portfolio is important.
ETFs are more cost-effective than traditional mutual funds given
that they are managed passively. Tracking error is another gain for
ETFs over conventional index funds. Tracking error is the
difference between returns of the fund (ETF or index) and the
returns generated by target index.
Then there are advantages of getting listed on stock exchange.
Since ETFs are traded like stocks investors enjoy benefits of short
selling and buying on margin. Plus, ETFs make a potential tool for
gaining instant exposure to the security markets through cash
equitization. In some cases, investing in ETFs can be wiser than
single stock investments. This is because ETF spreads its risk
across different assets instead of focusing on specific firm's stock.
This can help mitigate losses occurred during downtrend of the
market
Exchange-traded funds are very powerful instruments to diversify
ones investing strategies. A combination of active and passive
management can effectively harness the result by using each
strategy to minimize risks caused by the other. ETFS are also
suited for new to markets customers especially through a
Systematic Equity Plan.
ETFs are indeed one of the key innovations in the financial markets
that is creating lot of interest and value for investors.
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.
ICICIdirect Money Manager April 20181
Investing in exchange-traded funds (ETFs) is becoming an important investing instrument because of their simplicity and effectiveness. ETFs try to mimic the performance of indices. These indices can be a simple market-cap index (likeNifty o r Sensex) or a factor index. Because indices are rule based, investing in ETFs are cost effective and transparent with respect to the investment strategy. ETFs can be purchased on exchange on real time price that changes depending on the demand and supply in the market. So though behave like Mutual Funds, they trade like a share.
Exchange Traded Funds can play a very important role in your core portfolio. Since they are broad based and do not chase an active investment strategy, they usually capture the returns of the market. In India, the ETFs are gaining traction and a deeper knowledge about them is likely to bring in more clarity on where they fit in an investment strategy. Our April edition of the magazine is an extended account of ETF guide. We explain the structure and mechanism of exchange traded funds, types of ETFs and draw their comparison with actively managed investments.
This edition also covers an interview with S Naren, ED & Chief Investment Officer, ICICI Prudential AMC and Gauri Sekaria, ETF fund manager, DSP Black Rock. They believe that passive space has grown to a significant size over the last few years and that proposed CPSE Debt ETF and new products like Smart Beta ETFs &Commodity ETF are expected to garner notable subscriptions. Their take on ETF market in India is definitely worth a read.
In the fund recommendation section, our observation is that the infrastructure segment remains well placed to offer a better investment opportunity. Various segments like roads, railways, ports, oil & gas, defense and housing have beenkey thrust areas of the government. On this background, ICICI direct research team recommends Aditya Birla SL Infrastructure Fund, L&T Infrastructure Fund and Reliance Diversified Power Sector Fund to be part of you're the maticallocation.
I would also like to draw your attention to our revised Equity Model Portfolio and Prime Numbers - with inclusion of more data points and indicators - to let you have a comprehensive overview. So read on, stay updated and involved. Do w r i t e i n w i t h y o u r f e e d b a c k a n d s h a r e y o u r t h o u g h t s [email protected].
Your magazine is now also available on www.magzter.com, a digital newsstand.
ICICIdirect Money Manager April 2018
Editor & Publisher : Abhishake Mathur, CFA
Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey
CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Research Team
Coordinating Editor : Namrata Lonkar
2
ICICIdirect Money Manager April 20183
MD Desk ..................................................................................................1
Editorial ...................................................................................................2
Contents ..................................................................................................3
News .......................................................................................................4
Stock ideas:Phillips Carbon Black &TeamLease Services.......................5
Flavour of the Month: All you need to know about exchange-traded funds
(ETFs)
In spite of being one of the fastest growing ETF markets in the world,
a lot of us are unaware about the concept & functioning of ETF.Thus,
our cover story of this month is a handbook of exchange-traded
funds. We try to explain creation of ETF, its types, characteristics,
advantages, disadvantages and more................................................14
Tête-à-tête: ETF landscape in India & their performance in near future
In talk with Sankaran Naren, ED & CIO, ICICI Prudential AMC & Gauri Sekaria,
ETF fund manager, DSP Black Rock......................................................... ...27
Ask Our Planner
Our financial expert answers how insurance policies are evaluated
for taxation? And your other personal finance queries..................... 33
Mutual Fund Analysis
Which are the top performing mutual funds in current market
scenario? Check these top infrastructure funds recommended by our
research team...................................................................................... 37
This month on iCommunity
Take a look at the latest activities on our unique information
platform- iCommunity (for April2018).................................................47
Equity Model Portfolio .............................................................................48
Quiz Time ...............................................................................................52
Prime Numbers .......................................................................................53
Players in the gems and jewellery sector have complained that, of late, banks are not giving them loans, which is hindering their expansion plans. However, bankers told dna that while there was no blanket guideline on the part of the banking regulator or bank managements, individual banks may be limiting their exposure to the sector after the recent PNB scam.Dinesh Navadia, regional chairman of Gems and Jewellery Export Promotion Council (GJEPC ) said that loan applications were getting rejected even though SMEs were offering collaterals.Navadia said he had written a letter to local MP CR Patil about the crisis. According to him, the government should act in the matter as the sector creates many jobs.
Courtesy: DNA
Banks not lending to players in gems and jewellery sector: GJEPC
Bitcoins worth Rs 20 crore stolen from exchange in India's biggest crypto theft
Nearly 438 bitcoins worth over Rs 20 crore were stolen from a top exchange firm in India in what is being billed as the biggest cryptocurrency theft in the country so far. Coinsecure, the Delhi-based cryptocurrency exchange, has filed an FIR with the cyber cell accusing its CSO, Amitabh Saxena, of siphoning off the money from the firm's wallet, ET's Nilesh Christopher reported. The exchange has urged the government to seize Saxena's passport, fearing that he may leave the country. The company tried to trace the hackers, but found that all the data logs of the affected wallets had been erased, leaving no trails about where the bitcoins were transferred. The website of the company has since then remained shut.
Courtesy: Economic Times
ICICIdirect Money Manager April 2018
Coal shortage is still affecting the efficacy or capacity utilisation (Plant Load Factor) of independent power projects in the country. This may lead to a spike in spot prices of electricity on exchanges this summer, according to experts.According to the latest Central Electricity Authority (CEA) data, the Plant Load Factor (PLF) of the independent power projects (IPPs) was 52.54% in February 2018 compared to 59.54% a year ago.However, as per data, the PLF of central sector projects rose to 76.59% in February from 72.93%.
Courtesy: The Hindu
Coal shortage at power plants may push up spot prices in summer
LTCG impact: Equity MF inflow down 59% to Rs 66.57-billion in March
Equity mutual funds witnessed a net inflow of Rs 66.57 billion in March, a plunge of 59 per cent from the preceding month, due to volatile stock markets along with profit-booking by investors to avoid payment of LTCG tax.Finance Minister ArunJaitley, in his budget speech, had announced LTCG tax of 10 per cent on equity gains beginning February 1, 2018 - on gains exceeding Rs 100,000.Later, the government clarified that the proposed LTCG tax on equity holdings will apply on profits made from sale of shares on or after April 1, 2018.
Courtesy: Business Standard
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STOCK IDEAS
ICICIdirect Money Manager April 2018
Phillips Carbon Black – Sustainable profitability lies ahead
Company Background
Phillips Carbon Black (PCBL) is
an RP Sanjiv Goenka group
cpmpany (CESC promoter
g r o u p ) . T h e c o m p a n y
manufactures carbon black
domes t i ca l l y. PCBL was
incorpora ted in 1960 in
collaboration with Phillips
Petroleum Company, US. In
1988, PCBL entered into a
technical collaboration with
C o l u m b i a n C h e m i c a l s
Company, US. PCBL's first
plant for 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, PCB has four
p l a n t s a c r o s s I n d i a
manufacturing carbon black
with associated waster heat
r e c o v e r y p o w e r p l a n t s ;
Durgapur, West Bengal (147
KT, 30 MW); Mundra, Gujarat
(140 KT, 30 MW); Palej, Gujarat
(95 KT, 12 MW); Kochi, Kerala
(90 KT, 10 MW). Producing
power from waste gases
makes PCBL a carbon neutral
company.
Investment Rationale
Carbon black; robust product
demand domest ica l ly ; PCBL
industry leader
Carbon black is used as a
r e i n f o r c e m e n t m a t e r i a l
providing tensile strength to
tyres. It is a critical component
for manufacturing tyres and
forms ~23% by volume of the
tyre weight and ~10% by value
of tyre costs. In India, total
capacity for manufacturing
carbon black as of FY17 was at
1 million tonne (MT) with
consumption at ~0.8 MT. PCBL
with a capacity of 411 KT is the
largest player domestically
with market share of ~40%.
Demand prospects for carbon
black are also robust amid
healthy demand growth in
automobile and, consequently,
tyre industry space and supply
constraints from China (largest
player globally). Domestic
sales volume in FY17 was at
294 KT vs. 243 KT in FY16, up
21% YoY. Going forward, PCBL
being the largest player is
indeed a proxy play on the
robust domestic automobile
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ICICIdirect Money Manager April 2018
STOCK IDEAS
industry.
Volume led growth coupled by
value added offerings to drive
earnings in FY18-20E
PCBL, is currently executing a
de-bottlenecking exercise,
which coupled with brownfield
expansion will augment its
capacity by ~80,000 tonne
(411,000 tonne currently), with
l i ke ly commiss ion ing in
FY18E-19E. This will ensure
volume led growth to sustain
at PCBL. We expect PCBL to
report sales volume of ~440
KT in FY19E and ~ 460 KT in
FY20E, implying a volume
CAGR of 6.0% in FY18E-20E.
This coupled with increasing
share of special ty grade
carbon black & operational
efficiencies on account of
better sweating of assets will
result in ~100 bps expansion
in EBITDA margins. We expect
P C B L t o r e p o r t E B I T DA
margins of 16.7% in FY20E vs.
1 5 . 7 % i n F Y 1 8 E .
Corresponding EBITDA/tonne
is expected at | 11325/tonne in
FY20E vs. | 10627/tonne in
FY18E. Consequently, we
e x p e c t P C B L t o s t a g e
impressive 17.5% PAT growth
in FY18-20E, with a base
revision in the current fiscal of
FY18E. We expect PCBL to
report PAT of | 241 crore in
FY18E vs. | 73 crore in FY17.
G o i n g f o r w a r d , PAT i s
expected at | 291 crore in
FY19E and | 335 crore in
FY20E.
Improving return ratios, financial
matrix; deserves better valuation,
maintain BUY
PCBL has promptly de-risked its business model from the fluctuations of commodity price viz. crude with the company incorporating full variable cost pass through in contracts with all its key customers. This protects the company from fluctuating profitability as witnessed in the past and adds strength/moat to its business profile. On the balance sheet front, PCBL has reduced its debt in FY17 to the tune of ~| 350 crore with consequent debt: equity at 0.7x. PCBL has successfully turned around its operations & is now clocking healthy ~16% EBITDA margin with core return ratios (RoE, RoCE) in excess of 25% (FY18E-20E), thereby traversing into a
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ICICIdirect Money Manager April 2018
STOCK IDEAS
7
Stock Data
Key Financials
Valuations Summary
` crore FY17 FY18E FY19E FY20E
Net Sales 1927.1 2723.5 2983.4 3127.1
EBITDA 260.2 428.8 487.3 522.0
EBITDA (%) 13.5 15.7 16.3 16.7
Net Profit 72.8 241.5 290.7 334.9
EPS 21.1 70.1 84.4 97.2
FY17 FY18E FY19E FY20E
P/E 51.9 15.6 13.0 11.3
Target P/E 80.5 24.3 20.1 17.5
EV / EBITDA 16.7 10.0 8.7 7.6
P/BV 3.7 3.0 2.5 2.1
RoNW 13.8 31.3 28.7 26.1
RoCE 16.5 26.3 26.6 24.9
ROIC 16.1 27.1 25.6 26.7
Market Capitalization 3773.4
Total Debt (FY17) 677.0
Cash and Cash Equivalent (FY17) 115.6
Enterprise Value 4334.8
52 week H/L (|) 1595 / 355
Equity Capital 34.5
Face Value | 10
MF Holding (%) 3.2
FII Holding (%) 14.1
different orbit altogether vs. perception of a commodity play in the past. Furthermore, the current tightness in the carbon black market and pos i t ive commentary by industry players augur well for
P C B L . A l l t h e s e f a c t o r s c u m u l a t i v e l y c a l l f o r a valuation upgrade, thereby allowing us to value PCBL at | 1700 i.e. 17.5x P/E (1x PEG) on FY20E EPS of | 97.2. We assign a BUY recommendation on the stock.
ICICIdirect Money Manager April 2018
STOCK IDEAS
8
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 mater ia l , which is a crude derivative. Therefore, 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 (April-June) is used to determine/fix the carbon b lack pr ice for the subsequent quar te r ( Ju ly-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 may result in volati le realisations and consequent volatile profitability for industry
participants including PCBL, going forward.
High forex exposure; hedging costs
PCBL primarily imports its CBFS requi rements wi th imports constituting a healthy 79% of its entire raw material needs (| 1057 crore in FY17). PCBL also exports carbon black to other countries with the share of exports to gross sales at ~21% (| 347 crore in FY17). 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 (| 487 crore). Hence, even this is susceptible to forex r i sk . PCBL spends a considerable amount as hedging costs (| 27 crore in FY17) and still i n c u r s t r a n s l a t i o n a l f o r e x losses/gains due to adverse currency movement. Going forward, therefore, any adverse movement in currency beyond hedged limits may impact its profitability.
ICICIdirect Money Manager April 2018
STOCK IDEAS
ANALYST CERTIFICATION We /I, Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets), Research Analysts, authors and the names subscribed to this report, hereby
certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part
of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.
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instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.
It is confirmed that Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
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described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report.
It is confirmed that Chirag Shah PGDBM, Shashank Kanodia, CFA MBA (Capital Markets), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
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ICICIdirect Money Manager April 2018
STOCK IDEAS
TeamLease Services – A structural growth story!!!
Company Background
TeamLease (TLS), established
in 2002, is one of India's leading
providers of human resource
services in the organised
segment with ~6% market
share in the f ragmented
general staffing business. It
was co-Founded by Manish
Sabharwal (Chairman) and
Ashok Kumar Nedurumalli (MD
& CEO). In line with its strategy
to expand its addressable
market to areas of staffing and
improve its EBITDA margins,
T L S h a s f o r a y e d i n t o
specialised staffing such as IT
and telecom through the
inorganic route. Company's
topline has grown at a healthy
CAGR 26.9% to | 3042 crore in
FY12-17. Growth was driven
b y t h e g e n e r a l s t a f f i n g
business, which grew at 26.7%
CAGR to | 2945 crore during
the same period. Going ahead,
r i s i n g p e n e t r a t i o n o f
temporary staffing in India in
conjunction with TLS' core
expertise in general staffing
and primary focus in India
would provide an immense
opportunity for sustainable
growth.
Investment Rationale
Leadership position in general
staffing industry…
TLS is India's leading staffing
company in the organised
space with an overall market
share of ~6%. In terms of
associate count, it is also the
largest staffing company in
India. With its core expertise in
general staffing and focus on
India, the company is ready to
grab the opportunity in the
least penetrated temporary
staffing market in India (0.5% in
2015 vs. global average of
1.7%). We believe penetration
in the temporary staffing
market should rise through
favourable industry dynamics
like formalisation of economy,
G S T & o t h e r r e g u l a t o r y
reforms. Hence, we expect
general staffing revenues to
grow at 20.9% CAGR to | 4,917
crore in FY18E-20E.
Expanding into specialised staffing
through prudent acquisitions…
T L S h a s e x p a n d e d i t s
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ICICIdirect Money Manager April 2018
STOCK IDEAS
11
addressable market to high
margin specialized staffing
such as IT and telecom (four
out of six targets in the last two
years) through the inorganic
route in a prudent manner (4-
6x EV/EBITDA on an LTM
basis). These acquisitions
should increase specialised
revenue contribution from
~2% in FY17 to ~7% in FY20E
r e s u l t i n g i n a 7 0 b p s
i m p r o v e m e n t i n o v e r a l l
EBITDA margin to 2.5% in
FY18-20E.
Niche play on staffing business;
BUY…
With its leadership position in
general staffing, we believe
TLS is set to reap the benefits
through structural changes in
i n d u s t r y d y n a m i c s .
Consequently, we expect TLS'
adjusted earnings to grow
robustly at 35.7% during
FY18E-20E. Considering the
robust growth trajectory and
strong return ratio (RoIC –
28.6% in FY19E), we have a
BUY recommendation on TLS
with a DCF based target price
of | 2660/share (implied PE
multiple of 29.9x).
Valuations Summary
Key Financials
` Crore FY17 FY18E FY19E FY20E
Net Sales 3042 3612 4417 5382
EBITDA 44 65 102 135
Net Profit 66 73 112 152
EPS (`) 38.8 42.5 65.4 89.1
FY17 FY18E FY19E FY20E
P/E 57.2 52.2 34.0 24.9
Target P/E 68.6 62.5 40.7 29.9
EV/EBITDA 82.4 56.2 34.8 25.6
P/BV 10.0 8.4 6.7 5.4
RoNW (%) 17.4 16.0 19.8 21.7
RoCE (%) 15.4 15.4 18.9 20.7
ICICIdirect Money Manager April 2018
STOCK IDEAS
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Stock Data
Market Capitalization (` Crore) 3,796.0
Total Debt (` Crore) 23.4
Cash and Investments (` Crore) 169.6
EV (` Crore) 3,649.8
52 week H/L 2537 / 1021
Equity capital 17.1
Face value 10.0
DII Holding (%) 14.7
FII Holding (%) 24.6
Key risks include:
Insourcing of associates by clients…
TLS enjoys huge benefits under
section 80JJAA of the Income Tax
Act on account of net employee
addition. Going ahead, clients
may either directly look at client
insourcing to avail the benefits
themselves or may ask for
benefits to be passed through
p r i c i n g . A s o f n o w , t h e
management has indicated that it
has not seen such k ind of
scenario. If it happens in future, it
may impact TLS' profitability.
Also, with advancements in
technology and drive towards
a u t o m a t i o n c o u l d i m p a c t
company's business.
Higher compet i t ion and lower
margins…
The Indian staffing market is
c u r r e n t l y d o m i n a t e d b y
unorganised players, which
account for ~70% market share.
With a highly fragmented industry,
pr ice competit ion becomes
intense, making it difficult for
organised players to see an up-
tick in pricing. Moreover, TLS
operates on wafer thin margins on
account of a higher proportion of
general staffing business, which is
a l o w e r m a r g i n o n e . A n y
d i s r u p t i o n o r c o n t i n u e d
competition by organised players
cou ld potent ia l ly l imi t the
company's ability to maintain
p ro f i t ab i l i t y. However, we
highlight that structural reforms
like GST and other reforms should
help the company sail through the
competitive field and benefit from
a consolidation in the industry.
ICICIdirect Money Manager April 2018
STOCK IDEAS
ANALYST CERTIFICATION We /I, Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts, authors and the names subscribed to this report,
hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We
also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.
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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.
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ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.
It is confirmed that Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.
Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.
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13
FLAVOUR OF THE MONTH
All you need to know about exchange-traded funds (ETFs)
ICICIdirect Money Manager April 2018
ETFs have gained wide acceptance as a financial instrument worldwide. However, in India, not many investors know about this passively managed investment vehicle. In spite of being one of the fastest growing ETF markets in the world, a lot of us areunaware about the concept & functioning of ETF. Considering the fact that our ETF market has seen twofold growth in three years, we can say there's a lot of potential for progress. As of now there are more than 60 ETFs in India. And with the government's initiatives to encourage ETF investments, the need to understand ETF has become more essential than ever. Thus, our cover story of this month is a handbook of exchange-traded funds.We try to explain creation of ETF, its types, characteristics, advantages, disadvantages and more. Read on to find out all about it…
14
The concept of ETF (exchange -
traded funds)
In the simplest terms, ETFsare
index mutual funds that trade
on a stock exchange.It's a
basket of securi t ies that
essentially tracks indices. They
are traded like regular stocks,
which means they can be
bought and sold anytime
during trading hours, hence
going through price fluctuation
throughout day. ETFs were
introduced in Indian equity
market more than a decade
ago
What does tracking an index mean?
An index is a pool of selected
stocks represented in a single
base figure. It is a meter
measuring changes in prices
a n d p e r f o r m a n c e . F o r
example, BSE Sensex is an
index that consist 30 stocks. In
other words, BSE Sensex
represents a segment of
market (30 companies in India).
Similarly, an index consisting
IT stocks represents selective
IT companies and hence the
sector. An index is used as a
benchmark, something to
compare market movement
against. So when underlying
stocks are doing well, the value
of index also rises and vice
versa.
Index invest ing or index
tracking is an investment
approach to match the market
returns. This is a passive
investment strategy wherein
investor's goal is to obtain
market returns instead of
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201815
beating it. An alternative
approach to this is active
investing, where the investor
has to attentively select the
stocks and follow up in order to
outperform the market results.
Here, the investor's goal is to
make more than average
returns, which requires more
efforts, consistent research
and knowledge about the
market.
ETFs create portfolio that
represent certain indices. This
way an investor can avail
returns in tandem with the
market or segment of the
market.
Active &passive investing
An investment strategy that
aims at giving better returns
than market is considered as
a c t i v e i n v e s t m e n t . ( Fo r
example, trading of individual
stocks) On the other hand,
when objective is to merely
m a t c h t h e m a r k e t
performance, it is known as
passive investing.Here, aim is
to produce returns in line with
the benchmark. (For example,
ETF or index funds)
Source: Income research
ETFs are one of the most
s u c c e s s f u l i n v e s t m e n t
vehicles that are managed
passively. They provide a
flexible and low-cost way to
generate market-a l igned
returns. They were introduced
in India in early 2000 and are
h e n c e l e s s p o p u l a r a s
compared to conventional
investment products. So, let's
first understand how they are
created and what are their
salient features.
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201816
The Creation/Redemption
Mechanism of ETF
The prospective ETF company
first takes approval from the
regulator (SEBI) to create an
ETF. Then they approach an
authorized participant who has
greater purchasing power. An
authorized participant (AP) can
be a financial institution,
market maker or any specialist
in the field. The AP acquires
securit ies from the open
market to create ETF units. For
e x a m p l e , w h e n a n E T F
company wants to create a
fund to track Nifty 100 index,
the AP purchases all securities
under Nifty 100 index in same
proportion as the index and
hand i t over to the ETF
company. The company then
offers a block of ETF shares to
the AP, known as creation unit.
These shares are traded on the
open market like stocks.
AP ' s job i s to a rb i t rage
d i f ferences between the
underlying securities that are
being tracked and the price of
ETF shares. This is done by
purchasing more underlying
assets form the market to
convert into ETF shares when
price of the ETF rises above
underlying NAV. This may
happen due to increased
demand. Similarly, when ETF is
traded at a discount price, AP
purchases the same ETF and
redeem for the underlying
holdings. Hence, APs provide
liquidity to the fund and sustain
their price in line with value of
t h e s e c u r i t i e s u n d e r
corresponding indices.
T h e b i g g e s t b e n e f i t o f
c r e a t i o n / r e d e m p t i o n
mechanism is that it is low cost
process as compared to
traditional mutual funds. In
traditional fund schemes more
than one entity is involved in
the process of purchase and
sell of securities, which means
extra commissions, fees and
distribution charges. In case of
ETF, authorizing participants
carry most of the work and
even bear trading costs or
additional fees. This brings
down the ultimate expenses of
fund management.
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ICICIdirect Money Manager April 201817
Secondary
Market
(Stock
Exchange)
Secondary
Market
(Stock
Exchange)
Authorized
participant
(AP)
Exchange-
traded fund
(ETF)
Authorized
participant
(AP)
Exchange-
traded fund
(ETF)
Redemption process
Creation process
AP buys creation
basket
AP sells ETF shares in
the secondary market
AP delivers creation
basket
AP receives new ETF
shares
AP buys ETF shares in
the open market
AP sells securities in
the secondary market
AP delivers ETF shares
to the fund house
AP receives portfolio of
underlying securities
NAV (net asset value)
The NAV of a fund is sum of its
underlying assets (shares,
bonds, commodities, cash or
any other securities) less any
liabil it ies, divided by the
number of outstanding shares.
This is calculated regularly at
the end of the day. The NAVof
an exchange-traded fund
keeps changing in real time as
it is traded on exchange. When
the market closes, final trading
price is locked down as NAV
for that particular ETF, until it's
opened for trading again.
Transparency
For any investor, the more
transparent a product, the
easier it becomes to make a
choice of buying it or rejecting
it. Transparency adds up to
worthiness of the product.One
of the distinguishing features
of ETFs is that they provide
m o r e t r a n s p a r e n c y a s
compared to conventional
mutual funds. Mutual fund
manager discloses details of
portfolio once in every quarter.
In the interval between two
reports the investor is not
updated with alterations done
in the scheme or new risks
adopted by fund managers.
The NAV of an open-ended
mutual fund is disclosed at the
end of the day. In case of an
ETF, investors are able to see
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201818
even the slightest fluctuation in
the NAV throughout the day.
Moreover, investors have an
easy access to ETF portfolio as
details of fund's holdings are
displayed online. This data is
updated on a daily basis.
The future growth of global ETFs: Market analysis and forecasts 2017 to 2020
(Net assets in US$ trillions)
Source: Morningstar Direct
Risks associated with ETFs
Market risk
Since ETFs represent their
underlying securities, their
performance is bound to go up
and down in accordance with
these market securities. Surely
the investor can mitigate risk
by spreading his money across
wide range of holdings, he
cannot altogether avoid it. A
smart way to tackle market risk
is by adopting balanced asset
allocation strategy.
Liquidity risk
Not all ETFs have a high trading
volume or large holding base.
For an ETF with low trading
volume or average asset base,
liquidity risk raises major
concern. In such a scenario,
closing a position (redeeming)
b e c o m e s d i f f i c u l t .
Consequently, the investor
may sell his ETF for a lower
price and incur loss.
Tracking error risk
Tracking error is the difference
between the returns generated
by an ETF and that of its
corresponding index. This
difference may occur and differ
depending upon the speed of
the stock exchange and trading
volume. Although ETF should
i d e a l l y m i r r o r r e t u r n s
generated by underly ing
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201819
index, there is likely to be a
s l ight r isk of d is t inct ion
between the two.
Also, two ETFs tracking the
same index can give different
returns at the same time. They,
thus, have different tracking
errors.This happens mainly
due to changes in expense
ratio or management style of
the fund company.
ETFs in India
AUM and number of ETFs in India (as on March 31, 2017)
Source: SEBI Annual Report 2016-17
According to a SEBI research report, the AUM of exchange traded funds (ETFs) in 2016-17
increased remarkably by 122.8 per cent,
ETF vs Single stock investment
Stocks and ETFs share more
similarities than differences.
It's almost a tie between the
two when it comes to ease of
transaction, lower fees, short
selling, margin rules& liquidity.
H o w e v e r, i n v e s t i n g i n
individual stocks is likely to
bear more risk than ETFs, as
ETF Individual stocks
Traded throughout the day?
Yes
Yes
Bought on margin?
Yes
Yes
Short selling/ options available? Yes Yes Tax-free long-term capital gains? Yes Yes Level of diversification
High
Low (unless invested in
multiple stocks)
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201820
l a t t e r h a v e d i v e r s i f i e d
exposure across different
companies. Since that is not
the case with selective stock
strategy, ETFs have a slight
edge over stocks.
Also, a person has to invest
more time and effort while
purchasing stocks. In this type
of active trading, the investor
h a s t o f o l l o w m a r k e t
movements closely. ETFs are
by default structured to track
the market performance (not
beat it), thus saving investors
fromtedious research and
follow-up.
ETFsvs individual stocks
ETF vs mutual fund
ETFs are commonly known as
mutual funds traded on stock
exchange. Nevertheless, there
are significant differences
between the two. A key
difference being, style of
investing. Mutual funds are
generally appreciated for their
active management strategy.
ETFs, on the other hand are
passively managed. But they
offer more flexibility when it
comes to trading by facilitating
intraday investment option.
ETFs can also be bought on
margin and sold short. It may
not seem a rightful option for a
long-term investment, but
speculators and active traders
can certainly add diversity to
their portfolio with the help of
exchange traded funds.
Since ETFs are managed
passively their expense ratio is
relatively lower than traditional
mutual funds. While most
m u t u a l f u n d s t y p i c a l l y
chargetotal expense ratio
(TER)anywhere between 1-3
%, the same for ETF is marked
below 1%. TER includes costs
of managing and operating the
fund, and is charged to the
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201821
o v e r a l l h o l d i n g s o f t h e
scheme. A mutual fund's NAV
is drawn after deducting this
amount. Actively managed
mutual funds extract operating
fees from investors because
fund managers o f these
schemes consistently work
towards providing market-
beating returns.
B u t r e m e m b e r , l o w e r
management cost cannot
a lone make a par t i cu la r
product viable. One should
take financial circumstances
into account as well. In order to
ach ieve f inanc ia l goa ls ,
investors need a combination
o f a c t i v e a n d p a s s i v e
instruments.
ETF vs Mutual funds
ETF Mutual funds
NAV Fluctuates in real time
Finalized at the end of the day
Transparency Portfolio details published daily
Portfolio holdings disclosed
monthly/ quarterly
Expense ratio Lower Higher (due to active
management of the fund)
Withdrawal charges
None
Exit load as per scheme’s terms
Intraday trading Available Not available
ETF vs index funds
These are the two most popular instruments of passive investing. Structured in similar ways, both ETFs and index f u n d h a v e p o t e n t i a l t o outperform actively-managed mutual funds in the long run. Neither poses a management risk, i.e. the risk of incurring loss due to fund manager's stock selection choices.
A point of difference occurs over NAV of the funds. Here, an advantage ETFs have over index funds is that they (ETFs) can be traded throughout the
day at real time NAV.The NAV of an index fund is calculated just like traditional mutual funds- at the end of the trading day. However, an investor must have a demat account to be able sell or purchase and ETF, which is not the case with regular index mutual fund.
Expense ratio of an index fund is usually lower than traditional mutual funds, but slightly higher than ETFs. But one must fac tor in brokerage and securities transaction tax (STT) charged on ETF before making the final choice.
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201822
ETF vs Index funds
ETF Index funds
Price movement throughout the day Yes No
Expense cost Lower
Slightly higher than ETFs
Require demat account to operate
Yes
NO
Intraday trading Available
Not available
Provides diversification while minimizing risk Yes Yes Can place stock orders (short selling/
options/ margin )
Yes No
Tracking error Depends on the speed
of exchange and
trading volume
Depends on the fund
management company
Types of ETF
Index ETF
Index Exchange Traded Funds are the oldest and most common of the ETF product offerings.
Index ETFs acquire securities in amounts that proportionately reflect the securities of an
existing index in a given market. By investing in them an investor can get the benefit of broad
diversification that replicates the performance of the underlying index.
Gold ETF
Gold ETFs provide investors the route of participation in the bullion market without the
necessity of taking physical delivery of gold. The units of these ETFs can be bought or sold at
the stock exchange where it is listed on a real-time basis. Investing in physical gold requires
large amounts of money, whereas Gold ETFs allow investments in small denominations
through Systematic Investment Plans (SIPs).
Prices of gold ETFs move hand on hand with that of physical gold. When the price of gold
moves up, the value of ETFs appreciates and vice versa.
Bank ETF
Bank ETFs invests in stocks of banks listed on the index that it follows. Bank exchange traded
funds are extremely volatile and maintain a high liquidity.
Banks are the epicenter of all the financial activities, be it the forex market, credit market or
others. Due to its high volatility and liquidity, bank ETFs can be easily traded on margins.
Smaller or big traders can easily track the price movements and go short or long depending
on the favorable situations.
Liquid ETF
Liquid ETFs try to enhance returns and minimize price risk by investing in a basket of call
money, short-term government securities and money market instruments of short maturities
while maintaining safety and liquidity.
International ETF
AN international ETF is an ETF that invests in foreign based securities. They are invested
passively around an underlying index, but the index may vary substantially from one fund
manager to another. Some funds, especially those with a wide global footprint can provide
strong diversification by investing in hundreds of companies.
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201823
Things to consider before buying an
ETF
A f i n a n c i a l d e c i s i o n a s
impor tant as mak ing an
investmentshould be taken
after considerable thought and
research. Now that you know
what an ETF is and how it
functions here are some things
you should keep in mind
beforeinvesting in it.
· I n v e s t m e n t o b j e c t i v e a n d
term
The purpose of an investment
is the most basic and important
aspect to factor in. Why are
you opting for ETFs? Are you
targeting a particular sector or
industry? Are you trying to
h e d g e a g a i n s t m a r k e t
volatility? It is easier to pick the
right ETF when you have firm &
c l e a r o b j e c t i v e b e h i n d
investing.
Same goes for investment
horizon. Some ETFs produce
above average returns in the
long haul while some are
suitable for short run only.
Determining the investment
period is thus equally crucial.
· Cost
Although cost effectiveness is
one of the advantages ETFs
over mutual funds, all ETFs are
not uniformly charged. Two
ETFs may track same index but
differ in management fees.
H o w e v e r m a r g i n a l t h e
difference, it's better to take
everything from trading fees to
operating commission into
consideration.
· Liquidity
Liquidity of an ETF depends on
three elements – trading
volume, fund's composition
and financial environment.
Trading volume refers to the
number of times a particular
security is traded during given
trading period. The more the
trading volume, the better
c h a n c e s o f s e l l i n g o r
redeeming your funds. In this
case , t rad ing vo lume of
u n d e r l y i n g s e c u r i t i e s
(individual) as well as of the
entire ETF basket affect fund's
liquidity.
Composition of ETF means the
structure or basis on which an
ETF is built. Asset class, market
capitalization, sector are a few
categories of ETF composition.
For example, an ETF focusing
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201824
on equity asset has more
liquidity than a real estate ETF.
Similarly, ETFs that invest in
large-cap companies are more
liquid than their peer funds.
This is because large-cap
companies are more popular
among investors, and their
stocks experience higher
demand than mid or small cap
stocks.
As for financial environment,
companies in developed
nations are likely to give safer
returns than companies in an
emerging economy. ETF
investing in these secure
environment are apt for a
person with moderate or
conservative risk appetite.A
side benefit is thatETFs that
track broad market indices are
less volatile thanthosefocusing
on a particular sector.
All in all, ETFs investing in
broad market indices, large
cap companies& liquid assets
ensure easy liquidity. And this
level of l iquidity impacts
profitability of the ETF.
· Benchmark
When choosing an ETF, first
decide on the market, market
segment, or industry sector
you wish to track, then decide
on the appropriate index for
that market . Each index
p r o v i d e r h a s i t s o w n
construction methodology,
resulting in wide variations in
turnover and other portfolio
characteristics. Benchmarks
tracking the same market
segment can deliver very
different results.
· Management Team
Index funds are not created
equal. Effective, eff icient
portfolio management skills
can make a difference, often
offsetting marginal differences
in costs between two indexed
p r o d u c t s . R e v i e w t h e
experience and track record of
the fund managers.
Bottom line
All things considered, ETF
canmake an essential portfolio
component for all types of
retail investors. India has seen
more than 100% growth in the
ETF market over the last three
years and it is likely to flourish
in coming years. You can buy
and sell Gold, Index, Banking
or International ETFs online
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201825
through your ICICI direct
account.If you do not have an
account with ICICIdirect, help
us open your account and
experience the world of online
investing.
How to invest in ETF through ICICIdirect
Step 1: Login to ICICIdirect Step 2: Click on Trade & invest tab on the upper red ribbon
Step 3.1: If you have not finalized which ETF you want to trade. Go to Equity>ETF list. Select the fund you want to invest in from the list of ETFs available on the portal.
Step 3.2: If you already know which ETF you want to invest in, select Cash Buy option on the gray ribbon directly. Write the name of the ETF scheme in the field of Stock correctly.
FLAVOUR OF THE MONTH
ICICIdirect Money Manager April 201826
Step 4: Fill in all the details carefully and click on Buy Now. Verify your order once and then click on Proceed. Your ETF transaction order is successfully placed.
The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities
Tête-à-tête
ICICIdirect Money Manager April 2018
Market experts talk about ETF landscape in India & their performance in near future
27
S Naren, ED & Chief Investment Officer,
ICICI Prudential AMC
Gauri Sekaria, ETF fund manager,
DSP BlackRock
Q1 - What is your outlook on Indian
and global markets?
S Naren - Indian markets have
turned volatile after a steep
rally seen over the last two
years. However, valuations still
continue to remain expensive
i n m i d a n d s m a l l c a p
segments , whi le cer ta in
pockets in large-caps are
reasonably valued. Globally,
we are experiencing a rising
interest rate scenario in the US
and even the lowering of the
interest rates across Japan and
Europe is expected to take a
break. As such, over the next
12-18 months, both the Indian
and global markets are likely to
be volatile.
Gauri Sekaria – Indian equities
rallied sharply in 2017 - up
~33% in USD terms or ~28%
in INR terms. The obvious
question has been on high
v a l u a t i o n s a n d i t s
sustainability. We think this run
up has been a part of the
broader EM rally and that India
is not an outlier. Markets are
c e r t a i n l y a t a h i g h b u t
valuations are not. An earnings
catch-up could certainly help
sustain these valuations. We
expect corporate earnings to
see a broad based recovery in
FY19 and FY20. Along with the
positive base effect, a mix of
global cyclicals (metals), autos,
oil marketing companies and
banks may be the key drivers
for this. Also, the first quarter of
2018 has seen the large-cap
index correct ~10% from the
January peak, while some
small and mid-caps have
corrected as much as 15-25%
or more - driven by a multitude
of global and domestic factors.
After hitting a low of 5.7% in Q1
FY18, GDP growth recovered
to 6.5% in Q2 FY18 (revised
upward from 6.3%), and to
7 . 2 % i n Q 3 F Y 1 8 . W i t h
demonetization behind us,
implementation of the 7th pay
ICICIdirect Money Manager April 201828
Tête-à-tête
commission along with the
higher government spending
on the rural segment could
help support demand. This
should benefit consumer
facing companies like staples,
consumer durables and other
under-penetrated sub sectors
which will also benefit from
initiatives on “Housing for All”
and “Power for All”.
While the broad outlook for
India may remain positive, we
believe there are certain risks
which investors must consider.
These include a shortfall in the
yearly GST collection which
could negatively impact the
fiscal deficit, rising oil prices
which could lead to higher
current account deficit, rising
inflation (higher oil and food
price base effect) and geo-
politics (trade-wars, a global
slowdown or reversal of the
synchronous growth revival
etc.).
Below are four key themes that
we believe could drive growth
in 2018 and beyond:
o Increase in per-capita GDP
b o o s t i n g t h e I n d i a
consumption story – and a
consequent shift from
unorganized to organized
sectors.
o Penetration of financial
s e r v i c e s ( r e t a i l a n d
corporate credit, insurance,
asset managers).
o The next investment cycle
led by govt. capex on Oil &
Gas , Defense , Roads ,
Railways, Urban Infra.
o Export opportunities in
segments vaca ted by
China, such as textiles and
specialty chemicals.
C o n s e q u e n t l y , w e a r e
attempting to reflect these
themes within our portfolios.
2017 was a very healthy year
for equity markets across the
board. In 2018, we believe
market returns are more likely
to be l inked to earnings
growth, given that valuations
are already above average. As
seen over the last year, bottom-
up stock picking has created
cons iderab le a lpha , and
investors therefore may need
to identify the right
combination of stocks and
sectors that can outperform
the broader market.
ICICIdirect Money Manager April 201829
Tête-à-tête
Q2 - Where do you see the markets
heading by March 2019?
S Naren -Increasing fears of
trade war between global
economic powerhouses ,
events in the run-up to the
2019 elections, rise in crude oil
pr ices and l imited f iscal
flexibility are all factors which
are likely to weigh in on the
Indian market sentiment. In the
meantime, earnings growth is
likely to pick up over the next
15 months, which may lend
some support to a possible
uptick in market.
Gauri Sekaria – We cannot
predict market levels over the
short term. However, as
elaborated above, we are
optimistic on the markets,
expecting that they will be
s u p p o r t e d b y h e a l t h y
corporate earnings growth. We
strongly believe that markets
are a reflection of the economy
and the long term.
Q3 - Do you see the ETF landscape
changing in India?
S Naren - We are witnessing an
encouraging change in the ETF
landscape in India. Both the
Government ( through i ts
disinvestment programme)
and regulator have been
promoting ETFs as they offer
low-cost investing experience
to the investors. Thus far, ICICI
Prudential managed BHARAT
22 ETF had met with a great
d e m a n d f r o m t h e r e t a i l
investors. SEBI has also been
evaluating Commodity ETFs
and Government is evaluating
CPSE Debt ETF (same is
announced in budget).
Q4 - Why is the active fund sector in
India so big compared to the ETF
segment?
S Naren - Active fund sector is as
old and synonymous as the
Indian mutual fund industry.
The key reason for large
participation in active fund is
due to the fact that Indian fund
m a n a g e r s h a v e b e e n
c o n s i s t e n t l y g e n e r a t i n g
benchmark beating returns.
With the distribution network
in place, market ing, and
awareness programs, the
active funds category has seen
a lot more penetration in India.
On the other hand, ETF, as a
concept is relatively new and
very few AMC's are active in
ICICIdirect Money Manager April 201830
Tête-à-tête
this segment.
Gauri Sekaria – Active fund
management sector has a
much longer history and has a
natural appeal due to its
potential to outperform the
benchmark.
While the debate on whether
Active managers have the
po ten t i a l to ou tper fo rm
Passive will continue from a
global context, what Indian
investors really need is a blend
of both. There is a need for
adopting both styles through a
“Core & Satellite” approach to
portfolio management in order
t o m i t i g a t e t h e r i s k o f
underperformance.
Investors may expect better
risk adjusted returns by having
a core portfolio of passive
funds that grow in line with the
broader market ensuring index
returns and a satellite portfolio
that attempts to generate
alpha. When we launched our
first passive fund, we clearly
p o s i t i o n e d i t a s a
"Complementary" and not a
“Competing” strategy, to access
L a r g e C a p e q u i t i e s i n a n
investor's portfolio.
Q5 - How do you see the Indian ETF
market growing?
S Naren - The household
savings invested in ETFs
(excluding Gold ETFs) has
increased manifold owing to
institutional participation and
ICICI Prudential managed
BHARAT 22 ETF, which saw
t r e m e n d o u s r e t a i l a n d
institutional participation. We
believe the proposed CPSE
Debt ETF and new products
like Smart Beta ETFs (ICICI
Prudential Nifty Low Volatility
30 ETF), Commodity ETF are
expected to garner notable
subscriptions. With increased
inves to r awareness , we
believe over the decade ETF
can see sizeable investor
interest.
Gauri Sekaria -The passive space
has grown to a significant size
over the last few years .
Government's disinvestment
program through the ETF route
has given a huge fillip to this
area, highlighting the use of
ETFs as a vehicle to offload a
basket of securities in the
secondary market without
having a negative impact on
ICICIdirect Money Manager April 201831
Tête-à-tête
the underlying stock prices.
The phenomenal participation
that these funds have received
has definitely created a buzz
around passive investing in
India. This has had an overall
positive impact in terms of
enhanced awareness about
passive investments.
Not only has it found favour
from institutions such as the
EPFO, Exempt PFs, Insurance
Companies, etc we are also
seeing participation from retail
segment as we l l . Go ing
forward we expect ETFs and
index funds to be used
increasingly by clients as part
of their overall asset allocation
strategy.
Q 6 - H o w d o y o u s e e t h e
performance of ETFs vis a vis
previous year? How has been the
performance of ETFs launched a
year ago and beyond period (up to 5
years)?
S Naren - ETFs as a product
track an underlying index such
as Nifty50, a commodity like
Gold etc., or a basket of stocks
like in case of ICICI Prudential
managed BHARAT 22 ETF. As
such, the performance of the
b e n c h m a r k i n d e x g e t s
replicated through the ETF
per formance, sub ject to
tracking error. Within the MF
universe, the growth in ETF
p o r t i o n h a s b e e n v e r y
encouraging thus far.
Q7 - Who should invest in ETFs?
What are the tax advantages and
disadvantages?
S Naren - ETFs are suitable for
those investors who wish
passively take exposure to
Indian equities. Since the
portfolio aims at investing in
same proportion of stocks/
c o m m o d i t i e s a s t h e i r
representative indices, the
portfolio turnover and related
c o s t s a r e m u c h l e s s e r,
compared to active funds.
One can invest in ETFs directly
through their demat accounts
by buying through stock
exchanges. Alternatively, one
can also take an exposure of
ETFs by investing in Fund of
Funds (FOFs) mirroring such
ETFs. ICICI Prudential has also
filed for a FOF offering with
SEBI to emulate Bharat 22
Index and will be investing in
ICICIdirect Money Manager April 201832
Tête-à-tête
uni ts of ICICI Prudent ia l
managed BHARAT 22 ETF.
The tax rules for an ETF are
same as that of any mutual
fund scheme. Accordingly, any
equity ETF will be subject to tax
provisions governing an equity
oriented scheme.
Gauri Sekaria – Any investor
looking to access the markets
at a reasonably low cost can
consider investing in ETFs and
Index Funds as part of his or
her overall asset allocation.
Depending on the underlying
benchmark, both ETFs and
Index Funds will have the usual
equity or debt taxation – there
is no special tax advantage
available at this point of time.
Q8 - What strategy would you
suggest for retail investors in the
current economic scenario?
S Naren -We have beenadvising
investing to fol low asset
allocation, which is the key to
long term wealth creation.
Therefore, we have been
advising investors to opt for
balanced advantage category
of schemes, where in the
invested sum is spread across
debt and equity, based on
relative market valuations. For
those looking to invest into
pure equities can consider
large-cap funds. When it
comes to debt investment,
investors are recommended to
invest in ultra-short-term,
short-term funds, credit risk
fund and dynamic bond funds.
Gauri Sekaria -ETFs and index
funds that give access to a
well-diversified basket of
stocks with a reasonable fee
can be used by clients with a
core satellite approach in order
to overcome the challenge of
timing the markets. The DSP
Black Rock Equal Nifty 50 Fund
g i v es ac c es s to a we l l -
diversified basket of NIFTY 50
stocks. The Fund has an equal
exposure to all the 50 stocks
that comprise the NIFTY 50
Index. The equal weighting
strategy protects the downside
to a certain extent and gives an
early participation in recovery
during sudden changes in the
market cycle. Exposure to such
strategies may be taken as part
of a client's overall asset
allocation in order to improve a
client's risk adjusted returns.
ASK OUR PLANNER
ICICIdirect Money Manager April 201833
Q. I am getting Rs 13, 80,000 from
ICICI prudential life stage pension.
This is a maturity amount, not the
surrendering amount. Please
suggest potential tax-saving
instruments to reinvest this
corpus? Can I use it to buy a
residential property? What will be
the TDS deducted? Is it 2% or 30%?
- Dr Koneti Nookaraju
A. On maturity of a pension
policy, you would be able to rd
withdraw a maximum of 1/3
of the maturi ty value as
lumpsum, which would be
exempt from tax. The balance rd2/3 would be converted into
annuity and you would start
receiving pension, which
would be added to your
income every year and taxed
as per your income slab every
year. The only way to reduce
the tax outgo in the years in
which you receive pension is
by way of invest ing the
pension or part of it again in
any instruments which provide
deduction under Section 80C
of the Income Tax Act.
As the lumpsum amount of
rd1/3 is exempt from tax, the
question of TDS does not arise.
Q. I had a ULIP plan of single
premium Rs.100,000 . Policy
started in the year Financial year
2009-2010 and surrendered in the
year 2016-2017. On surrender I
r e c e i v e d R s . 1 6 1 , 0 7 7 a f t e r
deducting TDS (Rs 1628) by
insurance company. The surrender
value is reflecting in my form 26
AS; is it taxable as per section
10(10D) of income tax act?
- Abhay Goyal
A. If the insurance company
has deducted tax at source,
then it means that as per
section 10(10D) of the Income
Ta x A c t , t h e s u r r e n d e r
proceeds of your policy are
taxable. This would be the
case, as the sum assured in
your policy could be less than 5
times of the premium amount.
Hence, you would be liable to
pay tax on the same.
Q. I have doubt regarding TDS
deductions on the amount received
after surrendering of the policy
before the maturity date.Please tell
me the rate and under which
Managing taxes in your personal finance
ASK OUR PLANNER
ICICIdirect Money Manager April 2018
section of the IT Act does it fall
under?
- Nikhil Jayan
A. Tax is being deducted at
s o u r c e f r o m n o t o n l y
surrender proceeds, but also
the maturity amount of the life
insurance policies for the past
few years. TDS is applicable @
1% of the maturity/surrender
proceeds under Sect ion
194DA of the Income Tax Act,
in cases where they are taxable
in the hands of the policy
holder.
As per Section 10 (10D) of the
Income Tax Act, life insurance
policies taken upto March 31,
2003, the maturity / surrender
proceeds would be exempt
from tax. For policies taken
from April 1, 2003 till March 31,
2012, the maturity / surrender
proceeds would be exempt
from tax only if premium paid
is upto 20% of the sum
assured in all the policy years.
For policies taken from April 1,
2012, the maturity / surrender
proceeds would be exempt
from tax only if premium paid
is upto 10% of the sum
assured in all the policy years.
34
Q. I had purchased a Lifetime gold
policy in Feb 2008 with yearly
premium of Rs.20000 for 10 years
duration. The sum assured was
Rs.100000. I have received the
maturity payout in the month of Mar
18. Can you please advise me what
would be my tax liability for the
said transaction to help me include
it in this year's tax return?
- Aafreen Shaikh
A. If the sum assured was not
reduced during the entire
p o l i c y d u r a t i o n o r n o
additional premium was paid
during any of the years without
increasing the sum assured to
the same proportion, then the
maturity amount would be
exempt from tax, as the
premium paid every year is
20% of the sum assured.
However, you will have to
declare this income in your
income tax return and show it
under 'Details of Exempt
Income' section.
I f a n y s u c h i n s t a n c e s
m e n t i o n e d a b o v e h a v e
occurred, then the maturity
amount would be taxable and
accordingly the insurance
c o m p a n y w o u l d h a v e
deducted tax @1% from the
ASK OUR PLANNER
ICICIdirect Money Manager April 201835
maturity amount and you
would have to pay tax on the
maturity proceeds as per your
income slab.
Q. I had paid 4 installments of Rs
3 0 0 0 0 / - f o r t h e y e a r s
2008,09,10,11 and maturity was
due on 17 Mar 2018. At my age (
74+), I thought annuity won't be
beneficial to me and opted for
redemption on 12 Mar 2018 .Pl let
me know the Tax implications . Is
LTCG available on the benefits
( T o t a l p a i d v a l u e l e s s
Premiums paid)
- D K DINKER
A. If you surrender a pension
policy before the maturity
date, then the entire surrender
value shall be added as your
income and taxed in the year of
receipt, as per your income
slab, if you have claimed
deduction for the premiums
paid under Section 80CCC.
However, the Income Tax Act
does not explicitly say how it is
taxed if you haven't claimed
deduction for the premiums
paid. If we look at it logically,
during surrender of pension
policies, where deduction
under Section 80CCC(1) has
not been claimed for the
premiums paid, tax would
have to be payable on the Gain
/ Difference between the
surrender value and the
premiums paid; and if the
surrender value is less than the
premiums paid, there's no gain
and no tax would have to be
payable.
Q. I have been contributing to a
pension pol icy (without any
insurance component). I want to
surrender it. I have been told that
there are two options:
I) purchase any other plan with
insurance coverage from same
insurer - no tax
ii) get the entire proceeds as
surrender value - entire money
received is taxable I have not
claimed any tax deduction
benefit under section 80 C from
this.
My question is
a) whether (i) and (ii) above are
correct
b) if I surrender it, will the entire
money I get it taxable, including
the premium I paid
c) whether out of the surrender
amount (b) above, only the gains
ASK OUR PLANNER
ICICIdirect Money Manager April 201836
A. Yes, insuring the structure of
your house properties is highly
desirable. I f your house
properties are on rent, then
you need not insure the
contents of the house; but
insuring the structure against
natural & man-made risks is a
must. As you would have
invested a huge amount into
these properties, it's prudent to
g e t t h e m i n s u r e d . T h e
premium you would be paying
for the same would be much
lower.
from the policy will be taxable.
- Pavnesh Sharma
A . Surrender ing pension
policies before maturity would
attract tax; this will not change
because you purchase any
other policy from the same
insurer. For the remaining
queries, please refer the
answer to the above question.
Q. I s p u r c h a s i n g a p r o p e r t y
insurance a prudent choice? As of
2018, I own two properties- one in
Mumbai and another in Karnataka.
Both are residential apartments
and on rental. Should I insure
either, both or none?
- ManjirBhanu
Do you also have similar queries to ask our experts? Write to us at: [email protected].
MUTUAL FUND ANALYSIS
Investing in infrastructure funds
ICICIdirect Money Manager April 2018
After making highs in January 2018,
equity markets have been under
pressure. We believe the recent
correction is an opportunity to
enhance allocation to equity markets
as improving fundamentals, in terms
of GDP and earnings growth,
domestic liquidity and reforms
continue. It has been observed that
investing during market volatility
tends to be rewarding.
Within equities, the infrastructure
segment remains well placed to
o f f e r a b e t t e r i n v e s t m e n t
opportunity. Various segments
like roads, railways, ports, oil &
gas, defence and housing have
been key thrust areas of the
government. Policy measures to
create a favourable environment
for private investment along with
the government's own huge
expenditure on the infrastructure
segment have started to result in
order inflows and execution on
the ground.
Tendering activity in infra and
capex segments is a lead indicator
of a pickup in economic activity.
Tendering is followed by actual
awarding of contracts, which later
leads to ground level execution.
Large scale tendering for mega
infra projects is beneficial for larger,
stronger companies that are more
typically found in the organised
space. While tendering activity was
dominated by the government,
participation of private players in
tendering activity was very limited
in the last three to four years due to
high leverage and an elevated
interest rate scenario along with
uncertainty over policy framework.
However, we believe private
investment could see an uptick in
investment possibly, going
forward, as there are early signs of
corporate balance sheet repairs.
Overall, we believe execution
activity would be boosted over the
next few months as tendering
activity, which has already picked
up (and is highest since 2012), will
ultimately translate into action.
Furthermore, opening up of various
financing options like InvITs, REITs
along with Budget focus on
promoting the bond market for
lower rated companies will make
the bus iness env i ronment
conducive to private investment in
infrastructure.
In its Budget announcements, the
government has underlined its
c o m m i t m e n t t o p r o v i d e a
continued thrust to the infra
space. Budgetary allocation to
roads, highways and transport
was increased 16.3% YoY while
37
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 201838
that to urban development was
increased 11.2% YoY. Railways
received a bumper push, with
budgetary allocation increasing
32 .7% YoY. Consequent l y,
a l l o c a t i o n t o w a r d s k e y
development related schemes
was increased 14.1% YoY.
Over the past few years, the
government has been working on
providing the much needed
groundwork that can see the
infrastructure sector take-off in
coming years. The removal of
sectoral bottlenecks like land
acquis i t ion , env i ronmenta l
approvals, allocation of mining
resources along with measures
for ease of doing business may
lead to timely completion of
in f ras t ructure pro jects . As
infrastructure projects involve
high capital expenditure, a sharp
f a l l i n i n t e r e s t r a t e s h a s
s ign i f i can t l y added to the
profitability of the sector.
Infrastructure funds focusing on
specific companies capitalising on
growth potential in the sector are
offering good investment options
to investors. Aggressive investors
may consider investing in the
recommended infrastructure
funds as a part of their thematic
allocation.
We recommend the following
f u n d s : A d i t y a B i r l a S L
I n f r a s t r u c t u r e F u n d , L & T
Infrastructure Fund and Reliance
Diversified Power Sector Fund.
Investors should avoid allocating
more than 10% of their equity
mutual fund corpus in any sector
or thematic fund.
Aditya Birla Sun Life Infrastructure Fund
Fund Objective:An open-end growth scheme with the objective of providing for medium to long-term c a p i t a l a p p r e c i a t i o n b y investing predominantly in a diversified portfolio of equity and equity related securities of c o m p a n i e s t h a t a r e participating in the growth and development of Infrastructure in India.
NAV as on March 28, 2018 (`) 35.3
Inception Date March 17, 2006
Fund Manager Vineet Maloo
Minimum Investment (`)
Lumpsum 1000
SIP 1000
Expense Ratio (%) 2.68
Exit Load 1% on or before 1Y, Nil after 1Y
Benchmark NIFTY 50 - TRI
Last declared Quarterly AAUM(` cr) 704
Key Information:
Product Label:
Investors understand that their principal will be at high risk
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 201839
This product is suitable for investors who are seeking:• Long term capital growth • Investments in equity and equity related securities of companies that are participating in the growth and development of infrastructure in India
Performance:The fund has consistently outperformed the benchmark and has been among the top two quartiles over the three and five-year time frame (as of March 31). It has generated CAGR of 10% and 20.1% in the
last three years and five years vs. 7.4% and 13.6% returns by benchmark, respectively (as of March 31, 2018). However, this comparison is not strictly comparable because the fund has chosen Nifty 50 as its benchmark. Looking at the scheme's performance vis-à-vis the category average would be more appropriate. Here, the fund has marginally under-performed its peers in recent times but has outperformed over a five-year timeframe.
Fund Benchmark
Performance vs. Benchmark
12
10
20.1
1111.8
7.4
13.6
11
0
5
10
15
20
25
1 Year 3 Year 5 Year Since Inception
Portfolio:The fund has traditionally invested heavily in financials and industrials with these two sectors regularly constituting ~50-55% of the portfolio. However, over the last two to three years it has consistently cut exposure to these sectors while increasing allocation to mater ia l s . The por t fo l io
displays a significant midcap bias with the portfolio seeing allocation of ~40% in large caps and ~60% in midcap and small cap stocks. At the stock level, the fund tries to mitigate this risk by diversifying heavily. It currently holds 66 stocks with the top 10 bets making up around a third of the portfolio.
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 201840
%
4.9
4.3
4.2
3.9
3.9
3.2
3.2
2.7
2.6
2.5
Top 10 Holdings Asset Type
Domestic Equities
Carborundum Universal Ltd. Domestic Equities
PNC Infratech Ltd. Domestic Equities
Indraprastha Gas Ltd. Domestic Equities
Honeywell Automation India Ltd. Domestic Equities
Clearing Corporation Of India Ltd. Cash & Cash Equivalents and Net Assets
Vedanta Ltd. Domestic Equities
Bharat Electronics Ltd.
KEC International Ltd. Domestic Equities
Housing Development Finance Corporation Ltd. Domestic Equities
Hindustan Petroleum Corporation Ltd. Domestic Equities
%14.7
6.1
5.5
5.0
4.9
4.5
4.1
3.9
3.9
3.7
Top 10 Sectors Asset TypeEngineering - Construction Domestic Equities
Metal - Non Ferrous Domestic Equities
Refineries Domestic Equities
Bank - Private Domestic Equities
Consumer Durables - Electronics Domestic Equities
Abrasives Domestic Equities
Cement & Construction Materials Domestic Equities
Industrial Gases & Fuels Domestic Equities
Finance - NBFC Domestic Equities
Engineering - Industrial Equipments Domestic Equities
%
0.2
0.4
1.3NMDC Ltd.
Whats In
LIC Housing Finance Ltd.
Tata Steel Ltd.
%
1.1
0.81.2
Whats out
Century Textiles & Industries Ltd.
JSW Steel Ltd.Bank Of Baroda
Our View:T h e f u n d h a s w o r k e d o n diversifying its portfolio by m o v i n g a w a y f r o m h i g h l y c o n c e n t r a t e d p o s i t i o n s i n financials and industrials. Having
reduced exposure to sectors such as consumer discretionary and financials the fund is now truer to t h e i n f r a s t r u c t u r e t h e m e . Investors can consider this fund from a three-year perspective.
Data as on March 31, 2018; Portfolio details as on February-2018Source: ACE MF, ICICI Direct Research
You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://mutualfund.adityabirlacapital.com/-/media/bsl/files/resources/ factsheets/2018/empower-march-2018-rev-1.pdf
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2018
Fund Objective:The scheme seeks to generate c a p i t a l a p p r e c i a t i o n b y investing predominantly in equity and equity related instruments of companies in the infrastructure sector.
Key Information:
This product is suitable for investors who are seeking*:
• Long term capital appreciation
• Investment predominantly in equity and equity-related instruments of companies in the infrastructure sector
Product Label:
Performance:The fund has been a top quartile performer over the last one year, three year and five-year time frames (as on March 31, 2018), indicating its relative outperformance over its peers. It has also comfortably and cons i s ten t l y bea ten the benchmark Nifty Infra by ~13% (one year), ~15% CAGR (three years) and ~16% CAGR (five years) (as of March 31, 2018).
Fund Benchmark
Performance vs. Benchmark
41
L&T Infrastructure Fund
NAV as on March 28, 2018 (`) 17.1
Inception Date September 27, 2007
Fund Manager Soumendra Nath Lahiri
Minimum Investment (`)
Lumpsum 5000
SIP 500
Expense Ratio (%) 2.24
Exit Load 1% on or before 1Y, Nil after 1Y
Benchmark NIFTY INFRA
Last declared Quarterly AAUM(` cr) 1925
Investors under-stand that their principal will be at moderately high risk
21
16.2 24.6
5.37.5
0.8
8.5
-2.8-10
0
10
20
30
1 Year 3 Year 5 Year Since Inception
Portfolio:The portfolio has undergone a significant change in character over the years. Till 2012, the holdings were dominated by
financial, energy and industrial stocks. However, post 2012 it started shedding financial stocks in favour of materials sector and post 2015, the
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 201842
%
7.2
4.9
4.0
3.5
3.3
3.1
3.0
3.0
3.0
2.9
Top 10 Holdings Asset Type
Domestic Equities
Graphite India Ltd. Domestic Equities
Bharat Electronics Ltd. Domestic Equities
Lakshmi Machine Works Ltd. Domestic Equities
Larsen & Toubro Ltd. Domestic Equities
Cash & Cash Equivalent Cash & Cash Equivalents and Net Assets
Bharti Airtel Ltd. Domestic Equities
The Ramco Cements Ltd.
Hindustan Zinc Ltd. Domestic Equities
Engineers India Ltd. Domestic Equities
Vedanta Ltd. Domestic Equities
%10.6
10.3
8.7
7.8
6.1
5.9
5.4
5.2
4.5
4.0
Top 10 Sectors Asset TypeCement & Construction Materials Domestic Equities
Engineering - Construction Domestic Equities
Engineering - Industrial Equipments Domestic Equities
Telecommunication - Service Provider Domestic Equities
Construction - Real Estate Domestic Equities
Logistics Domestic Equities
Steel & Iron Products Domestic Equities
Metal - Non Ferrous Domestic Equities
Electrodes & Welding Equipment Domestic Equities
Diversified Domestic Equities
Data as on February 28, 2018; Portfolio details as on January 2018Source: ACE MF, ICICI Direct Research
%
2.2
2.1
Whats In
Grasim Industries Ltd.
HEG Ltd.
Our View:The fund is on the aggressive side with higher allocation to midcaps than large caps. However, the portfolio is well constructed in
terms of diversification. Investors looking for a true-blue infra fund can consider L&T Infrastructure Fund.
holdings in financial stocks has been cut, to a large extent. As a result, now the fund truly resembles an infrastructure f u n d w i t h t h e p o r t f o l i o predominantly comprising appropriate constituent sectors,
viz. industrials, materials, energy and telecom. Currently, there are ~55 stocks in the fund with the top 10 holdings making up close to 36% of the portfolio. The fund also has ~5% of the portfolio in cash currently.
You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://partners.lntmf.com/ltfsdocs/downloads/E-Factsheet/LnTMF-Efactsheet-March-2018.html
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2018
Reliance Diversified Power Sector Fund
Fund Objective:The pr imary inves tment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity and equity related securities of companies in the power sector.
Key Information:
Product Label:
This product is suitable for investors who are seeking*:
• Long term capital growth
* Investment in equity and equity related securities of companies in power sector
Performance:The fund has outperformed its benchmark BSE Power Index strongly over the years. The one year, three years and five-year performance (as of March 31) is 12.9%, 13.5% CAGR and 18% CAGR, respectively compared to BSE Power Index' -3.5%, 0% CAGR and 5.2% CAGR. When compared to its category peers, the performance has picked up over the last three years but over five years' time frame it has underperformed.
Performance vs. Benchmark
Fund Benchmark
NAV as on March 28, 2018 (`) 110.5
Inception Date May 8, 2004
Fund Manager Sanjay Doshi
Minimum Investment (`)
Lumpsum 5000
SIP 100
Expense Ratio (%) 2.10
Exit Load 1% on or Before 1Y, Nil After 1Y
Benchmark S&P BSE Power Index
Last declared Quarterly AAUM(` cr) 2006
43
I n v e s t o r s u n d e r-s t a n d t h a t t h e i r principal will be at moderately high risk
12.9
13.5 18 18.9
-6.5
0
5.2
0
-10
0
10
20
30
1 Year 3 Year 5 Year Since Inception
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2018
PortfolioI n d u s t r i a l s a n d u t i l i t i e s consistently make up ~75-80% of the scheme portfolio. The scheme has taken outsized positions on these sectors over the years. In recent times, exposure to materials has also increased. It is now the third largest holding in terms of
sectors. The fund likes to take large bets on its top holdings, with the top five stocks all individually constituting 5% or more of the portfolio and the top 10 stocks constituting ~52% of the portfolio. Overall, the fund currently has 36 stocks in the portfolio and has a pronounced midcap tilt.
44
Our View:The fund is more suited to savvy, e x p e r i e n c e d & a g g r e s s i v e investors due to factors like
significant midcap bias of ~75% and heavily concentrated calls in terms of stocks as well as sectors.
%
8.3
7.1
5.5
5.4
5.1
4.6
4.4
4.2
3.6
3.6NTPC Ltd. Domestic Equities
KSB Pumps Ltd. Domestic Equities
Kirloskar Pneumatic Company Ltd. Domestic Equities
PTC India Ltd. Domestic Equities
GE Power India Ltd. Domestic Equities
Jindal Stainless (Hisar) Ltd. Domestic Equities
Top 10 Holdings Asset Type
KEC International Ltd. Domestic Equities
Larsen & Toubro Ltd. Domestic Equities
Apar Industries Ltd. Domestic Equities
Torrent Power Ltd. Domestic Equities
%26.5
22.8
15.7
10.2
5.4
3.6
3.4
3.2
2.9
1.9
Diesel Engines Domestic Equities
Transmission Towers / Equipments Domestic Equities
Bank - Private Domestic Equities
Domestic Equities
Steel & Iron Products Domestic Equities
Compressors / Pumps Domestic Equities
Cable Domestic Equities
Engineering - Construction Domestic Equities
Power Generation/Distribution Domestic Equities
Top 10 Sectors Asset Type
Electric Equipment Domestic Equities
Engineering - Industrial Equipments
%
0.6
Whats out
Jindal Stainless Ltd.
You can view performance of other schemes being managed by the fund manager of this scheme on the following link: https://www.reliancemutual.com/InvestorServices/FactsheetsDocuments/Fundamentals-March-2018.pdf
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2018
Performance of other schemes managed by these fund managers: 1. Aditya Birla Sun Life Infrastructure Fund
45
Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 10 other schemes of the concerned Mutual Fund
2. L&T Infrastructure Fund
Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 8 other schemes of the concerned Mutual Fund
13.96 10.37 20.5012.97 7.16 13.7913.23 2.84 8.0312.42 7.41 13.9710.36 7.99 13.5712.42 7.41 13.97
4.71 -- --6.63 8.52 9.874.45 -- --6.63 8.52 9.874.29 5.52 --6.63 8.52 9.87
Performance of other schemes managed by the fund manager - Vineet Maloo
Aditya Birla SL Intl. Equity Fund-A(G)NIFTY 50 - TRIAditya Birla SL Intl. Equity Fund-B(G)NIFTY 50 - TRI
Fund Name 1 Year 3 Years 5 Years
Top 3 Performing Schemes Aditya Birla SL Infrastructure Fund(G)S&P BSE Sensex - TRI
CRISIL Hybrid 85+15 - Conservative Index
Bottom 3 Performing SchemesAditya Birla SL CPO Fund-Sr 30CRISIL Hybrid 85+15 - Conservative IndexAditya Birla SL CPO Fund-Sr 29CRISIL Hybrid 85+15 - Conservative IndexAditya Birla SL CPO Fund-Sr 22
29.85 22.87 --13.68 7.04 13.4323.15 16.14 24.5410.66 2.28 9.7520.39 17.31 29.6511.51 15.09 21.96
13.34 8.14 17.8113.68 7.04 13.4311.62 10.22 18.7113.68 7.04 13.436.49 3.88 14.98
13.68 7.04 13.43
Performance of other schemes managed by the fund manager - Soumendra Nath Lahiri
L&T Infrastructure Fund-Reg(G)NIFTY INFRA - TRIL&T Midcap Fund-Reg(G)Nifty Midcap 100 - TRI
Fund Name 1 Year 3 Years 5 Years
Top 3 Performing Schemes L&T Emerging Businesses Fund-Reg(G)S&P BSE Sensex - TRI
S&P BSE Sensex - TRI
Bottom 3 Performing SchemesL&T Equity Fund-Reg(G)S&P BSE Sensex - TRIL&T India Prudence Fund-Reg(G)S&P BSE Sensex - TRIL&T Dynamic Equity Fund-Reg(G)
MUTUAL FUND ANALYSIS
ICICIdirect Money Manager April 2018
Data as on March 31, 2018; Portfolio details as on February-2018Source: ACE MF, ICICI Direct Research
46
3. Reliance Diversified Power Sector Fund
Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 1 other schemes of the concerned Mutual Fund
15.34 13.79 17.7313.68 7.04 13.43
Fund Name 1 Year 3 Years 5 Years
Top 3 Performing Schemes Reliance Diver Power Sector Fund(G)S&P BSE Sensex - TRI
Performance of other schemes managed by the fund manager - Sanjay Doshi
ICICIdirect Money Manager April 2018
What is iCommunity?iCommunity is ICICIdirect's interactive platform where one can answer and get answered as well. With extensive range of forums, events & discussions iCommunity serves as an opportunity to learn more about financial world.
This month on iCommunity
Discussion
Is gold a good investment bet for 2018?The year 2018, after having started on a positive note with benchmark
headlines indices making new highs in January, witnessed a sharp
correction post the Union Budget in February. Does it still make gold a good
investment bet for 2018?
Q & A Forum
Q& A Session with Technical Analysis Head : Mr. Dharmesh
Shah
Below mentioned questions were asked during the event -
a) Lupin has bounced back sharply in past one week.
Wanted to know whether lupin can be bought for
one week and what would the target.
b) I am holding 100 shares of Sun Pharma @671/- and
50 shares of Wockhardt @885/-. Please advise to
hold or to sell from medium term view?
c) Give me a list of equities for 10 years instrument which has potential to
give 20 percent annualized returns.
47
Quiz Time
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager April 2018
Our indicative large-cap equity model portfolio is delivering an
impressive return (inclusive of dividends) of 114.98% till date (as on
March28, 2018) since its inception (June 21, 2011) vis-à-vis the
benchmark index (S&P BSE Sensex) return of 92.35% during the
same period, an outperformance of 22.63. This validates our thesis
of selecting companies with sound business fundamentals that
forms the core theme of our portfolio. We have revised stocks in our
midcap portfolio. It continues to outperform, delivering 363.39%
(inclusive of dividends) till date (as on March28, 2018) vis-à-vis the
benchmark index (CNX Midcap) return of 143.65%, outperformance
of 219.74. Our consistent outperformance demonstrates our
superior stock picking ability as markets aligned to our view of
favourable risk reward, good franchisee vs. reward-at-any-risk
businesses.
We have always suggested the SIP mode of investment and still find
a lot of merit in it as the preferred mode of deployment given the
market conditions and volatility associated since the inception of the
portfolio. We highlight that the SIP return of our portfolio has
consistently outperformed the indices.
Following the same pace and opportunities in the market, ourlatest
portfolio (large caps) remains overweight on BFSI sector – HDFC
Bank (10%), HDFC (9%), Axis Bank (6%) Bajaj Finance (6%) and SBI
(6%). ITC is the latest addition to the large-cap portfolio, given6%
weightage. Affirming our view on consumption demand, Dabur
(5%) and Marico (4%) continue to be part of our large cap portfolio.
We remain positive on auto, IT and pharma. However, please note
that the weightage for Tata Motor DVR, Maruti and EICHER Motor is
revised. We 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 continue to remain underweight on metals and oil & gas with our
only pick being Gail Ltd., which has a better risk reward opportunity.
Among individual names, we recommend TCS in the IT space, HDFC
and HDFC Bank in the BFSI space, ITC in consumer space and NBCC
in the infra space.
48
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager April 2018
Name of the company
Largecap Stocks
Model Portfolio
Largecap(%)
Midcap(%)
Diversified(%)
49
Auto 17.0 11.9
Tata Motor DVR 3.0 2.1
Maruti 6.0 4.2
EICHER Motors 4.0 2.8
Mahindra & Mahindra (M&M) 4.0 2.8
BFSI 37.0 25.9
HDFC Bank 10.0 7.0
Axis Bank 6.0 4.2
HDFC 9.0 6.3
Bajaj Finance 6.0 4.2
SBI 6.0 4.2
Capital Goods 6.0 4.2
L & T 6.0 4.2
Cement 4.0 2.8
UltraTech Cement 4.0 2.8
FMCG/Consumer 19.0 13.3
Dabur 5.0 3.5
Marico 4.0 2.8
ITC 6.0 4.2
Nestle 4.0 2.8
IT 6.0 4.2
TCS 6.0 4.2
Metals 6.0 4.2
Hindustan Zinc 6.0 4.2
Oil and Gas 5.0 3.5
GAIL Ltd. 5.0 3.5
Largecap share in diversified 100.0 70.0
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager April 2018
ICICI Securities has received a mandate from Indian Bank'.ICICI Securities has received an Investment Banking mandate from Mahindra & Mahindra and BHARAT HEAVY ELECTRICALS LTD
50
Auto 6.0 1.8
Bharat Forge 6.0 1.8
BFSI 20.0 6.0
Bajaj Finserve 8.0 2.4
J&K Bank 6.0 1.8
Indian Bank 6.0 1.8
Capital Goods 12.0 3.6
Bharat Electronics 6.0 1.8
Kalpataru Power transmission 6.0 1.8
Cement 6.0 1.8
Ramco Cement 6.0 1.8
Consumer 30.0 9.0
Symphony 6.0 1.8
Kansai Nerolac 6.0 1.8
Pidilite 6.0 1.8
Tata Chemicals 6.0 1.8
Bata 6.0 1.8
Metals 6.0 1.8
Graphite India 6.0 1.8
Infrastructure 8.0 2.4
NBCC 8.0 2.4
Logistics 6.0 1.8
Container Corporation of India 6.0 1.8
Textile 6.0 1.8
Arvind 6.0 1.8
Total 100.0 30.0
Midcap share in diversified 30
TOTAL 100 0 100.0
Performance* so far since inception
*Returns (in %) as on Mar 28, 2018
Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio
Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination
of BSE Sensex and CNX Midcap
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: June 30, 2011; *Value as on Mar 28, 2018
EQUITY MODEL PORTFOLIO
ICICIdirect Money Manager April 201851
114.9862437
363.3913963
166.0403241
92.35246011143.6591085
105.9415367
0255075
100125150175200225250275300325350375400
Large Cap Midcap Diversified
%
8300000
8300000
8300000
11732148.7
9
14204005.1
8
10474922.5
2
11514772.7
4
11740546.5
8
3500000
4500000
5500000
6500000
7500000
8500000
Largecap Midcap Divesified
QUIZ TIME
1. Each index provider may not have its own construction
methodology, resulting in wide variations in turnover and
other portfolio characteristics. True/False
2. Expense ratio of an index fund is usually ________ than
traditional mutual funds, but slightly __________ than ETFs.
3. When underlying stocks are doing well, the value of
corresponding index ______.
4. The authorized participant acquires securities from the
___________ to create ETF units.
5. In an ETF, the details of fund's holdings under management
are disclosed on a _________ basis.
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 March2018 quiz are:
1. A correlation of -40% tells us that historically 40% of the
time, the two assets were moving in opposite directions.
2. Unit-linked insurance plans is one of the common vehicles
for holding equity. True
3. In Tactical asset allocation method, advisor reduces
exposure to overvalued assets based on the market view
in order to outperform the asset class indices.
4. An investor saving up for a child's education in 10 years
should not invest in low risk assets. True
5. Gold is a good option (/asset) for diversification but not
necessarily for growth.
ICICIdirect Money Manager April 201852
PRIME NUMBERS
Equity Markets
ICICIdirect Money Manager April 2018
Domestic Equity Indices
Global Equity Indices
Sectoral Indices
53
28-Mar-18 28-Feb-18 Change (%)
CNX Nifty 10114.0 10493.0 -3.6%
CNX Midcap 18757.0 19665.0 -4.6%
S&P BSE Sensex 32968.7 34184.0 -3.6%
S&P BSE 100 10502.6 10865.0 -3.3%
S&P BSE 200 4432.6 4592.0 -3.5%
S&P BSE 500 14125.5 14670.0 -3.7%
29-Mar-18 28-Feb-18 Change (%)
Dow Jones 24,103.1 25,029.2 -3.7%
S&P 500 2,640.9 2,713.8 -2.7%
Nasdaq 7,063.4 7,273.0 -2.9%
FTSE 7,056.6 7,231.9 -2.4%
DAX 12,096.7 12,435.9 -2.7%
CAC 40 5,167.3 5,320.5 -2.9%
Nikkei 21,159.1 22,068.2 -4.1%
Hang Seng 30,093.4 30,844.7 -2.4%
Shanghai Composite 3,160.5 3,259.4 -3.0%
Taiwan Weighted 10,845.9 10,815.5 0.3%
Straits Times 3,428.0 3,517.9 -2.6%
28-Mar-18 28-Feb-18 Change (%)
S&P BSE Auto 24,057.3 24,832.4 -3.1%
S&P BSE Bankex 27,197.9 28,313.9 -3.9%
S&P BSE FMCG 10,290.1 10,506.4 -2.1%
S&P BSE Healthcare 13,157.6 14,113.0 -6.8%
S&P BSE Metals 13322.03 15173.8 -12.2%
S&P BSE Oil & Gas 14,614.4 15,505.8 -5.7%
S&P BSE Power 2,125.8 2,223.1 -4.4%
S&P BSE Realty 2,229.9 2,468.3 -9.7%
S&P BSE Teck 6,513.3 6,742.5 -3.4%
PRIME NUMBERS
ICICIdirect Money Manager April 2018
Debt Markets
Government Securities (G-Sec) Yields (in %) Mar-18 Feb-18 Change (bps)
Corporate Bond Yields (in %) Mar-18 Feb-18 Change (bps)
Commercial Paper (CP) Rates (in %) Mar-18 Feb-18 Change (bps)
Treasury Bill (T-Bills) Yields (in %) Mar-18 Feb-18 Change (bps)
Volatility Index (VIX)
28-Mar-18 28-Feb-18 Change (%)
VIX 15.76 13.80 0%
54
10 year 7.40 7.72 -32
5 year 7.40 7.55 -16
3 year 7.09 7.20 -11
1 year 6.45 6.68 -23
AAA 10 year 8.18 8.31 -13
AAA 5 year 7.89 7.98 -9
AAA 3 year 7.72 7.81 -9
AAA 1 year 7.62 7.80 -18
AA 10 year 8.64 8.78 -14
AA 5 year 8.48 8.49 -1
AA 3 year 8.25 8.34 -9
AA 1 year 8.06 8.21 -15
12 Months 7.88 8.16 -29
6 Months 7.67 8.01 -34
3 Months 7.44 7.91 -47
1 Month 7.74 6.88 86
91D TB 6.11 6.28 -17
182D TB 6.33 6.48 -15
364D TB 6.42 6.63 -21
PRIME NUMBERS
10-year benchmark yields (%) across countries
ICICIdirect Money Manager April 2018
Macro-economic Indicators
Consumer price index (CPI)
Wholesale price index (WPI)Month
*WPI numbers are based on new series with 2011-12 as the base year'
55
Countries 30-Mar-18 28-Feb-18 Change in bps
US 2.739 2.861 (12)
UK 1.350 1.501 (15)
Japan 0.043 0.053 (1)
Spain 1.164 1.531 (37)
Germany 0.497 0.656 (16)
France 0.718 0.916 (20)
Italy 1.782 1.974 (19)
Brazil 9.492 9.610 (12)
China 3.751 3.845 (9)
India 7.396 7.726 (33)
MF Investment Mar-18 Feb-18 Fy18
Equity 9255 13261 141769
Debt 37977 26547 370716
FII Investment Mar-18 Feb-18 Fy18
Equity 13114 -12491 22272
Debt -5216 -2771 120388
Items Weights(%) Jan-18 Feb-18 Mar-18
Food&bev. 45.86 4.58 3.38 3.01
Pan,tob& intox. 2.38 7.58 7.34 7.79
Cloth & Foot 6.53 4.94 5.00 4.91
Housing 10.07 8.33 8.28 8.31
Fuel & light 6.84 7.73 6.80 5.73
Misc. 28.31 3.78 3.85 4.16
CPI 100 5.07 4.44 4.28
Weights Jan-18 Feb-18 Mar-18WPI 100.0 2.84 2.48 2.47Primary Articles 22.6 2.37 0.79 0.24Fuel & Power 13.2 4.08 3.81 4.70Manufactured Goods 64.2 2.78 3.04 3.03
PRIME NUMBERS
Commodities
Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research
ICICIdirect Money Manager April 2018
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 March 28, 2018
Debt Funds Returns (in %)
Returns as on March 28, 2018
Tenure Liquid Funds
Index of industrial production (IIP) Sector-wise growth rate (%)
Currencies and CommoditiesCurrencies
*IIP numbers are based on new series with 2011-12 as the base year'
Debt ST Ultra ST Debt LT
56
6 months 6.12 3.12 4.99 -1.17
1 year 6.32 5.77 6.29 4.12
3 year 7.05 7.47 7.51 6.57
Categories Feb-18 Jan-18 Dec-17 Weight(%)Mining -0.3 0.1 1.2 14.4Manufacturing 8.7 8.7 8.4 77.6Electricity 4.5 7.6 4.4 8.0Overall 7.1 7.5 7.1 100.0
28-Mar-18 28-Feb-18 Change (%) StatusUSDINR 65.2 65.2 0.0% DepreciatedEURINR 80.2 79.7 0.7% DepreciatedGBPINR 91.7 90.4 1.4% DepreciatedAUDINR 49.9 50.9 -1.9% AppreciatedCHFINR 68.1 69.1 -1.5% AppreciatedJPYINR 0.6 0.6 0.2% DepreciatedCNYINR 10.3 10.3 0.5% Depreciated
30-Mar-18 28-Feb-18 Change (%)Crude ($/barrel) 69.1 64.5 7.2%Gold ($/ounce) 1,325.0 1,318.4 0.5%
6 months 3.90 6.30 2.71 3.801 year 12.90 17.40 11.10 13.353 year 10.45 14.40 7.96 10.125 year 18.60 26.24 15.37 18.45
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