Monthly Issue January

8/13/2019 Monthly Issue January

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MD Desk

Anup BagchiMD & CEO

ICICI Securities Ltd.

The calendar year 2013 saw both equity and

debt markets delivering reasonable returns,though amid high volatility. Moving forward,we look at 2014 with renewed optimism asthe positives outweigh the negatives. Wemay have probably left many uncertaintiesbehind us, as 2014 dawns with the globaland domestic economy improving and wecan expect economic growth and earnings,

which we believe have bottomed out in 2013,to show an uptrend. We must look at bothrisks and opportunities as we project into thisyear.

There may be global uncertainty aroundthe taper programme and growth indeveloped economies. A reasonable portionof earnings in the index companies in

information technology, pharmaceuticalsand automobiles are linked to globaleconomies. In addition, due to paucity ofdomestic savings in equity, we are overlydependent on foreign institutional investors(FII) flows for our equity requirements both for primary as well as secondary markets.Any depreciation in our currency has immediate negative impact on FII flows. Wecan expect a stable to mildly depreciating dollar-rupee this year with stable currentaccount deficit.

General elections, a major event during the middle of the year 2014, assumesignificance in the context of risk to sovereign rating and investment cycle. A stableelected government is good for sovereign rating and FIl flows. The revival of theinvestment cycle will also depend on the priorities - infrastructure versus socialspending - of the new government.

A well-distributed monsoon last year ensured a bumper kharif harvest and a similar

rabi harvest is likely to follow. Agriculture growth will continue to boost rural incomeand rural consumption. This will help two-wheelers and select fast moving consumergoods (FMCG) with low penetrated categories and rural focus. However, urbandiscretionary spending will continue to remain subdued till the economic growth picksup, inflation drops and/or salaries increase. This does not bode well for domesticallyexposed automobile companies.


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ICICIdirect Money Manager 1 January 2014

Exports will continue to be a growth driver in this calendar year on the back of animproving global macroeconomic environment and a depreciated rupee. Thiswill continue to benet sectors such as IT, pharmaceuticals, commodity exporters

and companies which have a global footprint and a large part of earnings abroad.Furthermore, favourable regulations and consolidation in certain sectors such as oiland gas (privatesector) and telecommunications will help them continue to improvetheir protability.

De-bottlenecking of investments has already been done and will increase capitalefciency in the country as a lot of stuck projects will start being delivered. However,fresh investments are still some time away and the outlook appears good for lowleveraged capital goods stocks. Other infrastructure stocks could be trading

opportunities based on news ows around de-leveraging by asset sales or gettingsanctions, approvals to kick start stuck projects.

Banks might continue to be under pressure due to high cost of funds, sluggish demandfor corporate credit and elevated non-performing assets (levels). We continue to preferprivate sector banks over public sector ones as the latter are likely to see signicantdilutions due to capital requirements. Finally, mid-caps might be back in action in thiscalendar year. Select mid-caps with clean balance sheet and leadership poised forgains as valuation gap with large-cap converge.

We expect Nifty to sniff 6,700 pre-election and if there is a decisive government, it canmove even higher. We expect the Nifty to trade in the 6,000-6,800 range during CY14.Relative to Nifty, we are overweight on IT, pharmaceuticals, oil and gas, telecom,cement and energy; underweight on nancials (banks and non-banking nancialcompanies), industrials, materials and real estate; and equal weight on auto, FMCGand utilities.

On debt front, we believe that with the macro-economic variables (GDP has bottomed

out, ination seems to be peaking out, concerns over current account decit hasabated and currency has stabilized) and the system liquidity improving, investmentsin this space look favorable. While longer duration income funds may offer potentialgain opportunity as government bond yields are closer to their peak, short-term debtfunds offer stable returns by utilizing opportunity to capitalize on current higher yieldsand credit spread opportunities on medium duration papers.

As a part of your asset allocation strategy, it is important that you allocate your capitalinto both equity (for growth) and debt (to provide stability). We advise investorsto focus on their asset allocation rst to meet their long-term goals. Our messageremains the same - Keep investing and stay invested for your life goals. Throughthis magazine and our website www.icicidirect.com we want to make an earnestattempt to partner with you in setting and achieving your nancial goals. Give us anopportunity to serve you, walk into any of your Neighbourhood Financial Superstoreand talk to us


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ICICIdirect Money Manager January 20142

EDITORIAL

Editor & Publisher : Abhishake Mathur, CFA

Coordinating Editor : Yogita Khatri

Editorial Board : Sameer Chavan, Pankaj Pandey

Editorial Team : Azeem Ahmad, Nithyakumar VP, Nitin Kunte, Sachin Jain, Shaboo Razdan,Sheetal Ashar, Venil Shah

The calendar year 2013 was reasonably well for almost

all the major asset classes, though amid high volatility. As

we head into another year, it is natural for most of us to

come up with the question, how the New Year would be, formarkets and investments, in terms of performance.

It's not easy to predict the future. However, knowing where

the economy and markets are headed, based on logical

analysis, can help us make informed investment decisions.

In our cover story of this edition, we bring to you a string of

views from fund managers on how they see the year 2014panning out for major asset classes.

Further, to get the big picture of markets in particular, from

both fundamental and technical point of view, we cover

exclusive columns by Pankaj Pandey and Dharmesh Shah

of ICICIdirect, who share their views on what's next for the

markets and how you might position your portfolio for the

year.

Volatility demands changes in the tactical allocations. One

can reduce the risk by allocating a part of his or her capital

into defensives. In this edition, we offer comprehensive

information and analysis on FMCG funds, which offer good

investment opportunity in the current scenario.

I would also like to draw your attention to our Guest Column

by Rohit Salhotra, MD & CEO, ICICI Home Finance Company

Ltd., who provides us with the real estate review 2013 and

the outlook for 2014. So read on, stay updated and involved.

Do write in with your feedback at moneymanager@

icicisecurities.com and share your thoughts.

We wish you a happy and prosperous New Year.


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Important: All the contents ofICICIdirect Money Managerare the exclusiveproperty of ICICI Securities Ltd. No article, either in whole or in part, maybe published circulated or distributed through any medium without theexpress consent of ICICI Securities Ltd.

Join us on Facebook at http://www.facebook.com/icicidirect

CONTENTS

MD Desk .......................................................................................................... 01

Editorial ........................................................................................................... 02

Contents .......................................................................................................... 03

News ................................................................................................................ 04

Fundamental Market Outlook 2014

By Pankaj Pandey, Head - Research, ICICIdirect ............................................ 05

Technical Market Outlook 2014

Dharmesh Shah, Head - Technical Research, ICICIdirect shares his views on

markets, currency, gold and crude oil for 2014 ............................................ 08

Monthly Derivatives Strategy

By Amit Gupta, Head - Derivatives, ICICIdirect ............................................. 14

Stock Ideas: ITC and Oberoi Reality ............................................................. 18

Flavour of the Month: Investment Outlook 2014

Here we bring to you a string of views from fund managers on how they see

the year 2014 panning out for major asset classes ...................................... 24

Guest Column: Real Estate Outlook 2014By Rohit Salhotra, MD & CEO, ICICI Home Finance Company Ltd ............... 41

Ask Our Planner: Your personal nance queries answered........................ 46

Your Financial Health Check

Here we assess Mumbai-based familys nances and suggest a suitable

way forward .................................................................................................... 50

Primer: Understanding Fiscal Decit............................................................ 53Mutual Fund Analysis: Category FMCG Funds ......................................... 55

Equity Model Portfolio................................................................................... 60

Mutual Funds Model Portfolio ....................................................................... 63

Quiz Time ........................................................................................................ 65

Monthly Trends ............................................................................................... 66

Premium Education Programmes Schedule ................................................. 70


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NEWS

EPFO raises interest rate to 8.75% for 2013-14

Retirement fund body Employees Provident Fund Organisation (EPFO) has announced

a rise in interest rate on provident fund (PF) deposits to 8.75 per cent for 2013-14,to benet 50 million subscribers. The interest rate on PF deposits in the previous

nancial year was 8.5 per cent.

Courtesy: Business Standard

CBDT may do away with submission of ITRV forms

In what could be good news for lakhs of taxpayers ling their I-T returns online, CBDT

is mulling doing away with the mandatory submission of paper verication printout

to its processing centre in Bangalore. Central Board of Direct Taxes (CBDT), the apex

ofce to formulate policies for the Income Tax department, was prompted to take

this customer-friendly step after it was recently informed that lakhs of such paper

statements ITRV have not reached its Central Processing Centre (CPC) despite

people ling their e-returns online.

Courtesy: The Hindu

Get landlords PAN details on plain paper for HRA claim

Salaried taxpayers, who want to claim I-T exemption on house rent allowance (HRA)

exceeding `one lakh per annum, will have to obtain the PAN card number and other

details of their landlord on a plain A-4 size paper before submitting it to their employer.

Courtesy: The Economic TimesETF of PSUs set for launch in a month

Soon investors can boast of a portfolio consisting of shares of 11 blue-chip Central

Public Sector Enterprises (CPSEs) without any risk considerations. An empowered

Group of Ministers (eGoM) under the chairmanship of Finance Minister P.

Chidambaram has approved the composition of the Central Public Sector Enterprises

Exchange Traded Fund (CPSE-ETF). This fund will be used as an alternative to directshare sales of CPSEs. It will be listed on a stock exchange and trade like other shares

on the bourse.

Courtesy: The Hindu Business Line


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2014 Fundamental Outlook

Pankaj Pandey, Head - Research, ICICIdirect shares his outlook

on markets for 2014 and how you might position your portfoliofor the coming year...

Where are the markets headed in 2014?

Pankaj Pandey

Head - Research, ICICIdirect

The market performance was

in line with Sensex earnings in

the year 2013. After declining

9% in the middle of the year

led by a slew of negative newsows on both the global and

domestic front, markets were

up 8% in the year. After two

subdued years with negligible

growth, Sensex earnings are

expected to grow 1718% in

FY14 and FY15 primarily dueto the low base effect and

earnings upgrades in select

stocks.

Though sentiments have

already rebounded, an

economic recovery and broadbased earnings improvement

will take time. Though some of

the economic data points have

shown signs of bottoming out,

an all-round improvement in

the macro situation still seemsdistant.

With limited number of

potential alliance partners,

a Modi-led NDA may nd it

difcult to corner a majority

to form a government. Wewould witness an increasing

dominance of regional

parties, which may render the

eventual alliance weaker, and

puncture positive sentiments.

Nonetheless, the market

reaction to election results may

be a short-term phenomenon.

Sentiments would pick up with

implementation of positive

and growth oriented reforms,


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along with improvement in

other macroeconomic factors.

The government may be ableto restrict the scal decit to

the 4.8% of Gross Domestic

Product (GDP) target by cutting

plan expenditure by around

19% (`1.04 lakh crore, ~ 1%

of GDP) in FY14. However,

even as non-plan expenditurecontinues to rise on the back of

various social benet schemes

& subsidies and a challenging

economic environment weighs

on receipts, scal decit

challenges may resurface inFY15.

We expect Wholesale Price

Index (WPI) to come off by

around 100 basis points

(bps) and Consumer Price

Index (CPI) by 200 bps fromcurrent levels to 6.5% and

8-9%, respectively, for FY15.

However, the pullback in

ination may not be enough

to bring it within Reserve Bank

of Indias (RBIs) comfort zone.

Hence, we do not expect rate

cuts during majority of the

next calendar year. We believe

interest rates are nearing their

peak, and we may witness

one more rate hike of 25 bps

if ination does not soften as

expected.

Domestic equity markets had

reacted vigorously to initial

talks of quantitative easing

(QE) tapering. However, with a

slew of measures from the RBI

and government and receding

current account decit, Indialooks better prepared for

eventual liquidity tapering.

We believe QE tapering would

eventually turn out to be a

non-event.

On the global front, Indiacould face stiff competition

from China for global funds.

Chinese markets are down

8% year-to-date (YTD), as

there were apprehensions

over leadership change.With a smooth transition

in leadership, relatively

higher economic growth and

inexpensive valuations, China

is better placed than India,

which faces challenges on all

three parameters in FY15.

We expect the Sensex to

trade at 15x one-year forward

Earnings per Share (EPS) of

1543 (25% of FY14E EPS `


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1361 and 75% FY15E EPS of

`1603) at 23000 by December

2014. Correspondingly, we

expect the Nifty to reach 6900.

However, if corporate earnings

and economic recovery do

not pan out as expected, we

will continue to see volatility

ridden markets next year.

Strategy 2014 - Sensex & Nifty Target

FY14E FY15E

Sensex EPS 1361 1603

Weightage 25% 75%

Target Multiple 15x

Sensex / Nifty Target 23000 / 6900

Since we do not expect

the economy to rebound

meaningfully in the near

future, we continue to favour

defensive & quasi defensive

sectors, which have healthy

balance sheets. We like FastMoving Consumer Goods

(growth to inch up, valuation

modest in select pockets);

automobiles (attractive

valuation, good earnings delta

in case of recovery). Also, welike private banks (sustained

growth, better asset quality),

telecom (higher regulatory

clarity, de-leveraging) & cement

(positive operating leverage,

limited capacity addition).

We are neutral on Information

Technology (demand intact, rich

valuation), pharmaceuticals

(rich valuation, tepid domestic

growth), oil & gas (earnings

dependent on deregulation,

limited volume growth) &

media (earnings visibility

intact, rich valuation).

We remain negative on capital

intensive sectors like public

sector banks (asset quality

concerns, earnings volatility),

capital goods & infrastructure

(capital expenditure yet to

revive, policy challenges to

remain), power (regulatoryoverhang, uncertain demand),

metals (low domestic growth,

price volatility), real estate

(muted earning cycle, leverage

remains high), shipping

(earnings stressed, increasedtonnage capacity).

The views expressed in the article are personal views of the author and do not

necessarily represent the views of ICICI Securities.


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2014 TECHNICAL OUTLOOK

Rolling over bullish sentiment into 2014

caught off-guard and investor

sentiment is knocked downbadly. Therefore, eachsubsequent revisit towardsthe major bull market peakinvites a reaction and rendersthe benchmarks vulnerable toselling pressure at such peaks.

As index is currently poisednear its 2008 and 2010 peaks,we believe the rally towards22000 / 6550 levels in Q1CY14could turn out to be a fallacy asthe leap to new high would bean ideal way to attract the last

buyer.A closer look at the historicalevidence of domestic boursesreveals the Sensex has aseasonal tendency of toppingout or at least witnessing asizable correction in the rst

quarter of every year. We haveobserved that in the last 14years the index has made asignicant top on 12 occasionsin the rst quarter of everyyear. Therefore, combiningthe strong seasonality traits

of our markets along with keytechnical resistances projectedaround the 22000/6550 zonesuggests a strong possibility ofthe index pausing and enteringa corrective phase in the rst

Dharmesh Shah

Head - Technical Analysis,

ICICIdirect

Domestic equity benchmarksare poised at an important

crossroad near their lifetimehighs. The question foremoston the minds of every equityinvestor is whether this is thebeginning of a new bull marketor is this just another bearmarket rally? We believe theformer is true. However, we

feel this will not be a tear awayrally and investors will getgood entry points in 2014. Ourcharts seem to indicate thata good buying opportunityis expected to emerge at~18000-18500/5400-5500

levels in Q2CY14, which westrongly recommend to bebought into with an eye for23000-24000/6900-7000 by2015.

Rationale

Major Bull market peaks arepreceded by extreme marketfrenzy and a broad senseof euphoria. As the markedtops out and does a U-turn,this euphoric sentiment is


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quarter of 2014.

The entire up-move sinceDecember 2011 has been awell-channeled affair. Thelower band of this long termrising channel for the secondquarter of 2014 is peggedaround the 18000-18500/5400-5500 region.

The long term 200-week simplemoving average (SMA) forthe Sensex, Nifty is currentlyplaced around 18375, 5530,respectively. As the indexapproaches the 200- weekaverage, it suggests a relativelycheap valuation compared to

the price range of the past four

years and, therefore, triggersvalue buying.

The major bullish gaparea formed during earlySeptember 2013 after the newReserve Bank of India (RBI)governor took charge andunleashed a slew of measuresto shore up the rupee andreform the banking system is

placed between 18847 & 18567and 5552 & 5448 levels. Thiswas the rst major bullish gap,which acted as a sentimentchanger after the correctionduring May-August 2013.Therefore, this will remain a

stronghold of bulls.

BSE Sensex Weekly Candlestick Chart

The confluence of the long term 200 week movingaverage (18375/5520), major bullish gap area (18847 -

18567/5552-5448) and the lower band of the key up-

trending channel around the 18300/5500 region makes

this a solid base for the markets

200 week SMA

Bullish gap area @ 18847-18567

Upper band of the key up-trending

channel projects major resistance around

22000 levels in the first quarter of 2014

Source: Bloomberg, ICICIdirect.com Research


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Buying on declines duringElection Year rewardshandsomely

The year 2014 being an electionyear will have a signicantbearing on sentiments inequity markets. It has beenobserved that the marketstend to give a thumbs-up toa stable government whereas

they tend to get nervous in anunstable political scenario.

Our observation of marketbehaviour during an electionyear indicates the index hasdone exceedingly well onseven out of nine occasions in

the last three decades.We expect volatility to shoot upin the run-up towards generalelections. However, based onhistorical evidence, we believeany price corrections towardsthe 18000-18500 / 5400-5500

support zone in Q2CY14should be utilized as an entryopportunity.

Sensex returns during election year

in last three decades

Source: BSE, ICICIdirect.com Research

Currency Outlook

The US$/INR pair behavedprecisely in line with our

expectations in the year 2013.We had indicated that the US$/INR pair is expected to takesupport at 53 mark and embarkupon the next up leg towards57-57.50 during 2013. TheUS$/INR pair bottomed out

precisely near the earmarkedsupport of 53 levels in the rstquarter of 2013 as it made a low52.97 towards February 2013and witnessed a stupendousrise to a record high of 68.36levels by August 2013.

After nearly 23% ight during2013, the US dollar is expectedto remain under pressure onrallies. The US$ is currentlyplaced near its short-termsupport around 60-61. In theshort-term, the US$/INR pairmay move towards 64-65

being the 61.8% retracementof decline from 68 to 61 levels.

However, we expect the USdollar to remain subject toselling pressure on such ralliesand react lower towards 58odd levels during 2014. The

long term rising trend lineconnecting the yearly lowssince 2011 is placed around 58levels and, therefore, is seenas a very strong support forthe US Dollar.

13%

64%

81%

-17%-1%

82%

17%

8%

25%

- 30%

0%

30%

60%

90%

Election Years

1980 1984 1989 1991 1996 1998 1999 2004 2009


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US$/INR - Monthly bar chart


Gold (International) Outlook

During mid-2013, gold prices

breached the lower band of

their 20-month trading rangeof $1800-1550 led by a host

of reasons like condence

returning to the recovery of

the US economy, a stronger

US dollar and panic created

by negative news ow of

countries like Cyprus sellingtheir gold reserves to fund

sovereign debt.

Technically, the entire decline

off September 2011 highs of

$1921 is seen as a correction

of the 2008-11 rally (682-

1921). The most signicant

observation has been that

the 35-month rally (October2008-September 2011)

has been retraced by little

less than 61.8% in the past

26 months. From a long-

term trend analysis, such

a slower pace highlights a

healthy corrective nature of

the decline as usually trend

reversals are characterized by

faster retracements, which are

absent in case of gold prices.



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Therefore, going forward in

2014, we expect gold prices

to nd support around $1150/

ounce being the conuenceof the long term rising trend

($1135) and 61.8% Fibonacci

retracement of the 2008-

11 rally placed at $1155.

We expect gold prices to

post a pullback towards

the breakdown area of its20-month long consolidation

(September 2011-April 2013)

at $1550.



Brent Crude Outlook

The most important

observation on the long term

chart of Brent crude is that

after the 28-month rally from

December 2008 lows ($ 36/barrel) to April 2011 highs

($127/barrel) Brent crude

has been consolidating in a

sideways manner for the past

33 months.

While the time-wise correction

has extended beyond 100%

of the time taken for the rally,

price-wise it has retraced the

2008-11 rally only by 38.2%.

The longer time consolidation

and limited price correction

(38.2%) indicate the corrective

nature of the decline and

highlight the overall positive

price structure.



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Another noteworthy obser-

vation is that during this con-

solidation each down leg has

found support around the 200-week moving average, which

is currently placed around

$102.

The entire sideways action

since 2011 is taking the shape

of a contracting triangle. Whileonly a break out from the con-

solidation would inject further

momentum and directional

bias, the overall positive price

structure makes us believe

Brent crude prices will rally

towards their identical tops

of April 2011 and March 2012

placed around $128. There-

fore, declines towards $102

levels are likely to provide en-try opportunities.







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Short covering can be

expected above 6300 fortarget of 6500. We maintain

our view of Nifty support near

6100 in current consolidation.

Amid prot booking and result

announcements, the Nifty was

able to hold its crucial support

of 6100 in the rst half of the

January series. Nifty futures

witnessed continuous closure

of long positions since the

inception of the series. As a

result, the current aggregateopen interest in Nifty futures

is the lowest in the last four

months since September.

Hence, leverage factor in

the index is signicantly low

compared to the past coupleof months.

In the options space

also, major open interest

concentration continues to be

DERIVATIVES STRATEGY

Amit Gupta

Head - Derivatives Research,

ICICI Securities

Maintain our view of Nifty support near 6100

seen at the 6100 Put and 6300

Call strike for the Januaryseries indicating range

bound bias prevailing for the

index. Moreover, despite a

continuous decline in the

broader index, the volatility of

index options has remainedsubdued and did not surge,

suggesting options writing

going on at OTM Put strikes.

Since the inception of the

current series, stock specic

short addition has beenobserved, especially in

banking heavyweights. Thus,

a round of short covering can

be expected if the Bank Nifty

sustains above its major Put

base of 11000 strike. In such

a scenario, we believe that

the Nifty may also attempt

to surpass its highest Call

base of 6300 strike to test the

previous stated target of 6500.


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India VIX: Upsides may be

capped near 19 levels in the

near term.

The India Volatility Index

(India VIX) has continued

to decline in the last couple

of months and is currently

placed near its six months

lows. Prot booking of almost4% in the broader index did

not create any upsurge in the

volatility index. However, the

upcoming policy meet in India

and the US towards the end of

the month may trigger a rise

in volatility.

The volatility index has been

unable to sustain above its

50-DMA since October 2013

and continued to hover below

these levels. Currently, the 50-DMA for India VIX is placed at

18.6. Hence, any upside in the

volatility index is likely to be

capped near these levels.

Moreover, domestically, WPI

data will be seen as a trigger

for any policy action. In such

a scenario, a marginal rise in

volatility cannot be ruled out.

However, we do not expect

the volatility index to surpass

19 levels in the near term.

Bank Nifty: May drag broader

markets if it slips below majorsupport of 11000.

While midcap PSU banking

saw strong short covering

trend in the December series,

Bank Nifty heavyweights

consisting of private stocksbroadly remained in the

range. The Bank Nifty moved

up close to 4% during the

series but the Nifty gained

2.8% during the same period.

On a positional basis, majorsupport for the Bank Nifty

is placed at 11000 , which is

the highest Put base in the

January series continuing the

trend of the previous series.

The index may be dragged

towards 9800-10000 if it does

not hold 11000.

On the higher side, the

highest Call base is placed


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at 12000 and the recent top

was formed at 12200, which

makes a stiff resistance at

12000-12200. A move above

these levels would require

strong participation from the

private banking space, which

was absent in the December

series.

Key trigger for this space will

be in the form of WPI numbers

on January 15 and Q4 results

of index heavyweights, which

are expected in the second

half of the January series.

S&P 500: Buy on decline

towards 1800 for target of

1860

In the last month, S&P has

found support near our

stated support of 1780 and

bounced sharply towards1850. The index has observed

all the negativity regarding

tapering in the US Fed policy

and remained range bound.

However, in the last couple

of weeks, S&P hovered ina narrow range during the

festive season and New Year.

However, we believe the

positive trend in the US market

is still intact and declines in

the index should be utilised

for fresh buying.

On the options front, major

accumulation of open interest

is visible at the 1800 Put strike

for the February series. As

the index continues to linger

above 1800, a round of short

covering can be expectedabove its Call base of 1850

once again.

In recent upsides, the

S&P index has witnessed

continuous buying support

near its 50 DMA levels. Inthe last month as well, it has

reverted from these levels

only. Currently, the 50 DMA

for the S&P is placed at 1800

levels, which should act as

immediate support for the

index.

Gold: Current upside may be

capped near 1300; downside

support remains at 1180


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The views expressed in the article are personal views of the author and do

not necessarily represent the views of ICICI Securities.

Gold futures spent most of the

time trading below 1250 levels

last month. However, it has

not breached its June lows

of 1180 and witnessed fresh

buying from these levels.

Currently, the highest options

base for the precious metal

is placed at the 1300 Call

strike. Thus, on a near term

basis, upsides may be capped

around these levels. However,

if gold is able to remain above

1250, it may attempt to move

towards the higher target of

1300 in the days to come.

As per CFTC data reported for

UK, almost 38% open interest

in gold has positive bias.

Hence, 1300 can be expected

if gold moves above 1250.

On downsides, immediatesupport can be expected

around 1220.

JPYUS$: Likely to decline

towards 101.5.

The Japanese Yen continued

its depreciation against the

US$ and tested 105 levels

last month. However, the last

couple of sessions saw a sharp

deprecation towards 103.5.

We expect the deprecation

trend to continue for a while.It may move towards 101.5

levels in the days to come.

The active futures contracts

of March 2014 for JPY in

CME are currently trading at

a deep discount over the spot

indicating the spot is expected

to come down in the near

term.

The Japanese Yen spent

almost ve months from July

2013 to November 2013 near

101.5 levels. Hence, in thecurrent decline, the currency

pair is likely to nd support

near 101.5 in the near term.


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STOCK IDEAS

ITC: Pricing power makes it smoking hot

Company Background

ITC is the largest cigarette

manufacturer and among

the largest paperboard

manufacturing companies in

India. The company also has

second largest hotel chain

in India and is aggressivelyacquiring a strong position

in the fast moving consumer

goods (FMCG) space. Being

the market leader in cigarettes

(83% value share in FY11),

it has strong pricing power

and brand value with a wellestablished distribution

network, helping it to derive

strength in other businesses

too. It is a professionally

managed company with

institutions holding 49.9%

of shares, British AmericanTobacco (BAT) holding 31.2%

of shares and public having

18.9% shareholding as on

FY13.

Investment Rationale

Pricing power in cigarettes to

keep earnings growth intact

The strong pricing power

in cigarettes (~80% market

share by value and ~75%

share by volume in FY12) hashelped ITC pass on the higher

excise impact (~18% in FY13

and ~21% in FY14) entirely

through prices without

impacting protability from

the segment. Though volume

growth was impacted in

FY14E (-4%), premiumisation

in cigarettes and increasing

market share in 64-mm

continued to aid its margins

to 59.6% (FY13) and 64.8%

(FY14E) from 56% (FY12).We believe that with excise

hike moderating in FY15E

and FY16E, thereby limiting

price hikes, ITCs volume

growth would revive to ~1%

in FY15E and 2.5% in FY16E

keeping margins intact at~65% (FY16E) and earnings

before interest and taxes

(EBIT) contribution at +80%.

FMCG business gaining

strength

ITCs relentless expansionin the FMCG business has

almost doubled its revenues

to ` 7012.4 crore in the

past ve years (FY08-13)


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with losses declining from

` 483.5 crore in FY09 to

` 45.2 crore in FY14E. This

has been in spite of constantinnovation and expansion

into new segments and

strengthening market share

across categories (noodles,

packaged food, and biscuits).

Further, with the companys

fruitful expansion in rural

India for its FMCG products

and efcient sourcing model,

we believe the segment

would attain breakeven by

FY14E and contribute to

margins positively fromFY15E onwards. We expect

the revenue growth from the

segment to remain healthy at

18.6% compounded annual

growth rate (CAGR) (FY13-

16E).

Paperboards protability to

sustain until FY16E

We believe that led by ITCs

dominance in paperboards

industry (2nd largest player

with value share of ~26% in

FY12) paper boards revenueswould remain healthy at 10%

CAGR FY13-16E (supported

by new capacity becoming

operational by FY15E) and

margins sustaining at ~22%

until FY16E.

Earnings growth remainsstrong, valuations attractive

We expect ITCs earnings

growth to remain healthy

at 15.5% (CAGR FY13-16E)

led by continuing strength

in the cigarettes business

and improving protabilityfrom FMCG and paperboards

business. With the stock

trading near its ve-year

average price-to-earnings

(P/E) multiple (one-year

forward) of 22x FY16E

earnings per share (EPS),

we believe it is attractively

valued at current market price

and provides a good entry

point in the ` 310-325 range.

We value ITC on sum-of-the-

parts (SOTP) basis valuingcigarettes business at ` 303

(26x FY16E EPS), FMCG at

` 47 (3x Market capitalization/

sales FY16E), paperboards at

` 9 (4x EV/EBITDA), agriculture

at ` 12 (3x P/BV FY16E) and

hotels at ` 5 (1x EV/roomFY16E) and adding cash

per share of ` 11; arriving

at a target price of ` 387. We

assign a BUY rating.

STOCK IDEAS


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Key Financials

FY13 FY14 FY15E FY16E

Net Prot (`Crore) 29,606 32,631.1 37,848.5 42,759.7

EBITDA (`Crore) 10,620.7 12,738.5 14,447.8 16,222.2Net Prot (`Crore) 7,418.1 8,734.4 10,170.8 11,470.0

EPS (`) 9.4 11.0 12.8 14.5

Valuations Summary


P/E (x) 34.2 29.1 25.0 22.2

Target P/E 41.2 35.1 30.1 26.7

Dividend yield (%) 1.6 1.9 2.3 2.8

Price/Sales 8.6 7.8 6.7 5.9

RoNW (%) 33.3 34.3 35.4 36.0

RoCE (%) 43.7 46.1 46.7 47.7

Stock Data

Particulars Figure

Market Capitalization `2,54,232 croreTotal Debt (FY13) (`crore) 192.0

Cash and Investments (FY13) (`crore) `3,616.3 crore

EV (`crore) `2,50,807.8 Crore

52-week High/Low (`) ` 298/ ` 192

Equity capital (`crore) `792.0 Crore

Face value (`) `1

MF holding (%) 34.3

FII holding (%) 19.3

Key risks include: Any signicant increase in excise duty forthe third consecutive year in FY15E Budget and value addedtax (VAT) increases across states could signicantly impact thecigarettes volume growth, going ahead. Further, ITCs hugeinvestments in the hotels business inspite of earnings fromthe segment remaining muted could restrict the expansion in

return ratios inspite of improving protability in cigarettes,FMCG and paperboards.

(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS:

Earnings per share; P/E: Price-to-earnings; RoNW: Return on Net Worth; RoCE:

Return on Capital Employed; EV: Enterprise value MF: Mutual Funds; FII:

Foreign Institutional Investors).

STOCK IDEAS


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STOCK IDEAS

Oberoi Realty: Quality in Real(i)ty

Company Background

Incorporated in 1998, Oberoi

Realty (ORL) is a Mumbai-

based real estate developer

focussed on premium

developments with presence

in residential, ofce space,

retail, hospitality and socialinfrastructure projects

in mixed-use and single-

segment developments. With

almost ~90% of land bank

of ~ 20 million square feet in

the Mumbai and its suburbs,ORL is an established brand

name. The promoters and

promoter group had started

operation from 1983 and

have collectively developed

33 projects covering over 5

million square feet so far. ORLhas differentiated itself with

its prudent land acquisition

strategy, strong execution

track record, excellent

corporate governance and

pristine balance sheet. Few

of the key projects of ORL

are Oberoi Garden City

(Goregaon), Oberoi Splendor

(Andheri east), Oberoi Exotica

(Mulund) and Oberoi (Oasis).

Investment Rationale

Prudent land acquisition &

balance sheet strength A

key differentiator

ORLs prudent land acquisition

strategy (its land parcels

are acquired at signicantlycheaper cost largely

compared to current market

prices) coupled with premium

realisation have made it one

of the highest margin earner

(58.8% in FY13) in the sector.This strategy has enabled it

to command superior return

ratio of 12-14% in the industry

vis--vis low single digit in

the industry. Furthermore,

the availability of nancial

resources (net cash balance

and investment of ~ ` 743

crore in Q2FY14) is another

key differentiator for ORL.

Given strategy of being

prudent in land purchase

along with cash at itsdisposal, ORL would be best

suited to lap up a land deal in

the scenario where most of

it's peers are debt ridden.


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STOCK IDEAS

Land Parcel Year Area

(acres)

Cost

(` crore)

Cost per

acre

(`crore)

Develop-

eable Area

(in mn sq ft)

Floor space

index (FSI) Land

cost per sq ft (`)

Goregaon 1999-2005 83.9 106.8 1.3 11.2 96

Andheri West 2005 7.0 31.7 4.6 0.6 508

Andheri East 2005 24.5 106.0 4.3 3.1 339

Mulund 2005 18.8 221.0 11.7 3.2 690

New launches & price cut

Key catalyst for volume pick

up

While ORL sales volume has

been subdued in the past few

quarters due to un-affordable

price level, we anticipate

ORL sales volume to grow

from 0.5 mn sq ft in FY13E to1.1 mn sq ft in FY15E on the

back of new launches such

as Oberoi Exotica in Mulund

& Oasis Residential in Worli.

Furthermore, we also built

in ~25% price cut in Oberoi

Exquisite (Goregaon) from

current level of ~` 23,500

per square feet (psf) in our

assumptions. The pick up in

volume offtake should allay

investors concern over sales

volume.

Esquire to reach threshold

in Q4FY14E; to drive earning

growth of 14.8% during

FY13-15E

ORLs Esquire, with

unrecognised revenues of

` 1270 crore, is expectedto hit revenues recognition

threshold in Q4FY14E. This

coupled with better sales

volume on the back of new

launches & price cut would

drive ORLs earnings at a

compounded annual growthrate (CAGR) of 14.8% during

FY13-FY15E.

Quality player at attractive

valuation

ORL is our top pick in the

sector given the quality

of land bank, cash rich

balance sheet, management

bandwidth to execute the

projects and anticipated pick

up in the sales volume with

new launches such as Mulund

and Worli along with attractivevaluation (1.4x FY15E P/BV

and 0.7x of its net asset value

(NAV)). We have BUY rating

with a NAV-based price target

of `285/share.


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STOCK IDEAS

Key Financials


Net Sales (`Crore) 818 1,042 1,110 1,297

EBITDA (`Crore) 483 612 625 751PAT (`Crore) 463 505 458 565

EPS (`) 14.1 15.4 14.0 17.2

Valuations Summary


P/E (x) Target 15.9 14.6 16.0 13.0

P/E (x) 20.2 18.5 20.4 16.5

EV/EBITDA (x) 12.5 10.3 10.9 8.1

P/BV (x) 2.0 1.8 1.6 1.5

RoNW (%) 12.4 12.1 10.1 11.2

RoCE (%) 12.2 14.0 13.0 14.3

Stock Data

Particulars Figure

Market Capitalization ` 7,352 crore

Total debt (`) 0

Cash and investments (`crore) ` 743crore

EV (`crore) ` 6,806 crore

52-week High/Low (`) ` 328/ ` 153

Equity capital (`crore) `328.2 crore

Face value (`) ` 10

DII Holding (%) `0.8

FII Holding (%) 12.4

Key risks include: Business concentration restricted to MumbaiMetropolitan Region (MMR); softening lease in commercialspace; delay in launches and continued weakness in volumeoff take; and regulatory changes such as Development Control

Regulations (DCR) norms in MMR region.(EBITDA: Earnings before interest, taxes, depreciation, and amortization; PAT:

Prot after tax; EPS: Earnings per share; P/E: Price-to-earnings; EV: Enterprise

value; P/BV: Price-to-book value; RoNW: Return on Net Worth; RoCE: Return on

Capital Employed; DII: Domestic Institutional Investors; FII: Foreign Institutional

Investors).


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FLAVOUR OF THE MONTH

Whats in store for investors in 2014?

The calendar year 2013 saw all the major asset classes equity,

debt and gold performing moderately, though amid high

volatility. The year, however, proved to be relatively better for

equity with 8.98% gains on Sensex, while debt posted gains of

8.27% (for short-term) and 3.79% (for long-term). Gold, on the

other hand, posted negative returns of 4.50% (in rupee terms).

What does 2014 have in store for investors? We asked a panel

of fund managers for their views on how they see 2014 playing

out for major asset classes and their advice to retail investors.

Lets take a look.

Ritesh Jain

Chief Investment Ofcer (CIO),

Tata Mutual Fund

Equity: Indian equity markets

have been range bound from

November 2010 with the

Sensex moving in a broad

range of 16000 to 21000.

However, during this period

the broader markets have been

much weaker. Sensex and Nifty

are close to their all time high,broader markets as reected

by BSE Midcap Index and BSE

Small cap index are still 35%

and 55% below their previous

highs respectively. The key

problems facing the Indianeconomy like the high scal

and current account decits,

persistent ination and low

level of investments are getting

addressed. There are early

indicators that growth may bebottoming though full-edged

recovery may still be some

time away. Improving outlook

for global growth and recent


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currency depreciation augurs

well for exporters. Further,

companies which are in the

process of deleveraging and

are improving their balance

sheet can see signicant

change in their fortunes once

the recovery sets in. Also,

it is important to remember

that the structural drivers of

Indian economy such as the

demographic advantage,

low level of penetration of

various goods and services,

urbanization, low levels ofdebt remain intact and have

not been damaged by the

cyclical downturn faced by

the economy in the last three

years.

The markets have staged astrong recovery post the lows

seen in August 2013 in the

wake of scares of fed tapering

and escalation of Syrian

conict. The recent rally has

corrected some of the valuation

differences between high

quality defensives and beaten

down cyclical stocks. The

market valuations are fair and

earning expectations for the

next two years are not based

on optimistic assumptions. We

feel investors should increase

their equity exposure in 2014

in a systematic way. Investors

should also allocate a part of

their equity investments inthe mid-cap space based on

their risk appetite.

Debt:We believe that the year

2014 will be an even more

volatile period for investment

in debt than the year 2013.There are number of local

plays (elections) & global

factors (Pace of quantitative

easing (QE) tapering by US

Fed) which will play on market

sentiment.

In the short term one can

expect a rally in government

securities (G-sec) in the next

one month on the back of relief

on the rate front. Moreover,

with public sector banks getting

conservative in their lending to

corporate sector on the back

of lower capital adequacy


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would divert their deposits to

government securities, which

may support the ongoing rally

in the sovereign bonds.

However, the euphoria on

status quo on rates may wane

gradually. The new 10-year

benchmark G-sec yield to

move up to 9- 9.25% in themedium term, as we expect

the Reserve Bank of India (RBI)

to act on rates in the coming

policy meet. The yields may

come under pressure on any

signicant Rupee depreciationand or increase in the

international oil prices which

is showing renewed signs of

strength. The uncertainty on

the additional supply at the

longer end of the yield curve

due to proposed debt switch,

may also keep the yields under

pressure.

The risk to our outlook may

come from inclusion of India

in the JP Morgan Emerging

Market Bond Index which may

lead to rally in the market or Oil

prices coming down.

We expect heightened

volatility in debt in the year

2014. This volatility should

be used to add duration (long

term bond funds) as yield

move higher. However, we

recommend such duration

exposure through dynamic

bond funds as compared toregular bond funds because

in a dynamic bond fund the

fund manager has exibility

to tactically manage duration

to benet from the volatility.

If investors have a short terminvestment horizon, they

should look at short-term

funds and Fixed Maturity

Plans (FMPs). In case investors

have medium to long term

investment horizon; they canstart investing in long term

funds towards end of rst

quarter of 2014.

Gold: US recovery

notwithstanding, the

unprecedented liquidity

infusion by US Fed seems to

be inating asset prices in US

including equities; however


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the impact of liquidity is not yet

evident in ination in US. It is yet

to be seen how the unwinding

of QE will play out on asset

prices and its contribution

(if any) to recovery in US, in

terms of investments into

productive assets. We believe

that optimism in US recoveryis misplaced and the recovery

is fragile as consumers are

still overleveraged and the

corporates are preferring to do

buybacks rather than investing

in businesses making newhighs in US stock market look

like a mirage.

Accordingly with gold trading

close to its replacement cost of

USD 1,000 - 1,200 (Downside

Protection) and potential for

upside in the event of reality

check for US recovery, there is

case for allocation to gold.

Indian economy is stuck in

stagation. Any recovery ingrowth will be accompanied

by disproportionate increase

in ination as negative real

rates in last 5 years have

brought down the productivity.

High M3 growth of about

14% (to support investments

in infrastructure) with real

gross domestic product (GDP)

growth in the range of 4.50%

to 5.50%; points to a scenario

of continued pressure on

ination. Given all the abovedomestic plays, expect Indian

currency to remain under

pressure against developed

market currencies thus

supporting the price of gold

in local currency. Therefore,for Indian investor gold will

continue to be an excellent

hedge against high and sticky

ination.

Disclaimer:The views expressed are for

information purpose only. They are notindicative of future market trends, nor is

Tata Asset Management Ltd. attempting to

predict the same. These views may or may

not be reected in our scheme portfolios.

Kindly consult your nancial advisor

before investing. Tata Asset Management

Limited does not have any Gold Fund and

the views on Gold are personal views ofthe CIO.

Mutual Fund investments are subject

to market risks, read all scheme related

documents carefully.


30/75



Soumendra Nath Lahiri

Head Equities,

L&T Mutual Fund

Equity:Going into 2014, fearsover the tapering in the US, theeuro zone crisis and outowsfrom emerging markets (EM)have eased. Markets are

better prepared for the taperand investor sentiment is

buoyed by expectations ofeconomic recovery acrossthe world. We expect theglobal economy to improve,albeit uneven at a countrylevel, against improving setof macroeconomic numbers.

EMs should be beneciariesof improving growth in thedeveloped markets butcould be weighed down by astrong US dollar and foreign

institutional investor (FII)ows particularly if we see asignicant rise in US treasury

yields.

Monetary policy is expectedto remain accommodative inthe US, UK and Europe. The

Federal Reserve (Fed) taperwill soon be a reality andwould in all probability endthe easing regime before 2014ends. Beginning January 2014,the Fed will begin to taper$10 billion of asset purchasesevery month. It will nowpurchase $40 billion of longdated treasuries (as against$45 billion) and $35 billion ofmortgage backed securities(as against $40 billion). Thenext Fed chairman Janet

Yellen has suggested that ratehikes may not be a possibilitytill 2015. The European CentralBank and the Bank of Japanwill likely lower interest ratesand inject liquidity into thesystem. In contrast, EmergingEconomies will most likelytighten monetary policyover the year, with growthmomentum and inationaryexpectations being the keydriver.

Though the economy is still ina low growth phase, it looks


31/75



close to bottoming out. GDP

growth is looking set to betterexpectations after 10 quarters

and is headed higher afterhitting a trough of 4.5% forFY14. Liquidity stress is easingas inux of forex has improvedliquidity at the shorter end.On the external front, animprovement in trade decit

has helped narrow the currentaccount. Improved forexreserves on the back of USD34 billion accretion throughRBI swap window for FCNR(B)

and bank borrowing havestabilized the INR at 62-63/

USD levels, which may haveprovided some comfort to RBIto start rebuilding its reserves.

We expect 2014 to be a tale

of two halves, with the rst

half driven by anticipation of

elections and the second half

by the outcome of elections

and hopefully some actions

on policy and reforms. This

could result into a recovery

in the economy and we could

see a fall in ination leading

to softer interest rate regime,

adding to the productivity

of the corporate and nally

investment led infrastructure

segment. A cooling in

commodity prices globally

could be a contributor too.

Recent state election resultswere a triumph of growth andgovernance over dole outs andentitlement, anti corruptionissues even overshadowed

competence like never before.India looks to be ready to turna new leaf in sensible policymaking in 2014, an importantpre-requisite to buildcondence and help kick-startthe capital expenditure (capex)cycle - global investors arekeenly looking forward to thatas well. We expect growthto pick up, with a favourableoutcome in the forthcominggeneral elections should act asa catalyst for quick recovery.

Return of growth and stabilityof the currency is a virtuous

cycle that feeds into oneanother and will endear

steady FII and foreign directinvestment (FDI) ows whichshould create an environmentfor stability. Indian retailinvestors who have been

taking out money from equitymarkets for the last two years

will then have a compelling

reason to reverse this and

participate in the journey of

growth and prosperity.


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given the depreciated

currency and improved

growth outlook for the

developed world.

b. It is consumer staples

where we expect earnings

growth to be slower

and stocks likely to

underperform relatively.

c. We also remain cautious

on materials and energy

sectors as there is no

visible catalyst for earning

growth in the near term,

and subsidy reforms might

take a back seat.Risk to these views is from: 1.

An electoral verdict that leads

to a hung parliament, which

will lead to the postponement

of the politically difcult

decisions. 2. Higher-than-

expected tapering of QE by

US Fed, and 3. Adverse geo-

political developments.

Retail investors should

continue to focus on asset

allocation rather than

individual securities, be it

xed income, equities, or

alternative asset class. The

asset allocation should be

aligned with his / her medium-

term and long-term nancial

objectives. It will be benecial

to ignore the high frequency

near-term developments and

stay focused on their longer

term nancial goals.

Indian equities are expected

to deliver strong long term

performance, which is

under-pinned by strongdemographics, high quality

human resource and maturity

its governing institutions have

gained. Further, the relatively

muted performance of the

equity asset class over the

past 6 years improves the

possibility of better returns in

the future. Returns from equity

markets are typically cyclical

in nature, retail investors

need to appreciate this and

not lose sight of the longerterm record of the asset class

in generating returns for

its investors. Therefore we

advise retail investors to stay

invested, however, it should

be in the context of asset

allocation strategy that is

aligned to his / her risk prole

and longer term nancial

objectives.


37/75



S. Ramasamy

Chief Investment Ofcer (Debt),

LIC Nomura Mutual Fund

Debt: The RBI has been

effectively communicating that

it is not just interest rates that

matter but also a deeper and

vibrant debt market. The events

of Indian bonds getting added

in the global bond indices,more than 1 benchmarks

being launched and tracked

(short term and long term),

a debt market with a healthy

exchange traded volume and

newer instruments will changethe way the debt market looks

and works.

Of course the rate cycle

is expected to resume its

downward journey in the New

Year post the taper impact.

We expect a decisive mandate

in the 2014 general elections

which could accelerate the

downward shift of the key

rates in India. The xed-

income returns are likely to be

better than expected by largesegment of investors.

The India story is in nascent

stage and will only get bigger

and real with time. Investors

must focus on asset allocation,

thrift and discipline rather

than the noise they hear about

market factors or schemes.

With equity and debt

schemes poised for a better

show in 2014 compared to

2013, investors must make

up their plans and deploy

legitimate amounts in equity,

long term debt and short

term debt funds. To gain

from volatility, we suggest

investors use liquid funds topool their savings and use

Systematic Transfer Plan

(STP) facility to channelize

investment into equity and


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contention.

Firstly, the Indian economy

seems to have bottomedout in the second quarter of

this scal year. Periods of

low economic growth have

historically been good periods

to invest in equities. Equity

markets typically tend to

move ahead of the economy.By the time the news of good

economic performance hits

the headlines, the market

may well have raced away.

Historical indicators prove this

contention.

Secondly, although retail

investors have been staying

away from the market due to

volatility, historical indicators

bring out that equities have

given good returns post

elections.

Given the good pointers to

high potential returns from

equities in the coming years,

this is a good time for retail

investors to correct the severe

under-allocation to equities.

Despite the risk of soundingrepetitive and the lackluster

equity returns in the recent

past, the fact that equity as an

asset class has proved to be

the best wealth creator over

long term needs emphasis.

Retail investors have mostly

missed the bus in the pastand the same hopefully is not

the story again.

Debt: Interest rates are high

and hardly conducive for

growth to pick up. On the

other hand, with falling foodprices, ination is expected

to start cooling down. These

two factors shall actuate the

central bank to look forward

for an accommodative policy.

Hence, we expect duration

funds to do well in the comingquarters once interest rates

starts coming down.

Investors are recommended

to consider investing in

duration funds for the next

18 to 24 months based on

their individual risk appetite

and investment horizon.

People who have already

invested in duration funds

can stay invested as these

are favorable times to be

invested. Investors with lowrisk appetite, however, may

consider investing in funds

which benet out of accruals

and have low interest rate

risk.


41/75



Sanjay Chawla

Chief Investment Ofcer (CIO),

Baroda Pioneer Mutual Fund

Equity: There was a lot of

talk in the market about two

events in the last year. One:

Tapering in US and the other,

surrounding general elections

in India. One event is over

and market is preparing itself

for the second event in India.

Ultimately, market likes growth

and improvement in earnings.

The most recent economic

data underlines recovery in thedeveloped market. At domestic

level, CAD is improving, rupee

is stabilizing and GDP growth

seems to have bottomed out.

There are initial signs that

capital expenditure is likely to

get revived with some of the

stuck projects getting cleared.

New government is expected

to take steps to accelerate

the pace of economic

growth. Quarterly earningsfor period ended September

2013 were better than market

expectation. Improvements

in economy globally augur

well for equities. For India,

improvement in US economy

is always good for export-

oriented sectors.

Globally, tapering will lead to

coming down of overall pool

of money in all asset class.Fixed income market may be

impacted more than equities

and developed markets may

get more inows than the

emerging markets.

We are positive on equities

for CY14. It is important to

remember that wealth can


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be created in equity markets

only through disciplined

and regular investmentsover a longer period of

time. Contrary to popular

belief, equity markets have

outperformed gold in the last

two years. In the short term,

we think that market willkeep giving opportunities. We

are positive on equities and

advise investors to use the

volatility to build their long-

term portfolio.

Debt:Last year was not a good

year for the debt investors

though at the beginning it

looked promising. Current year

should be relatively better. We

expect RBI to go on pause for

rest of the year after a probable

rate hike. Though ination

may come down in near future

due to sharp fall in vegetable

prices, CPI and WPI is expected

to remain sticky throughout

the year. Gradual rise in diesel

prices and its second round

impacts may keep ination

and inationary expectationselevated. We expect growth

to pick up in next busy season

starting September 2014. As

growth starts to pick up, we

may witness rebound in core

ination due to demand ledincrease in prices. On scal

side, concern will remain as

there can be expenditure spill

over to the current calendar

year along with huge subsidy

burden, which may put

pressure on the yields. Having

said that, the monetary policy

may remain accommodative

along with stable rupee due to

contained CAD and good yieldlevel of 10-year GOI, which

can provide decent returns

to investors. We expect a

rally in the 10-year GOI in the

current calendar year which

can provide decent returns to

investors.



Please send your feedback to [email protected]


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Real Estate is close to most

heartsNo doubt then,

wherever we meet clients,

friends, business associates,

a common question asked

is: Where do you see real

estate going? I must say that,

quite like for any other asset

class, outlook estimation is aculmination of current trends,

analysis and expectations.

Cautious may be able to

summarize the state and the

sentiment at the moment. The

rst half of 2014 could well be

a phase of indecision. Home

buying is a high involvement

decision making, and it would

surely require a positive

sentiment in the macro

market to drive that decision

making. A decisive verdict in

the general elections could

provide that positive news the

markets are waiting for. This

Real Estate Outlook 2014

Rohit Salhotra, MD & CEO, ICICI Home Finance Company Ltd.

shares with us the real estate review of 2013 and the outlookfor 2014.

may kick start the buying in

H2-CY 2014, and if the newgovernment, in the rst few

days in ofce was to send

out decisive sound bytes on

measures to boost economy,

the investment climate may

well be activated. This will bea signicant boost for the real

estate sector. Consumption

(self-use) led home buying

continues regardless of these

GUEST COLUMN

Rohit Salhotra

MD & CEO,

ICICI Home Finance Company Ltd.


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sentiments, and will continue

to be the core driver in the

months ahead. As an investor,

the real estate asset class may

not offer signicant arbitrage

in the short to medium term, as

compared to other investment

options. One, therefore, must

look at this asset class with a

long-term perspective. (See

the Chart 1 below, showcasing

the property prices movement

as per the National Housing

Bank (NHB) Residex).

GUEST COLUMN

Chart 1: City-wise Housing Price Index (Upto Quarter July-

September 2013)

100

150

200

250

300

2007

Base

Q2

CY

2011

Q3

CY

2011

Q4

CY

2011

Q1

CY

2012

Q2

CY

2012

Q3

CY

2012

Q4

CY

2012

Q1

CY

2013

Q2

CY

2013

Q3

CY

2013

Delhi

Mumbai

Pune

Bengaluru

Chennai

Hyderabad

Kolkata

(* Delhi does not include Gurgaon, Noida etc. It is not NCR. * Mumbai includes Thane, Navi

Mumbai)

Over the past 12 months, we

have seen fewer new launches,

and a lower absorption. We

estimate that CY 2013 would

have ended at approximately

22-25% lower absorption as

compared to CY 2012 (Top 7

cities), on the residential sales

(see Chart 2), and approx.

5-8% or so lower ofce space

absorption (see Chart 3).


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GUEST COLUMN

Chart 2: Residential sales numbers of top 7 cities

0

50000

100000

150000

200000

250000

300000

350000

400000

2008 2009 2010 2011 2012 2013*

Kolkatta

Hyderabad

Chennai

Bengaluru

Pune

MMR

NCR

2013 * is CY end estimates based on 9-month data available from PropEquity

Chart 3: Commercial (excluding retail) sales numbers

of top 7 cities

0

5

10

15

20

25

30

35

40

2009 2010 2011 2012 2013

KolkattaHyderabad

Chennai

Bengaluru

Pune

MMR

NCR

Source: ICICI Property Services Group estimates and market reports


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The early part of CY 2014 may

continue to remain lackluster.

The developers have started

incentives to buyers in the

form of masked discounts,

and offerings. With fewer new

launches, the developers are

also focusing on production

and execution of the projectson hand. If sales do not pick

up, and availability of money

continues to stay at a premium,

then execution of projects

could be affected.

Affordability will be a key term

if the residential off-take is to

increase/improve. Architects

and developers will have to

think out-of-the-box to bring in

more economical supply. Themacro number of 19 million

units housing shortage almost

masks the fact that 95% of this

demand is in the economic

weak class (EWS) and low

income groups (LIG) segments

a demand almost un-catered

to.

The regulatory environment

(Real Estate Regulatory Bill,

and the Land Acquisition

Resettlement and

Rehabilitation RARR Bill) will

surely infuse transparency in

the real estate sector in the

year ahead, but also threatens

to induce a price increase.

Ofce space absorption

too may not pick up till the

macroeconomic indicators

send out positive signals.

Ofce vacancy rates in the

Top 7 cities have been in the20-25% range (see Chart 4),

and this has kept the prices

under check. The Securities

and Exchange Board of Indias

(SEBIs) decision to release

the draft regulations for RealEstate Investment Trusts

(REITs) to make their entry into

India has fuelled some investor

interest in this segment. The

commercial (ofce) real estate

market saw some interesting

private equity (PE) investments

into large portfolio holding

during the past year.

GUEST COLUMN


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Chart 4: Ofce vacancy rates in the top 7 cities

0%

5%

10%

15%

20%

25%30%

35%

Vacancy Rate

Source: ICICI Property Services Group estimates and market reports

Retail or shopping space could

see increased activity. Theyoung India population has

been driving consumption,

and provides an attractive

opportunity to many retailers.

The government has also

eased investment norms formulti-brand and single-brand

retail. Retailer margins though

have been shrinking, putting

a pressure on real estate

component of the input costs.

We could see the emergenceof more performance driven

rental models, rather than

simple straight rentals on a per

square foot basis.

In summary, it will be an

interesting 12 months,

possibly split into 2 distinct

halves. Though sentiments

may be low, the changes in

terms of transparency, pricing

and investments through REIT

do augur well for the industry

as a whole. Also considering

the underlying demand for

housing in India, in the long

run return expectations from

real estate remain intact.

GUEST COLUMN


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I have invested in mutual

funds via SIPs and have the

following questions:

1. What option has to be

chosen while investing in

MF? Growth or Dividend

re-investment? I am not

expecting any income on

regular basis. Rather I want to

grow my investment.

2. I have SIPs going in 11mutual funds 9 equity funds

& 2 gold funds totaling to

`11,700 p.m., of which few

funds are not performing

well. Should I remain invested

in these funds? Or should I

sell those at higher level and

invest in other funds?

- Rushikesh Kulkarni

To answer your rstquestion, both growth and

dividend re-investment

options do the same thing, but

Q:

A:

one is more tax-efcient than

the other, depending on what

type of fund you choose and

how long you stay invested.

Debt funds - Dividends from

debt funds are subject to

a dividend distribution tax

(DDT) of 28.325%, including

surcharge and cess. Every

time your MF scheme

distributes dividends, it

rst deducts DDT out of the

distributable dividend and

pays you the rest. You dont

pay directly; it goes out of the

dividend due to you. Under

the dividend re-investmentoption, your scheme rst

declares a dividend and then

immediately re-invests it in the

same scheme at that days net

asset value (NAV). The growth

option does not declare any

dividends; the NAVs move

up or down, depending upon

the market movement. Both

Mutual funds: Growth or dividend re-investment plan?

ASK OUR PLANNER


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dividend re-investment and

the growth options, therefore,

do not give dividends in yourhands.

The effects of both these

plans are the same, but the

tax treatment differs. If you

are in the 10% and 20% taxbrackets and invest in debt

funds for less than a year,

choose the growth plan. The

reason: the tax outgo in the

growth plan is less than that

in the dividend reinvestment

plan. The DDT rate is higher

than the short-term capital

gains tax rate for the 10% and

20% tax brackets. If you are in

the 30% tax bracket, choose

the dividend re-investment

plan. The total tax outgo in the

case of dividend reinvestment

option (capital gains and DDT)

is lower than the tax outgounder the growth option

(capital gains only).

Equity funds - For equity

funds, we assume you would

invest for the long term; in

other words denitely morethan a year. In this case, it

doesnt matter whether you

choose the growth plan or the

dividend re-investment plan

because equity funds neither

impose DDT nor do they attract

long-term capital gains tax.

Coming to your second

question, you should review

your funds regularly, at least

once in a year, if not less.

If your fund consistently

underperforms its benchmark

and its peers, you can consider

exiting them. Also, keep your

portfolio to a maximum of

4 to 5 mutual funds only, as

investing into mutual funds

itself will provide you the

required diversication;

diversifying again into morenumber of funds will be like

investing into same shares, as

some of your funds might be

ASK OUR PLANNER


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investing into those shares.

My query relates to home

loan and home registration. In

case my wife is a home maker

and not employed elsewhere,

what are the tax and property

implications of:

a. Taking a home loan inour joint names.

b. Getting the house

registered after construction

in our joint names.

Perhaps, there is no advantage

being accrued by taking a

home loan and making the

registration on our joint

names. But is there any

adverse implication/falloutapplicable in such a case?

- Vivek Uberoy

Many couples opt for

a joint loan as it gives them

additional tax benets. Forinstance, if you take a joint

home loan, both you and your

spouse can individually claim

Q:

A:

deduction under Section 80C

and Section 24 of the Income-

Tax Act towards the principaland interest deductions. That

is, while calculating your

taxable income, both you and

your spouse can deduct up to

` 1 lakh on principal (Section

80C) and up to ` 1.5 lakh on

interest (section 24) paid on

the loan in that year.

But this benet is only if the

home is registered in both your

names. Being a co-applicant to

the loan alone doesnt get you

this tax break. While signing

on as co-applicant, however,

it is also essential for you to

know your liabilities. When

the primary borrower defaults

/ has to le for insolvency /

passes away, it becomes the

co-applicants responsibility

to settle the loan in full. But toapply as a co-applicant for a

loan, your spouse should have

a separate source of income.

ASK OUR PLANNER


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Retirement Planning

Shashank wants to retire at

the age of 60. He is expecting

`15,000 p.m. pension (in

present value) to continue

post-retirement and will

receive interest and dividend

income of `25,000 p.m.

As a rst step, Shashank

should outline what expenseswill increase and what will

decrease post-retirement. He

is expecting annual expenses

of `4,44,000 in todays cost

post-retirement. He has

`6,00,000 in EPF where he

is contributing `50,000 p.a.

and has saved `4,00,000 in

PPF account and contributes

`66,000 p.a. towards this.

Heres his retirement planning

looks like:

Post-retirement life span isconsidered to be 20 years.

Retirement corpus required:

`1.48 crore

Corpus built with existing

investments: `93.70 lakh

Shortfall in retirement corpus:`54.89 lakh

Recommended investments:

`8,218 p.m. or `1,00,260 p.a.

With your current investible

surplus, i.e. ` 10,500 per

month, you can start investing

immediately for accumulatingthe shortfall for Saumyas

marriage. And, as and when

your income increases, you

can set aside certain portion

of it and invest the same

for building corpus for your

retirement.

Insurance Planning

As Shashank is the sole earning

member of the family and has

three dependants, he must

take adequate life insurance

cover to take care of the family

and children goals. Shashank

has a life cover of ` 13 lakh,

at present. Considering his

expenses and goals, he has

a shortfall of ~ ` 80 lakh. He

should consider buying a termplan to meet the gap.

Health insurance is another

important cover Shashank

should consider. Currently,

he has an employer-provided

cover. We recommend taking

a separate family oater coverof ` 4 lakh and increasing it

regularly to ` 6 lakh in 5

years, `8 lakh in 10 years and

`10 lakh in 15 years.

YOUR FINANCIAL HEALTH CHECK


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MUTUAL FUND ANALYSIS

Cushion your portfolio with FMCG funds

After an unexpected slowdown in the Fast Moving Consumer

Goods (FMCG) revenue growth to ~12% in CY13E (~16% in

2012) due to weak macros, we expect the growth of the sector

to recover to ~15% in CY14E. Growth would be led by a revival

in volumes (7-12%), changing product mix and higher pricing

power. We expect rural sales (~40% of FMCG revenues) growth

(1.3-1.5x of urban sales growth) to be the key volume growth

driver in CY14E with urban demand recovering at a slower pace.

Further, rural growth would be supported by a trickledown

effect of higher pre-election spending in H1CY14 and better

yields due to favourable monsoon in CY13. The unfolding rural

demand keeping abreast of the Indian consumption story has

signicantly pushed valuations of FMCG companies with higher

rural exposure (HUL, Dabur). Hence, we prefer ITC and Marico,

which are actively expanding their rural reach and are available

at relatively cheaper valuation of 19x (FY16E earnings per share

(EPS)) and 22x (FY15E EPS), respectively. Also, considering that

most stocks have not seen large movements in the last six toeight months, valuation multiples have contracted discounting

two years forward earnings.

Therefore, we believe FMCG funds may perform well in the near

to medium term. Being a defensive sector, huge downside also

gets restricted. Therefore, the sector can be good to invest giventhe broader equity market seeing increased volatility. Investment

in these FMCG funds can be made. However, allocation should

be restricted to 10% of the overall portfolio.


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MUTUAL FUND ANALYSIS

Key Information

NAV as on December 31,2013 (`)

116.2

Inception Date March 31, 1999

Fund Manager Yogesh Bhatt

Minimum Investment (`) Lumpsum 5000

SIP 1000

Expense Ratio(%) 2.7

Exit Load 1% on or before

1Y, NIL after 1YBenchmark CNX FMCG

Last declared QuarterlyAAUM (`cr) 226

Product LabelThis product is suitable for investors seeking*:

l Long term investment

l An equity fund that primarily invests in aselect group of companies in the FMCGsector

l High risk (BROWN)

Category: Sector Fund (FMCG)

ICICI Prudenti

Monthly Issue January

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