most advisor november 2016 - motilal oswal · england, bank of japan or federal reserve of usa....
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AdvisorMOStMonthly Markets Newsletter
In This Issue
• Market Outlook for the month
• Investment Ideas
• Equity Market Outlook
• Derivatives & Commodities Market Outlook
• Model Advisory Portfolios
• Recommended Funds
• Bond
Dear Investor,
Samvat 2073: Indian equities seem to be on a cusp of new
growth trajectory enabled by several policy measures being
taken and implemented so far. Monsoons have been near
normal which is likely to boost agriculture dependent rural
income. Domestic cyclicals have turned from being earnings
dragger to earnings driver while global cyclicals growth
momentum is maintained. Though, markets continued to consolidate in Oct'16 after
a sharp 24% run-up in six months over Feb-Aug'16. 2QFY17 earnings update so far
has been encouraging. 90 MOSL Universe companies and 30 Nifty companies have
declared their 2QFY17 results as of November 1st, 2016. The companies that have
declared results so far comprise (a) 67% of estimated PAT for MOSL Universe and
69% of estimated PAT for Nifty, and (c) 48% of Indian market cap. Key take away
being in line head line numbers with much better internals. MOSL universe has
reported Sales, EBITDA and PAT growth of 3.6%, 15% and 13%, against expectations
of 3.1%, 13.4% and 8.6%, respectively. Nifty (30 Companies): Sales grew 5.8% YoY
(v/s estimate of 4.4% YoY), EBITDA grew 9.4% YoY (v/s estimate of 8.1% YoY) and
PAT grew 7.4% YoY (v/s estimate of 3.4% YoY). Major Earning surprises were from
Maruti, ONGC, Grasim and HCL Tech.
Globally equity asset gained traction in October. Brazil and Japan were outperformers
delivering 10% and 5% returns, respectively. Central bankers across the globe
maintained status quo on liquidity enhancing policy measures be it ECB, Bank of
England, Bank of Japan or Federal Reserve of USA. Markets are now focused on
outcome of US Presidential election. Major concern which may plague equity asset
class are continuous slowdown of global economy, US interest rate hikes which may
make USD stronger and hence FII's likely to pull out of emerging markets and
geopolitical issues particularly between India & Pakistan.
Outlook: Indian equity offering stand on firm footing when compared to most of
its global peers. 2QFY17 earnings so far have been good. Key sectors to watch out
for are Automobiles, NBFCs, Metals, Cement, Banks, Infra and Capital Goods. We
maintain our stance positive outlook on markets and advocate sticking to our QGLP
philosophy for deploying money into quality stocks.
Global Market
Index 31-Oct 16 MoM (%) YoY(%)
Sensex 27,930 0.2 4.8
Nifty 8,626 0.2 6.9
FTSE 6,954 0.8 9.3
Dow 18,142 -0.9 2.7
Nasdaq 5,189 -2.3 2.7
Hang Sang 22,935 -1.6 1.3
Economic Pulse
Thought for the month
Dharmesh Kant
Vice President- Head Of Retail Research
Key Highlights for the Month
Better 2QFY17 Earnings, so far!
US Interest Rate Hike Deferred
November 2016
Key Indicators Current Mth Pre. Mth
IIP -0.7% -2.4%
WPI 3.57% 3.74%
10 Year Yield 6.79% 6.81%
USD/ INR 66.78 66.61
Crude ($) 48.3 49.06
Gold (10 gms) 30049 31175
1
AdvisorMOStMonthly Markets Newsletter
BUY
LIC Housing Finance
CMP*: INR 588
Target: INR 748
√ LICHF is the 2nd largest housing finance company with 10% market share in India
√ LICHF has a granular loan book with retail home loans comprising 88 % of the book and
the LAP comprising an additional 10% of the book. Around two-thirds of loan
sourcing is from LIC agents
√ Owing to the falling interest cycle, LICHF will reap significant benefits from refinancing
over next few quarters
√ We estimate 22% EPS CAGR over FY16-19 with consistent RoEs of ~20% which should
drive re-rating. Buy with a target price of INR748 (2.7x Sep 2018E BV)
On This Page
Investment Ideas
Must Act
Investment Ideas
√ SCUF has successfully evolved as a multiproduct lender over the past decade. Core focus
of the company is towards small enterprise loans where it has market share of over 40%
√ The period FY13-15 was marked by rebalancing of loan book away from gold loans to
more of small enterprise and two wheeler loans. We expect SCUF to deliver 20% CAGR
in AUM over FY16-19E vs 7% CAGR during FY13-16.
√ Buy with a target price of INR3000 comprising of INR 2,865 from the standalone busi-
ness (valued at 3.0x Sep 2018) and INR 135 from housing finance subsidiary.BUY
Shriram City Union Finance
CMP*: INR 2591
Target: INR 3000
√ BEL is well positioned to benefit from the rising defense expenditure supported by a)
strong manufacturing base and execution track record, b) relationship with defense and
government agencies, c) strategic collaboration with foreign technology partners d) in-
house R&D (R&D spend at 8.2% of revenues) and e) Increased focus on exports.
√ BEL enjoys a robust order book - to - sales position of over 4.6x. Key orders like Akash
missile system weapon locating radar, tactical communication system, mobile cellular
communication system, electronic warfare systems, advanced composite communica-
tion system and commander TI sights are likely to be finalized in coming months which
would further strengthen the order book. Buy with a target of INR1,480 (21x FY18E EPS.
Bharat Electronics Ltd.
CMP*: INR 1327
Target: INR 1450
BUY
√ AMRJ is India's second-largest lead-acid battery manufacturer (next to market leader EXID),
with market leadership in telecom and UPS segments.
√ Company aims to increase its share in the OEM & replacement segments to 40% (from
30%) and 30% (from 24%) respectively over the medium term. In the telecom segment,
AMRJ expects to maintain its market share at current levels (60% currently).
√ The company is ideally poised with stable competitive environment, significant FCF gen-
eration (~INR2.6b over FY16-18), earnings growth of 20% over FY16-18E and stable RoE
of 25% -coupled with potential shift from unorganized to organized players when GST
rolls out. Buy with a target price of ?INR1,038 ( ?25x FY18E EPS) Data as on 31st October 2016.
BUY
Amara Raja Batteries
CMP*: INR 1026
Target: INR 1257
November 2016
2
AdvisorMOStMonthly Markets Newsletter
Sectoral Highlights
On This Page
Equity Market Outlook
Markets & Our Recommendations
Equity Market Outlook
√ Nifty remained gyrating within the expected range throughout the Octo-
ber series & ended the month on a flat note with a modest gain of 0.31%.
√ MSCI emerging market index has been consolidating well and augurs well
for the nifty while a decline only below the threshold support of 870,
could be an alarm. On the monthly scale the 'Spinning Top' formation
serves as a sign of 'make or break' situation & a decisive breach outside its
range could unfold directional momentum. The index remained confined
within its previous months range throughout the October series expiry. The
sequence of narrow range bodies post the July run up augurs well for the
continuation formation. The pattern resembles a 'Rising Three' formation &
could witness sharp upward momentum in the current expiry.
√ On the daily scale multiple reversal patterns confirmed the support zone at
8500. The recent upmove post the 'Bullish Hammer' formation re-con-
firmed the support & the ongoing contraction now seems mature for a
breakout. Post contracting for almost two months now a breach outside
the pattern could unleash directional momentum. A sustained breakout
above 8730 could see an immediate movement towards 8880.
√ Amongst sectors there is no sector which is apparently displaying major
weakness as Energy, Mid & Small cap, Auto & Media could continue
to witness steady up move while Pharma is displaying signs of a trend
reversal.
Technical Outlook
Pharma Positive Auro Pharma Buy / 811
Oil & Gas Positive IGL Buy / 860
Media Positive Sun TV Buy / 547
Bank Positive Indusind Bank Buy / 1199
Sector Our Views Top Pick MBP/MSP
Note: #Technical view for 1 month perspective,
MSCI EMERGING MARKET INDEX
Nifty Monthly (Expiry)
Nifty Daily
November 2016
3
Detailed report available on- http://ftp.motilaloswal.com/emailer/Marketdiary/QuantitativeMonthly/MOStQuantitativeOutlookMonthly-November2016.pdf
Data as on 31st October 2016.
AdvisorMOStMonthly Markets Newsletter
On This Page
Derivatives Market Outlook,
Commodities Market Outlook
Markets & Our Recommendations
Derivatives Market Outlook
√ October series continued sideways activity in the range of 8500-8800 with no clear trend is place. Nifty ended marginally up 0.25% E-o-E (last
3 expiry saw closing near 8600) while Banknifty was up ~1.5% E-o-E. Rollovers were in line with 3 month average. Market wide roll was 82%
V/s 80%. Nifty roll 67% V/s 67% and Banknifty roll 66% V/s 68%. Stock specific activities were in limelight across sectors. Considering robust
market rollover, stock specific activity could continue to prevail in November series too. Open interest activity shows accumulation in Media,
Two Wheeler, Power, Oil & Gas along with positive price activity
SECTORS OI Nifty- Ratio Call Spread
Buy 8650 CE 1lot ; Sell 8800 CE 2 lot
Target: INR6300 SL: INR1500 Hedge: Buy future above 8900
√ Nifty is oscillating in band of 8500-8800 from past couple of
expiries
√ Strong support at 8500 raises expectation for an up move
√ Unwinding in 8600 CE could see momentum picking up
√ Considering Bullish outlook, Ratio Call Spread is recommended
Commodities Market Outlook
√ Gold prices slumped sharply last month on a resurgent dollar and increased expectations of a Fed rate hike. US data over the last couple of
months has broadly supported a case for a rate hike in December and reduced appeal for gold.
√ Investment demand has been subdued in the last three months with global ETF holdings barely increasing last month while speculative longs
also saw big liquidation last month. Physical demand was weak until September but has shown signs of pick up in the festive season in India
with domestic prices flipping into a premium compared to global prices.
√ We believe that the short term outlook for gold is contingent on the outcome of the US Presidential election. We have already seen a jump in
prices as Donald Trump's chances improved and an election outcome in favor of Trump could induce significant volatility in global markets akin
to the reaction after the Brexit vote. Such fears could keep precious metals well bid and take prices towards highs seen earlier this year.
√ Gold will also benefit from the fact that a Trump win will deter the Fed from hiking rates this year. From a longer term perspective, even if the
Fed hikes in December, the pace of subsequent rate hikes is going to be glacial and prevent any major correction in prices.
√ Overall, the gold bull trend is intact but intermittent price corrections and consolidation can be expected until we get any meaningful triggers
for a fresh rally. In terms of price outlook, downside looks limited from current level and thus dip towards supports around 28500-29000
would be an opportunity to create longs with potential target near INR 31900-32400 zone
Gold
November 2016
4
√ Long built up: Mainly Auto Ancilliary, Two wheeler, Oil & Gas, Media and Power.
Average rollover of 85% was witnessed in these sectors
√ Short built up : Shorts is Tyre. Below average Roll-over of 79%
√ Accumulation in Pharma with in line roll-over of 82%
√ Short covering: FMCG, Engineering, Chemical and Cement witnessed positive price
activity however open interest reduced MoM. Above average rollover ~82%
AdvisorMOStMonthly Markets Newsletter
On This Page
MOSt Value, MOSt Velocity, MOSt Mid-Cap
Build a Portfolio
MOSt Multi Cap - Model Portfolio for Investors
Scrip CMP Wtg.
Ultratech Cement 3964 10
LIC Housing Fin 588 10
Hero Motocorp 3352 10
Zee Entert 518 10
HDFC Bank 1253 10
CG Consumer Elec 185 5
Manpasand Beverages730 5
Can Fin Homes Ltd 1864 5
PVR Ltd 1229 5
Granules India Ltd 123 5
P I Industries Ltd 865 5
TVS Motor 409 5
SRF Ltd 1827 5
Shriram City Union Fin2591 5
Castrol India Ltd 458 5
Total 100
Sectoral Allocation
November 2016
5
MOSt Velocity 10 - Model Portfolio for Positional Traders
Scrip CMP Wtg.
Bharti Airtel 319 10
Auro Pharma 818 10
Infosys 1002 10
Emami Ltd 1204 10
LIC Housing Finance 588 10
IndusInd Bank 1195 10
Bank of Baroda 156 10
Shriram City Union Fin2591 10
Cash 20
Total 100
Sectoral Allocation
For Whom : Long Term Investors
Investment Duration : Few months to a year
Risk Profile : Moderate Investors
For Whom : Medium Term Investors
Investment Duration : Few months horizon
Risk Profile : Moderate Investors
Returns 3mth 6mth 12mth
Portfolio 6.4% 18.8% 13.5%
BSE 200 3.2% 14.7% 10.7%
Scrip CMP Wtg. Sectoral Allocation
What’s In
For Whom : Long Term Investors
Investment Duration : Few months to a year
Risk Profile : Aggressive Investors
MOSt Mid Cap- Model Portfolio for Aggressive Investors
Manpasand Bev. 730 10
Can Fin Homes 1864 10
PVR 1229 10
Granules 123 10
PI Inds. 865 10
SRF 1827 10
TVS Motors 409 10
Shriram City Union 2591 10
Castrol 458 10
CG Consumer Elec 185 10
Total 100
Shriram CityUnion Fin.
√ Portfolio requirement to INR 10 Lakhs
√ 50% Large-caps and 50% in our MIDCAPs portfolio
√ 15 companies to invest in at the maximum, 10 minimum
√ 5 Large-caps that are suitable for SIP investments also
√ 1 Semi Large-cap from our MIDCAP portfolio
√ 10 stocks in the MICAPS space
√ Adheres to our QGLP philosophy
We are recommending a MULTI-CAP approach instead of a MIDCAP
approach. The Multi-cap INVESTMENT portfolio will have the
following characteristics:
Data as on 31st October 2016.
What’s In
What’s Out
What’s OutIndo Count Ind.
Shriram CityUnion Fin.
Indo Count Ind.
AdvisorMOStMonthly Markets Newsletter
On This Page
MOSt PMS, MOSt Mutual - Model Portfolio
Managed Funds
November 2016
6
MOSt PMS Top Holdings in Value Strategy
√ Inception date:- 25th March 2003.
√ The Strategy aims to benefit from the Long term compounding effect on investments done
in good businesses, run by great business managers for superior wealth creation.
√ Value Strategy has the investment style of buying Undervalued stock & Sell overvalued
stocks, irrespective of Index Movements.
√ INR 1 Cr invested in Value PMS in March 2003 is worth Rs. 22.07 Crs vs. 8.54Crs in Nifty
50.
√ Since its inception, Value Strategy has delivered annualized returns of 25.52% vs. Nifty 50
returns of 17.06%, an outperformance of 8.5% (CAGR).
Value Strategy Scrips % Holdings
Bharat Petroleum Corporation 9.38
Bosch 8.65
Sun Pharmaceuticals 8.55
HDFC Bank 8.24
Kotak Mahindra Bank 8.10
Sector Allocation % Holdings
Banking & Finance 27.41
Auto & Auto Ancillaries 26.10
Oil and Gas 9.38
Pharmaceuticals 8.55
FMCG 7.38
NTDOP Strategy
√ Inception date:- 5th Dec 2007.
√ The strategy aims to deliver superior returns by investing in focused themes which are part
of the next Trillion Dollar GDP growth opportunity. It aims to predominantly invest in Mid
Cap stocks with a focus on Identifying Emerging Stocks/Sectors.
√ The strategy aims to capitalize on the themes of Consumerism, Banking & Financial Services
& Infrastructure in the Indian Economy.
√ In last three year, strategy has delivered a return of 44.16% CAGR vs. NIFTY Freefloat
Midcap 100 is 28.93% CAGR i.e., NTDOP has delivered an alpha of 15.23%.
Top Holdings in NTDOP Strategy
Scrips % Holdings
Bajaj Finance 15.86
Hindustan Petroleum Corporation 14.56
Page Industries 7.84
Eicher Motors 6.49
Voltas 6.22
All the above figures are of a model client. Returns shown above are calculated on NAV method "Returns shown above arepost fees & expenses". Past performance may or may not be sustained in future. Data as on 31st October 2016.
Sector Allocation % Holdings
Banking & Finance 32.53
Oil and Gas 16.61
FMCG 15.37
Auto & Auto Ancillaries 14.67
Diversified 6.22
India Opportunity Portfolio Strategy
√ Inception date:- 15th Feb 2010.
√ The Strategy aims to benefit from the long term compounding effect on investments done
in good businesses, run by great business managers for superior wealth creation.
√ In last 1 year, IOP Strategy has delivered a returns of 45.58% vs. BSE 200 returns of 10.43%,
i.e. delivered an alpha of 35.15%
√ Focus Theme for Next Five year: REVIVAL IN CAPEX CYCLE | MAKE IN INDIA | THIRD
TRILLION DOLLAR OPPORTUNITIES
√ Investment Approach: Buy & Hold
√ Investments with Long term perspective
√ Maximize post tax return due to Low Churn
Top Holdings in IOP Strategy
Scrips % Holdings
Development Credit Bank 11.28
Birla Corporation 10.73
Canfin Home 10.02
TTK Prestige 8.25
Aegis Logistics 7.26
Sector Allocation % Holdings
Banking & Finance 25.96
Pharmaceuticals 14.24
Cement & Infrastructure 14.12
Consumer Durable 13.94
Oil and Gas 12.01
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