saving for retirement usually is top - icici...

Saving for retirement usually is top priority for our customers especially as they advance towards retirement. It is though not the first priority amongst young investors. Many surveys have revealed that investors tend to postpone their plans for early retirement as they progress nearer to the retirement age, clearly indicating that in general we are not as prepared for retirement as we think.

Last few years have been tough specifically with respect to high inflation rates. This has made us conscious of the effect of inflation on real growth of our assets. Some expenses like medical expenses and education have grown at even faster rate than the reported consumer price inflation. The other risk in retirement planning is that we need

to plan for longer retired years with increase in quality of health services and overall longevity.

I feel that one of the biggest impediments to a retirement plan is inertia. Essentially, during the retired period, we depend on our financial assets for income and therefore, our approach towards retirement planning should be very structured. The first step to put a structure to a retirement plan is estimating how much income we would need for our daily expenses. While expenses will typically go down for a retiree, medical expenses are something one has to be concerned about.

It is a good idea to have a separate corpus for medical expenses based on current fitness, family history, coverage, if any, through the current employer, etc. A listing of current expenses minus the expenses which will be non-existent after retirement (e.g. children expenses) is a good way of estimating. Typically, this will be 60-70 percent of the current expenses. The other variables in the calculations are the expected longevity and inflation. With these, one can estimate the amount of

Anup BagchiMD & CEO

ICICI Securities Ltd.

1

corpus required at the time of retirement. This then should be the base of estimating how much we should invest every month to have that corpus at the time of retirement.

Retirement planning is typically construed as planning at the start of retirement. This is a misconception. Retirement planning needs to start at the beginning of one's career. The earlier we start the more time we have on our side to take risk with our investments and make higher returns. A long-term retirement plan needs to strike a balance between capital growth, risk management, protection, and tax planning.

Investments for retirement corpus should have a healthy portion of equity investments as equity provides with growth to the corpus. The proportion of equity in a portfolio depends on the time horizon and investments into debt helps in managing risk in retirement portfolio if the time horizon is short or one doesn't have a risk appetite.

Protecting the plan against untimely death of the earning member is a must and hence an adequate insurance is a key to a successful retirement plan. This should also be followed by estate planning through a simple will. A will in place ensures that the assets are distributed without much effort to the heirs.

Last, but not the least, we need to resist the temptation to withdraw funds from a retirement corpus, unless in an absolutely emergency. One needs to also make sure that the insurance premiums are always paid on time and the systematic investment plans (SIPs) are renewed without fail so that our retirement goals are not jeopardized.

Planning for retirement ought to be the top financial goal. The reason is simple. The responsibility to ensure we have a regular income is no one else's but ours. The services of a personal financial planner can hand-hold you through the process of retirement planning. With our vast experience in financial markets we offer retirement planning and will drafting services. Do talk to your ICICIdirect relationship manager to help you with your plan.

Our message remains the same - 'Keep investing and stay invested for your life goals.' Through this magazine and our website www.icicidirect.com we want to make an earnest attempt to partner with you in setting and achieving your financial goals. Give us an opportunity to serve you, walk into any of your Neighbourhood Financial Superstore and talk to us.

ICICIdirect Money Manager September 2014

2

The present is always far clearer than the future. Retirement will

always seem distant and hazy especially to the young. And yet

when it comes to planning for retirement, how much ever distant

retirement may appear, the right time to start is now. Starting

early not only helps you reap the benefits of compounding over a

longer period, but it also keeps you in a better position to make

suitable adjustments to your plan in a changing scenario.

The more years away from retirement you are, the more you will

benefit from it. In this issue of ICICIdirect Money Manager, we

help you understand the importance of saving and investing early

for retirement, and the steps that you may take to reach your

retirement goal with relative ease.

I would also like to draw your attention to our feature article on

Real Estate Investment Trusts (REITs). REITs are proposed to be

introduced in India, which will help establish a new asset class

and enable investors to tap the twin benefits of yield and growth.

The edition also features an interview with Swati Kulkarni,

Executive Vice President & Fund Manager, UTI Mutual Fund, who

has a positive view on healthcare, banking, cement, industrial

manufacturing, automobiles, and consumer goods sectors over

the next 3-5 years.

We also offer comprehensive information and analysis on

pension plans, in our Mutual Fund Analysis section, to help you

better plan your retirement. So read on, stay updated

and involved. Do write in with your feedback at

[email protected] and share your thoughts.

Editor & Publisher : Abhishake Mathur, CFA

Coordinating Editor : Yogita Khatri

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

CMEditorial Team : Azeem Ahmad, Nithyakumar VP CFP , Nitin Kunte, Sachin Jain, Sheetal Ashar


3

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

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

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

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

Markets Round-up & Outlook........................................................................5

Getting Technical with Dharmesh Shah.........................................................8

Derivatives Strategy by Amit Gupta............................................................ 10

Stock Ideas: Bajaj Electricals and Page Industries....................................... 15

Flavour of the Month: Retirement Planning The face of retirement ischanging. Here we help you understand why saving for retirement isimportant and the route you may take to reach your retirement goalswith relative ease.................................................................................. 22

Feature Article: Indian Real Estate Investment Trusts (REITs ) – A good time to start........................................................................................... 31

Tête-à-tête: 'Market valuations look interesting for 3-5 year term' An interview with Swati Kulkarni, EVP and Fund Manager – Equities, UTI Mutual Fund...........................................................................................35

Ask Our Planner: Switching your mutual funds investments Your personal finance queries answered…..................................................39

Mutual Fund Analysis: Category – Pension Plans Currently, there are two MF pension plans available in the market. Here we analyse them to help you plan your retirement..............................................................43

Equity Model Portfolio...............................................................................49

Mutual Funds Model Portfolio.................................................................... 54

Quiz Time.................................................................................................56

Monthly Trends.........................................................................................57

Premium Education Programmes Schedule..................................................60


4

Portable PF account number to be launched on October 16

Retirement fund manager EPFO's ambitious project to provide portable universal PF account numbers (UAN) to its subscribers will be launched on October 16. Besides, the government will launch unified web portal LIN (Labour Identification Number) for simplifying business regulations and bringing in transparency and accountability in labour inspections by various agencies and bodies under the administrative control of Labour Ministry. Prime Minister Narendra Modi is likely to launch both LIN web portal and UAN on October 16 as per the Plan chalked out by the Labour Ministry.

Courtesy: Business Standard

September 2014ICICIdirect Money Manager

With an aim to attract greater foreign and domestic investments into real estate, Sebi has said it will soon notify norms for creation and listing of business trusts for this key sector. Two separate committees have been set-up for the specific guidelines on the issue. The Securities and Exchange Board of India's board had approved the regulations on Real Estate Investment Trusts last month after receiving public comments.

Courtesy: The Economic Times

SEBI to soon notify norms for Real Estate Investment Trusts

The Reserve Bank of India (RBI) needs to further increase policy rates to bring down inflation on a sustained basis, the International Monetary Fund (IMF) said. In a note released ahead of the G20 meeting of finance ministers and central bank governors at Cairns in Australia, IMF said India needs to take more steps to reduce stubbornly high inflation and the large fiscal deficit. The RBI is scheduled to announce its bi-monthly monetary policy on September 30.

Courtesy: The Times of India

RBI needs to raise policy rates to bring down inflation: IMF

Foreign institutional investors, or FIIs, have stepped up investments in long-term government bonds with maturities extending up to 28-30 years, marking a shift from their practice of betting mainly on Indian sovereign debt instruments maturing within five years and signalling restoration of global faith in the Indian economy. FIIs have already exhausted nearly 65% of the $5-billion investment limit for long-term investors such as foreign central banks, pension funds, sovereign wealth funds, endowment funds and insurance funds, data from the National Securities Depository (NSDL) shows.

Courtesy: The Economic Times

Foreign institutional investors step up investments in long-term government bonds re-instating faith in economy

5

Upbeat macro, falling crude prices likely to keep momentum intact

Indian markets remained volatile at the beginning of the month following the uncertainty in the global markets amid default concerns in Argentina and rising geo-political tensions in Ukraine and Iraq. The mid-month, however, witnessed a strong rally in the markets that aided the markets to close at all-time highs. The rally was led by supportive news flows from all fronts, a report from India's Met (Meteorological) department revising monsoon estimates to 10% below average (earlier 40%), India's five-month low wholesale price index (WPI) data, the Prime Minister announcing a scheme for financial inclusion. Also, reports suggested a renewed top spot for India in a Global Survey of Consumer Confidence that boosted sentiments on the domestic front while reduced tensions in the Middle East and Ukraine eased geo-political concerns and upbeat US data provided supportive cues on the international front. In the last week, the markets turned slightly jittery initially after the Supreme Court cracked down on coal b lock a l locat ion impacting metals, capital goods and power ind ices . The

sent iment was, however, rejuvenated fol lowing an improved gross domestic product (GDP) data of the country for Q2CY14 and positive news flows from the US and Europe (financial stimulus by European Central Bank (ECB)). The markets, thereby, recorded fresh highs again in the last week and recorded a positive close for the month. The rupee remained flat during the month closing at 60.5, losing 0.1%.

The strong rally in Indian markets was aided by upbeat data points reported during the month. India's GDP for Q2CY14 came in at 5.7% (highest since Q1CY13) as against 4.7% in Q2CY13. The Indian auto industry posted growth of 15% for July to 19,08,650 units led by 17% growth in two wheelers and 4% growth in passenger vehicles. The Reserve Bank of India (RBI) in its monetary policy kept the repo and cash reserve ratio (CRR) rates unchanged at 8% and 4%, respectively, and cut the statutory liquidity ratio (SLR) requirement further by 50 basis points (bps) to 22%. The cut in SLR is expected to release ~ 40,000 crore funds for incremental credit. The RBI also

`

MARKETS ROUND-UP


6

reduced the held to maturity (HTM) limit from 24.5% to 24%. India's Manufacturing PMI for July rose to 53 vs. 51.5 in June but Services and Composite PMI for July were marginally lower at 52.2 and 53 vs. 54.4 and 53.8 in June, respectively. Inflation numbers for July were mixed with consumer price index (CPI) coming in higher at 7.96% led by soar ing vegetable pr ices whereas WPI eased to 5.19% following a high base and drop in fuel inflation on flat global crude prices. The rally in markets paid no heed to the declining index of industrial production (IIP) data for June and widening trade deficit data for July. IIP for June declined to 3.4% from 5% in May impacted largely by slower output in the consumer goods sector. India's trade deficit widened to $12.23 billion against $11.76 billion in June led largely by higher oil imports, which increased 12.8% in July to $14.35 billion.

Global markets began the month on a weak note as upbeat economic data from the US (expansion in service sector activity, rebound in factory orders, narrowing trade deficit) gave some jitters to investors on the likelihood of an earlier-than expected increase in interest

rates by the Fed. Disappointing data from Italy and a sharper fall in German manufacturing orders supply also added to the pessimism. However, markets gained strength in the latter half of the month on waning geo-political worries as Russia and Ukraine for the first time agreed to a discussion to resolve the ongoing situation in Ukraine, on positive data prints from the US (consumer confidence index at seven years high, improving jobs and housing data, minutes of the Fed's meeting indicating only gradual withdrawal of stimulus) and ECB's statement to continue quantitative easing until some tangible recovery in the eurozone economies. In the end, the US markets gained ~3-5% whereas European markets gained ~1-3%. Asian markets shed their initial gains and closed modestly lower (0.3-1%) following weak data releases from China.

During the month, crude (Nymex) maintained a weak stance losing 2.3% and closed at $96/barrel.

Global markets

Both US and European markets traded with a positive bias. The Dow Jones, S&P 500 and

MARKETS ROUND-UP


7

Nasdaq gained about 3.2%, 3.8% and 4.8%, respectively. European markets also posted modest gains with the FTSE, German Dax and French CAC gaining 1.3%, 0.7% and 3.2%, respectively. Asian markets, on the other hand, remained weak with Nikkei and Hang Seng l o s i n g 1 . 3 % a n d 0 . 1 % , respectively, while Shanghai SSEC posted a marginal gain of 0.7%.

Domestic markets

Both foreign inst i tut ional investors (FIIs) and domestic institutional investors (DIIs) pumped money into the Indian markets remaining net buyers of ~ 7,467 crore and ~ 2,336 crore, respectively.

The Nifty and Sensex gained 3% and 2.9%, respectively. The BSE Auto and BSE Healthcare Indices were the major gainers in the month posting gains of 11.6% and 8.2%, respectively. BSE Oil, BSE IT, BSE FMCG, BSE Bankex and BSE PSU were other gainers during the month posting 4%, 3.5%, 3.2%, 3% and 1.1% gains, respectively. BSE Realty, BSE Metal and BSE Power however lost 8.7%, 6.2% and 4.2%, respectively. The BSE Midcap and Small Cap indices grew 1.8% and 2.8% during the

` `

month.

Outlook: Sentiments upbeat after digesting geo-political concerns

Brent crude fell below $100 a barrel for the first time in 14 months amid mixed global growth indicators, waning geopolitical concerns and excess supply. This has come as a shot in the arm for the Indian economy and one need not elaborate on how this will be beneficial, going ahead. On the economy front, we had some mixed sets of prints but the most important gauge was that GDP growth was the highest since Q1CY13. Globally, the mixed set of US macro data continued to flash mixed signals regarding Fed's next course of action. However, the surprise move from the ECB was by way of a reduction in benchmark interest rates and offering of some more stimuli for the struggling Euro zone region. Apprehensions regarding Ukraine and the Middle East seem to have fizzled out. Most markets across the globe continue to hit new pinnacles on the back of liquidity gush and waning geopolitical concerns and are in no mood to consolidate. We expect the momentum to continue in India as well.

MARKETS ROUND-UP


8

Domestic equity benchmarks shrugged off the initial round of profit bookings at the start of August 2014 and surged to record highs buoyed by a cool off in crude oil prices to a 14-month low amid receding geopolit ical tensions and strength in the rupee against the US dollar. The Sensex registered a resolute breakout past the two month consolidation range (26,300 to 24,878), thereby concluding a secondary corrective phase and signalling resumption of the primary uptrend.

We expect benchmarks to enter a sustainable uptrend and head t o w a r d s 2 8 , 3 0 0 / 8 , 4 5 0 (Sensex/Nifty) in the coming months. The larger degree trend remains positive and the index continues to march northwards in a rising peaks and troughs manner. We expect the base of the market to shift higher towards 25,750/7,700 levels. Any cool-off towards this region

s h o u l d b e u s e d a s a n opportunity to go long.

We believe the sectoral churn will add more legs to this uptrend and keep the index in good stead over a medium term horizon. Sectoral heavyweight, the banking index registered a fresh breakout after three month consol idat ion while most cyclicals have cooled off considerably over the last month, which has created further headroom for pullbacks from hereon. In extending markets, we deploy Fibonacci extensions to derive the next logical price objective. The 138.2% extension of the preceding rally that measured around 3,000 points from inception point of current rally p o s t e l e c t i o n r e s u l t consolidation low of 24,163 projects upside potent ia l towards 28,300/8,450 over the coming months.

The index has resolved higher after forming a steady basearound the 24,900/7,440region during the last two month's consolidation. Following the bullish breakout past the said consolidation, we expect the base of the market to shift higher towards 25,750/7,

Piercing new highs; Sensex aiming at 28,300

TECHNICAL OUTLOOK


9

TECHNICAL OUTLOOK


BSE Sensex – Weekly Candlestick Chart

Source: Bloomberg, ICICIdirect.com Research

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

700levels. The bullishgap area formed on August 12, 2014 around 25,645 also coincides with the 61.8% retracement of the current up move (25,750) making this a key intermediate support for the index.

Key distinguishing factors that signal a shift of trend from sideways to positive is the faster retracement of the last rising segment and active participation from broader markets. The index overhauled its 10-session decline (26,300 to 25,232)

in justfive trading session-sindicating a strong comeback by bulls. Out performance of the broader markets while benchmarks venture into new territory highlights the prevailing buoyancy in the market and augurs well for the sustainability of the uptrend. Thebanking index, which commands highest weightage on the benchmark has also risen from a three-month slumber and supports further upsides.

Double Bottom @ 24879

22939

22277

19963

25375

2976 pts

3098

pts

13 week EMA

The 138.2% extension of preceding rally projects upside towards 28300The index concluded a two month consolidation and resolved

higher to indicate res umption of the upward momentum. We believe the index is set to extend the current up move to the tune of 138.2% extension of the preceding rally, projecting upsides towards 28300 levels over the coming months

24163

Weekly RSI holding its support reading of 60-65 during corrective phase highlights the underlying strength in the trend

10ICICIdirect Money Manager September 2014

DERIVATIVES STRATEGY

Since the election verdict, the

Nifty has been making higher

lows and every decline has

been greeted with long build-

up in the index futures

segment. In the current month,

the Nifty bottomed out at 7550,

post which it added close to

30% OI and as a follow up

made recent highs of 7965.

During the August expiry

week, we have seen smooth

rollover of long positions. As

the Nifty took out 7800 on

August 19, the roll spread

bottomed out at 30 points and

constantly moved higher to 38

points. This means long Nifty

futures are getting rolled into

the September series. This

suggests the bullish bias is

likely to continue.

In the options segment, the

initial build-up is suggesting a

range of 7800-8200.

Looking at the Call options

segment, there is visibility

beyond 8000 as well, as 8200

Call has high OI. This suggests,

if the elusive 8000 level is taken

out, the Nifty would be well and

truly on course for 8200 in

September.

September Put options are

evenly spread out but the

highest OI concentration is at

the 7800 Put. Coincidentally,

the VWAP for the current series

is also placed near 7760 levels.

Since the Nifty bottomed out

near 6000 in February 2014, it

has held monthly VWAP price

on a closing basis.

Nifty Bollinger is showing

signs of expansion and even

with the Nifty clocking over 6%

gains on the trot, the index is

absorbing the adverse news

flows. Hence, the declines in

the index should be utilised to

go long.

On upsides target of 8000/8200 likely to be tested while 7760-7800 is major support zone …



Nifty Options build-upSeptember series

0

0.5

1

1.5

2

2.5

7100

7200

7300

7400

7500

7600

7700

7800

7900

8000

8100

8200

8300

OI i

n M

illio

n Sh

ares

Call OI Put OI

Nifty +2 Sigma Bollinger band : in expansion

5000

5500

6000

6500

7000

7500

8000

23

-Au

g-1

3

23-

Se

p-1

3

23

-Oct

-13

23

-No

v-1

3

23-D

ec-

13

23

-Ja

n-1

4

23-

Fe

b-1

4

23-M

ar-1

4

23

-Ap

r-1

4

23-

Ma

y-1

4

23

-Jun

-14

23

-Ju

l-1

4

23-A

ug-

14

Nifty Spot Mean + 2 Sigma 20 D EMA Mean+ 2 Sigma

Broad based buying observed in

recent Nifty up move …

After bottoming out on August

8 at 7550 , the Nifty saw a sharp

reversal of fortunes as it made

yet another record high of

7965 (gains of close to 6%). In

this move, the entire spectrum

of stocks from the small cap to

large cap and from IT to

banking have participated

Initial leadership was seen in

auto, which later shifted to

banking as the Nifty took out

7800. Towards settlement, IT

and pharma stock saw buying.

In August, the CNX midcap and

small cap space witnessed

gains of over 2%

However, this buying appears

to be mainly domestic as FII

only bought US$600 million

for the month. FIIs bought

protection for the already

aggressive buying of over

US$13 billion in 2014. Geo-

political risk continued to

remain elevated during the

month while the strong

economic data in the US

increased the chances of a rate

hike there

The NSE advance decline ratio

will be keenly tracked. The

ratio remained positive for

most of the August series. A

continuance of this trend is

likely to infuse fresh upsides i n

the broader markets,

especially the midcap and

small cap space

Sectoral return in August Series

-10 -5 0 5 10 15

Bse Health Care

Bse Auto

BSE IT

Nifty

BSE Power

Bse Metal

Bse Realty

% monthly return

12ICICIdirect Money Manager


September 2014

Bank Nifty takes out election verdict high of 15740; likely to hit targets of 16000/16500…

After three months, the banking index took out the election day high of 15740. This up move during this series was on the back of l o n g build-up, where the OI d u r i n g the series nearly doubled to 95250 contracts

Looking at the September series options build-up, highest Call bases are still placed at 16000/16500, w h i c h are target levels for the index in the September series. On the lower side, highest Put base is at 15000

In price ratio terms, the Bank Nifty/Nifty is currently at 1 . 9 9 . The ratio has seen a trendl ine break out at 1.97 and is holding above this level. Eventually, the ratio is likely to head higher towards 2.2

With major asset classes, namely crude and gold in a declining trend on the back of inherent strength in the dollar, the current account deficit is likely to come down further. This will be a good trigger for the banking sector, in

particular. The positive sentiment could get a further push if the CPI reading due on September 12, 2014 comes in lower.

Private sector banks, which contribute over 70% to the index, are showing an accumulation pattern. If adverse news flows soften out, this pattern is l ikely to continue.

Bank Nifty options build up suggests target of 16000/16500

OI Build up for August Series

0

0.1

0.2

0.3

0.4

0.5

0.6

1450

0

1470

0

1490

0

1510

0

1530

0

1550

0

1570

0

1590

0

1610

0

1630

0

1650

0

OI in Millions

Call OI Put OI

India VIX : Likely to be subdued

below 16 levels in near term…

Since the election verdict in

May 2014, the volatility index

has been in a declining trend

and has been making new lows

every month. We believe India

VIX is likely to move in the

range of 12-16.

With volatility near multiyear

lows, some pullback in it is not

ruled out during the series.

However, if this up move



September 2014

happens in India VIX, it is

unlikely to deter the Nifty’s

upward trajectory and should

be used as a buying

opportunity to create short

volatility positions.

On a positional basis, the 100

week moving average is at

18.2. This level is likely to be

tested only in the event of an

escalation of geo–political risk.

Another area that could trigger

volatility is strength in the

dollar. With the dollar index

already at a one-year high, any

further strengthening could hit

emerging currencies with a

deprecating bias. If a currency

deprecation starts in Ems, then

this may have an impact on

equities negatively, pushing

the fear gauge higher. The

European Central Bank

meeting on September 4, and

their stance on stimulus could

also push volatility higher.

India VIX likely to remain in 12 to 16 range

FII cash flows remain muted in

August but they bought index

options to hedge cash positions…

FIIs’ cash buying remained tepid during the month as they bought only US$ 600 million, which is almost 65% lower than the last three month’s average of US$1.7 billion.

This low cash buying is also supported by seasonality, which suggests August remains a slack month since 2009 for FII cash inflows.

In the current month, buying was seen on part of domestic participants wherein DIIs after a gap of five months bought in the cash segment. Their total buying was close to US$300 million.

The bond market also remained dry for a major part of the month. Barring record buying by Franklin Templeton of US$2.62 billion in a single session, the figure for the rest of the month is insignificant. Higher CPI reading dampened hopes of long bond play prospects.

The net inflow (FII equity inflow + FII debt inflow) of close to US$3 billion was 33% lower than last month’s inflow of US$4.5 billion

During the month, the dollar index was a key area of strength



September 2014

as it moved up close to 2% to a one-year high of 82.7. Euro fell to 11 month low of 1.32 and JPY to seven month high of 104.5. However, the rupee has shown surprising resilience till now as it continues to trade near 60. However, if the dollar strength continues further, it will be difficult for the rupee to continue to defy depreciation

FIIs cash activity in (In ` crore)

-10000

-5000

0

5000

10000

15000

20000

25000

30000

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

INR

is C

r

FIIs debt activity (In ` crore)

-25000

-20000

-15000

-10000

-5000

0

5000

10000

15000

20000

Aug-

13

Sep-

13

Oct-1

3

Nov-

13

Dec-

13

Jan-

14

Feb-

14

Mar

-14

Apr-1

4

May

-14

Jun-

14

Jul-1

4

Aug-

14

INR

in Cr

FIIs hold key to substantial up move

in Nifty: Since 2009, September has

seen largest inflows …

Foreign institutional investors

have been the biggest source of

liquidity and have represented

the largest appetite for Indian

equity markets. Even though FII

flows have remained tepid

during August, flows are likely

to pick up in September.

Historically, since 2009, one of

the smallest inflows is seen in

August, which remained true in

August 2014 as well. However,

September records the largest

inflows, which may happen to

be true this year.

Since 2009, their run rate was

US$14 billion per year. In the

current year, they have already

bought close to US$13 billion.

FII buying picks up from

September onwards. Average

m o n t h l y i n f l o w s d u r i n g

September December were

seen at US$1.85 billion, which is

45% higher than the monthly

average of US$1.27 billion for

the whole year

Average monthly net FII inflowssince 2009

576 91

7

2011

915 11

53

358

1615

286

2662

2107

1214 14

09

0

500

1000

1500

2000

2500

3000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Ave

rage

US

$ m

illio

n

15

STOCK IDEAS

Bajaj Electricals: Strong brand play!

Company Background

Established in 1938, Bajaj

Electricals Ltd. (BEL) was first

incorporated as Radio Lamp

Works Ltd. It was later

renamed Bajaj Electricals in

1960. BEL operates mainly in

three business segments,

namely, lighting & luminaries,

consumer durables (CD) and

engineering & project (E&P).

The company follows an asset

light model strategy wherein it

largely outsources (revenue

from outsourced product

contributes ~95% in the

topline) the manufacturing of

its kitchen and home appliance

products and lightings. Under

i t s k i t c h e n a n d h o m e

appliances, BEL offers a wide

range o f b rown goods

including water heaters, mixer

grinder, food processors etc.

The Bajaj lighting & luminaries

unit markets a wide range of

light sources and domestic

luminaries. The E&P segment

(contributes ~20% to topline)

includes three sub segments

viz. special projects,

transmission line tower and

high masts.

Consumption story to remain intact

Dominant play in appliances

segment, BEL is a well

established national brand in

the k i tchen & domest ic

appliances (KDA) and lighting

s e g m e n t s . T h e s e t w o

segments contribute ~70% to

the topline and recorded sales

CAGR (compounded annual

growth rate) of ~18.3% in

FY09-14. BEL has successfully

leveraged its brand to create a

huge retail network of 45,000

for appliances, 86,000 for fans

and over 4,00,000 for lighting

across India. In order to use its

expertise in different product

lines, BEL has entered into

various joint ventures (JVs) in

the appliances and lighting

segments. Among major

brands, Morphy Richards

(leading brand in the UK) is a

well-accepted brand in India

marketed by Bajaj. The JV was

started in 2003 mainly to tap

Investment Rationale


16

the market for premium

products. Revenues of

Morphy's products recorded a

CAGR of 28.2% in FY09-14

from 55 crore to 190 crore.

BEL outsources its lighting

products domestically while

luminaries are sourced from

domestic and international

vendors. With a strong dealer

network, we believe the CD &

lighting segment will witness

sales CAGR of ~17% and

~10%, respectively, in FY14-

16E, supported by an un-

penetrated rural market, rapid

urbanisation and a growing

middle class.

Recovery in engineering & project

(E&P) segment

BEL entered lighting project

services in 1960 with an aim of

diversifying the business from

a lighting and consumer

durable player to a strong

contender in the engineering

and project segments. The

business unit is divided into

three segments, namely high

masts, transmission line

towers (TLT) and special

projects. The E&P segment

` `

revenue increased four fold

from 178 crore in FY05 to

1150 crore in FY14 while the

segment contributes ~29% to

the FY14 topline. The segment

recorded revenue CAGR of

~16 .2% in FY09 -14 . A

slowdown in the industrial

bus iness and s t re tched

working capital cycle resulted

in a decline in EBIT margin

from 12.6% in FY09 to -18.1%

in FY13 and -9% in Fy14.

However, BEL's order book size

has more than doubled in

FY14. Company has recently

won major orders (all higher

margin orders) from various

states electricity boards and

Power Grid Corporation of

India. With the completion

period of 24 months, major

part of revenues would flow in

FY17E. However, continuous

order inflow improved the

visibility of revenue booking

from the E&P segment.

Pan-India presence through strong

dealer network

BEL, one of the oldest

consumer durable companies

in the country, has a pan-India

` `

STOCK IDEAS


17

STOCK IDEAS


presence through a strong

dealer and retail network. The

company has 2,200+

distributors and 5,000+

dealers across India. Further,

Bajaj's lighting solutions are

available in over 3,50,000 retail

s t o r e s w h i l e f a n s a n d

appliances are available at

over 88,000 and 45,000 retail

stores across India. In order to

leverage its strong brand, BEL

has taken an initiative to reach

directly to the consumer

through opening retail chain

'Bajaj World' (pure franchise

model) for appliances and

lighting products. Currently,

the company has 75 exclusive

Bajaj World stores. It also has

plans to expand its presence

globally through franchise

agreements. It has recently

opened stores in Nepal and

plans to open stores in Ghana,

Nigeria, Sri Lanka and South

Africa.

Consumer business to drive rating

Bajaj Electricals, despite being

a dominant play in the lighting

a n d c o n s u m e r d u r a b l e

segment (contributes ~70% of

topline) with a strong dealer

network, has paid the price for

poor execution in the E&P

b u s i n e s s . Po o r E B I T DA

margins with rising working

capital requirement (due to a

delay in execution of E&P

projects) resulted in sharp

multiple contractions. At the

current price, the stock is

trading at a PE multiple of 17.4x

FY15E and 10x FY16E earnings.

On an EV/EBITDA basis, it is

trading at ~9.9x and 7x for

FY15E and FY16E, respectively.

With the expected turnaround

in the E&P business from FY15E

onwards and dominance in

lighting & consumer durable

business, we expect the

company to generate of

EBITDA of 315 crore in FY15E

and 430 crore in FY16E. We

believe the stock is trading at

a t t r a c t i v e m u l t i p l e s

considering the turnaround in

the E&P segment. We have

valued the consumer durable,

lighting & E&P business at 12x,

6x and 6x FY16E EBITDA,

respectively, to arrive at a target

price of 416 with a BUY

recommendation.

`

`

`

18

Key risks include: Rising competition from domestic and international players entering the Indian markets could pose a threat. In addition, the company's import content contributes ~13% to the topline, which includes 40% of Morphy Richards, 20% of appliances, 10% each of lighting and fans. Rupee depreciation over an extended duration could put pressure on margins in the near term. Further, a slowdown in the power transmission and distribution industry and slower rate of project execution has hit the company's segment revenue. This led to stretched working capital requirement and finally hit margin.

(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EV: Enterprise value; EPS: Earnings per share; P/E: Price-to-earnings; P/BV: Price/book value; RoNW: Return on net worth; RoCE: Return on Capital Employed; Mcap: Market capitalization; MF: Mutual Funds; FII: Foreign Institutional Investors)

STOCK IDEAS

Key Financials

Valuations Summary

Stock Data


Net sales ( crore) 3,381 4,048 4,695 5,512

EBITDA ( crore) 101.2 81.8 314.5 429.9

Net profit ( crore) 51.2 (5.3) 168.3 285

EPS ( ) 3.1 (0.5) 16.9 28.6

`

`

`

`

P/E (x) 90.9 - 16.6 9.8

Target P/E (x) 135.2 - 24.7 14.6

EV / EBITDA (x) 28.7 37.7 9.5 6.7

P/BV (x) 3.8 3.9 3.3 2.5

RoNW (%) 7 (0.7) 19.7 25.7

RoCE (%) 9.8 5.4 24.8 29.2

Mcap/sales (x) 0.8 0.7 0.6 0.5

Particulars Figures

Market capitalization ( crore) 2,793.2

Total debt (FY14) ( crore) 344.3

Cash and investments (FY14) ( crore) 121.8

Enterprise value (FY14) ( crore) 3,015.7

52-week High/Low ( ) 382 / 150

Equity capital ( crore) 20

Face value ( ) 2

MF Holding (%) 3.9

FII Holding (%) 16.3

`

`

`

`

`

`

`

19

Page Industries: Galloping ahead!

Company Background

Investment Rationale

Page Industries (Page), promoted by the Genomal brothers in 1995, is the exclusive licensee of Jockey International Inc (US) for the manufacture and distribution of the Jockey® brand innerwear /leisure wear for men and women in India, Sri Lanka, Bangladesh, Nepal and UAE. The promoters have been associated with Jockey International Inc. for over 50 years (since 1959) as their sole licensee in the Philippines. Page has 10 factories with a total manufacturing capacity of ~16 crore pieces. Page's distributors cater to over 23,000 retail outlets spread across five formats - chain stores (large format stores), multi brand outlets (MBOs), hosiery stores, multi purpose stores and exclusive Jockey brand outlets (EBOs).

Favourable demographics, low penetration to boost growth

The Indian innerwear segment valued at $4 billion is expected to grow at 12% compounded

annual growth rate (CAGR) over the next decade. Page has consistently grown well above the industry average. We expect the same to continue as India's per capita spend on innerwear is ~90% lower than that of Thailand and China. The market has been growing faster than the overall clothing market, driven by premiumisation. With discretionary consumer spend in India continuing to grow, these trends should persist, aided by rising urbanisation and growth in consumer incomes.

Healthy revenue growth to continue and margins to be maintained

Page's revenues have grown at a CAGR of 36.4% during Fy10 14. We expect the growth rate to slow down to 27.6% during FY14-17E owing to a larger base effect. We expect both volumes as well as realisation to aid this growth. Considering that the p e n e t r a t i o n o f b r a n d e d innerwear is significantly low in India and that Indians spend significantly lower on innerwear compared to their Asian peers, we do not anticipate any roadblocks in the company's growth plans. Continuous

STOCK IDEAS


20

capacity addition and entry into newer markets is likely to further aid growth. Page is cushioned from rising input costs as it takes price hikes to the tune of 5-10% per annum, which enables it to maintain operating margins. The company is confident of maintaining its operating margin around 20%. Though the operating margin has increased to 21.4% in Fy14 (owing to removal of excise duty), we expect it to stabilise at 21% by FY17E.

Capacity addition to continue

Page has continuously expanded capacities in line with the growing demand for its products. Page's capacity has increased from 2.2 crore pieces in FY07 to 16.3 crore pieces in FY14. We expect the same to go up to 28.2 crore pieces by FY17E. As the company is absent in a highly capital-intensive segment, Page has been comfortably able to fund the same through internal accruals. We expect the same to continue, going forward. With the current rate of capacity addition, the company is only able to cater to the Indian markets despite holding

licenses for Sri Lanka, Bangladesh, Nepal and UAE as well. In a scenario when Indian demand starts to flatten out, the company can access these markets for growth opportunities.

Consistent growth with healthy fundamentals; recommend BUY

We bel ieve changing demographics will continue to work in favour of consumption oriented companies like Page Industries. The company will be a beneficiary of the shift from unbranded to branded products. Apart from local demand, Page has licenses to cater to countries like Nepal, Sri Lanka, Bangladesh and UAE. Many consumer oriented companies that have delivered consistent growth are trading at premium multiples. Similarly, we believe Page should also command a premium considering its strong fundamentals and consistent dividend payouts. Page has been able to grow consistently while many of its peers are struggling to grow. We, thereby, recommend BUY on Page Industries with a target price of 8,660 (based on 30x FY17E

EPS of 288.7).`

`

STOCK IDEAS


21

Key risks include: Rising competition from international players entering the Indian markets could pose a threat. Also, if sales growth slows down faster-than-expected, the company would have to resort to debt to fund working capital as well as pay dividends at the current rate.

(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; MF: Mutual Funds; FII: Foreign Institutional Investors).

Key Financials

Valuations Summary

Stock Data

STOCK IDEAS


Net sales ( crore) 1,187.6 1,511.6 1,923.8 2,458

EBITDA ( crore) 251.2 310.9 400.3 512.7

Net profit ( crore) 153.8 193.1 250.8 322

EPS ( ) 137.9 173.2 224.9 288.7

`

`

`

`

P/E (x) 53.3 42.5 32.7 25.5

Target P/E (x) 62.8 50 38.5 30

Dividend yield (%) 0.7 0.8 1.2 1.5

Price/Sales (x) 6.99 5.49 4.31 3.37

RoNW (%) 53.2 52.3 53 53.1

RoCE (%) 52.5 58.4 59.7 60.1

Market capitalization ( crore) 8,203.7

Total debt (FY14) ( crore) 163.2

Cash and investments (FY14) ( crore) 3.5

Enterprise value (EV) ( crore) 8,363.4

52-week High/Low ( ) 8,205 / 3,850

Equity capital ( crore) 11.2

Face value ( ) 10

MF holding (%) 14.9

FII holding (%) 20

`

`

`

`

`

`

`

22

FLAVOUR OF THE MONTH


A guide to secure your retirement

The face of retirement is changing. Today, most of us can't count

on what our previous generations could, for their retirement

needs. Assured pension, guaranteed returns from government

schemes, support from a joint family, and periods of relatively

low inflation -- are almost things of the past. Our retirement is

going to be very different from that of our parents or

grandparents. We would need to fend for ourselves for our

retirement needs. Here we help you understand why saving for

retirement is important and the route you may take to reach your

retirement goals with relative ease.

The changing landscape

Pensions are nearly extinct: In the

p a s t , l a r g e e m p l o y e r s

worldwide provided their

employees with defined

benefit (DB) plans. Put simply,

c o m p a n i e s p r o m i s e d

employees a certain monthly

benefit at retirement. Those

benefits are almost a dream

now. The increasing burden of

p e n s i o n l i a b i l i t i e s o n

governments and the private

sector across the world,

including India, has forced the

s h i f t t o w a r d s d e f i n e d

contribution (DC) plans. For

example, Japan and Canada,

both historically had only DB,

are now showing signs of a

shift towards DC, according to

a

In

case of DC plans, the liability is

clear; whereas in DB plans, the

liabilities are uncertain.

report 'Global Pensions Asset

Study 2014' by Towers Watson,

a global consultancy firm.

Source: Towers Watson, Global Pensions Asset Study 2014

23



The gradual shift from DB to DC plans suggests that we ourselves would need to take the charge of our retirement. Though some of us are covered under employees' provident fund (EPF) account, the overall coverage remains low. Adding civil servants and the voluntary and mandatory participants of the Employers Provident Funds Organization (EPFO) schemes (of which not all are active participants), only 17– 21% of the Indian workforce is currently covered

b y a f o r m a l p e n s i o n arrangement,

The average Indian now lives for up to almost 65 years, compared with 48 years in 1970. The life expectancy is expected to further rise in the coming years. It is expected to reach 72 for males and 76 for females by 2025, according to a planning commission report.

according to the Asian Development Bank (ADB).

We are living longer:

Source: Planning Commission report - Demographic scenario, 2025

Rising life expectancy means we would need to save enough today for 25-30 years of our retired life.

The Indian population is ageing. India has around 100 million elderly (60 years of age) at present and the number is expected to

Demographic shift:

increase to 323 mill ion, constituting 20% of the total population, by 2050, according to . This means we will have a longer span in retirement, and therefore, must accumulate a bigger corpus for our sunset years.

the United Nations report

Projected life expectancy

24



Cost of living rising: About 60

years ago, an average middle

class person earning 600 a

month, could well support his

family. Today, it takes about

30,000. Likewise, there will be a

`

`

continuous price rise over a

long period. If you plan to

maintain your current lifestyle

even after you retire, you

would need to build in an

inflation-protected portfolio.

If your monthly expenses today are 30,000`

10 53,725

15 71,897

20 96,214

25 128,756

30 172,305

35 230,583

Years to retirement Actual amount required considering inflation(Rs.)

Note: Inflation taken at 6%

25



Healthcare costs sharply rising:

The good part is, despite all the

challenges listed above, we

can achieve our goals with

relative ease. The key is: Start

where you are. Start now.

The early bird catches the worm

Healthcare costs are on the

rise, and they are significantly

outpacing consumer inflation

averages. In India, medical

inflation has been running into

double digits -- at the rate of 18

20% every year. As healthcare

expenses go up in retirement,

it is important to build

sufficient retirement corpus to

take care of our needs.

Saving for retirement may

seem very distant when you

are young. But the sooner you

start saving and investing for

your retirement, the more

secure your future will be.

Starting early has significant

long-term benefits, thanks to

the magic of compounding.

Calculations show that if a

person aged 30 years, starts

investing 3,000 a month, at

the rate of return at 12% p.a.,

h e w o u l d b e a b l e t o

`

accumulate 51,06,620 by the

age of 55. If he starts 5 years

later, even with a greater

investment amount of 5,000 a

month, he will be able to

accumulate only 45,99,287.

`

`

`

Age of starting investment 30 years 35 years

Retirement age 55 years 55 years

Monthlyinvestment Rs. 3,000 Rs. 5,000

Rate of return 12% p.a. 12% p.a.

Corpusaccumulated Rs. 51,06,620 Rs. 45,99,287

Scenario 1 Scenario 2

Also, when you start early, you

require lesser investment

amount to build retirement

corpus. Let's understand this

with an example. Suppose, a

person needs a corpus of 1

crore in his retirement kitty at

the age of 60. If he plans at the

age of 25, considering returns

of 8%, he has to save 58,033

per year. If he starts planning at

the age of 35 he has to save

1,36,788 every year. And if he

starts planning late at the age

of 45 he has to save 3,68,295

to reach his goal of 1 crore.

`

`

`

`

`

26



AgeAmount to be invested every year to accumulate 1 crore`

At 8% p.a. return At 10% p.a. return At 12% p.a. return

25 ` 58,033 ` 36,897 ` 23,166

35 ` 1,36,788 ` 1,01,681 ` 75,000

45 ` 3,68,295 ` 3,14,738 ` 2,68,242

Since younger investors have

a longer time to absorb market

setbacks, it is usually prudent

for them to invest a larger

portion of their portfolio in

e q u i t y . H i s t o r i c a l l y ,

i n v e s t m e n t s i n e q u i t y

haveprovided better returns

than other asset classes.

S ince incep t ion , Sensex

hasdelivered a compounded

annual growth rate (CAGR)

return of 17%, which is higher

t h a n a n y o t h e r a s s e t

class.Investment in equity

alsohelps build-in an inflation-

protected and tax-efficient

portfolio in the long run.

For a retirement corpus, one

should take maximum equity

exposure at an early age. One

can gradually reduce it as he

approaches retirement. But

suppose, if one has started

planning for retirement at a late

age then to satisfy his goal he

has to take equity exposure

accordingly, irrespective of his

age.

How much is enough to lead a

comfortable retired life? Well, it

depends on a number of

fac tors . These inc lude:

yourexpected lifestyle in

retirement, health history, how

much risk you are willing to

take in your portfolio, the

amount you have saved and

invested so far, and how much

time you have until retirement.

- First, determine the age at

which you wish to retire. (e.g.

Current age – 30; Retirement

age – 55). Today, a lot of us

want to retire early. But

remember, retiring early will

require more money.

- Next, list your current

e x p e n s e s a n d p o s t

A bit of number crunching

Here's the simple method to

find out the retirement corpus

required.

27



retirement expenses in today's

cost. For example, if you are

a family of 4 with annual

household expenses of 3

lakh, your post-retirement

expenses for a family of 2

members could be 2 lakh in

today's cost. I t is also

impor tan t to f ac to r in

increases in certain expenses

such as medical and traveling

expenses. (e.g. let's say your

current monthly expenses are

30,000 per month).

- Factor in the inflation rate

(e.g. 6% p.a.) and then

c a l c u l a t e t h e m o n t h l y

expenses that you will need

after retirement. (e.g. 128,756

per month).

- Assume a rate of return to be

g e n e r a t e d f r o m y o u r

retirement corpus, i.e. annuity

rate. (e.g. 8% p.a.).

- Now, arrive at the real rate of

return from your retirement

corpus post-retirement, after

negating the effect of inflation.

(Eg:[(1+8%)/(1+6%)] – 1 =

1.89%)

- D i v i d e t h e m o n t h l y

expenses required post

`

`

`

retirement by the real rate of

return to arrive at your

ret i rement corpus. (Eg:

128,756 / [1.89%/12] = Rs. 8.17

crore.)

This will be the total corpus

required. You also need to

factor in the investments

including provident fund,

which you have already made,

to arrive at the net corpus

required.

This was fairly a simple

calculation. But getting the

precise figure needs a look into

various aspects that you may

have not thought of. A

professional financial planner

will help you look into all the

aspects and minimize the

complexity.

Once you have determined the

retirement corpus needed, you

need to start planning for it.

If you are a parent, you may

find yourself asking how to

save enough for retirement

when saving for your children's

education goals. Though your

children's needs take priority, it

is important to make it a

balancing act. Remember, one

28



can bor row fo r ch i ld ' s

educa t ion , bu t no t fo r

retirement. The key is to build a

separate kitty for each short-

term and long-term financial

goal.

There are various tools

a v a i l a b l e f o r b u i l d i n g

retirement corpus. One of the

best tools is Public Provident

Fund (PPF) account. One can

open PPF account and deposit

a maximum of 1.50 lakh

every year. The current interest

rate is 8.7%. A PPF account has

a maturity of 15 years and it can

be renewed for 5 years each

time.

For equity investments, one

can go for equity mutual funds,

national pension system (NPS)

or pension plans.

are an ideal

option for accumulating

retirement corpus, as equities

tend to outperform most asset

classes in the long run. The

best way to start is to invest

t h r o u g h a s y s t e m a t i c

investment plan (SIP). SIPs

s m o o t h e n o u t p r i c e

Building a retirement kitty

Equity mutual funds

`

fluctuations over a period of

time. You can start an SIP with

an amount as small as 500 a

month.

, launched by the Pension

F u n d R e g u l a t o r y &

D e v e l o p m e n t A u t h o r i t y

(PFRDA) , i s a de f ined-

contribution product, where

your contributions grow and

accumulate over the years.

NPS begins with a mandatory

T i e r I a c c o u n t ( n o n -

withdrawable), which helps

you save regularly to build

your retirement corpus. A Tier

II account is like a voluntary

savings fac i l i ty (wi th a

withdrawal option).

T h e m i n i m u m a n n u a l

contribution for Tier I account

is 6,000 ( 500 a month). For

Tier II account, the minimum

contribution is 250, and one

needs to have a minimum

balance of 2000 at the end of

financial year. There is no

upper cap on the contributions

for both the accounts.

Any citizen of India, whether

resident or nonresident, who is

in the age bracket of 18-60

`

` `

`

`

NPS

29



this 4% makes a substantial

difference. At the time of

maturity of these pension

plans, you can withdraw one-

third the amount as lump-sum

and the balance has to be

utilized to buy annuity.

Another choice is pension

p lans of mutual funds.

Currently, there are two MF

pension plans available in the

market (please refer Mutual

Fund Analysis for more

details).

Beside the regular investment

avenues, there may be other

resources that can be tapped

to generate income after

retirement. This will mainly be

an outcome of the investments

that you make along your way

to fulfill your financial goals.

Some of the income sources

are:

This can be useful

to generate steady returns

against your earlier property

investment. If you have a

second house and if it is rented

out, then it is a good source of

income during your retired life.

Living well in retirement

House rentals:

years, can subscribe NPS. It

of fers three investment

options to choose from: Equity

(E) in which a maximum of

5 0 % c a n b e i n v e s t e d ,

Corporate bonds or fixed-

income securities other than

government securities © and

Government securities (G).

NPS has the lowest cost

s t r u c t u r e a m o n g o t h e r

products in the market. The

fund management charge is up

to 0.25%. Further, it has a

provision for mandatory 40%

annuitization, which ensures

regular pension in old years.

are offered by

insurance companies as well

as mutual funds in India. Plans

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

companies include traditional

as well as unit linked pension

plans (ULPPs). One can go in

for these pension plans as per

their risk appetite. Normally,

traditional pension plans give

returns of 8%, whereas returns

of ULPPs are market-linked and

one can expect around 12%

returns for the equity option

over a year. One should

remember that in the long run

Pension plans

30



Please send your feedback to [email protected]

Reverse mortgage: A reverse

mortgage provides income

that people can tap into for

their retirement. It is a type of

m o r t g a g e i n w h i c h a

homeowner can borrow

money against the value of his

or her home. No repayment of

the mortgage (principal or

interest) is required until the

borrower passes away or the

home is sold. The transaction

is structured so that the loan

amount will not exceed the

value of the home over the life

of the loan. A senior citizen

who holds a house or property,

but lacks a regular source of

income can mortgage his

property with a bank or

housing finance company

(HFC) and the bank or HFC

pays the person a regular

payment. The advantage is

that the person who has

mortgaged his property in this

manner can continue staying

in the house for his life and at

the same time receiving the

m u c h n e e d e d r e g u l a r

payments. So, effectively the

property now pays for the

owner.

Life after

retirement also provides you

with an opportunity to turn

your passions and hobbies,

such as teaching, writing,

gardening, music, arts, etc.

into a payable scheme. You

may also choose to set-up your

own business, with the

experience from a long career.

Factors such as increasing life

spans , r i s ing in f l a t ion ,

preference for nuclear families,

absence of pension systems,

etc. necessitate early investing

for retirement. The earlier you

start the greater you can save

to create a nest egg for old age.

There are various financial

products that will help you

reach your retirement goals

with relative ease. If you have

concerns, get professional

help so that you can look at all

the aspects of retirement

planning, thus leading to an

independent, stable and

serene life after retirement.

A second career:

Summing up


FEATURE ARTICLE

Indian REITs – A good time to start

Real Estate Investment Trusts

(REITs) are investment vehicles

that invest in a pool of real

estate, or income generating

properties. The underlying

income generating asset can

be office, retail, hospitality,

industrial, residential or

logistics property. In India,

h o w e v e r, c u r r e n t R E I T

definition does not allow REITs

to invest in the residential

market.

Introduction of REITs in India

will help establish a new asset

class that enables investors to

tap the twin benefits of yield

and growth, improve property

m a r k e t t r a n s p a r e n c y ,

smoothen volatile property

cycles, and potentially lower

the cost of capi ta l for

developers.

We expect the listing of REITs

to start in approximately 6-9

months (post Budget 2015), as

some bottlenecks remain to be

addressed. Since REITs have

q u a s i d e b t - e q u i t y

characteristics, macro factors

(bond yield compression,

f a v o u r a b l e c o m m e r c i a l

property dynamics) appear

well aligned for REIT markets

to grow and develop.

REITs provide a variety of

benefits to stakeholders.

Investors stand to gain from

portfolio diversification, while

overall physical property

markets benefit from improved

liquidity, lower cost of capital,

improved transparency and

higher quality real estate (due

to better asset management

and positioning). Reduction in

information asymmetry leads

to less volatile property

markets, and aids in price

discovery leading to a more

efficient real estate market.

Introduction of REITs – a potential

game changer for real estate:

32

FEATURE ARTICLE


b o n d , w i t h a g r o w t h

component built-in through

price appreciation. Further, real

estate's historical inflation

h e d g e c h a r a c t e r i s t i c s ,

provides investors with a

stable underlying asset class.

Liquidity benefits and lower cost of

capital: REITs are mandated to

provide recurring dividends,

and most REIT legislations

globally also put a cap on

gearing (debt-to-asset) ratios,

which reduces the r isk

perception associated with the

asset class. Further, tax

concessions ensure that

dividend payouts are healthy

Portfolio diversification: For small

investors and institutions,

REITs provide an opportunity

to invest in large-scale

commercial real estate, which

would have otherwise been

only possible for high net-

worth individuals (HNIs) and

wealthy individuals.

REITs enable investors to

achieve better returns with

lower volatility primarily due to

their quasi debt-equity nature.

A compulsory dividend payout

(typically >80% globally and

>90% in India) makes the

underlying asset similar to a

33

FEATURE ARTICLE


REIT roadmap – Regulations largely

in line with regional markets;

expect more clarity to emerge:

We benchmarked current draft

SEBI regulations to other

regional markets and find that

the regulator has provided a

good starting point despite

limitations over its jurisdiction

( tax, for instance). Our

interactions with stakeholders

(developers, legal and tax

experts) indicate that current

REIT regulations do not offer

significant advantages versus

listing its equity. A key

deterrent currently remains the

high upfront costs for the

principal sponsor (developer).

Final REIT regulations from

SEBI are anticipated to provide

more clarity on certain clauses

regarding trustees, related

party transactions, financial

sponsor (PE) REIT listings, etc.

Stakeholders are also hopeful

of simplification of tax norms in

Budget 2015, post which active

REIT listings are anticipated.

and less impacted by changes

in Central tax laws.

REITs enhance liquidity within

the real estate sector, and the

stable underlying income

prospect tends to attract

foreign capital.

Improved transparency and less

volatile property cycles: REITs

improve transparency in the

real estate markets as

information is periodically

disclosed on average rents,

occupancy levels, tenant

profile, renewal profile, etc.

Availability of such information

r e d u c e s i n f o r m a t i o n

asymmetry, which is typically

seen in real estate markets and

is a key reason for volatility.

Greater availability of

information also helps

smoothen out the property

cycle, since the various

stakeholders in the market are

better informed enabling them

to make prudent capital

commitments, etc.

34

FEATURE ARTICLE


Macro factors appear well aligned: REITs have quasi debt-equity characteristics, due to which they become a play on yields, and property fundamentals (rent reversion, occupancy, etc).

We believe peaking out of long term bond yields (likely to soften going forward), and i m p r o v i n g p r o p e r t y fundamentals in the office sector (especially in the South,

where occupanc ies a re improving) will be conducive to REIT markets in India.

Further, debt on developers' balance sheets continues to remain high, and cash-flow generation from the residential sector has been sluggish making REITs an attractive exit option to accelerate cash-flows. Key plays on India REIT listings are DLF, Prestige Estates, Oberoi Realty and

35

‘Market valuations look interesting for 3-5 year term'

The market valuations are looking reasonable, considering the FY15

earnings estimate, but they look interesting for 3-5 year term, says Swati

Kulkarni, Executive Vice President (EVP) and Fund Manager – Equities, UTI

Mutual Fund, in an interview with ICICIdirect Money Manager. She has a

positive view on healthcare, banking, cement, industrial manufacturing,

automobiles, and consumer goods sectors, over the next 3-5 years.

Excerpts:

the Indian equity market. BSE Sensex FY 15 Bloomberg consensus price-to-earnings (P/E) multiple expanded from 14 to about 17 times. We believe that the investors will now take clues from the earnings growth which would guide the next up-move.

What are the possible negatives that could upset the momentum?

There is an expectation that the Indian government will now focus to revitalize the investment s ide of the economy. There are early signs of stuck projects getting clearances. A mismatch of market expectation about the industrial pick up vs. the actual on ground evidences of the same can be a risk in the short term. Also, global liquidity has remained supportive for 'Risk

Q:

A:


Tête-à-tête

Swati Kulkarni,

Executive Vice President (EVP) &

Fund Manager – Equities,

UTI Mutual Fund

Q:

A:

Over the past few weeks, the markets have touched new highs. Can we expect the momentum to continue?

The global liquidity, early signs of Indian economy bottoming out and decisive general election results have been instrumental in re-rating

36

On' trades resulting into strong inflows into emerging markets including India. Any reversal in that can upset the markets temporarily.

Are the markets looking overvalued right now?

I would say they are looking reasonable considering the FY15 earnings estimate, but they look interesting for 3-5 year term.

What are your expectations in terms of earnings growth for Fy15?

The earnings growth for FY15 is expected to be 12% 14%. However, it is expected that as the economy picks up the operating leverage benefits can expand the current operating margins and support higher earnings growth from FY16 onwards.

Which sectors are likely to do well over the next 3-5 years?

We have a positive view on healthcare, banking, cement, industrial manufacturing, automobiles, and consumer goods over that period as India

Q:

A:

Q:

A:

Q:

A:

has a huge demographic a d v a n t a g e p r o v i d i n g sustainable domestic demand. The expected focus on and improvement in infrastructure, urbanization over the next 3-5 year period also augurs well for these sectors.

How are you looking at the entire public sector undertakings (PSU) space? Do you see value here?

PSU space appears to have value, provided they are able to participate in the anticipated economic recovery without any hindrances. We have to be cognizant about the valuation discount in these names, part of which may remain if the intermittent supply in some of the names from the government continues.

What do the recent macro economic data suggest about our economy?

The current domestic macro encapsulates: 1) a cyclical upturn and revival in growth sentiment. 2) Steady external balances given the manageable current account deficit (CAD) and robust capital

Q:

A:

Q:

A:


Tête-à-tête

37

inflows. 3) Fiscal consolidation on its defined trajectory. 4) Elevated headline inflation levels, albeit structural factors such as high-wage inflation and sharp spike in minimum support prices (MSP) on the downtrend. 5) A steady and fairly-valued Indian rupee. T h e s e m e a s u r a b l e macroeconomic adjustments augur well and set the platform for bottoming out of growth cycle.

Various incipient signs of recovery are imminent in faster project clearances, strong core industries performance (viz. coal, electricity, cement), recovery in mining activity, strong capital goods growth, pick up in industrial performance, spike in manufac tur ing PMI (purchasing managers' index), improved consumer and business outlook, growth in exports, transportation and infrastructure lead indicators.

The recent macro data releases reflect the following:

- Q1FY15 gross domestic product (GDP) at 5.7% year

- on-year (YoY) encapsulates qualitatively improved

b r o a d - b a s e d g r o w t hcomposition (Agriculture at 3.8%, Industries at 4.2% & Services at 6.8%). The higher GDP growth reflects a pick-up in industries and improvement in the services sector performance.- April-July industrial production growth at 3.3% (vs -0.1% same period last year) has seen a pervasive improvement across sectors, viz. mining, manufacturing and electricity.

- August consumer price index (CPI) inf lat ion at 7.8% moderated from the 8% seen in July; Core CPI at 6.9% marked a series low. Inflation is expected to follow the reserve bank of India's (RBI's) disinflation glide path - food and fuel triggers to moderate g iven the recovery in monsoon and soft global crude oil price.

- August trade data marked a growth in exports (2.4%) as well as imports (2.1%) reflecting improving trade balances.

- Q1FY15 CAD at 1.7% of GDP; comfortable within the sustainable level of 2-2.5%


Tête-à-tête

38

for Indian economy.

(This question has been answered by Meghna Shah, economist, UTI Mutual Fund).

How do you expect the interest rates to move from here?

The RBI has walked the tight rope juggling several macro variables including inflation, growth, currency and liquidity at the same time. The RBI's August monetary policy stance and language hinted at an extended pause in the key policy interest rates.

While growth indicators hint at an up-tick, inflation needs to be monitored with a cautious approach. Ups ide r i sks emanate from government's focus on rural development and inclusive growth which could imply price pressures. The RBI would also remain sensitive to demand-side factors picking up with growth recovery and normalization of US Fed's monetary policy going ahead.

The RBI would bear in mind consistent lower inflation and

Q:

A:

lower inflationary expectations before any rate action. The RBI's resolve to stick to the disinflation glide path of 6% CPI inflation by Jan 2016 do not portend any rate easing soon. We expect the Repo rate to remain at 8% during Fy15.

(This question has been answered by Meghna Shah, economist, UTI Mutual Fund).

What is your advice for retail investors at this point in terms of their overall portfolio and asset allocation?

Equity as an asset class provides long term returns that can beat inflation. Our analysis suggests that investing in portfolios of quality companies with strong brands and strong f u n d a m e n t a l s p r o v i d e s consistent returns over 3-5 years. Investors need to work out their financial needs in terms of the return objective and investment horizon to allocate their investments in the equity, debt and liquid assets rather than timing the markets.

Q:

A:


Tête-à-tête

The views expressed in the interview are personal views of the authors and do

not necessarily represent the views of ICICI Securities.

39

ASK OUR PLANNER


Switching your mutual funds investments

Q :

A:

I somet imes watch TV

programmes on investments / read

articles in magazines. The experts /

advisors while giving opinions on

the investment / por t fo l io

(specifically about mutual funds)

mention that a person has to stop

SIP / withdraw money from a

particular plan and shift to other

plan. But they do not mention that,

after stopping the SIP in existing

plan whether to transfer all amount

in single transaction to the

suggested plan or to follow any

specific method like: 1) carry out

stepwise withdrawal from existing

plan and put that money in new

suggested plan, or 2) redeem all

units and put that money in account

and start SIP in newly suggested

plan etc. Can you please advice on

this scenario?

- Vivek Bhat

It is true that mutual fund

investments have to be

monitored continuously, at

l e a s t o n c e a y e a r, t o

understand whether these are

performing better than their

benchmark and peer funds.

Further, one needs to also

check whether there is any

significant change in the stock-

selection style of the fund, any

change in the fund manager,

whether portfolio is skewed to

any specific sector, etc. It is on

these bases, the experts

suggest shifting existing

investments to better funds,

and not based on one's goals.

In such cases, one may redeem

all the units in the existing fund

at one go, and invest into the

suggested fund in lump sum. If

both the funds belong to the

same asset management

company (AMC), then one may

do the same through a 'switch'

transaction. However, one will

have to consider capital gain

taxation before doing this. If it's

an equity-oriented fund, then

redeeming or switching within

1 year attracts short-term

capital gain tax of 15%.

40

ASK OUR PLANNER


On the other hand, if the

suggestions are based on

one's goals, which could also

include shifting between asset

classes, such as from equity

fund to a debt or a liquid fund, if

a goal is nearing, shifting

systematically through a

Systematic Transfer Plan (STP)

can be done.

Also, if one has an SIP going on

into the existing fund, it can be

stopped and a fresh SIP can be

started into the suggested

fund.

I have been investing Rs. 2,500

per month in National Pension

System (NPS) tier-I account for the

last 2.5 years. How do you see this

mode of saving? I have a home loan

EMI of Rs. 24,000 and I live in the

same house. I have also purchased

2 plots, one in Noida and another in

a tier-III city for my two kids. One

kid is 5 years old and another one is

to come in the world next month.

- Karan Rana

Q:

A: From the details that you

have disclosed, it seems that

you have invested into real

estate for your children's future

goals. While real estate is seen

as a good option by many of

us, given the returns it has

provided in the last decade, it is

also important to understand

that this asset class runs

through cycles. Further, there

are certain risks attached to

this asset class. First, as

investment in real estate can

be large, it can destabilize one's

por t fo l io . L iqu id i ty and

overleveraging are also other

risks associated. Hence,

looking at different investment

options and diversifying a

portfolio remains a better

option.

With regard to NPS, it is more

suitable for a conservative

investor, having a low risk

appetite. Also, withdrawals in

NPS are currently taxable;

though it is proposed to have a

tax-free status going ahead.

We suggest, if you are in your

41

ASK OUR PLANNER


30s, invest aggressively in

options such as equity and

equity mutual funds, for your

children goals and other long-

term goals.

I have been reading about

exposure to international funds in

several places including your

Money Manager magazine. I need

some clarity on the same. I have

59% in large-cap, 32% in mid-cap

and small-cap, and 9% in sector

fund. I am pondering that though

Indian economy is doing good, this

is certainly going to be cyclical.

Should I have some investment in

international funds? If so, should I

go for a country-specific fund or a

global fund? What percentage of

equity exposure should be there in

the international funds? Do you

know of any international funds

that can help me build a robust

portfolio and what should be the

time horizon of investing in them?

What kind of returns one can

expect?

- Sailesh Damani

Q:

A: Exposure to International

F u n d s d o e s p r o v i d e

diversification, and hence, it

should form a part of the

overall portfolio (5%-10% of

the portfolio). Given that

domestic markets have seen a

turn-around, higher exposure

to domest ic markets is

advisable.

We do not have an active

coverage on International

Funds, some funds, however,

you may look to invest are:

1. ICICI Prudential US Bluechip

Equity Fund - Regular Plan -

Growth

2. Franklin India Feeder -

Franklin U.S. Opportunities

Fund - Growth

In house, we do not take any

country or economic specific

calls, and hence, we do not

have explicit view on the

International Funds. Although,

we believe, these bigger asset

management companies

(AMCs) may have the needed

42

ASK OUR PLANNER


resources to conduct global

research and hence can be

trusted upon.

I was really excited to see the

example given in your August

edition to explain the difference in

taxation between a fixed deposit

(FD) and mutual fund (MF) debt

scheme. The tax difference, it is

known, is huge for a long term

investor more than 3 years. Here, I

could not resist myself from asking

one question that the example is

very true --- if the Debt fund

generates an assured return of 10%

p.a., which nobody guarantees but

people site the example of that fund

when it actually performed well. It

is very difficult to suggest a fund

prior to investment, which is

almost surely expected to give that

much return as FD. Only you can

take a chance. But in a FD, it is not a

chance; it is confirmed prior to the

investment. Your example is true

and correct for those funds which

are almost sure to earn 10% p.a. I

will be very happy to know at least

3 funds which, as an expert, you

Q:

can advise me to invest so that the

effective earning is better than FD.

- S. Sengupta

As rightly mentioned by

you, there are no assured

returns in mutual fund debt

schemes. However, there are

chances that debt funds could

deliver similar returns to Fds,

or even better returns in some

cases.

While it is difficult to judge a

fund for its exact expected

performance for a period of

next 3 years, there are some

funds, which could deliver

better returns, based on the

quality of papers invested by

the fund, their duration and the

future outlook on the interest

rates.

For specific recommendations,

by our research team, you may

visit Mutual Funds page in Do

Your Research Section on our

website www.icicidirect.com.

A:

43

MUTUAL FUND ANALYSIS


Pension Plans by Mutual Funds

Key Information:

Franklin India Pension Plan

At present, there are only two pension plans available in the market. These are: Franklin India Pension Plan and UTI Retirement Benefit Pension Fund. Here, we analyse these, to help you plan your retirement:

Fund Objective:

The fund seeks to provide

investors regular income

under the dividend plan and

capital appreciation under the

growth plan.

NAV as on August 28,2014 (`) 84.0

Inception Date April 30,1997

Fund Manager Anil Prabhudas

Minimum Investment (`) 500

Expense Ratio (%) 2.46

Benchmark Crisil Composite Bond Fund Index

(Lumpsum)

Exit Load:

Product Label:

3% before the age of 58 years; Nil-after the age of 58 years.

This product is suitable for investors seeking*:• Long term capital appreciation• Investment in equity instruments

(maximum-40%) and debt/ money market instruments

Fund Manager Profile:

Performance:

Mr. Anil Prabhudas is assistant vice president and senior research analyst for Franklin Templeton India AMC Ltd, based in Chennai, India. He holds a bachelor in commerce from Bombay University, and is also a chartered accountant.

In the last year, the fund delivered absolute 18% return as equity allocation to the extent of 40% of portfolio has benefited the fund. The fund is an open-ended tax-saving scheme notified under Section 80C with a lock-in period of three financial years. Post tax return for the fund, therefore, adds the tax savings to the capital appreciation. It has delivered 10% annualised return, which is higher than popular pension products available in the market, e.g. pension plans offered by insurance companies, whose returns are in the range of 7%-8% per annum.

44



17.9

30

13

10.3

6.6 1

2.4

7.9

7

05

101520253035

6 Month 1 Year 3 Year 5 Year

Retu

rn%

Fund Benchmark

Performance vs. Benchmark

Current Value of Standard Investment of ` 10,000

Portfolio:

The fund manager seeks

steady capital appreciation by

maintaining a diversified

portfolio of equities and seeks

to earn regular income on fixed

income component by

managing interest rate

movements and credit risk.

As on August 31, 2014, 45% of

its assets are invested in

government securities of

longer maturity. The fund

manager is able to take higher

exposure to longer tenure

papers on account of higher

lock-in, and also, as it is a

retirement fund, assets under

management (AUM) are sticky

in nature.

Equity allocation as on August

31, 2014 is up to 40%, which is

the highest that the fund can

take as per its objective,

indicating the fund manager is

bullish on equity markets. The

portfolio has allocation to both,

large-cap and mid-cap stocks.

The overall portfolio is well

positioned for generating

capital appreciation in the

current positive turnaround.

The fund scores over a normal

equity linked savings scheme

(ELSS), as apart from the

scheme being notified under

section 80C and hence, a three

year lock-in, it has a higher exit

load of 3% for redemption

before attaining the age of 58

years, which deters earlier

redemptions and helps to

achieve the goal of

accumulat ing ret i rement

corpus.

View:

212

207

222

222

234

242

240

245

236

247

256 278

0

50

100

150

200

250

300

Sep

/11

Dec/1

1

Mar/

12

Ju

n/1

2

Sep

/12

Dec/1

2

Mar/

13

Ju

n/1

3

Sep

/13

Dec/1

3

Mar/

14

Ju

n/1

4

AU

M(|

Cro

res)

AUM movement

17.2

12.4

3.6

16.8

9.9

2.5

-2.4

7

12.1

7.1

-5.0

0.0

5.0

10.0

15.0

20.0

30-Jun-13 To 30-Jun-14 30-Jun-12 To 30-Jun-13 30-Jun-11 To 30-Jun-12

Ret

urn%

Fund Benchmark Crisil 10 year Gilt

Fund 81442

Benchmark NA

Crisil 10 year Gilt index NA

45



Aug-14 Jul-14 Jun-14 May-14 Apr-14 Mar-14 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13

Top 10 Holdings Asset Type %

09.23% GOI 2043 Government Securities 18.51


HPCL-Mittal Pipelines Ltd. Corporate Debt 8.89

08.60%GOI -02-Jun-2028 Government Securities 7.97

Cash & Cash Equivalent Cash & Cash Equivalents 3.46

Eicher Motors Ltd. Domestic Equities 2.79

Andhra PradeshExpressway Ltd. Corporate Debt 2.52

ICICI Bank Ltd. Domestic Equities 2.5

HDFC Bank Ltd. Domestic Equities 2.42

Bharti Airtel Ltd. Domestic Equities 2.35

Whats In %

Idea Cellular Ltd. 0.4

Power Grid Corporation Of India Ltd. 0.1

Cash & Cash Equivalent 3.5

%Whats OutPetronet LNG Ltd. 0.5

Call Money 3.3

Power Grid Corpn. of India Ltd. 10.9% (21-Jun-15) 0.1

Performance of all the schemes managed by the fund manager

Fund Name30-Jun-13

30-Jun-14

30-Jun-12

30-Jun-13

31-Jun-11

31-Jun-12

Franklin India Balanced Fund(G) 30.58 11.35 -0.75

Crisil Balanced Fund Index 20.99 10.91 -0.98

Franklin India Index Fund-NSE Nifty(G) 29.92 10.67 -6.40

CNX Nifty Index 30.28 10.67 -6.53

Franklin India Pension Plan(G) 17.25 12.44 3.57

CNX 500 Index 36.87 8.16 -7.79

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

(Blue) Investors understand that

their principal will be at low risk

(Yellow) Investors understand that

their principal will be at meduim risk

(Brown) Investors understand

that their principal will be at high

risk

Data as on August 29, 2014; Portfolio details as on July 31, 2014Source: ICICIdirect Research, Accord Fintech

CDs -- -- -- -- -- -- -- -- 10.09 -- -- -- -- --

CPs -- -- -- -- -- -- -- -- -- -- -- -- -- –

Corp Bond 11.53 11.74 11.85 12.61 12.91 12.72 38.21 28.92 28.33 28.35 28.22 28.52 28.93 45.17

Gsec 45.46 45.61 -- 44.84 47.24 46.78 20.76 21.32 15.77 32.01 32.13 25.58 20.69 17.18

Others 43.00 42.66 88.15 42.55 39.85 40.50 41.02 49.76 45.81 39.64 39.65 45.90 50.38 37.65

Credit quality %

A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- –

AA & Equiv 8.89 9.05 9.13 9.35 9.60 9.45 19.33 19.63 19.25 19.28 19.20 19.31 19.60 19.31

AAA & Equiv 2.64 2.69 2.72 3.26 3.31 3.27 18.89 9.29 19.17 9.07 9.02 9.21 9.33 25.85

Cash & Equivalent 3.46 3.25 49.13 3.67 2.41 2.44 3.20 13.41 8.60 2.48 2.67 10.79 15.54 2.50

SOV 45.46 45.61 -- 44.84 47.24 46.78 20.76 21.32 15.77 32.01 32.13 25.58 20.69 17.18

Others -- -- -- -- -- -- -- -- -- -- -- -- – –

Asset Allocation %

Credit quality %

46



UTI Retirement Benefit PensionFund

Fund Objective:

To provide pension in the form

of periodical income/ cash flow

to the unit-holders to the extent

of redemption value of their

holding after they complete 58

years of age.

Key Information

NAV as on August 28, 2014 (`) 20.0

Inception Date December 28, 1994

Fund Manager Amandeep Singh Chopra

Minimum Investment (`) 500

Expense Ratio (%) 2.17

Benchmark Crisil Debt Hybrid (60:40)

(Lumpsum)

Exit Load:

5% - < 1 year; 3% - >= 1 year & < 3 years; 1% - >= 3 years; Nil - >= 5 years; Nil - Redemption at maturity (i.e. 58 years of age).

Product Label:

This product is suitable for investors seeking*:

• Long term capital appreciation

• Investment in equity instruments(maximum-40%) and debt/ money market instruments

• Medium risk

Fund Manager Profile:

Performance:

Mr. Amandeep Singh Chopra is a graduate from St. Stephens College, Delhi and an MBA from FMS, Delhi. He has been with UTI AMC since 1994.

Being a fair ly balanced portfolio, the returns are more or less in line with benchmark index. Since its inception in December 1994, the fund has delivered 11% annualised return, which is not the best return among hybrid funds, but definitely better than popular pension products available in the market whose returns are in the range of 7%-8% per annum.

Performance vs. Benchmark

16.3

27.2

11.4

9.21

3.4

24.8

12.6

4.5

05

1015202530

6 Month 1 Year 3 Year 5 Year

Retu

rn%

Fund Benchmark

Yearly Returns

18.6

9.4

1.9

17.3

10.1

2.9

-2.4

7

12.1

7.1

-5.0

0.0

5.0

10.0

15.0

20.0

30-Jun -13 To 30 -Jun -14 30-Jun -12 To 30 -Jun -13 30-Jun -11 To 30 -Jun -12

Retu

rn%

Fund Benchmark Crisil 10 Year Gilt Index

Current Value of Standard Investment of ` 10,000

Fund 79454

Benchmark NA

Crisil 10 year Gilt index NA

Since inception to June 30, 2014

47



AUM movement76

5

765

827

827

883

929

936

964

956

1025

1087 12

26

0200400600800

100012001400

Sep

/11

Dec

/11

Mar

/12

Jun/

12

Sep

/12

Dec

/12

Mar

/13

Jun/

13

Sep

/13

Dec

/13

Mar

/14

Jun/

14

AUM

(| C

rore

s)

Portfolio:As on August 31, 2014, 39% of the funds are invested in equ i t i es . Equ i ty s tocks selected are majority large-cap stocks or the larger mid-cap stocks. Allocation to equities has been in the range of 30-40% of the total assets under management (AUM) over the long term.Allocation to fixed-income securities fluctuates between c o r p o r a t e d e b t a n d government securities. The larger portion of the debt is invested in corporate debt with

AA, AA+ and above rating. Investment in government securities has gone up to 20% in August 2014 from ~12% in March 2014. Consequently, allocation to corporate debt has been reduced to 30% from 41% in the same period.

We like the balance that the fund has maintained in terms of investing into equities, c o r p o r a t e d e b t a n d government securities. While equities will provide alpha, the credit strategy (to invest in AA papers that have higher coupon) will cushion returns via higher accrual, and allocation to government securities will play the interest rate cycle.

View:

Aug-14 Jul-14 Jun-14 May-14 Apr-14 Mar-14 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13

Asset Allocation %

CDs -- -- -- -- -- 3.38 -- -- -- -- -- -- -- 0.17

CPs -- -- -- -- -- -- -- -- -- -- -- -- -- 2.66

Corp Bond 31.45 31.41 34.72 36.03 39.57 40.39 42.05 42.86 44.62 45.74 45.31 44.55 44.67 45.15

Gsec 20.46 21.75 20.70 19.49 16.23 11.97 12.40 12.69 11.27 10.63 9.93 11.69 11.68 7.38

Others 48.09 46.84 44.58 44.48 44.20 44.26 45.55 44.45 44.11 43.63 44.76 43.76 43.65 44.64

A & Eqiv -- -- -- -- -- -- -- -- -- -- -- -- -- –

AA & Equiv 21.22 20.89 24.04 25.00 27.95 28.52 29.69 30.26 31.09 31.90 25.81 25.45 26.21 26.20

AAA & Equiv 10.23 10.52 10.68 11.03 11.62 15.25 12.36 12.60 13.53 13.84 19.50 19.10 18.46 21.83

Cash & Equivalent 8.11 7.08 4.15 3.85 4.59 3.39 4.93 5.07 3.28 2.37 3.64 3.52 3.55 5.14

SOV 20.46 21.75 20.70 19.49 16.23 11.97 12.40 12.69 11.27 10.63 9.93 11.69 11.68 7.38

Others -- -- -- -- -- -- -- -- -- -- -- -- -- –

Credit quality %

Other attributes (Years)

Avg Maturity(Yrs) 5.67 5.85 5.90 5.90 5.66 5.32 5.37 5.44 5.47 5.53 5.27 5.59 5.86 5.18

48



Top 10 Holdings Asset Type %08.83% GOI - 25-Nov-2023 Government Securities 13.14

Net Current Asset Cash & Cash Equivalents 8.11

Shriram Transport Finance Company Ltd. (24-Aug-15) Corporate Debt 4.03

Sterlite Industries (India) Ltd. 9.1% (05-Apr-23) Corporate Debt 3.87

Power Finance Corpn. Ltd. (20-Nov-19) Corporate Debt 3.28


Sundaram Finance Ltd. 10.55% (23-Sep-16) Corporate Debt 2.01

Reliance Gas Transporation Infrastructure Ltd. 10.25% (22-Aug-21) Corporate Debt 2.01

Tata Motors Ltd. 9.7% (18-Jun-20) Corporate Debt 1.97

ICICI Bank Ltd. Domestic Equities 1.86

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

(Blue) Investors understand that

their principal will be at low risk

(Yellow) Investors understand that

their principal will be at meduim risk

(Brown) Investors understand

that their principal will be at high

risk

Data as on August 29, 2014; Portfolio details as on July 31, 2014Source: ICICIdirect Research, Accord Fintech

Performance of all the schemes managed by the fund manager

Fund Name30-Jun-13

30-Jun-14

30-Jun-12

30-Jun-13

31-Jun-11

31-Jun-12UTI Balanced Fund(G) 34.71 8.18 -3.51Crisil Balanced Fund Index 20.99 10.91 -0.98UTI CC Balanced Plan 22.80 21.41 4.22Crisil Debt Hybrid (60:40) 17.30 10.10 2.92UTI Retirement Benefit Pension 18.56 9.38 1.91Crisil Debt Hybrid (60:40) 17.30 10.10 2.92UTI ULIP(G) 16.42 9.99 5.22Crisil Debt Hybrid (60:40) 17.30 10.10 2.92UTI CRTS 1981(D) 16.41 9.56 13.68Crisil Debt Hybrid (75:25) 14.08 9.84 5.18UTI MIS Adv Plan(G) 16.09 9.99 4.63Crisil MIP Blended Index 8.24 10.86 6.56UTI Mahila Unit(G) 15.73 6.88 1.87Crisil Debt Hybrid (75:25) 14.08 9.84 5.18UTI MIS(G) 10.60 9.74 6.25Crisil MIP Blended Index 8.24 10.86 6.56UTI Dynamic Bond Fund-Reg(G) 9.83 10.98 9.59Crisil Composite Bond Fund Index 4.55 10.75 8.71UTI G-Sec-STP(G) 9.10 7.79 9.02I-Sec Si-BEX 6.80 9.53 9.32UTI Income Opp Fund(G) 8.36 -- --Crisil Short Term Bond Fund Index 8.76 -- --UTI Gilt Adv-LTP(G) 3.76 11.98 9.44I-Sec Li-BEX 1.67 14.51 9.74UTI Bond Fund(G) 3.50 13.25 10.99Crisil Composite Bond Fund Index 4.55 10.75 8.71

Whats In %Cummins India Ltd. 0.1

Housing Development Finance Corporation Ltd.9.5% 0.4

08.60% GOI -02-Jun-2028 1.6

%Whats OutWyeth Ltd. 0.3

Oil India Ltd. 0.3

Rural Electrification Corpn Ltd 09.24% (17-Oct-18) 2

49

Our indicative large-cap equity model portfolio has continued to deliver an impressive return of 73.4% (inclusive of dividends) till date (as on September 8, 2014) since its inception (June 21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex) return of 55.6% during the same period, out-performance of 17.8%. Our portfolio approach towards high-quality stocks aided us in outperforming the Sensex with continued success. We continue to trust our philosophy of choosing stocks where the risk reward is favourable and not just the reward aspect. We feel “Quality-21” large-cap portfolio will continue to be aligned to the same philosophy.

Our “Consistent-15” mid-cap portfolio also continues to outperform, delivering 77.1% (inclusive of dividends) till date (as on September 8, 2014) vis-à-vis the benchmark index (CNX Midcap) return of 52.3%, as we continued to identify fundamentally strong stocks. Some key performers of our portfolio are Sun Pharmaceuticals, Lupin, Tata Consultancy Services (TCS), Tata Motors, Info Edge and Dabur India delivering 97%-190% returns since inception.

We have always suggested the systematic investment plan (SIP) mode of investment and still find a lot of merit in it as the preferred mode of deployment given the market conditions and volatility associated since the inception of the portfolio. It has outperformed other portfolios, thus, reinforcing our belief in a plan of investment. However, now we are also advising clients to look at lump-sum investments at any possible dips.

In the last few years, anxiety stemming from weak economic health and unstable policy environment has resulted in defensive sectors commanding high scarcity premium while debt-ridden cyclicals witnessed a de-rating. However, the recent decisive election verdict has given investors optimism over the overall growth prospects of the economy. Thus, the current rally has totally reversed the penchant for defensives (like information technology (IT), pharmaceuticals and fast-moving consumer goods (FMCG)), which have underperformed in 2014 year-to date (YTD). On the other hand, old economy sectors, including capital goods, realty, metals, power and oil & gas have been topping the

EQUITY MODEL PORTFOLIO


50

charts this year, signifying changing investor preference.

Thus, from a portfolio perspective, we have now leaned forward towards inclusion of stocks with more real economy, domestic discretionary exposure viz. GAIL, JK Cement, Arvind, etc. We have, thus, taken a strategic call of including stocks that possibly have a larger opportunity size either via reforms push or via revival in the discretionary demand from domestic consumers. Thus, we exit Page Industries and Nestlé with minimal returns.

Hence, we have made a significant shift in our portfolio stance to play the recovery cycle. In terms of relative weightage of the sector vis-à-vis the Sensex, we have changed our stance and gone overweight on financials (raising weights of public sector banks), oil & gas, the infrastructure space (cement, infrastructure and power). This has been primarily triggered by the possibility of decisive action in the infrastructure and real economy space by the new government. We have maintained our overweight stance on telecom considering the reducing regulatory hurdles and relatively better earnings growth profile. We are also overweight on sunrise sectors like media via Zee Entertainment.

We have, thus, positioned away from pure play defensives like the pure play mature exporter- IT and the expensive FMCG space. We feel both these sectors may have normalised earnings growth but the sectoral churning would cause them to de-rate on valuation terms.

For other equal weight sectors we are playing consumer discretionary sectors like autos (pent up demand, strong franchises) and the metals and mining space (high infrastructure demand expected), pharmaceuticals (large global generic opportunity yet to be tapped).

On individual names, we are strongly overweight on companies like L&T and UltraTech Cement in the infrastructure space while in public sector banks we like State Bank of India (SBI).

We believe we now have a better balance to our portfolio going into a recovery cycle and possibly a longer-term Bull Run.



ICICIdirect Money Manager 51 September 2014

Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)


Consumer Discretionary 10 7

United Spirits 2 1.4

Tata Motors DVR 4 2.8

Bajaj Auto 2 1.4

Titan 2 1.4

BFSI 27 18.9

HDFC 6 4.2

HDFC Bank 6 4.2

SBI 8 5.6

Axis Bank 7 4.9

Power, Infrastructure & Cement 13 9.1

L & T 8 5.6

Ultratech Cement 5 3.5

FMCG 10 7

ITC 10 7

Metals & Mining 4 2.8

NMDC 4 2.8

Oil and Gas 14 9.8

Reliance 11 7.7

Gail 3 2.1

Pharma 5 3.5

Lupin 2 1.4

Sun Pharma 3 2.1

IT 12 8.4

Infosys 3 2.1

TCS 6 4.2

Wipro 3 2.1

Telecom 3 2.1

Bharti Airtel 3 2.1

Media 2 1.4

Zee Entertainment 2 1.4

Largecap share in diversified 70

52

Midcap Stocks

Content source: ICICIdirect.com Research

ICICI Securities Ltd. has been assigned an advisory mandate by Ranbaxy Laboratories Limited with regard to Sun Pharmaceutical Industries Limited's acquisition of Ranbaxy Laboratories Limited. This report is prepared on the basis of publicly available information.


Name of the company Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)


Consumer Discretionary 20 6

Bosch 6 1.8

Cox & Kings 6 1.8

Arvind 8 2.4

IT 6 1.8

Info Edge 6 1.8

BFSI 16 4.8

DCB 8 2.4

IndusInd Bank 8 2.4

FMCG 14 4.2

Kansai Nerolac 8 2.4

Tata Global Beverages 6 1.8

Pharma 6 1.8

Natco Pharma 6 1.8

Media 8 2.4

PVR 8 2.4

Capital Goods 6 1.8

Cummins 6 1.8

Realty/Infrasturcture/Cement 24 7.2

JK Cement 6 1.8

Container Corporation of India 6 1.8

Oberoi Realty 6 1.8

Shree Cement 6 1.8

Midcap share in diversified 30

Total of all three portfolios 100 100 100

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

4,0

00,0

00

4,0

00,0

00

4,0

00,0

00

5,7

02,9

05

6,6

75,6

17

5,9

48,3

72

5,4

26,9

71

5,9

10,8

55

4,6

10,1

55

53

Large Cap Midcap Diversified

Performance* so far Since inception

*Returns (in %) as on September 8, 2014

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

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

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

Portfolia Benchmark

Largecap Midcap DivesifiedInvestment Value of Investment in Portfolio Value if invested in Benchmark



73.477.1 75.4

55.652.3 52.1

10

20

30

40

50

60

70

80

90

%

0

Start date of SIP: June 30, 2011; *Value as on September 8, 2014


MUTUAL FUND MODEL PORTFOLIO

EQUITY MUTUAL FUNDS MODEL PORTFOLIO

Investors who are wary of investing directly into equities can still get returns almost as good s equity markets through the mutual fund route. We have designed three mutual fund model portfolios, namely, conservative, moderate and aggressive. These portfolios have been designed keeping in mind various key parameters like investment horizon, investment objective, scheme ratings, and fund management.

Keeping in mind the current market scenario, we have revised the portfolio allocation. Based on the portfolios of individual funds, we have introduced mid-cap funds in the portfolio.

All three portfolios have outperformed the benchmark index

Returns (in %) are compounded annualized (since April 15, 2009); Source: ICICIdirect.com Research, Crisil Fund Analyser

Particulars Aggressive Moderate Conservative

Review Interval

Risk Return

Monthly QuarterlyMonthly

High Risk- High Return

Medium Risk - Medium Return

Low Risk -

Low Return

Funds Allocation% Allocation

Franklin India Prima Plus 20 20 20

Birla Sunlife Frontline Equity 20 20 20

ICICI Prudential Dynamic Plan - - 20

UTI Opportunities - 20 20

Reliance Long Term Equity 20 - -

ICICI Prudential Value Discovery 20 20 20

HDFC Midcap Opportunities 20 20 -

Grand Total 100 100 100

Source: ICICIdirect.com Research

20.9019.57 19.72

15.94

0

5

10

15

20

25

Aggressive Moderate Conservative BSE 100

(%)

Returns

55

MUTUAL FUND MODEL PORTFOLIO


DEBT MUTUAL FUNDS MODEL PORTFOLIO

We have designed three different mutual fund model portfolios for different investment duration namely less than six months, six months to one year and above one year. These portfolios have been designed keeping in mind various key parameters like investment horizon, interest rate scenarios, credit quality of the portfolio and fund management, etc.

Source: ICICIdirect.com Research

CY14 YTD* (year-to-date) returns closer to 6% so far

YTD*: August 28, 2014; Source: Crisil Fund Analyser, ICICIdirect.com Research; Index: 0-6 months portfolio – Crisil Liquid Fund Index; 6 months-1 year – Crisil Short Term Index; Above 1 year: Crisil Composite Bond Index.

ParticularsTime Horizon

0 – 6 months 0 – 6 months 1 Tear Above 1 Year

Objective LiquidityLiquidity with

moderate return Above FD

Review Interval Monthly QuarterlyMonthly

Risk ReturnVery Low Risk - Nominal Return

Medium Risk -Medium Return

Low Risk - High Return

Funds Allocation% AllocationUltra Short term Funds

IDFC Money Manager Fund - Investment Plan 20 - -

Templeton India Low Duration Fund 20 - -

Reliance Medium Term Fund 20 - -

Short Term Debt Funds

Taurus Short Term Income Fund 20 - -

Birla Sunlife Short Term Fund 20 - -

Birla Sunlife Short Term Opportunities Fund - 20 20

ICICI Prudential Short Term - 20 -

ICICI Prudential Regular Savings - - 20

IDFC SSI Short Term - 20 -

Sundaram Select Debt - 20 20

UTI Short Term Fund - 20 -

Templeton Short Term Income - - 20

Long Term/Dynamic Debt FundsIDFC Dynamic Bond fund - - 20

Total 100 100 100

5.766.12

6.525.94

6.51

7.88

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

0-6 Months 6Months - 1Year Above 1yr

%

Portfolio Index

56

QUIZ TIME

1. Switching equity-oriented mutual funds within 1 year attracts short-term

capital gain tax. True/ False

2. The minimum annual contribution for Tier-I national pension system

(NPS) account is Rs. ______.

3. One can deposit a maximum of Rs. ______ every year in public provident

fund (PPF) account.

4. There is no upper-cap on the contributions for investing into NPS. True/

False

5. A Tier-II account of NPS has withdrawal option. True/ False

Note: All the answers are in the stories that have appeared in this edition of

ICICIdirect Money Manager. You may send in your answers at:

The answers will be published in our next edition. The names of the earliest

all correct entries will be published too. So jog your grey cells and be quick

to send in your entries.

Correct answers for the August 2014 quiz are:

1. As per the Companies Act, 2013, the first annual general meeting (AGM)

for a newly established firm has to be held within ______ months from

the date of closing of its first financial year.A: 9

2. ______ resolutions are passed if the number of votes cast in favor of the

resolution exceeds the number of votes cast against the resolution.A: Ordinary

3. The total remuneration payable to the directors of a company with

respect to any financial year should not exceed ______% of the

net profits of the company for that financial year.A: 11%

4. ______ method of voting follows the principle of one vote per person.A: Show of hands

5. The Companies Act, 2013, mandates rotation of audit firms every ______

years and of the individual auditor every ______ years.A: 10 years; 5 years

Congratulations to the following winners for providing correct answers!

Narasimharao Maddineni; Suresh Babu K

[email protected]


57

MONTHLY TRENDS

VIX is a key measure of market expectations of near term volatility.When the markets are highly volatile, the VIX tends to rise.


8.43

5.15

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Jul-14 Aug-14

(%)

WPI INFLATION (FOOD)

CRUDE OIL

(The figures are in %)

NYMEX crude oil prices ($/barrel)

FII & DII INVESTMENTS

(Foreign institutional investors (FIIs) and domestic institutional

investors (DII) net equity investment ( ` in crore)

98.17

95.96

90.0

91.0

92.0

93.0

94.0

95.0

96.0

97.0

98.0

99.0

31-Jul 4-Aug 8-Aug 12-Aug 16-Aug 20-Aug 24-Aug 28-Aug

$ pe

r ba

rrel

427.03

-710.63

515.66 730.43

-1000

-500

0

500

1000

1500

2000

2500

31-Jul 4-Aug 8-Aug 12-Aug 16-Aug 20-Aug 24-Aug 28-AugFII DII

.

13.8213.07

12.0

13.0

14.0

15.0

16.0


VIX

VIX

VOLATILITY INDEX (VIX)

58

MONTHLY TRENDS


DOMESTIC INDICES BSE Sensex

25894.97

26638.11

24500

25000

25500

26000

26500

27000


7721.30

7954.35

7300

7400

7500

7600

7700

7800

7900

8000


16563.30

17098.45

15900

16200

16500

16800

17100

17400


4,369.77

4,580.27

4200

4300

4400

4500

4600


60.5560.51

59.8

60.0

60.2

60.4

60.6

60.8

61.0

61.2

61.4

61.6


US

D /

IN

R

NSE Nifty

2.87%

3.02%

GLOBAL INDICES Dow Jones

NASDAQ

EXCHANGE RATES USD-INR

3.23%

4.82%

0.07%

59

MONTHLY TRENDS


(The prices are in $ per ounce). (Source for all indicators: Bloomberg, Reuters)

102.23

100.42

98.0

99.0

100.0

101.0

102.0

103.0

104.0


£/

INR

81.06

79.46

78.0

80.0

82.0

84.0


£/

INR

1282.09 1287.07

1150

1225

1300

1375


$ p

er O

unce

20.35

19.43

18.0

20.0

22.0


$ pe

r O

unce

POUND-INR

1.77%

EURO-INR

1.98%

BULLION GOLD

(The prices are in $ per ounce).

SILVER

60

Premium Education Programmes Schedule

ICICIdirect Centre for Financial Learning (ICFL) imparts quality education on

financial markets to beginners and amateurs, student, housewives, working

professionals and self employed. ICFL's broad objective is to make participant

feel confident to start investing in stock market.

Here is the list of our programmes scheduled for the month of September, 2014.

Schedule for Beginners Programme on Futures and Options Trading

Sr.No

City Dates For More Information & Registration call:


Sr.No


Schedule for Fast Track Beginners Programme on Futures and Options Trading

Sr.No


Schedule for Foundation Programme on Stock Investing

1 Navi Mumbai Sep 13 and 14,2014 Manish on 8451057943

2 Mumbai-Chembur Sep 13 and 14,2014 Manish on 8451057943

3 Mumbai-Andheri Sep 20 and 21,2014 Vidhu on 9619716146

4 Thane Sep 20 and 21,2014 Vidhu on 9619716146

5 Kolkata Sep 13 and 14,2014 Sumit on 8017516187

6 New delhi Sep 27 and 28,2014 Vishal on 07838290143, Harneet on 09582158693

7 Pune Sep 20 and 21,2014 Kusmakar on 7875442311

8 Hyderabad Sep 20 and 21,2014 Ruchi on 8297362323

9 Chennai Sep 20 and 21,2014 Manivannan on 9742273109


11 Chandigarh Sep 13 and 14,2014 Vishal on 07838290143

12 Ranchi Sep 07,2014 Sumit on 8017516187

13 Jamnagar Sep 07,2014 Yogesh on 8238053563

14 Vadodara Sep 21,2014 Yogesh on 8238053563

15 Jodhpur Sep 07,2014 Vishal on 07838290143

16 Bhubaneshwar Sep 14,2014 Sumit on 8017516187

17 Meerut Sep 14,2014 Harneet on 09582158693


19 Navi Mumbai Sep 20 and 21,2014 Manish on 8451057943



22 Thane Sep 06 and 07,2014 Vidhu on 9619716146








Sr.No


Schedule for Fast Track Foundation Programme on Stock Investing

Schedule for Advance Derivatives Trading Strategies Sr.No


Schedule for Technical Analysis Sr.No


Sr.No


Schedule for Fast Track Technical Analysis

Contact us

Email:

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

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

SMS:

SMS EDU to 5676766 for more details






34 Nagpur Sep 13 and 14,2014 Kusmakar on 7875442311

35 Bhopal Sep 07,2014 Kusmakar on 7875442311

36 Ahmedabad Sep 21,2014 Yogesh on 8238053563

37 Gurgaon Sep 21,2014 Vishal on 07838290143

38 Jalandhar Sep 07,2014 Vishal on 07838290143

39 Bikaner Sep 07,2014 Vishal on 07838290143

40 Jaipur Sep 07,2014 Vishal on 07838290143

41 Ludhiana Sep 14,2014 Vishal on 07838290143

42 Salem Sep 21,2014 Manivannan on 9742273109

43 Vapi Sep 14,2014 Yogesh on 8238053563

46 Ahmedabad Sep 07 ,2014 Yogesh on 8238053563

47 Jamshedpur Sep 21,2014 Sumit on 8017516187

48 Ghaziabad Sep 21,2014 Harneet on 09582158693

49 Ajmer Sep 14,2014 Vishal on 07838290143







saving for retirement usually is top - icici...

Documents