Vol.5, Issue X, Pages 72, October 2013: Managing Your Personal Liabilities

Vol.
5, Issue X, Pages 72, October 2013

Managing your personal
liabilities
MD Desk
Anup Bagchi
MD & CEO
ICICI Securities Ltd.
The stock market has been moving
within a range for some time
now and has shown occasional
swings. Volatility has been largely
driven by various news fows
ranging from US jobless claims,
US government shutdown and
fading expectation of a quick
settlement on the global front.
There have been positive news
fows on the domestic front in
terms of Reserve Bank of Indias
(RBIs) measures to improve
system liquidity and an optimistic
start to the earnings season.
Similarly, the fundamentals also
portray a mixed picture for the
economy. While some of the data
points indicate towards a subdued
economic scenario, there certainly has been improvement
in some aspects. The Gross Domestic Product (GDP) growth
continues to post sub-par fgures at below 5% while the
Wholesale Price Index (WPI) at 6.5% and Consumer Price Index
(CPI) above 9.8% remain on an upward trajectory. However, on
the other hand, the trade defcit has been coming down at a
rapid pace, which suggests we may end the fscal with lower
than $70 billion current account defcit target. This also lends
support to the currency, which has appreciated about 10% from
the life-time low to Rs. 68.8/US$ in the last 45 days. Moreover,
most global commodities like crude, copper, aluminium, etc.
have either remained stable or are on a declining trend, which
bodes well for the economy. Having said this, we believe though
the worst may be behind us, the recovery to high growth rates
may be gradual.
ICICIdirect Money Manager 1 October 2013
On the fip side though, global liquidity remains at elevated levels
with the Fed deciding to continue with the current quantum
of monetary easing. The extent of cheap money available to
global investors far outnumbers the investment opportunities.
Too much liquidity across the globe is chasing too few assets,
resulting in aggressive valuations. Hence, in the near term,
the market would remain unpredictable, reacting avidly to
news fows. Subsequent talks of eventual liquidity tapering
would continue to drive volatility. However, once the excess
liquidity is sucked out of the system by eventual tapering by
US Fed, investors would be able to evaluate asset values more
realistically. Subsequently, we expect the market performance
to likely be anchored on earnings growth.
The return from equity as an asset class, in the short term,
depends on changes in macros, new fows and market
sentiments. Though when one looks at the long term trends,
markets provides real returns linked to the overall growth in the
economy. For investors it is not possible to time the markets and
the best way to invest therefore is to do in a staggered manner.
So your monthly investments through SIPs are the best way to
capture returns from the markets more so in the volatile times.
We also advise investors to identify the right asset allocation
mix, review the current investments and regularly balance the
portfolio based on the target asset allocation. In this way your
portfolio would remain balanced and would have elements of
growth as well as stability and income. A good fnancial plan can
act as a blue print and help you identify the right asset allocation.
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
fnancial goals. Give us an opportunity to serve you, walk into
any of your Neighbourhood Financial Superstore and talk to us.
ICICIdirect Money Manager October 2013 2
When it comes to managing personal fnances, we in general, devote
much of our time looking to grow our investments and assets. We
often overlook the liabilities side of our fnances. In order to remain
fnancially healthy, we need to pay as much attention to our liabilities
as we do to our assets and investments.
Our liabilities include various types of loans, credit cards, and other
forms of borrowing. While carrying too many liabilities can create
problems, taking on some can be benefcial for you in the long run, for
instance, a home loan and an education loan.
To best manage our liabilities, we need to frst understand the different
types of debt and then fgure out how much of it we can handle. Debt
can be taken for a variety of purposes. It can be used for reasons that
will eventually improve our fnancial situation, and can also be used for
things that will depreciate in value, such as consumer durable loans,
auto loans, etc. How much debt we can handle, can be measured with
debt-to-income ratio by dividing the amount we owe to the amount we
make. Ideally, your total monthly obligations shouldn't exceed 40% to
45% of your net monthly income.
As we explain in our cover story of this edition Good debt vs. bad
debt, if you keep an eye on the bigger picture, you can make rational
choices about what loan to take on and what to avoid. Taking a balanced
approach to debt management can go a long way in ensuring you reach
your fnancial goals.
Further, to help you give an overall view on markets and opportunities
it offers currently, we interviewed S Krishnakumar, Head Equity,
Sundaram Mutual Fund, who discussed market trends, valuations and
the overall macro environment.
I would also like to draw your attention to our Guest Column by
Sankaran Naren, Chief Investment Offcer (CIO), ICICI Prudential Mutual
Fund on Value Investing - A far bigger theme in the current situation.
As always, we remain committed to providing you with information
and insights that we hope will help you to make informed investment
decisions. If you have comments or fnancial topics you would like us to
cover, please write to us at moneymanager@icicisecurities.com.
EDITORIAL
Editor & Publisher : Abhishake Mathur, CFA
Coordinating Editor : Yogita Khatri
Editorial Board : Sameer Chavan, Pankaj Pandey
Editorial Team : Azeem Ahmad, Nithyakumar VP, Nitin Kunte, Sachin Jain, Shaboo Razdan,
Sheetal Ashar, Venil Shah
Important: All the contents of ICICIdirect Money Manager are the exclusive
property of ICICI Securities Ltd. No article, either in whole or in part, may
be published circulated or distributed through any medium without the
express consent of ICICI Securities Ltd.
Join us on Facebook at http://www.facebook.com/icicidirect
CONTENTS
MD Desk .......................................................................................................... 01
Editorial ........................................................................................................... 02
Contents .......................................................................................................... 03
News ................................................................................................................ 04
Markets Round-up & Outlook ........................................................................ 05
Getting Technical with Dharmesh Shah ....................................................... 07
Derivatives Strategy by Amit Gupta ............................................................. 09
Stock Ideas: Bajaj Electricals and Cairn India .............................................. 13
Flavour of the Month: Good debt vs. Bad debt
Here we explore different types of debt to help you make rational choices
about what debt to take on and what to avoid .............................................. 20
Guest Column: Value Investing
By S. Naren, CIO, ICICI Prudential Mutual Fund ............................................. 33
Tte--tte
Interview with S Krishnakumar, Head Equities, Sundaram Mutual Fund .. 37
Ask Our Planner: Your personal fnance queries answered ........................ 41
Your Financial Health Check
Here we assess Bangalore-based single womans fnances and suggest a
suitable way forward... .................................................................................... 45
Primer: Understanding GDP .......................................................................... 48
Mutual Fund Analysis: Category Equity Diversifed Funds ...................... 50
Equity Model Portfolio ................................................................................... 57
Mutual Funds Model Portfolio ....................................................................... 60
Quiz Time ........................................................................................................ 62
Monthly Trends ............................................................................................... 63
Premium Education Programmes Schedule ................................................. 67
NEWS
Aadhaar-based e-KYC gets SEBI nod
On a day when the Supreme Court rejected the Governments move mandating
the use of Aadhaar cards for availing subsidies, market regulator SEBI accepted the
Unique Identifcation Authority of Indias (the agency responsible for making the
cards) e-KYC services. Information regarding client details and photographs made
available by UIDAI as a result of e-KYC process shall be treated as suffcient proof of
identity and address of the client, said SEBI. KYC or Know-Your-Customer/Client is
done by all capital market intermediaries to obtain proof of identity and residence of
the entity, in order to identify the owner of the securities.
Courtesy: The Hindu Business Line
Filing online PF account transfer claims become a reality
The fling of online provident fund account transfer claims on changing jobs for
subscribers of the retirement fund body EPFO has become a reality now. The facility
has been made available as the Employees' Provident Fund Organisation (EPFO)
has launched its online transfer claim portal (OTCP). The facility of online transfer of
provident fund accounts will reduce the work load of the body substantially as over
13 lakh applicants fle such claims every year.
Courtesy: The Economic Times
Indian millionaires to rise to 3.02 lakh by 2018: Credit Suisse
The number of millionaires in the country is expected to jump over 66 per cent at 3.02
lakh by 2018, even as 94 per cent of India's population has wealth below USD 10,000,
according to a global wealth report. At present, the country has 1.82 lakh millionaires,
Credit Suisse Research Institute said in its fourth Annual Global Wealth Report 2013
released here.
Courtesy: The Asian Age
Govt considers PF cap hike in boost to salaried employees
The government may hike the threshold salary limit for provident fund contributions in
a move that will bring cheer to millions of employees in the private sector. According
to current norms, contribution towards provident fund is mandatory for those
employees, whose salary is up to ` 6,500. A hike in salary limit will not only help more
people contribute toward their retirement benefts, but will also enable the Employee
Provident Fund Organization (EPFO) to draw more long-term savings into its kitty.
Courtesy: NDTV
The markets rebounded sharply
from the lows witnessed in
August, even as volatility
levels remained high for most
part of the September. The
rupee also gained strength and
boosted market sentiments.
The markets took cues from the
announcements by the new RBI
Governor regarding banking
system reforms and stance on
currency volatility. However,
the RBI surprised negatively by
raising the benchmark interest
rate (repo rate) by 25 basis points
(bps) from 7.25% to 7.50% in the
mid-quarter policy review. The
markets also took positive cues
from lower-than-expected trade
defcit and positive industrial
production data, which showed
positive growth for July, after
two subdued months. The last
week of the month saw some
proft-booking aided by weak
cues coming across the globe.
The rupee showed strength and
registered a smart recovery from
the lows of last month to end at
62.6, amounting to an appreciation
of 5.1% in September.
As far as data releases are
concerned, the month saw a
Q2 earnings, RBI quarterly policy and US
deadlock to set the tone
host of releases starting with
the manufacturing Purchasing
Managers' Index (PMI) data,
which came at 48.5. Trade data,
which came at $10.7 billion, also
showed an improvement, with
a signifcant jump witnessed in
exports. Consumer Price Index
(CPI) came at 9.5%, which was
lower than estimates, even as
Wholesale Price Index (WPI) at
6.1% came higher-than-expected.
Global markets were volatile in the
month, as the start of the month
was punctuated by nervousness
on the tapering of the Fed's
Quantitative Easing (QE) later in
the year ahead of the (Federal
Open Market Committee) FOMC
meeting and mounting tensions
on the Syrian crisis. However, with
clarity on the Feds stance on the
tapering of the stimulus package
and increased likelihood of Janet
Yellens appointment as the next
Fed Reserves Chairperson, the
market sentiment turned positive.
Easing of the Syrian crisis
also helped the overall market
sentiment and eased off crude
prices.
Crude (Nymex) fell ~6% in
September on easing of geo-
political tensions in Syria.
MARKETS ROUND-UP
MARKETS ROUND-UP
Global markets
In September 2013, markets
around the world were positive
after a weak performance in
August. The Dow Jones, S&P 500
and the Nasdaq increased 2.2%,
3.0% and 5.1%, respectively.
European indices also reacted
positively to the announcements
from the US while the FTSE,
German Dax and French CAC
increased 0.8%, 6.1% and 5.3%,
respectively. In Asia, Nikkei,
Hang Seng and Shanghai SSEC
jumped 8.0%, 5.2% and 3.6%,
respectively.
Domestic markets
For September, Foreign
Institutional Investors (FIIs) were
net buyers to the tune of ` 12,633
crore while Domestic Institutional
Investors (DIIs) were net sellers to
the tune of ` 2,543 crore.
The Nifty and Sensex rose
4.8% and 4.1%, respectively, in
September. A similar trend was
seen in other indices with the BSE
Midcap and BSE Small cap rising
Among sectoral indices, the
BSE FMCG, BSE Metal, BSE
Power, BSE Healthcare and
BSE PSU were major gainers
with increases of 11.3%, 7.5%,
9.8%, 5.6%, 11.3%, respectively.
On the downside, BSE IT, BSE
Technology and BSE Realty
ended in the red, falling 2.3%,
Outlook
After a torrid August, attributable
to the rupees free fall, the markets
regrouped in September. Much
of the September gains were
attributable to a postponement of
likely tapering of US bond buying
by the US Fed. Negative vibes on
account of a surprise rate hike
were somewhat undone by global
buoyancy towards continuance of
an expansive Fed policy. Come
October, sentiments are likely to
be driven by Q2 numbers even
though by and large the numbers,
barring a few sectors, are likely to
be subdued. Another major event
will be RBIs quarterly policy later
in the month. Even though the
consensus suggests status quo,
one cannot rule out one more rate
hike in the backdrop of elevated
infation levels. Globally, the
standoff in the US, even though
not signifcant at this juncture
from the portfolio fow point of
view, can turn into a full blown
crisis issue if both Republicans
and Democrats refuse to blink. In
this backdrop, markets are likely
to remain circumspect in October.
GETTING TECHNICAL
Pendulum may swing till 18700 post fery
September up move
the US Federal Open Market
Committee (FOMC) event.
However, the sell-off following
RBIs policy announcement
saw the index fll and close
below this bullish gap, proving
it to be an Exhaustion Gap.
In the sideways consolidation
of the last four sessions the
index has stagnated below
this gap area providing an
early indication of bulls losing
steam.
The time-wise behaviour of
the index since January 2013
also points towards the current
leg approaching maturity. All
major directional up/down
moves since January 2013
have lasted for precisely 20-
25 days, as highlighted in the
adjoining chart. The current up
move from the August 2013
low has already consumed 20
days and, therefore, warrants
Dharmesh Shah
Head - Technical Analysis,
ICICIdirect
Domestic equity benchmarks
staged a strong rebound at the
beginning of September 2013
after being down and out for
almost six weeks on the trot. A
slew of positive developments
on both domestic and global
fronts kept fuelling the rally
in equities for the better part
of the month. However, the
surprise repo rate hike by
the Reserve Bank of India
(RBI) punctured the upward
momentum and led to proft
sales after a rally of more than
18% within just four weeks.
The index registered its third
gap-up action (19962 to
20347) in the current up move
on September 19, 2013 after
GETTING TECHNICAL
Source: Reuters, ICICIdirect.com Research
BSE Sensex Weekly Candlestick Chart
a cautious approach, going
forward. The index also broke
below the rising trend line
formed by connecting the
lows of August (17448) and
September (18166), which
further indicates a loss of
momentum.
We expect the index to make
a topping out formation over
the next few sessions before
an eventual breakdown below
19596 that will confrm a short-
term top at the September high
(20739) and pave the way for
price correction towards 18700
levels in the short-term. The
61.8% Fibonacci retracement
of the current up move from
17448 to 20739 is placed at
18700, which coincidently falls
between the frst major rising
gap area formed at the start
of September 2013 between
18567 and 18847 levels.
The views expressed in the article are personal views of the author and do not necessarily
represent the views of the organization.
Nifty likely to move towards
6300. Positive bias to remain
till Nifty holds above 5950
After the initial blip in the
October series, the Nifty found
support at its highest Put
base of 5700 and surpassed
its highest Call base of 6100
strike. With gradual upsides,
Put options open interest has
shifted upwards and signifcant
open interest is now visible at
the 6000 Put strike. However,
accumulation is evident at
deep OTM Call strikes. We
believe the positive bias may
continue in the broader index
and the Nifty may try to test
6300 in days to come.
In the futures segment,
almost 35 lakh shares were
DERIVATIVES STRATEGY
added in Nifty futures since
inception while the premium
in Nifty futures has declined
sharply from 57 points to 20
points during the same time
frame. Data indicates short
positions were formed in the
index. Closure of these short
positions should fuel another
round of upsides in the later
part of the series if the Nifty is
able to hold 5950-6000 levels.
Major contribution in Nifty
upside has come from
technology stocks while the
banking space remained an
underperformer. We expect
the out performance from the
technology space to continue
to lead the index towards
6300 levels.
Amit Gupta
Head - Derivatives Research,
ICICI Securities
Nifty likely to move towards 6300
BankNifty: Short covering
towards 11000 may be seen if
banking index holds 10200
Despite seeing intraday
moves below the important
level of 10000, the Bank Nifty
did not close below this level.
It was the highest Call base
and short covering was seen
in these Call options while
the index moved up towards
10500. The immediate hurdle
for the banking index is placed
at 10900-11000, which is near
the 50% retracement of the
fall from 13400 to 8400 levels.
Bank Nifty Futures open
interest declined from 80000
to 77000 (only 3%) contracts
during the week when it
moved up from 10000 to
10650. It seems the present
heavy shorts in the banking
index are still intact, which
may start getting covered if
the Bank Nifty holds above
10200.
PSU banking stocks started
showing some momentum on
Friday, which may continue in
the coming week till the Bank
Nifty remains above 10200.
Major short addition was seen
in SBI at ` 1620, which may
act as good support in the
stock.
India VIX: Likely to remain in
range of 22-26
The India Volatility Index
(India VIX) witnessed a sharp
cool-off since September and
fell towards 22 levels from the
highs of 35. However, we do
not expect volatility to decline
much from here. It may
consolidate around current
levels.
The volatility index has taken
support near its 100 DMA of 22
levels and exhibited a positive
move after consolidating near
these levels. Hence, 22 may
remain an important support
for the index. On the other
hand, during its consolidation,
the crucial 50 DMA, which
lies at 26 levels, is likely to act
as strong resistance for the
volatility index.
Quarterly results from most
index heavyweights are lined
up in October. Thus, volatility
may not decline much further
from current levels.

S&P 500: Targeting 1760 on
higher side.
Uncertainty over the debt
ceiling and government
shutdown kept US markets
on the edge. Higher volatility
was witnessed by US indices
as they toppled almost
4-5% since the uncertainty
increased. However, the
stated support of 1650 acted
as strong support and the S&P
witnessed strong recovery
towards 1700.
In the last year, the S&P has
been continuously fnding
support near its 100 DMA
levels and did not spend
much time below these levels.
Recently again, it recovered
sharply from its 100 DMA
levels of 1650 and moved
towards 1700. However, the
S&P has now been hovering
near 1700 for four months.
Looking at the ongoing
events, the S&P may breach
the range of 1650-1730 during
the November series.
Looking at the options base
as well, the key support lies
at the 1650 strike, which holds
the highest Put OI base. On
the higher side, immediate
resistance could be seen near
1700-1710, where a signifcant
Call build-up is seen. Short
covering in the Call writing
positions of 1700 strike may
be seen if the S&P is able to
sustain above 1710.
Dax Index: Level of 8500 to
remain critical for bullish bias
to continue. Remain positive
for targets of 9000...
Continuous appreciation of
the euro against the dollar
helped the German index to
make its all-time high during
the September series and
later again in October.
We have an opinion of positive
bias above 8400-8500.
For the October series, we
believe the positive bias
should be maintained in the
Dax index till it sustains above
its highest Put base of 8400
strike. The index had earlier
found signifcant resistance
near these levels in August.
After the break-out above this
level, recent proft booking
from higher levels of 8700
also got exhausted near 8400.
Moreover, the important 50
DMA for the Dax still lies at
8450.
On the higher side, major
Call open interest is placed
at 9000 strike. Hence, Dax
may attempt to move towards
9000 in the days to come.
The views expressed in the article are personal views of the author and do not necessarily
STOCK IDEAS
Bajaj Electricals: Consumption to light up growth!
Company Background
Incorporated in 1938, Bajaj
Electricals Limited (BEL)
is largely known for its
consumer appliance business.
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 its kitchen
and home appliances,
BEL offers a wide range
of brown goods including
water heaters, mixer grinder,
food processors, steam &
dry iron, air coolers and
water purifers. The CD
segment contributes ~55%
to the topline and recorded a
compounded annual growth
rate (CAGR) of ~25% in FY08-
13. Bajaj lighting & luminaries
(contributes ~25% to the
topline) recorded CAGR of
17% in FY08-13. The E&P
segment (contributes ~20%
to topline) includes three
sub segments viz. special
projects, transmission line
tower and high masts.
Investment Rationale
Dominant player with over
15%-30% market share in
various CD categories with
strong dealer network
The consumer durable
segment includes appliances
and fan divisions and
contributes ~55% to the
topline with sales CAGR of
~25% in FY08-13. BEL is one
of the largest players in the
small appliances market with
STOCK IDEAS
a market share of over ~15%-
30% (organised category) in
various kitchen and domestic
appliances categories. In
the appliances and fan
segments, the appliances
division recorded sales CAGR
of 27.5% in FY08-13 while
the fan division recorded
CAGR of ~20% in the same
period. Alongside, in 2002,
BEL introduced UKs Morphy
Richards (MRL) brand (part of
the 66-year-old Glen Dimplex
group) in the domestic
home appliances market
in the premium category.
Sales from Morphy Richards
products recorded CAGR
of ~32% between FY08
and FY13. The company
has 2,200+ distributors
and 4,100+ dealers across
India. Further, Bajajs lighting
solutions are available in
over 4,00,000 retail stores
while fans and appliances are
available at over 86,000 and
45,000 retail stores across
India.
Lower headwinds to aid in
EBITDA as BEL exits lower
margin projects
BELs main concern is a higher
working capital cycle (~7%
of sales in FY13) compared
to other branded players
(Havells working capital cycle
is ~4% of sales in FY13).
Signifcant cost overrun
coupled with almost fattish
revenue growth in the E&P
segment (contributes ~20% in
topline) took its toll on overall
EBITDA margins (declined
~430 basis points (bps) YoY)
in FY13. However, BEL has
endeavoured to rationalise the
working capital requirement
(20% of sales in FY10 to ~7%
of sales in FY13) by reducing
debtors days.
Asset light model:
outsourcing manufacturing
STOCK IDEAS
BEL follows an asset light
model strategy through
outsourcing more than ~95%
of its consumer and lighting
products (both categories
together contribute ~80%
to total topline) from either
domestic or international
markets (China). Under the
imported products category,
Bajaj imports 40% of MRLs
revenue, ~20% of appliances
revenue and ~10% each of
fan and lightings revenue.
However, the companys
international outsourcing of
fan has declined from 60%
last year to 30% current year.
Further, BEL plans to allocate
a signifcant chunk (~65%)
of total capital expenditure
(capex) (` 60-65 crore) into
research and development
(R&D) expenses to introduce
new product categories such
as induction LED products,
cook top, invertors, stabilisers
and pumps along with
generator. With low capex,
outsourced categories earn
much higher return on capital
employed (RoCE).
E&P turnaround to drive
stock re-rating
At current market price (CMP)
of ` 158, BEL is trading at
a price-to-earnings (PE)
multiple of 23x FY14E &
11x FY15E earnings. On
EV/EBITDA multiple, it is
trading at ~10x FY14E and
~6x FY15E EBITDA. We
expect the E&P segment to
narrow its losses in FY14
and start contributing to
EBITDA in FY15 by executing
high margin projects. It will
help reduce working capital
requirements with improving
return ratios, going forward.
Our sum-of-the-parts (SOTP)
valuation suggests a fair value
of ` 195. We initiate coverage
on the stock with a BUY rating
and target price of ` 195.
STOCK IDEAS
Key Financials
FY11 FY12 FY13 FY14E FY15E
Net Sales (` Crore) 2,739.4 3,094.2 3,380.9 4,038.0 4,737.4
EBITDA (` Crore) 231.2 225.5 101.2 173.6 270.0
Net Proft (` Crore) 143.8 117.9 51.2 68.6 138.6
EPS (`) 14.4 11.8 5.1 6.9 13.9
Valuations Summary
FY11 FY12 FY13 FY14E FY15E
P/E 11.9 13.9 51.3 23.0 11.4
Price / Book (x) 2.6 2.3 2.2 2.0 1.8
EV/EBITDA (x) 7.1 7.6 16.7 9.9 6.3
RoCE (%) 30.5 24.0 9.8 16.3 24.0
RoE (%) 23.5 16.8 7.0 8.9 15.7
Stock Data
Particulars Figure
Market Capitalization ` 1,576 crore
Debt (FY13) ` 159.9 crore
Cash & cash equivalents (FY13) ` 50.2 crore
Enterprise value ` 1,686 crore
52-week high/low ` 234 / ` 160
Equity capital ` 19.9 crore
Face Value ` 2
Promoter holdings (%) ` 66.1
MF holding (%) 11.5
FII Holding (%) 4.5
Key risks include: Highly competitive industry, currency risk,
and slowdown in E&P business.
(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS:
Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; RoCE: Return
on Capital Employed; RoE: Return on Equity; MF: Mutual Funds; FII: Foreign
Institutional Investors)
Cairn India: Outlook intact
Company Background
Cairn India is primarily
engaged in the business
of oil and gas exploration,
production and
transportation. Average daily
gross operated production
was 205, 285 BOEPD (barrels
of oil equivalent per day) in
FY13. The company sells
its oil to major refneries
in India and its gas to both
public sector units (PSU) and
private buyers. Cairn Indias
resource base is located in
four strategically focused
areas, namely one block in
Rajasthan, two on the west
coast of India, six on the east
coast of India (including one
in Sri Lanka) and one in South
Africa. The blocks are located
in the Barmer Basin, Krishna
Godavari Basin, the Palar-
Pennar Basin, the Cambay
Basin, the Mumbai Offshore
Basin, Mannar Basin and
Orange Basin.
Investment Rationale
Convincing roadmap to
achieve production target
The current production from
Rajasthan stands at 175,000
BOPD (barrels of oil per
day), with ~150,000 BOPD
of production from Mangala
and the rest from Bhagyam,
Aishwariya, Rageshwari
and Saraswati. Mangala
production has reached a
plateau and is expected to
remain at the same level for
the remaining year as the
company plans to drill 48
infll wells. Aishwariya has
commenced production in
FY13 end. Lower productivity
of individual wells and
shallow nature of reservoir is
causing problems in ramping
up production at Bhagyam
from the current 20,000 BOPD
to the approved level of 40000
BOPD. The company has
received approval to drill extra
STOCK IDEAS
wells to achieve the approved
production level by H2FY14E.
The governments decision to
allow exploration in producing
felds has already resulted in a
discovery. Going ahead, it will
expedite the operations of the
company.
Aggressive capex plan
The company has an
aggressive plan of spending
$3 billion in the next three
years ($1.6 billion towards
development activities
in Rajasthan block) with
an objective to achieve
a production target of
3,00,000 BOPD. This capital
expenditure (capex) guidance
is subject to revision based
on success in exploration. The
company is also in talks with
the government to extend its
production sharing contract
(PSC) term by 10 years,
which expires in 2020. This
will also be critical for the
STOCK IDEAS
company in setting its capex
guidance, going ahead. We
believe in the high potential
of the Rajasthan block and
the companys vision to attain
peak production level of
3,00,000 BOEPD.
Currency weakness & high
crude oil prices
As Cairns proftability is
highly sensitive to the dollar
movement, a weaker rupee
and higher level of crude oil
prices will result in higher
realisations. We have valued
Cairn India on sum-of-the-
parts (SOTP) methodology,
using discounted cash fow
(DCF) for Cairns producing
assets and enterprise value
per barrel (EV/bbl) of US$12.5
for other exploratory blocks.
We estimate Cairns fair value
at ` 379/share (MBA felds at
` 201/share). We recommend
a BUY rating on the stock with
a target price of ` 379.
Key Financials
FY12 FY13 FY14E FY15E
Revenues (` Crore) 13,113.0 17,524.1 19,033.3 21,002.9
EBITDA (` Crore) 11,121.5 13,033.2 13,394.1 14,394.0
Net Proft (` Crore) 7,937.8 12,056.5 12,207.8 11,549.7
EPS (`) 41.6 63.1 63.9 60.5
Valuations Summary
FY12 FY13 FY14E FY15E
P/E (x) 7.3 4.8 4.8 5.0
Target P/E 8.5 5.6 5.5 5.8
EV/EBITDA (x) 4.5 4.0 3.3 2.8
Price to book (x) 1.2 1.2 1.0 0.9
RoNW (%) 16.4 25.3 21.4 17.5
RoCE (%) 20.0 23.5 19.8 18.4
Stock Data
Particulars Figure
Market Capitalization ` 61,418 crore
Debt (FY13) 0
Cash (FY13) ` 16,290 crore
Enterprise value ` 45,128 Crore
52-week high/low ` 367 / ` 268
Equity capital ` 1,901.9 Crore
Face value ` 10
MF holding (%) 2.0
FII holding (%) 7.4
Key risks include: Lower than estimated production, delay in
regulatory approvals, strong rupee, and low crude oil prices.
(EBITDA: Earnings before interest, taxes, depreciation, and amortization; EPS:
Earnings per share; P/E: Price-to-earnings; EV: Enterprise value; RoNW: Return
on Net-worth; RoCE: Return on Capital Employed; MF: Mutual Funds; FII:
Foreign Institutional Investors)
STOCK IDEAS
Good Debt vs. Bad Debt
Indians are traditionally conservative borrowers. However, this
has changed in the last two decades, thanks to the boom in the
economy and the growing consumerism. Finance has become a
basic part of our lives. From credit cards to auto loans to home
loans, our access to debt has been increasing of late. Credit card
spends, for example, in value terms, have more than doubled to
` 1.23 lakh crore between 2007-08 and 2012-13. While auto and
home loans have grown by 23% and 19%, respectively (year-
on-year growth as on August 2013).
This Buy now, pay later approach is fne if we payoff our debt
on time. But if we dont, it can put a strain on our fnances. The
key, therefore, is to learn different types of debt and how to best
manage them. Here we make an attempt to do so to help you
manage your personal liabilities more effciently...
FLAVOUR OF THE MONTH
Not all debt is same
To start with, it is important
to understand that not all
debt is same. There is good
debt and there is bad debt.
Understanding the difference
between two will help you
decide how to borrow wisely.
A loan is taken for a purpose
or to buy an asset. Rationally,
a good debt can be referred
to a loan, where the expected
return from the asset/purpose
is more than the interest cost
of the loan. The loan should
help you grow your assets
and/or add to your income.
The most common example
of a good debt is home loan;
since it helps you build an
asset. Plus, the value of your
home generally increases over
time. A home also gives a
sense of security and therefore
is valued more than just an
investment. Another example
of a good debt is education
loan, as it helps you increase
your future earning power and
in turn leads to increase in
wealth.
Bad debt, on the other hand,
can be referred to borrowing
for an asset which depreciates
or fall in value over a period
of time or may not have an
underlying value.
It must be remembered that
an investment can give its
owner value through its usage
(actual utility - return from
investment in a second house)
as well as give emotional
beneft if holding the asset
(a sense of security while
holding a second house).
Therefore, categorizing debt
as bad depends on situation to
situation.
Lets evaluate various types of
loans to understand whether
they work for you or against
you.
1. Home loan
Buying a home is probably the
biggest purchase of our life for
most of us. And the chances
that we pay for our home, all
in cash, are thin, given the
larger sum of money required.
An obvious outcome of this
situation is to go in for a home
loan. A 20% down payment is
traditional, and for rest of the
amount many prefer to take a
loan.
Taking a home loan can be
considered as good debt since
it not only helps you build an
asset as mentioned above, but
also provides you tax benefts.
You get a tax deduction up to
` 1 lakh under Section 80C for
principal repayment of a self-
occupied property. While up
to ` 1.5 lakh of interest paid is
tax-deductible under Section
24.
In case of a let-out property
(not self-occupied one), you
get tax deduction for the entire
interest paid.
So overall, when you opt for
a home loan, its cost actually
goes down due to the tax
benefts. Lets understand this
with an example: Suppose
you take a home loan of
` 50 lakh at 10% per annum. If
you fall under the highest tax
bracket of 30%, your effective
loan rate would be 8.50% (for
a self-occupied property), and
7% (for a let out property),
instead of 10%.
The effective interest rate on

a home loan is always lower
due to tax benefts. In addition,
you get an appreciating asset.
This makes most people buy a
house in the early stage of their
career,
says Nithyakumar
VP, Financial Planner at ICICI
Securities Ltd.
However,
you should always make sure
that your equated monthly
installment (EMI) outgo is not
more than 40% of your monthly
net income,
he adds.
Covering your home loan
The size of your EMI towards
home loan is generally high as
compared to other loans. And
the onus of repayment defnitely
falls on you, if you are the main
borrower. But what if something
untoward happens to you
and, your family is not able to
pay the EMIs? They could be
asked to vacate the house. To
avoid such situation, it's best to
cover your home loan through
adequate insurance. It will help
ensure that your family does
not face the burden of repaying
an outstanding loan in your
absence.
There are two ways in which
you can insure your home
loan. One is through a home
loan protection plan and the
other through a pure term
plan. Home loan protection
plan, often sold along with
the home loan, provides a
cover (sum assured) equal
to the loan amount. As the
outstanding loan amount
reduces (with every EMI),
the size of the cover also
reduces. On the other hand,
in term plan, the insurance
cover (sum assured) remains
constant throughout the
tenure, which could also take
care of other fnancial needs
of your family, apart from
outstanding home loan. So
its best to cover your home
loan through a pure term
plan.
As a general rule, you should
take a cover that takes care of
your total home loan liability.
For example, if you have
taken a home loan of ` 50
lakh, your total liability over
a period of 15 years may run
into around ` 1 crore. So your
term insurance should be of
minimum ` 1 crore.
The good thing is that term
insurance comes at a very
low cost. A 35 year-old person
can buy ` 1 crore worth of
coverage by paying less than
` 20,000 annually.
Home loan Dilemma: Should I
prepay or invest
For home loan borrowers,
the most common question
that arises, especially when
they receive a bonus or
maturity proceeds of some
old investment, is: Should I
prepay my home loan or invest
the sum elsewhere?
The answer in most cases
actually depends on the
borrower. If you are a risk-
averse person, it is better to
prepay your home loan and
enjoy peace of mind. But if
you can take risks, you can
consider investing.
The emotional factor of being
debt-free is also one of the
reasons some individuals
prefer to pay back debt
than continue with the loan.
However, one should evaluate
this in view of the cash fow
impact it may have.
The frst step is to fnd the
real cost of the loan and the
effective interest rate that you
pay. This is important because
there are tax benefts that you
enjoy and the effective rate
would be lower than what is
charged to you.
Lets look at an example here:
Outstanding loan
amount (in `)
40,00,000
Remaining
installments
15 years
Rate of interest 11% p.a.
EMI (in `) 45,464
Let's assume you have a surplus
of ` 40 lakh today, which you
can use for prepaying the
entire home loan. Let's look at
both scenarios - if you prepay
today or invest the surplus
today.
Particulars Scenario-1
(If loan is
prepaid
today)
Scenario-2
(If surplus
is invested
today)
Lump-sum investment (in `) 0 40,00,000
Monthly surplus available for
investment (EMI) (in `)
45,464 0
Tax savings forgone (monthly) at
tax rate of 33% (in `)
4,125 0
Net monthly surplus available for
investment (in `)
41,339 0
Rate of return (post-tax) expected
from investment
10% 10%
Tenure 15 15
Future value of investments (in `) 1,66,75,894 1,67,08,993
Only if the investments you make yield a return of less than 10%
post-tax return, then prepaying makes sense. In this example, it
is not prudent to prepay.
Note: This scenario is in self-occupied property. The maximum
tax benefit shown here is on ` 1,50,000. However please note
that in case the property is rented, the entire interest paid is
tax deductible. Please note that the calculation is dependent on
the home loan interest rate and the return on your investments.
It is advisable to do the calculations for 2 or 3 scenarios. This
is a point of time calculation and does not include principal
repayment under section 80C.
It is very important here to understand that the expected return
on your investments depends on your risk profle and the type
of asset classes you invest in. Please also remember that since
a housing loan is backed by collateral, the interest rates are
much lower than a personal loan. In addition, the tax benefts
make the effective housing loan interest rates even lower. It is
therefore advisable to look at prepaying other more expensive
loans before you plan to prepay a housing loan.
2. Education loan
In times of rising education
costs, taking an education loan
becomes inevitable.
Loan taken to study can
defnitely be considered as
good debt since it helps you
build a career and in turn, your
future earning power. Further,
like home loans, education
loans provide tax benefts too.
You get tax deduction for full
interest paid under section
80E. However, no benefts
are available for principal
repayment. Say for example,
if your taxable income during
a fnancial year is ` 6 lakh and
the interest you pay on the
education loan that year is ` 1
lakh, then you need to pay tax
on ` 5 lakh only.
Tax deduction is available on
both loans taken out to study
in India as well as abroad. But
there are certain limitations
you need to keep in mind:
i. Tax deduction on interest
paid is available only for 8
fnancial years starting from
the fnancial year you have
started paying interest. So e.g.
if you service the loan over a
10-year period, the interest
paid in the last 2 years cannot
be claimed as deduction.
ii. You can claim deduction
only if you take a loan from an
approved fnancial institution
(banks and non-banking
fnancial companies) or an
approved charitable institution.
So if you take a loan from your
friends, relatives or employer,
you get no deduction.
iii. Only the person taking a
loan can claim the deduction.
If your parents have taken a
loan for funding your higher
education, theyll be eligible
for tax deduction, not you.
vi. Deduction is available only
for funding higher education
(studies pursued after
passing the senior secondary
examination). If you take a
loan to pay for your childrens
school fees, you get no
deduction.
If you are not able to raise

funds for yours or your
childs higher education,
then education loans make a
best bet than personal loans
or borrowing from friends/
relatives or taking loans against
property, gold, etc. This is
because education loans offer
you suffcient moratorium
period, after which you can
start the repayment of loan,
in addition to tax deduction
offered on interest outgo,

says Nithyakumar.
3. Car loan
Apart from your home, a car
may be one of the biggest
single purchases in life youre
likely to make. And in most
cases, people opt for a car
loan. In India, 75% of cars are
bought through a car loan.
But before you opt for a
car loan, you must do your
homework. This is because,
it is not just the car loan EMI
which you would need to shell
out, but also other related
expenses such as fuel cost,
regular maintenance, parking
charges, etc. Evaluating these
costs will help you decide
whether taking a car makes
sense. Also remember, a car
will not fetch you more than
half its price in re-sale value
after a few years. So it may be
better to fund your vehicle (car
or a bike) through your own
funds.
Ideally, you should plan 2 to 4
years in advance, depending
on the budget, and start
investing towards this goal of
buying a car.
Though car purchase has
become an impulsive buy
these days and people take
loans, you should still stick to
your budget so that the EMI
outfow does not eat away into
your net income. Remember,
its always a good idea to
allocate certain percentage of
your income towards luxuries,
but not at the cost of savings
for non-discretionary goals
such as retirement.
4. Personal loan
Personal loans are generally
taken out to meet emergency
or unplanned needs such
as medical, school fees of
children, marriage, vacation,
home renovation, etc. The
interest rates on these loans
are very high, ranging from
16% to 30% p.a.
One should always try and
avoid taking personal loans
since they are expensive and
do not add to ones assets
or income. One may look for
other alternatives such as
loans against existing assets
like gold, property, shares,
insurance policies, etc. The
interest rates for these options
are generally lower than
personal loans.
Personal loans should always
be the last resort in case of
emergencies. But still, in case,
if you need to opt, you should
always check the type of
interest rate that its charging
you. Some banks and fnancial
institutions quote fat interest
rate to lure customers.
However, a fat interest rate,
say for example, of 12%, is
always more expensive than a
reducing balance interest rate
of 12%. Assume you opt for a
personal loan at 12% fat rate
for a 5-year term. In this case,
the actual interest rate turns out
to be 20.31% (when calculated
on reducing balance). This
also applies to auto loans.
So you should always check
with the lender if the interest
rate quoted is fat or reducing
balance interest rate. There are
online calculators available on
various websites which can
help you convert a fat rate into
a reducing balance interest
rate.
5. Consumer durable loan
Rise in income levels, growing
aspirations and easy availability
of credit has triggered strong
demand of consumer durables
in recent years.
One of the many schemes
that have evolved to fnance
consumer durable purchases
is: EMI scheme with 0%
interest rate. We generally fail
to understand that though no
interest is charged on such
schemes, a processing fee is
charged upfront - separately
or is built into the price of the
product. Say for example, you
buy a high-end Smartphone
from a dealer for ` 30,000
and pay ` 3,000 in 10 equal
installments. The same phone
may be available with another
dealer at ` 28,000 without the
EMI offer. If you buy through
an EMI option, youll pay
` 2,000 extra over a period
of 10 months; this effectively
means paying interest rate of
15.30% p.a. RBI, however, has
recently banned 0% interest
schemes on purchase of
consumer goods.
As consumer loans neither
add to your assets nor income,
these should be avoided.
6. Credit cards
Credit cards have transformed
the way we pay and have made
it easier for us to consolidate
our expenses.
Credit cards can come in
handy if you want to purchase/
make payment when you do
not have suffcient funds in
cash. They also provide you
around 30 to 50 days time for
paying the bill - no interest is
charged for this period. So
you get interest-free funds
for a particular period, which
no other instrument offers.
However, remember, while
paying the bill, you need to
make full outstanding payment
on or before the due date. If
you do not, a very high rate
of interest is charged, which
is anywhere between 30 to
45% p.a. Plus, the penalty is
charged for late payment.
Credit cards do induce
impulsive purchases and
which typically forces one to
carry on the outstanding. A
little bit of self control can help
us make the most of a credit
card.
When you make a payment

through credit card near your
bill date, you get less number
of days to pay the dues. To
overcome this, many use two
credit cards with different
billing cycles and when making
a payment, they use the credit
card for which billing date is
farther. But having more than
two credit cards makes less
sense, as you will have to keep
monitoring them too. And
always ensure to pay the entire
dues on time to avoid paying
high interest and penalty,

advices Nithyakumar.
You must not bite off more than you can chew
Recently, one of our readers, Vijay, wrote to us that even after
earning a decent amount, he is left with almost no money at the
end of the month. Given the high infation, this situation can be
well understood. But still, it is important to review ones fnances
in order to remain fnancially ft.
When we analyzed his fnances, we observed that he had four
liabilities simultaneously running which included two home loans,
top-up loan on self occupied home, and loan against credit card.
His income was ` 80,000 a month and was paying around ` 50,000
towards EMIs of these loans. Due to which, he was unable to save
enough for his goals.
We did an overall review of his assets and liabilities and suggested
him to prepay high-interest cost loans by selling some of his
existing investments and prepay home loan as and when he gets
some lump-sum amount, as there is no prepayment penalty.
To avoid above situation like Vijays, it is important to bear in
mind that your total EMIs/interests towards repayment of all your
loans put together, should not exceed 45% to 50% of your net
income. However, this ratio should not exceed 15% to 20%, if you
do not service a home loan.
Safe debt guidelines
45 -50%
15-20%
All Debt should not exceed
45-50% of net income
All Debt excluding home loan
should not exceed 15-20%
of net income
Heres the worksheet to help you get a rough idea whether
youre following safe debt guidelines:
Are your following safe debt guidelines?
A: Your annual debt payments Amount
Home loan `
Car loan `
Credit cards `
Personal loans / Money taken from private
moneylenders
`
Consumer durable loan `
Any other form of loan or liabilities you might have
taken
`
Total debt `
B: Your total annual income
Your business/ Professional income/Salary `
Bonus/incentives receivable `
Dividend or interest income receivable `
Rental income `
Any other form of income `
Total income `
Debt-to-income ratio = Total debt/ Total
income*100
Your debt-to-income ratio:
40% or less: A healthy debt load to carry for most people.
40%-45%: Not bad, but start trimming now before you get into
trap
50% or more: You need to take immediate action. A professional
advisor may help.
When it comes to debt, your
CIBIL score matters
Credit Information Bureau
(India) Limited (CIBIL) collects
and maintains records of your
payments pertaining to various
loans and credit cards. These
records are submitted to CIBIL
by banks and other lenders
on a monthly basis. This
information is then used to
create credit scores and credit
information reports (CIR),
which are provided to lenders
in order to help them evaluate
and approve loan applications.
Credit score is derived from
your credit history (how do
you pay your outstanding
dues) and it ranges from 300
to 900 points. The higher your
score, higher are the chances
of your loan application getting
approved. 90% of new loans
sanctioned are to individuals
with a credit score of 700 and
higher.
You can get to know your
credit score, also known as
CIBIL TransUnion Score, by
paying ` 470 to CIBIL (It also
includes CIR). If you just want
to check how your credit
history has been and what
kind of information is there
with CIBIL, you may opt for
CIR, which will cost you ` 154.
(The rates are as on October
17, 2013; Source: CIBIL).
To get a higher score or to
maintain one, you can follow
these simple rules:
Always pay your dues in
full and on time
Keep your balances low
(i.e. control utilization of the
available credit)
Maintain a healthy mix of
secured (home loan, auto loan,
etc.) & unsecured (personal
loan, credit card, etc.) debt
Apply for new credit
cautiously (Do not apply with
a lot of institutions)
Monitor your co-signed,
guaranteed and joint accounts
regularly (You are held equally
liable for missed payments in
these accounts)
Alternatives: Leveraging your
assets
Generally, in case of fnancial
emergency, people turn to
personal loans or pledge their
gold jewelry to meet their
needs. However, there are
Please send your feedback to moneymanager@icicisecurities.com
Representative range of interest rates for various loans
Type of Loan Indicative Rate of
Interest p.a.
Home Loan 9 - 11%
Education Loan 11 - 14%
Auto Loan 11 - 18%
Personal Loan 16 - 30%
Consumer Durable Loan 15 - 20%
Credit Card 30 - 45%
Loan against Property 13 - 16%
Loan against Gold 13 - 16%
Loan against Shares 14 - 16%
Loan against Insurance Policies 13 - 15%
Loan against Fixed Deposits (FDs) 0.5 - 2% over the interest
rate on FDs
(As of September 2013)
Summing up
Debt can be a useful tool if used responsibly. The key is to keep
your total debt load manageable. Try to always repay high-
cost, unsecured, and non-tax-deductible loans frst (e.g. credit
cards, personal loans). Last but not the least, as you review
your investments and assets regularly, you must also review
your debt and liabilities regularly, in order to remain fnancially
healthy.
certain alternatives which may
come in handy in taxing times.
These include leveraging your
assets and investments such
as loans against property,
gold, shares, insurance
policies, fxed deposits, etc.
The interest rates on these
options are generally lower
when compared to personal
loans (see the table below).
You may also go in for an
overdraft facility offered by
various banks against your
savings or current accounts in
case of an emergency.
GUEST COLUMN
Sankaran Naren
Chief Investment Offcer (CIO),
ICICI Prudential Mutual Fund
Who isnt fond of a good
bargain? But a bargain does
not necessarily mean getting
things for cheap and ignoring
quality; rather it is deriving
utility from the money spent.
Same is the case with value
investing. It is not merely
buying stocks at a discount
but buying underpriced stocks
that have an intrinsic potential
to give big returns in the long
run.
The value investing strategy
focuses more on the
fundamentals of the business
and the company rather than
the external infuences on the
stocks price. External infuence
is not so important in this
case as markets overreact to
good and bad news, resulting
in stock price movements
that are not in sync with the
company's fundamentals.
Benjamin Graham is
considered as the father of
value investing. He along with
David Dodd, both professors
at Columbia Business School,
advocated the concept of
Margin of Safety which is
the cornerstone of value
investing. This concept was
frst introduced in Security
Analysis, a book co-authored
by them in 1934. Margin
of safety is the difference
between the market price and
the calculated (intrinsic) value
of the stock.
While value investing is an
opportunity for investors to
proft by buying the stock
when it is underpriced, it is
not just laying your hands on
every undervalued stock in the
Value Investing - A Far Bigger Theme in the Current Situation
GUEST COLUMN
market. One has to consider
several factors to judge the
underlying value of the stock.
Important stock indicators
considered for value investing
are price to earnings (PE) ratio,
price to book value (PBV)
ratio, PE to projected growth
in earnings ratio or PEG ratio,
and dividend yield. While for
dividend yield, the higher the
number the better it is, for the
remaining factors, the lower
the number, the better it is.
Besides, when it comes to
value investing, the importance
of analysis cannot be
overemphasized. Signifcant
analysis must be done prior to
investing - such as reconciling
market value and book value
as well as estimating intrinsic
value. This is important as
investments are necessarily for
the long term. One has to be
on top of the market to rightly
determine what is causing the
gap in price and value of the
stock. But all investors are
not equipped to handle the
analysis on their own.
Investing is an art, more so in
equities, due to its inherent
volatility. To avoid making
a wrong decision, investors
can choose the mutual fund
route for investing in value
funds, thereby benefting
from professional fund
management.
Key benefts of investing in
value funds
Asset Allocation: A critical
aspect of fnancial planning is
right asset allocation, better
known as diversifcation. While
it is more common to diversify
the investment across various
asset classes (equity, debt,
gold), you can also reduce
portfolio risks by diversifying
your investment style between
growth (investing in proven
companies and sectors
that would grow) and value
(investing in unacknowledged
fundamentally strong
companies available at very
attractive prices).
Downside protection:
Value investing hinges on
investing in undervalued
but fundamentally strong
companies. This helps reduce
the risk of loss in the long term
due to this built-in margin
GUEST COLUMN
of safety. Also, typically, the
decline posted by value stocks
is less in a bear phase vis--vis
that posted by growth stocks.
One must also keep in mind
that while these funds are
better off in a bearish phase,
they may lag the market in a
bullish phase as they invest
in undervalued stocks and
not high growth stocks. The
exception, however, would be
those stocks which get re-rated
from value to growth once they
are discovered by the market
at large. The unlocked value
from such stocks provides a
signifcant upside.
India gradually discovering
the merits of value investing
Value investing is one of the
most popular investment
themes globally. For instance,
assets under management
(AUM) of Value Funds in the
US are approximately 85 per
cent of the AUMs of Growth
Funds. As against this, in
India, AUMs of Value Funds
is merely about 10 per cent
of the combined AUMs of
Growth Funds and funds
applying other strategies.
While most investment gurus
would proclaim India to be a
growth market where growth
investing is the most suited
investment style, the truth is
that Indian markets offer a
good opportunity to use value
investing.
Current scenario apt for value
funds
We are in an interesting
period for investment in
Indian equities. We are going
to approach the elections
and the corporate results
for this quarter. In our view,
the quarterly results are not
likely to be good. Having said
that, if we take the long term
view, whenever we have been
in a situation where Gross
Domestic Product (GDP)
growth is low, investing in
equities during this period
has historically proven to offer
good returns. For instance,
2001-02 and 2002-03 were
years of low GDP Growth which
offered a good investment
opportunity yielding attractive
returns. As against this, 2007-
2008 and 2009-2010 were the
best years to sell equities and
book profts. On that basis,
GUEST COLUMN
the current scenario appears
to be a good time to look at
value opportunities based on
investing for the long term.
Value makes eminent sense
considering the fact that
currently, there are only
about 10-12 stocks which
are overvalued. The rest of
the market is available at
extremely attractive prices.
Most fundamentally strong
stocks are available at single
digit PEs (price to equity) and
with price to book at below
one. We think value is a far
bigger opportunity than any
other theme at this point of
time.
While global challenges
will need to unfold based
on measures taken by
administrations of other
countries, domestic challenges,
the most compelling one
of which is continuation of
the reforms process, will
crystallize post the 2014 union
elections. The positive aspect
to the elections in terms of
reforms is that both parties,
the current government in
rule and the opposition, have
understood that reforms have
to continue in order for the
country to retain and nurture
foreign interest in the form
of Foreign Direct Investment
(FDI) and other investment
infows. Hence, using the value
strategy in the current scenario
makes compelling sense.
The above reasons clearly
indicate that the current
scenario is apt for locating
through sound research value
stocks. A better option would
be to invest in professionally
managed value styled mutual
funds. They would not only
help capture the upside that the
underlying stocks offer when
the market phase changes
for the better, but would also
cushion the downside in a
volatile phase.
To conclude, one may recall
what investment guru Warren
Buffett once said, It is far
better to buy a wonderful
company at a fair price than
a fair company at a wonderful
price, which probably best
sums up the essence of value
investing.
- By Sankaran Naren, Chief
Investment Offcer (CIO), ICICI
Prudential Mutual Fund
Tte--tte
S Krishnakumar, Head Equity, Sundaram Mutual Fund believes
that India remains a favoured market amongst the emerging
markets (EMs) given the structural improvement expected
in the economy in the medium term driven by government
reforms and recovery in the investment cycle. In an interview
with ICICIdirect Money Manager, he advises investors to
deploy funds through systematic investment plans (SIPs) for
long term. Excerpts:
Could you please give us
an overview of current macro-
economic scenario?
Though the current macro-
economic scenario is refecting
the weakness across different
variables, we can expect an
infection point to arise in a
couple of quarters. But, with
pre-emptive Reserve Bank of
India (RBI) action on infation,
continued government
measures to contain the fscal
and governments initiatives to
boost investment sentiment,
we could see a pickup in
growth by the end of the fscal.
A number of resource-related
projects have been cleared by
the government. This, along
with a better monsoon, likely
rate easing, and more political
clarity should see a gradual
kick-start in growth towards
the end of this fscal. While the
rate of government spending
Q:
A:
would see a drop in the next
couple of quarters, in order
to contain the fscal defcit,
agricultural growth could partly
offset this on the growth front.
Apart from the rupee stability
seen on better confdence and
dollar fows, the infation space
must be watched closely.
While wholesale price index
(WPI) infation would see a
S Krishnakumar
Head Equity
Sundaram Mutual Fund
India remains favoured market amongst EMs
Tte--tte
pick-up in the second half, it is
not likely to fare-up and trickle
into monetary policy action.
However, the gradual bias seen
in the RBI towards consumer
price index (CPI) infation
would see some pressure on
the Repo rate front.
Given this scenario, what
is your outlook on Indian
equity markets?
India remains a favoured
market amongst the emerging
markets (EMs) given the
structural improvement
expected in the economy
in the medium term driven
by government reforms and
recovery in the investment
cycle. The good monsoons too
augur well for rural incomes
and spend. We remain
constructive on the equity
markets for the long term while
one could see a lot of volatility
in the next 6 months.
What, according to you,
is needed at this stage, to
bring in some stability to the
markets and the economy?
Resolution of the US debt
ceiling impasse, INR stability
and clear direction on the
domestic monetary stance /
Q:
A:
Q:
A:
policy will help. Bottoming
out of equity earnings halting
the downgrade cycle is also
something that one would be
looking forward to.
What is your outlook on
interest rates? Do you foresee
rates to fall or to remain at
elevated levels?
With an unlikely
possibility of any sharp
diesel price increases by the
government, infation would
remain contained within 7%
in FY14. This would mostly
translate into a 25 basis points
(bps) hike soon on the Repo
rate and a likely reversal by
Q1FY15. The risks to this
view are the eventual Fed-
taper and subsequent rupee
volatility. With monetary policy
normalisation, going ahead,
the yield curve would turn
relatively fatter and marginally
lower.
What is your view on the
rupee going ahead?
The risks for INR
depreciation and funding of
current account defcit (CAD)
has subsided a bit for now on
the back of defensive measures
taken by the RBI. Going
Q:
A:
Q:
A:
Tte--tte
forward, it is expected that
foreign currency non resident
(FCNR) (B) collections under
recently announced swap
window to be in range of USD
15-20 billion. This, along with
likely stability on the foreign
investments front, should
help provide a cushion to the
overall balance of payments
(BOP) position. The continuing
shutdown in United States
may also marginally sober
down market expectation on
impending tapering of QE3.
However, global risk aversion
and probable Fed action could
still lead to volatility in the INR/
USD.
Tell us something about
your stock-selection process.
How do you fnd ideas for
your funds?
The large-cap mandates
are run by more of a top-down
strategy, whereas the midcap
mandates are focused on a
bottom-up stock selection
strategy. Having said that,
we do try to blend the same
wherever possible. At a fund
house level, our research team
will try to build information
advantage over the street and
the competition. It would give
Q:
A:
the fund management a deep
insight into the investment
opportunities that are often
overlooked or ignored by sell-
side. A research team broadly
has three major roles:
1. Maintain continuous
updated information of the data
pertaining to all stocks
under coverage - Maintenance
research
2. Analyse new stocks for
investment - New research
3. Analyse data as and when
required by the Fund Manager
Specifc analysis
They play an active role in
supporting the fund managers
in attaining the objectives of
the funds. Analysts should
put forth their views to the
fund managers and attempt
to see that their ideas are
refected in the portfolio. It is
also expected of the analyst
to suggest over-weighting or
under-weighting of sectors &
stocks. At a personal level, I
strongly believe that a basket of
quality small midcaps would
provide signifcantly higher
returns to investors through
stronger earnings growth and
re-rating over the long term. So
Tte--tte
the strategy would be to build a
portfolio of midcap companies
that are well managed, under-
researched and available at
attractive valuations relative
to growth & markets. Over a
business cycle, one is able to
deliver out-performance by
identifying these early ideas
where upside could be huge.
What industry sectors are
you favouring currently and
why?
We are positive on rate
sensitive sectors such as
infrastructure, consumer
discretionary and fnancials on
a 1-2 year perspective; while for
near-term, software, pharma,
media, telecom and exporters
at large may still outperform.
We remain bearish on metals.
What should be the
investment approach of retail
investors at this point of time?
Equity as an asset class
will continue to outperform in
the long term. We believe that
investing into equities with a
12-24 months perspective is
always advisable.
Q:
A:
Q:
A:
Is there anything else you
would like to share with our
readers?
In short, lot of the negative
spiral that hit us has reversed
be it QE taper, currency moves,
CAD, capital fows, policy
paralysis and 10%+infation.
GDP and earnings growth
will bottom out sometime in
second half of FY14. Monsoons
and rural prosperity will
provide good bump up while
the export scenario seems
a lot better ahead. Political
uncertainty could abate post
the state elections which is an
upside risk. Valuations in many
pockets like rate sensitives and
midcaps are fairly attractive
as the market remains
polarized. The early phases
of any economic recovery
are interspersed with bouts
of volatility & lack of investor
confdence, resulting in lower
investor participation, as seen
now. Long term investors
should continue to deploy funds
through systematic investment
plans (SIPs) while new ones
should be encouraged to start
participation. Please consult
your investment advisor for
allocation between funds.
Q:
A:
Views presented/expressed in the interview are personal views of the author and do not necessarily
When young, have appetite for equity
ASK OUR PLANNER
I am 28 years old. I have
been trading in equity markets
mostly in margin / derivatives
segment for the past 2 years.
I would like to become an
investor now. I have planned
to diversify my investments
based on the following areas,
every month, and my strategy
is: If the market is going to get
a deep correction, then buy at
that time, and if the market
is in peak high, then sell it.
1) Nifty 50 stocks: ` 5,000;
2) Mid cap stocks: ` 1,000; 3)
Small-cap stocks: ` 500; 4)
Public Provident Fund (PPF):
` 10,000; 5) Life insurance:
` 1,500; and 6) Recurring
deposit: ` 5,000.
Is the above strategy good
or can I also think about my
Plan-B which is as below:
1) To invest in Infation
indexed and/or infra bonds;
2) To invest in Gold Exchange
Traded Fund (ETF) and equity
Q:
ETF; and 3) To invest in real
estate. Please advise.
- Ranjith Anbalagan
There are quite a few
contradictions in your
statements. You have said
that you will be investing the
mentioned amounts as per
the allocation and at the same
time you will time the market
and invest into equity. Out of
your past 2 years of trading
experience, you might have
realized that timing the market
is almost impossible - nobody
knows what will be the next
low / high point.
A disciplined investment
approach will help you
accumulate a desired corpus
for your long-term goals.
Rather than investing into
stocks directly for the small
amounts, its better to go for
mutual funds, which in turn,
A:
ASK OUR PLANNER
will help you diversify your
investments.
You have mentioned an
investible surplus of ` 23,000
p.m., out of which, only
` 6,500 p.m. i.e. less than
30%, is going towards equity.
For your age, you should be
looking to invest around 65%
to 70% into equity, if these
investments are to be utilized
for long-term goals.
Regarding your PPF
investment, you will be able
to invest only ` 8,333 p.m. and
not ` 10,000 p.m., since the
maximum permissible amount
of investment into PPF is only
` 1 lakh p.a.
Its not clear as to which type of
life insurance policy you want
to invest into. If you are looking
to cover the risk of death, then
you can go for a pure term
plan, where premium will be
much lesser.
Coming to your Plan-B: With
the quantum of investment
being ` 23,000 p.m.,
investments into real estate
remains out of the question.
Bonds are investments which
cannot be made on a monthly
basis and also depends on
when the issue comes up. It
may not be regular. You may
consider around 10% of the
amount towards Gold ETF in
your plan.
I am investing ` 5,000
p.m. in three mutual funds
from last year, ` 18,000 p.a.
in ICICI Pru (Sum assured
` 3.60 lakh) and ` 19,000 p.a.
in LIC (sum assured ` 5
lakh), but still worried about
my future. I'm 35 years old
and I have a daughter who
is 6 years old. Please guide
me for the betterment of my
daughter as well as myself
after retirement. How can I
invest with the annual amount
of ` 1 lakh?
- Dipendra Kumar
Q:
ASK OUR PLANNER
Your concern is a common
one among investors who
have just started investing /
not yet started investing for
their long-term goals. You have
to start investing more into
equity mutual funds (large-
cap / diversifed) towards your
goals.
You have to look beyond
the tax exemption limit of
` 1 lakh for investing for your
goals. It would be better if you
consult a fnancial planner
to make your fnancial plan,
even if that means shelling out
some money towards the fee
for same. This will help you
give a clear picture of your
fnancial future, taking into
consideration your existing
and future cash-fows and
fnd out what all goals can be
achieved and what needs to
be done to bridge the shortfall,
if any.
Making a customized fnancial
A:
plan will also give you the
much needed confdence in
meeting your long-term goals
and leading a peaceful life
ahead.
I have invested around
` 50 lakh into dynamic bond
funds of Kotak, Birla Sun Life
and IDBI, and short-term fund
of Franklin Templeton last year
and got good returns (approx
11%) till June 2013, but now
capital has depreciated and I
am in a fx if I should continue
or shift this investment to
non-convertible debentures
(NCDs) like IIFL after booking
loss of about more than ` 1.5
lakh. Please advise if I need to
continue with investment or
should I shift this investment
as my target earning from this
investment is about ` 4.5 lakh
for the year 2013-14.
- Sanjeev Battish
When interest rates were
falling gradually for most part
Q:
A:
Do you also have similar queries to ask our experts?
You may write to us at: moneymanager@icicisecurities.com.
ASK OUR PLANNER
of the last 12 months, you
would have earned some good
returns. However, now with
the central bank increasing the
rates, and infation not coming
down, its hard to predict if the
interest rates will come down
again very soon. This may take
some time.
It would be prudent to move at
least part of your investments,
if not all, into other instruments,
if you are looking to generate a
post-tax return of 9% p.a.
If you are looking only at fxed-
income instruments, then there
are quite a few issues of bonds
and NCDs coming up, some
of which are offering interest
rates in the range of 10% to
11.50% p.a. (pre-tax). Please
go through the prospectus
of any issue, including credit
rating, before you take the fnal
decision. And, do not put all
the money into only one issue.
I am new to MF
investments and want to
invest in mutual funds. I
am targeting a short-term
fund to park my money for
various contingencies, and
also planning one equity fund
and one balanced fund. Need
your suggestion on which
MF should I buy for above
categories.
- Raghuveer Shidore
You may refer to the list
of our recommended mutual
funds on our website www.
icicidirect.com. Go to home
page > Do Your Research >
Mutual Funds. There youll fnd
the list of our recommended
funds across various
categories, which may help
you choose the funds for your
portfolio.
Q:
A:
Planning is the key
YOUR FINANCIAL HEALTH CHECK
Archanas annual income:
` 9,00,000
Annual expenses:
` 4,08,000
ANNUAL EXPENSES BREAK-UP
Household ` 1,80,000
Travel & vacation ` 1,20,000
Entertainment ` 60,000
Medical ` 24,000
Miscellaneous ` 24,000
Total ` 4,08,000
INVESTMENTS (ANNUAL)
Fixed deposits (FDs) ` 2,00,000
PPF ` 50,000
Total ` 2,50,000
Annual cash outfow
(Annual expenses + Annual
investments):
` 4,08,000 + ` 2,50,000
= ` 6,58,000
Annual investible surplus
(Annual Income - Annual cash
outfow):
` 9,00,000 - ` 6,58,000
= ` 2,42,000
Archana Gupta (28), a software engineer
by profession, stays in Bangalore with her
parents. Archana has been working for
the past 6 years and has built up some
savings for the future. However, all her
savings are parked into fxed-deposits
(FDs) and Public Provident Fund (PPF) account. She wants to
know an ideal plan for investments to help her reach her goals.
Here we analyze Archanas fnances and suggest a suitable way
forward
GOALS PLANNING
Archana is a conservative
investor by nature, with 80%
of her investments into debt.
Shes averse to investing into
equity due to volatile nature
of markets and also lack of
proper knowledge. However,
she is interested to know how
best she can invest in equity to
meet her goals.
Planning for marriage (2015):
Archana plans to tie a knot
NETWORTH
Assets Amount Liabilities Amount
Vehicle ` 4,00,000 No liabilities at
present
` 0
Investments into FDs ` 10,00,000
Savings bank account
balance
` 3,00,000
PPF accumulation ` 2,00,000
Total ` 19,00,000 Total ` 0
Net-worth (Assets Liabilities) `19,00,000
GOALS
Marriage (2015, infation 8%) Contingency fund (2018,
infation 8%)
Current value: ` 10,00,000 Current value: ` 15,00,000
Future value: ` 11,66,400 Future value: ` 22,03,992
Current Asset Allocation Recommended Asset
Allocation
Equity 0% Equity 30%
Debt 80% Debt & others 60%
Cash 20% Cash 10%
within next 2 years. She wants
to contribute at least ` 10 lakh
(in present value) from her own
pocket towards her marriage
expenses. The future value of
her contribution will be around
` 11,66,400, considering an
infation rate of 8%.
To build this corpus, she needs
to save and invest ` 46,642 a
month. As this is a short-term
goal, Archana should consider
investing in debt for same.
Building a contingency fund
(2018): Archana wants to
create a contingency fund
worth ` 15 lakh in todays
value. She wants to build this
fund because she is planning
to take a break from work
and wants to ensure that
she has enough funds to live
fnancially independent during
this period.
To meet this goal, she needs
to save and invest ` 28,560
a month. As the tenure is
little longer, she can consider
equities and invest through
systematic investment plan
(SIP).
RETIREMENT
Planning for retirement
is not yet on the list of
Archanas fnancial goals. It is
recommended that she starts
planning for her golden years
since she wants to continue
working after a planned break.
She should set aside a part
of her income and invest the
same through SIP.
INSURANCE AND
PROTECTION
Life: Archana does not life
insurance currently. She
should consider buying a pure
term plan to cover the risk of
life.
Medical: Archana is covered
by an employer provided
medical insurance currently.
But, as shes planning to take
a break from work, she should
have a separate medical cover.
She can consider buying
a family foater policy and
should renew it regularly.
CONCLUDING REMARKS
In order to remain fnancially
ft, Archana should consider
the following:
1. Identify and prioritize goals
- short-term as well as
long-term
2. Get suffcient life and
medical cover
3. Maintain an emergency
fund of about 5-6 months
of expenses in liquid assets
4. Start investing
systematically for long-
term goals
5. Prioritize and plan for
retirement
PRIMER
Understanding GDP
When stock markets show their continuous movements,
there are talks of different macro-economic factors that
affect them. How does it affect you as an investor? In our
new series Understanding Macroeconomic Indicators, well
demystify some of the important indicators that can have
a bearing on your investments. In this edition, we explain
Gross Domestic Product (GDP).
Gross Domestic Product (GDP) of a nation is the sum of the value
of all the goods and services produced in that country in a given
year. It is arrived at by adding consumption, gross investments,
government expenditure/spending and net exports (exports
minus imports).
GDP = Consumption (C) + Gross Investment (I) + Government
expenditure (G) + [Exports (X) imports (M)]
In short, GDP = C + I + G + (X M)
According to the World Bank
data, Indias GDP stands
at USD 1.842 trillion (as on
2012).
GDP is a number that stands
as a good measure of the
economic activity taking place
in a country. If the rate of growth
of GDP is positive, it speaks
of the increasing economic
activities in an economy. If
there is negative growth in
GDP, it is a warning signal,
capturing fall in economic
activities in an economy. Other
things remaining the same,
analysts prefer high GDP
growth economies over low
GDP growth economies.
The rise in overall economic
activities is best exploited by
the organized sector - read
PRIMER
large corporates. They have
the necessary skill sets and
access to resources to build
on the growth momentum.
No wonder, across the globe,
analysts have observed
positive correlation between
the nominal GDP growth and
companies profts. The extent
of beneft the companies
derive from overall growth
momentum has to be more
than the extent of benefts the
small production units derive,
all thanks to the organized and
professional manner in which
the business is conducted.
This makes it obvious for
the investing community to
chase equity assets in an
economy that is experiencing
high GDP growth. If you can
simply remain invested in an
economy where the expected
GDP growth is very high,
you have fair chances to
emerge winner as the growth
expectations materialize over
a period of time.
Indias GDP growth
(annual %)
Year Rate (%)
2003 7.94
2004 7.85
2005 9.28
2006 9.26
2007 9.80
2008 3.89
2009 8.48
2010 10.55
2011 6.33
2012 3.24
(Source: The World Bank)
MUTUAL FUND ANALYSIS
Key Information
NAV as on September 30,
2013 (`)
117.6
Inception Date October 31, 2002
Fund Manager Sankaran Naren
Minimum Investment (`)
Lumpsum 5000
SIP 1000
Expense Ratio(%) 2.11
Exit Load 1% on or before
12M, Nil after 12M
Benchmark CNX Nifty Index
Last declared Quarterly
AAUM(` cr) 3443
This product is suitable for investors who are
seeking*:
l long term capital appreciation
l A fund that invests in mid and smal stocks
l high risk (BROWN)
Category: Equity Diversifed
Funds
ICICI Prudential Dynamic
Plan
Fund objective
To generate capital
appreciation by actively
investing in equity and
equity related securities and
for defensive consideration
in debt/money market
instruments and derivatives.
Fund Management:
Fund Manager Sanakarn Naren
has rich experience of around
23 years in almost all spectrums
of the fnancial services industry
ranging from investment
banking, fund management,
equity research and stock
broking operations. He is the
Chief Investment Offcer (CIO)
Equity at ICICI Prudential Asset
Management Company (AMC).
Performance:
The fund performance can be
attributed to its agility to limit the
downside via cash calls/hedging
stock positions, etc., In 2008,
when the CNX Nifty saw a fall of
52%, the fund managed to limit
the downside for its investors to
45% as it had gradually booked
proft and scaled down equity
allocation to 71-73% in the later
half of 2008. The fund has not just
emerged as a steady performer
in market downturns but also
managed to deliver above
average returns during rallies.
The fund, as on September
30, 2013 has delivered 13%
compounded annualised
return for a period of fve years
as against 7% compounded
annualised return delivered by
the benchmark CNX Nifty Index
for the same period. The fund has
been a steady performer.
Calendar Year-wise Performance
2012 2011 2010 2009 2008
NAV as on
Dec 31 (`)
116.1 88.9 111.6 92.0 51.2
Return(%) 30.6 -20.3 21.3 79.9 -44.8
Benchmark(%) 27.7 -24.6 18.0 75.8 -51.8
Net Assets(` Cr) 3953 3962 2785 1822 1083
Last three Year Performance
Fund Name
30-Sep-12 30-Sep-11 30-Sep-10
30-Sep-13 30-Sep-12 30-Sep-11
Scheme 5.53 16.33 -11.73
Benchmark 0.56 15.38 -18.02
Portfolio:
Asset allocation of the fund is
determined based on market
valuations. The fund manager has
the discretion to take aggressive
or defensive asset calls, based
on market conditions. Therefore,
the equity allocation fuctuates
between 70% and 90%
depending on the broader market
scenario. Currently, allocation is
closer to 90% indicating the fund
manager has a bullish view on
equities.
This fund adopts a "bottom-up"
fundamental analysis strategy
across market capitalisations
for picking its investments. The
fund manager, especially for his
midcap holdings in the fund,
follows a buy and hold strategy
without much churn. For stocks
available in the future & options
(F&O) category, the fund manger
does not shy away from hedging
the exposure, thereby limiting the
interim downside.
Overall, this fund is best suited
in a volatile environment where
profts in equities are booked at
rich valuation and the downside
is limited via hedging and cash
calls.
Top 10 Holdings Asset Type %
Infosys Ltd. Domestic Equities 6.8
Cairn India Ltd. Domestic Equities 6.1
NMDC Ltd Domestic Equities 5.5
Standard Chartered
PLC
Domestic Equities 4.9
Bharti Airtel Ltd. Domestic Equities 4.8
HDFC Bank Ltd. Domestic Equities 4.7
ICICI Bank Ltd. Domestic Equities 4.0
Tech Mahindra Ltd. Domestic Equities 3.1
Tata
Communications Ltd
Corporate Debt 2.5
Dr. Reddy's
Laboratories
Data and portfolio details are as on September 30, 2013
Source: Accord Fintech, ICICIdirect Research
Whats in %
Wipro Ltd. 0.5
Whats out %
Lupin Ltd. 0.3
Larsen & Toubro Ltd. 0.03
Axis Bank Ltd. 4.1
Asset Allocation
Equity 89.5
Debt 7.2
Cash 3.3
Top 10 Sectors Asset Type %
IT - Software Domestic Equities 15.2
Bank - Private Domestic Equities 13.6
Mining & Minerals Domestic Equities 9.2
Telecommuni-
cation - Service
Provider
Pharmaceuticals &
Drugs
Oil Exploration Domestic Equities 6.8
Bank - Public Domestic Equities 4.5
Diversifed Domestic Equities 4.0
Refneries Domestic Equities 2.9
Power Generation/
Distribution
Market Capitalisation (%)
Large 74.2
Mid 20.1
Small 4.3
Risk Parameters
Standard Deviation (%) 12.34
Beta 0.71
Sharpe ratio 0.00
R Squared 0.91
Alpha (%) 0.71
Portfolio Attributes
Total Stocks 67.0
Top 10 Holdings(%) 42.4
FundP/E Ratio 14.7
Benchmark P/E Ratio --
FundP/BV Ratio 2.4
Dividend History Date Dividend(%)
Nov-05-2012 22.83
Sep-02-2011 5
Feb-28-2011 10
Aug-23-2010 10
Feb-22-2010 12
Aug-24-2009 12
Performance of all the schemes managed by the fund managers
Fund Name 30-Sep-12
30-Sep-13
30-Sep-11
30-Sep-12
30-Sep-10
30-Sep-11
ICICI Pru US Bluechip Equity Fund(G) 42.71 -- --
S&P 500 16.72 -- --
ICICI Pru Dynamic Plan-Reg(G) 5.53 16.33 -11.73
CNX Nifty Index 0.56 15.38 -18.02
ICICI Pru Top 100 Fund-Reg(G) 5.05 21.51 -15.00
CNX Nifty Index 0.56 15.38 -18.02
*Investors should consult their financial advisors if in doubt about whether the product is suitable for them
Note : Risk is represented as:
(BLUE) Investors understand
that their principal will be at
low risk
(YELLOW) Investors understand
medium risk
(BROWN) Investors
understand that their
principal will be at high risk
Key Information
NAV as on September 30,
2013 (`)
236.1
Inception Date September 29,
1994
Fund Manager Anand
Radhakrishnan
Minimum Investment (`)
Lumpsum 5000
SIP 500
Expense Ratio(%) 2.29
Exit Load 1% on or before 1Y
Benchmark CNX 500 Index
Last declared Quarterly
AAUM(` cr) 1759
This product is suitable for investors who are
seeking*:
l long term capital appreciation
l A fund that invests in mid and small stocks
l high risk (BROWN)
Category: Equity Diversifed
Funds
Franklin India Prima Plus
Fund objective
A diversifed equity fund
that seeks to provide capital
appreciation by investing
in companies focused on
shareholder wealth creation.
It is an open ended growth
scheme with the objective of
providing growth of capital
plus regular dividends
through a diversifed portfolio
of equities, fxed income
securities and money market
instruments.
Fund Management:
The fund is managed by
veteran fund manager Aanand
Radhakrishnan who has been
responsible for turning around
the funds performance. Mr
Radhakrishnan has done a BTech
and PGDM from IIM, Ahmedabad
and is also a CFA. Prior to joining
Franklin Templeton AMC, he
has experience of eight years of
fund management at Sundaram
Asset Management Ltd and has
also worked with SBI Funds
Management for two years
as deputy manager, portfolio
manager of Asian Convertible and
income funds.
Franklin Templeton Worldwide
ranks among the best fund
managers across the globe.
They have a well defned
investment philosophy, which is
to be followed by each of their
fund managers. This reduces
the dependability of the fund
performance singularly on the
fund manager.
Performance:
Franklin India Prima Plus is
among the few mutual fund
schemes, which has survived
through various market cycles
and is now near completing 20
years of existence. The fund
has an impressive performance
history. Since its inception, the
fund has delivered commendable
18% compounded annualised
return (CAGR) even after bearing
the brunt of various equity market
corrections (1998 technology
bubble; 2008 fnancial crisis to
name a few).
The scheme has aptly achieved
its objective to provide growth
of capital plus regular dividends
as seen from returns and the
dividend history table. In the year
to date, the fund performance
has taken a hit. The fund has
been underweight on FMCG
stocks and technology stocks,
which can be the primary reason
for the underperformance.
However, the fund has proved
that there can be instances of
underperformance in the medium
term but the fund manager is able
to make up for all lost gains in
the longer term as seen from the
pretty impressive CAGR returns
since the inception of the fund.
Calendar Year-wise Performance
2012 2011 2010 2009 2008
NAV as on
Dec 31 (`)
252.3 192.6 230.4 192.8 111.4
Return(%) 31.0 -16.4 19.5 73.1 -47.7
Benchmark(%) 31.8 -27.2 14.1 88.6 -57.1
Net Assets(` Cr) 2142 1679 1842 1807 1090
Last three Year Performance
Fund Name
30-Sep-12 30-Sep-11 30-Sep-10
30-Sep-13 30-Sep-12 30-Sep-11
Scheme 0.38 13.49 -11.44
Benchmark -2.49 13.22 -19.22
Dividend History Date Dividend(%)
Feb-18-2013 30
Mar-05-2012 25
Feb-21-2011 30
Feb-22-2010 60
Feb-27-2009 25
Feb-15-2008 60
Portfolio:
The fund seeks to invest in
companies that generate a return
on capital in excess of their cost
of capital. Usually, these are
large-cap growth companies.
Midcap stocks are introduced
to boost the growth potential of
the portfolio. The fund manager
usually maintains a large cap
bias with allocation to largecap
stocks to the tune of 60-80% of
the portfolio.
Whats in %
Cipla Ltd. 0.9
Shree Cement Ltd. 0.8
Larsen & Toubro Ltd. 0.6
Whats out %
NMDC Ltd 0.6
Jindal Steel & Power Ltd. 0.5
Top 10 Holdings Asset Type %
Infosys Ltd. Domestic Equities 7.8
Bharti Airtel Ltd. Domestic Equities 7.2
Reliance Industries
Ltd.
Call Money Cash & Cash
Equivalents
5.0
Dr Reddys
Laboratories Ltd.
ICICI Bank Ltd. Domestic Equities 4.7
HDFC Bank Ltd. Domestic Equities 4.4
Grasim Industries
Ltd.
Torrent
Pharmaceuticals Ltd.
Cognizant
Technology Solutions
Corporation
Others 2.5
Top 10 Sectors Asset Type %
Bank - Private Domestic Equities 16.6
Pharmaceuticals &
Drugs
IT - Software Domestic Equities 10.1
Telecommunication
- Service Provider
Refneries Domestic Equities 6.6
Auto Ancillary Domestic Equities 4.1
Ratings Domestic Equities 4.0
Diversifed Domestic Equities 3.6
Power Generation/
Distribution
Oil Exploration Domestic Equities 2.4
Risk Parameters
Standard Deviation (%)
13.67
Beta
0.80
Sharpe ratio
-0.02
R Squared
0.95
Alpha (%)
3.44
Market Capitalisation (%)
Large 69.7
Mid 18.4
Small 4.4
Portfolio Attributes
Total Stocks 55.0
Top 10 Holdings(%) 45.5
Fund P/E Ratio 19.1
Benchmark P/E Ratio --
Fund P/BV Ratio 3.3
Asset Allocation
Equity 95.0
Debt 0.0
Cash 5.0
Data and portfolio details are as on September 30, 2013
Source: Accord Fintech, ICICIdirect Research
Performance of all the schemes managed by the fund manager
Fund Name 30-Sep-12
30-Sep-13
30-Sep-11
30-Sep-12
30-Sep-10
30-Sep-11
Franklin Infotech Fund(G) 27.62 13.75 -10.52
BSE IT 32.36 12.27 -11.30
FT India Life Stage FOFs-50s +FR(G) 6.26 9.74 2.83
Crisil Liquid Fund Index 8.54 8.69 7.77
FT India MIP(G) 5.24 9.94 3.08
Crisil MIP Blended Index 3.18 10.64 1.90
FT India Life Stage FOFs-50(G) 2.74 10.23 0.95
Crisil Composite Bond Fund Index 3.45 9.55 5.58
FT India Life Stage FOFs-40(G) 2.53 10.98 -0.75
CNX 500 Index -2.49 13.22 -19.22
Franklin Build India Fund(G) 1.48 16.37 -19.52
CNX 500 Index -2.49 13.22 -19.22
FT India Life Stage FOFs-30(G) 1.07 11.09 -2.45
CNX 500 Index -2.49 13.22 -19.22
FT India Dynamic PE Ratio FOFs(G) 0.38 10.77 -0.76
Crisil Balanced Fund Index 1.86 13.74 -10.04
Franklin India Prima Plus Fund(G) 0.38 13.49 -11.44
CNX 500 Index -2.49 13.22 -19.22
Franklin India Taxshield(G) 0.21 13.54 -7.91
CNX 500 Index -2.49 13.22 -19.22
FT India Life Stage FOFs-20(G) -0.41 11.95 -8.01
CNX 500 Index -2.49 13.22 -19.22
Franklin India Bluechip Fund(G) -0.61 12.28 -11.30
S&P BSE SENSEX 3.29 14.03 -18.01
Franklin India Opportunities Fund(G) -3.87 11.12 -17.19
S&P BSE 200 -1.11 13.77 -19.85
*Investors should consult their financial advisors if in doubt about whether the product is suitable for them
Note : Risk is represented as:
(BLUE) Investors understand
low risk
(YELLOW) Investors understand
medium risk
(BROWN) Investors
understand that their
principal will be at high risk
After a stellar performance of our both - the large-cap and
the mid-cap portfolio, we have recently churned our Equity
Model Portfolio. We have introduced a new set of 10 stocks,
which we feel have better return potential compared to the
underperformers/nonperformers of the prior portfolio. We also
have optimized weights in a few stocks/sectors (ITC, Coal India,
Sun Pharma, Lupin, Infosys, TCS and Bharti) to provide more
risk-return balance to the portfolio.
In terms of relative weightage to the sector vis--vis the Sensex,
we continue to remain overweight on pharma and telecom given
their earnings growth profle, receding regulatory overhang in
the latter, and have added overweight stance into the portfolio in
the media, retail sectors. We are underweight on power, capital
goods, oil & gas, FMCG and IT (though overweight on TCS vis-
-vis their weights in the index) as policy delays, political, legal
uncertainty continue to impact visibility while valuations remain
stretched in certain pockets. For other equal weight sectors we
are playing specifc themes like on auto (overweight on four-
wheelers and underweight on two-wheelers), BFSI, metals, infra
(underweight on metals, private sector banks and overweight
on mining, public sector banks, L&T) and have assigned equal
weights vis--vis index weights.
Our Equity Model Portfolio consists of the following three
portfolios:
Large cap portfolio (stable, consistent, low volatility)
Midcap portfolio (high growth, relatively more volatile)
Diversifed portfolio (blend of large and midcap portfolio)
On the basis of risk tolerance, return expectation and time
horizons, one can mimic any of the above three portfolios, which
we believe will cater to investors of all kind.
We have suggested the systematic investment plan (SIP) mode of
investment for long (and still maintain) as the preferred mode of
deployment given the market conditions and volatility associated
since the inception of the portfolio. It has outperformed for both
the large cap and midcap portfolio, thus, reinforcing our belief
in a plan of investment, which is prudent in such volatile times.
EQUITY MODEL PORTFOLIO
Name of the company Model Portfolio
Largecap
(%)
Midcap (%) Diversifed
(%)
Largecap Stocks
Auto 9.0 6.3
Maruti Suzuki 5.0 3.5
Tata Motors DVR 4.0 2.8
BFSI 22.0 15.4
HDFC 6.0 4.2
HDFC Bank 6.0 4.2
SBI 6.0 4.2
Axis Bank 4.0 2.8
Infrastructure 5.0 3.5
L & T 5.0 3.5
FMCG 13.0 9.1
Nestle 3.0 2.1
ITC 10.0 7.0
Metals & Mining 4.0 2.8
Coal India 2.0 1.4
Hindustan Zinc 2.0 1.4
Oil and Gas 11.0 7.7
ONGC 3.0 2.1
Reliance 8.0 5.6
Pharma 7.0 4.9
Lupin 3.0 2.1
Sun Pharma 4.0 2.8
IT 18.0 12.6
Infosys 6.0 4.2
TCS 8.0 5.6
Wipro 4.0 2.8
Telecom 4.0 2.8
Bharti Airtel 4.0 2.8
Media 4.0 2.8
Zee Entertainment 4.0 2.1
Retail 3.0 2.1
Titan 3.0
Total 100.0
Content source: ICICIdirect.com Research
Name of the company Model Portfolio
Largecap
(%)
Midcap (%) Diversifed
(%)
Midcap Stocks
Auto 6 6.0 6.0
Exide Ind. 6 6.0 6.0
IT 12 12.0 12.0
Info Edge 6 6.0 6.0
Eclerx 6 6.0 6.0
BFSI 16 16.0 16.0
J&K Bank 8 8.0 8.0
Yes Bank 8 8.0 8.0
FMCG 20 20.0 20.0
Kansai Nerolac 8 8.0 8.0
Dabur India 6 6.0 6.0
Tata Global Beverages 6 6.0 6.0
Pharma 16 16.0 16.0
Cadilla 8 8.0 8.0
Glenmark 8 8.0 8.0
Retail 6 6.0 6.0
Navneet Publications 6 6.0 6.0
Media 6 6.0 6.0
Sun TV 6 6.0 6.0
Capital Goods 6 6.0 6.0
Cummins 6 6.0 6.0
Realty/Infrasturcture 12 12.0 12.0
Container Corporation
of India 6 6.0 6.0
Oberoi Realty 6 6.0 6.0
Total 100.0 100 170
Investors who are wary of investing directly into equities can
still get returns almost as good as 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.
EQUITY MUTUAL FUNDS MODEL PORTFOLIO
Source: Crisil Fund Analyser, ICICIdirect Research;
Value as on September 30, 2013; Portfolio inception date: September 15, 2009
MUTUAL FUND MODEL PORTFOLIO
Value of ` 1 lakh investment in portfolio since inception
(Portfolios continue to outperform the BSE 100 index in their
4 years of existence)
Particulars Aggressive Moderate Conservative
Review Interval Monthly Monthly Quarterly
Risk Return High Risk- High
Return
Medium Risk
- Medium Return
Low Risk - Low
Return
Funds Allocation % Allocation

Franklin India Prima Plus 25 25 25
HDFC Top 200 25 25 25
ICICI Prudential Dynamic Plan - 25 25
ICICI Prudential Focussed
Bluechip Equity
25 - -
UTI Opportunites 25 25 25

Grand Total(a+b) 100 100 100
We have designed three different model portfolios for debt mutual funds 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.
Keeping in mind current market scenario, allocation in the 0-6 months portfolio
has been increased to 60% to ultra short term funds from 40% earlier. While
keeping in mind the tactical government securities (G-sec) opportunity, the
allocation to dynamic bond funds has been increased in the six months to one
year and one year and above portfolio. Based on the portfolios of individual
funds, we have introduced new funds in the portfolio and replaced pure income
funds with dynamic bonds funds.
Jump in the short term yields led to volatility in returns in CY13 YTD
DEBT FUNDS MODEL PORTFOLIO
*Index: 0-6 months portfolio Crisil Liquid Fund Index, ; 6 months-1 year Crisil Short term Index Above 1 year: Crisil Composite
Bond Index
Model portfolio performance: CY13 YTD (as on September 30, 2013); Source: Crisil Fund Analyser, ICICIdirect.com Research
MUTUAL FUND MODEL PORTFOLIO
Particulars Time Horizon
0 6 months 6 months - 1 Year Above 1 Year
Objective Liquidity Liquidity with
moderate return
Above FD
Review Interval Monthly Monthly Quarterly
Risk Return Very Low Risk -
Nominal Return
Medium Risk -
Medium Return
Low Risk - High
Return
Funds Allocation % Allocation
Ultra 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 Dynamic Bond 20
ICICI Prudential Short Term 20 -
HDFC High Interest STP 20 20 20
ICICI Prudential Regular Saving 20
Long Term/Dynamic Debt Funds
IDFC Dynamic Bond fund - 20 20
Reliance Dynamic Bond Fund - 20 20
SBI Dynamic Bond Fund - - 20
Total 100 100 100
1. In case of education loans, the tax deduction on interest paid is available
only for _______ fnancial years starting from the fnancial year you have
started paying interest.
2. You can get to know your credit score from CIBIL by paying ` _______.
You may also opt only for credit information report (CIR) at the cost of
` _______.
3. In case of home loan taken for a self-occupied property, you get tax
deduction on interest paid up to ` _______ under Section _______.
4. CIBIL credit score is known as _______.
5. You can claim deduction on interest paid only up to ` 1 lakh in case of
education loans. 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:
moneymanager@icicisecurities.com
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 September 2013 quiz are:
1. Tax deducted at source (TDS) is levied on corporate fxed deposits (FDs)
if the interest income exceeds ` _______ in one fnancial year.
A: ` 5,000
2. The government has recently allowed 13 entities to issue tax-free bonds
worth ` _______ for the current fscal.
A: ` 48,000 crores
3. If you want to buy an e-Policy, you need to open _______ account with an
insurance repository.
A: e-Insurance
4. The import duty on gold jewellery has been increased to _______ per cent
from _______ per cent.
A: 15% from 10%
5. Tax-free bonds can be bought and sold on the stock exchanges. True/
False.
A: True
Congratulations to the following winner for providing correct answers!
Dr. Saket M. Ghaisas
QUIZ TIME
INFLATION (FOOD)
(The fgures are in per cent)
CRUDE OIL
NYMEX crude oil prices ($/barrel)
FII & DII INVESTMENTS
(Foreign institutional investors (FIIs) and domestic institutional
investors (DII) net equity investment (` in crore)
MONTHLY TRENDS
VOLATILITY INDEX (VIX)
VIX is a key measure of market expectations of near term volatility.
When the markets are highly volatile, the VIX tends to rise.
DOMESTIC INDICES
BSE Sensex
NSE Nifty
MONTHLY TRENDS
4.08%
4.82%
GLOBAL INDICES
Dow Jones
NASDAQ
EXCHANGE RATES
USD-INR
POUND-INR
MONTHLY TRENDS
2.16%
5.06%
4.76%
0.61%
EURO-INR
BULLION
Gold
(The prices are in $ per ounce).
SILVER
(The prices are in $ per ounce).
(Source for all indicators: Bloomberg, Reuters)
MONTHLY TRENDS
2.58%
Premium Education Programmes Schedule
ICICIdirect Centre for Financial Learning (ICFL) imparts quality education on fnancial
markets to beginners and amateurs, student, housewives, working professionals and
self employed. ICFLs broad objective is to make participant feel confdent to start
investing in stock market.
Here is the list of our programmes scheduled for the month of October, 2013.
Schedule for Beginners Programme on Futures and Options Trading
Sr.
No
City Dates For More Information & Registration call:
1 Thane Oct 05 and 06, 2013 Manish on 8451057943
2 Navi Mumbai Oct 12 and 13, 2013 Manish on 8451057943
3 Mumbai-Andheri Oct 19 and 20, 2013 Vidhu on 9619716146
4 Hyderabad Oct 19 and 20, 2013 Subrata on 9620001478
5 Indore Oct 19 and 20, 2013 Yogesh on 8238053563
6 Chennai Oct 19 and 20, 2013 Vaisakh on 9962218201
8 Pune Oct 26 and 27, 2013 Kusmakar on 7875442311
Schedule for Fast Track Beginners Programme on Futures and Options Trading
Sr.
No
1 Kochi Oct 06, 2013 Subrata on 9620001478
2 Vadodara Oct 20, 2013 Yogesh on 8238053563
3 Jaipur Oct 20, 2013 Vishal on 07838290143
4 Ahmedabad Oct 27, 2013 Yogesh on 8238053563
5 Bhubaneshwar Oct 27, 2013 Sumit on 8017516187
6 Varanasi Oct 27, 2013 Vishal on 07838290143
Schedule for Foundation Programme on Stock Investing
Sr.
No
2 Bangalore Oct 05 and 06, 2013 Subrata on 9620001478
3 New Delhi Oct 05 and 06, 2013 Vishal on 07838290143, Harneet on 09582158693
7 Mumbai-Chembur Oct 12 and 13, 2013 Manish on 8451057943
11 Thane Oct 19 and 20, 2013 Manish on 8451057943
16 Noida Oct 19 and 20, 2013 Vishal on 07838290143
19 Navi Mumbai Oct 26 and 27, 2013 Manish on 8451057943
Schedule for Fast Track Foundation Programme on Stock Investing
Sr.
No
1 Ahmedabad Oct 13, 2013 Yogesh on 8238053563
2 Kochi Oct 19, 2013 Subrata on 9620001478
3 Dehradun Oct 20, 2013 Vishal on 07838290143
4 Ludhiana Oct 20, 2013 Harneet on 09582158693
5 Surat Oct 20, 2013 Yogesh on 8238053563
6 Rajahmundry Oct 27, 2013 Subrata on 9620001478
7 Agra Oct 27, 2013 Vishal on 07838290143
Schedule for Advanced Derivative Trading Strategies
Sr.
No
3 Nagpur Oct 19 and 20, 2013 Kusmakar on 7875442311
Schedule for Technical Analysis
Sr.
No
2 Lucknow Oct 19 and 20, 2013 Vishal on 07838290143
4 Mumbai-Chembur Oct 19 and 20, 2013 Manish on 8451057943
6 Chandigarh Oct 19 and 20, 2013 Harneet on 09582158693
Schedule for Fast Track Technical Analysis
Sr.
No
City Date For More Information & Registration, Call:
1 Ranchi Oct 06, 2013 Sumit on 8017516187
2 Ghaziabad Oct 27, 2013 Vishal on 07838290143
Contact us
Email:
Send us an email at learning@icicisecurities.com
Please 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
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