Market. Title. Outlook August 2018

Transcription

1 Market Title Outlook August 2018

2 2 SHUKRIYA

3 Kotak Balance Advantage Fund Success with Partnership Coming together is a beginning. Keeping together is progress. Working together is success. Let the FORCE be with YOU! Total Application 56,016 Number of Unique Distributors 3,293 Total Inflows Rs. 1,905 cr 3 Disclaimer: The numbers are provisional and are subject to change

4 Equity Title Markets

5 5 Tug of War between Macro and Micro Macro- Challenging Micro- Improving Macro challenges Oil Prices Trade wars US bond yields Domestic growth Corporate earnings

6 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun Jun 6-Jul 13-Jul 20-Jul 27-Jul Per barrel Although Some Cool Down In July Was Seen Brent Crude (USD) as on 31 st July 2018, Source: Bloomberg

7 Crude Oil Imports From Iran Are Under US Pressure - Pushing Up Prices Average monthly imports, in barrels a day, June 2017-June Source: Vortexa

8 Rising US-China Trade Tensions Will Weigh On Growth GDP level, cumulative % from baseline US imposes 25% traffics on $50 billion of imports & then an additional 10% on $200 billion of imports from China, and China retaliates in kind. 8

9 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Dollar (DXY) Takes A Breather In July 105 US Dollar Index As on 31st July 2018, Source : Bloomberg

10 EM Currencies have suffered more than during 2013 taper tantrums INR Has Done Significantly Better This Time Around, Reflecting Improved Macro Fundamentals 10 Source: Gavekal Data/Macrobond

11 11 On the other hand.

12 India s Contribution To Global Growth Is Higher Than EU s 12 % of EST. Global Growth ( ) in real GDP, Source: Internal research

13 India Pips France To Become World s 6th Largest Economy.. 10 Years Ago, India s GDP Was Half Of France s GDP And Now Within Striking Distance To Overtake UK FRANCE MAY BE IN WORLD CUP FINAL BUT INDIA BEATS IT AS WORLD S 6 TH LARGEST ECONOMY 13 Source: Economic Times

14 14 Make In India Gaining Some Traction. Samsung India Puts Noida On Top With World's Largest Mobile Factory Location Noida, India New Plant Size 129,000 sq metres Operational Since 1995 Capacity 68 Lakh phones a year After expansion 1.2 crore phones a year Investment Rs 4915 cr

15 Domestic Consumer Demand Is Strong 15 Source: CLSA, ET

16 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Passenger Vehicle Sales And Commercial Vehicle Growth Remains Robust 40% Passenger Vehicles 38% 100% Commercial Vehicle 30% 20% Monthly Vol 3MMA 20% 80% 60% 40% Monthly Vol 3MMA 51% 10% 20% 42% 0% 0% -20% -10% -40% -20% -60% MMA: Monthly Moving Average 16 Source: CEIC, Macquarie Macro Strategy, June 2018

17 Maruti Suzuki s 2 Crore Make -in- India Cars Last 50 Lakh In Just 3 Years And They Still Don t Seem To Stop! 17 Maruti Suzuki's Growth and the vehicles that drove it! Source: Economic Times

18 Air Passenger Traffic Growth Remains Robust Trend In Air Passenger Traffic 18 Source: CEIC, Macquarie Macro Strategy, June 2018

19 In millions 19 Foreign Tourist Arrivals In India An Important Sector With A Multiplier Effect Is Showing Robust Growth YoY % Growth Few years ago, Louvre Museum In Paris got more visitors than whole of India. Now India gets more tourists than Louvre. At this pace after few years Incredible India should reach to its fair share in Global Tourism

20 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Rail Freight And Cement Growth Is Improving (5) Trend In Rail Freight Goods Traffic on Railw ays Y-o-Y % Goods Traffic on Railw ays - 3MMA Trend In Core Industries Jun-17 Jun-18 Infrastructure Industries Index 1.0% 6.7% Coal -6.7% 11.5% Crude Oil 0.6% -3.4% Natural gas 6.4% -2.7% Petroleum Refinery Products -0.2% 12.0% Fertilizers -2.7% 1.0% Steel 6.0% 4.4% Cement -3.3% 13.2% Electricity 2.2% 4.0% 20 Source: CEIC, Macquarie Macro Strategy, July 2018

21 Toilet : Ek Maha Katha 30 No Of Toilets Constructed (M) FY15 FY16 FY17 FY18 21 Source: sbm.gov

22 (mn) Rural Housing- Bante Ghar Ki Kahani Completions under PMAY Rural program FY15 FY16 FY17 FY18 22 Source: CLSA

23 Road Construction in Full Swing 14,000 12,000 10,000 8,000 Total Highway Construction (Kms) 8,016 10,859 12,900 6,000 5,911 4,000 2,000 - FY15 FY16 FY17 FY18 23 Source: NHAI, MoRTH

24 Rural Road Construction Road Construction under PMGSY (kms) ,447 48, ,061 35, FY15 FY16 FY17 FY18 24 Source: PMGSY

25 Cement: Strong Demand 300 Cement Demand (in MT) FY14 FY15 FY16 FY17 FY18 25 Source: Ultratech

26 26 Construct In India

27 Housing for all More than 4x in last 5 years House constructed under various central government schemes ( 000 houses) 27 Source: Ministry of Rural Development

28 High Frequency Indicators Point To Strength In Domestic Growth 28 Source: IHS, Macquarie Macro Strategy, June 2018

29 Uptick In Credit And Deposit Growth Indicates Rise In Savings And Investments 29 Source: CEIC, Macquarie Macro Strategy, July 2018

30 Hiring Trend in Domestic Demand Driven Sectors is High Hiring Activity sees 9% rise in June 2018 as compared to June 2017 figures are percentage change in June-18 over average of June Source: Naukri JobSpeak Report

31 CGST and SGST June Collections Inline With Trend. Monthly trends in GST collections (Rs Bn) GST Collection (basis underlying month for which the tax is collected 31 Source: CLSA, Ministry of Finance

32 Large MSP Hikes Come Through MSP Hike Equal To Nearly Last Three Years Of Hikes 14 Trend in paddy (rice) minimum support price FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 E MSP hike will provide an income boost which will increase the rural demand 32 Source: CLSA, Ministry of Agriculture and Farmers Welfare

33 Early Signs Of Capex Recovery? Corporate Confidence Is Back, Capex to Follow Corporate capacity 33 Source: Alpha, Morgan Stanley Research

34 Government Savings Resulting From Usage Of Aadhaar Transfers through DBT platform for key scheme (INR bn) Savings already at US$13bn Just on the Government side Total cost of implementing Aadhaar US$1.4bn 34 Source: dbt.gov.in

35 35 Key Factors To Watch Out For Monsoon FY19 Earnings Pick up in rural activity General election 2019

36 Monsoon Update 36 Source: India Meteorological Department

37 Headline Performance (54/100 of BSE-100) vs. Estimates 37 Source: Bloomberg, Company Data, Citi Research

38 21% Earnings Growth In FY19 Would Be A Major Acceleration Over The Past Several Years 38 Source: CLSA, Bloomberg

39 39 Market Performance

40 Few Winners In Last One Year IT 35 % FMCG 20.3 % Energy 18.2 % NIFTY Index 12.3 % NSE Midcap 2 % NSE Small cap (4.6 %) Real Estate 3.6 % Private Bank 11.9 % PSU Bank (13.2 %) Media ( 9 % ) Infra ( 7.3 % ) Pharma ( 3.6 % ) Auto (1.8 % ) Commodities ( 0.8 % ) 40 Source : Internal Calculation as on July 31,2018

41 Many Loser's In Last One Year 41 Source : Internal Calculation as on July 31,2018

42 In percent Performance Across Market Cap - Midcaps and Smallcaps corrected sharply during month Nifty Nifty Midcap S&P BSE Smallcap 1m returns 1y returns 3 yr CAGR 5 yr CAGR 10 yr CAGR 42 *As on 31 July 2018, Source: Bloomberg, Past Performance may or may not sustain in the future

43 Most Global Markets Had Strong Showing In The Last 1 Year Brazil (IBOV) Swiss (SMI) India (Nifty) Malaysia (KLCI - FTSE) US (Dow Jones) Germany (DAX) EURO (Euro Stoxx 50) France (CACS 40) Indonesia (JCI) Taiwan (TSWE) Singapore (Straits) UK (FTSE 100) Japan (Nikkei 225) Russia (IMOEX) China (HSCEI) HK (HSI) Korea (Kospi) (4.5) (0.3) (0.4) (1.3) (1.3) M Yr (20) (10) * As on 31 July2018, Source: Bloomberg. Performance data in local currency

44 44 Valuations

45 Indian Markets Higher Than Most Peers On Valuation P/E Multiple CY18/FY19 of Indices US (Nasdaq) India (Sensex) Malaysia (KLCI - FTSE) US (Dow Jones) Japan (Nikkei 225) Thailand (SET) UK (FTSE 100) Singapore (Straits) Brazil (IBOV) HK (HSI) Korea (Kospi) China (HSCEI) (x) Source: Internal Estimates, Bloomberg * For India & Japan Fiscal year is FY19 while others it is CY18

46 Domestic Flows Into Equities Remain Stable Equity buying by domestic investors supporting markets Net Investments by FIIs, DIIs and MFs in the Cash Market (US$ mn) FIIs net sellers CYTD DIIs net buyers CYTD 46 Notes: (a) DII -Domestic Institutional Investors (Includes Bank, DFIs, Insurance, New Pension Scheme and MF). Source: Bloomberg, Kotak Institutional Equities

47 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Midcap Valuations Declining As Market Corrects 25 Nifty NSE Midcap Source: Kotak Institutional Equities

48 Jul-15 Jul-15 Aug-15 Sep-15 Nov-15 Dec- 15 Jan-16 Feb-16 Mar- 16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec- 16 Jan-17 Feb-17 Mar- 17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec- 17 Jan-18 Feb-18 Mar- 18 Apr-18 May-18 Jun-18 Jul-18 Jul-91 Jul-92 Jul-93 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul Sensex Above Fair Range 12-month forward Sensex P/B (x) India s Market Cap to GDP (%) Sensex P/B (x) - LHS Average of 78% for the period month forward Sensex P/E (x) Stretched 20x - 24x Fair Value Plus 17x - 20x Fair 13x - 17x Attractive 10x - 13x Cheap 8x - 10x Source : Internal Calculation

49 Buffet Indicator is Fair Source : Bloomberg

50 Market Snapshot Dec-07 Jul-18 Dec-07 Jul-18 Macro Indicators 10-Yrear Govt Bond Yield Credit Growth (Jun-18) 22.0% 12.8% India 7.8% 7.8% ROE Nifty % 13.8% USA 4.0% 3.0% Net FII Flows (12M - Rs. Cr) 71,952-10,447 Japan 1.5% 0.1% IIP - May % 3.2% Europe 4.3% 0.4% GDP Growth (Jan - Mar 18) 9.6% 7.6% China 4.5% 3.5% Ease of Doing Business Ranking India Forex Reserves (Bn USD) India Per capita (USD) Dec-07 Jul-18 Dec-07 Jul-18 Valuations Returns of Nifty 50 (CAGR) Trailing P/E Nifty Last 1 Yr Return 54.8% 12.7% Trailing P/B Nifty Last 2 Yr Return 47.1% 15.4% Last 3 Yr Return 43.4% 10.0% 50 Source: Bloomberg, Axis Capital

51 51 While Valuations Not Cheap, Patience To Be Key As We Await For Earnings To Pick Up Further While equities may still be out-performing other alternate asset classes, moderate return expectations Corporate earnings, especially of domestic oriented companies showing improving trend Use intermittent volatility to increase equity exposure

52 Key Variables & Their Impact On Equities Key Variables Short - term Economy Medium term Remarks GST to impact near-term activity especially informal segment Corporate Earnings Improving operating leverage, falling interest costs and improvement in working capital can accelerate earnings, but a bit back-ended. Key is improvement in capacity utilisation FII Flow India stands out among global asset classes with prospects of strong long term growth. DII Flow Focus on improving financial savings of households Supply of paper Higher disinvestment target and repair of leveraged balance sheet to create supply in markets. Policy/Reform Initiative Election heavy year can dampen near term outlook for meaningful reform 52 Signify Growth

53 Equity Investing Risk is in How we Perceive It 53 Source: Bloomberg. Data: Sensex

54 54 Strategy For Investments In The Current Scenario 1- Kumbhkaran (Invest & forget) Or 2- Asset Allocation

55 Kotak Balanced Advantage Fund An All Weather Fund That Gives You Freedom From Managing Equity & Debt Allocation Manually Be it a first time investor, a market timer or a long term investor, here is a fund that can help meet everyone s need 55 Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

56 Key Recommendations Key theme Dynamic Equity Allocation Freedom from managing equity debt allocation manually Large Cap play on buying sectoral leaders that benefit from improving investment climate Balance of IQ and EQ Diversified/Multicap focus on sectors that are likely to benefit the most across market cap Multicap Large and Midcap Infrastructure revival True-to-label fund recent thrust of government to revive the infrastructure theme Through SIP in Midcap oriented scheme ELSS Equity allocation with ability to reduce tax outgo Balanced benefit from equity & debt allocation Remarks Kotak Balance Advantage Fund (KBAF) Kotak Bluechip Fund (Erstwhile Kotak 50) Kotak India EQ Contra Fund (Erstwhile Kotak Classic Equity) Kotak Standard Multicap Fund (Erstwhile Kotak Select Focus) Kotak Equity Opportunities Fund (Erstwhile Kotak Opportunities Fund) Kotak Infrastructure & Economic Reforms Fund Kotak Emerging Equities Fund Kotak Tax Saver Fund Kotak Equity Hybrid Fund (Erstwhile Kotak Balanced Fund) 56 We recommend investors to invest through SIP with a 5 years horizon.

57 Market Title Outlook August 2018

58 DEBT Title

59 How July 2018 Unfolded MPC hikes repo rate by 25 basis points to 6.50%, keeps stance neutral CPI rises to 5.0% in June 2018, lower than market expectation Bond market Yields Soften on drop in Brent crude price and on CPI data Brent Crude declined ~8% in the July monthly, largest monthly decline in 2 years RBI Hikes CPI Rises Yield Soften Brent Crude Drops Trade Deficit widened to over five-year high of $16.6 billion compared to $14.62 billion in May PMI, rose to 53.1 in June from 51.2 in May, at the strongest pace in 2018 Second-quarter GDP jumps 4.1% for best pace in nearly four years The Chinese economy advanced 6.7 % YOY in June. China's industrial production rose by 6 % YOY in June Trade deficit widened Manufacturing improved US GDP Jumps Chinese Economy Advanced 59 Data as of 1 st August 2018, Source: News Media

60 2-Jul 3-Jul 4-Jul 5-Jul 6-Jul 7-Jul 8-Jul 9-Jul 10-Jul 11-Jul 12-Jul 13-Jul 14-Jul 15-Jul 16-Jul 17-Jul 18-Jul 19-Jul 20-Jul 21-Jul 22-Jul 23-Jul 24-Jul 25-Jul 26-Jul 27-Jul 28-Jul 29-Jul 30-Jul 31-Jul 10 year Gilt Yield For the Month of July year Gilt Yield (%) Lower Crude Prices Lower CPI than market expectation Source: Bloomberg, Data as of 31 st July 2018

61 bps Yield Curve (M-o-m Analysis) Update Chart INR India Sovereign Curve Last Mid YTM (Current) I180 INR India Sovereign Curve 07/01/18 Mid YTM 3M 6M 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 13Y 16Y 26Y 35Y 40Y YTM (M-o-M Change) M 6M 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 13Y 16Y 26Y 35Y 40Y The yield curve has somewhat stabalised from a sharp upward move. We believe the best value is available in 5-7 yr curve on risk reward basis. 61 Source: Bloomberg

62 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 CPI Inflation: Expected to have Peaked for near term 12% 10% 8% 6% 4% 2% 0% CPI Core CPI 6.4% 5.0% The CPI inflation increased to a five-month high 5.0% in June 2018 (+1.5% in June2017) from 4.9% in May2018 (+2.2% in May2017). The core-cpi inflation rose to a 47-month high 6.4% in June 2018 from 6.2% in May On an MoM basis, the core-cpi sub-index rose by 0.2% in June 2018, while it had remained unchanged in June Notably, the wedge between headline and core-cpi inflation widened to 145 bps in June 2018 from 136 bps in May The urban CPI inflation increased to a five-month high 4.8% in June 2018 from 4.7% in May 2018 The rural CPI inflation rose to a five-month high 5.0% in June 2018 from 4.9% in May Source: MOSPI, ICRA

63 63 Factors Impacting the Markets

64 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 From Liquidity Surplus to Liquidity Neutral 6000 Total Liquidity (400.70) Total Liquidity in INR bn RBI has managed to keep overnight rate close to the repo rate. As the liquidity in the system reduces due to the increase in the Currency in Circulation, RBI may start conducting Open market operations, possibly in Q2, as against Q3 & Q4 of FY Source: RBI

65 Dec-17 Dec-17 Jan-18 Jan-18 Jan-18 Jan-18 Feb-18 Feb-18 Feb-18 Feb-18 Mar-18 Mar-18 Mar-18 Mar-18 Mar-18 Apr-18 Apr-18 Apr-18 Apr-18 May-18 May-18 May-18 May-18 May-18 Jun-18 Jun-18 Jun-18 Jun-18 Jul-18 Jul-18 Jul-18 In Lakh Crores Sharp Increase In Currency In Circulation Adding To Structural Liquidity Shortage, OMO Needed Source: Bloomberg. In Rs Lakh Crores

66 In Lakh Crore % Credit Growth Slowly Picking Up Credit Growth (Weekly Data) Current Credit/ Deposit Ratio is ~75.4% (RHS) Commercial Credit by Banks = Rs lakh Crore (LHS) Credit growth has picked up by 10-12% as compared to last year Source: Bloomberg, Data as on 31 st July 2018

67 Uptick In Credit Quality 12 Months Rolling Credit Ratio And Debt-weighted Credit Ratio* Credit Ratio and debt-weighting credit ratio, continue to remain above 1 time on a rolling 12 months basis 67 *Credit ratio is the ratio of upgrades to downgrades recorded during a period. Debt-weighted credit ratio is the ratio of total debt on the balance sheets of firms upgraded versus firms downgraded, excludes financial sector players. Source: CRISIL rating report

68 68 Yields & Its Metrics

69 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 % Axis Title Spreads Between 10 Year & Repo -10 year bond yield spread over repo similar to the 2013 rate hike cycle year bond yield spread over repo similar to the 2013 rate hike cycle 10 Yr Gilt (LHS) Repo (LHS) Spread (RHS) Source: Bloomberg, Citi Research

70 % Positive Real Interest Rates to Stimulate Financial Savings Jul-18 Mar-18 Nov-17 Jul-17 Mar-17 Nov-16 Jul-16 Mar-16 Nov-15 Jul-15 Mar-15 Nov-14 Jul-14 Mar-14 Nov-13 Jul-13 Mar-13 Nov-12 Jul-12 Mar-12 Earlier, negative real rates fueled inflation in physical assets as people chased assets such as real estate and gold till This can lead to healthy banks deposits and therefore lending to the formal sector 70 Note: Monthly 10 year Gilt Yield taken as average of their respective month. July 2018 CPI is assumed to be same as June-18 and Real Interest rate is calculated. Source: Bloomberg

71 % Inflation Adjusted Yields In India Is Attractive India-US CPI Spread India-US Gilt Spread Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 Narrowing CPI spreads and widening bond spreads make Indian fixed income attractive therefore risk of sharp outflow due to rates differential is unlikely 71 Note: 10 year Gilt Yield taken as average of their respective month. Data as of July 2018 (July 2018 CPI is assumed to be same as June Source: Bloomberg

72 Global Bond Yields Year Gilt of Selected Countries US 10 Year UK 10 Year Germany 10 Year Japan 10 Year 0 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul The Risk off sentiment was triggered due to political uncertainty in Italy leading to sharp rise in the Italy bond yields. 72 Data as of 30 th July Source: Bloomberg

73 Key Variables & Their Impact On Interest Rates In 2018 Key Variables Short term (3-6 month) Medium term (6month 2 years) Inflation Rupee Credit Demand Government Borrowing RBI Policy Global Event Risk Corporate bond Spread Debt FII flow Liquidity 73 denotes fall in interest rates

74 Debt Outlook Long End RBI hiked repo rate by 25 bps in August month. The hike was largely to anchor inflationary expectation and stem Rupee depreciation. We believe that the CPI has peaked at 5% on headline and is expected to decline in the near term. Although this is subject to a normal monsoon and stability in brent crude prices. RBI continued the monthly trend of Rs cr OMO in July. This is likely to continue in August month as well. Present gilt levels provide a real interest rate spread of more than 200 bps from peak CPI levels. At these levels, the yields may be already discounting additional 1 to 2 rate hikes (if any). However the higher oil price and Rupee depreciation remains the key source of risk The 10 year bond has reached 7.70% post the rate hike and needs some large stimulus for a meaningful rally below %. From valuation stand point, the market is at fair levels and is largely a trading market 74

75 75 Debt Outlook Short End The short term yield curve was already steep given the uncertainty in the macro economic variable The extreme shorter end of the yield curve up to 3 months had moved up during last week of July 2018 on account of IPO related outflow and demand for funds We don t expect short term rates to react to 25 bps rate hike as its already in prices We expect short term rates up to 2 yr, to remain stable in the near term, given our view of pause in rates in the near term.

76 76 Our Duration Strategy Year bond at 7.88%, SDL at 8.50%... We are managing the duration actively. By actively allocating on the duration we can reduce the MTM risk We have been running relatively low duration across schemes since some time now. This has helped us save investors from a lot of potential damage that may have occurred due to sharp rise in yields We will increase the duration gradually when the markets have stabilized. We may allocate at high duration when see some signs of peaking in interest rates and/or a directional rally. Till then, we will keep trading in the range with low exposures given the present risk.

77 77 Key Recommendations Segment Scheme Rationale Accrual Play Asset Allocation Short Term Parking of Funds Kotak Credit Risk Fund (Erstwhile Kotak Income Opportunities Fund) / Kotak Medium Term Fund Kotak Monthly Income Plan Kotak Savings Fund (Erstwhile Kotak Treasury Advantage Fund) / Kotak Low Duration Fund / Kotak Corporate Bond Fund Kotak Equity Arbitrage Fund Investment for higher accrual Investment for asset allocation Parking of surplus cash Higher post tax return Duration Play Kotak Bond (Erstwhile Kotak Mahindra Bond Unit Scheme 99) Kotak Bond Short Term Investment for longer maturities Investment for shorter maturities

78 Why Accrual Funds? Default Risk - Very Low - CRISIL s average 1 year transition rates for long term ratings between 1988 and 2016 Ratings AAA AA A BBB BB B C D AAA 97.37% 2.63% 0% 0% 0% 0% 0% 0% AA 1.45% 93.22% 4.49% 0.49% 0.16% 0.03% 0.02% 0.04% A % 88.91% 5.72% 1.48% 0.11% 0.23% 0.51% CRISIL FY16 Round Up AAA rate firms have never ever defaulted. The risk of default of AA is only 0.04% and Risk of A is only 0.51% AAA continue to hold its rating 97% of times, AA around 93% of times, A holds the rating around 88% of times Our Comments Kotak AMC does not invest below A* category rating. Our robust monitoring ensures that we do not take exposure even in AA & A ratings from sensitive sectors Moreover, to protect our interests, we ensure guarantee / mortgage / collateral etc. where required We look to invest in assets that have wide market acceptance This ensures that: 1. Our credit risk is lower than perceived 2. That we capture value with limited risk 78 *Unrated papers that we invest in is generally very low and has implied credit risk which is moderate to low

79 79 Story in Accruals The Fund Manager focuses on generating income from credit allocation rather than duration calls. Accruals funds generate performance by purchasing high yielding assets with relatively short duration. This provides investor with a relatively high yield with low NAV volatility Investors with months horizon can look at investing in Accrual Funds Accrual funds like Kotak Income Opportunities / Kotak Medium term provide retail investors the potential to obtain high yields in the present condition.

80 80 Need to Watch Out for Opportunities in Hybrid Space

81 % Kotak Equity Saving Fund Performance Year 3 Years Since Inception Kotak Equity Savings Fund - Reg - Growth 75% NIFTY 50 ARBITRAGE + 25% Nifty 50 TRI# * Less than 1 year Simple Annualized returns, Greater than or Equal to 1 year Compound Annualized returns. Scheme in inception since 13th Oct Performance as of 31st May 2018 Past performance may or may not sustain in the future 81 Performance (%) as on 31 st June, 2018 Source: ICRA

82 Have You Noticed The Regular Dividends In Kotak Equity Hybrid (Erstwhile Kotak Balance Fund) 82 Record Date Rupees Per Unit Dividend Yield 25-Jul % 25-Jun % 25-May % 25-Apr % 26-Mar % 26-Feb % 26-Jan % 26-Dec % 27-Nov % 25-Oct % 28-Sept % 28-Aug % 25-July % 27-June % 25-May % 25-Apr % 27-Mar % 27-Feb % 25-Jan % 26-Dec % 01-Dec % * After payment of the dividend, the per Unit NAV falls to the extent of the payout and statutory levy (if applicable) ^Past performance may or may not be sustained in the future. Dividends are subject to distributable surplus Inception Date: November 25, 1999 All dividends are on face value of Rs.10 per unit Source: ICRA

83 83

84 84 Now Learn Anywhere Anytime Kotak Mutual Fund launches Video Learning Modules for IFA s Visit If you are empanelled with Kotak AMC & have updated your mobile number & id, follow the process mentioned below. Enter your ARN number and password Click on video to view

85 Get Your Business On The Go Through Distributor Initiated Transaction Step 1 Step 2 Step 3 Step 4 Enter Your Mobile Verify Via OTP Select Type of Transaction Trigger Transaction for your Investor 1. Existing Investors Lumpsum SIP STP SWP Redemption Switch 2. First Time Investors Type of Transactions: Lumpsum SIP Zero Balance Folio 85

86 Go Digital Make your Digital Footprint 990 Distributors on Go Digital & Counting 86

87 87 Annexures

88 2-Jul 3-Jul 4-Jul 5-Jul 6-Jul 7-Jul 8-Jul 9-Jul 10-Jul 11-Jul 12-Jul 13-Jul 14-Jul 15-Jul 16-Jul 17-Jul 18-Jul 19-Jul 20-Jul 21-Jul 22-Jul 23-Jul 24-Jul 25-Jul 26-Jul 27-Jul 28-Jul 29-Jul 30-Jul 31-Jul Performance Of Sensex And Nifty Indices S&P BSE Sensex (LHS) Govt announced MSPs for most of the khariff crops Nifty 50 (RHS) Market gained on expectations of strong 1QFY19 results Favorable global cues led by strong US payroll data helped market gains Optimism over healthy corporate earnings, falling crude prices and recovering rupee Sharp decline in global crude prices due to concerns of oversupply Weak Chinese GDP Print as well as widening Trade deficit of India soured market mood Dollar gained after Fed's Chairman positive View on the US economy. Lok Sabha admits no- confidence motion against Modi government BJP won No Confidence Motion GST council reduced rate for 100 items US and EU arrived at an agreement to de-escalate trade tensions by increasing US exports to EU Source: Bloomberg, Kotak Institutional Equites

89 Key Events July 2018 India has become the world's sixth-largest economy (in nominal dollar terms), according to updated World Bank figures for India's gross domestic product (GDP) amounted to $2.597 trillion at the end of last year. Monetary policy committee hiked policy rates by 25bps in its policy meeting. The decision to hike rates was taken with 5-1 majority The 4th round of GST rationalization saw the GST council reducing tax rates on 88 items with prices being effective from 27 July onwards. The Parliament monsoon session began on a stormy note with an unsuccessful no-confidence vote against the incumbent government. May IIP was subdued at 3.2% vs 4.8% in Apr. Weakness was seen in manufacturing output (2.8% vs 5.2% last month), with contraction in consumer non-durables (-2.6%) & lower growth in electricity generation. In terms of industries, 13 out of 23 groups in manufacturing showed positive growth in May IMD reported that ~74% of country has received normal rainfall, however deficiency stands at 3%. Southern & central India have been witnessing good rains, but east & northeast have witnessed deficient rainfall Govt raised MSP (almost 4x of last 4 yrs) translating into a 13% increase in rice and ~20% rise in Kharif production-weighted average MSP for all 13 crops Jun CPI surprised with the headline number coming in softer than expected at 5%. Core inflation was at a 4 yr high of 6.45% from 6.2% previously. WPI also hit a new high of 5.77%, accelerating from 4.43% in May Indian equities (+6%) had a robust month with a good start to Q1 earnings and the benchmark Nifty Index crossing the 11,300 mark for the first time. 89

90 Stock Picking Will Be Critical Sensex sectoral long-term valuation snapshot: Forward PE* Auto BFSI Engg FMCG IT Metals Oil Pharma Power Telecom Sensex *As on 31 July2018, Source: Axis Capital, Bloomberg, Note: * Since April Max Top Quartile Current Lower Quartile Min

91 Sensex P/E Sensex EPS Earnings Growth Visibility Is Key FY93-97 FY98-03 FY05-09 FY10-17 FY18-20e 91 Source : Internal Calculation, Past performance is not a reliable indicator of expected future performance

92 92 Disclaimers & Disclosures

93 Performance (%) as on 31 st June, 2018 Scheme Inception date is 13/10/2014. Mr. Deepak Gupta has been managing the fund since 17/09/2014. Mr. Abhishek Bisen has been managing the fund since 17/09/2014. Different plans have different expense structure. The performance details provided herein are of regular plan. ^Past performance may or may not be sustained in future.*all payouts during the period have been reinvested in the units of the scheme at the then prevailing NAV. Returns > = 1 year: CAGR (Compounded Annualised Growth Rate). N.A stands for data not available. Note: Point to Point (PTP) Returns in INR shows the value of 10,000/- investment made at inception. Source: ICRA MFI Explorer. # Name of Scheme Benchmark. ## Name of Additional Benchmark. Please refer slide 95 & 96 for top 3 and bottom 3 schemes managed by Deepak Gupta. 93 Source: ICRA

94 Other Funds Managed by Mr. Deepak Gupta Top 3 Funds Managed by Mr. Deepak Gupta 94 Mr. Deepak Gupta manages 12 funds of Kotak Mutual fund. Kotak Global Emerging Market Fund - Growth, *Name of the Benchmark - MSCI Emerging Market index, Scheme Inception date is 26/09/2007. Mr. Deepak Gupta has been managing the fund since 04/04/2011(Dedicated fund manager for overseas investment) and Mr. Abhishek Bisen has been managing the fund since 04/04/2011. Kotak NV20 ETF - *Name of the Benchmark Nifty 50 Value 20 TRI, Scheme Inception date is 01/12/2015. Mr. Deepak Gupta has been managing the fund since 08/12/2015. Kotak India EQ Contra Fund (Erstwhile Classic Equity Fund) - Growth, *Name of the Benchmark - Nifty 100 TRI, Scheme Inception date is 27/07/2005. Mr. Deepak Gupta has been managing the fund since 01/01/2017. Different plans have different expense structure. The performance details provided herein are of regular plan ^Past performance may or may not be sustained in future.*all payouts during the period have been reinvested in the units of the scheme at the then prevailing NAV. Returns > = 1 year: CAGR (Compounded Annualised Growth Rate). N.A stands for data not available. Source: ICRA MFI Explorer. TRI Total Return Index. With effect from 1st February 2018, we are comparing the performances of the funds with the total return variant of the benchmark instead of the price return variant. Performance (%) as on 31 st June, 2018 Source: ICRA

95 Other Funds Managed by Mr. Deepak Gupta Bottom 3 Funds Managed by Mr. Deepak Gupta Mr. Deepak Gupta manages 12 funds of Kotak Mutual fund. Kotak Asset Allocator Fund - Growth, *Name of the Benchmark - CRISIL Hybrid Aggressive Index, Scheme Inception date is 09/08/2004. Mr. Deepak Gupta has been managing the fund since 01/09/2008. Kotak World Gold Fund - Growth, *Name of the Benchmark - Financial Times Gold Mines Total - Price, Scheme Inception date is 06/06/2008. Mr. Deepak Gupta has been managing the fund since 01/02/2015. Kotak PSU Bank ETF, *Name of the Benchmark - Nifty PSU Bank TRI, Scheme Inception date is 08/11/2007. Mr. Deepak Gupta has been managing the fund since 25/02/2011. Different plans have different expense structure. The performance details provided herein are of regular plan ^Past performance may or may not be sustained in future.*all payouts during the period have been reinvested in the units of the scheme at the then prevailing NAV. Returns > = 1 year: CAGR (Compounded Annualised Growth Rate). N.A stands for data not available. Source: ICRA MFI Explorer. TRI Total Return Index. With effect from 1st February 2018, we are comparing the performances of the funds with the total return variant of the benchmark instead of the price return variant Performance (%) as on 31 st June, 2018 Source: ICRA

96 Disclaimers & Risk Factors The information contained in this (document) is extracted from different public sources. All reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication. This is for the information of the person to whom it is provided without any liability whatsoever on the part of Kotak Mahindra Asset Management Co Ltd or any associated companies or any employee thereof.we are not soliciting any action based on this material and is for general information only. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. 96

97 Product Labeling 97 * Investors should consult their financial advisers if in doubt about whether the product is suitable for them

98 Product Labeling 98 * Investors should consult their financial advisers if in doubt about whether the product is suitable for them

99 99 Product Labeling