Market Outlook Presentation

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Neal Crawford
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1 November 2013 Aiming to discover value beyond Sensex & Nifty Market Outlook Presentation Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

2 HOW GLOBAL INDICES FARED IN OCTOBER 2013? India outperformed global markets during the month INDICES OF COUNTRIES: India S&P BSE Sensex; Russia - RTS Index; France - CAC 40 Index; UK - FTSE, Japan Nikkei; Hongkong - HangSeng, US - Dow Jones, Singapore - Strait Times, Germany - DAX Index, Malaysia - KLSE, Brazil - Ibovespa Sao Paulo Index, Indonesia - Jakarta Composite, Taiwan - Taiwan Weighted, China - SSE Composite, South Korea -Kospi 2 Source: Bloomberg

3 MARKET - CAP PERFORMANCE OCTOBER 2013 Key domestic indices fared well during the month 3 Source:

4 HOW SECTORAL INDICES FARED IN OCTOBER 2013? Sectoral performance reflected increased risk appetite Bankex - Banks; CG - Capital Goods; CD - Consumer Durables; IT - Information Technology; HC - Health Care, Teck -Technology, Auto Automobiles. 4 Source: All indices are S&P BSE and returns are for the month of Oct, 2013

5 KEY FACETS OF EQUITY INVESTMENTS 5 *CAD Current Account Deficit

6 WPI* INFLATION RISES Breakdown of WPI* inflation (Year-on-Year %) Wholesale Price Index (WPI) has risen to 7% in Oct mainly on account of high fuel and food prices, especially vegetable prices 6 Source: Bloomberg, Espirito Santo Investment Bank Research *WPI refers to Wholesale Price Index

7 CURRENT ACCOUNT DEFICIT The deficit grew from an average of 0.3% of Gross Domestic Product (GDP) in the 5 years preceding the global financial crisis to 3.3% during the 5 years that followed. Gold imports declined sharply in QE September Source: RBI, Morgan Stanley Research, Trading Economics and HSBC Global Research

8 EIGHT-CORE INDUSTRIES GROWTH (%Year-on-Year) Eight-core sector grew by a strong 8.0% Year-on-Year in Sep 13 The highest monthly rise in one year Overall growth at 3.2% in Apr-Sep 13 still remains much lower than the 6.6% growth seen in the corresponding period last year 8 Source: MOSPI, RCML Research

9 FII BUYING CONTINUES * 9 Source: Bloomberg, Esprito Santo Investment Bank Research *Perf refers to Performance

10 RETAIL INVESTORS EQUITIES ARE UNDERINVESTED AUM in Rs Bn Balanced Fund Equity Funds* Total *includes ELSS Funds. Source: AMFI Deposits in Rs Bn Aggregate Deposits of Scheduled Commercial Banks Source: RBI weekly statistical supplement Sep-13 Sep-07 Change % % % 4-Oct Sep-07 Change % INVESTORS NEED TO MAINTAIN ASSET ALLOCATION TOWARDS EQUITIES 10 IN

11 CLEAR DIVERGENCE BETWEEN FUNDAMENTALS & VALUATIONS 11 The Sensex stock market index and earnings per share (EPS) are near all-time highs Economic Growth close to a decade low Source: Asianomics Research

12 SENSEX NOR NIFTY UNDERLYING ECONOMY DON T REFLECT 30 or 50 of the country s largest companies Weighted towards largely export orientated or commodity related companies Levels are a better reflection of global trade than the domestic Indian economy There are over 4,000 listed companies in India 12 >80% of these have a market capitalization of less than US$50m. These small companies truly reflect the underlying economy and here the pain is being felt In contrast to Sensex, the BSE Smallcap Index is approaching five year lows, is 58% off its 2007 peak Source: NSE, BSE, MFI

13 VALUATIONS - SENSEX 1-YEAR FORWARD PE Valuations below average Price to Earnings 13 Source: Bloomberg, Espirito Santo Investment Bank Research

14 INDIA S MARKET CAP TO GDP (%); WELL BELOW AVERAGES 14 Source: MOSL

15 SECTORAL DIVERGENCE SINCE JAN Source: MOSL

16 SECTORAL DIVERGENCE SINCE NOV Source: MOSL

17 VALUE ACROSS SECTORS 17 Source: MOSL

18 TRIGGERS 18 Election results Crude per barrel price < 100 US$ Drop in loan to deposit ratio A good monsoon likely to keep economic growth in positive territory through agriculture s contribution

19 SENSEX PERFORMANCE PERIODS POST ELECTION Above chart explains how S&P BSE Sensex has performed post elections 19 Provided only for reference & understanding of market movement post elections. Nothing in the slide must be construed as future performance of S&P BSE Sensex

20 OUTLOOK Volatility till pre-election period Improvement in exports on the basis of improved global environment Improving CAD situation will provide much needed support for currency and restore confidence in Indian assets as an investment home Value in companies outside the Sensex 20 Within S&P BSE 500 if we take the top 300 companies in 2007 by market capitalisation, 50% have less than a quarter of the market capitalisation today It is these beaten-up domestic companies where value opportunity is available

21 PRODUCT RECOMMENDATIONS 21 For capitalizing on value opportunities ICICI Prudential Discovery Fund For maintaining asset allocation in equity, invest lumpsum in products that seek to benefit out of Volatility ICICI Prudential Balanced Advantage Fund ICICI Prudential Dynamic Plan ICICI Prudential Balanced Fund Investments through STP / SIP over next 12 months in our core equity products ICICI Prudential Focused Bluechip Equity Fund ICICI Prudential Top 100 Fund None of the aforesaid recommendations are based on any assumptions. These are purely for Reference and the Investors are requested to consult their financial advisors before investing.

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24 Fixed Income 24

25 RESERVE BANK OF INDIA POLICY HIGHLIGHTS Hiked the repo rate by 25 bps to 7.75% Reduced the Marginal Standing Facility (MSF) rate by 25 bps to 8.75% Increased the liquidity provided through term repos of 7-day and 14-day tenor from 0.25% of Net Demand and Time Liabilities (NDTL) of the banking system to 0.5% with immediate effect. 25 Source: CEIC, Bloomberg, Macquarie Research, Espirito Santo investment Bank Research

26 POLICY STANCE & RATIONALE Rationale for MSF cut Volatility in FX market ebbed Improvement in trade deficit Improving external improvement Repo rate hike Curbing the erosion of financial saving due to rising price pressures Stance : The Reserve Bank will closely monitor inflation risk while being mindful of the evolving growth dynamics. 26

27 SHORT TERM RATES-EXPECTED TO MODERATE 27 Overnight rates gradually may move closer to repo rate based on the daily liquidity conditions while long term yields are factoring a 25 bps repo rate hike Source: Nomura, Bloomberg

28 OUTLOOK Short Term Rates Short Term rates responded positively due to MSF rate cut and additional liquidity through term repo. Overnight rates may moderate and may gradually move closer to the Repo rate based on the liquidity conditions Long Term Rates Inflation 28 Long term rates are factoring a further 25 bps repo rate hike and going forward may be range bound with downward bias. On the inflation front we expect a modest improvement with WPI average around 6% for FY 14

29 OUTLOOK GDP 29 We expect real GDP growth to remain muted, it may average around not higher than 4.5% for FY-14 against the RBI s estimate of 5%. Monetary Policy In our view, RBI may keep close watch on global developments and its impact on currency alongwith domestic inflationary trends in the near term. We expect RBI may come back to easing monetary policy in future to support growth.

30 RECOMMENDATION 1-3 Months 6 to 12 Months ICICI Prudential Income Plan Actively Managed Duration Strategy 12 Months & above 30 ICICI Prudential Regular Savings Fund 24 Months & Above ICICI Prudential Banking & PSU Debt Fund ICIC Prudential Short Term Plan Months ICICI Prudential Ultra Short Term Plan ICICI Prudential Dynamic Bond Fund

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33 DISCLAIMER Mutual Fund investments are subject to market risks, read all scheme related documents carefully. All figures and other data given in this document are as on 14 th November 2013 unless stated otherwise. The same may or may not be relevant at a future date. The AMC takes no responsibility of updating any data/information in this material from time to time. The information shall not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Prudential Asset Management Company Limited. Prospective investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the units of ICICI Prudential Mutual Fund. Data source: Bloomberg, except as mentioned specifically. Disclaimer: In the preparation of the material contained in this document, ICICI Prudential Asset Management Company Ltd. (the AMC) has used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from members/persons other than the AMC and/or its affiliates and which may have been made available to the AMC and/or to its affiliates. Information gathered and material used in this document is believed to be from reliable sources. The AMC however does not warrant the accuracy, reasonableness and / or completeness of any information. We have included statements / opinions / recommendations in this document, which contain words, or phrases such as will, expect, should, believe and similar expressions or variations of such expressions, that are forward looking statements. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. ICICI Prudential Asset Management Company Limited (including its affiliates), the Mutual Fund, The Trust and any of its officers, directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. Further, the information contained herein should not be construed as forecast or promise. The recipient alone shall be fully responsible/are liable for any decision taken on this material. 33

34 Thank You

Monthly Market Outlook December Equities Invest in Equities for the long-run Fixed Income The appeal remains intact

Monthly Market Outlook December 2015 Equities Invest in Equities for the long-run Fixed Income The appeal remains intact Returns' (%) Source: MFI; Date ending on November 30, 2015 Global Performance Countries