Market Outlook Presentation October

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1 Market Outlook Presentation October

2 KEY HIGHLIGHTS Equity Market Overview Macro indicators, Sentiments and Valuations Debt Market Overview Outlook Recommendations 2

3 EQUITY MARKET OVERVIEW In September 2014, the Indian equity market started on a positive note but could not sustain the gains Domestic equity indices ended flat at the end of the month but S&P BSE Sensex touched another high of 27,319 points Sentiments were boosted after Standard & Poor's raised the outlook for India's "BBB-minus" rating back to "stable" from "negative Market sentiments however waned due to worries about US-led airstrikes in Syria, poor economic data from the Eurozone and volatility in the global equity markets 3 Source: Bloomberg

4 REASONS BEHIND MARKET OPTIMISM The optimism in the past few months has been on account of: Decisive Political Mandate Gross Domestic Product acceleration to two year high; Expansion of Industrial Production albeit slowly; Decelerating inflation and inflation expectations Swelling of Foreign Reserves to USD 316 Bn Stable Indian Rupee, and New Government s reform aspirations 4 Forex Data Source: RBI

5 RISKS TO OPTIMISM The government not delivering on the promised reforms No action on turning India into an investment friendly economy/ease of doing business Global uncertainties like geopolitical tensions, US rate hike or Eurozone impact/ Slowdown in Foreign Institutional Investor Flows Will the government be able to hold fiscal deficit at 4.1% of GDP? Near term risks remains and hence we reiterate that we continue to remain CAUTIOUSLY BULLISH on equity markets 5

6 % HOW THE MARKETS FARED IN SEPTEMBER S&P BSE SMALL CAP S&P BSE MID CAP S&P BSE Small Caps and Mid Caps outperformed large caps during September 2014 Retail investors are major participants in mid-cap and small-cap stocks and activity in this segment has increased over the past few months 6 Past performance may or may not be sustained in future and the same may not necessarily provide the basis for comparison with other investment. Source: Bloomberg

7 S&P BSE HC S&P BSE CD S&P BSE Teck Index S&P BSE Small Cap S&P BSE FMCG S&P BSE Auto S&P BSE Mid Cap CNX Nifty S&P BSE Sensex S&P BSE Bankex S&P BSE PSU S&P BSE Oil & Gas S&P BSE CG S&P BSE Metals S&P BSE Realty HOW THE SECTORAL INDICES FARED IN SEPTEMBER % 8.00% 7.45% 7.30% 5.80% 4.06% 4.00% 0.00% -4.00% 3.10% 2.62% 2.49% 0.13% -0.03% -2.16% -3.88% -4.08% -4.33% -8.00% % -6.88% -8.46% S&P BSE Realty index was the top loser for the third consecutive month while S&P BSE Metals was impacted by Supreme Court Order on Coal Blocks 7 Past performance may or may not be sustained in future and the same may not necessarily provide the basis for comparison with other investment. Source: Bloomberg HC Healthcare, CG- Capital Goods, CD Consumer Durables PSU- Public Sector Undertakings

8 GLOBAL INDICES China remained ahead of the pack in September 2014 mainly on account of softening of real estate prices in line with government expectations 8 China Japan France Germany Indonesia India Kuala Lampur Singapore US South Korea UK Taiwan Russia Hong Kong Brazil Source: Bloomberg % India Sensex, Indonesia Jakarta composite, Brazil Ibovespa, Taiwan Taiwan Weighted, Hong Kong Hang Seng, Singapore Strait Times, China SSE Composite Index, South Korea Kospi, US S&P 500, France CAC 40, UK FTSE, Kuala Lampur KLSE, Germany DAX, Japan Nikkei, Russia - RTS Past performance may or may not be sustained in future and the same may not necessarily provide the basis for comparison with other investment.

9 KEY HIGHLIGHTS Equity Market Overview Macro indicators, Sentiments and Valuations Debt Market Overview Outlook Recommendations 9

10 MACROS AT A GLANCE Indicators Latest available Value GDP 5.7% CPI 6.46% WPI 3.7% CAD 1.7% of GDP IIP 0.40% Outlook Likely gradual cyclical recovery in growth in FY15 Broader trend in CPI inflation remains encouraging. Can likely move lower in coming months WPI Inflation has fallen to 5 year low, however CPI Inflation is the key indicator Lower commodity prices may drive down trade deficit which can lower CAD further. Good Net FDI Inflows expected Decelerated but largely due to base effect; manufacturing push through Make in India campaign can give a booster' 10 Source: Bloomberg, GDP Gross Domestic Product, CPI Consumer Price Index, WPI Wholesale Price Index, CAD Current Account Deficit, IIP Index of Industrial Production, FDI Foreign Direct Investment

11 In Cr. In Cr FII AND DEBT FLOWS Mutual Fund Flows Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 MFs continued to be buyers for 4 th consecutive month FII Flows Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Source: Bloomberg, MF Mutual Fund, FII Foreign Institutional Investor FII flows have dropped comparatively for the second consecutive month

12 S&P ACKNOWLEDGES ECONOMY TURNAROUND S&P raised India s outlook from Negative to Stable S&P believes that the absolute majority government will implement key fiscal, administrative and economic reforms Other factors considered: Improved political setting Improved Current Account Deficit Record High Forex Reserves Low public external debt Revenue side improvements on account of potential GST rollout and administrative reforms Outlook upgrade bodes well for India as it can attract new debt and equity inflows 12 Source: S&P, S&P Standard and Poor, GST The Goods and Services Tax

13 ROAD TO ECONOMIC GROWTH FROM HERE Improving Macros Faster Project Clearances Controlled Inflation Improved Business and Consumer Sentiment ECONOMIC GROWTH Equity Markets may Rise Factoring Economic Growth 13

14 KEY INITIATIVES TAKEN BY THE NEW GOVERNMENT FDI Increasing FDI limit in Defence and Railways Inflation/Agriculture Infrastructure Fiscal/Budget Management Containing support price increase for Agricultural products and setting minimum export price to ensure domestic supply of staple vegetables Empowering Project Management Group. Extending web-based project clearance to environment and mining Raised passenger and freight railway fares Labour/Manufacturing Tweaking Labour laws to increase efficiency and aid ease of doing business. 14 Source: Eastspring Insights, FDI Foreign Direct Investment

15 FOCUS AREAS IN THE COMING MONTHS Implementation of GST FDI in more sectors such as Media and Construction Inflation Moderation Infrastructure Manufacturing Job Creation Fiscal Consolidation 15 GST The Goods and Services Tax, FDI Foreign Direct Investment

16 LAUNCH OF MAKE IN INDIA PROGRAM Share of manufacturing in GDP Currently India has one of the lowest manufacturing share within all income group countries With the focus to boost the Manufacturing sector and activity in India the new government launched Make in India program 16 Source: MOSL, GDP Gross Domestic Product

17 GLOBAL CALL FOR MANUFACTURING IN INDIA Major sectors that are likely to be area of focus under this program are: Leather Electrical Machinery Mining Textile & garments Make In Oil and Gas Automobile and Components Biotechnology India Aviation Roads, Highways & Thermal Power Program Chemicals and Construction Renewable Energy Pharmaceuticals & wellness Ports & Railways Defence Manufacturing 17 Source: MOSL

18 27,000 26,000 25,000 24,000 23,000 22,000 21,000 20,000 19,000 18,000 17,000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 VALUATIONS Sensex (LHS) Valuations (RHS) STRETCHED 19x PLUS FAIR VALUE PLUS 16x-18x FAIR 13x-15x ATTRACTIVE 11x-12x CHEAP 8x-10x The equity valuations are marginally above the historic average, remaining within the Fair Value Plus zone In the short term we remain cautious and feel that markets may remain volatile 18 Source: Bloomberg

19 SECTOR VALUATIONS 19 Source: MOSL, Valuations as of 30 th Sep 2014 PE: Price to Earnings PB: Price to Book Value

20 KEY HIGHLIGHTS Equity Market Overview Macro indicators, Sentiments and Valuations Debt Market Overview Outlook Recommendations 20

21 YIELD MOVEMENTS September 30, 2014 August 28, 2014 September 30, 2013 Call Rate 8.15% 8.65% 9.50% Repo 8.00% 8.00% 7.50% 10 Yr Gilt 8.51% 8.56% 8.77% 1-month CP rate 8.60% 8.54% 9.91% 3-month CP rate 8.75% 9.00% 9.91% 6-month CP rate 9.09% 9.25% 10.35% 1 yr CP rate 9.43% 9.48% 10.50% 1-month CD rate 8.41% 8.27% 9.65% 3-month CD rate 8.51% 8.74% 9.61% 6-month CD rate 8.74% 8.84% 9.62% 1 yr CD rate 9.01% 9.10% 9.58% Yields have come down in September 2014 in 10 yr Gilt, CPs (except 1 month paper) and CDs (except 1 month paper) as liquidity in the system has improved coupled with slower than anticipated credit growth 21 Source: CRISIL, Data as on September 30, 2014

22 YIELD CURVE G-Sec Yield Curve AAA Corporate Bond Yield Curve M TB 6M TB 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 12 Yr 15 Yr 19 Yr 30 Yr M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y15Y Sep-14 Aug-14 Sep-14 Aug-14 In the near term we may see further easing in short term rates as liquidity situation is turning structurally positive Long term bond yields may remain range bound with downward bias 22 Source: Creditmeter, G-Sec Government Security

23 CREDIT SPREADS Tenure (In Yrs.)/Rating Credit Spreads as on 30th September >10.0 AAA 0.25% 0.18% 0.53% 0.49% 0.33% 0.28% 0.31% 0.33% 0.25% AA+ 0.47% 0.45% 0.75% 0.79% 0.66% 0.62% 0.66% 0.74% 0.47% AA 0.72% 0.70% 1.00% 1.06% 0.95% 1.10% 1.03% 1.24% 0.72% AA- 0.86% 0.85% 1.25% 1.38% 1.31% 1.50% 1.52% 1.62% 0.86% A+ 1.12% 1.09% 1.46% 1.67% 1.55% 1.84% 1.86% 1.96% 1.12% A 1.29% 1.26% 1.78% 1.99% 1.90% 2.09% 2.11% 2.21% 1.29% A- 1.61% 1.58% 2.17% 2.66% 2.57% 2.69% 2.77% 2.89% 1.61% 23 Source: Creditmeter

24 INDIA 10 YEAR G-SEC year G-Sec Yield has started declining 10 year benchmark yield could see a further decline in the coming months owing to: Improving Macros, Easing inflation particularly CPI Foreign Portfolio Investor Flows in Indian Debt Market, and Falling Global Commodity Prices We feel this can be suitable time to invest in Duration funds 24 Source: Bloomberg, Consumer Price Inflation Data as on October 08, 2014

25 G-SEC YIELD AND REPO RATE GIND10YR Index Repo Rate During 2001 to 2004 and during 2008, G-sec yields came down sharply and were moving ahead of the repo rate cuts Going forward, once inflation is within RBI s targeted levels, G-sec yields can start discounting rate cuts well before the RBI acknowledges with a rate cut 25 GIND 10 YR Index: 8.40% 10 Year India Government Security Source: Bloomberg, Past performance may or may not be sustained in future. G-Sec Government Security

26 KEY HIGHLIGHTS Equity Market Overview Macro indicators, Sentiments and Valuations Debt Market Overview Outlook Recommendations 26

27 EQUITY OUTLOOK We are in a very strange situation where in India we are worried about high inflationary expectations while globally there are strong deflationary forces resulting into fall in commodities prices Falling global commodity prices are positive for Indian economy in the long term S&P outlook upgrade is another positive and reiterates the improvement in the macro environment of the economy We remain optimistic on equities in the long term and believe that we may be in a mid of a long term bull market rally 27 S&P Standard and Poor

28 DEBT OUTLOOK In the recent monetary policy the RBI kept key rates unchanged. However, RBI sounded more confident on meeting inflation targets of 8% by January 15 Slow MSP hike-led food price disinflation, better alignment of petroleum product and electricity prices with costs, softer global commodity price outlook, stable rupee may reduce inflation trend in India Improving CAD may structurally help interest rates to trend downwards in coming years In the near term we may see further easing in short term rates as liquidity situation is turning structurally positive. Long term bond yields may remain range bound with downward bias 28 RBI Reserve Bank of India, MSP Minimum Support Price, CAD Current Account Deficit

29 KEY HIGHLIGHTS Equity Market Overview Macro indicators, Sentiments and Valuations Debt Market Overview Outlook Recommendations 29

30 MARKET FLASHBACK S&P BSE Sensex That's an increase of 7251 points in 12 months Sensex has increased from 19,379 to 26,630 in 12 months. That s an increase of 7,251 points or absolute returns of 37.41% 30 Past performance may or may not be sustained in future and the same may not necessarily provide the basis for comparison with other investment. Returns less than one year calculated on absolute basis and more than one year on CAGR basis. Source: Bloomberg

Date MARKET FLASHBACK Range Bound Market 25 th Sep 2014 Market Drops

2014 Market Rises by 481 points 15 th and 16 th Sep 2014 Market

Sep 2014 Market Rises by 229 points Consider funds that are designed

31 Date MARKET FLASHBACK Range Bound Market 25 th Sep 2014 Market Drops by 276 points 23 rd Sep 2014 Market Drops by 431 points 18 th Sep 2014 Market Rises by 481 points 15 th and 16 th Sep 2014 Market Drops by 568 points 8 th Sep 2014 Market Rises by 293 points 1 st Sep 2014 Market Rises by 229 points Consider funds that are designed to help generate long term returns in range bound markets 31 Source: Bloomberg

32 PERFORMANCE Even with relatively less risk, ICICI Prudential Balanced Advantage Fund and ICICI Prudential Dynamic Plan have delivered long term returns And what s even better is Monthly, Quarterly and Annual dividend* options available under ICICI Prudential Balanced Advantage Fund 32 *Dividend distribution is subject to availability of distributable surplus and approval from Trustees Performance as on 30 th Sep 2014 Past performance may or may not sustained in future

33 EQUITY RECOMMENDATIONS Types of Investor Funds Rationale For long term investors and as a part of core mutual fund portfolio For investors who track their investments frequently For investors who have 3 year investment horizon 1. ICICI Prudential Focused Bluechip Equity Fund 2. ICICI Prudential Value Discovery Fund 1. ICICI Prudential Dynamic Plan 2. ICICI Prudential Balanced Advantage Fund 3. ICICI Prudential Balanced Fund 1. ICICI Prudential Target Returns Fund (There is no guarantee or assurance of returns) 2. ICICI Prudential Infrastructure Fund 3. ICICI Prudential Banking & Financial Services Fund 4. ICICI Prudential Midcap Fund These funds are suitable for investors who are willing to invest for a fairly long term with an aim to benefit from the full investment cycle. These funds have the potential to specifically benefit from volatility in the equity markets and can generate reasonable return per unit of risk. These funds are suitable for investors seeking to participate in equities with relatively lower risk. These funds can benefit from revival in the economy and provides aggressive investment opportunity over next three years. These funds are suitable for investors aiming for absolute returns rather than risk adjusted returns over next three years. 33

34 DEBT RECOMMENDATIONS Investment Horizon Funds Relevance 15 to 30 days 6 months and above 15 months and above ICICI Prudential Savings Fund ICICI Prudential Short Term Plan ICICI Prudential Regular Savings Fund Investor with surplus cash may consider investing in this fund for short to medium term parking. This may be an appropriate entry point in the fund to lock in at reasonable level of yields as improving liquidity conditions may bring down short term yields. Short term yields at current levels provide potential entry point as the scheme aims to earn from accrual income. 24 months and above ICICI Prudential Income Plan Positive view on interest rates in the medium term pronounces possibility of earning potential capital appreciation in the scheme. 3 years and above ICICI Prudential Long Term Plan 3 years and above ICICI Prudential Corporate Bond Fund Positive view on interest rates in the medium term pronounces possibility of earning potential capital appreciation in the scheme. Yields in 1 to 5 year maturity segment provide opportunity to earn reasonable accrual as well as potential capital appreciation. 34

35 35 PRODUCT LABELLING

36 36 PRODUCT LABELLING

37 37 PRODUCT LABELLING

38 PRODUCT LABELLING Note - Risk may be represented as: (BLUE) investors understand that their principal will be at low risk (YELLOW) investors understand that their principal will be at medium risk (BROWN) investors understand that their principal will be at high risk 38

39 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 8 th October 2014 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. The sector(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector (s). Past performance may or may not be sustained in the future. 39

40 40 Thank You

Market Outlook Presentation September

Market Outlook Presentation September - 2014 1 KEY HIGHLIGHTS Equity Market Overview Macro indicators, Sentiments and Valuations Debt Market Overview Outlook Recommendations 2 EQUITY MARKET OVERVIEW Sensex