Monthly Market Outlook

Transcription

1 Equity Monthly Market Outlook May 2018 Growth Recovery Fixed Income Interest rates reverse trend 1

2 World Index 1 month Return (%) Most of the developed and emerging market indices bounced back in April 2018 with India being one of the top performing markets Germany - DAX Index; China - SSE Composite Index; France - CAC 40 Index; Japan - Nikkei; Europe - Euronext 100; Hong Kong - HangSeng; US - Dow Jones; Singapore - Strait Times; Russia - RTS Index; Indonesia - Jakarta Composite Index; U.K. - FTSE; South Korea - Kospi; Brazil - Ibovespa Sao Paulo Index; Indonesia Jakarta Composite Index; Switzerland Swiss Market Index; Taiwan Taiwan Stock Exchange Corporation; India S&P BSE Sensex; Returns in % terms. Data Source: MFI; Returns are absolute returns for the PRI variant of the index calculated between Mar 31, 2018 Apr 30,

3 Sector Index month Return (%) Most of the sectoral indices ended higher this month with IT index being the Top performer Among the market-cap based indices, the Small-cap index delivered the highest MoM returns. Index 1 Month (%) S&P BSE SmallCap 8.28 S&P BSE MidCap 6.57 S&P BSE Sensex 6.65 All indices are of S&P BSE and carry the prefix of S&P BSE; Abbreviated CD - S&P BSE Consumer Durables; CG - S&P BSE Capital Goods; FMCG - S&P BSE Fast Moving Consumer Goods; HC - S&P BSE Health Care; Infra. - S&P BSE India Infrastructure; IT - S&P BSE Information Technology. Data Source: MFI; Returns are absolute returns for the PRI variant of the index calculated between Mar 31, April 30, MoM: Month-on-month 3

4 Equity Outlook Growth Recovery 4

5 Growth Recovery in full swing Macro adjustment, weak trend in consumption Consumption still weak. Exports decline sharply Macro adjustment complete. Growth improves led by public capex Exports back on recovery track from Sep-16. Demonetisation delayed the domestic demand recovery Demonetisation impact faded from Q2CY17. Clear runway for growth with strengthening consumption, exports and public capex Growth in all parameters with Private Capex expected to improve Public Capex Private Capex Consumption Sharp decline in global commodity prices, EM shock Exports Demonetisation shock to consumption recovery E Source: Morgan Stanley Report Macro Indicators Chartbook published on May 01,

6 $ bn. Consumption Higher Population alongwith Rising rural income on the back of Government thrust on rural economy could lead to higher consumption rate. Population below 25 yrs (2017 in millions) 646 India China US Brazil Japan UK E Agg. Rural Income Agg. Rural Consumption Source: UN DESA, Population Division; Goldman Sachs. E:Estimates. Agg. Aggregate. E: Estimates 6

7 Government capex remains healthy Since the announcement of Bharatmala in Oct-17, NHAI awarded cumulative ~7,400km of projects worth ~INR1.2tn in FY18 marking it as its best performance Government s Push on Affordable Housing through PMAY has seen strong execution momentum since its initiation in June 2015 Cumulative FY NHAI Projects Awarded (km) 7396 PMAY - Urban Jun 2015 to Dec 2016 Jan 2017 to July 2017 Aug 2017 to Dec 2017 Investment approved per month (Rs. in cr.) Units completed per month Source: PMAY Documents, Nomura. PMAY: Pradhan Mantri Awas Yojana, NHAI: National Highways Authority of India 7

8 Revival in Investment activity Index of Industrial Production (IIP) has remained strong at above 7% levels for four consecutive months now which hints at revival in investment activity. IIP (%) Source: Factsheet 8

9 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 % YoY Growth Exports Indian exports YoY growth declined in March due to high base effect and decline in oil exports. The growth of exports excluding oil remained healthy. India s share in World Exports has risen from 0.6% in 2000 to 1.6% in % Exports Non oil exports India Exports as % of World Exports 20% 10% 2.0% 1.8% 1.6% 0% -10% 1.4% 1.2% 1.0% -20% -30% 0.8% 0.6% 0.4% Source: Morgan Stanley. YoY: Year-on-Year 9

10 To Summarize our Outlook on Equity Indian markets ended April 2018 on a positive note, up ~6% Outperformance was driven mainly by improving earnings in select sectors. Macro-conditions remained under pressure due to rising crude oil prices. The pressure extended to the currency markets as well. Globally markets remained volatile owing to geopolitical tensions and fear of trade wars. We continue to remain neutral on equity as valuations are not cheap. We expect earnings to improve in the next few quarters. Investors who aim to benefit from volatility could consider investing in asset allocation schemes and conservative hybrid schemes. For Investors looking for pure equity exposure, we recommend investing in largecap-oriented schemes considering the reasonably attractive valuations of large-cap over mid- and small- caps. 10

11 Valuation Index Equity Valuation Index Book Partial Profits Stay Invested EIF/BAF Dynamic/E&D Multicap Schemes Midcap Schemes Our equity valuation index indicates that investors could consider investing in asset allocation schemes with low net equity levels. Investors looking to invest in pure equity schemes could invest in large-cap oriented schemes. Equity Valuation index is calculated by assigning equal weights to Price-to-Earnings (PE), Price-to-Book (PB), G-Sec*PE and Market Cap to GDP ratio. G-Sec Government Securities. GDP Gross Domestic Product; EIF Equity Income Fund; BAF Balanced Advantage Fund; Dynamic Dynamic Plan; E&D -- ICICI Prudential Equity & Debt Fund; Asset Allocation Schemes that invest both in equity and fixed income 11

12 Our Asset Allocation schemes Equity & Debt Fund These schemes aim to benefit from volatility and manage equity exposure based on valuations Equity Income Fund Balanced Advantage Fund Dynamic Plan *Soon to be called Multi-Asset Fund Erstwhile Balanced Fund *Soon to be called Equity Savings Fund The asset allocation and investment strategy will be as per the Scheme Information Document, *Effective from 28-May-2018, please refer to the addendums published on our website 12

13 Conservative Hybrid Equity Thematic/Sectoral Our Equity Recommendations Focused Bluechip Equity Fund (Soon* to be called Bluechip Fund) Multicap Fund The scheme invests in largecap stocks. It follows a benchmark hugging approach. The scheme invests in stocks across market capitalisations Exports and Other Services Fund (Soon* to be called ICICI Prudential Exports and Services Fund) FMCG Fund These thematic schemes are for investors looking for exposure to particular themes. Top 100 Fund (Soon* to be called Large & Mid Cap Fund) Value Discovery Fund The scheme invests in largecap as well as mid-cap stocks The scheme follows a value investment style. It invests in diversified portfolio that are quoting at a discount to their fair/intrinsic value. MIP 25 (An Open Ended Income Scheme. Monthly income is not assured and is subject to the availability of distributable surplus.) (Soon* to be called ICICI Prudential Regular Savings Fund) This scheme predominantly invests in fixed income securities and a portion in equity and equity related securities The asset allocation and investment strategy will be as per the Scheme Information Document. *Effective from 28-May-18, please refer to the addendums published on our website 13

14 Fixed Income Outlook Interest Rates reverse trend 14

15 Debt markets clouded by volatility Positives Negatives Buoyant GST Collections US Treasury Yield volatility Normal Monsoon Forecast Rising crude prices and INR pressure Relaxation of tenor norms for FPI Hawkish Minutes of MPC MPC: Monetary Policy Committee, FPI: Foreign Portfolio Investor 15

16 Dec-17 Jan-18 Feb-18 Mar-18 Apr Year Yield on a rising trend The 10 Year G-Sec saw a whipsaw movement in April falling to levels of 7.13% in the beginning of the month and rising back again to close at 7.77% The US Treasury yield touched 3% in the month of April over rising inflationary concerns and expectations of increase in Fed rate hikes Yr G-Sec (%) Yr US Treasury Yield (%) 3.03 Source: Crisil Research 16

17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 Rupee/$ Rising Crude prices and Rupee pressure Brent has been on a rising trend and rallied 6% this month due to concerns over potential supply disruptions and unexpected decline in US Shale supply INR depreciated 4.4% YTD and 2.3% in April due to rise in crude oil prices, ballooning import bill and due to geopolitical tensions. 75 Brent Crude Oil Price ($ per barrel) Rupee under selling pressure Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 Source: Crisil Research 17

18 Buoyant GST Collections and Normal Monsoon Forecast March GST collections came in higher crossing Rs.1000 bn, if the trend continues then the FY19 target of Rs.12.5 tn could be achieved CPI inflation moderated from Dec-17 levels due to decline in Food inflation. Food inflation is expected to be in check due to Normal monsoon predicted by IMD GST Collections (Rs. in bn.) % CPI Food Inflation 5% 4% 3% 2% 1% 0% Source: Kotak. IMD: Indian Meteorological Department, CPI: Consumer Price Index 18

19 Relaxation of tenor norms for FPI Investments % Composition of Gross Market Borrowing Minimum residual maturity requirement for FPI investments in G-sec upto 3 yrs stands withdrawn This is expected to increase wider participation in the Government issuances at the shorter end of the curve (1-4 yrs) and increase liquidity. Minimum residual maturity for FPI investments in Corporate Bonds also stands revised down to 1 yr from 3 yrs and could improve short term yields. FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E 1-4 yr 5-9 yr yr yr >20 yrs Source: Motilal Oswal. E:Estimate, FPI: Foreign Portfolio Investor 19

20 Corporate Bonds yields inch up higher Corporate Bond yields have increased this month and we believe this provides a good opportunity to invest at the elevated levels AAA - 3 Yr Yields (%) AA - 3 Yr Yields (%) A - 3 Year Yields (%) 01-Apr Apr Apr Apr Apr Apr % 8.23% 8.25% 8.63% 9.95% 10.37% Source: Crisil Research 20

21 To summarize our Outlook on Fixed Income The 10 year G-Sec saw a whipsaw moment in April from a fall to 7.13% levels post Monetary Policy Committee meeting to closing the month at 7.77% Crude oil prices trading near 3 year highs, 10 Year US Treasury Yield seeing a high of 3.04% and a depreciating INR led to high volatility in the bond markets Increase in FPI limits and relaxing tenor restrictions for FPI investments can encourage wider participation India s macro outlook seems stable, with CPI inflation reined in below 5%. Forecast of normal monsoon could further help in containing food prices. Recent bouyancy in GST revenues may increase further over the year on better compliance which could in turn improve government finances We recommend investors to invest in accrual schemes as they offer relatively higher yield-to-maturity. We recommend investors to invest in short duration schemes or invest systematically in medium to long duration schemes. Investors who aim to benefit from volatility could consider investing in Long Term Plan. 21

22 Debt Valuation Index High Duration Moderate Duration Low Duration Aggressively in High Duration Ultra Low Duration We recommend investors to invest in Short Duration schemes or accrual schemes such as ICICI Prudential Regular Savings Fund For those investors who aim to benefit from volatility we recommend investors to invest in ICICI Prudential Long Term Plan. Debt Valuation Index considers WPI, CPI, Sensex YOY returns, Gold YOY returns and Real estate YOY returns over G-Sec yield, Current Account Balance and Crude Oil Movement for calculation. WPI Wholesale Price Index; CPI Consumer Price Index. None of the aforesaid recommendations are based on any assumptions. 22

23 Ultra Short Duration Credit Risk Medium Duration Floater Short Duration Dynamic Duration Our Debt Recommendations Short Term Plan (Soon* to be called ICICI Prudential Short Term Fund) The scheme invests with the aim to maintain a short duration Long Term Plan (Soon* to be called All Seasons Bond Fund) An All-season scheme which invests across duration based on an in-house CAD model Corporate Bond Fund (Soon* to be called ICICI Prudential Medium Term Bond Fund) Regular Income Fund (An open ended income scheme. Income is not assured and is subject to the availability of distributable surplus.) (Soon* to be called ICICI Prudential Ultra Short Term Fund) The schemes invests with the aim to maintain a medium duration with focus on accrual income The scheme invests with the aim to maintain a low duration with focus on accrual income Savings Fund (Soon* to be called Floating Interest Fund) Regular Savings Fund (Soon* to be called Credit Risk Fund) The scheme invests predominantly in floating-rate instruments The scheme invests predominantly in AA and below rated credit instruments with a Hold-till-maturity approach The asset allocation and investment strategy will be as per the Scheme Information Document. *Effective from 28-May-18, please refer to the addendums published on our website CAD: Current Account Deficit 23

24 Update on Key Schemes 24

25 Sensex Levels BAF Net Equity Exposure (%) Balanced Advantage Fund: Aim to Benefit From Market Volatility S&P BSE Sensex Levels vis-a-vis BAF Net Equity Exposure (%) Stock Selection Blend of Large and Mid Cap Stocks Asset Allocation Net Equity Level Range 30-80% based on In- HouseModel Derivative Strategy Derivative Exposure for Hedging / Portfolio Rebalancing Sensex Level Net Equity Exposure % Source: BSE. BAF ICIC Prudential Balanced Advantage Fund. Portfolio as on 30 April, Net Equity level has been calculated by adding long positions and subtracting short positions from the net assets value and includes foreign equity and units of mutual fund. Gross equity exposure is maintained between % of the portfolio. The asset allocation and investment strategy will be as per the Scheme Information Document 25

26 Large-Cap Exposure (%) Focused Bluechip Equity Fund: Soon to be called Bluechip Fund* Focused Bluechip Equity Fund has been a True-to-Label Large Cap Scheme having an exposure of over 80% towards large-cap companies at all times Average: 92.2% Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 *Effective from 28-May-2018., please refer to the addendums published on our website The asset allocation and investment strategy will be as per Scheme Information Document. Largecap category is defined as companies with market capitalization above Rs 21, 493 crores. With effect from May 28, 2018, SEBI definition for largecap would be used i.e. 1st 100th company in terms of full market capitalization. 26

27 Accrual - Based Schemes Well Researched Credit Universe Based on various filters, qualitative and quantitative research Broadened Exposure Scheme Name Regular Income Fund** Revised Scheme Name* Ultra Short Term Fund Modified Duration (In Yrs.) Yield-To- Maturity (%) Mitigating concentration risk by diversification Managing Duration Risk Clearly defined modified duration range Regular Savings Fund Corporate Bond Fund Credit Risk Fund Medium Term Bond Fund Strict Internal Limits at Issuer Level and rating level The asset allocation and investment strategy will be as per Scheme Information Document; Data as on April 30, 2018; ** Regular Income Fund (An open-ended income scheme. Income is not assured and is subject to the availability of distributable surplus.) The asset allocation and investment strategy will be as per the Scheme Information Document. *Effective from 28 May, 2018, please refer to the addendums published on our website Past Performance may or may not be sustained in future. 27

28 Riskometers Dynamic Plan is suitable for investors who are seeking*: Long term wealth creation solution A diversifed equity fund that aims for growth by investing in equity and debt (for defensive considerations) *Investors should consult their financial advisers if in doubt about whether the product is suitable for them Equity & Debt Fund is suitable for investors who are seeking*: Long term wealth creation solution A balanced fund aiming for long term capital appreciation and current income by investing in equity as well as fixed income securities. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them Balanced Advantage Fund is suitable for investors who are seeking*: Long term wealth creation solution An equity fund that aims for growth by investing in equity and derivatives. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them 28

29 Riskometers Focused Bluechip Equity Fund is suitable for investors who are seeking*: Long term wealth creation solution A focused large cap equity fund that aims for growth by investing in companies in the large cap category *Investors should consult their financial advisers if in doubt about whether the product is suitable for them Value Discovery Fund is suitable for investors who are seeking*: Long term wealth creation solution A diversified equity fund that aims to generate returns by investing in stocks with attractive valuations *Investors should consult their financial advisers if in doubt about whether the product is suitable for them Top 100 Fund is suitable for investors who are seeking*: Long term wealth creation solution An equity fund that aims to provide long term capital appreciation by predominantly investing in equity and equity related securities. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them 29

30 Riskometers Equity Income Fund is suitable for investors who are seeking*: Long term wealth creation solution An equity scheme that seeks to generate regular income through investments in fixed income securities, arbitrage and other derivative strategies and aim for long term capital appreciation by investing in equity and equity related instruments. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them Exports and Other Services Fund is suitable for investors who are seeking*: Long term wealth creation solution An equity fund that aims for growth by predominantly investing in companies belonging to the service industry. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them Multicap Fund is suitable for investors who are seeking*: Long term wealth creation solution A growth oriented equity fund that invests in equity and equity related securities of core sectors and associated feeder industries. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them 30

31 Riskometers Savings Fund is suitable for investors who are seeking*: Short term savings solution A debt fund that invests in debt and money market instruments of various maturities with an aim to maximise income while maintaining an optimum balance of yield, safety, and liquidity. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them Regular Income Fund (An open-ended income scheme. Income is not assured and is subject to the availability of distributable surplus.) This product is suitable for investors who are seeking*: Medium term regular income solution A hybrid fund that aims to generate regular income through investments primarily in debt and money market instruments and long term capital appreciation by investing a portion in equity. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them FMCG Fund is suitable for investors who are seeking*: Long term wealth creation solution An equity fund that primarily invests in a select group of companies in the FMCG sector. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them 31

32 Riskometers MIP 25 (An Open Ended Income Scheme. Monthly income is not assured and is subject to the availability of distributable surplus.) This Product is suitable for investors who are seeking*: Medium to Long term regular income solution A hybrid fund that aims to generate regular income through investments primarily in debt and money market instruments and long term capital appreciation by investing a portion in equity. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them Regular Savings Fund is suitable for investors who are seeking*: Medium term savings solution A debt fund that aims to deliver consistent performance by investing in a basket of debt and money market instruments with a view to provide reasonable returns while maintaining optimum balance of safety, liquidity and yield. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them Corporate Bond Fund is suitable for investors who are seeking*: Long term savings solution A debt fund that invests in debt and money market instruments of various maturities with a view to maximise income while maintaining optimum balance of yield, safety and liquidity. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them 32

33 Riskometers Short Term Plan is suitable for investors who are seeking*: Short term income generation and capital appreciation solution A debt fund that aims to generate income by investing in a range of debt and money market instruments of various maturities. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them Long Term Plan is suitable for investors who are seeking*: Medium term savings solution A Debt Fund that invests in debt and money market instruments with a view to maximise income while maintaining optimum balance of yield, safety and liquidity. *Investors should consult their financial advisers if in doubt about whether the product is suitable for them 33

34 Disclaimer for Mutual Funds Mutual Fund investments are subject to market risks, read all scheme related documents carefully. All figures and other data given in this document are dated. 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 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 Mutual Fund. Past Performance may or may not be sustained in future. Disclaimer: In the preparation of the material contained in this document, Asset Management Company Ltd. (the AMC) has used information that is publicly available, including information developed in-house. The stock(s)/sector(s) mentioned in this slide do not constitute any recommendation and Mutual Fund may or may not have any future position in this stock(s). 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. 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 or investment advice. The recipient alone shall be fully responsible/are liable for any decision taken on this material. The sector(s)/stock(s) mentioned in this presentation do not constitute any recommendation of the same and Mutual Fund may or may not have any future position in these sector(s)/stock(s). 34