Market Outlook June 2018

Transcription

1 Market Outlook June 2018

2 Equity Markets

3 2-May 3-May 4-May 5-May 6-May 7-May 8-May 9-May 10-May 11-May 12-May 13-May 14-May 15-May 16-May 17-May 18-May 19-May 20-May 21-May 22-May 23-May 24-May 25-May 26-May 27-May 28-May 29-May 30-May 31-May Performance of Sensex and Nifty Indices Tepid US jobs data eased fears of faster rate hikes by the US Fed S&P BSE Sensex (LHS) US President pulled out from the international nuclear deal with Iran BJP emerged as the single largest party in the Karnataka State election Nifty 50 (RHS) Rising crude prices Political uncertainty in Karnataka Weak Indian Rupee Sharp rally in HDFC Bank ahead of the opening of the FII buying window Crude oil prices softened Robust Auto Sales Data Predictions of normal southwest monsoon Source: Bloomberg, Kotak Institutional Equites

4 Key Events May 2018 GDP Growth: India's GDP grows at robust 7.7% in Q4 of FY18, full year growth at 6.7% Karnataka Elections: BJP emerged as the single largest party (104 of 222 seats). Post-election, we saw major upheaval with BJP first forming the government before subsequently the Cong-JD(S) coalition coming to power with H D Kumaraswamy sworn in as CM. Monsoon: The south-west monsoon hit Kerala on 29 May, 3 days ahead of schedule. India is likely to witness the third successive normal monsoon with IMD forecasting a normal monsoon at 97% of long period average. Trade Deficit: Apr trade deficit remained unchanged at $13.7bn, while exports expanded 5.2% YoY led by growth in engineering goods, drugs and pharma. Imports growth slowed further to 4.6% (lower than previous 7.1%). Inflation: CPI inflation spiked for the first time in 3 months, rising to 4.58% from 4.28% in Mar, higher than expectations. Core inflation (CPI ex-food ex-fuel) surprised with a 5.9% rise YoY from 5.4% in Mar. Wholesale prices also breached a fourmonth high of 3.18% in the month, on the back of rising crude oil and food prices. Indian equities moved sideways in May on the back of mixed political news, Q4 results and outflows from FIIs and FPIs. 4

5 Mughal-E-Azam Market Salim Will Not Let You Die & I Will Not Let You Live Markets - Improving Business - Good Monsoon - MF Flows -Oil Risks -Political Risks -Credit Squeeze 5

6 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Increasing Crude Oil Prices Poses A Risk For Fiscal & Current Account Deficit Brent Crude (USD) Brent Crude Oil price rose to $77.59 from $75.17 in the previous month. Inventories of crude that had built up during the glut of have largely been worked off because of strong demand driven by a booming global economy and supply cuts by Opec and Russia. Oil prices have risen 16% this year -- half of this increase reflects stronger global demand. The rest is probably due to heightened tensions with Iran and other supply shocks. The return of U.S. sanctions could crimp Iranian oil exports, but the global supply shock might be mitigated by increased pumping elsewhere, according to the analysis. 6 Data as on 31 st May 2018, Source : Bloomberg

7 Fiscal Threat Of 40-50bp If Crude Remains Above $70 7 Source : CLSA, PPAC, Budget Documents

8 India s CAD Vs Average Oil Price Trend 8 Source : CLSA, RBI

9 Karnataka State Polls Highlight Political Risks In The Run Up To 2019 Polls BJP Emerged as a single largest party but fell short of halfway mark Congress managed to secure the backing from the King Maker JDS, by offering the crown.may alter political combine in the run up to 2019 elections 9 Source: The Hindu newspaper

10 Credit Squeeze for SME, Micro and Mini Enterprise 11 out of 21 PSU Banks Under PCA* Volatile Currency Movement Tight Liquidity Volatile Interest Rates Non-PCA PSU banks are also not lending freely 10 *Prompt Corrective Action:To ensure that banks don't go bust, RBI has put in place some trigger points to assess, monitor, control and take corrective actions on banks which are weak and troubled squeezing their ability to lend

11 But.Auto Sales Picking Up Auto Sales for May 11 Source: Bloomberg, Company Filings

12 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 Auto Sales Picking Up Discretionary Spend Rising Passenger Vehicles (YoY%) Commercial Vehicles (YoY%) 2W (YoY%) Total (YoY%) (20) (40) 12 Source : Bloomberg

13 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 Tractor Sales Picking Up Tractor (YoY%) (10) 13 Source : Bloomberg

14 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 Airline Travel Picking Up Domestic pax flown by airlines (YoY%) Source : Bloomberg

15 Airports Are Getting Busier 15 Source : Financial Express

16 Urban Consumption Is Good 16 Source : Times of India newspaper

17 Urban Consumption Is Good Same Store Sales Growth in and was 27 % & 35% yoy in March 18 Quarter Respectively 17 Source : Financial Chronicle

18 Urban Consumption Is Good 18 Source : Box Office India

19 Bollywood Is Doing Well Earnings of 1 Q (Rs. Cr.) 2.57 times in 4 years Source : Box Office India

20 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 Cement Volume Growth Picking Up Cement Production (YoY%) 0 (5) 20 Source : Bloomberg

21 Rural Is Doing Good 21 Source : Financial Express

22 MFI Recovery In Rural Sector NPA of Bharat Financial Inclusion 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 6.00% 6.00% 5.20% 4.60% 2.70% 2.40% 1.00% 0.30% 0.20% 0.10% Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Gross NPA (%) Net NPA (%) 22 Source : Investec Company Reports

23 GST Buoyancy Not Only Is Tax Collection, But Also In Number Of Returns Filed Month GSTR-3B filed (In Lakhs) Tax Collected (In Rs Crore) Apr ,016 Mar ,000 Feb ,264 Jan ,047 Dec ,929 Nov ,716 Oct ,931 Sep ,132 Aug ,029 Jul , Source : CLSA

24 Monsoon Progressing Normally India is likely to receive normal rainfall during the 4 months of the southwest monsoon season this year as per IMD 24 Source : AccuWeather

25 India Is Back To Being The Fastest Growing Major Economy 25 Source : IMF

26 26 Pitch Has Changed

27 Salim & Akbar Making The Pitch Turn Markets - Improving Business - Good Monsoon - MF Flows -Oil Risks -Political Risks -Credit Squeeze 27

28 Supply Is At All Time High 28 Source : Bloomberg, Prime Database, BSE, CLSA

29 But India Is Investing Wisely Mutual Fund Flows 29 Source : CLSA

30 India Has Managed Bigger FII Outflows From Debt & Equity Markets In CY 2018 YTD Than Global Financial Crisis Year Of 2008 Net Investments by FPIs, DIIs and MFs in the cash market (US$ mn) 30 Notes: (a) DII -Domestic Institutional Investors (Includes Bank, DFIs, Insurance, New Pension Scheme and MF). Source: Bloomberg, Kotak Institutional Equities

31 Overall Results Positive - Barring Telecom and Corporate facing Banks. 66% of Nifty50 Companies show beats or in-line results Nifty 4QFY18 earnings results summary 31 % oya over year ago, Source: MSCI, J.P Morgan, Bloomberg, Consensus estimates used if J.P Morgan estimates are unavailable

32 32 Join The Ride - Lock The Belt

33 Market Performance

34 Strong Performance By Majority Sectors In 1 year period Pharma, PSU and Power lagging in returns (%) (5) (10) (15) (0.8) (1.8) (4.7) (8.0) (0.1) 11.7 (3.7) IT Services Tech Metals Realty Bankex FMCG Capital Goods (0.0) (4.1) (5.3) (4.9) (4.1) (8.1) (9.0) Auto Oil & Gas Power Healthcare PSU 1m return % 1 yr return % 34 *As on 31 May 2018, Source: Axis Capital, Bloomberg

35 In percent Performance Across Market Cap - Midcaps and Smallcaps corrected sharply during month (5) (10) (0.0) (6.8) (6.3) Nifty Nifty Midcap S&P BSE Smallcap 1m returns 1y returns 3 yr CAGR 5 yr CAGR 10 yr CAGR 35 *As on 31 May 2018, Source: Bloomberg, Past Performance may or may not sustain in the future

36 Most Global Markets Had Strong Showing In The Last 1 Year Brazil (IBOV) Russia (IMOEX) HK (HSI) US (Dow Jones) Japan (Nikkei 225) China (HSCEI) India (Nifty) Taiwan (TSWE) Singapore (Straits) (10.9) (0.2) (1.1) (1.2) (2.9) (0.0) (5.1) Indonesia (JCI) Korea (Kospi) France (CACS 40) UK (FTSE 100) Germany (DAX) Malaysia (KLCI - FTSE) EURO (Euro Stoxx 50) Swiss (SMI) (0.2) (3.7) (2.2) (0.1) (0.1) (6.9) (1.4) (3.7) (4.2) (4.8) (6.2) M 1Yr (20) * As on 31 May 2018, Source: Bloomberg. Performance data in local currency

37 Valuations

38 Markets Are Priced To Perfection 16 Jan 2018 BSE Sensex BSE Mid Cap BSE Small Cap 10 Y Avg Price to Book Ratio Current Price to Book Ratio Price to Book Ratio Premium 10 % 25 % 33 % 4 June Y Avg Price to Book Ratio Current Price to Book Ratio Price to Book Ratio Premium 7 % 22 % 14 % 38 Source: Bloomberg

39 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 May 2018, Source: Axis Capital, Bloomberg, Note: * Since April Max Top Quartile Current Lower Quartile Min

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

41 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-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 May-91 May-92 May-93 May-94 May-95 May-96 May-97 May-98 May-99 May-00 May-01 May-02 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May E 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

42 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 42

43 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Sensex P/E FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Mar-18 FY18E Mar-19 FY19E Mar-20 FY20E ,024 1,109 1,179 1,334 1,347 1,330 1,329 1,429 1,685 2,202 Sensex EPS Earnings Growth Visibility Is Key FY93-FY17: 12% CAGR FY03-08: 25% CAGR FY08-17: 5.3% CAGR FY17-20E: 18.3% CAGR FY93-96: 45% CAGR FY96-03: 1% CAGR 30 Sensex P/E (x) Sensex CAGR 14% Sensex CAGR -1% Sensex CAGR 39% Sensex CAGR -1% Average of 15.3x FY93-97 FY98-03 FY05-09 FY10-17 FY18-20e 43 Source : Internal Calculation, Past performance is not a reliable indicator of expected future performance

44 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 44 Signify Growth

45 Strategy For Investments In The Current Scenario 1- Kumbhkaran (Invest & forget) Or 2- Asset Allocation 45

46 Key Recommendations Key theme Large Cap play on buying sectoral leaders that benefit from improving investment climate Balance of IQ and EQ Remarks Kotak Bluechip Fund (Erstwhile Kotak 50) Kotak India EQ Contra Fund (Erstwhile Kotak Classic Equity) Diversified/Multicap focus on sectors that are likely to benefit the most across market cap Multicap Large and Midcap Kotak Standard Multicap Fund (Erstwhile Kotak Select Focus) Kotak Equity Opportunities Fund (Erstwhile Kotak Opportunities Fund) 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 Kotak Infrastructure & Economic Reforms Fund Kotak Emerging Equities Fund Kotak Tax Saver Fund Kotak Equity Hybrid Fund (Erstwhile Kotak Balanced Fund) 46 We recommend investors to invest through SIP with a 5 years horizon.

47 DEBT MARKETS

48 How May 2018 Unfolded CPI rises to 4.6% in Apr-18, as per market expectations. Tightening Liquidity: Due to lackluster activity by the banks in credit market despite positive liquidity yields harden Bond Market Yields continue to harden. The 10 yr gilt rose to 7.83%. Brent Crude oil peaked at 80$ a barrel 48

49 2-May 3-May 4-May 5-May 6-May 7-May 8-May 9-May 10-May 11-May 12-May 13-May 14-May 15-May 16-May 17-May 18-May 19-May 20-May 21-May 22-May 23-May 24-May 25-May 26-May 27-May 28-May 29-May 30-May 31-May 10 year Gilt Yield For the Month of May Announced OMO worth Rs. 10,000 crore India 10 year Gilt Yield (%) Trump withdraws from the Iran Nuclear Deal Oil Price rise due to trump walks out of iran deal and absence of OMO from RBI OPEC, Russia look to raise output. Russia says 80 dollar crude hurting the consumer Source: Bloomberg, Data as of 31 st May 2018

50 Yield Curve (M-o-m Analysis) Update Chart INR India Sovereign Curve Last Mid YTM INR India Sovereign Curve 01/05/18 Mid YTM 3M 6M 2Y 3Y 4Y 5Y 7Y 8Y 9Y 10Y 11Y 12Y 13Y 14Y 17Y 40Y 22 YTM (M-o-M Change 3M 6M 2Y 3Y 4Y 5Y 7Y 8Y 9Y 10Y 11Y 12Y 13Y 14Y 17Y 40Y The yields at the short end harden more than the long end clearly suggesting that its liquidity issue. At flat to inverted curve we find value in segment. Its going to be a volatile ride going ahead. 50 Source: Bloomberg

51 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 From Liquidity Surplus to Liquidity Neutral 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

52 Incremental Liquidity was Declining During the Apr-May Period May-18 Apr-18 Mar-18 Feb-18 Jan-18 Dec-17 Nov-17 Oct-17 Sep-17 Aug-17 Jul-17 Jun-17 May-17 Apr-17 Mar-17 Feb Source: Bloomberg. Rs in Crs

53 Impaired Loan Ratio Plateauing In The Banking System ^For all banks as per RBI. 53 This can help the banking sector to restart the lending activity ^A loan is impaired when it is probable that the bank will be unable to collect all amounts due (including both interest and principal) according to the contractual terms of the loan agreement

54 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Credit Growth Slowly Picking Up Credit Growth (Weekly Data) Current Credit/ Deposit Ratio is ~75.06% (RHS) Commercial Credit by Banks = Rs lakh Crore (LHS) Credit growth has picked up by 10-12% as compared to last year. 54 Source: Bloomberg, Data as on 31 st May 2018

55 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 CPI Inflation: We expect the Inflation to remain within the RBI Band 12% 10% 8% 6% CPI Core CPI 5.9% 4% 2% % The CPI inflation increased to a three-month high 4.6% in April 2018 (+3.0% in April 2017) from 4.3% in Mar 2018 (+3.9% in March The core-cpi inflation rose to a 44-month high 5.9% in April 2018 from 5.4% in March On an MoM basis, the core-cpi sub-index increased by 0.7% in April 2018, sharply higher than the 0.2% uptick in April Notably, the wedge between headline and core-cpi inflation widened to 10-month high 134 bps in April The urban CPI inflation increased to 4.4% in April 2018 from 4.1% in March 2018 The rural CPI inflation increased to 4.7% in April 2018 from 4.4% in March Source: MOSPI

56 Spreads Between 10 Year & Repo -10 year bond yield spread over repo similar to the 2013 rate hike cycle May-18 Nov-17 May-17 Nov-16 May-16 Nov-15 May-15 Nov-14 May-14 Nov-13 May-13 Nov-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 Jul-06 Jan Yr GSEC Repo Spread Source: Bloomberg, Citi Research

57 Inflation Adjusted Yields In India Is Attractive India-US CPI Spread India-US Gilt Spread May-18 Mar-18 Jan-18 Nov-17 Sep-17 Jul-17 May-17 Mar-17 Jan-17 Nov-16 Sep-16 Jul-16 May-16 Mar-16 Jan-16 Nov-15 Sep-15 Jul-15 May-15 Mar-15 Jan-15 Nov-14 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Sep-13 Jul-13 May-13 Mar-13 Jan-13 Nov-12 Sep Narrowing CPI spreads and widening bond spreads make Indian fixed income attractive therefore risk of sharp outflow due to rates differential is unlikely 57 Note: 10 year Gilt Yield taken as average of their respective month. Data as of May 2018 (May 2018 CPI is assumed to be same as April Source: Bloomberg

58 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Global Bond Yields Sharp fall in UST due to risk off Year Gilt of Selected Countries US 10 Year UK 10 Year Germany 10 Year Japan 10 Year The Risk off sentiment was triggered due to political uncertainty in Italy leading to sharp rise in the Italy bond yields. 58 Data as of 31 st May Source: Bloomberg

59 Positive Real Interest Rates to Stimulate Financial Savings Source: Bloomberg -3 May-18 Feb-18 Nov-17 Aug-17 May-17 Feb-17 Nov-16 Aug-16 May-16 Feb-16 Nov-15 Aug-15 May-15 Feb-15 Nov-14 Aug-14 May-14 Feb-14 Nov-13 Aug-13 May-13 Feb-13 Nov-12 Aug-12 May-12 Feb-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 59 Note: Monthly 10 year Gilt Yield taken as average of their respective month. May 2018 CPI is assumed to be same as April-18 and Real Interest rate is calculated. Source: Bloomberg

60 Sharp Rise In Currency In Circulation And Declining FX May Lead To OMO Purchase By RBI 60 Source: Nomura, RBI.

61 Backdrop of the Upcoming Monetary Policy 61 Source: Business Standard, Bloomberg, CEIC, Standard Chartered Research

62 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 62 denotes fall in interest rates

63 Debt Outlook RBI surprised the markets by announcing the OMO of INR 10,000 cr in the beginning of the month which took the 10 yr bond yields down to 7.55%. However it was short lived as the follow through OMO announcement did not come and Brent crude oil prices hit 80$ which took the 10 yr bond yields to 7.94%, with the month closing at 7.83% The 10 yr Gsec spread vis-a-vis the repo rate is now at 183 bps. These levels are similar to those witnessed in the 2013 cycle in wake of the currency crisis. The CPI is expected to Inch up to % by July and peak around these levels: if we have normal monsoon, Brent stabilizes at current levels of 70-80$ mark; and there is nominal increase in MSP. The present gilt levels provide a real interest rate spread of more than 200 bps from peak CPI levels indicated above. Thus at these levels, the yields may be already discounting 1 to 2 rate hikes. Given that the Brent is hovering around 75-80$ mark and Q4 GDP print was better than expected; the probability of 1-2 repo rate hikes in calendar year 2018 has increased. However, as it is already priced in current yields across the curve, forward guidance and tone of monetary policy will decide the direction of yields. The yield levels at the shorter end are also discounting 1-2 rate hikes. Going forward, we expect the short term rates to stabilize around current levels with minor volatility 63

64 Key Recommendations Segment Scheme Rationale Accrual Play Kotak Credit Risk Fund (Erstwhile Kotak Income Opportunities Fund) / Kotak Medium Term Fund Investment for higher accrual Asset Allocation Short Term Parking of Funds 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 asset allocation 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 64

65 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 66 *Unrated papers that we invest in is generally very low and has implied credit risk which is moderate to low

66 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. 66

67 Categorization and Rationalization of Mutual Fund Schemes Categorization and Rationalization of Mutual Fund Schemes We believe - Funds are like kids. Don t have more than you can manage. - Because of this philosophy none of our schemes were required to be merged. There were a few change in names, which we have highlighted in Bold. Equity, Hybrid & FOFs changed with effect from May 25 th 2018 Debt schemes along with Kotak Opportunities & Kotak Classic Equity also changed with effect from June 1 st 2018 Please be mindful when considering past performance of schemes, since some schemes in the Industry will have change in characteristics/positioning post the standardization of scheme categories. 67

68 Scheme Categorisation - Equity Schemes Equity Funds 68

69 Scheme Categorisation - Equity Schemes Equity Funds 69

70 Scheme Categorisation : Hybrid Funds Debt Funds 70

71 Scheme Categorisation - Debt Schemes Hybrid Funds 71

72 Scheme Categorisation - Debt Schemes Hybrid Funds 72

73 Scheme Categorisation - Debt Schemes Hybrid Funds 73

74 Scheme Categorisation - Debt Schemes Hybrid Funds 74

75 Need to Watch Out for Opportunities in Hybrid Space

76 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 28 th April 2018 Past performance may or may not sustain in the future 76 Performance (%) as on 31 st April, 2018 Source: ICRA

77 Have You Noticed The Regular Dividends In Kotak Equity Hybrid(erstwhile Kotak Balance Fund? Record Date Rupees Per Unit Dividend Yield 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 % 26-Oct % 27-Sep % * 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 77 Source: ICRA

78 Our Initiatives

79 Leading the Way First AMC in India to Sign the United Nations supported principles for Responsible Investment Please click atimes.com/mf/mfnews/kotak-mutual-fundsigns-un-supportedprinciples-for-responsibleinvestment/articleshow/ cms for the Newspaper article 79 Source: MINT

80 Distributor Initiated Transaction Support to get your Business on the go 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 80

81 Go Digital Make your Digital Footprint 990 Distributors on Go Digital & Counting 81

82 Disclaimers & Disclosures

83 Performance (%) as on 30 th April, 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 76 for top 3 and bottom 3 schemes managed by & Mr. Abhishek Bisen

84 Other Funds Managed by Mr. Deepak Gupta Top 3 Funds Managed by Mr. Deepak Gupta 84 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 30 th April, 2018 Source: ICRA 84

85 Other Funds Managed by Mr. Deepak Gupta Bottom 3 Funds Managed by Mr. Deepak Gupta 85 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 28 th March, 2018 Source: ICRA 85

86 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. 86

87 Product Labeling 87 * Investors should consult their financial advisers if in doubt about whether the product is suitable for them

88 Product Labeling 88 * Investors should consult their financial advisers if in doubt about whether the product is suitable for them

89 89 Product Labeling