14 March 2014 Time to SIP in Banking 1of 16
Bank Nifty bottomed out 2of 16 Source: Bloomberg
Improving Macro Economic Scenario Economic growth close to bottoming out, with GDP rising 4.7% Q o Q. Q Current Account Deficit estimated down to 1.9% of GDP in FY14 from 4.8% in FY2013. Exportsfall but biggerdecline in imports keepingtrade deficit low. Improvement in Policy Environment driven by expected New Govt at Centre. 3of 16
Economic Scenario hinting i at a rate cut Fiscal Deficit estimated to be curbed below 4.8% of GDP. Inflation WPI: Decelerated to 4.68% in Feb 14 from a high of 7.52% in Nov 13. Inflation CPI: 8.79% for themonth h of January is lowest inthe last 3 years. Index for Industrial Production (IIP) weak for the last few quarters. 4 % IIP gro owth 3 2 1 0-1 -2-3 0.6 3.5 1.5-2.5-1.8 2.6 0.4 2.7-1.6-1.3-0.6 0.1 4of 16 Source: Bloomberg
Rate Cut -Is it good for banking sector? Cut in key rates has a positive impact on the banks Higher Net Interest Margin (NIM): Outstanding Lending at Higher Rate New deposits at lower rates brings down cost of funds Credit Expansion: Rate cut gets transmitted into lower lending rates in the near term, leading to credit growth. Though the actual impact of rate cut may take some time on the financials of the bank but it gets priced in immediately in the stock price even before rate cut based on the hint / general expectation of a rate cut. 5of 16
Banking Sector -Reasonable Valuations Bank Nifty Current 5 Yr Avg % Discount P/E 12.36x 13.22x 6.51% P/B 1.72x 2.02x 14.85% Interest rates and bond yields are at the peak. Corporate Earnings cycle has bottomed out and is recovering with high probability of ~20% growth over next 3 years. Market Cap to GDP of ~65% is reasonable pricing (much lower than 90% in 2010) and portends a favourable risk reward equation. 6of 16
Investment t Strategy t SIP/STP We believe Banking Sector can go up 20 25% over the next 18 months, may be with some volatility in the short term. Rate cut may not be announced immediately, hence we have time in hand to accumulate systematically over a period of time. At this juncture we recommend following 18 months strategy i. Start a SIP/ STP^ in Banking Fund NOW for the next 6 months. ii. Thenholdfor the next12 months. This strategy provides the scope for accumulation over the next 6 months and then staying put for the next 12 months. Those who can do lumpsum investment, go for STP mode wherein initial investmentcanbemadeinicici Pru Savings Fund A liquid fund offering 9.25% return since 1 year as on 13 March 2014 MUCH BETTER THAN BANK SAVING A/C) Then from Liquid Fund investment will happen in Banking Fund on monthly basis. ^ Monthly Systematic Investment Plan / Systematic Transfer Plan 7of 16
Plan to achieve Rs. 10 Lakh How to get Rs. 10 lakh at the end of 18 months? Start an SIP/ STP of Rs. 1.25 lakh per month for 6 months in Banking Fund. Hold for next 12 months once SIP/STP is over. We expect 25% p.a return from the Banking Fund at this point in time. Investment per month Rs. 125,000 SIP/STP Tenure Total Investment Rs. 750,000 6 months Holding period 12 months Expected dinterest trt Rate 25% p.a. Value of Investment at the end of 18 months Rs. 10 Lakh 8of 16
Banking Funds Due for a RISE Fund Rating Launch Net Assets (Cr) 3 Month 1 Year 3 Year 5 Year 10 Year Reliance Banking *** May 03 1452 6.42 0.28 3.18 28.14 20.53 UTI Banking Sector *** Apr 04 308 6.99 0.71 2.38 24.77 ICICI Pru Banking and Fin Ser ***** Aug 08 262 3.62 4.84 8.32 28.09 Sundaram Financial Ser Opp ** May 08 135 6.25 1.83 0.19 22.89 Religare Invesco Banking **** Jun 08 57 6.70 2.08 4.96 26.51 CNX Bank 6.81 3.09 4.16 27.28 16.34 CNX Nifty Index 5.26 10.97 6.02 19.00 13.60 CNX PSU Bank 3.55 26.67 16.77 11.36 8.23 S&P BSE Bankex 6.79 2.47 4.33 28.35 17.00 Returns less than 1 year are absolute and for more than 1 year is compounded annualized as on 13 March, 2014. 9of 16
Our Winner: ICICI Pru Banking & Financial Services Fund Fund Objective Net Assets Trend To generate long term capital appreciation to unit holdersfromaportfolio Month Rs. Crs. that is invested predominantly in equity and equity related securities of Feb, 2014 241 companies engaged in banking and financial services. However, there can be Jan, 2014 234 no assurance that the investment objective of the Scheme will be realized. Dec, 2013 261 Fund Highlights Fund Statistics Net Assets as on (28 Feb 2014 ) [Rs. 241 Total Stocks 17 Crs.] Total Sectors 8 NAV as on (13 Growth (G) 22.32 Mar 2014 ) Dividend (D) P/E Ratio 12.3 18.72 52 Week High NAV (G){17 May 2013} 23.08 P/B Ratio 2 52 Week Low NAV (G) {28 Aug 2013} 16.59 Holding Concentration (%) Min Investment (in Lumpsum 5,000 Top 5 Stocks 57.32% Rs.) SIP 1,000 Top 10 Stocks 80.24% Type Open ended Top 5 Sectors 88.64% Category Equity Sector Funds Top 10 Sectors 97.58% Launch Date 22 Aug 08 Fund Manager Venkatesh Sanjeevi Benchmark S&P BSE BANKEX Max. Exit Load (%) 1 10 of 16
Returns & Portfolio Allocation Return Performance (%) as on 13 Mar 2014 Period Fund Benchmark Nifty 3 Months 3.62 6.79 5.26 6 Months 18.60 19.51 10.98 1 Year 4.84 2.47 10.97 2 Years 13.16 6.10 9.36 3 Years 8.32 4.33 6.02 5 year 28.09 28.35 19.00 Top 10 Stocks (%) Top 10 Sectors (%) Name (%) HDFC Bank Ltd. 18.49 Bank Private ICICI Bank Ltd. 16.91 Bank Public State Bank Of India 10.16 Finance NBFC Bank kof Baroda 662 6.62 Finance Housing Repco Home Finance Ltd. 5.14 Power Finance Corporation Ltd. 5.01 Finance Term Lending ING Vysya Bank Ltd. 4.99 Diversified Max India Ltd. 4.79 Finance Investment Bajaj Finserv Ltd. 4.14 Other The Federal Bank Ltd. 3.99 Total 80.24 Market Cap Allocation % 80.88 Returns for less than 1 year are absolute and over 1 year are compounded annualized as on 13 Mar 2014. Large 6.55 5.14 5.01 4.79 4.14 2.04 23.35 19.12 Mid 48.96 11 of 16
Fund Performance 250.00% 200.00% Fund Performance Vis a Vis Benchmark & Nifty 150.00% 100.00% 50.00% 0.00% 50.00% 100.00% Fund BenchMark Nifty 12 of 16
SIP Returns Systematic Investment Plan (SIP) Returns as on 13 Mar 2014 SIP of Rs. 10,000 p.m. Period 1 year 3 years 5 years Since Inc SIP Start Date 01 Apr 13 01 Apr 11 01 Apr 09 22 Sep 08 Total Amt Invested 1.20 lacs 3.60 lacs 6.00 lacs 6.60 lacs Present Value 1.31 lacs 4.32 lacs 8.07 lacs 9.86 lacs Return (XIRR) 20.24% 24% 12.71% 12.03% 14.65% Present Value if invested in Benchmark 1.33 lacs 4.10 lacs 7.51 lacs 9.22 lacs Return (XIRR) from Benchmark 23.06% 8.94% 9.07% 12.19% If you had invested Rs. 10,000 per month since inception in ICICI Prudential Banking & Financial Services Fund, your investment of Rs.6.60 lacs would be worth Rs. 9.86 lacs against Benchmark (S&P BSE BANKEX) which would be worth Rs.9.22 lacs 13 of 16
Best / Worst Returns Best / Worst Returns Since Inception Best Returns (%) Period Fund Benchmark Monthly 20/01/14 to 20/02/14 42.34 527 5.27 Quarterly 09/03/09 to 11/06/09 95.32 126.04 Yearly 09/03/09 to 11/03/10 151.17 184.83 Worst Returns (%) Monthly 26/09/08 to 27/10/08 25.59 31.94 Quarterly 02/09/08 to 02/12/08 33.43 40.42 Yearly 31/12/10 to 02/01/12 31.25 31.4 Since inception rolling returns are calculated on daily basis to calculate Best and Worst Returns for specified period. 14 of 16
Risk Inflation, fiscal deficit (and financing of the same) and international crude price rise beyond comfort levell of $110 are the likelyl obstacles for the economy and the markets as they seek higher levels of growth and returns respectively. US Fed taper impact has been largely discounted by the debt market already. Equity flows may face some volatility in the short term on account of taper. Concerns over slowdown in China and Ukraine Crisis can augment risk off sentiments and cause short term volatility in the markets. 15 of 16
Kiran Nate Analyst Mutual Funds Fortune Group Kalpataru Heritage, 4th Floor, 127 M G Road, Fort, Mumbai, 400 001. Tel: +91 22-4051 2546 (Dir), Fax: 022-2263 3285 (E) kiran.nate@ffsil.com (W) www.fortune.co.in Disclaimer Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the schemes or that the schemes objectives will be achieved. As with any investment in securities, the NAV of the units issued under the schemes can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor /the AMC/the Mutual Fund does not indicate the future performance of the schemes. Please read the scheme information documents of the scheme and the statement of additional information before investing. 16 of 16