Monthly Market Outlook October 2017 Equity Fixed Income India A Bright Macro Spot Investing in Short to Medium duration
World Index (1 Month Return) 7.4 1 Month Return (%) 6.5 5.9 5.9 5.1 4.2 3.9 2.5 1.3 0.5 0.2 The news of improving health of the German economy helped the stock market remain in focus. -0.3-0.5-0.8-0.9-1.6 Indexes with negative returns belonged to India, China, HongKong, Singapore and Taiwan. 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; Switzerland Swiss Market Index; Taiwan ;India S&P BSE Sensex; Returns in % terms. Data Source: MFI; Returns are absolute returns calculated between Aug 31, 2017 Sep 30, 2017. Past performance may or may not be sustained in future.
Sector Index 4.7 3.1 2.7 1 Month Return (%) Among the Sectoral indexes Metal give positive returns followed by Auto and Healthcare. 1.3 1.0 1.0 0.6 0.6 0.3-0.1-0.7-0.9-1.1-1.2 Among the market-cap based index, the small-cap index had given the relatively more returns during the month. -2.7-4.4 Index 1 Month (%) S&P BSE Small Cap 2.92 S&P BSE Mid Cap 1.04 S&P BSE Sensex -0.33 All indexes 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 calculated between Aug 31, 2017 Sep 30, 2017. Past performance may or may not be sustained in future.
India Story India has gained significant traction among the investing community globally as the policy environment has been improving. Ease of doing business ranking has improved 139 132 134 142 130 130 Global competitiveness index ranking has improved significantly 59 60 71 55 39 2012 2013 2014 2015 2016 2017 2012-13 2013-14 2014-15 2015-16 2016-17 Source: CEIC; Macquarie Research, May 2017; Ease of doing business is Jan 31 of each year.
India s Asset Utilization vs. Peers India's absolute asset turn rises. As India s market is less dependent on the export. Therefore, the global slowdown had affected less. A controlled inflation also supported India in increasing demand over the last twothree years. Source: Worldscope, RIMES, MSCI, Morgan Stanley Research, report as on Oct 5, 2017; BRIC Brazil, Russia, India, China; EM Emerging Market
Net Margin: expands for the second year running As the net margins are higher in India as against the EM, we believe it can help the organised player even more post-gst. And over a period of time, the market is expected to do better. Source: Worldscope, RIMES, Morgan Stanley Research; report as on Oct 5, 2017; BRIC Brazil, Russia, India, China; EM Emerging Market
ROA: Significant improvement The Return on Assets have also improved in India. This reflects that the Indian management are conservative against the global peers. Source: RIMES, Worldscope, MSCI, Morgan Stanley Research; report as on Oct 5, 2017; BRIC Brazil, Russia, India, China; EM Emerging Market; ROA Return on Asset
FCF to Sales: FCF continues to improve Free Cash Flow (FCF) to Sales is a valuation ratio that measures a company's surplus cash flow against sales revenues. The ratio indicates how much of a company's revenue is transformed into cash. A high or improving ratio is considered as an indication of good investment. Source: RIMES, Worldscope, MSCI, Morgan Stanley Research; report as on Oct 5, 2017; BRIC Brazil, Russia, India, China; EM Emerging Market; FCF Free Cash Flows
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 FDI In US$ (Bn) FDI Flows 50 3.5% 40 30 20 10 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% % of GDP The interest of foreign investors can be gauged from higher level of Foreign Direct Investment. It has now again reached around 2% of GDP. 0 0.0% FDI % of GDP Source: CEIC; Macquarie Research, May 2017; FDI Foreign Direct Investment in US$ bn; GDP Gross Domestic Product
To Summarise Our Outlook For Equity Market optimism was impacted during the month of September 2017 due to: a) Geopolitical tensions pertaining to North Korea; b) Higher crude prices putting pressure on macro-economic variables; c) Weaker than expected GDP growth for Q1FY18; d) Concerns on widening fiscal deficit. It is likely that earnings may head back to their previous peak and the return on capital is now equal to the cost of debt after being below it for seven years. This may trigger greater capital spending by corporates. We continue to believe that the long-term India story remains intact. Current valuations in terms of Price-to- Earnings continue to remain at higher levels for the domestic markets as this does not take future earnings into perspective. As per consensus estimates of earnings, benchmark indices are trading at around 17x FY19. We believe the market is still in mid-cycle phase, as there is still no sign of over-heating in the market at a cyclical level, this reflects in low-capacity utilization. Also, lack of credit growth reflects scope for pick-up. In this mid-cycle, investors are recommended to invest in dynamic asset allocation Schemes as they are wellpositioned to benefit from market-cycles over long-term.
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; SIP Systematic Investment Plan; EIF ICICI Prudential Equity Income Fund; BAF ICICI Prudential Balanced Advantage 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. Equity Valuation Index 165 155 145 135 125 115 105 95 85 75 65 55 Book Partial Profits Stay Invested EIF/BAF Dynamic/Balanced Equity Valuatipn Index, 107.53 Multicap Schemes Midcap Schemes Our equity valuation index indicates that investors could invest in ICICI Prudential Equity Income Fund and ICICI Prudential Balanced Advantage Fund Investors with high risk appetite could consider investing lumpsum in large-cap oriented schemes and in thematic schemes encompassing infrastructure scheme.
Our Equity Recommendations Our Recommendations Equity Schemes Pure Equity Schemes ICICI Prudential Value Discovery Fund ICICI Prudential Top 100 Fund ICICI Prudential Multicap Fund ICICI Prudential Focused Bluechip Equity Fund ICICI Prudential Select Large Cap Fund These schemes are positioned aggressively to gain from recovery in the economy and commodity prices. These Schemes aim to generate long term wealth creation. Asset Allocation Schemes ICICI Prudential Balanced Advantage Fund ICICI Prudential Balanced Fund ICICI Prudential Dynamic Plan ICICI Prudential Equity Income Fund These schemes aim to benefit from volatility and can be suitable for investors aiming to participate in equities with low volatility. Theme-based schemes ICICI Prudential Infrastructure Fund Investors could invest in this thematic scheme for tactical allocation. It would be a high risk investment option. 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.
Fixed Income Investing in Short to Medium duration
Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 In % CPI is within comfort range 10 8 6 4 2 Inflation has risen mainly due to rise in food and fuel prices, which was previously in the negative space. Inflation excluding food and fuel prices has been stable. 0-2 We believe that inflation can be in line with RBI s (Reserve Bank of India) expectations with a downward bias. CPI Combined India CPI Food & Beverages Index CPI Combined - Consumer Price Index, WPI: Wholesale Price Index, Data as of August 2017
YoY Growth In % India Deposit vs. Credit Growth 35 30 25 20 15 10 5 Credit growth has bottomed out. We believe from this point onwards, credit growth is expected to increase. Credit Growth Deposit Growth Source: RBI; Data as on August 30, 2017
Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Currency Shows Resilience USD/INR 70 68 66 64 62 60 58 56 54 52 50 High Currency Volatility Low Currency Volatility The Indian Rupee has been in a relatively stable phase with the new government in power. Data as on September 2017. Past performance may or may not be sustained in future.
To Summarise Our Outlook For Fixed Income Despite acknowledging muted growth, the RBI kept the policy repo rate unchanged at 6% and maintained its neutral stance. This was mainly due to a 2.0 percentage point rise in inflation since August s policy meeting, increased financial market volatility on account of global developments (Fed balance sheet unwinding and policy normalisation by the ECB), higher oil prices and concerns over fiscal slippage. The RBI s decision to maintain the status quo is indicative of its inclination to look through the near-term outlook, which is clouded by transitory factors and concerns over higher core inflation. We expect inflation to remain in the range of 4.0-4.5% in H2 FY18 with downward bias. We believe that growth was muted due to low consumption demand on account of higher real rates (difference between RBI administered rates and inflation) and high savings. Slowdown in exports on account of an appreciating rupee may also have likely resulted in muted growth. The robust FPI flows to India driven by the high interest rate differential led to the appreciation in rupee. Against this backdrop we expect RBI to cut rates over the next 2-3 quarters to reduce the high real rates and support an acceleration in the GDP growth. However the possibility of fiscal slippages need to be closely monitored. Based on the factors mentioned above, we continue to hold moderately bullish stance on yields and recommend investors to invest in short to medium duration, dynamic duration and accrual schemes.
Debt Valuation Index 10 9 8 7 6 5 4 Aggressively in High Duration High Duration Moderate Duration 6.70 We recommend investors to invest in Moderate Duration schemes or ICICI Prudential Long Term Plan, a model-based scheme that aims to offer reasonable riskadjusted returns. 3 2 1 Low Duration Ultra Low Duration Long-term investors in debt are recommended to invest in Dynamic Duration schemes as they have flexibility to change duration stance. 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.
Fixed Income Mutual Funds Fixed Income Recommendations Accrual Schemes ICICI Prudential Corporate Bond Fund ICICI Prudential Regular Savings Fund ICICI Prudential Savings Fund ICICI Prudential Regular Income Fund (An open ended income scheme. Income is not assured and is subject to the availability of distributable surplus) These schemes are better suited for investors looking for accrual strategy. Dynamic Duration Schemes ICICI Prudential Dynamic Bond Fund ICICI Prudential Long Term Plan These scheme can dynamically change duration strategy based on market conditions. Short Duration Scheme ICICI Prudential Short Term Plan This scheme maintains short duration maturity. 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.
Riskometers ICICI Prudential 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) ICICI Prudential Balanced 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. ICICI Prudential 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.
Riskometers ICICI Prudential 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 ICICI Prudential 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 ICICI Prudential 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.
Riskometers ICICI Prudential Select Large Cap Fund is suitable for investors who are seeking*: Long term wealth creation solution An equity fund that aims to generate capital appreciation by investing in equity or equity related securities of companies forming part of S&P BSE 100 Index *Investors should consult their financial advisers if in doubt about whether the product is suitable for them ICICI Prudential 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 ICICI Prudential 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
Riskometers ICICI Prudential 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. ICICI Prudential 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. ICICI Prudential Dynamic Bond Fund is suitable for investors who are seeking*: Medium term wealth creation solution A debt fund that invests in Debt and money market instruments with a view to provide regular income and growth of capital.
Riskometers ICICI Prudential Infrastructure Fund is suitable for investors who are seeking*: Long term wealth creation solution An equity fund that aims for growth by primarily investing in securities of companies belonging to infrastructure and allied sectors. ICICI Prudential 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. ICICI Prudential Regular Income Fund (An open-ended income scheme. Income is not assured and is subject to the availability of distributable surplus.) This scheme 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.
Riskometers ICICI Prudential 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. ICICI Prudential 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. ICICI Prudential Liquid Plan is suitable for investors who are seeking*: Short term savings solution A liquid fund that aims to provide reasonable returns commensurate with low risk and providing a high level of liquidity.
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