MOSt
Advisor
Monthly Markets Newsletter
June 2017
In This Issue
•
Market Outlook for the month
•
Investment Ideas
• Equity Market Outlook
• Derivatives & Commodities Market Outlook
• Model Advisory Portfolios
• Recommended Funds
• Indian Entrepreneur Portfolio (IEP)
Key Highlights in May 2017 - New Highs
Domestic and FII fund inflows unabated
Q4FY17 results exceed expectations
Macroeconomic parameters decelerate
Dear Investor,
Market in May 2017:
Globally equities have raced to new
all-time highs. Buoyed by strong domestic and global cues,
Nifty soared and closed above 9650, a new all-time high
gaining over 0.61% for the week gone by. It's fifth consecutive
month of positive returns for headline indices, Nifty delivering
Global Market
Index
31-May 17
MoM (%)
YoY(%)
Sensex
Nifty
FTSE
Dow
Nasdaq
Hang Sang
31,146
9,621
7,520
21,009
6,199
25,661
4.1
3.4
4.4
0.3
2.5
4.2
16.8
17.9
20.7
18.1
25.3
23.3
around 3.4% in May. Strong domestic liquidity, good earnings
season, progress on GST, and prediction of normal monsoon ensured that the
momentum remained intact. Though, Midcaps have underperformed the Nifty for
the first time in five months, reflecting the expensive valuations in certain pockets
(midcaps trading at 7% premium to large caps). Liquidity remains benign, with FII
flows of USD1.5b and Domestic MFs flows also at USD1.5b in May.
Robust Q4FY17 earnings propelled the upward momentum. For the Nifty, sales grew
13.5%, EBITDA grew 4.6%, and PAT grew 15.2% (as opposed to general expectation
of around 10%). While the just-concluded earnings season was better than
expectations on aggregate, the internals do not suggest strong underlying operating
Economic Pulse
Key Indicators Current Mth
Pre. Mth
IIP
WPI
10 Year Yield
USD/ INR
Crude ($)
Gold (10 gms)
2.7%
3.85%
6.66%
64.5
50.31
28839
-1.2%
5.70%
6.96%
64.24
51.73
28887
recovery, as yet. Going forward, we note that GST could result in material changes
to our current optimistic 17% Nifty earnings growth forecast for FY18. We remain
concerned on valuations which appear a bit stretched; Indian equities are trading at
a P/E of around 19.7x FY18E earnings, at a 10% premium to the long-period average
of 17.3x. Indian equities have gained larger share in global equities pie. It's share
in the world market cap now stands at 2.6%, above at its long-term average of 2.4%.
Over last 12 months, world market cap has increased 17.6% (USD11.1t); India's
market cap has increased 33%.
Outlook June 2017:
RBI's monetary policy and Monsoon progress will chart trading
trajectory in the ensuing month. Broadly, economic macros remain a concern,
however, Q4FY17 corporate earnings update reflects green shoots , suggestive of
inclusive economic upturn aided by normal monsoons. Nifty band has expanded
which suggests a range of 9200 - 9750. Risk reward ratio is in favour of being cautious
while picking cherries on corrections.
Thought for the month
Dharmesh Kant
Vice President- Head - Retail Research
1
 Motilal Oswal Financial Services
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Monthly Markets Newsletter
Large Cap Investment Ideas,
Mid Cap Investment Ideas
Must Act
June 2017
Investment Ideas
√
The Ramco Cements (TRCL) is one of the top three cement producers in South India with
Ramco Cement
CMP*:
Target:
INR 724
INR 823
total capacity of 12.5mtpa (0.95mtpa in West Bengal and the balance in the South).
√
With ~12% market share in the south, strong brand recall, dealer network and competi-
tive pricing it is all set to reap benefits of higher demand coming from housing and infra
space.
BUY
√
We estimate 11% EBITDA and 20% PBT CAGR over FY17E-19E. Based on FY19E per
share target price of Ramco comes at INR823.
Equitas Holdings
CMP*:
Target:
INR 157
INR 210
√
With a presence in the MFI business (50% of AUM), Used Commercial Vehicles finance
(25%), MSME finance (20%) and Housing finance (5%).
√
Over last five years, EQUITAS recorded a CAGR of 50% in AUM, led by strong traction in
MFI business and commencement of new business lines
BUY
√
We expect earnings CAGR of 31% over FY17-21, driven by strong AUM CAGR of 27%
and operating leverage (from FY19). We expect 600bp+ improvement in C/I to ~58%
FY21. RoAs are expected to reduce to 1.9% in FY19 and ROEs to 14.3% in FY21 from
~9% in FY17.
√
BUY with target price of INR210.
SRF
CMP*:
Target:
INR 1,634
INR 1,816
√
SRF is a multi-business entity involved in Technical Textiles (TTB; 45% of FY15 revenue),
Chemicals (CB; 28%), and Packaging (PB; 27%).
√
We believe, once the global Agrochem bounces back, SRF will benefit the most as it has
got capacities in place and has only improved its R&D prowess over the years.
√
We expect it to post 15% revenue and adj. PAT to register 15% CAGR over FY17-19E.
BUY
We value the stock on SOTP basis and recommend Buy with a target price of INR1,816.
√
PI boasts of a unique business model-a strong R&D-led custom synthesis business (59% of
revenues) build over the last two decades, and an equally compelling domestic agro-
chemicals business (41% of revenues), largely built by in-licensing arrangements with
major global agro-chemicals innovators.
√
With a strong order book amounting to ~USD1bn, the CSM business has robust revenue
visibility, we thus expect 14% revenue /PAT CAGR over FY17-19E.
√
We believe PI is one of the best plays on India's agri sector and CSM opportunities. We
value the stock at 25x FY19E earnings and maintain Buy with a target price of INR952.
Data as on 31st May 2017.
PI Industries
CMP*:
Target:
INR 819
INR 952
BUY
2
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Monthly Markets Newsletter
Equity Market Outlook
Markets & Our Recommendations
June 2017
Equity Market Outlook
Technical Outlook
√
Nifty index continued its positive move for fifth consecutive month and regis-
tered a fresh life time high of 9650 with a monthly surge of 3.40%. On the
monthly chart Index made a long green candle suggesting that the bulls are in
control and the longer term players are still playing on the long side. The index
was held higher lead by a strong rally emerging in the FMCG, Finance and private
sector banks. This month we have an important RBI policy meet and market
√
participants will focus on the same, to get the next trigger.
On the weekly scale the index witnessed a steady rally and has been making
higher top - higher bottom formation. In this week Nifty remained in a range of
100 points and seems to be taking a pause after the swift rally in the previous
week. The overall trend on the weekly chart remains positive till it holds above
the previous high swing in the 9500-9532 zones while on the upside follow up
√
buying could extend its rally towards 9800 zones.
On the daily time frame the index shows some signs of fatigue but the overall
trend remains positive. There is a negative divergence between price and the
oscillator but still there are no real signs of a reversal in the index as the underly-
ing trend is still very strong. Now if it is sustained below 9580 only then a profit
booking could be seen towards 9532 while on the upside index needs to surpass
√
9635 zone to extend its up move towards the 9700-9750.
Bank Nifty outperformed the Nifty index as it gained by 4.77% compared to Nifty
gains of 3.40%. Bank Nifty registered a new high of 23469 lead by strong buying
in the Private Banking space. This week is very crucial and may turn volatile for
Bank Nifty as RBI policy is to be announced during the month. Bank Nifty has
major support at 22978 and below that short term trend may turn cautious with
the next support at 22750 and 22500 while a hold above 23300 could extend its
move towards 23800-24000 zones.
Strategy-
Strategy
The trend is intact, positive till the Nifty and Bank Nifty holds 9532
and 22978 levels respectively. Overall trend is up and the volatility is subdued,
so buy on declines is advised. The recent rally could extend and may take a new
leg if the upcoming RBI policy is favorable.
Detailed report available on- http://ftp.motilaloswal.com/emailer/Marketdiary/QuantitativeMonthly/MOStQuantitativeOutlookMonthly-June2017.pdf
USDINR
Nifty Weekly
Nifty Daily
Sectoral Highlights
Sector
Bank
Cement
Our Views
Positive
Positive
Top Pick
SBI
Ultratech Cement
MBP / MSP
Buy / 287
Buy / 4198
SL / TGT
280 / 303
4085 / 4425
Data as on 31st May 2017.
Note: #Technical view for 1 month perspective
3
 Motilal Oswal Financial Services
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Monthly Markets Newsletter
Derivatives Market Outlook,
Commodities Market Outlook
Markets & Our Recommendations
June 2017
Derivatives Market Outlook
SECTOR OI
Arvind- Call Ladder SpreadRs
Nifty witnessed higher rollover of 74.09% V/s 3 MA of 69%. Index gained 1.79%
sequentially E-o-E. Bank Nifty witnessed below average rollover of 60.60% V/s 3 MA
of 68%. Market-wide roll over were in line near to 80%. Overall long built up was
witnessed in Banks and selective NBFC stocks, Short covering was seen in Auto and
FMCG while short were seen in Pharma, Metals and Capital Goods stocks.
√
Auto: Auto sector witnessed rollover of 82%. Long built-up in Escorts
Buy 380 CE 1 lot; Sell 400 CE 1 lot; Sell 410 CE 1 lot
Target
: INR 15000
Stop Loss : INR 5000
Hedge
: Buy Future Above 425
√
√
√
√
√
√
√
√
Cement: Roll of 83%. Long liquidation in Ambujacem and ACC
Banks : Lower roll of 60.60%.
Infra: Rollover of 86% Long liquidation in IRB
Metal: In line rollover at 82%. Long built up in Jindalstel, Short covering in Tatasteel
Pharma: Rollover of 84%. Long in PEL, shorts in Glenmark, Biocon,
NBFC: Better rollover of 81%. Longs in Lichsgfin while short covering in Ibulhsgfin.
Oil & Gas: Rollover of 82%. Long liquidation in Gail while shorts added in ONGC
FMCG : Long built up in Hindunilvr, Godrecp and Short covering in ITC and Pidilitind
√
√
√
√
Arvind has respected its rising support trend line and reversed its
down move with the support of 365
Highest Put congestion is at 370 & 380 PE could provide support
Maximum Call OI is at 400 strike which could restrict its upside
momentum.
Thus low risk Call Ladder Spread is recommended
Commodities Market Outlook
Gold
√
Precious metals saw a very choppy trade last month and gold managed to recoup all the losses made during the month. The downside was
protected as safe haven demand remained strong amid geo-political developments and US political uncertainties. On the upside, Fed rate hike
expectations in June capped rallies.
√
On the demand side, buying and stocking by Indian jewellers may resume as clarity over GST emerged after it was fixed at 3%. Gold ETF's saw
an outflow of 43 tonnes last month, the biggest this year
√
In terms of US economic data, the first quarter has broadly seen mixed set of data and while growth is good, it still doesn't warrant more than
2 further Fed hikes this year. The Q1 GDP grew at 1.2%, the slowest pace in three years as consumer spending disappointed. Inflation has
firmed up this year but core PCE isn't growing fast enough to justify any hawkishness by the Fed. Labor market data, while good on the whole,
still has room to improve. Wage growth at 2.5% is still a good 100 bps lower compared to pre-recession levels
√
Political uncertainty in the US has also come to the forefront in the last few weeks. The FBI is investigating possible links between Trump's
presidential campaign and Russian officials trying to influence the election. Looking ahead, we believe the issue of North Korea and Donald
Trump's political challenges will keep the bias for gold bullish through this year. A June rate hike could lead to short-term price correction but
the overall emphasis remains on the bullish side
4
 Motilal Oswal Financial Services
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Advisor
Monthly Markets Newsletter
MOSt Multi Cap
For Whom :
Investment Duration :
Risk Profile :
Scrip
LIC Housing Fin
Hero Motocorp
Zee Entert.
HDFC Bank
C G Consumer Elec.
Can Fin Homes Ltd
Sterling Tools Ltd
P I Industries Ltd
SRF Ltd
Shriram City Union
Castrol India Ltd
Equitas Holdings
Cash
Total
MOSt Multi Cap , MOSt Velocity
Build a Portfolio
June 2017
Long Term Investors
Few months to a year
Moderate Investors
Wtg. Sectoral Allocation
10
10
10
10
5
5
5
5
5
5
5
5
5
15
100
Returns
3mth
6mth
12mth
We are recommending a MULTI-CAP approach instead of a
MIDCAP approach. The Multi-cap INVESTMENT will have the
following characteristics:
√
Corpus requirement to INR 10 Lakhs
√
50% in Large-cap and 50% in mid-cap
√
15 companies to invest in at the maximum, 10 minimum
√
Large-cap stocks are suitable for SIP investments as well
√
Adheres to our QGLP philosophy
CMP
734
3745
515
1636
223
2714
265
819
1634
2278
424
157
MOSt Multicap 10.6% 18.0% 43.9%
Sensex
BSE 200
8.4%
7.9%
16.9% 16.8%
17.1% 21.0%
Ramco Cements Ltd 724
Absolute returns as on 31 May 2017
MOSt Velocity
For Whom :
Investment Duration :
Risk Profile :
Scrip
Aurobindo Pharma
Lupin Ltd
Tata Motors
M&M Ltd
Bharat Forge
Cash
Total
Investment Norms: INR 10 lakhs (Model Corpus)
Medium Term Investors
Few months horizon
Moderate Investors
Wtg. Sectoral Allocation
15
15
10
10
10
40
100
Returns
Portfolio
BSE 200
3mth
1.2%
8.2%
6mth
12mth
√
Maximum stocks open : 10
√
Target Investment Horizon: 1 Year
√
Cash holding based on market direction call. Cash to be deployed
in case of sharp market falls
√
Occasional Hedging by buying options
√
Investment Rationale on every idea is provided
√
10% in a particular Stock and 30% (max) in a Sector
CMP
574
1161
476
1417
1170
15.3% 10.6%
19.3% 21.0%
Absolute returns as on 31st May 2017
5
 Motilal Oswal Financial Services
On This Page
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Advisor
Monthly Markets Newsletter
MOSt PMS - Model Portfolio
Managed Funds
June 2017
MOSt PMS
Value Strategy
√
Inception date: - 25th March 2003.
√
The Strategy aims to benefit from the Long term compounding effect on investments done
in good businesses, run by great business managers for superior wealth creation.
√
Value Strategy has the investment style of buying Undervalued stock & Sell overvalued
stocks, irrespective of Index Movements.
√
INR 1 Cr invested in Value PMS in March 2003 is worth Rs. 24.20 Crs vs. 9.51 Crs in Nifty
50 as on 31st May 2017, an outperformance of 14.69 Crs.
√
Since its inception, Value Strategy has delivered annualized returns of 25.16% vs. Nifty 50
returns of 17.20%, an outperformance of 7.96% (CAGR).
Top Holdings in Value Strategy
Scrips
HDFC Bank Ltd.
HDFC Ltd.
Kotak Mahindra Bank Ltd
Bharat Petroleum Corpn. Ltd
Bosch Ltd.
% Holdings
11.81
11.80
10.70
8.94
8.46
Sector Allocation
Banking & Finance
Auto & Auto Ancillaries
Oil and Gas
FMCG
Infotech
% Holdings
34.31
27.68
8.94
7.25
5.46
NTDOP Strategy
√
Inception date: - 5th Dec 2007.
√
The strategy aims to deliver superior returns by investing in focused themes which are part
of the next Trillion Dollar GDP growth opportunity. It aims to predominantly invest in Mid
Cap stocks with a focus on Identifying Emerging Stocks/Sectors.
√
In last 1 year, strategy has delivered a return of 37.21% CAGR vs. NIFTY Free float Midcap
100 is 31.73% CAGR i.e., NTDOP has delivered an alpha of 5.48%.
Top Holdings in NTDOP Strategy
Scrips
Kotak Mahindra Bank Ltd
Voltas Ltd.
Bajaj Finance Ltd
Eicher Motors Ltd.
Page Industries Ltd.
% Holdings
11.36
8.46
7.21
7.19
6.27
Sector Allocation
Banking & Finance
Auto & Auto Ancillaries
FMCG
Diversified
Oil and Gas
% Holdings
32.25
16.79
14.10
13.11
7.88
India Opportunity Portfolio Strategy
√
Inception date: - 15th Feb 2010.
√
The Strategy aims to benefit from the long term compounding effect on investments done
in good businesses, run by great business managers for superior wealth creation.
√
In last 1 year, IOP Strategy has delivered a returns of 64.99% vs Nifty Free Float Midcap 100
returns of 31.73%, i.e. delivered an alpha of 33.26%
√
Focus Theme for Next Five year: REVIVAL IN CAPEX CYCLE | MAKE IN INDIA | THIRD
TRILLION DOLLAR OPPORTUNITIES
√
Investment Approach: Buy & Hold
√
Investments with Long term perspective
√
Maximize post tax return due to Low Churn
All the above figures are of a model client. Returns shown above are calculated on NAV method "Returns shown above are
post fees & expenses". Past performance may or may not be sustained in future.
Top Holdings in IOP Strategy
Scrips
% Holdings
13.94
11.37
8.65
7.31
6.42
27.26
14.73
13.75
11.70
10.63
Data as on 31st May 2017.
Development Credit Bank Ltd
Birla Corporation Ltd.
AEGIS LOGISTICS LTD
QUESS CORP LTD
Canfin Home
Sector Allocation
Banking & Finance
Cement & Infrastructure
Oil and Gas
Consumer Durable
Pharmaceuticals
% Holdings
6
 Motilal Oswal Financial Services
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introducing ASK Investment Manager Pvt Ltd. PMS also to you
WHY ASK Investment Manager Pvt Ltd.:-
Investment Product
Indian Entrepreneur Portfolio (IEP)
June 2017
ASK IM's Indian Entrepreneur Portfolio (IEP)
As the golden mean of the two investment styles Concentrated Investing & diversified Investing, we recommend a focused portfolio approach.
Because, this offers the best of both world- adequate risk diversification & meaningful return magnification. With Motilal Oswal AMC PMS we are
√
The Company founded in 1983 by Asit & Sameer Kotichand. So, the company has 34 years of rich experience in Investment Manager.
√
In 2001 the company launched its FIRST PMS, which makes it the veteran PMS provider in the industry. ASK IM was the first to launch PMS in
2001, and currently managing the asset of Rs. 10,900 Cr. AUM (approx.).
√
PMS is the core business of ASK wherein 12 member investment management team & board member focus only on building PMS strategy.
√
Over and above this, Mr. Bharat Shah Executive Director ASK IM (ex-CIO of Birla MF) who has rich experience of more than 3 decades in managing
public money and building strong investment strategy.
Indian Entrepreneur Portfolio:
√
The strategy is built on entrepreneur concept wherein everybody can connect with the concept. The strategy is market cap agnostic and builds
portfolio which has companies which have more than 25% promoter holdings, high ROCE & high non-dilutive compounded EPS. Identify
business with competitive advantage that is significant sized (min. 100 Cr. PBT).
Performance snapshot of the portfolio:-
Key Highlights of IEP Portfolio:
√
IEP is the single largest portfolio in the country within the Discretionary Equity PMS Industry with INR 5,712 cr of Total Client Assets under
Discretionary and Advisory Portfolios as on 31st May 2017.
√
As on 31st May 2017, 1 crore invested in IEP in Jan 2010 is worth 4.09 cr vs 1.98 cr if invested in BSE 500 post fees and expenses.
√
IEP has outperformed Nifty50 25 out of 28 quarters i.e. an outperformance every quarter 89% of the time.
√
Since inception i.e. Jan 2010, IEP has compounded 21% vs 10% for BSE 500 i.e. a compounded outperformance of 11%.
√
Since inception IEP is No 3 performing equity strategy when compared among all diversified equity funds.
√
IEP has also been effective in protecting the downside in tough market conditions. Apart from FY17, during the worst downfalls of the market in
each of the 6 completed financial years, IEP has fallen less than its benchmark.
√
Since inception, IEP has also exhibited lower volatility (as measured in terms of standard deviation) when compared with the benchmark BSE 500
on a consistent basis.
√
Superior Risk Adjusted returns measured by Sharpe Ratio since inception.
√
One of the lowest churn portfolios i.e. Average churn of 0.35 - 0.40 each year for last 6 Financial Years (considering one of the representative
portfolios).
√
Since inception (i.e. 25th Jan 2010), the portfolio beta has been 0.72 vs BSE500 and 0.64 vs Nifty..
Note: Performance is as on 31st May 2017 & figures are net of all fees and expenses.
7
 Motilal Oswal Financial Services
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A graph of daily closing g prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes.
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The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s)
in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Served as an officer, director or employee
No
No
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Motilal Oswal Securities Ltd
Motilal Oswal Tower, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: (91-22) 30894200 Fax: (91-22) 22885038. E-mail: info@motilaloswal.com