MOSt
Advisor
Monthly Markets Newsletter
July 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
Sustained buying from DIIs supporting the market
Effect of GST, better monsoon and upcoming FOMC meet would be
next triggers
Dear Investor,
Market in June 2017:
Global indices tested new orbit of life
time highs while Indian indices remained in a consolidation mode
with mild profit taking at higher levels. June month saw drop
of 1.04% in Nifty, the first negative month after a run of five
consecutive higher monthly closings.
Global Market
Index
30-June 17
MoM (%)
YoY(%)
The Nifty made a life time high of 9709 but failed to hold its gains and corrected
towards 9450. Nifty midcap & smallcap indices also remained in a range and failed
to surpass their highs made in the month of May’17.
The biggest tax reform for independent India, GST has been implemented from 1st
July 2017 with simplified taxation structure for all the businesses which will help
improve India's Tax to GDP ratio significantly, as well as bring more traders into the
direct tax net. Activity in the Core sector rose by 3.6% in May compared to 2.8%
in April. FMCG sector maintained a gradual upward incline adding 3.40% over the
month with the trigger from GST further helping it recover its lost ground.
INR depreciated a bit from its recent high of 63.98 to 65 after the appreciation of
last five consecutive months. USD INR and Indian Equity market is having an inverse
correlation from last two quarters, so any move in USD INR would be keenly watch
to understand the immediate market sentiment.
In the June month FIIs sold equities worth INR3700 Cr. while DIIs bought equities
worth INR 6500 Cr. Sustained buying from DIIs supported the market to recover after
small declines. However, presence of participation from FIIs is necessary to drive this
rally to the 10K mark for the Nifty index.
Outlook July 2017:
The impact of GST, better monsoon, continuous buying from
domestic funds and Moody's comment on revision of India's rating are the key positive
triggers to drive this rally towards new trajectory, while outcome from FOMC meet
and absence of FIIs participations are the key concerns to dampen the momentum.
In addition, global cues especially international central banks' action, crude oil price
movement and currency activity will also act as key factors.
Nifty consolidated in a range of 250 points between 9450 to 9700 in the month
of June and now a decisive hold above 9700 could trigger the fresh momentum to
the cherished 10,000 zone.
Chandan Taparia
Sensex
Nifty
FTSE
Dow
Nasdaq
Hang Sang
30,922
9,521
7,313
21,350
6,140
25,765
-0.7
-1.0
-2.8
1.6
-1.0
0.4
14.5
14.9
12.4
19.1
26.8
23.9
Economic Pulse
Key Indicators Current Mth
Pre. Mth
IIP
CPI
10 Year Yield
USD/ INR
Crude ($)
Gold (10 gms)
3.1%
2.18%
6.51%
64.58
47.92
28803
2.7%
2.99%
6.66%
64.5
50.31
28839
Thought for the month
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Monthly Markets Newsletter
Large Cap Investment Ideas,
Mid Cap Investment Ideas
Must Act
July 2017
Investment Ideas
√
YES is well positioned to leverage the opportunity that the Indian economy presents. It
Yes Bank
CMP*:
Target:
INR 1,464
INR 2,110
has strong capitalization (CET1 of ~11.4%); branch network has increased to 1,000 v/
s 214 in FY11, and employee strength is up at 20,000+ v/s 3,929 in FY11.
√
Yes Bank has steadily built a full-service commercial bank with Corporate, Retail and
SME Banking platforms, with a comprehensive product suite.
BUY
√
Robust loan growth, NIM expansion and rising fee income contribution are expected to
drive a 27% PAT CAGR through FY20. This will see RoA remaining healthy at 1.8% and
RoE being maintained at ~20%. We recommend Buy with a target price of INR2,110
Piramal Enterprise
CMP*:
Target:
INR 2,797
INR 3,813
√
Piramal Enterprises (PIEL) has carved a niche for itself in wholesale lending, and is now
one of the dominant players in most of the segments in which it operates.
√
We expect a 40% loan CAGR in the NBFC business. The Pharma business has demon-
strated strong growth and improvement in profitability in recent years.
BUY
√
PIEL has the distinction of being one of the few companies in India to generate 25%+
book value CAGR over past 25+ years.
√
We use SOTP to arrive at FY19 based target price of INR3,044 and FY20 based target
price of INR3,813
Dewan Housing
CMP*:
Target:
INR 437
INR 559
√
Dewan Housing Finance's (DEWH) promoted by the Wadhawan Group in 1984, is the
4th largest housing finance company in India AUM of INR835bn as of March 2017
(after HDFC, LICHF and IHFL).
√
Management is committed to bring down the costs structure by improving productiv-
ity, rationalizing branch network and centralizing back-end operations.
BUY
√
We expect AUM growth to remain healthy at a CAGR of 18-20% over the medium term
with GNPL < 1%.
√
We recommend Buy with a target price of INR559.
√
From being one of the largest Paracetamol API manufacturers for regulated markets, Gran-
ules India (GRAN) has now ventured into CRAMS and US Rx business, where it can lever-
age its competitive advantage of being a high-quality, low-cost producer.
√
Despite delivering ~40% PAT CAGR over last five years, we expect GRAN to deliver ~35%
PAT CAGR till FY20E.
√
GRAN trades at ~12x FY19E EPS. We recommend buy with target price of INR200
Granules India
CMP*:
Target:
INR 133
INR 200
BUY
Data as on 30th June 2017.
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Equity Market Outlook
Markets & Our Recommendations
July 2017
Equity Market Outlook
Technical Outlook
√
Nifty index made a new life time high of 9710 and registered its sixth consecutive
high for the month. After six months of higher close, index registered first lower
close in the June. The candle pattern for the month is a bearish ‘Harami’ as the
real body of the candle is within the ‘real body’ of the previous month. Index
remained consolidative for most part of the month in between 9560-9700 zones
while the sell-off in the index was seen only on 23rd and 24rd of the month.
Notably, the PSU banks and stocks in the Oil & Gas sector were on a decline.
Stocks in auto sector also came under profit booking declines. On the positive
side Pharma stocks saw a change in the fortune led by fresh accumulation at
support zones. Metals sector also saw a sharp rally led by short covering activities
√
during the month.
On the weekly timeframe the index witnessed third consecutive lower close. The
weekly candle saw a bit of a long lower shadow as bulls made a fighting attempt
to regain lost ground. During the week, Nifty broke below a minor double top
pattern which is a sign of bearishness. After three days of a break in the pattern
the index has not seen a precipitous decline. On the weekly basis a hold below
9480 could drag the index towards 9420 and a below that we may expect a
further decline towards 9350-9300 zones. On the upside if Nifty moves above
9580-9600 zone then Bears will be caught on the wrong foot and will scamper
to cover their short trades in a hurry. The general state of tension will get resolved
in the coming weeks. The longer term trend remains up and the market should
stabilize after a brief down turn.
√
Nifty failed to continue it positive momentum in June series and closed flat to
negative by 0.06% on EoE basis. Volatility index jumped higher and tested the
high of 12.87 in line with the volatility in Global market. Option activity for July
series suggests 9700 as immediate hurdle as depicted by highest Call congestion
while immediate support is placed at 9400 zone with fresh Put writing activities.
Strategy-
Strategy
Trend is likely to remain negative if Nifty and Bank Nifty holds below
9580 and 23333 levels respectively. Short term trend is in pressure as 9700 is
acting as a crucial hurdle and the volatility is slightly rising from lows. A decisive
hold above 9700 could start a fresh leg of rally.
Nifty Daily
Nifty Weekly
USDINR
Sectoral Highlights
Sector
Retail
Auto
Our Views
Positive
Positive
Top Pick
Titan
Bharat Forge
MBP / MSP
Buy / 524
Buy / 1093
SL / TGT
506 / 580
1040 / 1250
Data as on 30th June 2017.
Note: #Technical view for 1 month perspective
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Derivatives Market Outlook,
Commodities Market Outlook
Markets & Our Recommendations
July 2017
Derivatives Market Outlook
SECTOR OI
BANK NIFTY - IRON BUTTERFLY
Nifty witnessed rollover of 72.97% V/s 3 Months Average of 69.36%. Bank Nifty
witnessed above average rollover of 68.67% V/s 3 Month Average of 68%. Market
wide roll over were around 80% which is high compared to last average rollovers of
3 Months. Overall long built up was seen in FMCG, Pharma and Private Banking
stocks. Shorts were seen in PSU Banks, IT and Capital Goods stocks. Short covering
was mainly seen in Metal stocks.
√
Auto: Long built-up in Maruti, Heromotoco while short Roll in Tatamotors.
SELL 23200 PUT @ 343; SELL 23200 CALL @ 343;
BUY 22700 PUT @ 184; BUY 23700 CALL @ 129
Target
: INR 10000
Stop Loss : INR 5000
√
√
√
√
√
√
√
√
√
√
√
√
Bank Nifty failed to continue its momentum and corrected from
higher levels
Maximum Put OI at 23000 which is going to support the market
on declines
Maximum Call OI at 23500 could restrict its momentum to 23700
Buying interest in Private Bank while weakness in PSU Banks could
keep the index in a trading range
Thus a range bound Iron Butterfly Strategy is recommended
Cement: Short covering in Ambujacem while ACC added minor short position.
Banks : Short rolls in Bank of Baroda, Canbank, BOI while long roll in Hdfc Bank
Metal: Long roll in Jindalstel, Short covering in Tatasteel and Vedl
Pharma: Long in PEL, Cadila while major short covering in Auropharma and Divislab
NBFC: Longs in Canfinhome, Ibulhsgfin, while short covering in Lichsgfin
OIL&Gas: Shorts added in all the OMCs while Short covering in Reliance
FMCG : Long built up in ITC, Pidilitind and Colpal
Commodities Market Outlook
ALUMINIUM
√
Aluminium last month suddenly switched gears, as the top performer of 2017 suddenly started to lose momentum and corrected. Prices came
under pressure on back of falling Chinese coal and Crude oil prices, which account for more than half the cost of aluminium prices. Crude oil
prices cracked to a 9 month lows, while coal prices were at the lowest level for the year, despite rising imports from China. China's primary
aluminium production jumped by 6% YoY to 2.825 million tons in May 2017. During the first five months of 2017, the country's primary
aluminium production reached 13.782 million tons, a rise of 11% compared to the corresponding period of last year. As a result, China
exported 460,000 tonnes of unwrought aluminium and aluminium. The excess Chinese supply can also be seen hoarded at the Shanghai
warehouse. Aluminium stocks in warehouses monitored by the ShFE currently at 432,200 tonnes have surged more than four times from
January's average of 113,495 tonnes. Global production for May'17, excluding China, was 2.32 million tonnes, up from 2.26 million tonnes
in April'17 while daily average primary aluminium output excluding China fell to 70,000 tonnes in May, from 70,300 tonnes in April.
√
Global demand for primary aluminium is expected to rise by 13.5 million tonnes over the next five years to 73.2 million tonnes. Demand side
is still going strong as Chinese primary Aluminium imports jumped further in May'17 to 8917 tonnes and surged by a whopping 187% to
60,426 tonnes in the first five months of 2017. Although rising Chinese supplies and falling input costs pose a threat, strict crackdown on
illegal smelting capacity promised by the Chinese government and environment related cut down will support prices.
4
 Motilal Oswal Financial Services
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MOSt
Advisor
Monthly Markets Newsletter
MOSt Multi Cap
For Whom :
Investment Duration :
Risk Profile :
Scrip
Hero Motocorp
Zee Entert.
HDFC Bank
Piramal Enterprises
Yes Bank Ltd
C G Consumer Elec.
Can Fin Homes Ltd
Sterling Tools Ltd
P I Industries Ltd
SRF Ltd
Shriram City Union
Castrol India Ltd
DHFL
Cash
Total
MOSt Multi Cap , MOSt Velocity
Build a Portfolio
July 2017
Long Term Investors
Few months to a year
Moderate Investors
Wtg. Sectoral Allocation
10
10
10
5
5
5
5
5
5
5
5
5
5
5
5
10
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
3701
491
1652
2797
1464
226
3233
235
835
1541
2367
405
437
MOSt Multicap 4.8%
Sensex
BSE 200
4.4%
3.9%
20.3% 35.9%
16.1% 14.5%
18.2% 18.1%
Ramco Cements Ltd 705
Granules India Limited133
Absolute returns as on 30th June 2017
MOSt Velocity
For Whom :
Investment Duration :
Risk Profile :
Scrip
Aurobindo Pharma
Lupin Ltd
Tata Motors Ltd
Bharat Forge Ltd
RBL Bank Ltd
Cash
Total
Investment Norms: INR 10 lakhs (Model Corpus)
Medium Term Investors
Few months horizon
Moderate Investors
Wtg. Sectoral Allocation
10
15
10
10
10
45
100
Returns
Portfolio
BSE 200
3mth
6mth
12mth
8.4%
√
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
685
1060
433
1093
508
-3.5% 16.6%
3.9%
18.2% 18.1%
Absolute returns as on 30th June 2017
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 Motilal Oswal Financial Services
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MOSt PMS - Model Portfolio
Managed Funds
July 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 INR23.77 Crs vs. 9.42 Crs in Nifty
50 as on 30th June 2017, an outperformance of 14.36 Crs.
√
Since its inception, Value Strategy has delivered annualized returns of 24.85% vs. Nifty 50
returns of 17.01%, an outperformance of 7.84% (CAGR).
Top Holdings in Value Strategy
Scrips
HDFC Bank Ltd.
HDFC Ltd.
Kotak Mahindra Bank Ltd
Bosch Ltd.
Eicher Motors Ltd.
% Holdings
12.38
12.17
10.80
8.63
8.18
Sector Allocation
Banking & Finance
Auto & Auto Ancillaries
Oil and Gas
FMCG
Infotech
% Holdings
35.35
27.39
7.85
7.09
5.84
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 3 years, strategy has delivered a return of 31.33% CAGR vs. NIFTY Free float Midcap
100 is 16.91% CAGR i.e., NTDOP has delivered an alpha of 14.42%.
Top Holdings in NTDOP Strategy
Scrips
Kotak Mahindra Bank Ltd
Voltas Ltd.
Bajaj Finance Ltd
Page Industries Ltd.
Eicher Motors Ltd.
% Holdings
11.37
7.95
7.45
7.30
6.83
Sector Allocation
Banking & Finance
Auto & Auto Ancillaries
FMCG
Diversified
Oil and Gas
% Holdings
34.13
16.19
15.31
12.84
6.09
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 64.08% vs Nifty Free Float Midcap 100
returns of 28.32%, i.e. delivered an alpha of 35.76%
√
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
14.13
10.42
7.46
7.39
7.04
29.00
13.63
12.13
11.22
9.77
Data as on 30th June 2017.
Development Credit Bank Ltd
Birla Corporation Ltd.
Canfin Home
QUESS CORP LTD
Aegis Logistics Ltd.
Sector Allocation
Banking & Finance
Cement & Infrastructure
Oil and Gas
Consumer Durable
Pharmaceuticals
% Holdings
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Investment Product
Indian Entrepreneur Portfolio (IEP)
July 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 introducing ASK Investment Manager Pvt Ltd. PMS also to you
WHY ASK Investment Manager Pvt Ltd.:-
√
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 one of the largest portfolio within the Discretionary Equity PMS Industry with INR 5,785 cr of Total Client Assets under Discretionary and
Advisory Portfolios as on 30th Jun 2017.
√
As on 30th Jun 2017, 1 crore invested in IEP in Jan 2010 is worth 4.15 cr vs 1.97 cr if invested in BSE 500 post fees and expenses.
√
IEP has outperformed Nifty50 26 out of 29 quarters i.e. an outperformance every quarter 90% 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 4 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 30th June 2017 & figures are net of all fees and expenses.
7
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June 23, 2015 to provide pending list of documents for inspection.
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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