MOSt
Advisor
Monthly Markets Newsletter
January 2017
In This Issue
•
Market Outlook for the month
•
Investment Ideas
• Equity Market Outlook
• Derivatives & Commodities Market Outlook
• Model Advisory Portfolios
• Recommended Funds
• Fixed Income Products
Key Highlights for the Month
Roller Coaster Ride of Markets
Globally Equities & Commodities Top Performing Asset Class
Brexit, GST, 7th Pay Commission Roll Out, Good Monsoons, Surgical Strike
by Indian Army, Donald Trump election as US President, Demonetization
Dear Investor,
Market in 2016:
The year started on a somber note for Indian
equities. Markets made yearly lows as the Budget approached
in February post which gathered strength and marched
upwards as a sequence of positive macros unfolded. Repo rate
Global Market
Index
31-Dec 16
MoM (%)
YoY(%)
Sensex
Nifty
FTSE
Dow
Nasdaq
Hang Sang
26,626
8,186
7,143
19,763
5,383
22,001
-0.1
-0.5
5.3
3.3
1.1
-3.5
1.9
3.0
14.4
13.4
7.5
0.4
cut, passage of GST Bill, 7th pay commission roll out and near
normal monsoons. 'Brexit' fall was negotiated in a day. Markets
were cruising smoothly, reached within kissing distance of all-time highs in September
when surgical strike by Indian army on neighboring country reversed the trend.
Thereafter, spate of unfavorable macro-economic developments kept the selling
pressure on. In US their 10 year Treasury bond yields started spurting while it went
into Presidential election. Our 10 year G-sec yields fell below 7% for the first time
after 2009; it traded in the zone of 6.20% to 6.5%. This triggered pull out of funds
by foreign investors. RBI's repo rate cut again by 25 basis points in October could
not bolster the sentiments. Turbulent November was marked by unprecedented event
Economic Pulse
Key Indicators Current Mth
Pre. Mth
in Indian History 'Demonetization' of currency denominated in INR500 and INR1000
notes valued at around 14.50 lac crores. The very next morning Mr. Donald Trump
won the US Presidential election race. Mr. Trumps initial remark on boosting Infra
spends in US triggered frenzied rally in base metals and crude oil. US equities marched
to new highs while we corrected sharply tackling with short term perils of
demonetization. The roller coaster ride of Indian equities saw benchmark index 'Nifty'
gyrating over 20% from lows to highs in 2016 while it settled with gains of mere
3.01% over 2015.
Outlook 2017:
1st half of 2017 will be marked by volatility as market takes note
of Budget roll out, outcome of UP elections and pace of economic recovery post
demonetization. Budget Focus is likely to be on Rural India enhancing expenditure
in priority areas of - farming, social and utility sector, housing, infrastructure, defense,
employment generation along with recapitalization of banks, direct tax sops to
individuals and corporates. Domestic consumption theme will be key driver of markets
during second half of 2017. We expect Nifty to be trading near all-time highs towards
the end of 2017.
Dharmesh Kant
Vice President- Head - Retail Research
IIP
WPI
10 Year Yield
USD/ INR
Crude ($)
Gold (10 gms)
-1.9%
3.15%
6.51%
67.92
56.82
27830
0.7%
3.39%
6.24%
68.38
50.5
28837
Thought for the month
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Monthly Markets Newsletter
Large Cap Investment Ideas,
Mid Cap Investment Ideas
Must Act
January 2017
Investment Ideas
√
CanFin Homes Ltd. (CANFIN) is a South India-based home financier focused on Tier 1
Can Fin Homes Limited
CMP*:
Target:
INR 1,581
INR 2,260
and Tier 2 cities promoted by Canara Bank in 1987 which owns 43.5% shareholding.
√
CANFIN is India's sixth largest housing finance company. Low cost funding from NCD/
CP/Public Deposits is expected to increase to 60% by FY18E from 35% in FY16. This is
expected to translate into expansion of spreads from 2.23% in FY16 to 2.9% in FY18E.
BUY
√
We estimate CANFIN's loan book to compound at 28% CAGR over FY16-18E. We rec-
ommend 'BUY' on CanFin Homes for a target of INR 2,260 (4x Sep 2018).
Sterling Tools Limited
CMP*:
Target:
INR 933
INR 1,207
√
Sterling Tools is one of the largest manufacturer of fasteners in India, with a market share
of ~28%. The company is supplier of high tensile (HT) fasteners to Honda Motorcycle
Scooter India Private Limited (HMSI) and Maruti Suzuki India Limited (MSIL).
√
In top line 2-wheeler accounts for 25%, passenger vehicles (~15%), commercial ve-
hicles (~25%), and farm equipment (~7%-8%) of total sales.
BUY
√
We expect earnings growth of 20% over FY16-18E. We recommend 'BUY' with a target
price INR 1,207
√
APL is the largest manufacturer of ERW pipes in India (Market size INR 300 bn/~7.5 mt)
APL Apollo Tubes
CMP*:
Target:
INR 915
INR 1,248
with a capacity of 1.3 mt and enjoys a market share of ~15% in domestic market ahead
of Tata steel (MS 6%), DP Jindal group (7%) and Surya Roshni (6%).
√
We expect the domestic ERW pipe market to grow at a CAGR of ~9% over FY16-19E to
~10mn tonnes by FY19E.
BUY
√
APL is the only player to have pan India presence as it derives 44% of revenues from
South, 27% from West and 20% from North. It is planning to expand its capacity further
to 2.0 mt by Q1FY18. We value the company at 15x FY18E EPS of INR 83.2 with a
target price INR 1,248.
√
JLR volumes and revenues to grow at ~12.5% and 15% CAGR over FY17-19E, driven by
continued new product launches. This coupled with mix improvement and full benefit of
Fx would drive realizations and revenues.
√
JLR's EBITDA margins to improve sharply from 2QFY17 levels of ~10.3% to ~17% by
FY19 driven by a) realization of Fx benefit, b) mix improvement, c) benefits of modular
platform and d) operating leverage. We recommend buy with TP of INR 677.
Tata Motors Limited
CMP*:
Target:
INR 472
INR 677
BUY
Data as on 31st December 2016.
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Monthly Markets Newsletter
Equity Market Outlook
Markets & Our Recommendations
January 2017
Equity Market Outlook
Technical Outlook
√
Final lap during the month proved beneficial for the Nifty as it rebounded
from its critical support zone near 7900. The index recovered most of its
loss to end the month with a marginal decline of 0.47% MoM while it
ended the year on a positive note with a gain of 3.01%.
√
On the global rotation chart nifty remains in the lagging quadrant & could
continue to underperform. While the Wedge breakdown on the MSCI
emerging market index was followed by a 'Spinning Top' formation indi-
cating weakness to prevail. Follow through move below the 'Spinning Top'
Low at 820 could be detrimental for the index & nifty could also continue
its underperformance.
√
On the quarterly scale the occurrence of a 'Bearish Engulfing' formation
shows that the upward momentum is primarily overtaken by the second-
ary move indicating weakness to prevail. While the recent rebound from
the critical support level of 7900 saw a 'Bullish Engulfing' which raises the
expectation of a pullback towards 8350-8450 zone. Any negation of the
pattern would result into a sharp reversal. Hence 7900 remains a critical
level for the coming months ahead.
√
Amongst sectors IT & Energy sectors are expected to continue their
outperformance as most of the other sectors are placed near the epicenter
of the sector rotation chart & could evolve gradually with the market.
Strategy-
Strategy
We recommend being selective during volatile times unless
Index surpasses the threshold levels of 8300-8000 with a good margin.
On a sustained move above 8300 with a margin, follow up move with
strong momentum should be expected which could push the Nifty to-
wards 8450. Until then trade with adequate hedge.
Detailed report available on- http://ftp.motilaloswal.com/emailer/Marketdiary/QuantitativeMonthly/MOStQuantitativeOutlookMonthly-January2017.pdf
Global Rotation
Nifty Quarterly (Bearish Engulfing)
Nifty Weekly
Sectoral Highlights
Sector
IT
Energy
Pharma
Our Views
Positive
Positive
Neutral
Top Pick
TechM
Power Grid
Biocon
MBP / MSP
Buy / 489
Buy / 184
Sell / 950
SL / TGT
460 / 524
171/213
975 / 900
Data as on 31st December 2016.
Note: #Technical view for 1 month perspective,
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Monthly Markets Newsletter
Derivatives Market Outlook,
Commodities Market Outlook
Markets & Our Recommendations
January 2017
Derivatives Market Outlook
√
Nifty witnessed above average rollover of 66.5% V/s 3 MA 64%.Net carried forward open interest saw marginal increase at 24 mn shares
against 23 mn shares. Index was up 1.7% E-o-E. BankNifty too witnessed strong roll of 67% V/s 64%. Market-wide roll stood at 83.8% higher
than 3 MA of 82.5%. Overall all major sectors witnessed strong roll mainly Metal, Media & FMCG
SECTOR OI
Nifty- Modified Call Butterfly Spread
Long Built-up
:
Engineering:
In line Roll of 79%. +ve price activity in Enginersin,
:
BEL, BEML except L&T & Bhel.
Power, Realty and NBFC:
Mix activity. Short in
DLF , Bharatfin, Ibulhsgfin. Longs in HDFC, NTPC . Energy: Long in Gail, IGL
and ONGC. Short covering in Reliance
Short built up
:
PSU bank and Pharma:
Above average roll. Major shorts in
Divislab,Sunpharma, Auropharma, Unionbank, PNB and OBC. Cement and
Telecom:
Mainly accumulation. Shorts in Indiacem& Ultracemco
Long Unwinding
:
Metals:
Mainly Vedl and Hindalco. Short in Tatasteel
Short Covering:
IT & Chemical:
Mainly Mindtree and TCS
Buy 8250 CE 1 lot ; Sell 8400 CE 2 lots; Buy 8500 CE 1 lot
Target: INR 8700 at 8400
Initial Outflow: INR 2600
Limited Profit : INR 1200 above 8500
√
√
√
√
Nifty witnessed robust rollover of 66% to January series with
positive price movement
Option indicative band suggest 8200 as highest call congestion
while 8000 as immediate put congestion
Any unwinding in indicative band could boost the momentum
Considering stable volatility and to participate upside momentum,a
hedge strategy Modified Call Butterfly Spread is recommended
Commodities Market Outlook
Crude oil
√
Crude oil witnessed rollercoaster ride in 2016 with prices trading below $40 in the first quarter of 2016, but are now aiming towards $60. The
OPEC deal to cut production has been first co-ordinated cut by producer bloc to curtail production since financial crisis of 2008.
√
The OPEC deal helped sentiment in oil markets especially since we saw sense of unison among members after long time. Non-OPEC members
led by Russia agreed to reduce output by 558,000 barrels per day and consequently oil prices now have more credible floor and are unlikely to
go below $45 if producers manage to stick to their respective commitments.
√
The deal between producers means that 1.8 million bpd of supply will effectively go off market starting January and bring oil market in balance
and possibly deficit by middle of 2017.
√
The biggest limitation of deal is fact that it will end up providing lifeline to same high cost producers the OPEC intended to push out of business
in 2014. US oil rig count has been increasing since June and US shale output is expected to increase in January for the first time in five months
√
In this context, if oil prices stay around $55-60, producers will have greater incentive to pump more oil which effectively makes US the new
swing producer in the market. Nonetheless, based on current circumstances, oil prices are likely to inch higher in 2017. If the OPEC is
successfully able to implement its deal, the trajectory of prices will be steeper as the demand-supply dynamic will shift towards deficit by the
middle of 2017. If the OPEC fails to deliver, the price recovery will be slow and prolonged until the end of next year.
4
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MOSt Multi Cap - Model Portfolio for Investors
For Whom :
Investment Duration :
Risk Profile :
Scrip
Ultratech Cement
LIC Housing Fin
Hero Motocorp
Zee Ent
HDFC Bank
CG Consumer Elec
Manpasand Bever.
Can Fin Homes Ltd
PVR Ltd
Sterling Tools Ltd
P I Industries Ltd
Tvs Motor
SRF Ltd
Shriram City Union
Castrol India Ltd
Total
MOSt Value, MOSt Velocity, MOSt Mid-Cap
Build a Portfolio
January 2017
Long Term Investors
Few months to a year
Moderate Investors
Wtg. Sectoral Allocation
10
10
10
10
10
5
5
5
5
5
5
5
5
5
5
100
We are recommending a MULTI-CAP approach instead of a MIDCAP
approach. The Multi-cap INVESTMENT portfolio will have the
following characteristics:
√
Portfolio requirement to INR 10 Lakhs
√
50% Large-caps and 50% in our MIDCAPs portfolio
√
15 companies to invest in at the maximum, 10 minimum
√
5 Large-caps that are suitable for SIP investments also
√
1 Semi Large-cap from our MIDCAP portfolio
√
10 stocks in the MICAPS space
CMP
3250
560
3044
453
1206
146
552
1581
1149
933
831
361
1546
1814
381
What’s In What’s Out
-
-
√
Adheres to our QGLP philosophy
MOSt Velocity 10 - Model Portfolio for Positional Traders
For Whom :
Investment Duration :
Risk Profile :
Scrip
Bharti Airtel
Auro Pharma
Infosys
Emami Ltd
IndusInd Bank
Bank of Baroda
Shriram City Union
M&M
BEL
Total
MOSt Mid Cap- Model Portfolio for Aggressive Investors
For Whom :
Investment Duration :
Risk Profile :
Scrip
CG Consumer Elec
Manpasand Bever.
Can Fin Homes Ltd
PVR Ltd
Sterling Tools Ltd
P I Industries Ltd
TVS Motor
SRF Ltd
Shriram City Union
Castrol India Ltd
Total
Medium Term Investors
Few months horizon
Moderate Investors
Wtg. Sectoral Allocation
10
10
10
10
10
10
10
10
10
10
100
Returns
3mth
6mth
12mth
Portfolio -20.9% -8.7% -1.4%
BSE 200
-7.7% -1.1% 3.4%
Long Term Investors
Few months to a year
Aggressive Investors
CMP
146
552
1581
1149
933
831
361
1546
1814
381
CMP
306
669
1011
952
1108
153
1814
1185
1375
Wtg. Sectoral Allocation
10
10
10
10
10
10
10
10
10
10
100
Data as on 31st December 2016.
LIC Housing Finance 560
What’s In
-
What’s Out
-
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MOSt PMS, MOSt Mutual - Model Portfolio
Managed Funds
January 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 1Cr invested in Value PMS in March 2003 is worth INR 20.22Crs vs. 8.10Crs in Nifty
50.
√
Since its inception, Value Strategy has delivered annualized returns of 24.38% vs. Nifty 50
returns of 16.39%, an outperformance of 7.99% (CAGR).
Top Holdings in Value Strategy
Scrips
Bharat Petroleum Corpn.
Bosch
HDFC Bank
Sun Pharmaceuticals
Kotak Mahindra Bank
% Holdings
9.73
9.09
8.66
7.86
7.77
Sector Allocation
Banking & Finance
Auto & Auto Ancillaries
Oil and Gas
Pharmaceuticals
FMCG
% Holdings
27.87
26.98
9.73
7.86
6.68
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.
√
The strategy aims to capitalize on the themes of Consumerism, Banking & Financial Services
& Infrastructure in the Indian Economy.
√
In last three year, strategy has delivered a return of 32.84% CAGR vs. NIFTY Freefloat
Midcap 100 is 21.45% CAGR i.e., NTDOP has delivered an alpha of 11.39%.
Top Holdings in NTDOP Strategy
Scrips
HPCL
Bajaj Finance
Page Industries
Eicher Motors
Bosch
% Holdings
15.60
10.02
7.38
6.83
6.76
Sector Allocation
Banking & Finance
Oil and Gas
Auto & Auto Ancillaries
FMCG
Diversified
% Holdings
26.90
17.49
16.06
14.53
6.01
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 27.10% vs. BSE 200 returns of 4.52%,
i.e. delivered an alpha of 22.58%
√
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
Birla Corporation
Development Credit Bank
Canfin Home
Ttk Prestige
Quess Corp
% Holdings
11.23
10.48
9.65
7.29
7.15
Sector Allocation
Banking & Finance
Cement & Infrastructure
Pharmaceuticals
Oil and Gas
Consumer Durable
% Holdings
24.98
15.08
14.63
12.24
12.12
Data as on 31st December 2016.
6
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Investment Product
Fixed Income Products
January 2017
Fixed Income Products
Considering the demonetization of old high-value notes leading to a surge in bank deposits. Small Savings and Saving Bank Deposits have seen
a huge growth on account of the government focus on the Jan Dhan Yojana. As per estimates, over the next 5 years the overall individual
wealth in India is expected to grow to Rs. 558 lacs Cr. from the current Rs. 304 lacs Cr. at a CAGR of 12.90%. Financial assets are expected to
grow at a faster pace of 14.73% CAGR to nearly double in the next 5 years.
A complete turnaround in RBI liquidity philosophy leading to quantum bond purchase from the market, Rajan and Britain exits triggering
expectations of more monetary easing locally and globally, and finally demonetization resetting RBI rate cut expectations; all played their parts
in the continuing bond rally over the year. Towards year end, however, uncertainties have picked up again. The global rate environment has
reset meaningfully on expectations of a more pro-active fiscal policy, chiefly in the US.
Our Fixed Income Offering
Debt Mutual Fund
Scheme
Arbitrage Fund
IDFC Arbitrage Plus Fund
ICICI Pru Equity-Arbitrage
Ultra Short Term Fund
Franklin India Ultra Short Bond Fund
ICICI Pru Flexible Income Plan
Accural Funds
ICICI Pru Income Opportunities Fund(G)
IDFC Corp Bond Fund-Reg(G)
Credit Opportunities Funds
Franklin India ST Income Plan
HDFC Short Term Plan
Dynamic bond Funds
Birla SL Dynamic Bond Fund
UTI Dynamic Bond Fund
Recommended Mutual Fund performance
1 Month
-0.15
0.55
5.09
0.91
-12.20
-8.49
2.57
-0.26
-44.84
-19.57
3 Months
1.72
1.62
8.74
7.92
7.46
8.01
9.49
8.52
4.87
16.50
6 Months
4.13
3.54
9.55
8.97
13.69
11.49
11.33
10.49
14.36
19.85
1 yr
7.38
6.92
9.69
9.08
11.37
--
8.37
10.24
14.00
14.80
2 Yrs
7.02
7.20
9.71
8.94
9.94
--
8.72
9.87
10.74
10.86
3 Yrs
7.29
7.61
9.81
9.13
11.49
--
9.69
10.23
12.08
12.15
4 Yrs
7.72
8.20
9.87
9.25
9.62
--
9.62
9.48
10.73
11.02
5 Yrs
7.98
8.55
9.93
9.32
9.91
--
9.68
9.49
10.67
11.01
8% Government of India Taxable Bond
√
Fixed 8% interest payable Half-yearly (1st Feb & 1st Aug.) Plus Cumula-
tive option is also available.
Contingent Coupon Structure Product
√
NIFTY linked debenture with contingency level of NIFTY correction.
Like; if NIFTY Corrects by less than 25%, product will generate of 8% IRR
else capital protection.
√
Risk-free investment.
√
Eligible investor: Individual, HUF & Charitable Institution
√
Minimum Application amount is Rs. 1,000 & multiple of Rs. 1,000.
11.09% IDBI Perpetual Bond
√
Current yield 10.15% (interest payable annually- 30th August.
√
High Liquidity (specially for small ticket size)
√
Minimum ticket size 10 lacs & multiple of 10 lacs.
√
Tenure of product is 18 months.
√
Minimum ticket size is 25 lacs.
Fixed Deposits.
√
You can buy Corporate Fixed Deposit ONLINE
√
Attractive interest rates.
√
Our FD Offering - DHFL | SHRIRAM | Mahindra Finance is available
online.
7
 Motilal Oswal Financial Services
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