MOSt
Advisor
Monthly Markets Newsletter
April 2018
In This Issue
•
Market Outlook for the month
•
Investment Ideas
• Technical & Derivatives Outlook
• Commodities Market Outlook
• Model Advisory Portfolios
• Managed Funds (PMS)
Key Highlights
Volatility likely to remain elevated in 2018
Evidence of demand revival in selected pockets
Q4 earnings to be key driver
Dear Investor,
Market in March 2018:
Equity market continued its slide for
second consecutive month, with Nifty falling by 3.6% in
March, after sliding 4.9% in February. For FY18, Nifty closed
at 10,114 with gains of just 10.2%, wiping out majority of
Global Market
Index
31-Mar 18
MoM (%)
YoY(%)
Sensex
Nifty
FTSE
Dow
Nasdaq
Hang Sang
32,969
10,114
7,057
24,103
7,063
30,093
-3.6
-3.6
-2.4
-3.7
-2.9
-2.4
11.3
10.2
-3.6
16.6
19.5
24.8
yearly gains. Midcaps underperformed Nifty both in March
(-4.6%) and in FY18 (9%). Markets were trapped in volatility
in February and March owing to unsupportive global developments on bond yields,
fears of potential trade conflict as well as domestic political uncertainty. Both FIIs
and DIIs were net buyers of equities in March at Rs7,905 crores and Rs6,694 crores
respectively.
After a relatively calm 2017, we believe volatility will remain elevated in 2018 -
especially given the market concerns about a potential global trade war after the US
initiated tariff actions on imports from certain countries. Moreover, the General
Elections due early next year, would also add to uncertainty in the market.
Economic Pulse
Key Indicators Current Mth
Pre. Mth
IIP
CPI
10 Year Yield
USD/ INR
Crude ($)
Gold (10 gms)
7.5%
4.44%
7.39%
65.17
70.27
30,630
7.1%
5.07%
7.73%
65.17
65.78
30,398
Nevertheless, the markets have something to cheer about with evidence of demand
revival in selected pockets (IIP data, core sector growth, monthly vehicle sales data,
fuel consumption data and GDP numbers), which all point toward improving trend
in macros. Further, there are indications about green shoots of capex recovery in
sectors such as steel, cement and refinery. We expect GDP growth of 6.7% in FY19
and inflation to remain under control at around 4.4%.
Outlook:
The volatility in equity market is likely to continue in the coming month
as well. However there could be a silver lining with earning season round the corner.
The recent correction does offer a good buying opportunity but one should prefer
companies which have quality along with good and consistent earnings visibility. Our
CY18 theme of 'Consumption Recovery' is playing out well, with strong performances
across consumer and auto companies. We believe the government will look to drive
consumption demand in an election year. However, a spike in crude oil price remains
a key risk as it can distort the improving macro picture.
Thought for the month
An investor’s worst enemy
is not the stock market,
but his own
emotions
Siddhartha Khemka
Vice President- Head - Retail Research
1
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Large Cap Investment Ideas,
Mid Cap Investment Ideas
Must Act
April 2018
Investment Ideas
√
Motherson Sumi (MSS) started out as a single product (wiring harness) company, but
has expanded its product range to include polymer products (through SMP), automotive
mirrors (through SMR) and elastomers.
√
MSS has strong organic growth opportunities driven by increase in content per vehicle,
healthy order book and entry in new markets/segment.
√
We believe the recent Reydel acquisition is value accretive as it adds new customers,
Motherson Sumi
CMP*:
Target:
INR 311
INR 437
BUY
countries and capabilities.
√
We estimate MSS's consolidated revenues/EBITDA/PAT to grow 25%/33%/31% CAGR
FY17-20E.
√
Repco Home Finance has an AUM of INR60b. It is primarily present in the individual home
loans and loans against property segment.
√
It recorded loan book CAGR of 26% and earnings CAGR of 24% over the past five years.
√
Presence in the underserved markets, reasonable pricing power on the asset side, and
expanding reach should support its earnings over the longer term.
√
The company targets 20% loan growth in FY19, maintain ~3% spread, and targets to
achieve 100% PCR by 1HFY19.
Repco Home Finance
CMP*:
Target:
INR 562
INR 740
BUY
Tata Chemicals
CMP*:
Target:
INR 677
INR 940
√
Tata Chemicals is the global leader in soda ash and sodium bicarbonate, a steady cash
cow business, which they are using to build growth businesses such as consumer and
specialty products (revenue CAGR of 14%, versus overall growth of 9% over FY18-20).
√
The company is exiting its fertilizer business, which combined with the sale of Tata
Global Beverages shares should yield ~INR 4000cr.
BUY
√
Tata Chemicals is the market leader in India for iodized salt with a share of 25%. Lever-
aging on its brand created the company has expanded into other consumer segments
like branded pulses, spices, besan (pulse flour) and water purifiers.
√
Future Consumer (FCL) is an integrated consumer company having a portfolio of brands
in categories such as staples, fruits & vegetables, processed foods, home care and per-
sonal care.
√
We forecast revenue CAGR of 41.5% over FY17-20 and 39% over FY17-FY22.
√
It has established brands like Golden Harvest, Nilgiris, Fresh & Pure, Tasty Treat and Clean
Mate. Other emerging brands like Karmiq, Sangi's Kitchen and Desi Atta Company are
growing at a rapid pace.
√
FCL is expected to turn PAT positive at the consolidated level by FY19 (in just five years of
operations).
Future Consumer
CMP*:
Target:
INR 55
INR 76
BUY
Data as on 28th March 2018
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Technical & Derivatives Outlook
Markets & Our Recommendations
April 2018
Technical & Derivatives Outlook
Technical Outlook
√
Nifty index continued its weakness for March month and corrected towards 9951
levels. It had a volatile move as traded in a wider range of 9951 to 10525 zones. It
formed a Bearish candle followed by a Bearish Engulfing of the last month.
√
It started the month on a negative note and resistances were gradually shifting lower
to 10630, 10480, 10440, 10333, 10276 and 10222 zones. In the second last week
of the Month it broken a falling wedge and a horizontal support trend line by
breaking December 2017 low of 10033 levels.
√
It has been making lower top - lower bottom formation on Weekly and Daily scale
now needs to surpass immediate resistance of 10276 to witness a bounce towards
10440 and 10525 levels while on decline supports are seen at 10050 then 9950
zones.
√
√
In the month of March, market volatility spiked due to Global Trade War, Macro and
Micro economic factors including US Fed interest hike.
Most of the sectorial indices like Pharma, Realty and Midcap 50 underperformed
while IT and Media were remained resilience in the last Month. Major buying inter-
est was seen in IT and selective Media stocks while Selling pressure was seen in PSU,
Private Banking and Energy sector stocks.
Strategy-
Strategy
Overall trend is negative as bounce is being sold, it requires a decisive
hold above 10276 zones to extend the rally towards 10444 and 10525 while on
declines 10050 and 9951 are likely to act as a support.
Nifty Weekly
Nifty Daily
Derivative Strategy
Nifty - IRON CONDOR - April’18 Expiry
SELL 1 LOT OF NIFTY 10000 PUT @ 114; SELL 1 LOT OF NIFTY 10200 CALL @ 141
BUY 1 LOT OF NIFTY 9800 PUT @ 64;
BUY 1 LOT OF NIFTY 10400 CALL @ 60
NET PREMIUM RECEIVED: 131 POINTS; LBEP : 9869, UBEP : 10331
MAX RISK : 69 POINTS; MAX REWARD : 131 POINTS
Rationale:
√
Maximum Put OI is intact at 10000 strike which could hold its decline
√
√
√
Fresh Call writing at OI congestion at 10300 could restrict its upside
momentum
Major trend is negative while short term bounce could be seen so
expecting a range bound move for next coming sessions
Thus, an Iron Condor range bound strategy is recommended to get the
benefit of time decay and a range move of the market
3
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√
MOSt
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Monthly Markets Newsletter
Commodities Market Outlook
Markets & Our Recommendations
April 2018
Commodities Market Outlook
Gold
√
Gold prices have seen a good start to 2018 with gains extending from 2017 as dollar weakness continued unabated. The rally in gold prices
over the last couple of months has been peculiar given that bond yields are near three-year highs and global economic growth is broad-based.
The Fed, after raising rates thrice in 2017, and once in 2018 is pretty much on course for two more rate hikes this year. It is therefore a tad
surprising that the dollar has failed to gather strength over the last several months. We believe that prospects of other Central banks like the
European Central Bank and the Bank of Japan scaling back stimulus have played a major role in undermining the dollar. The Fed policy outlook
is relatively clear while the scope of surprise from the ECB and BOJ is higher. This would continue to have a bearing on the dollar this year.
√
Secondly, the dollar would also take a hit if the rhetoric over trade war between US and China intensifying. The comments from US Treasury
Secretary this year have provided hints about the potential impact on dollar. Thirdly, the tax cuts in the US coupled with prospects of higher
infrastructure spend will increase the fiscal deficit and thereby lead to more borrowing from the Treasury market. Additional bond supply at a
time when Fed is scaling back its balance sheet could push bond yields further up. Add to this, chances of higher inflation this year and we
have a perfect storm brewing up for gold prices.
√
A jump in volatility from record lows in 2017 would create a beneficial environment for gold prices along with some correction in global equity
markets would create a positive environment for gold. We have seen first glimpses of this trade in February - March and it will be interesting
to watch how volatility unfolds from here. From the fundamental perspective, global gold demand was subdued last year with full year
demand 7% lower compared to 2016. Investment demand, which is among primary drivers of gold price, was down 23% y/y. Among top
consumers of gold, both Indian and Chinese consumer demand was slightly higher y/y, but was below historical levels.
√
While physical fundamentals are yet to catch up, sentiment could still drive gold prices higher this year. We retain our bullish forecast for gold
and expect a target of $1410-1430 for 2018 as our base case. In slightly more bullish scenario, if global equity markets indeed see a downturn
and if volatility spikes, gold could move towards $1470 levels as well. We expect $1235-1270 levels to act as a strong base for this year. On
the domestic front, Rs.28800 - 29300 zones should act as a strong base for the year and an upside move towards Rs.32500 - 33300 look likely.
4
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MOSt Multi Cap
For Whom :
Investment Duration :
Risk Profile :
Scrip
Zee Ent.
HDFC Bank
Ramco Cement
Yes Bank
Granules
HDFC Standard LiFe
Bajaj Auto
Havells
Nilkamal
Mahindra CIE
NMDC
Oberoi Realty
Future Consumer
KEI
Cash
Total
Data as on 28th March 2018
MOSt Multi Cap , MOSt Velocity
Build a Portfolio
April 2018
Long Term Investors
One year and above
Moderate Investors
Wtg. Sectoral Allocation
10
10
5
10
5
5
10
5
5
5
5
5
5
5
10
100
In
: Future Consumer, KEI Ind.
We are recommending a MULTI-CAP approach with the
following characteristics:
√
Corpus requirement of INR 10 Lakhs
√
40-50% in Large-cap and 50-60% in Mid-cap
√
15 companies to invest at maximum, 10 minimum
√
Large-cap stocks are suitable for SIP investments as well
√
Adheres to our QGLP philosophy
CMP
576
1886
724
305
103
454
2745
488
1520
215
119
510
55
385
Out : Can fin Homes, Capital first,
Piramal Enterprises
MOSt Velocity
For Whom :
Investment Duration :
Risk Profile :
Scrip
Tata Motors
Maruti
RBL Bank
Reliance Industries
Tech Mahindra
UPL
Cash
Total
Data as on 28th March 2018
Medium Term Investors
Few months horizon
Moderate Investors
Wtg. Sectoral Allocation
10
10
10
10
10
10
40
100
In
: UPL
Out : The Federal Bank
Investment characteristics
√
Corpus requirement of INR 10 Lakhs
√
Investment Rationale based on TechnoFunda
√
Maximum stocks open : 10
√
Cash holding based on market direction call. Cash to be deployed
in case of sharp market falls
√
10% in a particular Stock and 30% (max) in a Sector
CMP
327
8861
480
883
639
730
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MOSt PMS
Managed Funds
April 2018
MOSt PMS
Performance since inception
√
Large Cap PMS:- VALUE STRATEGY-
An amount of 1 cr. Invested in March 2003 is worth Rs.25.12 crore (compounded return of 24.26%)
√
Multi Cap PMS:- ASK IEP STRATEGY-
Amount of 1 cr. Invested in January 2010 is worth Rs.4.50 crore (compounded return of 20.50%)
√
Multi Cap PMS:- NTDOP STRATEGY-
Amount of 1 cr. Invested in December 2007 is worth Rs.5.52 crore (compounded return of 18.43%)
√
Small & Mid Cap PMS- IOP STRATEGY-
Amount of 1 cr. Invested in February 2010 is worth Rs.3.31 crore (compounded return of 16.92%)
Latest Performance of all OUR PMS (Portfolio Management Services) strategies. (As on 28th March, 2018)
6
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Investment Product
MUTHOOT FINANCE LIMITED
April 2018
MUTHOOT FINANCE LIMITED
INVESTMENT RATIONALE:
√
The issue offers yields ranging from 8.00% to 9.00% depending on the Category of Investor and the option applied for.
√
Credit Rating of '[ICRA] AA (Stable)' by ICRA and 'CRISIL AA/Stable' by CRISIL for Secured NCDs for an amount of Rs. 3,000 Crores.
√
The NCDs are proposed to be listed on BSE Limited ("BSE"). For the purpose of the Issue, BSE shall be the Designated Stock Exchange.
√
The Tranche Issue is with a Base issue size of Rs 500 Crores with an option to retain oversubscription upto Shelf Limit of Rs 3,000 Crores ("Tranche
I Issue").
STRENGTHS:
√
Strong brand name, track record, management expertise and Promoter support.
√
Market leading position in the Gold Loan business in India with pan-India reach and branch network.
√
High-quality customer service and robust operating systems.
√
Strong capital raising ability to fund a high profitability business model.
√
In-house training capabilities to meet the branch expansion requirements
7
 Motilal Oswal Financial Services
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Registration details of group entities.: Motilal Oswal Securities Ltd. (MOSL): INZ000158836 (BSE/NSE/MSE); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412
. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products.
Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS,
Fixed Deposit, Bond, NCDs and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate
products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products