ICI CICI CI Pru rudent dential ial Value lue Fund d - Ser Serie ies s 11 11 th Jan 2017 th Jan NFO Perio iod – 10 10 th 7 – 24 24 th n 201 017 Benchm chmark rk – S&P BSE 500 00 Index x Only for Distributors & Advisors of ICICI Prudential Mutual Funds 1
Content ent Content Page Number India Macro: Joining the Dots 3 Sensex follows EPS Growth Rate 4 Fixed Income Rally is Followed by Equity Rally 5 Our Investment Framework 6 Valuations 7 Investment Strategy 8 Banking and Finance Sector 9-10 Infrastructure Sector 11-12 Defensive and Consumption Sector 13-14 Goods and Services Tax 15 Use of Derivatives to limit market downside 16 Scheme Features 17 2
India Macro: Joining ng the e Dots Demonetisation Rate Cuts Improved Fiscal and Current Account Balance Government Reforms Indian Macro has strengthen structurally over last 3 years. Most indicators have improved and few are gradually improving. Together these macro factors may take the trend growth to higher levels in coming years. 3
Sen ensex sex follows s EPS S Gr Growth Rate EPS vs. Sensex ex Returns rns 100.00 10 0.00% 80.00% 80 0% 60.00% 60 0% 40 40.00% 0% 20 20.00% 0% 0.00% 0.00 -20.00 -2 0.00% -40.00 -4 0.00% -60.00 -6 0.00% -80.00 -8 0.00% -07 Apr-08 08 -08 -08 Apr-09 09 ug-09 -09 r-10 10 ug-10 -10 r-11 11 ug-11 -11 12 r-12 ug-12 -12 13 r-13 ug-13 -13 14 r-14 ug-14 -14 r-15 15 ug-15 -15 16 r-16 ug-16 -16 Dec-0 ug-0 Dec-0 Aug-0 Dec-0 Aug-1 Dec-1 Aug-1 Dec-1 Aug-1 Dec-1 Aug-1 Dec-1 Aug-1 Dec-1 Aug-1 Dec-1 Aug-1 Dec-1 Apr- Apr- Apr- Apr- Apr- Apr- Apr- Aug De De De De De De De De De De Trai aili ling ng 12 mon 2 month EP th EPS Gr S Growth th Trai aili ling ng 12 mon 2 month Se th Sensex nsex Ret Return urns Source: Bloomberg, EPS: Earning per share, Returns as on 28-12-2016 | Past performance may or may not be sustained in future 4
Fixed ed Income e Rally y is s Followed ed by Equity ty Rally History tory sugge gest sts s that t equity ty rally star arts ts afte ter inte terest st rate te cycle bottoms oms 35000 18 30000 16 End of rate cut cycle and End of rate cut cycle and Start of Equity rally Start of Equity rally 25000 14 20000 12 15000 10 10000 8 5000 6 0 4 S&P BSE Sensex RBI Repo Rate(RHS) Source: Bloomberg, data as of December 30, 2016. Past performance may or may not be sustained in future. 5
Our Investm estment ent Framew mework ork All our 4 factors suggest, it is right time to invest in Equities Moderate/ derate/ Nega gative tive Negative ative LOW Attra tractive ctive Flow ows Past Return rns Valuat uations ions Sentiments iments Our Equity Valuation Due to demonetization FII are selling Last 2 year returns of index (95.38) suggest and uncertainty in Equity are negative global markets to invest in Equities FII: Foreign Institutional Investor 6
Valuation ations Equity Valuation index has just entered in "invest in equities" zone. 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 7 Securities. GDP – Gross Domestic Product
Inves estme tment t Strategy tegy • Flexica icap p fund. nd. • Bottom-up up approach ch • Fund d intend ends s to in invest vest in 20-25* 25* stocks ks given ven at particular cular point in time. • Sectors rs Themes es – Banks, NBFC and Infrastructure – Defensive and Consumption Sectors – Others (GST play like FMCG) • As a part of invest vestme ment nt strateg ategy y the scheme me may y buy put options s eith ther er for or th the entire tire/partial /partial po portf tfolio olio de depe pending ding on on th the di discretion retion of of the fund nd managers agers and subjec ject t to ma marke ket t condit itions ions * The No. of Stocks provided is to explain the investment philosophy and the actual No. may go up and down depending on than prevailing market conditions at the time of investment. The fund may invest up to 25 stocks depending on the discretion of the Fund Managers. The stock selection and investment strategy will be as per the Scheme Information Document 8 NBFC: Non Banking Financial Company, GST : Goods and Services Tax, FMCG: Fast Moving Consumer Goods
Ba Bankin ing g and Financ nce e Sec ector or Private vate Banks s Increa easi sing ng Penet etrat ation on in Rural al & Semi-Ur Urban an Marke kets ts Current nt & Savings ngs Account nt Growth Rate te (%) .5 28.5 27.1 .1 30 30 .1 22.1 21.8 .8 25 25 .4 19.4 19.1 .1 .4 17.4 20 20 14.3 .3 .4 13.4 .1 12.1 14 14 11.7 .7 15 15 8.8 8.2 8.1 7.6 10 10 6.8 6.5 6.2 5.9 4.6 6 3.7 3.5 3.3 5 0 Ru Rural ral Sem emi-Ur i-Urban ban Ur Urban ban Me Metr tropo opoli litan an In India dia 2000 2000 2004 2004 2007 2007 2012 2012 2015 2015 9 Source : CLSA
Ba Bankin ing g and Financ nce e Sec ector or Economic and Technology Policy Support Demographic Innovation • Increase in working population and • Wide policy support in the form of • This not only help to reach out to growing disposable incomes can private sector participation and masses in cost effective way and raise demand for banking and liquidity support. hence scale rapidly. related services • Government's schemes like Pradhan • Use of alternate channels like ATM, • Favorable demographics and rising Mantri Jan Dhan Yojna can increase internet and mobile hold significant income levels also this can be the accessibility of financial services potential in India benefitted by developments in . revenue mix models of the banks • RBI has emphasised the need to • Launch of new technologies and focus on spreading the reach of internet platforms like BHIM app banking services to the un-banked • Strong GDP growth to facilitate population of India hence focus in banking sector expansion banks is to expand branch network in the rural areas in line with Pradhan Mantri Jan Dhan Yojna GDP: Gross Domestic Product, RBI : Reserve Bank of India. 10
Why Infrastruc structur ture e Sec ector? or? Higher gher governme ernment t expen pendit diture ure on infra frast structure cture projects cts 10,00 000 Km of 100 0 Smar art t Cities New Roads Higher gher Increa ease se in tax Governme ernment t reven evenue ue under er Revenu venue IDS Stable Goods s and Services vices Tax & Governme ernment t & Dem emone neti tisa satio tion UDAY Scheme Digita ital India ia Policy icy Initi tiat ative ives For financ ancial ial reviv ival al of Power r distrib tributio ution n Funding ing companie anies Strong ng Lower er Curr rrent t Account unt Macroeconomi oeconomic c Base Defi efici cit t & Inflat ation Sources : CLSA | UDAY: Ujwal DISCOM Assurance Yojana | IDS: Income Disclosure Scheme 11
Infras astru tructur ture e Sec ector POWER: Government’s focus on lowering debts of power distribution companies and infrastructure expansion in rural and urban areas. MINERA RALS LS / M MINING ING: Could grow in tandem with expected increase in demand for power, operational efficiency, and attractive valuations. TELECOM: India’s demographic advantage, rapid growth in data consumption, and government initiatives such as Digital India. CONSTR TRUCTIO UCTION N & CONSTR TRUCT UCTIO ION N PROJECTS CTS: Government’s focus on infrastructure expansion in rural and urban areas. They could also leverage on excess capacity. TRANSP SPORT RTATIO ION: Could benefit from the implementation of Goods and Services Tax (GST), operational efficiency, and attractive valuations. 12
Def efens ensive ive and Consu sumpti mption on Sec ector Pharm rma a and d Healthca lthcare re Secto tor – India is one of the few markets worldwide which is growing at double digits. – Most pharma companies are spending a lot on research and development which will play out in next few years – Indian companies have 25% volume share in USA. In all the drug filings for US market incrementally Indian players are getting maximum share and already Indian companies have shown tremendous growth in USA in last 7-8 years. – Tremendous growth opportunity in Indian hospitals growth with favourable demographics in India(Rising income, rising insurance penetration, increasing occurrence of ailments like diabetes, cancer, cardio issues) – Long term outlook for Indian healthcare sector remains structurally positive, considering abundant growth opportunities, strong balance sheets, and better return ratios and free cash flow generation in pharma companies and reasonable valuations . 13 Source : CLSA
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