Wishing you a very Happy Diwali!!! Monthly Market Presentation Monthly Market Presentation Happy Investing in Festivities!!! Mutual Fund investments are subject to market risks, read all scheme related documents carefully. 1 Please refer slide no. 24 for risk factors.
Retrospective October 2012: Ordinary October Retrospective October 2012: Ordinary October The mid- and small-caps outperformed the large-cap indices. The year-to-date outperformance gap of mid-caps and small-caps vs. the large caps widened to 8.1ppt and 6.2ppt, respectively. 2 Source: FactSet, MSCI, Bloomberg, Morgan Stanley Research
FII Equity Flows: Strong & STEADY FII Equity Flows: Strong & STEADY Sources: SEBI, BSE, Morgan Stanley Research, Please note the FII Cash, FII futures, FII Debt & FII Primary Market Data for 31st October is not included. 3
Value of FII Portfolio in India Value of FII Portfolio in India Value of FII investments is up 18% in USD over the quarter…but is still 20% lower than its Dec’10 peak 4 Source: CMIE, Citi Research
Who Owns India Inc? Who Owns India Inc? Including FII, FDI and listed MNC’s….foreign ownership of India Inc at 26.8% is an all time high; Foreigners have more conviction in Indian Equities??? Foreigners have more conviction in Indian Equities??? 5 Source: CMIE, Citi Research
FII Ownership concentrated in Top 30 FII Ownership concentrated in Top 30 Ownership moderates as we broaden the corporate base 6 Source: CMIE, Citi Research
Domestic MF: Why Selling Continues? Domestic MF: Why Selling Continues? Source: SEBI, SEBI, BSE BSE, AMF AMFI, Mo , Morgan an Stan anley R y Rese search ch, Ple , Please n se note th te the e DMF an DMF and Insu d Insurance flo nce flows data s data 7 for for 30th and 31st Octobe 30th and 31st October is not inc r is not included ed
Profit Booking by Retail Investors Profit Booking by Retail Investors Are we invested to capitalize on any upward moves from here??? Source: SEBI, SEBI, BSE BSE, AMF AMFI, Mo , Morgan an Stan anley R y Rese search ch, Ple , Please n se note th te the e DMF an DMF and Insu d Insurance flo nce flows data s data 8 for for 30th and 31st Octobe 30th and 31st October is not inc r is not included ed
Key facets of Equity Investments Key facets of Equity Investments 9
Economics Economics � Reduction in oil subsidy and cylinder cap per household may help contain fiscal deficit by 0.2% of GDP over next 12 months � FDI to revive overall business confidence and help arrest decline in private investment � Divestment in four state-owned enterprises may help collect Rs100 bn (30% of the budget estimate) � Urging state-owned enterprises to use cash surplus will likely accelerate investment spending � Evidence of stabilization in Corporate Results 10
Sentiments Sentiments � Significantly boosted by progressive government action � FIIs bullish on Indian Equities… � Mutual Fund net selling on account of redemption pressures � Recent measures are undoubtedly positive and being viewed as a good beginning 11
Valuations - Valuations - Fair value air value Valuation levels of the Sensex based on earnings estimate of Rs. 1321 (4 Quarter Forward) � Dichotomy of Valuations � Set of quality stocks are trading at very high valuations in FMCG, Cements, Pharmaceutical sector � Excluding these stocks, the broader market is attractive 12
Triggers Triggers � Follow up on policy reforms - Steps outside divestment like increased taxation and further hike in fuel prices that will likely aid in further fiscal consolidation � Crude prices not having rallied post the liquidity gush, is a positive. Crude below or at US $ 100 per barrel � RBI cutting interest rates 13
Equity Outlook & Recommendation Equity Outlook & Recommendation � Equity Outlook � Markets likely to continue being volatile with upside potential based on triggers being achieved � More headroom available to RBI for lowering interest rates � Infrastructure as a sector is expected to see positive action � Recommendations � For lump-sum allocations, invest in any of ICICI Prudential’s Volatility Advantage Products which aim to benefit out of market volatility � Continue SIPs in all core products of ICICI Prudential Mutual Fund with an aim to benefit from long term wealth creation � For overseas diversification, invest in ICICI Prudential US Bluechip Equity Fund No None of th of the afor e afores esaid re aid recomm commenda endati tions a ons are ba e based on any d on any assumptio assumptions. Th s. Thes ese e are p e purely f for r refe ference an nce and th d the e In Investors ar vestors are r e requ quested to ested to cons consult their fin ult their financi ncial advisors befor l advisors before investi investing. g. 14
Fixed Income Outlook Fixed Income Outlook Rate cut delayed but inevitable….. 15
RBI Policy Rates RBI Policy Rates � RBI Cut CRR in anticipation of liquidity tightness 16 Source: Morgan Stanley Research, RBI: CRR- Cash Reserve Ratio, MSF – Marginal Standing Facility
Inflation (WPI) Inflation (WPI) � RBI sticks to path to contain inflationary expectations. 17 Source: Morgan Stanley Research, Office of Economic Adviser: WPI – Wholesale Price Index
Low interest rates a pre-condition for growth Low interest rates a pre-condition for growth revival revival 18 Source: Bloomberg: GDP – Gross Domestic Product, GOI – Goverment of India
RBI Policy RBI Policy � RBI expects Inflation to come down to 7.50% range by January’ 2013 � If Inflation behaves in line with RBI’s expectation with no major fiscal slippage, then high probability of decline in interest rates to the extent of 50-75 bps over next six months. � By that time, better clarity will emerge as far as incremental steps on fiscal consolidation � Final Fiscal deficit figure at which government is likely to end the year � Extent of additional borrowing by government 19 Bps – Basis Points
Liquidity Liquidity � By end of Nov’2012 expect liquidity deficit to be in the range of INR 1.25 – 1.35 trillion � CRR cut of 25 bps may not be adequate � Therefore, OMOs will need to be conducted to bring liquidity within RBI’s comfort zone. � In next 3-4 months, expect OMOs to the extent of equivalent of 1% of NDTL i.e. about INR 700 bilion. � Such step will not only bring liquidity within RBI’s comfort zone but also may result in drifting down 10yr yield to 7.9% � Expect 10yr to trade in a range of 7.90-8.25% in next 3 months � This potentially brings forward an opportunity for investors to add / increase duration to their portfolios. 20 OMOs – Open Market Operations, NDTL – Net Demand & Time Liabilities
Outlook & Strategy Outlook & Strategy � Toward the later part of November, expect liquidity to worsen. � Hence, short term rates may become more prone to moving up providing opportunity to invest in Corporate Bonds. � Do not expect Corporate Bond spreads at 55-60 bps to sustain. � Expect spreads to widen to 80-85 bps in next 4-6 months time. � Hence, we have made adjustments in our strategy � Not increasing any exposure to Corporate Bonds in our duration funds. � Having increased exposure to G-Secs including SDLs. 21 SDLs – State Development Loans
Outlook & Strategy Outlook & Strategy � As we see spreads widening to a more comfortable level of 80-90 bps, then we may again start increasing exposure to Corporate Bonds. � As of now we are overweight G-Secs and SDLs. 22
Fixed Income product recommendation Fixed Income product recommendation � We recommend investments in funds as follows: � ICICI Prudential Short Term Plan for 9-12 month horizon � ICICI Prudential Regular Savings Fund for 1 Year and above horizon � Investors with a 2 year view may consider ICICI Prudential Corporate Bond Fund � For duration play – Invest in the longer term Gilt and Income with a 24-36 months investment horizon None of the aforesaid recommendations are based on any assumptions. These are purely for reference and the Investors are requested to consult their financial advisors before investing. 23
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