August 2014
In This Issue
• Market Outlook for the month
• Equity Market Outlook
• Derivatives & Commodities Market Outlook
• Large Cap and Mid Cap Investment Ideas
• Model Advisory Portfolios
• Recommended Funds
• OrionLite Trading Terminal
Union budget puts more money in the hands of consumers
Sequential improvement in CPI and WPI
Reduction in QE remains intact at USD 10bn
Dear Investor,
Market performance:
Nifty took a breather with a 1.4% upmove in July
after a rally of 8% and 5% in May and June respec-
tively. Bank Nifty witnessed a quiet month with flat
performance after increase of 15% and 3% during
May and June respectively. CNX Mid Cap corrected by
2% during July after a cumulative increase of 24% during May and June. CNX IT
continued its rally for the second consecutive month with returns of 4% in July.
Economy and Macro:
Improved domestic macro and hopes for a revival in economic sentiments under
the watch of new government have been key triggers for the upmove. June CPI
came at 7.3% (vs May's 8.3%) due to lower food prices. June WPI came in at 5.4%
against May's 6%.There is growing noise for a possible rate cut by RBI in the wake
of lowering core inflation numbers for a sustained period of time.
Government presented its first union budget, touching almost all aspects of its pre
election manifesto - from construction of new cities to cleaning of Ganga. Fiscal
deficit estimate at 4.3% for FY15 is a key indicator for equity investors to watch.
Government also, provided tax relief to individual tax payers.
On the global side USA reported mixed data. GDP grew at 4% versus expectations
of 3% but job data came weaker than expectations. QE stands reduced by USD
10 Bn (lower than estimates). Poor data on jobs front has strengthened argu-
ments for a late increase in interest rates by US Fed.
Outlook:
Despite the rally in the last 3 months valuations are around the long period
average. We have again upgraded FY16 estimates for Sensex EPS to 1836 (a 20%
growth). Downside seems to be limited in Index due to expectations of 17%
earnings growth in the next 3 years after ~8% growth during the last 6 years. In
the event of a consolidation, activity could turn stock specific with focus on quality.
Our Mid Cap model portfolio, with 100%+ returns during last 4 years, offers a very
good selection of high quality companies. We advise shifting to defensives like IT
and Pharma to protect portfolio gains after a huge rally during the last 3 months.
Key Highlights for the Month
Global Market
Index
Sensex
Nifty
Dow
Nasdaq
Hang Sang
31-July-14
25,895
7,721
16,563
4,370
24,757
MoM (%)
1.9
1.4
-0.2
-1.6
-0.9
6.8
YoY (%)
33.9
34.5
1.6
6.9
20.5
13.1
FTSE 100 Index 6,730
Economic Pulse
Key Indicators
IIP (May)
WPI (June)
10 Year Yield
USD/ INR
Crude ($)
Gold (10 gms)
Current Month
4.7%
5.78%
8.49%
60.56
106
27906
Change (%)
38.24
-3.83
-2.97
0.63
-5.69
-0.67
Thought for the month
Rakesh Tarway
Vice President

On This Page
Equity Market Outlook
Markets & Our Recommendations
August 2014
Equity Market Outlook
Technical Outlook
Nifty ended the month of July with a gain of 110 points. Cyclical handed over the
baton to Defensives & IT which turned to be the best performers for the month
of July.
The month was important in terms of the inter-market developments, a reversal
in Global VIX from its lower extreme is an alarming sign for global equities.
Depreciation in Emerging market currencies is expected & would be confirmed
from dollar index moving up towards 85-86. Dow Jones proclaimed the upper
end of the broadening pattern, indicating exhaustion. USDINR is trading at the
right tail (indicated by the Zscore) and a reversal is evident. Nifty is at a verge of
breakdown in the Global Equity Rotation chart which directs towards
expectation of under-performance compared to other equity indices in the globe.
A breach of India VIX above 16 couple with Nifty breaching support should be an
ideal level to build short positions.
On the long term scale a Wave B seems to have achieved its move on the Elliot
wave count and a wedge formation on the weekly scale at the edge of the
movement argues well for a dawn in Wave C. The wave targets can be significantly
lower and could threat the swing low at 5900. The wedge should be negated only
on a sustained move above 7975-8000. A first leg of impulse in the case of a breach
of the wedge support of 7480 can push the Nifty lower to 7100. Re-confirmation of
the Bearish Engulfing pattern marks a strong supply level of 7850.
Multiple studies exhibiting over-optimism in the market and a diminishing
reward to risk is no more favorable for longs unless the negative patterns are
negated above 8000. Pullbacks should be used to reduce positions/leverage and
profit booking is advisable. A breach of 7480 coupled with rising India VIX should
be a call for hedge of portfolios and short positions can be built for a steep
correction. A shift from Cyclical (like - Metals, PSU Banks, Mid-caps & Small-caps)
to Defensives (Pharma & FMCG) & IT should be a prudent decision.
Nifty - Wave B
Nifty Weekly -Wedge
Nifty Weekly - Candlestick Pattern
Detailed report available on-
http://ftp.motilaloswal.com/emailer/Marketdiary/QuantitativeMonthly/MOStQuantitativeOutlookMonthly-August2014.pdf
Sectoral Highlights
Sector
Pharma
IT
Bank
Metals
Note: #Technical view for 1 month perspective, *Custom Index
Our Views
Positive
Positive
Negative
Negative
Top Pick
Divislab
TechM
HDFC Bank
Tata Steel
Recommendation/CMP
Buy / 1498
Buy / 2170
Sell below 805
Sell below 535
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Derivatives Market Outlook, Commodities Market Outlook
Markets & Our Recommendations
August 2014
Derivatives
Market Outlook
Derivatives
Market Outlook
The month of July saw long unwinding in most of the Cyclical sectors, while positive OI activity was seen in Defensives
Hedge ratio
(Index Futures / Stock Futures)
is at an extreme expressing the level of over-enthusiasm for longs. Historically, similar
behavior in the hedge ratio has been followed by major peaks
Options OI indicates build-ups at 7500 & 8000 which coincides with our other studies
SECTORS OI
Nifty hedge
Positive OI activity-
Pharma:
Only sector to see increment in sector OI led by
Actionable
Sell : 1 Lot 7400 PE
longs (Sun Pharma, DrReddy, Lupin).
Telecom:
Longs in Bharti late expiry, short
Buy : 1 Lot 7600 PE
Stop Loss: INR2700
covering in rest of the sector.
IT:
Longs in TCS & OFSS, short covering in Infy,
Target Profit : INR6000
among mid-caps avoid Hexaware.
FMCG:
Short covering in Dabur, HUL & ITC
Lower Hedge ratio (Index Futures / Stock Futures),
Implied Volatility at lowerend of the band remain con-
Negative OI activity-
Infra, Power & Realty:
At biggest risk of long unwinding
cerning and advocates an urge to create portfolio
some of which has already begun this expiry.
Oil & Gas and Engineering:
Long
hedge
unwinding in the sectors with stock specific shorts in L&T (Engineering) and
The strategy can be deployed with expiry view and
Cairn (O&G).
Banking:
Led by PSU basket where we could see some shorting,
held till the end to get some reciprocal gains against
possible portfolio hit
while the rest of the sector saw long unwinding
Commodities Market Outlook
OIL
Energy complex exhibited tremendous weakness last month, as crude oil prices fell the most in more than a year as concerns
over Iraq supply faded and Libyan supply partly resumed. Natural gas prices fell for a third straight month as inventory
injections continue to better than the five year average amidst a mild summer
Iraq's oil exports from its southern terminals remain unaffected by fighting in other parts of the country. Exports in July have
averaged 2.52 mbpd, up from 2.43 mbpd in June. Libya's oil production has climbed to 0.5 mbpd. U.S and EU imposed additional
sanctions on Russia but the sanctions have had no effect on oil exports which has also weighed on oil prices
Front month futures jumped sharply last month temporarily as cushing inventories fell to 17.9 million barrels, down 57.5% YoY
and the lowest since 2008 as refineries continued to operate at record capacities
Overall, geopolitical concerns will remain an upside risk, but stronger supply will keep physical fundamentals as the main
driving factor. Also, U.S. refineries typically schedule maintenance programs for September and October which may keep
demand lower and weigh on prices
On the price front, strong resistance at is $102.10 followed by $105.30/105.50. Selling on rallies is still advisable targeting
$94.80-$93.30. On the MCX, breach of support at INR5900 could lead to fall towards INR5620 in the worst case.
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Large Cap Investment Ideas, Mid Cap Investment Ideas
Must Act
August 2014
Large Cap Investment Ideas
HCL Tech has signed 50+ transformational engagements totaling over USD 5bn
Market & Our Recommendation
HCL Tech
CMP*:
Target:
INR1555
INR1750
BUY
in TCV in FY14 compared with USD3b+ in FY13
The company has guided for software services growth to get stronger in FY15
facilitated by ramp ups in the deals won in FY14
We expect HCLT to grow its USD revenues at a CAGR of 15% over FY14-16E and
EPS at a CAGR of 13% during this period
Our target price of INR1,750 discounts FY16E by 15x
Lupin is confident of achieving USD5bn of revenues by FY15 as compared to
Lupin
CMP*:
Target:
INR1182
INR1381
BUY
~USD1.8bn in FY14
Lupin is witnessing a phase of a shift in margin profile(~28-30% range likely)
due to shift in product mix and operating leverage
Higher margins and strong revenue growth expecation translates into a 34%
EPS CAGR for FY14-16E
We have a Buy with a revised target price of INR1,381 (24x FY16E EPS). Lupin is
our top pick in large cap pharma
Mid Cap Investment Ideas
Karur Vyasa Bank (KVB) is a 98 years old private bank with a network of 577
branches and 1628 ATMs with business size of INR78,000crs.
KVB has slowed down the branch addition in FY14 after adding 185 branches
Karur Vyasa Bank
CMP*:
Target:
INR484
INR600
BUY
in FY12 and FY13, which should allow operating leverage to kick-in in FY15
We are bullish on KVB on account of strong business growth, limited NPA's,
healthy ROE & ROA coupled with handsome payout ratio
KVB is quoting at a P/BV of 1.4x FY15 ABV of INR 366 and a P/E of 9.8x on FY15
earnings of INR49.5
TVS Motors (TVSL) is a comeback trail with scooters scripting the comeback
story - Wego and Jupiter have boosted sales by 27% in 1QFY14
TVSL has a slew of launches in FY15 that should help the company grow at a
TVS Motors
CMP*:
Target:
INR147
INR206
BUY
faster pace that the industry
MOSL expect EPS CAGR of 58%, with RoE for TVSL improving from 19.7% in
FY14 to 32.6% in FY16E
TVSL trades at 18x/11.6x FY15E/16E EPS of INR8.8/13.7 respectively
Data as on 31st July 2014
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MOSt Value, MOSt Velocity, MOSt Mid-Cap
Build a Portfolio
August 2014
MOSt Value - Model Advisory Portfolio for Investors
Scrip
Infosys
ICICI Bank
ITC
IPCA
SBI
Lupin
L&T
Cadila Healthcare
Jubilant Foodworks
HDFC
Hero MotoCorp
Tata Motors
Tech Mahindra
Cash
Total
MBP
3368
1471
356
706
2439
1182
1503
1116
1258
1068
2597
447
2151
Wtg.
7.5
7.5
7.5
7.5
7.5
7.5
7.5
7.5
7.5
5.0
5.0
5.0
5.0
12.5
100
Sectoral Allocation
For Whom
Investment
Duration
Risk Profile
13%
8%
5%
10%
Banking
15%
Capital Goods
Cash
Long Term
Investors
few months
to a year
Defensive
Investors
7%
23%
12%
7%
Health Care
What’s In
-
-
What’s Out
Retail
Technology
MOSt Velocity 10 - Model Advisory Portfolio for Positional Traders
Scrip
ICICI Bank
Tata Motors
HCL Technologies
Ambuja Cements
IndusInd Bank
PVR Limited
Ashok Leyland
Jubilant Foodworks
Tech Mahindra
Cadila Healthcare
Bata India
Maruti Suzuki
Cipla Limited
Divi's Laboratories
Cash
Total
MBP
1471
447
1555
206
560
617
34
1258
2151
1116
1247
2524
457
1476
Wtg.
7.5
7.5
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
25.0
100
Sectoral Allocation
For Whom
Investment
Duration
Risk Profile
What’s In
ICICI Bank
Tata Motors
PVR Limited
Ashok Leyland
Cadila Healthcare
Maruti Suzuki
Medium Term
Investors
Few months
horizon
Moderate
Investors
What’s Out
HDFC Bank
Cairn India
Titan Company
BPCL
Lupin Limited
Crompton Greaves
MOSt Mid Cap- Model Portfolio for Aggressive Investors
Scrip
Berger Paints
Finolex cables
Suprajit Engineering
Bajaj Corp
Bajaj Finance
Engineers India
Persistent Systems
Repco Home Finance
Jain Irrigation System - DVR
Unichem Labs
Total
MBP
301
210
115
230
2210
280
1250
432
75
210
Wtg.
12.5
12.2
11.1
10.5
10.2
9.7
9.7
9.2
7.6
7.3
100
Sectoral Allocation
For Whom
Investment
Long Term
Investors
few months
Aggressive
What’s Out
-
8%
21%
19%
7%
Agro
Banking
Capital Goods
Risk Profile
What’s In
-
Health Care
23%
22%
Data as on 31st July 2014
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MOSt PMS, MOSt Mutual - Model Portfolio
Managed Funds
August 2014
MOSt PMS
Value Strategy
The Strategy aims to benefit from the long term compounding effect on invest-
ments done in good businesses, run by great business managers for superior
wealth creation.
Value Strategy has the investment style of buying Undervalued stock & Sell over-
Top Holdings in Value Strategy
Scrips
Eicher Motors Ltd.
Bosch Ltd.
HDFC Bank Ltd.
Tech Mahindra Limited
HDFC Ltd.
% Holdings
12.89
10.73
9.43
8.68
8.15
valued stocks, irrespective of Index Movements.
Money multiplied by 14.42 times in just 11 years.
INR1 Cr invested in Value PMS in March 2003 is worth INR14.42 Crs vs. 7.65 Crs in
Sector Allocation
Auto & Auto Ancillaries
Banking & Finance
Infotech
Pharmaceuticals
Engineering & Electricals
% Holdings
28.86
25.04
16.57
12.35
6.17
CNX Nifty.
Since its inception, Value Strategy has delivered annualized returns of 26.47% vs.
CNX Nifty returns of 19.59%, an outperformance of 6.88% (CAGR).
All the above figures are of a model client. Returns shown above are calculated on NAV method "Returns shown above are post fees & expenses
Data as on 31st July 2014
MOSt PMS
NTDOP Strategy
The strategy aims to deliver superior returns by investing in focused themes
Top Holdings in NTDOP Strategy
Scrips
Eicher Motors Ltd.
Page Industries Ltd.
Bosch Ltd.
Bajaj Finance Ltd.
J&k Bank
which are part of the Next Trillion Dollar GDP growth opportunity. It aims to
predominantly invest in Small & Mid Cap stocks with a focus on Identifying Emerg-
ing Stocks/Sectors.
The strategy aims to capitalize on the themes of Consumerism, Banking &
% Holdings
15.61
11.98
8.11
7.30
5.91
Financial Services & Infrastructure in the Indian Economy.
Since its inception, NTDOP Strategy has delivered 14.76% annualized returns vs.
Sector Allocation
Banking & Finance
Auto & Auto Ancillaries
FMCG
Diversified
Engineering & Electricals
% Holdings
25.19
23.73
22.32
8.78
7.04
3.78% of CNX Midcap, delivering an annualized alpha of 10.98%.
All the above figures are of a model client. Returns shown above are calculated on NAV method "Returns shown above are post fees & expenses
Data as on 31st July 2014
MOSt Mutual - Model Portfolio
AGGRESSIVE - High Risk
Scheme Name
Reliance Small Cap F (G)
Franklin India Smaller Co F (G)
HDFC Balanced F (G)
ICICI Pru Value Discovery F (G)
UTI-Opportunities F (G)
Total
G: Growth , E: Equity, D: Debt, F: Fund
Return %
Type 1yr 3yrs Wtg%
E 113.36
E 90.32
D 54.08
D 86.97
D 38.03
23.78
NA
16.19
23.51
15.45
20
20
20
20
20
100%
DEFENSIVE - Low Risk
Scheme Name
Return %
Type 1yr 3yrs Wtg%
D 5.36
D 11.41
D 10.82
E 9.91
E 46.07
8.82
9.7
8.9
9.31
16.36
20
20
20
20
20
100%
IDFC Dynamic Bond F (G)
Franklin India S T Income (G)
HDFC Short Term Plan (G)
ICICI Pru Equity - Arbitrage F (G)
Birla Sun Life Frontline EF-PlanA(G)
Total
Data as on 31st July 2014
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Investment Solutions
OrionLite Trading Terminal
August 2014
Game Changer
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