May 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
• TradeGuide Signal
Key Highlights for the Month
Deterioration of Macro data with higher inflation and lower industrial activity
Start of Lok Sabha elections
Sensex earnings growth to keep its upward trend during March 2014 quarter
Dear Investor,
Market performance:
Nifty remained flat during the month of April after moving
up by 7% in March. Bank Nifty again outperformed Nifty
with an increase of 2%. CNX Mid Cap, too, did well with
return of 4%. CNX IT corrected again in April by 0.5% after
fall of 10% in March.
Economy and Macro:
Data on domestic macro deteriorated on a sequential basis, which also had a negative
impact on markets during the month. CPI for the month of March came at 8.3%, which
was higher than in February due to vegetable price inflation.CPI for FY14 averaged 9.5%,
which is lower by ~75 bps as compared to FY13. WPI also came in higher at 5.7%
as compared to previous month's 4.7%. IIP data was also disappointing with fall
of -2% as compared to flat performance in the previous month.
Political scene:
Opinion polls keep showing increased strength for BJP led NDA in the upcoming Lok
Sabha Elections. Opinion polls, for the first time, predicted that NDA will win 275 seats
to get simple majority in Lok Sabha. Earlier opinion polls had predicted ~ 230-250 seats
for NDA. BJP led NDA also strengthened its coalition by bringing in TDP of Andhra
Pradesh into NDA's fold. Results of elections will be announced on 16th of May with
exit poll results on 12th May post the last round of polling.
Outlook:
In the last 3 months, Indices have rallied sharply but valuations are around long period
average. 14-15% earnings growth in the next 2 years (after ~8% CAGR during the last
5 years) will restrict downsides. Earnings season has started well with companies mostly
delivering numbers in line with expectations. We expect Sensex companies to continue
the trend of last couple of quarters with 13% yearly growth for FY14. During the last
couple of quarters Sensex earnings showed a growth of 11% and 19% respectively after
delivering low single digit growth for 3 quarters in a row. Good Mid Cap stocks still
offer a lot of potential in the next 3-6 months. Our model portfolio for Mid Cap Stocks,
which has returned more than 100% during the last 4 years, offers a very good selection
of high quality companies. Sectors like IT and Pharma have corrected by ~5-15% and
provide a good opportunity for entry with a medium term view. Emergence of a stable
reformist central government will augur well for cyclical like PSU Banks and Oil Marketing
Companies.
Global Market
Index
Sensex
Nifty
FTSE 100
Dow
Nasdaq
Hang Sang
30-Apr-14
22,418
6,696
6,780
16,581
4,115
22,134
MoM (%)
0.1
-0.1
2.8
0.7
-2.0
-0.1
YoY (%)
14.9
12.9
5.4
11.7
23.6
-2.7
Economic Pulse
Key Indicators
IIP (April)
WPI (May)
10 Year Yield
USD/ INR
Crude ($)
Gold (10 gms)
Current Month
-1.9%
5.70%
8.82%
60.33
108.1
29773
Change (%)
-
21.79
0.23
0.73
0.32
4.03
Thought for the month
Rakesh Tarway
Vice President

On This Page
Equity Market Outlook
Markets & Our Recommendations
May 2014
Equity Market Outlook
Technical Outlook
•
Nifty ended the month of April with a mere gain of 8 points on MoM basis. PSU banks, Small
cap & Pharma stocks remained in limelight due to their exceptional gains while rest of the
sectors remained subdued, more or less in line with Nifty
NIFTY v/s MSCI EMERGING
(Relative)
•
The MSCI Emerging Markets Index has been sideways post the sharp decline in 2011, till
date it has not been able to retrace its 2011 highs. On the other hand Nifty has breached
above its 2011 highs & has been outperforming its peers within the pack. The relative
strength chart of Nifty v/s MSCI Emerging Market Index in the lower panel clearly high-
lights that the movement is India specific which could be on the expectation of the out-
come of the Union elections
Nifty breached out from a 6 year consolidation in the previous month & is quoting near all
time high. The Index is trending up but momentum has been low. The recent action on
the weekly scale has been consolidative in nature. As the volatility has been quoting up,
the immediate support is expected to be at 6500. Going forward, as the volatility has
been quoting up, the immediate support is expected to be only at 6500. On larger scale as
well, a prudent strategy should be to keep positions with a trailing stop which should now
be placed at 6200 for medium term investors.
As the volatility has been quoting up, the immediate support is expected to be at 6500.
•
NIFTY WEEKLY
•
FMCG (RELATIVE)
The relative strength chart above of FMCG index is placed at a strong support. Lately it
has been sustaining & subsequently reverting from this support zone
We expect the sector to outperform & witness follow up momentum in the days ahead
Top Picks within the sector are HUL & ITC
Sectoral Highlights
Sector
Auto
Mid Cap
FMCG
Metals
#Technical view for 1 month perspective
Our Views
Positive
Positive
Positive
Neutral
Top Pick
M&M
Bajaj Elec
ITC
Hindalco
Recommendation
#
Buy upto1030
Buy at 294
Buy at 341
Buy upto135
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On This Page
Derivatives Market Outlook, Commodities Market Outlook
Markets & Our Recommendations
May 2014
Derivatives Market Outlook
Derivatives Market Outlook
3
Mere 2.5% uptick in April expiry couldn’t manage to bring incremental open interest on board. However even after a run up in recent months,
positive bias seems to have continued indicated by notably above the average rollover cost.
3
Option composition show neutral bias (OIPCR = 1) which could be due to the event led large volatility trades. Upcoming event is expected to
decide further trend, however up till then outlook remains positive.
OPTION INDICATED EXPECTED VOLATILITY
The chart shows, option indicated band of volatility
for Nifty, considering near month ATM total (Call
+Put) premiums. As the month of event came closer
the band got wider to around 1000 points. This
indicates expected volatility of 500 points on either
side already priced in. This band comes in handy in
figuring out expected (ballpark) extreme levels, due
expecetd post event. The call to be taken is whether
the volatility projected by the options is higher or
lower than one's expectation of realized volatility.
3
If expected realized volatility is higher than the expected volatility indicated by options, do
Long Volatility trade
3
Buy Both Call and Put - Keep the Quantity same and if the strikes not the same then keep
their distance from CMP same. Review and Exit the position as soon as Event is over
3
If expected realized volatility is lower than the expected volatility then do Protected Writing
Suppose Nifty is at 6800 & Call & Put Total premium is at 500
Strategy: Sell 6800 CE & PE = Inflow 500; Buy 6300 PE & 7300 CE = Out Flow 150
Max Profit = 350 on Expiry @ 6800; Max Loss = 150 on Expiry outside 6300-7300
However, strategy can be exited in the week of outcome also, there will be trading
gains with favorable pay-off
3
You can alter the strikes also where pay-off would be Max Profit = Net Premium Received,
Max Loss = Gap between Buy & Sell Strikes - Net Prem Received.
KEY NOTABLES:
3
Premiums will drop dramatically once the event
is over
3
Exit polls (On 13th Morning) will have implica-
tions on Underlying and the Premiums
(downward pressure). Before the actual results
3
The actual price action could be lethal for short
positions in option, hence please trade with
spreads i.e. Short 7600 CE & Long 7900 CE rather
than Shorting only 7600 CE alone.
Commodities Market Outlook
Gold
3
Gold prices were largely range bound last month as prospects of a better economic outlook in Q2 weighed on prices on one hand, while
geopolitical concerns owing to the conflict between Russia and Ukraine underpinned prices on the other.
3
Fed continues to taper another $10bn from its asset purchases which continues to weigh broadly on the sentiment among gold investors. The
latest estimate of Q1 GDP showed economy expanded by just 0.1% in Q1, supporting gold prices on the downside.
3
Most other data has been mixed but there is increasing evidence that the economy will rebound strongly in Q2 from the weather related
slowdown. The all important monthly NFP data gave a very strong headline number, the sharp drop in participation rate was concerning. U.S.
economy added 288k nonfarm payrolls in April, which was much more than the 210k expected.
3
Investment outflows from the SPDR Trust quickened last month with net flows turning negative for the year in April. Holdings this year were up
14.8 tonnes until the end of March but were down 10.2 tonnes by the end of April.
3
Overall, gold prices are trading in a very broad range of $1270-1330 in all likelihood. Yet, if economic data improves and geopolitical concerns
fade, a fall towards $1240/1200 cannot be ruled out.
3
On the MCX, we see
Rs28300
as a major support and there is a possibility of a decline towards
Rs27850.
On the upside, strong resistance is at
Rs29200-250
level and only breach above the same could target next major resistance at
Rs29700.
Till then the medium-term bias would remain
sideways to negative.
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On This Page
Large Cap Investment Ideas, Mid Cap Investment Ideas
Must Act
May 2014
Large Cap Investment Ideas
Market &
Tier of 12.5%+ and largest
3
ICICI Bank is well placed for next growth cycle with
Our
I
Recommendation
branch
ICICI Bank
CMP*:
Target:
Rs1243
Rs1454
BUY
network in the private financials.
3
Management is confident of reducing stress additions in FY15. We believe that risk of asset
quality is built in valuations.
3
PAT CAGR is expected to be lower at 15% over FY14-16. Helped by strong RoAs of 1.7%+,
core RoE to remain healthy at ~16% over FY15/16E.
3
Stock trades at 2.2xFY15E and 1.9xFY16E ABV of
Rs555
and
Rs634
respectively.
HCL Tech
CMP*:
Target:
Rs1402
Rs1700
BUY
3
HCL Tech remains on track to sign USD4b+ deals in FY14, which would be more than
30% growth YoY.
3
As a result, growth visibility in HCLT remains the highest among peers, and we expect
growth acceleration of FY14 to continue in FY15.
3
We expect HCLT to grow its USD revenues at a CAGR of 15% over FY14-16E and EPS at a
CAGR of 14%.
3
Stock trades at 14xFY15E and 12.5xFY16E EPS of
Rs
100 and
Rs
112 respectively.
Mid Cap Investment Ideas
3
Bajaj Electrical has a 17% share in
Rs
35bn organized fan market, 8% share in
Rs
50bn
organized lighting market and a 5% share in
Rs
25bn organized luminaires market.
3
We expect the E&P business to post a strong turnaround in FY15, with revenues
Bajaj Electrical
CMP*:
Target:
Rs294
Rs370
BUY
growing at a CAGR of 13% over FY14-16.
3
We expect BJE's consolidated earnings to quadruple from
Rs
587mn to
Rs
2,469mn over
FY14-16 on the back of turnaround in the E&P division.
3
Stock trades at 13.7xFY15E and 11.8xFY16E EPS of
Rs
21.4 and
Rs
24.8 respectively.
3
Emami is a unique play in personal care and healthcare, with strong and differentiated
positioning as a provider of natural/herbal products.
3
We believe HMN is a good long term bet, with presence in categories having long
runway for growth, together with low competitive intensity.
3
This niche presence should help post 15.4% revenue and PAT CAGR over FY14-16 on the
Emami
CMP*:
Target:
Rs475
Rs555
BUY
base of 23% PAT CAGR over FY12-14.
3
Stock trades at 24.4xFY15E and 20.5xFY16E EPS of
Rs
19.4 and
Rs
23.1 respectively.
Data as on 30th April 2014
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MOSt Value, MOSt Velocity, MOSt Mid-Cap
Build a Portfolio
May 2014
MOSt Value - Model Advisory Portfolio for Investors
Scrip
Infosys
ICICI Bank
ITC
IPCA
SBI
Lupin
L&T
Dabur
Tech Mahindra
HDFC
Hero MotoCorp
Tata Motors
Bharti Airtel
Cash
Total
MBP
3177
1245
341
839
2079
990
1296
179
1832
898
2194
414
328
Wtg.
7.5
7.5
7.5
7.5
7.5
7.5
5.0
5.0
5.0
5.0
5.0
5.0
5.0
20.0
100.0
Sectoral Allocation
For Whom
Long Term
Investors
to a year
Investment Duration
few months
Risk Profile
Defensive
Investors
What’s In
-
What’s Out
Wipro
MOSt Velocity 10 - Model Advisory Portfolio for Positional Traders
Scrip
HCL Technologies
IPCA Lab
HDFC
Zee Entertainment
Hero MotoCorp
ITC
TCS
Glenmark
IOC
Britannia
Arvind
Infosys
LIC Housing
Maruti
TVS Motor
Cash
Total
MBP
1403
839
898
263
2194
341
2189
604
263
863
183
3177
263
1927
96
Wtg.
7.5
7.5
7.5
7.5
7.5
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
12.5
100
Sectoral Allocation
For Whom
Medium Term
Investors
horizon
Investment Duration
Few months
Risk Profile
Moderate
Investors
What’s In
Zee Entertainment
Hero MotoCorp
Infosys
LIC Housing
Maruti
TVS Motor
What’s Out
Dabur
Hind Lever
Hexaware
Wipro
Hindalco
MOSt Mid Cap- Model Portfolio for Aggressive Investors
Scrip
Berger Paints
Engineers India
Bajaj Finance
Finolex cables
FDC
Bajaj Corp
Unichem Labs
GMDC
Persistent Systems
Cash
Total
MBP
243
228
1863
137
132
210
218
132
1002
Wtg.
11.9
11.5
10.3
9.4
9.4
9.2
9.0
7.9
6.9
14.5
100
Sectoral Allocation
For Whom
Long Term
Investors
to a year
Investment Duration
few months
Risk Profile
Aggressive
Investors
What’s In
-
What’s Out
Gruh Fin
Data as on 30th April 2014
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MOSt PMS, MOSt Mutual - Model Portfolio
Managed Funds
May 2014
MOSt PMS
Value Strategy
•
•
•
•
•
Top Holdings in Value Strategy
Scrips
Eicher Motors Ltd.
HDFC Bank Ltd.
Bosch Ltd.
Tech Mahindra Ltd.
HDFC Ltd.
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.
Money multiplied by 11.96 times in just 11 years.
Rs1
Cr invested in Value PMS in March 2003 is worth
Rs11.96Crs
vs. 6.62 Crs in CNX Nifty
Since its inception, Value Strategy has delivered annualized returns of 25.03% vs. CNX Nifty
returns of 18.55%, an outperformance of 6.48% (CAGR).
% Holdings
11.27
11.04
10.10
8.85
8.21
Sector Allocation
Banking & Finance
Auto & Auto Ancillaries
Infotech
FMCG
Pharmaceuticals
% Holdings
26.86
26.68
16.99
10.35
8.07
Data as on 30th April 2014
All the above figures are of a model client. Returns shown above are calculated on NAV method "Returns shown above are post fees & expenses
MOSt PMS
NTDOP Strategy
•
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 Small
& 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.
Since its inception, NTDOP Strategy has delivered 12.72% annualized returns vs. 0.58% of
CNX Midcap, delivering an annualized alpha of 12.14%.
In last 1 Year, NTDOP Strategy has delivered 31.66% returns vs. 12.34% of CNX Midcap,
generating an alpha of 19.32%.
Top Holdings in NTDOP Strategy
Scrips
Page Industries Ltd.
Eicher Motors Ltd.
Ipca Lab Ltd.
Bosch Ltd.
J&k Bank
% Holdings
13.91
13.34
7.87
7.55
7.30
•
•
•
Sector Allocation
FMCG
Banking & Finance
Auto & Auto Ancillaries
Diversified
Pharmaceuticals
% Holdings
26.48
21.47
20.89
8.23
7.87
Data as on 30th April 2014
All the above figures are of a model client. Returns shown above are calculated on NAV method "Returns shown above are post fees & expenses
MOSt Mutual - Model Portfolio
AGGRESSIVE - High Risk
Scheme Name
UTI Opportunities Fund
HDFC Mid Cap Opportunities Fund
ICICI Pru Dynamic Plan
Franklin India Prima Fund
Templeton India IBA Fund
Total
G: Growth , E: Equity, D: Debt, F: Fund
Return %
Type
E
E
E
E
D
1yr
20.47
30.52
29.87
30.27
8.1
3yrs
9.79
14.21
9.53
13.61
10
Wtg%
20
20
20
20
20
100%
DEFENSIVE - Low Risk
Scheme Name
Templeton India ST Income
HDFC Short-term Plan
UTI Dynamic Bond Fund
ICICI Pru Flexible Income Plan
UTI Opportunities Fund
Total
Type
D
D
D
D
E
Return %
1yr
8.1
7.8
7.8
9.8
20.47
3yrs
10
8.7
9.4
9.6
9.79
Wtg%
20
20
20
20
20
100%
Data as on 30th April 2014
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  


 

 
                  




 
                  

















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
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