MOSt
Advisor
Monthly Markets Newsletter
November 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
Key Highlights for the Month
US QE ends, Japan QE more than compensates - Stronger flows from FIIs?
Muted earnings season
Lower commodity prices & inflation to drive domestic cyclicals and Banks
Dear Investor,
Market performance:
The upmove in the markets resumed after a breather with
a 4.5% upmove in the NIFTY and a 3.7% rise in the CNX
Midcap Index. The Nifty ended the month at a all-time
Global Market
Index
31-Oct-14
MoM (%)
YoY(%)
high in synch with the rally in the US markets. Bank Nifty
lead with a 11.9% gain, supported by Infrastructure
(+8.5% M-o-M) and Energy (+5.2% M-o-M). Pharmaceuticals and IT sectors did
not perform for the month and FMCG gave negative returns (-2.4% M-o-M)
Major factors:
An end to the US QE program, negative data from Europe and IMF downgrade of
global growth caused a scare amongst global investors and flight to safety. This was
reflected in lower US bond yields and a stronger USD vs most currencies. Japan's
wider bond buying program, also, accentuated the trend of currency weakness. Wins
for the BJP in Maharashtra and Haryana (a non-BJP state) raised confidence in the
Prime-minister. Reforms continued with diesel deregulation, coal mine re-auction plan
Sensex
Nifty
FTSE 100
Dow
Nasdaq
Hang Sang
27,866
8,322
6,546
17,315
4,630
23,998
4.6
4.5
-1.2
1.6
3.0
4.6
31.7
32.1
-2.7
11.4
18.1
3.4
Economic Pulse
Key Indicators Current Month
Change (%)
IIP (May)
WPI (June)
10 Year Yield
USD/ INR
Crude ($)
Gold (10 gms)
0.4%
2.38%
8.27%
61.41
85.8
26191
-20.00
-36.36
-2.82
-0.55
-9.37
-2.17
and FDI in construction and affordable housing. Drop in diesel prices, inflation and
commodity prices internationally are positive for India's Fiscal deficit and Current
Account deficit. Government plans to boost investment in the economy could drive
GDP as reflected in an improved outlook from the World Bank and IMF and a possible
upgrade from Moody's. The result season continues to be a mixed-bag with IT and
Pharmaceuticals posting muted growth in the absence of a INR depreciation tailwind.
Outlook:
Despite the muted-result season and lower number of trading days, Nifty has moved
to an all time high. Valuations at this point of time do not find support from earnings
growth and ROE expansions. Further, capital raising plans of the government could
continue to be a dampener for market upmoves. Continued inflows from both
domestic investors and foreign investors are crucial for the uptrend to continue.
Sectors and companies that benefit from lower inflation, namely Banking, Oil and
gas, Cement and Automobiles continue to be our favourites.
Thought for the month
Ravi Shenoy
Vice President
1
 Motilal Oswal Financial Services
On This Page
MOSt
Advisor
Monthly Markets Newsletter
Equity Market Outlook
Markets & Our Recommendations
November 2014
Equity Market Outlook
Technical Outlook
√
Nifty ended the month of October with a gain of 357 points. Early
October the Nifty was in a pullback mode post the formation of a doji on
the monthly chart but the bearishness of the pattern was negated as the
Nifty broke above the resistance later in the month along-with reporting
multiple run-away gaps on the daily chart. Selective cyclical’s took over
the baton from Defensives with the IT pack leading to another rotation on
the sectoral chart.
√
On the weekly scale, a strong gap up move above 7800 revived momen-
tum & confirmed the pennant pattern breakout. A series of gaps near
8050 assures a strong floor for the existing uptrend & a strong monthly
closing augurs well for the accelerated momentum to continue further
and the up-move is expected to extend towards 8500 / 8800.
√
Even though the Nifty may move up in absolute terms, few cyclical like -
Banks, Infra, Auto & Energy are expected to payoff more in relative terms.
A prudent decision would be to continue / build longs in cyclicals in an
expectation of continuation of the trend with a trailing stop marginally
below 8000 i.e. - 7980.
√
A switch from defensives to cyclical is recommended. Within sectors:
Banking could extend its outperformance. Auto continues to trend positive
with new additions in Infra & Energy. Pharma is quoting at a relative peak
and hence, profit booking is advised at this level. FMCG and IT is
approaching the neutral zone and the reward is diminishing in both of
them.
Pharma (Relative Strength)
Nifty Weekly
Nifty Monthly
Detailed report available on- http://ftp.motilaloswal.com/emailer/Marketdiary/QuantitativeMonthly/MOStQuantitativeOutlookMonthly-November2014.pdf
Sectoral Highlights
Sector
Bank
NBFC
Telecom
Infra
Note: #Technical view for 1 month perspective,
Our Views
Positive
Positive
Positive
Positive
Top Pick
SBIN
Shriram Trans. Fin
Bharti Airtel
L&T
Recommendation/CMP
Buy / 2703
Buy / 950
Buy / 399
Buy / 1655
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Monthly Markets Newsletter
Derivatives Market Outlook,
Commodities Market Outlook
Markets & Our Recommendations
November 2014
Derivatives Market Outlook
√
Nifty Rollovers at 61% Vs 3M average 67%, Stock futures rollovers at 83.5% Cs 3M average 83.5%. Nifty futures added longs late expiry.
Hence despite the lower rollovers speed but ended up adding over 7% OI (NSE +SGX) supporting positive bias.
√
Nifty futures have been in Long-Long Unwinding cycle supporting the bullish argument, there are no signs of over exuberance either with
aggregate OIPCR way below the over optimistic threshold of 1.5.
√
Hurdles based on the option build-up are placed at 8000 on the downside and a minor cap around 8500 which could get shifted as the Nifty
progresses towards the same.
SECTORS OI
Nifty- Bull Call Spread
√
Positive OI activity-
Auto Sector
(Ex- M&M) &
Banking:
(Longs in SBI ICICI Bank,
HDFC Bank and FEDERAL Bank.)
√
Neutral with Positive Bias-
Metal & Power:
Sector saw short covering leading to
lower rollovers and drop in OI EoE. Positive OI activity seen after 3 expiries.
Cement & IT:
Two of the slowest rolling sectors compared to 3M average led by
short covering seen late expiry
√
Neutral with Negative Bias-
Realty:
(Shorts in DLF)
& FMCG:
Shorts created last
Actionable
Buy : 1 Lot 8400 CE
Max Profit : INR3000
√
Sell : 1 Lot 8600 CE
Max Loss: INR1200
√
expiry got carried forward especially in large-caps
√
Commodities Market Outlook
Crude Oil
Nifty futures have been maintaining its Longs & Long-
Unwinding cycle in the October expiry despite the lower
rollovers Nifty ended up adding over 7% OI supporting
positive bias.
Nifty OI-PCR ratio on aggregate basis still remains way
below the over optimistic level indicating a lot more put
writers vis-à-vis Call writers be needed to term the
move on Nifty an over exuberance.
Prolonged holding of the naked option calls for time
decay handling, hence a bull spread can be deployed
√
Crude oil prices fell for a fourth straight month registering the biggest monthly decline since 2012 as supply side factors weighed and OPEC
output remained higher.
√
Both the oil benchmarks may remain weaker after the IEA revised lower its demand forecast for a fourth time and now expects that consump-
tion climb by only 0.65 million bpd this year, 0.25 million bpd lower from its prior estimate. The IEA also cuts its 2015 estimate for oil demand
growth by 300,000 bpd. U.S. production continues to surge and seasonal refinery maintenance led to oil inventories jumping to 379.7 million
barrels. U.S. refineries typically schedule maintenance programs for September and October which also kept demand lower.
√
Overall, stronger supply will keep a cap on prices at higher levels but the OPEC meeting by the end of this month will be very closely watched.
We could see some short-covering ahead of the meeting but no action by OPEC could revive the downtrend. A rebound in Cushing stocks has
led WTI to slip into contango and remains a negative for prices in the medium term.
On the price front, NYMEX Crude oil is also in a bearish mode having medium-term resistance near $88.10 and the price may head lower
towards $77-$75 levels. Selling on rise is still advisable.
3
 Motilal Oswal Financial Services
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Large Cap Investment Ideas,
Mid Cap Investment Ideas
Must Act
November 2014
Large Cap Investment Ideas
Shriram Transport Finance
CMP*:
Target:
INR950
INR1180
√
Fleet operator’s utilization levels are improving and
Our Recommendation
Market &
recent diesel price cut should drive
demand in MHCV which is showing signs of pick-up.
√
With new trucks coming in the older trucks will be sold-off creating a fresh need for
STFCs loans.
√
Shriram Transport has one of the best NIMs in our coverage universe and this should
expand further as the economy and trucking fundamentals improve.
√
Tata Steel has signed a non-binding MoU with Swiss Klesch group that will start a
process to selling almost 25% of its European capacity.
INR490
INR617
√
This will reduce exposure to low EBITDA and hence low ROCE capacities and also free up
debt exposure.
√
Tata Steel India's new capacity will help add EBITDA atleast 2x the divested capacity.
√
Net Debt has peaked as cash flows will outstrip capex.
BUY
Tata Steel
CMP*:
Target:
BUY
Mid Cap Investment Ideas
√
Suprajit is the market leader in control cables in the two wheeler space, with more than
75% marketshare of the top-3 Indian two wheeler players and a growing share of HMSI's
control cable requirements
√
MOSL estimates >20% CAGR in 2wheeler demand over the next few years - a positive
for Suprajit's revenue growth
Suprajit Engineering
CMP*:
Target:
INR117
INR165
BUY
√
Exports and new customer penetration will add to domestic 2-wheeler growth and help
aid grow revenue by 20%+ over the next 4 years.
√
Oberoi Realty has a strong brand in Mumbai's Real Estate market due to its (1) diversified
products, (2) superior product quality and (3) management goodwill, which enable it to
command a pricing premium over peers.
√
We expect successful monetization of land bank over 8-10 years as its healthy cash position
and hassle-free land imply certainty of execution. This provides high cash flow visibility.
√
A REIT option for its lease earning properties is a comfort factor along with one of the
cleanest balance sheet in the sector
√
We expect Oberoi Realty to report a 54% CAGR in earnings over FY14-FY17E
Data as on 31st October 2014
Oberoi Realty
CMP*:
Target:
INR245
INR280
BUY
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Advisor
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MOSt Value, MOSt Velocity, MOSt Mid-Cap
Build a Portfolio
November 2014
MOSt Value - Model Advisory Portfolio for Investors
Scrip
Infosys
L&T
SBI
ITC
IPCA
Tata Steel
Axis Bank
Sun Pharmaceuticals
Sundaram Finance
HDFC
Tata Motors
Coal India Limited
UltraTech Cement
Total
MBP
4051
1655
2703
355
731
490
439
845
1363
1106
536
371
2548
Wtg.
10.0
10.0
10.0
7.5
7.5
7.5
7.5
7.5
7.5
7.5
7.5
5.0
5.0
100
Sectoral Allocation
For Whom
Investment
Duration
Risk Profile
What’s In
Axis Bank
Tata Steel
Sundaram Fin.
Long Term
Investors
few months
to a year
Defensive
Investors
What’s Out
ICICI Bank
Jubiliant Food
Lupin
MOSt Velocity 10 - Model Advisory Portfolio for Positional Traders
Scrip
HCL Technologies
Shriram Transport Finance
SBI
Yes Bank
Dabur
Marico
Grasim Industries
ACC
Glenmark PharmaceuticalS
Divi's Laboratories
Sun Pharmaceuticals
Bajaj Auto
TATAMTRDVR
L&T
Indian Oil
Cash
Total
MBP
1608
950
2703
685
227
311
3508
1499
718
1876
845
2611
335
1655
364
Wtg.
5
10
5
5
5
5
5
5
5
5
5
5
5
5
5
20
100
Sectoral Allocation
For Whom
Investment
Duration
Risk Profile
What’s In
Yes Bank
L&T
Indian Oil
Medium Term
Investors
Few months
horizon
Moderate
Investors
What’s Out
Wipro
Eclerrx
ICICI Bank
Axis Bank
PNB
MOSt Mid Cap- Model Portfolio for Aggressive Investors
Scrip
Suprajit Engineering
Bajaj Corp
Berger Paints
Finolex cables
Bajaj Finance
Engineers India
Repco Home Finance
Persistent Systems
Unichem Labs
Jain Irrigation System - DVR
Total
MBP
117
284
397
224
2809
273
487
1300
196
60
Wtg.
12.7
11.9
11.8
11.8
11.8
9.6
9.5
9.2
6.2
5.5
100.0
Sectoral Allocation
For Whom
Investment
Duration
Risk Profile
What’s In
-
-
Long Term
Investors
few months
to a year
Aggressive
Investors
What’s Out
Data as on 31st October 2014
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MOSt PMS, MOSt Mutual - Model Portfolio
Managed Funds
November 2014
MOSt PMS
Value Strategy
√
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 16.66 times in just 11 years.
√
INR 1 Cr invested in Value PMS in March 2003 is worth INR16.66 Crs vs. INR8.23 Crs in
CNX Nifty.
√
Since its inception, Value Strategy has delivered annualized returns of 27.42% vs. CNX Nifty
returns of 19.90%, an outperformance of 7.52% (CAGR).
Top Holdings in Value Strategy
Scrips
Eicher Motors Ltd.
Bosch Ltd.
HDFC Bank Ltd.
Tech Mahindra Ltd.
HDFC Ltd.
% Holdings
16.76
10.32
8.92
8.79
7.30
Sector Allocation
Auto & Auto Ancillaries
Banking & Finance
Infotech
Pharmaceuticals
Engineering & Electricals
% Holdings
32.42
23.37
15.69
12.24
5.88
Data as on 31st October 2014
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 17.16% annualized returns vs. 4.97% of
CNX Midcap, delivering an annualized alpha of 12.19%.
Top Holdings in NTDOP Strategy
Scrips
Eicher Motors Ltd.
Page Industries Ltd.
Bajaj Finance Ltd.
Bosch Ltd.
Voltas Ltd.
% Holdings
19.59
11.31
7.69
7.62
5.93
Sector Allocation
Auto & Auto Ancillaries
Banking & Finance
FMCG
Engineering & Electricals
Diversified
% Holdings
27.21
26.19
21.71
6.55
5.93
Data as on 31st October 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". Past performance may or may not be sustained in future.
MOSt Mutual - Model Portfolio
AGGRESSIVE - High Risk
Scheme Name
Franklin India Smaller Comp F (G)
HDFC Balanced Fund (G)
IDFC Sterling Equity Fund
Sundaram SMILE Fund
IDFC Dynamic Bond Fund
Total
G: Growth , E: Equity, HE: Hybrid-Equity, D: Debt, F: Fund
Return %
Type
E
H-E
E
E
D
DEFENSIVE - Low Risk
Scheme Name
Franklin India Short Term Inc (G)
Axis Short Term Fund (G)
IDFC Dynamic Bond Fund (G)
Franklin India Prima Fund
ICICI Pru Equity - Arbitrage Fund (G)
Total
Return %
Type
D
D
D
E
E
1yr
102
60
64
84
9
3yrs Wtg%
36
21
21
25
9
20
20
20
20
20
100%
1yr
11
10
5
79
10
3yrs Wtg%
10
9
9
30
9
20
20
20
20
20
100%
Data as on 31st October 2014
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Game Changer
Investment Solutions
OrionLite Trading Terminal
November 2014
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For further details : Call your
Relationship Manager
or
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