MOSt
Advisor
Monthly Markets Newsletter
June 2018
In This Issue
•
Market Outlook for the month
•
Investment Ideas
• Technical & Derivatives Outlook
• Commodities Market Outlook
• Model Advisory Portfolios
• PMS
Key Highlights
Sharp fall in Mid & Small caps
RBI hikes rate after a gap of four and half years
Q4 result season a mixed bag
Dear Investor,
May was characterized by sharp fall in Mid and small cap
stocks. While Nifty managed to end the month on a flatish
note (after a strong 6.2% rally in April), Midcap Index was
Global Market
Index
31-May-18
MoM (%)
YoY(%)
Sensex
Nifty
FTSE
Dow
Nasdaq
Hang Sang
35,322
10,736
7,678
24,416
7,442
30,469
0.5
0.0
2.3
1.0
5.3
-1.1
13.4
11.6
2.1
16.2
20.1
18.7
down 6.8% in May. Even on a trailing 12 month basis,
MidCap returns at 8% is lower than Nifty's 12%.
Political news flow (Karnataka Elections outcome, by-polls in last week of May)
coupled with concerns on crude and currency kept the markets on the edge. Earnings
season concluded without much flutter. In May, while DII inflows were INR15,055
crore, FII selling continued and stood at INR12,360 crore. Macro picture is brightening
at the margin with continued uptick in GDP growth (7.7% growth in 4QFY18) led
by government spending and revival in investments.
In 4QFY18 earnings, Nifty aggregate sales grew 15.5% YoY, EBITDA grew 13.1% and
PAT grew 5.1%. Overall we maintain our FY19E/20E Nifty EPS estimates at INR 579/
693, with an underlying 27% growth in Nifty profits led by Banks.
RBI in its second bimonthly policy review for FY19, raised the key policy repo rate
by 25 bps to 6.25%. This was the first rate hike by the central bank since 2014.
However, it maintained its stance on liquidity at 'neutral'. RBI also revised its forecast
on consumer inflation for 1HFY19 to 4.8%-4.9% (earlier 4.4%-4.7%) and for 2HFY19
to 4.7% from 4.4% earlier.
The elevated valuations (~19x one-year forward) coupled with challenging macros
and busy political calendar is likely to keep the index range-bound in 2018. Amidst
this challenging environment, we continue to prefer quality stocks coupled with
earnings visibility. We have long-standing positive view on Consumption recovery
theme for CY18, with preference for Rural Consumption. The corporate commentary
from the 4QFY18 earnings season reaffirms our view of accelerated value migration
in favor of private financials, Consumption recovery and Delayed private capex revival.
Prediction of third consecutive year of normal monsoon, expectations of higher MSP,
expansion of DBT schemes, and a busy election calendar should ensure a supportive
and conducive backdrop for rural consumption. We continue to prefer large-caps over
midcaps, given the recently moderated but still a sharp valuation premium of midcaps
vs.large-caps.
Siddhartha Khemka
Vice President- Head - Retail Research
Economic Pulse
Key Indicators Current Mth
Pre. Mth
IIP
CPI
10 Year Yield
USD/ INR
Crude ($)
Gold (10 gms)
4.4%
4.58%
7.82%
67.41
77.59
31,026
7.1%
4.28%
7.76%
66.66
75.17
31,033
Thought for the month
If you want to own stocks for
the long-term, monitoring
fluctuations constantly
is a very, very
bad idea.
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Equity Investment Ideas
Must Act
June 2018
Investment Ideas
HDFC Bank
CMP*:
Target:
INR 2,139
INR 2,400
√
HDFC Bank is the largest private sector bank with asset size of INR6.6tn and market
share of ~5% in deposits and loans respectively.
√
HDFC Bank has been consistently gaining market share across most products in the retail
segment and appears well poised to maintain this traction.
√
We expect HDFC Bank to record 23% loan book CAGR and 21% PAT CAGR over FY18-
20E, with RoA/RoE of 1.8%/16.7% in FY20E.
BUY
√
While margins may contract slightly due to intensifying competition, its robust fee in-
come profile and strong control on operating leverage will continue driving a steady
improvement in the return ratios.
√
RBL's 4QFY18 PAT rose 37% YoY to INR1.78b. NII grew 42% YoY to INR5b, led by 37%
YoY advances growth and 48bp YoY NIM expansion to 3.98%.
√
With a diverse product portfolio, no legacy issues, highly capable management and a low
market share, we expect RBL to report industry leading loan CAGR of 35% over FY18-20.
√
We expect stable/improving margins due to changing loan mix toward high-yielding loans,
a sharp fall in cost of bulk deposits, and an improvement in the CD ratio. Strong balance
sheet growth is expected to drive operating leverage.
RBL Bank
CMP*:
Target:
INR 516
INR 650
BUY
√
Reliance Industries, is India's largest private sector entity. Over the years, RIL has grown
Reliance Industries
CMP*:
Target:
INR 921
INR 1,150
through backward integration in energy chain (textiles, petchem, refining and E&P) and
is now moving into new areas like organized retail and Telecom. It operates one of the
largest refining capacity at a single location and is the largest producer of polyester fibre
and yarn.
BUY
√
RIL's 4QFY18 standalone EBITDA increased 19% YoY to INR134b and PAT rose 7% YoY
to INR87b. Petchem drives standalone profitability. Consolidated PAT stood at INR361b,
+20.9% YoY led by contribution from RJio.
√
On FY20E basis, the stock trades at 13.3x P/E and EV/EBITDA of 8.5x.
√
Bajaj Auto is a leading manufacturer of two-wheelers (~88% of volumes) and three-
wheelers (~12% of volumes). It is the market leader in three-wheelers, and is the second
largest player in motorcycles and enjoys leadership in the premium segment. It is also the
largest exporter of two-wheelers and three wheelers (~41% of its volumes).
√
We believe Bajaj Auto is back on the growth path, driven by (a) regulatory changes in key
domestic passenger 3W states, (b) filling up of product gaps in domestic motorcycle
portfolio, (c) stability in key export markets and ramp-up in new markets driving exports.
√
We expect volumes/ Revenue/ PAT CAGR of 8.7%/10.6%/12.6% over FY18-20E.
Bajaj Auto
CMP*:
Target:
INR 2,750
INR 3,450
BUY
Data as on 31st May 2018
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Technical & Derivatives Outlook
Markets & Our Recommendations
June 2018
Technical & Derivatives Outlook
Technical Outlook
√
Nifty index took support near to 10420 and witnessed a sharp bounce from lows
and ended the volatile May month above 10700 zones. Index managed to hold its
losing ground even after worries of rising Crude, Metals, Bond yields and a weak
INR. Nifty closed on a flattish note with the marginal loss of only 3 points at 10736
zones. It has formed a long legged lower shadow candle on Monthly scale which
implies that the decline is being bought and follow up is required at higher levels.
Banking index rose 5.58%, followed by the Oil & Gas index while on the losing front
Consumer Durable and Realty index fell down. Nifty started the month on a positive
note and meaningful buying interest was seen only on decline post its correction of
Karnataka election result. Now Nifty is holding above 10620 zones and hovering
near to 10700 zones which is 61.80% retracement of the entire down leg from
11171 (Feb’18 high) to 9951 (March 2018 Low). As long as it holds above 10620
levels, it can extend its gains towards 10888 then 10929-10950 zone. RSI is entered
in to overbought zone which suggests that prices can stretch higher in the short
term but decline would offer a better risk - reward ratio. A decisive hold below
10550 could signals a change in trend for weakness towards 10420 then 10333,
until then it can remain positive to range bound in the short term perspective.
Strategy-
Strategy
Overall trend is positive as decline is being bought. As long as it holds
above 10620 levels, it can extend its gains towards 10888 then 10929-10950
zones. On the lower side 10620 and 10550 are likely to act as a support.
Nifty Weekly
Nifty Daily
Derivative Strategy
Nifty - SHORT STRANGLE - Jun’18 Expiry
View : range bound in broader trading range
SELL 1 LOT OF 10200 PUT @ 26
SELL 1 LOT OF 11100 CALL @ 24
Net Premium received : 50 points
Keep stop loss of net premium of 100 points (risk of 50 points)
Max reward : 50 points
Rationale:
√
√
√
√
√
Index has got stuck in a broader trading range in between 10420 to 10929 zones in May series
It has multiple medium term supports at 10550, 10420 and 10333 which are going to hold its decline
May series high of 10929 and psychological 11000 zones could continue to act as a major hurdle
Maximum Put OI is at 10500 and Call OI is at 11000 also suggests the same trading range
Thus, suggesting a Short Strangle strategy to get the benefit of time decay and decline in volatility
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√
MOSt
Advisor
Monthly Markets Newsletter
Commodities & Currency Outlook
Markets & Our Recommendations
June 2018
Commodities & Currency Outlook
Currency
√
Rupee has garnered a lot of attention over the last few months as it's on a sharp depreciation spree, backed by a sharp surge in global crude
oil prices and strength in the dollar against its major crosses. Last month, rupee fell to the lowest level since November 2016, and the currency
was weighed down primarily on back of sharp rise in crude oil prices. Crude rallied to the highest level since 2014, after US decided to impose
sanction on Iran. Renewed sanctions would make it much harder for Iran to sell its oil abroad or use the international banking system. Trump
has long denounced the deal as a narrow and short-sighted windfall for Tehran, and chafed at its failure to address Iran's missile program or
military activity in the Middle East. But at the end of the month, rise in crude was restricted after reports that Saudi Arabia and Russia have
discussed raising OPEC and non-OPEC oil production by some 1mbpd to make up potential supply shortfalls from Venezuela and Iran.
√
India's growth in Q4 stood at an impressive 7.7% compared to 7.2% in the previous quarter beating all estimates. For the financial year ending
March,2018 growth number stood at 6.7% compared to 7.1% in the previous financial year. Fiscal deficit in the year ended March 2018 was
at 3.53% of GDP - in line with the revised estimates. Overall, volatility for rupee was curbed by the RBI, who has been consistently intervening
in the market. Some erosion of FX reserves suggests the RBI sold dollar at higher levels to cap any major move for the currency. FX reserves after
a hitting a high of $426.08 billion earlier last month currently stands at $412.8 billion, down by over $13billion.
√
Dollar continued to rally against its major crosses for the second successive month, with gains of over 2% since the start of the year. The
currency has been supported on lower levels as most economic numbers released from the US have been better than expectation, and at the
same time talks between US and China on trade moved forward. There are expectation that China has offered U.S. President Donald Trump a
package of proposed purchases of American goods and other measures aimed at reducing the U.S. trade deficit. But at this point it will be early
to guess on what would be quantum on which restriction would be levied. Volatility for the dollar in first half of the month could be lower
ahead of important FOMC policy statement, where expectation of raising rates and a hawkish commentary could extend gains for the dollar.
√
In other Forex pairs, Euro fell to the lowest in six months on back of political uncertainty in Italy and raised questions over 'Will Italy stay in the
Euro bloc?'. Despite the Five Star movement not being able to form a government in March after six long weeks of discussion, it just managed
to form one last week with a right wing party. But rejection by the president on appointment of finance minister, Savona (anti Euro), raised the
prospect of more political turmoil in Italy. With no foreseeable future for a working government, Italy has no option left but to call for a snap
election that could be as early as August or September. In this month, Italy will remain in focus and market participants will also be keeping an
eye on the ECB policy statement to further gauge a view on the currency.
√
Pound too was weighed down following broad strength in the dollar against its major crosses and after Bank of England in its policy statement
held rates unchanged. Comments from the BoE governor suggest that the central bank has taken a step back and as the BoE governor said he
wanted to be sure the economy was recovering from a slow start to the year before it raised borrowing costs again. Most market participants
expect that the BoE would either consider September or November to raise rates. Until then the central bank will have enough time to gauge
the Brexit situation as well as other economic numbers.
√
Japanese Yen continued to be one of the biggest gainers amongst other major currencies and political uncertainty in Italy and geopolitical
tensions in Syria supported the currency. From Japan, in the last one month, most economic numbers released have been in line with
expectation and no major impact of the same has been seen on currency. In this month, from Japan, focus will be only on BoJ policy statement,
but importantly any surprises by US President could trigger fresh buying for the currency.
4
 Motilal Oswal Financial Services
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Advisor
Monthly Markets Newsletter
MOSt Multi Cap
For Whom :
Investment Duration :
Risk Profile :
Scrip
HDFC Bank
Bajaj Auto
Reliance Ind.
L&T
Yes Bank
HDFC Standard LiFe
NMDC
Havells
Shriram Trans.
Mahindra CIE
Future Consumer
Nilkamal
KEI
Repco Home Fin.
Cash
Total
Data as on 1st June 2018
MOSt Multi Cap , MOSt Smart
Build a Portfolio
June 2018
Long Term Investors
One year and above
Moderate Investors
Wtg. Sectoral Allocation
10%
10%
10%
10%
10%
5%
5%
5%
5%
5%
5%
5%
5%
5%
5%
100%
In
: Reliance Industries, L&T, Shriram
Transport
Bharat Electronics, Granules
We are recommending a MULTI-CAP approach with the
following characteristics:
√
Corpus requirement of INR 10 Lakhs
√
40-50% in Large-cap and 50-60% in Mid-cap
√
15 companies to invest at maximum, 10 minimum
√
Large-cap stocks are suitable for SIP investments as well
√
Adheres to our QGLP philosophy
CMP
2,111
2,897
931
1,372
343
489
115
539
1,459
240
57
1,689
482
591
Out : Zee Ent, Ramco Cement,
MOSt Smart - Techno Funda Ideas (Newly introduced Product)
Investment characteristics:
√
Objective: To deliver returns from Opportunities based on Techno Funda in Strong fundamental stocks
√
For whom: Traders looking for momentum delivery based short term ideas
√
Risk Profile: Moderate to High
√
Corpus requirement: Rs 3 lakhs
√
Mode: Delivery based transaction (Cash)
√
Product Profile: 2 to 3 ideas, Allocation of Rs 1 Lakh on each trade
√
Stock Selection : From MOSL coverage Universe
√
Return Objective: Target Return of 4-6%, with stop loss minimum 2% and maximum 3%
√
Exit Criteria : Minimum gain of 3% or on stop loss or on time lapse
√
Holding Period: Upto 2 weeks (or upto 10 trading sessions)
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MOSt PMS
June 2018
MOSt PMS
Performance since inception
√
LargeCap PMS:- VALUE STRATEGY- An amount of 1cr. Invested in March 2003 is worth Rs.26.30 cr. (compounded return of 24.01%)
√
MultiCap PMS:- NTDOP STRATEGY- Amount of 1 cr. Invested in December 2007 is worth Rs.5.86 cr. (compounded return of 18.36%)
√
MultiCap PMS:- ASK IEP STRATEGY- Amount of 1 cr. Invested in January 2010 is worth Rs.4.91 cr. (compounded return of 21%)
√
Mid & Small Cap PMS:- MOAMC IOP- Amount of 1 cr. Invested in January 2010 is worth Rs.3.33 cr. (compounded return of 15.63%)
Latest Performance of all OUR PMS (Portfolio Management Services) strategies. (As on 31st May, 2018)
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Sundaram Multi Cap Fund- Series I
June 2018
Sundaram Multi Cap Fund- Series I
(NFO Period 8th June to 22nd June, 2018)
Sundaram Multi Cap Fund- Series I is a 5 year closed ended fund with Multicap portfolio offering investment opportunity across the cap curve.
Fund has a filter based bottom ups approach and investment process of staying with high growth businesses with consistent value creation for
shareholders.
Why Multi-Cap ?
With the market correction, overvalued mid and small cap is corrected creating scope of growth in both large and mid-small cap stocks making
multi cap investment a better options, also with SEBI guidelines making clear line for large, mid and small cap - multi cap funds can give exposure
to entire market and gives fund manager space to choose as per the stock fundamentals instead of market cap.
Fund Details
√
Tenure - 5 Years
√
Fund manager - Mr. S Krishnakumar
√
Benchmark - S&P BSE 500 Index
About Fund Manager
Mr. S Krishnakumar has experience of 20 years of which the latest thirteen years relate to the equity markets. Currently, He manages the multi
and mid cap funds at Sundaram Mutual Fund. In open ended he manages Sundaram Large and Mid-Cap Fund, Sundaram Mid Cap Fund and
Sundaram Small Cap Fund, in close ended he manages Sundaram Select Micro Cap Series and Sundaram Select Small Cap Series.
Product Strategy
√
Fund to follow below process for selecting stock
o
o
o
The starting universe is the top 1000 stocks in India by market capitalization
To this universe, various quantitative, qualitative and valuation filters are applied to arrive at the final portfolio
Replacement of stocks failing in quantitative filters during subsequent reviews/special circumstances
Why Sundaram Multi Cap Fund- Series I
This Fund is based on theme that India is emerging stronger than before:
√
Inflation remains elevated but is expected to remain under control.
√
The budget has shown a well appreciated restraint in a pre-election year with very modest expenditure growth.
√
Current account deficit is set to rise into the next fiscal on the back of increased domestic growth, reflecting in higher non-oil-non-gold imports.
√
Consumption will continue to remain the driver for India
√
With the elections in mind, the budget continues to lay emphasis on Rural and Roads
√
Global growth will provide a supportive environment for Indian exports
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futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to
the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency
and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations
to this statement as may be required from time to time without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction
in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from,
any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report
has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may
not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person
or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country
or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The
securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to
observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue
or lost profits that may arise from or in connection with the use of the information. The person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all
responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees
free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring
Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id: na@motilaloswal.com, Contact No.:022-38281085.
Registration details of group entities.: Motilal Oswal Securities Ltd. (MOSL): INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412 . AMFI: ARN 17397.
Investment Adviser: INA000007100. IRDA Corporate Agent - CA0541. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal
Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Insurance,
Bond, NCDs and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private
Equity Investment Advisors Pvt. Ltd. offers Private Equity products