Monthly Communiqué
Portfolio Management
August 2010
highlights
# The Value Strategy has
yielded remarkable
returns since its launch
in 2003. Client who
invested 1 crore in
Value PMS in June
2003 is worth 10.27
crores as on 30th July
2010. For the same
period 1 crore invested
in Nifty is worth
5.07 crores.
# Since inception i.e. 10
Jun 03, Value Strategy
has given CAGR returns
of 38.54% vs its
Benchmark Nifty CAGR
returns of 25.62%.
# For the last 5 years
Value Strategy has
given CAGR returns
of 22.50% vs its
Benchmark Nifty CAGR
returns of 18.32%.
# Invest India Strategy is
now an open ended
strategy.
Indian Economy :
RBI raises policy rates to control inflation; raised short term liquidity management
rates broadly in line with expectations, mild surprise on reverse repo, will review policy twice a
quarter.
Key Highlights :
- Increase in the Repo rate by 25bps to 5.75% as per expectations.
- Increase in the Reverse Repo rate by 50 bps to 4.50% vs expectations of a 25bps hike.
- CRR has been left unchanged as expected.
- The FY11 GDP growth estimate has been enhanced by 50 bps to 8.5% (from 8% with an
upward bias as per April Policy) as per expectations.
- Similarly the March 2011 inflation estimate has been enhanced by 50 bps to 6.0% (from 5.5%
as per April Policy) as per expectations.
- No extension granted to the daily second LAF facility as per expectations.
- Monetary stance is substantially altered to give ascendancy of inflation control in policy priority
as per expectations.
- Although RBI has taken mid-course corrective actions in the past and retains the right to do so
even now, somewhat unexpectedly, the RBI has increased the frequency of review of its policy to
one and half months from a quarter at present.
With the policy rate hikes, change in stance and the outline of liquidity conditions, the RBI has done
its bit for inflation control. Importantly, RBI has reiterated its resolve to contain inflation perception in
the range of 4.0-4.5% and the medium-term objective of 3% inflation set out earlier conducive to
India's integration with the global economy.
Indian Monsoon Update:
Overall rainfall deficiency in the country as a whole improved to 4% for
the period June 1 to July 31. July rainfall at 102.5% of normal ahead of IMD's projection of a 98% for
the month. This augurs well for the agricultural output as July is the crucial sowing month.
While we remain extremely positive on India on a 12-month perspective, we think a near-term
neutral stance is in order, following the recent market rally and given the possible near-term impact
of tightening in monetary aggregates. We remain bullish on pure rate cyclicals which includes banks
and real estate. Weakness in capex stocks and cement would offer a good buying opportunity. Richly
valued sectors such as consumer discretionary and consumer staples space could make them come
under pressure in the short term. Further, we remain neutral on autos in the near term from
overweight, especially, after it has seen a period of significant outperformance and there has been
margin pressures emanating out of raw materials , royalties etc
The recent system-wide squeeze in liquidity and emerging signs of an easing in economic activity-
evident from IIP six core infra industries, imports, and railway freight and import traffic at ports- leads
,
us to think that we might be heading into a period of market consolidation, especially after the recent
market rally from the bottom in the last week of May. The 1Q FY11 earnings season has been rather
muted so far. Profits have come largely in line with our analyst expectations, and we do not expect
them to be a meaningful catalyst to drive the market higher. Street consensus numbers have, in fact,
come off significantly since the beginning of the earnings season.
In recent times, valuations have been quite supportive. Valuations have now normalized. The
earnings season is passing rather uneventfully with flat to lower earnings relative to consensus, so we
see no positive trigger for markets on that count. Earnings could even see moderate downgrades on
an aggregate basis for FY11 and FY12. However, global economic environment has improved for
the better, risk appetite is back. The fact that Indian markets outperformed the rest of global markets
(including emerging markets) in the previous three months makes a strong case for global markets to
play catch-up and Indian markets remain sideways in the near term.
Inside...
?
Value Strategy
?
Strategy
Bulls Eye
?
Next Trillion Dollar
Opportunity Strategy
?
Invest India Strategy
?
Strategies
Focused
?
rating
Series I-Re
?
Series III-Target Return
?
Optima Strategy
#
Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows in the strategy. The Above returns are calculated on
NAV basis and are based on the closing market prices as on 30th July 2010. Past performance may or may not be sustained in future. Returns above 1 year
are annualized. Please refer to the disclosure document for further information.
Portfolio Management Services
Regn No. PMS INP 000000670
www.motilaloswal.com