Monthly Issue

4
Human emotions and behaviors

often influence the decisionmaking process of an investor.
Several studies in the field of
behavioral finance suggest that
most investors are emotional
and try to time the market,
which often lead to below
average returns on their
portfolio, as compared to
broader markets.
This is the case, not only with
Indian investors, but also with
investors across the globe. For
instance, the latest report on
Anup Bagchi
MD & CEO
'investor behavior analysis' by
ICICI
Securities Ltd.
Dalbar, a research agency,
shows that in the last 20 years,
the average equity investor has earned significantly less
(5.02%) than the broad equity markets (9.22% by S&P 500).
During the same period, the average fixed-income investor
has earned less (0.71%) than the rate of inflation (2.37%).
This is mainly because of our behavioral biases, which lead to
the large gap between broader market returns and actual
investor returns. Our emotional reaction, or rather overreaction, to good news or to bad news, causes irrational
investment decisions. Such decisions can be avoided by
adopting a goal-based investing approach, as it helps us stay
focused on our goals - the true purpose behind making an
investment.
For instance, the 'herding' behavior - the tendency to imitate

other investors - can be avoided through a goal-based
investing approach - as the investor then is less influenced by
public opinion and is focused on his goals. Similarly, the
'Myopic loss aversion' behavior - paying excessive attention to
the market's short-term ups and downs - can be avoided as the
investor then looks beyond intermittent market volatility.
Likewise, our behavioral biases can be controlled with a goalbased investing approach.
Goal-based investing is nothing, but a simple approach, where
the focus is on funding the financial goals rather than
achieving the higher return on investment or exceeding the
market return. In this approach, our assets and investments
are closely matched with liabilities (requirement of funds) and
goals, to create an optimum portfolio. Having this closer
alignment of assets and liabilities helps us avoiding some
common investment mistakes. The best part about this
approach is that it provides us a better understanding of what
needs to be done to achieve our goals.
You may speak to our financial planners about building a goal
based investment portfolio. They will help you determine your
financial profile, including your investment goals, time
horizon, and risk tolerance. Our planners will also work with
you to understand, anticipate, and overcome the any unique
investment challenges that you could face over time.
Our message remains the same - 'Keep investing and stay
invested for your life goals'. Through this magazine and our
website www.icicidirect.com we want to make an earnest
attempt to partner with you in setting and achieving your
financial goals. Do walk into any of your Neighbourhood
Financial Superstore and talk to us.
ICICIdirect Money Manager
February 2015
A core expectation for most investors is growth and return.

Returns could be absolute or relative to a benchmark. The
absolute return strategy chases a target return, having a target
return in mind works well for an investor. However, being
anchored to a target return expectation always is neither practical
nor advisable.
A goal-based investment strategy works better. Unlike absolute
return strategy, it measures progress toward goals rather than
returns versus the benchmark. In a goal-based investment
strategy, our investments are matched to our liabilities (or
requirement of funds) and to our life goals by proper planning. It
may look like a new concept, but it is not. Financial institutions
such as banks and insurance firms have always followed this
strategy of matching their assets with their expected liabilities.
When we have a clear idea of our goals, we can effectively invest
in products that are best suited for achieving our goals. Our cover
story of this edition takes you through the fine details of goalbased investing to help you better manage your finances.
The edition also features a piece on how should debt investors
invest in the current scenario, as the Reserve Bank of India (RBI)
has recently cut the repo rate, which indicates of easing interest
rate cycle going ahead. We also feature an interview with R
Sivakumar, Head - Fixed Income, Axis Mutual Fund, who expects
the entire yield curve to benefit from the rate cut cycle.
I would also like to draw your attention to our new section 'Debt
market outlook', where we present the key recent developments
of debt market along with the outlook going ahead. So read on,
stay updated and involved. Do write in with your feedback at
moneymanager@ icicisecurities.com and share your thoughts.
Your magazine is now also available on www.magzter.com, a
digital newsstand.
Editor & Publisher
Abhishake Mathur, CFA
Coordinating Editor
Yogita Khatri
Editorial Board
Sameer Chavan, CWM, Pankaj Pandey
Editorial Team
Azeem Ahmad, Nithyakumar VP CFPCM, Nitin Kunte, Sachin Jain,

Sheetal Ashar
February 2015
MD Desk.............................................................................................1
Editorial.............................................................................................. 2
Contents..............................................................................................3
News..................................................................................................4
Equity Market Round-up & Outlook.........................................................5
Debt Market Round-up & Outlook...........................................................8
Getting Technical with Dharmesh Shah..................................................10
Derivatives Strategy by Amit Gupta.......................................................12
Stock Ideas: Century Plyboard and KSB Pumps.......................................21
Flavour of the Month: Goal-based Investing
Read on to find out how by adopting a goal-based investing
approach you can have a better chance of meeting your
goals................................................................................................. 29
Tte--tte: 'Longer duration strategies to benefit the most'
An interview with R Sivakumar, Head - Fixed Income, Axis Mutual
Fund...............................................................................................37
Ask Our Planner
Your personal finance queries answered....................................41
Mutual Fund Analysis: Category Debt Funds
Read on to know how to invest in debt funds post RBI's recent rate
cut..................................................................................................44
Mutual Fund Top Picks
Here we present our research team's top mutual fund
recommendations, across equity and debt categories...............47
Equity Model Portfolio...........................................................................49
Quiz Time............................................................................................54
Monthly Trends....................................................................................55
Premium Education Programmes Schedule.............................................59
February 2015
Budget 2015: Government looking at SEBI proposal to introduce

MF retirement plans with tax benefits
Investors may soon get tax benefits in retirement plans run by mutual funds.
The government is considering a proposal by the capital market regulator to
introduce retirement savings plan under section 80CCD of the Income Tax Act,
which allows investors to claim tax deductions. The government may announce
this in the Budget. Currently, individuals investing in National Pension Scheme
(NPS) are eligible to claim income tax deductions under section 80CCD.
Courtesy: The Economic Times
Mutual funds plan schemes to cash in on 'Make in India' campaign

Mutual fund houses plan to come up with special schemes focused on the
manufacturing sector that is expecting a big boost from the Centre's 'Make in
India' initiative. ICICI Prudential Mutual Fund (MF), which has filed offer
documents with market regulator SEBI, plans to launch an open ended equity
scheme 'ICICI Prudential Manufacture in India Fund'. Besides, Pramerica MF has
filed draft papers to launch 'Pramerica Build in India Fund', while the 'Birla Sun
Life manufacturing equity fund' is already being launched. These schemes are
aimed at investment in equity and equity-related securities that are likely to
benefit from the Government's 'Make in India' initiative.
Courtesy: The Hindu Business Line
No more confusion: Plain vanilla insurance products coming up

If you are an insurance policy holder confused about jargon such as pure-term,
non-linked, co-pay cover, et al, here's some good news. The insurance sector is
working on simple, plain-vanilla products to cater to people like you. In a recent
meeting at Hyderabad between state-owned insurers, regulatory and finance
ministry officials, the government has asked public sector insurers to launch
products that are simple, cheap and something that a layman can understand.
The insurers have already begun to work on them.
Courtesy: Business Standard
Government may increase lock-in period for PPF; to offer higher interest
rate for 20-year tenure
The government is likely to increase the lock-in period for Public Provident Fund
(PPF) by at least two years, reports ET Now. According to ET Now sources in the
Finance Ministry, those who invest in PPF will be able to withdraw after 8 years,
as against the current 6-year lock-in period. The government is also likely to
increase the tenure of PPF from 15 years to 20 years. "While it will be up to the
saver to opt for either a 15-year or a 20-year saving period, the government will
look to lure people with a higher interest rate for the 20-year tenure, under
Section 80C," reported ET Now. "This implies that if the saver is willing to invest
in PPF for 20 years, the subsequent tax benefit will be higher," the channel said.
According to ET Now, the government is considering this move in order to
ensure a stable source of infrastructure funding.
Courtesy: The Economic Times

February 2015
EQUITY MARKET ROUND-UP

& OUTLOOK
Markets likely to consolidate as Budget countdown begins

Domestic equity benchmarks
posted strong gains in January,
ending the month ~6% higher
as the market took positive
cues from a sharp fall in global
commodity prices and a
dovish monetary policy stance
by the Reserve Bank of India
(RBI) besides encouraging
fiscal prints. December
Consumer Price Index (CPI)
inflation came in at 5% yearon-year (YoY), below Street
expectation of 5.3%. The Index
of Industrial Production (IIP) for
November 2014 was recorded
at 3.8% after a sharp decline of
4.2% in the previous month.
The growth was driven by all
three sectors, mining,
manufacturing and electricity,
which registered growth of
3.4%, 3% and 10%,
respectively. Easing inflation
was the main influential factor
behind the RBI's surprise move
of a 25 basis points (bps) repo
rate cut to 7.75%. The move
was cheered by the equity as
well as debt markets.
negative bias. For IT, the

constant currency (CC)
revenue growth for tier-I IT
companies was notably
stronger in a seasonally weak
quarter. In the auto space, the
results were subdued barring
Bharat Forge and Maruti. On
the banking front, divergence
between the earning
performance of private &
public sector undertaking
(PSU) banks continued. While
private banks sustained their
healthy operational
performance with asset quality
staying under control, PSU
banks continued to reel under
asset quality pressure thereby
leading to declining/muted
profitability. In the consumer
discretionary space, the results
were below expectations on
account of a weak demand
scenario. Even fast moving
consumer goods (FMCG)
companies continued to
witness muted volume growth
due to a slowdown in urban
discretionary demand.
However, with a sharp fall in
commodity prices, operating
margins witnessed an uptick.
The Q3FY15 numbers have

been a mixed bag with a
February 2015

& OUTLOOK
Global markets continued to
be influenced by falling crude
prices and the political
situation in Greece during the
month besides the stimulus
announcement by the
European Central Bank (ECB).
Crude plunged to as low as
$45.2 per barrel in the month
as Organization of the
Petroleum Exporting Countries
(OPEC) lowered its demand
forecast for 2015 to 28.8 million
barrels per day. The downward
revision of growth forecast for
the global economy by the
International Monetary Fund
(IMF) from 3.8% to 3.5% for
CY15 and from 4% to 3.7% for
CY16 also weighed on
sentiments. Though the
markets received some boost
from the ECB announcement
of bond buying programme of
60 billion per month
(including investment grade
sovereign bonds), the gains
could not offset the losses in
the month. Concerns due to
negative implications from
falling crude prices kept the US
markets in the red territory. The
European markets remained
more or less flat.
With softening inflation, the

benchmark 10-year bond yield
fell to 7.69%, the lowest since
September 2013. During the
month, crude (Brent)
continued the decline and
ended at ~US$ 50.7/barrel vs.
US$ 55.7/barrel at the end of
December. Gold prices ended
the month with gains of 8% at
US$ 1,283.7/ounce.
Global markets
The US markets ended on a
negative note as sentiments
were dampened owing to
falling crude prices and the
political situation in Greece.
The Dow Jones, S&P 500 and
Nasdaq were down 4.5%,
4.1% and 3%, respectively,
during the month. The UK
FTSE, German Dax and French
CAC gained 3.1%, 9.1% and
8.4%, respectively. In Asian
markets, Nikkei and Shanghai
SSEC ended the month up
1.3% and down 0.8%,
respectively, while the Hang
Seng was up 3.8%.
Domestic markets
Foreign institutional investors
(FIIs) bought heavily to the tune
of ~ Rs. 17,689.09 crore on the
6
February 2015

& OUTLOOK
back of strengthening
confidence on the Indian
economy vis--vis the rest of
the emerging markets. Though
the domestic institutional
investors (DII) investment
remained relatively subdued,
they continued to be net
buyers with a net inflow of
~Rs. 879.5 crore.
task to match the long list of

expectations and unfinished
agendas of the earlier
government. The July Budget,
albeit a formality, has already
addressed the strategic need
to improve the investment
climate by emphasising on
measures to create a
framework for low & stable
inflation, setting fiscal deficit
on a sustainable path through
tax and expenditure reforms
and setting up a broad based
inclusive growth framework
for a sustainable market
e c o n o m y. H e n c e , t h e
expectations have already
been amplified. After taking
into account the RBI's positive
surprise of an unscheduled
rate cut, expectations may go
through the roof. On the
earnings front, the trend was
more or less subdued with
very positive beats till date.
Globally, the liquidity gush is
likely to continue with ECB
joining the bandwagon amid
Greece's false bravado and
subsequent submission. In this
backdrop, markets are likely to
focus solely on the Budget
outcome.
The Nifty and Sensex posted

decent gains and were up 6.4%
and 6.1%, respectively, during
the month. Except the BSE
Metal Index (-5.2%) and BSE
FMCG Index (-4.9%) all other
indices ended January in the
positive territory. Some of the
sectoral indices gainers were
BSE Realty (16.5%), BSE Auto
(7.3%), BSE Bankex (5.9%),
BSE Healthcare (6.6%), BSE IT
(5.6%), BSE Power (6.3%) and
BSE Technology (5.0%).
Outlook: Focus firmly on Budget in
backdrop of weak global cues,
subdued Q3 numbers
The Budget, which will be the
first full-fledged Budget of
NDA-2 (the July Budget was a
kind of formality), will be a
major catalyst. The new
government will be put to the
February 2015
DEBT MARKET ROUND-UP

& OUTLOOK
Change in monetary policy stance... Interest rates to head lower

In January, benchmarks yields
turned south as the Reserve
Bank of India (RBI) announced a
25 basis points (bps) repo rate
cut on January 15, 2015, well
ahead of the February monetary
policy. While inflation declined
faster than expected due to a
favourable base effect during
June-November, the upturn in
December turned out to be
muted relative to projections.
Augmenting this data with
survey data on falling
inflationary expectations as well
as data on weak commodity
prices and muted rural wage

growth, the Reserve Bank
projected that it would meet its
objective of 6% consumer price
index (CPI) inflation by January
2016. Having committed in
public statements to initiate a
change in the monetary policy
stance as soon as incoming data
permitted, the RBI cut the policy
rate on January 15, 2015. The
benchmark 10-year government
securities yield, therefore,
corrected sharply by 16 bps to
7.69%; Corporate bond yields
followed G Sec yields.
Government Securities (G-Sec) Yield
Jan-15
Dec-14
Change (bps)
10-year
7.69
7.85
16
5-year
7.67
7.94
27
3-year
7.98
8.16
18
1-year
7.96
8.26
30
Corporate Bond Yields
Jan-15
Dec-14
Change (bps)
AAA 10-year
8.33
8.59
26
AAA 5-year
8.38
8.67
29
AAA 3-year
8.41
8.66
25
AAA 1-year
8.47
8.62
15
AA 10-year
8.93
9.02
AA 5-year
9.00
9.13
13
AA 3-year
9.06
9.15
AA 1-year
9.13
9.17
Credit Spread
G sec - AAA 10-year
Jan-15
Dec-14
64
74
G sec - AAA 5-year
71
73
G sec - AAA 3-year
43
50
G sec - AAA 1-year
51
36
February 2015
DEBT MARKET ROUND-UP

& OUTLOOK
Money market rates corrected 100
bps both in the daily Call market as
well as the Collateralized
Borrowing and Lending
Obligation (CBLO) market despite
traded volumes being higher.
Average daily call volumes stood
Money Market Rates
Call
CBLO
at Rs. 1,69,139 crore while CBLO

volumes were at Rs. 7,10,865
crore. Banks, on an average,
borrowed Rs. 12,575 crore under
the liquidity adjustment facility
(LAF) window.
Jan-15
Dec-14
Change (bps)
7.75
7.72
8.75
8.83
100
111
Certificate of Deposit (CD) Rates
Jan-15
Dec-14
Change (bps)
8.59
8.53
8.36
8.18
8.66
8.52
8.42
8.40
7
-1
6
22
Jan-15
Dec-14
8.97
8.86
8.80
8.31
9.01
8.91
8.65
8.59
12-Months
6-Months
3-Months
1-Month
Commercial Paper (CP) Rates

12-Months
6-Months
3-Months
1-Month
4
5
-15
28
Volume Data (Average for the month Rs. Crore)
Jan-15
Dec-14
Call Volume
CBLO Volume
LAF Volume
1,69,139
7,10,865
12,575
1,43,127
6,82,574
11,400
Change
26,012
28,291
1,175
calendar year 2015. Therefore, we

expect another 50-75 bps rate cut
throughout the remainder of the
year. We remain positive on the
Indian debt markets as it is well
placed to benefit from the
structural
improvement
in
macroeconomic data and expect
the positive undertone of the debt
market to sustain, going forward.
Duration funds as well as credit
opportunities funds both present
an investment opportunity at
current levels as well. However,
the return in duration funds is
likely to moderate, going forward.
Outlook
The year 2015 started with a
change in monetary policy stance
by the RBI. The rate cut in January
by the RBI weighs more as it now
marks a change in the monetary
policy stance and beginning of the
easing of the interest rate cycle.
The RBI has repeatedly said that
once the policy stance shifts it will
be a definitive shift and further
actions will be consistent with the
new stance. We continue to
maintain our view of a 100 bps
repo rate cut by the RBI in
Change
February 2015
TECHNICAL OUTLOOK
Pendulum to tilt towards 30400
the index had followed a
peculiar tendency as pricewise each major up -leg
measured 3000 points (900
points on Nifty). After every
3000-point rally, the index
ventured into a short-term
consolidation phase to form a
higher base before
continuance of the larger
uptrend. The current rally
exceeding the magnitude of all
preceding up-moves over the
past year signals an extending
market, which holds further
upside potential. The
minimum 138.2% Fibonacci
extension of the October
December 2014 rally
measured from December
2014 low of 26469/7961
projects an upside target of
30400/9200 in the coming
month.
Domestic equity benchmarks

began 2015 with renewed zeal
and surged over 7% to achieve
our short-term target of
29500/8900 (Sensex/Nifty) as
elaborated in the January
edition.
We believe the markets will
continue to ride the positive
momentum and extend the
current rally towards
30400/9200 in the run-up
towards the Union Budget. The
short-term base for the
benchmarks has shifted
upwards to 28800/8600. Any
intermediate cool-off towards
these levels should be used as
an incremental buying
opportunity.
The index continues to stride

northwards in a rising peaks
and troughs manner as the
support base keeps shifting
higher with every subsequent
rally. The strong resolve past
the December 2014 high of
28822/8626 has confirmed a
significant higher bottom in
place at the December low of
The current up-move from

December 2014 low of 26469
to the life-time high of 29786
(3317 points) is the largest in
magnitude since February
2014. In the entire up-move
from February 2014 onwards,
10
February 2015
TECHNICAL OUTLOOK
26469/7961. Going forward,
we expect the December 2014
peak of 28822/8626 to reverse
its role and as support for the
benchmarks in the immediate
short-term. The placement of
38.2% Fibonacci retracement
of the December 2014
January 2015 up move
around the 28800/8600 region

makes this a sound base for the
index. Any temporary cool-off
towards the 28800/8600 zone
should be seen as an
incremental buying
opportunity to ride the
expected up move towards
30400/9200 in the coming
month.
BSE Sensex Monthly Candlestick Chart
The current rally from December 2014

lows is the largest in magnitude (3317
points) since February 2014 signaling an
extending market, which has further
upside potential
The minimum 138.2% extension of the
October-December 2014 rally measured
from December 2014 low projects
upsides towards 30400 for the current up
move in the coming month
138.2% extension of
Oct-Dec rally @ 30400
2911 points
3062 points
3317 points
3098 points
21 week EMA
2976 points
Weekly RSI formed a Double Bottom at its bull market support of 55

during recent correction highlighting the overall positive price
structure
Positive crossover on MACD oscillator abov e its 9 period

average highlights strength in the current up move
Source: Bloomberg, ICICIdirect.com Research

The views expressed in the article are personal views of the author and do not
necessarily represent the views of ICICI Securities.
11
February 2015
DERIVATIVES STRATEGY
Nifty likely to move towards 9300/9500; Key support near 8500
Lo o k i n g a t t h e s e c t o r a l
performance for the month,
broad-based buying was seen
during the month. At the start
of the series, consumer
durables started to move up.
Then capital goods stocks
witnessed buying. Towards the
expiry, banking stocks were
back in the reckoning. Driven
by dollar strength, the
commodity space, including
metals remained weak and
closed negative despite the
strong move in the broader
markets.
Amit Gupta
Head - Derivatives Research,
ICICI Securities
Nifty clocking strongest expiry

performance in well over a year,
with broad based participation
from various sectors
After seeing profit booking in
the December series, the Nifty
saw a strong pullback as the
Reserve Bank of India (RBI)
surprised the market with a
repo rate cut on January 15,
2015. Since then, buying
momentum was seen across
sectors. For the month, the
Nifty registered strong returns
of close to 10% for the January
series. This is the highest
expiry return in well over a
year.
This sectoral buoyancy is likely

to continue as the
consumption, cyclical and
capex stories are likely to
attract focus.
Nifty expiry returns in trailing
12 months
We believe the up-move could

continue as expectations are
still running high from the
Union Budget on February 28.
However, bouts of profit
booking are not ruled out as
the Nifty has already moved up
over 900 points on the trot.
10.0%
8.0%
6.0%
9%
6%
4.0%
6%
4%
3%
3%
3%
3%
3%
4%
2.0%
0.0%
-1%
-4%
-2.0%
February 2015
Dec
Jan'15
Oct
Nov
Sep
Jul
Aug
Jun
Apr
May
Feb
12
Mar
-4.0%
Sectoral performance
February series with the

highest open interest since
October 2011 with 24.8 million
shares. The higher roll spread
suggests that the bias of these
positions is on the long side.
Thus, intermediate declines
are likely to attract buying
interest while the Nifty is likely
to move towards the highest
options base of the 9000 Call
strike.
Metal
Mid Cap
Nifty
Bank Nifty
Capital Goods
Consumer Durable
15
13
11
9
7
5
3
% monthly return
-1
-3
Nifty target of 9300/9500; Key

support placed near 8500
The January series saw a

remarkable turnaround after
tumbling to 8065. The Nifty
pulled back 900 points. Key
trigger for this 9.5% Nifty up
move was the RBI rate cut on
January 15. Post the rate cut,
foreign institutional investors
(FIIs) pumped in over US$2
billion.
Our upside target on the Nifty

in the coming months remains
at 9300 and 9500. The upward
momentum could gain traction
around the Union Budget. A
strong Budget will also make a
case for India sovereign rating
upgrade. The RBI will also feel
obliged to follow up with rate
cuts if the government delivers
in the Union Budget on
February 28.
Looking at the February series

options build up, the Put
options concentration is one of
the highest at the 8500 strike.
On the higher side, the Call
options concentration of over
5.1 million shares is at the 9000
Call strike. Thus, in the
immediate term, the Nifty
could continue consolidating
in the range of 8500-9000. As
we approach the budget, the
Nifty could surpass 9000 to
move towards a target of 9300.
Nifty volume weighted

average price (VWAP) for the
January series is placed near
the 8500 while Nifty expiry was
at 8952, 2 sigma levels away
from the VWAP considering
the January series. Going
ahead, the level of 8500 is likely
to act as a strong support level
for the Nifty.
The Nifty has started the

13
February 2015
As seen in the sigma level chart
below, the Nifty had bounced
from the 100 DMA line in the
middle of the January series
and is currently trading near
mean + 2 sigma level of 8700.
Thus, the Nifty is likely to
consolidate before scaling
higher.
prices, improving India's fiscal

condition. This strength has
seen good participation from
FIIs inflow not only via cash
buying in equities but also
through long Index futures
blocks.
Since the election verdict, FIIs
have created long index future
positions on multiple
occasions. In the first Instance,
the Nifty moved up 8.5%, in the
second instance it moved up
11% while recently in January
2015, the Nifty moved up 10%.
The key takeaway from this
analysis is from the point from
where buying in index future
commences the level is not
violated. The chart below
displays the same.
Nifty options build-up in February series

OI in Million Shares
8
7
6
5
4
3
2
1
Call OI
9500
9400
9300
9200
9100
9000
8900
8800
8700
8600
8500
Put OI
Nifty 2 sigma Band: consolidation initially

9200
8700
8200
7700
7200
6700
Close
UBB(2)
BollMA (100) on Close
Jan -15
De c-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
Ma y-14
A pr-14
Ma r-14
F eb-14
5700
Jan-14
6200
LBB(2)
The recent buying

commenced from 8250 on
January 13, 2015. Hence, the
Nifty was unlikely to dip below
this level. This will remain a
positional support for the Nifty
in the current upward
momentum, which started
post elections verdict in 2015.
FII buying in Nifty futures commenced

at 8250, which remains critical support
for coming months
Since the election verdict,

Indian markets have displayed
new found strength as the new
government in place has taken
strong reformist policy
initiatives. This was further
helped by a cool-off in crude oil
14
February 2015
Large index future buying starts at 8250 in 2015
1st instance Aug 14
11-Aug-14
162.46
12-Aug-14
1390.77
13-Aug-14
717.77
14-Aug-14
604.91
19-Aug-14
451.36
20-Aug-14
276.72
21-Aug-14
-157.58
22-Aug-14
448.55
25-Aug-14
191.55
26-Aug-14
269.04
27-Aug-14
437.8
28-Aug-14
847.03
2nd instance
17-Oct-14
20-Oct-14
21-Oct-14
22-Oct-14
27-Oct-14
28-Oct-14
29-Oct-14
30-Oct-14
31-Oct-14
3-Nov-14
5-Nov-14
7-Nov-14
Oct 14
1030.18
1455.01
398.53
751.09
680.01
592.15
2166.72
1286.49
1485.22
163.56
721.73
332.44
Inr in Cr
Nifty returns
Nifty Low
Inr in Cr
Nifty returns
Nifty Low
11063.13 Inr in Cr
11%
Nifty returns
7720
Nifty Low
5640.38
8.50%
7568
Jun
22123
21175
2000
1500
6040
15000
1000
10399
10000
5940
500
6407
5840
5000
5740
-500
5640
Dec '2012
Jan
Feb
-1765
2500
6240
6140
16250
India
4446
4096
4142
1912
951
3772
19319
Buying seen post ECB QE on

22 Jan 2015 (in US$)
Nifty up-move continues post

US QE announcement (in Rs. Cr.)
22230
10527.58
10%
8248
Indonesia Phillipines Thailand

S.Korea
-33
325
702
3299
635
724
551
-1723
1160
146
-583
1760
189
204
208
-1885
75
283
-682
-2584
-33
448
-169
902
1993
2130
27
-231
FIIs outflows started post hints of QE reduction
-2033
-250
-1800
-4491
Dec
Jan
Feb
Mar
Apr
May
Total
20000
Jan 15
440.83
178.2
3896.76
-848.13
56.02
1749.06
483.32
901.84
1371.99
1731.69
-1301
1867
EM equity buying by FIIs post

US QE3 (in US$)
Nifty levels where FII major buying in

Nifty Futures commenced
25000
3rd Instance
13-Jan-15
14-Jan-15
15-Jan-15
16-Jan-15
19-Jan-15
20-Jan-15
21-Jan-15
22-Jan-15
23-Jan-15
27-Jan-15
28-Jan-15
42033
Mar
FII Secondry Equity inflows ('000 Cr Inr)
Apr
India
May
Indonesia
Philippines
Thailand
Brazil
South
Africa
Nifty Spot
15
February 2015
Turkey
Last liquidity infusion cycle
was triggered by the US QE 3
of US$80 billion per month on
December 12, 2012.
scale up higher as FII buying is

likely to be in blue chip stocks,
where sufficient float is
available.
As visible in the first chart

above, India stood to gain from
this liquidity infusion with
largest inflows of close to
US$20 billion in six months.
FII flows in January: Win-win for

Indian equities and debt at start of
2015
FIIs cash activity: strong buying post
RBI rate cut
Also visible in the second chart

above is the price performance
of the Nifty (monthly high
values used in chart). There is a
clear trend of price
performance from the Nifty as
FIIs flows increase.
30000
25000
20000
INR is Cr
10000
5000
0
Jan-15
Dec-14
Oct-14
Nov-14
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
May-14
Feb-14
Mar-14
Jan-14
-5000
Debt markets flows stayed strong

20000
On January 22, 2015 the

European Central Bank (ECB)
announced the US-styled QE
of buying 60 billion per month
until Sept ember 2016 totaling
1.1 trillion. Along with this,
liquidity is also getting
generated from Bank of Japan
(BoJ) and Peoples Bank of
China (PBOC).
15000
INR in Cr
10000
5000
0
-5000
-10000
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
Apr-14
May-14
Mar-14
Feb-14
Jan-14
-15000
As suggested in the previous

pages as well, FII inflows are
likely to see a pick-up in pace.
Historical evidence also
supports this view. Barring Q4
of 2008, 2009 & 2011, Q4 in last
10 fiscal years has attracted
strong FII equity inflows.
FIIs are likely to allocate a lion's

share of equity allocation to
India as India's macro
conditions have improved
significantly.
Hence, we believe FIIs inflows

will not only be eyeing existing
Hence, the Nifty is likely to

15000
16
February 2015
blue chip stocks to keep the
positive bias intact in Nifty. It
will also keep an eye on
impending OFS, which are
likely to be announced in the
foreseeable future.
hold leadership position and

registered gains of over 12%
for the series. However, within
the banking space, there was a
clear preference for private
banking stocks as they posted
the strong set of quarterly
numbers while public sector
undertakings (PSU) banking
tumbled.
FII buying in the debt segment

remained intact & they bought
over US$1.7 billion in January
as yields dipped over 20 basis
points to 7.70 on 10-year
benchmark (in the last three
months). From here on, yields
on the shorter end are likely to
remain more volatile than long
dated yields, as the RBI action
is likely to mainly impact the
shorter end.
After struggling to move

beyond 2.27 for over a month,
the Bank Nifty/ Nifty price ratio
moved to 2.31 in the later part
of series. The price ratio is
likely to move towards 2.38
and the recent declines should
be bought with stop loss of
2.14.
India centric data points that

FIIs will be focusing on
includes consumer price index
(CPI) numbers and index of
industrial production (IIP)
numbers that could provide
insights into the RBI rate action
and, more importantly, the
Looking at the options build up

for the February series, similar
to 9000 Call in Nifty, the 21000
Call in Bank Nifty has double
the contracts (over 18000
contracts) that of any other
option strike, which is the
immediate target for the index.
Above this, 22000 Call is seeing
additions, which remains a
positional target for the Bank
Nifty.
Bank Nifty: Likely to move towards

22000 above highest Put base of
20000
The Bank Nifty continues to
17
February 2015
As the Bank Nifty weightage is
dominated by private banking
stocks, the banking index is
likely to head higher as most
private sector banks reported
strong quarterly results. PSU
stocks are likely to linger as
there were asset quality issues
in most banks.
The fear gauge reading is at its

highest level since May 2014.
The surge in volatility is likely
to continue as we approach the
As the February expiry is on
February 26, volatility is likely
to see surge near. February 15,
the March series contracts will
also be included for the India
VIX calculation. Thus, near
February 15, one can create
long Vega strategies for the
Budget outcome.
Today's RBI policy review has

tossed the ball in the Central
government's court. i.e. in
order for further rate cuts to
happen the government must
push fiscal prudence to the
forefront and not get swayed
away by populist measures.
Volatility is also expected to

surge towards month end
because Greece's line of long
term financing will be cut off at
February end if it does not
c o m p l y w i t h t h e Tr o i k a
mandate. Also, portfolio
hedging is likely to push IV
skew at play as participants will
be looking to hedge their
portfolios aggressively.
Bank Nifty options build-up for

February series
Call OI
21500
21300
21100
20900
20700
20500
20300
20100
19900
19700
19500
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Put OI
India VIX: Likely to move towards

25 ahead of Union Budget
India VIX is unlikely to dip

below 17 while on the higher
side VIX could move towards
25 levels in the run up to the
Budget.
On expected lines, India

Volatility Index (VIX) continued
to trade with a positive bias
and moved towards 20 levels.
18
February 2015
India VIX likely to move towards 25 in run up to Union Budget
EM currencies show resilience

despite strength in Dollar Index.
INR likely to move towards 61,
good indicator of strength
continuing in equity markets
unpegging from euro also

increased volatility in the
global currency markets.
The currency volatility
triggered a risk-off wave in the
global equity markets and
investors fled for safety in the
debt market. Bond yields of US
10-year also fell from 2.2 to 1.4
(down 50 bps) while German
10-year yield fell from 0.54 to
0.34 (down 20 bps). The similar
trend of bond market inflows
was also seen in EM debt
markets, where money moved
Since the start of the January

series, the Dollar Index has
showed a strong price up
move and is currently near 95.
The key reason is the euro,
which is the key component of
Dollar Index. The euro
weakened from 1.15 to 1.1
before a pullback post QE in
late January. Swiss Franc
19
February 2015
out from equities and moved
into the debt segment. These
strong debt market inflows
helped EM currencies to
prevent a depreciation trend.
managed well till now to

counter the dollar strength till
now. However, going ahead,
the ECB QE driven liquidity is
likely to decide the fate of these
currencies. Continuance of
money flows in emerging
markets is likely to help EM
currency and equities.
The rupee, Thailand Baht &

Philippines Peso currency
strengthened at 1-4%.
However, weakness was seen
in the Malaysian ringgit and
Turkish Lira.
Going ahead, strength of the

INR will remain key for
furtherupsides in Indian equity
markets.
Overall, the EM currency
Developed market currencies move in

January series
106
104
102
100
98
96
94
92
Dollar Index
Euro
Australian Dollar
27-Jan
25-Jan
23-Jan
21-Jan
19-Jan
17-Jan
15-Jan
13-Jan
9-Jan
11-Jan
7-Jan
5-Jan
3-Jan
1-Jan
30-Dec
28-Dec
26-Dec
90
Japanese Yen
Emerging market currency move in January

104
103
102
101
100
99
98
27-Ja n
25-Jan
23- Ja n
21-Ja n
19-Jan
17- Ja n
13-Jan
11-Ja n
9-Ja n
7-Ja n
5- Ja n
3-Ja n
1-Ja n
30-D e c
28-D ec
26- De c
96
15-Ja n
97
Thai Bhat
Indonesian Rupiah
Indian Rupee
Russian Ruble
Malaysian Ringitt
Zimbabwian Rand
Brasilian Real
Turkish Lira
Philippines Peso
The views expressed in the article are personal views of the author and do not necessarily
represent the views of ICICI Securities.
20
February 2015
STOCK IDEAS
Century Plyboard (India): Structural shift New thrust to growth

Company Background
stores. CPIL has retained its

leadership in India's plywood
sector for more than two
decades, accounting for nearly
a third of all branded plywood
sold in India. The company
countered the progressive
commoditisation with
increased average realisations
for its premium brands. Hence,
whereas the plywood industry
grew at 5-7% CAGR
(compounded annual growth
rate) over the last five years,
CPIL has grown at 17% CAGR
led by market share gains from
the unorganised segment.
Century Plyboard (India) Ltd.

(CPIL) is India's largest
plywood manufacturer with
~23-30% share of India's
organised plywood sector and
a market share of ~6-7.5% in
the overall market. The
company was promoted by
first generation entrepreneurs
Sajjan Bhajanka (Chairman),
Hari Prasad Agarwal (Vice
Chairman) and Sanjay Agarwal
(Managing Director) and ably
supported by Prem Kumar
Bhajanka (Joint MD), Vishnu
Khemani (Joint MD) as well as
experienced professionals.
Investment Rationale
Leading player with strong brand
equity & robust distribution
network
CPIL is engaged in the

manufacture of plywood,
l a m i n a t e s , v e n e e r, M D F,
blockboards and doors,
among others. The company is
also engaged in the Container
Freight Station (CFS) business,
managing the first private CFS
at the Kolkata Port. CPIL
recently launched retail
furniture chain (brand Nesta)
with the launch of two owned
The Indian plywood industry is

worth ~` 15,000-16,000 crore
where the organised segment
accounts for ~25-30% of the
overall market. CPIL, with a
capacity of 2,09,420 cubic
metres (CBM) in FY14, is the
leading player in the plywood
industry. The company enjoys
21
February 2015
STOCK IDEAS
~23-30% share of the
organised market with strong
brands across product
categories and a robust panIndia distribution network
comprising 33 marketing
offices, 1,424 dealers, 6,333
employees and more than
13,000 retail outlets.
narrow down providing a level

playing field to organised
players. Hence, we believe
CPIL will reap the benefits of a
structural shift towards
organised players.
Set to ride expanding organised pie;
initiate with BUY
Like other building materials
such as tiles, we envisage the
Indian organised plywood
player's pie (currently stands at
~` 3,500-4,500 crore) will
expand in coming years on the
back of structural changes like
rollout of GST, ban on raw
material from Myanmar and
higher brand aspirations. CPIL
is likely to see exponential
earnings growth of 52% in
FY14-17E with a significant
improvement in return ratios
and leverage making a strong
case for a further re-rating.
Hence, we initiate coverage on
C P I L w i t h a B U Y
recommendation and a target
price of ` 254 (24x FY17E EPS
implying a PEG (price/earnings
to growth) of 0.5x).
Myanmar ban & GST roll out

structurally positive for organised
pie
In April 2014, Myanmar
banned the export of raw
timber logs, putting Indian
plywood players at a huge
disadvantage as they were
heavily dependent on
Myanmar for raw timber.
However, CPIL had proactively
set up a plant in Myanmar to
process raw timber providing
security on face veneer (key
component for plywood). This
has helped the company to
gain a first mover advantage
over others. Secondly, with the
rollout of GST (goods &
services tax), the pricing
difference between organised
and unorganised players due
to tax inequalities is likely to
22
February 2015
STOCK IDEAS
Key Financials
FY14
FY15E
FY16E
FY17E
Net sales (` crore)
1,284
1,545.3
1,865.7
2,299.9
EBITDA (` crore)
148.2
245.4
297.6
363.6
67
140
182.4
235.1
6.3
8.2
10.6
Net profit (` crore)

EPS (`)
Valuations Summary
FY14
FY15E
FY16E
FY17E
P/E (x)
61.5
29.4
22.6
17.5
Target P/E (x)
84.3
40.3
30.9
24
31
18.6
15.2
12.3
6.3
EV / EBITDA (x)
P/BV (x)
RoNW (%)
RoCE (%)
14.1
10.8
8.2
23
36.6
36.4
36
14.7
23.8
26.3
28.6
Stock Data
Market capitalization (` crore)
4,116
Total debt (FY15E) (` crore)
491
Cash and investments (FY15E) (` crore)
18
Enterprise value (` crore)
4,589
52-week High/ Low (`)
199/22
Equity capital (` crore)
22.3
Face value (`)
DII Holding (%)
2.8
FII Holding (%)
23
February 2015
STOCK IDEAS
Key Risks
Lack of raw material availability
and high raw material cost
The industry procures majority
of its raw material from
Myanmar as well as countries
like Vietnam, Indonesia,
Thailand, Germany, etc. We
believe the biggest risk for
CPIL/industry is its inability to
procure raw material due to
any unforeseen regulation in
the respective jurisdiction e.g.
Myanmar's ban on raw timber
export. However, we believe
CPIL is well placed in terms of
raw material security after
setting up a peeling unit in
Myanmar to facilitate the
sourcing of face veneers.
Otherwise, CPIL defers its

forex liabilities by availing
overseas buyer's credit,
avoiding exchange losses and
substantially lowering
borrowing costs. On account
of this strategy, CPIL lost Rs. 44
crore in FY14. This deeply
impacted its profitability.
Recently, CPIL reduced its
buyer's credit exposure. Also,
going forward, the
management is expecting the
same trend to continue, hence,
mitigating the forex related
volatility.
(EBITDA: Earnings before
interest, taxes, depreciation,
and amortization;
EPS:Earnings per share; P/E:
Pr i c e - t o - e a r n i n g s ; E V:
Enterprise value; P/BV: Priceto-book value; RoNW: Return
on Net Worth; RoCE: Return on
Capital Employed; DII:
Domestic Institutional
I n v e s t o r s ; F I I : Fo r e i g n
Institutional Investors)
Forex volatility
The company imports
substantially for its raw
material requirements. CPIL
reviews foreign currency risk
periodically and takes hedging
initiatives accordingly. If the
anticipated forex (foreign
exchange) loss is more than
the cost of hedging only then
does CPIL prefer to hedge.
24
February 2015
STOCK IDEAS
KSB Pumps: Quality play, master of fluid control

Cy13, pumps comprised 82% (`
603 crore) while valves
comprised 17% (` 122 crore) of
total sales (` 733 crore). The
company clocked an EBITDA
(earnings before interest, taxes,
depreciation, and amortization)
of Rs. 101 crore (EBITDA
margins 14%) in CY13 with
corresponding PAT (profit after
tax) at ` 67 crore.
Company Background
KSB Pumps (KSB), a subsidiary
of KSB AG, Germany (global
leader
in
pump
manufacturing), is a pumps &
valves
manufacturer
domestically based out of Pune.
The company has been at the
forefront
of
importing
technology from its parent for
delivering cutting edge, high
quality products in the domestic
market. Globally, KSB AG is one
of
the
largest
pump
manufacturers with sales in
excess of 2.2 billion (~US$2.8
billion) out of the total pump
market, which is pegged at
US$47 billion as of 2014. In India,
KSB supplies pumps and valves
to all major industries viz. power,
waste water treatment, irrigation
(agriculture), chemicals, etc.
KSB's products are used for
pumping, transportation and
flow control of fluids, which
include clean or contaminated
w a t e r, e x p l o s i v e f l u i d s ,
corrosive and viscous fluids,
slurries and fluid/solid mixtures.
In India, KSB has a wide
distribution network that
includes four zonal offices, 15
branch offices, over 800
authorised dealers, four service
stations, 110 authorised service
centres and 22 warehouses. In
Investment Rationale
Indian pump market on strong
footing; KSB well placed
As per industry sources, the
global pump market size is
pegged at US$47 billion as of
2014 and is expected to reach
US$56 billion in 2017, growing at
a CAGR (compounded annual
growth rate) of 6% in CY14-17E.
The Indian pump market size is
pegged at ~Rs. 8,500 crore as of
2014; wherein a majority of it i.e.
~95% (~` 8,000 crore) consists
of centrifugal pumps while the
remaining i.e. 5% (~` 500 crore)
comprises positive
displacement pumps. The
Indian pump market is expected
to grow at a CAGR of 10% in
FY14-17E to ` 11,300 crore in
FY17E on the back of thrust of
the new government on
augmenting the domestic
25
February 2015
STOCK IDEAS
manufacturing and pumps
being an integral part of process
manufacturing. In India, KSB
commands a market share of
~7% (pump sales of ` 603 crore
in Cy13), wherein it supplies
~35% of its pumps in the
standard pumps segment (used
for irrigation & building services)
while it supplies the remaining
65% of its pumps (~` 400 crore
sales vis--vis market size of ~`
4,500 crore, market share ~9%)
to the industrial segment, which
is technology intensive. Going
forward, we expect KSB's pump
sales to grow at a CAGR of
13.1% in CY13-16E to Rs. 876
crore in CY16E.
owns 49% in MIL Controls Ltd

(51% ownership with KSB AG)
with an initial investment of ` 6.3
crore, on which it is reaping rich
benefits (share of profit at ` 9.6
crore in CY13; RoI (return on
investment) ~150%).
Likely beneficiary of capex cycle
revival; balance sheet strength to
grow; initiate with BUY
By virtue of KSB focusing only
on non-project businesses
(unlike its peers) it generates
robust free cash flows and
maintains working capital
discipline with CY13 Free Cash
Flow (FCF) yield at 4.2%. KSB is
likely to realise operating
leverage benefits (margin
expansion of 360 basis points
(bps) and PAT CAGR of 22.5% in
CY13-16E) in the form of higher
demand for its products. This
may lead to improvement in
return on equity (RoE) & return
on capital employed (RoCE) and
strong FCF generation of ` 90
crore in CY15E and Rs. 114 crore
in CY16E. Going forward, we
expect KSB's sales and PAT to
grow at a CAGR of 10.8% and
22.5%, respectively, in Cy1316E. We assign a 23x P/E (1x PEG
(price/earnings to growth)) on
KSB's CY16E EPS of ` 35.2 to
arrive at a target price of ` 810
and assign a BUY rating on the
stock.
Valves segment, focus on increasing

profitability; not chasing growth
Valves constitute ~17% (` 122
crore in CY13) of consolidated
sales. The performance of
valves has been a laggard in the
past few quarters on account of
fierce competition and subdued
demand (a majority of which is
accounted by oil & gas sector).
Going forward, KSB expects to
consolidate its position in the
valves market with focus on
increasing profitability rather
than chasing sales growth.
Going forward, post a blip in
CY14E, we expect valves sales
to largely remain flat with CY16E
sales at ` 122 crore. KSB also
26
February 2015
STOCK IDEAS
Key Financials
Net sales (` crore)
CY13
CY14E
CY15E
CY16E
733
758.5
860.8
1,000.2
EBITDA (` crore)
100.8
111.9
144
173.7
Net profit (` crore
66.7
78.3
100.7
122.5
EPS (`)
19.2
22.5
28.9
35.2
CY13
CY14E
CY15E
CY16E
36
30.7
23.9
19.6
Target P/E (x)
42.3
36
28
23
EV / EBITDA (x)
22.3
19.8
15.1
12.2
Valuations Summary
P/E (x)
P/BV (x)
4.7
4.3
3.8
3.3
RoNW (%)
13
13.9
15.9
17.1
14.4
14.8
17.8
19.6
RoCE (%)
Stock Data
Market capitalization (` crore)
2,401.9
Total debt (CY13) (` crore)
3.2
Cash and investments (CY13) (` crore)
160
Enterprise value (` crore)
2,245.1
52-week High/ Low (`)
682 / 234
Equity capital (` crore)
34.8
Face value (`)
10
MF Holding (%)
2.6
FII Holding (%)
14.2
27
February 2015
STOCK IDEAS
Key Risks
professional fee and technical

fee. Therefore, any increase in
the royalty outgo (as a
percentage of sales), going
forward, will have an adverse
impact on the company's
profitability with a direct impact
on our target price calculations.
Volatility in raw materials prices,

especially steel price
Iron derivative products like pig
iron, iron castings, stampings,
metal scrap, etc. form the major
raw material costs for pumps &
valves with the management
guiding that ~35% of the sales
value is composed of iron
products (35%of sales
equivalent to ~80% of raw
material costs; raw material as a
percentage of sales at ~45%).
We have modeled steel price to
be a complete pass through for
the company. However, any
inability of the company to pass
through the increase in steel
costs will dent EBITDA margins
and will have a consequent
negative impact on our target
price calculation. It has been
observed that for every 5%
increase in steel price and KSB's
pump realisation remaining
same; our target price reduces
by ~12.7% i.e. Rs. 103/share.
Increase in commission to sole

selling agent i.e. KSB Singapore
KSB has appointed its sister
concern i.e. KSB Singapore
(Asia Pacific) Pte Ltd as its sole
selling agent in all territories
outside India (exports) for a
period of three years from
February 20, 2014. The company
is authorised to pay up to 12.5%
of sales (value) as commission
to the aforesaid entity. However,
currently, for the past few years
i.e. CY10-13, this commission is
being paid at ~10%. Therefore,
going forward, any increase in
this commission paid to this sole
selling agent i.e. KSB Singapore
will have adverse impact on the
company profitability, thereby
directly impacting our target
price calculation.
Increase in royalty to the parent i.e.

KSB AG
( E B I T DA : E a r n i n g s b e f o r e
interest, taxes, depreciation, and
amortization; EPS:Earnings per
share; P/E: Price-to-earnings; EV:
Enterprise value; P/BV: Price-tobook value; RoNW: Return on net
worth; RoCE: Return on Capital
Employed; MF: Mutual Funds;
F I I : Fo r e i g n I n s t i t u t i o n a l
Investors)
By virtue of technology transfer

and support from the parent
group i.e. KSB AG; KSB pays a
royalty fee amounting to ~2%
of its sales. The company's
management has guided for a
royalty payment of 2-5% (of
sales value) depending upon the
product to its parent company.
The total royalty outgo consists
of direct royalty payments,
28
February 2015
FLAVOUR OF THE MONTH

A goal-based approach to investing
For most of investors, return is the basic criterion for choosing an
investment. In this race, we generally miss out on the bigger picture. We
miss to ask whether our investments will be able to help us reach our
financial goals, which is the core purpose of making an investment.
Instead of paying greater attention to products and their performance, it is
important to focus on our goals and invest accordingly. Investing towards
a specific goal is more precise and detailed way of investing. It goes
beyond the performance of a portfolio and focuses more on matching your
financial resources with your financial goals and liabilities. There is a 50%
greater probability of reaching your goals with a goal-based investing
compared to traditional product-centric approach, says an international
study. Read on to find out how by adopting a goal-based investing
approach you can have a better chance of meeting your goals.
We aren't always rational
such behavior and stay

invested for goals. That is
where the goal-based
investing comes into picture.
Most of us understand the

importance of sticking to a
disciplined investment
strategy. Yet, we can often
make investment decisions
that could hurt our financial
well-being and our goals. For
instance, we may fall prey to
buying the latest hot stock or
get panicked by market
volatility and dump a welldesigned investment plan.
Goal-based investing: What is it and

how is it different?
For most of us, the investing
process goes like this usually:
We identify two or three goals
and then invest into avenues
by creating a single portfolio.
We expect a standard rate of
return on our investmentbased
on the historic performance,
and strive to achieve that
return or even greater than
that.
This behavior, known as

'irrational investment behavior'
in behavioral finance parlance,
is common among investors.
The challenge is to overcome
However, it does not make

29
February 2015

sense to identify different
goals and creating a single
portfolio for all the goals.
while would be ok to accept

more risk for discretionary
goals, which are long-term in
nature.
This is because, our goals

differ in terms of importance,
time horizon and the level of
risk we are comfortable taking
relative to each goal. For
example, we would want to
take less risk with the funds
designated for critical goals
that are short-term in nature,
Creating a separate portfolio or

a bucket for each goal provides
a much clearer picture of how
well we are succeeding. This
approach also greatly reduces
the influence of emotions that
often play a role in our financial
decisions and goals.
Traditional approach vs. Goal-based investing approach:

A quick snapshot
Traditional approach
Investors have behavioral biases
and make emotional decisions
All investors have roughly the
Investors have unique and multiple
same goals
goals
Investments should manage expected Investments should help achieving
return vs. risk
goals
The greater emphasis is on risk
The greater emphasis in on risk
tolerance of an investor, slowing the
capacity for each goal, makes the
progress toward reaching goals
planning more efficient and flexible
Mitigating market volatility is an
Market volatility is the top risk to
important consideration, but the chief
mitigate in a portfolio
risk is the failure to reach a specific
goal
Typically relies on a single pool of
Asset are allocated based on each
assets to generate the necessary
goal
return
Difficult to measure progre ss toward Can clearly measure the progress
any single goal
toward each of the goals
Investors are rational
Why to follow the goal-based

investing approach?
motivating. If you have a goal

in place and can see the
tangible result of investing, it is
less tempting to divert your
It has a number of distinct

advantages. First of all, it is
30
February 2015

money towards discretionary
items such as a vacation.
have a child of 3 years old. The

trio works with an IT company
and has a similar income level.
However, when it comes to
managing personal finances,
their approach is quite different
than each other.
Investing based on goals also

imposes discipline. It helps
you focus on exactly what you
are trying to achieve. It then in
turn helps you invest in
avenues based on your goals
and time horizon.
For instance, Amit has little

idea of investments and
invests mainly into fixed
deposits. He has no idea how
inflation affects one's finances
and has no plans for the future.
Further, goal-based investing

helps you take the amount of
risk that is needed. It helps you
avoid taking excessive risk by
trading or churning your
portfolios, either to recoup the
losses or to reach an anchored
target rate of return.
Anil, on the other hand, is

aware of a few financial goals
that he wants to achieve in his
life. However, most of his
investments are for the
purpose of saving taxes. While
Pankaj is the most organized
among the lot; he is well aware
of his financial goals and has
also written and quantified it
down.
Goal-based investing also

helps to track down the
progress towards our goals. It
then helps in making the
necessary changes to our
investment strategy and
contribution level if we move
ahead of our target or fall
behind.
Let's take a look at their current

financial position and their
investment plans.
The story of three friends

Amit, Anil and Pankaj, each 35
years of age, are married and
31
February 2015

Income, expenses, investments & insurance:
Particulars
Annual income
Annual expenses
(including EMIs)
Annual investments
insurance
Amit
Anil
Pankaj
` 12 lakh
` 12 lakh
` 12 lakh
` 11 lakh
` 10.50 lakh
` 9 lakh
ELSS: `
20,000
MF SIP: `
24,000
LI policies: `
40,000
FD: ` 25,000
PPF: ` 1,00,000
MF SIP: `
96,000
Gold ETF: `
30,000
Term/Medical:
` 40,000
/ FD: ` 50,000
Total : `
50,000
Total: ` 1.09
lakh
Total : ` 2.66
lakh
Annual surplus in
Savings bank account
/FD for contingencies
` 50,000
` 41,000
` 34,000
Existing life insurance

cover
` 25 lakh:
` 25 lakh:
` 25 lakh:
employerprovided
employerprovided
employer
provided
` 8 lakh:
Self- taken
` 1.75 crore:
` 4 lakh :
` 4 lakh:
` 4 lakh:
employerprovided
employerprovided
employerprovided
Existing medical cover
Self-taken
` 5 lakh : selftaken
(FD: Fixed deposits; ELSS: Equity-linked savings schemes; MF SIP: Mutual
fund Systematic investment plan; LI: Life insurance; PPF: Public provident
funds; gold ETF: gold exchanged traded funds)
32
February 2015

Assets:
Particulars
Self-occupied
house
Amit
` 60 lakh
Anil
Pankaj
` 60 lakh
` 60 lakh
Employees
provident fund
(EPF)
` 10 lakh
` 10 lakh
` 10 lakh
Savings balance
` 50,000
` 50,000
` 50,000
Fixed d
(FDs)
` 5 lakh
` 3 lakh
` 1.50 lakh
MF
equity
(including ELSS)
` 2 lakh
` 6 lakh
Public pro vident

fund (PPF)
Life insurance
fund value / Gold
ETF
` 9 lakh
` 3 lakh
` 2.50 lakh
` 78.50 lakh
` 89.50 lakh
eposits
Total
` 75.50 lakh
expenses are ` 4.20 lakh in

present value.
Their financial goals:

1. Child's education: Amit, Anil
and Pankaj plan to set side ` 10
lakh in today's cost, for their
child's graduation after 15
years.
3. Protection: They also plan to

have a sufficient protection
plan in place to protect their
loved ones in case of any
unfortunate event.
2. Retirement: The trio plans to

retire at the age of 55; Annual
33
February 2015

Let's see how well placed they are with respect to their financial goals.
1. Child's education goal:
Particulars
Present value of
goal
Future value of
goal (15 years
later)
Existing
investments done
Future value of
investments
Goal achievement
Amit
` 10 lakh
` 41.77 lakh
FD: ` 5 lakh &

further ` 50,000
p.a.
` 34.43 lakh
Shortfall of `
7.34 lakh
Anil
` 10 lakh
Pankaj
` 10 lakh
` 41.77 lakh
` 41.77 lakh
FD: ` 3 lakh &

further ` 25,000
p.a.;
Life insurance
policy: ` 40,000
p.a.
and mutual
funds: ` 2 lakh
` 42.87 lakh
PPF: 9 lakh &

further ` 1 lakh
p.a.
Goal a chieved;
Surplus of `
1.10 lakh, which
can be used for
retirement
Goal achieved;
Surplus of `
19.45 lakh, which
can be used for
retirement
` 61.22 lakh
(For future value of goal, inflation is assumed at 10% p.a.; for future value of investments, the posttax return assumed is: 6% for FDs; 12% for mutual funds; 5% for gold ETF; 8.5% for PPF)
2. Retirement goal:
Particulars
Retirement
corpus required
Existing
investments done
Future value of
investments
Goal achievement
Amit
` 3.56 crore
EPF: ` 10 lakh;
` 1.76 crore
Shortfall of `
1.80 crore
Anil
` 3.56 crore
EPF: ` 10 lakh
ELSS: ` 20,000
p.a.;
Equity Mfs: `
24,000 p.a. and
PPF - surplus
from childs
education goal
` 2.12 crore
Shortfall of `
1.44 crore
Pankaj
Rs. 3.56 crore
EPF: ` 10 lakh
Mutual funds: `
6 lakh
Gold ETF: `
2.50 lakh
FD: ` 1.50 lakh
and PPF - surplus
from childs
education goal
` 3.58 crore
Goal achieved;
Surplus of `
2.26 lakh
Notes: 1) Retirement corpus is calculated after taking into account their yearly expenses of Rs. 4.20
lakh p.a. for 20 years post-retirement, whose future value would be Rs. 16.25 lakh p.a. at 55, again
inflating every year. Inflation is assumed at 7% p.a. and annuity rate at 6% p.a. 2) Future contributions
of all existing investments like EPF, MF, PPF & Gold ETF also considered for calculating future value
34
February 2015

Post-retirement needs fulfillment:
Amit
Anil
Pankaj
Retirement corpus built:

Only 50% of
requirement

Only 60% of
requirement

100% of requirement
Amit
Annual expenses of `
8 lakh (excluding EMI)
Anil
Annual e xpenses of `
7.50 lakh (excluding
EMI)
Pankaj
Annual expenses of `
6 lakh (excluding EMI)
Outstanding home loan

of ` 18 lakh

of ` 18 lakh

of ` 18 lakh
Child graduation ` 10
lakh
lakh
lakh
3. Protection goal:
Do they have sufficient protection plan?

Existing life cover
Existing medical
cover
Ideal life cover

and shortfall
Amit
Anil
Pankaj
` 25 lakh:
Employerprovided
` 25 lakh:
Employerprovided
` 25 lakh:
Employerprovided
` 8 lakh: Selftaken
` 1.75 croreSelf-taken
` 4 lakh:
Employerprovided
` 4 lakh:
Employerprovided
Ideal cover: `
2.20 crore;
Existing assets
(excluding house
& LI fund value):
` 15.50 lakh;
Existing cover:
` 8 lakh;
` 5 lakh: Self taken

Ideal cover: `
1.96 crore;
Existing assets
(excluding
house): ` 29.50
lakh;
Existing cover:
` 1.75 crore;
` 4 lakh:
Employerprovided
Ideal cover: 2.28

crore;
Existing assets
(excluding
house): ` 15.50
lakh
Existing cover:
Nil
Shortfall 2.13
crore
Shortfall: ` 1.97
crore
35
Shortfall - Nil
February 2015

Amit
Inadequate life cover of
` 2.13 crore;
No separate medical
cover available
In case of any eventuality

Anil
Inadequate life cover of
` 1.97 crore;
Pankaj
Sufficient life cover and
separate medical cover
available
No separate medical
cover available
Summary for Amit's, Anil's and Pankaj's goals vs. achievement status:
Amit
Both goals - childs
education and
retirement - have big
shortfall;
Anil
Can ac hieve childs
graduation goal, if
mutual funds
investments are diverted
to that; but will face a
Education loan has to be big shortfall in
taken / house needs to
retirement
be mortgaged to fund
education;
Has to make
compromises in lifestyle
Lifestyle has to be
today / post-retirement
compromised both
today and post
- Protection: Only ` 8
retirement
lakh of life cover
through ULIPs /
Protection aspect totally endowment
missing
Pankaj
Achieves both the goals
comfortably;
Protection: Has taken

sufficient life and
medical covers
Whom do you relate to and who would you want to be?
Summing up
too much stress on the absolute

or relative return but aligns your
investments to your goals and
ensures that you have sufficient
or even more funds for meeting
a particular goal.
If you adopt a goal-based

investing approach, like Pankaj,
you can effectively invest in
products that are best for
achieving your goals. Goal
based investing does not lay
36
February 2015
Tte--tte
'Longer duration strategies to benefit the most'
The rate cut by RBI was widely expected by the market with only the
timing in question. 2015 may see an extended rate cut cycle, which will
allow yields to fall across the curve, says R Sivakumar, Head - Fixed
Income, Axis Mutual Fund, in an interview with ICICIdirect Money
Manager. In a scenario like this, the longer duration strategies have the
highest potential for mar-to-market gains as compared to short-term funds
that run a lower duration, he adds. Excerpts:
further rate hikes from the
Reserve Bank of India (RBI).
However, our reading right
through the year was that
inflation momentum was
waning and would be reflected
in the headline numbers
shortly. The confidence on the
dis-inflationary trend was on
account of muted Minimum
Support Price (MSP) hikes,
weak growth and low pricing
power, and large output gap in
the economy. As these forces
played out in the second half of
the year and were supported
by the sharp fall in global
commodity prices, the market
started pricing rate cuts from
the RBI and the bond rally
started in earnest.
R Sivakumar,
Head - Fixed Income,
Axis Mutual Fund
Q: How do you sum up the calendar
year 2014 for debt market and what
is your assessment for the year
2015?
A: The bond markets had a
great run in the second half of
2014. Markets spent the first
half of the year worrying about
El Nino, monsoon and food
inflation and potential for
Q: What is your take on the

surprising rate cut by RBI ahead of
its monetary policy? How extensive
37
February 2015
Tte--tte
Q: Foreign institutional inflows into
Indian debt market have been
strong in 2014. Will this continue
and why?
would the future rate cuts be?

A: The rate cut was widely
expected by the market with
only the timing in question.
2015 may see an extended rate
cut cycle by the RBI which will
allow yields to fall across the
curve. The extent of rate cuts
will depend on the inflation
trajectory. RBI will look beyond
the current inflation prints to
the medium term outlook for
inflation. The factors that the
RBI will look apart from
inflation to determine policy
action are fiscal outlook and
global market developments especially potential rate hikes
by the US Fed.
A: India will continue to see

strong interest from foreign
investors due to the high yields
and attractive macro
prospects. However the extent
of flows will also depend on the
elbow room made available by
RBI on additional foreign debt
limits.
Q: Why the crude oil prices have
been falling lately? How do you
think it will affect globally and
domestically? How is India
prepared for any sharp rebound in
prices?
Q: How do you expect the entire

yield curve to move in 2015?
A: Oil prices are reacting to the

changed demand-supply
dynamics - specifically the
sharply higher supply from US
as also the weaker prospects
from global demand
(especially China). Indian
macro is currently on a sound
footing and we expect that the
economy should be able to
handle any shorter term
volatility in crude prices going
A: The yield curve will take its

cues from policy expectations
and incoming data. We expect
yields to fall across the curve
during the rate cut cycle but
the fall in yields may be front
loaded as the market is not
likely to wait for RBI action
once the data seems
supportive.
38
February 2015
Tte--tte
A: We expect the government
to maintain the path of fiscal
prudence that they laid out in
the previous budget. Some
action on subsidy reduction is
expected and some of the
savings from the same may be
used for higher capital
investments.
forward. Sustained higher

prices will however have an
impact on inflation
expectations.
Q: Rupee has been depreciating
against US dollar. What are the
factors driving down the rupee?
How do you see rupee-USD pair
moving ahead?
Q: What is your strategy for both

short-term and long-term bond
funds?
A: Rupee has weakened

against the US Dollar but
appreciated against most
other major currencies. This is
also a reflection of the global
strength of the US dollar on the
back of the strong US
economy. As far as the Rupee
is concerned, falling current
account deficit (CAD), higher
foreign exchange (FX)
reserves and stronger growth
prospects together mean that
the chances of any currency
dislocation is remote. We
therefore expect Rupee to be
broadly stable in the short
term.
A: Our core position across all

duration funds is to stay long
within the individual fund's
mandate. As highlighted
earlier, we expect an extended
policy cut cycle and
accordingly we expect longer
duration strategies to benefit
from mark-to-market gains as
yields fall.
Q: Which segment of the debt
market looks attractive with a
twelve-month horizon?
A: As explained earlier, the
entire curve is expected to
participate in the fall in yields.
In a scenario like this, the
longer duration strategies have
Q: What are your expectations from

the Union Budget 2015 w.r.t. to debt
market?
39
February 2015
Tte--tte
the highest potential for mar
to-market gains as compared
to short term funds that run a
lower duration. However,
depending on the risk appetite
of the investor and their
horizon, they can allocate to

any segment of the market,
since both short-term funds
and duration funds should
benefit from the scenario.
The views expressed in the interview are personal views of the authors and do
not necessarily represent the views of ICICI Securities.
Statutory Details: Axis Mutual Fund has been established as a Trust

under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd.
(liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee
Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the
AMC) Risk Factors: Axis Bank Limited is not liable or responsible for
any loss or shortfall resulting from the operation of the scheme.
This document represents the views of Axis Asset Management Co.
Ltd. and must not be taken as the basis for an investment decision.
This document does not constitute advice to buy/sell any scheme of
Axis Mutual Fund. Neither Axis Mutual Fund, Axis Mutual Fund
Trustee Limited nor Axis Asset Management Company Limited, its
Directors or associates shall be liable for any damages including lost
revenue or lost profits that may arise from the use of the information
contained herein. No representation or warranty is made as to the
accuracy, completeness or fairness of the information and opinions
contained herein. The AMC reserves the right to make modifications
and alterations to this statement as may be required from time to
time. Mutual Fund Investments are subject to market risks, read all
scheme related documents carefully.
40
February 2015
ASK OUR PLANNER
Taxation of a pension policy

Q: Your May 2014 edition says that
in case if one surrenders any
pension plan before maturity, then
the entire sum received is taxable.
Do you mean to say, sum received
less the premiums we have paid,
i.e. the profit will be taxable?
There is no indexation coming

into picture here, since the
entire surrender value, and not
the gain, is taxed.
Q: I read in one of your replies that
surrendering a pension plan before
maturity, the entire amount is
taxable. If I surrender unit-linked
pension plan (ULPP) after its
maturity date, and instead of taking
one-third amount and annuity for
balance amount, opt for entire
amount by surrendering after
maturity then whether the entire
amount is still taxable even if I have
received it after maturity?
If yes, I would also like to know if

there is indexation benefit on
taxable income like debt/personal
asset. Can you illustrate with
example?
- Pracheta Prabhu
A: The taxation of a pension
policy, in case of surrender,
works differently. The entire
surrender value, not only the
gain, is added to one's income
and is taxed as per the income
slab.
- Meenu Manchanda
A: Surrendering a policy
always refers to closing it
before its maturity and hence,
you cannot 'surrender' after
maturity.
Say for example, you have

paid ` 50,000 p.a. premium
towards a pension policy for
the last 8 years, whose original
tenure was 15 years, and you
surrender it now. Assuming,
you receive a surrender value
of ` 6 lakh, the entire ` 6 lakh
and not only the gain of ` 2 lakh
(reducing the total premium
outgo of ` 4 lakh (50,000 x 8
years)), will be added to your
income in that year and will be
taxed as per your income slab.
On maturity of a pension
policy, both unit-linked and
non-unit-linked, a maximum of
1/3rd of the maturity amount
can only be withdrawn as
lumpsum and this lumpsum is
exempt from tax. The balance
has to be necessarily
converted into annuity. The
annuity received will be added
to your income and will be
taxed as per your income slab.
41
February 2015
ASK OUR PLANNER

While you have an option to
convert 100% of the maturity
amount into annuity and not
withdrawn any amount in
lumpsum, the other way is not
possible.
loan, you could accumulate

every year and keep prepaying the accumulated
amount every year end, so that
the principal of your loan will
also keep coming down, which
will mean you will be paying
lesser amount towards
interest. However, in such a
scenario, the gains earned on
your investment will be shortterm capital gains and the tax
outgo will be on a higher side.
Q: I am looking for short term (3 to 5

years) investment, and utilize those
funds for closure of my home loan. I
can invest ` 3,000-4,000 per month.
Help me with a proper investment
plan.
- Vijay S
For recommendations on
specific MIPs, you may visit 'Do
your Research' section on our
website www.icicidirect.com.
A: The term 3 to 5 years in

medium term in nature, and
the purpose for your
investment is well-defined.
You may look to invest into
Monthly Income Plans (MIPs),
with growth option, which will
have a lower component of
equity investments.
Q: I have a joint demat account with

my mother as a first applicant and
myself as a second applicant.
Should I or my mother pay tax on
the short-term capital gains earned
from sale of shares?
The tenure of investment

being more than 3 years, the
taxation on returns generated
will be post indexation, which
means the tax outgo will be
effectively lesser. This is
because, in indexation, the
purchase price is indexed to
the inflation, which reduces the
profit and in turn, the tax
outgo.
- Prabhakar Sharma
A: Generally, the income
earned from any joint account
is included in the name of the
first account holder and is
taxable in his/her hands.
In case, if you have gifted the
money to your mother - the
first account holder and the
investment has been made out
of this amount, then also the
income from such investment
will be added to your mother's
Alternatively, instead of
accumulating for next 3 to 5
years and then closing the
42
February 2015
ASK OUR PLANNER

income only. There is no limit
on the amount you can gift to
your parents.
the same. When you sell your

real estate investment, you will
have to take into account the
huge outflow towards capital
gain tax. If you don't prefer
paying the tax, you will have to
keep the gains invested with a
lock-in period.
Short-term capital gains will

not attract 15% tax if your
mother's income does not
cross the basic exemption
limit, which is ` 2.50 lakh, as
per current tax laws.
However, there are certain

risks associated with real
estate investments too, like
financial investments. Also, the
returns from this asset class
are more cyclical in nature.
Since you have more than 20
years to retire and the
investment is for a longer
horizon, there is a good chance
of your investment generating
a positive return over this
period. But a word of caution
there is no guarantee on the
returns as the real estate
market is unorganized and the
price is largely determined by
demand-supply factors, rather
than fundamental factors.
Q: I am 38 years old and planning to

save for my retirement. I have two
flats, one of which is loan-free and
the other in on loan, for which, the
EMI will start from December 2015
for 20 years (I may be able to close
this loan prior to that).
I want to understand that, can I rely
on the flats I own as a retirement
fund, i.e. I will sell one of the flats
when I attain/nearby age of 60, and
use that amount as pension by
putting the amount under annuity
plan.
- Vikas Kumar Pal
A: There are quite a few
individuals who invest into real
estate to fund their postretirement needs. In most of
the cases, they look at
generating rental income from
the investments. Some of
them also look at selling the
investment at retirement and
investing the proceeds in
annuity / fixed deposits to
generate regular income from
Hence, instead of relying only

on the real estate investments,
it is better to diversify and look
at other avenues of
investments, specifically
equity as an asset class, with
the term being longer.
Do you also have similar queries to
ask our experts? Write to us at:
moneymanager@icicisecuritis.com.
43
February 2015
MUTUAL FUND ANALYSIS
Investing in debt funds in current scenario

The Reserve Bank of India (RBI) has recently cut the repo rate, which
indicates of easing interest rate cycle going ahead. In this scenario, where
should debt investors invest? Here we explain.
The rally so far
falling global crude oil and

other international commodity
prices along with a stable
rupee led to inflation easing at
a faster pace.
Triggered by the 25 basis

points (bps) repo rate cut
announced by the Reserve
Bank of India (RBI) (ahead of
the monetary policy review
scheduled in February 2014),
the benchmark yield corrected
sharply by 15 bps from 7.85%
on December 31, 2014 to
7.72% as at the end of January
2015. In FY15 itself, year to
date, yields have dropped 100
bps led by easing inflation.
Bond prices are inversely

related to yields. Hence, the
drop in yields led to an increase
in bond prices, which led to
capital gains in income/gilt
funds. Gilt funds and dynamic
bond funds gained the most as
interest rates moved south.
Fixed income outlook
Corporate bond yields

followed government security
(G-sec) bond yields. Yield on
five-year AAA-corporate bond
corrected from 9.6% at the
start of FY15 to 8.3% as at the
end of December 2014, a fall of
130 bps.
Going ahead, we expect G-Sec

yields to trade in the range of
7.5-7.75% in the medium term.
Banks that are major players in
the bond market are holding
statutory liquidity ratio (SLR)
securities more than
stipulated. Credit growth has
been sluggish at 10% and even
the third quarter results
commentary failed to provide
any cheer on the credit front.
Therefore, we believe, the
demand from banks for G-Secs
will continue to hold in the near
term. On the supply front, the
RBI's gauge of monetary

policy, consumer price index
(CPI) inflation, eased faster
than anticipated to 5% year on
year (YoY) by December 2014.
A seasonal decline in food
prices, lower minimum
support price (MSP) increase,
easing global food inflation,
44
February 2015

NDA government is
committed towards restricting
the fiscal deficit to 4.1% of
gross domestic product (GDP).
The Finance Minister has
indicated at cutting the plan
expenditure if need be and fast
tracking the disinvestment
process to achieve the fiscal
target. Media reports indicated
an average of 20% plan
allocation cut across central
ministries and departments to
save about Rs. 47,000 crore.
Further, lower crude oil prices
have meaningfully contributed
in reducing the subsidy
burden, which has supported
the ministry in achieving fiscal
balance. In the near term,
therefore, we do not anticipate
supply pressure getting
aggravated on account of an
increase in government
borrowings. However, the
Budget to be announced on
February 28, 2015 will be a key
trigger to watch for the longer
term supply trend for
government securities and can
cause near term volatility.
term outlook.
We do not expect inflation to
again accelerate at a faster
pace given the benign global
commodity outlook, effective
utilisation of food stocks to
control domestic food prices
and reforms implementation to
improve supply chain
management. Also, with the
thrust of the government on
monitoring prices of main
commodities to avoid price
shocks in future, gives us
comfort that inflation may not
accelerate sharply even for
perishable items (milk,
vegetables and fruits). The RBI
has already signified a change
in its monetary policy stance.
Easing inflation may provide
increased room for further rate
cuts.
The government has put in
place a fiscal consolidation
roadmap as per which the
fiscal deficit has to be brought
down to 3% of GDP by 201617. We believe, with growth
picking up and implementation
of tax reforms, government
revenues may start picking up,
providing some comfort that
the fiscal road map may be
adhered to. Hence, we do not
anticipate higher government
The revised macroeconomic

data, both GDP as well as
inflation statistics, will be
closely studied by market
participants to build a longer
45
February 2015

borrowings. Therefore, supply
side pressure on yields will
stay modest further
cushioning yields from hereon.
bond funds preferable as they

have the potential to earn
capital gains, though investors
should be ready to withstand
the interim volatility. Short
term funds with credit strategy
can also be an option for
moderate investors, as going
ahead, revival in growth may
reduce the credit risk
considerably while still
fetching pre-tax returns of ~99.5% annualised.
Where to invest in the current

scenario?
We believe interest rates will
further move south from the
current 7.75% levels on the Gsec and 8-9% levels on
corporate bonds in the next
1.5-3 years. This makes long
bond income funds or dynamic
Category
Remarks
Liquid Funds
Invest only for a short term 3-6 months. Returns

to be in line with Commercial Paper (CP)/
Certificate of Deposit (CD) rates
Ultra Short-term Funds
Invest only for a short term 3-6 months. Return

primarily tracks CD /CP rates
Short-term Funds
Suitable for conservative to moderate investor.

Return close to three-year corporate bond
yields
Credit Opportunities Funds (recommended category in Suitable for moderate to aggressive investor. Credit
current scenario)
risk is higher while interest rate risk is lower. Returns
to track 2-3 year AA-corporate bond yields
Income Funds (recommended category in current Suitable for moderate to Aggressive investor. Credit
scenario)
risk is lower while interest rate risk is higher. Best
funds in case of falling interest rate scenario
Gilt Funds
Very high interest rate risk and therefore

suitable for aggressive investor. Retail investor
can buy G-Secs only through investing in these
funds.
For specific funds recommendations in the above categories, please refer our 'Mutual Funds Top
Picks' section.
46
February 2015
MUTUAL FUND TOP PICKS

Mutual Fund Top Picks
Wth over thousand of mutual fund schemes available in the market,
selecting the right ones may become too complex. To make it easy
for you, we present our research teams top recommendations,
across equity and debt categories
Equity
Category
Top Picks
Largecaps
Axis Equity Fund

Birla Sunlife Frontline equity Fund
ICICI Pru Focussed Bluechip Equity Fund
UTI Opportunities Fund
Midcaps
HDFC Midcap Opportunities Fund

ICICI Prudential Value Discovery Fund
Franklin India Smaller Companies Fund
SBI Magnum Global Fund
Diversified
Franklin India Prima Plus

ICICI Prudential Dynamic Plan
Reliance Equity Opportunities
ELSS
Axis Long Term Equity

ICICI Prudential Tax Plan
Franklin India Tax shield
Sector - Banking
ICICI Prudential Banking

Reliance Banking
UTI Banking
47
February 2015
MUTUAL FUND TOP PICKS

Debt
Category
Top Picks
Liquid Funds
HDFC Cash Mgmnt Saving Plan

ICIC Pru Liquid Plan
Reliance Liquid Treasury Plan
Ultra Short Term
Birla Sunlife Savings Fund

Franklin India Ultra Short Term Bond
Fund
ICICI Pru Flexible Income Plan
Short Term
Birla Sunlife Short Term Fund

HDFC Short Term Opportunities Fund
ICICI Pru Short Term Plan
Credit Opportunities
Fund
Birla Sunlife Medium Term Plan

Franklin India Short term Plan
ICICI Prudential Regular Savings
Income Funds
ICICI Prudential Dynamic Bond Fund

Birla Sun Life Income Plus - Regular Plan
IDFC Dynamic Bond Fund
Gilts Funds
ICICI Pru Gilt Inv. PF Plan

Birla Sunlife Gilt Plus
MIP
(Aggressive)
Birla Sunlife Savings 5

ICICI Prudential MIP 25
DSP Blackrock MIP
48
February 2015
EQUITY MODEL PORTFOLIO

Our indicative large-cap equity model portfolio (Quality-21) has
continued to deliver an impressive return of 88.7% (inclusive of
dividends) till date (as on February 9, 2015) since its inception (June
21, 2011) vis--vis the benchmark index (S&P BSE Sensex) return of
61.8% during the same period, out-performance of ~27%. This
validates our thesis of selecting companies with sound business
fundamentals that forms the core theme of our portfolio. Our
Consistent-15 mid-cap portfolio also continues to outperform,
delivering 103.1% (inclusive of dividends) till date (as on February 9,
2015) vis--vis the benchmark index (CNX Midcap) return of 64.2%,
out-performance of ~39%. Our consistent out-performance
demonstrates our superior stock picking ability as markets in
H2CY15 aligned to our view of favourable risk-reward, good
franchisee vs. reward-at-any-risk businesses. Some key performers
of our portfolio are Lupin, Sun Pharmaceuticals, Axis Bank, TCS and
Info Edge delivering ~120-230% returns since inception.
We have always suggested the systematic investment plan (SIP)
mode of investment and still find a lot of merit in it as the preferred
mode of deployment given the market conditions and volatility
associated since the inception of the portfolio. It has outperformed
other portfolios, thus, reinforcing our belief in a plan of investment.
However, now we are also advising clients to look at lump sum
investments at any possible dips.
The last six months saw a paradigm shift in the global energy
industry as crude prices declined to a historic five-year low to $58
(down ~46% year-to-date or YTD). Intense competition among oilproducing nations for market share (OPEC (Organization of the
Petroleum Exporting Countries) vs. non-OPEC) and ramp-up in US
shale resources led to this slump in global commodity aided further
by languishing global growth prospects. While world economies
adjust to this new normal, India, which fulfils ~80% of its oil demand
through imports, could be a major beneficiary of this benign oil
scenario. Thus, domestic equities attracted strong foreign
institutional investor (FII) flows (YTD $16 billion, highest ever)
helped by a stable, reformist central government. Consequently,
sectors geared towards a pick-up in domestic economy like
consumer discretionary, banks, auto and cement outperformed the
benchmark index. On the other hand, defensives saw profit booking
49
February 2015

as YTD CNX IT and FMCG indices underperformed by ~13% each
on moderating valuations and changing investor preference.
Thus, we rebalance our portfolio, to capture the essence of a
broader economic revival, growing urbanisation and benefits of
crude declines. Accordingly, thus add stocks like Castrol India
(crude), CARE (economy), Voltas (consumerisation) and Heidelberg
Cement (value buying) while we feel Tata Steel, ONGC are well
placed to be added to large-cap portfolio.
Though we have a tilt towards higher beta that could generate
substantial returns given their respective market dominance, we
have not deviated from our core focus on holding good brands. We
exit DCB (74% returns), JK Cement (71%) to book profits since
potential upside appears limited, hereafter, and remove Tata Global
Beverages and Oberoi Realty as company-specific headwinds could
likely persist in the medium term.
Our conviction in domestic recovery is visible in terms of relative
weightage of sector vis--vis the index. We remain overweight on
the consumer discretionary (auto, consumer), financials (private
sector banks in particular), and the infra space (cement, infra and
power). This has been primarily triggered by hopes of a rate cut by
the Reserve Bank of India (RBI) on the back of moderating inflation
and possibility of decisive action in the infrastructure and real
economy space by the new government. We are also overweight on
telecom, media owing to reducing concerns & better earnings
growth.
We have turned underweight on oil & gas as we have chosen to
replace Reliance with ONGC, which has better risk-reward (muted
return of investment (RoI) from unrelated investments could impact
the former while the latter has lessening regulatory challenges). We
continue to remain underweight on pure play defensives (IT, FMCG)
as secular earnings coupled with sector rotation could de-rate
valuations and offer limited upside. We remain equal weight on
pharmaceuticals, metals (global generic opportunity, stock specific
play).
On individual names, we are strongly overweight on companies like
L&T and UltraTech in the infrastructure space while we prefer HDFC
& SBI in financials.
50
February 2015

Name of the company
Largecap
(%)
Largecap Stocks
Consumer Discretionary
United Spirits
Tata Motors DVR
Bajaj Auto
Titan
BFSI
HDFC
HDFC Bank
SBI
Axis Bank
Power, Infrastructure & Cement
L&T
UltraTech Cement
FMCG
ITC
Metals & Mining
Tata Steel
Oil and Gas
ONGC
Gail
Pharma
Lupin
Sun Pharma
IT
Infosys
TCS
Wipro
Telecom
Bharti Airtel
Media
Zee Entertainment
Largecap share in diversified
12
4
4
2
2
30
8
7
8
7
15
8
7
8
8
4
4
8
6
2
5
2
3
13
5
5
3
3
3
2
2
51
Model Portfolio
Midcap
(%)
Diversified
(%)
8.4
2.8
2.8
1.4
1.4
21
5.6
4.9
5.6
4.9
10.5
5.6
4.9
5.6
5.6
2.8
2.8
5.6
4.2
1.4
3.5
1.4
2.1
9.1
3.5
3.5
2.1
2.1
2.1
1.4
1.4
70
February 2015

Name of the company
Largecap
(%)
Midcap Stocks
Consumer Discretionary
Bosch
Cox & Kings Ltd
Arvind
Voltas
Castrol
IT
Info Edge
BFSI
CARE
IndusInd Bank
FMCG
Kansai Nerolac
Pharma
Natco Pharma
Media
PVR
Capital Goods
Cummins
Realty/Infrasturcture/Cement
Heidelberg Cement
Container Corporation of India
Shree Cement
Midcap share in diversified
Total of all three portfolios
Model Portfolio
Midcap
(%)
34
6
6
6
8
8
6
6
14
6
8
8
8
6
6
8
8
6
6
18
6
6
6
100
100
Diversified
(%)
10.2
1.8
1.8
1.8
2.4
2.4
1.8
1.8
4.2
1.8
2.4
2.4
2.4
1.8
1.8
2.4
2.4
1.8
1.8
5.4
1.8
1.8
1.8
30
100
Content source: ICICIdirect.com Research

ICICI Securities Ltd. has been assigned an advisory mandate by Ranbaxy Laboratories Limited with
regard to Sun Pharmaceutical Industries Limited's acquisition of Ranbaxy Laboratories Limited. This
report is prepared on the basis of publicly available information.
ICICI Securities Limited has received an advisory mandate from Natco Pharma. This report is prepared
based on publicly available information.
ICICI Securities has received an investment banking mandate from Government of India for
disinvestment in ONGC. This report is prepared based on publicly available information.
This report is based on publicly available information.
52
February 2015

Performance* so far Since inception
125
103.1
100
94.2
88.7
75
64.2
61.8
60.6
50
25
0
Portfolio
Benchmark
*Returns (in %) as on February 09, 2015

Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio
Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination
of BSE Sensex and CNX Midcap
Value of ` 1,00,000 invested via SIP at the end of every month
8,500,000
6,295,507
7,026,984
4,500,000
6,889,421
4,500,000
6,153,859
4,500,000
6,640,073
5,500,000
4,500,000
6,500,000
8,194,487
7,500,000
3,500,000
Investment
Value of Investment in Portfolio
Value if invested in Benchmark
Start date of SIP: June 30, 2011; *Value as on February 09, 2015
53
February 2015
QUIZ TIME
1. The government is looking to increase the lock-in period for Public

Provident Fund (PPF) from current ______ years to ______ years in this
Budget.
2. When you surrender a pension policy, there is indexation benefit
available on the gains generated. True / False
3. Investment into National Pension Scheme (NPS) is available for tax
deduction under section ______ of Income Tax Act.
4. In case of a pension policy, you have an option to convert 100% of the
maturity amount into an annuity. True / False
5. Expand CBLO.
Note: All the answers are in the stories that have appeared in this edition
of ICICIdirect Money Manager. You may send in your answers at:
moneymanager@icicisecurities.com
The answers will be published in our next edition. The names of the
earliest all correct entries will be published too. So jog your grey cells
and be quick to send in your entries.
Correct answers for the January 2015 quiz are:
1. The government is planning to revise the lock-in period for Rajiv
Gandhi Equity Savings Scheme (RGESS) from the existing 3 years to
______.
A: 1 year
2. It is mandatory to hold the tax-saving funds in a demat account to
claim tax benefits under Section 80C. True / False
A: False
3. The Reserve Bank of India (RBI) decided to cut the benchmark
interest rate by ______ per cent to ______ per cent.
A: by 0.25 per cent to 7.75 per cent
4. There is a 'minimum age' criteria to apply for a PAN card. True / False
A: False
5. Demat account cannot be opened in the name of a minor. True / False
A: False
Congratulations to the following winner for providing correct answers!
Srinivas Gangundi
54
February 2015
MONTHLY TRENDS
WPI INFLATION (FOOD)
9.0
8.0
8.00
7.0
(%)
6.0
5.20
5.0
4.0
3.0
2.0
1.0
0.0
Dec-14
Jan-15
(The figures are in %)
CRUDE OIL
60.0
53.27
$ per barrel
50.0
48.24
40.0
30.0
20.0
10.0
0.0
31-Dec
5-Jan
10-Jan
15-Jan
20-Jan
25-Jan
30-Jan
NYMEX crude oil prices ($/barrel)
FII & DII INVESTMENTS

6000
5325.16
5000
4000
3000
2000
1000
0
186.00
.
609.00
555.04
-1000
-2000
31-Dec
5-Jan
10-Jan
15-Jan
FII
20-Jan
25-Jan
30-Jan
DII
(Foreign institutional investors (FIIs) and domestic institutional

investors (DII) net equity investment ( ` in crore)
55
February 2015
MONTHLY TRENDS
VOLATILITY INDEX (VIX)

21.0
20.0
19.0
18.0
17.0
16.0
15.0
14.0
13.0
12.0
11.0
10.0
20.17
15.12
31-Dec
5-Jan
10-Jan
15-Jan
20-Jan
25-Jan
30-Jan
VIX
DOMESTIC INDICES
BSE Sensex
30000
29500
29182.95
29000
28500
28000
27500
27499.42
27000
6.12%
26500
26000
25500
25000
31-Dec
5-Jan
10-Jan
15-Jan
20-Jan
25-Jan
30-Jan
NSE Nifty
9200
9000
8808.90
8800
8600
8400
8282.70
6.35%
8200
8000
7800
7600
31-Dec
5-Jan
10-Jan
15-Jan
56
20-Jan
25-Jan
30-Jan
February 2015
MONTHLY TRENDS
GLOBAL INDICES
Dow Jones
18000
17700
17823.07
3.69%
17400
17100
17164.95
16800
16500
31-Dec
5-Jan
10-Jan
15-Jan
20-Jan
25-Jan
30-Jan
NASDAQ
4800
4,736.05
4700
4635.24
4600
2.13%
4500
4400
31-Dec
5-Jan
10-Jan
15-Jan
20-Jan
25-Jan
30-Jan
EXCHANGE RATES
USD-INR
64.0
63.5
USD / INR
63.0
62.5
63.03
62.0
62.01
1.62%
61.5
61.0
60.5
60.0
31-Dec
5-Jan
10-Jan
15-Jan
57
20-Jan
25-Jan
30-Jan
February 2015
MONTHLY TRENDS
POUND-INR
100.0
98.16
98.0
/ INR
96.0
94.0
93.42
92.0
4.82%
90.0
88.0
31-Dec
5-Jan
10-Jan
15-Jan
20-Jan
25-Jan
30-Jan
EURO-INR
79.0
77.0
/ INR
75.0
76.25
73.0
71.0
69.99
69.0
67.0
65.0
31-Dec
5-Jan
10-Jan
15-Jan
20-Jan
25-Jan
30-Jan
BULLION
GOLD
1325
$ per Ounce
1282.80
1250
1175
1183.55
1100
31-Dec
5-Jan
10-Jan
15-Jan
20-Jan
25-Jan
30-Jan
(The prices are in $ per ounce).
SILVER
$ per Ounce
19.0
17.22
17.0
15.66
15.0
31-Dec
5-Jan
10-Jan
15-Jan
20-Jan
25-Jan
30-Jan
(The prices are in $ per ounce).

(Source for all indicators: Bloomberg, Reuters)
58
February 2015
8.21%
Premium Education Programmes Schedule

ICICIdirect Centre for Financial Learning (ICFL) imparts quality education on
financial markets to beginners and amateurs, student, housewives, working
professionals and self employed. ICFL's broad objective is to make participant
feel confident to start investing in stock market.
Here is the list of our programmes scheduled for the month of February, 2015.
Schedule for Beginners' programme on Futures and Options (F&O) Trading
Sr.
No
City
For More Information & Registration call:
Dates
Nagpur
14 and 15 FEB, 2015
Kusmakar on 7875442311
Kolkata
21 and 22 FEB, 2015
Sumit Sarkar on 8017516187
Pune
21 and 22 FEB, 2015
Hyderabad
21 and 22 FEB, 2015
Ruchi on 8297362323
New Delhi
21 and 22 FEB, 2015
Vishal on 07838290143, Harneet on 09582158693
Bangalore
28 FEB and 01 MAR, 2015
Subrata on 9620001478
Schedule for Fast-Track Programme on Futures & Options (F&O)

Sr.
No
City
Dates
Rajkot
15 FEB, 2015
Yogesh on 8238053563
Patna
22 FEB, 2015
Bhopal
15 FEB, 2015
Schedule for Fast-Track Programme on Stock Investing

Sr.
No
City
Dates
10
Jodhpur
08 FEB, 2015
Vishal on 07838290143
11
Ranchi
08 FEB, 2015
12
Amritsar
15 FEB, 2015
Vishal on 07838290143
13
Aurangabad
22 FEB, 2015
Sr.
No
City
14
Pune
07 and 08 FEB, 2015
15
Thane
14 and 15 FEB, 2015

Vidhu on 9619716146
Schedule for Technical Analysis
Schedule for MarketMaster Programme
Sr.
No
City
16
Hyderabad
Dates
Dates
07 and 08 FEB, 2015
Ruchi on 8297362323
17
New Delhi
14 and 15 FEB, 2015
18
Bangalore
21 and 22 FEB, 2015
19
Hyderabad
21 and 22 FEB, 2015
Ruchi on 8297362323
20
Thane
21 and 22 FEB, 2015
Vidhu on 9619716146
59
February 2015
Schedule for Foundation Programme on Stock Investing

Sr.
No
City
21
Thane
Dates
07 and 08 FEB, 2015
Vidhu on 9619716146
22
Mumbai
07 and 08 FEB, 2015
Vidhu on 9619716146
23
Kolkata
07 and 08 FEB, 2015
24
Thane
14 and 15 FEB, 2015
Vidhu on 9619716146
25
Hyderabad
14 and 15 FEB, 2015
Ruchi on 8297362323
26
Mysore
14 and 15 FEB, 2015
27
Chennai
14 and 15 FEB, 2015
28
Bangalore
14 and 15 FEB, 2015
29
Pune
14 and 15 FEB, 2015
30
New Delhi
14 and 15 FEB, 2015
31
Bangalore
14 and 15 FEB, 2015
32
Mumbai
21 and 22 FEB, 2015
Vidhu on 9619716146
33
New Delhi
21 and 22 FEB, 2015
34
Hubli
21 and 22 FEB, 2015
35
Pune
28 FEB and 01 MAR, 2015
36
New Delhi
28 FEB and 01 MAR, 2015 Vishal on 07838290143, Harneet on 09582158693
Schedule for Advanced Derivatives Trading Strategies

Sr.
No
City
37
Pune
07 and 08 FEB, 2015
38
New Delhi
07 and 08 FEB, 2015
39
Hyderabad
07 and 08 FEB, 2015
Ruchi on 8297362323
Dates
Schedule for Foundation Technical Analysis Programme

Sr.
No
City
Dates
40
Dhanbad
08 FEB, 2015
41
Dehradun
15 FEB, 2015
Harneet on 09582158693
42
Ajmer
22 FEB, 2015
Vishal on 07838290143
Contact us
Email:
Send us an email at learning@icicisecurities.com
Please mention the name, date and venue of the programme you have
attended or wish to attend, for faster resolution of your queries.
SMS:
SMS EDU to 5676766 for more details
60
February 2015

Monthly Issue

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Monthly Issue

Caricato da

Copyright:

Formati disponibili

4

Human emotions and behaviors

For instance, the 'herding' behavior - the tendency to imitate

ICICIdirect Money Manager

A core expectation for most investors is growth and return.

Abhishake Mathur, CFA

Sameer Chavan, CWM, Pankaj Pandey

Azeem Ahmad, Nithyakumar VP CFPCM, Nitin Kunte, Sachin Jain,

ICICIdirect Money Manager

ICICIdirect Money Manager

Budget 2015: Government looking at SEBI proposal to introduce

Courtesy: The Economic Times

Mutual funds plan schemes to cash in on 'Make in India' campaign

Courtesy: The Hindu Business Line

No more confusion: Plain vanilla insurance products coming up

Courtesy: Business Standard

Courtesy: The Economic Times

EQUITY MARKET ROUND-UP

Markets likely to consolidate as Budget countdown begins

negative bias. For IT, the

The Q3FY15 numbers have

EQUITY MARKET ROUND-UP

ICICIdirect Money Manager

With softening inflation, the

EQUITY MARKET ROUND-UP

task to match the long list of

The Nifty and Sensex posted

ICICIdirect Money Manager

DEBT MARKET ROUND-UP

Change in monetary policy stance... Interest rates to head lower

prices and muted rural wage

Government Securities (G-Sec) Yield

Corporate Bond Yields

G sec - AAA 5-year

G sec - AAA 3-year

G sec - AAA 1-year

ICICIdirect Money Manager

DEBT MARKET ROUND-UP

at Rs. 1,69,139 crore while CBLO

Certificate of Deposit (CD) Rates

Commercial Paper (CP) Rates

Volume Data (Average for the month Rs. Crore)

calendar year 2015. Therefore, we

Domestic equity benchmarks

The index continues to stride

The current up-move from

ICICIdirect Money Manager

around the 28800/8600 region

BSE Sensex Monthly Candlestick Chart

The current rally from December 2014

Weekly RSI formed a Double Bottom at its bull market support of 55

Positive crossover on MACD oscillator abov e its 9 period

Source: Bloomberg, ICICIdirect.com Research

Nifty clocking strongest expiry

This sectoral buoyancy is likely

We believe the up-move could

ICICIdirect Money Manager

February series with the

Nifty target of 9300/9500; Key

The January series saw a

Our upside target on the Nifty

Looking at the February series

Nifty volume weighted

The Nifty has started the