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Monthly market outlook-march_2015

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Monthly market outlook-march_2015

  1. 1. Market Outlook Presentation- March 2015 Global Update Indian Equity Market Update and Budget Features Indian Debt Market Update Outlook & Recommendations
  2. 2. Global Update – Feb 2015 • Russian market rebounded as a result of oil prices rebound and signs of ceasefire in Ukraine • European Markets hit 7- Year High as European Central Bank Quantitative Easing neared • US Fed maintained its dovish stand on interest rates while US president unveiled $4 trillion budget loaded with spending and tax reforms • People’s Bank of China announced fresh monetary measures to arrest flagging economic growth 0.34 0.61 1.29 1.87 2.24 2.92 3.11 5.49 6.36 6.61 7.54 9.97 21.6 0 5 10 15 20 25 Singapore India Hong Kong South Korea Malaysia UK China US Japan Germany France Brazil Russia % Index Movement – Feb 2015 Data Source: Bloomberg
  3. 3. Indian Equity Market Update • February remained a quiet month for Indian Markets as investors remained cautious ahead of the Union Budget • However, RBI joined the Growth momentum with another surprise 25bps repo rate cut. Positive for interest rate sensitive sectors like Banks, NBFCs and Autos • Which now means that both Fiscal and Monetary Policies are growth supportive • FIIs continued to have confidence in Indian markets investing Rs. 8893 Crores in Equity Markets last month • Indian Markets are currently trading at 20.7x FY15E earnings; at a premium to all other EMs* (except UK, Japan and Indonesia) *EMs = Emerging Markets, NBFC – Non Banking Finance Company, FIIs – Foreign Institutional Investor, MFs – Mutual funds, Data Source: Bloomberg, RBI – Reserve Bank of India
  4. 4. Indian Equity Market Update 0.67 0.61 -0.55 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 S&P BSE Mid Cap S&P BSE Sensex S&P BSE Small Cap % Market Cap Movement in Feb 2015 4.68 4.00 3.72 2.00 1.20 0.58 -0.02 -0.63 -0.64 -1.25 -2.51 -4.51 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 Sectoral Indices Movement in Feb 2015 • Mid Caps and Large Caps rose marginally as investors remained wary ahead of Economic Survey, Railway Budget and Union Budget • Oil & Gas sector was the top loser down 4.51% due to profit booking in oil & gas stocks CG – Capital Goods, HC – Healthcare, PSU – Public Sector Undertaking, CD – Consumer Durables
  5. 5. Highlights of Economic Survey - India In A Sweet Spot Fiscal Deficit • Expenditure control and expenditure switching will be key to revive investment cycle Growth • 2015/16 GDP* growth seen at over 8 % y-o-y • Double digit economic growth trajectory now a possibility Reforms • There is more scope for reforms now. India can increase public investments and still hit its borrowing targets Inflation • Inflation likely to be below central bank’s inflation target by 0.5 - 1 percentage point • Lower inflation opens up space for more monetary policy easing Current Account Deficit • Estimated at about 1.3 percent of GDP in 2014/15 and less than 1.0 percent of GDP in 2015/16 • Expenditure control and fiscal consolidation (although at a slower pace) measures remain high on Government’s agenda. This bodes well for the Indian Economy in the long term Y-o-Y – Year on Year, Data Source: Economic Survey, GDP – Gross Domestic Product
  6. 6. Highlights of Union Budget Qualitative Fiscal Consolidation Credible Revenue Target Infrastructure Push GST Implementation Deferment of GAAR for 2 years Gold Monetisation Curbing Black Money Make In India Business Friendly Tax Environment Merger of Caps of FPI and FDI Allocation of more resources to States GST – Goods and Services Tax, GAAR – General Anti Avoidance Rule, FDI – Foreign Direct Investment, FPI – Foreign Portfolio Investment
  7. 7. Government Expenditure – More Productive Spend Source: Spark Capital • The total capital expenditure (plan + non-plan) has been increased by 25.5% to Rs. 2.4tn in FY16 from Rs. 1.9tn in FY15 Thus, the incremental capital expenditure budgeted for FY16 is ~Rs. 491bn, which is more than the cumulative incremental capital expenditure for the past four years (Rs. 358bn)! This indicates the Govt.’s focus on the More Productive Capital Spend • More importantly, incremental budgeted revenue expenditure is Rs. 472bn which is the lowest in 11 years
  8. 8. Government Expenditure Source: Kotak Institutional Equities, RE – Revised Estimates, BE – Budget Estimates Capital expenditure growth at 25.5% in FY2016BE Break up of government expenditure, March fiscal year-ends, 2012-16 (Rs bn) 2012 2013 2014 2015BE 2015RE 2016BE Non-plan expenditure 8,920 9,967 11,061 12,199 12,132 13,122 Revenue 8,120 9,143 10,190 11,146 11,219 12,060 Capital 799 824 871 1,053 913 1,062 Plan expenditure 4,124 4,136 4,533 5,750 4,679 4,653 Revenue 3,337 3,292 3,527 4,535 3,669 3,300 Capital 786 844 1,006 1,215 1,011 1,353 Total expenditure 13,044 14,104 15,594 17,949 16,812 17,775 Growth (%) 8.9 8.1 10.6 15.1 (6.3) 5.7 Total revenue expenditure 11,458 12,435 13,718 15,681 14,888 15,360 Growth (%) 10.1 8.5 10.3 14.3 (5.1) 3.2 Total capital expenditure 1,586 1,669 1,877 2,268 1,924 2,414 Growth (%) 1.3 5.2 12.5 20.8 (15.2) 25.5
  9. 9. Government Expenditure – Start of Investment Cycle Source: Kotak Institutional Equities Government Capital Expenditure to Improve after falling for multiple years This may initiate the Investment Cycle 84 85 83 82 77 77 87 88 83 90 89 87 88 88 88 89 86 16 15 17 18 23 23 13 12 17 10 11 13 12 12 12 11 14 0 20 40 60 80 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015RE 2016BE % Year Total revenue expenditure Total capital expenditure
  10. 10. Fiscal Road Map Source: Spark Capital, GDP – Gross Domestic Product FY’15-16: 3.9% FY’16-17: 3.5% FY’17-18: 3% • Fiscal Consolidation to continue though with some delay • Government Firm on the path to achieve fiscal target of 3%of GDP • Additional fiscal Space will go to funding Infrastructure Investment • Disinvestment to include loss making units plus strategic sale
  11. 11. Strong Push For Infrastructure Infrastructure Capex of PSU‘s : 3.2 Lakh Cr Rise in Govt Spending:70,000 Cr Infrastructure Fund:Rs 20,000 Cr New Roads Planned:1 Lakh km by 2022 5 New 4000 MW UMPP* Focus on Railways/Ports *Ultra Mega Power Project, PSU – Public Sector Undertaking, Data Source: Budget.nic.in
  12. 12. Foreign Flows To Increase Further Measures To Attract Foreign Investors GAAR deferred by 2 years FII Permanent establishment rule Making REIT investment more attractive Tax pass-through for alternative Investment Funds Rationalization of MAT for foreign investors Merging of different types of foreign investment caps 13323 12741 31663 418 33778 30705 36046 22134 20972 16732 25476 12225 33688 24564 0 10000 20000 30000 40000 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 INR Crores Months Equity & Debt FII Flows REIT – Real Estate Investment Trust, MAT – Minimum Alternative Tax, Data Source: budget.nic.in
  13. 13. Foreign Flows In The Past • The last major economic recovery happened from 2003-08 • FII investment in equity and debt during this period was close to Rs 2000 Bn • Sensex surged from 3377 to 9647 giving an absolute return of 185% or CAGR of 19.1% Calendar Year Equity (In INR Cr.) Debt (In INR Cr.) Total 2003 30458.8 4694.5 35153.3 2004 38965.1 3083.5 42048.6 2005 47181.1 -5517.6 41663.5 2006 36539.7 4049.2 40588.9 2007 71486.5 9428 80914.5 2008 -52987 11771.6 -41215.4 Total 1,71,644.2 27,509.2 1,99,153.4
  14. 14. Thrust On Make In India Increasing investment in infrastructure and manufacturing Boost to Make in India Campaign Opportunity for job creation • Reduction in Customs duty on 22 items. This makes it cheaper for Indian companies to import parts to manufacture products • Proposal to reduce corporate tax from 30% to 25% over next 4 years • Cutback in taxes for technical services from 25% to 10%. This will facilitate cheaper technology transfer to small businesses • Tax breaks and incentives for several sectors
  15. 15. Our View On The Union Budget • The Union budget has come out with clear long term vision for recovery of Indian Economy • It is well balanced in terms of managing expenditures and revenues • While it gives impetus to long term growth it also lays a credible road map for fiscal consolidation • The budget aims to ramp up growth, increase allocation towards infra spending and a bundle of tax measures to put private domestic and foreign capital to work • The direction of the budget is right and the vision is clear
  16. 16. 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00 180.00 Jun-04 Oct-04 Feb-05 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Equity Valuation Index – Invest Systematically Book Profits/Stay Invested Invest Systematically Invest in Equities Aggressively invest in Equities Equity valuation index is calculated by assigning equal weights to PE, PB, G-Sec*PE and Market Cap to GDP, PE – Price to Earnings, PB – Price to Book Value Composite Index
  17. 17. Large Caps Trade At Discount 8.00 6.00 4.00 2.00 0.00 2.00 4.00 6.00 8.00 10.00 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Discount/Premium Large caps at discount Large Caps are attractive compared to Midcaps based on PE basis Data Source: Bloomberg
  18. 18. Sector Valuations PE PB Sector Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Prem/Disc (%) Retail 31.3 32.7 -4% 9.4 4.6 104% Consumer 35.3 25.6 38% 12.9 8.9 45% Healthcare 26.8 22 22% 5.7 4.2 36% Banks - Private 18.7 15.6 20% 3.2 2.4 33% Media 23.9 22.3 7% 5.3 4 33% NBFC 14.1 11.9 18% 2.8 2.3 22% Auto 14 12.7 10% 3.2 2.9 10% Technology 19.6 17 15% 5.1 5 2% Cement 23 14.8 55% 2.4 2.4 0% Banks - PSU 7.7 7.2 7% 1 1.1 -9% Capital Goods 33.6 22.3 51% 3.8 4.5 -16% Utilities 13.1 15.1 -13% 1.4 1.8 -22% Oil & Gas 10.9 11.5 -5% 1.3 1.7 -24% Real Estate 24.1 23.1 4% 1 1.4 -29% Telecom 24.7 23.3 6% 1.7 2.4 -29% Metals 11.1 10 11% 0.9 1.7 -47% Cyclicals remain at discount on PB Basis Source: Motilal Oswal, Prem/Disc – Premium/Discount
  19. 19. Indian Debt Market Update • Interbank call money rates fluctuated broadly in the range of 7-9% in February • Call Money Rates remained on the higher side as liquidity conditions were put under stress due to • Center’s divestment • Demand for funds to make payment towards indirect taxes • Gilt auction and state development bonds • Bond Markets were range bound last month however 10 year G-Sec yields dropped to 7.67% post RBI’s second 25bps repo rate cut • Fixed income markets could treat this budget as positive and we expect them to trade with a bullish bias
  20. 20. 10 Year G-Sec Yield – Continuing its fall 7.5 7.7 7.9 8.1 8.3 8.5 8.7 8.9 9.1 9.3 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 10 Year G-Sec Yields have been treading downwards way before the economy entered into an interest rate cut cycle due to decreasing inflation and inflation expectations RBI 25bps repo rate cut on Jan 15 and March 4 Data Source: Bloomberg
  21. 21. Yield Curve – Now And Then 8.4 8.6 8.8 9 9.2 9.4 Jan-14 8.3 8.5 8.7 8.9 9.1 Jun-14 8 8.1 8.2 8.3 8.4 8.5 8.6 8.7 Dec-14 8.66 8.71 8.76 8.81 Mar-15 Money Market Rates Bond Market Rates 9.55 9.6 9.65 9.7 1Y 2Y 3Y 5Y 7Y 10Y 15Y Jan-14 8.2 8.4 8.6 8.8 9 1Y 2Y 3Y 5Y 7Y 10Y 15Y 19Y 30Yr Jun-14 8 8.1 8.2 8.3 8.4 1Y 2Y 3Y 5Y 7Y 10Y 15Y 19Y 30Yr Dec-14 7.6 7.7 7.8 7.9 8 8.1 1Y 2Y 3Y 5Y 7Y 10Y 15Y 19Y 30Yr Mar-15 Yield curve is inverted; Ultra Short Term Funds are suitably placed The yields are represented in % terms. Data Source: Bloomberg
  22. 22. Future Course of Rate Cuts • Further rate cuts are dependent on two main considerations: 1. Inflation Trajectory 2. Qualitative Fiscal Consolidation • CPI Inflation has remained stable even post the new series • While the Union Budget has highlighted the government’s focus on fiscal prudence • Hence we believe that bond markets may continue to price in subsequent rate cuts and 10 year G-Sec yields may trade below the repo rate of 7.50% • Under such a scenario medium term duration funds are a suitable investment choice
  23. 23. Inflation – Stable CPI Rebounds Marginally Rural Wages witness sharp deceleration CPI Food Inflation increases in new series Lower Int’l food prices should result in lower food inflation Source: Edelweiss, CPI – Consumer Price Index
  24. 24. 24 Net Budgeted Borrowing has been more or less kept unchanged compared to FY-15 at Rs 4.6 Trillion. Government Borrowings - Largely Unchanged Financing of fiscal deficit (INR bn) FY16 (BE) FY15 (RE) FY14 FY13 Debt Receipts 5436 5283 5220 5412 Gross market borrowing 6000 5920 5637 5580 Net market borrowing 4564 4469 4536 4674 Short term borrowing 301 512 77 534 External assistance 112 97 73 72 Securities against small savings 224 333 124 82 State PF 100 100 98 109 Others 136 -228 59 -62 Drawdown in cash balance 120 -157 -191 -506 Data Source: budget.nic.in
  25. 25. Credit Market Update Raising Equity capital Will help companies raise resources at lower cost Balance Sheet Improvement Improvement in ratio of number of upgrades to number of downgrades Contraction of Credit Spreads Credit Spreads Are Most Likely To Narrow During Economic Expansion REITS & Infra Bonds Lower Interest Rates Increase in Aggregate Demand
  26. 26. Outlook  Equities are reasonably Valued  Offer a good medium to long term investment opportunity  Recommendation to invest with a 3-5 year view  More rate cuts to follow on disinflation momentum  Remains an attractive investment opportunity in short to medium period DebtEquity
  27. 27. Recommendations Equity Debt For Lumpsum Investments Invest systematically over the next 6 to 8 months in Aggressive investment ideas for next 3 years ICICI Prudential Dynamic Plan ICICI Prudential Value Discovery Fund ICICI Prudential Infrastructure Fund ICICI Prudential Balanced Fund ICICI Prudential Select Large Cap Fund ICICI Prudential Banking & Financial Services Fund ICICI Prudential Balanced Advantage Fund ICICI Prudential Focused Bluechip Equity Fund ICICI Prudential Midcap Fund Aggressive investors seeking to benefit from higher duration Investors with moderate risk appetite seeking to benefit from duration Conservative investors seeking to earn from Accrual + Duration ICICI Prudential Long Term Plan ICICI Prudential Dynamic Bond Fund ICICI Prudential Regular Savings Fund ICICI Prudential Income Plan ICICI Prudential Short Term Plan ICICI Prudential Corporate Bond Fund ICICI Prudential Long Term Gilt Fund ICICI Prudential Income Opportunities Fund ICICI Prudential Regular Income Fund (Regular income is not assured and is subject to availability of distributable surplus)
  28. 28. 28 Product Labelling
  29. 29. 29 Product Labelling Note - Risk may be represented as: (BLUE) investors understand that their principal will be at low risk (YELLOW) investors understand that their principal will be at medium risk (BROWN) investors understand that their principal will be at high risk
  30. 30. Disclaimer Mutual Fund investments are subject to market risks, read all scheme related documents carefully. All figures and other data given in this document are as on 5th March 2015 unless stated otherwise. The same may or may not be relevant at a future date. The AMC takes no responsibility of updating any data/information in this material from time to time. The information shall not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Prudential Asset Management Company Limited. Prospective investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the units of ICICI Prudential Mutual Fund. Data source: Bloomberg, except as mentioned specifically. Disclaimer: In the preparation of the material contained in this document, ICICI Prudential Asset Management Company Ltd. (the AMC) has used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from members/persons other than the AMC and/or its affiliates and which may have been made available to the AMC and/or to its affiliates. Information gathered and material used in this document is believed to be from reliable sources. The AMC however does not warrant the accuracy, reasonableness and / or completeness of any information. We have included statements / opinions / recommendations in this document, which contain words, or phrases such as “will”, “expect”, “should”, “believe” and similar expressions or variations of such expressions, that are “forward looking statements”. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. ICICI Prudential Asset Management Company Limited (including its affiliates), the Mutual Fund, The Trust and any of its officers, directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. Further, the information contained herein should not be construed as forecast or promise. The recipient alone shall be fully responsible/are liable for any decision taken on this material. Thank You

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