MF-Equity Presentation Q2 2011

8/3/2019 MF-Equity Presentation Q2 2011

1/17

Equity Presentation - Q2 FY12

India in changing world dynamics

GDP Growth


2/17

Presentation Overview

1. A Retrospective

2. The India Advantage

3. Currency

4. Global Cues

5. What Can go Wrong?

6. Investment Strategy & Concerns

7. Recommended Funds

-4

-2

0

2

4

6

810

12

14

16

1

980

1

983

1

986

1

989

1

992

1

995

1

998

2

001

2

004

2

007

2

010

2

013

2

016

World GDP Growth Rates- IMF Estimates

China India Emerging and developing economies World Advanced economies


3/17


4/17

Indian Markets:

Indias GDP growth during Q1 FY12 slowed to 7.7% against 7.8% in the earlier quarter. The

moderation was within expected lines reflecting the affects of a fragile global economic scenario

and aggressive monetary policy actions taken by RBI. While construction sector observed the

slowest growth of 1.2% (8.2% last qtr), trade-hotels-transport & communication sector posted the

highest growth of 12.8% (9.3% in last qtr).

Indian markets seem not to be spared of the global turmoil as reflected by the performance of the

broader indices over the past quarter. Both Sensex & Nifty has shed 14.83% & 14.38% respectively

over the last quarter. All other sectoral indices also closed the month in red with Metals sheddingthe most @ 25.75%.

Comparatively, amongst major global indices- Hangseng (-21.11%), FTSE (-14.78%), Nikkei (-12.79%) &

Dow (-11.04%) also had suffered losses over the past quarter. This reflects the weakened investor

confidence globally.

Macro economic factors in India continue to present a mixed picture. Trade statistics and FDI flows

reflect robust y-o-y growth while industrial production and inflation figures are showing no signs ofimprovement. Over these, keeping fiscal deficit within target levels seems tough in light of the

unexpected shortfall in small savings so far in this fiscal (NSSF). Government borrowing plan for 2nd

half have been raised by INR 53000 cr to cover the same.

Against these odds, monsoon rainfall till now has been fairly widespread and above the long period

average. Accordingly the agriculture ministry is expecting a bumper food crop production this

season. Total food grain production in kharif season is expected to be ~123.88 mt (120.20 mt last yr)

as per the 1st advance estimate on crop production.


5/17

GDP Growth and Consumption Expenditure

2. The India Advantage - Investment Perspective

Indias GDP grew @ 7.7% during Q1FY12 against 7.8% in Q4FY11 and 8.8% in Q1FY10. The growth was within

expected lines as both Nifty & Sensex responded with a 5.33% jump post announcement of GDP numbers. The

series of rate hikes by RBI was likely to affect GDP numbers and was accordingly discounted by markets.However policy makers are still optimistic on achieving an 8-8.5% growth in this fiscal and over 9% during the

12th 5Yr plan (2012-17).

Over the past quarter, private consumption has increased while government expenditure has moderated. The

reduced pace in government expenditure is in line with GOIs target to keep fiscal deficit within 4.6% of GDP.

Policy reforms towards augmenting total tax revenue and reducing subsidy burden may aid in achieving the

fiscal targets.

Source: MOSPI; SPA Research

60.50%

0.104

0%

10%

20%

30%

40%

50%

60%70%

0

2000

4000

6000

8000

10000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

FY10 FY11 FY12

Government & Private Final Consumption Expenditure

PFCE (Actual -INR bn) GFCE (Actual -INR bn)

PFCE (% of GDP) GFCE (% of GDP)

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%16%

18%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

FY10 FY11 FY12

GDP Growth- Sector-wise

GDP Agri Ind Manuf Service


6/17

Manufacturing Growth & Foreign Trade

While manufacturing segment has shown some signsof moderation in growth rates over the past quarter,

the affect of rate hikes and a slowdown in western

economies is also being reflected in the services

segment. Services PMI contracted heavily to 53.8 in

Aug11 against 58.2 in Jul11.

Against these, exports continue to grow strongly

even on a higher base of last year. During Aug11exports grew by 45.5% and imports grew by 28.9%.

In light of the rising interest rates and a slowdown in

western economy the finance ministry is planning to

introduce interest rate subsidy for exporters by 1st

week of Nov11. The subsidy is expected to be ~2-

3%.

Source: MOSPI, HSBC, PIB,

100

150

200

-12%

-6%

0%

6%

12%18%

24%

FY07 FY08 FY09 FY10 FY11 FY12

Industrial Production

IIP IIP Growth

58.0

57.5

55.3

53.6

52.6

59.2

57.5

56.1

58.2

53.8

52

53

54

55

56

57

58

59

60

Apr-11 May-11 Jun-11 Jul-11 Aug-11

HSBC-PMI

Manufacturing Services

-252.32-398.67

-672.82-386.78 -492.22

-653.79-700-350

0

350

700

1050

1400

1750

2100

Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11

Foreign Trade (INR Bn)

Exports Imports Trade Deficit


7/17

Net investments by FIIs & DIIs over the past quarter stood at

INR -186.34 bn & INR 97.15 bn respectively.

The increased volatility and global uncertainty has caused FIIs

to decrease their exposure into emerging markets.

However, Indian fund managers are making the most out of

these corrections and are piling up their equity portfolio. MFs

invested INR 24.45 bn over the past quarter. Insurance companies which used to make up a major share of

the DIIs are now falling behind because of the absence of

robust revenue from ULIPs which was encountered last year.

Overall impact on the markets is negative because the domestic

institutions are not able to absorb the selling by FIIs fully.

*Life insurance premium during March are high because of year end tax saving

investments.

Source: SEBI, IRDA, NSE

Investment Snapshots

40

90

140

190

240

2901stYr Life Insurance Premia (INR bn)

FY11 FY10

-200

-100

0

100

200

300

Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11

Monthly Equity Flows- Institutional Investors (INR Bn)

DII FII

-4.64

4.3512.01

6.52

25.24

-7.31

-80-60

-40

-20

0

20

40

Apr May Jun Jul Aug Sep

MF Equity Investments (INR Bn) FY12 FY11


8/17Source: IMD, PIB

Seasonal rainfall scenario (1stJun- 21stSep 2011)

Regions Actual(mm)

Normal(mm)

% Departurefrom LPA

All India 875.0 843.1 4

Northwest 641.8 592.0 8

Central 1053.4 934.0 13

South Peninsula 704.6 661.9 6

East & Northeast 1158.1 1359.9 -15

Crops2010-11

(4th adv est.)

2011-12

(1st adv est.)

Rice 80.65 87.10

Maize 16.32 15.86

Coarse cereals 32.43 30.42

Cereals 113.08 117.52

Pulses 7.12 6.43

Total Food grains

(cereals + pulses)120.20 123.88

Total oil seeds 20.85 20.89

Sugarcane 339.17 342.20

Cotton (m.bales) 33.43 36.10

Major Kharif Crops Production Estimates

Southwest Monsoon 2011

Seasonal rainfall so far for this season has been104% of LPA i.e., 4 % above the Long Period

Average.

Out of total 36 meteorological

subdivisions, rainfall has been excess over

09, normal over 24 and deficient in 03 (over east

& northeast India) sub-divisions.

In area-wise distribution, 92% area of the

country received excess/normal rainfall. 476

(79%) out of 603 districts of the country have

received normal to excess rainfall.

On the back of a fairly widespread monsoon in

this season, the total food grain production is

expected to be ~123.88 mt in the kharif season.

The department has also reported increase in

acreage in several crops. As of 23rd Sep11, total

area for rice and oil seeds have increased by

33.54 & 5.58 lakh hectares respectively over the

last yr.

Ahead of the rabi season, the ministry has set

total rabi crop production target for this yr at 245mt.


9/17

The Indian rupee has depreciated heavily againstthe dollar over the past quarter from 45.00 to

49.93 currently i.e., 10.96%. Accordingly the 6

currency trade weight based real effective

exchange rate of rupee has also depreciated to

111.66 in Aug11 against 115.13 I Jun11, as per

the data released by RBI.

The depreciation in rupee is in line with otheremerging market currencies like Brazilian Real and

Russian Rouble which has also depreciated by

17.69% and 15.21% since Jun11 end.

The depreciation in rupee is more of a global

phenomenon currently than India specific lead by

the Euro debt crisis and geopolitical uncertainty.

India's forex reserves stood at INR 14995 bn

($316.76 bn) as of 16th Sep11. During Aug11

reserves have also touched $319.18 bn. Huge forex

reserves provides confidence to the markets

especially credit rating agencies and helps in

maintaining stable exchange rates by limiting

external vulnerability during times of crisis.

3. Currency

Currency and Foreign Exchange Reserves

14995.68

13750

14000

14250

14500

14750

15000

15250

Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11

Forex Reserves-INR Bn

43

45

47

49

51

53

Apr-09 Oct-09 Apr-10 Oct-10 Apr-11

INR-USD Exchange Rate

90

95

100

105

110115

120

Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11

6 currency trade weight based REER

(2009-10=100)

A fall in REER indicates depreciation of INR and vice versa

Source: RBI, SPA Research


10/17

Over the past month all major global indices suffered losses but Sensex. While hang seng shed the most @

10.85%, Sensex remained stable by gaining a marginal 0.13%. Dow Jones made a decent recovery of 1.3% over

the last trading session in light of an upward revision in US GDP growth numbers.

US GDP growth for Q2CY11 was revised upwards to 1.3% from 1.0% announced earlier and 0.4% in Q1CY11.

The acceleration in GDP growth primarily reflected positive contributions from personal consumptionexpenditure, exports and government spending.

Over the past 6 months, all four major global indices have suffered losses. A sharp fall was observed during the

1st week ofAug11, post announcement of the US debt restructuring plan. The US government debt ceiling was

raised from $14.3 tn to $16.4 tn and a cut in Federal spending of ~$ 2.1tn over the next decade has been

planned. Given the fragile economic conditions and persisting high unemployment rates, this cut in

government spending may affect the US recovery process negatively.

4. Global Cues

-10.85%

0.13%

-1.36%-3.51%

-19.52%-17.59%

-6.31%

1.62%

-25%

-20%

-15%

-10%

-5%

0%

5%

Hang Seng Sensex FTSE Dow

1 mth trailing 12 mth

Source: ICRA, SPA Research

Major Global Indices: Trailing 6 months trend and point to point returns

70

75

80

85

90

95

100105

110

Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11

Major world indices (rebased)- trailing 6 mth

Hang Seng Sensex FTSE 100 Dow


11/17

International Challenges

The global economy currently faces challenges from a slower than expected recovery in theadvanced countries and fiscal and financial uncertainty, which has been particularly pronounced

since August. Strong policy initiatives are urgently needed to counter these risks and improve the

outlook

Euro bailout: After remaining in plan for months, German policy makers have approved the

expansion plan of EFSF (European Financial Stability Facility) fund to Euro 440 bn from Euro 250

bn as a conducive effort to tackle the European financial crisis. However, this concerns as a

potential trigger towards rating downgrade, as mentioned by S&P earlier this month.

Domestic Challenges

Inflation has continued to be the biggest concern for GOI. While RBI has been continuing with its

anti inflationary stance, the negative affects of the same is being visible on other macroeconomic

factors. Any further rate hike may have a vital affect on corporate profitability and long term

growth rates. Fiscal Deficit- The finance ministry has targeted to maintain fiscal deficit within 4.6% of

GDP, which seems difficult to be achieved in absence of adequate disinvestment programs so far

in this fiscal. Over that the government has raised the borrowing target for 2nd half by INR 53000

cr to cover the unexpected short fall from small savings collection (NSSF- national small savings

fund).

5. What can go wrong ?


12/17

Interest rates across all emerging markets are rising but interest rates in India continue to remain

substantially higher than the neighboring countries. On the other hand, fed has maintained to keeptheir interest rates at lower levels.

Volatile capital flows- Inspite the interest rate differential, were viewing highly volatile capitalflows because of the tattered investor confidence globally. Investors are turning back to saferhorizons of US securities and withdrawing fund from emerging markets which led to the jump indollar index over the last month. Volatile capital flows are concern for India specifically in light ofthe widening current account deficit.

Indian markets are in consolidation phase now and may remain jittery in the short term, yet longterm potential of India continues to remain strong. Indias star positioning remains as it is, withgrowth rates receding across the globe, India seems the only viable long term option for growth.

We recommend investors to continue accumulating in a staggered manner through structuredproducts like SIP until some positive indication is there from the western world. We recommendholding 10-15% cash / liquid funds in the medium term due to global hiccups and invest ~5-7% on

every 5% dip since the long term picture remains firmly in favor of India attracting a major chunkof international flows on both routes i.e.. FII & FDI

6. Investment Strategy & Concerns


13/17

7. Recommended Funds

Large Cap Funds Mid & Small Cap Funds

Birla Sun Life Top 100 Fund HDFC Mid-Cap Opportunities Fund

DSP BlackRock Top 100 Equity Fund IDFC Premier Equity Fund

Franklin India Bluechip Religare Mid and Small Cap Fund

ICICI Prudential Focused Bluechip Equity Fund SBI Magnum Sector Funds Umbrella - Emerg Buss Fund

Reliance Quant Plus Fund UTI Mid Cap Fund

Flexi cap Funds Thematic Funds

Canara Robeco Equity Diversified Birla Sun Life India GenNext Fund

DSP BlackRock Equity Fund DSP BlackRock Natural Resources & New Energy Fund

HDFC Growth Fund Tata Service Industries Fund

ICICI Prudential Dynamic Plan UTI India Lifestyle Fund

Reliance Equity Opportunities Fund

Tax Saving Funds (ELSS)

Franklin India Taxshield Franklin India Taxshield

HDFC Taxsaver HDFC Taxsaver


14/17

Scheme Performance

As on Sep 30th, 2011

Simple Annualised % (Pointto Point) Compounded Annualised% (Point to Point)

Scheme Name Corpus (in Crs)1

Month3

Months6

Months1

Year3

Years5

Years

Large Cap Funds

Birla Sun Life Top 100 Fund323.3 30.72 -37.94 -17.11 -13.32 12.93 7.38

DSP BlackRock Top 100 Equity Fund2977.34 17.96 -34.21 -15.92 -13.72 13.33 --

Franklin India Bluechip3841.2 44.34 -28.84 -15 -12.17 15.59 11.3

ICICI Prudential Focused Bluechip Equity Fund2545.23 54.23 -31.35 -15.46 -9.55 20.32 --

Reliance Quant Plus Fund142.08 37.86 -48.68 -27.39 -17.48 11.53 --

Mid & Small Cap Funds

HDFC Mid-Cap Opportunities Fund1296.98 13.43 -21.92 6.97 -7.27 21.86 --

IDFC Premier Equity Fund2144.81 16.64 -0.14 6.78 -9.37 22.74 23.1

Religare Mid and Small Cap Fund14.05 -1.58 -15.24 9.33 -10.47 20.68 --

SBI Magnum Sector Funds Umbrella - Emerg BussFund

354.55 45.4 7.31 24.27 -0.51 22.58 10.89

UTI Mid Cap Fund 322.27 47.22 -14.14 -1.38 -13.55 17.13 8.82


15/17

Scheme Performance


Simple Annualised% (Point toPoint) Compounded Annualised% (Point to Point)


Month3

Months6

Months1

Year3

Years5

Years

Flexi cap Funds

Canara Robeco Equity Diversified427.06 22.32 -26.9 -8.22 -12.19 18.42 13.85

DSP BlackRock Equity Fund 2515.94 18.7 -30.24 -13.76 -15.51 15.51 --

HDFC Growth Fund1303.45 56.02 -33.97 -14.76 -15.37 12.85 13.04

ICICI Prudential Dynamic Plan3814.4 44.93 -38.37 -19.47 -10.92 15.06 --

Reliance Equity Opportunities Fund3031.93 43.81 -31.84 -6.46 -13.96 22.37 12.46

Thematic Funds

Birla Sun Life India GenNext Fund87.68 -2.35 -28.95 3.35 -10.34 15.53 11.18

DSP BlackRock Natural Resources & New EnergyFund

147.49 13.52 -5.77 1.18 -8.8 18.76 --

Tata Service Industries Fund100.69 13.23 -37.16 -15.46 -21.96 11.49 5.36

UTI India Lifestyle Fund519.48 18.53 -17.12 3.68 -7.98 15.49 --


16/17

Scheme Performance


Simple Annualized% (Pointto Point) Compounded Annualised% (Point to Point)


Month3

Months6

Months1

Year3

Years5 Years

Tax Saving Funds (ELSS)

Franklin India Taxshield 826.92 30.03 -19.58 -7.89 -7.24 18.08 11.25

HDFC Taxsaver 3113.95 -2.99 -41.25 -16.69 -16.07 17.42 9.81

Religare Tax Plan 107.99 0.7 -26.46 -4.39 -10.93 19.9 --

Fidelity Tax Advantage Fund 1240.18 19.65 -27.72 -15.17 -12.59 18.66 12.9

INDICES

S&P Nifty -13.7 -2.81 -15.1 5.6 6.42 15.43

BSE Sensex -9.1 -2.22 -14.97 5.83 6.78 15.87


17/17

Thank You

Disclaimer: The information contained in this report is obtained from reliable sources. In no circumstances should it be considered as an offer to

sell/buy or, a solicitation of any offer to, buy or sell the securities or commodities mentioned in this report. No representation is made that the

transactions undertaken based on the information contained in the report will be profitable, or that they will not result in losses. SPA and/or its

representatives will not be liable for the recipients investment decision based on this report.

Documents

MF-Equity Presentation Q2 2011