Ashika Monthly Insight August 2016

August, 2016
Market Overview
Monthly Insight Performance
Stock Picks:
Valuation at a Glance
Discretionary Spending
Sector Outlook-Information Technology
Economy Review
Economy Chart Book
Mutual Fund Overview
Technical View
Market Diary
Commodities Monthly Round up
World Economic Calendar
STRONG
ON
CONSUMPTION
Indian Oil Corporation Ltd. | LIC Housing Finance Ltd.
The Federal Bank Ltd | Unichem Laboratories Ltd.

AUGUST 2016
Inside this issue
01 Market
Overview
20 Discretionary
Spending
48 Mutual Fund
Overview
04 Monthly
Insight
Performance
26 Sector
Outlook
52 Technical
View
17 Valuation at a
09Stock Picks
Glance
• Indian Oil Corporation Ltd.
• LIC Housing Finance ltd.
• The Federal Bank Ltd.
• Unichem Laboratories Ltd.
31 38
Economy
Economy
Review
Chart
Book
58 Market Diary
59 Commodity
Monthly
Round up
62 World
Economic
Event Calender

STRONG ON CONSUMPTION
Strong influx of global funds since the month of March
has lifted Indian markets to record high levels. However,
as always the rally is at risk if the liquidity dries up or
the corporate earnings falter cold turkey. Foreign
institutional investors (FII) have poured in so far Rs
~41,300 crore since March till date. The markets have
been building positive consensus over GST while the
corporate results so far includes more hits than misses.
Of 40 odd BSE 100 companies that have declared results
so far, more than 50% of them bettered market
expectations. Similarly, majority of the Nifty companies
that have released their earnings have also bettered
street expectations. Although, there could be a silver
lining since meaningful margin expansion despite offer
robust volume growth, one time other income, could be
savior in most cases. However, strong surge in volume
and revenue growth is still to be witnessed meaningfully
for instance in cement sector whose price increase has
led to meaningful bottomline expansion despite of
healthy volume growth. As for the IT sector, automation,
lower margins and transformation of the business model
towards more value added work like cloud computing,
big data analytics, IOT etc. impending on the growth.
Nevertheless, most market experts expect meaningful
recovery in the second half of the year. As far as the GST
is concerned, the ruling government seemed to have
strategically given more importance to the regional
parties than the main opposition – Congress. Besides, the
BJP has also given the Congress importance being the
original proponents of the GST. The central government is
keen that a consensus emerges on the bill and that it
gets tabled and passed in the ongoing monsoon session
of Parliament, which is scheduled to end on 12 August.
Senior ministers of the ruling NDA met key opposition
leaders—including those from the Congress, the Left
parties and prominent regional parties—over the passage
of the constitutional amendment bill that will start the
roll-out of the GST. On 27th July 2016, the Union cabinet
accepted some of the recommendations given by a Rajya
Sabha select committee, including doing away with the
contentious 1% additional levy on supply of goods, one
of the Congress party’s three demands, and proposing full
compensation to states for five years for any revenue loss
arising from the transition to GST. However, the
government did not concede to two of the Congress’s key
demands to cap the GST rate at 18% and to include a
provision for a dispute resolution panel in the bill. Both
these demands are strongly opposed by the state
governments as well. However, finance minister Arun
Jaitley has maintained that making these changes is
neither feasible nor practical. The good news is that most
parties other than the Congress and the Left have already
assured the government of their support for the GST bill.
The passage of the crucial bill however still remains at the
mercy of the Congress which has 60 MPs in the Rajya
Sabha.
The other factor is monsoon which has already been
discounted by the markets but the actual outcome as and
how it spreads will provide fillip to consumption
particularly rural consumption which has remained muted
for the last two years. No wonder, the consumption based
stocks have already rallied in anticipation. India
Meteorological Department (IMD) on 28th July 2016 said
rainfall was 4% below the long-period average (the
average of rainfall over the past 50 years) for the country
as a whole. Only the southern peninsula, east and northeast
India recorded above-normal rainfall. Regions in
1

AUGUST 2016
MARKET OVERVIEW
Assam and Meghalaya saw extremely heavy rainfall at the
beginning of the week. According to media articles, in
the initial part of August, central, north-west and
peninsular regions will receive normal to above-normal
rainfall. The east will receive below-normal rainfall, IMD
said. So far, 80% of the country’s area has received
normal to excess rainfall and 20% has received deficient
rains. Saurashtra and Gujarat are facing the highest
rainfall deficit in the country of 57% and 43% from the
long-period average, respectively. The coming week is
expected to hold good news. The other major boost
towards consumption is from Pay commission recently
implemented by government. The share of discretionary
spending over necessities has been increasing since
1995. Basic spends on needs such as food and clothing
is not increasing in the same proportion keeping parity
with increase in income and prosperity. However,
discretionary spending has been showing exceptional
growth. Discretionary spending share in total household
consumption during 1995 stood at 39% which grew to
52% in 2005. Over the time it is expected that value
would migrate from basic spends categories to
discretionary spend categories and discretionary
spending share would move to 70% of total household
consumption by 2025. In this context, a best fitted
example is need for personal transport where two
wheelers now become the basic spend, whereas cars are
the discretionary spend. Rise in discretionary spending
should be backed by steady increase in per capita
income. India’s per capita income grew at modest pace
of 2.8% CAGR between FY10-FY14 and as per report of
Euromonitor it is expected to grow at a CAGR of 8.6%
during the period between 2015-2016. The report also
stated that the Indian median income per household is
set to increase by 89.8% in real terms to reach USD
10,073 (in constant 2014 prices) by 2030. Such growth
in income would transfer the consumer spending of
Indian middle class from “bottom of the pyramid” market
towards a greater and more sophisticated level. The rise
in discretionary spending would be primarily driven by
middle class people. A report from Credit Suisse “Global
Wealth Report 2015” stated that there are 664 million
adults belonging to the global middle class in 2015, or
14% of the adult population, where India has 23.6 million
adults who qualified as middle class in 2015, thus
representing about 3% of the global middle class. India
added 6.7 million adults to the middle class over these
15 years, and middle-class wealth rose by USD 1.2 trillion
and it accounts about 22.6% of the country’s wealth. The
wealth of middle class had grown exponentially between
2000 to 2007, which went up from USD 2,040 to USD
5,100. Hit by global economic crisis the wealth per
middle class adult plunged by 26% after which it settled
at USD 5,300 in 2010. It continued to fall due to adverse
exchange rates and was estimated at USD 4,352 in 2015.
Government has given big bonanza to central government
employees by approving 7th pay commission which
according to India Ratings & Research will boost
consumption in the economy by Rs 45,110 crore (0.3% of
GDP) and increase savings by Rs 30,710 crore (0.2% of
GDP). Incremental disposable income would lead to rise in
discretionary spending which in turn would drive the
demand for passenger vehicles, housing, consumer
durable products, apparels, etc. Good monsoon during this
fiscal is also raising hopes of improvement in farm income
which remained depressed in last two years on account of
scanty rainfall. A report of Goldman Sachs stated that if
the rural economy grows by one percentage point, it
could potentially boost overall gross domestic product
(GDP) growth by up to 70 basis points over two quarters.
Further, government has shown their strong commitment
in spurring the rural income by increasing budgetary
allocation towards agricultural & rural development during
FY17 budget. Government has increased budgetary
allocation to the ministry of Agriculture and Farmers
welfare by ~94% YoY to ~Rs 445 billion and ~25% YoY
increase in total Plan rural spending at Rs 878 billion
during FY17. Such massive budgetary allocation towards
2

STRONG ON CONSUMPTION
rural development would augment farm productivity and
rural income which in turn promote more discretionary
spending.
Globally, the bank of Japan announced an extra dose of
monetary stimulus and said it would buy ¥6 trillion
worth of exchange-traded funds annually, up from ¥3.3
trillion previously, in an attempt to stoke inflation and
growth by pumping money into the economy. It said it
would leave its asset-purchase target at ¥80 trillion a
year. Besides, the BOJ also left a key interest rate on
bank reserves unchanged at minus 0.1%. However, US
Fed at its recent policy meet has raised expectations of a
rate hike in 2016 sometime in September. The US central
bank cited significant improvement and policy makers
think the U.S. has at long last reached the promised land
of full employment. However, a recovery in the US
employment and as well as economy is positively
accepted by the investors across emerging markets since
it lifts emerging economies particularly in the long run. As
for India is concerned, the reduction in inflation over the
past two years together with exit of hawkish RBI governor
raises hopes of further rate cuts in the offing. However,
only reducing inflation and therefore interest rates in the
economy would hardly raise capacities and fuel back
demand in the key sectors and that is what the
government needs to remind itself.
3

AUGUST 2016
MARKET OVERVIEW
150,000
100,000
FII Investments (Rs. Cr.)
100,000
80,000
60,000
DII Investments (Rs. Cr.)
50,000
40,000
20,000
0
0
-20,000
-50,000
-40,000
-100,000
-60,000
-80,000
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
2012-13
2014-15
2016-17**
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17**
Paras Bothra
Vice President - Equity Research
Email - paras@ashikagroup.com
Phone : 022 6611 1704
4

STRONG ON CONSUMPTION
Over the years, Ashika Research based on its rigorous and
continuous analysis on fundamental basis, has
recommended stocks and consistently achieved the target
price recommended. Since January 2012 we have
recommended 202 stocks out of which 159 has achieved
target. Hit Ratio stands at 79%. Out of these 88 stocks
have given a return of more than 100%. During this
period the Nifty has given a return of 66% and a return
of 75% from its peak.
T h e s t o c k s re co m m e n d e d by u s s u c h a s Ce ra
Sanitaryware, Symphony, Shree Cement, Srikalahasti Pipes,
Aurobindo Pharma, MRF, Britannia, Can Fin Homes, Pidilite
Ind., HPCL, Deccan Cements, Torrent Pharma, Wim Plast,
Himatsingka Seide, Bajaj Finserv, Axiscades Engg, Lupin,
Maruti Suzuki, Glenmark Pharma, Kaveri Seeds, Havels
India, Indusind Bank, Berger Paints, UPL, Gujarat Gas,
Escorts, Relaxo Footwears, Zensar Tech, Hexaware Ltd.,
Dabur India, PI Industries, Finolex Ind., Sharda Motor, VA
Tech Wabag, Godrej Consumer, Emami, Zydus Wellness,
Bharti InfraTel, BPCL, Cummins India, Adani Ports, L&T, V-
Guard Ind., Prism Cement, Dr. Reddy Lab, Divis Lab, Ashok
Leyland, Zee Entertainment, City Union Bank, Tatamotor -
DVR, Gulshan Polyols, IFB Industries, Motherson Sumi, LIC
Housing Fin, Castrol India, Rallis India, Info Edge (India), AIA
Engineering, SKS Microfinance, Indian Bank, Uflex, Axis
Bank, FDC Ltd., Multibase India, Tata Motors, Ultratech
Cement, Tech M, IPCA Lab, Magma Fincorp, Petronet LNG,
M & M, TCS Ltd and Hero MotoCorp have generated
exceptional returns (more than 100% returns) for our
investors. A few of them have generated returns in excess
200% for our investors.
We have selected stocks across large cap and mid cap
companies and across variety of sectors. For the period
analyzed, the stocks recommended by us have
outperformed their respective sectoral indices.
Success Rate
Return Classification
17%
24%
4%
49
Stocks
84
Stocks
79%
15%
31
Stocks
42%
19%
38
Stocks
Target Achieved Exit/Booked Calls Open
Total Call: 202
More than 100% Return
50-25% Return
100-50% Return
Less than 25% Return
5

AUGUST 2016
MONTHLY INSIGHT PERFORMANCE
Recommended Stocks
28/07/2016)
Jul-16 Godrej Properties Construction 365 415 13.7% 384.3 5.3% 364.6
Capital First Banking & Finance 557 650 16.7% 797.4 43.2% 747.4 Target Achieved
Aarti Industries Chemical 520 620 19.2% 569.0 9.4% 557.3
Steel Strips Wheels Auto 456 578 26.8% 552.0 21.1% 514.4
Jun-16 Dabur India FMCG 290 335 15.5% 320.0 10.3% 307.6
Godrej Consumer Prod FMCG 1481 1750 18.2% 1678.5 13.3% 1635.3
Glenmark Pharma Pharma 851 985 15.7% 872.0 2.5% 851.5
Tata Power Co Power 73 85 16.4% 77.4 6.0% 70.7
May-16 Mahindra & Mahindra Auto 1330 1550 16.5% 1485.2 11.7% 1452.5
PI Industries Paints & Chemical 635 760 19.7% 787.0 23.9% 752.7 Target Achieved
DCM Shriram Paints & Chemical 157 195 24.2% 239.0 52.2% 228.0 Target Achieved
Apr-16 ACC Cement 1370 1580 15.3% 1718.0 25.4% 1685.1 Target Achieved
Whirlpool India Home Appl. 680 810 19.1% 888.8 30.7% 844.8 Target Achieved
VA Tech Wabag Water Treatment 518 690 33.2% 645.0 24.5% 581.6
Mar-16 NTPC Power 126 148 17.5% 160.4 27.3% 158.6 Target Achieved
Marico FMCG 236 280 18.6% 289.4 22.6% 283.3 Target Achieved
Feb-16 HDFC Banking & Finance 1180 1400 18.6% 1410.0 19.5% 1402.2 Target Achieved
HCL Tech IT 866 1020 17.8% 877.0 1.3% 750.8
Hero MotoCorp Auto 2562 2820 10.1% 3307.0 29.1% 3197.3 Target Achieved
Jan-16 Pidilite Ind. Paints & Chemical 551 656 19.1% 758.0 37.6% 751.6 Target Achieved
Indraprastha Gas Oil & Gas 525 624 18.9% 649.7 23.8% 636.3 Target Achieved
SH Kelkar Personal Prod. 250 310 24.0% 275.8 10.3% 253.2
Texmaco Rail Engg. & Const. 151 183 21.2% 154.9 2.5% 105.9
Dec-15 Wabco India Auto 6280 7200 14.6% 6450.0 2.7% 6088.2
Sanofi India Pharma 4300 5060 17.7% 4768.0 10.9% 4587.6
Garware Wall Ropes Textiles 388 488 25.8% 460.0 18.6% 451.0
Nov-15 Inox Wind Power 397 500 25.9% 411.4 3.6% 223.6
Sterlite Tech Electrical Equip. 72 107 50.1% 108.6 51.8% 89.0 Target Achieved
GP Petroleums Oil & Gas 67 156 132.8% 90.2 34.6% 58.9
HCC Construction 26 43 65.4% 28.3 8.8% 23.5
Oct-15 Castrol India Oil & Gas 433 510 17.8% 474.4 9.5% 436.0
Zee Ent. Media 390 464 19.0% 494.0 26.7% 484.9 Target Achieved
Syngene Int Pharma 321 385 19.9% 458.6 42.9% 416.9 Target Achieved
Sep-15 Berger India Paints & Chemical 208 247 18.8% 301.9 45.1% 243.3 Target Achieved
Ceat Tyre 1080 1245 15.3% 1319.9 22.2% 881.8 Target Achieved
Aug-15 Cummins India Electrical Equip. 962 1130 17.5% 1247.7 29.7% 885.6 Target Achieved
Greenply Ind. Plywood 187 225 20.1% 297.5 59.1% 258.9 Target Achieved
TIME Technoplast Plastic Prod. 66 81 22.7% 69.9 5.9% 60.3
SQS India BFSI IT 680 863 26.9% 1291.0 89.9% 946.0 Target Achieved
Jul-15 Asian Paints Paints & Chemical 760 883 16.2% 1153.8 51.8% 1128.0 Target Achieved
Idea Cellular Telecom 179 209 16.8% 186.5 4.2% 105.1
Gruh Finance Banking & Finance 261 322 23.4% 306.4 17.4% 295.5
Jun-15 Maruti Suzuki Auto 3774 4367 15.7% 4790.0 26.9% 4763.5 Target Achieved
Whirlpool India Home Appl. 760 879 15.7% 888.8 16.9% 844.8 Target Achieved
May-15 Sun pharma Pharma 925 1220 31.9% 1010.0 9.2% 825.5
Tata Motors Auto 515 615 19.4% 533.8 3.7% 506.9
Ultratech Cement 2680 3300 23.1% 3714.9 38.6% 3678.8 Target Achieved
Tata Global FMCG 141 174 23.4% 150.5 6.7% 140.2
Apr-15 Abbott India Pharma 4020 4680 16.4% 6177.7 53.7% 4626.9 Target Achieved
Strides Arcolab Pharma 1153 1340 16.2% 1414.0 22.6% 1137.8 Target Achieved
Elantas Beck India Chemical 1130 1320 16.8% 1605.0 42.0% 1701.1 Target Achieved
Mar-15 MCX Finance 1177 1552 31.9% 1289.9 9.6% 1070.0
BEML Electrical Equip. 978 1200 22.7% 1612.0 64.8% 1004.1 Target Achieved
Rolta IT 191 250 30.9% 196.8 3.0% 66.5 Exit
6

STRONG ON CONSUMPTION
28/07/2016)
Feb-15 SML Isuzu Auto 979 1222 24.8% 1671.0 70.7% 1255.4 Target Achieved
HBL Power Battery 34.9 55 57.6% 64.5 84.8% 36.6 Target Achieved
Mangalam Cement Cement 321 432 34.6% 324.5 1.1% 298.2 Exit
Amrutanjan Health Pharma 449 650 44.8% 564.9 25.8% 469.2
Jan-15 Torrent Pharm Pharma 1096 1338 22.1% 1718.4 56.8% 1437.0 Target Achieved
Emami FMCG 783 924 18.0% 1365.0 74.3% 1126.4 Target Achieved
Dewan Housing Finance 199 240 20.9% 284.6 43.4% 223.8 Target Achieved
KPIT Tech IT 200 263 31.5% 232.4 16.2% 138.0 Exit
Dec-14 Bajaj Corp Personal Prod. 327 385 17.7% 522.0 59.6% 396.5 Target Achieved
Alstom India Electrical Equip. 586 725 23.7% 877.0 49.7% 626.8 Target Achieved
Transport Corp Transportation 284 354 24.6% 380.0 33.8% 373.4 Target Achieved
Multibase India Rubber Prod. 164 300 82.9% 342.5 108.8% 276.0 Target Achieved
Albert David Pharma 256 363 41.8% 404.3 57.9% 312.8 Target Achieved
Nov-14 ONGC Oil & Gas 395 516 30.6% 412.5 4.4% 221.4
Cadila Helthcare Pharma 277 320 15.6% 453.3 63.8% 361.8 Target Achieved
Karur Vysys Banks 541 700 29.4% 619.0 14.4% 482.1
JK Lakshmi Cement Cement 348 396 13.8% 429.9 23.5% 423.9 Target Achieved
Diwali Ashok Leyland Auto 44 65 46.2% 112.9 154.0% 94.1 Target Achieved
Pick Karur Vysys Banks 540 700 29.6% 619.0 14.6% 482.1
SKS Microfinance Finance 317 412 30.0% 710.0 124.0% #N/A Target Achieved
NOCIL Chemical 43 60 38.4% 64.5 48.8% 57.1 Target Achieved
Oct-14 Kesoram Industries Diversified 117 176 50.4% 152.9 30.6% 145.8 Exit
Akzo Nobel Paints & Chemical 1240 1460 17.7% 1639.0 32.2% 1616.1 Target Achieved
IFB Industries Household Appl. 295 380 28.8% 700.0 137.3% 377.2 Target Achieved
Munjal Auto Auto Parts 102 155 52.0% 134.0 31.4% 83.6
Sep-14 Tata Motors Auto 527 598 13.5% 612.4 16.2% 506.9 Target Achieved
Timken India Industrial Prod. 447 545 21.9% 669.0 49.7% 594.9 Target Achieved
KEC International Electrical Equip. 102 130 27.5% 164.8 61.6% 143.6 Target Achieved
Indoco Remedies Pharma 256 327 27.7% 412.2 61.0% 322.6 Target Achieved
Ingersoll-Rand Industrial Prod. 649 785 21.0% 1124.4 73.3% 775.3 Target Achieved
Aug-14 Bodal Chemicals Chemical 60 94 56.7% 111.8 86.3% 109.8 Exit
Som Distilleries Breweries & Dist. 211 269 27.5% 246.0 16.6% 160.9
Sharda Motor Auto Parts 391 536 37.1% 1190.0 204.3% 1010.0 Target Achieved
Axiscades Engg IT 106 138 30.2% 396.2 273.8% 234.6 Target Achieved
Visaka Industries Cement Prod. 119 173 45.4% 188.8 58.7% 164.6 Target Achieved
Deccan Cements Cement 270 408 51.1% 1108.5 310.5% 975.4 Target Achieved
Gulshan Polyols Chemical 177 274 54.8% 430.0 142.9% 363.2 Target Achieved
Jul-14 Mahindra Lifespace Real Estate 560 710 26.8% 664.4 18.6% 457.6
V-Guard Ind. Industrial Prod. 593 746 25.8% 1639.0 176.4% 1615.0 Target Achieved
Astra Microwaves Defence 142 186 31.0% 166.4 17.2% 129.3
Himatsingka Seide Textile 74 95 28.4% 297.0 301.4% 268.8 Target Achieved
Mangalam Cement Cement 221 285 29.0% 351.0 58.8% 298.2 Target Achieved
Jun-14 Coal India Coal 392 500 27.6% 447.1 14.1% 330.0 Target Achieved
Container Corporation Logistics 1180 1500 27.1% 1947.7 65.1% 1470.0 Target Achieved
Balmer Lawrie Logistics 473 700 48.0% 682.0 44.2% 628.6
Can Fin Homes Housing Finance 305 450 47.5% 1324.8 334.4% 1323.1 Target Achieved
Srikalahasti Pipes Iron & Steel Prod. 46 70 52.2% 349.0 658.7% 326.9 Target Achieved
May-14 Bank of Baroda Banking 164.4 201.6 22.6% 228.9 39.2% 154.5 Target Achieved
AIA Engineering Industrial Prod. 606 726 19.8% 1364.2 125.1% 1028.1 Target Achieved
MOIL Ltd. Metals & Mining 255 341 33.7% 341.7 34.0% 247.2 Target Achieved
Wim Plast Plastic Prod. 620 800 29.0% 2499.0 303.1% 2530.3 Target Achieved
Apr-14 Engineers India Engg. & Const. 224 270 20.5% 331.7 48.1% 225.3 Target Achieved
Gujarat Gas Gas 263 305 16.0% 862.4 227.9% 574.5 Target Achieved
City Union Bank Banking 52.8 69 30.7% 130.8 147.7% 129.8 Target Achieved
Relaxo Footwears Footwear 297 390 31.3% 960.1 223.3% 489.9 Target Achieved
7

AUGUST 2016
MONTHLY INSIGHT PERFORMANCE
28/07/2016)
Mar-14 Motherson Sumi Auto Ancillary 232 285 22.8% 540.8 133.1% 328.1 Target Achieved
PI Industries Agrichem 252 315 25.0% 787.2 212.4% 752.7 Target Achieved
VA Tech Wabag Water Treatment 323 383 18.6% 972.5 201.6% 581.6 Target Achieved
Feb-14 Bharti InfraTel Telecom - Infra 171 213 24.6% 499.7 192.2% 400.0 Target Achieved
UPL Fertilizer 187 251 34.2% 617.0 229.9% 610.1 Target Achieved
Finolex Ind. Pipes 155 185 19.4% 483.6 212.0% 470.0 Target Achieved
Jan-14 NIIT Tech IT 355 500 40.8% 631.0 77.7% 467.5 Target Achieved
Zensar Tech IT 349 500 43.3% 1121.0 221.2% 1054.5 Target Achieved
Bajaj Finserv Banking 726 850 17.1% 2775.0 282.2% 2665.1 Target Achieved
FDC Ltd. Pharma 130 170 30.8% 274.4 111.0% 191.5 Target Achieved
Dec-13 MRF Tyre 17350 19430 12.0% 46399.0 167.4% 34053.9 Target Achieved
Info Edge (India) Web Services 446 550 23.3% 1015.0 127.6% 823.5 Target Achieved
Indian Bank Banking 101 120 18.8% 224.3 122.0% 155.1 Target Achieved
Symphony Cons. Durable 405 500 23.5% 3275.0 708.6% 2412.5 Target Achieved
Nov-13 Pidilite Ind. Paints & Chemical 266 350 31.6% 758.0 185.0% 751.6 Target Achieved
Aurobindo Pharma Pharma 216 297 37.5% 1535.0 610.6% 779.3 Target Achieved
Kaveri Seeds Agri Prod. 305 580 90.4% 1075.5 253.1% 391.3 Target Achieved
Speciality Restaurant Restaurants 124 198 59.7% 218.6 76.3% 92.9 Target Achieved
Oct-13 Britannia FMCG 759 845 11.3% 3434.2 352.5% 2865.3 Target Achieved
Glenmark Pharma Pharma 520 610 17.3% 1262.9 142.9% 851.5 Target Achieved
Ultratech Cement Cement 1808 2045 13.1% 3714.9 105.5% 3678.8 Target Achieved
Sep-13 L&T Engg. & Const. 705 810 14.9% 1893.8 168.6% 1577.3 Target Achieved
Tech M IT 344 374 8.7% 700.9 103.9% 485.6 Target Achieved
Indusind Bank Banking & Finance 344 470 36.6% 1192.0 246.5% 1168.3 Target Achieved
Escorts Auto 82 108 32.5% 267.0 227.6% 259.5 Target Achieved
Aug-13 Hexaware Ltd. IT 107 130 21.5% 335.8 213.8% 229.9 Target Achieved
Godrej Consumer FMCG 815 950 16.6% 1678.5 106.0% 1635.3 Target Achieved
Torrent Pharma Pharma 421 475 12.8% 1718.4 308.2% 1437.0 Target Achieved
Jul-13 TCS Ltd IT 1460 1640 12.3% 2839.7 94.5% 2619.3 Target Achieved
Dabur India FMCG 150 170 13.3% 320.0 113.3% 307.6 Target Achieved
Rallis India Chemical 130 148 13.8% 298.7 129.7% 220.7 Target Achieved
Jun-13 Hero MotoCorp Auto 1736 2020 16.4% 3307.0 90.5% 3197.3 Target Achieved
Divis Lab Pharma 977 1120 14.6% 2484.7 154.3% 1195.5 Target Achieved
Corporation Bank Banking & Finance 77 92 19.8% 86.0 12.0% 42.4 Booked
May-13 Maruti Suzuki Auto 1673 1920 14.8% 4790.0 186.3% 4763.5 Target Achieved
Dr. Reddy Lab Pharma 1991 2280 14.5% 4386.6 120.3% 2959.8 Target Achieved
BPCL Oil & Gas 405 460 13.6% 1156.0 185.4% 583.8 Target Achieved
Kotak Mahindra Bank Banking & Finance 415 510 22.9% 778.9 87.6% 750.4 Target Achieved
Apr-13 L&T Engg. & Const. 683 915 34.0% 1893.8 177.3% 1577.3 Target Achieved
Pidilite Ind. Chemical 264 300 13.6% 758.0 187.1% 751.6 Target Achieved
Godrej Consumer FMCG 778 910 17.0% 1678.5 115.7% 1635.3 Target Achieved
Mar-13 ITC FMCG 291 352 21.0% 410.0 40.9% 254.3 Target Achieved
Berger Paints Chemical 95 116 21.6% 326.0 243.2% 243.3 Target Achieved
LIC Housing Fin Banking & Finance 232 284 22.4% 537.9 131.9% 514.1 Target Achieved
Zee Entertainment Media & Ent. 215 265 23.3% 494.0 129.8% 484.9 Target Achieved
Feb-13 Axis Bank Banking & Finance 301 397.8 32.2% 654.9 117.6% 543.9 Target Achieved
Tata Motors Auto 298 379 27.2% 612.4 105.5% 506.9 Target Achieved
Cairn India Oil & Gas 324 410 26.5% 386.0 19.1% 194.7 Booked
Petronet LNG Oil & Gas 152 200 31.6% 303.0 99.3% 297.3 Target Achieved
Jan-13 Adani Ports Others 135 180 33.3% 374.8 177.6% 225.3 Target Achieved
J & K Bank Banking & Finance 130 167 28.2% 195.5 50.0% 68.1 Target Achieved
Dec-12 Zee Entertainment Media & Ent 198 235 18.7% 494.0 149.5% 484.9 Target Achieved
Indusind Bank Banking & Finance 416 500 20.2% 1192.0 186.5% 1168.3 Target Achieved
Nov-12 IPCA Lab Pharma 450 545 21.1% 906.9 101.5% 493.4 Target Achieved
L&T Finance Banking & Finance 55 85 54.5% 97.1 76.5% 87.7 Target Achieved
Zydus Wellness FMCG 445 560 25.8% 1128.9 153.7% 792.0 Target Achieved
8

STRONG ON CONSUMPTION
28/07/2016)
Oct-12 Sun TV Media & Ent. 357 446 24.9% 494.9 38.6% 447.2 Target Achieved
Allahabad Bank Banking & Finance 147 180 22.4% 191.1 30.0% 78.4 Target Achieved
Shoppers stop Others 393 465 18.3% 624.4 58.9% 379.4 Target Achieved
Sep-12 Dish TV Media & Ent. 68 92 35.3% 121.7 78.9% 93.9 Target Achieved
Havels India Cons. Durables 111 127.6 15.0% 387.0 248.6% 380.5 Target Achieved
Aug-12 Lupin Pharma 570 672 17.9% 2129.0 273.5% 1705.0 Target Achieved
Bajaj Finserv Banking & Finance 730 877 20.1% 2775.0 280.1% 2665.1 Target Achieved
Jul-12 Uflex Others 112 145 29.5% 244.9 118.6% 246.8 Target Achieved
Cummins India Engg. & Const. 438 513 17.1% 1247.7 184.9% 885.6 Target Achieved
Exide Inds Others 135 165 22.2% 205.2 52.0% 176.7 Target Achieved
Engineers India Engg. & Const. 200 280 40.0% 305.0 52.5% 225.3 Target Achieved
Jun-12 Glenmark Pharma Pharma 350 410 17.1% 1262.9 260.8% 851.5 Target Achieved
Godrej Consumer FMCG 558 675 21.0% 1678.5 200.8% 1635.3 Target Achieved
Cera Sanitaryware Cons. Durables 248 340 37.1% 2960.9 1093.9% 2401.5 Target Achieved
HPCL Oil & Gas 300 365 21.7% 1253.3 317.8% 1229.4 Target Achieved
May-12 Emami FMCG 457 535 17.1% 1365.0 198.7% 1126.4 Target Achieved
Berger Paints Chemical 114 141 23.7% 326.0 186.0% 243.3 Target Achieved
Graphite India Others 92 110 19.6% 126.4 37.4% 78.6 Target Achieved
Rainbow papers Others 66 85 28.8% 94.4 43.0% 3.2 Target Achieved
Apr-12 Tatamotor - DVR Auto 158 200 26.6% 391.4 147.7% 327.8 Target Achieved
Pidilite Ind. Chemical 172 210 22.1% 724.8 321.4% 751.6 Target Achieved
Mar-12 Magma Fincorp Banking & Finance 70 ACCu 141.0 101.4% 105.5 Target Achieved
Torrent Power Power 222 290 30.6% 252.9 13.9% 173.7 Booked
Feb-12 Castrol India Oil & Gas 236 ACCU 544.0 130.5% 436.0 Target Achieved
Prism Cement Cement 48.75 ACCU 133.5 173.7% 110.6 Target Achieved
MRF Auto 9767 ACCU 46399.0 375.1% 34053.9 Target Achieved
Shoppers Stop Others 340 ACCU 624.4 83.6% 379.4 Target Achieved
Allahabad Bank Banking & Finance 200 ACCU 211.3 5.7% 78.4 Target Achieved
Zydus Wellness FMCG 382 ACCU 1128.9 195.5% 792.0 Target Achieved
MRPL Oil & Gas 71 ACCU 83.2 17.2% 81.5 Target Achieved
Akzo Nobal Cons. Durables 857 ACCU 1614.0 88.3% 1616.1 Target Achieved
Maruti Suzuki Auto 1320 ACCU 4790.0 262.9% 4763.5 Target Achieved
M & M Auto 749 ACCU 1485.2 98.3% 1452.5 Target Achieved
Feb-12 Tata Power Power 115 120 4.3% 117.6 2.2% 70.7 Target Achieved
Dr. Reddy Lab Pharma 1642 1795 9.3% 4386.6 167.1% 2959.8 Target Achieved
Jan-12 Shree Cement Cement 2100 ACCU 16499.0 685.7% 16287.6 Target Achieved
Dabur India FMCG 102 125 22.5% 320.0 213.7% 307.6 Target Achieved
9

AUGUST 2016
STOCK PICKS
Indian Oil Corporation Ltd.
CMP: Rs 543
Rating: BUY Target: Rs 620
Company Information
BSE Code 530965
NSE Code
Bloomberg Code
ISIN
IOC
IOCL IN
INE242A01010
Market Cap (Rs. Cr) 131934
Outstanding shares(Cr) 242.8
52-wk Hi/Lo (Rs.) 549.9 / 344.9
Avg. daily volume (1yr. on NSE) 1,788,109
Face Value(Rs.) 10
Book Value 313.0
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Share holding pattern as on June 2016 (%)
Others
24.8
Particulars (in Rs. Cr.) FY15 FY16 FY17E FY18E
Net Sales 449506.8 355926.6 374790.7 430259.8
Growth (%) (8.0) (20.8) 5.3 14.8
EBITDA 10534.0 23196.7 26610.1 28827.4
EBITDA Margin (%) 2.3 6.5 7.1 6.7
Net profit 3753.5 10301.8 13117.7 13768.3
Net Profit Margin (%) 0.8 2.9 3.5 3.2
EPS (Rs) 20.2 46.2 54.0 56.7
Consensus Estimate: Bloomberg
IOCL vs. Nifty
Dec-15
DII
12.4
Jan-16
Feb-16
FII
4.5
Mar-16
Apr-16
Promoters
58.3
May-16
Jun-16
Jul-16
Investment Rationale
Paradip refinery to ramp up margin
In order to ramp up the refining capacity, Indian Oil
Corporation Ltd. (IOCL) has recently started part of its 15
million tonnes per annum (mtpa) paradip refinery. It is
expected that it will be fully in FY17 and operational
benefits will be seen in FY18. Currently IOCL has six
refineries with a total capacity of 54.20 million tonnes. It
also has subsidiary refineries with 11.50 million tonnes
capacity. Paradip has taken its refining capacity to 80.7
million tonnes. Paradip refinery will enable IOCL to process
low-cost and heavier types of crude oil as well due to its
close proximity to the Paradip port will reduce fuel losses
for the company. This refinery is also equipped to produce
low-emission BS-IV-compliant motor fuel enabling IOCL to
benefit from earlier adoption of this standard in the
country. Due to the high-end technology being deployed,
the company expects the refinery to offer very high
margins to the tune of $6-7 a barrel over the average
refining margin $10-12 earned by IOCL at present. IOCL’s
management believes its blended/consolidated GRMs
would improve by $2-3 a barrel after commissioning of the
Paradip refinery.
Capex guidance
The management spend Rs. 14300 cr in FY16 for Capex,
the management also highlighted that expected capex for
FY17 would be Rs. 15300 cr, with the bulk of the
spending across marketing (Rs. 5100 cr) and refining (Rs.
4000 cr), with petro chem at Rs. 1700 cr (Polypropylene
project at Paradip). The company stated that total spends
on the refining segment over the next 5-6 years would be
Rs. 40000 cr, with Rs. 11500 cr spent on BS-6 (Euro-6)
upgrades, and Rs. 20000 cr spent on upgrades and
capacity enhancements at existing refineries (Gujarat,
Mathura, Panipat). Furthermore, with an effectuated
~16MTPA increase in capacity across Panipat (5MTPA),
Koyali (4.3MTPA), Matura (3MTPA), Barauni (3MTPA) and
Haldia (0.5MTPA) over the next five years will help in
increasing profits. Capex guidance does not include the
potential acquisition of stakes in E&P assets in Russia.
10

STRONG ON CONSUMPTION
Expansion to meet growing demand
IOCL will invest Rs 40,000 crore to expand its refining
capacity to over 100 million tonnes by 2022 as the
nation’s largest oil firm takes the lead to add capacity to
meet India’s rising energy needs. Recently International
Energy Agency’s World Energy Outlook has projected 4
per cent CAGR growth in India’s fuel demand to 348 MT
by 2030, from 184 MT in 2015-16. BP projects demand
to be 335 MT while EIA has pegged it at 294 MT, which
translates into a CAGR of 3 per cent. All the projections
clearly show that the demand will grow and IOCL is in the
right path to expand its refining capacity to 104.55 mt by
2022 from the current 80.7 mt per annum with an
investment of about Rs 40,000 crore.
Decline in subsidy burden, Improvement in cash flows
IOCL’s concern over the cash flows, due to subsidy
burden, has started to reduce. The decline in under
recoveries has been on the back of fall in crude oil
prices, diesel deregulation and direct benefit transfer
scheme implementation for LPG. The company is
confident that irrespective of the crude oil prices, the IPPlinked
prices for MS and HSD will be adhered to by the
government. Currently only kerosene and LPG prices are
under the regulatory regime and the government decision
to cap its sharing of kerosene subsidy at Rs. 12/litre and
LPG at Rs. 18/kg and the rest by oil PSUs is a welcome
move for OMCs. This adherence is expected to help the
company to sustain cash flows for the expected capex
plans and will maintain greater transparency in earnings.
Recent developments
•
•
•
IOCL has rejected an offer to buy a stake in a project
of the financially-stressed Nagarjuna Oil Refinery and
help to resurrect it, arguing that the project’s
technical configuration and financial burden were an
obstacle, according to company executives and
officials.
State Bank of India, country largest commercial bank
entered into an MoU with IOCL to engage IOCL Kisan
Seva Kendras (KSK) as Business Correspondents (BCs)
of SBI. The MoU is an initiative as part of the
financial inclusion programme of SBI.
The government is set to start consultations for an
ambitious plan to merge 13 state oil firms to create a
giant corporation whose revenue dwarfs global energy
major Chevron which competes with US conglomerate
General Electric in the Fortune-500 ranking.
•
•
•
•
Key Risks
•
•
•
The Union government is in favour of merging
Chennai Petroleum Corporation Ltd (CPCL) with its
parent, IOCL to bring the standalone refinery under
one umbrella
IOCL-owned Gujarat refinery will supply Bharat Stage
(BS)-IV compliant diesel from January 2017, a senior
official has said.
IOCL is in talks to buy debt-laden Gujarat State
Petroleum Corp’s (GPSC) stake in the underconstruction
Rs 4,500 crore Mundra LNG import
terminal in Gujarat.
IOCL, Oil India (OIL) and Bharat PetroResources (BPRL)
will pay Russia’s Rosneft $3.3 billion for buying equity
stakes in the latter’s two oil and gas projects in
September.
Increase in crude prices or INR depreciation will
increase under recovery.
Lower GRMs and higher inventory/forex losses could
be negative for IOCL.
Delays in Paradip refinery ramp up could adversely
impact its business growth.
Valuation
The Paradip refinery, once commissioned, will add to IOCL’s
refining margins given its high complexity, which should
aid earnings through volume growth and better blended
GRMs, while earnings remain more diversified with stable
co n t r i b u t i o n s f ro m t h e p i p e l i n e s e g m e n t , a n d
petrochemicals. Among OMCs, IOCL’s refineries are better
in terms of complexity and on average have generated
higher refining margins. With decline in under recoveries
on the back of fall in crude oil prices, diesel deregulation
and direct benefit transfer scheme implementation for LPG,
it is expected to help the company to improve its cash
flows thereby reduce its debt which will help the company
to lower its interest cost and improve its profitability and
returns. Robust domestic product demand growth and a
range bound crude price environment should aid the
marketing segment, a gradual expansion in margins is thus
expected to come through as well. In order to meet India’s
rising energy needs, IOCL is in the right path to expand its
refining capacity to over 100 MT by 2022 with an
investment of about Rs 40,000 crore. At current price, the
stock is trading at P/E multiple of 9.4x of FY18E EPS. We
advise our investors to BUY the stock with target price of
Rs. 620, valuing at P/E multiple of 10.9x FY18E EPS.
11

AUGUST 2016
STOCK PICKS
LIC Housing Finance Ltd.
CMP: Rs 519
Rating: BUY Target: Rs 608
Company Information
BSE Code 500253
NSE Code
Bloomberg Code
ISIN
LICHSGFIN
LICHF IN
INE115A01026
Market Cap (Rs. Cr) 26189
Outstanding shares(Cr) 50.5
52-wk Hi/Lo (Rs.) 537.9 / 388.65
Avg. daily volume (1yr. on NSE) 2,134,835
Face Value(Rs.) 2
Book Value (Rs) 182.6
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
LICHF vs. Nifty
Dec-15
Jan-16
Share holding pattern as on June2016 (%)
Others
22.1
Particulars (in Rs. Cr.) FY15 FY16 FY17E FY18E
Net interest Income 2,236.4 2944.1 3,454.2 4,001.5
NIM (%) 2.2 2.5 2.6 2.6
Operating Profit 2,109.2 2,710.0 3,363.0 3,887.2
PAT 1,386.2 1,660.8 1,981.7 2,329.3
EPS (Rs) 27.5 32.9 39.2 46.2
BV (Rs) 154.8 181.1 213.4 253.6
GNPA (%) 0.7 0.7 0.6 0.6
Feb-16
Consensus Estimate: Ashika Research
Mar-16
Promoters
40.3
DII
37.6
Apr-16
May-16
Jun-16
Jul-16
Investment Rationale
Holding 2nd Position in Housing Finance Sector
LIC Housing Finance Ltd (LICHF) is the second largest
housing finance company in India after HDFC with loan
book size of Rs 1,27,437 crore. Including banks, it is third
after HDFC and SBI with each having 15% market share.
Since FY07, LICHF has been increasing its loan book at an
aggressive pace of 25% CAGR, which is well above the
industry growth of ~15-17%. Keeping pace with the loan
book growth, it has also increased its market share and
almost doubled in last seven years to ~10% currently. The
growth has been primarily led by the individual loan book
(retail book), which accounts for 97% of the total loan
book. Gradually, LICHF has reduced its developer loan
book share from 10% in FY10 to 3% currently in order to
maintain stable asset quality. During 1QFY17, loan book
growth has moderated to 15% yoy as compared with 17%
yoy seen in the past. Moderation in loan growth was due
to single digit (9.2% yoy) increase in individual home loan
segment which accounts 88% of total loan book. While,
LAP book and developer loan book witnessed strong
growth of 122% yoy and 39% yoy respectively. Gradual
improvement in macro economy, rising disposable income
due to 7th pay commission would drive the home loan
sector which would benefit LICHF as it holds 2nd position
in housing finance sector.
NIMs improved during FY16
NIMs of LICHF have declined from 3% level in FY10 to
~2.2% during FY15 and then improved to 2.47% in FY16.
The moderation in NIMs was due to higher disbursement
of dual rate loans (currently account for ~45% of total
loans) since FY09, which have been fixed for a few years
at lower rates and then converted to floating loans at rates
higher by ~100-200 bps later, keeping yields under
pressure. Margins were also impacted due to increased
competition which led LICHF to keep lending rates at one
of the lowest levels in the industry. Further, company has
reduced the share of high yielding developer loans (yields
are higher by 300 bps vs individual loans) from 10% level
to 3%. LICHF's cost of fund remained higher due to
prolonged elevated interest rate scenario. Going ahead, it
12

STRONG ON CONSUMPTION
is expected that conversion of dual rate loans into high
rate floating rates, low cost borrowing through issue of
NCDs and wholesale deposits and gradually increasing of
LAP book would improve NIMs of LICHF from FY16 level.
Strong asset quality
The asset quality of housing finance sector generally
stays benign as major portion of the loan is lend to
individual salaried class people. The gross NPA ratio for
the industry is ~0.8% while LICHF’s Q1FY17 ratio is
below industry levels at 0.59% with absolute GNPA at Rs
757 crore. This is due to bulk of the exposure to the
salaried class (~85% of retail book), better underwriting
standards and lower LTV (loan to value). In the past two
years, it has witnessed some stress in asset quality largely
in the developer loan space. However, management stated
that these accounts are well collateralized with asset
coverage of ~2x wit recovery process is on and resolution
could come in next 2 to 3 quarters. During Q1FY17, the
company made a provision of Rs 92 crore on account of
ageing of old project loan, which had already been classified
as NPAs. As LICHF lend 88% of its loan book to individual
salaried class people, it would be able to maintain strong
asset quality despite slow recovery in economy.
Steady 1QFY17 Result
LICHF has posted steady 1QFY17 result where Net
interest income grew 25% yoy at Rs 825 crore. NIMs
came strong at 2.61%, an increase of 20 bps yoy due to
change in loan mix towards high yielding assets like LAP
and developer loan and low cost of fund. Advance grew
by 15.4% yoy led by 15% yoy growth in individual loan
and 39% yoy growth in developer loan. However PAT
growth was low at 7% yoy at Rs 408 crore, mainly due to
one-time provisions of Rs 92 crore on account of ageing
of old project loan, which had already been classified as
150,000
130,000
110,000
90,000
70,000
50,000
30,000
10,000
Loan book growth
20%
19%
18%
17%
16%
15%
14%
13%
12%
11%
10%
NPAs. Gross NPA ratio during the quarter remained industry
low at 0.59%. Improving domestic macros and revival in loan
market would lead LICHF to report strong quarter going
ahead.
Key Risks
•
•
Slowdown in economy could deter asset quality of its
developer loan segment, though its share is low in
overall portfolio.
If the company is unable to borrow low cost of funds
due to elevated interest rate regime, it could put
stress on its net interest margins.
Valuation
LICHF is the second largest Housing finance company after
HDFC with loan book of more than Rs 1 lakh crore and
would be benefited from stable growth in India’s mortgage
market. It has witnessed strong loan book growth over the
years which is above the industry average growth.
However, NIMs have declined since FY10, but LICHF have
been striving to revive that by increasing the share of LAP
and developer loan and borrowing through NCDs and
deposits which would reduce its cost of funds.
Government’s approval of 7th pay commission would yield
positive for housing finance companies as it would
increase the disposable income for government employees
which in turn would boost the housing demand. On asset
quality front, LICHF has done a commendable job by
maintaining it below industry average. We have a positive
view on the stock, given its strong position in housing
finance market, trusted brand name, healthy loan book
growth and superior asset quality. Hence we recommend
our investor to BUY the scrip with target price of Rs 608
from 12-18 months perspective. The scrip is currently
valued at P/Bv multiple of 2.0x on FY18E BVPS Rs 253.6.
FY14
Q1FY15
Q2FY15
Q3FY15
FY15
Q1FY16
Q2FY16
Q3FY16
FY16
Q1FY17
Loans (Rs crs)
Growth (RHS)%
Source: Company data
13

AUGUST 2016
STOCK PICKS
The Federal Bank Ltd.
CMP: Rs 65
Rating: BUY Target: Rs 78
Company Information
BSE Code 500469
NSE Code
Bloomberg Code
ISIN
FEDERALBNK
FB IN
INE171A01029
Market Cap (Rs. Cr) 11143
Outstanding shares(Cr) 171.9
52-wk Hi/Lo (Rs.) 69.7 / 41.35
Avg. daily volume (1yr. on NSE) 5,638,617
Face Value(Rs.) 2
Book Value 46.9
Company Description
Federal Bank Ltd. is a private commercial bank
headquartered at Aluva, Kerala having more than thousand
branches and ATMs spread across 25 States and 5 Union
Territories in India. The Bank was incorporated in 1931 and
became a scheduled commercial bank in 1970. Federal
Bank has a balance sheet size of Rs 938 billion. FED
mainly caters to four segments -Corporate, retail (including
NRI), SME and agriculture. Barring agriculture, which is
present only on the application side, the remaining three
segments contribute to the funding and application side.
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Share holding pattern as on June 2016 (%)
FII
13.9
DII
29.4
Investment Rationale
Strong earnings revival in the offing
Federal Bank’s earnings are set for a strong revival after
53% yoy de-growth in FY16 due to higher provisions. The
bank has opted for elevated provisioning primarily due to
some event-led provision required for food credit to
Government of Punjab, Discom UDAY related and some
backdated AQR related provisioning. The provisions for bad
loans nearly jumped by 6 times to 948 crore in FY16. The
management indicated that worst of asset quality fears are
behind. As of Q1FY17, fresh slippages have declined to Rs
280 crore from Rs 536 crore in Q4FY16 and Rs 317 crore in
Q1FY16. For Q1FY17, there have been no sale to ARCs, no
5:25 Structuring, no SDR and no S4A. Besides, the
management has stated that NPA addition to the tune of Rs
100-200 crore could arise in the coming quarters. Thus,
slippages are expected to moderate from here on and would
provide fillip to profitability on low provisions going ahead.
Particulars (in Rs. Cr.) FY15 FY16 FY17E FY18E
Net interest Income 2380 2504 2,730 3,120
NIM (%) 3.3 3.2 3.1 3.1
Operating Profit 1628 1424 1580 1856
PAT 1006 476 745 965
EPS (Rs) 5.9 2.8 4.3 5.6
BV (Rs) 45.2 48.2 51 55
GNPA (%) 2.0 2.8 3.0 2.7
Source: Ashika Research
Others
56.7
Established retail franchise
Federal bank has built a strong retail franchise over the
years which has been the key driving force of the bank’s
deposits and advances growth over the years. The bank
has grown its credit at a modest pace of 13.9% CAGR in
FY10-16 while deposit growth has always been maintained
better than industry growth rate. The retail loan book
constitutes 29%, wholesale (35%), SME (26%) and Agri
(11%) accounts for the rest. The retail loan book is
primarily constituted by Housing (46%). The retail deposit
ratio is as strong as 98% as of Q1FY17 while the CASA
14

STRONG ON CONSUMPTION
Company Description
Federal Bank Ltd. is a private commercial bank
headquartered at Aluva, Kerala having more than
thousand branches and ATMs spread across 25 States and
5 Union Territories in India. The Bank was incorporated in
1931 and became a scheduled commercial bank in 1970.
Federal Bank has a balance sheet size of Rs 938 billion.
FED mainly caters to four segments -Corporate, retail
(including NRI), SME and agriculture. Barring agriculture,
which is present only on the application side, the
remaining three segments contribute to the funding and
application side.
Investment Rationale
Strong earnings revival in the offing
Federal Bank’s earnings are set for a strong revival after
53% yoy de-growth in FY16 due to higher provisions. The
bank has opted for elevated provisioning primarily due to
some event-led provision required for food credit to
Government of Punjab, Discom UDAY related and some
backdated AQR related provisioning. The provisions for bad
loans nearly jumped by 6 times to 948 crore in FY16. The
management indicated that worst of asset quality fears are
behind. As of Q1FY17, fresh slippages have declined to Rs
280 crore from Rs 536 crore in Q4FY16 and Rs 317 crore
in Q1FY16. For Q1FY17, there have been no sale to ARCs,
no 5:25 Structuring, no SDR and no S4A. Besides, the
management has stated that NPA addition to the tune of Rs
100-200 crore could arise in the coming quarters. Thus,
slippages are expected to moderate from here on and
would provide fillip to profitability on low provisions going
ahead.
Established retail franchise
Federal bank has built a strong retail franchise over the
years which has been the key driving force of the bank’s
deposits and advances growth over the years. The bank
has grown its credit at a modest pace of 13.9% CAGR in
FY10-16 while deposit growth has always been
maintained better than industry growth rate. The retail
loan book constitutes 29%, wholesale (35%), SME (26%)
and Agri (11%) accounts for the rest. The retail loan book
is primarily constituted by Housing (46%). The retail
deposit ratio is as strong as 98% as of Q1FY17 while the
CASA ratio also remains strong at 32.83%. Federal bank
enjoys a strong presence in the state of Kerala with nearly
50% of branches accounting from Kerala. The bank holds
market share of 13.9% in Kerala and there has been
constant effort on the part of the management to improve
pan India presence and also build strong markets in certain
non-south states. However, Federal Bank also has a strong
NRI client base due to its locational advantage in NRI
stronghold south India which is supporting the deposit and
advance momentum. NRE deposits account for 38% of
Federal Bank’s deposit mix. Over the period from FY12-16,
share of total NRI remittances made through Federal bank
increased by 506 bps from 7.49% to 12.55%.
Stable net interest margins
Net Interest income grew at a CAGR of 8% between FY11
& FY16 while the net interest margins have been above
3% mark during this time frame. Strong margins have
been driven by continuously improving CASA ratio from
28.5% in FY13 to 32.5% by FY16, thus resulting in
declining cost of funds. Going ahead, further reduction in
interest rates will help federal bank owe its dependence
on deposits as source of funds (more than 95%).
Asset quality concerns contained
Asset quality over the years has remained stable until the
past three to four quarters incidental with its exposure to
SME and corporate loans. On the asset quality front, post
higher slippages in the last three or four quarters, GNPA
slippages eased at Rs 280 crore in Q1FY17. On a
sequential basis, decline in slippages has seen across
segment with slippages in corporate book at Rs 45 crore
vs. Rs 254 crore in Q4FY16, Slippage in SME book has also
lowered at Rs 134 crore in Q1FY17 vs. Rs 154 crore in
Q4FY16. Besides, Federal bank continues to be
conservative on building its corporate portfolio over the
last three years and continues to stay away from risky
large ticket infrastructure loans.
Healthy Capital Adequacy ratio
Federal Bank has a comfortable capital adequacy ratio of
13.6%, considerably higher than the RBI stipulated 9%.
This reduces risks of dilution in equity in the near future.
Decent return ratios
Over the years, Federal Bank’s return on assets (ROA) have
hovered ~1.3% mark while return on equity (ROE) ~13%
mark until from FY09-15. However, higher provisions have
15

AUGUST 2016
STOCK PICKS
Unichem Laboratories Ltd.
CMP: Rs 285
Rating: BUY Target: Rs 360
Company Information
BSE Code 506690
NSE Code
Bloomberg Code
ISIN
Particulars (in Rs. Cr.) FY15 FY16 FY17E FY18E
Consensus Estimate : Bloomberg, Ashika Research
UNICHEMLAB
UL IN
INE351A01035
Market Cap (Rs. Cr) 2589
Outstanding shares(Cr) 9.1
52-wk Hi/Lo (Rs.) 334.1 / 188.5
Avg. daily volume (1yr. on NSE) 134,786
Face Value(Rs.) 2
Book Value 105.1
140
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110
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Jul-15
Aug-15
Sep-15
Oct-15
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ULL vs. Nifty
Dec-15
Jan-16
Share holding pattern as on June 2016 (%)
2000
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1400
1200
1000
800
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200
Net Sales 1201.8 1334.6 1586.8 1840.7
Growth (%) 6.0 11.0 18.9 16.0
EBITDA 101.4 160.4 215.8 272.4
EBITDA Margin (%) 8.4 12.0 13.6 14.8
Net profit 75.4 110.8 138.1 182.2
Net Profit Margin (%) 6.3 8.3 8.7 9.9
EPS (Rs) 8.3 11.9 15.2 20.1
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Volume('000)RHS ULL Nifty
0
Company Background
Unichem Laboratories Ltd. (ULL) is a Mumbai-based
integrated specialty pharmaceutical company having
sizeable presence in India with a fast-growing presence in
the US market. The Company is engaged in the
manufacture and sale of active pharmaceutical ingredients
(APIs) and formulations. The company has domestic
leadership in niche therapy areas of cardiology, neurology,
orthopaedics and anti infective. By combining strategic
research and in-depth industry knowledge, Unichem aims
to transform itself into a global pharmaceutical drug
company with an increasing focus on cutting-edge research
in domestic as well as in developed markets. With
formulations forming the core of Unichem’s business, the
company also manufactures active pharmaceutical
ingredients (APIs or bulk actives). The Company sells its
products in the United States market through its wholly
owned subsidiary, Unichem Pharmaceuticals (USA) Inc. The
Company operates manufacturing facilities at Ghaziabad,
Roha, Goa, Baddi, Pithampur and Sikkim.
Investment Rationale
Q1FY17 Result Analysis
Unichem Laboratories Ltd. Q1FY17 revenues grew 9.5%
YoY to Rs. 342.0 crore, in line with market estimate, on
account of 12.5% YoY growth in domestic sales to Rs.
221.5 crore and 16.7% growth in export sales to Rs. 97.1
crore. De-growth in API segment (-25% YoY), however,
pulled down the numbers a bit. Its gross margin was a
steady 63%; however, the reported EBITDA margin is at
13.1%, declined 79bps yoy due to higher staff costs and
other expenses (~Rs. 70m provision for the diminution in
value of assets in the Brazilian subsidiary). Adjusting for
this, the EBITDA margin was 15.2%, up 69bps yoy. Net
profit witnessed 11.1% YoY decline to Rs. 25.8 crore
mainly due to higher taxation and lower other income.
Domestic formulations back to normal
Domestic formulation business showcased healthy growth
aided by strong growth witnessed in the acute portfolio
with the help of volume growth, price growth and new
product introduction. Domestic formulations, which
16

STRONG ON CONSUMPTION
constitute ~56% of total revenues, are at the core of
overall performance. The acute, chronic and sub-chronic
ratio (as % of sales) for the company is 36, 58 and 6
respectively. The company’s core business has grown due
to restructuring exercise and inventory rationalisation and
NLEM implementation and the resulting channel
disturbances. Unichem has taken a series of measures
such as brand extensions, tap new markets and OTC
initiatives to enable their pillar brands to grow by double
digits. In the chronic space, company’s entry into latest
products coupled with untapped segments would enable
them to grow in line or higher in this high growth market.
As per the management, 21-22% of the domestic
portfolio is under National List of Essential Medicines
(NLEM), while 2-2.5% of the portfolio is under the FDC’s
banned by the Indian government. All these will not have
much material impact on the company revenue. The
company has improved growth in its matured portfolio
through focused promotional strategy on general
physicians. Therefore it is expected that gradual pickup in
domestic formulation business growth on account of
volume growth in chronic portfolio would aid in
expending gross margins going forward.
Robust growth posted by export formulation
The Company continues to see decent growth across the
g e o g r a p h i e s . T h e U S A S u b s i d i a r y ( U n i c h e m
Pharmaceuticals USA Inc) continues to show a robust
sales growth. Company has tied with large wholesalers
and a retail chain for products launched in US and is
focusing on scaling-up operations for sustained growth
over time. Export formulations, ~28% of total revenues,
have grown at a CAGR of 27% in FY11-16 on the back of
significant investments in the infrastructure to push
exports. New product launches in the US and a ramp-up
in CRAMS for US and EU based customers have
contributed to the growth. Unichem has extended its
operations into South Africa and Brazil and is also looking
to extend into other geographies. The CRAMS business, of
late, has struggled though, with customers postponing or
cancelling the requirements. For the rest of the exports,
the company is looking for US generics traction.
Unichem’s ANDA filings in the US stand at 36 with 21
approvals (including 1 tentative approval) out of which 15
products have been commercialized till date. Management
has identified 8-10 molecules from CNS, CVS & pain
management & oral prefilled syringes to be filed in FY17-
18. With all these launches it is expected to see
incremental exports revenue from US, going ahead.
Capex to boost growth
The strategic decision taken by the company in the recent
past has started paying-off in terms of productivity which
has gone up on a quarter on quarter basis. As a result of
such initiatives, the company sees a double-digit growth in
times ahead. The company has spent about Rs.120 crores
plus of capex for FY16 towards expansion of the Goa, API
side of Pithampur plant and the new site at Kolhapur.
Unichem has indicated Rs. 200 cr. capex in FY17, mainly for
an API plant at Kolhapur and maintenance capex. The
company expects to commercialize the Kolhapur plant by
Q1FY18. This plant will initially cater to RoW and domestic
markets. The company sees similar capital expenditure of
about Rs.150 crores in the next year too. The capex would
go for the second phase of Goa and the Kolhapur API plant.
Key Risks
•
•
•
Stringent quality norms from international regulators
Expanded span of price control in India
Volatility in currency
Valuation
Domestic formulations business is expected to improve on
account of pick up in domestic business backed by volume
growth of chronic portfolio. Expors formulations
improvement in on the cards on account of enhanced
focus in the US market on the back of incremental US
filings and subsequent launches. Expansion in EM’s such
as South Africa to drive growth momentum. Further, the
quicker-than-expected turnaround of its international
subsidiaries in the UK and Brazil would provide some
upside to margin and profit. The foray in OTC segment
(unienzyme) in the domestic market augurs well to grow in
the nonprescription space. Further it is expected that
operating margins to improve in future on account of
increase in gross margins from US, generating superior
margin mix and enhanced product mix. With strong traction
in the US markets, focus to enter in new geographies,
increased business driven by volume growth and continued
dominance of key products of Unichem depicts the growth
path of the company in times ahead. At CMP the company is
trading at an attractive valuation at 14.4x of consolidated
FY18E EPS. We recommended a ‘BUY’ on the stock with a
target price of Rs. 360 (appreciation of about 25%) valuing
at a P/E of 18x FY18E EPS with the medium to long term
investment horizon.
17

AUGUST 2016
VALUATION AT A GLANCE
FY17 FY18 FY17 FY18 FY16 P/O FY16 FY16
1 ACC 1685.1 31644.0 33.9 24.1 3.8 7.1 14.2 17.0 54.3 1.0
2 Adani Ports 225.3 46648.2 16.7 15.6 3.5 23.9 17.4 1.1 7.9 0.5
3 Ambuja Cements 271.6 42141.8 32.4 25.2 4.1 7.9 12.8 2.8 53.8 1.0
4 Apollo Hospitals 1348.0 18753.4 45.7 34.6 5.4 10.0 13.4 6.0 25.2 0.4
5 Ashok Leyland 94.1 26779.7 18.1 N/A 5.4 22.5 N/A 1.0 25.3 1.0
6 Asian Paints 1128.0 108197.5 50.9 43.3 19.3 33.4 33.8 7.5 41.7 0.7
7 Aurobindo Pharma 779.3 45602.3 18.4 15.4 6.5 32.5 27.0 2.5 7.4 0.3
8 Axis Bank 543.9 129803.8 13.2 9.4 2.4 17.0 20.5 5.0 14.3 0.9
9 Bajaj Auto 2660.5 76986.1 18.5 16.5 5.9 31.3 29.3 55.0 42.1 2.1
10 Bajaj Finserv 2665.1 42409.3 19.4 15.8 3.1 15.1 15.2 1.8 1.5 0.1
11 Bajaj Holdings 1800.0 20032.3 N/A N/A 1.3 15.8 N/A 32.5 16.0 1.8
12 Bank of Baroda 154.5 35599.3 N/A N/A 0.8 -12.0 N/A 0.0 N/A 0.0
13 Bank of India 110.7 10335.1 N/A N/A 0.3 -18.8 N/A 0.0 N/A 0.0
14 Bharat Forge 749.5 17447.9 23.1 18.5 4.9 18.5 20.5 7.5 26.8 1.0
15 Bharti Airtel 371.9 148663.3 26.8 21.3 2.3 8.3 9.1 1.4 9.9 N/A
16 Bharti Infratel 400.0 75866.7 27.5 24.3 4.1 13.5 17.5 3.0 24.0 0.8
17 BHEL 149.5 36579.4 65.2 21.7 1.1 -2.7 4.8 1.2 19.5 0.8
18 Bosch 24636.4 77355.4 N/A N/A 9.3 14.9 N/A 85.0 21.4 0.3
19 BPCL 583.8 84427.3 11.7 10.6 3.0 31.6 22.7 11.3 33.8 1.9
20 Britannia Industries 2865.3 34376.7 36.4 30.2 19.4 53.5 42.4 20.0 29.8 0.7
21 Cairn India 194.7 36503.6 21.9 16.5 0.7 -17.5 4.2 3.0 N/A 1.5
22 Canara Bank 258.1 14011.9 N/A N/A 0.4 -8.0 N/A 0.0 N/A 0.0
23 Cipla 520.7 41837.8 24.7 19.6 3.5 13.3 15.2 2.0 13.6 0.4
24 Coal India 330.0 208408.4 13.5 12.2 6.1 38.4 45.9 27.4 121.2 8.3
25 Colgate-Palmolive 931.4 25332.7 N/A N/A 24.8 64.4 N/A 10.0 47.2 1.1
26 Container Corp. 1470.0 28661.2 30.8 25.3 3.6 10.1 12.5 13.4 24.8 0.9
27 Cummins India 885.6 24547.4 31.3 26.4 7.4 23.6 25.0 14.0 52.9 1.6
28 Dabur India 307.6 54111.2 37.7 33.0 13.0 33.3 29.9 2.3 31.6 0.7
29 Divis Lab. 1195.5 31736.8 25.4 21.3 7.4 28.6 28.3 10.0 31.2 0.8
30 Dr Reddy’s Lab. 2959.8 50475.6 26.4 19.4 3.9 16.7 17.0 20.0 17.0 0.7
31 Eicher Motors 21099.8 57309.6 34.9 27.4 16.5 N/A 36.9 100.0 25.1 0.5
32 Exide Industries 176.7 15019.5 19.0 16.8 3.5 17.5 17.0 2.4 28.6 1.4
18

STRONG ON CONSUMPTION
FY17 FY18 FY17 FY18 FY16 P/O FY16 FY16
33 Federal Bank 64.8 11133.8 N/A N/A 1.4 6.2 N/A 0.7 24.8 1.1
34 GAIL 383.8 48684.2 14.2 11.5 1.4 6.5 10.7 6.0 24.1 1.6
35 GlaxoSmith Consumer 6353.4 26719.6 N/A N/A 10.9 30.1 N/A 70.0 42.9 N/A
36 Glaxosmithk Pharma. 3346.5 28345.9 56.2 50.8 16.7 21.4 32.7 50.0 112.4 1.5
37 Glenmark Pharma. 851.5 24024.4 17.7 15.9 5.6 19.3 23.5 2.0 8.0 0.2
38 Godrej Consumer 1635.3 55687.5 40.9 35.1 10.9 23.8 23.3 5.8 17.5 0.4
39 Grasim Industries 4837.7 45158.3 14.4 11.6 1.7 9.6 12.5 18.0 9.5 0.4
40 HCL Technologies 750.8 105919.6 13.4 12.0 3.8 28.8 25.4 22.0 42.2 N/A
41 HDFC 1402.2 221675.0 N/A N/A N/A N/A N/A 17.0 26.4 N/A
42 HDFC Bank 1248.5 316075.3 N/A N/A 4.2 18.6 N/A 9.5 18.8 0.8
43 Hero MotoCorp 3197.3 63846.1 N/A N/A 8.0 42.7 N/A 60.0 50.7 1.9
44 Hindalco Industries 134.3 27722.4 14.7 10.4 0.7 0.7 6.6 1.0 24.2 0.7
45 Hindustan Unilever 909.4 196816.5 42.4 36.8 49.5 102.1 121.5 16.0 84.8 1.8
46 HPCL 1229.4 41630.8 9.9 9.8 2.4 31.5 19.8 24.5 55.4 2.0
47 ICICI Bank 272.0 158220.3 12.4 9.4 1.7 11.4 15.5 5.0 28.6 1.8
48 Idea Cellular 105.1 37826.4 21.5 18.1 1.5 12.6 7.2 0.6 6.8 N/A
49 Indiabulls Housing Fin. 770.5 32466.7 11.2 9.3 3.0 27.1 26.9 45.0 80.9 5.8
50 Indian Oil Corporation 532.3 129239.9 9.9 9.0 1.7 15.5 15.6 6.6 34.2 1.2
51 IndusInd Bank 1168.3 69610.5 N/A N/A 4.0 N/A N/A 4.5 12.8 N/A
52 Infosys 1077.5 247495.8 16.7 14.9 4.0 24.1 23.3 24.3 40.7 N/A
53 ITC 254.3 306960.7 28.1 23.7 9.0 30.2 30.1 4.3 69.0 1.7
54 JSW Steel 1684.4 40714.5 13.4 11.2 1.9 -3.7 13.8 7.5 N/A 0.4
55 Kotak Mahindra Bank 750.4 137699.1 29.2 23.2 4.1 12.5 15.1 0.5 2.7 0.1
56 Larsen & Toubro 1577.3 147001.0 26.4 21.7 3.3 12.0 13.1 18.3 33.4 1.2
57 LIC Housing Finance 514.1 25944.7 N/A 8.8 2.8 19.5 N/A 5.0 18.1 1.0
58 Lupin 1705.0 76865.9 26.2 22.1 7.0 22.9 22.9 7.5 14.9 0.4
59 M & M Financial 321.1 18260.2 17.6 13.6 2.8 12.4 17.0 4.0 29.5 1.2
60 Mahindra & Mahindra 1452.5 90213.7 19.9 15.5 3.0 11.8 14.0 12.0 23.2 0.8
61 Marico 283.3 36550.5 42.9 36.7 17.4 37.0 36.8 4.3 75.7 1.5
62 Maruti Suzuki 4763.5 143895.8 23.6 20.3 5.2 18.0 19.9 25.0 19.8 0.5
63 Motherson Sumi 328.1 43399.2 25.9 20.4 10.2 33.7 34.1 2.0 30.7 0.6
64 MRF 34053.9 14442.7 N/A N/A 2.1 N/A N/A N/A N/A N/A
65 NMDC 103.3 40935.7 14.5 13.4 1.4 9.5 9.2 11.0 146.9 10.7
66 NTPC 158.6 130773.1 13.5 11.8 1.5 11.9 11.1 2.5 20.6 1.6
19

AUGUST 2016
VALUATION AT A GLANCE
67 Oil India 370.3 22260.1 10.6 8.8 1.0 9.1 10.4 20.0 46.1 5.4
68 ONGC 221.4 189375.8 11.4 9.2 1.0 7.7 10.1 9.5 44.3 4.3
69 Oracle Financial Serv. 3724.0 31614.5 22.9 20.0 8.6 32.7 32.2 665.0 471.9 17.9
70 Petronet LNG 297.3 22297.5 N/A N/A 3.5 15.3 N/A 2.0 17.0 0.7
71 Power Finance Corp. 219.3 28948.5 N/A N/A 0.8 18.1 N/A 9.1 20.0 4.1
72 Power Grid Corp. 176.2 92180.6 11.9 10.2 2.1 14.8 17.5 2.0 22.2 1.1
73 Punjab National Bank 129.0 25320.6 N/A N/A 0.6 -8.8 N/A 0.0 N/A 0.0
74 Reliance Capital 439.3 11098.2 10.4 9.0 0.8 8.0 7.4 9.0 22.7 2.0
75 Reliance Comm. 51.4 12793.4 19.2 13.8 0.3 1.8 2.6 0.0 0.0 N/A
76 Reliance Industries 1026.4 332788.3 11.7 10.1 1.4 12.0 11.3 10.0 12.5 1.0
77 Reliance Infrastructure 573.9 15091.7 6.8 6.5 0.5 7.2 7.3 8.0 11.7 1.4
78 Rural Electrification 212.1 20944.0 N/A N/A 0.7 21.1 N/A 10.7 19.8 5.0
79 Shriram Transport Fin. 1232.9 27971.2 17.2 13.4 2.7 12.2 16.1 10.0 19.2 0.8
80 Siemens 1313.0 46758.6 66.7 52.6 9.1 24.7 14.1 6.0 30.1 0.5
81 State Bank of India 231.0 179320.2 12.5 9.6 1.0 6.6 9.5 2.6 16.5 N/A
82 Steel Authority of India 47.4 19556.0 N/A 18.0 0.5 -9.5 3.9 2.0 38.3 4.2
83 Sun Pharma. 825.5 198660.6 28.4 23.4 6.3 16.5 20.7 3.0 15.9 0.4
84 Sundaram Finance 1533.8 17040.6 N/A N/A 4.1 14.7 N/A 11.0 21.0 0.7
85 Tata Chemicals 466.7 11889.5 11.9 10.8 1.9 13.2 15.6 10.0 32.7 2.1
86 TCS 2619.3 516104.3 19.4 17.6 7.0 38.1 31.0 43.5 35.3 1.7
87 Tata Global 140.2 8845.3 20.6 18.3 1.5 5.8 8.1 2.3 43.6 1.6
88 Tata Motors 506.9 163003.2 10.8 9.2 2.1 16.1 17.8 0.2 0.6 0.0
89 Tata Power 70.7 19121.7 13.8 11.3 1.3 5.8 10.3 1.3 783.1 1.8
90 Tata Steel 349.9 33978.0 18.7 10.2 1.2 -10.2 10.1 8.0 N/A N/A
91 Tech Mahindra 485.6 47137.5 13.1 11.4 3.3 23.4 21.0 6.0 37.2 N/A
92 Titan Company 426.6 37873.0 44.5 36.8 10.9 21.0 23.4 2.2 28.3 0.5
93 UltraTech Cement 3678.8 100958.8 31.1 24.0 4.8 11.4 15.7 9.5 11.4 0.3
94 United Breweries 822.3 21740.7 57.0 46.2 10.3 14.9 17.6 1.0 10.3 0.1
95 United Spirits 2531.9 36794.8 69.3 46.2 20.6 79.1 31.0 0.0 0.0 0.0
96 UPL 610.1 26149.1 16.2 13.9 3.9 20.5 20.8 5.0 16.5 0.8
97 Vedanta 169.5 50251.6 13.1 8.6 1.1 -18.9 11.1 3.5 N/A 2.1
98 Wipro 553.8 136828.1 15.3 13.8 2.8 19.1 17.9 6.0 16.6 N/A
99 Yes Bank 1223.5 51509.1 N/A N/A 3.7 19.9 N/A 10.0 16.6 0.8
100 Zee Entertainment 484.9 46567.4 37.0 29.8 11.0 22.7 24.0 2.3 24.5 0.5
#N/A: Not Available
Source: Bloomberg Consensus as on July 27, 2016
FY17 FY18 FY17 FY18 FY16 P/O FY16 FY16
20

STRONG ON CONSUMPTION
DISCRETIONARY SPENDING
Discretionary spending has strong correlation with the
economic development as the individuals trends to spend
more when his disposable income increase. Individual’s
priority is to fulfill its basic needs and after that any
residual incremental income is used to spend/invest in
purchasing homes, cars, luxury items and precious metals
based on their discretion. Government’s fiscal stimulus to
spur economic growth by way of recommending and
approving 7th Pay commission (PC) should increase the
demand for owning cars, homes and luxury items. The
increase in public sector wages and pensions should
boost urban discretionary demand, particularly for
durables such as automobiles and smaller-ticket items
like clothing and footwear and recreation services.
However, the impact of 6th PC had been robust owing to
higher percentage hike in wages and salary and 3 years
arrears as compared to 3 months arrears approved in 7th
PC. Implementation of the sixth pay commission led to a
rise in consumption expenditure on automobiles of more
than 20% the following year, compared with 7.4% yoy in
the year prior. Taking cues from previous pay commission,
it boosted consumer discretionary demand, pushed up
CPI inflation and increased the government’s fiscal
burden. Providing fiscal stimulus by ohiking wages of
central government employee also distrted the fiscal
balances of the government. For example, 6th PC, which
w a s i m p l e m e n t e d i n F Y 0 9 , raised t h e ce n t ral
government’s wage and pension bill from 2.0% of GDP in
FY08 to 2.7% in FY09 and further elevated to 3.3% in
FY10. Its impact was felt for two years as the government
staggered the payment of arrears accumulated owing to
its delayed implementation. Combined with a slowdown
in tax revenue caused by the global financial crisis, this
pushed up the fiscal deficit from 2.5% of GDP in FY08 to
over 6% in the subsequent two years. There was a similar
impact during the implementation of the Fifth Pay
Commission. Therefore the pay hikes should provide a
boost to growth, partly offsetting the growing downside
risks from slower global demand and still-weak private
sector investment. This year monsoon would play a big
role in spurting consumer demand after two consecutive
year of drought. Well spread monsoon across the country
would increase the productivity of rural areas, resulting in
improvement in purchasing power of rural people. The
demand for passenger vehicles, two wheelers, tractors,
home appliances and consumer staples are directly
correlated with the progress of monsoon during this year.
Implementation of GST from next financial year would
unlock the economic value which is concealed due to
current complexity of indirect tax structure. GST bill which
is seeking passage in Rajya Sabha would play a vital role
in economic growth as it would simplify the current
complex indirect tax structure and bring the unorganized
sector under tax purview. The Centre has been pushing
hard to build a consensus on the legislation so that it can
finally be passed in the ongoing monsoon session of
Parliament. Eventually, the implementation of GST would
create a uniform tax rate which could support the growth
of consumer demand going ahead. 7th Pay commission,
good monsoon, effect of GST and rising middle class are
the main catalysts that would drive the discretionary
spending, resulting in strong demand for Auto, Real estate,
Consumer durable goods and Retail Finance sectors.
Rising middle class income will give discretionary
spending power to people
India accounts for 3% of the global middle class with 23.6
million people. A report from Credit Suisse “Global Wealth
Report 2015” stated that there are 664 million adults
belonging to the global middle class in 2015, or 14% of
the adult population, where India has 23.6 million adults
who qualified as middle class in 2015. The growth of
wealth has been the fastest in India (second only to China)
over 15 years (2000-2015). India added 6.7 million adults
to the middle class over these 15 years, and middle-class
21

AUGUST 2016
DESCRETIONARY SPENDING
wealth rose by USD 1.2 trillion. The middle class in India has a 22.6% share (USD 780 billion or Rs 5,070,000 crore) of
the country’s wealth, while sections above the middle class (higher middle-class) share about 64% of the wealth. It has
been noticed that income per middle class adult in India has more than doubled from USD 2,040 (Rs 97,104) in 2000 to
USD 5,100 (Rs 205,020) in 2007. However, the growth of middle class in India was hit by global economic crisis in 2008
and plunged by 26%, after it bounced back to USD 5,300 (Rs 241,150) in 2010. It continued to fall due to adverse
exchange rates and was estimated at USD 4,352 (Rs 282,880) in 2015. In India, middle class wealth is dominated by real
assets, which account for about 86% of estimated household assets. Globally, the share of middle-class wealth has fallen
since 2008, except in China, over the period 2000 to 2015. Further according to the Euromonitor, the Indian average
income per household is set to increase by 89.8% in real terms to reach USD 10,073 (in constant 2014 prices) by 2030.
Such growth in income would transfer the consumer spending of Indian middle class from “bottom of the pyramid”
market towards a greater and more sophisticated level. Increase in per capita income would drive discretionary spending
which share in total household spending is expected to rise from 52% in 2005 to 70% in 2025 (as per Motilal Oswal
report). Rising middle classes would spur the demand for consumer durable goods, automobiles, real assets and consumer
loans.
Source : IMF, World Bank, Tech Sci Research
Source : Global Wealth report
Source : Global Wealth report
22

STRONG ON CONSUMPTION
Source: Motilal Oswal Presentation; Note: Discretionary items include Health
care, Education & Recreation, Communication, Transportation, Personal
products & services, Housing & Utilities and Food, beverages & Tobacco
7th Pay commission to boost consumer demand
Government approved a 16% increase in pay and 23.6%
hike in pensions for central government employees, in
line with the seventh pay commission’s recommendations.
However, government refrained from approving 63%
increase in allowances. The 7th PC will affect 4.7 million
central government employees and 5.3 million pensioners
and it will be implemented from January 1, 2016. 7th PC
payout will be favorable for consumption though its
impact on aggregate demand would be less than 6th PC.
Payout this time is likely to be ~1.2% of GDP over 2
years, which would be nearly half of what was realized
under 6th PC. In 6th PC the average pay hike was 60%
and total payout for government was 2.5% of GDP over 2
years. Further, in 7th PC the time arrears are just for 3
months versus 3 years in 6th PC. Higher wages would
drive demand growth for consumer discretionary items
such as automobiles, clothing and footwear. Rise in
automobile growth is considered as an indicator of
economic boom which grew over 20% in FY10 compared
with 7.4% in the year prior to the 6th PC implementation.
Historically, it had been noticed that wage hike by
government stroke higher CPI inflation due to increase in
HRA of government employees and pay rise which boost
discretionary demand. Post the implementation of 6th PC
CPI services inflation rose from 4.4% in FY08 to 7.4%
during FY09. Higher disposable income will find an outlet
through both discretionary categories as well as staples.
This will not only spur the demand, but also give
economic growth a fillip. According to India Ratings &
Research, the pay package will boost consumption in the
economy by Rs 45,110 crore (0.3% of GDP) and increase
savings by Rs 30,710 crore (0.2% of GDP). The report also
estimated that the central government’s net tax revenue
(after sharing with states) will increase by Rs 14,100 crore
(0.09% of GDP) post 7th PC. As per the report the full
impact of the pay hike would be felt in FY18, when bigticket
items get a fillip. For instance, real estate off-take
will kick-off with lag effect. As far as the auto sector is
concerned, government employees and pensioners
accounted for 10-15% of the 2.78 million passenger
vehicles sold in India during FY16 and pay hike can bring
more buyers, resulting in higher demand for passenger
vehicles. The pay commission will put extra money in the
hands of a large section of Indian consumers, thus spurring
the demand for discretionary and aspirational products
which could positively impact consumer durables sector.
Rising demand for consumer durable products, cars and
housing would drive the retail lending growth, thus could
have affirmative impact on banks and NBFCs.
% of GDP
6th PC
7th PC
Source: Industry report
Rural demand to drive discretionary spending on the
backdrop of good monsoon
Rural economy had been depressed in last two years as
two consecutive years of drought have taken a toll on rural
household incomes. But an ‘above normal’ monsoon, as
predicted by India Meteorological Department (IMD), could
boost rural demand which in turn, could have a positive
impact on overall economy. A report by Goldman Sachs
stated that if the rural economy grows by one percentage
point, it could potentially boost overall gross domestic
23

AUGUST 2016
DESCRETIONARY SPENDING
product (GDP) growth by up to 70 basis points over two
quarters. According to the report, the direct impact of an
increase in rural growth is between 45 and 50 bps, the
higher impact would have positive spillover effects
through the urban economy. There are eight indicators to
sense the rural growth which includes two-wheeler &
passenger car sales, household kerosene consumption,
tractor sales, agriculture loans, power demand, yarn
production, agriculture exports and government
expenditure on rural areas. Further, the report also stated
that there is an expectation, consumption to grow steadily
once the proceeds of the Pay Commission and the effects
of good monsoon play out. Higher rural growth could also
cool down headline inflation by 40 bps, due to easing of
supply constraints. Though in the interim period inflation
may edge upwards owing to demand pressures. A good
well spread monsoon across the country would bolster
farm income and boost rural discretionary spending.
Consecutive droughts in a row have also meant that rural
demand has declined significantly, leaving urban demand
and public investment to drive the economy in the
absence of pick-up in private investment. A normal to
above normal monsoon is positive news for rural demand
and for food prices. A bumper crop production would
help to keep the prices of pulses and vegetables under
check which in turn reduce headline inflation and would
encourage RBI to lower down interest rate further, thus
helping to revive the demand in economy. Even,
government is very proactive in boosting rural
consumption thus have increased the budgeted allocation
towards rural areas during FY17 budget. The Union
Budget for FY17 reflected the government’s firm
commitment to substantially boost investment in
Agriculture, Social Sector, Infrastructure and Employment
generation. The government has envisaged of doubling
the farmer’s income in the next five years. To achieve
that, government has increased budgetary allocation to
the ministry of Agriculture and Farmers welfare by ~94%
YoY to ~Rs 445 billion and ~25% YoY increase in total
Plan rural spending at Rs 878 billion during FY17. Such
massive budgetary allocation towards rural development
would augment farms productivity and rural income which
in turn promote more discretionary spending.
Rs. in billion
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16BE
FY17E
Source: Union Budget document
Source: Economic Survey FY 16
GST to discover more rational pricing for consumer
products
GST (Goods & service tax) is the single most powerful tax
reforms that India is going to see. The objective of GST is
to end the regime of multiple taxes on goods and services
and bring them under one rate, which would make the
pricing of the products more rational. The system will
change from the current production-based taxation to
being consumption-based, which would bring uniformity in
taxes across states and is expected to increase efficiency
and compliance in the system. GST will replace all the
indirect taxes including central excise duty, value added
tax, service tax, octroi, luxury tax with a single tax rate. For
manufactured consumer goods, the current tax regime
mean the consumer pays ~ 25-26% more than the cost of
production due to excise duty and value added tax.
24

STRONG ON CONSUMPTION
Experts’ indication of GST rate between 18-22% would
make consumer goods cheaper, thus providing leeway to
consumer to increase their budget of discretionary
spending. As per PWC, in current tax system, production
of goods is taxed and the rates are high. Further, tax on
tax adds to the cost build-up. Thus with the GST
implementation, overall taxes on goods are likely to come
down making them cheaper. Further, GST would also help
in lowering logistic cost and save up to 1.5% of sales in
warehousing costs. These benefits are expected to be
accrued by the companies and will be passed on to the
consumer gradually in order to spur demand for
consumer products.
Jan-14
Source: MOSPI
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Benign inflation and falling interest rates to boost
consumer demand
Elevated consumer price inflation always deters the
consumers’ buying sentiment. High inflation warrants tight
monetary policy, resulted in higher interest rate regime.
Since 2013, consumer based inflation has been
moderating after touching high of 11.2% in November
2013. Central Bank prudent approach to tackle inflation
coupled with slowdown in commodity prices and tepid
global economic growth are the reasons for which the
inflation is going down. Currently, CPI is at 5.77%
reported during June 2016, which is at comfort level of
RBI. As the inflation has been moderating since 2013, RBI
has been acting in sync with lower inflation by reducing
the benchmark interest rates. Nonetheless, most of the
rate cut benefit has not been passed on to end
consumers, thus limiting the broader impact of falling
interest rate. There is an expectation that inflation could
fall further as above normal monsoon predicted by IMD
would increase agricultural output and cut down the
supply shortage. Further fall in inflation would provide
room for RBI to consider the rate cut in coming policy
meets. Falling inflation and interest rates would act as a
blessing for consumer products and retail financing as
demand for these products would start rising.
Higher discretionary spending to benefit the sectors
Rising disposable income would increase discretionary
spending and that would benefit the sectors like auto,
real estate, consumer durable and NBFCs. Recent
government approval of 7th PC and One rank One
10
9
8
7
6
5
4
3
2
1
0
27-Apr-01
Source: RBI
5-Mar-02
30-Oct-02
pension would definitely bring the incremental money flow
for the government employees and pensioners. Historically
noticed that post the pay commission hike, the demand for
discretionary items such as cars, homes, clothes, electronic
products used to rise, though it came as a lag effect.
Expectation of good monsoon in current year also raises
the hopes of good farm productivity which will drive the
rural income. Higher rural income would also provide fillip
to consumer spending as 60% of total population stay in
rural areas. Below are the sectors which could be directly
benefited from rise in discretionary spending.
Auto sector:
7-Mar-03
31-Mar-04
26-Oct-05
25-Jul-06
Repo Rate (%)
30-Mar-07
30-Jul-08
7th PC would play a vital role in increasing
disposable income. Previously, during the 6th PC
government employees spent around 10% of total salary
increase towards purchasing new cars, which had positive
impact on demand for passenger vehicles (PV) and twowheelers.
Implementation of the 6th PC led to a rise in
8-Dec-08
21-Apr-09
2-Jul-10
2-Nov-10
3-May-11
16-Sep-11
29-Jan-13
20-Sep-13
15-Jan-15
29-Sep-15
25

AUGUST 2016
DESCRETIONARY SPENDING
consumption expenditure on automobiles of more than
20% the following year, compared with 7.4% yoy in the
year prior. The penetration of two-wheelers in the
government employee segment is high; therefore, the
passenger vehicle segment will likely be the key
beneficiary of salary increases due to implementation of
7th PC. Expectation of strong rural income on the
backdrop of good monsoon this year would also push the
demand for passenger vehicles and two wheelers.
Real estate: 7th PC will have a positive impact on the
realty sector and provide opportunity to middle class
government employees to own a house with the
increased disposable income. Hike in salary indicates an
increased spending power and better economic growth.
The real estate sector is already reeling under pressure
owing to high unsold inventory across the country and
tepid economic growth. Developers are offering discounts
to get buyers back into the market. 7th Pay Commission’s
is seen as a step that would boost the demand and home
ownership sentiment. Real estate market was a major
beneficiary during last 6th PC cycle but during 7th PC the
growth could be muted due to high prices of properties
as compared two last pay hike in 6th PC and no lump
sum arrears which can be used to make the down
payment to book a house. It has been noticed that realty
prices witnessed sharp appreciation in second half of
decade by increasing 51% between 2009-2015.
Consumer durables: Consumer spending will be on the
rise owing to an increase in government employee
income levels by 23.55% due to 7th PC. According to
CEAMA’s President (Consumer Electronics and Appliances
Manufacturers Association), with the rise in disposable
income and scaling of e-commerce, the consumer durable
industry is expected to grow by 15 % during FY17.
During 6th PC the sales volume of Air conditioners rose
by 27% yoy during 2009 from 4.8% yoy growth in 2008.
Demand for consumer durable products would improve
due to increase in disposable income, which will be due
to 7th PC and higher farm productivity amid good
ongoing monsoon.
Domestic car and two wheeler sales volume rose post 6th PC
Source: SIAM
ACs volume rose sharply post 6th PC
Source: Company data
Source: Industry report
Apparel and footwear volumes witnessed robust growth post 6th PC
Source: Company data
26

STRONG ON CONSUMPTION
Information Technology
The Indian IT industry has been growing in double digits
over the last 5 years, which is more than 2 times higher
than the global IT growth. According to the IBEF estimates,
the IT-BPM sector in India is estimated to expand at a
CAGR of 9.5% to $300bn by 2020. The high growth is
mainly driven by India being the largest sourcing
destination, accounting for approximately 55% of the
$146bn market. India's IT services is cost competitive as
it is ~3-4 times cheaper than the US market, which
continues to be its Unique Selling Proposition (USP) in
the global sourcing market as shown below. However,
India is gaining prominence in intellectual capital space
with several global IT firms setting up their innovation
centers in India and with increased usage of automation.
According to the IBEF, India’s highly qualified talent pool of technical graduates is one of the largest in the world and is
available at a cost saving of 60-70% to source countries. This large pool of qualified skilled workforce has enabled Indian
IT companies to help clients to save $ 200bn in the last five years. India’s IT industry amounts to 12.3% of the global
market, largely due to exports. Export of IT services accounted for 56% of total IT exports from India. The Business
Process Management (BPM) segment accounted for 23.5% of total IT exports during FY15.The IT-BPM sector in India grew
at a Compound Annual Growth rate (CAGR) of 15% over 2010-15, which is 3-4 times higher than the global IT-BPM
spend, and is estimated to expand at a CAGR of 9.5% to $300 billion by 2020.
The Indian IT industry has been growing rapidly in double digits over the last ten years. The contribution of the IT sector
to India’s GDP has increased to a whopping 9.5% in FY15 from 1.2% in FY98, thanks to its cost competitive advantage
and growing population. India’s IT sector is dominated by its exports business with the US economy contributing around
62% of the total exports as shown below, followed by the UK and Europe.
27

AUGUST 2016
SECTOR OUTLOOK
According to National Association of Software and
Services Companies (NASSCOM), the Indian IT sector is
forecasted to grow at a rate of 10%-12% in FY2017 in
constant currency terms. NASSCOM President R
Chandrashekar dismissed the recent dismal performance
of the IT companies and said that the IT sector continues
to enjoy high revenue visibility over the near term.
According to a report by NASSCOM and Zinnov
Management Consulting Pvt Ltd, India is the fourth largest
base for new businesses in the world and home to over
3,100 tech start-ups, is set to increase its base to 11,500
tech start-ups by 2020.India’s internet economy is
expected to touch Rs 10 trillion ($146.72 bn) by 2018,
accounting for 5% of the country’s GDP, according to a
report by the Boston Consulting Group (BCG) and Internet
and Mobile Association of India (IAMAI).
Social, Mobility, Analytics and Cloud (SMAC) are
collectively expected to offer a $1tn opportunity.
According to IBEF, Cloud represents the largest
opportunity under SMAC, increasing at a CAGR of
approximately 30% to around $650-700bn by 2020
followed by social media sector which offers a $250 bn
market opportunity by 2020.Public cloud services revenue
in India is expected to reach $ 838mn in 2015, growing by
33 per cent year-on-year (y-o-y), as per a report by Gartner
Inc. In yet another Gartner report, the public cloud market
alone in the country was estimated to treble to US$ 1.9
billion by 2018 from US$ 638 million in 2014. Increased
penetration of internet (including in rural areas) and rapid
emergence of e-commerce are the main drivers for
continued growth of data centre co-location and hosting
market in India.
Cloud based services to be the key thing going forward:
The public cloud services market in India is projected to
grow 30.4% in 2016 to total $1.26bn and reach $3.5bn by
2020, according to Gartner, Inc. The highest growth will
come from cloud system infrastructure services
(infrastructure as a service [IaaS]), which is projected to
grow 32.5% in 2016, with platform as a service (PaaS)
projected to grow 31.7%.
28

STRONG ON CONSUMPTION
Cloud services are growing due to organizations pursuing a digital business strategy. Among Indian companies, Mind Tree
and Peristent Systems have gained importance among other global IT companies followed by Tech Mahindra, L&T Infotech
and Hexaware Technologies as shown below.
Mind Tree is leading in the digital services category globally
However, recently IT sector performance has been soft
due to delayed client spending mostly due to uncertainty
around two factors:
• The upcoming presidential election in the US will
play a crucial part: India’s export of software services
accounted for $82 bn in the financial year March
2015, according to the Reserve Bank of India. 60%
of the export revenues came from North America.
Recently, America has doubled the fees for certain
categories of H1B and L1 visas to $4,000 and
$4,500 respectively which will adversely affect the
Indian IT companies. Nasscom said the decision’s
financial implications for the Indian technology
sector would be around $400 mn a year. In addition
the US presidential elections’ candidates are Hilary
Clinton and Donald Trump out of which the latter is
not so favorable to outsourcing of employees. He
has been frequently accusing India and China of
taking unfair “advantage of the United States” and
also told “H-1B, whatever it is, I use it but I don’t like
it. I want to scrap all H-1B visas.” IT industry may
face setbacks if Donald Trump wins the elections.
• Brexit may likely cause a delay in consumer
spending: The unexpected and most eventful event of
the UK leaving from the EU finally happened and will
likely have its repercussions over the coming years.
Many clients have delayed their client spending
because of the uncertain impact from this event. If
the UK currency -Pound depreciates further, current IT
contracts, if not re-negotiated, would either become
loss making propositions or would not yield the same
kind of margin. However, this may cause a temporary
setback for Indian IT firms but according to Nasscom
President “in the longer term, Brexit holds
opportunities for India”
Below are the companies whose exposure to the US and
European countries are given below. Tier 2 IT firms like
Persistent Systems and Hexaware derive more than 80%
of the revenues from North America while NIIT Technology
has the highest exposure (35%)to the European markets,
followed by Tech Mahindra which has around 29% of
exposure in Europe. Attrition rate of Infosys and Cyient has
been the highest >=20% off-late.
29

AUGUST 2016
SECTOR OUTLOOK
Companies Attrition Rate Utilisation Rate North America Europe + UK BFSI
Infosys 21.2% 76.5% 62.0% 23.0% 33%
TCS 13.6% 80.9% 53.5% 26.3% 40%
Wipro 16.5% 78.8% 53.5% 25.4% 25%
Mind Tree 16.5% 71.4% 66.7% 23.1% 25%
Cyient 19.9% 73.5% 60.0%

STRONG ON CONSUMPTION
Infosys 24.3 22.9 27.4 27.3 17.7 16.7
TCS 41.9 33.4 28.2 27.7 20.7 19.5
Wipro 20.4 17.9 21.2 20.1 15.3 15.1
HCL
Technology 28.2 26.0 21.5 21.1 14.2 13.5
OFSS 32.7 32.2 43.3 42.4 26.8 22.7
Mind Tree 24.3 22.5 17.6 16.3 16.4 16.1
Cyient 17.4 17.5 13.6 13.9 17.0 14.9
Persistent
Systems 19.5 18.4 17.9 16.1 18.6 17.3
Hexaware 28.8 30.2 16.5 17.0 16.4 14.6
NIIT
Technology 18.9 16.3 17.7 16.9 10.0 10.1
Source: Bloomberg
ROE EBITDA Margin P/E
FY16 FY17E FY16 FY17E FY16 FY17E
IT sector may face bumpy ride in the short term;
Artificial Intelligence (AI), cloud computing and digital
space will continue to experience good demand
According to Nasscom, Indian IT sector is likely to grow by
10%-12% in FY17 on the back of uniform growth and
ongoing demand for digitization. Overall, we expect the IT
sector to continue to perform well although it may be a
bumpy ride due to uncertainty around the upcoming US
elections and Brexit impact. There is one more factor
which needs attention i.e the rising need for automation
of work amid increasing use of technology. Nasscom
President Mr R Chandrashekhar expects 5%-10% of
existing jobs to be automated in the next 10 years.
MrChandrashekhar also pointed out that IT sector hiring
may slow down due to margin pressure by the IT firms as
well as increased automation of jobs. He said that “Hiring
activity in the year before last was 2.20 lakh (new jobs
were created in IT sector). Last year, (FY 2015-16) there
were about two lakh additions. This financial year, we are
expecting it to be on the lower side of that” .But he also
pointed out that while the entry-level coding jobs will see
a cut, the demand for skills in robotics, AI, digital space,
biotech, nanotech, smart technologies, etc will likely
increase. According to the Nasscom-McKinsey study about
60-70% of the existing staff will have to be re-skilled.
But overall, India remains in a sweet spot with respect to
IT sector demand over the coming years owing to its cost
competitiveness feature, although the risk reward ratio is
gradually fading as the visa costs have increased a lot
from before. There is also an increasing demand for IT in
healthcare and agriculture thanks to increasing use of
cloud computing.
Below are the commentary highlights of the management
of the Q2FY16 quarter. Overall, most of the Indian IT
companies expects their margins to remain under pressure
due to delay in client spending and increasing automation
of jobs.
Some of the recent developments in the IT sector are as
follows:
•
•
•
•
•
July,2016- Oracle Corp. agreed to pay $9.3 bn in cash
in order to acquire NetSuite a cloud-computing firm at
a 19% premium of $109. NetSuite is among the
leaders in providing such software via subscriptionbased,
on-demand computing, and buying it will help
Oracle compete against SAP SE, the leader in ERP
software, according to Gartner Inc.
June, 2016- Tata Consultancy Services (TCS), (BSE:
532540, NSE: TCS) a leading global IT services,
consulting and business solutions organization, has
announced a global partnership with Randstad Global
IT Solutions, to design and deploy one of the world’s
largest end-to-end public cloud marketplaces for IT
infrastructure services.
April 2016- Persistent Systems (PSYS) has recently
announced an agreement with IBM to work on
Internet of Things (IoT). PSYS will become a strategic
partner to develop IBM Watson IoT stack and also
invest in supporting IBM’s platforms. IoT is an
advanced version of technology which combines
sensors, network, and technology to create software
that gets updated on a real-time basis.
HCL Tech has signed seven large deals worth $2bn in
the January-March quarter.
April, 2016- Infosys, a global leader in consulting,
technology, and next-generation services, announced
the launch of Infosys Mana, a platform that brings
machine learning together with the deep knowledge
of an organization, to drive automation and innovation
– enabling businesses to continuously reinvent their
system landscapes.
31

AUGUST 2016
ECONOMIC REVIEW
The state of the banking sector has been a matter of
great concern for all stakeholders involved as much of the
government’s. The government has actually blamed the
RBI for deteriorating financials of banks. RBI governor
Raghuram Rajan had once said that ‘band-aids’ would no
longer work and banks need deep surgery. Band-aids here
were referred to the restructuring of loans on more
lenient terms to the ailing corporate loans which have
already turned non-performing advances (NPA). The asset
quality review (AQR) initiated by the RBI has actually
thrown up unpleasant surprises, however for good. Post
AQR which was initiated in the August-November period
last year, this has resulted in huge losses for the banks
(particularly PSBs) in the December 2015 as well as in
March 2016 quarters. Although, most banks have come
clean and the majority of the provisions have been done
with, nevertheless few of them including private sector
banks continue to throw unpleasant surprises as reported
in the ongoing earning season. The Financial stability
report (FSR) released by RBI last month has actually
highlighted the deep impact to the banking sector.
According to the report, the gross non-performing
advances (GNPAs) rose sharply to 7.6% of gross advances
in March 2016 from 5.1% in September 2015. The spike
in bad loans largely reflects re-classification of restructured
advances to NPAs following an asset quality review (AQR).
Consequently, the overall stressed advances rose only
marginally to 11.5% from 11.3% during the period, due to
a reduction in restructured standard advances ratio from
6.2% in September 2015 to 3.9% in March 2016. What’s
concerning is that according to the stress tests, the bad
loan mess could get uglier if the assumptions of RBI
actually come true. According to the FSR, even at baseline
assumptions, the GNPAs are likely to rise to 8.5% by
March 2017. But if the macroeconomic situation worsens,
the GNPAs could swell to 9.3% by March, to double the
level of GNPAs since September last.
Asset quality of SCBs
32

STRONG ON CONSUMPTION
NNPAs of SCBs
The good news is that the FSR has also highlighted of
improvements in the corporate sector and that the
stressed companies are deleveraging fast and the number
of ‘weak’ companies in the economy is declining. Based on
analysis of 1,800 to 2,600 Non Government Non Financial
(NGNF) listed companies, the FSR report concluded that
the proportion of “leveraged” companies declined sharply
from 19% in March 2015 to 14% in March 2016. The
proportion of “highly leveraged” companies also declined
from 14.2% to 12.9% over the same period. Moreover, the
share of debt of these companies in the total debt also
came down from 23.0% to 19.0%. The analysis also
highlighted improvement in the debt servicing capacity
and leverage of weak companies (interest coverage
ratio

AUGUST 2016
ECONOMIC REVIEW
NGNF listed companies: ‘Weak’ companies – current trend (2013-14 to 2015-16)
Although, the asset quality of the SCBs deteriorated
substantially between Sep 2015 and March 2016,
restructured standard advances ratio also reduced sharply
from 6.2% to 3.9% during the same period. Sharp
reduction in restructured standard advances actually
helped in arresting the deterioration in overall stressed
advances ratio and it rose marginally to 11.5% from
11.3% during the period. A spike in NPAs together with
decline in restructured loans implies that the AQR
mechanism has actually been working. Besides, this also
implies that the restructured loans of yester years which
have been kept as standard with “band-aids” are actually
NPAs. Thus, in the nutshell, marginal increase in overall
stressed advances implies that a substantial portion of
the restructured loans have been shifted to NPAs. PSBs
continued to hold the highest level of stressed advances
ratio at 14.5%, whereas, both private sector banks (PVBs)
and foreign banks (FBs), recorded stressed advances ratio
at 4.5%.
After the implementation of AQR, the banking sector
GNPAs showed a sharp y-o-y increase of 79.7% in March
2016. Large increases were observed across different
bank-groups. From chart (YoY Growth of GNPAs), it is
pretty evident that the rise in NPAs has been very steep
for PSBs followed by PVBs and then FBs. Moreover, from
probability density function, it can be deduced that
increasing proportion of restructured advances are
reckoned as non-performing.
YoY Growth of GNPAs
Sector-wise, the industrial sector showed a decline in the
stressed advances ratio from 19.9% to 19.4% between
September 2015 and March 2016, though the GNPA ratio
of the sector increased sharply to 11.9% from 7.3%.
Further, among the major sub-sectors within the industrial
sector, ‘basic metal and metal products’ accounted for the
highest stressed advances ratio as of March 2016 followed
by ‘construction’ and ‘textiles’. It is notable that the
stressed advances ratio of the ‘infrastructure’ sector
declined to 16.7% from 21.8% between September 2015
and March 2016.
34

STRONG ON CONSUMPTION
Asset quality in major sector (%)
Stressed advances ratios of major sub-sectors within
industry (% of advances of their respective sector)
Annual slippages of major sectors/sub-sectors (as on December 2015) on the other hand show that the textiles industry
had the highest number of standard accounts slipping into the NPA category at 8.8%, followed by the cement industry at
8.0%. In terms of outstanding amounts, the iron and steel industry saw the highest slippages at 7.8% followed by textiles
at 6.4%. While the government and the RBI is together taking various steps to address the issues plaguing the stressed
sectors, the demand environment is still yet to recover. Overall slippage ratio based on amount outstanding was 3.2%.
Annual slippage of standard accounts to NPA category-Sector wise (January to December 2015)
Overall share of large borrowers’ in total loans increased from 56.8% to 58.0% between September 2015 and March
2016. Besides, their share in GNPAs also increased from 83.4% to 86.4% during the same period. The GNPA ratio of large
borrowers increased sharply from 7.0% to 10.6% during September 2015 to March 2016 and the increase was evident
across all bank groups. In this respect, PSBs recorded the highest GNPA ratio at 12.9%. On the other hand, SMA-2 ratio
(SMA-2: Principal or interest payment overdue between 61-90 days) of large borrowers declined across bank-groups
during the same period. On the other hand, the share of standard advances in total funded amount outstanding of large
borrowers declined from 84.1% to 83.2% between September 2015 and March 2016.
35

AUGUST 2016
ECONOMIC REVIEW
Exposure of SCBs to large borrowers
(per cent)
Composition of total funded amount outstanding of large borrowers
Mar-15 Sep-15 Mar-16
i. Standard 86.2 84.1 83.2
ii. Restructured standard 8.4 8.9 6.2
iii. Sub-standard 1.7 2 3.3
iv. Doubtful 3 4.2 6.6
v. Loss 0.7 0.8 0.7
Top 100 borrowers
i. Fund-based amount outstanding to total fund-based amount outstanding of large borrowers 28.1 27.5 27.9
ii. Fund-based amount outstanding to total gross advances of SCBs 18.3 15.6 16.2
iii. GNPAs to total GNPAs of large borrowers 0.8 3.4 22.3
iv. GNPAs to total GNPAs of SCBs 0.7 2.9 19.3
Source: FSR
Share of large borrowers in SCBs’ loan portfolio
Distribution of SCBs based on RoAs (annual)
Needless to say, the profitability of the banks has been
hit hard on account of higher provisions owing to the
rising provisions and loans write off. According to FSR,
bank-wise distribution of RoAs (annual) shows that 21
SCBs with a share of 37% in the total assets of SCBs
recorded negative RoAs during the financial year 2015-
16. Further, seven banks with a share of 5% in the total
assets recorded RoAs in the range of 0 to 0.25%.
The report further states that the risks to the banking
sector have sharply increased since the publication of the
previous FSR in December 2015. A trend analysis of
banking stability indicator (BSI) suggests that stability
conditions in the banking sector which started
d e t e r i o rating i n m i d - 2 0 1 0 h ave n ow wo rsened
significantly. As earlier stated based on different macro
economic scenarios, stress tests were conducted for credit
risk at the system, bank-group and sectoral levels. The
macro stress tests suggest that under the baseline
scenario, the GNPA ratio may rise to 8.5% by March 2017
from 7.6% in March 2016. If the macro scenarios
deteriorate in the future, the GNPA ratio may further
increase to 9.3% by March 2017 under a severe stress
scenario. Under such a severe stress scenario, the system
level CRAR of SCBs may decline to 11.5% by March 2017
from 13.2% as of March 2016.
36

STRONG ON CONSUMPTION
Macroeconomic scenario assumptions (2016-17)
Macro factors Baseline Medium Stress Severe Stress
Growth in GVA at basic price 7.6 5.5 2.9
Gross fiscal deficit to GDP ratio 3.5 4.6 5.9
CPI (combined) inflation 5.1 6.9 9.1
Weighted average lending rate 11.3 11.9 12.6
Merchandise exports to GDP ratio 12.6 11.1 9.3
Current account balance to GDP ratio -1.3 -2.4 -4.8
Note: GVA=Gross value added
Source: FSR, RBI
Projection of system level GNPA ratios and CRAR of SCBs (under various scenarios)
A macro stress test of sectoral credit risk revealed that in a severe stress scenario, among the select seven sectors, iron
and steel industry (which had the highest GNPA ratio at 30.4% as of March 2016) could see its GNPA ratio moving up to
33.6% by March 2017 followed by engineering (from 10.9% to 15.9%) and infrastructure (from 7.1% to 13.4%).
37

AUGUST 2016
ECONOMIC REVIEW
Projected sectoral GNPAs under various scenarios (per cent of advances of their respective sector)
Thus, clearly while the process has been initiated and the
banks are in the process of much needed clean up of the
balance sheets. The corporate from the stressed sectors
like iron & steel, engineering has often been victim of
muted demand and excess capacities thus unable to
service interest payments. Thus, although the FSR
highlights that the corporate de-leveraging has indeed
begun and the final assessment states that even though
the banking sector is going through difficult phase, the
Indian financial sector remains stable. The newly
introduced sustainable structuring of stressed assets (S4A)
scheme expects to address the issues with the stressed
players particularly in the iron & steel sector. However,
the success will also be dependent on the outlook of the
industry apart from the will and management efficiency.
In the face of global challenges plaguing India’s growth
story, continuation of sound domestic policies and
structural reforms remain the key for macroeconomic
stability. Needless to say that the banking sector,
especially public sector banks which account for 70% of
the overall banking in the country needs to be dealt with
more seriousness from the government. Although, the
implementation of bankruptcy code will take time,
nevertheless it is a beginning and a step in the right
decision. However, for the time being the government
needs to continue boosting the investment climate by
committing higher public capex since private capex still
needs time to pick up. Indeed, this is jeopardy for the
government to allocate the crucial budgetary funds given
the implementation of Seventh Pay commission. The only
concern is that with the exit of Mr. Rajan, the sole
proponent of AQR, the whole cleaning process might again
slow down and we might again fall back to the erstwhile
practices of accumulation of bad loans and is a major
setback. The onus thus rests with successor of Rajan as
well as with the government to continue with the banking
reform process since there is a considerable amount of
expenses involved in the exercise. According to the media
reports, Moody’s Investors Service have highlighted in a
note (dated 10 June 2016) that the government will have
to infuse Rs 1.2 lakh crore into state-run banks by 2020 to
bolster their balance sheets and make good the losses
suffered by them. This is way higher than an additional Rs
45,000 crore capital infusion plan envisaged by the
government and is thus a major challenge ahead.
38

STRONG ON CONSUMPTION
ECONOMY CHART BOOK
Monetary Policy Rates
10
9
8
7
6
5
4
3
2
1
0
Repo & Rev.Repo (%)
Repo Rate (%)
Reverse Repo Rate (%)
28
23
18
13
8
3
Statutory Liquidity Ratio (%)
27-Apr-01
05-Mar-02
30-Oct-02
07-Mar-03
31-Mar-04
26-Oct-05
25-Jul-06
30-Mar-07
30-Jul-08
08-Dec-08
21-Apr-09
02-Jul-10
02-Nov-10
03-May-11
16-Sep-11
29-Jan-13
20-Sep-13
15-Jan-15
29-Sep-15
10
9
8
7
6
5
4
3
Cash Reserve Ratio (CRR) (%)
08-Apr-00
29-Jul-00
24-Feb-01
19-May-01
29-Dec-01
16-Nov-02
18-Sep-04
23-Dec-06
17-Feb-07
14-Apr-07
04-Aug-07
26-Apr-08
24-May-08
19-Jul-08
11-Oct-08
08-Nov-08
13-Feb-10
24-Apr-10
10-Mar-12
03-Nov-12
11
10
9
8
7
6
5
4
3
Bank Rate (%)
02-Apr-00
22-Jul-00
17-Feb-01
02-Mar-01
23-Oct-01
29-Oct-02
29-Apr-03
13-Feb-12
17-Apr-12
29-Jan-13
19-Mar-13
03-May-13
15-Jul-13
20-Sep-13
07-Oct-13
29-Oct-13
28-Jan-14
15-Jan-15
04-Mar-15
02-Jun-15
29-Sep-15
05-Apr-16
25-Oct-97
08-Nov-08
07-Nov-09
18-Dec-10
11-Aug-12
14-Jun-14
09-Aug-14
07-Feb-15
02-Apr-16
11
10
9
8
7
6
5
4
3
Marginal Standing Facility (%)
03-May-11
16-Jun-11
26-Jul-11
16-Sep-11
25-Oct-11
17-Apr-12
29-Jan-13
19-Mar-13
03-May-13
15-Jul-13
20-Sep-13
07-Oct-13
29-Oct-13
28-Jan-14
15-Jan-15
04-Mar-15
02-Jun-15
29-Sep-15
05-Apr-16
10.5%
10.0%
9.5%
9.0%
8.5%
8.0%
7.5%
7.0%
SBI Base Rate (%)
01-Jul-10
21-Oct-10
03-Jan-11
14-Feb-11
25-Apr-11
12-May-11
11-Jul-11
13-Aug-11
20-Sep-12
19-Sep-13
19-Sep-13
07-Nov-13
10-Apr-15
08-Jun-15
05-Oct-15
39

AUGUST 2016
ECONOMY CHART BOOK
Liquidity Indicator
13.0
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
10 Years G-Sec Yield (%)
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
14
India's Government T-Bill (%)
12
10
8
6
4
2
0
T - Bill 364 Days(%)
T - Bill 91 Days(%)
T - Bill 30 Days(%)
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
May-11
Jul-11
Nov-11
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
18
16
Commercial Paper Rate (%)
14
12
10
8
6
4
2
CP 1 Month (%) CP 3 Month (%)
0
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
40

STRONG ON CONSUMPTION
16
India's AAA Corporate Bond Yield (%)
14
12
10
8
6
4
2
10-Year 5-Year 1-Year
0
Jan-02
Apr-02
Aug-02
Dec-02
Apr-03
Aug-03
Dec-03
Mar-04
Jul-04
Nov-04
Mar-05
Jun-05
Oct-05
Feb-06
Jun-06
Oct-06
Feb-07
Jun-07
Sep-07
Jan-08
May-08
Sep-08
Dec-08
May-09
Aug-09
Dec-09
Apr-10
Aug-10
Nov-10
Mar-11
Jul-11
Nov-11
Feb-12
Jun-12
Oct-12
Feb-13
Jun-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
Apr-15
Aug-15
Dec-15
Apr-16
Fund Flow
150,000
100,000
50,000
0
-50,000
-100,000
FII Investments (Rs. Cr.)
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
FDI Inflows (USD Mn)
140
120
100
80
60
40
20
0
-20
-40
-60
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
Inflation
12.0%
WPI Inflation - All Commodities
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
Jan-09
Jun-09
Nov-09
Apr-10
Sep-10
Feb-11
Jul-11
Dec-11
May-12
Oct-12
Mar-13
Aug-13
Jan-14
Jun-14
Nov-14
Apr-15
Sep-15
Feb-16
2004-05
2006-07
2008-09
2010-11
2012-13
2014-15
2016-17**
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
In USD mn
% growth (in USD)
10.0
CPI Inflation - Combined (Base - 2012)
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
41

AUGUST 2016
ECONOMY CHART BOOK
Industrial Activities
25%
IIP (YoY)
60
Nikkei India Manufacturing PMI
20%
58
15%
56
10%
54
5%
52
0%
50
-5%
48
-10%
Apr-06
Nov-06
Jun-07
Jan-08
Aug-08
Mar-09
Oct-09
May-10
Dec-10
Jul-11
Mar-12
Oct-12
May-13
Dec-13
Jul-14
Feb-15
Sep-15
Apr-16
46
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
Sectoral IIP (YoY)
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Mining Manufacturing Electricity General
Aug-15
Dec-15
Apr-16
80%
User IIP (YoY)
60%
40%
20%
0%
-20%
-40%
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
Dec-15
Apr-16
Basic Goods Capital Goods Intermediate Goods
42

STRONG ON CONSUMPTION
14
Index of Eight Core Industries
12
10
8
6
4
2
0
-2
Apr-05
Nov-05
Jun-06
Jan-07
Aug-07
Mar-08
Oct-08
May-09
Dec-09
Jul-10
Mar-11
Oct-11
May-12
Dec-12
Jul-13
Feb-14
Sep-14
Apr-15
Nov-15
6,000
5,000
4,000
3,000
2,000
1,000
0
Apr-05
Jan-06
Natural Gas
Oct-06
Jul-07
Apr-08
Jan-09
Oct-09
Jul-10
Apr-11
Jan-12
Oct-12
Production (MCUM)
Jul-13
Apr-14
Jan-15
Oct-15
Growth (%) (RHS)
100.0
80.0
60.0
40.0
20.0
0.0
-20.0
-40.0
80
Coal
70
60
50
40
30
20
10
0
Apr-05
Dec-05
Aug-06
Apr-07
Dec-07
Aug-08
Apr-09
Dec-09
Aug-10
Apr-11
Dec-11
Aug-12
Apr-13
Dec-13
Aug-14
Apr-15
Dec-15
25.0
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
-25.0
25,000
Petroleum Refinery Products
20,000
15,000
10,000
5,000
0
Apr-05
Jan-06
Oct-06
Jul-07
Apr-08
Jan-09
Oct-09
Jul-10
Apr-11
Jan-12
Oct-12
Jul-13
Apr-14
Jan-15
Oct-15
50.0
40.0
30.0
20.0
10.0
0.0
-10.0
-20.0
Production (Mn. Tn.)
Growth (%) (RHS)
Production ('000 Tn)
Growth (%) (RHS)
4,000
Crude Oil
20.0
4,000
Fertilizers
30.0
3,500
3,000
2,500
15.0
10.0
5.0
3,500
3,000
2,500
20.0
10.0
2,000
0.0
2,000
0.0
1,500
1,000
500
-5.0
-10.0
-15.0
1,500
1,000
500
-10.0
-20.0
0
Apr-05
Jan-06
Oct-06
Jul-07
Apr-08
Jan-09
Oct-09
Jul-10
Apr-11
Jan-12
Oct-12
Jul-13
Apr-14
Jan-15
Oct-15
-20.0
0
Apr-05
Jan-06
Oct-06
Jul-07
Apr-08
Jan-09
Oct-09
Jul-10
Apr-11
Jan-12
Oct-12
Jul-13
Apr-14
Jan-15
Oct-15
-30.0
Production ('000 Tn)
Growth (%) (RHS)
Production of ('000 Tn)
Growth (%) (RHS)
43

AUGUST 2016
ECONOMY CHART BOOK
10,000
Steel
25.0
9,000
20.0
8,000
7,000
15.0
6,000
10.0
5,000
5.0
4,000
0.0
3,000
-5.0
2,000
1,000
-10.0
0
-15.0
Apr-05
Jan-06
Oct-06
Jul-07
Apr-08
Jan-09
Oct-09
Jul-10
Apr-11
Jan-12
Oct-12
Jul-13
Apr-14
Jan-15
Oct-15
Production ('000 Tn)
Growth (%) (RHS)
Commodity
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Gold USD per Oz
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
30,000
Cement
25.0
35000
Gold Rs. per 10g
25,000
20.0
30000
15.0
20,000
10.0
15,000
5.0
10,000
0.0
5,000
-5.0
0
-10.0
Apr-05
Jan-06
Oct-06
Jul-07
Apr-08
Jan-09
Oct-09
Jul-10
Apr-11
Jan-12
Oct-12
Jul-13
Apr-14
Jan-15
Oct-15
Production ('000 Tn)
Growth (%) (RHS)
25000
20000
15000
10000
5000
0
Oct-05
Apr-06
Sep-06
Feb-07
Jul-07
Jan-08
Jun-08
Nov-08
May-09
Oct-09
Apr-10
Sep-10
Feb-11
Aug-11
Jan-12
Jun-12
Dec-12
May-13
Nov-13
Jun-14
Dec-14
Jul-15
Jan-16
120,000
100,000
80,000
60,000
40,000
20,000
Electricity
20.0
15.0
10.0
5.0
0.0
160
140
120
100
80
60
40
Brent Crude (USD per Barrel)
0
Apr-05
Jan-06
Oct-06
Jul-07
Apr-08
Jan-09
Oct-09
Jul-10
Apr-11
Jan-12
Oct-12
Jul-13
Apr-14
Jan-15
Oct-15
-5.0
20
0
Generation (Mn KWH)
Growth (%) (RHS)
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
44

STRONG ON CONSUMPTION
Foreign Trade
35,000
30,000
25,000
20,000
15,000
10,000
5,000
India's Export in Dollar terms
80
60
40
20
0
-20
0
-40
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Amount (USD Mn)
% Change (RHS)
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
India's Import in Dollar terms
100
80
60
40
20
0
-20
-40
-60
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Amount (USD Mn)
% Change (RHS)
FOREX
70.0
65.0
60.0
55.0
50.0
45.0
40.0
35.0
USDINR
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
45

AUGUST 2016
ECONOMY CHART BOOK
Capital Flow
6,000
External Commercial Borrowings (USD Mn.)
5,000
4,000
3,000
2,000
1,000
0
Nov-04
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
Mar-09
Jul-09
Nov-09
Mar-10
Jul-10
Nov-10
Mar-11
Jul-11
Nov-11
Mar-12
Jul-12
Nov-12
Mar-13
Jul-13
Nov-13
Mar-14
Jul-14
Nov-14
Mar-15
Jul-15
Nov-15
Mar-16
Monetary Indicator
120,000
100,000
80,000
60,000
40,000
20,000
0
All Scheduled Banks - Aggregate Deposits (Rs. Bn.)
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Aggregate deposits (Rs. Bn.)
Growth (%) (RHS)
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
All Scheduled Banks - Bank Credit (Rs. Bn.)
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Bank Credit (Rs. Bn.)
Growth (%) (RHS)
46

STRONG ON CONSUMPTION
Public Finance Indicators
Service Trend
33.0
32.0
31.0
30.0
29.0
28.0
27.0
26.0
GFCF % of GDPmp
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2012-13 2013-14 2014-15 2015-16
120000
110000
100000
90000
80000
70000
60000
50000
40000
30000
20000
Indian Rail Freight Traffic
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
Revenue from Freight
Traffic (Rs. Cr.)
Freight Traffic
(Mn Tn) (RHS)
1200
1100
1000
900
800
700
600
500
400
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Gross Fiscal Deficit - as % of GDP
Cargo Handled at Airport (IN MT in "000")
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
1970-71
1973-74
1976-77
1979-80
1982-83
1985-86
1988-89
1991-92
1994-95
1997-98
2000-01
2003-04
2006-07
2009-10
2012-13
2015-16
1,068
1,278
1,397
1,551
1,715
1,702
1,962
2,348
2,280
2,191
2,279
2,529
2,704
3.00
2.50
2.00
1.50
1.00
0.50
Subsidies - as % of GDP
Passenger Handled at Airport (million)
0.00
1970-71
1972-73
1974-75
1976-77
1978-79
1980-81
1982-83
1984-85
1986-87
1988-89
1990-91
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
2012-13
2014-15
96.4
FY07
116.9
FY08
108.9
FY09
123.7
FY10
143.4
FY11
162.3
FY12
159.4
FY13
168.9
FY14
190.1
FY15
223.6
FY16
47

Valuation
0.0
5.0
10.0
15.0
20.0
25.0
30.0
0
50
100
150
200
250
300
350
400
450
500
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Nifty
EPS (Rs.)
PE Ratio (x)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
0
200
400
600
800
1000
1200
1400
1600
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Sensex
EPS (Rs.)
PE Ratio (x)
AUGUST 2016
ECONOMY CHART BOOK
48

STRONG ON CONSUMPTION
HDFC Equity Fund(G)
Investment Strategy
HDFC Equity Fund is a good investment vehicle for those
who believe in the growth prospects of India and
understand the power of compounding
•
•
•
•
•
•
A predominantly large-cap portfolio with limited
exposure to mid-caps
Preference for strong & growing companies - Strong
companies not only survive, but emerge stronger in
challenging times, reducing permanent losses
Effective diversification of portfolio – The portfolio
has always been diversified across key sectors and
variables across the economy to reduce risk
A long-term approach to investing and a low
portfolio turnover
Long term oriented, disciplined and consistent
approach to investments
Unbroken dividend track record for last 10 years (8-
13% dividend yield.
Dividend per
Unit (Rs.) (A)
NAV (Rs.) Dividend Yield
(Record Date) (B) (%) (A/B)
2012 4 44 9
2013 4 41.4 10
2014 4 43.8 9
2015 5.5 59.8 9
2016 4.5 45.9 10
All dividends are on face value of Rs.10 per unit. After
payment of the dividend, the per Unit NAV falls to the
extent of the payout and statutory levy (if applicable).
There is no assurance or guarantee to Unit holders as to
rate/quantum of dividend distribution or that the
dividends will be paid regularly. NAV is for the Regular
Plan – Dividend Option.
NAV (Rs.) 486.06
Inception Date January 1, 1995
Fund size(in Rs cr) # 15,448.0
Fund Manager Prashant Jain
Entry load
N.A
Exit Load 1.00%
Benchmark
Min Investment
NIFTY 500 Index
Rs.5000
Min SIP Investment Rs. 500
# as on May 30, 2016
Beta 1.26
Standard deviation (%) 20.63
Sharpe Ratio 0.73
Alpha 5.27
R Squared 0.87
Expense ratio (%) 2.05
Portfolio Turnover ratio (%) 33.00
Avg Market cap (Rs in cr) $ 56,839.00
# as on May 30,2016
Important Information
Key Ratios
Top Ten Holdings
Stocks
% of Net assets
State Bank of India 8.7
Infosys Ltd. 7.6
ICICI Bank Ltd. 7.5
Larsen & Tourbo Ltd. 7.5
Maruti Suzuki India Ltd. 4.9
HDFC Bank Ltd. 4.8
Aurobindo Pharma Ltd. 3.6
Tata Steel Ltd. 3.3
BPCL 3.2
Bank of Baroda 3.1
Asset Allocation
Equity Debt Cash & Equiv.
100.17% 0.00% -0.17%
Performance of the Fund
1 month 3 month 6 month 1 year 3 years 5 years Since Inception
Fund (%) 8.1 13.1 21.1 4.2 8 23.4 19.71
NIFTY 500 (%) 7.3 9.2 16.9 4.9 8.5 17.8 —
49

AUGUST 2016
MUTUAL FUND OVERVIEW
Ashika Insight Mutual Fund Recommendation Alpha Generation
Month of
Recom Fund Name Benchmark
NAV on
Recom
Date
NAV on
26/07/2016
Fund
Returns
Since Recom
Benchmark
Returns since
Recom
May-15 SBI Blue Chip Fund S&P BSE 100 27.83 31.56 13.40% 12.72% 0.68%
Jun-15 Kotak Opportunities Fund Nifty 500 82.50 83.21 0.87% 4.89% -4.02%
Jul-15 Franklin India Bluechip Fund S&P BSE Sensex 359.60 363.59 1.11% 0.01% 1.10%
Aug-15 UTI Mid Cap Fund Nifty Free Float
Midcap 100 83.78 81.98 -2.15% 5.48% -7.63%
Sep-15 Birla Sun Life Frontline Equity Fund S&P BSE 200 155.00 164.95 6.42% 11.63% -5.21%
Alpha
Scheme
Oct-15 HDFC Equity Fund Nifty 500 444.74 448.09 0.75% 9.67% -8.92%
Nov-15 ICICI Prudential Focused Bluechip Equity Nifty 50 28.79 29.39 2.08% 7.02% -4.93%
Dec-15 HDFC Top 200 Fund S&P BSE 200 330.81 330.73 -0.02% 8.94% -8.97%
Jan-16 Mirae Asset Emerging Bluechip Fund Nifty Free Float
Midcap 100 31.95 32.92 3.05% 7.75% -4.71%
Feb-16 Franklin India Opportunities Fund S&P BSE 200 51.55 56.76 10.11% 15.19% -5.08%
Mar-16 Birla Sun Life Top 100 Fund Nifty 50 38.34 43.40 13.19% 19.29% -6.10%
Apr-16 HDFC Mid-Cap Opportunities Fund Nifty Free Float
Midcap 100 36.37 39.19 7.74% 14.06% -6.32%
May-16 Birla Sun Life Pure Value Fund S&P BSE 200 39.21 40.15 2.40% 10.87% -8.47%
50

STRONG ON CONSUMPTION
Ashika General Mutual Fund Recommendation - Equity - Categorywise
LARGE CAP FUNDS
Scheme
NAV
AUM
(Rs. Cr)
3M 6M 1Yr 3Yr 5Yr
Since
Inception
Sharpe
Ratio
Benchmark
Exp.
Ratio
SBI - Blue Chip Fund Reg (G) 29.31 4050 15.61 4.29 4.44 20.33 16.16 11.03 0.67 S&P BSE 100 2.32
Motilal Oswal - MOSt
Focused 25 Reg (G) 15.15 356 9.2 -2.95 -7.35 15.56 0 14.35 -1.15 Nifty 50 2.87
Franklin - India Bluechip
Fund (G) 359.06 6098 15.11 3.69 1.33 15.31 11.46 22.26 0.3 S&P BSE Sensex 2.2
ICICI Pru - Focused
Bluechip Equity Fund Reg (G) 28.85 8884 15.49 0.98 -0.79 15.86 12.65 14.13 0.37 Nifty 50 2.16
Birla SL - Frontline
Equity Fund Reg (G) 162.95 9434 15.49 3.43 0.72 17.75 13.91 23.27 0.5 S&P BSE 200 2.16
DSP BlackRock - Focus
25 Reg Fund (G) 17.03 1123 14.51 -0.26 -2.43 18.49 10.93 9.13 0.45 S&P BSE 200 2.79
MID CAP FUNDS
Scheme
NAV
AUM
(Rs. Cr)
3M 6M 1Yr 3Yr 5Yr
Since
Inception
Sharpe
Ratio
Benchmark
Exp.
Ratio
Franklin - India Prima Fund (G) 690.47 3362 17.1 3.26 4.86 29.43 21 20.54 0.98 Nifty 500 2.31
Motilal Oswal - MOSt 19.92 842 11.9 0.22 0.34 0 0 35.8 0.81 Nifty Free 2.73
Focused Midcap 30 Reg (G) Float Midcap 100
HDFC - Mid Cap 37.85 9193 16.85 1.27 1.32 28.44 19.68 16.12 0.94 Nifty Free Float 2.32
Opportunities Fund (G) Midcap 100
Sundaram - Select 346.32 2896 18.85 1.06 5.37 29.34 18.9 29.14 0.83 S&P BSE Mid Cap 2.37
Midcap Reg (G)
UTI - Mid Cap Fund (G) 79.31 2827 15.65 -0.71 0.89 32.58 21.03 18.49 1.09 Nifty Free Float 2.4
Midcap 100
SMALL CAP FUNDS
Scheme
NAV
AUM
(Rs. Cr)
3M 6M 1Yr 3Yr 5Yr
Since
Inception
Sharpe
Ratio
Benchmark
Exp.
Ratio
DSP BlackRock - Micro
44.11 2004 22.25 4.09 10.85 41.73 24.37 18.05 1.24 S&P BSE Small 2.43
Cap Fund Reg (G) Cap
Franklin - India Smaller 41.1 2299 18.95 4.3 7.38 35 24.1 14.59 1.16 Nifty Free Float 2.4
Companies Fund (G) Midcap 100
SBI - M MidCap Fund Reg (G) 63 1404 20.21 5.32 7.93 34.1 23.91 17.99 1.15 S&P BSE Mid Cap 2.55
Reliance - Small Cap Fund (G) 25.65 1652 16.63 -5.5 7.09 39.07 21.75 17.79 1 S&P BSE Small 2.44
Cap
Sundaram - Smile Fund Reg (G) 67.89 967 20.24 -6.5 -0.51 32.94 17.85 18.5 0.72 S&P BSE Small 2.59
Cap
MULTI CAP FUNDS
Scheme
NAV
AUM
(Rs. Cr)
3M 6M 1Yr 3Yr 5Yr
Since
Inception
Sharpe
Ratio
Benchmark
Exp.
Ratio
Birla SL - MNC Fund Reg (G) 584.25 2766 12.95 1.33 2.13 31.81 22.98 18.11 1.16 Nifty MNC 2.43
ICICI Pru - Value
Discovery Reg (G) 113.03 9925 15.22 -1.24 -1.45 27.7 18.47 22.86 0.83 S&P BSE 500 2.24
Motilal Oswal - MOSt
Focused Multicap 35 Reg (G) 17.45 2982 13.51 1.08 1.14 0 0 30.7 -0.13 Nifty 500 2.41
Franklin - India High
Growth Companies Fund (G) 28.54 3614 16.71 -3.1 -3.31 26 18.17 12.59 0.77 Nifty 500 2.26
Birla SL - Adv Fund Reg (G) 295.21 914 16.53 2.8 -0.25 24.6 14.63 17.91 0.71 S&P BSE 200 2.81
51

AUGUST 2016
MUTUAL FUND OVERVIEW
BALANCE FUND
Scheme
NAV
AUM
(Rs. Cr)
3M 6M 1Yr 3Yr 5Yr
Since
Inception
Sharpe
Ratio
Benchmark
Exp.
Ratio
ICICI Pru - Balanced
26.61 10128 12.14 1.45 3.99 15.61 14.05 10.79 0.58 Crisil Balanced 2.35
Advantage Fund Reg (G) Fund Aggressive
HDFC - Prudence Fund (G) 366.95 6992 15.97 -1.87 -0.83 16.39 11.94 18.89 0.36 Crisil Balanced 2.28
Fund Aggressive
SBI - M Balanced Fund Reg (G) 96.91 3491 9.94 1.4 1.53 18.76 14.81 16.39 0.84 Crisil Balanced 2.47
Fund Aggressive
Birla SL - Balanced 95 576.12 2254 13.67 3.61 3.96 18.37 13.58 21.41 0.65 Crisil Balanced 2.5
Fund Reg (G) Fund Aggressive
Tata - Retirement Savings 20.42 40 12.74 1.47 -1.34 20.06 0 16.64 0.75 Crisil Balanced 3.06
Fund Moderate (G) Fund Aggressive
THEMATIC FUNDS
Scheme
NAV
AUM
(Rs. Cr)
3M 6M 1Yr 3Yr 5Yr
Since
Inception
Sharpe
Ratio
Benchmark
Exp.
Ratio
UTI - Transportation &
Logistics (G)
84.8 564 13.32 -3.9 -2.48 38.1 26.24 20.83 1.2 UTI Transportation 2.74
& Logistics Index
Franklin - Build India Fund (G) 28.86 475 18.96 0.39 -0.18 29.64 20.74 16.65 0.81 Nifty 500 2.81
ICICI Pru - Tech Plan Reg (G) 41.5 380 8.07 1.79 2.75 28.98 17.97 9.09 0.73 S&P BSE IT 2.8
Birla SL - Infrastructure
Fund Reg (G) 24.61 539 16.36 -3.07 -5.67 18.85 9.75 9.24 0.37 Nifty 50 2.5
ICICI Pru - Banking &Financial
Services Fund Reg (G) 36.62 748 25.8 3.95 -0.03 17.75 16.08 18.2 0.3 S&P BSE Bankex 2.52
SBI - FMCG Regular (G) 78.11 206 14.79 2.64 10.36 12.86 0 13.73 0.39 S&P BSE FMCG 2.82
ELSS
Scheme
NAV
AUM
(Rs. Cr)
3M 6M 1Yr 3Yr 5Yr
Since
Inception
Sharpe
Ratio
Benchmark
Exp.
Ratio
Axis - Long Term Equity (G) 30.73 8888 5.53 1.69 -0.36 28.4 19.51 18.75 1.33 S&P BSE 200 #N/A
Birla SL - Tax Relief 96
Fund ELSS Reg (G) 22.02 2188 6.53 2.37 2.9 26.08 15.27 9.96 1.12 S&P BSE 200 2.44
Franklin - India Taxshield (G) 433.7 2146 5.77 4.21 1.9 24.05 15.64 24.68 1.08 Nifty 500 2.46
ICICI Pru - Long Term
Equity Fund Reg (G) 276.88 3086 8.05 2.02 4.72 25.18 14.71 21.76 0.98 Nifty 500 2.32
HDFC - LongTerm
Advantage Fund (G) 241.05 1148 6.62 5.37 1.45 19.87 11.91 22.8 0.76 S&P BSE Sensex 2.52
Motilal Oswal - MOSt
Focused Long Term
Fund Reg (G) 11.44 145 8.58 3.47 3.67 0 0 9.86 -1.5 Nifty 500 3.28
52

STRONG ON CONSUMPTION
Key takeaways from July 2016:
•
•
•
•
•
•
IIP surprised positively at 1.2% in May while it
shrunk by 1.3% in the previous month.
CPI inflation accelerated marginally to 5.77% in June
from 5.76% a month ago.
WPI rose to 1.62% in June from 0.79% in May.
IMF slashed India’s 2016-17 growth forecast by 10
basis points (bps) to 7.4 per cent from an earlier
forecast of 7.5 per cent.
Cabinet approved the 7th Pay Commission’s proposal
to raise salaries and pensions for central government
employees
In a bid to boost credit growth in the economy, the
Centre announced a sum of Rs.22,915 crore for
recapitalisation of 13 public sector banks
Classical theory of Technical Analysis
Indian equity market though started the month on a dull
note but rallied at the latter half of the month and ended
with a handsome gain of 4.57%. Volume in the market
too witnessed incremental addition. The broader market
represented by Mid-cap and Small-Cap Index witnessed
sharp rebound absorbing global turmoil which indicates of
strong investors ‘appetite. Hence strong outperformance of
the broader market represents of a larger market
participation and inherent strength in the market.
On the technical front Nifty had been maintaining its
higher high formation in both daily and weekly time frame.
Small consecutive bars at every intervals indicates that
upward momentum in the market is slowing down and
indicates possibility of further price consolidation in
sessions to come, however medium term trend remains
unequivocally upward. Nifty is now struggling to breach
past its previous swing high of 8654 scaled on July 2015.
Inability to breach past the said resistance level would
again drive profit booking activity in the market and might
lead to a decisive correction. To further add Nifty since
March 2016 onward had been on a rising spree laying its
foundation on the upward rising trendline. The elevated
trendline now lays support around 8250. Hence it can be
concluded that downside in the market seems limited and
broader range for the forthcoming month lies amid 8200-
8900. Another interesting observation that need to be
adhered to is the bullish ‘Inverted Head & shoulder’
formation in daily chart since September 2015 and the
July high of 8654 if acknowledged as the neckline of the
assumed pattern then one should brace himself for a
mammoth rally surpassing the previous all time high of
9119.
Multiple price structure can be seen in Nifty as the rally
since Mar 2016 onward had been within the rising channel
formation. The said pattern is heading higher to complete
its fourth leg. The upper panel of the channel line is likely
to initiate resistance around 8800-8820. Hence based on
the present observation it can be concluded that if the
pattern materializes the upside seems limited till 8800-
8850 and then onward intermediate correction can crutch
in though downside seem limited since lower panel of the
elevated channel comes around 8250. The said pattern to
concludes that Nifty might remain rangebound amidst the
broader range of 8250-8750.
53

AUGUST 2016
TECHNICAL OVERVIEW
To sum up according to classical theory of Technical
analysis market seems stretched for the time being and
correction seems due in the market in the overall higher
degree uptrend. In the forthcoming month market is likely
to remain rangebound and new trading range for the
market exist within 8250-8850.
consolidation mode against which the Index had been
slowly dripping towards its mid band. On the daily time
frame immediate support from the said study exist around
8400 while in weekly time frame the mid band exist
around 8050. Present setup indicates that Nifty is in
uptrend and intermediate correction would be temporary
in nature which need to be utilized to enter long
Modern approach in Technical Analysis
The strong rally during the month lead to a reading in
oscillator near to its overbought territory with slight
divergence is also being observed through RSI which calls
for a cautious approach in the market though current
reading of 68 indicates room for further upside remains.
MACD in both daily and weekly time frame has been in a
rising trajectory, highlights the underlying strength in the
ongoing trend and might augur well for the Index. ADX
too seems positive as +DI continues to remain
comfortably above the –DI however ADX line lies below
20 level mark in weekly chart indicating clear uptrend
still need to be explored. To sum up, with divergent view
point market might remain rangebound in the forthcoming
month as well.
Nifty throughout the month had been clinging at the
upper band of the Bollinger band. Now Nifty entered into
Nifty is presently trading above all the crucial moving
averages in both daily and weekly time indicating that
both short term and medium term trend continues to
remain positive. Short and Medium term averages of
20/50/100 had been maintaining a comfortable distance
from its prices, though prices seems stretched but recent
price consolidation has able to drag the averages closer to
its prices indicating strength in the ongoing upmove. To
further add ‘Golden Crossover’ has been initiated in daily
time frame which denotes that short term average of
50dma is cutting the long term average of 200dma from
below, the said formation has a long term bullish
implication for the Indian equity market. In weekly time
frame buy crossover is seen in short term averages of 20
and 50 dma. Hence to sum up, as averages define the
trend in the market it can be concluded that uptrend
remains unabated and gapup region of 8475 followed by
8410 would act as crucial support level for the market.
54

STRONG ON CONSUMPTION
indicates that after every 8 year markets witness a major
correction which is in the range of 20-60% The theory can
be aptly applied in Indian markets as well as we witnessed
a hefty correction in the year 1992 followed by a major
correction in the year 2000, then in the year 2008 and
now the year 2016 is the next in the eight year cycle.
Calculation:
Projected Price- Current Market price = 8800-8600 = 200
Now, time required to complete the target = 200/2 = 100=
3.33~4 months.
Indian VIX
Indian VIX signaled fall in volatility. A close observation
of the Indian VIX reveals that the Index is a mean
reverting one where it is now near to its historical level
of 15-16. On the technical parlance not much inference
can be drawn from the present setup and as the broader
trend continues to remain negative with its consecutive
lower low formation in daily chart. With a steady line up
of crucial event in the forthcoming month like that of the
monsoon session, policy meet by some global central
banks it can be expected that Volatility in the market
might increase in the forthcoming month which might not
augur well for Nifty as an inverse relation seems to exist
between each other.
Gann Theory of Time cycle
The rally since December 2011 onward if considered as
the beginning of an impulse wave then Nifty presently is
trading at its 5th wave. Previously impulse wave 1 took
17 months in the making. Hence forth if wave 5 unfolds
into an equidistance of wave 1 then the recent rally in
the market might extend further till the month of June
2018. Nifty now is trading within the 23.6 degree angle
of inclination, further rally has resulted in to form bullish
channel formation in weekly chart, target of which stands
around 8800, and according to W.D. Gann the said angle
signifies 2 unit of price & 1 unit of time. So the said
target of 8800 might be achieved within 3-4 months.
However the theory of the famous 8-year bear cycle need
to paid equal importance. This theory of 8-year bear cycle
Retracement principle
In order to identify crucial trend deciding level for the
market crucial movement in the market are being
identified which are as follows. The first being the entire
correction since January 2008 onward till November 2008,
the second being the gradual upscale for the Index since
December 2011 till the high registered in March 2015 and
the last being the corrective decline since March 2015 till
date. Retracement level from all the different time frames
conjoins around a singular point i.e. around 8000-8035.
Hence it can be concluded that Nifty on the downside the
conjoint area of 8000-8050 will work as a strong support
for market, sustaining above which markets are likely to
stay afloat with positive momentum. To further add the
correction since March 2015 onward has been paired and
now the crucial 80% retracement level comes around
8660 which indicates a change of trend for the
intermediate corrective decline.
Future Projection – August 2016
Post February 2016 correction if considered as leg ‘D’ of
Expanding Triangle’ then leg ‘D’ is now unfolding into
double combination correction. The 2nd corrective pattern
is exhibiting sighs of Diametric or Extracting Triangle
patterns and Nifty in order to confirm a ‘Running’ variation,
‘D’ should end below the top of ‘B’ i.e. below 8655. Hence
it can be concluded that Nifty need to surpass the July
2015 high in order to confirm its alternate pattern
according to Elliot wave principle. On the longer term
picture if the rally since March 2009 if considered as a
new impulse wave then presently Index is in the formation
55

AUGUST 2016
TECHNICAL OVERVIEW
stage of 5th wave surpassing the previous high of 9119
and time wise correction with 13-month interval was
crucial i.e. during April 2016 and if the correction does
not get over in about 13 month then it can extend till 21
months.
Inter-market analysis
U.S Market: The Dow Jones industrials edged up close to
all-time highs, as investors digested mixed earnings
reports amid lowered expectations for global economic
growth. The International Monetary Fund cut its global
growth forecasts for the next two years, citing uncertainty
over Britain’s looming exit from the European Union. The
recently held Federal Reserve’s Federal Open Market
Committee conference took note of the improved job
scenario and decided not to risk raising rates. The
language too was not hawkish and kept the option open
in future meetings. On the technical front, as we had
been mentioning that a bullish Ascending Triangle was in
the formation stage since April 2016 and hence finally it
provided the necessary breakout during the month. The said
pattern has a bullish implication and projects an upside
target till 19000 in medium term perspective. On the
oscillator front though DJIA is fast approaching overbought
region but it seems that the rally to extend further as rising
channel line formation too projects the same.
Nymex Crude: Oil prices settled at their lowest level in
three months as the prospect of more oil-drilling activities
in the U.S., a glut of petroleum-product supplies and an
expected slowdown in refining activities renewed worries
that inventories of crude will continue to outpace
consumption. Oil prices seems to have peaked and the
present downtrend is likely to continue based on several
technical factors like that of `double top` formation in
daily chart after peaking at around $50 mark followed by
breach of rising trendline. Now the next important support
level for the market exist around $39 which coincides with
the previous swing low of August 2015 and also with the
50% retracement of the entire rise since February 2016.
Lower crude oil prices would impact India’s inflation and
current account deficit and is likely to benefit the Indian
equity market in immediate term.
56

STRONG ON CONSUMPTION
10 Year Bond Yield India:
Bond prices in India have been in an upward trend for
the past few years, thanks to falling yields as the RBI cut
rates and the broad macro economy improved. Bonds in
India are rallying the most since September as revival in
rains spurs optimism that better crop output will help
contain food costs, which have a strong bearing on
inflation. The RBI has injected Rs. 80,010 crore through
open-market purchases on debt since April, boosting cash
supply, while mounting speculation that a successor to
governor Raghuram Rajan will be more aggressive in
cutting interest rates has contributed to bond gains. The
yield on the benchmark 10-year government bond has
fallen from a peak of about 9 percent to 7.2 percent now.
On the technical front bond yield had been in a severe
downtrend since March 2016 onward and now heading
towards it previous swing low of 7.11 percent
Indian Rupee: The currency had been steady rising amidst
the rising channel formation with its consecutive higher
high formation in daily chart and probably heading higher
towards 68-69. Elliot Wave study reveals that prices might
be moving in a complex correction pattern (w-x-y-x-z)
over the past two years and possibility arises that wave z
where the currency is presently trading at is an extracting
triangle. However on the short term perspective volatility
is likely to prop in and failure to breach the support level
of 66.50 would continue to maintain its uptrend. Though
Indian rupee has shown remarkable stability in the last
few trading sessions as important global events continued
unabated, the latest being the all important British
referendum to exit the European Union. In the near term,
rupee will continue taking cues from shifts in global risk
appetite as the top central banks are scheduled to hold
policy meet.
Positives:
•
•
•
•
•
•
•
Bullish ‘Head & Shoulder’ formation since September
2015 indicates Index to surpass the previous all time
high of 9119
Bullish upward rising ‘Channel’ since March 2016
projects short term upside till 8750-8800
Immediate support for Nifty exists at 8400 according
to band Bollinger.
Nifty above all crucial averages with ‘Golden
Crossover’
Medium term trend in the market continues to remain
positive as long as Nifty stays above 8000 according
to retracement principle.
Bullish Ascending Triangle in DJIA projects further
upside in Index till 19000.
Double Top formation in Crude oil might drag the
commodity till $39
Negatives:
•
•
Swing high of July 2015 at 8654 acting as crucial
resistance
Elevated upward trendline since March 2016 indicates
crucial support at 8250.
•
•
•·
Momentum loosing sheen according to oscillator as
negative divergence can be seen.
India VIX taking support from its historical low level.
Uptrend in Rupee to remain due to rising channel
formation
To sum up Indian equity market shrugged off Brexit
worries and extended its gain throughout the month.
Hopes of good monsoon, clearance of GST bill in the
parliament session majorly lead the recovery in the market.
Further govt. approval of the seventh Central Pay
57

AUGUST 2016
TECHNICAL OVERVIEW
commission offering a bonanza to its 1 crore employees
and pensioners also ignited the fire. The following action
would have minimal impact on inflation and on
government finances as provisions have been made in the
budget. Consumption driven stocks like auto, FMCG and
consumer durables hence found fresh buying interest in
the market. On the domestic macro data front the IIP
surprised positively at 1.2% in the month of May against
expectations of 0.3% contraction. On the inflation front,
both WPI and CPI accelerated for the month of June
coming at 1.62% and 5.77% respectively. Hence it again
retreat hopes of a cut in interest rate by RBI. Comfort
remained in the market as FII remained net buyers though
IMF trims India’s growth forecast by 0.1 percentage point,
India now forecast to expand 7.4% in the two years
compared with the earlier forecast of 7.5% for both,
retaining its tag as the world’s fastest-growing major
economy. Sentiment in the market also got the requisite
support on the back of government capital infusion in the
Public Sector Banks (PSBs) of Rs.22915 crore to meet the
capitalization needs in the current fiscal. Crude continued
to remain range-bound between $45-$50/barrel which is
beneficial from India’s perspective. Too much movement
of crude on both upside and down side could adversely
impact India. The Q1 result season has started on
disappointing note as far as IT sector companies are
concerned while results of other sectors have largely
been in line with estimate. On the global front both Dow
Jones Industrial Average and the S&P 500 closed at life
time highs indicating a risk-on rally is taking shape. It
seems that the global markets have able to overcome the
Britain referendum setback. In the midst of such
pessimism Indian rupee stands tall amongst other
emerging markets and with EU and Japan in with its
negative interest rate regime, positive yield bearing bonds
like US and India continues to draw Institutional interest
amidst slowing world growth. Monsoon session of the
parliament started with high expectation of GST securing
the smooth passage. GST implementation would give the
market a thumps up as it would give a boost of 1-
2percent to the GDP, dramatically altering India’s indirect
tax structure by replacing a string of central and local
levies such as excise, value added tax and octroi into a
single unified tax and stitch together a common national
market. On the technical front during the month of June
market traded with positive bias with its consecutive
higher high formation in both daily and weekly chart, the
broader market as represented by midcap and smallcap
indices witnessed remarkable rally absorbing global
uncertainty. The strong outperformance of the broader
market indicates increased market participation and
inherent strength in the ongoing rally. Change of polarity
was seen after Nifty provided the necessary breakout from
the downward sloping channel in the April 2016 and then
onward Nifty had been in a secular uptrend. Now Nifty is
retorting higher amidst the rising channel line. The dual
pattern buildup has triggered a bullish structural
turnaround with higher peaks and trough. Present structure
projects immediate upside potential till 8750-8800 for the
Index however on the medium term perspective presence
of ‘Inverted Head & Shoulder’ formation indicates ability to
surpass the all time high for Nifty. However July 2015 high
of 8650-8700 will act as crucial trend deciding level for
the market, sustaining above which would recognize as
completion of neckline and breakout from bullish ‘Inverted
Head & Shoulder’ formation. A decisive close above the
immediate hurdle of 8650-8700 will open room for
extension of the current up move towards 8800-8900 in
the coming month. However market will remain volatile in
the near term owing to global uncertainty, technically it
can be explained that it is concluded due to the diverse
viewpoint in RSI in different time frame with negative
divergence hence Nifty might extend its consolidation
within 8400-8900 amid stock specific activity. Other global
peers like DJIA is now at its all time high too supportive of
the present rally while Crude oil prices remains capped
and are now at 2-months low, Indian rupee shows extreme
resilience compared to other emerging peers. Hence it
seems that other correlated market too augurs well for the
sustainability of the upmove in the coming month.
According to Elliot wave perspective Nifty need to sustain
above 8650-8700 in order to recognize as ‘Double
combination correction’ unfolding into ‘Diametric or
Extracting Triangle patterns’. Hence to sum up, a decisive
close above its immediate hurdle of 8650-8700 will open
room for extension of the current up move towards 8800-
8900 in the coming month.
58

STRONG ON CONSUMPTION
BEST PERFORMERS FOR THE MONTH (NIFTY 100) WORST PERFORMERS FOR THE MONTH (NIFTY 100)
27.06.2016 27.07.2016 27.06.2016 27.07.2016
1 CAIRN 134.30 194.30 44.68% 1 DRREDDY 3246.60 2980.20 -8.21%
2 VEDL 122.35 168.45 37.68% 2 INFY 1166.20 1085.35 -6.93%
3 PFC 162.40 220.45 35.75% 3 GLAXO 3490.15 3366.40 -3.55%
4 RECLTD 165.85 214.75 29.48% 4 DABUR 318.90 307.65 -3.53%
5 HINDPETRO 974.30 1244.00 27.68% 5 BEL 1257.60 1219.15 -3.06%
6 IOC 421.05 535.95 27.29% 6 ASHOKLEY 97.35 94.70 -2.72%
7 PNB 104.35 132.80 27.26% 7 TATAPOWER 72.20 71.05 -1.59%
8 BAJFINANCE 7695.60 9793.45 27.26% 8 BHARATFORG 742.40 739.10 -0.44%
9 JSWSTEEL 1386.00 1739.30 25.49% 9 TECHM 504.65 504.25 -0.08%
10 BHEL 119.05 149.00 25.16%
11 HINDZINC 168.20 208.25 23.81%
12 BAJAJFINSV 2181.90 2614.15 19.81%
13 DLF 134.75 160.25 18.92%
14 MOTHERSUMI 272.90 322.20 18.07%
15 IBULHSGFIN 659.30 775.35 17.60%
16 TATASTEEL 310.50 363.05 16.92%
17 ICICIBANK 232.70 270.60 16.29%
18 LUPIN 1479.15 1719.40 16.24%
19 INFRATEL 327.65 380.55 16.15%
20 BOSCHLTD 20930.70 24082.05 15.06%
Source: NSE
Indices Performance 27.06.2016 –27.07.2016
20%
Sector Indices -Monthly Return (%)
15%
10.8% 11.3% 16.1%
10%
7.9% 8.2% 8.5% 8.7%
5%
4.5%
4.9%
5.8%
0%
-5%
-2.3%
-0.2%
IT TECk FMCG CD HC POWER CG AUTO BANKEX REALTY OIL&GAS METAL
Source: BSE
59

AUGUST 2016
COMMODITY MONTHLY ROUND UP
“Look at market fluctuations as your friend rather than your enemy; profit from folly
rather than participate in it.”
- Warren Buffet
COPPER
Metal market is overall signalling that the world economy
is slowly coming out from the bad phase and also proving
to be resilient enough. Over the course of about four
weeks, since the U.K. voted to leave the European Union,
there was a failed coup attempt in Turkey and Donald
Trump bucked the establishment of the Republican Party
to become its presidential nominee. Rather than taking
these events as ominous signs, hedge funds are jumping
into the growth-dependent world of copper. The funds
and other money managers more than tripled their
wagers on price gains. Copper giant China which is the
main driver of copper and also for the world economy,
recorded all time high copper imports in its first half. The
country’s real-estate sector grew faster than the overall
economy in the second quarter. Construction accounts for
about 30 percent of global copper demand.
Copper mining companies and countries are projecting that
copper supply is not going to match up the future demand
speed and some money managers thus predicting a
fascinating rally is around the corner for copper. The huge
import from China is an indication for the money managers
that the country is securing its future demand.
Copper’s use as main input material for constructions, the
metal has earned the nickname Dr. Copper for its status as
an economic bellwether. Copper is best used as a
barometer for emerging markets, such as China. The surge
in the net-long position in NYMEX was a turnaround for
Weekly Chart: Copper COMEX Continuous
60

STRONG ON CONSUMPTION
investors, who were net-short on the metal as recently as
late June. Global copper demand will increase 2.1 percent
this year, up from a gain of 1.4 percent last year
according to Citi Group.
Technical Analysis
Considering weekly chart of COMEX copper, 2008 to
2011 was the bullish phase for the red metal and after
that it’s prolonged down side move, which can be
attributed as long term Correction of the previous bullish
move. In its previous bullish trend which was started from
2003 and continued till 2006, it gave a correction of
78% (Fibonacci Retracement). This time also market
halted at around 78% Fibonacci level and from there we
can assume that market is now ready to give a nice
upside movement. In weekly chart, MACD is also giving
that hint by providing positive divergence with the price.
From the above observations we can conclude that there is
high chance that market already marked the bottom at
$1.9355 (COMEX Continuous) and there is a huge
probability to move higher in coming days. $2.46 will act
as immediate resistance as there was a long term trend
line which was providing resistance to the entire corrective
wave. Our recommendation for copper is to go long with
stop at $2.09 and target being set at $2.45 initially. And if
market able to clear the trend line then long term target
will be set at $2.87.
Other than the wave theory, even price itself forming a
Flag pattern which has bullish significance. The pole length
is $0.36 and the breakout point is around $2.26 for the
continuous contract, so once if there is a breakout Flag
pattern will set the target around minimum $2.50 which
is very close to our previous target horizon of $2.45.
Weekly Chart: USD/JPY Spot
61

AUGUST 2016
COMMODITY MONTHLY ROUND UP
Japanese Yen
Like Gold, Yen has a reputation to be a hedging tool at
the time of asset distress but recently it’s playing havoc
with Japan’s fundamental direction. From January 2016 to
last month i.e. July 2016, the currency appreciated from
120 to 106, that’s more than 11.50 percent and off
course it’s hard to ignore as noise especially for a
country whose economy is driven by exports.
Some traders are pointing out that recent appreciation is
largely because of FED rate hike timing and BREXI.
Disagreement between OPEC members regarding crude
oil production is also playing the card. Even slight
negative news in the market sparks volatility which is
slowly affecting the investment drive of the investors.
Instead of capital appreciation they are now chasing
capital preservation which is hampering Yen’s direction
given its safe-haven element. This in turn is hurting the
price competitiveness of Japanese exports in foreign
markets which is one of the reasons for the fall in
exports. Another reason is the sluggish private
consumption in China and other Asian countries which is
Japan’s major trading partners.
Technical Analysis
June’16 low of 99 is just on 200 Daily Simple Moving
Average where it gave a nice bounce towards 106. So it’s
clear that if the market takes out 99.00, then technically
more strength may infuse to Japanese Yen against US
Dollar. But again after a spectacular rally from 77 level to
125 we can consider it as a corrective wave and that’s
exactly ends near its 50% Fibonacci Retracement level
which is showed in the chart as red line. Again taking the
help of Fibonacci retracement from the high of 125.84 to
low of 99.02, market may retest 50% retracement level
which is at 111.12. Our trading advise for the traders is to
go long in the pair above 108.40 for the target of 111.10
and the stop loss should be at 105 (recent swing low in
the Daily chart).
Weekly RSI is running just above a long term trend line
which is indicating sudden bullish move may emerge in
the market.
62

STRONG ON CONSUMPTION
AUGUST 2016
1
US: ISM Manufacturing
CH: Caixin China PMI Mfg
JN: Nikkei Japan PMI Mfg
IN: Nikkei India PMI Mfg
EC: Markit Eurozone Manufacturing PMI
US: Personal Income
US: Personal Spending
JN: Monetary Base YoY
UK: Markit/CIPS UK Construction PMI
EC: PPI MoM
2
US: MBA Mortgage Applications
US: ADP Employment Change
EC: Markit Eurozone Composite PMI
US: ISM Non-Manf. Composite
IN: Nikkei India PMI Services
3
JN: BoP Current Account Balance
CH: Trade Balance
JN: Trade Balance BoP Basis
JN: Eco Watchers Survey Current
8
CH: CPI YoY
IN: RBI Repurchase Rate
CH: PPI YoY
UK: Industrial Production MoM
US: Wholesale Inventories MoM
9
10
JN: Machine Orders MoM
JN: PPI YoY
US: MBA Mortgage Applications
JN: Tertiary Industry Index MoM
IN: Exports YoY
15
JN: Industrial Production MoM
JN: GDP SA QoQ
US: Empire Manufacturing
IN: Wholesale Prices YoY
UK: Rightmove House Prices MoM
16
US: CPI MoM
UK: CPI YoY
US: Housing Starts
US: Industrial Production MoM
UK: PPI Output NSA MoM
17
UK: Jobless Claims Change
US: MBA Mortgage Applications
UK: ILO Unemployment Rate 3Mths
22
EC: Consumer Confidence
US: Chicago Fed Nat Activity Index
23
US: New Home Sales
US: Richmond Fed Manufact. Index
24
US: MBA Mortgage Applications
JN: Nikkei Japan PMI Mfg
EC: Markit Eurozone Manufacturing PMI
US: Markit US Manufacturing PMI
US: Existing Home Sales
29
UK: Nationwide House PX MoM
US: Personal Income
US: Dallas Fed Manf. Activity
US: PCE Core MoM
30
JN: Jobless Rate
US: Consumer Confidence Index
UK: Mortgage Approvals
EC: Consumer Confidence
EC: Economic Confidence
31
JN: Industrial Production MoM
US: MBA Mortgage Applications
US: ADP Employment Change
US: Chicago Purchasing Manager
EC: CPI Estimate YoY
IN: India, US: United States, EC: European Union, UK: United Kingdom, CH: China, JN: Japan
UK: Bank of England Bank Rate
US: Initial Jobless Claims
US: Durable Goods Orders
US: Factory Orders
UK: BOE Asset Purchase Target
4
11
US: Initial Jobless Claims
US: Import Price Index MoM
US: Continuing Claims
US: Bloomberg Consumer Comfort
UK: RICS House Price Balance
18
US: Initial Jobless Claims
EC: CPI YoY
US: Leading Index
UK: Retail Sales Ex Auto Fuel MoM
US: Philadelphia Fed Business Outlook
25
US: Initial Jobless Claims
US: Durable Goods Orders
US: Continuing Claims
US: Bloomberg Consumer Comfort
US: Cap Goods Orders Nondef Ex Air
US: Change in Nonfarm Payrolls
US: Unemployment Rate
US: Trade Balance
UK: Halifax House Prices MoM
JN: Leading Index CI
5
12
US: U. of Mich. Sentiment
EC: GDP SA QoQ
US: Retail Sales Advance MoM
IN: Industrial Production YoY
US: PPI Final Demand MoM
19
JN: All Industry Activity Index MoM
UK: PSNB ex Banking Groups
26
UK: GDP QoQ
US: GDP Annualized QoQ
US: U. of Mich. Sentiment
JN: Natl CPI YoY
US: Personal Consumption
63

AUGUST 2016
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64

STRONG ON CONSUMPTION
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