Advice for the wise - June 2015

1. Advice for the Wise
June 2015

2. Contents
From the desk
of the CIO
Did you
know?
Domestic
Equity
Outlook
Global Equity
Outlook
Domestic
Debt Outlook
Domestic
Debt Strategy
Global Debt
Outlook
Global
Economy
Update
Foreign
Exchange
Commodities
Real Estate
Outlook
What’s
Trending?

3. From the desk of the CIO
Dear Investors,
Last four months has seen subdued retail inflation and a
contracting wholesale inflation. This state of disinflation
has a positive factor to it. The central bank is now
expected to factor these conditions so as to boost the
economy. With the new base, the Indian economy growth
seems to have jumped leaps and bounds. However,
statistically the economy has not revived as much as it
seems to have. What will be interesting to see going
forward is how the government will synergize these
growth and inflation numbers to continue the revival of
the economy. The latest rate cut by the RBI of 25 basis
points has been in line with expectations, which the
market had already factored. However the dovish
commentaries from the RBI Governor led the market to
take a plunge.
The concern is of a below-par monsoon predicted by the
IMD. We expect that due to this, the food and fuel
inflation might rise. We have already seen a rise in the
price of essential commodities and this will continue if the
monsoon remains deficient. This will increase concerns
about the fiscal deficit that seems to be in control as of
now.
On the global front Greece concerns have receded but
kept all the markets on the edge. The worry of a Grexit
has been over-played and the effect of this has been fairly
discounted. However, the markets might see a knee-jerk
effect if this were to happen but the effect would not
sustain. Recent disappointment of US growth rates has
increased the uncertainty of a US rate hike and thus it
looks unlikely in 2015. This is positive news for the Indian
and other emerging economies. Another market concern
is that of a rise in crude oil prices. This will prove to be
negative for the Indian economy since it will directly
affect inflation and imports adversely in an economy that
is already seeing a fall in the growth of exports.
These three triggers, activities in Europe, US Fed rate hike
concerns and a below-par monsoon can put the rate cut
cycle on hold for the next few months. In the midst of all
this, the Indian market valuations have been reasonable
and the market still remains favorable form a medium to
long term view.

4. Did You Know?
#Source: Huffington Post, Pintrest, Investopedia
The Massachusetts Investors
Trust was the first official
mutual fund, created on March
21st, 1924
Before paper money was
introduced in the U.S.,
Americans traded animal
skins and hides from animals
including deer and elk bucks,
which is why we sometimes
call a dollar bill a “buck.”
The terms "bear" and "bull"
are thought to derive from
the way in which each animal
attacks its opponents. That
is, a bull will thrust its horns
up into the air, while a bear
will swipe down

5. Domestic Equity Outlook
Indian Equities have been in correction mode since early March. With markets becoming oversold, value buying
emerged at lower levels and thus pushed benchmark indices into positive territory. The month continued to give a
mix macro picture. CPI below 5% and contraction in Wholesale inflation encouraged the market participants.
However, exports continued to be sluggish and IIP numbers remained subdued. Positives include stable currency
and having twin deficits under control. However, fears of delay in monsoons continue to worry the markets. Sectors
like Technology and Healthcare faced adverse cross-currency movements. Capitalintensive sectors continued to under-
perform awaiting macro recovery; whereas select stocks in Automobiles, Banking and FMCG continued to outperform
rest of the markets
As on 25th
May 2015
1 month
change
1 year
change
Equity
Markets
BSE Sensex 27643 0.80% 11.80%
CNX Nifty 8370 0.80% 13.70%
BSE Midcap 10611 1.70% 22.40%
BSE Smallcap 11183 1.60% 22.50% 85
90
95
100
105
110
115
120
125
130
135 S & P BSE Sensex CNX Nifty
BSE Midcap BSE Smallcap

6. Domestic Equity Outlook
 Indian wholesale prices index retreated further into the
negative territory, where it had been languishing since
November 2014, with a 2.65% year-on-year decline in
April of 2015, following a 2.33 % drop in the previous
month.
 Food prices rose 5.73 %, slowing from a 6.31 % increase in
March, while petrol prices fell 18.44 %, following a 17.70
% drop in the previous month.
 The consumer price index-based inflation (CPI) slowed
for the second consecutive month to 4.87 % in April of
2015 from an upwardly revised 5.25 % in March,
dragged down by lower food prices
 Cost of food and beverages rose 5.36 % in April, down
from 6.2 % in the previous month, while the food alone
index rose 5.11 % (6.14 % in march).
Wholesale Price Index Consumer Price Index
#Source: Trading Economics, Business Standard
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00% WPI CPI

7. Domestic Equity Outlook
 Industrial growth slowed down to 2.1% in March, against
a 4.87 % growth in the previous month.
 Among the different components, manufacturing output
which constitutes over 75% to the index recorded the
highest increase with 2.2%. Electricity sector grew by 2.0%
while mining edged up 0.9% in March.
 While as many as nine out of the 22 manufacturing
subsectors shrank, the capital goods segment, which
represents the investment demand in the economy, grew
by 7.6%, marking a fifth successive month of growth of
investment activity.
 The Indian economy expanded 7.3% in the year ended
March, in line with the initial forecast and marginally
higher than 6.9% recorded in the previous year
 Financial services reported 11.5% growth while trade
and hotels segment was up 10.7%. Manufacturing
growth picked up further in the January-March period,
rising to 8.4%, but construction slowed to 1.4% and
agriculture contracted 1.4% because of the damage
caused by unseasonal rains in March.
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
IIP
4.0
5.0
6.0
7.0
8.0
GDP

8. Sector Outlook
Sector Stance Remarks
BFSI
Private sector banks have delivered healthy earnings in line with expectations. However, most
PSUs have delivered muted numbers.
Automobiles
Passenger vehicles and CVs to outperform two-wheeler segment. Tractors to continue weak
show. Auto-ancillaries expected to do well due to revival of demand. Global Auto players to
face currency headwinds.
FMCG
We prefer “discretionary consumption” and growth pickup in Urban compared to Rural
theme within FMCG. Key beneficiaries such as F&B and durables, as the growth in this
segment will be disproportionately higher vis-à-vis the increase in disposable incomes.
IT/ITES
The sector has been marred by cross-currency volatility and weakness in select verticals. Long
term outlook to improve once global uncertainties come down.
Power Utilities
Lack of fuel linkages , poor SEB health, adverse CERC guidelines have compromised the ROE’s
leading to de-rating in near term. In long run, they are core to India’s infra story.
Cement
Cement volumes witnessing pressure. Going ahead pricing and realizations would be key for
sector valuations.

9. Sector Outlook
Sector Stance Remarks
Healthcare
Huge global opportunity as a generic and bulk drug supplier. Better placed against peers in terms
of technology and labor cost arbitrage. Strong earnings growth support rich valuations.
E&C
Order inflows expected to improve as spending and capital expenditure likely to move up on
economic recovery.
Energy
With the price deregulation of diesel, we believe the total subsidy burden on Oil PSU’s will come
down significantly this year. Govt. has decided to pay full subsidy to OMC’s .
Telecom
Regulatory uncertainties have come down. However, aggressive bids for spectrum has revived
fears of sub-optimal returns on capital. Pressure in Voice offset by data revenues.
Metals
Lower global growth and Chinese slowdown has kept the growth subdued. Absence of US
monetary stimulus will lead to further downward pressure on prices.

10. Global Equity Outlook
Globally, investors need to monitor the developments in Greece and timing of rate hike by US Fed. The earnings
season is about to get over and overall results have been more or less in line with expectations. US data
remained mixed with improvement in some quarters. However, GDP showed a seasonal slowdown and was
below expectations. Fears of Chinese IPOs squeezing global liquidity kept pressure on the markets. On the
domestic front, monthly inflation numbers continued to show improvement.
As on 25th
May 2015
1 month
change
1 year
change
Equity
Markets
MSCI World 1803 0.22% 5.91%
Hang Seng 27992 -0.24% 21.90%
S&P 500 2126 0.62% 11.87%
Nikkie 20413 1.97% 39.80%
95
105
115
125
135
145 MSCI World Hang Seng S&P 500 Nikkie

11. Global Economy Update
United States
• Consumer prices in the United States declined 0.2 % year-
on-year in April, following a 0.1 % drop in March due to
falling energy cost, although the core inflation remained
at 1.8 %.
• The United States in the month of April managed a
budget surplus of $157 billion, a 47 % jump from the
same period last year.
Emerging Economies
• Foreign direct investment into India had risen by 40 % in
the 2014/15 fiscal year from a year ago, according to the
finance ministry.
• China's annual inflation rate was recorded at 1.5% in April
of 2015, edging up from 1.4 % increase in the previous
month while the Producer Prices fell by 4.6%, continuing
its downward trajectory since March 2012.
Japan
• Japanese economy expanded by 0.6 % on the back of
increased private demand and personal consumption, in
the first quarter of 2015 following a downwardly revised
0.3 % rise in the last three months of 2014.
• Consumer prices in Japan rose 0.6 % year on year in April,
as the effects of last year's decline in oil prices
deteriorates.
Europe
• Industrial production in the Eurozone increased 1.8 %
year-on-year in March, slightly down from a revised 1.9 %
growth in February, although it fell by a surprising 0.7%
on a monthly basis.
• The Eurozone trade surplus increased to € 23.4 billion in
March of 2015 from a € 16.1 billion surplus a year earlier,
as exports of goods were up 11 % and imports grew at a
slower 7 %.
#Source: Reuters, Economic times , Huffington Post

12. Domestic Debt Outlook
•Government bond prices ended up as the RBI’s decision to auction a new
10-year paper maturing in 2025 in the current week’s bond sale aided
gains.
•Liquidity support was provided by the RBI via two overnight repo
auctions for a total notified amount of Rs 25,000 crore. In addition, the
apex bank also conducted two 14-day term repo auctions, injecting
liquidity worth Rs 31,000 crore
•Easing concerns about global bond market volatility, and expectation of
an interest rate reduction from the RBI in the upcoming June policy
announcement further contributed to the rise in prices. Among global
cues, government bonds received fillip from the US Federal Open
Market Committee’s (FOMC) intra-week policy meeting. According to the
minutes, most policymakers felt increasing US interest rates in June
would be premature.
As on 25th
May 2015
1 month
change
1 year
change
Debt Markets
10-Yr G-Sec Yield 7.68% 90bps (75bps)
Call Markets
*as on 20th
March 2015
8.55% 0bp 37bps
Fixed Deposit 8.00% (25bps) (100bps)
Corporate Bond Spreads
0
50
100
150
200
250
300
350
AAA AA+ AA AA- A+ A A- BBB+
5 Years 10 Years 15 Years
7.40
7.60
7.80
8.00
8.20
8.40
8.60
8.80
9.00
9.20
9.40
G-Sec
10 YR Gsec Yield 5 YR Gsec Yield
15 YR Gsec Yield

13. Domestic Debt Strategy
Our recommendations regarding short term debt is that investors with the time horizon
of 1 year to 2 years can look for short term debt funds. Even though, most of the short
term fund’s YTMs have fallen to sub-9%, our recommended short term debt funds still
have high YTMs (8.38%-10.58%) providing interesting investment opportunities.
The corporate bond market segment continues to be attractive over the medium term,
specially with expectations of an improvement in corporate profitability and an improved
economic outlook. The corporate bond funds are better placed as they focuses on
securities with higher accrual by investing in the steadily developing corporate bond
market which offers attractive risk reward opportunity.
As dynamic bond funds have the flexibility to change its investments from short term to long term
and from long term to short term, these are likely to outperform in the uncertain interest rate
scenario. However, as we expect RBI to lower policy rates during the course of next 12-18
months, dynamic bond funds may deliver better returns in the due course. Hence one could look
at these funds having medium term of investment horizon.
Long Term Debt funds may be less attractive now as the longer holding period (more than three
years) will neutralise any capital gains in the near term because of lower accrual income. Hence
our recommendations regarding long term debt is that investors could look to book profits by
reducing long term debt funds / Gilt funds in their portfolio.
Short Term
Debt
Corporate
Bond Funds
Dynamic
Bond Funds
Long Term
Debt Funds

14. Global Debt Outlook
Ratings Country
10 Yr G-
Sec Yield
1 month
change
AAA
Germany 0.48% 12bps
Hong Kong 1.61% 7bps
Sweden 0.66% 27bps
Switzerland (0.06%) (7bps)
AA+ USA 2.09% (2bps)
AA-
China 3.59% 18bps
Japan 0.39% 3bps
•China owned $1.261 trillion worth of U.S.
government securities at the end of March,
compared to $1.2269 trillion for Japan.
•The European Central Bank purchased just over
€63 billion ($68.75 billion) in public and private
debt securities last month under its three-month-
old quantitative easing program
•Argentina’s primary deficit, which excludes debt
payments, jumped to 17.4 billion pesos ($1.93
billion) in March, compared with a 3.6 billion peso
surplus just one year earlier. The last time Argentina
posted a shortfall for March was in 2002, three
months after reneging on a record $95 billion of
debt.
•Japan’s debt stood at a record-high ¥1.053
quadrillion ($8.78 trillion) at the end of March,
increasing pressure on the government to take
further austerity measures.
#Source: Japan Times, Bloomberg, CNN Money, WSJ

15. Commodities
Gold continues to be range-bound; with international prices
languishing in the range of $1150-$1250 over past few months.
Improving US economy and global flows moving towards riskier
assets should keep gold prices subdued over medium term. The
caveat is that any geo-political crisis or events like Greece exiting
Euro can push up the gold prices.
As on 25th May, 2015 : `27066 per 10gm
1 month change : 1.07%
1 year change : (2.22%)
Crude oil saw a rise of 2.50% since last month. India's exports
contracted by about 14% to US $22 billion due to a sharp dip in
petroleum, gems and jewellery shipments
As on 25th May, 2015 : $64.52 per bbl
1 month change : 2.50%
1 year change : (41.40%)
*RICI: Rogers International Commodity Index – Tracks 38 commodity futures from 13 international exchanges.
2,000
2,500
3,000
3,500
4,000
RICI*
24000
25000
26000
27000
28000
29000
Gold
0
50
100
150
Crude

16. Foreign Exchange
• The Indian rupee depreciated against GBP, EURO and USD by 3.13%, 2.07% and 0.35% respectively. It saw an appreciation of
1.34% against the YEN.
• INR weakened significantly against the US dollar, as uncertainty regarding the government’s minimum alternative tax (MAT)
demands on foreign institutional investors led to sharp sell-offs in domestic equities. Demand for the dollar from importers
pulled the rupee down further.
• Dollar sales by exporters and foreign banks at various levels helped the local currency recoup its losses. The greenback’s
weakness following the release of the US FOMC’s meeting minutes also proved beneficial for the local currency. The rupee
ended flat against the US dollar after recovering its earlier losses as the greenback weakened against key currencies following
the release of some US economic data.
• The local currency also fluctuated taking cues from volatility in the euro.
Currency
As on 25th
May 2015
1 month
change
1 year
change
USD/INR 63.62 -0.35% 8.59%
Euro/INR 69.93 -2.07% -12.38%
GBP/INR 98.50 -3.13% -0.16%
Yen/INR 52.34 1.34% -8.94%
USD/Euro 0.91 -1.62% 23.77%
-1.15%
-2.26%
0.54%
-0.55%
-2.50%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
USD GBP EURO YEN

17. Real Estate Outlook
Tier I
The Reserve Bank of India reduced repo rates by 25 basis points
in January and March and again in June 2015. Some of the banks
have correspondingly reduced the base rates and passed on the
corresponding benefit on home loans. With the reduction in EMIs,
potential homebuyers who have been sitting on the fence may
take a buy decision.
Tier II
Enquiries have started from companies across industries such as
IT, consultancy and e-commerce for leasing and buying office
space in expectations of an economic revival. The change in the
uptake of commercial asset class is slower than residential and it
could take a couple of quarters before commercial asset class
absorption starts increasing.
Rentals are expected to largely remain stable in 2015–16 as
supply pipeline is still strong.
Lease rentals as well as capital values continue to be stable at
their current levels in the commercial asset class. Low unit
sizes have played an important role in maintaining the
absorption levels in these markets.
Demand in Tier II cities is largely driven by the trend towards
nuclear families, increasing disposable income, rising
aspiration to own quality products and the growth in
infrastructure facilities in these cities. Price appreciation is
more concentrated to specific micro-markets in these cities.
Cities like Chandigarh, Jaipur, Lucknow, Ahmedabad, Bhopal,
Nagpur, Patna and Cochin are expected to perform well.
Residential
Commercial

18. Tier I Tier II
Tier II cities see a preference of hi-street retail as compared to
mall space in Tier I cities. While not much data on these
rentals gets reported, these are expected to have been
stagnant.
Capital values as well as lease rentals continue to be stagnant.
Developers continue to defer the construction costs as absorption
continues to be low unsold inventory levels high.
Land in Tier II and III cities along upcoming / established
growth corridors have seen good percentage appreciation due
to low investment base in such areas.
Agricultural / non-agricultural lands with connectivity to Tier I
cities and in proximity to upcoming industrial and other
infrastructure developments present good investment
opportunities. Caution should however be exercised due to the
complexities typically involved in land investments.
Retail
Land
Real Estate Outlook

19. Gold Monetisation Scheme
Gold Monetisation Scheme, proposed in this year’s budget, which would enable depositors,
such as households and jewellers to open metal deposits with banks, place their gold
holdings in them, earn interests on the gold deposits and if needed, borrow money from it.
The scheme will reduce India’s dependence on imported gold which accounts for about 97%
of its annual gold demand. The scheme also intends to circulate the stashed unproductive
gold in the economy, estimated at around 20,000 tons, by pulling it out of domestic safes
and lending it out. The draft scheme, which proposes a tax exemption, put out by the
Finance ministry suggests a minimum lock-in of one year for gold deposits with a rollover of
over one year, similar to bank FDs.
What’s Trending?

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