ASHIKA-MONTHLY-JULY-16

FDI - WINDOW OF OPPORTUNITY

The stock markets around the world were jolted by the article in Live mint (titled It isn’t inequality that led to
sudden exit of UK from European Union (EU), the event Brexit). Morgan Stanley has in fact raised its probability of
popularly coined as ‘Brexit’. While the global markets a global recession in the next 12 months to 40 percent, up
expected Britons to vote to ‘remain’ in the EU, the from 30 percent before. The notion or rationale has been
outcome came in as a surprise. This is after the British the negative impact of political uncertainty on risk assets.
Prime Minister urged his countrymen to remain in EU. According to Morgan Stanley, the event will likely spread
However, post the adverse outcome, he wished to step to the impending US elections to be held in early
down as the Prime Minister of the nation, respecting the November and further to general elections to be held in
decision and silencing the murmurs for a second the Netherlands next year, presidential election in France
referendum. According to experts, the outcome comes at (late April and early May) and national elections in
an inopportune time when the prime minister had been Germany (late September).
re-elected with a strong mandate and the ruling party
won with absolute majority, thus providing stability to the In the domestic markets, vastly people are keenly
government. Now, the successor to the present prime following the latest update on monsoon with utmost
minister has to see through the whole unfortunate EU interest. Monsoon, the mega event of the year has left half
leaving episode. The pound had to take the beating while of the country unsatiated so far although the latest
the dollar strengthened relatively as well as on buying updates suggest heightened advancement. The sentiment
demand as investors flocked to safe haven. The was captured by low bond yields on an expectation of
strengthening dollar as well as the Brexit issue is a major reduction in interest rates led by bumper crop production
hindrance for the Fed to raise rates and might actually this year. After the initial above average forecasts by the
pause to let the whole episode percolate down without forecasting agencies – IMD and Skymet, the monsoon has
ruffling too many feathers. However, experts around the so far clocked deficit of 13% as of 28th June. The deficit
world are on a wait and watch mode with regards to the has narrowed from 17% (as of 23rd June, 2016) and 23%
unforeseen events and risks it poses after the actual deficit on 16th June. The percentage points are calculated
aftermath of the event. Majority of them have opined that by comparing the expected centimeters of rainfall with the
the recession and the extent in EU will not spread like a Long Period Average (LPA) of past 50 years. While the LPA
wild fire just as the case in 2008 since it is not is 89 cms, IMD expects a total of 94 cm of rainfall this
emanating from the same root causes. Nevertheless, it is a monsoon. The monsoon however arrived in Kerala a week
big impediment to the global stability and if the views of later than its normal onset date of 1st June, but is
prominent experts are to be trusted, this is actually an believed to have rapidly advanced over peninsular Indian
opportunity for the Asian economies and foreign investors states. As of 28th June, 49% of the country had received
might be seen flocking in the short term. The Britons normal rainfall, 17% had received excess rainfall and 34%
exited the EU as the campaign led by former London had got deficient or scanty rain. In the southern peninsula
mayor, Boris Johnson, and UK’s right-wing populist rainfall has been 16% above average and in north-west
political party, the UK Independence Party (UKIP) India it has been 2% more than normal. However, central
highlighted the opportunity costs for staying in EU. One India, east and north-east India have seen a deficit of 23%
of the reasons was migration within EU and rising and 26%, respectively. Clearly, when the first estimates
inequality. While in reality the inequality has actually are for 106% of the long-period average (LPA), the
come down in the recent years as highlighted by an monsoon is expected to have spread across whole of India
by end of June. Besides, this year the dreaded El Nino is

1

JULY 2016
MARKET OVERVIEW

seen disappearing and La Nina is seen developing. scheduled passenger airline and regional air transport
According to an analysis by Deutsche Bank, there is a service, the FDI limit has been raised to 100 per cent, with
strong positive correlation between La Nina and India’s FDI beyond 49 per cent through the government approval
key macro/rural indicators. Agri GDP in La Nina years grew route. In the pharmaceutical sector, where FDI in
at an average 7.8% YoY as against an average of 2.3% brownfield (existing) projects was allowed only through the
YoY in non La Nina years. According to the analysis, government approval route, the Centre has now decided to
broader economic indicators like—GDP, private permit up to 74 per cent FDI under the automatic route.
consumption and investments growth also exhibit similar For greenfield (new) projects, 100 per cent FDI through the
trends in La Nina years, averaging 8.9%/7.4%/10.4% YoY automatic route is already allowed. In food processing, it
growth—significantly higher than average growth of has been decided to permit 100 per cent FDI under the
5.8%/5.2%/7.2% respectively in non La Nina years. government approval route for trading, including through
Considering that ~50% of the country’s workforce e-commerce, in respect of food products manufactured or
depends on agriculture for a living and over half of India’s produced in India. This is in line with the Budget
farmland lacks assured irrigation, monsoon is of announcement made by the Finance Minister. In the
paramount importance. Besides, the food inflation has broadcasting sector, a decision has been taken to allow
failed to be tamed over the last two years mainly on 100 per cent FDI through the automatic route for
account of two failed monsoons barring the issues with teleports, direct to home, cable networks, Headend-in-the
hoarders or middlemen. Sky Broadcasting Service as well as mobile TV. In single-
brand retail, the government has tweaked the rules to
The Government also recently unleashed latest set of exempt investors from the mandatory domestic sourcing of
reforms probably to alleviate attention from the stepping 30 per cent inputs, by extending it to all entities for three
down of Raghuram Rajan from RBI governor’s post years and for a further five years for retailers selling
effective September. In the second tranche of reforms of products with ‘state-of-art’ and ‘cutting-edge’ technology.
the country’s Foreign Direct Investment (FDI) rules in less The requirement of ‘controlled conditions’ for 100 per cent
than a year, the government has announced further FDI in animal husbandry under the automatic route has
relaxation in the norms for nine sectors, including civil been dropped. In private security agencies, the FDI limit
aviation, pharmaceutical, defence, food products, single has been enhanced from 49 per cent to 74 per cent, with
brand retail trading, animal husbandry, broadcasting 49 per cent under the automatic route and higher under
carriage services private security agencies and government approval. These reforms if accepted will help
establishment of office. This is the second major reform in attracting strong foreign funds apart from creation of
after the last radical changes announced in November employment and boosting GDP. However, there are
2015. Prime Minister Narendra Modi tweeted: “In two impediments towards the path and it will not be easy
years, Govt. brings major FDI policy reforms in several key since any notification issued by the government can be
sectors. India is now the most open economy in the world challenged in either House of Parliament within 30 days of
for FDI; most sectors under automatic approval route.” He the Cabinet clearing it. So, anyways it will require
added: “Today’s FDI reforms will give a boost to permission from members of either House of Parliament
employment, job creation & benefit the economy.” In for implementation.
defence, the government has dropped the condition of
access to ‘state-of-the-art’ technology for allowing foreign Markets seem to be building strong expectation of a better
investment beyond 49 per cent, which is permitted than expected earnings for the forthcoming earnings
through the government approval route, in cases resulting season. However, on the contrary corporation tax for
in access to modern technology in the country or for 1QFY17 (April 1 to June 18) witnessed tepid growth of 2%
other reasons to be recorded. In civil aviation, the rules yoy at Rs 55,000 crore, portraying a sluggish economic
now allow 100 per cent FDI under the automatic route in recovery. Poor corporation tax collection growth reflects
brownfield airport projects as opposed to 74 per cent at persistently weak profitability and output for corporate
present. In scheduled air transport service/ domestic amid sluggish demand in the economy. On the other hand,

2

FDI - WINDOW OF OPPORTUNITY

direct tax collection during 1QFY17 posted a 22% growth revised estimate (RE) of 4.52 lakh core in FY16. Personal
at Rs 1.2 lakh crore led by buoyant growth in personal income tax, on the other hand is budgeted to rise over
income tax because of change in the advance tax 20% at Rs 3.53 lakh crore over RE of Rs 2.99 lakh crore
collection rules. Personal income tax witnessed a growth during FY16.
of 48% yoy at Rs 64,000 crore on account of the new
rules which require non-corporate to pay 15% advance The larger saving grace could rest with better than normal
tax by June 18, against 30% by September 15. Of the monsoon thus boosting Agri and thus overall GDP and
total direct tax collection, Rs 52,000 crore came from boost rural consumption. Moreover, the recommendations
advance taxes, of which personal income tax stood at Rs of the 7th Pay Commission also got the Cabinet nod and
6,000 crore. Post change in income tax compliance, will provide a fillip towards consumption in the economy.
individuals have to estimate income tax payable for full The cabinet also approved the Model Shop &
financial year and have to pay 15% of that in Q1, or else Establishment Act, which enables states to choose to keep
pay 1% interest for each month of delay. Overall advance shops and other such establishments open 24x7 all
tax collections in the 1QFY17, which are expected to be through the year. The move, which is likely to prove highly
about 15% of the full year tax liability, reported 18% beneficial for restaurants, malls, movie theatres and other
yoy growth. Corporation tax growth during the first entertainment entities and help to garner higher taxes for
quarter was unusual low which hints that all the macro the government. The Cabinet also cleared the new mining
factors are still not well with the corporate side of policy thus boosting mineral exploration by private
economy and corporate profitability numbers are yet to companies, unlike earlier, by allowing them to bid for
pick up. Other macro indicators also do not reflect bright mineral blocks. The intent is again growing strong and the
picture with Industrial production index contracted by government seems to be pushing the pedal for gas
0.8% in April, largely due to 3.1% yoy decline in reforms. The monsoon session which would start on July
manufacturing sector. However, such grim performance 18 and conclude on August 12 is expected to be keenly
from macro indicators do not support the strong GDP watched and would be an eventful one considering that
growth of 7.6% which the country posted during FY16 the government will try to push for the all important GST
and the numbers have come under scanner for disconnect bill to get passed. The government seems to be garnering
with other economic indicators. Further, government support from other regional parties for GST and there is a
expects GDP for the current financial year would be in strong consensus estimate and chance for passing of the
the range between 7.75% which indicates that same in the monsoon session itself. However, there could
economists and the government might not be in same also be debate with regards to the recently announced FDI
page. The government has targeted direct tax collections reforms. In all, there are 11 pending bills in the Lok Sabha
at Rs 8.47 lakh crore for FY17 which would be 15% high and 45 bills in the Rajya Sabha. The government aims to
over actual mop up in previous financial year. Corporation pass atleast 25 bills in the monsoon session itself and
tax is targeted to grow 8.8% to Rs 4.93 lakh crore over thus promises to be packed with action and higher
productivity.

Paras Bothra

Vice President - Equity Research
Email - [email protected]
Phone : 022 6611 1704

3

JULY 2016
MONTHLY INSIGHT PERFORMANCE

Over the years, Ashika Research based on its rigorous and Bajaj Finserv, Sharda Motor, Emami, Zydus Wellness, Bharti
continuous analysis on fundamental basis, has InfraTel, Cummins India, Godrej Consumer, Adani Ports,
recommended stocks and consistently achieved the target L&T, Finolex Ind., Escorts, Pidilite, Prism Cement, Pidilite
price recommended. Since January 2012 we have Ind., MRF Ltd., Dr Reddy, Berger Paints India, BPCL, Divis
recommended 198 stocks out of which 153 has achieved Lab, Ashok Leyland, V-Guard Ind., Tatamotor - DVR, Gulshan
target. Hit Ratio stands at 77%. Out of these 80 stocks Polyols, IFB Industries, Zee Entertainment, Motherson Sumi,
have given a return of more than 100%. During this Castrol India, Rallis India, Info Edge (India), LIC Housing Fin,
period the Nifty has given a return of 56% and a return AIA Engineering, SKS Microfinance, Indian Bank, Dr. Reddy
of 75% from its peak. Lab, Uflex, Axis Bank, Dabur India, City Union Bank, FDC
Ltd., Multibase India, Tata Motors, IPCA Lab and Magma
The stocks recommended by us such as Cera Fincorp have generated exceptional returns (more than
Sanitaryware, Symphony, Srikalahasti Pipes, Aurobindo 100% returns) for our investors. A few of them have
Pharma, Shree cement, MRF, Britannia, Can Fin Homes, generated returns in excess 200% for our investors.
Pidilite Ind, Torrent Pharma, Wim Plast, Deccan Cements,
Axiscades Engg, Lupin, Maruti Suzuki, Glenmark Pharma, We have selected stocks across large cap and mid cap
Kaveri Seeds, Havels India, Himatsingka Seide, HPCL, UPL, companies and across variety of sectors. For the period
Indusind Bank, Gujarat Gas, Relaxo Footwears, Zensar analyzed, the stocks recommended by us have
Tech, Berger Paints, Hexaware Ltd., Dabur, PI Industries, outperformed their respective sectoral indices.

Success Rate Return Classification

19% 27% 80
4% 54 Stocks
Stocks

77% 14% 27 40%
Stocks

37
Stocks
19%

Target Achieved Exit/Booked Calls Open More than 100% Return 100-50% Return
Total Call: 198 50-25% Return Less than 25% Return

4

FDI - WINDOW OF OPPORTUNITY

Recommended Stocks

28/06/2016)

Jun-16 Dabur India FMCG 290 335 15.5% 320.0 10.3% 313.0 Target Achieved
Godrej Consumer Prod FMCG 1481 1750 18.2% 1583.9 6.9% 1528.8 Target Achieved
May-16 Glenmark Pharma Pharma 15.7% 1.7% Target Achieved
Apr-16 Tata Power Co Power 851 985 16.4% 865.8 6.0% 784.7
Mar-16 Mahindra & Mahindra Auto 73 85 16.5% 77.4 6.3% 72.0 Target Achieved
Feb-16 PI Industries Paints & Chemical 19.7%
Jan-16 DCM Shriram Paints & Chemical 1330 1550 24.2% 1414.0 15.1% 1408.6 Target Achieved
ACC Cement 635 760 15.3% 730.9 39.6% 712.3 Target Achieved
Dec-15 Whirlpool India Home Appl. 157 195 19.1% 219.1 17.8% 213.8 Target Achieved
Nov-15 VA Tech Wabag Water Treatment 33.2% 21.1%
NTPC Power 1370 1580 17.5% 1614.0 24.5% 1598.4 Target Achieved
Oct-15 Marico FMCG 680 810 18.6% 823.5 23.0% 807.0 Target Achieved
Sep-15 HDFC Banking & Finance 518 690 18.6% 645.0 14.1% 585.7 Target Achieved
Aug-15 HCL Tech IT 126 148 17.8% 155.0 148.0 Target Achieved
Hero MotoCorp Auto 236 280 10.1% 269.3 7.5% 256.4 Target Achieved
Jul-15 Pidilite Ind. Paints & Chemical 19.1% 1.3% Target Achieved
Jun-15 Indraprastha Gas Oil & Gas 1180 1400 18.9% 1268.4 25.3% 1228.9
May-15 SH Kelkar Personal Prod. 866 1020 24.0% 877.0 31.5% 713.2 Target Achieved
Texmaco Rail Engg. & Const. 2820 21.2% 20.6% Target Achieved
Apr-15 Wabco India Auto 2562 14.6% 3211.2 10.3% 3020.4
Mar-15 Sanofi India Pharma 551 656 17.7% 724.8 2.5% 707.5 Target Achieved
Feb-15 Garware Wall Ropes Textiles 525 624 25.8% 633.0 2.7% 613.9 Target Achieved
Inox Wind Power 250 310 25.9% 275.8 5.2% 213.8
Jan-15 Sterlite Tech Electrical Equip. 151 183 50.1% 154.9 12.5% 94.3 Target Achieved
GP Petroleums Oil & Gas 7200 132.8% 3.6%
Dec-14 HCC Construction 6280 5060 65.4% 6450.0 19.7% 5684.5 Target Achieved
Castrol India Oil & Gas 4300 488 17.8% 4525.0 34.6% 4251.1 Target Achieved
Nov-14 Zee Ent. Media 500 19.0% 8.8% Target Achieved
Syngene Int Pharma 388 107 19.9% 436.5 9.5% 359.9
Berger India Paints & Chemical 397 156 18.8% 411.4 19.6% 230.9 Target Achieved
Ceat Tyre 15.3% 35.8% Exit
Cummins India Electrical Equip. 72 43 17.5% 85.6 45.1% 85.6 Target Achieved
Greenply Ind. Plywood 67 510 20.1% 90.2 22.2% 60.0 Target Achieved
TIME Technoplast Plastic Prod. 26 464 22.7% 28.3 29.7% 19.8 Exit
SQS India BFSI IT 433 385 26.9% 474.4 40.9% 374.6
Asian Paints Paints & Chemical 390 247 16.2% 466.4 5.9% 436.9 Target Achieved
Idea Cellular Telecom 321 1245 16.8% 436.0 89.9% 403.4 Target Achieved
Gruh Finance Banking & Finance 208 1130 23.4% 301.9 36.5% 275.7 Target Achieved
Maruti Suzuki Auto 1080 225 15.7% 1319.9 4.2% 814.3 Exit
Whirlpool India Home Appl. 962 15.7% 1247.7 10.7% 810.7 Target Achieved
Sun pharma Pharma 187 81 31.9% 263.5 26.9% 250.8 Target Achieved
Tata Motors Auto 66 863 19.4% 69.9 11.4% 49.1 Target Achieved
Ultratech Cement 680 883 23.1% 1291.0 9.2% 988.7 Target Achieved
Tata Global FMCG 760 209 23.4% 1037.5 3.7% 980.2 Target Achieved
Abbott India Pharma 179 322 16.4% 186.5 28.9% 104.4
Strides Arcolab Pharma 261 4367 16.2% 289.0 6.7% 282.2 Target Achieved
Elantas Beck India Chemical 3774 879 16.8% 4790.0 53.7% 4078.7
MCX Finance 760 1220 31.9% 847.0 22.6% 807.0 Target Achieved
BEML Electrical Equip. 925 615 22.7% 1010.0 42.0% 765.1
Rolta IT 515 3300 30.9% 533.8 9.6% 440.4
SML Isuzu Auto 2680 174 24.8% 3454.9 64.8% 3400.8
HBL Power Battery 141 4680 57.6% 150.5 3.0% 127.9
Mangalam Cement Cement 4020 1340 34.6% 6177.7 70.7% 4488.0
Amrutanjan Health Pharma 1153 1320 44.8% 1414.0 84.8% 1090.3
Torrent Pharm Pharma 1130 1552 22.1% 1605.0 1.1% 1452.1
Emami FMCG 1177 1200 18.0% 1289.9 25.8% 999.5
Dewan Housing Finance 978 250 20.9% 1612.0 56.8% 840.0
KPIT Tech IT 191 1222 31.5% 196.8 74.3% 62.9
Bajaj Corp Personal Prod. 979 17.7% 1671.0 43.4% 1144.6
Alstom India Electrical Equip. 34.9 55 23.7% 64.5 16.2% 33.8
Transport Corp Transportation 321 432 24.6% 324.5 59.6% 304.8
Multibase India Rubber Prod. 449 650 82.9% 564.9 49.7% 412.7
Albert David Pharma 1096 1338 41.8% 1718.4 22.7% 1343.4
ONGC Oil & Gas 783 924 30.6% 1365.0 108.8% 1097.9
Cadila Helthcare Pharma 199 240 15.6% 284.6 57.9% 202.1
Karur Vysys Banks 200 263 29.4% 232.4 4.4% 179.3
JK Lakshmi Cement Cement 327 385 13.8% 522.0 63.8% 385.0
586 725 877.0 14.4% 610.0
284 354 348.5 23.5% 307.3
164 300 342.5 260.6
256 363 404.3 306.5
395 516 412.5 211.4
277 320 453.3 321.0
541 700 619.0 499.9
348 396 429.9 387.6

5

JULY 2016
MONTHLY INSIGHT PERFORMANCE

Diwali Ashok Leyland Auto 44 65 46.2% 112.9 154.0% 28/06/2016)
Pick 540 700 29.6% 619.0 14.6%
Oct-14 Karur Vysys Banks 317 412 30.0% 710.0 99.0 Target Achieved
Sep-14 38.4% 124.0% 499.9
SKS Microfinance Finance 43 60 50.4% 64.5 48.8% 695.1 Target Achieved
Aug-14 117 176 17.7% 148.6 27.0%
NOCIL Chemical 1240 1460 28.8% 1614.0 30.2% 52.0 Target Achieved
Jul-14 295 380 52.0% 700.0 129.2 Exit
Kesoram Industries Diversified 102 155 13.5% 134.0 137.3% 1506.4 Target Achieved
Jun-14 527 598 21.9% 612.4 31.4% 330.9 Target Achieved
Akzo Nobel Paints & Chemical 447 545 27.5% 669.0 16.2%
May-14 102 130 27.7% 164.8 49.7% 78.3
Apr-14 IFB Industries Household Appl. 256 327 21.0% 412.2 61.6% 440.4 Target Achieved
Mar-14 649 785 56.7% 1124.4 61.0% 536.7 Target Achieved
Feb-14 Munjal Auto Auto Parts 27.5% 111.8 73.3% 139.4 Target Achieved
Jan-14 60 94 37.1% 246.0 86.3% 272.2 Target Achieved
Dec-13 Tata Motors Auto 211 269 30.2% 1190.0 16.6% 640.5 Target Achieved
Nov-13 391 536 45.4% 396.2 107.1 Exit
Oct-13 Timken India Industrial Prod. 106 138 51.1% 188.8 204.3% 164.7
Sep-13 119 173 54.8% 1028.9 273.8% 825.6 Target Achieved
Aug-13 KEC International Electrical Equip. 270 408 26.8% 430.0 250.1 Target Achieved
177 274 25.8% 664.4 58.7% 152.7 Target Achieved
Indoco Remedies Pharma 560 710 31.0% 1470.0 281.1% 979.3 Target Achieved
593 746 28.4% 166.4 142.9% 343.0 Target Achieved
Ingersoll-Rand Industrial Prod. 142 186 29.0% 251.0 455.0
27.6% 351.0 18.6% 1360.4 Target Achieved
Bodal Chemicals Chemical 74 95 27.1% 447.1 147.9% 121.9
221 285 48.0% 1947.7 226.5 Target Achieved
Som Distilleries Breweries & Dist. 392 500 47.5% 682.0 17.2% 304.8 Target Achieved
1180 1500 52.2% 1324.8 239.2% 313.3 Target Achieved
Sharda Motor Auto Parts 473 700 22.6% 349.0 1381.3 Target Achieved
305 450 19.8% 228.9 58.8% 589.8
Axiscades Engg IT 33.7% 1364.2 14.1% 1171.1 Target Achieved
46 70 29.0% 341.7 65.1% 248.3 Target Achieved
Visaka Industries Cement Prod. 164.4 201.6 20.5% 2499.0 44.2% 154.4 Target Achieved
16.0% 331.7 334.4% 974.7 Target Achieved
Deccan Cements Cement 606 726 30.7% 862.4 658.7% 234.4 Target Achieved
255 341 31.3% 112.3 39.2% 1992.8 Target Achieved
Gulshan Polyols Chemical 620 800 22.8% 960.1 125.1% 203.2 Target Achieved
224 270 25.0% 540.8 34.0% 556.9 Target Achieved
Mahindra Lifespace Real Estate 263 305 18.6% 787.2 303.1% 109.3 Target Achieved
52.8 24.6% 972.5 48.1% 495.3 Target Achieved
V-Guard Ind. Industrial Prod. 297 69 34.2% 499.7 227.9% 278.1 Target Achieved
232 390 19.4% 617.0 112.6% 712.3 Target Achieved
Astra Microwaves Defence 252 285 40.8% 427.0 223.3% 585.7 Target Achieved
323 315 43.3% 631.0 133.1% 338.6 Target Achieved
Himatsingka Seide Textile 171 383 17.1% 1121.0 212.4% 546.2 Target Achieved
187 213 30.8% 2247.0 201.6% 416.2 Target Achieved
Mangalam Cement Cement 155 251 12.0% 274.4 192.2% 489.4 Target Achieved
355 185 23.3% 46399.0 229.9% 962.2 Target Achieved
Coal India Coal 349 500 18.8% 1015.0 175.5% 2196.1 Target Achieved
726 500 23.5% 224.3 77.7% 182.0 Target Achieved
Container Corporation Logistics 130 850 31.6% 3275.0 221.2% 32941.9 Target Achieved
17350 170 37.5% 724.8 209.5% 807.1 Target Achieved
Balmer Lawrie Logistics 446 19430 90.4% 1535.0 111.0% 140.9 Target Achieved
101 550 59.7% 1075.5 167.4% 2486.2 Target Achieved
Can Fin Homes Housing Finance 405 120 11.3% 218.6 127.6% 707.5 Target Achieved
266 500 17.3% 3434.2 122.0% 730.1 Target Achieved
Srikalahasti Pipes Iron & Steel Prod. 216 350 13.1% 1262.9 708.6% 443.3 Target Achieved
305 297 14.9% 3454.9 172.5%
Bank of Baroda Banking 124 580 1893.8 610.6% 93.7 Target Achieved
759 198 8.7% 700.9 253.1% 2748.2 Target Achieved
AIA Engineering Industrial Prod. 520 845 36.6% 1132.5 76.3%
1808 610 32.5% 224.4 352.5% 784.7 Target Achieved
MOIL Ltd. Metals & Mining 705 2045 21.5% 335.8 142.9% 3400.8 Target Achieved
344 810 16.6% 1583.9 91.1% 1474.1 Target Achieved
Wim Plast Plastic Prod. 344 374 12.8% 1718.4 168.6%
470 103.9% 501.0 Target Achieved
Engineers India Engg. & Const. 82 108 229.2% 1084.7 Target Achieved
107 130 175.3%
Gujarat Gas Gas 815 950 213.8% 219.2 Target Achieved
421 475 94.3% 226.9 Target Achieved
City Union Bank Banking 308.2% 1528.8 Target Achieved
1343.4 Target Achieved
Relaxo Footwears Footwear

Motherson Sumi Auto Ancillary

PI Industries Agrichem

VA Tech Wabag Water Treatment

Bharti InfraTel Telecom - Infra

UPL Fertilizer

Finolex Ind. Pipes

NIIT Tech IT

Zensar Tech IT

Bajaj Finserv Banking

FDC Ltd. Pharma

MRF Ltd. Tyre

Info Edge (India) Web Services

Indian Bank Banking

Symphony Cons. Durable

Pidilite Ind. Paints & Chemical

Aurobindo Pharma Pharma

Kaveri Seeds Agri Prod.

Speciality Restaurant Restaurants

Britannia FMCG

Glenmark Pharma Pharma

Ultratech Cement Cement

L&T Engg. & Const.

Tech M IT

Indusind Bank Banking & Finance

Escorts Auto

Hexaware Ltd. IT

Godrej Consumer FMCG

Torrent Pharma Pharma

6

FDI - WINDOW OF OPPORTUNITY

28/06/2016)

Jul-13 TCS Ltd IT 1460 1640 12.3% 2839.7 94.5% 2464.0 Target Achieved
Jun-13 Dabur India FMCG 150 170 13.3% 320.0 113.3% 313.0 Target Achieved
May-13 Rallis India Chemical 130 148 13.8% 298.7 129.7% 219.8 Target Achieved
Hero MotoCorp Auto 16.4% Target Achieved
Apr-13 Divis Lab Pharma 1736 2020 14.6% 3270.0 88.4% 3020.4 Target Achieved
Mar-13 Corporation Bank Banking & Finance 977 1120 19.8% 2484.7 154.3% 1107.2 Booked
Maruti Suzuki Auto 77 14.8% Target Achieved
Feb-13 Dr. Reddy Lab Pharma 92 14.5% 86.0 12.0% 41.4 Target Achieved
BPCL Oil & Gas 1673 1920 13.6% 4790.0 186.3% 4078.7 Target Achieved
Jan-13 Kotak Mahindra Bank Banking & Finance 1991 2280 22.9% 4386.6 120.3% 3273.1 Target Achieved
Dec-12 L&T Engg. & Const. 34.0% 1054.1 160.3% 1051.7 Target Achieved
Nov-12 Pidilite Chemical 405 460 13.6% Target Achieved
Oct-12 Godrej Consumer FMCG 415 510 17.0% 778.9 87.6% 743.3 Target Achieved
Sep-12 ITC FMCG 683 915 21.0% 1893.8 177.3% 1474.1 Target Achieved
Aug-12 Berger Paints Chemical 264 300 21.6% 174.5% Target Achieved
Jul-12 LIC Housing Fin Banking & Finance 778 910 22.4% 724.8 103.6% 707.5 Target Achieved
Zee Entertainment Media & Ent. 291 352 23.3% 1583.9 1528.8 Target Achieved
Jun-12 Axis Bank Banking & Finance 116 32.2% 40.9%
Tata Motors Auto 95 284 27.2% 410.0 217.8% 368.5
May-12 Cairn India Oil & Gas 232 265 26.5% 301.9 125.8% 275.7
Petronet LNG Oil & Gas 215 397.8 31.6% 524.0 116.9% 497.7
Apr-12 Adani Ports Others 301 379 33.3% 466.4 117.6% 436.9
Mar-12 J & K Bank Banking & Finance 298 410 28.2% 654.9 105.5%
Feb-12 Zee Entertainment Media & Ent 324 200 18.7% 612.4 514.0 Target Achieved
Indusind Bank Banking & Finance 152 180 20.2% 386.0 19.1% 440.4 Target Achieved
Feb-12 IPCA Lab Pharma 135 167 21.1% 293.1 92.8% 134.1 Booked
Jan-12 L&T Finance Banking & Finance 130 235 54.5% 374.8 177.6% 284.3 Target Achieved
Zydus Wellness FMCG 198 500 25.8% 195.5 50.0%
Sun TV Media & Ent. 416 545 24.9% 466.4 135.6% 202.9 Target Achieved
Allahabad Bank Banking & Finance 450 22.4% 1132.5 172.2% 68.5 Target Achieved
Shoppers stop Others 85 18.3% 906.9 101.5% Target Achieved
Dish TV Media & Ent. 55 560 35.3% 76.5% 436.9 Target Achieved
Havels India Cons. Durables 445 446 15.0% 97.1 153.7% 1084.7
Lupin Pharma 357 180 17.9% 1128.9 38.6%
Bajaj Finserv Banking & Finance 147 465 20.1% 30.0% 488.0 Target Achieved
Uflex Others 393 29.5% 494.9 58.9% 77.5 Target Achieved
Cummins India Engg. & Const. 92 17.1% 191.1 78.9% Target Achieved
Exide Inds Others 68 127.6 22.2% 624.4 240.9% 783.3 Target Achieved
Engineers India Engg. & Const. 111 40.0% 121.7 273.5% 355.4
Glenmark Pharma Pharma 570 672 17.1% 378.4 207.8%
Godrej Consumer FMCG 730 877 21.0% 2129.0 118.6% 68.3 Target Achieved
Cera Sanitaryware Cons. Durables 112 145 37.1% 2247.0 184.9% 364.5 Target Achieved
HPCL Oil & Gas 438 513 21.7% 244.9 52.0% Target Achieved
Emami FMCG 135 165 17.1% 1247.7 52.5% 93.6 Target Achieved
Berger Paints India Chemical 200 280 23.7% 205.2 260.8% 357.6 Target Achieved
Graphite India Others 350 410 19.6% 305.0 183.9% 1544.7 Target Achieved
Rainbow papers Others 558 675 28.8% 1262.9 1093.9% 2196.1 Target Achieved
Tatamotor - DVR Auto 248 340 26.6% 1583.9 232.6% 228.0 Target Achieved
Pidilite Ind Chemical 300 365 22.1% 2960.9 198.7% 810.7 Target Achieved
Magma Fincorp Banking & Finance 457 535 997.9 164.8% 166.8 Target Achieved
Torrent Power Power 114 141 30.6% 1365.0 37.4% 203.2 Target Achieved
Castrol India Oil & Gas 110 301.9 43.0% 784.7 Target Achieved
Prism Cement Cement 92 4.3% 126.4 147.7% 1528.8 Target Achieved
MRF Auto 66 85 9.3% 321.4% 2336.1 Target Achieved
Shoppers Stop Others 158 200 94.4 101.4% 993.8 Target Achieved
Allahabad Bank Banking & Finance 172 210 22.5% 391.4 13.9% 1097.9 Target Achieved
Zydus Wellness FMCG 70 ACCu 724.8 130.5% 275.7 Target Achieved
MRPL Oil & Gas 222 290 141.0 173.7% Target Achieved
Akzo Nobal Cons. Durables 236 ACCU 252.9 375.1% 79.9 Target Achieved
Maruti Suzuki Auto 48.75 ACCU 544.0 83.6% 4.6 Target Achieved
M&M Auto 9767 ACCU 133.5 Target Achieved
Tata Power Power 340 ACCU 46399.0 5.7% 287.6 Booked
Dr Reddy Pharma 200 ACCU 624.4 195.5% 707.5 Target Achieved
Shree cement Cement 382 ACCU 211.3 104.8 Target Achieved
Dabur FMCG 71 ACCU 1128.9 17.2% 175.2 Target Achieved
857 ACCU 88.3% 374.6 Target Achieved
1320 ACCU 83.2 262.9% Target Achieved
749 ACCU 1614.0 92.5% 98.3 Target Achieved
115 120 4790.0 32941.9 Target Achieved
1642 1795 1442.1 2.2%
2100 ACCU 167.1% 364.5
102 125 117.6 592.8% 68.3
4386.6 213.7%
14548.0 783.3
65.6
320.0
1506.4 Target Achieved
4078.7 Target Achieved
1408.6 Target Achieved
Target Achieved
72.0

3273.1 Target Achieved
14212.8 Target Achieved

313.0 Target Achieved

7

JULY 2016
STOCK PICKS

Godrej Properties Ltd CMP: Rs 365 Rating: BUY Target: Rs 415

Company Information Real Estate Company Profile
336
Sector Buy Godrej Properties Limited (GPL) is an India-based real
Price (Rs.) 415 estate company (headquartered in Mumbai) and is a
Rating subsidiary of Godrej Group. The company has projects in
Target 12-18 months approximately 12 cities and it is involved in the
Time Frame 533150 development of residential and commercial real estate. Its
BSE Code residential portfolio consists of accommodations of varying
NSE Code GodrejProp sizes. The commercial portfolio includes building office
Bloomberg Code GPL IN space catering to blue-chip Indian and international
Market Cap (Rs. Cr) 7910 companies, IT parks catering to the requirements of IT/ITES
Outstanding shares(Cr) 21.6 companies and retail space. Godrej Properties has been
Free Float (%) 29.12 expanding its footprints at a fast pace and has sold real
52-wk Hi/Lo (Rs) estate worth US $ 2.1 bn over the last four years.
NSE 1yr volume 375/239.4
Face Value (Rs.) 49252693 The real estate prices have been stagnating over the last
BVPS (Rs.) two years on slowing consumer demand, rising inventory
5 levels and delay in fast-tracking of project approvals. On
100.26 the contrary, Godrej Properties have been performing
relatively well thanks to the attractive positioning of its 50
Godrej Properties share price projects across 12 cities. From the graph below, GPL has
400 clearly outperformed the BSE Realty Index since its IPO
300 listing by giving around +28% returns versus -68% return
200 of BSE Realty Index. This clearly highlights the strength of
100 the company’s performance despite weak market
conditions in the realty market.
0

Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16

Source: Bloomberg

Share holding pattern as on Mar 2016 (%)

Promoters
46.5

Others
11.6

DII
5.6

FII
36.4

Particulars (in Rs. Cr.) FY14 FY15 FY16 FY17E

Revenue 1179.2 1843.1 2504.5 2844.5 GPL benefits from attractive positioning of its projects
Growth (%) 0.0 56.3% 36% 14% across the country enabling it to outperform its peers: The
EBIDTA 247.2 335.4 541.3 outperformance of GPL with respect to its peers has been
EBIDTAMargin(%) 276.8 13.4% 19% due to its prudent management of financial investments
Net profit 23.5% 190.9 13.4% 324.7
Net Profit Margin (%) 159.4 10.35% 231.1
EPS(Rs) 13.5% 9.2% 11.4%
9.58 10.97 15.37
8.62

Consensus Estimate: Bloomberg

8

FDI - WINDOW OF OPPORTUNITY

and right selection of projects across different cities. The sales mix. The company recorded 88% YoY growth in its
company has benefitted largely due to its positioning of bookings and booking value stood at Rs 5,038 cr, the
projects mostly across tier 1 cities -Mumbai, Bengaluru, highest quoted value by any listed real estate player in
NCR region, Kolkata, Hyderabad and Chennai comprising FY16. The company delivered 6 million sq. ft. in FY16, a
~80% of the total projects. This has helped the company growth of 71% over the previous year. This is a milestone
to withstand the slowdown in the real estate markets. achievement by the company. GPL’s cash collection also
went up by 60% to Rs3200 cr. GPL’s launch of projects at
GPL recorded the highest booking value in FY16: In FY16, prime locations, effective marketing strategy and timely
Godrej Properties recorded a robust top line growth of delivery of its projects has been the company’s strength.
42% YoY at Rs 2,728 cr. However, Net profit was higher
by only 21% YoY at Rs 231cr mainly driven by cost Below are the companies’ detailed projects and phase
escalation on some old projects and a slightly adverse launches over the next two years:

New Project Launches in FY16 New Project Launches in FY17

Cities Projects Cities Projects
Mumbai Godrej Prime, Godrej Vihaa, Godrej Sky,The Bangalore
Trees- Residential Phase 1 NCR Godrej Eternity
Gurgaon Godrej Icon, Godrej 101
Chennai Godrej Azure Mumbai Sector 150 – Noida; Godrej Platinum –
Bangalore Godrej Avenues Okhla

Ghodbunder Road – Thane, Godrej Park

New Phase Launches in FY16 New Phase Launches in FY17

Mumbai The Trees Residential Phase 2, Godrej Pune Godrej Infinity, Godrej Prana
Platinum
Chennai Godrej Azure, Godrej Palm Grove

Ahmedabad Godrej Garden City Mumbai Godrej Vihaa, The Trees, Godrej Platinum,
Godrej City
Nagpur Godrej Anandam

Chennai Godrej Palm Grove Ahmedabad Godrej Garden City

Pune Godrej Prana, Godrej Infinity Nagpur Godrej Anandam

In Mumbai, ‘The Trees’ project in Vikhroli in residential investment in land value and has a profit/revenue sharing
space and Godrej BKC project in commercial space have model. The company also takes a fee income and
been the most successful ones by GPL. The company has promotes if the projects are doing well. This not only
sold 150 out of 230 flats of ‘The Trees’ project under hedges the company on the downside if projects gets
phase 2 project and phase 2 project achieved 9% higher stalled or have less profit but also gives them a benefit in
pricing than Phase 1 project. Under the ongoing Vikhroli’s the form of promotes if the projects are doing well.
‘The Trees’ project, the company plans to extend the
project and launch 4th tower of platinum project, phase 3 GPL’s declining borrowing costs and termination of
of residential, 2nd office tower and also a hospitality & dividends payments for expansion plans augurs well: GPL’s
retail component. This project has been quite successful average borrowing cost has come down by 112bps YoY to
for the company as phase 2 achieved higher pricing this 10.06%. The company has also held back dividends this
year. Godrej BKC is also ahead of schedule and is year as it aims to reinvest in its high return business in
expected to fetch more Rs 1500 cr in the coming order to maximize the shareholder value in the long run.
quarters, according to the management. The company is The recent change in government’s rule on dividend
now extending its footprints into Noida and Gurgaon too. taxation also led to this call for holding back dividends.

GPL’s capital light model gives it a competitive edge: Recently passed Realty Bill will benefit the organized
According to the management, GPL’s business model has players like GPL: The recently passed Realty Bill will boost
been capital light. It invests up to a maximum of 20% of the investors’ confidence on account of higher
transparency, greater cash flow predictability, faster project

9

JULY 2016
STOCK PICKS

approvals and shrinkage of black money activities. The growth story remaining intact while China experiencing a
key highlights of the bill are: slowdown in its economy, the Chinese developers are
pouring funds into the real estate sector. Also, with
(i) Smaller projects with an area>=500 sq feet or with governments’ focus to improve infrastructural projects and
eight flats will have to be registered with the promote ‘Housing for All by 2022’, there might be an
regulatory authority as compared to the previous rule uptick in the real estate sector going forward.
of >1000 sq feet or 12 flats
Godrej Properties Ltd (GPL) has been outperforming with
(ii) Builders will have to deposit at least 70% of the respect to its peers despite an overall slowdown in real
sale proceeds, including land cost, in an escrow estate markets over the last two years. GPL has achieved a
account to meet construction cost for faster project record 88% growth in its bookings this fiscal and the
execution company’s cash collections also went up by 60%. The
company recorded a top line growth of 40% in 2016
(iii) Developers will be penalized for delaying projects by which is quite exceptional w.r.t its peers. GPL’s launch of
paying the same interest as the buyers.This rule will projects at prime locations, effective marketing strategy
enable the developers to fast track their projects in and timely delivery of its projects has been the company’s
order to avoid interest payments. strength. The company has benefitted largely due to its
positioning of projects mostly across tier 1 cities -Mumbai,
(iv) Builders will be liable for structural defects for five Bengaluru, NCR region, Kolkata, Hyderabad and Chennai
years, instead of two years suggested earlier comprise ~80% of the total projects

(v) Regulatory authorities will have to dispose of The management also held back dividend as it aims to
complaints within 60 days. reinvest in its high growth business and maximize
shareholder value creation. The management gradually
However, the above rules will hurt the smaller builders as aims to achieve around 20% return on capital employed.
they will face liquidity crunch due to higher regulatory GPL’s capital light business model gives it a competitive
environment. Nevertheless, large organized players will edge- the company invests a maximum of 20% on land
benefit from the disadvantages faced by the smaller and follows revenue/profit sharing model. It also earns an
players, thereby leading to higher market share in the real extra fee income and promotes if the project sales are
estate sector. We expect GPL to also benefit from the carried out better.
Realty Bill and also gain market share gradually.
GPL’s strategy of scaling up new launch activity, its shift in
In addition to the Realty Bill passed earlier this year, the project mix towards higher profitable structures will be
government also recently relaxed rules on Real Estate yielding positive results. We expect the pre-sales and cash
Investment Trusts (REITs) by allowing them to invest more flows to see a significant scale-up over the next two years
in under-construction projects. Sebi removed restrictions driven by the marquee location of its assets especially the
on special purpose vehicles (SPVs) to invest in other SPV Vikhroli project in Mumbai. The recently passed Realty Bill
holding the assets and rationalized unit holders’ consent will also benefit this organized player as smaller builders
on related party transactions. This relaxation along with will face cash crunch from higher regulatory costs.Overall,
the Realty Bill will bring transparency and in turn attract we believe GPL is well-placed to deliver strong earnings
foreign investors likely. According to a recent report by growth over the next two to three years. At current price,
global property consultant JLL- “Japan and China could the stock is trading at P/E multiple of 17.6x of FY18E EPS.
come knocking to the Indian real estate market in 2016”. We advise our investors to BUY the stock with target price
Recently, China’s prominent developer- Dalian Wanda of Rs. 415, valuing at P/E multiple of 25x FY18E EPS.
Group signed a memorandum of understanding (MoU) Historically, GPL’s 5 year average P/E is 32x. So, if even we
earlier this year with the Haryana government to develop take a conservative multiple of 25x times for FY18, it is
‘Wanda Industrial New City’ and has committed an implying a target price of Rs 415. Thus, we would
investment of $10 bn over a period of 10 years. recommend our investors to accumulate the stock on
Gezhouba, another prominent Chinese construction cheap valuations and higher growth prospects.
company, has agreed to invest Rs 10,000 crore in
irrigation projects in Telangana state. Thus, with India’s

10

FDI - WINDOW OF OPPORTUNITY

Capital First Ltd. CMP: Rs 557 Rating: BUY Target: Rs 650

Company Information 532938 Company Overview
CAPF
BSE Code CAFL Capital First Ltd (CAFL), erstwhile Future Capital Holdings is
NSE Code one of the fastest growing NBFCs in the country which has
Bloomberg Code INE688I01017 successfully created a niche position in MSME financing, a
ISIN 5182 huge potential market but largely underpenetrated. Future
Market Cap (Rs. Cr) 9.1 Capital Holdings was acquired by leading global private
Outstanding shares(Cr) equity player, Warburg Pincus, from Future Group in Sept
52-wk Hi/Lo (Rs.) 584.4 / 321 2012. It is managed by Mr.V.Vaidyanathan (ex employee of
Avg. daily volume (1yr. on NSE) 115,608 ICICI) and also has 14% stake (including options) in the
Face Value(Rs.) 10 company. CAFL provides Loan against Property (LAP) for
Book Value 172.5 MSMEs having an average ticket size of Rs 96 lakh. The
other segments are two-wheeler loans having average
150 CAFL vs. Nifty 1200 ticket size of Rs 44,000 and loans for consumer durables
with average ticket size of Rs 30,000. As of FY16, the
140 company has a total AUM of Rs 160bn (retail AUM of Rs
138bn) with strong distribution network across India
130 1000 spanning over 222 towns and has employee strength of
1412.
120 800
110 Investment Rationale

100 600 Retail focused business model

90 Over the past six years, Capital First has transformed itself
80 400 from being a wholesale lending NBFC to a strong retail
lender. Mr. V. Vaidyanathan, chairman of the company has
70 200 also been instrumental in revamping the company’s
60 business model and strategically exited the broking
business back in FY14 and gold loan business in FY15. In
50 0 the early days, the company used to provide wholesale
loans to corporates, primarily loans to real estate
Jun-15 developers, against the security of underlying assets.
Jul-15 However, understanding the inherent risks and lumpy
Aug-15 nature, management changed focus for good. CAFL has
Sep-15 thereby emerged as a significant player in the retail
Oct-15 finance space with retail loan book standing at INR 138
Nov-15 bn. The retail business forms 85% of loan book now
Dec-15 compared to 10% in FY10. Of the total loan book, SME
Jan-16 financing comprises of ~69%, consumer durable financing
Feb-16 is 7-8% while two wheeler loans accounts for another 8%.
Mar-16 The balance is wholesale book (largely builder financing)
Apr-16 accounting for 15-16%. Between FY10-16, under Mr. V.
May-16 Vaidyanathan, total AUM grew at a CAGR of 61% (from Rs
9,347 mn to Rs 1,60,408 mn) while retail AUM grew at a
Volume('000)RHS CAFL Nifty staggering 129% CAGR during the same period.

Share holding pattern as on Mar 2016 (%) MSME Segment to drive growth

Others Promoters The MSME (micro, small and medium enterprises) sector in
17.6 65.2 India contributes 37.5% to gross domestic product (GDP)
and provides employment to 111.4 million persons while
DII accounts for more than 40% of India’s exports. This sector
9.9 has often been ignored by the conventional banking
industry and been considered risky and distressed.
FII
7.3

Particulars (in Rs. Cr.) FY15 FY16 FY17E FY18E

Net interest Income 536 818 1,145 1,469
NIM (%) 5.5 6.7 6.8 7.0
Operating Profit 272 489 706 919
PAT 114 167 249 340
EPS (Rs) 12.5 18.3
BV (Rs) 172 185 27.3 37.3
GNPA (%) 0.7 1.1 210 242
1.3 1.4

Consensus Estimate: Ashika Research

11

JULY 2016
STOCK PICKS

However, contrary to the general belief, the MSME sector Superior Financial Performance
has exhibited strong growth story for both financial year
2013-14 and 2014-15. This is in stark contrast to the CAFL has depicted strong financial performance over the
5800 odd listed players which have struggled to keep years with net interest income (NII) registering a CAGR of
their business afloat and honour interest payments. 48% between FY13 and FY16 while operating profit and
According to RBI’s latest available data for non-Govt. non- PAT also clocking CAGR of 88% and 38% during the same
financial Pvt. Ltd. Companies, growth rates in sales, period respectively. The notable improvement in cost to
operating profit and profit after tax have grown at 12%, income ratio from 78% in FY13 to 51% in FY16 has
16.6% and 12.3% respectively for FY15. While operating contributed to increase in bottomline. What’s notable is
profit margin as well as the return on equity both that the provisions have also increased at a CAGR of
improved from 8.7% in FY14 to 9.1% in FY15. There is 121% between that same period. Higher fee income
ample scope of quality credit disbursement in the (CAGR of 62%) has also helped in posting superior
segment. CAFL, with its relatively small and growing loan financial performance. The return on assets (ROA) has
book, operating in a niche segment with a differentiated improved from 0.9% in FY13 to 1.2% as of FY16 while
and a technologically driven model is expected to return on networth (RONW) also improved from 6.6% in
continue to ride the growth story. FY13 to 9.8% in FY16. CFL also has a strong capital
adequacy ratio at 19.81% as of FY16. The cost to income
Change in borrowing mix to lift margins further ratio for the company was higher in earlier periods on
account of higher spending on technology. However, with
Net interest margins (NIM) improved from 5.5% in FY15 the spending mostly over, the return ratios are expected to
to 6.7% in FY16 led by strong growth in high yielding improve further.
consumer durable and two-wheeler loans. In a downward
interest rate cycle, these two segments will aid margins Key Risks
since both follows fixed interest regime. CAFL earns
~16% yield on advances while cost of funds averages lSlowdown in credit offtake
~9% mark. The strategy of the management to reduce
bank borrowings and increase low-cost non-convertible lHigher competition in LAP segment
debentures or NCDs/commercial papers or CPs will
reduce cost of funds for the company and aid margins. lIncrease in interest rates
CAFL has long-term credit rating of AA+ for bank facilities,
NCDs and subordinated debt thus helping to raise funds Valuation
at competitive rates. The company still primarily relies on
bank loans as main source of funds (~66%) followed by Capital First Limited (CAFL), erstwhile Future Capital
NCD (14%). However, the bank borrowings have come Holdings is one of the fastest growing NBFCs in the
down from 75% in FY14 to 66% as of FY16. Besides, country which has successfully created a niche position in
CAFL also has a well-matched asset-liablity management MSME financing, a huge potential market but largely
thus protecting the NIMs further. underpenetrated. The MSME (micro, small and medium
enterprises) sector in India contributes 37.5% to gross
Strong Asset Quality domestic product (GDP) and provides employment to
111.4 million persons while accounts for more than 40%
Despite a strong growth in AUM, the company never of India’s exports. This segment is relatively untapped or
compromised on asset quality. CAFL follows prudent risk neglected by the conventional lending institutions and
management practices across diversified products lines thus provides a huge opportunity for CAFL. Besides, the
thus ensuring lower delinquencies over the years. The improved financial performance by the MSME players
company has a differentiated appraisal methodology improves their ability to service loans contrary to the listed
which also takes into account cash flows of client, credit players. Moreover, the stringent risk management practices
bureau and reference checks and also softer aspects like adopted by CAFL management further help it to keep
age, whether self employed or salaried, type of industry delinquencies low thus the reason for sound asset quality.
one works for, number of dependents, marital status, has The company depicted strong growth in AUM, NII and PAT
a credit card or not, has a home loan or not etc while and not compromising on asset quality and maintaining
deciding on loan sanctions. As a result the company has a stringent provisioning norms. The cost to income ratio for
high loan rejection rate and at the same time enjoys CAFL was higher in earlier periods on account of higher
healthy asset quality. During Q2FY16, the company has spending on technology. However, with the spending mostly
also moved to 150 days classification for NPAs. The asset over, the return ratios are expected to improve further.
quality has improved substantially over the last 6 years Besides, the change in borrowing mix to reduce high cost
from gross NPA of 5.3% and net NPA of 3.8% at the end bank borrowings and focus on fixed loan segments will
of FY10 to 1.07% Gross NPA and 0.55% net NPA as on improve margins from here on. At the CMP of Rs 557, the
FY16. scrip trades at P/BV of 2.34x FY18E BV and investors are
advised to BUY for a target of Rs 650.

12



JULY 2016
STOCK PICKS

plan will be executed in FY17 but now demerger plan has its margin. Moreover with these proposed unit AIL will
been postponed due to certain financial parameters. RoCE manufacture more value added products which will place
of Pharma and home and personal care segment are still the company across the value chain of the product under
low and it will be difficult to sustain on standalone basis. speciality chemical. Aarti’s margins could further look up
It is expected that the demerger will happen in one or particularly due to supplies to its existing network of
two years time as the company want to focus on its core customers. With increasing focus on downstream products,
business and when it will happen it will unlock value for the revenue mix is likely to improve towards more value
its shareholders and will be a long term trigger for the added products that will lead to value growth for Aarti.
company.
Key Risks
Benefit from Chinese slowdown lAIL’s passes on the cost changes with one quarter lag

Aarti has established itself as one of the lowest cost to customers, any increase in Benzene prices may
manufacturers of benzene derivatives globally, which can lead to lower earnings temporarily.
be evidenced from the fact that 10% of its exports are lEnvironment regulations in India are becoming
towards China which is the lowest cost base of the world. stringent and there are risks of further tightening of
Aarti is well set to make the most of the opportunity of a these laws.
slowdown in Chinese exports which is led by plant shut lHigh shale gas prices in US may imply long-term risks
downs due to a stricter environment policy from 1st of reducing profits due to higher production of
January 2015 and rising manufacturing cost led by ethylene-based products.
enhanced compliance requirements leading to additional
investments into Effluent Treatment Plant (ETP). Valuation
Additionally, its on going and timely capacity expansion
will help it to use the enhanced export opportunity. Aarti Industries Ltd (AIL) is one of the largest producers of
Benzene-based basic and intermediate chemicals in India
Leading global player and global leader in various products. The ongoing
capacity expansion taken up by the company under
Aarti is one of the largest producers of benzene different segment will help the company to improve its
derivatives in India as this is the prime focused specialty product portfolio and will also help the company to foray
chemicals segment of the company and overtime the into high margin value added products. The management
company has emerged as one of the leading has reiterated its volume led revenues CAGR guidance of
manufacturers globally. Its global market share in this 15%-20% over next 3-4 years while the PAT CAGR is
segment is 25-40% in various products. In speciality expected to be in the range of 20%-24% over the same
chemicals, Agro chemicals leading target industry (30%) period. The company has guided for capex plans of Rs.
followed by polymers (27%), pigments (19%), dyes (5%). 450-500cr in FY17E for capacity augmentation. The
Globally, Aarti has the 3rd largest capacity in chlorination, demerger plan of Pharma and personal care division has
2nd largest in ammonolysis and hydrogenation, and 4th been currently postponed but as and when it will happen
largest in nitration. Aarti’s continued focus on process it will be a long term trigger for the company as the
development, plant automation/upgradation, and quality management of the company want to focus only on the
standards made it the lowest cost product of benzene core business. Chinese slowdown in supply of speciality
derivatives in the world. Additionally, AIL enjoys cost chemical is also positive for AIL as it has one of the low
competitiveness through backward and forward cost production facility and is better placed to make the
integration and commercial viability of byproducts. All most of the opportunity. Going ahead global leadership
these help the company to maintain its global leadership position, capacity expansion plan, going into high margin
position and also help in building/maintaining a strong segment and china slowdown will the major triggers for
base of marquee clients across end user industries. the company. Further as and when the demerger plan will
be executed, it will further rerate the company. At current
Focus on high margin products to drive value growth price, the stock is trading at P/E multiple of 11.58x of
FY18E EPS. We advise our investors to BUY the stock with
AIL’s continuous focus is to move up the value chain for target price of Rs. 620, valuing at P/E multiple of 13.8x
high margin products. For this AIL is foraying in to toluene FY18E EPS.
chemistry by exhibiting nitro toluene & derivatives and
Ethylation unit at Dahej SEZ. The proposed products are
the high margin product which will help AIL to improve

14

FDI - WINDOW OF OPPORTUNITY

Steel Strips Wheels Ltd. CMP: Rs 456 Rating: BUY Target: Rs 578

Company Information 513262 Company overview
SSWL
BSE Code SSW Steel Strips Wheels ltd. (SSWL) is a Chandigarh based
NSE Code company, engaged in designing, manufacturing and
Bloomberg Code INE802C01017 marketing of Steel Wheel Rims for Passenger cars, Utility
ISIN 697 vehicles, 2/ 3 wheelers, Tractors, Light/ Heavy commercial
Market Cap (Rs. Cr) 1.5 vehicles and OTRs (over the roads). Company has
Outstanding shares(Cr) manufacturing capacity of 16.6 million units and
52-wk Hi/Lo (Rs.) 467.7 / 272 manufacturing plants are strategically located at Punjab
Avg. daily volume (1yr. on NSE) 30,651 (Dappar), Tamil Nadu (Oragadam, Chennai) and Jharkhand
Face Value(Rs.) 10 (Jamshedpur). Some strategic investors invest in SSWL
Book Value (Rs) 271.3 including Tata Steel Ltd, India with 8.26% stake followed
by Sumitomo Metal Industries, Japan 5.59%, GS Global,
180 SSWL vs. Nifty 500 South Korea 2.48% and Kalink, South Korea- 1.30%.
160 450
140 400 Investment Rationale
120 350
100 300 Healthy market share in steel wheel segment
250
80 200 SSWL holds strong market share in domestic steel wheel
60 150 market with 50% share in passenger car segment, 40% in
40 100 commercial vehicle, 38% in tractor and 70% in OTR. In
20 50 total sales volume of 13.17 million units during FY16,
0 passenger car segment accounts 61.6% of volume
0 followed by two/three wheeler 21.6%, tractor 6.5% and
truck/OTR 10.2%. Thus, passenger car segment is the
Jun-15 largest contributor of sales volume and company holds
Jul-15 healthy market share in the segment. Further, the
Aug-15 expectation is that the sales of passenger car would get
Sep-15 traction from good monsoon across the country and will be
Oct-15 benefited from seventh pay commission. Gradual pick up
Nov-15 in industrial activities would also lead to higher
Dec-15 commercial vehicle sales which had shown muted growth
Jan-16 in last few years amid slowdown in domestic economic
Feb-16 activities. During FY16, company had posted 6% volume
Mar-16 growth as compared with FY15, though the volume growth
Apr-16 was robust during Q4FY16 (up by 11% yoy), owing to
May-16 higher export order and strong momentum in auto sales
led by higher commercial vehicle & tractor sales. Steady
Volume('000)RHS SSWL Nifty growth in auto sector on the backdrop of above normal
monsoon, rising disposable income, benefits of seventh
Share holding pattern as on Mar 2016 (%) pay commission and industrial activities pick up would
drive the growth for SSWL.
Promoters
59.2 Expansion to boost growth

Others To boost growth, company has always done expansion.
40.3 During 2010, SSWL has total installed capacity of 10
million wheels, which company has increased to 16.6
FII DII million and has planned to expand it further. In order to
0.2 0.4 enter into growing alloy wheel market, SSWL has planned
to set up manufacturing unit in Gujarat for an investment
Particulars (in Rs. Cr.) FY15 FY16 FY17E FY18E of USD 50 million. Company has tied up with Korea based
alloy wheel company Kalink to set up an alloy wheel plant
Net Sales 1,152.7 1,181.9 1,329.6 1,500.9
Growth (%) 8.4% 2.5% 12.5% 12.9%
EBITDA 107.6 145.3 163.5 193.6
EBITDA Margin (%) 9.3% 12.3% 12.9%
Net profit 39.4 12.3%
Net Profit Margin (%) 3.4% 61.2 70.5 84.0
EPS (Rs) 25.9 5.2% 5.30% 5.60%
40.1
46.2 55.1

Source: Ashika Research & Capitaline

15

JULY 2016
STOCK PICKS

in Gujarat with an initial manufacturing capacity of 1.5 9.7% during FY14 to 12.3% in FY16. Company also enjoys
million alloy wheel rims. Kalink Co. has invested USD strong pricing power, thus any increase & decline in raw
2million by subscribing equity shares in SSWL at Rs 640/- material prices (steel) can easily be passed on the OEMs.
per shares through preferential allotment basis. Currently, Increasing capacity utilization rate on the backdrop of
alloy wheel market is growing at double digit CAGR and improving demand for cars/commercial vehicles would lead
has 24% market share in passenger vehicle segment. EBITDA margin expansion.
Management expects that alloy wheel market share would
increase to 35% by FY20. Increasing demand for alloy Key Risk
wheels led the shift happening from Steel Wheel Rims to
Alloy wheels across all variants of passenger vehicle. lCompany is entering into new product segment i.e.
During the year, SSWL has set up specially designed Hot alloy wheel which manufacturing is different from
Rolling Mill in Jharkhand, which has resulted in steel wheel rims, thus any delay in commercialization
substantial savings in raw material purchase cost as SSWL of the plant could derail the company’s long term
used to source it from outside. Besides, company has also growth plan.
set up modern high tech steel process unit with monthly
processing capacity of 20,000 tonne steel. Apart from lCompany derives around 12% of revenue from
captive consumption it will be undertaking steel export, thus any volatility in currency and political
processing for companies like Tata Steel ltd. and JSW instability in overseas markets could pose risk to
Steel ltd. SSWL is likely to commence commercial SSWL’s financial metrics.
manufacturing of alloy wheel by June 2017 & this will
boost revenue & margin growth in coming years. Valuation

Strong client base SSWL is the leading steel wheel rim manufacturer in India
catering to domestic and global OEMs. It has
SSWL is enjoying strong relationship with most of the manufacturing capacity of 16.6 million units which
passenger vehicle OEMs in India and with the launch of company intends to increase it by 1.5 million by FY18.
alloy wheels it will be an additional offering to existing Though the new capacity addition will be alloy wheel rim
relationship. Company has a proven track record and its which will be a new product for the company. Increasing
products are well accepted by OEM’s across the globe demand for alloy wheel will lead the company to set up
and SSWL has demonstrated flawless quality history. separate alloy wheel plant at strategic location in Gujarat.
Company caters to marquee clients including TATA, Ashok Passenger vehicle segment accounts 61% of its sales
Leyland, Daimler, MAN, VE Commercial vehicles, Swaraj volume and there are near term triggers for passenger
Mazda, JCB, Mahindra Earthmaster, Escorts, L&T, Beml, vehicle sector such as expectation of good monsoon and
Putzmeister, John Deere, Eicher, ACE, Suzuki, Piaggio, higher disposable income on account of seventh pay
Honda, Scooters India ltd, hmt, Hyundai, Nissan, BMW, commission benefit. Further, company has witnessed
Renault, Mahindra, Jaguar, Land Rover, Volkswagen, Maruti improvement in utilization rate mainly in CV segment,
Suzuki, Mahindra, Renault Nissan, Ssangyong and Dacia. which indicates recovery in domestic macros. On financial
SSWL is also a supplier to global OEMs & delivers to front, company has shown steady performance with 5%
countries like Japan, Germany, UK, Brazil, Italy etc. with revenue CAGR in past 3 years. However, EBITDA and PAT
export contributing about 12% of total revenue. Strong had outpaced the revenue growth by growing at a CAGR of
client base ensures sustainable revenue growth for the 18% and 58% respectively. SSWL has maintained healthy
company. balance sheet with gearing ratio at 1.3x during FY16,
supported by strong operating cash flows. Given its
Improving utilization rate healthy market share, ability to scale its operation and
strong client base, we are optimistic about company’s long
Company has witnessed higher level of utilization across term growth story. Improving margin with better utilization,
all facilities in last few years. The average utilization rate improving ROE and ROCE, new capacity expansion and
has improved from 56% in FY14 to 79% during FY16 led market leader on the steel wheel segment will ensure
by higher utilization in CV and two/three wheeler steady wealth creation for investors. Hence, we
segment. The savings utilization from is substantial in recommend our investors to BUY the scrip for a target
case of Jamshedpur facility from 37% in FY14 to 82% price of Rs 578 from 12-15 months investment
which is specifically for CV wheels. Also, revenue perspective. Currently, the scrip is valued at P/E multiple
contribution from CV sales has increased from 15% in of 8.2x on its FY18E EPS.
FY14 to 35% in FY16. Such increase in the sales of high
margin products like CV wheels & tractor wheels has
boosted the EBITDA margin which has improved from

16

FDI - WINDOW OF OPPORTUNITY

FY17 FY18 FY17 FY18 FY16 P/O FY16 FY16

1 ACC 1598.4 30015.9 32.2 23.0 3.6 7.1 14.0 17.0 54.3 1.1
2 Adani Ports 202.9 42019.6 15.1 14.1 3.2 23.9 17.4 1.1 9.8 0.5
3 Ambuja Cements 251.9 39092.3 31.3 24.3 3.8 13.2 2.8 1.1
4 Apollo Hospitals 18352.7 44.0 33.6 5.3 7.9 13.4 6.0 53.8 0.5
5 Ashok Leyland 1319.2 28159.9 21.1 N/A 5.6 10.0 N/A 1.0 25.2 1.0
6 Asian Paints 99.0 94020.6 45.1 38.4 16.8 22.5 33.6 7.5 25.3 0.8
7 Aurobindo Pharma 42723.2 17.0 14.3 6.1 33.4 26.9 2.5 41.7 0.3
8 Axis Bank 980.2 122679.4 12.1 2.3 32.5 21.3 5.0 1.0
9 Bajaj Auto 730.1 75941.5 18.5 8.6 5.8 17.0 29.1 7.4 1.9
10 Bajaj Finserv 514.0 34946.9 15.8 16.5 2.6 31.3 15.2 50.0 14.3 0.1
11 Bajaj Holdings 2624.4 17643.9 N/A 12.9 1.2 15.1 N/A 1.8 57.3 2.1
12 Bank of Baroda 2196.1 35576.2 N/A N/A 0.8 15.8 N/A 0.0
13 Bank of India 1585.4 N/A N/A 0.2 -12.0 N/A 32.5 1.5 0.0
14 Bharat Forge 154.4 9331.0 22.3 N/A 4.8 -18.8 20.7 0.0 17.8 1.0
15 Bharti Airtel 17239.6 25.6 17.9 2.2 18.6 0.0 N/A N/A
16 Bharti Infratel 99.9 142747.2 23.4 20.9 3.5 9.1 7.5 N/A 0.9
17 BHEL 740.6 64211.7 55.8 20.4 0.9 8.6 17.3 2.2 22.8 1.0
18 Bosch 357.1 29114.2 N/A 16.8 8.2 13.5 3.0 17.1 N/A
19 BPCL 338.6 67581.1 10.4 N/A 2.7 -2.7 4.9 1.2 23.9 2.1
20 Britannia Industries 119.0 76046.8 34.8 18.6 15.9 N/A N/A 19.5 0.6
21 Cairn India 21523.4 32971.2 15.6 9.5 0.5 31.6 22.3 N/A 2.2
22 Canara Bank 1051.7 25141.9 N/A 29.1 0.3 53.5 42.1 22.5 33.8 4.9
23 Cipla 2748.2 11679.7 22.8 11.5 3.4 -17.5 4.1 16.0 27.9 0.4
24 Coal India 134.1 39965.5 12.7 N/A 5.8 N/A N/A 8.7
25 Colgate-Palmolive 215.1 197891.7 N/A 18.6 24.0 9.1 15.2 3.0 18.9 1.1
26 Container Corp. 497.4 24431.1 28.7 11.5 3.4 13.3 45.4 10.5 13.6 1.0
27 Cummins India 313.3 26930.8 N/A N/A 6.7 38.4 N/A 121.2 1.7
28 Dabur India 898.3 22472.6 38.2 24.2 13.2 64.4 12.2 2.0 47.2 0.7
29 Divis Lab. 1381.3 55061.1 23.2 N/A 6.9 10.1 N/A 27.4 24.8 0.9
30 Dr Reddy’s Lab. 810.7 29392.7 23.2 33.3 4.4 23.6 30.4 10.0 49.4 0.6
31 Eicher Motors 313.0 55818.7 31.8 19.4 15.0 33.3 28.2 13.4 31.6 0.5
32 Exide Industries 1107.2 52058.1 17.9 19.4 3.3 28.6 18.1 14.0 31.2 1.4
33 Federal Bank 3273.1 14178.0 N/A 24.9 1.2 17.6 37.0 14.6 2.0
34 GAIL 19166.4 14.0 16.0 1.4 31.3 17.0 2.3 25.1 1.6
35 GlaxoSmith Consumer 166.8 9621.8 N/A N/A 10.1 17.5 N/A 10.0 28.6 N/A
36 Glaxosmithk Pharma. 47808.9 52.7 11.1 17.5 10.9 20.0 17.8 N/A
37 Glenmark Pharma. 56.0 24713.7 16.3 N/A 5.2 6.2 N/A 100.0 24.1 0.3
38 Godrej Consumer 376.9 29678.7 38.3 49.0 10.2 6.5 34.6 39.6 0.4
39 Grasim Industries 5876.5 22139.5 13.5 14.7 1.6 30.1 23.4 2.4 N/A 0.4
40 HCL Technologies 3503.9 52060.8 12.8 33.0 3.6 21.4 23.2 1.1 11.4 N/A
41 HDFC 784.7 41623.7 16.1 10.8 3.8 19.3 12.6 6.0 17.5 N/A
42 HDFC Bank 1528.8 100615.1 20.9 11.3 4.0 23.8 25.6 55.0 0.8
43 Hero MotoCorp 4459.0 194284.8 N/A 13.4 7.6 9.6 21.9 N/A 9.5 2.0
44 Hindalco Industries 713.2 295441.6 13.1 N/A 0.6 28.8 N/A 2.0 42.2 0.8
45 Hindustan Unilever 1228.9 60313.6 40.8 N/A 48.4 21.2 N/A 5.8 26.4 1.8
46 HPCL 1167.0 24377.2 1.9 18.6 6.5 18.0 18.8 2.5
47 ICICI Bank 3020.4 192130.9 8.4 9.2 1.4 42.7 132.4 22.0 50.7 2.1
118.1 33651.1 10.6 35.2 0.7 19.3 17.0 24.2
887.8 135621.5 102.1 15.5 9.5 84.8
993.8 8.3 31.5 60.0 55.4
233.2 8.1 11.4 1.0 28.6
16.0
24.5
5.0

17

JULY 2016
VALUATION AT A GLANCE

48 Idea Cellular 104.4 37574.4 21.3 18.5 1.5 12.6 7.3 0.6 6.8 N/A
9.7 8.0 2.6 27.1 26.6 45.0 80.9 6.8
49 Indiabulls Housing Fin. 665.4 28038.1 8.4 7.7 1.4 15.5 15.4 34.2 1.5
N/A N/A 3.7 N/A N/A 6.6 12.8 N/A
50 Indian Oil Corporation 435.0 105603.8 4.3 23.2 23.7 4.5 40.7 N/A
17.5 15.4 8.7 30.2 30.6 24.3 69.0 1.8
51 IndusInd Bank 1085.9 64700.8 26.6 23.7 1.7 -3.4 12.5 6.5 15.1 0.8
12.8 10.8 4.1 12.5 15.6 11.0 0.1
52 Infosys 1159.2 266250.3 29.7 23.5 3.1 12.0 13.0 0.5 2.7 1.1
24.7 20.5 2.7 19.5 N/A 16.3 31.7 1.0
53 ITC 368.5 296539.6 10.8 6.3 22.9 22.7 5.0 18.1 0.5
23.6 8.4 2.7 12.4 17.1 7.5 14.0 1.3
54 JSW Steel 1426.5 34481.6 16.6 20.1 2.9 11.8 14.0 4.0 29.5 0.9
19.1 13.0 15.8 37.0 36.6 12.0 23.8 0.5
55 Kotak Mahindra Bank 743.3 136405.3 38.9 15.3 4.4 18.0 20.3 1.3 28.1 0.6
20.6 33.2 8.7 33.7 34.5 25.0 19.8 0.7
56 Larsen & Toubro 1474.1 137382.6 21.9 17.5 2.0 22.2 N/A 2.0 30.7 0.2
N/A 17.2 1.2 50.0 9.3
57 LIC Housing Finance 497.7 25114.6 12.9 N/A 1.4 9.5 9.2 8.6 2.3 1.7
12.4 11.9 0.9 11.9 11.1 2.5 53.4 5.8
58 Lupin 1544.7 69641.2 11.0 1.0 10.9 20.0 20.6 4.5
9.8 7.9 9.1 10.1 9.5 46.1 19.4
59 M & M Financial 310.6 17663.0 10.9 8.1 3.3 7.7 31.9 665.0 44.3 0.7
21.4 8.8 0.6 32.7 N/A 2.0 471.9 5.6
60 Mahindra & Mahindra 1408.6 87487.1 N/A 18.3 1.9 15.3 N/A 9.1 17.0 1.3
N/A N/A 0.5 18.1 17.4 2.0 20.0 0.0
61 Marico 256.4 33080.0 10.6 N/A 0.7 14.8 N/A 0.0 22.2 2.3
N/A 9.1 0.3 -8.8 9.0 N/A N/A
62 Maruti Suzuki 4078.7 123209.4 N/A 1.3 8.0 7.4 0.0 22.7 1.0
9.1 7.9 0.5 1.8 2.7 10.0 1.5
63 Motherson Sumi 278.1 36785.5 17.6 12.7 0.6 12.0 11.4 8.0 0.0 6.4
11.0 9.4 2.6 7.2 7.3 10.7 12.5 0.9
64 MRF 32941.9 13971.1 6.0 9.0 21.1 N/A 10.0 11.7 0.5
6.2 N/A 0.9 12.2 16.1 6.0 19.8 N/A
65 NMDC 91.6 36316.8 N/A 12.6 0.4 N/A 14.1 2.6 22.1 4.7
16.0 52.0 5.9 6.6 9.4 2.0 30.1 0.4
66 NTPC 148.0 122032.9 64.7 9.0 3.9 -9.5 3.3 3.0 16.5 0.7
11.8 13.6 1.7 16.5 20.7 10.5 38.3 2.4
67 Oil India 346.1 20802.3 691.9 21.6 7.4 14.7 N/A 10.0 15.9 1.8
26.0 N/A 1.4 13.2 15.6 43.5 20.3 1.8
68 ONGC 211.4 180820.3 N/A 9.8 1.9 41.9 30.9 2.3 53.4 0.0
10.8 16.4 1.4 5.8 8.1 0.0 35.3 1.8
69 Oracle Financial Serv. 3425.0 29076.2 18.3 16.4 1.0 16.1 17.7 1.3 57.3 N/A
18.6 8.1 3.4 6.5 10.2 8.0 N/A
70 Petronet LNG 284.3 21322.5 9.4 11.7 9.9 -9.8 9.1 6.0 0.0 0.6
14.1 10.2 4.4 23.4 21.1 2.2 783.1 0.3
71 Power Finance Corp. 163.7 21602.5 19.8 11.9 9.2 21.0 23.2 9.5 0.1
13.6 33.6 19.7 11.4 15.4 1.0 N/A 0.0
72 Power Grid Corp. 155.5 81325.1 40.6 22.7 3.4 14.9 17.6 0.0 21.9 0.9
29.8 41.2 0.8 79.1 32.3 5.0 28.3 2.8
73 Punjab National Bank 104.3 20480.3 50.8 42.1 2.9 20.5 20.6 3.5 11.4 N/A
63.1 12.4 3.3 -18.9 9.6 6.0 10.3 0.9
74 Reliance Capital 386.3 9757.9 14.5 7.4 10.0 20.3 18.8 10.0 0.5
12.0 12.7 19.9 N/A 2.3 0.0
75 Reliance Comm. 48.3 12021.8 14.1 N/A 22.7 23.4 16.5
N/A 27.3 N/A
76 Reliance Industries 957.8 310561.3 33.7 16.6
16.6
77 Reliance Infrastructure 523.1 13755.7 24.5

78 Rural Electrification 166.1 16396.8

79 Shriram Transport Fin. 1153.0 26158.4

80 Siemens 1293.4 46060.6

81 State Bank of India 215.9 167598.4

82 Steel Authority of India 42.9 17718.1

83 Sun Pharma. 765.1 184136.2

84 Sundaram Finance 1466.0 16287.8

85 Tata Chemicals 422.4 10759.6

86 TCS 2464.0 485503.6

87 Tata Global 127.9 8069.0

88 Tata Motors 440.4 141773.7

89 Tata Power 72.0 19473.3

90 Tata Steel 311.5 30253.4

91 Tech Mahindra 501.0 48637.4

92 Titan Company 389.9 34614.8

93 UltraTech Cement 3400.8 93330.8

94 United Breweries 732.7 19371.6

95 United Spirits 2419.4 35159.9

96 UPL 546.2 23408.2

97 Vedanta 123.2 36510.2

98 Wipro 542.4 134011.5

99 Yes Bank 1069.9 45042.6

100 Zee Entertainment 436.9 41962.0

#N/A: Not Available
Source: Bloomberg Consensus as on June 27, 2016

18

FDI - WINDOW OF OPPORTUNITY

FOREIGN DIRECT INVESTMENT

Government Open Floodgates for FDI including civil aviation, pharmaceutical, defence, food
products, single brand retail trading, animal husbandry,
The Union Government has radically liberalized the broadcasting carriage services, private security agencies
Foreign Direct Investment (FDI) regime, with the objective and establishment of office, branding it as a gateway for
of providing major impetus to employment and job job creation and Make in India. Accordingly the
creation in India. The decision was taken at a high-level Government has decided to introduce a number of
meeting chaired by Prime Minister Narendra Modi. This is amendments in the FDI Policy. Changes introduced in the
the second major reform after the last radical changes policy include increase in sectoral caps, bringing more
announced in November 2015. In November, the activities under automatic route and easing of
government eased norms for overseas investment in 15 conditionalities for foreign investment. These amendments
sectors. Now most of the sectors would be under seek to further simplify the regulations governing FDI in
automatic route, except a small negative list. The the country and make India an attractive destination for
government will also soon bring out a small negative list foreign investors.
of sectors that will spell out some caps and conditions
attached to foreign investments. With these changes, Prime Minister Narendra Modi tweeted: “In two years, Govt.
India is now the most open economy in the world for FDI. brings major FDI policy reforms in several key sectors. India
India has been rated as number 1 FDI Investment now the most open economy in the world for FDI; most
Destination by several International Agencies. sectors under automatic approval route.” He added: “Today’s
FDI reforms will give a boost to employment, job creation &
In last two years, Government has brought major FDI benefit the economy.”
policy reforms in a number of sectors viz. Defence,
Construction Development, Insurance, Pension Sector, Commerce and industry minister Nirmala Sitharaman, “The
Broadcasting Sector, Tea, Coffee, Rubber, Cardamom, Palm twin objective is to attract more foreign investments to
Oil Tree and Olive Oil Tree Plantations, Single Brand Retail promote India as a manufacturing hub and to create jobs”.
Trading, Manufacturing Sector, Limited Liability Commerce and industry minister Nirmala Sitharaman,
Partnerships, Civil Aviation, Credit Information Companies, however, rejected assumptions that the government
Satellites- establishment/operation and Asset decided to announce so many FDI policy reforms in one
Reconstruction Companies. Measures undertaken by the go to divert public attention from RBI governor Raghuram
Government have resulted in increased FDI inflows at US$ Rajan’s decision to not continue at the central bank after
55.46 billion in financial year 2015-16, as against US$ his current tenure ends on September 4. The reforms are a
36.04 billion during the financial year 2013-14. Net FDI result of months of deliberations among various
inflows stood at $36 billion in FY16 compared with $32.6 departments and are not announced in a hurry to divert
billion in FY15. This is the highest ever FDI inflow for a attention, she affirmed.
particular financial year. However, it is felt that the
country has potential to attract far more foreign Chandrajit Banerjee CII Director General said
investment which can be achieved by further liberalizing “Liberalisation of the FDI regulations reflects the
and simplifying the FDI regime. government’s commitment to reforms and openness, and
reassures investors that ease of doing business remains a
In the second tranche of reforms of the country’s FDI high priority”. “Taken together, the FDI rules announced
rules in less than a year, the government has opened the today will attract big new investments across key sectors
floodgates for FDI by easing the terms for nine sectors, such as food processing, defence production,

19

JULY 2016
FOREIGN DIRECT INVESTMENT

pharmaceuticals and civil aviation, among others, thereby into the defence sector, potentially leading to inflow of
adding to growth and employment”. capital and setting up of entities of original equipment
manufacturers (OEMs) and their suppliers through
FICCI Secretary General A Didar Singh said: “The Modi technology transfer.
administration through these moves has once again
highlighted that reform is a continuous process in order Girish Vanvari, head of the tax practice at KPMG in India,
to capitalise on the potential India offers.” Singh felt that said the government’s move to ease the FDI regime was
“there is no doubt that India today is the most preferred well-timed. “It actually opens up the country to the global
investment destination in the world. While the attraction world. The liberalization of limits in defence, brownfield
of our market is known to all, there is now even more pharma, airports, private security services, food processing
reason for global investors to commit themselves for etc can be game changers and be a huge source of
making and doing business in India”. employment creation. The move to prescribe a small
negative list for FDI with most sectors under the automatic
Assocham Secretary General D S Rawat said the decision route is a big mindset shift”.
will help in bringing investment and advanced technology

Changes in FDI Policy

Sector Proposed FDI regime Existing FDI regime Implication

Defence • Condition of access to ‘state- • 49% for foreign entities • Making entry of foreign firms less

of-art’ technology scrapped under automatic route complicated

for FDI beyond 49% under and beyond 49% on • Foreign defence firms can set up
government approval route
government approval on manufacturing facilities in India·

. a case-by-case basis Russian firm Kalashnikov looking for

subject to access to Indian partners;

state-of-the-art • Swedish firm Saab may raise stake
technology. . from 49% in existing JV with a local

partner.

Aviation • 100% FDI (up to 49% via • 49% FDI (automatic) in • Local airlines can attract more capital

automatic route) in scheduled s c h e d u l e d p a ss e n ge r • A foreign airline can join hand with a

passenger airlines by non- airlines;· foreign non-airline investor to

airline foreign investor; • 74% FDI (automatic) in completely buy into a domestic

• for foreign airlines the cap brownfield airports. airline ..

remain at 49%; .

• 100% FDI under automatic

route in brownfield airports.

Pharmaceuticals • 74% FDI through automatic • 100% FDI in brownfield • More private equity deals in pharma

route in brownfield pharma through government as new regulation clears uncertainty

project, beyond which approval over FIPB approvals.

government approval is • Easier merger & acquisitions of

required domestic companies by Big Pharma

companies.

Food Products • 100% FDI under government • 51% in single brand • E a s i e r fo r Wa l - M a r t , M a r k s a n d

approval route retail and 100% FDI in Spencer and Tesco, among others, to

the cash-and-carry or set up food manufacturing and food-

wholesale business were only retail bases in India.

permitted via automate

route

Broadcast, Cable • 100 % FDI allowed via · 100% FDI allowed, only • More investment opportunities
networks, Direct to automate route
home (DTH), Headend- 49% allowed via • No FDI expected till cross-media
in-the-sky (HITS) automate route ownership cap removed

Single Brand Retail • Waiver of 30% local sourcing • Entities having state-of- • Players like Apple can start sourcing
rule for 3 years and a relaxed
Trading sourcing regime for another 5 art technology can be locally only from fourth year of
years for entities having exempted from sourcing setting up own retail outlets
state-of-art technology rule

Source : DIPP, PIB, FIPB

20

FDI - WINDOW OF OPPORTUNITY

Defence over the next 6-12 months. This decision will now bring in
real investments provided the defence ministry also
In a major policy change, the Centre has made it simpler speeds up the procurement process and issues big ticket
for foreign defence firms to invest in India. The Centre orders. “ “Easy terms like ‘modern technology’ and ‘other
has removed the phrase “state-of-art” and replaced it with reasons’ will allow most leading defence companies to
“modern technology” and “other reasons” in the amended come in unhindered. All defence technologies are ‘modern’
version. In this regard, the following changes have inter- by their nature.” “Defence OEMs can now focus on actual
alia been brought in the FDI policy on this sector: research, design and manufacturing than wasting time on
legal and regulatory issues. If MoD rejigs its defence
i. Foreign investment beyond 49% has now been procurement policies and insists on platform level
permitted through government approval route, in manufacturing in India, India could become a global
cases resulting in access to modern technology in aerospace and defence hub instead of just being a
the country or for other reasons to be recorded. The supplier of parts and assembler of imported kits,” he adds.
condition of access to ‘state-of-art’ technology in the
country has been done away with. Civil aviation

ii. FDI limit for defence sector has also been made i. The extant FDI policy on Airports permits 100% FDI
applicable to Manufacturing of Small Arms and under automatic route in Greenfield Projects and
Ammunitions covered under Arms Act 1959. 74% FDI in Brownfield Projects under automatic
route. FDI beyond 74% for Brownfield Projects is
The government’s decision to allow defence FDI up to under government route.
100% without the access to technology clause is
expected to result in a surge of interest on part of the ii. With a view to aid in modernization of the existing
foreign vendors. Global players from Israel, Russia and airports to establish a high standard and help to ease
European companies are expected to make a beeline to the pressure on the existing airports, it has been
India for setting up their plants in India. Recently, while decided to permit 100% FDI under automatic route in
talking to Indian media in New Delhi, Jan Widerstrom, Brownfield Airport projects.
Saab India’s chairman, made it clear that the Swedish
defence major is looking at more than 49% FDI in iii. As per the present FDI policy, foreign investment up
defence in the joint venture that will make Gripen in to 49% is allowed under automatic route in
India. Scheduled Air Transport Service/ Domestic Scheduled
Passenger Airline and regional Air Transport Service. It
According to Puneet Kaura, MD and CEO, Samtel Avionics, has now been decided to raise this limit to 100%,
“100% FDI in defence is the second good initiative in with FDI up to 49% permitted under automatic route
this quarter for the defence industry from government and FDI beyond 49% through Government approval.
after announcement of Defence Procurement Policy. This For NRIs, 100% FDI will continue to be allowed under
shows the government’s commitment towards defence automatic route. However, foreign airlines would
manufacturing within the country and creating more jobs continue to be allowed to invest in capital of Indian
for youth of the country”. companies operating scheduled and non-scheduled
air-transport services up to the limit of 49% of their
Welcoming the government’s decision, Dhiraj Mathur, paid up capital and subject to the laid down
partner — aerospace and defence, PwC India, “Defence is conditions in the existing policy.
extremely technology driven and OEMs invest huge sums
of money generating technology and IP. The fact that The Centre has decided to allow 100 per cent FDI in
there was no control permitted earlier was a major issue domestic airlines, but the catch is that foreign airlines can
that was quoted for not investing in India. That obstacle hold only up to 49 per cent in such ventures and the
has now been removed and coupled with the major balance can be held by a foreign body that is not an
simplification in the DPP, OEMs should respond positively airline. The decision means the likes of Emirates and Qatar
and proactively to these path breaking reforms.” Airways can tie up with sovereign, private equity or hedge

Amber Dubey, Partner & India head of Aerospace and
Defence at KPMG says, “We may see its positive impact

21

JULY 2016
FOREIGN DIRECT INVESTMENT

funds to own and operate airlines in India — the airline The decision has finally ended a six-year long uncertainty
can hold 49 per cent and the fund, 51 per cent. Earlier, over regulations on mergers and acquisitions in the sector
the FDI both from airlines and foreign portfolio investors viewed as critical for supplies of affordable medicines. The
was restricted to 49 per cent. The existing conditions to pharma sector is expected to grow by 20 per cent on
get a licence to operate an airline in India will remain and account of relaxed foreign direct investment (FDI) norms
will be vetted by the Directorate General of Civil Aviation. and a separate ministry to focus on the sunrise sector is
on the anvil, Chemical and Fertiliser Minister Ananth Kumar
The foreign portfolio holding in Jet Airways is 4.61 per said. There is huge potential in the sunrise sector and
cent, SpiceJet, 3.03 per cent, and IndiGo, 6.1 per cent. At more investments would boost prospects of growth, he
AirAsia India and Vistara, foreign airlines already own 49 added.
per cent; therefore additional investment can come only
through foreign funds. Among domestic airlines, the Rahul Currently one of the major issue among the pharma sector
Bhatia-controlled Interglobe Enterprises holds close to is drug price controls which has put a question mark on
43% in IndiGo, Ajay Singh has a 60% stake in SpiceJet growth and profitability in the domestic market. At present,
and Naresh Goyal holds 51% in Jet Airways. While Tata the pharma department is looking after the drug price
Sons holds 51% in both Vistara Airlines and AirAsia India, regulation while various other facets like licencing is with
GoAir is wholly owned by the Wadia Group. Health Ministry, promotion of industry with Commerce
Ministry and research with Science and Technology
Commenting on the new FDI policy for airlines, Amber Ministry. In order to bring about all these things together
Dubey, partner and India head of aerospace and defence under pharma ministry, proposal to the Cabinet Secretary
at KPMG in India, said: “Though equity holding of foreign as well as to the Prime Minister has been made which will
airlines is still limited to 49%, a foreign airline can join simplify things for pharma sector.
hands with its sovereign fund or private investors and set
up a 100% foreign-owned airline in India.” “The likely According to industry experts, approving FDI in the
increase in competition will bring down prices and pharmaceutical industry will trigger mergers and
enhance air penetration in India, both international and acquisitions of domestic pharmaceutical companies,
domestic. Indian carriers can now look for enhanced affecting domestic generic drug manufacturers. MNCs
valuations in case they wish to raise funds or go for would try to enhance their market share in the Indian
partial or complete divestment,” he added. market by taking over smaller firms and targeting even
bigger ones. Since the cost of manufacturing was cheaper
Calling the new norms a “bit tricky”, Amrit Pandurangi, in India, MNCs would capitalise on this situation.
senior director, Deloitte Touche Tohmatsu India, said,
“Foreign airline investment is restricted to 49% and FDI “The pharmaceutical sector has been witnessing
investment in this sector has been opened up to 100%, heightened activity in recent years and this change should
so if the beyond the portion of the equity is by a related help in reducing the timelines for deals involving FDI of
entity, then that needs to be tested.” less than 74 per cent equity stake,” said Kalpesh Maroo,
Partner at consultancy firm BMR & Associates LLP.
Pharmaceutical
DS Rawat, Secretary General of industry body Assocham
“The extant FDI policy on pharmaceutical sector provides said “FDI will favourably impact the Indian pharmaceutical
for 100% FDI under automatic route in greenfield pharma industry by providing access to more capital/funds for
and FDI up to 100% under government approval in investing in research and development, which in turn leads
brownfield pharma. With the objective of promoting the to the creation of more IPR”.
development of this sector, it has been decided to permit
up to 74% FDI under automatic route in brownfield Kiran Mazumdar Shaw, Chairperson and Managing Director
pharmaceuticals and government approval route beyond of Biocon, said the move has been long awaited.
74% will continue” Govt. Official Statement. “Automatic approval route for FDI in pharmaceutical is a
welcome and long awaited policy announcement for a
sector that is highly capital intensive,” she tweeted from
her official Twitter handle.

22

FDI - WINDOW OF OPPORTUNITY

Food Products trading in specific product category,” said Amarjeet Singh,
partner–tax, KPMG in India.
The government made it easier for Walmart, Marks and
Spencer and Tesco, among others, to set up food Lalit Malik, chief financial officer of Dabur India, said: “100
manufacturing and food-only retail bases in India, by per cent FDI is a welcome step and it will be beneficial for
throwing the door wide open for multinational food the industry. It will go a long way in expanding the e-
companies and allowing 100 per cent FDI in the sector. commerce network in India.”

The government statement said: “It has now been decided Sreedhar Prasad, Partner – e-commerce, KPMG in India,
to permit 100 per cent FDI under government approval said: “This initiative could bring in investments in food
route for trading, including through e-commerce, in infrastructure in India by the global players and provides
respect of food products manufactured or produced in for a platform to them to sell those products manufactured
India.” in India. Further, this could enable some of the existing e-
commerce players to attract FDI in the food category,
Until now, there were restrictions on multi-brand retailing, where they are selling only products manufactured or
though 51 per cent in single brand retail and 100 per produced in India.”
cent FDI in the cash-and-carry or wholesale business were
permitted. Broadcasting Carriage Services

The announcement follows an in-principle decision taken FDI policy on Broadcasting carriage services has also been
earlier in line with Finance Minister Arun Jaitley’s Budget amended. New sectoral caps and entry routes are as under:
proposal for 2016-17, wherein he announced that “100
per cent FDI will be allowed through the FIPB route in Sector / Activity New Cap
marketing of food products produced and manufactured and Route
in India.” However, the policy guidelines being prepared
by the Commerce Ministry hold the key to foreign (1) Teleports (setting up of uplinking 100%
companies’ entry into the sector at a time when the HUBs/Teleports) ~ Automatic
Centre plans to create 42 mega food parks across the
country by 2019. The move would require infrastructure (2) Direct to Home (DTH) ~
creation for processing, preservation and storage of food
and to reduce wastage, especially of fruits and (3) Cable Networks (Multi System operators
vegetables. (MSOs) operating at National or State or
District level and undertaking upgradation of
Food Processing Minister Harsimrat Badal had said that networks towards digitalization and
FDI in the sector would “lead to creation of swadeshi addressability) ~
(indigenous) infrastructure with videshi (foreign) money”.
FDI in the food processing sector could cross USD 1 (4) Mobile TV~
billion in the next two years, helped by reforms in FDI
space and streamlining of regulations by food safety (5) Headend-in-the Sky Broadcasting Service
regulator FSSAI, he added. (HITS)

Walmart’s India arm hailed the decision. “This far-reaching Cable Networks (Other MSOs not undertaking
reform will benefit farmers, give an impetus to the food upgradation of networks towards digitalization
processing industry and create vast employment and addressability and Local Cable Operators
opportunities,” Rajneesh Kumar, Senior Vice-President & (LCOs))
Head - Corporate Affairs, Walmart India, said. “We will
study the policy document when the government finalises Infusion of fresh foreign investment, beyond 49% in a
and issues it.” company not seeking license/permission from sectoral
Ministry, resulting in change in the ownership pattern or
“Companies like Walmart and Tesco may look to embrace transfer of stake by existing investor to new foreign
this new policy through a special purpose legal entity for investor, will require FIPB approval

The move brings relief to the cable industry which has
been struggling with the process of digitisation of cable
TV. According to industry estimates, 61 million TV
households come under phase 4 of digitisation of cable

23

JULY 2016
FOREIGN DIRECT INVESTMENT

TV. Of this about 40%, that is nearly 25 million been approved,” he said.
households, are already digitised through DTH services
provided by Doordarshan and other players, including Zee group’s DTH firm Dish TV India Ltd said that the
Tata Sky and Dish TV. So, around 40 million TV government’s statement was not clear and that the
households are yet to go through the process of company will wait for the detailed report before
digitisation. While in case of phase 3, of the 40 million commenting on the changes.
TV households which were to be digitised, 10 million
homes are still left. According to a study by ratings Single Brand Retail Trading
agency Crisil, DTH operators need to invest around
Rs.13,700 crore over the implementation period, while for Taking into account its Make in India initiative aimed at
multi-system operators (MSO), the capital expenditure promoting manufacturing, the government sought to
required is about Rs. 8,300 crore. streamline the waiver from local sourcing norms under
single-brand retail to companies with state-of-the-art and
The government had raised the foreign investment limit cutting edge technology.
for DTH, cable networks and HITS to 100% from 74% in
November 2015, noting that only 49% FDI was allowed In single-brand retail, the government has tweaked the
through the automatic route. For 100% FDI, companies rules to exempt investors from the mandatory domestic
were required to seek FIPB approval. There are seven DTH sourcing of 30 per cent inputs, by extending it to all
operators, two HITS operators, 700 multi-system operators entities for three years and for a further five years for
(MSOs) and 60,000 cable operators in the country, retailers selling products with ‘state-of-art’ and ‘cutting-
according to the Telecom Regulatory Authority of India edge’ technology.
(Trai). In the new policy, the government also said that
fresh foreign investment beyond 49% in a company Under earlier rules for single brand retail, companies
which is not seeking licence or permission from the opening wholly-owned stores in India were required to
sectoral ministry will require FIPB approval if there is a comply with the local sourcing norms of 30% within five
change in the ownership pattern or a transfer of stake years of their first store opening. Meanwhile, the relaxation
from existing investors to new foreign investors. of the single brand retail policy in September 2012 has
seen furniture retailer Ikea, fashion retailer Hennes and
The move will allow the cash-strapped cable industry to Mauritz AB (H&M), sportswear retailer Adidas AG and Swiss
get foreign investors who will help MSOs expand in rural watch retailer Swatch SA to come to India through this
markets. Phase 4 market essentially includes rural India, route.
for which fibre optics lines need to be laid down. In
addition to implementation of new set-top boxes, some of Apple Inc. which were hopeful of getting a complete
the old boxes are required to be replaced by high- relaxation of sourcing norms on the grounds that they are
definition set-top boxes. a “state-of-the-art” and “cutting-edge technology”
company, it is a change in the opposite direction. Amoung
While cable industry executives welcomed the the other companies, Chinese smartphone maker LeEco
announcement, DTH firms and HITS operators said that it and Xiaomi, is expected to benefitted from current FDI rule
will provide no additional benefit and is premature. “The as they had applied for retail FDI and now hopeful that its
HITS industry has not even touched the previous 74% application will get fast-track approval.
FDI limit, let alone 100% and automatic route,” said a
senior official at Hinduja Ventures Ltd. “The government appears to have tightened the sourcing
norms for single brand trading in products having “state of
Harit Nagpal, managing director and chief executive the art” and “cutting edge” technology. While the language
officer at Tata Sky Ltd, agreed, saying 100% FDI via the is not too clear, it appears that the entities engaged in
automatic route is meaningless and will not lead to an trading of such products would now need to comply with
increase FDI inflows. He emphasized that the the sourcing norms over a period of 8 years (3 plus 5) as
government’s 20% cap on cross-media holding is against an earlier norm where the government had the
blocking the inflow of foreign funds. “Two years ago, Trai option to completely waiving the sourcing norms for such
had recommended removal of this cap which has not entities. If this is indeed the case, this move would

24

FDI - WINDOW OF OPPORTUNITY

adversely impact the fate of several companies especially
in the technology space, that were hoping for a complete
waiver on the grounds that the products proposed to be
sold involved state of the art technology,” said Kalpesh
Maroo, partner, BMR & Associates LLP.

Animal Husbandry 45,000 FDI Inflows (USD M n) 140
40,000 120
As per FDI Policy 2016, FDI in Animal Husbandry 35,000 100
(including breeding of dogs), Pisciculture, Aquaculture and 30,000 80
Apiculture is allowed 100% under Automatic Route under 25,000 60
controlled conditions. It has been decided to do away 20,000 40
with this requirement of ‘controlled conditions’ for FDI in 15,000 20
these activities. 10,000 0
-20
Controlled conditions for these sectors included 5,000 -40
aquariums and hatcheries where eggs are artificially 0 -60
hatched and incubated in an enclosed environment with
artificial climate control. After the relaxation, foreign In USD mn2000-01
companies can invest up to 100 per cent in companies 2001-02
engaged in breeding of fishes outside hatcheries and 2002-03
aquariums. 2003-04
2004-05
Private Security Agencies 2005-06
2006-07
The extant policy permits 49% FDI under government 2007-08
approval route in Private Security Agencies. FDI up to 2008-09
49% is now permitted under automatic route in this 2009-10
sector and FDI beyond 49% and up to 74% would be 2010-11
permitted with government approval route. 2011-12
2012-13
Earlier, only 49% of FDI through government route was 2013-14
allowed. 2014-15
2015-16

% growth (in USD) Source: DIPP

Establishment of branch office, liaison office or project
office

For establishment of branch office, liaison office or
project office or any other place of business in India if
the principal business of the applicant is Defence,
Telecom, Private Security or Information and Broadcasting,
it has been decided that approval of Reserve Bank of
India or separate security clearance would not be
required in cases where FIPB approval or
license/permission by the concerned Ministry/Regulator
has already been granted.

25

JULY 2016
FOREIGN DIRECT INVESTMENT

Share of top investing countries FDI equity inflows in India

(USD in million) Cumulative Inflows (April ‘00 - March ‘16) % of total Inflows
Mauritius 95,910 33%
Singapore 45,880 16%
U.K. 23,108 8%
Japan 20,966 7%
U.S.A. 17,943 6%
Netherlands 17,314 6%
Germany 8,629 3%
Cyprus 8,552 3%
France 5,111 2%
UAE 4,030 1%
Total FDI Inflow
288,634
Source: DIPP

Sectors attracting highest FDI equity inflows in India

(USD in million) Cumulative Inflows (April ‘00 - March ‘16) % of total Inflows
Services Sector 50,792 18%
Construction Development 24,188 8%
Computer Software & Hardware 21,018 7%
Telecommunications 18,382 6%
Automobile Industry 15,065 5%
Drugs & Pharmaceuticals 13,849 5%
Chemicals (Other Than Fertilizers) 11,900 4%
Trading 11,872 4%
Power 10,476 4%
Hotel & Tourism 9,227 3%
Total FDI Inflow
288,634
Source: DIPP

26

FDI - WINDOW OF OPPORTUNITY

Logistic - Reforms on cards

India under the leadership of Mr. Narendra Modi has import) trade, where costal is considered to be cheapest
made some notable developments which lacked in means of transport (25-30 paise per km/per tonne),
previous government’s regime. NDA government recently compared to Rs 2.50 for road and Rs 1.5 for rail transport.
completed two years in the power and during the period As per Assocham, Indian freight transport market is
they have announced and implemented lot of key reforms expected to grow at a CAGR of 13.35% to reach at USD
in important sectors in order to revive the country’s 307 billion by 2020 driven by the growth in the
economic growth. However, in some cases government manufacturing, retail, FMCG and e-commerce sectors. Over
missed the expectation for not implementing the reforms the past 2-3 years, logistic sector has been in limelight
by passing the important legislative bills in parliament. due to emergence of long term themes and expectations
Key bills like GST, Land bill, Mining and Labour bill are of the pickup in volume growth from revival in domestic
pending for the parliamentary approval for which macros and other government initiatives like Make in India,
government needs support in Rajaya Sabha. Though, the construction of Dedicated Freight Corridor (DFC), port
expectation is high that most notable GST bill will be development and investment in road infrastructure, rollout
passed in monsoon session and government would be of GST and exponential growth in the e-commerce
able to implement the bill from April 2017. GST segment.
implementation is important for all sectors as it would
simplify country’s complex indirect tax structure and Logistic infrastructure needs to develop in India to
would provide uniform tax rate across the country, thus catch up global standard
would reduce paper works & save time and would
contribute to India’s GDP. Since, NDA government came Logistic sector in India is still at a nascent stage as
into power, they are committed to develop country’s compared to global standard. The sector is highly
ailing infrastructure which in turn would propel GDP fragmented and dominated by unorganized players
growth. In infrastructure, government’s focus is on especially the road logistic segment. Inadequate
developing road & highways, logistic, construction, power, infrastructure had made logistic cost high in India which is
etc. Logistic and warehousing is an important estimated at ~13-14% of GDP. This compares to ~8% of
infrastructure which India needs to develop in order to the GDP for US and 18% of the GDP for China. The
boost economic growth. Still India is at initial stage of logistic industry suffers from systemic inefficiencies and a
development in logistic sector and has long way to catch number of challenges to growth including lack of good
up with most of the advanced economies. Logistic is the infrastructure, high handling costs, procedural delays and
mainstay of the economy, given an efficient, cost pilferages, thus resulting in higher-than normal logistics
effective flow of goods on which other commercial and costs for the domestic logistic companies. Further, there
manufacturing sectors depend. Due to inadequate have been long standing reforms pending like abolition of
infrastructure, India’s logistic cost is comparatively higher state wise taxes, creation of modern warehousing facilities
than other developed countries. Logistics cost in India is and streamlining of customs formalities. Indian logistic
estimated at ~13-14% of the GDP. This compares to ~8% sector is highly fragmented and unorganized, hence the
of the GDP for US and 18% of the GDP for China. issues like limited capital to scale up the business, low
Logistic sector constitutes a mix of transport, warehousing credibility and non-standard process persists in the sector.
and other related services and freight is transported Infrastructure issues loom on every logistic segment like
mainly through roadways, railways, coastal and pipelines. none of India’s major port can routinely handle ships
Freight also constitutes of domestic and EXIM (export & above 6000 TEUs (twenty equivalent units) and as a result

27

JULY 2016
SECTOR OUTLOOK

Colombo, Dubai and Singapore transship the containers, correlation with the economic growth, thus any sign of
roads are congested and railways have capacity green shoots in economy would drive the growth for the
constraint. When compared with the international trade sector. One leg of the freight movement belongs to the
logistics networks, the Indian logistics network lags on all primary economy which involves bulk movement of raw
aspects, be it infrastructure, customs or quality of services materials (locally sourced and imported) domestically to
thus, the outcome is high cost, uncertainty in time and production centers. The other leg of country’s freight
low reliability. India ranks at 54 in the World Bank’s, movement comes from the secondary economy servicing
Logistics Performance Index, 2014, out of 160 countries, the manufactured products. The contribution of the
behind South Africa, Chile, Panama, Vietnam and secondary freight to GDP is greater as the freight is
Indonesia. China ranks at number nine immediately handled and shipped multiple times and also moves
behind Switzerland while Germany leads the index. through networks of terminals and distribution centers. The
Government has planned to establish India as a global recovery in domestic manufacturing sector and
manufacturing hub through the program of “Make in improvement in consumption trend would drive higher
India” and that requires quality logistic infrastructure. movement in goods which would lead the growth in
“Make in India” would require more connectivity to logistic companies. Further, Government’s “Make in India”
international trade logistic network, so that exporters can initiative, which aims to make India a global hub for
move, store and deliver goods faster and cheaper which manufacturing, innovation and design, can yield success
is the only way to retain their competitive advantage only if logistics infrastructure in India is developed. There
globally. The cost of trading whether by sea, land and air, are tractions in the Indian economy as the global
play a critical role in determining the price of the end commodity prices are benign amid economic slowdown in
product, hence poor logistic infrastructure would always China and other major consuming nations. Being the net
heighten the peril of higher inflation. According to importer of commodity, India is one of the beneficiaries of
Mckinsey study, inefficiencies in logistic infrastructure add lower commodity prices and is also insulated from global
an extra cost to the Indian economy by USD 45 billion, economic turmoil to some extent. Further, expectation of
about 4.3% of the GDP every year. Moreover the report above normal monsoon in the current year after two
has highlighted the issue that by 2020 freight traffic consecutive drought years would boost rural consumption
demand in India would grow by 2.5 times thus putting which is one of the major driving factors of country’s GDP
further stress on India’s infrastructure. Thus the scope of growth. Good monsoon is also expected to cool down the
growth in logistic space is very wide and there are inflation which has just started to head up, thus would
number of logistics companies who have been operating provide room for central bank to reduce the interest rate
across several segments in order to provide integrated in order to propel the growth.
solution to the customers. In order to increase the
competitiveness, certain logistic companies have GDP growth on QoQ (%)
developed expertise in selected segments of supply chain
such as transportation, dry ports, warehousing, express 8.0%
distribution and non-vessel operating common carrier 7.0%
(NVOCC). Many corporate are now outsourcing the logistic 6.0%
activities to third party in order to improve cost efficiency 5.0%
& delivery performance and to concentrate on their core 4.0%
business. Hence with right policies in place, there are 3.0%
immense opportunities for logistic companies to grow
their business by multifold in coming years. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Sector to benefit from domestic economy revival 2012-13 2013-14 2014-15 2015-16

Improving Q4FY16 results of corporate and gradual Source: RBI
revival in industrial activities reflected in IIP data, hints
early sign of economic recovery. Logistic sector has strong

28

FDI - WINDOW OF OPPORTUNITY

Cargo growth vs GDP growth (%)

Source: Industry Report

Infrastructure creation and roll out of DFC would of the EXIM traffic at ports. In India ~55% of domestic
benefit the sector cargo movement has been delivered through roads as road
cargo movement offers flexibility, convenience, better
Government is aiming to launch the multimodal freight tracking ability and door-to-door services. Over the years,
movement in India through mix of Rail, Road, Inland rail cargo has lost its share to road owing to lack of
waterways and costal connectivity. NDA government is investment on rail infrastructure. However, with the current
keen in building infrastructure and the key upcoming government’s focus on improving the national road and rail
projects include construction of Dedicated Freight networks, the logistics sector will reap the benefit of faster
Corridor (DFC), Sagarmala & Costal shipping, New and more efficient transportation. NDA government has
container Port Infrastructure, Port connectivity by Rail and been aiming to revive the railway sector and is striving to
Road and Inland waterways. Government has targeted to enhance the market share of Indian railways by eliminating
reduce logistic cost to 10% of GDP by 2020 from the capacity bottlenecks which constrain growth and also aim
current levels of 14% of GDP (compared to less than to improve the efficiency of operations. Thus the rollout of
10% in developed countries), thus emphasizing on Dedicated Freight Corridors can help to arrest the drop in
developing the basic logistic infrastructure. The higher market share for railways in freight segment. The objective
cost of logistics has adverse impact on the of DFC would be to create world class infrastructure,
competitiveness and profitability of the Indian enhance investment climate by attracting foreign
manufacturing industry. India’s ranking on the World investment and to promote the economic development of
Bank’s International Logistics Performance Index (LPI) these neighboring regions. DFC would pass through six
slipped from 39th in 2007 to 54th in 2014 (among 160 states Uttar Pradesh, NCR of Delhi, Haryana, Rajasthan,
countries featured). The Index measures logistics Gujarat and Maharashtra and is mostly aligned parallel to
competitiveness of a country across 6 parameters i.e. the existing railway tracks. The proposed Industrial corridor
Customs, Infrastructure, International shipment, Logistics would improve country’s logistic infrastructure by setting
competence, Tracking and tracing, and Timeliness. Poor nine junction stations following an additional station at
road infrastructure, congestion in the Road/Rail network end terminals at Tughlakabad and Dadri in NCR of Delhi
and lack of inter-modal transport connectivity increase and J.N.Port in Navi Mumbai. DMIC (Delhi Mumbai
the logistics costs and impact the competitiveness of the Industrial Corridor) has been set up by signing a MOU
country. Further, lack of investment in port infrastructure between Ministry of Economy, Trade and Industry (METI) of
and administrative delays impact the efficient evacuation

29

JULY 2016
SECTOR OUTLOOK

Japan and the Ministry of Commerce and Industry (MoCI) New Proposed Corridors
of India. It is expected that the project would envisage an
employment growth potential of CAGR 14.87% over five New Corridors End stations Distance covered (Km)
years, industrial output growth of CAGR 24.57% and 2,330
exports growth of CAGR 31.95% during the same period. East-West Corridor Kolkata-Mumbai 2,343
The rollout of DFC would drive higher 1,100
efficiency/productivity gains for container terminal North-South Corridor Delhi-Chennai 899
operations as it will allow higher double-stacking, lesser
investment in wagons and faster turnaround. The East Coast Corridor Kharagpur-Vijaywada
commercialization of DFC will augment the capacity by
allowing a movement of 360 containers per train in Southern Corridor Chennai-Goa
around 24 hours from JNPT to NCR compared to 90
containers in around 40-50 hours, at present. Hence, the Source: Indian Railways
rollout of DFC is one of the major catalysts for logistic
sector to grow in future. States influence by DMIC Project

India's overall logsitics performance index DMIC Area Under Total area Percent Total
54 State project of Area of

47 46 influence impacted Respective
39 Area State State

(sq. km) (Sq. km.) under PIA
(project

influence
area)

Delhi 1,483 1483 100%
Haryana 26,410 44,212 60%
Rajasthan 198,849 342,236 58%
Gujarat 120,706 196,024 62%
Maharashtra 56,760 307,713 18%
UT of Dadra &
Nagar Haveli 491 491 100%
UT of Diu & Daman 122 122 100%
Uttar Pradesh 28,265 238,566
Madhya Pradesh 2,866 308,144 12%
Uttaranchal 533 53,566 1%
Total of All States 1%
2007 2010 2012 2014 under influence 436,486 1,492,557
29.20%
Source: World Bank
Source: DMIC

Deterioration across all parameters Implementation of GST would ensure better cost
effectiveness and improve efficiency
54 65 58 40 44 52 57 47 51
39 47 42 31 42 The entire country is pining hopes on passing the GST in
parliament which aims to simplify the current indirect tax
Overall rank regime by bringing all central and state levies under one
Customs single head having uniform tax rate. Rollout of GST would
benefit the logistic sector as it would reduce the tax
Infrastructure complexity, bring efficiency in cross-state transportation,
International streamlining paperwork for road logistics operators and
would bring down the transit time and logistics costs.
shipments Further, GST will permit rationalization of warehousing
Logistics space, as currently corporate generally operate state-level
quality/competence warehouses, inventory and distribution centers to avoid
Tracking and tracing Central Sales Tax (CST), rather than maximizing on
operational efficiency. GST will allow companies to move
Timeliness
2007 2014

Source: World Bank

30

FDI - WINDOW OF OPPORTUNITY

away from warehouses in different states to create new and railways to costal shipping could lead to emission
regional warehouses based on operational and logistics savings of about 3.5% in the freight transport sector.
efficiency and further employing third-party logistics Government also suggested for reducing the cost of costal
companies to manage their overall distribution and supply shipping by changing cabotage law, under which only
chains. Besides, the rollout of GST would drive Indian registered ships are allowed to ply on local routes
consolidation of warehousing space across the country, for carrying cargo. As per shipping ministry, the incentive
improvement in efficiency of road transporters and would would help to increase the transportation of petroleum, oil
develop supply chain management. & lubricants, coal, steel and cement by costal shipping
from 6% to 12% in a span of a decade and result in
Government’s initiatives to boost cargo through potential savings of Rs 35,000-40,000 crore by optimizing
shipping & railway export-import freight and domestic cargo. Government has
set an ambitious target to increase the share of waterways
Government has been taking several initiatives to transportation from 6% to 10% by 2020 and to reach
increase the cargo transport market share of railway and this target, shipping ministry has been taking several
inland water ways. Currently road freight accounts for initiatives such as moving to larger barges and use of
54% of total freight followed by railway (33%) and costal liquefied natural gas instead of diesel barges and
shipping (6%). As per government estimates, for the 14 dedicated berths, bunkering and storage capacities at
major routes to North West region, only 38% is moved relevant ports. The shipping ministry also suggested the
through rail. Freight trains take 2.5 times more than imposition of green taxes on less environmentally friendly
passenger train to cover the same distance and thus the modes of transport such as roadways which would
road still dominates the container movement. The key increase freight share of costal shipping due to low cost
challenges the rail transport face are high turnaround of transportation. Ministry also highlighted some of the
time and low speed of freight trains. Government is key competitiveness of shipping transport like
looking to improvise on these challenges by targeting fast transportation by waterways cost 25 paisa per km as
track implementation of DFCs, increasing the allocation of compared with Rs 1.50 and Rs 2.50 for rail and road
investment, developing Multimodal Logistics Parks and transport and in terms of load capacity one horsepower
Industries and rationalized the rates for DFC. In a move to can carry four tonnes of cargo by waterways, while the
attract import freight traffic including containers, coal and equivalent is 150 kg and 500 kg by road and rail,
iron ore that was diverted to roads, Indian Railways has respectively. Thus, government’s thrust to improve logistic
recently withdrawn the 10% Port Congestion Surcharge infrastructure in shipping and rail by taking several
on basic freight which was imposed during November initiatives would reduce transport cost and would maintain
2014. The rollback is expected to improve the benign inflation environment.
competitiveness of rail freight over the roads.
Investment allocation by Indian Railways (Rs in billion)
Recently Shipping ministry announced that they have 8,560
planned to offer companies an incentive to Rs 1 per
tonne to transport goods, including food grain, 2,557
automobile, cement and other commodities through 1,539
inland water ways and costal shipping. The ministry 225 285 533
conveyed that the incentive will be given to industry for
switching to cleaner transportation like inland water ways FY91-95 FY96-00 FY01-05 FY06-10 FY11-15 FY16-20
and costal shipping from railways and roadways. The
incentive offer would cost government Rs 100-150 crore Source: Indian Railways
per year as per shipping ministry. Such initiatives from
government will encourage the freight movement through
shipping as only 6% of freight transported in India is
carried by costal shipping as compared to 11% and 24%
for Germany and China, respectively. A shift from roads

31

JULY 2016
SECTOR OUTLOOK

Load capacity for various modes of transport (per 1 to substantial jump in deliveries across many markets.
Rising demand from Tier II, III and smaller towns present a
4000 Horse power) (in kg) major growth prospect for the industry participants. The
Government’s “Digital India” initiative which aims to bring
Inland water 500 150 the internet and broadband to remote corners of the
Rail Road country would provide the connectivity for e-commerce.
Government’s recent notification of 100% foreign
Efficiency per litre of fuel consumption (Ton-Km/ltr) investment in marketplace e-commerce companies,
105 including services like warehousing and inventory would
also provide a fillip to the logistic sector. The e-commerce
85 players need to deliver products quickly to their customers
and one of the most important clientele segments for
24 them are in the tier II and tier III cities. Thus, there will be
significant demand for warehousing and logistic space in
Inland water Rail Road India. To tap the market, a number of startup companies
have been able to expand into the smaller centers backed
Cost per ton per km for various modes (Rs.) by funding from investors. As per Bank of America Merrill
2.5 Lynch, Indian e-commerce sector will surge to USD 220
billion in value of goods by 2025 from current USD 11
1.5 billion, leaving lot of opportunities for domestic logistic
companies to tap the market.
0.25 Rail Road
Outlook
Inland water
Source: Industry Report India, lags in logistic infrastructure in the world with
logistic cost accounts ~14% of annual GDP which is higher
Uptick in e-commerce business to drive growth than other developed nations. Structural reforms are
needed in Indian logistic sector if it wants to compete with
The surge in e-commerce volumes has been the major other developed and developing nations. Logistic
growth driver for express distribution industry over the infrastructure is directly linked with the overall economic
past few years. The rapid rise in preference for digital development and hence it is imperative to develop and
shopping, increased uses of mobile devices and enhance the logistic infrastructure. As Indian economy is
accessibility to technology/internet augur well for the based on consumption, inflation is always a matter of
growth in the e-commerce industry in India. The concern for the government. Thus proper logistic
availability of options like Cash on Delivery and newer infrastructure to reduce transportation cost would support
payment options such as mobile payment wallets, has led government to contain inflation and boost real GDP
growth. Government is aware of poor logistic infrastructure
in the country and has been taking initiatives to address
the issue. Fast track implementation of DFC project,
construction of multi modal logistic park, roll back of Port
Congestion Surcharge on railway freight and incentivizing
the shipping transport are the notable reforms that
government has announced towards the development of
the sector. Further, rollout of GST would be a game
changer for the sector as it would bring down the transit
time and logistics costs. Government has allowed 100%
FDI in market place e-commerce companies, resulting in
higher demand for warehouses and logistic space. Thus the
sector provides huge scope of growth for domestic logistic
firms, given the importance of the sector towards country’s
economic development.

32

FDI - WINDOW OF OPPORTUNITY

Monsoon, the mega event of the year has left half of the monsoon. The monsoon however arrived in Kerala a week
country unsatiated so far with all sects of people still later than its normal onset date of 1st June, but is
looking to quench their thirst. After the initial above believed to have rapidly advanced over peninsular Indian
average forecasts by the forecasting agencies – IMD and states. As of 23rd June, north-west India has received 6%
Skymet, the monsoon has so far clocked deficit of 17% excess monsoon rainfall, central India has recorded a 38%
as of 23rd June, 2016 albeit lower than 23% deficit deficit, the peninsula has recorded 15% excess rainfall,
previous week. The percentage points are calculated by and east and north-east India have recorded a deficit of
comparing the expected centimeters of rainfall with the 24%. To sum up, so far, 24% of the country has received
Long Period Average (LPA) of past 50 years. While the LPA excess rainfall, 31% has received normal rainfall, and 45%
is 89 cms, IMD expects a total of 94 cm of rainfall this deficient and scanty rainfall. Clearly, when the first

Source: IMD

33

JULY 2016
ECONOMY REVIEW

Source: IMD

estimates are for 106% of the long-period average (LPA), years. Unfortunately, most of them have come up with
the monsoon is expected to have spread across whole of unpleasant results and the accuracy of forecasting have
India by end of June. Considering that ~50% of the been kept wanting. In fact, an analysis titled “What to
country’s workforce depends on agriculture for a living make of the latest IMD monsoon forecast?” was carried out
and over half of India’s farmland lacks assured irrigation, by The Hindu based on 10 years of forecast data. The
monsoon is of paramount importance. Besides, the food analysis showed that the IMD’s initial April forecast got the
inflation has failed to be tamed over the last two years ‘rainfall range’ wrong 70% of the times. This essentially
mainly on account of two failed monsoons barring the means that in 7 out of 10 years, the actual rainfall has
issues with hoarders or middlemen. Thus, clearly the been outside ± 5% error margin range. On the other hand,
latest set of rainfall figures raises obvious doubts the revised June-July forecast, often regarded as a more
regarding the authenticity and the effectiveness of the accurate monsoon forecast got the ‘rainfall range’ wrong
forecasting methods or set of results drawn by IMD and 60% of the times. Besides, at times when IMD predicts for
as well as Skymet. ‘below normal’ monsoon, it could often turn out to be
‘deficient’ or above normal to devastating floods. IMD
There are various analyses available to understand the classifies its rainfall forecast into five ‘ranges’ based on the
success of the IMD’s accuracy in forecasting over the

34

FDI - WINDOW OF OPPORTUNITY

percentage value of its LPA: deficient (less than 90), irrigating its arable land. Even today, we look for signs of
good monsoon for boosting agriculture and filling up of
below normal (90-96), normal (96-104), above normal the reservoirs. Since the monsoon is yet to pick up pace,
this has delayed the sowing of rain-fed kharif crops.
(104-110) and excess (more than 110). While the According to media articles, so far, an area of 12.49 million
hectares has been planted under crops like rice, cotton,
forecasting agency has acquired new technologies from coarse grains, pulses, oilseeds and cane. This is almost
24% lower than the 16.4 million hectares planted by this
time to time, however, the forecasting accuracy has still time last year. Thus, the figures are dismal and alarming
both at the same time, however one needs to be patient
been lagging behind international standards. The recent and follow the progress of the monsoon in the next few
days. Generally, kharif sowing in India continues almost till
predictions for the last two years and the one for year end of July, and seasonal or total area in the June-October
crop season is ~106.2 million hectares. It is a known fact,
2009, when India experienced severe drought against how much the south-west monsoon is critical to the kharif
crop season considering over half of India’s farmland lacks
expectation of normal monsoon, clearly narrates the story. proper irrigation. Moreover, India receives 80% of its
annual rainfall during these four months to boost its water
India needs to badly count on the accuracy on the reservoirs. As per the data from the Ministry of Agriculture,
the area under rice, the main kharif crop, stands at 1.99
forecasting of IMD especially at a time when India’s food million hectares so far, compared to 2.19 million hectares
by this time last year. Pulses have been sown so far in
grain production have been hit last year and the price of 0.97 million hectares compared to 1.22 million hectares by
this time last year, while coarse cereals have been planted
the essential food items, mainly pulses have been in 1.76 million hectares, lower than the 1.82 million
hectares planted by this time last year. Cotton has been
running severely high. The government also had to import planted in 1.91 million hectares compared to 3.49 million
hectares by this time last year. Sugarcane has been
pulses higher in order to fill up the lag in production. planted so far in 4.44 million hectares, higher than the
area of 4.16 million hectares last year. The higher interest
Thus clearly the taming inflation statistics could very in sugarcane sowing is probably tracking the higher global
as well as domestic prices and the latest policies drawn.
easily go haywire unless the food inflation component in The sown in figures for Oilseeds however depicts dramatic
fall from the previous year figures. The only hope for
CPI is lowered, major risk for India in its lower interest betterment in the figures rests with the strong monsoon
estimates by IMD.
1p2a0th%. IMD April Forecast (%) Actual Rainfall (%)

100%

80%

60%

40%

20%

0%

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

Source: IMD, The Hindu Actual Rainfall (%)

120% IMD June Forecast (%) Area sown in million hectare (as of June 24, 2016)
100%
Crop 2016-17 2015-16 % Change
80%
60% Rice 1.99 2.19 -9.15
40%
20% Pulses 0.97 1.22 -20.75

0% Coarse Cereals 1.76 1.82 -3.24

2006 Oilseeds 0.70 2.79 -74.97
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

Source: IMD, The Hindu Sugarcane 4.44 4.16 6.73

Thus, instead of making RBI looking as scape goat for Jute & Mesta 0.74 0.76 -2.12
failing to lower the interest rates in the country, the
policymakers should have addressed the basic structural Cotton 1.91 3.49 -45.31
issues like, the huge dependence on monsoon for
Total 12.49 16.41 -23.86

Source: Ministry of Agriculture

35

JULY 2016
ECONOMY REVIEW

What’s been a matter of great concern is the very fact Even the groundwater levels in India have depleted over
that ground water level remains terribly low in major the years largely on account of using primitive farming
reservoirs across the country. The water levels can only methods in agriculture and the adverse farming pattern
be replenished on account of better than expected which uses water guzzling crops in places which are
monsoon. As of 23rd June, 2016, live storage available in geographically scarce in water supply. Besides, the highly
the 91 important reservoirs has fallen to an alarmingly skewed nature in terms of incentives is provided for
low of 15% of their total capacity as compared to 27% cultivation particularly for wheat and paddy. Unfortunately,
in the previous year and 20% average of last 10 years. these crops are water intensive and depend heavily on
As is evident from the graph that the situation has only ground water for their growth. This creates inefficiency in
aggravated over the weeks and months and so much that water usage when compared to other countries. According
the most hydropower plants are running at a small to a report titled “Overview of Ground Water in India” by
fraction of their capacity while one or two thermal plants Roopal Suhag, PRS Legislative Research, the overall
needed to be shut down. Within regions, the situation is contribution of rainfall to the country’s annual ground
relatively better at Northern and Central regions while water resource is 68% while the share of other resources,
Southern and Eastern India witness much depressed such as canal seepage, return flow from irrigation, recharge
water levels across the reservoirs. Within Northern from tanks, ponds and water conservation structures taken
regions, H.P. and Punjab recorded departure of 31% and together is 32%. Because of the increasing population in
25% from normal levels while Rajasthan registered India, the per capita annual availability of water has
surplus of 15%. In the East, deficit of 40% was recorded reduced from 1,816 cubic metre in 2001 to 1,544 cubic
in Jharkhand, West Bengal recorded a deficit of 8% while metre in 2011, implying a reduction of 15%. The
surplus of 118% was recorded in Tripura. In the Western depletion in water levels is largely on account of overuse
regions, both Gujarat and Maharashtra reported deficit and contamination. According to the report, 89% of
figures of 45% and 71% respectively. In the Central ground water extracted in India is used in the irrigation
regions, U.P. & M.P. registered surplus of 33 % & 91 % sector, making it the highest category user in the country.
respectively while Uttarakhand and Chhatisgarh reported This is followed by ground water for domestic use which is
deficit of 57 % 30 % from the normal figures. In the 9% of the extracted groundwater while Industrial use of
Southern region, barring Kerala all other states reported ground water is 2%. The main means of irrigation in the
huge departures from normal - AP&TG (-85 %), TG (-44 country are canals, tanks and wells, including tube-wells.
%), karnataka (-46 %), Kerala (11 %) and T.N. (-68 %). Of all these sources, ground water constitutes the largest
share. Wells, including dug wells, shallow tube-wells and
Region wise Water Reservoir Status (as of June 23, 2016) deep tube wells provide about 61.6% of water for
irrigation, followed by canals with 24.5%.
Current Status Last Year same period 10 year Average

Northern Region 24% 42% 30%

Eastern Region 16% 28% 17%

Western Region 9% 21% 21%

Central Region 20% 29% 15%

Southern Region 9% 23% 21%

All India Status 15% 27% 20%

80 % of storage capacity this yr-RHS 50
Storage available (BCM) 45
40
70 35
60 30
50 25
40 20
30 15
20 10
10

0

Jan-07
Jan-14
Jan-21
Jan-28
Feb-02
Feb-11
Feb-18
Feb-25
Mar-03
Mar-10
Mar-17
Mar-23
Mar-31
Apr-07
Apr-13
Apr-21
Apr-28
May-05
May-12
May-19
May-26
Jun-02
Jun-09
Jun-16
Jun-23
Source: CWC

36

FDI - WINDOW OF OPPORTUNITY

Average amount of water needed to grow crops in (Cubic Meters / Tonne) (3,075 tones), rice (2,424 tones) and sugarcane (69,838
tones). The production of pulses declined both in 2014-15
Brazil India China United and 2015-16, understandably when the monsoon has been
States under deficit for the last two years. One of the reasons
why the pulses production is so vulnerable to monsoon is
Rice 3,082 2,800 1,321 1,275 explained by the poor irrigation coverage for the crop
Sugarcane 155 159 117 103 which stands abysmally low at 16%. The national average
Wheat 690 849 irrigation coverage is ~45% and most of the other food
Cotton 1,616 1,654 items are above that threshold mark. For instance,
2,777 8,264 1,419 2,535 irrigation coverage is highest for sugarcane (90%) while
Wheat and rice also enjoy good irrigation coverage of over
Sources: National Water Footprint Account, UNESCO-Institute for 50%. To make up for the shortfall in production, the
Water Education, May 2011; PRS government has to resort to imports. The imports in
volumes have been on the rise for the last two years, thus
A realignment of the different regions and cultivation of the sustained increase in food prices component in both
crops should be based on regions which are naturally WPI and CPI. The imports for 2016-17 have been
water abundant. Nevertheless, in a country like India, the estimated to be lower than previous year figures. The
structural reforms are hard to come by and rather happen notion will probably again be above average monsoon.
at a snail’s pace. The key element for implementation of However, a disappointment on that front can easily push
swift reforms has to be the strong urgency which is the prices higher and thus food inflation and adjoining CPI.
hardly seen in agriculture sector. Thus, the inter-linkage The prices of major pulses – Chickpeas, Lentil, Tur, Urad
between monsoon, sowing, food production, import, food and Moong have all exhibited higher trend almost in line
inflation, MSP of crops and its final impact on CPI with international prices. Besides, the minimum support
inflation cannot be ignored. However, last year’s food price (MSP) of the list of major pulses also witnessed
production figures have been better than previous year significant appreciation in the last five years. These factors
(albeit by an iota), despite poor monsoon and drying up will certainly put heavy pressure on the inflation numbers
of reservoirs. Food grain production for 2015-16 crop unless the production numbers prop up for 2016-17.
year increased marginally to 252.23 million tonnes,
according to third advance estimates. Although, food Pulses Production, Trade, and Consumption of India (million tonnes)
production of coarse cereals, rice, oilseeds and sugarcane
was significantly lower than last year. With the rise in 2013-14 2014-15 2015-16 2016-17*
population, the per capita demand for food grains is on 17.15 17.06 17.82
the rise. To cope up with the demand, in the face of Production 19.78 4.58 5.79 4.67
rising demand, the government has to resort to imports of 21.73 22.85 22.49
cereals, pulses. However, despite these measures, lack of 0.22 0.25 0.27
supply side reforms largely leads to higher food price
inflation and consequently high retail inflation. 21.51 22.6 22.22

Food production (in million tonnes) Total Imports 3.65

Availability 23.43

2015-16 2014-15 % Change Total Exports 0.34

Rice 103.36 105.48 -2.01 Total Availability
Wheat 94.04 86.53 8.68 for Domestic
Coarse cereals 37.78 42.86 -11.85 Consumption 23.09
Pulses 17.06 17.15 -0.52
Oilseeds 25.9 27.5 -5.82 Source: Ministry of Agriculture, Ashika Research,* estimated figures
Sugarcane -4.31
Total 346.72 362.33 0.08 Irrigation cover of top five pulses producing states
252.23 252.02

Source: Ministry of Agriculture, Economic Times % share in Yield % Irrigation
pulses (kg/hectare) coverage
For instance, the prices of the key pulses – Tur, and Urad (2012)
have been often blamed for the overall increase in food production
inflation in India. According to Crisil analysis, the price of (2014)
pulses spikes every third year (based on data taken for a
decade). However, this has a lot to do with the lower Madhya Pradesh 26% 938 35.10%
yield or productivity of the crop which has not made any
major improvements to keep up with the rising demand. Maharashtra 16% 796 8.70%
The per hectare productivity of pulses in FY14 was just
764 tonnes which is poor when compared to wheat Rajasthan 13% 589 13.10%

Uttar Pradesh 9% 742 21.00%

Andhra Pradesh 8% 928 3.70%

Total 72%

Source: Ministry of Agriculture, Economic Times

37

JULY 2016
ECONOMY REVIEW

38

FDI - WINDOW OF OPPORTUNITY

As can be witnessed from the table that the MSPs of the The MSP of pulses for the last 5 years (Rs./Quintal)
major pulses have been increased yoy since 2011-12 and
while 2013-14 and 2014-15 witnessed modest increases, Pulses 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
2015-16 witnessed significant increase of 6-11% yoy.
The MSPs for 2016-17 have been announced and by the Tur 3200 3850 4300 4350 4625 5050
initial prints suggest for an average increase of 8-9% yoy.
Thus, the simple justification for hike in food prices lies Gram 2800 3000 3100 3175 3500 NA
in the increased MSPs yoy. In order to silence critics and
also to incentivise farmers, the Government increased Moong 3500 4400 4500 4600 4850 5225
MSPs to increase acreage and increasing productivity of
these crops. Higher impetus towards cultivation of Urad 3300 4300 4300 4350 4625 5000
leguminous pulses and oilseeds will also have additional
environmental benefits as these crops are less water Lentil 2800 2900 2950 3075 3400 NA
consuming and help in nitrogen fixation in the soil.
Sources: Commission for Agricultural Costs and Prices (CACP)

What are the primary drivers for creeping inflation in India –
is actually a topic which economists like to debate. Of
various parameters considered, one strong candidate has
been Mahatma Gandhi National Rural Employment

39

JULY 2016
ECONOMY REVIEW

Guarantee Scheme (MGNREGS). However, most economists CPI - Breakdown by components (YoY %)
have little proof or conviction to blame this flagship Weights Jan-16 Feb-16 Mar-16 Apr-16 May-16
programme for the increase in prices in India. Most
however agreed on the increase in MSPs as the major Food and 45.9 6.66 5.52 5.27 6.29 7.2
cause for the same, particularly during the UPA 2 era. beverages
While the present government advocated modest hikes in
2013-14 and 2014-15, the same was hiked by more than Cereals and
modest rates in 2015-16 and further in 2016-17. The
breakdown of the CPI suggests steep increase in prices of products 9.67 2.19 2.18 2.43 2.51 2.59
pulses & products component averaging at 36% yoy for
the period Jan-May, 2016. While there have been hue Meat and 3.61 8.23 7.19 7.74 8.23 8.67
and cry with the rising food inflation for the recent fish
months, in reality, the story could have been a lot
different or rather worse had the weight in CPI for the Milk and 6.61 4 3.66 3.33 3.4 3.53
component – pulses & products not been set at a products
miniscule 2.38%. This is probably well orchestrated by
the government considering that it is known fact the Oils and 3.56 6.36 5.33 4.85 5.13 4.83
government will be importing pulses every year and only fats
the figures takes higher proportions during the times of
monsoon deficit. According to an IMF working paper Fruits 2.89 -0.24 -0.64 -1.1 1.74 2.64
(Understanding India’s Food Inflation: The Role of Demand
and Supply Factors), the authors have opined that over Vegetables 6.04 6.39 0.7 0.54 4.98 10.77
past decade India has seen a prolonged period of high
inflation largely due to persistently-high food inflation. Pulses and 2.38 43.32 38.3 34.15 34.21 31.57
According to authors, the acceleration of India’s economic products
growth witnessed during the last ten years, accompanied
by stagnant agriculture growth, resulted in excess demand Sugar and
for food, giving rise to relative food price inflation. confectionery 1.36 -1.72 0.61 3.92 11.18 13.96
Furthermore, the excessive buffer stock build-up since
2007/08 and the lack of a pro-active liquidation policy Spices 2.5 10.56 9.87 9.58 9.8 9.72
increased average relative food inflation and its volatility.
The report also said that administered price setting, such Non- 1.26 4.6 4.24 4.15 4.3 4.11
as through MSPs and supporting policies, will continue to alcoholic
pose challenges for monetary policy management in beverages
India. This is probably the crux of the matter, India never
had supply side reforms and to bring down food inflation Prepared 5.55 6.79 6.5 6.23 5.89 5.86
on account of concerns from supply side and compensate meals
with monetary policy is not justified. Since, capital
formation in agriculture will be stagnant or decline, we, Pan, tobacco 8.3 8.51 8.04 7.82
the people of India need to rely on the signs and & intoxicants 2.4 9.03
estimates of monsoon and our stock markets and
investments also shift accordingly. Now, as far as the Clothing and 7.9 5.71 5.52 5.5 5.56 5.37
monsoon is concerned, the latest media interactions with footwear
chief of weather office suggests that although monsoons
are delayed however it will bring plentiful showers Housing 10.1 5.2 5.33 5.31 5.37 5.35
towards the latter stages of the season helping farmers.
What’s the probability of that happening – it is well Fuel and 6.8 5.32 4.59 3.38 3.03 2.94
known by now. light

Miscellan- 28.3 3.95 4.38 4.01 4.26 3.96
eous

Household 3.8 5.17 4.88 4.95 4.85 4.83
goods and
services

Health 5.9 5.63 5.25 5.31 5.21 5.1

Transport & 8.6 1.55 2.39 0.91 1.82 0.63
comm

Recreation 1.7 4.9 4.79 4.68 4.49 4.39
and
amusement

Education 4.5 5.51 5.68 5.66 5.54 5.85

Personal care 3.9 3.43 4.77 5.68 5.73 6.14
and effects

Source: CSO

40

FDI - WINDOW OF OPPORTUNITY

Birla Sun Life MNC Fund (G) Important Information
What is Birla Sun Life MNC Fund?
The fund that invests in securities of multinational NAV (Rs.) 586.10
companies in order to achieve long-term growth of capital Inception Date December 27, 1999
with relatively moderate levels of risk. Fund size(in Rs cr) #
Fund Manager 3,382.0
Why Birla Sun Life MNC Fund? Entry load Ajay Garg
lMultinational companies come with strong parentage, Exit Load
Benchmark N.A
backed by professional management coupled with Min Investment 1.00%
use of latest technology and global experience. Min SIP Investment NIFTY MNC
Therefore such companies provide better growth # as on May 30,2016 Rs.5000
opportunities. Rs. 1000
lThrough research-based approach, Birla Sun Life MNC
Fund identifies multinational companies with long- Key Ratios 0.87
term growth prospects. 17.54
lThe fund has shown strong performance through Beta
downside protection during the bearish phases and Standard deviation (%) 1.36
outperformance during bullish market. Sharpe Ratio 18.32
Alpha
Investment Objective R Squared 75.5
The objective of the scheme is to achieve long-term Expense ratio (%) 2.4
growth of capital at relatively moderate levels of risk by Portfolio Turnover ratio (%)
making investments in securities of multinational Avg Market cap (Rs in cr) $ 8.00
companies through a research based investment # as on May 30,2016 18,856
approach.
This product is suitable for Investor who are seeking: Top Ten Holdings
1. Long term capital growth
2. Investments primarily in equity and equity related Stocks % of Net assets
Bosch 8.91
securities of multinational companies (MNCs) Bayer CropScien 8.22
3. Riskometer-Moderately High Maruti Suzuki 7.18
Gillette India 7.06
ICRA 6.94
GlaxoSmithKline 6.88
Pfizer 6.05
Honeywell Autom 5.75
Kotak Mahindra 4.64
HUL 4.47

About Fund Manager: Ajay Garg Asset Allocation

Mr. Ajay Garg is working with the Birla Sun Life Mutual Equity Debt Cash & Equiv.
Fund since Jan, 2003. Prior to joining Birla Sun Life AMC 98.98% 0.00% 1.02%
in 2003 he has worked with Birla Sun Life Securities Ltd.

Ajay is B.E (Electronics) and MBA (Finance). Ajay has over

20 years of work experience in financial services.
Performance of the Fund

Fund (%) 1 month 3 month 6 month 1 year 3 years 5 years Since Inception
NIFTY MNC (%) 0.04 6.18 0.10 0.73 31.60 22.36 18.40
1.82 5.53 -2.30 -5.38 18.39 13.49 —

41

JULY 2016
MUTUAL FUND OVERVIEW

Ashika Insight Mutual Fund Recommendation Alpha Generation

Month of Fund Name Benchmark NAV on NAV on Fund Benchmark Alpha
Recom Recom 26/06/2016 Returns Returns since
S&P BSE 100 Date Since Recom 1.4%
May-15 SBI Blue Chip Fund Nifty 500 29.6 Recom 3.1%
Jun-15 Kotak Opportunities Fund S&P BSE Sensex 27.8 83.2 6.4% 6.9%
Jul-15 Franklin India Bluechip Fund Nifty Free Float 82.5 363.6 5.0%
Aug-15 UTI Mid Cap Fund Midcap 100 359.6 0.9%
S&P BSE 200 -2.2%
Nifty 500 83.8 1.1%
155.0 -5.8%
Nifty 50 444.7
Sep-15 Birla Sun Life Frontline Equity Fund S&P BSE 200 82.0 -2.2% -3.0% 0.9%
Oct-15 HDFC Equity Fund Nifty Free 28.8 165.0 6.4% 4.1% 2.3%
Nov-15 ICICI Prudential Focused Float Midcap 100 330.8 448.1 0.8% 2.2% -1.5%
Bluechip Equity S&P BSE 200
Dec-15 HDFC Top 200 Fund Nifty 50 31.9 29.4 2.1% 0.5% 1.5%
Jan-16 Mirae Asset Emerging Bluechip Fund Nifty Free 51.5 330.7 0.0% 1.6% -1.6%
Float Midcap 100 38.3
Feb-16 Franklin India Opportunities Fund S&P BSE 200 32.9 3.0% -1.0% 4.0%
Mar-16 Birla Sun Life Top 100 Fund 36.4 56.8 10.1% 7.4% 2.7%
Apr-16 HDFC Mid-Cap Opportunities Fund 39.2 43.4 13.2% 12.1% 1.1%

May-16 Birla Sun Life Pure Value Fund 39.2 7.7% 4.8% 2.9%
40.2 2.4% 3.4% -1.0%

Ashika General Mutual Fund Recommendation - Equity - Categorywise

Large Cap Funds

Scheme NAV AUM 3M 6M 1Yr 3Yr 5Yr Since Sharpe Benchmark Exp.
(Rs. Cr) Inception Ratio 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 15.15 356 9.2 -2.95 -7.35 14.35
Focused 25 Reg (G) 359.06 3.69 1.33 15.56 0 22.26 -1.15 Nifty 50 2.87
Franklin - India 28.85 6098 15.11 0.98 -0.79 14.13
Scheme Bluechip Fund (G) 162.95 8884 15.49 3.43 0.72 15.31 11.46 23.27 0.3 S&P BSE Sensex 2.2
ICICI Pru - Focused Bluechip 17.03 9434 15.49 -0.26 -2.43
Equity Fund Reg (G) 1123 14.51 15.86 12.65 9.13 0.37 Nifty 50 2.16
Birla SL - Frontline
Equity Fund Reg (G) 17.75 13.91 0.5 S&P BSE 200 2.16
DSP BlackRock - Focus
25 Reg Fund (G) 18.49 10.93 0.45 S&P BSE 200 2.79

Mid Cap Funds

Scheme NAV AUM 3M 6M 1Yr 3Yr 5Yr Since Sharpe Benchmark Exp.
690.47 (Rs. Cr) 17.1 3.26 4.86 29.43 Inception Ratio Ratio
Franklin - India 11.9 0.22 0.34
Prima Fund (G) 3362 16.85 1.27 1.32 21 20.54 0.98 Nifty 500 2.31
Motilal Oswal - MOSt 18.85 1.06 5.37
Focused Midcap 30 Reg (G) 19.92 842 15.65 -0.71 0.89 00 35.8 0.81 Nifty Free Float 2.73
HDFC - Mid Cap 28.44 19.68 16.12 0.94 Midcap 100 2.32
Opportunities Fund (G) 37.85 9193 29.34 18.9 29.14 0.83 2.37
Sundaram - Select 32.58 21.03 18.49 1.09 Nifty Free Float
Midcap Reg (G) 346.32 2896 Midcap 100 2.4
UTI - Mid Cap Fund (G)
79.31 2827 S&P BSE
Mid Cap

Nifty Free Float
Midcap 100

42

FDI - WINDOW OF OPPORTUNITY

Small Cap Funds NAV AUM 3M 6M 1Yr 3Yr 5Yr Since Sharpe Benchmark Exp.
44.11 (Rs. Cr) 22.25 4.09 10.85 41.73 Inception Ratio Ratio
Scheme 18.95
2004 20.21 4.3 7.38 35 24.37 18.05 1.24 S&P BSE Small 2.43
DSP BlackRock - Micro 16.63 5.32 7.93 34.1 Cap 2.4
Cap Fund Reg (G) 41.1 2299 20.24 -5.5 7.09 39.07 24.1 14.59 1.16 Nifty Free Float
Franklin - India Smaller -6.5 -0.51 32.94 Midcap 100 2.55
Companies Fund (G) 63 1404 3M 23.91 17.99 1.15 S&P BSE Mid 2.44
SBI - M MidCap 12.95 6M 1Yr 3Yr Cap 2.59
Fund Reg (G) 25.65 1652 15.22 1.33 2.13 31.81 21.75 17.79 1 S&P BSE Small
Reliance - Small 13.51 -1.24 -1.45 Cap
Cap Fund (G) 67.89 967 16.71 1.08 1.14 27.7 17.85 18.5 0.72 S&P BSE Small
Sundaram - Smile 16.53 -3.1 -3.31 Cap
Fund Reg (G)
3M 2.8 -0.25 Multi Cap Funds
Scheme 12.14
NAV AUM 15.97 6M 1Yr 5Yr Since Sharpe Benchmark Exp.
Birla SL - MNC Fund Reg (G) (Rs. Cr) 1.45 3.99 Inception Ratio Ratio
ICICI Pru - Value 584.25 9.94 -1.87 -0.83
Discovery Reg (G) 113.03 2766 13.67 22.98 18.11 1.16 Nifty MNC 2.43
Motilal Oswal - MOSt 9925 12.74 1.4 1.53 18.47 22.86 0.83 S&P BSE 500 2.24
Focused Multicap 35 Reg (G) 3.61 3.96
Franklin - India High Growth 17.45 2982 3M 1.47 -1.34 0 0 30.7 -0.13 Nifty 500 2.41
Companies Fund (G) 13.32
Birla SL - Adv Fund Reg (G) 28.54 3614 18.96 26 18.17 12.59 0.77 Nifty 500 2.26

Balance Fund 295.21 914 8.07 24.6 14.63 17.91 0.71 S&P BSE 200 2.81
16.36
Scheme NAV AUM 3Yr 5Yr Since Sharpe Benchmark Exp.
26.61 (Rs. Cr) 25.8 15.61 Inception Ratio Ratio
ICICI Pru - Balanced 14.79 16.39
Advantage Fund Reg (G) 10128 18.76 14.05 10.79 0.58 Crisil Balanced 2.35
HDFC - Prudence Fund (G) 18.37 Fund Aggressive 2.28
366.95 6992 20.06 11.94 18.89 0.36 2.47
SBI - M Balanced Fund Crisil Balanced
Reg (G) 96.91 3491 3Yr 14.81 16.39 0.84 Fund Aggressive 2.5
Birla SL - Balanced 95 38.1 3.06
Reg (G) 576.12 2254 29.64 13.58 21.41 0.65 Crisil Balanced
Tata - Retirement Savings 28.98 Fund Aggressive
Fund Moderate (G) 20.42 40 18.85 0 16.64 0.75
Crisil Balanced
Scheme Fund Aggressive

UTI - Transportation & Crisil Balanced
Logistics (G) Fund Aggressive
Franklin - Build India Fund (G)
ICICI Pru - Tech Plan Reg (G) Thematic Funds
Birla SL - Infrastructure
Fund Reg (G) NAV AUM 6M 1Yr 5Yr Since Sharpe Benchmark Exp.
ICICI Pru - Banking & Financial 84.8 (Rs. Cr) Inception Ratio Ratio
Services Fund Reg (G)
SBI - FMCG Regular (G) 564 -3.9 -2.48 26.24 20.83 1.2 UTI Transportation 2.74
& Logistics Index

28.86 475 0.39 -0.18 20.74 16.65 0.81 Nifty 500 2.81
41.5 380 1.79 2.75 17.97 9.09 0.73
539 -3.07 -5.67 9.24 0.37 S&P BSE IT 2.8
24.61 9.75
Nifty 50 2.5

36.62 748 3.95 -0.03 17.75 16.08 18.2 0.3 S&P BSE Bankex 2.52

78.11 206 2.64 10.36 12.86 0 13.73 0.39 S&P BSE FMCG 2.82

ELSS NAV AUM 3M 6M 1Yr 3Yr 5Yr Since Sharpe Benchmark Exp.
30.73 (Rs. Cr) 28.4 Inception Ratio Ratio
Scheme 5.53
8888 6.53 1.69 -0.36 19.51 18.75 1.33 S&P BSE 200 #N/A
Axis - Long Term Equity (G) 5.77
Birla SL - Tax Relief 96 22.02 2188 8.05 2.37 2.9 26.08 15.27 9.96 1.12 S&P BSE 200 2.44
Fund ELSS Reg (G) 433.7 2146 6.62 4.21 1.9 24.05 15.64 24.68 1.08 Nifty 500 2.46
Franklin - India Taxshield (G) 8.58
ICICI Pru - Long Term 276.88 3086 2.02 4.72 25.18 14.71 21.76 0.98 Nifty 500 2.32
Equity Fund Reg (G)
HDFC - LongTerm 241.05 1148 5.37 1.45 19.87 11.91 22.8 0.76 S&P BSE Sensex 2.52
Advantage Fund (G)
Motilal Oswal - MOSt Focussed 11.44 145 3.47 3.67 0 0 9.86 -1.5 Nifty 500 3.28
Long Term Fund Reg (G)

43

JULY 2016
TECHNICAL VIEW

Key takeaways from June 2016: driven as investors remained cautious with the presence of
• India Meteorological Department (IMD) predicted event risk in the form of RBI credit policy, Fed Meet and
Brexit referendum. Uncertainty in the global front too
monsoon season rainfall for the country as a whole weighed on our domestic market as well.
is likely to be 106% of the long period average
(LPA). On the technical front though Nifty scaled higher
• CPI inflation for the month of May rose to 5.76% compared to previous month but witnessed extreme
versus 5.47% (revised) in April. volatility within the range of 8050-8300. In the weekly
• CAD narrowed sharply to $0.3 billion (0.1% of GDP) chart Nifty formed Long-legged-Doji indicating indecisive
in Q4 of 2015-16, lower than $7.1 billion (1.3% of in the market but for medium term perspective the said
GDP) in Q3 of 2015-16. price action can be termed as consolidation phase and
• Mr. Raghuram Rajan announced his retirement as RBI gestation period for the market to head higher if it is able
governor as his term ends in September. to sustain above the 7900 level. Now Nifty is struggling to
• Government opened Foreign Direct Investment in breach past the previous swing high of 8335. Inability to
nine sectors including defence, aviation, food retail breach past the said resistance level calls for a ‘Double
and pharmaceuticals. Top’ Bearish pattern in the market which might prove
• Britain voted to leave the European Union in the extremely negative for the market. On the contrary
landmark referendum. different set of view point can be drawn where the price
structure since September 2015 onward can be marked
Classical theory of Technical Analysis down as ‘Inverted Head & Shoulder’ formation in daily
Indian equity market witnessed another rangebound chart. The said pattern if materializes or rather if Index
trading action during the month and ended almost flat breach past its neckline region above 8335-8350 then
with a gain of 0.31%. Volume in the market increased as chances remain high that Nifty might scale past its
stock specific action was evident. Breadth of the market previous all time high of 9119.
remained equally poised and a tug of war was seen
amongst the bulls and the bears. FII in the latter half of Multiple price structure can be seen in Nifty as
the month changed stance and remained net seller during consolidation in prices for the last few trading weeks also
the month. However Small-Cap and Mid-Cap Index raised odds of a probable ‘Extracting Triangle’ formation in
outperform the broader Index and ended with a decent daily chart. The said pattern too has a bullish implication
gain in the month. The month proved to be an event and indicates of a possible pullback in the market as
downside seems limited. The structural base line from the
pattern or rather Current value of this trend line is placed
at 7900. Change of trend or corrective decline in the
market is likely to propel in the market if the psychological
support level of 7990-8000 is breached.

To sum up according to classical theory of Technical
analysis the short term trend in the market in the
forthcoming month now has changed from positive to
neutral and would change to negative is the crucial
support level of 7900 is breached.

44

FDI - WINDOW OF OPPORTUNITY

Modern approach in Technical Analysis Nifty has breached the short term average of 21dma in
daily chart but has been maintaining above all the medium
On the oscillator front Nifty continues to remain in to long term average of 50/100/200. Medium term
neutral price region in both daily and weekly time frame averages of 50 and 100 have been maintaining a
however frequent buy and sell signal in daily time frame comfortable distance from the index. The short term
indicates that market is likely to remain volatile in the average of 20dma would now act as crucial resistance
forthcoming month as well and smooth directional level for the market in the forthcoming month which
movement in the market might be absent. MACD too in further coincides with gapdown area of 8188. Another
both daily and weekly time frame has a conflicting important aspect to note that in technical analysis ‘Golden
outcome which further reinstates of a possible rise in Crossover’ been initiated in daily time frame. ‘Golden
volatility. Other oscillator like that of ADX indicates of an Crossover’ denotes short term average of 50dma cutting
emergence of a clear directional bet in the market where the long term average of 200dma from below, the said
both -DI is above the +DI in both the time frame however formation would have a long term positive repercussion in
ADX line is trading below the 20 level mark indicating the Indian equity market. Nifty during the month of May
absence of a clear trend in the market. Hence to sum up 2016 bounced from its 50dma in daily chart, hence it can
in the forthcoming month odds are in favor of the market be concluded that the short term support for the market
maintaining its flat to negative outlook with volatility exist around 7950-60(50dma)
picking up.

Nifty is the past month remained confined within the Indian VIX
Band Bollinger. The range of the study which got
expanded due to the rally last month now contracted due Indian VIX during the month though continues to remain
to range bound trading action in the month June. Nifty still at lower levels however at the later half of the month
during the month had been taking support from the mid witnessed some amount of traction and increased
band of the Bollinger in daily time frame and was able to marginally in a crawling fashion. On the technical parlance
sustain above it. The upper band of the Bollinger in daily
time frame stands around 8320 which acted as crucial
resistance for the market after that 8450 happens to be
the next resistance level (upper band in weekly time
frame). On the latter half of the month Nifty breached the
mid-band in daily chart with a gap-down and now the
next level of support can be seen from the mid-band in
weekly time frame at around 7780.

45

JULY 2016
TECHNICAL VIEW

the Index continues to honor the upward sloping Future Projection – July 2016
trendline since December 2014 onward. Now Indian VIX Nifty is now in its 3rd super cycle wave after completing 7
has been gradually inching higher and probably might be year triangular formation and breaking past it on
in the formation stage of Symmetrical formation. The March2014 above 6350.Thereafter, it is following a 7-leg
present price structure projects that the Index might scale (a-b-c-d-e-f-g) triple diametric structure developing since
higher till the downward sloping trendline of the pattern Aug 2013. Nifty achieved 2nd X correction in Oct2014 and
around 20 odd levels. Hence to sum up volatility in the reached c wave towards 9100. Nifty was in its upward
market is likely to pick up in days to come which might channel in its triple combination which finished at 9100.
not augur well for Nifty as an inverse relation seems to Henceforth Nifty went into Complex Correctives involving
exist between each other. “x-waves” which are mostly well channeled. The channeled
fall from Mar2015 starting as 1st Corrective of a 7-legged
Gann Theory of Time cycle “Diamond-Shaped Diametric” and the drop in Index till
7678 marked the end-point of f-leg and if it is indeed a
The rally since December 2011 onward if considered as diametric then it requires g-leg to hit above 8000 which it
the beginning of an impulse wave then Nifty presently is did in the month of June. Hence since Nifty is trading
trading at its 5th wave. Previously impulse wave 1 took above the crucial 8000 level mark the pattern can be
17 months in the making. Hence forth if wave 5 unfolds confirmed and the study points towards an upside
into an equidistance of wave 1 then the recent rally in potential for the market till 8500-8650.
the market might extend further till the month of June
2018. Nifty now is trading within the 50 degree angle of Inter-market analysis
inclination, further rally has resulted in to form bullish U.S Market: Uncertainty in the global market was reflected
channel formation in weekly chart, target of which stands in DJIA as well where the Index traded within a narrow
around 8450-8500, and according to W.D. Gann the said range awaiting outcomes from key events like that of Fed
angle signifies 1 unit of price & 1 unit of time. So the Policy meet and the European Union referendum. Currency
said target of 8500 might be achieved within 4-5 months. volatility too played a pivotal role in deciding the fate of
However the theory of the famous 8-year bear cycle need the Index movement. On technical parlance DJIA since
to paid equal importance. This theory of 8-year bear cycle April 2016 onward had been in the formation stage of
indicates that after every 8 year markets witness a major bullish Ascending Triangle and presently it seems that the
correction which is in the range of 20-60% The theory third leg of the pattern might have ended and heading
can be aptly applied in Indian markets as well as we higher to end the fourth leg around 17975-18000.
witnessed a hefty correction in the year 1992 followed by However inability to breach the resistance level led to
a major correction in the year 2000, then in the year draw conclusion that ideally it might have been a bearish
2008 and now the year 2016 is the next in the eight year triple Top formation. Decisive close above the said
cycle. psychological resistance level would be recognized as
breakout and negate the bearish structure. The Fed held
Retracement principle

In order to identify 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. Nifty if able to sustain above the said trend
deciding level then positive biasness in the market is
likely to remain and the recent slide in Index might be
acknowledged as temporary in nature.

46

FDI - WINDOW OF OPPORTUNITY

off on raising interest rates this month, other than dismal demand. Relatively higher bond yield is also due to higher
job report the fear of UK vote to leave the European fiscal deficit for the current year than what the market had
Union the process called ‘Brexit’ hurting the investors expected and gross market borrowing by the government
sentiment and in this process witnessed a wide sell-off in is almost unchanged. On the technical front bond yield
stocks and commodities as investor sentiment got hurt had been in a severe downtrend since March 2016 onward
from the upcoming uncertainty and economic downside. however the recent pullback has lead the yield to scale
higher towards its previous swing high, now at the breach
Nymex Crude: Crude oil prices presently at a very crucial of which would witness a change in trend.
level of $50 which coincides with the previous swing
high followed by the previously broken uptrendline. Indian Rupee: Prices had been moving precisely within a
Breach of $50 mark and sustaining above it proves rising channel formation with its higher high formation
positivity in the commodity however both RSI and ADX over the past two years and now it has taken support from
showing emergence of negativity in crude oil prices. A the lower panel of the trendline and might be heading
negative divergence can be seen in crude oil prices in higher towards its upper panel at around 68-69 in medium
daily chart which impels trader to wait for confirmation of term perspective. Elliot Wave study reveals that prices
a trend or rather wait till $48 is breached for bearishness might be moving in a complex correction pattern (w-x-y-x-
to return. One of the biggest factors driving the recent z) over the past two years and possibility arises that wave
rally was due to an unexpected supply outage, which z where the currency is presently trading at is an
pushed around 2.5-3 million barrels per day (bpd) of extracting triangle. However on the short term perspective
crude oil out of the global market. Adding to that, the volatility is likely to prop in and failure to breach the
slowdown in US oil output and a weaker dollar support level of 66.50 would continue to maintain its
exacerbated the price strength. Further in the event of a uptrend. India’s rupee has been the worst-performing
Brexit, a risk-off sentiment dented oil prices further. major Asian currency this year, and, the government is due
to repay more than $20 billion in foreign-currency
deposits to nonresident Indians in coming months. The
large outflow, to happen over a short time and is expected
to cause volatility in the rupee market

10 Year Bond Yield India: RBI will sell up to Rs.10,000 Positives:
crore worth of government bonds on Monday to drain • Six month old trendline support exists at 7900.
excess liquidity from the banking system—the first so- • Mid-band of Bollinger band exists at 7780-7800
called open market operation (OMO) this fiscal year. The • ‘Golden Crossover’ in daily chart.
liquidity in the system is in surplus but banks are not in a • According to Retracement principle Nifty need to
mood to cut loan rates further. Many fear that the OMO
will lead to a rise in bond yields as supply will outstrip sustain above 8000 to maintain uptrend.
• According to Elliot wave Nifty formed 7-legged

Diametric pattern and heading higher till 8500-8650.

47

JULY 2016
TECHNICAL VIEW

Negatives: setback to European Union. Quitting the European Union
would also cost Britain access to the European Union’s
• Bearish ‘Double Top’ formation in daily chart. trade barrier-free single market and mean it must seek
new trade accords with countries around the world. Stock
· Oscillators in neutral price territory with sell markets globally saw a tumble and India was no exception.
crossover. The outcome resulted in fall in currencies, metal and oil
and simultaneously resulted in appreciation in dollar, yen
• Indian VIX has been gradually inching higher. and surge in precious metal prices. Rupee also fell past 68
against US dollar, India-based companies and sectors that
• ‘Triple Top’ formation in DJIA have investments and exposure to Britain also felt the
heat. On the technical front lower top and lower bottom
• Negative divergence in Crude oil prices which is a Bearish structure according to Dow Theory is in
place. Nifty during the month though started on a positive
• Uptrend in Rupee to remain due to rising channel note but failed to keep the momentum alive and ended
formation almost flat with a gain of 0.31%. The previous swing high
of 8336 proved crucial for the market and was unable to
To sum up Indian equity market started the month on a breach past the resistance level. Now inability to break the
positive note celebrating two years of Modi government resistance led to the conclusion that a possible bearish
and was cherishing the monsoon forecast. Several key Double top formation might in place for Nifty. Further Nifty
events were lined up during the month such as Reserve since March 2016 onward had been advancing following a
Bank of India’s monetary policy meeting and Federal rising trendline which was also breached during the month
Open Market Committee’s (FOMC) meeting, worries over which further validates of negative biasness in the market.
rate hike by the Federal Reserve in the US though had However one need to remember that since April 2016
been haunting the market. On the domestic front though onward Nifty had been moving within an extracting
RBI kept policy rate unchanged but market drew strength triangle and the high of 8294 marked as end of wave e,
from RBI’s accommodative policy action. RBI assured the Nifty is still trading above b-d trendline hence possibility
markets that it would infuse liquidity depending on the remains of a possible bounce back. Once index breaches
situation. The central bank hinted at progressive lowering the b-d trendline then the fall could be more sharper
of average ex ante liquidity deficit in the system to a without any large bounce. Current value of this trend line
position closer to neutrality. CPI inflation for the month of or rather possible pullback level for the market exists
May rose to 5.76% versus 5.47%, CAD narrowed sharply around 7900. Nevertheless, the bearish gap remains
to $0.3 billion (0.1% of GDP) in Q4 of 2015-16, between 8100-8188 with bears having an upper hand in
significantly lower than $7.1 billion (1.3% of GDP) in Q3 the immediate near-term. Weekly charts display a ‘long-
of 2015-16. With the rising CPI inflation, hope of interest legged doji’ candlestick pattern that indicates indecision
rate cut gets dimmed in RBI’s next policy meet. and hence Nifty could trade between the established
Meanwhile, Mr. Raghuram Rajan also announced that his range of 7900-8300 for the next few trading weeks.
retirement as RBI governor when his term ends in According to Elliot wave perspective Nifty had been
September. In another development, Modi government following the 7-legged Diametric formation and inability to
opened its doors to more Foreign Direct Investment in sustain above the trend deciding level of 8000 would
nine sectors, including defence, aviation, food retail and mark as continuation of wave ‘h’ and fear of Index
pharmaceuticals. The expectation of passage of GST in breaching the previous swing low of 7678 remains. Other
this monsoon season in the parliament and the global peers like DJIA too are trading weak with its bearish
government’s move to ease the FDI regime is sure to ‘Triple Top’ while Crude oil price continues to grind around
boost the confidence of the market participants and India the $ 50 mark. Going ahead in the forthcoming month
will continue to be the bright spot among its peers. While though sentiment in the market has turned negative and
on the global front Fed in its meeting decided to keep so has the chart structure however the broader range for
interest rate unchanged citing poor employment data, the the market still remains amidst 7900-8300. Chances
future guidance too remain dovish with no major rate remains that Index might witness a pullback at lower
hike expected in near term. On the Asian front, BOJ too levels.
maintained status-quo. Now the major anxiety or focus
shifted to Brexit which posses a major risk for the global
economy and lead to interest in safety assets i.e. bonds.
The fight on Brexit or Bremain comes to an end. Britain
voted to leave the European Union as the results from
the landmark referendum showed. The outcome sets the
country on an uncertain path and deals the largest

48

FDI - WINDOW OF OPPORTUNITY

BEST PERFORMERS FOR THE MONTH (NIFTY 100) WORST PERFORMERS FOR THE MONTH (NIFTY 100)

1 PNB 26.05.2016 27.06.2016 39.97% 1 INFRATEL 26.05.2016 27.06.2016 -16.07%
2 HINDALCO 74.55 104.35 32.89% 2 IDEA 390.15 327.45 -11.86%
3 BAJAJFINSV 90.30 120.00 20.86% 3 GLENMARK 113.80 100.30
4 SBIN 17.73% 4 UPL 865.15 780.10 -9.83%
5 VEDL 1792.15 2166.00 17.25% 5 IBULHSGFIN 592.95 543.50 -8.34%
6 HINDPETRO 184.15 216.80 14.75% 6 BHEL 718.95 659.25 -8.30%
7 AMBUJACEM 104.05 122.00 13.11% 7 ASHOKLEY 128.60 119.15 -7.35%
8 BANKBARODA 849.65 975.00 12.61% 8 TECHM 104.20 97.10 -6.81%
9 TATAMOTORS 224.60 254.05 12.20% 9 INFY 542.30 505.90 -6.71%
10 BEL 134.85 151.85 11.94% 10 CAIRN -5.60%
11 BPCL 399.25 447.95 11.89% 11 TATASTEEL 1234.15 1165.05 -4.75%
12 SHREECEM 11.53% 12 BOSCHLTD 141.20 134.50 -4.70%
13 ADANIPORTS 1124.00 1258.15 10.20% 13 TORNTPHARM 325.20 309.90 -4.31%
14 COALINDIA 926.80 1037.00 14 ICICIBANK -4.28%
15 TATAMTRDVR 14440.00 9.67% 15 SRTRANSFIN 21817.35 20876.60 -3.71%
16 DABUR 12946.65 9.63% 16 PFC 1382.40 1323.30 -3.31%
17 NHPC 184.80 203.65 8.53% 17 APOLLOHOSP 241.15 232.20 -3.05%
18 TITAN 280.85 308.00 7.73% 18 AUROPHARMA 1196.60 1157.00 -2.96%
19 RECLTD 269.60 295.55 7.67% 19 ONGC 167.35 162.25 -2.90%
20 ACC 294.40 319.50 6.74% 20 MCDOWELL-N 1345.90 1306.00 -2.75%
Source: NSE 22.65 6.42% 744.55 722.95 -2.58%
361.90 24.40 216.05 210.10
155.05 389.65 2464.65 2401.00
165.50
1504.05 1600.65

Indices Performance 26.05.2016 –27.06.2016

10% Sector Indices - Monthly Return (%)
8%
8.1%

6%

4% 2.8% 3.2% 3.3%
2.3%

2% 1.2% 1.5%

0.6% 0.8%

0%

-0.8%
-2%

-4% -3.4% -3.2%

TECk IT CD CG HC FMCG BANKEX POWER REALTY AUTO OIL&GAS METAL

Source: BSE

49

JULY 2016
COMMODITY MONTHLY ROUND UP

““The best argument against democracy is a five minute conversation with the average voter””
- Winston Churchill

Copper really worth watching. Chile, the largest producer of copper
said that plunging Pound isn’t going to dampen copper
BREXIT: this single word is the momentous not only for price, but it’s really hard to believe at least for the short
the financial market, but can be remembered as one of term, it has to weather the wound. The London Metal
the historical even after World War II. Another trickiest Exchange’s three-month copper contract was down 3.2%
part of this beings, everybody miscalculated the event at $4,627 a metric ton in early morning European trade on
risk which really turned out to be Nassim Taleb’s real the result day and for the whole session wedged there.
Black Swan Event. Other attributes of the event are, free Ultimately the price is quoted in US Dollar, and if US
fall of the British Pound, political chaos in the United Dollar appreciates then there is a high chance of lower
Kingdom and last but not the least, the risk of spilling prices for copper. So the challenge for copper is its own
over from referendums in other member states of the US Dollar sensitiveness. From the supply or demand side
European Union. A Legacy of more than 50 years is now copper has no relation with BREXIT, but for demand side, it
over for the UK and for EU. Some experts are saying that depends on China and from supply side it’s Chile which is
the event is not as worse as Lehman Collapse for not a part of the EU.
financial market but one should remember that London is
the financial capital fof Europe and also for the world so Technical Analysis
certainly this political risk will have some long lasting
effect on the markets. The contagion risk will be If we look at the monthly chart of COMEX active copper,
heightened if other nations of UK demand full fledged it’s showing market presently near at 76% retracement
separation. Other than the BREXIT, market is also tensed level. We have drawn the Fibonacci levels from the top of
with poll result from Spain where general election is $4.695 scored on 2011 to the base at 2008 low of $1.25.
going to be held after inconclusive result from last The market is in sideways as per the monthly chart for the
December poll. last 6 months between $2.00 to $2.25. There is a chance
that ongoing bearish development may take copper bit on
Generally copper is treated as a thermometer to measure the lower side around $1.80-$1.75 level but that may be
the condition of the world economy and after BREXIT it’s the base for the market. All the monthly oscillator readings

Weekly Chart : Copper COMEX Continuous

50